GENERALPRINCIPLES I.Concepts,NatureandCharacteristicsofTaxationandTaxes. TaxationDefined: Asaprocess,itisameansbywhichthesovereign,throughitslawmakingbody, raisesrevenuetodefraythenecessaryexpensesofthegovernment.Itismerelyawayof apportioningthecostsofgovernmentamongthosewhoinsomemeasuresareprivileged toenjoyitsbenefitsandmustbearitsburdens. Asapower ,taxationreferstotheinherentpowerofthestatetodemandenforced contributionsforpublicpurposeorpurposes. RationaleofTaxationTheSupremeCourtheld: Itissaidthattaxesarewhatwepayforcivilizedsociety.Withouttaxes,the governmentwouldbeparalyzedforlackofthemotivepowertoactivateandoperateit.

. Hence,despitethenaturalreluctancetosurrenderpartofoneshardearnedincometo thetaxingauthorities,everypersonwhoisablemustcontributehisshareintherunning ofthegovernment.Thegovernmentforitspartisexpectedtorespondintheformof tangibleandintangiblebenefitsintendedtoimprovethelivesofthepeopleandenhance theirmoralandmaterialvalues.Thesymbioticrelationshipistherationaleof taxation andshoulddispeltheerroneousnotionthatitisanarbitrarymethodof exactionbythoseintheseatofpower. Taxationisasymbioticrelationship,wherebyinexchangefortheprotectionthat thecitizensgetfromthegovernment,taxesarepaid.(CommissionerofInternal RevenuevsAllegre,Inc.,etal.,L28896,Feb.17,1988) PurposesandObjectivesofTaxation 1. RevenuetoprovidefundsorpropertywithwhichtheStatepromotesthegeneral welfareandprotectionofitscitizens. 2. NonRevenue[PR2EP] a. PromotionofGeneralWelfareTaxationmaybeusedasanimplementofpolice powerinordertopromotethegeneralwelfareofthepeople.[seeLutzvsAraneta(98 Phil148)andOsmeavsOrbos(G.R.No.99886,Mar.31,1993)]

b. RegulationAsinthecaseoftaxesleviedonexcisesandprivilegeslikethose imposedintobaccooralcoholicproductsoramusementplaceslikenightclubs,cabarets, cockpits,etc. InthecaseofCaltexPhils.Inc.vsCOA (G.R.No.92585,May8,1992),itwasheld thattaxesmayalsobeimposedforaregulatorypurposeas,forinstance,inthe rehabilitationandstabilizationofathreatenedindustrywhichisaffectedwithpublic industryliketheoilindustry. c. ReductionofSocialInequality thisismadepossiblethroughtheprogressive systemoftaxationwheretheobjectiveistopreventtheunderconcentrationofwealthin thehandsoffewindividuals. d. EncourageEconomicGrowth intherealmoftaxexemptionsandtaxreliefs,for instance,thepurposeistograntincentivesorexemptionsinordertoencourage investmentsandtherebypromotethecountryseconomicgrowth. e. Protectionism insomeimportantsectorsoftheeconomy,asinthecaseofforeign importations,taxessometimesprovideprotectiontolocalindustrieslikeprotective tariffsandcustoms. TaxesDefined Taxesaretheenforcedproportionalcontributionsfrompersonsandpropertylevied bythelawmakingbodyoftheStatebyvirtueofitssovereigntyforthesupportof governmentandforpublicneeds. EssentialCharacteristicofTaxes[LEMP3S] 1. Itisleviedbythelawmakingbody oftheState ThepowertotaxisalegislativepowerwhichundertheConstitutiononlyCongress canexercisethroughtheenactmentoflaws.Accordingly,theobligationtopaytaxesisa statutoryliability. 2. Itisanenforced contribution Ataxisnotavoluntarypaymentordonation.Itisnotdependentonthewillor contractualassent,expressorimplied,ofthepersontaxed.Taxesarenotcontractsbut positiveactsofthegovernment. 3. Itisgenerallypayableinmoney Taxisapecuniaryburdenanexactiontobedischargedaloneintheformof

moneywhichmustbeinlegaltender,unlessqualifiedbylaw,suchasRA304which allowsbackpaycertificatesaspaymentoftaxes. 4. Itisproportionate incharacterItisordinarilybasedonthetaxpayersabilityto pay . 5. ItisleviedonpersonsorpropertyAtaxmayalsobeimposedonacts, transactions,rightsorprivileges. 6. ItisleviedforpublicpurposeorpurposesTaxationinvolves,andatax constitutes,aburdentoprovideincomeforpublicpurposes. 7. ItisleviedbytheState whichhasjurisdictionoverthepersonsorproperty.The persons,propertyorservicetobetaxedmustbesubjecttothejurisdictionofthetaxing state.

TheoryandBasisofTaxation 1. NecessityTheory Taxesproceeduponthetheorythattheexistenceofthegovernmentisanecessity; thatitcannotcontinuewithoutthemeanstopayitsexpenses;andthatforthosemeans, ithastherighttocompelallcitizensandpropertieswithinitslimitstocontribute. Inacase,theSupremeCourtheldthat: Taxationisapoweremanatingfromnecessity.Itisanecessaryburdentopreserve theStatessovereigntyandameanstogivethecitizenryanarmytoresistaggression,a navytodefenditsshoresfrominvasion,acorpsofcivilservantstoserve,public improvementsdesignedfortheenjoymentofthecitizenryandthosewhichcomewith theStatesterritoryandfacilities,andprotectionwhichagovernmentissupposedto provide.(Phil.GuarantyCo.,Inc.vsCommissionerofInternalRevenue,13SCRA775). 2. TheBenefitsProtectionTheory Thebasisoftaxationisthereciprocaldutyofprotectionbetweenthestateandits inhabitants.Inreturnforthecontributions,thetaxpayerreceivesthegeneraladvantages andprotectionwhichthegovernmentaffordsthetaxpayerandhisproperty.

QualificationsoftheBenefitProtectionTheory: a. Itdoesnotmeanthatonlythosewhoareabletopayanddopaytaxescanenjoythe

privilegesandprotectiongiventoacitizenbythegovernment. b. Fromthecontributionsreceived,thegovernmentrendersnospecialor commensuratebenefittoanyparticularpropertyorperson. c. Theonlybenefittowhichthetaxpayerisentitledisthatderivedfromhisenjoyment oftheprivilegesoflivinginanorganizedsocietyestablishedandsafeguardedbythe devotionoftaxestopublicpurposes.(GomezvsPalomar,25SCRA829) d. Ataxpayercannotobjecttoorresistthepaymentoftaxessolelybecauseno personalbenefittohimcanbepointedoutasarisingfromthetax. (LorenzovsPosadas, 64Phil353) 3. LifebloodTheory Taxesarethelifebloodofthegovernment,beingsuch,theirpromptandcertain availabilityisanimperiousneed.(CollectorofInternalRevenuevs.GoodrichInternational RubberCo.,Sept.6,1965)Withouttaxes,thegovernmentwouldbeparalyzedforlackof motivepowertoactivateandoperateit.

NatureofTaxingPower 1. InherentinsovereigntyThepoweroftaxationisinherentinsovereigntyasan incidentorattributethereof,beingessentialtotheexistenceofeverygovernment.Itcan beexercisedbythegovernmenteveniftheConstitutionisentirelysilentonthesubject. a. Constitutionalprovisionsrelatingtothepoweroftaxationdonotoperateasgrants ofthepowertothegovernment.Theymerelyconstitutelimitationsuponapowerwhich wouldotherwisebepracticallywithoutlimit. b. Whilethepowertotaxisnotexpresslyprovidedforinourconstitutions,its existenceisrecognizedbytheprovisionsrelatingtotaxation. InthecaseofMactanCebuInternationalAirportAuthorityvsMarcos,Sept.11,1996, asanincidentofsovereignty,thepowertotaxhasbeendescribedasunlimitedinits range,acknowledginginitsverynaturenolimits,sothatsecurityagainstitsabuseisto befoundonlyintheresponsibilityofthelegislativewhichimposesthetaxonthe constituencywhoaretopayit. 2. LegislativeincharacterThepowertotaxisexclusivelylegislativeandcannotbe exercisedbytheexecutiveorjudicialbranchofthegovernment. 3. Subjecttoconstitutionalandinherentlimitations Althoughinonedecidedcase theSupremeCourtcalleditanawesomepower,thepoweroftaxationissubjectto certainlimitations.MostoftheselimitationsarespecificallyprovidedintheConstitution orimpliedtherefromwhiletherestareinherentandtheyarethosewhichspringfrom

thenatureofthetaxingpoweritselfalthough,theymayormaynotbeprovidedinthe Constitution.

ScopeofLegislativeTaxingPower[S2APKAM] 1. 2. 3. 4. 5. 6. subjectsofTaxation (thepersons,propertyoroccupationetc.tobetaxed) amountorrateofthetax purposesforwhichtaxesshallbeleviedprovidedtheyarepublicpurposes apportionmentofthetax situsoftaxation methodofcollection

IsthePowertoTaxthePowertoDestroy? InthecaseofChurchill,etal.vsConcepcion(34Phil969) ithasbeenruledthat: Thepowertoimposetaxesisonesounlimitedinforceandsosearchinginextent sothatthecourtsscarcelyventuretodeclarethatitissubjecttoanyrestriction whatever,exceptsuchasrestinthediscretionoftheauthoritywhichexerciseit.No attributeofsovereigntyismorepervading,andatnopointdoesthepowerof governmentaffectmoreconstantlyandintimatelyalltherelationsoflifethanthrough theexactionmadeunderit. AndinthenotablecaseofMcCullochvsMaryland, ChiefJusticeMarshalllaiddown therulethatthepowertotaxinvolvesthepowertodestroy . Accordingtoanauthority,theaboveprincipleispertinentonlywhenthereisno powertotaxaparticularsubjectandhasnorelationtoacasewheresuchrighttotax exists.Thisoptquotedmaximinsteadofbeingregardedasablanketauthorizationofthe unrestraineduseofthetaxingpowerforanyandallpurposes,irrespectiveofrevenue,is morereasonablyconstruedasanepigrammaticstatementofthepoliticalandeconomic axiomthatsincethefinancialneedsofastateornationmayoutrunanyhuman calculation,sothepowertomeetthoseneedsbytaxationmustnotbelimitedeven thoughthetaxesbecomeburdensomeorconfiscatory.Tosaythatthepowertotaxis thepowertodestroyistodescribenotthepurposesforwhichthetaxingpowermaybe usedbutthedegreeofvigorwithwhichthetaxingpowermaybeemployedinorderto raiserevenue(ICooley179181) ConstitutionalRestraintsRe:TaxationisthePowertoDestroy Whiletaxationissaidtobethepowertodestroy,itisbynomeansunlimited.Itis equallycorrecttopostulatethatthe powertotaxisnotthepowertodestroywhilethe SupremeCourtsits,becauseoftheconstitutionalrestraintsplacedonataxingpower

thatviolatedfundamentalrights. InthecaseofRoxas,etalvsCTA(April26,1968),theSCremindsusthatalthough thepoweroftaxationissometimescalledthepowertodestroy,inordertomaintainthe generalpublicstrustandconfidenceintheGovernment,thispowermustbeusedjustly andnottreacherously.TheSupremeCourtheld: Thepoweroftaxationissometimescalledalsothepowertodestroy.Thereforeit shouldbeexercisedwithcautiontominimizeinjurytotheproprietaryrightsofa taxpayer.Itmustbeexercisedfairly,equallyanduniformly,lestthetaxcollectorkillthe henthatlaysthegoldenegg .And,inordertomaintainthegeneralpublictrustand confidenceintheGovernmentthispowermustbeusedjustlyandnottreacherously. Thedoctrineseekstodescribe,inanextreme,theconsequentialnatureoftaxation anditsresultingimplications,towit: a. Thepowertotaxmustbeexercisedwithcautiontominimizeinjurytoproprietary rightsofataxpayer; b. Ifthetaxislawfulandnotviolativeofanyoftheinherentandconstitutional limitations,thefactalonethatitmaydestroyanactivityorobjectoftaxationwillnot entirelypermitthecourtstoaffordanyrelief;and c. Asubjectorobjectthatmaynotbedestroyedbythetaxingauthoritymaynot likewisebetaxed.(e.g.exerciseofaconstitutionalright) PowerofJudicialReviewinTaxation Thecourtscannotreviewthewisdomoradvisabilityorexpediencyofatax.The courtspowerislimitedonlytotheapplicationandinterpretationofthelaw. Judicialactionislimitedonlytoreviewwhereinvolves: 1. Thedeterminationofvalidityonthetaxinrelationtoconstitutionalpreceptsor provisions. 2. Thedetermination,inanappropriatecase,oftheapplicationofthelaw.

AspectsofTaxation 1. Levy determinationofthepersons,propertyorexcisestobetaxed,thesumor sumstoberaised,theduedatethereofandthetimeandmanneroflevyingand collectingtaxes(strictlyspeaking,suchreferstotaxation) 2. Collection consistsofthemannerofenforcementoftheobligationonthepartof thosewhoaretaxed.(thisincludespaymentbythetaxpayerandisreferredtoastax administration) Thetwoprocessestogetherconstitutethe taxationsystem . BasicPrinciplesofaSoundTaxSystem[FAT]

1. FiscalAdequacythesourcesoftaxrevenueshouldcoincidewith,andapproximate theneedsofgovernmentexpenditure.Neitheranexcessnoradeficiencyofrevenuevis vistheneedsofgovernmentwouldbeinkeepingwiththeprinciple. 2. AdministrativeFeasibilitytaxlawsshouldbecapableofconvenient,justand effectiveadministration. 3. TheoreticalJusticethetaxburdenshouldbeinproportiontothetaxpayer sabilitytopay(abilitytopayprinciple).The1987Constitutionrequirestaxationtobe equitableanduniform.

II.ClassificationsandDistinction ClassificationofTaxes A. AstoSubjectmatter 1. Personal,capitationorpolltaxestaxesoffixedamountuponallpersonsofa certainclasswithinthejurisdictionofthetaxingpowerwithoutregardtotheamountof theirpropertyoroccupationsorbusinessesinwhichtheymaybeengagedin. example:communitytax 2. PropertyTaxestaxesonthingsorpropertyofacertainclasswithinthe jurisdictionofthetaxingpower. example:realestatetax 3. ExciseTaxeschargesimposedupontheperformanceofanact,theenjoymentofa privilege,ortheengaginginanoccupation. examples:incometax,valueaddedtax,estatetaxordonorstax

B. AstoBurden 1. DirectTaxestaxeswhereinboththeincidence aswellastheimpact orburden ofthetaxfacesononeperson. examples:incometax,communitytax,donorstax,estatetax 2. IndirectTaxestaxeswhereintheincidenceofortheliabilityforthepaymentof thetaxfallsononeperson,buttheburdenthereofcanbeshiftedorpassedtoanother

person. examples:VAT,percentagetaxes,customsdutiesexcisetaxesoncertainspecific goods ImportantPointstoConsiderregardingIndirectTaxes: 1. Whentheconsumerorenduserofamanufacturerproductistaxexempt,such exemptioncoversonlythosetaxesforwhichsuchconsumerorenduserisdirectly liable.Indirecttaxesarenotincluded.Hence,themanufacturercannotclaimexemption fromthepaymentofsalestax,neithercantheconsumerorbuyeroftheproductdemand therefundofthetaxthatthemanufacturermighthavepassedontohim.(Phil.Acetylene Co.inc.vsCommissionerofInternalRevenueet.al.,L19707,Aug.17,1987) 2. Whenthetransactionitselfistheonethatistaxexemptbutthrougherrortheseller paysthetaxandshiftsthesametothebuyer,thesellergetstherefund,butmustholdit intrustforbuyer.(AmericanRubberCo.case,L10963,April30,1963) 3. Wheretheexemptionfromindirecttaxisgiventothecontractee,buttheevident intentionistoexemptthecontractorsothatsuchcontractormaynolongershiftorpass onanytaxtothecontractee,thecontractormayclaimtaxexemptiononthetransaction (CommissionerofInternalRevenuevsJohnGotamcoandSons,Inc.,et.al.,L31092,Feb.27, 1987) 4. Whenthelawgrantingtaxexemptionspecificallyincludesindirecttaxesorwhenitis clearlymanifestthereinthatlegislativeintentiontoexemptembracesindirecttaxes,then thebuyeroftheproductorservicesoldhasarighttobereimbursedtheamountofthe taxesthatthesellerspassedontohim.(MacedavsMacaraig,supra)

C. AstoPurpose 1. General/Fiscal/Revenuetaximposedforthegeneralpurposesofthegovernment, i.e.,toraiserevenuesforgovernmentalneeds. Examples:incometaxes,VAT,andalmostalltaxes 2. Special/Regulatorytaximposedforspecialpurposes,i.e.,toachievesomesocial oreconomicneeds. Examples:educationalfundtaxunderRealPropertyTaxation D. AstoMeasureofApplication

1. SpecificTaxtaximposedperhead,unitornumber,orbysomestandardofweight ormeasurementandwhichrequiresnoassessmentbeyondalistingandclassificationof thesubjectstobetaxed. Examples:taxesondistilledspirits,wines,andfermentedliquors 2. AdValoremTaxtaxbasedonthevalueofthearticleorthingsubjecttotax. example:realpropertytaxes,customsduties E. AstoDate 1. ProgressiveTaxtherateortheamountofthetaxincreasesastheamountofthe incomeorearning(taxbase)tobetaxedincreases. examples:incometax,estatetax,donorstax 2. RegressiveTaxthetaxratedecreasesastheamountofincomeorearning(tax base)tobetaxedincreases. Note:Wehavenoregressivetaxes(thisisaccordingtoDeLeon) 3. MixedTaxtaxratesarepartlyprogressiveandpartlyregressive. 4. ProportionateTaxtaxratesarefixedonaflattaxbase. examples:realestatetax,VAT,andotherpercentagetaxes

F. AstoScopeorauthorityimposingthetax 1. NationalTaxtaximposedbytheNationalGovernment. examples:nationalinternalrevenuetaxes,customsduties 2. Municipal/LocalTaxtaximposedbyLocalGovernmentunits. examples:realestatetax,professionaltax RegressiveSystemofTaxationvisvisRegressiveTax Aregressivetax,mustnotbeconfusedwithregressivesystemoftaxation. RegressiveTax:taxtherateofwhichdecreasesasthetaxbaseincreases. RegressiveSystemofTaxation: focusesonindirecttaxes,itexistswhenthereare moreindirecttaxesimposedthandirecttaxes. TaxesdistinguishedfromotherImpositions

a. TollvsTax Toll sumofmoneyfortheuseofsomething,generallyappliedtothe considerationwhichispaidfortheuseofaroad,bridgeofthelike,ofapublicnature.

TaxvsToll 1. demandof 1. demandof sovereignty proprietorship 2. paidforthe 2. paidfortheuse supportofthe ofanothers government property 3. generally,no 3. amount limitastoamount dependsonthe imposed costof constructionor maintenanceofthe public improvementused 4. imposedonly 4. imposedbythe bythegovernment governmentor privateindividuals orentities b. PenaltyvsTax Penaltyanysanctionsimposedasapunishmentforviolationsoflaworacts deemedinjurious. TaxvsPenalty 1. generally 1. designedto intendedtoraise regulateconduct revenue 2. imposedonly 2. imposedbythe bythegovernment governmentor privateindividuals orentities c. SpecialAssessmentvsTax SpecialAssessmentanenforcedproportionalcontributionfromownersoflands especiallyorpeculiarlybenefitedbypublicimprovements.

TaxvsSpecial Assessment 1. imposedon 1. leviedonlyon persons,property land andexcise 2. personal 2. notapersonal liabilityofthe liabilityofthe personassessed personassessed, i.e.hisliabilityis limitedonlytothe landinvolved 3. basedon 3. basedwholly necessityaswellas onbenefits onbenefits received 4. general 4. exceptional application(see bothastimeand ApostolicPrefect place vsTreas.Of Baguio,71Phil 547) ImportantPointstoConsiderRegardingSpecialAssessments: 1. Sincespecialassessmentsarenottaxeswithintheconstitutionalorstatutory provisionsontaxexemptions,itfollowsthattheexemptionunderSec.28(3),Art.VIof theConstitutiondoesnotapplytospecialassessments. 2. However,inviewoftheexemptingprovisoinSec.234oftheLocalGovernmentCode, propertieswhichareactually,directlyandexclusivelyusedforreligious,charitableand educationalpurposesarenotexactly exemptfromrealpropertytaxesbutareexemptfrom theimpositionofspecialassessmentsaswell.(seeAban) 3.Thegeneralruleisthatanexemptionfromtaxationdoesnotincludeexemptionfrom specialassessment. d. LicenseorPermitFeevsTax LicenseorPermitfee isachargeimposedunderthepolicepowerforthe purposesofregulation. TaxvsLicense/ PermitFee

1. enforced contribution assessedby sovereignauthority todefraypublic expenses 2. forrevenue purposes 3. anexerciseof thetaxingpower 4. generallyno limitintheamount oftaxtobepaid

1. legal compensationor rewardofan officerforspecific purposes 2. forregulation purposes 3. anexerciseof thepolicepower 4. amountis limitedtothe necessaryexpenses ofinspectionand regulation 5. imposedonthe righttoexercise privilege 6. nonpayment makestheactor businessillegal

5. imposedalso onpersonsand property 6. nonpayment doesnot necessarilymake theactorbusiness illegal 1. 2. 3.

Threekindsoflicensesarerecognizedinthelaw: Licensesfortheregulationofusefuloccupations. Licensesfortheregulationorrestrictionofnonusefuloccupationsorenterprises Licensesforrevenueonly

Importanceofthedistinctionsbetweentaxandlicensefee: 1. Somelimitationsapplyonlytooneandnottotheother,andthatexemptionfrom taxesmaynotincludeexemptionfromlicensefees. 2. Thepowertoregulateasanexerciseofpolicepowerdoesnotincludethepowerto imposefeesforrevenuepurposes.(seeAmericanMailLinevsCityofButuan,L12647, May31,1967andrelatedcases) 3. Anextraction,however,maybeconsideredbothataxandalicensefee. 4. Butataxmayhaveonlyaregulatorypurpose. 5. Thegeneralruleisthattheimpositionisataxifitsprimarypurposeistogenerate revenueandregulationismerelyincidental;butifregulationistheprimarypurpose,the

factthatincidentallyrevenueisalsoobtaineddoesnotmaketheimpositionofatax.(see ProgressiveDevelopmentCorp.vsQuezonCity,172SCRA629) e. DebtvsTax Debtisbaseduponjuridicaltie,createdbylaw,contracts,delictsorquasidelicts betweenpartiesfortheirprivateinterestorresultingfromtheirownactsoromissions. TaxvsDebt 1. basedonlaw 1. basedon contracts,express orimplied 2. generally, 2. assignable cannotbeassigned 3. generally 3. maybepaidin payableinmoney kind 4. generallynot 4. maybesubject subjecttosetoffor tosetoffor compensation compensation 5. imprisonment 5. no isasanctionfor imprisonmentfor nonpaymentof nonpaymentof taxexceptpolltax debt 6. governedby 6. governedby specialprescriptive theordinary periodsprovided periodsof forintheTaxCode prescriptions 7. doesnotdraw 7. drawsinterest interestexcept whensostipulated, onlywhen orincaseofdefault delinquent GeneralRule: Taxesarenotsubjecttosetofforlegalcompensation.Thegovernment andthetaxpayerarenotcreditorsanddebtorsoreachother.Obligationsinthenatureof debtsareduetothegovernmentinitscorporatecapacity,whiletaxesareduetothe governmentinitssovereigncapacity( PhilexMiningCorp.vsCIR,294SCRA687;Republic vsMambulaoLumberCo.,6SCRA622) Exception:Whereboththeclaimsofthegovernmentandthetaxpayeragainsteach otherhavealreadybecomedueanddemandableaswellasfullyliquated.(seeDomingovs Garlitos,L18904,June29,1963)

PertinentCase: PhilexMiningCorp.vsCommissionerofInternalRevenue G.R.No.125704,Aug.28,1998 TheSupremeCourtheldthat:Wehaveconsistentlyruledthattherecanbeno offsettingoftaxesagainsttheclaimsthatthetaxpayermayhaveagainstthegovernment. Apersoncannotrefusetopayataxonthegroundthatthegovernmentoweshiman amountequaltoorgreaterthanthetaxbeingcollected.Thecollectionofataxcannot awaittheresultsofalawsuitagainstthegovernment. f. TaxDistinguishedfromotherTerms. 1. Subsidy apecuniaryaiddirectlygrantedbythegovernmenttoanindividualor privatecommercialenterprisedeemedbeneficialtothepublic. 2. Revenuereferstoallthefundsorincomederivedbythegovernment,whether fromtaxorfromwhateversourceandwhatevermanner. 3. CustomsDutiestaxesimposedongoodsexportedfromorimportedintoacountry. Thetermtaxesisbroaderinscopeasitincludescustomsduties. 4. Tariff itmaybeusedin3senses: a. Asabookofratesdrawnusuallyinalphabeticalordercontainingthenamesof severalkindsofmerchandisewiththecorrespondingdutiestobepaidforthesame. b. Asdutiespayableongoodsimportedorexported(PDNo.230) c. Asthesystemorprincipleofimposingdutiesontheimportation/exportationof goods. 5. InternalRevenuereferstotaxesimposedbythelegislativeotherthandutiesor importsandexports. 6. MarginFeeacurrencymeasuredesignedtostabilizethecurrency. 7. Tributesynonymouswithtax;taxationimpliestributefromthegovernedtosome formofsovereignty.

8. Impost initsgeneralsense,itsignifiesanytax,tributeorduty.Initslimitedsense, itmeansadutyonimportedgoodsandmerchandise. InherentPowersoftheState 1. PolicePower 2. PowerofEminentDomain 3. PowerofTaxation DistinctionsamongtheThreePowers Taxation Police Power PURPOSE levied forthe exercised purpose to ofraising promote revenue public welfare thru regulation s AMOUNTOFEXACTION nolimit limited tothe costof regulation s, issuance ofthe licenseor surveillan ce BENEFITSRECEIVED Eminent Domain takingof propertyfor publicuse

no exaction, compensatio npaidbythe government

no no direct special direct benefit ordirect benefits resultsinthe benefits buta formofjust received healthy compensatio butthe economic n enjoymen standard tofthe ofsociety privileges or ofliving damnum inan absque organized injuriais society attained NONIMPAIRMENTOFCONTRACTS the contract contracts impairme maybe maybe ntrule impaired impaired subsist TRANSFEROFPROPERTYRIGHTS taxes no propertyis paid transfer takenbythe become butonly govtupon partof restraint paymentof public onthe just funds exercise compensatio of n property right exists SCOPE affects affects affectsonly all all the persons, persons, particular property property, property and privileges, comprehend excise andeven ed rights BASIS

public necessity

public public necessity necessity, andthe private rightof propertyis thestate takenfor andthe publicuse publicto self protection andself preservati on AUTHORITYWHICHEXERCISESTHE POWER onlyby onlyby maybe the the grantedto governme governme public ntorits ntorits service, political political companies, subdivisi subdivisio orpublic ons ns utilities III.LimitationsonthePowerofTaxation Limitations,Classified a. InherentLimitationsorthosewhichrestrictthepoweralthoughtheyarenot embodiedintheConstitution[PNITE] 1. 2. 3. 4. 5. PublicPurposeofTaxes NondelegabilityoftheTaxingPower TerritorialityortheSitusofTaxation ExemptionoftheGovernmentfromtaxes InternationalComity

b. ConstitutionalLimitationsorthoseexpresslyfoundintheconstitutionorimplied fromitsprovision 1. Dueprocessoflaw 2. Equalprotectionoflaw

3. FreedomofSpeechandofthepress 4. Noninfringementofreligiousfreedom 5. Nonimpairment ofcontracts 6. Nonimprisonmentfordebtornonpaymentofpolltax 7. OriginofAppropriation,RevenueandTariffBills 8. Uniformity,EquitabilityandProgressitivityofTaxation 9. DelegationofLegislativeAuthoritytoFxTariffRates,ImportandExportQuotas 10. TaxExemptionofPropertiesActually,Directly,andExclusivelyusedforReligious Charitable 11. VotingrequirementsinconnectionwiththeLegislativeGrantofTaxExemption 12. NonimpairmentoftheSupremeCourts jurisdictioninTaxCases 13. TaxexemptionofRevenues andAssets,includingGrants,Endowments,Donations orContributionstoEducationInstitutions c.OtherConstitutionalProvisionsrelatedtoTaxation 1. 2. 3. 4. 5. 6. Subject andTitleofBills PowerofthePresidenttoVetoanitemsinanAppropriation,RevenueorTariffBill NecessityofanAppropriationmadebeforemoney AppropriationofPublicMoney TaxesLeviedforSpecialPurposes AllotmenttoLGC

InherentLimitations A.PublicPurposeofTaxes 1. ImportantPointstoConsider: a. Iftaxationisforapublicpurpose,thetaxmustbeused: a.1)forthesupportofthestateor a.2)forsomerecognizedobjectsofgovernmentsor a.3)directlytopromotethewelfareofthecommunity(taxationasan implementofpolicepower) b. Thetermpublicpurpose issynonymouswithgovernmentalpurpose;apurpose affectingtheinhabitantsofthestateortaxingdistrictasacommunityandnotmerelyas individuals. c.Ataxleviedforaprivatepurposeconstitutesatakingofpropertywithoutdue processoflaw.

 d.Thepurposestobeaccomplishedbytaxationneednotbeexclusivelypublic. Althoughprivateindividualsaredirectlybenefited,thetaxwouldstillbevalidprovided suchbenefitisonlyincidental. e.Thetestisnotastowhoreceivesthemoney,butthecharacterofthepurposefor whichitisexpended;nottheimmediateresultoftheexpenditurebutrathertheultimate. g.Intheimpositionoftaxes,publicpurposeispresumed.

