Tax 1 Mamalateo

7/29/2019 Tax 1 Mamalateo

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CHAPTER 4:TAX INVESTIGATION and ASSESSMENT

o Internal revenue taxes are generally based on self-assessment and voluntarycompliance with tax laws.

o It is the taxpayer (tp) that determines his own tax liabilities.o However, proper administration of tax cannot rely on self-assessment. Hence, as

a guardian of Govts revenue from persons who do not declare their proper taxliabilities, the Commissioner (Comm) is free to employ all legal evidence availableto him in verifying WON the true financial history and economic activities of the tpare reflected in their book of accounts and tax records.

Power to Examine Tax Returns1. The returns filed if tp paid and declared the correct amount of tax.2. Even w/ failure to file a return, the Comm is authorized to examine the book of

accounts and tax records of the tp.

Preliminary Analysis essential to an effective audit by BIR. The revenue officer shallexamine all info contained in any attachment to the tax return to ascertain WON all infos isadequately reflected therein.

Letter of Authority (LA)o All investigations of the tp shall be covered by a LA issued by either the Comm or

the Reg. Director only.o LA authorizes/empowers a designatd revenue officer to examine, verify and

scrutinize tps books and records in relation to his internal revenue tax liabilities fora particular period.

o If officer has no LA or has LA but the book/record was not mentioned therein, a tpmay refuse to any examn, verificatn and scrutinization.

o It has life of 30 days from date of issuance, unless revalidated.o The officer equipped and issued by LA is allowed only 120 days from the date of

issuance to conduct audit and submit his investigation. Failure to such requiresrevalidation of such LA.

o However, failure to report after the prescribed 120 days w/o revalidation will notmake tp immune from audit, the prescription of making assessment as providedby law is 3 years.

METHODS OF INVESTIGATION:

1. Direct computation based on what the tp regularly emplys in his accounting, asreflected in his books/records.

2. Indirect based on the opinion of the Comm, if any of the circumstances arpresent: (NIECS)

a. NO recordsb. INADEQUATE recordsc. does not EMPLOY method of accountingd. do not reflect CLEARLY the incomee. there strong SUSPICION that tp has undisclosed source of income

A. Net Worth Method assets minus liabilities (NI-ESA)

- no records- inadequate records- need for evidence of source of income- determine starting point or opening net worth- proper adjustment to conform w/ income tax

B. Bank Deposit Method when any of the ff circumstances are present: (DC)1. Determine gross estate of the DECEDENT.2. Verify claim of financial incapacity of tp seeking a COMPROMISE of ta

liabilities.o COHAN RULE where there is evidence that the tp has actually incurr

expenses, and there is no proof of the exactment actually spent, the Comm shoumake as close an approximation as he can, bearing heavily if he chooses upothe tp whose inexactitude is of his own making.

Power of the Comm to Issue Summons and Take Testimonyo In order to avoid such delay due to non-cooperation of the tp in making availab

their book of accounts, and other accounting records for inspection.o TO: (LROCO)

Persons LIABLE Persons REQUIRED to file a RETURN Officer/Employee of such persons Custodian of book of accounts/records Other persons as may deemed necessary.

o PROCEDURE :1. Request tp in writing to make available for inspection.2. If not presented/delayed, RO will seek explanation, and re-request the same3. If again tp fails, another explanation in writing will be sought.

4. Else, RO, with recommendation of supervisors, shall transfer the records the case to the Prosecution Division or Legal Branch as the case maybunder appropriate covering communication recommending the issuance ofsubpoena, clearly setting forth ff information: (NADY)

a. NAME of the tp/custodian of the books/records.

BALICAS.SICCUAN.2012


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b. ADDRESS of tp/custodian.c. DESCRIPTION of such books/records sought to be inspected.d. Taxable YEAR involved.

o SERVICE OF SUBPOENA Generally, must be delivered personally to the tp.

If not available to personally be delivered to tp, the ff may be resorted:(RO)

1. Leaving a copy to tps dwelling place/RESIDENCE to someperson with (ADR)

Sufficient age Discretion Residing therein

2. Leaving a copy on tps OFFICE/reg place of business with: (CC) Competent person Charged therein

*NOTE: In both cases, it should be witnessed by another revenueofficer accomplanying the server.

o FAILURE TO TESTIFY or COMPLY w/ SUMMNONS: (FIC)o Fine: 5 10k, and/oro Imprisonment : 1 2 years.o Or Indirect CONTEMPT (Sec 3, Rule 71 of ROC)

Rights against Self-Incrimination may be availed in crim and admin proceedings like

that of BIR.

Privilege Communicationo Protected:

Documents and papers in the hands of tps counsel not merely forconsulation.

Accountants papers PROVIDED that such were prepared to aid thelawyer in his conclusion, and an integral part of rendering advice.

o Not Protected: Documents and Papers in the hands of counsel merely for consulation. Accountant papers and documents are GENERALLY not protected by the

privilege.

Power to Use Best Evidence Obtainable

o FROM : (PO)1. Persons other than whose tax liabilities are subj of audit/examination.2. Office or Officer of the natl govt, subdivisions, instrumentalities and

agencies including BSP and GOCCs with whom the tp had transaction.o GROUNDS : (RFie)

1. Reports/Records requested from tp are not forthcoming (or REFUSED).

2. Reports/Records submitted are FALSE, INCOMPLETE or ERRONEOUS

o However, Although reports/records are incomplete, it shall still considered sufficient if there is SUBSTATNTIAL COMPLIANCE of lawand made in the ff: (GED)

Return is made on GOOD FAITH.

Return covers the ENTIRE PERIOD involved. Contains sufficient info, and its DEFINITENESS permits th

computation and assessment of tax.o LIMITATION: Assessment of proper tax on basis of best obtainable evidence

APPROPRIATE ONLY WHEN the return is (Rfie) not forthcoming/REFUSEFalse, Inc, or Erroneous.

o WEIGHT OF EVIDENCE the law allows BIR to access all relevant materrecords/data in the person of tp. Hence, BIR can accept documents/records whiccannot be ordinarily admitted in regular courts.

Jeopardy Assessment - tax assessments issued withot the benefit of complete or partaudit.

- not expressly prohibited and may be resorted in order to avodelay.

Informers Reward:o The law grant rewards to the instrumental in the (VS)1. Discovery of Violators of the Tax Code.2. Discovery and Seizure of Smuggled goods.o ELEMENTS: (PLP)

1. It shall be given to persons who voluntarily gives definite asworn info, which is not yet in POSSESSION of BIR.2. Info must LEAD to (DRCI)

a. Discovery of fraudb. Recovery of revenues, surcharges and feesc. Conviction of guilty personsd. Imposition of Penalties.

3. Info should not refer to a case already PENDING/PREVIOUSL

investigated or examined by the Comm or any of his deputies, agents examiners, or Sec of Finance or any of its deputites/agents.

Taxmapping BIR/representat ives makes actual inspection of tbusiness/establishment to check their compliance w/ Tax Laws.



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CHAPTER 5:TAX ASSESSMENT AND PROCEDURAL DUE PROCESS

ASSESSMENT - administrative determination that one is indebted to the Govt (FAN).- not an action or proceeding for collection of taxes.- authority to make assessment of taxes are granted to the Commissioner.

