Taxation II Study Guide Final

8/18/2019 Taxation II Study Guide Final

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STUDY GUIDE FOR TAX II

TRANSFER TAXES

TRANSFER TAX INCOME TAX

Tax on transfer of property. Tax on income

Rates are lower--5% to 20% - estate tax-- 2% to 15 % or 30% - donor’s tax

Rates are higher -- 5% to 32%

esser exemptions !ore exemptions

(1) ESTATE TAXES

DEFINITION: an excise tax on the right of transmitting property at the time of death and on the pri"ilege that aperson is gi"en in controlling to a certain extent the disposition of his property to ta#e effect $pon death.

Estate Tax Formula

ross &state (Sec. 85)Less: '1( )ed$ctions (Sec. 86)

'2(*et share of the ++ in the ,

*et Taxale &stateMultiply by: Tax rate (Sec. 84)

&state Tax d$eLess: Tax ,redit /if any (Sec. 86[E] or 110[B]

&state Tax )$e if any

GROSS ESTATE

A e!ee"t#s $ross estate %"!lues (Sec. 85)

RESIDENT & NON'RESIDENT CITIEN RESIDENTA*IEN DECEDENT

NON'RESIDENT A*IEN DECEDENT

1. Real property were!er sit$ated 1. Real property sit$ated in the "ilippi#es.

2. ersonal property were!er sit$ateda( Tangile and( ntangile

2. ersonal propertya( Tangile property sit$ated in the "ilippi#es( ntangile personal property with a sit$s in the

"ilippi#es $nless exempted on the asis of reciprocity.

T+e la, t+at $o-er"s t+e %m.os%t%o" o/ estate tax

The stat$te in force $t te ti%e o& 'e$t o& te 'ece'e#t shall go"ern estate taxation.

I"ta"$%0le .erso"al .ro.ert%es ,%t+ a s%tus %" t+e +%l2 (Sec. 104, 1997 NIRC)

1. ranchise which m$st e exercised in the hilippines42. +hares oligations or onds iss$ed y any corporation or socie'$' $#o#i%$ organied or constit$ted in the

hilippines in accordance with its laws4

3. +hares oligations or onds iss$ed y any foreign corporation eighty-fi"e per cent$m '65%( of the $siness of which is located in the hilippines47. +hares oligations or onds iss$ed y any foreign corporation if s$ch shares oligations or onds ha"e

ac8$ired a $siness sit$s in the hilippines45. +hares or rights in any partnership $siness or ind$stry estalished in the hilippines.

I"ta"$%0le .erso"al .ro.ert3 ,%t+ a s%tus %" t+e +%l%..%"es o/ a e!ee"t ,+o %s a "o"'res%e"t al%e" s+all"ot /orm .art o/ t+e $ross estate %/ (re!%.ro!%t3 !lause) (Sec. 104)

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1. the decedent at the time of his death was a citien and resident of a foreign co$ntry which at the time of hisdeatha. % "ot %m.ose a tra"s/er tax or eat+ tax of any character1. in respect of intangile personal property of citiens of the hilippines not residing in that foreign

co$ntry4 or2. the laws of the foreign co$ntry of which the decedent was a citien and resident at the time of his death

a. allo, a s%m%lar exem.t%o" from transfer taxes or death taxes of e"ery character. in respect of intangile personal property owned y citiens of the hilippines not residing in that foreign

co$ntry (eciprocity).

4aluat%o" o/ t+e $ross estate

The properties comprising the gross estate shall e "al$ed ased on their fair mar#et "al$e as of the time of death.

ROERTY 4A*UATION

1( Real roperty - fair mar#et "al$ea( as determined y the ,ommissioner or( as shown in the sched$le of "al$es fixed y the pro"incial and city

assessors9:,:&;&R + ::&R

2( +hares of +toc#


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. the right either alone or in conA$nction with any person to designate the persons who shall possess orenAoy the property or the income therefrom.

Ex!e.t%o": ona fide sale for an ade8$ate and f$ll consideration in money or money’s worth.

;2 ROCEEDS OF *IFE INSURANCEroceeds of life ins$rance ta#en y the decedent on his own life shall e incl$ded in the gross estate if the

eneficiary is@

a. the est$te of the decedent his e+ecutor or $'%i#istr$tor 'regardless whether the designation is re"ocaleor irre"ocale(4 or. a third person other than the estate exec$tor or administrator where the designation of the eneficiary is

re!oc$ble.


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D. nterment fees and charges.E. ?ll other expenses inc$rred for the performance of the rit$al and ceremonies incident to the interment.

&xpenses inc$rred $&ter the interment s$ch as for prayers masses entertainment or the li#e are #ot'e'uctible.

?ny portion of the f$neral and $rial expenses bor#e or 'e&r$ye' by rel$ti!es $#' &rie#'s of the deceasedare #ot 'e'uctible.

82 >UDICIA* EXENSES OF T6E TESTAMENTARY OR INTESTATE ROCEEDINGS

&xpenses allowed as ded$ction $nder this category are those@1. inc$rred in the in"entory-ta#ing of assets comprising the gross estate2. administration3. payment of dets of the estateas well as the distri$tion of the estate among the heirs.n short these ded$ctile items are expenses inc$rred d$ring the settlement of the estate $t not eyond

the last day prescried y law or the extension thereof for the filing of the estate tax ret$rn.

C2 C*AIMS AGAINST T6E ESTATEThe word GclaimsG is generally constr$ed to mean dets or demands of a pecu#i$ry #$ture which co$ld ha"e

een enforced against the deceased in his lifetime and co$ld ha"e een red$ced to simple money A$dgments.

,laims against the estate or indetedness in respect of property may arise o$t of@1. ,ontract42. Tort4 or3. Bperation of aw.

Re?u%s%tes:1. The liaility represents a personal oligation of the deceased existing at the time of his death except

$npaid oligations inc$rred incident to his death s$ch as $npaid f$neral expenses 'i.e. expensesinc$rred $p to the time of interment( and $npaid medical expenses which are classified $nder a differentcategory of ded$ctions4

2. The liaility was contracted in good faith and for ade8$ate and f$ll consideration in money or moneyHsworth4

3. The claim m$st e a det or claim which is "alid in law and enforceale in co$rt47. The indetedness m$st not ha"e een condoned y the creditor or the action to collect from the

decedent m$st not ha"e prescried.

D2 C*AIMS AGAINST INSO*4ENT ERSONS

Re?u%s%tes:1. The amo$nt thereof has een initially incl$ded as part of his gross estate 'for otherwise they wo$ld

constit$te do$le ded$ctions if they were to e ded$cted(2. The incapacity of the detors to pay their oligation is pro"en.

C2 UNAID MORTGAGE

• n case $npaid mortgage payale is eing claimed y the estate "erification m$st e made as to who was

the eneficiary of the loan proceeds.

• f the loan is fo$nd to e merely an accommodation loan where the loan proceeds went to another person

the "al$e of the $npaid loan m$st e incl$ded as a recei"ale of the estate.

• f there is a legal impediment to recognie the same as recei"ale of the estate said $npaid oligationI

mortgage payale shall not e allowed as a ded$ction from the gross estate.

• n all instances the mortgaged property to te e+te#t o& te 'ece'e#t,s i#terest terei# soul' always

form part of the gross taxale estate.

F2 TAXESTaxes which ha"e accr$ed as of the death of the decedent which were $npaid as of the time of death.

T+e /ollo,%"$ are "ot eu!t%0le:1. income tax on income recei"ed after death2. property taxes not accr$ed efore death

3. estate tax

G2 *OSSESRe?u%s%tes:

1. t sho$ld arise from fire storm shipwrec# or other cas$alty roery theft or emelement42. *ot compensated y ins$rance or otherwise43. *ot claimed as ded$ction in an income tax ret$rn of the taxale estate47. Bcc$rring d$ring the settlement of the estate4 and5. Bcc$rring efore the last day for the payment of the estate tax 'last day to pay@ six months after the

decedent’s death(.

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52 TRANSFER FOR U8*IC USE

Re?u%s%tes:1. The disposition is in a last will and testament2. To ta#e effect after death3. n fa"or of the go"ernment of the hil. or any political s$di"ision thereof 7. or excl$si"e p$lic p$rposes.

-ote: This sho$ld also incl$de e8$ests de"ices or transfers to social welfare c$lt$ral and charitaleinstit$tions.

72 4ANIS6ING DEDUCTION

DEFINITION: The ded$ction allowed from the gross estate for properties that were s$Aect to donor’s or estatetaxes. t is called "anishing ded$ction eca$se the ded$ction allowed diminishes o"er a period of fi"e years. Therate of ded$ction depends on the period from the date of transfer to the death of the decedent as follows@

ERIOD DEDUCTION

• 1 year or less 100%

• 1 year J 2 years 60%

• 2 years J 3 years D0%

• 3 years J 7 years 70%

• 7 years J 5 years 20%

Re?u%s%tes:1. the present decedent died within 5 years from transfer of the property from a prior decedent or donor.2. The property m$st e located in the hils.3. The property formed part of the taxale estate of the prior decedent or of the taxale gift of the donor.7. The estate tax or donor’s tax on the gift m$st ha"e een finally determined and paid.5. The property m$st e identified as the one recei"ed from the prior decedent or something ac8$ired in

exchange therefor.D. *o "anishing ded$ction on the property was allowale to the estate of the prior decedent.

92 FAMI*Y 6OME

Co"%t%o"s:1. The family home m$st e the $ctu$l residential home of the decedent and his family at the time of his

death $s certi&ie' by te B$r$#$y /$pt$i# of the locality where the family home is sit$ated42. The total "al$e of the family home m$st e incl$ded as part of the gross estate of the decedent4 and3. ?llowale ded$ction m$st e in an amo$nt e8$i"alent to

1. the c$rrent fair mar#et "al$e of the family home as declared or incl$ded in the gross estate or

2. the extent of the decedentHs interest 'whether conA$galIcomm$nity or excl$si"e property( ,+%!+e-er %slo,er $t not exceeding 1000000

;2 STANDARD DEDUCTION

? ded$ction in the amo$nt of Bne !illion esos '1000000( shall e allowed as an additional ded$ctionwitout #ee' o& subst$#ti$tio#.

The f$ll amo$nt of 1000000 shall e allowed as ded$ction for the enefit of the decedent.


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DEDUCTIONS ON GROSS ESTATE A*ICA8*E TO N ON -RESIDENT ALIENS

The following are ded$ctile from the gross estate of non-resident aliens@

12 &xpenses losses indetedness and taxes '&T( (or'i#$ry 'e'uctio#s)

Formula: 2$+ 3 hil. ross

/re'it &state K 9orld Li%it 9orld ross &T

&state

2. Transfer for p$lic $se

3. ;anishing ded$ction on property in the hilippines.

