Pre-week Review Taxation

8/6/2019 Pre-week Review Taxation

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PRE-WEEK REVIEW

TAXATION

Atty. Vic C. Mamalateo

UP COLLEGE OF LAWJuly 4, 2007


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SCOPE

INCOME TAXWITHHOLDING TAX

TAX ADMINISTRATIONPOWERS AND DUTIES OF BIR

POWERS OF BIR COMMISSIONER

TAX REMEDIESREMEDIES OF GOVERNMENT

REMEDIES OF TAXPAYERS


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CORPORATE TAXPAYERS

DOMESTIC CORPORATION

SUBSIDIARY

AFFILIATE FOREIGN BRANCH OF DOMESTIC CORP

FOREIGN CORPORATION

RESIDENT FOREIGN CORPORATION

PHIL BRANCH OF FOREIGN CORPORATION

NON-RESIDENT FOREIGN CORPORATION

TEST: LAW OF INCORPORATION


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TYPES OF BRANCHES

REGULAR BRANCH

35% ON NET INCOME FROM SOURCES WITHIN THE PHIL

SPECIAL BRANCHES (TAXABLE)

ENTERPRISES WITHIN ECOZONE (RA 7916) OR FREEPORTZONE (RA 7227) 5% FINAL TAX ON GROSS INCOME

REGIONAL OPERATING HEADQUARTERS (RA 8756)-10%

PETROLEUM CONTRACTORS/SUB-CONTRACTORS (PD 1354) 8% FINAL TAX

OFFSHORE BANKING UNITS 10% TAX ON FOREX

INTERNATIONAL CARRIERS 2.5% ON GPB

SPECIAL BRANCHES (EXEMPT)

REPRESENTATIVE OFFICE

REGIONAL HEADQUARTERS (RHQ)


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INCOME TAX

OFF-LINE INTERNATIONAL AIR CARRIER IS A

RESIDENT FOREIGN CORPORATION

SOLD TICKETS IN THE PHIL THRU LOCAL AGENTS

LIAISON OFFICE, AGENCY, OR BRANCH

2.5% TAX ON GROSS PHIL BILLINGS

SOURCE OF INCOME

ACTIVITY (SALE OF TICKETS) IN THE PHIL

ENUMERATION IN SEC 37(A) NOT EXCLUSIVE


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INCOME TAX

JOINT VENTURE/PARTNERSHIP POOL OF MACHINERY INSURERS IS A

PARTNERSHIP TAXABLE AS CORP

COMMON FUND

EXECUTIVE BOARD

POOLS WORK IS INDISPENSABLE, BENEFICIAL ANDECONOMICALLY USEFUL TO BUSINESS OF CEDINGCOMPANIES

POOLS REMITTANCES ARE DIVIDENDS PRESCRIPTION IS NOT TOLLED, SINCE

TAXPAYER CANNOT BE FOUND IN ADDRESSGIVEN IN INFORMATION RETURN


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INCOME TAX

YMCA, AS NON-STOCK, NON-PROFIT

ASSOCIATION, IS SUBJECT TO INCOME

TAX ON INCOME FROM PROPERTY ANDON ACTIVITY CONDUCTED FOR PROFIT

STRICT INTERPRETATION OF TAX

EXEMPTION LAWS

COURTS CANNOT RULE ON THE WISDOM

OR PROPRIETY OF LEGISLATION. THAT

POWER BELONGS TO CONGRESS


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INCOME TAX SYSTEMS

GLOBAL SYSTEM

COMPENSATION INCOME

BUSINESS/PROFESSIONAL INCOME

CAPITAL GAIN, INVESTMENT INCOME, AND OTHER INCOME NOT

SUBJECT TO FINAL TAX SCHEDULAR SYSTEM

FINAL TAX ON CAPITAL GAINS

REAL PROPERTY IN THE PHILIPPINES

SHARES OF STOCK OF A DOMESTIC CORP

TAX ON PASSIVE INVESTMENT INCOME

DIVIDEND INCOME

INTEREST INCOME

ROYALTY INCOME


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TYPES OF INCOME TAX

TAX ON ORDINARY INCOME

REGULAR CORPORATE INCOME TAX

MINIMUM CORPORATE INC TAX

TAX ON PASSIVE INVESTMENT INCOME

DIVIDEND INCOME OR BRANCH PROFIT REMITTANCE

INTEREST INCOME

ROYALTY INCOME

RENTAL INCOME (not all cases) TAX ON CAPITAL GAINS

REAL PROPERTY

SHARES OF STOCK OF DOMESTIC CORP


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Marketing services rendered abroad

Commissions paid for marketing services rendered abroad for a Phil.company is considered foreign-source income. The source of theincome is the property, activity or service that produced the income.

