SPIT - June 22, 2012

50% midterms50% finals

MCQs

INCOME - -Eisner vs macomber - gain derived from labor, capital, or both combined- NIRC - does not provide definition of income - s32 "include"- appreciation of value of property is not income - not yet realized, i.e sold- income taxed only if realized!- Eisner - "derived" --- realized- s32- "all income derived" = realized- retained earnings - distributable to stockholders - taxable only if declared anddistributed as cash dividend = realized

CIR vs CA, CTA & ANSCOR- declaration of stock dividends - no dilution - pro rata in accordance withproportionate interest- stock div no income - just reclassification of capital- corporation redeemed the stock dividends ---- income na! (distribution of profitalready)

IMPUTED INCOME- ex. Owner of property occupies property - rent income? NO Professional fees forgone in anticipation of a probable future favor? Difficult to impute income for personal transactions In business - easier - Ex deal - contractor and lot owner **Administrative feasibility

RECOVERY OF CAPITAL INVESTMENT S40(A) NIRC- ex sale of prop - bought 10m but years later value still 10m = no income- factor in depreciation you might have income realized-repatriation of capital investment = no income BUT If there is RE = capital gain of theinvestment ( tax treaty with US - income taxable only in US)

WINDFALL PROFIT- bank with dead depositors - is bank taxable? Meralco deposits not claimed?- how would the BIR know?

RECOVERY OF DEDUCTED ITEMS - TAX BENEFIT PRINCIPLE- ex. loss deducted in income but insurance paid you for the amount of the loss - soyou should pay for that cause that will amount to double benefit- another example bad debts, previously deducted from net income, recovered

INDIRECT PAYMENTS- are damages from reckless imprudence case considered indirect payments, thustaxable? NO discharge of that obligation is a discharge of the insurance companies'obligation- extra compensation given to employee e.g. Taxes paid for by the employer - OldColony vs CIR- real property tax shouldered by the buyer

DISCHARGE OF INDEBTEDNESS INCOME- yes (accession to wealth) so income thus taxable- but maybe donors tax - depends on intent (donative) case to case basis- debt-equity conversion-capital transaction = NOT taxable-GR: condonation is considered taxable income

INCOME FROM UNLAWFUL ACTIVITIES- "income derived from any sources whatever"- so this type of income is taxable- US vs SULLIVAN - unfair if income earned legally, it is taxable while if its frimillegal sources not taxable - so US dropped the word "lawful"

AMOUNTS RECEIVED UNDER CLAIM OF RIGHT- ex. erroneous remittance (javier spouses and melon bank case)

REIMBURSEMENT FOR WRONGFUL DEATH OR INJURY

FRINGE BENEFITS-

DEFINITION OF GROSS INCOME (Section 32 "includes")

1. COMPENSATION INCOME- salaries paid to employees- not necessarily cash only- there are payments in kind- fringe benefits - ex. expense accounts - should be taxable if not really for business butfor personal expenses (see LUCY handout)- de Minimis (see lucy handout; list is exclusive) and those for the convenience of theemployer (it benefits employer not employee) - these are not taxable- COLLECTOR vs HENDERSON -- amendment - minimum wage earners - exempt from tax ( check if ot pay etc areincluded in the exemption)- if coo and at the same time director - directors fees are subject to wtw

2. INCOME FROM CONDUCT OF TRADE OR BUSINESS OR THE EXERCISE OFPROFESSION- biggest tax leakage- businesses are allowed 40% OSD - across the board- partners in GPPs - taxed on their share in the income of the GPP, the GPPs are nottaxable entities

3. GAINS DERIVED FROM DEALINGS IN PROPERTY- sale of property- court ordered transfer of property to one spouse - no gain since there is no sale- trustor-trustee relationship - transfers in contemplation of death or donors tax - willbe taxed only once - there is only one transfer- transfer of common areas to homeowners association - not taxable because there isno sale and thus no gain- how to compute gain: consideration-basis/adjusted basis=gain

4. PASSIVE INCOME - INTEREST, RENT, ROYALTY AND DIVIDEND- interest - there must be a loan or forbearance of money- case of Baguio gold - is it an investment transaction or a loan of money- if income derived from active pursuit of trade or business- not royalty- royalty must be derived from passive sources

ANNUITIES -

PRIZES AND WINNNGS

FBT - only for managerial employees (there must be eer); also do not apply topartners in GPPs; for rank and file include it in compensation; GUMV - employerbears tax

EXCLUSIONS:1.LIFE INSURANCE PROCEEDS AND RETURN OF PAYMENTS- doesn't matter who gets proceeds (heirs or beneficiaries) - proceeds are excluded!- mortgage redemption insurance - proceeds of life insurance of debtor will be givento bank - beneficiary still NOT taxable- ex. Beneficiary only gets 20% of the proceeds - if proceeds are invested, the interestor yield forms part of the gross income

2. AMOUNTS RECEIVED BY INSURED AS RETURN OF PREMIUM- ex. In case of annuities - no guidance when to start taxing - in US they follow aformula to determine what portion is return of premiums

3. GIFTS, BEQUESTS, AND DEVISEES-but INCOME from such property is taxable- challenge: determine when there is a taxable gift- ex. Boss gives ee Lexus - its more likely that this will be considered either fb orcompensation income- PIROVANO vs CIR - there was donation because the proceeds are payable toemployee and donated the same to the children of the employee- COMMISSIONER vs DUBERSTEIN - it was in reality a consideration of the servicesrendered by the taxpayer which induced the giving of the automobile - no donation- new BIR ruling - APIC=donation, thus subject to donors tax- upstream merger - 40c tax-free mergers BUT NOW BIR says since no additionalshares were given then it is donation -SIR SAYS how can Y give shares to itself?- if shares of stock are owned by children who do not have any capacity to buy saidshares, BIR will impose donors tax on parents - does BIR have legal basis?YES(according to Sir)- if holding in trust - there must be proof and the fact of the trust agreement isannotated in the title- another example - donation - naked title to x, beneficiary title to y - income istaxable, only the donations is excluded even if there is only 1 instrument

4. COMPENSATION FOR PERSONAL INJURIES OR SICKNESS- wasmer case (damages for breach of promise to marry) - not taxable- c.f. Damages representing lost profits - taxable because profits are taxable in anyevent

5. INCOME EXEMPT FROM TREATY- "income tax treaties" to avoid double taxation (37 countries) - if no permanent

- HENARES: you have to apply for tax treaty relief with BIR to avail of tax exemptionor tax preference BUT Merlin says no need, you don't need to go to congress to get anenabling statute, all the more you don't need to go to BIR; sadly, SC agrees with BIRand CTA

6. RETIREMENT BENEFITS, PENSIONS, GRATUITIES- 10 yrs in service, at least 50 yrs old, can be invoked only once, reasonable privatebenefit plan (maintained by employer for ees, contributory or non-contributory, nodiversion of the corpus or income of the fund except for the exclusive benefits of theofficials or employees covered by the plan)- question MEERP - service for different subsidiaries , number of yrs of serviceaccumulated to determine if you accumulate 10 yrs, NOW HENARES says should beSAME employer!- SEPARATION BENEFIT - if separation is voluntary - taxable! Must be involuntary dueto death, sickness, physical disability OR for any cause beyond the control of the saidofficial or employee- SSS GSIS pensions, war veterans, retirements received by aliens

GSIS, SSS etc BENEFITS

INCOME DERIVED BY FOREIGN GOVERNMENTS

INCOME DERIVED BY PHILIPPINE GOVERNMENT OR ITS POLITICAL SUBDIVISIONS- public utility and governmental functions - ex. Ports, LTO receipts - NOT TAXABLE- proprietary functions - TAXABLE

PRIZES AND AWARDS1. you should not apply (so Bb. Pilipinas taxable)2. Not required to render substantial future services as a condition to receiving theprize or award- in US, ambassadorial functions which attaches to the award is not considered assubstantial future service so not taxable

13th MONTH PAY, DE MINIMIS, FRINGE BENEFITS ETC- limit 30,000

GAIN FROM SALE OF LT-BONDS, DEBENTURES AND OTHER CERTIFICATES OFINDEBTEDNESS- incentive for Filipinos to save- promote Philippine capital market- maturity of more than 5 years- gain derived from sale or exchange EXCLUDED- income from mutual funds also excluded- INTEREST is taxable, law excludes only GAINS- what if you pre-terminate bonds (?) check book - sir says no holding period

INCOME ALREADY SUBJECTED TO FINAL TAX- BIR: not taxable but still required to report - (account information return)

EARNINGS OF OVERSEAS FILIPINO WORKERS- what about highly-paid Filipinos assigned abroad? Also not taxable - law makes nodistinction- what if employer continues to pay salaries in the Phil and employee is secondedabroad? Is employee considered an overseas Filipino worker?- in determining source of income -you do not look at place of payment but whereservice was rendered- HENARES: if salary is paid by filipino employer then income is not excluded

SENIOR CITIZENS- as long as income does not exceed poverty level (NEDA)

MANUFACTURING CONCERNGross sales - cgs (dm,dl, moh)= gross income - deductions = Net income x tax rate =tax payable-tax credits=tax still due

SALES OF SERVICESGross Receipts(- sales ret, discounts, and allowances)/gross income = deductions=netincome x tax rate = tax payable-tax credits= tax still due

TRADERGross sales-cgs-sales ret and allowances=gross income - deductions=net income x taxrate = tax payable - tax credits = tax still due

ORDINARY and NECESSARY EXPENSES- necessary- appropriate and helpful- tax code says bribes and kickbacks are not allowable as deductions - contrary topublic policy- reasonableness - embraced by ordinary and necessary- tang example - claim it as capital expenditure which should be amortized

No class on July 23

...Continuation of ordinary and necessary expenses- courts would look at surrounding circumstances to determine won an expense isordinary and necessary- see notes on cases - if uncertain usually BIR allows 50%

DEPRECIATION- useful life - follow PAS- methods - SL, DB, SYL, prescribed by sec of finance

REVENUE VS CAPITAL EXPENDITURES- lawyers fees or fees incurred for application of patent - outright or amortize?Capitalize!!- how to determine if outright or capitalize - gray area!

