Notes in Taxation Law by Atty Vic Mamalateo
Notes in Taxation Law by Atty Vic Mamalateo
Notes in Taxation Law by Atty Vic Mamalateo
SPECIAL PRE-WEEK BAR REVIEW Atty. Vic C. Mamalateo Sept. 7, 2010 GAPUZ LAW REVIEW, SM ARROCEROS
INCOME TAX
INCOME TAX
INCOME TAX
Tax on all yearly profits arising from property, professions, trades or offices, or as a tax on a person s income, emoluments, profits and the like (Fisher v. Trinidad). Income tax is a direct tax on actual or presumed income (gross or net) of a taxpayer received, accrued or realized during the taxable year.
WITHHOLDING TAX
It is not an internal revenue tax but a mode of collecting income tax in advance on income of the recipient of income thru the payor of income. [NOTE: Sec. 21, NIRC enumerates various internal revenue taxes.] There are 2 types of withholding taxes, namely: (1) final withholding tax; and (2) creditable withholding tax.
Compensation income not subject to FWT Business and/or professional income Capital gains not subject to FWT Passive investment income not subject to FWT Other income not subject to FWT
Compensation income subject to FWT (salary of OBU expat) Capital gains subject to FWT (real property in the Phil and shares of domestic corporation) Passive investment income subject to FWT (interest on bank deposit) Other income subject to FWT (auto won on X mas raffle)
The Philippines adopted the semi-global or semi-schedular tax system. Either the global or schedular system, or both systems may apply to a taxpayer.
FORMULA
GLOBAL SYSTEM Gross sales/revenue Less: Cost of sales/service Gross income Less: Deductions PAE (for individual) Net taxable income Multiplied by applicable rate (graduated or flat) Income tax due Less: Creditable WT Balance SCHEDULAR SYSTEM Gross selling price or fair market value, whichever is higher times applicable tax rate = Tax due (real property) Gross selling price less cost or adjusted basis = Capital gain times applicable tax rate = Tax due (shares of dom corp) Gross income times applicable rate = Tax due (passive inv income)
NATURE OF ASSET
ORDINARY ASSET Inventory if on hand at end of taxable year Stock in trade held primarily for sale or for lease in the course of trade or business Asset used in trade or business, subject to depreciation Real property used in trade or business All other assets, whether or not used in trade or business, other than the above assets
CAPITAL ASSET
KINDS OF TAXPAYERS
INDIVIDUAL
CITIZEN
Resident Taxable on worldwide income Non-resident Taxable on income from sources within the Phil
Immigrant or permanent worker NRC from date of departure from the Phil OFW (seamen) NRC if his aggregate stay outside the Phil is more than 183 days
CORPORATION
DOMESTIC Taxable on worldwide income FOREIGN Taxable on income from sources within the Phil
Resident (e.g., Phil branch of foreign corporation) Non-resident
PARTNERSHIPS
TAXABLE
Partnerships, no matter how created or organized, including joint ventures or consortiums
EXEMPT
General professional partnership (GPP), but partners are taxed on their share of partnership profits actually or constructively paid during the year Joint venture or consortium undertaking construction activity or energy-related activities with operating contract with the government
Regional operating headquarters (ROHQ) 10% of net taxable income from sources within the Phil Offshore banking unit (OBU) and foreign currency deposit unit (FCDU) [ING Bank Manila v. CIR] 10% on gross interest income on foreign
currency loans
International carriers by air or water 2.5% of Gross Phil Billings Foreign contractor or sub-contractor engaged in petroleum operations in the Phil 8% of gross income
EXEMPT
SOURCES OF INCOME
Interest Interest from sources within Phil and interest on bonds and obligations of residents, corporate or otherwise Dividend From domestic corporation and from foreign corporation, unless less than 50% of gross income of foreign corporation for 3 years prior to declaration of dividends was derived from sources within the Phil; hence, apply only ratio of Philsource income to gross income from all sources Services Place where services are performed, except in case of international air carrier and shipping lines which are taxed at 2.5% on their Gross Phil Billings. Revenues from trips originating from the Phil are considered as income from sources within the Philippines, while revenues from inbound trips are treated as income from sources outside the Philippines. Rentals and royalties Location or use of property or property right in Phil Sale of real property Located in the Philippines Sale of personal property Located in the Philippines Gain from sale of shares of stocks of a domestic corporation is ALWAYS treated as income from sources within the Philippines. Other intangible property Mobilia sequuntur personam it follows domicile of owner
GROSS INCOME
SALE OF GOODS Gross Sales Less: Cost of Sales: Beg. Inventory
SALE OF SERVICES Gross Revenue Less: Cost of Service consisting of all direct costs and expenses Gross income Times 2% MCIT NOTE: MCIT is imposed beginning on the 4th taxable year immediately following the year in which the corp commenced bus operations
(Sec 27(E)(1), NIRC)
Gross income Times 2% MCIT NOTE: MCIT is now computed on quarterly basis. If quarterly MCIT > than RCIT, excess MCIT of prior year is not allowed.
