Taxation Law Reviewer (Part 2)

CAVEAT: TRAIN LAW NOT INCORPORATED. FIGURES & RATES HAVE CHANGED.


Sharing my midterms and finals reviewers/memory work.

TAX

Finals Reviewer

By Olive Cachapero

VAT

{  A tax on consumption

{  Collection of 10% VAT on import by the Bureau of Customs to be remitted to the government

{  Tax base: GSP/Gross receipts, excluding the tax itself; If discounted, VAT on the discounted price

Gross receipts include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive.

See pg. 125, MA

Zero-rated sale

Effectively zero-rated

Effectively zero-rated - Transactions exempt by virtue of treaties. Ex.

1)       Embassy/foreign national (sovereign of other countries) – zero rated and 0% is granted to the supplier

2)      Eco-zones

Zero-rated Transactions

1)       Bross-Border

2)      Special Law Treaty (effectively zero rated)

3)      Final withholding VAT (FWV)

Kinds:

a)      Nonresident rendering services in the Philippines = FWV of 6%

b)      If the government is the consumer (see notes)

Sec. 114 (C) Withholding of Creditable Value-added Tax. - The Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 106 and 108 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: Provided, however, That in the case of government public works contractors, the withholding rate shall be eight and one-half percent (8.5%): Provided, further, That the payment for lease or use of properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax at the time of payment. For this purpose, the payor or person in control of the payment shall be considered as the withholding agent.

The value-added tax withheld under this Section shall be remitted within ten (10) days following the end of the month the withholding was made.

Input VAT	Output VAT
It is the value-added tax due from or paid by a VAT-registered person in the course of his trade or business on importation of goods or local purchase of goods or services, including the lease or use of property from a VAT-registered person. It shall also include the transitional input tax determined in accordance with Section 11 of the Tax Code	It is the value-added tax due on the sale or lease of taxable goods or properties or services by any person registered or required to register under Section 236 of the Tax Code.

Persons liable

Q. When is a person taxable?

A.

a)      He undertakes taxable transactions in foods, properties, or services consumed or destined for consumption within the Philippines;

b)      Such transactions are entered into int he course of his trade or business, and

c)       The amount of his gross sales or receipts is over the threshold fixed by law or regulations (Mamalateo)

Export Sales in zero rated sale

1)       The term 'export sales' means: The sale and actual shipment of goods from the Philippines to a foreign country, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the goods so exported and paid for in acceptable foreign currency or its equivalent in goods or services, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

2)      SEC. 117. Percentage Tax on Domestic Carriers and Keepers of Garages. - Cars for rent or hire driven by the lessee, transportation contractors, including persons who transport passengers for hire, and other domestic carriers by land, air or water, for the transport of passengers, except owners of bancas and owner of animal-drawn two wheeled vehicle, and keepers of garages shall pay a tax equivalent to three percent (3%) of their quarterly gross receipts.

The following transactions shall be deemed sale: 12% vatable

1)       Transfer, use, or consumption not in the course of business of goods or properties originally intended for sale or for use in the course of business;

2)      Distribution or transfer to:

a)      Shareholders or investors as share n the profits of the VAT-registered persons;

b)      Creditors in payment of debt

3)      Consignment of goods if actual sale is not made within 60 days following the date such goods were consigned; and

4)      Retirement from or cessation of business, with respect to inventories of taxable goods existing as of such retirement or cessation. (Sec. 106B, NIRC)

Sec. 109 – Exempt Transactions pg. 126 MA

Sec. 116 in relation to Sec. 109 (v)

SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). - Any person whose sales or receipts are exempt under Section 109(z) of this Code from the payment of value-added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales or receipts: Provided, That cooperatives shall be exempt from the three percent (3%)gross receipts tax herein imposed.

