University of the Philippines College of Law

Taxation 2, Fridays 3 p.m. to 6 p.m. (Prof. Carina C. Laforteza) Second Semester SY 2012-2013

ESTATE TAX (Sec. 84-97, Sec. 104, NIRC, Revenue Regulations No. 17-93, Estate Tax Regulations, as amended by RR 2-2003 dated December 16, 2002) Lorenzo v. Posadas, G.R. No. 43082, June 18, 1937 GROSS ESTATE – Rule for Imposition

1. Resident, non-resident alien

2. Reciprocity of exemption (Collector v. Fisher, 1 SCRA 93) 3. Valuation of gross estate a. Decedent’s interest

b. Transfers in contemplation of death

c. Revocable transfers

d. Property passing under general appointment

e. Proceeds of life insurance

f. Prior interest

g. Transfer for insufficient consideration

4. Exclusion from gross estate: capital of surviving spouse

5. Deduction from gross estate

1. Funeral expenses

2. Judicial expenses

c. Claims v. the estate

d. Claims v. insolvent persons

e. Unpaid mortgages and losses f. Property previously taxed – vanishing deduction

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g. Transfer for public purpose h. Family house i. Share in the conjugal property j. Standard deduction 6. Tax credit for estate taxes 7. Exemption of certain acquisitions 8. Tax returns

i. Time to file and notice ii. Payment of tax 9. Obligations of executor, administrator, officers, others

DONOR’S TAX (Sec. 98-103) 1. Imposition of gift tax 2. Transfer of inadequate consideration 3. Exemption from gift tax 4. Tax credit 5. Tax return (time and filing and payment)

6. Political contributions: tax treatment

Abello v. CIR, GR No. 120721, February 23, 2005

VALUE-ADDED TAX

1. Sec. 105-115, NIRC as amended by RA 8424 & RA 9238, February 5, 2004 and RA 9337 effective July 1, 2005, implemented by RR 16-2005 (November 1, 2005) & RR No. 4-2007 (February 7, 2007)

2. Rev. Regs. 2-88, Rev. Memo Order No. 22-92

3. Rev. Regs. 7-95

4. RMO 39-95

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5. RMC 1-96 up to 7-96

6. Philamlife, CA GR SP 31283, April 25, 1995 (definition of royalty)

7. Are reimbursements subject to VAT?

CIR v Court of Appeals, et al., G.R. No. 125355, March 30, 2000 See also RMC 9-2006, January 25, 2006; clarifying amount subject to VAT of brokers; RMC No. 39-2007, January 22, 2007

8. Opinion 40. April 22, 1996 – effectivity of VAT on other taxpayers

9. Improved VAT (IVAT) – RA 8241, December 20, 1996 (effectivity date –

January 1, 1997) (Rev. Regs. 6-97, January 2, 1997)

10. RR 8-99, April 26, 1999 – penalties for indicating separately VAT in sales invoice or O.R. on sale of goods or services

12. RR 1-2005, December 28, 2004 amends RR 7-95 & RR 8-2002 re: VAT

exemption on real estate sales and rentals 13. RR 13-97

14. RR 7-99 – submission of diskettes for summary list of sales and purchases within the following month at the close of each calendar quarter

15. RMC 74-99, October 15, 1999 – tax treatment of sales of goods and services

made by suppliers from western territory to a PEZA registered enterprise and sale transactions made by PEZA registered enterprises within and without the zone. (Destination or Cross Border Principle first adopted November 5, 1998, BIR ruling 032-98, Shimizu Philippines)

16. American Express v. Commissioner, CA GR SP 62727, February 28, 2002 (zero

rated sale of service), SC GR 152609, June 28, 2005 17. CIR v. Burmeister and Wain, GR No. 153205, January 22, 2007

18. CIR v. Magsaysay Lines, GR No. 146984, July 28, 2006 (No VAT on sale not made in trade or business)

19. Rev. Regs 6-2001, July 31, 2001 (payment of VAT within 10 days after end of

the month), as amended by RR 8-2002 (filing of VAT returns, June 13, 2002)

