preliminarytips taxation

8/12/2019 Preliminarytips TAXATION

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San Beda College of LawCentralized Bar Operations 2001

PRELIMINAR NO!ES!a"ation Law

1# $%at are &ad de&ts and w%at are t%e re'(isites for a )alid ded(*tion of &adde&ts fro+ gross in*o+e,

Bad debts refer to those debts resulting from the worthlessness or uncollectibility,in whole or in part, of amounts due the taxpayer by others, arising from money lent orfrom uncollectible amounts of income from goods sold or services rendered.

The requisites for a valid deduction of bad debts from gross income are:

(a.) There must be an existing, valid and legally demandable indebtedness dueto the taxpayer

(b.) The same must be connected with the taxpayer!s trade, business or practiceof profession

(c.) The same must not be sustained in a transaction entered into betweenrelated parties enumerated under "ec. #$(B) of the Tax %ode of &''

(d.) The same must be actually charged off the boos of accounts of the taxpayeras of the end of the taxable year and

(e.) The same must be actually ascertained to be worthless and uncollectible asof the end of the taxable year.

2# If t%e ad)an*es &etween two *orporations were +ade p(rs(ant to a partners%ipagree+ent rat%er t%an a *ontra*t of loan- *o(ld t%e. &e later on *lai+ed as &adde&ts,

*o. + bona fide debt is one which arises from a debtorcreditor relationshipbased upon a valid and enforceable obligation to pay a fixed or determinable sum ofmoney. (Philex Mining Corporation vs. Commissioner of Internal Revenue, CTACase No. 52, August 2!, !""#$.

/# $%at are t%e &asi* pro*ed(ral steps in ta" assess+ents as set fort% (nder BIRRe)en(e Reg(lation No# 12,

I# (e pro*ess re'(ire+ent 3 Prior Noti*e R(le

&. Noti*e of Infor+al Conferen*eto the taxpayer in case he is not amenable tothe internal officer!s findings that he is liable for deficiency tax. -e has & days torespond, otherwise he will be declared in default.

/. Preli+inar. Assess+ent Noti*eto the taxpayer if there exists sufficient basis toassess the taxpayer for any deficiency tax. -e has & days to respond, otherwisehe will be declared in default.

II# E"*eptions to t%e prior noti*e r(le&. 0hen the finding for any deficiency tax is the result of mathematical error./. 0hen it is determined that there is a discrepancy between the tax withheld and the

amount remitted by withholding agent.#. 0hen it is determined that a claim for refund1credit has been applied to tax liabilities.2. 0hen excise tax due on excisable articles has not been paid.. 0hen an article locally purchased or imported by an exempt person has been sold,

traded, or transferred to nonexempt persons.

III# 4or+al Letter of e+and and Assess+ent Noti*e


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SAN BEA COLLE5E O4 LA$CEN!RALI6E BAR OPERA!IONS 2001

PRELIMINAR NO!ES IN !A7A!IONS!RIC!L 4OR BEAN BARRIS!ERS

3nauthori4ed reproduction of this copy is strictly prohibited555

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To be issued by the %67 or his representative in accordance with form

prescribed by law (state facts, the law, regulations, or 8urisprudence, otherwise it is void).This is to be sent to the taxpayer only by registered mail or by personal delivery.

I8# isp(ted Assess+ent&. The taxpayer may protest administratively against the assessment within #9 days

from date of receipt thereof. therwise, assessment becomes final, executory, anddemandable.

/. 6f there are deficiency tax(es) attributable to undisputed issues, the taxpayer mustfirst pay them before any action can be had for his protest. ;rescription for collectionof taxes on disputed assessment is suspended.

#. The taxpayer must submit supporting documents within $9 days from the date offiling the protest, otherwise the assessment becomes executory, final and

demandable.2. The protest must also state the facts, laws, regulations, or 8urisprudence on which it

is based, otherwise it is void.

8# If protest is denied&. ecision of the %67 or his duly authori4ed representative (a) must state the facts,law, rules and regulations, or 8urisprudence on which such decision is based,otherwise it is void, and (b) must indicate that it is his final decision.

9# $%at is Mini+(+ Corporate In*o+e !a" :MCI!;, $%at are its i+portantfeat(res,

+ ?%6T of /@ of the Aross 6ncome (A6) as of the end of the taxable year isimposed upon any domestic corporation and resident foreign corporation beginning

on the 2th

taxable year immediately following the year in which such corporationcommence its business.

6mportant eaturesa. 6mposed only where /@ of the A6 is more than the normal income tax rates.b.


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+ corporation that has been reopened after a long period of inactivity while underreceivership proceedings may qualify for suspension of the ?%6T. The corporationshall be sub8ect to ?%6T beginning on the fourth taxable year from the year of

commencement of business operations which shall be taen as the year thecompany reopened.

