Wednesday, September 10, 2008

PRIMUS 2008 ONE-LINERS: TAXATION PART 1

“PRIMUS 2008 ONE-LINERS”

TAXATION

VER. 2008.09.10

copyrighted 2008

Prepared by the PRIMUS Board of Consultants

Prof. Abelardo T. Domondon

Principal Consultant

These Notes in the form of one or two sentences and questions and answers were specially prepared by a Board of Consultants specially commissioned by PRIMUS Information Center, Inc., for the use of candidates who are going to take the 2008 Bar Examination. They are not as comprehensive as the other PRIMUS publications such as the PRIMUS Bar Star Notes, or the PRIMUS Cut and Paste. They are intended to be read during the Pre-Week or before the start of the regular Bar review for any given Bar Examination year.

These Notes attempt to second guess the areas where questions may probably be sourced for the 2008 Bar Examination in Taxation. They include enumerations and distinctions, as well digests of some landmark cases, although they go beyond two sentences. They may also serve as “memory joggers” to help the candidate recall concepts. The reader is advised to concentrate on the “One-liners” that are in bold letters. Those that are not in bold are mere elucidations of concepts.

The PRIMUS 2008 ONE-LINERS” shall be revised regularly to consider latest law and jurisprudence to meet the requirements of future Bar Reviews such that the title shall change from year to year. For the 2009 Bar examination the title shall be “PRIMUS 2009 ONE-LINERS” which shall be released sometime in September, 2009. The reader is however advised to acquire and read the latest versions of the other PRIMUS publications such as the PRIMUS Bar Star Notes, or the PRIMUS Cut and Paste which contain more detailed information leading to a more comprehensive Bar review. Of course those who intend to take the 2009 Bar examination are encouraged to attend the PRIMUS 2009 Wrap-up Reviews

Although primarily for the use of Bar candidates who have attended the PRIMUS 2008 Wrap-up Reviews, the “On-Liners” may be availed of by other students who are interested in the subject. While available for the free use of all the contents of the PRIMUS 2008 ONE-LINERSare covered by copyright protection and should never be published (whether through printed media or through the internet) without written permission in writing from PRIMUS Information Center, Inc. Downloading and printing into hard copies is allowed only for private use and should not be distributed on a commercial basis.

GENERAL PRINCIPLES OF TAXATION

GENERAL CONCEPTS

1. What is the power to tax ? Define the power to tax. What is the concept of taxation, and its nature ?

SUGGESTED ANSWER: The power to tax is an inherent power of the state exercised through the legislature imposing burdens upon subjects and objects within its jurisdiction to raise revenues in order to meet the legitimate objects of government.

It’s nature is that it is both an inherent power of government and an exercise of legislative power.

It is inherent in character because it could be exercised even in the absence of a constitutional grant. It is an exercise legislative power because it is that department that promulgate rules and taxation is the promulgation of rules, such as how much tax is to be paid, who pays the tax, to whom should it be paid and when it should be paid.

2. How should the power to tax be exercised ? Explain briefly.

SUGGESTED ANSWER: The power of taxation is sometimes called also the power to destroy.

Therefore, it should be exercised with caution to minimize injury to the proprietary rights of a taxpayer. It must be exercised fairly, equally and uniformly, lest the tax collector kill the “hen that lays the golden egg.” And, in the order to maintain the general public’s trust and confidence in the Government this power must be used justly and not treacherously. (Roxas v. Court of Tax Appeals, No. L-25043, April 26, 1968, 23 SCRA 276, 282. cited in Pilipinas Shell Petroleum Corporation v. Commissioner of Internal Revenue, G. R. No. 172598, December 21, 2007)

3. It is said that taxes are the lifeblood of the government and any delay in its collection would impair the rendition of government services. May the collection of taxes be restrained by a court ?

SUGGESTED ANSWER: As a general rule, “No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge.” (Sec. 218, NIRC)

However, the Court of Tax Appeals is empowered to enjoin the collection of taxes through administrative remedies when collection could jeopardize the interest of the government or taxpayer. (Sec. 11, Rep. Act No. 1125)

4. What is the procedure before the CTA for issuance of an order suspending the collection of taxes ? SUGGESTED ANSWER: Where the collection of the amount of the taxpayer’s liability, sought by means of a demand for payment, by levy, distraint or sale of property of the taxpayer, or by whatever means, as provided under existing laws, may jeopardize the interest of the government or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability (Sec. 1, Rule 10, RRCTA effective December 15, 2005) with the Court of Tax Appeals.

The motion for suspension of the collection of the tax may be filed together with the petition for review or with the answer, or in a separate motion filed by the interested party at any stage of the proceedings. (Sec. 3, Rule 10, RRCTA effective December 15, 2005)

5. How should tax exemptions be construed ?

SUGGESTED ANSWER: Tax exemptions are strictly construed against the taxpayer and liberally in favor of the State and must be clearly shown and based on language in the law too plain to be mistaken (Davao Gulf Lumber Corporation v. Commissioner of Internal Revenue, et al., 293 SCRA 76, 88), because taxes are necessary for the continued existence of the State.

6. Why are tax laws construed strictly against the State and liberally in favor of the State ?

SUGGESTED ANSWER: Taxes, as burdens which must be endured by the taxpayer, should not be presumed to go beyond what the law expressly and clearly declares. (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99)

7. May a BIR ruling in favor of a taxpayer be reversed so as to subject a taxpayer to tax ? Why ?

SUGGESTED ANSWER: A reversal of a BIR ruling favorable to a taxpayer would not necessarily create a perpetual exemption in his favor, for after all the government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 293 SCRA 92, 99)

8. In 1996 Rosemarie, a nonresident citizen, was collected Philippine income taxes on her incomes derived from sources without the Philippines. Upon the enactment of the NIRC of 1997 which took effect on January 1, 1998, she filed a claim for refund of the taxes she paid praying for the retroactive application of the provision that subjects nonresident citizens to tax only on their incomes from within. Should the refund be granted ?

SUGGESTED ANSWER: No. Tax laws, unlike remedial laws, are not to be applied retroactively. Revenue laws are substantive laws and their application must not be equated with remedial laws.

Revenue laws are not intended to be liberally construed, and exemptions are not given retroactive application, considering that taxes are the lifeblood of the government. In Holmes’ memorable metaphor, the price we pay for civilization, tax laws must be faithfully and strictly implemented. (Commissioner of Internal Revenue v. Acosta, etc.,G. R. No. 154068, August 3, 2007)

9. What are the purposes for the exercise of the taxing power ?

SUGGESTED ANSWER: The three purposes for the exercise of the taxing power are:

a. the revenue purpose (also known as the primary purpose of taxation);

b. the sumptuary purpose (implementation of police power objectives);; and

c. the compensatory purpose.

10. Explain briefly the revenue purpose of taxation.

SUGGESTED ANSWER: One of the purposes of taxation is to raise revenues to meet the recognized objects of purposes of government. Thus, is based the lifeblood theory which posits that the revenues collected constitute the lifeblood that animates the existence of governments, without which governments cannot perform the functions for which they were established.

11. What is the sumptuary purpose of taxation and upon which is it based ? Explain briefly.

SUGGESTED ANSWER: The sumptuary purpose of taxation is to promote the general welfare and to protect the health, safety or morals of the inhabitants. It is in the joint exercise of the power of taxation and police power where regulatory taxes are collected.

Taxation may be made the implement of the state’s police power. The motivation behind many taxation measures is the implementation of police power goals. [Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005 citing Lutz v. Araneta, 98 Phil. 148, 152 (1955); in turn citing Great Atl. & Pac. Tea Co. v. Grosjean, 302 U.S. 412; U.S. v. Biutler, 297 U.S. 1; McCulloch v. Maryland, 4 Wheaton 316] The reader should note that the August 3, 2005 Southern Cross case is the decision on the motion for reconsideration of the July 8, 2004 Southern Cross decision.

The so-called “sin taxes” on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of these potentially harmful products. (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005)

12. Distinguish taxation from police power.

SUGGESTED ANSWER:

a. Purpose: Taxation is for revenue while police power is for general welfare.

b. Amount: In taxation, the amount of tax collected is practically unlimited while under police power, the license fee should not exceed cost of regulation.

c. Compensation: In taxation, the enjoyment of public services while in police power, the feeling of having done something good for society in general.

d. Property taken: In taxation, generally money while under police power, any property, other than money, which is the source of the danger health, safety or morals.

e. What is done with the property taken: Taxation is constructive because the money collected is spent for building infrastructure or providing public services while police power is destructive. The property taken is usually destroyed.

f. Relation to the non-impairment clause: Taxation is inferior to the non-impairment clause and could not override the same while police power is superior to the non-impairment clause.

g. Scope. Taxation interferes with property rights only while police power regulates both liberty and property.

h. Surrender. Taxation may be bargained away through a contract such that if the government issues a tax-exempt bond, it could not withdraw the exemption because it would violate the non-impairment clause while police power cannot be bargained away.

13. What is the relation between the power of taxation and police power ? Explain.

SUGGEWTED ANSWER: The motivation behind many taxation measures is the implementation of police power goals.

Progressive income taxes alleviate the margin between rich and poor; the so-called “sin-taxes” on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of these potentially harmful products.

Taxation is distinguishable from police power as to the means employed to implement these public good goals. Those doctrines that are unique to taxation arose from peculiar considerations such as those especially punitive effects of taxation, and the belief that taxes are the lifeblood of the state.

These considerations necessitated the evolution of taxation as a distinct legal concept from police power. Yet at the same time, it has been recognized that taxation may be made the implement of the state’s police power. [Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005 citing Lutz v. Araneta, 98 Phil. 148, 152 (1955) in turn citing Great Atl.,& Pac. Tea Co. v. Grosjean, 301 U.S. 412, U.S. v. Butler, 297 U.S. 1; McCulloch v. Maryland, 4 Wheaton 316]

14. What are the similarities between the power of taxation and police power ?

SUGGESTED ANSWER:

a. Both are inherent in the State and may be exercised even if there is no specific authority granted by the Constitution.

b. Without these powers the State could not attain the purposes for which it is established. Otherwise stated, the very existence of the State is dependent upon the exercise of these powers.

c. The powers are to be exercised by the legislative department.

d. Both interfere with ownership and use of private property.

15. What is the nature of the Sugar Adjustment Act which increased the existing taxes on sugar ? Explain briefly.

SUGGESTED ANSWER: The Sugar Adjustment Act which increased existing taxes on sugar was enacted to stabilize the sugar industry to prepare it for the loss of its quota in the U.S. market was levied for a regulatory purpose to protect and promote the sugar industry which is also for a public purpose. (Lutz v. Araneta, 98 Phil. 148)

The Philsugin fund, an imposition on sugar, to raise funds to conduct research for the improvement of the sugar industry, is for the purpose of stabilizing the sugar industry which one of the pillars of the Philippine economy which affects the welfare of the State. The levy is not so much an exercise of the power of taxation, nor the imposition of a special levy, but the exercise of police power which is for the general welfare of the entire country, therefore for a public purpose. (Republic v. Bacolod-Murcia Co., et al., G.R. No. L-19824, July 9, 1966)

16. Section 40 (g) of the Public Service Act authorizes the collection of “x x x fees as reimbursement of its expenses in the authorization, supervision and/or regulation of the public services: x x x g) For each permit, authorizing the increase in equipment, the installation of new units or authorizing the increase of capacity, or the extension of means or general extensions in the services, twenty centavos for each one hundred pesos or fraction of the additional capital necessary to carry out the permit.” (paraphrasing supplied)

Is the imposition a tax measure ? Explain.

SUGGESTED ANSWER: No. It is not a tax measure but a simple regulatory provision for the collection of fees imposed pursuant to the exercise of the State’s police power. A tax is imposed under the taxing power of government principally for the purpose of raising revenues. The law in question, however, merely authorizes and requires the collection of fees for the reimbursement of the Commission’s expenses in the authorization, supervision and/or regulation of public services. (Republic, etc., v. International Communications Corporation (ICC), G. R. No. 141667, July 17, 2006)

17. Explain the compensatory purpose of taxation. SUGGESTED ANSWER: The compensatory purpose of taxation is to implement the social justice provisions of the constitution through the progressive system of taxation, which would result to equal distribution of wealth, etc.

Progressive income taxes alleviate the margin between rich and poor. (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005)

18. May the power of taxation be used to implement the power of eminent domain ? Explain.

SUGGESTED ANSWER: Yes. The power of taxation can also be used to implement power of eminent domain. Tax measures are but ”enforced contributions exacted on pain of penal sanctions” and “clearly imposed for public purpose.” In most recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)

19. The senior citizens’ discount. The senior citizens shall be entitled to the grant of twenty percent (20%) discount from all establishments relative to the utilization of services in hotels and similar lodging establishments, restaurants and recreation centers, and purchase of medicines in all establishments for the exclusive use or enjoyment of senior citizens,” [Expanded Senior Citizens Act of 2003, Sec. 4 (a)]

20. The Senior Citizens Act is a legitimate exercise of police power. The law is a legitimate exercise of police power which, similar to the power of eminent domain, has general welfare for its object (Carlos Superdrug Corp., etc., et al, G. R. No. 166494, June 29, 2007)

21. Senior citizens’ discount not allowed anymore as a tax credit but as a deduction from gross income. It ought to be noted, however, that on February 26, 2004, RA 9257, or The Expanded Senior Citizens Act of 2003, amending RA 7432, was signed into law, ushering in, upon its effectivity on March 21, 2004, a new tax treatment for sales discount purchases of qualified senior citizens of medicines.

The establishment may claim the discounts granted to senior citizens as tax deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended. [M.E. Holding Corporation v. Court of Appeals, et al., G.R. No. 160193, March 3, 2008 citing Expanded Senior Citizens Act of 2003, Sec. 4 (a)]

22. Just compensation, defined. The full and fair equivalent of the property taken from its owner by the expropriator. The measure is not the taker’s gain but the owner’s loss. The word just is used to intensify the meaning of the word compensation, and to convey the idea that the equivalent to be rendered for the property to be taken shall be real, substantial, full and ample. (Carlos Superdrug Corp., etc., et al, G. R. No. 166494, June 29, 2007)

THE LIMITATIONS ON THE EXERCISE

OF THE POWER OF TAXATION; GROUNDS

FOR THE NULLIFICATION OF TAX MEASURES

1. What criteria should be used by the judiciary in quashing a legislative act ?

SUGGESTED ANSWER: Subject to the determination of the courts as to what is a proper exercise of police power using the due process clause and the equal protection clause as yardsticks, the State may interfere wherever the public interests demand it, and in this particular a large discretion is necessarily vested in the legislature to determine, not only what interests of the public require, but what measures are necessary for the protection of such interests [Carlos Superdrug Corp., etc., et al, G. R. No. 166494, June 29, 2007 citing U.S. v. Toribio, 15 Phil.85 at 98 (1910) in turn citing Lawton v. Steele, 152 U.S. 133,136; Barbier v. Connoly, 113 U.S. 27; Kidd v. Pearson, 128 U.S. 1]

2. What is meant by a taxpayer’s suit ?

SUGGESTED ANSWER: A taxpayers’ suit is a case where the act complained of directly involves the illegal disbursement of public funds derived from taxation. (Justice Melo, dissenting in Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110)

3. What is locus standi ?

SUGGESTED ANSWER: Locus standi is “a right of appearance in a court of justice on a given question. (Abaya v. Ebdane, G. R. No. 167919, February 14, 2007)

It is a party’s personal and substantial interest in the case, such that the party has sustained or will sustain (Ibid.)direct injury as a result of the government act being challenged. It calls for more than just a generalized grievance.

A party need not be a party to the contract to challenge its validity. (Ibid.)

4. Rationale for locus standi. The rationale for requiring a party who challenges the constitutionality of a statute to allege such a personal stake in the outcome of the controversy is “to ensure that a concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination of different constitutional questions.” (Abaya v. Ebdane, G. R. No. 167919, February 14, 2007)

5. What are the requirements that must be met before taxpayers, concerned citizens and legislators may be accorded standing to sue ?

SUGGESTED ANSWER:

a. The case should involve constitutional issues;

b. For taxpayers, there must be a claim of illegal disbursement of public funds or that the tax measure is unconstitutional.

c. For voters, there must be a showing of obvious interest in the validity of the election law in question.

d. For concerned citizens, there must be a showing that the issues raised are of transcendental importance which must be settled early.

e. For legislators, there must be a claim that the official action complained of infringes upon their prerogatives as legislators. (David, et al., v. President Gloria Macapagal-Arroyo, etc., et al., G. R. No. 171396, May 3, 2006)

6. Requisites for challenging constitutionality of law. The party bringing suit must show “not only that the law or act is invalid, but also that he has sustained or is in immediate, or imminent danger of sustaining some direct injury as a result of its enforcement and not merely that he suffers thereby in some indefinite way.” (Soriano III v. Lista, et al., G. R. No. 153881, March 24, 2003)

7. Alternative statement of doctrine of brushing aside locus standi. In cases of paramount importance where serious constitutional questions are involved, the standing requirements may be relaxed and a suit may be allowed to prosper even where there is no direct injury to the party claiming the right of judicial review. [Coconut Oil Refiners Association, Inc., etc., et al., vs. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing Bayan (Bagong Alyansang Makabayan) v. Zamora, G. R. No. 138570, October 10, 2000, 342 SCRA 449, in turn citing Kilosbayan, Inc. v. Guingona, Jr., G. R. No. 113375, May 5, 1994, 232 SCRA 110]

8. Locus standi being merely a matter of procedure, have been waived in certain instances where a party who is not personally injured may be allowed to bring suit. Give some examples.

SUGGESTED ANSWER: The following are examples of instances where suits have been brought by parties who have not have been personally injured by the operation of a law or any other government act but by concerned citizens, taxpayers or voters who actually sue in the public interest:

a. Taxpayer’s suits to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of the law.

b. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed, or that public money is being deflected to any improper purpose, or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. (Abaya v. Ebdane, G. R. No. 167919, February 14, 2007)

9. What is the rationale behind the inherent and constitutional limitations on the power of taxation ?

SUGGESTED ANSWER: The inherent and constitutional limitations to the power of taxation are safeguards which would prevent abuse in the exercise of this otherwise unlimited and plenary power.