20. RR 17-2003, VAT on refined sugar as amended by RR 2-2004 (March 1, 2004) and RR 16-2005 and amended by RR 13-2008 (September 14, 2008)

21. RA No. 9361 (December 13, 2006) Repeal of 70% input VAT Cap as

implemented by RR No. 2-2007 (December 29, 2006)

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22. CIR v. Seagate Technology Phils., GR No. 153811, February 11, 2005 (effectively zero-rated transactions with PEZA)

23. Microsoft Philippines, Inc. v. CIR, G.R. No. 180173, April 6, 2011

24. Commissioner of Internal Revenue v. Sony Philippines, Inc., G.R. No. 178697,

November 17, 2010

25. KEPCO Philippines Corporation v. CIR, G.R. No. 181858, November 24, 2010 26. AT & T Communications Services Philippines, Inc. v. CIR, G.R. No. 182364,

August 3, 2010 27. Silicon Philippines, Inc. v. CIR, G.R. No. 172378, January 12, 2011

28. Renato V. Diaz and Aurora Timbol v. Secretary of Finance, G.R. No. 193007, July 19, 2011

29. PAGCOR v. BIR, G.R. No. 172087, March 15, 2011

30. Commissioner of Internal Revenue v. Aichi Forging Company of Asia, G.R. No. 184823, October 6, 2010

31. Fort Bonifacio Devt. Corp. v. CIR, G.R. Nos. 158885 and 170680, April 2, 2009

32. Commissioner of Internal Revenue v. Benguet Corporation, G.R. Nos. 134587

and 134588. July 8, 2005 33. Commissioner of Internal Revenue v. SM Prime Holdings, Inc. et al, G.R. No.

183505, February 26, 2010 34. Commissioner of Internal Revenue v. The Philippine American Accident

Insurance Company, et al., G.R. No. 141658, March 18, 2005 Revenue Regulations No. 18-2011(penalties for violation of requirement that output tax

be separately indicated in invoice/OR)

Revenue Regulations No. 16-2011 (increasing threshold amounts under Section 109 (p), (q) and (v))

OTHER PERCENTAGE TAXES Sec. 116 Tax on persons exempt from VAT Sec. 117-118 Carriers tax as amended by RA 9377 (July 1, 2005)

Revenue Regulations No. 11-2011 (20 July 2011) - Revenue Regulations Defining Gross Receipts for Common Carrier's Tax for International Carriers pursuant to Section 118 of the Tax Code Amending Sec. 10 of Revenue Regulations No. 15-2002

Sec. 119 Tax on franchises

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Sec. 120 Overseas communications tax Sec. 121 Tax on banks and financial intermediaries as amended by RA 7716 & RA 9238

(China Banking Corp. v. CTA, SC GR 146749, June 10, 2003 (base of 5% GRT on interest income), RA 9238 as implemented by RR 9-2004 (GRT on banks), RA 9337, effective July 1, 2005 on increase of GRT to 7% on other income of banks)

Sec. 122 Tax on finance companies (BIR Ruling, August 16, 1990 on credit card

companies as amended by RA 9238) Sec. 123 Tax on Insurance premiums, as amended by RA 10001 Sec. 124 Tax on agents of foreign insurance companies Sec. 125 Amusement taxes (RMC 8-88, February 19, 1888, p. 785, Nolledo) Sec. 126 Tax on winnings Sec. 127 Percentage tax on IPOs Sec. 128 Payment of percentage taxes Rev. Regs 6-2001, July 31, 2001

Republic of the Philippines v. Sunlife Assurance Company of Canada, G.R. No. 158085, October 14, 2005 CIR v. Lhuiller, SC GR 150947, July 15, 2003 (pawnshop are not lending investors) First Planters Pawnshop, Inc. v CIR, G.R. No. 174134, July 30, 2008 RR 10-2004, 5% GRT on pawnshops (beginning January 2004); also Money Shops or Forex Shops (RR 4-2007)