The fact that recipient of commission income is President and majoritystockholder of the Phil. company does not alter the source of income.There are only two ways by which the President and other members ofthe Board can be granted compensation apart from reasonable perdiems: (1) when there is a provision in the by-laws fixing theircompensation; and (2) when the stockholders agree to give it to them.

If none of these conditions are present, commission income cannot beautomatically attributed to petitioners position in the company. (Juliane Baier-Nickel vs. CIR, GR No. 156305, Feb. 17, 2003)


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Interest income of a corporation

Interest is not synonymous with the term gains

under Sec. 32(B)(7)(g) of the Tax Code.

In the enumeration of income in the Tax Code, gainsderived from dealings in property and interests are

separately listed.

The exemption of interest income of individuals from

long-term bonds remain exempt from income taxbecause this is specifically provided under a separate

section in the Tax Code. (Nippon Life Insurance Corp. vs. CIR, CA-GR SP No. 69224, Nov. 15, 2002).


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CIR vs. P&G PMC

204 SCRA 378 Phil Tax Code only requires that US shall allow P&G USA

deemed paid the tax credit equivalent to 20%. The deemedpaid tax credit allowed in Sec. 902 of US IRC is no more a

credit for phantom taxes than is the deemed paid tax creditgranted in Sec 30(8), NIRC.

Task of our Court is to give effect to legislative design andobjectives as they are written into statute even if somerevenues have to be foregone in the process.

The economic objective of law reducing tax on dividendfrom 35% to 15% is to promote in-flow of foreign equityinvestments. The tax benefit should go to the foreigninvestor, not to the government of foreign investor.


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CIR vs. Wander Philippines

160 SCRA 573 BIR contends tax sparing credit applies only if foreign

country allows foreign tax credit. Tax refunds areconstrued strictly against claimant.

Fact that Switzerland does not impose tax on dividendsreceived from domestic corporation should beconsidered as full satisfaction of the condition that 20%differential is deemed credited by the Swiss

government. To deny privilege to taxpayer would run counter to very

spirit of intent of PD 369 and discourage foreigninvestors from investing capital in the Phil


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INCOME TAX

TAXATION OF STOCK DIVIDENDS

GEN RULE: EXEMPT FROM INCOME TAX

EXCEPTION: REDEMPTION OF STOCK

DIVIDEND, DEPENDING ON TIMING AND

MANNER, MAY BE TREATED AS CASH

DIVIDEND; HENCE, SUBJECT TO TAX


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Stock Dividends

Stock dividend which represents transfer of surplus to capital stock is notsubject to income tax.

Stock dividend may constitute taxable income to recipients if it gives theshareholder an interest different from that which his former stockholdingsrepresented. A stock dividend does not constitute income if the new shares

confer no different rights or interests than did the old the new certificatesplus the old representing the same proportionate interest in the net assets ofthe corporation.

The receipt of tax-free stock dividends by the stockholder will reduce his costor adjusted basis of the stocks in determining the gain or loss upon thesubsequent sale or transfer thereof.

If a corporation cancels or redeems stock issued as a dividend at such time

and in such manner as to make the distribution or cancellation, in whole or inpart, essentially equivalent to the distribution of a taxable dividend, theamount so distributed in redemption or cancellation of the stock shall beconsidered as taxable income to the extent it represents a distribution ofearnings or profits(CIR vs. CA and A. Soriano, 301 SCRA 152)


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CIR vs. S.C. Johnson & Sons

GR 127105, June 25, 1999 The purpose of most-favored-nation clause in tax treaty is to

grant to the other contracting state tax treatment that is no lessfavorable than that which is granted to most favored among othercountries.

Phil-Germany Tax Treaty imposes 10% on royalty, provided thatit is paid under similar circumstances to a resident of a thirdstate. Matching credit of 20% is granted against German income.

Respondent: It refers to payment of royalty, not to payment oftax, since the phrase paid under similar circumstances isfollowed by phrase to a resident of a third state. Thisconstruction is based on sentence structure.


