A4 PRINCIPLES OF TAXATION and TAX

REMEDIES REVIEWER

1.1 NATURE, SCOPE, CLASSIFICATIONS AND ESSENTIAL CHARACTERISTICS

TAXATION: - a state power

- a legislative process (process of levying taxes)

- a mode of government cost distribution to allocate cost/burden

Theory of Taxation: government’s necessity for funding

Basis of Taxation: mutuality of support between people and government

*Receipt of benefits is conclusively presumed

- direct receipt of actual availment of government services is not a precondition to

taxation

Lifeblood Doctrine - taxes are essential and indispensable

- Without taxes, government would be paralyzed for lack of motive power

to activate

- prompt and certain availability are imperious need

Nature of Taxes (Valencia)

1. Taxes are obligations created by law.

- Arise from law and could only be imposed by the government
- It is one’s civil liability to pay taxes that give rise to criminal liability

2. Taxes are generally personal to the taxpayer

- Payment should be borne specifically by person with tax liability

Nature of Taxation Power (Valencia) (CLIPTES)

1. Inherent power of sovereignty

2. Essentially a legislative function
3. For public purposes
4. Territorial in operation
5. Tax exemption of government
6. Strongest among inherent powers
7. Subject to Constitutional and inherent limitations
Scope of Taxation Power (CPUS)

- COMPREHENSIVE (wide extent of application)

- PLENARY (complete)
- UNLIMITED in its range (in absence of limitations – constitutional and
inherent)
- SUPREME (with highest degree)

Elements of a Valid Tax

1. Tax must be levied by the taxing power having jurisdiction over the object of taxation.
2. Tax must not violate constitutional and inherent limitations.
3. Tax must be uniform and equitable.
4. Tax must be for the public purpose.
5. Tax must be proportional in character.
6. Tax is generally payable in money.

Classification of Taxes

A. As to purpose
1. Fiscal or revenue tax - a tax imposed for general purpose
2. Regulatory - a tax imposed to regulate business, conduct, acts or transactions
3. Sumptuary – a tax levied to achieve some social or economic objectives
B. As to subject matter
1. Personal/poll/capitation – a tax on persons who are residents or particular
territory
2. Property tax – a tax on properties, real or personal
3. Excise or Privilege tax – a tax imposed upon the performance of an enjoyment of
a privilege
C. As to incidence
1. Direct Tax – When both the impact and incidence of taxation rest upon the same
taxpayer. The statutory taxpayer is the economic taxpayer.
2. Indirect tax – When the tax is paid by any person other than the one who is
intended to pay the same.
*Statutory taxpayer is the person named by law to pay the tax.
*Economic Taxpayer is the one who actually pays the tax.
D. As to amount
1. Specific Tax – a tax of a fixed amount imposed on a per unit basis such as per kilo,
liter or meter
2. Ad valorem – a tax of a fixed proportion imposed upon the value of the tax object
E. As to rate
1. Proportional Tac – This is a flat or fixed rate tax. The use of proportional tax
emphasizes equality as it subjects all taxpayers with the same rate without regard
to their ability to pay.
2. Progressive or graduated Tax – This is a tax which imposes increasing rates as
the tax base increase.
3. Regressive Tax – This tax imposes decreasing tax rates as the tax base increase.
It is regarded as anti-poor.
4. Mixed Tax – This tax manifest tax rates which is a combination of any of the above
types of tax.
 F. As to imposing authority
1. National Tax – tax imposed by the national government
a. Income Tax – tax n annual income, gains or profits
b. Estate Tax – tax on gratuitous transfer of properties by a decedent upon death
c. Donor’s Tax – tax on gratuitous transfer of properties by a living donor
d. Value Added Tax – consumption tax collected by VAT business taxpayers
e. Other percentage tax – consumption tax collected by a non-VAT business
taxpayers
f. Excise Tax – tax on sin products and non-essential commodities such as
alcohol, cigarettes and metallic minerals
g. Documentary stamp Tax – a tax on documents, instruments, loan agreements
and papers evidencing the acceptance, assignment, sale or transfer of an
obligation, right, property incident thereto
2. Local tax – tax imposed by the municipal or local government
a. Real Property Tax
b. Professional Tax
c. Business Taxes, Fees, and Charges
d. Community Tax
e. Tax on banks and other financial institutions

Essential Characteristics of Taxes

1. Enforced Contribution - Obligation shall not be dependent upon the will of the taxpayer.
2. Imposed by the Legislative Body – The Congress (Legislative) is tasked to make tax
laws.
3. Proportionate in Character – “ability to pay” principle is the rule used in collecting taxes.
Those who earn more contribute to the government’s coffer.
4. Payable in the Form of Money – Money is the preferred payment of taxes. Public auction
will be used in case properties are used to satisfy tax liability.
5. Purpose of Raising Revenue – Taxes are the primary source of the government funds
that finance their expenditures.
6. Used for Public Purpose – Taxes are money taken from the public; however, it returns to
them in the form of public benefits.
7. Enforced on some Persons, Properties or Rights – Objects subjectable to taxation can
either be tangible or intangible.
8. Commonly required to be paid at regular intervals – Dates for paying taxes are fixed by
the law to comply with the principle of administrative feasibility
9. Imposed by the sovereign state within its jurisdiction – Enforcement of tax is subjected to
territorial jurisdiction and international comity.

1.2 PRINCIPLES OF A SOUND TAX SYSTEM

1. Fiscal Adequacy
 requires that the sources of government funds must be sufficient to cover
government costs
 Increase in taxes = Increase in government spending
2. Theoretical Justice
 Suggests that taxation should consider the taxpayer’s ability to pay
 Suggests that the exercise of taxation should NOT be oppressive, unjust, or
confiscatory.
3. Administrative Feasibility
 Suggests that tax laws should be capable of efficient and effective
administration to encourage compliance.
Applications of the principle of administrative feasibility:
i. E-filing and e-payment of taxes
ii. Substituted filing system for employees
iii. Final withholding tax on non-resident aliens or corporations
iv. Accreditation of authorized agent banks in the filing and payment of taxes

1.3 Limitations on The Power of Taxation

The power of taxation is however, subject to constitutional and inherent limitations.

Constitutional limitations are those provided for in the constitution or implied from its provisions,
while inherent limitations are restrictions to the power to tax attached to its nature.

The following are the inherent limitations.

1. Purpose. Taxes may be levied only for public purpose
2. Territoriality. The State may tax persons and properties under its jurisdiction
3. International Comity. The property of a foreign State may not be taxed by another.
4. Exemption. Government agencies performing governmental functions are exempt
from taxation
5. Non-delegation. The power to tax being legislative in nature may not be delegated.
(subject to exceptions)

The following are the Constitutional limitations.

1. Due process of law
2. Equal protection of laws
3. Rule of uniformity and equity
4. Non-impairment of contracts
5. Origination and appropriation, revenue and tariff bills
6. President’s power to veto separate items in revenue or tariff bills
7. Congress granting tax exemptions
8. Exemption from taxation of properties actually, directly, and exclusively used for
religious, charitable or educational purposes
9. No public money shall be appropriated for religious purpose
10. The power of judicial review
11. No imprisonment for nonpayment of poll tax
12. Tax collection shall generally be treated as general funds of the government

1.4 Tax Evasion vs. Tax Avoidance

 Tax Evasion – illegal or fraudulent means to defeat of lessen payment of tax.
Also called as tax dodging.
 Tax Avoidance – legal or permissible means to reduce tax liability. Also
called as tax minimization

Note:
 In tax evasion, you knowingly fail to report taxable figures. An example of it would be
substantially understating your taxes by stating a tax amount on your return which is less
than the amount owed for the income you reported. In tax avoidance, businesses takes
all legitimate deductions and by sheltering income from taxes by setting up employee
retirement plans and other means, all legal and under the Internal Revenue Code or
state tax codes. An example of it would be taking legitimate tax deductions to minimize
business expenses and thus lower your business tax bill.