10. What are the inherent limitations upon the power of taxation ?

SUGGESTED ANSWER: The inherent limitations are

a. Public purpose. The revenues collected from taxation should be devoted to a public purpose.

b. No improper delegation of legislative authority to tax. Only the legislature can exercise the power of taxes unless the same is delegated to some other governmental body by the constitution or through a law which does not violate any provision of the constitution.

c. Territoriality. The taxing power should be exercised only within territorial boundaries of the taxing authority.

d. Recognition of government exemptions; and

e. Observance of the principle of comity. Comity is the respect accorded by nations to each other because they are equals. On the other hand taxation is an act of sovereign. Thus, the power should be imposed upon equals out of respect.

Some authorities include no double taxation.

11. What are some of the principles to consider in the determination of whether tax revenues are devoted for a public purpose ?

SUGGESTED ANSWER:

a. The tax revenues are for a public purpose if utilized for the benefit of the community in general. An alternative meaning is that tax proceeds should be utilized only to attain the objectives of government.

b. Public use is no longer confined to the traditional notion of use by the public but held synonymous with public interest, public benefit, public welfare, and public convenience. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)

c. The tax revenues are for a public purpose if utilized for the benefit of the community in general. An alternative meaning is that tax proceeds should be utilized only to attain the objectives of government.

Public use is no longer confined to the traditional notion of use by the public but held synonymous with public interest, public benefit, public welfare, and public convenience. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)

12. The petitioners impugn the validity of the establishment of tax and duty-free shops within the Subic Special Economic Zone (SSEZ) and the removal of consumer goods and items from the zones without payment of corresponding duties and taxes for the reason that this constitute executive legislation in violation of the rule on separation of powers, that only “raw material, capital and equipment” should be allowed the privilege. Rule on the objections and reason out your answer briefly.

SUGGESTED ANSWER: The objections should not be given credence. It is legal to setup duly authorized duty-free shops in the SSEZ to sell tax and duty-free consumer items in the Secured Area. This is in line with the policy enunciated in the law that “the Subic Special Economic Zone shall be developed into a self-sustaining, industrial, commercial, financial and investment center to generate employment opportunities in and around the zone and to attract and promote productive foreign investments.”

While it is true that Section 12 (b) of Rep. Act No. 7227 mentions only raw materials, capital and equipment, this does not necessarily mean that the tax and duty free buying privilege is limited to these types of articles to the exclusion of consumer goods.

It must be remembered that in construing statutes, the proper course is to start out and follow the true intent of the Legislature and to adopt that sense which harmonizes best with the context and promotes to the fullest manner the policy and objects of the Legislature.

The concept of inclusio unius est exclusio alterius does not find application because the phrase “tax and duty-free importations of raw materials, capital and equipment” was merely cited as an example of incentives that the SSEZ is authorized to grant, in line with its being a free port zone. Thus, the legislative intent is that consumer goods entering the SSEZ which satisfy the needs of the zone and are consumed there are not subject to duties and taxes in accordance with Philippine law. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005)

` Would your answer be the same if a Presidential Proclamation allowed for the limited withdrawal from the Clark Special Economic Zone or the John Hay Economic Zone of consumer goods tax and duty-free ?

SUGGESTED ANSWER: The answer would not be the same. This time the Presidential Proclamation would be invalid as the statutory tax exempt privilege was granted only to the Subic Special Economic Zone and not to John Hay or Clark. This is so because the Constitution mandates that no law granting tax exemption shall be passed without the concurrence of a majority of all the members of Congress. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing John Hay People’s Alternative Coalition, et al., v. Lim, etc., et al., G.R. No. 119775, October 24, 2003, 414 SCRA 356)

Furthermore, the law is very clear that the “exportation or removal of goods from the territory of the Subic Special Economic Zone to other parts of the Philippine territory shall be subject to customs duties and taxes under the Customs and Tariff Code and other relevant tax laws of the Philippines.” (Ibid.)

13. The VAT law provides that, the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) after any of the following conditions have been satisfied. “(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%).”

Was there an invalid delegation of legislative power ?

SUGGESTED ANSWER: No. There is no undue delegation of legislative power but only of the discretion as to the execution of the law. This is constitutionally permissible.

Congress does not abdicate its functions or unduly delegate power when it describes what job must be done, who must do it, and what is the scope of his authority. In the above case the Secretary of Finance becomes merely the agent of the legislative department, to determine and declare the even upon which its expressed will takes place. The President cannot set aside the findings of the Secretary of Finance, who is not under the conditions acting as the execute alter ego or subordinate. . [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases citing various cases]]

14. Juliane a non-resident alien appointed as a commission agent by a domestic corporation with a sales commission of 10% all sales actually concluded and collected through her efforts. The local company withheld the amount of P107,000 from her sales commission and remitted the same to the BIR.

She filed a claim for refund alleging that her sales commission is not taxable because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines.

Is her contention correct ?

SUGGESTED ANSWER: Yes. The important factor which determines the source of income of personal services is not the residence of the payor, or the place where the contract for service is entered into, or the place of payment, but the place where the services were actually performed.

Since the activity of securing the sales were in Germany, then the income did not originate from sources from within the Philippines. (Commissioner of Internal Revenue v. Baier-Nickel, G. R. No. 153793, August 29, 2006)

15. A domestic insurance company decided to reinsure with a foreign reinsurer the risks it has undertaken with its local clients. The foreign reinsurer does not have an office, neither does it do business in the Philippines. Are the reinsurance premiums subject to Philippine income taxation ?

SUGGESTED ANSWER: Yes because the undertaking of the foreign insurance company to indemnify the local insurance company is the activity that produced the income.

The reinsurance premiums remitted to the foreign reinsurer had for their source the undertaking to indemnify the local insurer against liability. Said undertaking is the activity that produced there insurance premiums, and the same took place in the Philippines. The reinsured, the liabilities insured and the risk originally undertaken by the local insurance company, upon which the reinsurance premiums and indemnity were based, were all situated in the Philippines. (Alexander Howden & Co., Ltd. v. Collector of Internal Revenue, 121 Phil. 579; 13 SCRA 601 (1965) cited in Baier-Nickel)

16. BOAC, a foreign airline company which does not maintain any flight to and from the Philippines sold air tickets in the Philippines, through a general sales agent, relating to the carriage of passengers and cargo between two points, both outside the Philippines.

Is BOAC subject to income taxes on the sale of the tickets ?

SUGGESTED ANSWER: Yes. The source of income which is taxable is that “activity” which produced the income. The ”sale of tickets” in the Philippines is the activity that determines whether such income is taxable in the Philippines.

The tickets exchanged hands here and payments for fares were also made here in Philippine currency. The situs of the source of payments is the Philippines. the flow of wealth proceeded from and occurred, within the Philippine territory, enjoying the protection accorded by the Philippine Government. In consideration of such protection, the flow of wealth should share the burden of supporting the government. (Commissioner of Internal Revenue v. British Overseas Airways Corporation (BOAC), 149 SCRA 395 cited in Bauer-Nickel)

17. Give some of the general or indirect constitutional limitations.

SUGGESTED ANSWER: The general or indirect constitutional limitations are the following:

a. Due process clause;

b. Equal protection clause;

c. Freedom of the press;

d. Religious freedom;

e. No taking of private property without just compensation;

f. Non-impairment clause;

g. Law-making process:

1) Bill should embrace only one subject expressed in the title

thereof;

2) Three (3) readings on three separate days;

3) Printed copies in final form distributed three (3) days before

passage.

h. Presidential power to grant reprieves, commutations and pardons and remittal of fines and forfeiture after conviction by final judgment.

18. The specific or direct constitutional limitations are the following:

a. No imprisonment for non-payment of a poll tax;

b. Taxation shall be uniform and equitable;

c. Congress shall evolve a progressive system of taxation;

d. All appropriation, revenue or tariff bills shall originate exclusively in the House of Representatives, but the Senate may propose and concur with amendments;

e. The President shall have the power to veto any particular item or items in an appropriation, revenue, or tariff bill, but the veto shall not affect the item or items to which he does not object;

f. Delegated power of the President to impose tariff rates, import and export quotas, tonnage and wharfage dues:

1) Delegation by Congress

2) Through a law

3) Subject to Congressional limits and restrictions

4) Within the framework of national development program.

g. Tax exemption of charitable institutions, churches, parsonages and convents appurtenant thereto, mosques, and all lands, buildings and improvements of all kinds actually, directly and exclusively used for religious, charitable or educational purposes;

h. No tax exemption without the concurrence of majority vote of all members of Congress;

i. No use of public money or property for religious purposes except if priest is assigned to the armed forces, penal institutions, government orphanage or leprosarium;

j. Money collected on tax levied for a special purpose to be used only for such purpose, balance if any, to general funds;

k. The Supreme Court's power to review judgments or orders of lower courts in all cases involving the legality of any tax, impose, assessment or toll or the legality of any penalty imposed in relation to the above;

l. Authority of local government units to create their own sources of revenue, to levy taxes, fees and other charges subject to guidelines and limitations imposed by Congress consistent with the basic policy of local autonomy;

m. Automatic release of local government's just share in national taxes;

n. Tax exemption of all revenues and assets of non-stock, non-profit educational institutions used actually, directly and exclusively for educational purposes;

o. Tax exemption of all revenues and assets of proprietary or cooperative educational institutions subject to limitations provided by law including restrictions on dividends and provisions for reinvestment of profits;

p. Tax exemption of grants, endowments, donations or contributions used actually, directly and exclusively for educational purposes subject to conditions prescribed by law.

19. Equal protection of the law clause is subject to reasonable classification. If the groupings are characterized by substantial distinctions that make real differences, one class may be treated and regulated differently from another. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999)

20. Classification, to be valid, must (a) rest on substantial distinctions, (b) be germane to the purpose of the law, (c) not be limited to existing conditions only, and (d) apply equally to all members of the same class. (Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999)

21. The law grant of tax and duty-free status under Rep. Act No. 7227, to retailers inside the SSEZ without granting the same to those outside the SSEZ. Is there a violation of the equal protection clause ?

SUGGESTED ANSWER: There is no violation of equal protection because there exists a valid classification as shown below:

a. Significant distinctions exist between the two groups. Those outside of the SSEZ maintain their business within Philippine customs territory while those within the SSEZ operate within the so-called “separate customs territory.” To grant the same privileges would clearly defeat the statue’s intent to carve a territory out of the military reservations in Subic Bay where free flow of goods and capital is maintained.

b. The classification is germane to the purpose of Rep. Act No. 7227. As held in Tiu, the real concern of the law is to convert the lands formerly occupied by the US military bases into economic or industrial areas. In furtherance of such objective, Congress deemed it necessary to extend economic incentives, in terms of a complete package of tax incentives and other benefits, to the establishments within the zone to attract and encourage foreign and local investors.

c. The classification is not limited to the existing conditions when the law was promulgated but to future conditions as well, inasmuch as the law envisioned the former military reservation to ultimately develop into a self-sustaining investment center.

d. The classification applies equally to all retailers found within the “secured area.” As ruled in Tiu, the individuals and businesses within the “secured area,” being in like circumstances or contributing directly to the achievement of the end purposes of the law, are not categorized further. They are all similarly treated, both in privileges granted and in obligations required. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing Tiu, et al., v. Court of Appeals, et al., G.R. No. 127410, January 20, 1999, 301 SCRA 278)

22. Is the statutory grant of tax and duty-free importation into the Subic Special Economic Zone violative the “preferential use” concept of the Constitution ?

SUGGESTED ANSWER: No. The mere fact that the law authorizes the importation and trade of foreign goods does not suffice to declare it unconstitutional on this ground.

While the Constitution does not encourage the unlimited entry of foreign goods, services and investments into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only in foreign competition that is unfair. (Coconut Oil Refiners Association, Inc., etc., et al., v. Torres, etc., et al., G. R. No. 132527, July 29, 2005 citing Tanada v. Angara, G. R. No. 118295, May 2, 1997, 272 SCRA 18)

23. It is inherent in the power to tax that the State be free to select the subjects of taxation, and it has been repeatedly held that, "inequalities which result from a singling out of one particular class of taxation, or exemption, infringe no constitutional limitation." (Commissioner of Internal Revenue, et al., v. Santos, et al., 277 SCRA 617)

24. A lawful tax on a new subject, or an increased tax on an old one, does not interfere with a contract or impairs its obligation, within the meaning of the constitution. Even though such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the constitution, nor can it be said that it impairs the obligations of any existing contract in its true and legal sense. (Tolentino v. Secretary of Finance, et al., and companion cases, 235 SCRA 630)

25. Under the now prevailing Constitution, where there is neither a grant nor prohibition by statute, the taxing power of local governments must be deemed to exist although Congress may provide statutory limitations and guidelines in order to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. (City Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)

26. The Local Government Code explicitly authorizes provinces and cities, notwithstanding “any exemption granted by any law or other special law” to impose a tax on businesses enjoying a franchise. Indicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units, the Local Government Code has withdrawn tax exemptions or incentives theretofore enjoyed by certain entities. (City Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No. 127708, March 25, 1999)

27. Philippine Long Distance Telephone Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001, upheld the authority of the City of Davao, a local government unit, to impose and collect a local franchise tax because the Local Government has withdrawn all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them.

28. “Paradigm shift” from exclusive Congressional power to direct grant of taxing power to local legislative bodies. The power to tax is no longer vested exclusively on Congress; local legislative bodies are now given direct authority to levy taxes, fees and other charges pursuant to Article X, section 5 of the 1987 Constitution. (Batangas Power Corporation v. Batangas City, et al. G. R. No. 152675, and companion case, April 28, 2004 citing National Power Corporation v. City of Cabanatuan, G. R. No. 149110, April 9, 2003)

29. The fundamental law did not intend the direct grant to local government units to be absolute and unconditional, the constitutional objective obviously is to ensure that, while local government units are being strengthened and made more autonomous, the legislature must still see to it that:

a. the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions;

b. each local government unit will have its fair share of available resources;

c. the resources of the national government will be unduly disturbed; and

d. local taxation will be fair, uniform and just. (Manila Electric Company v. Province of Laguna, et al., G.R. No. 131359, May 5, 1999)

30. The withdrawal of a tax exemption should not be construed as prohibiting future grants of exemption from all taxes. Indeed, the grant of taxing powers to local government units under the Local Government Code does not affect the power of Congress to grant exemptions to certain persons, pursuant to a declared national policy. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers, doubts must be resolved in favor of municipal corporations. (Philippine Long Distance Telephone Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001)

31. When Congress approved a provision that, “Any advantage, favor, privilege, exemption, or immunity granted under existing franchises, or may hereafter be granted, shall ipso facto become part of previously granted telecommunications franchises and shall be accorded immediately and unconditionally to the grantees of such franchises: Provided, however, That the foregoing shall neither apply to nor affect provisions of telecommunications franchises concerning territory covered by the franchise, the life span of the franchise, or the type of service authorized by the franchise.” (Underscoring supplied) there was no intention for it to operate as a blanket tax exemption to all telecommunications entities. Applying the rule of strict construction of laws granting tax exemptions and the rule that doubts should be resolved in favor of municipal corporations in interpreting statutory provisions on municipal taxation, it was held that said provisions cannot be considered as extending its application to franchises such as that of PLDT. (Philippine Long Distance Telephone Company, Inc., v. City of Davao, et al., etc., G. R. No. 143867, August 22, 2001)

32. When an item of income is taxed in the Philippines and the same income is taxed in another country, this would be known as international juridical double taxation which is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical grounds. (Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc., et al., G.R. No. 127105, June 25, 1999)

33. A tax deduction is defined as a subtraction fro income for tax purposes, or an amount that is allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due.

A tax deduction reduces the income that is subject to tax in order to arrive at taxable income. (Commissioner of Internal Revenue v. Central Luzon Drug Corporation, G. R. No. 159647, April 15, 2005)

34. The petitioners allege that the R-VAT law is constitutional because the Bicameral Conference Committed has exceeded its authority in including provisions which were never included in the versions of both the House and Senate such as inserting the stand-by authority to the President to increase the VAT from 10% to 12%; deleting entirely the no pass-on provisions found in both the House and Senate Bills; inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax; and including the amendments introduced only by Senate Bill No. 1950 regarding other kinds of taxes in addition to the value-added tax. Thus, there was a violation of the constitutional mandate that revenue bills shall originate exclusively from the House of Representatives.

Are the contentions of such weight as to constitute grave abuse of discretion which may invalidate the law ? Explain briefly.

SUGGESTED ANSWER: No. There was no grave abuse of discretion because all the changes and modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation.

The Bicameral Conference Committee merely exercised the judicially recognized long-standing legislative practice of giving said conference committee ample latitude for compromising differences between the Senate and the House. [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases citing Philippine Judges Association v. Pardo, G. R. No. 105371, November 11, 1993, 227 SCRA 703; Tolentino v. Secretary of Finance, et al., G. R. No. 115455, August 25, 1994, 235SCRA 630]

35. The VAT is assailed as being regressive and therefore violative of the mandate to evolve a progressive system of taxation. Do you agree ? Explain your answer.

SUGGESTED ANSWER: No. The VAT does not violate the progressive system of taxation. The mandate to Congress is not to prescribe but to evolve a progressive system of taxation. Otherwise, sales taxes which perhaps are the oldest form of indirect taxes, would have been prohibited with the proclamation of the constitutional provision. Sales taxes are also regressive. [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases citing Tolentino v. Secretary of Finance, et al., G. R. No. 115455, August 25, 1994, 235 SCRA 630]

CONSTITUTIONAL TAX EXEMPTIONS

1. What constitutional exemptions are enjoyed by real property ?

SUGGESTED ANSWER: Charitable institutions, churches and parsonages or convents appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and improvements that are actually, directly and exclusively used for religious, charitable or educational purposes are exempt from taxation. [Sec.28 (3) Article VI, 1987 Constitution]

2. The above constitutional tax exemptions refer only to real property that are actually, directly and exclusively used for religious, charitable or educational purposes, and that the only constitutionally recognized exemption from taxation of revenues are those earned by non-profit, non-stock educational institutions which are actually, directly and exclusively used for educational purposes. (Commissioner of Internal Revenue v. Court of Appeals, et al., 298 SCRA 83)

The constitutional tax exemption covers property taxes only. What is exempted is not the institution itself, those exempted from real estate taxes are lands, buildings and improvements actually, directly and exclusively used for religious, charitable or educational purposes. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004 citing Justice Davide)

3. The 1935 Constitution stated that the lands, buildings, and improvements are “used exclusively” but the present Constitution requires that the lands, buildings and improvements are “actually, directly and exclusively used.” The change should not be ignored. Reliance on past decisions would have sufficed were the words “actually” as well as :directly” are not added. There must be proof therefore of the actual and direct use to be exempt from taxation. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004 citing Province of Abra v. Hernando, 107 SCRA 105)

4. What is meant by “actual, direct and exclusive use” of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes.

If real property is used for one or more commercial purposes, it is not exclusively used for the exempted purpose but is subject to taxation,. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitution and the law. Solely is synonymous with exclusively. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)

5. Portions of the land of a charitable institution, such as a hospital, leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from real property taxes. On the other hand, the portion of the land occupied by the hospital and portions of the hospital used for its patients, whether paying or non-paying, are exempt from real property taxes. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)

6. Distinction between Lung Center and City Assessor of Cebu. The ruling in City Assessor of Cebu v. Association of Benevola de Cebu, Inc.., G. R. No. 152904, June 8, 2007 was not an interpretation of tax exemption. Furthermore, the doctors’ offices in City Assessor of Cebu were exclusively used by doctors duly accredited with the hospital. No such showing was made in Lung Center.

