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1. Discuss the meaning of the Global and Schedular Systems of taxation.
Global System:
The Global system of income taxation is a system employed where the tax
system views indifferently the tax base and generally treats in common all categories of
taxable income of the individual.
A system which taxes all categories of income except certain passive
incomes and capital gains. It prescribes a unitary but progressive rate for the taxable
aggregate incomes and flat rates for certain passive incomes derived by individuals.
The apparent intent of current amendatory laws to the income tax is to
maintain by and large, the global treatment on taxable corporation.
Schedular System:
The Schedular system of income taxation is a system employed where the
income tax treatment varies and is made to depend on the kind or category of taxable income
of the taxpayer.
A system which itemizes the different incomes and provides for varied
percentages of taxes, to be applied thereto.
It is the apparent intention of current amendatory laws to the income tax law
to increasingly shift the income tax system toward the schedular approach in the income
taxation of individual taxpayers.
2. What is meant by the concept of tax avoidance and tax evasion? Distinguish one from
the other.
Tax avoidance is the use of legally permissible means to reduce the tax while
tax evasion is the use of illegal means to escape payment of taxes.
The differences between the two are the following:
a. Tax avoidance is legal while tax evasion is illegal.
b. The objective of tax avoidance in most instances is merely to reduce the
tax that is due while the object of tax evasion is to entirely escape the
payment of taxes.
3. Distinguish tax amnesty from tax exemption.
a. Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising
from non-payment of taxes while a tax exemption is an immunity from civil liability only.
It is an immunity or privilege, a freedom from a charge or burden to which others are
subjected.
b. Tax amnesty applies only to past tax periods, hence of retroactive application while tax
exemption has prospective application.
4. What is a tax sparing credit?
A “tax sparing credit” is a credit granted by the resident country for foreign
taxes that for some reasons were not actually paid to the source country but that would
have been paid under the country’s normal tax rules. The usual reason for the tax not being
paid is that the source country has provided a tax holiday or other tax incentive to foreign
investors as an encouragement to invest or conduct business in the country.
A final withholding tax at the rate of 15% is imposed on the amount of cash
and/or property dividends received by a non-resident foreign corporation from a domestic
corporation, subject to the condition that the country in which the non-resident foreign
corporation is domiciled shall allow a credit against the tax due from the non-resident
foreign corporation taxes deemed to have been paid in the Philippines equivalent to 17% for
2000 onwards [Section 28(B)(5)(b)].
5. When is income taxable?
Income, gain or profit is subject to income tax, when the following requisites are
present:
a. There is income, gain or profit;
b. The income, gain or profit is received, realized, or accrued during the taxable year; and
c. The income, gain or profit is not exempt from income tax.
6. What are the essential differences between capital and income?
a. Capital is a fund, while income is a flow;
b. A fund of property existing at an instant of time is called capital, while a flow of services
rendered by that capital by the payment of money from it or any other benefit rendered
by a fund of capital in relation to such fund through a period of time is called income;
c. Capital is wealth, while income is the service of wealth;
d. Capital is the tree, while income is the fruit; labor is a tree, income the fruit; property is
a tree, income the fruit. (Madrigal vs. Rafferty, 38 Phil. 414)
e. Return of capital is not subject to income tax, while income is subject to tax.
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7. What are the features of the income tax law?
a. Income tax is a “direct tax” because the tax burden is borne by the income recipient
upon whom the tax is imposed. It is a tax demanded from the very person who, it is
intended or desired, should pay it, while ‘indirect tax” is a tax demanded in the first
instance from one person in the expectation and intention that he can shift the burden
to someone else. (Commissioner vs. Tours Specialists, 183 SCRA 402)
b. Income tax is a progressive tax, since the tax base increases as the tax rate increases.
It is founded on the ability to pay principle and is consistent with the Constitutional
provision that the “Congress shall evolve a progressive system of taxation”. (Sec.
28(1), Art. III, 1987 Constitution)
c. The Philippines has adopted the most comprehensive system of imposing by adopting
the citizenship principle, the residence principle, and the source principle. Any one of
the three principles is enough to justify the imposition of income tax of a resident
citizen and domestic corporation that are taxed on worldwide income.
d. The Philippines follows the semi-schedular or semi-global system of taxation, although
certain passive investment incomes, and capital gains from sale of capital assets are
subject to final taxes at preferential tax rates.
8. C Bank receives its passive interest income net of final withholding tax (FWT) of 20%.
The BIR assessed C Bank for gross receipts tax (GRT) which includes the interest
income withheld as payment for the 20% FWT. C Bank protested said assessment
contending that the interest income does not form part of its taxable gross receipts.
a. Is the interest income part of C Bank’s taxable gross receipts?
