Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s .

s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e * of +$

,-N-.AL P./NC/PL-S 0 TA1AT/ N

*. 23 e n m ay t3 e !o w e r to tax in4l5 d e t3 e !o w e r to d e s t r o y 6 23 e n is ex e r 4 i s e of t3 e !o w e r to tax not d e s t r 5 4 t i v e of tax ! a y e r s !ro! e r t y 6 ANS2-. : The power to tax includes the power to destroy, where the tax is a valid tax. This is so bec a u s e a taxp a y e r could not seek the nullification of the valid tax solely upon the pre mis e that the tax will impov eris h him. The exercis e of the pow er to tax is not des tru c tiv e of taxp a y e rs prop e r t y wher e it is an invalid tax, which violat e s the inher e n t or cons titu tion al limitation s . This is so bec a u s e ther e is a symp a t h e ti c court that shall com e to the succor of the taxp a y e r and declar e such tax as invalid. ". Dis 4 5 s s t3 e 4on 4 e ! t of int e r ! r e t a t i o n of tax law s as diff er e n t i a t e d from t3 e 4on 4 e ! t of int er ! r e t a t i o n of tax ex e m ! t i o n law s . ANS2-. : A tax canno t be impos e d unles s it is suppor t e d by the clear and expr e s s langu a g e of a stat u t e . In short, in cas e of doub t, tax laws mus t be constru e d strictly agains t the tat e and liberally in favor of the taxp a y e r . This is bec a u s e tax e s , as burd e n s which mus t be endur e d by the taxp a y e r , should not be pres u m e d to go beyo n d what the law expr e s sly and clearly declar e s . !n the oth er han d, when a tax is un"u e s tio n a bly impos e d , a claim of exe m p tio n from tax paym e n t s mus t be clearly show n and bas e d on langu a g e in the law too plain to be mist ak e n . #urth er m o r e , a rever s al of a $I% ruling favora bl e to a taxp a y e r would not nec e s s a rily cre a t e a perp e t u al exe m p ti o n in his favor, for after all the gover n m e n t is nev er esto p p e d from collecting taxe s bec a u s e of mist ak e s or errors on the part of its age n t s . $. 23a t do yo5 5n d e r s t a n d %y t3 e in3 e r e n t an d 4o n s t i t 5 t i o n a l limit a t i o n s as % ei n g re s tri 4 ti v e of t3 e ot3 e r w i s e 5nlim i t e d an d !le n a r y !o w e r of tax a t i o n 6 ANS2-. : The inher e n t and cons titu tion al limitation s to the pow er of taxa tio n are safe g u a r d s which would prev e n t abus e in the exercis e of this otherwis e unlimit e d and plen ar y pow er. 7. 23a t are t3 e in3 e r e n t limit a t i o n s to t3 e !o w e r of tax a t i o n 6 ANS2-. : a. &'$(I) &'%&! * . The tax reve n u e s mus t be utili+ed for the ben efit of the com m u ni t y in gen e r al. An alter n a tiv e me a ni n g is that tax proce e d s should be utili+ed only to att ain the ob,ective s of gover n m e n t . b. -! I.&%!&*% /*(*0ATI!- !# (*0I (ATI1* A'T2!%IT3. The pow er of taxa tio n is exercis e d by the legislat ur e whos e me m b e r s are the mer e dele g a t e s of the peopl e. This pow er could not ther efor e be dele g a t e d by the legislat ur e to other dep a r t m e n t s of gover n m e n t , like the exec u tiv e. c. T*%%IT!%IA(IT3. The pow er to tax should be exercis e d only within the territorial boun d a ri e s of the taxing auth ority.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e " of +$ d. 0!1*%-.*-T *4*.&TI!- 2!'(/ $* %*)!0-I5*/ . This is so in order to reduc e the amo u n t of mon e y the gover n m e n t is handling. There is verity in the maxi m, 6#or the gover n m e n t , exe m p tio n is the rule and taxa tion is the exce p tion.7 e. )!.IT3. %esp e c t should be accord e d to other sover eig n nations . The pow er of taxa tio n is a high prerog a tiv e of sover eig n t y. The prop e r ti e s of other sover eig n nations within the territory of the taxing aut h ority should not be sub,ect to taxa tion as a me a s u r e of resp e c t to a co8 e"u al. 8. 23a t are t3 e 4o n s t i t 5 t i o n a l limit a t i o n s on t3 e !o w e r of tax a t i o n 6 ANS2-. :
0*-*%A( !% I-/I%*)T )!- TIT'TI!-A( (I.ITATI!- :

/ue proce s s claus e 9 *"ual prot e c tio n claus e 9 #reed o m of the pres s9 %eligious free d o m 9 -on8 impair m e n t claus e9 (aw8 making proce s s : :; $ill should emb r a c e only one sub,ect expr e s s e d in the title ther e of9 <; Three =>; readin g s on thre e sep a r a t e days9 >; &rinte d copies in final form distribu t e d thre e =>; days before pas s a g e . g. &resid e n ti al pow er to grant repriev e s , com m u t a t i o n s and pardo n s and remitt al of fines and forfeitur e after conviction by final ,udg m e n t .
&*)I#I) !% /I%*)T )!- TIT'TI!-A( (I.ITATI!- :

a. b. c. d. e. f.

a. -o imprison m e n t for non8 paym e n t of a poll tax9 b. Taxation shall be uniform and e"uit a bl e9 c. )ongr e s s shall evolve a progr e s siv e syst e m of taxa tio n9 d. All appro pria tio n, reve n u e or tariff bills shall origina t e exclusiv ely in the 2ous e of %epr e s e n t a t iv e s , but the ena t e may propo s e and concur with am e n d m e n t s 9 e. The &resid e n t shall hav e the pow er to veto any particular item or ite ms in an appro p ri a tion, reve n u e , or tariff bill, but the veto shall not affect the item or item s to which he does not ob,ect9 f. /eleg a t e d pow er of the &resid e n t to impos e tariff rate s , import and export "uot a s , tonn a g e and wharfa g e due s: :; /eleg a tio n by )ongr e s s <; Throug h a law >; ub,ect to )ongr e s sio n al limits and restriction s ?; @ithin the fram e w o rk of nation al dev elop m e n t progr a m . g. Tax exe m p tio n of charit a bl e institution s, church e s , pars o n a g e s and conv e n t s appur t e n a n t ther e t o, mos " u e s , and all lands, buildings and improv e m e n t s of all kinds actu ally, directly and exclusiv ely use d for religious, charit a bl e or educ a tio n al purpos e s 9 h. -o tax exe m p tio n without the concurr e n c e of ma,ority vote of all me m b e r s of )ongr e s s 9 i. -o use of public mon e y or prop e r t y for religious purpo s e s exce p t if pries t is assign e d to the arm e d forces, pen al institution s , gover n m e n t orph a n a g e or lepros a riu m 9 ,. .oney collect e d on tax levied for a special purpos e to be us ed only for such purpo s e , balanc e if any, to gen e r al funds9

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $ of +$ k. The upre m e )ourtA s pow er to review ,udg m e n t s or orders of lower courts in all cas e s involving the legality of any tax, impos e , ass e s s m e n t or toll or the legality of any pen alty impos e d in relation to the abov e9 l. Authority of local gover n m e n t units to cre a t e their own sourc e s of reve n u e , to levy taxe s , fees and oth er charg e s sub,ect to guidelin e s and limitation s impos e d by )ongr e s s consist e n t with the basic policy of local auto n o m y9 m. Auto m a tic rele a s e of local gover n m e n t A s ,ust shar e in nation al tax e s 9 n. Tax exe m p ti o n of all reve n u e s and ass e t s of non8 stock, non8 profit educ a tio n al institution s used actu ally, directly and exclusiv ely for educ a tio n al purpo s e s 9 o. Tax exe m p ti o n of all reve n u e s and ass e t s of propriet a r y or coop er a tiv e educ a tio n al institution s sub,ect to limitation s provid e d by law including restrictions on divide n d s and provisions for reinve s t m e n t of profits9 p. Tax exe m p tio n of gran t s , endow m e n t s , don a tion s or contribution s use d actu ally, directly and exclusively for educ a tio n al purpos e s sub,ect to conditions prescrib e d by law. 9. .e! 5 % li 4 A4t No. :" " : 4re a t e d t3 e S5 %i 4 S! e 4 i a l -4on o m i 4 ;on e <SS-;=' an d !rovi d e s t3 a t t3 e SS-; s3 all % e m a n a g e d as a s e ! a r a t e 45 s t o m s territ or y wit3 s5 4 3 in4 e n t i v e s as tax an d d5t y > fre e im! or t a t i o n s of raw m at e r i a l s ' 4a!i t a l an d e? 5 i ! m e n t . /t f5rt 3 e r !ro vi d e s t3 a t @n o tax e s ' lo4 al an d nati o n a l ' s3 all % e im! o s e d wit3i n t3 e SS-;A' %5 t in lie5 t3 e r e o f ' $B of t3 e gro s s in4o m e e ar n e d %y %5 s i n e s s e s t3 er e i n s3 all % e rem i t t e d to t3 e Nati o n a l ,ov er n m e n t wit3 *B ea 4 3 to t3 e lo4 al go v e r n m e n t 5nit s aff e 4 t e d %y t3 e d e 4l a r a t i o n of t3 e Con e in !ro! o r t i o n to t3 e ir !o! 5 l a t i o n ar e a an d ot3 e r fa4t o r s . /n ad di ti o n ' a d e v e l o ! m e n t f5n d of *B of t3 e gro s s in4 o m e ear n e d %y all %5 s i n e s s e s wit3i n t3 e SS-; s3 all % e 5tiliC e d for t3 e dev el o ! m e n t of m 5 n i 4i ! a li ti e s o5 t s i d e lon g a ! o City an d t3 e D5ni4i ! a li t y of S5 %i 4 an d ot3 e r m 5 n i 4i ! a l i ti e s 4on ti g 5 o 5 s to t3 e %a s e are a s . n E5ne *# ' *F F $ ' Pre s i d e n t .am o s is s 5 e d -xe 4 5 t i v e rd er No. F: 4larif yi n g t3 a t tax an d im ! or t d5t y > fre e im! or t a t i o n s s3 all a! !l y only to raw m a t e ri a l s ' 4a!i t a l go o d s an d e? 5 i ! m e n t %ro5 g 3 t in %y %5 s i n e s s en t e r ! ri s e s in t3 e SS-;. n E5ne *F ' *F F $ ' Pre s i d e n t .am o s is s 5 e d -xe 4 5 t i v e rd er No' F:> A s! e 4 i f y i n g t3 a t t3 e s e 4 5 r e d ar e a s t3 a t s3 all % e 4o m ! l e t e l y tax an d d5t y > fre e in t3 e SS-;0P; 4o n s i s t s of t3 e @!r e s e n t l y fen 4 e d > in form e r S5 %i 4 Nav a l Ba s e . A -xe 4 5 t i v e No. F:> A is 43 all e n g e d for % ei n g viola t i v e of t3 e e? 5 a l !rot e 4 t i o n of t3 e law 4la 5 s e % e 4 a 5 s e of its %ia s in fav or of %ig inv e s t o r s . /s t3 er e m erit in t3 e 43 all e n g e 6 -x!lai n %riefl y . ANS2-. : -o. *"ual prot e c tio n of the law claus e is sub,ect to reas o n a bl e classification. If the grouping s are char a c t e ri+ e d by subs t a n ti al distinction s that mak e real differe n c e s , one class ma y be tre a t e d and regula t e d differe n tly from anot h e r. The classification mus t also be ger m a n e to the purpos e of the law and mus t apply to all thos e belon ging to the sa m e class.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7 of +$ BBB )lassification, to be valid, mus t =:; rest on subs t a n ti al distinction s, =<; be ger m a n e to the purpos e of the law, =>; not be limite d to existing conditions only, and =?; apply e"u ally to all me m b e r s of the sa m e class. In issuing *.!. -o. CD8 A delimiting incen tiv e s within the confine s of the form er ubic military bas e, the &resid e n t reas o n a bl y ma d e a classification that is ger m a n e to the purpos e of %epublic Act -o. D<<D . The purpo s e of %epublic Act -o. D<<D is to accel er a t e the conv er sion of military res erv a tio n s into prod uc tiv e uses . It was reas o n a bl e for the &resid e n t to hav e delimit e d the application of som e incentiv e s to the confine s of the forme r ubic military bas e. The classification is ther efor e ger m a n e to the purpos e s of the law. There are subs t a n ti al differe n c e s betw e e n big inves t or s being entice d to the 6secur e d are a 7 and the busin e s s oper a t o r s outsid e that are in accord with the e"u al prot e c tio n claus e that does not re"uir e territorial unifor mity of laws. !f cours e the outsid e r s , poss e s sin g the re"uisite inves t m e n t capit al can always avail of the sa m e ben efits by chan n eling their resourc e s or busin e s s oper a tio n s into the fenc e d8 off free port +one. The classification set forth by *.!. -o. CD8 A does not mer ely apply to existing condition s. As laid down in %.A. -o. D<<D, the ob,ectiv e is to est a blish a 6self8 sust ainin g, indus trial, com m e r ci al, financial and inves t m e n t cent e r7 in the are a . There will, ther efor e , be a long8 ter m differe n c e betw e e n such inves t m e n t cent e r and the are a s outsid e it. The classification applies e"u ally to al the reside n t individu als and busin e s s e s within the Esecur e d are a .7 The reside n t s , being in like circu m s t a n c e s o contribu tin g directly to the achiev e m e n t of the end purpos e of the law, are not cate g o ri+e d furth e r. Inste a d , they are similarly tre a t e d , both in privileg e s grant e d and obligation s re"uire d. =Tiu, et al., v. )ourt of Appe al s, et al., 0.%. -o.
:<D ? : F , Ganuary <F, :CCC;

