TABLE OF CONTENTS

TOPIC PAGE General Principles 1 Constitutional Limitations 53 Double Taxation & Tax Exemptions 80 Local Taxation 96 Real Property Taxation 110 Tariff and Customs Laws 128 Court of Tax Appeals 143 Comparison of Remedies 152 NIRC Remedies 187 Case Doctrines 227

   

 

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GENERAL PRINCIPLES

DEFINITIONS AND CONCEPTS

• Taxation is the power by which the sovereign, through its law making body, raises revenue to defray the necessary expenses of the government. It is merely a way of apportioning the costs of government among those who in some measures are privileged to enjoy its benefit and must bear its burdens. (Aban)

• Taxes according to Cooley are

the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of government and for public needs. (Aban)

Nature of the power of taxation

1. It is inherent in sovereignty. The power of taxation is an incident of sovereignty as it is inherent in the state, belonging as a matter of right to every independent government. It does not need of constitutional conferment. (Dimaampo)

2. It is legislative in character. The power to tax is inherent in the State, and the State is free to select the object of taxation, such power being exclusively vested in the legislature, EXCEPT where the Constitution provides otherwise. This is based upon the principle that “taxes are a grant of the people who are taxed, and the grant

must be made by the immediate representatives of the people. And where the people have laid the power, there it must remain and be exercise.” (Dimaampao)

3. It is subject to constitutional and inherent limitations. The power to tax is not absolute. It is subject to certain limitations and restriction. Most of these limitations are specifically provided in the Constitution or implied therefrom, while the rest are inherent and they are those which spring from the nature of the taxing power itself although they may or may not be provided in the Constitution. (De Leon)

Characteristics

1. It is an enforced contribution

A tax is not a voluntary payment or donation and its imposition is in no way dependent upon the will or assent, of the taxpayer. (Dimaampo)

2. It is proportionate in character It is ordinarily based on the ability of the person to pay.

3. It is payable in money Taxes should be paid in the form of money which must be in legal tender.

4. It is levied on persons or property A tax may also be imposed on acts, transactions rights or privileges. In each case however, it is only a person who pays the tax. The property is resorted to for the purpose of ascertaining the amount of tax

   

 

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that must be paid and of enforcing payment in case of default of the taxpayer. (De Leon)

5. It is levied by the state which has jurisdiction over the persons or property The object to be taxed must be subject to the jurisdiction of the taxing state. (De Leon)

6. It is levied by the law-making body of the state The power to tax is a legislative power which under the Constitution only Congress can exercise through the enactment of tax statutes. Now, local legislative bodies are given direct authority to levy taxes, fees and other charges pursuant to the Constitution subject to such guidelines and limitations as may be provided by law. (De Leon)

7. It is levied for public purpose(s). Taxation involves, and a tax constitutes, a charge or burden imposed to provide income for public purposes- the support of the government, the administration of the law, or the payment of public expenses. For this reason, the revenues derived from taxes cannot be used for purely private purposes or for exclusive benefit of private persons. (De Leon)

Taxes are personal to taxpayer.

In taxation, it is one’s civil liability to pay taxes that gives rise to criminal liability, not the other way around as in criminal case where criminal

liability gives rise to a civil liability. (Republic vs. Patanao )

Aspects of taxation

1. Levying or imposition of the tax

which is a legislative act; and 2. Collection of the tax levied

which is essentially administrative in character.

The first is taxation, while the second is tax administration. The two processes together constitute the “taxation system.”

Extent of the legislative power to tax

1. The person, property or occupation to be taxed

2. The amount or rate of the tax 3. The purposes for which taxes

shall be levied provided they are public purpose

4. The kind of tax to be collected 5. The apportionment of the tax 6. The situs of taxation; and 7. The means, manner or method

of collection POWER OF TAXATION COMPARED WITH OTHER POWERS

The Inherent Powers of the State:

1. Police Power 2. Eminent Domain 3. Power of Taxation

• POLICE POWER is state authority to enact legislation that may interfere with personal liberty or property to promote the general welfare. It is the power vested in the legislature by the Constitution to make, ordain, all establish all manner of wholesome and

   

 

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reasonable laws for the good and welfare of the State and its people. (Ermita Malate Hotel v. City Mayor)

Tests for Valid Exercise of Police Power: 1. LAWFUL SUBJECT

- The interests of the public, not mere particular class, require the exercise of police power

2. LAWFUL MEANS

- The means employed is reasonable necessary for the accomplishment of the purpose and not unduly oppressive to individuals

TAXATION V. POLICE POWER

TAXATION POLICE POWER

1. As to Purpose:

Levied for the purpose of raising revenue

Exercised to promote public welfare through regulations

2. As to Amount of Exaction:

No limit

Exaction should only be such as to cover the cost of regulation, issuance of the license or surveillance

3. As to Benefits Received: No special or direct benefit is received by the taxpayer other than the fact that the government only secures to the citizen that general benefit

While no direct benefits are received, a healthy economic standard of society known as “damnum absque injuria”

resulting from the protection of his person and property and welfare of all

is attained

4. As to Non-Impairment of Contracts:

Non-impairment of contracts rule subsists

Limitation does not apply

5. As to Transfer of Property Rights:

Taxes paid become part of the public funds

No transfer, but only restraint on the exercise of property rights exists

• EMINENT DOMAIN is the

right of the state through the government to appropriate or take private property to be used for a public purpose. It is the process of taking known as EXPROPRIATION.

• It is the power of the state to forcibly take private property for public use upon payment of just compensation.

• It may be exercised by private entities with the express valid delegation from the legislature. The power is usually exercised through the formal expropriation proceedings before a court which, when granted by the latter, will result to the actual taking of the property from its owners upon payment of just compensation.

• Private property shall not be taken for public use without just compensation. (Sec. 9, Art. III, 1987 Constitution)

   

 

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Requisites of Taking in Eminent Domain: 1. The expropriator must enter a

private property 2. The entry must be for more than

a momentary period 3. Entry into the property should

be under warrant of color of legal authority

4. Property must be devoted to a public use or otherwise informally appropriated or injuriously affected

5. Utilization of the property for public use must be in such a way as to oust the owner and deprive him all beneficial enjoyment of the property. (Republic v. Vda. De Castellvi)

TAXATION V. EMINENT DOMAIN

TAXATION EMINENT DOMAIN

1. As to the Nature of the Power Exercised:

Exercised in order to raise public revenue

Taking of private property for public use

2. As to Compensation Received:

Payment of taxes results in the general benefit of all citizens and inhabitants of a State

Direct benefit results in the form of just compensation to the property owner

3. As to Non-Impairment of Contracts:

Contract may not be impaired

Not so in eminent domain

4. As to Persons Affected: Applies to all persons, property and excises that

Only a particular property is comprehended

may be subject thereto • PUBLIC USE is the purpose for

which private property can be taken or condemned by the government under its power of eminent domain. It is the use which concerns the whole community, as distinguished from a particular individual or a particular number of individuals.

• However, it is not necessary that each and every individual member of the society should have the same decree of interest in this use, or be personally or directly affected by it, in order to make it public.

PURPOSES OF TAXATION 1. Revenue The purpose is to provide funds or property with which the State promotes the general welfare and protection of its citizens. Taxes raise money to spend on armies, reads, schools and hospitals, and the like. 2. Regulation It has a regulatory purpose in the case of taxes levied on excises or privileges like those imposed on tobacco and alcoholic products, or amusement places like night clubs. 3. Promotion of General Welfare Taxation may be used as an implement of police power in order to promote the general welfare of the people

   

 

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4. Reduction of Social Inequality This is made through the progressive system of taxation where the objective is to prevent the undue concentration of wealth in the hands of a few individuals. Progressivity is based in the principle that those who are able to pay should shoulder the bigger portion of the tax burden. 5. Encourage Economic Growth It does not only raise public revenue, but also grants incentives or exemptions in order to encourage investments and thereby promote the country’s economic growth. 6. Protectionism In the case of foreign importations, taxes sometimes provide protection to local industries like protective tariffs and customs duties. PRINCIPLES OF SOUND TAX SYSTEM 1. Fiscal Adequacy It means that the sources of revenue should be sufficient to meet the demands of public expenditure. The sources of government revenue must be sufficient to meet government expenditures and other public needs. It is essential to avoid budgetary deficits and to minimize foreign and local borrowings. 2. Theoretical Justice or Equality A good tax system must be based in the taxpayer’s ability to pay. It suggests that taxation must be progressive conformably with the

constitutional mandate that Congress shall evolve a progressive system of taxation. (Sec. 28(1), Art. VI, 1987 Constitution) It provides that similarly situated taxpayers should pay equal taxes, while those who have more should pay more. 3. Administrative Feasibility Taxes should be capable of convenient, just and effective administration or enforcement of a reasonable cost. THEORY AND BASIS OF TAXATION 1. Lifeblood theory – Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance.

For this reason: a. taxes cannot be enjoined by

injunction, b. taxes could not be the

subject of compensation or set off, as a rule.

c. a valid tax may result in the destruction of the taxpayer’s property.

d. taxation is an unlimited and plenary power.

2. Necessity theory

a. Taxation is a power emanating from necessity.

b. A tax is a necessary burden to preserve the State’s sovereignty.

c. The existence of the government cannot continue without the means to pay its expenses. And for those means, the government has the right to compel all citizens and property within its limits to contribute.

   

 

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3. Benefits-protection theory a. The State demands and

receives taxes from the subjects of taxation within its jurisdiction so that it may be enabled to carry its mandate into effect and perform the functions of government, and the citizen pays from his property the portion demanded in order that he may, by means thereof, be secured in the enjoyment of the benefits of organized society.

b. A tax is not imposed on the basis of a special or particular benefit accruing to each citizen in proportion to the tax paid.

c. A person cannot object to or resist the payment of taxes solely because no personal benefit to him cn be pointed out as arising from the tax.

Jurisdiction over subject and objects The limited powers of sovereignty are confined to objects within the respective spheres of governmental control. These objects are the proper subjects or objects of taxation and none else. DOCTRINES IN TAXATION

1. Prospectivity in tax laws a. General rule

Tax laws must be applied prospectively. Reason: The taxpayer

cannot be expected to foresee and understand the nature and amount

of the tax at the time the transaction

b. Exception

Tax laws may be applied retroactively provided it is (i) expressly declared, or (ii) clearly the legislative

intent Reason: It is the prerogative of the law-making body. Unless (exception to the exception) when retroactive application would be so harsh and oppressive.

2. Imprescriptibility

Unless otherwise provided by the tax law itself, taxes are imprescriptible. Reason: The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. Prescriptive periods found under current tax laws: a. National Internal Revenue

Code - Statute of limitations (Section 203 and 222) in the assessment and collection of taxes therein imposed

b. Tariff and Customs Code - when articles have been entered and passed free of duty or final adjustments of duties made, with subsequent delivery, such entry and passage free of duty or settlements of duties will, after the expiration of one (1) year , from the date of the final payment of duties, in the absence of fraud or protest or

   

 

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compliance audit pursuant to the provisions of this Code, be final and conclusive upon all parties, unless the liquidation of the import entry was merely tentative (Section 1603)

c. Local Government Code prescribes prescriptive periods for the assessment (5 years) and collection (5 years) of taxes. (Sections 194 and 270)

3. Escape from taxation

a. Shifting of tax burden - the

transfer of the burden of a tax by the original payer or the one on whom the tax was assessed or imposed to someone else. All indirect taxes may be shifted; direct taxes cannot be shifted. Note: What is transferred is not the payment of the tax but the burden of the tax. (i) Ways of shifting the tax

burden Forward shifting Tax burden is transferred from a factor of production through the factors of distribution until it finally settles on the ultimate purchaser or consumer (e.g. VAT and percentage tax). Backward shifting Tax burden is transferred from the consumer or purchaser through the factors of distribution to the factor of production (e.g. Consumer or

purchaser may shift tax imposed on him to retailer by purchasing only after the price is reduced by the amount of the tax). Onward shifting Tax burden is shifted two or more times either forward or backward.

(ii) Meaning of impact and incidence taxation Impact of taxation is the point on which a tax is originally imposed. In so far as the law is concerned, the taxpayer, the subject of tax, is the person who must pay the tax to the government. Incidence of taxation is the point on which the tax burden finally rests or settles down. It takes place when shifting has been effected from the statutory taxpayer to another. Distinctions: Ø Impact refers to the

initial burden of the tax, while incidence refers to the ultimate burden of the tax.

Ø Impact is at the point of imposition, incidence occurs at the point of settlement.

Ø Impact of a tax falls upon the person from whom the tax is collected while the incidence rests on the

   

 

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person who pays it eventually.

Ø Impact may be shifted but incidence cannot, because incidence is the end of the shifting process.

b. Tax avoidance - exploitation

by the taxpayer of legally permissible alternative tax rates or methods of assessing taxable property or income in order to avoid or reduce tax liability. (sometimes called “tax minimization”)

c. Tax evasion - use by the taxpayer of illegal or fraudulent means to defeat or lessen the payment of a tax (also known as “tax dodging.” Elements 1. The end to be achieved. 2. An accompanying state

of mind described as being “evil,” “in bad faith,” “willful” or “deliberate and not accidental”.

3. A course of action or failure of action which is unlawful.

Note: Since fraud is a state of mind, it need not be proved by direct evidence but may be inferred from the circumstances of the case.

d. Distinctions of tax avoidance and tax evasion 1. Tax avoidance uses

lawful means, thus, not punishable by law.

Tax evasion employs illegal means, thus, punishable by law.

2. The objective of tax avoidance is merely to minimize payment of taxes. The objective of tax evasion is to escape entirely from payment of taxes.

4. Compensation and set-off

a. General rule: Taxes cannot

be the subject of set-off or compensation. Reasons: (i) This would adversely

affect the government revenue system).

(ii) Government and the taxpayer are not creditors and debtors of each other. The payment of taxes is not a contractual obligation but arises out of a duty to pay.

b. Exception: If the claims

against the government have been recognized and an amount has already been appropriated for that purpose. Where both claims have already become due and demandable as well as fully liquidated, compensation takes place by operation of law under Article 1290 in relation to Articles 1279 and 1290 of the New Civil Code, and both debts are extinguished to the concurrent amount.

   

 

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5. Tax amnesty

• Partakes of an absolute

forgiveness or waiver by the Government of its right to collect what otherwise would be due it.

• Gives tax evaders, who wish to relent and are willing to reform, a chance to do so and become a part of the new society with a clean slate.

• Distinguished from tax exemption 1. Tax amnesty is an

immunity from all criminal and civil obligations arising from non-payment of taxes. Tax exemption is an immunity from all civil liability only.

2. Tax amnesty is a general pardon to all taxpayers. Tax exemption is a freedom from a charge or burden to which others are subject.

3. Tax amnesty is retroactive in application. Tax exemption is generally prospective in application.

4. Tax amnesty constitutes revenue loss since there are taxes due. Only the collection thereof is waived. Tax exemption does not constitute revenue loss since there are no taxes due in the first place.

6. Construction and

interpretation of: a. Tax laws

(i) General rule

• Strictly against the government, and

• Liberally in favor of the taxpayer Reason: Taxes, being burdens, they are not to be presumed beyond what the statute expressly and clearly declares

(ii) Exception • Where the language

of the statute is plain and there is no doubt as to the legislative intent

• Where the taxpayer claims exemption from the tax

• Tax exemption and

exclusion (i) General rule

• Liberally in favor of the government, and

• Strictly against the taxpayer Reason: Tax exemptions are not favored in accordance with the lifeblood doctrine)

(ii) Exceptions

• When the law itself expressly provides for a liberal construction in favor of exemption

• When the exemption is in favor of the government itself or its agencies Reason: government, as a general rule, is exempt from tax.

• When the exemption refers to religious, charitable and

   

 

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educational institutions.

• Where the language of the statute is plain and there is no doubt as to the legislative intent of granting tax exemption to the taxpayer

• Tax rules and regulation The construction placed by the office charged with implementing and enforcing the provisions of a tax law should be given controlling weight unless such interpretation is clearly erroneous.

• Penal provisions of tax laws They are given strict construction. Reason: In order not to extend the plain terms thereof that might create offenses by mere implication not so intended by the legislative body.

CLASS RECITATION WITH SUGGESTED ANSWERS

Q: What are Taxes? A: As defined by Cooley.

• Taxes according to Cooley are the enforced proportional contributions from persons and property levied by the law-making body of the State by virtue of its sovereignty for the support of government and for public needs.

Q: Eminent domain and expropriation, are they the same?

A: Eminent domain is the inherent power of the state to take or to authorize the taking of any property within its jurisdiction for public use, while expropriation is the process or procedure for enforcing the power of eminent domain. (Feria, 2013).

Q: Give two similarities of eminent domain and taxation. A: They are legislative in nature and character, although the actual exercise of the powers is given to the executive authorities, national or local; They are ways by which the state interferes with private rights and property. (De Leon, 2009)

Q: What are the other similarities of police power, eminent domain and taxation: (De Leon, 2009) A: They all rest upon necessity because there can be no effective government without them. They all underlie and exist independently of the Constitution although the conditions for their exercise may be prescribed by the constitution and by law; They all presuppose an equivalent compensation received, directly or indirectly, by the persons affected by the exercise of these powers by the government. Q: What is the Constitutional provision on eminent domain. A: Art. III Section 9. Private property shall not be taken for public use without just compensation. (1987 Constitution)

Q: What is the test of public purpose? A: There is no hard and fast rule in determining public purpose. The phrase “public purpose” as applied to taxation is now given the broadest interpretation so as to include even indirect public advantage or benefit.

   

 

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The mere fact that the tax will be directly enjoyed by a private individual does not make it invalid so long as some link to the public welfare is established. (Cruz, Constitutional Law, 2007)

Q: Give two distinctions between taxation and police power A: As to purpose: Taxation: the property (generally in the form of money) is taken for the support of the government; Police power: the use of property is regulated for the purpose of promoting the general welfare; hence not compensable. As to effect: Taxation: the money contributed in the concept of taxes becomes part of the public funds. Police power: there is no transfer of title, at most there is restraint on the injurious use of property. (De Leon, 2009) As to other distinctions (De Leon, 2009). As to benefits received: Taxation: it is assumed that the person affected receives the equivalent of the tax in the form of protection and benefits he (it) receives form the government as such; Police power: the persons affected receives no direct and immediate benefit but only such as may arise from the maintenance of a healthy economic standard of society and is often referred to as damnum absque injuria (damage without injury). As to amount of imposition: Taxation: there is no limit on the amount that may be imposed; Police power: the amount imposed should not be more than sufficient to cover the cost of the license and the necessary expenses of police surveillance and inspection, examination, or regulation as nearly as the same can be estimated.

As to relationship to the Constitution: Taxation: the power is subject to certain constitutional limitations including the prohibitions against the impairment of the obligation of contracts. Police power: relatively free from constitutional limitations and is superior to the impairment provisions. In appropriate cases, the constitutional injunction against impairment of the obligation of contracts cannot be invoked as against the right of the state to exercise its police power. Q: True or false, only the state can exercise the power of eminent domain. A: False. While the power of eminent domain rests primarily with Congress, the exercise thereof may be validly delegated to other governmental entities and in fact, even to private corporations.

Q: Aside from Congress, is there any other entity that can exercise eminent domain?

Yes. Under existing laws, the following may exercise the power of eminent domain:

(1) President (2) Various local legislative

bodies (3) Certain public corporations,

like the Land Authority and the National Housing Authority

(4) Quasi-public corporations like the Philippine National Railways, the Philippine Long Distance Telephone Co. and Meralco. (Cruz, Constitutional Law, 2007)

Q: As to benefits, distinguish taxation from eminent domain.

   

 

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A: As to benefits: Taxation: it is assumed that the person affected receives the equivalent of the tax in the form of protection and benefits he (it) receives form the government as such. Eminent domain: the person affected receives the market value of the property taken from him (it).

CASE DIGESTS:

COMMISSIONER OF INTERNAL REVENUE, vs. ALGUE, INC., and THE COURT OF TAX APPEALS FACTS: Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance Such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. ISSUE: Whether the appeal of the private respondent from the decision of the CIR was made on time and in accordance with law. Whether the CIR correctly disallowed the P75,000.00 deduction claimed by private respondent Algue as legitimate business expenses in its income tax returns. PROCEDURAL ISSUE: On January 14, 1965, the private respondent, a domestic corporation engaged in engineering, construction and other allied activities, received a letter from the petitioner assessing it in the total amount of P83,183.85 as delinquency income taxes for the years 1958 and 1959. 1 On January 18, 1965, Algue flied a letter of protest or request for reconsideration, which letter was stamp received on the same day in the office of the petitioner. 2 On March 12,

1965, a warrant of distraint and levy was presented to the private respondent, through Atty. Alberto Guevara, Jr., who refused to receive it on the ground of the pending protest. 3 A search of the protest in the dockets of the case proved fruitless. Atty. Guevara produced his file copy and gave a photocopy to BIR agent Ramon Reyes, who deferred service of the warrant. 4 On April 7, 1965, Atty. Guevara was finally informed that the BIR was not taking any action on the protest and it was only then that he accepted the warrant of distraint and levy earlier sought to be served. On April 23, 1965, Algue filed a petition for review of the decision of the CIR with the CTA. The above chronology shows that the petition was filed seasonably. According to Rep. Act No. 1125, the appeal may be made within thirty days after receipt of the decision or ruling challenged. 7 It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment" 8 and renders hopeless a request for reconsideration," 9 being "tantamount to an outright denial thereof and makes the said request deemed rejected." 10 But there is a special circumstance in the case at bar that prevents application of this accepted doctrine. Four days after the private respondent received the petitioner's notice of assessment, it filed its letter of protest. Such protest could not be located in the office of the petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by the tax authorities. During the intervening period, the warrant was premature and could therefore not be served.

   

 

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As the CTA correctly noted," 11 the protest filed by private respondent was not pro forma and was based on strong legal considerations. It thus had the effect of suspending the reglementary period which started on the date the assessment was received. The period started running again only on April 7, 1965, when the private respondent was definitely informed of the implied rejection of the said protest and the warrant was finally served on it. Hence, when the appeal was filed on April 23, 1965, only 20 days of the reglementary period had been consumed. SUBSTANTIVE ISSUE: CIR contends that the claimed deduction of P75,000.00 was properly disallowed because it was not an ordinary reasonable or necessary business expense. The CTA, agreeing with Algue, held that the said amount had been legitimately paid by the private respondent for actual services rendered. The payment was in the form of promotional fees. These were collected by the Payees for their work in the creation of the Vegetable Oil Investment Corporation of the Philippines and its subsequent purchase of the properties of the Philippine Sugar Estate Development Company. HELD: Parenthetically, it may be observed that the petitioner had originally claimed these promotional fees to be personal holding company income 12 but later conformed to the decision of the respondent court rejecting this assertion. The amount was earned through the joint efforts of the persons among whom it was distributed. It has been established that the Philippine Sugar Estate Development Company had earlier

appointed Algue as its agent, authorizing it to sell its land, factories and oil manufacturing process. Pursuant to such authority, Alberto Guevara, Jr., Eduardo Guevara, Isabel Guevara, Edith, O'Farell, and Pablo Sanchez, worked for the formation of the Vegetable Oil Investment Corporation, inducing other persons to invest in it. 14 Ultimately, this new corporation purchased the PSEDC properties. 15 For this sale, Algue received as agent a commission of P126,000.00, and it was from this commission that the P75,000.00 promotional fees were paid to the aforementioned individuals. 16 There is no dispute that the payees duly reported their respective shares of the fees in their income tax returns and paid the corresponding taxes thereon. 17 The CTA also found that no distribution of dividends was involved. 18 The petitioner claims that these payments are fictitious because most of the payees are members of the same family in control of Algue. It is argued that no indication was made as to how such payments were made. The petitioner suggests a tax dodge, an attempt to evade a legitimate assessment by involving an imaginary deduction. These suspicions were adequately met by the private respondent when its President, Alberto Guevara, and the accountant, Cecilia V. de Jesus, testified that the payments were not made in one lump sum but periodically and in different amounts as each payee's need arose. 19 It should be remembered that this was a family corporation where strict business procedures were not applied and immediate issuance of receipts was not required. When the books were to be closed, each payee made an accounting of all of the fees received

   

 

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by him or her, to make up the total of P75,000.00. 20 Admittedly, everything seemed to be informal. This arrangement was understandable, however, in view of the close relationship among the persons in the family corporation. SC agreed with CTA that the amount of the promotional fees was not excessive. The total commission paid by the PSEDC to the private respondent was P125,000.00. 21After deducting the said fees, Algue still had a balance of P50,000.00 as clear profit from the transaction. The amount of P75,000.00 was 60% of the total commission. This was a reasonable proportion, considering that it was the payees who did practically everything, from the formation of the Vegetable Oil Investment Corporation to the actual purchase by it of the Sugar Estate properties. This finding of the respondent court is in accord with the following provision of the Tax Code: SEC. 30. Deductions from gross income.--In computing net income there shall be allowed as deductions —

(a) Expenses: (1) In general.--All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; ... 22

and Revenue Regulations No. 2, Section 70 (1), reading as follows: SEC. 70. Compensation for personal services.--Among the ordinary and necessary expenses paid or incurred in carrying on any trade or business may be included a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of

deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and deductibility in the case of compensation payments is whether they are reasonable and are, in fact, payments purely for service. This test and its practical application may be further stated and illustrated as follows:

Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. (a) An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few stockholders, Practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services, and the excessive payment correspond or bear a close relationship to the stockholdings of the officers of employees, it would seem likely that the salaries are not paid wholly for services rendered, but the excessive payments are a distribution of earnings upon the stock…

It is worth noting at this point that most of the payees were not in the regular employ of Algue nor were they its controlling stockholders. 23 The Solicitor General is correct when he says that the burden is on the taxpayer to prove the validity of the claimed deduction. The private respondent has proved that the payment of the fees was necessary and reasonable in the light of the efforts exerted by the payees in inducing investors and prominent businessmen to venture in an experimental enterprise and involve

   

 

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themselves in a new business requiring millions of pesos. It is said that taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it. Hence, despite the natural reluctance to surrender part of one's hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government. The government for its part, is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their moral and material values. But even as we concede the inevitability and indispensability of taxation, it is a requirement in all democratic regimes that it be exercised reasonably and in accordance with the prescribed procedure. We hold that the appeal of the private respondent from the decision of the petitioner was filed on time with the respondent court in accordance with Rep. Act No. 1125. And we also find that the claimed deduction by the private respondent was permitted under the Internal Revenue Code and should therefore not have been disallowed by the petitioner. CTA decision AFFIRMED in toto. PHILIPPINE AIRLINES, INC. vs. ROMEO F. EDU in his capacity as Land Transportation Commissioner FACTS: The disputed registration fees were imposed by the appellee, Commissioner Romeo F. Elevate pursuant to Section 8, Republic Act No. 4136, otherwise known as the Land Transportation and Traffic Code. PAL is a corporation organized and existing under the laws of the

Philippines and engaged in the air transportation business under a legislative franchise. Under its franchise, PAL is exempt from the payment of taxes. The pertinent provision of the franchise provides as follows: Section 13. In consideration of the franchise and rights hereby granted, the grantee shall pay to the National Government during the life of this franchise a tax of 2% of the gross revenue or gross earning derived by the grantee from its operations under this franchise. Such tax shall be due and payable quarterly and shall be in lieu of all taxes of any kind, nature or description, levied, established or collected by any municipal, provincial or national automobiles, Provided, that if, after the audit of the accounts of the grantee by the CIR, a deficiency tax is shown to be due, the deficiency tax shall be payable within the ten days from the receipt of the assessment. The grantee shall pay the tax on its real property in conformity with existing law. On the strength of an opinion of the Secretary of Justice, PAL has, since 1956, not been paying motor vehicle registration fees. Sometime in 1971, however, appellee Commissioner Elevate issued a regulation requiring all tax exempt entities, among them PAL, to pay motor vehicle registration fees. Despite PAL's protestations, the appellee refused to register the appellant's motor vehicles unless the amounts imposed were paid. The appellant thus paid under protest, the amount of P19,529.75 as registration fees of its motor vehicles. After paying under protest, PAL through counsel, wrote a letter dated May 19, 1971, to Commissioner Edu demanding a refund of the amounts paid, invoking the ruling in Calalang v.

   

 

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Lorenzo where it was held that motor vehicle registration fees are in reality taxes from the payment of which PAL is exempt by virtue of its legislative franchise. Appellee Edu denied the request for refund basing his action on the decision in Republic v. Philippine Rabbit Bus Lines, Inc., to the effect that motor vehicle registration fees are regulatory exceptional and not revenue measures and, therefore, do not come within the exemption granted to PAL under its franchise. Hence, PAL filed the complaint against Commissioner Romeo F. Edu and National Treasurer Carbonell with the CFI of Rizal. Elevate and Carbonell filed a motion to dismiss alleging that the complaint states no cause of action. The resolution of the motion to dismiss was deferred by the Court until after trial on the merits. On April 24, 1973, CFI dismissed the appellant's complaint, "moved by the later ruling laid down in the case of Republic v. Philippine Rabbit Bus Lines, Inc." From this judgment, PAL appealed to CA which certified the case to us. ISSUE: • Whether the motor vehicle

registration fee is a tax or a regulatory fee.

• Whether the respondent administrative agency be required to refund the amounts stated in the complaint of PAL

HELD: TAXES. Resolving the issue in the Philippine Rabbit case, this Court held:

"The registration fee which defendant-appellee had to pay was imposed by Section 8 of the Revised Motor Vehicle Law. Its heading speaks of

"registration fees." The term is repeated four times in the body thereof. Equally so, mention is made of the "fee for registration." The conclusion is difficult to resist therefore that the Motor Vehicle Act requires the payment not of a tax but of a registration fee under the police power.

In direct refutation is the ruling in Calalang v. Lorenzo, where the Court, on the other hand, held:

The charges prescribed by the Revised Motor Vehicle Law for the registration of motor vehicles are in section 8 of that law called "fees". But the appellation is no impediment to their being considered taxes if taxes they really are. For not the name but the object of the charge determines whether it is a tax or a fee. Taxes are for revenue, whereas fees are exceptional. for purposes of regulation and inspection and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. Hence, a charge fixed by statute for the service to be person, when by an officer, where the charge has no relation to the value of the services performed and where the amount collected eventually finds its way into the treasury of the branch of the government whose officer or officers collected the chauffeur, is not a fee but a tax." As proof that the money collected is not intended for the expenditures of that office, the law itself provides that all such money shall accrue to the funds for the construction and

   

 

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maintenance of public roads, streets and bridges. It is thus obvious that the fees are not collected for regulatory purposes, that is to say, as an incident to the enforcement of regulations governing the operation of motor vehicles on public highways, for their express object is to provide revenue with which the Government is to discharge one of its principal functions— the construction and maintenance of public highways for everybody's use. They are veritable taxes, not merely fees.

It appears that the legislative intent and purpose behind the law requiring owners of vehicles to pay for their registration is mainly to raise funds for the construction and maintenance of highways and to a much lesser degree, pay for the operating expenses of the administering agency. Fees may be properly regarded as taxes even though they also serve as an instrument of regulation. Indeed, taxation may be made the implement of the state's police power. If the purpose is primarily revenue, or if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax. Such is the case of motor vehicle registration fees. It is patent therefrom that the legislators had in mind a regulatory tax as the law refers to the imposition on the registration, operation or ownership of a motor vehicle as a "tax or fee." Thus, even Rep. Act 5448 cited by the respondents, speak of an "additional" tax," where the law could have referred to an original tax and not one in addition to the tax already imposed on the registration, operation, or ownership of a motor vehicle under

Rep. Act 41383. Simply put, if the exaction under Rep. Act 4136 were merely a regulatory fee, the imposition in Rep. Act 5448 need not be an "additional" tax. Rep. Act 4136 also speaks of other "fees," such as the special permit fees for certain types of motor vehicles (Sec. 10) and additional fees for change of registration (Sec. 11). These are not to be understood as taxes because such fees are very minimal to be revenue-raising. It is quite apparent that vehicle registration fees were originally simple exceptional intended only for purposes in the exercise of the State's police powers. Over the years, however, as vehicular traffic exploded in number and motor vehicles became absolute necessities without which modem life as we know it would stand still, Congress found the registration of vehicles a very convenient way of raising much needed revenues. Without changing the earlier deputy of registration payments as "fees," their nature has become that of "taxes." In view of the foregoing, the motor vehicle registration fees as at present exacted pursuant to the Land Transportation and Traffic Code are actually taxes intended for additional revenues of government even if one fifth or less of the amount collected is set aside for the operating expenses of the agency administering the program. For the second issue, the answer is no. The claim for refund is made for payments given in 1971. It is not clear from the records as to what payments were made in succeeding years. We have ruled that Section 24 of Rep. Act No. 5448 repealed all earlier tax exemptions of corporate taxpayers found in legislative franchises similar to that invoked by PAL in this case. Any registration fees collected between June 27, 1968 and April 9,

   

 

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1979, were correctly imposed because the tax exemption in the franchise of PAL was repealed during the period. However, an amended franchise was given to PAL in 1979. Section 13 of Presidential Decree No. 1590, now provides:

In consideration of the franchise and rights hereby granted, the grantee shall pay to the Philippine Government during the lifetime of this franchise whichever of subsections (a) and (b) hereunder will result in lower taxes. (a) The basic corporate income tax based on the grantee's annual net taxable income computed in accordance with the provisions of the Internal Revenue Code; or (b) A franchise tax of two per cent (2%) of the gross revenues, derived by the grantees from all specific, without distinction as to transport or nontransport corporations; provided that with respect to international air transport service, only the gross passengers, mail, and freight revenues. from its outgoing flights shall be subject to this law. The tax paid by the grantee under either of the above alternatives shall be in lieu of all other taxes, duties, royalties, registration, license and other fees and charges of any kind, nature or description imposed, levied, established, assessed, or collected by any municipal, city, provincial, or national authority or government, agency, now or in the future, including but not limited to the following:

(5) All taxes, fees and other charges on the registration, license, acquisition, and transfer of airtransport equipment, motor vehicles, and all other personal or real property of the gravitates (Pres. Decree 1590, 75 OG No. 15, 3259, April 9, 1979).

PAL's current franchise is clear and specific. It has removed the ambiguity found in the earlier law. PAL is now exempt from the payment of any tax, fee, or other charge on the registration and licensing of motor vehicles. Such payments are already included in the basic tax or franchise tax provided in Subsections (a) and (b) of Section 13, P.D. 1590, and may no longer be exacted. Petition partially GRANTED. The prayed for refund of registration fees paid in 1971 is DENIED. ESSO STANDARD EASTERN, INC. vs. THE COMMISSIONER OF INTERNAL REVENUE

FACTS: CTA Case No. 1251: Petitioner ESSO deducted from its gross income for 1959, as part of its ordinary and necessary business expenses, the amount it had spent for drilling and exploration of its petroleum concessions which was disallowed by the respondent CIR on the ground that the expenses should be capitalized and might be written off as a loss only when a "dry hole" should result. ESSO then filed an amended return where it asked for the refund of P323,279.00 by reason of its abandonment as dry holes of several of its oil wells. Also claimed as ordinary and necessary expenses in the same return was the amount of P340,822.04, representing margin fees it had paid to the Central Bank on its profit remittances to its New York head office.

   

 

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On August 5, 1964, the CIR granted a tax credit of P221,033.00 only, disallowing the claimed deduction for the margin fees paid. CTA Case No. 1558: the CIR assessed ESSO a deficiency income tax for the year 1960, in the amount of P367,994.00, plus 18% interest thereon of P66,238.92 for the period from April 18, 1961 to April 18, 1964, for a total of P434,232.92. The deficiency arose from the disallowance of the margin fees of Pl,226,647.72 paid by ESSO to the Central Bank on its profit remittances to its New York head office. ESSO settled this deficiency assessment on August 10, 1964, by applying the tax credit of P221,033.00 representing its overpayment on its income tax for 1959 and paying under protest the additional amount of P213,201.92. On August 13, 1964, it claimed the refund of P39,787.94 as overpayment on the interest on its deficiency income tax. It argued that the 18% interest should have been imposed not on the total deficiency of P367,944.00 but only on the amount of P146,961.00, the difference between the total deficiency and its tax credit of P221,033.00. This claim was denied by the CIR, who insisted on charging the 18% interest on the entire amount of the deficiency tax. On May 4,1965, the CIR also denied the claims of ESSO for refund of the overpayment of its 1959 and 1960 income taxes, holding that the margin fees paid to the Central Bank could not be considered taxes or allowed as deductible business expenses. ESSO appealed to the CTA and sought the refund of P102,246.00 for 1959, contending that the margin fees were deductible from gross income either as a tax or as an ordinary and

necessary business expense. It also claimed an overpayment of its tax by P434,232.92 in 1960, for the same reason. Additionally, ESSO argued that even if the amount paid as margin fees were not legally deductible, there was still an overpayment by P39,787.94 for 1960, representing excess interest. After trial, the CTA denied petitioner's claim for refund of P102,246.00 for 1959 and P434,234.92 for 1960 but sustained its claim for P39,787.94 as excess interest. This portion of the decision was appealed by the CIR but was affirmed by this Court in Commissioner of Internal Revenue v. ESSO. ESSO for its part appealed the CTA decision denying its claims for the refund of the margin fees P102,246.00 for 1959 and P434,234.92 for 1960. That is the issue now before us. ISSUE: Whether R.A. 2009, entitled An Act to Authorize the Central Bank of the Philippines to Establish a Margin Over Banks' Selling Rates of Foreign Exchange, is a police measure or a revenue measure. HELD: POLICE POWER. On the claimed legislative intent, the CTA, quoting established principles, pointed out that – The courts may take into consideration the facts leading up to, coincident with, and in any way connected with, the passage of the act, in order that they may properly interpret the legislative intent. But it is also well-settled jurisprudence that only in extremely doubtful matters of interpretation does the legislative history of an act of Congress become important. As a matter of fact, there may be no resort to the legislative history of the enactment of a statute, the language

   

 

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of which is plain and unambiguous, since such legislative history may only be resorted to for the purpose of solving doubt, not for the purpose of creating it. Apart from the above consideration, there are at least two cases where we have held that a margin fee is not a tax but an exaction designed to curb the excessive demands upon our international reserve. In Caltex (Phil.) Inc. v. Acting Commissioner of Customs, 2 the Court stated through Justice Jose P. Bengzon:

A margin levy on foreign exchange is a form of exchange control or restriction designed to discourage imports and encourage exports, and ultimately, 'curtail any excessive demand upon the international reserve' in order to stabilize the currency. The different measures of exchange control or restriction cover different phases of foreign exchange transactions, i.e., in quantitative restriction, the control is on the amount of foreign exchange allowable. In the case of the margin levy, the immediate impact is on the rate of foreign exchange; in fact, its main function is to control the exchange rate without changing the par value of the peso as fixed in the Bretton Woods Agreement Act. For a member nation is not supposed to alter its exchange rate (at par value) to correct a merely temporary disequilibrium in its balance of payments. By its nature, the margin levy is part of the rate of exchange as fixed by the government.

As to the contention that the margin levy is a tax on the purchase of foreign

exchange and hence should not form part of the exchange rate, suffice it to state that SC held the contrary for the reason that a tax is levied to provide revenue for government operations, while the proceeds of the margin fee are applied to strengthen our country's international reserves. The margin fee was imposed by the State in the exercise of its police power and not the power of taxation. Alternatively, ESSO prays that if margin fees are not taxes, they should nevertheless be considered necessary and ordinary business expenses and therefore still deductible from its gross income. The fees were paid for the remittance by ESSO as part of the profits to the head office in the Unites States. Such remittance was an expenditure necessary and proper for the conduct of its corporate affairs. The applicable provision is Section 30(a) of the National Internal Revenue Code reading as follows: SEC. 30. Deductions from gross income in computing net income there shall be allowed as deductions

(a) Expenses: (1) In general. — All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for the purpose of the trade or business, of property to which the taxpayer has not taken or is not taking

   

 

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title or in which he has no equity. (2) Expenses allowable to non-resident alien individuals and foreign corporations. — In the case of a non-resident alien individual or a foreign corporation, the expenses deductible are the necessary expenses paid or incurred in carrying on any business or trade conducted within the Philippines exclusively.

In Atlas Consolidated Mining and Development Corporation v. CIR, the Court laid down the rules on the deductibility of business expenses, thus:

The principle is recognized that when a taxpayer claims a deduction, he must point to some specific provision of the statute in which that deduction is authorized and must be able to prove that he is entitled to the deduction which the law allows. As previously adverted to, the law allowing expenses as deduction from gross income for purposes of the income tax is Section 30(a) (1) of the National Internal Revenue which allows a deduction of 'all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.' An item of expenditure, in order to be deductible under this section of the statute, must fall squarely within its language. We come, then, to the statutory test of deductibility where it is axiomatic that to be deductible as a business expense, three conditions are imposed, namely: (1) the expense must be ordinary and necessary, (2) it must be paid or incurred

within the taxable year, and (3) it must be paid or incurred in carrying on a trade or business. In addition, not only must the taxpayer meet the business test, he must substantially prove by evidence or records the deductions claimed under the law, otherwise, the same will be disallowed. The mere allegation of the taxpayer that an item of expense is ordinary and necessary does not justify its deduction. Ordinarily, an expense will be considered 'necessary' where the expenditure is appropriate and helpful in the development of the taxpayer's business. It is 'ordinary' when it connotes a payment which is normal in relation to the business of the taxpayer and the surrounding circumstances. The term 'ordinary' does not require that the payments be habitual or normal in the sense that the same taxpayer will have to make them often; the payment may be unique or non-recurring to the particular taxpayer affected. There is thus no hard and fast rule on the matter. The right to a deduction depends in each case on the particular facts and the relation of the payment to the type of business in which the taxpayer is engaged. The intention of the taxpayer often may be the controlling fact in making the determination. Assuming that the expenditure is ordinary and necessary in the operation of the taxpayer's business, the answer to the question as to whether the expenditure is an allowable deduction as a business

   

 

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expense must be determined from the nature of the expenditure itself, which in turn depends on the extent and permanency of the work accomplished by the expenditure.

In the light of the above explanation, CTA did not err when it held on this issue as follows:

The margin fees are not expenses in connection with the production or earning of petitioner's incomes in the Philippines. They were expenses incurred in the disposition of said incomes; expenses for the remittance of funds after they have already been earned by petitioner's branch in the Philippines for the disposal of its Head Office in New York which is already another distinct and separate income taxpayer. Since the margin fees in question were incurred for the remittance of funds to petitioner's Head Office in New York, which is a separate and distinct income taxpayer from the branch in the Philippines, for its disposal abroad, it can never be said therefore that the margin fees were appropriate and helpful in the development of petitioner's business in the Philippines exclusively or were incurred for purposes proper to the conduct of the affairs of petitioner's branch in the Philippines exclusively or for the purpose of realizing a profit or of minimizing a loss in the Philippines exclusively. If at all, the margin fees were incurred for purposes proper to the conduct of the corporate affairs of Standard Vacuum Oil

Company in New York, but certainly not in the Philippines.

ESSO has not shown that the remittance to the head office of part of its profits was made in furtherance of its own trade or business. The petitioner merely presumed that all corporate expenses are necessary and appropriate in the absence of a showing that they are illegal or ultra vires. This is error. ESSO cannot now claim this as an ordinary and necessary expense paid or incurred in carrying on its own trade or business. CTA decision AFFIRMED. IN THE MATTER OF A PETITION FOR DECLARATORY JUDGMENT REGARDING THE VALIDITY OF MUNICIPAL ORDINANCE NO. 3659 OF THE CITY OF MANILA. PHYSICAL THERAPY ORGANIZATION OF THE PHILIPPINES, INC. vs. THE MUNICIPAL BOARD OF THE CITY OF MANILA and ARSENIO H. LACSON FACTS: The petitioner-appellant, an association of registered massagists and licensed operators of massage clinics in the City of Manila and other parts of the country, filed an action in the CFI of Manila for declaratory judgment regarding the validity of Municipal Ordinance No. 3659. To stop the City from enforcing said ordinance, the petitioner secured an injunction upon filing of a bond in the sum of P1,000.00. A hearing was held, but the parties without introducing any evidence submitted the case for decision on the pleadings, although they submitted written memoranda. Thereafter, the trial court dismissed the petition and later dissolved the writ of injunction previously issued. The petitioner appealed said order of dismissal directly to this Court contending, among other things, that the Ordinance is valid as it does not

   

 

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regulate the practice of massage, that the Municipal Board of Manila has the power to enact the Ordinance, and that permit fee of P100.00 is moderate and not unreasonable. ORDINANCE No. 3659: AN ORDINANCE REGULATING THE OPERATION OF MASSAGE CLINICS IN THE CITY OF MANILA AND PROVIDING PENALTIES FOR VIOLATIONS THEREOF.

SEC. 2. Permit Fees. — No person shall engage in the operation of a massage clinic or in the occupation of attendant or helper therein without first having obtained a permit therefor from the Mayor. For every permit granted under the provisions of this Ordinance, there shall be paid to the City Treasurer the following annual fees: (a) Operator of a

massage P100.00 (b) Attendant or

helper 5.00

Said permit, which shall be renewed every year, may be revoked by the Mayor at any time for the violation of this Ordinance. Appellant contends that the City of Manila is without authority to regulate the operation of massagists and the operation of massage clinics within its jurisdiction; that under the New Charter of Manila, Republic Act 409, said power to regulate and fix license fees of massagists has been withdrawn or omitted; that the Director of Health has issued Administrative Order No. 10, dated May 5, 1953, prescribing "rules and regulations governing the examination for admission to the practice of massage, and the operation of massage clinics, offices, or establishments in the Philippines"; that Section 1 (a) of

Ordinance No. 3659 has restricted the practice of massage to only hygienic and aesthetic massage prohibits or does not allow qualified massagists to practice therapeutic massage in their massage clinics. Appellant also contends that the license fee of P100.00 for operator in Section 2 of the Ordinance is unreasonable, nay, unconscionable. ISSUE: Whether the City of Manila has the power to regulate and fix the license fees of massagists; Whether the license fee of P100.00 is unconscionable. HELD: It appears that the purpose of the Ordinance is not to regulate the practice of massage, much less to restrict the practice of licensed and qualified massagists of therapeutic massage in the Philippines. The purpose is to prevent the commission of immorality and the practice of prostitution in an establishment masquerading as a massage clinic where the operators thereof offer to massage or manipulate superficial parts of the bodies of customers for hygienic and aesthetic purposes. This intention can readily be understood by the building requirements requiring that there be separate rooms for male and female customers; that instead of said rooms being separated by permanent partitions and swinging doors, there should only be sliding curtains between them, among others. This intention of the Ordinance was correctly ascertained by Judge Hermogenes Concepcion, presiding in the trial court, in his order of dismissal where he said: "What the Ordinance

   

 

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tries to avoid is that the massage clinic run by an operator who may not be a masseur or massagista may be used as cover for the running or maintaining a house of prostitution." As to the authority of the City Board to enact the Ordinance in question, the City Fiscal, calls our attention to Section 18 of the New Charter of the City of Manila, Act No. 409, which gives legislative powers to the Municipal Board to enact all ordinances it may deem necessary and proper for the promotion of the morality, peace, good order, comfort, convenience and general welfare of the City and its inhabitants. This is generally referred to as the General Welfare Clause, a delegation in statutory form of the police power, under which municipal corporations, are authorized to enact ordinances to provide for the health and safety, and promote the morality, peace and general welfare of its inhabitants. We agree with the City Fiscal. As regards the permit fee of P100.00, it will be seen that said fee is made payable not by the masseur or massagist, but by the operator of a massage clinic who may not be a massagist himself. Compared to permit fees required in other operations, P100.00 may appear to be too large and rather unreasonable. However, much discretion is given to municipal corporations in determining the amount of said fee without considering it as a tax for revenue purposes:

The amount of the fee or charge is properly considered in determining whether it is a tax or an exercise of the police power. The amount may be so large as to itself show that the purpose was to raise revenue and not to regulate, but in regard to this matter there is a

marked distinction between license fees imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not restrict, and those which are inimical and dangerous to public health, morals or safety. In the latter case the fee may be very large without necessarily being a tax.

Evidently, the Manila Municipal Board considered the practice of hygienic and aesthetic massage not as a useful and beneficial occupation which will promote and is conducive to public morals, and consequently, imposed the said permit fee for its regulation. Ordinance is VALID. REPUBLIC OF THE PHILIPPINES vs. MAMBULAO LUMBER COMPANY, ET AL. FACTS: Under the first cause of action, for forest charges covering the period from September 10, 1952 to May 24, 1953, defendants admitted that they have a liability of P587.37, which liability is covered by a bond executed by defendant General Insurance & Surety Corporation for Mambulao Lumber Company, jointly and severally in character, on July 29, 1953, in favor of herein plaintiff. Under the second cause of action, both defendants admitted a joint and several liability in favor of plaintiff in the sum of P296.70, also covered by a bond dated November 27, 1953. Under the third cause of action, both defendants admitted a joint and several liability in favor of plaintiff for P3,928.30, also covered by a bond dated July 20, 1954. These three liabilities aggregate to P4,802.37. The defense presented by the defendants is quite unusual in more

   

 

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ways than one. It appears that from July 31, 1948 to December 29, 1956, defendant Mambulao Lumber Company paid to the Republic of the Philippines P8,200.52 for 'reforestation charges' and for the period commencing from April 30, 1947 to June 24, 1948, said defendant paid P927.08 to the Republic of the Philippines for 'reforestation charges'. These reforestation were paid to the plaintiff in pursuance of Section 1 of Republic Act 115 which provides that there shall be collected, in addition to the regular forest charges provided under Section 264 of Commonwealth Act 466 known as the NIRC, the amount of P0.50 on each cubic meter of timber... cut out and removed from any public forest for commercial purposes. The total amount of the reforestation charges paid by Mambulao Lumber Company is P9,127.50, and it is the contention of the defendant Mambulao Lumber Company that since the RP has not made use of those reforestation charges collected from it for reforesting the denuded area of the land covered by its license, the RP should refund said amount, or, if it cannot be refunded, at least it should be compensated with what Mambulao Lumber Company owed the RP for reforestation charges. In line with this thought, defendant Mambulao Lumber wrote the director of forestry, on February 21, 1957 letter and requested "that our account with your bureau be credited with all the reforestation charges that you have imposed on us from July 1, 1947 to June 14, 1956, amounting to around P2,988.62 ...". This letter was answered by the director of forestry on March 12, 1957, in which the director of forestry quoted an opinion of the secretary of justice, to the effect that he has no discretion to extend the time

for paying the reforestation charges and also explained why not all denuded areas are being reforested. ISSUE: Whether the sum of P9,127.50 paid by defendant-appellant company to plaintiff-appellee as reforestation charges from 1947 to 1956 may be set off or applied to the payment of the sum of P4,802.37 as forest charges due and owing from appellant to appellee. It is appellant's contention that said sum of P9,127.50, not having been used in the reforestation of the area covered by its license, the same is refundable to it or may be applied in compensation of said sum of P4,802.37 due from it as forest charges. HELD: We find appellant's claim devoid of any merit. Section 1 of Republic Act No. 115, provides:

SECTION 1. There shall be collected, in addition to the regular forest charges provided for under the National Internal Revenue Code, the amount of fifty centavos on each cubic meter of timber for the first and second groups and forty centavos for the third and fourth groups cut out and removed from any public forest for commercial purposes. The amount collected shall be expended by the Director of Forestry, with the approval of the Secretary of Agriculture and Natural Resources (commerce), for reforestation and afforestation of watersheds, denuded areas and cogon and open lands within forest reserves, communal forest, national parks, timber lands,

   

 

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sand dunes, and other public forest lands, which upon investigation, are found needing reforestation or afforestation, or needing to be under forest cover for the growing of economic trees for timber, tanning, oils, gums, and other minor forest products or medicinal plants, or for watersheds protection, or for prevention of erosion and floods and preparation of necessary plans and estimate of costs and for reconnaissance survey of public forest lands and for such other expenses as may be deemed necessary for the proper carrying out of the purposes of this Act. All revenues collected by virtue of, and pursuant to, the provisions of the preceding paragraph and from the sale of barks, medical plants and other products derived from plantations as herein provided shall constitute a fund to be known as Reforestation Fund, to be expended exclusively in carrying out the purposes provided for under this Act. All provincial or city treasurers and their deputies shall act as agents of the Director of Forestry for the collection of the revenues or incomes derived from the provisions of this Act.

Note that there is nothing in the law which requires that the amount collected as reforestation charges should be used exclusively for the reforestation of the area covered by the license of a licensee or concessionaire, and that if not so used, the same should be refunded to him. The conclusion seems to be that the amount paid by a licensee as reforestation charges is in the nature

of a tax which forms a part of the Reforestation Fund, payable by him irrespective of whether the area covered by his license is reforested or not. Said fund, as the law expressly provides, shall be expended in carrying out the purposes provided for thereunder, namely, the reforestation or afforestation, among others, of denuded areas needing reforestation or afforestation. Appellant maintains that the principle of a compensation in Article 1278 NCC is applicable, such that the sum of P9,127.50 paid by it as reforestation charges may compensate its indebtedness to appellee in the sum of P4,802.37 as forest charges. But in the view we take of this case, appellant and appellee are not mutually creditors and debtors of each other. Consequently, the law on compensation is inapplicable. And the weight of authority is to the effect that internal revenue taxes, such as the forest charges in question, can be the subject of set-off or compensation.

A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on. The general rule, based on grounds of public policy is well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. The

   

 

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reason on which the general rule is based, is that taxes are not in the nature of contracts between the party and party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer's claim is disputed, the collection of the tax must await and abide the result of a lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion.

Trial court decision AFFIRMED. ENGRACIO FRANCIA vs. INTERMEDIATE APPELLATE COURT and HO FERNANDEZ FACTS: Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by TCT No. 4739 (37795). On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion. Since 1963 up to 1977 inclusive, Francia failed to pay his real estate

taxes. Thus, on December 5, 1977, his property was sold at public auction by the City Treasurer of Pasay City pursuant to Section 73 of PD No. 464 known as the Real Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property. Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. On March 3, 1979, Francia received a notice of hearing of "In re: Petition for Entry of New Certificate of Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 and the issuance in his name of a new certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the back of TCT No. 4739 (37795) by the Register of Deeds. On March 20, 1979, Francia filed a complaint to annul the auction sale. On April 23, 1981, the lower court dismissed the amended complaint and ordering the RD to issue a new TCT in favor of Ho Fernandez. IAC affirmed the decision of the lower court in toto. Hence, this petition for review. ISSUE: Whether the petitioner’s obligation to pay P2,400.00 for supposed tax delinquency was set-off by the amount of P4,116.00 which the government is indebted to the former. Whether the auction sale in question was made without complying with the mandatory provisions of the statute governing tax sale. HELD: NO. There is no legal basis for the contention. By legal compensation,

   

 

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obligations of persons, who in their own right are reciprocally debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the requirements. This principal contention of the petitioner has no merit. There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government. A taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the governmental body not included in the tax levy. The tax was due to the city government while the expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for the 125 square meter portion of his lot was deposited with the PNB long before the sale at public auction of his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977. The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the sale at public auction. Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the notice of the auction sale without reading it. (2) Ho Fernandez, the purchaser at the auction sale, has the burden of proof

to show that there was compliance with all the prescribed requisites for a tax sale. The case of Valencia v. Jimenez laid down the doctrine that:

Due process of law to be followed in tax proceedings must be established by proof and the general rule is that the purchaser of a tax title is bound to take upon himself the burden of showing the regularity of all proceedings leading up to the sale.

There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property through a tax sale. This is actually an exception to the rule that administrative proceedings are presumed to be regular. But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner cannot, however, deny that he did receive the notice for the auction sale. Petitioner was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force. As a general rule, gross inadequacy of price is not material. Alleged gross inadequacy of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the theory that the lesser the price, the easier it is for the owner to effect redemption. We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the widening of Buendia Avenue in Pasay City, which necessitated the expropriation of

   

 

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adjoining areas, real estate values have gone up in the area. Petition DISMISSED. Commissioner of Internal Revenue vs. HON. LORENZO C. GARLITOS FACTS: In Melecio R. Domingo vs. Hon. Judge S. C. Moscoso (GR No. L-14674, January 30, 1960), the SC declared as final and executory the order for the payment by the estate and inheritance taxes, charges, and penalties, amounting to P40,058.55, issued by CFI Leyte in Special Proceedings No. 14 entitled “In the matter of the Intestate Estate of the Late Walter Scott Price”. In order to enforce the claims against the estate, the fiscal presented a petition dated June 21, 1961, to the CFI for execution of the judgment. This was denied holding that the execution is not justifiable as the Government is indebted to the estate under administration for P262,200 (as payment to the Leyte Cadastral Survey, Inc.). Thus, the order of the payment of the CIR was deferred until the Government shall have paid its accounts to the administratix, Simeona Price because it is only fair for the Government, as a debtor, to its accounts to its citizens-creditors before it can insist in the prompt payment of the latter’s account to it, special taking into consideration that the amount due to the Government draws interests while the credit due to the State does not accrue any interest. Hence, this petition for certiorari and mandamus against CFI Leyte Judge Ron Lorenzo C. Garlitos. ISSUE:

Whether the judgment in favor of the Government against the estate of Walter Scott Price for internal revenue taxes may be executed. HELD: NO. The ordinary procedure by which to settle claims of indebtedness against the estate of a deceased person, as an inheritance tax, is for the claimant to present a claim before the probate court so that said court may order the administrator to pay the amount thereof. A writ of execution is not the proper procedure allowed by the Rules of Court for the payment of debts and expenses of administration. The proper procedure is for the court to order the sale of personal estate or the sale or mortgage of real property of the deceased and all debts or expenses of administrator and with the written notice to all the heirs legatees and devisees residing in the Philippines, according to Rule 89, Section 3, and Rule 90, Section 2; and when sale or mortgage of real estate is to be made, the regulations contained in Rule 90, Section 7, should be complied. Execution may issue only where the devisees, legatees or heirs have entered into possession of their respective portions in the estate prior to settlement and payment of the debts and expenses of administration and it is later ascertained that there are such debts and expenses to be paid, in which case "the court having jurisdiction of the estate may, by order for that purpose, after hearing, settle the amount of their several liabilities, and order how much and in what manner each person shall contribute, and may issue execution if circumstances require” (Rule 89, Section 6, Rule 74, Section 4).

