VALUE-ADDED TAX
COPRA: Exempt
(Sections 105 to 115 of the Tax Code, as amended)
PETROLEUM PRODUCTS: VATable
ELECTRICITY: VATable
DRIED MANGOES: VATable
SUGAR: Only Raw cane Sugar is VAT exempt. Refined sugar is already VATable.
X. TRANSACTIONS EXEMPT FROM VAT Difference between persons exempt from VAT and VAT Exempt Transactions:
There is an entire revenue regulations devoted to the payment of VAT on sugar. It is actually called the “Advance Value Added Tax” that you pay on every sugar that the sugar miller produces. So it is not totally exempt unless it falls under raw cane sugar or molasses.
Persons exempt from VAT is directed on the taxpayer on reason that the seller is exempt while VAT exempt transaction pertain to transaction which are VAT exempt regardless of the seller. A.
SECTION 109 OF THE TAX CODE Cane sugar produced from the following shall be presumed to be refined sugar:
(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.
1. Product of a refining process 2. Product of a sugar refinery, or
"Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as:
3. Product of a production line of a sugar mill accredited y the BIR to be producing and/or capable of producing sugar with polarimeter reading of 99.5% and above
a. freezing, b. drying,
RICE: It is exempt in whatever form. Either it is palay, rice or cultured rice.
c. salting, (B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets);
d. broiling, e. roasting, f. smoking or g. stripping
-
Note: Includes vacuum packing/tetra packing Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state; o
Sale or importation of agricultural, marine food products in their original state.
EGGS: exempt whether red-egg or salted egg. Salting does not deviate the food product from its original form
ROASTED CHICKEN: Exempt
COFFEE BEANS: Exempt
DRIED FISH: Exempt
COTTON or COTTON SEEDS: VATable even in its original state
1
Not all sale or importation of fertilizers and seeds are exempted from VAT. Specialty feeds are VATable. Specialty feeds are those feeds for animals that we do not actually consume ordinarily like pets and zoo animals.
(C) Importation of personal and household effects belonging to the residents of the P hilippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines; o
o
Includes Returning residents and nonresident citizens coming to resettle in the Phils. To be exempt from VAT, the household effects must be primarily exempt from custom duties. They go hand in hand.
"(D) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture and merchandise of any kind in commercial TAXATION 2 MIDTERMS| maru.mhealler | 404
quantity) quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner, that such persons are actually coming to settle in the P hilippines and that the change of residence is bona fide; -
-
o
Not necessarily citizens. Includes aliens (as long as actually coming to settle in the Phils and change of residence is bona fide)
-
The goods must be ACCOMPANYING such person or arriving within 90 days BEFORE or AFTER their arrival
-
Goods should not be in commercial quantity (meaning not so much as to indicate it is intended for sale in the Phils)
-
The VAT exemption in this provision does not include
If you remember a lawyer for his professional services is subject to VAT as a rule. But once his income does not reach Php 1.9195M in total gross receipts for any 12month period, he is exempt from VAT. But is he exempt from other taxes? No.
o
o
-
Vehicle, Vessel, Aircraft, Machinery, and other goods for use in the manufacture and merchandise of any kind in commercial quantity
-
If you want to be exempt from VAT on vehicles, aircrafts, machineries, do not rely on the exemption provided under Section 109. Your exemption must be relied upon in another provision on exemptions granted under International agreements or special laws.
Consuls, ambassadors or officers of these international organizations that have been granted from exemption from indirect taxes under international agreements, they can still bring in vehicles, machineries that are exempt from VAT. But not under this provision because under this provision what is covered are those which are for personal use not for commercial use such as machineries for commercial use.
Generally, if a person is subjected to percentage tax, he would no longer be liable for VAT. They are mutually exclusive because they are both sales taxes.
-
Examples of percentage taxes:
-
Tax on land transportation which is specifically called common carrier’s tax.
Gross receipts tax (on banks)
Amusement taxes
If a certain business or individual is already covered by percentage tax in whatever form it is imposed, he can no longer be covered by VAT because the nature of percentage tax and VAT is the same.
2
If you see a supermarket or a grocery store not registered for VAT purposes because its proceeds or receipts does not reach Php1.9195M, it may be subject to another kind of tax (percentage taxes) and not VAT.
Specifically, Section 121, banks are subject to gross receipts tax ranging from 5% down to 0%. That is generally 5%.
Life insurance is subject to percentage tax but property insurance (non-life) is subject to VAT
(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar; (G) Medical, dental, hospital and veterinary services except those rendered by professionals; -
Among operating room charge, medicines, professional fees, laboratory fees, which is subject to tax? Only Professional fees. Hospital service fees are not subject to VAT including the charges for the drugs and medicine
-
Hospital services should include the sale of drugs to in patients of the hospitals because the maintenance and operation of a pharmacy or drugstore by a hospital is a necessary and essential service or facility rendered by any hospital for its patients. A person who resorts to the hospital for medical treatment can reasonably expect that the hospital would make available to its patients immediate and prompt access not only to the service of doctors, nurses and allied medical personnel but also to necessary laboratory services as well as medicines, drugs and pharmaceutical items which are dispensable aids in practically any form of medical treatment and care of patients. Sale of drugs or pharmaceutical items to inpatients of the hospital should be exempted from VAT because unlike the sale of retailing of drugs or medicines by drugstores in general, the procurement from hospital drugstore or pharmacy amounts to availment of services rendered or made available by the hospital for its in-
(E) Services subject to percentage tax under Title V; -
If you are a professional with PRC license or IBP, you are subject to VAT as a general rule. Exceptions are when there is an employer-employee relationship and if income does not exceed 1.9195 million in any 12 month period.
Banks or financial institutions including pawnshops and money changers subject to VAT? No. To what is it subjected to? o
-
He will be liable for percentage taxes. The percentage tax generally for professionals is 3%, even for business.
TAXATION 2 MIDTERMS| maru.mhealler | 404
quantity) quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner, that such persons are actually coming to settle in the P hilippines and that the change of residence is bona fide; -
-
o
Not necessarily citizens. Includes aliens (as long as actually coming to settle in the Phils and change of residence is bona fide)
-
The goods must be ACCOMPANYING such person or arriving within 90 days BEFORE or AFTER their arrival
-
Goods should not be in commercial quantity (meaning not so much as to indicate it is intended for sale in the Phils)
-
The VAT exemption in this provision does not include
If you remember a lawyer for his professional services is subject to VAT as a rule. But once his income does not reach Php 1.9195M in total gross receipts for any 12month period, he is exempt from VAT. But is he exempt from other taxes? No.
o
o
-
Vehicle, Vessel, Aircraft, Machinery, and other goods for use in the manufacture and merchandise of any kind in commercial quantity
-
If you want to be exempt from VAT on vehicles, aircrafts, machineries, do not rely on the exemption provided under Section 109. Your exemption must be relied upon in another provision on exemptions granted under International agreements or special laws.
Consuls, ambassadors or officers of these international organizations that have been granted from exemption from indirect taxes under international agreements, they can still bring in vehicles, machineries that are exempt from VAT. But not under this provision because under this provision what is covered are those which are for personal use not for commercial use such as machineries for commercial use.
Generally, if a person is subjected to percentage tax, he would no longer be liable for VAT. They are mutually exclusive because they are both sales taxes.
-
Examples of percentage taxes:
-
Tax on land transportation which is specifically called common carrier’s tax.
Gross receipts tax (on banks)
Amusement taxes
If a certain business or individual is already covered by percentage tax in whatever form it is imposed, he can no longer be covered by VAT because the nature of percentage tax and VAT is the same.
2
If you see a supermarket or a grocery store not registered for VAT purposes because its proceeds or receipts does not reach Php1.9195M, it may be subject to another kind of tax (percentage taxes) and not VAT.
Specifically, Section 121, banks are subject to gross receipts tax ranging from 5% down to 0%. That is generally 5%.
Life insurance is subject to percentage tax but property insurance (non-life) is subject to VAT
(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar; (G) Medical, dental, hospital and veterinary services except those rendered by professionals; -
Among operating room charge, medicines, professional fees, laboratory fees, which is subject to tax? Only Professional fees. Hospital service fees are not subject to VAT including the charges for the drugs and medicine
-
Hospital services should include the sale of drugs to in patients of the hospitals because the maintenance and operation of a pharmacy or drugstore by a hospital is a necessary and essential service or facility rendered by any hospital for its patients. A person who resorts to the hospital for medical treatment can reasonably expect that the hospital would make available to its patients immediate and prompt access not only to the service of doctors, nurses and allied medical personnel but also to necessary laboratory services as well as medicines, drugs and pharmaceutical items which are dispensable aids in practically any form of medical treatment and care of patients. Sale of drugs or pharmaceutical items to inpatients of the hospital should be exempted from VAT because unlike the sale of retailing of drugs or medicines by drugstores in general, the procurement from hospital drugstore or pharmacy amounts to availment of services rendered or made available by the hospital for its in-
(E) Services subject to percentage tax under Title V; -
If you are a professional with PRC license or IBP, you are subject to VAT as a general rule. Exceptions are when there is an employer-employee relationship and if income does not exceed 1.9195 million in any 12 month period.
Banks or financial institutions including pawnshops and money changers subject to VAT? No. To what is it subjected to? o
-
He will be liable for percentage taxes. The percentage tax generally for professionals is 3%, even for business.
TAXATION 2 MIDTERMS| maru.mhealler | 404
patients and not simply the buying of such goods (CIR v. .) Professional Services, Inc .)
-
"(H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills Development Authority (TESDA) and those rendered by government educational institutions; -
Must be educational services rendered by: a.
PRIVATE educational institutions (needs accreditation)
b.
Government educational institutions (automatic, no need for accreditation)
-
It does not have to be a formal school to be exempt. The requirement is only that it is duly-accredited by a. DepEd b. CHED or c. TESDA
-
Does not need to be non-stock and non-profit
-
So, Korean online schools may be VAT exempt if duly accredited
-
However, if they venture in other services not educational, then such services will be subject to VAT
-
Non-stock non-profit educational institutions are exempt from TAXES as long as actually, directly and exclusively (ADE) used for educational purposes. Income from canteens, dormitories or parking lots owned by the school and within the school is exempt. Even interest from loans used for educational purposes are exempt.
(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce (M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered with the Cooperative Development Authority (N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members Discussion for L-N
All agricultural cooperatives are VAT exempt as long as duly registered with the Cooperative Development Authority (CDA) and its sales are to its members.
Sales to non-members are exempt only if the producer of the agricultural products (whether in its original state or not) sold is the cooperative itself. If the cooperative is not the producer (e.g. trader), then only those sales to its members shall be exempted from VAT
VAT exemption extends to importation of direct farm inputs, machineries and equipment to be used directly and exclusively in the production and/or processing of their produce
Note however that sale or importation of agricultural food products in their original state is VAT Exempt irrespective of the seller and buyer.
LENDING Activities by credit or multi-purpose cooperatives as long as they are duly registered with the CDA
All non-agricultural, non-electric ad cooperatives are VAT exempt as long as:
(I) Services rendered by individuals pursuant to an employeremployee relationship; -
VAT exempt because they are not engaged in trade or business
(J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines -
Only applies to Regional or AREA headquarters since it has no income-generating activity. It is exempt from both income tax and VAT
-
Regional OPERATING HQs however are subject to 10% income tax and 12% VAT while its employees are subject to 15% compensation tax.
(K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529; -
Ex. Of entity granted VAT exempt status – IRRI (International Rice Research Institute). The purchase or importation need not relate to goods in its original state.
3
What is covered under the exemption would not run counter to zero-rated sales. Zero-rated and exempt are not the same. One can actually claim input taxes the other one cannot. So what is covered by the exemption provision is that “transactions “transactions entered into by such companies (PEZA-registered) will be exempt when it sells or when it purchases/imports
non-credit
a)
Duly registered with the CDA
b)
Share capital contribution of each member does not exceed Php15,000 (regardless of the aggregate capital and net surplus ratably distributed among the member) So, whether it has 1,000 or more members, it does not matter. TAXATION 2 MIDTERMS| maru.mhealler | 404
housing . 2. Those properties for socialized housing.
In effect, only ELECTRICAL cooperatives are purely subjected to VAT. Other cooperatives may be VAT exempt if the above requisites are met but electrical cooperatives are subject to VAT.
- Same concept as low-cost housing but the price threshold is different. It’s Php 225,000 for socialized housing.
Senior citizens are given discounts if the meter is registered in their name and they meet the number of kilowatts required (as to how much, it was not discussed)
- Socialized housing, not more than Php225,000; it relates not only to house and lot but it can be lot only so long as it is covered by the socialized housing program that has been recognized.
Importation by non-agricultural, non-electric and noncredit cooperatives of machineries and equipment, including spare parts thereof, to be used by them are subject to VAT.
3. Sale of lot not exceeding Php 1.5 M; (but see BIR Rev. Reg. 16-2011,which fixes the amount to Php 1,915,500 starting Jan. 1, 2012)
(O) Export sales by persons who are not VAT-registered -
These transactions if made by VAT-registered entities should have been subjected to zero-rating however since they are not VAT-registered; these transactions are VATexempt. Since they are not VAT-registered, they cannot claim input VAT and they are also not subjected output VAT.
- The law provides that (we’re still in in year 2011), so still the 1.5 M threshold limit, when a parcel of residential lot is sold and its value does not exceed 1.5 M, it is exempt from Vat. - when one and the same person purchases two or more parcels of land adjacent to each other and the total value of which exceeds 1.5 M na, even if individually it does not exceed 1.5 M, it will be subject to VAT if the purpose is to build one residential unit over the parcels of land. If the purpose is other than that (example: purchasing lots to be donated to children), it’s not subject to vat. It’s not simply automatically vatable because it’s more than 1.5M; you have to look at the purpose. If I were you, do not purchase it altogether, different dates.
(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, residential lot valued at One million five hundred thousand pesos (P 1,500,000.00)* and below, house and lot and other residential dwellings valued at Two million five hundred thousand pesos (P 2,500,000.00)** and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO);
4. Sale of residential house and lot and other residential dwellings such as condominium units valued at not more than Php2.5 M . (also see BIR RR 16-2011)
* Now P 1,919,500 ** Now P 3,199,200 -
-
If the real property is an ordinary asset, its sale is subject to VAT; but if it’s not, then not subject to VAT because it is now subject to capital gains tax. No VAT and CGT can be imposed in one and the same real property transaction. So meaning to say, if one parcel of land, when entered into transaction when sold, it can only be either VAT or CGT. These two taxes cannot coexist in one transaction. As a general rule, the sale of real property, if in the course of trade or business, is vatable. But there are five exemptions to the rule. Meaning to say, if there are five exemptions, there are five real property sales that are not vatable, to wit: 1. Those utilized for low-cost housing. - When the real property sales involves low-cost housing programs where the price does not exceed the ceiling of Php750,000 per housing unit, of course used for residential purposes, it will be exempt from VAT.
4
5. When you sell real properties not primarily held for sale - Lease is an exception to the rule that real property transactions are vatable. “TRANSACTIONS”. When I say transactions, you include lease. But when i say exception to real property sales, lease is not a sale. (Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P10,000) Provided , That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO); -
If the lease of a residential unit does not exceed Php10,000 monthly, it will exempt from vat. If it exceeds Php10,000, it will be subject to vat.
-
Under BIR RR 16-2011, threshold has been changed from P 10,000 to P 12,800. TAXATION 2 MIDTERMS| maru.mhealler | 404
-
If the monthly rental per unit is P 12,800 or less, the lease is exempt from VAT regardless of the aggregate annual gross receipts from said rentals
amount, so long as the monthly rental does not exceed 10K, it is exempt. o
-
If the monthly rental is more than P 12,800:
The lease is subject to VAT if the aggregate annual gross receipts from said rentals (not including gross receipts from units leased for P 12,800 or less) exceed P 1,919,500.
It is subject to 3% percentage tax, if the aggregate annual gross receipts do not exceed P 1,919,500.
The law provides that if the lease of a residential unit per month does not exceed Php10,000 regardless of the aggregate amount during the entire 12-month period, it will not be subject to vat. It will be exempt regardless of the aggregate amount that is exceeding 1.5M. What about the apartment?
-
For non-residential units, the lease is subject to VAT regardless of amount of monthly rental per unit and the aggregate annual gross receipts.
-
Example:
o
One of your classmates is renting out a room in ABC Pension House. Monthly rent is Php10,000. Is it vatable or not? He’s utilizing it as a temporary home in Cebu. Is a “pension house” covered under the term residential unit? It’s vatable. It is not covered. When you say “residential unit”, the primary purpose is for dwelling purposes; pension house is for transient. -
Example: ABC Corp, DEF Corp. (YEAR 2011) ABC Corp.
DEF Corp.