REPRESENTATION EXPENSES- abused- government placed ceiling- 1/2 of 1% of net sales taxpayers engaged in sale of goods/properties- 1% of net revenue - engaged in sale of services- net sales = gross sales - allowance/discount/returns- net revenue = gross revenue - discounts and allowances- limits found in revenue regulation - is this administrative legislation/unduedelegation? Sir thinks so, no standards set

INTEREST- mist be incurred in pursuit of trade and business- substantiate the business purpose of the loan- option to treat expense as capital expenditure when the loan is incurred to acquireproperty - so depreciation would be bigger; if you subsequently sell property gain willbe smaller- interest not fully deductible- with limitation - why? Because there is an incentive toborrow large amounts to be able to claim big interest expense but then you justinvested your money in bank which is subjected to final tax - lugi si government - TAXARBITRAGE - to discourage exploitation of the spread ( 35/32 and 20%)- non-deductible interest expense (p383) - to prevent purely concocted deduction

TAXES- GR: deductible- NOT deductible - income, estate and donor, foreign income tax, if claimed as taxcredit, taxes assessed against local benefits of a kind tending to increase the value ofthe property assessed (special assessment)

- special assessment tax not deductible- vat not deductible

- Special assessment and vat not deductible from gross income

- interest only deductible if there is a loan

- what if there are advances and the agreement says loan will be paid only from netincome or profits or no maturity date or interest supposedly to be paid is not a fixedrate but depends on profitability of the corporation? Is this interest or dividend?Government may construe payments as DIVIDENDS- non-arms length transactions

PHILEX MINING CORP vs CIR- PHILEX mining contractor to be paid 50% of the profit- Baguio gold contractee- BIR: PHILEX can't claim bad debts because PHILEX and Baguio gold are partnersin JV- SC agreed that parties created a JV therefore bad debts not deductible but a lossfrom an investment = not a deductible expense from the gross income

- payments for tax paid by homeowners association but assessed to individual unitowners - MAY be claimed as business expense if you can prove through individualreceipts from association but BIR may question such expense

LOSSES- Acts of God, acts of man, casualty losses, product liability losses- arise from close and completed transaction - premature claims cannot be allowed- losses not allowed by law as deductions (I.e. losses from transactions betweenrelated taxpayers)

NOLCO- carried over for the next 3 yrs from year loss was incurred- no NOLCO if there is substantial change in ownership (no substantial change if atleast 75% of shares retained by same persons) History: trafficking in NOLCO-BUT if NOLCO stays with the same entity prohibition does not apply (substantialownership requirement)- if the company acquiring the losing company still retains at least 75% ownershipstill prohibition will not apply - may still deduct NOLCO

BAD DEBTS- not allowed for related parties- ascertained to be worthless- actually written off within the taxable year- do you need to send demand letter or go to court? TP must show that it'suncollectible in the near future - send demand letter/send lawyer/file a case

- reasonable steps to determine if account is really worthless

DEPLETION - too technical ( not for lawyers! Duh?!)

CHARITABLE AND OTHER CONTRIBUTIONS- GR: subject to limitations (5 or 10% of taxable income before contribution)- but there are donations deductible in full (government, international organizations,accredited NGOs)- valued at ACQUISITION COST of said property (factor in acc dep)

RESEARCH AND DEVELOPMENT EXPENSES- encourage R&D- deductible outright but may be capitalized

CONTRIBUTION TO EMPLOYEES' PENSION TRUSTS- current service cost plus amortization of past service costs (10yr period)

PREMIUM PAYMENTS ON HEALTH AND/OR HOSPITALIZATION INSURANCE- 2400 per yr per family- income must not be more than 250k (?)- BIR considers excess of 2400 as taxable income

OPTIONAL STANDARD DEDUCTION- 40% of gross sales or receipts- not an excuse not to keep or issue receipts- what if you don't have any expense at all?weird- all indiv except NRA, dc and rfc, estates and trusts

PERSONAL EXEMPTIONS

OSD for GPP- individual partners may sill claim expenses they incurred but not claimed by thegpp only if gpp itemized and partner also itemized!partners can't choose osd- see rr 2-2010

RECOGNITION OF GAINS AND LOSSES FROM SALES OF PROPERTY- amount realized = cash + fmv of property received- gain or loss = amount realized - adjusted basis

TAX FREE EXCHANGES- no dst in tax free exchanges

PREFERENTIAL TREATMENT OF CAPITAL GAINS- 6% for land- holding period

Continuation Sec40(c)(2)1. TAX FREE EXCHANGE OF ASSETS FOR SHARES- spin off companies, e.g., dmci ( consunji business)- tax free exchange only if the transferor owns 51% of the stocks or if transferor gainscontrol of the new company; can have more than 1 transferor but not more than 5 andthey must have control- spinning off unwanted assets - example - 2 lines manufacturing and real estate -create new co for manufacturing then sell the new co. So that the real estate businessremains with the company

2 MERGERS and 3.CONSOLIDATION- valid business purpose otherwise it will be considered as tax avoidance and BIR maycollapse it and consider it sale of real property- continuity of business interest

4. DE FACTO MERGER- no requirement of control- a company acquires substantially all of the assets of the target or absorbed entities- substantially all = at least 80% of the assets of absorbed entity- the absorbed entity does not disappear - which may turn out to be a shell company- valid business purpose also required

- BIR regulation - after 2 yrs of non-use property will revert back to capital assetclassification

CAPITAL LOSSES- offset only against capital gains- beware of timing issues - sell only if there is a gain from which the losses can be offset

JARDINE DAVIES vs CIR- BIR: wrt capital gains- pay first the tax and don't offset the capital losses even if thelosses were incurred way ahead of the realization of the capital gains- provision says tax imposed only on NET capital gains!- offset on a current basis not on year-end

EXEMPTION OF SALE OF REAL PROPERTY OF RESIDENCE- apply with BIR for deferral of the capital gains tax- escrow stem - deposit the amount of the cgt but this deposit still belongs to taxpayer- avail only once every 10 years

CGT - only for sales transactions; transfer of common areas in condominium notconsidered sale, also conveyance of property from trustee to beneficiary, alsocommunity dissolved and properties distributed to spouses, also mistake inconveyance - exchange of parcels of land, correcting the title!

INCOME TAXATION OF FOREIGN PERSONS- what is the tax rate if a NRA-netb sells condo unit in the Phil?- no express provision in NIRC but sir says BIR can claim that it should be 30%- absence of provision mere inadvertence congress may have forgotten that foreigncorp can own buildings

- where is the source? When considered within or without?

1.INTEREST-where debtor reside (regardless where paid or where contractperfected); if guarantor an alien pays instead still within the philippines principaldebtor still Filipino

2. SERVICES - place of performance (regardless of where contract entered into orwhere paid)- commissioner vs boac - weird decision! As if it was the sales of ticket thatgenerated the income

3. SALE OF PERSONAL PROPERTY- place of sale/where title passes; E: sales ofshares of stock - regardless of where sold - S42e- special rules on goods manufactured (not purchased) in Phil sold outside ormanufactured outside of the Phil sold within the Phil - PARTLY WITHIN PARTLYWITHOUT

4. ROYALTIES - place of exploitation or use

5. RENTAL - place of use/exploitation; may have admin problems if paid abroad

6. DIVIDENDS - gr: paid by Phil corp - Phil-sourced; declarant (FC) income for thelast 3 yrs 50% or more sourced within the Phil - phil-sourced (pro rata)

7. SALE OF REAL PROPERTY - place where property located

- sale of subscription in magazines - published outside -- advertising income derived by foreign publisher

No class on Monday July 30, 2012

MIDTERMS - august 20

Section 40- tax-free exchange - misnomer because gain will be taxed at a later time- more of a tax deferral scheme

NONRESIDENT FOREIGN CORPORATION- taxed at 30% of gross income derived from within

RESIDENT FOREIGN CORPORATION- branch office and head office are one and the same - but for tax purposes branch isrequired to register with BIR as a taxpayer so it is subject to 30% RCIT; no dividendsbut branch profit remittance subject to 15% BPRT rate of the amount earmarked forremittance- not all branch profit remitted will be subject to BPRT; only those income areeffectively connected with the conduct of its trade or business in the Philippines- subsidiary and head office are not the same entity ( the head office is an nonresidentforeign corporation not doing business in the philippines) dividends declared andpaid - tax sparing rule S 28 - withholding tax of 15%; if no tax sparing then it shouldbe 30%

MARUBENI vs CIR- investment made by head office not germane to business of Phil branch- wrt to the investment - non-resident foreign corp subject to 35%- but can you have a corporation which is both resident and non-resident at the sametime? Implied by the decision in this case- if it was the branch that invested in ag&p then that is intercompany div which areexempt from tax- now the question becomes is the investment effectively connectedso that it will be subject to BPRT or incidental?

