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DOCUMENTARY STAMPS TAX

Purpose: The untaxed document will not be

recorded, nor will it or any copy thereof or any record of transfer of the same be admitted or used in evidence in court until the requisite stamp or stamps have been affixed thereto and cancelled.

No notary public, or other officer authorized to administer oaths will add his jurat or acknowledgment to any subject to DST unless the proper documentary stamps are affixed thereto and cancelled. (of course theoretically, notaries public are required to make sure that there is compliance of this)DST we are talking about is not just being collected exclusively by the BIR, there are other government agencies who collect DST, called the LOOSE DOCUMENTARY STAMPS TAX, say for example the SECAs a requisite if you fail to pay your DST and settle your DST liability, the government agency will treat you like this: your document will not be considered a public document duly recognized by the appropriate government agency and may not even be presentable as evidence to the court because it’s a requisiteIf you don’t pay and affix the necessary it cannot be considered a public record, there can be no transfer of ownership and it cannot be presented in court as proper evidence because it is required that there should be proper payment of the DSTAs I’ve mentioned, DST may either come in the formal filing of return or payment

or it may come in the form of LOOSE DST.

Nature:In general, DST are levied on the exercise by persons of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships through the execution of specific instruments. Examples of such privileges, the exercise of which, as effected through the issuance of particular documents, are subject to the payment of DST are leases of lands, mortgages, pledges and trusts, and conveyances of real property. (Philippine Home Assurance Corporation vs. CA)

Take note this involves legal relationships between two contracting parties and specific instrument because these instruments, documents or papers are specifically enumerated under the Tax Code.Is it a requirement na dapat commercial business na nimo, or in the ordinary course of trade or business (leasing of lands, mortgages, pledges,etc)? No. it is not required that you be engaged in this business to be liable for DST.

Who are required to file DST Declaration Return? (formal filing of DST)

a.) In case of constructive affixture of documentary stamps, by the persons making, signing, issuing, accepting or transferring documents, instruments, loan agreements and papers, acceptances, assignments, sales and conveyances of the obligation, right or property incident thereto wherever the document is made, signed, issued, accepted or transferred when the obligation or right arises from Philippine sources or the property is situated in the Philippines at the same time such act is done or transaction had;

Not necessary that the seller would pay the DST; the seller and the buyer may agree. But if everything

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is silent, it would have to be paid by the seller. In reality it is the buyer because it is he who wants the title to be transferred.If one of the two parties is exempted from DST, the one not exempted would have the burden of paying the DST.

b.) By using the web-based Electronic Documentary Stamp Tax (eDST) System in the payment/remittance of its/his/her DST liabilities and the affixture of the prescribed documentary stamp on taxable documents; and

c.) By Revenue Collection Agent, for remittance of sold loose documentary stamps

Philacor Credit Corporation vs. CIR (G.R. No. 169899, February 6, 2013)Under Sec. 173 of the NIRC, the persons primarily liable for the payment of DST are persons (1)making; (2) signing; (3) issuing; (4) accepting; or (5) transferring the taxable documents, instruments or papers. Should these parties be exempted from paying tax, the other party who is not exempt would then be liable. In this case, Petitioner Philacor is engaged in the business of retail financing. Through retail financing, a prospective buyer of home appliance may purchase an appliance on instalment by executing a unilateral promissory note in favor of the appliance dealer, and the same promissory note is assigned by the appliance dealer to Philacor. Thus, under this arrangement, Philacor did not make, sign, issue, accept or transfer the promissory notes. It is the buyer of the appliances who made, signed and issued the documents subject to tax while it is the appliance dealer who transferred these documents to Philacor which likewise indisputably received or “accepted” them. Acceptance, however, is an act that is not even applicable to promissory notes, but only to

bills of exchange. Under the NIL, the act of acceptance refers solely to bills of exchange. In a ruling adopted by BIR as early as 1995, “acceptance” has been defined as having reference to the incoming foreign bills of exchange which are accepted in the Philippines by the drawees thereof, and not as referring to the common usage of the word as in receiving. Thus, a party to a taxable transaction who “accepts” any documents or instruments in the plain and ordinary meaning does not become primarily liable for tax.

The SC explained that the word ‘accepting’ should not be understood in its loose term. Thus, for the party accepting the document to be held liable to pay the DST, that acceptance must be a requisite in order to make the transaction valid.This case involves execution of promissory note. Acceptance of the promissory note is not required since it is only needed in bills of exchange. In short, acceptance of a promissory is not an essential requisite, then Philacor cannot be held liable to pay for the DST.

Where DST Return is filed?Authorized Agent Bank (AAB) within the territorial jurisdiction of the RDO which has jurisdiction over the residence or principal place of business of the taxpayer or where the property is located in case of sale of real property or where the Collection Agent is assigned.

In places where there is no AAB: Revenue Collection Officer or Duly authorized Treasurer of the city or

municipality in which the taxpayer has his legal residence or principal place of business

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DST RATESTax Code Document Taxable Unit Tax Due Per Unit Taxable Base174 Original Issue of

Shares of Stock with par value(for example: 1m)Original Issue of Shares of Stock without par value

Stock Dividend

P200.00 or fraction thereof(1m/200)

P200.00 or fraction thereof


1.00

1.00

1.00

Par value of shares of stocks

Actual consideration for the issuance of shares of stocks

Actual value represented by each share

176 Bonds, Debentures, Certificate of Stock or Indebtedness issued in foreign Countries

P200.oo or fraction thereof

.75 Par value of such bonds, debentures, Certificate of Stock or Idebtedness

177 Certificate of Profits or Interest in Property or Accumulation


.50 Face value of such certificate/memorandum

178 Banks, Checks, Drafts, Certificate of deposit not bearing interest and other instruments (EXC. Documents issued by BSP)

On each Document

1.50

179 All Debt Instruments* (debentures, certificate of indebtedness, duties, simple loan agreements, instruments and securities issued by gov’t, evidences of deposits, promissory notes whether negotiable or non-negotiable)


1.00 Issue price of any such instruments

180 All Bills of Exchange or Drafts


.30 Face value of any such bill of exchange or draft

181 Acceptance of Bills of Exchange or order for the


.30 Face value of such bill of exchange or order or the Philippine equivalent of

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payment of money purporting to be drawn in a foreign country but payable in the Philippines

such value, it expressed in foreign currency

182 Foreign Bills of Exchange and Letters of Credit (presupposes that these would have to be exercised here in the Philippines)


.30 Face value of such bill of exchange or letter of credit or the Philippine equivalent of such value, if expressed in foreign currency

183 Life Insurance Policies (presupposes that the insurer is not exempted under the DST law. Because later on, you will realize that when the company is exempted, you will not pay the DST. Example: established as cooperative. Everything they collect is for the mutual benefit of the members. An example is Sunlife.)

If the amount of insurance does not exceed P100,000

Exceeds P100,000 but does not exceed P300,000

Exceed P300,000 but does not exceed P500,000

Exceeds P500,000 but does not exceed P750,000

Exceeds P750,000 but does not exceed P1,000,000

Exceeds P1,000,000

Exempt

10.00

25.00

50.00

75.00

100.00

Amount of Insurance

Amount of Insurance

Amount of Insurance

Amount of Insurance

Amount of Insurance

Amount of Insurance

184 Policies of Insurance upon Property

P4.00 premium or fraction thereof

.50 Premium charged

185 Fidelity Bonds and other insurance Policies

P4.00 premium or fraction thereof

.50 Premium charged

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186 Policies of Annuities or other instrumentsPre-Need Plans (educational plan)



.50

.20

Premium or instalment payment or contract price collectedPremium or contribution collected

187 Indemnity Bonds P4.00 or fraction thereof

.30 Premium charged

188 Certificates of Damage or otherwise and Certificate document issued by any customs officers, marine surveyor, notary public and certificate required by law or by rules and regulations of a public office

Each Certificate 15.00

189 Warehouse Receipts (except if value does not exceed P200.00)

Each Receipt 15.00

190 Jai-alai, Horse race tickets, lotto or other authorized number games (aside from DST, these are also subject to OPT even if they do not issue tickets for admission purposes)

P1.00 cost of ticket

Additional P.10 con every P1.00 or fraction thereof if cost of ticket exceeds P1.00

.10 Cost of the ticket

Cost of the ticket

191 Bill of Lading or Receipts (except charter Party) (applies to forwarding companies)

If the value of such goods exceeds P100.00 and does not exceed P1,000.00

If the value exceeds P1,000.00

Freight tickets covering goods, merchandise or

1.00

10.00

Exempt

Value of such goods

Value of such goods

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effects carried as accompanied baggage of passengers on land and water carriers primarily engaged in the transportation of passengers

192 Proxies (except proxies issued affecting the affairs of associations or corporations, organized for religious charitable or literary purposes)

Each proxy 15.00

193 Powers of Attorney (except acts connected with the collection of claims due from or accruing to the Government of the Republic of the Philippines, or the government of any provinces, city or municipality)

Each Document 5.00

194 Lease and other Hiring agreements or memorandum or contract for the use or rent of any land or tenements or portions thereof

First 2,000 or fractional part thereof

For every P1, 000 or fractional part thereof in excess of the first P2,000 for each year of the term of the said contract or agreement

3.00

1.00

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195 Mortgages Pledges of lands, estate, or property and Deeds of Trust (the provision questioned by M. Lhuiller in a case wherein it questioned the DST on pawn tickets)

First 5,000

On each P5,000 or fractional part thereof in excess of 5,000

20.00

10.00

Amount Secured

Amount Secured

196 Deed of Sale, Instrument or writing and conveyances of real property (except grants, patents or original certificate of the government)

First 1,000

For each additional P1,000 or fractional part thereof in excess of P1,000

15.00

15.00

Consideration or Fair Market Value, whichever is higher (if government is a party, basis shall be the consideration)

Consideration or FMV, whichever is higher (if government is a party, basis shall be the consideration.)

