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Tax2 Reviewer
ESTATE TAX
Q: What is an Estate Tax?
A: An estate tax is a tax on the privilege of
transmitting property at death which is measured
by the value of the property at the time of the
death of the decedent.
Estate tax is the tax on the right to transmit
property at death and on certain transfers by the
decedent during his lifetime which are made by
law the equivalent of testamentary dispositions.
(De Leon)
Q: When does the estate tax accrue?
A: It accrues at the time of death irrespective of
whether the heirs took possession or enjoyment
of the property.
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Q: How about dividends declared and paid after
the decedents death, would they be part of the
gross estate?
A: No. It is an income of the estate but not part
of the gross estate for estate tax purposes. In
dividends, what is important is the date of
declaration of the dividends, not the date of the
receipt of the dividends.
Q: A and B opened a joint account (A or B)
where either A or B may withdraw. B died.
Would this be a part of Bs estate?
A: Yes, but in order for A to claim the whole
amount for himself, A would have to show that
B was stripped of his right over the account and
such was transferred to A after his death
Q: A and B opened a joint account (A and B)
where either A or B may withdraw. B died.
Would this be a part of Bs estate?
A:
Q: A, B, C bought a property, so they co-own it.
However, it was C who paid the purchase price.
C died. Is the part of Cs estate, the whole or 1/3
of the property?
A: Only 1/3 because of the co-ownership
existing between them, except if it is shown that
C actually own the entire interest. Other
evidence could be shown in order to prove
decedents interest.
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Q: X told Y that he may die soon so he left a
very expensive car to Y. Is this considered a
transfer in contemplation of death?
A: Yes, because there is a thought of death.
Q: What is the transfer was made without the
decedent knowing that he is ill, is it a transfer in
contemplation of death?
A: No, the decedent should have knowledge of
his ill condition.
Q: A, 70 years old and suffering from cancer, has
a real property having a fair market value of
P10M, but he sold it for P9M telling the buyer
that he is going to die. He died afterwards. Is it a
transfer in contemplation of death?
A: No, because there is an adequate
consideration. This consideration takes it away
from the gross estate.
Revocable Transfer
Q: What is a revocable transfer?
A: Yung bigay na bawi
You give but you retain control, possession, and
enjoyment. What you have given under the
scheme forms part of the gross estate.
(Bar Ops Stenographic Notes)
Q: Are revocable transfers considered as part of
the gross estate?
A: Yes, because these are considered as not
having left the decedent/grantor.
Q: Suppose that A gave property to B under a
revocable trust. Ten days before his death he said
to the beneficiary and to the trustee that he is
very ill and he may die soon so he is revoking his
power to revoke. He died. B considered this as
an irrevocable trust contending that it is not part
of the gross estate. Would that form part of the
gross estate?
A: Yes, because when he revoke the power to
revoke, he revoke it in contemplation of death.
Q: Suppose Dad made a revocable transfer to son
but Son paid Dad P8M. The property is valued at
P9M. Dad died. Is it part of his estate?
A: No because there is an adequate consideration
which means that it left the estate.
General Power of Appointment
Q: What is a general power of appointment?
A: It refers to the right of the decedent to
designate any person including himself who shall
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It is special when he can appoint only among a
restricted or designated class of persons other
than himself. (De Leon)
Q: Are properties transferring under a special
power of appointment part of the gross estate?
A: No. because the decedent is restricted to a
specific or special class of persons, which means
that he cannot even appoint himself.
Proceeds of Life Insurance
Q: Are proceeds of life insurance part of gross
estate?
A: Yes, but, as provided in Sec 85 (E), only to
the extent of the amount receivable by the estate
of the deceased , his executor, or administrator.
Q: Suppose A got an insurance policy where Y
was designated as a revocable beneficiary, but A
died. Is the proceeds part of the estate?
A: The proceeds do not belong to the estate, but
to Y. However, the mere fact of revocability only
makes it part of the Estate, there it is taxable. To
be irrevocable, it must be expressly stated.
Transfers for Insufficient Consideration
Q: In a transfer for insufficient consideration,
suppose A transferred a property worth P10M to
B, B paid A P2M, what forms part of As gross
estate?
A: P8M is part of Gross estate for purposes of
computing the net estate. In gift situation, the
excess is considered as the gift, taxable.
Q: Are all transfers for insufficient consideration
part of the gross estate?
A: No, for this kind of transfer to be included in
the gross estate, the transfer must also be in
contemplation of death, otherwise, the excess
would be considered as a gift.
Q: What would be the tax treatment if the
transfer for insufficient consideration pertains to
a real property that is a capital asset?
A: It would not be subject to estate tax, but to
provisions of Sec. 24 (D) (6% of fair market
value or gross selling price, whichever is higher).
Q: Suppose A owned a property worth P10M,
then he transferred this property to B. The next
day, A died. After 3 months, B sold this property
for P50M. What would be the value included in
the estate?
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Q: Suppose A was designated by the probate
court as an administrator of the decedents estate.
However, as a condition for the office, the
probate court required A to post a bond having a
premium amount worth P30k, is this amount
deductible to the estate?
A: No. This is not for the settlement of the estate
but in the nature of a qualification for office.
Q: Suppose an heir hired a lawyer to protect his
interest in the estate. He spend P100k. Is it
deductible?
A: No, not an expense for the settlement of the
estate. The Supreme Court ruled that attorneys
fees incurred by the heirs in asserting their rights
in the estate are not expenses essential to the
settlement of the estate. Only expenses essential
to the proper settlement of the estate are
deductible.
Q: Supposing that notarial fees were paid for the
extrajudicial settlement of the estate, would this
be deductible?
A: Yes. In CIR vs. Pajonar, the Supreme Court
ruled that expenses necessary for the settlement
of the estate should be deducted, although the
Tax Code specifies judicial expenses
3. Claims against the Estate
Q: The estate is indebted to A, but the debt
instrument was notarized a week before the
decedents death. May this debt instrument used
as a valid deduction?
A: No. Law looks at it only as a manufactured
document. To be deductible, it must be duly
notarized at the time the indebtedness was
incurred.
Sec. 86 (A) (1) (c) For claims against the
estate: Provided, That at the time the
indebtedness was incurred the debt instrument
was duly notarized and, if the loan was
contracted within 3 years before the death of the
decedent, the administrator or executor shall
submit a statement showing the disposition of
the proceeds of the loan.
Q: What if the loan is contracted within 3 years
prior to the death of the deaceased?
A: The administrator or executor required to
submit a statement showing the disposition of
the proceeds of the loan.
Q: What is the purpose of this within 3 year
rule?
A: To avoid fabrication.
Q: Can funeral expenses exceeding P200,000 be
deducted as claims against the estate?
A: No, it cannot be claimed as a deduction.
4. Bad Debt Deduction
Sec 86 (A) (1) (d) For claims of the deceased
against insolvent persons where the value of the
decedents interest therein is included in the
value of the gross estate
Q: What is the requirement in this deduction?
A: You have to put the uncollectible receivables
in the estate before getting a claim. Also, you
cannot just claim that an indebtedness is
insolvent. You must show that the debtor is
financially incapable of paying.
(Bar Ops Stenographic Notes)
Q: What is the tax benefit in including the bad
debt (or insolvent claim) and then deducting it?
A:
5. Unpaid Mortgages
Sec. 86 (e) For unpaid mortgages upon, or
any indebtedness in respect to, property where
the value of decedents interest therein,
undiminished by such mortgage or indebtedness,
is included in the value of the gross estate.
Q: What do deductions for unpaid mortgages
include?
A: It includes the mortgaged property
undiminished by indebtedness in the gross estate.
This means that you have to include the
mortgage property in the gross estate
undiminished by the indebtedness before
claiming the unpaid mortgages as a deduction
because the fair market value of the property
could be much higher than the mortgage
indebtedness.
6. Losses
Sec. 86 (e) x x x There shall be deducted
losses incurred during the settlement of the estate
arising from fires, storms, shipwreck, or other
casualties, or from robbery, theft, or
embezzlement, (fortuitous event), when such
losses are not compensated for by insurance or
otherwise, and if at the time of the filing of the
return such losses have not been claimed as a
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deduction for income tax purposes in a income
tax return, and provided that such losses were
incurred not later than the last day for the
payment of the estate tax.
7. Any Indebtedness
Tax
Q: Are taxes deductible to the estate?
A: Yes, Sec. 86 (e) provides for any unpaid
mortgages upon, or any indebtedness.
Indebtedness includes tax.
Q: What taxes are deductible?
A: Taxes accruing before the death. Sec 86
(e) x x x but not including any income tax
upon income received after the death of the
decedent, or property taxes not accrued before
his death, or any estate tax.
Unpaid Subscriptions
Q: During the lifetime of the decedent, he
subscribed to a corporation. Worth P1M, but he
simply paid 25%. Suddenly the corporation
became financially unstable. The Board of
Directors issued a call/ pay up. Decedent died
before paying up. Would the 75% be considered
a claim against the estate for indebtedness?
A: Yes, this is a valid claim against the estate.
8. Vanishing Deduction
Q: What is the rule with regard to Vanishing
Deduction as provided in Sec. 86 (A) (2)?
A: There must be a prior decedent transferor and
a current decedent transferee who died within 5
years after the death of the transferor.
Q: Suppose A had properties here and abroad. A
died. B inherited these properties. Later B died.
Which is deductible?
A: Only properties situated in the Philippines.