   

 

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The legal basis for such a procedure is the fact that in the testate or intestate proceedings to settle the estate of a deceased person, the properties belonging to the estate are under the jurisdiction of the court and such jurisdiction continues until said properties have been distributed among the heirs entitled thereto. During the pendency of the proceedings all the estate is in custodia legis and the proper procedure is not to allow the sheriff, in case of the court judgment, to seize the properties but to ask the court for an order to require the administrator to pay the amount due from the estate and required to be paid. TAXATION: The claim of the estate against the Government has been recognized and an amount of P262,200 has already been appropriated for the purpose by a corresponding law (Rep. Act No. 2700). Hence, both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have already become overdue and demandable is well as fully liquidated. Compensation, therefore, takes place by operation of law, in accordance with the provisions of Articles 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount, thus: ART. 1200. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and extinguished both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation. Therefore, the CIR has no clear right to execute the judgment for taxes against the estate of the deceased

Walter Scott Price. Furthermore, the petition for certiorari and mandamus is not the proper remedy for the petitioner. Appeal is the remedy. The petition is, therefore, dismissed, without costs. DAVAO GULF LUMBER CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE and COURT OF APPEALS FACTS: Davao Gulf Lumber Corporation (DGLC) is a licensed forest concessionaire possessing a Timber License Agreement (TLA) granted by the Ministry of Natural Resources (now DENR). From July 1, 1980 to January 31, 1982, DGLC purchased from various oil companies, refined and manufactured mineral oils as well as motor and diesel fuels, which it used exclusively for the exploitation and operation of its forest concession. Said oil companies paid the specific taxes imposed under Sections 153 and 156 of the 1977 NIRC, on the sale of said products. Being included in the purchase price of the oil products, the specific taxes paid by the oil companies were eventually passed on the user, DGLC. On December 13, 1982, DGLC filed before the CIR a claim for refund in the amount of P120,825.11, representing 25% of the specific taxes actually paid on the above-mentioned fuels and oils that were used by DGLC in its operations as forest concessionaire. The claim was based on Insular Lumber Co. vs. CTA and Section 5 of RA 1435 which reads:

   

 

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Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds of the political subdivision for whose benefit the tax is collected: Provided, however, That whenever any oils mentioned above are used by miners or forest concessionaires in their operations, 25 per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar con ditions enumerated in subparagraphs 1 and 2 of section 1 hereof, amending section 142 of the Internal Revenue Code: Provided, further, That no new road shall be constructed unless the routes or location thereof shall have been approved by the Commissioner of Public Highways after a determination that such road can be made part of an integral and articulated route in the Philippine Highway System, as required in section 26 of the Philippine Highway Act of 1953. DGLC complied with the procedure for refund, including the submission of proof of the actual use of the aforementioned oils in its forest concession as required. DGLC, in support of its claim for refund, submitted to the CIR affidavits of its general manager, the president of the Philippine Wood Products Association, and 3 disinterested persons, all attesting that the said manufactured diesel and fuel oils were actually used in the exploitation and operation of its forest concession. On January 20, 1983, DGLC filed at the CTA a petition for review. CTA found DGLC entitled to a partial refund of specific taxes the latter had paid in the amount of P2,923.15, ruling that the claim on purchases of lubricating

oil (from July 1, 1980 to January 19, 1981), and on manufactured oils other than lubricating oils (from July 1, 1980 to January 4, 1981) had prescribed. Disallowed on the ground that they were not included in the original claim filed before the CIR were the claims for refund on purchases of manufactured oils from January 1, 1980 to June 30, 1980 and from February 1, 1982 to June 30, 1982. In regard to the other purchases, the CTA granted the claim, but it computed the refund based on rates deemed paid under RA 1435, and not on the higher rates actually paid by DGLC under the NIRC. Insisting that the basis for computing the refund should be the increased rates prescribed by Sections 153 and 156 of the NIRC, DGLCr elevated the matter to the CA, which affirmed the CTA Decision. Hence, this petition for review under Rule 45 of the RoC. ISSUE: ‘Whether DGLC is entitled under RA 1435 to the refund of 25% of the amount of specific taxes it actually paid on various refined and manufactured mineral oils and other oil products taxed under Section 153 and 156 of the 1977 (Section 142 and 145 of the 1939) NIRC. (Whether the refund should be based on the increased rates of specific taxes which it actually paid as prescribed in Sec. 153 and 156 of the NIRC OR on specific taxes deemed paid under Sec. 1 and 2 of RA 1435.) HELD: NO. DGLC is entitled to refund under Sec. 5 of RA 1435. DGLC is entitled to a partial refund under Sec. 5 of RA 1432 which was enacted to provide means for increasing the Highway Special Fund.

   

 

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The rationale for this grant of partial refund of specific taxes paid on purchases of manufactured diesel and fuel oils rests on the character of the Highway Special Fund. The specific taxes collected on gasoline and fuel accrue to the Fund, which is to be used for the construction and maintenance of the highway system. But because the gasoline and fuel purchased by mining and lumber concessionaires are used within their own compounds and roads, and their vehicles seldom use the national highways, they do not directly benefit from the Fund and its use. Hence, the tax refund gives the mining and the logging companies a measure of relief in light of their peculiar situation. When the Highway Special Fund was abolished in 1985, the reason for the refund likewise ceased to exist. Since DGLC purchased the subject manufactured diesel and fuel oils from July 1, 1980 to January 31, 1982 and submitted the required proof that these were actually used in operating its forest concession, it is entitled to claim the refund under Section 5 of RA 1435. HOWEVER, RA 1435 provides: SECTION 1. Section 142 of the National Internal Revenue Code, as amended, is further amended to read as follows: SEC. 142. Specific tax on manufactured oils and other fuels. -- On refined and manufactured mineral oils and motor fuels, there shall be collected the following taxes: (a) Kerosene or petroleum, per liter of volume capacity, two and one-half centavos;

(b) Lubricating oils, per liter of volume capacity, seven centavos; (c) Naptha, gasoline, and all other similar products of distillation, per liter of volume capacity, eight centavos; and (d) On denatured alcohol to be used for motive power, per liter of volume capacity, one centavo: Provided, That if the denatured alcohol is mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall be subject to the tax herein prescribed. For the purpose of this subsection, the removal of denatured alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary. Whenever any of the oils mentioned above are, during the five years from June eighteen, nineteen hundred and fifty two, used in agriculture and aviation, fifty per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon the submission of the following: (1) A sworn affidavit of the producer and two disinterested persons proving that the said oils were actually used in agriculture, or in lieu thereof (2) Should the producer belong to any producers’ association or federation, duly registered with the Securities and Exchange Commission, the affidavit of the president of the association or federation, attesting to the fact that the oils were actually used in agriculture. (3) In the case of aviation oils, a sworn certificate satisfactory to the Collector proving that the said oils were actually used in aviation: Provided, That no such refunds shall be granted in respect to

   

 

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the oils used in aviation by citizens and corporations of foreign countries which do not grant equivalent refunds or exemptions in respect to similar oils used in aviation by citizens and corporations of the Philippines. SEC. 2. Section 145 of the National Internal Revenue Code, as amended, is further amended to read as follows: SEC. 145. Specific Tax on Diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and on all similar fuel oils, having more or less the same generating power, there shall be collected, per metric ton, one peso. Section 5. The proceeds of the additional tax on manufactured oils shall accrue to the road and bridge funds of the political subdivision for whose benefit the tax is collected: Provided, however, That whenever any oils mentioned above are used by miners or forest concessionaires in their operations, twenty-five per centum of the specific tax paid thereon shall be refunded by the Collector of Internal Revenue upon submission of proof of actual use of oils and under similar conditions enumerated in subparagraphs one and two of section one hereof, amending section one hundred forty-two of the Internal Revenue Code:Provided, further, That no new road shall be constructed unless the route or location thereof shall have been approved by the Commissioner of Public Highways after a determination that such road can be made part of an integral and articulated route in the Philippine Highway System, as required in section twenty-six of the Philippine Highway Act of 1953. Subsequently, the 1977 NIRC, PD 1672, and EO 672 amended the 1st

two provisions renumbering them and prescribing higher rates. Accordingly, DGLC paid specific taxes on petroleum products purchased from July 1, 1980 to July 31, 1982 under the ff. statutory provisions. From February 8, 1980 to March 20, 1981, Sections 153 and 156 provided as follows: SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and manufactured mineral oils and motor fuels, there shall be collected the following taxes which shall attach to the articles hereunder enumerated as soon as they are in existence as such: (a) Kerosene, per liter of volume capacity, seven centavos; (b) Lubricating oils, per liter of volume capacity, eighty centavos; (c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, ninety-one centavos: Provided, That, on premium and aviation gasoline, the tax shall be one peso per liter of volume capacity; (d) On denatured alcohol to be used for motive power, per liter of volume capacity, one centavo: Provided, That, unless otherwise provided for by special laws, if the denatured alcohol is mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall be subject to the tax herein prescribed. For the purposes of this subsection, the removal of denatured alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary; (e) Processed gas, per liter of volume capacity, three centavos;

   

 

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(f) Thinners and solvents, per liter of volume capacity, fifty-seven centavos; (g) Liquefied petroleum gas, per kilogram, fourteen centavos: Provided, That, liquefied petroleum gas used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil; (h) Asphalts, per kilogram, eight centavos; (i) Greases, waxes and petrolatum, per kilogram, fifty centavos; (j) Aviation turbo jet fuel, per liter of volume capacity, fifty-five centavos.” (As amended by Sec. 1, P.D. No. 1672.) SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and on all similar fuel oils, having more or less the same generating power, per liter of volume capacity, seventeen and one-half centavos, which tax shall attach to this fuel oil as soon as it is in existence as such. Then on March 21, 1981, these provisions were amended by EO 672 to read: SEC. 153. Specific tax on manufactured oils and other fuels. -- On refined and manufactured mineral oils and motor fuels, there shall be collected the following taxes which shall attach to the articles hereunder enumerated as soon as they are in existence as such: (a) Kerosene, per liter of volume capacity, nine centavos; (b) Lubricating oils, per liter of volume capacity, eighty centavos; (c) Naphtha, gasoline and all other similar products of distillation, per liter of volume capacity, one peso and six centavos: Provided, That on

premium and aviation gasoline, the tax shall be one peso and ten centavos and one peso, respectively, per liter of volume capacity; (d) On denatured alcohol to be used for motive power, per liter of volume capacity, one centavo; Provided, That unless otherwise provided for by special laws, if the denatured alcohol is mixed with gasoline, the specific tax on which has already been paid, only the alcohol content shall be subject to the tax herein prescribed. For the purpose of this subsection, the removal of denatured alcohol of not less than one hundred eighty degrees proof (ninety per centum absolute alcohol) shall be deemed to have been removed for motive power, unless shown to the contrary; (e) Processed gas, per liter of volume capacity, three centavos; (f) Thinners and solvents, per liter of volume capacity, sixty-one centavos; (g) Liquefied petroleum gas, per kilogram, twenty-one centavos: Provided, That, liquified petroleum gas used for motive power shall be taxed at the equivalent rate as the specific tax on diesel fuel oil; (h) Asphalts, per kilogram, twelve centavos; (i) Greases, waxes and petrolatum, per kilogram, fifty centavos; (j) Aviation turbo-jet fuel, per liter of volume capacity, sixty-four centavos. SEC. 156. Specific tax on diesel fuel oil. -- On fuel oil, commercially known as diesel fuel oil, and all similar fuel oils, having more or less the same generating power, per liter of volume capacity, twenty-five and one-half centavos, which tax shall attach to this

   

 

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fuel oil as soon as it is in existence as such. A tax cannot be imposed unless it is supported by the clear and express language of a statute; on the other hand, once the tax is unquestionably imposed, a claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Since the partial refund authorized under Sec. 5 of RA 1435 is the nature of a tax exemption, it muse be construed strictissimi juris against the grantee. Hence, DGLC’s claim of refund on the basis of the specific taes it actually paid must be expressly granted in a statute stated in a language too clear to be mistaken. RA 1435 and the subsequent pertinent statutes and found no expression of a legislative will authorizing a refund based on the higher rates claimed by DGLC. The mere fact that the privilege of refund was included in Section 5, and not in Section 1, is insufficient to support DGLC’s claim. When the law itself does not explicitly provide that a refund under RA 1435 may be based on higher rates which were nonexistent at the time of its enactment, this Court cannot presume otherwise. A legislative lacuna cannot be filled by judicial fiat. ACCORDINGLY, the decision in G.R. Nos. 83583-84 is hereby MODIFIED. The private respondent’s CLAIM for REFUND is GRANTED, computed on the basis of the amounts deemed paid under Sections 1 and 2 of R.A. NO. 1435, without interest.

WHEREFORE, the petition is hereby DENIED and the assailed Decision of the Court of Appeals is AFFIRMED. CALTEX PHILIPPINES, INC. vs. THE HONORABLE COMMISSION ON AUDIT FACTS: Sec. 8 of PD 1956, as amended by EO 17 provides: Sec. 8 . There is hereby created a Trust Account in the books of accounts of the Ministry of Energy to be designated as Oil Price Stabilization Fund (OPSF) for the purpose of minimizing frequent price changes brought about by exchange rate adjustments and/or changes in world market prices of crude oil and imported petroleum products. The Oil Price Stabilization Fund may be sourced from any of the following: a) Any increase in the tax collection from ad valorem tax or customs duty imposed on petroleum products subject to tax under this Decree arising from exchange rate adjustment, as may be determined by the Minister of Finance in consultation with the Board of Energy; b) Any increase in the tax collection as a result of the lifting of tax exemptions of government corporations, as may be determined by the Minister of Finance in consultation with the Board of Energy; c) Any additional amount to be imposed on petroleum products to augment the resources of the Fund through an appropriate Order that may be issued by the Board of Energy requiring payment by persons or companies engaged in the business of

   

 

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importing, manufacturing and/or marketing petroleum products; d) Any resulting peso cost differentials in case the actual peso costs paid by oil companies in the importation of crude oil and petroleum products is less than the peso costs computed using the reference foreign exchange rate as fixed by the Board of Energy. The Fund herein created shall be used for the following: 1) To reimburse the oil companies for cost increases in crude oil and imported petroleum products resulting from exchange rate adjustment and/or increase in world market prices of crude oil; 2) To reimburse the oil companies for possible cost under-recovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

The Oil Price Stabilization Fund (OPSF) shall be administered by the Ministry of Energy.

Joke lang.: On February 2, 1989, the COA sent a letter to Caltex directing the latter to remit to the OPSF its collection, excluding that unremitted for the years 1986 and 1988, of the additional tax on petroleum products authorized under Sec. 8 of PD 1956 which, as of December 31, 1987, amounted to P335,037,649.00 and informing it that, pending such remittance, all of its claims for reimbursement from the OPSF shall be held in abeyance. On March 9, 1989, the COA sent another letter to Caltex informing it that partial verification with the OEA showed that the grand total of its unremitted collections of the above tax is P1,287,668,820.00 (1986- P233,190,196; 1987- P335,065,650; 1988- P719,412,254), directing to remit the same with interest and surcharges thereon, within 60 days from receipt of the letter, advising it that the COA will hold in abeyance the audit of all its claims for reimbursement from the OPSF; and directing it to desist from further offsetting the taxes collection against outstanding claims in 1989 and subsequent periods. In its letter of May 3, 1989, Caltex requested COA for an early release of its reimbursement certificates from the OPSF covering claims with the Office of the Energy Affairs since June 1987 up to March 1989, invoking COA Circular No. 89-299 on the lifting of pre-audit of government transactions of national government agencies and GOCCs. On May 8, 1989, COA denied the request for the early release of the reimbursement certificates and repeated its earlier directive.

   

 

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On May 31, 1989, Caltex submitted to the COA a proposal for the payment of the collections and the recovery of claims, since the outright payment of the sum of P1.287 billion to the OEA as a prerequisite for the processing of said claims against the OPSF will cause a very serious impairment of its cash position. The proposal provides: We, therefore, very respectfully propose the following: 1. Any procedural arrangement

acceptable to COA to facilitate monitoring of payments and reimbursements will be administered by the ERB/Finance Dept./OEA, as agencies designated by law to administer/regulate OPSF.

2. For the retroactive period, Caltex will deliver to OEA, P1.287 billion as payment to OPSF, similarly OEA will deliver to Caltex the same amount in cash reimbursement from OPSF.

3. The COA audit will commence immediately and will be conducted expeditiously.

4. The review of current claims (1989) will be conducted expeditiously to preclude further accumulation of reimbursement from OPSF.

On June 7, 1989, COA, with the Chairman taking no part, handed down Decision No. 921 accepting the proposal but prohibiting Caltex from further offsetting remittances and reimbursements for the current and ensuing years. On August 18, 1989, COA sent a letter to Executive Director Wenceslao R. De la Paz of the OEA informing the OEA that Caltex shall required to remit to OPSF an amount of P1,505,668,906, representing remittances to the OPSF which were offset against its claims

reimbursements (net of unsubmitted claims) and authorized the OEA to cause payment of P1,959,182,612 to Caltex, representing claims initially allowed in audit. As presented in the foregoing computation the disallowances totalled P387,683,535, which included P130,420,235 representing those claims disallowed by OEA, details of which is (sic) shown in Schedule 1 as summarized as follows:

Disallowance of COA Particulars Amount Recovery of financing charges P162,728,475 /a Product sales 48,402,398 /b Inventory losses Borrow loan arrangement 14,034,786 /c Sales to Atlas/Marcopper 32,097,083 /d Sales to NPC 558 —————— P257,263,300 Disallowances of OEA 130,420,235 ————————— —————— Total P387,683,535

The reason for the disallowances are: a. Recovery of Financing Charges Review of the provisions of P.D. 1596 as amended by E.O. 137 seems to indicate that recovery of financing charges by oil companies is not among the items for which the OPSF may be utilized. Therefore, it is our view that recovery of financing charges has no legal basis. The mechanism for such claims is provided in DOF Circular 1-87. b. Product Sales –– Sales to International Vessels/Airlines

   

 

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BOE Resolution No. 87-01 dated February 7, 1987 as implemented by OEA Order No. 87-03-095 indicating that (sic) February 7, 1987 as the effectivity date that (sic) oil companies should pay OPSF impost on export sales of petroleum products. Effective February 7, 1987 sales to international vessels/airlines should not be included as part of its domestic sales. Changing the effectivity date of the resolution from February 7, 1987 to October 20, 1987 as covered by subsequent ERB Resolution No. 88-12 dated November 18, 1988 has allowed Caltex to include in their domestic sales volumes to international vessels/airlines and claim the corresponding reimbursements from OPSF during the period. It is our opinion that the effectivity of the said resolution should be February 7, 1987. c. Inventory losses –– Settlement of Ad Valorem We reviewed the system of handling Borrow and Loan (BLA) transactions including the related BLA agreement, as they affect the claims for reimbursements of ad valorem taxes. We observed that oil companies immediately settle ad valorem taxes for BLA transaction (sic). Loan balances therefore are not tax paid inventories of Caltex subject to reimbursements but those of the borrower. Hence, we recommend reduction of the claim for July, August, and November, 1987 amounting to P14,034,786 . d. Sales to Atlas/Marcopper LOI No. 1416 dated July 17, 1984 provides that "I hereby order and direct the suspension of payment of all taxes, duties, fees, imposts and other charges whether direct or indirect due and payable by the copper mining companies in distress to the national and local governments." It is our

opinion that LOI 1416 which implements the exemption from payment of OPSF imposts as effected by OEA has no legal basis. It was further emphasized that payment to Caltex of the amount authorized shall be subject to availability of funds of OPSF as of May 31, 1989 and applicable auditing rules and regulations; and that the aggrieved party has 30 days within which to appeal the decision of the COA with regard to the disallowances in accordance with the law. On September 8, 1989, Caltex filed an Omnibus Request for Reconsideration based on the ff. grounds: 1. COA disallowed claims are

authorized under existing rules, orders, resolutions, circulars issued by the Department of Finance and the ERB pursuant to EO 137.

2. Admnistrative interpretations in the course of exercise of executive power by the Department of Finance and the ERB are legal and should be respected and applied unless declared null and void by courts or repealed by legislation.

3. Legal basis for retention of offset arrangement, as authorized by the executive branch of government, remains valid.

On November 6, 1989, Caltex filed with the COA a Supplemental Omnibus Request for Reconsideration. On February 16, 1990, COA, with Chairman Domingo taking no part and with Commissioner Fernandez dissenting in part, handed down Decision No. 1171 affirming the disallowance for recovery of financing charges, inventory losses, and sales to Marcopper and Atlas, while allowing

   

 

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recovery of product sales or those arising from export sales. Hence, this petition. ISSUE: 1. Whether the Commission on Audit

has the authority in disallowing Caltex’s claim for reimbursement from the Oil Prize Destabilization Fund (OPSF).

2. Whether the COA erred in denying its claims for recovery of financing charges from the Fund and reimbursement of underrecovery arising from sales to the National Power Corporation, Atlas Consolidated Mining and Development Corporation (ATLAS) and Marcopper Mining Corporation (MAR-COPPER), preventing it from exercising the right to offset its remittances against its reimbursement vis-a-vis the OPSF and disallowing its claims which are still pending resolution before the Office of Energy Affairs (OEA) and the Department of Finance (DOF).

Caltex dwells on the ff. issuances: (1) In view of the expanded role of the OPSF pursuant to Executive Order No. 137, which added a second purpose, to wit: 2) To reimburse the oil companies for possible cost underrecovery incurred as a result of the reduction of domestic prices of petroleum products. The magnitude of the underrecovery, if any, shall be determined by the Ministry of Finance. "Cost underrecovery" shall include the following:

i. Reduction in oil company take as directed by the Board of Energy without the corresponding reduction in the landed cost of oil inventories in the possession of the oil companies at the time of the price change; ii. Reduction in internal ad valorem taxes as a result of foregoing government mandated price reductions; iii. Other factors as may be determined by the Ministry of Finance to result in cost underrecovery.

the "other factors" mentioned therein that may be determined by the Ministry (now Department) of Finance may include financing charges for "in essence, financing charges constitute unrecovered cost of acquisition of crude oil incurred by the oil companies," as explained in the 6 November 1989 Memorandum to the President of the Department of Finance; they "directly translate to cost underrecovery in cases where the money market placement rates decline and at the same time the tax on interest income increases. The relationship is such that the presence of underrecovery or overrecovery is directly dependent on the amount and extent of financing charges." (2) The claim for recovery of financing charges has clear legal and factual basis; it was filed on the basis of Department of Finance Circular No. 1-87, dated 18 February 1987, which provides: To allow oil companies to recover the costs of financing working capital associated with crude oil shipments, the following guidelines on the utilization of the Oil Price Stabilization Fund pertaining to the payment of the foregoing (sic) exchange risk premium

   

 

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and recovery of financing charges will be implemented: 1. The OPSF foreign exchange premium shall be reduced to a flat rate of one (1) percent for the first (6) months and 1/32 of one percent per month thereafter up to a maximum period of one year, to be applied on crude oil' shipments from January 1, 1987. Shipments with outstanding financing as of January 1, 1987 shall be charged on the basis of the fee applicable to the remaining period of financing. 2. In addition, for shipments loaded after January 1987, oil companies shall be allowed to recover financing charges directly from the OPSF per barrel of crude oil based on the following schedule:

Financing Period

Reimbursement Rate (PBbl.)

Less than 180 days None 180 days to 239 days 1.90 241 (sic) days to 299 4.02 300 days to 369 (sic) days 6.16 360 days or more 8.28 The above rates shall be subject to review every sixty days.

Pursuant to this circular, the Department of Finance, in its letter of 18 February 1987, advised the Office of Energy Affairs as follows: HON. VICENTE T. PATERNO Deputy Executive Secretary For Energy Affairs Office of the President Makati, Metro Manila Dear Sir: This refers to the letters of the Oil Industry dated December 4, 1986 and

February 5, 1987 and subsequent discussions held by the Price Review committee on February 6, 1987. On the basis of the representations made, the Department of Finance recognizes the necessity to reduce the foreign exchange risk premium accruing to the Oil Price Stabilization Fund (OPSF). Such a reduction would allow the industry to recover partly associated financing charges on crude oil imports. Accordingly, the OPSF foreign exchange risk fee shall be reduced to a flat charge of 1% for the first six (6) months plus 1/32% of 1% per month thereafter up to a maximum period of one year, effective January 1, 1987. In addition, since the prevailing company take would still leave unrecovered financing charges, reimbursement may be secured from the OPSF in accordance with the provisions of the attached Department of Finance circular.

Acting on this letter, the OEA issued on 4 May 1987 Order No. 87-05-096 which contains the guidelines for the computation of the foreign exchange risk fee and the recovery of financing charges from the OPSF, to wit: B. FINANCE CHARGES

1. Oil companies shall be allowed to recover financing charges directly from the OPSF for both crude and product shipments loaded after January 1, 1987 based on the following rates:

Financing Period Reimbursement Rate

(PBbl.) Less than 180 days None 180 days to 239 days 1.90 240 days to 229 (sic) days 4.02 300 days to 359 days 6.16 360 days to more 8.28

   

 

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2. The above rates shall be subject to review every sixty days.

Then on 22 November 1988, the Department of Finance issued Circular No. 4-88 imposing further guidelines on the recoverability of financing charges, to wit:

Following are the supplemental rules to Department of Finance Circular No. 1-87 dated February 18, 1987 which allowed the recovery of financing charges directly from the Oil Price Stabilization Fund. (OPSF): 1. The Claim for reimbursement shall be on a per shipment basis. 2. The claim shall be filed with the Office of Energy Affairs together with the claim on peso cost differential for a particular shipment and duly certified supporting documents provided for under Ministry of Finance No. 11-85. 3. The reimbursement shall be on the form of reimbursement certificate (Annex A) to be issued by the Office of Energy Affairs. The said certificate may be used to offset against amounts payable to the OPSF. The oil companies may also redeem said certificates in cash if not utilized, subject to availability of funds.

The OEA disseminated this Circular to all oil companies in its Memorandum Circular No. 88-12-017. The COA can neither ignore these issuances nor formulate its own interpretation of the laws in the light of the determination of executive agencies. The determination by the Department of Finance and the OEA that financing charges are recoverable from the OPSF is entitled to great weight and consideration. The function

of the COA, particularly in the matter of allowing or disallowing certain expenditures, is limited to the promulgation of accounting and auditing rules for, among others, the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or uses of government funds and properties. (3) Denial of Caltex’s claim for reimbursement would be inequitable. Additionally, COA’s claim that Caltex is gaining instead of losing from the extension of credit is belatedly raised and not supported by expert analysis. HELD: (1) YES. The theory of Caltex –– that such does not extend to the disallowance of irregular, unnecessary, excessive, extravagant, or unconscionable expenditures, or use of government funds and properties, but only to the promulgation of accounting and auditing rules for, among others, such disallowance –– to be untenable in the light of the provisions of the 1987 Constitution and related laws. Section 2, Subdivision D, Article IX of the 1987 Constitution expressly provides: Sec. 2(l). The Commission on Audit shall have the power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or pertaining to, the Government, or any of its subdivisions, agencies, or instrumentalities, including government-owned and controlled corporations with original charters, and on a post-audit basis: (a) constitutional bodies, commissions and offices that have been granted

   

 

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fiscal autonomy under this Constitution; (b) autonomous state colleges and universities; (c) other government-owned or controlled corporations and their subsidiaries; and (d) such non-governmental entities receiving subsidy or equity, directly or indirectly, from or through the government, which are required by law or the granting institution to submit to such audit as a condition of subsidy or equity. However, where the internal control system of the audited agencies is inadequate, the Commission may adopt such measures, including temporary or special pre-audit, as are necessary and appropriate to correct the deficiencies. It shall keep the general accounts, of the Government and, for such period as may be provided by law, preserve the vouchers and other supporting papers pertaining thereto. (2) The Commission shall have exclusive authority, subject to the limitations in this Article, to define the scope of its audit and examination, establish the techniques and methods required therefor, and promulgate accounting and auditing rules and regulations, including those for the prevention and disallowance of irregular, unnecessary, excessive, extravagant, or, unconscionable expenditures, or uses of government funds and properties. The audit power of the Auditor General under the 1935 Constitution and the Commission on Audit under the 1973 Constitution authorized them to disallow illegal expenditures of funds or uses of funds and property. Our present Constitution retains that same power and authority, further strengthened by the definition of the COA's general jurisdiction in Section 26 of the Government Auditing Code

of the Philippines and Administrative Code of 1987. Pursuant to its power to promulgate accounting and auditing rules and regulations for the prevention of irregular, unnecessary, excessive or extravagant expenditures or uses of funds, 36the COA promulgated on 29 March 1977 COA Circular No. 77-55. Since the COA is responsible for the enforcement of the rules and regulations, it goes without saying that failure to comply with them is a ground for disapproving the payment of the proposed expenditure. When the framers of the last two (2) Constitutions conferred upon the COA a more active role and invested it with broader and more extensive powers, they did not intend merely to make the COA a toothless tiger, but rather envisioned a dynamic, effective, efficient and independent watchdog of the Government. Caltex failed to disprove COA’s claim that it had in fact gained in the process. Caltex failed to sufficiently show that it incurred a loss, hence, it cannot claim for reimbursement. Anent the claims airising from sales to the National Power Corporation, underrecovery arising from sales to NPC are reimbursable because NPC was granted full exemption from the payment of taxes; to prove this, respondents trace the laws providing for such exemption. Fiscal Incentives Regulatory Board's Resolution No. 17-87 of 24 June 1987 provides, in part, "that the tax and duty exemption privileges of the National Power Corporation, including those pertaining to its domestic purchases of petroleum and petroleum products . . . are restored effective March 10, 1987." In a Memorandum issued on 5 October 1987 by the Office of the President,

   

 

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NPC's tax exemption was confirmed and approved. Futhermore, the intention to exempt sales of petroleum products to the NPC is evident in the recently passed Republic Act No. 6952 establishing the Petroleum Price Standby Fund to support the OPSF. Hence, Caltex can recover its claim arising from sales of petroleum products to the NAPOCOR. With respect to its claim for reimbursement on sales to Atlas and Marcopper, Caltex cannot rely on LOI 1416 as such was never published in the OG as required by Art. 2 of the NCC, and therefore, has no binding effect. Also, tax exemptions as a general rule are construed strictly against the grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming exemption must therefore be expressly mentioned in the exempting law or at least be within its purview by clear legislative intent. In the case at bar, Caltex failed to prove that it is entitled, as a consequence of its sales to ATLAS and MARCOPPER, to claim reimbursement from the OPSF under LOI 1416. Though LOI 1416 may suspend the payment of taxes by copper mining companies, it does not give petitioner the same privilege with respect to the payment of OPSF dues. An examination of the records of this case shows that Caltex failed to prove or substantiate its contention that the amount of P130,420,235.00 is still pending before the OEA and the DOF. Since the amount has already been passed upon by the OEA, the ruling of COA disapproving said claim must be upheld.

As to the offsetting, there is no merit in Caltex’s contention that the OPSF contributions are not for a public purpose because they go to a special fund of the government. Taxation is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state. There can be no doubt that the oil industry is greatly imbued with public interest as it vitally affects the general welfare. Any unregulated increase in oil prices could hurt the lives of a majority of the people and cause economic crisis of untold proportions. It would have a chain reaction in terms of, among others, demands for wage increases and upward spiralling of the cost of basic commodities. The stabilization then of oil prices is of prime concern which the state, via its police power, may properly address. Also, PD 1956 as amended by EO 137 explicitly provides that the source of OPSF is taxation. A taxpayer may not offset taxes due from the claims that he may have against the government.Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off. Furthermore, technically, in respect to the taxes for the OPSF, the oil companies merely act as agents for the Government in the latter's collection since the taxes are, in reality, passed unto the end-users –– the consuming public. In that capacity,

   

 

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the petitioner, as one of such companies, has the primary obligation to account for and remit the taxes collected to the administrator of the OPSF. This duty stems from the fiduciary relationship between the two; petitioner certainly cannot be considered merely as a debtor. In respect, therefore, to its collection for the OPSF vis-a-vis its claims for reimbursement, no compensation is likewise legally feasible. Firstly, the Government and the petitioner cannot be said to be mutually debtors and creditors of each other. Secondly, there is no proof that petitioner's claim is already due and liquidated. That compensation had been the practice in the past can set no valid precedent. Such a practice has no legal basis. Lastly, R.A. No. 6952 does not authorize oil companies to offset their claims against their OPSF contributions. Instead, it prohibits the government from paying any amount from the Petroleum Price Standby Fund to oil companies which have outstanding obligations with the government, without said obligation being offset first subject to the rules on compensation in the Civil Code. WHEREFORE, in view of the foregoing, judgment is hereby rendered AFFIRMING the challenged decision of the Commission on Audit, except that portion thereof disallowing petitioner's claim for reimbursement of underrecovery arising from sales to the National Power Corporation, which is hereby allowed. COMMISSIONER OF INTERNAL REVENUE vs. COURT OF APPEALS, COURT OF TAX APPEALS, and YOUNG MEN’S CHRISTIAN

ASSOCIATION OF THE PHILIPPINES, INC.

FACTS: YMCA is a non-stock, non-profit institution which conducts various programs and activities that are beneficial to the public, especially the young people, pursuant to its religious, educational, and charitable objectives. In 1980, YMCA earned, among others, an income of P676,829.80 from leasing out a portion of its premises to small shop owners, like restaurants and canteen operators, and P44,259.00 from parking fees collected from non-members. On July 2, 1984, the CIR issued an assessment to YMCA in the total amount of P415,615.01 including surcharge and interest, for deficiency income tax, deficiency expanded withholding taxes on rentals and professional fees and deficiency withholding tax on wages. YMCA formally protested the assessment and, as a supplement to its basic protest, filed a letter dated October 8, 1989. In reply, the CIR denied the claims of YMCA. YMCA then filed a petition for review at the CTA on march 14, 1989 which ruled in favor of YMCA finding that the leasing of facilities of the YMCA are reasonably incidental to and reasonably necessary for the accomplishment of the objectives of the YMCA. The CIR elevated the case to the CA which initially decided in favor of the CIR. Upon MR of the YMCA, CA reversed itself. CIR’s MR was denied.

   

 

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Hence, this petition for review under Rule 45 of the RoC. ISSUE: Is the income derived from rentals of real property owned by the YMCA (established as a “welfare, educational, and charitable non-profit organization) subject to income tax under the NIRC and the Constitution? HELD: YES. The NIRC provides: SEC. 27. Exemptions from tax on corporations. -- The following organizations shall not be taxed under this Title in respect to income received by them as such -- (g) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare; (h) Club organized and operated exclusively for pleasure, recreation, and other non-profitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member; Notwithstanding the provision in the preceding paragraphs, the income of whatever kind and character of the foregoing organization from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, shall be subject to the tax imposed under this Code. (as amended by Pres. Decree No. 1457) Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. Furthermore, a claim of

statutory exemption from taxation should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption “must expressly be granted in a statute stated in a language too clear to be mistaken.”

In the instant case, the exemption claimed by the YMCA is expressly disallowed by the very wording of the last paragraph of then Section 27 of the NIRC which mandates that the income of exempt organizations (such as the YMCA) from any of their properties, real or personal, be subject to the imposed by the same Code. Because the last paragraph of said section unequivocally subjects to tax the rent income f the YMCA from its rental property,the Court is duty-bound to abide strictly by its literal meaning and to refrain from resorting to any convoluted attempt at construction. A reading of the last par. of Sec. 27 shows that the income from any property of exempt organizations, as well as that arising from any activity it conducts for profit, is taxable. The phrase “any of their activities conducted for profit” does not qualify the word “properties.” This makes income from the property of the organization taxable, regardless of how that income is used -- whether for profit or for lofty non-profit purposes. The rental income is taxable regardless of whence such income is derived and how it used or disposed of. Where the law does not distinguish, neither should we. Under the Constitution, what is exempted is not the institution itself; those exempted from real estate taxes are lands, buildings and improvements

   

 

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actually, directly and exclusively used for religious, charitable or educational purposes. The tax exemption covers property taxes only. The income tax exemption claimed by the YMCA finds no basis in Art. VI, Sec. 28(3) of the Constitution. Under Art. XIV, Sec. 4(3) of the Charter, YMCA is exempt from the payment of property tax but not income tax on the rentals from its property. . The bare allegation alone that it is a non-stock, non-profit educational institution is insufficient to justify its exemption from the payment of income tax. Laws allowing tax exemption are construed strictissimi juris. Hence, for the YMCA to be granted the exemption it claims under the aforecited provision, it must prove with substantial evidence that (1) it falls under the classification non-stock, non-profit educational institution; and (2) the income it seeks to be exempted from taxation is used actually, directly, and exclusively for educational purposes. However, not a scintilla of evidence was submitted by YMCA to prove that it met the said requisites. WHEREFORE, the petition is GRANTED. The Resolutions of the Court of Appeals dated September 28, 1995 and February 29, 1996 are hereby dated February 16, 1995 is REVERSED and SET ASIDE. The Decision of the Court of Appeals dated February 16, 1995 is REINSTATED, insofar as it ruled that the income tax. No pronouncement as to costs.

MACTAN CEBU INTERNATIONAL AIRPORT AUTHORITY vs. HON. FERDINAND J. MARCOS FACTS: MCIAA was created by virtue of RA 6958 mandated to “principally undertake the economical, efficient, and effective control, management, and supervision of Mactan International Airport in the Province of Cebu and the Lahug Airport in Cebu City., and such airports as may be established in the Province of Cebu (Sec. 3, RA 6958). It is mandated to: a. encourage, promote and develop

international and domestic air traffic in the Central Visayas and Mindanao regions as a means of making the regions centers of international trade and tourism, and accelerating the development of the means of transportation and communication in the country; and,

b. upgrade the services and facilities of the airports and to formulate internationally acceptable standards of airport accommodation and service.

Since the time of its creation, MCIAA enjoyed the privilege of exemption from payment of realty taxes in accordance with Sec. 14 of its Charter: Sec. 14. Tax Exemptions. -- The Authority shall be exempt from realty taxes imposed by the National Government or any of its political subdivisions, agencies and instrumentalities x x x. On October 11, 1994, however, Mr. Eustaquio B. Cesa, OIC, Office of the Treasure of the City of Cebu, demanded payment for realty taxes on several parcels of land belonging to MCIAA located at Barrio Apas and

   

 

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Barrio Kasambagan, Lahug, Cebu City, in the amount of P2,229,078.79. MCIAA objected to such demand for payment as baseless and unjustified, claiming in its favor Sec. 14 of RA 6958, which exempts it from payment of realty taxes. It was also asserted that it is an instrumentality of the government performing governmental functions, citing Section 133 of the Local Government Code of 1991 which puts limitations on the taxing powers of local government units: Section 133. Common Limitations on the Taxing Powers of Local Government Units. -- Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following: o) Taxes, fees, or charges of any kind on the National Government, its agencies and instrumentalities, and local government units. The City of Cebu refused to cancel and set aside MCIAA’s realty tax account, insisting that the MCIAA is a GOCC whose tax exemption privilege has been withdrawn by virtue of Sec. 193 and 234 of the LGC that took effect on January 1, 1992: Section 193. Withdrawal of Tax Exemption Privilege.— Unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons whether natural or juridical,including government-owned or controlled corporations, except local water districts, cooperatives duly registered under RA No. 6938, non-stock and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code.

Section 234. Exemptions from Real Property Taxes. – e) Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by all persons, whether natural or juridical, including GOCCs are hereby withdrawn upon the effectivity of this Code. As the City of Cebu was about to issue a warrant of levy against the properties of MCIAA, the latter was compelled to pay its tax account “under protest” and thereafter filed a Petition for Declaratory Relief with the RTC of Cebu Branch 20 contending that the the taxing powers of local government units do not extend to the levy of taxes or fees of any kind on an instrumentality of the national government and insisted that while it is indeed a government-owned corporation, it nonetheless stands on the same footing as an agency or instrumentality of the national government by the very nature of its powers and functions. The City of Cebu asserted that MCIAA is not an instrumentality of the government but merely a government-owned corporation performing proprietary functions. As such, all exemptions previously granted to it were deemed withdrawn by operation of law, as provided under Sections 193 and 234 of the Local Government Code when it took effect on January 1, 1992. The trial court dismissed the petition finding that a close reading of the New Local Government Code of 1991 or RA 7160 provides the express cancellation and withdrawal of exemption of taxes by government-owned and controlled

   

 

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corporation per Sections after the effectivity of said Code on January 1, 1992,which provides: “It is hereby declared the policy of the State that the territorial and political subdivisions of the State shall enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them more effective partners in the attainment of national goals. Toward this end, the State shall provide for a more responsive and accountable local government structure instituted through a system of decentralization whereby local government units shall be given more powers, authority, responsibilities, and resources. The process of decentralization shall proceed from the national government to the local government units. x x x” MR was denied. Hence, this petition for review under Rule 45 of the RoC. ISSUE: Whether MCIAA is liable to pay real property taxes to the City of Cebu. HELD: YES. Local governments have no power to tax instrumentalities of the National Government. The states have no power by taxation or otherwise, to retard, impede, burden or in any manner control the operation of constitutional laws enacted by Congress to carry into execution the powers vested in the [national] government. The doctrine emanates from the “supremacy” of the national government over local governments. Otherwise, mere creatures of the State can defeat national policies thru extermination of what local authorities may perceive to be undesirable activities or enterprise using the power

to tax as “a tool for regulation”. The power to tax which was called by Justice Marshall as the “power to destroy cannot be allowed to defeat an instrumentality or creation of the very entity which has the inherent power to wield it. Hence, respondent Judge cannot therefore correctly say that the questioned provisions of the Code do not contain any distinction between a government corporation performing governmental functions as against one performing merely proprietary ones such that the exemption privilege withdrawn under the said Code would apply to all government corporations.” For it is clear from Section 133, in relation to Section 234, of the LGC that the legislature meant to exclude instrumentalities of the national government from the taxing powers of the local government units. As a general rule, the power to tax is an incident of sovereignty and is unlimited in its range, acknowledging in its very nature no limits, so that security against its abuse is to be found only in the responsibility of the legislature which imposes the tax on the constituency who are to pay it. Nevertheless, effective limitations thereon may be imposed by the people through their Constitutions. Our Constitution, for instance, provides that the rule of taxation shall be uniform and equitable and Congress shall evolve a progressive system of taxation. So potent indeed is the power that it was once opined that “the power to tax involves the power to destroy.” Verily, taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government. Accordingly, tax statutes

   

 

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must be construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting tax exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Elsewise stated, taxation is the rule, exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that has to be handled by the government in the course of its operations. The power to tax is primarily vested in the Congress; however, in our jurisdiction, it may be exercised by local legislative bodies, no longer merely by virtue of a valid delegation as before, but pursuant to direct authority conferred by Section 5, Article X of the Constitution. Under the latter, the exercise of the power may be subject to such guidelines and limitations as the Congress may provide which, however, must be consistent with the basic policy of local autonomy. Under Section 14 of R.A. No. 6958, MCIAA is exempt from the payment of realty taxes imposed by the National Government or any of its political subdivisions, agencies, and instrumentalities. Nevertheless, since taxation is the rule and exemption therefrom the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this

rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the Constitution. The sections of the LGC speak of: (a) the limitations on the taxing powers of local government units and the exceptions to such limitations; and (b) the rule on tax exemptions and the exceptions thereto. The use of exceptions or provisos in these sections, as shown by the following clauses: (1) “unless otherwise provided herein” in the opening paragraph of Section 133; (2) “Unless otherwise provided in this Code” in Section 193; (3) “not hereafter specifically exempted” in Section 232; and (4) “Except as provided herein” in the last paragraph of Section 234 …initially hampers a ready understanding of the sections. The aforementioned clause in Section 133 seems to be inaccurately worded. Instead of the clause “unless otherwise provided herein,” with the “herein” to mean, of course, the section, it should have used the clause “unless otherwise provided in this Code.” The former results in absurdity since the section itself enumerates what are beyond the taxing powers of local government units and, where exceptions were intended, the exceptions are explicitly indicated in the next. Thus, reading together Sections 133, 232, and 234 of the LGC, as a general rule, as laid down in Section 133, the taxing powers of local government units cannot extend to the levy of, inter

   

 

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alia, “taxes, fees and charges of any kind on the National Government, its agencies and instrumentalities, and local government units”; however, pursuant to Section 232, provinces, cities, and municipalities in the Metropolitan Manila Area may impose the real property tax except on, inter alia, “real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person,” as provided in item (a) of the first paragraph of Section 234. As to tax exemptions or incentives granted to or presently enjoyed by natural or juridical persons, including government-owned and controlled corporations, Section 193 of the LGC prescribes the general rule, viz., they are withdrawn upon the effectivity of the LGC, exceptthose granted to local water districts, cooperatives duly registered under R.A. No. 6938, non-stock and non-profit hospitals and educational institutions, and unless otherwise provided in the LGC. The latter proviso could refer to Section 234 which enumerates the properties exempt from real property tax. But the last paragraph of Section 234 further qualifies the retention of the exemption insofar as real property taxes are concerned by limiting the retention only to those enumerated therein; all others not included in the enumeration lost the privilege upon the effectivity of the LGC. Moreover, even as to real property owned by the Republic of the Philippines or any of its political subdivisions covered by item (a) of the first paragraph of Section 234, the exemption is withdrawn if the beneficial use of such property has been granted to a taxable person for consideration or otherwise.

Since the last paragraph of Section 234 unequivocally withdrew, upon the effectivity of the LGC, exemptions from payment of real property taxes granted to natural or juridical persons, including government-owned or controlled corporations, except as provided in the said section, and the petitioner is, undoubtedly, a government-owned corporation, it necessarily follows that its exemption from such tax granted it in Section 14 of its Charter, R.A. No. 6958, has been withdrawn. Any claim to the contrary can only be justified if the petitioner can seek refuge under any of the exceptions provided in Section 234, but not under Section 133, as it now asserts, since, as shown above, the said section is qualified by Sections 232 and 234. The terms “Republic of the Philippines” and “National Government” are not interchangeable. The former is broader and synonymous with “Government of the Republic of the Philippines” which the Administrative Code of 1987 defines as the “corporate governmental entity through which the functions of government are exercised throughout the Philippines, including, save as the contrary appears from the context, the various arms through which political authority is made affective in the Philippines, whether pertaining to the autonomous regions, the provincial, city, municipal or barangay subdivisions or other forms of local government.”[27] These “autonomous regions, provincial, city, municipal or barangay subdivisions” are the political subdivisions.[28] On the other hand, “National Government” refers “to the entire machinery of the central government, as distinguished from the different forms of local governments.”[29] The

   

 

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National Government then is composed of the three great departments: the executive, the legislative and the judicial.[30] An “agency” of the Government refers to “any of the various units of the Government, including a department, bureau, office, instrumentality, or government-owned or controlled corporation, or a local government or a distinct unit therein;”[31] while an “instrumentality” refers to “any agency of the National Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds, and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered institutions and government-owned and controlled corporations. If Section 234(a) intended to extend the exception therein to the withdrawal of the exemption from payment of real property taxes under the last sentence of the said section to the agencies and instrumentalities of the National Government mentioned in Section 133(o), then it should have restated the wording of the latter. Yet, it did not. Moreover, that Congress did not wish to expand the scope of the exemption in Section 234(a) to include real property owned by other instrumentalities or agencies of the government including government-owned and controlled corporations is further borne out by the fact that the source of this exemption is Section 40(a) of P.D. No. 464, otherwise known as The Real Property Tax Code, which reads:

SEC. 40. Exemptions from Real Property Tax. — The exemption shall be as follows: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions and any government-owned or controlled corporation so exempt by its charter: Provided, however, That this exemption shall not apply to real property of the above-mentioned entities the beneficial use of which has been granted, for consideration or otherwise, to a taxable person. as reproduced in Section 234(a), the phrase “and any government-owned or controlled corporation so exempt by its charter” was excluded. The justification for this restricted exemption in Section 234(a) seems obvious: to limit further tax exemption privileges, especially in light of the general provision on withdrawal of tax exemption privileges in Section 193 and the special provision on withdrawal of exemption from payment of real property taxes in the last paragraph of Section 234. These policy considerations are consistent with the State policy to ensure autonomy to local governments[33] and the objective of the LGC that they enjoy genuine and meaningful local autonomy to enable them to attain their fullest development as self-reliant communities and make them effective partners in the attainment of national goals.[34] The power to tax is the most effective instrument to raise needed revenues to finance and support myriad activities of local government units for the delivery of basic services essential to the promotion of the general welfare and the enhancement of peace, progress, and prosperity of the people. It may also be relevant to recall that the original reasons for the withdrawal of tax exemption privileges

   

 

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granted to government-owned and controlled corporations and all other units of government were that such privilege resulted in serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, and there was a need for these entities to share in the requirements of development, fiscal or otherwise, by paying the taxes and other charges due from them.[35] The “airports” referred to are the “Lahug Air Port” in Cebu City and the “Mactan International Airport in the Province of Cebu,”[36] which belonged to the Republic of the Philippines, then under the Air Transportation Office (ATO).[37] It may be reasonable to assume that the term “lands” refer to “lands” in Cebu City then administered by the Lahug Air Port and includes the parcels of land the respondent City of Cebu seeks to levy on for real property taxes. This section involves a “transfer” of the “lands,” among other things, to the petitioner and not just the transfer of the beneficial use thereof, with the ownership being retained by the Republic of the Philippines. This “transfer” is actually an absolute conveyance of the ownership thereof because the petitioner’s authorized capital stock consists of, inter alia, “the value of such real estate owned and/or administered by the airports.”[38] Hence, the petitioner is now the owner of the land in question and the exception in Section 234(c) of the LGC is inapplicable. Moreover, MCIAA cannot claim that it was never a “taxable person” under its Charter. It was only exempted from the payment of real property taxes. The grant of the privilege only

in respect of this tax is conclusive proof of the legislative intent to make it a taxable person subject to all taxes, except real property tax. Finally, even if the MCIAA was originally not a taxable person for purposes of real property tax, in light of the foregoing disquisitions, it had already become, even if it be conceded to be an “agency” or “instrumentality” of the Government, a taxable person for such purpose in view of the withdrawal in the last paragraph of Section 234 of exemptions from the payment of real property taxes, which, as earlier adverted to, applies to the MCIAA. WHEREFORE, the instant petition is DENIED. The challenged decision and order of the Regional Trial Court of Cebu, Branch 20, in Civil Case No. CEB-16900 are AFFIRMED.

   

 

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INHERENT LIMITATIONS

PUBLIC PURPOSE OF TAXES

• First requisite of lawful taxation that the purpose for which it is laid shall be a public purpose.

• Important because of all the powers of government, that of taxation is said to be the strongest as it can be readily employed against one class of individuals in favor of another so as to ruin one class and give unlimited wealth and property to another.

TESTS IN DETERMINING PUBLIC PURPOSE

• Duty Test – Whether the thing to be furthered by the appropriation of public revenue is something which is the duty of the state as a government to provide

• Promotion of General Welfare Test – whether the proceeds of the tax will directly promote the welfare of the community in equal measure

LEVY FOR PUBLIC PURPOSE

1. It is for the welfare of the nation or greater promotion of the population

2. It affects the area as a community, rather than as individuals

3. It is designed to support the

services of the government for some of the recognized objects of the country

THE CONCEPT OF NON DELEGABILITY AS A LIMITATION TO TAXATION Generally, the power to tax is exclusively vested in the legislative body:hence, it may not be delegated. EXCEPTIONS TO NON-DELEGABILITY 1. Delegation to Local Governement – refers to the power of LGUs to create its own sources of revenue and to levy taxes, fees and charges. 2. Delegation to the President – there authority of the President to fix tariff rates, import or export quotas, tonnage and wharfage dues or other duties and imposts. 3. Delegation to Administrative Agencies – When the delegation relates merely to administrative implementation that calls for some degree of discretionary powers under sufficient standards expressed by law or implied from the policy and purposes of the act:

1. Authority of the Secretary of Finance to promulgate necessary rules and regulations for the effective enforcement of the provisions of the law.

2. The secretary of finance

may, upon the recommendation of the commissioner, require the withholding of a tax on the items income payable. What is delegated is tax administration, non-delegability rule is not violated. If tax legislation is

   

 

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delegated, delegation is invalid.

Examples of non-delegable powers:

1. Selection of property to be taxed

2. Determination of purpose for which taxes shall be levied

3. Fixing the rate 4. Rules of taxation

Examples of tax administration

1. Power to value property for taxation

2. Equalization of assessments 3. Collection

TERITORIALITY PRINCIPLE

• Tax laws cannot operate beyond a State’s territorial limits

• The government cannot tax a

particular object of taxation which is not within its territorial jurisdiction.

• Property outside ones

jurisdiction does not receive any protection of the State

• If a law is passed by Congress,

Congress must always see to it that the object or subject of taxation is within the territorial jurisdiction of the taxing authority

SITUS OF TAXATION; MEANING

• It is the “Place of taxation”

• •The State where the subject to be taxed has a situs may rightfully levy and collect the tax

• In determining the situs of taxation, you have to consider the nature of the taxes

Examples:

1. Poll tax, capitation tax-

Residence of the taxpayer 2. Real property tax- Location of

the property Note: We can only impose property tax on the properties of a person whose residence is in the Philippines.

Exceptions to territoriality:

1. Where the tax laws operate

outside territorial jurisdiction Example: taxation of resident citizens on their incomes derived from abroad

2. Where tax laws do not operate

within the territorial jurisdiction of the State

3. When exempted by treaty obligations

4. When exempted by international comity

A. SITUS OF TAX ON REAL PROPERTY

• LEX REI SITUS or where the property is located

o Ratio: The place where the real property is located gives protection to the real property, hence the property or its owner should support the government of that place

   

 

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B. SITUS OF TAX ON PERSONAL PROPERTY

• MOBILIA SEQUNTUR PERSONAM - movables follow the owner or movables follow the domicile of the owner

Other RULES:

• TANGIBLE PERSONAL PROPERTY – where the property is located

• INTANGIBLLE PERSONAL

PROPERTY – where the owner is found, domicile of the owner EXCEPTION: No, there is an exception: Where the intangible personal property has acquired a business situs in another Jurisdiction

• The principle of “Mobilia

Sequntur Personam” is only for purposes of convenience. It must yield to the actual situs of such property.

• Personal intangible properties

which acquires business situs here in the Philippines:

1. Franchise which is exercised

within the Philippines 2. Shares, obligations, bonds

issued by a domestic corporation

3. Shares, obligations, bonds issued by a foreign corporation, 85% of its business is conducted in the Philippines

4. Shares, obligations, bonds issued by a foreign corporation which

5. Shares of stock or bonds

acquire situs here

6. Rights, interest in a partnership, business or industry established in the Philippines

• These intangible properties

acquire business situs here in the Philippines, we cannot apply the principle of “Mobilia Sequntur Personam” because the properties have acquired situs here.

C. SITUS OF INCOME TAX

1. DOMICILLARY THEORY- The location where the income earner resides in the situs of taxation

2. NATIONALITY THEORY -The

country where the income earner is a citizen is the situs of taxation

3. SOURCE RULE - The country

which is the source of the income or where the activity that produced the income took place is the situs of taxation.

D. SITUS OF SALE OF PERSONAL PROPERTY

• The place where the sale is consummated and perfected

   

 

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E. SITUS OF TAX ON INTEREST INCOME

• The residence of the borrower who pays the interest irrespective of the place where the obligation was contracted

• Revenue derived by an offline

international carrier without any flight from the Philippines, from ticket sales through its local agent are subject to tax on gross Philippine billings (CIR vs. British Overseas Airways Corporation, 149 SCRA 395)

F. SITUS OF EXCISE TAX • Where the transaction is

performed • The power to levy an excise upon

the performance of an act or the engaging in an occupation does not depend upon the domicile of the person subject to the exercise, nor upon the physical location of the property or in connection with the act or occupation taxed, but depends upon the place on which the act is performed or occupation engaged in. Thus, the gauge of taxability does not depend on the location of the office, but attaches upon the place where the respective transaction is perfected and consummated

TAX EXEMPTIONS OF THE GOVERNMENT Rule: Property of the state and of its municipal subdivisions devoted to government uses and purposes is generally deemed exempt from taxation

Reason: There are several reasons, among which are as follows

1. Public policy

2. Statutory Grants:

a. Sec. 28 (b) (8) (B)of the Tax Code which provides that income derived from any public utility or exercise of any essential government function accruing to the goverrnment is exempt from income tax

b. Sec. 234 of the Local Government Code which provides that property owned by the government or any of its political subdivisions is exempt from real property tax unless the beneficial use thereof is granted for consideration or otherwise to a taxable person

Note: There is no constitutional prohibition because this is an inherent limitation already. May the government tax itself? Yes, notwithstanding the immunity, the Government may tax itself as held in the case of Bisaya Land Transportation Co. Inc. vs. CIR wherein the Supreme Court held that the Congress may tax the Armed Forces of the Philippines if it wishes to do so INTERNATIONAL COMITY Comity; Definition The respect accorded by nations to each other because they are equals

   

 

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Basis of International Comity 1. In par emnon habet imperium - as

between equals there is no sovereign (Doctrine of Sovereign Equality)

2. The rule of international law that a foreign government may not be sued without its consent.

3. The concept that when a foreign

sovereign enters the territorial jurisdiction of another, it does not subject itself to the jurisdiction of the other.

