Tax-rev-midterms-coverage.docx

Tax Rev Midterms Coverage 1. Distinguish Double Taxation (prohibited) vs Double Taxation (broad sense) Double taxation is one of direct duplicate taxations wherein two (2) taxes must be imposed on the same subject matter, by the same taxing authority, within the same jurisdiction, during the same period, with the same kind of character of tax, even if the purposes of imposing the same are different. Double taxation in the strict sense pertains to the direct double taxation. This means that the taxpayer is taxed twice by the same taxing authority, within the same taxing jurisdiction, for the same property and same purpose. On the other hand, double taxation in broad sense pertains to indirect double taxation. This extends to all cases in which there is a burden of two or more impositions. It is the double taxation other than those covered by direct double taxation. 2. Amnesty vs Exemption Tax exemption is the grant of immunity to particular persons or corporations or to persons or corporations of a particular class from a tax which persons and corporations generally within the same state or taxing district are obliged to pay. Tax exemptions are not favoured and are construed strictissimi juris against the taxpayer. Tax amnesty, being a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or tax law, partakes of an absolute forgiveness or waiver by the Government of its right to collect what otherwise would be due it and, in this sense, prejudicial thereto, particularly to tax evaders who wish to relent and are willing to reform are given a chance to do so and therefore become part of the society with clean slates. Under a tax amnesty, civil, criminal and administrative penalties are waived, and the taxpayer need only to pay the basic tax imposed. 3. Entitlement to tax refund and exemption (Mistusbishi vs CIR GR 175772 June 5, 2017) Facts: On June 11, 1987, the governments of Japan and the Philippines executed an Exchange of Notes whereby the former agreed to extend a loan amounting to 40Million Yen to the latter through the then Overseas Economic Cooperation Fund (OECF, now Japan Bank for International Cooperation) for the implementation of the Calaca II Coal-Fired Thermal Power Plant Project. In paragraph 5(2) of the Exchange Notes, the Philippine Government by itself or through its executing agency, undertook to assume all taxes imposed by the Philippines on Japanese contractors engaged in the Project: (2) The Government of the Republic of the Philippines will, itself or through its executing agencies or instrumentalities, assume all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any income that may accrue from the supply of products of Japan and services of Japanese nationals to be provided under the Loan. 7 (Emphases, underscoring, and italics supplied) Meanwhile, on June 21, 1991, the National Power Corporation (NPC), as the executing government agency, entered into a contract with Mitsubishi Corporation (i.e., petitioner's head office in Japan) for the engineering, supply, construction, installation, testing, and commissioning of a steam generator, auxiliaries, and associated civil works for the Project (Contract). 11 The Contract's foreign currency portion was funded by the OECF loans. 12 In line with the Exchange of Notes, Article VIII (B) (1) of the Contract indicated NPC' s undertaking to pay any and all forms of taxes that are directly imposable under the Contract.

On July 15, 1998, petitioner filed its Income Tax Return for the fiscal year that ended on March 31, 1998 with the Bureau of Internal Revenue (BIR). Petitioner included in its income tax due 15 the amount of ₱44,288,712.00, representing income from the OECF-funded portion of the