- if no actual or constructive remittance then no BPRT- is there constructive delivery wrt BPRT? YES! So if head office said pay it to mycreditor in the Phil still subject to BPRT; there is also constructive delivery if branchis converted into a subsidiary and profit is reinvested in the new company

ESTATES- must register with BIR; upon the distribution of the properties then estate mustupdate the registration and have the estate delisted- personal deduction still 20,000 because there is an express provision saying so- INCOME distribution is a special deduction subject to 15%CWT and this income mustbe reported by the heir who received such income; if it was property of the estate thatwas distributed then no deduction is allowed- estate is taxable only if it is under judicial settlement- treated like an individual

TRUST- trustee - files the ITR; income will be reported by trustee; only for irrevocable trust

S40 c(2) - "acquire" also means acquire further but HENARES says no so taxable,fortunately, she withdrew said circular -ex. tanduay holdings - lucio tan sold companies to holdings in exchange of shares ofstock of the holding companies, so tax-free exchange no taxes paid (vat, wt, incomeetc)

-Revocable trust- income taxable to trustor- two or more trusts - same trustor, same beneficiary - income consolidated; 1 return- same beneficiaries, different grantor - no consolidation

- EMPLOYEES' PENSION TRUST - trust created, bank acting as trustee, employeecontributes property to the trust = EXEMPT-social justice provision; no tax oninterest inc, dividends etc - ABSOLUTE EXEMPTION (S60) - COMMISSIONER vs CA -dcl retirement plan; so what about the contribution of employer, is there a donor'stax?no donative intent, it could be advanced contribution subject to amortization

- tax free exchanges now subject to VAT unless the asset being transferred notordinary asset

- REAL ESTATE INVESTMENT TRUST (REIT)- The only incentive offered is 50% discount on dst

MCIT- carry forward of excess MCIT for 3 yrs- relief from MCIT/relief - prolonged labor dispute, force majeure, legitimate businessreverses- filing and payment - quarterly (SIR: congress' intention was annual)- income subjected to final tax excluded in computation of gross income- MCIT STARTS on the 4th yr of business- MANILA BANKING vs CIR - newly revived thrift bank - its as if new business

IAET- 10% of tax base- when re is in excess of 100% of paid-up capital (prima facie)- board resolution NOT enough there must be actual proof that actual steps are beingtaken to pursue the expansion (action speaks louder than words); show by clearevidence- not applicable to, among others, publicly-listed corporations- **Stock attribution principle- TAX BASE= taxable income plus minus items (see handout)- when must corp declare dividends? 1 yr following close of taxable year

Midterms - essay - August 13 (4-6pm)

APIC - amount paid in excess of par; less DST (dst based on par); HENARES: notpart of paid up capital (wrt IAET)

S40c(2) property; cash not property; transferors must acquire control

CORPORATION- s22b- taxable partnership (treated as corporation) subject to RCIT and dividends, ifincome was distributed (2 layers of taxation)- afisco vs ca (insurance)- evangelista vs collector (co-ownership)- gatchalian cited in obillos vs CIR (sweepstakes ticket - taxable partnership)- ona vs CIR - heirs did not distribute estate but leased it out- Reyes vs CIR

CO-OWNERSHIP- exempt - activities intended to preserve property- income derived from the property shall be reported in the individual income taxreturn- SIR: gray area- where do you draw the line; how much, how regular, how manytransactions to be considered a taxable partnership

JOINT VENTURE- gr: taxable like a corporation- E: construction or engaging in energy related undertakings (petroleum operationsetc) pursuant to the consortium agreement with the Philippine government (s22b)- RR 10-2012 June 1, 2012

GPP - not taxable as corporations

SPECIAL CORPORATIONS (S30)- Non-stock , non-profit - income from personal or real property regardless ofdisposition is taxable s30k- what about red cross? S30 applies- PAGCOR has ceased to be exempt from income tax (PAGCOR vs BIR)- non stock and non-profit (i.e., no dividends are declared) exempt- proprietary educational institution and hospital - 10% ( NOTE: gross income fromunrelated must not exceed 50% of total gross income)- obu and fcdu S28

COOPERATIVES - exempt

SPECIAL CORPORATIONS (see Valencia list)

- ROHQ 10%; RAHQ exempt

ACCOUNTING METHODS

- fiscal or calendar- but individual can't choose fiscal!- if TP does not keep book of accounts - default: calendar year

- cash or accrual- accrual (liability to pay has become fixed and determinable but not necessary thatit is absolutely exact)- See COMMISSIONER vs ISABELA - lawyers fees not claimed during the year wereincurred

- installment- initial CASH payment does not exceed 25% of selling price (only if casual sales)- what if note was issued but was subsequently discounted (sold) then the value ofthe note should be included in the initial payment (banyas vs CIR)- deferred - initial payment exceeds 25% - entire tax will be paid

- net worth- net worth is not supported by income reported through the years- see AZNAR vs CA- Run after tax evaders (rate); rips (public servant)

- expenditures method- they will look at the lifestyle but income is kapiranggot- see COLLECTOR vs AMIR

WITHHOLDING TAXES- Large chunk - compensation income (employees)- those due from professionals - rarely enforced- creditable and final- list if income payments subject to cwt - exclusive!- if payor did not withhold - can't claim that item as expense PLUS you will beassessed and made to pay interest- reason for withholding: make sure that income is reported- nonresident foreign person derives income from Philippine sources - subject towithholding tax - 30 % nrfc, 25% NRA-ne- sale of foreign periodicals (subscription fees) - sale of personal property - source:where title passes ( BUT BOAC case revoked ruling that this is sourced outside thePhilippines) - general sales agent must file income tax return

- excess withholding tax - tax credit or refund OR carryover for the next taxableperiod, once choice is made you are estopped

ESTATE TAX

property which decedent had an interest- including properties owned by decedent in the name of other persons

S85B- not all in contemplation of death1. transfers with retained interest-right to rent income and right to possession or enjoyment of property-period of enjoyment: for life or for any period which does not in fact end before death- what if donors tax already paid but there is retention of interest, can you offset thedonors tax paid? BIR may say offsetting is not allowed, might be asked to file claim forrefund2. transfer in contemplation of death

REVOCABLE TRANSFER- could be more appropriately called alterable transfers

TRANSFER OF PROPERTY UNDER GENERAL POWER OF APPOINTMENT - power of appointment - is there such a thing in the law on property? Sir doesn'tthink so- SIR: isn't this a transfer of ownership?

PROCEEDS OF LIFE INSURANCE- taxable only if beneficiary is estate or beneficiary is other than the estate anddesignation is revocable

VALUATION- market value or zonal value at the time of death

EXEMPT TRANSFERS -S871. Merger of usufruct and naked title2. Transmission or delivery of the inheritance or legacy by the fiduciary heir orlegatee to the fideicommissary3. Transmission from first heir, legatee or donee in favor of another beneficiary4. Bequests, devises, legacies or transfers to social welfare, cultural and charitableinstitutions PROVIDED....