Studio (10K)
2M = exempt
2M = exempt
Apartment (15K)
1.5M = exempt
1.6M = vatable
3.5 M = exempt
3.6 M
Total receipts
o
These corporations, (so when it’s lease of commercial spaces, even if it does not exceed Php5,000,if it’s not residential, it’s vatable) have two types of residential units – apartment and studio-type units. Studio-type units at Php10,000 per month, while the apartment at Php 15,000 per month. Total gross receipts for the year 2011 (note: from Php10,000 to Php12,800 by year 2012) is Php3.5 M, the other one is Php3.6 M. Which is subject to VAT?
5
gross
ABC Corp is entirely vat-exempt for both types of units while DEF Corp is vatable but only to the apartment. In the law, it states that the monthly rentals should not exceed Php10,000. And for both corporations, their studio units are rented at 10K so that is already exempt despite the fact that it already exceeds the 1.5M threshold limit of the vat. So regardless of the aggregate
The apartment for ABC Corp is still exempt because the gross receipts do not exceed 1.5 M. So if a corporation or a person engages in both types of residential units – one is exceeding 10K the other one not, you don’t need to combine the gross receipts for the two types of units. You have to take it stand alone.
So for those exceeding 10K, you have to individually determine whether it exceeds the threshold limit or not. So since 1.5M of ABC Corp is still within the threshold limit for 2011, then it is not vatable. The apartment of DEF Corp is already vatable because it exceeded the 1.5M threshold. You cannot say that ABC is vatable because the total proceeds is 3.5M, thus exceeding the 1.5M limit. For vat purposes, you have to separately consider. WHY? Because the provision of the law is very clear that leases of residential units not exceeding Php10,000 is exempt.
((R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements; -
Insofar as sale of books, magazines is concerned, this covers those which appear at regular intervals and have fixed subscription rate and are not primarily for advertisement.
-
The phrase, “at regular intervals” only refers to newspapers and magazines sold. Hence, law books are not covered by the vat exemption.
-
For books to be vat-exempt, they should be for educational and religious purposes (i.e., bible)
-
The exemption not only covers the sale of books. The exemption is extended to four acts – importation, printing, publication and sale. As long as it involves these acts, the transaction shall be exempt from vat.
-
In the case of magazines, bulletins, review newspapers, there are a further requirements:
-
that they must appear at regular intervals (i.e., newspaper on a daly basis), it
and
a.
that they must appear at regular intervals (i.e., newspaper on a daily basis;
b.
it has fixed prices either for sale or subscription; and
TAXATION 2 MIDTERMS| maru.mhealler | 404
c.
not principally devoted for profit
-
Newspapers are not really devoted for profit.
-
There are magazines, however, which are principally devoted for advertisement (i.e., classified ads). So, they are vatable.
(S) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; -
-
The sale, importation and lease of vessels including all parts implemented in the vessel, whether it’s engaged in passenger or cargo transportation, domestic or international, is exempt from vat but only for those weighing 150 tons or more. Those below 150 tons will be subject to vat.
Tax Code Provision
Current Exemption Levels
Adjusted threshold amounts
Section 109 (P) - residential lot
P1,500,000
P1,919,500
Section 109 (P) residential house and lot
P2,500,000
P3,199,200
P10,000
P12,800
P1,500,000
P1,919,500
Section 109 (Q) - rental of residential unit Section 109 (V) - sales of goods and services not exceeding the VATexemption threshold
Limitations: a.
For passenger and/or cargo vessels, the age limit is 15 years old;
b.
For tankers, the age limit is 10 years old;
c.
For high-speed passenger crafts, the age limit is 5 years old.
B.
TRANSACTIONS TRANSACTIONS
-
If a transaction is subject to VAT, its incidental transactions are also subject to VAT. If a transaction is exempt from VAT, incidental transactions are also exempt from VAT.
-
To review, incidental transactions are those which are necessary appertaining to or depending upon another business (principal business) of the seller or transferor.
C.
ISOLATED TRANSACTIONS
-
Isolated transactions are those not done in the course of trade or business and not capable of being repeated.
-
In the case of Magsaysay Lines, That the sale of the vessels were made because of the privatization program and it’s an isolated case. An isolated transaction which cannot be repeated thereafter. The vessel, is one time disposed of because of the program.
-
Another example of an isolated transaction is the sale of trademerk and goodwill. You don’t always sell the goodwill of the business. You don’t sell the trademark of your business. There can be as many isolated transactions. You just look into what the main activity of the business is, whether it can be considered incidental; if not incidental, then it can be isolated.
D.
OTHER TRANSACTIONS
-
Change in corporate name, change in partnership name, merger or consolidation so long as it’s property for property, stock for stock, or stock for property without the involvement of any cash.
-
In any change, any merger or consolidation which is made solely in kind without cash involvement or acquisition of control with one person with persons not exceeding four and after the occasion thereof shares or properties are exchanged, it is exempt not only from income tax but exempt as well from vat. These are tax free exchanges.
(T) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; -
Sale by Vat-registered person of goods, supplies, equipments and fuel to an entity that is engaged in international shipping/air transport will be zero-rated. But if this entity engaged in international shipping/air transport operations imports product from abroad, the transaction is exempt.
(U) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries; and (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO) -
The catch-all provision. If any person who is actually entering into a vatable transaction but does not expect that his gross receipts for the 12-month period will exceed 1.5M, he is not required to register under the vat system. It may remain exempt but later on we will know that there is an option to register for vat.
6
INCIDENTAL
TO
VAT-EXEMPT
TAXATION 2 MIDTERMS| maru.mhealler | 404
XI. PERSONS EXEMPT FROM VAT A.
THOSE ENGAGED IN TRANSACTIONS EXEMPT FROM VAT
B.
THOSE WHO ENTERED INTO TRANSACTIONS INCIDENTAL TO VAT-EXEMPT ACTIVITIES
C.
THOSE WHO TRANSACTIONS
ENTERED
INTO
ISOLATED
Hence, it does not include a person who is exclusively engaged in selling purely exempt transactions or products. Here, the exemption lies on the transaction itself. In this case, the person so engaged does not have the option to register under the vat system. Persons covered by the optional registration: A.
Those who might be liable for VAT but because it did not reach the threshold limit of P 1,919,500 is not yet covered by the VAT;
PAGCOR v. BIR
With the passage of RA 9337, PAGCOR has been excluded from the list of GOCCs that are exempt from tax under Section 27[C] of the Tax Code; PAGCOR is now subject to corporate income tax.
The SC held that the omission of PAGCOR from the list of tax-exempt GOCCs by RA 9337 does not violate the right to equal protection of the laws under Section 4, Article III of the Constitution, because PAGCOR’s exemption from payment of corporate income tax was not based on classification showing substantial distinctions; rather, it was granted upon the corporation’s own request to be exempted from corporate income tax. Legislative records likewise reveal that the legislative intention is to require PAGCOR to pay corporate income tax. As regards the liability of PAGCOR to VAT, the SC finds that Section 4.108-3 of RR 16-2005, which subjects PAGCOR and its licensees and franchisees to VAT, null and void for being contrary to the NIRC, as amended by RA 9337. According to the SC, RA 9337 does not contain any provision that subjects PAGCOR to VAT. Instead, the SC finds support to the VAT exemption of PAGCOR under Section 109(k) of the Tax Code, which provides that the transactions exempt under international agreements to which the Philippines is a signatory or under special laws (except PD 529) are exempt from VAT . Considering that PAGCOR’s charter, i.e., PD 1869 – which grants PAGCOR exemption from taxes – is a special law, it is exempt from payment of VAT.
B.
OF
PERSONS
If the person is subject to vat, he has to mandatorily register under the vat system. A person whose transactions exceed the prescribed registration threshold (P 1,919,500) is a taxable person, regardless of whether or not he registers as a vat person. In other words, non-registration as a vat person does not exempt him from value added tax (output tax) liability, and based on existing regulations, he cannot claim any input tax as a penalty for non-registration. Optional registration is for those who are not yet covered by the vat system but may be c overed by the vat.
7
Once this choice is made, it shall be irrevocable for three years
Any person who is engaged in vatable, zerorated or exempt transaction (i.e., when one person is a gas station operator selling gasoline and car spare parts and at the same time a real estate developer) may opt that the VAT apply to his transactions which would have been exempt under Section 109(1) of the Tax Code. One option to register is made, it shall be irrevocable for three years.
Franchise grantees of radio and TV broadcasting so long as the gross receipts of the preceding year do not reach 10M
XII. OPTIONAL REGISTRATION EXEMPT FROM VAT
Once registered, these persons may claim input vat as against output vat.
Those who are engaged in mixed transactions;
C.
Persons whose gross receipts do not exceed P 1,919,500 may opt to register under the vat system and make their sales and purchases subject to vat.
Once the gross receipts reach more than 10M, the franchise grantees do not have the option to register. They shall be mandatorily subjected to 3% percentage tax as franchise tax. Only those who did not reach 10M may shift from franchise tax to vat. Once the option is exercised, it shall be irrevocable perpetually (not just three years).
D.
PEZA and other ecozone registered enterprises enjoying the preferential tax rate of 5%, in lieu of all taxes.
E.
SBMA and other Freeport zone-registered enterprises enjoying the preferential rate of 5%, in lieu of all taxes.
Note: The three year period shall be counted from the quarter when the election was made, except for those falling TAXATION 2 MIDTERMS| maru.mhealler | 404
under Letter C where the option becomes perpetually irrevocable.
on behalf of the seller to the government. Split the 1.12M. 1M to seller, 120K to the government. It shall be paid within 10 days after the close of the month when the service was rendered by the non resident.
Letters D & E above were not included in Mam Tiu’s syllabus; found in Mamalateo.
The 120K should not be deducted from the 1M purchase price, making the seller shoulder the vat. The cost of the service itself is 1M. The 12% vat is not to be shouldered as a burden by the seller; it is the purchaser. So the vat on the 1 M, instead of being passed on and collected the seller, it will remain with the buyer, remitted to the government.
XIII. WITHHOLDING VAT A withholding vat is a vat withheld before making payment on account of each purchase of goods and services which are subject to vat. The withholding agent shall be the PAYOR.
Final withholding tax, for income tax, is tax which is withheld by the withholding agent and they are taxes with finality. There’s no need to consider the income at the end of the year. There’s no need to consider any difference between the taxes because it’s considered as the full and final payment every time transaction is made. Creditable withholding tax for income taxation are simply taxes collected in advance and will be considered for purposes of determining what your true tax liability is at the end of the year. An example is when taxes or income taxes on salary are withheld by the employer. That holds true for VAT. The difference is that we are talking of another type of tax.
2.
Final Withholding VAT Government)
Two Types of Withholding VAT: 1.
Creditable Withholding VAT (on payments to nonresidents)
There must be a non-resident party, who is the seller. The purchaser withholds the VAT because the Phils. has no jurisdiction over the seller.
3.) non-resident persons, regularity notwithstanding, rendering services in the Phils. The third is covered by creditable withholding vat. Because if a non-resident person, not engaged in trade or business in the Phils., performs service in the Phils., it’s vatable. But because we have no jurisdiction over them, we cannot expect that whatever a vat-registered purchaser pass on as a vat, we can never expect the non-resident person to remit the 12%. Example: Purchaser need not pay the 12% Vat. It will only pay the 1M without the vat and pay the 12% Vat
8
payments by
the
One of the parties is the government and that the government should be the purchaser. The seller, who should be a vat-registered seller, is liable for vat. Example:
Remember persons who are liable for vat. Final withholding vat actually is 5% of the VAT, or component of the vat. When you say vat is at 12%, 5% of that 12% will be withheld by the government. So, the government will be paying the 1M plus 7% VAT. It withholds the 5%.
2.) those who import product WON in the course of trade or business
(on
In a case of selling construction service to the government, if the construction service is 1 M plus vat of 12%, total of 1.12M. How much will the government pay the seller?
1.) those who enter into transaction made in the ordinary course of trade or business
As a creditable withholding vat, the 12% vat that has been withheld by this person from the nonresident will be claimed simply as an input vat deductible against the output vat of the purchaser. Nothing was actually lost. So if it recognizes another 120K output tax on its sales, the 120K that it paid to the government, as input tax, can be fully deducted. But only after the remittance of vat to government.
The seller will only remit the 7% to the government not the 12%. The government will be obligated, as a withholding agent, to remit the 5% to the BIR. History: when vat was at 10%, the government would like to withhold half, that’s why it’s 5 %. But when the vat was increased to 12%, the rate for creditable withholding vat was not also increased. Always remember that the government can be taxed for VAT even if it’s not for profit. You only consider whatever vat it paid as part of the purchase price.
TAXATION 2 MIDTERMS| maru.mhealler | 404
It is a final withholding vat because the vat withheld by the government is not creditable against the output vat of the seller (unlike creditable withholding vat).
XIV.
Advance rentals or advance payments forms part of gross receipts they are included in the value or the contract price of the service. Security deposits, generally are not considered part of the gross receipts when they are not placed in the free disposal of the seller of the services.
VAT BASE
Example:
For the sale of goods – the Gross Selling Price (GSP)
o
In a lease of an apartment at 20K per month, you are required to pay 2 months advance rentals, 3 months security deposit. In the contract, it is stipulated that the security deposit will be applied against damages found at the end of the contract and any excess will be returned. Or it may be stipulated also that any excess will be applied to the last few days or months rental of your choice – whether refunded or not. So at the time that you made the 3 months deposit and the 2 months advance rental, will vat be paid on the total 5 months? Will you have to shell-out 12% on the 5-month rental?
It means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the vat. The excise tax, if any, on such goods or properties shall form part of the GSP.
It is EXCLUSIVE of VAT but Excise taxes are included in the GSP
Example:
NO, because the 3 months security deposit is not within the free disposal of the seller of the services.
If the selling price is 10M. Vat is 1.2M. The GSP is the 10M The 1.2M is not a component of the GSP because the definition of GSP is exclusive of vat. You will not compute vat on vat. The basis of vat is GSP. So 12% of 10M
When you go to a gasoline station and you have your car serviced and you purchased some parts assembled in your car, the entire amount will be considered as part of GR because the principal transaction there is the service of your car. Any parts or inventories that are purchased in order to execute the service will be part of Gross Receipts. But how about reimbursements? Are reimbursements part of Gross Receipts subject to vat?
Example:
The goods that are sold are excisable articles – meaning subject to excise tax. If the value of the goods is 10m. Excise tax is 2m. The GSP shall be 12M. VAT is imposed on GSP which includes excise tax. For the sale of services – Gross Receipts (GR)
o
NO, because reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor is excluded from the definition of GR in the revenue regulations.
It means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding vat, except those amounts earmarked for payment to rd unrelated 3 party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor.
Constructive receipt is already part of Gross Receipts because the money consideration or its equivalent is already placed at the control of the person who rendered the service without restrictions by the payor. It’s already within the free disposal or at the control of the seller of the services.
o
9
The revenue regulations extended the definition of GR. It excludes reimbursements so long as it is substantiated. Example: So imagine yourself hiring the service of a broker and if the broker needs to hire a third person for the execution of some parts of the service and the broker has advanced payment to such third person. The broker will seek reimbursement from you. So long as it is properly substantiated for vat purposes, your payment to the broker will be partly subject to vat and partly not subject to vat. Only the broker’s services will be subject to vat. If reimbursements are properly substantiated – not subject to vat, it will not form part of the GR of the broker.
It includes both ACTUAL and CONSTRUCTIVE receipt.
Example:
Importation of goods – Landed Cost (LC) TAXATION 2 MIDTERMS| maru.mhealler | 404
There shall be levied, assessed and collected on every importation of goods a value-added tax based on the total value used by the Bureau of Customs in determining tariff and customs duties plus customs duties, excise taxes, if any, and other charges, such tax to be paid by the importer prior to the release of such goods from customs custody:
Provided, That where the customs duties are determined on the basis of the quantity or volume of the goods, the value-added tax shall be based on the landed cost plus excise taxes, If any
Landed cost is used as basis for computing vat in the importation of goods where the custom duties are determined on the basis of the quantity or volume of the goods. Landed Cost is evidenced by an import entry declaration.
LC = invoice amount + customs duties + freight + insurance + other charges + excise tax (if any)
Since custom duties forms part of landed cost and VAT is computed based on landed cost, the custom duties are VATable.
b. on importation of goods or local purchases or lease or use of properties - this is the contra-account of output tax. It output tax is based on sales, input tax is based on purchases. It is called “input” tax because it is considered as “VAT in” meaning you already paid for it since it is already included every time you buy or purchase and it can then be credited against your output tax. c. In the Course of trade or business - If you are not engaged in trade or business, you cannot claim input tax because VAT is basically imputed on transactions in trade or business and not on isolated transactions. Illustration: A law student buys a laptop worth P33,600 (30,000 gross selling price + 3,600 VAT) for personal use. Can he claim the 3,600 VAT as input tax? If he is not VAT-registered he cannot claim the VAT as input tax. Also, it cannot be considered as input tax since the purchase was not done in the course of trade or business. Sources Of Input Tax
XV.