7. ,onA$gal share of the s$r"i"ing spo$se

ESTATE TAX CREDIT

? tax credit is granted for estate taxes paid to a foreign co$ntry on the estate of citiens and residentaliens s$Aect to the following limitations

12 O"e /ore%$" !ou"tr3 o"l3The tax credit is whiche"er is lower etween@

1. &state tax paid to the foreign co$ntry2. Tax ,redit imit L

*T& foreign co$ntry K hil. estate*T& world Tax

( NTE -et 2$+$ble Est$te)

52 More t+a" o"e /ore%$" !ou"tr3The credit shall e that which is the lower amo$nt etween imit ? and imit F.

*%m%t A. 9hiche"er is lower etween@

• &state tax paid to a foreign co$ntry

• Tax ,redit imit L

*T& foreign co$ntry K hil. estate*T& world Tax

*%m%t 8. 9hiche"er is lower etween@

• Total of estate taxes paid to all foreign co$ntries

• Tax ,redit imit L

*T& o$tside hil. K hil. estate NTE, world Tax

SETT*EMENT OF T6EESTATE TAX

A2 FI*ING

Not%!e O/ Deat+ To 8e F%len all cases of transfers s$Aect to tax or where tho$gh exempt from tax te ross !$lue o& te est$te

e+cee's "0000 the exec$tor administrator or any of the legal heirs witi# two %o#ts after the decedent’s

death or within a li#e period after 8$alifying as s$ch exec$tor or administrator shall gi"e a written noticethereof to the ,ommissioner. (Sec. 8)

A" Estate Tax Retur" Is Re?u%re To 8e F%le1. when the estate is s$Aect to estate tax4 or2. when the estate is not s$Aect to estate tax $t the gross estate exceeds 2000004 or3. regardless of the amo$nt of the gross estate where the gross estate consists of registered or registrale

property s$ch as motor "ehicle or shares of stoc# or other similar property for which clearance from the FRis re8$ired as a condition precedent for the transfer of ownership thereof in the name of the transferee.

T%me /or F%l%"$ o/ t+e estate tax retur"

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The estate tax ret$rn shall e /%le +$$% *$ () /!%* $&ter te 'e$t of the decedent.

Exte"s%o": The FR may in meritorio$s cases grant an extension of #ot e+cee'i# tirty (0) '$ys for the filingof the estate tax ret$rn.

+e" T+e Gross Estate Ex!ees 5BBBBBB T+e Estate Tax Retur" S+all 8e A!!om.a"%e 83 A Stateme"t+%!+ Is Cert%/%e 83 A" I"e.e"e"t Cert%/%e u0l%! A!!ou"ta"t Stat%"$1. the itemied assets of the decedent with its corresponding gross "al$e at the time of his death or in the

case of a non-resident not citien of the hilippines that part of his gross estate sit$ated in the hilippines42. the itemied ded$ctions from the gross estate43. the amo$nt of tax d$e whether paid or still d$e and o$tstanding.

la!e +ere to F%le t+e Estate Tax Retur"

12 Res%e"t C%t%e"- with the ?ccredited ?gent Fan# '??F( Re"en$e )istrict Bfficer ,ollection Bfficer or d$ly a$thoried

Treas$rer of the city or m$nicipality where the decedent was domiciled at the time of his death.

52 No"'res%e"t (!%t%e" or al%e")a. has registered exec$tor or administrator

- with the Re"en$e )istrict Bffice where s$ch exec$tor or administrator is registered. exec$tor or administrator is not registered

- with the Re"en$e )istrict Bffice ha"ing A$risdiction o"er the exec$tor’ or administrator’s residencec. no exec$tor or administrator

- with the Bffice of the ,ommissioner (Sec. / e!. e. 00)

82 AYMENT

a3me"t o/ t+e estate tax ueThe estate tax d$e shall paid at the time when the estate tax ret$rn is filed.9hen the ,ommissioner finds that the payment of the estate tax on the d$e date wo$ld impose $nd$e

hardships $pon the estate or any heir@a. the payment of the estate tax may e extended for a period not to exceed fi"e '5( years if there is a

A$dicial settlement of the estate4 or

. the payment of the estate tax may e extended for a period not to exceed two '2( years if there is anextra-A$dicial settlement of the estate.-72E: n case the a"ailale cash is not s$fficient to pay its total estate tax liaility the estate may e allowedto p$y t$+ by i#st$ll%e#t. (Sec. e!. e. 00)

*%a0%l%t3 /or a3me"tThe estate tax shall be paid by the executor or administrator before delivery to any beneficiary of his distributive

share of the estate.+$ch eneficiary to the extent of his distri$ti"e share of the estate shall e s$sidiarily liale for the

payment of s$ch portion of the estate tax as his distri$ti"e share ears to the "al$e of the total net estate.(Sec. 9 e!. e. 00)

*o A$dge shall a$thorie the distri$tion of the estate $nless a certification from the ,ommissioner that taxhas een paid is shown. '+ec. C7(

*o shares or other forms of sec$rities shall e transferred in the oo#s of any corporation partnership$siness or ind$stry organied in the hilippines $nless a similar certification y the ,ommissioner is shown.'+ec. CE(

9hen a an# has #nowledge of the death of a person who maintained a Aoint acco$nt it shall not allow anywithdrawal y the s$r"i"ing depositor witho$t the ao"e certification. '+ec. CE(

"!$#e# that the administrator of the estate or any one '1( of the heirs of the decedent may $pona$thoriation y the ,ommissioner withdraw an amo$nt not exceeding twenty tho$sand pesos (5BBBB)witho$t the said certification.

There is nothing in the Tax ,ode and in the pertinent remedial law that implies the necessity of the proateco$rt or estate settlement of co$rt’s appro"al of the +tate’s claim for estate taxes efore the same can eenforced and collected y the FR. Bn the contrary $nder +ection C7 it is the proate or settlement co$rt

which is idden not to a$thorie the deli"ery of the distri$ti"e share to any interested party witho$t acertification from the ,R showing the payment of the estate tax. (M$rcos !s. /ourt o& ;ppe$ls 9 -o.10880


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a. Fy going after all the heirs and collecting from each one of them the amo$nt of the tax proportionate tothe inheritance recei"ed or

. $rs$ant to the lien created y +ection 21C of the Tax ,ode $pon all property and rights to propertyelonging to the taxpayer for $npaid income tax is y s$Aecting said property of the estate which is inthe hands of an heir or transferee to the payment of the tax d$e the estate. (/o%%issio#er o& #ter#$le!e#ue !s. "i#e'$ 9 -o. L >=4 Septe%ber 15 16=)

(5) DONOR#S TAXES

DEFINITION: ? tax on the pri"ilege of transmitting one’s property or property rights to another or others witho$tade8$ate and f$ll "al$ale consideration.

Co-era$e O/ T+e Tax (SEC. 104)

RESIDENT & NON'RESIDENT CITIEN RESIDENT A*IENDONOR

NON'RESIDENT A*IEN DONOR

1. Real property were!er sit$ated 1. Real property sit$ated in the "ilippi#es.

2. ersonal property were!er sit$ateda. Tangile and ntangile 2. ersonal propertya. Tangile property sit$ated in the "ilippi#es. ntangile personal property with a sit$s in the hilippines

$nless exempted on the asis of reciprocity.

Re?u%s%tes

1. ,apacity of the donor2. )onati"e ntent3. )eli"ery whether act$al or constr$cti"e of the s$Aect gift7. ?cceptance y the donee

*a, t+at $o-er"s t+e %m.os%t%o" o/ Do"or#s Tax

The donor’s tax shall not apply $nless and $ntil there is a completed gift. The transfer is per&ecte' from themoment the donor #nows of the acceptance y the donee4 it is co%plete' y the deli"er either act$ally orconstr$cti"ely of the donated property to the donee. Th$s the law in force $t te ti%e o& te per&ectio#?co%pletio# o& te 'o#$tio# shall go"ern the imposition of the donor’s tax.

? gift that is i#co%plete eca$se of reser"ed powers ecomes complete when either@1. the donor reno$nces the power4 or2. his right to exercise the reser"ed power ceases eca$se of the happening of some e"ent or contingency or

the f$lfillment of some condition other than eca$se of the donorHs death.

• Ren$nciation y the s$r"i"ing spo$se of hisIher share in the conA$gal partnership or asol$te comm$nity

$&ter te 'issolutio# o& te %$rri$e in fa"or of the heirs of the deceased spo$se or any other personIsis s$Aect to donorHs tax.

•

9hereas e#er$l re#u#ci$tio# y an heir incl$ding the s$r"i"ing spo$se of hisIher share in thehereditary estate left y the decedent is not s$Aect to donorHs tax $nless specifically and categoricallydone in fa"or of identified heirIs to the excl$sion or disad"antage of the other co-heirs in the hereditaryestate. (Sec. 11 e!. e. 00)

STRANGER ' a person who is not a rother sister spo$se ancestor and lineal descendant or of a relati"e yconsang$inity in the collateral within the 7th ci"il degree.

• ? legally adopted child is e#title' to $ll te rits $#' obli$tio#s pro!i'e' by l$w to leiti%$te cil're#

and therefore donation to him shall not e considered as donation made to stranger.

• )onation made etween $siness organiations and those made etween an indi"id$al and a $siness

organiation shall e considered as donation made to a stranger.

4aluat%o" o/ $%/ts o/ .ro.ert3

The fair mar#et "al$e of the property gi"en at the time of the gift shall e the "al$e of the gift.

I"ta"$%0le .erso"al .ro.ert%es ,%t+ a s%tus %" t+e +%l2 (same as %" estate tax su0e!t to t+e re!%.ro!%t3 rule)(Sec. 104)

or%ul$: (7# $ cu%ul$ti!e b$sis o!er $ perio' o& o#e c$le#'$r ye$r)

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12 O" t+e 1st o"at%o" o/ a 3ear

ross gifts xxx

Less: )ed$ctions from gross gifts xxx

*et giftsMultiply by: Tax Rate

xxxxxx

)onor’s tax on the net gifts xxx

52 O" o"at%o" o/ a su0se?ue"t ate ur%"$ t+e 3ear

ross gifts made on this date KKLess: )ed$ctions from gross gifts KK

*et gifts KK ;'' @ ?ll prior net gifts within the year KK

?ggregate net giftsMultiply by @ Tax Rate

KKKK

)onor’s tax on aggregate net gifts KKLess: )onor’s tax on all prior net gifts KK

)onor’s tax on the net gifts on this date KK

Exem.t%o" o/ !erta%" $%/ts

1. ifts made y a residenta. )owries or gifts made on acco$nt of marriage and efore its celeration or within one year thereafter y

parents to each of their legitimate illegitimate or adopted children to the extent of the first 10 000.. ifts made to or for the $se of the *ational o"ernment or any entity created y any of its agencies

which is not cond$cted for profit or to any political s$di"ision of the said go"ernment.c. ifts in fa"or of ed$cational charitale religio$s c$lt$ral or social welfare corporation instit$tions

fo$ndations tr$st or philanthropic organiation research instit$tion or organiation accredited non-go"ernment organiation '*B(. ro"ided that no more than 30% of said gifts shall e $sed y s$chdonee for administration p$rposes.