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CIR vs. S.C. Johnson & Sons

Petitioner: Concessional rate of 10% applies only iftaxes imposed upon royalty under RP-US and RP-Germany treaties are paid under similar circumstances.

This interpretation is based on logical reading of thetext in light of fundamental purpose of treaties togrant incentive to foreign investor by lowering tax (in

Phil) and at same time crediting against domestic tax(of foreign investor) abroad a figure higher than whatwas actually collected in the Phil.


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Coca-Cola Export Corp vs. CIR

CTA Case 6861, Nov 22, 2005 Phil, as state of source, and U.S., as state of residence,

are permitted to tax royalties. There is double taxation.

U.S. allows tax relief from double taxation, subject to

limitation. Phil may impose 25%, 15%, or 10% tax rateon royalty.

RP-Russia and RP-China Tax Treaties reveal similarprovisions on relief from double taxation as those in

RP-US Tax Treaty. There is no provision on matchingcredit similar to that in RP-Germany Tax Treaty.


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Coca-Cola Export Corp vs. CIR

BIR Ruling DA-ITAD No. 103-03, July 24, 2003

Royalty paid in 2001, subject to 15% tax

Royalty paid starting in 2002, 10% tax

RMC 46-02 RP-China Tax Treaty, effective Jan 1, 2002

Tax on royalties paid to resident of U.S. and China can beconsidered paid under similar circumstances.

Contract giving rise to royalty has been approved by Phil

competent authorities.

Claim for refund is supported by adequate documentaryevidence (tax returns, O.R., etc.), and filed within prescriptiveperiod. Royalty expense must have reflected amount paid.


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RMC 46-2002

PHIL-CHINA TAX TREATY (effective Jan. 1, 2002). The tax on royaltiesshall not exceed:

15% for royalties arising from the use of, or right to use, any copyright ofliterary, artistic or scientific work, incl. cinematographic films or tapes fortelevision or broadcasting; or

10% for royalties arising from the use of, or right to use, any patent, trade mark,design or model, plan, secret formula or process, or from the use, or right to use,industrial, commercial or scientific equipment, or for information concerningindustrial, commercial or scientific experience.

Considering that the treaty with China does not contain a matching

credit provision similar to that found in the treaty with Germany, tax

on royalty payments to residents of China can be considered paid

under similar circumstances to a resident of the U.S. and the most-favored-nation clause in the RP-US Tax Treaty(RMC 46-2002,

Sept. 2, 2002).


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SOURCES OF INCOME

REAL PROPERTY

PERSONAL PROPERTY

TANGIBLE PRODUCED WITHIN THE PHIL AND SOLD WITHOUTOR VICE-VERSA

PURCHASE WITHIN THE PHIL AND SALE WITHOUT

INTANGIBLE

SHARES OF STOCK DOMESTIC CORPORATION

FOREIGN CORPORATION

MOBILIA SEQUUNTUR PERSONAM


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SOURCES OF INCOME

INTERESTS

DIVIDENDS PAID TO DOMESTIC CORP AND RFC

PAID TO NON-RESIDENT FOREIGN CORP

RENTALS AND ROYALTIES

SERVICES

ONSHORE VS. OFFSHORE

OTHER INCOME

PREMIUM ON INSURANCE

TRANSPORT INCOME


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TYPES OF WITHHOLDING

TAX FINAL WITHHOLDING TAX

PAID TO RESIDENT PERSON

PAID TO NON-RESIDENT FOREIGN PERSON

CREDITABLE WITHHOLDING TAX

COMPENSATION INCOME

EXPANDED WITHHOLDING TAX

MONEY PAYMENTS BY GOVERNMENT


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Advertising Expenses

An expense is ordinary when it connotes a payment, which is normalin relation to the business of the taxpayer and the surroundingcircumstances.

An expense is necessary where the expenditure is appropriate or

helpful in the development of taxpayers business or that the same isproper for the purpose of realizing a profit or minimizing a loss.

P9.4 M paid in 1985 for advertising a product was staggering incurredto create or maintain some form of goodwill for the taxpayers trade orbusiness or for the industry or profession of which the taxpayer is amember.

Goodwill generally denotes the benefit arising from connection andreputation, and efforts to establish reputation are akin to acquisition ofcapital assets. Therefore, expenses related thereto are not businessexpenses but capital expenditures (CIR vs. General Foods Phi., GR No. 143672,

Apr. 24, 2003).