*“Debt Instrument” shall mean instruments representing borrowing and lending transaction including but not limited to:

Debentures Certificates of indebtedness, Due bills, Bonds, Loan agreements, including those

signed abroad wherein the object of the contract is located or used in the Philippines,

Instruments and securities issued by the government or any of its instrumentalities,

Deposit substitute debt instruments, Certificates or other evidences of

deposits that are drawing instrument significantly higher than the regular savings deposit taking into consideration the size of the deposit and the risks involved,

Certificates or other evidences of deposits that are drawing interest and having a specific maturity date.

Promissory notes, whether negotiable or non-negotiable, except bank notes issued for circulation

M.J. Lhuillier Pawnshop vs. CIR The onus of proving that pawnshops are

not subject to DST is thus shifted to petitioner. In establishing tax exemptions, it should be borne in mind that taxation is the rule, exemption is the exception. Accordingly, statues granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. One who claims an exemption from tax payments rests the burden of justifying the exemption by words too plain to be mistaken and too categorical to be misinterpreted.

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In the instant case, there is no law specifically and expressly exempting pledges entered into by pawnshops from the payment of DST. Section 199 of the NIRC enumerated certain documents which are not subject to stamp tax; but a pawnshop ticket is not one of them. Hence, petitioners nebulous claim that it is not subject to DST is without merit. It cannot be over emphasized that tax exemption

represents a loss of revenue to the government and must, therefore, not rest on vague inference. Exemption from taxation is never presumed. For tax exemption to be recognized, the grant must be clear and express; it cannot be made to rest on doubtful implications.Questioned the act of CIR of subjecting to DST the pawn tickets.

197 Charter parties and similar instruments

1,000 tons and below

1,001 to 10,000 tons

Over 10,000 tons

P500.00 for the first 6 months plus P50 each month or fraction thereof in excess of 6 months

P1,000 for the first 6 months plus P100 each month or fraction thereof in excess of 6 months

P1,500 for the first 6 months plus P150 each month or fraction thereof in excess of 6 months

Registered gross tonnage



198 Stamp tax on Assignments and Renewals or Continuance of certain Instruments (presupposes that the renewal involves an amendment or change in the document)

At the same rate as that imposed on the original instrument

Exempt papers/documents from DST: Policies of insurance or annuities made

or granted by a fraternal or beneficiary society, order, association or

cooperative company, operated on the lodge system or local cooperation plan and organized and conducted solely by the members thereof for the exclusive

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benefit of each member and not for profit.

Certificates of oaths administered by any government official in his official capacity or acknowledgment by any government official in performance of his official duty

Written appearance in any court by any government official in his official capacity

Certificate of administration of oaths to any person as to the authenticity of any paper required to be filed in court by any person or party thereto, whether the proceedings be civil or criminal

Papers and documents filed in court by or for the national, provincial, city or municipal governments

Affidavits of poor persons for the purpose of proving poverty

Statements and other compulsory information required of persons or corporations by the rules and regulations of the national, provincial, city or municipal government exclusively for statistical purposes and which are wholly for the use of the bureau or office in which they are filed, and not at the instance or for the use or benefit of the person filing them

Certified copies and other certificates placed upon documents, instruments and papers for the national, provincial, city or municipal governments made at the instance and for the sole use of some other branch of the national, provincial, city or municipal governments

Certificate of the assessed value of lands, not exceeding P200 in value assessed, furnished by the provincial, city or municipal treasurer to applicant for registration of title to land.

Borrowing and lending securities executed under the Securities Borrowing and Lending Program of a

registered exchange, or in accordance with regulations prescribed by the appropriate regulatory authority

Loan agreements or promissory notes, the aggregate of which does not exceed P250,000 or any such amount as may be determined by the Secretary of Finance, executed by an individual for his purchase on instalment for his personal use or that of his family and not for business or resale, barter or hire of a house, lot, motor vehicle, appliance or furniture

Sale, barter or exchange of shares of stock listed and traded through the local stock exchange (RA 9684)

Assignment or transfer of any mortgages, lease or a policy of insurance, or the renewal or continuance of any agreement, contract, charter, or any evidence of obligation or indebtedness, if there is no change in the maturity date or remaining period of coverage from that of the original instrument.

Fixed income and other securities traded in the secondary market or through an exchange.

Derivatives. Provided, that for purposes of this exemption, repurchase agreements and reverse repurchase agreements shall be treated similarly as derivatives.

Interbranch or interdepartmental advances within the same legal entity (involving the very same company or entity)

All forebearances arising from sales or service contracts including credit card and trade receivables. Provided, that the exemption be limited to those executed by the seller or service provider itself.

Bank deposit accounts without a fixed term or maturity

All contracts, deeds, documents and transactions related to the conduct of business of the BSP.

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Transfer of property pursuant to Sec. 40(C)(2) of the NIRC of 1997, as amended (has something to do with merger or consolidation, because if the property is combined, it is considered to be one personality later on)

Interbank call loans with maturity of not more than 7 days to cover deficiency in reserves against deposit liabilities, including those between or among banks and quasi-banks

What is the Electronic Documentary Stamp Tax (eDST) System (sec. 5 (1), RR No. 7-2009)

The eDST is a web-based application created for taxpayers and the BIR that is capable of affixing a secured documentary stamp on the taxable documents as defined under the appropriate provisions under Title VII of the NIRC of 1997, as amended, thru the use of a computer unit, any laser printer with at least 1200 dpi resolution, and Internet Explorer 7.0. It is also capable of providing a 3-layer watermark on stamps for added security.

Is DST Law applicable on Electronic Documents (sec. 10, RR No. 13-2004)

Yes. The DST rates as imposed under the Code, as amended by RA 9243 shall be applicable on all documents not otherwise expressly exempted by the said law, notwithstanding the fact that they are in electronic form. As provided for by RA 8792, otherwise known as the Electronic Commence Act, electronic documents are the functional equivalent of a written document under existing laws, and the issuance thereof is therefore tantamount to the issuance of a written document, and therefore subject to DST.

Is any document, transaction or arrangement entered in to under Financial Lease subject to Documentary Stamp Tax? (RMC No. 46-2014)

Yes. Financial lease is akin to a debt rather than lease. A nature of an obligation than a lease of personal property. The mere act of extending credit is already means of facilitating an obligation or advancing in behalf of the lessee certain property in lieu of cash in exchange for a definitive amortization to be paid to the lessor with profit margin included. Section 179 of NIRC, as amended, covers all debt instruments. Therefore, being a nature of an obligation, any document, transaction or arrangement entered into under financial lease is subject to DST under such Section of the NIR, as amended.Finance lease is more like of payment through installment.

OTHER PERCENTAGE TAX (OPT) Percentage tax on Domestic Carriers

and Keepers of Garages Percentage Tax on International Carrier Franchise Taxes Tax on Overseas Communication Tax on Banks and Non-bank Financial

Intermediaries Performing Quasi-bank Functions

Ta on Life Insurance Premiums Tax on Agents of Foreign Insurance

Companies Amusement Taxes Tax on Winnings Tax on Sale, Barter or Exchange of

Shares of Stock Listed and Traded Through the Local Stock Exchange or Through Initial Public Offering

Return and Payment of Percentage Tax

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Coverage Basis Tax RatePersons exempt from VAT under Sec. 116

Gross Sales or Receipts (we are not after profit. The question here is ‘was there a consideration?’)