2. ifts made y a non-resident not a citien of the hil.a. same as '(

. same as 'c( except accredited non-go"ernment organiation '*B(

A "o"'.ro/%t eu!at%o"al a"or !+ar%ta0le !or.orat%o" %"st%tut%o" a!!re%te "o"'$o-er"me"tor$a"%at%o" trust or .+%la"tro.+%! or$a"%at%o" resear!+ %"st%tut%o" or or$a"%at%o" %s

1. one incorporated as a non-stoc# entity2. paying no di"idends3. go"erned y tr$stees who recei"e no compensation and7. de"oting all its income whether st$dents’ fees or gifts donations s$sidies or other forms of philantrophy to

the accomplishment and promotion of the p$rposes en$merated in its ?rticles of ncorporation.

Tax !re%t /or o"or#s taxes .a% to a /ore%$" !ou"tr3

1. )onor was a ilipino citien or resident alien2. ?t time of foreign donation3. )onor’s taxes of any character and description7. ?re imposed and paid y the a$thority of a foreign co$ntry.

*%m%tat%o"s o" tax !re%t

1. The amo$nt of the credit in respect to the tax paid to any co$ntry shall not exceed the same proportion of the tax against which s$ch credit is ta#en which the decedent’s net gifts sit$ated within s$ch co$ntrytaxale $nder the *R, ears to his entire net gift4 and The total amo$nt of the credit shall not exceed thesame proportion of the tax against which s$ch credit is ta#en which the decedent’s net gift sit$ated o$tsidethe hilippines taxale $nder the *R, ears to his entire net gift.

Formula o/ Tax Cre%t *%m%t

12 For o"or#s taxes .a% to o"e /ore%$" !ou"tr3

* sit$ated Taxin a foreign co$ntry K )T L ,redit&ntire net gift imit

(NG ' Net G%/ts DT ' +%l2 Do"ors Tax)

52 For o"or#s taxes .a% to t,o or more /ore%$" !ou"tr3

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* o$tside the hil. K )T L Tax&ntire net gifts ,redit

imit

The allowale tax credit is the lower amo$nt etween the tax credit limit $nder 'a( and '(.

+&TT&!&*T B T:& )B*BR’+ T?K

T%me /or F%l%"$ o/ Retur" a" .a3me"t o/ t+e Do"or#s TaxThe donor’s tax ret$rn is filed and the donor’s tax d$e is paid witi# tirty (0) '$ys after the date the gift is

made.The ret$rn shall e $nder oath in d$plicate setting forth@

1. &ach gift made d$ring the calendar year which is to e incl$ded in comp$ting net gifts42. The ded$ctions claimed and allowale43. ?ny pre"io$s net gifts made d$ring the same calendar year47. The name of the donee45. Relationship of the donor to the donee4 andD. +$ch f$rther information as may e re8$ired y r$les and reg$lations made p$rs$ant to law.-72E: The filing of a notice of donation is #ot reuire' $nli#e in estate tax where notice of death is re8$ired.

la!e /or F%l%"$ o/ Retur" a" .a3me"t o/ t+e Do"or#s Tax

12 Res%e"t

• 9ith an a$thoried agent an# the Re"en$e )istrict Bfficer Re"en$e ,ollection Bfficer or d$ly a$thoried

Treas$rer of the city or m$nicipality where the donor w$s 'o%icile' at the time of the transfer or if theree no legal residence in the hilippines with the 7&&ice o& te /o%%issio#er .

52 No"'res%e"t

• iled with the "ilippi#e E%b$ssy or /o#sul$te in the co$ntry where he is domiciled at the time of the

transfer or directly with the 7&&ice o& te /o%%issio#er .

Tax rate

f the donee is a stra"$er the rate of tax shall e 30% of the net gifts.f the donee is "ot a stra"$er the rate shall e from 2% to 15% of the net gifts.

ANNEX : I**USTRATI4E RO8*EM ON DONOR #S TAX

RO8*EMSOLUTION

!r. ? and !rs. ?citiens M residents of the hilippines madethe following donationsin 2002@

>ul3 59:To !r. K a legitimate

child on acco$nt of marriage 300000cash

!r. ?

Mrs2 A

*+N +NN Total *+N +NN Total

>ul3 59 5BB5:ross gifts made@

To K legitimate child on

acco$nt of marriage 150000 150000 150000 150000

To !r. O a legitimatechild 100000

To O legitimate child50000 50000 50000 50000

To !rs. P a familyfriend 20000

To P a family friend10000 10000 10000 10000

Totals 20000010000

210000 20000010000

210000

)ed$ction@

or donation on acco$ntof marriage 10000 10000 10000 10000

*et gifts made 1C000010000

200000 1C000010000

200000

Se.tem0er @:

To !r. K 100000

)onor’s tax

1600 3000 7600 1600 3000 7600To !r. ?? father of !rs. ? 20000

,omp$te thedonor’s tax d$e.

Se.tem0er @ 5BB5:ross gifts made@

To K legitimate child50000 50000 50000 50000

To ?? father of !rs. ?10000 10000 10000 10000

Totals50000 10000 D0000 D0000 D0000

)ed$ction ----- ----- ----- ----- -----

*et gifts on this date50000 10000 D0000 D0000 D0000

10


11/56

RO8*EMSOLUTION

?dd@ ?ll prior gifts withinthe year

1C000010000

1C0000

?ggregate net gifts 27000020000

250000

)onor’s tax on aggregatenet gifts 3D00 D000 7000

ess@ donor’s tax on all priornet gifts within the year 1600 3000 1600

)onor’s tax d$e1600 3000 7600 2200 2200

HNS Not a Stra"$erHH S ' Stra"$er

;?


12/56

to the release of s$ch goods from c$stoms c$stody@ ro"ided That where the c$stoms d$ties are determinedon the asis of the 8$antity or "ol$me of the goods the "al$e-added tax shall e ased on the landed costpl$s excise taxes f any. c$stoms d$ties.

6. Ze"!-"&e# (0) "&e ! &

1. &xport +ales as pro"ided in +ection 10D'?('2('a(2. oreign ,$rrency )enominated +ale as pro"ided in +ection 10D '?('2('(

3. +ale to persons or entities which is ;?T exempt $nder special laws or international agreements to which thehilippines is a signatory as pro"ided in +ection 10D '?('2('c(7. Transactions s$Aect to ero-rated '0%( as pro"ided in +ection 106'F(

REGISTRATION UNDER T6E 4AT SYSTEM (SECTION 57< OF T6E NIRC)

Ge%e"&: R:e ail$re to register is s$Aect to temporary clos$re of the estalishment for 5 days as pro"ided in+ection 115'(.

Ex!e.t%o": t does not apply to an exporter who fails to register. The effect is instead of treating thetransaction as ero-rated '0%( it is treated as an exempt transaction.

+at %s t+e %//ere"!eJ # @eror$te' (0A) tr$#s$ctio#s t$+ cre'it is $!$il$ble. owe!er i# e+e%pttr$#s$ctio#s t$+ cre'it is #ot $!$il$ble.

EXEMT TRANSACTIONS (SECTION 1B@):1. n +ection 10C'a( and 'c( food and non-food prod$cts $re C;2e+e%pt $s lo# $s tese pro'ucts $re i# its

orii#$l st$te. The simple process of preparation or preser"ation for the mar#et s$ch as freeing dryingsalting roiling roasting smo#ing or stripping oes "ot remo"e the prod$ct from its category of eing inits original state.

• :owe"er e"en if the prod$cts were no longer in its original state it can still e ;?T-exempt $nder +ection

10C'r) %/ sol 03 a$r%!ultural !oo.erat%-es ul3 re$%stere 03 Coo.erat%-e De-elo.me"t Aut+or%t3.2.


13/56

(0) ,reditors in payment of det4(7) ,onsignment of goods if act$al sale is not made within sixty 'D0( days following the date s$ch goods wereconsigned4 and(9) Retirement from or cessation of $siness with respect to in"entories of taxale goods existing as of s$chretirement or cessation.

!+ ! #ee"/$%e e VAT The tax shall e comp$ted y m$ltiplying the total amo$nt indicated in the in"oicey one-ele"enth '1I12(.

Exam.le: the total amo$nt indicated in the in"oice is 112. 110I12 L 10. 10 is the amo$nt of ;?T.

TAX CREDIT AND REFUND

!"/:& !" T& C"e#$B$tp$tess@ np$t;?T d$eIayale

• f np$t is greater than B$tp$t Tax ,redit is a"ailale.

;INUT TA


14/56

?ny person whose registration has een cancelled in accordance with +ection 23D shall file a ret$rn andpay the tax d$e thereon witi# 5 '$ys from the date of cancellation of registration@ "ro!i'e' That only oneconsolidated ret$rn shall e filed y the taxpayer for his principal place of $siness or head office and allranches.

42 TARIFF AND

CUSTOMS CODE

DEFINITIONSTARIFF: ,$stoms d$ties toll or tri$te payale $pon merchandise to the o"ernment. CUSTOM DUTIES: Tax assessed $pon merchandise from or exported to a foreign co$ntry. (9$rci$ !. E+ecuti!eSec. 9 -o. 101=


15/56

6EN TARIFF AND CUSTOMS A*IEDBnly after importation has eg$n $t efore importation is terminated.

%port$tio# bei#s:1( when the con"eying "essel or aircraft2( enters the A$risdiction of the hil.3( with intention to $nload therein

%port$tio# is 'ee%e' ter%i#$te' :

'a( $pon payment of the d$ties taxes and other charges d$e $pon the articles.

'( and legal permit for withdrawal shall ha"e een granted.

• n case the articles are free of d$ties taxes and other charges $ntil they ha"e legally left the

A$risdiction of the c$stoms (Sec. 10 2//)

INTENTION TO UN*OAD&"en if not yet $nloaded and there is $nmanifested cargo forfeit$re may ta#e place eca$se importation hasalready eg$n.

1. ro+%0%te /rom 0e%"$ %m.orte 'rohiited importation(a. ;bsolutely proibite' s$ch as@ weapons of war4 gamling de"ices4 narcotics or prohiited dr$gs4 immoral

oscene or insidio$s articles4 and those prohiited $nder special laws (Sec.10 2//).b. Du$li&ie'ly proibite'

9here s$ch conditions as to warrant a lawf$l importation do not exist the legal effects of theimportation of 8$alifiedly prohiited articles are the same as those of asol$tely prohiited articles.(;uyo# i$# !s. /2; 9 -o. L8=8 Septe%ber 1 1=4)

2. Co"%t%o"all3'/ree /rom tar%// a" !ustoms ut%es 'conditionally-free importation(

• Those pro"ided in +ec. 105 T,,4

• Those granted to go"ernment agencies B,,s with agreements with foreign co$ntries4

• Those gi"en to international instit$tions entitled to exemption y agreement or special laws4 and

• Those that may e granted y the resident $pon *&)?’s recommendation.

3. Free /rom TC ut%es 'd$ty-free(mported goods m$st e entered in a c$stomho$se at their port of entry otherwise they shall e

considered as contraand and the importer is liale for sm$ggling (See Sec. 101 2//).?ll articles when imported from any co$ntry into the hilippines shall e s$Aect to d$ty $pon each

importation e"en tho$gh pre"io$sly exported from the hilippines except as otherwise specifically pro"idedfor in the T,, or other laws.

