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Tax - Week 3 - Coggle Diagram

- - - - C. Applications of Tax Laws (NCC 2)
        
        Prospectivity
        
        General Rule - tax laws or amendments are prospective in operation because the nature and amount of tax could not be foreseen and understood by the taxpayer at the time the transaction which the law seeks to tax was completed
        
        Exception - Retroactive when it is expressly declared or, there is clear legislative intent.
        
        Non-Retroactivity - Law should not be given retroactive application when it would be harsh and oppressive Otherwise, due process would be violated
        
        Effectivity (NCC 2) - Laws shall take effect after fifteen days following the completion of their publication in the Official Gazette, unless it is otherwise provided.
        
        Tax Treaties - The application of PH tax laws may be subject to the provisions of tax treaties entered into by the PH with other countries
      - Mandatory Provisions - Those provisions of a statute for the security of the citizen or to insure that equality of taxation, or for certainty as to the nature and amount of each person's tax, This covers statutes requiring the assessor to notify the taxpayer.
        
        Failure to follow -
        
        Mandatory - Renders the act invalid
        
        Directory - Does not render the act invalid.
      - Directory Provisions - provisions designed merely for the information or direction of officers or to secure methodical and systematic modes of proceedings
        
        Usually in the revenue regulations.
        
        RMC
    - - Tax Evasion - They should be construed to avoid possibilities of tax evasion.
      - A2. Construction Against Government - In every case of doubt, tax statutes are construed strictly against the government and liberally in favor of the taxpayer. They are burdens, not to be presumed beyond the express provisions of the statute.
        
        A3. Plain Meaning - Exemption to strict construction against the government. This indicates legislative intent sufficient to overcome any doubt/ambiguity.
        
        A4. Tax Exemption - Serves as another exemption. The rule of strict construction against government does not apply in cases where the taxpayer claims an exemption. Instead, these are construed strictly against the claimants.
        
        A5. Conflict with Other laws - Generally, NIRC is a special law. However, if there are more particular tax laws, those are preferred.
        
        Tax Rewards - Statutes offering rewards are liberally construed in favor of informers.
- - - - C. Construction of Tax Exemptions
      - B1. Tax Remission/Condonation (Surigao Con. Min v. Collector) - The condonation of tax liability is equivalent and is in the nature of a tax exemption. Condonations are sustained only when it express and explicit terms. Forgiveness of an existing tax liability.
        
        B2. Compromise and Tax Amnesty (RA 9480/11213)
        
        B3. Exclusion/Deduction (NIRC 32,34)
        
        Exclusions from Gross Income (NIRC 32b) -
        
        Life Insurance - The proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured, whether in a single sum or otherwise, but if such amounts are held by the insurer under an agreement to pay interest thereon, the interest payments shall be included in gross income.
        
        Amount Received by Insured as Return of Premium - The amount received by the insured, as a return of premiums paid by him under life insurance, endowment, or annuity contracts, either during the term or at the maturity of the term mentioned in the contract or upon surrender of the contract.
        
        Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest, devise, or descent: Provided, however, That income from such property, as well as gift, bequest, devise, or descent of income from any property, in cases of transfers of divided interest, shall be included in gross income.
        
        Compensation for Injuries or Sickness - Amounts received, through Accident or Health Insurance or under Workmen’s Compensation Acts, as compensation for personal injuries or sickness, plus the amounts of any damages received, whether by suit or agreement, on account of such injuries or sickness.
        
        Income Exempt under Treaty. - Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines
        
        Retirement Benefits -
        
        Retirement benefits received under Republic Act No. 7641 and those received by officials and employees of private firms, whether individual or corporate, in accordance with a reasonable private benefit plan maintained by the employer: Provided, That the retiring official or employee has been in the service of the same employer for at least ten (10) years and is not less than fifty (50) years of age at the time of his retirement: Provided, further, That the benefits granted under this subparagraph shall be availed of by an official or employee only once. For purposes of this Subsection, the term ‘reasonable private benefit plan’ means a pension, gratuity, stock bonus or profit-sharing plan maintained by an employer for the benefit of some or all of his officials or employees, wherein contributions are made by such employer for the officials or employees,or both, for the purpose of distributing to such officials and employees the earnings and principal of the fund thus accumulated, and wherein it is provided in said plan that at no time shall any part of the corpus or income of the fund be used for, or be diverted to, any purpose other than for the exclusive benefit of the said officials and employees.
        
        Any amount received by an official or employee or by his heirs from the employer as a consequence of separation of such official or employee from the service of the employer because of death, sickness or other physical disability or for any cause beyond the control of the said official or employee.
        