:. n E5ly *' *F F $ ' or a m o n t 3 aft e r t3 e en a 4 t m e n t an d tw o day s % ef or e t3 e eff e 4 t i v i t y of .e! 5 % li 4 A4t No. :9 8 7 ' t3 e B/. is s 5 e d .DC No. $:> F$ w 3i4 3 4o n s i d e r e d Go! e L5x5ry ' Pre m i 5 m Dor e an d C3am ! i o n 4ig ar e t t e s % ei n g m a n 5 f a 4 t 5 r e d %y 0ort5 n e To% a 4 4 o 4or! o r a t i o n as lo4 ally m a n 5 f a 4 t 5 r e d 4ig a r e t t e s % e ari n g a for ei g n %ran d s5 %( e 4 t to t3 e 3ig 3 e r 88B ad val o r e m tax on 4ig ar e t t e s . T3e follo w i n g day ' on E5ly "' *F F $ ' at a% o 5 t 8&8 # !.m . ' t3 e B/. s e n t via fax a 4o! y of .DC No. $:> F$ to 0ort5 n e To% a 4 4 o %5t w a s ad dr e s s e d to no on e in !arti 4 5 l a r . n E5ly *8 ' *F F $ 0ort5 n e To% a 4 4 o re4 e i v e d ' %y ordin ar y m ail' a 4er tifi e d xer o x 4o ! y of .DC No. $:> F$. 0ort5 n e To% a 4 4 o no w 4lai m s t3 a t its 4o n s t i t 5 t i o n a l rig3 t to d5 e !ro4 e s s w a s viol a t e d % e 4 a 5 s e t3 e r e w a s no 3 e a ri n g % ef o r e B/. is s 5 e d .DC No. $:> F$. Do yo5r agr e e 6 -x!lai n . ANS2-. : 3es. There was a violation of #ortun e Tobaccos right to due proce s s . $I% issu e d %.) -o. >D8 C> for the purpo s e of placing 2ope (uxury, &remiu m .ore and )ha m pio n within the scop e of the am e n d a t o r y law and sub,ect the m to the incre a s e d tax rat e. In so doing, the $I% did not simply interpr e t the law, it issue d a legislativ e rule which is in the natur e of subordin a t e legislation,

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8 of +$ design e d to imple m e n t a prima r y legislation by providing the det ails ther e of. In the sa m e way that laws mus t hav e the ben efit of public hearin g, it is gen e r ally re"uir e d that befor e a legislative rule is adop t e d ther e mus t be a hearin g and publication as re"uir e d und e r the Administr a tiv e )ode. !n the oth er han d, if what is issu e d is mer ely an interpr e t a tiv e rule =which is not the rule issue d in this cas e;, no hearin g or publication is re"uire d since an interpr e t a tiv e rule is design e d mer ely to provid e guideline s of the law which the ad ministr a tiv e ag e n c y is in charg e of enforcing. +. /t is 4o n t e n d e d t3 a t -x!a n d e d Hal5 e > Add e d Tax is viola t i v e of t3 e 4o n s t i t 5 t i o n a l r5le t3 a t tax e s s3 o 5 l d % e 5nif or m an d e? 5 i t a % l e . /t is li)e w i s e ad v a n 4 e d t3 a t t3 e -HAT is @o ! ! r e s s i v e ' dis 4ri m i n a t o r y ' an d 5n(5 s t . A Gow w er e t3 e s e o%( e 4 t i o n s dis ! o s e d of in t3 e 4a s e of Tole n t i n o v. S e 4r e t a r y of 0ina n 4 e an d 4o m ! a n i o n 4a s e s ' "7 F SC.A 9" + <* F F 8 = 6 ANS2-. : a. It is inher e n t in the pow er to tax that the stat e be free to select the sub,ect s of taxa tion and it has be e n rep e a t e d l y held that ine"u alities which res ult from a singling out of one particular class for taxa tion, or exe m p tio n infring e no constitu tio n al limitation. Thus, the *1AT on cert ain good s and service s only, but not on other s , do not violat e the rule on uniformity and e"uit a bl e n e s s . b. *"uality and unifor mity of tax a tio n me a n s that all taxa bl e articles or kinds of prop e r t y of the sa m e class be taxe d at the sa m e rate. The taxing pow er has the auth ority to mak e reas o n a bl e and nat ur al classifications for purpos e s of taxa tio n. To satisfy the re"uir e m e n t of uniformity and e"uit a bl e n e s s , it is enou g h that the stat u t e or ordina n c e applies e"u ally to all pers o n s , forms and orga ni+a tion s place d in a similar situa tio n. c. The *1AT is uniform bec a u s e the tax is applied similarly on all good s and service s sold to the public, which is not exe m p t , at the cons t a n t rate of FH or :FH. d. The *1AT is e"uit a bl e bec a u s e it is impos e d only on sale of good s and service s by pers o n s eng a g e d in busin e s s with an annu al gross sales as det er mi n e d by the law. mall corner sari8 sari store s are cons e " u e n t l y exe m p t from its application. (ikewis e exe m p t from the tax are sales of farm and marin e prod uc t s . Thus, the cost of basic food and other nec e s sitie s, spar e d as they are from *1AT, are exp ec t e d to be relativ ely lower and within the reach of the gen e r al public. F. n A5g 5 s t 8' *F F + ' B/. ag e n t s a4ti n g 5! o n a re g 5 l a rl y is s 5 e d Dis s i o n rd er ex a m i n e d t3 e %o o ) s of a44 o 5 n t of vario 5 s (ew e l e r s en g a g e d in t3 e m a n 5 f a 4 t 5 r e of (ew e lr y an d alli e d 5n d e r t a ) i n g s w er e ex a m i n e d an d inv e s t i g a t e d for ex4i s e tax !5r! o s e s . Am o n g t3 e s e firm s w er e Gan s ' Dilad a y ' Der4 e ll e s ' et 4 . S5 % s e ? 5 e n t l y ' t3 e (ew e l e r s an d t3 e ir as s o 4 i a t i o n file d wit3 t3 e .e gi o n a l Trial Co5rt a ! e ti ti o n for d e 4l a r a t o r y reli e f !rayi n g t3 a t 4ert a i n !rovi s i o n s of t3 e N/.C im ! o s i n g "#B ex4i s e tax on (ew e lr y ' ! e a rl s an d ot3 e r !re 4i o 5 s st o n e s ' an d !rovi s i o n s of t3 e Tariff an d C5s t o m s Cod e im ! o s i n g t3r e e to te n ! er 4 e n t <$B to *#B= tariff an d 45 s t o m s d5 t y on nat 5 r al

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9 of +$ an d 45lt 5 r e d ! e arl s an d !re 4i o 5 s or s e m i > !re 4 i o 5 s st o n e s ' % e d e 4l a r e d 5n 4 o n s t i t 5 t i o n a l an d n5ll an d void . T3e (ew e l e r s li)e w i s e !re s e n t e d an ex3 a 5 s t i v e st5 d y on t3 e tax rat e s on (ew e lr y levi e d %y diff er e n t Asia n 4o5 n t ri e s . T3e trial 4o 5rt d e 4l a r e d t3 e ?5 e s t i o n e d !ro vi s i o n s as ino ! e r a t i v e an d wit3 o 5 t for4 e an d eff e 4 t ins o f a r as t3 e (ew e l e r s are 4on 4 e r n e d . T3e trial 4o 5rt m a d e t3 e o% s e r v a t i o n t3 a t ind e e d go v e r n m e n t tax !oli4 y tre a t s (ew e lr y as non > e s s e n t i a l ite m s ' an d t3 e r e f o r e ' tax e d 3 e a v il y I t3 a t t3 e !re s e n t tariff an d tax str5 4 t 5 r e in4r e a s e m a n 5 f a 4 t 5 r i n g 4o s t an d ren d e r s t3 e lo4 al (ew e lr y m a n 5 f a 4 t 5 r e r s 5n 4 o m ! e t i t i v e ag a i n s t ot3 e r 4o 5 n t ri e s . 2a s t3 er e le g a l %a s i s for t3 e trial 4o5r tJ s d e 4l ar a t i o n 6 -x!lai n . ANS2-. : -o. There was no legal basis for the following reas o n s : a . The trial ,udge encro a c h e d upon mat t e r s prop e rly falling within the provinc e of legislative function s. In making the afores aid obs erv a tio n s , the trial ,udge overlook e d the fact that such mat t e r s are not for him to decid e. There are rea s o n s why ,ewelry, a non8 ess e n ti al ite m, is tax e d as it is in this country and the s e rea s o n s , deliber a t e d upon by the legislat ur e are beyo n d the reac h of ,udicial "ue s tionin g. % . The trial court is not the prop er foru m for the ventilation of the issue s raise d by the ,ewelers. It is the legislat ur e to which relief mus t be soug h t, bec a u s e with the legislat ur e primarily lies the discretion to det e r mi n e the natur e =kind;, ob,ect =purpo s e ;, exte n t =rat e;, cover a g e =sub,ect s ; and situs =plac e; of tax a tion. The ,udiciary cann o t freely delve into thos e mat t e r s which, by cons titu tion al fiat, rightly rest on legislative ,udg m e n t . 4 . The tax rate s of other countrie s should not be use d as a yards tick, in det er mi nin g what may be the prop e r sub,ect s of taxa tion in our own countr y. It should be point e d out that in imposin g the afore m e n t i o n e d taxe s and duties, the tat e , acting thou g h the legislativ e and exec u tiv e branc h e s , is exercising its sover eig n prerog a tiv e. It is inher e n t in the pow er to tax that the tat e be free to select the sub,ect s of taxa tion, and it has bee n rep e a t e dl y held that, Iine"u alities which res ult from a singling out of one particular class of taxa tion, or exe m p tio n, infringe no cons titu tion al limitation.I *# . A fixe d an n 5 a l li4 e n s e fe e on t3 o s e en g a g e d in t3 e %5 s i n e s s of g e n e r a l en t e r ! ri s e w a s als o im! o s e d on t3 e sal e of %i%l e s %y a reli gi o 5 s s e 4 t . /s t3i s valid 6 ANS2-. : -o, bec a u s e it violat e s the constitu tio n ally guar a n t e e d freed o m of the pres s , and of religion.. As a licens e fee is fixed in amo u n t and unrela t e d to the receipt s of the taxp a y e r , such a licens e fee, when applied to a religious sect is actu ally impos e d as a condition for the free exercis e of religion. A licens e fee 6restr ain s in adv a n c e thos e constitu tio n al liberties of pres s and religion and inevita bly ten d s to suppr e s s their exercis e.7 ** . T3e -HAT Law im ! o s e s a HAT re gi s t r a t i o n fe e of P*' # # # . # # on non > HAT en t e r ! ri s e s w 3i4 3 in4l5 d e s am o n g