*%a0%l%t3 /or Customs Dut%esGe"eral Rule: ?ll importations I exportations of goods are s$Aect to c$stoms d$ties (Sec. 105 2//).

Ex!e.t%o"s:

'1( &xemptions $nder the T,,4'2( &xemptions granted to go"ernment agencies instr$mentalities or B,,s with existing contracts

commitments agreements or oligations with foreign co$ntries4'3( &xemptions of international organiations p$rs$ant to agreements or special laws4 and

(4) &xemptions granted y the res. of the hil. $pon recommendation of *&)? (Sec. 105 2//). *IA8I*ITY OF IMORTER FOR CUSTOM DUTIES

• ? perso#$l 'ebt which can e discharged only y payment in f$ll thereof4

• ? lie# $pon the imported articles while they are in c$stody or s$Aect to the control of the go"ernment.

(Sec. 104 2//).

Exte"t O/ Im.orter#s *%a0%l%t3The liaility of an importer is limited to the "al$e of the imported merchandise. n case of forfeit$re of

the seied material the maxim$m ci"il penalty is the forfeit$re itself. (Me#'o@$ !s. $!i' 9 -o. L45

M$rc = 161)

Dra,0a!K? de"ice resorted to for enaling a commodity affected y taxes to e exported and sold in foreign mar#ets

$pon the same terms as if it had not een taxed at all. (Fy /$co So#s !s. /ollector o& /usto%s 9 -o. =618M$rc = 11)

15


16/56

Im.ort E"tr3t is a declaration to the FB, showing partic$lars of the imported article that will enale the c$stoms

a$thorities to determine the correct d$ties. ?n importer is re8$ired to file an import entry. t m$st eaccomplished from disemar#ing of last cargo from "essel.

Tra"sa!t%o" -alue u"er RA NO2 11t is the in"oice "al$e of the goods pl$s freight ins$rance costs expenses and other necessary

expenses. This replaces the :ome ,ons$mption ;al$e as asis of "al$ation of goods.

C*ASSIFICATION OF CUSTOM DUTIES

A. Re$ular Dut%es J those which are imposed and collected merely as a so$rce of re"en$e.12 A -alorem ut3: This is a d$ty ased on the "al$e of the imported article.52 S.e!%/%! ut3: This is a d$ty ased on the d$tiale weight of goods 'either the gross weight legal weight

or net weight(.72 Alter"at%"$ ut%es: This is a d$ty which alternates ad "alorem and specific. 92 Com.ou" Dut3: This is a d$ty consisting of ad "alorem and specific d$ties.

82 S.e!%al ut%es those which are imposed and collected in addition to the ordinary c$stoms d$ties $s$ally toprotect local ind$stries against foreign competition.

12 Dum.%"$ ut3

52 Cou"ter-a%l%"$ ut372 MarK%"$ ut392 D%s!r%m%"ator3 ut3

NATURE OF SECIA* CUSTOMS DUTIES+pecial c$stoms d$ties are additional import d$ties imposed on specific #inds of imported articles $nder

certain conditions.

UROSE OF SECIA* CUSTOMS DUTIESThe special c$stoms d$ties are imposed for the protection of cons$mers and man$fact$rers as well as

hil. prod$cts from $nd$e competition posed y foreign-made prod$cts.

16


17/56

SECIA* DUTIES COMARED

DUMING DUTY COUNTER4AI*ING DUTY MARLING DUTY

DISCRIMINATORY

DUTY

1. N&"emposed $ponforeign prod$ctswith "al$e lowerthan their fairmar#et "al$e to thedetriment of localprod$cts.

mposed $pon foreigngoods enAoying s$sidyth$s allowing them tosell at lower prices tothe detriment of localprod$cts similarlysit$ated.

mposed $ponthose notproperly mar#edas to place of origin of thegoods.

mposed $pongoods comingfrom co$ntriesthat discriminateagainst hilippineprod$cts.

. A/!%>R&e )ifference etweenthe act$al price

and the normal"al$e of the article.

&8$i"alent to theo$nty s$sidy ors$"ention.

5% ad "aloremof articles

?ny amo$nt notexceeding 100%ad "alorem of the

s$Aect articles

3. I/?!*$%@ A!"$' +pecial committeeon ?nti-)$mping'composed of the+ecretary of inanceas ,hairman4!emers@ the+ecretary of )Tand either the+ecretary of ?gric$lt$re if article

in 8$estion isagric$lt$ral prod$ctor the +ecretary of laor if non-agric$lt$ral prod$ct

+ecretary of inance ,ommissioner of ,$stoms

resident of thehilippines

17


18/56

F*EXI8*E TARIFF C*AUSEThe resident may fix tariff rates import and export 8$otas etc. $nder T,, (See Sec. 8 ;rt. C

/o#stitutio# $#' Sec. 401 2//)1. to increase red$ce or remo"e existing protecti"e rates of import d$ty 'incl$ding any necessary

change in classification(.The existing rates may e increased or decreased to any le"el on one or se"eral stages $t in

no case shall the increased rate of import d$ty e higher than a maxim$m of one h$ndred '100%(per cent ad "alorem2. to estalish import 8$ota or to an imports of any commodity as may e necessary4 and3. to impose an additional d$ty on all imports not exceeding ten '10%( per cent ad "alorem whene"er

necessary@

*IMITATIONS IMOSED REGARDING T6E F*EXI8*E TARIFF C*AUSE

a. ,ond$ct y the Tariff ,ommission of an in"estigation in a public e$ri#.The ,ommission shall also hear the "iews and recommendations of any go"ernment office

agency or instr$mentality concerned.The ,ommission shall s$mit their findings and recommendations to the *&)? within thirty '30(

days after the termination of the p$lic hearings.The *&)? thereafter s$mits its recommendation to the resident.

1. The power of the resident to increase or decrease the rates of import d$ty within theao"ementioned limits fixed in the ,ode s$ll i#clu'e te %o'i&ic$tio# i# te &or% o& 'uty .

n s$ch a case the corresponding ad "alorem or specific e8$i"alents of the d$ty with respect tothe imports from the principal competing foreign co$ntry for the most recent representati"e periodshall e $sed as ases (Sec. 401 2//).

T6E TARIFF COMMISSION (TC)

FUNCTIONS OF T6E TARIFF COMMISSION12 I"-est%$at%-e o,ers (Se!2 ;B; TCC)

a. the administration of and the fiscal and ind$strial effects of the tariff and c$stoms laws of this

co$ntry now in force or which may hereafter e enacted4. the relations etween the rates of d$ty on raw materials and the finished or partly finished

prod$cts4c. the effects of ad "alorem and specific d$ties and of compo$nd specific and ad "alorem d$ties4d. all 8$estions relati"e to the arrangement of sched$les and classification of articles in the

se"eral sched$les of the tariff law4e. the tariff relations etween the hilippines and &orei# co$ntries commercial treaties

preferential pro"isions economic alliances the effect of export o$nties and preferentialtransportation rates4

f. the "ol$me of importations compared with domestic prod$ction and cons$mption4g. conditions ca$ses and effects relating to competition of foreign ind$stries with those of the

hilippines incl$ding d$mping and cost of prod$ction4 andh. in general to in"estigate the operation of c$stoms and tariff laws incl$ding their relation to

the national re"en$es their effect $pon the ind$stries and laor of the co$ntry and to s$mitreports of its in"estigation as pro"ided.

52 Am%"%strat%-e Ass%sta"!e to t+e res%e"t a" Co"$ress (Se!2 ;B


19/56

the ,essna plane for sm$ggling operation is s$fficient for it to e deemed to ha"e een$sed in sm$ggling. (Ll$%$'o !s. /o%%issio#er o& /usto%s 9 -o. L880 M$y 16 18)

72 Reu!t%o" o/ !ustoms ut%es !om.rom%se

• s$Aect to appro"al of +ec. of inance (Sec. =0 16 2//)

92 Seizure, Search, Arrest (Sec. 2205, 2210, 2211 TC C

82 >UDICIA*1. t+%s reme3 %s "ormall3 a-a%le o/ ,+e" t+e tax l%e" %s lost 03 t+e release o/ t+e $oos

• ,i"il ?ction '+ec. 1207 T,,(

• ,riminal ?ction

TAX REMEDIES OF T6E TAXAYER

A2 ADMINISTRATI4E1. rotest

a. ?ny importer or interested party if dissatisfied with p$lished "al$e within 15 days fromdate of p$lication or within 5 days from the date the importer is entitled to ref$nd if payment is rendered erroneo$s or illegal y e"ents occ$rring after the payment.

. Taxpayer J within 15 days from assessment. ayment $nder protest is necessary. (Sec.08 10 2//)

2. Re/u"a. ? written claim for ref$nd may e s$mitted y the importer in aatement cases on

missing pac#ages deficiencies in the contents of pac#ages or shortages efore arri"al of the goods in the hilippines articles lost or destroyed after s$ch arri"al dead or inA$redanimals and for manifest clerical errors4 and

. )rawac# cases where the goods are re-exported (Sec. 1=011=08 2//).3. Settleme"t o/ a"3 se%ure 03 .a3me"t o/ /%"e or reem.t%o"

• F$t this shall not e allowed in any case where importation is asol$tely prohiited or therelease wo$ld e contrary to law or when there is an act$al and intentional fra$d (Sec.0= 2//).

7. A..eal

• 9ithin 15 days to the ,ommissioner after notification y ,ollector of his decision (Sec.1 2//).

82 >UDICIA*12 A..eal

• 9ithin 30 days from receipt of decision of the ,ommissioner or +ecretary of inance to the

di"ision of the ,T? (Sec. 40 2// Sec. = ; 115 $s $%e#'e' by Sec. ; 8)

• +ince +ec.11 of R? 1125 as amended y R? C262 empowers the Tax ,o$rt to iss$e

inA$nctions it wo$ld appear that an importer may appeal witho$t first paying the d$tiess$ch as in sei$re $t not in protest cases.

52 A!t%o" to ?uest%o" t+e le$al%t3 o/ se%ure

72 A0a"o"me"t (Sec. 1801 TCC)a. expressly (Sec. 1801 2//). impliedly J

c. fail$re to file an import entry within 30 days from the discharge of goods ord. ha"ing filed an entry fails to claim within 15 days $t it shall not e so effecti"e $ntil

so declared y the collector. (Sec. 1801 $s $%e#'e' by ; =651)

TO LINDS OF ROCEEDINGS IN T6E 8UREAU OF CUSTOMS (8OC)

A2 CUSTOMS ROTEST CASES

DEFINITION: These are cases which deal solely with liaility for c$stoms d$ties fees and other charges2

-ote: Fefore filing a protest there m$st first e a payment $nder protest.

+e" !ustoms .rotest a..l%!a0le

The c$stoms protest is re8$ired to e filed only in case the liaility of the taxpayer for d$tiestaxes fees and other charges is determined and the taxpayer disp$tes said liaility.

+e" Customs .rotest NOT re?u%re

9here there is no disp$te $t the claim for ref$nd arises y reason of the happening of s$per"ening e"ents s$ch as when the raw material imported is $tilied in the prod$ction of finishedprod$cts s$se8$ently exported and a d$ty drawac# is claimed.