Sec. 86 (A) (2) x x x any property forming a part
of the gross estate situated in the Philippines.
9. Transfer for Public Use
Q: Suppose decedent made a transfer in favor of
a NGO, is it deductible as transfer for public
use?
A: No. it should be for the government, not for a
non-government organization.
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Q: What if the family home was bought by
conjugal funds, is it deductible?
A: Yes, the one-half share of the surviving
spouse in the family home is deducted from the
gross estate to arrive at the net estate.
Q: How about the share of the surviving spouse
in the conjugal funds, is it deductible?
A: Yes. The surviving spouse exclusive property
is not included in the decedent spouses estate.
Sec. 85 (H) Capital of the Surviving Spouse
The capital of the surviving spouse of a decedent
shall not be deemed a part of his or her gross
estate.
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Q: Suppose X, an alien, lived in the Philippines.
X acquired a car, PLDT shares, IBM shares,
savings (3 years), account in PNB Manila,
savings in PNB (New York). Then he left for US
and acquired similar properties. He lived and
died there. What forms part of his estate?
A:
Q: Same question, at the time of his death, is he
a resident or a non-resident?
A:
Q: Same question but assuming that he died as a
non resident alien, what are included in the gross
estate?
A: IBM shares are not included unless 85% of its
business is located in the Philippines.
Q: Suppose a non resident alien decent has
shares in AOL which have a 100% subsidiary in
the Philippines, will it be included in the gross
estate?
A: No, Equity investment is not doing business
in the Philippines.
Q: Suppose an American decedent died having a
promissory note issued by a Filipino
businessman, and the BIR argued that the
promissory note has a business situs in the
Philippines referring to Sec. 104 (obligations
considered as situated in the Philippines), is it
part of the estate?
A: No. the law speaks of institutions or
corporations and not individual obligations (Sec.
104 x x x obligations by any corporation)
Reciprocity
Q: When would the intangibles mentioned in
Sec. 104 not considered part of gross estate?
A: When there is reciprocity. Reciprocity in that
section is when the foreign country of the nonresident decedent allows a similar exemption to a
non-resident Filipino, meaning the intangibles of
the non resident Filipino in that foreign country
of the non resident decedent would exempt the
intangibles similarly.
Q: Although Sec. 104 states five instances where
the intangible property of the non resident alien
decedent is included in the computation of his
estate, are there instances where the computation
of the intangible property of the non resident
alien decedent would not be included in the
estate tax?
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income of which inures to the benefit of
any individual: Provided, however, That
not more than 30% of the said bequests,
devises, legacies, or transfers shall be
used by such
institutions for
administration purposes.
Q: What is the basis for the exemption in Sec. 87
(A) to (C)?
A: It is premised on the fact that in all the
transfers mentioned, there is really one
transmission of property, (i.e.- from the testator
to the owner of the naked title; or from the
testator to the fideicommissary0 Hence, the
exemption from the tax because the property was
previously subject thereto. (De Leon)
Q: In the merger of the usufruct and the naked
title, what if the usufruct die which results to the
merger of the usufruct and the naked title, would
the transmission be taxable?
A: No, it is not taxable because the right of the
usufruct is included in the gross estate of the
decedent.
Q: Suppose A transfers property to trust. This
property would be enjoyed by B but the title is
given to C. A dies, would the property be part of
the estate?
A: If it is a revocable trust, it would be a part of
As estate.
Q: Same question, but what if B dies?
A: The value of the usufruct is included in the
gross estate of B. See Sec. 88. (A).
Q: Same question, but what if B dies ahead of
A?
A: Sec. 88 (A) also applies.
DONORS TAX
Q: What is a donors tax?
A: The donors tax is imposed on donations inter
vivos or those made between living persons to
take effect during the lifetime of the donor.
(De Leon)
Q: How are donations mortis causa taxed?
A: Donations mortis causa or those which are to
take effect upon the death of the donor partake
the nature of testamentary dispositions, are
subject to estate tax. They are considered
transfers in contemplation of death. (De Leon)
Q: What is the concept of the gift tax?
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intent). But for a gift to be an item of exclusion,
there must be disinterested generosity.
Q: What property is contemplated in donors
tax?
A: real, personal, tangible, intangible.
Q: Would donors tax include conceptual or
contingent property?
A: It could be a conceptual or contingent
property as long as you can value it, because if
you cannot value it, it cannot be considered as
property. (it could be a thing but not a property)
Q: Would donors tax include something that
could not be valued? (i.e., blood of Kris Aquino
)
A: It is not subject to gift tax because it cant be
valued.
Q: When is there a taxable gift?
A: There must be cessation of control by the
donor over the property given.
Q: Suppose X gave Y a check dated June 30,
2004. On July 8, X died, but Y had not encashed
the check. Is there a gift?
A: No. there was no cessation of control and
dominion on the part of the donor over the
property transferred.
The Court in Burnett vs. Guggenheim:
Taxation is not so much concerned with the
requirements of title as it is with actual command
over the property taxed.
Q: X would give his Bulacan land as a gift to Y
provided that Y would give his Laguna land to X
as a gift. Is there a taxable gift?
A: No. There is no gift because the transfer was
with consideration. It is a taxable exchange of
property. If it is a capital asset, it is an exchange
subject to Sec. 24 (D).
Q: Dad owns shares worth P70 per share. Son is
engaged in trading securities. Dad told Son to
sell his shares for P140/share such that the profit
would belong to Son. Is there a taxable gift?
A:
Q: Same question, but what if there is no filial
relationship?
A: No gift because it was a transaction in the
ordinary course of business. In a purely business
transaction, transactions with discounts and
bargaining are beyond the scope of gift tax.
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Q: A tells B that A will give B money if B would
do something.
A tells C that A will give C money if B will not
do anything.
B did not do anything. A gave the money to C.
Who made the gift?
A: B gave the gift. B had control on whether or
not the conditions would be fulfilled. It would be
the same effect as if B received the money then
B gave it to C. B was an indirect donor.
Exemption of Certain Gifts
1. Dowries
Sec. 101 provides: The following gifts or
donations shall be exempt from the tax provided
(1) Dowries or gifts made on account of
marriage and before its celebration or within one
year thereafter by parents to each of their
legitimate, recognized natural, or adopted
children to the extent of the first Ten thousand
pesos.
Q: What are the requirements for gifts in
consideration of marriage to be exempted from
the donors tax?
A: It should be
1. given by parent
2. to children
3. given before or within one year from
celebration of marriage
4. limit: first P10,000
Q: If a gift is given after the celebration of
marriage, can it be exempted from the tax?
A: Yes if given within one year from celebration
of marriage
Q: Suppose a child gave a donation to his
widower father, can this donation be exempted?
A: No. the law only contemplates gifts made by
a parent to a child not a child to a parent.
Q: X will give a property to Y on a condition
that Y will marry X. They got married. X gave
the property. Is the gift taxable?
A: No, the gift is prohibited by law.
Q: Dad will give X a gift if X will marry Dads
daughter. The BIR taxed the transaction.
However, Dad argued that the consideration was
the marriage, therefore exempt. Is this
exempted?
A: It is not exempted. It is not a gift if there is a
consideration.
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1.
2.
3.
VALUE-ADDED TAX
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A: The following are liable:
1. any person who in the ordinary course
of business sells, barters, or exchanges
goods or properties
2. any person engaged in the sale or
exchange of services including the lease
or use of properties in the ordinary
course of business
3. in case of importation, the importer who
imports the goods.
but the burden can be shifted to the buyer.
(Bar Ops Stenographic Notes)
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2.
3.
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Q: Suppose you work in China but the payment
is made in the Philippines, is this sale of service
subject to VAT?
A: No, it should be performed in the Philippines.
Q: Suppose you work for A, but you did not
charge anything, would that be subject to VAT?
A: No, because there is no consideration.
Q: Suppose you own a motor shop. Your car was
repaired in your shop. Would that be subject to
tax?
A: No, because law says service for others.
Q: Same question but the spare parts were
supplied by Toyota, what would be subject to
VAT?
A: VAT here only applies to the sale of the spare
parts.
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A: The output tax less input tax is actually the
tax paid. Law presupposes that the mark-up is
the one subject to tax.
Q: PLDT sells services subject to VAT. What
would be the input tax credit?
A: To credit input tax credit, it should be related
to the services rendered for purposes of claiming.
So in this case PLDT may claim the equipment
bought as input tax credit as it is related to the
services rendered.
2.
3.
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Amusement Tax
Q: Who pays the amusement tax or tax on sinful
places?
A: Sec. 125 collected from the proprietor,
lessee, or operator
Q: What does the amusement tax cover?
A: admission receipts and other revenues.
Sec. 125 (e) par. 2 For the purpose of the
amusement tax, the term gross receipts
embraces all the receipts x x x. Said gross
receipts also include income from television,
radio, and motion picture rights, if any.
Q: Suppose that there are restaurants in the
cockpit, would it also be subject to 18% tax?
A: Yes if the owner of the cockpit and the
restaurant is the same.
EXCISE TAX
Q: What is an excise tax?
A: It refers to taxes applicable to certain
specified or selected goods or articles
manufactured or produced in the Philippines for
domestic sale or consumption or for any other
disposition and to things imported into the
Philippines. (De Leon)
The excise tax is a privilege tax imposed on the
privilege of engaging in the business of
manufacturing or producing goods for local
consumption or imported in the Philippines.