3 Factors to be considered in determining if a scheme is designed to evade taxes

1. The end to be achieved (which is payment of less taxes than that known by the taxpayer
to be legally due or non-payment of a tax when it is shown that a tax is due);
2. An evil or deliberate state of mind; and
3. A course of action which is unlawful

1.5 Situs/Place of Taxation

Territorial

-limited only to persons, property or business within its jurisdiction

Exceptions of territorial rule:

1. Where tax laws operate outside territorial jurisdiction

2. Where tax laws do not operate within the territorial jurisdiction of state
Situs of Taxation

-is the place or authority that has the right to impose and collect taxes

Basis of the situs of taxation

1. Symbiotic relationship
2. Jurisdiction, state or political unit that gives protection has the right to demand support
Situs of Income Tax

 From sources within the Philippines-all kinds of taxpayers are subject to income tax
 From sources without the Philippines- only resident citizens and domestic corporation
 Income partly within and partly without Philippines- processes of formulas of general
apportionment prescribed by Secretary of Finance

Situs of Property Tax

1. Taxes on Real Property- where the property is located

2. Taxes on Personal Property: Tangible: where the property is physically located
Intangible: General rule: the domicile of the owner exceptions:

1. The intangible is acquired a business situs in another jurisdiction

2. The law provides for the situs of the subject of the tax
Situs of Excise Tax

-where the transaction was performed

Situs of Donor’s and Estate Tax

Citizens (whether resident or non-resident)- tax on properties wherever situated

Non-resident- tax on properties within Phil

Situs of Business Tax

Real property: where the real property is located

Personal Property: where the sale is perfected

Situs of VAT

-where the transaction is made/consumed

 Power to tax-limited to persons, properties, or businesses within the jurisdiction of the

taxing power
Factors that determine the situs of taxation (KCS4R)

 Kinds or classification of the tax being levied

 Citizenship of the taxpayer
 Situs of the things/property tax
 Source of income tax
 Subject matter of the tax (person, property, right, or activity)
 Situs of the excise, privilege, business, or occupation being taxed
 Residence of taxpayer
Application of Situs/Place of taxation (PRECIPTSFB)

 Personal/Community tax- residence/domicile of taxpayer

 Real property tax- location of property
 Excise/Privilege tax- where the act is performed or where the occupation is pursued
 Corporate tax- law on incorporation
 Income tax- consider (1)citizenship (2)residence (3)source of income
 Personal property tax
o Tangible- where it is physically located/permanently kept
o Intangible- subject to Sec. 104 of NIRC and the principle of mobilia sequuntur
personam (domicile of the owner)
 Transfer tax- residence or citizenship of the taxpayer or location of the property
 Sales tax- where the sales is consummated
 Franchise tax- state which granted the franchise
 Business tax- place of business
General Rules of Tax Situs

Sources/Location

of Object

Nature of Tax Citizenship Residency W/I W/O

Income Tax Filipino Resident Yes Yes

Filipino Nonresident Yes No

Alien Resident Yes No

Alien Nonresident Yes No

Transfer Tax Filipino Resident Yes Yes

Filipino Nonresident Yes Yes

Alien Resident Yes Yes

Alien Nonresident Yes No

Business Tax Yes No

1.6 DOUBLE TAXATION

Double taxation occurs when the same taxpayer is taxed twice by the same tas jurisdiction for
the same thing.

Elements of double taxation

1. Primary element: Same object

2. Secondary elements:
a. Same type of tax
b. Same purpose of tax
c. Same taxing jurisdiction
d. Same tax period
Types of Double Taxation

1. Direct double taxation

This occurs when all the element of double taxation exists for both impositions.
2. Indirect double taxation
This occurs when at least one of the secondary elements of double taxation is not
common for both impositions.

How can double taxation be minimized?

The impact of double taxation can be minimized by any one or a combination of the following:

a. Provision of tax exemption

b. Allowing foreign tax credit (deduction for taxes paid abroad)
c. Allowing reciprocal tax treatment between the home country and a foreign country
d. Entering into treaties or bilateral agreementss

1.7 LEGISLATION OF TAX LAWS

The law-making body of the government and its political subdivisions exercise the power
taxation. The powers to enact laws and ordinances, and to impose and collect taxes are given
to the Congress. The scope and matters of legislative discretion in the exercise of taxation
comprises the following:

1. Determining the object of taxation

Example: Persons, properties, rights, transaction, occupation, etc. to be taxed

2. Setting the tax rate or amount to be collected.

Example: 5%-32% for individual's taxable income, 30% for corporation's taxable income,
12% value-added tax based on sales or gross receipts, etc.

3. Determining the purpose for the levy which must be for public use

4. Kind of tax to be imposed.

Example: Taxes imposed by the national government include income tax, estate tax,
donor’s tax, value added tax, other percentage tax, excise tax and documentary stamp
tax. The local government, on the other hand is responsible for real property tax,
professional tax, business taxes, community tax and tax on banks and other financial
institutions.

5. Apportionment of the tax between the national and local government.

6. Situs of taxation. (Place of taxation)

Example: An overseas Filipino worker has a residential lot in the Philippines. He will still
pay real property tax despite his absence in the Philippines because his property is
located herein.

7. Method of collection.

Example: The taxpayer may employ the voluntary compliance system wherein he
determines his income, reports the same through income tax returns and pays the tax to
the government. On the other hand, the government may also be the one to collect
especially regarding non-compliant taxpayers in which they will assess the taxpayers’
tax dues and penalties and enforce collection by coercive means.

1.8 Impact of Taxes in Nation Building

POWER TO BUILD

 Holmes Doctrine: Tax power should not be viewed as a power to destroy

 The burden to pay tax is only a means to nation building and a consequence of
taxation
 Tax power is a primarily tool that creates, builds and sustains the upliftment of
social condition of the people in general as it continuously supports the other inherent
powers of the State that preserve the fundamental rights of the people

IMPORTANCE OF TAXATION

 Taxation power is essential for the existence of the government

 It is very important for the continuous existence of a nation
 It is the primary source of government revenue that is used to effectively and
permanently perform government functions
 The power to tax may be used as an implement of police power in order to promote
the general welfare of the people
 Taxation is exercised to raise revenue for the very existence of the government to
serve the people for whose benefit taxes are collected
 Without taxation, the other inherent powers would be paralyzed
 Without revenue, there can be no continuing government
 Without government, there can be no civilization

PURPOSE OF TAXATION

1. Revenue Purpose
 The primary purpose of taxation is to provide funds or property with which to
promote the general welfare and protection of its citizens
2. Regulatory Purpose
 Also known as Sumptuary, is a secondary objective of imposing tax
 Accomplished to regulate inflation, achieve economic and social stability
and serve as key instrument for social control
 The amount of taxes may be increased to curve spending power and minimize
inflation in times of prosperity
 It may be reduced to expand business and ward off depression in times of
declining economic condition
 Taxes may be imposed to encourage economic growth by granting tax
exemptions, tax relief and incentives to attract investments that will create
employment
 It may be implemented to serve the general welfare of the people in promoting
science and invention or in financing educational activities or in improving
the efficiency of local police forces to maintain peace and order through grant
of subsidy
 Taxes may also be used as a tool and weapon in international relations
 It is an instrument to encourage foreign trade by providing tax incentives or
protect local industries against foreign competition by imposing additional
taxes on imported goods
3. Compensatory Purpose
 A tax may be used to make up for the benefit received
  Taxation is way of giving back the expected economic and social benefits due
to inhabitants
 Taxes may be imposed for the equitable distribution of wealth and income in
the society

1.9 Ethical Tax Compliance and Administration

Ethics – What is it?

A standard of behavior that instructs human beings on their action in different situations. These
standards are important for relationships between the individual and the society at large
including:

• Family (spouse, parents, children);

• Church;

• Business (clients, employer, employee; suppliers, government agencies)

Tax Compliance

 is the degree to which a taxpayer complies (or fails to comply) with the tax rules of
his or her country, for example by declaring income, filing a return, and paying the
tax due in a timely manner.

Tax Non-Compliance

 failure to comply with tax laws and/or report incorrect income, the act of
claiming incorrect deductions, relief and rebates and/or paying the
incorrect amount of tax beyond the stipulated time frame.