PRINCIPLES BEHIND TAX ASSESSMENTS: (PDF)

1. It is PRESUMED TO BE CORRECT- burden of proof is on tp that officer and/or assessment is erroneous.

2. Issuance of assessment is DISCRETIONARY on the Comm.-mandamus may not lie against the Comm to compel him to impose tax

assessment.3. An assessment must be based on FACTS.

ASSESSMENT CYCLE: (FAC-PR-FP-SA)1. Filing of Tax Return / Due date of Filing of Tax Return (whichever is later)

2. Tax Audit of BIR (Letter of Authority / Period to Assess)3. Informal Conference

4. PAN (Preliminary)5. Reply to PAN (w/in 15 days from receipt)

6. FAN (Final)7. Protesta. Reconsideration (re-evaluation without additional evidence)

b. Reinvestigation (additional / newly discovered evidence)8. Supplemental Protest (60 days from assessment)9. Assessment becomes Final / Collection

INFORMAL CONFERENCEo TP must respond within 15 days from receipt. Otherwise. He shall be

considered in default, and case shall be endorsed w/ least delay toAssessment Division of Regional Office or the Comm, for Review andIssuance of FAN/ Deficiency Tax if warranted.

PRELIMINARY ASSESSMENT NOTICE (PAN)

o If theres sufficient basis to assess the tp for any deficiency taxes, thereshall issue PAN atleast by registered mail, to notify the tp of the findings ofassessment.

o EXCEPTIONS / PAN not required: (MD-REE)

1. Tax deficiency because of MATHEMATICAL ERROR in tcomputation of Tax as appearing on the face of he return.

2. When DISCREPANCY was determined between the tax withheand amount actually remitted by the withholding agent.3. When tp opted to cla im a REFUND or credit of creditabwithholding tax for a tax period was determined to have carried over anautomatically applied the same amount claimed against the estimated tliabilities for the taxable quarter/s of succeeding taxable year.

4. When EXCISE TAX due on excisable articles has not been paid5. When the article locally purchased or imported by an EXEMPperson such as but not limited to vehicles, capital, equipment, machineand spare parts, has been sold, transferred, or transmitted to a noexempted person.

o EFFECT OF NO-ISSUANCE OF PAN :

o If tp was was not given opportunity to settle the proposed assessmenand such lack of notice was pointed out in the protest BIR has burden proof to tp was given such opportunity and/or informed of facts, LawRules and regulation, or Jurisprudence (FLRJ) where the assessment wbased/made.

o If BIR can sufficiently prove that it has given tp an opportunity to settand/or be informed of the FLRJ assessment is VALID.

o If tp failed to point out in his protest suck lack of prior notice TP shall b

considered to have waived such defect and can no longer raise such appeal.

FINAL ASSESSMENT NOTICE (FAN)1. A document that informs tp that amount stated therein is due as tax.2. As soon as served, obligation arises on the part of tp to pay such.3. A FAN served must be:

1. In wr it ing2. Stating the FLRJ on which the assessment is based.

o SERVICE OF FAN :

o Personal Delivery (nsad) It must be named, signed, given by authorand dated.

o Registered Mail effective upon the release / mailed / sent by the Comto tp.

PRESUMPTION : a letter duly directed and mailed is presumed have been received by the addressee thereof, provided the ff aproven: (AM)



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1. That the letter was properly ADDRESSED with postageprepaid.

2. That the letter was actually MAILED.

PRESUMPTION : Entries in Official records are prima facieevidence of the facts stated therein, provided that the ff areproven: (BPK)

1. Entry was made BY a Pub Officer or another personspecially enjoined by law to do so.

2. Made in the PERFORMANCE of his duty or as enjoinedby law.

3. Pub Officer or person enjoined by law has sufficientKNOWLEDGE of the facts by him stated which must havebeen acquired by him personally or through officialinformation.

DEFENSE AGAINST PRESUMPTION: The twopresumptions are merely DISPUTABLE not Conclusive. Burden ofProof shifts to Comm, if tp directly denies the its receipt.

STATUTE OF LIMITATIONS

o VIGILANTIBUS ET NON DORMIENTIBUS JURE SUBRONIUNT, meaning, the

law serves those who are vigilant, not those who sleep.o Beneficial to both Govt (prompt tax collection) and tp (protection against

unscrulous collector)o CONSTRUCTION :

Limitation not only to assess but also to collect taxes will not be presumedin absence of clear legislation to the contrary.

Grant of Exception to these limitations must be strictly construed.o DUTY OF TP :

Issue must be raised at earliest possible time at Comms level (not onappeal).

Must be specifically pleaded/pointed out as an issue, otherwise deemedwaived.

The start of the running of the period and when it ended must be positivelyestablished.

o MEANING OF A YEAR :

In Namarco vs. Tecson and pursuant to RMC Bo. 48-90:a) 1 year = 365 daysb) 3 years = 365 days x 3 or 1,095 days.

However, in order to prevent confusion when theres a leap year, in thcase of CIR vs. Primetown Property Group in pursuant to AdministrativCode of 1987:

a) 1 year = 12 calendar monthsb) 3 years = 12 months x 3 or 36 calendar months.

o PERIODS :

Ordinary within 3 years after the day prescribed by law for filing return. Extraordinary within 10 years from discovery of: (FFO)

a) FALSE Returnb) FRAUDULENT return with intent to evade taxc) Failure to File return (OMISSION)

*NOTE: In Extraordinary period, the Comm has two (2) options:1. Assess tax w/in 10 years not from filing, but from the discovery o

FFO.2. File an action in court for collection of such tax without

assessment w/in 10 years from discovery.*NOTE: NEGLIGENCE, whether slight or gorss, is NOT EQUIVLENT toFRAUD WITH INTENT TO EVADE TAX as contemplated by the law There must be INTENTIONAL or WILLFUL WRONGDOING w/ the SOLEOBJECT OF EVADING the tax.

CIRCUMSTANCES NEGATIVE FRAUD : (IUS)

a) Comm failed to impute/allege Fraud in FAN or demand in

payment.b) BIR itself appeared unsure as to the real amount of tps incomec) Fraud by mere speculation/preponderance of evidence, instead

a clear and convincing evidence as required.o RECKONING DATE : Assessment be issued w/in 3 years, either:

From the last day prescribed by law for filing of tax return. From the day the return was actually filed.NOTE: Whichever is later among the 2 instances.

o BURDEN OF PROOF The Comm must prove that he had served to tp of thassessment within the prescriptive period prescribed.

o NOTE: Prescription must be based on express STATUTORY PROVISION.

However, when there is no explicit provision of such, but the tax is sucthat its amount cannot be ascertained w/o the data pertinent thereto, thComm may, by appropriate regulations, REQUIRE THE FILING OF THNECESSARY RETURNS.

o NECESSITY OF SUBSTATNTIAL COMPLETE RETURN : (GED)

Return is made on GOOD FAITH.

Return covers the ENTIRE PERIOD involved.



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Contains sufficient info, and its DEFINITENESS permits thecomputation and assessment of tax.

o TAX RETURN ONCE FILED CANNOT BE WITHDRAWN .