7. As a general principle, a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients, whether out-patient, or confined in the hospital, or receives subsidies from the government.

So long as the money received is devoted or used altogether to the charitable object which it is intended to achieve; and no money inures to the private benefit of the persons managing or operating the institution. (Lung Center of the Philippines v. Quezon City, et al., etc., G. R. No. 144104, June 29, 2004)

8. All revenues and assets of non-stock, non-profit educational institutions that are actually, directly and exclusively used for educational purposes shall be exempt from taxation.

9.. Revenues and assets of proprietary educational institutions, including those which are cooperatively owned, may be entitled to exemptions subject to limitations provided by law including restrictions on dividends and provisions for reinvestments. There is no law at the present which grants exemptions, other the exemptions granted to cooperatives.

10. The NIRC recognizes the exemption from tax of the incomes of civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare, as well as clubs organized and operated exclusively for pleasure, recreation, and other non-profitable purposes where no part of the net income inures to the benefit of any private stockholder or member.

11. The tax exemption so recognized does not flow to income of whatever kind and character of the foregoing organizations from any of their properties, real or personal, or from any of their activities conducted for profit, regardless of the disposition made of such income, which shall be subject to income taxes. (Commissioner of Internal Revenue v. Court of Appeals, et al., 298 SCRA 83)

OTHER CONCEPTS:

1. What is a tax amnesty ?

SUGGESTED ANSWER: A tax amnesty is 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 a tax law. (Commissioner of Internal Revenue v. Marubeni Corporation, G.R. No. 137377, December 18, 2001)

2. The purpose of tax amnesty is to

a. give tax evaders who wish to relent a chance to start a clean slate, and to

b. give the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. (Banas, Jr. v. Court of Appeals, et al., G.R. No. 102967, February 10, 2000)

c. To improve tax collection.

3. Distinguish tax amnesty from tax exemption.

SUGGESTED ANSWER:

a. Tax amnesty is an immunity from all criminal, civil and administrative liabilities arising from nonpayment of taxes (People v. Castaneda, G.R. No. L-46881, September 15, 1988) WHILE a tax exemption is an immunity from civil liability only. It is an immunity or privilege, a freedom from a charge or burden to which others are subjected. (Florer v. Sheridan, 137 Ind. 28, 36 NE 365)

b. Tax amnesty applies only to past tax periods, hence of retroactive application (Castaneda, supra) WHILE tax exemption has prospective application.

4. Define tax avoidance and tax evasion.

SUGGESTED ANSWER: Tax avoidance is the use of legally permissible means to reduce the tax while tax evasion is the use of illegal means to escape the payment of taxes.

5. Tax evasion connotes the integration of three factors:

a. the end to be achieved, i.e., the payment of less than that known by the taxpayer to be legally due, or the non-payment of tax when it is shown that a tax is due;

b. an accompanying state of mind which is described as being “evil” on “bad faith,” “willful,” or ”deliberate and not accidental”; and

c. a course of action or failure of action which is unlawful. (Commissioner of Internal Revenue v. The Estate of Benigno P. Toda, Jr., , etc., G. R. No. 147188, September 14, 2004)

6. What are the reasons why national taxes cannot be the subject of compensation and set-off with debts ?

SUGGESTED ANSWER:

a. The lifeblood theory;

b. Taxes are not contractual obligations but arise out of a duty to, and are the positive acts of government, to the making and enforcing of which the personal consent of the individual taxpayer is not required. (Republic v. Mambulao Lumber Co., 4 SCRA 622)

c. The government and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is no such debt, demand, contract or judgment as is allowed to be set-off. (Caltex Philippines, Inc. v. Commission on Audit, 208 SCRA 726, 756)

7. Compensation takes place by operation of law, where the local government and the taxpayer are in their own right reciprocally debtors and creditors of each other, and that the debts are both due and demandable, in consequence of Articles 1278 and 1279 of the Civil Code. (Domingo v. Garlitos, 8 SCRA 443)

8. In case of a tax overpayment, where the BIR’s obligation to refund or set-off arises from the moment the tax was paid under the principle of solutio indebeti. (Commissioner of Internal Revenue v. Esso Standard Eastern, Inc, 172 SRCA 364)

9. But note Nestle Phil. v. Court of Appeals, et al., G.R. No. 134114, July 6, 2001 which held that in order for the rule on solutio indebeti to apply it is an essential condition that the petitioner must first show that its payment of the customs duties was in excess of what was required by the law at the time the subject 16 importations of milk and milk products were made. Unless shown otherwise, the disputable presumption of regularity of performance of duty lies in favor of the Collector of Customs.

10. A direct tax is a tax for which a taxpayer is directly liable on the transaction or business it engages in, without transferring the burden to someone else. Examples are individual and corporate income taxes, transfer taxes, and residence taxes. (Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases, citing Maceda v. Macaraig, Jr., G.R. No. 88291, June 8, 1993, 223 SCRA 217)

11. Acesite is the owner and operator of restaurant which caters to the patrons of a casino operated by PAGCOR within its premises. it billed PAGCOR for the cost of the food and beverages consumed by the PAGCOR’s patrons as well as the lease of the premises plus the VAT on these items. PAGCOR paid Acesite minus the VAT claiming exemption while Acesite, in order to avoid legal implications, paid the P30 million tax and applied for a refund on the ground of solutio indebeti.

Acesite cites the tax exemption grant in PAGCOR’s franchise as follows: “The exemptions herein granted for earnings derived from the operations conducted under the franchise specifically from the payment of any tax, income, or otherwise, as well as any form of charges, fees or levies, shall inure to the benefit of and extend to corporation(s), association (s), agency (cies), or individual(s) with whom the Corporation or operator has any contractual relationship in connection with the operations of the casino (s) authorized to be conducted under this Franchise and to those receiving compensation or other remuneration from the Corporation or operator as a result of essential facilities furnished and/or technical services rendered to the Corporation or operator.” (emphasis supplied)

The BIR denied the claim on the ground that PAGCOR is exempt only from direct taxes and not from indirect taxes so Acesite may not avail of the exemption. Is this correct ?

SUGGESTED ANSWER: No. As the law is worded the exemption flows to Acesite. The law is clear that the exemption extends the exemption to entities or individuals dealing with PAGCOR. (Commissioner of Internal Revenue v. Acesite (Philippines) Hotel Corporation, G. R. No. 147295, February 16, 2007)

12. Silkair (Singapore) PTE, Ltd., an international carrier, purchased aviation gas from Petron Corporation, which it uses for its operations. It now claims for refund or tax credit for the excise taxes it paid claiming that it is exempt from the payment of excise taxes under the provisions of Sec. 135 of the NIRC of 1997 which provides that petroleum products are exempt from excise taxes when sold to “Exempt entities or agencies covered by tax treaties, conventions, and other international agreements for their use and consumption: Provided, however, That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers, entities or agencies”

Silkair further anchors its claim on Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads: “Fuel, lubricants, spare parts, regular equipment and aircraft stores introduced into, or taken on board aircraft in the territory of one Contracting party by, or on behalf of, a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall, with the exception of charges corresponding to the service performed, be exempt from the same customs duties, inspection fees and other duties or taxes imposed in the territories of the first Contracting Party , even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. The materials referred to above may be required to be kept under customs supervision and control.”

Silkair likewise argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption “from the same customs duties, inspection fees and other duties or taxes imposed in the territory of the first Contracting Party. It invokes Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes.

Is Silkair entitled to the tax refund or credit it seeks ? Reason out your answer.

SUGGESTED ANSWER: Silkair is not entitled to tax refund or credit for the following reasons:

a. The excise tax on aviation fuel is an indirect tax. The proper party to question, or seek a refund of, an indirect tax is the statutory taxpayer, the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. (Philippine Geothermal, Inc. v. Commissioner of Internal Revenue, G.R. No. 154028, July 29, 2005, 465 SCRA 308, 317-318) The NIRC provides that the excise tax should be paid by the manufacturer or producer before removal of domestic products from place of production. Thus, Petron Corporation, not Silkair, is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore.

Even if Petron Corporation passed on to Silkair the burden of the tax, the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. [Philippine Acetylene Co., Inc. v. Commissioner of Internal Revenue, 127 Phil. 461, 470 (1967)]

b. Silkair could not seek refuge under Maceda v. Macaraig, Jr., G.R. No. 88291, May 31, 1991, 197 SCRA 771.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes.

In Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, G.R. No. 140230, December 15, 2005, 478 SCRA 61 the Supreme Court clarified the ruling in Maceda v. Macaraig, Jr., viz: It may be so that in Maceda vs. Macaraig, Jr., the Court held that an exemption from “all taxes” granted to the National Power Corporation (NPC) under its charter includes both direct and indirect taxes.

An exemption from “all taxes” excludes indirect taxes, unless the exempting statute, like NPC’s charter, is so couched as to include indirect tax from the exemption. The amendment under Republic Act No. 6395 enumerated the details covered by NPC’s exemption. Subsequently, P.D. 380, made even more specific the details of the exemption of NPC to cover, among others, both direct and indirect taxes on all petroleum products used in its operation. Presidential Decree No. 938 [NPC’s amended charter] amended the tax exemption by simplifying the same law in general terms. It succinctly exempts NPC from “all forms of taxes, duties[,] fees…” The use of the phrase “all forms” of taxes demonstrates the intention of the law to give NPC all the tax exemptions it has been enjoying before.

The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot, without a clear showing of legislative intent, be construed as including indirect taxes. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority, and if an exemption is found to exist, it must not be enlarged by construction. (Silkair (Singapore) PTE, Ltd., v. Commissioner of Internal Revenue, G.R. No. 173594, February 6, 2008)

NATIONAL INTERNAL REVENUE CODE

INCOME TAXATION

1. Is a Commissioner of Internal Revenue liable for damages with respect to a ruling she issued, without notice, that had adverse effects against a taxpayer ?

SUGGESTED ANSWER: Yes. A public officer who directly or indirectly violates the constitutional rights of another, may be validly sued for damages under Article 32 of the Civil Code even if his acts were not so tainted with malice or bad faith. (Vinzons-Chato v. Fortune Tobacco Corporation, G. R. No. 141309, June 19, 2007 citing Cojuangco, Jr. v. Court of Appeals, G.R. No. 119398, July 2, 1999, 309 SCRA 602, 604)

Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private capacity for acts done in the course of the performance of the functions of the office, where said public officer: (1) acted with malice, bad faith, or negligence; or (2) where the public officer violated a constitutional right of the plaintiff. (Ibid.)

2. In Evangelista v. Collector, 102 Phil. 140, the Supreme Court held, citing Mertens, that the term partnership includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on.

3. Co-heirs who own inherited properties which produce income should not automatically be considered as partners of an unregistered corporation subject to income tax for the following reasons:

a. The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. There must be an unmistakable intention to form a partnership or joint venture. (Obillos, Jr. v. Commissioner of Internal Revenue, 139 SCRA 436)

b. There is no contribution or investment of additional capital to increase or expand the inherited properties, merely continuing the dedication of the property to the use to which it had been put by their forebears. (Ibid.)

c. Persons who contribute property or funds to a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered partners. They have no common stock capital, and no community of interest as principal proprietors in the business itself from which the proceeds were derived. (Elements of the Law of Partnership by Floyd R. Mechem, 2nd Ed., Sec. 83, p. 74 cited in Pascual v. Commissioner of Internal Revenue, 166 SCRA 560)

4. The common ownership of property does not itself create a partnership between the owners, though they may use it for purpose of making gains, and they may, without becoming partners, are among themselves as to the management and use of such property and the application of the proceeds therefrom.. (Spurlock v,. Wilson, 142 S.W. 363, 160 No. App. 14, cited in Pascual v. Commissioner of Internal Revenue, 166 SCRA 560)

5. Income is gain derived and severed from capital, from labor or from both combined. For example, to tax a stock dividend would be to tax a capital increase rather than the income. (Commissioner of Internal Revenue v. Court of Appeals, et al., G.R. No. 108576, January 20, 1999)

6. An insolvent debtor does not realize taxable income from the cancellation or forgiveness. (Commissioner v. Simmons Gin Co., 43 Fd 327 CCA 10th)

7. The insolvent debtor realizes income resulting from the cancellation or forgiveness of indebtedness when he becomes solvent. (Lakeland Grocery Co., v. Commissioner 36 BTA (F) 289)

8. The Global system of income taxation is a system employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of the individual. (Tan v. del Rosario, Jr., 237 SCRA 324, 331)

9. The Schedular system of income taxation is a system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer. (Tan v. del Rosario, Jr., 237 SCRA 324, 331)

10. What are the requisites for the deductibility of ordinary and necessary trade, business, or professional expenses, like expenses paid for legal and auditing services ?

SUGGESTED ANSWER:

a. the expense must be ordinary and necessary;

b. it must have been paid or incurred during the taxable year dependent upon the method of accounting upon the basis of which the net income is computed.

c. it must be supported by receipts, records or other pertinent papers. (Commissioner of Internal Revenue v, Isabela cultural Corporation, G. R. No. 172231, February 12, 2007)

11. TMG Corporation using the accrual method of accounting. In 2005 XYZ Law Firm and ABC Auditing Firm rendered various services which were billed by these firms only during the following year 2006. Since the bills for legal and auditing services were received only in 2006 and paid in the same year, TMG deducted the same from its 2006 gross income. The BIR disallowed the deduction ?

Who is correct, TMG or BIR ? Explain.

SUGGESTED ANSWER: The BIR is correct. TMG should have deducted the professional and legal fees in the year they were incurred in 2005 and not in 2006 because at the time the services were rendered in 2005, there was already an obligation to pay them. (Commissioner of Internal Revenue v, Isabela Cultural Corporation, G. R. No. 172231, February 12, 2007)

12. The fringe benefits tax is a final withholding tax imposed on the grossed-up monetary value of fringe benefits furnished, granted or paid by the employer to the employee, except rank and file employees. [1st par., Sec. 2.33 (A), Rev. Regs. No. 3-98]

13. What is meant by “fringe benefit” for purposes of taxation ?

SUGGESTED ANSWER: For purposes of taxation, fringe benefit means any good, service, or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees), such as but not limited to:

a. Housing;

b. Expense account;

c. Vehicle of any kind;

d. Household personnel, such as maid, driver and others;

e. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted;

f. Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations;

g. Expenses for foreign travel;

h. Holiday and vacation expenses;

i. Educational assistance to the employee or his dependents; and

j. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. [Sec. 33 (B), NIRC of 1997; 1st par., Sec. 2.33 (B), Rev. Regs. No. 3-98]

14. What fringe benefits are not subject to the fringe benefits tax ?

SUGGESTED ANSWER: Fringe benefits that are not subject to the fringe benefits tax:

a. When the fringe benefit is required by the nature of, or necessary to the trade, business or profession of the employer; or

b. When the fringe benefit is for the convenience or advantage of the employer. [Sec. 32(A), NIRC of 1997; 1st par., Sec. 2.33 (A), Rev. Regs. No. 3-98]

c. Fringe benefits which are authorized and exempted from income tax under the Tax Code or under any special law;

d. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plans;

e. Benefits given to the rank and file employees, whether granted under a collective bargaining agreement or not; and

f. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue. [1st par., Sec. 32 (C), NIRC of 1997; Sec. 2.33 (C), Rev. Regs. No. 3-98]

15. What is meant by de minimis benefits ?

SUGGESTED ANSWER: De minimis benefits are facilities and privileges (such as entertainment, medical services, or so-called “courtesy discounts” on purchases), furnished or offered by an employer to his employees. They are not considered as compensation subject to income tax and consequently to withholding tax, if such facilities are offered or furnished by the employer merely as a means of promoting the health, goodwill, contentment, or efficiency of his employees. [Sec. 2.78,1 (A) (3), Rev. Regs. 2-98 as amended by Rev. Regs. No. 8-2000]

16. What are the de minimis benefits not subject to withholding tax for both managerial and rank and file employees ?

SUGGESTED ANSWER: The following shall be considered as de minimis benefits not subject to withholding tax on compensation income of both managerial and rank and file employees:

a. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year;

b. Medical cash allowance to dependents of employees not exceeding P750.00 per employee per semester or P125 per month;

c. Rice subsidy of P1,000.00 or one (1) sack of 50-kg. rice per month amounting to not more than P1,000.00;

d. Uniforms and clothing allowance not exceeding P3,000.00 per annum;

e. Actual yearly medical benefits not exceeding P10,000.00 per annum;

f. Laundry allowance not exceeding P300 per month;

g. Employees achievement awards, e.g. for length of service or safety achievement, which must be in the form of a tangible persona property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by an employee under an established written plan which does not discriminate in favor of highly paid employees;

h. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per employee per annum;

i. Flowers, fruits, books, or similar items given to employees under special circumstances, e.g. on account of illness, marriage, birth of a baby, etc.; and

j. Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage.

The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30,000 ceiling of “other benefits” provided under Section 32 (B)(7)(e) of the Code. However, if the employer pays more than the ceiling prescribed by these regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling, provided, further, that any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or fringe benefits, shall constitute as deductible expense upon such employer. [Sec. 2.78.1 (A) (3), Rev. Regs. 2-98 as amended by Rev. Regs. No. 8-2000]

17. What is meant by income subject to “final tax” ?

SUGGESTED ANSWER: Income subject to “final tax” refers to an income collected through the withholding tax system.