Ethical Aspects of Tax Administration

Tax Administrators are in a powerful position –the law gives them the authority to:

• Asses taxes (including Best of Judgment);

• Collect Revenue;

• Seize Property;

• Garnish Bank A/cs;

• Commence legal (criminal/civil) proceedings against the taxpayer.

Exercise of that power can result in the following against the taxpayer:

• Loss of property and income;

• Imprisonment;

As with all professions and field of business that require human interaction and judgment, there
are ethical issues facing tax administration.
These issues must be identified and dealt with, particularly as we have noted that Tax
Administrators have considerable power and that the exercise of that power can result in the
loss of some of the fundamental human rights of the taxpayer.

It has been widely written about and agreed that the pillars of tax administration are:

1. Fairness;

2. Transparency

3. Equity;

4. Accountability.

And these are what should guide the tax administration and its relationship with
public/stakeholders. Ethical aspects of tax administration largely surround this four pillars.

Under the four pillars, some of the ethical issues facing TA:

1. Acceptance of gifts;

2. Conflict of Interest;

3. Selective application of the law/ or inconsistency is applying the law;

4. Political influence;

5. Confidentiality/secrecy;

6. Discretion;

7. Corruption;

8. Lack of Autonomy

Tools for Balancing the Pillars and dealing with the ethical aspects of Tax Administration.

1. Ethical Standards and Principles;

2. Code of Conduct;

3. An Effective Enforcement System;

4. An Effective Tax Appeal System

Code of Conduct:

The Standard of behavior expected of the employee of the TA in the performance of their duties.
The code provides guidance to employees as they make decisions both personal and
professional.

Code of Ethics:

Statements of principles meant to influence behavior.

Codes of conduct and ethics have become the order of business as organizations and
businesses seek to assure their stakeholders that their organizational/business practices are
ethical. The codes aim to:

1. Standardize behavior;

2. Establish minimal standard of conduct;

3. Formalize existing practices

Enforcement System;

It does not make sense implementing codes of standard and ethics without a system to monitor
and enforce the rules and guidelines. An effective enforcement system should have the
following characteristics:

1. Written and (legally) enforceable code;

2. Clearly defined penalties for infractions;

-minor offenses (administrative discipline and punishment);

-fraud and corruption (prosecution);

1. Obligation to Report (Protection of Whistleblower);

2. A continuous education system that creates awareness of responsibility for both

the taxpayer and the public;

3. An independent monitoring system/mechanism to ensure compliance.

4. Ethical Aspects of Tax Administration

Appeal System

An appeal system is fundamental to an effective tax system.

Ethical Standards for Tax Administrators (Adapted from the Institute for Supply Management)

1. Avoid the intent and appearance of unethical and compromising practices;

2. Avoid any professional or business activity that creates a conflict between personal
interest and the Tax Authority;

3. Avoid soliciting or accepting loans, money, credit or preferential discounts and the
acceptance of gifts, entertainment, favors or services;

4. Handle confidential information with due care and proper consideration of ethical and
legal ramifications to the tax authority;

5. Be knowledgeable of the law and apply it impartially, consistently and in the spirit
intended.
Code of Conduct for TA: (Louisiana Association of Tax Administrators):

Tax Administrators shall:

1. Obey all laws relating to taxation and grant no exemptions, credit or advantage to any
taxpayer that is not provided by the law;

2. Be dedicated to the highest ideal of honesty and integrity in all matters in order to
maintain the respect and confidence of the government and taxpayers;

3. Strive to be impartial, fair, neutral and consistent in administering the law without regard
to race, social or economic circumstance;

4. Provide prompt, efficient and quality service to all stakeholders in an effort to exceed
their expectation;

5. Refrain from actively participating in partisan political activities;

6. Accurately record proceedings and maintain taxpayer information in the strictest

confidence and highest level of security;

7. Refrain from soliciting gifts for actions and non-actions;

8. Make reasonable effort to collect the proper amount of tax revenue due at the lowest
possible cost to the state, and in a manner that warrants the highest degree of
confidence in our integrity, efficiency, effectiveness and fairness;

9. Respond to valid taxpayer refund claims with the same diligence as employed in
collection of taxes;

10. Educate taxpayers on their rights and responsibilities to ensure the highest possible
levels of voluntary compliance to the laws.

Other Administrative Practices to encourage adherence to the standards (Adapted from the
Anti-Corruption Resource Centre www.u4.no)

Standardization of procedures and forms

1. Reduce discretion of officials and limits number of approvals;

2. Limit one-one/out of office contact with the taxpayer;

3. Internal controls;

4. Performance Standards.

Simplification of the Tax System

1. Simple and clear rules;

2. Few exemptions;

3. Concerted effort to remove ambiguities/loopholes.

Professionalism
 1. No political appointments;

2. Recruitment/promotion on merit;

3. Responsibilities clearly defined (job description manuals);

4. Segregation of duties;

5. Staff rotation and continuous training schemes.

1.10 Organization of the Bureau of Internal Revenue, Bureau of Customs, Local

Government Tax Collecting Units, Board of Investments, Philippine Economic
Zone Authority

Chief Officials of the Bureau of Internal Revenue:

1 Commissioner

4 Deputy Commissioners, each to be designated to the following:

a) Operations Group

b) Legal Enforcement Group

c) Information Systems Group

d) Resource Management Group

POWERS OF THE BIR:

1) Assessment and Collection of Taxes

2) Enforcement of all forfeitures, penalties and fines, and judgments in all cases decided in its
favor by the courts

3) Giving effect to, and administering the supervisory and police powers conferred to it by the
NIRC and other laws

4) Assignment of internal revenue officers and other employees to other duties

5) Provision and distribution of forms, receipts, certificates, stamps, etc. to proper officials

6) Issuance of receipts and clearances

7) Submission of annual report, pertinent information to Congress and reports to the

Congressional Oversight Committee in matters of Taxation

POWERS OF THE COMMISSIONER OF INTERNAL REVENUE

1) To interpret the provisions of the NIRC subject to review by the Secretary of Finance

2) To decide tax cases subject to the exclusive appellate jurisdiction of the Court of Tax
Appeals, such as:

a) Disputed Assessments

b) Refunds of internal revenue taxes, Fees, or other charges

c) Penalties imposed

d) Other NIRC and special law matters administered by the BIR

3) To obtain information and to summon, examine, take testimony of persons to effect tax
collection

Purpose: For the BIR to ascertain:

a) The correctness of any tax return or in making a return when none has been made by the
taxpayer

b) The tax liability of any person for any internal revenue tax or in correcting any such liability

c) Tax compliance of the taxpayer

Authorized Acts:

a. To examine any book, paper, record or other data relevant to such inquiry
b. To obtain on a regular basis any information from any person other than the person
whose internal revenue tax liability is subject to audit
c. To summon the person liable for tax or required to file to file a return, his employees, or
any person having possession and custody of his books of accounts and accounting
records to produce such books, papers, records or other data and to give testimony
d. To take testimony of the person concerned, under oath, as may be relevant or material
to the inquiry.
4. To make assessment and prescribe additional requirement for tax administration and
enforcement

5. To examine tax returns and determine tax due thereon

6. To conduct inventory taking or surveillance

7. To prescribe presumptive gross sales and receipts for a taxpayer when:

a. The taxpayer failed to issue receipts; or

b. The CIR believes that the books or other records of the taxpayer do not correctly reflect
the declaration in the return

8. To terminate tax period when the taxpayer is:

: retiring from business
: intending to leave the Philippines
: intending to remove, hide, or conceal his property
 : intending to perform any act tending to obstruct the proceedings for collection of the tax
or render the same ineffective

9. To prescribe real property values

10. To compromise tax liabilities of taxpayers

11. To inquire into bank deposits, only under the following instances:

: determination of the gross estate of decedent

: to substantiate the taxpayer's claim of financial incapacity to pay tax in an application
for tax compromise

12. To accredit and register tax agents

13. To refund or credit internal revenue taxes

14. To abate or cancel tax liabilities in certain cases

15. To prescribe additional procedures or documentary requirements

16. To delegate his powers to any subordinate officer with a rank equivalent to a division chief of
an office

Non- delegated power of the CIR

1. Power to recommend the promulgation of rules and regulation to the secretary of

Finance
2. Power to issue rulings of first impression ot to reverse, revoke or modify any existing
rulings of the Bureau
3. Power to compromise or abate any tax liability
Exceptionally, the Regional Evaluation Board may compromise tax liabilities under
the following:
a. Assessments are issued by the regional offices involving basic deficiency tax of
P500,000 or less, and
b. Minor criminal violations discovered by regional and district officials

Composition of the Regional Evaluation Board

a. Regional Director as Chairman

b. Assistant Regional Director
c. Heads of the Legal Assessment and Collection Division
d. Revenue District Officer having jurisdiction over the taxpayer

4. Power to assign and reassign internal revenue officers to establishments where articles
subject to excise tax are produced or kept.