Pay MCIT after 4 years immediately following the year bank commenced bus operations
(Manila Bank v CIR, GR 168118, Aug 28, 2006)
INCOME
INCOME means cash or its equivalent coming to a person within a
specified period, whether as payment for services, interest or profit from investment. It covers gain derived from capital, from labor, or from both combined, including gain from sale or conversion of capital assets.
FBT is a tax on fringe benefits received by employees, although the tax is assumed by the employer-payor of income.
Return of capital is exempt from income tax (e.g., tax-free exchange of property). To be taxable, there must be income, gain or profit; gain is received, accrued or realized during the year; and it is not exempt from income tax under the Constitution, treaty or law.
Mere increase in the value of property does not constitute taxable income. It is not yet realized during the year. Transfer of appreciated property to the employee for services rendered is taxable income.
NATURE OF INCOME
COMPENSATION INCOME
Existence of employer-employee relationship NO employer-employee relationship
OTHER INCOME
Prizes and winnings All other income, gain or profit not covered by the above classes
From Phil to final foreign destination is taxable From foreign country to Phil is exempt
B. ORDINARY INCOME
Demurrage fees (for late return of containers) are akin to rental income subject to ordinary corporate income tax rate based on net taxable income from sources within the Philippines
INTEREST INCOME
TYPES OF INTEREST INCOME
Subject to FWT: Interest income on bank deposits, deposit substitutes, trust and other similar arrangements
20% FWT peso deposit 7.5% FWT foreign currency deposit
NOT subject to FWT but subject to regular tax rates (5%-32%, if individual; 30%, if corporation): All other interest income or financing income Exempt income:
Long-term deposit or investment by individuals
Taxable income:
Preferential tax rate Pre-termination of long-term deposit by individual (20%: 1- less than 3 yrs; 12%: 3 yrs-less than 4 yrs; 5%: 4 yrs-less than 5 yrs); and interest on foreign loan Regular tax rate (30%) All other cases
DIVIDEND INCOME
REQUISITES FOR DIVIDEND DECLARATION
Presence of retained earnings No prohibition to declare dividend in loan agreement Declaration of dividend by Board of Directors Taxable
TYPES OF DIVIDENDS
Cash dividend Property dividend Stock dividend (except when there is change in proportionate interest among stockholders and there is subsequent cancellation or redemption of shares declared as stock dividend) Liquidating dividend distribution of assets to stockholders
Taxable on the part of stockholder under the global tax system
Exempt
DIVIDEND INCOME
Inter-corporate dividend: Exempt from tax
Corporation paying dividend: Domestic corporation Recipient of dividend: Another domestic corporation or resident foreign corporation
Tax-sparing provision
If foreign country does not impose income tax on dividend paid by foreign corporation
OTHER INCOME
Income from any source whatever The words income from any source whatever discloses a legislative policy to include all income not expressly exempted from the class of taxable income under our laws (Madrigal vs. Rafferty, supra; Commissioner vs. BOAC). The words income from any source whatever is broad enough to cover gains contemplated here. These words disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws, irrespective of the voluntary or involuntary action of the taxpayer in producing the gains (Gutierrez vs. Collector, CTA Case 65, Aug. 31,
1955).
Any economic benefit to the employee whatever may have been the mode by which it is effected is taxable. Thus, in stock options, the difference between the fair market value of the shares at the time the option is exercised and the option price constitutes additional compensation income to the employee (Commissioner vs. Smith, 324 U.S. 177).