The payor of the income withholds the tax and remits it to the government as a final settlement of the income tax as a final settlement of the income tax due on said income. The recipient is no longer required to include the income subjected to a final tax as part of his gross income in his income tax return.

18. Disinguish exclusions from deductions.

SUGGESTED ANSWER: Exclusions distinguished from deductions:

a. Exclusions from gross income refer to a flow of wealth to the taxpayer which are not treated as part of gross income for purposes of computing the taxpayer’s taxable income, due to the following reasons: (1) It is exempted by the fundamental law; (2) It is exempted by statute; and (3) It does not come within the definition of income (Sec. 61, Rev. Regs. No. 2) WHILE deductions are the amounts which the law allows to be subtracted from gross income in order to arrive at net income.

b. Exclusions pertain to the computation of gross income WHILE deductions pertain to the computation of net income.

c. Exclusions are something received or earned by the taxpayer which do not form part of gross income WHILE deductions are something spent or paid in earning gross income.

An example of an exclusion from gross income are life insurance proceeds, and an example of a deduction are losses.

19. What proceeds are excluded from gross income ?

SUGGESTED ANSWER: The following are excluded from gross income:

a. Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured whether in a single sum or otherwise.

b. Amounts 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 maturity of the term mentioned in the contract, or upon surrender of the contract.

c. Value of property acquired by gift, bequest, devise, or descent.

d. Amounts received, through accident or health insurance or Workmen’s Compensation Acts as compensation for personal injuries or sickness, plus the amounts of any damages received on whether by suit or agreement on account of such injuries or sickness.

e. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines.

f. Retirement benefits received under Republic Act No. 7641. Retirement received from reasonable private benefit plan after compliance with certain conditions. Amounts received for beyond control separation. Foreign social security, retirement gratuities, pensions, etc. USVA benefits, SSS benefits and GSIS benefits.

20. What conditions must be present in order to exclude retirement benefits from gross income ?

SUGGESTED ANSWER: Conditions for excluding retirement benefits from gross income, hence tax-exempt:

a. 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 the employer’s reasonable private benefit plan approved by the BIR.

b. Retiring official or employee

1) In the service of the same employer for at least ten (10) years;

2) Not less than fifty (50) years of age at time of retirement;

3) Availed of the benefit of exclusion only once. [Sec. 32 (B) (6) (a), NIRC of 1997] The retiring official or employee should not have previously availed of the privilege under the retirement plan of the same or another employer. [1st par., Sec. 2.78 (B) (1), Rev. Regs. No. 2-98]

21. What kind of separation pay is excluded from gross income ?

SUGGESTED ANSWER: Separation (retirement) pay excluded from gross income, hence tax-exempt:

a. Any amount received by an official, employee or by his heirs,

b. From the employer

c. As a consequence of separation of such official or employee from the service of the employer because of

1) Death, sickness or other physical disability; or

2) For any cause beyond the control of said official or employee [Sec. 32 (B) (6) (b), NIRC of 1997], such as retrenchment, redundancy and cessation of business. [1st par., Sec. 2.78 (B), (1) (b), Rev. Regs. No. 2-98]

22. What prizes are excluded from gross income ?

SUGGESTED ANSWER: Prizes that are excluded from gross income, hence not taxable:

a. Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement but only if

1) The recipient was selected without any action on his part to enter the contest or proceeding; and

2) The recipient is not required to render substantial future services as a condition to receiving the prize or award. [Sec. 32 (B) {7} {c}, NIRC of 1997]

b. All prizes and awards

1) Granted to athletes

2) In local and international sports tournaments and competitions

3) Whether held in the Philippines or abroad, and

4) Sanctioned by their national sports associations [Sec. 32(B) {7} {d}, NIRC of 1997], which per BIR ruling is accreditation with the Philippine Olympic Committee. Note that the exemption refers only to amateur sports. For professional boxing, a special law grants the exemption not the NIRC.

23. Who are allowed to deduct the optional standard deduction ?

SUGGESTED ANSWER: Only resident citizens and resident alien individuals are allowed to deduct the optional standard deduction on their gross income other than passive or compensation income.

Nonresident individuals, estates, trusts or corporations are not allowed to avail of this deduction.

24. What is the optional standard deduction ?

Sec. 34. Deductions from Gross Income. – Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship where no deductions shall be allowed under this Section other than under Section (M) hereof, in computing taxable income subject to income tax under Sections 24(A); 25(A); 26; 27(A), (B) and (C); and 28(A)(1) there shall be allowed the following deductions from gross income:

“(A) Expenses. –

“x x x

“(L) Optional Standard Deduction. – In lieu of the deductions allowed under the preceding Subsections, an individual subject to tax under Section 24, other than nonresident alien, may elect a standard deduction in an amount not exceeding forty percent (40%) of his gross sales or gross receipts, as the case may be. In the case of a corporation subject to tax under Sections 27(A) and 28(A)(1), it may elect a standard deduction in an amount not exceeding forty percent (40%) of its gross income as defined in Section 32 of this Code. Unless the taxpayer signifies in his return his intention to elect the optional standard deduction, he shall be considered as having availed himself of the deductions allowed in the preceding Subsections. Such election when made in the return shall irrevocable for the taxable year for which the return is made. Provided, That an individual who is entitled to an claimed for the optional standard deduction shall not be required to submit with his tax return such financial statements otherwise required under this Code: Provided, further, That except when the Commissioner otherwise permits the said individual shall keep such records pertaining to this gross sales or gross receipts, or the said corporation shall keep such records pertaining to this gross income as defined in Section 32 of this Code during the taxable year, as may be required by the rules and regulations promulgated by the Secretary of Finance, upon recommendation of the Commissioner. (Sec. 34, NIRC of 1997 as amended by R.A. No. 9504)

“(M) x x x. –

25. What are the allowed itemized deductions from gross income ?

SUGGESTED ANSWER: Itemized deductions from gross income:

a. Ordinary and necessary trade, business or professional expenses.

b. The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business.

Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

c. Taxes paid or incurred within the taxable year in connection with the taxpayer’s profession.

Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

d. Ordinary losses, losses from casualty, theft or embezzlement; and net operating losses.

Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

e. Bad debts due to the taxpayer, actually ascertained to be worthless and charged off within the taxable year, connected with profession, trade or business, not sustained between related parties.

Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

f. Depreciation or a reasonable allowance for the exhaustion, wear and tear (including reasonable allowance for obsolescence) of property used in trade or business.

Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

g. Depletion or deduction arising from the exhaustion of a non-replaceable asset, usually a natural resource.

Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

h. Charitable and other contributions. Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

i. Research and development expenditures treated as deferred expenses paid or incurred by the taxpayer in connection with his trade, business or profession, not deducted as expenses and chargeable to capital account but not chargeable to property of a character which is subject to depreciation or depletion.

Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

j. Contributions to pension trusts. Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations, estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

k. Insurance premiums for health and hospitalization. Resident citizens, resident alien individuals and nonresident alien individuals who are engaged in trade and business, on their gross incomes other from compensation income are allowed to deduct these expenses. Nonresident citizens and nonresident alien individual engaged in trade or business in the Philippine on their gross incomes from within may also deduct these premiums.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct these premiums.

l. Personal and additional exemptions. Resident citizens, and resident alien on their gross incomes and from compensation income are allowed to deduct these premiums. Nonresident citizens on their gross incomes from within may also deduct this expense. Nonresident alien individuals engaged in trade or business in the Philippines are allowed to deduct these exemptions under reciprocity.

Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.

26. What are extraordinary deductions ?

SUGGESTED ANSWER: Extraordinary deductions

a. Those allowed to insurance companies

b. Deductions allowed to estates and trusts availing of itemized deductions of income currently distributed to beneficiaries.

c. Losses from wash sales of stocks or securities.

d. Certain capital losses but only from capital gains.

27. What are ordinary expenses ?

SUGGESTED ANSWER: Ordinary expenses are those which are common to incur in the trade or business of the taxpayer WHILE capital expenditures are those incurred to improve assets and benefits for more than one taxable year. Ordinary expenses are usually incurred during a taxable year and benefits such taxable year. Necessary expenses are those which are appropriate or helpful to the business.

28. What are the requisites for the deductibility of business expenses ?

SUGGESTED ANSWER: The following are the requisites for deductibility of business expenses:

a. Compliance with the business test:

1) Must be ordinary and necessary;

2) Must be paid or incurred within the taxable year;

3) Must be paid or incurred in carrying on a trade or business.

4) Must not be bribes, kickbacks or other illegal expenditures

b. Compliance with the substantiation test. Proof by evidence or records of the deductions allowed by law including compliance with the business test.

29. What kind of advertising expenses are not deductible ? Why ?

SUGGESTED ANSWER: Advertising expenses not designed to stimulate the future sale of merchandise are not deductible These are expenditures in order to create or maintain some form of goodwill. These expenditures are to be spread over a reasonable period of time because they are considered that a capital asset which has a determinable life has been acquired. (General Foods [Phils.], Inc. v. Commissioner of Internal Revenue, CTA Case No. 4386, February 8, 1994)

30. What kind of advertising expenses are considered as capital investments ?

SUGGESTED ANSWER: Expenses incurred to create a favorable image for the corporation to generate sales of its shares of stock constitute capital investment because the particular advertising expense was incurred in relation to the capital asset or equity of the company (Atlas Consolidated Mining and Development Corporation v. Commissioner of Internal Revenue, 102 SCRA 246), and are to be capitalized or spread over a reasonable period.

31. Entertainment, Amusement and Recreation Expenses, include “representation expenses and/or depreciation or rental expense relating to entertainment facilities.” (1st par., Sec. 2, Rev. Regs. 110-2002)

32. Representation expenses, shall “refer to expenses incurred by a taxpayer in connection with the conduct of his trade, business or exercise of profession, in entertaining, providing amusement and recreation to, or meeting with a guest or guests at a dining place, place of amusement, country club, theater, concert, play, sporting event, and similar events or places.” (2nd par., Sec. 2, Rev. Regs. 10-2002)

Representation expenses “shall not refer to fixed representation allowances that are subject to withholding tax on wages pursuant to appropriate revenue regulations.” (Ibid.)

33. Club dues, when fringe benefits and when representation expenses. “In the case particularly of a country, golf, sports club, or any other similar club where the employee or officer of the taxpayer is the registered member and the expenses incurred in relation thereto are paid for by the taxpayer, there shall be a presumption that such expenses are fringe benefits subject to fringe benefits tax unless the taxpayer can prove that these are actually representation expenses. For purpose of proving that the said expense is a representation expense and not fringe benefits, the taxpayer should maintain receipts and adequate records that indicate

a) the amount of expense

b) date and place of expense

c) purpose of expense

d) professional or business relationship of expense

d) professional or business relationship of expense

e) name of person and company entertained with con-tact details.” (2nd par., Sec. 2, Rev. Regs. 10-2002)

34. Dues paid by company officers to any one club deductible by employer as business expense but not as representation or entertainment:

a. Dues paid to any one social, athletic, or sporting club or organization per officer may be deductible as a business expense. However, purchase of proprietary shares and playing rights and expenses in the said club or organization may be deductible only if said expense complies with the rules on substantiation. Dues on company membership constitute deductible expense. (No. 3.4.2, RAMO No. 1-87)

b. Dues or fees paid to professional or business organizations and civic clubs such as Lions, Rotary, Kiwanis shall be deductible to the employer to the extent of one club. (No. 3.4.3, RAMO No. 1-87)

The above provisions of RAMO No. 1-87 are to be read in relation to the provisions of Rev. Regs. No. 10-2002. If considered as a fringe benefit subject to the fringe benefits tax under Sec. 33, NIRC of 1997, may be deductible from the employer's gross income.

35. Entertainment facilities shall “refer to (1) a yacht, vacation home or condominium; and 2) any similar item of real or personal property used by the taxpayer primarily for the entertainment, amusement, or recreation of guests or employees. To be considered an entertainment facility, such yacht, vacation home or condominium, or item of real or personal property must be owned or form part of the taxpayer’s trade, business or profession, or rented by such taxpayer, for which the taxpayer claims a depreciation or rental expense. A yacht shall be considered an entertainment facility if its use is in fact not restricted to specified officers or employees or positions in such a manner as to make the same a fringe benefit for purposes of imposing the fringe benefits tax.” (4th par., Sec. 2, Rev. Regs. 10-2002)

36. Guests shall mean “persons or entities with which the taxpayer has direct business relations, such as but not limited to, clients/customers or prospective clients/customers. The term shall not include employees, officers, partners, directors, stockholders, or trustees of the taxpayer.” (last par., Sec. 2, Rev. Regs. No. 10-2002)

37. What expenses are not considered as entertainment, amusement and recreational expenses ?

SUGGESTED ANSWER:

a. Expenses which are treated as compensation or fringe benefits for services rendered under an employer-employee relationship;

b. Expenses for charitable or fund raising events;

c. Expenses for bona fide business meeting of stock-holders, partners or directors;

d. Expenses for attending or sponsoring an employee to a business league or professional organizational meeting;

e. Expenses organized for promotion, marketing and advertising including concerts, conferences, seminars, workshops, conventions, and other similar events;

f. Other expenses of similar nature.

Notwithstanding the foregoing such items of exclusions may, nonetheless qualify as items of deduction under Section 34 of the Tax Code of 1997, subject to conditions for deductibility stated therein. (Sec. 3, Rev. Regs. No. 10-2002)

38. Reimbursements for expenses relating to entertainment shall be deductible by the employer if

a. Used primarily for the furtherance of employer’s trade or business

b. Only to the extent allowable, the same is directly related to the active conduct of the employer’s trade or business and

c. Subject to the rule of substantiation.. (No. 3.4.1, RAMO No. 1-87)

If considered as a fringe benefit subject to the fringe benefits tax under Sec. 33, NIRC of 1997, may be deductible from the employer's gross income. Refer to previous discussion for limitations.

39. Representation expenses fall under the category of business expenses which are allowable deductions, if they are ordinary and necessary; paid or incurred in carrying on a trade or business; and they are reasonable. (Zamora v. Col. of Int. Revenue, 8 SCRA 163 cited in Paramount Insurance Corporation v. Commissioner of Internal Revenue, CTA Case No. 4844,. June 7, 1996)

If treated as a fringe benefit, subject to the fringe benefits tax under Sec. 33, NIRC of 1997, it may be allowed as a deduction from the employer's gross income.

40. Representation expenses not supported by official receipts should be disallowed. Mere receipts when signed by the company officers themselves are not sufficient, for while they may show that they received the amount from the company, they do not prove payment of the alleged representation expenses to the entity in which the same were incurred. Furthermore, the absence of invoices receipts or vouchers, particularly lack of proof of the items constituting the expense is fatal to the allowance of the deduction. (Paramount Insurance Corporation v. Commissioner of Internal Revenue, CTA Case No. 4844, June 7, 1996 citing Collector of Internal Revenue v. Goodrich Int. Rubber Co., 21 SCRA 1336 and Gancayco v. Collector of Internal Revenue, 1 SCRA 980)

41. What are the requisites for deductibility of an “entertainment, amusement and recreation” expense ?

SUGGESTED ANSWER:

a. It must be a reasonable allowance for entertainment, amusement and recreation expenses [Sec. 34 (A) (1) (iv), NIRC of 1997];

b. It must be paid or incurred during the taxable year;

c. It must be

1) directly connected to the development, management and operation of the trade, business or profession of the taxpayer, or

2) directly related to or in furtherance of the conduct of its trade, business or exercise of a profession;

d. It must not be contrary to law, morals, good customs, public policy or public order;

e. It must not have been paid, directly or indirectly, to an official or employee of the national government, or any local government unit, or of any government-owned or controlled corporation (GOCC), or of a foreign government, or to a private individual, or corporation, or general professional partnership (GPP), or a similar entity, if it constitutes a bribe, kickback or other similar payment;

f. It must be duly substantiated by adequate proof. The official receipts, or invoices, or bills or statements of accounts should be in the name of the taxpayer claiming the deduction; and

g. The appropriate amount of withholding tax, if applicable, should have withheld therefrom and paid to the Bureau of Internal Revenue. (Sec. 4, Rev. Regs. No. 10-2002)

i. It must conform to the following ceilings:

1) in an amount equivalent to the actual entertainment, amusement and recreation expense paid or incurred within the taxable year by the taxpayer,

2) but in no case shall such deduction exceed 0.50 percent (.5%) of net sales (i.e. gross sales less sales returns/allowances and sales discounts) for taxpayers engaged in sale of goods or properties; or

3) 1.00 percent (1%) of net revenue (i.e., gross revenue less discounts) for taxpayers engaged in sale of services, including exercise of profession and use or lease of properties.

4) However, if the taxpayer is deriving income from both sale of goods/properties and services, the allowable entertainment, amusement and recreation expense shall in all cases be determined based on an apportionment formula taking into consideration the percentage of the net sales/net revenue to the total net sales/net revenue, but which in no case shall exceed the maximum percentage ceiling. (Sec. 5, Ibid.)

42. Who are allowed to deduct entertainment, amusement and recreation expenses ?

a. Individuals engaged in trade or business, including taxable estates and trusts;

b. Individuals engaged in the practice of profession;

c. Domestic corporations;

d. Resident foreign corporations;

e. General professional partnerships.