3%

Domestic carriers and keepers of garages

Gross Receipts 3%

International Carriers:International air/shipping carriers doing business in the Philippines

Gross Receipts 3%

Franchise Grantees:Electric, gas and water utilities Gross Receipts 2%Radio and television broadcasting companies whose annual gross receipts of the preceding year do not exceed P10,000,000 and did not opt to register as VAT taxpayer

Gross Receipts 3%

Tax on overseas dispatch, message or conversation originating from the Philippines (Section 120)(by telephone, telegraph, telewriter exchange, wireless and other communication services)

Amount paid for the service (paid by the person availing the service to the person rendering the service within 20 days after the end of the taxable quarter)

10%

Exemptions from Section 120:

1. Government2. Diplomatic Services3. International Organizations4. News Services

Has something to do with their official function

Banks and non-bank financing intermediaries

Interest, commissions and discounts from lending activities as well as income from finance lease on the basis of remaining maturities of instruments:

Short term maturity (5 years or less)

5%

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Maturity period is more than 5 years

1%

On Dividends and equity shares in net income of subsidiaries

0%

On royalties, rentals of properties, real or personal, profits from exchange and all other items treated as gross income under Sec. 32 of the Code

7%

On Net Trading Gains within the taxable year on foreign currency, debt securities, derivatives and other similar financial instruments

7%

Other non-bank finance intermediaries (Sec. 122)

On interest, discounts and other items of gross income paid to finance companies and other financial intermediaries not performing quasi-banking functions

5%

Interest, commissions and discounts paid from their loan transactions from finance companies as well as income from financial leasing shall be taxed based on the remaining maturities of instruments:

Maturity period is 5 years or less

5%

Maturity period is more than 5 years

1%

Life insurance Companies (except purely cooperative companies or associations) (Sec. 123)

Total premiums collected 2%

Agents of foreign insurance companies (Sec. 124) (except reinsurance premium)

Total premiums collected Twice as the tax imposed in Section 123 (aside from purely cooperative, these are also exempt from tax:- premiums refunded within six (6)

months after payment on account of rejection of risk or returned for other reason to a person insured shall not be included in the taxable receipts;

- nor shall any tax be paid upon reinsurance by a company that

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has already paid the tax;- nor upon doing business outside

the Philippines on account of any life insurance of the insured who is a nonresident, if any tax on such premium is imposed by the foreign country where the branch is established

- nor upon premiums collected or received on account of any reinsurance , if the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected;

- nor upon that portion of the premiums collected or received by the insurance companies on variable contracts (as defined in section 232(2) of Presidential Decree No. 612), in excess of the amounts necessary to insure the lives of the variable contract workers.)

- variable insurance – part life insurance, part investment

In all cases here owners of property obtain insurance directly with foreign companies (without use of any agent)

AMUSEMENT TAXESProprietors, lessee or operator of the following: (the one liable to remit)

Gross receipts

Cockpits Gross receipts 18%Cabarets, Night or Day Clubs Gross receipts 18%Boxing exhibitions (Except: World or oriental championship is at stake AND one of the contenders if Filipino citizen promoted by the Filipino citizen of Philippine Corporation – 60% Filipino, 40% Foreigners)

Gross receipts 10%

Professional basketball games (PBA, NBA)

Gross receipts 15%

Jai-alai and race track (operators shall withheld tax on winnings) irrespective of whether or not any amount is charged for admission (even if they don’t

Gross receipts 30%

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collect tickets)

Every stock broker who effected a sale, barter, exchange or other disposition of shares of stock listed and traded through the Local Stock Exchange (LSE) other than the sale by a dealer in securities

Gross selling price or gross value in money of shares of stocks sold, bartered, exchanged or otherwise disposed

½ of 1%

A corporate issuer/stock broker, whether domestic or foreign, engaged in the sale, barter, exchange or other disposition through initial public offering (IPO)/secondary public offering of shares of stock in closely held corporations

GSP of gross value of in money of shares of stocks sold, bartered, exchanged or otherwise disposed in accordance with the proportion of stocks sold, bartered or exchanged or after listing in the stock exchange

Up to 25% 4% Over 25% but not over

33 1/3 %2%

Over 33 1/3% 1%

Closely Held Corporations (Section 127) Any corporation at least 50% in value of

the outstanding capital stock or at least 50% of the total combined voting power of all classes of stock entitled to vote is owned directly or indirectly by or not more than twenty (20) individuals

When and where to file OPT return?WHEN: within 25 days after the end of each taxable quarter (except cancellation of VAT registration-OP tax accrues from the date of cancellation)

Persons retiring from business subject to business tax must notify the nearest RDO, file his return and pay the tax within 20 days after closing the business.

NOTE: Commissioner by a revenue regulation may prescribe manner and time of filing

WHERE: AAB’s, RDO (having jurisdiction, over the residence or place of business), or duly authorized treasurer of the city or municipality

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Tax enforcement and Administration

Agencies involved in tax administration

bureau of internal revenue (BIR) bureau of customs (BOC) Provincial, city and municipal assessors

and treasurers

Powers and Duties of the BIR (AGEE)

Assessment and collection of all national internal revenue taxes, fees and charges

Give effect to and administer the supervisory and police power conferred to it by the Tax code or other laws

Enforcement of all forfeitures, penalties and fines in connection therewith

Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary courts.

Officials of the BIR

Kim S. Jacinto-Henares - Commissioner of Internal Revenue

Lilia C. Guillermo- Deputy Commissioner Information Systerms Group

Estela V. Sales- Deputy Commissioner Legal and inspection Group

Nelson M. Aspe- Deputy Commissioner Operations Group

Officials of the BIR

1. Commissioner of Internal Revenue 4 Deputy CommissionersSEC. 3. Chief Officials of the Bureau of Internal Revenue. - The Bureau of Internal Revenue shall have a chief to

be known as Commissioner of Internal Revenue, hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as Deputy Commissioners.

2. Assistant Commissioners (different from deputy commissioners)-assigned to a specific division of BIR

3. Head Revenue Executive Assistants (HREA)-head of a specific division in a specific regionEx. Large taxpayers’ division in NCR

4. Regional Directors-head of each BIR region

5. Revenue District Officers-located in each of the Revenue District Offices

6. Revenue Enforcement Officers-frontliners and examiners (RDO in Talisay, CTU, Mandaue, Banilad)

General Powers of the CIR

1 st Authority to interpret the tax code and other tax laws ( exclusive and original jurisdiction)

Recommending power in the passage of Revenue Regulations

Revenue regulation- general interpretations of the tax laws seeking to explain the provisions of the law

Revenue Ruling/ Opinion-more specific in nature, addressing particular needs of a taxpayer but is applicable only to the requesting taxpayer. Subject to review by the secretary of finance

2 nd Authority to decide disputed assessments, refunds, penalties & other matters under the NIRC or other laws administered by the BIR

Administrative actions by taxpayers prior to the judicial action (CTA)

There must be clear and unequivocal indication wheneer the CIR’s action on an assessment questioned by the

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taxpayer constitutes his final decision/determination on the dispute

3 rd Authority to obtain information and to summon examine and take testimony of persons

Extent: Canvass from time to time the revenue

region or district office Obtain informationon a regular basis-

information sourced from the taxpayer (self-assessment) or 3rd party information

Take testimony of persons (under oath) as may be relevant or material to the inquiry

Examine any book, record, data, which may be relevant to the inquiry, subject to the period to prescribe the keeping of books. How many years?

To issue summons

Is the BSP exempt from internal revenue?

No, only the DST exemption

May the CIR and/his subordinate issue subpoena i.e. Subpoena duces tecum?

Yes pursuant to the CIR’s power to obtain information and to summon under Section 5, NIRC. However, this is Not a requisite before resorting to best evidence obtainable.

4 th Authority to make assessments

Examination of returns and determination of tax due- based on best evidence obtainable

Asess the proper tax Conduct of inventory-taking,

surveillance and to prescribe presumptive gross sales and receipts

Issue jeopardy assessments

I. Examination of returns and determination of tax due- based on best evidence obtainable.

GR: Confidentiality of Tax ReturnsException: [ PA-EFEC]

Upon written order of the President of the Philippines

In aid of legislation by the Congressional Oversight Committee

Material Evidence in criminal case where the government is interested in the result

Inspection is authorized under of Finance Regulation 33

Request for exchange of information by foreign tax authority (RA No. 10021,

FATCA) Upon consent/authority of taxpayer

II. Examination of Returns and determination of tax due- based on best evidence obtainable

Sources: Government offices/agencies Corporations/employers Clients or patients Tenants, lessees, vendees and from all

other sources

May returns, statement or declaration filed with the BIR be withdrawn?As a rule, No.Exception:

Done within 3 years from the filing of the returns

No notice of audit or investigation of such return has been served upon the tax payer

Assess the proper tax

Concept of Assessment Assess means to impose a tax, to charge

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with a tax, to declare a tax to be payable, to apportion a tax to be paid or contributed, to fix a rate, to fix or settle a sum to be paid by way of tax, to set, fix or charge a certain sum to each taxpayer, to settle determine or fix the amount of tax to be paid [84 C.J.S. 74-750]

An asessmentis the notice to the effect that the amount therein stated is due from a taxpayer as tax with a demand for payment of the same within a stated period of time

[commissioner v. CTA, 27 SCRA 1159]

III. Assess the proper tax

Requisites for a valid assessment:

The taxpayer shall be informed in writing of the law and the facts on which the assessment is made [sec.228 NIRC]

An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period [CIR v. Pascor]

An assessment must be served on and recieved by the taxpayer [CIR v pascor]

o Best evidence obtainable ORo Use of the new worth method-

an extension of the basic accounting formula: Asset (A)= Liabilities (L) + Equity (E)

o Conditions (use of the Net worth method):

No books of accounts or books do not reflect the correct income or refuses to produce the books or books were destroyed:

There is evidence of possible source/s of income causing an increase in net worth

There is fix and opening net worth The method reflects taxpayers income with

accuracy and certainty after various adjustments

Net Worth Method

Net worth- end of taxable yearLess: Net worth beg. Of the taxable yearIncrease in net worthAdd: non-deductible disbursementsCorrect Net incomeLess: exemptionsTaxable incomeX income tax rateIncome tax on taxable incomeLess: amount already paid on taxable incomeDeficiency income taxAdd: Surcharge and interestTotal: amount due

GR: BIR Assessment only upon full auditException: Jeopardy assessment

IV. Jeopardy Assessment - a tax assessment made by an authorized Revenue Officer without the benefit of a complete or partial audit in light of the revenue officer’s belief that the assessment and collection of the deficiency tax will be jeopardized by delay to taxpayers failure to:

Comply with audit and investigation requirements to present his books and/ pertinent records or

Substantiate all or any of the dedution, exemption or credit claimed in his return

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5 th Authority to terminate taxable period GR: Prescriptive periods are prescribe by the BIR

Assessment : 3 years from the date of filing, either actual filing date or last day of filingConsequence: Failure to follow prescriptive periods the effect would be that BIR can no longer issue deficiency assessment against the taxpayer

Exception: when prescriptive periods is terminated

LR-RA (Lahi Ra!)L = Intending to Leave the philippinesR = Retiring from businessR = Remove/hide/conceal his properties in the PhilippinesA = Peforming an Act tending to obstruct the proceedings for collection of the tax for past or current quarter or year or to render the same ineffective (totally or partially)

Sir: These acts make it impossible for the BIR to timely assess and collect.