(Bar Ops Stenographic Notes)
2.
Advantage of Ad valorem
a. Ad valorem if there is
inflation, the higher the taxes.
b. Specific tax remains the
same even if there is inflation
Advantage of Specific
a. The manufacturer may simply
undervalue the price to reduce
the ad valorem tax
b. Even if the manufacturer
undervalue the price, the tax
remains the same because the
only thing to look at is the
quantity of the goods.
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Q: Is there an excise tax that has the qualities of
specific and ad valorem tax?
A: Excise tax on wine. The tax is per capacity
per liter tied to the net retail price. (See Sec. 142)
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Q: When do you pay documentary stamp tax?
A: Upon execution of the document.
(Bar Ops Stenographic Notes)
Q: What is the effect of non-payment of this tax?
A: Sec. 201 An instrument x x x without being
stamped shall
1. not be recorded
2. nor shall it or any copy thereof or any
record of transfer of the same be
admitted or used in evidence in any
court
3. No notary public or other officer
authorized to administer oaths shall add
his jurat or acknowledgment
Q: What is the remedy for non-payment?
A: Require them to pay. Documents are nonadmissible until paid. Sec. 201 x x x until the
requisite stamp or stamps shall have been affixed
thereto and cancelled.
the
remedy
against
BIRs
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Q: What is the legal basis of the power to assess?
A: BIR has the power to examine and assess
taxes after the filing of the tax return. The law
also gives BIR certain powers in aid-ofassessment. CIR can get any information from
anybody for purposes of ascertaining the liability
of the taxpayer.
Q: What is the governments right to assess?
A: This right exclusively belongs to the BIR,
especially the CIR.. It is the right to examine the
books of the taxpayer to determine his tax
liability.
Q: Can the CIR disregard the return and make
his own personal assessment?
A: Yes, but with conjunction with other
information, especially documents from the
supplier.
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Q: Suppose BIR conducted a surveillance for the
period of January to March, can this surveillance
cover the year before such surveillance?
A: Yes. The results of the surveillance can be
made a basis of assessment for the current
taxable year and the prior taxable year.
Sec. 6 (C) x x x The findings may be used as
the basis for assessing the taxes for the other
months or quarters of the same or different
taxable years
1.
2.
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Service of Notice of Assessment
Q: Supposing,
4/15/99 taxpayer filed his return
4/12/02 assessment was made
4/15/02 3 year-period of assessment
lapsed.
5/01/02 taxpayer received the
assessment
Is there a valid assessment despite the fact that
the notice of assessment was received beyond the
period?
A: Yes. The law provides that assessment be
made within 3 years. It does not require that the
taxpayer received such assessment within 3
years. There is a presumption of regularity in the
performance of the official government functions
that the mail was received within the period.
Sec. 203 x x x taxes shall be assessed within 3
years. (no receipt requirement by the taxpayer)
Q: Is it necessary that the assessment be received
by the taxpayer?
A: Yes, it must be received to be binding upon
him so as not to result to deprivation of property
without due process.
Q: Supposing that the BIR sent a notice to the
taxpayer, but the taxpayer cannot be located.
What would be the effect?
A: The assessment period is suspended.
Sec. 223 The running of the Statute of
Limitations x x x shall be suspended x x x when
the taxpayer cannot be located in the address
given by him in the return filed upon which a tax
is being assessed or collected.
Q: Supposing that taxpayer has address at 123
Vito Cruz but he informed the BIR of a change
in address 123 Corinthian. All assessments
were being sent to the Vito Cruz address within
the 3 year period. Would that be a valid
assessment?
A: No. when BIR continues to send assessment
notices to an old address after being informed by
the tax payer of the change in address, that
assessment is no assessment at all. The right to
assess may be subject to the three-year period.
(Bar Ops Stenographic Notes)
Sec. 223 x x x Provided, That, if the taxpayer
informs the Commissioner of any change in
address, the running of the Statute of Limitations
will not be suspended.
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Fraud Assessment
Q: May the BIR make an assessment anytime
even if the year 2030 as long as the BIR says
there is fraud?
A: No. BIR must prove fraud. If it cannot prove
fraud, BIR is limited to the 3 year period.
(Bar Ops Stenographic Notes)
Q: What fraud must the BIR prove?
A: Deliberate, actual fraud. An example would
be in the case of Aznar vs. CIR. This case gives
you the badges of fraud you have consistent
under declaration of income, over claiming of
deductions that would be a badge of fraud. It
was the failure to declare a substantial portion of
the income with intention to deceive.
(Bar Ops Stenographic Notes)
Q: Supposing,
4/15/99 return was filed
4/15/02 3 year period lapsed
4/14/05 fraud assessment was made
taxpayer did not make any answer.
Is the government required to prove fraud?
A: No, the fraud assessment became final as it
was not contested.
Sec. 222 (a) Provided, That in a fraud
assessment which has become final and
executory, the fact of fraud shall be judicially
taken cognizance of in the civil or criminal
action for the collection thereof.
Q: When is there a prima facie evidence of
fraud?
A: When there are badges of fraud such as
substantial underdeclaration of taxable sales, or a
substantial overstatement of deductions.
Sec. 248 (B) that a substantial under
declaration of taxable sales, or a substantial
overstatement of deductions, shall constitute
prima facie evidence of a false or fraudulent
return.
Q: When is there a substantial underdeclaration
of taxable receipts and substantial over statement
of deductions?
A: Sec. 248 (B) x x x, Provided further, That
the failure to report sales in an amount exceeding
30% of that declared per return, and a claim of
deductions in an amount exceeding 30% of the
actual deductions.
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shall constitute prima facie evidence of a false
and fraudulent return.
The badges of fraud (substantial under
declaration of taxables sales or substantial
overstatement of deductions) are also made to
apply to false returns.
Failure to File a Return
Q: When is there a failure to file a return?
A: there is a failure to file a return if, on the basis
of the returned file, the BIR cannot make a
computation or assessment of tax liability.
In short, when you have a return filed which is
incomplete to the point that the BIR cannot make
a valid assessment, that amounts to a failure to
file a return.
(Bar Ops Stenographic Notes)
Q: Now supposing the BIR assesses after 10
years from the filing of the return on the ground
that no return was filed. The taxpayer asserts that
for his defense that a return was filed. Who has
the burden of proof to show a return was really
filed in order to apply the 10-year period?
A: The taxpayer. In Taligaman Lumber vs. CIR,
the Supreme Court said that if the BIR says that
was no return filed, and the taxpayer, as a
defense, argues that a return was filed, then the
taxpayer must prove that a return was filed. The
taxpayer who asserts that he filed a return, as an
affirmative defense, must prove that a return was
filed. (Bar Ops Stenographic Notes)
Q: In case the taxpayer fails to prove that he filed
the return, what is the conclusion?
A: The Supreme Court said the conclusion is that
no return was filed. So, here, is the opposite of
the ground of fraud.
(Bar Ops Stenographic Notes)
Q: Is it an unjustified burden on the part of the
taxpayer that he proved the fact that he filed the
return despite the fact that BIR has all the
records.?
A: No, the taxpayer has the duty to keep and
preserve his books. This duty should be
reconciled with his burden to prove the fact that
he filed the return.
Sec. 235 All the books of accounts x x x shall
be preserved for a period beginning from the last
entry in each book until the last day prescribed x
x x.
Collection
Q: When may the government collect when there
is an assessment and there is no fraud?
A: 3 years from the assessment.
Q: But what if there is an assessment and there is
fraud?
A: 3 years from the fraud assessment
Q: But what if there is no assessment, and there
is no fraud?
A: 3 years from the filing of the return.
Q: But what if there is no assessment, and there
is fraud?
A: 10 years from the discovery of the fraud.
Summary:
Fraud
No Fraud
Assessment
Within 3
years from
Fraud
Assessment
Within 3
years from
Assessment
No Assesment
Within 10
years from the
discovery of
the fraud
Within 3
years from
filing the
return
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A: No. The government can avail of either
administrative or judicial remedy, either
alternatively or simultaneously.
Sec. 205 x x x Either of these remedies or both
simultaneously may be pursued in the discretion
of the authorities charged with the collection of
such tax.
1. Suspension of the Prescriptive Period
Q: When may the prescriptive period be
suspended?
A: As provided in Sec. 223:
1. CIR is prevented from making
assessments.
2. Taxpayer requests for reinvestigation,
which is granted by the CIR
3. Taxpayer is out of the country
4. Taxpayer cant be located in the address
given by him in the return
5. Warrant of distraint or levy is served an
no property can be located
Q: When does a warrant of distraint or levy
operate as a suspension of the prescriptive
period?
A: It is sufficient that the warrant of distraint or
levy was issued and served. It is not necessary
that there be an actual seizure before the period
would be suspended. From the date of the
service of the warrant, the prescriptive period is
suspended.
(Bar Ops Stenographic Notes)
Sec. 223 x x x when the warrant of distraint or
levy is duly served upon the taxpayer.
2. Distraint
Q: What is distraint?
A: Distraint is the seizure by the government of
personal property, tangible or intangible, to
enforce the payment of taxes, to be followed by
its public sale, if the taxes are not voluntarily
paid. (De Leon)
Q: How is distraint effected?
A: It takes place when chattels are taken and sold
at public auction. (See Sec. 208, 209)
Q: Is a warrant of distraint necessary?