43. Are dividends or “interests” on preferred shares deductible from gross income ?

SUGGESTED ANSWER: Preferred shares are considered capital regardless of the conditions under which such shares are issued and dividends or “interests” paid thereon are not allowed as deductions from the gross income of corporations. (Revenue Memorandum Circular No. 17-71)

44. In addition to the expenses allowable as deductions a private educational institution, may at its option elect either:

a. To deduct expenditures otherwise considered as capital outlays of depreciable assets incurred during the taxable year for the expansion of school facilities, or

b. To deduct allowance for depreciation thereof. [Sec. 34 (A) (2), NIRC of 1997]

45. Financial statements audited by in dependent external auditors constitute the normal method of proof of the profit and loss performance of a company. A comparative statement of revenue and expenses for two years, by itself, is not conclusive proof of serious business losses. (Bogo-Medellin Sugarcane Planters Association, Inc. v. NLRC, et al., 296 SCRA 108, 121)

46. Define bad debts.

SUGGESTED ANSWER: Bad debts are those which result from the worthlessness or uncollectibility, in whole or in part, of amounts due the taxpayer by others, arising from money lent or from uncollectible amounts of income from goods sold or services rendered. (Sec. 2.a, Rev. Regs. 5-99)

47. What are the requisites for a valid deduction of bad debts from gross income ?

SUGGESTED ANSWER:

a. There must be an existing indebtedness due to the taxpayer which must be valid and legally demandable;

b. The same must be connected with the taxpayer’s trade, business or practice of profession;

c. The same must not be sustained in a transaction entered into between related parties;

d. The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year; and

e. The debt must be actually ascertained to be worthless and uncollectible during the taxable year;

f. The debts are uncollectible despite diligent effort exerted by the taxpayer. [Sec. 34 (E) (1), NIRC of 1997; Sec. 3, Rev. Regs. No. 5-99 reiterated in Rev. Regs. No. 25-2002; Philippine Refining Corporation v. Court of Appeals, et al., 256 SCRA 667]

g. Must have been reported as receivables in the income tax return of the current or prior years. (Sec. 103, Rev. Regs. No. 2)

48. Who are related parties ?

SUGGESTED ANSWER: The following are related parties:

a. Members of the same family. The family of an individual shall include only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants;

b. A corporation more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual;

c. Two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned, directly or indirectly, by or for the same individual;

d. A grantor and a fiduciary of any trust; or

e. The fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust; or

f. A fiduciary of a trust and a beneficiary of such. [Sec. 36 (B), NIRC of 1997]

49. May the value of worthless securities be deductible from gross income ?

SUGGESTED ANSWER: The value of worthless securities are not allowed to be deductible from gross income because they are considered as capital losses and may be deducted only from capital gains.

50. What is the “tax benefit rule” ?

SUGGESTED ANSWER: The “tax benefit rule” posits that the recovery of bad debts previously allowed as deduction in the preceding year or years shall be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction.

51. What is depreciation ?

SUGGESTED ANSWER: Depreciation is the gradual diminution in the useful value of tangible property resulting from ordinary wear and tear and from normal obsolescence. The term is also applied to amortization of the value of intangible assets the use of which in the trade or business is definitely limited in duration.

52. What are the methods of depreciation ?

SUGGESTED ANSWER: The methods of depreciation are the following:

a. Straight line method;

b. Declining balance method;

c. Sum of years digits method; and

d. Any other method prescribed by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue:

1) Apportionment to units of production;

2) Hours of productive use;

3) Revaluation method; and

4) sinking fund method.

:

53. What are personal and additional exemptions ?

SUGGESTED ANSWER: These are the theoretical persona, living and family expenses of an individual allowed to be deducted from the gross or net income of an individual taxpayer.

These are arbitrary amounts which have been calculated by our lawmakers to be roughly equivalent to the minimum of subsistence, taking into account the personal status and additional qualified dependents of the taxpayer. They are fixed amounts in the sense that the amounts have been predetermined by our lawmakers and until our lawmakers make new adjustments on these personal exemptions, the amounts allowed to be deducted by a taxpayer are fixed as predetermined by Congress. [Pansacola v. Commissioner of Internal Revenue, G. R. No. 159991, November 16, 2006 citing Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414, 418 (1918)]

54. What are the personal exemptions allowed for an individual taxpayer ?

SUGGESTED ANSWER:

Fifty thousand pesos (P50,000) for each individual taxpayer. [NIRC of 1997, Sec. 55 (A) 1st par., as amended by R.A. No. 9504)

“In the case of married individuals where only one of the spouse is deriving gross income, only such spouse shall be allowed the personal exemption. [NIRC of 1997, Sec. 55 (A) 2nd par., as amended by R.A. No. 9504)

“(B) Additional Exemption for Dependents. – There shall be allowed an additional exemption of Twenty-five thousand pesos (P25,000) for each dependent not exceeding four (4).

“The additional exemption for dependents shall be claimed by only one of the spouses in the case of married individuals.

“In the case of legally separated spouses, additional exemptions may be claimed only by the spouse who has custody of the child or children: Provided, That the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions herein allowed.

“For purposes of this Subsection, a ‘dependent’ means a legitimate, illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age, unmarried and not gainfully employed or if such dependent, regardless of age, is incapable of self-support because of mental or physical defect.

“x x x” (Sec. 35, NIRC of 1997, as amended by R.A. No. 9504)

CAPITAL GAINS TAXATION

1. What are capital assets ? Explain.

SUGGESTED ANSWER: Capital assets shall refer to all real properties held by a taxpayer, whether or not connected with his trade or business, and which are not included among the real properties considered as ordinary assets. (Sec. 2.a, Rev. Regs. No. 7-2003)

The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business), BUT DOES NOT INCLUDE:

a. Stock in trade of the taxpayer, or

b. Other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year, or

c. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or

d. Property used in the trade or business, of a character which is subject to the allowance for depreciation; or real property used in the trade or business of the taxpayer. [Sec. 39 (A) (1), NIRC of 1997, capitalized words, numbering and arrangement supplied; Sec. 2.a, Rev. Regs. No. 7-2003]

2. Give some examples of capital assets

SUGGESTED ANSWER:

a. Stock and securities held by taxpayers other than dealers in securities;

b. Jewelry not used for trade and business;

c. Residential houses and lands owned and used as such;

d. Automobiles not used in trade and business;

e. Paintings, sculptures, stamp collections, objects of arts which are not used in trade or business;

f. Inherited large tracts of agricultural land which were subdivided pursuant to the government mandate under land reform, then sold to tenants. (Roxas v. Court of Tax Appeals, etc. L-25043, April 26, 1968)

g. “Real property used by an exempt corporation in its exempt operations, such as a corporation included in the enumeration of Section 30 of the Code, shall not be considered used for business purposes, and therefore considered as capital asset.” (last sentence, 3rd par., Sec. 3.b, Rev. Regs. No. 7-2003)

h. “Real property, whether single detached, townhouse, or condominium unit, not used in trade or business as evidenced by a certification from the Barangay Chairman or from the head of administration, in case of condominium unit, townhouse or apartment, and as validated from the existing available records of the Bureau of Internal Revenue, owned by an individual engaged in business, shall be treated as capital asset.” (last par., Sec. 3.b., Rev. Regs. No. 7-2003)

3. What are considered as ordinary assets ?

SUGGESTED ANSWER: Ordinary assets shall refer to all real properties specifically excluded from the definition of capital assets, namely:

a. Stock in trade of a taxpayer or other real property of a kind which would properly be included in the inventory of a taxpayer if on hand at the close of the taxable year; or

b. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business; or

c. Real property used in trade or business (i.e. buildings and/or improvements), of a character which is subject to the allowance for depreciation; or

d. Real property used in trade or business of the taxpayer. (Sec. 2. b, Rev. Regs. No. 7-2003)

4.. Give some examples of ordinary assets hence not capital assets.

SUGGESTED ANSWER:

a. The machinery and equipment of a manufacturing concern subject to depreciation;

b. The tractors, trailers and trucks of a hauling company;

c. The condominium building owned by a realty company the units of which are for rent or for sale;

d. The wood, paint, varnish, nails, glue, etc. which are the raw materials of a furniture factory;

e. Inherited parcels of land of substantial areas located in the heart of Metro Manila, which were subdivided into smaller lots then sold on installment basis after introducing comparatively valuable improvements not for the purpose of simply liquidating the estate but to make them more saleable ; the employment of an attorney-in-fact for the purpose of developing, managing, administering and selling the lots; sales made with frequency and continuity; annual sales income from the sales was considerable; and the heir was not a stranger to the real estate business. (Tuazon, Jr. v. Lingad, 58 SCRA 170)

f. Inherited agricultural property improved by introduction of good roads, concrete gutters, drainage and lighting systems converts the property to an ordinary asset. The property forms part of the stock in trade of the owner, hence an ordinary asset. This is so, as the owner is now engaged in the business of subdividing real estate. (Calasanz v. Commissioner of Internal Revenue, 144 SCRA at p. 672)

g. Real properties acquired by banks through foreclosure sales are considered their ordinary assets. However, banks shall not be considered as habitually engaged in the real estate business for purposes of determining the applicable rate of withholding tax. (Sec. 2. b, Rev. Regs. No. 7-2003)

“A property purchased for future use in the business, even though this purpose is later thwarted by circumstances beyond the taxpayer’s control, does not lose its character as an ordinary asset. Nor does a mere discontinuance of the active use of the property change its character previously established as a business property.” (last sentence, Sec. 3.a.4, Rev. Regs. No. 7-2003)

5. Factors considered as helpful guides in determining whether asset is ordinary or capital:

a. The purpose for which the property was initially acquired;

b. The purpose for which the property was subsequently held;

c. The extent to which the improvements, if any, were made by the taxpayer;

d. The frequency, number and continuity of sales;

e. The extent and nature of the transactions involved;

f. The ordinary business of the taxpayer;

g. The extent of advertising, promotion, or other activities used in soliciting buyers for the sale of the property;

h. The listing of property, with brokers; and

i. The purpose for which the property was held at the time of sale. [Elumba, et al. v. The Honorable Commissioner of Internal Revenue, CTA Case No. 5103, August 16, 1996; Klarkowski, TCM 1965-328, affirmed 385 F. 2d (CA-7, 1967)]

j. “Real properties acquired by banks through foreclosure sales are considered as their ordinary assets. However, banks shall not be considered as habitually engaged in the real estate business for purposes of determining the application rate of withholding tax imposed” under Revenue Regulations. (last par., Sec. 2.b, Rev. Regs. No. 7-2003)

6. What is the tax treatment of real properties that have been transferred ?

SUGGESTED ANSSWER: Real properties classified as capital or ordinary asset in the hands of the seller/transferor may change their character in the hands of the buyer/transferee. The classification of such property in the hands of the buyer/transferee shall be determined in accordance with the following rules:

a. Real property transferred through succession or donation to the heir or donee who is not engaged in the real estate business with respect to the real property inherited or donated, and who does not subsequently use such property in trade or business, shall be considered as a capital asset in the hands of the heir or donee.

b. Real property received as dividend by stockholders who are not engaged in the real estate business and who not subsequently use such real property in trade or business shall be treated as capital assets in the hands of the recipient even if the corporation which declared the real property dividend is engaged in real estate business.

c. The real property received in an exchange shall be treated as ordinary asset in the hands of the transferee in the case of a tax-free exchange by taxpayer not engaged in real estate business to a taxpayer who is engaged in real estate business, or to a taxpayer who, even if not engaged in real estate business, will use in business the property received in the exchange. (Sec. 3.f., Rev. Regs. No. 7-2003)

7. “Monetary consideration or the presence or absence of profit in the operation of the property is not significant in the characterization of the property. So long as the property is or has been used for business purposes, whether for the benefit of the owner or nay of its members or stockholders, it shall be considered as an ordinary asset.” (1st and 2nd sentences, 3rd par., Sec. 3.b., Rev. Regs. No. 7-2003)

8. Taxpayers engaged in the real estate business shall refer collectively to real estate dealers, real estate developers, and/or real estate lessors. (Sec. 2.g, Rev. Regs. No. 7-2003)

9. The term taxpayers not engaged in the real estate business shall refer to persons other than real estate dealers, real estate developers and/or real estate lessors. A taxpayer whose primary purpose of engaging in business, or whose Articles of Incorporation states that its primary purpose is to engage in the real estate business shall be deemed to been engaged in the real estate business. (Sec. 2.g, Rev. Regs. No. 7-2003)

10. The tax is “imposed upon capital gains presumed to have been realized from the sale, exchange, or other disposition of real property located in the Philippines, classified as capital assets.” [Sec. 24 (D) (1`), NIRC of 1997] Revenue Regulations No. 7-2003 has defined real property as having “the same meaning attributed to that term under Article 415 of Republic Act No. 386, otherwise known as the ‘Civil Code of the Philippines.’ (Sec. 2.c, Rev. Regs. No. 7-2003)

11. What transactions are covered by the presumed capital gains tax on real property ?

SUGGESTED ANSWER:

a. sale,

b. exchange,

c. or other disposition, including pacto de retro sales and other forms of conditional sales. [Sec. 24 (D) (1), NIRC of 1997, numbering and arrangement supplied]

d. Sale, exchange, or other disposition” includes taking by the government through condemnation proceedings. (Gutierrez v. Court of Tax Appeals, et al., 101 Phil. 713; Gonzales v. Court of Tax Appeals, et al., 121 Phil. 861)

12. A final withholding tax (FWT) of 20% on passive income is collected from the interest income of banks. It likewise has to pay a 5% gross receipts tax (GRT) on gross receipts which includes their passive income. XYZ Bank now claims that the GRT should be computed after deducting the 20% passive income tax on the ground that the monies or receipts that do not redound to the benefit of the taxpayer are not part of its gross receipts. To impose the GRT without deducting the 20% would be double taxation. It also contends that since the 20% was withheld at source and is paid directly to the government, then the bank has not received the same. Thus, it should not be included in the gross receipts subject to tax.

Resolve the issue of whether the 20% FWT on the bank’s passive income form part of the taxable gross receipts for the purpose of computing the 5% GRT.

SUGGESTED ANSWER: No. The word “gross” must be used in its plain and ordinary meaning. It is defined as “whole, entire, total, without deduction.” Thus, the 20% should not be deducted for purposes of computing the 5% gross receipts tax.

Receipt may either be actual or constructive. There is prior to the withholding a constructive receipt of the interest, otherwise there would be no interest from where the 20% tax may be withheld from.

There is no double taxation because there are two kinds of taxes, the 20% FWT which is an income tax and the 5% GRT which is a percentage tax. (Commissioner of Internal Revenue v. Citytrust Investment Phils., Inc., G. R. No. 139786, September 27, 2006 and companion case)

13. MBC was incorporated in 1961 and engaged in commercial banking operations since 1987. On May 22, 1987, it ceased operations that year by reason of insolvency and its assets and liabilities were placed under the charge of a government-appointed receiver. On June 23, 1999, the BSP authorized MBC to operate as a thrift bank.

In 2000, It filed its tax return for the year 1999 paying the amount of P33 million computed in accordance with the minimum corporate income tax (MCIT). It sought the BIR’s ruling on whether it is entitled to the four (4) year grace period for paying on the basis of MCIT reckoned from 1999. BIR then ruled that cessation of business activities as a result of being placed under involuntary receivership may be an economic reason for suspending the imposition of the MCIT.

As a result of the ruling MBC filed an application for refund of the P33 million. Due to the BIR’s inaction, MBC filed a petition for review with the CTA.

The CTA denied the petition on the ground that MBC is not a newly organized corporation. In a volte facie the BIR now maintains that MBC should pay the MCIT beginning January 1, 1998 as it did not close its business operations in 1987 but merely suspended the same. Even if placed under receivership, the corporate existence was never affected. Thus, it falls under the category of an existing corporation recommencing its banking operations.

Should the refund be granted ?

SUGGESTED ANSWER: Yes. The MCIT shall be imposed beginning in the fourth taxable year immediately following the year in which the corporation commenced its business operations. [Sec. 27 (E) (1), NIRC of 1997]

The date of commencement of operations of a thrift bank is the date it was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board, whichever comes later. (Sec. 6, Rev. Regs. No. 4-95)

Clearly then. MBC is entitled to the grace period of four years from June 23, 1999 when it was authorized by the BSP to operate as a thrift bank before the MCIT should be applied to it. (Manila Banking Corporation v. Commissioner of Internal Revenue, G. R. No. 168118, August 26, 2006)

14. In case the mortgagor exercises his right of redemption within one (1) year from the issuance of the certificate of sale, in a foreclosure of mortgage sale of real property, no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. [Sec. 3 (1), Rev. Regs. No. 4-99]

15. In case of non-redemption of the property sold upon a foreclosure of mortgage sale, the presumed capital gains tax shall be imposed, based on the bid price of the highest bidder but only upon the expiration of the one year period of redemption provided for under Sec. 6 of Act No. 3135, as amended by Act No. 4118, and shall be paid within thirty (30) days from the expiration of the said one-year redemption period. [Sec. 3 (2), Rev. Regs. No. 4-99]

16. Real properties acquired by banks through foreclosure sales are considered as their ordinary assets. However, banks shall not be considered as habitually engaged in the real estate business for purposes of determining the application rate of withholding tax imposed” under Revenue Regulations. (last par., Sec. 2.b, Rev. Regs. No. 7-2003)

17. The basis for the final presumed capital gains tax of six per cent (6%) is whichever is the higher of the

a. gross selling price, or

b. the current fair market value as determined below:

1) the fair market value or real properties located in each zone or area as determined by the Commissioner of Internal Revenue after consultation with competent appraisers both from the private and public sectors; or

2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. [Sec. 24 (D) (1) in relation to Sec. 6 (E), both of the NIRC of 1997]

18. Holding period not applied to the taxation of the presumed capital gains derived from the sale of real property considered as capital assets.