EXCLUSIONS
Life insurance proceeds Amount received by insured as return of premium Gifts, bequests and devises Compensation for injuries or sickness Income exempt under treaty Retirement benefits, pensions, gratuities
R.A. 7641 (5 yrs & 60 yrs) and R.A. 4917 (10 yrs & 50 yrs)
Interest income of employee trust fund or accredited retirement plan is exempt from FWT (CIR v. GCL Retirement Plan, 207 SCRA 487)
Amount received as a consequence of separation because of death, sickness (that will endanger life of employee) or other physical disability or for any cause beyond the control of employee
Miscellaneous items
Income of foreign government Income of government or its political subdivisions from any public utility or exercise of governmental function
EXEMPT ASSOCIATIONS
The phrase any of their activities conducted for profit does not qualify the word properties. -- 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. Thus, the income derived from rentals of real property owned by the Young Men s Christian Association of the Philippines, Inc. (YMCA), established as a welfare, education and charitable non-profit corporation, is subject to income tax. The rental income cannot be exempted on the solitary but unconvincing ground that said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. Where the law does not distinguish, neither should we distinguish. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. YMCA is exempt from the payment of property taxes only but not income taxes because it is not an educational institution devoting its income solely for educational purposes. The term educational institution has acquired a well-known technical meaning. Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education which refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to higher levels (Commissioner vs. Court of Appeals and YMCA of the Phils., G.R. No. 124043, Oct. 14, 1998).
DEDUCTIONS
KINDS OF DEDUCTIONS
Itemized Deductions Optional Standard Deductions Special Deductions
ITEMIZED DEDUCTIONS
Business expenses, incl. research and development Interests Taxes Losses Bad debts Depreciation Depletion Charitable contributions Contributions to pension trust Health or hospitalization premium
DEDUCTIONS
BUSINESS EXPENSES
1. The expense must be ordinary and necessary; 2. Paid or incurred during the taxable year; 3. In carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of profession; 4. Supported by adequate invoices or receipts; 5. Not contrary to law, public policy or morals. Operating expenses of an illegal or questionable business are deductible, but expenses of an inherently illegal nature, such as bribery and protection payments, are not. 6. The tax required to be withheld on the amount paid or payable is shown to have been paid to the BIR.
DEDUCTIONS
An expense is ordinary when it connotes a payment, which is normal in relation to the business of the taxpayer and the surrounding circumstances. An expense is necessary where the expenditure is appropriate or helpful in the development of taxpayer s business or that the same is proper for the purpose of realizing a profit or minimizing a loss. P9.4 M paid in 1985 for advertising a product was staggering incurred to stimulate future sales 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. Goodwill generally denotes the benefit arising from connection and reputation, and efforts to establish reputation are akin to acquisition of capital assets. Therefore, expenses related thereto are not business expenses but capital expenditures (CIR vs. General Foods Phi., GR No. 143672, Apr.
24, 2003).
DEDUCTIONS
Legal and accountant s fees for prior years were not billed in corresponding years (1984-1985). It was paid by taxpayer in succeeding year (1986) when it was billed by the lawyer and accountant. Taxpayers uses accrual method of accounting. Accrual of income and expense is permitted when the all events test has been met. This test requires (1) fixing a right to income or liability to pay, and (2) the availability of reasonably accurate determination of such income or liability. It does not, however, demand that the amount of income or liability be known absolutely; it only requires that a taxpayer has at its disposal the information necessary to compute the amount with reasonable accuracy, which implies something less than an exact or completely accurate amount. Moreover, deduction takes the nature of tax exemption; it must be construed strictly against the taxpayer (Commissioner vs. Isabela Cultural Corporation, G.R. No. 172231, Feb. 12, 2007).
DEDUCTIONS
INTEREST EXPENSE
There must be a valid and existing indebtedness; The indebtedness must be that of the taxpayer; The interest must be legally due and stipulated in writing; The interest expense must be paid or incurred during the taxable year; The indebtedness must be connected with the taxpayer's trade, business or exercise of profession; 6. The interest payment arrangement must not be between related taxpayers as mandated in Section 34(B)(2)(b), in relation to Section 36(B), of the Tax Code; 7. The interest is not expressly disallowed by law to be deducted from the taxpayer s gross income (e.g., interest on indebtedness to finance petroleum operations); and 8. The amount of interest deducted from gross income does not exceed the limit set forth in the law. In other words, the taxpayer s otherwise allowable deduction for interest expense shall be reduced by forty-two percent (42%) of the interest income subjected to final tax beginning November 1, 2005 under R.A. 9337, and that effective January 1, 2009, the percentage shall be thirty-three percent (33%) [Sec. 34(B)(1), NIRC]. 1. 2. 3. 4. 5.