Yes. The term “gross receipts” means the entire receipts without any
deduction. The concept of a withholding tax on income obviously and necessarily implies that
the amount of the tax withheld comes from the income earned by the taxpayer. Since the
amount of the tax withheld constitutes income earned by the taxpayer, then that amount
manifestly forms part of the taxpayer’s gross receipts.
b. If the interest income forms part of the gross receipts subject to GRT, is this a
form of double taxation?
No. The gross receipts tax is a business tax under Title V of the Tax Code,
while the final withholding tax is an income tax under Title II of the Code. There is no double
taxation if the law imposes two different taxes on the same income, business or property.
(China Banking Corp. vs. Court of Appeals, GR Nos. 147938 & 146749, June 10, 2003)
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9. What are the kinds of advertising expenditure and their tax treatment?
Advertising is generally of two kinds: (1) advertising to stimulate the current
sale of merchandise or use of services and (2) advertising designed to stimulate the future
sale of merchandise or use of services. The second type involves expenditures incurred, in
whole or in part, to create or maintain some form of goodwill for the taxpayer's trade or
business or for the industry or profession of which the taxpayer is a member. If the
expenditures are for the advertising of the first kind, then, except as to the question of the
reasonableness of amount, there is no doubt such expenditures are deductible as business
expenses. If, however, the expenditures are for advertising of the second kind, then normally
they should be spread out over a reasonable period of time. (Commissioner vs. General
Foods, GR No. 143762, April 24, 2003)
10. Define the net capital loss carry over and net operating loss carry over. Distinguish
the two concepts and discuss the tax implications of each.
a. Concept: Net capital loss carry over means the deduction from net capital gains of a
succeeding year the net capital loss suffered during the prior year. Net operating loss
carry over is the deduction from gross income for the next three (3) consecutive
taxable years following the year of such loss, the excess of allowable deduction over the
gross income.
b. Distinction:
 Source: The source of net capital loss carry over are capital losses only while the
source of net operating loss carry over are from the ordinary trade and business
of the taxpayer.
 Who may enjoy the carry over: Only taxpayers other than corporations may enjoy
net capital loss carry over while only corporations may enjoy the net operating
loss carry over.
c. Any taxpayer, other than a corporation (individuals including trusts and estates), who
sustains in any taxable year a net capital loss form capital transactions involving capital
assets (other than real property or shares of stock not listed or traded in the stock
exchange), is allowed to treat during the succeeding year such net capital loss as a loss
from the sale or exchange of a capital asset (other than a real property or shares of
stock not listed and traded in the stock exchange), held for more than twelve months.
[Sec. 39(D), 1997 NIRC]
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11. What is Minimum Corporate Income Tax (MCIT)?
A MCIT of 2% of the Gross Income (GI) as of the end of the taxable year is
imposed upon any domestic corporation and resident foreign corporation beginning on the
4th taxable year immediately following the year in which such corporation commence its
business.
a. It is imposed only where 2% of the GI is more than the normal income tax rates
b. Any excess of the minimum corporate income tax over the normal income shall be
carried forward and credited against the normal income tax for the three
immediately succeeding taxable years.
c. This is applied on annual basis and not to be used in the quarterly corporate
returns.
d. The Sec. of Finance is authorized to suspend this MCIT on account of –
(1) Prolonged labor dispute
(2) Force majeure
(3) Legitimate business reverses
12. Mr. Emi Grante, a Canadian citizen and a resident of Ontario, Canada, sends a gift of
US $20,000.00 to his future daughter-in-law who is to be married to his only son in
the Philippines. The marriage actually took place on the date the gift was received.
a. Is the donation by Mr. Grante subject to tax? Would your answer be the same if
Mr. Grante is a Filipino citizen but is a non-resident?
b. What is the tax consequence, if any, to the Mr. Grante’s daughter-in-law?
a. Yes, because a non-resident alien is exempt only from the payment of
donor’s taxes if his gifts are made to or for the use of the National Government or any
entity created by any of its agencies which is not conducted for profit, or to any political
subdivision of the said government.
He is subject to tax because the gift was not made in favor of an
educational and/or charitable, religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic organization, or research institution or
corporation which does not use more than 30% of the donation for administration
purposes.
If Mr. Grante was a non-resident Filipino, the answer would still be the
same.
b. None. The amount should not be considered as part of her income as
the same is one of the exclusions. Neither is there any donor’s tax due from her
because the tax is to be paid by the donor and not the recipient.
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13. Are legal officers of the BIR authorized to institute appeal proceedings without the
participation of the Solicitor General?