(v) Export sales by persons who are not VAT-registered;

Sec. 112 Tax Credits

The taxpayer can file the appeal in one of two ways:

1)       file the judicial claim within 30days after the Commissioner denies the claim within the 120-day period, or

2)      file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.

v  The 30-day period applies not only to instances of actual denial by the CIR of the claim for refund or tax credit, but to cases of inaction by the CIR as well.

v  The 30-Day Period to Appeal is Mandatory and Jurisdictional

Exception to the 120+30 day rule

The BIR ruling declares that the "taxpayer-claimant need not wait for the lapse of the 120-day period before it could seek judicial relief with the CTA by way of Petition for Review."

SUMMARY OF RULES ON PRESCRIPTIVE PERIODS FOR CLAIMING REFUND OR CREDIT OF INPUT VAT

A. Two-Year Prescriptive Period

1)       It is only the administrative claim that must be filed within the two-year prescriptive period. (Aichi)

2)      The proper reckoning date for the two-year prescriptive period is the close of the taxable quarter when the relevant sales were made. (San Roque)

3)      The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12 September 2008. Atlas states that the two-year prescriptive period for filing a claim for tax refund or credit of unutilized input VAT payments should be counted from the date of filing of the VAT return and payment of the tax. (San Roque)

B. 120+30 Day Period

1)       The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within thirty days after the Commissioner denies the claim within the 120-day period, or (2) file the judicial claim within thirty days from the expiration of the 120-day period if the Commissioner does not act within the 120-day period.

2)      The 30-day period always applies, whether there is a denial or inaction on the part of the CIR.

3)      As a general rule, the 3 0-day period to appeal is both mandatory and jurisdictional. (Aichi and San Roque)

4)      As an exception to the general rule, premature filing is allowed only if filed between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force. (San Roque)

5)      Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-03 was in force. (San Roque)

120+30 day Rule

Mandatory and jurisdictional for BIR

(D) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within one hundred twenty (120) days from the date of submission of compete documents in support of the application filed in accordance with Subsections (A) and (B) hereof. 

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the Commissioner to act on the application within the period prescribed above, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax Appeals.

SEC. 115. Power of the Commissioner to Suspend the Business Operations of a Taxpayer. - The Commissioner or his authorized representative is hereby empowered to suspend the business operations and temporarily close the business establishment of any person for any of the following violations:

(a) In the case of a VAT-registered Person. -

1)       Failure to issue receipts or invoices;

2)      Failure to file a value-added tax return as required under Section 114; or

3)      Understatement of taxable sales or receipts by thirty percent (30%) or more of his correct taxable sales or receipts for the taxable quarter.

(b) Failure of any Person to Register as Required under Section 236. -The temporary closure of the establishment shall be for the duration of not less than five (5) days and shall be lifted only upon compliance with whatever requirements prescribed by the Commissioner in the closure order.

CASE DOCTRINES

{  The requisite that the receipt be issued showing the name, business style, if any, and address of the purchaser, customer or client is precise so that when the books of accounts are subjected to a tax audit examination, all entries therein could be shown as adequately supported and proven as legitimate business transactions. The absence of official receipts issued in the taxpayer’s name is tantamount to non-compliance with the substantiation requirements provided by law. Taxpayers claiming for a refund or tax credit certificate must comply with the strict and mandatory invoicing and accounting requirements provided under the 1997 NIRC, as amended, and its implementing rules and regulations.

{  "Capital goods or properties" refer to goods or properties with estimated useful life greater than one year and which are treated as depreciable assets under Section 29(f), used directly or indirectly in the production or sale of taxable goods or services.

{  Section 112 (A) The message of Aichi is clear: it is only the administrative claim that must be filed within the two-year prescriptive period; the two-year prescriptive period begins to run from the close of the taxable quarter when the relevant sales were made; the judicial claim need not fall within the two-year prescriptive period.

{   If the input VAT is in fact "excessively" collected, that is, the person liable for the tax actually pays more than what is legally due, the taxpayer must file a judicial claim for refund within two years from his date of payment. 