Project. 16 On the same day, petitioner also filed its Monthly Remittance Return of Income Taxes Withheld and remitted ₱8,324,100.00 as BPRT for branch profits remitted to its head office in Japan out of its income for the fiscal year that ended on March 31, 1998 . 17 On June 30, 2000, petitioner filed with the respondent Commissioner on Internal Revenue (CIR) an administrative claim for refund of Fifty Two Million Six Hundred Twelve Thousand, Eight Hundred Twelve Pesos (P52,612,812.00), representing the erroneously paid amounts of P44,288,712.00 as income tax and ₱8,324,100.00 as BPRT corresponding to the OECF-funded portion of the Project. 18 To suspend the running of the two-year period to file a judicial claim for refund, petitioner filed on July 13, 2000 a petition for review 19 before the CTA pursuant to Section 229 of the National Internal Revenue Code (NIRC), which was docketed as C.T.A. Case No. 6139. Issues: a. Whether Mitsubishi is entitle to refund? b. If in affirmative, from which government entity should the refund be claimed? Held: a. Mitsubishi is entitled to refund. Section 204 (c) of the NIRC grants the CIR the authority to credit or refund taxes which are erroneously collected by the government. The authority of the CIR to refund erroneously collected taxes is likewise reflected in Section 229 of the NIRC. In this case, it is fairly apparent that the subject taxes were erroneously collected from Mitsubishi considering that the obligation to pay the same had already been assumed by the Philippine Government by virtue of its Exchange of Notes with the Japanese Government. Case law explains that an exchange of notes is considered as an executive agreement, which is binding on the State even without Senate concurrence. To “assume” means “ to take on, become bound as another is bound, or put oneself in place of another as to an obligation or liability.”This means that the obligation or liability remains, although the saem is merely passed on to a different person. In this light, the concept of an assumption is therefore different from an exemption, the latter being the “freedom from an duty, liability or other requirements” or “a privilege given to a judgment debtor by law, allowing the debtor to retain certain property without liability. Thus, contrary to CTA En Banc’s opinion, the constitutional provisions on tax exemptions would not apply. As explicitly worded, the Philippine Government, through its executing agencies, i.e. NPC, particularly assumed “all fiscal levies or taxes imposed in the Republic of the Philippines on Japanese firms and nationals operating as suppliers, contractors or consultants on and/or in connection with any income that may accrue from the supply of products of Japan and services of Japanese nationals to be provided under the OECF Loan. It is a form of concession. Hence, in line with the tax assumption provision under the Exchange of Notes, NPC shall pay any and all forms of taxes that are directly imposable under the Contract. Therefore, considering that Mitsubishi paid the subject taxes which it was not required to pay, the BIR erroneously collected such amount. Accordingly, Mitsubishi is entitled to its refund. b. Mitsubishi correctly filed its claim for tax refund under Sections 204 and 229 of the NIRC to recover the erroneously paid taxes. Being that Mitsubishi’s entitlement to refund is based on tax assumption provision in the Exchange of Notes and not an exemption, the BIR’s recourse to collect the subject taxes from the NPC as the proper party that assumed Mitsubishi’s tax liability.

4. Quasi-judicial and quasi-legislative power of the CIR

(PSALM vs CIR GR 198146 August 8, 2017) Facts: Power Sector Assets and Liabilities Management Corporation (PSALM) is a GOCC created under RA 9136, the EPRA law. Its principal purpose is to manage the orderly sale, disposition and privatization of the National Power Corporation (NPC) generation assets, real estate and other disposable assets and Independent Power Producer (IPP) contracts with the objective of liquidating all NPC financial obligations and stranded contract costs in an optimal manner. PSALM sold the Pantabangan Masiway Plant and Magat Plant to First Gen Hydropower Corporation and SN Aboitiz Power Corporation, respectively. BIR demanded from NPC the payment of deficiency VAT for the sale of said power plants. NPC indorsed the same to PSALM. PSALM filed with the DOJ a petition for the adjudication of the dispute with BIR to resolve the issue of whether the sale of the power plants should be subjects to VAT. DOJ ruled in favor of PSALM. BIR moved for reconsideration, alleging that the DOJ had no jurisdiction since the dispute involved tax laws administered by the BIR and therefore within the jurisdiction of the Court of Tax Appeals. DOJ denied BIR’s MR. BIR filed with the CA a petition for certiorari, seeking to set aside the DOJ’s decision for lack of jurisdiction. CA decided in favor of BIR. Issue: a. Whether or not the DOJ Secretary has jurisdiction over the dispute between BIR and PSALM? b. Whether the sale of the two power plants is subject to VAT? Held: DOJ has jurisdiction. This case involves a dispute between PSALM and NPC, which are both wholly government owned corporations, and the BIR, a government office, over the imposition of VAT on the sale of the two power plants. There is no question that original jurisdiction is with the CIR who issues the preliminary and final tax assessments. However, if the government entity disputes the tax assessment, the dispute is already between the BIR and another government entity. Under PD 242, all disputes and claims solely between government agencies and offices, including GOCCs, shall be administratively settled or adjudicated by the Secretary of Justice, the Solicitor General, or the Government Corporate Counsel, depending on the issues and government agencies involved. As regards cases involving only questions of law, it is the Secretary of Justice who has jurisdiction. It is only proper that intra-governmental disputes be settled administratively since the opposing government offices, agencies and instrumentalities are all under the President’s executive control and supervision pursuant to Section 17, Article VII of the Constitution. This power of control vested by the Constitution in the President cannot be diminished by law. Furthermore, under the Doctrine of Exhaustion of Administrative Remedies, it is mandated that where a remedy before an administrative body is provided by statute, relief must be sought by exhausting this remedy prior to bringing an action in court in order to give the administrative body every opportunity to decide a matter that comes within its jurisdiction. To harmonize Section 4 of the 1997 NIRC with PD 242, the following interpretation should be adopted: (1) As regards private entities and the BIR, the power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising under the NIRC or other laws administered by the. BIR is vested in the CIR subject to the exclusive appellate jurisdiction of the CTA, in accordance with Section 4