CONSTITUTIONAL LIMITATIONS

DUE PROCESS CLAUSE Sec. 1 Art. III of the Constitution “No person shall be deprived of life, liberty or property without due process of law”

• Tolentino v. Secretary of Finance – absence of threat of immediate harm need for judicial intervention less evident. An actual case or controversy must first exist before courts can rule over it in case of constitutionality on the ground of denial of due process.

• Reyes v. Almanzor – When violative of due process in tax cases? When tax is of confiscatory nature. That it is so arbitrary that it finds no support in the Constitution.

• Villegas v. Hiu Chiong Tsai

Pao “Permit to work of alien” - Court held that aliens, once admitted in the Philippines cannot be deprived of life

without due process and this includes means of livelihood.

Two Aspects of Due Process: a. Substantive Due Process – the tax

statute must be within the constitutional authority of Congress and that it must be fair, just and reasonable

b. Procedural Due Process – requires notice and hearing, or at least an opportunity to be heard.

Due process in taxation requires that tax must be:

1. For public purposes

2. Imposed within territorial

jurisdiction

3. No arbitrariness or oppression either in the assessment or collection

Illustrative cases of violations of due process clause Tax amounting to confiscation of property, law is imposed for a purpose other than a public purpose, law applied retroactively imposes unjust and oppressive taxes or the law is in violation of inherent limitations.

EQUAL PROTECTION CLAUSE Equal Protection This Concept insures that all persons or things similarly situated must be similarly treated both as to rights conferred and responsibilities imposed. It does not demand absolute equality (Inchong v. Hernandez)

   

 

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Classification It means the grouping of persons or things similar to each other in certain particulars and different from all others in these same particulars (International Harvester Co. v. Missouri) What are the Requisites of a Valid Classification (SAGE)

1. Such classification rests upon

substantial distinctions

2. It applies equally to all members of the same class

3. It is germane to the purpose of the law

4. It is not confined to existing conditions

What are the Three Tests in Determining Compliance with the Equal Protection Clause? 1. Rational Basis Test – The

guaranty of the equal protection of the laws is not violated by legislation based on reasonable classification. This standard of review is quite differential; legislative classifications are “presumed to be valid” largely for the reason that “the drawing of lines that create distinctions is peculiarly a legislative task and unavoidable one” (British American Tobacco v. Camacho)

2. Strict Scrutiny Test – It is applied

when the challenge statute either:

§ Classifies on the basis of an inherently suspect characteristic; or

§ Infringes fundamental constitutional rights

3. Intermediate Scrutiny Test – It is

used as a test for evaluating classifications based on gender and legitimacy

FREEDOM OF SPEECH AND OF THE PRESS “No law shall be passed abridging the freedom of speech, of expression, or of the press, or the right of the people peaceably to assemble and petition the government for redress and grievances” (Sec. 4, Article III, 1987 Constitution) Violation of right When the tax levied upon constitutes a PRIOR RESTRAINT to the basic right of thought and expression (Tolentino vs. Secretary of Finance) Prior Restraint “Prior restraint means official governmental restrictions on the press or other forms of expression in advance of actual publication or dissemination” (Chavez vs. Gonzales, GR 168338) The Court held that “the separate sales tax on newspapers with circulation of over 20,000 imposed was a deliberate and calculated device in the guise of tax to limit the circulation of information to which the public is entitled in virtue of the Constitutional guarantees.” (Grossjean v. American Press)

   

 

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To apply an ordinance requiring a business license to be obtained before a person could sell newspapers in the streets would be to impose a prior restraint on press freedom because a newspaper is not in the same category as a pineapple or a soap powder.” (People v. Korin) Ratio behind the prohibition: Fundamental right of thought and expression Is this absolute? What are the instances when a fee DOES NOT CONSTITUTE PRIOR RESTRAINT? • When the fee is not imposed for

the exercise of the privilege but only for the purpose of defraying part of the cost of registration, a mere administrative fee (Tolentino E-VAT case)

• The press is not exempt from

taxation. • The sale of magazines or

newspapers, maybe the subject of taxation.

• What is not allowed is to impose

tax on the exercise of an activity which has a connection with freedom of the press (license fee).

• If we impose tax on persons

before they can deliver or broadcast a particular news or information, that is the one which cannot be taxed.

• What is prohibited by the

constitutional guarantee of free press are laws which single out the press or target a group belonging to the press for special

treatment or which in any way discriminates against the press on the basis of the content of the publication” (Tolentino vs. Secretary of Finance).

Example: A tax levied by telecommunications network against over-tweeting or use of mobile data does not constitute prior restraint if levied for administrative purposes. NON-INFRINGEMENT OF RELIGIOUS FREEDOM AND WORSHIP “No law shall be made respecting an establishment of religion or prohibiting the free exercise thereof. The free exercise and enjoyment of religious profession and worship without discrimination or preference shall be allowed. No religious test shall be required for the exercise of civil or political rights (Sec. 5, Art. III, 1987 Constitution)

• In the case of American Bible

Society v. City of Manila, the Court held that an ordinance of the City of Manila, which imposed a license fee on those engaged in the business of general merchandise could not be applied to the appellant's sale of bibles and other religious literature.

• The free exercise of religion clause does not prohibit imposing a generally applicable sales and use tax on the sale of religious materials by a religious organizations.

• In the Philippine Airlines case, it

was held that it is one thing to impose a tax on income or

   

 

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property of a preacher. It is quite another thing to exact a tax on him for delivering a sermon.

• Sec. 30(E) and (G) of the 1997 Tax Code, exempts from the income on non-stock corporation operated exclusively for religious, charitable, scientific, athletic or social welfare purposes, no part

of the income of which inures to the benefit of any member but income from activity for profit or from any real or personal property is subject of Tax Code.

• Exemption would not apply to income from the productive use of their properties and from profitable business pursuits, not connected with their religious, chartible or educational activities.

NON INFRINGEMENT OF CONTRACTS What is impairment of contracts? To impair the obligation of a contract is to alter or change the terms and effects of the contract, and thus in contemplation of law, to weaken the position or rights of one or all of the parties to it. What are the Exceptions to the Non-impairment Clause?

1. When the exemption is

unilaterally granted by law and the same is withdrawn by virtue of another law.

2. When the exemption is granted

under a franchise; or a franchise

is subject to amendment, alteration, or repeal by Congress when the common good so requires

3. Impairments are permitted,

provided that the legislation: a. Must serve important and

legitimate public interest b. Is a reasonable and

narrowly tailored means of promoting that interest.

NON-IMPRISONMENT FOR DEBT OR NON-PAYMENT OF POLL TAX “No person shall be imprisoned for debt or non-payment of a poll tax (Sec. 20, Art. III, 1987 Constitution) Debt Any liability to pay money arising out of a contract, express or implied (Tan Cong vs. Stewart) Poll Tax A tax of fixed amount on individuals residing within a specified territory, whether citizens or not, without regard to their property or the occupation in which they may be engaged Residence Tax Tax in the nature of a poll tax which is now called the community tax certificate, are the fixed amount levied upon residents of a community Notes:

• The non-imprisonment rule applies to non-payment of poll tax which is punishable only by a surcharge, but not to other violations like falsification of

   

 

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community tax certificate or non-payment of other taxes

• The ratio behind the prohibition

is that this is dictated by a sense of humanity and sympathy for the plight of the poorer elements of the population who cannot even afford a cedula or poll tax (Vicente G. Sinco, Philippine Political Law, 11th ed., p.682)

RULE REQUIRING THAT APPROPRIATIONS, REVENUE AND TARIFF BILLS SHALL ORIGINATE EXCLUSIVELY FROM THE HOUSE OF REPRESENTATIVES All appropriation, revenue or tariff bills, bills authorizing the increase of the public debt , bills of local application and private bills shall originate exclusively in the House of Representative but the Senate may propose or concur with amendments (Sec. 24, Art. VI of the Constitution).

• It is not the law but the revenue or tariff bill which is required by the Constitution to originate exclusively in the House of Representatives. A bill originating in the House may undergo such extensive changes in the Senate that the result may be rewriting of the whole.

• In the case of Abakada Guro v. Executive Secretary, the Court held that Sec.24, Art. VI of the Constitution does not contain any prohibition or limitation on the extent of the amendments that may be introduced by the Senate to the House revenue bill. The Senate can propose amendments and in fact, the

amendments made are germane to the purpose of the house bills which is to raise revenues for the government. The “no-amendment rule” refers only to the procedure to be allowed by each house of the Congress with regard to bills initiated in each of said respective houses, before said bill is transmitted to the other house for its concurrence and amendment.

• Why must appropriation, revenue or tariff bills originate from Congress? On the theory that the members of the House of Representatives can be expected to be more sensitive to the local needs and problems

UNIFORMITY, EQUITABILITY, AND PROGRESSIVITY OF TAXATION Uniformity All taxable articles or properties of the same class shall be taxed at the same rate. A tax is considered to be uniform when it operates with the same force and effect in every place where the subject may be found. Equitability Requires that the apportionment of the tax should consider the taxpayer’s ability to shoulder the tax burden, usually measured in terms of wealth, and, if warranted, on the basis of the benefits he receives form the government. Progressive System of Taxation As the resources of the taxpayer become higher; his tax rate likewise increases. It is based on the ability to

   

 

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pay and in implementation of the social justice principle that the more affluent should contribute more for the community’s benefit and is best exemplified by the increase in income tax rate as net taxable income increases. The constitution does not really prohibit regressive taxes, what it provides is that congress shall evolve a progressive tax system. Social Justice It is neither communism, nor despotism, nor atomism, nor anarchy,” but the humanization of laws and the equalization of social and economic force by the State so that justice in its rational and objectively secular conception may at least be approximated. Social justice means the promotion of the welfare of all the people, the adoption by the Government of measures calculated to insure economic stability of all competent elements of society, through the maintenance of a proper economic and social equilibrium in the interrelations of the members of the community, constitutionally, through the adoption of measures legally justifiable, or extra constitutionally, through the exercise of powers underlying the existence of all governments on the time-­‐honored principle of salus populi est suprema lex. (Calalang v. Williams) LIMITATION ON THE CONGRESSIONAL POWER TO DELEGATE TO THE PRESIDENT THE AUTHORITY TO FIX TARIFF RATES, IMPORT AND EXPORT QUOTAS, ETC. “The Congress may, by law, authorize limitations and restrictions as it may

impose, tariff rates, import and export quotas, tonnage and wharfage dues and other duties or imposts, within the framework of the national development program of the Government (Sec. 28 (2), Art. VI, 1987 Constitution). Note: The provision provides that the President may increase tariff rates as authorized by law even for revenue purposes only TAX EXEMPTION OF PROPERTIES ACTUALLY, DIRECTLY, AND EXCLUSIVELY USED FOR RELIGIOUS, CHARITABLE AND EDUCATIONAL PURPOSES “Charitable institutions, churches and personages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for religious, charitable, or educational purposes shall be exempt from taxation” (Sec. 28(3), Art, VI of the Constitution).

• It pertains to exemption from real property taxes only.

• Gifts made in favor of charitable, religious or educational purposes still subject to donor's gift tax exemption (Lladoc v. CIR)

ACTUAL, DIRECT AND EXCLUSIVE; MEANING It is the direct and immediate and actual application of the property itslef to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.

   

 

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Rules on taxation of non-stock corporations for charitable and religious purposes: 1. For purposes of income taxation

• The income of non-stock

corporations operating exclusively for charitable and religious purposes, no part of which inures to the benefit of any member, organizer or officer or any specific person, shall be exempt from tax. However, the income of whatever kind and nature from any of their properties, real or personal or from any of their activities for profit regardless of the disposition made of such income shall be subject to tax.

• Donations received by religious, charitable and educational institutions are considered as income but not taxable income as they are items of exclusion. On the part of the donor, such donations are deductible expense provided that no part of the income of which inures to the benefit of any private stockholder or individual in an amount not exceeding 10% in case of an individual, and 5% in case of corporation, of the taxpayer;s taxable income derived from trade or business or profession.

2. For purposes of donor's and estate

taxation

• Donations in favor of religious and charitable institutions are generally not subject to tax provided, however, that no more than 30% of said bequest, devise, or legacy or transfer

shall be used for administration purposes.

VOTING REQUIREMENT IN CONNECTION WITH THE LEGISLATIVE GRANT OF TAX EXEMPTIONS No Law granting any tax exemption shall be passed without the concurrence of a majority of all the members of congress. Reason: To prevent indiscriminate grant of tax exemptions Rules on Voting

• Granting – Absolute Majority • Revoking – Relative Majority

Reason: Taxation is the Rule, Exemption is the exception. NON-IMPAIRMENT OF THE JURSIDICTION OF THE SUPREME COURT IN TAX CASES “The Congress shall have the power to define, prescribe, and apportion the jurisdiction of the various courts but may not deprive the SC of its jurisdiction over cases enumerated in Sec. 5 hereof” (Sec. 2, Art. VIII, 1987 Constitution). “The SC shall have the following powers: xxx. Review, revise, reverse, modify or affirm on appeal or certiorari as the law of the Rules of Court may provide, final judgments and orders of lower courts in: (b) all cases involving the legality of any tax, impost, assessment or toll, or any penalty imposed in relation thereto” (Sec. 5, Art. VIII, 1987 Constitution). Note: This is based on the principle of JUDICIAL NON-INTERFERENCE. It is

   

 

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well-settled that the CTA has exclusive jurisdiction over tax cases except when there is a violation of the constitutional limitations where the Supreme Court may interfere. EXEMPTION FORM TAXES OF THE REVENUES AND ASSETS OF EDUCATIONAL INSTITUTIONS, INCLUDING GRANTS, ENDOWMENTS, DONATIONS, AND CONTRIBUTIONS “All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties. Upon the dissolution or cessation of the corporate existence of such institutions, their assets shall be disposed of in the manner provided by law. Proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such exemptions, subject to the limitations provided by law, including restrictions on dividends and provisions for reinvestment.” and “Subject to conditions prescribed by law, all grants, endowments, donations, or contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax” (Sec. 4(3) and (4), Art. XIV of the Constitution)

• This does not apply to

properties or from any activities conducted for profit

• Proprietary educational institutions shall not be categorized as tax exempt under Tax Code and their statues will have to be based only on the Constitution

• Tax exemptions are not self-executing. Particular exemption to proprietary educational institutions will apply only after Congress has laid down the conditions for its enjoyment.

• All grants, donations or contributions used actually for educational purposes are tax exempt where it is non-stock, non-profit institution

a. not limited to revenues and

assets derived from strictly school operations but it also extends to incidental to incidental income

b. in case of incidental income it must not only owned and operated by the school but facilities must be loacated in the school campus

c. unrelated income are taxable

d. use of school's income must be in consonance with purposes for which school is created

CLASS RECITATION WITH SUGGESTED ANSWERS

Q: Are income taxes on the Philippine Daily Inquirer allowed then? Yes, the press is not exempt from income taxation Q: May SBC issue a memorandum prohibiting the use of social networking sites? Yes provided that this is done for regulation purposes, i.e. disciplinary action in relation to conduct of the

   

 

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students in class and not as a prior restraint in the freedom of speech. Meaning, memorandum is valid only within the campus Q: May congress pass a bill levied on companies limiting the use of advertisments in social networks such as facebook and twitter There is a pending debate on the matter. Proponents of the bill urge that additional taxes on the bill will not hurt the companies as these ads even aid them in generating more income and hence should be taxed. On the other hand, companies, especially the low level enterprises argue that this act constitutes a prior restraint in their freedom of expression. They argue that more than business, ads are also a means of keeping the public informed and abreast of current events and issues.

CASE DIGESTS HON. RAMON D. BAGATSING vs. HON. PEDRO A. RAMIREZ

FACTS: On June 12, 1974, the Municipal Board of Manila enacted Ordinance No. 7522, "AN ORDINANCE REGULATING THE OPERATION OF PUBLIC MARKETS AND PRESCRIBING FEES FOR THE RENTALS OF STALLS AND PROVIDING PENALTIES FOR VIOLATION THEREOF AND FOR OTHER PURPOSES." The petitioner City Mayor, Ramon D. Bagatsing, approved the ordinance on June 15, 1974. On February 17, 1975, respondent Federation of Manila Market Vendors, Inc. commenced a civil case before the CFI of Manila presided over by

respondent Judge, seeking the declaration of nullity of Ordinance No. 7522 for the reason that (a) the publication requirement under the Revised Charter of the City of Manila has not been complied with; (b) the Market Committee was not given any participation in the enactment of the ordinance, as envisioned by Republic Act 6039; and (c) the ordinance would violate Presidential Decree No. 7 of September 30, 1972 prescribing the collection of fees and charges on livestock and animal products. Resolving the accompanying prayer for the issuance of a writ of preliminary injunction, respondent Judge issued an order on March 11, 1975, denying the plea for failure of the respondent Federation of Manila Market Vendors, Inc. to exhaust the administrative remedies outlined in the Local Tax Code. After due hearing on the merits, respondent Judge rendered its decision declaring the nullity of Ordinance No. 7522 of the City of Manila on the primary ground of non-compliance with the requirement of publication under the Revised City Charter. Petitioners moved for reconsideration of the adverse decision, stressing that (a) only a post-publication is required by the Local Tax Code; and (b) private respondent failed to exhaust all administrative remedies before instituting an action in court. On September 26, 1975, respondent Judge denied the motion. Hence, the present petition for review on certiorari. ISSUES: 1. What law shall govern the

publication of a tax ordinance enacted by the Municipal Board of Manila, the Revised City Charter

   

 

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(R.A. 409, as amended), which requires publication of the ordinance before its enactment and after its approval, or the Local Tax Code (P.D. No. 231), which only demands publication after approval?

2. Is there a valid delegation? HELD: (1) LOCAL TAX CODE. While the Revised Charter of the City of Manila requires publication before the enactment of the ordinance and after the approval thereof in two daily newspapers of general circulation in the city, the Local Tax Code only prescribes for publication after the approval of "ordinances levying or imposing taxes, fees or other charges" either in a newspaper or publication widely circulated within the jurisdiction of the local government or by posting the ordinance in the local legislative hall or premises and in two other conspicuous places within the territorial jurisdiction of the local government. Petitioners' compliance with the Local Tax Code rather than with the Revised Charter of the City spawned this litigation. There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all local governments. Blackstone defines general law as a universal rule affecting the entire community and special law as one relating to particular persons or things of a class. And the rule commonly said is that a prior special law is not ordinarily repealed by a subsequent general law. The fact that one is special and the other general creates a presumption that the special is to be considered as

remaining an exception of the general, one as a general law of the land, the other as the law of a particular case. However, the rule readily yields to a situation where the special statute refers to a subject in general, which the general statute treats in particular. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a particular provision. Special provision governs. This is especially true where the law containing the particular provision was enacted later than the one containing the general provision. The City Charter of Manila was promulgated on June 18, 1949 as against the Local Tax Code which was decreed on June 1, 1973. The law-making power cannot be said to have intended the establishment of conflicting and hostile systems upon the same subject, or to leave in force provisions of a prior law by which the new will of the legislating power may be thwarted and overthrown. Such a result would render legislation a useless and idle ceremony, and subject the law to the reproach of uncertainty and unintelligibility. In fact, there is no rule which prohibits the repeal even by implication of a special or specific act by a general or

   

 

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broad one. A charter provision may be impliedly modified or superseded by a later statute, and where a statute is controlling, it must be read into the charter notwithstanding any particular charter provision. A subsequent general law similarly applicable to all cities prevails over any conflicting charter provision, for the reason that a charter must not be inconsistent with the general laws and public policy of the state. A chartered city is not an independent sovereignty. The state remains supreme in all matters not purely local. Otherwise stated, a charter must yield to the constitution and general laws of the state, it is to have read into it that general law which governs the municipal corporation and which the corporation cannot set aside but to which it must yield. When a city adopts a charter, it in effect adopts as part of its charter general law of such character. The principle of exhaustion of administrative remedies is strongly asserted by petitioners as having been violated by private respondent in bringing a direct suit in court. But, the petition below plainly shows that the controversy between the parties is deeply rooted in a pure question of law. In other words, the dispute is sharply focused on the applicability of the Revised City Charter or the Local Tax Code on the point at issue, and not on the legality of the imposition of the tax. Exhaustion of administrative remedies before resort to judicial bodies is not an absolute rule. It admits of exceptions. Precisely, the raising of revenues is the principal object of taxation. Under Section 5, Article XI of the New Constitution, "Each local government unit shall have the power to create its own sources of revenue and to levy

taxes, subject to such provisions as may be provided by law." 13 And one of those sources of revenue is what the Local Tax Code points to in particular: "Local governments may collect fees or rentals for the occupancy or use of public markets and premises." They can provide for and regulate market stands, stalls and privileges, and, also, the sale, lease or occupancy thereof. They can license, or permit the use of, lease, sell or otherwise dispose of stands, stalls or marketing privileges. The non-participation of the Market Committee in the enactment of Ordinance No. 7522 supposedly in accordance with Republic Act No. 6039, an amendment to the City Charter of Manila, providing that "the market committee shall formulate, recommend and adopt, subject to the ratification of the municipal board, and approval of the mayor, policies and rules or regulation repealing or amending existing provisions of the market code" does not infect the ordinance with any germ of invalidity. The function of the committee is purely recommendatory as the underscored phrase suggests, its recommendation is without binding effect on the Municipal Board and the City Mayor. Its prior acquiescence of an intended or proposed city ordinance is not a condition sine qua non before the Municipal Board could enact such ordinance. The native power of the Municipal Board to legislate remains undisturbed even in the slightest degree. It can move in its own initiative and the Market Committee cannot demur. At most, the Market Committee may serve as a legislative aide of the Municipal Board in the enactment of city ordinances affecting the city markets or, in plain words, in the gathering of the necessary data, studies and the collection of

   

 

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consensus for the proposal of ordinances regarding city markets. Much less could it be said that Republic Act 6039 intended to delegate to the Market Committee the adoption of regulatory measures for the operation and administration of the city markets. Potestas delegata non delegare potest. (2) Private respondent bewails that the market stall fees imposed in the disputed ordinance are diverted to the exclusive private use of the Asiatic Integrated Corporation since the collection of said fees had been let by the City of Manila to the said corporation in a "Management and Operating Contract." The assumption is of course saddled on erroneous premise. The fees collected do not go direct to the private coffers of the corporation. Ordinance No. 7522 was not made for the corporation but for the purpose of raising revenues for the city. The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private. The right to tax depends upon the ultimate use, purpose and object for which the fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the direction of an individual or private corporation. Ordinance No. 7522 of the City of Manila, dated June 15, 1975, is validly enacted.

ABAKADA GURO PARTY LIST vs. ERMITA FACTS: RA 9337 is a law amending sections of the National Internal Revenue Code of 1997. It is a consolidation of three bills: House Bill 3555 (restructuring VAT), House Bill 3705 (multi-tiered VAT system), and Senate Bill 1950 (NIRC amendment). These bills have been certified by the President as urgent, and was approved by the Senate on second and third reading. After the committee conference, the consolidated bills were transmitted to the President, who signed it into law. When the effectivity date came, the Supreme Court issued a TRO because of the confusion in the implementation of the law. ABAKADA GURO Party List filed a petition for prohibition, questioning the constitutionality of RA 9337 on the grounds of the legality of the bicameral proceedings, and that it allows a delegation of legislative power to the Executive branch (also known as the stand-by authority), violative of sections 24 and 26(2), respectively, of Article 6 of the Constitution. RA 9337, a law amending sections of the National Internal Revenue Code, is a consolidation of three bills – House Bill 3555, which restructures VAT; House Bill 3705, which implements a multi-tiered VAT system; and Senate Bill 1950 which provides for NRIC amendment – which have been issued the President’s Certification as urgent, approved on the second and third reading by the Senate and transmitted to the President after the committee conference who then signed it into law. On the effectivity date, the SC issued a TRO due to confusion in the law’s implementation. Petitioners questioned the constitutionality of RA 9337 on the

   

 

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grounds of the legality of the bicameral committee conference proceedings in violation of sec. 24 of art. VI of the constitution, and the delegation of legislative power to the executive branch in violation of sec. 26(2) of art. VI of the constitution. ISSUES: 1. Whether or not RA 9337 is

unconstitutional on the grounds of the interpretation that it allows a delegation of legislative power to the Executive branch and on the grounds of the legality of bicameral proceedings.

2. Whether or not RA 9337 is unconstitutional due to the violation of sections 24 and 26[2] of art. VI of the constitution.

HELD: (1) NO. RA 9337 is NOT unconstitutional. The law must not be interpreted as a delegation of legislative power, but it should be interpreted as a delegation of ascertainment of facts upon which enforcement and administration under the law is contingent, and no discretion would be exercised by the President. Also, the law follows Rule XII, Sec. 35 of the Rules of Senate regarding the bicameral proceedings, that a conference committee of both Houses shall be composed to settle differences and disagreeing provisions. Petition is dismissed. (2) NO. sec. 35, Rule XII, of the rules of senate calls bicameral conference committee to settle differences and disagreeing provisions between the HR and the senate and RA 9337 delegates enforcement and administration i.e. ascertainment of facts, not legislative power, to the President. Hence, petitions dismissed.

EASTERN THEATRICAL CO., INC., ET AL. vs. VICTOR, ALFONSO

FACTS: 12 corporations engaged in motion picture business have initiated this proceeding through a complaint dated May 5, 1946, to impugn the validity of Ordinance No. 2958 of the City of Manila which was enacted by the Municipal Board on April 25, 1946, approved by the Mayor on April 27, 1946, and took effect on May 1, 1946, entitled:

AN ORDINANCE IMPOSING A FEE ON THE PRICE OF EVERY

ADMISSION TICKET SOLD BY CINEMATOGRAPHS, THEATERS

VAUDEVILLE COMPANIES THEATRICAL SHOWS AND BOXING EXHIBITION AND PROVIDING FOR

OTHER PURPOSES. Plaintiffs, operators of theaters in Manila and distributor of local or imported films, allege that they are interested in the provision of Sec. 1, 2, and 4 which they impugn as null and void based on the ff. grounds: § For violation of the Constitution,

particularly the provision re: the uniformity and equality of taxation and the equal protection of laws;

§ The Municipal Board of Manila exceeded and overstepped the power granted it the Charter of the City of Manila;

§ It contravenes, violates, and is consistent with existing national legislation, particularly, revenue and tax laws; and

§ It is unjust, arbitrary, capricious, unreasonable, oppressive, and is contrary to, and a violation of our basic and recognized principles of taxation and licensing laws.

   

 

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Defendants allege that: § The ordinance was passed by the

Municipal Board by virtue of its express legislative power to tax, fix the license fee, and regulate the business of theaters, cinematographs, and further to fix the location of and to tax, fix the license fee for and regulate the business of theatrical performances public exhibition circus and other performances and places of amusement;

§ The graduated tax required by said ordinance being applied to all cinematographs, theaters, vaudeville companies theatrical show and boxing exhibitions similarly situated and as a class without distinction or exception the same does not violate the prohibition against uniformity and equality of taxation;

§ The graduated tax on admission tickets to theaters and other places of amusement imposed by the National Internal Revenue Code (Commonwealth Act No. 466) is collected by and for the purposes of the National Government, whereas, Ordinance No.2958 imposes and requires the collection of a similar tax by and for the purposes of the Government of the City of Manila, and there is no case of double taxation;

§ The ordinance having been enacted under the express power of the Municipal Board to tax for revenue as distinguished from its power to license for purely police purposes, the fact that the amount collected thereunder are higher than what are needed for police regulation and supervision does not render said ordinance unfair unjust capricious unreasonable and oppressive;

§ Considering the nature of the business of the plaintiffs and the enormous volume of business they handle the graduated tax fixed by the ordinance is not unreasonable.

§ Since the ordinance took effect, plaintiffs have been charging the theater-going public increased prices for admission to the cinematographs owned and operated to the graduated tax imposed by the ordinance and, as a result, while refusing to pay said tax but at the same time collecting an amount equal to said tax, plaintiffs have taken undue advantage of the ordinance to realize more profits.

Judge Emilio Pena of CFI Manila upheld the validity of the ordinance. Hence, this petition. ISSUES: 1. Whether under Sec. 2444(m) of the

Revised Administrative Code, the Municipal Board of the City of Manila had the power to enact Ordinance No. 2958.

2. Whether Ordinance No. 2958 violated the principle of equality and uniformity of taxation enjoined by the Constitution (Sec. 22(1), Art. VI, Constitution).

HELD: (1) YES. The very fact that section 2444 (m) of the Revised Administrative Code includes theaters, cinematographs, public billiard tables, public pool tables, bowling alleys, dance halls, public dancing halls, cabarets, circuses and other similar places, race tracks, horse races, theatrical performances, public exhibition, circus and other performances and places of amusements, will show conclusively that the power to tax amusement is expressly included within the power

   

 

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granted by section 2444(m) of the Revised Administrative Code. (2) NO. The fact that some places of amusement are not taxed while others, such as cinematographs, theaters, vaudeville companies, theatrical shows, and boxing exhibitions and other kinds of amusements or places of amusement are taxed, is no argument at all against the equality and uniformity of the tax imposition. Equality and uniformity of the tax imposition. Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation; and the appellants cannot point out what places of amusement taxed by the ordinance do not constitute a class by themselves and which can be confused with those not included in the ordinance. The judgment of the trial court is affirmed with costs against appellants. BRITISH AMERICAN TOBACCO vs. JOSE ISIDRO N. CAMACHO

FACTS: RA 8240, An Act Amending Sections 138, 139, 140, and 142 of the NIRC, as Amended and For Other Purposes, took effect on January 1, 1997. RA 8424, The Tax Reform Act of 1997, recodifying the NIRC, was also passed thereby renumbering Sec. 142 as Sec. 145 of the NIRC. Par. (c) of Sec. 145 provides for 4 tiers of tax rates based on the net retail price per pack of cigarettes. To determine the applicable tax rates of existing cigarette brands, a survey of the net retail prices per pack of

cigarettes was conducted as of October 1, 1996, the results of which were embodied in “ANNEX D” of the NIRC as the duly registered, existing, or active brands of cigarettes. To implement RA 8240, the BIR issued Revenue Regulations No. 1-97 which classified the existing brands of cigarettes as those duly registered or active brands prior to January 1, 1997. New brands, or those registered after January 1, 1997, shall be initially assessed at their suggested retail price until such time that the appropriate survey to determine their current net retail price is conducted. . In June 2001, petitioner British American Tobacco introduced into the market Lucky Strike Filter, Lucky Strike Lights and Lucky Strike c) quoted above, the Lucky Strike brands were initially assessed the excise tax at P8.96 per pack. On February 17, 2003, Revenue Regulations No. 9-2003, amended Revenue Regulations No. 1-97 by providing, among others, a periodic review every two years or earlier of the current net retail price of new brands and variants thereof for the purpose of establishing and updating their tax classification. Pursuant thereto, Revenue Memorandum Order No. 6-2003 was issued on March 11, 2003, prescribing the guidelines and procedures in establishing current net retail prices of new brands of cigarettes and alcohol products. Subsequently, Revenue Regulations No. 22-2003 was issued on August 8, 2003 to implement the revised tax classification of certain new brands introduced in the market after January

   

 

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1, 1997, based on the survey of their current net retail price. The survey revealed that Lucky Strike Filter, Lucky Strike Lights, and Lucky Strike Menthol Lights, are sold at the current net retail price of P22.54, P22.61 and P21.23, per pack, respectively. Commissioner of the BIR thus recommended the applicable tax rate of P13.44 per pack inasmuch as Lucky Strike’s average net retail price is above P10.00 per pack. On September 1, 2003, BAT filed before the RTC of Makati, Branch 61, a petition for injunction with prayer for the issuance of a TRO and/or writ of preliminary injunction seeking to enjoin the implementation of the aforementioned law, regulations, and memorandum order on the ground that they discriminate against new brands of cigarettes in violation of the equal protection and uniformity provisions of the Constitution. CIR filed an Opposition to the application for issuance for the TRO. RTC denied the application for TRO holding that the courts have no authority to restrain the collection of taxes. Meanwhile, the Sec. of Finance filed a Motion to Dismiss contending that the petition is premature for lack of actual controversy or urgent necessity to justify judicial intervention. RTC denied the motion to dismiss and issued a writ of preliminary injunction to enjoin the implementation of Revenue Regulations Nos. 1-97, 9-2003, 22-2003 and Revenue Memorandum Order No. 6-2003. RTC later upheld the constitutionality of the assailed law, order, and regulations. Hence, this petition for review. While the petition was pending, RA 9334 (An Act Increasing The Excise

Tax Rates Imposed on Alcohol And Tobacco Products, Amending For The Purpose Sections 131, 141, 143, 144, 145 and 288 of the NIRC of 1997, As Amended), took effect on January 1, 2005. The statute, among others,– (4) provided a legislative freeze on brands of cigarettes introduced between the period January 2, 1997

to December 31, 2003, such that said cigarettes shall remain in the classification under which the BIR has determined them to belong as of December 31, 2003, until revised by Congress. ISSUE: Whether (1) Section 145 of the National Internal Revenue Code (NIRC), as recodified by Republic Act (RA) 8424; (2) RA 9334, which further amended Section 145 of the NIRC on January 1, 2005; (3) Revenue Regulations Nos. 1-97, 9-2003, and 22-2003; and (4) Revenue Memorandum Order No. 6-2003 are violative of the equal protection and uniformity clauses of the Constitution. (Whether the classification freeze provision violates the equal protection and uniformity of taxation clauses of the Constitution.) HELD: AS TO THE LAW: CONSTITUTIONAL The alleged discrimination arising from the legislative classification freeze between the brands under Annex “D” and petitioner’s newly introduced brands arose only because the former were classified based on their “current” net retail price as of October 1, 1996 and BAT’s newly introduced brands were classified based on their “current” net retail price as of 2003. Without this corresponding freezing of

   

 

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the classification of petitioner’s newly introduced brands based on their current net retail price, it would be impossible to establish that a disparate tax treatment occurred between the Annex “D” brands and petitioner’s newly introduced brands. In our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the ‘rational basis’ test, coupled with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution.” Within the present context of tax legislation on sin products which neither contains a suspect classification nor impinges on a fundamental right, the rational-basis test thus finds application. Under this test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest. The classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation. Since every law has in its favor the presumption of constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove beyond reasonable doubt that the legislative classification is without rational basis. The presumption of constitutionality can be overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes, and that there is no conceivable basis which might support it. A legislative classification that is reasonable does not offend the

constitutional guaranty of the equal protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it applies equally to all those belonging to the same class. The first, third and fourth requisites are satisfied. The classification freeze provision was inserted in the law for reasons of practicality and expediency. That is, since a new brand was not yet in existence at the time of the passage of RA 8240, then Congress needed a uniform mechanism to fix the tax bracket of a new brand. The current net retail price, similar to what was used to classify the brands under Annex “D” as of October 1, 1996, was thus the logical and practical choice. Further, with the amendments introduced by RA 9334, the freezing of the tax classifications now expressly applies not just to Annex “D” brands but to newer brands introduced after the effectivity of RA 8240 on January 1, 1997 and any new brand that will be introduced in the future. The classification freeze provision could hardly be considered arbitrary, or motivated by a hostile or oppressive attitude to unduly favor older brands over newer brands. Congress was unequivocal in its unwillingness to delegate the power to periodically adjust the excise tax rate and tax brackets as well as to periodically resurvey and reclassify the cigarette brands based on the increase in the consumer price index to the DOF and the BIR. Congress doubted the constitutionality of such delegation of power, and likewise, considered the

   

 

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ethical implications thereof. Curiously, the classification freeze provision was put in place of the periodic adjustment and reclassification provision because of the belief that the latter would foster an anti-competitive atmosphere in the market. Yet, as it is, this same criticism is being foisted by BAT upon the classification freeze provision. The classification freeze provision was in the main the result of Congress’s earnest efforts to improve the efficiency and effectivity of the tax administration over sin products while trying to balance the same with other state interests. In particular, the questioned provision addressed Congress’s administrative concerns regarding delegating too much authority to the DOF and BIR as this will open the tax system to potential areas for abuse and corruption. Congress may have reasonably conceived that a tax system which would give the least amount of discretion to the tax implementers would address the problems of tax avoidance and tax evasion. Congress sought to, among others, simplify the whole tax system for sin products to remove these potential areas of abuse and corruption from both the side of the taxpayer and the government. Without doubt, the classification freeze provision was an integral part of this overall plan. This is in line with one of the avowed objectives of the assailed law “to simplify the tax administration and compliance with the tax laws that are about to unfold in order to minimize losses arising from inefficiencies and tax avoidance scheme, if not outright tax evasion.”

RA 9334 did not alter this classification freeze provision of RA 8240. On the contrary, Congress affirmed this freezing mechanism by clarifying the wording of the law. We can thus reasonably conclude, as the deliberations on RA 9334 readily show, that the administrative concerns in tax administration, which moved Congress to enact the classification freeze provision in RA 8240, were merely continued by RA 9334. Indeed, administrative concerns may provide a legitimate, rational basis for legislative classification. In the case at bar, these administrative concerns in the measurement and collection of excise taxes on sin products are readily apparent as afore-discussed. Aside from the major concern regarding the elimination of potential areas for abuse and corruption from the tax administration of sin products, the legislative deliberations also show that the classification freeze provision was intended to generate buoyant and stable revenues for government. With the frozen tax classifications, the revenue inflow would remain stable and the government would be able to predict with a greater degree of certainty the amount of taxes that a cigarette manufacturer would pay given the trend in its sales volume over time. The reason for this is that the previously classified cigarette brands would be prevented from moving either upward or downward their tax brackets despite the changes in their net retail prices in the future and, as a result, the amount of taxes due from them would remain predictable. The classification freeze provision would, thus, aid in the revenue planning of the government. The classification freeze provision addressed Congress’s

   

 

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administrative concerns in the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues. Consequently, there can be no denial of the equal protection of the laws since the rational-basis test is amply satisfied. Whether Congress acted improvidently in derogating, to a limited extent, the state’s interest in promoting fair competition among the players in the industry, while pursuing other state interests regarding the simplification of tax administration of sin products, elimination of potential areas for abuse and corruption in tax collection, buoyant and stable revenue generation, and ease of projection of revenues through the classification freeze provision, and whether the questioned provision is the best means to achieve these state interests, necessarily go into the wisdom of the assailed law which we cannot inquire into, much less overrule. The classification freeze provision has not been shown to be precipitated by a veiled attempt, or hostile attitude on the part of Congress to unduly favor older brands over newer brands. On the contrary, we must reasonably assume, owing to the respect due a co-equal branch of government and as revealed by the Congressional deliberations, that the enactment of the questioned provision was impelled by an earnest desire to improve the efficiency and effectivity of the tax administration of sin products. For as long as the legislative classification is rationally related to furthering some legitimate state interest, as here, the rational-basis test is satisfied and the constitutional challenge is perfunctorily defeated.

AS TO THE REGULATIONS/ORDERS: UNCONSTITUTIONAL Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Revenue Memorandum Order No. 6-2003 unjustifiably emasculate the operation of Section 145 of the NIRC because they authorize the Commissioner of Internal Revenue to update the tax classification of new brands every two years or earlier subject only to its issuance of the appropriate Revenue Regulations, when nowhere in Section 145 is such authority granted to the Bureau. Unless expressly granted to the BIR, the power to reclassify cigarette brands remains a prerogative of the legislature which cannot be usurped by the former. Thus, the amendments introduced by RA 9334 to RA 8240, insofar as the freezing mechanism is concerned, must be seen merely as underscoring the legislative intent already in place then, i.e. new brands as being covered by the freezing mechanism after their classification based on their current net retail prices. Unfortunately for petitioner, this result will not cause a downward reclassification of Lucky Strike. It will be recalled that petitioner introduced Lucky Strike in June 2001. However, as admitted by petitioner itself, the BIR did not conduct the required market survey within three months from product launch. As a result, Lucky Strike was never classified based on its actual current net retail price. Petitioner failed to timely seek redress to compel the BIR to conduct the requisite market survey in order to fix the tax classification of Lucky

   

 

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Strike. In the meantime, Lucky Strike was taxed based on its suggested net retail price of P9.90 per pack, which is within the high-priced tax bracket. It was only after the lapse of two years or in 2003 that the BIR conducted a market survey which was the first time that Lucky Strike’s actual current net retail price was surveyed and found to be from P10.34 to P11.53 per pack, which is within the premium-priced tax bracket. The case of petitioner falls under a situation where there was no reclassification based on its current net retail price which would have been invalid as previously explained. Thus, we cannot grant petitioner’s prayer for a downward reclassification of Lucky Strike because it was never reclassified by the BIR based on its actual current net retail price. NEVERTHELESS, Revenue Regulations No. 9-2003 and Revenue Memorandum Order No. 6-2003 should be deemed modified by the above provisions from the date of effectivity of RA 9334 on January 1, 2005. Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, as pertinent to cigarettes packed by machine, are invalid insofar as they grant the BIR the power to reclassify or update the classification of new brands every two years or earlier. Further, these provisions are deemed modified upon the effectivity of RA 9334 on January 1, 2005 insofar as the manner of determining the permanent classification of new brands is concerned.

NEITHER DOES RA 8240, AS AMENDED BY RA 93334 VIOLATE THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT). The classification freeze provision uniformly applies to all newly introduced brands in the market, whether imported or locally manufactured. It does not purport to single out imported cigarettes in order to unduly favor locally produced ones. Further, petitioner’s evidence was anchored on the alleged unequal tax treatment between old and new brands which involves a different frame of reference vis-à-vis local and imported products. Petitioner has, therefore, failed to clearly prove its case, both factually and legally, within the parameters of the GATT. At any rate, even assuming arguendo that petitioner was able to prove that the classification freeze provision violates the GATT, the outcome would still be the same. The GATT is a treaty duly ratified by the Philippine Senate and under Article VII, Section 21of the Constitution, it merely acquired the status of a statute. Applying the basic principles of statutory construction in case of irreconcilable conflict between statutes, RA 8240, as amended by RA 9334, would prevail over the GATT either as a later enactment by Congress or as a special law dealing with the taxation of sin products. WHEREFORE, the petition is PARTIALLY GRANTED and the decision of the Regional Trial Court of Makati, Branch 61, in Civil Case No. 03-1032, is AFFIRMED with MODIFICATION. As modified, this Court declares that:

   

 

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(1) Section 145 of the NIRC, as amended by Republic Act No. 9334, is CONSTITUTIONAL; and that (2) Section 4(B)(e)(c), 2nd paragraph of Revenue Regulations No. 1-97, as amended by Section 2 of Revenue Regulations 9-2003, and Sections II(1)(b), II(4)(b), II(6), II(7), III (Large Tax Payers Assistance Division II) II(b) of Revenue Memorandum Order No. 6-2003, insofar as pertinent to cigarettes packed by machine, are INVALID insofar as they grant the BIR the power to reclassify or update the classification of new brands every two years or earlier. BRITISH AMERICAN TOBACCO vs. JOSE ISIDRO N. CAMACHO

FACTS/ISSUES: This is a Motion for Reconsideration for the Decision of the SC rendered on August 20, 2008. BAT insists that the assailed provisions: 1. violate the equal protection and

uniformity of taxation clauses of the Constitution;

2. contravene Sec. 19, Art. XII of the Constitution on unfair competition; and

3. infringe the constitutional provisions on regressive and inequitable taxation.

Further, assuming arguendo that the assailed provisions are constitutional, BAT is entitled to a downward reclassification of Lucky Strike from the premium-priced to the high-priced tax bracket. HELD:

THE ASSAILED LAW DOES NOT VIOLATE THE EQUAL PROTECTION

AND UNIFORMITY OF TAXATION CLAUSES.

The rational basis test was properly applied to gauge the constitutionality of the assailed law in the face of an equal protection challenge. It has been held that “in the areas of social and economic policy, a statutory classification that neither proceeds along suspect lines nor infringes constitutional rights must be upheld against equal protection challenge if there is any reasonably conceivable state of facts that could provide a rational basis for the classification.”

Under the rational basis test, it is sufficient that the legislative classification is rationally related to achieving some legitimate State interest.. A tax “is uniform when it operates with the same force and effect in every place where the subject of it is found.” It does not signify an intrinsic but simply a geographical uniformity. A levy of tax is not unconstitutional because it is not intrinsically equal and uniform in its operation. The uniformity rule does not prohibit classification for purposes of taxation. Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities (citations omitted). Uniformity does not forfend classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class.

   

 

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The classification freeze provision meets the geographical uniformity requirement because the assailed law applies to all cigarette brands in the Philippines. Also, the above four-fold test has been met in the present case.

THE ASSAILED PROVISIONS DO NOT VIOLATE THE

CONSTITUTIONAL PROHIBITION ON UNFAIR COMPETITION.

While a law which imposes substantial barriers to the entry and exit of new players in our downstream oil industry may be struck down for being violative of Section 19, Article XII of the Constitution, if they are insignificant impediments, they need not be stricken down. BAT failed to convincingly prove that there is a substantial barrier to the entry of new brands in the cigarette market due to the classification freeze provision. Several new brands were introduced in the market after the assailed law went into effect thus negating petitioner’s sweeping claim that the classification freeze provision is an insurmountable barrier to the entry of new brands. Also, price is not the only factor affecting competition in the market for there are other factors such as taste, brand loyalty, etc. The totality of the evidence presented by petitioner before the trial court failed to convincingly establish the alleged violation of the constitutional prohibition on unfair competition. It is a basic postulate that the one who challenges the constitutionality of a law carries the heavy burden of proof for laws enjoy a strong presumption of constitutionality as it is an act of a co-equal branch of government. Petitioner failed to carry this burden.

THE ASSAILED LAW DOES NOT

TRANSGRESS THE CONSTITUTIONAL PROVISIONS ON

REGRESSIVE AND INEQUITABLE TAXATION.

The assailed law imposes an excise tax on cigarettes which is a form of indirect tax, and thus, regressive in character. While there was an attempt to make the imposition of the excise tax more equitable by creating a four-tiered taxation system where higher priced cigarettes are taxed at a higher rate, still, every consumer, whether rich or poor, of a cigarette brand within a specific tax bracket pays the same tax rate. To this extent, the tax does not take into account the person’s ability to pay. Nevertheless, this does not mean that the assailed law may be declared unconstitutional for being regressive in character because the Constitution does not prohibit the imposition of indirect taxes but merely provides that Congress shall evolve a progressive system of taxation. Regressivity is not a negative standard for courts to enforce. What Congress is required by the Constitution to do is to "evolve a progressive system of taxation." This is a directive to Congress, just like the directive to it to give priority to the enactment of laws for the enhancement of human dignity and the reduction of social, economic and political inequalities [Art. XIII, Section 1] or for the promotion of the right to "quality education" [Art. XIV, Section 1]. These provisions are put in the Constitution as moral incentives to legislation, not as judicially enforceable rights.

BAT IS NOT ENTITLED TO A DOWNWARD RECLASSIFICATION

OF LUCKY STRIKE.

   

 

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First, BIR Ruling No. 018-2001 was requested by petitioner for the purpose of fixing Lucky Strike’s initial tax classification based on its suggested gross retail price relative to its planned introduction of Lucky Strike in the market sometime in 2001 and not for the conduct of the market survey within three months from product launch. In fact, the said Ruling contained an express reservation that the tax classification of Lucky Strike set therein “is without prejudice, however, to the subsequent conduct of a survey x x x in order to determine if the actual gross retail price thereof is consistent with [petitioner’s] suggested gross retail price.” In short, petitioner acknowledged that the initial tax classification of Lucky Strike may be modified depending on the outcome of the survey which will determine the actual current net retail price of Lucky Strike in the market. Second, there was no upward reclassification of Lucky Strike because it was taxed based on its suggested gross retail price from the time of its introduction in the market in 2001 until the BIR market survey in 2003. Lucky Strikes’ actual current net retail price was surveyed for the first time in 2003 and was found to be from P10.34 toP11.53 per pack, which is within the premium-priced tax bracket. There was, thus, no prohibited upward reclassification of Lucky Strike by the BIR based on its current net retail price. Third, the failure of the BIR to conduct the market survey within the three-month period under the revenue regulations then in force can in no way make the initial tax classification of Lucky Strike based on its suggested gross retail price

permanent. Otherwise, this would contravene the clear mandate of the law which provides that the basis for the tax classification of a new brand shall be the current net retail price and not the suggested gross retail price. It is a basic principle of law that the State cannot be estopped by the mistakes of its agents. Last, the issue of timeliness of the market survey was never raised before the trial court because petitioner’s theory of the case was wholly anchored on the alleged unconstitutionality of the classification freeze provision. As a consequence, no documentary evidence as to the actual net retail price of Lucky Strike in 2001, based on a market survey at least comparable to the one mandated by law, was presented before the trial court. Evidently, it cannot be assumed that had the BIR conducted the market survey within three months from its product launch sometime in 2001, Lucky Strike would have been found to fall under the high-priced tax bracket and not the premium-priced tax bracket. To so hold would run roughshod over the State’s right to due process. Verily, petitioner prosecuted its case before the trial court solely on the theory that the assailed law is unconstitutional instead of merely challenging the timeliness of the market survey. The rule is that a party is bound by the theory he adopts and by the cause of action he stands on. He cannot be permitted after having lost thereon to repudiate his theory and cause of action, and thereafter, adopt another and seek to re-litigate the matter anew either in the same forum or on appeal. Having pursued one theory and lost thereon, petitioner may no longer pursue another inconsistent theory without thereby trifling with court processes.

   

 

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DOUBLE TAXATION AND TAX

EXEMPTION DOUBLE TAXATION

• Taxing the same property twice when it should be taxed once.

• Taxing the same person twice by the same jurisdiction over the same thing. (Victorias Milling Co. v. Mun. of Victorias)

• Taxing the same person twice by the same jurisdiction for the same thing or purpose (US Jurisprudence -- Harvey Coal & Coke Co. v. Dillon).

NO PROHIBITION AGAINST DOUBLE TAXATION

• There is no Constitutional prohibition against it. (Villanueva v. City of Iloilo)

• Something not favored, BUT nevertheless permissible.

• it is not forbidden by our fundamental law. (Pepsi-Cola Bottling Co. of the Philippines, Inc. v. City of Butuan, et al.).

KINDS OF DOUBLE TAXATION (D-I2-L)

• Also known as “duplicate” taxation, it may be: 1. Direct or 2. Indirect; 3. International Juridical

Double Taxation, and 4. Local Double Taxation.

DIRECT DUPLICATE TAXATION/ DOUBLE TAXATION

• In the objectionable or prohibited sense (also known as obnoxious), means that the same property is taxed twice when it should be taxed only once; and that both taxes are imposes

Elements of Direct Duplicate Taxation (K-P3AJ)

• on the same PROPERTY or subject matter

• for the same PURPOSE, • by the same State, Government

or taxing AUTHORITY • within the same taxing

JURISDICTION or taxing district • during the same taxing PERIOD • and covering the same KIND or

character OF TAX. (Villanueva v. City of Iloilo)

Incidentally, if a real estate tax as well as a tenement tax are imposed on the same property, THERE IS NO OBJECTIONABLE DOUBLE TAXATION, because the two are not of the same kind/character of tax. (ibid.) INDIRECT DUPLICATE TAXATION

• Not legally objectionable; • Illustrated [or arises] in the

absence of the elements of direct duplicate taxation [mentioned in the Villanueva Case].

INTERNATIONAL JUDICIAL TAXATION

• the imposition of comparable taxes

   

 

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• in two or more states • on the same taxpayer • in respect of the same subject

matter and • for identical periods.

(Commissioner v. SC Johnsons Case)

• Usually takes place when a person is a resident of the first contracting state and both states impose taxes on such income or capital.

• In order to eliminate double taxation, a tax treaty is entered into by the two contracting states.

• Only occurs when the state of

residence of the tax payer imposes taxes on the income of said taxpayer within and outside their state.

• No International Juridical Double Taxation when the citizens/nationals are only taxed on their income from sources within.

• Reason: To encourage the free

flow of goods and services and the movement of capital, technology and persons between countries, conditions deemed vital in creating robust and dynamic economies. (CIR v. SC Johnsons Case)

LOCAL DOUBLE TAXATION

• The imposition of taxes of

similar nature both by the national government and the local government unit where the object of the tax is located.

No Local Double Taxation

• if the tax is levied by the LGU and another by the national government.

• the two are different taxing authorities. (Pepsi v. Tanauan Case)

METHODS EMPLOYED TO AVOID DOUBLE TAXATION/ METHODS OF REDUCING THE RIGORS OF DOUBLE TAXATION (CD-RET)

• These are schemes provided by our system to avoid or minimize the harsh or burdensome effects of double taxation.

• Sometimes embodied in tax treaties or agreements with foreign countries while others are imbedded in statutory provisions found under our existing laws.

They are the following: 1. Tax Credit 2. Tax Deductions 3. Reductions of the Philippine

Income Tax Rate 4. Tax Exemptions 5. Tax Treaties TAX CREDIT

• An amount subtracted from an individual’s (or entity’s) tax liability to arrive at the total tax liability.

TAX DEDUCTIONS

• The amount of tax is written off or treated as a deduction from an individual or entity’s gross income on which resulting

   

 

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amount the tax liability is calculated.

Reductions of the Philippine Income Tax Rate. An example of which is the Tax Sparing Rule. Tax Sparing Rule The dividend earned by a non-resident foreign corporation (NRFC) within the Philippines is reduced by imposing a lower rate of 15% (in lieu of 30%), ON THE CONDITION THAT the country to which the NRFC is domiciled shall allow a credit against the tax due from the NRFC, which taxes are deemed to have been paid in the Philippines. (Sec. 28[B][5][b], NIRC; CIR v. Procter & Gamble) TAX EXEMPTIONS

• A grant of immunity to particular persons or corporations from the obligation to pay taxes.

TAX TREATIES

• Agreement between two countries specifying what items of income will be taxed by the authorities of the country where the income is earned.

Under Tax Treaties, we have methods used to eliminate Double Taxation and they are the following:

1. First Method – An exclusive right to tax is conferred in one of the contracting states. However, for other items of income or capital, both states are given the right to tax although the amount of tax that may be imposed by the state of source is limited.

2. Second Method – The state of source is given a full or limited right to tax together with the state of residence. In this case, the treaty makes it incumbent upon the state of residence to allow relief in order to avoid double taxation.

• There are Two Ways under the Second Method:

1. Exemption Method – The

income or capital which is taxable in the state of source (or situs) is EXEMPTED in the state of residence, although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer’s remaining income or capital. (this may be done using the tax deduction method – allows foreign income taxes to be deducted from gross income, in effect exempting the payment from being further taxed.

2. Credit Method – Although the

income or capital which is taxed in the state of source is still taxable in the state of residence, tax paid in the former (source) is credited against the tax levied in the latter (residence) (CIR v. SC Johnsons).

Most Favored Nation Clause in Tax Treaties

• Its purpose is to grant to the contracting party treatment not less favorable than that which has been or may be granted to the “most favored” among other countries.

   

 

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• It is intended to establish the

“principle of equality” of international treatment by providing that the citizens or subjects of the contracting nations may enjoy the privileges accorded by either party to those of the most favored nation.

FORMS OF ESCAPE FROM TAXATION (SC-TE2A) 1. Shifting, 2. Capitalization, 3. Transformation, 4. Tax Exemption, 5. Tax Avoidance and 6. Tax Evasion. Shifting

• The transfer of the burden of tax by the original payer or the one whom the tax was assessed.

• Only INDIRECT Taxes may be shifted. They are those that are demanded in the first instance from one person in the expectation and intention that he can shift the burden to someone else, NOT AS TAX, but as part of the purchase price. Examples of which are VAT, excise, other percentage tax, documentary stamp tax.

• DIRECT TAXES cannot be

shifted. They are those that are exacted from the very person who, it is intended or desired, should pay them.

• There are three kinds of shifting

and they are as follows (FOB): a. Forward – the burden of tax

is transferred from a factor of production through the

factors of distribution until it finally settles on the ultimate purchaser or consumer.

b. Backward – when the burden is transferred from the consumer through the factors of distribution to the factors of production.

c. Onward – when the tax is shifted two or more times either forward or backward.

Capitalization

• The reduction in the price of the taxed object equal to the capitalized value of future taxes which the purchaser expects to be called upon to pay. Example: capital expenses incurred by private educational institutions for the expansion of school facilities (Sec. 34[A][2], NIRC).

Transformation

• The manufacturer or producer upon whom the tax has been imposed, fearing the loss of his market if he should add the tax to the price, PAYS THE TAX and endeavors to recoup himself by improving his process of production, thereby producing his units at a lower cost.

Tax Exemption

• Grant of immunity, express or implied (or contractual) to particular persons or corporations of a particular class from a tax which persons or corporations generally within the same state or taxing district are obliged to pay.