OUTPUT TAX
o
Output tax is simply the: a.
b.
12% vat on the sale of goods/services less sales returns, allowances, discounts
1. 12% actual input tax from
a. Local purchase
b. Importation
12% of total value plus customs duties, excise taxes, other charges (if imported)
This is imposed on the seller. So every VATable sale subject to 12% rate is subject to Output tax. No output tax is computed on zero-rated sales and VAT exempt sales.
o
2. Transitional input tax
XVI.
INPUT TAX
INPUT TAX -
It means the vat due on or paid by a vat-registered person on importation of goods or local purchases of goods, properties, or services, including lease or use of properties, in the course of his trade or business. It shall also include the transitional input tax and the presumptive input tax. Requisites: a. must be VAT-registered - this is why even those subject to zero-rating can claim input tax since they are VAT-registered. If not VAT-registered automatic that they cannot claim input tax
10
Vat are required to be paid before imported goods are released. VAT paid on these importations can be claimed as input tax.
A person who becomes liable to valueadded tax or any person who elects to be a VAT-registered person shall, subject to the filing of an inventory according to rules and regulations prescribed by the Secretary of finance, upon recommendation of the Commissioner, be allowed input tax on his beginning inventory of goods, materials and supplies equivalent to two percent (2%) of the value of such inventory or the actual value-added tax paid on such goods, materials and supplies, whichever is higher, which shall be creditable against the output tax This involves a “Transition” from one who is not VAT-registered to becoming VAT-registered (either because he
TAXATION 2 MIDTERMS| maru.mhealler | 404
reached the 1,919,500 threshold or he elects to be VAT-registered).
This can be computed every time there is transition from no-VAT to VATregistered.
From VAT- exempt to VATregistered – can claim transitional input tax.
From VAT-registered to VATexempt not subject to transitional input tax. In fact, this is a transaction deemed sale. So you are subject to output tax.
From VAT-exempt to VATregistered again – still subject to transitional input tax
o
3. Presumptive input tax
Input tax is whichever is HIGHER between a. 2% of the VALUE of beginning inventory and b. the ACTUAL VAT paid on such inventory
It only pertains to beginning inventory since with regard to subsequent inventories, you will already compute input tax.
Persons or firms engaged in the processing of sardines, mackerel and milk, and in manufacturing refined sugar, cooking oil and packed noodlebased instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. As used in this Subsection, the term "processing" shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such manner as to prepare it for special use to which it could not have been put in its original form or condition. Involves the processing of
Beginning inventory pertains to the goods on hand as of the effectivity of the VAT registration
(a) sardines,
So if your present goods existing at the effectivity of the VAT registration is from 5 years ago, you use the value of such goods 5 years ago.
(c) milk,
(b) mackerel and
and in manufacturing (d) refined sugar,
11
Actual VAT paid pertains on VAT actually paid on these inventories. However, to use actual VAT (12%) in computing, this has to be properly substantiated. Meaning supported by VAT official receipts and invoices. That is why the 12% actual VAT may not always be higher than the 2% arbitrary (indiscriminate) amount without need of substantiation RATIONALE: Transitional input tax is allowed because if you will sell the goods you will now generate 12% output tax liability since you are VATregistered. That is why to compensate you for the effect of output tax, you can claim input tax since initially, input tax was not recognized when purchase was made on these items.
(e) cooking oil and (f) packed noodle-based instant meals
Pasteurization, canning and activities alter the exterior or inner substance as stated above still included in the definition of processing It is available only to specific manufacturing entities and agricultural products (not all) RATIONALE: their primary sources of raw materials are agricultural products in its original state for which it was purchased or obtained (e.g. fishing). So when it is sold, it will generate full 12% without the benefit of the input tax because it was purchased or obtained
TAXATION 2 MIDTERMS| maru.mhealler | 404
vat-free. So in order to soften the tax liability of manufacturers of such initial stage of production, all manufacturers of the enumerated agricultural products are allowed to recognize a presumptive input tax but not fully at 12% - only 4% of the value of the purchases of these agricultural products, which are the actual process inputs.
-
Input tax credit method is NOT available to all businesses The persons who can avail of the tax credit method are:
o
Hence, it is “presumed” that 4% of these goods can be claimed as input tax.
Creditable withholding vat is a vat that a domestic payor withholds from the non-resident person rendering service in the Phils. and such creditable withholding vat is remitted to the government.
Creditable meaning already paid and can be claimed against output tax. Contra-account of output tax.
ILLUSTRATION: The service rendered by the NRA amounts to 112,000 (100K + 12K VAT). Only 12K is paid to the NRA. 12K is withheld and remitted to the government.
-
No actual loss is suffered by the domestic payors since the creditable withholding vat withheld and remitted to the government is totally allowed as an offset amount against the output taxes of these domestic payors.
You will notice that final withholding vat is not among the sources of input taxes because as the term implies, final withholding vat stops where it is withheld – no future accountability. It is not like creditable withholding VAT.
VAT LIABILITY OF THE SELLER
The basic formula to compute the VAT Liability of the seller is: VAT Liability/payable = Output Tax – Input Tax
12
Purchase of services
Importer
The seller must be a vat-registered person
b.
Proper substantiation with vat official receipts or vat invoices -
-
domestic
a.
4. Creditable withholding vat
XVII.
Purchaser of goods/properties
The requisites are:
o
NOTE: For easy recall, “T”ransitional input tax = 2% arbitrary rate if higher (“T”wo) while “P”resumptive input tax = 4% (“P”or) o
VAT invoice or receipt must include TIN of taxpayer plus word “VAT”
Point of recognizing input tax is different from the time of filing and payment of returns (every month). Timing of claiming of Input Tax
To the purchase of domestic goods or properties (VAT invoice) – upon consummation of the sale To the purchase of services or the lessee or licensee (VAT OR) – upon payment of the compensation, rental, royalty or fee To the importer (import entry declaration) – upon payment of vat prior to the release of goods from customs custody
Though you pay your output vat every month, you cannot claim input tax from all your expenses. Differentiate first if it is purchase of goods, services or importation and determine the proper timing of claiming them.
ILLUSTRATIONS:
Purchase of Machinery on account – Input tax is claimed upon consummation of sale even if there is no payment yet. Signing of advertising contract for one year – as long as there is no payment, no input tax is claimed on such advertising expenses. Conversely, if advance payment is made on such
TAXATION 2 MIDTERMS| maru.mhealler | 404
services even if no service is performed yet, input tax is fully claimed on date of receipt of payment
XVIII. A.
Importation of Equipment – Input tax is claimed upon payment of VAT to Bureau of Customs for the release of such equipment. (Note: You cannot obtain any release of imported goods if no VAT is paid thereon, otherwise, you defied the rules of the BOC. You’ll be charged with smuggling. So if you wish to claim the input taxes on the importation of products, you can only do so once you get clearance from the BOC that the taxes have been paid.
SUBSTANTIATION REQUIREMENTS DOCUMENTARY SUPPORTS a.
If it’s an importation of products, to substantiate an input tax, you have to have an import entry declaration.
b.
If it’s a purchase of goods or properties, you have to have a vat invoice.
c.
If it’s a purchase of service, a vat official receipt.
d.
If it’s a purchase of real property, not only are you required to have a vat invoice, but you have to support it with a public instrument, like the deed of sale.
e.
If it’s a payment to a non-resident for services rendered, (this is actually related to creditable withholding vat), to support your creditable withholding vat as an input tax credit, you have to have a monthly remittance return of the vat withheld so that’s the vat return that you have filed with the BIR.
f.
If it’s a transitional input tax that you’re claiming, you cannot support it with official receipts. All you can do is support it with the inventory of goods that is shown in a detailed statement to be submitted to the BIR during transition.
g.
If it’s a transaction deemed sale, input tax can be claim by the support of a vat invoice.
Apportionment of input tax on mixed transactions
A VAT-registered person who is also engaged in transactions not subject to the value-added tax shall be allowed tax credit as follows: (a) Total input tax which can be directly attributed to transactions subject to value-added tax; and (b) A ratable portion of any input tax which cannot be directly attributed to either activity.
B.
PROPER TIME FOR 1.
Declaring input tax
ILLUSTRATION: Sales subject to 12% VAT
– 500K
Sales subject to 0% VAT
– 300K
VAT Exempt Sales
- 200K
Total Sales
1M
Equipment is purchased which is used for the production of items used for the above sales. If the value of the equipment is 3,360,000 (3M + 360K VAT), the amount of input tax to be claimed is the proportionate amount of input tax attributed to VATregistered activities. Note that VATregistered activities pertain to 12% VAT and zero-rated sales. Hence, the allowable input tax is 288,000 [(800k/1M) x 360,000]
13
2.
Claiming input tax -
XIX.
Input taxes shall be declared at the same time the return is filed.
Whether or not the taxpayer has an excess of input taxes over output taxes shall be determined at the end of the taxable quarter.
TREATMENT OF EXCESS INPUT TAX In order to determine the taxpayer’s true vat liability, his input taxes must be determined and offsetted against his output taxes. Only those vat-registered persons and entities may claim input taxes. Normally, output taxes are higher than input taxes. Remember that output taxes are those attributed to sales while input taxes are from purchases. So in the normal course of things, the output taxes should be TAXATION 2 MIDTERMS| maru.mhealler | 404
3.
higher than input taxes. However, if in case input taxes exceed output taxes, the taxpayer has two alternative remedies: A.
CARRY OVER TO SUCCEEDING QUARTER -
B.
The taxpayer may opt to carry over his excess input taxes of the current quarter to the succeeding quarters. This option to carry over is perpetual so long as there is an excess of input taxes and the taxpayer does not exercise the other option.
The claim must be filed within two years after the close of the taxable quarter when such sales were made; -
The point of reckoning is the close of the taxable quarter when such sales were made.
-
Thus, if sale took place during the 1 quarter of the year but the vat was rd belatedly paid only on the 3 quarter, the prescriptive period shall be counted from st the close of the 1 quarter (when sale was rd made) and not the 3 quarter (when vat was paid).
CLAIM FOR VAT REFUND OR VAT CREDIT -
-
While the option to carry over excess input taxes is available to all vat registered persons, the option to claim for VAT refund or VAT credit is only available to vat registered persons whose sales are zero-rated or effectively zero-rated.
4.
The input tax has not been applied or offsetted against the output tax;
5.
The input taxes that are being claimed as tax refund or tax credit must be supported with vat official receipts or vat invoices.
This holds true even if a vat-registered person not engaged in zero-rated transaction is experiencing a huge amount of excess input tax.
-
The vat official receipts (for sale of service) or vat invoices (for sale of goods) herein referred to are those that are issued by the seller in favor of the taxpayer.
-
These are required to furnish proof that the taxpayer has indeed paid for the input taxes.
Example: J Centre Mall during the first few years of operation naturally has a huge amount of excess input tax. Despite this, being not engaged in zero-rated transaction, its only recourse is to carry over its excess input tax. 6. -
However, the fact that a vat registered person is engaged in zero-rated transactions would not ipso facto render him eligible to claim for vat refund should he have an excess input tax. The excess input tax that may be refunded should only be those attributable to purchases of materials which became a component of the product exported or that is zero-rated.
st
Taxpayer’s invoices must be printed with “zero rated”
-
7.
Required as evidence that taxpayer is engaged in zero-rated transactions.
The claim for refund or credit must be because of tax erroneously or illegally paid;
Filing of tax refund or tax credit Example:
A person engaged in mixed transactions (zerorated and exempt transactions) can only claim for refund for its excess input taxes with respect only to the input taxes attributable to the zerorated transactions and not those coming from exempt transactions. Requisites for Filing a Claim for VAT Refund: 1.
Taxpayer must be a vat-registered person;
-
2.
14
Claims for refund or tax credit shall be filed with the appropriate BIR office [Large Taxpayers Service (LTS) or Revenue District Office (RDO)] having jurisdiction over the principal place of business of the taxpayer; Provided, however, that direct exporters may also file their claim for tax credit with the One Stop Shop Center of the Department of Finance; Provided, finally, that the filing of the claim with one office shall preclude the filing of the same claim with another office.
Persons not registered under the vat system cannot claim for input taxes
The taxpayer is engaged in sales which are zerorated or effectively zero-rated;
The administrative claim for refund is reckoned, in case of input tax attributable to export sales, after the close of the taxable quarter when such sales were made, and in case of capital goods, within two years after the close of the taxable quarter when the importation or purchase was made.
TAXATION 2 MIDTERMS| maru.mhealler | 404
applications for refund/credit filed with the CIR and not to appeals made to the CTA.
The prescriptive period in claiming for refund of input tax in the judicial level is reckoned from the date of filing the quarterly VAT return. In proper cases, the CIR 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 complete documents in support of the application filed. In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the CIR to act on the application within the 120-day period, the taxpayer affected may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration of the 120-day period, appeal the decision or the unacted claim with the CTA.
CIR v. Mirant Pagbilao Corporation
The reckoning point of the two-year prescriptive period commences from the close of the taxable quarter when the relevant sales were made pertaining to the input VAT regardless of whether said tax was paid or not . Sections 204[C] and 229 of the NIRC cannot apply in a claim for refund of excess input VAT on zero-rated sales considering that it is not a case of erroneous payment or illegal collection of taxes.
Microsoft Philippines, Inc. v. CIR
A VAT-registered taxpayer is required to comply with all the VAT invoicing requirements to be able to file a claim for input taxes on domestic purchases for goods or services attributable to zero-rated sales. A “VAT invoice” is an invoice that meets the requirements of Section 4.108-1 of RR 7-95. xxx “*A+11 purchases covered by invoices other than a VAT invoice shall not give rise to any input tax.” Microsoft’s invoice, lacking the word “zero -rated,” is not a “VAT invoice,” and thus cannot giv e rise to any input tax.
CIR v. Aichi Forging Company of Asia, Inc.
On September 30, 2004, Aichi Forging filed a claim for refund/credit of input VAT attributable to its zero-rated sales for the period July 1, 2002 to September 30, 2002 with the CIR through the DOF O ne-Stop Shop. On the same day, Aichi Forging filed a Petition for Review with the CTA for the same action. The BIR disputed the claim and alleged that the same was filed beyond the two-year period given that 2004 was a leap year and thus the claim should have been filed on September 29, 2004. The CIR also raised issues related to the reckoning of the 2-year period and the simultaneous filing of the administrative and judicial claims
Atlas Consolidated Mining and Development Corporation v. CIR
When claiming tax refund or credit, the value-added taxpayer must be able to establish that it does have refundable or creditable input value-added tax (VAT), and the same has not been applied against its output VAT liabilities – information which are supposed to be reflected in the taxpayer’s VAT returns. Thus, an application for tax refund or credit must be accompanied by copies of the taxpayer’s VAT return or returns for taxable quarter or quarters concerned.
The CIR has 120 days, from the date of the submission of the complete documents within which to grant or deny the claim for refund/credit of input vat. In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal before the CTA within 30 days from receipt of the decision of the CIR. However, if after the 120-day period the CIR fails to act on the application for tax refund/credit, the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days. The filing of the judicial claim in this case was premature. Section 112 mandates that the taxpayer filing the refund must either wait for the decision of the CIR or the lapse of the 120-day period provided therein before filing its judicial claim. Failure to observe this rule is fatal to a claim. The right to claim the refund must be reckoned from the “close of the taxable quarter when the sales were made” – in this case September 30, 2004. Thus, the claim was filed on time even if 2004 was a leap year since the sanctioned method of counting is the number of months. The phrase “within two (2) years x x x apply for the issuance of a tax credit certificate or refund” under Subsection (A) of Section 112 of the NIRC refers to
15
XX. A.
ADMINISTRATIVE MATTERS FILING OF VAT RETURN -
A VAT declaration for the month must be filed within 20 days after the end of the month concerned, and a VAT return covering the amount of his gross sales or receipts and purchases for the prescribed taxable quarter must be filed by the taxable person within 25 days following the close of the quarter to which it relates.
-
A person whose registration has been cancelled must file a return and pay the tax due thereon within 25 days from the date of cancellation of registration.
TAXATION 2 MIDTERMS| maru.mhealler | 404
B.
PAYMENT OF VAT -
C.
Pay as you file. Pay the tax due at the time the return is filed.
PENALTIES FOR NON-COMPLIANCE
If a person who is not VAT-registered issues erroneous VAT invoice or official receipt: 1.
2.
D.
The non-VAT person shall be liable to a.
The percentage taxes applicable to his transactions;
b.
VAT due on the transactions without the benefit of any input tax credit; and
c.
A 50% surcharge
VAT shall be recognized as an input tax credit to the purchaser provided the requisite information required (the print “zero-rated’) is shown on the invoice or receipt.
If VAT-registered person issues a VAT invoice or official receipt for a VAT-exempt transaction, but fails to display prominently on the invoice or receipt the words “VAT-exempt sale”, the transaction shall become taxable and the issuer shall be liable to pay VAT thereon. The purchaser shall be entitled to claim an input tax credit on his purchase.