However, tp may modify, amend or change such return, provided:a) It is made w/in 3 years from filing such returnb) No notice for audit/reinvestigation of such return was served to tp.

Amendments:

a) UNSUBSTANTIAL - if the change in the reported amount of sales,

receipts or income, or of deductions DOES NOT EXCEEDS 30%of that declared per return.

1. Prescription : still w/in 3 years from filing of the ORIGINALRETURN.

b) SUBSTANTIAL - if the change in the reported amount of sales,receipts or income, or of deductions EXCEEDS 30% of thatdeclared per return.

1. Prescription : w/in 3 years from filing of the AMENDEDRETURN.

o RETURNS FILED IN INSTALLMENTS :

Usually in case of accounting for long-term contracts The prescriptive period shall be reckoned from the date when the final tax

return was filed.

o NOTE: Period to forfeit the BOND posted by tp to secure its tax obligation (10years as based Art. 1144)

o NOTE: Period to recover erroneiously refunded taxes as such is in effect of anassessment for deficiency tax.

o PRETERMISISON RULE :

Where the last day for doing an act required by law falls on a holiday, theact may be done on the next succeeding business day, and In computingany period of time prescribed by a statute, the day of the act after whichthe designated period of time begins to run is not included.

o SUSPENSION OF STATUTE OF LIMITATION: (PILO)-W1. For PERIOD during which Comm is PROHIBITED to make assessment

and 60 days after.2. Tp request for RE-INVESTIGATION w/c is granted by the Comm.3. When tp cannot be LOCATED in address given by him in return, provided

that when tp informs the Comm of any change in address, the running ofthe prescriptive period will not be suspended.

4. When tp is OUT of the Philippines. NOTE: Another ground, although not enumerated, is when tp executes a

WAIVER to such.

o CONSTRUCTION OF PRESCRIPTION :

Liberally in favour of the tp, and strictly against the Govt. Although both the Govt and tp benefits from prescriptive period, the la

provides such to protect the tp against UNREASONABLINVESTIGATION.

o WAIVER

ELEMENTS:1. As perRMO 20-90 (ISA-CE)

a. Expiry date of waiver must be INDICATED.

b. SIGNED by tp himself or duly authorize representative.

c. BIR ACCEPTS/AGREES by signing the waiver.

d. Furnished in 3 COPIESi. .Attached to the docket of caseii. Copy of TPiii. Retained by office

e. EXECUTION must be PRIOR to the date or expiration prescriptive period or before the lapse agreed in case subsequent agreement.

2. As perSUPREME COURT (WAEP)

a. Waiver must be in WRITINGb. AGREED by both tp and BIRc. EXECUTED before the expiration of ordinary prescripti

period for assessment and collection.d. Waiver must be for definite PERIOD beyond ordinary period

NOTE: Generally, Waiver is in the nature of agreement between and Comm, and must be executed prior the lapse of prescriptivperiod. HOWEVER, in the ff cases, the court held otherwi(exceptions):

a. Sinforoso Alca vs. CTA tps renunciation is valid evenexecuted beyond the lapse of period becase just like aother rights, the right to avail of the defences prescription is WAIVABLE.

b. Sambrano vs. CTA tps execution of mortgage on favo

of the Govt to guarantee the payment of tax liabilities aftthe prescriptive period AMOUNTS TO RENWAL of thobligation or waiver of the benefit grantedhim by law.

NOTE: Proper BIR signatories on waiver:a. ACIR tax is not more than 500k



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b. Deputy Comm more than 500k but not more than 1Mc. Comm more than 1M.d.

Occurs when period is about to expire even if RO has yet to complete taxinvestigation.

a) The tp will be REQUESTED to allow waiver and extension ofissuance of assessment.

b) However, one of compelling reasons why tp will execute such iswhen Comm threatens tp that he will be issued JEOPARDY

ASSESSMENT or an assessment w/o benefit of partial or fullaudit in the ff circumstances: (JT)

1. When assessment will be JEOPARDIZED by delay of tpto comply to tax audit or investigation.

2. When the Comm TERMINATED the Taxable Period of atp: (RLRO)

a) Tp is RETIRING his business

b) Tp intends to LEAVE Philippinesc) Tp intends to REMOVE, HIDE OR CONCEAL his

property

d) Tp OBSTRUCTS the proceeding for collection ofproper taxes.

NATURE:a) NOT A WAIVER of the right to invoke the defense of prescriptionas erroneously held.

b) But it is an AGREEMENT between the tp and BIR that the periodto issue an assessment and collect taxes due is EXTERNDED toa date certain.

NOTE: If the tp files RECONSIDERATION, waiver is necessary beforerequest be granted.

PROTESTo Must be filed within 30 days from receipt of assessment.o And within 60 days after filing of such protest, a supplement of protest or

submission of all relevant documents related thereto to should be done. withino FORM : (WB)

o Be in WRITING.o Provide statement of FLRJ where protest is BASED.

o NOTE: Failure of tp to dispute an assessment makes the same FINAL andDEMANDABLE, which may no longer be disputed nor re-opened on the merits in

the subsequent action for collection Omission constitutes a WAIVER of andefense w/c he could have set-up against the assessment.

o PROCEDURE IF GOVT OFFICES OR GOCCs WERE ASSESSED :

o To SOLICITOR GENERAL, I it involves only depts., bureaus, offices anagencies of the Natl Govt as well as GOCCs of whom he is the principlaw officer/counsel..

o Else, to SEC OF JUSTICE.o Appeal to PRESIDENT.

o

TWO (2) TYPES OF PROTEST :o Nature of request for RECONSIDERATION (re-evaluation w/o need

additional evid)o Nature of request for REINVESTIGATION (re-evaluation w/ new

discovered or additional evid)o RR 12-99:

o It requires tp to state FLRJ (Fact/Law/Rules/Jurisprudence) on which thprotest is based. Otherwise, such protest is VOID.

o NOTE: If there are several issues involved in PAN/FAN but tp only disputes protests against the validity of some issues, tp shall be required to pay thdeficiency tax attributable to the UNDISPUTED ISSUES.

The prescriptive period for assessment and collection of the tax shall bsuspended only to disputed issues.

NO action shall be taken on tps disputed issues in protest UNTIL the

has paid the deficiency taxes attributable to the undisputed issues.o ACTIONS OF COMM ON THE PROTEST :

1. Express Denial Comm state in writing the FLRJ where the assessment is based The same is FINAL DECISION.

2. Implied Denial (WISI)

1. Issuance of WARRANT OF DISTRAINT OR LEVY after the filinof protest.

2. INSTITUTION OF JUDICIAL ACTION for collection of tassessed.

3. SET-OFF of taxes

4. INACTION of the Comm after 180 days from submission documents (if factual issues), or from filing (purely questions law).

NOTE: The 180-day period is not a limitation on the paof the Comm to decide the protest. This period intended to allow the tp to APPEAL TO CTA EVEN



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ABSENCE OF THE COMMs DECISION and PRAY FORTHE EARLY RESOLUTION OF THE CASE.