2. TestindeterminingPublicPurposesintax a.DutyTestwhetherthethingtobethreatenedbytheappropriationofpublicrevenue issomethingwhichisthedutyoftheState,asagovernment. b.PromotionofGeneralWelfareTestwhetherthelawprovidingthetaxdirectly promotesthewelfareofthecommunityinequalmeasure.

BasicPrinciplesofaSoundTaxSystem(FAT) a.FiscalAdequacythesourcesoftaxrevenueshouldcoincidewith,andapproximate theneedsofgovernmentexpenditure.Neitheranexcessnoradeficiencyofrevenuevis vistheneedsofgovernmentwouldbeinkeepingwiththeprinciple. b.AdministrativeFeasibilitytaxlawsshouldbecapableofconvenient,justand effectiveadministration. c.TheoreticalJusticethetaxburdenshouldbeinproportiontothetaxpayersability topay(abilitytopayprinciple).The1987Constitutionrequirestaxationtobeequitable anduniform.

B.NondelegabilityofTaxingPower 1. Rationale:DoctrineofSeparationofPowers;Taxationispurely legislative,Congresscannotdelegatethepowertoothers. 2. Exceptions: a.DelegationtothePresident(Art.VI.Sec.28(2)1987Constitution)

ThepowergrantedtoCongressunderthisconstitutionalprovisiontoauthorizethe Presidenttofixwithinspecifiedlimitsandsubjecttosuchlimitationsandrestrictionsas itmayimpose,tariffratesandotherdutiesandimpostsincludetariffsratesevenfor revenuepurposesonly.Customsdutieswhichareassessedattheprescribedtariffrates areverymuchliketaxeswhicharefrequentlyimposedforbothrevenueraisingand regulatorypurposes(GarciavsExecutiveSecretary,et.al.,G.R.No.101273,July3,1992) b.DelegationstotheLocalGovernment(Art.X.Sec.5,1987Constitution) Ithasbeenheldthatthegeneralprincipleagainstthedelegationoflegislative powersasaconsequenceofthetheoryofseparationofpowersissubjecttoonewell establishedexception,namely,thatlegislativepowermaybedelegatedtolocal governments.Thetheoryofnondelegationoflegislativepowersdoesnotapplyin matersoflocalconcern.(PepsiColaBottlingCo.ofthePhil,Inc.vsCityofButuan,et.al., L22814,Aug.28,1968) c.DelegationtoAdministrativeAgencieswithrespecttoaspectsofTaxationnot legislativeincharacter. example:assessmentandcollection 3. LimitationsonDelegation a.ItshallnotcontraveneanyConstitutionalprovisionsorinherentlimitationsof taxation; b.ThedelegationiseffectedeitherbytheConstitutionorbyvalidlyenacted legislativemeasuresorstatute;and c.Thedelegatedlevypower,exceptwhenthedelegationisbyanexpressprovision ofConstitutionitself,shouldonlybeinfavorofthelocallegislativebodyofthelocalor municipalgovernmentconcerned. 4. TaxLegislationvisvisTaxAdministrationEverysystemoftaxationconsists oftwoparts: a.theelementsthatenterintotheimpositionofthetax[S2APKAM],ortax regulation;and b.thestepstakenforitsassessmentandcollectionortaxadministration Ifwhatisdelegatedistaxlegislation,thedelegationisinvalid;butifwhatis involvedisonlytaxadministration,thenondelegabilityruleisnotviolated.

C.TerritorialityorSitusofTaxation

1. ImportantPointstoConsider: a. TerritorialityorSitusofTaxationmeansplaceoftaxation dependingonthe natureoftaxesbeingimposed. b. Itisaninherentmandatethattaxationshallonlybeexercisedonpersons, properties,andexcisewithintheterritoryofthetaxingpowerbecause: b.1)Taxlawsdonotoperatebeyondacountrysterritoriallimit. b.2)Propertywhichiswhollyandexclusivelywithinthejurisdictionofanother statereceivesnoneoftheprotectionforwhichataxissupposedtobe compensation. c. However,thefundamentalbasisoftherighttotaxisthecapacityofthe governmenttoprovidebenefitsandprotectiontotheobjectofthetax.Apersonmay betaxed,evenifheisoutsidethetaxingstate,wherethereisbetweenhimandthe taxingstate,aprivityofrelationshipjustifyingthelevy. 2. FactorstoConsiderindeterminingSitusofTaxation a. kindandClassificationoftheTax b. locationofthesubjectmatterofthetax c. domicileorresidenceoftheperson d. citizenshipoftheperson e. sourceofincome f. placewheretheprivilege,businessoroccupationisbeingexercised

D. ExemptionoftheGovernmentfromTaxes 1. ImportantPointstoConsider: ReasonsforExemptions: a.1)Tolevytaxuponpublicpropertywouldrendernecessarynewtaxesonother publicpropertyforthepaymentofthetaxsolaidandthus,thegovernmentwould betaxingitselftoraisemoneytopayovertoitself; a.2)Inorderthatthefunctionsofthegovernmentshallnotbeundulyimpede;and a.3)Toreducetheamountofmoneythathastobehandedbythegovernmentin thecourseofitsoperations. 2. Unlessotherwiseprovidedbylaw,theexemptionappliesonlytogovernment entitiesthroughwhichthegovernmentimmediatelyanddirectlyexercisesits sovereignpowers(InfantryPostExchangevsPosadas,54Phil866) 3. Notwithstandingtheimmunity,thegovernmentmaytaxitselfintheabsenceof anyconstitutionallimitations. 4. Governmentownedorcontrolledcorporations,whenperformingproprietary

functionsaregenerallysubjecttotaxintheabsenceoftaxexemptionprovisionsin theirchartersorlawcreatingthem. E.InternationalComity 1. ImportantPointstoConsider: a. Thepropertyofaforeignstateorgovernmentmaynotbetaxedbyanother. b. Thegroundsfortheaboveruleare: b.1)sovereignequalityamongstates b.2)usageamongstatesthatwhenoneenterintotheterritoryofanother,thereis animpliedunderstandingthatthepowerdoesnotintendtodegradeitsdignityby placingitselfunderthejurisdictionofthelatter b.3)foreigngovernmentmaynotbesuedwithoutitsconsentsothatitisuselessto assessthetaxsinceitcannotbecollected b.4)reciprocityamongstates ConstitutionalLimitations 1. DueProcessofLaw a. Basis:Sec.1Art.3Nopersonshallbedeprivedoflife,libertyorpropertywithout dueprocessoflawxxx. Requisites: 1. Theinterestofthepublicgenerallyasdistinguishedfromthoseofa particularclassrequiretheinterventionofthestate; 2. Themeansemployedmustbereasonablynecessarytotheaccomplishment forthepurposeandnotundulyoppressive; 3. Thedeprivationwasdoneundertheauthorityofavalidlaworofthe constitution;and 4. Thedeprivationwasdoneaftercompliancewithfairandreasonablemethod ofprocedureprescribedbylaw. Inastringofcases,theSupremeCourtheldthatinorderthatdueprocessof lawmustnotbedoneinanarbitrary,despotic,capricious,orwhimsicalmanner. 2. EqualProtectionoftheLaw a. Basis:Sec.1Art.3xxxNorshallanypersonbedeniedtheequalprotectionofthe laws.

Important PointstoConsider : 1. Equalprotectionofthelawssignifiesthatallpersonssubjecttolegislation shallbetreatedundercircumstancesandconditionsbothintheprivilegesconferredand liabilitiesimposed 2. Thisdoctrineprohibitsclasslegislationwhichdiscriminatesagainstsome andfavorsothers. b. RequisitesforaValidClassification 1.Mustnotbearbitrary 2.Mustnotbebaseduponsubstantialdistinctions 3.Mustbegermanetothepurposeoflaw. 4.Mustnotbelimitedtoexitingconditionsonly;and 5.Mustplayequallytoallmembersofaclass. 3. Uniformity,EquitabilityandProgressivityofTaxation a. Basis:Sec.28(1)Art.VI.Theruleoftaxationshallbeuniformandequitable.The Congressshallevolveaprogressivesystemoftaxation. b.ImportantPointstoConsider: 1. Uniformity(equalityorequalprotectionofthelaws)meansalltaxablearticles orkindsorpropertyofthesameclassshallbetaxedatthesamerate.Ataxisuniform whenthesameforceandeffectineveryplacewherethesubjectofitisfound. 2. Equitablemeansfair,just,reasonableandproportionatetoonesabilitytopay. 3. ProgressivesystemofTaxation placesstressondirectratherthanindirect taxes,oronthetaxpayersabilitytopay 4. Inequalitywhichresultsinsinglingoutoneparticularclassfortaxationor exemptioninfringesnoconstitutionallimitation.(seeCommissionervs.LingayenGulf Electric,164SCRA27) 5. Theruleofuniformitydoesnotcallforperfectuniformityorperfectequality, becausethisishardlyattainable. 4. FreedomofSpeechandofthePress a. Basis:Sec.4Art.III.Nolawshallbepassedabridgingthefreedomofspeech,of expressionorofthepressxxx b.ImportantPointstoConsider: 1. Thereiscurtailmentofpressfreedomandfreedomofthoughtifataxis leviedinordertosuppressthebasicrightofthepeopleundertheConstitution. 2. Abusinesslicensemaynotberequiredforthesaleorcontributionofprinted materialslikenewspaperforsuchwouldbeimposingapriorrestraintonpressfreedom

 3. However,anannualregistrationfeeonallpersonssubjecttothevalueadded taxdoesnotconstitutearestraintonpressfreedomsinceitisnotimposedforthe exerciseofaprivilegebutonlyforthepurposeofdefrayingpartofcostofregistration. 5. NoninfringementofReligiousFreedom a. Basis:Sec.5Art.III.Nolawshallbemaderespectinganestablishmentof religionorprohibitingthefreeexercisethereof.Thefreeexerciseandenjoymentof religiousprofessionandworship,withoutdiscriminationorpreference,shallbe foreverbeallowed.xxx b. ImportantPointstoConsider: 1.Licensefees/taxeswouldconstitutearestraintonthefreedomofworshipas theyareactuallyinthenatureofaconditionorpermitoftheexerciseoftheright. 2.However,theConstitutionortheFreeExerciseofReligionclausedoesnot prohibitimposingagenerallyapplicablesalesandusetaxonthesaleofreligious materialsbyareligiousorganization.(seeTolentinovsSecretaryofFinance,235SCRA 630) 6. NonimpairmentofContracts a. Basis:Sec.10Art.III.Nolawimpairingtheobligationofcontractshallbe passed. b. ImportantPointstoConsider: 1. Alawwhichchangesthetermsofthecontractbymakingnewconditions,or changingthoseinthecontract,ordispenseswiththoseexpressed,impairstheobligation. 2. Thenonimpairmentrule,however,doesnotapplytopublicutilityfranchise sinceafranchiseissubjecttoamendment,alterationorrepealbytheCongresswhenthe publicinterestsorequires.

7. Nonimprisonmentfornonpaymentofpolltax a. Basis:Sec.20Art.III.Nopersonshallbeimprisonedfordebtornonpaymentof polltax. b. ImportantPointstoConsider: 1. Theonlypenaltyfordelinquencyinpaymentisthepaymentofsurchargein theformofinterestattherateof24%perannumwhichshallbeaddedtotheunpaid amountfromduedateuntilitispaid.(Sec.161,LGC) 2. Theprohibitionisagainstimprisonmentfornonpaymentofpolltax. Thus,apersonissubjecttoimprisonmentforviolationofthecommunitytaxlawother

thanfornonpaymentofthetaxandfornonpaymentofothertaxesasprescribedby law. 8. OriginorRevenue,AppropriationandTariffBills a. Basis:Sec.24Art.VI.Allappropriation,revenueortariffbills,billauthorizing increaseofthepublicdebt,billsoflocalapplication,andprivatebillsshalloriginate exclusivelyintheHouseofRepresentatives,buttheSenatemayproposeorconcur withamendments. b. Undertheaboveprovision,theSenatorspowerisnotonlytoonlyconcurwith amendmentsbutalsotoproposeamendments.(TolentinovsSec.ofFinance,supra) 9. DelegationofLegislativeAuthoritytoFixTariffRates,ImportsandExport Quotas a. Basis:Sec.28(2)Art.VIxxxTheCongressmay,bylaw,authorizethePresident tofixwithinspecifiedlimits,andsubjecttosuchlimitationsandrestrictionsasitmay impose,tariffrates,importandexportquotas,tonnageandwharfagedues,andother dutiesorimpostswithintheframeworkofthenationaldevelopmentprogramofthe government. 10. TaxExemptionofPropertiesActually,DirectlyandExclusivelyusedfor Religious,CharitableandEducationalPurposes a. Basis:Sec.28(3)Art.VI.Charitableinstitutions,churchesandparsonagesor conventsappurtenantthereto,mosques,nonprofitcemeteries,andalllands, building,andimprovementsactually,directlyandexclusively usedforreligious, charitableoreducationalpurposesshallbeexemptfromtaxation. b. ImportantPointstoConsider: 1. Lestofthetaxexemption:theuseandnotownershipoftheproperty 2. Tobetaxexempt,thepropertymustbeactually,directlyandexclusively usedforthepurposesmentioned. 3. Thewordexclusivelymeansprimarily. 4. Theexemptionisnotlimitedtopropertyactuallyindispensablebutextends tofacilitieswhichareincidentaltoandreasonablynecessaryfortheaccomplishmentof saidpurposes. 5. Theconstitutionalexemptionappliesonlytopropertytax. 6. However,itwouldseemthatunderexistinglaw,giftsmadeinfavoror religiouscharitableandeducationalorganizationswouldneverthelessqualifyfordonors gifttaxexemption.(Sec.101(9)(3),NIRC)

11. VotingRequirementsinconnectionwiththeLegislativeGrantfortax exemption a. Basis:Sec.28(4)Art.VI.Nolawgrantinganytaxexemptionshallbepassed withouttheconcurrenceofamajorityofallthemembersoftheCongress. b. Theaboveprovisionrequirestheconcurrenceofamajoritynotofattendees constitutingaquorumbutofallmembersoftheCongress. 12. NonimpairmentoftheSupremeCourtsjurisdictioninTaxCases a. Basis:Sec.5(2)Art.VIII.TheCongressshallhavethepowertodefine,prescribe, andapportionthejurisdictionofthevariouscourtsbutmaynotdeprivetheSupreme CourtofitsjurisdictionovercasesenumeratedinSec.5hereof. Sec.5(2b)Art.VIII.TheSupremeCourtshallhavethefollowingpowers:xxx (2)Review,revise,modifyoraffirmonappealorcertiorarixxxfinaljudgmentsand ordersoflowercourtsinxxxallcasesinvolvingthelegalityofanytax,impost, assessment,ortolloranypenaltyimposedinrelationthereto. 13. TaxExemptionsofRevenuesandAssets,includinggrants,endowments, donationsorcontributionstoEducationalInstitutions a. Basis:Sec.4(4)Art.XIV.Subjecttotheconditionsprescribedbylaw,allgrants, endowments,donationsorcontributionsusedactually,directlyandexclusivelyfor educationalpurposesshallbeexemptfromtax. b. ImportantPointstoConsider: 1. Theexemptiongrantedtononstock,nonprofiteducationalinstitutioncovers income,property,anddonorstaxes,andcustomduties. 2. Tobeexemptfromtaxorduty,therevenue,assets,propertyordonationmustbe usedactually,directlyandexclusivelyforeducationalpurpose. 3. Inthecaseorreligiousandcharitableentitiesandnonprofitcemeteries,the exemptionislimitedtopropertytax. 4. Thesaidconstitutionalprovisiongrantingtaxexemptiontononstock,nonprofit educationalinstitutionisselfexecuting. 5. Taxexemptions,however,ofproprietary(forprofit)educationalinstitutionsrequire priorlegislativeimplementation.Theirtaxexemptionisnotselfexecuting. 6. Lands,Buildings,andimprovementsactually,directly,andexclusivelyusedfor educationalpurposedareexemptfrompropertytax,whethertheeducationalinstitution isproprietaryornonprofit.

c. DepartmentofFinanceOrderNo.13787,datedDec.16,1987 ThefollowingaresomeofthehighlightsoftheDOFordergoverningthetax exemptionofnonstock,nonprofiteducationalinstitutions: 1. Thetaxexemptionisnotonlylimitedtorevenuesandassetsderivedfromstrictly schooloperationslikeincomefromtuitionandothermiscellaneousfeedsuchas matriculation,library,ROTC,etc.fees,butitalsoextendstoincidentalincomederived fromcanteen,bookstoreanddormitoryfacilities. 2. Inthecase,however,ofincidentalincome,thefacilitiesmentionedmustnotonly beownedandoperatedbytheschoolitselfbutsuchfacilitiesmustbelocatedinsidethe schoolcampus.Canteensoperatedbymereconcessionairesaretaxable. 3. Incomewhichisunrelatedtoschooloperationslikeincomefrombankdeposits, trustfundandsimilararrangements,royalties,dividendsandrentalincomearetaxable. 4. Theuseoftheschoolsincomeorassetsmustbeinconsonancewiththepurposes forwhichtheschooliscreated;inshort,usemustbeschoolrelated,likethegrantof scholarships,facultydevelopment,andestablishmentofprofessionalchairs,school buildingexpansion,libraryandschoolfacilities.

OtherConstitutionalProvisionsrelatedtoTaxation 1. SubjectandTitleofBills(Sec.26(1)1987Constitution) EveryBillpassedbyCongressshallembraceonlyonesubjectwhichshallbe expressedinthetitlethereof. intheTolentinoEVATcase,supra,theEvat,ortheExpandedValueAddedTax Law(RA7716)wasalsoquestionedonthegroundthattheconstitutionalrequirement onthetitleofabillwasnotfollowed. 2. PowerofthePresidenttoVetoitemsinanAppropriation,RevenueorTariff Bill(Sec.27(2),Art.VIofthe1987Constitution) ThePresidentshallhavethepowertovetoanyparticularitemoritemsinan Appropriation,RevenueorTariffbillbutthevetoshallnotaffecttheitemoritemsto whichhedoesnotobject. 3. NecessityofanAppropriationmadebeforemoneymaybepaidoutofthe Treasury(Sec.29(1),Art.VIofthe1987Constitution)

 NomoneyshallbepaidoutoftheTreasuryexceptinpursuanceofan appropriationmadebylaw. 4. AppropriationofPublicMoneyforthebenefitofanyChurch,Sect,orSystem ofReligion(Sec.29(2),Art.VIofthe1987Constitution) Nopublicmoneyorpropertyshallbeappropriated,applied,paidoremployed, directlyorindirectlyfortheuse,benefit,supportofanysect,church,denomination, sectarianinstitution,orsystemofreligionorofanypriest,preacher,minister,orother religiousteacherordignitaryassuchexceptwhensuchpriest,preacher,ministeror dignitaryisassignedtothearmedforcesortoanypenalinstitution,orgovernment orphanageorleprosarium. 5. TaxesleviedforSpecialPurpose(Sec.29(3),Art.VIofthe1987Constitution) Allmoneycollectedoranytaxleviedforaspecialpurposeshallbetreatedasa specialfundandpaidoutforsuchpurposeonly.Itthepurposeforwhichaspecialfund wascreatedhasbeenfulfilledorabandonedthebalance,ifany,shallbetransferredto thegeneralfundsofthegovernment.

AnexampleistheOilPriceStabilizationFundcreatedunderP.D.1956tostabilize thepricesofimportedcrudeoil.Inadecidecase,itwasheldthatwhereunderan executiveorderofthePresident,thisspecialfundistransferredfromthegeneralfund toatrustliabilityaccount,theconstitutionalmandateisnotviolated.TheOPSF, accordingtothecourt,remainsasaspecialfundsubjecttoCOAaudit( Osmeavs Orbos,etal.,G.R.No.99886,Mar.31,1993)

6. AllotmenttoLocalGovernments Basis:Sec.6,Art.Xofthe1987Constitution LocalGovernmentunitsshallhaveajustshare,asdeterminedbylaw,inthe nationaltaxeswhichshallbeautomaticallyreleasedtothem.

IV.SitusofTaxationandDoubleTaxation SitusofTaxation 1. SitusofTaxation literallymeansthePlaceofTaxation. 2. BasicRule statewherethesubjecttobetaxedhasasitusmayrightfullylevyand

collectthetax SomeBasicConsiderationsAffectingSitusofTaxation 1. Protection Alegalsituscannotbegiventopropertyforthepurposeoftaxationwhereneither thepropertynorthepersoniswithintheprotectionofthetaxingstate InthecaseofManilaElectricCo.vsYatco(69Phil89),theSupremeCourtruledthat insurancepremiumpaidonafireinsurancepolicycoveringpropertysituatedinthe Phils.aretaxableinthePhils.Eventhoughthefireinsurancecontractwasexecuted outsidethePhils.andtheinsurancepolicyisdeliveredtotheinsuredtherein.Thisis becausethePhilippinesGovernmentmustgetsomethinginreturnfortheprotectionit givestotheinsuredpropertyinthePhils.andbyreasonofsuchprotection,theinsureris benefitedthereby. 2. ThemaximofMobiliaSequunturPersonamandSitusofTaxation Accordingtothismaxim,whichmeansmovablefollowtheperson,thesitusof personalpropertyisthedomicileoftheowner.Thisismerelyafictionoflawandisnot allowedtostandinthewayoftaxationofpersonaltyintheplacewhereithasitsactual situsandtherequisitelegislativejurisdictionexists. Example: sharesofstockmayhavesitusforpurposesoftaxationinastatein whichtheyarepermanentlykeptregardlessofthedomicileoftheowner,orthestatein whichhecorporationisorganized.

3. LegislativePowertoFixSitus Ifnoconstitutionalprovisionsareviolated,thepowerofthelegislativetofixsitus isundoubted. Example: ourlawfixesthesitusofintangiblepersonalpropertyforpurposesof theestateandgifttaxes.(seeSec.104,1997NIRC) Note:Inthosecaseswherethesitusforcertainintangiblesarenotcategorically spelledout,thereisroomforapplyingthemobiliarule. 4. DoubleTaxationandtheSitusLimitation(seelatertopic) CriteriainFixingTaxSitusofSubjectofTaxation a. PersonsPolltaxmaybelevieduponpersonswhoareresidentsoftheState.

b. RealPropertyissubjecttotaxationintheStateinwhichitislocatedwhether theownerisaresidentornonresident,andistaxableonlythere. RuleofLexReiSitae c. TangiblePersonalpropertytaxableinthestatewhereithasactualsitus whereitisphysicallylocated.Althoughtheownerresidesinanotherjurisdiction. RuleofLexReiSitae d. IntangiblePersonalPropertysitusorpersonalpropertyisthedomicileofthe owner,inaccordancewiththeprincipleMOBILIASEQUUNTURPERSONAM ,said principle,however,isnotcontrollingwhenitisinconsistentwithexpressprovisionsof statuteorwhenjusticedemandsthatitshouldbe,aswherethepropertyhasinfacta situselsewhere.(seeWellsFargoBankv.Collector70PHIL325;Collectorv.Fisher L11622,January,1961) e. Incomeproperlyexactedfrompersonswhoareresidentsorcitizensinthe taxingjurisdictionandeventhosewhoareneitherresidentsnorcitizensprovidedthe incomeisderivedfromsourceswithinthetaxingstate. f. Business,Occupation,andTransactionpowertolevyanexcisetaxdepends upontheplacewherethebusinessisdone,oftheoccupationisengagedinofthe transactionnotplace.

g. GratuitousTransferofPropertytransmissionofpropertyfromdonorto donee,orfromadecedenttohisheirsmaybesubjecttotaxationinthestatewherethe transferorwasacitizenorresident,orwherethepropertyislocated. V.MultiplicityofSitus Thereismultiplicityofsituswhenthesamesubjectoftaxation,likeincomeor intangible,issubjecttotaxationinseveraltaxingjurisdictions.Thishappensdueto: a. Varianceintheconceptofdomicilefortaxpurposes; b. Multipledistinctrelationshipthatmayarisewithrespecttointangible personality;and c. Theusetowhichthepropertymayhavebeendevoted,allofwhichmayreceive theprotectionofthelawsofjurisdictionotherthanthedomicileoftheowner Remedy taxationjurisdictionmayprovide: a. Exemptionorallowanceofdeductionsortaxcreditforforeigntaxes

b. Enterintotreatieswithotherstates

DoubleTaxation Two(2)KindsofDoubleTaxation 1. ObnoxiousorDirectDuplicateTaxation(Doubletaxationinitsstrictsense)In theobjectionableorprohibitedsensemeansthatthesamepropertyistaxedtwicewhen itshouldbetaxedonlyonce. Requisites: 1. Samepropertyistaxedtwice 2. Samepurpose 3. Sametaxingauthority 4. Withinthesamejurisdiction 5. Duringthesametaxingperiod 6. Samekindorcharacteroftax

2. PermissiveorIndirectDuplicateTaxation (Doubletaxationinitsbroadsense) Thisistheoppositeofdirectdoubletaxationandisnotlegallyobjectionable.The absenceofoneormoreoftheforegoingrequisitesoftheobnoxiousdirecttaxmakesit indirect. InstancesofDoubleTaxationinitsBroadSense 1. Ataxonthemortgageaspersonalpropertywhenthemortgagedpropertyisalso taxedatitsfullvalueasrealestate; 2. Ataxuponacorporationforitscapitalstockasawholeandupontheshareholders fortheirshares; 3. Ataxuponacorporationforitscapitalstockasawholeandupontheshareholders fortheirshares; 4. Ataxupondepositionsinthebankfortheirdepositsandataxuponthebankfor theirpropertyinwhichsuchdepositsareinvested 5. Anexcisetaxuponcertainuseofpropertyandapropertytaxuponthesame property;and 6. Ataxuponthesamepropertyimposedbytwodifferentstates. MeanstoReducetheHarshEffectofTaxation 1. TaxDeductionsubtractionfromgrossincomeinarrivingataxableincome 2. TaxCreditanamountsubtractedfromanindividualsorentitystaxliabilityto arriveatthetotaltaxliability

 Adeductiondifferfromataxcreditinthatadeductionreducestaxableincome whilecreditreducestaxliability 3. Exemptions 4. TreatieswithotherStates 5. PrincipleofReciprocity Constitutionality DoubleTaxationinitsstrictersenseisundoubtedlyunconstitutionalbutthatinthe broadersenseisnotnecessarilyso. GeneralRule:OurConstitutiondoesnotprohibitdoubletaxation;hence,itmaynotbe invokedasadefenseagainstthevalidityoftaxlaws. a. WhereataxisimposedbytheNationalGovernmentandanotherbythecityfor theexerciseofoccupationorbusinessasthetaxesarenotimposedbythesamepublic authority( CityofBaguiovsDeLeon,Oct.31,1968) b. WhenaRealEstatedealerstaxisimposedforengaginginthebusinessofleasing realestateinadditiontoRealEstateTaxonthepropertyleasedandthetaxonthe incomedesiredastheyaredifferentkindsoftax c. Taxonmanufacturersproductsandanothertaxontheprivilegeofstoring exportablecoprainwarehouseswithinamunicipalityareimposedasfirsttaxisdifferent fromthesecond d. Where,asidefromthetax,alicensefeeisimposedintheexerciseofpolicepower. Exception:DoubleTaxationwhilenotforbidden,issomethingnotfavored.Such taxation,ithasbeenheld,should,wheneverpossible,beavoidedandprevented. a. Doubtsastowhetherdoubletaxationhasbeenimposedshouldberesolvedin favorofthetaxpayer.Thereasonistoavoidinjusticeandunfairness. b. ThetaxpayermayseekreliefundertheUniformityRuleortheEqualProtection guarantee. FormsofEscapefromTaxation 1. 2. 3. 4. 5. 6. SixBasicFormsofEscapefromTaxation S hifting C apitalization Transformation E vasion A voidance E xemption

1. ShiftingTransferoftheburdenofataxbytheoriginalpayerortheoneon whomthetaxwasassessedorimposedtoanotherorsomeoneelse Impactoftaxationisthepointatwhichataxisoriginallyimposed. IncidenceofTaxationisthepointonwhichataxburdenfinallyrestsorsettles down. RelationsamongShifting,ImpactandIncidenceofTaxationtheimpactisthe initialphenomenon,theshiftingistheintermediateprocess,andtheincidenceisthe result. KindsofShifting: a. ForwardShiftingtheburdenoftaxistransferredfromafactorof productionthroughthefactorsofdistributionuntilitfinallysettlesontheultimate purchaserorconsumer b. BackwardShiftingeffectedwhentheburdenoftaxistransferredfrom theconsumerorpurchaserthroughthefactorsofdistributiontothefactorofproduction c. OnwardShiftingthisoccurswhenthetaxisshiftedtwoormoretimes eitherforwardorbackward 2. Capitalization,definedthereductioninthepriceofthetaxedobjectequaltothe capitalizedvalueoffuturetaxeswhichthepurchaserexpectstobecalledupontopay 3. TransformationThemethodwherebythemanufacturerorproducerupon whomthetaxhasbeenimposed,fearingthelossofhismarketifheshouldaddthetaxto theprice,paysthetaxandendeavorstorecouphimselfbyimprovinghisprocessof productiontherebyturningouthisunitsofproductsatalowercost. 4. TaxEvasion istheuseofthetaxpayerofillegalorfraudulentmeanstodefeator lessenthepaymentofatax. IndiciaofFraudinTaxation a. Failuretodeclarefortaxationpurposestrueandactualincomederivedfrom businessfortwoconsecutiveyears,and b. Substantialunderdeclarationofincometaxreturnsofthetaxpayerforfour consecutiveyearscoupledwithoverstatementofdeduction. Evasionofthetaxtakesplaceonlywhentherearenoproceeds.Evasionof Taxationistantamount,fiscallyspeaking,totheabsenceoftaxation. 5. TaxAvoidance istheusebythetaxpayeroflegallypermissiblealternativetax ratesormethodofassessingtaxablepropertyorincomeinordertoavoidorreducetax liability.