SUSPENSION OF BUSINESS OPERATIONS, violations The CIR or his authorized representative is 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 invoice (2) Failure to file a VAT return (3) Understatement of taxable sales or receipts by 30% or more of his correct taxable sales or receipts for the taxable quarter. (b) Failure of any person to register who is mandatorily subject to VAT. The temporary closure of the establishment shall be for a duration of not less than 5 days and shall be lifted only upon compliance with whatever requirements prescribed by the CIR in the closure order.
16
TAXATION 2 MIDTERMS| maru.mhealler | 404
BIR ORGANIZATION, FUNCTIONS AND
2.
To enforce all forfeitures, penalties and fines connected therewith;
TAX ADMINISTRATION
3.
To execute judgment in all cases decided in its favor by the CTA and the ordinary courts; and
4.
To effect and administer the supervisory and police powers conferred upon it by the Tax Code or other special laws (Sec. 2, NIRC).
(Sections 1 to 21 of the NIRC, as amended)
I.
OFFICIALS OF THE BUREAU OF INTERNAL REVENUE
NOTE: Only the first three powers have been emphasized by Ms. Tiu.
AGENCIES INVOLVED IN TAX ADMINISTRATION 1.
BIR – tasked with the collection of a substantial amount of revenue for the country and is under the supervision and control of the Department of Finance.
2.
BUREAU OF CUSTOMS – for customs law enforcement.
3.
LOCAL GOVERNMENT UNIT – represented by the provincial, city and municipal assessors and treasurers for local and real property taxes
III.
GENERAL POWERS OF THE CIR A.
POWER TO INTERPRET THE TAX CODE AND OTHER TAX LAWS (exclusive and original jurisdiction) Sec. 4 of the 1997 NIRC provides: “The power to interpret the provisions of Code and other tax laws shall be under exclusive and original jurisdiction of Commissioner, subject to review by Secretary of Finance.”
OFFICIALS OF THE BIR A.
COMMISSIONER OF INTERNAL REVENUE
xxx
The CIR is the single, most powerful person in the BIR. If he does not want to assess this specific person on the belief that there’s actually nothing wrong with the books of accounts of that entity, nobody can force him to issue an assessment. There’s only one CIR.
The term of the CIR is co-terminous with the President. So the President has to have trust and confidence in his CIR, who will deliver the funds in t he budget for his term. B.
4 DEPUTY COMMISSIONERS
C.
REGIONAL DIRECTORS At present, there are 19 revenue regions all over the country, with each revenue region being headed by a Regional Director.
D.
115 REVENUE DISTRICT OFFICERS (RDOs)
E.
REVENUE ENFORCEMENT OFFICERS OR EXAMINERS These are the ones we meet on a regular basis. They are those who make assessments and audits – the front liners.
II.
POWERS AND DUTIES OF THE BIR
The Tax Code enumerates the powers and duties of the BIR as follows: 1.
To assess and collect national internal taxes, fees, and charges;
17
this the the the
B.
The CIR is not actually the same person who is going to issue, approve and sign the revenue regulations. He only has the recommending power and such recommendation will be directed to the Secretary of Finance, who actually issues the revenue regulations. The last stage of the rules and regulations will bear two signatures – recommendation of the CIR, approval of the SOF. Revenue Regulations are the general interpretations of the tax laws, which seek to explain those provisions of the law. An Opinion or Ruling is more specific; it addresses the particular needs of the taxpayer which is not hypothetical in nature.
POWER TO DECIDE DISPUTED ASSESSMENTS, REFUNDS, PENALTIES AND OTHER MATTERS Sec. 4 of the 1997 provides: xxx “The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.”
TAXATION 2 MIDTERMS| maru.mhealler | 404
C.
If a professional model declares 50M instead of the full 100M she earned from an advertisement contract with San Miguel but she deducts the 15M withheld because it is supported by a certificate that it has been withheld by the payor, the BIR may inspect the records of San Miguel since this amount will be reflected in their expense account. The BIR, in effect, checks the third party information whether it coincides to the income declared by the taxpayer.
Disputed assessment refers to a tax assessment that is administratively protested within thirty (30) days from the date the taxpayer received the assessment. This power means that when a taxpayer disputes the assessment issued by the RDOs, the issue must have to go through the administrative stage of being resolved by the agency involved. In this case. The assessment issued may be appealed administratively to the CIR, subject to the exclusive appellate jurisdiction of the CTA. While the SOF has supervisory powers over the BIR, an appeal by the taxpayer of the CIR’s decision on the disputed assessment to the SOF shall not stop the running of the period to make an appeal to the CTA. The power of review by the SOF is limited only on rulings issued by the CIR which are adverse to the taxpayer (meaning, the SOF cannot rule on the assessments themselves; appeal lies within the jurisdiction of the CTA when it comes to assessments).
POWER TO OBTAIN INFORMATION AND TO SUMMON, EXAMINE AND TAKE TESTIMONY OF PERSONS
To obtain the necessary information, which may be used as basis for tax assessments, Sec. 5, 1997 NIRC authorizes the CIR to make use of the following powers:
To examine any book, paper, record or other data which may be relevant or material to such inquiry; To obtain information from: a.
The taxpayer himself -
b.
c.
However, the taxpayer is expected only to provide information that may be beneficial to his cause
D.
To take such testimony of the person concerned under oath as may be relevant or material to such inquiry; and To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed.
POWER TO MAKE ASSESSMENTS a.
Examination of Returns and Determination of Tax Due -
After a return is filed, the BIR shall examine the same and assess the correct amount of tax. The tax or deficiency tax so assessed shall be paid upon notice and demand from the Commissioner or his duly authorized representative (Sec. 6[A], NIRC).
-
However, failure to file a return SHALL NOT prevent the Commissioner from authorizing the examination of any taxpayer.
-
Assessment is not purely dependent on the availability of tax returns that have been filed. If a taxpayer does not file a tax return for a particular tax liability, there will still be an assessment based on the best evidence objectionable.
Any office or officer of the national and local governments, government agencies and instrumentalities including the BSP and GOCCs -
The LGUs are able to determine the gross receipts for the entire year of a business whenever it renews its business permit. This information may be used by the BIR to make a comparison whether the declared gross receipts in the LGU tallies with that declared with the BIR. If not, the taxpayer may be subjected to further investigation.
Third Party Information -
-
18
To summon the person liable for tax or required to file a return, or any officer or employee of such person or any person having possession, custody or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records or other data, and to give testimony;
The law provides that the BIR may obtain information from “any person other than the person whose internal revenue tax liability is subject to audit or information.”
b.
Assess the Proper Tax on the Best Evidence Obtainable
Example: TAXATION 2 MIDTERMS| maru.mhealler | 404
-
The law authorizes the Commissioner to assess taxes on the basis of the best evidence obtainable in the following cases:
the other months or quarters of the same or different taxable years (Sec. 6[C], NIRC). -
i.
If a person fails to file a return or other document at the time prescribed by law; or
ii.
He wilfully or otherwise files a false or fraudulent return or other document.
-
By the use of the best evidence obtainable method, the Commissioner makes or amends the returns from his own knowledge and from such information as he can obtain through testimony or otherwise. Assessments made as such are deemed prima facie correct and sufficient for all legal purposes (Sec. 6[B], NIRC).
-
Best Evidence Obtainable refers to any data, record, papers, documents, or any evidence gathered by internal revenue officers from government offices or agencies, corporations, employers, clients or patients, tenants, lessees, vendees and from all other sources, with whom the taxpayer had previous transactions or from whom he received any income, after ascertaining that a report required by law as basis for the assessment of any internal revenue tax has not been filed or when there is reason to believe that any report is false, incomplete or erroneous.
Prescribing Presumptive Gross Sales And Receipts is another type of method to determine the true income of the taxpayer and thereafter its assessments. If there’s reason to believe that the taxpayer is incorrectly declaring his income, the BIR may presume gross sales and receipts by looking at similar businesses within the same industry. The BIR may prescribe a minimum amount of such gross receipts, sales and taxable base on the basis of the income of businesses under similar circumstances. This amount so prescribed shall be prima facie correct for purposes of determining the correct internal revenue liabilities of such person. Example:
-
If it’s a shipbuilding company, the BIR will determine the gross sales and receipts on the average of other shipbuilding companies. If one company reflects unbelievably low sales of 1B and the other is at 10B, the BIR may use the data from all other companies on the average so long as they are in the same business. d.
Issue Jeopardy Assessments and Terminate the Taxable Period -
As a GR, the BIR can only make assessments after a complete and full audit has been made insofar as the documents obtainable are concerned. A full audit and investigation has to be made detailing all the violations under the tax law, detailing all the discrepancies and figures and the demand for payment in order for an assessment to be issued. Other than that, it will be an invalid or void assessment.
-
Jeopardy Assessment is a tax assessment made by an authorized Revenue Officer without the benefit of a complete or partial audit in light of the Revenue Officer’s belief that the assessment and collection of the deficiency tax will be jeopardized by delay caused by the taxpayer’s failure to:
Net Worth Method is a method wherein the BIR can determine the proper taxes for a taxpayer who has not fully declared its income or paid properly its taxes for a number of years. A company’s net worth is obtained by subtracting its liabilities from its assets. If for example, the net worth of a company has increased by 10B in 3 years, yet only 1M is being declared as income, taxes may directly be computed against the 10B – the increase in net worth – provided that the BIR determines that such increase is realized income.
c.
Conduct Inventory-Taking, Surveillance and Prescribe Presumptive Gross Sales and Receipts -
19
to
If there is reason to believe that a person is not declaring his correct income, sales or receipts for internal revenue tax purposes, his business operations may be placed under observation or surveillance. The findings made in the surveillance may be used as a basis for assessing the taxes for
i.
Comply with audit and investigation requirements to present his books of accounts and/or pertinent records;
ii.
Substantiate all or any of the deductions, exemptions or credit claimed in his return
TAXATION 2 MIDTERMS| maru.mhealler | 404
-
-
-
Jeopardy assessment is one made haphazardly without the benefit of a full nor partial audit or investigation of the books of the taxpayer. A jeopardy assessment has to be supported by a valid cause on why it has been made, such as when the prescription period is about to lapse without the fault of the government and due to reasons within the control of the taxpayer.
taxes shall be due and payable immediately and shall be subject to all the penalties prescribed unless paid within the time fixed in the demand made by the Commissioner (Sec. 6[D], NIRC) E.
The Commissioner is authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent appraisers both from the private and public sectors, determine the fair market value of real properties located in each zone or area. For purposes of computing any internal revenue tax, the value of the property shall be whichever is higher of:
In other words, jeopardy assessment is issued whenever the government’s right to collect is jeopardized or will be jeopardized because the prescription period is about to lapse with the taxpayer not having complied with the requirements for full investigation.
(1) The fair market value as determined by the Commissioner; or (2) The fair market value as shown in the schedule of values of the Provincial and City Assessors for real estate tax purposes. (Sec. 6[E], NIRC)
Example: BIR issues a notice to a taxpayer that it will be investigated. But the taxpayer does not provide proper information and there’s only a month remaining to make the investigation. If the BIR sees that the collection will be jeopardized if no assessment is issued, then a jeopardy assessment will be allowed.
-
-
20
There are only certain glaring instances when a jeopardy assessment is allowed or where the government’s right to collect will be jeopardized. The Commissioner shall declare the tax period of a taxpayer terminated at any time when it shall come to his knowledge: i.
That the taxpayer is retiring from business subject to tax;
ii.
That he intends to leave the Philippines or remove property therefrom;
iii.
That the taxpayer hides conceals his property; or
iv.
That he performs any act tending to obstruct the proceedings for the collection of the tax for the past or current quarter or year or to render the same totally or partly ineffective unless such proceedings are begun immediately.
POWER TO PRESCRIBE REAL PROPERTY VALUES
-
F.
POWER TO INQUIRE INTO BANK DEPOSITS (RA No. 10021, March 5, 2010) Examination of bank deposits enables the Commissioner to assess the correct tax liabilities of taxpayers. However, bank deposits are confidential under the Bank Secrecy Law. Notwithstanding any contrary provision of RA 1405, Regular Peso Deposits, Foreign Currency Deposits Act and other general or special laws, the Commissioner is authorized to inquire into the bank deposits of: a.
A decedent to determine his gross estate;
b.
Any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability. In this case, the application for compromise shall not be considered unless and until he waives in writing his privilege under the Bank Secrecy Law or under other general or special laws, and such waiver shall constitute the authority of the Commissioner to inquire into bank deposits of the taxpayer; and
c.
A specific taxpayer or taxpayers subject of a request for the supply of tax information from a foreign tax authority pursuant to an international convention or agreement on tax matters to which the Philippines is a signatory or a party of : Provided, that the information obtained from the banks and other financial institutions may be used by the BIR for tax assessment, verification, audit and enforcement purposes. (Sec. 6[F], NIRC as amended by RA 10021)
or
The written decision to terminate the tax period shall be accompanied with a request for the immediate payment of the tax for the period so declared terminated and the tax for the preceding year or quarter, or such portion thereof as may be unpaid. Said
The power to prescribe real property valuation does not mean in any way that the local assessors are bound by the CIR’s valuation. This does not mean that the CIR is over and above the local assessors. The two valuations provided in the NIRC are for comparison only.
TAXATION 2 MIDTERMS| maru.mhealler | 404
-
-
i.
The identity of the person under examination or investigation;
ii.
A statement of the information being sought including its nature and the form in which the said foreign tax authority prefers to receive the information from the Commissioner;
iii.
The tax purpose for which the information is being sought;
iv.
Grounds for believing that the information requested is held in the Philippines or is in the possession or control of a person within the jurisdiction of the Philippines;
vi.
vii.
21
assessment. (In effect, it is like the 4 exception to the rule of confidentiality of bank deposits) -
The government shall assist the request of the foreign tax authority for it is a declared policy that the government shall comply with or commit to the internationallyagreed tax standards required for the exchange of information with its tax treaty partners to help combat international tax evasion and avoidance and to help address tax concerns that affect international trade and investment.
-
To ensure a prompt response to the foreign tax authority’s request, the CIR shall confirm receipt of a request within 60 days from the said receipt.
-
If the CIR is unable to obtain and provide the information within 90 days from the receipt of the request, due to obstacles encountered in furnishing the information or when the bank or financial institution refuses to furnish the information, he shall immediately inform the requesting tax authority.
-
The bank or financial institution who refuses to give out the information to the BIR shall be subjected to fine or imprisonment or both.
-
Foreign Tax Authority refers to the tax authority or administration of the requesting State under the tax treaty or convention to which the Philippines is a signatory or a party of.
The CIR shall provide the tax information requested by the foreign tax authority when the latter has provided the following information to demonstrate the foreseeable relevance of the information to the request:
v.
-
th
The exchange of information shall be done in a secure manner to ensure confidentiality thereof. Violation of this, would subject the erring BIR officers to a fine or imprisonment or both.
To the extent known, the name and address if any person believed to be in possession of the requested information; A statement that the request is in conformity with the law and administrative practices of the said foreign tax authority, such that if the requested information was within the jurisdiction of the said foreign tax authority then it would be able to obtain the information under its law or in the normal course of administrative practice and that it is conformity with a convention or international agreement; and A statement that the requesting foreign tax authority has exhausted all means available in its own territory to obtain the information, except those that would give rise to disproportionate difficulties.
Information given by the CIR pursuant to the request of a foreign tax authority can be used by the BIR to make its own
G.
ACCREDIT AND REGISTER TAX AGENTS This simply means that the CIR has the sole power to accredit tax practitioners or CPAs who can audit financial statements. Individuals and GPPs and their representatives who are denied accreditation may appeal such denial to the SOF, who shall rule on the appeal within 60 days from receipt of such appeal. Failure of the SOF to rule on the appeal within the prescribed period shall be deemed as approval of the application for accreditation of the appellant.
H.
PRESCRIBE ADDITIONAL DOCUMENTARY REQUIREMENTS
PROCEDURAL
OR
This is a catch all provision. Sec. 6[H] of the Tax Code authorizes the CIR to prescribe the manner and compliance with any documentary or procedural requirements in connection with the submission or preparation of financial statements accompanying tax returns. TAXATION 2 MIDTERMS| maru.mhealler | 404
I.
POWER NOT TO ALLOW THE WITHDRAWAL OF ANY RETURN, STATEMENT OR DECLARATION, ALTHOUGH THE SAME MAY BE AMENDED (Not included in syllabus, found in Mamalateo) Any return, statement or declaration filed in any office authorized to receive the same shall not be withdrawn. However, the same may be modified, changed or amended within 3 years from the date of such filing, provided that no notice for audit or investigation of such return, statement or declaration has, in the meantime, been actually served upon the taxpayer. (Sec. 6[A], NIRC)
IV.
thousand pesos (P 500K) or less and minor criminal violations; -
The power to compromise is the power to lessen the tax liability of the taxpayer. On the other hand, the power to abate is the power to cancel the tax liability of the taxpayer.