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e : of +$ ot3 e r s ' reli gi o 5 s s e 4 t s w 3i4 3 s ell s an d dis tri% 5 t e s liter a t 5 r e . /s t3i s viola t i v e of reli gi o 5 s fre e d o m 6 reli gi o 5 s

ANS2-. : -o. The &:,FF F. F F 1AT registr a tio n fee, altho u g h a fixed amo u n t is not impos e d for the exercis e of a privileg e but only for the purpo s e of defrayin g part of the cost of registr a tio n. The registr a tion re"uire m e n t is a centr al featur e of the 1AT syst e m . It is design e d to provid e a record of tax credits beca u s e any pers o n who is sub,ect to the paym e n t of the 1AT pays an input tax, eve n as he collects an outpu t tax on sales ma d e or services rend e r e d . The registr a tio n fee is thus more of an ad minis tr a tiv e fee, one not impos e d on the exercis e of a privileg e, much less a constitu tio n al right. *" . Airlin e s ' /n4. w a s gra n t e d a le gi s l a t i v e fran 4 3 i s e to o! e r a t e s4 3 e d 5 l e d flig 3 t s er vi 4 e s % e t w e e n Danil a an d Ce% 5 an d vi4 e > ver s a . /t w a s s5 %( e 4 t to a fran 4 3 i s e tax of "B ?5 alifi e d %y t3 e @m a g i 4 w ord s ' A w 3i4 3 @s 3 a ll % e in lie5 of all tax e s . A S5 % s e ? 5 e n t l y ' Con gr e s s en a 4 t e d .e! 5 % li 4 A4t No. :: * 9 ' t3 e -x! a n d e d Hal5 e > Add e d Tax <-HAT= Law w 3i4 3 im! o s e s a *#B HAT on all s er vi 4 e s off er e d %y Airlin e s ' /n4. Airlin e s ' /n4. as s a il s t3 e validit y of ..A. No. :: * 9 for % ei n g viol a ti v e of t3 e no n > im! air m e n t 4la5 s e . /t 4it e s Com m i s s i o n e r of /nt er n a l .ev e n 5 e v. Ling a y e n ,5lf -le4 tri 4 Po w e r Co.' /n4.' et al.' *9 7 SC.A ": <* F + + = w 3 e r e it w a s 3 el d t3 a t t3 e im ! o s i t i o n of a tax on fran 4 3 i s e 3old e r s wit3 t3 e @m a g i 4 w ord s A is viol a ti v e of t3 e no n > im! air m e n t 4la5 s e . T3e S5 !r e m e Co5rt in t3 e Ling a y e n ,5lf 4a s e 3 el d t3 a t 43 ar t e r s or s! e 4 i a l law s gra n t e d %y t3 e le gi s l a t 5 r e ar e in t3 e nat 5 r e of !riv a t e 4on tr a 4 t s . .5le on t3 e 4on t e n t i o n of Airlin e s ' /n4. ANS2-. : The *1AT does not violat e the non8 impair m e n t claus e. The reas o n s why ther e is no violation are as follows: a. Article 4II, ec. :: of the )onstitutio n provid e s that the gran t of a franchis e for the oper a tio n of a public utility is sub,ect to am e n d m e n t . alter a tio n or rep e al by )ongr e s s when the com m o n good re"uir e s9 b. -ot only existing laws but also the res erv a tio n of ess e n ti al attribu t e s of sover eig n t y is rea d into contr a c t s as a postula t e of the legal order9 c. )ontr ac t s mus t be und er s t o o d as having bee n ma d e in refer e n c e to the possible exercis e of the rightful aut hority of the gover n m e n t and no obligation of contr a c t can ext e n d to defe a t that aut h ority9 d. A lawful tax on a new sub,ect, or an incre a s e d tax on an old one, does not interfer e with a contr a c t or impairs its obligation, within the me a ni n g of the cons titu tion. *ven thoug h such taxa tion ma y affect particular contr a c t s , as it may incre a s e the debt of one pers o n and less e n the security of anot h e r, or may impos e addition al burd e n s upon one class and rele a s e the burd e n s of anot h e r, still the tax mus t be paid unles s prohibite d by the constitution, nor can it be said that it impairs the obligation s of any existing contr a c t in its true and legal sens e .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e + of +$ *$ . Deral4 o w a s gra n t e d a fran 4 3 i s e to o! e r a t e an el e 4 t ri 4 lig3 t an d !o w e r s er vi 4 e in Cala m % a ' Lag5 n a s o m e t i m e in *F + $ 5n d e r P.D. No. 88 * . Und e r t3 e fran 4 3 i s e Deral 4 o !ay s "B fran 4 3 i s e tax on of its gro s s re4 e i ! t s an d @a n y law to t3 e 4o n tr ar y not w i t 3 s t a n d i n g % e in lie5 of all tax e s an d as s e s s m e n t s of w 3 a t e v e r nat 5 r e im ! o s e d %y an y nati o n a l or lo4 al a5 t 3 o ri t y or e ar n i n g s ' re4 e i ! t s ' in4 o m e an d !rivil e g e of g e n e r a t i o n ' dis tri% 5 t i o n an d s al e of el e 4 t ri 4 45rr e n t . A P5rs 5 a n t to t3 e Lo4al ,ov er n m e n t Cod e ' t3 e !rovi n 4 e of Lag5 n a en a 4 t e d an ordin a n 4 e im ! o s i n g a fran 4 3 i s e of 8#B of *B of t3 e gro s s an n 5 a l re4 e i ! t s of %5 s i n e s s en(o y i n g a fran 4 3 i s e realiC e d d5rin g t3 e !re 4 e d i n g 4al e n d a r y e ar wit3i n t3 e !ro vi n 4 e in4l5 d i n g 4iti e s lo4 a t e d t3 er e i n . .5le on t3 e validi t y of t3 e tax ordin a n 4 e . ANS2-. : The tax ordin a n c e is valid. 'nder the now prev ailing )onstitu tio n, wher e ther e is neith e r a gran t nor prohibition by stat u t e , the tax pow er mus t be de e m e d to exist althou g h )ongr e s s ma y provide stat u t o r y limitation s and guidelin e s . The basic ration al e for the curre n t rule is to safeg u a r d the viability and self8 sufficiency of local gover n m e n t units by directly gran tin g the m gen e r al and broa d tax pow ers . The (ocal 0overn m e n t )ode explicitly auth ori+e s provinc e s and cities, notwith s t a n di n g 6any exe m p tio n gran t e d by any law or other special law7 to impos e a tax on busin e s s e s en,oying a franchis e. Indicative of the legislative inten t to carry out the cons titu tion al ma n d a t e of vestin g broa d tax pow er s to local gover n m e n t units, the (ocal 0overn m e n t )ode has withdr a w n tax exe m p tio n s or incen tiv e s ther e t ofor e en,oye d by cert ain entities. In addition, the (ocal 0overn m e n t )ode cont ains a gen e r al rep e aling claus e . The phra s e in 6lieu of all tax e s 7 has to give way to the per e m p t o r y langu a g e of the (ocal 0overn m e n t )ode which specifically provid e s for the withdr a w al of all exe m p tio n s . The )ourt has view e d its previous rulings as laying stre s s on the legislativ e inten t of the am e n d a t o r y law whet h e r the tax exe m p tio n privileg e is to be withdr a w n or not rath e r tha n on whet h e r the law can or canno t withdr a w the tax exe m p tio n, withou t violating the cons titu tion. =.anila *lectric )om p a n y v. &rovinc e of (agun a , et al., 0.%. -o.
:>: > J C , .ay J, :CCC;

The (ocal 0overn m e n t )ode provisions on withdr aw al of tax exe m p ti o n s pres crib e s the gen e r al rule, vi+. the tax exe m p tio n s or incentiv e s gran t e d to or pres e n tly en,oye d by natur al or ,uridical pers o n s are withdr a w n with the effectivity of the (ocal 0overn m e n t )ode exce p t with resp e c t to thos e expr e s sly enu m e r a t e d . =)ity
0overn m e n t of :CC C; an &ablo, (agun a, et al., v. %eye s, et al., 0.%. -o. :<DD F K , .arch <J,

-!T* A-/ )!..*-T : It is possible that the $ar "ue s tion might come from one of the following are a s : BBB &ower of local gover n m e n t s to tax . (ocal gover n m e n t s do not have the inher e n t power to tax exce pt to the ext e n t that such power might be dele g a t e d to the m either by the basic law or stat ut e . &res e n tl y, unde r Article 4 of the :CKD )onstitution a gen e r al deleg a tion of that power has be e n given in favor of local gover n m e n t units. -evert h el e s s , the funda m e n t a l law did not inten d the dele g a tion to be absolut e and uncondition al, the constitution al ob,ective obviously is to

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e F of +$
ens ur e that, while local gover n m e n t units are being stre n g t h e n e d and ma d e mor e auton o m o u s , the legislat ur e mus t still se e to it that: a. the taxp a ye r will not be over8 burd e n e d or saddle d with multiple and unre a s o n a bl e impositions9 b. eac h local gover n m e n t unit will have its fair shar e of available resourc e s 9 c. the resourc e s of the nation al gover n m e n t will be unduly distur b e d 9 and d. local taxa tion will be fair, unifor m and ,ust. =.anila *lectric )omp a n y v. &rovinc e of (agun a , et al., 0.%. -o. :>:>J C, .ay J, :CCC; The .anila *lectric )omp a n y cas e doctrine rever s e d the holding in )ity 0overn m e n t of an &ablo, (agun a , et al., v. %eye s, et al., 0.%. -o. :<DD F K, .arch <J, :CCC that municipal corpor a tion s are vest e d by the )onstitution with the power to tax. It ma y be exercis e d by local legislative bodies, no longer by virtue of a valid dele g a tion as before, but pursu a n t to direct aut hority conferr e d by the )onstitution. The non8 impair m e n t claus e . Lues tion a bl e ruling. The non8 impair m e n t claus e cannot be invoke d by franchis e s , as franc his e s are always sub,ect to police power, as well as the power to tax =M;, which like police power cannot be contr a c t e d awa y =M;. =)ity 0over n m e n t of an &ablo, (agun a , et al., v. %eye s , et al., 0.%. -o. :<DD F K, .arch <J, :CCC; The aut hor conside r s this ruling to be "ue s tion a bl e bec a u s e the taxing power is inferior to the noni mp air m e n t claus e . @hile the )ourt has, not too infre"u e n tl y, referr e d to tax exe m p ti on s cont ain e d in speci al franc his e s as being in the natur e of contr a c t s and a part of the induc e m e n t for carrying out the franc his e , the s e exe m p ti on s , never t h el e s s far from being strictly contr a c t u a l in nat ur e . BBB )onstitution al tax exe m p tio n s , in the real sens e of the ter m and wher e the non8 impair m e n t claus e of the )onstitution can rightly be invoke d, are thos e agre e d to by the taxing authority in contr a c t s , such as thos e cont ain e d in gover n m e n t bonds or deb e n t u r e s , lawfully ent e r e d into by the m unde r ena bling laws in which the gover n m e n t , acting in its privat e cap a city she d s its cloak of aut hority and waive s its gover n m e n t immu nit y. Truly, tax exe m p ti on s of this kind ma y not be revoke d without impairing the obligation s of contr a c t s . A franc his e part a k e s of the nat ur e of a grant which is not beyo n d the purview of the non8 impair m e n t claus e . Inde e d the :CKD )onstitution like its precur s or s the :C>J and the :CD> )onstitution s is explicit that no franchis e for the oper a tion of a public utility shall be grant e d exce pt und er the condition that such privilege shall be sub,ec t to a me n d m e n t , alter a tion or repe al by )ongr e s s as and whe n the com mo n good so re"uir e s . =.anila *lectric )omp a n y v. &rovinc e of (agun a , et al., 0.%. -o. :>:>J C, .ay J, :CCC; The rea d e r should take not e of the conflicting doctrine s espo u s e d by the .anila *lectric cas e and the )ity 0overn m e n t of an &ablo, (agun a cas e . It ma y inter e s t the read e r also to know that the !o n e n t e in t3 e Danil a -le4 tri 4 4a s e is E5sti4 e Eos e Hit5 g ' w 3il e t3 e !o n e n t e in t3 e City ,ov e r n m e n t of Sa n Pa%l o ' Lag5 n a is E5sti4 e Dine r v a ,on C a g a > .ey e s .