No. The institution or commencement before a proper court of civil and
criminal actions and proceedings arising under the Tax Reform Act which shall be conducted
by legal officers of the BIR is not in dispute. An appeal from such court, however, is not a
matter of right. It is still the Solicitor General who has the primary responsibility to appear
for the government in appellate proceedings. (Commissioner vs. La Suerte Cigar and
Cigarette Factory, GR No. 144942, July 4, 2002)
14. What are the distinctions between compromise and compromise penalty?
a. Definition: A compromise penalty is an amount of money paid by a taxpayer to
compromise a tax violation that he has committed, which may be the subject of criminal
prosecution, while a compromise is an amount of money paid by the taxpayer to settle
his civil liability for tax assessed by the government.
b. Basis of amount paid: In compromise, the basis of the amount paid is the basic tax
assessed; in compromise penalty, the basis is the gross sales or receipts during the
year or the tax due.
c. Minimum amount prescribed: In compromise, the law sets a limit as to the amount that
may be accepted by the government, depending on the legal grounds used by the
taxpayer; in compromise penalty, the amount set depends on the nature of the tax
violation and the minimum amount is generally not less than P1,000.
15. In a criminal complaint for tax evasion filed by the Commissioner of Internal Revenue
with the Department of Justice, can the revenue-officers’ Affidavit Report attached
thereto be construed as a formal assessment against the taxpayer?
No. An assessment must be sent to and received by a taxpayer, and must
demand payment of the taxes described therein within a specified period. It is deemed made
only when the collector of internal revenue releases, mails or sends such notice to the
taxpayer.
That the BIR examiners’ Joint Affidavit contained some details of the tax
liabilities of the taxpayer does not ipso facto make it an assessment. The purpose of the Joint
Affidavit was merely to support and substantiate the Criminal Complaint for tax evasion. It
merely contained a computation of the taxpayer’s liability. It did not state a demand or a
period for payment. Worse, it was addressed to the Justice Secretary, not to the taxpayer.
(CIR vs. Pascor Realty & Development Corp., June 29, 1999)
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16. Is an assessment necessary before criminal charges for tax evasion may be h. Suspension of business operations in violation of VAT
instituted? i. Enforcement of Administrative Fine

No. Section 222 of the NIRC specifically states that in cases where a false or 19. What are the remedies of the taxpayer under the NIRC?
fraudulent return with intent to evade tax is submitted or in cases of failure to file a return,
proceedings in court may be commenced without an assessment. Furthermore, Section 205 a. Administrative
of the same Code clearly mandates that the civil and criminal aspects of the case may be  Before payment
pursued simultaneously. (CIR vs. Pascor Realty & Development Corp., June 29, 1999) (1) Filing a protest within 30 days from receipt of assessment, or
A crime is complete when the violator has knowingly and willfully filed a (2) Entering into a compromise
fraudulent return with intent to evade and defeat the tax. The perpetration of the crime is  After payment
grounded upon knowledge on the part of the taxpayer that he has made an inaccurate return, Filing of claim for refund or tax credit within 2 years from date of payment
and the government’s failure to discover the error and promptly to assess has no regardless of any supervening cause
connections with the commission of the crime. (Ungab vs. Cusi, May 30, 1980) b. Judicial
 Civil Action
17. Can a court issue an injunction to restrain the collection of an internal revenue tax? (1) Appeal to the CTA within 30 days from receipt of decision or from the lapse of
180 days due to inaction of the Commissioner
No. Section 218 of the 1997 NIRC provides that “no court shall have the (2) Action to contest forfeiture
authority to grant injunction to restrain the collection of any national internal revenue tax, (3) Action for damages against revenue officer
fee or charge imposed by said Code.” This is because it is upon taxation that the Government  Criminal Action
chiefly relies to obtain the means to carry on its operations and it is of the utmost (1) Filing of criminal complaint against erring BIR officials
importance that the means adopted to enforce the collection of taxes levied should be (2) Injunction
summary and interfered with as little as possible.
The rule against injunction however admits of one exception: the CTA is 20. What cases may be the subject of compromise settlement?
empowered to suspend the collection of internal revenue taxes and customs duties only when
there was a - a. Delinquent accounts
a. the collection of tax may jeopardize the interest of the Government b. Cases under administrative protests
and/or the taxpayer, c. Civil tax cases being disputed before the courts
b. deposit of the amount claimed or file a surety bond for not more than d. Collection cases filed in courts
double the amount of tax with the court when required; and e. Criminal violations, other than those already filed in court or those involving criminal
c. showing by taxpayer that appeal is not frivolous or dilatory. tax fraud; and,
f.Cases covered by pre-assessment notices but taxpayer is not agreeable to the findings of
18. What are the remedies of the government against the taxpayer for non-payment of the audit office as confirmed by the review office. (Sec.2, Rev. Reg. 7-2001)
tax?