 TaxAvoidanceisnotpunishablebylaw,ataxpayerhasthelegalrighttodecrease theamountofwhatotherwisewouldbehistaxesoraltogetheravoidbymeanswhich thelawpermits. DistinctionbetweenTaxEvasionandAvoidance TaxEvasionvs TaxAvoidance accomplished accomplishedby bybreakingthe legalprocedures letterofthelaw ormeanswhich maybecontrary totheintentof thesponsorsof thetaxlawbut neverthelessdo notviolatethe letterofthelaw

VI.ExemptionfromTaxation A. TaxExemptionisagrantofimmunity,expressorimplied,toparticularpersonsor corporationsfromtheobligationstopaytaxes. B. NatureofTaxExemption 1. Itismerelyapersonalprivilegeofthegrantee 2. Itisgenerallyrevocablebythegovernmentunlesstheexemptionisfoundedona contractwhichisprotectedfromimpairment,butthecontractmustcontaintheother essentialelementsofcontracts,suchas,forexample,avalidcauseorconsideration. 3. Itimpliesawaiveronthepartofthegovernmentofitsrighttocollectwhat otherwisewouldbeduetoit,andinthissenseisprejudicialthereto. 4. Itisnotnecessarilydiscriminatorysolongastheexemptionhasareasonable foundationorrationalbasis. C. RationaleoftaxExemption Publicinterestwouldbesubservedbytheexemptionallowedwhichthelaw makingbodyconsiderssufficienttooffsetmonetarylossentailedinthegrantofthe exemption.(CIRvsBotheloShippingCorp.,L21633,June29,1967;CIRvsPAL, L20960,Oct.31,1968)

D. GroundsforTaxExemptions 1. Maybebasedonacontractinwhichcase,thepublicrepresentedbythe Governmentissupposedtoreceiveafullequivalenttherefore 2. Maybebasedonsomegroundofpublicpolicy,suchas,forexample,toencourage newandnecessaryindustries. 3. Maybecreatedinatreatyongroundsofreciprocityortolessentherigorsof internationaldoubleormultipletaxationwhichoccurwheretherearemanytaxing jurisdictions,asinthetaxationofincomeandintangiblepersonalproperty E. Equity,notagroundforTaxExemption Thereisnotaxexemptionsolelyonthegroundofequity,butequitycanbeusedas abasisforstatutoryexemption.Attimesthelawauthorizescondonationoftaxeson equitableconsiderations.(Sec276,277,LocalGovernmentCode) F. KindsofTaxExemptions 1. Astobasis a. ConstitutionalExemptionsImmunitiesfromtaxationwhichoriginatefrom theConstitution b. StatutoryExemptionsThosewhichemanatefromLegislation 2. Astoform a. ExpressExemptionWheneverexpresslygrantedbyorganicorstatuteoflaw b. ImpliedExemptionExistwheneverparticularpersons,propertiesorexcises aredeemedexemptastheyfalloutsidethescopeofthetaxingprovisionitself 3. Astoextent a. TotalExemptionConnotesabsoluteimmunity b. PartialExemptionOnewherecollectionofapartofthetaxisdispensedwith G. PrinciplesGoverningtheTaxExemption 1. Exemptionsfromtaxationarehighlydisfavoredbylaw,andhewhoclaimsan exemptionmustbeabletojustifybytheclearestgrantoforganicorstatuteoflaw. (AsiaticPetroleumvsLlanes,49PHIL466;CollectorofInternalRevenuevs.ManilaJockey Club,98PHIL670) 2. Hewhoclaimsanexemptionmustjustifythatthelegislativeintendedtoexempt himbywordstooplaintobemistaken.(VisayanCebuTerminalvsCIR,L19530,Feb.27, 1965) 3. Hewhoclaimsexemptionsshouldconvincinglyprovedthatheisexempt 4. Taxexemptionsmustbestrictlyconstrued(Phil.AcetylenevsCIR,L19707,Aug.17,

1967) 5. TaxExemptionsarenotpresumed.(LealdaElectricCo.vsCIR,L16428,Apr.30, 1963) 6. Constitutionalgrantsoftaxexemptionsareselfexecuting(OpinionNo.130,1987, Sec.OfJustice) 7. Taxexemptionarepersonal. 8. Deductionsforincometaxpurposespartakeofthenatureoftaxexemptions, hence,theyarestrictlyconstruedagainstthetaxpayer 9. Ataxamnesty,muchlikeataxexemptionisneverfavoredorpresumedbylaw (CIRvsCA,G.R.No.108576,Jan.20,1999) 10. Theruleofstrictconstructionoftaxexemptionshouldnotbeappliedto organizationsperformingstrictlyreligious,charitable,andeducationalfunctions VII. OtherDoctrinesinTaxation ProspectivityofTaxLaws GeneralRule:Taxesmustonlybeimposedprospectively Exception:Thelanguageofthestatuteclearlydemandsorexpressthatitshallhavea retroactiveeffect. ImportantPointstoConsider 1. InordertodeclareataxtransgressingthedueprocessclauseoftheConstitutionit mustbesoharshandoppressiveinitsretroactiveapplication(FernandezvsFernandez, 99PHIL934) 2. Taxlawsareneitherpoliticalnorpenalinnaturetheyaredeemedlawsofthe occupiedterritoryratherthantheoccupyingenemy.(HiladovsCollector,100PHIL288) 3. Taxlawsnotbeingpenalincharacter,theruleintheConstitutionagainstthe passageoftheexpostfactolawscannotbeinvoked,except forthepenaltyimposed. ImprescriptibilityofTaxes GeneralRule:Taxesareimprescriptible Exception:Whenprovidedotherwisebythetaxlawitself. Example:NIRCprovidesforstatutesoflimitationintheassessmentandcollectionof taxesthereinimposed

ImportantPointtoConsider 1. Thelawonprescription,beingaremedialmeasure,shouldbeliberallyconstrued toaffordprotectionasacorollary,theexceptionstothelawonprescriptionbestrictly construed.(CIRvsCA.G.R.No.104171,Feb.24,1999) DoctrineofEquitableRecoupment Itprovidesthataclaimforrefundbarredbyprescriptionmaybeallowedtooffset unsettledtaxliabilitiesshouldbepertinentonlytotaxesarisingfromthesame transactiononwhichanoverpaymentismadeandunderpaymentisdue. Thisdoctrine,however,wasrejectedbytheSupremeCourt,sayingthatitwasnot convincedofthewisdomandproprietarythereof,andthatitmayworktotemptboththe collectingagencyandthetaxpayertodelayandneglecttheirrespectivepursuitsoflegal actionwithintheperiodsetbylaw.(CollectorvsUST,104PHIL1062) TaxpayersSuitItisonlywhenanactcomplainedof,whichmayincludelegislative enactment,directlyinvolvestheillegaldisbursementofpublicfundsderivedfrom taxationthatthetaxpayerssuitmaybeallowed. VIII. InterpretationandConstructionofTaxStatutes ImportantPointstoConsider: 1. Ontheinterpretationandconstructionoftaxstatutes,legislativeintentionmustbe considered. 2. Incaseofdoubt,taxstatutesareconstruedstrictlyagainstthegovernmentand liberallyconstruedinfavorofthetaxpayer. 3. Theruleofstrictconstructionagainstthegovernmentisnotapplicablewherethe languageofthetaxlawisplainandthereisnodoubtastothelegislativeintent. 4. Theexemptions(orequivalentprovisions,suchastaxamnestyandtax condonation)arenotpresumedandwhengrantedarestrictlyconstruedagainstthe grantee. 5. Theexemptions,however,areconstruedliberallyinfavorofthegranteeinthe following: a. Whenthelawsoprovidesforsuchliberalconstruction; b. Exemptionsfromcertaintaxesgrantedunderspecialcircumstancestospecial classesofpersons; c. ExemptionsinfavoroftheGovernment,itspoliticalsubdivisions;

d. Exemptionstotraditionalexemptees,suchas,thoseinfavorofcharitable institutions. 6. Thetaxlawsarepresumedvalid. 7. Thepowertotaxispresumedtoexist. TAXADMINISTRATIONANDENFORCEMENT AgenciesInvolvedinTaxAdministration 1. BureauofInternalRevenueandtheBureauofCustomsforinternalrevenue andcustomslawenforcement.ItisnoteworthytonotethattheBIRislargely decentralizedinthatagreatextentoftaxenforcementdutiesaredelegatedto theRegionalDirectorsandRevenueDistrictOfficers. 2. Provincial,CityandMunicipalassessorsandtreasuresforlocalandreal propertytaxes. AgentsandDeputiesforCollectionofNationalInternalRevenueTaxes UnderSec.12ofthe1997NIRC,thefollowingareconstitutedasagentsofthe Commissioner: a. TheCommissionerofCustomsandhissubordinateswithrespecttothe collectionofnationalinternalrevenuetaxesonimportedgoods; b. Theheadoftheappropriategovernmentofficeandhissubordinateswith respecttothecollectionofenergytax;and c. BanksdulyaccreditedbytheCommissionerwithrespecttoreceiptof paymentsofinternalrevenuetaxesauthorizedtobemadethroughbanks. BureauofInternalRevenue PowersandDuties a. ExclusiveandoriginalpowertointerpretprovisionsoftheNIRCandothertax laws,subjecttoreviewbytheSecretaryofFinance;

b. AssessmentandCollectionofallnationalinternalrevenuetaxes,feesand charges; c. Enforcementofallforfeitures,penaltiesandfinesconnectedtherewith; d. ExecutionofjudgmentinallcasesdecidedinitsfavorbytheCourtofTax Appealsandtheordinarycourts. e. Effectingandadministeringthesupervisoryandpolicepowersconferredtoit bytheTaxCodeorotherlaws. f. Obtaininginformation,summoning,examiningandtakingtestimonyofpersons forpurposesofascertainingthecorrectnessofanyreturnorindeterminingthe liabilityofanypersonforanyinternalrevenuetax,orincollectinganysuch liability. RuleofNoEstoppelAgainsttheGovernment Itisasettledruleoflawthatintheperformanceofitsgovernmentalfunctions,the statecannotbeestoppedbytheneglectofitsagentsandofficers.Nowhereisitmore truethaninthefieldoftaxation( CIRvs.Abad,et.al.,L19627,June27,1968 ).Estoppel doesnotapplytoprecludethesubsequentfindingsontaxability(Ibid.) Theprincipleoftaxlawenforcementis:TheGovernmentisnotestoppedbythe mistakesorerrorsofitsagents;erroneousapplicationandenforcementoflawby publicofficersdonotblockthesubsequentcorrectapplicationofstatutes(E. Rodriguez,Inc.vs.CollectorofInternalRevenue,L23041,July31,1969.) Similarly,estoppeldoesnotapplytodeprivethegovernmentofitsrighttoraise defensesevenifthosedefensesarebeingraisedonlyforthefirsttimeonappeal(CIRvs Procter&GamblePhil.G.R.No.66838,15April1988.) Exceptions: TheCourtruledinCommissionerofInternalRevenuevs.C.A.,et.al.G.R.No.117982, 6Feb1997that likeotherprinciplesoflaw,thenonapplicationofestoppeltothe governmentadmitsofexceptionsintheinterestofjusticeandfairplay,aswhere injusticewillresulttothetaxpayer. EstoppelAgainsttheTaxpayer Whiletheprincipleofestoppelmaynotbeinvokedagainstthegovernment,thisis notnecessarilytrueincaseofthetaxpayer.InCIRvs.Suyac,104Phil819 ,thetaxpayer

madeseveralrequestsforthereinvestigationofitstaxliabilitiessuchthatthe government,accedingtothetaxpayersrequest,postponedthecollectionofitsliability. Thetaxpayercannotlateronbepermittedtoraisethedefenseofprescriptioninasmuch ashispreviousrequestsforreinvestigationhavetheeffectofplacinghiminestoppel. NatureandKindsofAssessments Anassessmentistheofficialactionofanadministrativeofficerdetermining theamountoftaxduefromataxpayer,oritmaybethenoticetotheeffectthatthe amountthereinstatedisduefromthetaxpayerthatthepaymentofthetaxor deficiencystatedtherein. (BisayaLandTransportationCo.vsCIR,105Phil1338) Classifications: a. SelfassessmentTaxisassessedbythetaxpayerhimself.Theamountis reflectedinthetaxreturnthatisfiledbyhimandthetaxispaidatthetimehe fileshisreturn.(Sec.56[A]{1],1997NIRC) b. DeficiencyAssessmentThisisanassessmentmadebythetaxassessor wherebythecorrectamountofthetaxisdeterminedafteranexaminationor investigationisconducted.Theliabilityisdeterminedandis;therefore,assessed forthefollowingreasons: 1. Theamountascertainedexceedsthatwhichisshownastaxbythe taxpayerinhisreturn; 2. Noamountisshowninthereturnor; 3. Thetaxpayerdidnotfileanyreturnatall. (Sec.56[B]]1]and[2]1997 NIRC) c. IllegalandVoidAssessmentsThisisanassessmentwhereinthetaxassessor hasnopowertoactatall(VictoriasMillingvs.CTA,L24213,13Mar1968) d. ErroneousAssessmentThisisanassessmentwhereintheassessorhasthe powertoassessbuterrsintheexerciseofthatpower(Ibid.) PrinciplesGoverningTaxAssessments 1.Assessmentsareprimafaciepresumedcorrectandmadeingoodfaith. Thetaxpayerhasthedutyofprovingotherwise(InterprovincialAutobusvs.CIR,

98Phil290) Intheabsenceofanyproofofanyirregularitiesintheperformanceofofficial duties,anassessmentwillnotbedisturbed.(SyPo.Vs.CTA,G.R.No81446,8Aug 1988 Allpresumptionsareinfavoroftaxassessments(Dayritvs.Cruz,L39910,26 Sept.1988) Failuretopresentproofoferrorintheassessmentwilljustifyjudicial affirmationofsaidassessments.(CIRvsC.C.G.R.No.104151and105563,10Mar 1995) Apartychallenginganappraisersfindingofvalueisrequiredtoprovenotonly thattheappraisedvalueiserroneousbutalsowhatthepropervalueis(Caltex vs.C.C.G.R.No.104781,10July1998)

2.Assessmentsshouldnotbebasedonpresumptionsnomatterhowlogicalthe presumptionmightbe.Inordertostandthetestofjudicialscrutinyitmustbebased onactualfacts . 3.AssessmentisdiscretionaryonthepartoftheCommissioner.Mandamuswill notlietocompelhimtoassessataxafterinvestigationifhefindsnogroundto assess.MandamustocompeltheCommissionertoassesswillresultinthe encroachmentonexecutivefunctions ( MeralcoSecuiritiesCorp.vs.Savellano, L36181andL36748,23Oct1992). Except: TheBIRCommissionermaybecompelledtoassessbymandamusifinthe exerciseofhisdiscretionthereisevidenceofarbitrarinessandgraveabuseof discretionastogobeyondstatutoryauthority( Macedavs.Macaraig,G.R.No.8829, 8June1993). 4.TheauthorityvestedintheCommissionertoassesstaxesmaybedelegated.An assessmentsignedbyanemployeeforandinbehalfoftheCommissionerof InternalRevenueisvalid.However,itissettledthatthepowertomakefinal assessmentscannotbedelegated.Thepersontowhomadutyisdelegatedcannot lawfullydelegatethatdutytoanother.( CityLumbervs.Domingo,L18611,30Jan 1964). 5.Assessmentsmustbedirectedtotherightparty.Hence,ifforexample,the

taxpayerbeingassessedisanestateofadecedent,theadministratorshouldbe thepartytowhomtheassessmentshouldbesent ( Republicvs.delaRama,L21108, 29Nov.1966),andnottheheirsofthedecedent MeansEmployedintheAssessmentofTaxes A.ExaminationofReturns:ConfidentialityRule TheTaxCoderequiresthatafterthereturnisfiled,theCommissionerorhisduly authorizedrepresentativeshallexaminethesameandassessthecorrectamountoftax. Thetaxorthedeficiencyofthetaxsoassessedshallbepaiduponnoticeanddemand fromtheCommissionerorfromhisdulyauthorizedrepresentative.Anyreturn, statementordeclarationfiledinanyofficeauthorizedtoreceivethesameshallnotbe withdrawn.However,withinthree(3)daysfromthedateofsuchfiling,thesamemaybe modified,changedoramended,providedthatnonoticeforauditorinvestigationofsuch return,statementordeclarationhasinthemeantimebeenactuallyserveduponthe taxpayer.(Sec6[A],1997NIRC) AlthoughSec.71ofthe1997NIRCprovidesthattaxreturnsshallconstitutepublic records,itisnecessarytoknowthattheseareconfidentialinnatureandmaynotbe inquiredintoinunauthorizedcasesunderpainofpenaltyoflawprovidedforinSec270 ofthe1997NIRC. Theaforesaidrule,however,issubjecttocertainexceptions.Inthefollowingcases, inquiryintotheincometaxreturnsoftaxpayersmaybeauthorized: 1. Whentheinspectionofthereturnisauthorizeduponthewrittenorderofthe PresidentofthePhilippines. 2. WheninspectionisauthorizedundertheFinanceRegulationNo.33ofthe SecretaryofFinance. 3. Whentheproductionofthetaxreturnismaterialevidenceinacriminalcase whereintheGovernmentisinterestedintheresult.(CuUnjieng,et.al.vs. Posadas,etc,58Phil360) 4. Whentheproductionorinspectionthereofisauthorizedbythetaxpayer himself(VeravsCusiL33115,29June1979).

B.AssessmentBasedontheBestEvidenceObtainable ThelawauthorizestheCommissionertoassesstaxesonthebasisofthebest evidenceobtainableinthefollowingcases: 1. ifapersonfailstofileareturnorotherdocumentatthetimeprescribedby law;or 2. hewillfullyorotherwisefilesafalseorfraudulentreturnorotherdocument. Whenthemethodisused,theCommissionermakesoramendsthereturnfromhis knowledgeandfromsuchinformationashecanobtainthroughtestimonyorotherwise. Assessmentsmadeassucharedeemedprimafaciecorrectandsufficientforalllegal purposes.( Sec.6[B],1997NIRC) BestEvidenceObtainablereferstoanydata,record,papers,documents,orany evidencegatheredbyinternalrevenueofficersfromgovernmentofficesoragencies, corporations,employers,clientsorpatients,tenants,lessees,vendeesandfromallother sources,withwhomthetaxpayerhadprevioustransactionsorfromwhomhereceived anyincome,afterascertainingthatareportrequiredbylawasbasisfortheassessment ofanyinternalrevenuetaxhasnotbeenfiledorwhenthereisreasontobelievethatany suchreportisfalse,incompleteorerroneous. AcaseinpointontheuseofthebestevidenceobtainableisSyPovsCTA.Inthat case,therewasademandmadebytheCommissionerontheSilverCupWineCompany ownedbypetitionersdeceasedhusbandPoBienSeng.Thedemandwasforthetaxpayer tosubmittotheBIRforexaminationthefactorysbooksofaccountsandrecords,soBIR investigatorsraidedthefactoryandseizeddifferentbrandsofalcoholicbeverages. Theinvestigators,onthebasisofthewinesseizedandtheswornstatementsofthe factorysemployeesonthequantityofrawmaterialsconsumedinthemanufactureof liquor,assessedthecorrespondingdeficiencyincomeandspecifictaxes.TheSupreme Court,onappeal,upheldthelegalityoftheassessment.

C.InventoryTaking,SurveillanceandPresumptiveGrossSalesandReceipts TheCommissionerisauthorizedatanytimeduringthetaxableyeartoorderthe inventorytakingofgoodsofanytaxpayerasabasisforassessment.

Ifthereisreasontobelievethatapersonisnotdeclaringhiscorrectincome,sales orreceiptsforinternalrevenuetaxpurposes,hisbusinessoperationmaybeplaced underobservationorsurveillance.Thefindingmadeinthesurveillancemaybeusedasa basisforassessingthetaxesfortheothermonthsorquartersofthesameordifferent taxableyears.(Sec.6[C],1997NIRC)

D.TerminationofTaxablePeriod TheCommissionershalldeclarethetaxperiodofataxpayerterminatedatanytime whenitshallcometohisknowledge: a. b. c. d. Thatthetaxpayerisretiringfrombusinesssubjecttotax; ThatheintendstoleavethePhilippinesorremovehispropertytherefrom; Thatthetaxpayerhidesorconcealshisproperty;or Thatheperformsanyacttendingtoobstructtheproceedingsforthecollection ofthetaxforthepastorcurrentquarteroryearortorenderthesametotally orpartlyineffectiveunlesssuchproceedingsarebegunimmediately.

Thewrittendecisiontoterminatethetaxperiodshallbeaccompaniedwitha requestfortheimmediatepaymentofthetaxfortheperiodsodeclaredterminatedand thetaxfortheprecedingyearorquarter,orsuchportionthereofasmaybeunpaid.Said taxesshallbedueandpayableimmediatelyandshallbesubjecttoallthepenalties prescribedunlesspaidwithinthetimefixedinthedemandmadebytheCommissioner (Sec.6[d],1997NIRC)

E.FixingofRealPropertyValues Forpurposesofcomputinganyinternalrevenuetax,thevalueofthepropertyshall bewhicheveristhehigherof:(1)thefairmarketvalueasdeterminedbythe Commissioner;or(2)thefairmarketvalueasshowninthescheduleofvaluesofthe ProvincialandCityAssessorsforrealtaxpurposes(Sec6[E],1997NIRC).

 F.InquiryintoBankDeposits ExaminationofbankdepositsenablestheCommissionertoassessthecorrecttax liabilitiesoftaxpayers.However,bankdepositsareconfidentialunderR.A.1405. NotwithstandinganycontraryprovisionsofR.A.1405andothergeneralorspeciallaws, theCommissionerisauthorizedtoinquireintothebankdepositsof; 1. adecedenttodeterminehisgrossestate;and 2.anytaxpayerwhohasfiledanapplicationforcompromiseofhistaxliability underSec.204(A)(@)oftheTaxCodebyreasonofhisfinancialincapacitytopayhistax liability.Inthiscase,theapplicationforcompromiseshallnotbeconsideredunlessand untilhewaivesinwriting hisprivilegeunderR.A.1405,orunderothergeneralorspecial laws,andsuchwaivershallconstitutetheauthorityoftheCommissionertoinquireinto bankdepositsofthetaxpayer(Sec.6[F],1997NIRC). NetWorthMethodinInvestigation ThebasisofusingtheNetWorthMethodofinvestigationisRevenue MemorandumCircularNo.4372 .Thismethodofinvestigation,otherwiseknownas inventorymethodofincometaxverificationisaveryeffectivemethodofdetermining taxableincomeanddeficiencyincometaxduefromataxpayer.

BasicConceptandTheory Themethodisanextensionofthebasicaccountingprinciple:assetsminusliabilities equalsnetworth .Thetaxpayer snetworthisdeterminedbothatthebeginningandattheendofthesametaxableyear. Theincreaseordecreaseinnetworthisadjustedbyaddingallnondeductibleitemsand subtractingtherefromnontaxablereceipts.Thetheoryisthattheunexplainedincrease innetworthofataxpayerispresumedtobederivedfromtaxablesources.