Rules in assignments of revenue officers to other duties

1. ROs assigned to an establishment where excisable articles are kept shall in no case stay
there for more than 2 years
2. ROs assigned to perform assessment and collection function shall not remain in the same
assignment for more than 3 years

3. Assignment of internal revenue officers and employees of the Bureau to special duties shall
not exceed 1 year

Bureau of Customs

-tasked to administer collection of tariffs on imported articles and collection of the VAT
on importation

-under the supervision of the Department of Finance

-headed by the Customs Commissioner and is assisted by five Deputy Commissioners

and 14 District Collectors

Local Government Tax Collecting Units

- Provinces, municipalities, cities and barangays

- impose and collect various taxes to rationalize their fiscal autonomy.

Bureau of Investments

- tasked to lead the promotion of investments in the Philippines by assisting Filipinos &
foreign investors to venture and prosper in desirable areas of economic activities

- Supervises the grant of tax incentives under the Omnibus Investment Code

- Attached agency of DTI

Philippine Economic Zone Authority (PEZA)

 Created to promote investments in export-oriented manufacturing industries in the

Philippines
 Supervise the grant of both fiscal and non-fiscal incentives
 Attached agency of the DTI
 Headed by director general and is assisted by 4 deputy directors

*PEZA registered enterprises enjoy tax holidays for certain years, exemption from import
and export taxes including local taxes.

2.0 TAX REMEDIES

2.1 Government
 2.1.1 Definition, scope, prescriptive period

Government Remedies- Legally mandated procedures exercised by the government to enforce

the determination and collection of the correct amount of tax from the taxpayers.

Primary Remedies of the Government

1. Assessment- act or process of determining the tax liability of a taxpayer in accordance with
tax laws. It pertains to the notice sent by the government to the taxpayers informing them of
their unpaid or still unpaid tax obligations coupled with a demand to pay the same.

Summary of Prescription Rules:

Deadline of Assessment
WITH A TAX RETURN FILED
 Return is non-fraudulent 3 years from date of filing or deadline
whichever is late
 Return is fraudulent 10 years from the discovery of fraud
NON-FILING OF RETURN 10 years from discovery of non-filing

STAGES OF ASSESSMENT
1. Selection of taxpayers to be audited
Identify taxpayer to be subjected to regular audit by means of:
a. Tax compliance verification drive/Tax Mapping- intended to identify taxpayers not
complying with the basic tax requirement.
b. Information furnished by tax informers
c. Pre-audit of Tax Returns
d. Direct Field observation by revenue officers
2. Audit of the taxpayers
BIR Tax Audit Process
a. Release of Letter of Authority (LA) to the revenue officer
Letter of Authority- official document authorizing BIR Revenue Officer to
examine taxpayer’s book of accounts and other accounting records in order
to determine his correct internal revenue tax liabilities.
Requisites of a valid LA:
 Must be served w/in 30 days from its date of issuance
 Must be electronic and printed under BIR Form 1966 issued under the BIR
Letter of Authority Monitoring System
b. Conduct of Audit Examination
Period of Investigation- 120 days
Frequency of revalidation of LAs
Issued by Regional Offices/ Revenue District Offices- once
Issued by National Office- twice
3. Assessment of taxpayers with unpaid or deficiency tax.
a. Pre-Assessment Notice (PAN)
 Written communication issued by the Regional Assessment Division or any
other concerned BIR Office informing the taxpayer of his obligation for
deficiency tax based on the audit findings of a revenue officer.
b. Formal Letter of Demand and Final Assessment Notice (FLD/FAN)
 Final declaration of deficiency tax issued to a taxpayer:
i. Who defaulted by failing to respond to the PAN w/in 15 days of its receipt
ii. Whose reply to the PAN is unmeritorious
 Jeopardy Assessment- made by an authorized revenue officer without benefit of a
complete or partial audit in light of the officer’s belief that the assessment and collection of a
deficiency tax will be jeopardized.
 FLD/FAN may be protested by the taxpayer by filing a written protest to the BIR w/in 30days
upon receipt.

TYPES OF TAXPAYER’S PROTEST

a) Request for reconsideration- on the basis of existing records without need for additional
evidence.
b) Request for re-investigation- on the basis of newly discovered or additional evidence.

FINAL DECISION ON DISPUTED ASSESSMENT (FDDA)

-may be communicated to the taxpayer w/in 180 days

Resolution of the Protested Assessment

If the protested assessment is… The assessment is..
A. Resolved in favor of the taxpayer Cancelled
B. Resolved with reduction of liability Revised
C. Sustained Enforced

2. Collection- procedures of the government to enforce payment of unpaid taxes from

delinquent taxpayers. It will be enforced by the government once the assessment achieves the
finality under the following circumstances:
A. When the taxpayer defaulted in his administrative remedies
a. Failure of the taxpayer to seasonably respond to the PAN
b. Failure of the taxpayer to seasonably protest to the FLD/FAN
B. Denial of the taxpayer’s protest by the CIR or his authorized representative
C. Whether or not on appeal, when the assessment is upheld by the court

STAGES OF COLLECTION
1. Preliminary Collection Letter

2. Final Notice before seizure letter

Issued within 10 days from the issuance of the Preliminary Collection Letter
If the taxpayer ignores the final notice, the BIR will resort to enforcement of
administrative summary remedies

3. Warrant of Distraint/Levy or Garnishment

-served to the taxpayer after his failure to respond to the Final Notice

Limitation of the Warrant of Distraint and or Levy

1. Distraint or levy shall not be availed of where the amount of tax is not more than
P100
2. The WDL shall not be sent earlier than 90 days from the date the assessment has
become due and demandable.
Exception to the rule:
a. Amount shown in the return is not paid in time.
b. Individual taxpayer fails to pay the second instalment of his income tax.

4. Research of taxpayer properties

 5. Notice of tax lien and or Notice of Tax Levy
Used to validate the legal claims or charge of the government on identified property of
the taxpayer either personal or real, as security for the payment of his liability.

Tax Lien – annotated at the back of the title document of the property in the case of
real property

6. Seizure of Property

7. Auction sale and/or forfeiture of properties

Within 20 days from the levy, the revenue officer shall advertise the property for
auction sale for at least 30 days. The property will be awarded to the highest bidder.

8. Filing of civil or criminal action

RATE Program (Run After Tax Evaders Program)
- Intended to identify and prosecute high-profile tax evaders.
Collection of tax may be made without a prior assessment if there is criminal intent to evade
payment as in the case of:
a. Filing a fraudulent return
b. Willful neglect to file a return
A return is generally deemed fraudulent when there is:
a. Failure to report an income exceeding 30% of that declared per return
b. Overstatement of deductions exceeding 30% of the actual allowable deductions
PRESCRIPIVE PERIOD OF COLLECTION
 5 years from the date of release of the final assessment to the taxpayer
 When the demand letters is undated, the 5-year prescriptive period is counted from
the date of receipt of assessment notice
Suspension of the Statutes of Limitation
1. Request for reinvestigation of the taxpayer which is granted by the CIR
2. When the Commissioner is prohibited from making assessment or from the beginning
distraint or levy or a proceedings in court
3. When the taxpayer cannot be located in the address given by him
4. When the warrant of distraint or levy is served and no properties can be located.
5. When the taxpayer is out of the Philippines.