19. The tax liability, of individual taxpayers (not corporate), if any, on gains from sales or other dispositions of real property, classified as capital assets, to the government or any of its political subdivisions or agencies or to government owned or controlled corporations shall be determined, at the option of the taxpayer, by including the proceeds as part of gross income to be subjected to the allowable deductions and/or personal and additional exemptions, then to the schedular tax [Sec. 24 (D) (1), in relation to Sec. 24 (A) (1), both of the NIRC of 1997] or the final presumed capital gains tax of six percent (6%). [Sec. 24 (D) (1) in relation to Sec. 6 (E), both of the NIRC of 1997]

20. The interest at the legal rate on the value of expropriated land should be taxed as ordinary income, and not as capital gains. (Gonzales v. Court of Tax Appeals, et al., 121 Phil. 861)

21. The seller of the real property, classified as a capital asset, pays the presumed capital gains tax whether:

a. an individual [Sec. 24 (D) (1), NIRC of 1997];

1) Citizen, whether resident or not [Ibid.];

2) Resident alien [Ibid.];

3) Nonresident alien engaged in trade or business in the Philippines [Sec. 25 (A) (3) in relation to Sec. 24 (D) (1), both of the NIRC of 1997];

4) Nonresident alien not engaged in trade or business in the Philippines [Sec. 25 (B) in relation to Sec. 24 (D) (1), both of the NIRC of 1997];

b. an estate or trust (Ibid.);

c. a domestic corporation. [Sec. 27 (D) (5), NIRC of 1997]

22. The proceeds of sale of real property, classified as capital assets, by foreign corporations shall be subject to ordinary income taxation of whichever is higher between the reduced rate of 32% and the minimum corporate income tax [Sec. 28 (A) (1) (2) in relation to Sec. 27 (E), both of the NIRC of 1997]

23. In the instances where non-resident aliens are qualified to own real property in the Philippines (like condominium units, or buildings, or other immovables as defined under Art. 415 of Rep. Act No. 386, the Civil Code of the Philippines), and these are considered as capital in character, they are to be subject to tax in the same manner as citizens and resident aliens. [Sec. 25 (A) (3) and Sec. 25 (B) in relation to Sec. 24 (D), all of the NIRC of 1997]

24. Excepted from the payment of the presumed capital gains tax are those presumed to have been realized from the disposition by natural persons of their principal place of residence

a. the proceeds of which is fully utilized in acquiring or constructing a new principal residence;

b. within eighteen (18) calendar months from the date of sale or disposition

c. the BIR Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption; and

d. the said tax exemption can only be availed of once every ten (10) years. [Sec. 24 (D) (2), NIRC of 1997]

25. Net loss carry-over means the deduction from net capital gains of a succeeding year the net capital loss suffered during the prior year. Net operating loss carry-over is the deduction from gross income for the next three (3) consecutive taxable years following the year of such loss, the excess of allowable deduction over the gross income. (Sec. 39 [D], NIRC of 1997)

26. Distinctions between net loss carry-over and net operating loss carry-over.

a. Source: The source of net loss carry-over are capital losses only WHILE the source of net operating loss carry-over are from the ordinary trade and business of the taxpayer.

b. Who may enjoy the carry-over: Only taxpayers other than corporations may enjoy net loss carry-over WHILE only corporations may enjoy the net operating loss carry-over. (Sec. 39 [D], NIRC of 1997)

27. Concept of net loss carry-over. Any taxpayer, other than a corporation (individuals including trusts and estates), who sustains in any taxable year a net capital loss from capital transactions involving capital assets (other than real property or shares of stock not listed or traded in the stock exchange), is allowed to treat during the succeeding year such net capital loss as a loss from the sale or exchange of a capital asset (other than real property or shares of stock not listed and traded in the stock exchange), held for more than twelve months. (Sec. 39 [D], NIRC of 1997)

28. The equity investment by a bank in another corporation is capital in character, the loss of which could be deductible only from capital gains, and not from any other income of the taxpayer. (China Banking Corporation v. Court of Appeals, et al., G.R. No. 12508, July 19, 2000)

29. A capital gain or a capital loss normally requires the concurrence of two conditions for it to result:

a. There is a sale or exchange; and

b. The thing sold or exchanged is a capital asset.

When securities become worthless there is strictly no sale or exchange but the law deems the loss anyway to be “a loss from the sale or exchange of capital assets. (China Banking Corporation v. Court of Appeals, et al., G.R. No. 12508, July 19, 2000)

30. Securities, defined for deductibility of bad debts are shares of stock in a corporation and rights to subscribe for or to receive such shares. The term includes bonds, debentures, notes or certificates, or other evidence of indebtedness, issued by any corporation, including those issued by a government or political subdivision thereof, with interest coupons or in registered form. (Sec. 2.b, Rev. Regs. No. 5-99)

31. General rule: If securities, held as capital asset, are ascertained to be worthless and charged off within the taxable year, the loss resulting therefrom shall be considered as a loss from the sale or exchange of capital asset made on the last day of such taxable year. The taxpayer, however, has to prove through clear and convincing evidence that the securities are in fact worthless. (Sec. 5, Rev. Regs. No. 5-99)

32. The above rule, however, is not true in the case of banks or trust companies incorporated under the laws of the Philippines, a substantial part of whose business is the receipt of deposits. (Sec. 5, Rev. Regs. No. 5-99)

Is a mutual life insurance company which is considered as a cooperative required to register with the Cooperatives Development Authority (CDA) before it could avail of the exemptions from the payment of percentage taxes under Sec. 121 and documentary stamps on policies of insurance or annuities under Sec. 199 both of the BIRC ?

ANSWER: No. The Tax Code does not require a mutual life insurance company to register with the CDA in order to enjoy the exemption. Only cooperatives to be formed or organized under the Cooperative Code require registration with the CDA and a mutual life insurance company is not one of them. Finally, not even the Insurance Code requires registration with the CDA. (Republic , etc. v. Sunlife Assurance Company of Canada, G. R. No. 158085, October 14, 2005)

“Sec. 24. Income Tax Rates. –

“(A)” Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. –

“(1) x x x

“x x x; and

“(c) On the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual alien who is a resident of the Philippines.

“(2) Rates of Tax on Taxable Income of Individuals. – The tax shall be computed in accordance with and at the rates established in the following schedule:

“Not over P10,000 ………………………………………. 5%

“Over P10,000 but not over P30,000 ……………… P500 + 10% of excess over P10,000

“Over P30,000 but not over P70,000 ……………… P2,500 + 15% of the excess over P30,000

“Over P70,000 but not over P140,000 ……………. P8,500 + 20% of the excess over P70,000

“Over P140,000 but not over P250,000 ………….. P22,500 + 25% of the excess over P140,000

“Over P250,000 but not over P500,000 ………….. P50,000 + 30% of the excess over P250,000

“Over P500,000 ………………………………………….. P125,000 + 32% of the excess over P500,000

“For married individuals, the husband and wife, subject to the provision of Section 51(D) hereof, shall compute separately their individual income tax based on their respective total taxable income: Provided, That if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income.

“Provided, That minimum wage earners as defined in Section 22(HH) of this Code shall be exempt from the payment of income tax on their taxable income: Provided, further, That the holiday pay, overtime pay, night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax.

“x x x.” [Sec. 24, NIRC of 1997 as amended by R.A. No. 9504)

GG)” The term ‘statutory minimum wage’ shall refer to the rate fixed by the Regional Tripartite Wage and Productivity Board, as defined by the Bureau of Labor and Employment Statistics (BLES) of the Department of Labor and Employment (DOLE). [Sec. 22 (GG), NIRC of 1997 as added by R.A. No. 9504]

“(HH)” The term ‘minimum wage earner’ shall refer to a worker in the private sector paid the statutory minimum wage, or to an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned.” [Sec. 22 (HH), NIRC of 1997, as added by R.A. No. 9504]

TRANSFER TAXES

ESTATE TAXES

1. The gross estate for purposes of estate taxation of Filipino citizens, whether residents or nonresidents and resident alien includes the value at the time of his death of all his real property, wherever situated, personal property, whether tangible, intangible or mixed, wherever situated, to the extent of the interest existing therein of the decedent at the time of his death.

2. The gross estate for purposes of estate taxation of non-resident aliens includes the value at the time of his death of all the real property situated in the Philippines, personal property whether tangible, intangible or mixed, situated in the Philippines, to the extent of the interest therein of the decedent at the time of his death.

3. Items deductible from the gross estate of a resident or nonresident Filipino decedent or resident alien decedent:

a. Expenses, losses, claims, indebtedness and taxes;

b. Property previously taxed;

c. Transfers for public use;

d. The Family Home up to a value not exceeding P1 million;

e. Standard deduction of P1 million;

f. Medical expenses not exceeding P500,000.00;

g. Amount of exempt retirement received by the heirs under Rep. Act Mo. 4917;

h. Net share of the surviving spouse in the conjugal partnership.

4. The notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such settlement effected a distribution of the estate to his lawful heirs, Similarly, the attorney’s fees for a guardian of the property during the decedent’s lifetime should also be considered as a deductible administration expense. The guardian gives a detailed accounting of decedent’s property and gives advice as to the proper settlement of the estate, acts which contributed towards the collection of decedent’s assets and the subsequent settlement of the case. (Commissioner of Internal Revenue v. Court of Appeals, et al., G.R. No. 123206, March 22, 2000)

5. Judicial expenses are expenses of administration. Administration expenses, as an allowable deduction from gross estate of the decedent for purposes of arriving at the value of the net estate, have been construed to include all expenses “essential to the collection of the assets, payment of debts or the distribution of the property to the persons entitled to it.” In other words, the expenses must be essential to the proper settlement of the estate.

6. Not deductible are expenditures incurred for the individual benefit of the heirs, devisees or legatees. Thus, in Lorenzo v. Posadas, the Court construed the phrase “judicial expenses of the testamentary or intestate proceedings” as not including the compensation paid to a trustee of the decedent’s estate when it appeared that such trustee was appointed for the purpose of managing the decedent’s real property for the benefit of the testamentary heir. In another case, the Court disallowed the premiums paid on the bond filed by the administrator as an expense of administration since the giving of a bond is in the nature of a qualification for the office, and not necessary in the settlement of the estate. Neither may attorney’s fees incident to litigation incurred by the heirs in asserting their respective rights be claimed as a deduction from the gross estate. (Commissioner of Internal Revenue v. Court of Appeals, et al., G.R. No. 123206, March 22, 2000)

7. Not every inter-vivos transfer in anticipation of death is considered “transfer in contemplation of death” for purposes of determining the property to be included in the gross estate of a decedent.

8. To be considered a “transfer in contemplation of death” “the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after death” [Sec. 85 (B), NIRC of 1997]. It is clear that the properties are not transferred in contemplation of or intended to take effect in possession or enjoyment at or after death.

9. There is no transfer in contemplation of death if there is no showing the transferor “retained for his life or for any period which does not in fact end before his death: (1) the possession or enjoyment of, or the right to the income from the property, or (2) the right, either alone or in conjunction with any person, to designate the person who shall possess or enjoy the property or the income therefrom.” [Sec. 85 (B), NIRC of 1997]

10. The approval of the court sitting in probate, or as a settlement tribunal over the estate of the deceased is not a mandatory requirement for the collection of the estate. The probate court is determining issues which are not against the property of the decedent, or a claim against the estate as such, but is against the interest or property right which the heir, legatee, devisee, etc. has in the property formerly held by the decedent.

The notices of levy were regularly issued within the prescriptive period.

The tax assessment having become final, executory and enforceable, the same can no longer be contested by means of a disguised protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47)

11. The approval of the court sitting in probate, or as a settlement tribunal over the estate of the deceased is not a mandatory requirement for the collection of the estate. The probate court is determining issues which are not against the property of the decedent, or a claim against the estate as such, but is against the interest or property right which the heir, legatee, devisee, etc. has in the property formerly held by the decedent.

The notices of levy were regularly issued within the prescriptive period.

The tax assessment having become final, executory and enforceable, the same can no longer be contested by means of a disguised protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47)

12. Jose died and his estate taxes were correspondingly paid as shown by a Tax Clearance issued by the BIR to the effect that the taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be transferred to his heirs.

Subsequently the BIR issued an assessment notice on the ground that there were improper deductions as the claims against the estate were subsequently compromised.

As a result, the specific question is whether the actual claims of the aforementioned creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors.

In short, is the estate still liable for deficiency estate taxes ?

SUGGESTED ANSWER: No. The estate is not liable for deficiency estate taxes. The claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions.

Reasons: First. There is no law, nor may there be discerned any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or activity is taxable is generally resolved against taxation.

Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. (Dizon, etc., v. Court of Tax Appeals, et al., G.R. No. 140944, April 30, 2008)

13. The approval of the court sitting in probate, or as a settlement tribunal over the estate of the deceased is not a mandatory requirement for the collection of the estate. The probate court is determining issues which are not against the property of the decedent, or a claim against the estate as such, but is against the interest or property right which the heir, legatee, devisee, etc. has in the property formerly held by the decedent.

The notices of levy were regularly issued within the prescriptive period.

The tax assessment having become final, executory and enforceable, the same can no longer be contested by means of a disguised protest. (Marcos, II v. Court of Appeals, et al., 273 SCRA 47)

14. Jose died and his estate taxes were correspondingly paid as shown by a Tax Clearance issued by the BIR to the effect that the taxes due on the transfer of real and personal properties of Jose had been fully paid and said properties may be transferred to his heirs.

Subsequently the BIR issued an assessment notice on the ground that there were improper deductions as the claims against the estate were subsequently compromised.

As a result, the specific question is whether the actual claims of the aforementioned creditors may be fully allowed as deductions from the gross estate of Jose despite the fact that the said claims were reduced or condoned through compromise agreements entered into by the Estate with its creditors.

In short, is the estate still liable for deficiency estate taxes ?

SUGGESTED ANSWER: No. The estate is not liable for deficiency estate taxes. The claims existing at the time of death are significant to, and should be made the basis of, the determination of allowable deductions.

Reasons: First. There is no law, nor may there be discerned any legislative intent in our tax laws, which disregards the date-of-death valuation principle and particularly provides that post-death developments must be considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax statutes being construed strictissimi juris against the government. Any doubt on whether a person, article or activity is taxable is generally resolved against taxation.

Second. Such construction finds relevance and consistency in our Rules on Special Proceedings wherein the term "claims" required to be presented against a decedent's estate is generally construed to mean debts or demands of a pecuniary nature which could have been enforced against the deceased in his lifetime, or liability contracted by the deceased before his death. (Dizon, etc., v. Court of Tax Appeals, et al., G.R. No. 140944, April 30, 2008)

15, When the donee or beneficiary is a stranger, the tax payable by the donor shall be 30% of the net gifts.

16. For purposes of the donor’s tax, a stranger is person who is not a:

“(1) Brother, sister (whether by whole or half-blood), spouse, ancestor and lineal descendant; or

(2) Relative by consanguinity in the collateral line within the fourth degree of relationship.” [Sec. 99 (B), NIRC of 1997]

17. The amount of P100,000.00 donated during a calendar year is exempt from donor’s tax. [Sec. 99 (A), NIRC of 1997]

18. The donation of a prize to an athlete in an international sports tournament held abroad and sanctioned by the national sports association is exempt from donor’s tax. (Sec. 1, Rep. Act No. 7549)

19. A non-resident citizen or alien is exempt only from the payment of donor’s taxes if his gifts are made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government.

20. A non-resident cirtizen or alien is subject to donor’s tax where the gift is not made in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or corporation which does not use more than 30% of the donation for administration purposes.

VALUE-ADDED TAX

1. Define value-added tax.

SUGGESTED ANSWER: A tax which is imposed only on the increase in the worth, merit or importance of goods, properties or services, and not on the total value of the goods or services being sold or rendered.

2. Discuss the meaning and scope of value-added tax (VAT).

SUGGESTED ANSWER: The value added tax is a tax levied on a wide range of goods and services. It is a tax on the value, added by every seller, with aggregate annual sales of articles and / or services, exceeding P1,500,000.00, to his purchase of goods reported and services unless exempt. VAT is computed at the rate of 0% or 12% of the gross selling price of goods or gross receipts realized from the sale of services. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al., v. Tan, etc. and companion cases, 163 SCRA 371, amount and rates supplied)

3. Purposes or objectives of VAT. The VAT system of taxation is

a. principally aimed at realizing the system of taxing goods and services,

b. simplifying tax administration, and

c. make the tax system more equitable, to enable the country to attain economic recovery. (Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc., et al., v. Tan, etc. and companion cases, 163 SCRA 371)

4. What are the characteristics of the Value-Added Tax ?

SUGGESTED ANSWER:

a. The value- added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. (NIRC of 1997, Sec. 105, 2nd sentence)

The seller is the one statutorily liable for the payment of the tax but the amount of the tax may be shifted or passed on to the buyer transferee or lessee of the goods, properties or service. The rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at the time of the effectivity of RA No. 9337. However, in the case of importation, the importer is the one liable for the VAT. (Rev. Regs. No. 16-2005, Sec. 4.105-2, 2nd, 3rd and last sentences.)

b. VAT is a tax on consumption levied on the sale, barter, exchange or lease of goods or properties and services in the Philippines and on importation of goods into the Philippines. However, in the case of importation, the importer is the one liable for the VAT. (Rev. Regs. No. 16-2005, Sec. 4.105-2, 1st sentence)

5. The VAT is a tax on consumption. Explain the meaning of consumption as used under the VAT system. Give an example.

SUGGESTED ANSWER: Consumption is "the use of a thing in a way that thereby exhausts it."

Applied to services, the term means the performance or "successful completion of a contractual duty, usually resulting in the performer's release from any past or future liability x x x" Unlike goods, services cannot be physically used in or bound for a specific place when their destination is determined. Instead, there can only be a "predetermined end of a course" when determining the service "location or position x x x for legal purposes."

For example the services rendered by a local firm to its foreign client are performed or successfully completed upon its sending to a foreign client the drafts and bills it has gathered from service establishments here. Its services, having been performed in the Philippines, are therefore also consumed in the Philippines. Such facilitation service has no physical existence, yet takes place upon rendition, and therefore upon consumption, in the Philippines. [Commissioner of Internal Revenue v. American Express G.R. No. 152609, 29 June 2005, 462 SCRA 197 cited in Commissioner of Internal Revenue v. Placer Dome Technical Services (Phils.), Inc. G. R. No. 164365, June 8, 2007]

6. Who are liable for the value-added tax ?

SUGGESTED ANSWER:

a. Any person who, in the course of his trade or business,

1) Sells, barters, exchanges or leases goods or properties, or

2) renders services, and

b. any person who imports goods xxx

However, in the case of importation of taxable goods, the importer, whether an individual or corporation and whether or not made in the course of his trade or business, shall be liable to VAT xxx. (Rev. Regs. No. 16-2005,Sec. 4.105-1, paraphrasing supplied)

7. Indirect tax, defined. An indirect tax “is imposed upon goods [before] reaching the consumer who ultimately pays for it, not as a tax, but as a part of the purchase price.” (Commissioner, of Internal Revenue v. American Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29, 2005 citing various cases and authorities)

8. VAT is an indirect tax. The VAT being an indirect tax on expenditure, the seller of goods or services may pass on the amount of tax paid to the buyer, with the seller acting merely as a tax collector. The burden of VAT is intended to fall on the immediate buyers and ultimately, the end-consumers. (Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases)

NOTE: VAT is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services. As such, it should be understood not in the context of the person or entity that is primarily, directly liable for its payment, but in terms of its nature as a tax on consumption. [Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11, 2005 citing various authorities}

As an indirect tax on services, the VAT’s main object is the transaction itself or, more concretely, the performance of all kinds of services conducted in the course of trade or business in the Philippines. These services must be regularly conducted in this country, undertaken in “pursuit of a commercial or an economic activity,” for a valuable consideration, and not exempt under the Tax Code, other special laws, or any international agreement. (Commissioner, supra citing various cases and authorities)

9. What is the effect of VAT being an indirect tax on exemptions ? If a special law merely exempts a party as a seller from its direct liability for payment of the VAT, but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers, the purchase transaction is not exempt.