6 th Prescribe real property values – Zonal ValuationFair Market Value by the assessor or by the BIRPurpose: For taxation purposes, in which the property will be based at whichever is higher, FMV by the assessor or FMV by the BIR

7 th Inquire into bank deposit GR: Bank Secrecy LawException:

1. To inquire into bank deposits of a decedent for purpose of determining his gross estate, determining the correct estate tax due to the government

2. In an application for compromise of tax liability due to the incapacity to pay tax liability

3. Exchange of information by the BIR on tax matters pursuant to internationally-agreed standardsa. RA10021b. FATCA

Ra10021Conditions:

1. The identity of the person under examination or investigation;

2. A statement of the information being sought including its nature and the form in which the said foreign tax authority prefers to receive the information from the Commissioner;

3. The tax purpose for which the information is being sought;

4. Grounds for believing that the information requested is held in the Philippines or is in the possession or control of a person within the jurisdiction of the Philippines;

5. To the extent known, the name and address if any person believed to be in possession of the requested information;

6. A statement that the request is in conformity with the law and administrative practices of the said foreign tax authority, such that if the requested information was within the jurisdiction of the said foreign tax authority then it would be able to obtain the information under its law or in the normal course of administrative practice and that it is conformity with a convention or international agreement; and

7. A statement that the requesting foreign tax authority has exhausted all means available in its own territory to obtain the information, except those that

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would give rise to disproportionate difficulties.

Sir: The most important condition is the last one in relation to the exhaustion of remedies. This law amended sec 6 of the tax code. Remember, the requesting party is the FTA (foreign tax authority) and the requested party is the PTA (Philippine Tax Authority)

FATCA (Foreign account tax compliance act)In 2010, US law requiring financial institution to provide information of citizens who are hiding properties or money outside the USA. Now, Philippines is now covered because it was ratified by secretary purisima last July 2015Philipines’ obligation is to give a report on suspicious deposit of US any citizen, the report should not be given directly to the IRS (Internal Revenue System) but first with the Philippines government then go to US government (IRS).

8 th authority to accredit tax agents Sir: talking about tax agents we are referring to, usually are the bookkeepers or the accountants who files the returns in behalf of the client. The agents should be duly accredit by the BIR, but insofar as a BAR passer

9 th prescribe additional procedural or documentary requirementsDoes the CIR have the power to prescribe penalties for violation of the regulation?No. it is the SOF who issues the revenue regulations, ergo, it is the SOF who may prescribe the penalties, the CIR can at most RECOMMEND suchSir: Cir should not expand the law by prescribing penalties.

10 th authority of the Commissioner to delegate powerException: non-delegateble power (RICA)

a. Power to Recommend the promulgation of rules and regulations by the Sec. of Finance

b. Power to Issue rulings of first impression or to reverse, revoke, modify any existing ruling

c. Power to Compromise or abate any tax liability, except assessments issued by the regional offices involving basic deficiency

d. Power to Assign or reassign internal revenue officers to establishments where articles subject to excise tax are produced or kept

Sir: what is the difference between compromise and abate class, kung mo ingon kag compromise it would REDUCE the amount while abate kay the BIR forgo the the collection from the taxpayer.Exception to the exception:

1. those involving basic deficiency amounting to P500,000 or less

2. Minor criminal violations. Sir: Regional Evaluation Board is the one who can enter compromise in relation to Minor criminal violations11 th authority to make arrests and seizures Responsible officers: CIR, Deputy commissioners, Regional Directors, RDO and other revenue officersReason of the arrest/seizures: violation of penal laws and rules or regulations administered by the BIRProceedings: Before a competent court, to be dealt with according to lawSir: but keep in mind, usually imprisonment not the main penalty in tax laws but more on interests and surcharges. Can a BIR officer arrest you immediately? Yes in cases of “plain view doctrine”. You committed the crime in front of the officer.12 th Authority to assign internal revenue officers

1. Those involved in excise tax functionsa. Limitation up to two years

2. Assignment to other special dutiesa. Limitation

i. Internal revenue officers assigned to

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perform assessment or collection functions shall no remain in the same assignment for more the 3 years

ii. Assignment to special duties shall not exceed one (1) year

Sir: this is to avoid familiarization with the functions and the office.13 th authority to impose duties on certain officer

Unless there is a certification authorizing registeration(CAR):

Register of deeds - no registration of transfer in the registry of property transferring real rights or any chattel mortgage

Atty. A: As a rule the register of deeds is obliged not to register the transfer unless there is a certificate authorizing registration

Debts of the deceased shall not pay to the administrator, heirs, legatee, executor, administrator, etc.

Atty.A: In estate taxation, If you are the debtor you have the duty to make sure there have been payment of the estate tax

Bank shall not allow withdrawalAtty.A: The bank has the duty not to allow withdrawal unless there is proper certification in relation to the bank account of the decedent except up to 20k for administration purposes.

Lawyer, notary public, or any govt. officer must furnish copies with the BIR

Atty. A: They are obliged to furnish copies to the BIR or the documents being notarized but in practice notary publics do not actually send reports to the BIR but usually send reports to the RTC.

14 th Authority to suspend business operation of the taxpayer

I. RMO 3-2009 - Oplan Kandado. The closure of the business shall last for a period of no less than 5 days and shall be in force until the violation is rectified.

Atty. A: Pertains to business tax. Usually to Vat registered tax payers that:

fail to issue official reciept or invoices, fail to file their vat returns even not vat

registered but already mandated to register under vat,

gulty of understating their taxable sales or reciepts by 30% or more.

II. RATE - Run Against Tax Evaders

Atty. A: The authority of the other BIR officials emanates from the autority of the CIR which are just delegated to them. So if you question the authority of these officers you try to question also whether the CIR has authority to perform that particular function

4 deputy Commissioners plus 21.operations group2.legal and inspection group3.resource management group4.information systems groupPLUS 2 deputy for newly created positions5.tax reform administrative group6.special concerns group

Att. A: The tax code mentions about 4 deputy commissioner but there has been an amendment to the addition of two positions.

Field Service--Regional offices(headed by the regional director)

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Powers and duties of the regional director(Sec.10,NIRC)1.Implement laws,policies,plans,programs,rules and regulations of the department or agencies in the regional area

2.administer and enforce internal revenue laws, and rules and regulations, including the assessment and collection of all internal revenue taxes, charges and fees3.Issues letters of authority(LOA) for the examination of taxpayers within the region

Atty. A:LOA may be issued by the CIR if the examination is being undertaken by the national office. If undertaken by the regional district officers then LOA is issued by the regional director.

4. Provides economical, efficient and effective service to the people in the area5.Coordinates with the local Governments in the area6.Coordinates with other regional offices or other departments, bureaus and agencies in the area7. Exercises control and supervision over the officers and employees within the region8. performs such other functions as may be provided under the law and as may be delegated by the CIR

Atty. A:Regional director is the supervisor of the revenue district officers within the region. The regional director may decide on assessments.

Revenue district officers - implement programs, methods, and procedures necessary for the efficient, effective and economical assessment and collection of internal revenue taxes in the revenue district

Compositions of RDOs:A. Field men and examinersB. Collection agents and clerks

ATTy. A.: Assessment and collection is stated repeatedly because it is the main function of the BIR

What are the duties and functions of revenue district officers and other internal revenue officers?

Authority of revenue officers(Assessors/examiners) to:1.Examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax2.Recommend the assessment of any deficiency tax.pursuant to a LOA issued by the Regional Director

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NIRC REMEDIES

Collection only (provided under the law/ court decision)

Assessment and collection

procedure

Filing a criminal case

Filing a civil case

judicial

1. Lien2. Distraint3. Levy4. Forfeitures5. Compromise6. Abatement7. Fines, penalties,

etc.

administrative

Nature

Collection

Assessment

Basic

Remedies of the Government (of assessing and collecting the tax)

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ASSESSMENT PROCESS

PRELIMINARY ASSESSMENT NOTICE (PAN)

YES

Dismiss

NO

Basis? (factual or legal)

REVIEW BY ASSESSMENT DIVISION OF Regional office or

CIR

UPON DISPUTE

YES

PAY TAX

NO.