Summary of Prescription Rules: Collection

DEADLINE OF COLLECTION MODE OF COLLECTION
With a prior 5 years from assessment Summary proceedings or by judicial
assessment action
Without a prior 10 years from the discovery of By judicial action
assessment fraud or falsity

2.1.2 Administrative Remedies (Remedies available to government)

Distraint
  The seizure by the government of tangible or intangible personal property of the
taxpayer to enforce the collection of taxes.

Levy

 The seizure by the government of real properties of the taxpayer to enforce the
collection of taxes. A written notice of levy, containing a description of the property upon
which levy is made, the name of the taxpayer and the amounts of the tax and penalty
due from them is served upon the taxpayer.

Garnishment

 The seizure of distraint of interests such as bank accounts and credits owned by the
taxpayer.

Forfeiture

 A divestiture of property without compensation, in consequence of a default or offense.

In case of chattels and removal of fixtures of any sort, forfeiture is enforced by seizure
and sale or destruction of the specific forfeited property. The forfeiture of real property is
enforced by a judgment of condemnation and sale in a legal action or proceeding, civil or
criminal, as the case may require.

Tax Lien

 A legal claim or charge on property either real or personal established by law as a

security in default of the payment of taxes. The tax, together with interest, penalties and
cost that may accrue in addition thereto is a lien upon all property and rights to property
belonging to the taxpayer. The lien however, shall not be valid against any mortgagee,
purchaser or judgment creditor until legal notice of such liens should be filed by the
Commissioner of internal revenue in the Office of the Register of Deeds of the province
or city where the property of the taxpayer is located. The lien attaches when the
taxpayer neglects or refuses to pay the tax after demand, but relates back from the time
when assessment was made by the Commissioner.

Warrant of Distraint and or Levy (WDL) or Warrant of Garnishment

 Served to the taxpayer after his failure to respond to the Final Notice.

Notice of Tax Lien or Notice of Levy

 This is used to validate the legal claims or charge of the government on identified
property of the taxpayer either personal or real, as security for the payment of his tax
liability.

Limitation of the Warrant of Distraint and or Levy

1. Distraint or levy shall not be availed of where the amount of tax is not more than 100.
2. The WDL shall not be sent earlier than 90 days from the date the assessment has
become due and demandable.

Exception to 90-day rule: Deliquent taxes may be collected immediately by distrainr or

levy in cases where:
 a. The amount shown in the return is not paid on time.
b. The individual taxpayer fails to pay the second instalment of his income tax.

Distraint of personal property;

Kinds of Distraint
a. Actual- there is taking of possession of the personal property out of the taxpayer into that of
the government;
b. Constructive- the owner is merely prohibited from disposing of his property.

Who shall conduct the distraint?

a. The CIR or his duly authorized representative- if the amount involved is in excess of
P1M.
b. The revenue district officer- if the amount involved is P1M or less.

Extent of the properties to be distrained

Personal properties such as goods, chattels, effects, stocks and other securities, debts, credits,
bank accounts and interest or rights to personal properties shall be seized in sufficient quantity
to cover the following:

a. Tax due
b. Penalties and interests
c. Expenses of distraint
d. Costs of selling the properties

When a constructive distraint may be made?

When the taxpayer is:

a. Retiring from a business subject to tax

b. Intending to leave the Philippines
c. Intending to remove his property or conceal the same
d. Intending to perform an act tending to obstruct the proceedings for collecting the tax due
from him

To whom is the warrant of distraint or garnishment served?

1. For goods,chattels, effects, or other personal properties- to the possessor or the goods
disrained
2. For the stocks and other securities- to the taxpayer and upon the president, manager,
treasurer or responsible officer of the corporation, company or association which issued
the said stocks
3. For debts and credits- to the person owning the debts or having in possession or under
his control such credit or with his agent
4. For bank accounts- to the president, manager, treasurer, cashier or other responsible
officials

Levy of real property

  Levy on real property may be done before, simultaneous with, or after the distraint of
personal property.

Auction Sale of Seized Property

 Within 20 days from levy, the revenue officer conducting the proceeding shall advertise
the property for auction sale for at least 30 days. The property shall be awarded to the
highest bidder. The proceeds of sale shall be used to satisfy the taxpayer’s unpaid
liabilities and the excess will be returned to the taxpayer.

Forfeiture of taxpayer’s property

 The government will forfeit when the amounts offered by bidders in two consecutive
auction sales fail to raise a sufficient amount to cover the taxpayer’s liability. Title to
forfeited properties will be consolidated in the name of the Republic of the Philippines.

Taxpayer’s right of redemption

 One year from the date of auction sale or forfeiture.

 Further distraint or levy may be made when the proceeds of the auction sale fail to
satisfy the unpaid tax.

Administrative Remedies (Remedies available to taxpayer)

1. TAX AVOIDANCE

- before payment, taxpayer can reduce or totally escape the payment of tax through
legally permissible means such as:

•applying for tax exemption in sale of principal residence classified as

capital asset; or

•choosing the lesser tax rate applicable

- valid if used in good faith

2. AMENDMENT OF TAX RETURNS

- as a rule, tax return once filed can't be withdrawn anymore, but it can be modified as
long as:

a. Amendment is made w/in 3 years from date of filing of such return; and

b. No notice for audit or investigation of such return has been served to

the taxpayer

3. DEMAND FOR THE LETTER OF AUTHORITY (LA)

 - it authorizes or empowers a particular Revenue Enforcement Officer to go over, verify,
and scrutinize a taxpayer's books and records

- Only the Commissioner and RDO ate authorized to issue LAs

- Must be served or presented to taxpayer w/in 30 days from date of issue; otherwise it'll
be null and void

- A taxpayer once served with LA should check the BIR Office if he is listed for Nat'l
Office Audit

- If listed in the Nat'l Office, but LA is issued by the regional, he may refuse audit under
particular LA, because such LA is not issued by proper office

- On the other hand, if LA is issued by national office, but not listed to be audited, he can
immediately refuse the audit by the national office

4. PROTESTING AN ASSESSMENT

- before payment, taxpayer can contest the assessment w/in 30 days from the receipt of
notice of assessment

- Made by filing a petition for reconsideration or reinvestigation of the tax assessment

5. APPLYING FOR NO AUDIT PROGRAM (NAP)

For a taxpayer to qualify NAP, he must satisfy the ff:

* Income tax payment for current taxable year must exceed the income tax payment for the
base year by at least 20%

* Ratio of income tax payment to gross/sales receipts for the current taxable year must be at
least equal to that of the base year

- Taxpayers reporting net loss or have a NOLCO w/o MCIT due shall be disqualified for NAP.
This includes those having net income but having no taxable due to their deduction of personal
and additional exemptions

6. ENTERING INTO A COMPROMISE

- Before payment, taxpayer may offer an amount which is lesser than the amount of tax liability
assessed to him.

7. FILING OF CLAIM FOR TAX CREDIT

- After payment, tax credit certificate could be issued to taxpayer, which may have applied
against any internal revenue tax for which he is liable.
- Not applicable to withholding taxes

8. FILING OF CLAIM FOR REFUND

- After payment, request for actual return in cash of erroneously or illegally collected taxes
should be made through filing a claim for tax refund.

2.1.3 Judicial Actions

1. Civil Action – After the assessment made by the Commissioner of Internal Revenue
has become final and executory for failure of the taxpayer to dispute the same and
appeal the disputed assessment to the Court of Tax Appeals, the government may
institute civil actions to collect internal revenue taxes in the Regional Trial Court and
the Metropolitan Trial Court, City and municipal courts.
A civil action is resorted to when a tax liability becomes collectible,
that is, the assessment becomes final and unappealable, or the
decision of the Commissioner has become final, executor, and
demandable.
a. A tax is assessed and the taxpayer fails to file an administrative protest by
filing a request for reconsideration or reinvestigation within thirty (30) days
from receipt of the assessment.
b. A protest against the assessment is filed by the taxpayer but the
Commissioner’s decision denying in whole or in part the said protest, was not
appealed to the Court of Tax Appeals within thirty (30) days from receipt of
such decision.
2. Criminal Action – May be pursued by the authorities for the collection of delinquent
taxes. An assessment of a tax deficiency is not necessary to a criminal prosecution
for tax evasion. The crime is complete when the violator has knowingly and willfully
filed a fraudulent return or neglected to file a return with intent to evade the tax. If the
taxpayer is acquitted, the government may still collect the tax in a civil action,
because the payment of a tax is an obligation imposed by statute and does not arise
from a criminal act.