a. Compromise
b. Distraint (Actual and Constructive)
c. Levy
d. Tax Lien
e. Civil action
f. Criminal action
g. Forfeiture of Property

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21. What cases may not be the subject of compromise settlement?
a. Withholding tax cases;
b. Criminal tax fraud cases;
c. Criminal violations already filed in court;
d. Delinquent accounts with duly approved schedule of installment payments;
e. Cases where final reports of reinvestigation or reconsideration have been issued
resulting to reduction in the original assessment and the taxpayer is agreeable to such
decision.
f. Cases which become final and executory after final judgment of a court. (Sec.2, Rev.
Reg. 7-2001)
22. When may the Commissioner compromise any internal revenue tax?
The Commissioner may compromise any internal revenue tax when –
(a) a reasonable doubt as to the validity of the claim against the taxpayer
exists; or
(b) the financial position of the taxpayer demonstrates a clear inability to
pay the assessed tax.
The compromise settlement of any tax liability based on financial incapacity
to pay shall be subject to the minimum compromise rate equivalent to the 10% of the basic
assessed tax. In this case, the taxpayer’s offer to compromise shall not be considered
unless and until he WAIVES IN WRITING his privilege under R.A. 1405 or under other general or
special laws, and such waiver shall constitute the authority of the Commissioner to inquire
into his bank deposits. For other cases, a minimum compromise rate equivalent to 40% of
the basic tax assessed shall be imposed.
23. When may the Commissioner compromise criminal violations?
All criminal violations under the Tax Code may be compromised EXCEPT:
a. Those already filed in court
b. Those involving fraud.
24. On what grounds may the Commissioner abate or cancel internal revenue tax
liabilities?
Under Section 204(B), in relation to Sections 7(c) and 290 of the Tax Code,
the CIR has the authority to abate or cancel internal revenue tax liabilities of certain
taxpayers based on any of the following grounds:
a. The tax or any portion thereof appears to be unjustly or excessively assessed; or
b. The administration and collection costs involved do not justify the collection of the
amount due.
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25. What are the requirements for the validity of a taxpayer’s protest?
The following are the requirements for the validity of a taxpayer’s protest:
a. It must be filed within the reglementary period of thirty (30) days from
receipt of the notice of assessment.
b. The taxpayer must show the errors of the BIR as well as the correct
computation through:
(1) A statement of facts, the applicable law, rules and regulations, or
jurisprudence on which the taxpayer’s protest is based, otherwise, his
protest shall be considered void and without force and effect;
(2) If there are several issues involved in the disputed assessment and the
taxpayer fails to state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his protest against some of
the several issues on which the assessment is based, the same shall be
considered undisputed issue or issues, in which case, the taxpayer shall
be required to pay the corresponding deficiency tax or taxes
attributable thereto. (Sec. 3.1.5, Rev. Regs. 12-99)
c. Within sixty (60) days from filing of the protest, the taxpayer shall submit all
relevant supporting documents. [Sec. 228(e), 1997 NIRC]
26. What is the difference between a tax refund and a tax credit?
Tax refund takes place when there is actually a reimbursement of the tax. As
to a tax credit, the Government issues a tax credit certificate or tax credit memo covering
the amount determined to be reimbursable, which can be applied after proper verification
against any sum that may be due and collectible from the taxpayer.
27. What are the statutory requirements for refund claims?
a. A written claim for refund or tax credit must be filed by the taxpayer with the
Commissioner;
b. The claim for refund must be a categorical demand for reimbursement; and
c. The claim for refund or tax credit must be filed, or the suit or proceeding therefor must
be commenced in court within two years from date of payment of the tax or penalty
regardless of any supervening cause.
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28. LOCCO Corp. paid to the BIR on May 20, 1992 the tax withheld on income earned by the
company for the first quarter of 1991. However, the business operations of the
company resulted in a loss in the same year as reflected in the corporate final
adjustment return subsequently filed with the BIR filed on April 15, 1992. When will the
2-year prescriptive period to claim refund start to run?
The prescriptive period starts to run on April 16, 1992. The Tax Code provides
that the refundable amount, in case a refund is due a corporation, is that amount which is
shown on its final adjustment return, not only on its quarterly returns. When the taxpayer
paid the quarterly income tax on May 20, 1992, it would not have been able to ascertain on
that date, that the said amount was refundable. Clearly, the prescriptive period of two years
should commence to run only from the time that the refund is ascertained.
29. When is the payment of taxpayer’s liability deemed effected under the withholding tax
system for the purpose of applying the two-year prescriptive period for tax refund?