20/56

Re?u%reme"ts /or maK%"$ a .rotest

1. !$st e in writing2. !$st point o$t the partic$lar decision or r$ling of the ,ollector of ,$stoms to which exception is

ta#en or oAection made4

3. !$st state the gro$nds relied $pon for relief47. !$st e limited to the s$Aect matter of a single adA$stment45. !$st e filed when the amo$nt claimed is paid or within 15 days after the payment4D. rotestant m$st f$rnish samples of goods $nder protest when re8$ired.

ROCEDURE IN CUSTOMS ROTEST CASES

The ,ollector acting within his A$risdiction shall ca$se the imported goods to e entered at thec$stomho$se

The ,ollector shall assess li8$idate and collect the d$ties thereon or detain the said goods if theparty liale does not pay the same

The party ad"ersely affected 'the protestant( may file a written protest on his foregoing liaility withthe ,ollector within 15 days after paying the li8$idated amo$nt 'the payment $nder protest r$le

applies(

:earing within 15 days from receipt of the d$ly presented protest.


21/56

of forfeit$re. (/o%%issio#er o& /usto%s !s. M$#il$ St$r erry #c. 9 -os. 1==6=8 7ctober 11)

SMUGG*ING1. ?n act of any person who shall@

a. ra$d$lently import any article contrary to law or

b. ?ssist in so doing orc. Recei"e conceal $y sell facilitate transport conceal or sell s$ch article #nowing itsillegal importation (Sec. 601 2//)

d. &xport contrary to law. (Sec. 514 2//)

2. The hilippines is di"ided into "ario$s ports of entry J entry other than port of entry will e+!. (Sec.

514 2//)? articles imported into the hilippines whether s$Aect to d$ty or not shall e entered

thro$gh a c$stomsho$se at a port of entry.&*TRO@ in ,$stoms law means-1. the doc$ments filed at the ,$stoms ho$se2. the s$mission and acceptance of the doc$ments

3. the proced$re of passing goods thro$gh the c$stoms ho$se (o'riue@ !s. /ourt o& ;ppe$ls 9 -o. 11518 Septe%ber 18 15)

CONTRA8AND: ?rticles of prohiited importations or exportations. (Sec. 514 2//)

E4IDENCE FOR CON4ICTION IN SMUGG*ING CASES!ere possession of the article in 8$estion - u#less defendant co$ld explain that his possession is

lawf$l to the satisfaction of the co$rt (Sec. 601 2//). ayment of the tax d$e after apprehension isnot a "alid defense (o'riue@ !s. /ourt o& ;ppe$ls 9 -o. 11518 Septe%ber 18 15)

T6INGS SU8>ECT TO CONFISCATION IN SMUGG*ING CASES?nything that was $sed for sm$ggling is s$Aect to confiscation li#e the "essel plane etc.

(Ll$%$'o !s. /o%%issio#er o& /usto%s 9 -o. L880 M$y 16 18).

Ex!e.t%o": ,ommon carriers that are not pri"ately chartered cannot e confiscated.

RIG6T OF CUSTOMS OFFICERS TO EFFECT SEIURE & ARREST (SEC. 2205)1. !ay seie any "essel aircraft cargo article animal or other mo"ale property when the same is

s$Aect to forfeit$re or liale for any time as imposed $nder tariff and c$stoms laws r$les Mreg$lations

2. !ay exercise s$ch powers only in conformity with the laws and pro"isions of the T,,

COMMON CARRIERS FORFEITURE1. ,ommon carriers are generally not s$Aect to forfeit$re altho$gh if the owner has #nowledge of its

$se in sm$ggling and was a consenting party it may also e forfeited.2. f a motor "ehicle is hired to carry sm$ggled goods $t it has no ,ertificate of $lic ,on"enience

',,( it is not a common carrier. t is th$s s$Aect to forfeit$re and lac# of personal #nowledge of the owner or the carrier is not a defense to forfeit$re.

ROERTIES NOT SU8>ECT TO FORFEITURE IN T6E A8SENCE OF RIMA FACIE E4IDENCEThe forfeit$re of the "ehicle "essel or aircraft shall not e effected if it is estalished that the

owner thereof or his agent in charge of the means of con"eyance $sed as aforesaid has %! %!+:e#@e! !" ?&"$c$?&$!% $% e %:&+: &c@

"ro!i'e' howe"er that a prima facie pres$mption shall exist against the "essel "ehicle or aircraft$nder any of the following circ$mstances@

1. f the con"eyance has een $sed for sm$ggling at least twice efore42. f the owner is not in the $siness for which the con"eyance is generally $sed4 and3. f the owner is financially not in a position to own s$ch con"eyance.

DOCTRINE OF 6OT URSUIT

Re8$isites@12 O-er 4essels

a. ?n act is done in hil. 9aters which constit$tes a "iolation of the tariff and c$stoms laws. a p$rs$it of s$ch "essel egan within the A$risdictional waters which

'i( may contin$e eyond the maritime one and


22/56

'ii( the "essel may e seied on the high seas.

52 O-er Im.orte Art%!lesa. There is a "iolation of the tariff and c$stoms laws. ?s a conse8$ence they may e p$rs$ed in the hil.

c. 9ith A$risdiction o"er them at any place therein for the enforcement of the law. (#' p$r. Sec.

60 2//)

REGIONA* TRIA* COURTS (RTC)4S2

8UREAU OF CUSTOMS (8OC)

• The RT,s do not ha"e A$risdiction o"er sei$re and forfeit$re proceedings cond$cted y the FB,

and to interfere with these proceedings. The ,ollector of ,$stoms has excl$si"e A$risdiction o"erall 8$estions to$ching on the sei$re and forfeit$re of d$tiale goods.

• *o petitions for certiorari prohiition or mandam$s filed with the RT, will lie eca$se these are in

reality attempts to re"iew the ,ommissionerHs act$ations. *either reple"in filed with the RT, williss$e. R&$!%&:e octri#e o& "ri%$ry


23/56

1. The wrongf$l ma#ing y the owner importer exporter or consignee of any declaration or affida"itor the wrongf$l ma#ing or deli"ery y the same persons of any in"oice letter or paper - allto$ching on the importation or exportation of merchandise.4 and

2. That s$ch declaration affida"it in"oice letter or paper is false. ($rol$# ECT TO FORFEITURE whether the act of sm$ggling is estalished or not$nder the principle o& res ips$ louitur . t is eno$gh that the cargo was $nmanifested and that therewas no showing that payment of d$ties thereon had een made for it to e s$Aect to forfeit$re.

SETT*EMENT OF FORFEITURE CASESGe"eral Rule: +ettlement of cases y payment of fine or redemption of forfeited property is $llowe'.

Ex!e.t%o"s:1. the importation is asol$tely prohiited or2. the s$rrender of the property to the person offering to redeem wo$ld e contrary to law or3. when there is fra$d. (Sec. 0= 2//)

ACUITTA* IN CRIMINA* C6ARGE NOT RES >UDICATA IN SEIURE OR FORFEITURE ROCEEDINGSReaso"s:1( ,riminal proceedings are actions in perso#$% while sei$re or forfeit$re proceedings are actions in

re%.2( ,$stoms compromise does not exting$ish criminal liaility. ("eople !s. esi'erio 9 -o. L08005

-o!e%ber 6 165)

N!e ?t any time prior to the sale the delin8$ent importer ma3 settle +%s o0l%$at%o"s with theF$rea$ of ,$stoms in which case the aforesaid articles may e deli"ered $pon payment of thecorresponding d$ties and taxes and compliance with all other legal re8$irements (Sec. 1508 2//)

A8ATEMENTThe red$ction or non-imposition of c$stoms d$ties on certain imported materials as a res$lt of@1( )amage inc$rred d$ring "oyage42( )eficiency in contents pac#ages3( oss or destr$ction of articles after arri"al7( )eath or inA$ry of animals

FRAUDU*ENT RACTICES CONSIDERED AS CRIMINA* OFFENSES AGAINST CUSTOMS RE4ENUE *AS1(


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TAX REMEDIES

I. TAX REMEDIES OF THE GOVERNMENT

Importance

1. They enhance and support the !overnment"s tax collection.2. They are safe!uards of taxpayer"s ri!hts a!ainst arbitrary action.

Tax collection cannot be restraine b! co"rt in#"nction (Sec. 218, 1997 NIRC)

$"sti%ication& #ifeblood Theory

Exception& $n%unction may be issued by the CTA in aid of its appellate %urisdiction under &A 112' (asamended by &A )2*2.

'onitions %or t(e Iss"ance o% an In#"nction b! t(e 'o"rt o% Tax Appeals

The CTA may en%oin collection of taxes+a. $f in its opinion the same may %eopardize the interest of the !overnment andor the taxpayer.b. $n this instance, the court may re-uire the taxpayer either to deposit the amount claimed or file asurety bond for not more than double the amount ith the court.

/ 0efore enforcement of remedies, assessment is necessary to tri!!er the process. $f no return is filed, theCommissioner is empoered to obtain information, and to summonexamine, and tae testimony of persons to determine the amount of tax due. (Sec. 5, 1997 NIRC)

TAX REMEDIES )NDER THE *++, TAX 'ODE&

1. Summary remedies at the administrative level or re!ulation that are executed ithout ceremony or delay short or concise2. Substantive remedies provided for by la or re!ulation an essential part or constituent or relatin! tohat is essential3. 4rocedural remedies involvin! la of pleadin!, evidence, %urisdiction, etc.5. Administrative remedies available at the administration (0$& level5. 6udicial remedies that are enforced throu!h %udicial action, hich may be civil or criminal

tax remeies o% t(e -oernment to e%%ect collection o% taxes

1. Compromise (Sec. 204)2. 7istraint (Actual and Constructive ) (Secs. 205-208)3. #evy (Sec. 207B)5. Tax #ien (Sec. 219)'. Civil Action (Sec. 221)8. Criminal Action (Secs. 221, and 222)

9. :orfeiture of 4roperty (Sec. 224-225)*. Suspension of business operations in violation of ;AT (Sec. 115)).


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and once exercised by him cannot be revieed or interfered ith by the Courts. (''e", "''nes!s. C#**ss#ner, +R N#. -1977, Se'te*er 21, 1950)

2. 0y the Re-ional Eal"ation 4oar composed of+a. the &e!ional 7irector as Chairman,b. Assistant &e!ional 7irector,

the heads of the #e!al, Assessment and Collection 7ivisions, andc. the &evenue 7istrict =fficer havin! %urisdiction over the taxpayer, as members

• on assessments issued by the re!ional offices involvin! basic taxes of 4'>>,>>> or less, and

minor criminal violations.

'ases 5(ic( ma! be compromise

1. 7elin-uent accounts2. Cases under administrative protests3. Civil tax cases bein! disputed before the courts5. Collection cases filed in courts'. Criminal violations, other than those already filed in court or those involvin! criminal tax fraud and,8. Cases covered by pre?assessment notices but taxpayer is not a!reeable to the findin!s of the audit

office as confirmed by the revie office. (Sec.2, Re!. Re. 7-2001)

Exceptions

1. @ithholdin! tax cases2. Criminal tax fraud cases3. Criminal violations already filed in court5. 7elin-uent accounts ith duly approved schedule of installment payments'. Cases here final reports of reinvesti!ation or reconsideration have been issued resultin! to

reduction in the ori!inal assessment and the taxpayer is a!reeable to such decision.D. Cases hich become final and executory after final %ud!ment of a court, here compromise is

re-uested on the !round of doubtful validity of the assessment (RR. /02002)E.