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Donation

Irrespective of the accounting method used,donation is recognized as a deduction from grossincome in the year such donation was actually paid

or made, not in the year the deed of donation wasperfected.

The deductibility of donation is not governed bythe ordinary rules on deductibility of the expense.

Donation must be both perfected andconsummated before it can be allowed as adeduction.

(Phil. Stock Exchange vs. CIR, CTA Case No. 5995, Oct. 15, 2002)


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Branch profit remittance tax

Branch profit of the Phil. branch used as additional capitalinvestment of the foreign head office in the Philippine branch,

pursuant to the requirements of theBangko Sentral ng Pilipinas,is considered as profit constructively remitted abroad.

Branch profit remittance tax applies not only when the profit isactually remitted but also when such profit is constructivelyremitted to the head office abroad.

(ING Bank, Manila Branch vs. CIR, CTA Case No. 6017, Mar. 11, 2002)


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INCOME TAX

DOUBLE TAXATION COMPARABLE OR SAME TAXES ARE IMPOSED BY

TWO OR MORE STATES ON SAME TAXPAYER ON

SAME SUBJECT MATTERS AND FOR IDENTICALPERIODS

WAYS OF AVOIDING DOUBLE TAXATION EXEMPTION METHOD

TAX CREDIT METHOD


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ESTOPPEL

ESTOPPEL DOES NOT APPLY TO GOVT

STATE CANNOT BE ESTOPPED BY THE MISTAKE ORNEGLECT OF ITS AGENTS & OFFICERS

ERRONEOUS APPLICATION OF LAW BY PUBLICOFFICERS DO NOT BLOCK SUBSEQUENT CORRECTAPPLICATION OF STATUTES

ESTOPPEL DOES NOT APPLY TO PRECLUDESUBSEQUENT FINDING OF TAXABILITY NOR TODEPRIVE GOVT OF ITS RIGHT TO RAISE DEFENSESEVEN IF RAISED ONLY FOR THE FIRST TIME ON APPEAL


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INJUNCTION

NO COURT HAS AUTHORITY TO

GRANT INJUNCTION TO RESTRAIN

COLLECTION OF TAXES, EXCEPTWHEN COLLECTION WILL

JEOPARDIZE INTEREST OF

GOVERNMENT OR TAXPAYER APPEAL TO CTA DOES NOT SUSPEND

COLLECTION OF TAX


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COMPROMISE PENALTY

COMPROMISE PENALTY AMOUNT WHICH TAXPAYER PAYS TO

COMPROMISE TAX VIOLATION THAT MAY BE

SUBJECT OF CRIMINAL PROSECUTION MUTUAL AGREEMENT; MAY NOT BE IMPOSED

BY BIR, IF TAXPAYER DOES NOT AGREETHERETO

IF TAXPAYER HAS EXPRESSED WILLINGNESSTO PAY COMPROMISE PENALTY IN AN APPEALTO CTA, AMOUNT MAY BE COLLECTED ASPART OF JUDGMENT