TAXPAYER DISPUTES?

Inform the taxpayer, issue written report

YES

END

NO.

DEFICIENCY?

AUDIT/TAX INVESTIGATION

ISSUANCE OF LOA

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MERITORIOUS?

Submit supporting documents within 60

days from filing of protest

YES

Becomes final and executory

NO

Protest (30 days)

Formal letter of demand and final assessment notice

(FLD-FAN)

NO

DISMISS

YES

YESNO

RESPONSE FROM TAXPAYER (15 DAYS FROM RECEIPT)

ISSUANCE OF PAN

15 days from receipt of PAN; Simple explanation as to the

possible cause of the deficiency

No final demand yet; States the factual and legal basis of

deficiency assessment

Not required at all times in order to protest because it can be done directly or indirectly.directly – issuance of the FLD-FANindirectly - CIR immediately filed a civil case against you or the CIR would immediately levy your property

You cannot anymore question this to CTA. So, always remember

that you need to file an admin protest before you can avail of the

judicial remedy.

PROTEST – MORE FORMAL2 NATURES:1. REQ FOR RECON – asking BIR to revisit its computation2. REQ FOR Reinvestigation – based on new evidence; you need to submit additional documents

reinvestigation

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NO

END FOR TAXPAYER. CIR MAY APPEAL

NO YESFAVORABLE?

MR

NO YESFAVORABLE?

NOTE: FILING OF THE MR DOES NOT TOLL THE 30 DAY PERIOD TO APPEAL, HENCE UPON DENIAL, APPEAL TO CTA WITHIN REMAINING PERIODFAVORABLEAPPEAL TO THE CTA

WITHIN 30 DAYS FROM RECEIPT OF ADVERSE

DECISION

YESNO FILE MR OF CIR’S DECISION TO CIR

END FOR TAXPYER, SOF MAY REVIEW

FILE MR (NOT MANDATORY) OR

IMMEDIATELY APPEAL TO CTA WITHIN 30 DAYS

END FOR TAXPYER, SOF MAY REVIEW

YESFAVORABLE TO

TAXPAYER?

YES

Appeal to CTA w/n 30 days after lapse of 180

days OR wait for BIR decision (Lascona Case)

NO

Decision within 180 days

CIR decision within 180 days from date of submission of documents/filing of protest

With or without submission of supporting documents

- Lapse does not mean denial; merely gives you a chance to file an appeal- These two are mutually exclusive

If the decision on the protest is rendered by

a subordinate (regional director), you

file an MR to the CIR, you still have 30 days to appeal to the CTA. Because in this case

CIR decided only once. Tolled only if MR is

NONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONONO

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Example on ’30 day period is not tolled by filing an MR to the CIR’Unfavorable decision received on June 1, basically you can appeal this within 30 days to the CTA so you have until July 1 to go to the CTA. But, if you don’t do this, you file a MR on June 10, the resolution which is unfavorable came out on June 20. The period to appeal to the CTA would not be 30 days from June 20. The period to appeal would be remaining period since you already used up the 10 days before filing an MR, so that would be around July 10.TAKE NOTE!

Questions on the propriety of your assessment, apply the above procedure. Questions on the validity of revenue regulation subjecting condominium corporation to taxes –

the proper action is not Rule 45 or Rule 65 because these are premised on the fact that the decision is made by a quasi-judicial agency. But when it comes to issuance of revenue regulations by the BIR, its more of quasi-legislative. Your action should be petition for declaratory relief. Concurrent jurisdiction with RTC, CTA and SC. But you start first with the RTC.

NO YES

If the decision on the protest is rendered by

a subordinate (regional director), you

file an MR to the CIR, you still have 30 days to appeal to the CTA. Because in this case

CIR decided only once. Tolled only if MR is

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NIRC REMEDIES -Remedies of the Govt.Atty. A: Two remedies in the NIRC. Remedies of the Govt. and Remedies of the tax payer. insofar as the remedies of the govt. is concerned, the provisions exist to guide the govt. on how to properly assess and collect tax and to guide the tax payer on how to question if there are arbritrary actions of the govt.

Basic remedies assessment collection

Nature administrative judicial

administrative lien defray levy forfieture compromise abatement fine penalty etc.

Judicial filing a civil case Filing a criminal case for tax evasion

Base on procedure Through assessment and

collection(usual) collection only(unusual)

atty. A: BIR does not anymore assess it because probably it is already provided under the law.

Presrciptive period for assessment(sec.203.NIRC)

A. if the taxpayer filed a return, internal revenue taxes shall be assessed within 3 years after the last day presricbed by law for the filing of return

Atty. A:ex.1 Income tax return deadline is 15th day of fourth month(April 15), you filed it Jan. 5, when will the 3 year prescriptive period start to run? April or Jan.?ANS: April 15th because the law states after the last day presrcibed by law

B. If a return is filed beyond the period prescribed by law, the 3 year period shall be counted from the day the return was filed.

Atty. A: ex.2 Income tax return deadline is 15th day of fourth month(April 15), you filed it July 5, when will the 3 year prescriptive period start to run? April or July?ANS: July

Exception(sec.203,NIRC): false return fraudulent return with intent to evadw

tax failure to file a return

Atty. A:Intentional = fraudulent returnNegligence = false return

ASSESSMENTGeneral rule: taxes are self-assessing

Exceptions:(when there is a need for assessment)

tax period of a tax payer is terminated(sec. 60)

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deficency tax liability arising from a tax audit by BIR(sec.56b)

tax lien(sec. 219) Dissolving corporation(sec. 52c)

Principles Governing tax assessments Presumed in favor of tax assessment must be based on actual facts not on

presumptions discretionary upon the commissioner

Atty. A: the commissioner cannot be compelled by mandamus to make an assessment or audit against a person because it is not a ministerial duty rather it is discretionary upon the commissioner. However, you can question the arbritrariness through filing a certiorari grounded on grave abused of discretion.

the authority to assess may be delegated

Atty. A: Can be delegated to a position not lower than a division chief

must be directed to the right partyAtty. A: the assessment must be duly served and recieved by the tax payer

Kinds of assessmentI. By the tax payer self assessment

II. By the BIR, without authority illegal and void assessment

Atty. A:Without authority meaning the bir is given the authority to subject you to a particular tax, probably the customs is the one that has authority, or you are exempted from a

particular tax but the BIR has assessed tax against you, then it is void

III. By the BIR, with authority defeciency assessment

Atty. A: tax computation by the BIR is way higher than the tax declared and paid by the taxpayer then the BIR will issue a defeciency assessment

erroneous assessmentAtty. A: There is authority by the BIR but the BIR official commits an error in the computation in the amount payable. you cannot file a case against the BIR official who committed an error because of the regularity of duty(office) unless there is arbritrariness

jeopardy assessment disputed assessment

atty. A: usually starts in a deficiency assessment by the BIR but the taxpayer questions the propriety of the assessment so it becomes a disputed assessment. The taxpayer either request for reconsideration or reinvestigation.

Assessment processAtty. A: Assessment conducted by the BIR usually starts with the issuance of the letter of authority, may be issued by the commissioner if the one who conducts the audit or investigation is the national office but if it will be conducted by the revenue district officer, then LOA is issued by the regional director. After the issuance of the LOA, assessment will be conducted.If the BIR discovers defeciency, the BIR will inform the taxpayer through a written report.

REMEDIES OF THE GOVERNMENT FOR NON-PAYMENT OF TAXES

I. ADMINISTRATIVE REMEDIESA. TAX LIENB. DISTRAINT (ACTUAL AND

CONSTRUCTIVE)C. LEVY

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D. SALE OF PROPERTY OF A DELIQUENT TAXPAYER)

E. FORFEITURE OF PROPERTYF. COMPROMISE AND

ABATEMENTG. PENALTIES AND FINESH. SUSPENSION OF BUSINESS

OPERATIONSII. JUDICIAL REMEDIES

A. CIVIL ACTIONB. CRIMINAL ACTION

III. ENFORCEMENT OF ADMINISTRATIVE FINE

TAX LIEN A legal claim or charge on property of

the taxpayer as SECURITY for the payment of some debt or obligation

Accrues when the taxpayer neglects or refuses to pay his tax liability after demand with interests, penalties and costs that may accrue in addition thereto

The lien is not valid against any mortgagee, purchaser, or judgment creditor until notice of such lien shall have been filed in the register of deeds of the province or city where the property is located. But effective against third persons only when notice of such lien is filed by the Commissioner in the Register of Deeds in the province/city where the property is situated.Annotation on the title of the property or in the tax declaration and usually the lien would set in once the tax liability of the tax payer becomes due and demandable but still there’s no payment made by the taxpayer

What properties may be subjected to a lien? Anything and everything may be subjected to a lien. In layman’s term this is more like a simple claim coming from the Commissioner na kani na property pwede ni niya i-appropriate later on for the payment of taxes.Usually this is done through annotation, usually in the certificate of title or in the tax declaration in the assessor’s office.If this is present, was there any payment of the tax already? No payment yet for the tax liabilityIs this superior to judgment on the private property? A lien arising from unclaimed tax.