*7 . 23a t is t3 e 4on 4 e ! t of do 5 % l e tax a t i o n 6 ANS2-.& a. .*A-I-0. In its gen e ric sens e , this me a n s taxing the sa m e sub,ect or ob,ect twice during the sa m e taxa bl e period. In its particular sens e , it may me a n direct duplicat e taxa tio n, which is prohibite d und er the cons titu tion bec a u s e it violat e s the conc e p t of e"u al prot ec tion, uniformity and e"uit a bl e n e s s of tax a tio n. Indirect duplicat e taxa tio n is not an a t h e m i + e d by the abov e cons titu tion al limitation s . b. *(*.*-T !# /I%*)T /'&(I)AT* TA4ATI!-: :; am e

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *# of +$ a; ub,ect or ob,ect is taxe d twice b; Taxing aut h ority c; Taxing purpos e d; Taxing period <; Taxing all of the sub,ect s or ob,ects for the first time withou t taxing all of the m for the seco n d time. If any of the ele m e n t s are abs e n t the n ther e is indirect duplicat e tax a tio n which is not prohibite d by the constitu tio n. *8 . Defin e int e r n a t i o n a l (5ridi4 al do5 % l e tax a t i o n . ANS2-. : The imposition of comp a r a bl e tax e s in two or more stat e s on the sa m e taxp a y e r in resp e c t of the sa m e sub,ect mat t e r and for identic al groun d s . /ouble tax a tio n usu ally take s plac e when a pers o n is a reside n t of a contr a c tin g stat e and derive s incom e from or owns capit al in, the other contr a c tin g stat e and both stat e s impos e tax on that incom e or capit al. *9 . tax a t i o n 6 23a t ar e t3 e m e t 3 o d s for av oi d a n 4 e of -x!lai n ea 4 3 %riefl y %5t 4o m ! r e 3 e n s i v e l y . do 5 % l e

ANS2-. : The following are the me t h o d s of avoiding double taxa tion: a. Tax tre a ti e s which exe m p t s foreign nation als from local taxa tion and local nation als from foreign tax a tion und e r the principle of reciprocity. b. Tax credits wher e foreign taxe s are allow ed as dedu c tion s from local taxe s that are due to be paid. c. Allowing foreign taxe s as a dedu c tion from gros s incom e . *9A. 23a t is t3 e !5r! o s e of tax tre a t i e s 6 ANS2-.& To reconcile the nation al fiscal contr a c tin g parties in order to help the taxp a y e r taxa tion in two differe n t ,urisdictions . .ore conv e n tio n s are draft e d with a view tow ard s intern a tio n al ,uridical double taxa tio n. *9B. legislation s of the avoid simult a n e o u s precis ely, the tax the elimin a tio n of

23a t is t3 e ratio n a l e for av oi d i n g do 5 % l e tax a t i o n .

ANS2-.& To enco ur a g e the free flow of goods and service s and the mov e m e n t of capital, tech n olog y and pers o n s betw e e n countrie s, conditions de e m e d vital in crea tin g robus t and dyn a mic econ o mi e s . #oreign inves t m e n t s will only thrive in a fairly predict a bl e and reas o n a bl e intern a tio n al inves t m e n t climat e and the prot ec tion agains t double taxa tion is crucial in cre a tin g such a climat e . *9C. 23a t ar e t3 e m e t 3 o d s re s o r t e d to %y a tax tre a t y in ord e r to elim i n a t e do 5 % l e tax a t i o n 6 ANS2-.& #irst .ethod : It sets out the res p e c tiv e rights to tax of the stat e of sourc e or situs and of the stat e of reside n c e with reg ar d to cert ain class e s of inco m e or capit al.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e ** of +$ In som e cas e s , an exclusive right to tax is conferr e d on one of the contr a c tin g stat e s 9 how ev e r, for oth er item s of incom e or capital, both stat e s are given the right to tax, althou g h the amo u n t of tax that may be impos e d by the stat e of sourc e is limite d. econ d .ethod : The stat e of sourc e is given a full or limite d right to tax tog e t h e r with the stat e of resid e n c e . In this cas e, the tre a ti e s mak e it incu m b e n t upon the stat e of reside n c e to allow relief in order to avoid double taxa tion. Two me t h o d s of relief are use d: :; The exe m p tio n met h o d N the incom e or capital which is taxa bl e in the stat e of sourc e or situs is exe m p t e d in the stat e of reside n c e , althou g h in som e insta n c e s it may be take n into accou n t in det e r mi nin g the rate of tax applicable to the taxp a y e rs rem ai ning incom e or capital. <; The credit met h o d N altho u g h the incom e or capital which is taxe d in the stat e of sourc e is still taxa bl e in the stat e of reside n c e , the tax paid in the form er is credit e d ag ain s t the tax levied in the latt er. *9 D ,iv e t3 e diff er e n 4 e an d t3 e 4re d i t m e t 3 o d 6 %etw e e n t3 e ex e m ! t i o n m e t 3 o d

ANS2-. : The exe m p tio n me t h o d focus e s on inco m e or capit al itself while the credit met h o d focus e s upon the tax. *: . T3e .P> 2e s t ,erm a n y Tax Trea t y !rovi d e s a *#B tax on roy al ti e s . %5 t ex !r e s s l y allo w s ag ai n s t ,erm a n in4o m e an d 4or! o r a t e tax of "#B of t3 e gro s s roy al ti e s !aid 5n d e r t3 e law of t3 e P3ili! ! i n e s . n t3 e ot3 e r 3a n d t3 e .P> US Tax Trea t y do e s not !rovi d e for a sim il ar tax 4re d i ti n g . T35 s ' t3 e tax on roy al ti e s e ar n e d %y U.S. firm s in t3 e P3ili! !i n e s m a y eit 3 e r % e of t3r e e rat e s & "8 ! er4 e n t of t3 e gro s s am o 5 n t of t3 e roy al ti e s I *8 ! er 4 e n t w 3 e n t3 e roy al ti e s ar e !aid %y a 4or! o r a t i o n re gi s t e r e d wit3 t3 e P3ili! ! i n e Boar d of /nv e s t m e n t s an d en g a g e d in !ref e rr e d are a s of a4ti vi ti e s I or t3 e low e s t rat e of P3ili! !i n e tax t3 a t m a y % e im! o s e d on roy al ti e s of t3 e s a m e )ind !aid 5n d e r sim il ar 4ir45 m s t a n 4 e s to a re s i d e n t of a t3ird st a t e . Day U.S. Cor! or a t i o n s 4lai m en ti tl e m e n t to t3 e @m o s t fav or e d nati o n A tax rat e of *#B on roy al ti e s as !ro vi d e d in t3 e .P> US Tax Trea t y in rela ti o n to t3 e .P> 2e s t ,erm a n y Tax Trea t y 6 -x!lai n wit3 rea s o n s . ANS2-. : -o. The entitle m e n t of the :FH rate by '. . firms des pit e the abs e n c e of a ma tc hin g credit =<FH for royaltie s; would dero g a t e from the design behind the mos t favore d nation claus e to gran t e"u ality of intern a tio n al tre a t m e n t since the tax burd e n laid upon the inco m e of the inves t or is not the sa m e in the two countrie s . The similarity in the circu m s t a n c e s of paym e n t of taxe s is a condition for the en,oym e n t of the mos t favor e d nation tre a t m e n t precis ely to und e r s c o r e the nee d for e"u ality of tre a t m e n t .
=)om mi s sio n e r of Intern al %even u e v. :<D : F J , prom . Gune <J, :CC C; .). Gohnson and on, Inc., et al., 0.%. -o.

*:A. -x!lai n t3 e int e n t i o n % e 3 i n d ad o ! t i o n of !ro vi s i o n on @reli e f from do5 % l e tax a t i o n . A

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *" of +$ ANS2-.& The inten tion should be consid e r e d in the light of the purpos e behind the mos t favore d nation =.#-; claus e which is to gran t to the contr a c tin g party tre a t m e n t not less favora bl e than which has be e n or ma y be grant e d to the 6mos t favor e d 7 amo n g other countrie s. The .#- is inten d e d to est a blish the principle of e"u ality of intern a tio n al tre a t m e n t by providing that the citi+ens or sub,ect s of the contr a c tin g nations ma y en,oy privileg e s accord e d by eith er party to thos e of the mos t favore d nation. The ess e n c e of the principle is to allow the taxp a y e r in one stat e to avail of mor e liberal provisions gran t e d in anot h e r tax tre a t y to which the country of reside n c e of such taxp a y e r is also a party provid e d that the sub,ect mat t e r of taxa tion is the sa m e as that in the tax tre a t y und e r which the taxp a y e r is liable. *+ . T3e -x!a n d e d Hal5 e > Add e d Tax Law is an indir e 4 t tax w 3i4 3 m ay % e 4on s i d e r e d as re gr e s s i v e in 43 ar a 4 t e r . /t is a fixe d tax t3 er e f o r e t3 e low e r is t3 e in4 o m e t3 e tax e s t3 a t are !aid ar e !ro! o r t i o n a t e l y 3ig 3 e r . /s t3i s viola t i v e of t3 e 4on s t i t 5 t i o n w 3i4 3 m a n d a t e s t3 a t Con gr e s s s3 all ev o l v e a !ro g r e s s i v e sy s t e m of tax a t i o n 6 -x!lai n . ANS2-. : There is no violation of the constitu tio n al ma n d a t e for the following rea s o n s : a. The ma n d a t e to )ongr e s s is not to pres crib e but to evolve a progr e s siv e syst e m of taxa tion. !therwis e, sales tax e s which perh a p s are the oldes t form of indirect taxe s , would hav e bee n prohibite d with the procla m a ti o n of the cons titu tio n al provision. ales tax e s are also regr e s siv e. b. The )onstitution does not really prohibit the imposition of indirect taxe s which, like the 1AT, are regr e s siv e . The cons titu tion al provision me a n s simply that indirect tax e s should be minimi+e d. c. %esort to indirect tax e s should be minimi+e d but not avoide d entirely bec a u s e it is difficult, if not impos sible, to avoid imposing such taxe s according to the taxp a y e rs ability to pay. In the cas e of 1AT, the law minimi+e s the regr e s siv e effects of this imposition by providing for +ero rating of cert ain tran s a c tio n s while gran tin g exe m p ti o n s to other tran s a c tio n s . The tran s a c tio n s which are sub,ect to 1AT are thos e which involve goods and service s which are use d or availed of mainly by high er incom e group s . *F . T3e Con s ti t 5 t i o n re? 5 ir e s t3 a t all rev e n 5 e %ills s3 all origi n a t e ex4l 5 s i v e l y fro m t3 e Go5 s e of .e!r e s e n t a t i v e s . 2as t3i s viol a t e d w 3 e n t3 e -HAT %ill t3 a t origi n a t e d fro m t3 e Go5 s e did not % e 4 o m e t3 e -HAT law 6 -x!lai n . ANS2-. : a. The )onstitu tio n simply me a n s that the initiative for filing reve n u e , tariff or tax bills mus t come from the 2ous e of %epr e s e n t a t iv e s on the theor y that, elect e d as they are from the districts, the .emb e r s of the 2ous e can be exp e c t e d to be mor e sensitive to the local ne e d s and proble m s . b. It is not the law 8 but the reve n u e bill 8 which is re"uire d by the )onstitu tion to 6originat e exclusiv ely7 in the 2ous e of %epr e s e n t a t iv e s beca u s e a bill originatin g in the 2ous e ma y und er g o