EXCLUSIONS- paraphernal and individual properties of husband- what is weird is BIR interprets it in such a way that spouse shares in thededuction of family home, standard deduction etc

DEDUCTIONSA. ELIT1. Funeral expenses - 5% of gross estate or actual - limit 200k2. Judicial expenses- what about guardianship proceedings expenses? Yes- what if siblings are in disagreement? If not for preservation, collection ofproperties or filing claims, or distribution of estate, then NO- should be in relation to preservation of property of estate, collection of debts infavor of decedent etc.- what about costs incurred in asserting rights (by heirs)? Individual benefit ofheirs- NOT deductible- in cases of extrajudicial settlement - costs are also allowed as deductions3. Claims against the estate- notarized if incurred within 3 yrs from death, explanation on how proceeds wereutilized4. Claims against insolvent persons- must be included in the gross estate5. Unpaid mortgages - undiminished by the mortgage6. Casualty losses- deductible except if business expense and claimed as deductionin estate taxes7. Unpaid taxes

B. VANISHING DEDUCTION initial basis - mortgage paid=initial basis -( (elit + tpp) x (initial basis/grossestate))= final basis x vanishing rate = vanishing deduction

C. TRANSFERS FOR PUBLIC USE- to or for the use of government or any political subdivision thereof forexclusively public purposes- testamentary or through a will

D. FAMILY HOME- only 1- limit is 1m- legitimate family home counts- secure certification from baranggay captain- house and lot- if you only own the building not the lot - still allowed

E. STANDARD DEDUCTION- 1m

F. MEDICAL EXPENSES- actual but limit 500k

FOREIGN TAX CREDITS- limitations - paid to one foreign country; paid to two or more foreign country (limit:individual(per country) and total (all countries)- same is true in income tax

SPECIAL RULES FOR NON-RESIDENT ALIENS

JOINT SURVIVORSHIP ACCOUNTS - BIR ruling says not recognized in thePhilippines! So estate must still pay tax for the share of the decedent BUT SCrecognizes validity of joint survivorship accounts

ADMINISTRATIVE PROVISIONS- notice of death-60 days - if estate >20k-estate tax return - 6 months from date of death- payment of estate tax - pay as you file- filing extendible -30 days- payment extendible - 5yrs if judicial 2yrs if extrajudicial- GET HEIRS TO SETTLE!!!- no payment of estate tax = no transfer of title or ownership

RENUNCIATION/WAIVER BY SOME HEIRS- renunciation of mother's conjugal share - subject to donors tax because it is theshare of the mother not part of the estate!- what if it was the share as an heir that was waived - no, by right of accretion whatwould have gone to mother would go to other heirs thus no donation to speak of

- what if a non-resident alien dies with properties in the Philippines, will it be subjectto estate tax in the Philippines?S104 intangible property with situs in thePhilippines unless exempted on basis of reciprocity

DONORS TAX- there must be donative intent- detached or disinterested generosity, love oraffection- if motive is remunerative (in nature)- compensation subject to wtw- illicit relationship - can BIR assess donors tax?no it is a void donation - contrary tomorals

VALUATION - at the time of making of gift (FV or zonal value whichever is higher)

TRANSFER FOR LESS THAN ADEQUATE CONSIDERATION- difference is deemed donation

EXEMPT GIFTS- in consideration of marriage -10k- in favor of national government, agencies, political subdivisions- donations to NGOs PROVIDED...

FOREIGN TAX CREDIT- same formula in estate tax

ADMINISTRATIVE- file within 30 days from giving gift- pay as you file

Upstream merger: according to BIR : donation daw subject to donors tax!

VATGOODS- sale of goods or services IN THE COURSE OF TRADE OR BUSINESS or INCIDENTALTHERETO- CIR vs COMASERCO - providing Technical support - still subject - with or withoutprofit-If you convert sole prop to corporation And transfer all assets to new corp - thistransactions is subject to VAT! (S40c2)- merger or CONSOlidation Is an exemption to vat; change In ownership - exemptfrom vat- nonstock nonprofit entities are subject to VAT- note DEEMED SALE transactions (transfer not in course of business, transfer tocreditor, transfer to SH consignment, retirement or cessation from business)

SERVICES- based on gross receipts (actual or constructive)

IMPORTATION- for personal or business; based on landed cost (if customs duties is based onquantity or volume)- landed cost = invoice cost + excise taxes paid + freight + insurance + customs duties

ZERO-RATED1. Goods- subject to vat at 0%- can claim input tax credit- destination principle - consumed or meant to be consumed abroad are treated aszero rated- classic example: exporters- if you sell to export trader and export trader actually sells abroad- sale of gold to BSP (because seller cannot sell abroad, it must sell to BSP, no choice)- foreign currency denominated sale - goods sold to nonresident; goods assembled ormanufactured in the Philippines; denominated in foreign currency- there must be payment in foreign currency

2. Services- services also paid for in foreign currency inwardly remitted to the Philippines- performing services to nonresident not doing business in the Philippines, paid foron foreign currency- services rendered to persons outside the Philippines- CIR vs BURMEISTER - landmark case - read part of prov in 108b1 in 108b2 - doingbusiness within the Philippines

CIR vs PLACER DOME- sc said transaction is zero rated even though same circumstances as burmeistercase (subcontractor agreement)- in burmeister contract was for 15 yrs while here it was for a short period of timeonly (one single project- isolated transaction, Canadian parent not doing business inthe Philippines)

- NOTE: zero rated transactions in tax code- exempt: wb, napocor, services rendered by international airlines/carriers-domestic carriers by air and sea goods - percentage tax ; passengers - vat- transfer by land (domestic) - common carriers tax apply- PETROLEUM, GEOTHERMAL ETC sale of power or fuel or renewable energy: solar,wind, hydropower, geothermal, biomass

VAT EXEMPT TRANSACTIONS - non food products- if subject to percentage tax not subject to vat- not true for excise tax, even if subject to excise, may still be subject to vat- medical, dental services BUT professional fees of doctors and other professionals aresubject to VAT- HMOs are vatable- regional HQ - not engaged in trade or service; do not derive income - not subject- regional operating HQ - subject to vat; taxable 10% of taxable net income- sale of residential lot equal to or less than 1919500, residential house and lot -3199200 or less- lease of residential units not more than12800 (before 10k)- sale of real prop not primarily held for sale or lease but sold when the business closeddown - RR 04-07 subject to vat because it is incidental to the business- per apartment unit ang limit so long as it is not more than 12800 per month - stillnot subject to percentage tax- 1500000 threshold - now 1919500 - but subject to percentage tax- if exempt and elected to be vat registered - irrevocable for a certain period of 3 yrs(look this up)

INPUT VAT- receipt or invoice should be properly filled - what is important is substantiation- input tax on capital goods where purchase price is more than 1m in a monthexcluding vat - amortize over 60 months or life if less than 5 yrs

Sales to government (final withholding vat 5%)- if actual > 7% overpayment - close to expense- if actual < 7% underpayment - include as incomeBUT THIS IS PROVIDED ONLY IN BIR RULINGS, not specified in the law

REMEDIES

POWERS OF COMMISSIONER- audit of returns - routine- industry audit - ex. audit all banks- loa - subpoena (ad testificandum, duces Tecum) - pan - fan - prosecutor (criminalcase)- inventory surveillance - BIR posts examiners to monitor traffic etc. (ex. Countpatients that went in) -this is ALLOWED, commissioner is empowered to do this- powers of commissioner Section 5 - no power to padlock BUT VAT law S115 allowstemporary closure for specific violations- won it violates DP is a different thing - maybe- commissioner has power to prescribe zonal values- see REPUBLIC vs AQUAFRESH SEAFOODS - all properties are classified asresidential But some were used as commercial - government cant reclassify saidproperty as commercial- power to inquire into bank deposits? S6(F) only 1. To determine gross estate AND 2.when tp wants to compromise tax liabilities- authority to make rules, NOW, commissioner even engages in administrativelegislation- informer's reward - before without limit now LIMIT IS 1M Only- even if agency involved is government agency or a GOCC - informer's reward alsoapplies (see savellano vs CIR and CIR vs COA)- if document was obtained through illegal means - (Fitness by design vs CIR) - SC saidthis should not be admissible but allowed informer's reward- authority to obtain 3rd party information ( Avon's case : ground for refusal -violation of trade secrets)

ASSESSMENTS- letter of authority - preliminary findings (before: yellow pad - then corruption) -now: notice for informal conference - informal conference - preliminary assessmentnotice (PAN) - 15 days to file protest with supporting documents - final assessmentnotice (FAN) - protest (30 days) - 60 days to submit documents - government has 180days or 6 months to resolve protest- is issuance of PAN mandatory? YES (pilipinas shell case) but in commissioner vsenguito - no- enguito was decided based on an old law where there are no the requirement on factsand law requirement

- there are cases where no PAN are required (ex. Mathematical error) S 228

FAN- what constitutes?- what if BIR files a complaint affidavit in DOJ?- commissioner vs pascual realty - complaint affidavit does not take the place ofassessment notice - facts and law must be stated, what tax, amount, when it issupposed to be paid - request for reinvestigation - premature; CTA - complaintaffidavit contains info required for assessment notice; SC - assessment notice must beclear that it is an assessment notice (type, amount, when due)- republic vs ca and Basilian estate - commissioner enjoys presumption of regularityof performance of official functions; prove fact of mailing - that mailed, stamped etcvalid assessment notice was made- Barcelon case - government was not able to prove the fact of mailing - logbook is notenough- is it required that TP must receive notice within prescriptive period? (Mailed before,received after) - no, only that it was mailed within prescriptive period - assessmentVALID - collector vs Bautista- assessment must be based on actual facts - what about net worth method? SIR: thisis not speculative, this is based on actual factsBENIPAYO case - assessments must be based on actual and verifiable facts and not onpresumptions - counted traffic in cinema- Hamtex trading - government failed to prove - only based on photocopy ofimportations - not enough

Tax verification notice TVN or Letter notices (no LOA)- usually for ONETT - one time transaction (capital gains)- even ewt are covered by TVN