LegalSourceofauthorityforuseoftheMethod

 TheCommissionersauthoritytousethenetworthmethodandotherindirect methodsofestablishingtaxableincomeisfoundinSec.43,1997NIRC.Thisauthorityhas beenupheldbythecourtsinalonglineofcases,notableamongwhichistheleadingcase ofPerezvs.CTA,103Phil1167.Themethodisapracticalnecessityifafairandefficient systemofcollectingrevenueistobemaintained. Moreover,Sec.6[B],1997NIRC,providesforabroadandgeneralinvestigatory powertoassessthepropertaxonthebestevidenceobtainablewheneverareport requiredbylawasbasisfortheassessmentofanynationalinternalrevenuetaxshallnot beforthcomingwithinthetimefixedbylaworregulation,orwhenthereisreasonto believethatanysuchreportisfalse,incompleteorerroneous. Conditionsfortheuseofthemethod (a) Thatthetaxpayer'sbooksofaccountsdonotclearlyreflecthisincome, orthetaxpayerhasnobooks,orifhehasbooks,herefusestoproduce them(InadequateRecords). TheGovernmentmaybeforcedtoresorttothenetworthmethodof proofwherethefewrecordsofthetaxpayerweredestroyed;for,torequire morewouldbetantamounttoholdingthatskillfulconcealmentisaninevitable barriertoproof. (b) Thatthereisevidenceofapossiblesourceorsourcesofincometo accountfortheincreaseinnetworthortheexpenditures(Needfor evidenceofthesourcesofincome). Inallleadingcasesonthismatter,courtsareunanimousinholding thatwhenthetaxcaseiscivilinnature,directproofofsourcesofincomeisnot essentialthatthegovernmentisnotrequiredtonegateallpossiblenontaxable sourcesoftheallegednetworthincreases.Theburdenofproofisuponthe taxpayertoshowthathisnetworthincreasewasderivedfromnontaxable sources. AsstatedbytheSupremeCourt,incivilcases,theassessorneednot provethespecificsourceofincome.Thisreasonableonthebasicassumption thatmostassetsarederivedfromataxablesourceandthatwhenthisisnot true,thetaxpayerisinapositiontoexplainthediscrepancy.(Perezvs.CTA,

supra ) However, whenthetaxpayeriscriminallyprosecutedfortaxevasion, theneedforevidenceofalikelysourceofincomebecomesaprerequisitefora successfulprosecution.TheburdenofproofisalwayswiththeGovernment. Convictioninsuchcases,asinanycriminalcase,restsonproofbeyond reasonabledoubt. (c) Thatthereisafixedstartingpointoropeningnetworth,i.e.,adate beginningwithataxableyearorpriortoit,atwhichtimethetaxpayers financialconditioncanbeaffirmativelyestablishedwithsome definiteness. Thisisanessentialcondition,consideredtobethecornerstoneofanet worthcase.Ifthestartingpointoropeningnetworthisproventobewrong, thewholesuperstructureusuallyfails.Thecourtshaveuniformlystressed thatthevalidityoftheresultofanyinvestigationunderthismethodwill dependentirelyuponacorrectopeningnetworth. (d)Thatthecircumstancesaresuchthatthemethoddoesnotreflectthe taxpayersincomewithreasonableaccuracyandcertaintyandproperand justadditionsofpersonalexpensesandothernondeductible expendituresweremadeandcorrect,fairandequitablecredit adjustmentsweregivenbywayofeliminatingnontaxableitems.(Proper adjustmentstoconformtotheincometaxlaws) Properadjustmentsfornondeductibleitemsmustbemade.The followingnondeductibles,asthecasemaybe,mustbeaddedtotheincrease ordecreaseinthenetworth: 1. personal,livingorfamilyexpenses; 2. premiumspaidonanylifeinsurancepolicy; 3. lossesfromsalesorexchangesofpropertybetweenmembersofthe family; 4. incometaxespaid; 5. estate,inheritanceandgifttaxes; 6. othernondeductibletaxes;

7. 8. 9. 10.

electionexpensesandotherexpensesagainstpublicpolicy; nondeductiblecontributions; giftstoothers; netcapitalloss,andthelike

Ontheotherhand,nontaxableitemsshouldbedeductedtherefrom.These itemsarenecessaryadjustmentstoavoidtheinclusionofwhatotherwiseare nontaxablereceipts.Theyare: 1. 2. 3. 4. 5. 6. inheritance,giftsandbequestsreceived; nontaxablecapitalgains; compensationforinjuriesorsickness; proceedsoflifeinsurancepolicies; sweepstakeswinnings; interestongovernmentsecuritiesandthelike

Increaseinnetwortharenottaxableiftheyareshownnottobetheresult ofunreportedincomebuttobetheresultofthecorrectionoferrorsinthe taxpayersentriesinthebooksrelatingtoindebtednesstocertaincreditors, erroneouslylistedalthoughalreadypaid.(FernandezHermanosInc.vs.CIR, L21551,30Sept.1969)

EnforcementofForfeituresandPenalties StatutoryOffensesandPenalties 1. AdditionstotheTax Additionstothetaxareincrementstothebasictaxincidentduetothe taxpayersnoncompliancewithcertainlegalrequirements,likethetaxpayers refusalorfailuretopaytaxesand/orotherviolationsoftaxingprovisions. Additionstothetaxconsistofthe:

(1)civilpenalty,otherwiseknownassurcharge,whichmayeitherbe25%or 50%ofthetaxdependinguponthenatureoftheviolation; (2)interesteitherforadeficiencytaxordelinquencyastopayment; (3)othercivilpenaltiesoradministrativefinessuchasforfailuretofile certaininformationreturnsandviolationscommittedbywithholdingagents.(Secs. 247to252,1997NIRC) GeneralConsiderationsontheAdditiontotax a.Additionstothetaxordeficiencytaxapplytoalltaxes,fees,andcharges imposedintheTaxCode. b.Theamountsoaddedtothetaxshallbecollectedatthesametime,inthe samemanner,andaspartofthetax. c.Ifthewithholdingagentisthegovernmentoranyofitsagencies,political subdivisionsorinstrumentalities,oragovernmentownedorcontrolled corporation,theemployeethereofresponsibleforthewithholdingandremittance ofthetaxshallbepersonallyliablefortheadditionstothetaxprescribed(Sec. 247[b],1997NIRC)suchasthe25%surchargeandthe20%interestperannumon thedelinquency(Secs.248and249[C],1997NIRC)

Surcharge ThepaymentofthesurchargeismandatoryandtheCommissionerof InternalRevenueisnotvestedwithanyauthoritytowaiveordispensewiththe collectionthereof.Inonecase,theSupremeCourtheldthatthefactthaton accountofriotsdirectedagainsttheChineseoncertaindates,theywereprevented frompayingtheirinternalrevenuetaxesontime,doesnotauthorizethe Commissionertoextendthetimeprescribedforthepaymentoftaxesortoaccept themwithouttheadditionalpenalty(LimCoChuivs.Posadas,47Phil460) TheCommissionerisnotvestedwithanyauthoritytowaiveordispensewith

thecollectiontherof.(CIRvs.CA,supra).Thepenaltyandinterestarenotpenalbut compensatoryfortheconcomitantuseofthefundsbythetaxpayerbeyondthe datewhenheissupposedtohavepaidthemtotheGovernment. (Philippine RefiningCompanyvs.C.A.,G.R.No.1188794,8May1996). AnextensionoftimetopaytaxesgrantedbytheCommissionerdoesnot excusepaymentofthesurcharge(CIRvs.CuUnjieng,L26869,6Aug.1975) Thefollowingcases,however,showtheinstanceswhentheimpositionofthe 25%surchargehadbeenwaived: 1. Wherethetaxpayeringoodfaithmadeamistakeintheinterpretationofthe applicableregulationstherebyresultingindelayinthepaymentoftaxes. (ConnelBros.Co.vs.CIR,L15470,26Dec.1963) 2. ASubsequentreversalbytheBIRofapriorrulingrelieduponbythetaxpayer mayalsobeagroundfordispensingwiththe25%surcharge.(CIRvs.Republic CementCorp.,L35677,10Aug.1983) 3. WhereadoubtexistedonthepartoftheBureauastowhetherornotR.A. 5431abolishedtheincometaxexemptionsofcorporations(includingelectric powerfranchisegrantees)exceptthoseexemptunderSec.27(now,Sec.30, 1997NIRC),theimpositionofthesurchargemaybedispensedwith( Cagayan ElectreicPower&LightCo.vsCIR,G.R.No.60126,25Sept.1985) 4. Inthecaseoffailuretomakeandfileareturnorlistwithinthetimeprescribed bylaw,notduetowillfulneglect,wheresuchreturnorlistisvoluntarilyfiledby thetaxpayerwithoutnoticefromtheCIRorotherofficers,anditisshownthat thefailuretofileitinduetimewasduetoareasonablecause,nosurchargewill beaddedtotheamountoftaxdueonthereturn.Insuchcase,inordertoavoid theimpositionofthesurcharge,thetaxpayermustmakeastatementshowing allthefactsallegedasreasonablecausesforfailuretofilethereturnontimein theformofanaffidavit,whichshouldbeattachedtothereturn.

Interest Thisisanincrementonanyunpaidamountoftax,assessedattherateof twentypercent(20%)perannum,orsuchhigherrateasmaybeprescribedyrules andregulations,fromthedateprescribedforpaymentuntiltheamountisfully paid.(Sec.249[A],1997NIRC)

Interestisclassifiedinto:

1. Deficiencyinterest Anydeficiencyinthetaxdue,asthetermisdefinedinthiscode,shallbe subjecttotheinterestof20%perannum,orsuchhigherrateasmaybeprescribed byrulesandregulations,whichshallbeassessedandcollectedfromthedate prescribedforitspaymentuntilthefullpaymentthereof(Sec.249[B],1997NIRC) 2. Delinquencyinterest Thiskindofinterestisimposedincaseoffailuretopay: (1) Theamountofthetaxdueonanyreturnrequiredtobefiled,or (2) Theamountofthetaxdueforwhichnoreturnisrequired,or (3) Adeficiencytax,oranysurchargeorinterestthereonontheduedate appearinginthenoticeanddemandoftheCommissioner.

3.InterestonExtendedPayment Imposedwhenapersonrequiredtopaythetaxisqualifiedandelectstopaythe taxoninstallmentundertheprovisionsoftheCode,butfailstopaythetaxorany installmentthereof,oranypartofsuchamountorinstallmentonorbeforethedate prescribedforitspayment,orwheretheCommissionerhasauthorizedanextensionof timewithinwhichtopayataxoradeficiencytaxoranypartthereof.(Sec.249[d],1997 NIRC) AdministrativeOffenses 1.FailuretoFileCertainInformationReturns 2.FailureofaWithholdingAgenttoCollectandRemitTaxes 3.FailureofaWithholdingAgenttoRefundExcessWithholdingTax Sourcesofrevenues: 1. Incometax 2. EstateTaxanddonortax 3. VAT 4. Otherpercentagetaxes 5. Excisetax

6. Documentarystamptaxes 7. OtherasimposedandprovidedbyBIR RemediesoftheGovernment

EnumerationoftheRemedies I. Administrative 1. DistraintofPersonalProperty 2. LevyofRealProperty 3. TaxLien 4. Compromise 5. Forfeiture 6. OtherAdministrativeRemedies II. Judicial 1. CivilAction 2. CriminalAction DistraintofPersonalProperty DistraintSeizurebythegovernmentofpersonalproperty,tangibleorintangible,to enforcethepaymentoffaces,tobefollowedbyitspublicsale,ifthetaxesarenot voluntarilypaid. KINDS a. ActualThereistakingofpossessionofpersonalpropertyoutofthetaxpayer intothatofthegovernment. Incaseofintangibleproperty.Taxpayerisalsodivertedofthepowerof controlovertheproperty b. ConstructiveTheownerismerelyprohibitedfromdisposingofhispersonal property.

Actualvs.

Constructive Distraint

Madeonthe Maybemadeon propertyonlyofa thepropertyof delinquenttaxpayer. anytaxpayer whether delinquentornot Thereisactual Taxpayerismerely takingor prohibitedfrom possessionofthe disposingofhis property. property. Effectedbyhavinga Effectedby listofthedistraint requiringthe propertyorby taxpayertosigna serviceorwarrant receiptofthe ofdistraintor propertyorby garnishment. leavingalistof same Animmediatestep Suchimmediate forcollectionof stepisnot taxeswhere necessary;taxdue amountdueis maynotbe definite. definiteoritis beingquestioned.

Requisites: 1. 2. 3. 4. Taxpayerisdelinquentinthepaymentoftax. Subsequentdemandforitspayment. Taxpayermustfailtopaydelinquenttaxattimerequired. Periodwithintoassessorcollecthasnotyetprescribed. Incaseofconstructivedistraint,requisiteno.1isnotessential(seeSec.206 TC)

Whenremedynotavailable: WhereamountinvolveddoesnotexceedP100(Sec.205TC). Inkeepingwiththeprovisionontheabatementofthecollectionoftaxasthecost ofsamemightevenbemorethanP100. Procedure:

1. Serviceofwarrantofdistraintupontaxpayeroruponpersoninpossessionof taxpayerspersonalproperty. 2. Postingofnoticeisnotlessthantwoplacesinthemunicipalityorcityandnotice tothetaxpayerspecifyingtimeandplaceofsaleandthearticlesdistrained. 3. Saleatpublicauctiontohighestbidder 4. Dispositionofproceedsofthesale.

Whomayeffectdistraint 1. commissioneror hisdueauthorized representative 2. RDO

Amount Involved Inexcessof P1,000,000. 00 P1,000,000. 00orless

HowActualDistraintEffected 1. IncaseofTangibleProperty: a. Copyofanaccountofthepropertydistrained,signedbytheofficer,left eitherwiththeownerorpersonfromwhompropertywastaken,atthe dwellingorplaceofbusinessandwithsomeoneofsuitableageanddiscretion b. Statementofthesumdemanded. c. Timeandplaceofsale. 2. Incaseofintangibleproperty: a. Stocksandothersecurities Servingacopyofthewarrantupontaxpayeranduponpresident, manager,treasurerorotherresponsibleofficeroftheissuingcorporation, companyorassociation. b. Debtsandcredits 1. Leavingacopyofthewarrantwiththepersonowingthedebtsorhaving inhispossessionsuchcreditsorhisagent. 2. WarrantshallbesufficientauthorityforsuchpersontopayCIRhis creditsordebts.

c. BankAccountsgarnishment 1. Servewarrantupontaxpayerandpresident,manager,treasureror responsibleofficerofthebank. 2. BankshallturnovertoCIRsomuchofthebankaccountsasmaybe sufficient. HowconstructiveDistraintEffected 1. Requiretaxpayerorpersoninpossessionto a. Signareceiptcoveringpropertydistrained b. Obligatehimtopreservethesameproperties. c. Prohibithimfromdisposingthepropertyfromdisposingthepropertyin anymanner,withouttheauthorityoftheCIR. 2. WhereTaxpayerorpersoninpossessionrefusestosign: a. Officershallpreparelistofthepropertydistrained. b. Inthepresenceoftwowitnessesofsufficientageanddiscretion,leavea copyinthepremiseswherepropertyislocated. GroundsofConstructiveDistraint 1. 2. 3. 4. 5. Note: 1. Bankaccountsmaybedistrainedwithoutviolatingtheconfidentialnatureof bankaccountsfornoinquiryismade.BIRsimplyseizessomuchofthedeposit withouthavingtoknowhowmuchthedepositsareorwherethemoneyorany partofitcamefrom. 2. Ifatanytimepriortotheconsummationofthesale,allproperchargesarepaidto theofficerconductingthesame,thegoodsdistrainedshallberestoredtothe owner. 3. Whentheamountofthebidforthepropertyunderdistraintisnotequaltothe amountofthetaxorisverymuchlessthantheactualmarketvalueofarticles,the CIRorhisdeputymaypurchasethedistrainedpropertyonbehalfofthenational government. Taxpayerisretiringfromanybusinesssubjecttotax. TaxpayerisintendingtoleavethePhilippines;or Toremovehispropertytherefrom. Taxpayerhidesorconcealshisproperty. Taxpayeractstendingtoobstructcollectionproceedings.

 LevyofRealProperty LevyActofseizureofrealpropertyinordertoenforcethepaymentoftaxes.The propertymaybesoldatpublicsale,ifafterseizure;thetaxesarenotvoluntarily paid. Therequisitesarethesameasthatofdistraint. Procedure: 1. InternationalRevenueofficershallprepareadulyauthenticatedcertificate showing a. Nameoftaxpayer b. Amountoftaxand c. Penaltydue. enforceablethroughoutthePhilippines 2. Officershallwriteuponthecertificateadescriptionofthepropertyuponwhich levyismade. 3. Serviceofwrittennoticeto: a. Thetaxpayer,and b. RDwherepropertyislocated. 4. Advertisementofthetimeandplaceofsale. 5. Saleatpublicauctiontohighestbidder. 6. Dispositionofproceedsofsale. Theexcessshallbeturnedovertoowner. Redemptionofpropertysoldorforfeited a. Personentitled:Taxpayeroranyoneforhim b. Timetoredeem:oneyearfromdateofsaleorforfeiture Beginsfromregistrationofthedeedofsaleordeclarationofforfeiture. Cannotbeextendedbythecourts. c. Possessionpendingredemptionownernotdeprivedofpossession d. Price:Amountoftaxes,penaltiesandinterestthereonfromdateofdelinquencyto thedateofsaletogetherwithinterestonsaidpurchasepriceat15%perannum fromdateofpurchasetodateofredemption.

DistraintandLevycompared

1. Botharesummaryremediesforcollectionoftaxes. 2. BothcannotbeavailedofwhereamountinvolvedisnotmorethanP100. 3. Distraintpersonalproperty Levyrealproperty 4. Distraintforfeiturebygovernment,notprovided Levyforfeiturebygovernmentauthorizedwherethereisnobidderorthehighest bidisnotsufficienttopaythetaxes,penaltiesandcosts. 5. DistraintTaxpayernogiventherightofredemption LevyTaxpayercanredeempropertieslevieduponandsold/forfeitedtothe government. Note: 1. ItisthedutyoftheRegisterofDeedsconcerneduponregistrationofthe declarationofforfeiture,totransferthetitletothepropertywithoutofanorder fromacompetentcourt 2. Theremedyofdistraintorlevymayberepeatedifnecessaryuntilthefullamount, includingallexpenses,iscollected. EnforcementofTaxLien TaxLien: Alegalclaimorchargeonproperty,eitherrealorpersonal,establishedbylawasa securityindefaultofthepaymentoftaxes. 1. Nature: AlieninfavorofthegovernmentofthePhilippineswhenapersonliabletopaya taxneglectsorfailstodosoupondemand. 2.Duration: ExistsfromtimeassessmentismadebytheCIRuntilpaid,withinterests,penalties andcosts. 3. Extent: Uponallpropertyandrightstopropertybelongingtothetaxpayer. 4. Effectivityagainstthirdpersons: OnlywhennoticeofsuchlienisfiledbytheCIRintheRegisterofDeedsconcerned. ExtinguishmentofTaxLien 1. Paymentorremissionofthetax 2. Prescriptionoftherightofthegovernmenttoassessorcollect. 3. FailuretofilenoticeofsuchlienintheofficeofregisterofDeeds,purchasesor

judgmentcreditor. 4. Destructionofthepropertysubjecttothelien. IncaseNos.1and2,thereisnomoretaxliability.Undernos.3and4,the taxpayerisstillliable. EnforcementofTaxLienvs.Distraint Ataxlienisdistinguishedfromdisttraintinthat,indistraintthepropertyseized mustbethatofthetaxpayer,althoughitneednotbethepropertyinrespecttothetaxis assessed.Taxlienisdirectedtothepropertysubjecttothetax,regardlessofitsowner. Note: 1. Thisissuperiortojudgmentclaimofprivateindividualsorparties 2. Attachesnotonlyfromtimethewarrantwasservedbutfromthetimethetax wasdueanddemandable. Compromise Compromise:Acontractwherebytheparties,byreciprocalconcessions,avoidlitigation orputanendtoonealreadycommenced. Requisites: 1. Taxpayermusthaveataxliability. 2. TheremustbeanofferbytaxpayerorCIR,ofanamounttobepaidbytaxpayer. 3. Theremustbeacceptanceoftheofferinsettlementoftheoriginalclaim. Whentaxesmaybecompromised: 1. Areasonabledoubtastothevalidityiftheclaimagainstthetaxpayerexists; 2. Thefinancialpositionofthetaxpayerdemonstratesaclearinabilitytopaythe assessedtax. 3. Criminalviolations,except: a. Thosealreadyfiledincourt b. Thoseinvolvingfraud. Limitations: 1. Minimumcompromiserate: a. 10%ofthebasictaxassessedincaseoffinancialincapacity.

b. 40%ofbasictaxassessedothercases. 2. SubjecttoapprovalofEvaluationBoard a. WhenbasictaxinvolvedexceedsP1,000,000.00or b. Wheresettlementofferedislessthantheprescribedminimumrates. DelegationofPowertoCompromise GR:Thepowertocompromiseorabateshallnotbedelegatedbythecommissioner. E:TheRegionalEvaluationBoardmaycompromisetheassessmentissuedbythe regionalofficesinvolvingbasictaxesofP500Korless. Remedyincaseoffailuretocomply: TheCIRmayeither: 1. enforcethecompromise,or 2. Regarditasrescindedandinsistsupontheoriginaldemand. CompromisePenalty 1. Itisacertainamountofmoneywhichthetaxpayerpaystocompromiseatax violation. 2. Itispaininlieuofacriminalprosecution. 3. Sinceitisvoluntaryincharacter,thesamemaybecollectedonlyifthetaxpayeris willingtopaythem. Enforcementofforfeiture Forfeiture:Impliesadivestitureofpropertywithoutcompensation,inconsequenceofa defaultoroffense. Includestheideaofnotonlylosingbutalsohavingthepropertytransferredto anotherwithouttheconsentoftheownerandwrongdoer. 1. Effect:Transferthetitletothespecificthingfromtheownertothegovernment. 2. Whenavailable: a. Nobidderfortherealpropertyexposedforsale. b. Ifhighestbidisforanamountinsufficienttopaythetaxes,penaltiesand costs. Withintwodaysthereafter,areturnoftheproceedingisdulymade. 3. Howenforced: a. Incaseofpersonalpropertybyseizureandsaleordestructionofthe specificforfeitedproperty. b. Incaseofrealpropertybyajudgmentofcondemnationandsaleinalegal

4.

5.

6.

7.

actionorproceeding,civilorcriminal,asthecasemayrequire. Whenforfeitedpropertytobedestroyedorsold: a. TobedestroyedbyorderoftheCIRwhenthesaleforconsumptionoruse ofthefollowingwouldbeinjurioustothepublichealthorprejudicialtothe enforcementofthelaw:(atleast20daysafterseizure) 1. distilledspirits 2. liquors 3. cigars 4. cigarettes,andothermanufacturedproductsoftobacco 5. playingcards 6. Allapparatususedinorabouttheillicitproductionofsucharticles. b. TobesoldordestroyeddependsuponthediscretionofCIR 1. Allotherarticlessubjecttoexercisetax,(wine,automobile,mineral products,manufacturedoils,miscellaneousproducts,nonessential itemsapetroleumproducts)manufacturedorremovedinviolationof theTaxCode. 2. DiesforprintingormakingIRstamps,labelsandtags,inimitationof orpurporttobelawfulstamps,labelsortags. Wheretobesole: a. Publicsale:provided,thereisnoticeofnotlessthan20days. b. Privatesale:provided,itiswiththeapprovaloftheSecretaryofFinance. RightofRedemption: a. Personalentitledtaxpayeroranyoneforhim b. Timetoredeemwithinone(1)yearfromforfeiture c. Amounttobepaidfullamountofthetaxesandpenalties,plusinterestand costofthesale d. TowhompaidCommissionerortheRevenueCollectionOfficer e. Effectoffailuretoredeemforfeitureshallbecomeabsolute. Note: TheRegisterofDeedsisdutyboundtotransferthetitleofpropertyforfeited tothegovernmentwithournecessityofanorderfromacompetentcourt.

OtherAdministrativeRemedies 1. Requiringfilingofbondsinthefollowinginstances: a. Estateanddonorstax b. Excisetaxes c. Exportersbond d. Manufacturersandimportersbond 2. Requiringproofoffilingincometaxreturns

Beforealicensetoengageintrade,businessoroccupationorto practiceaprofessioncanbeissued. 3. GivingrewardtoinformersSumequivalentto10%ofrevenues, surchargesorfeesrecoveredand/orfineorpenaltyimposedandcollectedor P1,000,000.00percase,whicheverislower. 4. Impositionofsurchargeandinterest. 5. Makingarrest,searchandseizure Limitedtoviolationsofanypenallaworregulationadministeredby theBIR,committedwithintheviewoftheInternalRevenueOfficerorEE. 6. Deportationincaseofaliensonthefollowinggrounds a. KnowinglyandfraudulentlyevadespaymentofIRtaxes. b. Willfullyrefusestopaysuchtaxanditsaccessorypenalties,after decisiononhistaxliabilityshallhavebecomefinalandexecutory. 7. Inspectionofbooks Booksofaccountsandotheraccountingrecordsoftaxpayermustbe preserved,generallywithinthreeyearsafterdatethetaxreturnwasdueor wasfiledwhicheverislater. 8. UseofNationalTaxRegister 9. Obtaininginformationontaxliabilityofanyperson 10. InventoryTakingofstockintradeandmakingsurveillance. 11. Prescribingpresumptivegrosssalesorreceipt: a. Personfailedtoissuereceiptsandinvoices b. Reasontobelievethatrecordsdonotcorrectlyreflectdeclarationin return. 12. Prescribingrealpropertyvalues 13. Inquiringintobankdepositaccountsof a. Adeceasedpersontodeterminegrossestate b. Anytaxpayerwhofiledapplicationforcompromisebyreasonsof financialincapacityhistaxliability. 14. RegistrationofTaxpayers. JudicialRemedies CivilandCriminalActions: 15. BroughtinthenameoftheGovernmentofthePhilippines. 16. ConductedbyLegalOfficerofBIR 17. MustbewiththeapprovaloftheCIR,incaseofaction,forrecoveryof taxes,orenforcementofafine,penaltyorforfeiture. A. CivilAction Actionsinstitutedbythegovernmenttocollectinternalrevenuetaxesin

regularcourts(RTCorMTCs,dependingontheamountinvolved) Whenassessmentmadehasbecomefinalandexecutoryforfailureor taxpayerto: a. DisputesamebyfilingprotestwithCIR b. AppealadversedecisionofCIRtoCTA B. CriminalAction Adirectmodeofcollectionoftaxes,thejudgmentofwhichshallnotonly imposethepenaltybutalsoorderpaymentoftaxes. Anassessmentofataxdeficiencyisnotnecessarytoacriminalprosecution fortaxevasion,providedthereisaprimafacieshowingofwillfulattempttoevade. EffectofAcquittalonTaxLiability: Doesnotexoneratetaxpayerhiscivilliabilitytopaythetaxdue.Thus,the governmentmaystillcollectthetaxinthesameaction. Reason:Taxisanobligation,doesnotarisefromacriminalact. EffectofSatisfactionofTaxLiabilityonCriminalLiability Willnotoperatetoextinguishtaxpayerscriminalliabilitysincethedutytopaythe taxisimposedbystatute,independentofanyattemptonpastoftaxpayerstoevade payment. Thisistrueincasethecriminalactionisbasedontheacttotaxpayeroffilinga falseandfraudulenttaxreturnandfailuretopaythetax. Note: Thesatisfactionofcivilliabilityisnotoneofthegroundsfortheextinctionof criminalaction. PRESCRIPTIVEPERIODS/STATUTEOFLIMITATION Purpose: ForpurposesofTaxation,statueoflimitationisprimarilydesignedtoprotectthe rightsofthetaxpayersagainstunreasonableinvestigationofthetaxingauthoritywith respecttoassessmentandcollectionofInternalRevenueTaxes. I. PrescriptionofGovernmentsRighttoAssessTaxes: A. GeneralRule: InternalRevenueTaxesshallbeassessedwithinthree(3)yearsafterthelast

dayprescribedbylawforthefilingofthereturnorfromthedaythereturnwas filed,incaseitisfiledbeyondtheperiodprescribedthereof.(Section203ofthe TaxCode) Note: Areturnfiledbeforethelastdayprescribedbylawforthefilingthereofshallbe consideredasfiledonsuchlastday. Incaseareturnissubstantiallyamended,thegovernmentrighttoassessthetax shallcommencefromthefilingoftheamendedreturn(CIRvs.Phoenix,May20, 1965;Kei&Co.vs.Collector,4SCRA872) Incomputingtheprescriptiveperiodforassessment,thelatterisdeemedmade whennoticetothiseffectisreleased,mailedorsentbytheCommissionertothe correctaddressofthetaxpayer.However,thelawdoesnotrequirethatthe demand/noticebereceivedwithintheprescriptiveperiod.(BasilanEstates,Inc. vs.Commissioner21,SCRA17;Republicvs.CAApril30,1987) Anaffidavitexecutedbyarevenueofficeindicatingthetaxliabilitiesofataxpayer andattachedtoacriminalcomplaintfortaxevasion,cannotbedeemedan assessment.(CIRvs.PascoiRealtyCorp.June29,1999) Atranscriptsheetsarenotreturns,becausetheydonotcontaininformation necessaryandrequiredtopermitthecomputationandassessmentoftaxes (SinforoAlcavs.Commissioner,Dec.29,1964)

B.)Exceptions:(Sec.222ic) 1. Wherenoreturnwasfiledwithinten(10)yearsafterthedateofdiscoveryof theomission. 2. Whereareturnwasfiledbutthesamewasfalseorfraudulentwithinten(10) yearsfromthediscoveryoffalsityorfraud. Note: Fraudulentreturn vs. Falsereturn ThefilingthereofisintendedandItmerelyimpliesa Deceitfulwiththeaimofevadingthedeviationfromtruthof correcttaxdue.factwhetherintentional. NatureofFraud: a. Fraudisneverpresumedandthecircumstancesconsistingitmustbe allegedandprovedtoexistbyclear&convincingevidence(Republicvs.Keir, Sept.30,1966)

b. Thefraudcontemplatedbylawisactualandnotconstructive.Itmust amounttointentionalwrongdoingwiththesoleobjectofavoidingthetax.A meremistakeisnotafraudulentintent.(Aznarcase,Aug.23,1974) c. Afraudassessmentwhichhasbecomefinalandexecutory,thefactoffraud shallbejudiciallytakencognizanceofinthecivilorcriminalactionforthe collectionthereof.(Sec.222paragraph(a)) Fraudmaybeestablishedbythefollowing:(BadgesofFraud) a. Intentionalandsubstantialunderstatementoftaxliabilityofthetaxpayer. b. Intentionalandsubstantialoverstatementofdeductionsofexemption c. Recurrenceoftheforegoingcircumstances. Instances/Circumstancesnegatingfraud: a. WhentheCommissionerfailsimputefraudintheassessmentnotice/ demandforpayment. b. WhentheCommissionerfailedtoallegeinhisanswertothetaxpayers petitionforreviewwhenthecaseisappealedtotheCTA. c. WhentheCommissionerraisedthequestionoffraudonlyforthefirsttime inhismemorandumwhichwasfiledtheCTAafterhehadrestedhiscase. d. WheretheBIRitselfappeared,notsureastotherealamountofthe taxpayersnetincome. e. Amereunderstatementofincomedoesnotprovefraud,unlessthereisa sufficientevidenceshavingfraudulentintent. 3. Wherethecommissionerandthetaxpayer,beforetheexpirationofthethree(3) yearperiodoflimitationhaveagreeinwritingtotheextensionofsaidperiod. Note: Limitations: a. Theagreementextendingtheperiodofprescriptionshouldbeinwritingand dulysignedbythetaxpayerandthecommissioner. b. Theagreementtoextendthesameshouldbemodebeforetheexpirationofthe periodpreviouslyagreedupon. 4. Wherethereisawrittenwaiverorrenunciationoftheoriginal3yearlimitation signedbythetaxpayer. Note: Limitations: a. Thewaivertobevalidmustbeexecutedbythepartiesbeforethelapseofthe prescriptiveperiod. b. AwaiverisinefficientIitisexecutedbeyondtheoriginalthreeyear.

c. Thecommissionercannotvalidagreetoreducetheprescriptiveperiodtoless thanthatgrantedbylaw. C)ImprescriptibleAssessments: 1.Wherethelawdoesnotprovideforanyparticularperiodofassessment,thetax soughttobeassessedbecomesimprescriptible. 2.Wherenoreturnisrequiredbylaw,thetaxisimprescriptible. 3.Assessmentofunpaidtaxes,wherethebasesofwhichisnotrequiredbylawtobe reportedinareturnsuchasexcisetaxes.(Carmenvs.AyalaSecuritiesCorp.,Nov.21, 1980) 4.Assessmentofcompensatinganddocumentarystamptax. II. PrescriptionofGovernmentsRighttoCollectTaxes A. GeneralRule: 1. WhereanassessmentwasmadeAnyinternalrevenuetaxwhichhasbeen assessedwithintheperiodoflimitationmaybecollectedbydistraintorlevy orbyproceedingincourtwithin5yearsfollowingthedateofassessment. 2. Wherenoassessmentwasmadeandareturnwasfiledandthesameisnot fraudulentorfalsethetaxshouldbecollectedwithin3yearsafterthe returnwasdueorwasfiled,whicheverislater. B. Exceptions: 1. Whereafraudulent/falsereturnwithintenttoevadetaxeswasfileda proceedingincourtforthecollectionofthetaxmaybefiledwithout assessment,atanytimewithintenyearsafterthediscoveryofthefalsityor fraud. Note: The10yearprescriptiveperiodforcollectorthruactiondoesnotapplyifit appearsthattherewasanassessment.Insuchcase,theordinary5yearperiod (now3years)wouldapply(Rep.vs.Ret.,March31,1962) 2. Whenthetaxpayeromitstofileareturnacourtproceedingforthe collectionofsuchtaxmaybefiledwithoutassessment,atanytimewithin10 yearsafterthediscoveryoftheomission. 3. Waiverofstatuteoflimitationsanyinternalrevenuetax,whichhasbeen assessedwithintheperiodagreedupon,maybecollectedbedistinctorlevy ofbyaproceedingincourtwithintheperiodagreeduponinwritingbefore theexpirationof5yearperiod.