=# E"plain t%e *on*ept of NOLCO#

*et operating loss >)(#) of the &'' Tax %ode. Ciewise, the excess ?%6T of the absorbedcorporations shall be carried forward and credited against the normal income tax dueof the surviving corporation for the three immediately succeeding taxable yearspursuant to "ection /(iplomatic 7elations,exemption of diplomatic agents from all dues and taxes, personal or real, national,regional or municipal does not include exemption from tax on private income havingits source in the receiving "tate. +ccordingly, its diplomatic personnel are sub8ect towithholding tax on interest from their accounts maintained with local bans.

'. Is t%e profit fro+ t%e sale of apart+ents w%i*% %a)e &een leased to tenants forse)eral .ears s(&e*t to *apital gains ta",

*o. %apital assets, as defined in "ection #' (+)(&) of the 7evenue %ode includeall the properties of a taxpayer whether or not connected with his trade of business,except

&) stoc in trade or other property included in the taxpayer!s inventory/) property primarily for sale to customers in the ordinary course of his trade or

business

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#) property used in the trade or business of the taxpayer and sub8ect todepreciation allowance and

2) real property used in trade or business.

6f the taxpayer sells or exchanges any of the properties above mentioned, anygain of loss relative thereto is an ordinary gain or an ordinary loss. The sale ofproperties which form part of the rental business of the taxpayer cannot becharacteri4ed as other than sales of noncapital assets (Tuason , *r. vs. +inga), 5#CRA !'$.The gains derived therefrom are sub8ect to the regular income tax.

10# Is t%e sale of land w%i*% is to &e de)oted stri*tl. for religio(s p(rposes &. t%eC%(r*% e"e+pt fro+ t%e *apital gains ta",

*o, the transaction is not exempt from the capital gains tax. 6t is due from theseller of the land. 0hile it is true that "ec. /=(#), +rticle H6 of the %onstitutionrecogni4es tax exemptions of land actually, directly and exclusively used for religiouspurposes, this tax exemption refers only to real property and not to capital gains tax.

11# nder t%e C!RP- is t%e *on*ept of t%e P1 +illion Standard ed(*tion fro+ t%e5ross Estate t%e sa+e wit% t%e 10D Optional Standard ed(*tion fro+ t%e5ross In*o+e,

*. 6t is in addition to all other deductions from the gross estate. 6t must not beconfused with the &9@ standard deduction from Aross 6ncome which is optional on

the part of the taxpayer in lieu of the itemi4ed deductions allowed under "ec. #2.

12# Is t%e real propert. fore*losed and sold in a p(&li* a(*tion s(&e*t to *apitalgains ta", If t%e +ortgagee a*'(ires t%e propert. and wit%in t%e rede+ptionperiod s(&se'(entl. sells %is +ortgage rig%t and interest to anot%er- is %eli@ewise s(&e*t to *apital gains ta",

Des. %apital gains tax is payable by the debtormortgagor. The tax coversinvoluntary sale lie that in execution and expropriation. (*B: 6n expropriation sale,$@ inal Tax or *ormal Tax 7ate, at the option of the taxpayer).

*o. The sale by the mortgagee of his mortgage right and interest over theproperty in favor of another is not sub8ect to capital gains tax. The vendee of themortgage right and interest and later on as owner due to the consolidation of his titleto the property is also not sub8ect to the capital gains tax.

1/# arr. (ing'(ing was prose*(ted for willf(ll. atte+pting to e)ade t%e in*o+eta" i+posed &. t%e BIR# arr. (ing'(ing arg(ed t%at %e *o(ld not &eprose*(ted &e*a(se t%ere was no assess+ent .et wit% respe*t to %is ta"o&ligations# e e)en *ited t%e re*ent r(ling of t%e S(pre+e Co(rt in t%e *ase ofCIR )s# CA and L(*io !an :2 SCRA 200; w%ere it was %eld t%at a ta"pa.er*o(ld not &e %eld *ri+inall. lia&le wit%o(t t%e pre)io(s iss(an*e of

assess+ent# e*ide#

-arry Iuingquing!s contention is without merit. "ec. /// of the *67% providesthat a proceeding in court for the collection of tax maybe filed without assessment inthe case of a false or fraudulent return with intent to evade tax or of failure to file areturn. The "upreme %ourt upheld this in its ruling in the case of 3ngab vs. %usi.The Cucio Tan case has not reversed the 3ngab case because the latter wasdecided by the "upreme %ourt sitting en banc while the former was decided only by

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the "upreme %ourt!s &stdivision. -owever, the two rulings can be reconciled. +nassessment was required in the Cucio Tan case because the said case is based onthe alleged misrepresentation onmanufacturer!s wholesale price. "uch amount waspreapproved. The 3ngab case on the other hand involved sale proceeds which

were never included as part of the gross income stated in the return, and thereforeno assessment is necessary in order to mae him liable.

19# Is ter+inal lea)e pa. re*ei)ed &. go)ern+ent e+plo.ee s(&e*t to ta" in*o+e,

*o, because terminal leave pay is retirement benefits and not a part of the grosssalary or income. This is so because the government encourages unused leaves tobe accumulated. The government recogni4ed that for most public servants,retirement pay is always less than generous. Terminal leave payments are given not

only at the same time but for the same policy considerations governing benefits (%67vs, %+, / "%7+ /9#).