A: Yes. The issuance of the warrant of distraint
begins the summary remedy of distraint. It is
merely the first step, while the seizure of the
property is the next step. (De Leon)
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A: No, it should be a definite date. There should
be a strict compliance, or else the tax payer
would be deprived of his property. The
presumption of regularity does not apply.
(also applicable with regard the name of the
taxpayer, the place and time of the sale, the
amount advertised as against the amount due)
Sec. 209 par. 2 At the time and place fixed in
such notice x x x.
3. Levy
Q: What is a levy?
A: Levy, as a summary administrative remedy,
refers to the act of seizure of real property in
order to enforce the payment of taxes. (De Leon)
Q: Taxpayer has a tax liability worth P5M.
However, he has real properties, to wit:
Forbes P30M
Corinthian P20M
Fairview P7M
Bulacan P10M
Can you levy all these properties?
A: Yes, it can levy all real properties because of
the very simple procedure of sending notices to
the Register of Deeds. The levy is only an
annotation on the title.
Q: In the same case, can the government
advertise for sale all these properties?
A: No, Government can only advertise for sale to
satisfy any tax liability only such property, or
usable portion thereof sufficient to satisfy the tax
claim, plus the expenses of the sale.
(Bar Ops Stenographic Notes)
Q: Supposed the government levied the Forbes
property, but it was sold for only P5M, may the
taxpayer impugn the sale?
A: No, because the taxpayer has the right to
redeem the property. It would be easier for him
to redeem the property at a lower price.
Q: What if the taxpayer did not redeem the
property, afterwards the government sold it at
P30M, can the taxpayer claim the excess?
A:
Q: What if the sale is invalidated, would it affect
the tax liability?
A: No, the tax liability remains but the BIR
should go over the process again.
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(De Leon)
In constructive distraint, there is no previous
assessment and the government does not take
possession.
Sec 206 par. 2 The constructive distraint of
personal property x x x obligate himself
(taxpayer) to preserve the same intact and
unaltered and not to dispose of the same x x x.
Q: When may the BIR resort to constructive
restraint?
A: Sec. 206 provides:
1. taxpayer retiring from any business
subject to tax
2. taxpayer is intending to leave the
Philippines
3. intending to remove his property
4. or hide or conceal his property
5. to perform any act tending to obstruct
the collection proceeding.
Q: What is the rationale for this remedy?
A: This is the remedy where the government
cant do the actual distraint. Constructive
distraint is an additional remedy because the
government can resort to it while the remedy of
actual distraint is not yet available, meaning the
assessment process is still to be done.
It applies to a potential delinquent taxpayer. It
also serves to protect the government from
taxpayers who intends to abscond.
6. Tax Lien
Q: What is the tax lien?
A: The tax lien renders the tax claim of the
government superior than any other claim.
Sec. 219 If any person x x x liable to pay an
internal revenue tax, neglects or refuses to pay
the same after demand, the amount shall be a lien
in favor of the Government from the time when
the assessment was made by the Commissioner
until paid x x x upon all the property and rights
to property belonging to the taxpayer. Provided,
That this lien shall not be valid against any
mortgagee, purchaser, or judgment creditor until
notice of such lien filed with Register of Deeds.
Q: What if there is a court order, can it prevail
over a tax lien?
A: No, no private claim, even a claim based on a
court judgment can prevail over a tax claim.
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Q: Supposing the taxpayer was acquitted in the
tax evasion case, would the acquittal have the
effect of having the tax liability extinguished?
A: No, criminal liability is premised on another
statutory basis. Tax liability is a matter of legal
duty, arising from another statutory basis. So
there are two different things based on two
different premises. The extinction of one would
not extinguish the other.
(Bar Ops Stenographic Notes)
2. Cancellation
Q: What do you mean by institution of judicial
proceeding?
A: It means filing with the prosecutors office,
because the law talks of investigation and
punishment. (not filing the information with the
court)
Q: What is the purpose of statute of limitations?
A: These are:
1. to give the taxpayer a sufficient time to
settle his tax liability
2. to give the government time to study the
case.
Administrative Tax Amnesty
1. Compromise
Q: What is a compromise?
A: Compromise is a contract whereby the parties
by reciprocal concessions avoid a litigation or
put an end to one already commenced. (De Leon)
(See Sec. 204)
Q: When does the remedy of compromise apply?
A: The compromise remedy is available to the
government in two cases:
1. existence of a reasonable doubt as to the
validity of the claim against the
taxpayer
2. financial position of the taxpayer
demonstrates a clear inability to pay the
assessed tax.
Q: Supposing that you have a taxpayer who
disputed the assessed amount against him. He
appealed to the CTA, CA, and SC. The taxpayer
TAXPAYERS REMEDIES
1. PROTEST
Q: How does the BIR found basis for
assessment?
A: See p. 416 of De Leon
A. Notice for informal conference The
revenue officer who audited the taxpayers
records shall state in his report whether the
taxpayer agrees in his findings that he is liable
for deficiency tax.
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1.
2.
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It is important that the BIR prove that the
taxpayer received the FAN.
Q: What would happen if the taxpayer fails to
respond to the PAN?
A: The PAN would serve as a formal or final
assessment notice
Sec. 228 par (3) x x x if the taxpayer fails to
respond, the Commissioner or his duly
authorized representative shall issue an
assessment based on his findings.
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a warrant of distraint or levy is deemed an
implied decision appealable to the CTA.
Q: Supposing the assessment became final. The
BIR issued a warrant. Can the taxpayer consider
the warrant as a decision of the BIR appealable
to the CTA?
A: No. There is no decision because there is no
disputed assessment. The disputed assessment
has already become final once the warrant has
been issued.
Q: Supposing that the documents were submitted
within the 60 day period, but 4 submissions were
made. Can the BIR say that the 180 day period
should be reckoned from the date of the 2nd
submission?
A: No, the 180 day period should be reckoned
from the date of the last submission of the
documents because the taxpayer determines what
are the relevant documents to be submitted and
the sixty day period is for the benefit of the
taxpayer.
Q: Supposing:
Nov 1 assessment notice issued
Afterwards the BIR and the taxpayer
made no further action.
June 30 collection case filed with
RTC
Can the taxpayer go to the CTA and say that the
assessment is invalid?
A: No, because the assessment is already final
and executory.
Q: Same question, but can the taxpayer go to the
CTA to appeal arguing that the collection case in
the RTC is the BIRs decision?
A: No, because there is no protest and there is
nothing to decide. This is not an implied decision
but a collection remedy. Moreover, the taxpayer
may no longer question the assessment.
Q: Same question, but can the taxpayer contend
that the BIR fraudulently assess him or that he
didnt receive PAN?
A: No. When a taxpayer fail to appeal, he losses
all rights to dispute the assessment because it
may only be raised in the administrative level.
Q: Same facts, but may the taxpayer raise the
defense that the collection has prescribed?
A: Yes, he may raise that defense. It is a
theoretically valid argument but in reality it does
not happen.
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decision when the protest was denied, but the
taxpayer seasonably filed an appeal, hence it was
not yet final and executory. (CIR vs. Algue)
Filing of Criminal Action
Q: Pending resolution of a protest, a criminal
action was filed. May the criminal action
proceed?
A: Yes. In Ungab vs. Cusi, SC ruled that there is
no requirement for the precise computation and
assessment of the tax before there can be a
criminal prosecution under the Code. This is so
because in that case, there is a prima facie
showing that there was willful evasion of taxes.
Q: Whether a criminal case may prosper pending
the resolution of the assessment absence prima
facie evidence of intent to defraud the
government?
A: No. Before one is prosecuted for willful
attempt to evade or defeat any tax, the fact that a
tax is due must be proved. The tax liabilities of
the taxpayer should first be determined before
the CIR may assert that the taxpayer have
willfully attempted to evade or defeat the taxes
sought to be collected. (CIR vs. CA, Fortune
Tobacco)
Q: Was the Ungab Case overruled by the Fortune
Tobacco Case (Lucio Tan)?
A: No, the Ungab Case was not overruled
because in that case, there is a prima facie
showing of a willful attempt to evade taxes. But
in the Fortune Tobacco Case, its registered
wholesale price was approved by the BIR. Since
it was approved by the BIR, it is presumed to be
the actual wholesale price, therefore, not
fraudulent. (CIR vs. CA, Fortune Tobacco)
Q: Can the taxpayer consider the filing of a civil
or criminal case against him as an implied
decision to his protest appealable to the CTA?
A: A criminal action is not an implied decision.
A civil action is an implied decision because its
purpose is to collect.
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collect, although it is a collection remedy in a
sense that the judgment must contain an order to
pay the tax. Take note that Sec. 245 of the NIRC
states that the acquittal of the delinquent
taxpayer does not bar the BIR from filing a civil
action.
Effect of Protest to Collection
Q: Does the protest have the effect of suspending
the period of collection?
A: It depends.
If the protest if filed on time, then it may
suspend the collection of taxes.
But if the protest is filed beyond the 30-day
period, it does not suspend the running of the
prescriptive period. (De Leon, Citing Republic
vs. Hizon)
Q: Supposing that the BIR assessed the taxpayer.
The taxpayer made a protest. It was denied and
so he appealed, and kept on appealing until he
reached the SC. Before the SC, can the taxpayer
argue that the collection remedy has prescribed
assuming that it took him years to reach the SC?