DISTRAINT The collection of taxes is enforced on

the goods, chattels or effects and other personal property including stocks and other securities, debts, credits and interest and rights to personal property.

properties subject to distraint are PERSONAL PROPERTIES ONLY a summary procedure

Who may effect distraint?a. Commissioner or his duly

authorized representative if the amount involved is more than P1,000,000

b. Revenue District Officer if the amount involved is P1,000,000 or less

Requisites of distraint (D2-FN)1. The taxpayer must be delinquent

(except in constructive distraint) in the payment of tax

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2. There must be a subsequent demand for its payment (assessment)Formal or final assessment

3. The taxpayer fails to pay the tax at the time required; and

4. The period within which to assess or collect the tax has not yet prescribedWhen we talk of prescription, the government is only given 3 years from the date of filing actual or last day of filing, to make the assessment

What are the 2 types of distraint?1. ACTUAL DISTRAINT

Manner of collecting the tax2. CONSTRUCTIVE DISTRAINT

More of preservation of the property; to avoid disposition or encumbering of the property

ACTUAL DISTRAINT There is taking of possession of the

property from the taxpayer by the government

Resorted to when at the time required for payment, a person fails to pay his delinquent tax obligation

Effected by:a. Leaving a list of the distrained property,

orb. By service of a warrant of distraint or

garnishmentWarrant of distraint – applies to goods, chattels, shares of stocksWarrant of garnishment applicable when what is being distrained is Needs actual assessmentProcedure (Section 208)1. The officer serving the warrant of

distraint shall make or cause to be made an account of the goods,

chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be left either with the owner or person from whose possession such goods, chattels, or effects or other personal property were taken, or at the dwelling or place of business of such person and with someone of suitable age and discretion, to which list shall be added a statement of the sum demanded and note of the time and place of sale.

2. Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the corporation, company or association, which issued the said stocks or securities.

3. Debts and credits shall be distrained by leaving with the person owing the debts or having in his possession or under his control such credits, or with his agent, a copy of the warrant of distraint. The warrant of distraint shall be sufficient authority to the person owning the debts or having in his possession or under his control any credits belonging to the taxpayer to pay to the Commissioner the amount of such debts or credits.

Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon the president, manager, treasurer or other responsible officer of the bank. Upon receipt of the

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warrant of garnishment, the bank shall tun over to the Commissioner so much of the bank accounts as may be sufficient to satisfy the claim of the Government.

1.

CONSTRUCTIVE DISTRAINT The owner is merely prohibited from

disposing of this property Issued even when there is no actual tax

delinquencyo Availed of when taxpayer is:

1. Retiring from any business subject to tax;

2. Intenting to – a. Leave the Philippines; orb. Remove his property

therefrom; orc. Hide or conceal his property; or

3. Performs any act tending to obstruct the proceedings for collecting the tax due

The above requisites are also the grounds also of jeopardy assessment

Effected by leaving a list of distrained properties to the ownerThe possession remains with the owner of the propertyNotice is given to the owner, prohibiting him from disposing, encumbering or disposing the property without the approval of the Commissioner. This is issued even when there is no actual tax delinquency because the nature of this is more of preservation to prevent the dissipation of the property before a lien may be made by the bureau.Procedure (Section 206)

1. The constructive distraint of personal property shall be affected by requiring the taxpayer or any person having possession or control of such property to sign a receipt covering the property distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the same ;in any manner whatever, without the express authority of the Commissioner.

2. In case the taxpayer or the person having the possession and control of the property sought to be placed under constructive distraint refuses or fails to sign the receipt herein referred to, the revenue officer effecting the constructive distraint shall proceed to prepare a list of such property and, in the presence of two (2) witnesses, leave a copy thereof in the premises where the property distrained is located, after which the said property shall be deemed to have been placed under constructive distraint.

ACTUAL DISTRAINT CONSTRUCTIVE DISTRAINT

Made only on the property of a delinquent taxpayer (there has been final demand to pay the tax)

Made on the property of any taxpayer whether delinquent or not (not necessary to have full assessment)

There is taking of possession

The taxpayer is merely prohibited from disposing of his property (includes encumbering, pledging, etc)

Effected by leaving a list of distrained

Effected by requiring the taxpayer to sign a

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property or by service of a warrant of distraint or garnishment

receipt of the property or by the revenue officer preparing and leaving a list of such property

An immediate step for collection of taxes

Not necessarily so

LIEN VS. DISTRAINTLIEN DISTRAINT

Directed against the property subject to the tax (covers both

real and personal properties)

Need not be directed against the property

subject to the tax (covers only personal

properties)Regardless of the

owner of the propertyProperty seized must

be owned by the taxpayer

Distrain and levy are not available if the tax liability does not exceed P100

LEVY Refers to the act of seizure of real

property in order to enforce the payment of taxes

The requisites for the exercise of the remedy of levy is the same as in the remedy of distraint

When before, simultaneously or after the distraint of personal property belonging to the taxpayer.covers real propertyrequisites are similar with that of distraintmust be effected within the prescriptive period to assessPWEDE BA MAGDUNGAN SI LEVY UG SI DISTRAINT?

GENERAL RULE: YES. BEFORE, SIMULTANEOUSLY OR AFTER THE DISTRAINT OF PERSONAL PROPERTY

HOWEVER, PROCEDURE WISE, IF YOU HAVE ALREADY DISTRAINED THE PROPERTY, YOU WAIT FOR 30 DAYS BEFORE YOU CAN LEVY

Effected by:1. Writing upon an authentic certificate

showing (DNA) Name of the taxpayer Amounts of the tax and penalty

due Description of the property

upon which levy is made2. Written notice of the levy shall be

mailed to or served upon The Register of Deeds of the

province or city where the property is located, and

The delinquent taxpayer If he is absent from the

Philippines, to his agent or the manager of the business in respect to which the liability arose

If there be none, to the occupant of the property in question

Procedure:1. Internal revenue office shall prepare a

duly authenticated certificate showing the name of taxpayer, amounts of tax and penalty due, enforceable throughout the Philippines

2. Officer shall write upon the certificate a description of the property upon which levy is made

3. Written notice of levy shall be mailed or served upon

The Register of Deeds where the property is located and

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The taxpayer or agent/manager of the business in respect to the tax liability or to the occupant of the property

4. If personal property of taxpayer is not sufficient to satisfy the tax due, levy on real property shall proceed within 30 days after distraint

5. Report on levy1. By levying officer

Submitted within 10 days from receipt of warrant

Submitted to the Commissioner or his representatives

2. By the Revenue Regional Director – consolidated report, as may be required by the Commissioner

PURPOSE OF DISTRAINT OR LEVY IS TO SATISFY THE TAX LIABILITYThe BIR can levy or distrain your properties again and again if you have tax liability. If your properties are actually distrained or levied, there is still no payment of the tax because there is still no inflow. So, the government would sell your properties.If you don’t want this to happen, your remedy would be to exercise your right of preemption. This gives you the right to pay all the basic tax assessed including interest, penalties and surcharges prior to the fixed date of sale of your property and if you are able to settle everything prior to the fixed date of sale, then no sale of property will take place.

SALE OF PROPERTY2 POSSIBLE CASES - In case of distrained property:

A. Notification specifying the time and place of sale and the articles distrained shall be exhibited:

In not less than 2 public places (one place shall be at the office of the Mayor)

In the municipality or city where the distraint is made

B. The time of sale shall not be less than 20 days after notice to the owner or possessor of the property and the publication or posting of such notice

C. Sale of the property at: Public auction to the highest

bidder for cash or The bidder who is

willing to pay the basic tax assessed, interest, cost of sale and surcharges

Through duly licensed commodity or stock exchanges with the approval of the CIR

Applies when the property is shares of stocks

If the highest bid does not meet the tax liability, the remedy of the government is to ascertain if the taxpayer has other property, it can distrain or levy them again until the tax liability is satisfiedIf there’s no highest bidder, or the highest bid is not enough and there is no other property available, the remedy of the government is FORFEITURENAGKASINABOT TA?HEHE

In case of levied property:A. Advertisement of the time and place of

sale of the taxpayer’s property as may be necessary to satisfy the claim within

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20 days after the levy and it shall cover a period of at least 30 days

Posting a notice at the main entrance of the municipal building or city hall and in a public and conspicuous place in the barrio or district in which the real estate lies and

By publication once a week for 3 weeks in a newspaper of general circulation in the municipality or city where the property is located

B. Sale at public auction to the highest bidder

At the main entrance of the municipal building or city hall or

On the premises to be sold, as the officer conducting the proceedings shall determine and as the notice shall specifiy

C. Disposition of proceeds of sale NB: in case the proceeds of the sale exceed the claim (taxes, penalties and interest) and cost of the sale, the excess shall be turned over to the owner of the property – applies only in the case of highest bidder because this falls under seizure. In forfeiture however, it is different because there is no highest bidder or the bid is lacking. There would be transfer of ownership from the title of the taxpayer to the government. No sale yet.