Panasonic Communications Imaging Corporation of the Philippines v. CIR:

1)       If at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his suppliers passed on to him, no payment is required of him.

2)      OT > IT = pay the excess to the BIR.

3)      IT>OT = excess payment shall be carried over to the succeeding quarter or quarters.

4)      Should the input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer.

The two-year prescriptive period provided in Section 112 (A) of the NIRC of 1997, as amended, should be counted not from the payment of the tax, but from the close of the taxable quarter when the sales were made. Pursuant to the above ruling of the Supreme Court, the following are the pertinent dates relevant to petitioner’s claim for refund:

Period (2002)	Close of Taxable Quarter	Last Day for Filing of The Claim
1st Quarter	March 31, 2002	March 31, 2004
2nd Quarter	June 30, 2002	June 30, 2004
3rd Quarter	September 30, 2002	September 30, 2004
4th Quarter	December 31, 2002	December 31, 2004

LOCAL TAXATION

CASES

{  A principle deeply embedded in our jurisprudence is that taxes being the lifeblood of the government should be collected promptly, without unnecessary hindrance or delay. In line with this principle, the National Internal Revenue Code of 1997 (NIRC) expressly provides that no court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by the code. An exception to this rule obtains only when in the opinion of the Court of Tax Appeals (CTA) the collection thereof may jeopardize the interest of the government and/or the taxpayer. The situation, however, is different in the case of the collection of local taxes as there is no express provision in the LGC prohibiting courts from issuing an injunction to restrain local governments from collecting taxes. 

{  Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of the identified special projects, which included "cell sites" or telecommunications towers, the fees imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue-raising. While the fees may contribute to the revenues of the Municipality, this effect is merely incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.

Taxation	Police Power
If the generating of revenue is the primary purpose and regulation is merely incidental, the imposition is a tax;	If regulation is the primary purpose, the fact that incidentally revenue is also obtained does not make the imposition a tax."
CTA with the exclusive appellate jurisdiction over "decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction."	CA

{  The authority of the CTA to take cognizance of petitions for certiorari questioning interlocutory orders issued by the RTC in a local tax case is included in the powers granted by the Constitution as well as inherent in the exercise of its appellate jurisdiction.

{  By express language of Sections 153 and 155 of RA No. 7160, local government units, through their Sanggunian, may prescribe the terms and conditions for the imposition of toll fees or charges for the use of any public road, pier or wharf funded and constructed by them. A service fee imposed on vehicles using municipal roads leading to the wharf is thus valid.However, Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of wharfage, of fees -- as well as all other taxes or charges in any form whatsoever -- on goods or merchandise. It is therefore irrelevant if the fees imposed are actually for police surveillance on the goods, because any other form of imposition on goods passing through the territorial jurisdiction of the municipality is clearly prohibited by Section 133(e).

{  The imposition of local business tax based on petitioners gross revenue will inevitably result in the constitutionally proscribed double taxation taxing of the same person twice by the same jurisdiction for the same thing inasmuch as petitioners revenue or income for a taxable year will definitely include its gross receipts already reported during the previous year and for which local business tax has already been paid.

{  To appeal an adverse decision or ruling of the RTC to the CTA, the taxpayer must file a Petition for Review with the CTA within 30 days from receipt of said adverse decision or ruling of the RTC. Following by analogy Section 1, Rule 42 of the Revised Rules of Civil Procedure, the 30-day original period for filing a Petition for Review with the CTA under Section 11 of Republic Act No. 9282, as implemented by Section 3(a), Rule 8 of the Revised Rules of the CTA, may be extended for a period of 15 days. No further extension shall be allowed thereafter, except only for the most compelling reasons, in which case the extended period shall not exceed 15 days.

REAL PROPERTY TAX

CASES

{  The Court rules that the Authority is not a GOCC but an instrumentality of the national government which is generally exempt from payment of real property tax. However, said exemption does not apply to the portions of the IFPC which the Authority leased to private entities. With respect to these properties, the Authority is liable to pay real property tax. Nonetheless, the IFPC, being a property of public dominion cannot be sold at public auction to satisfy the tax delinquency.