Stated otherwise, after the lapse of the 180-day period,the tp has 2 options: (AW)

1. To APPEAL to CTA (the Comm loses jurisdictionupon appeal.)

2. To WAIT for the final decision of the Comm.o FINALITY OF ASSESSMENT :

1. Failure to file PROTEST within 30 days from receipt of FAN.2. Failure to APPEAL to CTA within 30 days from denial of such protest.HOWEVER, the tp has remedy even after the assessment had become finaland demandable:

Inquiry by evidence of want of jurisdiction, collusion betweenparties, or fraud on the party offering the record w/ respect to theproceedings. (JCF)



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CHAPTER 6:GOVT REMEDIES FOR COLLECTION OF DELINQUENT TAXES

General Rule: Comm may not file a civil action to enforce collection of the tax unlessthere is a FINAL and EXECUTORY assessment, except in the ff circumstances:

1. When tp fails to paty the full amount indicated in the tax return.2. When the Comm files a criminal action against the tp.3.

GENERAL REMEDIES:

1. ADMINISTRATIVE REMEDIES (No court intervention)a. Distraint of personal property of TPb. Levy of real property of TP

2. JUDICIAL REMEDIES :a. Civil action for collectionb. Criminal action for violation of Tax Laws.

3. Require TP to post a BOND4. Reward System

ADMINISTRATIVE REMEDIES:o REQUISITES:

1. The amount involved is more than P100.002. There is delinquency on the part of tp.

DIFFERENCE(PARF Prop, Assessment, Redemtn, Forfeiture)

DISTRAINT LEVY

Personal property Real propertyMay be preceded by assessment (RLRO) Always preceded by an assessment

No right of redempt ion Tp may exercise right of redemption (1yr from sale)

No forfeiture generally May be forfeited in favour of Govt in casetheres no bidder at auction sale.

I. DISTRAINT

Seizure of Comm of tp;s tangible or intangible personal properties to enforcepayment of taxes, followed by public sale of such, if tp voluntarily fails to pay taxdue.

Govt is in the nature if attaching creditor, and warrant of distarint is analogous toWRIT OF ATTACHMENT or GARNISHMENT.

1. CONSTRUCTIVE DISTRAINT:

To WHOM : (TC)1. TP himself 2. Person having possession/cpntrl of personal property

tp.

OBLIGATION: (PD)

1. To PRESERVE the property intact and unaltered, and

2. Not to DISPOSE the same in any manner w/o expresauthority of the Comm.

HOW : (SL)

1. By SIGNING a receipt containin the list of property sougand provision that obligates.

2. If he refused/fails to sign, officer shall prepare a receipand shall LEAVE a copy thereof at the premises whethe property sought to be distraint is located, and in thpresence of 2 witnesses.

GROUNDS : (D-RLRO)1. Delinquent tax on tp2. Tp is retiring3. Tp intends to leave the Philippines

4. Tp intends to remove, hide, conceal his properties.5. Tp obstructs the proceeding to collect tax due.

VIOLATION

1. Section 276 : When prop under distraint is: (STED)o Soldo Transferredo Encumberedo Or in any manner DisposedPenalty:

Fine in amount twice the value property but not less than 5k and/or

Imprisonment of 2-4 years for eaact/omission.

2. Section 277 : Failure to surrender such propertyPenalty: Civil liability in amount equal to value

prop not surrendered but not exceedinthe taxes due, or



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Fine of 5k, and/or Imprisonment of 6 months to 2 years.

2. ACTUAL DISTRAINT:

TWO (2) VIEWS:1. TPs delinquency must be final and executory.2. TPs delinquency does not require finality.

The 2nd view is more consistent w/ our law andjurisprudence.

The existence of govt is not to be crippled orimperilled by long delays that often attend formaljudicial proceedings.

When individual right to procedural due processcollides w/ important state interest, such cannotbe ignored for they serve the interest of thegreater majority.

PROCEDURE OF ACTUAL DISTRAINT (SR2-NAR-RERIC)1. SEIZURE of personal property

Exceeding 1M = BIR 1M or less = Revenue District Officer

2. Distraining Officer must prepare a REPORT and submit

the same w/in 10 days from receipt of warrant.3. Officer must prepare a RECEIPT thereof, containing:

(LDS)a. LIST of the properties sought to be distraint.b. Statement of sum DEMANDEDc. Time and date of SALE

4. NOTICE of the auction sale in not less than 2 publicplaces in municipality/city where the distraint is made.

5. AUCTION SALE, that must not be less than 20 days afternotice

6. RESIDUE of proceeds after satisfaction of tax due,including expenses for actual seizure and preservationshall be RETURNED to the owner.

7. Officer shall make a REPORT w/in 2 days after sale.

8. If bid price is not EQUAL to the amount of tax or verymuch less than the FMV of the articles offered in the sale,the Comm or his deputy may purchase the same in behalfof the Govt, and be re-sold.

9. Within 5 days after sale, a RETURN of the officer shall enetered upon records.

10. Certificate of Sale be delivered to purchaser.

GARNISHMENT OF BANK DEPOSITS Not a violation of Bank Secrecy Law, as such law on

prohibits examination of bank accounts, but not tseizure thereof to satisfy just and lawful debts specificafor tax cases.

The sheriff in levy of attachment or execution does ninquire into the source/s of a depositors accounts amount of his deposit He simply seize so much of thlatter as is sufficient to discharge the obligation, with nquestions asked regarding the remainder of where or hothe money or any part of It came from.

II. LEVY

Refers to same act of seizure but that of real property or interest in or rights such property in order to enforce payment of taxes.

If the personal property of tp is not sufficient to satisfy his tax delinquency, thComm or his duly authorized representative shall, within 30 days after executioof distraint, PROCEED with LEVY on tps Real property.

NOTE: The remedies of distraint and levy may be repeated If necessary, until the fu

amount due, including all expenses, is collected.

o PROCEDURE : (CNRA-ARIR-CF)1. RO shall prepare authenticated certificate showing: (NTD)

NAME of tp

TAX due

DESCRIPTION of the property2. Written NOTICE of levy, mailed and served upon: (RTO)

REG OF DEEDS for prov/city where property is located.

Delinquent TP or his representative

OCCUPANTS of such property.3. Within 10 days after receipt of the notice, RO shall submit a report on a

levy, to the Comm/representative.4. Within 20 days after levy, RO shall proceed to ADVERTISE the auction f30 days, and be effected by posting a notice on:

Main entrance of mun/city Hall



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In public and conspicuous place in the barrio/district in h=whichthe real estate lies.

The advertisement shall contain the ff: (NADS)

NAME of tp

AMOUNT of taxes

DESCRIPTION of the prop Time and Place of SALE

5. AUCTION SALE

6. W/in 5days, officer shall file a RETURN and enter the same upon records.7. Deliver to purchaser the CERTIFICATE OF SALE.8. Right of Redemption9. If right of redemption was not exercise, a deed of conveyance shall be

executed.10. If there is no bidder or proceeds of the sale is not sufficient to satisfy the

taxes, penalties and cost, RO shall declare such property be FORFEITEDin favour of the Govt in satisfaction of the claim.

o EFFECTS OF DISTRAINT or LEVY

1. On the TITLE of the Property no longer belongs to the tp, and can notbe anymore subject to execution by judgement creditors of the tp.