REVIEW- What if no protest for PAN - would assessment be final and executory?NO ;consequence: PAN would ripen to FAN- only FAN which should be protested!- assessment must contain the legal and factual basis of assessment; if not-thenassessment is VOID- is detailed computation sufficient? NO, there must be an explanation as to saiddeficiency- 1st line of attack: PROCEDURAL (prescription, absence of legal and factual basis)- under current BIR practices - notices by personal delivery or registered mail (rr12-99)- what if FAN received beyond statute of limitation? Ok as long as mailed before statuteof limitation

- EVEN if protest is pending resolution - may BIR issue a warrant of garnishment?Warrant of distant? Warrant of levy? Filing criminal or civil action? YES! (noinjunction shall lie)- distraint (machinery and automobile)- people vs Sandiganbayan - if assessment is pending resolution may not be subject ofwdl (but law allows them to do that)- may BIR file case (civil or criminal) even before issuing assessment (tax fraudcases)? YES (rotary club of makati case, CIR vs pascor, ungab vs cusi, adamson vs ca)

ANTI-INJUNCTION RULE- there is one court that can issue injunction or restraining order whereSUBSTANTIAL INTEREST requires - CTA - under ra 1125- what if CTA issues restraining order preventing BIR from issuing wdl or filing ofcase?this requires posting of bond - surety bond which is double the amount ofassessment or cash bond equivalent to amount of assessment- pay filing fees and bond-SC can of course entertain certiorari, prohibition, injunction ( usually sc does not askfor bond)- What if pending assessment duly protested and at he same time you have claim forrefund or credit - can BIR say I owe you for tax refund but you owe us because of theassessment let's offset? SC: YES (but isn't protest not yet resolved is this notdeprivation of property without due process)- commissioner vs Cebu Portland - no offsetting; taxes are lifeblood of the state-Domingo vs garlitos and republic vs mambulao lumber (older cases)- offsettingdeprives tp due process- SC does not make reasonable distinction

Where you have a PENDING PROTEST and BIR issues a wdl or files a civil or criminalaction, that action of the BIR is treated as final decision of the BIR on the disputedassessment which would now trigger the appeal to CTA

- mere fact of issuance of wdl - final decision of commissioner - appealable to CTA(oceanic, commissioner vs isabela etc)

- if there is an assessment with basis (no meritorious defense) - considerCOMPROMISE or ABATEMENT

COMPROMISE- (includes everything, basic tax, interest, surcharges, penalties)1. Financial incapacity - 10% (minimum)2. Doubtful validity - 40% (minimum)- must be APPROVED by commissioner- subordinate entered into compromise - VOID- less than minimum or tax is more than 1m - secure approval of national evaluationboard- cases that CANNOT be compromised:1. Those already filed in court2. Commitment of fraud- people vs Sandiganbayan - san Miguel case 300m to 10m - there was an oversightcommitted in not deducting ad valorem taxes - reasonable compromise - valid- failure to remit withholding taxes may NOT be compromised (pnoc vs ca)- foton vs republic (?) - distinct personality of stockholders/officers and thecorporation

ABATEMENT- ordinarily surcharge, interest and compromise penalties- where tax appears unjustly or excessively assessed- administrative difficulties in assessing or collecting the tax

INTEREST -20% - automatic

SURCHARGE(25%)- is it automatically imposed? Unlike before, surcharge is automatic, now it is nolonger true- there are instances when it is automatically imposed S248 - failure to file return,filing in the wrong venue, income tax return filed but no payment within theprescribed time, failure to file return(50%)- willful neglect to file return- false or fraudulent return- case law says fraud may not be presumed it must be proven- fraud is alleged to take it out of the prescriptive period (SO, don't follow up onprotest if BIR seems to forget your protest)

- if there is fraud -10 yrs prescriptive period from date of discovery- 30% under declaration of income or 30%over claiming of deduction - is an indicationof fraud - prima facie case of fraud- tambunting, lhuiller cases - surcharges were waived - good faith reliance on a priorinterpretation- interest very rarely waived

COMPROMISE PENALTY- in lieu of criminal prosecution- by agreement of parties, so if TP resists, the BIR can't impose it automatically

PERIOD TO ASSESS- 3 yrs from filing of the return- if filed late - then date of filing- if filed early - 3 yrs from deadline

PERIOD TO COLLECT- 5 years from the date of issuance of the assessment

If return is false or fraudulent or there is willful failure to file- period to assess 10 yrs from discovery- period to collect 5 yrs

What if BIR issues notice beyond 3 yrs but TP issues waiver of prescriptive period-YES! (to assess or to collect)Should waiver be issued before prescription? YESRequirements for validity of waiver must be followed:1. Expressly indicate the date of execution2. Parties must sign - commissioner or duly authorized representative3. TP must be furnished a copy of the signed waiver4. If the amount exceeds1m, commissioner must sign5. Executed before the expiration of prescriptive period.

Erroneous return is filed- Cebu Portland case - the effect is as if no return was filed - 10 yrs prescriptive period

While protest is pending, is the 5-yr period to collect suspended? (DEPENDS)- if protest is in the nature of request for reconsideration - no inquiry or factualcircumstances - does NOT toll the running of the prescriptive period- if request for reinvestigation (which MUST be granted) - involves review of facts ofcase or involves submission of additional documents - SUSPENDS the running of theprescriptive period to collect- what if TP does not characterize it as either reconsideration or reinvestigation - ifreinvestigation is granted and commissioner reviewed, and there was revisedassessment - there was reinvestigation!

- prescriptive period to collect - S222- assessment - 3/10yrs- S222(c) general rule- period to collect is 5 yrs from issuance of assessment notice- but period to assess may be waived - should be waived before the prescription -signed by parties and with all the requisites - S222(b)- assess within the extensionand collect within 5 yrs from assessment- S222(a) - even without assessment government may collect deficiency tax within10 yrs from discovery - false, fraudulent, non-filing- prescriptive period of criminal offenses - 5 yrs from commission of the offensecommitted by TP- prescriptive period to collect is tolled if the taxpayer requests for reinvestigationand such request MUST be granted- fort bonifacio case - BIR only allowed input vat for improvements but not onpurchase of land itself - SC: invalid- no limitation imposed by statute- senior citizens case - argument: discount is tax credit (benefit 100) not merededuction(benefit 30) intention of legislature - tax credit - SC: tax credit not a merededuction, SO BIR asked congress to amend the law and congress approved it so nowit is only a mere deduction- as a rule, RR issued must first be published however, this is not strictly observed,instead they issue circulars (internal matters thus no need for publication)

TAXPAYER'S REMEDY- PAN - MANDATORY notwithstanding enguito case- FAN - important that notice state factual and legal basis of assessment clearlyindicated otherwise it is void for being violative of DP- commissioner vs first express pawnshop company - who has the right to determinewon all the docs have been submitted? SC categorically said that it is up to the TP todetermine the sufficiency of documents submitted otherwise TP will be at the mercyof the BIR- procedural steps:1. As soon as fan is issued -30 days to protest2. 60 days from protest to submit documents3. BIR has 180 days to resolve protest- practice: before lapse of 180 days and no action - elevate case to CTA (rule is within30 days from end of 180-day period appeal to CTA)- but then LASCONA case happened - failed to appeal to CTA and yet tax court saidthat the 180 days not mandatory - TP can wait until decision is issued- lascona decision incorporated in the rules of procedure of BIR- "may" interpreted by the tax court to mean that the 180 is not mandatory, appealnow or later-SIR: "may" should be interpreted to mean to appeal or not to appeal- for purposes of bar lascona case good law

- upon receipt of fan and no protest - assessment becomes final and executory - nomore appeal- can you file MR on decision of CIR on the protest - risky - case law says no suchthing, decision of commissioner is final- if you want to continue challenging the decision then go to court -30 days fromdenial of protest- in the past, there was always a dispute as to won the letter received by the TP fromthe commissioner constitutes a final decision-- saints defense case - what is relevant is the second denial which is the basis forappealing to the CTA - SIR: isolated case- but now once protest is denied, the letter denial already says it is final and appeal toCTA within 30 days- final demand letter - final decision appealable to the CTA- if the CIR does not act on your protest and there is a final notice to you beforeseizure, that is tantamount to the denial of your protest- TP must then go to CTA- issuance of wdl, filing of case - equivalent to final decision - so appeal to CTA- note jurisdiction of CTA - amply expanded - if before the tax court had nojurisdiction to try criminal cases, now it already has; collection cAses, jurisdictionover DTI (see statute)- won CTA has certiorari, prohibition, mandamus power?- even without categorical statement that it is the final but there are circumstanceswhich tends to show that it is already a final decision - appeal to the CTA- CTA no jurisdiction for unfair competition, declaratory relief- mode of appeal to the CTA - petition for review- decision of division (3 justices) - appealable to the CTA en banc (majority 5 out of 9)- from CTA en banc - you can file MR within 15 days - then go the SC for petition forreview within 15 days via R45 (CTA and CA coequal branch) which may or may notbe given due course (appeal to SC - not a matter of right)