of the NIRC; and (2) Where the disputing parties are all public entities (covers disputes between the BIR and other government entities), the case shall be governed by PD 242. Furthermore, it should be noted that the 1997 NIRC is a general law governing the imposition of national internal revenue taxes, fees, and charges.47 On the other hand, PD 242 is a special law that applies only to disputes involving solely government offices, agencies, or instrumentalities. Held: The sale of the power plants is not subject to VAT since the sale of the power plants is not “in the course of trade or business” as contemplated under Section 105 of the NIRC. The sale of the power plant is not in pursuit of a commercial or economic activity but a governmental function mandated by law to privatize NPC generation assets.

5. CTA jurisdiction on constitutionality of BIR rules and regulations 6. Campaign Donation's taxability - is the donor liable for donor's tax? is the donation taxable income on the part of the donee? 7. Litmus Test on Minimum Wage Earners The Litmus test on Minimum Wage Earners is the statutory minimum wage as fixed by the Regional Tripartite Wage and Productivity Board (RTWPB), 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 ia minimum wage earner. 8. How to tax de minimis benefits, 13th month pay and other benefits? Pursuant to Section 32 (e), 13th month pay and other benefits are not included in the gross income and shall be exempt from taxation. However, pursuant to the same section, as amended by the Republic Act No. 10963, Section 9, if the amount of 13th month pay and other benefits exceeded ₱90,000.00, the excess shall be taxable. Pursuant to Section 33 (c), de minimis benefits are not taxable. However, the amount of de minimis benefits in excess of the prescribed amount shall be included in the computation whether the 13th month pay and other benefits exceed the ₱90,000.00 limit. 9. Non-stock non-profit Educational Institution (CIR vs DLSU GR 196596 November 9, 2016) Held: The revenues and assets of non-stock, non-profit educational institutions proved to have been used actually, directly and exclusively for educational purposes are exempt from duties and taxes pursuant to Article XIV, Section 4(3) of the 1987 Constitution. To be clear, proving the actual use of the taxable item will result in an exemption, but the specific tax from which the entity shall be exempted from shall depend on whether the item is an item of revenue or asset. To illustrate, if a university leases a portion of its school building to a bookstore or cafeteria, the leased portion is not actually, directly and exclusively used for educational purposes, even if the bookstore or canteen caters only to university students, faculty and staff. The leased portion of the building may be subject to real property tax, as held in Abra Valley College, Inc. v. Aquino.90 We ruled in that case that the test of exemption from taxation is the use of the property for purposes mentioned in the Constitution. We also held that the exemption extends to facilities which are incidental to and reasonably necessary for the accomplishment of the main purposes.