DEDUCTIONS
TAXES
1. Payments must be for taxes, national or local; 2. Taxes are imposed by law upon the taxpayer; 3. Taxes must be paid or accrued during the taxable year in connection with the taxpayer s trade, business or profession; and 4. Taxes are not specifically excluded by law from being deducted from the taxpayer s gross income.
DEDUCTIONS
LOSSES (Rev. Regs. No. 12-77 and Rev. Regs. No. 10-79)
1. The loss must be that of the taxpayer; 2. The loss is actually sustained and charged off within the taxable year; 3. The loss is evidenced by a closed and completed transaction; 4. The loss is not claimed as a deduction for estate tax purposes; 5. The loss is not compensated for by insurance or otherwise; 6. In the case of an individual, the loss must be connected with his trade, business or profession, or incurred in any transaction entered into for profit though not connected with his trade, business or profession; and 7. In the case of casualty loss, it has been reported to the BIR within forty-five days from date of occurrence of the loss.
DEDUCTIONS
BAD DEBTS
1. There must be an existing indebtedness due to the taxpayer which must be valid and legally demandable; 2. The same must be connected with the taxpayer's trade, business or practice of profession; 3. The same must not be sustained in a transaction entered into between related parties enumerated under Sec. 36(B) of the Tax Code of 1997; 4. The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year; and 5. The same must be actually ascertained to be worthless and uncollectible as of the end of the taxable year.
DEDUCTIONS
TAX BENEFIT RULE
The taxpayer is obliged to declare as taxable income any subsequent recovery of bad debts in the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written off and claimed as deduction from gross income. It also applies to taxes previously deducted from gross income but which were subsequently refunded or credited by the BIR. He has to report income to the extent of the tax benefit derived in the year of deduction.
DEDUCTIONS
DEPRECIATION 1. The allowance for depreciation must be reasonable; 2. It must be for property arising out of its use in the trade or business, or out of its not being used temporarily during the year; 3. It must be charged off during the taxable year from the taxpayer s books of accounts; 4. Depreciation shall be computed on the basis of historical cost or
adjusted basis. While financial accounting allows computation based on appraised value, recovery of investment for tax purposes shall be limited to historical cost.
DEDUCTIONS
CHARITABLE CONTRIBUTIONS 1. The charitable contribution must actually be paid or made to the Philippine government or any political subdivision thereof exclusively for public purposes, or any of the accredited domestic corporation or association specified in the Tax Code; 2. It must be made within the taxable year; 3. It must not exceed 10% (individual) or 5% (corporation) of the taxpayer s taxable income before charitable contributions (whether deductible in full or subject to limitation); 4. It must be evidenced by adequate receipts or records; and 5. The amount of charitable contribution of property other than money shall be based on the acquisition cost of said property (Sec. 34(H), NIRC). The limitation is imposed to prevent abuse of donating paintings and other valuable properties and claiming excessive deductions therefrom.
DEDUCTIONS
D. Optional Standard Deduction Privilege is available only to citizens or resident aliens as well corporations subject to the regular corporate income tax; thus, non-resident aliens and non-resident foreign corporations are not entitled to claim the optional standard deduction. Standard deduction is optional; i.e., unless taxpayer signifies in his/its return his/its intention to elect this deduction, he/it is considered as having availed of the itemized deductions; Such election when made by the qualified taxpayer is irrevocable for the year in which made; however, he can change to itemized deductions in succeeding year(s);
DEDUCTIONS
Amount of standard deduction is limited to 40% of taxpayer s gross sales or receipts (in the case of an individual) or gross income (in the case of a corporation). If the individual is on the accrual basis of accounting for his income and deductions, OSD shall be based on the gross sales during the year. If he employs the cash basis of accounting, OSD shall be based on his gross receipts during the year. It should be noted that cost of sales or cost of services shall not be allowed to be deducted from gross sales or receipts. A general professional partnership (GPP) may claim either the itemized deductions or in lieu thereof, the OSD allowed to corporations in claiming the deductions in an amount not exceeding 40% of its gross income. The net income determined by either the itemized deduction or OSD from the GPP s gross income is the distributable net income from which the share of each share is to be ascertained. Proof of actual expenses is not required; hence, he is not also required to keep books of accounts and records with respect to his deductions during the year.