Prescriptive period for collection.

 Where an assessment was made, the period for collection by judicial action
or by distraint or levy is within 3 years after the date of assessment. Where
no assessment was made and a return was filed, and the same is not false or
fraudulent, the period for collection by a proceeding in court is within 3 years
after the return was due or filed whichever is later, except:

 Where a return required to be filed was not filed, or even if filed the same is
false or fraudulent, and made with the intent to evade the tax, the period is
ten years after discovery of the omission to file the return or from the
discovery of the falsity or fraud. The other exception relative to the
prescriptive periods for assessment are also applicable.

 Where the government makes another assessment on the basis of a

reinvestigation requested by the taxpayer, or a revised assessment because
 of an amended return or as a result of a reinvestigation asked for by the
taxpayer, the period is counted from the last assessment or the last revised
assessment.

 Where the action is brought to enforce a compromise agreement into

between the commissioner and the taxpayer, the prescriptive period is ten
years from the time the cause of action accrues as fixed in the civil code.

2.1.4 ADDITIONS TO TAX

Government may impose surcharges and interest in addition to basic taxes to ensure tax
collection once a taxpayer neglects to pay his taxes.

1. Surcharge
 civil penalty imposed by law in addition to the main tax required to be paid due to
delinquency (failure to pay the tax due on the date fixed) or misrepresentation of
taxes (result from fraudulent returns reported to the BIR by the taxpayer)
Classification of Tax Surcharge:

 Simple Neglect – twenty five percent (25%) surcharge

1. Fails to file any return and pay the tax due on the date prescribed;
2. Files income tax returns with an internal revenue officer other than with
whom the return is required to be filed;
3. Fails to pay the deficiency tax within the time prescribed for its payment in
the notice of assessment, or
4. Fails to pay the full or part of the amount of tax shown on any return
required to be filed, or the full amount of tax due for which no return is
required to be filed, on or before the prescribed date for its payment.
 Willful Neglect – 50% of the tax or of the deficiency tax
1. Presents false or fraudulent return to the BIR, or
2. Willfully neglects to file the return with the period prescribed by the Tax
Code or by rules and regulation
*applied only in case the taxpayer files only after prior notice in writing from the
Commissioner or his duly representative

2. Interest
 20% per annum considering the period factor or such higher rate as
determined by the BIR shall be imposed on the basic tax unpaid after due date:
Delay Period Factor

For every day of delay Number of days/365 days

For every month of delay Number of months/12

For every year of delay 1

  Installment Payments of tax
1. The taxpayer’s request for extension of the period within which to pay is made on
or before the deadline prescribed for the payment of the tax due
2. When the tax due is in excess of P2,000, the taxpayer other than a corporation
may elect to pay the tax in two equal installments
3. When deadline for payment has been duly extended, the 25% surcharge shall
not be imposed. However, 20% interest per annum for the extended payment
shall be imposed, computed based on the diminishing balance of the “unpaid
amount”
4. If the request for extension is made after the deadline prescribed for payment,
the taxpayer shall already be treated late in payment, in which case, the 25%
surcharge shall be imposed.

3. Compromise Penalty
 An amount paid in lieu of criminal prosecution over a tax violation.
The compromise penalty is taken from the table of compromise penalties:
http://www.alasoplascpas.com/Tax/birFile/Annex-A-Revised-Schedule-of-Compromise-
Penalty.pdf

2.1.5 OTHER SANCTIONS

SUSPENSION OF BUSINESS OPERATIONS

The CIR or his authorized representative is empowered to suspend the business operations and
temporarily close the business establishment of any person for any of the following violations:

1) In case of a VAT-Registered person:.

a. Failure to issue receipts or invoice
b. Failure to file a VAT Return
c. Understatement of taxable sales or receipts by 30% or more of his
correct taxable sales or receipts for the taxable quarter

2) Failure of any person to register who is mandatorily subject to VAT.

The temporary closure of the establishment shall be for duration of not less than 5 days and
shall be lifted only upon compliance with whatever requirements prescribed by the CIR in the
closure order.

CRIMINAL PENALTIES
Any person convicted of crime penalized by this Code shall, in addition to being liable for the
payment of the tax, be subject to the penalties imposed herein as follows:

1. If the offender is an alien, he shall be deported immediately after serving the sentence
without further proceedings of deportation

2. If the offender is a public officer or employee, the maximum penalty prescribed for the
offense shall be imposed. Furthermore, he shall be dismissed from the public service and
perpetually disqualified from holding any public office

3. If the offender is a CPA, his CPA certificate shall be automatically revoked or

cancelled upon conviction

4. In the case of associations, partnerships, or corporations, the penalty shall be

imposed on the partner, president, general manager, branch manager, treasurer, officer-in-
charge, and employees responsible for the violation

NATURE OF VIOLATIONS, CRIMINAL PENALTY IMPOSED AND AMOUNT OF

COMPROMISE

Sections 236 to 278 of the National Internal Revenue Code ( R.A. 8424) provide the nature of
violations and criminal penalty imposed.

The amount of compromise on the said violations and criminal penalties are provided in the
Revised Schedule of Compromise Penalty.

Other Penalties:

1. Failure to file certain information returns due to simple neglect.

Certain tax information returns are:

a. The income tax return itself

b. Records, statement or list
c. Any information required by the Tax Code or by the Commissioner

2. Failure of a withholding agent to collect and remit taxes or refund excess

withholding tax.

Penalty: Php 1000.00 for each failure, provided that the aggregate amount to be imposed
for all such failures during the calendar year shall not exceed Php 25,000.00

● The judgment in the criminal case shall not only impose the penalty but also order
payment of the taxes as decided by the CIR.
 ● The tax crime is committed when the violator has knowingly and willfully filed a
fraudulent return or neglected to file a return with intent to evade the tax.

● As a rule, assessment is not necessary before filing criminal complaint for tax evasion.

● A tax fraud or evasion case is basically a criminal case.

Fraud
Burden of proof: lies on the BIR
■ Note: The presumption that an officer of the government has performed
his duty regularly, as in the case of the correctness of deficiency
assessments, is not applicable in fraud cases.

Criminal Cases
Burden of proof: lies on the prosecution

● Note: Mere suspicions and mere doubts on the intention of the taxpayer
are not sufficient proof of fraud. Fraud is never presumed; it must be
proven.

COLLECTION OF DELINQUENT TAXES

Delinquency - non-payment of tax on time after issuance of Formal Letter of Demand (FLD)
and Final Assessment Notice (FAN).

- Imposed on the delay in payment of taxes due as provided in FAN

- Computed from the due date appearing in the FAN until full payment of the tax
due, surcharge and deficiency interest

Note: Interest on extended payment (delinquency) shall be assessed and collected at the rate
of 20% per annum on the tax or deficiency or any part thereof unpaid from the date of notice
and demand until it is paid.

2.1.6 POWERS OF THE BUREAU OF INTERNAL REVENUE

1. Assessment and collection of taxes
2. Enforcement of all forfeitures, penalties and fines, and judgments in all cases decided in
its favor by the courts
3. Giving effect to, and administering the supervisory and police powers conferred to it by
the NIRC and other laws
 4. Assignment of internal revenue officers and other employees to other duties
5. Provision and distribution of forms, receipts, certificates, stamps, etc. to proper officials
6. Issuance of receipts and clearances
7. Submission of annual report, pertinent information to Congress and reports to the
Congressional Oversight Committee in matters of taxation

VERSION 2

1. Assessment and collection of all national revenue taxes, fees and charges;

2. Enforcement of all forfeitures, penalties, and fines on internal revenue taxes, fees and
charges;

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

4. Give effect and administer the supervisory and police powers conferred to it by the Tax Code
and other laws. (Sec. 2, NIRC)

https://www.batasnatin.com/law-library/taxation-law/general-taxation/262-powers-and-duties-of-
the-bureau-of-internal-revenue.html

2.2 Taxpayer

2.2.1 TAX REMEDIES OF TAX PAYERS

 Philippine taxes are self-assessing. Taxpayers compute their taxes, file tax returns, and
then pay to the government. The self-assessment method has an inherent risk:
under-compliance or non-compliance.