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *$ of +$ such ext e n siv e chan g e s in the ena t e that the result may be a rewriting of the whole, and a distinct bill ma y be produc e d . c. To insist that a reve n u e stat u t e 8 not only the bill which initiat e d the legislativ e proc e s s culmin a tin g in the enac t m e n t of the law 8 mus t subs t a n ti ally be the sa m e as the 2ous e bill would be to deny the en a t es pow er not only to 6concur with am e n d m e n t s 7 but also to 6propo s e am e n d m e n t . 7 It would be to violat e the coe" u ality of legislativ e pow er of the two hous e s of )ongre s s and in fact mak e the 2ous e sup erior to the en a t e . 0iven the pow er of the ena t e to propo s e am e n d m e n t s , it can propo s e its own version eve n with resp e c t to bills which are re"uire d by the )onstitu tion to originat e in the 2ous e. d. -or does the )onstitution prohibit the filing in the en a t e of a subs titu t e bill in anticip a tion of its receipt of the bill from the 2ous e, so long as action by the en a t e as a body is withh eld pen din g receipt of the 2ous e bill. "# . A ! e ti ti o n for 4er ti or a ri an d K o r !ro 3i % i ti o n 43 all e n g i n g t3 e validit y of .e! 5 % li 4 A4t No. +" 7 # ' am e n d i n g 4er t a i n !ro vi s i o n s of t3 e N/.C %y im! o s i n g so> 4all e d Lsin tax e s L <a4 t 5 a ll y s! e 4 i f i 4 tax e s = on t3 e m a n 5 f a 4 t 5 r e of % e e r an d 4ig a r e t t e s . .e! . Arroy o 43 ar g e s t3 a t <*= in viola t i o n of .5le H///' S e 4 . $8 an d .5le 1H//' S e 4 . *# $ of t3 e r5le s of t3 e Go5 s e of .e!r e s e n t a t i v e s ' t3 e C3air' in s5 % m i t t i n g t3 e 4o n f e r e n 4 e 4o m m i t t e e re! or t to t3 e Go5 s e ' did not 4all for t3 e yeas and nays, %5t sim ! l y as) e d for its a! !r o v a l %y m oti o n in ord e r to !re v e n t .e! . Arroy o from ?5 e s t i o n i n g t3 e !re s e n 4 e of a ?5 or 5 m I <"= in viol a ti o n of .5le 1/1' S e 4 . ** " ' t3 e C3air d eli % e r a t e l y ign or e d .e! . Arroy oJ s ?5 e s t i o n ' L23at is t3 a t ... Dr. S! e a ) e r 6L an d did not re! e a l .e! . Al%a n oJ s m oti o n to a! !r o v e or ratif yI <$= in viol a ti o n of .5le 11' S e 4 s . *" * > *" " ' .5le 11/' S e 4 . *" $ ' an d .5le 1H///' S e 4 . *# F ' t3 e C3air s5 s ! e n d e d t3 e s e s s i o n wit3 o 5 t firs t r5lin g on .e! . Arroy oJ s ?5 e s t i o n w 3i4 3 ' it is alle g e d ' is a !oin t of ord e r or a !rivil e g e d m o ti o n . /t is arg 5 e d t3 a t .e! . Arroy oJ s ?5 er y s3 o 5 l d 3av e % e e n re s o l v e d 5! o n t3 e re s 5 m ! t i o n of t3 e s e s s i o n on Nov e m % e r "+ ' *F F 9 ' % e 4 a 5 s e t3 e !arlia m e n t a r y sit 5 a t i o n at t3 e tim e of t3 e ad(o 5r n m e n t re m a i n e d 5! o n t3 e re s 5 m ! t i o n of t3 e s e s s i o n . n t3 e s a m e day ' Nov e m % e r "* ' *F F 9 ' t3 e %ill w a s sig n e d %y t3 e S! e a ) e r of t3 e Go5 s e of .e!r e s e n t a t i v e s an d t3 e Pre s i d e n t of t3 e S e n a t e an d 4er tifi e d %y t3 e re s ! e 4 t i v e s e 4 r e t a r i e s of %ot 3 Go5 s e s of Con gr e s s as 3a vi n g % e e n form all y !a s s e d %y t3 e Go5 s e of .e!r e s e n t a t i v e s an d 3 e S e n a t e on Nov e m % e r "*' *F F 9 . T3e enr oll e d %ill w a s si g n e d int o law %y Pre s i d e n t .am o s on Nov e m % e r ""' *F F 9 . /t is no w 43 ar g e d t3 a t t3 e s e s s i o n w a s 3a s t il y ad(o 5r n e d at $&7 # !.m . on Nov e m % e r "*' *F F 9 an d t3 e %ill 4er tifi e d %y S! e a ) e r d e Hen e 4 i a to !re v e n t .e! . Arroy o fro m form all y 43 all e n g i n g t3 e exi s t e n 4 e of a ?5 or 5 m an d as)i n g for a re4 o n s i d e r a t i o n . .5le on t3 e 4on tr o v e r s y . ANS2-. : There is no basis for the proce d u r e being bruite d as having bee n violat e d .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *7 of +$ 'nder the enrolled bill doctrin e, the signing of the bill by the pe ak e r and the en a t e &resid e n t and the certification by the ecr e t a ri e s of both 2ous e s are conclusiv e of its due en ac t m e n t .
=Arroyo, et al., v. de 1eneci a, et al., <DD )%A <OK;

"* . Danila ,olf M Co5 n tr y Cl5% ' /n4. is a no n > st o 4 ) 4or! o r a t i o n . /t m ain t a i n s a golf 4o5r s e an d o! e r a t e s a 4l5 % 3 o 5 s e wit3 a lo5 n g e ' %ar an d dinin g roo m ' %5t t3 e s e fa4iliti e s are for t3 e ex4l 5 s i v e 5s e of its m e m % e r s an d a44 o m ! a n i e d g5 e s t s ' an d it 43 ar g e s on 4o s t > !l5 s > ex! e n s e %a s i s . T3e 4l5 % no w 4lai m s t3 a t S e 4 t i o n 7" ins e r t i n g a n e w S e 4 t i o n *F * > A in t3 e Nati o n a l /nt er n a l .ev e n 5 e Cod e w a s ve t o e d %y t3 e Pre s i d e n t . n t3 e ot3 e r 3a n d ' t3 e B/. m ain t a i n s t3 a t S e 4 t i o n 7" w a s not en tir e l y ve t o e d %5 t m er e l y t3 e w ord s @3 o t e l s ' m o t e l s ' re s t 3 o 5 s e s A on t3 e gro 5 n d t3 a t it mig 3 t re s tr a i n t3 e d e v e l o ! m e n t of 3ot e l s w 3i4 3 is e s s e n t i a l to t3 e to5ri s m ind 5 s t r y . .5le on t3 e 4on fli4 ti n g 4o n t e n t i o n s . ANS2-. : The $I% is correct. The inclusion of hotels, mot els, and resth o u s e s are consid e r e d as 6ite m s within the me a nin g of no. =<;, ec. <D, Art. 1I of the :CKD )onstitu tio n that, 6 the &resid e n t shall hav e the pow er to veto any particular item or ite ms in an appro p ri a tion, reve n u e , or tariff bill, but the veto shall not affect the ite m or item s to which he does not ob,ect.7 In the cas e of )ommi s sion e r of Intern al %eve nu e v. )ourt of Tax Appe als and .anila 0olf P )ountry )lub, 0.%. -o. ?D? < : , .ay :?, :CCF it was held that 6hot els, mot els and resth o u s e s 7 are consid e r e d as ite ms which the &resid e n t has the pow er to veto. An 6ite m7 in a reve n u e bill does not refer to an entire section imposin g a particular kind of tax, but rath e r to the sub,ect of the tax and the tax rat e. In the portion of a reve n u e bill which actu ally impos e s a tax, a section identifies the tax and enu m e r a t e s the pers o n s liable ther efor e with the corres p o n di n g tax rat e. To cons tr u e the word 6ite m7 as referring to the whole section would tie the &resid e n ts han d in choosing eith er to approv e the whole section at the exp e n s e of also approving a provision ther ein which he dee m s unacc e p t a b l e or veto the entire section at the exp e n s e of foregoing the collection of the kind of tax altog e t h e r . The evil which was soug h t to be prev e n t e d in giving the &resid e n t the pow er to disap pr o v e ite ms in a reve n u e bill would be perp e t r a t e d rend e rin g that pow er inutile. "" . Dr. ,aerl a n is t3 e ow n e r of a 8' # # # s? . m. !ar4 e l of lan d lo4 a t e d in t3 e 4ity limit s of San 0ern a n d o City. Ge lea s e d t3 e !ro ! e r t y for P8 # ' # # # . # # a ye a r to a reli gi o 5 s 4o n g r e g a t i o n for a ! eri o d of fift e e n <* 8 = y e ar s <* F F # > "# # 8 = . T3e reli gi o 5 s 4on g r e g a t i o n %5ilt on a *' # # # s? . m. !orti o n a s e m i n a r y an d a 43 a ! e l w 3i4 3 it 5s e d in 4on n e 4 t i o n wit3 its reli gi o 5 s a4ti vi ti e s . /t 4on s t r 5 4 t e d a te n <* # = st or y %5ildi n g on t3 e rem a i n i n g 7' # # # s? . m. w 3i4 3 it ren t e d o5 t to vario 5 s 4o m m e r 4 i a l e s t a % l i s 3 m e n t s ' t3 e !ro4 e e d s of w 3i4 3 go to t3 e s5 ! ! o r t of its vario 5 s s e m i n a ri e s lo4 a t e d t3ro 5 g 3 o 5 t t3 e P3ili! !i n e s .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *8 of +$ T3e s e s e m i n a r i e s are org a n i C e d as non > !rofit an d non > st o 4 ) ed 5 4 a t i o n a l ins ti t 5 t i o n s . /s Dr. ,aerl a n ex e m ! t fro m t3 e !ay m e n t of real !ro! e r t y tax e s 6 23a t a% o 5 t t3 e reli gi o 5 s 4o n g r e g a t i o n 6 -x!lai n . /s t3 e reli gi o 5 s 4on g r e g a t i o n ex e m ! t from t3 e !ay m e n t of in4 o m e tax e s on t3 e ren t a l re4 e i ! t s 6 -x!lai n . ANS2-. : .r. 0aerlan is exe m p t from the paym e n t of real prop e r t y taxe s on the :,FF F s". m. portion of his J,FFF s". m. lot, as well as on the rem ai ning ?,FFF s".m. !n the oth er hand the religious congr e g a ti o n should pay real prop e r t y tax e s on the ?,FF F s". m. parc el of land and the :F8 story building. .r. 0aerlan is exe m p t from real prop er t y taxa tion, whet h e r on the :,FFF s".m. or on the ?,FFF s". m. bec a u s e the basis for taxa tio n of real prop e r t y is us e and not owner s hip. The religious congr e g a ti o n is exe m p t from real prop er t y taxe s on the :,FF F s". m. parc el of land as well as on the improv e m e n t s the chap el and the se min a r y. This is so be caus e they are actu ally, directly and exclusiv ely use d for religious purpos e s . The tre a t m e n t is differe n t with reg a r d to the ?,FFF s". m. lot and its improv e m e n t the :F8 stor e y building. @hile it is true that the proce e d s are used for the suppor t of its se min a ri e s , this is at the mos t indirect use, henc e not sub,ect to the tax exe m p ti o n. The religious congr e g a ti o n is sub,ect to inco m e taxa tio n. =#or reas o n s , refer to "ues tio n no. <>, infra ; @hile it is true that all the se min a ri e s are orga ni+e d as non8 profit non8 stock educ a tio n al institution s , it is not their inco m e s which is the sub,ect of the proble m but that of the religious congr e g a ti o n which is not a non8 profit non8 stock educ a tio n al institution. "$ . NDCA w a s e s t a % l i s 3 e d as @a w elf ar e ' ed 5 4 a t i o n a l an d 43 arit a % l e no n > !rofit 4or! or a t i o n A ear n e d an in4 o m e of P9 # # t3 o 5 s a n d from lea s i n g o5 t a !orti o n of its !re m i s e s to s m a ll s3 o ! ow n e r s ' li) e re s t a 5 r a n t s an 4an t e e n o! e r a t o r s ' an d P7 7 t3 o 5 s a n d from !ar)in g fe e s 4oll e 4 t e d fro m no n > m e m % e r s . /t w a s s5 %( e 4 t e d to an as s e s s m e n t for non > !ay m e n t of in4 o m e tax e s on t3 e for e g o i n g in4 o m e . NDCA 4lai m s t3 a t it is tax ex e m ! t 4lai m i n g for t3 e rea s o n t3 a t t3 e lea s i n g to s m all s3 o ! ow n e r s an d t3 e o! e r a t i o n of t3 e !ar)in g lot are rea s o n a % l y n e 4 e s s a r y for t3 e a44 o m ! l i s 3 m e n t of its o%( e 4 t i v e s . /t !re m i s e s its 4lai m on t3 e !ro vi s i o n s of t3 e *F + : Con s ti t 5 t i o n . /s t3 e in4 o m e d eriv e d fro m ren t a l s of t3 e real !ro ! e r t y s5 %( e 4 t to in4 o m e tax 6 .ea s o n o5 t yo5r an s w e r . ANS2-. : 3es, the incom e is sub,ect to inco m e tax. The -I%) recog ni+ e s the exe m p tio n from tax of the incom e s of civic leag u e s or orga ni+ a tion s not orga ni+e d for profit but oper a t e d exclusiv ely for the pro mo tio n of social welfar e, as well as clubs orga ni+e d and oper a t e d exclusiv ely for pleas u r e , recre a tio n, and other non8 profitable purpos e s wher e no part of the net incom e inures to the ben efit of any privat e stockhold e r or me m b e r . 2owev er, the tax exe m p ti o n so recog ni+ e d does not flow to inco m e of what e v e r kind and char a c t e r of the foreg oin g orga ni+a tion s from any of their prop e r ti e s , real or pers o n al, or from any of their