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b. The taxpayer, as reflected in its latest 0alance Sheet supposed to be filed ith the 0ureau of $nternal &evenue, is sufferin! from surplus or earnin!s deficit resultin! to impairment in the ori!inalcapital by at least '>F, provided that amounts payable or due to stocholders other than business?related transactions hich are properly includible in the re!ular Gaccounts payableG are by fiction of la considered as part of capital and not liability, and provided further that the taxpayer has nosufficient li-uid asset to satisfy the tax liability or

c. The taxpayer is sufferin! from anetorth deficit (total liabilities exceed total assets computed by deductin! total liabilities (net of deferred credits and amounts payable to stocholdersoners reflected as liabilities, exceptbusiness?related transactions from total assets (net of prepaid expenses, deferred char!es, pre?operatin! expenses, as ell as appraisal increases in fixed assets, taen from the latest auditedfinancial statements, provided that in the case of an individual taxpayer, he has no other leviableproperties under the la other than his family home (Sec. /, RR. /02002).

a. The taxpayer is a compensation earner ith no other source of income and the family"s !rossmonthly compensation does not exceed (41>,'>>month if sin!le 421,>>>month if married, andthat it appears that the taxpayer possesses no other leviable distrainable assets, other than hisfamily home or

b. The taxpayer has been !ranted by the S of the 1))9 $&C is empoered tore-uire the 0$&+

*.The submission of all pertinent information, includin! but not limited to industry audits, collectionperformance data, status reports on criminal actions initiated a!ainst persons and

6. The submission of taxpayer returns.

Minim"m 'ompromise Rates /M'R0 o% an! tax liabilit!a. $n case of financial incapacity+

HC& I 1>F of the basic assessed taxb. =ther cases+

HC& I 5>F of the basic assessed tax $Sec. 204(A), 1997 NIRC%

Approal o% t(e compromise b! t(e Eal"ation 4oar is re2"ire 5(ena. the basic tax involved exceeds 41,>>>,>>>.>>, or b. the settlement offered is less than the HC&.

N3T The HC& may be less than the prescribed rates of 1>F or 5>F, as the case may be, provided itis approved by the


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$t is consensual in character, hence, may not be imposed on the taxpayer ithout his consent. The0$& may only su!!est settlement of his tax liability throu!h a compromise. The extra?%udicial settlementand the amount of the su!!ested compromise penalty should conform ith the schedule of compromisepenalties provided under the relevant 0$& re!ulations or orders.

Reme! in case t(e taxpa!er re%"ses or %ails to abie t(e tax compromise

1.


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The arrant is a summary procedure Bforcin! the taxpayer to pay. The receipt of a arrant may or may not partae the character of a final decision. $f it is an indication of a final decision, the taxpayer mayappeal to the CTA ithin 3> days from service of the arrant.

7uties of the officer servin! the arrant of distraint+

1. Hae an account of the personal properties distrained

2. Si!n the list of personal properties distrained to hich shall be added, a statement of the sumdemanded and note of the time and place of sale

3. #eave either ith the oner or person from hose possession such personal properties eretaen, or at the dellin! or place of business of such person ith someone of suitable a!e anddiscretion (Sec. 2>*, CT&4

T5o t!pes o% Distraint

1. Act"al& there is tain! of possession of the personal property from the taxpayer by the!overnment. 4hysical transfer of possession is not alays re-uired. This is true in the case of intan!ible property such as stocs and credits.

2. 'onstr"ctie& the oner is merely prohibited from disposin! of his property.

Act"al s. 'onstr"ctie Distraint

A'T)A8 DISTRAINT 'ONSTR)'TIVE DISTRAINT

Hade only on the property of a delin-uent taxpayer Hade on the property of any taxpayer, hether delin-uent or not

There is tain! of possession The taxpayer is merely prohibited from disposin! of hisproperty

Re2"isites %or t(e exercise o% t(e reme! o% istraint

1. The taxpayer must be delin-uent (except in constructive distraint in the payment of tax2. There must be a subse-uent demand for its payment (assessment3. The taxpayer must fail to pay the tax at the time re-uired and7. The period ithin hich to assess or collect the tax has not yet prescribed.

1ersons 5(o s(all sei3e an istraint personal propert! /act"al istraint0

1. Amount of delin-uent tax is more than 41,>>>,>>> Commissioner or his duly authorizedrepresentatives.

2. Amount of delin-uent tax is 41,>>>,>>> or less &evenue 7istrict =fficer. (Sec. 207(A), 1997 NIRC)

A)THORIT: OF THE 'OMMISSIONER TO IN;)IRE INTO 4AN' (0an Secrecy#a covers only divul!in! of information of deposits. o in-uiry is made on !arnishment for it onlyearmars a portion of the deposits.

otithstandin! any contrary provision of &A 15>', the Commissioner is authorized to in-uire into theban deposits of+1. a decedent to determine his !ross estate2. a taxpayer ho aives his ri!ht by reason of financial incapacity to pay his tax liability (Sec.', $&C

1roce"res %or t(e Act"al Distraint or Garnis(ment


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IComme"!eme"t o/ %stra%"t


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3. is performin! any act tendin! to obstruct the proceedin! for collectin! the tax due or hich may bedue from him (Sec. 22/, 1997 NIRC).

1roce"re %or t(e 'onstr"ctie Distraint o% 1ersonal 1ropert!

Tax.a3er#s o0l%$at%o" to .reser-e

C$& shall re-uire the taxpayer or any person havin! possession or control of such property to(a si!n a receipt coverin! the property distrained and(b obli!ate himself to

1. preserve the same intact and unaltered and2. not to dispose of the same in any manner hatsoever ithout the express authority of the

Commissioner of $nternal &evenue.

$f the taxpayer or person in possession of the property refuses or fails to si!n the receipt referred to, therevenue officer effectin! the constructive distraint shall (a proceed to prepare a list of such property and(b in the presence of to (2 itnesses leave a copy thereof in the premises here the propertydistrained is located, after hich the said property shall be deemed to have been placed under constructive distraint.

/=0 8EV:

DEFINITION& $t refers to the act of seizure of real property in order to enforce the payment of taxes. The

property may be offered in a public sale, if after seizure, the taxes are not voluntarily paid.

RE;)ISITES FOR THE EXER'ISE OF THE REMED: OF 8EV:

Same as in the remedy of distraint.

9(en ma! 8e! be E%%ecte>

&eal property may be levied upon before, simultaneously, or after the distraint of personal propertybelon!in! to the delin-uent $Sec. 207(B), 1997 NIRC% and the remedy by distraint and levy may berepeated if necessary until the full amount, includin! all expenses, is collected (Sec. 217, 1997 NIRC).

1roce"re o% 8e! on Real 1ropert!

Ire are Cert%/%!ate o/ *e-

I

4reparation of a duly authen?ticated certificate containin!+(a description of the property levied(b name of the taxpayer, and(c the amounts of tax and penalty due from him. This certificate shall operate ith the force of a le!al

execution throu!hout the 4hilippines (Sec. 207B, 1997 NIRC).

Service of ritten notice to+(a the delin-uent taxpayer or (b if he is absent from the 4hilippines, to his a!ent or mana!er of the business in respect to hich theliability arose or c. to the occupant of the property.d. the proper &e!ister of 7eeds shall also be notified of the levy (Sec. 207B, 1997 NIRC).

IISer-%!e o/ Not%!e

Reme3 ,+e" tax.a3er %"#t s%$"re!e%.t


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IIIA-ert%seme"t o/ t+e T%me a"

la!e o/ Sale

The advertisement shall contain+1. the amount of tax and penalties due2. name of the taxpayer a!ainst hom taxes are levied3. short description the property to be sold.

The advertisement shall be made ithin 2> days after the levy, and the same shall be for a period of at least 3> days. $t shall be effectuated by+a. postin! a notice at the main entrance of the municipal buildin! or city hall and in a public and

conspicuous place in the barrio or district in hich the real property lies andb. by publication once a ee for 3 ees in a nespaper of !eneral circulation in the municipality or city

here the property is located (Sec. 21/, CTR).

Distraint s. 8e!

DISTRAINT 8EV:

&efers to personal property &efers to real property

:orfeiture by the !overnment is not provided :orfeiture is authorized

The taxpayer is not !iven the ri!ht of redemption ithrespect to distrained personal property.

The ri!ht of redemption is !ranted in case of realproperty levied upon and sold, or forfeited to the!overnment.

4ot(

• Are summary remedies for the collection of taxes and

• Cannot be availed of here the amount of the tax involved is not more than 41>>

Reemption o% 1ropert! Sol

:tn 1 ear ;r#* te date #; sa"e, the property may be redeemed by the delin-uent taxpayer or anyone from him, upon payment of the taxes, penalties and interest thereon from the date of delin-uencyto the date of sale, to!ether ith interest on purchase price at 1'F per annum from the date of sale to thedate of redemption. (Sec. 214, NIRC).

For%eit"re to t(e Goernment

$f there is no bidder in the public sale or if the amount of the hi!hest bid is insufficient to pay the taxes,penalties and costs, the real property shall be forfeited to the Jovernment.

F"rt(er Distraint an 8e!

The remedy of distraint and levy *a e re'eated if necessary until the full amount of the tax

delin-uency due includin! all expenses is collected from the taxpayer. =therise, a clever taxpayer hois able to conceal most of the valuable part of his property ould escape payment of his tax liability bysacrificin! an insi!nificant portion of his holdin!s.

/?0 TAX 8IEN

I4

Sale


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DEFINITION+ $t is a le!al claim or char!e on property, either real or personal, established by la as asecurity in default of the payment of taxes (51 A*

ot only from the service of the arrant of distraint but from the time tax became due and payable.

8ien s. Distraint

8IEN DISTRAINT

7irected a!ainst the property sub%ect to the tax eed not be directed a!ainst the property sub%ect to tax

&e!ardless of the oner of the property 4roperty seized must be oned by the taxpayer

/@0 'IVI8 A'TIONS

DEFINITION& :or tax remedy purposes, these are actions instituted by the !overnment to collect internalrevenue taxes. $t includes filin! by the !overnment ith the probate court claims a!ainst the deceasedtaxpayer.

9(en resorte to>

1. @hen a tax is assessed but the assessment becomes final and unappealable because the taxpa!er %ails to %ile an aministratie protest 5it( t(e 'IR 5it(in = a!s %rom receiptB or

2. @hen a protest a!ainst assessment is filed and a decision of the C$& as rendered but the saiddecision becomes final, executory, and demandable for %ail"re o% t(e taxpa!er to appeal t(eecision to t(e 'TA 5it(in = a!s %rom receipt o% t(e ecision.