   

 

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• The inherent power of the state to impose tax naturally carries with it the power to grant tax exemption.

Principle of Strictissimi Juris Laws granting tax exemption are construed in strictissimijuris against the tax payer. The law does not look with favor on tax exemptions; he who would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted (Land Service v. Court of Appeals) REASONS FOR APPLICATION IF THIS THEORY/ PRINCIPLE (LMR): 1. Lifeblood theory, 2. To minimize differential treatment

and to foster impartiality, fairness and equality among taxpayers (Maceda v. Macaraig Case), and

3. taxation is a high prerogative of sovereignty whose relinquishment is never presumed (Luzon Stevedoring v. CA).

EXCEPTIONS TO THE APPLICATION OF THIS PRINCIPLE (RPG-S2E): a. When the statute granting

exemption provided for liberal construction thereof;

b. In cases of special taxes relating to special cases and affecting only special classes of persons;

c. If exemptions refer to public property;

d. In cases of exemptions granted to religious, charitable abd educational institutions or their property;

e. In cases of tax exemptions in favor of the government, its political subdivisions or instrumentalities;

f. If there is an express mention or if the taxpayer falls within the purview of the exemption by clear legislative intent (CIR v. Amoldus Carpentry)

KINDS OF TAX EXEMPTION (ICE)– They are as follows: 1. Express – those that are expressly

granted by the Constitution, statutes, treaties, franchise, or similar legislative acts.

2. Implied – whenever particular persons, properties or excise are deemed exempt as they FALL OUTSIDE the scope of the taxing provision itself.

3. Contractual – in consideration of a contractual agreement with the government.

Revocation of Tax Exemptions Since the GENERAL RULE is taxation (and the exception is exemption), the exemption may thus be withdrawn at the pleasure of the taxing authority (MIAA v. Marcos Case) BUT if it is from a binding contract for valuable consideration, the government cannot unilaterally revoke it. Restrictions on Revocations (NAS) a. Non-Impairment Clause – where

the tax exemption was granted to private parties based on material consideration of a mutual nature, it then becomes contractual and is covered by this clause in the Constitution.

b. Adherence to Form – if the tax exemption is granted by the Constitution, its revocation can be effected only by amending the Constitution.

   

 

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c. Special Law – where it is in the form of special law, it cannot be revoked by a general law.

Tax Refunds

• In the nature of tax exemptions. They are regarded as in derogation of sovereign authority and to be construed in strictissimi juris against the one claiming it.

Tax Amnesty

• General or intentional overlooking by the state of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law;

• Partakes of an absolute forgiveness, or waiver of government of its right to collect;

• To give tax evaders, who wish

to relent and willing to reform, a chance to do so.

Rules on Tax Amnesty a. Tax Amnesty

1. Like tax exemption, it is never favored nor presumed;

2. Construed strictly against tax payer.

b. The government is not estopped

from questioning the tax liability even if amnesty tax payments were already received. • There could be no tax amnesty

granted by the President, because the same is in the nature of tax exemption WHICH

COULD ONLY BE GRANTED by Congress.

c. Defense of Tax Amnesty, like

insanity, is a personal defense. • It relates circumstances of a

particular accused. Requisites of Tax Amnesty 1. Taxpayer must have voluntarily

disclosed his previously untaxed income and

2. Must have paid the corresponding tax thereon.

Constructions of Tax Exemptions Not presumed; when granted, strictly construed against the grantee. Tax Avoidance • Also known as tax minimization; • It is the exploitation by the taxpayer

of the legally permissible alternative tax rates or methods of assessing taxable property or income, in order to avoid/reduce tax liability;

• Tax saving device within the means sanctioned by law;

• Should be used in good faith. Tax Evasion

• An illegal means of escaping taxation;

• It connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes;

• Hence, it subjects the taxpayer to further civil or criminal liabilities;

• Also known as Tax Dodging;

   

 

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Elements of Tax Evasion (SEC): 1. The End to be achieved, i.e.

payment of less than that known to the taxpayer to be legally due, or paying no tax when it is shown that tax is due;

2. Accompanying State of mind, which is described as being evil, in bad faith, willful, or deliberate and not coincidental; and

3. A Course of action which is unlawful.

Proof of Tax Evasion 1. Failure to declare for taxation

purposes true and actual income derived from business for two (2) consecutive years;

2. Substantial under declaration of income in the tax returns of the tax payer for four (4) consecutive years coupled with overstated deductions.

CLASS RECITATION WITH SUGGESTED ANSWERS

Q: What if properties in the same territory have been taxed twice, for the same purpose, and the same year? A: In order for double taxation to become a valid defense against a tax imposition of the government, the same subject must be taxed twice in such a way that both taxes are imposed for 1. the same purpose 2. by the same taxing authority 3. within the same jurisdiction 4. for the same taxable period and 5. for the same kind and character of

tax

If the tax imposed is not of the same kind or character, double taxation will not be a defense. Double taxation standing alone and not being forbidden is not a valid defense against the legality of a tax measure. (Pepsi-Cola Bottling Company vs. Municipality of Tanauan, Leyte) Q: Is there a violation of the Constitution in case of double taxation? A: Constitutional limitations govern the right to tax and it must be noted that these Constitutional provisions only limit the government’s pervasive power to impose tax. There is no provision in the Constitution specifically prohibiting double taxation (Justice Isagani Cruz Constitutional Law 2007 P. 91) However despite the lack of a specific prohibition double taxation will not be allowed when it violates the equal protection clause. Case in point: Punzalan v. Municipal Board of Manila The petitioners in the said case averred that they are being discriminated upon by being subjected to an additional tax for practicing their profession in Manila when professionals practicing elsewhere were not subjected to the same imposition. It was ruled that there exists substantial distinction between them and those professionals practicing outside Manila. Q: Will there be a violation of the due process clause in case of double taxation? A: The due process clause of our Constitution serves as a limitation on the government’s power to tax. Applying this limitation on the subject of double taxation, we can argue that if

   

 

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the act of imposing a second tax would be of such nature that it is confiscatory, then the second tax will be invalid. However, we must also note that the power to tax may involve the power to destroy. The government may opt to resort to tax measures (in this case taxing the same subject twice or more) in order to destroy the subject which the government sees as noxious. Q: What if there is an ordinance asking for taxes for the third time? A: Double taxation standing alone and not being forbidden is not a valid defense against the legality of a tax measure. (Pepsi-Cola Bottling Company vs. Municipality of Tanauan, Leyte) Hence it follows that no matter how many times the government subjects a property to a tax, the taxpayer may not impugn the validity of a tax measure unless it constitutes a “Direct Duplicate Taxation” Q: What are the different kinds of tax exemptions? 1. Constitutional 2. Statutory 3. Express 4. Implied Example of a Constitutional Tax Exemption: Tax exemption of properties for religious, charitable, and educational purposes (Sec. 28 (3), Art. III, 1987 Constitution) NOTES: We should always remember that the property must be; 1. Actually 2. Directly and 3. Exclusively

Used for religious, charitable, or educational purposes. Analysis of the exemption The true test is USAGE. Regardless of ownership, if the property is not being used for religious, charitable, or educational purposes; the property shall not be exempt Exemption from this kind of taxation does not import the idea that the subject property shall be exempt from every kind of tax. Case in point: Lladoc vs Commissioner A gift tax being an excise tax cannot be the tax contemplated by Sec. 28 (3), Art. III, 1987 Consitution. A gift tax is not a property tax, rather it is an excise tax) The word exclusive means “primarily”. Case in point: Hospital de San Juan de Dios v. Pasay City The admission of pay patients does not detract from the charitable character of a hospital. As long as all of its funds are devoted to the maintenance of the institution as a public charity, the property would still be exempt from property tax. Exemption extends to facilities which are incidental and reasonably necessary for the accomplishment of its religious, charitable, or educational purposes.

Q: What is tax evasion? What is tax avoidance? Are they the same? A: Tax evasion and tax avoidance are the two most common ways by which a taxpayer escapes/lessens his tax liabilities. The important distinguishing factor between the two is the legality of the act. Tax avoidance is the tax saving device within the means

   

 

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sanctioned by law. This method should be used by the taxpayer in good faith and at arm’s length. Tax evasion on the other hand is a scheme used outside of the lawful means and when availed of it subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors; 1. The end to be achieved 2. An accompanying state of mind

described as being evil, in bad faith, willful, or deliberate

3. A course of action or failure of a course of action which is unlawful

Q: What are the other forms of avoidance from taxation? 1. Shifting – the transfer of the tax

burden by the original payer to someone else. What is being transferred is not the payment, rather it is the burden of the tax.

2. Capitalization – reduction in the price of the taxed object equal to the capitalized value of future taxes

3. Transformation – this is achieved by improving the method of production and cutting down on other production cost

Note: Another method allowed by law to reduce a taxpayer’s liability is the proof of tax exemption of the taxpayer. However in order to avail of this, the taxpayer must point out to a specific law which expressly grants him the exemption from taxation. Q: Why is tax exemption highly disfavored? A: It is to be noted that the power to tax is an inherent right of sovereignty. Hence there is no need for any

legislative enactment for its government to enforce tax liabilities. In our jurisdiction, it must be noted that the Constitutional provisions regarding the power to tax are just mere limitations on the power. There is no Constitutional provision that expressly states that “the government is (hereby) granted the power to enforce payment from its citizens.” Therefore, since it can be said that the power to tax is the rule, the taxpayer must thereby point to a specific law which limits the pervasive power of the government. Otherwise, he is presumed to be liable to pay the tax assessed against him. Q: How do we construe a law granting tax exemption? A: Tax laws granting tax exemption are to be construed strictly against the taxpayer. The taxpayer must point out a clear and express provision of a statute which grants him the exemption from any kind of taxation. Case in point: “Commissioner Of Internal Revenue V. CA” Issue: whether containers and packaging materials can be credited against the miller’s tax deficiency Ruled: No. The law speaks only strictly of raw material, containers and packaging materials are not raw materials. Q: What are the exceptions to the rule that statutes granting tax exemption are construed strictly against the grantee? 1. When the law itself provides for a

liberal interpretation 2. In case of exemption granted under

special circumstances

   

 

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3. Exemptions in favor of the government, its political subdivisions or instrumentalities

4. Exemptions granted to traditionally exempted taxpayers

5. When the exemption refers to a public property

Q: Who signs tax treaties? A: The power to sign negotiate treaties with other states is vested in the President of the Philippines. However, pursuant to the 1987 Constitution, in order to be valid and effective the treaty must be concurred by at least two-thirds of all the members of the Senate. As head of the State, the President is supposed to be the spokesperson of the nation on external affairs. In this capacity, he may deal with foreign states and governments, extend or withhold recognition, maintain diplomatic relations, enter into treaties, and otherwise transact business of foreign relations. (Justice Isagani Cruz, Philippine Political Law 2002 Edition p. 239)

CASE DIGESTS 1. HON. EXECUTIVE SECRETARY,

ET AL. v. SOUTHWING HEAVY INDUSTRIES, INC., ET AL.

FACTS: On December 12, 2002, President Gloria Macapagal-Arroyo, through Executive Secretary Alberto G. Romulo, issued EO156, entitled "Providing for a comprehensive industrial policy and directions for the motor vehicle development program and its implementing guidelines." The challenged provision states, among others, "Article 2, Section 3.1. The importation into the country, inclusive

of the Freeport, of all types of used motor vehicles is prohibited, except xxx" Southwing Heavy Industries, Inc., an entity classified as a Subic Bay Freeport Enterprise and engaged in the business of, among others, importing and/or trading used motor vehicles,' sought declaratory relief before for the unconstitutionality of the above-cited Section mainly contending that the importation ban is illogical and unfair because it unreasonably drives them out of business to the prejudice of the national economy. The Government contends that the application of EO 156 should be extended to the Freeport because the guarantee of RA 7227 on the free flow of goods into the Freeport Zone is merely an exemption from customs duties and taxes on items brought into the Freeport and not an open floodgate for all kinds of goods and materials without restriction. ISSUE: Whether or not the prohibition may be applied to entities operating in the Freeport Zone HELD: No. RA 7227 was enacted providing for, among other things, (1) the sound and balanced conversion of the Clark and Subic military reservations and their extensions into alternative productive uses in the form of Special Economic and Freeport Zone, or the Subic Bay Freeport, (2) in order to promote the economic and social development of Central Luzon in particular and the country in general. The Rules and Regulations Implementing RA 7227 specifically defines the territory comprising the Subic Bay Freeport, referred to as the Special Economic and Freeport Zone in Section 12 of RA 7227 as “a separate customs territory xxx”.

   

 

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Mindful of the legislative intent to attract investors, enhance investment and boost the economy, the legislature could not have limited the enticement only to exemption from taxes. The minimum interference policy of the government on the Freeport extends to the kind of business that investors may embark on and the articles, which they may import or export into and out of the zone. A contrary interpretation would defeat the very purpose of the Freeport and drive away investors. It does not mean, however, that the right of Freeport enterprises to import all types of goods and article is absolute. Such right is of course subject to the limitation that articles absolutely prohibited by law cannot be imported into the Freeport. Nevertheless, in determining whether the prohibition would apply to the Freeport, resort to the purpose of the prohibition is necessary. The President issued EO 156 to prevent further erosion of the already depressed market base of the local motor vehicle industry and to curtail the harmful effects of the increase in the importation of used motor vehicles. The subject matter of the laws authorizing the President to regulate or forbid importation of used motor vehicles, is the domestic industry. EO 156, however, exceeded the scope of its application by extending the prohibition on the importation of used cars to the Freeport, which RA 7227, considers to some extent, a foreign territory. The domestic industry which the EO seeks to protect is actually the “customs territory” which is defined under the Rules and Regulations Implementing RA 7227, as “the portion of the Philippines outside the Subic Bay Freeport where the Tariff and Customs Code of the Philippines and other national tariff and customs laws are in force and effect.”

The all encompassing application of the assailed provision to the Freeport which is outside the customs territory is illogical. As long as the used motor vehicles do not enter the customs territory, the injury or harm sought to be prevented or remedied will not arise. To apply the proscription to the Freeport would not serve the purpose of the EO. Instead of improving the general economy of the country, the application of the importation ban in the Freeport would subvert the avowed purpose of RA 7227 which is to create a market that would draw investors and ultimately boost the national economy. As to the constitutionality of the assailed provision, said provision is declared VALID insofar as it applies to the Philippine territory outside the presently fenced-in former Subic Naval Base area and VOID with respect to its application to the secured fenced-in former Subic Naval Base area.

2. JOHN HAY PEOPLES ALTERNATIVE COALITION vs. LIM FACTS: RA 7227 or the Bases Conversion and Development Act of 1992, set out the policy of the gov’t to accelerate the sound and balance conversion into alternative prouctive uses of bases. It granted Subic SEZ incentives ranging from tax and duty-free importations and exemptions of business therein from local and national taxes. It also expressly gave authority to the President to create other SEZ including Clark military reservation, the Wallace Air Station in SF, La Union, and Camp John Hay. –through executive proclamations –subject to concurrence of the local gov’t directly affected. BCDA, TUNEX and ASIAWORLD executed a JVA to put up a JV company which would lease

   

 

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areas within Camp John Hay and Poro Point for purposes of turning those places into principal tourist and recreation spots. President Ramos issued Proclamation No. 420 which established a SEZ on 288.1 hectares of CJH. Under Section 3 of said act, CJH was given “all the applicable incentives of the SEZ under Section 12 of RA 7227 and those applicable incentives granted to the Export Processing Zones, the Omnibus Investment Code of 1987, the Foreign Investment Act of 1991, and the new investment laws that may hereinafter be enacted. ”RESPONDENTS contend that by extending the CJH SEZ economic incentives similar to those enjoyed by SUBIC SEZ, the proclamation is merely implementing the legislative intent of said law and underscore that the gov’t ‘s policy of bases conversion cannot be achieved without extending the same tax exemptions granted. ISSUE: Whether the grant of exemption to CHJ SEZ is valid HELD: While the grant of economic incentives may be essential to the creation and success of SEZs, the grant thereof to CHJ SEZ cannot be sustained. The incentives under RA 7227 are exclusive only to the SUBIC SEZ.It is the legislature, unless limited by a provision in the Constitution, that has full power to exempt any person or corporation or a class of property from taxation, its power to exempt being as broad as its power to tax. Other than Congress, the Constitution may itself provide for specific tax exemptions, or local gov’t may pass ordinances on exemption only from local taxes. The challenged grant would circumvent the Constitution’s imposition that a law

granting tax exemption must have the concurrence of a majority of all the members of Congress. Tax exemptions cannot be implied as it must be categorically and unmistakeably expressed. 3. DELPHER TRADES CORPORATION v. IAC FACTS: Petitioner Delpher Trades Corp. and Delphin Pacheco were the owners of the Malinta Estate in the Municipality of Polo, who leased to Construction Components International Inc. the same property and providing that during the existence or after the term of this lease the lessor should he decide to sell the property leased shall first offer the same to the lessee and the letter has the priority to buy under similar conditions. Respondent Hydro Pipes on the other hand, was assigned with the rights and obligations of Construction Components under the above lease contract with the signed conformity and consent of lessors Delfin and Pelagia. Delpher Trades acquired the property from Pelagia Pacheco and Delphin Pacheco (a deed of exchange was executed between lessors Delfin and Pelagia Pacheco and defendant Delpher Trades Corporation whereby the former conveyed to the latter the leased property together with another parcel of land also located in Malinta Estate for 2,500 shares of stock of defendant corporation with a total value of P1,500,000.00). Respondent however filed an amended complaint for reconveyance in its favor on the ground that it was not given the first option to buy the leased property pursuant to the proviso in the lease agreement. ISSUE:

   

 

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Whether the "Deed of Exchange" of the properties executed by the Pachecos on the one hand and the Delpher Trades Corporation on the other was meant to be a contract of sale

HELD: No the Deed of Exchange was not meant to be a contract of sale. As explained by Eduardo Neria, a CPA and son-in-law of the late Pelagia Pacheco who testified that Delpher Trades Corp. is a family corporation [organized by the children of the two spouses (spouses Pelagia Pacheco and Benjamin Hernandez and spouses Delfin Pacheco and Pilar Angeles) who owned in common the parcel of land leased to Hydro Pipes Philippines in order to perpetuate their control over the property through the corporation and to avoid taxes then used the said Deed of Exchange. As stated in Section 35 of the National Internal Revenue Code under par. C-sub-par. (2) Exceptions regarding the provision: "No gain or loss shall also be recognized if a person exchanges his property for stock in a corporation of which as a result of such exchange said person alone or together with others not exceeding four persons gains control of said corporation." 4. COMMISSIONER OF INTERNAL

REVENUE v. LINCOLN PHILIPPINE LIFE INSURANCE

FACTS: Lincoln Philippine Life Insurance Co. is a domestic corp. engaged in life insurance business. In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the JUNIOR ESTATE BUILDER POLICY, the distinguishing feature of which is a clause which provides for an automatic increase in the amount of life

insurance coverage upon the attainment of a certain age by the insured w/o the need of issuing a new policy. The clause was to take effect in 1984. Subsequently, petitioner CIR issued deficiency documentary stamps tax assessment for 1984, corresponding to the (a) amount of automatic increase of the sum assured on the policy issued by Lincoln and (b) the amount corresponding to the book value in excess of the par value of the stock dividends. CIR argues that the automatic increase clause in the subject insurance policy is separate and distinct from the main agreement and involves another transaction; and that while no new policy was issued, the original policy was essentially re-issued when additional obligation was assumed upon the effectivity of the automatic increase clause in 1984. Hence, a deficiency assessment based on the additional insurance not covered in the main policy is in order. ISSUE: Whether Lincoln should be made liable to pay for the assessed tax deficiencies HELD: Although the automatic increase was to take effect later on, the date of its effectivity as well as the amount was already definite at the time of the issuance of the policy. THUS, the amount insured by the policy at the time of issuance necessarily included the additional sum covered by the automatic increase clause because it was already determinable at the time the transaction was entered into and formed part of the policy. The clause is in the nature of a conditional obligation, by which the increase of the insurance coverage shall depend upon the happening of the event constituting the obligation. In the instant case, the

   

 

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additional insurance that took effect in 1984 was an obligation subject to a suspensive condition, but still a part of the insurance sold to which Lincoln was liable for the payment of the documentary stamp tax. While tax avoidance schemes and arrangements are not prohibited, tax laws cannot be circumvented in order to evade the payment of just taxes. In the case at bar, to claim that the increase in the amount insured by virtue of the automatic increase clause should not be included in the computation of the DST dues on the policy would be a clear evasion of the law requiring that the tax can be computed on the basis of the amount insured by the policy. 5. CIR VS. ESTATE OF BENIGNO TODA FACTS: On March 2, 1989 CIC authorized Benigno P. Toda, Jr. President and owner of 99.991% of its issued and outstanding capital stock, to sell the building and the two parcels of land for an amount not less than 90 million. On 30 August 1989, Toda purportedly sold the property for 100 million to Rafael A. Altonga, who in turn sold the same property on the same day to Royal Match Inc. for 200 million. For the sale of the property to RMI altonga paid capital gains tax of 10 million. On April 16, 1990 CIC filed its corporate annual income tax return of the year 1989, declaring among other things its gain form the sale of real property in the amount of 75,728.021. On July 20 1990, Toda sold his entire shares of stocks in CIC to Le Hun T. Choa for 12.5 million. On 29 March 1994, the BIR sent an assessment notice and demand letter to the CIC of

deficiency income tax for the year 1989 in the amount of 79,099,999.22. The new CIC asked for reconsideration, asserting that the assessment should be directed against the old CIC and not against the new CIC which is owned by an entirely different set of stockholders; moreover Toda had undertaken to hold the buyer free from all tax liabilities for the fiscal years 1987-1989. On 27 January 1995, the estate of Benigno P. Toda received an assessment notice dated 9 January 1995 form the CIR. The estate thereafter filed a letter of protest which was dismissed by the CIR, stating that Toda by covering up the additional gain of 100 million, which resulted in the change of income structure of the proceeds of the sale of the two parcels of land and the building thereon to an individual capital gains tax, thus evading the higher corporate income tax rate of 35%. ISSUE: Whether or not there was tax evasion HELD: Yes. Tax avoidance and Tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. Tax evasion on the other hand is a scheme used outside those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities. Tax evasion connotes the integration of three factors (1) the end to be achieved (2) an accompanying state of mind which is described as being evil, in bad faith, willful, deliberate and not

   

 

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accidental (3) a course of action or failure of action which is unlawful. All these factors are present in the instant case. The scheme resorted to by CIC in making it appear that there were two sales of the subject properties, from CIC to Altonaga, and then from ALtonaga to RMI cannot be considered legitimate tax planning. Fraud in its general sense, is deemed to compromise anything calculated and concealment involving a breach of legal or equitable duty, trust or confidence justly reposed, resulting in the damage to another, or by which an undue and unconscionable advantage is taken of another. In a nut shell the intermediary transaction, the sale of altonaga, which was prompted more on the mitigation of tax liabilities thatn for legitimate business purposes constitutes one of tax evasion. 6. THE CITY OF ILOILO v. SMART COMMUNICATIONS, INC. (SMART) FACTS: SMART received a letter of assessment dated February 12, 2002 from petitioner requiring it to pay deficiency local franchise and business taxes, in the amount of P764,545.29, which it incurred for the years 1997 to 2001. SMART protested the assessment, claiming exemption from payment of local franchise and business taxes based on Section 9 of its legislative franchise under Republic Act (R.A.) No. 7294 (SMART’s franchise). Under SMART’s franchise, it was required to pay a franchise tax equivalent to 3% of all gross receipts, which amount shall be in lieu of all taxes. SMART contends that the “in lieu of all taxes” clause covers local franchise and business taxes. SMART similarly invoked R.A. No. 7925 or the Public Telecommunications Policy Act

(Public Telecoms Act) whose Section 23 declares that any existing privilege, incentive, advantage, or exemption granted under existing franchises shall ipso facto become part of previously granted-telecommunications franchise. SMART contends that by virtue of Section 23, tax exemptions granted by the legislature to other holders of telecommunications franchise may be extended to and availed of by SMART. The petitioner posits that SMART’s claim for exemption under its franchise is not equivocal enough to prevail over the specific grant of power to local government units to exact taxes from businesses operating within its territorial jurisdiction under Section 137 in relation to Section 151 of the LGC. ISSUE: Whether SMART is exempt from the payment of local franchise and business taxes under Section 9 of its franchise and Section 23 of the Public Telecoms Act. HELD: The basic principle in the construction of laws granting tax exemptions is he who claims an exemption from his share of the common burden of taxation must justify his claim by showing that the Legislature intended to exempt him by words too plain to be beyond doubt or mistake. The court fail to find a categorical and encompassing grant of tax exemption to SMART covering exemption from both national and local taxes since R.A. No 7294 does not expressly provide what kind of taxes SMART is exempted from. It is not clear whether the “in lieu of all taxes” provision in the franchise of SMART would include exemption from local or national taxation. What is clear is that SMART

   

 

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shall pay franchise tax equivalent to three percent (3%) of all gross receipts of the business transacted under its franchise. But whether the franchise tax exemption would include exemption from exactions by both the local and the national government is not unequivocal. The uncertainty in the “in lieu of all taxes” clause in R.A. No. 7294 on whether SMART is exempted from both local and national franchise tax must be construed strictly against SMART which claims the exemption. SMART’s claim for exemption from local business and franchise taxes based on Section 9 of its franchise is therefore unfounded. 7. NAPOCOR v. CENTRAL BOARD OF ASSESSMENT APPEALS (CBAA) FACTS: First Private Power Corporation (FPPC) entered into a BOT agreement with NAPOCOR for the construction of the 215 Megawatt Bauang Diesel Power Plant in Payocpoc, Bauang, La Union. The agreement provided for the creation of the Bauang Private Power Plant Corporation (BPPC), which will own, manage, and operate the power plant. BPPC will convert NAPOCOR’s supplied diesel fuel into electricity for a fee. BPPC’s machineries were declared tax exempt by the Municipal Assessor’s Office. This tax exemption was questioned by Bauang’s Vice Mayor. The Deputy Executive Director of the Department of Finance declared that the machineries and equipment are subject to real property tax. Thereafter, a Notice of Assessment was given to BPPC. NAPOCOR filed a petition with the La Union Board of Assessment Appeals (LBAA) invoking Sec. 234(c) of the Local Government

Code. The provision exempts from real property tax all machineries and equipment that are actually, directly, and exclusively used by the local water districts and GOCCs engaged in the supply and distribution of water or generation of electric power. The LBAA denied the petition for exemption. ISSUE: Whether the machineries and equipment are exempted from real property tax HELD: Sec. 234(c) of the LGC is clear and unambiguous. It grants tax exemption to machineries and equipment that are actually, directly, and exclusively used by GOCCs. NAPOCOR is not the one actually and directly using the machines but BPPC. Further, applying the strictissimi juris standard, NAPOCOR failed to prove its claim for exemption. Strictissimi juris provides that the claimant must show beyond doubt with clear and convincing evidence, the factual basis of the claim. The terms of the BOT provides that actual, direct, and immediate ownership of the machineries lies with BPPC while that of NAPOCOR is only contingent and not sufficient to support its claim for exemption. Hence, the machineries and equipment are not tax exempt.

   

 

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LOCAL GOVERNMENT TAXATION

(SEC. 128-196, RA 7160) Each local government unit shall have the power:

1. To create its own source of revenue and;

2. To levy taxes, fees and charges

a. Subject to such guidelines and limitations as the Congress may provide

b. Consistent with the basic policy of local autonomy

c. Such taxes, fees and charges shall accrue exclusively to the local government (Sec 5, Art. X of the Constitution)

• The power to tax by the local governments is no longer merely by nature of valid delegation as before but pursuant to direct authority conferred by the Constitution.

• Where there is neither a grant nor a prohibition by statute, tax power is deemed to exist although Congress may provide statutory limitations and guidelines. The rationale behind this rule is to safeguard the viability and self-sufficiency of local government units.

GRANT OF LOCAL TAXING AUTHORITY UNDER EXISITING LAW • 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, RA 7160)

• LGUs also have the power to:

1. Prescribe penalties for

tax violations (Sec. 516, RA 7160)

2. Grant local tax exemptions (Sec. 192, RA 7160)

3. Adjust local tax rates (Sec. 191, RA 7160)

DUAL STATUS OF LOCAL GOVERNMENTS

1. In their public or governmental aspect - They are agents of the state and for that purpose exercise by delegation a part of the sovereignty of the state such as in the imposition and collection of taxes, preservation of peace and order, and establishment of schools.

2. In their private or corporate aspect – They are mere legal entities performing functions not strictly governmental. They act for their own purpose and not as subdivisions of the state.

   

 

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NATURE OF TAXING POWER Not inherent – Unlike a sovereign state, municipal corporations have no inherent power to tax. Being mere creatures of law, they may exercise the power only if delegated to them by the national legislature or conferred by the Constitution itself. Limitations of local tax power (SEC. 5, RA 7160)

1. The taxpayer will not be over-burdened with unreasonable impositions.

2. Local taxation is to be uniform and just.

3. Each LGU will have its fair

share of available resources. FUNDAMENTAL PRINCIPLES (SEC. 130, RA 7160)

1. Taxation shall be uniform in

each LGU. 2. Taxes, fees, charges and

other impositions shall be: a. Equitable and based

on taxpayer’s ability to pay.

b. For public purpose. c. Not unjust, excessive,

oppressive or confiscatory.

d. Not contrary to law, public policy, national economic policy, or in restraint of trade.

3. Not let to any private person 4. Inure solely to the local

government levying except: a. Tax on Sand, Gravel,

Quarry b. Amusement Tax c. Community Tax

5. Each LGU shall evolve a

progressive system of taxation.

COMMON REVENUE RAISING POWERS

1. Local government units may impose and collect such reasonable fees and charges for services rendered. (Sec. 153, RA 7160)

a. In reference to Section 131: "Charges" refers to pecuniary liability, as rents or fees against persons or property; "Fee" means a charge fixed by law or ordinance for the regulation or inspection of a business or activity

2. Local government units may fix the rates for the operation of public utilities owned, operated and maintained by them within their jurisdiction. (Sec. 154, RA 7160)

3. The sanggunian concerned may prescribe the terms and conditions and fix the rates for the imposition of toll fees or charges for the use of any public road, pier, or wharf, waterway, bridge, ferry or telecommunication system funded and constructed by the local government unit concerned: Provided, That no such toll fees or charges shall be collected from officers and enlisted men of the Armed Forces of the Philippines and members of the Philippine National Police on mission, post office personnel delivering

   

 

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mail, physically-handicapped, and disabled citizens who are sixty-five (65) years or older. (Sec. 155, RA 7160)

COMMON LIMITATIONS ON THE TAXING POWER OF THE LGU (SEC. 133, RA 7160) Exercise of the taxing power of provinces, cities, municipalities, and barangays shall not extend to the levy of the following:

1. Income tax 2. Documentary stamp tax 3. Tax on estates, inheritance,

gifts, legacies and other acquisitions mortis causa

4. Excise taxes on Alcoholic, Tobacco, Petroleum, Miscellaneous and Mineral products.

5. Taxes, fees or charges on petroleum products

6. Percentage or VAT on sales, barters, or exchanges or similar transactions on goods or services exchanges or similar transactions on goods or services exchanges or similar transactions on goods or services except as otherwise provided herein.

7. Taxes on the gross receipts of transportation of contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water except as provided by the code.

8. Custom duties, registration fees of vessels and wharfage on wharves, tonnage dues and all other kinds of custom fees, charges and dues.

9. Taxes, fees and charges and other impositions upon goods carried into or out of, or passing

through the territorial jurisdiction of LGUs in the guise of charges for wharfage, tolls for bridges or other taxes, fees, or charges in any form whatever upon such goods or merchandise.

10. Taxes, fees, or charges on agricultural and aquatic products when sold by marginal farmers or fishermen.

11. Taxes on business enterprises certified by the Board of Investments as pioneer or non-pioneer who enjoy tax holidays for a period of 6 and 4 years respectively.

12. Taxes on premiums paid by way of reinsurance or retrocession.

13. Taxes, fees, or other charges on Philippine products actually exported.

14. Taxes, fees, or charges on countryside and barangay business enterprises and cooperatives duly registered under RA 6810 and RA 6938.

15. Taxes, fees or charges of any kind on the National Government, its agencies and instrumentalities, and LGUs.

16. Taxes, fees or charges for registration of motor vehicles and for the issuance of all kinds of licenses or permits for driving.

17. Taxes, fees and charges imposed under the Tariff and Customs Code and other special laws.

18. Taxes, fees and charges and other impositions which contravene existing government policies or which are violative of the Fundamental Principles of Taxation.

   

 

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TAXING AND OTHER REVENUE-RAISING POWERS OF PROVINCES AND CITIES Scope of Power

1. Tax on the transfer of real property ownership. (Sec. 135, RA 7160)

a. Refers only to lands, improvements, buildings and machineries intended by the owner for an industry or works which may be carried on in a building or on a piece of land and which tend directly to meet the needs of the industry or works.

b. Only transactions of sale, barter or any other modes of transferring ownership are taxed.

c. The tax rate is not more than 50% of 1% of the total consideration involved or the FMV, whichever is higher.

d. Lands sold, transferred or disposed under CARL are exempted.

e. Tax shall be paid within 60 days from date of execution of the deed or date of decedent’s death.

2. Tax on the business of printing and publication (Sec. 136, RA 7160)

a. Transaction taxed is the business of printing and publication of books, cards, posters, leaflets, handbills, certificates,

receipts, pamphlets, and other similar in nature.

b. The tax rate is not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year.

c. For newly started business, the tax rate shall not exceed 1/20 of 1% of the capital investment. In the succeeding calendar year, regardless of when the business started to operate, the tax shall be based on the gross receipts for the preceding calendar year, or any fraction thereof, as provided herein.

d. The receipts from the printing and/or publishing of books or other reading materials prescribed by DEPED as school text or references are exempted.

3. Franchise Tax (Sec. 137, RA 7160)

a. Franchise – a privilege, affected with public interest which is conferred upon private persons or corporations, under such terms and conditions as the government and its political subdivisions may impose in the interest of public welfare, security and safety.

b. The tax rate shall not exceed 50% of 1% of gross receipts. If a newly started business, 1/20 of

   

 

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1% of the capital investment.

4. Tax on sand, gravel and quarry

resources (Sec. 138, RA 7160)

a. The subjects of tax are ordinary stones, sand, gravel, earth, and other quarry resources extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks or other public waters.

b. The tax rate shall not be more than 10% of FMV per cubic meter.

c. Distribution of the proceeds shall be – 30% province, 30% city municipality where the earth is extracted and 40% to the barangay where the earth is extracted.

5. Professional tax (Sec. 139, RA 7160)

a. The tax rate shall be at such annual amount and reasonable classification as the Sanggunian may determine which in no case exceed P300.

b. The tax shall only apply to natural or physical persons.

c. The tax shall be paid annually on or before Jan. 31

d. The tax shall be paid on the place where you practice your profession.

6. Amusement tax (Sec. 140, RA 7160) Notes:

• Professional basketball games are not subject to amusement tax. (PBA v. CA, digest found at end of the chapter)

• Amusement taxes under the NIRC, which cannot be imposed by the province or the city, include taxes collected from “the proprietor, lessee or operator of cockpits, cabarets, night or day clubs, boxing exhibitions, professional basketball games, Jai-Alai and racetracks.” (Sec. 125, NIRC).

7. Annual fixed tax per delivery truck or van manufacturers or producers and wholesalers of dealers or retailers in certain products (Sec. 141, RA 7160)

TAXING AND OTHER REVENUE-RAISING POWERS OF MUNICIPALITIES Municipal taxes – Municipalities may impose taxes on the following business (Sec. 143, RA 7160)

1. On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and compounders of liquors, distilled spirits and wines or manufacturers of any articles of commerce of whatever kind or nature.

a. The tax rate shall be at graduated annual fixed rate based on gross sales or receipts for the preceding calendar year in an amount not to exceed P6.5M or more, a rate not exceeding 37.5 of 1% imposed.

   

 

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2. Wholesalers, distributors or dealers in any article of commerce.

a. The tax rate shall be a graduated annual fixed rate based on gross sales or receipts not exceeding P2M or more, the rate not exceeding 50% of 1%.

3. Exporters, manufacturers, millers, producers of essential commodities.

a. The tax rate shall not exceed ½ of the rate prescribed in 1 and 2.

4. Retailers

a. The rate shall be at an annual tax of 2% on gross sales or receipts totalling P400,000

5. Contractors and other independent contractors

a. The tax rate shall be a graduated annual fixed rate when the gross receipts exceed P2M, the rate is not to exceed 50% of 1%.

6. Banks and other financial institutions

a. The tax rate shall not exceed 50% of 1% on the gross receipts of preceding calendar year.

7. Peddlers

a. The tax rate shall not exceed 50pesos per peddler annually.

8. Any business not otherwise specified

a. As the sanggunian may deem proper.

RULES ON PAYMENT OF BUSINESS TAXES (SEC. 146, RA 7160)

• The taxes imposed under Section 143 shall be payable for every separate or distinct establishment or place where business subject to the tax is conducted.

• The tax on business must be paid by the person conducting the same.

• 2 or more business subject to

the same tax rate and operated by same person – combined total gross sales or receipts of the said 2 or more related businesses.

• 2 or more business with

different tax rates operated by same person – gross sales and receipts shall be separately reported.

• Rates of tax within Metro Manila

area – shall not exceed 50% the maximum rates prescribed in Sec. 143.

SITUS OF LOCAL BUSINESS TAX

1. Sales of branch or sales office – Recorded at branch or sales office. No allocation.

   

 

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2. Sales with no branch or sales office – Recorded at principal office. No allocation.

3. With plantation and factory in the sale location – Allocation to principal office – 30% and allocation to plantation and factory – 70%

4. Plantation and factory in different location – 30% to principal office while 60% of 70% to factory and 40% of 70% to plantation.

TAXING AND OTHER REVENUE-RAISING POWERS OF CITIES Scope of Power – Cities are authorized specifically to impose taxes, fees and charges that provinces and municipalities may levy (Sec. 151, RA 7160) The tax rate may be above the maximum established for provinces and municipalities but not exceeding 50% of such maximum rates. TAXING AND OTHER REVENUE-RAISING POWERS OF BARANGAYS Scope of Power – The barangay may levy taxes, fees and charges which shall accrue exclusively to them:

1. Taxes – on retailers or stores with the fixed establishments with the gross sales or receipts of the preceding calendar year of P50,000 or less in the cities and P30,000 in municipalities.

a. The rate shall not exceed 1% on such gross sales and receipts.

2. Service fees/charges – It may collect reasonable fees or charges for services rendered in connection with the regulation or the use of barangay owned property or facility.

3. Barangay clearance – No city/municipality may issue any license/permit for any business/activity is located. For such clearance, the sangguniang brgy. may impose reasonable fees.

4. Other fees and charges – may levy reasonable fees and charges:

a. On commercial breeding of fighting cocks and cockpit.

b. On places of recreation which charge admission fees.

c. On billboards, sign boards, neon signs and outdoor advertisement.

MISCELLANEOUS RULES

• A revenue measure may only be imposed through an appropriate ordinance and require prior public hearing.

• LGUs have the power to adjust taxes subject to a limit of once every 5 years and shall not exceed 10% of that fixed by RA 7160.

• The interpretation of laws

granting tax powers to LGU is to be liberally construed but doubts on the liability of taxpayer shall be construed strictly against the LGU.

COMMUNITY TAX

• A tax imposed upon certain inhabitants of the Philippines without regard to the property or occupation in which they are engaged.

   

 

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• Cities may levy a community tax as well as the rates and accrual of proceeds thereof.

• The place of payment is the

place of residence of the individual or in the place where the principal office of the juridical entity is located.

• Time of payment shall be on

January 1 of each year WHO ARE LIABLE FOR COMMUNITY TAX

• Every inhabitant of the Philippines eighteen (18) years of age or over who has been regularly employed on a wage or salary basis for at least thirty (30) consecutive working days during any calendar year, or who is engaged in business or occupation, or who owns real property with an aggregate assessed value of One thousand pesos (P1,000.00) or more, or who is required by law to file an income tax return shall pay an annual additional tax of Five pesos (P5.00) and an annual additional tax of One peso (P1.00) for every One thousand pesos (P1,000.00) of income regardless of whether from business, exercise of profession or from property which in no case shall exceed Five thousand pesos (P5,000.00). (Sec. 157, RA 7160)

• Every corporation no matter

how created or organized, whether domestic or resident foreign, engaged in or doing business in the Philippines shall pay an annual community tax of

Five hundred pesos (P500.00) and an annual additional tax, which, in no case, shall exceed Ten thousand pesos (P10,000.00). (Sec. 158, RA 7160)

EXEMPTIONS FROM COMMUNITY TAX

• Diplomatic and consular representatives; and transient visitors when their stay in the Philippines does not exceed three (3) months. Are exempt from community tax. (Sec. 159, RA 7160)

COLLECTION OF TAXES

• ALL local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges may be paid in quarterly installments. (Sec. 165, RA 7160), BUT they 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. (Sec. 166, RA 7160)

• Unless otherwise provided in

this Code, all local taxes, fees, and charges shall be paid within the first twenty (20) days of January or of each subsequent quarter, as the case may be. The sanggunian concerned may, for a justifiable reason or cause, extend the time for payment of such taxes, fees, or charges without surcharges or penalties, but only for a period not exceeding six (6) months.

   

 

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(Sec. 167, RA 7160). So, this means that generally, taxes may be paid on the first twenty days of January, April, July, and October.

• For unpaid taxes, the

sanggunian may impose a surcharge not exceeding twenty-five (25%) of the amount of taxes, fees or charges xxx and an interest at the rate not exceeding two percent (2%) per month until such amount is fully paid but in no case shall the total thirty-six (36%) months. (Sec. 168, RA 7160)

• Who shall collect the taxes, fees

and charges? According to Sec. 170, all local taxes, fees, and charges shall be collected by the provincial, city, municipal, or barangay treasurer, or their duly authorized deputies. (Sec. 170, RA 7160) BUT it may be designated to the barangay treasurer.

REMEDIES UNDER LOCAL TAXES

• The following are the remedies available to the taxpayer PRIOR to assessment:

o Question the legality of ordinances (Sec. 187, RA 7160)

• The following are the remedies available to the taxpayer AFTER assessment:

o Protest of assessment (Sec. 195, RA 7160)

o Refund (Sec 196, RA 7160)

• The following are the civil remedies available to the Local

Government unit for the collection of revenues.

o Administrative action § Distraint of

Personal Property (Sec. 175, RA 7160)

§ Levy Upon Real Property (Sec. 176, RA 7160)

§ Compromise o Judicial Action (Sec. 138

and Sec. 194, RA 7160)

CLASS RECITATION WITH SUGGESTED ANSWERS

Q: Is an illegal business subject to local tax? A: Yes. To answer otherwise is to favor businesses established and/or maintained contrary to law by burdening those which complied to the requirements of the law with taxes. Q: What is the taxation situs in the case of trucks delivering soft drinks to places belonging to different cities or municipalities? A: Section 150 (a) of the Local Government Code is instructive in the case at bar: “For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks, and others financial institutions, and other businesses, maintaining or operating branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the municipality where such branch or sales outlet is located. In cases where there is no such branch or sales outlet

   

 

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in the city or municipality where the sale or transaction is made, the sale shall be duly recorded in the principal office and the taxes due shall accrue and shall be paid to such city or municipality.” Pursuant to the cited provision, the place where the declaration of sales shall be made will depend on whether or not the company has a branch, sales outlet or warehouse in the place where the products are delivered. If the answer is in the affirmative, the situs of taxation is the city or municipality where the place of delivery is situated. Otherwise, the situs is the city or municipality where the branch, sales outlet, or warehouse (from which the products were withdrawn) belongs. Q: There is a subdivision developed by a company in Quezon City with its model house located in San Juan, and the sales office is in Manila. In its self-assessment, the company declared zero sales for the taxable period. When the assessor went to the developer company’s sales office however, it was discovered that all the units were already sold. It was also found out that the developer company entered into an escrow agreement with the local government unit concerned where it was agreed upon that until the company fulfills a certain condition, the sales pertaining to the houses in the subdivision shall be under the custody of the said local government unit. Consequently, the non-fulfillment of the condition will result in the refund of the payments made by the purchasers of the units. How will you defend the stand of the company that their declaration of zero sales notwithstanding a

sold-out status of their units is valid? A: The company may still declare zero sales in its financial statements because its absolute control over the money represented by the earnings from the sale of the houses is subject to a suspensive condition imposed by the local government unit concerned.

Article 1181 of the New Civil Code states: “In conditional obligations, the composition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.” The existence of the escrow agreement bars the obligation of the company to declare the sales for taxation purposes. Q: What if the sale took place in the sales office or model house? In which city shall the sale be declared? A: In the city where the sales office belongs under the Local Government Code. Section 150 (a) of the Local Government Code states: “For purposes of collection of the taxes under Section 143 of this Code, manufacturers, assemblers, repackers, brewers, distillers, rectifiers and compounders of liquor, distilled spirits and wines, millers, producers, exporters, wholesalers, distributors, dealers, contractors, banks, and others financial institutions, and other businesses, maintaining or operating branch or sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to the

   

 

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municipality where such branch or sales outlet is located xxx”

CASE DIGESTS:

1. HON. FRANKLIN M. DRILON VS. MAYOR ALFREDO S. LIM

FACTS: Four oil companies and a taxpayer filed a petition questioning the legality of Ordinance 7794 of the City of Manila, or the Manila Revenue Code. The Secretary of Justice ruled against the government, on the grounds that it is procedurally infirm for non-compliance with the requirements of the law and that it is contrary to public policy. This decision was reversed by the Regional Trial Court. It also declared Section 187 of the Local Government Code as unconstitutional. ISSUE: Whether or not Section 187 of the Local Government Code is constitutional. HELD: As an excerpt, Section 187 of the Local Government Code provides: Procedure For Approval And Effectivity Of Tax Ordinances And Revenue Measures; Mandatory Public Hearings. — The procedure for approval of local tax ordinances and revenue measures shall be in accordance with the provisions of this Code: Provided, That public hearings shall be conducted for the purpose prior to the enactment thereof; Provided, further, That any question on the constitutionality or legality of tax ordinances or revenue measures may be raised on appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall render a decision within sixty (60) days from the date of receipt of the appeal: Provided,

however, That such appeal shall not have the effect of suspending the effectivity of the ordinance and the accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty (30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court of competent jurisdiction. The assailed decision of the lower court declares that the said section is unconstitutional because it grants the Secretary of Justice the power to review tax ordinances and consequently annul them, if found not legal. As an offshoot, this grants him a power of control, which is in violation of Article 10 of the 1987 Constitution. This view was not shared by the Supreme Court, as quoted: “Section 187 authorizes the Secretary of Justice to review only the constitutionality or legality of the tax ordinance and, if warranted, to revoke it on either or both of these grounds. When he alters or modifies or sets aside a tax ordinance, he is not also permitted to substitute his own judgment for the judgment of the local government that enacted the measure.” The Secretary was only determining if the functions of the local government unit were being performed properly. The Court ruled that such an act was still in exercise of supervision and not of control. 2. THE PROVINCE OF BULACAN

vs. THE HONORABLE COURT OF APPEALS (FORMER SPECIAL 12TH DIVISION), PUBLIC CEMENT CORPORATION

FACTS:

   

 

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As mandated under the Revenue Code of Bulacan, Section 21, the SangguniangPanlalawigan of Bulacan assessed Republic Cement Corporation, private respondent, for taxes on stones, sand, gravel, earth and other quarry resources from private lands for the period 3Q 1992 to 2Q 1993. Republic Cement contested the same, but this was denied by the Provincial Treasurer. A petition for declaratory relief was filed with the Regional Trial Court of Bulacan, which was met with a motion to dismiss from the province. The latter was granted by the Trial Court, ruling that the petition for declaratory relief was improper. Republic Cement then filed a petition for certiorari, praying for the reversal of the Trial Court’s decision. A warrant of levy was issued by the Province of Bulacan against Republic Cement for the amount of unpaid taxes. A compromise amount was reached upon payment under protest. The Court of Appeals ruled against the Province, stating that the latter cannot impose taxes on minerals extracted from private lands. ISSUE: Whether or not the Province of Bulacan may impose taxes on minerals extracted from private lands. HELD: As quoted from the Court’s decision, “it is clearly apparent from the above provision (Section 151 of the NIRC) that the National Internal Revenue Code levies a tax on all quarry resources, regardless of origin, whether extracted from public or private land. Thus, a province may not ordinarily impose taxes on stones, sand, gravel, earth and other quarry resources, as the same are already taxed under the National Internal

Revenue Code. The province can, however, impose a tax on stones, sand, gravel, earth and other quarry resources extracted from public land because it is expressly empowered to do so under the Local Government Code. As to stones, sand, gravel, earth and other quarry resources extracted from private land, however, it may not do so, because of the limitation provided by Section 133 of the Code in relation to Section 151 of the National Internal Revenue Code.” 3. FIRST PHILIPPINE INDUSTRIAL CORPORATION, vs. COURT OF APPEALS, FACTS: First Philippine Industrial Corporation (FPIC) applied for a mayor’s permit with the Office of the Mayor of Batangas. It is a grantee of a pipieline concession under RA 387. However, the City Treasurer required FPIC to pay local taxes based on gross receipts first before the permit may be granted. FPIC filed a protest, claiming that as an entity engaged in the transportation of petroleum, it may not be taxed for the same. The protest was denied because FPIC was not considered as engaged in the transportation business. ISSUE: Whether or not FPIC is exempted from paying local taxes. HELD: The petition is granted. FPIC is considered as a common carrier under Article 1732 of the Civil Code. It is engaged in the business of transferring goods, which in this case are petroleum products. The Bureau of Internal Revenue, in BIR Ruling 069-83, also considered the petitioner as a common carrier. This is relevant

   

 

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because under Section 133 of the Local Government Code, common carriers are exempted from the taxing authority of LGU’s. To wit: "Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not extend to the levy of the following : xxx x xx x xx

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the transportation of passengers or freight by hire and common carriers by air, land or water, except as provided in this Code."

Petition granted. 4. CITY GOVERNMENT OF SAN PABLO, LAGUNA vs. HONORABLE BIENVENIDO V. REYES, in his capacity as Presiding Judge, Regional Trial Court FACTS: Escudero Electric Services Company was granted a legislative franchise to maintain and operate an electric light and power system in the City of San Pablo and nearby municipalities. Under Section 10 of Act 3648, the municipalities shall be paid by the grantee a tax equal to two percentum of the gross earnings from the electric current sold or supplied, and the same shall be “in lieu of all taxes and assessments.” The franchise was subsequently transferred to Manila Electric Company (MERALCO) under Republic Act 2340. Under PD 551, as

a grantee, it shall pay the tax represented by 2% of gross earnings.

RA 7160, upon its enactment, then authorized local government units to impose a tax on business enjoying a franchise of 50% of 1% of the gross annual receipts for the preceding year. The City Treasurer of San Pablo city, acting under its Revenue Code, imposed a business tax on MERALCO. The latter paid under protest, and filed an action with the Regional Trial Court to declare the Revenue Code of San Pablo City null and void. The Court Ruled in favor of MERALCO. ISSUE: Whether or not the City of San Pablo may impose a local franchise tax pursuant to the LGC upon the Manila Electric Company which pays a tax equal to two percent of its gross receipts in lieu of all taxes and assessments of whatever nature imposed by any national or local authority on savings or income. HELD: There is an implied repeal by the Local Government Code of the Meralco franchise insofar as the latter impose a 2% tax “in lieu of all taxes and assessments of whatever nature.” Section 137 of the LGC grants the local government unit the authority to impose franchise taxes “notwithstanding any exemption granted by any law or other special laws." Likewise, under Section 193, to wit: “unless otherwise provided in this Code, tax exemptions or incentives granted to, or presently enjoyed by all persons, whether natural or juridical, including government-owned or controlled corporations, except local water districts, cooperatives duly registered under R.A. 6938, non-stock

   

 

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and non-profit hospitals and educational institutions, are hereby withdrawn upon the effectivity of this Code,” tax exemption privileges are already deemed withdrawn. The Local Government Code may impose the local tax. Petition granted. 5. PHILIPPINE BASKETBALL ASSOCIATION, vs. COURT OF APPEALS, FACTS: The Philippine Basketball Association (PBA), petitioner, was assessed by the Commissioner of Internal Revenue with a deficiency on amusement taxes, surcharges and interest included, amounting to P5,864,260.94. The amount was based from the gross receipts from the sale of admission tickets for the year 1987. The amount was protested by the petitioner, but the same was denied by the Commissioner. The decision was affirmed by the Court of Tax Appeals and, subsequently, the Court of Appeals. Petitioner contends that the Local Tax Code of 1973, transferred authority on levying amusements taxes from the national government to the local governments. ISSUE: Whether or not the amusement tax on admission tickets is a national or local tax HELD: The Local Tax Code of 1973, particularly Section 13, states that “the province shall impose a tax on admission to be collected from the proprietors, lessees, or operators of theaters, cinematographs, concert halls, circuses and other places of

amusement.” The provision does not include the authority to tax basketball games. Consequently, PD 1959, under Section 268, provides that proprietors, lessees or operators of professional basketball games should pay the amusement tax, national tax, to the Bureau of Internal Revenue. Professional basketball games are not within the scope of “other places of amusement” of Section 13, which, consequently, is the provision granting the province the authority to levy taxes. Petitioner is liable to pay amusement tax to the national government.  

   

 

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REAL PROPERTY TAX

REAL PROPERTY TAX

• A direct tax on the ownership of lands and buildings or other improvements thereon not specifically exempted and is payable regardless of whether the property is used or not, although the value may vary in accordance with such factor. The tax is usually single or indivisible, although the land and building or improvements erected thereon are assessed separately, except when the land and building or improvements belong to separate owners. (Villanueva, et al. v. City of Iloilo)

• A fixed proportion of the assessed value of the property taxed and requires, therefore, the intervention of assessors. It is collected or payable at appointed times, and it constitutes a superior lien on and is enforceable against the property subject to such taxation and not by imprisonment of the owner.

• However, it is worthwhile to

note that in one decided case, the Supreme Court observed that the policy of taxing real property is on the basis of actual use even if the user is not the owner. (Province of Nueva Ecijavs Imperial Mining Co., Inc.)

Characteristics:

• It is a direct tax on the ownership of real property. The

impact and incidence of taxation devolves on the same person. 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 is a local tax.

Nature and Scope of the Local Taxation Power in Real Property Taxation

• The Taxing power of local governments in real property taxation is a delegated power. The delegation by Congress of its power to tax in this particular filed of taxation can be seen in the provisions of Sec. 232 of the Local Government Code.

Sec. 232. Power to Levy Real Property Tax

“A province or city or a municipality within the Metropolitan Manila Area may levy an annual ad valorem tax on real property such as land, building, machinery and other improvements not herein specifically exempted”

It necessary to note that under the said provision only provinces and cities as well as municipalities within Metro Manila Area are authorized to tax real property.

• Provinces, cities and municipalites in the Metro Manila may also fix real estate tax rates.

o Section 233 - Rates of Levy

   

 

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“A province or city or a municipality within the Metropolitan Manila Area shall fix a uniform rated of basic real property tax applicable to their respective localities as follows: a) In the case of a

province, at the rate not exceeding one percent (1%) of the assessed value of real property; and

b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not exceeding two percent (2%) of the assessed value of real property.

• Local taxing power also include the imposition of the special levies:

o a) 1% additional real estate tax to finance the Special Education Fund (SEF) which is levied on an ad valorem basis (Sec. 235, RA 7160)

o b) 5% additional tax on idle lands likewise imposed on an ad valorem basis (Sec. 236, LGC)

o c) special levy or special assessment which is not actually a tax. (Sec. 240, RA 7160)

Question of Tax Exemption – Properties exempt from Tax

• Unlike in the case of local taxes where Sec. 192 of the Local Government Code explicitly authorizes local government to

grant tax exemptions, incentives, or reliefs, they seems to be bereft of this authority insofar as realty taxes are concerned.

• Section 234 of the Local Government Code specifies what particular properties are exempt, it follows by clear implication that the law has withheld from local governments the power to exempt following the latin maxim “expression unius est exclusion alterius”

• Although provinces, cities and Metro Manila municipalities have no power to grant realty tax exemption, them may, however, exempt idle lands from the additional 5% tax by reason of:

o Force majeure o Civil disturbance o Natural calamity o Any cause or

circumstance which physically or legally prevents the owner of the property or person having legal interest therein form improving, utilizing or cultivating the same. (Sec. 238, RA 7160)

REMEDIES IN REAL PROPERTY TAXATION UNDER THE LOCAL GOVERNMENT CODE

A. LGU’s Tax Remedies 1. Administrative

i. Tax Lien ii. Levy (real property) iii. Distraint (personal

property) 2. Judicial

   

 

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B. Taxpayer’s Remedies

1. Administrative i. Protest ii. Tax Refund and Tax

Credit iii. Redemption

2. Judicial

LGU’s TAX REMEDIES

A. ADMINISTRATIVE – Extrajudicial

1. Tax Lien – superior to all liens, charges, encumbrances and is enforceable by administrative or judicial action. It is extinguished upon payment of tax and other expenses (Sec. 257, RA 7160)

2. Levy – after the expiration of the time required to pay the tax levied, the real property subject to the tax may be levied upon (Secs. 258-262, RA 7160) How to Levy: When time for payment for real property tax expires, a. Issuance of Warrant by the

Local Treasurer on or before or simultaneously with the institution of civil action for the collection of delinquent tax.

b. The warrant is mailed or served upon the delinquent owner i. the written notice is

mailed/served upon the City Assessor and the Register of Deeds of the LGU)

c. Advertise for sale or auction i. Posting of notice at

the main entrance of LGU hall/building and in a conspicuous

place in the barangay where the property is located; AND

ii. Publication once a week for two weeks

d. Before the date of the sale, the owner may stop the proceedings by paying the delinquent tax, interest, and expenses of sale (Legal Pre-Emption)

e. Sale is held i. At the main entrance

of the LGU bldg.., or ii. At the place where

the property to be sold is found, or

iii. Any other property specified in the notice

f. If there is a bidder and highest bid is sufficient to pay real property tax and related interest and cost, bidder pays and treasurer reports sale to the Sanggunian 30 days after the sale. The Local Treasurer will deliver to purchaser the Certificate of Sale (only). i. Legal Redemption –

within 1year from sale, owner may redeem upon payment of: delinquent tax, interest, and expenses of sale (from the date of delinquency to date of sale), and additional interest of 2% per month on the date of sale to date of redemption

Note: Legal owner retains possession and right to the fruits.