Note: Distinction a. Agreementtoextendperiodof vs. b.Agreementrenouncing Prescription.Itmustbemadebeforethe periodofprescription Expirationoftheperiodagreedupontoanagreementwaivingthedefenseof bevalid. Prescriptionistillbindingtothe Taxpayeralthoughmadebeyondsuch prescriptiveperiod.

4. Wherethegovernmentmakesanotherassessmentonthebasisof reinvestigationrequestedbythetaxpayertheprescriptiveperiodfor collectionshouldbecountedfromthelastassessment.(Rep.vs.Lopez,March 30,1963)

5. Wheretheassessmentisrevisedbecauseofanamendedreturntheperiod forcollectioniscountedfromthelastrevisedassessment. 6. Whereataxobligationissecuredbyasuretybondthegovernmentmay proceedthruacourtactiontoforfeitabondandenforcesuchcontractual obligationwithinaperiodoftenyears. 7. Wheretheactionisbroughttoenforceacompromiseenteredintobetween thecommissionandthetaxpayertheprescriptiveperiodistenyears. C. Whentaxisdeemedcollectedforpurposesoftheprescriptiveperiod. 1. CollectionbysummaryremediesItiseffectedbysummarymethodswhenthe governmentavailofdistraintandlevyprocedure. 2. CollectionbyjudicialactionThecollectionbeginsbyfilingthecomplaintwith thepropercourt.(RTC) 3. Whereassessmentofthecommissionerisprotected&appealedtotheCTA thecollectionbeginwhenthegovernmentfileitsanswertotaxpayerspetition forreview.

III. RulesofPrescriptionInCriminalCases

A. Rule:Allviolationsofanyprovisionofthetaxcodeshallprescribeafterfive(5) years. Note: Whenitshouldcommence?:Thefive(5)yearprescriptiveperiodshallbeginto runfromthe a. Dayofthecommissionoftheviolation,ifknow. b. Ifnotknown,fromthetimeofdiscoveryandtheinstitutionofjudicial proceedingforitsinvestigationandpunishment. Whenitisinterrupted: a. Whenaproceedingisinstitutedagainsttheguiltyperson b. WhentheoffenderisabsentfromthePhilippines. Whenitshouldrunagain:Whentheproceedingisdismissedforreasonnot Constitutingjeopardy. Whendoesthedefenseofprescriptionmayberaised: a. IncivilcaseIfnotraisedinthelowercourt,itisbailedpermanently. Ifcannotberaisedforthefirsttimeonappeal. b. IncriminalcaseItcanberaisedevenifthecasehasbeendecidedbythe lowercourtbutpendingdecisiononappeal. IV. InterruptionofthePrescriptivePeriod 1. Wherebeforetheexpirationofthetimeprescribedfortheassessmentofthe tax,boththecommissionerandthetaxpayerhaveconsentedinwritingtoits assessmentaftersuchtime,thetaxmaybeassessedpriortotheexpirationof theperiodagreedupon. 2. Therunningofstatuteoflimitationsonmakinganassessmentandthe beginningofdistraint/levyoraproceedingincourtforcollectionshallbe suspendedfortheperiod. a. DuringwhichtheCommissionerisprohibitedfrommakingthe assessmentorbeginningdistraint/levyoraproceedingincourtandfor 60daysthereafter; e.g. FilingapetitionforreviewintheCTAfromthedecisionofthe Commissioner.Thecommissionerispreventedfromfilinganordinary actiontocollectthetax. WhenCTAsuspendsthecollectionoftaxliabilityofthetaxpayer pursuanttoSection11ofRA1125uponproofthatitscollectionmay jeopardizesthegovernmentand/orthetaxpayer.

b. Whenthetaxpayerrequestsforreinvestigationwhichisgrantedby commissioner. Note: Amererequestforreinvestigationwithoutanyactionorthepartof theCommissionerdoesnotinterrupttherunningoftheprescriptiveperiod. Therequestmustnotbeamereproformer.Substantialissuesmust beraised. c. Whenthetaxpayercannotbelocatedintheaddressgivenbyhiminthe return. Note: IfthetaxpayerinformstheCommissionerofanychangeinaddressthe statutewillnotbesuspended. d. Whenthewarrantofdistraintorlevyisdulyserveduponanyofthe followingperson: 1. taxpayer 2. hisauthorizedrepresentative 3. Memberofhishouseholdwithsufficientdiscretionandnoproperty couldbelocated. e. WhenthetaxpayerisoutofthePhilippines. 3. Incriminalcasesforviolationoftaxcodetheperiodshallnotrunwhenthe offenderisabsentfromthePhilippines. Note: Apetitionforreconsiderationofataxassessmentdoesnotsuspendthecriminal action. Reason:Norequirementforassessmentofthetaxbeforethecriminalactionmay beinstituted. NotaBene: 1. Thelawonprescriptionremedialmeasureshouldbeinterpretedliberallyinorder toprotectthetaxpayer. 2. Thedefenseofprescriptionmustberaisedbythetaxpayerontime,otherwiseitis deemedwaived. 3. Thequestionofprescriptionisnotjurisdictional,andasdefenseitmustberaised

reasonablyotherwiseitisdeemedwaived. 4. Theprescriptiveprovidedinthetaxcodeoverridethestatuteofnonclaimsin thesettlementofthedeceasedsestate. 5. Intheeventthatthecollectionofthetaxhasalreadyprescribed,thegovernment cannotinvoketheprincipleofEquitablerecumbentbysettingofftheprescribed taxagainstataxrefusedtowhichthetaxpayerisentitled.

TAXPAYERSREMEDIES

Administrative (1) BeforePayment a. Filingofapetitionorrequestforreconsiderationorreinvestigation (AdministrativeProtest); b. Enteringintocompromise (2) AfterPayment a. Filingofclaimfortaxrefund;and b. Filingofclaimfortaxcredit Judicial (1) Civilaction a. AppealtotheCourtofTaxAppeals b. Actiontocontestforfeitureofchattel;and c. ActionforDamages (2) CriminalAction a. FilingofcomplaintagainsterringBureauofInternalRevenueofficials andemployees. ADMINISTRATIVEPROTEST

Requestforreconsideration apleaforthereevaluationofanassessmentonthe basisofexistingrecordswithoutneedofadditionalevidence .Itmayinvolveaquestionof factorlaworboth. Requestforreinvestigation apleaforreinvestigationofanassessmentonthebasis ofnewlydiscoveredoradditionalevidence thatataxpayerintendstopresentinthe reinvestigation.Itmayalsoinvolvequestionoffactorlaworboth. IssuanceofAssessment Procedure IssuanceofwrittenaPreliminaryAssessmentNotice(PAN)afterreviewand evaluationbytheAssessmentDivisionorbytheCommissionerorhisdulyauthorized representative,asthecasemaybe.AvalidPANshallbeinwritingstatingthelawand factsonwhichtheassessmentismade.(Sec.228ofthe1997NIRC) UnderSec.228ofthe1997NIRCaPreAssessmentNoticeshallnotberequiredinthe followingcases: a. Whenthefindingforthedeficiencytaxistheresultofmathematicalerrorin thecomputationofthetaxasappearingonthefaceofthereturn;or b. Whenadiscrepancyhasbeendeterminedbetweenthetaxwithheldandthe amountactuallyremittedbythewithholdingagent;or c. Whenataxpayerwhooptedtoclaimarefundortaxcreditofexcesscreditable withholdingtaxforataxableperiodwasdeterminedtohavecarriedoverand automaticallyappliedthesameamountclaimedagainsttheestimatedtax liabilitiesforthetaxablequarterorquartersofthesucceedingtaxableyear;or d. Whentheexcisetaxdueonexcisablearticleshasnotbeenpaid;or e. Whenanarticlelocallypurchasedorimportedbyanexemptperson,suchas, butnotlimitedto,vehicles,capitalequipment,machineries,andspareparts,has beensold,tradedortransferredtononexemptpersons. Ifthetaxpayerfailstorespondwithinfifteen(15)daysfromthedateofreceiptofthe PAN,heshallbeconsideredindefault,inwhichcase,aformalletterofdemandand assessmentnoticeshallbecausedtobeissued,callingforpaymentofthetaxpayerstax

liability,inclusiveoftheapplicablepenalties(3.1.2.RevenueRegulationsNo.1299dated Sept.6,1999). IssuanceofaFormalLetterofDemandandAssessmentNoticeissuedbythe Commissionerorhisdulyauthorizedrepresentative.Shallstatethefacts,thelaws,rules andregulations,orjurisprudenceonwhichtheassessmentisbased,otherwise,theformal letterofdemandandassessmentnoticeshallbevoid. FormalLetterofDemandandAssessmentNoticeshallbesenttothetaxpayeronlyby registeredmailorpersonaldelivery. Ifsentbypersonaldelivery,thetaxpayerorhisdulyauthorizedrepresentativeshall acknowledgereceiptthereofintheduplicatecopyoftheletterofdemandshowingthe following:(a)hisname;(b)signature;(c)designationandauthoritytoactforandin behalfofthetaxpayer;ifacknowledgedorreceivedbyapersonotherthanthetaxpayer himself;and(d)dateofreceiptthereof.(3.1.4.RevenueRegulationsNo.1299datedSept. 6,1999). DisputedAssessment Taxpayerorhisdulyauthorizedrepresentativemayadministrativelyprotestagainsta FormalLetterofDemandandAssessmentnoticewithinthirty(30)daysfromdateof receiptthereof. Iftheprotestisdeniedinwholeorpart,orisnotacteduponwithinonehundred eighty(180)daysfromsubmissionofdocuments,thetaxpayeradverselyaffectedbythe decisionorinactionmayappealtotheCTAwithin30daysfromreceiptofthesaid decision,orfromlapseoftheonehundred(180)dayperiod:otherwise,thedecision shallbecomefinalandexecutory Severalissuesintheassessmentnoticebuttaxpayeronlydisputes/protestsvalidityofsome oftheissues Taxpayerrequiredtopaythedeficiencytaxortaxesattributabletothe undisputedissues. Collectionlettertobeissuedcallingforthepaymentofdeficiencytax,including

applicablesurchargeand/orinterest. Noactionshallbetakenonthedisputedissuesuntilpaymentofdeficiencytaxes onundisputedissues Prescriptiveperiodforassessmentorcollectionoftaxesondisputedissuesshall besuspended. Failureoftaxpayertostatethefacts,theapplicablelaw,rulesandregulations,or jurisprudenceonwhichhisprotestisbasedshallrenderhisprotestvoidandwithout forceandeffect. Contents: a. Nameofthetaxpayerandaddressfortheimmediatepastthreetaxableyears; b. Natureofrequestwhetherreinvestigationorreconsiderationspecifyingnewly discoveredevidencethatheintendstopresentititisarequestfor reinvestigation; c. Taxableperiodscoveredbytheassessment; d. Amountsandkind/softaxinvolved,andAssessmentNoticeNumber; e. Dateofreceiptofassessmentnoticeorletterofdemand; f. Itemizedstatementofthefindingstowhichthetaxpayeragrees,ifany,asa basisforcomputingthetaxdue,whichamountshouldbepaidimmediately uponthefilingoftheprotest.Forthispurpose,theprotestshallnotbedeemed validlyfiledunlesspaymentoftheagreedportionofthetaxispaidfirst; g. Itemizedscheduleoftheadjustmentswithwhichthetaxpayerdoesnotagree; h. Statementoffactsand/orlawinsupportoftheprotest;and i. Documentaryevidenceasitmaydeemnecessaryandrelevanttosupportits protesttobesubmittedwithinsixty(60)daysfromthefilingoftheprotest.If thetaxpayerfailstocomplywiththisrequirement,theassessmentshallbecome final(RevenueRegulationNo.1285,datedNov.27,1985.) Arequestforreconsiderationorreinvestigationofanassessmentshallbe accompaniedbyawaiveroftheStatuteofLimitationsinfavoroftheGovernment. EffectoftaxpayersfailuretofileanadministrativeprotestortoappealBIRsdecisionto theCTA AsprovidedinSec.228oftheTaxCode,ifthetaxpayerfailstofilean administrativeprotestwithinthereglementary30dayfromreceiptofthe assessmentnotice,assessmentbecomesfinal.

 Afterthelapseofthe30dayperiod,theassessmentcannolongerbedisputed eitheradministrativelyorjudiciallythroughanappealintheCTA. Assessedalreadytaxcollectible.

LegalBasis LegalPrincipleofquasicontractsorsolutioindebiti(seeArt.2142&2154ofthe CivilCode).TheGovernmentiswithinthescopeoftheprincipleofsolutioindebiti(CIR vs.FiremansFundInsuranceCo) ScopeofClaims UnderSec.204and209ofthe1997NIRCtheCommissionermaycreditorrefund taxes: (a)Erroneouslyorillegallyassessedorcollectedinternalrevenuetaxes Taxpayerpaysunderthemistakeoffact,asforinstanceinacasewhereheis notawareoftheexistingexemptioninhisfavoratthetimepaymentsweremade Ataxisillegallycollectedifpaymentsaremadeunderduress. (b)Penaltiesimposedwithoutauthority (c)Anysumallegedtohavebeenexcessiveorinanymannerwrongfullycollected Thevalueofinternalrevenuestampswhentheyarereturnedingoodconditionby thepurchasermayalsoberedeemed. NecessityofProofforRefundClaims Refundclaimpartakesofthenatureofanexemptionwhichcannotbeallowed unlessgrantedinthemostexplicitandcategoricallanguage.(CIRvs.Johnsonand Sons Failuretodischargeburdenofgivingproofisfataltoclaim Itmustbeshownthatpaymentwasanindependentsingleactofvoluntary

paymentofataxbelievedtobedue,collectibleandacceptedbythegovernment, andwhichtherefore,becomepartofthestatemoneyssubjecttoexpenditureand perhapsalreadyspentorappropriated( CIRvs.LiYao,L11875,Dec.28,1963). TAXREFUND TAXCREDIT Thereisactually a reimbursement ofthetax Thegovernment issuesataxcredit memocovering theamount determinedtobe reimbursable whichcanbe appliedafter proper verification, againstanysum thatmaybedue andcollectible formthetaxpayer

StatutoryRequirementsforRefundClaims a.Writtenclaimforrefundortaxcreditfiledbythetaxpayerwiththe Commissioner Thisrequirementismandatory. Reasons:(a)toaffordthecommissioneranopportunitytocorrecttheactionof subordinateofficerand(b)tonotifythegovernmentthatthetaxessoughttobe refundedareunder questionandthat,therefore,suchnoticeshouldthenbeborneinmindin estimatingtherevenueavailableforexpenditure(Bermejovs.CIR87Phil96). Except:Taxcreditortaxrefundwhereonthefaceofthereturnuponwhich paymentismade,suchpaymentappearsclearlytohavebeenerroneous.(Sec.229, 1997NIRC). b.Categoricaldemandforreimbursement c.Claimforrefundortaxcreditmustbefiledorthesuitproceedingthereofmust becommencedincourtwithintwo(2)yearsfromdateofpaymentoftaxorpenalty

regardlessofanysuperveningevent. (Sec.204(c)&2291997NIRC) Requirementaconditionprecedentandnoncompliancetherewithbarsrecovery (Phil.AcetyleneCo.Inc,vs.Commissioner,CTACaseNo.1321,Nov.7,1962). Refersnotonlytotheadministrativeclaimthatthetaxpayershouldfilewithin2 yearsfromdateofpaymentswiththeBIR,butalsothejudicialclaimortheaction forrefundthetaxpayershouldcommencewiththeCTA(seeGibbsvs..Collectorof InternalRevenue,107Phil232). TaxpayermayfileanactionforrefundintheCTAevenbeforetheCommissioner decideshispendingclaimintheBIR(CommissionerofInternalRevenuevs.Palanca Jr.,L16626,Oct.29,1966). Suspensionofthe2yaerprescriptiveperiodmaybehadwhen: (1)thereisapendinglitigationbetweenthetwoparties(governmentand taxpayer)astothepropertaxtobepaidandoftheproperinterpretationofthe taxpayerscharterinrelationtothedisputedtax;and (2)thecommissionerinthatlitigatedcaseagreedtoabidebythedecisionofthe SupremeCourtastothecollectionoftaxesrelativethereto(PanayElectricCo., Inc.vs.CollectorofInternalRevenue103Phil.819) Evenifthe2yearperiodhaslapsedthesameisnotjurisdictionalandmaybe suspendedforreasonsofequityandotherspecialcircumstances.(CIRvs.Phil. AmericanLifeIns.Co.,G.R.No.105208,May29,1995). 2yearprescriptiveperiodforfilingoftaxrefundorcreditclaimcomputedfrom dateofpaymentoftaxofpenaltyexceptinthefollowing: Corporations 2yearprescriptiveperiodforoverpaidquarterlyincometaxiscountednot fromthedatethecorporationfilesitsquarterlyincometaxreturn,butfromthe datethefinaladjustedreturnisfiledafterthetaxableyear(Commissionerof InternalRevenuevs.TMXSales,Inc.,G.R.No.83736,Jan.15,1992). Taxespayableininstallment 2yearperiodiscountedformthepaymentofthelastinstallment(CIRvs Palanca,Jr.,supra) WithholdingTaxes Prescriptiveperiodcountednotfromthedatethetaxiswithheldandremitted

totheBIR,butfromtheendofthetaxableyear(Gibbsvs.CommissionerofInternal Revenue,supra) VATRegisteredPersonwhosesalesarezeroratedoreffectivelyzerorated 2yearperiodcomputedfromtheendofthetaxablequarterwhenthesales transactionsweremade(Sec.112(A)1997NIRC). InterestonTaxRefund TheGovernmentcannotberequiredtopayinterestontaxesrefundedtothe taxpayerunless: 1.TheCommissioneractedwithpatentarbitrariness Arbitrarinesspresupposesinexcusableorobstinatedisregardoflegalprovisions (CIRvs.VictoriasMillingCorp.,Inc.L19607,Nov.29,1966). 2.IncaseofIncomeTaxwithheldonthewagesofemployees. Anyexcessofthetaxeswithheldoverthetaxduefromthetaxpayershallbe returnedorcreditedwithin3monthsfromthefifteenth(15th)dayofApril.Refundor creditaftersuchtimeearninterestattherateof6%perannum ,startingafterthelapse ofthe3monthperiodtothedatethereundorcreditismade(Sec79(c)(2)1997NIRC)

APPEALtotheCTA AdversedecisionorrulingrenderedbytheCommissionerofInternalRevenuein disputedassessmentorclaimfortaxrefundorcredit,taxpayermayappealthe samewithinthirty(30)daysafterreceipt.(Sec.11,R.A.No.1125) Appealequivalenttoajudicialaction Intheabsenceofappeal,thedecisionbecomesfinalandexecutory.Butwherethe taxpayeradverselyaffectedhasnotreceivedthedecisionorruling,hecouldnot appealthesametotheCTAwithin30daysfromnotice.Hence,itcouldnotbecome finalandexecutory.(Republicvs.DelaRama,18SCRA861) Motionforreconsiderationsuspendstherunningofthe30dayperiodof perfectinganappeal.Mustadvancenewgroundsnotpreviouslyallegedtotollthe reglementaryperiod;otherwise,itwouldbemerelyproforma.(RomanCatholic Archbishopvs.Coll.,L16683,Jan.31,1962).

RequirementsforAppealinDisputedAssessment a. Taxassessedhasnotbeenpaid; b. TaxpayerhasfiledwiththeCommissionerofInternalRevenueapetitionfor thereconsiderationorcancellationoftheassessment; c. Finaldecisionorrulinghasbeenrenderedonsuchpetition; d. SuitorproceedingintheCTAismadewithin30daysfromreceiptofthe decision EffectofFailuretoAppealAssessment a. Taxpayerbarred,inanactionforcollectionofthetaxbythegovernment,from usingdefenseofexcessiveorillegalassessment. b. Assessmentisconsideredcorrect. RequirementsforAppealinRefundandTaxCredit a. Taxhasbeenpaid; b. TaxpayerhasfiledwiththeCIRawrittenclaimforrefundortaxcreditwithin 2yearsfrompaymentofthetaxorpenalty;and c. SuitorproceedingisinstitutedintheCTAalsowithinthesameprescriptive periodoftwoyearsfromthedateofpaymentregardlessofanysupervening cause.(seeSecs.204,2291997NIRC). ACTIONCONTESTINGFORFEITUREOFCHATTEL Incaseofseizureofpersonalpropertyunderclaimforforfeiture,theownerdesiring tocontestthevalidityoftheforfeituremaybringanaction: a. Beforesaleordestructionofthepropertytorecoverthepropertyfromtheperson seizingthepropertyorinpossessionthereofuponfilingoftheproperbondto enjointhesale. b. Afterthesaleandwithin6monthstorecoverthenetproceedsrealizedatthesale (see.Sec.231,1997NIRC) Actionispartakesofthenatureofanordinarycivilactionforrecoveryofpersonal

propertyorthenetproceedsofitssalewhichmustbebroughtintheordinarycourts andnottheCTA. ACTIONFORDAMAGESAGAINSTREVENUEOFFICIALS Taxpayermayfileanactionfordamagesagainstanyinternalrevenueofficerby reasonofanyactdoneintheperformanceofofficialdutyorneglectofduty.Incaseof willfulneglectofduty,taxpayersrecourseisunderArt27oftheCivilCode. Revenueofficeractingnegligentlyorinbadfaithorwithwillfuloppressionwouldbe personallyliable.Heceasestobeanofficerofthelawandbecomesaprivatewrongdoer. FILINGOFCRIMINALCOMPLAINTAGAINSTREVENUEOFFICERS Ataxpayermayfileacriminalcomplaintagainstanyofficial,agentoremployeeofthe BIRoranyotheragencychargedwiththeenforcementoftheprovisionsoftheTaxCode whocommitsanyofthefollowingoffenses: 1) Extortionorwillfuloppressionthroughtheuseofhisoffice; 2) Willfuloppressionandharassmentofataxpayerwhorefused,declined,turned downorrejectedanyofhisoffersmentionedinno.5; 3) Knowinglydemandingorreceivingsumsorcompensationnotauthorizedor prescribedbylaw; 4) Willfullyneglectingtogivereceiptsasbylawrequiredortoperformanyother dutiesenjoinedbylaw; 5) Offeringorundertakingtoaccomplish,fileorsubmitareportorassessmentona txpayerwithouttheappropriateexaminationofthebooksofaccountortax liability,orofferingorundertakingtosubmitareportorassessmentlessthanthe amountduethegovernmentforanyconsiderationorcompensation;orconspiring orcolludingwithanotherorotherstodefraudtherevenuesorotherwiseviolate theprovisionsofthetaxcode; 6) Neglectingorbydesignpermittingtheviolationofthelaworanyfalsecertificate orreturn; 7) Makingorsigninganyfalseentryorentriesinanybook,ornayfalsecertificate orreturn; 8) allowingorconspiringorcolludingwithanothertoallowtheunauthorized

withdrawalorrecallofanyreturnorstatementafterthesamehasbeenofficially receivedbytheBIR; 9) HavingknowledgeorinformationofanyviolationoftheTaxCode,failureto reportsuchknowledgeorinformationtotheirsuperiorofficer,orasotherwise requiredbylaw;ND 10) Withouttheauthorityoflaw,demandingoracceptingmoneyorotherthingsof valueforethecompromiseorsettlementofanychargeorcomplaintforany violationoftheTaxCode.(see.Sec.269,1997NIRC) Remediesunderthe TariffandCustomsCode A. GovernmentRemedies: a. Extrajudicial 1. Enforcementortaxlien Ataxlienattachesonthegoods,regardlessoftheownershipwhilestillin thecustodyorcontrolofthegovernment Proceedsofsaleareappliedtothetaxdue.Anydeficiencyorexcessisforthe accountorcredit,respectivelyofthetaxpayer Thisisavailedofwhentheimportationisneithernorimproperlymade 2. Seizures Generallyappliedwhenthepenaltyisfineorforfeiturewhichisimposed whentheimportationisunlawfulanditmaybeexercisedevenwherethe articlesarenotornolongerinCustomsCustody,unlesstheimportationis merelyattempted. Inthecaseofattemptedimportation,administrativefineorforfeiture maybeaffectedonly; a. whilethegoodsarestillwithinthecustomsjurisdiction,or b. inthehandsorunderthecontroloftheimporterorpersonwhois awarethereof.

3. SaleofProperty Propertyinthecustomscustodyshallbesubjecttosaleunderthefollowing conditions; a. abandonedarticles; a. articlesenteredunderwarehousingentrynotwithdrawnnorthe dutiesandtaxespaidthereonwithintheperiodprovidedunderSection 1908,TCC; b. seizedproperty,otherthancontraband,afterliabilitytosaleshall havebeenestablishedbyproperadministrativeorjudicialproceedingsin conformitywiththeprovisionofthiscode:and c. Anyarticlessubjecttoavalidlienforcustomsduties,taxesorother chargescollectiblebytheBureauofCustoms,aftertheexpirationofthe periodallowedforthesatisfactionofthesame. Note:GoodsinthecollectorspossessionorofCustomsauthoritiespending paymentofcustomsdutiesarebeyondthereachofattachment. b. JudicialAction Thetaxliabilityoftheimporterconstitutesapersonaldebttothegovernment, enforceablebyaction(Sec.1204,TCC) Thisisavailedofwhenthetaxlienislostbythereleaseofthegoods.

B. TaxpayersRemedies AdministrativeRecourse Claimforrefunda writtenclaimforrefundmaybesubmittedbytheimporter:

1. Inabatementusessuchas:

a. onmissingpackages; b. deficienciesinthecontentsofpackagesorshortagebeforearrivalofthe goodsinthePhilippines; c. articleslostordestroyedaftersucharrival, d. articleslostordestroyed e. deadorinjuredanimals;and f. formanifestclassicalerrors;(seesection17011708,TCC) 2. Judicialrelief Indrawbackcaseswherethegoodsarereexported a. Protest seetheearlierdiscussionsonCustomsProtestCases a. Inseizurecases seeearlierdiscussiononthesubject b. Settlementofcasebythepaymentoffineorredemptionofforfeited property seeearlierdiscussionsonthesubject Note:TheownerorimportermayabandoneitherexpresslyorByimportation infavoroftheGovernmentthusrelievinghimselfofthetaxliabilitybutnot fromthepossiblecriminalliability. ThetaxpayermayappealtotheCourtofAppealswhichhasexclusive jurisdictiontoreviewdecisionsoftheCommissionerofCustomincases involving: a) liabilityforcustomsduties,feesorothermoneycharges; b) seizures,detentionorreleaseofpropertyaffected;

c) finesforfeituresorotherpenaltiesimposedinrelationthereto;and d) othermattersarisingunderthecustomsLaworotherlawsadministered bytheRevenueofCustoms. RemediesoftheGovernment EnumerationoftheRemedies Administrative 3. DistraintofPersonalProperty 4. LevyofRealProperty 5. TaxLien 6. Compromise 7. Forfeiture 8. OtherAdministrativeRemedies Judicial 9. CivilAction 10. CriminalAction DistraintofPersonalProperty DistraintSeizurebythegovernmentofpersonalproperty,tangibleorintangible, toenforcethepaymentoffaces,tobefollowedbyitspublicsale,ifthetaxesarenot voluntarilypaid. c. ActualThereistakingofpossessionofpersonalpropertyoutofthetaxpayer intothatofthegovernment.Incaseofintangibleproperty.Taxpayerisalso divertedofthepowerofcontrolovertheproperty;

d. ConstructiveTheownerismerelyprohibitedfromdisposingofhispersonal property. Constructive Distraint Madeonthe Maybemadeon propertyonlyofa thepropertyof delinquenttaxpayer. anytaxpayer whether delinquentornot Thereisactual Taxpayerismerely takingor prohibitedfrom possessionofthe disposingofhis property. property. Effectedbyhavinga Effectedby listofthedistraint requiringthe propertyorby taxpayertosigna serviceorwarrant receiptofthe ofdistraintor propertyorby garnishment. leavingalistof same Animmediatestep Suchimmediate forcollectionof stepisnot taxeswhere necessary;taxdue amountdueis maynotbe definite. definiteoritis beingquestioned. ActualDistraint.