EXCISE TAXES ON CERTAIN GOODS Chapters 1 and 2

Sec. 129 to Sec. 140, NIRC, as amended by RA 9334 (January 1, 2005), implemented by RR 12-2004 and RR 3-2006, implementing guidelines on revised tax rates on alcohol, etc. (January 3, 2006)

Chapter 3 – Excise tax on alcohol products RA 9334, implemented by RR 12-2004

Philippines-Taxes on Distilled Spirits WTD/S396/AB/R and WT/DS403/AB/R, December 21, 2011

Chapter 4 – Excise tax on tobacco products

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Sec. 144 – 147, NIRC RA 7654 – revised excise tax on cigars and cigarettes RR 22-2003 – cigarettes RR-9334 implemented by RR 12-2004

British American Tobacco v Jose Camacho et al., G.R. No. 163583, August 20, 2008; motion for reconsideration, April 15, 2009

Chapters 5 and 6 – Excise tax on petroleum products and miscellaneous articles

Sec. 148 – 150, NIRC as amended by RA 9337 effective July 1, 2005 (deleting excise tax on certain petroleum products) RR 4-2003, January 29, 2003, Revised Regulations on Excise Tax of Automobiles amended RR 14-99, October 13, 1999 (before Amendment by RA No. 9224)

Exxonmobil Petroleum and Chemical Holdings, Inc. Philippine Branch v CIR, G.R. No. 180909, January 19, 2011

Commissioner of Internal Revenue v. Pilipinas Shell Petroleum Corporation, G.R. No. 188497. April 23, 2012

Chapter 7 – Excise tax on mineral products Sec. 151, NIRC as amended by RA 7729, June 2, 1994 RA 8240, revision of excise taxes on cigarettes and alcoholic beverages Revenue Regulations 1-97, December 13, 1996, method of computing specific tax on cigars and cigarettes Excise tax on cars, RA 9224, October 2003 RR 25-2003, new rules implementing RA 9224 Revenue Regulations 2-97, Specific tax on beer and alcoholic drinks RR 9-2003, February 17, 2003, amending RR 1-97 and RR 2-97, excise tax on alcohol products, cigars and cigarettes RR 7-2002, June 4, 2002, revalidation of issued permits to establishments subject to excise tax

DOCUMENTARY STAMP TAX Sec. 173 – 201, NIRC, as amended by RA 8424 & RA 9243 (February 7, 2004) & RR 13-2004

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CIR v. Construction Resources of Asia, Inc. – 145 SCRA 673 (issuance of shares of stock) Phil. Consolidated Coconut Industries ( 70 SCRA 22) RMC 44-86, December 4, 1986, p. 877, Nolledo RA 7660, December 23, 1993, effective January 14, 1994 Rev. Regs. 9-94, March 8, 1994, New DST Regulations Rev. Regs. 6-2001, July 31, 2001 (Payment of DST within 5 days) As amended by RR 15-2001 (October 16, 2001) Exemption from DST of shares listed and traded in Stock Exchange for 5 years from 2004 (RA 9243) and tax free exchanges (RA 9243) and RR 13-2004 Banco de Oro v. CIR, CTA E.B. No. 165 (August 15, 2005), SSA subject to DST as time deposit certificate CIR v. First Express Pawnshop Company, Inc., G.R. Nos. 172045-46, June 16, 2009 CIR v. Filinvest Development Corporation, G.R. No. 163653, July 19, 2011 CIR v. Manila Bankers’ Life Insurance Corporation, G.R. No. 169103, March 16, 2011 Supreme Transliner, Inc. et al. v. BPI Family Savings Bank, Inc., G.R. No. 165617, February 25, 2011

REMEDIES 1. Sec. 4, NIRC, Power of Secretary of Finance to review rulings of CIR as

implemented by RMC 44-2201, October 11, 2001 and DOF Order 7-02, May 7, 2002

2. Sec. 6 - Sec. 17, NIRC

3. Sec. 2002 – Sec. 282, NIRC 4. Rev. Regs. 12-99 implementing the provisions of the NIRC on rules of

assessment, civil penalties and interest and extra-judicial settlement of taxpayer’s criminal violation under RMO 1-90