   

 

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g. Forfeiture - If there is NO bidder or highest bid is insufficient to pay real property tax and related interest and costs, the Local Treasurer shall purchase the property in behalf of the LGU.

Notes: Legal Redemption – within 1 year from forfeiture, owner may redeem property by paying to treasurer full amount of tax, interest, costs of sale, otherwise ownership shall vest to LGU. (Sec. 263, RA 7160). Sanggunian concerned may, by ordinance duly approved and with notice of not less 20days, sell/dispose by public auction of property acquired by forfeiture (Sec. 264, RA 7160)

h. Further Levy – levy may be repeated until full amount due, including all expenses, is collected.

3. Distraint of Personal Property – with notice of delinquency posted and published, personal property may be distrained to effect payment (Sec. 254, LGC)

B. JUDICIAL 1. Civil Action – judicial action

filed by the Local Treasurer: a. Within 5 years from the

date the tax is due (Sec. 266, RA 7160), or

b. 10 years from the DISCOVERY of fraud or intent to evade payment (Sec. 270, RA 7160)

Note: A formal demand for payment of the delinquent tax is not required for the initiation of either remedy. It is enough that a notice of delinquency is made, to be posted and published as required under Sec. 254 of the LGC.

TAXPAYER’S REMEDIES

A. Administrative

1. Protest on Tax Assessments Process in Protest: a. File a petition under oath

within 60days from the receipt of the written notice of assessment to the Local Board of Assessment of Appeals (LBAA) (Sec. 229[a], RA 7160)

b. The LBAA shall decide the protest within 120 days from receipt of the appeal

c. The aggrieved taxpayer may appeal to the Central Board of Assessment Appeals within 30days after receipt of the adverse decision by the LBAA or within 30days after the 120-day period of the LBAA to decide (Sec. 229[a], RA 7160)

d. The adverse decision of the CBAA may be appealed to CTA en banc within 30days from the receipt of notice (R.A.9282)

e. Appeal to the SC within 15 days from receipt of adverse decision of the CTA en banc (Rule 43, Rules of Court)

Note: Payment under Protest - No protest shall be entertained unless the tax be first paid (Sec. 252, RA 7160). Payment of the tax assessed under protest is a condition sine qua non before the trial court could assume jurisdiction over the petition and for failure to do so, the RTC has no jurisdiction to entertain it… Under the Doctrine of Exhaustion of Administrative Remedies, an error in the assessment must be

   

 

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administratively pursued to the exclusion of the ordinary courts whose decisions would be void for lack of jurisdiction (Manila Electric Company vs. Barlis, 357 SCRA 832)

2. Tax Refund or Tax Credit When to file tax refund or credit? -­‐ The taxpayer may file a

written claim for refund or credit to taxes and interests with the provincial or city treasure within 2 years from the date the taxpayer is entitled to such reduction or assessment (Sec. 253, RA 7160)

-­‐ The Local Treasurer has 60 days to decide the claim from receipt thereof.

If Local Treasure denies claim for tax refund or credit? -­‐ Appeal the claim to the

LBAA (as in protest cases). If LBAA gives an adverse decision, appeal to CBAA.

3. Redemption of Real Property When to redeem? -­‐ Within 1year from the date

of sale Who can redeem? -­‐ The owner of the delinquent

real property OR person having legal interest thereon or his representative

What should be paid? -­‐ Amount of the delinquent

tax; -­‐ Interest thereon; -­‐ Expense of sale from date of

delinquency to date of sale; and

-­‐ Interest of not more than 2% per month on the purchase

price from the date of sale to the date of redemption

CLASS RECITATION WITH SUGGESTED ANSWERS

Q: What are the Fundamental Principles of Real Property Taxation? A: Section 198 of Local Government Code provides:

“Fundamental Principles – The appraisal, assessment, levy and collection of real property tax shall be guided by the following fundamental principles:

a) Real property shall be appraised at its current and fair market value

b) Real property shall be classified for assessment purposes on the basis of its actual use

c) Real property shall be assessed on the basis of a uniform classification within each local government unit;

d) The appraisal, assessment, levy and collection of real property tax shall not be let to any private person; and

e) The appraisal and assessment of real property shall be equitable”

Q: Can a property be used for only one purpose or can be used for more than one? A: Yes. According to the case of LUNG CENTER OF THE PHILS v QUEZON

   

 

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CITY (GR No.144104, June 29, 2004) Almost one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. The Supreme Court held “that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes.” Q: How will you determine the classification of the land if used for more than one purposes? A: Predominant test: Principal use of the land Q: What is the Formula for Real Property Tax? A: 1) Ascertain the assessment level of the property 2) Multiply the market value by the applicable assessment level of the property 3) Find the tax rate which corresponds to the class (use) of the property and multiply the assessed value by the applicable tax rates. (Lopez v City of Manila, et al.) For easy reference the formula for computation of real property tax is set forth, thus

Market Value ₱ xxx

Multiplied by assessment level (x%) Assessed Value ₱ xxx Multiplied by Rate of tax (x%) Real Property Tax ₱ xxx `

Q: What is fair market value? A: Section 199 of the Local Government Code defines Fair Market Value as the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy. Q: What is the assessment level? A: Assessment Level is the percentage applied to the fair market value to determine the taxable value of the property. (Section 199, LGC) Q: How many classifications of land under the Local Government Code? A: Under section 218 of the Local Government Code the classification of lands for purposes of assessment are Commercial, Agricultural, Residential, Mineral, Industrial, Timberland, and Special lands. Q: What is the difference between a Commercial land and Industrial land? A: Section 199 of the Local Government Code provides that a Commercial land is one devoted principally for the object of profit, and is not classified as agricultural, industrial, mineral, timber, or residential land while Industrial land is one devoted principally to industrial activity as capital investment and is not

   

 

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classified as agricultural, commercial, timber, mineral or residential land. Q: Are improvements taxed separately? A: Yes. The real property tax is imposed on real property such as land, buildings, machinery and other improvements not otherwise specifically exempted under the code. (Sec. 232, RA 7160) Q: What is the collection and levying date of Real Property Tax? A: “The basic real property tax and other tax levied under this title shall be collected within five years form the date they become due. No action for the collection of the tax, whether administrative or judicial, shall be instituted after the expiration of such period. In case of fraud or intent to evade payment of the tax, such action may be instituted for the collection of the same within 10 years from the discovery of such fraud or intent to evade payment.”(Sec. 270, RA 7160) Q: Are machineries owned by non-stock, non-profit educational institutions, taxable? A: Machines are considered assets, therefore they are not taxable. Article 14 section 3 (3) of the constitution provides that “All revenues and assets of non-stock, non-profit educational institutions used actually, directly, and exclusively for educational purposes shall be exempt from taxes and duties.” Q: Air-conditioner owned by the school, are they taxable? A: It depends. For purposes of taxation the term “real property” may include

things which should generally be regarded as personal property. For real property tax purposes such personal properties may be considered as real property, if they are incorporated or permanently attached to an immovable in a fixed manner in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object Q: How would you know if a Corporation is a GOCC? A: The introductory provisions of Executive Order 292 (Administrative Code of the Philippines), specifically paragraph 13 provides:

“Government-owned or controlled corporation refers to any agency organized as a stock or non-stock corporation, vested with functions relating to public needs whether governmental or proprietary in nature, and owned by the Government directly or through its instrumentalities either wholly, or, where applicable as in the case of stock corporations, to the extent of at least fifty-one (51) per cent of its capital stock”

Q: What is machinery for purposes of Real Property Taxation? A: Section 199 of LGC defines machinery as those that embraces machines, equipment, mechanical contrivances, instruments, appliances or apparatus which may or may not be attached, permanently or temporarily, to the real property, the installations and appurtenant service facilities,

   

 

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those which are mobile, self-powered 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. Q: Is article 415 of the New Civil Code relevant to Local Government Code? A: Real Properties mentioned in the Article 415 of the Civil Code are referred to by suppletory effect since the Local Government Code did not provide for a definition of real property. (Benguet Corp. v. Central Board of Assessment Appeals, 218 SCRA 271) Q: What are the grounds for Condonation in Real Property? A: In case of a general failure of crops

Substantial decrease in the price of agricultural or agri- based products Calamity in any province, city or municipality (Section 276, RA 7160)

Q: Are all educational institution exempted from Real Property tax? A: No. Unless they are exclusively, directly and actually uses for educational purposes. Article VI section 28 (3) of the 1987 Constitution provides that “charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly, and exclusively used for

religious, charitable, or educational purposes shall be exempt from taxation” Q: Are Nursery schools exempt from real property tax? A: Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, building, and improvements actually, directly and exclusively used for religious, charitable or educational purposes Q: Are Vocational schools like TESDA, exempt from Real Property Taxation? A: Real property owned by the Republic of the Philippines or any of its political subdivision except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person. Q: What are exempt from Real Property Tax? Is the list exclusive? A: “The following are exempted from payment of the real property tax:

a) Real property owned by the Republic of the Philippines or any of its political subdivision except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person

b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques, nonprofit or religious cemeteries and all lands, building, and improvements actually, directly and exclusively used for religious, charitable or educational purposes

   

 

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c) All machineries and equipment that are actually, directly and exclusively used by local water districts and government-owned or controlled corporations engaged in the supply and distribution of water and/or generation and transmission of electric power

d) All property owned by duly registered cooperatives as provided for under R.A. No. 6938 and

e) Machinery and equipment used for pollution control and environmental protection. Except as provided herein, any exemption from payment of real property tax previously granted to, or presently enjoyed by, all persons, whether natural or juridical, including all government-owned or controlled corporations are hereby withdrawn upon the effectivity of the LGC” (Section 234-Exemptions from Real Property)

Q: What are the requirements to claim exemption from Real Property Taxation? A: “Every person by or for whom real property is declared who shall claim tax exemption for such property under Real Property taxation shall file with the provincial, city or municipal assessor within 30 days from the date of the declaration of real property sufficient documentary evidence in support of such claim including corporate charters, title of ownership, articles of incorporation, by-laws, contracts, affidavits, certifications and mortgage deeds, and similar documents. If the required evidence is not submitted within the period herein prescribed, the property shall be listed

as taxable in the assessment roll. However, if the property shall be proven to be tax exempt, the same shall be dropped from the assessment roll. ” (Sec.206, RA 7160) Q: What is the consequence of not paying real property tax on time? A: In case of failure to pay the basic real property tax or any other tax levied under Real Property taxation upon the expiration of the periods as provided in section 250, or when due, as the case may be, shall subject the taxpayer to the payment of interest at the rate of two percent (2%) per month on the unpaid amount or a fraction thereof, until the delinquent tax shall have been fully paid: Provided, however, that in no case shall the total interest on the unpaid tax or portion thereof exceed 36 months. (Sec. 255, RA 7160) Q: How to be exempted from idle lands tax? A: “A province or city or a municipality within the Metropolitan Manila Area may exempt idle lands form the additional levy by reason of force majeure, civil disturbance, natural calamity or any cause or circumstances which physically or legally prevents the owner of the property or person having legal interest therein from improving, utilizing, or cultivating the same” (Section 238-Idle Lands Exempt from tax, RA 7160) Q: What are special lands? A: “All lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural, or scientific purposes, and hose owned and used

   

 

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by local water districts, and government owned and 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” (Sec. 216, RA 7160) Q: A building where the first floor is used for commercial purposes and the second floor is for residential purposes, how can you classify the land or building for the purpose of Real Property Taxation? A: The Local Government Code states 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.” (Sec. 217, RA 7160) Hence, the first floor is commercial and the second floor is residential unless under the doctrine of incidental use, one is complimentary to the main or primary purpose of the other (Abra Valley College, Inc v Hon. Aquino). Then the classification would depend upon the primary use of the land without regard to the other. Q: What if the structure is horizontal, the left side is for commercial purposes and the right side is for residential purposes? What is the classification of the land or building for the purpose of Real Property Taxation? A: The Local Government Code states 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” (Sec. 217, RA 7160) Hence, the left side is commercial and the right side is residential unless under the doctrine of incidental use, one is

complimentary to the main or primary purpose of the other (Abra Valley College, Inc v Hon. Aquino). Then the classification would depend upon the primary use of the land without regard to the other. Q: Your client constructed an Industrial warehouse in a commercial area, how would you classify the land? A: The property shall be considered Industrial. The Local Government Code states 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” (Sec. 217, RA 7160) Q: A land originally for agricultural purposes then converted to a world class memorial park, is it taxable? Do you need to classify the land from agricultural to something else? A: Yes. 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” Yes. The basis of real property taxation is actual use. In the case at bar, the actual use of the land is converted hence the need to re-classify from agricultural to commercial. Q: A land originally used for agricultural purposes was bought by Eternal Gardens and constructed a world class memorial park, thereby converting it to a commercial land. It is the policy of Eternal Garden that if a person wish to have a memorial lot, he should

   

 

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buy the same and not just to lease the lot, the titles are given to the buyer. What is the status of the land with respect to the buyer? Q: An accounting firm employs 3000 employees, 2500 of them were given laptops, are they taxable as real property? Are they considered machineries? A: For purposes of taxation the term “real property” may include things which should generally be regarded as personal property. For real property tax purposes such personal properties may be considered as real property, if they are essential and principal elements of the business being conducted in the said land or building (Caltex Phils. v. Central board of assessments appeals et. al., 114 SCRA 296) They are considered machineries because the latter includes mobile equipment, which are essential to an industry. Q: A property owned by The Republic of the Philippines is leased to Dating Daanfor purposes of the latter’s weekly gathering. Is the property taxable or not? The head of Dating Daan intended to sublease the land to another religious sect for profit. Is it taxable? A: First and foremost the following are exempt from real property taxes under section 243 of the LGC (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person, the real property prior to being leases to dating daan is exempt from real property tax.

Moreover, under article VI section 28 (3) all lands and buildings actually, directly and exclusively used for religious purposes shall be exempt from taxation. When the property was leased to dating daan and dating daan used it for exclusively religious purposes it is still exempt from real property tax. However, when datinddaan subleased the property to another religious sect for profit it was divested of its exempted status. Thus, dating daan is liable to pay real property tax. Q: In a cinema, are the machineries used taxable? Is the Projector taxable? Are the bolted chairs taxable? A: Yes. The real property tax is imposed on real property such as land, buildings, machinery and other improvements not otherwise specifically exempted under the code. (Sec. 232, RA 7160) The projector is taxable. For purposes of taxation the term “real property” may include things which should generally be regarded as personal property. For real property tax purposes such personal properties may be considered as real property, if they are essential and principal elements of the business being conducted in the said land or building (Caltex Phils. v. Central board of assessments appeals et. al., 114 SCRA 296), in the case at bar projectors are necessary in cinemas. The bolted chairs for purposes of taxation are taxable because they are considered real property under Article 415 (3) of the New Civil Code. It is attached to an immovable in a fixed manner in such a way that it cannot be separated therefrom without breaking the material or deterioration of the object.

   

 

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Q: Is an Elevator considered machinery or improvements? A: It depends. If the elevator would be necessary to meet the needs of a particular industry, business or activity and which by their very nature and purpose are designed for it is considered as machinery. On the other hand, if the elevator is intended only to enhance the structures value, beauty or utility or to adapt it for new or further purposes then it is considered as an improvement. Example: An elevator in a two-storey warehouse as to an elevator in a two-storey house. The former is considered machinery since it is necessary for moving especially heavy parcels while the latter is considered as an improvement to enhance the value of the house. (Sec. 199, RA 7160) Q: Is a profitable cemetery for the burial of monks and priest taxable or not? A: Article VI, Section 28 (3) of the Constitution provides that Cemeteries are exempt from the payment of taxes because of the difficulty of collecting a tax thereon and the obvious impropriety of selling the graves of the dead to defray the expenses of carrying on the government of the living. The aforesaid provision however pertains to non-profit cemeteries, excluding profitable cemeteries making it taxable. Since the basis of real property taxation is actual use and the operation of the cemetery is to produce profit, the profitable cemetery is not included in the exemptions from real property tax provided in Section 234 of the Local Government Code.

CASE DIGESTS 1. CALTEX PHILIPPINES v CBAA FACTS: The machines and equipment consists of underground tanks, elevated tank, elevated water tanks, water tanks, gasoline pumps, computing pumps, water pumps, car washer, car hoists, truck hoists, air compressors and tire flators. The said machines and equipment are loaned by Caltex to gas station operators under an appropriate lease agreement or receipt. It is stipulated in the lease contract that the operators, upon demand, shall return to Caltex the machines and equipment in good condition as when received, ordinary wear and tear excepted. The lessor of the land, where the gas station is located, does not become the owner of the machines and equipment installed therein. Caltex retains the ownership thereof during the term of the lease. The city assessor of Pasay City characterized the said items of gas station equipment and machinery as taxable realty. The city board of tax appeals ruled that they are personalty. The assessor appealed to the Central Board of Assessment Appeals. The Board held in its decision that the said machines and equipment are real property within the meaning of sections 3(k) & (m) and 38 of the Real Property Tax Code, Presidential Decree No. 464 and that the definitions of real property and personal property in articles 415 and 416 of the Civil Code are not applicable to this case. Caltex's motion for reconsideration was denied. Hence, this petition for certiorari praynig to set aside the Board's decision and for a declaration that the

   

 

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said machines and equipment are personal property subject to realty tax. ISSUE: Whether or not the questioned property are real property to be subject to realty tax. HELD: Section 2 of the Assessment Law provides that the realty tax is due "on real property, including land, buildings, machinery, and other improvements" not specifically exempted in section 3 thereof. This provision is reproduced with some modification in the Real Property Tax Code which provides: SEC. 38. Incidence of Real Property Tax.— There shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property, such as land, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted. The Code contains the following definitions in its section 3: k) Improvements — is a valuable addition made to property or an amelioration in its condition, amounting to more than mere repairs or replacement of waste, costing labor or capital and intended to enhance its value, beauty or utility or to adapt it for new or further purposes. m) Machinery — shall embrace machines, mechanical contrivances, instruments, appliances and apparatus attached to the real estate. It includes the physical facilities available for production, as well as the installations and appurtenant service facilities, together with all other equipment designed for or essential to its manufacturing, industrial or agricultural purposes (See sec. 3[f], Assessment Law).

We hold that the said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex (as to which it is subject to realty tax) and which fixtures are necessary to the operation of the gas station, for without them the gas station would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code. Improvements on land are commonly taxed as realty even though for some purposes they might be considered personalty (84 C.J.S. 181-2, Notes 40 and 41). "It is a familiar phenomenon to see things classed as real property for purposes of taxation which on general principle might be considered personal property" (Standard Oil Co. of New York vs. Jaramillo, 44 Phil. 630, 633). 2. LUNG CENTER OF THE PHILS v QUEZON CITY FACTS: The petitioner Lung Center of the Philippines is a non-stock and non-profit entity established on January 16, 1981 by virtue of Presidential Decree No. 1823. It is the registered owner of a parcel of land, particularly described as Lot No. RP-3-B-3A-1-B-1, SWO-04-000495, located at Quezon Avenue corner Elliptical Road, Central District, Quezon City. Erected in the middle of the aforesaid lot is a hospital known as the Lung Center of the Philippines. A big space at the ground floor is being leased to private parties, for canteen and small store spaces, and to medical or professional practitioners who use the same as their private clinics for their patients whom they charge for their professional services. Almost

   

 

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one-half of the entire area on the left side of the building along Quezon Avenue is vacant and idle, while a big portion on the right side, at the corner of Quezon Avenue and Elliptical Road, is being leased for commercial purposes to a private enterprise known as the Elliptical Orchids and Garden Center. On June 7, 1993, both the land and the hospital building of the petitioner were assessed for real property taxes in the amount of P4,554,860 by the City Assessor of Quezon City. On August 25, 1993, the petitioner filed a Claim for Exemption from real property taxes with the City Assessor, predicated on its claim that it is a charitable institution. The petitioner’s request was denied, and a petition was, thereafter, filed before the Local Board of Assessment Appeals of Quezon City for the reversal of the resolution of the City Assessor. The petitioner alleged that under Section 28, paragraph 3 of the 1987 Constitution, the property is exempt from real property taxes. It averred that a minimum of 60% of its hospital beds are exclusively used for charity patients and that the major thrust of its hospital operation is to serve charity patients. The petitioner contends that it is a charitable institution and, as such, is exempt from real property taxes. ISSUE: Whether the petitioner is a charitable institution within the context of Presidential Decree No. 1823 and the 1973 and 1987 Constitutions and Section 234(b) of Republic Act No. 7160; and whether the real properties of the petitioner are exempt from real property taxes.

HELD: On the first issue, we hold that the petitioner is a charitable institution within the context of the 1973 and 1987 Constitutions. To determine whether an enterprise is a charitable institution/entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purposes, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties. 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; and no money inures to the private benefit of the persons managing or operating the institution. Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes. The settled rule in this jurisdiction is that laws granting exemption from tax are construed strictissimi juris against the taxpayer and liberally in favor of the taxing power. Taxation is the rule and exemption is the exception. The effect of an exemption is equivalent to an appropriation. Hence, a claim for exemption from tax payments must be

   

 

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clearly shown and based on language in the law too plain to be mistaken. Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order to be entitled to the exemption, the petitioner is burdened to prove, by clear and unequivocal proof, that (a) it is a charitable institution; and (b) its real properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for charitable purposes. “Exclusive” is defined as possessed and enjoyed to the exclusion of others; debarred from participation or enjoyment; and “exclusively” is defined, “in a manner to exclude; as enjoying a privilege exclusively.” If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purposes but is subject to taxation. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitutions and the law. Solely is synonymous with exclusively. What is meant by actual, direct and exclusive use of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. The petitioner failed to discharge its burden to prove that the entirety of its real property is actually, directly and exclusively used for charitable purposes. While portions of the hospital are used for the treatment of patients and the dispensation of medical services to them, whether

paying or non-paying, other portions thereof are being leased to private individuals for their clinics and a canteen. Further, a portion of the land is being leased to a private individual for her business enterprise under the business name “Elliptical Orchids and Garden Center.” Accordingly, we hold that the portions of the land leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from such taxes. On the other hand, the portions of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes. 3. MIAA v CA FACTS: Petitioner Manila International Airport Authority (MIAA) operates the Ninoy Aquino International Airport (NAIA) Complex in Parañaque City. As operator of the international airport, MIAA administers the land, improvements and equipment within the NAIA Complex. The MIAA Charter transferred to MIAA approximately 600 hectares of land, including the runways and buildings ("Airport Lands and Buildings") then under the Bureau of Air Transportation. The MIAA Charter further provides that no portion of the land transferred to MIAA shall be disposed of through sale or any other mode unless specifically approved by the President of the Philippines. On 21 March 1997, OGCC opined that the Local Government Code of 1991 withdrew the exemption from real estate tax granted to MIAA under Section 21 of the MIAA Charter. Thus, MIAA negotiated with respondent City of Parañaque to pay the real estate tax

   

 

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imposed by the City. MIAA then paid some of the real estate tax already due. MIAA admits that the MIAA Charter has placed the title to the Airport Lands and Buildings in the name of MIAA. However, MIAA points out that it cannot claim ownership over these properties since the real owner of the Airport Lands and Buildings is the Republic of the Philippines. The MIAA Charter mandates MIAA to devote the Airport Lands and Buildings for the benefit of the general public. Since the Airport Lands and Buildings are devoted to public use and public service, the ownership of these properties remains with the State. The Airport Lands and Buildings are thus inalienable and are not subject to real estate tax by local governments. MIAA also points out that Section 21 of the MIAA Charter specifically exempts MIAA from the payment of real estate tax. MIAA insists that it is also exempt from real estate tax under Section 234 of the Local Government Code because the Airport Lands and Buildings are owned by the Republic. To justify the exemption, MIAA invokes the principle that the government cannot tax itself. MIAA points out that the reason for tax exemption of public property is that its taxation would not inure to any public advantage, since in such a case the tax debtor is also the tax creditor. Respondents invoke Section 193 of the Local Government Code, which expressly withdrew the tax exemption privileges of "government-owned and-controlled corporations" upon the effectivity of the Local Government Code. Respondents also argue that a basic rule of statutory construction is that the express

mention of one person, thing, or act excludes all others. An international airport is not among the exceptions mentioned in Section 193 of the Local Government Code. Thus, respondents assert that MIAA cannot claim that the Airport Lands and Buildings are exempt from real estate tax. Respondents also cite the ruling of this Court in Mactan International Airport v. Marcos where we held that the Local Government Code has withdrawn the exemption from real estate tax granted to international airports. Respondents further argue that since MIAA has already paid some of the real estate tax assessments, it is now estopped from claiming that the Airport Lands and Buildings are exempt from real estate tax. ISSUE: Whether the Airport Lands and Buildings of MIAA are exempt from real estate tax under existing laws. HELD: The Airport Lands and Buildings of MIAA are property of public dominion and therefore owned by the State or the Republic of the Philippines. No one can dispute that properties of public dominion mentioned in Article 420 of the Civil Code, like "roads, canals, rivers, torrents, ports and bridges constructed by the State," are owned by the State. The term "ports" includes seaports and airports. The MIAA Airport Lands and Buildings constitute a "port" constructed by the State. Under Article 420 of the Civil Code, the MIAA Airport Lands and Buildings are properties of public dominion and thus owned by the State or the Republic of the Philippines.

   

 

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Section 234(a) of the Local Government Code exempts from real estate tax any "[r]eal property owned by the Republic of the Philippines." Section 234(a) provides: SEC. 234. Exemptions from Real Property Tax. — The following are exempted from payment of the real property tax: (a) Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted, for consideration or otherwise, to a taxable person; xxx. This exemption should be read in relation with Section 133(o) of the same Code, which prohibits local governments from imposing "[t]axes, fees or charges of any kind on the National Government, its agencies and instrumentalities x xx." The real properties owned by the Republic are titled either in the name of the Republic itself or in the name of agencies or instrumentalities of the National Government. The Administrative Code allows real property owned by the Republic to be titled in the name of agencies or instrumentalities of the national government. Such real properties remain owned by the Republic and continue to be exempt from real estate tax. 4. CITY ASSESSOR OF CEBU v ASSOCIATION OF BENEVOLA De CEBU FACTS: Respondent Association of Benevola de Cebu, Inc. is a non-stock, non-profit organization organized under the laws of the Republic of the Philippines and is the owner of Chong Hua Hospital

(CHH) in Cebu City. In the late 1990’s, respondent constructed the CHH Medical Arts Center (CHHMAC). Thereafter Certificate of Occupancy was issued to the center with a classification of “Commercial Clinic.” Petitioner City Assessor of Cebu City assessed the CHHMAC building as “commercial” with a market value of PhP 28,060,520 and an assessed value of PhP 9,821,180 at the assessment level of 35% for commercial buildings, and not at the 10% special assessment currently imposed for CHH and its other separate buildings—the CHH’s Dietary and Records Departments. Thus, respondent asserting that CHHMAC is part of CHH and ought to be imposed the same special assessment level of 10% with that of CHH. Respondent further contended in its position paper that CHHMAC building is actually, directly, and exclusively part of CHH and should have a special assessment level of 10% as provided under City Tax Ordinance LXX. Respondent asserted that the CHHMAC building is similarly situated as the buildings of CHH, housing its Dietary and Records Departments, are completely separate from the main CHH building and are imposed the 10% special assessment level. In fine, respondent argued that the CHHMAC, though not actually indispensable, is nonetheless incidental and reasonably necessary to CHH’s operations. ISSUE: Whether or not CHHMAC building is liable to pay the 35% assessment level. HELD:

   

 

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We so hold that CHHMAC is an integral part of CHH. It is undisputed that the doctors and medical specialists holding clinics in CHHMAC are those duly accredited by CHH, that is, they are consultants of the hospital and the ones who can treat CHH’s patients confined in it. This fact alone takes away CHHMAC from being categorized as “commercial” since a tertiary hospital like CHH is required by law to have a pool of physicians who comprises the required medical departments in various medical fields. These accredited physicians normally hold offices within the premises of the hospital; in which case there is no question as to the conduct of their business in the ambit of diagnosis, treatment and/or confinement of patients. This was the case before 1998 and before CHHMAC was built. Verily, their transfer to a more spacious and, perhaps, convenient place and location for the benefit of the hospital’s patients does not remove them from being an integral part of the overall operation of the hospital. Conversely, it would have been different if CHHMAC was also open for non-accredited physicians, that is, any medical practitioner, for then respondent would be running a commercial building for lease only to doctors which would indeed subject the CHHMAC to the commercial level of 35% assessment. Moreover, the CHHMAC, being hundred meters away from the CHH main building, does not denigrate from its being an integral part of the latter. the CHHMAC facility, while seemingly not indispensable to the operations of CHH, is definitely incidental to and reasonably necessary for the operations of the hospital.

Sec. 216 in relation with Sec. 215 of the Local Government Code on the proper classification of the subject CHHMAC building as “special” and not “commercial.” Secs. 215 and 216 pertinently provide: SEC. 215. Classes of Real Property for Assessment Purposes.—For purposes of assessment, real property shall be classified as residential, agricultural, commercial, industrial, mineral, timberland or special. xxxx SEC. 216. Special Classes of Real Property.––All lands, buildings, and other improvements thereon actually, directly and exclusively used for hospitals, cultural or scientific purposes, and those owned and used by local water districts, and government-owned or controlled corporations rendering essential public services in the supply and distribution of water and/or generation and transmission of electric power shall be classified as special. Thus, applying the above provisos in line with City Tax Ordinance LXX of Cebu City, the 10% special assessment should be imposed for the CHHMAC building which should be classified as “special.”  

   

 

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TARRIFF AND CUSTOMS LAW

TARIFFS AND CUSTOMS DEFINED Tariff means taxes while Customs refer to the required procedure for importation to and exportation from the Philippines of articles. Tariffs and Customs Laws

1. Tariff and Customs Code of the Philippines (TCCP)

2. Other laws and regulations subject to the enforcement by the Bureau of Customs or otherwise within its jurisdiction.

3. Bangko Sentral Circulars in relation to importation

BUREAU OF CUSTOMS (BOC) The principal government agency which has the general duties, powers, and jurisdiction of the Bureau of Customs include among others the enforcement of the tariff and customs laws and all other laws, rules and regulations relating to Tariffs and Customs administration (Sec. 602 [d], TCCP). FUNCTIONS OF THE BOC:

1. The prevention and suppression of smuggling and other frauds upon the customs.

2. The supervision and control over the entrance and clearance of vessels and aircraft engaged in foreign commerce.

3. The enforcement of tariffs and customs laws

4. The assessment and collection of the lawful revenues from imported articles and all other dues, fees, charges, fines, and

penalties accruing under the tariffs and customs laws.

5. The supervision and control over the handling of foreign mails arriving in the Philippines

6. The supervision and control of all import and export cargoes

7. The exercise of exclusive original jurisdiction over seizure and forfeiture cases under the tariffs and customs laws.

TERRITORIAL JURISDICTION OF THE BOC

1. Right of supervision and police authority

2. Over all seas within the jurisdiction of the Phils.

3. Over all coasts, ports, airports, harbors, bays, rivers and inland waters whether navigable or not from the sea.

KINDS OF TARIFFS OR CUSTOMS DUTIES

1. Regular Tariffs or customs duties

2. Special Tariffs or customs duties

Regular Tariffs defined Taxes that are imposed or assessed upon merchandise from, or exported to, a foreign country Purpose of Regular Tariffs

1. To raise revenues 2. To serves as protective barriers 3. To discourage the exportation

of certain articles, usually raw materials, in order to promote their manufacture into finished products

   

 

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KINDS OF REGULAR CUSTOMS DUTIES

1. Ad valorem customs duties 2. Specific customs duties 3. Mixed or compound customs

duties

Ad valorem customs duties

• Customs duties that are computed on the basis of value. The present basis for ad valorem duties is the transaction value of the imported article.

Specific customs duties

• Customs duties that are computed on the basis of a unit of measure such as per kilogram, per piece, per dozen, per liter etc.

Mixed or compound customs duties

• Customs duties that impose both ad valorem and specific customs duties. Ex. 50% ad valorem plus P350.00 per piece.

Special Tariffs

• Additional import duties imposed specific kinds of imported articles under certain conditions.

Purpose of Special Tariffs

1. Imposed for the protection of consumers and manufacturers as well as Philippine products from undue competition posed by foreign made products.

2. To protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.

KINDS OF SPECIAL CUSTOMS DUTIES

1. Under the TCCP: a. Anti-dumping duty b. Countervailing duty c. Marking duty d. Discriminatory duty

2. Under the Safeguard Measures Act (R.A. 8800): a. Additional tariffs imposed as

a safeguard measure

Anti-dumping duty defined

1. A special duty 2. Imposed on the importation of a

product, commodity or article of commerce into the Philippines

3. At less than its normal value when destined for domestic consumption in the exporting country.

4. Which importation is causing or is threatening to cause material injury to a domestic industry or materially retards the establishment of a domestic industry producing the like product.

5. The anti-dumping duty is the difference between export price and the normal value of such product, commodity or article. (Sec. 301 [a] [s] [1] TCCP as amended by R.A. 8752 “Anti-Dumping Act of 1999”)

When is Anti-dumping duty imposed?

1. Where a product, commodity or article of commerce

   

 

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a. Is exported into the Philippines

b. At a price less than its normal value

c. When destined for domestic consumption

2. And such exportation a. Is causing or b. Is threatening to cause

material injury to a domestic industry or

c. Materially retards the establishment of a domestic industry producing the like product.

What is the normal value for purposes of anti-dumping?

a. The comparable price b. At the date of sale c. Of like product, commodity or

article d. In the ordinary course of trade e. When destined for consumption

in the country of export

Who is the imposing authority of Anti-dumping duties?

a. The Secretary of Trade and Industry in the case of non-agricultural product, commodity or article

b. The Secretary of Agriculture in the case of agricultural product, commodity or article after formal investigation and affirmative finding of the Tariff Commission

c. The decision on whether or not to impose a definitive anti-dumping duty remains the prerogative of the Tariff Commission.

Where to appeal? The decisions of the DTI and DA Secretaries involving dumping duties

under Sec. 301 and 302 of the TCCP fall within the exclusive appellate jurisdiction of the Court of Tax Appeals (CTA) Amount of anti-dumping duty The difference between the export price and the normal value of such product, commodity or article. Countervailing duty defined

1. Additional customs duties imposed on

2. Any product, commodity or article of commerce

3. Which is granted directly or indirectly a. By the government in the

country of origin or exportation

b. Any kind or form of specific subsidy

c. Upon the production, manufacture or exportation of such product, commodity or article and

4. The importation of such subsidized product, commodity or article a. Has caused or b. Threatens to cause material

injury to a domestic industry c. Has materially retarded the

growth or prevents the establishment of a domestic industry

Kinds of specific subsidies

1. Bounty -­‐ Cash award paid to an

exporter or manufacturer 2. Subsidy

-­‐ Fiscal incentives not in the form of direct cash award to encourage manufacturers or exporters

   

 

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3. Subvention -­‐ Any assistance other than a

bounty or subsidy given by a government for the manufacture and/or exportation of an article

Amount of countervailing duty The duty shall be equivalent to the bounty, subsidy or subvention.

Imposing authority for countervailing duties

1. The DTI Secretary in the case of non-agricultural product, commodity or article or

2. The DA Secretary in the case of agricultural product, commodity or article after formal investigation and affirmative finding of the Tariff Commission

3. The decision on whether or not to impose a definitive countervailing duty remains the prerogative of the Tariff Commission.

Marking Duty defined

1. Additional customs duties imposed on foreign articles or its container if the article itself cannot be marked a. Not marked in any official

language of the Philippines b. In a conspicuous place

i. As legibly, indelibly and permanently

ii. In such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin

2. The duty shall be five percent (5%) ad valorem of the articles

Imposing authority for marking duties

-­‐ Commissioner of Customs

Instances when the Commissioner of the BOC may except imported article from the marking requirement:

1. Such article is incapable of being marked

2. Such article cannot be marked prior to shipment to the Philippines without injury

3. Such article cannot be marked prior shipment to the Philippines except at an expense economically prohibitive of its importation

4. The marking of a container will reasonably indicate the origin of such article

5. Such article is a crude substance

6. Such article is imported for use by the importer and not intended for sale in its imported or any other form

7. Such article is to be processed into the Philippines by the importer for his account otherwise then for the purpose of concealing the origin of such article and in such manner that any mark contemplated would be necessarily be obliterated, destroyed or permanently concealed

8. An ultimate purchaser by reason of the character of such article must necessarily know the country of origin of such article even though it is not marked to indicate its origin

9. Such article was produced more than twenty (20) years prior to

   

 

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its importation into the Philippines

10. Such article cannot be marked after importation except at an expense which is economically prohibitive and the failure to mark the article before importation was not due to any purpose of the importer, producer, seller or shipper to avoid compliance with the section.

Discriminatory duty

• New or additional customs duly imposed upon articles wholly or in part of the growth or product of or imported in a vessel of any foreign country which 1. Imposes directly or indirectly

upon the disposition or transportation in transit through or re-exportation from such country of any article wholly or in part the growth of product in the Philippinws a. Any unreasonable

charge, exaction, regulation or limitation which is not equally enforced upon like articles of every foreign country or

2. Discriminates against the commerce of the Philippines directly or indirectly by law or administrative regulation or practice by or in respect to any a. Customs, tonnage or port

duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition

b. In such manner as to place the commerce of the Philippines at a disadvantage compard with the commerce of any foreign country

c. The duty shall not exceed 100% ad valorem of the article

Who is the imposing authority of discriminatory duties? The President of the Philippines (Sec. 304 TCCP)

What are Safeguard Measures under R.A. 8800 or the Safeguard Measures Act? These are emergency measures including tariffs, to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them. Other safeguard measure may include tariff rate, quotas or quantitative restrictions on the importation of product into the country.

Who has authority to impose safeguard measure?

1. The DA Secretary if the questioned article is an agricultural product

2. The DTI Secretary if the questioned article is a non-agricultural product

3. The final determination shall be the prerogative of the Tariff Commission

What is the Flexible Tariff Clause? 1. The Congress may by law

authorize the President to fix within specified limits and subject to such limitations and restrictions as it may impose

   

 

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a. Tariff rates, import and export quota, tonnage and wharfage dues and

b. Other duties or imposts within the framework of the national development program of the Government

2. In the interest of national economy; general welfare and or national security, the President upon recommendation of the NEDA is empowered.

a. To increase, reduce or remove existing protective rates of import duty, provided that the increase should not be higher than 100% ad valorem.

b. To establish import quota or to ban imports to any commodity.

c. To impose additional duty on all imports not exceeding 10% ad valorem.

d. To modify the forms of duty whether ad valorem or specific.

   

 

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Regular Duties Special Duties Definition

Taxes that are imposed or assessed upon merchandise from, or exported to, a foreign country.

Additional import duties imposed specific kinds of imported articles under certain conditions.

Purpose 1) To raise revenues 2) To serves as protective barriers 3) To discourage the exportation of certain

articles, usually raw materials, in order to promote their manufacture into finished products

1) Imposed for the protection of consumers and manufacturers as well as Philippine products from undue competition posed by foreign made products.

2) To protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.

Kinds a) Ad valorem customs duties b) Specific customs duties c) Mixed or compound customs duties

1) Under the TCCP: a) Anti-dumping duty b) Countervailing duty c) Marking duty d) Discriminatory duty

2) Under the Safeguard Measures Act (R.A. 8800): -­‐ Additional tariffs imposed as a safeguard

measure

   

 

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Anti-Dumping Duty

Countervailing Duty Marking Duty Discriminatory

Duty Safeguard Measures Flexible Tariff Clause

Definition

A special duty imposed on the importation of a product, commodity or article of commerce into the Philippines at less than its normal value when destined for domestic consumption in the exporting country which importation is causing or is threatening to cause material injury to a domestic industry or materially retards the establishment of a domestic industry producing the like product.

Additional customs duties imposed on any product, commodity or article of commerce which is granted directly or indirectly by the government in the country of origin or exportation any kind or form of specific subsidy upon the production, manufacture or exportation of such product, commodity or article and the importation of such subsidized product, commodity or article has caused or threatens to

Additional customs duties imposed on foreign articles or its container if the article itself not marked in any official language of the Philippines in a conspicuous place as legibly, indelibly and permanently in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin.

Imposes directly or indirectly upon the disposition or transportation in transit through or re-exportation from such country of any article wholly or in part the growth of product in the Philippines any unreasonable charge, exaction, regulation or limitation which is not equally enforced upon like articles of every foreign country or discriminates against the commerce of the Philippines directly or indirectly by law or administrative regulation or

These are emergency measures including tariffs, to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.

2) In the interest of national economy; general welfare and or national security, the President upon recommendation of the NEDA is empowered: a) To increase, reduce or remove existing protective rates of import duty, provided that the increase should not be higher than 100% ad valorem. b) To establish import quota or to ban imports to any commodity. c) To impose additional duty on all imports not exceeding 10% ad valorem. d) To modify the forms of duty whether ad valorem or specific.

   

 

  136  

cause material injury to a domestic industry or has materially retarded the growth or prevents the establishment of a domestic industry

practice by or in respect to any customs, tonnage or port duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition in such manner as to place the commerce of the Philippines at a disadvantage compard with the commerce of any foreign country

Law Governing TCCP TCCP TCCP TCCP RA 8800 TCCP

Imposed on

Imported goods sold below its normal value

Goods enjoying a subsidy in the exporting country

Imported good not properly marked as regards its origin

Goods from countries that discriminate against Philippine products

a. General – goods or products imported in increased quantities.

b. Special – volume of imports exceed a base trigger level or price falls below a trigger

Any import as determined by the President upon investigation of the Tariff commission and recommendation of NEDA

   

 

  137  

price level. Purpose

Protect local industries from undue competition

Protect local industries from undue competition

Prevent possible deceptions as to the origin of goods

Protect national interest

Protect domestic industries and producers from increased imports

Protect interest of national economy, general welfare and national security.

Amount/Rate of Duty

Difference between export price and normal price

Amount of subsidy

5% ad valorem

Not exceeding 100% of ad valorem

a. sufficient to redress or prevent injury to domestic industries

b. Volume Test or Price Test

Shall not exceed 10% ad valorem

   

 

  138  

CLASS RECITATION WITH SUGGESTED ANSWERS

Q: Are US dollar bills subject to forfeiture when a tourist fails to declare such items? A: Yes. US Dollar bills are not legal tender in the Philippines and are considered as merchandise within the ambit of Sec. 1363 (f) of the TCCP. (Bastida vs Commissioner of Customs) Q: Bureau of Customs contains laptop bags, seized from a shipment of laptops by it. What can you do as counsel of the owner of the seized property? A: Ensure that the Collector of Customs has given a written notice of the hearing to the owner of the seized articles. The failure of which is tantamount to a denial of due process, cognizable before ordinary courts of justice. Represent the owner during the hearing before the Collector. Should the judgment be adverse to the owner, perfect an appeal before the Commissioner of Customs within 15 days from notice thereof. Should the same be still adverse, file a petition for review before the CTA within the 30-day reglementary period (Section 2402 of TCC in relation to Section 7 of RA 1125). In seizure cases (not n protest cases) file a motion for injunction before the Tax Court to enjoin any actions of the Bureau of Customs. Apply for the settlement of the case by payment of fine or redemption of forfeited properties (Section 2307 of the TCCP). Q: Can a port collector go anytime

to the BMW shop and ask for documents regarding properties subject to custom?

Yes. Provided that the BMW shop does not serve as a dwelling house. Section 2209 states that, “For the more effective discharge of his official duties, he may also at anytime enter, pass through, or search any land or inclosure or any warehouse, store or other building not being a dwelling house. A warehouse, store or other building or inclosure does not become a dwelling house merely by reason of the fact that a person employed as watchman lives in the place, nor will the fact that his family stays there with him alter the case (Section 2208, TCC) Q: Importation of religious artifacts, are they subject to custom duties? They are “conditionally free importations” and are therefore exempt.

CASE DIGESTS 1. HONORABLE SECRETARY v.

SOUTHWING HEAVY INDUSTRIES

FACTS: This instant consolidated petitions seek to annul the decisions of the RTC which declared Article 2, Section 3.1 of Executive Order 156 unconstitutional. Said EO 156 prohibits the importation of used vehicles in the country inclusive of the Subic Bay Freeport Zone.

President Arroyo issued Executive Order 156 entitled prohibiting the importation of all types of used motor vehicles in the country including the Subic Bay Freeport, or the Freeport Zone, subject to a few exceptions.

   

 

  139  

Consequently, three separate actions for declaratory relief were filed by Southwing and Motor Vehicle Importers Association of Subic Bay Freeport Inc. praying that judgment be rendered declaring Article 2, Section3.1 of the EO 156 unconstitutional and illegal. The RTC rendered a summary judgment declaring the such unlawful usurpation of legislative power vested by the Constitution with Congress and that the proviso is contrary to the mandate of the Bases Conversion and Development Act of 1992 which allows the free flow of goods and capital within the Freeport.

CA denied the appeal on the ground of lack of any statutory basis for the President to issue the same. It held that the prohibition on the importation of use motor vehicles is an exercise of police power vested on the legislature hence the President’s act is void. ISSUES: 1. Whether or not the Private Respondents has the capacity to sue? 2. Whether or not Article 2, Section 3.1 of EO 156 is void? HELD: 1. YES. The broad subject of the prohibited importation is “all types of used motor vehicles.” Respondents would definitely suffer a direct injury from the implementation of EO 156 because their certificate of registration and tax exemption authorize them to trade and/or import new and used motor vehicles and spare parts, except “used cars.” Other types of motor vehicles imported and/or traded by respondents and not falling within the category of used cars would thus be subjected to the ban to the prejudice of their business. Undoubtedly,

respondents have the legal standing to assail the validity of EO 156.2. 2. NO. However Police power is inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and general welfare of society. It is lodged primarily with the legislature. By virtue of a valid delegation of legislative power, it may also be exercised by the President and administrative boards, as well as the lawmaking bodies on all municipal levels, including the barangay. Such delegation confers upon the President quasi-legislative power which may be defined as the authority delegated by the law-making body to the administrative body to adopt rules and regulations intended to carry out the provisions of the law and implement legislative policy provided that it must comply with the following requisites: (1) Its promulgation must be authorized by the legislature 1. It must be promulgated in accordance with the prescribed procedure; 2. It must be within the scope of the authority given by the legislature; and 3. It must be reasonable. 2. TRANSGLOBE INTERNATIONAL

v. CA FACTS: A shipment from Hong Kong arrived in the Port of Manila on board the "S/S Sea Dragon." Its Inward Foreign Manifest indicated that the shipment contained 1,054 pieces of various hand tools. Acting on information that the shipment violated certain provisions of the Tariff and Customs Code as amended, agents of the Economic Intelligence and Investigation Bureau seized the shipment while in transit to the Trans

   

 

  140  

Orient container yard-container freight station. An examination thereof yielded significant results. Consequently, a warrant of seizure and distraint was issued by the District Collector. For failure of petitioner, to appear during the hearing despite due notice, collector decreed the forfeiture of the shipment in favor of the government. ISSUE: Whether or not Transglobe should be allowed to redeem the forfeited shipments? HELD: Yes. In the absence of fraud, the importation is not absolutely prohibited and the release of the property would not be contrary to law, the Court deems it proper to allow the redemption of the forfeited shipment by petitioner upon payment of its computed domestic market value. This is to expedite the collection of revenues and hasten the release of cargoes under seizure proceedings to the end that importers and exporters will benefit in the form of reduction in expenditures and assurance of return of their investments that have been tied up with their importations. 3. JAO v. CA FACTS: Bureau of Customs, received information regarding the presence of allegedly untaxed vehicles and parts in the premises owned by a certain Pat Hao. After conducting a surveillance of the two places. District Collector of Customs issued the warrants of seizure and detention upon recommendation of respondent Maglipon.

On the same date, respondent Maglipon coordinated with the local police substations to assist them in the execution of the respective warrants of seizure and detention. Thereafter, the team searched the two premises. They were barred from entering the place, but some members of the team were able to force themselves inside. They were able to inspect the premises and noted that some articles were present which were not included in the list contained in the warrant.. Hence, amended warrants of seizure and detention were issued. Customs personnel started hauling the articles pursuant to the amended warrants. This prompted petitioners to file a case for Injunction before the Regional Trial Court of Makati against respondents. The trial court issued a Temporary Restraining Order. Respondents filed a Motion to Dismiss on the ground that the Regional Trial Court has no jurisdiction over the subject matter of the complaint. Trial Court denied. The Court of Appeals set aside the questioned orders of the trial court. Hence this petition.

ISSUE Whether or not the Bureau of Customs has lost jurisdiction to order the seizure of the items? HELD No. The Collector of Customs when sitting in forfeiture proceedings constitutes a tribunal expressly vested by law with jurisdiction to hear and determine the subject matter of such proceedings without any interference from the Court of First Instance.

   

 

  141  

4. ACTING COMMISSIONER OF CUSTOMS v. CA

FACTS: Andrulis representing himself as an American businessman “on joint ventures with his Filipino counterparts”, arrived in Manila and checked in at the Century Park Sheraton Hotel. Two days later he left the hotel surreptitiously without paying for his bills. The Chief Security Officer of the Hotel, immediately tipped-off the Customs authorities on Andrulis’ intention to abscond. MIA, the Customs authorities looked for Andrulis from among the passengers who were already on board Philippine Airlines bound for Singapore. Apprehensive, Andrulis locked himself inside the airplane’s comfort room. After some negotiations Andrulis finally yielded to the authorities and surrendered the luggage he was carrying which, when opened by the authorities, contained various foreign currencies. A criminal charge was filed for violation of CB Circular No. 534. The Assistant City Fiscal dismissed the charge . Acting District Collector of Customs rendered a Decision, which found Andrulis to have violated Central Bank Circular No. 534 in relation to section 2530(f) of the Tariff and Customs Code. Acting Commissioner affirmed the same. CTA reversed. Hence the instant Petition for Review on certiorari by the Acting Commissioner of Customs represented by the Solicitor General. ISSUE: Whether or not Andrulis has the burden of proof to show that the foreign currencies seized from him were brought into the Philippines by him?

HELD: Yes. Upon the facts of the case, the requirement of the law that the existence of probable cause should first be shown before firing of the forfeiture proceedings, had been fully met. When Andrulis was apprehended at the MIA and was found to have in his possession the various foreign currencies, he could not produce the required Central Bank authorization allowing him to bring them out of the country. This constituted prima facie evidence of infringement of the provisions of CB Circular No. 534 and provided sufficient basis for the seizure ‘of the said foreign exchange. Probable cause having been shown, the burden of proof was upon Andrulis to establish that he fell within the purview of the exception prescribed in the second paragraph of the Section 3 of CB Circular No. 534 in that he actually brought into the country the foreign currencies and was just taking them out. 5. DELA FUENTE vs DE VEYRA FACTS: M/V Lucky Star I, owned by the private respondent Lucky Star Shipping Co., was unloading cargo to several small watercrafts alongside the vessel off the coast of Zambales approximately thirty (30) nautical miles east of Scarborough Shoal. Q-boat spotted the same and as it was approaching the M/V Lucky Star I, it was met by gunfire from the smaller watercrafts which immediately fled from the scene. Only the M/V Lucky Star I was apprehended. Upon boarding the vessel, coast guard officers discovered several foreign made "Champion, menthol, filter-tipped, king-size cigarettes". The

   

 

  142  

captain of the ship was not able to present documents or papers for the "Champion" cigarettes. He and the crew were arrested for smuggling. Lucky Star I was also seized. A warrant of seizure and detention was issued by the Collector of Customs against the vessel and articles seized for violation of Section 2530 (a) of the Tariff and Customs Code as to the vessel. The Acting Provincial Fiscal filed before the Court of First Instance of Zambales, Branch II, an information for violation of Section 101 of the Tariff and Customs Code . Meanwhile, private respondents filed before the Court of First Instance of Manila, a complaint for injunction and recovery of personal property against the petitioners praying for the release of the M/V Lucky Star I. On June 23, 1972, the respondent judge issued an order releasing the vessel from detention. ISSUE: Whether or not the Court of First Instance has jurisdiction to take cognizance of the complaint for the release of the vessel M/V Lucky Star I, which is the subject of a seizure and forfeiture proceedings before the Collector of Customs?

HELD: No. The exclusive jurisdiction over seizure and forfeiture cases vested in the Collector of Customs precludes a Court of First Instance from assuming cognizance over such cases. The Collector of Customs when sitting in forfeiture proceedings constitutes a tribunal expressly vested by law with jurisdiction to hear and determine the subject matter of such proceedings

without any interference from the Court of First Instance. from import duties after complying with the formalities prescribed by the regulations as promulgated by the Commissioner of Customs. (Section 105, TCC)  

   

 

  134  

Regular Duties Special Duties Definition

Taxes that are imposed or assessed upon merchandise from, or exported to, a foreign country.

Additional import duties imposed specific kinds of imported articles under certain conditions.

Purpose 1) To raise revenues 2) To serves as protective barriers 3) To discourage the exportation of certain

articles, usually raw materials, in order to promote their manufacture into finished products

1) Imposed for the protection of consumers and manufacturers as well as Philippine products from undue competition posed by foreign made products.

2) To protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.

Kinds a) Ad valorem customs duties b) Specific customs duties c) Mixed or compound customs duties

1) Under the TCCP: a) Anti-dumping duty b) Countervailing duty c) Marking duty d) Discriminatory duty

2) Under the Safeguard Measures Act (R.A. 8800): -­‐ Additional tariffs imposed as a safeguard

measure

   

 

  135  

Anti-Dumping Duty

Countervailing Duty Marking Duty Discriminatory

Duty Safeguard Measures Flexible Tariff Clause

Definition

A special duty imposed on the importation of a product, commodity or article of commerce into the Philippines at less than its normal value when destined for domestic consumption in the exporting country which importation is causing or is threatening to cause material injury to a domestic industry or materially retards the establishment of a domestic industry producing the like product.

Additional customs duties imposed on any product, commodity or article of commerce which is granted directly or indirectly by the government in the country of origin or exportation any kind or form of specific subsidy upon the production, manufacture or exportation of such product, commodity or article and the importation of such subsidized product, commodity or article has caused or threatens to

Additional customs duties imposed on foreign articles or its container if the article itself not marked in any official language of the Philippines in a conspicuous place as legibly, indelibly and permanently in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin.

Imposes directly or indirectly upon the disposition or transportation in transit through or re-exportation from such country of any article wholly or in part the growth of product in the Philippines any unreasonable charge, exaction, regulation or limitation which is not equally enforced upon like articles of every foreign country or discriminates against the commerce of the Philippines directly or indirectly by law or administrative regulation or

These are emergency measures including tariffs, to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.

2) In the interest of national economy; general welfare and or national security, the President upon recommendation of the NEDA is empowered: a) To increase, reduce or remove existing protective rates of import duty, provided that the increase should not be higher than 100% ad valorem. b) To establish import quota or to ban imports to any commodity. c) To impose additional duty on all imports not exceeding 10% ad valorem. d) To modify the forms of duty whether ad valorem or specific.

   

 

  136  

cause material injury to a domestic industry or has materially retarded the growth or prevents the establishment of a domestic industry

practice by or in respect to any customs, tonnage or port duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition in such manner as to place the commerce of the Philippines at a disadvantage compard with the commerce of any foreign country

Law Governing TCCP TCCP TCCP TCCP RA 8800 TCCP

Imposed on

Imported goods sold below its normal value

Goods enjoying a subsidy in the exporting country

Imported good not properly marked as regards its origin

Goods from countries that discriminate against Philippine products

a. General – goods or products imported in increased quantities.

b. Special – volume of imports exceed a base trigger level or price falls below a trigger

Any import as determined by the President upon investigation of the Tariff commission and recommendation of NEDA

   

 

  137  

price level. Purpose

Protect local industries from undue competition

Protect local industries from undue competition

Prevent possible deceptions as to the origin of goods

Protect national interest

Protect domestic industries and producers from increased imports

Protect interest of national economy, general welfare and national security.