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *9 of +$ activities cond uc t e d for profit, reg ar dl e s s of the disposition ma d e of such incom e , which shall be sub,ect to incom e taxe s . #urth er m o r e , the constitu tio n al tax exe m p tio n s refer only to real prop e r t y that are actu ally, directly and exclusively use d for religious, charit a bl e or educ a tio n al purpo s e s , and that the only cons titu tion ally recog ni+e d exe m p ti o n from tax a tio n of reve n u e s are thos e earn e d by non8 profit, non8 stock educ a tio n al institution s which are actu ally, directly and exclusively used for educ a tio n al purpos e s . 3.)A is not an educ a tio n al institution embr a c e d und e r this particular conce p t. =)om mi s sio n e r of Intern al %eve n u e v. )ourt of Appe al s, et
al., <CK )%A K>;

"7 . As e a n Oiddi e S43 o o l ' /n4.' is a no n > !rofit ' no n > st o 4 ) ed 5 4 a t i o n a l ins ti t 5 t i o n . /t ow n s a on e 3 e 4 t a r e lot' on e > 3alf of w 3i4 3 is o44 5 ! i e d %y t3 e s4 3 o o l 4a m ! 5 s an d t3 e ot3 e r 3alf is lea s e d to Agri> 0arm s ' /n4.' for 5s e as a flow e r gar d e n to m e e t t3 e ex ! o r t re? 5 ir e m e n t s of Agri> 0arm s ' /n4. T3e ren t a l s 4oll e 4 t e d from Agri> 0arm s are 5s e d %y As e a n to !ay for t3 e sal ari e s of its s4 3 o o l te a 4 3 e r s . Anti4i! a t i n g 3ig 3 e r ex ! e n d i t 5 r e s for o! e r a t i n g t3 e s4 3 o o l d5rin g t3 e s4 3 o o l ye a r *F F : > F+ ' t3 e s4 3 o o l in4r e a s e d its t5iti o n fe e s an d st ar t e d 4oll e 4 t i n g t3 e in4r e a s e d fe e s as e arly as A!ril *F F : . T3e ad v a n 4 e d 4oll e 4 t i o n s w er e in t3 e m e a n t i m e d e ! o s i t e d in a lo4 al %an ) w 3 e r e it ear n s int er e s t . An int er n a t i o n a l org a n i C a t i o n don a t e d US P * # ' # # # . # # on t3 e s olit a r y 4o n d i ti o n t3 a t it s3 o 5 l d % e 5s e d to 5! gr a d e t3 e sal ari e s of t3 e s4 3 o o l ad m i n i s t r a t o r s . T3e s4 3 o o l als o w an t s to im ! or t so m e 4o m ! 5 t e r s for t3 e 5s e of its st5 d e n t s . No5 ar e no w 4on s 5 l t e d to ex! l ai n t3 e tax im !li4 a t i o n s of t3 e a% o v e an d giv e yo5r ad vi 4 e . 23a t s3 all yo5 s a y 6 ANS2-. : a. The school is exe m p t from the paym e n t of real prop er t y taxe s on the one8 half portion of its one8 hect a r e lot which is being use d as the school cam p u s . This is so bec a u s e the sa m e is actu ally, directly and exclusively used for educ a tio n al purpo s e s . Agri8#arms is sub,ect to the paym e n t of real prop e r t y taxe s on the rem ainin g one8 half that it leas e s from Asean for the rea s o n that the said portion is used for com m e r ci al purpos e s and not actu ally, directly and exclusively for educ a tio n al purpos e s . Aseans tax exe m p tio n privileg e does not flow to Agri8#arms bec a u s e real prop er t y taxa tion is bas e d on use and not on owner s hip. @hile it is true that the rent al incom e is devot e d to educ a tio n al purpos e s , it has no bearin g in the cas e as it is the land that should the actu ally, directly and exclusiv ely use d for educ a tio n al purpos e s . b. The inco m e derive d from the tuition fees is exe m p t from the inco m e taxe s as thes e are to be actu ally, directly and exclusiv ely use d for educ a tio n al purpo s e s being devot e d to me e t the incre a s e d school oper a tio n al exp e n dit ur e s . c. The pas sive incom e in the form of inter e s t s on bank depo sits may be exe m p t from incom e tax e s and the withholding taxe s of <FH if they are reflect e d on the schools annu al inform a tio n return s and duly audit e d financial stat e m e n t s , suppor t e d by a certification from

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *: of +$ the depo sitory bank as to the amo u n t of inter e s t incom e earn e d from pas sive inves t m e n t s not sub,ect to the <FH final withholding tax, a resolution of the schools $oard of Trust e e s on the propos e d pro,ects to be fund e d out of the mon e y depo sit e d in the bank, and a certification of actu al utili+ation of said inter e s t incom e for actu al, direct and exclusiv e use for educ a tio n al purpos e s . =#inanc e /ep art m e n t
!rder -o. :?C8 CJ, issu e d -ove m b e r <?, :CCJ am e n di n g /epart m e n t !rder -o. :>D8 KD as am e n d e d by /ep art m e n t !rder -o. C<8 KK;.

d. @hile it is true that the ' Q:F,F F F . F F is to be utili+ed for ad ministr a tio n purpos e s , and und er ec. C?=A8 >; of the -I%), may be sub,ect to tax, it is to be not e d that %epublic Act -o. DDCK which am e n d e d $.&. $lg. <>< provid e s that, 6Taxes shall not be due on don a tio n s to educ a tio n al institution s.7 It is to be not e d that exe m p tio n s to educ a tio n al institution s are not sub,ect to the so8 called strictissi mi juris strict interpr e t a tio n agains t the taxp a y e r and liberally in favor of the gover n m e n t . e. The comp u t e r s could be import e d , exe m p t from the paym e n t of custo m s duties and value8 add e d tax as ther e is showing of their actu al, direct and exclusive use for educ a tio n al purpo s e s . "8 . 23y is it im ! or t a n t to )no w t3 e dis ti n 4 t i o n s % e t w e e n a tax an d a d e % t . 23a t ar e t3 e dis ti n 4 t i o n s % e t w e e n a tax an d a de%t 6 ANS2-.& It is import a n t to know the distinction s bec a u s e non8 paym e n t of a tax =exce p t a poll tax; could sub,ect a pers o n to imprison m e n t while no pers o n could be imprison e d for non8 paym e n t of a debt. #urth er m o r e , a debt could be comp e n s a t e d by anot h e r debt, but a debt or anot h e r tax could not be comp e n s a t e d for a tax in accord a n c e with the lifeblood doctrin e. "8A. Dis ti n 4 t i o n s % e t w e e n a tax an d a d e % t . ANS2-.& a. $A I . Tax is bas e d on law @2I(* debt is bas e d on contr a c t or ,udg m e n t . b. #AI('%* T! &A3. #ailure to pay a tax =exc e p t a poll tax; ma y result in imprison m e n t @2I(* ther e is no imprison m e n t for failure to pay a debt. c. .!/* !# &A3.*-T. Tax is gen e r ally paya bl e in mon e y @2I(* debt ma y be paya bl e in mon e y, prop e r t y or service s. d. A I0-A$I(IT3. A tax is not assign a bl e @2I(* a debt is assign a bl e. e. I-T*%* T. A tax does not draw inter e s t unles s delin"u e n t @2I(* a debt draw s inter e s t if stipulat e d or delaye d . f. A'T2!%IT3. Taxes are impos e d by public aut h ority @2I(* debt can be impos e d by privat e individu als. g. &%* )%I&TI!-. &rescriptive periods for tax are det e r mi n e d und er the -I%) @2I(* debt, und e r the )ivil )ode. "9 . Are t3 er e dis ti n 4 t i o n s % e t w e e n a tax an d a li4 e n s e fe e 6 23y is it im! or t a n t to )no w t3 e dis ti n 4 t i o n s 6 ANS2-.S : tax and a licens e fee: The following are the distinction s betw e e n a

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *+ of +$ a. &'%&! *:A tax is impos e d for reve n u e purpos e s @2I(* a licens e fee is impos e d for regula t or y purpo s e s . b. $A I : A tax is impos e d und e r the pow er of tax a tio n @2I(* a licens e fee is impos e d und e r police pow er. c. A.!'-T: There is no limit as to the amo u n t of a tax @2I(* the amo u n t of licens e fee that could be collect e d is limite d to the cost of the licens e and the exp e n s e s of police surv eillanc e and regula tio n. d. TI.* !# &A3.*-T: Taxes are norm ally paid after the start of a busin e s s @2I(* a licens e fee befor e the com m e n c e m e n t of busin e s s . e. *##*)T !# -!-8&A3.*-T: #ailure to pay a tax does not mak e the busin e s s illegal @2I(* failure to pay a licens e fee mak e s the busin e s s illegal. f. '%%*-/*%: Taxes being the lifeblood of the stat e , canno t be surre n d e r e d exce p t for lawful consid e r a tio n @2I(* a licens e fee may be surre n d e r e d with or withou t consid er a tio n. It is import a n t to know the distinction s beca u s e the limitation s for one ma y not be applied to the other exce p t in the insta n c e wher e regula t or y taxe s are impos e d thus, the pow er to tax is exercis e d con,ointly with the police pow er. #urth er m o r e , exe m p tio n from taxe s does not includ e exe m p tio n from the paym e n t of licens e fees and vice8 vers a.
TG- C U.T 0 TA1 APP-ALS AND TA1 .-D-D/-S