Requisites: 5. Taxpayerisdelinquentinthepaymentoftax. 6. Subsequentdemandforitspayment. 7. Taxpayermustfailtopaydelinquenttaxattimerequired. 8. Periodwithintoassessorcollecthasnotyetprescribed.Incaseofconstructive distraint,requisiteno.1isnotessential(seeSec.206TC)

Whenremedynotavailable: WhereamountinvolveddoesnotexceedP100(Sec.205TC).Inkeepingwiththe provisionontheabatementofthecollectionoftaxasthecostofsamemightevenbe morethanP100. Procedure: 5. Serviceofwarrantofdistraintupontaxpayeroruponpersoninpossessionof taxpayerspersonalproperty. 6. Postingofnoticeisnotlessthantwoplacesinthemunicipalityorcityandnotice tothetaxpayerspecifyingtimeandplaceofsaleandthearticlesdistrained. 7. Saleatpublicauctiontohighestbidder 8. Dispositionofproceedsofthesale.

Whomayeffectdistraint 3. commissioneror hisdueauthorized representative 4. RDO

Amount Involved Inexcessof P1,000,000. 00 P1,000,000. 00orless

HowActualDistraintEffected 3. IncaseofTangibleProperty: a. Copyofanaccountofthepropertydistrained,signedbytheofficer,left eitherwiththeownerorpersonfromwhompropertywastaken,atthe dwellingorplaceofbusinessandwithsomeoneofsuitableageanddiscretion b. Statementofthesumdemanded.

c. Timeandplaceofsale. 4. Incaseofintangibleproperty: a. Stocksandothersecurities Servingacopyofthewarrantupontaxpayeranduponpresident,manager, treasurerorotherresponsibleofficeroftheissuingcorporation,companyor association. b. Debtsandcredits 3. Leavingacopyofthewarrantwiththepersonowingthedebtsorhaving inhispossessionsuchcreditsorhisagent. 4. WarrantshallbesufficientauthorityforsuchpersontopayCIRhis creditsordebts. c. BankAccountsgarnishment 3. Servewarrantupontaxpayerandpresident,manager,treasureror responsibleofficerofthebank. 4. BankshallturnovertoCIRsomuchofthebankaccountsasmaybe sufficient. HowconstructiveDistraintEffected 3. Requiretaxpayerorpersoninpossessionto a. Signareceiptcoveringpropertydistrained b. Obligatehimtopreservethesameproperties. c. Prohibithimfromdisposingthepropertyfromdisposingthepropertyin anymanner,withouttheauthorityoftheCIR. 4. WhereTaxpayerorpersoninpossessionrefusestosign:

a. Officershallpreparelistofthepropertydistrained. b. Inthepresenceoftwowitnessesofsufficientageanddiscretion,leavea copyinthepremiseswherepropertyislocated. GroundsofConstructiveDistraint 6. Taxpayerisretiringfromanybusinesssubjecttotax. 7. TaxpayerisintendingtoleavethePhilippines;or 8. Toremovehispropertytherefrom. 9. Taxpayerhidesorconcealshisproperty. 10. Taxpayeractstendingtoobstructcollectionproceedings. Note: 4. Bankaccountsmaybedistrainedwithoutviolatingtheconfidentialnatureof bankaccountsfornoinquiryismade.BIRsimplyseizessomuchofthedeposit withouthavingtoknowhowmuchthedepositsareorwherethemoneyorany partofitcamefrom. 5. Ifatanytimepriortotheconsummationofthesale,allproperchargesarepaidto theofficerconductingthesame,thegoodsdistrainedshallberestoredtothe owner. 6. Whentheamountofthebidforthepropertyunderdistraintisnotequaltothe amountofthetaxorisverymuchlessthantheactualmarketvalueofarticles,the CIRorhisdeputymaypurchasethedistrainedpropertyonbehalfofthenational government. LevyofRealProperty LevyActofseizureofrealpropertyinordertoenforcethepaymentoftaxes.The propertymaybesoldatpublicsale,ifafterseizure;thetaxesarenotvoluntarilypaid. Therequisitesarethesameasthatofdistraint. Procedure:

7. InternationalRevenueofficershallprepareadulyauthenticatedcertificate showing a. Nameoftaxpayer b. Amountoftaxand c. Penaltydue.

enforceablethroughoutthePhilippines 8. Officershallwriteuponthecertificateadescriptionofthepropertyuponwhich levyismade. 9. Serviceofwrittennoticeto: c. Thetaxpayer,and d. RDwherepropertyislocated. 10. Advertisementofthetimeandplaceofsale. 11. Saleatpublicauctiontohighestbidder. 12. Dispositionofproceedsofsale. Theexcessshallbeturnedovertoowner. Redemptionofpropertysoldorforfeited e. Personentitled:Taxpayeroranyoneforhim f. Timetoredeem:oneyearfromdateofsaleorforfeiture Beginsfromregistrationofthedeedofsaleordeclarationofforfeiture. Cannotbeextendedbythecourts.

g. Possessionpendingredemptionownernotdeprivedofpossession h. Price:Amountoftaxes,penaltiesandinterestthereonfromdateofdelinquencyto thedateofsaletogetherwithinterestonsaidpurchasepriceat15%perannum fromdateofpurchasetodateofredemption.

DistraintandLevycompared 6. Botharesummaryremediesforcollectionoftaxes. 7. BothcannotbeavailedofwhereamountinvolvedisnotmorethanP100. 8. Distraintpersonalproperty Levyrealproperty 9. Distraintforfeiturebygovernment,notprovided Levyforfeiturebygovernmentauthorizedwherethereisnobidderorthehighest bidisnotsufficienttopaythetaxes,penaltiesandcosts. 10. DistraintTaxpayernogiventherightofredemption LevyTaxpayercanredeempropertieslevieduponandsold/forfeitedtothe government. Note: 5. ItisthedutyoftheRegisterofDeedsconcerneduponregistrationofthe declarationofforfeiture,totransferthetitletothepropertywithoutofanorder fromacompetentcourt 6. Theremedyofdistraintorlevymayberepeatedifnecessaryuntilthefullamount, includingallexpenses,iscollected. EnforcementofTaxLien TaxLienalegalclaimorchargeonproperty,eitherrealorpersonal,establishedby lawasasecurityindefaultofthepaymentoftaxes.

2. Nature: AlieninfavorofthegovernmentofthePhilippineswhenapersonliabletopaya taxneglectsorfailstodosoupondemand.\ 3. Duration: ExistsfromtimeassessmentismadebytheCIRuntilpaid,withinterests,penalties andcosts. 7. Extent: Uponallpropertyandrightstopropertybelongingtothetaxpayer. 8. Effectivityagainstthirdpersons: OnlywhennoticeofsuchlienisfiledbytheCIRintheRegisterofDeedsconcerned. ExtinguishmentofTaxLien 5. Paymentorremissionofthetax 6. Prescriptionoftherightofthegovernmenttoassessorcollect. 7. FailuretofilenoticeofsuchlienintheofficeofregisterofDeeds,purchasesor judgmentcreditor. 8. Destructionofthepropertysubjecttothelien. IncaseNos.1and2,thereisnomoretaxliability.Undernos.3and4,thetaxpayer isstillliable. EnforcementofTaxLienvs.Distraint Ataxlienisdistinguishedfromdisttraintinthat,indistraintthepropertyseized mustbethatofthetaxpayer,althoughitneednotbethepropertyinrespecttothetaxis assessed.Taxlienisdirectedtothepropertysubjecttothetax,regardlessofitsowner. Note: 3. Thisissuperiortojudgmentclaimofprivateindividualsorparties

4. Attachesnotonlyfromtimethewarrantwasservedbutfromthetimethetax wasdueanddemandable. Compromise Compromiseacontractwherebytheparties,byreciprocalconcessions,avoid litigationorputanendtoonealreadycommenced. Requisites: 4. Taxpayermusthaveataxliability. 5. TheremustbeanofferbytaxpayerorCIR,ofanamounttobepaidbytaxpayer. 6. Theremustbeacceptanceoftheofferinsettlementoftheoriginalclaim. Whentaxesmaybecompromised: 4. Areasonabledoubtastothevalidityiftheclaimagainstthetaxpayerexists; 5. Thefinancialpositionofthetaxpayerdemonstratesaclearinabilitytopaythe assessedtax. 6. Criminalviolations,except: a. Thosealreadyfiledincourt b. Thoseinvolvingfraud.

Limitations: 3. Minimumcompromiserate: a. 10%ofthebasictaxassessedincaseoffinancialincapacity. b. 40%ofbasictaxassessedothercases. 4. SubjecttoapprovalofEvaluationBoard

c. WhenbasictaxinvolvedexceedsP1,000,000.00or d. Wheresettlementofferedislessthantheprescribedminimumrates. DelegationofPowertoCompromise GeneralRule:Thepowertocompromiseorabateshallnotbedelegatedbythe commissioner. Exception :TheRegionalEvaluationBoardmaycompromisetheassessmentissued bytheregionalofficesinvolvingbasictaxesofP500Korless. Remedyincaseoffailuretocomply: TheCIRmayeither: 3. enforcethecompromise,or 4. Regarditasrescindedandinsistsupontheoriginaldemand. CompromisePenalty 4. Itisacertainamountofmoneywhichthetaxpayerpaystocompromiseatax violation. 5. Itispaininlieuofacriminalprosecution. 6. Sinceitisvoluntaryincharacter,thesamemaybecollectedonlyifthetaxpayeris willingtopaythem. Enforcementofforfeiture Forfeitureimpliesadivestitureofpropertywithoutcompensation,in consequenceofadefaultoroffense.Itincludestheideaofnotonlylosingbutalsohaving thepropertytransferredtoanotherwithouttheconsentoftheownerandwrongdoer. 8. Effect:Transferthetitletothespecificthingfromtheownertothegovernment. 9. Whenavailable:

a. Nobidderfortherealpropertyexposedforsale. b. Ifhighestbidisforanamountinsufficienttopaythetaxes,penaltiesand costs. Withintwodaysthereafter,areturnoftheproceedingisdulymade. 10. Howenforced: c. Incaseofpersonalpropertybyseizureandsaleordestructionofthe specificforfeitedproperty. d. Incaseofrealpropertybyajudgmentofcondemnationandsaleinalegal actionorproceeding,civilorcriminal,asthecasemayrequire.

11. Whenforfeitedpropertytobedestroyedorsold: c. TobedestroyedbyorderoftheCIRwhenthesaleforconsumptionoruse ofthefollowingwouldbeinjurioustothepublichealthorprejudicialtothe enforcementofthelaw:(atleast20daysafterseizure) 1. distilledspirits 2. liquors 3. cigars 4. cigarettes,andothermanufacturedproductsoftobacco 5. playingcards 6. Allapparatususedinorabouttheillicitproductionofsucharticles.

d. TobesoldordestroyeddependsuponthediscretionofCIR 3. Allotherarticlessubjecttoexercisetax,(wine,automobile,mineral products,manufacturedoils,miscellaneousproducts,nonessentialitems apetroleumproducts)manufacturedorremovedinviolationoftheTax

Code. 4. DiesforprintingormakingIRstamps,labelsandtags,inimitationof orpurporttobelawfulstamps,labelsortags.

12. Wheretobesold: c. Publicsale:provided,thereisnoticeofnotlessthan20days. d. Privatesale:provided,itiswiththeapprovaloftheSecretaryofFinance. 13. RightofRedemption: f. Personalentitledtaxpayeroranyoneforhim g. Timetoredeemwithinone(1)yearfromforfeiture h. Amounttobepaidfullamountofthetaxesandpenalties,plusinterestand costofthesale i. TowhompaidCommissionerortheRevenueCollectionOfficer j. Effectoffailuretoredeemforfeitureshallbecomeabsolute.

Note:TheRegisterofDeedsisdutyboundtotransferthetitleofpropertyforfeitedtothe governmentwithournecessityofanorderfromacompetentcourt. OtherAdministrativeRemedies 18. Requiringfilingofbondsinthefollowinginstances: a. Estateanddonorstax b. Excisetaxes c. Exportersbond d. Manufacturersandimportersbond

19. Requiringproofoffilingincometaxreturns Beforealicensetoengageintrade,businessoroccupationortopracticea professioncanbeissued. 20. GivingrewardtoinformersSumequivalentto10%ofrevenues,surcharges orfeesrecoveredand/orfineorpenaltyimposedandcollectedorP1,000,000.00 percase,whicheverislower. 21. Impositionofsurchargeandinterest. 22. Makingarrest,searchandseizure LimitedtoviolationsofanypenallaworregulationadministeredbytheBIR, committedwithintheviewoftheInternalRevenueOfficerorEE. 23. Deportationincaseofaliensonthefollowinggrounds c. KnowinglyandfraudulentlyevadespaymentofIRtaxes. d. Willfullyrefusestopaysuchtaxanditsaccessorypenalties,afterdecision onhistaxliabilityshallhavebecomefinalandexecutory. 24. Inspectionofbooks Booksofaccountsandotheraccountingrecordsoftaxpayermustbepreserved, generallywithinthreeyearsafterdatethetaxreturnwasdueorwasfiled whicheverislater. 25. UseofNationalTaxRegister 26. Obtaininginformationontaxliabilityofanyperson

27. InventoryTakingofstockintradeandmakingsurveillance. 28. Prescribingpresumptivegrosssalesorreceipt:

c. Personfailedtoissuereceiptsandinvoices

d. Reasontobelievethatrecordsdonotcorrectlyreflectdeclarationinreturn.\ 29. Prescribingrealpropertyvalues 30. Inquiringintobankdepositaccountsof c. Adeceasedpersontodeterminegrossestate d. Anytaxpayerwhofiledapplicationforcompromisebyreasonsoffinancial incapacityhistaxliability. 31. RegistrationofTaxpayers. JudicialRemedies CivilandCriminalActions: 1. BroughtinthenameoftheGovernmentofthePhilippines. 2. ConductedbyLegalOfficerofBIR 3. MustbewiththeapprovaloftheCIR,incaseofaction,forrecoveryoftaxes,or enforcementofafine,penaltyorforfeiture.

C. CivilAction Actionsinstitutedbythegovernmenttocollectinternalrevenuetaxesinregular courts(RTCorMTCs,dependingontheamountinvolved) Whenassessmentmadehasbecomefinalandexecutoryforfailureortaxpayerto: c. DisputesamebyfilingprotestwithCIR d. AppealadversedecisionofCIRtoCTA D. CriminalAction Adirectmodeofcollectionoftaxes,thejudgmentofwhichshallnotonlyimpose

thepenaltybutalsoorderpaymentoftaxes. Anassessmentofataxdeficiencyisnotnecessarytoacriminalprosecutionfortax evasion,providedthereisaprimafacieshowingofwillfulattempttoevade. EffectofAcquittalonTaxLiability: Doesnotexoneratetaxpayerhiscivilliabilitytopaythetaxdue.Thus,the governmentmaystillcollectthetaxinthesameaction. Reason:Taxisanobligation,doesnotarisefromacriminalact. EffectofSatisfactionofTaxLiabilityonCriminalLiability Willnotoperatetoextinguishtaxpayerscriminalliabilitysincethedutytopaythe taxisimposedbystatute,independentofanyattemptonpastoftaxpayerstoevade payment. Thisistrueincasethecriminalactionisbasedontheacttotaxpayeroffilinga falseandfraudulenttaxreturnandfailuretopaythetax. Note:Thesatisfactionofcivilliabilityisnotoneofthegroundsfortheextinctionof criminalaction.

PrescriptivePeriods/ StatuteOfLimitation Purpose: ForpurposesofTaxation,statueoflimitationisprimarilydesignedtoprotectthe rightsofthetaxpayersagainstunreasonableinvestigationofthetaxingauthoritywith respecttoassessmentandcollectionofInternalRevenueTaxes. PrescriptionofGovernmentsRighttoAssessTaxes: GeneralRule:InternalRevenueTaxesshallbeassessedwithinthree(3)yearsafterthe lastdayprescribedbylawforthefilingofthereturnorfromthedaythereturnwas

filed,incaseitisfiledbeyondtheperiodprescribedthereof.(Section203oftheTax Code) Note: 1. Areturnfiledbeforethelastdayprescribedbylawforthefilingthereofshall beconsideredasfiledonsuchlastday. 2. Incaseareturnissubstantiallyamended,thegovernmentrighttoassessthe taxshallcommencefromthefilingoftheamendedreturn(CIRvs.Phoenix,May 20,1965;Kei&Co.vs.Collector,4SCRA872) 3. Incomputingtheprescriptiveperiodforassessment,thelatterisdeemedmade whennoticetothiseffectisreleased,mailedorsentbytheCommissionertothe correctaddressofthetaxpayer.However,thelawdoesnotrequirethatthe demand/noticebereceivedwithintheprescriptiveperiod.(BasilanEstates,Inc. vs.Commissioner21,SCRA17;Republicvs.CAApril30,1987) 4. Anaffidavitexecutedbyarevenueofficeindicatingthetaxliabilitiesofa taxpayerandattachedtoacriminalcomplaintfortaxevasion,cannotbedeemed anassessment.(CIRvs.PascoiRealtyCorp.June29,1999) 5. Atranscriptsheetsarenotreturns,becausetheydonotcontaininformation necessaryandrequiredtopermitthecomputationandassessmentoftaxes (SinforoAlcavs.Commissioner,Dec.29,1964)

Exceptions:(Sec.222ic) 5. Wherenoreturnwasfiledwithinten(10)yearsafterthedateofdiscoveryof theomission. 6. Whereareturnwasfiledbutthesamewasfalseorfraudulentwithinten(10) yearsfromthediscoveryoffalsityorfraud. NatureofFraud: d. Fraudisneverpresumedandthecircumstancesconsistingitmustbe allegedandprovedtoexistbyclear&convincingevidence(Republicvs.Keir,

Sept.30,1966) e. Thefraudcontemplatedbylawisactualandnotconstructive.Itmust amounttointentionalwrongdoingwiththesoleobjectofavoidingthetax.A meremistakeisnotafraudulentintent.(Aznarcase,Aug.23,1974) f. Afraudassessmentwhichhasbecomefinalandexecutory,thefactoffraud shallbejudiciallytakencognizanceofinthecivilorcriminalactionforthe collectionthereof.(Sec.222paragraph(a))

Fraudmaybeestablishedbythefollowing:(BadgesofFraud) d. Intentionalandsubstantialunderstatementoftaxliabilityofthetaxpayer. e. Intentionalandsubstantialoverstatementofdeductionsofexemption f. Recurrenceoftheforegoingcircumstances. Instances/Circumstancesnegatingfraud: f. WhentheCommissionerfailsimputefraudintheassessmentnotice/ demandforpayment. g. WhentheCommissionerfailedtoallegeinhisanswertothetaxpayers petitionforreviewwhenthecaseisappealedtotheCTA. h. WhentheCommissionerraisedthequestionoffraudonlyforthefirsttime inhismemorandumwhichwasfiledtheCTAafterhehadrestedhiscase. i. WheretheBIRitselfappeared,notsureastotherealamountofthe taxpayersnetincome. j. Amereunderstatementofincomedoesnotprovefraud,unlessthereisa sufficientevidenceshavingfraudulentintent. 7. Wherethecommissionerandthetaxpayer,beforetheexpirationofthethree(3) yearperiodoflimitationhaveagreedinwritingtotheextensionofsaidperiod. Note:Limitations:

c. Theagreementextendingtheperiodofprescriptionshouldbeinwritingand dulysignedbythetaxpayerandthecommissioner. d. Theagreementtoextendthesameshouldbemodebeforetheexpirationofthe periodpreviouslyagreedupon. 8. Wherethereisawrittenwaiverorrenunciationoftheoriginal3yearlimitation signedbythetaxpayer. Note:Limitations: d. Thewaivertobevalidmustbeexecutedbythepartiesbeforethelapseofthe prescriptiveperiod. e. AwaiverisinefficientIitisexecutedbeyondtheoriginalthreeyear. f. Thecommissionercannotvalidagreetoreducetheprescriptiveperiodtoless thanthatgrantedbylaw.

ImprescriptibleAssessments: 1. Wherethelawdoesnotprovideforanyparticularperiodofassessment,thetax soughttobeassessedbecomesimprescriptible. 2. Wherenoreturnisrequiredbylaw,thetaxisimprescriptible.

3. Assessmentofunpaidtaxes,wherethebasesofwhichisnotrequiredbylawtobe reportedinareturnsuchasexcisetaxes.(Carmenvs.AyalaSecuritiesCorp.,Nov. 21,1980) 4. Assessmentofcompensatinganddocumentarystamptax.

PrescriptionofGovernments

RighttoCollectTaxes D. GeneralRule: 1. WhereanassessmentwasmadeAnyinternalrevenuetaxwhichhasbeen assessedwithintheperiodoflimitationmaybecollectedbydistraintorlevyor byproceedingincourtwithin5yearsfollowingthedateofassessment. 2. Wherenoassessmentwasmadeandareturnwasfiledandthesameisnot fraudulentorfalsethetaxshouldbecollectedwithin3yearsafterthereturn wasdueorwasfiled,whicheverislater. E. Exceptions: 8. Whereafraudulent/falsereturnwithintenttoevadetaxeswasfileda proceedingincourtforthecollectionofthetaxmaybefiledwithout assessment,atanytimewithintenyearsafterthediscoveryofthefalsityor fraud. Note:The10yearprescriptiveperiodforcollectorthruactiondoesnotapplyif itappearsthattherewasanassessment.Insuchcase,theordinary5year period(now3years)wouldapply(Rep.vs.Ret.,March31,1962) 9. Whenthetaxpayeromitstofileareturnacourtproceedingforthe collectionofsuchtaxmaybefiledwithoutassessment,atanytimewithin10 yearsafterthediscoveryoftheomission. 10. Waiverofstatuteoflimitationsanyinternalrevenuetax,whichhasbeen assessedwithintheperiodagreedupon,maybecollectedbedistinctorlevyof byaproceedingincourtwithintheperiodagreeduponinwritingbeforethe expirationof5yearperiod. 11. Wherethegovernmentmakesanotherassessmentonthebasisof reinvestigationrequestedbythetaxpayertheprescriptiveperiodfor collectionshouldbecountedfromthelastassessment.(Rep.vs.Lopez,March 30,1963) 12. Wheretheassessmentisrevisedbecauseofanamendedreturnthe periodforcollectioniscountedfromthelastrevisedassessment.

13. Whereataxobligationissecuredbyasuretybondthegovernmentmay proceedthruacourtactiontoforfeitabondandenforcesuchcontractual obligationwithinaperiodoftenyears. 14. Wheretheactionisbroughttoenforceacompromiseenteredintobetween thecommissionandthetaxpayertheprescriptiveperiodistenyears. F. Whentaxisdeemedcollectedforpurposesoftheprescriptiveperiod. 4. CollectionbysummaryremediesItiseffectedbysummarymethodswhenthe governmentavailofdistraintandlevyprocedure. 5. CollectionbyjudicialactionThecollectionbeginsbyfilingthecomplaintwith thepropercourt.(RTC) 6. Whereassessmentofthecommissionerisprotected&appealedtotheCTA thecollectionbeginwhenthegovernmentfileitsanswertotaxpayerspetition forreview.

RulesofPrescriptioninCriminalCases Rule:Allviolationsofanyprovisionofthetaxcodeshallprescribeafterfive(5) years. Note: Whenitshouldcommence? Thefive(5)yearprescriptiveperiodshallbegintorunfromthe: c. Dayofthecommissionoftheviolation,ifknow. d. Ifnotknown,fromthetimeofdiscoveryandtheinstitutionofjudicial proceedingforitsinvestigationandpunishment. Whenitisinterrupted: c. Whenaproceedingisinstitutedagainsttheguiltyperson

d. WhentheoffenderisabsentfromthePhilippines.

Whenitshouldrunagain: WhentheproceedingisdismissedforreasonnotConstitutingjeopardy. Whendoesthedefenseofprescriptionmayberaised: c. IncivilcaseIfnotraisedinthelowercourt,itisbailedpermanently;ifcannot beraisedforthefirsttimeonappeal. d. IncriminalcaseItcanberaisedevenifthecasehasbeendecidedbythe lowercourtbutpendingdecisiononappeal.

InterruptionofthePrescriptivePeriod 4. Wherebeforetheexpirationofthetimeprescribedfortheassessmentofthe tax,boththecommissionerandthetaxpayerhaveconsentedinwritingtoits assessmentaftersuchtime,thetaxmaybeassessedpriortotheexpirationofthe periodagreedupon. 5. Therunningofstatuteoflimitationsonmakinganassessmentandthe beginningofdistraint/levyoraproceedingincourtforcollectionshallbe suspendedfortheperiod. DuringwhichtheCommissionerisprohibitedfrommakingtheassessmentor beginningdistraint/levyoraproceedingincourtandfor60daysthereafter;e.g. a. FilingapetitionforreviewintheCTAfromthedecisionofthe Commissioner.Thecommissionerispreventedfromfilinganordinaryactionto collectthetax. b. WhenCTAsuspendsthecollectionoftaxliabilityofthetaxpayerpursuant toSection11ofRA1125uponproofthatitscollectionmayjeopardizesthe governmentand/orthetaxpayer. c. Whenthetaxpayerrequestsforreinvestigationwhichisgrantedby

commissioner. Note:Amererequestforreinvestigationwithoutanyactionorthepartof theCommissionerdoesnotinterrupttherunningoftheprescriptiveperiod. Therequestmustnotbeamereproformer.Substantialissuesmustbe raised. d. Whenthetaxpayercannotbelocatedintheaddressgivenbyhiminthe return. Note:IfthetaxpayerinformstheCommissionerofanychangeinaddressthe statutewillnotbesuspended. e. Whenthewarrantofdistraintorlevyisdulyserveduponanyofthe followingperson: 4. taxpayer 5. hisauthorizedrepresentative 6. Memberofhishouseholdwithsufficientdiscretionandnoproperty couldbelocated. f. WhenthetaxpayerisoutofthePhilippines. g. Incriminalcasesforviolationoftaxcodetheperiodshallnotrunwhen theoffenderisabsentfromthePhilippines. Note:Apetitionforreconsiderationofataxassessmentdoesnotsuspendthe criminalaction.Reason:Norequirementforassessmentofthetaxbeforethe criminalactionmaybeinstituted. NotaBene: 6. Thelawonprescriptionremedialmeasureshouldbeinterpretedliberallyinorder toprotectthetaxpayer. 7. Thedefenseofprescriptionmustberaisedbythetaxpayerontime,otherwiseitis deemedwaived. 8. Thequestionofprescriptionisnotjurisdictional,andasdefenseitmustberaised

reasonablyotherwiseitisdeemedwaived. 9. Theprescriptiveprovidedinthetaxcodeoverridethestatuteofnonclaimsin thesettlementofthedeceasedsestate. 10. Intheeventthatthecollectionofthetaxhasalreadyprescribed,thegovernment cannotinvoketheprincipleofEquitablerecumbentbysettingofftheprescribed taxagainstataxrefusedtowhichthetaxpayerisentitled. _______________________________________________________SOMEIMPORTANTPROVISIONSONTHE TAXREFORMACTOF1997 SEC.2.PowersandDutiesoftheBureauofInternalRevenue .TheBureauof InternalRevenueshallbeunderthesupervisionandcontroloftheDepartmentof Financeanditspowersanddutiesshallcomprehendtheassessmentandcollection ofallnationalinternalrevenuetaxes,fees,andcharges,andtheenforcementofall forfeitures,penalties,andfinesconnectedtherewith,includingtheexecutionof judgmentsinallcasesdecidedinitsfavorbytheCourtofTaxAppealsandthe ordinarycourts.TheBureaushallgiveeffecttoandadministerthesupervisoryand policepowersconferredtoitbythisCodeorotherlaws. SEC.3.ChiefOfficialsoftheBureauofInternalRevenue .TheBureauofInternal RevenueshallhaveachieftobeknownasCommissionerofInternalRevenue, hereinafterreferredtoastheCommissionerandfour(4)assistantchiefstobe knownasDeputyCommissioners. SEC.4. PoweroftheCommissionertoInterpretTaxLawsandtoDecideTax Cases .ThepowertointerprettheprovisionsofthisCodeandothertaxlawsshall beundertheexclusiveandoriginaljurisdictionoftheCommissioner,subjectto reviewbytheSecretaryofFinance. Thepowertodecidedisputedassessments,refundsofinternalrevenuetaxes,fees orothercharges,penaltiesimposedinrelationthereto,orothermattersarising underthisCodeorotherlawsorportionsthereofadministeredbytheBureauof InternalRevenueisvestedintheCommissioner,subjecttotheexclusiveappellate jurisdictionoftheCourtofTaxAppeals. SEC.5. PoweroftheCommissionertoObtainInformation,andtoSummon, Examine,andTakeTestimonyofPersons.Inascertainingthecorrectnessofany return,orinmakingareturnwhennonehasbeenmade,orindeterminingthe liabilityofanypersonforanyinternalrevenuetax,orincollectinganysuch liability,orinevaluatingtaxcompliance,theCommissionerisauthorized: (A)Toexamineanybook,paper,record,orotherdatawhichmayberelevant