-
Basic deficiency taxes would mean the taxes due to a taxpayer without regard to any interest, surcharge or penalties.
-
The exception in this power is when the deficiency assessment has been issued by the regional offices involving basic deficiency taxes of 500K or less.
AUTHORITY OF THE COMMISSIONER TO DELEGATE POWER
Example:
GR:
If basic deficiency tax is 400K but was issued by the CIR, no compromise or abatement allowed.
The CIR may delegate the powers vested in him to subordinate officials with the rank equivalent to a division chief or higher. Exceptions: The following powers of the CIR shall NOT be delegated:
-
10% if on the ground that taxpayer’s financial position demonstrates a clear inability to pay the assessed tax; or
(a) Power to recommend the promulgation of rules and regulations by the Secretary of Finance; -
This power is an exclusive to the CIR. (See comments under Outline III.A)
(b) Power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of the Bureau; -
-
-
(c)
22
Rulings of First Impression are rulings that are novel as to the issues. These involve issues with no established precedent.
40% if on the ground that a reasonable doubt as to the validity of the claim against the taxpayer exists. -
The CIR may abate the tax liability by foregoing totally the collection of taxes or in most cases, foregoing only the penalties, surcharges and interests.
-
Grounds for entering into compromise:
If the issue raised by a taxpayer is one which has never been addressed similarly in the past, it has to be the CIR who will issue such rulings. Otherwise, if it’s not a ruling of first impression, the general rule is that a deputy commissioner or an assistant commissioner may sign a ruling that already has many precedents. If there are existing rulings which the CIR believes that should have been interpreted the other way around, only the CIR can issue and sign the reversal, modification and revocation of such existing ruling. Under the general principles, the CIR or an officer of the Bureau is not bound by the interpretations made by his predecessors.
Power to compromise or abate any tax liability EXCEPT assessments issued by the regional offices involving basic deficiency taxes of five hundred
The CIR can enter into compromise reducing the tax liability to the extent of:
(1) A reasonable doubt as to the validity of the claim against the taxpayer exists; or (2) The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax. -
Grounds for abatement: (1) The tax or any portion thereof appears to be unjustly or excessively assessed; or (2) The administration and collection costs involved do not justify the collection of the amount due.
(d) Power to assign or reassign internal revenue officers to establishments where the articles subject to excise tax are produced or kept. TAXATION 2 MIDTERMS| maru.mhealler | 404
-
The power to assign or reassign internal revenue officers is not an exclusive power of the CIR per se.
1.
Implement laws, policies, plans, programs, rules and regulations of the department in the regional area;
-
It is only when excisable articles are involved that such assignment or reassignment becomes a non-delegable power of the CIR.
2.
Administer and enforce internal revenue laws and rules regulations, including the assessment and collection of all internal revenue taxes, charges and fees;
-
Excisable articles are articles where liability for excise tax would fall or would be due at the time that these are withdrawn from its place of production or from the place where it is kept. (The word ‘sold’ is not provided herein.)
3.
Issue Letters of Authority for the examination of taxpayers within the region;
4.
Provide economical, efficient and effective service to the people in the area;
5.
Coordinate with regional offices or other departments, bureaus and agencies in the area;
Even if there are excisable articles in SM and Metro, there’s no need for assignment and reassignment of internal revenue officers because these are places where the articles are “sold” not produced or kept.
6.
Coordinate with local government units in the area;
7.
Exercise control and supervision over the officers and employees within the region; and
But for warehouses and production places of excisable articles, there has to be assigned revenue officers because the payment of taxes would be upon withdrawal of these items.
8.
Perform such other functions as may be provided by law and as may be delegated by the Commissioner (Sec. 10, NIRC).
Example:
B.
If the articles kept or produced are not excisable, the CIR need not be the one who will make the assignment or reassignment of revenue officers. -
-
V.
OTHER MATTERS A.
It shall be the duty of every Revenue District Officer to examine the efficiency of all officers and employees of the BIR under his supervision, and to report in writing to the CIR, through the Regional Director, any neglect of duty, incompetence, delinquency, or malfeasance in office of any internal revenue officer of which he may obtain knowledge, with a statement of all facts and any evidence sustaining each case (Sec. 11, NIRC). C.
AGENCIES AND DEPUTIES FOR COLLECTION OF NIRC TAXES 1.
DUTIES OF THE REVENUE REGIONAL DIRECTOR (Not discussed by Mam Tiu) The law vests the Regional Director the following powers:
23
It shall be the duty of every Revenue District Officer or other internal revenue officers and employees to ensure that all laws, rules and regulations affecting national internal revenue are faithfully executed and complied with, and to aid in t he prevention, detection and punishment of frauds or delinquencies in connection therewith.
In order to avoid building good relations and familiarity between the owner of the establishment and the internal revenue officers, there has to be continuous assignment and reassignment or reshuffling of officers. Otherwise, it would be easy to escape excise taxes with simply an agreement between the officer and the establishment owner. Being a special case, it has to be the CIR who shall exercise the said power since he is not privy to the different places nationwide where establishments are keeping or producing excisable articles.
DUTIES OF REVENUE DISTRICT OFFICERS AND OTHER INTERNAL REVENUE OFFICERS (Not discussed by Mam Tiu)
Commissioner of Customs and his subordinates with respect to NIRC taxes on imported goods -
2.
Collection of VAT on importation
Head of appropriate government office and his subordinates, with respect to energy tax
TAXATION 2 MIDTERMS| maru.mhealler | 404
3.
VI.
Banks duly accredited by the CIR , with respect to payments of NIRC taxes authorized to be made through banks
RULE ON ESTOPPEL A.
ESTOPPEL AGAINST THE GOVERNMENT The principle in tax law enforcement is: The Government is not estopped by the mistakes or errors of its agents; erroneous application and enforcement of law by public officers do not block the subsequent correct application of statutes. (Life Blood Doctrine)
estopped from collecting taxes by the mistake, negligence, or omission of its agents because: . . . Upon taxation depends the Government ability to serve the people for whose benefit taxes are collected. To safeguard such interest, neglect or omission of government officials entrusted with the collection of taxes should not be allowed to bring harm or detriment to the people, in the same manner as private persons may be made to suffer individually on account of his own negligence, the presumption being that they take good care of their personal affairs. This should not hold true to government officials with respect to matters not of their own personal concern. This is the philosophy behind the government's exception, as a general rule, from the operation of the principle of estoppel .
B.
But like other principles of law, this admits of exceptions in the interest of justice and fair play, as where injustice will result to the taxpayer.
While the principle of estoppel may not be invoked against the Government, this is not necessarily true in the case of the taxpayer. (Life Blood Doctrine)
PNOC v. CA
Thus, in one case (CIR v. Suyoc Consolidated Mining Co., 104 Phil. 819), the taxpayer made several requests for the reinvestigation of its tax liabilities such that the Government, acceding to the taxpayer’s request, postponed the collection of its liability. The taxpayer cannot later on be permitted to raise the defense of prescription inasmuch as his previous requests for reinvestigation have the effect of placing him in estoppel.
The Government cannot be estopped from collecting taxes by the mistake, negligence, or omission of its agents.
The new BIR Commissioner, Commissioner Ong, had acted well within his powers when he set aside the compromise agreement, dated 22 June 1987, after finding that the said compromise agreement was without legal basis. When he took over from his predecessor, there was still a pending motion for reconsideration of the said compromise agreement, filed by private respondent Savellano on 24 March 1988. To resolve the said motion, he reviewed the compromise agreement and, thereafter, came upon the conclusion that it did not comply with E.O. No. 44 and its implementing rules and regulations. It had been declared by this Court in Hilado v. Collector of Internal Revenue, et al., that an administrative officer, such as the BIR Commissioner, may revoke, repeal or abrogate the acts or previous rulings of his predecessor in office. The construction of a statute by those administering it is not binding on their successors if, thereafter, the latter becomes satisfied that a different construction should be given. It is evident in this case that the new BIR Commissioner, Commissioner Ong, construed E.O. No. 44 and its implementing rules and regulations differently from that of his predecessor, former Commissioner Tan, which led to Commissioner Ong’s revocation of the BIR approval of the compromise agreement, dated 22 June 1987. Such a revocation was only proper considering that the former BIR Commissioner’s decision to approve the said compromise agreement was based on the erroneous construction of the law (i.e., E.O. No. 44 and its implementing rules and regulations) and should not give rise to any vested right on PNOC. Furthermore, approval of the compromise agreement and acceptance of the compromise payment by his predecessor cannot estop BIR Commissioner Ong from setting aside the compromise agreement, dated 22 June 1987, for lack of legal basis; and from demanding payment of the deficiency withholding tax from PNB. As a general rule, the Government cannot be
24
ESTOPPEL AGAINST THE TAXPAYER
VII.
SOURCES OF REVENUE TAXES
NATIONAL
INTERNAL
(a) Income tax; (b) Estate and donor’s taxes; (c)
Value-added tax;
(d) Other percentage taxes; (e) Excise taxes; (f)
Documentary stamp taxes; and
(g)
Such other taxes as are or hereafter may be imposed and collected by the BIR (Sec. 21, NIRC)
Note: Real Property Tax is not a revenue tax; it belongs to local taxes, provided for under the Local Government Code.
TAXATION 2 MIDTERMS| maru.mhealler | 404
-
NIRC REMEDIES (Sections 202 to 252 and 282 of the Tax Code, as amended) 2.
VIII.
AGENCIES INVOLVED ADMINISTRATION A.
BUREAU OF INTERNAL REVENUE
B.
BUREAU OF CUSTOMS
C.
LOCAL GOVERNMENT Treasurers)
UNITS
IN
TAX
After Payment a.
Claim for Tax Refund
b.
Claim for Tax Credit
The taxpayer is required to exhaust all administrative remedies first before recourse to judicial remedies can be had. This is in order to give chance to those actually involved in the assessment or collection of taxes to reevaluate their actions. (Assessors
and B.
JUDICIAL REMEDIES 1.
REMEDIES OF THE TAXPAYER
Civil Action a.
Appeal to the CTA, SC
b.
Action to contest forfeiture of chattel -
IX.
KINDS OF REMEDIES A.
ADMINISTRATIVE Remedies) 1.
REMEDIES
(Extrajudicial c.
Petition or Request for Reinvestigation -
-
An assessment that has been issued against a taxpayer is protested. Motion for reconsideration is the same as a motion for re-evaluation. It refers to a plea for re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve a question of fact or law or both.
2.
b.
KINDS OF ASSESSMENTS 1.
Self Assessment -
Entering into Compromise -
25
But a motion for reinvestigation requires a reinvestigation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present. It may also involve a question of fact or law or both.
If taxpayer is partially agreeable to the assessment, he may enter into a compromise lowering the payment of taxes to the extent of 40% or 10% (depending on the ground for compromise)
Filing of criminal complaint against erring BIR officials
TAX ASSESSMENTS BY THE BIR A.
-
For any whimsical or capricious act resulting to actual damages to the taxpayer, the taxpayer is allowed to file a civil case for damages against the government.
Criminal Action a.
X.
This is an action to contest the administrative remedy of the government in forfeiting your goods or properties.
Action for damages -
Before Payment a.
Compromise is a mutual covenant between two parties. It can be offered either by the government or the taxpayer.
2.
This is one in which the tax is assessed by the taxpayer himself. The amount of tax assessed is reflected in the tax return that is filed by him and the tax assessed is paid at the time he files the return. This system of simultaneous filing of return and payment of tax is known as the “pay-as-you-file” system (Sec. 56[A][1], NIRC). The tax so assessed is known as a self-assessed tax.
Deficiency Assessment -
This is an assessment made by the tax assessor whereby the correct amount of tax
TAXATION 2 MIDTERMS| maru.mhealler | 404
is determined after an examination or investigation is conducted. -
-
-
The liability is determined and is, therefore, assessed for the following reasons: i.
The amount ascertained exceeds that which is shown as tax by the taxpayer in his return;
ii.
No amount of tax is shown in the return; or
iii.
The taxpayer did not file any return at all. (Sec 56[B][1] and [2], NIRC) A deficiency tax is one where the taxpayer has already paid the amount of tax due but the BIR later on found that such amount was incorrect. In a delinquency tax, the taxpayer failed to pay the amount of the tax due.
The Court did not give credence to petitioner’s argument that Section 10 of the Tax Code limits the delegated authority to issue assessments only to the Revenue Regional Director of the region concerned. There is nothing in the aforementioned Section that expressly or impliedly so states. Stated otherwise, Section 10 of the Tax Code does not limit the term “duly authorized representative” under Section 6 of the same Code to the Revenue Regional Director of the region concerned for the purpose of issuing assessments. At most, it merely recognizes that said Regional Director is a duly authorized representative as opposed to being the sole authorized representative of the Commissioner.
6.
Erroneous Assessment -
B.
This is an assessment wherein the assessor has the power to assess but errs in the exercise of that power.
ASSESSMENT PROCESS
A deficiency tax becomes a delinquency tax if after being issued a deficiency assessment, the taxpayer does not pay the deficiency tax.
STAGES OF MAKING ASSESSMENT LOA NIC (15 days)
3.
Jeopardy Assessment PAN (15 days)
-
4.
FAN (30 days)
Disputed Assessment -
5.
Please see previous discussion under Outline II[D][d]
This is an assessment wherein the formal letter of demand and assessment notice is protested by the taxpayer within thirty (30) days from date of receipt thereof.
1.
Tax Audit a.
Letters of Authority -
The document which commences the tax assessment power of the BIR
-
This is an official document that empowers a Revenue Officer to examine, investigate and audit a taxpayer’s books of accounts and other accounting records in order to determine the taxpayer’s correct internal revenue tax liabilities.
-
It is intended to notify the taxpayer that he will be subject to an audit or investigation and such LoA is evidence of the Revenue Officer’s power to conduct such audit.
-
The CIR shall sign the LoA for those units reporting directly to him
-
The Regional Directors shall sign the LoA for those under his jurisdiction
Illegal and Void Assessment -
This is an assessment wherein the tax assessor has no power to act at all.
Australasia Cylinder Corp. v. CIR, CTA
Petitioner was assessed income tax deficiency for 1995. Petitioner argues that the assessment notice is void since the person who issued the same, in this case the Chief of Assessment Division, Revenue Region No. 7, did not have authority to do so. The Court ruled that Section 6 of the Tax Code applies in this case. Under the said provision, the Commissioner or his duly authorized representative may authorize the assessment of taxpayers for deficiency tax. The person who signed the assessment notice in this case is a duly authorized representative of the Commissioner. After all , there is presumption of regularity in the exercise of official functions coupled with the fact that respondent CIR himself affirms that the said revenue official is duly authorized to do so in this case.
26
TAXATION 2 MIDTERMS| maru.mhealler | 404
-
If the CIR has already issued an LoA to investigate a particular taxpayer, the RD shall desist from issuing another LoA for the same taxpayer.
-
The power to make assessments by the CIR is a delegable power.
-
Requirements of a Valid LoA: i.
The taxpayer has to properly identified;
ii.
The LoA must be given to the proper address;
iii.
Taxes to be audited must be identified. However, it is enough to say that all national internal revenue taxes shall be audited;
possession of the BIR and through the process of matching the sales and purchases from different persons, i.e., taxpayer against supplier, taxpayer against his purchases, a discrepancy is found.
be
iv.
It has to specify the year to be audited; and
v.
It is signed by the proper officer.
-
This discrepancy shall warrant the issuance of a LN.
-
A LN is longer than a LoA. It would include a notification per examination of available records with the BIR in comparison with third party information or by the process of matching; it is found that the taxpayer has a discrepancy which would result to tax deficiency plus surcharges and interests.
-
As GR, the taxpayer may amend, modify or withdraw his return within three years from the date of filing. However, once issued a LN or LoA, the taxpayer will be barred from amending, modifying or withdrawing his tax return (Sec 6[A], NIRC).
CIR v. Sony Philippines, Inc.
Example:
Sony Philippines was ordered examined for “the period 1997 and unverified prior years” as indicated in the Letter of Authority. The audit yielded assessments against Sony Philippines for deficiency VAT and FWT, viz: (1) late remittance of Final Withholding Tax on royalties for the period January to March 1998 and (2) deficiency VAT on reimbursable received by Sony Philippines from its offshore affiliate, Sony International Singapore (SIS).
If a taxpayer has received a LoA for the year 2008, even if audit is to start a month after, the taxpayer cannot amend his return anymore. Since the LoA was served on him, he can no longer withdraw and amend his return. However, in the same example, the taxpayer can still withdraw and amend his 2009 or 2007 return (as long as it does not pertain to 2008). The LoA received was for audit of a particular year (2008). So returns for years other than that which will be audited can still be amended, modified or withdrawn.