In concrete terms, the lease of a portion of a school building for commercial purposes, removes such asset from the property tax exemption granted under the Constitution. 91 There is no exemption because the asset is not used actually, directly and exclusively for educational purposes. The commercial use of the property is also not incidental to and reasonably necessary for the accomplishment of the main purpose of a university, which is to educate its students. However, if the university actually, directly and exclusively uses for educational purposes the revenues earned from the lease of its school building, such revenues shall be exempt from taxes and duties. The tax exemption no longer hinges on the use of the asset from which the revenues were earned, but on the actual, direct and exclusive use of the revenues for educational purposes. Parenthetically, income and revenues of non-stock, non-profit educational institution not used actually, directly and exclusively for educational purposes are not exempt from duties and taxes. To avail of the exemption, the taxpayer must factually prove that it used actually, directly and exclusively for educational purposes the revenues or income sought to be exempted. The crucial point of inquiry then is on the use of the assets or on the use of the revenues. These are two things that must be viewed and treated separately. But so long as the assets or revenues are used actually, directly and exclusively for educational purposes, they are exempt from duties and taxes. The tax exemption granted by the Constitution to non-stock, non-profit educational institutions, unlike the exemption that may be availed of by proprietary educational institutions, is not subject to limitations imposed by law. While a non-stock, non-profit educational institution is classified as a tax-exempt entity under Section 30 (Exemptions from Tax on Corporations) of the Tax Code, a proprietary educational institution is covered by Section 27 (Rates of Income Tax on Domestic Corporations). To be specific, Section 30 provides that exempt organizations like non-stock, non-profit educational institutions shall not be taxed on income received by them as such. Section 27 (B), on the other hand, states that "[p]roprietary educational institutions ... which are nonprofit shall pay a tax of ten percent (10%) on their taxable income .. . Provided, that if the gross income from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross income derived by such educational institutions ... [the regular corporate income tax of 30%] shall be imposed on the entire taxable income ... "92 By the Tax Code's clear terms, a proprietary educational institution is entitled only to the reduced rate of 10% corporate income tax. The reduced rate is applicable only if: (1) the proprietary educational institution is nonprofit and (2) its gross income from unrelated trade, business or activity does not exceed 50% of its total gross income. Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do not apply to nonstock, non-profit educational institutions. 10. Non-stock non-profit hospital (CIR vs St. Lukes GR 195909 September 26, 20012) Held: The Court partly grants the petition of the BIR but on a different ground. We hold that Section 27(B) of the NIRC does not remove the income tax exemption of proprietary non-profit hospitals under Section 30(E) and (G). Section 27(B) on one hand, and Section 30(E) and (G) on the other hand, can be construed together without the removal of such tax exemption. The effect of the introduction of Section 27(B) is to subject the taxable income of two specific institutions, namely, proprietary non-profit educational institutions 36 and proprietary non-profit hospitals,

among the institutions covered by Section 30, to the 10% preferential rate under Section 27(B) instead of the ordinary 30% corporate rate under the last paragraph of Section 30 in relation to Section 27(A)(1). Section 27(B) of the NIRC imposes a 10% preferential tax rate on the income of (1) proprietary non-profit educational institutions and (2) proprietary non-profit hospitals. The only qualifications for hospitals are that they must be proprietary and non-profit. "Proprietary" means private, following the definition of a "proprietary educational institution" as "any private school maintained and administered by private individuals or groups" with a government permit. "Non-profit" means no net income or asset accrues to or benefits any member or specific person, with all the net income or asset devoted to the institution's purposes and all its activities conducted not for profit. "Non-profit" does not necessarily mean "charitable." In Collector of Internal Revenue v. Club Filipino Inc. de Cebu, 37this Court considered as non-profit a sports club organized for recreation and entertainment of its stockholders and members. The club was primarily funded by membership fees and dues. If it had profits, they were used for overhead expenses and improving its golf course. 38 The club was non-profit because of its purpose and there was no evidence that it was engaged in a profit-making enterprise. To be a charitable institution, however, an organization must meet the substantive test of charity in Lung Center. The issue in Lung Center concerns exemption from real property tax and not income tax. However, it provides for the test of charity in our jurisdiction. Charity is essentially a gift to an indefinite number of persons which lessens the burden of government. In other words, charitable institutions provide for free goods and services to the public which would otherwise fall on the shoulders of government. Thus, as a matter of efficiency, the government forgoes taxes which should have been spent to address public needs, because certain private entities already assume a part of the burden. This is the rationale for the tax exemption of charitable institutions. The loss of taxes by the government is compensated by its relief from doing public works which would have been funded by appropriations from the Treasury. 42 Charitable institutions, however, are not ipso facto entitled to a tax exemption. The requirements for a tax exemption are specified by the law granting it. The Constitution exempts charitable institutions only from real property taxes. In the NIRC, Congress decided to extend the exemption to income taxes. However, the way Congress crafted Section 30(E) of the NIRC is materially different from Section 28(3), Article VI of the Constitution. Section 30(E) of the NIRC defines the corporation or association that is exempt from income tax. On the other hand, Section 28(3), Article VI of the Constitution does not define a charitable institution, but requires that the institution "actually, directly and exclusively" use the property for a charitable purpose. Section 30(E) of the NIRC provides that a charitable institution must be: (1) A non-stock corporation or association; (2) Organized exclusively for charitable purposes; (3) Operated exclusively for charitable purposes; and (4) No part of its net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person.