A: No. Sec. 223 The running of the Statute of
Limitations x x x on a proceeding in court for
collection x x x, shall be suspended for a period
during which the Commissioner is prohibited
from making the assessment or beginning
distraint or levy or a proceeding in court for sixty
days thereafter x x x. The pendency of the
taxpayers appeal in the CTA and in the SC had
the effect of temporarily staying the hands of the
Commissioner. If the taxpayers stand that the
pendency of the appeal did not stop the running
of the period, taxpayers would be encouraged to
delay the payment in the hope of ultimately
avoiding the same. (Protectors Services vs. CA)
2. REFUND
Q: What are the requirements for claim for
refund?
A: According to Cebu Portland vs. CIR
1. filing a written claim for refund with the
Commissioner of Internal Revenue
2. institution of suit or proceeding in court
within 2 years from the date of
payment.
According to De Leon:
1. in writing, stating clearly the basis or
grounds for such claim
2. filed with the Commissioner within 2
years after the payment of the tax or
penalty.
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Q: Supposing:
March 1999 Payment
March 2000 Claim refund
2001 denied
Has it prescribed?
A: No, but the taxpayer must appeal to the CTA
within two years from the date of payment.
Q: Supposing:
March 1999 Payment
June 1999 Claim Refund
August 1999 BIR denied claim
Can the taxpayer appeal argue that he can appeal
to the CTA on February 2001 since it is within
the two year period
A: No. Sir said that if the claim is denied by the
Commissioner within the two year period, the
taxpayer has 30 days from receipt of the denial
within which to appeal to the Court of Tax
Appeals. (De Leon)
Q: In cases where the taxpayer files quarterly
income tax return, whether the basis for
computing the two year period should be the date
when the quarterly income tax was paid or the
date when the final return for the taxable year
was filed?
A: It should be computed from the date when the
final return for the taxable year was filed,
because the payment of quarterly income tax
should only be considered as mere installments
of the annual tax due. These quarterly tax
payments should be treated as advances or
portions of the annual tax due. (De Leon) It is the
Final Return which is reflective of the operations
of the business for the whole tax period. It is at
the time of the filing of the Final or Annual
Income Tax Return when it can be ascertained if
the taxpayer has still to pay additional income
tax or if he is entitled to a refund of overpaid
income tax. (CIR vs. TMX Sales)
Q: Whether the two-year period of prescription
for filing a claim for refund is counted from the
date when the tax return was actually filed or
from the date when the final return could still be
filed without incurring any penalty?
A: The two year period should be computed
from the time of the actual filing and not on the
last day. This is so because at that point, it can
already be determined whether there has been an
overpayment by the taxpayer. (CIR vs. CA, BPI)
Mergers
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A: Sir said that some authors say that the
taxpayer could file a refund as long as there is
payment within the period to appeal. This is
different from the Concepcion case, because in
that case, the taxpayer paid the tax at the time
when the period to appeal the assessment have
already lapsed.
Q: In appealing the decision of the BIR to the
CTA, is the taxpayer who paid the tax under
protest also required to file a claim for refund?
A: No. To hold that the taxpayer must file a
claim for refund before appealing with the CTA
would in effect require of him to go through a
useless and needless ceremony that would only
delay the disposition of the case, for the CIR
would certainly disallow the claim for refund in
the same way as he disallowed the protest
against the assessment. (Vda. De San Agustin vs.
CIR)
Claiming Taxpayer
Q: Who is the person that should file the claim
for refund?
A: The one who paid the taxes erroneously or
illegally.
Q: Can the agent of the taxpayer filed the claim
for refund?
A:
Q: Supposing:
X sold goods plus 10% sales tax to Y.
SC declared the tax illegal
Who may claim refund, X or Y?
A: X because he is the person who is liable to
pay the tax with the BIR.
Q: Same facts, but supposing that the BIR
refunded X. What are Ys rights?
A: Sir said that it would be a good law if X
would hold the amount refunded in trust for Y,
as in the American case. Otherwise, it would
unjustly enrich X.
Supervening Cause
Jurisdiction
Q: According to RA 9282, Sec. 7 (a), what is the
exclusive appellate jurisdiction of the CTA?
A: Sec. 7(a):
1. Decisions of the CIR xxx
2. Inaction by the CIR xxx
3. Decisions, orders, or resolutions of RTC
in local tax cases originally decided or
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resolved by them in the exercise of thir
original or appellate jurisdiction
4. Decisions of the CBAA
5. Decisions of the Secretary of Finance
on customs cases xxx
6. Decisions of the Secretary of Trade and
Industry, in the case of nonagricultural
product involving dumping and
countervailing duties and safeguard
measures
7. Decisions of the Secretary of
Agriculture in the case of agricultural
product involving dumping and
countervailing duties and safeguard
measures
Q: Supposing:
September 15 final notice
October 19 appeal to CTA
Does the CTA have jurisdiction?
A: No jurisdiction for failure to appeal within the
period.
Q: BIR made a final decision, a final notice for
seizure. BIR issued a warrant of distraint and
levy after 40 days from the final assessment.
After 5 days from the receipt of the warrant of
distraint and levy, the taxpayer appealed to the
CTA. Does CTA have jurisdiction?
A: No, because the assessment became final. The
warrant is a collection remedy and not an
implied decision.
Q: What is the appeal to CTA by BIRs inaction?
A: Inaction is deemed a denial of the protest. It is
the BIRs decision.
Disputed Assessment
Q: Suppose that a taxpayer received an
assessment notice. Immediately after receipt, he
appealed to the CTA alleging that the assessment
was illegal and unconstitutional. Can the CTA
take cognizance of it?
A: No. CTA has no jurisdiction because there is
no disputed assessment and there is no decision.
Sec 7 (a) (1) Decisions of the CIR in cases
involving disputed assessments
Q: Supposing X, inc. received an assessment. He
filed a protest within the period. Subsequently,
he received a final notice of assessment. Within
30 days from receipt, he appealed to the CTA.
Pending appeal, BIR canceled the tax liability.
Can the CTA take cognizance of the case?
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Can the BIR hold the taxpayer for the amounts
reflecting in the discovered documents?
A: No. When the amounts are not included in the
disputed assessments, the CTA should not rule
upon it. The jurisdiction of the CTA is purely
appellate. It does not have jurisdiction over
amounts not included in the disputed assessment.
(CIR vs. Guerero)
Criminal Jurisdiction
Q: What is the exclusive CTA jurisdiction on
criminal cases?
A: Sec. 7 (b)
1. Exclusive original jurisdiction all criminal
violatons arising from violations of the NIRC,
Customs Code, other laws administered by BIR
or Bureau of Customs
The principal amount of taxes and fees
exclusive of charges and penalties is
PhP1 Million or more.
2. Exclusive appellate jurisdiction
1. appeals from RTC in tax cases
originally decided by them
2. petitions for review of RTC in the
exercise of their appellate jurisdiction
Collection Jurisdiction
Q: When does the CTA have original jurisdiction
on tax collection cases?
A: Sec. 7 (c)
1. Exclusive original jurisdiction final and
executory assessments, the principal amount of
taxes and fees exclusive of charges and penalties
is PhP 1 Million or more
2. Exclusive appellate jurisdiction
1. appeals from RTC in tax collection
cases originally decided by them
2. petitions for review of RTC in the
exercise of their appellate jurisdiction
Q: Suppose an assessment became final, can the
BIR filed a collection case with the RTC?
A: Yes.
Sec. 7 (c) (1) x x x collection cases where the
principal amount of taxes and fees, exclusive of
charges and penalties, claimed is less than PhP1
Million shall be tried by the proper MTC, MeTC,
and RTC
Q: Supposing that there is a pending collection
case, can the RTC enjoin the collection?
A: No, because no court shall issue an injunction
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Sec. 13 Upon issuance of any ruling, order, or
decision by the CTA favorable to the national
government, the CTA shall issue an order
authorizing the BIR to seize and distraint x x x.
Other Matters
Q: Supposing that the BIR rents an office space
with the taxpayer. The taxpayer did not pay tax.
The BIR did not pay any rent to the taxpayer.
The taxpayer filed an action with the CTA
alleging that the CTA has jurisdiction by virtue
of Sec. 7 (a) of CTA law other matter. Is he
correct?
A: No. The other matter pertains to a tax issue.
In the present case, it pertains to an
administrative matter and not a tax issue.
Q: What are some examples of other matter?
A: validity of tax sale, validity of memorandum
circular issued by the BIR.
Q: Suppose that there is an auction sale, but the
taxpayer was out of town. The taxpayer filed a
motion to reset the sale. BIR denied the
taxpayers motion. Can the taxpayer appeal to
the CTA?
A: No. an appeal to the CTA must only be final
cases disposing of the case and not interlocutory
orders.
BUREAU OF CUSTOMS
Functions
Q: What are the functions of the Bureau of
Customs?
A: Sec. 602 (Tariffs and Customs Code):
1. assessment and collection of customs duties
2. prevent and suppress smuggling and other
frauds.
3. to enforce tariff and customs laws
4. supervise/control entry of vessels
5. on foreign mails, collect duty on dutiable
articles
6. Supervise/control cargoes
7. Seizure and forfeiture under this code.
Territorial Jurisdiction
Q: What is the territorial jurisdiction of the
Bureau of Customs (BC)?
A: sea, air, airports
Sec. 603 x x x said Bureau shall have the right
of supervision and police authority over all seas
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that violators may be pursued in their
transportation by land.
Q: If a goods were sold to a buyer, can he argue
that he is an innocent purchaser for value if the
goods were released without satisfying
importation dues?