5. RR No. 11-2006, June 15, 2006 (Accreditation of Tax Practitioners to Practice

before BIR)

6. Cases:

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a. RP v. CTA & Nielson & Co., GR L-38540, 149 SCRA 351 Demand letter/follow-up letter for payment of taxes considered notice of assessment

b. Collector v. Bautista, L-12250, L-12259, May 27, 1959 Notice of Assessment deemed made when notice is released, mailed and does not require that notice be received within 3 years period CIR v. Metro Star Superama, Inc., G.R. No. 185371, December 8, 2010

c. Republic v. Ricarte, GR L-46893, November 12, 1985 (action to assess

prescribed since there was not proof that notice was sent)

d. i) Advertising Associates v. CTA, 133 SCRA 765, p. 939, Nolledo. Reviewable decision of CIR is where he directs taxpayers to appeal to CTA not mere issuances of warrants of distraint and levy

ii) CIR v. Union Shipping, GR 66160, May 21, 1990. Demand to

pay deficiency tax considered final decision of CIR

iii) Surigao Electric v. CTA, 57 SCRA 523. CIR should categorically state whether order is final determination so that it can be appealed to CTA

e. i) CIR v. Isabela Cultural Corporation, GR 135210, July 11, 2001. Final demand letter from BIR is tantamount to denial of request for reconsideration which is therefore appealable to CTA

ii) Oceanic Wireless Network v. CIR, GR 148380, December

9, 2005. Final demand letter from Accounts Receivable Division Head was final decision of the CIR and constituted appealable decision to CTA

f. Gibbs v. Commissioner, L-17406, November 29, 1965 (period to file

refund claim) and Gibbs v. Collector, GR No. L-13453, February 29, 1960 (2-year period is absolute)

(If income of taxpayer is withheld at source he is deemed to have paid his tax liability at the end of the tax year. It is from this date that the 2-year period will run.)

g. CIR v. TMX Sales & CTA, GR 83736, January 16, 1992 (when to count

2-year period if on installment basis). If TP pays income tax on quarterly basis, the 2-year period is counted from the time of filing final adjustment return. Commissioner v. Philamlife Insurance Co., GR 105208, May 29, 1995. Obiter by Justice Vitug referring the 10-year period on taxes not erroneously/illegally paid. Likewise, the claim must be filed within 2 years regardless of supervening cause.

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Also, this case, Pacific Pro., Ltd. Case (GR 68013, November 12, 1984) counting of two-year prescriptive period for filing claim for refund of overpaid corporate income tax starts from time final adjustment return is filed. United Airlines v. CIR, G.R. No. 178788, September 29, 2010

h. CIR v. Wyeth, GR 762281, September 30, 1991. (Sec. 222 & 223 request for reinvestigation suspends the 5-year period for collection of tax.

i. ABS-CBN Broadcasting Corp. v. CTA, 108 SCRA 143 (non-retroactivity of rulings) requiring 3 years back taxes after previous circular violated Sec. 246

j. Emilio S. Lim v. Court of Appeals, GR L-48134-37, October 18, 1990.

Prescriptive period to file criminal case under Sec. 281, NIRC, 5 years from failure to pay tax after notice and demand

k. Commissioner v. Court of Appeals, Lucio Tan, et al., GR 119322, June

4, 1996

l. Commissioner v. Court of Tax Appeals and Fortune Tobacco, GR 119761, August 29, 1996

m. CIR v. Pascor Realty & Development Corp., GR 128315, June 29, 1999.

Assessment not necessary before filing criminal complaint for tax evasion based on Sec. 222 itself

n. CIR v Lascona Land Co., Inc. CA-G.R. SP No. 58061. October 25, 2005

When to elevate assessment to CTA

o. San Agustin v. CIR, GR 138485, September 10, 2001. TP can appeal a disputed assessment despite payment of deficiency tax. Filing of refund not necessary for this purpose.

p. Philippine Journalists, Inc. v. CIR, GR 162852, December 16, 2004.