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1# A par*el of land owned &. Songla@ was e"propriated &. t%e National5o)ern+ent )al(ed at P


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2/# $%at are t%e Rates of S(r*%arges in *ase of ta" delin'(en*.,

&. 9@ of tax or deficiency tax L in case of false or fraudulent returns./. 9@ of tax L in case of willful neglect to file return.

#. /@ of amount due L in case there is neglect to file return or neglect in paymentwhich is not willful

2. /@ of amount due L in case where 7eturn is not filed with officer designated bylaw.

29# $%en is interest i+posed,

rom the date prescribed for payment until amount is fully paid L at the rate of/9@ per annum or such higher rate as may be prescribed by 7ules and 7egulations.

2eficiency interest L on any deficiency on the tax due

/. >elinquency interest L in case of failure to pay: the amount of tax due in the return

the amount of tax due for which no return is required

a deficiency tax, or any surcharge or interest thereon #. 6nterest on # $%at are 4Cs, is*(ss possi&le ad)antages and disad)antages in t%ei+position of >#


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property once he sends notice to the owner or lawful possessor of real property of itsassessed value.

2# Is t%e infor+er?s reward in t%e is*o)er. of 8iolation of NIRC and is*o)er.and Seiz(re of S+(ggled 5oods s(&e*t to ta", $%at rate,

es# 6t is sub8ect to &9@ inal 0ithholding Tax (7ev. 7eg. /'=)

/0#Can an i+porter go dire*tl. to t%e Co(rt of !a" Appeals (pon t%e re*eipt of t%ede*ision of Colle*tor w%i*% was &ased on t%e opinion earlier gi)en &. t%eCo++issioner of C(sto+s3 Se*# of 4inan*e, $%at are t%e steps w%i*% %e+(st follow,

a.) *o. There is no exhaustion of administrative remedies. The %omm. of %ustomsand the "ec. f inance must both be given the opportunity to correct their mistaes.

b.) ;ay under protest, then follow this procedure:&. +dverse ruling of the %ollector of %ustoms may be protested by :

a. presenting to the %ollector at the time when payment of the amountclaimed to be due the gov!t is made or within & days thereafter

b. a written protest setting forth of his ob8ection to the ruling together withthe reasons therefor. ("ec. /#9=, T%%)

/. *o protest shall be considered unless payment of the amount due has firstbeen made and the corresponding docet fees paid.

#. 3pon termination of the hearing, the %ollector shall render a decision within

#9 daysa. 6f the protest is sustained, the entry is liquidated. ("ec. /#&/, T%%)b. 6f the protest is denied, the aggrieved has & days after notification in

writing, to appeal to the %ommissioner of %ustoms. ("ec. /#, T%%)2. The person aggrieved by the decision of the %ommissioner has #9 days from

receipt of decision to appeal to the %ourt of Tax +ppeals. ("ec. /#&, /29/,T%%)

/1# oes t%e Se*retar. of 4inan*e %a)e t%e a(t%orit. to order reassess+ent ofd(ties,

+s provided under "ec. /#& of T%%;, decision of the %ollector of %ustoms onthe assessment of duties which is adverse to the government shall be automaticallyelevated to and reviewed by the %ommissioner. 6f the decision is affirmed by the%ommissioner, it shall automatically elevated for review by the "ec. of inance.

-owever, pursuant to "ec. &29 of the T%%;, appraisal, classification or returnapproved by the %ollector may not be altered or modified in any manner except:

0ithin one year after payment of the duties, upon statement of error as approvedby the %ollector

0ithin & days after payment, upon request by the %ollector for reappraisal orreclassification if the appraisal or classification is deemed to be low and

3pon request for reappraisal or reclassification in the form of a timely protest.

/2# $%en does an i+portation end,

. or articles sub8ect to customs duties, importation ends when the regular permitfor withdrawal shall have been issued. 6mportation is not yet ended if falsified

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documents were used to effect the release of the articles.. %onsequently, theprescriptive period is not tolled.

//# 5i)e so+e )alid reasons for e"tension of estate ta" pa.+ent, $%at are t%ere'(ire+ents,

0here the ;hilippine estate consists of real properties which cannot be liquidatedand ban accounts which cannot be withdrawn, deadline for the payment of theestate tax may be extended up to two years. -owever, the executor, administratoror beneficiary is required to furnish the %ommissioner a bond at least amounting tothe tax sue and the estate shall be liable for the corresponding interest accrued up tothe time of payment of the tax.

/9# Are prizes fro+ a go)ern+entsponsored raffle e"e+pted fro+ ta",

+ final tax at the rate of /9@ is imposed on, among others, pri4es and winningsderived by individuals from sources within the ;hilippines. The tax shall be withheldby the organi4er as withholding agent. The fact that the raffle is governmentsponsored does not constitute a valid ground for the exemption of winners.%orporate winners, however, are not sub8ect to the final withholding tax but theirwinnings are sub8ect to the corporate income tax.

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preliminarytips taxation

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