2. On TPs LIABILITIES tp is discharge ONLY if the value of the property is

sufficient to cover the total tax claims against the tp.o REMEDY OF TP AGAINST ABUSE

Officer who abused the execution of administrative remedies shallbe automatically dismissed from service after due notice andhearing.

JUDICIAL REMEDIES

Formal requirements

Institution or commencement before a proper court of civil and criminal actionsshall be conducted by the legal off icers of the bureau of internal revenue.

An appeal from such court requires the solicitor general to represent the interest of

the government. He has the primary responsibility to appear for the government inappellate proceedings.

BIR legal officers are deputized to prosecute cases and conduct criminproceedings involving violation of tax laws instituted by DOJ state prosecutors before CTand regular courts

Civil Action (CA)

The commissioner may bring an action to enforce a tax lien and collect tax By filing a collection case in the CTA, RTC or MTC as the case may be. By filing an answer to a petition to review filed by the tax payer with th

CTA.

BIR initiated actions

Sec 7 of the New CTA Law implies that only final and executory assessments fotaxes, fees, charges and penalties may be subject of a collection suit that can be filed witthe CTA, RTC, MetroTC, MTC,MCTC as the case may be. The commissioner may oninitiate such suit under the following circumstances: (PASP)

When a tax is assessed and the taxpayer fails to file an administrativPROTEST with the BIR within 30 days from receipt of assessment.

When an administrative protest filed by the taxpayer against tassessment is denied and the taxpayer fails to APPEAL with the CTwithin 30 days from receipt of said decision.

When the taxpayer fails to submit SUPPORTING documents within 6days from filing of protest.

When the tax payer fails to PAY the self-assessed tax as appearing in threturn filed by the taxpayer under the pay-as-you-file system

The necessity of a final and executory assessment makes this remedy unpopulabecause the Commissioner can resort to administrative remedies in enforcing hassessment immediately after the issuance thereof without awaiting its finality.

Taxpayer initiated action

Collector of Internal Revenue v. Bohol Land Transportation

The judicial action Contemplated in the Tax code may refer not only to the civcase instituted by the government to collect tax but also to the case where the taxpayetakes the initiative to contest the validity of the assessment or collection of taxes by th



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Collector (Commissioner). The objective in both cases is the same, the validity andcorrectness of the determination and collection of the tax.

Criminal action

Effective remedy against a recalcitrant taxpayer who refuses to pay the proper tax.It is not only a collection remedy but also involves the enforcement of the provision of thetax code not directly relating to payment of taxes.

Procedure is not summary in nature Requires a prior determination of probable cause by the prosecuting arm

of the government. Requires the highest quantum of evidence of proof beyond reasonable

doubt.

Inclusion of Civil Action in the Criminal action

Sec. 205 of the tax code provides, the judgment in a criminal case shall not onlyimpose the penalty but also the order of payment of the taxes subject of the criminal caseas finally decided by the commissioner.

NOTE: Before courts cannot require taxpayer convicted of an offense punishable under

the tax code to likewise pay the tax assessed by the Commissioner. He must file aseparate action to collect the same. (Garcia v. Collector of Internal Revenue)

Sec 205 may only apply if the taxpayer was charged and convicted of an offensethat could only be committed after service of notice and demand for payment of thedeficiency taxes upon the taxpayer who still refused to pay the same. This is because thelaw contemplates payment of the taxes subject of the criminal case as finally decided bythe commissioner.

Sec. 11, Rule 9 of the CTA rules provides: The criminal action and thecorresponding civil action for recovery of civil liability for taxes and penalties shall bedeemed jointly instituted in the same proceeding. The filing of a criminal action shallnecessarily carry with it the filing of the civil action no reservation of civil action of allowed.

Remedy prior to Judgement

The commissioner need not wait for the judgement of the court for him to be ableto collect the assessed tax. He may:

Resort to administrative remedies File a motion to the court for issuance of preliminary attachment

Payment not a valid defense

Payment of tax due after apprehension shall not constitute a valid defense in anprosecution for violation of any provision of the tax code or in any action for the forfeituof untaxed articles. The criminal action subsists so long as there is no legal grounds thwould bar their prosecution.

Payment of fine

Fines imposed for violation of the tax code shall not be lower than the fineimposed or twice the amount of taxes, interest and surcharges due from the taxpayewhichever is higher.

If the taxpayer has no money or property, he shall be subject to subsidiapersonal liability of Art. 39 of the RPC.

Persons criminally liable under the tax code may be natural or juridical personMay also be a non-filipino citizen, a public officer a public accountant or a plain recidivist.

Juridical person as offender

GENERAL RULE: If the crime is punishable by imprisonment and committed by a juridicentity or corporation, the DIRECTORS, OFFICERS, EMPLOYEES or other officeresponsible thereof for the offense shall be charged and penalized for the crime. (DOE)

EXCEPT: If the imposable penalty is a fine, a corporation may be charged aprosecuted.

If the statute defines a crime that may be committed by a corporation bprescribes penalty thereof to be suffered by the directors, officers or employees of succorporation, only such individuals would suffer the penalty these also applies if the crime committed through their act, default or omission.

Who are the persons liable on a corporation? Sec 256 (d) provides: presidengeneral manager, branch manager, treasurer, officer in charge and employeresponsible for criminal violation and pay the penalty provided therein.

Where a corporation has been found liable for criminal violations, its officeragents, and all who participates in the criminal violation are liable. (People v. Tan BooKong).



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Criminal liability only attaches to: (CMP)

Corporate agents who themselves COMMIT the c rime

Those by virtue of their MANAGERIAL POSITION or other similar relationto the corporation could be deemed responsible for its commission, if theyhad the power to prevent such act.

All parties active in PROMOTING a crime

Non Filipino citizen, etc. as offender

He shall be deported immediately after serving sentence, without furtherproceedings for deportation. If he is a public officer or employee, the maximum penaltyshall be prescribed plus perpetual disqualification.

If he is a public accountant, his certificate shall be automatically revoked orcancelled. If a person is found guilty of reincidence, the maximum penalty shall beprescribed.

Acts punishable under the tax code

In general violation of tax code would give rise to criminal action.

Violations of taxpayer and person aiding the taxpayer (Ill give 10 only ^_^)

Willful failure to file a return, supply correct and accurate information, paytax, withhold and remit taxes withheld on compensation.

Attempt to make it appear that a return or statement has been filed/ Making false entries, records, reports or using falsified or fake

accountable forums. Carrying on business without paying the corresponding annual registration

fee. Unlawful use of denatured alcohol. Unlawful possession or removal of articles subject to excise tax without

payment of the tax. Failure or refusal to issue receipts or sales or commercial invoices. Printing of receipts or sales or commercial invoices.

Printing of receipts or sales or commercial invoices without authority fromBIR Printing of double or multiple sets of invoices or receipts.

Violations of revenue officers and other government officers (Ill give 7 ^_^)

Extortion or willful oppression through the use of his office or willfoppression and harassment of a taxpayer who turned down or rejected hoffer.

Knowingly demanding or receiving any fee other than those authorized law.