The Court held that a Letter of Authority should cover a taxable period not exceeding one year and to indicate that it covers ‘unverified prior years’ should be enough to invalidate it. In addition, even if the Final Withholding Tax was covered by Sony Philippines’ fiscal year ending March 1998, the same fell outside of ‘the period 1997’ and was thus not validly covered by the Letter of Authority. -
b.
Letter Notice -
A LN is a notice issued by the CIR or his alter ego to the taxpayer saying that it has been found that the taxpayer incurred discrepancies, either under declaration of his sales or over declaration of the expenses. 2.
-
27
Requirements in order that taxpayer may amend, modify, withdraw the return he has filed:
A LN is obtained through a no-contact audit approach. An audit has been conducted without necessarily having the taxpayer’s knowledge. The audit is made from third party information in
i.
Must be within three (3) years from filing; and
ii.
Must not have received any notice for audit and investigation.
Notice of Informal Conference -
After the completion of the tax audit, the revenue officer will render a written report, stating therein the factual and legal basis of
TAXATION 2 MIDTERMS| maru.mhealler | 404
his findings and whether or not the taxpayer agrees with his findings. -
If the taxpayer is not amenable, the taxpayer shall be informed of the discrepancies in the taxpayer’s payment of taxes for the purpose of informal conference, in order to afford the taxpayer with an opportunity to present his side of the case.
-
If the taxpayer fails to respond within 15 days from date of receipt of the notice for informal conference, he shall be considered in default, in which case, the Revenue Officer shall endorse the case for appropriate review and issuance of deficiency tax assessment, if warranted (Sec. 3.1.1. RR No. 12-99, Sept. 6, 1999)
-
During the NIC, there is a discussion of what the findings of the audit and if the taxpayer is agreeable with the findings, he will pay the assessed tax. If the taxpayer is not amenable, he is requested to file a position paper. If the taxpayer does not file, it does not matter. After the NIC, if the taxpayer does not pay the tax assessed, the BIR will issue a PAN, a communication of the preliminary findings in a more formal manner but not yet the formal demand of payment.
-
If after review and evaluation, it is determined that there exists sufficient basis to assess the taxpayer for any deficiency tax(es), a taxpayer shall be issued a PAN for the proposed assessment, showing in detail, the facts and the law, rules and regulations, or jurisprudence on which the proposed assessment is made.
-
If the taxpayer fails to respond within fifteen (15) days from date of receipt of the PAN, he shall be considered in default, in which case, a formal letter of demand and assessment notice shall be caused to be issued, calling for payment of the taxpayer’s deficiency tax liability, inclusive of applicable penalties (Sec. 3.1.2, RR No. 1299)
-
PAN is a communication issued by the BIR office informing the taxpayer who has been audited of the findings of the revenue officer, following review of these findings.
-
PAN is a due process requirement, giving the taxpayer every chance to contest the assessment or findings.
-
The PAN must be:
-
-
-
3.
The issuance by the BIR of the LN and the subsequent receipt of the taxpayer of such LN will not prevent the CIR or his authorities from issuing a LoA covering the same period, the same tax, considering that the LoA is for the purpose of a comprehensive audit of the taxpayer’s liability. (No double jeopardy)
In writing, and Should inform the taxpayer of the law and the facts on which the assessment is made.
Otherwise, the assessment shall be void. -
After service of the PAN, the taxpayer is given 15 days to make a reply. If the taxpayer does not file a reply to the PSN, the tax assessment made in the PAN will be carried over or reflected in the Final Assessment Notice (FAN).
If the taxpayer has already settled the assessment in the LN, he is still liable under a subsequently issued LoA unless the findings of the LoA pertain exactly to the same violations. If the violation as found out in the LoA is for the over declaration or over claiming of expenses, the taxpayer will still have to settle his assessment for deficiency taxes as found in the comprehensive audit.
Exceptions to Prior Notice of the Assessment – The notice for informal conference and the preliminary assessment notice shall not be required in any of the following cases, in which case, issuance of the FAN for the payment of the taxpayer’s deficiency tax liability shall be sufficient:
Issuance of LN is not a waiver of the CIR’s right to look into comprehensively the records of the taxpayer or books of accounts.
(1) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the tax return filed by the taxpayer;
Pre-Assessment Notice Reporting Notices
(PAN)
and
Post-
The taxpayer need not be given a PAN if the mathematical error is patent on the face of the return he has filed. Example:
28
TAXATION 2 MIDTERMS| maru.mhealler | 404
If tax liability should have been 10M but taxpayer typed in just 1M, he is stil l liable for 9M. (2) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent;
(5) When an article locally purchased or imported by an exempt person, such as but not limited to, vehicles capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons.
The withholding agent here is the taxpayer under audit. When a withholding tax is withheld, it is not the withholding agent’s tax liability but someone else’s. So that if the withholding agent under remits the same, it’s a deficiency. The BIR can proceed with the issuance of a FAN without need of PAN.
(3) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year;
Whenever a taxpayer has overpaid his taxes, whether illegally or erroneously, his remedy is either to file a claim for refund or to carry it over and offset it against future tax liabilities. The remedies are alternative. The taxpayer can’t choose both. In this case, a PAN is not necessary when the taxpayer has filed a claim for refund or tax credit and at the same time has carried over the overpaid taxes and offset them against future tax liabilities. The government is jeopardized in such case. Example: Assume that a corporation has for the first three quarters made 1M quarterly th payments. But towards the 4 quarter, business slowed down and the corporation incurred losses. So that the final annual tax liability is only 1M. There is an overpayment of 2M. The corporation can opt to carry over the overpayment or apply for a tax refund. If it took both options, the corporation shall be subject for an assessment, no need for PAN.
(4) When the excise tax due on excisable articles has not been paid;
29
Includes technical importation and local purchases where the importation or purchase was made by an exempt person and subsequently sold to a non-exempt person. The transfer to the non-exempt person shall be assessed of tax.
CIR v. Metro Star Superama
Metro Star Superama was audited for taxable year 1999 and received a Preliminary 15-day Letter on November 15, 2001. On April 11, 2002, it received a Formal Letter of Demand dated April 3, 2002. Denying that it received a Pre-Assessment Notice and thus not accorded due process, Metro Star Superama filed a Petition with the CTA. Since the Petitioner denied receipt of the Pre-Assessment Notice, the burden of proving the same shifts to the BIR. To raise the presumption of receipt, it must be shown that (a) the letter was properly addressed with postage prepaid and (b) that it was mailed . If receipt is denied, the BIR must then show actual receipt through presentation of the registry receipt or, if the same cannot be located, at least a certification from the Bureau of Posts. The Court likewise added that the issuance of a Pre-Assessment Notice is a mandatory requirement save only on specified instances. The old rule laid down in CIR vs. Menguito that only the FAN is mandatory no longer applies since the same was ruled upon based on the old provision.
CIR v. Dominador Menguito
Menguito is a restaurateur who operated branches in the cities of Pasay and Baguio. Sometime in 1997, Menguito and his wife were informed by the Assessment Division of the BIR Baguio that the results of their investigation showed that they have undeclared sales for the periods 1991, 1992 and 1993, thereby resulting to deficiency income and percentage taxes. The BIR alleged that Menguito committed fraud with intent to evade the payment of tax by under declaring his sales. Menguito sought redress with the CTA alleging among others that the notices were not received by him. The SC said that the stringent requirement that an assessment notice be satisfactorily proven to have been issued and released or, if receipt thereof is denied, that said assessment notice have been served on the taxpayer, applies only to formal TAXATION 2 MIDTERMS| maru.mhealler | 404
assessments and not to post-reporting notices or preassessment notices.
-
The FAN is a formal demand of payment. The taxpayer, if not agreeable to the FAN, may protest the FAN within thirty (30) days from date of receipt thereof. The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect.
-
The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final, executor and demandable.
-
If and when the taxpayer has submitted relevant supporting documents during any of the stages prior to the FAN, or even prior to the protest that was filed, it can be considered as relevant supporting documents so long as it still refers to the same issues that have been discussed prior and the issues argued in the prot est.
-
The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date.
-
If the taxpayer fails to file a valid protest within the 30 day period from date of receipt of the FAN, the FAN shall become final and unappealable.
-
If the protest is denied by the CIR, the taxpayer may appeal to the CTA within thirty (30) days from date of receipt of the said decision. Otherwise, the assessment shall become final and unappealable.
-
If the CIR fails to act on the taxpayer’s protest within one hundred eighty (180) days from date of submission by the taxpayer of the required documents in support of his protest, the taxpayer may appeal to the CTA within thirty (30) days from the lapse of the 180 day period. Otherwise, the assessment shall become final and unappealable.
The post-reporting notice and pre-assessment notice merely hint at the initial findings of the BIR against a taxpayer. Neither notice contains a declaration of the tax liability of the taxpayer or a demand for payment thereof. Hence, the lack of such notices inflicts no prejudice on the taxpayer as long as the latter is properly served a formal assessment notice. However, the issuance of a valid formal assessment is a substantive prerequisite for tax collection.
Compare with CIR v. Metro Star Superama
-
4.
Formal Letter of Demand and Assessment Notice or Final Assessment Notice (FAN) -
The formal letter of demand and assessment notice shall be issued by the CIR or his duly authorized representative.
-
The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts, the law, rules and regulations, or jurisprudence on which the assessment is based, otherwise, the formal letter of demand and assessment notice shall be void.
-
The FAN shall be sent to the taxpayer only by:
-
30
An assessment if at first instance is already void, i.e., it does not state the facts and law on which the assessment is based; it cannot be validated even by the taxpayer’s intelligent protest. The assessment is void ab initio, therefore, it can never be validated.
Registered mail, or
Personal delivery
The FAN and letter of demand should always go together. The reason for this is that the information given in the FAN is inadequate for the taxpayer to make a good evaluation of the correctness of the formal assessment. Since the law requires that the factual and/or legal bases of the assessment must be stated, and this requirement is not satisfied by the issuance of FAN alone, a letter of demand thus fills up the void and explains to the taxpayer how the deficiency assessment was arrived at, including the reasons and legal bases for the assessment.
TAXATION 2 MIDTERMS| maru.mhealler | 404
PAN Taxpayer’s remedy is REPLY Taxpayer has 15 days to file reply
Reply is discretionary
FAN Taxpayer’s remedy is PROTEST Taxpayer has 30 days to file protest, 60 days to submit relevant supporting documents mandatory, Protest is otherwise, assessment shall become final and unappealable
-
5. D.
Requirements of a Valid Assessment 1.
There must be a NIC.
2.
The issuance of a PAN unless it is excused or under the exceptional cases.
3.
GOVERNING PRINCIPLES ON TAX ASSESSMENTS 1.
Assessments are prima facie presumed correct and made in good faith. -
2.
Assessments should not be based on presumptions no matter how logical the presumption might be. It must be based on actual facts. -
3.
31
That is one requirement for a FAN. In order for it to be valid, it must state very clearly the facts of the case.
Assessment is discretionary on the part of the CIR. Mandamus will not lie to compel him to assess a tax if after investigation he finds no ground to assess. -
4.
When we say that assessments are deemed to be prima facie correct and made in good faith, we are anchoring actually on the principle that every officer of the government is performing his duties regularly. We presumed that it is made in good faith unless proven otherwise.
The CIR cannot be compelled by any of his subordinates to issue assessments unless he believes there is reason to issue an assessment.
The authority vested in the CIR to assess taxes may be delegated. However, the power to make FAN cannot be delegated.
-
The issuance of a PAN is a substantive requirement, absence of which would render the entire proceeding void except when it is excused in the certain instances.
-
The ruling in CIR v. Menguito was decided under the old Tax Code where the PAN was not a substantive requirement for as long as the taxpayer was served with a FAN.
It must be in writing. -
4. C.
Assessments must be directed to the right party or to the correct taxpayer as identified.
REQUISITES OF A VALID ASSESSMENT
CIR v. Hon. Raul M. Gonzalez, Secretary of Justice, LM Camus Engineering Corporation
The formality of a control number in the assessment notice is not a requirement for its validity ; rather the contents thereof should inform the taxpayer of the declaration of deficiency tax against the taxpayer. Both the formal letter of demand and the notice of assessment shall be void if the former failed to state the fact, the law, rules and regulations or jurisprudence on which the assessment is based, which is a mandatory requirement under section 228 of the National Internal Revenue Code.
So if the CIR has already made an assessment, no subordinate can actually make another assessment for the same tax and for the same year.
No particular form prescribed as long as it is in writing.
It must state the law, legal basis, and jurisprudence and the facts upon which the assessment is made. -
Due process requirement
5.
It must contain a demand for payment.
6.
It must be made within the presc riptive period. -
The FAN must be released, sent and mailed to the taxpayer concerned within the 3 year period.
Requirements of a Final Assessment Notice: 1. It must be in writing; 2. It must state the tax, the law, jurisprudence, facts, legal basis and the computation of the liability on how it was arrived; 3. A demand to pay; 4. The process of assessment until the point of issuing the FAN must be made within the prescriptive period.
CIR v. Enron Subic Power Corporation
The BIR assessed Enron which countered by filing a Petition for Review with the CTA stating that the assessment disregarded the provisions of the Tax Code and of RR No. 12-99, when the assessment failed to provide the legal and factual bases of the TAXATION 2 MIDTERMS| maru.mhealler | 404
assessment. The CTA and CA ruled that the assessment notice must not only refer to the supporting revenue laws or regulations for the assessment but must also justify their applicability to the factual milieu of the assessment.
of the examiners of the BIR, there was a preliminary finding of gross discrepancy in the computation of the capital gains taxes due from the transactions. The Tax Code is clear that the remedies may proceed simultaneously.
The CIR insists that an examination of the facts shows that Enron was properly apprised of its tax deficiency. During the pre-assessment stage, the CIR advised Enron’s representative of the tax deficiency, informed it of the proposed tax deficiency assessment through a preliminary five-day letter and furnished Enron a copy of the audit working paper allegedly showing in detail the legal and factual bases of the assessment. The CIR argues that these steps sufficed to inform Enron of the laws and facts on which the deficiency tax assessment was based.
The SC went on to rule that the CTA did not have any jurisdiction in this case. While the laws governing the CTA have expanded the jurisdiction of the Court, they did not change the jurisdiction of the CTA to entertain an appeal only from a final decision of the Commissioner, or in cases of inaction within the prescribed period. Since in the cases at bar, the Commissioner has not issued an assessment of the tax liability of the Petitioners, the CTA has no jurisdiction.
The SC held that the assessment is not valid. Although the revenue examiners discussed their findings with Respondent’s representative during the pre-assessment stage, the same, together with the Preliminary Five-Day Letter and Petitioner’s Annex G, were not sufficient to comply with the procedural requirement of due process. The Tax Code provides that a taxpayer shall be informed (and not merely “notified” as was the requirement before) in writing of the law and the facts on which the assessment is made; otherwise, the assessment shall be void. The use of the word “shall” indicates the mandatory nature of the requirement.
E.
WHEN ASSESSMENT IS DEEMED MADE An assessment is deemed made when the FAN is finally released, mailed and sent to the taxpayer. An assessment is made within the prescriptive period if notice to this effect is released, mailed or sent by the CUR to the taxpayer within said period. The FAN must be released, mailed and sent to the taxpayer within the three (3) year prescriptive period. The FAN must be sent to the taxpayer either through:
Australasia Cylinder Corp. v. CIR
In whatever manner and form the assessment notice is written, as long as the taxpayer is informed on how the assessment was arrived at, then the requirement of said law is sufficiently met.
Registered mail; or
Personal Delivery
If the taxpayer denies receiving the FAN, the burden of proof that the assessment has been validly made shall be shifted to the BIR.