PERSONAL EXEMPTIONS
RA 8424: Jan 1, 1998 Single and estate or trust P20,000 Head of family P25,000 Married P32,000 For each child, not to exceed 4 P8,000 RA 9504: July 6, 2009 Individual, whether single, HOF, or married P50,000 For each child, not to exceed 4 P25,000 Law exempts income of minimum wage earners and increases OSD from 10% to 40% of gross sales or receipts, for individuals, and of gross income, for corporations.
PERSONAL EXEMPTIONS
Status-at-the-end-of-the-year rule
Status-at-the-end-of-the-year rule which means that whatever is the status of the taxpayer at the end of the calendar year shall be used for purposes of determining his personal and additional exemptions generally applies. A change of status of the taxpayer during the taxable year generally benefits, but does not prejudice, him. Thus, if he marries at the end of the year, he shall be entitled to personal exemption of P32,000/P50,000. If a child is born at any time during the calendar year, even on the last day of the year, the taxpayer is entitled to claim his child as a dependent entitling him to deduct additional exemption of P8,000/P25,000 for that year. On the other hand, if one of his qualified dependent children dies during the year, the law considers that the child died on the last day of the year; hence, he is entitled to claim the full amount of additional exemption of P8,000/P25,000 for the deceased child for the year.
ACCOUNTING METHODS
Cash method Accrual method
All events test; amounts received in advance are not treated as revenue of the period in which received but as revenue of future periods in which earned (Manila Mandarin Hotels vs. CIR, CTA Case No. 5046, Mar 24, 1997).
Installment sales
Sale on the installment plan
Initial payments do not exceed 25% of GSP
Substituted filing of return does not apply when the conditions above are not met, such as when the individual has (a) two or more employers, (b) mixed incomes, correct WT was not deducted from compensation income, etc.
Due Date for Filing Return April 15 of same year August 15 of same year November 15 of same year April 15 of the following year
Computation of the quarterly and annual tax returns of individuals (except those receiving purely compensation income) and corporations shall be made on the cumulative basis; i.e., gross income and deductions are consolidated and the income tax liability is computed on the consolidated net income, and the income taxes paid for the preceding quarter(s) are credited against the consolidated income tax due.
WITHHOLDING TAX
An income payment is subject to the expanded withholding tax, if the following conditions concur: a. An expense is paid or payable by the taxpayer, which is income to the recipient thereof subject to income tax; b. The income is fixed or determinable at the time of payment; c. The income is one of the income payments listed in the regulations that is subject to withholding tax, except when payor is a Top 20,000 Corporation; d. The income recipient is a resident of the Philippines liable to income tax; and e. The payor-withholding agent is also a resident of the Philippines.
WITHHOLDING TAX
BUSINESS TAXES
VAT Taxable transactions
Sale or lease of goods or properties Sale of services Importation of goods
Transaction is exempt from VAT, OPT, and Excise Tax (e.g., sale of agricultural food products in their original state)
Seller of services
Listed services are performed or to be performed in the Phil In the course of trade or business For a valuable consideration Services are not exempt from VAT
Importer of goods
Whether done in the course of his trade or business or for personal consumption
However, Rev. Regs. No. 4-2007 (Feb 2007) provides that if the real property sold is used in his trade or business, said transaction is subject to VAT, being incidental to the main business of the taxpayer, who is a VAT-registered taxpayer engaged in other types of business.
Goods or properties must be located in the Philippines and consumed or destined for consumption in the Phil.
Special economic zones under RA 7916 (PEZA Law) and freeport zones under RA 7227 (BCDA Law) are treated as foreign territories by fiction of law. Hence, importation of goods by a special economic or freeport zone enterprise shall be exempt from VAT and customs duties and will be subject to VAT and duties only upon their withdrawal from the customs custody. Destination Principle:
Export sales of goods are zero-rated (0% VAT) Import of goods into the Phil is taxable at 12% VAT
Tax rates
12% beginning Feb 1, 2006 (RA 9337) 0% VAT on zero-rated sales
Effectively zero-rated sales (sales to ADB, embassies, etc) Sales of gold to BSP Foreign currency denominated sales Sales of goods, supplies, equipment and fuel to persons engaged in international shipping or international air transport operations
EXEMPT SALE Exemption removes the VAT at the exempt stage Exempt taxpayer cannot reclaim VAT passed on to it by VAT-registered sellers Exempt sales are not taxable sales for VAT purposes
For sale of services, the test is not whether services have been performed or not, but whether amount of compensation or fee is received, actually or constructively. The rule is: NO RECEIPT OF PAYMENT, NO VAT LIABILITY.