A: No. He cannot invoke that he is an innocent
purchaser for value because the goods are still
subject to the payment of customs duties. Also,
Sec. 603 x x x imported articles which may be
subject to seizure for violation of the tariff and
customs laws may be pursued in their
transportation in the Philippines by land x x x.
The government may collect the importer if the
goods have already been sold to a third person.
Q: Suppose a customs officer went to a store
where imported goods are sold, the customs
officer asked the store owner whether customs
duties were paid, but the latter can not produce
the evidence of payment of customs duties, can
the customs officer seize the goods?
A: The customs officer must have a prior
written authorization by the Commissioner
before he may seize he goods.
Sec. 2536 The Commissioner and Collector
and/or any other customs officer, with the prior
authorization in writing by the Commissioner,
may demand evidence of payment x x x and if no
such evidence can be produced, such articles
may be seized x x x.
However, if the person seizing is the
Commissioner or the Collector, no written
authority is needed.
Q: Suppose a customs officer saw a truck getting
out of the customs house. Ater 5 minutes, he
pursue the vehicle. Are their actions justifiable,
that they can search the vehicle without a
warrant?
A: Yes, if it is based on reasonable ground to
suspect. No warrant is needed when moving
vehicles are stopped and searched. It would be
impractical to search without a warrant.
Q: A person carried 5 reams of blue sealed
cigarettes. He boarded a passenger jeepney. A
customs officer saw this guy. Can he seize the
cigarettes?
A:
Search of Dwelling House
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power of search and seizure of customs
authorities, you have that provided. Thats a
basic principle in tax law. Search can be made
pursuant or incidental to a lawful arrest.
(Bar Ops Stenographic Notes)
Importation
Q: When do you have an importation?
A: Sec. 1202 Importation begins when the
carrying vessel or aircraft enters the jurisdiction
of the Philippines with intention to unlade
(unload) therein.
Q: When is importation deemed terminated?
A: Sec. 1202 x x x Importation is deemed
terminated upon payment of duties, taxes, and
other charges due upon the articles, or secured to
be paid, at a port of entry and the legal permit for
withdrawal shall have been granted, or incase
said articles are free of duties, taxes, and other
charges, until thay have legally left the
jurisdiction of the customs.
Intention to Unlade
Q: Suppose a foreign vessel enters the
Philippines, BC was informed that the vessel
carries highly dutiable goods and contraband
goods for pushers. Can the customs officials
board the vessel and seize the goods?
A: Intention to unload must be established by the
importer, or by the circumstances. Look at the
bill of lading if it is bound for the Philippines.
Q: What if the owner of the contraband goods
denied that he intended to unload the goods,
what must the customs officials do?
A: They must look at the circumstances to
determine the whether there is an intention to
unload. They may look at the bill of lading,
delivery bill, document of the goods, the name of
the consignee or shipper, and the invoice.
Transshipment
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Q: What is a qualified prohibited importation?
A: Sec. 1207 where articles are x x x subject to
importation only upon conditions prescribed by
law, it shall be the duty of the Collector x x x to
secure compliance with all legal requirements.
Q: What is an example of a qualified prohibited
importation?
A: Sirs example: importation of opium for
medical use is a conditional importation, but not
shabu.
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the like product, commodity, or article destined
for consumption in the exporting country is
causing material injuru to a domestic
industry,
or
materially retarding
the
establishment of a domestic industry x x x shall
cause the imposition of an anti-dumping duty
equal to the margin of dumping on such
product, commodity, or article x x x. However,
the anti-dumping duty may be less than the
margin if such lesser duty will be adequate to
remove the injury to the domestic industry. x
x x.
Q: What goods are subject to dumping duty?
A: Goods sold here at a cost lower than fair
market value or cost of production.
These goods are dumped into the country.
Q: When are goods dumped?
A: When the price of the goods is less than its
cost of production. But there must be a material
injury to the local industry.
Q: How much is the dumping duty?
A: It is equivalent to the underpricing. Or the
difference between the FMV and the actual cost
being sold here.
(Bar Ops Stenographic Notes)
Countervailing Duty
Sec. 302 Whenever any product, commodity,
or article of commerce is granted directly or
indirectly by the government in the country or
origin or exportation, any kind or form of
specific subsidy upon the production,
manufacture or exportation of such product,
commodity, or article, and the importation of
such subsidized product, commodity, or article
has caused or threatens to cause material
injury to a domestic product or has materially
retarded the growth or prevents the establishment
of a domestic industry x x x issue a
countervailing duty equal to the ascertained
amount of the subsidy. (Amended by RA 8751)
Q: What goods are subject to countervailing
duty?
A: Foreign goods sold here. These goods enjoy a
subsidy from country of origin.
Q: What is the purpose of this duty?
A: Foreign goods are subjected to this duty to
counter or upset the subsidy, to protect local
industries.
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A: The president may totally ban the imports
from such foreign country.
Flexible Tariff Laws
Sec. 401 - The President, x x x is hereby
empowered to reduce by not more than fifty per
cent or to increase by not more than five times
the rates of import duty expressly fixed by
statute x x x when in his judgment such
modification in the rates of import duty is
necessary in the interest of national economy,
general welfare and/or national defense. (RA
1937)
Q: What is Flexible Tariff Laws?
A: Under Sec. 401 of the Customs Code.
The president may reduce or increase import or
tariff rates. But the President cannot reclassify
importation. (ex. From prohibited to dutiable
importation) This is different from the
constitutional power of the President to fix
import duties.
Basis of Dutiable Value
Sec. 201 - The dutiable value of an imported
article subject to an ad valorem rate of duty shall
be based on the transaction value or price of
same, like or similar articles, as bought and sold
or offered for sale freely in the usual wholesale
quantities in the ordinary course of trade in the
principal markets of the exporting country on the
date of exportation to the Philippines x x x.
(as amended by E.O. 71)
Q: What is the transaction value?
A: It is the amount paid by the buyer to acquire
the goods. Only goods subject to ad valorem rate
shall be taxed based on the transaction value.
Q: How do you determine transaction value?
A: Look at the invoice, bill of lading
Sec. 201 x x x The transaction value under this
section shall be trade value or price declared in
the commercial, trade or sales invoice. x x x.
Q: What if the customs official seriously doubt
the documents of the importer, what would be
the basis?
A: Sec. 201 x x x Where there exists a
reasonable doubt as to the value or price of the
imported article declared in the entry, the correct
dutiable value of the article shall be ascertained
by the Commissioner of Customs x x x.
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Q: Is this tax lien similar to the tax lien enforced
under the NIRC?
A: No, The tax lien under the NIRC attaches to
all properties of the taxpayer, while the tax lien
enforced by the BC attaches to the imported
articles only. (Bar Ops Stenographic Notes)
Prescriptive Period
Q: What if the imported goods are not prohibited
articles or not imported fraudulently, and that
there was a deficiency importation in 2001,
however, it was discovered after more than 3
years. Can the government collect?
A: No. Sec. 1603 When x x x final adjustment
of duties made, with subsequent delivery, such x
x x settlements of duties will, after the
expiration of 3 years from the date of payment
of duties, in the absence of fraud or protest x x x
be final and conclusive upon all parties x x x.
2. Compromise
Sec. 2316 Subject to the approval of the
Secretary of Finance, the Commissioner of
Customs may compromise any case arising
under this Code or other laws or part of laws
enforced by the Bureau of Customs involving the
imposition of fines, surcharges, and forfeitures
unless otherwise specified by law.
Q: What is the remedy of compromise and when
is it available?
A: The Customs Commissioner can compromise
in certain seizure and forfeiture cases except
when the case involves prohibited importation,
importation attended by fraud, and when the
release of the goods will be contrary to law.
There is also no compromise in criminal cases.
3. Compulsory Acquisition
Sec. 2317 par (a) In order to protect
government revenues against the undervaluation
of goods subject to ad valorem duty, the
Commissioner of Customs may acquire imported
goods under question for a price equal to their
declared customs value plus by duties already
paid on the goods, payment for which shall be
made within 10 working days from issuance of a
warrant signed by the Commissioner of Customs
for the acquisition of such goods.
Q: When may the government resort to the
remedy of compulsory acquisition?
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government under the authority of this Code x x
x but no criminal action for the recovery of
duties x x x shall be filed in court without the
approval of the Commissioner.
Sir said that the criminal action filed under Sec.
2401 is different from smuggling. This provision
talks of violations of the customs law.
Sir said that criminal actions filed under the
Tariffs and Customs Code does not have any
prescriptive period.
6. Search and Seizure
Q: What is the nature of the seizure proceedings?
A: It is a civil proceeding. Which means there is
no conviction. It is in rem against the res. A
forfeiture penalty is a civil penalty. Once
forfeited, that is the end of customs liability
because forfeiture is the maximum penalty. The
offender is the property itself and not the person.
(Bar Ops Stenographic Notes)
Q: What is the procedure in seizure proceedings?
A: The procedure is first, customs issues a
warrant of seizure and detention (WSD). After
the WSD is issued, notice is sent to the importer,
and then a hearing is conducted. After the
hearing, the collector gives a decision, in most
cases, a forfeiture penalty. From a decision of
forfeiture, a taxpayer can appeal the decision of
the collector of customs to the commissioner
within 15 days from the receipt of the decision.
From the commissioner, they can appeal to the
CTA, CA, and to the SC.