{  Real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated and classified for assessment purposes on the basis of its actual use.  Fair market value is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy, taking into consideration all uses to which the property is adapted and might in reason be applied. The criterion established by the statute contemplates a hypothetical sale. Hence, the buyers need not be actual and existing purchasers.

{  The authority to collect real property taxes is vested in the locality where the property is situated.

{  There shall be levied, assessed and collected in all provinces, cities and municipalities an annual ad valorem tax on real property such as lands, buildings, machinery and other improvements affixed or attached to real property not hereinafter specifically exempted.

{  Though the creation of the LRTA was impelled by public service, its operation undeniably partakes of ordinary business. Petitioner is clothed with corporate status and corporate powers in the furtherance of its proprietary objectives.  Given that it is engaged in a service-oriented commercial endeavor, its carriageways and terminal stations are patrimonial property subject to tax, notwithstanding its claim of being a GOCC. Unlike public roads which are open for use by everyone, the LRT is accessible only to those who pay the required fare. It is thus apparent that petitioner does not exist solely for public service, and that the LRT carriageways and terminal stations are not exclusively for public use. Although petitioner is a public utility, it is nonetheless profit-earning. It actually uses those carriageways and terminal stations in its public utility business and earns money therefrom. Even granting that the national government indeed owns the carriageways and terminal stations, the exemption would not apply because their beneficial use has been granted to petitioner, a taxable entity.

{  MIAA is not a GOCC but a government instrumentality which is exempt from any kind of tax from the local governments. LGUs have no power to tax instrumentalities of the national government like the MIAA. Hence, MIAA is not liable to pay real property tax for the NAIA Pasay properties.

{  Even as we find that the petitioner is a charitable institution, we hold, anent the second issue, that those portions of its real property that are leased to private entities are not exempt from real property taxes as these are not actually, directly and exclusively used for charitable purposes.

{  (3) Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings, and improvements, actually, directly and exclusively used for religious, charitable or educational purposes shall be exempt from taxation. - The tax exemption under this constitutional provision covers property taxes only.

{  Any owner or person having legal interest in the property who is not satisfied with the action of the provincial, city or municipal assessor in the assessment of his property may, within sixty (60) days from the date of receipt of the written notice of assessment, appeal to the Board of Assessment Appeals of the province or city by filing a petition under oath in the form prescribed for the purpose, together with copies of the tax declarations and such affidavits or documents submitted in support of the appeal.

{  Local Board of Assessment Appeals (LBAA)

{  The owner of the delinquent real property or person having legal interest therein, or his representative, has the right to redeem the property within one (1) year from the date of sale upon payment of the delinquent tax and other fees. Verily, the period of redemption of tax delinquent properties should be counted not from the date of registration of the certificate of sale, as previously provided by Section 78 of P.D. No. 464, but rather on the date of sale of the tax delinquent property, as explicitly provided by Section 261 of R.A. No. 7160. The counting of the one (1) year redemption period of property sold at public auction for its tax delinquency should be counted from the date of annotation of the certificate of sale in the proper Register of Deeds. 

{  Payment under protest is required before an appeal to the LBAA can be made. Hence, if a taxpayer disputes the reasonableness of an increase in a real property tax assessment, he is required to "first pay the tax" under protest. Otherwise, the city or municipal treasurer will not act on his protest. 

SEC. 252. Payment Under Protest. –

a)      No protest shall be entertained unless the taxpayer first pays the tax. There shall be annotated on the tax receipts the words "paid under protest." The protest in writing must be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who shall decide the protest within sixty (60) days from receipt.

b)      The tax or a portion thereof paid under protest, shall be held in trust by the treasurer concerned.

c)       In the event that the protest is finally decided in favor of the taxpayer, the amount or portion of the tax protested shall be refunded to the protestant, or applied as tax credit against his existing or future tax liability.

d)      In the event that the protest is denied or upon the lapse of the sixty-day period prescribed in subparagraph (a), the tax payer may avail of the remedies as provided for in Chapter 3, Title Two, Book II of this Code. 