Services rendered to persons or entities whose exemption under special laws or international agreements to which the Phil is a signatory effectively subjects the sale of services to 0% rate
Transitional input tax credit Presumptive input tax credit Withholding input tax credit Excess input tax credit
Only VAT-registered persons are entitled to credit input taxes against their output tax. Non-registration as a VAT taxpayer does not exempt him from VAT output tax liability on his taxable sales of goods, properties or services.
For non-zero-rated sales, remedy available is only to carry over EIT to the next quarter(s)
ASSESSMENT CYCLE
Filing of tax return Tax audit by BIR Informal Conference Preliminary Assessment Notice (PAN) Reply to PAN Final Assessment Notice (FAN) Protest to FAN Supplemental Protest Law prescribes due date 120 days + 120 days
15 days from receipt 3 years or 10 years 30 days from receipt 60 days from filing of protest
ASSESSMENT CYCLE
BIR ACTION
Cancell assessment Deny protest Revise assessment
180 days from filing of protest, if any, or supplemental protest 30 days from date of receipt of denial of protest or lapse of 180 days 15 days from date of receipt; addl 15 days may be granted by CTA after payment of docket fee.
REMEDIES OF TAXPAYERS
ADMINISTRATIVE REMEDY
BEFORE PAYMENT OF TAX
PROTEST OF ASSESSMENT
JUDICIAL REMEDY
APPEAL TO COURT OF TAX APPEALS
PURPOSE OF ASSESSMENT
To establish tax liability where an assessment is required
ASSESSMENT
FORMS OF ASSESSMENT 1. Formal assessment notice (FAN) 2. Collection letter a. Letter demanding payment of erroneously refunded amount (Guagua Electric Co v. CIR), or amount paid by bouncing check (Republic v. Limaco & de Guzman) b. Follow-up or collection letter duly received by taxpayer within the prescriptive period (TAXPAYER DENIED
RECEIPT OF ORIGINAL DEMAND LETTER AND ASS. NOTICE) (Republic v. Nielson & Co)
NOTE: Letter from revenue officer granting opportunity to disprove findings (SHOW-CAUSE LETTER) is NOT an assessment
ASSESSMENT
WHEN MUST ASSESSMENT BE MADE? (Sec. 203 & 222, NIRC)
COUNTING OF PERIOD
TAXABLE YEAR
Normal year (365 days) Leap year (366 days)
If there is a leap year within the prescriptive period (3 years from filing of return), a year shall be deemed to have 365 days only (NAMARCO v. Tecson, 29 SCRA 70). Thus, assessment issued on April 15 of the third
year from filing of return shall be treated as invalid due to prescription.
EO 292 (Administrative Code of 1987), being the more recent law than Civil Code, governs the computation of legal period. Accor-dingly, a year shall be understood to be 12 calendar months; a month of 30 days, unless it refers to a specific calendar month (CIR vs. Primetown Property Group, GR No. 162155, Aug 22, 2007).
ASSESSMENT
WHEN IS ASSESSMENT DEEMED MADE? Issue date of assessment notice is not reckoning point for prescription Date the assessment notice and demand letter is released, mailed or sent to taxpayer constitutes actual assessment (Republic v. Limaco & de Guzman) Presumption of receipt in the regular course of mail applies, if it was properly addressed, postage was prepaid, and was mailed. If one element is absent, presumption does not lie (Enriquez v. Sunlife of Canada)
ASSESSMENT NOTICE
Preliminary collection letter presupposes the existence of valid assessment notice. Preliminary collection letter shall serve as assessment notice, if it was initial notice received by taxpayer, taxpayer did not receive any assessment notice, and no follow-up letter was sent or preliminary conference was arranged. 30-day period to protest shall commence from date of receipt of preliminary collection letter (United International
Pictures vs. CIR, CTA Case No. 5884, Jan. 5, 2002)
PROTEST
Valid protest of an assessment is one assailing the formal assessment notice (FAN) and the letter of demand, not the preliminary assessment notice (PAN). PAN is required merely to inform the taxpayer of the proposed assessment. Failure to protest within 30 days will make the formal assessment notice final and executory. Failure to respond to PAN within 15 days will render taxpayer in default and a FAN would subsequently be issued (Cebu Rosver Pawnshop vs. CIR, CTA Case No. 6425, Mar. 17, 2003).