N3T 6udicial action may be resorted to even e;#re assess*ent althou!h impractical, as stated inSec. 20/, 1997 NIRC , BL and no proceedin! in court ithout assessment for the collection of such taxesshall be be!un a;ter the expiration of such (3year period.

$t should be noted that no civil or criminal action for the recovery of taxes shall be filed in court

ithout the approval of the Commissioner.

9(ere to %ile

1. 'o"rt o% Tax Appeals here the principal amount of taxes and fees, exclusive of char!es andpenalties claimed is 3ne *""#n 'es#s and a#!e.

2. Re-ional Trial 'o"rtC M"nicipal Trial 'o"rtC Metropolitan Trial 'o"rt here the principal amountof taxes and fees, exclusive of char!es and penalties claimed is "ess tan 3ne *""#n 'es#s. (Sec. 7,RA N#. 9282)

THE A11ROVA8 OF THE 'IR IS ESSENTIA8 IN 'IVI8 'ASES. Moever, under Sec. 7, 1997 NIRC , theCommissioner may dele!ate such poer to a &e!ional 7irector.

De%enses 5(ic( are precl"e b! %inal an exec"tor! assessments

1. $nvalidity or ille!ality of the assessment and2. 4rescription of the !overnment"s ri!ht to assess.

/0 'RIMINA8 A'TIONS

The %ud!ment in the criminal case shall not only impose the penalty but shall also order the paymentof taxes sub%ect of the criminal case as finally decided by the Commissioner (Sec. 205, NIRC).

9(ere to %ile


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1. 'o"rt o% Tax Appeals on criminal offenses arisin! from violations of the $&C or TCC and other las administered by the 0$& and the 0=C, here the principal amount of taxes and fees, exclusiveof char!es and penalties claimed is 3ne *""#n 'es#s and a#!e.

2. Re-ional Trial 'o"rtC M"nicipal Trial 'o"rtC Metropolitan Trial 'o"rt on criminal offenses arisin!from violations of the $&C or TCC and other las administered by the 0$& and the 0=C, here theprincipal amount of taxes and fees, exclusive of char!es and penalties claimed is "ess tan 3ne*""#n 'es#s #r were tere s n# s'ec;ed a*#nt c"a*ed. (Sec. 7, RA N#. 9282)

IM1ORTANT 'ONSIDERATIONS

1. o criminal action shall be be!un ithout the approval of the Commissioner . (Sec. 220, 1997 NIRC)

2. $t shall be brou!ht in the name of the Jovernment and shall be conducted by the le!alofficers of the 0$&.

EFFE'T OF A';)ITTA8 OF THE TAX1A:ER IN A 'RIMINA8 A'TION

$t does not necessarily result in the exoneration of said taxpayer from his civil liability to pay taxes.Rationale& The duty to pay tax is imposed by statute prior to and independent of any attempt on the partof the taxpayer to evade payment. $t is not a mere conse-uence of the felonious acts char!ed, nor is it a

mere civil liability derived from a crime. (Re'"c !s. atana#, +R N#. -14142, 6a /0, 191)

EFFE'T OF S)4SE;)ENT SATISFA'TION OF 'IVI8 8IA4I8IT:

The subse-uent satisfaction of civil liability by payment or prescription d#es n#t e=tns thetaxpayer"s criminal liability.

NO S)4SIDIAR: IM1RISONMENT

$n case of ns#"!enc on the part of the taxpayer, subsidiary imprisonment cannot be imposed asre!ards the ta= wc e s sentenced t# 'a.

Moever, it may be imposed in cases of failure to pay the f ine imposed. (Sec. 280, 1997 NIRC)

'RIMINA8 A'TION MA: 4E FI8ED D)RING THE 1ENDEN': OF AN ADMINISTRATIVE 1ROTEST INTHE 4IR

$t is not a re-uirement for the filin! thereof that there be a precise computation and assessment of the tax, since hat is involved in the criminal action is not the collection of tax but a criminal prosec"tion%or t(e iolation o% t(e NIR'. r#!ded, #we!er, that there is a prima %acie shoin! of a 5ill%"lattempt to evade taxes. (See >na !s. Cs, +R N#s. -41919-24, 6a /0, 1980 n re"at#n t#C#**ss#ner !s. C#rt #; A''ea"s, +R N#. 119/22,


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A. :or violations of the $&C, a reard of 1>F of the revenues, surchar!es, or fees recoere andor fine or penalty imposed and collecte or 4 1 H per case, hichever is loer shall be !iven to+1. any person ho voluntarily !ives definite and sorn information not yet in the possession of the

0$& leadin! to the discovery of fraud upon the $nternal &evenue #as andor any violations thereof 2. an informer here the offender has offered to compromise the violation of la comiited by him and

his offer has been accepted and collecte by the C$& . This excludes an $nternal &evenue=fficeremployee or other public officialemployee, or his relative ithin the sixth de!ree

/ This shall not refer to a case already pendin! or examined by the C$&

4. :or the discovery and seizure of smu!!led !oods? a reard of 1>F of the :H; of the smu!!led and confiscated !oods or 4 1 H per case, hichever

is loer, shall be !iven to persons instrumental in the discovery and seizure of such smu!!led!oods.

/ This does not apply to all public officials hether incumbent or retired, ho ac-uired the information inthe course of performance of their duties durin! their incumbency.

1RES'RI1TIVE 1ERIODS FOR THE ASSESSMENT AND 'O88E'TION OFTAXES

RATIONA8E OF 1RES'RI1TIVE 1ERIODS

Such periods are desi!nated to secure the taxpayers a!ainst unreasonable investi!ation after thelapse of the period prescribed. They are also beneficial to the !overnment because tax officers ill beobli!ed to act promptly.

R)8ES ON 1RES'RI1TION

1. @hen the tax la itself is silent on prescription, the tax is imprescriptible

2. @hen no return is re-uired, tax is imprescriptibleN#te &emedy of taxpayer is to file a return.3. 7efense of prescription is aivable

9HAT 'ONSTIT)TES ASSESSMENT>

An assessment contains not only a computation of tax liabilities but also a demand for paymentithin a prescribed period.

1RES'RI1TIVE 1ERIOD FOR THE ASSESSMENT OF TAXES

General R"le&Tree (/) ears after the date the return is due or filed, hichever is later (Sec. 20/, 1997 NIRC).

Exceptions&1. Fail"re to %ile a ret"rn& ten (1> years from the date of the discovery of the omission to file the

return (Sec.222$A%)2. False or %ra""lent ret"rn 5it( intention to eae t(e tax& ten (1> years from the date of the

discovery of the falsity or fraud (Sec.222 $A%)N#te othin! in Section 222(A shall be construed to authorize the examination and investi!ation or in-uiry into any tax return filed in accordance ith the provisions of any tax amnesty la or decree.

• :raud must be a""eed and 'r#!ed as a ;act . $t must be the product of a deliberate intent to evade

taxes. $t may be established by the+a. $ntentional and substantial understatement of tax liability by the taxpayerb. $ntentional and substantial overstatement of deductions of exemptions andor

c. &ecurrence of the above circumstances• :alsity constitutes a deviation from the truth due to *sta?e, care"essness #r n#rance.

T(ere is %ra" in t(e %ollo5in- ecie cases&1. :raud must be the product of a deliberate intent to evade taxes (


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Moever, the courts did not consider the tax returns filed as false or fraudulent ith intent to evadepayment of tax in the folloin! cases+

a. Here understatement in the tax return ill not necessarily imply fraud (

Ten (10) ears under Art. 1155(1 of the Civil Code and not three (3 years under the $&C. $nthis case, the Jovernment proceeds by court action to forfeit a bond. The action is for the enforcement of a contractual obli!ation. (Re'"c !s. Araneta, +R N#. -14142, 6a /0, 191)

GRO)NDS FOR S)S1ENSION OF THE R)NNING OF THE STAT)TE OF 8IMITATIONS

a. @hen the C$& is prohibited from main! the assessment or be!innin! the distraint or levy or aproceedin! in court, and for sixty (8> days thereafter

b. @hen the taxpayer re-uests for a reconsideration hich is !ranted by the C$&c. @hen the taxpayer cannot be located in the address !iven by him in the return, unless he informs

the C$& of any chan!e in his address.d. @hen the arrant of distraint or levy is duly served, and no property is located ande. @hen the taxpayer is out of the 4hilippines (Sec. 22/, 1997 NIRC).

A TAX RET)RN IS 'ONSIDERED FI8ED FOR 1)R1OSES OF STARTING THE R)NNING OF THE1ERIOD OF 8IMITATIONS IF

a. The return is valid it has complied substantially ith the re-uirements of the la and

b. The return is appropriate it is a return for the particular tax re-uired by la.

N#te A defective tax return is the same as if no return as filed at all.


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1RES'RI1TIVE 1ERIOD FOR THE VIO8ATION OF AN: 1ROVISION OF THE TAX 'ODE (S!C. 281,1997 NIRC)

1. Should be filed ithin ;!e (5) ears from the (a day of the c#**ss#n #; te !#"at#n of the la, andif the same be not non, from the (b dsc#!er tere#; and te nsttt#n #; te dca" 'r#ceednsfor its investi!ation and punishment.

2. $llustrative case+ (* !s. C#rt #; A''ea"s +R N#s. 481/4-/7, 3c#er 18 , 1990)a. char!e is %ail"re or re%"sal to pa! deficiency income tax committed #n" after the finality of the

assessment coupled ith the taxpayer"s illful refusal to pay the taxes ithin the allotted period.(i.e. cannot be committed upon filin! the return

b. char!e is %ilin- o% %alse or %ra""lent ret"rn 5it( intent to eae the assessment in additionto the fact of discovery, there must be a %udicial proceedin! for the investi!ation and punishmentof the tax offense before the ' year prescriptive period be!ins to run.

II. TAX REMEDIES OF THE TAX1A:ER

General Remeies

A. ADMINISTRATIVE4e%ore 1a!ment

a. 1rotest filin! a petition for reconsideration or reinvesti!ation ithin 3> days from receipt of assessment @ithin 8> days from filin! of protest, all relevant supportin! documents shouldhave been submitted, otherise, the assessment shall become ;na" cannot be appealed(Sec. 228, 1997 NIRC).

N#te Submission of documents ithin the 8> day period is #'t#na" t# te ta='aer .

GThat the relevant supportin! documents mentioned in the la refers to such documentshich the taxpayer feels ould be necessary to support his protest and not hat theCommissioner feels should be submitted, otherise, taxpayer ould alays be at the mercyof the 0$& hich may re-uire production of such documents hich taxpayer could notproduce.G (Standard Cartered Ban? !s. CIR, CTA Case N#. 59, Ast 1, 2001)

A protest is a vital document hich is a formal declaration of resistance of the taxpayer.$t is a repository of all ar!uments. $t can be used in court in case administrative remedieshave been exhausted. $t is also the formal act of the taxpayer -uestionin! the officialactuation of the C$&. This is e-uivalent to a pleadin!.

b. Enterin- into a compromise (Sec. 204, 1997 NIRC).A%ter 1a!ment

:ilin! of claim for refund or tax credit ithin 2 years from date of payment re!ardless of anysupervenin! cause (Sec. 229, 1997 NIRC).