Right of preemption Right of redemption- Right of the

taxpayer to prevent the sale of the property so long as he is able to pay

- Taxpayer is given 1 year from the date of registration of the certificate of sale

prior to the sale

- Applies to both personal and real properties because it stems from actual distraint and levy

- Cannot be availed of in the case of distraint because there is no right of redemption in sale of personal properties; applies only to real properties

Redemption by the taxpayerWithin 1 year from the date of sale, that is, from the date of the registration of the deed of sale by the taxpayer or anyone for him by paying the full amount of:

Taxes Penalties Interests and Costs of sale

Pending redemption of the property sold, the owner shall:

Not be deprived of the possession of the property

Be entitled to the rents and other income thereof

During the 1 year period, the property need not be within the possession of the purchaser, he has to ask for a writ of possession, if within 1 year, there is a bond required, if after a year, there is no bond required

ForfeitureHappens only when there is no longer any property to be additionally distrained or levied

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Effected when:1. There is no bidder for the real property

in the public sale or2. If the amount of the highest bid is

insufficient to pay the taxes, penalties and costs

The Register of Deeds concerned shall:o Upon registration of the declaration for

forfeiture, transfer the title of the property to the government

o Without the necessity of an order from a competent courtIs there a right of redemption here? Yes. 1 year from the date of the issuance of registration of the declaration for forfeiture.

Enforced by:A. In case of personal property

o Seizure ando Sale or destruction of the

propertyIf undesirable personal property (liquors, etc), it would have to be destroyed.

B. In case of real property Judgment of condemnation and Sale in a legal action or

proceeding, civil or criminal as the case may require

Redemption by the taxpayero Same as that of redemption in case of

saleo The 1 year period starts from the date

of registration of the declaration of forfeiture

Compromiseo A contract whereby the parties by

reciprocal concessions, avoid litigation

or put an end to one already commenced

Requisites:1. The taxpayer must have a tax liability2. There must be acceptance (by the

Commissioner or taxpayer as the case may be) of the offer in the settlement of the original claim

3. There must be an offer (by the taxpayer of an amount to be paid by him)Naa gihapon macollect ang government, but the amount is lower than the basic tax liabilityKinsa ang muuna ug compromise? The taxpayer.

Officers authorized to compromise:1. Commissioner or Internal Revenue is

the only official vested with such power and discretion;

2. Subordinate officials may preliminarily enter into compromiseIf the compromise is entered into by the subordinate official, if the compromise is approved, it is not deemed final because it is automatically reviewable by the Commissioner. If it’s a rejection made by the subordinate, it is already deemed final.

Compromise in Civil Caseso Grounds (Civil Cases)

1. When a reasonable doubt as to the validity of the claim against the taxpayer exists

2. When the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax

o Limitation as to amount1. In case of financial incapacity: 10%

of the basic assessed tax

GAG-NOTCH PREFI

So if your basic tax assessed is 1M, the minimum amount that you would have to pay is 100,0002. Other cases: 40% of the basic

assessed taxo The approval of the Evaluation Board

(composed of the CIR and the Deputy Commissioners) is required when:1. The basic tax involved exceeds

P1,000,000 or2. The settlement offered is less than

the MCRComes in very rare circumstances

Compromise in Criminal ViolationsAll criminal actions (those as provided or enumerated in the TAX CODE) may be compromised except:

1. Those already filed in court2. Those involving fraud (RPC)

Extent of discretion:A. Before the complaint is filed with the

prosecutor’s office: The commissioner has full

discretion to compromise except those involving fraud;

B. After the complaint is filed with the prosecutor’s office but before the information is filed with the court

The commissioner can still compromise provided the prosecutor consented;

C. After the information is filed with the court:

The Commissioner is no longer permitted to compromise with or without the consent of the prosecutor

This is because the BIR is not the prosecuting arm of the government

Remedies when taxpayer refuses or fails to abide by a tax compromise:

A. Enforce the compromise Judicial compromise can be

enforced by mere execution Extrajudicial can only be

enforced by court actionB. Regard it as rescinded and insist upon

original demand (Art. 2041, NCC)Everything goes back to status quo, then he can avail of the other remedies

Compromise Penalty An amount which the taxpayer pays to

compromise a tax violation to avoid criminal litigation

Paid in lieu of criminal prosecution A taxpayer cannot be compelled to pay

a compromise penalty If he does not want to pay, the CIR must

institute a criminal action

COMPROMISE COMPROMISE PENALTY

DefinitionAn amount of money paid by the taxpayer to settle his civil liability for tax assessed

An amount of money paid to compromise a tax violation that he has committed, which may be the subject of criminal prosecution

Basis of amount paidBasic tax assessed Gross sales or receipts

during the year of the tax due

Minimum amountThe limitation depends on the legal grounds used by the taxpayer

Depends on the nature of the tax violation and the minimum amount is generally not less than P1,000

GAG-NOTCH PREFI

Abatement – cancellation of tax liability Grounds

1. When the tax assessed or any portion thereof appears to be unjustly or excessively demanded, or

2. When the administration and collection costs involved do not justify the collection of the amount due

GENERAL RULE: the power to compromise and abate cannot be delegated by the CIR

EXCEPT:1. Assessments issued by regional

offices involving basic taxes of P500,000 or less, and

2. Minor criminal violationsMore of a remedy on the part of the taxpayerGovernment collects NOTHING

PENALTIES AND FINES

Refer to:a. Surchargesb. Deficiency Interestc. Delinquency Interestd. Compromise penalty

I. Surcharges:Not really a penalty as used in criminal law but a civil administrative sanction designed primarily to:

Protect the State revenue, and Reimburse the government for the

expenses in investigating and the loss resulting from the taxpayer’s fraud

Atty. A: Surcharges are generally 25% but if involves fraud it goes up to 50%

II. Interest Deficiency Interest

20% per annum from the date prescribed for its payment until the full payment thereofAtty. A: This is an amount added if the taxpayer failed to pay the correct amount of tax that he should pay

Delinquency InterestInterest of 20% or the Manila Reference rate, whichever is higher, required to pay in case of failure to pay:

The amount of the tax due on any return required to be filed

Amount of the tax due for which return is required

The deficiency tax or any surcharge or interest thereon, on the date appearing in the notice and demand of the CIR

Atty. A: Delinquency meaning it is paid beyond the period prescribed by law. It is possible that you can be liable for surcharges, deficiency interest and delinquency interest.

III. Compromise Penalty

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Similarities of compromise and compromise penalty:

They both imply mutual agreement. A compromise penalty cannot be

imposed in the absence of a showing that the taxpayer consented thereto.

The CIR has no power to impose and collect the compromise penalties in the absence of a compromise agreement validly entered into between the taxpayer and the CIR.

Atty. A: The purpose of a compromise penalty is to avoid possible criminal litigation that may be undertaken by the BIR against you, so you pay instead the compromise penalty

IV. SUSPENSION OF BUSINESS OPERATIONS Failed to register under the VAT

system(if you already mandatorily required)

Failure to file VAT return Failure to issue VAT receipts

Atty. A: As a rule the business operation may be suspended in no less than 5 days as the case may be

-If despite all the administrative remedies the taxpayer cannot pay, probably no more money or properties, then the government will avail of the judicial remedies.

JUDICIAL REMEDIES

I. CIVIL ACTIONS

Actions instituted by the government to collect internal revenue taxes. Includes filing by the government within the probate court claims against the deceased taxpayer.

Atty. A: It is not at all times that the Govt. will start the civil action, it is allowed that the taxpayer can first file the civil action and the government will file an answer.

Enforced by: Filing a civil case for the collection of

sum of money with the proper regular court (i.e. MTC or RTC) or

Filing an answer to the petition for review filed by the taxpayer with the CTA.

Civil actions filed with ordinary courtsResorted to only when tax becomes:

Delinquent Collectible

Atty. A: You can consider a taxpayer delinquent if there is already a final assessment on the amount of tax payable but still the tax payer failed to pay on time.

Collectability arises when: Self-assessed tax shown in the return

was not paid within the date prescribed by law.

Atty. A: GR is pay as you file, so if you file but you do not pay then the tax there is now collectible.

Final assessment is not protested administratively within 30 days from date of receipt.

Atty. A: If no protest it becomes final and executory, no more question, you cannot go anymore in the CTA. The tax is now collectible.

Non-compliance with the condition laid in the approval of protest.

Failure to file a timely appeal to the CTA on the final decision of the CIR or his authorized representative on the disputed assessment.

GAG-NOTCH PREFI

Atty. A: Appeal to the CTA must be made within the period of 30 days from the date of reciept of final decision of the CIR.

Defenses precluded by final and executory assessments:

Invalidity or illegality of the assessment and

Prescription of the government’s right to assess.

Atty. A: These defenses are already precluded if you fail to file a protest within the prescribed period even if your claim is valid.

Civil actions filed with the CTAAtty. A: These are in the form of answers or response by the BIR to the petition for review filed by the taxpayer to the CTA.The fact that no civil action was filed before the ordinary courts to collect the tax liability is no ground for claiming that the right to collect had already prescribed.The answer filed by the government in the CTA is tantamount to the filing of a civil action for collection in the regular court and has the effect of tolling the prescriptive period. (Hermanos, Inc. vs CIR, 29 SCRA 552)Atty. A. Counterclaims are included in the Answer filed by the govt. in the CTA.

II. CRIMINAL ACTIONS

Common crimes punishable under the Tax Code:

Attempt to evade or defeat a tax Failure to file return, supply correct and

accurate information, pay tax, withhold and remit tax and refund excess taxes withheld on compensation.