(Bar Ops Stenographic Notes)
Q: Can the BC argued that the importers failure
to attend forfeiture proceedings could be
interpreted as badges of fraud (or that there is a
fraudulent importation)?
A: No, forfeiture of seized goods in the Bureau
of Customs is a proceeding against the goods and
not against the owner. It is in the nature of a
proceeding in rem directed against the res or
imported articles x x x. In this proceeding, it is in
legal contemplation the property itself which
commits the violation and is treated as the
offender, without reference whatsoever to the
character or conduct of the owner.
(Transglobe vs. CA)
Q: Can customs authorities board a foreign
vessel in the high seas upon information that
such vessel contains contraband goods?
A: No, as a general rule. Exception: Asaali case.
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contrary to law. The forfeiture of the subject
machineries, however, is not dependent on
whether or not the importation was
terminated; rather it is premised on the illegal
withdrawal of goods from Customs custody.
(Carrara Marble vs. Commissioner)
Sec. 2530 Any xxx cargo xxx shall be subject
to forfeiture xxx (e) any article which is
fraudulently concealed or removed contrary to
law from any public or private warehouse, xxx
under customs supervision.
Regardless of the termination of importation, if
the goods were removed contrary to law, it still
belongs to the government. This is so because
forfeiture takes effect immediately upon the
commission of the offense. The forfeiture of the
subject machineries, therefore, retroacted to the
date they were illegally withdrawn from
Customs custody. (Carrara)
Burden of Proof
Q: Who has the burden of proof?
A: Sec. 2535 In all proceedings taken for the
seizure and/or forfeiture of any vessel, vehicle, x
x x, the burden of proof shall lie upon the
claimant: Provided, that probable cause shall
first shown for the institution of such
proceedings and that seizure and/or forfeiture
was made under the circumstances and in the
manner described x x x.
Q: In the prosecution of illegal importation, is it
necessary that the State presents the goods before
the court in order to prove illegal importation?
A: No, even a single witness uncorroborated
testimony, if credible, may suffice to prove it,
there is no need to present the goods. (Rimorin
vs. People) The fact of the commission of the
crime may be established by the testimonies of
the witnesses.
Q: Supposing that the defendant was shown to
have possessed the illegally imported goods,
does the government has the burden that it was
imported illegally?
A: No, if the defendant is shown to have had
possession of the illegally imported merchandise,
without satisfactory explanation, such possession
shall be deemed sufficient to authorize
conviction. (Rimorin vs. People)
Sec. 3601 par (3) When upon trial for violation
of this section, the defendant is shown to have
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Q: If the knowledge of the owner is not a
defense, why does Sec. 2531 states that the
forfeiture of the vehicle x x x shall not be
effected if it is established that the owner x x x
has no knowledge of or participation in the
unlawful act x x x?
A: If you have unlawful importation, it simply
means it will be subject to forfeiture
proceedings. The fact that the vessel owner has
no knowledge of the unlawful importation will
not take it out of the forfeiture proceedings.
Now, whether or not forfeiture as a penalty will
be imposed, it depends on the knowledge or nonknowledge of the owner. If there is no
knowledge, under Sec. 2531, forfeiture penalty
may not be imposed. But whether the vessel will
be subject to forfeiture proceedings, yes.
Whether the penalty will be imposed depends on
the knowledge.
(Bar Ops Stenographic Notes)
Q: Despite the allegation of lack of knowledge,
is it still possible to cause the forfeiture of the
vessel?
A: Yes. Sec. 2531 x x x, Provided, however,
That a prima facie presumption shall exist
against the vessel x x x:
1. If the conveyance has been used for smuggling
at least twice before
2. If the owner is not in the business for which
the conveyance is generally used.
3. If the owner is not financially in position to
own such conveyance.
Q: What are other the defenses available to the
importer?
A: He may allege that there is no intention to
unload, and that the items are mere personal
effects.
Jurisdiction in Seizure and Forfeiture
Q: Is there a necessity for the issuance of the
warrant of seizure and detention (WSD) before
the bureau of customs can exercise its exclusive
jurisdiction?
A: Yes, if the goods are outside the customs
zone. But, if the goods are already in possession
of the customs authority, WSD is not necessary.
Q: Are WSD like search warrants?
A: No, because in customs search, the goods
may be seized even without a WSD. (Chia case)
In Pacis vs Pamaran, the Court held that the
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Whether the RTC or the BC would have custody
over the goods?
A: BC. Because, the seizure proceedings are
against the goods and not the individual.
Q: What if the goods were earlier seized by a
warrant issued by the RTC, may the BC seized
this goods pursuant to a WSD?
A: Yes. When the goods have been brought
under the legal control of the RTC, this fact
serves to deprive any other court or tribunal,
except one having supervisory control or
superior jurisdiction x x x. The Collector is not
precluded by law or legal principle from
assuming jurisdiction over the goods.
(Commissioner of Customs vs. Makasiar)
Q: Supposing an officer applied for a search
warrant to search and seize the smuggled
articles, but instead of bringing the seized goods
to the court, the officer turned it over to the BC.
Is it proper for the officer who secured and
executed the search warrant to turn it over to the
BC?
A: No. When the officers secured the warrant,
they are aware that they have the duty to turn
over the goods to the court. Indisputably, the
Collector of Customs has exclusive original
jurisdiction over seizure and detention
proceedings and that the regular courts cannot
interfere with nor deprive him of such
jurisdiction. However, the exclusive original
jurisdiction of the Collector pertains only to such
goods seized pursuant to the authority under the
Customs Code. (Tenorio vs. CA)
REMEDIES OF THE TAXPAYER
1. Protest
Sec. 2308 When a ruling or decision of the
Collector is made whereby liability for duties x x
x are determined x x x the party adversely
affected may protest such ruling or decision by
presenting to the Collector at the time when
payment of the amount claimed to be due to the
government is made or within 15 days thereafter,
a written protest setting forth his objection to the
ruling or decision in question, together with the
reasons therefore. No protest shall be considered
unless payment of the amount due after final
liquidation has fist been made and the
corresponding docket fee x x x.
Q: What is protested here?
A: the assessment or the imposition of taxes.
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A: He may appeal the Commissioners decision
to the CTA.
Q: What if the Commissioner made a decision
adverse to the taxpayer and the taxpayer
appealed to the Secretary of Finance, will the
taxpayers appeal prosper?
A: No, because decisions of the Commissioner
of Customs must be appealed to the Court of Tax
Appeals.
2. Bond
Sec. 2301 Upon making any seizure x x x; and
if the owner or importer desires to secure the
release of the property for legitimate use, the
Collector shall x x x surrender it upon filing of a
cash bond, in an amount to be fixed by him,
conditioned upon the payment of the appraised
value of the article x x x.
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Q: Why would the taxpayer resort to
abandonment?
A: When the burden of the taxpayer is greater. If
the taxpayer feels that he is being pressed for
certain liabilities, all he has to do is to abandon
the goods. The abandonment will relieve of any
customs liability.
Q: Would abandonment extinguish criminal
liability?
A: No. Sec. 1802 par (b) Nothing in this
section shall be construed as relieving the owner
or importer from any criminal liability which
may arise from any violation of law committed
in connection with the importation of the
abandoned article.
Q: Differentiate abandonment from forfeiture
and seizure?
A:
Q: How can an importer abandon the goods?
A: Sec. 1801 An imported article is deemed
abandoned under any of the following
circumstances:
1.
2.
3.
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The enactment of tax ordinances and
revenue measures requires public
hearings to be first conducted.
The new Constitution grants LGUs the
authority to create their own sources of
revenues,
which
shall
accrue
exclusively to them. See Sec 5, Art 10.
The tax powers of LGUs are to be
liberally construed but a doubt on the
application of a tax ordinance shall be
construed strictly against the LGU. The
exceptions to this are tax exceptions,
incentive or relief, which shall be
construed strictly against the grantee.
1.
Tariff Commission
Q: What is the Tariff Commission?
A: Tariff commission is a body having
investigative and administration functions.
Sec. 502 x x x to investigate the administration
of and the fiscal and industrial effects of the
tariff and customs laws of this country now in
force or which may hereafter be enacted x x x.
Q: Can this body impose penalties pursuant to
findings on their investigation?
A: No, this is mainly a policy making body and
can only make recommendations for further
action by the President.
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5.
c.
3.
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VAT or are VATABLE. However, the province
may not impose VAT on said business.
Q: Are industries certified by the BOI exempt
from paying sanitation fees and other similar
fees?
A: NO because they are only exempt from
paying taxes.
Q: What about cooperatives?
A: Cooperatives are exempt from paying taxes,
fees, or charges (pecuniary liabilities)
Sec of Finance says it should not cover
fees for services rendered and for
rentals of properties used for business.
BUT Sir disagrees with this since the
exemption is expressly provided for by
the Code.
Q: Can LGU impose tax on business of export?
A: YES but only on the business of export itself
and not on the products exported.
Q: X Inc engaged in the importation of copra. It
stored the copra in a warehouse. Can the copra
be subject to tax?
A: YES because it is still stored in the
warehouse and not actually exported. It may
happen that the said copra is only sold locally.
NOTE that the limitation applies only to goods
actually exported.
RE National Government (NG),
instrumentalities limitation: This only
applies in the absence of a specific
provision in the LGC authorizing the
LGU to impose a tax on the said
instrumentalities/agencies
of
the
national government. See Napocor v
Cabanatuan case
An exemption in this limitation is Sec
137, which authorizes provinces (as
well as cities by virtue of Sec 151) to
levy franchise tax notwithstanding any
exemption granted by law or other
special law.