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CRIMINAL ACTION

NO CRIMINAL ACTION SHALL BE BEGUN

WITHOUT THE APPROVAL OF

COMMISSIONER CRIMINAL ACTIONS FOR VIOLATIONS OF

TAX CODE OR OTHER LAWS ENFORCED

BY BIR MUST BE BROUGHT IN THE NAME

OF THE GOVERNMENT AND CONDUCTEDBY ITS LEGAL OFFICERS


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CRIMINAL ACTION

PENAL CODE

EVERY PERSON CRIMINALLY LIABLE FOR A FELONYIS ALSO CIVILLY LIABLE

TAX CODE CIVIL LIABILITY TO PAY TAX ARISES NOT BECAUSE

OF ANY FELONY BUT UPON TAXPAYERS FAILURETO PAY TAX

CRIMINAL LIABILITY ARISES AS A RESULT OF ONES

LIABILITY TO PAY HIS TAX SEC. 73 PROVIDES IMPOSITION OF IMPRISONMENT

OR FINE, OR BOTH, BUT FAILED TO PROVIDECOLLECTION OF TAX IN CRIMINAL PROCEEDINGS


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CRIMINAL ACTION

ACQUITTAL OF TAXPAYER IN CRIMINAL ACTION DOES NOT

NECESSARILY RESULT IN EXONERATION FROM CIVIL LIABILITY

CIVIL LIABILITY IS NOT DEEMED INCLUDED INCRIMINAL ACTION

DUTY TO PAY TAX IS IMPOSED BY STATUTE PRIOR TOAND INDEPENDENTLY OF ANY ATTEMPT BY TAXPAYERTO EVADE PAYMENT

TAX LIABILITY IS NOT CONSEQUENCE OF FELONIOUSACTS CHARGED IN CRIMINAL PROCEEDING NOR IS IT

MERE CIVIL LIABILITY ARISING FROM CRIME THATCOULD BE WIPED OUT BY JUDICIAL DECLARATION OF

NON-EXISTENCE OF CRIMINAL ACTS CHARGED


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CRIMINAL ACTION

CRIMINAL CHARGE WITHOUTASSESSMENT ASSESSMENT IS NOT NECESSARY BEFORE

CRIMINAL CHARGE IS FILED CRIMINAL CHARGE NEED ONLY BE PROVED

BY PRIMA FACIE SHOWING OF FAILURE TOFILE REQUIRED RETURN AND SUCH FACT

NEED NOT BE PROVED BY AN ASSESSMENT ISSUANCE OF ASSESSMENT IS DIFFERENTFROM FILING OF COMPLAINT FOR CRIMINALPROSECUTION


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SURCHARGE

RATES:

50% - FALSE OR FRAUDULENT RETURN OR

WILLFUL NEGLECT TO FILE RETURN

25% - OTHER CASES

TAX LAWS IMPOSING PENALTIES ON

DELINQUENCIES ARE INTENDED TO

HASTEN TAX PAYMENTS OR TO PUNISHEVASION OR NEGLECT OF DUTY


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INTEREST

JUST COMPENSATION TO THE STATE FOR

DELAY IN PAYING TAX AND FOR USE OF

FUNDS THAT BELONGS TO GOVERNMENT

20% DEFIENCY INTEREST PER ANNUM

FROM THE DATE TAX IS DUE UP TO DATE

OF PAYMENT

COLLECTED AT THE SAME TIME, SAMEMANNER, AND AS PART OF TAX


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REMEDIES OF TAXPAYERS


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ASSESSMENT

WHAT IS AN ASSESSMENT?NOTICE THAT TAXPAYERS OWES

GOVERNMENT A SUM OF MONEY

CONTAINS COMPUTATION OF TAX LIABILITYAND DEMAND FOR PAYMENT OF TAX WITHIN

PURPOSE OF ASSESSMENT TO ESTABLISH TAX LIABILITY

MANDATORY REQUIREMENT TAXPAYER IS INFORMED IN WRITING OF

FACTUAL AND LEGAL BASIS OF ASSESSMENT


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ASSESSMENT NOTICE

Sec. 228 of Tax Code requires BIR to inform

taxpayer in writing of the laws and facts on which

assessment is made. Failure to do so shall voidthe assessment.

Rule runs parallel to the due process clause.

Insufficiency of assessment notice may be cured

by the demand letter which shows the legal andfactual basis relied upon in issuance of assessment(PNZ Marketing vs. CIR, CTA Case No. 5726, Dec. 14, 2001).


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Validity of assessment in relation to

Sec. 228 Assessment is valid, even if notice merely contains

the amount of taxes being assessed, without any

details on how said amounts were arrived at,

provided

The report of investigation on which assessment was based

has been sent to taxpayer; and

Said report details the findings, the facts and the law on

which proposed assessments were based.(Phil. Mining Service Corp. vs. CIR, CTA Case No. 5725, July 25, 2002)


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Compliance with Sec. 228

It is sufficient that computations are attached tothe pre-assessment notice clearly showing thespecific provisions of the law and the facts onhow amounts of deficiency taxes were arrivedat.

Requirement is deemed satisfied if during the

informal conference, taxpayer is able to submitwritten comment on the issues raised in thereport of audit.

(Phil. Stock Exchange vs. CIR, CTA Case No. 5995, Oct. 15, 2002)


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ASSESSMENT

FORMS OF ASSESSMENT

FORMAL ASSESSMENT NOTICE

LETTER DEMANDING PAYMENT OF ERRONEOUSLYREFUNDED AMOUNT OR AMOUNT PAID BY BOUNCINGCHECK

LETTER FROM REVENUE OFFICER GRANTINGOPPORTUNITY TO DISPROVE FINDINGS OR SHOW CAUSELETTER

FOLLOW-UP LETTER DULY RECEIVED BY TAXPAYER

WITHIN PRESCRIPTIVE PERIOD. (TAXPAYER DENIEDRECEIPT OF ORIGINAL DEMAND LETTER AND ASS.