Amount/Rate of Duty

Difference between export price and normal price

Amount of subsidy 5% ad valorem

Not exceeding 100% of ad valorem

a. sufficient to redress or prevent injury to domestic industries

b. Volume Test or Price Test

Shall not exceed 10% ad valorem

   

 

  138  

CLASS RECITATION WITH SUGGESTED ANSWERS

Q: Are US dollar bills subject to forfeiture when a tourist fails to declare such items? A: Yes. US Dollar bills are not legal tender in the Philippines and are considered as merchandise within the ambit of Sec. 1363 (f) of the TCCP. (Bastida vs Commissioner of Customs) Q: Bureau of Customs contains laptop bags, seized from a shipment of laptops by it. What can you do as counsel of the owner of the seized property? A: Ensure that the Collector of Customs has given a written notice of the hearing to the owner of the seized articles. The failure of which is tantamount to a denial of due process, cognizable before ordinary courts of justice. Represent the owner during the hearing before the Collector. Should the judgment be adverse to the owner, perfect an appeal before the Commissioner of Customs within 15 days from notice thereof. Should the same be still adverse, file a petition for review before the CTA within the 30-day reglementary period (Section 2402 of TCC in relation to Section 7 of RA 1125). In seizure cases (not n protest cases) file a motion for injunction before the Tax Court to enjoin any actions of the Bureau of Customs. Apply for the settlement of the case by payment of fine or redemption of forfeited properties (Section 2307 of the TCCP). Q: Can a port collector go anytime

to the BMW shop and ask for documents regarding properties subject to custom?

Yes. Provided that the BMW shop does not serve as a dwelling house. Section 2209 states that, “For the more effective discharge of his official duties, he may also at anytime enter, pass through, or search any land or inclosure or any warehouse, store or other building not being a dwelling house. A warehouse, store or other building or inclosure does not become a dwelling house merely by reason of the fact that a person employed as watchman lives in the place, nor will the fact that his family stays there with him alter the case (Section 2208, TCC) Q: Importation of religious artifacts, are they subject to custom duties? They are “conditionally free importations” and are therefore exempt.

CASE DIGESTS 1. HONORABLE SECRETARY v.

SOUTHWING HEAVY INDUSTRIES

FACTS: This instant consolidated petitions seek to annul the decisions of the RTC which declared Article 2, Section 3.1 of Executive Order 156 unconstitutional. Said EO 156 prohibits the importation of used vehicles in the country inclusive of the Subic Bay Freeport Zone.

President Arroyo issued Executive Order 156 entitled prohibiting the importation of all types of used motor vehicles in the country including the Subic Bay Freeport, or the Freeport Zone, subject to a few exceptions.

   

 

  139  

Consequently, three separate actions for declaratory relief were filed by Southwing and Motor Vehicle Importers Association of Subic Bay Freeport Inc. praying that judgment be rendered declaring Article 2, Section3.1 of the EO 156 unconstitutional and illegal. The RTC rendered a summary judgment declaring the such unlawful usurpation of legislative power vested by the Constitution with Congress and that the proviso is contrary to the mandate of the Bases Conversion and Development Act of 1992 which allows the free flow of goods and capital within the Freeport.

CA denied the appeal on the ground of lack of any statutory basis for the President to issue the same. It held that the prohibition on the importation of use motor vehicles is an exercise of police power vested on the legislature hence the President’s act is void. ISSUES: 1. Whether or not the Private Respondents has the capacity to sue? 2. Whether or not Article 2, Section 3.1 of EO 156 is void? HELD: 1. YES. The broad subject of the prohibited importation is “all types of used motor vehicles.” Respondents would definitely suffer a direct injury from the implementation of EO 156 because their certificate of registration and tax exemption authorize them to trade and/or import new and used motor vehicles and spare parts, except “used cars.” Other types of motor vehicles imported and/or traded by respondents and not falling within the category of used cars would thus be subjected to the ban to the prejudice of their business. Undoubtedly,

respondents have the legal standing to assail the validity of EO 156.2. 2. NO. However Police power is inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and general welfare of society. It is lodged primarily with the legislature. By virtue of a valid delegation of legislative power, it may also be exercised by the President and administrative boards, as well as the lawmaking bodies on all municipal levels, including the barangay. Such delegation confers upon the President quasi-legislative power which may be defined as the authority delegated by the law-making body to the administrative body to adopt rules and regulations intended to carry out the provisions of the law and implement legislative policy provided that it must comply with the following requisites: (1) Its promulgation must be authorized by the legislature 1. It must be promulgated in accordance with the prescribed procedure; 2. It must be within the scope of the authority given by the legislature; and 3. It must be reasonable. 2. TRANSGLOBE INTERNATIONAL

v. CA FACTS: A shipment from Hong Kong arrived in the Port of Manila on board the "S/S Sea Dragon." Its Inward Foreign Manifest indicated that the shipment contained 1,054 pieces of various hand tools. Acting on information that the shipment violated certain provisions of the Tariff and Customs Code as amended, agents of the Economic Intelligence and Investigation Bureau seized the shipment while in transit to the Trans

   

 

  140  

Orient container yard-container freight station. An examination thereof yielded significant results. Consequently, a warrant of seizure and distraint was issued by the District Collector. For failure of petitioner, to appear during the hearing despite due notice, collector decreed the forfeiture of the shipment in favor of the government. ISSUE: Whether or not Transglobe should be allowed to redeem the forfeited shipments? HELD: Yes. In the absence of fraud, the importation is not absolutely prohibited and the release of the property would not be contrary to law, the Court deems it proper to allow the redemption of the forfeited shipment by petitioner upon payment of its computed domestic market value. This is to expedite the collection of revenues and hasten the release of cargoes under seizure proceedings to the end that importers and exporters will benefit in the form of reduction in expenditures and assurance of return of their investments that have been tied up with their importations. 3. JAO v. CA FACTS: Bureau of Customs, received information regarding the presence of allegedly untaxed vehicles and parts in the premises owned by a certain Pat Hao. After conducting a surveillance of the two places. District Collector of Customs issued the warrants of seizure and detention upon recommendation of respondent Maglipon.

On the same date, respondent Maglipon coordinated with the local police substations to assist them in the execution of the respective warrants of seizure and detention. Thereafter, the team searched the two premises. They were barred from entering the place, but some members of the team were able to force themselves inside. They were able to inspect the premises and noted that some articles were present which were not included in the list contained in the warrant.. Hence, amended warrants of seizure and detention were issued. Customs personnel started hauling the articles pursuant to the amended warrants. This prompted petitioners to file a case for Injunction before the Regional Trial Court of Makati against respondents. The trial court issued a Temporary Restraining Order. Respondents filed a Motion to Dismiss on the ground that the Regional Trial Court has no jurisdiction over the subject matter of the complaint. Trial Court denied. The Court of Appeals set aside the questioned orders of the trial court. Hence this petition.

ISSUE Whether or not the Bureau of Customs has lost jurisdiction to order the seizure of the items? HELD No. The Collector of Customs when sitting in forfeiture proceedings constitutes a tribunal expressly vested by law with jurisdiction to hear and determine the subject matter of such proceedings without any interference from the Court of First Instance.

   

 

  141  

4. ACTING COMMISSIONER OF CUSTOMS v. CA

FACTS: Andrulis representing himself as an American businessman “on joint ventures with his Filipino counterparts”, arrived in Manila and checked in at the Century Park Sheraton Hotel. Two days later he left the hotel surreptitiously without paying for his bills. The Chief Security Officer of the Hotel, immediately tipped-off the Customs authorities on Andrulis’ intention to abscond. MIA, the Customs authorities looked for Andrulis from among the passengers who were already on board Philippine Airlines bound for Singapore. Apprehensive, Andrulis locked himself inside the airplane’s comfort room. After some negotiations Andrulis finally yielded to the authorities and surrendered the luggage he was carrying which, when opened by the authorities, contained various foreign currencies. A criminal charge was filed for violation of CB Circular No. 534. The Assistant City Fiscal dismissed the charge . Acting District Collector of Customs rendered a Decision, which found Andrulis to have violated Central Bank Circular No. 534 in relation to section 2530(f) of the Tariff and Customs Code. Acting Commissioner affirmed the same. CTA reversed. Hence the instant Petition for Review on certiorari by the Acting Commissioner of Customs represented by the Solicitor General. ISSUE: Whether or not Andrulis has the burden of proof to show that the foreign currencies seized from him were brought into the Philippines by him?

HELD: Yes. Upon the facts of the case, the requirement of the law that the existence of probable cause should first be shown before firing of the forfeiture proceedings, had been fully met. When Andrulis was apprehended at the MIA and was found to have in his possession the various foreign currencies, he could not produce the required Central Bank authorization allowing him to bring them out of the country. This constituted prima facie evidence of infringement of the provisions of CB Circular No. 534 and provided sufficient basis for the seizure ‘of the said foreign exchange. Probable cause having been shown, the burden of proof was upon Andrulis to establish that he fell within the purview of the exception prescribed in the second paragraph of the Section 3 of CB Circular No. 534 in that he actually brought into the country the foreign currencies and was just taking them out. 5. DELA FUENTE vs DE VEYRA FACTS: M/V Lucky Star I, owned by the private respondent Lucky Star Shipping Co., was unloading cargo to several small watercrafts alongside the vessel off the coast of Zambales approximately thirty (30) nautical miles east of Scarborough Shoal. Q-boat spotted the same and as it was approaching the M/V Lucky Star I, it was met by gunfire from the smaller watercrafts which immediately fled from the scene. Only the M/V Lucky Star I was apprehended. Upon boarding the vessel, coast guard officers discovered several foreign made "Champion, menthol, filter-tipped, king-size cigarettes". The

   

 

  142  

captain of the ship was not able to present documents or papers for the "Champion" cigarettes. He and the crew were arrested for smuggling. Lucky Star I was also seized. A warrant of seizure and detention was issued by the Collector of Customs against the vessel and articles seized for violation of Section 2530 (a) of the Tariff and Customs Code as to the vessel. The Acting Provincial Fiscal filed before the Court of First Instance of Zambales, Branch II, an information for violation of Section 101 of the Tariff and Customs Code . Meanwhile, private respondents filed before the Court of First Instance of Manila, a complaint for injunction and recovery of personal property against the petitioners praying for the release of the M/V Lucky Star I. On June 23, 1972, the respondent judge issued an order releasing the vessel from detention. ISSUE: Whether or not the Court of First Instance has jurisdiction to take cognizance of the complaint for the release of the vessel M/V Lucky Star I, which is the subject of a seizure and forfeiture proceedings before the Collector of Customs?

HELD: No. The exclusive jurisdiction over seizure and forfeiture cases vested in the Collector of Customs precludes a Court of First Instance from assuming cognizance over such cases. The Collector of Customs when sitting in forfeiture proceedings constitutes a tribunal expressly vested by law with jurisdiction to hear and determine the subject matter of such proceedings

without any interference from the Court of First Instance. from import duties after complying with the formalities prescribed by the regulations as promulgated by the Commissioner of Customs. (Section 105, TCC)  

   

 

  1  

   

 

  143  

CTA Laws Composition Division Quorum Concurrence or

Affirmative Vote

Jurisdiction

R.A. 1125 1 Presiding Judge 2 Associate Judges 2 Exclusive

Appellate

R.A. 9282

1 Presiding Justice 5 Associate Justices May sit en banc or in 2 Divisions

2 Divisions with 3 Justices each Chairmen:

1. Presiding Justice (1st Division)

2. Most Senior Associate Justice

en banc – 4 Division – 2

en banc – 4 Division – 2

Exclusive Appellate

Exclusive Original

R.A 9503

1 Presiding Justice 8 Associate Justices May sit en banc or in 3 Divisions

3 Divisions with 3 Justices each Chairmen:

1. Presiding Justice (1st Division)

2. 2 Most Senior Associate Justices

en banc – 5 Division –2

en banc – 5 Division – 2

Exclusive Appellate

Exclusive Original

   

 

  144  

THE COURT OF TAX APPEALS

CTA LAWS

1. R.A. 1125 a. The act creating the

Court of Tax Appeals 2. R.A. 9282

a. Expanded the jurisdiction of the CTA

b. Elevated the rank of the CTA to the level of a collegiate court with special jurisdiction

c. Provides for a larger membership

3. R.A. 9503 a. Enlarged the

organizational structure of the CTA

4. A.M. No. 05-11-07-CTA a. Revised Rules of Court

of Tax Appeals b. The Rules of Court shall

apply suppletorily JURISDICTION OF THE COURT OF TAX APPEALS

• Jurisdiction of the Court of Tax Appeals (En Banc)

Under A.M. No. 05-11-07-CTA Sec 2. The Court en banc shall exercise exclusive appellate jurisdiction to review by appeal the following: (a) Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over:

(1) Cases arising from administrative agencies – Bureau of Internal Revenue, Bureau of Customs, Department of Finance, Department of Trade and Industry, Department of Agriculture;

(2) Local tax cases decided by the Regional Trial Courts in the exercise of their original jurisdiction; and (3) Tax collection cases decided by the Regional Trial Courts in the exercise of their original jurisdiction involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and penalties claimed is less than one million pesos;

(b) Decisions, resolutions or orders of the Regional Trial Courts in local tax cases decided or resolved by them in the exercise of their appellate jurisdiction; (c) Decisions, resolutions or orders of the Regional Trial Courts in tax collection cases decided or resolved by them in the exercise of their appellate jurisdiction; (d) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over tax collection cases; (e) Decisions of the Central Board of Assessment Appeals (CBAA) 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; (f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws

   

 

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administered by the Bureau of Internal Revenue or Bureau of Customs; (g) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph; and (h) Decisions, resolutions or orders of the Regional trial Courts in the exercise of their appellate jurisdiction over criminal offenses mentioned in subparagraph (f). This is in relation with SEC. 11and 18 (2) of RA 1125 as amended by RA 9282 which states “that with respect to decisions or rulings of the Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its appellate jurisdiction appeal shall be made by filing a petition for review under a procedure analogous to that provided for under rule 43 of the 1997 Rules of Civil Procedure with the CTA, which shall hear the case en banc.” "A party adversely affected by a resolution of a Division of the CTA on a motion for reconsideration or new trial, may file a petition for review with the CTA en banc."

• Jurisdiction of the Court of Tax Appeals (Division)

A. Exclusive original jurisdiction 1. 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, where the principal amount o taxes and fees, exclusive of charges and penalties, claimed is One million pesos (P1,000,000.00) or more.

2. In tax collection cases involving final and executory assessments for taxes, fees, charges and penalties, where the principal amount of taxes and fees, exclusive of charges and penalties, claimed is One million pesos (P1,000,000.00) or more. B. Exclusive appellate jurisdiction 1. 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; 2. 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; 3. 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; 4. 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

   

 

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administered by the Bureau of Customs; 5. 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; 6. 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; 7. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs Code, and safeguard measures under Republic Act No. 8800, where either party may appeal the decision to impose or not to impose said duties. 8. In criminal offenses:

a. 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. b. 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. c. Over cases decided by the regular courts where there is no specified amount claimed

9. In tax collection cases:

a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax collection cases originally decided by them, in their respective territorial jurisdiction. b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts in the Exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respective jurisdiction

PROCEDURE BEFORE THE COURT OF TAX APPEALS What is the meaning of exercise of original jurisdiction?

• It is the authority of the court to take judicial cognizance of a case filed for judicial action for the first time under conditions provided for by law.

What is the meaning of exercise of appellate jurisdiction?

• It is the power of the court to re-examine the judgment or final order of a lower court which is now brought for judicial review. (Yamane v BA Lepanto Condominium, G.R. No. 154993, October 25, 2005).

   

 

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Are CTA proceedings strictly governed by rules court?

• No. R.A. 1125 explicitly states that proceedings before it shall not be constrained by technical rules of evidence.

In what cases does the CTA may receive evidence?

• In all cases falling within the original jurisdiction of the court in division in accordance with Sec. 3, Rule 4 of these rules.

• In appeals in both civil and criminal cases where the Court grants a new trial in accordance with Sec. 2, Rule 53 and Sec. 12, Rule 124 of the rules of court (Sec. 2, Rule 12, Revised Rules of the Court of Tax Appeals).

What is the procedure for the taking of evidence?

• The Court may, upon proper motion on or its initiative, direct that a case, or any issue thereof, be assigned to one of its members for the taking of evidence:

o when the determination of a question of fact arises upon motion or otherwise in any stage of the proceedings, or

o when the taking of an account is necessary, or

o when the determination of an issue of fact requires the examination of a long account. The hearing before such member shall proceed in all respects as though

the same had been made before the Court.

Upon the recommendation of such hearing such member, he shall promptly submit to the Court his report in writing, stating his findings and conclusions; and thereafter, the Court shall render its decisions on the case, adopting, modifying, or rejecting the report in whole or in part, as the case may be, or the Court may, in its discretion recommit it with instructions, or receive further evidence. (Sec.12, R.A. 1125). What is the procedure for the taking of evidence by a justice?

• Taking of evidence by a justice. – The Court may, motuproprio or upon proper motion, direct that a case, or any issue therein, be assigned to one of its members for the taking of evidence, when the determination of a question of fact arises at any stage of the proceedings, or when the taking of an account is necessary, or when the determination of an issue of fact requires the examination of a long account. The hearing before such justice shall proceed in all respects as though the same had been made before the Court.

• Upon the completion of such hearing, the justice concerned shall promptly submit to the Court a written report thereon, stating therein his findings and conclusions. Thereafter, the Court shall render its decision on the case, adopting, modifying, or rejecting the report in whole or in part, or, the Court may, in its discretion,

   

 

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recommit it to the justice with instructions, or receive further evidence. (Sec. 3, Rule 12, Revised Rules of the Court of Tax Appeals).

Can evidence not formally offered be admitted in evidence?

• General Rule – No.Offer of evidence. — The court shall consider no evidence which has not been formally offered. The purpose for which the evidence is offered must be specified.

• Exception: When the evidence is identified by testimony, duly recorded and incorporated in the records of the case. (Onate v Court of Appeals, et al.).

Is a notice of admission proper if its subject were matters that have been previously alleged in the pleadings and specifically denied by the adverse party?

• Admission by the opposing party as a mode of discovery contemplates interrogatories that would explain and tend to shed light on the truth or falsity of allegations in a pleading, and does not refer to mere reiteration of what has been already alleged in the pleadings; otherwise, it constitutes an utter redundancy and will be useless, pointless process. Hence, there is no need for a second denial of those matters already alleged in the answers, as the request for admissions were mere reproductions of the matter already alleged in the pleadings. (CIR v Manila Mining Corporation).

What are the Decisions, resolutions or orders of the CTA in division that may be subject of a motion for reconsideration or new trial filed with the division itself? Decisions or resolutions on motions for reconsideration or new trial of the Court in Divisions in the exercise of its exclusive appellate jurisdiction over: (1) Cases arising from administrative agencies – Bureau of Internal Revenue, Bureau of Customs, Department of Finance, Department of Trade and Industry, Department of Agriculture; xxx xxx

(d) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over tax collection cases; xxx xxx xxx (f) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive original jurisdiction over cases involving criminal offenses arising from violations of the National Internal Revenue Code or the Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or Bureau of Customs; (g) Decisions, resolutions or orders on motions for reconsideration or new trial of the Court in Division in the exercise of its exclusive appellate jurisdiction over criminal offenses mentioned in the preceding subparagraph; and xxx. (Sec.2, Rule 4 Revised Rules of Court of Tax Appeals).

   

 

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Who may file a motion for new trial or reconsideration?

• Any aggrieved party may seek a reconsideration or new trial of any decision, resolution or order of the Court. He shall file a motion for reconsideration or new trial within fifteen days from the date he received notice of the decision, resolution or order of the Court in question. (Sec. 1 Rule 15, Revised Rules of Revised Rules of Court of Tax Appeals).

What is the period for filing a motion for new trial or reconsideration?

• 15 days from the receipt of the notice of decision, resolution or order of the court in question. (Sec. 1 Rule 15, Revised Rules of Court of Tax Appeals).

What are grounds of requisites of a motion for new trial?

• Fraud, accident, mistake or excusable negligence which ordinary prudence could not have guarded against and by reason of which such aggrieved party has probably been impaired in his rights; or

• Newly discovered evidence, which he could not, with reasonable diligence, have discovered and produced at the trial and, which, if presented, would probably alter the result.

• A motion for new trial shall

include all grounds then available and those not included shall be deemed waived. (Sec.

5, Rule 15, Revised Rules of Court of Tax Appeals)

What is the mistake allowed as a ground for new trial?

• The mistake that is allowable is that which ordinary prudence could not have guarded against. (Philippine Phosphate Fertilizer Corporation v CIR).

What is excusable negligence that justifies a ground for new trial?

• It must be one which ordinary diligence and prudence could not have guarded against and by reason of which the rights of an aggrieved party could have been impaired. (Philippine Phosphate Fertilizer Corporation v CIR).

What are the contents of a motion for new trial or reconsideration?

• The motion shall be in writing stating its grounds, a written notice of which shall be served by the movant on the adverse party.

• A motion for new trial shall be proved in the manner provided for proof of motions. A motion for the cause mentioned in subparagraph (a) of the preceding section shall be supported by affidavits of merits which may be rebutted by counter-affidavits. A motion for the cause mentioned in subparagraph (b) of the preceding section shall be supported by affidavits of the witnesses by whom such evidence is expected to be given, or by duly authenticated

   

 

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documents which are proposed to be introduced in evidence.

• A motion for reconsideration or

new trial that does not comply with the foregoing provisions shall be deemed pro forma, which shall not toll the reglementary period for appeal. (Sec. 6, Rule 15, Revised Rules of Court of Tax Appeals).

What are the votes required for reversal of decisions of division on a motion for reconsideration or new trial?

• The affirmative votes of five (5) members of the Court en banc shall be necessary to reverse a decision of a Division but a simple majority of the Justices present necessary to promulgate a resolution or decision in all other cases or two (2) members of a Division, as the case may be, shall be necessary for the rendition of a decision or resolution in the Division Level." (Sec. 2, R.A. 9503).

CLASS RECITATION WITH SUGGESTED ANSWERS

Q:Does the Court of Tax Appeals have jurisdiction over tax cases where an appeal was filed before the Commissioner of Internal Revenue has rendered a decision? A: Generally, the Court of Tax Appeals cannot acquire jurisdiction over the case in the absence of the decision of the BIR Commissioner because it can only review on appeal the decision of the Commissioner. The exceptions are:

1. When after the lapse of 180 days from the submission of all documents, the Commissioner has not acted upon a protested assessment. The taxpayer may, within 30 days from the lapse of the 180-day period, appeal to the CTA.

2. When the Commissioner has not acted in a refund case and the 2-year prescriptive period is about to expire.

3. Q: If the principal amount of taxes and fees, exclusive of charges and penalties, is less than 1 million pesos (P1,000,000), where should the appeal be filed? A: In tax collection cases where the principal amount of taxes, exclusive of penalties and charges, the appeal shall be filed:

1. In the RTC if the principal amount exceeds P300,000 (P400,000 if in Metro Manila)

2. In the MTC if the principal amount is P300,000 or less

3. In the Metropolitan Trial Court if the case is in Metro Manila and the principal amount is P400,000 or less

Q: Instances where the CTA has no jurisdiction A: The following are instances where the CTA has no jurisdiction:

1. The CTA has no power motu proprio to review tax cases. It can resolve cases only in aid of its original or appellate jurisdiction.

2. Questions of unfair competition involving the use of simplified bookkeeping records. Reason: The case does not involve any assessment or refund of tax, or other matter under the NIRC.

   

 

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3. CTA has no appellate jurisdiction over a decision rendered by the Philippine Ports Authority. The collection of port charges ceased to be an administrative function of the Bureau of Customs. Being a court of special jurisdiction and the absence of a provision in P.D. 857 (Act creating the PPA) for appeal to the CTA involving decisions of the PPA and in R.A.1125, no appellate jurisdiction over PPA decisions may be vested in the CTA by mere implication (Philippine Ports Authority et al v. Judge Fuentes, 195 SCRA 790, as cited by Domondon).

Q: What is meant by the “other matters” arising under the National Internal Revenue Code or other laws administered by the BIR? A: Other matters may be taken to mean as cases related to a tax assessment. An example is where the taxpayer has paid its taxes, but it turns out that the payments were supported by spurious/fake receipts and the BIR issued an assessment notice to collect the amount allegedly paid (Benguet Corporation v. Commissioner of Internal Revenue, CTA Case No. 4795, July 1996, as cited by Domondon). The CTA may also determine if the warrant of distraint and levy issued by the BIR is valid. Q: What is the quorum for the Court of Tax Appeals? A: Five Justices for cases heard en Banc Two Justices for cases heard by a division

Q: How are decisions promulgated by the CTA en banc? A: The affirmative votes of five (5) members of the Court en banc shall be necessary to reverse a decision of a Division. A simple majority of the Justices present shall be necessary to promulgate a resolution or decision in all other cases.  

   

 

  1  

   

 

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REMEDIES OF THE GOVERNMENT Remedies of the

Government Local Taxation Real Property Taxation Tariff and Customs Code

National Internal Revenue Code

1. Government’s Lien

Superior to all liens, charges or encumbrances

Extinguished upon full payment of delinquent local taxes, fees, and charges plus surcharge and interest (Section 173, LGC)

Lien on the property subject to tax superior to all liens, charges or encumbrances

Extinguished upon payment of the tax and the related interests and expenses (Section 257, LGC)

Attaches on the goods regardless of the ownership while the goods are still in the custody or control of the government

Applicable only when the importation is neither prohibited nor improperly made

The proceeds are applied to the tax liability, surcharges and costs of the sale. The excess goes to the taxpayer. Taxpayer is required to make good any deficiency.

Ground

Lien shall not valid against any mortgagee, purchaser, or judgment creditor until notice of such lien shall be filed by the Commissioner in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located.

   

 

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REMEDIES OF THE GOVERNMENT Remedies of the

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National Internal Revenue Code

General Rule: The lien is beyond the reach of the regular courts.

Exception: When the goods are released and the tax lien is lost, in which case, a judicial action against the importer may be instituted.

2. Distraint

Properties that can be distrained

Goods, chattels, or effects, and other personal property including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property (Section 174, LGC)

The notice of delinquency shall specify the date upon which the tax became delinquent and shall state that personal property may be distrained to effect payment (Section 254[b], LGC)

-

Grounds

Actual Distraint (Sec. 207(A), NIRC)

Failure of the persons owing any delinquent tax or delinquent revenue to pay the same at the time required

Constructive Distraint (Sec. 206, NIRC)

   

 

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REMEDIES OF THE GOVERNMENT Remedies of the

Government Local Taxation Real Property Taxation Tariff and Customs Code

National Internal Revenue Code

1. Delinquent taxpayer is retiring from any business subject to tax

2. Delinquent taxpayer is intending to leave the Philippines

3. Delinquent taxpayer is intending to remove his property therefrom

4. Delinquent taxpayer is intending to hide or conceal his property

5. Delinquent taxpayer is intending to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him

 

3. Levy

Real property and interest in and rights to real property (Section 174, LGC)

After the expiration of the time required to pay the basic real property tax or any other tax, real property

 

-

Ground

After the expiration of the time required to pay the

   

 

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REMEDIES OF THE GOVERNMENT Remedies of the

Government Local Taxation Real Property Taxation Tariff and Customs Code

National Internal Revenue Code

subject to such tax may be levied upon through the issuance of a warrant on or before, or simultaneously with, the institution of the civil action for the collection of the delinquent tax (Section 258, LGC)

delinquent tax or delinquent revenue  

   

 

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REMEDIES OF THE GOVERNMENT Remedies of the

Government Local Taxation Real Property Taxation Tariff and Customs Code

National Internal Revenue Code

 

4. Judicial Action  

Local taxes, fees, or charges may be collected within five (5) years from the date of assessment by administrative or judicial action (Section 194[c], LGC)

The LGU concerned may enforce the collection of the basic real property tax by civil action in any court of competent jurisdiction. The civil action shall be filed in accordance with Section 270 of the LGC (Section 266, LGC)

Judicial action (civil and criminal) is normally availed of when the tax lien is lost through the release of the goods.

Judicial action and proceedings instituted in behalf of the Government shall be subject to the supervision and control of the Commissioner.

Civil and criminal actions are instituted in the name of the government and shall be conducted by customs officers. No civil or criminal action for recovery of duties nor the enforcement of any fine, penalty or forfeiture shall be filed in court without

Form and Mode of Proceeding:

§ Instituted in behalf of the government

§ Enforced by the BIR § Brought in the name of

the Government of the Republic of the Philippines

§ Conducted by legal officers of the BIR

§ Approval of the Commissioner required (Sec. 220, NIRC)

§ Remedy for enforcement of statutory penal provisions shall be subject to the approval of the Commissioner (Sec. 221, NIRC)  

   

 

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National Internal Revenue Code

the Commissioner’s approval (Sec. 2410, TCCP, as amended by RA 9135).

 

5. Other Remedies

-

-

a. Administrative Fines

-applied when the importation is unlawful or involves articles which are prohibited from being imported, including the vessel

b. Seizure, Search, Arrest (Secs. 2205, 2210, 2211, TCCP).

c. Surcharges (Secs. 2502-2504, TCCP)

d. Fines (Secs. 2505-2529, TCCP).

e. Forfeitures

-

   

 

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REMEDIES OF THE GOVERNMENT Remedies of the

Government Local Taxation Real Property Taxation Tariff and Customs Code

National Internal Revenue Code

Jurisdiction: Bureau of Customs (exclusive and original), from the moment the goods are actually in the possession or control, even as no warrant of seizure or detention had previously been issued by the Collector of Customs in connection with the seizure and forfeiture proceedings (Republic v. CFI, GR No. L-43747).

Note: RTCs are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the BOC and to enjoin or otherwise interfere with these proceedings (SBMA v. Merlino Rodriguez and WIRA International Trading Corp., GR No. 160270).

   

 

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REMEDIES OF THE GOVERNMENT Remedies of the

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National Internal Revenue Code

Nature: Administrative and civil, directed against the thing itself. In this proceeding, it is in legal contemplation the property itself which commits the violation and is treated as the offender, without reference whatsoever to the character or conduct of the owner (Transglobe International Inc. v. Court of Appeals, G.R. No. 126634).

Forfeiture is in rem, whereas a criminal action is in personam. Conviction in the criminal action is not a bar on forfeiture. Results of a criminal proceeding on the evidence therein will not necessarily render judgment in forfeiture proceedings (Commissioner of Customs v. CTA, GR No. L-31733).

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

1. Protest against assessment

Within 60 days from receipt of the notice of assessment, the taxpayer may file a written protest with the local treasurer; otherwise, the assessment shall be final and executor

If the local treasurer finds the protest to be wholly or partially meritorious, he shall issue a notice cancelling, wholly or partially, the assessment.

If the local treasurer finds the assessment to be wholly or partially correct, he shall deny the protest wholly or partially with notice to

Appeal to the Local Board of Assessment Appeals:

Any owner or person having legal interest in the property who is not satisfied with the assessment of the provincial, city, or municipal assessor may, within 60 days from the date of the receipt of the written notice, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath together with the copies of tax declarations and such affidavits to support the appeal (Section 226, LGC)

Appeal to the Central Board of Assessment Appeals:

Availed of when the legality or correctness of the assessment or appraisal is questioned by the importer.

Payment under protest, as well as the payment of the corresponding docket fees is required (Sec. 2308, TCCP).

General Rule: Any importer or interested party, if dissatisfied with the published value, may within 15 days from the date of publication or within 15 days from the date the importer is entitled to refund if payment is rendered erroneous or illegal by events occurring

 

The assessment that will be the subject of the protest of the taxpayer is the Formal Letter of Demand or the Final Assessment Notice

   

 

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taxpayer.

The owner of the property or the person having legal interest therein who is not satisfied with the decision of the LBAA may, within 30 days after receipt of the decision of LBAA, appeal to the CBAA.

after the payment may file a protest.

Effect of non-filing of protest: The action of the collector shall be final and conclusive against him, except as to matters collectible for manifest clerical error.

Exception: No protest is required in seizure cases.

2. Tax Refund or Tax Credit

A written claim for refund or credit shall be filed with the local treasurer within two (2) years from the date of the payment of the tax, fee, or charge OR from the date the taxpayer is entitled to a

When an assessment is found to be illegal or erroneous and the tax is accordingly reduced or adjusted, the taxpayer may file a written claim for the refund or credit for taxes and

Drawback (Secs. 1701-1708, TCCP)

An allowance made by the government upon the duties due on the imported merchandise when the importer, instead of selling it

Grounds

1. Taxes are erroneously or illegally received or penalties imposed without authority

2. Value of internal revenue stamps when they are retuned in good condition

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

refund or credit (Section 196, LGC)

interest with the provincial or city treasurer within two (2) years from the date the taxpayer is entitled to such reduction or adjustment.

The provincial or city treasurer is required to decide within 60 days from the receipt thereof. If the claim is denied or not acted upon within 60 days, the taxpayer may appeal with the regular courts and NOT Court of Tax Appeals (Section 253, LGC)

here, re-exports it or refunding of such duties if already paid. This allowance amounts, in some cases, to the whole of the original duties; in others, to a part only (Black’s Law Dictionary).  

by the purchaser, and, in his discretion, redeem or change unused stamps that have been rendered unfit for use (Sec. 204, NIRC)

How § Taxpayer files in writing

with the Commissioner a claim for credit or refund within 2 YEARS after the payment of the tax or penalty.

§ Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made. (Sec. 228, NIRC)

Forfeiture (Sec. 230, NIRC) Cash Refund

If refund check or warrant remains unclaimed or uncashed within 5 YEARS

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

from the date the said warrant or check was mailed or delivered

Tax Credit

If tax credit certificate remain unutilized after 5 YEARS from the date of issue, UNLESS revalidated

Effect: Amount shall revert to the general fund.  

3. Abatement

- -

General Rule: No abatement of duties made on account of damage incurred or deterioration suffered during the voyage of importation and duties will be assessed on the actual quantity imported (Sec. 1701, TCCP).

Grounds

1. The tax or any portion thereof appears to be unjustly or excessively assessed

2. The administration and collection costs involved do not justify the collection of the amount due

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

Exceptions:

1. When any package or packages appearing on the manifest or bill of lading are missing, a remission or refund of the duty thereon shall be made if it is shown by proof satisfactory to the Collector that the package or packages in question have not been imported into the Philippines (Sec. 1702, TCCP).

2. If, upon opening any package, a deficiency or absence of any article, or of part of the contents thereof, as called for by the invoice shall be found to exist, such deficiency shall be certified to the Collector by the appraiser; and upon the production of proof satisfactory to the Collector showing that the shortage occurred before the arrival of the article in the Philippines, the proper abatement or refund of the duty shall be made (Sec.

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

1703, TCCP). 3. Upon satisfactory proof of

the injury, destruction, or loss by theft, fire or other causes of any article as follows: a. While within the limits

of any port of entry prior to unlading under customs supervision

b. While remaining in customs custody after unlading

c. While in transit under bond from the port of entry to any port in the Philippines.

d. While released under bond to export, except in case of loss by theft (Sec. 1704, TCCP).

 

4. Compromise

- -

Subject to the approval of the Secretary of Finance, the Commissioner of Customs may compromise cases involving the imposition of

Grounds

1. A reasonable doubt as to the validity of the claim against the taxpayer

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

fines, surcharges, and forfeitures unless otherwise specified by law (Sec. 2316, TCCP).  

exists 2. The financial position of

the taxpayer demonstrates a clear inability to pay the assessed tax

Minimum Compromise Rate § 10% - financial incapacity § 40% - other cases Authority Commissioner of Internal Revenue

Subject to the approval of the Evaluation Board (Commissioner + 4 Deputy Commissioners) where the basic tax involved exceeds P1MILLION (Sec. 204, NIRC)  

5. Appeal to the Courts

Appeal to the RTC

The taxpayer shall have 30

Appeal to the Court of Appeals

Appeal to the Court of Appeals

 

Appeal to the Court of Appeals

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

days from the receipt of the denial of the protest OR from the lapse of the 60-day period prescribed within which to appeal with the Regional Trial Court (Section 195, LGC)

The party adversely affected by the decision of the CBAA may appeal such decision to the Court of Appeals within 15 from receipt of the CBAA’s decision (Rule 43, Rules of Court)

Within 30 days from the receipt of the decision of the Commissioner or the Secretary of Finance to the division of the Court of Tax Appeals (Sec. 2403, TCCP; Sec. 7, RA 1125 as amended by Sec. 9, RA 9282)

If the protest is denied in whole or in part or not acted upon within 180 DAYS from submission of documents within 30 DAYS from the receipt of the decision or from the lapse of the 180 DAY-period  

6. Other Remedies

a. Protest against newly enacted ordinance

To the Secretary of Justice, within 30 days from the effectivity;

Decision of the Secretary of Justice must be rendered within 60 days from the date of the receipt of the appeal;

Taxpayer must file an

Protest against newly enacted ordinance

To the Secretary of Justice, within 30 days from the effectivity;

Decision of the Secretary of Justice must be rendered within 60 days from the date of the receipt of the appeal;

a. Settlement of any Seizure by Payment of Fine or Redemption (Sec. 2307, TCCP).

b. Abandonment The renunciation by an

importer of all his interests and property rights in imported articles (Sec. 180, TCCP). It can be express (Sec. 1801[a]) or implied (Sec. 1801[b]).

.

 

   

 

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REMEDIES OF THE TAXPAYER Remedies of the

Taxpayer Local Taxation Real Property Taxation Tariff and Customs Code National Internal Revenue Code

appropriate action with the Regional Trial Court within 30 days from the receipt of the decision of the Secretary of Justice OR after the lapse of the 60-day period to decide

NOTE:

*The appeal to the Secretary of Justice shall not suspend the effectivity of the ordinance

b. Declaratory Relief

Taxpayer must file an appropriate action with the Regional Trial Court within 30 days from the receipt of the decision of the Secretary of Justice OR after the lapse of the 60-day period to decide

NOTE:

*The appeal to the Secretary of Justice shall not suspend the effectivity of the ordinance

   

 

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PERIOD TO ASSESS AND COLLECT Internal Revenue Taxes Local Taxes Real Property Taxes

Concept An assessment is a finding by the taxing authority that the taxpayer has not paid his correct taxes. The ultimate purpose of assessment is to ascertain the amount that a taxpayer should pay. This is the context in which assessment is issued for internal revenue taxation.

Also a finding by the taxing authority that the taxpayer has not paid his correct taxes

Assessment in real property taxation means the act or process of determining the value of the property subject to tax (Sec. 219, LGC).

Prescriptive period to assess

Internal revenue taxes shall be assessed within 3 years after the last day prescribed by law for filing a return, or from the date of actual filing, whichever comes later.

Local taxes shall be assessed within 5 years from the date they become due.

No express provision.

Exceptions (to assessment period)

1. In case of false or fraudulent return or failure to file a return: within 10 years after discovery of falsity, fraud or omission.

2. Waiver of Statute of Limitation: before the expiration of the time prescribed, the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the tax may be assessed within the period agreed upon.

Local taxes, fees, and charges which accrued before the effectivity of the LGC: 3 years from the date they became due

-

Prescriptive period to collect 1. Normal Assessment: the 1. Local taxes, fees, or charges may 1. Basic real property tax shall

   

 

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PERIOD TO ASSESS AND COLLECT Internal Revenue Taxes Local Taxes Real Property Taxes

prescriptive period for collection would be 3 years from the date of assessment.

2. Any internal revenue tax which has been assessed within the period of limitation as prescribed in Sec. 222(a), within 5 years following the assessment of the tax.

3. False or fraudulent return or non-filing of return: the BIR may file an ordinary action to collect even without an assessment. The period to collect is 10 years, reckoned from the date of discovery of falsity or fraud or non-filing.

4. Waiver of the Statute of Limitations: Within the period agreed upon between the Commissioner and the taxpayer.

be collected within 5 years from the date of assessment by administrative or judicial action.

2. In case of fraud or intent to evade payment – within 10 years from discovery of fraud.

be collected within 5 years from the date they become due.

2. In case of fraud or intent to evade payment, such action may be instituted for the collection of the same within 10 years from the discovery of such fraud or intent to evade payment.

Suspension of Prescriptive Periods

1. The Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court and for 60 days thereafter;

2. When the taxpayer requests for reinvestigation which is granted by the Commissioner;

3. When the taxpayer cannot be located in the address given by him in the return filed upon which the tax is being assessed or collected;

The prescriptive periods shall be suspended during which:

1. The treasurer is legally prevented from making the assessment or collection;

2. The taxpayer requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to assess or collect;

3. The taxpayer is out of the country

The period of prescription within which to collect shall be suspended for the time during which:

1. The treasurer is legally prevented from collecting the tax;

2. The owner of the property or the person having legal interest therein requests for reinvestigation and executes a waiver in writing before the expiration of the period within which to collect;

   

 

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PERIOD TO ASSESS AND COLLECT Internal Revenue Taxes Local Taxes Real Property Taxes

4. 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 could be located;

5. When the taxpayer is out of the Philippines.

or otherwise cannot be located (Sec. 194, LGC).

3. The owner of the property or the person having legal interest therein is out of the country or otherwise cannot be located (Sec. 270, LGC).

   

 

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LOCAL GOVERNMENT CODE (Local Taxes and Real Property Tax) Authority to impose taxes Provinces, cities, municipalities, and barangays are authorized to impose taxes. For real property tax, all local government units are allowed to impose taxes except barangays. Manner and Time of Payment Local Taxes

• Taxes, fees, and charges may be paid in quarterly installments (Section 165, LGC)

• General Rule: Paid within the

first twenty (20) days of January or of each subsequent quarter, as the case may be.

o Exception: Unless

otherwise provided in the Local Government Code

• 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 (Section 167, LGC)

Real Property Tax

• In four (4) equal installments: - first installment, to be

due and payable on or before March Thirty-first (31st);

- second installment, on or before June Thirty (30);

- third installment, on or before September Thirty (30); and

- last installment on or before December Thirty-

first (31st)(Section 250, LGC)

Accrual of Tax Local taxes

• General Rule: first (1st) day of January of each year

- Exceptions: Unless otherwise provided in the Local Government Code, 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 (Section 166, LGC)

Real property tax

• The real property tax for any year shall accrue on the first (1st) day of January (Section 246, LGC)

PROCEDURE FOR DISTRAINT FOR PURPOSES OF SATISYING LOCAL TAXES (Section 175, LGC) 1) Seizure – the local treasurer or his

deputy may, upon written notice, seize or confiscate any personal property belonging to the delinquent taxpayer sufficient in quantity to satisfy the tax, fee, or charge

2) Accounting of distrained goods 3) Publication- the officer executing

the distraint shall cause a notification to be exhibited in not less than three (3) conspicuous places in the territory of the LGU where distraint is made. The time of sale shall not be less than twenty

   

 

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(20) days after the notice to the owner and the publication and posting of the notice

4) Release of distrained property

upon payment prior to sale 5) Sale- If no payment has been

made as mentioned in the preceding number, the officer conducting the sale shall sell the goods distrained at public auction to the highest bidder for cash. Within five (5) days after the sale, the local treasurer shall make report of the proceedings in writing to the local chief executive concerned. Should the said property be not disposed of within 120 days from the date of distraint, the same shall be considered as sold to the LGU concerned

6) Disposition of proceeds- the

proceeds shall be applied to the to satisfy the tax plus the surcharges, interest and other penalties incident to the delinquency and the expenses of the distraint and sale. The excess shall be returned to the owner of the property sold

PROCEDURE FOR LEVY FOR PURPOSES OF SATISYING LOCAL TAXES (Sections 176-180, LGC) 1) Provincial, city or municipal

treasurer shall prepare a duly authenticated certificate showing the name of the taxpayer, the tax, fee, or charge due. It shall operate with force throughout the Philippines.

2) Written notice of the levy shall be

mailed to or served upon the assessor AND the Register of Deeds of the province or city where

the property is located, and to the delinquent taxpayer Note:

a) if delinquent taxpayer is absent from the Philippines, to his agent or the manager of the business in respect to which the liability arose;

b) if no agent or manager, to the occupant of the property in question.

3) If the levy was not issued before or

simultaneously with the warrant of distraint of the personal property and the personal property is not sufficient to cover the delinquency, the provincial, city or municipal treasurer shall proceed with the levy within 30 days after execution of the distraint.

4) Publication- Within 30 days after

the levy, the local treasurer shall publicly advertise for sale or auction the property to satisfy the claim and the cost of sale. Such advertisement shall cover 30 days. The notice of advertisement shall be posted at the main entrance of the municipal building or city hall AND in a public and conspicuous place in the barangay where the real property is located, and by publication once a week for three weeks in a newspaper of general circulation in the province, city or municipality where the property is located

5) Sale- held at the main entrance of

the of the provincial, city or municipal building, or on the property to be sold, or at any place as determined by the local treasurer conducting the sale

   

 

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6) Report of the sale- within 30 days after the sale to the sanggunian concerned

7) Delivery of the certificate of sale-

local treasurer shall make and deliver the certificate of sale to the purchaser

8) Redemption of property sold-

within 1 year from the date of sale, the delinquent taxpayer or his representative shall have the right to redeem the property upon payment of the taxes, fees, and charges

9) In case of failure to redeem as

mentioned in the preceding number, the local treasurer shall execute a deed conveying to the purchaser

NOTE: *Either remedy, distraint or levy, may be used concurrently or simultaneously at the discretion of the LGU (Section 174, LGC)

*The taxpayer may stay the proceedings of sale by paying the taxes, fees, charges, penalties and interests ANY TIME BEFORE the date fixed for the sale. (Section 178, LGC)

*The owner shall not be deprived of the possession of the property and shall be entitled to the rentals and other income until the expiration of the time allowed for redemption (Section 179, LGC)

*The remedies by distraint and levy may be repeated if necessary until the full amount due, including all expenses, is collected (Section 184, LGC)

PROCEDURE FOR LEVY FOR PURPOSES OF SATISFYING REAL PROPERTY TAXES (Sections 258-265, LGC) 1) Warrant of Levy shall be issued by

the Local Treasurer which has the force of legal execution in the LGU concerned

2) Warrant shall be mailed to or

served upon the delinquent owner. Written notice and warrant of the levy is mailed/served upon the assessor and the Register of Deeds.

3) Thirty (30) days from the service of

the warrant, the local treasurer shall advertise sale of the property by posting a notice at main entrance of the LGU hall/ building and in a conspicuous place in the barangay where the property is located AND publication once a week for two weeks in the newspaper of general circulation in the said province or city where the property is located.

4) Owner may stay the proceedings of

the sale by paying the delinquent taxes, interests and expenses.

5) If payment was not made as

mentioned in the preceding number, sale shall be held at the main entrance of the LGU building/hall or on the property to be sold or any other place specified in the notice.

6) If there is a bidder and the bid is

sufficient to cover the delinquent taxes, interests and costs, the bidder pays and the local treasurer shall report the sale to the sanggunian within 30 days after the sale. The local treasurer shall

   

 

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deliver the certificate of sale to the purchaser. Excess of the proceeds is given back to the owner.

NOTE: Within 1 year from the sale, the owner may redeem the property upon payment of the delinquent tax, interest due, and expenses of sale, and additional of interest of 2% per month

7) If there is no bidder or the bid is

insufficient to cover the delinquent taxes, interests, and costs, the local treasurer shall purchase the property in behalf of the LGU. NOTE: Within 1 year from forfeiture, the owner may redeem the property by paying to the treasurer full amount of tax, interests, cost of sale Levy may be repeated until full amount due, including all expenses, is collected

   

 

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TARIFF AND CUSTOMS CODE

CUSTOMS  SEIZURE  AND  FORFEITURES  

 

 

 

 

 

 

 

 

 

 

 

 

DECISION  IS  ADVERSE  TO  THE  PROTESTANT                          DECISION  IS  ADVERSE  TO  THE  GOVERNMENT  

 

 

 

 

 

 

 

 

 

 

 

Determination  of  probable  cause  and  the  issuance  of  the  warrant  

Actual  seizure  of  the  articles;  Listing  of  description,  appraisal  and  classification  of  seized  property  

Report  of  the  seizure  to  the  Commissioner  of  Customs  and  the  Chairman  of  the  Commissioner  on  Audit  

Issuance  by  the  Collector  of  a  Warrant  of  Detention  

Notification  to  known/  unknown  owner  or  importer  

Settlement  through  payment   Formal  hearing  

District  Collector  issues  the  decision  

Review  by  the  Commissioner  within  15  days  from  notice  

Automatic  Review  of  the  Commissioner  

If  SOF  decision  is  adverse  to  the  protestant,  appeal  must  be  had  with  the  CTA  Division  within  30  days  from  notice  

If  DECISION  IS  ADVESE  TO  THE  PROTESTANT,  appeal  with  the  CTA  

division  within  30  days  

If  DECISION  IS  ADVESE  TO  THE  GOVERNMENT,  an  automatic  review  will  be  conducted  by  the  Secretary  of  

Finance.  

If  SOF  decision  is  adverse  to  the  government,  the  decision  shall  be  final  and  EXECUTORY  

If  DECISION  IS  ADVESE  TO  THE  PROTESTANT,  appeal  with  the  CTA  

division  

If  DECISION  IS  ADVESE  TO  THE  GOVERNMENT,  an  automatic  review  will  be  conducted  by  the  Secretary  of  

Finance.  

If  SOF  decision  is  adverse  to  the  government,  the  decision  shall  be  final  and  EXECUTORY  

If  SOF  decision  is  adverse  to  the  protestant,  appeal  must  be  had  with  the  CTA  Division  within  30  days  from  notice  

   

 

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CUSTOMS  PROTESTS  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Entry  at  the  customhouse  (Appraisal,  Classification,  Asessment  and  Payment)  

Payment  under  Protest  within  30  days  after  the  discharge  of  the  last  package  

Filing  of  the  Protest  with  the  Collector  within  15  days  after  the  payment  and  payment  of  docket  

Issuance  of  the  order  of  hearing  by  the  collector  within  15  days  from  receipt  

When  the  protest  is  in  the  proper  from  in  a  case  where  protest  is  required,  the  Collector  shall  reexamine  the  matter  presented.  The  

period  to  decide  shall  be  30  days.    

If  the  DECISION  of  the  COLLECTOR  is  ADVERSE  to  the  taxpayer,  the  adverse  party  must  file  a  NOTICE  OF  APPEAL  with  the  COLLECTOR,  copy  furnished  the  Commissioner,  within  15  days  

from  notification.    

If  COLLECTOR  SUSTAINS  the  PROTEST  (renders  a  decision  adverse  to  the  

government(importer’s  protest  is  granted),  such  decision,  together  with  the  entire  records  of  the  case,  shall  be  automatically  elevated  to  the  Commissioner  of  Customs  for  automatic  review  within  5  days  from  the  promulgation  

thereof.    The  Collector  shall  transmit  all  records  of  the  proceedings  to  the  Commissioner.  No  appeal  shall  be  heard  if  filed  beyond  the  period  to  

appeal  

If  the  decision  of  the  Commissioner  is  adverse  to  the  

taxpayer,  appeal  to  the  CTA  within  30  days  from  receipt  of  

the  decision  

If  the  decision  is  adverse  to  the  government,  

automatic  appeal  to  the  Secretary  of  

Finance  

AUTOMATIC  REVIEW  BY  THE  COMMISSIONER.  The  Commissioner  shall  render  a  decision  

within  30  days  from  the  receipt  of  the  records  of  the  case  from  the  collector  and  shall  notify  

the  appellant  or  aggrieved  party.    

If  the  Commissioner  reversed  the  decision  of  

the  Collector,  the  person  aggrieved  by  the  decision  has  30  days  from  receipt  of  the  decision  to  appeal  to  

the  CTA  

If  the  Commissioner  affirms  the  decision  of  the  Collector  or  no  

decision  was  rendered  within  30  days,  

automatic  review  by  the  SOF.  Period  to  decide  

shall  be  30  days.    

If  there  is  NO  DECISION  after  30  days  or  if  the  DECISION  is  ADVERSE  to  the  GOVERNMENT,  the  decision  appealed  from  becomes  FINAL  and  

EXECUTORY.    If  the  decision  of  the  commissioner  is  ADVERSE  to  the  taxpayer,  the  person  aggrieved  by  

the  decision  has  30  days  from  receipt  of  the  decision  to  appeal  to  the  CTA  

   

 

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NATIONAL INTERNAL REVENUE COD

DISTRAINT AND LEVY

DISTRAINT

Kinds ACTUAL DISTRAINT

CONSTRUCTIVE DISTRAINT

Grounds

Failure of the persons owing any delinquent tax or delinquent revenue to pay the same at the time required.

1. Delinquent taxpayer is retiring from any business subject to tax

2. Delinquent taxpayer is intending to leave the Philippines

3. Delinquent taxpayer is intending to remove his property therefrom

4. Delinquent taxpayer is intending to hide or conceal his property

5. Delinquent taxpayer is intending to perform any act tending to obstruct the proceedings for collecting the tax due or which may be due from him

Authority § CIR / Authorized Representative (if >P1MILLION)

§ Revenue District Officer (if ≤P1MILLION)

CIR / Authorized Revenue Officer

How Effected

1. Actual Seizure and Distraint / Garnishment

a. Accounting of personal properties

b. Service of the copy of the warrant of distraint

i. Taxpayer ii. President/manager/t

reasurer/other responsible officer of the corporation, company, or association

iii. Persons owing the debts or having in his possession or under his control such credits/agent

iv. President/manager/treasurer/other responsible officer of the bank (Sec. 208, NIRC)

1. Sign RECEIPT. 2. LIST, if refused to sign.

   

 

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2. Submission of Report within 10 DAYS by distraining officer to Revenue District Officer / Revenue Regional Director

3. Submission of Consolidated Report by Revenue Regional Director to the Commissioner, if required

4. Sale of Property Distrained and Disposition of Proceeds

a. Posting of Notice in not less than 2 public places

b. Notify owner/possessor of the property 20 days before the sale

c. Conduct of public auction d. Execution of bill of sale in

case of stocks and other securities

e. Entry of the bill of sale in the books by the corporation/company/association

f. Transfer of stocks and other securities sold in the name of the buyer

i. Issuance of corresponding Certificate of stocks or other securities (Sec. 209, NIRC)

5. Report of sale to the BIR within 2 DAYS after the sale (Sec. 211, NIRC)

6. Turnover of excess to the owner. Release If at any time prior to the consummation of the sale, all proper charges are

paid to the officer conducting the sale, all proper charges are paid to the officer conducting the sale, the goods or effects distrained shall be restored to the owner. (Sec. 210, NIRC)

Government Purchase

Ground: When the amount bid for the property under distraint is not equal to the amount of the tax or is very much less than the actual market value of the articles offered for sale(Sec. 212, NIRC)

How Effected: Purchase then resell.

Forfeiture to Government

(Sec. 215, NIRC)

Why?

§ For want of bidder (if the highest bid is for an amount insufficient to pay the taxes, penalties, and costs)

How?

§ Internal Revenue Officer shall declare the property forfeited to the Government in satisfaction of the claim.

§ 2 DAYS after, the Internal Revenue Officer shall make a return. § Register with the Register of Deeds. § Transfer title without necessity of an order from a competent court.

   

 

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Redemption

Period?

§ 1 YEAR from date of forfeiture Who?

§ Taxpayer or any one for him How?

§ Paying to the Commissioner / Revenue Collection Officer the full amount of the taxes and penalties plus interest, cost of sale

Remedy for Enforcement (Sec. 224, NIRC)

How?

§ REAL: By a judgment of condemnation and the sale in a legal action or proceeding, civil or criminal

§ PERSONAL: By the seizure and sale, or destruction of the specific forfeited property

o SALE: Same requirement for the sale of personal property distrained (Sec. 225, NIRC)

o DESTRUCTION: when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law, 20 DAYS after seizure

§ distilled spirits § liquors § cigars § cigarettes § other manufactured products of tobacco § all apparatus used in or about the illicit production of

such articles § Dies for the printing or making of internal revenue stamps

and labels which are in imitation of or purport to be lawful stamps, or labels (Sec. 225, NIRC)

Action to Contest Forfeiture of Chattel (Sec. 231, NIRC)

§ Bring an action against the person seizing the property or having possession thereof to recover the same and upon giving proper BOND may enjoin the sale or

§ After the sale within 6 MONTHS, he may bring an action to recover the net proceeds realized at the sale.

Further Distraint

Repeat of distraint until the full amount due, including all expenses, is collected. (Sec. 217, NIRC)

LEVY

(Sec. 207(B), NIRC)

Grounds After the expiration of the time required to pay the delinquent tax or delinquent revenue

   

 

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Authority Any officer designated by the Commissioner or his duly authorized representative

How Effected

Before/simultaneously/after the distraint of personal property…

1. Preparation of CERTIFICATE 2. Writing of description upon the Certificate 3. Mailing/service of written notice to Register of Deeds and delinquent

taxpayer/agent/manager of the business/occupant of the property 4. Submission of Report within 10 DAYS after receipt of the warrant to

Commissioner/representative 5. Submission of Consolidated Report by Revenue Regional Director to the

Commissioner, if required 6. Advertisement for sale within 20 DAYS after levy for at least 30 DAYS.

a. Posting of Notice in 2 public places i.e. (1) entrance of municipal/city hall and (2) conspicuous place where property is located

b. Publication once a week for 3 weeks in a newspaper of general circulation in the municipality/city where property is located

7. Sale. 8. Entry of Report within 5 DAYS after the sale. 9. Make out/Deliver to the purchaser a certificate of sale. 10. Turnover of excess to the owner. (Sec. 213, NIRC)

*If after distraint of personal property… proceed with levy after 30 DAYS after execution of the distraint.

Release At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying the taxes, penalties, and interest. (Sec. 213, NIRC)

Redemption

(Sec. 214, NIRC)

When?