Willful neglecting to give receipts, as required by law. Neglecting or permitting the violation of the law by any other person Making or signing false entries in any book or making or signing any fals

certificate or return. Unlawful divulgence of trade secrets. Failing to issue or execute the warrant of distraint or levy within 30 day

after expiration and abuse in the service thereof.

The penalty for such acts or omission shall be: Fine of not less than P50,000 (bucks Ramos, J.) but not more tha

P100,000 Imprisonment of not less than 10 years but not more than 15 years. Perpetual disqualification to hold office, to vote, to participate in election. Internal revenue officer, after a case of grave misconduct has be

establish shall be, subject to civil service laws, dismissed from revenuservice.

Safeguards to BIR officers and employees

In order not to intimidate any internal revenue officer form doing his job lawfullany judgment, damage, or cost recovered in an action brought against any revenue officeshall be satisfied by the commissioner provided the following requisite occur: (DPNA)

The action is brought against a revenue officer to recover DAMAGES reason of an act done in the PERFORMANCE OF HIS OFFICIAL DUTY

Internal revenue officer did not act NEGLIGENTLY OR IN BAD FAITH.

The Commissioner is NOTIFIED in time to make a defense through thsolicitor general.

The satisfaction of such judgment, damage or cost is APPROVED by thSecretary of finance.

The absence of negligence or bad faith on the part of the petitioner, any monejudgment that would be rendered against her would have to be assumed by the republic the Philippines as the complaint was in the nature of a suit against the state.



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Neccessity of prior assessment

GENERAL RULE: That an assessment of a deficiency tax is not necessary to a criminalprosecution for willful attempt to defeat and evade the income tax. (Ungab v. Cusi)

EXCEPTION: When there is no prima facie evidence that private respondents thereinwere guilty of tax evasion. No preliminary investigation yet. (Fortune Tobacco case)

Effect of acquittal

Acquittal in the criminal case could not discharge the duty to pay tax since theduty is imposed by statute prior to and independently of any attempts on the part of thetaxpayer to evade payment (Castro v. Collector of Internal Revenue)

Statute of limitations

In the old tax code, the right of the government to collect tax is imprescriptible.However, in the present tax code, it provides for a statute of limitation to preventnegligence on part of the revenue off icer on collecting taxes.

Any internal revenue tax that has been assessed within the period prescribed maybe collected within 5 years from date of assessment. If there is reinvestigation, the timeemployed reinvestigating should be deducted from the total period of limitation.

Collection after the lapse of the said period would be without authority except:

There was failure on part of the taxpayer to file a return. Or return filed was false or fraudulent and made with intent to evade tax.

Suspension on collection of taxes

When the commissioner is prohibited from beginning distraint or levyproceeding in court and for 60 days thereafter.

In order that the pendency of the other proceedings shall have the effect of tollingthe statute of limitations on a cause of action, The proceedings must be of a nature as toprevent the enforcement of remedy by action.

Judicial action : Mere pendency of the taxpayers appeal in the CTA and in the SCon the ground of litis pendencia has the effect of legally preventing the commissioner from

instituting an action in the court for collection of tax and will suspend the running of thstatute of limitation. A criminal case does not suspend the running of the prescriptivperiod for the collection of taxes assessed.

Administrative action: The CTA is given the power to enjoin the collection of tax bprohibiting the Commissioner from beginning a distraint or levy provided: (AJB)

1. Taxpayer files an APPEAL to the CTA

2. CTA finds that collection of taxes may JEOPARDIZE the intereof the government or taxpayer

3. The taxpayer either deposit the amount claimed or files with thCTA a surety BOND.

Once the CTA issues injunction against the collection of tax, the 5 year period suspended.: (WILO-E)

1. When the WARRANT of distraint or levy was duly served upon thtaxpayer and no property could be located

2. When the taxpayer request for re-INVESTIGATION granted by tCommissioner.

3. When the taxpayer cannot be LOCATED on the address given by him the return.

In this situation, the prescriptive period will be suspended only if the taxpayinforms the Commissioner of the Internal Revenue of any change in his address. (AfisInsuranceCorporation et. al.v. CA)

Even if there is property that could be located but due to taxpayemany/repeated request or positive acts such warrant cannot be served, it can alsuspend the running of the prescriptive period.

4. When the tax payer is OUT of the Philippines.

5. When the Commissioner EXTENDS the payment of the estate tax upprior request of the taxpayer.

Note: Extrajudicial demand does not interrupt the prescriptive period as the tax code is special law and such demand is embodied on the civil code.

Criminal action; Suspension

Prescription shall be interrupted, in criminal proceedings, when proceedings ainstituted for investigation and punishment and would begin to run again after suc



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proceedings are dismissed for reason not constituting jeopardy. Also, prescription wouldbe suspended when the offender is out of the Philippines.

Reckoning date; Suspension

If the commission of the crime is known. It shall be counted form the commissionof the crime. If not know, it is counted from the discovery thereof and the institution ofjudicial proceedings for investigation and punishment.

If the nature of the crime is such that it could only be committed after service ofnotice and demand for payment of deficiency taxes upon taxpayers, the prescriptive periodwould be counted from the date when the final notice and demand is served on thetaxpayer.

The defense of prescription can be raised even on appeal in criminal proceedings.Unlike in civil actions, it cannot be raised for the first time on appeal.

OTHER REMEDIES:

1. Forfeiture

It is the loss, deprivation or destruction of property, right or privilege by way ofpenalty in consequence of violation of law, non performance of some obligation or nonfulfillment of some required conditions. The effect of forfeiture is to transfer the title of thespecific thing from the owner to the government.

The Commissioner is authorized to forfeit the following: Chattles, machinery and removable fixtures of any sort Dies and other equipment used for printing or making of any internal

revenue stamp, label or tag which is an imitation. All articles subject to excise tax. Articles withdrawn from distillery, or distillery warehouse, bounded

warehouse or from customs custody. Proceeds of the crime.

ProcedureThe forfeiture of chattels and removable fixture of any sort shall be enforced byseizure or sale, or destruction of the specific forfeited property.

Forfeiture of real property shall be enforced by judgment of condemnation ansale in legal action or proceeding.

Illicit production of goods articles which are not subject of lawful commerce mabe destroyed by order of commissioner, when sale would be injurious to public health.

Forfeited property shall not be destroyed until at least 20 days after seizure.

If items is owned by third person, the same shall be confiscated or forfeited afte

due notice and hearing in a separate proceeding.

Exempt properties includes that of common carriers when used in the transactioof their business unless the owner or operator consents.

REMEDY OF TP:The taxpayers remedy, if he desires to contest the validity of the forfeiture may,

anytime before sale or destruction, bring an action for replevin against the person seizing

2. Tax lien (CPS)

It is a legal claim or charge on property, whether real or personal, established law as a sort of security for the payment of tax obligations. It attaches not only from thservice of warrant of distraint or levy but from the time the taxpayer fails or refuses to pahis taxes after assessment, notice and demand. The following are its essential elements:(ADFN)

An ASSESSMENT fixing the tax due.

Previous DEMAND for payment of tax due.

Taxpayer FAILS to pay tax due.

In order that the lien may follow the property in the hands of a thiperson, there must also be NOTICE to him.