To begin with, Section 252 emphatically directs that the taxpayer/real property owner questioning the assessment should first pay the tax due before his protest can be entertained. As a matter of fact, the words "paid under protest" shall be annotated on the tax receipts. Consequently, only after such payment has been made by the taxpayer may he file a protest in writing (within thirty (30) days from said payment of tax) to the provincial, city, or municipal treasurer, who shall decide the protest within sixty (60)days from its receipt. In no case is the local treasurer obliged to entertain the protest unless the tax due has been paid.

Secondly, within the period prescribed by law, any owner or person having legal interest in the property not satisfied with the action of the provincial, city, or municipal assessor in the assessment of his property may file an appeal with the LBAA of the province or city concerned, as provided in Section 226 of RA No. 7160 or the LGC of 1991. Thereafter, within thirty (30) days from receipt, he may elevate, by filing a notice of appeal, the adverse decision of the LBAA with the CBAA, which exercises exclusive jurisdiction to hear and decide all appeals from the decisions, orders, and resolutions of the Local Boards involving contested assessments of real properties, claims for tax refund and/or tax credits, or overpayments of taxes.

CUSTOMS DUTIES & TARIFFS

{  Import duties constitute a personal debt of the importer that must be paid in full. The importer's liability therefore constitutes a lien on the article which the government may choose to enforce while the imported articles are either in its custody or under its control. When respondent released petitioner's goods, its (respondent's) lien over the imported goods was extinguished. Consequently, respondent could only enforce the payment of petitioner's import duties in full by filing a case for collection against petitioner.

{  CTA’s Jurisdiction: Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other money charges; seizure, detention or release of property affected; fines and forfeitures or other penalties imposed in relation thereto; or other matters arising under Customs Law or other laws or part of law administered by the Bureau of Customs.

{  Law enforcers who are tasked to effect the enforcement of the customs and tariff laws are authorized to search and seize, without a search warrant, any article, cargo or other movable property when there is reasonable cause to suspect that the said items have been introduced into the Philippines in violation of the tariff and customs law. They may likewise conduct a warrantless search of any vehicle or person suspected of holding or conveying the said articles, as in the case at bar.

{  Importation is deemed terminated upon payment of the 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 in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs.

{  Customs duties is the name given to taxes on the importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a foreign country. Any claim for refund of customs duties, therefore, take the nature of tax exemptions that must be construed strictissimi juris against the claimants and liberally in favor of the taxing authority.

{  In all cases subject to protest, the claim for refund of customs duties may be foreclosed only when the interested party claiming refund fails to file a written protest before the Collector of Customs. This written protest which must set forth the claimants objection to the ruling or decision in question together with the reasons therefor must be made either at the time when payment of the amount claimed to be due the government is made or within fifteen (15) days thereafter. In conjunction with this right of the claimant is the duty of the Collector of Customs to hear and decide such protest in accordance and within the period of time prescribed by the law.

{  RTCs are devoid of any competence to pass upon the validity or regularity of seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin or otherwise interfere with these proceedings. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. The Regional Trial Courts are precluded from assuming cognizance over such matters even through petitions of certiorari, prohibition or mandamus.

{  Actions of the Collector of Customs are appealable to the Commissioner of Customs, whose decision, in turn, is subject to the exclusive appellate jurisdiction of the Court of Tax Appeals and from there to the Court of Appeals.

{  An abandoned article shall ipso facto be deemed the property of the Government and shall be disposed of in accordance with the provisions of this Code.

{  CTA is a highly specialized court specifically created for the purpose of reviewing tax and customs cases. It is dedicated exclusively to the study and consideration of revenue-related problems and has necessarily developed an expertise on the subject.