PROTEST
CIR vs. BPI
Oct 28, 1988 CIR assessed petitioner for def. percentage tax and DST for 1986 Dec 10, 1988 -- BPI replied stating Your def assessments are no assessments at all As soon as this is explained and clarified in a proper letter of assessment, we shall inform you of the taxpayer s decision on whether to pay or protest the assessment. June 27, 1991 -- BPI received letter from BIR, stating .. Your letter failed to qualify as a protest under RR 12-85 still we obliged to explain the basis of the assessments. July 6, 1991 -- BPI requested a reconsideration of assessments. Dec 12, 1991 -- BIR denied protest, which was received on Jan 21, 1992. Feb 18, 1992 -- BPI filed petition for review in CTA.
PROTEST
Nov 16, 1995 -- CTA dismissed petition for lack of jurisdiction; assessments had become final and unappealable. May 27, 1996, CTA denied reconsideration. On appeal, CA reversed CTA s decision. It ruled Oct 28, 1988 notices were not valid assessments because they did not inform the taxpayer of the legal and factual bases therefor. It declared the proper assessments were those in May 8, 1991 letter which provided the reasons for claimed deficiencies. CIR elevated case to SC. CIR did not inform BPI in writing of the law and facts on which assessments were made. He merely notified BPI of his findings, consisting of the computation of the tax liabilities and a demand for payment within 30 days from receipt. He relied on former Sec. 270, NIRC, prior to its amendment by RA 8424. In CIR vs.Reyes, GR 159694, Jan 27, 2006, the only requirement was for the CIR to notify or inform the taxpayer of his findings. Nothing in the old law required a written statement to the taxpayer of the law and the facts. The Court cannot read into the law what obviously was not intended by Congress. That would be judicial legislation.
PROTEST
Jurisprudence simply required that assessments contain a computation of tax liabilities, the amount to be paid plus a demand for payment within a prescribed period. The sentence the taxpayer shall be informed in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. was not in old Sec. 270, but was only inserted in Sec. 228 in 1997 (R.A. 8424). The inserted sentence was not an affirmation of what the law required; the amendment by RA 8424 was an innovation and could not be reasonably inferred from the old law. The Oct 28, 1998 notices were valid assessments, which BPI should have protested within 30 days from receipt. The Dec 10, 1988 reply it sent to BIR did not qualify as a protest, since the letter itself stated we shall inform you of the taxpayer s decision on whether to pay or protest the assessment. BPI s failure to protest the assessment made it final and executory. The assessment is presumed to be correct (CIR vs BPI, GR 134062, Apr 17, 2007).
DENIAL OF PROTEST
DIRECT DENIAL
Letter of CIR states in clear terms his denial of protest.
INDIRECT DENIAL
Final Notice Before Seizure constitutes as a decision on a protested assessment; hence, appealable to the CTA (CIR vs. Isabela Cultural Corp, 361 SCRA 71
(2004)
Issuance by BIR of Warrant of Distraint and Levy constitutes a denial of the protest.
INACTION OF COMMISSIONER
The taxpayer has two options:
Wait for the decision of the Commissioner on the protest and file the appeal to the CTA within 30 days from date of receipt of the denial of protest; or File appeal to the CTA within 30 days from lapse of the 180-day period (Lascona Land
Co vs CIR, CTA Case No. 5777, Jan 4, 2000)
BIR appealed CTA decision to CA. In the meantime, RA 9282 was signed by PGMA on Apr 2, 2004, which provides that inaction of CIR during the 180-day period is construed as a denial of protest. Decision of the CTA on Lascona case was reversed by the CA. If there is no appeal filed within 30 days after the lapse of 180 day period, the matter/decision under protest becomes final. The word decision in Sec. 228 cannot be strictly ck strictly construed as referring only to decision per se of CIR but should be considered synonymous with disputed assessment (CIR vs. Lascona Land Co, CA GR SP No. 58061, Oct 25, 2005). CA decision was appealed to SC, where it is still pending.