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A: if its SAME person, SAME place but DIFF
businesses = segregate or separate the taxes on
each of the businesses. Treat each business
separately or differently.
Q: What if X owns a laundry business but it has
branches in different municipalities?
A: If SAME person, SAME business but DIFF
places = taxpayer must consolidate all the gross
receipts of each branch/business. Treat all the
branches as one business.
Q: X has a repair shop and within it there is a
spare parts store for automobiles to be repaired
by the repair shop. Would the spare parts store
be subject to a different tax than that of the repair
shop?
A: Depends. If the spare parts store is incidental
to the repair shop business, then it would not be
subject to a different tax. BUT if the spare parts
store sells to the public, then its an independent
business and therefore it can be made subject to a
different tax. See Opon case.
Q: What is the taxing power of the City?
A: The City has the broadest taxing power
among the LGUs. This is since the City has the
power to impose those taxes levied by both the
province and the municipality.
Q: What is the taxing power of the barangay?
A: The barangay has the least taxing power
among the LGUs. The general tax powers under
Sec 186 of the Code have not been withheld
from them.
V. TAX SITUS
If there is a branch/sales office: tax
situs is where the sale was effected.
If
there
be
none:
[SALES
APPORTIONEMENT RULE]
o Sale shall be recorded in the
principal office (30%) and where
the factory is located (70%).
o If the plantation and the factory are
located in different places then the
70% would be divided as follows:
60% allocated to the LGU where
the factory is situated and 40%
where the plantation is located.
o See Sec 150, LGC (very impt!)
Q: X business has principal office in Pasig City.
The following are its sales for 1 year:
Pasig = no sales
QC (w/ branch) = P1M
Manila (w/o branch) = P2M
Caloocan (w/o branch) = P3M
Makati (consignment/ delivery to SM)
= 4M
TOTAL SALES = P10M
What is the tax situs?
A: Remember the rules above. The P1M sale
shall be recorded in QC. While the rest of the
P9M sale shall be recorded in Pasig. NOTE: IF
ever the business maintains an outlet in SM, then
it could also be considered as store outlets and
therefore said sales may be recorded there.
Q: What if said business had a factory in
Valenzuela?
A: Then apply the Sales Apportionment Rule
wherein the sales would be split 30% recorded
in Pasig and the 70% recorded in Valenzuela.
VI. COMMON REVENUE-RAISING
POWERS
This refers to service fees/charges,
public utility charges, and toll
fees/charges.
LGUs can levy taxes, fees, or charges
on any base or subject not otherwise
specifically enumerated. Provided:
o The tax measure is not violative of
any of the fundamental principles.
o The tax is not among those
explicitly prohibited by the Code.
o A prior public hearing conducted.
A specific enumeration of tax powers to
a LGU should be understood to be to
the exclusion of the other LGUs.
Exception here is the city.
No LGU may impose taxes which are
already imposed under the NIRC.
VII. CIVIL REMEDIES FOR COLLECTION
The non-payment of the tax liability on
the due date subjects the taxpayer to
corresponding surcharges and interest.
All local taxes shall be collected by the
local treasurer or his duly authorized
deputies.
A tax lien is created on any unpaid tax,
fee or charge. It attaches automatically
to the thing. It is superior to all other
liens, charges or encumbrances in favor
of any person. It is extinguished only
upon full payment of the delinquent tax,
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fee, or charge plus the surcharges or
interest.
o It is generally directed against the
property subject to the tax
regardless of the owner. Whereas in
a distraint, the property must be
that of the taxpayer although it
need not be the property to which
the tax is assessed.
o NOTE the tax lien cannot be
appealed
since
it
attaches
automatically to the thing.
o It is imposed on any property
which is subject to the lien as well
as on any property used in the
business, occupation or practice of
profession or calling with respect to
which the lien is imposed.
Q: Can LGU file a criminal case to collect?
A: NO because the Code uses civil action.
Q: When can the LGU avail of these remedies?
A: Only after an assessment has become final
and the taxpayer fails to pay within the
prescribed period.
Q: When can the LGU assess?
A: The LGU can assess within 5 years from date
taxes, fees, or charges become due.
Q: When are they due?
A: Taxes accrue on the 1st day of January.
Period to pay: first 20 days. BUT it may also be
paid by installments.
Q: When does the LGU collect?
A: Within 5 years from date of assessment.
This means that an assessment is always
necessary. The exception to this rule is if there is
fraud or intent to evade payment. In this case,
the period to collect shall be 10 years from
discovery thereof.
See Sec 194, LGC for the suspension of
prescriptive periods.
NOTE: There is no ground of failure to file a
return since the LGC does not require a return to
be filed.
The civil remedies are divided into 2:
o Administrative
remedies
of
distraint and levy
o Legal Action (only with respect to
other revenues, i.e., those arising
from contracts, etc)
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mandatory periods: 30 day period, decision
period & appeal period; also the Doctrine of
Exhaustion of Admin Remedies)
See also Systems Plus case (re Doctrine of
exhaustion: cannot raise a purely legal issue so
as to skirt the doctrine of exhaustion.)
REMEDIES OF TAXPAYERS
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b.
2.
b.
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Q: Why is the actual use requirement
important?
A: because of the difference in the assessment
level. It could be residential, or commercial,
which has different rates.
Q: What is uniformity?
A: Uniformity has been defined as that principle
by which all taxable articles or kinds of property
of the same class shall be taxed at the same rate.
(Reyes vs. Almanzor)
4. Not be Let to Any Private Person
5. Equitable
Q: When is real property tax equitable?
A: When it is based on the ability to pay the tax.
The tax should not pay more when others are
paying less.
Taxable Properties
Q: What is covered by the real property tax?
A: It covers:
1. lands
2. buildings
3. machineries
4. improvements
Sec 232 xxx tax on real property such as land,
building, machinery, and other improvement not
hereinafter specifically exempted.
1. Lands
2. Buildings
3. Machineries
Sec. 199 (o) Machinery embraces machines
xxx which may or may not be attached,
permanently or temporarily, to the real property.
It includes xxx and those not permanently
attached to the real property which are actually,
directly, and exclusively used to meet the needs
of the particular industry xxx and which by their
very nature and purpose are designed for, or
necessary to its xxx business purpose.
Q: What machineries are covered by the real
property tax?
A: It could either be:
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Q: Suppose a tailings dam was constructed
which benefited not only the taxpayer but also
the nearby communities and that even without
the dam, the operations of the taxpayers
business could still continue, can the taxpayer
argue that the dam is an inseparable part of its
business therefore not a separate real property
subject to tax?
A: No. The subject dam falls within the
definition of an "improvement" because it is
permanent in character and it enhances both the
value and utility of petitioner's mine.
A structure constitutes an improvement would
depend upon the degree of permanence intended
in its construction and use. The expression
"permanent" does not imply that it must be used
perpetually but only until the purpose to which
the principal realty is devoted has been
accomplished. It is sufficient that the
improvement is intended to remain as long as the
land to which it is annexed is still used for the
said purpose. (Benguet vs. CBAA)
Exempted Properties
Q: What properties are exempt from the real
property tax?
A: Sec. 234 the following are exempted from
payment of the real property tax:
1. Real property owned by the Republic of
the Philippines or any of its political
subdivisions except when the beneficial
use thereof has been granted, for
consideration or otherwise, to a taxable
person.
2. Charitable institutions, churches xxx
mosques xxx nonprofit or religious
cemeteries and all lands, buildings, and
improvements actually, directly, and
exclusively
used
for
religious,
charitable, or educational purposes;
3. All machineries and equipment that are
actually, directly, and exclusively used
by local water districts and GOCCs
engaged in the supply and distribution
of water and/or generation and
transmission of electric power;
4. All real property owned by duly
registered cooperatives xxx.
5. Machinery and equipment used for
pollution control and environment
protection.
1. Real property owned by the State
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the user of the property bears the tax. (Estate of
Lim vs. City of Manila)
4.
Special Levy
2. Real Property for religious, charitable, or
educational purposes
3. Machineries for water or electric power
Q: What is the extent of exemption granted to
local water districts and GOCCs engage in the
water and power industry? Can they claim that
their buildings and land are also exempt?
A: No, the exemption only covers machineries.
Sec. 234 (c) - All machineries xxx by local
water districts and GOCCs xxx.
4. All real property owned by cooperatives
5. Machinery for environment protection.
Effectivity of Assessments, Reassessments, and
Tax Exemptions
Q: When should the taxpayer be exempt?
A: He must be exempt on January 1 of the
taxable year to be exempt for the whole year.
Sec. 221 All assessments or reassessments
made after the first day of January of any year
shall take effect on the first day of January of the
succeeding year xxx.
Q: Supposing that a State property is leased to a
tax exempt person on January 10, is this property
subject to Real Property tax?
A: Yes, because the effectivity of lease is beyond
the tax date of January 1.
Computation of Real Property Tax
Q: How is Real Property Tax computed?
A: Appraise FMV, Classify based on use
assessment level, assess based on uniform
classification
Levies in Addition to the Basic Property Tax
Q: What are the special levies that a LGU may
imposed?
A: LGU can imposed
1. special education fund
2. idle lands this has the highest ad
valorem rate
3. special levy those benefited by public
works projects and LGU
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Sec. 270 xxx shall be collected within 5 years
from the date they become due.