ormaterialtosuchinquiry; (B)Toobtainonaregularbasisfromanypersonotherthantheperson whoseinternalrevenuetaxliabilityissubjecttoauditorinvestigation,or fromanyofficeorofficerofthenationalandlocalgovernments,government agenciesandinstrumentalities,includingtheBangkoSentralngPilipinasand governmentownedorcontrolledcorporations,anyinformationsuchas,but notlimitedto,costsandvolumeofproduction,receiptsorsalesandgross incomesoftaxpayers,andthenames,addresses,andfinancialstatementsof corporations,mutualfundcompanies,insurancecompanies,regional operatingheadquartersofmultinationalcompanies,jointaccounts, associations,jointventuresofconsortiaandregisteredpartnerships,and theirmembers; (C)Tosummonthepersonliablefortaxorrequiredtofileareturn,orany officeroremployeeofsuchperson,oranypersonhavingpossession, custody,orcareofthebooksofaccountsandotheraccountingrecords containingentriesrelatingtothebusinessofthepersonliablefortax,orany otherperson,toappearbeforetheCommissionerorhisdulyauthorized representativeatatimeandplacespecifiedinthesummonsandtoproduce suchbooks,papers,records,orotherdata,andtogivetestimony; (D)Totakesuchtestimonyofthepersonconcerned,underoath,asmaybe relevantormaterialtosuchinquiry;and (E)Tocauserevenueofficersandemployeestomakeacanvassfromtimeto timeofanyrevenuedistrictorregionandinquireafterandconcerningall personsthereinwhomaybeliabletopayanyinternalrevenuetax,andall personsowningorhavingthecare,managementorpossessionofanyobject withrespecttowhichataxisimposed. Theprovisionsoftheforegoingparagraphsnotwithstanding,nothinginthis SectionshallbeconstruedasgrantingtheCommissionertheauthorityto inquireintobankdepositsotherthanasprovidedforinSection6(F)ofthis Code. SEC.6.PoweroftheCommissionertoMakeassessmentsandPrescribe additionalRequirementsforTaxAdministrationandEnforcement . (A)ExaminationofReturnsandDeterminationofTaxDue.Afterareturnhas beenfiledasrequiredundertheprovisionsofthisCode,theCommissioner orhisdulyauthorizedrepresentativemayauthorizetheexaminationofany taxpayerandtheassessmentofthecorrectamountoftax:Provided,however; ThatfailuretofileareturnshallnotpreventtheCommissionerfrom

authorizingtheexaminationofanytaxpayer. Anyreturn,statementofdeclarationfiledinanyofficeauthorizedtoreceive thesameshallnotbewithdrawn:Provided,Thatwithinthree(3)yearsfrom thedateofsuchfiling,thesamemaybemodified,changed,oramended: Provided,further,Thatnonoticeforauditorinvestigationofsuchreturn, statementordeclarationhasinthemeantimebeenactuallyserveduponthe taxpayer. (B) FailuretoSubmitRequiredReturns,Statements,Reportsandother Documents.Whenareportrequiredbylawasabasisfortheassessmentof anynationalinternalrevenuetaxshallnotbeforthcomingwithinthetime fixedbylawsorrulesandregulationsorwhenthereisreasontobelievethat anysuchreportisfalse,incompleteorerroneous,theCommissionershall assessthepropertaxonthebestevidenceobtainable. Incaseapersonfailstofilearequiredreturnorotherdocumentatthetime prescribedbylaw,orwillfullyorotherwisefilesafalseorfraudulentreturn orotherdocument,theCommissionershallmakeoramendthereturnfrom hisownknowledgeandfromsuchinformationashecanobtainthrough testimonyorotherwise,whichshallbeprimafaciecorrectandsufficientfor alllegalpurposes. (C)AuthoritytoConductInventorytaking,surveillanceandtoPrescribe PresumptiveGrossSalesandReceipts.TheCommissionermay,atanytime duringthetaxableyear,orderinventorytakingofgoodsofanytaxpayerasa basisfordetermininghisinternalrevenuetaxliabilities,ormayplacethe businessoperationsofanyperson,naturalorjuridical,underobservationor surveillanceifthereisreasontobelievethatsuchpersonisnotdeclaringhis correctincome,salesorreceiptsforinternalrevenuetaxpurposes.The findingsmaybeusedasthebasisforassessingthetaxesfortheothermonths orquartersofthesameordifferenttaxableyearsandsuchassessmentshall bedeemedprimafaciecorrect. Whenitisfoundthatapersonhasfailedtoissuereceiptsandinvoicesin violationoftherequirementsofSections113and237ofthisCode,orwhen thereisreasontobelievethatthebooksofaccountsorotherrecordsdonot correctlyreflectthedeclarationsmadeortobemadeinareturnrequiredto befiledundertheprovisionsofthisCode,theCommissioner,aftertakinginto accountthesales,receipts,incomeorothertaxablebaseofotherpersons engagedinsimilarbusinessesundersimilarsituationsorcircumstancesor afterconsideringotherrelevantinformationmayprescribeaminimum amountofsuchgrossreceipts,salesandtaxablebase,andsuchamountso prescribedshallbeprimafaciecorrectforpurposesofdeterminingthe

internalrevenuetaxliabilitiesofsuchperson. (D)AuthoritytoTerminateTaxablePeriod.Whenitshallcometothe knowledgeoftheCommissionerthatataxpayerisretiringfrombusiness subjecttotax,orisintendingtoleavethePhilippinesortoremovehis propertytherefromortohideorconcealhisproperty,orisperformingany acttendingtoobstructtheproceedingsforthecollectionofthetaxforthe pastorcurrentquarteroryearortorenderthesametotallyorpartly ineffectiveunlesssuchproceedingsarebegunimmediately,theCommissioner shalldeclarethetaxperiodofsuchtaxpayerterminatedatanytimeandshall sendthetaxpayeranoticeofsuchdecision,togetherwitharequestforthe immediatepaymentofthetaxfortheperiodsodeclaredterminatedandthe taxfortheprecedingyearorquarter,orsuchportionthereofasmaybe unpaid,andsaidtaxesshallbedueandpayableimmediatelyandshallbe subjecttoallthepenaltieshereafterprescribed,unlesspaidwithinthetime fixedinthedemandmadebytheCommissioner. (E)AuthorityoftheCommissionertoPrescribeRealPropertyValues. The CommissionerisherebyauthorizedtodividethePhilippinesintodifferent zonesorareasandshall,uponconsultationwithcompetentappraisersboth fromtheprivateandpublicsectors,determinethefairmarketvalueofreal propertieslocatedineachzoneorarea.Forpurposesofcomputingany internalrevenuetax,thevalueofthepropertyshallbe,whicheveristhe higherof: (1)thefairmarketvalueasdeterminedbytheCommissioner,or (2)thefairmarketvalueasshowninthescheduleofvaluesofthe ProvincialandCityAssessors. (F) AuthorityoftheCommissionertoinquireintoBankDepositAccounts. NotwithstandinganycontraryprovisionofRepublicActNo.1405andother generalorspeciallaws,theCommissionerisherebyauthorizedtoinquire intothebankdepositsof: (1)adecedenttodeterminehisgrossestate;and (2)anytaxpayerwhohasfiledanapplicationforcompromiseofhistax liabilityunderSec.204(A)(2)ofthisCodebyreasonoffinancial incapacitytopayhistaxliability. Incaseataxpayerfilesanapplicationtocompromisethepaymentofhistaxliabilitieson hisclaimthathisfinancialpositiondemonstratesaclearinabilitytopaythetaxassessed, hisapplicationshallnotbeconsideredunlessanduntilhewaivesinwritinghisprivilege

underRepublicActNo.1405orunderothergeneralorspeciallaws,andsuchwaiver shallconstitutetheauthorityoftheCommissionertoinquireintothebankdepositsof thetaxpayer. (G)AuthoritytoAccreditandRegisterTaxAgents.TheCommissionershall accreditandregister,basedontheirprofessionalcompetence,integrityand moralfitness,individualsandgeneralprofessionalpartnershipsandtheir representativeswhoprepareandfiletaxreturns,statements,reports, protests,andotherpaperswithorwhoappearbefore,theBureaufor taxpayers.Withinonehundredtwenty(120)daysfromJanuary1,1998,the Commissionershallcreatenationalandregionalaccreditationboards,the membersofwhichshallserveforthree(3)years,andshalldesignatefrom amongtheseniorofficialsoftheBureau,one(1)chairmanandtwo(2) membersforeachboard,subjecttosuchrulesandregulationsasthe SecretaryofFinanceshallpromulgateupontherecommendationofthe Commissioner. Individualsandgeneralprofessionalpartnershipsandtheirrepresentatives whoaredeniedaccreditationbytheCommissionerand/orthenationaland regionalaccreditationboardsmayappealsuchdenialtotheSecretaryof Finance,whoshallruleontheappealwithinsixty(60)daysfromreceiptof suchappeal.FailureoftheSecretaryofFinancetoruleontheAppealwithin theprescribedperiodshallbedeemedasapprovaloftheapplicationfor accreditationoftheappellant. (H) AuthorityoftheCommissionertoPrescribeAdditionalProceduralor Documentary Requirements. TheCommissionermayprescribethemannerof compliancewithanydocumentaryorproceduralrequirementinconnection withthesubmissionorpreparationoffinancialstatementsaccompanyingthe taxreturns. SEC.7.AuthorityoftheCommissionertoDelegatePower .TheCommissioner maydelegatethepowersvestedinhimunderthepertinentprovisionsofthisCode toanyorsuchsubordinateofficialswiththerankequivalenttoadivisionchiefor higher,subjecttosuchlimitationsandrestrictionsasmaybeimposedunderrules andregulationstobepromulgatedbytheSecretaryoffinance,upon recommendationoftheCommissioner:Provided,however,Thatthefollowing powersoftheCommissionershallnotbedelegated: (a)Thepowertorecommendthepromulgationofrulesandregulationsby theSecretaryofFinance; (b)Thepowertoissuerulingsoffirstimpressionortoreverse,revokeor modifyanyexistingrulingoftheBureau; (c)Thepowertocompromiseorabate,underSec.204(A)and(B)ofthis

Code,anytaxliability:Provided,however, Thatassessmentsissuedbythe regionalofficesinvolvingbasicdeficiencytaxesofFivehundredthousand pesos(P500,000)orless,andminorcriminalviolations,asmaybe determinedbyrulesandregulationstobepromulgatedbytheSecretaryof finance,uponrecommendationoftheCommissioner,discoveredbyregional anddistrictofficials,maybecompromisedbyaregionalevaluationboard whichshallbecomposedoftheRegionalDirectorasChairman,theAssistant RegionalDirector,theheadsoftheLegal,AssessmentandCollection DivisionsandtheRevenueDistrictOfficerhavingjurisdictionoverthe taxpayer,asmembers;and (d)Thepowertoassignorreassigninternalrevenueofficersto establishmentswherearticlessubjecttoexcisetaxareproducedorkept. SEC.203.PeriodofLimitationUponAssessmentandCollection. Exceptasprovided inSection222,internalrevenuetaxesshallbeassessedwithinthree(3)yearsafterthe lastdayprescribedbylawforthefilingofthereturn,andnoproceedingincourtwithout assessmentforthecollectionofsuchtaxesshallbebegunaftertheexpirationofsuch period:Provided,Thatinacasewhereareturnisfiledbeyondtheperiodprescribedby law,thethree(3)yearperiodshallbecountedfromthedaythereturnwasfiled.For purposesofthisSection,areturnfiledbeforethelastdayprescribedbylawforthefiling thereofshallbeconsideredasfiledonsuchlastday. SEC.204.AuthorityoftheCommissionertoCompromise,AbateandRefundorCredit Taxes.TheCommissionermay (A)CompromisethePaymentofanyInternalRevenueTax,when: (1)Areasonabledoubtastothevalidityoftheclaimagainstthetaxpayerexists; or (2)Thefinancialpositionofthetaxpayerdemonstratesaclearinabilitytopaythe assessedtax. Thecompromisesettlementofanytaxliabilityshallbesubjecttothefollowing minimumamounts: Forcasesoffinancialincapacity,aminimumcompromiserateequivalentto tenpercent(10%)ofthebasicassessedtax;and Forothercases,aminimumcompromiserateequivalenttofortypercent (40%)ofthebasicassessedtax. WherethebasictaxinvolvedexceedsOnemillionpesos(P1,000.000)orwherethe settlementofferedislessthantheprescribedminimumrates,thecompromiseshallbe subjecttotheapprovaloftheEvaluationBoardwhichshallbecomposedofthe Commissionerandthefour(4)DeputyCommissioners.

(B)AbateorCancelaTaxLiability,when: (1)Thetaxoranyportionthereofappearstobeunjustlyorexcessivelyassessed; or (2)Theadministrationandcollectioncostsinvolveddonotjustifythecollectionof the amountdue. Allcriminalviolationsmaybecompromisedexcept:(a)thosealreadyfiledincourt, or(b)thoseinvolvingfraud. (C)Creditorrefundtaxeserroneouslyorillegallyreceivedorpenaltiesimposedwithout authority,refundthevalueofinternalrevenuestampswhentheyarereturnedingood conditionbythepurchaser,and,inhisdiscretion,redeemorchangeunusedstampsthat havebeenrenderedunfitforuseandrefundtheirvalueuponproofofdestruction.No creditorrefundoftaxesorpenaltiesshallbeallowedunlessthetaxpayerfilesinwriting withtheCommissioneraclaimforcreditorrefundwithintwo(2)yearsafterthe paymentofthetaxorpenalty:Provided,however, Thatareturnfiledshowingan overpaymentshallbeconsideredasawrittenclaimforcreditorrefund. ATaxCreditCertificatevalidlyissuedundertheprovisionsofthisCodemaybeapplied againstanyinternalrevenuetax,excludingwithholdingtaxes,forwhichthetaxpayeris directlyliable.Anyrequestforconversionintorefundofunutilizedtaxcreditsmaybe allowed,subjecttotheprovisionsofSection230ofthisCode:Provided,Thattheoriginal copyoftheTaxCreditCertificateshowingacreditablebalanceissurrenderedtothe appropriaterevenueofficerforverificationandcancellation:Provided,further, Thatinno caseshallataxrefundbegivenresultingfromavailmentofincentivesgrantedpursuant tospeciallawsforwhichnoactualpaymentwasmade. TheCommissionershallsubmittotheChairmenoftheCommitteeonWaysandMeansof boththeSenateandHouseofRepresentatives,everysix(6)months,areportonthe exerciseofhispowersunderthisSection,statingthereinthefollowingfactsand information,amongothers:namesandaddressesoftaxpayerswhosecaseshavebeen thesubjectofabatementorcompromise;amountinvolved;amountcompromisedor abated;andreasonsfortheexerciseofpower:Provided,Thatthesaidreportshallbe presentedtotheOversightCommitteeinCongressthatshallbeconstitutedtodetermine thatsaidpowersarereasonablyexercisedandthatthegovernmentisnotunduly deprivedofrevenues. CHAPTERII CIVILREMEDIESFORCOLLECTIONOFTAXES SEC.205. RemediesfortheCollectionofDelinquentTaxes.Thecivilremediesforthe collectionofinternalrevenuetaxes,feesorcharges,andanyincrementtheretoresulting

fromdelinquencyshallbe: (a)Bydistraintofgoods,chattels,oreffects,andotherpersonalpropertyof whatevercharacter,includingstocksandothersecurities,debts,credits,bank accountsandinterestinandrightstopersonalproperty,andbylevyuponreal propertyandinterestinrightstorealproperty;and (b)Bycivilorcriminalaction. Eitheroftheseremediesorbothsimultaneouslymaybepursuedinthediscretion oftheauthoritieschargedwiththecollectionofsuchtaxes:Provided,however, That theremediesofdistraintandlevyshallnotbeavailedofwheretheamountoftax involveisnotmorethanOnehundredpesos(P100). Thejudgmentinthecriminalcaseshallnotonlyimposethepenaltybutshallalso orderpaymentofthetaxessubjectofthecriminalcaseasfinallydecidedbythe Commissioner. TheBureauofInternalRevenueshalladvancetheamountsneededtodefraycosts ofcollectionbymeansofcivilorcriminalaction,includingthepreservationor transportationofpersonalpropertydistrainedandtheadvertisementandsale thereof,aswellasofrealpropertyandimprovementsthereon. SEC.206.ConstructiveDistraintofthePropertyofaTaxpayer.Tosafeguardthe interestoftheGovernment,theCommissionermayplaceunderconstructivedistraintthe propertyofadelinquenttaxpayeroranytaxpayerwho,inhisopinion,isretiringfrom anybusinesssubjecttotax,orisintendingtoleavethePhilippinesortoremovehis propertytherefromortohideorconcealhispropertyortoperformanyacttendingto obstructtheproceedingsforcollectingthetaxdueorwhichmaybeduefromhim. Theconstructivedistraintofpersonalpropertyshallbeaffectedbyrequiringthe taxpayeroranypersonhavingpossessionorcontrolofsuchpropertytosignareceipt coveringthepropertydistrainedandobligatehimselftopreservethesameintactand unalteredandnottodisposeofthesame;inanymannerwhatever,withouttheexpress authorityoftheCommissioner. Incasethetaxpayerorthepersonhavingthepossessionandcontroloftheproperty soughttobeplacedunderconstructivedistraintrefusesorfailstosignthereceiptherein referredto,therevenueofficereffectingtheconstructivedistraintshallproceedto preparealistofsuchpropertyand,inthepresenceoftwo(2)witnessed,leaveacopy thereofinthepremiseswherethepropertydistrainedislocated,afterwhichthesaid propertyshallbedeemedtohavebeenplacedunderconstructivedistraint. SEC.207.SummaryRemedies.

(A)DistraintofPersonalProperty.Uponthefailureofthepersonowingany delinquenttaxordelinquentrevenuetopaythesameatthetimerequired,the Commissionerorhisdulyauthorizedrepresentative,iftheamountinvolvedisinexcess ofOnemillionpesos(P1,000,000),ortheRevenueDistrictOfficer,iftheamountinvolved isOnemillionpesos(P1,000,000)orless,shallseizeanddistraintanygoods,chattelsor effects,andthepersonalproperty,includingstocksandothersecurities,debts,credits, bankaccounts,andinterestsinandrightstopersonalpropertyofsuchpersons;in sufficientquantitytosatisfythetax,orcharge,togetherwithanyincrementthereto incidenttodelinquency,andtheexpensesofthedistraintandthecostofthesubsequent sale. Areportonthedistraintshall,withinten(10)daysfromreceiptofthewarrant,be submittedbythedistrainingofficertotheRevenueDistrictOfficer,andtotheRevenue RegionalDirector:Provided,ThattheCommissionerorhisdulyauthorized representativeshall,subjecttorulesandregulationspromulgatedbytheSecretaryof Finance,uponrecommendationoftheCommissioner,havethepowertoliftsuchorderof distraint:Provided,further,ThataconsolidatedreportbytheRevenueRegionalDirector mayberequiredbytheCommissionerasoftenasnecessary. (B)LevyonRealProperty.Aftertheexpirationofthetimerequiredtopaythe delinquenttaxordelinquentrevenueasprescribedinthisSection,realpropertymaybe leviedupon,beforesimultaneouslyorafterthedistraintofpersonalpropertybelonging tothedelinquent.Tothisend,anyinternalrevenueofficerdesignatedbythe Commissionerorhisdulyauthorizedrepresentativeshallprepareadulyauthenticated certificateshowingthenameofthetaxpayerandtheamountsofthetaxandpenaltydue fromhim.Saidcertificateshalloperatewiththeforceofalegalexecutionthroughoutthe Philippines. Levyshallbeaffectedbywritinguponsaidcertificateadescriptionofthepropertyupon whichlevyismade.Atthesametime,writtennoticeofthelevyshallbemailedtoor servedupontheRegisterofDeedsfortheprovinceorcitywherethepropertyislocated anduponthedelinquenttaxpayer,orifhebeabsentfromthePhilippines,tohisagentor themanagerofthebusinessinrespecttowhichtheliabilityarose,oriftherebenone,to theoccupantofthepropertyinquestion. Incasethewarrantoflevyonrealpropertyisnotissuedbeforeorsimultaneouslywith thewarrantofdistraintonpersonalproperty,andthepersonalpropertyofthetaxpayer isnotsufficienttosatisfyhistaxdelinquency,theCommissionerorhisdulyauthorized representativeshall,withinthirty(30)daysafterexecutionofthedistraint,proceedwith thelevyonthetaxpayer'srealproperty. Withinten(10)daysafterreceiptofthewarrant,areportonanylevyshallbesubmitted

bythelevyingofficertotheCommissionerorhisdulyauthorizedrepresentative: Provided,however, ThataconsolidatedreportbytheRevenueRegionalDirectormaybe requiredbytheCommissionerasoftenasnecessary:Provided,further,Thatthe Commissionerorhisdulyauthorizedrepresentative,subjecttorulesandregulations promulgatedbytheSecretaryofFinance,uponrecommendationoftheCommissioner, shallhavetheauthoritytoliftwarrantsoflevyissuedinaccordancewiththeprovisions hereof. SEC.208.ProcedureforDistraintandGarnishment. Theofficerservingthewarrant ofdistraintshallmakeorcausetobemadeanaccountofthegoods,chattels,effectsor otherpersonalpropertydistrained,acopyofwhich,signedbyhimself,shallbelefteither withtheownerorpersonfromwhosepossessionsuchgoods,chattels,oreffectsorother personalpropertyweretaken,oratthedwellingorplaceofbusinessofsuchpersonand withsomeoneofsuitableageanddiscretion,towhichlistshallbeaddedastatementof thesumdemandedandnoteofthetimeandplaceofsale. Stocksandothersecuritiesshallbedistrainedbyservingacopyofthewarrantof distraintuponthetaxpayeranduponthepresident,manager,treasurerorother responsibleofficerofthecorporation,companyorassociation,whichissuedthesaid stocksorsecurities. Debtsandcreditsshallbedistrainedbyleavingwiththepersonowingthedebtsor havinginhispossessionorunderhiscontrolsuchcredits,orwithhisagent,acopyofthe warrantofdistraint.Thewarrantofdistraintshallbesufficientauthoritytotheperson owningthedebtsorhavinginhispossessionorunderhiscontrolanycreditsbelonging tothetaxpayertopaytotheCommissionertheamountofsuchdebtsorcredits. Bankaccountsshallbegarnishedbyservingawarrantofgarnishmentuponthetaxpayer anduponthepresident,manager,treasurerorotherresponsibleofficerofthebank. Uponreceiptofthewarrantofgarnishment,thebankshalltunovertotheCommissioner somuchofthebankaccountsasmaybesufficienttosatisfytheclaimoftheGovernment. SEC.209.SaleofPropertyDistrainedandDispositionofProceeds. TheRevenue DistrictOfficerorhisdulyauthorizedrepresentative,otherthantheofficerreferredtoin Section208ofthisCodeshall,accordingtorulesandregulationsprescribedbythe SecretaryofFinance,uponrecommendationoftheCommissioner,forthwithcausea notificationtobeexhibitedinnotlessthantwo(2)publicplacesinthemunicipalityor citywherethedistraintismade,specifying;thetimeandplaceofsaleandthearticles distrained.Thetimeofsaleshallnotbelessthantwenty(20)daysafternotice.Oneplace forthepostingofsuchnoticeshallbeattheOfficeoftheMayorofthecityor municipalityinwhichthepropertyisdistrained.

Atthetimeandplacefixedinsuchnotice,thesaidrevenueofficershallsellthegoods, chattels,oreffects,orotherpersonalproperty,includingstocksandothersecuritiesso distrained,atpublicauction,tothehighestbidderforcash,orwiththeapprovalofthe Commissioner,throughdulylicensedcommodityorstockexchanges. InthecaseofStocksandothersecurities,theofficermakingthesaleshallexecuteabill ofsalewhichheshalldelivertothebuyer,andacopythereoffurnishedthecorporation, companyorassociationwhichissuedthestocksorothersecurities.Uponreceiptofthe copyofthebillofsale,thecorporation,companyorassociationshallmakethe correspondingentryinitsbooks,transferthestocksorothersecuritiessoldinthename ofthebuyer,andissue,ifrequiredtodoso,thecorrespondingcertificatesofstockor othersecurities. Anyresidueoverandabovewhatisrequiredtopaytheentireclaim,includingexpenses, shallbereturnedtotheownerofthepropertysold.Theexpenseschargeableuponeach seizureandsaleshallembraceonlytheactualexpensesofseizureandpreservationof thepropertypending;thesale,andnochargeshallbeimposedfortheservicesofthe localinternalrevenueofficerorhisdeputy. SEC.210.ReleaseofDistrainedPropertyUponPaymentPriortoSale.Ifatanytime priortotheconsummationofthesaleallproperchargesarepaidtotheofficer conductingthesale,thegoodsoreffectsdistrainedshallberestoredtotheowner. SEC.211.ReportofSaletoBureauofInternalRevenue. Withintwo(2)daysafterthe sale,theofficermakingthesameshallmakeareportofhisproceedingsinwritingtothe Commissionerandshallhimselfpreserveacopyofsuchreportasanofficialrecord. SEC.212.PurchasebyGovernmentatSaleUponDistraint. Whentheamountbidfor thepropertyunderdistraintisnotequaltotheamountofthetaxorisverymuchless thantheactualmarketvalueofthearticlesofferedforsale,theCommissionerorhis deputymaypurchasethesameinbehalfofthenationalGovernmentfortheamountof taxes,penaltiesandcostsduethereon. PropertysopurchasedmayberesoldbytheCommissionerorhisdeputy,subjecttothe rulesandregulationsprescribedbytheSecretaryofFinance,thenetproceedstherefrom shallberemittedtotheNationalTreasuryandaccountedforasinternalrevenue. SEC.213.AdvertisementandSale.Withintwenty(20)daysafterlevy,theofficer conductingtheproceedingsshallproceedtoadvertisethepropertyorausableportion thereofasmaybenecessarytosatisfytheclaimandcostofsale;andsuchadvertisement shallcoveraperiodofaleastthirty(30)days.Itshallbeeffectuatedbypostinganotice

atthemainentranceofthemunicipalbuildingorcityhallandinpublicandconspicuous placeinthebarrioordistrictinwhichtherealestateliesand;bypublicationonceaweek forthree(3)weeksinanewspaperofgeneralcirculationinthemunicipalityorcity wherethepropertyislocated.Theadvertisementshallcontainastatementofthe amountoftaxesandpenaltiessodueandthetimeandplaceofsale,thenameofthe taxpayeragainstwhomtaxesarelevied,andashortdescriptionofthepropertytobe sold.Atanytimebeforethedayfixedforthesale,thetaxpayermaydiscontinueall proceedingsbypayingthetaxes,penaltiesandinterest.Ifhedoesnotdoso,thesale shallproceedandshallbeheldeitheratthemainentranceofthemunicipalbuildingor cityhall,oronthepremisestobesold,astheofficerconductingtheproceedingsshall determineandasthenoticeofsaleshallspecify. Withinfive(5)daysafterthesale,areturnbythedistrainingorlevyingofficerofthe proceedingsshallbeenteredupontherecordsoftheRevenueCollectionOfficer,the RevenueDistrictofficerandtheRevenueRegionalDirector.TheRevenueCollection Officer,inconsultationwiththeRevenuedistrictOfficer,shallthenmakeoutanddeliver tothepurchaseracertificatefromhisrecords,showingtheproceedingsofthesale, describingthepropertysoldstatingthenameofthepurchaserandsettingouttheexact amountofalltaxes,penaltiesandinterest:Provided,however, Thatincasetheproceeds ofthesaleexceedstheclaimandcostofsale,theexcessshallbeturnedovertothe owneroftheproperty. TheRevenueCollectionOfficer,uponapprovalbytheRevenueDistrictOfficermay,outof hiscollection,advanceanamountsufficienttodefraythecostsofcollectionbymeansof thesummaryremediesprovidedforinthisCode,including;thepreservationor transportationincaseofpersonalproperty,andtheadvertisementandsubsequentsale, bothincasesofpersonalandrealpropertyincludingimprovementsfoundonthelatter. Inhismonthlycollectionreports,suchadvancesshallbereflectedandsupportedby receipts. SEC.214.RedemptionofPropertySold.Withinone(1)yearfromthedateofsale,the delinquenttaxpayer,oranyoneforhim,shallhavetherightofpayingtotheRevenue DistrictOfficertheamountofthepublictaxes,penalties,andinterestthereonfromthe dateofdelinquencytothedateofsale,togetherwithinterestonsaidpurchasepriceat therateoffifteenpercent(15%)perannumfromthedateofpurchasetothedateof redemption,andsuchpaymentshallentitlethepersonpayingtothedeliveryofthe certificateissuedtothepurchaserandacertificatefromthesaidRevenueDistrictOfficer thathehasthusredeemedtheproperty,andtheRevenueDistrictOfficershallforthwith payovertothepurchasertheamountbywhichsuchpropertyhasthusbeenredeemed, andsaidpropertythereaftershallbefreeformthelienofsuchtaxesandpenalties.