NOTICE)


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ASSESSMENT

WHEN MUST ASSESSMENT BE MADE?

RETURN IS FILED NOT FALSE OR FRAUDULENT 3 YRS FROM FILING

FALSE OR FRAUDULENT 10 YRS FROM DATE OFDISCOVERY OF FILING OF FALSE OR FRAUDULENT RETURN

NO RETURN IS FILED 10 YEARS FROM DATE OF DISCOVERY OF OMISSION

IF ASSESSMENT DUE DATE FALLS ON A

SATURDAY, GOVERNMENT HAS NEXTBUSINESS DAY WITHIN WHICH TO ASSESS


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ASSESSMENT

WHEN IS ASSESSMENT DEEMED MADE? ISSUE DATE OF ASSESSMENT NOTICE IS NOT

RECKONING POINT FOR PRESCRIPTION

DATE ASSESSMENT NOTICE AND DEMAND LETTERIS RELEASED, MAILED OR SENT TO TAXPAYERCONSTITUTES ACTUAL ASSESSMENT

PRESUMPTION OF RECEIPT IN REGULAR COURSEOF MAIL APPLIES, IF PROPERLY ADDRESSED,

POSTAGE PREPAID, AND WAS MAILED


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ASSESSMENT

ASSESSMENT IS MADE WHEN SENT WITHIN THEPRESCRIBED PERIOD, EVEN IF RECEIVED BYTAXPAYER AFTER EXPIRATION OF

PRESCRIPTIVE PERIOD RELEASE AND MAILING SHOULD BE

SATISFACTORILY PROVED

MERE NOTATIONS ON RECORDS OF BIR OFMAILING, MADE WITHOUT TAXPAYERSINTERVENTION OR CONTROL, AND WITHOUTSUPPORTING EVIDENCE CANNOT SUFFICE


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Proof that assessment notice was

received If taxpayer denies having received the

assessment notice, burden of proof is shifted

to BIR. Mere certification from Post Office on

delivery of letter to taxpayer is not enough.

BIR should show that registered lettercertified by PO actually contained

assessment notice (United International Pictures vs. CIR, supra).


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Valid protest

Valid protest of an assessment is one assailing theformal assessment notice (FAN) and the letter ofdemand, not the preliminary assessment notice

(PAN). PAN is required merely to inform thetaxpayer of the proposed assessment.

Failure to protest within 30 days will make theformal assessment notice final and executory.

Failure to respond to PAN within 15 days will rendertaxpayer in default and a FAN would subsequently

be issued (Cebu Rosver Pawnshop vs. CIR, CTA Case No. 6425, Mar. 17, 2003).


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Requisites for validity of waiver

Waiver must indicate definite expiration date agreedupon by CIR and taxpayer

Waiver should state date of acceptance by BIR.

Without the date, it cannot be determined whetherwaiver was accepted before expiration of 3-year

period.

Taxpayer must be furnished copy of accepted

waiver. Under RMO 20-90, second copy of waiveris for taxpayer. Fact of receipt by taxpayer of hiscopy should be indicated in the original copy (Phil.

Journalists vs. CIR, supra).


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Waiver signed by Comptroller

Waiver signed by Comptroller is valid, evenwithout letter or certificate of authority toexecute waiver.

RMO 20-90 provides waiver must be signed byany of its responsible officials.

Law merely requires that waiver be signed by

any of corporations responsible officials, notnecessarily an authorized representative orofficer.

(Phil. Journalists vs. CIR, CTA Case No. 6108, May 14, 2002)


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Validity of waiver

Waiver is not valid if signed only by the

taxpayer and attested to by a RDO, not by

the Commissioner, or signed after the lapseof the 3-year period (Mirant Navotas Corp. vs. CIR, CTA Case No.5949, Feb. 3, 2003).