Waiver of prescription must be executed properly per RMO 20-90, otherwise, invalid.

q. CIR v. Phil. Global Communications, GR No. 167146, October 31, 2006.

Prescriptive period to collect taxes assessed by CIR.

r. RCBC v. CIR, GR No. 168498, April 24, 2007. Options for disputing tax assessment mutually exclusive under Section 227.

s. BPI v. CIR, GR No. 174942. Suspension of collection requires request

for reinvestigation to be granted.

t. Petron Corporation v. CIR, G.R. No. 180385, July 28, 2010.

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u. CIR v. Gonzales, et al., G.R. No. 177279, October 13, 2010

8. Regulations Revenue Regulations 12-85, November 27, 1985 (Nolledo, p. 947) Revenue Regulations 2-90, May 25, 1990 (Nolledo, p. 999)

RR 12-99 implementing the provisions of the NIRC, Sec. 6, 7, 204, 228, 247, 248 and 249 on assessments of taxes and civil penalties and interest and extrajudicial settlement of taxpayers criminal violation under RMO 1-90

Revenue Regulations 2-78 (Nolledo, p. 1001)

RMC 48-90, April 23, 1990 (counting of 3-year period of 365 x 3 regardless of leap year and Asianbank v. Commissioner, CTA Case No. 6095, October 9, 2001)

9. RA 9282, expanding the jurisdiction of the CTA, elevating it to collegiate court,

amending RA 1125 (effective April 23, 2004)

10. RA 9503, further expanding the composition of CTA by adding 3 new justices (9 in all)

CIR v. Enron Subic Power Corp. G.R. No. 166387, January 19, 2009 CIR v. FMF Development Corp. G.R. No. 167765, June 30, 2008 FEBTC v. CIR, G.R. No. 138919, May 2, 2006 CIR v. Azucena Reyes, G.R. No. 159694, January 27, 2006 Judy Anne L. Santos v. People of the Phils, G.R. No. 173176, August 26, 2008 Fitness by Design, Inc. v. CIR, G.R. No. 177982, October 17, 2008 Asia International v. Parayno, 540 SCRA 536 (2007) British American Tobacco v. Camacho, 562 SCRA 511 (2008)

LOCAL TAXATION (Local Government Code – RA 7160)

Local Government Taxation Section 128 – 196 (LGC)

Alejandro Ty v. Hon. Trampe & Municipal Assessor of Pasig, GR 117577, December 1, 1995

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Rule XXX, Art. 217 – 287 (Rules and Regulations Implementing the Local Government Code) Local Finance Circular 1 – 93 (banks) Local Finance Circular 2-93 (insurance companies) Local Finance Circular 3-93 (finance companies) Memo Circular 92-02, January 16, 1992, issued by the Department of Interior and Local Government Memo Circular 5-93, October 22, 1993, issued by the Department of Finance Sec. Drilon v. Mayor Lim, GR 112497, August 4, 1994, Manila Tax Ordinance Coca-Cola Bottlers Phils., Inc. v. City of Manila, GR No. 156252, June 27, 2006 (validity of Manila Tax Ordinance) International Container Terminal Services, Inc. v. City of Manila, CTA A.C. No. 11, May 22, 2006 (Manila Tax Ordinance Sec. 21(A) – Double Taxation) Phil. Match Co., Ltd. v. City of Cebu, 81 SCRA 99, January 18, 1999 (situs of payment of local business tax) PLDT v. City of Davao, GR No. 143867, March 25, 2003. (PLDT liable to franchise tax imposed by city) Palma Development Corp. v. Municipality of Malangas, GR 152492, October 16, 2003 PLDT v. Province of Laguna, GR 151899, August 16, 2005 Yamane v. BA Lepanto Condo. Corp., SC GR 154993, October 25, 2005 (condominium corporation is not business entity) Ericsson Telecoms Inc. v. City of Pasig, GR No. 176667, November 22, 2007 Lepanto Consolidated Mining Company v. Hon. Mauricio B. Ambaloc in his capacity as the Provincial Treasurer of Benguet, G. R. No. 180639, June 29, 2010 Angeles City v. Angeles City Electric Corporation and Regional Trial Court Branch 57, Angeles City, G.R. No. 166134, June 29, 2010