Lucas G. Adamson, et. Al. v. CIR
A deficiency tax assessment was issued against Petitioners relating to their payment of capital gains tax and VAT on their sale of shares of stock and parcels of land. Subsequent to the preliminary conference, the CIR filed with the Department of Justice her Affidavit of Complaint against Petitioners. The Court of Appeals ultimately ruled that, in a criminal prosecution for tax evasion, assessment of tax deficiency is not required because the offense of tax evasion is complete or consummated when the offender has knowingly and wilfully filed a fraudulent return with intent to evade the tax. The recommendation letter of the Commissioner cannot be considered a formal assessment as (a) it was not addressed to the taxpayers; (b) there was no demand made on the taxpayers to pay the tax liability, nor a period for payment set therein; (c) the letter was never mailed or sent to the taxpayers by the Commissioner. It was only an affidavit of the computation of the alleged liabilities and thus merely served as prima facie basis for filing criminal information. When fraudulent tax returns are involved as in the cases at bar, a proceeding in court after the collection of such tax may be begun without assessment considering that upon investigation
32
Barcelon, Roxas Securities, Inc. v. CIR
When a mail matter is sent by registered mail, there exists a presumption set forth under Sec. 3(v) Rule 131 of the Rules of Court, that it was received in the regular course of mail. The facts to be proved in order to raise this presumption are: a) The letter was properly addressed with postage prepaid; and b) That it was mailed. While a mailed letter is deemed received by the addressee in the ordinary course of mail, this is still merely a disputable presumption subject to contravention, and a direct denial of the receipt thereof shifts the burden upon the party favoured by the presumption to prove that the mailed letter was indeed received by the addressee. In the present case, petitioner denies receiving the assessment notice, and the respondent was unable to present substantial evidence that such notice was, indeed, mailed or sent by the respondent before the BIR’s right to assess had prescribed and that said notice was received by the petitioner. The respondent TAXATION 2 MIDTERMS| maru.mhealler | 404
presented the BIR record book where the name of the taxpayer, the kind of tax assessed, the registry receipt number and the date of mailing were noted. The BIR records custodian, Ingrid Versola, also testified that she made the entries therein. Respondent offered the entry in the BIR record book and the testimony of its record custodian as entries in official records .
certain that a specific document constitutes an assessment. Otherwise, confusion would arise regarding the period within which to make an assessment or to protest the same, or whether interest and penalty may accrue thereon." In the case at bar, aside from the Final Assessment Notice No. 034-34-000034-94 and demand letters all dated January 19, 1998, no other succeeding assessment notices or follow-up letters were sent or received by the respondent. Rather, it was a Preliminary Collection Letter that was subsequently received by the respondent on August 19, 1998.
In this case, the entries made by Ingrid Versola were not based on her personal knowledge as she did not attest to the fact that she personally prepared and mailed the assessment notice. Nor was it stated in the transcript of stenographic notes how and from whom she obtained the pertinent information. Moreover, she did not attest to the fact that she acquired the reports from persons under a legal duty to submit the same.
The PCL indicated a computation of respondent's alleged tax liabilities for the year 1994 and demanded from him payment within a specified period.
Furthermore, independent evidence, such as the registry receipt of the assessment notice, or a certification from the Bureau of Posts, could have easily been obtained. Yet respondent failed to present such evidence. While we have held that an assessment is made when sent within the prescribed period, even if received by the taxpayer after its expiration, this ruling makes it the more imperative that the release, mailing, or sending of the notice be clearly and satisfactorily proved. Mere notations made without the taxpayer’s intervention, notice, or control, without adequate supporting evidence, cannot suffice; otherwise, the taxpayer would be at the mercy of the revenue offices, without adequate protection or defense. In the present case, the evidence offered by the respondent fails to convince this Court that Formal Assessment Notice No. FAN-1-87-91-000649 was released, mailed, or sent before 15 April 1991, or before the lapse of the period of limitation upon assessment and collection prescribed by Section 203 of the NIRC. Such evidence, therefore, is insufficient to give rise to the presumption that the assessment notice was received in the regular course of mail. Consequently, the right of the government to assess and collect the alleged deficiency tax is barred by prescription.
The PCL can sufficiently make up for an assessment. An assessment has been described as containing not only a computation of tax liabilities but also a demand for payment within a prescribed period the ultimate purpose of which is to ascertain the amount that each taxpayer is to pay.
XI.
PERIOD OF ASSESSMENT A.
LIMITATION
UPON
GENERAL RULE The government shall be given a within 3 years after the last day prescribed by law for filing of the return or from the day the return was filed in case the return was filed beyond the period prescribed by law to make an assessment. When an assessment is invalid because it was made after the lapse of the prescriptive period, then the collection of the tax, which is covered by the prescribed assessment, becomes ineffectual.
CIR v. United International Pictures
Example: Although an assessment is deemed made when notice to this effect is released, mailed or sent by the Commissioner and it is not required that the notice be received by the taxpayer within the prescriptive period, due process requires at the very least that such notice must be served on and received by the taxpayer to enable him to determine his remedies thereon. Consequently, an assessment that has not been received by the person liable for the payment of the tax, cannot become final and executory. In the absence of evidence showing that the final assessment notices and demand letters dated January 19, 1998 were indeed sent to the respondent, what then can be considered as the assessment for purposes of reckoning the prescriptive periods? The Highest Court elucidated the importance of an assessment in this manner: "The issuance of an assessment is vital in determining the period of limitation regarding its proper issuance and the period within which to protest it. . . Necessarily, the taxpayer must be
33
The latest day for filing for the 2011 ITR shall be April 15, 2012 for taxpayers following the calendar year. In this case, the government’s right to make an assessment shall prescribe on April 15, 2012 (3 years after April 15, 2012). Example: If the taxpayer, using the calendar year basis, filed his 2011 ITR on April 10, 2012, the last day of filing is April 15, 2012. In this case, the prescription shall lie on April 15, 2015 still because the law says “within 3 years after the last day prescribed by law for filing of the return.” Example For taxpayers following the fiscal year basis, the last th th day of filing shall be the 15 day of the 4 month following the fiscal year end. TAXATION 2 MIDTERMS| maru.mhealler | 404
If a corporation has a fiscal year end of March 31, the last day of filing of its 2011 ITR shall be July 15, 2012. The 3 year prescriptive period shall end on July 15, 2015.
the amended return (not the original date of filing). But this rule applies only when the amendment made is substantial. -
An amendment is substantial when it changes the tax liability of the taxpayer.
-
The filing of an amendment return and claim for refund of overpayment does not constitute any waiver of the defense of prescription.
Example: If a taxpayer, using the calendar year basis, filed his 2011 belatedly, say, April 17, 2012, the government shall have until April 17, 2015 in order to make an assessment against the taxpayer.
Example: Example: For vat returns, they shall be filed monthly and consolidated quarterly. Quarterly vat returns shall be th filed on or before the 25 day of the month following the end of the quarter. rd
If a taxpayer is to pay for his vat liability for the 3 quarter of year 2011, the due date shall be on the th 25 day of the month following the end of the th quarter. In this case, the due date shall be 25 day of October, 2011. In case the taxpayer pays files his vat return on October 25, 2011, the government shall have until October 25, 2014 to make an assessment against the taxpayer. Example: For every quarterly vat return, two monthly vat returns have been filed prior. And for monthly vat th returns, the due date shall be the 20 day of the following month.
If after filing an ITR, taxpayer realized that he left out expenses which could have reduced his income and thus, his tax liability, he decided to amend his return on June 15, 2011. The reckoning date for the prescription period shall be June 15, 2011 and not April 15, 2011. Therefore, the government has until June 15, 2014 in order to make an assessment. Example: If in the filling up of ITR, a comma in the taxpayer’s name was left out, the taxpayer may amend the ITR. But the reckoning date shall still be the last day of filing prescribed by law for filing of the return or the date the return was filed if the same was filed beyond the period prescribed by law. The amendment made is not substantial. Example:
For example, in connection with the preceding example, the taxpayer filed for his August vat return on September 20, 2011. The government shall still have until October 25, 2014 to make an assessment against the taxpayer. In short, it does not coincide with the due date of the monthly vat return. Since the monthly vat returns are consolidated at the end of the quarter, the prescriptive period to be followed will be October 25, 2014 the August VAT rd return is still under the 3 quarter VAT audit. Example: For expanded withholding tax, the returns are to be th filed on a monthly basis – on or before the 10 day of the following month.
When the taxpayer has incurred losses, such must be claimed during the year the losses were incurred. Otherwise, it cannot be claimed for the subsequent years. If the taxpayer amends his return to reflect losses not previously claimed, this is still a substantial amendment even if the losses do not affect the tax liability (since there is loss, no tax liability). Even if the losses will not affect the tax liability for the current year, the same losses may still be carried over to the subsequent year and hence, affect the tax liability of the succeeding years. The reckoning date for the prescriptive period should be changed from the date of filing to the date of amendment.
So for a January 2010 EWT return, the BIR has until February 10, 2013 in order to make an assessment for such return. Amended Tax Return -
34
Date of reckoning for the prescriptive period for the government to make an assessment will be from the date of filing of TAXATION 2 MIDTERMS| maru.mhealler | 404
intent to defraud or intent to evade the tax (tax evasion).
CIR v. Mirant Navotas Corp.
The decision of the CTA established that subject assessments dated December 14, 1998 were issued outside the statutory prescriptive period. Records show that respondent filed its Annual Income Tax Return for the fiscal year ending June 30, 1995 on October 16, 1995. As to its Expanded Withholding Tax (EWT), which is filed on a monthly basis, records disclosed that it was filed on July 10, 1995. With regard to its Value Added Tax (VAT), the same was filed on July 20, 1995. Respondent's 1995 income, expanded withholding and value added taxes could have been validly assessed only until October 15, 1998, July 9, 1998 and July 19, 1998, respectively. However, respondent's income expanded withholding and value added taxes were assessed only on December 14, 1998, beyond the three (3)-year prescriptive period.
-
When there is fraudulent filing of tax returns, the ten-year period applies in lieu of the three-year prescriptive limit. The prescriptive period in this instance is counted from the discovery of the fraud, not from the filing of the fraudulent return. Incidentally, no period for the discovery of fraud is fixed by law.
-
Fraud must first be proved as a fact so that the ten-year prescriptive period may apply.
-
Mere understatement of gross earnings does not itself prove fraud.
As correctly found by the CTA, the waiver executed by the respondent on September 23, 1998 was defective and invalid because it was not accepted and agreed to by the Revenue District Officer, as mandated by the NIRC and RMO No. 20-90. The signature of the Revenue District Officer merely attested to the existence of the waiver. His signature could not in any way indicate that the Bureau has accepted and agreed to the waiver. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. Under RMO No. 20-90, there is perfection of the agreement only upon acceptance of the waiver by the BIR. However, as correctly pointed out by the CTA, even on the assumption that the waiver is valid, the deficiency income tax assessment against respondent is still bereft of any legal basis. As records show, under the terms of its registration, respondent is entitled to an incentive of income tax holiday for six (6) years or up to June 30, 1996. Petitioner's income tax return for the fiscal year ending June 30, 1995 indicates that said income tax holiday was availed of. We also agree with the CTA that the waiver executed on September 23, 1998 cannot be applied with respect to the assessment of deficiency expanded withholding and value added taxes since the period to assess these taxes has already prescribed on July 9, 1998 and July 19, 1998, respectively, long before the execution of the waiver.
B.
EXCEPTIONS 1.
Within 10 years after the discovery of the falsity, fraud or omission; -
35
False return is not necessarily the same as a fraudulent return. In a false return, it is a return not somehow reflecting the true data but without the intent of evading the payment of taxes. It can be the result of gross mistake, gross neglect, or gross carelessness of the taxpayer. There is purely mistake. But fraudulent return, there is
-
3 instances which falls under the 10-year prescriptive period:
Filing a false return
Filing a fraudulent return
Non-filing of any return at all when it is necessary
CIR v. Arturo Tulio
On February 28, 1991, Tulio received from CIR a demand letter with two final assessment notices requesting payment of his deficiency percentage taxes for the taxable years 1986 and 1987. Taxpayer failed to act on the FAN. The CIR issued a warrant of distraint and/or levy in order to enforce the collection of taxes against Tulio. However, he has no properties which can be placed under distraint and/or levy. CIR sent letters to taxpayer giving him opportunity to settle his deficiency tax liabilities but the latter was obstinate. Thus, CIR filed with the RTC a civil action for the collection of the deficiency percentage taxes. Taxpayer filed a motion to dismiss alleging that the complaint was filed beyond the three-year prescriptive period provided by Section 203 of the NIRV. As shown by the records, respondent failed to file a tax return for 1986 and 1987. Such case is covered by Section 222 of the NIRC providing for a ten-year prescriptive period from the discovery of the omission to file a tax return within which a proceeding in court may be filed . On September 14, 1989, petitioner found respondent’s omission to file a tax return. Hence, the running of the ten-year prescriptive period within which to assess and collect the taxes due from respondent commenced on that date. The two FAN were issued on February 28, 1991, well within the prescriptive period. When respondent failed to question or protest the deficiency assessments thirty (30) days therefrom, or until March 30, 1991, the same became final and executor. Thereby the RTC had jurisdiction over this case, not the CTA for it is the ordinary courts which can entertain BIR money claims based on assessments that have become final and executory . TAXATION 2 MIDTERMS| maru.mhealler | 404
acceptance of the BIR and the perfection of the agreement. 2.
Where there is a waiver of the statute of limitations -
Waiver in a sense that the taxpayer is actually relinquishing or waiving his right to the 3-year period. It means further that government is given by the taxpayer more time than 3 years within which to comply with the assessment process and issuing the FAN. It’s an extension by mutual agreement.
Requirements of a Valid Waiver: a. The waiver must be in the proper form prescribed by RMO 20-90. The phrase “but not after ______ 19 ___”, which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up. b. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. c.
The waiver should be duly notarized.
d. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. e. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. f.
36
The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the
CIR v. FMF Development Corp.
CIR assessed FMF for taxable year 1995. On February 9, 1999, FMF President executed a waiver of the 3-year prescriptive period to assess. When FMF received Petitioner’s assessment notice, it protested the same alleging prescription based on its position that the waiver executed was invalid. The CIR’s right to assess has prescribed. The requirements for a valid waiver as laid down in RMO 20-90 are mandatory to give effect to Section 222 of the Tax Code. Specifically, the flaws in the waiver executed by FMF were as follows: (a) it was not signed by the Commissioner even if the assessment in involves more than P1 million; (b) there is no stated date of acceptance by the Commissioner or his representative; and (c) the taxpayer was not furnished a copy of the BIR-accepted waiver showing the date of acceptance to show that it occurred prior to the lapse of the 3-year period. Another defect is the failure to specify the validity period/duration of the waiver.
CIR v. Mirant Navotas Corp.
However, in the assailed decision, the CTA held that the waiver of the statute of limitations executed by respondent on September 23, 1998 was defective and invalid since the latter did not comply with the requirement of Section 222 (b) of the National Internal Revenue Code (NIRC), which provides that the waiver must be agreed upon and signed by both the Commissioner and the taxpayer. In the present case, the CTA observed that the waiver, while signed by the respondent, was merely attested to by the petitioner through Revenue District Officer Anselmo G. Adriano. It further argued that an agreement is different from an attestation. To agree means to give assent while to attest means to bear witness. Section 22 (b) of the NIRC requires that t he waiver be agreed upon and not attested to only. A waiver of the statute of limitations under the NIRC, to a certain extent, is a derogation of the taxpayer's right to security against prolonged and unscrupulous investigations and must therefore be carefully and strictly construed. As correctly found by the CTA, the waiver executed by the respondent on September 23, 1998 was defective and invalid because it does not conform with the provisions of RMO No. 20-90. The waiver was defective on the government side because it was not accepted and agreed to by the Revenue District Officer, as mandated by the NIRC and RMO No. 20-90. The signature of the Revenue District Officer merely attested to the existence of the waiver. His signature could not in any way indicate that the Bureau has accepted and agreed to the waiver. The waiver is not a unilateral act by the taxpayer or the BIR, but is a bilateral agreement between two parties to extend the period to a date certain. Under RMO No. 20-90, there is perfection of the agreement only upon acceptance of the waiver by the BIR. TAXATION 2 MIDTERMS| maru.mhealler | 404
Hence, we rule that the waiver in this case is invalid and defective and the three (3)-year prescriptive period was not tolled or extended.
-
This provision only applies when the taxpayer fails to inform the CIR of the change of address.
-
There is a legal procedure to follow in order to inform the CIR in case of a change of address. He cannot merely just change the address in his return.
-
If you change an address, you have to file a return specifically for the purpose of changing your address with the current district office and it has to be transmitted to the other district office of the BIR.
-
If the procedure for the change of address has been followed and yet the tax authorities still sent the FAN to your old address, then the FAN would probably prescribe if it’s not actually received by you because you properly informed the government.
CIR v. Kudos Metal Corporation
The requirements for a valid waiver as laid down in RMO 20-90 and RDAO No. 5-01 are mandatory to give effect to Section 222 of the Tax Code. Specifically, the flaws in the waiver executed by Kudos Metal were as follows: (a) there was no notarized written authority in favor of the signatory for the company; (b) there is no stated date of acceptance by the Commissioner or his representative; and (c) the fact of the receipt of the copy was not indicated in the original waivers. Neither can it be said that by merely executing the waiver the taxpayer is already estopped from disputing an action by the CIR beyond the statutory 3-year period since the exception under the Suyoc case (i.e., when the delays were due to taxpayer’s acts) does not apply.
XII.
SUSPENSION OF THE RUNNING OF THE STATUTE OF LIMITATIONS FOR MAKING ASSESSMENTS Instances when the 3-year prescriptive period for making an assessment is suspended: 1. When the Commissioner is prohibited from making the assessment 2. When the taxpayer requests for the reinvestigation which is granted by the Commissioner -
A request for reinvestigation refers to a plea for reinvestigation of an assessment on the basis of newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation.
-
If a request for reinvestigation is made but it’s not granted by the CIR, it will not suspend the running of the prescriptive period.