APPEALS
ADMINISTRATIVE APPEAL
DECISION OF REGIONAL DIRECTOR MAY BE APPEALED TO COMMISSIONER PRIOR EXHAUSTION OF ADM REMEDIES GIVES ADM AUTHORITIES PRIOR OPPORTUNITY TO DECIDE CONTROVERSIES WITHIN THEIR COMPETENCE (Aguinaldo Industries Corp. v. CIR)
JUDICIAL APPEAL
FINAL DECISION OF COMMISSIONER MAY BE APPEALED TO COURT OF TAX APPEALS
Where a taxpayer filed a valid protest within 30 days from date of receipt of assessment and on same day also filed with CTA a petition for review, there is yet no final decision of CIR on the protest that is appealable to CTA (Moog Controls Corp vs. CIR, CTA Case
No. 6700, Oct 18, 2004) CTA DIVISION DECISION IS APPEALED TO CTA EN BANC COURT OF APPEALS EN BANC DECISION APPEALED TO SUPREME COURT
PRESCRIPTION
The 3-year period within which to assess any deficiency tax commences after the last day prescribed by law for the filing of the income tax return. For VAT, each taxable quarter shall have its own prescriptive period. VAT return is filed quarterly and a final return is not required at the end of the year. In case of creditable withholding taxes, the 3-year period shall be counted shall be counted from the last day required by law for filing monthly remittance return. Each monthly return is already a complete return. The annual information return submitted to BIR is just an annual report of income payments and taxes withheld and is not in the nature of a final adjustment return (HPCO Agridev Corp. vs. CIR, CTA Case No. 6355, July 18, 2002)
PRESCRIPTION
Request for reconsideration or clarification on the assessment made by the taxpayer does not suspend the running of the statute of limitations. However, request for reinvestigation may suspend the running of prescriptive period when it has been granted by CIR (BPI vs. CIR, GR No. 139736, Oct 17, 2005) Mere filing of the protest letter without requesting for a reinvestigation does not suspend the running of the prescriptive period to collect (Phil Global Communications vs.
CIR, CTA EB Case No. 37, Feb. 2005)
REQUISITES OF WAIVER
Waiver must be in the form identified in RMO 20-90; Expiry date of period agreed upon is indicated in the waiver; Waiver form requires statement of the kind of tax and amount of tax due; if not indicated in the waiver, there is no agreement; Waiver is signed by taxpayer or his authorized representative. In case of corporation, waiver is signed by any responsible official. CIR or his authorized representative shall sign waiver indicating that BIR has accepted and agreed to the waiver; Date of acceptance by BIR is indicated; Date of execution and acceptance by BIR should be before expiration of prescriptive period; Waiver is executed in 3 copies; second copy is for taxpayer. Fact of receipt by the taxpayer should be indicated in the original copy (Pfizer, Inc. vs. CIR, CTA
Case No. 6135, Apr. 21, 2003; FMF Dev. Corp. vs. CIR, CTA Case No. 6153, Mar. 20, 2003)
REQUISITES OF WAIVER
Waiver must indicate definite expiration date agreed upon by CIR and taxpayer Waiver should state date of acceptance by BIR. Without the date, it cannot be determined whether waiver was accepted before expiration of 3-year period. Taxpayer must be furnished copy of accepted waiver. Under RMO 20-90, second copy of waiver is for taxpayer. Fact of receipt by taxpayer of his copy should be indicated in the original copy (Phil. Journalists vs. CIR, supra). RMO 20-90 must be strictly construed against the government; they are mandatory in character. More-over, the waiver of the statute of limitations is not a waiver of the right to invoke the defense of prescription (CIR vs. FMF Dev Corp, GR No.
167765, June 30, 2008).
FRAUD
TAX AVOIDANCE is the tax saving device within the means sanctioned by law, used in good faith and at arms length. TAX EVASION 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. It connotes 3 factors: end to be achieved; an accompanying state of mind that is described as evil, willful or deliberate; and course of action which is unlawful. Altonaga s sole purpose of acquiring and transferring title of properties on same day was to create tax shelter. Sale to him by CIC was a sham and without business purpose. Sale by Altonaga to RMI was tainted with fraud. Even before the purported sale of property by CIC to Altonaga, it received P40 M from RMI. That was reflected by RMI in its financial statement (CIR
vs. Estate of Benigno Toda, GR No. 147188, Sept. 14, 2004)
END OF PRESENTATION Atty. Vic C. Mamalateo Mobile: 0918-9037436 Email: [email protected]; [email protected]
END OF PRESENTATION Atty. Vic C. Mamalateo Mobile: 0918-9037436 Email: [email protected]; [email protected]