REASON: The VAT is a tax on consumption, the amount of which may be shifted or passed on by the seller to the purchaser of the goods, properties or services. [Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11, 2005)

Illustration: A VAT exempt seller sells to a non-VAT exempt purchaser. The purchaser is subject to VAT because the VAT is merely added as part of the purchase price and not as a tax because the burden is merely shifted. The seller is still exempt because it could pass on the burden of paying the tax to the purchaser.

10. Service performed by American Express in facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines in behalf of its Hong-Kong based client is subject to VAT. This is so because it meets all the requirements for VAT imposition, as follows:

a. It regularly renders in the Philippines the service of facilitating the collection and payment of receivables belonging to a foreign company that is a clearly separate and distinct entity.

b. Such service is commercial in nature; carried on over a sustained period of time; on a significant scale with a reasonable degree of frequency; and not at random, fortuitous, or attenuated.

c. For this service, it definitely receives consideration in foreign currency that is accounted for in conformity with law.

d. It is not an entity exempt under any of our laws or international agreements. (Commissioner, of Internal Revenue v. American Express International, Inc. (Philipppine Branch), G. R. No. 152609, June 29, 2005)

11. While the service performed by American Express is subject to VAT it is zero-rated, and BIR Revenue Regulations that alter the legal requirements for zero-rating are ultra vires and invalid. The VAT system uses the destination principle which posits that the goods and services are taxed only in the country where they are consumed,

However, the law itself provides for clear exceptions under which the supply of services shall be zero-rated, among which are the following:

a. The service is performed in the Philippines;

b. The services are within the categories provided for under the Tax Code; and

c. It is paid for in acceptable foreign currency of the Bangko Sentral ng Pilipinas.

American Express renders assistance to its foreign clients by receiving the bills of service establishments located in the country and forwarding them to their clients abroad. The services are performed or successfully completed upon send to its foreign clients the drafts and bills it has gathered from service establishments here, Its services, having been performed in the Philippines are therefore also consumed in the Philippines. Thus, its services are exempt from the destination principle and are zero-rated.

The BIR could not change the law. (Commissioner, of Internal Revenue v. American Express International, Inc. (Philipppine Branch), G. R. No. 152609, June 29, 2005)

12. Concept of VAT zero-rating. The tax rate is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against the purchaser. The seller of such transactions charges no output tax, but can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. [Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11, 2005]

Under a zero-rating scheme, the sale or exchange of a particular service is completely freed from the VAT, because the seller is entitled to recover, by way of a refund or as an input tax credit, the tax that is included in the cost of purchases attributable to the sale or exchange. The tax paid or withheld is not deducted from the tax base. (Commissioner, of Internal Revenue v. American Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29, 2005 citing various cases)

13. Situs of taxation of zero-rated VAT services such as facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines. The place where the service is rendered determines the jurisdiction (Commissioner of Internal Revenue v. American Express International, Inc. (Philipppine Branch), G. R. No. 152609, June 29, 2005 citing “[N]o state may tax anything not within its jurisdiction without violating the due process clause of the [C]constitution.” Manila Gas Corp. v. Collector of Internal Revenue, 62 Phil. 895, 900, January 17, 1936, per Malcolm, J.) to impose the VAT [Commissioner, supra citing Deoferio, Jr. and Mamalateo, The Value Added Tax in the Philippines (2000), p. 93]

Performed in the Philippines, the service is necessarily subject to its jurisdiction [Commissioner, supra citing Alejandro, The Law on Taxation (1966 rev. ed.) p. 33], for the State necessarily has to have a “substantial connection” [Commissioner, supra citing Garner (ed. in chief), Black’s Law Dictionary (8th ed., 1999), p. 1503] to it in order to enforce a zero rate. [Commissioner, supra citing De Leon, The Fundamentals of Taxation (12th ed., 1998), p. 3] The place of payment is immaterial [Commissioner, supra citing Deoferio, Jr. and Mamalateo, The Value Added Tax in the Philippines (2000), p. 93], much less is the place where the output of the service will be further or ultimately used.

This is so because the law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. (Commissioner, supra)

14. Various VAT methods and systems.

a. Cost deduction method. This is a single-stage tax which is payable only by the original sellers. [Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases citing Deoferio, Jr. V. A. and Mamalateo, V.C., The Value Added Tax in the Philippines (First Edition 2000)] This was subsequently modified and a mixture of “cost deduction method” and “tax credit method” was used to determine the value-added tax payable. (Ibid.)

b. Tax credit method. This method relies on invoices, an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases, inputs and imports. [Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11, 2005 citing various cases and authorities; Abakada Guro Party List (etc.) v. Ermita, etc., et al., G. R. No. 168056, September 1, 2005 and companion cases)

If at the end of a taxable period, the output taxes charged by a seller are equal to the input taxes passed on by the suppliers, no payment is required. It is when the output taxes exceed the input taxes that the excess has to be paid. If however, the input taxes exceed the output taxes, the excess shall be carried over to the succeeding quarter or quarters. Should the input taxes result from zero-rated or effectively zero-rated transactions or from acquisition of capital goods, any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. [Commissioner of Internal Revenue v. Seagate Technology (Philippines), G. R. No. 153866, February 11, 2005 citing various cases and authorities]

15. The VAT registration fee imposed on non-VAT enterprises which includes among others, religious sects which sells and distributes religious literature is not violative of religious freedom, although a fixed amount is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration.

The registration fee is thus more of an administrative fee, one not imposed on the exercise of a privilege, much less a constitutional right. (Tolentino v. Secretary of Finance, et al., and companion cases, 235 SCRA 630)

16. Interpretation of the term “In the Course of Trade or Business. VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by persons who engage in such activities, in the course of trade or business. These transactions outside the course of trade or business may invariably contribute to the production chain, but they do so only as a matter of accident or incident. As the sales of goods or services do not occur within the course of trade or business, the providers of such goods or services would hardly, if at all, have the opportunity to appropriately credit any VAT liability as against their own accumulated VAT collections since the accumulation of output VAT arises in the first place only through the ordinary course of trade or business. (Commissioner of Internal Revenue v. Magsaysay Lines, Inc., et al., G. R. No. 146984, July 28, 2006)

17. Sale of vessels not in the ordinary course of business of NDC. Pursuant to a government program of privatization, NDC, a VAT-registered entity created for the purpose of selling real property, decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). The NDC decided to sell in one lot its NMC shares and five (5) of its ships, which are 3,700 DWT Tween-Decker, "Kloeckner" type vessels. The vessels were constructed for the NDC between 1981 and 1984, then initially leased to Luzon Stevedoring Company, also its wholly-owned subsidiary. Subsequently, the vessels were transferred and leased, on a bareboat basis, to the NMC. The NMC shares and the vessels were offered for public bidding. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels." Magsaysay Lines, Inc., offered to buy the shares and the vessels for P168,000,000.00. The bid was made by Magsaysay Lines, purportedly for a new company still to be formed composed of itself, Baliwag Navigation, Inc., and FIM Limited of the Marden Group based in Hongkong . The bid was approved by the Committee on Privatization, and a Notice of Award was issued to Magsaysay Lines. Is the sale subject to VAT ? SUGGESTED ANSWER: No. The sale is not subject to VAT. In Imperial v. Collector of Internal Revenue, G.R. No. L-7924, September 30, 1955 (97 Phil. 992), the term "carrying on business" does not mean the performance of a single disconnected act, but means conducting, prosecuting and continuing business by performing progressively all the acts normally incident thereof; while "doing business" conveys the idea of business being done, not from time to time, but all the time. [J. Aranas, UPDATED NATIONAL INTERNAL REVENUE CODE (WITH ANNOTATIONS), p. 608-9 (1988)]. "Course of business" is what is usually done in the management of trade or business. [Idmi v. Weeks & Russel, 99 So. 761, 764, 135 Miss. 65, cited in Words & Phrases, Vol. 10, (1984)]. What is clear therefore, based on the aforecited jurisprudence, is that "course of business" or "doing business" connotes regularity of activity. In the instant case, the sale was an isolated transaction. The sale which was involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property. (Commissioner of Internal Revenue v. Magsaysay Lines, Inc., et al., G. R. No. 146984, July 28, 2006)

18. Under the Value Added Tax (VAT), the tax is imposed on sales, barter, or exchange or goods and services. The VAT is also imposed on certain transactions “deemed sales.” What are these so-called transactions “deemed sales “ ? SUGGESTED ANSWER: a. Transfer, use or consumption not in the course of business or properties originally intended for sale or for use in the course of business. xxx

b. Distribution or transfer to:

1) Shareholders or investors as share in the profits of the VAT- registered person; xxx or

2) Creditors in payment of debt or obligation

c. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned. Consigned goods returned by the consignee within the 60-day period are not deemed sold.

d. Retirement from or cessation of business, with respect to all goods on hand,

1) whether capital goods, stock-in-trade, supplies or materials as of the date of such retirement, or cessation,

2) whether or not the business is continued by the new owner or successor. xxx [Rev. Regs. No. 16-2005, Sec. 4.106-7, paraphrasing, arrangement and numbering supplied]

19. What transactions considered retirement or cessation of business “deemed sale” subject to VAT ?

a. Change of ownership of the business. There is change in the ownership of the business where a single proprietorship incorporates; or

1) the proprietor of a single proprietorship sells his entire business.

b. Dissolution of a partnership and creation of a new partnership which takes over the business. [Rev. Regs. No. 16-2005, Sec. 4.106-7 (a), (4) paraphrasing, arrangement and numbering supplied]

20. Sale of or lease of real properties subject to VAT. Sale of real properties primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT. (Rev. Regs. No. 16-2005, Sec. 4.106-3, 1st par.)

Thus, capital transactions of individuals are not subject to VAT. Only real estate dealers are subject to VAT. 21. On Jan. 10, 2008, X, a domestic corporation engaged in the real estate business, sold a building for P10,000,000.00. Is the sale subject to the value-added tax (VAT)? If so, how much? Explain.

SUGGESTED ANSWER: Yes. 12% on the gross selling price because the sale was made in the ordinary course of trade of business of X, a domestic corporation engaged in the real estate business.

22. Sale of real property exempt from VAT. The following sales of real properties are exempt from VAT, namely:

a. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business;

b. Sale of real properties utilized for low-cost housing as defined by RA No. 7279, otherwise known as the “Urban and Development Housing Act of 1992” and other related laws, such as RA No. 7835 and RA No. 8763.

xxx xxx xxx

c. Sale of real properties utilized for socialized housing as defined under RA No. 7279, and other related laws wherein the price ceiling per unit is P225,000.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws.

xxx xxx xxx

d. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1,500,000.00) and below, or house & lot and other residential dwellings valued at Two Million Give Hundred Thousand Pesos (P2,500,000.00) and below where the instrument of sale/transfer/disposition was executed on or after November 1, 2005, provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts stated herein shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO); provided, further, that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year.

If two or more adjacent residential lots are sold or disposed in favor of one buyer, for the purpose of utilizing the lots as one residential lot, the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed P1,500,000.00. Adjacent residential lots, although covered by separate titles and/or separate tax declarations, when sold or disposed of to one and the same buyer, whether covered by one or separate Deed of Conveyance, shall be presumed as a sale of one residential lot. [Rev. Regs. No. 4.109-1 (B), (p), paraphrasing and numbering supplied]

23. VAT on services and lease of properties.

a. There shall be levied, assessed, and collected,

b. a value-added tax equivalent to ten percent (10%) of gross receipts

c. derived from the sale or exchange of services,

1) including the use or lease of properties.

d. Provided, That the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), after any of the following conditions has been satisfied:

1) Value-added tax collection as a percentage of Gross Domestic product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%); or

2) National government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 1/2%). [NIRC of 1997, Sec. 108 (A), as amended by R.A. No. 9337, arrangement and numbering supplied]

24. “Sale or exchange of services”, defined. The term “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, whether in kind or in cash, including those performed or rendered by the following: a. construction and service contractors; b. stock, real estate, commercial, customs and immigration brokers; c. lessors of property, whether personal or real; d. persons engaged in warehousing services e. lessors or distributors of cinematographic films; f. persons engaged in milling, processing, manufacturing or repacking goods for others; g. proprietors, operators or keepers of hotels, motels, rest-houses, pension houses, inns, resorts; theaters, and movie houses; h. proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including clubs and caterers; i. dealers in securities; j. lending investors; k. transportation contractors on their transport of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes; l. common carriers by air and sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to another place in the Philippines; m. sales of electricity by generation companies, transmission, and/or distribution companies; n. franchise grantees of electric utilities, telephone and telegraph, radio and television broadcasting and all other franchise grantees except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00), and franchise grantees of gas and water utilities; o. non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and bonding companies; and p. similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. [NIRC of 1997, Sec. 108 (A), as amended by R.A. No. 9337; Rev. Regs. No. 16-2005, Sec. 4,108-2, 1st par., arrangement and numbering supplied]

25. X Corporation rendered technical services through its “work engineers” to PNB and SSS in the construction of their buildings. The “work engineers” acted as overseers of X Corporation, rendering their professional services as employees of X corporation. Should X Corporation be subjected to VAT or should it be subjected to tax on the professional services of those employees themselves? Decide the case with reason.

SUGGESTED ANSWER: X Corporation is subject to VAT. For reasons refer to no. 16.a, supra,

26. Also included in the phrase “sale or exchange of services.

a. The lease or the use of or the right or privilege to use any copyright, patent, design or model, plan, secret formula or process, goodwill, trademark, trade brand or other like property or right;

b. The lease or the use of, or the right to use any industrial, commercial or scientific equipment;

c. The supply of scientific, technical, industrial or commercial knowledge or information;

d. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property, or right as is mentioned in subparagraph (2) hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof; or

e. The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any brand, machinery or other apparatus purchased from such non-resident person;

f. The supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project of scheme;

g. The lease of motion picture films, film tapes and discs;

h. The lease or the use of or the right to use radio, television, satellite transmission and cable television time. (Rev. Regs. No. 16-2005, Sec. 4.108-2, 2nd par.)

27. Zero-rated Sales of Goods or Properties. A zero-rated sale of goods or properties by a sale by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax.

However, the input tax on the purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev. Regulations No. 16-2005. (Rev. Regs. No. 16-2005, 1st par.)

28. What is the destination principle the VAT ?

SUGGESTED ANSWER: As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax.

Goods and services are taxed only in the country where they are consumed. Thus, exports are zero-rated, while imports are taxed.

29. Is there any exception to the destination principle ?

SUGGESTED ANSWER: Yes. The law clearly provides for an exception to the destination principle; that is, for a zero percent VAT rate for services that are performed in the Philippines, "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP]."

30. Rationale for zero-rating of exports. The Philippine VAT system adheres to the Cross Border Doctrine, according to which, no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. [Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc., G. R.. No. 150154, August 9, 2005]

The “Cross Border Doctrine” is also known as the destination principle. Hence, actual or constructive export of goods and services from the Philippines to a foreign country must be zero-rated for VAT; while, those destined for use or consumption within the Philippines shall be imposed the twelve percent (12%) VAT.

31. Zero-rated sale distinguished from exempt transactions:

a. A zero-rated sale is a taxable transaction but does not result in an output tax WHILE an exempt transaction is not subject to the output tax.

b. The input tax on the purchases of a VAT registered person who has zero-rated sales may be allowed as tax credits or refunded WHILE the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt.

c. Persons engaged in transactions which are zero rated being subject to VAT are required to register WHILE registration is optional for VAT-exempt persons.

32. Zero-rated sales by VAT-registered persons. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:

a. Export sales;

b. Considered export sales under Executive Order No. 224;

c. Foreign currency denominated sale; and

d. Sales to persons or entities demed tax-exempt under special law or international agreement. (Rev. Regs. No. 16-2005, Sec. 4.106-5, 2nd par., paraphrasing supplied)

33. Sale of gold to the Central Bank considered as export sales. As export sales, the sale of gold to the Central Bank is zero-rated, hence, no tax is chargeable to it as purchaser. Zero rating is primarily intended to be enjoyed by the seller, which charges no output VAT but can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers. (Commissioner of Internal Revenue v. Manila Mining Corporation, G.R. No. 153204, August 31, 2005)

34. Sales to ecozone, such as PEZA, considered export-sale. Notably, while an ecozone is geographically within the Philippines, it is deemed a separate customs territory and is regarded in law as foreign soil. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. These sales are zero-rated or subject to a tax rate of zero percent. (Commissioner of Internal Revenue v. Sekisui Jushi Philippines, Inc., G. R. No. 149671, July 21, 2006 citing various authorities)

35. “Ecozone”, defined. An ECOZONE or a Special Economic Zone has been described as – [S]elected areas with highly developed or which have the potential to be developed into agro-industrial, industrial, tourist, recreational, commercial, banking, investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs), export processing zones (EPZs), free trade zones and tourist/recreational centers. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory. [Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc., G. R.. No. 150154, August 9, 2005]

36. Zero-rated sale of service, defined. A zero-rated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes, but shall not result in any output tax. However, the input tax on purchases of goods, properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev. Regs. No. 16-2005. [Rev. Regs. No. 16-2005, Sec. Sec. 4.108-5 (a), words in italics supplied)

37. Zero-rating is an exception to the “destination principle”. As a general rule, the value-added tax (VAT) system uses the destination principle. However, our VAT law itself provides for a clear exception, where the supply of service shall be zero-rated. [Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29, 2005]

Destination principle: No VAT shall be imposed to form part of the services destined outside of the territorial border of the taxing authority. It is also referred to as “Cross Border” doctrine.

38. A foreign Consortium composed of BWSC-Denmark, Mitsui Engineering and Shipbuilding Ltd., and Misui and Co., Ltd., which entered into a contract with NAPOCOR for the operation and maintenance of two power barges appointed BWSC-Denmark as its coordination manager. BWSCMI was established as the subcontractor to perform the actual work in the Philippines. The Consortium paid BWSCMI in acceptable foreign exchange and accounted for in accordance with the rules and regulations of the BSP.