REFUND CLAIMS- 2 yrs from date of payment to file an administrative claim- judicial claim- file administrative claim first - must you wait for decision in theadministrative claim?if the 2 yrs is about to lapse, you can now file a judicial claim- even if you did not give commissioner time to study your refund you can still filejudicial claim (for example filed admin claim on the last day of the 2yrs from date ofpayment) but judicial claim should also be filed within the 2yr period meaning on thelast day- what about with regard to payments made on quarterly basis?don't count from endof taxable year; for example quarterly vat return - count from payment of thequarter return; same is true with capital gains- SUPERVENING EVENT - suspended the running of prescriptive period - but this isbased on OLD law (central azucarera case)

- now provision says notwithstanding supervening event - so azucarera doctrine notgood law anymore- remember however S229 - commissioner may grant refund, even without filing ofwritten claim if it appears that payment was erroneously made- is payment under protest required for refund claims? NO- TCC may NO longer be assigned- if you have a TCC can commissioner apply this against a pending assessment?republic vs mambulao and Domingo vs garlitos case - NO (assessment still underprotest) BUT in Cebu Portland case - YES (urgency of need to collect taxes as thelifeblood of the government)

- you can go lower than 40% subject to approval of evaluation board- supervening event - thing of the past- won government is liable for attorneys fees, interests - no recent case that hasallowed the TP to claim such items but nonetheless if you want to ask for such itemsyou can cite where court allowed the collection of interest where commissioner actedarbitrarily in collecting (Victoria's milling vs commissioner); in collector vs sweeneythe court disallowed the claim for such items- to stop running of prescriptive period and surcharge - you can pay then claim forrefund- who is proper party to claim for refund in case of withholding tax? P&G case - thepayee is the real party in interest not the withholding agent; wonder Philippine case -real party in interest is the withholding agent which is considered as the taxpayer; inpractice BIR allows claims for refund by withholding agent or the income recipientitself; pilipinas shell case - SC said that it is the international vessel which should filethe claim for refund not shell which is a taxable entity -SIR: erroneous interpretation- S135 - petroleum products sold to international carriers are exempt from excisetax - very clear provision

- SUBSTANTIATION REQUIREMENT (excess withholding taxes)- first prove that income was reported by preponderance of evidence!- And that taxes were in fact withheld by income payor (CWT)!- Must you prove that Payment was actually made? NO! Because payment Towithholding agent is payment to principal! Otherwise the court will deny outright theclaim for refund- wrt VAT - atlas case - vat refund claims dismissed for failure to substantiate - or(services) invoice (goods)- admin refund first then judicial refund if it's already the last day- prime town property group case - leap year - SC: calendar year so its claim forrefund has prescribed (12 calendar months do not count number of days)

- REQUEST FOR RULING1. the commissioner has already cancelled all rulings prior to 1997 (no qualification)except wrt TP who secured such ruling and wrt to such transaction involved in suchruling2. Commissioner is fond of Applying revocation retroactively3. It is so difficult to get a tax ruling

- when will revocation of a ruling be applied retroactively? S2461. Misrepresentation of the TP on the facts on which the ruling was based2. Where the facts subsequently gathered by the BIR is materially different from thefacts offered by TP- burmeister case - doing business within the Philippines - beneficiary doing business-0 rating will not apply - previous ruling allowed zero rating - no misrepresentationso no retroactive application

- can BIR rulings be relied upon by third parties? Saniware case - YES; now - NOruling is personal to the TP who asked for the ruling RR 5-2012 and RMC 22-2012- some rulings delegated to regional directors

AMNESTY, ABATEMENT, COMPROMISE- amnesty - blanket exoneration from criminal and civil liability

REMEDIES AVAILABLE AGAINST REVENUE ISSUANCES OR ACTION OFCOMMISSIONER- dispute on assessment - protest against PAN - protest against FAN (30 days/60days/180 days)- appeal to CTA (30days)- refund claims - same thing - admin claim for refund then tax court (2 yrs)- twist wrt INPUT VAT on zero rates sale - reckoning of the 2 yrs is from end of taxablequarter (not end of the taxable year) - S112 - submission of documents - commissionerhas 120 days from date of submission of complete documents to decide - ayichi case -all cases filed before expiration of 120 days were all dismissed because of prematurity- lascona decision does not apply in the input vat return- rcbc case - TP appealed to tax beyond the 30 day period from expiration of the 180-day period - if you go up to tax court do so within the 30 day limit - you can't say youwill wait till kingdom come (remedies are exclusive of each other, you either wait(which means no appeal until decision) OR file within 30days after expiration of the180 days)

- where to challenge the issuances of commissioner - RTC/CA/CTA/SC?- CIR vs LEAL - RTC says RMC and RR are not assessments but are new taxes, SC saysjurisdiction to review the issuances of commissioner is with the CTA not with the RTCbecause such are rulings or interpretation of the commissioner- Asian international auctioneers vs parayno - taxation of imported motor vehiclesbrought in the economic zone - only CTA has jurisdiction because these Rmc areinterpretation of commissioner,court brushed aside the argument that there is noassessment; court said such issuances are exercises of the commissioner on theimplementation of tax laws- American tobacco case - SIR did not go to CTA instead he filed in the RTC - attackeddirectly the constitutionality of the revenue regulations - violation of equal protectionclause - SC involve constitutionality of a law CTA does not have jurisdiction!

LOCAL TAXES- direct grant of power by the constitution - local autonomy - subject only toguidelines and limitations as congress may provide- LGC- no undue delegation of power - coca cola vs mun of tanauan- discretion on rates - subject to limits in LGC- fundamental principles - sec 130 LGC- integral(no additional business tax or license) vs incidental (subject to additionalbusiness tax or license)- caltex case - may not be taxed separately on the entire production of tin cans, onlytaxable for those tin cans delivered to third-parties- standard vacuum oil - no production delivered to third parties- fortune enterprises - supply of spare parts - not separate business- not subject toseparate business tax and license fees- Manila press vs Sarmiento - taxed as printer - cannot be taxed as retailer of thepaper and stationaries- sale of bakery business of used flour bags is merely incidental - not subject toseparate business and license fees- p&g vs municipality - court did not find confiscatory and excessive the taxesimposed- license vs tax - license fee-commensurate with the cost of rendering the service orregulation; however, taxes are generally unlimited- matalim vs mun of malabang - police inspection fee - excessive - marginal profit 40;fee 30- punzalan vs mun case of Manila - ordinance - levying an occupation tax

COMMOM LIMITATIONS OF THE POWER TO TAX (S133)- GR : all taxes imposed by national government, the local government cannotimpose- cannot impose customs duties, registration fees, taxes on BOI-registered, Carried toor out of or passing into, reinsurance, retrocession etc- no income tax except on banks and financial institutions (it is still a business taxonly that the tax base is the income received)- they are not allowed to impose estate and transfer tax- no tax on products carried into...cf S141- vat or percentage tax (except as otherwise provided - means that the tax base maybe the same as in vat or percentage tax but it is still considered as business tax- when the code says except as otherwise provided, it just means they are imposing atax similar to the said tax but not the same tax or that the tax base may be the same- first Philippines industrial corporation case - TP engaged in the business oftransporting petroleum products from Batangas to Sucat and pandacan- via pipelineIs considered as common carrier- mactan Cebu case, Manila international airport authority case - instrumentality ofthe government - SIR: what is weird is the extension to GSIS (GSIS vs city Treasurerof the city of Manila)- exempt from real property tax just like MIAA

- Donation/estate - donors/estate tax, no vat, no dst, local transfer tax- local registration fee - paid to register of deeds- legal research fee - up law center

- taxing powers of PROVINCESQuarry

-taxing powers of MUNICIPALITIES - S1431. Manufacturers Of any article of commerce2. business other than manufacturers/Dealers, wholesalers, distributors of Essentialcommodities3. Retailers4. Contractors5. Banks and financial institutions6. Peddlers7. Any other business not otherwise mentioned which the sangguniang deems to besubject to tax

- taxing power of CITIES - S151Whatever the province and municipality may impose a city may levy

- taxing power of the BARANGAY - S152Barangay clearance; they also have taxing powers

In case of municipalities in MM they are allowed to impose taxes 50% higher thanallowed for in other municipalities as provided for in LGC; similar rules apply forcities within MM

COMMUNITY TAX- cedula- for notarization what is required is a photo ID- 18 yrs of age- based on income and real properties owned

WHERE DO YOU PAY THE LOCAL TAXES- Magic word: PLACE OF SALE- if sale is made by branch pay to LGU where branch is located

- if no branch, I.e. pharma companies-gsk, Pfizer- GR: all sales will be booked andrecorded in the principal office and taxes will be paid in the LGU where the principaloffice is located BUT they may have manufacturing plant outside the place of principaloffice (30% principal office; 70% manufacturing plant)- every January renewal of business license