": . 23a t is t3 e Co5rt of Tax A!! e a l s 6 23a t is t3 e nat 5 r e of t3 e Co5rt of Tax A!! e a l s 6 23y w a s it 4re a t e d 6 ANS2-. : a. The )ourt of Tax Appe als is the special tax court crea t e d und er %epublic Act -o. ::<J comp o s e d of a &residing Gudge and Two Associat e Gudges , appoint e d by the &resid e n t of the &hilippine s from nomin e e s of the Gudicial and $ar )ouncil. b. It is not a mer e ad ministr a tiv e age n c y or tribun al but a regular court ves t e d with exclusive app ellat e ,urisdiction over cas e s arising und e r the -ation al Intern al %even u e )ode and the Tariff and )usto m s )ode. c. The )ourt of Tax Appe als was cre a t e d : :; To prev e n t delay in the disposition of tax cas e s by the the n )ourts of #irst Insta nc e =now %T)s;, in view of the backlog of civil, crimin al, and cad a s t8 ral cas e s accu m ul a tin g in the docke t s of such courts9 and <; To hav e a body with special knowled g e which ordinar y Gudge s of the then )ourts of #irst Insta n c e =now %T)s;, are not likely to poss e s s , thus pro8 viding for an ade " u a t e rem e d y for a spe e d y det e r mi n a ti o n of tax cas e s . "+ . 23a t is t3 e (5ris di 4 t i o n of t3 e Co5rt of Tax A!! e a l s 6 ANS2-. : a. T3e Co5rt of Tax A!! e a l s 3a s (5ris di 4 t i o n d e 4i s i o n s of t3 e Com m i s s i o n e r of /nt er n a l .ev e n 5 e ov e r& :; )as e s involving: a; /isput e d ass e s s m e n t s 9 ov e r

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e *F of +$ b; charg e s 9 c; &enalties impos e d in relation ther e t o . <; !ther mat t e r s arising und e r: a; The -ation al Intern al %eve n u e )ode, or b; !ther law or part of law ad minist e r e d by the $ure a u of Intern al %eve n u e . The app e al to the )ourt of Tax Appe als mus t be filed within >F days from receipt of the )om mis sion e rs adv er s e decision. If ther e is no decision, the app e al should be dismiss e d for lack of ,urisdiction. %. T3e Co5rt of Tax A!! e a l s 3a s (5ris d i 4 t i o n ov e r d e 4i s i o n s of t3 e Com m i s s i o n e r of C5s t o m s ov e r& :; )as e s involving: a; (iability for custo m s duties, fees or oth er mon e y charg e s , b; ei+ure s , det e n tio n or rele a s e of prop e r t y affect e d , c; #ines, forfeitur e s and oth er pen altie s impos e d in relation ther e t o9 <; !ther mat t e r s arising und e r: a; the custo m s law, or b; !ther law or part of law ad minist e r e d by the $ure a u of )usto m s The app e al to the )ourt of Tax Appe als mus t be filed within >F days from receipt of the )om mis sion e rs adv er s e decision. If ther e is no decision, the app e al should be dismiss e d for lack of ,urisdiction. 4. /ns t a n 4 e s w 3 e r e t3 e Co5rt of Tax A!! e a l s w o 5l d 3a v e (5ris d i 4 t i o n ev e n if t3 er e is no d e 4i s i o n ye t of t3 e Com m i s s i o n e r of /nt er n a l .ev e n 5 e & :; @here the )om mis sio n e r has not act e d on the disput e d ass e s s m e n t after a period of :KF days from sub mis sion of comple t e supp ortin g docu m e n t s , the taxp a y e r has a period of >F days from the expiration of the :KF day period within which to app e al to the )ourt of Tax Appe als. =last par., ec. <<K =e;, -I%) of :CCD; <; @here the )om mis sio n e r has not act e d on an application for refund or credit and the two year period from the time of paym e n t is abou t to expire, the taxp a y e r has to file his app e al with the )ourt of Tax Appe als befor e the expira tion of two year s from the time the tax was paid. d. /nst a n 4 e s w 3 e r e t3 e Co5rt of Tax A!! e a l s w o 5l d 3av e (5ris d i 4 t i o n ev e n if t3 er e is no d e 4i s i o n of t3 e Com m i s s i o n e r of C5s t o m s & :; /ecisions of the ecr e t a r y of Trad e and Industry or the ecr e t a r y of Agricultur e in anti8 dum pin g and count e r v ailing duty cas e s are app e al a bl e to the )ourt of Tax Appe als within thirty =>F; days from receipt of such decisions. <; In cas e of auto m a tic review by the ecr e t a r y of #inanc e in sei+ur e or forfeitur e cas e s wher e the value of the import a tio n exce e d s &J million or wher e the decision of the )ollector of )usto m s which fully or partially rele a s e s the ship m e n t sei+e d is affirm e d by the )om mis sion e r of )usto m s . "F . 23a t dis ! 5 t e s3 all % e a! ! e a l a % l e to t3 e Co5rt of Tax A!! e a l s 6 %efund of intern al reve n u e taxe s , fees or other

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "# of +$ ANS2-. : !nly )ommis sio n e rs final decision denying the disput e is sub,ect of app e al. @ords to the effect that the mat t e r would be referr e d to the )ollection *nforce m e n t /ivision for the issu a n c e of a warra n t of levy and distr aint is not a final decision app e al a bl e to )TA. *ven the actu al issu a n c e of a warra n t of distr aint and levy in cert ain cas e s still canno t be consid er e d a final decision on a disput e d ass e s s m e n t . =)om mi s si on e r of Intern al %eve n u e v. 'nion hippin g )orp., :KJ
)%A J?D;

"FA. Cite a4t s of B/. Com m i s s i o n e r t3 a t ar e 4on s i d e r e d as d e n i a l of !rot e s t w 3i4 3 s er v e as %a s i s for a! ! e a l to t3 e Co5rt of Tax A!! e a l s . ANS2-.& :; #iling by the $I% of a civil suit for collection of the deficienc y tax is consid e r e d a denial of the re"u e s t for reconsid e r a ti o n. <; An indication to the taxp a y e r by the )ommis sio n e r 6in clear and une " uivoc al langu a g e 7 of his final denial not the issu a n c e of the warra n t of distraint and levy. @hat is the sub,ect of the app e al is the final decision not the warra n t of distraint. >; A $I% de m a n d letter sent to the taxp a y e r after his prot e s t of the ass e s s m e n t notice is consid er e d as the final decision of the )om mis sion e r on the prot e s t . ?; A letter of the $I% )om mis sion e r reiter a ti n g to a taxp a y e r his previou s de m a n d to pay an ass e s s m e n t is consid e r e d a denial of the re"u e s t for recon sid e r a ti o n or prot e s t and is app e al a bl e to the )ourt of Tax Appe als. "FB. 23a t ar e t3 e re? 5 i s i t e s Com m i s s i o n e r s d e 4i s i o n on t3 e dis ! 5 t e . for validi t y of t3 e

ANS2-.& The decision of the )om mis sion e r or his duly aut h ori+e d repr e s e n t a t iv e shall =a; stat e the facts, the applicable law, rules and regula tion s , or ,urispru d e n c e on which such decision is bas e d, otherwis e, the decision shall be void, in which cas e the sa m e shall not be consid e r e d a decision on the disput e d ass e s s m e n t 9 and =b; that the sa m e is his final decision. T3e B/. Com m i s s i o n e r dis 4 o v e r e d t3 a t a tax! a y e r )e e ! s no re4 or d s or t3 a t w3at e v e r re4 or d s )e! t are ina d e ? 5 a t e ' or t3 a t t3 e r e is str o n g s5 s ! i 4 i o n t3 a t t3 e tax ! a y e r 3a s re4 e i v e d in4 o m e fro m 5n di s 4 l o s e d s o 5 r 4 e s ' or t3 a t no ret 5r n w a s file d or t3 e ret 5 r n file d w a s fals e an d fra5 d 5 l e n t . 23a t m e t 3 o d s 3av e % e e n d e v e l o ! e d %y t3 e B/. in ord e r to d e t e r m i n e t3 e in4 o m e of t3 e tax! a y e r w 3i4 3 s3 o 5 l d % e s5 %( e 4 t to tax6 -x!lai n e a 4 3 m e t 3 o d %riefl y %5t 4o m ! r e 3 e n s i v e l y . ANS2-. : The following are the gen e r al me t h o d s dev elop e d by the $urea u of Intern al %even u e for recons tr u c tin g a taxp a y e rs inco m e : a. Per4 e n t a g e m e t 3 o d . The comp u t e d amo u n t of reve n u e s bas e d on the perc e n t a g e comp u t a ti o n is comp a r e d to the amo u n t of reve n u e s reflect e d on the return. $# .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "* of +$ The perc e n t a g e s use d ma y be obtain e d from the taxp a y e r , indus tr y publication, prior years audit results, or third partie s. The comp a ris o n will provid e an indication on the possibility of reve n u e being und er s t a t e d . Among the significan t ratios and tren d s to be analy+ e d are the perc e n t a g e mark8 up, gross profits ratio or gros s margin perc e n t a g e , profit margin, tot al ass e t s turnov e r, and invent o r y turnov e r. b. Net w ort 3 m e t 3 o d . A me t h o d of recon s t r u c tin g incom e which is bas e d on the theor y that if the taxp a y e rs net worth has incre a s e d in a given year in an amo u n t larger tha n his report e d inco m e , he has und er s t a t e d his inco m e for that year. The net worth on a fixed startin g dat e is comp a r e d with the net worth on a fixed ending dat e. Any incre a s e in net worth is pres u m e d to be incom e not declar e d for tax purpos e s . The difficulty of est a blis hin g the openin g net worth of a tax payer has led to the 6 Co3 a n .5le 7 which me a n s the us e esti m a t e s or approxi m a tio n s of the amo u n t of cas h and other ass er t s wher e the taxp a y e r lacks ade " u a t e records . c. Ban) d e ! o s i t m e t 3 o d . The bank record s of the taxp a y e r are an aly+ e d and the $I% estim a t e s incom e on the basis of the tot al bank depo sits after elimin a tin g non8 inco m e item s . This me t h o d stan d s on the pre mis e that depo sits repr e s e n t taxa bl e incom e unles s oth erwis e explain e d as being non8 taxa bl e item s . This me t h o d ma y be used only wher e the $I% has be e n legally allow ed acce s s to the taxp a y e rs bank records . d. Cas 3 ex! e n d i t 5 r e m e t 3 o d . This me t h o d ass u m e s that the exce s s of a taxp a y e rs exp e n dit u r e s during the tax period over his report e d inco m e for that period is taxa bl e to the ext e n t not disprov e d otherwis e. e. Unit an d val5 e m e t 3 o d . The det e r mi n a ti o n or verification of gross receipt s may be comp u t e d by applying price and profit figures to the known ascer t ain a bl e "uality of busin e s s of the taxp a y e r . #or exa m pl e , in order to det er mi n e the gross receipt s of a pi++a parlor, multiply the poun d s of flour use d by the nu mb e r of pi++as per poun d which in turn would the n be multiplied by the aver a g e price per pi++a. f. T3ird !art y infor m a t i o n or a44 e s s to re4 or d s m e t 3 o d . The $I% may re"uire third partie s, public or privat e to supply inform a tio n to the $I%. g. S5rv e ill a n 4 e an d as s e s s m e n t m e t 3 o d . =)hapt e r 4III. Indirect Approac h to Inves tig a tio n, 2andb o o k on Audit &roced u r e s and Techni"u e s N 1olume I, pp. OK8 D?; $* . T3e B/. dis 4 o v e r e d t3 a t -lvie ' a %5 s i n e s s w o m a n ' did not file 3 er in4 o m e tax ret 5r n s for t3 e tax a % l e ye a r s *F F + an d *F F F . A !re> as s e s s m e n t noti 4 e for %a4) tax e s w a s t3 e n is s 5 e d in t3 e am o 5 n t of P" millio n w 3i4 3 5ltim a t e l y m a t 5 r e d into an as s e s s m e n t noti 4 e . T3e B/. arriv e d at t3 e ad di ti o n a l tax d5 e aft e r 5sin g t3 e @n e t w ort 3 A m e t 3 o d an d a44 e s s to -lvie s !5r4 3 a s e s fro m 3 er s5 ! ! li e r s of raw m a t e ri a l s . S3 e no w dis ! 5 t e s t3 e as s e s s m e n t for la4) of le g a l %a s i s % e 4 a 5 s e of t3 e 5s e of t3 e @n e t w ort 3 A w 3i4 3 is not a5 t 3 o ri C e d 5n d e r t3 e Tax Cod e ' an d for viola t i o n of 3 er 4on s t i t 5 t i o n a l rig3 t s w 3 e n 3 er !5r4 3 a s e re4 or d s w er e a44 e s s e d from 3 er s5 ! ! li e r s . .5le on 3 er dis ! 5 t e .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "" of +$ ANS2-. : *lvies cont e n tio n s are ber eft of merit. ince *lvie did not file her inco m e tax return s , which report s are re"uir e d by law as a basis for ass e s s m e n t , the n the $I% )ommis sio n e r shall ass e s s the tax on the bes t evide n c e available. The $I% )om mis sion e r is auth ori+e d to secur e record s from public or privat e entities to assist him in the ass e s s m e n t . #urth er m o r e , the $I% ma y use such met h o d as in the opinion of the )ommis sio n e r clearly reflects the incom e .
a. 0ener al %ule. 6The taxa bl e income shall be comp u t e d upon the basis of the taxp a ye rs annu al accou nti ng period =fiscal ye ar or calend a r ye ar, as the cas e ma y be; in accor d a n c e with the me t h o d of accou n ting regularly e mploye d in kee ping the books of such taxp a ye r 9 but if no such me t h o d of accou nti ng has be e n so employe d , or if the me t h o d e mploye d doe s not clearly reflect the inco me , the comp u t a tio n shall be in accord a n c e with such me t h o d as in the opinion of the )ommi s sion e r clearly reflects the inco me . 7 = ec. ?>, -I%) of :CCD; b. #ailure to ub mit %e"uire d %etur ns , tat e m e n t s , %eport s or !ther /ocu me n t s . 6@hen a report re"uir e d by law as a basis for the ass e s s m e n t of any nation al intern al reve n u e tax shall not be forthco mi n g within the time fixed by laws or rules and regul ations or when ther e is reas o n to believe that any such report is false, incompl e t e or erron e o u s , the )ommi s sion e r shall ass e s s the prop er tax on the best evide nc e obt ain a bl e . In cas e a perso n fails to file a re"uir e d return or other docu m e n t at the time prescrib e d by law, or willfully or otherwis e files a false or fraudule n t return or other docu m e n t , the )ommi s sion e r shall ma k e or ame n d the return from his own knowle d g e and from such infor ma tion as he can obtain throug h testi mo n y or otherwis e , which shall be prima facie correct and sufficient for all legal purpos e s . 7 R ec. O =$;, -I%) of :CCDS