§ Within 1 YEAR from the date of sale How much?

§ amount of public taxes, penalties, and interest (rate: 15%/annum) Forfeiture to Government

(Sec. 215, NIRC)

Why?

§ For want of bidder (if the highest bid is for an amount insufficient to pay the taxes, penalties, and costs)

How?

§ Internal Revenue Officer shall declare the property forfeited to the Government in satisfaction of the claim.

§ 2 DAYS after, the Internal Revenue Officer shall make a return. § Register with the Register of Deeds. § Transfer title without necessity of an order from a competent court.

Redemption

Period?

§ 1 YEAR from date of forfeiture Who?

§ Taxpayer or any one for him

   

 

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How?

§ Paying to the Commissioner / Revenue Collection Officer the full amount of the taxes and penalties plus interest, cost of sale

Remedy for Enforcement (Sec. 224, NIRC)

How?

§ REAL: By a judgment of condemnation and the sale in a legal action or proceeding, civil or criminal

§ PERSONAL: By the seizure and sale, or destruction of the specific forfeited property

o SALE: Same requirement for the sale of personal property distrained (Sec. 225, NIRC)

o DESTRUCTION: when the sale of the same for consumption or use would be injurious to public health or prejudicial to the enforcement of the law, 20 DAYS after seizure

§ distilled spirits § liquors § cigars § cigarettes § other manufactured products of tobacco § all apparatus used in or about the illicit production of

such articles § Dies for the printing or making of internal revenue stamps

and labels which are in imitation of or purport to be lawful stamps, or labels (Sec. 225, NIRC)

Resale (Sec. 216, NIRC)

How?

§ Posting and Service of notice not less than 20 days before sale. § Public auction / private sale. § Accounting of proceeds. § Deposit of proceeds with the National Treasury.

Further Levy Repeat of levy until the full amount due, including all expenses, is collected. (Sec. 217, NIRC)

PROCEDURE FOR PROTEST OF INTERNAL REVENUE TAXES

1. Notice to the Taxpayer of the Commissioner’s findings 2. Pre-Assessment Notice

§ Exceptions: § 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 § When a discrepancy has been determined between the tax withheld and the amount

actually remitted by the withholding agent § When a taxpayer who opted to claim a refund or tax credit of excess creditable

withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter(s) of the succeeding taxable year

§ When the excise tax due on exercisable articles has not been paid

   

 

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§ 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 non-exempt persons

§ Taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise the assessment shall be void.

3. Taxpayer’s Reply (within 15 days from notice) 4. Issuance of Final Assessment Notice (upon failure to reply) 5. PROTEST

§ File request for reconsideration or reinvestigation within 30 DAYS from receipt of the assessment.

§ Submit all relevant supporting documents within 60 DAYS from filing of protest. 6. Appeal to the CTA

§ If the protest is denied in whole or in part or not acted upon within 180 DAYS from submission of documents within 30 DAYS from the receipt of the decision or from the lapse of the 180 DAY-period

§ If not appealed, the decision shall become final, executory, and demandable.

   

 

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OTHER COMPARISONS

DISTRAINT OF PERSONAL PROPERTY

Internal Revenue Taxes Local Taxes

Constructive Distraint Yes None

Issuing authority 1. Commissioner of Internal Revenue

(If amount of tax due is more than P1M

2. Revenue District Officer (If amount of tax due is P1M or less)

Local Treasurer

Posting of notices

Notification to be exhibited in not less than two public places in the municipality where distraint is made. One place for posting is the office of the Mayor.

Notification to be exhibited in not less than three public and conspicuous places in the territory of the LGU where distraint is made. One place for the posting of the notice shall be at the office of the chief executive of the LGU.

Report of sale

Within 2 days after the sale, the officer making the same shall make a report of the proceedings in writing to the Commissioner and shall himself preserve a copy of such report as an official record.

Within 5 days after the sale, the local treasurer shall make a report of the proceedings in writing to the local chief executive concerned.

Time of sale

Not less than 20 days after notice to the owner or possessor of the property and the publication or posting of such notice.

Not less than 20 days after notice to the owner and possessor and the publication or posting of such notice.

Purchase of distrained property by the

Government

1. The amount of bid is not equal to the amount of the tax.

2. The amount of bid is very much less than the actual market value of the articles offered for sale.

3. The Commissioner may purchase the same in behalf of the National Government.

Should the property distrained be not disposed of within 120 days from the date of distraint, the same shall be considered as sold to the LGU concerned for the amount of the assessment made thereon by the Committee.

   

 

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LEVY UPON REAL PROPERTY

Internal Revenue Taxes Local Taxes / Real Property Tax

Advertisement

Within 20 days after the levy, the officer conducting the proceedings shall advertise the property or a usable portion thereof as may be necessary to satisfy the claim and the cost of sale.

Within 30 days after the levy, the local treasurer shall proceed to publicly advertise for sale or auction the property or a usable portion thereof as may be necessary to satisfy the claim and the cost of sale.

How levy is effected

Levy shall be effected by writing upon the duly authenticated certificate a description of the property upon which levy is made; At the same time, written notice of levy shall be mailed or served upon the (1) Register of Deeds and (2) Delinquent taxpayer.

Levy shall be effected by writing upon the duly authenticated certificate the description of the property upon which the levy is made; At the same time, a written notice of levy shall be mailed to or served upon the: (1) Assessor and Register of Deeds to annotate the levy on the tax declaration and the certificate of title and (2) delinquent taxpayer.

Posting and Publication

1. Posting a notice at the main entrance of the municipal building; and

2. In a public and conspicuous place in the barrio or district in which the real estate lies; and

3. By publication once a week for three weeks in a newspaper of general circulation in the municipality or city where the property is located.

1. Posting a notice at the main entrance of the municipal building;

2. In a public and conspicuous place in the barrio or district in which the real estate lies; and

3. By publication once a week for three weeks in a newspaper of general circulation in the municipality or city where the property is located.

Advance of the cost

The Revenue Collection Officer may, upon approval of the Revenue District Officer, advance an amount sufficient to defray the costs of collection by means of summary remedies.

The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the costs of collection by means of the remedies provided in the law.

Forfeiture in favor of the Government

1. If there is no bidder for real property exposed for sale, or

2. The highest bid is for an amount insufficient to pay the taxes, penalties and costs,

3. The Internal Revenue Officer shall declare the property forfeited to the Government in satisfaction of the claim

4. It shall be the duty of the Register of Deeds concerned, upon registration with his office of the declaration of forfeiture to transfer the title of the property to the Government without the necessity of court order.

1. If there is no bidder for the real property advertised for sale, or

2. If the highest bid is for an amount insufficient to pay the taxes, fees, or charges,

3. The local treasurer conducting the sale shall purchase the property in behalf of the local government unit.

4. It shall be the duty of the Register of Deeds concerned, upon registration with his office of the declaration of forfeiture to transfer the title of the property to the Government without the necessity of court order.

   

 

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Internal Revenue Taxes Local Taxes / Real Property Tax

Resale of real estate taken for taxes

1. Upon giving of not less than 20 days notice, the Commissioner may sell and dispose of the real property.

2. Sale may be at public auction or in a private sale (upon approval of the Secretary ff Finance)

3. Proceeds of the sale shall be deposited with the national treasurer and an accounting of the same shall be rendered to the Chairman of the Commission on Audit.

1. The Sanggunian concerned, by an ordinance duly approved and upon notice of not less than 20 days, may sell and dispose of the real property.

2. Sale is only by public auction. 3. The proceeds of the sale shall

accrue to the general fund of the LGU concerned.

Interest rate on the redemption price

The redemption price shall be:

1. Amount of public taxes, penalties, and interest thereon from the date of delinquency to the date of sale.

2. Interest on the purchase price at the rate of 15% per annum from the date of purchase to the date of redemption.

The redemption price shall be:

1. Amount of public taxes, penalties, and interest thereon from the date of delinquency to the date of sale.

2. Interest on the purchase price at the rate of 2% per month from the date of purchase to the date of redemption.

PROTEST

Protest NIRC Local Taxes Real Property Tax Tariff And Custom Code

Payment in Protest

General Rule: Not required.

Exception: If the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues. No action shall be taken on the taxpayer’s disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the undisputed issues (RR12-99).

Not Required

General Rule: Required.

Exception: Where the question raised is on the very authority and power of the assessor to impose the assessment and of the treasurer to collect the tax.

Required

   

 

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NIRC: REMEDIES IN GENERAL

OUTLINE OF REMEDIES REMEDIES OF THE GOVERNMENT Basic remedies:

• Assessment; and • Collection.

Other classifications: I. As to procedure

A. Collection with assessment; or B. Collection without assessment.

II. As to the nature of proceeding A. Administrative remedies

1. Distraint of personal property including garnishment and deposit;

2. Summary remedy of levy on real property;

3. Forfeiture to the government; 4. Tax lien; 5. Compromise and abatement;

and 6. Penalties and fines.

B. Judicial remedies

1. Civil; and 2. Criminal.

REMEDIES OF THE TAXPAYER I. Before payment of tax

A. Administrative remedies 1. Protest; 2. Compromise; and 3. Abatement.

B. Judicial remedies II. After payment of tax

A. Administrative remedy 1. Tax refund; and

2. Tax credit.

B. Judicial remedies REMEDIES OF THE GOVERNMENT Importance of Tax Remedies While taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxations, which is the promotion of the common good, may be achieved. (Reyes v. Almanzor) ASSESSMENT Assess means to impose a tax; to charge with a tax; to declare a tax to be payable; to apportion a tax to be paid or contributed, to fix a rate; to fix or settle a sum to be paid by way of tax; to set, fix or charge a certain sum to each taxpayer; to settle determine or fix the amount of tax to be paid (84 C.J.S 74-750) An assessment is the notice to the effect that the amount therein stated is due from a taxpayer as a tax with a demand for payment of the same within a stated period of time. (Commissioner v. CTA, 27 SCRA 1159) An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the

   

 

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taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. (CIR v. PASCOR Realty and Development Corporation) When Assessment is Made Prescriptive Period for Assessment (Sec. 203, NIRC) If the taxpayer filed a return: Internal revenue taxes shall be assessed within three years after the last day prescribed by law for the filing of the return. If a return is filed beyond the period prescribed by law: The three-year period shall be counted from the day the return was filed.

• Exceptions: o False return; o Fraudulent return with

intent to evade tax; o Failure to file a return.

(Sec. 222, NIRC) Waiver of Period for Assessment The taxpayer and the Commissioner may agree in writing, before the expiration of the time prescribed in Sec. 203, to extend the period of assessment. The period so agreed upon may be extended by subsequent written agreement made before the expiration of the period previously agreed upon. (Sec. 222(b), NIRC) Suspension of Running of Statute of Limitations (Sec. 223, NIRC) 1. Period during which the

Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in court, and for sixty (60) days thereafter ;

2. When the taxpayer requests for a

reinvestigation which is granted by the Commissioner;

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;

4. 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; and

5. When the taxpayer is out of the Philippines.

Assessment Procedure FIRST STEP: Issuance of Letter of Authority Revenue officers examine the books of account and other accounting records of taxpayers to determine the correct tax liability. This is through the issuance of a Letter of Authority. Letter of Authority (LA) – The Letter of Authority refers to the letter informing a taxpayer that a certain revenue officer is authorized to examine the books of accounts and other accounting record of said taxpayer for the purpose of verifying his tax liabilities during a taxable year. (ABAN, Law of Basic Taxation in the Philippines, p. 196) SECOND STEP: Service of LA; Tax Audit The LA must be served to the taxpayer within thirty (30) days from its issue; otherwise, it becomes null and void and the taxpayer has all the right to refuse its service. (ABAN, supra at 196)

   

 

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A Revenue Officer shall, within 120 days from the date of issuance and service of the LA, conduct his audit and submit his report of investigation (ibid).

Effect of failure to complete the 120-day period

1. Audit will continue without the need to revalidate the LA; but

2. The officer concerned shall be subjected to administrative sanctions (RMC No. 23-2009; RMO No. 44-2010).

THIRD STEP: Issuance of Preliminary Assessment Notice (PAN) A PAN is issued to the taxpayer informing him of the findings of the Revenue Officer if after review and evaluation of taxpayer’s records, there found a sufficient basis to assess the taxpayer for any deficiency taxes (RR No. 18-2013, Sec. 3.1.1). Prior to issuance of PAN, the taxpayer may be allowed to make voluntary payments of probable deficiency taxes and penalties (RMC No. 11-2014). Rationale: To give the taxpayer the opportunity to refute the findings of the examiner and give a more accurate and detailed explanation regarding the assessment(s) (Sony Philippines v. CIR, CTA Case No. 6185). Note: The issuance of a Notice of Informal Conference under RR No. 12-99 before issuing PAN is already dispensed with pursuant to RR No. 18-2013 issued on November 28, 2013.

FOURTH STEP: Reply to PAN The taxpayer has 15 days from the date of receipt of PAN to reply (RR No. 18-2013, Sec. 3.1.1).

Requisites of a valid reply: 1. Must be made within the said 15-

day period (RR No. 18-2013, Sec. 3.1.1); and

2. Must be filed by the taxpayer or his duly authorized representative, in person or through registered mail with return card, with the Office of the duly authorized representative of the CIR (Regional Director, ACIR-LTS, ACIR-Enforcement Service) who signed the PAN (RMC No. 11-2014, RMC No. 39-2013).

Effect of failure to submit valid reply to PAN 1. Taxpayer shall be considered in

default and a FLD/FAN will be issued (Sec. 228, par. 3, NIRC).

2. Taxpayer can still file a protest to FLD/FAN (Sec. 228, par. 4, NIRC).

FIFTH STEP: Issuance of a Formal Letter of Demand and Final Assessment Notice (FLD/FAN) If the taxpayer was not able to refute the findings in PA, or if he is in default, FLD/FAN shall be issued. FLD/FAN A notice of assessment constituting a computation of deficiency taxes and a demand issued to the taxpayer. This is the notice of assessment and not the PAN that must be made within the prescriptive period of assessment and which MUST be protested by the taxpayer, otherwise, the assessment shall become final, executory and demandable.

   

 

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Requisites of a valid FLD/FAN: 1. Must be issued by the CIR or

his duly authorized representative. The duly authorized representatives refer to the same persons who are authorized to issue PAN (RR No. 18-2013, Sec. 3.1.3; RMC No. 11-2014);

2. Must be issued after issuance of a valid PAN, except for the instances where a PAN is not required (Sec. 228, par. 1 & 2, NIRC; RR No. 18-2013, Sec. 3.1.2);

3. Must be served to the taxpayer personally and if not practicable, by substituted service or by mail (RR No. 18-2013, Sec. 3.1.6);

4. Must be served to the taxpayer before the lapse of the prescriptive period of making assessment (Sec. 203, NIRC);

5. Must be in writing and contain the facts and the law on which the assessment is made (RR No. 18-2013, Sec. 3.1.3)

Period to Issue FLD/FAN Rule: FAN can be issued only after a PAN was issued. The taxpayer must first be informed that he is liable for deficiency taxes through the sending of PAN. Absence of PAN renders nugatory any assessment made by the tax authorities (CIR v. Metro Superama, Inc,; SVI Information v. CIR). After the issuance of the PAN, the FAN may be issued in any of the following cases/periods: 1. After the lapse of the 15-day

period to respond to PAN without the taxpayer submitting a reply (RR No. 18-2013, Sec. 3.1.1);

2. Before the lapse of the 15-day period to respond to PAN and the taxpayer has not yet submitted a

reply to PAN (Oakwood Management Services v. CIR);

3. Within 15 days after filing/submission of the response to PAN (RR No. 18-2013, Sec. 3.1.1);

4. After 15 days after filing/submission of the response to PAN (RMC No. 11-2014).

Exceptions: In the following instances where PAN is not required, a FLD/FAN shall be issued outright: (RR No. 18-2013)

1. 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;

2. When the excise tax due on excisable articles has not been paid;

3. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent;

4. 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 non-exempt persons; and

5. When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year

When Assessment is Deemed Made The assessment is deemed to have been made on the date when

   

 

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the demand letter or notice of assessment is released, mailed or sent, even though the same is actually received by the taxpayer after the expiration of the prescriptive period (Basilan Estates v. CIR).

Rule: When a mail matter is sent by registered mail, there exists a presumption that it was received in the regular course of mail (Republic v. CA).

Sixth Step: Protesting the Assessment; Questioning the Validity of FLD/FAN After the FLD/FAN was made, the taxpayer may question the validity of the imposition of the deficiency taxes as shown in the notice of assessment within 30 days from receipt thereof. (Sec. 228, NIRC) Failure to File a Valid Protest If the taxpayer fails to file a valid protest against the FLD/FAN within 30 days from the date of receipt thereof, the assessment shall become final, executory and demandable. No request for reconsideration or reinvestigation shall be granted on tax assessments that have already become final, executory and demandable. Seventh Step: Administrative Action on Protested Assessment The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

(See discussions on Remedies of the Taxpayer for a more detailed explanation) COLLECTION It is the actual effort exerted by the government to effect the exaction of what is due from the taxpayer. Rule on “No Injunction to Restrain Tax Collection” Generally: No court shall have the authority to grant an injunction to restrain the collection of any internal revenue tax, fee, or charge imposed by this Code. (Sec. 218, NIRC) Exceptions: When the all of the following conditions concur: 1. It is an appeal to the CTA from a

decision of the CIR, or Commissioner of Customs or the RTC, provincial, city or municipal treasurer or the Secretary of Finance, the case may be; and

2. In the opinion of the Court of Tax Appeals, the collection may jeopardize the interest of the Government and/or the taxpayer. (Sec. 11, R.A. 1125 as amended by R.A. 9282)

No Injunction Rule Applicable Only to National Taxes; No Express Prohibition in LGC The prohibition on the issuance of a writ of injunction to enjoin the collection of taxes applies only to national internal revenue taxes, and not to local taxes. (Angeles City v. Angeles Electric Corporation) When the Government May Avail of the Remedies of Collection Generally: When the assessment shall have become final, executory and demandable. No proceeding in court

   

 

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without the assessment for the collection of such taxes shall be commenced.

When Assessed Taxes Become Collectible 1. Failure to protest FLD/FAN within

the prescribed period; 2. Failure to appeal FDDA within the

prescribed period; 3. Failure to appeal an adverse

decision of the court within the prescribed period.

Exception: In case of false or fraudulent return with intent to evade tax or of failure to file a return, a proceeding in court for collection may be filed without assessment within 10 years from discovery of falsity, fraud or omission. (Sec. 222(a), NIRC) ADMINISTRATIVE REMEDIES Administrative Remedies of the Government in Collection A. Distraint of personal property

including garnishment and deposit; B. Summary remedy of levy on real

property; C. Forfeiture to the government; D. Tax lien; E. Compromise and abatement; and F. Penalties and fines. Distraint and Levy Distinguished Distraint is a remedy whereby the collection of taxes is enforced on the goods, chattels or effects and other personal property of whatever character of a taxpayer. Levy, on the other hand, means the collection enforcement is effected on the real property and interests in or rights to real property of the delinquent taxpayer. (ABAN supra at 238; Sec. 205 (a), NIRC;)

A. DISTRAINT OF PERSONAL PROPERTY Remedy enforced on the goods, chattels, or effects, and other personal property of whatever character including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property. (Sec. 205 (a), NIRC) Kinds of Distraint 1. Actual Distraint 2. Constructive Distraint

Actual Distraint A collection remedy resorted to when delinquency in the payment sets in, i.e., when at the time required for payment, a person fails to pay his tax obligation. It consists of the actual seizure and distraint of personal property of taxpayer in sufficient quantity to satisfy the tax or charge. (ABAN supra at 238) Procedure for Actual Distraint 1. Commencement of Distraint

Proceedings • More than P1M – by the

Commissioner or his duly authorized representative;

• P1M or less – by the Revenue Officer (RO)

(Sec. 207 (A), NIRC)

2. Service of Warrant of Distraint The officer serving the warrant of distraint shall make or cause to be made an account of the goods, chattels, effects, or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects, or other place of business of such person and with someone of suitable age and discretion, to which list shall be

   

 

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added a statement of the sum demanded and not of the time and place of sale. (Sec. 208, NIRC)

3. Notice of Sale of Distrained Property The RO or his duly authorized representative, other than the officer referred to in Sec. 208 of NIRC, shall, according to rules and regulations prescribed by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a notification to be exhibited in not less than two (2) public places in the municipality or city where the distraint is made, specifying the time and place of sale and the articles distrained. The time of sale shall not be less than twenty (20) days after notice to the owner or possessor of the property as above specified and the publication or posting of such notice. One place for the posting of such notice shall be at the Office of the Mayor of the city or municipality in which the property is distrained. (Sec. 209, NIRC)

4. Sale of Distrained Property At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or effects, or other personal property, including stocks and other securities so distrained, at public auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly licensed commodity or stock exchanges. (Sec. 209, NIRC)

Right of Pre-emption: If at any time prior to the consummation of the sale, ALL proper charges are paid to the officer conducting the sale, all the

distrained properties shall be restored to the owner. (Sec. 210, NIRC) Right of Redemption: There is NO right of redemption in sale of personal property distrained. (SABABAN, Taxation Law Review, 2008) Purchase by the government at sale upon distraint (Sec. 212, NIRC) When the amount bid for the distrained property is: 1. NOT equal to the amount of tax; or 2. Very much LESS than the actual

market value of the property offered for sale.

The CIR or his deputies may purchase in behalf of the National Government for the amount of taxes, penalties and cost due thereon. Property so purchased may be resold by the CIR or his deputy; the net proceeds shall be remitted to the National Treasury and accounted as internal revenue. Constructive Distraint A remedy where no actual delinquency is necessary before the same is resorted to. It is a preventive remedy the aim of which is to forestall a possible dissipation of the taxpayer’s assets when delinquency takes place. (ABAN supra at 238) Grounds for Constructive Distraint When in the opinion of the Commissioner: 1. The taxpayer is retiring from any

business subject to tax; or 2. He intends to leave the Philippines;

or 3. He intends to remove his property

or to hide his property therefrom; or 4. He performs any act tending to

obstruct the proceedings for

   

 

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collecting the tax due or which may be due from him (Sec. 206, NIRC)

Procedure for Constructive Distraint The constructive distraint of personal property shall be effected requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not dispose of the same in any manner whatsoever without the express authority of the Commissioner. In case the taxpayer or the person having possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and in the presence of two witnesses leave a copy thereof in the premises where the property distrained is located after which said property shall be deemed to have been placed under constructive distraint. (Sec. 206, NIRC) Distraint of Intangible Properties Intangible properties which can be the subject of distraint are: 1. Stocks and other securities –

shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer, or other responsible officer of the corporation, company or association, which issued the said stocks or securities

2. Debts and credits – shall be distrained by leaving with the person owning the debts or having in his possession or under his control such credits, or his agent, a copy of the warrant of distraint

3. Bank accounts – shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer, or other responsible officer of the bank

Garnishment The taking of personal properties, usually cash or sums of money, owned by a delinquent taxpayer which is in the possession of a third party. B. SUMMARY REMEDY OF LEVY ON REAL PROPERTY LEVY When levy may be effected After the expiration of the time required to pay the delinquent tax, real property may be levied upon before, simultaneously, or after the distraint of personal property belonging to the delinquent taxpayer (Sec. 207(B), NIRC); Further distraint or levy The remedy by distraint and levy may be repeated if necessary until the full amount, including all expenses, is collected (Sec. 217, NIRC).

Levy after distraint In case the warrant of levy is not issued before or simultaneously with the warrant of distraint and the personal property of the taxpayer is not sufficient to satisfy his tax delinquency, the Commissioner or his duly authorized representative shall, within thirty (30) days after the execution of the distraint, proceed with the levy on taxpayer’s real property (Sec. 207(B), NIRC). Procedure for Levy 1. Issuance of Warrant of Levy

The IR officer designated by the Commissioner or his duly

   

 

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authorized representative shall prepare a: i. DULY AUTHENTICATED

CERTIFICATE showing the name of the taxpayer and the amounts of tax and penalty due from him.

ii. This certificate shall operate with the force of LEGAL EXECUTION throughout the Philippines.

iii. The certificate shall contain a description of the property upon which levy is made. (Sec. 207(B), NIRC)

2. Service of Warrant Levy shall be effected by writing upon said certificate a description of the property upon which levy is made. At the same time, written notice of the levy shall be mailed to or served upon the Register of Deeds of the province or city where the property is located and upon the taxpayer (If he is absent from the Philippines: to his agent or manager of business in respect to which the liability arose or to the occupant of the property in question). (Sec. 207(B), NIRC)

3. Advertisement of Sale Within twenty (20) days after the levy, the officer conducting the proceedings shall proceed to advertise for SALE the property or a portion as may be necessary to satisfy the claim and costs of sale. Such advertisement shall cover a period of at least thirty (30) days. The notice shall be posted at the main entrance of the city or municipal all AND in a public and conspicuous place in the barrio or district where the real property lies. The notice must also be published in a newspaper of general circulation in the place where the

property is located, once a week for three (3) weeks. CONTENTS of notice: statement of amount of taxes, and penalties due, time and place of sale, name of taxpayer, short description of property. (Sec. 213, NIRC)

4. Sale Right of pre-emption: The taxpayer may discontinue all the proceedings by paying the taxes, penalties and interest at any time before the day fixed for the sale. The sale shall be held either at the main entrance of the municipal or city hall or on the premises to be sold. Property will be awarded to the highest bidder. In case the proceeds of the sale exceed the claim and costs of sale, the excess shall be turned over to the owner of the property. (Sec. 213, NIRC)

A Certificate of Sale shall be delivered to the purchaser.

If the proceeds of the sale exceed the claim and cost of sale, the excess shall be turned over to the owner of the property.

5. Redemption of property (Sec. 214, NIRC) Period: Within 1 year from the date of sale. The one-year period for redemption begins from the registration of the deed of sale (Santos v. RFC). Who may redeem: The delinquent taxpayer or any one for him To whom made: To the Revenue District Officer How made: Upon payment of the taxes, penalties and interest thereon from the date of delinquency to the date of sale,

   

 

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together with interest on purchase price at 15% per annum from the date of sale to the date of redemption. The owner shall not, however, be deprived of the possession of said property and shall be entitled to the rents and other income thereof until the expiration of the time allowed for its redemption.

C. FORFEITURE IN FAVOR OF THE GOVERNMENT If there is no bidder for the real property or if the highest bid is not sufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale shall declare the property forfeited to the Government in satisfaction of the claim. (Sec. 215, NIRC) Resale of real estate taken for taxes The Commissioner shall have charge of any real estate obtained by the Government in payment of taxes, penalties or costs arising under this Code or in compromise or adjustment of any claim. The Commissioner may: 1. Sell and dispose of the same at a

public auction upon giving of not less than 20 days notice; or

2. Dispose of the same at a private sale with the approval of the Secretary of Finance (Sec. 216, NIRC).

Specific Instances Where Forfeiture is Imposed 1. Liquor or tobacco shipped under a

false name or brand (Sec. 262, NIRC);

2. All chattels, machinery, and removable fixtures of any sort used in the unlicensed production of articles (Sec. 268, NIRC);

3. Dies and other equipment used for the printing or making of any internal revenue stamp, label or tag which is in imitation of or purports to be a lawful stamp, label or tag. (Sec. 268, NIRC)

4. All tax-paid articles which are allowed to remain in a distillery, distillery warehouse, bonded warehouse or other place where made unless specially authorized (Sec. 268, NIRC);

5. Articles withdrawn from said place or from Customs custody or imported into the country without payment of the requisite tax (Sec. 268, NIRC).

Enforcement of the remedy of forfeitures 1. Forfeiture of personal property,

chattels and removable fixtures: Enforced by the seizure, sale or destruction of the specific forfeited property.

2. Forfeiture of real property: Enforced by a judgment of condemnation and sale in a legal action or proceeding civil or criminal as the case may require (Sec. 224, NIRC)

When property to be sold or destroyed 1. Forfeited chattels and removable

fixtures – sold in the same manner and under the same conditions as the public notice and the time and manner of sale as are prescribed for sales of personal property distrained for the non-payment of taxes;

2. Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco and all apparatus used in or about the illicit production of such articles – destroyed by the order of the Commissioner when the sale or

   

 

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use would be injurious to public health or prejudicial to the enforcement of the law;

3. All other articles subject to excise tax manufactured or removed in violation of the Code, dies for the printing or making of internal revenue stamps and labels – sold or destroyed in the discretion of the Commissioner;

4. Forfeited property shall not be destroyed until at least 20 days after seizure. (Sec. 225, NIRC)

Disposition of funds recovered in legal proceedings or obtained from forfeiture All judgments and monies recovered and received for taxes, costs, forfeitures, fines and penalties shall be paid to the Commissioner or his authorized deputies as the taxes themselves are required to be paid, and except as specially provided, shall be accounted for and dealt within the same way. (Sec. 226, NIRC) D. TAX LIEN A lien is understood to denote a legal claim or charge on property, either real or personal, as security for the payment of some debt or obligation. Its meaning is more extensive than the jus retentionis of the civil law. (Hongkong & Shanghai Banking Corporation v. Rafferty) Nature and Extent of Tax Lien When a taxpayer neglects or refuses to pay his internal revenue tax liability after demand (issuance of FAN), the amount so demanded shall be a lien in favor of the government from the time the assessment was made by the Commissioner until paid with interest, penalties and costs that may accrue in addition thereto upon all property and

rights to property belonging to the taxpayer (Sec. 219, NIRC). Paramount Lien or Superior Claim The claim of the government predicated on a tax lien is superior to the claim of a private litigant predicated on a judgment (Commissioner of Internal Revenue v. NLRC) Civil Law Concept of Lien and Tax Lien; Distinguished The general rule of the Civil Law: Possession of movables is not necessary to the validity of a lien, whether created by contract or by act of law. Such lien will attach upon movable property, even in the hands of a bona fide purchaser without notice. Law of Taxation: The tax lien does not establish itself upon property which has been transferred to an innocent purchaser prior to demand. A demand is necessary to create and bring the lien into operation. In order that the lien may follow the property into the hands of a third party, it is further essential that the latter should have notice, either actual or constructive. (Hongkong & Shanghai Banking Corporation v. Rafferty) When does the lien in favor of the Government arise: 1. With respect to personal property –

from the time the tax became due and payable (Commissioner of Internal Revenue v. NLRC); and

2. With respect to real property – from the time of registration with the Register of Deeds. (Sec. 219, NIRC)

Validity of a tax lien The lien shall be valid against any mortgagee purchaser or judgment creditor only when notice of such lien

   

 

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shall be filed by the CIR in the office of the Register of Deeds of the province or city where the property of the taxpayer is situated or located (Sec. 219, NIRC). E. COMPROMISE AND ABATEMENT; DISTINGUISHED Compromise involves a reduction of the taxpayer’s liability, while abatement of tax means that the entire tax liability of the taxpayer is cancelled. (ABAN, at 235) Authority of the Commissioner to Compromise the Payment of Taxes (Sec. 204 (A), NIRC) Grounds The Commissioner may compromise the payment of any internal revenue tax in the following cases: 1. A reasonable doubt as to the

validity of the claim against the taxpayer exists; or

2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

Limits of the Commissioner’s power to compromise 1. For cases of financial incapacity: a

minimum compromise rate equivalent to ten percent (10%) of the basic assessed tax;

2. 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 which shall be composed of the

Commissioner and four (4) Deputy Commissioners. Authority of the Commissioner to Abate Taxes (Sec. 204 (B), NIRC) Grounds 1. When the tax or any portion thereof

appears to be unjustly or excessively assessed; or

2. When the administration and collection costs involved do not justify the collection of the amount due.

F. PENALTIES AND FINES General Considerations 1. Incidents to the commission of a

tax offense – Any person convicted of a crime penalized under the Tax Code shall, in addition to being liable for the payment of the tax, be subject to the penalties imposed thereunder. Payment of the tax due after apprehension shall not constitute a valid defense in any prosecution for violation of any provision of the Tax Code, or in any action for the forfeiture of untaxed articles (Sec. 253(a), NIRC)

2. Criminal liability of accomplices – Any person who willfully aids or abets in the commission of a crime penalized under the Tax Code or who causes the commission of any such offense by another shall be liable I the same manner as the principal. (Sec. 253(b), NIRC)

3. Other incidents in the case of offenders who are aliens, public officers or employees, or CPAs - If the offender is not a citizen of the Philippines, he shall be deported immediately after serving the

   

 

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sentence without further proceedings for deportation. If he is a public officer or employee, the maximum penalty prescribed for the offense shall be imposed and , in addition, he shall be dismissed from the public service and perpetually disqualified from holding any public office, to vote and to participate in any election. If the offender is a CPA, his certificate as a CPA shall, upon conviction, be automatically revoked or cancelled. (Sec. 253(c), NIRC)

4. Offenses committed by associations, partnerships or corporations – In the case of associations, partnerships or corporations, the penalty shall be imposed on the partner, president, general manager, branch manager, treasurer, officer-in-charge and employees responsible for the violation. (Sec. 253(d), NIRC)

5. Penal liability of corporations and

other entities – Any corporation, association or general co-partnership liable for any of the acts or omissions penalized under the Tax Code, in addition to the penalties imposed therein upon the responsible corporation officers, partners or employees shall, upon conviction for each act or omission, be fined for not less than Fifty thousand pesos (P50,000) but not more than One hundred thousand pesos (P100,000).

JUDICIAL REMEDIES I. CIVIL ACTION

For tax remedy purposes, these are actions instituted by the government to COLLECT internal revenue taxes including the filing by the government

of claims against the deceased taxpayer with the probate court. Two ways to enforce civil liability through civil action: 1. By filing a civil case for

collection of a sum of money with proper regular court (NIRC, Secs. 203 & 222); or

2. By filing an answer to the petition for review filed by taxpayer with CTA (Fernandez Hermanos Inc. v. CIR).

Form and mode of proceeding: 1. Civil actions shall be brought in

the name of the Government of the Philippines;

2. It shall be conducted by legal officers of the BIR;

3. No civil or criminal action for the recovery of taxes shall be filed in court without the approval of the CIR. However, under Sec. 7 of the NIRC, the Commissioner may delegate such power to a Regional Director (Sec. 220, NIRC)

Jurisdiction: 1. Court of Tax Appeals – where

the principal amount of taxes and fees, exclusive of charges and penalties claimed is P1,000,000 and above.

2. Regional Trial Court, Municipal Trial Court, Metropolitan Trial Court – where the principal amount of taxes and fees, exclusive of charges and penalties claimed is less than P1,000,000.00 (Sec. 7, R.A. No. 9282).

II. CRIMINAL ACTION

Criminal action in violation of the NIRC also constitutes a collection method because the judgment in the criminal case shall not only impose

   

 

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the penalty but shall also order the payment of the taxes subject of the criminal case as finally decided by the CIR (Sec. 205, NIRC). Any person convicted of a crime penalized by the NIRC shall, in addition to being liable for the payment of the tax, be subject to the penalties imposed herein (Sec. 253(a), NIRC).

Form and mode of proceeding Same with civil action (Sec. 220,

NIRC) Jurisdiction: 1. Court of Tax Appeals – on

criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC where the principal amount of taxes and fees exclusive of charges and penalties claimed isP1,000,000 and above.

2. Regional Trial Court, Municipal Trial Court, Metropolitan Trial Court – on criminal offenses arising from violations of the NIRC or TCC and other laws administered by the BIR and the BOC, where the principal amount of taxes and fees, exclusive of charges and penalties claimed is less than P1,000,000 OR where there is no specified amount claimed (Sec. 7, R.A. No. 9282).

Important principles on criminal actions 1. Effect of acquittal of the

taxpayer in a criminal action It does NOT necessarily result in the exoneration of said taxpayer from his civil liability to pay taxes. Rationale: The duty to pay tax is imposed by statute prior to and

independent of any attempt on the part of the tax payer to evade payment. It is neither a mere consequence of the felonious acts charged nor is it a mere civil liability derived from a crime (Republic v. Patanao). The civil liability to pay taxes arises not because of felony but upon taxpayer’s failure to pay taxes. Criminal liability in taxation arises as a result of one’s liability to pay taxes.

2. Effect of subsequent

satisfaction of civil liability The subsequent satisfaction of civil liability by payment or prescription DOES NOT extinguish the taxpayer’s criminal liability (People v. Tierra).

3. No subsidiary imprisonment In case of insolvency on the part of the taxpayer, subsidiary imprisonment CANNOT be imposed as regards the tax which he is sentenced to pay. However, it may be imposed in cases of failure to pay the fine imposed (Sec. 280, NIRC).

4. Criminal action may be filed

despite the lapse of the period to file a civil action for collection of taxes. When the civil action arising from tax delinquency has prescribed, the BIR has only 5 years from assessment within which to collect the tax through criminal action in which case, would prescribe after lapse of 5 years from discovery of crime AND institution of proceedings (Sec. 281, NIRC).

   

 

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5. Assessment is not a prerequisite in the filing of a criminal action. Rule: What is involved here is not the collection of taxes where the assessment of the CIR may be reviewed by the CTA, but a criminal prosecution for violations of the NIRC which is within the cognizance of the MTC/RTC. While there can be no civil action to enforce collection before the assessment procedures provided in the Code have been followed, there is no requirement for the precise computation and assessment of the tax before there can be a criminal prosecution under the Code (Ungab v. Cusi).

6. Filing of a criminal action is not an implied assessment by the CIR An affidavit, which was executed by revenue officers stating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment. (CIR v. PASCOR Realty and Development Corporation)

The recommendation letter of the Commissioner (addressed to the DOJ for the filing of a criminal complaint against the taxpayer) cannot be considered a formal assessment. It merely as the prima facie basis for filing criminal information that the taxpayers had violated (penal provisions) of the Tax Code (Adamson, v. CA).

STATUTE OF LIMITATIONS ASSESSMENT Generally: Ordinary or normal assessment

1. Within 3 years after the last day prescribed by law for the filing of the return; or

2. From the date of actual filing of the return, whichever comes later. (Sec. 203, NIRC)

Note: The period applicable when the law does not require the filing of any return, and the tax is such that its amount cannot be ascertained without the data is pertinent thereto, the Commissioner may, by appropriate regulations, require the filing of the necessary returns. (Bisaya Land Transportation Co. Inc. v. CIR) Exceptions: 1. Extraordinary or abnormal

assessment In case of false or fraudulent return with intent to evade tax or failure to file a return – within 10 years after the discovery of the falsity, fraud or omission (Sec. 222(a), NIRC); False Return and Fraudulent Return The difference between a “false” return and a “fraudulent” return is that a false return merely implies a deviation from the truth or fact whether intentional or not, whereas a fraudulent return is intentional and deceitful with the aim of evading the correct tax due (Aznar v. Commissioner). Note: It is to the interest of the taxpayer to file said returns even without [the appropriate regulations] if he wishes to avail himself of the benefits of the three-year prescriptive period. If this notwithstanding, he does not file a return at all, then an assessment may be made within the ten-year prescriptive period. (Bisaya Land Transportation Co. Inc. v. CIR)

   

 

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2. Waiver of the Statute of

Limitations In case of a valid waiver – up to the extended period agreed upon (Sec. 222(b), NIRC).

Note: The prescriptive period for making assessment shall also apply when the Government makes an erroneous refund of internal revenue taxes. (ABAN, supra at 286) Construction of statutory provision on prescription The law of prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficient purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law (Republic v. Ablaza). Burden of proof that a return was filed to apply the 3-year period It is incumbent on the taxpayer to prove that a return had been filed by him in order that the 3-year prescriptive period may apply (Republic v. Marsman Dev’t.) because the prescription of the Government’s right to assess taxes is an affirmative defense (Taligaman Lumber v. CIR). Requisites in order that a return may be considered filed for purposes of starting the running of the prescriptive period: 1. The return must be valid – it

must comply substantially with the requirements of the law; and

2. The return must be appropriate – it is a return for the particular tax required by law. Thus, an income tax return cannot be considered as the equivalent of the VAT or percentage

tax return (Butuan Sawmill, Inc. v. CTA).

Effect of amendment of tax return Rule: The following shall govern in case there is an amendment of the return: 1. If the amendment is substantial, the

counting of the prescriptive period shall be reckoned on the date the substantial amendment was made.

2. If the amendment was superficial, the counting of the prescriptive period is still the original period (CIR v. Phoenix Assurance).

Rationale: To prevent taxpayers from evading the payment of taxes by simply reporting in their original return heavy losses and amending the same more years later when the CIR has lost his authority to assess the proper tax thereunder. The object of the NIRC is to impose taxes for the needs of the Government and not to enhance tax avoidance to its prejudice (CIR v. Phoenix Assurance, supra).

Exception: If the return is sufficiently complete to enable the CIR to intelligently determine the proper amount of tax to be assessed, then the prescriptive period for assessment starts from the filing of the original return (A.L. Ammen Trasnportation v. Collector). Tax Returns Warranting Application of Ten-Year Prescriptive Period A. False Return Example of a falsity warranting the 10-year prescriptive period to apply is a substantial under-remittance of withholding tax on compensation (Samar-I Electric Cooperative, Inc. v. CIR)

   

 

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B. Fraudulent return For the 10-year prescriptive period to apply based on fraud, such must first be proved as a fact by the BIR. Such fact in a fraud assessment which has already become final and executory shall be judicially taken cognizance of in a civil or criminal action for the collection thereof (Sec. 222(a), NIRC). The following instances negate the existence of fraud and preclude the application of the 10-year prescriptive period: 1. The CIR failed to impute fraud

in the assessment notice or demand for payment;

2. The CIR failed to allege fraud in his answer to the taxpayer’s petition for review when the case is appealed to the CTA (ABAN, supra at pp. 274-275);

3. Mere understatement of gross earnings does not of itself prove fraud (Yutivo Sons v. CTA).

C. Failure to file a return The following constitutes failure to file to warrant the 10-year prescriptive period: 1. A deficient return which prevented

the CIR from computing taxes dues. Such defective return is the same as if no return is filed at all (CIR v. Gonzales); and

2. Failure to report income in the returns which were clearly not exempted from tax. The Court did not treat this as a simple omission as the same involved substantial sums (Standard Chartered Bank v. CIR).

COLLECTION The following rules shall govern for the prescriptive period of collection of taxes: 1. Collection under a normal or

ordinary assessment (one with the 3-year period to assess) –

Two (2) views: First view: 5 years from the time the assessment was made. Under the old Tax Code, the prescriptive period for collection under both normal and abnormal assessment is 3 years. Under the new Tax Code, the prescriptive period for collection under abnormal assessment is 5 years, hence it can be concluded that the prescriptive period under normal assessment is also 5 years. (SABABAN, Taxation Law Review (2008), p.182)

Second view: 3 years from the time the assessment was made. The 5-year period refers to an instance where there is an assessment issued on the basis of false or fraudulent return or the absence of a return (Sec. 222(c), NIRC in relation to Sec. 222(a), NIRC) or in the instance of an extended assessment under Sec. 222(d) of the NIRC. The interpretation should be in favor of the taxpayer, providing for a shorter period of 3 years from the issuance of an assessment, because the 5-year period places a “law-abiding” taxpayer in the same category as one who is not “law-abiding,” i.e., who files a false or fraudulent return, or one who does not file a tax return, etc. (DOMONDON, Bar Reviewer in Taxation, Vol. I (2008), pp.414-415).

   

 

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2. Collection under an abnormal

or extraordinary assessment (one with the 10-year period to assess) – 5 years from the time the assessment was made (Sec. 222(c), NIRC)

3. Collection without

assessment through judicial action – 10 years after discovery of the falsity, fraud or omission to file a return

Note: The aforementioned rules shall likewise be applied for filing claims against the estate for the unpaid taxes (Vera v. Fernandez) BUT shall not be applicable on the following: 1. Where the Government’s action

is on a bond which the taxpayer executes in order to secure the payment of his obligation, the applicable period is 10 years under Art. 1144(1) of the Civil Code (ABAN, supra at 282).

2. When the Government proceeds by court action to forfeit a bond, the action for the enforcement of a contractual obligation shall prescribe in 10 years (Republic v. Arcache).

Grounds for suspension of the running of the Statute of Limitations: (Sec. 223, NIRC) 1. When the CIR is Prohibited

from making the assessment or beginning the distraint or levy or a proceeding in court, AND for sixty 60 days thereafter;

Illustration: When a case is on appeal to the CTA, the CIR is prevented from filing an ordinary action to collect the tax in the regular courts; for if this were not so, collection in the regular courts would run counter to the judicial policy of

avoiding multiplicity of suits and the rule of lis pendens (Republic v. Ker & Co.).

This may happen when there is a pending petition for review in the CTA from the decision on the protested assessment, the filing of such petition interrupts the running of the prescriptive period for collection. The interruption is from the time the appeal is filed in the CTA until its termination in the Supreme Court should there be an appeal to a higher court (Republic v. Ker & Co., Ltd., supra). This also happens when the CTA suspends the collection of the tax liability of the taxpayer (ABAN, supra at 288). If the collection is made judicially, then the prescription period is suspended but if the collection is made by levy or distraint, then it is not suspended, hence the Government can run after the taxpayer’s property even if the case is appealed to the CTA.

2. When the taxpayer requests for

a reinvestigation which is granted by the CIR;

Requisites: 1. There must be request for

reinvestigation and not a request for reconsideration (see discussion of forms of protest under Remedies of the Taxpayer) (CIR v. Philippine Global Communications); and

2. The request for reinvestigation must be granted or acted upon by the CIR (BPI v. CIR, citing CIR v. Suyoc Consolidated Mining Company, 104 Phil. 819, 1958; Bravo Alabang, Inc. v. CIR).

   

 

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Note: The burden of proof that the request for reinvestigation had been actually granted shall be on the CIR. Such grant may be expressed in its communications with the taxpayer or implied from the action of the CIR or his authorized representative in response to the request for reinvestigation (BPI v. CIR, supra).

3. When the taxpayer cannot be located in the address given by him in the return, UNLESS he informs the CIR of any change in his address;

4. When the warrant of distraint or levy is duly served, AND NO property is located; and

5. When the taxpayer is out of the Philippines.

CRIMINAL CASES All violations of any provision of this Code shall prescribe after 5 years (Sec. 281, NIRC). When does it begin to run 1. From the day of the commission

of the violation of the law (Sec. 281, NIRC); or The 5-year prescriptive period for violation of any provision of the Tax Code should be reckoned from the date of the final notice and demand for payment of the deficiency taxes that the cause of action on the part of the BIR accrued. This is because prior to the receipt of the letter-assessment, no violation has yet been committed by the taxpayers (DIZON, Q&A in Taxation citing Lim, Sr. v. Court of Appeals).

2. If the same be not known at the time, from the discovery thereof AND the institution of judicial proceedings for its investigation and punishment (Sec. 281, NIRC).

Necessity of judicial proceeding The Supreme Court held that in case of falsity or fraud with intent to evade the tax, the right of the government to collect through criminal action is imprescriptible because the said remedy of collection through criminal action is only deemed instituted from discovery thereof and the institution of judicial proceedings for its investigation and punishment (Lim v. CA)

Interruption of prescriptive period The period shall be interrupted: 1. When proceedings are

instituted against the guilty persons; or

2. When the offender is absent from the Philippines (Sec. 281, NIRC)

Note: In No. 1, the period shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy (Sec. 281, NIRC). REMEDIES OF THE TAXPAYER PROTEST I. Protesting the Assessment

After the FLD/FAN was made, the taxpayer may question the validity of the imposition of the deficiency taxes as shown in the notice of assessment within 30 days from receipt thereof.

Forms of protest 1. Request for reconsideration –

a plea for a reevaluation of an assessment on the basis of existing records without need of additional evidence which may involve a question of fact or law or both

2. Request for reinvestigation – a plea for the re-evaluation of an

   

 

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assessment on the basis of the newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation which may also involve a question of law or fact or both (RR No. 18-2013, Sec. 3.1.4)

Requisites of a valid protest: 1. Must be in writing (RR No. 18-

2013, Sec. 3.1.4); 2. Must be addressed to the CIR

or his duly authorized representative (RR No. 18-2013, Sec. 3.1.4);

3. Must be submitted within thirty (30) days from receipt of FLD/FAN (RR No. 18-2013, Sec. 3.1.4);

4. Must be filed by the taxpayer or his duly authorized representative, in person or through registered mail with return card, with the Office of the duly authorized representative of the CIR (Regional Director, ACIR-LTS, ACIR-Enforcement Service) who signed the FLD/FAN (RMC No. 11-2014, RMC No. 39-2013);

Note: The revenue officials who received the protests shall submit a report on all protests filed to the CIR. The Office of the CIR shall then create a database of these. If the protest filed is not included in the database, the same shall be considered as NOT officially filed, hence, without force and effect (RMC No. 39-2013).

5. Must Contain the following:

a. Name of the taxpayer and address for the immediate past 3 taxable years;

b. Nature of request whether reinvestigation or reconsideration specifying newly discovered evidence he intends to present if it is a request for reinvestigation;

c. Taxable periods covered; d. Assessment number; e. Date of receipt of assessment

notice or letter of demand; f. 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;

g. Itemized schedule of the adjustments with which the taxpayer does not agree; and

h. Statement of the facts and law in support of the protest

Pro-forma protest A pro-forma protest is not valid. The alleged “protest letter” basically informing CIR that it had already written or answered the PAN and that it explained its position to the tax assessment is neither a request for reinvestigation nor a request for reconsideration. It must be emphasized that a protest to the PAN is not the same as the protest required in reply to the FAN (Security Bank Corporation v. CIR).

Effect of failure to file a valid

protest The assessment shall become final, executory and demandable and no request for reconsideration or reinvestigation shall be granted (RR No. 18-2013, Sec. 3.1.4). Payment in protest 1. If there are several issues

involved in the FLD/FAN but the taxpayer only protests against the validity of some of the issues raised, the assessment attributable to the undisputed issues shall become final, executory and demandable. The taxpayer shall be required to pay the deficiency taxes

   

 

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attributable thereto (RR No. 18-2013, Sec. 3.1.4).

Note: Previously under RR No. 12-99, no action shall be taken on the disputed issues unless there is a payment of deficiency taxes attributable to the undisputed ones. However, this has already been deleted under the current rules and regulations for protesting assessment under RR No. 18-2013.

2. If there are several issues

involved in the disputed assessment and the taxpayer fails to state the facts and the law in support of the protest against some of the several issues on which the assessment is based, the same shall be considered undisputed issues, in which case the assessment shall become final, executory and demandable. The taxpayer shall be required to pay the deficiency taxes attributable thereto (RR No. 18-2013, Sec. 3.1.4).

II. Submission of documents after

protest Within 60 days from date of filing of request for reinvestigation only, the taxpayer shall submit all relevant supporting documents. This does not apply to request for reconsideration (RR N. 18-2013, Sec. 3.1.4).

Relevant supporting documents Those documents necessary to support the legal and factual bases in disputing a tax assessment as determined by the taxpayer (RR No. 18-2013, Sec. 3.1.4)

Rationale: Taxpayer would be placed at the mercy of the BIR which may require production of documents

which taxpayer could not produce (Standard Chartered Bank v. CIR).

Effect of failure to submit

documents Non-submission of the documents renders the assessment final (RR No. 18-2013, Sec. 3.1.4).

The phrase “the assessment shall become final” means the FLD/FAN shall become “final” by operation of law. The taxpayer shall be barred from disputing the correctness of the issued assessment by introduction of newly discovered or additional evidence because it is deemed to have lost its jurisdiction to present these evidence. The BIR shall then deny the request for reinvestigation through the issuance of an FDDA (RMC No. 11-2014).

Note: It will not render the assessment executory and demandable because the taxpayer can still avail of his remedies after the issuance of the FDDA (Please see later discussion below regarding FDDA and remedies of the taxpayer).

III. Administrative action on the

disputed assessment Disputed assessment – happens when a valid protest against FLD/FAN was submitted After the taxpayer submitted a protest and the relevant supporting documents, as the case may be, the CIR or his duly authorized representative may exercise the following: 1. Direct grant or denial of protest

– render a decision through FDDA granting or denying the protest within the prescribed period to act

   

 

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upon it (RR No. 18-2013, Sec. 3.1.5);

2. Indirect denial of protest – deny the protest in another way without rendering a decision through FDDA; or

3. Inaction – not act upon it within the prescribed period (RR No. 18-2013, Sec. 3.1.4).

Period to act upon the protest The CIR or his duly authorized representative has the following periods to act upon the protest or administrative appeal, as the case may be: 1. By CIR – in case of protest,

within 180 days from filing of protest (regardless of the form of protest); in case of administrative appeal, within 180 days from filing of the administrative appeal Administrative appeal – request for reconsideration filed with the CIR to elevate the denial of protest made by his duly authorized representative

2. By duly authorized

representative a. Request for reinvestigation –

within 180 days from submission of the relevant documents

b. Request for reconsideration – within 180 days from filing of protest (RR No. 18-2013, Sec. 3.1.4)

Failure to act upon the protest or administrative appeal within the abovementioned 180-day period constitutes inaction. However, the CIR or his duly authorized representative may render at a later period a decision through FDDA, subject to the Statute of Limitations on collection (RR No. 18-2013, Sec. 3.1.4).

Direct grant or denial of protest Final Decision on Disputed Assessment (FDDA) It is the administrative decision on the disputed assessment.

Requisites of a valid FDDA: 1. Must be issued by the CIR or

his duly authorized representative. The duly authorized representatives refer to the same persons who are authorized to issue PAN and FLD/FAN (RR No. 18-2013, Sec. 3.1.5; RMC No. 11-2014);

2. Must be served to the taxpayer personally and if not practicable, by substituted service or by mail (RR No. 18-2013, Sec. 3.1.6);

3. Must be in writing and contain the facts and the law on which the assessment is made (RR No. 18-2013, Sec. 3.1.5); and

4. Must state that the same is his final decision (RR No. 18-2013, Sec. 3.1.5).

Rationale: To avoid any confusion that could adversely affect the rights and interest of the taxpayer (Allied Banking Corp. v. CIR). What constitutes final decision denying the protest (Tenor of Finality Rule) If the tenor of the letter shows the firm stand of the BIR against the reconsideration of the disputed assessment, the letter should be considered the final decision of the BIR on the taxpayer’s administrative protest or the FDDA (Cagayan Corn Products Corporation v. CIR).

That final decision is the letter of denial where the CIR not only demanded payment of the amount

   

 

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assessed but wherein he also gave the warning that in the event the taxpayer failed to pay the same, he would be constrained to enforce the collection thereof by means of the remedies prescribed by law (Reyes v. CIR). Example: “Final Notice Before Seizure”. The very title expressly indicated that it was final notice prior to seizure of property. The letter itself clearly stated that the taxpayer was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected to distraint and levy (CIR v. Isabela Cultural Corp.).

Indirect denial of protest (without FDDA) Without rendering an FDDA on the merits of the protest, the CIR or his duly authorized representative nevertheless executed administrative actions which the Court considered as denial thereof

IV. Remedies of the taxpayer in case

of denial of protest or administrative appeal or in case of inaction

Direct denial of protest through FDDA 1. FDDA by CIR – either:

a. File a motion for reconsideration with the CIR (RR No. 18-2013, Sec. 3.1.4, Fishweath Canning Corp. v. CIR, G.R. No. 179343, January 21, 2010); or

b. Appeal to the CTA within 30 days from receipt of FDDA (RR No. 18-2013, Sec. 3.1.4).

BUT: The motion for reconsideration of the decision with the CIR will NOT toll the 30-day

period to appeal to the CTA (RR No. 18-2013, Sec. 3.1.4).

Effect of failure to appeal to the CTA within the 30-day period: The assessment shall become final, executory and demandable (RR No. 18-2013, Sec. 3.1.4).

2. FDDA by duly authorized representative – either: a. File administrative appeal to the

CIR within 30 days from receipt of the FDDA through request for reconsideration (RR No. 18-2013 Sec. 3.1.4); or

Note: No request for reinvestigations shall be allowed in administrative appeal and only issues raised in the decision of the CIR’s duly authorized representative shall be entertained by the CIR (RR No. 18-2013 Sec. 3.1.4).

b. Appeal to the CTA within 30 days from receipt of FDDA (RR No. 18-2013 Sec. 3.1.4).

Effect of filing the administrative appeal: The administrative appeal filed with the CIR will toll the 30-day period and the denial of the administrative appeal or the inaction of the CIR is the one appealable to the CTA (CIR v. International Pharmaceuticals, Inc.).

Effect of failure to file the administrative appeal or appeal to the CTA within the 30-day period: The assessment shall become final, executory and demandable.

Direct denial of administrative appeal through FDDA

   

 

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In case the administrative appeal is denied, the taxpayer may either: 1. File a motion for reconsideration

of the administrative appeal with the CIR; or

2. Appeal to the CTA within 30 days from receipt of the decision (RR No. 18-2013, Sec. 3.1.4)

BUT: The motion for reconsideration of the decision with the CIR will NOT toll the 30-day period to appeal to the CTA (RR No. 18-2013, Sec. 3.1.4). Effect of failure to appeal to the CTA within the 30-day period: The assessment shall become final, executory and demandable (RR No. 18-2013, Sec. 3.1.4).

Indirect forms of denial of protest or administrative appeal (without FDDA) The remedies available to the taxpayer in case of direct denial of protest or administrative appeal by the CIR or his duly authorized representative through FDDA are applicable to indirect forms of denial.

Inaction by CIR or duly authorized representative 1. Inaction by the CIR – either

a. Appeal to the CTA within 30 days from the expiration of the 180-day period; or

b. Await the final decision of the CIR on the disputed assessment, and then appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision (RR 18-2013, Sec. 3.1.4).