Thus, both the organization and operations of the charitable institution must be devoted "exclusively" for charitable purposes. The organization of the institution refers to its corporate form, as shown by its articles of incorporation, by-laws and other constitutive documents. Section 30(E) of the NIRC specifically requires that the corporation or association be non-stock, which is defined by the Corporation Code as "one where no part of its income is distributable as dividends to its members, trustees, or officers" 49 and that any profit "obtain[ed] as an incident to its operations shall, whenever necessary or proper, be used for the furtherance of the purpose or purposes for which the corporation was organized." 50 However, under Lung Center, any profit by a charitable institution must not only be plowed back "whenever necessary or proper," but must be "devoted or used altogether to the charitable object which it is intended to achieve." 51 The operations of the charitable institution generally refer to its regular activities. Section 30(E) of the NIRC requires that these operations be exclusive to charity. There is also a specific requirement that "no part of [the] net income or asset shall belong to or inure to the benefit of any member, organizer, officer or any specific person." The use of lands, buildings and improvements of the institution is but a part of its operations. There is no dispute that St. Luke's is organized as a non-stock and non-profit charitable institution. However, this does not automatically exempt St. Luke's from paying taxes. This only refers to the organization of St. Luke's. Even if St. Luke's meets the test of charity, a charitable institution is not ipso facto tax exempt. To be exempt from real property taxes, Section 28(3), Article VI of the Constitution requires that a charitable institution use the property "actually, directly and exclusively" for charitable purposes. To be exempt from income taxes, Section 30(E) of the NIRC requires that a charitable institution must be "organized and operated exclusively" for charitable purposes. Likewise, to be exempt from income taxes, Section 30(G) of the NIRC requires that the institution be "operated exclusively" for social welfare. However, the last paragraph of Section 30 of the NIRC qualifies the words "organized and operated exclusively" by providing that: Notwithstanding the provisions in the preceding paragraphs, the 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, shall be subject to tax imposed under this Code. (Emphasis supplied) In short, the last paragraph of Section 30 provides that if a tax exempt charitable institution conducts "any" activity for profit, such activity is not tax exempt even as its not-for-profit activities remain tax exempt. This paragraph qualifies the requirements in Section 30(E) that the "[n]onstock corporation or association [must be] organized and operated exclusively for x x x charitable x x x purposes x x x." It likewise qualifies the requirement in Section 30(G) that the civic organization must be "operated exclusively" for the promotion of social welfare. Thus, even if the charitable institution must be "organized and operated exclusively" for charitable purposes, it is nevertheless allowed to engage in "activities conducted for profit" without losing its tax exempt status for its not-for-profit activities. The only consequence is that the "income of whatever kind and character" of a charitable institution "from any of its activities conducted for profit, regardless of the disposition made of such income, shall be subject to tax." Prior to the introduction of Section 27(B), the tax rate on such income from for-profit activities was the ordinary corporate rate under Section 27(A). With the introduction of Section 27(B), the tax rate is now 10%.