A taxpayer whose income is withheld at the source will be deemed to have
paid his liability when the same falls due at the end of the tax year. A taxpayer, resident or
non-resident, who contributes to the withholding tax system, does so not really to deposit an
amount to the Commissioner of Internal Revenue, but in truth, to perform and extinguish his
tax obligation for the year concerned. In other words, he is paying his tax liabilities for that
year. It is of no consequence whatever that a claim for refund or credit against the amount
withheld at the source may have been presented and may have remained unresolved since
the delay of the Collector in rendering decision does not extend the peremptory period fixed
by the statute (Gibbs vs. CIR, November 29, 1965).
30. When may the running of prescriptive periods for assessment and collection of taxes
be suspended?
a. 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;
b. When the taxpayer requests for a reconsideration which is granted by the CIR;
c. 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.
d. When the warrant of distraint or levy is duly served, and no property is located; and
e. When the taxpayer is out of the Philippines (Sec. 223, 1997 NIRC).
31. What is the effect of filing an amended return?
The taxpayer is granted the right to file an amended return, statement or
declaration, subject to the following conditions: (a) the amendment shall be made within
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three years from the date of filing of the original return, statement or declaration, and (b) no
notice of audit or investigation of such return, statement or declaration has, in the
meantime, been actually served upon the taxpayer. (Sec. 6A, 1997 NIRC)
The prescriptive period for assessment starts to run from the filing of the
original return, if the same is sufficiently complete to enable the Commissioner to
intelligently determine the proper amount of tax to be assessed. However, where the
amended return is substantially different from the original return, the right of the BIR to
assess the tax is counted from the filing of the amended return.
32. A bachelor was employed by Corporation X on the 1 st working day of January 2002 on
a part-time basis with a salary of P3,000 a month. In September 2002, he accepted
another part-time job from Corporation B from which he received a total
compensation of P15,000 for the year 2002. The correct total taxes were withheld
from both earnings. With the withholding taxes already paid, would he still be
required to file an income tax return for his 2002 income?
Yes, because what is exempt from filing are those individuals who have total
compensation income not exceeding P60, 000 with the taxes correctly withheld only by one
employer. In this case, even if his aggregate compensation income and that total withholding
taxes were correctly withheld by his employers, the fact that he derives compensation
income concurrently form two employers at anytime during the taxable year, does not
exempt him from filing his income tax return.
33. The BIR discovered that Gener, a businessman, did not file his income tax returns for
the taxable years 1998 and 1999. A pre-assessment notice for back taxes was then
issued in the amount of P2 million which ultimately matured into an assessment
notice. The BIR arrived at the additional tax due after using the “net worth” method
and access to records of Gener’s purchases from his suppliers of raw materials. He
now disputes the assessment for lack of legal basis because of the use of the “net
worth” which is not authorized under the Tax Code and for violation of his
constitutional rights when his purchase records were accessed from his suppliers.
Rule on his dispute.
Gener’s dispute is bereft of merit. Since Gener did not file his income tax
returns, which reports are required by law as a basis for assessment, then, the BIR
Commissioner shall assess the tax on the best evidence available. The BIR Commissioner is
authorized to secure records from public or private entities to assist him in the assessment.
Furthermore, the BIR may use such methods as in the opinion of the Commissioner clearly
reflects the income and the net worth method is one of these reasonable methods.
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34. Distinguish the final withholding tax system from creditable withholding tax system.
Under the final withholding tax system the amount of income tax withheld by
the withholding agent is constituted as a full and final payment of the income due from the
payee on the said income. [Sec. 2.57 (A), Rev. Regs. 2-98]
The liability for payment of the tax rests primarily on the payor or the
withholding agent. Thus, in case of his failure to withhold the tax or in case of under
withholding, the deficiency tax shall be collected from the payor withholding agent. The payee
is not required to file an income tax return for the particular income.
Under the creditable withholding tax system, taxes withheld on certain
income payments are intended to equal or at least approximate the tax due from the payee
on the said income. The income recipient is still required to file an income tax return and/or
pay the difference between the tax withheld and the tax due on the income. [Sec. 2.57(B),
Rev. Regs. 2-98]
35. ABC Corporation filed its income tax returns in January 1995 for its income for the
year 1994. In October 1997, March 1998, and May 1998, ABC Corp. through its
authorized representative signed three (3) separate waivers of the “Statute of
Limitations under the NIRC.” The waivers were not signed by the BIR Commissioner or
his agents.
In 1999, the BIR issued letters of demand, accompanied by assessment
notices asking the corporation to pay the deficiency internal revenue taxes for its
income for the year 1994. ABC Corp. disputed the assessment and requested a
reinvestigation. The BIR Commissioner denied the protest. ABC Corp. appealed to the
Court of Tax Appeals, on the ground of prescription. Decide.