        The provisions of any existing law to the contrary notwithstanding, social security benefits, retirement gratuities, pensions and other similar benefits received by resident or nonresident citizens of the Philippines or aliens who come to reside permanently in the Philippines from foreign government agencies and other institutions, private or public.
        
        Payments of benefits due or to become due to any person residing in the Philippines under the laws of the United States administered by the United States Veterans Administration.
        
        Benefits received from or enjoyed under the Social Security System in accordance with the provisions of Republic Act No. 8282.
        
        Benefits received from the GSIS under Republic Act No. 8291, including retirement gratuity received by government officials and employees.
        
        Miscellaneous Items
        
        Exclusion - The flow of wealth to the taxpayer, income not treated as part of the gross income.
        
        Deduction - Amounts that are spent, subtracted from the gross income, to arrive at the net income.
        
        Cannot be claimed unless, defined. Cannot be used to reduce the payment of tax(?)
        
        Amnesty - a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law. This amounts to a waiver of the right to collect, giving tax evaders a chance to start with a clean slate.
        
        Scope of Amnesty - Involves immunity from civil, criminal and administrative liability for non-payment of taxes.
        
        Effectivity - Retroactive in application.
        
        Extent of Loss - Government Suffers Revenue Loss on account of the taxes which were due but waived. Similar with Condonation, but broader in scope.
        
        Compromise (NCC 2028) - contract whereby the parties, by making reciprocal concessions, avoid a litigation or put an end to one already commenced. Tax comrpomises are expressly allowed under NCC 2034/2035. This is an administrative power, unlike amnesty or condonation which are legislative grounds.
        
        Compromise of Local Taxes - No specific LGC provision allowing this, but allowed generally under NCC 2034-2035.
        
        Authority of Commissioner NIRC 204b - Comssr. may Abate or cancel a tax liability, when:
        
        The tax or any portion thereof appears to be unjustly or excessively assessed; or
        
        The administration and collection costs involved do not justify the collection of the amount due.
        All criminal violations may be compromised except: (a) those already filed in court, or those involving fraud.
        
        Compromise is a reduction of what should have been collected in the first place.
        
        Abatement - Audited, Assessed, but full amount not paid. a reduction in the amount of tax that a business would normally have to pay in a particular situation, for example to encourage investment:
        
        Compromise Penalty - assessed in lieu of criminal case
    - - Rationale - Such exemptions will benefit the body of the people. Thus, contemplates some public benefit or interest which the law-making body considers sufficient to offset the monetary loss from the exemption
      - Nature -
        
        Personal Privilege - Cannot be assigned or transferred by the grantee without the consent of the legislature
        
        Revocable - Revocable unless the exemption is founded on contract which is protected from impairment.
        
        Waiver - Exemptions imply a waiver on the part of the government of its right to collect.
        
        Non-Discriminatory - So long as the exemption has a reasonable foundation or rational, non discriminatory. However, when no valid distinction may be challenged on the basis of DPC/EPC
      - Grounds for Exemption
        
        Contract - Provisions of a contract of exemption from taxation are usually contained in the charter of the corporation Government is supposed to receive a full equivalent therefor.
        
        Public Policy - Government need not receive any consideration in return for the tax exemption, Often to encourage new industries or charitable institution.
        
        Treaty - Exemptions on the basis of treaties are founded on reciprocity or to lessen international double taxation.
        
        Equity - Not a ground for tax exemption. The mere fact that one person was exempted does not make the other exempt. Nevertheless, equity mat allow for the condonation of taxes.
- - - - C. Double Taxation - Taxing the same property twice when it should be taxed only once.
        
        D. Power to Destroy - Power to tax is not the power to destroy while the court sits.
        
        E. Equitable Recoupment - Doctrine exists, but not available in the Philippines pending the introduction of legislation.
        
        F. Taxpayer's Suit
        
        G. Escape From Taxation;Tax Evasion;Tax Avoidance
        
        H. Shifting of Tax Burden - Refers to the process by which the tax burden is transferred from one statutory taxpayer without violating the law. The burden is transferred, not the payment.
        
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        SEC. 254. Attempt to Evade or Defeat Tax. [4] - Any person who willfully attempts in any manner to evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine not less than Five hundred thousand pesos (P500,000) but not more than Ten million pesos (P10,000,000) and suffer imprisonment of not less than six (6) years but not more than Ten (10) years: Provided, That the conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit for the collection of taxes.
        