11. Doctrine of Irrevocability of Tax Credits Under Section 76 of the NIRC, In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income taxes paid, the excess amount shown on its final adjustment return may be carried over and credited against the estimated quarterly income tax liabilities for the taxable quarters of the succeeding taxable years. Once the option to carry-over and apply the excess quarterly income tax against income tax due for the taxable quarters of the succeeding taxable years has been made, such option shall be considered irrevocable for that taxable period and no application for cash refund or issuance of a tax credit certificate shall be allowed therefor. The two (2) options under Section 76 are alternative in nature. The choice of one precludes the other. Indeed, in Philippine Bank of Communications vs CIR GR 361 Phil 916, the Court ruled that a corporation must signify its intention - whether to request a tax refund or claim a tax credit by making the corresponding option box provided in the FAR. While a taxpayer is required to mark its choice in the form provided by the BIR, this requirement is only for the purpose of facilitating tax collection. One cannot get a tax refund and a tax credit at the same time for the same excess income tax. The controlling factor for the operation of the irrevocability rule is that the taxpayer chose an option; and once it had already done so, it could no longer make another one. However, failure to indicate option does not automatically mean that taxpayer has opted to carry-over as ruled in Philam Case GR 156637. Unlike the option for refund of excess of excess income tax which prescribes after two (2) years from filing of the FAR, there is no prescriptive period for the carrying over of the same. The taxpayer's decision to carry-over and apply its current overpayment to future tax liability continues until the overpayment has been fully applied, no matter how many tax cycles it takes. (CIR vs McGeorge Food Industries, Inc. GR 174157, October 20, 2010) The exercise of the option to carry-over prohibits a claim for refund in the subsequent taxable year for the unused portions of the excess tax payments carried over. The two (2) year prescriptive period is counted not from the date when the quarterly income taxes were paid but on the date of payment in the final adjustment return (FAR) or annual income tax return. (CIR vs CA GR 17254 January 21, 1999) 12. Refund of Creditable Withholding Tax A taxpayer claiming for a tax credit or refund of creditable withholding tax must comply with the following requisites: 1) The claim must be filed with the CIR within the two-year period from the date of payment of the tax; 2) It must be shown on the return that the income received was declared as part of the gross income; and 3) The fact of withholding must be established by a copy of a statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld, e.i. Certificate of Creditable Tax Withheld at Source 13. Waiver of Statute of Limitations - renunciation of the right to invoke the defense of prescription Requisites of a valid waiver of the Statute of Limitations: 1) Must be in writing 2) Agreed upon and signed by the CIR or his duly authorized representative and by the taxpayer before the expiration of the time prescribed to extend the period of assessment; 3) There must be a definite agreed date; 4) The date of acceptance must be indicated; and

5) The taxpayer must be furnished with a copy of the waiver. RMO 20-90[17] issued on April 4, 1990 and RDAO 05-01[18] issued on August 2, 2001 lay down the procedure for the proper execution of the waiver, to wit: 1. The waiver must be in the proper form prescribed by RMO 20-90.The phrase but not after ______ 19 ___, which indicates the expiry date of the period agreed upon to assess/collect the tax after the regular three-year period of prescription, should be filled up. 2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In the case of a corporation, the waiver must be signed by any of its responsible officials. In case the authority is delegated by the taxpayer to a representative, such delegation should be in writing and duly notarized. 3. The waiver should be duly notarized. 4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR should be indicated. However, before signing the waiver, the CIR or the revenue official authorized by him must make sure that the waiver is in the prescribed form, duly notarized, and executed by the taxpayer or his duly authorized representative. 5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. 6. The waiver must be executed in three copies, the original copy to be attached to the docket of the case, the second copy for the taxpayer and the third copy for the Office accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of the agreement.[19] The executions by a taxpayer of a "waiver of the statute of limitations" signifies the acceptance of the BIR and the perfection of an agreement that the making of an assessment and the collection of taxes are suspended during the period of the said agreement. However, the waiver of the statute of limitations, being a derogation of the taxpayer's right to security against prolonged and unscrupulous investigations, must be carefully and strictly construed. Any defects in the waivers would result in the non-extension of the period to assess or collect taxes. Consequently, the assessments issued by the BIR beyond the 3-year period would be void. Furthermore, the waiver of the Statute of Limitation does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally, particularly where the language of the document is equivocal. 14. Assessment Process Step 1

Issuance of Letter of Authority (e-LOA) - Section 203: within 3 years from the last day of the prescribed by law for the filing of the return or from the date of the actual filing of the return if filed beyond the prescribed period Exception to the 3 year period: 1) False return

2) Fraudulent return with intent to evade 3) Failure to file 4) Waiver of Statute of limitation (Section 222 (a) & (b))