The BIR’s authority to assess has already prescribed. The three (3) waivers
did not suspend the running of the prescriptive period.
The only agreement that could suspend the running of the prescriptive period
for the collection of the tax in question is a written agreement between ABC Corp.and the BIR
entered into before the expiration of the three (3) year prescriptive period, extending the
said period.
Since what is required is the signatures of both the Commissioner and the
taxpayer, a unilateral waiver on the part of the taxpayer does not suspend the prescriptive
period.
36. PBCom reported profits in its quarterly income tax returns for the first and second
quarters of 1985. However, PBCom suffered losses so that when it filed its Annual
Income Tax Returns, it declared a net loss. For the succeeding year, it again reported
a net loss. But during these two years, PBCom earned rental income. The lessees
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withheld and remitted to the BIR withholding creditable taxes. Thus, on August 7,
1987, PBCom filed a claim for refund of creditable taxes withheld by their lessees.
Pending investigation by the CIR, PBCom instituted a Petition for Review on November
18, 1988 before the CTA. The CTA denied the request for the year 1985 on the ground
that it was filed beyond the two-year reglementary period and its claim for 1986 on
the ground that it has already opted for an automatic tax credit. Petitioner argues
that its claim for refunds for the year 1985 are not yet barred relying on the
applicability of Revenue Memorandum Circular No. 7-85 issued on April 1, 1985. The
circular states that overpaid income taxes are not covered by the two-year
prescriptive period under the Tax Code and that taxpayers may claim refund or tax
credits for the excess quarterly income tax with the BIR within ten (10) years under
Art. 1144 of the Civil Code. Decide.
The relaxation of revenue regulations by RMC 7-85 is not warranted as it
disregards the two-year prescriptive period. The rule states that the taxpayer may file a
claim for refund or credit with the Commissioner of Internal Revenue, within two (2) years
after payment of tax, before any suit in CTA is commenced. The two-year prescriptive period
provided, should be computed from the time of filing the adjustment Return and final payment
of the tax for the year. (See Sec. 229, NIRC)
When the Acting Commissioner of Internal Revenue issued RMC 7-85,
changing the prescriptive period of two years to ten years on claims of excess quarterly
income tax payments, such circular created a clear inconsistency with the provision of Sec.
230 of 1977 NIRC (now Sec. 229 NIRC). In so doing, the BIR did not simply interpret the law;
rather it legislated guidelines contrary to the statute passed by Congress.
It bears repeating that Revenue memorandum-circulars are considered
administrative rulings (in the sense of more specific and less general interpretations of tax
laws) which are issued from time to time by the Commissioner of Internal Revenue. It is
widely accepted that the interpretation placed upon a statute by the executive officers,
whose duty is to enforce it, is entitled to great respect by the courts. Nevertheless, such
interpretation is not conclusive and will be ignored if judicially found to be erroneous. Thus,
courts will not countenance administrative issuances that override, instead of remaining
consistent and in harmony with, the law they seek to apply and implement. (Philippine Bank
of Communications vs. Commissioner, et al., GR No. 112024, January 28, 1999)
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37. State the rule on non-retroactivity of rulings. Give exceptions.
Section 246 of the 1997 NIRC provides: “Any revocation, modification or
reversal of any of the rules and regulations promulgated in accordance with the preceding
Sections or any of the rulings or circulars promulgated by the Commissioner shall not be
given retroactive application if the revocation, modification, or reversal will be prejudicial to
the taxpayers, except in the following cases:
(1) Where the taxpayer deliberately misstates or omits material facts from
his return or any document required of him by the Bureau of Internal
Revenue;
(2) Where the facts subsequently gathered by the Bureau of Internal
Revenue are materially different from the facts on which the ruling is
based; or
(3) Where the taxpayer acted in bad faith.”
38. The Commissioner of Internal Revenue is authorized under the Tax Code to delegate
the powers vested in him under the pertinent provisions of the Tax Code to any
subordinate official with the rank equivalent to a division chief or higher. What are
the powers of the Commissioner that he could not delegate?
a. power to Recommend the promulgation of rules and regulations by the
Sec. of Finance
b. power to Issue rulings of first impression or to Reverse, revoke modify
any existing rule of the BIR
c. power to Compromise or Abate any tax liability
EXCEPT, the regional evaluation board may compromise:
(1) assessments issued by regional offices involving deficiency
taxes of P500,000 or less and
(2) minor criminal violations as may be determined by the rules
and regulations
d. power to Assign or reassign internal revenue officers to establishments
where articles subject to excise tax are kept.