 The law provides the taxpayer procedures for disputing assessments and in recovering
taxes erroneously paid. These procedures are called taxpayers’ remedies.

REMEDIES AVAILABLE TO TAXPAYER

 A person adversely affected by the action taken by the BIR can avail of the
administrative and judicial remedies to question the enforcement of tax collection.
 The administrative remedies should be first observed, otherwise, the taxpayer's right to
seek judicial relief could be foreclosed.

PRESCRIPTIVE PERIODS

The prescriptive periods of tax assessment and tax collection are summarized below:
TAX
RETURN ASSESMENT PERIOD COLLECTION PEIOD
FIELD

Within three (3) years from filling the Within five (5) years from
return assessment

Regular
Or Or
Return

Agreed period In writing before (3) year Within five (5) years from the
assessment period expires assessment

Within five (5) years from the

assessment
Within ten (10) years from the discovery
of fraud, falsity or emission
Fraudulent, Or
false or
failure to Or
file return Court proceeding for tax collection
within ten (10) years from the
Without assessment discovery of fraud, falsity, or
omission

Notes: The Tax Code provides limitations on period in the collection of internal revenue taxes as
follows:

1. General rule: The BIR has three (3) years counted from the date of actual filing of the
tax return to assess a national internal revenue tax, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such
period.
When it validly issues an assessment within the three (3) year period, it has another
three (3) years within which to collect the tax due by distraint, levy or court proceeding. If
the assessment of the tax was made, the three (3)-year period for collection of the
assessed tax begins to run on the date the assessment notice had been released,
mailed or sent to the taxpayer.
 2. Inception: In the case of a false or fraudulent return with intent to evade tax or of failure
to file a return, the tax may be assessed, or a proceeding in court for the collection of
such tax may be filed without assessment at any time within (10) years after the
discovery of the falsity, fraud or omission.
Prescriptive period to assess the correct taxes in case of false returns is ten (10) years
from the discovery of the falsity.

2.2.2 Taxpayer's Rights

A. Disputing an Assessment 1. Any return, statement of declaration filed within any office
authorized to receive the same shall not be withdrawn. Provided, that within 3 years from the
date of such filing, the same may be modified, changed or amended. Provided, further, that no
notice for audit or investigation of such return, statement of declaration has in the meantime
been actually served upon the taxpayer. 2. Taxpayers who were inadvertently issued with
multiple Letter of Authority shall inform the concerned BIR officer and formalize his request for
cancelation of the other letters. 3. The taxpayer has up to 15 days from the receipt of the
Preliminary Assessment Notice to reply to the proposed assessment. 4. The Formal Letter of
Demand and Final Assessment Notice may be administratively protested by the taxpayer by
filing a written protest to the BIR within 30 days upon receipt thereof. Protest may be request for
reconsideration or request for re-investigation. 5. Final decision on Disputed Assessment may
be judicially protested by the taxpayer by filing petition for review with the Court of Tax Appeals
after which an adverse ruling may be the subject of a petition for review on certiorari before the
Supreme Court. 6. To avoid imposition of interest, penalties or charges on a contested
assessment, a taxpayer may pay the contested assessment under protest and can claim a
refund later when the disputed assessment is partially or wholly decided in his favor. 7. The
taxpayer has up to one year from the date of auction sale or forfeiture of properties within which
to redeem the property.
B. Recovery of Erroneously Paid Taxes 1. File a Claim for Refund or credit within 2 years from
the date of payment of the tax. 2. When the claim for refund or credit is denied by an authorized
representative of the CIR, the taxpayer may file a petition for reconsideration within 30 days
from the receipt of tbe denial and within the two year prescriptive period from the date of the
payment of tax. 3. An adverse final decision of the CIR shall be appealed by filing a petition for
review before the CTA within 30 days from the receipt of the final decision and within the two-
year prescriptive period. 4. If the BIR did not act on the claim for refund or credit, the taxpayer
must file a petition for review before the CTA before the expiration of the two-year presctiptive
period. 5. And adverse decision of the CTA shall be appealed within 15 days to the Supreme
Court

2.2.3 Administrative Remedies (Remedies available to taxpayer)

1. TAX AVOIDANCE

- before payment, taxpayer can reduce or totally escape the payment of tax through
legally permissible means such as:

•applying for tax exemption in sale of principal residence classified as

 capital asset; or

•choosing the lesser tax rate applicable

- valid if used in good faith

2. AMENDMENT OF TAX RETURNS

- as a rule, tax return once filed can't be withdrawn anymore, but it can be modified as
long as:

a. Amendment is made w/in 3 years from date of filing of such return; and

b. No notice for audit or investigation of such return has been served to

the taxpayer

3. DEMAND FOR THE LETTER OF AUTHORITY (LA)

- it authorizes or empowers a particular Revenue Enforcement Officer to go over, verify,

and scrutinize a taxpayer's books and records

- Only the Commissioner and RDO ate authorized to issue LAs

- Must be served or presented to taxpayer w/in 30 days from date of issue; otherwise it'll
be null and void

- A taxpayer once served with LA should check the BIR Office if he is listed for Nat'l
Office Audit

- If listed in the Nat'l Office, but LA is issued by the regional, he may refuse audit under
particular LA, because such LA is not issued by proper office

- On the other hand, if LA is issued by national office, but not listed to be audited, he can
immediately refuse the audit by the national office

4. PROTESTING AN ASSESSMENT

- Before payment, taxpayer can contest the assessment w/in 30 days from the receipt of
notice of assessment

- Made by filing a petition for reconsideration or reinvestigation of the tax assessment

5. APPLYING FOR NO AUDIT PROGRAM (NAP)

For a taxpayer to qualify NAP, he must satisfy the ff:

 * Income tax payment for current taxable year must exceed the income tax
payment for the base year by at least 20%

* Ratio of income tax payment to gross/sales receipts for the current taxable year
must be at least equal to that of the base year

- Taxpayers reporting net loss or have a NOLCO w/o MCIT due shall be disqualified for
NAP. This includes those having net income but having no taxable due to their deduction
of personal and additional exemptions

6. ENTERING INTO A COMPROMISE

- Before payment, taxpayer may offer an amount which is lesser than the amount of tax
liability assessed to him.

7. FILING OF CLAIM FOR TAX CREDIT

- After payment, tax credit certificate could be issued to taxpayer, which may have
applied against any internal revenue tax for which he is liable.

- Not applicable to withholding taxes

8. FILING OF CLAIM FOR REFUND

- After payment, request for actual return in cash of erroneously or illegally collected
taxes should be made through filing a claim for tax refund.

2.2.4 JUDICIAL REMEDIES

A. Judicial Remedies on "Disputing an Assessment"

1. In case of BIR denial or adverse decision - file a petition for review with the Court of Tax
Appeals (CTA) within 30 days from the receipt of adverse decision.

2. In case of BIR inaction within the 180-day period - file a petition for review with the CTA within
30 days from the lapse of the 180-day period.

3. Afterwards, in case of receipt of an adverse ruling from the CTA, the taxpayer may, within 15
days:

** File a motion for reconsideration or new trial under the same division, or
 ** File a petition for review on certiorari to the Supreme Court

B. Judicial Remedies on “Recovery of Erroneously Paid Taxes”

Procedures:
1. File a Claim for refund or credit within 2 years from the date of payment of the tax (Sec. 229,
NIRC).
2. When the claim for refund or credit is denied by an authorized representative of the CIR, the
taxpayer may file a petition for reconsideration within 30 days from receipt of the denial and
within the two-year prescriptive period from the date of payment of the tax.
3. An adverse final decision of the C1R shall be appealed by filing a petition for review before
the CTA within 30 days from receipt of the final decision (Sec. 11 RA 1125) and within the two-
year prescriptive period.
4. If the BIR did not act on the claim for refund or credit, the taxpayer must file a petition for
review before the CTA before the expiration of the two-year prescriptive period.
An adverse decision of the CTA may be appealed in the same division within 15 days. An
adverse decision of the concerned CTA division may be appealed to the CTA, en banc within 15
days.
5. An adverse decision of the CTA shall be appealed within 15 days to the Supreme Court.
These procedural requirements apply not only to taxes paid in error but also those paid under
protest or duress (Sec. 229, NIRC).