A tax lien is extinguished: (PDPC)

Full PAYMENT of tax

DESTRUCTION of the property subject of the lien

PRESCRIPTION of the right to assess or collect

Withdrawal or CANCELLATION by the revenue authorities.

Seizure under forfeiture vs tax lien



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In the former, all proceeds derived from the sale of the property forfeited areturned over to the commissioner. While the latter, the residue of the proceeds over andabove what is required to pay the tax sought to be realized is returned to the taxpayer.

Tax code lien vs Real property tax lien

Tax code lien is more limited than Real property tax lien

Real property tax lien is enforceable against the property whether in the

possession of the delinquent or subsequent owner. Tax lien is not enforceable on anymortgagee purchaser or judgment creditor unless a notice of such lien be filed by thecommissioner on the register of deeds.

Tax lien does not apply when a property has been transferred to an innocentpurchaser and for value.NOTICE: Notice is essential in tax code lien.

Tax lien vs other lienThe legislature may make tax lien a first lien upon the property of a taxpayer, the

power to tax is the strongest of all the powers of the government. (Preference andConcurrence of credit tax lien is a preferred lien among others)

REMEMBER: If the national tax does not pertain to specific properties of the taxpayer, taxlien shall only enjoy the preference under 2244 (9) and not in 2241 (1) or 2242 (1) of theCivil code.

Laborers lien vs tax lien

A tax lien is superior to a workers lien.

Utility of tax lien in estate casesGovernment has 2 ways of collecting the deficiency income tax or estate tax due

the estate:

By going after all the heirs and collecting from each one of them theamount of tax, proportionate to the inheritance received.

Subject the property of the estate which is in the hands of the heir ortransferee to the payment of the tax due the estate.

No injunction rule

Before: courts generally has no power to issue a writ of injunction or temporary restrainingorder against the collection of tax.

Full payment rule a person resisting a payment of tax must first pay the full amount the tax asserted and file a formal administrative claim for refund.

After: after the creation of the CTA, the no injunction rule has been tempered. The CTmay enjoin the commissioner from collecting taxes of such collection may jeopardize thinterest of the government or taxpayer.

Penalties and fine

A. Surcharge

An administrative sanction and not a tax, the tax code imposes 25% to 50% surcharge.

25% for the following: Failure to file any return or pay tax due Filing a return other than what is required to be filed Failure to pay deficiency tax within the time prescribed for i

assessment. Failure to pay the full or part of the amount of the tax shown o

any return required to be filed.

50% surcharge in case of willful neglect to file a return within the period prescribeor in case of false or fraudulent return made. Intent is necessary for the impositioof %0 % surcharge.

Fraud must be actual and not constructive. It must be intentional consisting deception willfully and deliberately done or resorted to.

Imposition of surcharge can be condoned provided that the taxpayer acted in goofaith and has an honest belief that he is not liable for such tax imposed upon him

B. Interest

It is compensation for the state for the delay in paying the tax. It is not a criminpenalty. Interest is generally 20% per annum.

Deficiency tax It is to be assessed and collected from the date prescribed for itpayment until the full payment thereof.

Delinquency taxes in case of failure to pay:



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The amount of tax due on any return to be filed The amount of tax due for which no return was filed A deficiency tax.

If the taxpayer elects to pay the tax in installments and failed to pay, interest willalso be collected.

If the taxpayer and commissioner enter into a compromise, the latter cannot file acriminal action against the tax payer. Such penalty of the taxpayer will be subject

on their compromise agreement.

3. Non injunction against collection of tax

4. Penalties and fines



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CHAPTER 7 : REFUND

Tax refund VS tax credit

It is for refund when the tax payer ask for the return of taxes paid. It is a claim forcredit when the taxpayer asks that the tax illegally or erroneously collected from him is tobe applied from his other tax obligations instead of returning it to him.

A refund check or warrant issued if remains unclaimed for 5 years shall be

forfeited in favor of the government. And if a tax credit certificate issued remains unutilizedfor 5 years, it shall be considered invalid and is not allowed as payment for other taxliabilities.

A tax credit granted to the taxpayer may be applied against any internal revenuetax and may be converted to refund as long as it is valid. The original copy of the tax creditcertificate must be surrendered to the appropriate revenue officer.

Tax credit VS tax deduction

Tax credit is a peso for peso reduction of tax liability, direct subtraction from thetax payable. While tax deduction is a subtraction to the gross income resulting to a lowertaxable income.

Construction

Claim in the nature of an exemption claim is strictly construed as against the taxpayer,being highly disfavored and almost said to be odious to the law. It must be under clear andunmistakable terms found in the statute.

Social legislation liberally construed in favor of the taxpayer.

Erroneous payment of tax may be credited or refunded and only needs a preponderanceof evidence.

A tax return is presumed to be correct, because the taxpayer is under the pain ofcriminal prosecution for perjury if he give false information. The commissioner, uponsubmission of necessary documents by the taxpayer, will assess the documents. If theCommissioner sees that the taxpayer should be given a credit or refund, even without

written claim, he will grant such to the taxpayer.

Doctrine of equitable recoupment A tax presently assessed against a taxpayer may berecouped or set off against a tax illegally or erroneously collected or overpaid.

The right of the tax payer to claim for a refund or credit is premised on thprinciple of solution indebiti. (If something is received when there is no right to demand the obligation to return arises.) The commissioner will grant a refund under the followincircumstances:

When the commissioner erroneously or illegally assessed or collecteinternal revenue taxes

When the commissioner imposes penalties without authority. When the taxpayer returns internal revenue stamps

When the creditable VAT withheld remains unutilized

Procedure

GENERALLY: The state cannot be sued without its consent

EXCEPT: When it waives such immunity as it allows persons to institute claims against it

Thus before an action for a claim for refund or credit can prosper, the following general must be established by the taxpayer:

The taxpayer complied with the statutory requirements to claim for refunor credit

There was an actual collection and receipt by the government of the ta

sought to be recovered.

Compliance with statutory requirements:

Taxpayer files an administrative claim for refund within 2 years aftpayment of tax or penalty or after the close of a taxable year.

If the commissioner does not grant in whole or in part the amount claimeand the taxpayer wants to question such decision of the commissionethe taxpayer must file an appeal to the CTA within 30 days from receipt decision of Commissioner and such appeal is made within the 2 yeperiod.

If the commissioner does not act on the claim and the taxpayer does nwant to lose its judicial remedy against possible decision of tcommissioner, taxpayer must file an appeal within 30 days from th

expiration of the period fixed by law to act thereon, provided that sucappeal is still covered by the 2 year period.

Filing of administrative claim to the commissioner is premised on the principle exhaustion of administrative remedies. The filing of an administrative claim ma



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be excused if the tax return shows overpayment, as it is considered as a writtenclaim for credit and refund.

The commissioner is given 120 days to grant a taxpayers claim for refund, if noaction has been taken by the commissioner, the taxpayer should make an appeal to theCTA within 30 days after the lapse of the 120 day period. He may also decide not toappeal after the 120 day period lapse, but he must make an appeal before the 2 yearperiod lapse.

NOTE: The commissioner may still grant the claim for refund or credit even after the 2year period lapse.