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FORMS OF DENIAL OF

PROTEST DIRECT

FORMAL DECISION OF DENIAL BY BIR COMMISSIONER

INDIRECT

FILING OF CIVIL CASE IN RTC WITHOUT RULING FIRST ONVALID PROTEST TIMELY FILED BY TAXPAYER

ISSUANCE OF WDL OR FINAL NOTICE BEFORE SEIZURE

REFERRAL OF CASE TO SOL GEN

LETTER REITERATING DEMAND FOR IMMEDIATEPAYMENT OF TAX


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EFFECTS OF FAILURE TO

FILE TIMELY PROTEST ASSESSMENT BECOMES FINAL AND

UNAPPEALABLE

ASSESSMENT CANNOT BE DISPUTED INCIVIL ACTION

PRESCRIPTION OF RIGHT TO ASSESSCANNOT BE RAISED IN COURT

NO INQUIRY CAN BE MADE AS TO THEMERITS OF THE CASE OR JUSTNESS OFJUDGMENT RELIED UPON


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PRESCRIPTION

PRESCRIPTIVE PERIOD MAY BE EXTENDEDBY MUTUAL AGREEMENT IN WRITINGBEFORE THE LAPSE OF THE PROPER

PRESCRIPTIVE PERIOD WAIVER MUST BE IN WRITING AND SIGNED

BY BOTH CIR AND TAXPAYER

WAIVER IS INEFFECTIVE IF EXECUTED

BEYOND THE PRESCRIPTIVE PERIOD LAW DOES NOT AUTHORIZE EXTENSION

ONCE PRESCRIPTION HAS SET IN


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TAX RETURN

TRANSCRIPT SHEETS ARE NOT RETURNS(INCOMPLETE INFO TO COMPUTE SPECIFICTAX)

INCOME TAX RETURN FILED CANNOT BECONSIDERED RETURN FORCOMPENSATING TAX

THERE IS NO OMISSION TO FILE RETURNWHERE TAXPAYER FAILED TO INCLUDECERTAIN ITEMS, NOT DUE TO WILLFULOMISSION OR FRAUD


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AMENDED RETURN

AMENDED RETURN IS SUBSTANTIALLYDIFFERENT FROM ORIGINAL RETURN, GOVTSRIGHT TO ASSESS IS COUNTED FROM FILING

OF AMENDED RETURN IF ORIGINAL RETURN IS SUFFICIENTLY

COMPLETE TO MAKE AN ASSESSMENT,SUBSEQUENT FILING OF AMENDED RETURN

NEITHER STARTS ANEW RUNNING OF STATUTE

OF LIMITATIONS NOR EXTENDS PRESCRIPTIVEPERIOD


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Amended return

The 1997 Tax Code authorizes the filing ofamended return even after the filing of a claim forrefund, both in the administrative and judicial

levels, there being no provision prohibiting theamendment of a return once a claim for refund hasbeen filed.

Amendment is prohibited only if made beyond the3-year period allowed by law, and provided that

no notice for audit or investigation of such return,statement or declaration has, in the meantime,

been actually served upon the taxpayer(CIR vs. CiticorpCapital Philippines, CA-GR SP No. 68554, Apr. 12, 2002).


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Fraud

BIR may assess tax in case of filing of false or fraudulent return within10 years from date of discovery (Sec. 222, NIRC)

Mere failure to report certain income or the filing of false return are not

sufficient basis for application of 10-year period. Apart from theelement of mistake, a clear, unequivocal and willfull intention to evadethe tax must be proven.

There is no fraud if BIR did not present evidence supporting allegationof fraud; taxpayer has sufficiently shown that non-reporting of income

was based on its reliance on several provisions, rulings and acceptedtax principles.

Existence of fraud is never presumed (Ayala Hotels vs. CIR, CTA Case No.6002, Jan. 10, 2002).


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FRAUD

FRAUD MUST BE THE PRODUCT OF ADELIBERATE INTENT TO EVADE TAX

MERE UNDERSTATEMENT IN TAX RETURN OF 7

PROPERTY WILL NOT NECESSARILY IMPLY FRAUD SALE OF PROPERTY FOR PRICE LESS THAN ITS

DECLARED FAIR MARKET VALUE ALONE DID NOTBY ITSELF JUSTIFY FINDING OF FALSE RETURNWHICH CONTAINS WRONG INFORMA-TION DUE TO

MISTAKE, CARELESSNESS OR IGNORANCE


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FRAUD

THERE IS NO FRAUD IN FILING RETURNWHERE TAXPAYER PLACED A NOTATIONTHAT MONEY RECEIVED WAS PRESUMED GIFTBUT TURNED OUT AN ERROR AND NOWSUBJECT OF LITIGATION. SUCH NOTATIONWAS PRACTICALLY AN INVITATION FORINVESTIGATION BY BIR. FRAUD IS NEVERIMPUTED AND COURTS NEVER SUSTAIN

FRAUD UPON CIRCUMSTANCES WHICHCREATE ONLY SUSPICION. UNDERSTATE-MENT OF TAX IS NOT ITSELF PROOF OF FRAUDFOR THE PURPOSE OF TAX EVASION.