- what about dole? Principal office, manufacturing plant, plantation in different places -further allocate the 70% (60% factory; 40% plantation)- does it matter if Pfizer has outside contractors (contract manufacturers)?NO- would the 70-30 still apply? Yes - the manufacturer is considered the manufacturingplant

- what about abenson? Gr: wherever sales are recorded pay the tax on the place wheresale is made- what about the warehouse where the item was stored? Where would abenson book thesale and pay the tax? Who made the sale? Abenson shangrila mandaluyong; gr:warehouse is not considered as a branch but once the warehouse invoices the sale thenthat warehouse becomes a sales outlet

- what if you went to a display store? Will that display center book or record a sale? Isthat display center considered a branch or a sales outlet? NO, it is merely a displaycenter, it does not keep an inventory of goods

- what about the delivery trucks? Will they pay tax in every locality where they passby and make a delivery? GR applies, which branch or sales outlet made the sale;ordinarily, it is very rare that sales is made by main office- LGU has power to impose fixed taxes

WHEN DO YOU PAY THE LOCAL TAXES- taxes accrue/become payable on the 1st day of January of each year- payable on or before the 20th day of January- may be paid in lump sum or opt to pay on installments (4 installments)- sanggunian can postpone or grant an extension for payment but shall not exceed 6months

WHAT IF RATES ARE INCREASED OR NEW TAXES ARE LEVIED?- accrues on the 1st day of the next quarter- paid within 20 days of the next quarter

IN CASE OF RETIREMENT OF BUSINESS- you are required to file a Short-Term return

HOW TAX ORDINANCES ARE PASSED- municipality of rizal levied 15% tourism tax - jollibee challenges the ordinance- first line of attack - procedural; no proper public hearing and publication- second line of attack - substantive - tourism tax is not among the taxes which aprovince or municipality may levy- in the level of the sanggunian- there is always a proponent or sponsor of an ordinance- proposed ordinance will be subject to public hearing and publication- in public hearing, the sanggunian of the LGU must publish for 3 consecutive days thatproposed ordinance- WRITTEN NOTICES of the ordinance to those that will be affected by theordinance/stakeholders- hold an actual public PUBLIC HEARING - cannot happen earlier than 10 days fromsending notices or the last day of the publication- the stakeholders must be heard- then sanggunian approves the ordinance- then it must publish it - in a newspaper of local circulation for 3 consecutive DAYS ifno local newspaper posting in at let 2 conspicuous and publicly accessible places- assuming the stakeholders were ignored, what is the remedy? Challenge it within 30days from its effectivity to the SECRETARY OF JUSTICE - is the LGU empowered toimpose that tax? Yes - pendency of the appeal does NOT suspend the effectivity of thetax- if DOJ still does not rule on your favor go to court of competent jurisdiction - RTC- suppose the sec of justice ignores you for 60 days will you wait till kingdom come? NO- you only have 30 days from receipt of that adverse decision or 30 days after the lapseof the 60 day period to go to court- can you file MR? - statute does not sanction it- from adverse decision of RTC go to CTA- sec of justice - RTC - CTA

REMEDIES- can the LGU examine the TP's books? Yes, simultaneously with BIR if the latter doesso; only once a year- 5 years to issue a deficiency assessment (c.f. NIRC 3 yrs)- in case of fraud 10 yrs (both LGU and NIRC)

- 5 yrs to collect ( same with NIRC)- a request for REINVESTIGATION can suspend the period to assess and collect (samewith NIRC)- LGU can ask you for waiver of period to assess (same with NIRC)- NIRC surcharge 25% (same with NIRC)- interest is 2% per month (NIRC 20%) - up to 36 months- wdl or warrant of garnishment - yes (same with NIRC)

REMEDIES OF TAXPAYER- purely incidental business is not separately assessable (integral part)- what if treasurer disagrees and wants to impose deficiency assessment?- protest the assessment - 60 days; treasurer has another 60 days from time of filingto decide protest- what if protest denied - appeal to court of competent jurisdiction - RTC - 30 days- if treasurer does not act within the 60 days? appeal to RTC within 30 days- is MR allowed? No, statute does not sanction it- claim for refund - 2 years from date of payment of tax (same as in NIRC) otherwiseit is barred by statute if limitations

WITHDRAWAL OF TAX EXEMPTION- note mactan case- some companies considered as GOCCs but now considered as part of governmentinstrumentalities

REAL PROPERTY TAX- all real properties must be appraised at its FMV- who appraises? Appraiser but in practice, it is the owner- the owner must declare the FMV of the propery - if assessor agrees then he willadopt it- the tax will be based on the assessed value- ASSESSED VALUE = FMV x assessment level- assessment level varies on the kind or nature if the property being assesses- residential/commercial/agricultural/industrial/mineral/timberland/special- is FMV the same as zonal value - insofar as the assessor is concerned NO; in manycases, the FMV appearing on the tax declaration is much lower than the zonal valueor FMV adopted by the BIR- if you are acquiring a property for the first time - declare it so the assessor canproperly assess it - 60 days from acquisition- if property is renovated - report the improvement introduced on the property sothat the property can be re-appraised - within 60 days from completion of theimprovement

- where will nlex pay it's local taxes? (it traverses several municipalities) - sir'sproposition: allocate 100% to the LGU's covered based on kilometrage

REAL PROPERTY TAX (cont)- before the basis is ownership- now it is ACTUAL USE- if owner is exempt but user is not, then property is subject to tax- before, the issue is the definition of real property- Manila electric vs central board - tanks installed with some degree of permanence -so taxable improvements- machineries of brewery companies - immobilized = real property- Davao sawmill case - immobilized by destination - if placed by a tenant, it is not areal property, if by the owner then it is real property- radio relay station powers, telex machine etc - rcpi - real properties- gas station equipment permanently affixed to the stations - caltex - real property- power barges - real property - fels energy vs province of Batangas- cf. board of assessment appeals vs meralco - steel towers - not real property -attached to metal frames where it can be moved from place to place when unscrewedand dismantled- most notorious case - pipelines - operators were considered as common carriers - arepipelines movable?- Mindanao bus companies - tools and other equipment used in the motor pool - notreal property because they are by nature movable- these cases should not be problematic now because there is already a definition ofreal property in the NIRC- what if a building stands on 2 different cities or municipalities?

APPRAISAL- assessor appraises first - subject to abuse- INCOME APPROACH method - takes into account the income potential - Reyes vsalmanzor - assessor used comparable values - jbl Reyes pointed out the rent controllaw - SC: confiscatory - owner may not be able to pay the tax which would result toconfiscation of the property - still good law wrt valuation of real property- allied banking vs quezon city government - assessor based assessment on the deedof conveyance - SC: you are basing the appraisal of the property on the value asdetermined by the private parties not based on your independent judgment; you arenot basing assessment on the actual use- rule: assessor must use his INDEPENDENT JUDGMENT how much property shouldbe appraised at!- residential/commercial/industrial/agricultural/mineral/timberland/special- what about buildings used for several purposes (I.e. commercial and residential)? Isthere something wrong if you classify a property under more than 1 classification?NONE, but where predominant use is residential you can argue based on predominantuse

- exceptions to RPT- mactan international airport authority - change of mind of the SC - final ruling: not aGOCC but an instrumentality of the government and therefore exempt from tax- even if property is owned by the government if the beneficial use is granted to aprivate taxable person, then the exemption no longer applies because exemption ispersonal to the government- what if property owned by government or its instrumentality and found to bedelinquent?are properties of PUBLUC DOMINION subject to auction or seizure or levyin case of delinquency of RPT? NO! - same is true in case of reclaimed land- city of pasig vs republic - if lessee does not pay, property may be auctioned off- is it sufficient that delinquency be published or must a notice be sent personally or byregistered mail in addition to the publication? Tuzon vs Avillera case - NOTICE onpropery owner himself is necessary (personal)- Aquino vs QC case - local government need not even publish the delinquency;property owner did not update his records in the assessors office and they sent noticeto old address - it is your own lookout!-NOTE: NPC vs CBAA And Fels vs Batangas - invoking exemption of RPT of the powerplant put up by the contractor engaged by NPC - NPC claims to own the property thusnot taxable - SC: that is a lot of BS, NPC does not own property until after 20 yrs, theBOT contractor is the owner of the power plant and therefore taxable; further, NPC:based on their private agreement will shoulder the taxes SC: contractual agreementdoes not bind the city assessor- in case of assessment for unpaid or excessive RPT - gr: no injunction, unless the TPdeposits the tax;- PAYMENT UNDER PROTEST- pay the tax first under protest - to assail theassessment of the assessor- assessor assesses in the form of a NEW tax declaration that will purport to cancel theold one in the TP possession- what about the interest? What about the RPT that accrues after the assessment? Willyou keep on paying pending the protest? Yes, but there is no statutory basis; if youdon't pay it will effectively result to an injunction, which is prohibited- what is disturbing is the fact that there are cases where the court gave itsimprimatur in nonpayment of taxes pending appeal of assessment - City governmentvs bayan; city of pasig vs republic