REAL PROPERTY TAXATION – LOCAL GOVERNMENT CODE (RA 7160)

Sec. 197 to 283 Local Government Code Definition of Machinery and Equipment Sec. 199 Local Government Code

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Sec. 299 Implementing Rules and Regulations Sec. 202 Declaration of real property Sec. 215-216 Classes of real property Sec. 218 Assessment levels Sec. 226-230 Local Board Assessment Appeals Central Board Assessment Appeals Sec. 232-235 Rates of levy Sec. 234 Exemption from real property tax Sec. 237 Idle lands Sec. 250-251 Payment of real property taxes and discounts Sec. 252 Protest Sec. 255 Interest on unpaid taxes Sec. 270 Period to collect real property taxes Cases:

1. Lung Center of the Philippines v. Quezon City, GR 144104, June 29, 2004 (Exemption based on actual use)

2. Mactan Airport Authority v. Pres. Marcos, GR 120082, September 11, 1996

(Exemption from real property tax lifted by RA 7160 (LGC)) 3. Manila International Airport Authority v. Court of Appeals, GR No. 155650, July

20, 2006 (Exemption from RPT of MIAA) 4. Quezon City Gov’t. v. BayanTelCorp., GR No. 162015, March 6, 2006 5. Sta. Lucia Realty and Development, Inc. v. City of Pasig, G.R. No. 166838, June

15, 2011

TARIFF AND CUSTOMS CODE I. CONCEPT A. The Tariff and Customs Code B. The Bureau of Customs Duties, power and jurisdiction

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II. ARTICLES SUBJECT TO DUTY A. Export (suspended except on logs) and import duties B. Meaning of Importation (Sec. 1201, 1202) C. Classes of Importation a. Dutiable importation – Section 100 b. Prohibited importations – Sec. 101, 1207

c. Conditionally-free importation – Sec. 105 III. RATES OF DUTY A. General Rules (Sec. 104) B. Basis of Duty (Secs. 201, 202, 204, 205, 1308-10, 1313) Customs Administrative Order 2-96, June 14, 1996 RA 8181 (transaction value), as amended by RA 9135

CAO 2-99, implementing RA 8181 on customs dutiable value and CAO 05-2001 implementing RA 9135

C. Special Duties

a. Dumping Sec. 301 b. Countervailing Sec. 302 c. Marking Sec. 303 d. Discriminatory Sec. 304 D. Flexible Tariff rates (Sec. 401) IV. IMPOSITION OF DUTIES A. Persons liable – Sec. 1203-5 B. Declaration – Sec. 1302-1307 C. Examination, appraisal and classification – Sec. 1405-8

Commissioner of Customs v. Marina Sales, Inc., G.R. No. 183868

D. Assessment of Taxes

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E. Liquidation – Sec. 1601-1603 V. REMEDIES OF THE GOVERNMENT A. Extrajudicial 1. Enforcement of Tax Lien – Sec. 1508 2. Seizure and Forfeiture – Sec. 2205, 2301-2316 B. Judicial VI. REMEDIES OF THE TAXPAYER A. Refund – Sec. 1707-8 B. Protest – Sec. 2308, 2310, 2309, 2312

C. Abandonment – Sec. 1801-3 D. Amendments by RA 9135 – Sec. 3514 (post entry audit); Sec. 3517

(compulsory acquisition of grossly undervalued goods)

Commissioner of Customs v. AGFHA Incorporated, G.R. No. 187425, March 28, 2011 Chevron Philippines, Inc. v. Commissioner of the Bureau of Customs, G.R. No. 178759, August 11, 2008