2.3 EXPANDING THE JURISDICTION OF THE COURT OF TAX

APPEALS
AN ACT EXPANDING THE JURISDICTION OF THE COURT OF TAX APPEALS (CTA),
ELEVATING ITS RANK TO THE LEVEL OF A COLLEGIATE COURT WITH SPECIAL
JURISDICTION AND ENLARGING ITS MEMBERSHIP, AMENDING FOR THE PURPOSE
CERTAIN SECTIONS OR REPUBLIC ACT NO. 1125, AS AMENDED, OTHERWISE KNOWN
AS THE LAW CREATING THE COURT OF TAX APPEALS, AND FOR OTHER PURPOSES

** This Act (consolidation of Senate Bill No. 2712 and House Bill No. 6673) was passed by the
Senate and House of Representatives on December 8, 2003 and February 2, 2004,
respectively.
** It was approved on March 30, 2004 during the presidency of Gloria Macapagal Arroyo.

Court of Tax Appeals

➞ Same level as Court of Appeals, having all the inherent powers of a Court of Justice
➞ Presiding Justice and five (5) Associate Justices
 The Presiding Justice and the most Senior Associate Justice shall serve as chairmen of
the two (2) Divisions.
 The additional three (3) Justices and succeeding members of the Court shall be
appointed by the President upon nomination by the Judicial and Bar Council.
➞ Presiding Justice and Associate Justices shall have the same qualifications, rank, category,
salary, emoluments and other privileges, be subject to the same inhibitions and
disqualifications, and enjoy the same retirements and other benefits as those provided for under
existing laws for the Presiding Justice and Associate Justices of the Court of Appeals.
➞ Presiding Justice and Associate Justices shall hold office during good behavior, until they
reach the age of 70, or become incapacitated to discharge the duties of their office, unless
sooner removed.
➞ The CTA may sit en banc or in two (2) Divisions, each Division consisting of three (3)
Justices.
En banc - refers to a session where the entire membership of the court will participate in
the decision rather than the regular quorum
- it signifies a decision by the full court of all the appeals judges in jurisdictions
where there is more than one three- or four-judge panel.
(source: http://legal-dictionary.thefreedictionary.com/En+Banc)
➞ Four (4) Justices shall constitute a quorum for sessions en banc and two (2) Justices for
sessions of a Division: Provided, That when the required quorum cannot be constituted due to
any vacancy, disqualification, inhibition, disability, or any other lawful cause, the Presiding
Justice shall designate any Justice of other Divisions of the Court to sit temporarily therein.
 The affirmative votes of four (4) members of the Court en banc or two (2) members of a
Division, as the case may be, shall be necessary for the rendition of a decision or
resolution.
➞ Shall have a Clerk of Court and three (3) Division Clerks of Court, appointed by the Supreme
Court.
 No person shall be appointed Clerk of Court or Division Clerk of Court unless he is duly
authorized to practice law in the Philippines.
 The Clerk of Court and the Division Clerks of Court shall have the same rank, privileges,
salary, emoluments, retirement and other benefits as those provided for the Clerk of
Court and Division Clerks of Court of the Court of Appeals, respectively.
➞ The Supreme Court shall appoint all the employees and officials of the CTA, in accordance
with the Civil Service Law.
 The Supreme Court shall fix their salaries and prescribe their duties.
➞ No person who has once served in the Court in a permanent capacity, either as Presiding
Justice or an Associate Justice shall be qualified to practice as counsel before the Court for a
period of 1 year from his retirement or resignation.
➞ Place of principal office shall be in Manila
Jurisdiction. The CTA shall exercise:

a. Exclusive appellate jurisdiction to review by appeal:

a.1. Decisions of the CIR in cases involving disputed assessments, refunds of internal revenue
taxes, fees or other charges, penalties in relation thereto, or other matters arising under the
National Internal Revenue or other laws administered by BIR;

a.2. Inaction by the CIR in cases aforementioned, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;

a.3. Decisions, orders or resolutions of the Regional Trial Courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction;

a.4. Decisions of the Commissioner of Customs in cases involving liability for customs duties or
other money charges, seizure, detention or release of property affected, fines, forfeitures or
other penalties in relation thereto, or other matters under the Customs Law or other laws
administered by the Bureau of Customs;

a.5. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment and taxation of real property originally decided
by the provincial or city board of assessment appeals;
a.6. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs which are adverse to the Government
under Sec. 2315 of Tariff and Customs Code;

a.7. Decisions of the Secretary of DTI, in the case of nonagricultural product, commodity or
article, and Secretary of DOA in the case of agricultural product, commodity or article, involving
dumping and countervailing duties under Sec. 301 and 302, respectively, of the Tariff and
Customs Code, and safeguard measures under RA No. 8800, where either party may appeal
the to impose or not said duties.

b. Jurisdiction over cases involving criminal offenses as herein provided:

b.1. Exclusive original jurisdiction over all criminal offenses arising from violations of the NIRC
or Tariff and Customs Code and other laws administered by the BIRor the Bureau of Customs:
Provided, however, That offenses or felonies mentioned where the principal amount o taxes and
fees, exclusive of charges and penalties, claimed is less than P1M or where there is no
specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA
shall be appellate.

b.2. Exclusive appellate jurisdiction in criminal offenses:

b.2.a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
cases originally decided by them, in their respected territorial jurisdiction.

b.2.b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their
respective jurisdiction.

b.2.c. Jurisdiction over tax collection cases as herein provided:

1. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, that collection cases where the
principal amount of taxes and fees, exclusive of charges and penalties, claimed is less than
P1M shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional
Trial Court.

2. Exclusive appellate jurisdiction in tax collection cases:

2.a. Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
collection cases originally decided by them, in their respective territorial jurisdiction.

2.b. Over petitions for review of the judgments, resolutions or orders of the Regional Trial Courts
in the Exercise of their appellate jurisdiction over tax collection cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their
respective jurisdiction.

➞ Shall have the power to administer oaths, receive evidence, summon witnesses by subpoena
duces tecum, subject in all respects to the same restrictions and qualifications as applied in
judicial proceedings of a similar nature.
➞ Any party adversely affected by a decision, ruling or inaction of the Commissioner of Internal
Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade and
Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or the
Regional Trial Courts may file an appeal with the CTA within 30 days after the receipt of such
decision/ruling or after the expiration of the period fixed by law.
➞ All other cases involving rulings, orders or decisions filed with the CTA shall be raffled to its
Divisions. A party adversely affected by a ruling, order or decision of a Division of the CTA may
file a motion for reconsideration of new trial before the same Division of the CTA within 15
days from notice.
➞ In criminal and collection cases, the Government may directly file the said cases with the
CTA covering amounts within its exclusive and original jurisdiction.
➞ The Justices of the Court shall each certify on their applications for leave, and upon salary
vouchers presented by them for payment, or upon the payrolls under which their salaries are
paid, that all proceedings, petitions and motions which have been submitted to the Court for
determination or decision for a period required by the law or the Constitution, as the case may
be, have been determined or decided by the Court on or before the date of making the
certificate, and no leave shall be granted and no salary shall be paid without such certificate.
➞ A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
➞ Upon the issuance of any ruling, order or decision by the CTA favorable to the national
government, the CTA shall issue an order authorizing the Bureau of Internal Revenue, through
the Commissioner to seize and distraint any goods, chattels, or effects, and the personal
property, including stocks and other securities, debts, credits, bank accounts, and interests in
and rights to personal property and/or levy the real property of such persons in sufficient
quantity to satisfy the tax or charge together with any increment thereto incident to delinquency.
 This remedy shall not be exclusive and shall not preclude the Court from availing of
other means under the Rules of Court.
➞ All existing permanent personnel of the CTA shall not be adversely affected by this Act.
 They shall continue in office and shall not be removed or separated from the service
except for cause as provided for by existing laws.
 Their present positions and salaries shall be upgraded to the level of their counterparts
in the Court of Appeals.