Remedy against BIR personnel for inaction File an action for damages against the erring BIR personnel pursuant to

Article 27 of the civil code File a criminal action against the erring BIR personnel for violation of Sec

269 of the RPC

2 year prescriptive period; to be counted from

Excess quarterly income tax payments 2 year period is to be counted from the date offiling of the final adjustment return because it is only during that date that the exact liabilityor refundability of the tax can be determined.

Unutilized creditable withholding tax Also must be counted from the date of filing of thefinal adjustment return.

Final withholding tax the withholding agents claim for refund must be from the filing ofthe final withholding tax return.

VAT 2 year period is computed from the close of a taxable quarter when the sales weremade.

Claim of constituent corporation claim for refund or tax credit of the amount erroneouslymade must be filed within 2 years from the date it filed its short period return after the

approval of the articles of merger.

Tax paid in installments claim for refund or tax credit of the amount erroneously paid ininstallments must be filed within 2 years from its final payment.

NOTE: if the tax was proper at the time of payment but subsequently became impropdue to occurrence of a supervening cause, the 2 year period should still be counted fromthe date of payment.

REMEMBER: a refund may either arise from a payment under protest (aware of his righor an erroneous payment of tax (not aware of his right for refund, 2 years counted frodiscovery).

Defense after 2 year period

When will the counting of the 2 year period be suspended:

If there is an agreement between the taxpayer and the agent of thcommissioner that they would await the decision of the supreme court a case involving a similar issue

If the commissioner made the taxpayer believe that he would be creditefor the overpayment.

NOTE: even of the 2 year period had elapsed, it may still be suspended for reasons oequity and other special circumstances.

Excess estimated quarterly income taxes; unutilized creditable withholding taxes (CWT)

In claiming refund or credit for the taxpayer unutilized creditable withholding taxeor excess quarterly income tax payments, the taxpayer must comply with the followinrequirements:

Mar the appropriate box in the final adjustment return (FAR), whether request for refund or claim

Present the succeeding quarterly income tax return and final adjustmereturn

A copy of the statement duly issued by the payor to the payee showithe amount paid and the amount withheld therefrom

The income upon which the taxes were withheld is included as part of thgross income declared in the income tax return of the recipient.

A corporation entitled to a credit or refund of the excess estimated quarteincome taxes paid or excess CWT is allowed 2 options:

Be credited or refunded with the excess amount paid Carry over the excess credit to the succeeding taxable quarters of th

succeeding taxable years


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NOTE: A claim for refund or credit is subject to prior approval and verification by thecommissioner.

Failure of the taxpayer to indicate in its annual income tax return the option torefund its creditable withholding tax is not fatal to its claim for refund or credit. It is only aplain oversight.

The taxpayer may change its option chosen by him as indicated in the FAR, he is

not totally precluded from doing such.Excess withholding tax credits

The following conditions for grant of a claim for refund or credit of the excessCWTs are the following:

The claim is filed within the 2 year period from the date of payment of tax It is shown on the return that the income payment received was declared

as part of the gross income The fact of withholding is established by a copy of the statement duly

issued by the payor to the payee showing the amount paid and theamount of tax withheld.

The taxpayer must not have opted to carry over and credit the excessCWTs to the taxable quarters of the succeeding taxable years if it wishes

to be refunded.Certificate of CWT establishes the fact of withholding and emanates from the payoritself.

Claim refund or credit of unutilized input VATThe following must be established by the VAT registered tax payer:

There must be zero rated or effectively zero rated sales Input taxes were incurred or paid. The payments of the sales must have been made in acceptable foreign

currency duly accounted for in accordance with the BSP rules andregulations

Input VAT payments are directly attributable to zero rated sales oreffectively zero rated sales or allocated to zero rated or effectively zero

rated sales Input VAT payments were not applied against any output VAT liability The claim for refund was f iled within the 2 year prescriptive period

To establish its zero rated or effectively zero rated sales, it must substantiate claim by presenting duly registered official receipts and invoices. Furthermore, thtaxpayer must present export declaration, bill of lading, airway bill and other simidocuments to establish actual shipment of the goods from the Philippines to a foreigcountry. Also invoices pertaining to the taxable sales and corresponding input VAT.

Input tax for the importation of goods must be substantiated and supported by thfollowing documents and must be reported in the information returns required to bsubmitted to the BIR:

1. Import entry or other equivalent document showing actual payment VAT in goods.2. For the domestic purchase of goods and properties invoice showi

information required by the tax code.3. For purchase of real property public instrument (deed

absolute/conditional sale, contract, etc.)4. For purchase of service official receipt.

Note: Input tax that may be subject of the claim must exclude the portion of input tax thahas been applied against the output tax.

Required information in VAT invoice or official receipt

In order for the taxpayer to establish its zero rated or effectively zero rated sales,must substantiate its claim by presenting duly registered official receipts and invoices. Th

VAT invoice or the VAT off icial receipt must contain the following:

A statement that the seller is a VAT registered person followed by his TIN The total amount which the purchaser pays or is obligated to pay to th

seller indicates such amount includes the VATo The amount of tax shall be shown as a separate item in th

invoice or receipto If the sale is exempt from value added tax, the term VAT exem

sale shall be indicated.o If the sale is subject to zero percent value added tax, the ter

zero rated sale shall be indicated.o If the sales involves goods, properties or services some of whic

are subject to tax and same which are not, it shall be clearindicated by a breakdown of the sale price.

Date of transaction, quantity, unit cost and description of goods properties or the nature of services

In case of a sale in the amount of P1,000, the name business styladdress and TIN of the purchaser, customer or client.


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Sale to a BOI registered enterprise

The taxpayer must establish the following:o The tax payer is VAT registeredo The BOI registered buyer is also VAT registeredo The buyer is a BOI registered manufacturer or producer whose products

are 100% exported, as evidenced by the corresponding certification

issued by the Board of Investment.

Failure to reflect authority to print on sales invoice or receipt does not make suchsales invoices or receipts inadmissible in evidence, if it at least contain a statement thatthe seller is a VAT registered entity followed by his TIN-V

NOTE: there is no major difference between an invoice and official receipt with regards tomatters that should be contained therein.

In an action to claim credit or refund, the claim must be made by and in the nameof the real party in interest.

Indirect tax

it is one wherein the incidence of or the liability for the payment of tax falls on oneperson, but the burden thereof can be shifted or passed on to another person. The properparty who can question or seek a refund (just like in VAT or excise tax) is on the personwhom the tax is imposed by law and who paid the tax even when he shifted the burdenthereof to another.NOTE: what is referred to here is the manufacturer exporter not the supplier even if he isthe one who paid the excise tax.

Final withholding tax

Corporate withholding agents in the Philippines of non resident foreign corporationare entitled to claim the refund or credit erroneously or excessively withheld taxes of suchnon resident foreign corporations.

Liability of Government for interest

GENERALLY: the government cannot be made to pay interest on the amount refunded inthe absence of statutory provisions clearly and expressly authorizing such payment ofinterest.

EXCEPT: When there is over withholding of income tax from the wages of employees anthe amount thereof is not refunded or credited to the employees within 3 months. Alswhere an illegal tax has been collected, taxpayer is entitled to interest form the time oillegal exaction.