-
It is suspended during the period that the CIR is actually making the reinvestigation and will resume again once a decision has been made.
3. 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; Provided, that if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended
37
4.
When the taxpayer is out of the Philippines
Manotok Realty Inc. v. CIR
The CTA correctly ruled that the request for reinvestigation/reconsideration and the granting of the same by the respondent effectively suspended the running of the statute of limitations in accordance with Sec. 224 of the Tax Code, which provides that: SECTION 224. Suspension of the running of statute. — The running of the statute of limitations provided in Sections 203 and 223 on the making of assessments and the beginning of distraint or levy or a proceeding in Court for collection, in respect of any deficiency, shall be suspended for the period during which the Commissioner is prohibited from making the assessment or beginning distraint or levy or a proceeding in Court and for sixty days thereafter, when the taxpayer requests for a reinvestigation which is granted by the Commissioner. . . . The request for reinvestigation made by the taxpayer, which petitioner did several times, suspends the running of the prescriptive period provided in Sec. 203 of the Tax Code for the assessment and collection of taxes. In like manner, if the assessment is revised after a request for reconsideration by the taxpayer, the period used in the determination is excluded from the total prescriptive period for collection.
TAXATION 2 MIDTERMS| maru.mhealler | 404
Estate of the Late Juliana Diez vda de Gabriel v. CIR
During the lifetime of the decedent, her business affairs were managed by the PhilTrust. PhilTrust filed her ITR for 1978 not indicating that the decedent had died. The BIR found a deficiency income tax for the year. Thus, in November 18, 1982, the BIR sent a demand letter and assessment notice addressed to the decedent “c/o PhilTrust. Respondent CIR issued warrants of distraint and levy to enforce the collection and served the same upon her heir, Francisco Gabriel. The probate court denied BIR’s claim against the estate on the ground that no proper notice of the tax assessment was made on the proper party. Since the relationship between PhilTrust and the decedent was automatically severed the moment of the taxpayer’s death, none of the PhilTrust’s acts or omissions could bind the estate of the taxpayer. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedent’s death, the consequence thereof merely refer to the imposition of certain penal sanction on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessment or waiver of the notice requirement for such assessment. The most crucial point to be remembered is that PhilTust had absolutely no legal relationship with the deceased or to her Estate. There was therefore no assessment served on the estate as to the alleged underpayment of tax. Absent this assessment, no proceeding could be initiated in court for collection of said tax; therefore, it could not have become final, executory and incontestable. Respondent’s claim for collection filed with the court only on November 22, 1984 was barred for having been made beyond the five-year prescriptive period set by law.
XIII.
The case was decided in light of the Old Tax Code which provided for a five-year prescriptive period. The three-year prescriptive period took effect only with the 1997 NIRC.
ADMINISTRATIVE ASSESSMENT A.
TO
THE
KINDS 1.
2.
38
PROTEST
Request for Reconsideration -
The same as Request for Re-evaluation.
-
It refers to a plea for re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve a question of fact or law or both.
-
Does not toll the prescriptive period
Request for Reinvestigation
-
It requires a reinvestigation of an assessment on the basis of newly discovered or additional evidence that a taxpayer intends to present. It may also involve a question of fact or law or both.
-
Tolls the prescriptive period
CIR v. Philippine Global Communication, Inc.
Among the exceptions provided by the aforecited section, and invoked by the CIR as a ground for this petition, is the instance when the taxpayer requests for a reinvestigation which is granted by the Commissioner. However, this exception does not apply to this case since the respondent never requested for a reinvestigation. More importantly, the CIR could not have conducted a reinvestigation where, as admitted by the CIR in its Petition, the respondent refused to submit any new evidence. Revenue Regulations No. 12-85, the Procedure Governing Administrative Protests of Assessment of the Bureau of Internal Revenue, issued on 27 November 1985, defines the two types of protest, the request for reconsideration and the request for reinvestigation, and distinguishes one from the other in this manner: Section 6. Protest. - The taxpayer may protest administratively an assessment by filing a written request for reconsideration or reinvestigation specifying the following particulars: x x x x For the purpose of protest herein— (a) Request for reconsideration-- refers to a plea for a re-evaluation of an assessment on the basis of existing records without need of additional evidence. It may involve both a question of fact or of law or both. (b) Request for reinvestigation—refers to a plea for re-evaluation of an assessment on the basis of newlydiscovered evidence or additional evidence that a taxpayer intends to present in the investigation. It may also involve a question of fact or law or both. The main difference between these two types of protests lies in the records or evidence to be examined by internal revenue officers, whether these are existing records or newly discovered or additional evidence. A re-evaluation of existing records which results from a request for reconsideration does not toll the running of the prescription period for the collection of an assessed tax. Section 271 distinctly limits the suspension of the running of the statute of limitations to instances when reinvestigation is requested by a taxpayer and is granted by the CIR. The Court provided a clear-cut rationale in the case of Bank of the Philippine Islands v. Commissioner of Internal Revenue explaining why a request for reinvestigation, and not a request for reconsideration, interrupts the running of the statute of limitations on the collection of the assessed tax: Undoubtedly, a reinvestigation, which entails the reception and evaluation of additional evidence, will take more time than a reconsideration of a tax TAXATION 2 MIDTERMS| maru.mhealler | 404
assessment, which will be limited to the evidence already at hand; this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax, while the latter cannot. In the present case, the separate letters of protest dated 6 May 1994 and 23 May 1994 are requests for reconsideration. The CIR’s allegation that there was a request for reinvestigation is inconceivable since respondent consistently and categorically refused to submit new evidence and cooperate in any reinvestigation proceedings.
B.
PROCESS OF THE ADMINISTRATIVE PROTEST 1.
Protest of Assessment by the Taxpayer -
-
The taxpayer or his duly authorized representative may protest administratively against the FAN within thirty (30) days from date of receipt thereof. If there are several issues involved in the FAN but the taxpayer only disputes or protests against the validity of some of the issues raised, the taxpayer shall be required to pay the deficiency tax or taxes attributable to the undisputed issues, in which case, a collection letter shall be issued to the taxpayer calling for payment of the said deficiency tax, inclusive of the applicable surcharge and/or interest.
-
No action shall be taken on the taxpayer’s disputed issues until the taxpayer has paid the deficiency tax or taxes attributable to the said undisputed issues.
-
The prescriptive period for assessment or collection of the tax or taxes attributable to the disputed issues shall be suspended.
-
The taxpayer shall state the facts, the applicable law, rules and regulations, or jurisprudence on which his protest is based, otherwise, his protest shall be considered void and without force and effect.
-
Requisites of a Valid Protest:
39
It is made in writing, and addressed to the CIR; It contains the information required by the rule; It states the facts, applicable law, rules and regulations or jurisprudence on which his protest is based, otherwise the protest shall be considered void and without force and effect It is filed within the period prescribed by law
-
If the taxpayer fails to file a valid protest against the FAN within thirty (30) days from date of receipt thereof, the assessment shall become final, executory and demandable.
Allied Banking Corporation v. CIR
A careful reading of the Formal Letter of Demand with Assessment Notices leads us to agree with petitioner that the instant case is an exception to the rule on exhaustion of administrative remedies, i.e., estoppel on the part of the administrative agency concerned. We find the CIR estopped from claiming that the filing of the Petition for Review was premature because petitioner failed to exhaust all administrative remedies. From the language and tenor of the demand letter, it seems that the CIR has already made a final decision on the matter and that the remedy of petitioner is to appeal the final decision within 30 days. In this case, records show that petitioner disputed the PAN but not the Formal Letter of Demand with Assessment Notices. Nevertheless, we cannot blame petitioner for not filing a protest against the Formal Letter of Demand with Assessment Notices since the language used and the tenor of the demand letter indicate that it is the final decision of the respondent on the matter. We have time and again reminded the CIR to indicate, in a clear and unequivocal language, whether his action on a disputed assessment constitutes his final determination thereon in order for the taxpayer concerned to determine when his or her right to appeal to the tax court accrues. Viewed in the light of the foregoing, respondent is now estopped from claiming that he did not intend the Formal Letter of Demand with Assessment Notices to be a final decision. Although there was no direct reference for petitioner to bring the matter directly to the CTA, it cannot be denied that the word “appeal” under prevailing tax laws refers to the filing of a Petition for Review with the CTA. As aptly pointed out by petitioner, under Section 228 of the NIRC, the terms “protest”, “reinvestigation” and “reconsideration” refer to the administrative remedies a taxpayer may take before the CIR, while the term “appeal” refers to the remedy available to the taxpayer before the CTA. Section 9 of RA 9282, amending Section 11 of RA 1125, likewise uses the term “appeal” when referring to the action a taxpayer must take when adversely affected by a decision, ruling, or inaction of the CIR. As we see it then, petitioner in appealing the Formal Letter of Demand with Assessment Notices to the CTA merely took the cue from respondent. Besides, any doubt in the interpretation or use of the word “appeal” in the Formal Letter of Demand with Assessment Notices should be resolved in favor of petitioner, and not the respondent who caused the confusion. To be clear, we are not disregarding the rules of procedure under Section 228 of the NIRC, as implemented by Section 3 of BIR Revenue Regulations No. 12-99. It is the Formal Letter of Demand and Assessment Notice that must be administratively TAXATION 2 MIDTERMS| maru.mhealler | 404
protested or disputed within 30 days, and not the PAN. Neither are we deviating from our pronouncement in St. Stephen’s Chinese Girl’s School v. Collector of Internal Revenue, that the counting of the 30 days within which to institute an appeal in the CTA commences from the date of receipt of the decision of the CIR on the disputed assessment, not from the date the assessment was issued. What we are saying in this particular case is that, the Formal Letter of Demand with Assessment Notices which was not administratively protested by the petitioner can be considered a final decision of the CIR appealable to the CTA because the words used, specifically the words “final decision” and “appeal”, taken together led petitioner to believe that the Formal Letter of Demand with Assessment Notices was in fact the final decision of the CIR on the letter-protest it filed and that the available remedy was to appeal the same to the CTA.
-
2.
-
If the taxpayer elevates his protest to the CIR within thirty (30) days from date of receipt of the final decision of the CIR’s duly authorized representative, the latter’s decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the CIR.
-
If the CIR fails to act on the taxpayer’s protest within one hundred eighty (180) days from date of submission by the taxpayer of the required documents in support of his protest, the taxpayer may appeal to the CTA within thirty (30) days from the lapse of said 180-day period, otherwise, the assessment shall become final, executory and demandable.
Submission of Relevant Supporting Documents -
-
40
If the protest is denied, in whole or in part, by the CIR, the taxpayer may appeal to the CTA within thirty (30) days from date of receipt of the said decision, otherwise the assessment shall become final, executory and demandable.
The taxpayer shall submit the required documents in support of his protest within sixty (60) days from date of filing of his letter of protest, otherwise, the assessment shall become final, executory and demandable. If and when the taxpayer has submitted relevant supporting documents during any of the stages prior to the FAN, or even prior to the protest that was filed, it can be considered as relevant supporting documents so long as it still refers to the same issues that have been discussed prior and the issues argued in the prot est.
Unique Dyeworks Inc. v. CIR
Respondent contends that the assessment issued against the petitioner has already become final by operation of law for its failure to submit all relevant supporting documents within sixty (60) days from filing of its protest as provided for in Section 228 of the Tax Code. We do not agree. Even before the formal assessment was issued, petitioner had already submitted all rel evant documents to the BIR for their perusal. As a matter of fact, petitioner made certain that all their book of accounts and financial records should be available to the BIR for inspection. In case the respondent felt that said documents were insufficient, he could have requested the petitioner to submit what is lacking. After investigation in this case, respondent never required petitioner to submit additional documents determined by him to be needed to resolve petitioner's protest. Of course, petitioner is not required to submit other evidence, which he feels will be unnecessary to his protest. As aptly ruled by this Court in the case of Standard Chartered Bank-Philippine Branches vs. Commissioner of Internal Revenue, CTA Case 5696, August 16, 2001, ". . . As stated earlier, the determination of the relevant supporting documents" initially rests upon the one who filed the protest, the petitioner. However, in cases where the BIR finds that additional documents must be submitted, it should have informed the taxpayer-protester to submit whatever documents are lacking in order that a complete determination of the propriety of the assessment may be had. Thus, Respondent has been remiss in informing the petitioner of any other additional supporting documents to be submitted which fact should not unduly prejudice petitioner's protest."
CIR v. First Express Pawnshop Company, Inc.
CIR issued assessment notices against Respondent for deficiency income tax, VAT and documentary stamp tax on deposit on subscription and on pawn tickets. Respondent filed its written protest on the assessments. When CIR did not act on the protest during the 180-day period, respondent filed a petition before the CTA. The assessment against Respondent has not become final and unappealable. It cannot be said that respondent failed to submit relevant supporting documents that would render the assessment final because when respondent submitted its protest, respondent attached all the documents it felt were necessary to support its claim. Further, CIR cannot insist on the submission of proof of DST payment because such document does not exist as respondent claims that it is not liable to pay, and has not paid, the DST on the deposit on subscription. The term "relevant supporting documents" are those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. The BIR can only inform the taxpayer to submit additional documents and TAXATION 2 MIDTERMS| maru.mhealler | 404
cannot demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at the mercy of the BIR, which may require the production of documents that a taxpayer cannot submit. Since the taxpayer is deemed to have submitted all supporting documents at the time of filing of its protest, the 180-day period likewise started to run on that same date.
3.
Denial of Protest -
-
-
a.
If the protest is denied, the first remedy of the taxpayer is to file a Motion for Reconsideration before the office concerned. If the motion is still denied, by the CIR or his duly authorized representative, the taxpayer may appeal to the CTA within thirty (30) days from date of receipt of the said decision, otherwise the assessment shall become final, executory and demandable. If the taxpayer elevates his protest to the CIR within thirty (30) days from date of receipt of the final decision of the CIR’s duly authorized representative, the latter’s decision shall not be considered final, executory and demandable, in which case, the protest shall be decided by the CIR. CIR’s denial or actions equivalent to denial of protest
Filing of criminal action against the taxpayer Issuing a warrant of distraint and levy
b.
Inaction by the CIR
-
If the Commissioner or his duly authorized representative fails to act on the taxpayer’s protest within one hundred eighty (180) days from date of submission by the taxpayer of the required documents in support of his protest, the taxpayer may appeal to the CTA within thirty (30) days from the lapse of said 180-day period, otherwise, the assessment shall become final, executory and demandable.
Philam Plans, Inc. v. CIR
The taxpayer here availed of the benefit of elevating the case before the CTA within 30 days after the 180-day inaction. So after the RSD were submitted on Nov. 3, the taxpayer has until May 1 to consider WON a decision is coming out. That’s the 180 days from submission of RSD until May 1. On May 1, it’s considered the end of the inaction period, the taxpayer is given 30 days, if he decides to take the option, to appeal the case before the CTA. So on May 25, he filed, 24 days after the inaction period, an appeal before the CTA. A month later, a decision of denial came out. So what will happen to the decision of denial and the jurisdiction of the CTA? Section 228 of the 1997 National Internal Revenue Code ("NIRC") or Republic Act No. 8424, as amended, which took effect on January 1, 1998, provides: "SEC. 228. Protesting of Assessment. — xxx xxx xxx If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180) days from submission of documents, the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or from the lapse of the one hundred eighty (180)-day period; otherwise, the decision shall become final, executory and demandable." The last paragraph of Section 228 of the 1997 NIRC depicts two options that a taxpayer may do in order to protect its rights by virtue of the way the word "or" was used. Under Section 228 of the 1997 NIRC, a taxpayer has two options: first, if the protest remained not acted upon by the Commissioner within one hundred eighty (180) days from submission of documents in support of the protest, he may appeal to this Court within thirty (30) days from the lapse thereof; or second, he may wait until the Commissioner decides on his protest before elevating his case before this Court. In the case at bar, petitioner, by filing its Petition for Review on May 25, 2004, evidently chose the first option. The petitioner cannot argue that respondent cannot anymore issue his FDDA after petitioner has already filed its Petition for Review before this Court because it is clear under Section 228 of the 1997 NIRC that respondent still has the authority to do so. What if the belatedly issued FDDA was favorable to the petitioner? Would petitioner still file the present "Motion to Resolve Issue of Jurisdiction"? In view of this, We are constrained to reiterate the Court's ruling in the case of Lascona Land Co., Inc. vs. Commissioner of Internal Revenue, 18 upon which the ruling in the abovementioned case of Philippine Banking Corporation vs. Commissioner of Internal Revenue was based, to quote: "Verily, in cases of inaction, Section 228 of the Tax Code merely gave the taxpayer an option: first, he may appeal to the Court of Tax Appeals within thirty (30) days from the lapse of the one hundred eighty (180) day period provided for under the said section,
41
TAXATION 2 MIDTERMS| maru.mhealler | 404