2 3

4 5 6

7

8

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Suspension of the Running of Statue of Limitations 1) When the taxpayer requests for reinvestigation which is granted by the Commissioner; 2) When the taxpayer cannot be located in the address given by him in the return filed upon which a tax is being assessed or collected, provided, that if the taxpayer informs the Commissioner of any change in address, the running of the Statute of Limitations will not be suspended; 3) When the warrant of distraint or levy is duly served upon the taxpayer , his authorized representative or a member of his household with sufficient discretion, and no property could be located; and 4) When the taxpayer is out of the Philippines Issuance of the Notice of Informal Conference Issuance of Preliminary Assessment Notice / Preassessment Notice When PAN not required: 1) When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return; 2) When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent; 3) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding taxable year; 4) When the excise tax due on excisable articles has not been paid; or 5) When an article locally purchased or imported by an exempt person, such as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or transferred to non-exempt persons. (Section 228) Taxpayer's reply within 15 days from receipt of PAN Final assessment notice (FAN) with Final Letter of Demand (FLD) Administrative protest to be filed within 30 days from receipt of FAN, either thru: a) Motion for reconsideration; or b) Motion for Reinvestigation. Within 60 days from filing of the protest, all relevant supporting documents shall have been submitted, otherwise, the assessment shall become final Denial or approval of the protest. If denied, a Final Decision on Disputed Assessment (FDDA) shall be issued. The protest must be acted upon within 180 days from submission of documents, otherwise, inaction will be construed as denial of the protest. From the denial of the protest filed with the representative of the CIR, the taxpayer has the following option: a) if what was filed was a Motion for Reconsideration, the taxpayer adversely affected by the decision or inaction may appeal to the CTA within 30 days from the receipt of said decision or from the lapse of the 180-day period; b) if what was filed was a Motion for Reconsideration, the taxpayer may file a Motion for Reconsideration with the CIR within 30 days from receipt of the said decision or lapse of the 180-day period. In case of adverse decision by the CIR, the taxpayer may appeal to the CTA within 30 days from receipt of the decision. From CTA, appeal to CTA en banc.

10

From CTA en banc, appeal to SC.

15. Refund of excess input tax and erroneously paid tax Step 1

Refund of erroneously paid tax under Section 204 (c) in relation to Section 229 Filing of the administrative claim within the 2-year prescriptive period. Reckoning date of the 2-year prescriptive period: a) Corporate Income Tax - from filing of FAR b) Final Withholding Tax - from remittance by withholding agent c) Erroneous output tax (VAT) - payment, on the 25th day of the following month d) Documentary Stamp Tax - from date of affixture

2

A return filed showing an overpayment shall be considered as a written claim for credit or refund. (Section 204 (C)). The filing of administrative claim of condition sine quo non for the filing of judicial claim. Filing of judicial claim within the two (2) year prescriptive period, 30 days from the receipt of the decision on the administrative claim. The two-year prescriptive period and the 30-day reglementary period for filing the appeal must coincide. Hence, if the decision is received within 10 days prior to the j expiration of the 2-year prescriptive period, the taxpayer must file his appeal within the remaining 10 days and not 30 day. The taxpayer need not wait for the denial of his administrative claim, it is sufficient that it be filed before the judicial claim.

Step 1

2

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Refund of excess input tax on Zero-Rated or Effectively Zero-rated Sales under Section 112 Filing of administrative claim within two years after the close of the taxable quarter when the sales were made. Refund of excess input tax is available only in case of zero-rate or effectively zerorated sales. If the sale is not zero-rated, the excess input tax can be carry-over or claim as expense depending on the kind of the sale, e.i. 12% VATable sale, VATexempt sale or sale to government Granting of the tax refund or issuance of tax credit certificate for creditable input taxes by the CIR within 120 days from the date of submission of complete documents in support of the application, or denial, full or partial, of the administrative claim. Filing of judicial claim with the CTA within 30 days from the receipt of the decision denying the claim or after the expiration of the 120-day period. The 120 day period and 30 day period is jurisdictional. However, the filing of the judicial claim need not be within the two-year prescriptive period unlike in claim for refund of erroneously paid tax under Section 204 (c).

16. Reckoning date of the 2-year prescriptive period - see No. 15, step 1