4. $)DI'IA8'iil Action

a. Appeal to t(e 'o"rt o% Tax Appeals ithin 3> days from receipt of decision on the protest or from the lapse of 1*> days due to inaction of the Commissioner (Sec. 228, 1997 NIRC).

b.Action to contest %or%eit"re o% c(attelC at any time be%ore t(e sale or estr"ction thereof, torecover the same, and upon !ivin! proper bond, en%oin the sale or a%ter t(e sale and ithin 8months, an action to recover the net proceeds realized at the sale (Sec. 2/1, 1997 NIRC) and

c. Action %or ama-es a!ainst a revenue officer by reason of any act done in the performance of official duty (Sec. 227, 1997 NIRC).

'riminal Actiona. Filin- o% criminal complaint a-ainst errin- 4IR o%%icials an emplo!ees.b. In#"nction hen the CTA in its opinion, the collection by the 0$& may %eopardize taxpayer.

N#te @ith the enactment of the ne CTA la (&A o. )2*2 amendin! &A o. 112', CTA no has %urisdiction over criminal cases. (See Ca'ter DI - C#rt #; Ta= A''ea"s.)

S"bstantie Remeies1. Nuestionin! the constitutionality or validity of tax statutes or re!ulations2. on?retroactivity of rulin!s (Sec.24, NIRC)3. :ailure to inform the taxpayer in ritin! of the le!al and factual bases of assessment maes it void

(Sec. 228, NIRC)5. 4reservation of boos of accounts and once a year examination (Sec. 23', $&C

ASSESSMENT AND 1ROTEST Assessment

+enera" r"e Taxes are self assessin! and thus, do not re-uire the issuance of an assessment notice inorder to establish the tax liability of a taxpayer.


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=ce't#ns1. Tax period of a taxpayer is terminated (Sec. (E), NIRC)2. 7eficiency tax liability arisin! from a tax audit conducted by the 0$& (Sec. 5(B), NIRC)3. Tax lien (Sec. 219, NIRC)5. 7issolvin! Corporation (Sec. 52(c), NIRC)

"rotest

*. Direct enial o% protest Ad*nstrat!e decs#n #n a ds'ted assess*ent - The decision of the Commissioner or his dulyauthorized representative shall (a state the facts, the applicable la, rules and re!ulation or

%urisprudence on hich such decision is based otherise, the decision shall be void, in hich case thesame shall not be considered a decision a disputed assessment and (b that the same is his final decision(Sec. /.1.5, Re!. Res. N#. 12-99)

6. Inirect enial o% protesta. Commissioner did not rule on the taxpayer"s motion for reconsideration of the assessment it as

only hen respondent received the summons on

the civil action for the collection of deficiency income tax that the period to appeal commenced torun (C#**ss#ner !s. >n#n S''n C#r'.)

b. &eferral by the Commissioner of re-uest for reinvesti!ation to the Solicitor Jeneral (Re'"c !s* Tan Ten S#ns)

c. &eiteratin! the demand for immediate payment of the deficiency tax due to taxpayer"s continuedrefusal to execute aiver (C#**ss#ner !s. Aa"a Secrtes C#r'.)

d. 4reliminary collection letter may serve as assessment notice (>nted Internat#na" ctres !s.C#**ss#ner)

A'TS OF 4IR 'OMMISSIONER 'ONSIDERED AS DENIA8 OF 1ROTEST 9HI'H SERVE AS A4ASIS FOR A11EA8 TO THE 'O)RT OF TAX A11EA8S

1. filin! by the 0$& of a civil suit for collection of the deficiency tax (C#**ss#ner !s. >n#n S''n C#r'#rat#n, +R N#. 10, 6a 21, 1990)

2. indication to the taxpayer by the Commissioner Bin clear and une-uivocal lan!ua!e of his final denial.

(C#**ss#ner !s. >n#n S''n C#r'#rat#n, +R N#. 10, 6a 21, 1990)3. 0$& demand letter reiteratin! his previous demand to pay, sent to the taxpayer after his protest of the

assessment. (Sra# "ectrc C#., Inc. !s. CTA, +R N#. -25289,


38/56

'OMMEN'EMENT OF THE T9O /60 :EAR 1ERIOD /$)RIS1R)DEN'E0

*. Tax so"-(t to be re%"ne is ille-all! or erroneo"sl! collecte? from the date the tax as paid. (C#**ss#ner !s. Dct#ras 6""n, +R N#. -24108, n#n +ar*ent !s. C#""ect#r, CTA CaseN#. 41, N#!e*er 17, 1958)

? Herely main! a deposit is not e-uivalent to payment until the amount is actually applied to thespecific purpose for hich it as deposited.

?. Tax (as been 5it((el %rom so"rce /t(ro"-( t(e 5it((olin- tax s!stem0? counted from the date it falls due at the end of the taxable year ? A taxpayer ho contributes to the ithholdin! tax system does not really deposit an amount to the!overnment, but in truth, performs and extin!uishes his tax obli!ation for the year concerned. (+s!s. C#**ss#ner, +R N#. -1740, N#!e*er 29, 195)

@. En o% taxable !ear s. ate o% t(e %ilin- o% t(e %inal a#"ste ret"rn? from the date hen the final ad%usted return as filed.? the rationale in computin! this period is the fact that it is only then the corporation can ascertainhether it made profits or incurred losses in its business operations. (ACCRA In!est*ents !s. C#rt #; A''ea"s, +R N#. 9/22, Eece*er 20, 1991)

. Date 5(en 2"arterl! income tax 5as pai s. ate 5(en %inal a#"ste ret"rn 5as %ile? from the date hen final ad%usted return as filed? The filin! of the -uarterly income tax return (Sec. 8* and payment of -uarterly income tax shouldonly be considered mere installments of the annual tax due. (C#**ss#ner !s. T6F Sa"es, +R N#.8/7/,


39/56

3. o tax refund ill be !iven resultin! from availment of incentives !ranted by la here no actualpayment as made (Sec. 204C, 1997 NIRC).

FORFEIT)RE OF 'ASH REF)NDTAX 'REDIT

1. :orfeiture of refund in favor of the !overnment hen a refund chec or arrant remains unclaimed or uncashed ithin five (' years from date of mailin! or delivery.

2. :orfeiture of Tax Credit a tax credit certificate hich remains unutilized after five (' years from dateof issue, shall be invalid, unless revalidated (Sec. 2/0, 1997 NIRC).

REG8EMENTAR: 1ERIODS IN IN'OME TAX IM1OSED

4: 8A9 )1ON THE TAX1A:ER/1)RS)ANT TO REV. REG. NO. *6++C SE'. 66 OF THE *++, NIR'C AND RA NO. **6@ AS

AMENDED 4: RA NO. +660

0$& maes a tax assessment

$f taxpayer is not satisfied ith the assessment %ile a protest 5it(in = a!s from receipt thereof

S"bmit s"pportin- oc"ments 5it(in a!s from date of the filin! of the protest

$f protest is deniedC eleate t(e matter to the Commissioner of $nternal &evenue (C$&0 5it(in = a!sfrom receipt of the decision of the C$&"s duly authorized representative officer

Appeal to t(e Diision o% t(e 'o"rt o% Tax Appeals /'TA0 5it(in = a!s from receipt of f inal decisionof C$& or his duly authorized representative (the taxpayer has the option to appeal strai!ht to the CTA

upon receipt of the decision of the C$&"s duly authorized representative

$f the C$& or his duly authorized representative %ails to act on t(e protest 5it(in * a!s from date of

submission by taxpayer, the latter may appeal 5it(in = a!s from lapse of the1*>?day period ith the CTA 7ivision

The 4arty adversely affected by the CTA 7ivision"s decision may file one motion for reconsiderationnetrial 5it(in *@ a!s from receipt of decision. $f the H& is denied file a petition for revie ith the CTA en

banc

Appeal to t(e S"preme 'o"rt 5it(in *@ a!s from receipt of the CTA en banc decision under &ule 5'of the &ules of Court

1reAssessment NoticeC 9(en Not Re2"ire (Sec. 228, NIRC)

1. @hen the findin! for any deficiency tax is the result of mathematical error in the computation of the tax as appearin! on the face of the return or

2. @hen a discrepancy has been determined beteen the tax ithheld and the amount actuallyremitted by the ithholdin! a!ent or

3. @hen a taxpayer ho opted to claim a refund or tax credit of excess creditable ithholdin! tax for a taxable period as determined to have carried over and automatically applied the same amountclaimed a!ainst the estimated tax liabilities for the taxable -uarter or -uarters of the succeedin!taxable year or

5. @hen the excise tax due on excisable articles has not been paid'. @hen an article locally purchased or imported by an exempt person, such as, but not limited to,

vehicles, capital e-uipment, machineries and spare parts, has been sold, traded or transferred to

non?exempt persons.

N#tes

• As a !eneral rule, payment under protest is not re-uired under the $&C, except hen partial

payment of uncontroverted taxes is re-uired under && 12?)). The Commissioner may, evenithout a ritten claim therefor, refund or credit any tax, here on the face of the return uponhich payment as made, such payment appears clearly to have been erroneously paid.

• $n case of the C$&"s final denial of the claim for refund, the 3>?day period to appeal ith the

CTA must be ithin the 2?year peremptory period for institutin! %udicial action.

See Annex N Assessment 4rocess and Appeal


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ADDITIONS TO THE TAX/SE'S. 6?,6@6 NIR'0

DEFINITION& increments to the basic tax incident due to the taxpayer"s non?compliance ith certain le!alre-uirements.

1. 'IVI8 1ENA8T: S)R'HARGE1. 2'F surchar!e

a. :ailure to file any return and pay the tax due thereon as re-uired under the provisions of thisCode or rules and re!ulations on the date prescribed or

b. Knless otherise authorized by the Commissioner, filin! a return ith an internal revenueofficer other than those ith hom the return is re-uired to be filed or

c. :ailure to pay the deficiency tax ithin the time prescribed for its payment in the notice of assessment or

d. :ailure to pay the full or part of the amount of tax shon on any return re-uired to be filedunder the provisions of this Code or rules and re!ulations, or the full amount of tax due for hich no return is re-uired to be filed, on or before the date prescribed for its payment . (Sec.248)

2. '>F surchar!e

a. in case of illful ne!lect to file the return ithin the period prescribed by the Code, or • ill not apply in case a taxpayer, ithout notice from the Commissioner, or his duly

authorized representative, voluntarily files the said return (only 2'F shall be imposed

• '>F surchar!e shall be imposed in case the taxpayer files the return only after prior

notice in ritin! from the Commissioner or his duly authorized representa?tive (Sec. 4.2,Re!. Re. 12-99)

b. in case a false or fraudulent return is illfully mader*a ace e!dence

• substantial underdeclaration (e=ceedn /0 #; tat dec"ared) of taxable sales, receipts or

income,

• or a substantial overstatement (e=ceedn /0 #; acta" dedct#ns) of deductions (Sec.

25*

2. INTEREST? 2>F per annum or such hi!her rate as may be prescribed by the rules and re!ulations

a. 7eficiency interest (Sec. 249B)

b. 7elin-uency interest (Sec. 249C)

c. $nterest on

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