Theownershallnot,however,bedeprivedofthepossessionofthesaidpropertyand shallbeentitledtotherentsandotherincomethereofuntiltheexpirationofthetime allowedforitsredemption. SEC.215.ForfeituretoGovernmentforWantofBidder. Incasethereisnobidderfor realpropertyexposedforsaleashereinaboveprovidedorifthehighestbidisforan amountinsufficienttopaythetaxes,penaltiesandcosts,theInternalRevenueOfficer conductingthesaleshalldeclarethepropertyforfeitedtotheGovernmentinsatisfaction oftheclaiminquestionandwithintwo(2)daysthereafter,shallmakeareturnofhis proceedingsandtheforfeiturewhichshallbespreadupontherecordsofhisoffice.It shallbethedutyoftheRegisterofDeedsconcerned,uponregistrationwithhisofficeof anysuchdeclarationofforfeiture,totransferthetitleofthepropertyforfeitedtothe Governmentwithoutthenecessityofanorderfromacompetentcourt. Withinone(1)yearfromthedateofsuchforfeiture,thetaxpayer,oranyoneforhim mayredeemsaidpropertybypayingtotheCommissionerorthelatter'sRevenue CollectionOfficerthefullamountofthetaxesandpenalties,togetherwithinterest thereonandthecostsofsale,butifthepropertybenotthusredeemed,theforfeiture shallbecomeabsolute. SEC.216.ResaleofRealEstateTakenforTaxes. TheCommissionershallhavecharge ofanyrealestateobtainedbytheGovernmentofthePhilippinesinpaymentor satisfactionoftaxes,penaltiesorcostsarisingunderthisCodeorincompromiseor adjustmentofanyclaimtherefore,andsaidCommissionermay,uponthegivingofnot lessthantwenty(20)daysnotice,sellanddisposeofthesameofpublicauctionorwith priorapprovaloftheSecretaryofFinance,disposeofthesameatprivatesale.Ineither case,theproceedsofthesaleshallbedepositedwiththeNationalTreasury,andan accountingofthesameshallrenderedtotheChairmanoftheCommissiononAudit. SEC.217.FurtherDistraintorLevy.Theremedybydistraintofpersonalpropertyand levyonrealtymayberepeatedifnecessaryuntilthefullamountdue,includingall expenses,iscollected. SEC.218.InjunctionnotAvailabletoRestrainCollectionofTax. Nocourtshallhave theauthoritytograntaninjunctiontorestrainthecollectionofanynationalinternal revenuetax,feeorchargeimposedbythisCode. SEC.219. NatureandExtentofTaxLien. Ifanyperson,corporation,partnership, jointaccount( cuentasenparticipacion ),associationorinsurancecompanyliabletopay aninternalrevenuetax,neglectsorrefusestopaythesameafterdemand,theamount

shallbealieninfavoroftheGovernmentofthePhilippinesfromthetimewhenthe assessmentwasmadebytheCommissioneruntilpaid,withinterests,penalties,and coststhatmayaccrueinadditiontheretouponallpropertyandrightstoproperty belongingtothetaxpayer:Provided,Thatthislienshallnotbevalidagainstany mortgageepurchaserorjudgmentcreditoruntilnoticeofsuchlienshallbefiledbythe CommissionerintheofficeoftheRegisterofDeedsoftheprovinceorcitywherethe propertyofthetaxpayerissituatedorlocated. SEC.220.FormandModeofProceedinginActionsArisingunderthisCode.Civiland criminalactionsandproceedingsinstitutedinbehalfoftheGovernmentunderthe authorityofthisCodeorotherlawenforcedbytheBureauofInternalRevenueshallbe broughtinthenameoftheGovernmentofthePhilippinesandshallbeconductedby legalofficersoftheBureauofInternalRevenuebutnocivilorcriminalactionforthe recoveryoftaxesortheenforcementofanyfine,penaltyorforfeitureunderthisCode shallbefiledincourtwithouttheapprovaloftheCommissioner. SEC.221.RemedyforEnforcementofStatutoryPenalProvisions.Theremedyfor enforcementofstatutorypenaltiesofallsortsshallbebycriminalorcivilaction,asthe particularsituationmayrequire,subjecttotheapprovaloftheCommissioner. SEC.222. ExceptionsastoPeriodofLimitationofAssessmentandCollectionof Taxes. (a)Inthecaseofafalseorfraudulentreturnwithintenttoevadetaxoroffailure tofileareturn,thetaxmaybeassessed,oraproceedingincourtforthecollection ofsuchtaxmaybefiledwithoutassessment,atanytimewithinten(10)yearsafter thediscoveryofthefalsity,fraudoromission:Provided,Thatinafraudassessment whichhasbecomefinalandexecutory,thefactoffraudshallbejudiciallytaken cognizanceofinthecivilorcriminalactionforthecollectionthereof. (b)IfbeforetheexpirationofthetimeprescribedinSection203forthe assessmentofthetax,boththeCommissionerandthetaxpayerhaveagreedin writingtoitsassessmentaftersuchtime,thetaxmaybeassessedwithintheperiod agreedupon.Theperiodsoagreeduponmaybeextendedbysubsequentwritten agreementmadebeforetheexpirationoftheperiodpreviouslyagreedupon. (c)Anyinternalrevenuetaxwhichhasbeenassessedwithintheperiodof limitationasprescribedinparagraph(a)hereofmaybecollectedbydistraintor levyorbyaproceedingincourtwithinfive(5)yearsfollowingtheassessmentof thetax. (d)Anyinternalrevenuetax,whichhasbeenassessedwithintheperiodagreed uponasprovidedinparagraph(b)hereinabove,maybecollectedbydistraintor

levyorbyaproceedingincourtwithintheperiodagreeduponinwritingbefore theexpirationofthefive(5)yearperiod.Theperiodsoagreeduponmaybe extendedbysubsequentwrittenagreementsmadebeforetheexpirationofthe periodpreviouslyagreedupon. (e)Provided,however, Thatnothingintheimmediatelyprecedingandparagraph (a)hereofshallbeconstruedtoauthorizetheexaminationandinvestigationor inquiryintoanytaxreturnfiledinaccordancewiththeprovisionsofanytax amnestylawordecree. SEC.223. SuspensionofRunningofStatuteofLimitations. TherunningoftheStatute ofLimitationsprovidedinSections203and222onthemakingofassessmentandthe beginningofdistraintorlevyaproceedingincourtforcollection,inrespectofany deficiency,shallbesuspendedfortheperiodduringwhichtheCommissioneris prohibitedfrommakingtheassessmentorbeginningdistraintorlevyoraproceedingin courtandforsixty(60)daysthereafter;whenthetaxpayerrequestsforareinvestigation whichisgrantedbytheCommissioner;whenthetaxpayercannotbelocatedinthe addressgivenbyhiminthereturnfileduponwhichataxisbeingassessedorcollected: Provided,that,ifthetaxpayerinformstheCommissionerofanychangeinaddress,the runningoftheStatuteofLimitationswillnotbesuspended;whenthewarrantof distraintorlevyisdulyserveduponthetaxpayer,hisauthorizedrepresentative,ora memberofhishouseholdwithsufficientdiscretion,andnopropertycouldbelocated; andwhenthetaxpayerisoutofthePhilippines. SEC.224.RemedyforEnforcementofForfeitures.Theforfeitureofchattelsand removablefixturesofanysortshallbeenforcedbytheseizureandsale,ordestruction,of thespecificforfeitedproperty.Theforfeitureofrealpropertyshallbeenforcedbya judgmentofcondemnationandsaleinalegalactionorproceeding,civilorcriminal,as thecasemayrequire. SEC.225.WhenPropertytobeSoldorDestroyed.Salesofforfeitedchattelsand removablefixturesshallbeeffected,sofaraspracticable,inthesamemannerandunder thesameconditionsasthepublicnoticeandthetimeandmannerofsaleasare prescribedforsalesofpersonalpropertydistrainedforthenonpaymentoftaxes. Distilledspirits,liquors,cigars,cigarettes,othermanufacturedproductsoftobacco,and allapparatususedIorabouttheillicitproductionofsucharticlesmay,uponforfeiture, bedestroyedbyorderoftheCommissioner,whenthesaleofthesameforconsumption orusewouldbeinjurioustopublichealthorprejudicialtotheenforcementofthelaw. Allotherarticlessubjecttoexcisetax,whichhavebeenmanufacturedorremovedin violationofthisCode,aswellasdiesfortheprintingormakingofinternalrevenue stampsandlabelswhichareinimitationoforpurporttobelawfulstamps,orlabelsmay,

uponforfeiture,besoldordestroyedinthediscretionoftheCommissioner. Forfeitedpropertyshallnotbedestroyeduntilatleasttwenty(20)daysafterseizure. SEC.226.DispositionoffundsRecoveredinLegalProceedingsorObtainedfrom Forfeitures.alljudgmentsandmoniesrecoveredandreceivedfortaxes,costs, forfeitures,finesandpenaltiesshallbepaidtotheCommissionerorhisauthorized deputiesasthetaxesthemselvesarerequiredtobepaid,andexceptasspecially provided,shallbeaccountedforanddealtwiththesameway. SEC.227.SatisfactionofJudgmentRecoveredAgainstanyInternalRevenueOfficer. WhenanactionisbroughtagainstanyInternalRevenueofficertorecoverdamagesby reasonofanyactdoneintheperformanceofofficialduty,andtheCommissioneris notifiedofsuchactionintimetomakedefenseagainstthesame,throughtheSolicitor General,anyjudgment,damagesorcostsrecoveredinsuchactionshallbesatisfiedby theCommissioner,uponapprovaloftheSecretaryofFinance,orifthesamebepaidby thepersonusedshallberepaidorreimbursedtohim. Nosuchjudgment,damages,orcostsshallbepaidorreimbursedinbehalfofaperson whohasactednegligentlyorinbadfaith,orwithwillfuloppression.

TITLEX STATUTORYOFFENSESANDPENALTIES CHAPTERI ADDITIONSTOTAX SEC.247.GeneralProvisions. (a)TheadditionstothetaxordeficiencytaxprescribedinthisChaptershallapply toalltaxes,feesandchargesimposedinthisCode.TheAmountsoaddedtothetax shallbecollectedatthesametime,inthesamemannerandaspartofthetax. (b)IfthewithholdingagentistheGovernmentoranyofitsagencies,political subdivisionsorinstrumentalities,oragovernmentownedorcontrolled corporation,theemployeethereofresponsibleforthewithholdingandremittance ofthetaxshallbepersonallyliablefortheadditionstothetaxprescribedherein. (c)theterm"person" ,asusedinthisChapter,includesanofficeroremployeeofa corporationwhoassuchofficer,employeeormemberisunderadutytoperform theactinrespectofwhichtheviolationoccurs. SEC.248.CivilPenalties.

(A)Thereshallbeimposed,inadditiontothetaxrequiredtobepaid,apenalty equivalenttotwentyfivepercent(25%)oftheamountdue,inthefollowingcases: (1)Failuretofileanyreturnandpaythetaxduethereonasrequiredunder theprovisionsofthisCodeorrulesandregulationsonthedateprescribed; or (2)UnlessotherwiseauthorizedbytheCommissioner,filingareturnwithan internalrevenueofficerotherthanthosewithwhomthereturnisrequired tobefiled;or (3)Failuretopaythedeficiencytaxwithinthetimeprescribedforits paymentinthenoticeofassessment;or (4)Failuretopaythefullorpartoftheamountoftaxshownonanyreturn requiredtobefiledundertheprovisionsofthisCodeorrulesand regulations,orthefullamountoftaxdueforwhichnoreturnisrequiredto befiled,onorbeforethedateprescribedforitspayment. (B)Incaseofwillfulneglecttofilethereturnwithintheperiodprescribedbythis Codeorbyrulesandregulations,orincaseafalseorfraudulentreturniswillfully made,thepenaltytobeimposedshallbefiftypercent(50%)ofthetaxorofthe deficiencytax,incase,anypaymenthasbeenmadeonthebasisofsuchreturn beforethediscoveryofthefalsityorfraud:Provided,Thatasubstantial underdeclarationoftaxablesales,receiptsorincome,orasubstantial overstatementofdeductions,asdeterminedbytheCommissionerpursuanttothe rulesandregulationstobepromulgatedbytheSecretaryofFinance,shall constituteprimafacieevidenceofafalseorfraudulentreturn:Provided,further, Thatfailuretoreportsales,receiptsorincomeinanamountexceedingthirty percent(30%)ofthatdeclaredperreturn,andaclaimofdeductionsinanamount exceeding(30%)ofactualdeductions,shallrenderthetaxpayerliablefor substantialunderdeclarationofsales,receiptsorincomeorforoverstatementof deductions,asmentionedherein. SEC.249.Interest. (A)InGeneral. Thereshallbeassessedandcollectedonanyunpaidamountoftax, interestattherateoftwentypercent(20%)perannum,orsuchhigherrateasmaybe prescribedbyrulesandregulations,fromthedateprescribedforpaymentuntilthe amountisfullypaid. (B)DeficiencyInterest.Anydeficiencyinthetaxdue,asthetermisdefinedinthis Code,shallbesubjecttotheinterestprescribedinSubsection(A)hereof,whichinterest shallbeassessedandcollectedfromthedateprescribedforitspaymentuntilthefull paymentthereof. (C)DelinquencyInterest.Incaseoffailuretopay:

(1)Theamountofthetaxdueonanyreturntobefiled,or (2)Theamountofthetaxdueforwhichnoreturnisrequired,or (3)Adeficiencytax,oranysurchargeorinterestthereonontheduedate appearinginthenoticeanddemandoftheCommissioner,thereshallbeassessed andcollectedontheunpaidamount,interestattherateprescribedinSubsection (A)hereofuntiltheamountisfullypaid,whichinterestshallformpartofthetax. (D)InterestonExtendedPayment. Ifanypersonrequiredtopaythetaxisqualified andelectstopaythetaxoninstallmentundertheprovisionsofthisCode,butfailstopay thetaxoranyinstallmenthereof,oranypartofsuchamountorinstallmentonorbefore thedateprescribedforitspayment,orwheretheCommissionerhasauthorizedan extensionoftimewithinwhichtopayataxoradeficiencytaxoranypartthereof,there shallbeassessedandcollectedinterestattheratehereinaboveprescribedonthetaxor deficiencytaxoranypartthereofunpaidfromthedateofnoticeanddemanduntilitis paid. SEC.250.FailuretoFileCertainInformationReturns. Inthecaseofeachfailureto fileaninformationreturn,statementorlist,orkeepanyrecord,orsupplyany informationrequiredbythisCodeorbytheCommissioneronthedateprescribed therefor,unlessitisshownthatsuchfailureisduetoreasonablecauseandnottowillful neglect,thereshall,uponnoticeanddemandbytheCommissioner,bepaidbytheperson failingtofile,keeporsupplythesame,Onethousandpesos(1,000)foreachfailure: Provided,however,Thattheaggregateamounttobeimposedforallsuchfailuresduringa calendaryearshallnotexceedTwentyfivethousandpesos(P25,000). SEC.251.FailureofaWithholdingAgenttoCollectandRemitTax. Anyperson requiredtowithhold,accountfor,andremitanytaximposedbythisCodeorwho willfullyfailstowithholdsuchtax,oraccountforandremitsuchtax,oraidsorabetsin anymannertoevadeanysuchtaxorthepaymentthereof,shall,inadditiontoother penaltiesprovidedforunderthisChapter,beliableuponconvictiontoapenaltyequalto thetotalamountofthetaxnotwithheld,ornotaccountedforandremitted. SEC.252.FailureofaWithholdingAgenttorefundExcessWithholdingTax. Any employer/withholdingagentwhofailsorrefusestorefundexcesswithholdingtaxshall, inadditiontothepenaltiesprovidedinthisTitle,beliabletoapenaltytothetotal amountofrefundswhichwasnotrefundedtotheemployeeresultingfromanyexcessof theamountwithheldoverthetaxactuallydueontheirreturn CASESandDOCTRINES (LutzvsAraneta98Phil148)

Ifobjectiveandmethodsarealikeconstitutionallyvalid,noreasonisseenwhythestate maynotlevytaxestoraisefundsfortheirprosecutionandattainment.Taxationmaybe madetheimplementofthestate'spolicepower.Itisinherentinthepowertotaxthata Statebefreetoselectthesubjectsoftaxationandithasbeenrepeatedlyheldthat irregularitieswhichresultfromasinglingoutofoneparticularclassfortaxationor exemptioninfringenoConstitutionallimitation. Thesugarindustryspromotion,protectionandadvancementthereforeredoundgreatly tothegeneralwelfare.Thus,thecontentionofplaintiffthattheActwaspromulgatednot forpublicpurposecannotbeupheld. (CIRvsAlgue158SCRA9) Itissaidthattaxesarewhatwepayforcivilizedsociety.Withouttaxes,the governmentwouldbeparalyzedforlackofthemotivepowertoactivateandoperateit. Hence,despitethenaturalreluctancetosurrenderpartofone'shardearnedincometo thetaxingauthorities,everypersonwhoisabletomustcontributehisshareinthe runningofthegovernment.Thegovernmentforitspart,isexpectedtorespondinthe formoftangibleandintangiblebenefitsintendedtoimprovethelivesofthepeopleand enhancetheirmoralandmaterialvalues.Thissymbioticrelationshipistherationaleof taxationandshoulddispeltheerroneousnotionthatitisanarbitrarymethodofexaction bythoseintheseatofpower. (AmericanBibleSocietyvs.CityofManila101PHIL386) Itwascontendedthatsaidordinancesimposinglicensefeeonthedistributionandsale ofbiblesandotherreligiousliterature,impairthefreeexerciseofreligion,specifically therighttodisseminatereligiousinformation.Asbetweentaxationandreligion,thelatter prevails . (Lladocvs.CommissionerofInternalRevenue14SCRA292) TheexemptionunderSec.22(3)Art.VIoftheConstitutiononlycoverstaxesassessedon cemeteries,churches,andparsonagesorconvents,appurtenanttheretoandalllands, buildingsandimprovementsusedexclusivelyforreligiouspurposes.Thesetaxesare propertytaxesascontradistinguishedfromexcisetaxes.Inthecaseatbar,whatsbeing assessedwasadoneesgifttaxnotonthepropertiesthemselves.Thegifttaxwasan excisetaxupontheusemadeoftheproperties,upontheexerciseoftheprivilegeof receivingtheproperties.Thiskindoftaxisnotwithintheexemptingprovisionofthe

constitution.Therefore,thepetitionerassubstitutedbytheHeadoftheDiocese,isliable topaythesaidgifttax. TheexemptionunderSec.22(3)Art.VIoftheConstitutiononlycoverspropertytaxes assessedoncemeteries,churches,andparsonagesorconvents,appurtenanttheretoand alllands,buildingsandimprovementsusedexclusivelyforreligiouspurposes. (AbraValleyCollegevs.Aquino162SCRA106) Thephraseusedexclusivelyforeducationalpurposesisnotlimitedtopropertyactually indispensablethereforbutextendstofacilities,whichareincidentaltoandreasonably necessarytotheaccomplishmentofsaidpurposes (BishopofNuevaSegoviavs.ProvinceofIlocosNorte51PHIL352 Exemptionfrompaymentoflandtax,whichreferstolotsusedashomeofthepriestwho presideoverthechurchmustincludenotonlythelotactuallyoccupiedbythechurchbut alsotheadjacentgrounddestinedtomeettheordinaryincidentalusesofman. (SanMiguelBrewery,Inc.vs.CityofCebu/CebuPortlandCementCo.vs.Naga,Cebu February20,1973) ThisisbecausedoubletaxationisnotprohibitedbytheConstitution.Furthermore, thereisdoubletaxationonlywhenthesamepersonistaxedbythesamejurisdictionfor thesamepurpose.Inthefirstcase,theannualbusinesstaxisalicensetaxtoengagein thebusinessofwholesaleliquorinCebuCity.Suchlicensetaxconstitutesaregulatory measureintheexerciseofpolicepower,whereasthatwhichisimposedbytheordinance isatypicaltaxorrevenuemeasure.

SubjectMatter: CriminalAction;TaxAssessment

CIRVPASCORREALTY&DEVTCORPet.al. (GRNo.128315,June29,1999) Facts: TheCIRauthorizedcertainBIRofficerstoexaminethebooksofaccountsandother accountingrecordsofPascorRealtyandDevelopmentCorp.(PRDC)for1986,1987and

1988.Theexaminationresultedinrecommendationfortheissuanceofanassessmentof P7,498,434.65andP3,015,236.35for1986and1987,respectively. OnMarch1,1995,Commissionerfiledacriminalcomplaintfortaxevasionagainst PRDC,itspresidentandtreasurerbeforetheDOJ.Privaterespondentsfiledimmediately anurgentrequestforreconsiderationonreinvestigationdisputingthetaxassessment andtaxliability. OnMarch23,1995,privaterespondentsreceivedasubpoenafromtheDOJin connectionwiththecriminalcomplaint.Inaletterdated,May17,1995,the Commissionerdeniedprivaterespondentsrequestforreconsideration(reinvestigation onthegroundthatnoformalassessmenthasbeenissuedwhichthelatterelevatedto theCTAonapetitionforreview.TheCommissionersmotiontodismissonthegroundof theCTAslackofjurisdictioninasmuchasnoformalassessmentwasissuedagainst privaterespondentwasdeniedbyCTAandorderedtheCommissionertofileananswer butdidnotinsteadfiledapetitionwiththeCAalleginggraveabuseofdiscretionandlack ofjurisdictiononthepartofCTAforconsideringtheaffidavit/reportoftherevenue officersandtheendorsementofsaidreportasassessmentwhichmaybeappealedtohe CTA.TheCAsustainedtheCTAdecisionanddismissedthepetition. Issues: 1. Whetherornotthecriminalcomplaintfortaxevasioncanbeconstruedasan assessment. 2. Whetherornotanassessmentisnecessarybeforecriminalchargesfortaxevasion maybeinstituted. Held: ThefilingofthecriminalcomplaintwiththeDOJcannotbeconstruedasaformal assessment.NeithertheTaxCodenortherevenueregulationsgoverningtheprotest assessmentsprovideaspecificdefinitionorformofanassessment. Anassessmentmustbesenttoandreceivedbythetaxpayer,andmustdemand paymentofthetaxesdescribedthereinwithinaspecificperiod. Therevenueofficers affidavitmerelycontainedacomputationofrespondentstaxliability.Itdidnotstatea demandorperiodforpayment.ItwasaddressedtotheSecretaryofJusticenottothe taxpayer.Theyjointaffidavitwasmeanttosupportthecriminalcomplaintfortax evasion;itwasnotmeanttobeanoticeoftaxdueandademandtoprivaterespondents forthepaymentthereof.ThefactthatthecomplaintwassenttotheDOJ,andnotto privaterespondent,showsthatcommissionerintendedtofileacriminalcomplaintfor taxevasion,nottoissueanassessment. Anassessmentisnotnecessarybeforecriminalchargescanbefiled. Acriminal chargeneednotonlybesupportedbyaprimafacieshowingoffailuretofilearequired

return.TheCIRhad,insuchtaxevasioncases,discretiononwhethertoissueanassessment, ortofileacriminalcaseagainstthetaxpayer,ortodoboth. SubjectMatter: CriminalAction

CIRVCA G.R.No.119322,June4,1996 Facts: AtaskforcewascreatedonJune1,1993toinvestigatetaxliabilitiesof manufacturersengagedintaxevasionschemes.OnJuly1,1993,theCIRissuedRev. MemoCirc.No.3793whichreclassifiedcertaincigarettebrandsmanufacturedby privaterespondentFortuneTobaccoCorp.(Fortune)asforeignbrandssubjecttoahigher taxrate.OnAugust3,1993,Fortunequestionedthevalidityofsaidreclassificationas beingviolativeoftherighttodueprocessandequalprotectionoflaws.TheCTA,on September8,1993resolvedthatsaidreclassificationwasofdoubtfullegalityand enjoineditsenforcement. Inthemeantime,onAugust3,1993,Fortunewasassesseddeficiencyincome,ad valoremandVATfor1992withpaymentduewithin30daysfromreceipt.OnSeptember 12,1993,privaterespondentmovedforreconsiderationofsaidassessment.Meanwhile onSeptember7,1993,theCommissionerfiledacomplaintwiththeDOJagainstprivate respondentFortune,itscorporateofficersand9othercorporationsandtheirrespective corporateofficersforallegedfraudulenttaxevasionfornonpaymentofthecorrect income,advaloremandVATfor1992.ThecomplaintwasreferredtotheDOJTaskForce onrevenuecaseswhichfoundsufficientbasistofurtherinvestigatethechargesagainst Fortune. AsubpoenawasissuedonSeptember8,1993directingprivaterespondentto submittheircounteraffidavits.Butitfiledaverifiedmotiontodismissoralternatively,a motiontosuspendbutwasdeniedandthustreatedastheircounteraffidavit.Allmotions filedthereafterweredenied. January4,1994,privaterespondentsfiledapetitionforcertiorariandprohibition withprayerforpreliminaryinjunctionprayingtheCIRscomplaintandprosecutors ordersbedismissed/setasideoralternatively,thatthepreliminaryinvestigationbe suspendedpendingdeterminationbyCIRofFortunesmotionforreconsideration/ reinvestigationoftheAugust13,1993assessmentoftaxesdue. Thetrialcourtgrantedthepetitionforawritofpreliminaryinjunctiontoenjoin thepreliminaryinvestigationonthecomplaintfortaxevasionpendingbeforetheDOJ, rulingthatthetaxliabilityofprivaterespondentsfirstbesettledbeforeanycomplaint forfraudulenttaxevasioncanbeinitiated.

Issue: Whetherthebasisofprivaterespondentstaxliabilityfirstbesettledbeforeany complaintforfraudulenttaxevasioncanbeinitiated. Held: Fraudcannotbepresumed. Iftherewasfraudonwillfulattempttoevadepayment ofadvaloremtaxesbyprivaterespondentthroughthemanipulationoftheregistered wholesalepriceofthecigarettes,itmusthavebeenwiththeconnivanceofcooperation ofcertainBIRofficialsandemployeeswhosupervisedandmonitoredFortunes productionactivitiestoseetoitthatthecorrecttaxeswerepaid.Butthereisno allegation,muchlessevidence,ofBIRpersonnelsmalfeasanceattheveryleast,thereis thepresumptionthatBIRpersonnelperformedtheirdutiesintheregularcoursein ensuringthatthecorrecttaxeswerepaidbyFortune. BeforethetaxliabilitiesofFortunearefinallydetermined,itcannotbecorrectly assertedthatprivaterespondentshavewillfullyattemptedtoevadeordefeatanytax underSecs.254and256,1997NIRC,thefactthatataxisduemustfirstbeproved.

AZNARCASE(August23,1974) Facts: MatiasAznardiedonMay15,1958.Hisincometaxreturnsfrom1945to1951 wereexaminedbytheBIR.Doubtingthetruthoftheincomethathehadreported,the Commissionerorderedtheinvestigationofthecaseonthebasisofthenetworth method.Substantialunderdeclarationsofincomewerediscovered.OnNovember28, 1952,theBIRnotifiedAZNARofataxdelinquencyofP723,032.66whichwaslater reducedtoP381,096.07uponreinvestigation. OnFebruary20,1953,AZNARspropertieswereplacedunderdistraintandlevy. OnApril1,1955,AZNARappealedtotheCTA.TheCTAfoundthatAZNARmade substantialunderdeclarationsofhisincomeasfollows:heunderdeclaredhisincomefor 1946by227%;564%for1947;95%for1948;486%for1949;946%1950;490%1951. Issues: WhetherornottherightoftheCommissionertoassessAZNARsdeficiencyincome taxesfor1946,1947and1948hadprescribedatthetimetheassessmentwasmade. Held: Ontheissueofprescriptionthecountappliedthe10yearprescriptiveperiodand

ruledthatprescriptionhadnotsetin.thecourtopinedthatAZNARsreturnswerefalse becausetheunderdeclarationofincomeconstitutedadeviationfromthetruth.The courtstatedthattheordinaryprescriptiveperiodof5years(now3years)wouldapply undernormalcircumstancesbutwheneverthegovernmentisplacedatadisadvantageas topreventitslawfulagentfrommakingaproperassessmentoftaxliabilitiesduetofalseor fraudulentreturnsintendedtoevadepaymentoftaxesorfailuretothereturns,theperiod of10yearsprovidedforinthelawfromthediscoveryofthefalsity,fraudoromissioneven seemstobeinadequateandshouldbetheoneenforced.