Through a February 14, 1995 ruling the BIR declared that BWSCMI may choose to register as a VAT persons subject to VAT at zero rate. For 1996, it filed the proper VAT returns showing zero rating. On December 29, 1997, believing that it is covered by Rev. Regs. 5-96, dated February 20, 1996, BWSCMI paid 10% output VAT for the period April-December 1996, through the Voluntary Assessment Program (VAP).

On January 7, 1999, BWSCMI was able to obtain a Ruling from the BIR reconfirming that it is subject to VAT at zero-rating. On this basis, BWSCMI applied for a refund of the output VAT it paid.

a. Is BWSCMI subject to the 10% VAT or is it zero rated ?

SUGGESTED ANSWER: Yes. BWSCMI is not zero rated and is subject to the 10% VAT. It is rendering service for the Consortium which is not doing business in the Philippines. Zero-rating finds application only where the recipient of the services are other persons doing business outside of the Philippines. BWSCMI provides services to the Consortium which by virtue of its contract with NAPOCOR is doing business within the Philippines. (Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G. R. No. 153205, January 22, 2007)

b. Could it obtain a refund of the VAT it paid through the VAP ? Explain.

SUGGESTED ANSWER: Yes. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the non-retroactivity of the prejudicial revocation of the BIR Rulings which held that it’s services are subject to 0% VAT and which BWSCMI invoked in applying for refund of the output VAT. (Commissioner of Internal Revenue v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., supra)

39. Service, defined. Service has been defined as “the art of doing something useful for a person or company for a fee” or “useful labor or work rendered or to be rendered another for a fee. [Commissioner of Internal Revenue v. American Express International, Inc. (Philippine Branch), G. R. No. 152609, June 29, 2005]

40. Output tax, defined. The value-added tax due on the sale or lease or taxable goods, properties or services by any VAT-registered person.

41. Input tax, defined. The VAT due on or paid by a VAT-registered person on importation of good or local purchases of goods or services, including lease or use of properties, in the course of his trade or business. (Rev. Regs. No. 4.110-1, 1st par.)

42. Included in input tax. It shall also include:

a. the transitional input tax and

b. the presumptive input tax xxx.

It includes

c. input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. (Rev. Regs. No. 4.110-1, 1st par., 2nd sentence,. And 2nd par., paraphrasing, arrangement and numbering supplied )

43. The right to credit the input tax is a mere creation of law. Prior to the enactment of multi-stage sales taxation, the sales taxes paid at every level of distribution are not recoverable from the taxes payable. With the advent of Executive Order No. 273 imposing a 10% multi-stage tax on all sales, it was only then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was established. This continued with the Expanded VAT Law (R.A. No. 7716), and The Tax Reform Act of 1997 (R.A. No. 8424). The right to credit input tax as against the output tax is clearly a privilege created by law, a privilege that also the law can limit. It should be stressed that a person has no vested right in statutory privileges. (ABAKADA Guro Party List, etc. et al. vs. Ermita, G.R. No. 168207, October 15, 2005, and companion cases, on the motion for reconsideration)

44. Transitional input tax credits on beginning inventories. Taxpayers who become VAT-registered persons upon exceeding the minimum turnover of P1,500,000.00 in any 12-month period, or who voluntarily register even if their turnover does not exceed P1,500,000.00 (except franchise grantees of radio and television broadcasting whose threshold is P10,000,000.00) shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration, on the following:

a. goods purchased for resale in their present condition;

b. materials purchased for further processing, but which have not yet undergone processing;

c. goods which have been manufactured by the taxpayer;

d. goods in process for sale; or

e. goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person. [Rev. Regs. No. 16-2005, Sec.4.111-1, (a), 1st par., arrangement and numbering supplied]

45. Presumptive input tax credits. Persons or firms engaged in the processing of sardines, mackerel, and milk, and in manufacturing refined sugar, cooking oil and packed noodle-based instant meals, shall be allowed a presumptive input tax, creditable against the output tax, equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production.

As used in this paragraph, the term processing shall mean pasteurization, canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. [Rev. Regs. No. 16-2005, Sec.4.111-1, (b)]

46. VAT-Exempt transactions, defined.

a. The sale of goods or properties and/or services and the use or lease of properties that is

b. not subject to VAT (output tax) and

c. the seller is not allowed any tax credit on VAT (input tax) purchases.

The person making the exempt sale of goods, properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. [Rev. Regs. No. 16-2005, Sec. 4.109-1 (A), arrangement and numbering supplied]

47. VAT-exempt transactions distinguished from VAT-exempt entities. a. An exempt transaction, on the one hand, involves goods or services which, by their nature, are specifically listed in and expressly exempted from the VAT under the Tax Code, without regard to the tax status – VAT-exempt or not – of the party to the transaction. An exempt party, on the other hand, is a person or entity granted VAT exemption under the Tax Code, a special law or an international agreement to which the Philippines is a signatory, and by virtue of which its taxable transactions become exempt from VAT. [Commissioner of Internal Revenue v. Toshiba Information Equipment (Phils.), Inc., G. R. No. 150154, August 9, 2005]

b. An exempt transaction shall not be the subject of any billing for output VAT but it shall not also be allowed any input tax credits WHILE an exempt party being zero-rated is allowed to claim input tax credits.

48. Exempt transactions. (Subject to the election by a VAT-registered person not to be subject to the value-added tax), the following shall be exempt from VAT:

(A) Sale or importation of agricultural and marine food products in their original state, livestock and poultry of a kind generally used as, or yielding or producing foods for human consumption; and breeding stock and genetic materials therefor.

Livestock shall include cows, bulls and calves, pigs, sheep, goats and rabbits. Poultry shall include fowls, ducks, geese and turkey, Livestock or poultry does not include fighting cocks, race horses, zoo animals and other animals generally considered as pets.

Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster, shrimps, prawns, oysters, mussels and clams.

Meat, fruit, fish, vegetables and other agricultural and marine food Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping, including those using advanced technological means of packaging, such as shrink wrapping in plastics, vacuum packing, tetra-pack, and other similar packaging methods. Polished and/or husked rice, corn grits, raw cane sugar and molasses, ordinary salt, and copra shall be considered in their original state.

Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5o and above are presumed to be refined sugar.

Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar:

(1) product of a refining process,

(2) products of a sugar refinery, or

(3) product of a production line of a sugar mill accredited by the BIR to be producing sugar with polarimeter reading of 99.5o and above, and for which the quedanissued therefor, and verified by the Sugar Regulatory Administration, identifies the same to be of a polarimeter reading of 99.5o and above.

Bagasse is not included in the exemption provided for under this section.

(B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets);

“Specialty feeds” refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets.

(C) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines;

(D) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide;

(E) Services subject to percentage tax under Title V of the Tax Code, as enumerated below:

(1) Sale or lease of goods or properties or the performance of services of non-VAT-registered persons, other than the transactions mentioned in paragraphs (A) to (U) of Sec. 109 (1) of the Tax Code, the annual sales and/or receipts of which does not exceed the amount of One Million Five Hundred thousand Pesos (P1,500,000.00), Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO). (Sec. 116, Tax Code)

(2) Services rendered by domestic common carriers by land for the transport of passengers and keepers of garages. (Sec. 117)

(3) Services rendered by international air/shipping carriers. (Sec. 118)

(4) Service rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00) and by franchises of gas and water utilities. (Sec. 119)

(5) Service rendered for overseas dispatch message or conversation originating from the Philippines. (Sc. 120)

(6) Services rendered by any person, company or corporation (except purely cooperative companies or associations ) doing life insurance business of any sort in the Philippines. (Sec. 123)

(7) Services rendered by fire, marine or miscellaneous insurance agents of foreign insurance companies. (Sec. 124)

(8) Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions professional basketball games, jai-Alai and race tracks. (Sec. 125). and

(9) Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering. (Sec. 127)

(F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar;

“Agricultural contract growers” refers to those persons producing for others poultry, livestock or other agricultural and marine food products in their original state.

(G) Medical, dental, hospital and veterinary services except those rendered by professionals;

Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is subject to VAT.

(H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills Development Authority (TESDA) and those rendered by government educational institutions;

“Educational services” shall refer to academic, technical or vocational education provided by private educational institutions duly accredited by the DepED, the CHED and TESDA and those rendered by government educational institutions and it does not include seminars, in-service training, review classes and other similar services rendered by persons who are not accredited by the DepED, the CHED and/or the TESDA.

(I) Services rendered by individuals pursuant to an employer-employee relationship;

(J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines;

(K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529 – Petroleum Exploration Concessionaires under the Petroleum Act of 1949; and;

(L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce;

(M) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered and in good standing with the Cooperative Development Authority;

(N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members;

Importation by non-agricultural, non-electric and non-credit cooperatives of machineries and equipment, including spare parts thereof, to be used by them are subject to VAT.

(O) Export sales by persons who are not VAT-registered;

(P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, such as RA No. 7835 and RA No. 8765, residential lot valued at One million five hundred thousand pesos (P 1,500,000) and below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P 2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO);

(Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P 10,000) Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO);

(R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements;

49. X is engaged in the importation and sale of books and magazines. Is the importation of books and magazines subject to the 10% VAT? Explain.

SUGGESTED ANSWER: No. For reasons, refer to no. (R), supra.

(S) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; Provided, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of one hundred fifty (150) tons and above, including engine and spare parts of said vessels; Provided, further, that the vessels be imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the vessel’s original commissioning, as follows: (i) for passenger and/or cargo vessels, the age limit is fifteen years (15) years old, (ii) for tankers, the age limit is ten (10) years old, and (iii) For high-speed passenger cars, the age limit is five (5) years old, Provided, finally, that exemption shall be subject to the provisions of section 4 of Republic Act No. 9295, otherwise known as “The Domestic Shipping Development Act of 2004.”

(T) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines; provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to 10% VAT (now 12%);

(U) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries; and

(V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO).

For purposes of the threshold of P1,500,000.00, the husband and wife shall be cnsidered separate taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance, if a profesional, aside from the practice ofhis profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall to be icluded in determining the threshold. [NIRC of 1997, Sec. 109 (1), as amended by R. A. No. 9337; words in italics from Rev. Regs. No. 16-2005, Sec. 4.109-1 (B), words in parentheses supplied]

50. Tax-exempt may elect to be subject to tax. A VAT-registered person may elect that the tax exemption not apply to its sale of goods or properties or services: Provided, That an election made under shall be irrevocable for a period of three (3) years from the quarter the election was made. (Rev. Regs. No. 16-2005, Sec. 4,109-2, wordings not verbatim)

51. Is there any tax to be paid by persons exempt from VAT.

a. Any person, whose sales or receipts are exempt under Sec. 109 (1) (V) of the Tax Code,

(V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO), from the payment of VAT and

b. who is not a VAT-registered person

c. shall pay a tax equivalent to three percent (3%) of his gross monthly sales or receipts;

Provided, that cooperatives shall be exempt from the three (3%) gross receipts tax herein imposed. (Rev. Regs. No. 16-2005, Sec. 4.116-1, arrangement, numbering and words in italics supplied)

INTERNAL REVENUE TAX RETURNS AND WITHHOLDING

1. Income tax returns being public documents, until controverted by competent evidence, are competent evidence, are prima facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et al., 296 SCRA 309, 317)

2. A withholding agent is explicitly made personally liable under the Tax Code for the payment of the tax required to be withheld, in order to compel the withholding agent to withhold the tax under any and all circumstances. In effect, the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. (Filipinas Synthetic Fiber Corporation v. Court of Appeals, et al., G.R. Nos. 118498 & 124377, October 12, 1999) The system facilitates tax collection.

“Sec. 51. Individual Return. –

“(A) Requirements. –

“(1) Except as provided in paragraph (2) of this Subsection, the following individuals are required to file an income tax return:

“(a) x x x;

“x x x.

“(2) The following individuals shall not be required to file an income tax return:

“(a) x x x;

“(b) An individual with respect to pure compensation income, as defined in Section 32(A)(1), derived from sources within the Philippines, the income tax on which has been correctly withheld under the provisions of Section 79 of this Code: Provided, That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return:

“(c) x x x; and

“(d) A minimum wage earner as defined in Section 22(HH) of this Code or an individual who is exempt from income tax pursuant to the provisions of this Code and other laws, general or special.

“x x x.” (Sec. 51, NIRC of 1997 as amended by R.A. No. 9504)

“Sec. 79. Income Tax Collected at Source. –

“(A) Requirement of Withholding. – Except in the case of a minimum wage earner as defined in Section 22(HH) of this Code, every employer making payment of wages shall deduct and withhold upon such wages a tax determined in accordance with the rules and regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

“x x x.” (Sec. 79 (A) , NIRC of 1997, as amended by R.A. No. 9504)

3. “A’ erroneously withheld the amount of 15% from the selling price of books authored by “W” when the correct rate should have been 10% only. Since “W” is out of the country, “A” applied for a refund of the excess withholding of 5%. May “A” properly apply for the refund ? Explain.

SUGGESTED ANSWER: Yes. In applications for refund, the withholding agent is a taxpayer because if he does not pay the tax shall be collected from him. (Commissioner of Internal Revenue v. Procter & Gamble Philippine Manufacturing Corporation, 204 SCRA 377, 383-386),

PENALTIES, INTERESTS AND SURCHARGES

1. Surtax or surcharge, also known as the civil penalties, defined. These are the amounts imposed in addition to the tax required.

They are in the nature of penalties and shall be collected at the same time, in the same manner, and as part of the tax. [Sec.248 (A), NIRC of 1997]

2. The two (2) kinds of civil penalties:

a. the 25% surcharge for late filing or late payment [Sec. 248 (A), NIRC of 1997] (also known as the delinquency surcharge), and

b. the 50% willful neglect or fraud surcharge. [Sec. 248 (B), Ibid.]

3. Deficiency income tax, defined. The amount by which the tax imposed under the NIRC of 1997 exceeds the amount shown as the tax due by the taxpayer upon his return. [Sec. 56 (B) (1), NIRC of 1997]

4. Deficiency interest, defined. The interest assessed and collected on any unpaid amount of tax at the rate of 20% per annum or such higher rate as may be prescribed by regulations, from the date prescribed for payment until the amount is fully paid. [Sec. 249 (A) (B), NIRC of 1997]

5. Delinquency interest, defined. The interest assessed and collected on the unpaid amount until fully paid where there is failure on the part of the taxpayer to pay the amount die on any return required to be filed; or the amount of the tax due for which no return is required; or a deficiency tax, or any surcharge or interest thereon, on the date appearing in the notice and demand by the Commissioner of Internal Revenue. [Sec.249 (c), NIRC of 1997]

6. Compromise penalty, defined. The amount agreed upon between the taxpayer and the Government to be paid as a penalty in cases of a compromise.

7. After resolving the issues the BIR Commissioner reduced the assessment. Was it proper to impose delinquency interest despite the reduction of the assessment ? Why ?

ANSWER: Yes. The intention of the law is to discourage delay in the payment of taxes due to the State and in this sense the surcharge and interest charged are not penal but compensatory in nature – they are compensation to the State for the delay in payment, or for the concomitant tuse of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. (Bank of the Philippine Islands v. Commissioner of Internal Revenue, G. R. No. 137002, July 27, 2006)

8. As a result of divergent rulings on whether it is subject to tax or not, the taxpayer was not able to pay his taxes on time. Imposed surcharges and interests for such delay, the taxpayer not invokes good faith with the BIR countering by saying that good faith is not a valid defense for violation of a special law. Furthermore, the BIR further raises the defense that the government is not bound by the errors of its agents. Who is correct ?

ANSWER: The taxpayer is correct. The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax, are sufficient justification to delete the imposition of surcharges. (Michel J. Lhuillier Pawnshop, Inc. v. Commissioner of Internal Revenue, G. R. No. 166786, September 11, 2006)

1 comment:

kiramatali shah said...

Anyone experience anything about the easy google profit kit? I discovered a lot of advertisements around it. I also found a site that is supposedly a review of the program, but the whole thing seems kind of sketchy to me. However, the cost is low so I’m going to go ahead and try it out, unless any of you have experience with this system first hand?
www.onlineuniversalwork.com

2010 BAR REVIEW METHODS, INTENSIVE REVIEW AND WORKSHOP

Atty. Domondon will discuss BAR review methods on the first part of the day. Afterwards, you will be given a lot of time to ask questions and discuss specific areas you are concerned about. Finally, you will be taking home a mock bar exam for you to answer. This exam will be checked by Atty. Domondon with feedback focusing on areas where improvement is needed.

When: April 10, 2010
Time: 8 AM - 5 PM
Where: Rm. 410 Windsor Tower, Legaspi Street, Legaspi Village, Makati City
Cost: 1000 per person

Please bring sign pens, notebook for note taking, and a bag full of questions to ask Atty. Domondon.

If you are interested to attend, please call or text Leon Valdez at 0917-7936169.
Please tell your friends and spread the word.

BAR METHODS + WORKSHOP on MAY 9, 2010

Announcement: There are changes for this Sunday's Methods + Workshop. Please take note of the new venue as seen below.

Atty. Domondon will discuss BAR review methods on the first part of the day. Afterwards, you will be given time to ask questions and discuss specific areas you are concerned about. Finally, you will be taking home a mock bar exam for you to answer. This exam will be checked by Atty. Domondon with feedback focusing on areas where improvement is needed.

When: May 9, 2010
Time: 8 AM - 5 PM
Where: Rm. 410 Windsor Tower, Legaspi St., Legaspi Village, Makati.
Cost: 1000 per person

Please bring sign pens, notebook for note taking, and a bag full of questions to ask Atty. Domondon.

If you are interested to attend, please call or text Leon Valdez at 0917-7936169 or Celia Valdez at 0917-7908406.
Please tell your friends and spread the word.

Primus 2010 Wrap-Up Review

Schedule:

Ethics: August 2 & 3

Remedial: August 5 & 6

Criminal: August 10 & 11

Mercantile: August 13 & 14

Tax: August 17 & 18

Civil: August 20 & 21

Labor: August 24 & 25

Political: August 27 & 28

RESERVATION AND INQUIRIES
Text Atty. Celia Valdez at 0917-7908406 for inquiries. You may also send an email to primusinformation@gmail.com for additional inquiries.