39. DEF Corp. brought to court the issue of whether it should be made liable for the
payment of the withholding tax at source since it is merely an agent and not the
taxpayer. Rule on the issue with reasons.
DEF Corp. as the withholding agent is explicitly made personally liable under
the Tax Code for the payment of the tax required to be withheld.
The law sets no conditions for the personal liability of the withholding agent
to attach. This is in order to compel the withholding agent to withhold the tax under any and
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all circumstances. In effect, the responsibility for the collection of the tax as well as the
payment thereof is concentrated upon the person over whom the Government has
jurisdiction.
Thus, the withholding agent is the constituted agent both of the government
and the taxpayer. With respect to the collection and/or withholding of the tax, he is the
Government’s agent. In regard to the filing of the necessary income tax return and the
payment to the government, he is the agent of the taxpayer. The withholding agent,
therefore, is no ordinary government agent especially because under the Tax Code he is
personally liable for the tax he is duty bound to withhold; whereas, the Commissioner of
Internal Revenue and his deputies are not made liable under the law. (Filipinas Synthetic
Corp. vs. Court of Appeals, GR Nos. 118498 & 124377, October 12, 1999)
40. What is the principle of preemption in local taxation?
Preemption in taxation refers to an instance wherein the National
Government elects to tax a particular area, impliedly withholding from the local government
the delegated power to tax the same field. The rule withholds from the taxing power of local
governments the authority to impose various taxes and charges which are levied under the
National Internal Revenue Code, Tariff and Customs Code and other special laws.
41. The City of Manila enacted an ordinance imposing a tax on all manufacturers of
underwear garments within its jurisdiction. RTW Corporation has been paying such
taxes since May 10, 2001. On June 20, 2003, said ordinance was declared null and void
by the competent court. Can the RTW Corporation validly claim for the refund of the
taxes it paid?
Yes. Unlike the refund or credit of internal revenue taxes, the 2 year period
for filing claims for refund or credit of local taxes is counted not necessarily from the date
of payment but from the date the taxpayer is entitled to refund or credit. This would mean
that in local taxation, the supervening clause applies.
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42. The City of Manila enacted an ordinance providing for an increase in the valuation of
real properties. Taxpayer Lopez filed a case for the declaration of nullity of said
ordinance with the RTC. City of Manila moved to dismiss on the ground of failure to
exhaust administrative remedies. Lopez claims that the question of the
constitutionality of the city ordinance may be raised on appeal, either to the
Secretary of justice or the RTC, both having concurrent jurisdiction over the case.
Decide.
The case should be dismissed. Section 187 of RA No. 7160 provides, that the
taxpayer may question the constitutionality or legality of tax ordinance on appeal within
thirty (30) days from the effectivity thereof, to the Secretary of Justice. The petitioner after
finding that his assessment is unjust, confiscatory, or excessive, must have brought the case
before the Secretary of Justice for questions of legality or constitutionality of the city
ordinance.
Under Section 226 of RA 7160, an owner of real property who is not satisfied
with the assessment of the property may, within sixty (60) days from notice of assessment,
appeal to the Board of Assessment Appeals.
Should the taxpayer question the excessiveness of the amount of tax, he must
first pay the amount due, in accordance with Section 252 of RA 7160. Then, he must first
request the annotation of the phrase “paid under protest” and accordingly appeal to the
Board of Assessment Appeals by filing a petition under oath together with copies of the tax
declarations and affidavits or documents to support his appeal. (Lopez vs. City of Manila, GR
No. 127139, February 19, 1999)
43. What are the fundamental principles governing real property taxation?
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 actual use.
c. Real property shall be assessed on the basis of uniform classification within each LGU
d. The appraisal, assessment, levy and collection of RP Tax shall not be let to any private
person
e. The appraisal and assessment of real property shall be equitable.
44. What properties are exempt from real property taxes?
a. Real property owned by the government except when the beneficial use thereof has
been granted to a taxable person;
b. Charitable institutions, churches, personages or convents appurtenant thereto,
mosques, non-profit or religious cemeteries and all lands, buildings and improvements
actually, directly and exclusively used for religious, charitable or educational
purposes (Art. VI, Sec. 28, Constitution);
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c. Machineries and equipment that are actually, directly and exclusively used by local
water utilities and GOCC’s engaged in the supply and distribution of water and/or
electric power;
d. Real property owned by duly registered cooperatives as provided for in RA 6938; and
e. Machinery and equipment used for pollution control and environmental protection.