2. Inaction by duly authorized

representative – either: a. Appeal to the CTA within 30

days after the expiration of the 180-day period; or

b. Await the final decision of the duly authorized representative on the disputed assessment (RR 18-2013, Sec. 3.1.4). .

The options are mutually exclusive and resort to one bars the application of the other (RR No. 18-2013, Sec. 3.1.4; Rizal Commercial Banking Corp. v. CIR, G.R. No. 168498, April 24, 2007; Lascona Land Co. v. CIR, G.R. No. 171251, March 5, 2012).

Effect of failure to appeal the inaction to the CTA within 30-day period: It will not result in the finality of the FLD/FAN, as the taxpayer can wait for the decision (Rizal Commercial Banking Corp., supra).

JUDICIAL REMEDIES

A. Judicial appeal B. By way of special civil action C. Action to contest forfeiture of

chattel D. Action for damages E. Injunction

A. Judicial appeal

1. Appeal to the CTA (Division) – within 30 days from receipt of decision on the denial of protest or administrative appeal or from the lapse of 180 days due to inaction of the CIR or his duly authorized representative, as discussed in the immediately preceding topic (Procedure No. IV under Protest)

Administrative decisions of the CIR or his duly authorized representative in tax assessment cases appealable to CTA (Division) Rule: Such Court can take cognizance of decisions in cases involving only disputed assessments (FDDA) (R.A. No.

   

 

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1125, Sec. 7) and which are prejudicial to the taxpayer (Sec. 228, NIRC).

To reiterate, there is disputed assessment when there is a valid protest against FLD/FAN. Hence, unless there is a valid protest to FLD/FAN, the taxpayer cannot elevate the case to said Court. This is in consonance with the rule on exhaustion of administrative remedies.

Exception: When the government is estopped, by issuing a FLD/FAN, partly read as follows: “It is requested that the above deficiency tax be paid immediately . . . This is our final decision based on investigation. If you disagree, you may appeal the final decision within thirty (30) days from receipt hereof, otherwise said deficiency tax assessment shall become final, executory and demandable.”

The taxpayer, taking a cue from the tenor of the letter, filed a petition for review with the CTA instead of filing a protest against FLD/FAN.

The SC held, however, that the petition was not premature and held the jurisdiction of the CTA over the matter. It appeared from the demand letter that the CIR has already made a final decision on the matter and the remedy of the taxpayer is to appeal the final decision.

Moreover, the SC cannot ignore the fact that in the FLD/FAN, the BIR used the word “appeal”

instead of “protest”, “reinvestigation” or “reconsideration”. Although there was no direct reference for the taxpayer to bring the matter directly to the CTA, it cannot be denied that the word “appeal” under prevailing tax laws refers to the filing of a petition for review with the CTA and the terms “protest”, “reinvestigation” and “reconsideration” refer to the administrative remedies of the taxpayer (Allied Banking Corp. v. CIR, supra). Administrative actions of the CIR or his duly authorized representative in tax assessment cases appealable to CTA (Division) In sum, they are the following: 1. Direct denial of protest or

administrative appeal through FDDA;

2. Indirect denial of protest or administrative appeal;

3. Inaction by the CIR or his duly authorized representative; and

4. Decision on undisputed assessment, as previously discussed.

To emphasize, indirect denial of protest or administrative appeal is different from a decision on undisputed assessment in that the former, there was a valid protest filed, while the in the latter, there was no such protest, hence, undisputed.

2. Appeal to the CTA en banc –

the party adversely affected by the CTA Division’s decision may file one motion for reconsideration/new trial within 15 days from receipt of the decision with the CTA Division. If the MR is

   

 

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denied, file a petition for review with the CTA en banc.

3. Appeal to the Supreme Court

– within 15 days from the receipt of the decision of the CTA en banc (Please refer to CTA jurisdiction for further discussion)

B. By way of special civil action –

Petition for certiorari, prohibition and mandamus to the Supreme Court in cases of grave abuse of discretion, lack of jurisdiction or excess of jurisdiction.

C. Action to contest forfeiture of chattel, at any time before the sale or destruction thereof, to recover the same, and upon giving proper bond, enjoin the sale; or after the sale and within 6 months, an action to recover the net proceeds realized at the sale (Sec. 231, NIRC)

D. Action for damages against a revenue officer by reason of any act done in the performance of official duty (Sec. 227, NIRC)

E. Injunction – to be issued by the CTA if collection may jeopardize the interest of the government and/or the taxpayer (R.A. No. 1125 as amended by R.A. No. 9282).

COMPROMISE A contract whereby the parties, by making reciprocal concessions, avoid litigation or put an end to one already commenced. (CIVIL CODE, Art. 2028) In case of tax assessment, it is a contract between the government and the taxpayer to settle the liability. Note: Compromise discussed herein is different from compromise penalty.

Compromise Compromise penalty

Nature Amount of money paid by the taxpayer to settle his deficiency taxes

Amount paid by the taxpayer to compromise a tax violation and paid in lieu of criminal prosecution

Amount

Fixed percentage rate depending on the ground for compromise which is computed based on the basic assessed tax

Fixed amount or based on a graduated table depending usually on the gross annual sales, earnings or receipts of the taxpayer (RMO No. 19-2007)

Remedy in case of non-payment by the taxpayer 1. Enforce the

compromise; or

2. Treat it as rescinded and insist upon the original demand (CIVIL CODE, Art. 2041).

Institute a criminal action (RMO No. 19-2007, III(5))

Approving authority in compromise of taxes: 1. Commissioner – general power of

compromise of tax liability 2. National Evaluation Board (NEB) –

the basic tax involved exceeds P1M or the settlement offered is less than the prescribed minimum rates

   

 

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3. Regional Evaluation Board (REB) – offers of compromise of assessments issued by the Regional Offices involving basic deficiency taxes of P500,000 or less or minor criminal violations discovered by the Regional and District Offices (Sec. 204(A) & 7(c), NIRC)

Grounds 1. Doubtful validity – reasonable

doubt as to the validity of claim against the taxpayer exists; and

2. Financial incapacity – when the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax (Sec. 204(A), NIRC).

Cases that may be compromised 1. Delinquent accounts; 2. Cases under administrative

protest after issuance of the FAN; 3. Civil tax cases being disputed

before the courts; 4. Collection cases filed in courts;

and 5. Criminal violations except those

already filed in court or those involving criminal tax fraud (RR No. 30-2002, Sec. 2)

Cases that are not subject to compromise 1. Withholding tax cases, unless

the applicant taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold;

2. Criminal tax fraud cases confirmed as such by the CIR or his duly authorized representative;

3. Criminal violations already filed in court;

4. Delinquent accounts with duly approved schedule of installment payments;

5. Cases where final reports of reinvestigation or reconsideration have been issued resulting to

reduction in the original assessment and the taxpayer is agreeable by signing the agreement form;

6. Cases which become final and executory after final judgment of a court, where compromise is requested on the ground of doubtful validity of the assessment; and

7. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer (RR No. 30-2002, Sec. 2).

ABATEMENT Cancellation of the entire tax liability of the taxpayer (NIRC, Sec. 204(B))

Who has the authority to abate The CIR has the sole authority to abate or cancel: 1. Surcharge; 2. Interest; and 3. Compromise penalties (RR No.

13-2001, Sec. 4) Grounds: 1. The tax or any portion thereof

appears to be unjustly or excessively assessed; or

2. The administration and collection costs involved do not justify the collection of the amount due.

Compromise Abatement Nature

Involves a reduction of the taxpayer’s liability.

Involves the cancellation of the entire tax liability of a taxpayer.

Officer/s authorized to compromise/abate CIR, NEB and REB CIR

Grounds 1. Reasonable 1. The tax or

   

 

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Compromise Abatement doubt as to validity of assessment; or

2. Financial incapacity of taxpayer

any portion thereof appears to be unjustly or excessively assessed; or 2. The administration and collection costs involved do not justify the collection of the amount due

REMEDIES AFTER PAYMENT 1. Tax refund – actual

reimbursement of the tax. A “refund” is a written claim for the payment of cash for taxes erroneously or illegally paid by the taxpayer to the government.

2. Tax credit – the government issues a tax credit certificate (TCC) or a tax credit memo covering the amount determined to be reimbursable after proper verification and the same may be applied against any sum that may be due and collectible from the taxpayer

All TCCs issued by the BIR shall not be allowed to be transferred or assigned to any person (RR No. 14-2011, Sec. 2)

Tax Refund Tax Credit Formality

The taxpayer asks for restitution of the money paid as tax.

The taxpayer asks that the money so paid be applied to his existing tax liability.

Practical consideration

The taxpayer to whom the tax is refunded would have the option, among others, to invest for profit the returned sum.

An option not proximately available if the taxpayer chooses instead to receive a tax credit.

Period of collectability

2-year period to file claim with the CIR starts after the payment of the tax or penalty.

2-year period starts from the date such credit was allowed (in case credit is wrongfully made).

Grounds for filing a claim for tax refund or tax credit: (EPS) 1. Tax is erroneously or illegally

assessed or collected; 2. Penalty is collected without

authority; 3. Sum collected is excessive or in

any manner wrongfully collected (Sec. 229, NIRC)

Requisites of tax refund or credit: 1. There must be a legal ground or

basis for tax refund or tax credit (Sec. 229, NIRC).

2. There must be a written claim for refund or credit filed by the taxpayer with CIR (Sec. 229, NIRC; Vda. de Aguinaldo v. CIR). Exceptions: a. A return filed showing an

overpayment shall be considered as a written claim for credit or refund (Sec.204(C), NIRC);

b. The CIR may, even without the written claim therefor, refund or credit any tax where on the face of the return upon which the payment was made, such payment appears clearly to have been erroneously paid (Sec.229, NIRC).

   

 

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3. The claim for refund must be a categorical demand for reimbursement (Bermejo v. Collector of Internal Revenue).

4. The claim for refund with the CIR and the 30-day period to appeal to the CTA (R.A. No. 1125, Sec. 2) must be filed within 2 years from the date of payment of the tax or penalty. Rule: The administrative claim must be filed within the said 2-year period, regardless of any supervening cause (Sec. 229, NIRC).

If the CIR takes time in deciding the claim, and the period of 2 years is about to end, the suit or proceeding for a refund must be started in the CTA before the end of the 2-year period even without the decision of the CIR (Gibbs v. CIR). Exception: The 2-year prescriptive period may be suspended when: a. There is a pending litigation

between the Government and the taxpayer; and

b. The CIR in that litigated case agreed to abide by the decision of the SC as to the collection of taxes relative thereto (Panay Electric Co. v. Collector).

Note: A claim for refund or credit for excess input VAT is governed by another provision wherein the appeal to the CTA need not be made within the 2-year prescriptive period (Sec. 112(C), NIRC).

5. Prior payment of the tax must

be proven. There must be actual collection and receipt by the government of the tax sought to be recovered and this requires factual proof (Collector of Internal Revenue v. Li Yao).

Submission of documents in support for the tax refund or credit The submission of complete supporting documents is necessary to support a claim for refund or for issuance of tax credit. However, failure to submit documents in support of a taxpayer’s claim for refund at the administrative level DOES NOT prevent the CTA from entertaining the appeal. Non-submission of documents in the administrative level is NOT FATAL to a judicial claim for refund. The cases filed before the CTA are litigated de novo and party litigants should prove every minute aspect of their cases (CIR v. Philippine Bank of Communications, CTA EB No. 933 re: CTA Case No. 7915, October 7, 2013). Interest on tax refunds Rule: Government cannot be required to pay interest on taxes refunded to the taxpayer in the absence of a statutory provision clearly or expressly directing or authorizing such payment (CIR v. Sweeney).

Exceptions: 1. When the CIR acted with patent

arbitrariness. Arbitrariness presupposes inexcusable or obstinate disregard of legal provisions (Commissioner v. Victorias Milling).

2. Refunds and credits of income taxes withheld on the wages of the employees (Sec. 72(C), NIRC).

Forfeiture of tax refund/tax credit 1. Forfeiture of refund – a refund

check or warrant which remains unclaimed or uncashed within 5 years from date of mailing or delivery shall be forfeited in favor of the government and the amount thereof shall revert to the general fund.

   

 

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2. Forfeiture of tax credit – a TCC which remains unutilized after 5 years from date of issue, shall unless revalidated, be invalid and shall not be allowed as payment for internal revenue taxes and the amount covered by the certificate shall revert to the general fund (Sec. 230, NIRC).

Note: Unutilized TCCs may be converted into cash refund during the validity period of the TCC (RR No. 05-2000).

Other considerations 1. Payment under protest not

required – any suit or proceeding for refund or credit may be maintained whether or not such tax, penalty, or sum has been paid under protest or duress (Sec. 229, NIRC).

2. The remedy of tax refund cannot be availed of to revive the right to contest the validity of an assessment once the same has been lost not only by failure to appeal but by the lapse of the reglementary period within which appeal could have been taken (CIR v. Concepcion).

3. A withholding agent has a legal right to file a claim for refund for the following reasons: • He is considered a “taxpayer”

as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law; and

• As an agent of the taxpayer, his authority to file the necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to file a claim for

refund and to bring an action for recovery of such claim (CIR v. Smart Communication, Inc.).

Note: While the withholding agent has the right to recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the same to the principal taxpayer.

Tax refund or tax credit or carry-over of excess income tax payments In case of excess income tax payments, the corporation is given another option aside from tax credit or refund. Such excess payments may be carried-over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years (Sec.76, NIRC). The options are mutually exclusive. Once the option to carry-over the excess payments was made, such shall be considered irrevocable for that taxable period and no application for refund or issuance of a tax credit certificate shall be allowed (Sec. 76, NIRC). It should be emphasized that the irrevocability rule applies only to the option of carry-over (Stablewoods Philippines, Inc. v. CIR). “For that taxable period” refers to the excess income tax, subject of the option, by referring to the taxable period when it was acquired by the taxpayer (United International Pictures AB v. CIR).

   

 

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CLASS RECITATION WITH SUGGESTED ANSWERS

Q: What is a distraint proceeding? A: A distraint proceeding is one of the remedies of the Government in enforcing the collection of delinquent taxes. It is enforced on the goods, chattels, and other personal property or effects of whatever character of the taxpayer. Debts, credits, bank accounts and interests and rights can be covered by distraint proceedings. Q: What is distraint under the Tax Code? Explain the process. A: Under Section 205 (a) of the NIRC, “the civil remedies for the collection of internal revenue taxes, fees, or charges, and any increment thereto resulting from delinquency shall be: a) By distraint of goods, chattels, effects, and other personal property of whatever character, including stocks and other securities, debts, credits, bank accounts, and interest in and rights to personal property, and by levy upon real property and interest in or rights to real property.” This proceeding is commenced by the Commissioner or his duly authorized representative where the amount involved is in excess of P1 Million; by the Revenue District Officer when the amount involved is P1Million or less. A warrant of distraint validly issued and signed by the proper authority is served upon the taxpayer, stating therein the personal property subject of the distraint. After that, a report will be submitted by the distraining officer to the Revenue District Officer concerned within 10 days from the receipt of the warrant. Thereafter, the notice of sale of distrained properties shall be made by specifying the time and place of the sale and the articles involved. The time period of the sale is

within 20 days after giving notice to the owner or possessor of the property/properties. The notice must be published and posted in not less than two public places in the city or municipality where the proceeding was made. A sale at public auction follows, held at the time and place indicated in the notice. The sale may be conducted by the Revenue Officer or through a licensed commodity or stock exchange. The property must be sold to the highest bidder for cash. Any residue over and above the required claim must be returned to the owner of the property sold. Q: What are other summary remedies? A: Other summary remedies include Levy on real property. Q: Example, karaoke? May this be a subject of distraint? A: A karaoke may be a proper subject of distraint. The NIRC expressly states that such proceeding may be enforced on any kind of personal property of whatever character. Q: Explain the concept of the warrant of distraint. A: A warrant of distraint is a document served by the distraining officer, stating therein the amount claimed, and served upon the owner/possessor of the property to be distrained. This commences the distraint proceedings. Q: Floor of a basketball court, may it be a subject of distraint? A: A floor of a basketball court may not be a proper subject of distraint because it is not considered a personal property.

   

 

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Q: Distinguish Compromise and Abatement; State the grounds for each. A: A compromise, according to the provisions of the NIRC, is one where the Commissioner is authorized to do upon the following grounds:

1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or

2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

An abatement on the other hand is when:

1) The tax or any portion thereof appears to be unjustly or excessively assessed; or

2) The administration and collection costs involved do not justify the collection of the amount due.

Q: Tax Lien vs. Tax Levy A: A tax lien is a legal claim or charge upon a property of the delinquent taxpayer. It is considered as a security upon the property, in favor of the government from the time the assessment was made until paid with interests, penalties and costs. A tax levy is a remedy whereby the collection of delinquent taxes is effected or enforced upon the real property of the taxpayer. Q: Prescriptive period to collect, to assess? A: The prescriptive period to collect under the NIRC is 3 years in case of a Normal Assessment, from the date of the assessment; in case of false or fraudulent return or non-filing, the period to collect is 10 years reckoned from the date of discovery of falsity or fraud or non-filing. In cases where the taxpayer has waived the Statute of Limitations, that period agreed upon

between him and the commissioner shall be observed. The prescriptive period to assess under the NIRC is within 3 years after the last day prescribed by law for filing the return. There are exceptions such as in case of filing of false or fraudulent return, where the period is 10 years after discovery of the fraud, falsity or omission and when there is a waiver of the Statute of Limitations. Q: Fraud? What kind of fraud? A: The kind of fraud contemplated under the NIRC is an actual fraud. Q: In case of doubt, whether or not to apply 3 years or 10 years, do we follow strict interpretation? How do we construe that? A: Such must be construed liberally in order to safeguard the taxpayer from any unreasonable assessments, examination or investigation. Q: Before assessment, what do they issue? Letter of Authority. What happens next? A: Under the revenue regulations 12-99, a letter of authority issued by the Commissioner of Internal Revenue or the Revenue Regional Director, thereafter the officer shall conduct a tax investigation, if no deficiency was found, the audit ends. If there is, the officer shall make an audit report. If the taxpayer disputes the audit report, a notice of informal conference is made to the taxpayer, which the taxpayer has 15 days to explain his side of the matter. If he does not respond, he will be considered in default. A review of the assessment is then made. If there is no sufficient basis for the assessment, case shall be dismissed. If there is a basis, a Preliminary Assessment Notice (PAN) shall be issued. The taxpayer may request for a re-examination of the

   

 

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assessment. The taxpayer has 15 days to file a letter contesting the proposed assessment. If he does not reply to the PAN, he will be considered in default. Failure to file the PAN shall not bar the taxpayer from subsequently contesting or protesting the Final Assessment of the Bureau of Internal Revenue. Q: What is Section 228? A: Section 228 of the NIRC states: "SECTION 228. Protesting of Assessment. - When the Commissioner or his duly authorized representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his findings: Provided, however, That a preassessment notice shall not be required in the following cases: "(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 non-exempt persons. "The taxpayers shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. "Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be required to respond to said notice. If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue an assessment based on his findings. "Such assessment may be protested administratively by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as may be prescribed by implementing rules and regulations. Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been submitted; otherwise, the assessment shall become final. "If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable.

   

 

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Q: Remedies of a taxpayer under the NIRC: A: The taxpayer has a remedy, before payment, of abatement of taxes; to protest against the assessment; and to enter into a compromise. He also has judicial remedies. After payment, the taxpayer may claim for a tax refund or a tax credit. Q: Who approves abatement applications? A: Abatement applications are approved by the Commissioner of Internal Revenue. Q: Distinctions between reconsideration vs. reinvestigation A: In a protest, there can be a request for a reconsideration or reinvestigation. In a request for reconsideration, the taxpayer asks for a reevaluation of the assessment on the basis of the existing records, without need of additional evidence which may involve a question of fact or law or both. In reinvestigation, the taxpayer asks for reinvestigation on the basis of newly found or discovered and additional evidence that a taxpayer intends to present. It may also involve a question of fact or law, or both. Q: Filing of the Motion for Reconsideration and or Motion for Reinvestigation toll the running of the period? A: In reconsideration, the period is not tolled; in a reinvestigation, the period is tolled as such requires the examination of the newly discovered evidence the taxpayer presents.

CASE DIGESTS

1. Commissioner of Internal Revenue (CIR) vs Isabela Cultural Corporation FACTS: On February 23, 1990, ISABELA received from the CIR a final an assessment letter, demanding payment of deficiency income tax and expanded withholding tax inclusive of surcharge and interest. On March 22, 1990, ISABELA filed with the CIR’s office a request for reconsideration of the subject assessment. On April 18, 1990, filed a supplemental letter to the protest to which were attached certain documents supportive of its protest, and indicating, among others, a period for the CIR within which to assess and collect the taxes that may be found due from ISABELA after the reinvestigation. On February 9, 1995, ISABELA received a Final Notice Before Seizure from the CIR giving ISABELA the last opportunity to pay the assessed deficiency tax. In said letter, the CIR demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, the CIR shall be constrained to collect the subject assessment through summary remedies. Accordingly, ISABELA treated the said notice as the CIR’s final decision and, therefore, proceeded with proceedings for appeal. CIR maintains that this Final Notice was a mere reiteration of the delinquent taxpayer’s obligation to pay the taxes due. It was supposedly a mere demand that should not have been mistaken for a decision on a protested assessment. ISSUE: Whether or not the Final Notice Before Seizure on February 9, 1995

   

 

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constitutes the CIR’s final decision and a denial of the request for reconsideration or reinvestigation, thus, appealable to the Court of Tax Appeals (CTA). HELD: Yes. A final demand letter from the Bureau of Internal Revenue, reiterating to the taxpayer the immediate payment of a tax deficiency assessment previously made, is tantamount to a denial of the taxpayer’s request for reconsideration. Such letter amounts to a final decision on a disputed assessment and is thus appealable to the CTA. In this case, the Final Notice Before Seizure cannot but be considered as the CIR’s decision disposing of the request for reconsideration filed by ISABELA, who received no other response to its request. Not only was the Notice the only response received; its content and tenor supported the theory that it was the CIR’s final act regarding the request for reconsideration. The letter itself clearly stated that respondent was being given "this LAST OPPORTUNITY" to pay; otherwise, its properties would be subjected to distraint and levy. How then could it have been made to believe that its request for reconsideration was still pending determination, despite the actual threat of seizure of its properties? 2. Commissioner of Internal Revenue vs. Union Shipping FACTS: In a letter dated December 27, 1974 herein petitioner Commissioner of Internal Revenue assessed against Yee Fong Hong, Ltd. and/or herein private respondent Union Shipping Corporation, the total sum of

P583,155.22 as deficiency income taxes due for the years 1971 and 1972. Said letter was received on January 4, 1975, and in a letter dated January 10, 1975, received by petitioner on January 13, 1975, private respondent protested the assessment. Petitioner, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served on private respondent's counsel, Clemente Celso, on November 25, 1976. In a letter dated November 27, 1976, received by petitioner on November 29, 1976 private respondent reiterated its request for reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of Distraint and Levy. Petitioner, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and Levy, filed a collection suit against private respondent. Summons in the said collection case was issued to private respondent on December 28, 1978. On January 10, 1979, private respondent filed with respondent court its Petition for Review of the petitioner's assessment of its deficiency income taxes in a letter dated December 27, 1974, docketed therein as CTA Case No. 2989, wherein it prays that after hearing, judgment be rendered holding that it is not liable for the payment of the income tax herein involved, or which may be due from foreign shipowner Yee Fong Hong, Ltd.; to which petitioner filed his answer on March 29, 1979. Respondent Tax Court, in a decision dated December 9, 1983, ruled in favor of private respondent. Hence, the instant petition.

   

 

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ISSUE: (1)Whether the issuance of a warrant of distraint and levy is proof of the finality of an assessment (2)Whether petitioner could be held liable for the taxes assessed HELD: The main thrust of this petition is that the issuance of a warrant of distraint and levy is proof of the finality of an assessment because it is the most drastic action of all media of enforcing the collection of tax, and is tantamount to an outright denial of a motion for reconsideration of an assessment. On this issue, this Court had already laid down the dictum that the Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. Specifically, this Court ruled: . . . we deem it appropriate to state that the Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment, as contemplated by sections 7 and 11 of Republic Act 1125, as amended. On the basis of this statement indubitably showing that the Commissioner's communicated action is his final decision on the contested assessment, the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues. This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment — and,

consequently, the collection of the amount demanded as taxes — by repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would encourage his office to conduct a careful and thorough study of every questioned assessment and render a correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and orderliness in administrative action. (Surigao Electric Co., Inc. v. C.T.A., 57 SCRA 523, 528, [1974]). Under the circumstances, the Commissioner of Internal Revenue, not having clearly signified his final action on the disputed assessment, legally the period to appeal has not commenced to run. Thus, it was only when private respondent received the summons on the civil suit for collection of deficiency income on December 28, 1978 that the period to appeal commenced to run. The request for reinvestigation and reconsideration was in effect considered denied by petitioner when the latter filed a civil suit for collection of deficiency income. So. that on January 10, 1979 when private respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well within the thirty day period to appeal pursuant to Section 11 of R.A. 1125. On the merits, it was found fully substantiated by the Court of Tax Appeals that, respondent corporation is the husbanding agent of the vessel Yee Fong Hong, Ltd. as follows: (2) On the same issue, the Commissioner of Internal Revenue

   

 

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Misael P. Vera, on query of respondent's counsel, opined that respondent corporation being merely a husbanding agent is not liable for the payment of the income taxes due from the foreign ship owners loading cargoes in the Philippines. Neither can private respondent be liable for withholding tax under Section 53 of the Internal Revenue Code since it is not in possession, custody or control of the funds received by and remitted to Yee Fong Hong, Ltd., a non-resident taxpayer. As correctly ruled by the Court of Tax Appeals, "if an individual or corporation like the petitioner in this case, is not in the actual possession, custody, or control of the funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on income claimed by Yee Fong Hong, Ltd.". 3. Advertising Associates, Inc. v. Court of Tax Appeals FACTS: On June 18, 1973 and March 5, 1974 Advertising Associates received a deficiency tax assessment. They were required to pay taxes for being a business agent and independent contractor. April 18 and May 25, 1978, the warrants of distraint and levy were served upon Advertising Associates. Advertising Associates filed a protest and there were subsequent litigation about the nature of Advertising Associates's business. The enforcement of the warrant of distraint and levy was not implemented. When the issue was finally resolved, the CIR sought to collect the taxes. Again, Advertising filed an opposition claiming that the collection of tax had already prescribed because it was done beyond the 5-year period. According to Advertising, Sec, 319 of the Tax Code

provides that the tax may be collected by distraint or levy or by a judicial proceeding begun within 5 years after the assessment of the tax. ISSUE: Whether or not the prescriptive period had already elapsed due to the failure to enforce the warrant of distraint and levy. HELD: No. The taxpayer received on June 19, 1973 and March 5, 1974, the deficiency assessments herein. The warrants were served on April 18 and May 25, 1975, or within five years after the assessment of the tax. Obviously, the warrants were issued to interrupt the 5-year prescriptive period. Its enforcement was not implemented because of the pending protests of the taxpayer and its requests for withdrawal of the warrants. The Commissioner should always indicate to the taxpayer in clear and unequivocal language what constitutes his final determination of the disputed assessment. That procedure is demanded by the pressing need for fair play, regularity and orderliness in administrative action 4. Commissioner of Internal Revenue vs Metro Star Superama, Inc. FACTS: Metro Star Superama Inc's books of accounts and other accounting records was to be examined for income tax and other internal revenue taxes for the taxable year 1999. For MetroStar’s failure to comply with several requests for the presentation of records and Subpoena Duces Tecum, [the] OIC of BIR Legal Division issued an Indorsement informing Revenue District Officer of Revenue Region No.

   

 

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67, Legazpi City to proceed with the investigation based on the best evidence obtainable preparatory to the issuance of assessment notice. The Revenue District Officer issued a Preliminary 15-day Letter, which stated that a post audit review was held and it was ascertained that there was deficiency value-added and withholding taxes due from MetroStar. MetroStar received a Formal Letter of Demand from Revenue District No. 67, Legazpi City, assessing petitioner the amount of P292,874.16. for deficiency value-added and withholding taxes for the taxable year 1999. Subsequently, Revenue District Office No. 67 sent a copy of the Final Notice of Seizure, giving MetroStar last opportunity to settle its deficiency tax liabilities within ten (10) [days] from receipt thereof, otherwise the BIR shall be constrained to serve and execute the Warrants of Distraint and/or Levy and Garnishment to enforce collection. MetroStar received from Revenue District Office No. 67 a Warrant of Distraint and/or Levy demanding payment of deficiency value-added tax and withholding tax payment in the amount of P292,874.16. MetroStar filed with the Office of the Commissioner a Motion for Reconsideration, which was denied. Denying that it received a Preliminary Assessment Notice (PAN) and claiming that it was not accorded due process, Metro Star filed a petition for review with the CTA. The CTA-Second Division granted the petition of Metro Star, stating that “[w]hile there [is] a disputable presumption that a mailed letter [is] deemed received by the addressee in the ordinary course of mail, a direct denial of the receipt of

mail shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed received by the addressee.” It also found that there was no clear showing that Metro Star actually received the alleged PAN. It, accordingly, ruled that the Formal Letter of Demand in 2002, as well as the Warrant of Distraint and/or Levy dated in 2003 were void, as Metro Star was denied due process. The CIR sought reconsideration of the decision of the CTA-Second Division, but the motion was denied. Aggrieved, the CIR filed a petition for review with the CTA-En Banc, but the petition was dismissed. The motion for reconsideration filed by the CIR was likewise denied by the CTA-En Banc. The CIR, insisting that Metro Star received the PAN, dated January 16, 2002, and that due process was served nonetheless because the latter received the Final Assessment Notice (FAN), comes now before this Court with the sole ISSUE: Whether or not Metro Star was denied due process. HELD: The Court agrees with the CTA that the CIR failed to discharge its duty and present any evidence to show that Metro Star indeed received the PAN dated January 16, 2002. It could have simply presented the registry receipt or the certification from the postmaster that it mailed the PAN, but failed. Neither did it offer any explanation on why it failed to comply with the requirement of service of the PAN. It merely accepted the letter of Metro Star’s chairman dated April 29, 2002, that stated that he had received the FAN dated April 3, 2002, but not

   

 

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the PAN; that he was willing to pay the tax as computed by the CIR; and that he just wanted to clarify some matters with the hope of lessening its tax liability. This now leads to the question: Is the failure to strictly comply with notice requirements prescribed under Section 228 of the National Internal Revenue Code of 1997 and Revenue Regulations (R.R.) No. 12-99 tantamount to a denial of due process? Specifically, are the requirements of due process satisfied if only the FAN stating the computation of tax liabilities and a demand to pay within the prescribed period was sent to the taxpayer? Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable for deficiency taxes through the sending of a PAN. He must be informed of the facts and the law upon which the assessment is made. The law imposes a substantive, not merely a formal, requirement. To proceed heedlessly with tax collection without first establishing a valid assessment is evidently violative of the cardinal principle in administrative investigations - that taxpayers should be able to present their case and adduce supporting evidence. The sending of a PAN to taxpayer to inform him of the assessment made is but part of the “due process requirement in the issuance of a deficiency tax assessment,” the absence of which renders nugatory any assessment made by the tax authorities. The use of the word “shall” in subsection 3.1.2 of the Revenue Regulations describes the mandatory nature of the service of a PAN. The persuasiveness of the right to due process reaches both substantial and

procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due process. Thus, for its failure to send the PAN stating the facts and the law on which the assessment was made as required by Section 228 of R.A. No. 8424, the assessment made by the CIR is void. The Court need not belabor to discuss the matter of Metro Star’s failure to file its protest, for it is well-settled that a void assessment bears no fruit. PETITION is DENIED. # 5. Lacsona Land vs. Commissioner of Internal Revenue FACTS: On March 37, 1998 the CIR issued an assessment notice against Lascona land informing the latter of its alleged deficiency income tax for the year 1993 in the amount of 753,266.56. Consequently, on April 20 1998, Lascona file a letter protest, but was denied by Norberto R. Odulio, OIC, Regional Director, BIR. On April 12, 1999 Lascona appealed the decision before the CTA. Lascona alleged that the Regional Director erred in ruling that the failure to appeal to the CTA within 30 days from the lapse of the 180 day period rendered the assessment final and executory. On January 4, 2000, the CTA nullified the subject assessment holding that sec. 228 of the NIRC provided two options for the taxpayer: 1. Appeal to the CTA within 30 days from the lapse of 180 day period 2. wait until the CIR decides on his protest before he elevates the case.

   

 

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The CIR moved for reconsideration, which was denied. Dissatisfied the CIR appealed to the CA, which granted the petition. Lascana moved for reconsideration in the appellate court which was denied. Hence this petition. ISSUE: Whether or not the subject assessment has become final after the alpse of the 30 day period of appeal from the lapse of the 180 day period of inaction HELD: No. Under Sec. 228 of the NIRC, if the protest is denied in whole or in part, or is not acted upon within 180 days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the CTA within 30 days from the receipt of said decision or from the lapse of 180 days; otherwise the decision shall become final, executor and demandable. In arguing that the assessment become final and executor by the sole reason that petitioner failed to appeal the inaction of the CIR within 30 days after the 180 day reglementary period, respondent, in effect limited the remedy of Lascona, as a taxpayer, under Sec 228 of the NIRC, to just one that is – to appeal the inaction of the CIR on its protested assessment after the lapse of the 180 day period. Therefore, as in Section 228, when the law provided for the remedy to appeal the inaction of the CIR, it did not intend to limit it to a single remedy of filing of an appeal after the lapse of the 180 day prescribed period. It must be emphasized that in case of the inaction of the CIR on the protested assessment, the taxpayer has 2 options, either: 1.) File a petition

for review with the CTA within 30 days after the expiration of the 180 day period 2.) Await the final decision of the CIR on the disputed assessment and appeal such final decision to the CTA within 30 days after the receipt of a copy of such decision. These options are mutually exclusive and resort to one bars the application of the other.

   

 

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GENERAL PRINCIPLES 1. Commissioner of Internal

Revenue vs. Algue, Inc. GR No. L-28896, February 17, 1988

§ The burden is on the taxpayer to prove the validity of the claimed deduction. Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance but such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of the common good, may be achieved. Taxes are what we pay for civilization society. Without taxes, the government would be paralyzed for lack of the motive power to activate and operate it Hence, despite the natural reluctance to surrender part of one’s hard earned income to the taxing authorities, every person who is able to must contribute his share in the running of the government.

2. Philippine Airlines, Inc. vs. Edu GR No. L-41383, August 15, 1988

§ The object, not the name, of the charge, determines whether it is a tax or a fee. Taxes are for revenue, whereas fees are exceptional for purposes of

regulation and inspection and are for that reason limited in amount to what is necessary to cover the cost of the services rendered in that connection. Fees may properly be regarded as taxes even though they also serve as an instrument of regulation. Taxation may be made the implement of the state’s police power. It is possible for an exaction to be both a tax and a regulation. License fees are charges looked to as a source of revenue as well as a means of regulation. The fees may be properly regarded as taxes even though they also serve as an instrument of regulation. If the purpose is primarily revenue, of if revenue is, at least, one of the real and substantial purposes, then the exaction is properly called a tax.

3. Esso Standard Eastern, Inc. vs. Commissioner of Internal Revenue GR No. L-28508-9, July 7, 1989

§ A margin fee is not a tax but an exaction designed to curb the excessive demands upon our international reserve. A tax is levied to provide revenue for government operations while the proceeds of the margin fee are applied to strengthen our country’s international reserves. The margin fee was imposed by the State in the exercise of police power and not the power of taxation.

   

 

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4. Physical Therapy Organization of the Philippines vs. Municipal Board of the City of Manila GR No. L-10448, August 30, 1957

§ The amount of the fee or charge is properly considered in determining whether is is a tax or an exercise of police power. The amount may be so large as to itself show that the purpose was to raise revenue and not to regulate. There is a marked distinction between license fees imposed upon useful and beneficial occupations which the sovereign wishes to regulate but not restrict, and those which are inimical and dangerous to public health, morals, or safety. In the latter case, the fee may be very large without necessarily being a tax.

5. Republic of the Philippines vs. Mambulao Lumber Company GR No. L-17725, February 28, 1962

§ A claim for taxes is not such a debt, demand, contract, or judgment as is allowed to be set-off under the statutes of set-off, which are construed uniformly, in the light of public policy, to exclude the remedy in an action or any indebtedness of the state or municipality to one who is liable to the state or municipality for taxes. Neither are they a proper subject of recoupment since they do not arise out of the contract or transaction sued on.

§ The general rule, based on grounds of public policy, is

well-settled that no set-off is admissible against demands for taxes levied for general or local governmental purposes. Taxes are not in the nature of contracts between the party and the party but grow out of a duty to, and are the positive acts of the government, to the making and enforcing of which, the personal consent of individual taxpayers is not required. If the taxpayer can properly refuse to pay his tax when called upon by the Collector, because he has a claim against the governmental body which is not included in the tax levy, it is plain that some legitimate and necessary expenditure must be curtailed. If the taxpayer’s claim is disputed, the collection of the tax must await and abide the result of the lawsuit, and meanwhile the financial affairs of the government will be thrown into great confusion.

6. Francia vs. Intermediate Appellate Court GR No. L-67649, June 28, 1988

§ There can be no off-setting of taxes against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results of a lawsuit against the government.

   

 

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7. Domingo vs. Garlitos GR No. L-18994, June 29, 1963

§ When both the claim of the Government for inheritance taxes and the claim of the intestate for services rendered have been recognized and appropriated and have already become overdue and demandable as well as fully liquidated, compensation takes place by operation of law, in accordance with Article 1279 and 1290 of the Civil Code, and both debts are extinguished to the concurrent amount.

8. Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue GR No. 117359, July 23, 1998

§ Because taxes are the lifeblood of the nation, statutes that allow exemptions are construed strictly against the grantee and liberally in favor of the government. Any exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be merely implied therefrom.

9. Caltex Philippines, Inc. vs. Commission on Audit GR No. 92585, May 8, 1992

§ Tax exemptions, as a general rule, are construed strictly against the grantee and liberally in favor of the taxing authority. The burden of proof rests upon the party claiming exemption to prove that it is in fact covered by the exemption so claimed. The party claiming

exemption must therefore be expressly mentioned in the exempting law or at least within its purview by clear legislative intent.

§ Taxes is no longer envisioned as a measure merely to raise revenue to support the existence of the government; taxes may be levied with a regulatory purpose to provide means for the rehabilitation and stabilization of a threatened industry which is affected with public interest as to be within the police power of the state.

§ A taxpayer may not offset taxes due from the claims that he may have against the government. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt, demand, contract, or judgment as is allowed to be set-off.

10. Commissioner of Internal Revenue vs. Court of Appeals GR No. 124043, October 14, 1998

§ Because taxes are the lifeblood of the nation, courts have always applied the doctrine of strict interpretation (strictissimi juris) in construing tax exemptions. A claim of statutory exemption should be manifest and unmistakable from the language of the law on which it is based. Thus, the claimed exemption “must expressly be granted in a

   

 

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statute stated in a language too clear to be mistaken”.

INHERENT LIMITATIONS 1. Pascual vs. Secretary of Public

Works and Communications GR No. L-10405, December 29, 1960

§ Generally, under the express or implied provisions of the constitution, public funds may be used only for public purpose. The right of the legislature to appropriate funds is correlative with its right to tax, and, under constitutional provisions against taxation except for purposes and prohibiting the collection of a tax for one purpose and the devotion thereof to another purpose, no appropriation of state funds can be made for other than for a public purpose. The test of constitutionality of a statute requiring the use of public funds is whether the statute is designed to promote public interest, as opposed to the furtherance of the advantage of individuals, although each advantage to individuals might incidentally serve the public.

§ In the determination of the degree of interest essential to give the requisite standing to attack the constitutionality of a statute, the general rule is that not only persons individually affected, but also taxpayers, have sufficient interest in preventing the illegal expenditure of moneys raised by taxation

and may therefore question the constitutionality of statutes requiring expenditure of public moneys.

2. Mactan Cebu International Airport Authority vs. Marcos GR No. 120082, September 11, 1996

§ Taxation is the rule and exemption therefrom is the exception. However, if the grantee of the exemption is a political subdivision or instrumentality, the rigid rule of construction does not apply because the practical effect of the exemption is merely to reduce the amount of money that he has to be handled by the government in the course of its operations.

§ Since taxation is the rule and exemption therefrom is the exception, the exemption may thus be withdrawn at the pleasure of the taxing authority. The only exception to this rule is where the exemption was granted to private parties based on material consideration of a mutual nature, which then becomes contractual and is thus covered by the non-impairment clause of the constitution.

§ Congress did not wish to expand the scope of the exemption in Section 234(a) of the Local Government Code to include real property owned by other instrumentalities or agencies of the government including government-owned and controlled corporations.

   

 

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CONSTITUTIONAL LIMITATIONS 1. Bagatsing vs. Ramirez

GR No. L-41631, December 17, 1976

§ Under the Constitution, each local government unit shall have the power to create its own sources of revenue and to levy taxes, subject to such provisions as may be provided by law.

§ The entrusting of the collection of the fees does not destroy the public purpose of the ordinance. So long as the purpose is public, it does not matter whether the agency through which the money is dispensed is public or private. The right to tax depends upon the ultimate use, purpose, and object for which the fund is raised. It is not dependent on the nature or character of the person or corporation whose intermediate agency is to be used in applying it. The people may be taxed for a public purpose, although it be under the direction of an individual or private corporation.

2. ABAKADA GURO Party List vs. Ermita GR No. 168056, October 18, 2005

§ Delegation of legislative power is different from delegation of ascertainment of facts upon which enforcement and administration under the law is contingent. The former cannot be delegated while the latter can be. There is

nothing legislative in ascertaining the existence of facts or conditions as the basis of the taking into effect of the law. The power to make laws necessarily involves a discretion as to what it shall be, which constitutionality may not be done, and delegation of authority or discretion as to its execution be exercised under and in pursuance of the law, to which no valid objection can be made.

§ The power of the State to make reasonable and natural classifications for purposes of taxation has long been established and the judiciary will not interfere with such prerogative.

§ There is no arbitrary and confiscatory imposition of tax burden in the imposition of the VAT because as the buyer pays the input tax to the seller, the seller will subsequently remit such input tax to the BIR, thus, there is no retention of any tax collection.

§ Uniform taxation does not preclude the Congress from exercising its power to classify subjects of taxation and only demands uniformity within a particular class.

§ The Constitution does not really prohibit the imposition of indirect taxes like the VAT. What it simply provides is that Congress shall evolve a progressive system of taxation.

3. Eastern Theatrical Co., Inc. vs. Alfonso GR No. L-1104, May 31, 1949

   

 

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§ Equality and uniformity in taxation means that all taxable articles or kinds of property of the same class shall be taxed at the same rate. The taxing power has the authority to make reasonable and natural classifications for purposes of taxation.

4. British American Tobacco vs. Camacho GR No. 163583, August 20, 2008

§ In our jurisdiction, the standard and analysis of equal protection challenges in the main have followed the ‘rational basis’ test, coupled with a deferential attitude to legislative classifications and a reluctance to invalidate a law unless there is a showing of a clear and unequivocal breach of the Constitution.Under this test, a legislative classification, to survive an equal protection challenge, must be shown to rationally further a legitimate state interest. The classifications must be reasonable and rest upon some ground of difference having a fair and substantial relation to the object of the legislation. Since every law has in its favor the presumption of constitutionality, the burden of proof is on the one attacking the constitutionality of the law to prove beyond reasonable doubt that the legislative classification is without rational basis. The presumption of constitutionality can be

overcome only by the most explicit demonstration that a classification is a hostile and oppressive discrimination against particular persons and classes, and that there is no conceivable basis which might support it.

§ A legislative classification that is reasonable does not offend the constitutional guaranty of the equal protection of the laws. The classification is considered valid and reasonable provided that: (1) it rests on substantial distinctions; (2) it is germane to the purpose of the law; (3) it applies, all things being equal, to both present and future conditions; and (4) it applies equally to all those belonging to the same class.

5. British American Tobacco vs. Camacho GR No. 163583, April 15, 2009

§ A tax “is uniform when it operates with the same force and effect in every place where the subject of it is found.” It does not signify an intrinsic but simply a geographical uniformity. A levy of tax is not unconstitutional because it is not intrinsically equal and uniform in its operation. The uniformity rule does not prohibit classification for purposes of taxation.

§ Uniformity of taxation, like the kindred concept of equal protection, merely requires that all subjects or objects of taxation, similarly situated, are to be treated alike both in privileges and liabilities.

   

 

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Uniformity does not forfid classification as long as: (1) the standards that are used therefor are substantial and not arbitrary, (2) the categorization is germane to achieve the legislative purpose, (3) the law applies, all things being equal, to both present and future conditions, and (4) the classification applies equally well to all those belonging to the same class.

DOUBLE TAXATION and TAX EXEMPTION 1. Executive Secretary vs.

Southwing Heavy Industries GR No. 164171, February 20, 2006

§ Police power is inherent in a government to enact laws, within constitutional limits, to promote the order, safety, health, morals, and general welfare of society. It is lodged primarily with the legislature. By virtue of a valid delegation of legislative power, it may also be exercised by the President and administrative boards, as well as the lawmaking bodies on all municipal levels, including the barangay. Such delegation confers upon the President quasi-legislative power which may be defined as the authority delegated by the law-making body to the administrative body to adopt rules and regulations intended to carry out the provisions of the law and implement legislative policy. To be valid, an administrative issuance,

such as an executive order, must comply with the following requisites:

(1) Its promulgation must be authorized by the legislature;

(2) It must be promulgated in accordance with the prescribed procedure;

(3) It must be within the scope of the authority given by the legislature; and

(4) It must be reasonable.

§ The Secured Area consisting of the presently fenced-in former Subic Naval Base shall be the only completely tax and duty-free area in the SSEFPZ. Business enterprises and individuals (Filipinos and foreigners) residing within the Secured Area are free to import raw materials, capital goods, equipment, and consumer items tax and dutry-free. Consumption items, however, must be consumed within the Secured Area. Removal of raw materials, capital goods, equipment and consumer items out of the Secured Area for sale to non-SSEFPZ registered enterprises shall be subject to the usual taxes and duties, except as may be provided herein (E.O. No. 97-A). this provision limiting the special privileges on tax and duty-free importation in the presently fenced-in former Subic Naval Base has been declared valid and

   

 

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constitutional and in accordance with RA 7227.

2. John Hay People’s Alternative Coalition vs. Lim GR No. 119775, October 24, 2003

§ It is the legislature, unless limited by a provision in the Constitution, that has full power to exempt any person or corporation or a class of property from taxation, its power to exempt being as broad as its power to tax. Other than the Congress, the Constitution may itself provide for specific tax exemptions. Local governments may also pass ordinances on exemption from local taxes. A law granting tax exemption must have the concurrence of a majority of all the members of the legislative body granting the same.

3. Delpher Trades Corporation and Pacheco vs. Intermediate Appellate Court GR No. L-69259, January 26, 1988

§ The legal right of a taxpayer to decrease the amount of what otherwise could be his taxes or altogether avoid them, by means which the law permits, cannot be doubted.

4. Commissioner of Internal Revenue vs. Lincoln Philippine Life Insurance GR No. 119176, March 19, 2002

§ While tax avoidance schemes and arrangements are not prohibited,tax laws cannot be circumvented in order to evade the payment of just taxes.

§ To claim that the increase in the amount insured (by virtue of the automatic increase clause incorporated into the policy at the time of issuance) should not be included in the computation of the documentary stamp taxes due on the policy would be a clear evasion of the law requiring that the tax be computed on the basis of the amount insured by the policy.

5. Commissioner of Internal Revenue vs. Estate of Benigno Toda GR No. 147188, September 14, 2004

§ ax avoidance and tax evasion are the two most common ways used by taxpayers in escaping from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the other hand, is a scheme used outside of those lawful means and when availed of, it usually subjects the taxpayer to further or additional civil or criminal liabilities.

§ Tax evasion connotes the integration of three factors: (1) the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due; (2) an accompanying state of mind which is described as being

   

 

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“evil,” in “bad faith,” “willful,” or “deliberate and not accidental”; and (3) a course of action or failure of action which is unlawful.

6. City of Iloilo vs. Smart Communications GR No. 167260, February 27, 2009

§ The grant of tax exemption should be stated in clear and unequivocal language too plain to be beyond doubt or mistake.

7. National Power Corporation vs. Central Board of Assessment Appeals GR No. 171470, January 30, 2009

§ Taxation is the rule and exemption is the exception. The law does not look with favor on tax exemptions and the entity that would seek to be thus privileged must justify it by words too plain to be mistaken and too categorical to be misinterpreted. Under this standard, the claimant must show beyond doubt, with clear and convincing evidence, the factual basis for the claim.

REAL PROPERTY TAXATION

1. Caltex Philippines vs. CBAA GR No. L-50466, May 31, 1982

• Gasoline station equipment and machineries are permanent fixtures for purposes of realty taxation. Said equipment and machinery, as appurtenances to the gas station building or shed owned by Caltex and which fixtures are necessary to the operation if the gas station, for without them the gas station

would be useless, and which have been attached or affixed permanently to the gas station site or embedded therein, are taxable improvements and machinery within the meaning of the Assessment Law and the Real Property Tax Code.

• Improvements on land are commonly taxed as realty even though for some purposes they might be considered as personalty.

• The Central Board of Assessment Appeals, and not the Court of Tax Appeals has appellate jurisdiction over decisions of the provincial or city board of assessment appeals

• The Real Property Tax Code does not provide for Supreme Court review of decisions of the Central Board of Assessment Appeals. The only remedy for Supreme Court review of the Central Board’s decision is by Special Civil Action of Certiorari.

2. Lung Center of the

Philippines vs. Quezon City GR No. 144104, June 29, 2004

• To determine whether and enterprise is a charitable institution / entity or not, the elements which should be considered include the statute creating the enterprise, its corporate purpose, its constitution and by-laws, the methods of administration, the nature of the actual work performed, the character of the services rendered, the indefiniteness of the beneficiaries, and the use and occupation of the properties

• In a legal sense, charity may be fully defined as a gift to be

   

 

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applied consistently to a number of persons, either by bringing their minds and hearts under the influence of education or religion, by assisting them to establish themselves in life or otherwise lessening the burden of the government. The test whether an enterprise is charitable or not is whether it exists to carry out a purpose recognized in law as charitable or whether it is maintained for gain, profit, or private advantage

• 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 is intended to achieve, and no money inures to the private benefit of the persons managing or operating the institution

• Those portions of real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes

3. Manila International Airport

Authority vs. CA GR No. 155650, July 20, 2008

• Government-owned or controlled-corporation is not exempt from real estate tax. MIAA is not a government-owned or controlled-corporation and hence are exempt from tax imposed by local governments.

The real properties of MIAA are owned by the Republic of the Philippines and thus exempt from real estate tax.

• There is also no reason for local governments to tax national government instrumentalities for rendering essential public services to inhabitants of local governments, the only exception being when the legislature clearly intended to tax government instrumentalities for the delivery of essential services for sound and compelling policy considerations

4. City Assessor of Cebu vs.

Association of Benevola de Cebu GR No. 152904, June 8, 2007

• The exemption in favor of property used exclusively for charitable or educational purposes is “not limited to property actually indispensable” therefore but extends to facilities which are “incidental to and reasonably necessary for the accomplishment of said purposes, such as, in the case of hospitals, “a school for training nurses’ home, property use to provide housing facilities for interns, resident doctors, superintendents, and other members of the hospital staff, and recreational facilities for student nurses…”

• A hospital’s charge of rentals for the offices and clinics its accredited physicians occupy cannot be equated to a commercial venture. The charging of rentals in the case at bar is a practical necessity to recoup the maintain the building facilities, among other functions

   

 

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TARIFF AND CUSTOMS 1. Executive Secretary vs.

Southwing Heavy Industries GR No. 164171, February 20, 2006

• To be valid, an administrative issuance, such as an executive order, must comply with the following requisites: 1. Its promulgation must be authorized by the legislature; 2. It must be promulgated in accordance with the prescribed procedure; 3. It must be within the scope of the authority; 4. It must be reasonable. The importation ban in the case at bar runs afoul the third requisite because it modifies existing laws and exceeds the intended scope. The proscription in the importation of used motor vehicles should be operative only outside the Freeport and the inclusion of the said zone within the ambit of the prohibition is an invalid modification of RA 7227.

2. Transglobe International, Inc.

vs. CA GR No. 126634, January 25, 1999

• As a means of redemption of forfeited property is unavailing in three instances, namely, 1. When there is fraud, 2. Where the importation is absolutely prohibited or where the release of the property would be contrary to law

• Forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner – it is in the nature of a proceeding in rem. In this proceeding, it is in

legal contemplation the property itself which commits the violation itself which commits the violation and is treated as the offender, without reference whatsoever to the conduct of the owner.

• The fraud contemplated by law must be actual and not constructive – it must be intentional, consisting of deception willfully and deliberately done or resorted to in order to induce another to give up some right

3. Jao vs. CA

GR No. 104604, October 6, 1995

• Regional Trial Courts are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods.

• Actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decision in turn is subject to the exclusive appellate jurisdiction of the Court of Appeals and from there to the Court of Appeals.

4. Acting Commissioner of

Customs vs. CTA GR No. 62636, April 27, 1984

• The failure of a foreigner to produce a Central Bank authorization allowing him to bring out of the Philippines

   

 

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foreign currencies, prima facie evidence of infringement of CB Circular 534 and a basis for seizure of foreign exchange.

• The acquittal of accused in a criminal charge for violation of CB Circular No. 534 before the fiscal’s office is not res judicata in seizure or forfeiture proceedings.

• Tourists are not precluded from submitting proof other than a currency declaration to show legitimate source of currency in their possession. Resolution No. 594 of the CB must be deemed superseded by Resolution No. 1412, dated July 16, 1976, which requires that persons taking or transmitting or attempting to take or transmit foreign exchange out of the Philippines must have authorization from the Central Bank allowing them to do so.

5. De la Fuente vs. De Veyra GR No. L-35385, January 31, 1983

• A claim that a seizure of a vessel by the Customs Collector was made outside the territorial jurisdiction of the Philippines should be raised as a defense before the Collector of Customs, not by a separate action before the CFI because the Customs Collector has exclusive jurisdiction over seizure and forfeiture cases.

• It is well-settled that the exclusive jurisdiction over seizure and forfeiture cases vested in the Collector of Customs precludes a Court of First Instance from assuming cognizance over such cases.

NIRC REMEDIES

1. Commissioner on Internal Revenue vs. Isabela Cultural Corporation 361 SCRA 71

• A Final Notice Before Seizure cannot be considered as the commissioner’s decision disposing of the request for reconsideration. On the other hand, a final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment.

• A delinquent taxpayer may nevertheless directly appeal a disputed assessment, if its request for reconsideration remains unacted upon 180 days after submission thereof.

• A final demand letter for payment of delinquent taxes may be considered a decision on a disputed or protested assessment

2. Commissioner of Internal

Revenue vs. Union Shipping Corp 185 SCRA 547

• The Commissioner on Internal Revenue must state whether his action on questioned assessment is final. It cannot be implied from mere issuance of warrant of distraintand levy. Also, a filing of a collection suit may be considered a final denial of a request for reconsideration of tax assessment.

• A mere husbanding agent cannot be liable for income tax due from principal nore can it be liable for withholding tax where it does not have actual control

   

 

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or custody of the latter’s income.

3. Advertising Associates, Inc.

vs. CA 133 SCRA 765

• The directive in the form of a letter in the case at bar, embodies the Commissioner’s final decision within the meaning of section 7 of RA 1125. Hence, the reviewable decision of the BIR Commissioner is that letter where he clearly directed the taxpayer to appeal to the Tax Court, and not the warrants of distraint and levy.

• A firm which leases neon signs and billboards is a business agent and independent contractor under Sec. 191 and 194 (v) of the Tax Code

• The issuance of warrants of distraints interrupts the 5-year period of prescription for tax collection,

4. Commissioner of Internal Revenue vs. Metro Star Superama Inc. GR No. 185371, December 8, 2010

• The sending of a Preliminary Assessment Notice (PAN) to taxpayer to inform him of the assessment made is but part of the due process requirement in the issuance of a deficiency tax assessment, the absence of which renders nugatory any assessment made by the tax authorities.

• The use of the word “shall” in the law describes the mandatory nature of the service of PAN. The persuasiveness of the right of due process reached both substantial and

procedural rights and the failure of the CIR to strictly comply with the requirements laid down by law and its own rules is a denial of Metro Star’s right to due process.

5. Lascona Land vs. Commissioner of Internal Revenue GR No. 171251, March 5, 2012

• The case cited RCBC vs CIRwhich states the remedies of a taxpayer in case the CIR fails to act on the disputed assessment within the 180-day period from the date of the submission of the documents. The taxpayer can either: 1. File a petition for review with the CTA within 30 days after the expiration of the 180-day period; or 2. Await the final decision of the Commissioner on the disputed assessments and appeal such final decision to the CTA within 30 days after receipt of a copy of such decision.

• Taxes are the lifeblood of the government and so should be collected without unnecessary hindrance. On the other hand, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. It is therefore necessary to reconcile the apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation, which is the promotion of common good, may be achieved.