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Refund or Tax Credit

Refund of excess creditable withholding taxesrequire compliance with three basic requirements: Claim for refund was filed within 2 years under Secs.

204 and 229, NIRC; 2-year period commences from date of filing of finaladjustment return.

Fact of withholding is established by a copy ofstatement duly issued by payor (withholding agent) tothe payee, showing amount paid and tax withheld; and

Income upon which taxes were withheld were includedin the return of recipient.

(Banco Filipino Savings & Mortgage Bank vs. CIR, CTA Case No. 6374, Apr. 3, 2003)


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Claim for refund with report on

possible deficiency tax Memo report of revenue officer recommending issuance of

preliminary assessment cannot serve as an obstacle to thegrant of claim for refund, if alleged deficiency is not theissue presented in the petition for review.

If memo has not ripened into a formal assessmentapproved by the Reg. Director or CIR, same can proceedindependently of the claim for refund, and its merits may

be determined in separate proceedings.

Principle that taxes are not subject to set-off must govern,specially where the taxes and taxpayers claim are notfully liquidated, due and demandable (BPI Securities Corp. vs. CIR,CTA Case No. 6089, Aug. 22, 2002).


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Original or certified copy of

certificates Photocopied documents will be disallowed, if these

cannot be compared with their respective originals

or the photocopies were not certified as true and

correct.

The success of a claim for tax refund depends on the

accuracy of the documents and the Court frowns

upon reception of photocopied documents

especially if the subject of the inquiry is the very

contents of said documents (Goodyear Phil. vs. CIR, CTA Case No.5781, Oct. 3, 2002).


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Refund or carry over of excess tax

credits Sec. 69 Taxpayer is granted an option to either refund or credit tothe succeeding year the excess and overpaid income tax not utilizednor otherwise applied to the taxpayers income tax liabilities.

If taxpayer, who opted to carry over his excess income tax in taxableyear 1997 to taxable year 1998, was unable to fully utilize said 1997excess income tax, he can apply for refund of said 1997 excess incometax. Refund shall be limited to the balance of the 1997 excess incometax after deducting whatever tax is due for 1998.

Taxpayer has to prove that said 1997 excess income tax or its balancewas not carried over to taxable year 1999 as indicated by the absenceof 1997 Prior Years Credit in the taxpayers 1999 CorporateAnnual Income Tax Return(Citicorp Capital Phil. vs. CIR, CTA Case No. 6058,Aug. 9, 2001).


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Option to carry forward

What Sec. 76 vests to a taxpayer is the right to refund all its excesscreditable taxes as computed in its final adjustment return, and its option tohave this excess either carried over and applied against the next fiscal yeartax liability or to be refunded in cash.

One thing that this provision prohibits a taxpayer from doing is that once itopts to cary over and apply the excess tax to the next years tax liability, itcould not have this excess refunded in the meantime during the length ofthe next taxable year. This is conveyed by the phrase that such optionshall be irrevocable for that taxable period, the succeeding taxable yearreferred to in the law.

There is nothing, however, in the provision to prohibit the refund of thiscarried-over excess tax following the lapse of the taxable year to which itwas carried over(CIR vs. Hopewell Tileman Power Systems, CA-GR SP No. 60898. Mar.13, 2002; CIR vs. Citicorp Capital Phil., CA-GR SP No. 68554, Apr. 12, 2002).


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CTA

EXERCISES EXCLUSIVE APPELLATE JURISDICTION TOREVIEW BY APPEAL DECISIONS OF THE CIR AND COC

APPEAL MUST BE FILED WITHIN 30 DAYS FROM DATE OFRECEIPT OF DECISION ON DISPUTED ASSESSMENT. THIS

IS JURISDICTIONAL. IF DECISION IS NOT DISPUTED, ORDINARY ACTION MAY

BE FILED WITH RTC

APPEAL TO CTA ON PROTEST CASES ALLOWED EVENWITHOUT DECISION OF COLL. OF CUSTOMS DUE TO

INACTION FOR UNREASONABLE LENGTH OF TIME


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END OF PRESENTATION

Pre-week Review Taxation

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