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        Scheme where making it appear that there were two sales of the subject properties, i.e., from CIC to Altonaga, and then from Altonaga to RMI cannot be considered a legitimate tax planning. Such scheme is tainted with fraud. intermediary transaction, i.e., the sale of Altonaga, which was prompted more on the mitigation of tax liabilities than for legitimate business purposes constitutes one of tax evasion
        
        Requisites (Bagatsing v. San Juan) -
        
        Public funds are disbursed by a political subdivision or instrumentality, and by doing so, a law is violated or some irregularity is committed
        
        The petitioner is directly affected by the alleged ultra vires act.
        
        Definition (Collector v. UST) - Applies in two instances.
        
        Prescribed Refund - If refund of a tax illegally or erroneously collected or overpaid by a taxpayer is barred by the statute of limitations (prescription) and a tax is being presently assessed, the prescribed tax may be set off against the present tax.
        
        Prescribed Collection - where the government has failed to collect a tax within a prescribed period and the taxpayer has to his credit a tax erroneously collected, whose refund is not yet barred. The government need not make the refund but it may set it off against the tax whose collection is barred by prescription.
        
        International Double Taxation - Depends on the specific treaty provisions as regards ways of avoiding double taxation.
        
        Methods of Relief (CIR v. SC Johnson) - In the exemption
        
        Exemption Method - the income or capital which is taxable in the state of source or situs is exempted in the state of residence, although in some instances it may be taken into account in determining the rate of tax applicable to the taxpayer's remaining income or capital.
        
        Credit Method - although the income or capital which is taxed in the state of source is still taxable in the state of residence, the tax paid in the former is credited against the tax levied in the latter.
        
        The basic difference between the two methods is that in the exemption method, the focus is on the income or capital itself, whereas the credit method focuses upon the tax.
        
        Forms of Double Taxation (Star Appliance v. City of Manila) - Can be subdivided into two forms.
        
        Direct Duplicate (Strict) - The two taxes must be imposed on the:
        
        same subject matter,
        
        for the same purpose,
        
        by the same taxing authority,
        
        within the same jurisdiction,
        
        the taxes being of the same kind or character, and
        
        within the same taxing period.
        
        Validity - Unconstitutional. Uniformity rule or the
        equal protection guarantee
        
        Indirect Duplicate (Broad) - When any of the requisites for direct duplicate are absent. This is constitutional.
      - CIR v. Ayala Securities Corp - The limitations upon the right of the government to assess and collect taxes will not be presumed in the absence of clear legislation to the contrary and that where the government has not by express statutory provision provided a limitation upon its right to assess unpaid taxes, such right is imprescriptible.
        
        Waivers of Right to Prescription Defense - Waivers must be in the proper form required by the revenue regulations to be effective. Thus, construction in favor of the taxpayer and against the government.
        
        Rules of Construction (CIR v. Standard Bank) - The law on prescription, being a remedial measure, should be liberally construed in order to afford such protection. As a corollary, the exceptions to the law on prescription should perforce be strictly construed against the government.
        
        Specific Rules for Prescription (NIRC)
        
        NIRC -
        
        3 Years - Prescription of assessment AND collection from:
        1a. the prescribed last day of filing of returns (even if the return was filed earlier than the deadline); OR
        1b. the day when the return was actually filed if filed later than the last day of filing [Sec. 203, NIRC], whichever comes later.
        
        5 Years - Prescription of assessment in cases of:
        2a. false or fraudulent return with intent to evade tax; OR
        2b. failure or omission to file a return [Sec. 222, NIRC]
        
        10 years - Prescription of Collection if assessed withint he prescriptive periods or within an extended period agreed upon by taxpayer and commissioner or, collection by court proceeding.
        
        LGC Taxes
- - - - C. The CTA
        
        Authority over petitions for certiorari (City of Manila v. Judge Cuerdo) - Courts possess certain inherent powers which may be said to be implied from a general grant of jurisdiction, in addition to those expressly conferred on them. Thus, the CTA has jurisdiction over a special action for certiorari assailing an interlocutory order issued by the RTC in a local tax case.
        
        Constitutionality Challenges (CIR v. CTA)
        
        GR: Actions directly challenging the constitutionality or validity of a tax law or regulation or administrative issuance may be filed directly before the CTA
        
        XCPN: When the action is that of a local tax case
        
        Jurisdiction -
        
        Criminal -
        
        Exclusive Original
        
        Exclusive Appellate
        
        Civil -
        
        Exclusive Original
        
        Exclusive Appellate
        
        Exclusive appellate jurisdiction to review by appeal the ff:
        
        Decisions of the CIR on tax cases
        
        Inaction of the CIR on tax cases
        
        Decisions, orders or resolutions of the RTC in local tax cases originally decided or resolved by them
        
        Decisions, orders or resolutions of the RTC in criminal or tax collection cases
        
        Decisions of the Commissioner of Customs in cases involving liability for customs duties, etc.
        
        Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving assessments of real property
        
        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
        
        Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties
        
        Criminal jurisdiction
        
        Alll criminal offenses arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs
        ● XP: when the amount involved is below 1m → regular courts
        
        Exclusive original jurisdiction
        
        Tax collection cases involving final and executory assessments for taxes, fees, charges and penalties
        ● XP: when the amount involved is below 1m → regular courts
  - - - SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. - The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
        The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the Court of Tax Appeals
        
        SEC. 13. Authority of a Revenue Officer. - Subject to the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director, examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to recommend the assessment of any deficiency tax due in the same manner that the said acts could have been performed by the Revenue Regional Director himself.
        
        SEC. 21. Sources of Revenue. - The following taxes, fees and charges are deemed to be national internal revenue taxes:
        
        Income tax;
        
        Estate and donor's taxes;
        
        Value-added tax;
        
        Other percentage taxes;
        
        Excise taxes;
        
        Documentary stamp taxes; and
        
        Such other taxes as are or hereafter may be imposed and collected by the Bureau of Internal Revenue.
        
        Tax Return (Sec. 6) - Can be modified prior to an audit notice. After audit, whatever lapses remain as is.
        
        Sec. 5-6 - Tools to validate voluntary declaration.
        
        Sec. 5 is authority to obtain information, summon, examine and take testimony of persons.
        
        Sec. 6 is the power of the Commissioner to make Assessments and Prescribe Additional requirements for tax administration and enforcement.
        
        SEC. 5. Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of Persons. - In ascertaining the correctness of any return, or in making a return when none has been made, or in determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:
        
        To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
        
        To obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation, or from any office or officer of the national and local governments, government agencies and instrumentalities, including the Bangko Sentral ng Pilipinas and government-owned or -controlled corporations, any information such as, but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers, and the names, addresses, and financial statements of corporations, mutual fund companies, insurance companies, regional operating headquarters of multinational companies, joint accounts, associations, joint ventures of consortia and registered partnerships, and their members; Provided, That the Cooperative Development Authority shall submit to the Bureau a tax incentive report, which shall include information on the income tax, value added tax, and other tax incentives availed of by cooperatives registered and enjoying incentives under Republic Act No. 6938, as amended: Provided, further, That the information submitted by the Cooperative Development Authority to the Bureau shall be submitted to the Department of Finance and shall be included in the database created under Republic Act No. 10708, otherwise known as “The Tax Incentives Management and Transparency Act (TIMTA).” [4]
        
        To summon the person liable for tax or required to file a return, or any officer or employee of such person, or any person having possession, custody, or care of the books of accounts and other accounting records containing entries relating to the business of the person liable for tax, or any other person, to appear before the Commissioner or his duly authorized representative at a time and place specified in the summons and to produce such books, papers, records, or other data, and to give testimony;
        
        To take such testimony of the person concerned, under oath, as may be relevant or material to such inquiry; and
        
        To cause revenue officers and employees to make a canvass from time to time of any revenue district or region and inquire after and concerning all persons therein who may be liable to pay any internal revenue tax, and all persons owning or having the care, management or possession of any object with respect to which a tax is imposed.
        
        The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed as granting the Commissioner the authority to inquire into bank deposits other than as provided for in Section 6(F) of this Code.
        
        SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement.
        
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        SEC. 245. Specific Provisions to be Contained in Rules and Regulations. - The rules and regulations of the Bureau of Internal Revenue shall, among other things, contain provisions specifying, prescribing or defining:
        
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        Interpretation - Commissioner who interprets the NIRC, applies uniquely to the taxpayer who asks for an interpretation. Appealable to the Sec. of Finance.
        
        Resolution of Disputed Assessments/Refunds/Penalties - Also with the Commissioner, but subject to the exclusive appellate jurisdiction of the CTA.
        
        Revenue Regulations - Issued by the Commisisoner, co-signed by the Sec. of Finance. Applicable to all.
        
        CIR can delegate powers to his subordinate officials, EXCEPT FOR:
        
        Power to recommend to SOF
        
        Power to issue rulings of first impression, or to reverse or modify any ruling of the BIR
        
        Power to compromise or abate any tax liability
        3a. XP: for those involving 500k or less or minor criminal violations → can be compromised by Regional Director and other officers as a board
        
        Power to reassign officers to establishments where articles subject to excise tax are kept
        
        Ruling - Commissioner's ruling must be modified/reversed by him, or any higher authority.
        
        Nullification of a Ruling - No requirement for formal ratification of a ruling, so long as finding of bad faith/misrepresentation, the ruling automatically becomes void as inconsistent with facts presented.