Any person required under the Tax Code To pay any tax Make a return Keep any record

Supply correct and accurate information

Withhold or remit taxes withheld Refund excess taxes withheld on

compensation Who willfully violates these duties at

the time or times required by law shall be punished upon conviction in addition to other penalties.

Atty. A: Material understatement (income, etc.) or overstatement (expenses, etc.) is considered a prima facie evidence of your intent to evade payment of tax. Considered material if there is a discrepancy of 30% or more.

Is the approval of the CIR required in filing criminal or civil cases?YES. However, the approval of the Commissioner required for the judicial enforcement of tax liability is not jurisdictional. Lack of such approval merely affects the cause of action or capacity to sue.Atty. A: Lack of signature or approval of the commissioner does not necessarily mean that it may automatically be dismissed by the courts for that reason alone. Lack of approval may be cured by an amendment.

Is assessment required before a criminal action may be charged?NO, provided there is a prima facie showing of a willful attempt to avoid taxes.Atty. A: GR: there must be full assessment before a taxpayer can be held liable Exception: Jeopardy assessment and in Criminal action provided there is a prima facie showing of a willful attempt to avoid taxes.Assessment is only necessary in a civil action for collection.

Atty. A (Naay nalimitan si sir ni balik siya sa constructive distraint)-in constructive distraint it is usually effected by leaving a list of the distraint properties duly signed or received by the owner. If the owner

GAG-NOTCH PREFI

does not sign then it will be left there in the presence of two witnesses. The owner of the properties under constructive distraint cannot dispose or mortgage the properties without the approval of the commissioner. If the taxpayer still disposed the said property he will be liable to pay of no less than twice the value of the property and or imprisonment.

REMEDIES OF TAXPAYER

ADMINISTRATIVEa. Before Payment

i. (payment) with protestii. Entering into a compromise

b. After payment – filing of a claim for refund or tax credit within 2 years from date of payment regardless of supervening cause.

JUDICIALI. Civil action

Appeal to CTA – within 30 days from receipt of decision on the protest or from the lapse of 180 days due to inaction of the Commissioner;

Action to contest forfeiture of chattel and

Action for damages

II. Criminal Action Filing of criminal complaint

against erring BIR official and employee and

Injunction – when the CTA in its opinion, considers that the collection by the BIR may jeopardize taxpayer.

Atty. A: GR: there can be no injunction insofar as collection of taxes are concernedException: CTA an issue injunction if in its opinion, considers that the collection by the BIR may jeopardize taxpayer

Protest of AssessmentFile a request for reinvestigation or reconsideration within 30 days from receipt of the assessment

I. Request for reinvestigationA plea for re-evaluation of an assessment on the basis of newly-discovered or additional evidence, that a taxpayer intends to present in the reinvestigation. It involves a question of fact or law or both.Atty. A: If no protest, the assessment becomes final and executory. It is not a mere response, you must include factual and legal basis in your protest.

II. Request for reconsiderationA plea for re-evaluation of the assessment on the basis of existing records without need of additional evidence. Involves a question of fact or law or both (RR No. 12-85)

Within 60 days from filing of protest, all relevant supporting documents should have been submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228, NIRC)

Atty. A: Counting of the 180 day period for the CIR to make a decision will depend on the nature of the protest. If the protest is reinvestigation then the 180 day period will be counted on from the date of submission of the additional documents. If reconsideration then from the 180 day period will be counted from the date of protest.

Appeal of Protest to the CTA (Sec. 228 NIRC)Grounds:

If the protest is denied in whole or in part or

Is not acted upon within 180 days from submission of documents/filing of protest (reconsideration)

GAG-NOTCH PREFI

Appellate Court: Court of Tax AppealsPeriod to appeal: Within 30 days from receipt of the decision denying the protest or 30 days from the lapse of the 180 day period.Effect of failure to appeal: the decision shall be final, executor and demandable.

Atty. A: If there is MR in the CIR, only the remaining number of days available for you to appeal in the CTA.

Taxpayer’s SuitRequisites:

the tax money is being extracted and spent in violation of specific Constitutional protections against abuses of legislative power

that public money is being deflected to any improper purpose

That the petitioner seeks to restrain the respondents from wasting public funds through enforcement of invalid or unconstitutional law.Atty. A: The money subject to

taxpayer's suit must be public funds. It must not be from special contributions or donations.

However, the Supreme Court has discretion whether or not to entertain a taxpayer’s suit and could brush aside the lack of locus standi where the issues are of transcendental importance in keeping with the court’s duty to determine that public officers have not abused the discretion given to them.

TAX REFUND OR TAX CREDITGrounds

Tax is collected erroneously or illegally Penalty is collected without authority Sum collected is excessive

Requisites

Claim must be in writing It must be filed with the Commissioner

within two years (2) after the payment of the tax or penalty; and

Show proof of payment

Starting date of counting the 2-year period:GENERAL RULE: from the date of payment, regardless of any supervening cause that may arise after payment.

EXCEPTIONS: Corporate Income tax Where a corporation paid quarterly

income taxes in any of the first 3 quarters during the taxable year but incurs a net loss during the taxable year, the 2-year period for the filing of the claim for refund or credit shall be counted from the date of the filing of the annual corporate ITR.

Income Tax paid in installments, taxes are deemed paid, for purposes of determining the commencement of the 2-year period for filing a written claim for the refund or credit therefrom on the date the last installment was paid.

PRESCRIPTIONAtty. A: Prescriptive period for the govt. to assess and collect tax.

Purpose:Prescriptive periods are designed to secure the taxpayers against unreasonable investigation after the lapse of the period prescribed. They are also beneficial to the government because tax officers will be obliged to act promptly.

General Rules: When the tax law itself is silent on

prescription, tax is imprescriptible. When no return is required, tax is

imprescriptible

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Defense of prescription is waivable and Provisions on prescriptions, being

remedial in nature should be liberally interpreted to carry out its intent.Atty. A: There has to be an express

agreement between the govt. and the taxpayer to waive prescription

Prescriptive period for the ASSESSMENT of taxes:GENERAL RULE:

Three years after the date the return is due or filed, whichever is later.

EXCEPTIONS: Failure to file a return: ten (10) years

from the date of the discovery of the omission to file the return.

False or fraudulent return with intent to evade the tax: ten (10) years from the date of the discovery of the falsity or fraud

Agreement in writing to the extension (not reduction) of the period to assess between the Commissioner and the taxpayer before the expiration of the three-year period.Atty. A: The extension must be done

before the expiration of the 3 year period. Waiver or renunciation of the original

three (3) year limitation, signed by the taxpayer.Atty. A: The waiver must be duly signed

by the CIR or his authorized representative,Indicate the date when it was signed (the date indicates the cutoff of the prescriptive period), contain the signature of the taxpayer and express agreement that the taxpayer renounces his right of prescription.

Prescriptive period for the COLLECTION of taxes:

NIRC does not provide for prescriptive period.

2 views- Three (3) years – from assessment or

within period for collection agreed upon in writing before expiration of the five-year period (CIR v. SCB, GR. 192173, July 29, 2015)

Ten (10) years – without assessment in case of false or fraudulent return with intent to evade or failure to file return.

Atty. A: prescriptive period to collect is 5 years under the old tax code but it was deleted.

Grounds for suspension of the running of prescriptive period for assessment and collection:

When the Commissioner is prohibited from making the assessment or beginning the distraint or levy or proceeding in court, and for 60 days thereafterAtty. A: This usually happens if there is

an injunction against the commissioner so it suspends the running of the prescriptive period

When the taxpayer requests for a reconsideration which is granted by the CommissionerAtty. A: take note that if the taxpayer

request for reconsideration or reinvestigation it is not automatic that the prescriptive period is suspended, it is only suspended if the reconsideration or reinvestigation has been granted by the CIR

When the taxpayer cannot be located in the address given by him in the return, unless he informs the Commissioner of any change in his address

When the warrant of distraint or levy is duly served, and no property is located and

GAG-NOTCH PREFI

When the taxpayer is out of the Philippines.

Amended returnAllowed when:

The amendment is made within 3 years from the date of filing the original return and

No notice of audit or investigation of such return has, in the meantime, been actually served upon the taxpayer.

Effect on prescription:The prescriptive period starts to run from the filing of the original return, if the same is sufficiently complete to enable the CIR to intelligently determine the proper amount of tax to be assessed.

However, where the amended return is substantially different from the original, the right to assess is counted from the filing of the amended return.Atty. A: it is considered substantial if it changes the tax liability of the taxpayer

Prescriptive period for the filing of CRIMINAL ACTION: Five (5) years from the day of the commission of the violation, and if not known, from the discovery thereof and the institution of judicial proceedings for its investigation and punishment.Atty. A: this refers to the criminal violations expressly provided under the tax code.Grounds for interruption of the period:

When proceedings are instituted against the guilty persons. (It begins to run again if the proceedings are dismissed for reasons not constituting jeopardy)

Offender is absent from the Philippines.

Retroactivity of BIR RulingsGeneral Rule: ProspectiveExceptions:

Where the taxpayer deliberately misstates or omits material facts from his return or any document required of him by the BIR.

Where the facts subsequently gathered by the BIR are materially different from the facts on which the ruling is based and

Where the taxpayer acted in bad faith.