45. Meralco was granted a franchise to operate an electric light and power service in
Calamba, Laguna sometime in 1983 under PD No. 551. Under the franchise Meralco
pays 2% franchise tax on its gross receipts and “any law to the contrary
notwithstanding be in lieu of all taxes and assessments of whatever nature imposed by
any national or local authority or earnings, receipts, income and privilege of
generation, distribution and sale of electric current.” Pursuant to the Local
Government Code, the province of Laguna enacted an ordinance imposing a franchise
of 50% of 1% of the gross annual receipts of business enjoying a franchise realized
during the preceding calendar year within the province including cities located
therein. Rule on the validity of the tax ordinance.
The tax ordinance is valid. Under the now prevailing Constitution, where
there is neither a grant nor a prohibition by statute, the tax power must be deemed to exist
although Congress may provide statutory limitations and guidelines. The basic rationale for
the current rule is to safeguard the viability and self-sufficiency of local government units by
directly granting them general and broad tax powers. Nevertheless, the fundamental law did
not intend the delegation to be absolute and unconditional; the constitutional objective
obviously is to ensure that, while the local government units are being strengthened and
made more autonomous, the legislature must still see to it that (a) the taxpayer will not be
overburdened or saddled with multiple and unreasonable impositions; (b) each local
government will have its fair share of available resources; (c) the resources of the national
government will not be unduly disturbed; and (d) local taxation will be fair, uniform and just.
Indicative of the legislative intent to carry out the constitutional mandate of
vesting broad tax powers to local government units, the Local Government Code has
effectively withdrawn, under Section 193 thereof, tax exemptions or incentives theretofore
enjoyed by certain entities.
46. What is meant by customs duties under the Tariff and Customs Code?
Customs duties is the name given to taxes on the importation and exportation
of commodities, the tariff or tax assessed upon merchandise imported from, or exported to,
a foreign country.
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47. What are special duties under the Tariff and Customs Code?
Special duties are those which are imposed and collected in addition to the
ordinary customs duties usually to protect local industries against foreign competition.
There are four kinds:
a. Dumping duty, or the duty levied on imported goods where it appears that a specific
kind or class of foreign article is being imported into or sold or is likely to be sold in the
Philippines at a price less than its fair value;
b. Countervailing duty, or the duty imposed upon foreign goods enjoying subsidy granted
by the foreign country which allows the sale of goods at lower prices to the detriment
of similar goods locally produced;
c. Marking duty, or the duty imposed, on an ad valorem basis, upon goods not properly
marked as to their place of origin; and
d. Discriminatory duty, or the duty imposed upon goods coming from countries which
discriminate against the commerce of the Philippines.
48. What is Transaction Value under RA 8181?
It is the invoice value of the goods plus freight, insurance, costs, expenses and
other necessary expenses which is used as basis for the determination of dutiable value. This
replaces the Home Consumption Value which is based on the value declared in the consular,
commercial, trade, or sales invoice. The change to transaction value was a consequence of
the Philippine’s participation in the Uruguay Round of the GATT.
49. Do RTCs have jurisdiction to pass upon the validity or regularity of a seizure and
forfeiture proceedings?
No. The RTCs are devoid of any competence to pass upon the validity or
regularity of seizure and forfeiture proceedings. The question of whether probable cause
exist is not for the RTC to determine. The Customs authorities do not have to prove to the
satisfaction of the court that articles on a vessel are imported from abroad before they may
exercise the power to effect customs searches or arrests as provided by law.
The Collector of Customs sitting in the seizure and forfeiture proceedings,
has exclusive jurisdiction to hear and determine all questions touching on the seizure and
forfeiture of dutiable goods. (Jao vs. Court of Appeals, 249 SCRA 35)
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50. (a) What is the basis of the automatic review procedure in the Bureau of Customs?
Automatic review is intended to protect the interest of the Government in the
collection of taxes and customs duties in seizure and protest cases. Without such automatic
review, neither the Commissioner of Customs nor the Secretary of Finance would know about
the decision laid down by the Collector of Customs favoring the taxpayer. The power to
decide seizure and protest cases may be abused if no checks are instituted. Automatic
review is necessary because nobody is expected to appeal the decision of the Collector of
Customs which is favorable to the taxpayer and adverse to the Government. This is the
reason why whenever the decision of the Collector of Customs is adverse to the Government,
the said decision is affirmed by the Commissioner of Customs. The same shall be
automatically elevated to and finally reviewed by the Secretary of Finance. (Yaokasin vs.
Commissioner of Customs, 180 SCRA 591 [1989])
(b) When does automatic review of cases occur?
(1) Decision of the Collector favorable to the taxpayer; (by the coc)
(2) Decision of the Commissioner of Customs favorable to the taxpayer
which is automatically elevated to the Secretary of Finance;
(3) Decision of the Secretary of Finance if adverse to the taxpayer is
appealable to the Court of Tax Appeals.
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In foro conscientiae
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