- no class on monday - last class day :))- final exam oct 12 6-8 pm

REAL PROPERTY TAX (cont)- city government of QC vs Bayan telecom and city of pasig case - non payment underprotest was allowed; appeal to body other than the body prescribed by the LGC- if asked in the bar, cite the provision which requires payment under protest; toimpress mention cases where SC allowed nonpayment- MR - not sanctioned by the law - does not suspend the running of the motion toappeal- what if local assessor does not have an authority to issue an assessment?- actual use determines assessment so even if adjacent is used differently- see: NPC vs province of quezon and mun of pagbilao - legality of assessment is inquestion - would payment under protest still be required? SC: a claim of exceptionfrom RPT is in fact a question on the correctness of assessment so payment underprotest is required- if property owner believes he has excessively paid the tax and it was proven- claimfor refund - 2 yrs from the time of entitlement to refund arises - when is that? S253 -safest thing is 2 yrs from payment of the tax anyway if it is premature there will beno harm - it appears 2 yrs from the date of a supervening event- see Allied Banking vs QC government - must the TP still file a claim for refund withthe treasurer - SC: you cannot shortcut the procedure - still file refund claim withtreasurer rather than go directly to LBAA- if you didn't pay a tax under protest and it was subsequently discovered that therewas excessive payment, can you still file a claim for refund? See: ramie textile inc vsmathay - protest is not a sine qua non for refund if the payment is under wrongfulassumption that he paid the proper tax- Bureau of local government finance (BLGF) - created merely to provide consultativeand technical assistance to local governments and general public in local taxes; noauthority to interpret legal provisions on local property taxation; its rulings are notentitled to great weight, it may have persuasive effect- RATES:1. basic RPT - 1% provinces / 2% Manila2. special educational fund - 1%3. Idle lands -5%4. Special assessment - not more than 60% of actual costs of projects orimprovements- is the tailings dam an improvement subject to RPT? SC: billions of dollars were spenton building the dam, how can it not have a value or how can it not be animprovement? It is still a structure permanently attached to the ground- NOW, as an offshoot of that case, machinery and equipment used for pollutioncontrol - exempt

TARIFF AND CUSTOMS CODE- AHTN - list down all possible articles and the corresponding duties- maximum - 100%, and in case of discrimination, we can retaliate by imposing anadditional duty max of 100%- duties are paid upon removal of items in the customs- vat from importation - credited to customs collection target - there was an agreementbetween BIR and BOC- so what if you claim for refund or credit for vat paid to BOC where will you apply? BIRbecause these are internal revenue taxes, in reality, as soon as BIR approves the claimthat approval is indorsed to the commissioner of customs to process the refund- what articles are subject to import duties? All unless you are exempt by expressprovision of the customs and tariff code, even if an item has previously been exportedunless you can prove that you have previously exported said item- conditionally-free importation by express provision of the statute- prohibited importations - drugs, firearms and explosives- see ute paterok vs BOC: 450 slc - contraband - prohibited importation- DRAWBACK - refunds or tax credits - from raw materials used S106- duty is ad valorem; based on transaction value of product itself, or of identical goods,or of similar goods- in case of doubt (basis) - collector may resort to contacting revenue collecting attaché

SPECIAL DUTIES - bar favorite1. Anti-Dumping duties -levied by Phil government if the price of the goods imported isless than the price in the originating country (undervaluation of the imported article);prevent material injury to philippine industry2. Countervailing duties- when a foreign government (of the country of origin) givessubsidy or financial support to exporters and works to the disadvantage of our localindustry3. Marking Duties - name of country of origin of merchandise is not indicated4. Retaliatory/discriminatory - if our goods exported are being discriminated in thecountry of destination (E.g. unreasonable charges, strict legislations)

- when goods are subject to excise tax or vat -authority to release imported goods(atrig)- now BIR says that the blending component should be taxed for excise taxes - what isyour remedy? Safest - pay under protest; appeal to sec of finance but it will not be plainspeedy and adequate because your business will be stalled; CTA - exclusive jurisdictionon internal revenue taxes; RTC - if you question the constitutionality of the issuance;SC - certiorari and prohibition - may be dismissed - exhaustion of admin revenues andhierarchy of courts- basis of dutiable value - transaction value adjusted by cost, insurance and freight- when importation begins - when vessel enters the Philippine jurisdiction withintention to unload- when it ends - upon payment of taxes and duties and issuance of permit forwithdrawal; if not subject to duties and taxes, once the legal permit is granted for thewithdrawal of goods and goods have actually left the custody of the BOC- note when importation begins and ends - implication: if importation has not yet endedthe BOC has the power to confiscate or seize the goods- under TCC if you want to search dwelling house you need a search warrant, but forothers like warehouse no need for search warrant

PILIPINAS SHELL vs REPUBLIC case (2008) - goods already released so BOC has nomore lien on the goods therefore the only way for BOC to enforce payment is to paycollection suit in RTC. But didn't we say that importation ends upon payment of dutiesand taxes? Here there were different circumstances because there was in fact paymentthrough the TCCs (even though the TCCs were subsequently disallowed), moreoverthere was authority to release imported goods

- who is deemed the owner of imported articles? Consignee or the holder of the bill oflading if the consignee has indorsed the same; or if the case of consigned articles, theconsignor himself; for abandoned goods- liability is personal to himself- lien on goods is enforceable only once the goods are in its custody, otherwise file acollection suit- liquidate the shipment - 30 days from discharge of last package non-extendible- pay within 15 days from liquidation- if you fail to liquidate or pay the goods are considered abandoned- how to liquidate? File the IERRD, assessor will assess the imported goods, after theIERRD will be stamped "liquidated"- the liquidation will no longer be questioned within 3 yrs from payment unless fraud,pending protest, liquidation of IERRD was merely tentative

Who may conduct searches seizure or arrest?- BOC- Philippine navy- BIR

- collector must notify commissioner of the fact of seizure as well as the owner- owner may settle unless there is fraud- BOC can break false partitions- BOC cannot be held liable for damages for breaking down false partitions- republic vs CFI of Manila etc - won RTC has jurisdiction over seizure and forfeiturewhere complainant alleges ownership of the merchandise seized - SC: RTC nojurisdiction because it is lodged with Collector appealable to commissioner- Asian terminals inc vs Bautista-Ricafort - importer filed replevin in RTC - SC: RTChas no jurisdiction, only the collector - same with commissioner of customs vs ca

Surcharges, fines and forfeitures (see TCC)

Misdeclared, underdeclared, - see S2503 TCC

- if owner of vessel has no knowledge that his vessel is used to transport prohibitedgoods, can he be held liable or can his vessel be seized? S2531 - NO! except undersome circumstances, ex recidivist- Note however that in the earlier carreon case, forfeiture are in rem and directedagainst the res, so owner can't have that defense

- suppose that there is misdeclaration attributable to foreign supplier and importerdoes not know of such misdeclaration? The importer may not be held guilty ofmisdeclaration

-May BOC be held. Liable arising from deterioration of goods seized formisdeclaration? No, parolan case - sovereign immunity

-Any civil or criminal case filed by the BOC must always have the approval of thecommissioner

- in case of favorable decision in favor of TP by collector - there is automatic review bycommissioner - if still favorable to TP - automatic review by sec of finance

- what is remedy of importer if collector wants to assess in excess of what should bepaid? Protest the assessment - at the time you make the payment or within 15 daysfrom the time of payment; collector sets hearing within 15 days from receipt ofprotest; collector should render decision 30 days from termination of hearing - appealto commissioner of customs - how? file notice of appeal to collector copy furnish tocommissioner - if commissioner decides against the TP - go to CTA

- can you appeal a decision of director directly to CTA? No because the TCC says youmust first appeal to commissioner of customs

-shell case on blending component: payment under protest is not viable because theywould have to pay millions of dollars; sc - high risk of dismissal; RTC - not reallybecause what is involved is an internal revenue tax and no injunction will lie; CA - noauthority to issue injunction - SO judgment call - file with CTA - under ra 1125 asamended - express grant of power to CTA to issue tro against collection of taxes, it'snot called a tro, they call it a SUSPENSION ORDER!

Authority of president to revise or remove tariff rates- is this an undue delegation of legislative power- NO! (Garcia vs exec sec) congressitself has authorized the president and congress has provided sufficient standards- what are these standards?1. Exercise of pres by this power is subject to prior recommendation of NEDA2. Such power is subject to periodic investigation3. Maximum - 100 percent ad valorem and additional duty of 10%

PROVINCE1. Transfer of real property2. Business of printing and publication3. Franchise tax4. Sand, gravel, quarry5. Professional tax6. Amusement tax7. Delivery truck

MUNICIPALITY1. Manufacturers etc - any article of commerce2. Wholesalers etc - any article of commerce3. Exporters, manufacturers etc - essential commodities4. Retailers5. Contractors and other independent contractors6. Banks and other financial institutions7. Peddlers8. Others9. Community tax

CITY- same with province and municipality

BARANGAY1. Store retailers2. Service fees or charges3. Barangay clearance4. Other fees and charges