$*A. Dis 4 5 s s /nfor m a t i o n .

t3 e !o w e r of t3 e Com m i s s i o n e r to

%t ai n

ANS2-.& 6In ascer t ai nin g the correct n e s s of any retur n, or in making a retur n when non e has bee n ma d e , or in det er mi nin g the liability of a pers o n for any intern al reve n u e tax, or in collecting any such liability, or in evalu a tin g tax complia nc e , the )om mis sion e r is aut h ori+e d: xxx To obt ain on a regular basis from any pers o n oth er than the pers o n whos e intern al reve n u e tax liability is sub,ect to audit or inves tig a tio n, or from any office or officer of the nation al and local gover n m e n t s , gover n m e n t age n cie s and instru m e n t a lities including the $angko entr al ng &ilipinas and gover n m e n t 8 owne d or Ncontrolled corpor a tio n s , any inform a tio n such as, but not limited to, costs and volum e of produc tion, receipt s or sales and gros s inco m e s of taxp a y e r s , and the na m e s , addr e s s e s , and financial stat e m e n t s of corpor a tio n s , mut u al fund comp a ni e s , insur a n c e comp a ni e s , region al oper a tin g he a d " u a r t e r s or multina tion al comp a ni e s , ,oint accou n t s , associa tio n s , ,oint vent ur e s or cons orti a and regist e r e d part n e r s hip s , and their me m b e r s 9 xxx7 R ec. J =$;, -I%) of :CCD; $" . 23a t im! or t a n 4 e 6 is a !re> as s e s s m e n t noti 4 e an d w3at is its

ANS2-. : A pre8 ass e s s m e n t notice is a a letter sent by the $ure a u of Intern al %even u e to a taxp a y e r asking him to explain within

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "$ of +$ a period of fiftee n =:J; days from receipt why he should not be the sub,ect of an ass e s s m e n t notice. As a gen e r al rule, the $I% could not issu e an ass e s s m e n t notice withou t first issuing a pre8 ass e s s m e n t notice beca u s e it is part of the due proc e s s rights of a taxp a y e r to be given notice in the form of a pre8 ass e s s m e n t notice, and for him to explain why he should be the sub,ect of an ass e s s m e n t notice. $"A. Cite ins t a n 4 e s w 3 er e a !re> as s e s s m e n t noti 4 e is not re? 5 ir e d % ef o r e a noti 4 e of as s e s s m e n t is s e n t to t3 e tax ! a y e r . ANS2-.& a. @hen the finding for any deficiency tax is the result of mat h e m a t i c al error in the comp u t a ti o n of the tax as app e a rin g on the face of the return9 or b. @hen a discre p a n c y has be e n det er mi n e d betw e e n the tax withh eld and the amo u n t actu ally remitt e d by the withholding age n t9 or c. @hen a taxp a y e r opte d to claim a refund or tax credit of exce s s credit a bl e withholding tax for a tax a bl e period was det er mi n e d to hav e carried over and auto m a t ic ally applied the sa m e amo u n t claim e d agains t the esti m a t e d tax liabilities for the taxa bl e "uart e r or "uart e r s of the succ e e di n g table year9 or d. @hen the exce s s tax due on excis a bl e articles has not be e n paid9 or e. @hen an article locally purch a s e d or import e d by an exe m p t pers o n, such as, but not limited to vehicles, capit al e"uip m e n t , mac hin e ri e s and spar e parts, has bee n sold, trad e or tran sf e rr e d to non8 exe m p t pers o n s . = ec. <<K, -I%) of :CCD; $$ . n t3 e %a s i s of a Lett e r of A5t3 o ri t y ' for t3 e ex a m i n a t i o n of t3 e %o o ) s of a44 o 5 n t s an d ot3 e r a44 o 5 n t i n g re4 or d s of Pa s 4 o r .ealt y an d De v e l o ! m e n t Cor! or a t i o n <P.DC=' B/. ex a m i n e r s re4 o m m e n d e d t3 e is s 5 a n 4 e of an as s e s s m e n t noti 4 e in t3 e am o 5 n t s of P: millio n an d P $ millio n for t3 e y e ar s *F + 9 an d *F + : re s ! e 4 t i v e l y . n Dar4 3 *' *F F 8 ' t3 e B/. file d a 4rimi n a l 4o m ! l a i n t wit3 t3 e De ! a r t m e n t of E5sti4 e ag ai n s t P.DC' its Pre s i d e n t an d Trea s 5 r e r all e g i n g ev a s i o n of tax e s in t3 e tot a l am o 5 n t of P* # millio n . T3is w a s s5 ! ! o r t e d %y an affid a v i t > re! or t of t3 e ex a m i n e r s d e t a ili n g t3 e 4o m ! 5 t a t i o n of t3 e alle g e d tax ev a s i o n . P.DC' its Pre s i d e n t an d Trea s 5 r e r file d an Urg e n t .e? 5 e s t for .e4 o n s i d e r a t i o n K . e i n v e s t i g a t i o n dis ! 5 t i n g t3 e tax as s e s s m e n t an d tax lia%ilit y . n Dar4 3 "$ ' *F F 8 ' P.DC an d its Pre s i d e n t an d Trea s 5 r e r re4 e i v e d a s5 % ! o e n a in 4on n e 4 t i o n wit3 t3 e 4rimi n a l 4o m ! l a i n t file d %y t3 e B/. ag ai n s t t3 e m . /n a let t e r dat e d Day *: ' *F F 8 ' t3 e Com m i s s i o n e r d e n i e d t3 e 5rg e n t re? 5 e s t for re4 o n s i d e r a t i o n K r e i n v e s t i g a t i o n file d %y P.DC an d its offi4 e r s on t3 e gro 5 n d t3 a t form al as s e s s m e n t 3a s as y e t not % e e n is s 5 e d %y t3 e Com m i s s i o n e r . Do yo5 agr e e wit3 t3 e d e 4i s i o n of t3 e Com m i s s i o n e r 6 -x!lai n %riefl y . ANS2-. : 3es, the affidavit8 report of the exa mi n e r s does not cons titu t e an ass e s s m e n t that ma y be the sub,ect of a motion for reconsid e r a ti o nTr einv e s tig a tio n.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "7 of +$ The affidavit8 report mer ely cont ain e d a comp u t a tio n of the liabilities. It did not stat e a de m a n d or a period for paym e n t . It was not addr e s s e d to the taxp a y e r s but to the /epar t m e n t of Gustice. That the affidavit8 report cont ain e d det ails of the tax liabilities does not ipso facto mak e the sa m e an ass e s s m e n t . Its purpo s e was mer ely to suppor t the crimin al complain t for ass e s s m e n t . )learly, it was not me a n t to be a notice of the tax due and a de m a n d for the paym e n t ther e of. The fact that the complain t itself was specifically direct e d and sent to the /ep art m e n t of Gustice and not to the taxp a y e r shows that the inten t of the $I% was to file a crimin al complain t for tax evasio n, not to issu e an ass e s s m e n t . Althoug h the reve n u e officers reco m m e n d e d the issua n c e of an ass e s s m e n t , the com mi s sion e r inste a d opt e d to file a crimin al complain t. @hat was receive d by the taxp a y e r was notice of the filing of the crimin al cas e not a notice that the $I% had ma d e an ass e s s m e n t .
=)om mi s sio n e r of Intern al %eve n u e v. &ascor %ealty and /evelop m e n t )orpor atio n, et al., 0.%. -o. :<K> : J , pro m. Gune <C, :CCC;

-!T* A-/ )!..*-T : The -I%) define s the specific functions and effects of an ass e s s m e n t . To conside r the affidavit8 report att a c h e d to the criminal compl aint as a prop er ass e s s m e n t is to subv e r t the natur e of an ass e s s m e n t and to set a bad prec e d e n t that will pre,udic e innoc e n t taxp a ye r s . @hile an ass e s s m e n t infor ms the taxp a ye r that he or she has tax liabilities, not all docu m e n t s coming from the $I% cont aining a comp u t a tio n of the tax liability can be de e m e d ass e s s m e n t s . To start with, an ass e s s m e n t mus t be sent to and receive d by a taxp a ye r and mus t de m a n d the paym e n t of the taxe s ther ein within a specific period. Thus, the -I%) impos e s a <JH pen alt y, in addition to the tax due, in cas e the taxp a ye r fails to pay the deficienc y tax within the time prescrib e d for its paym e n t in the notice of ass e s s m e n t . (ikewise, an inter e s t of <FH per annu m, or such higher rat e as ma y be prescrib e d by rules and regula tions , is to be collect e d from the dat e prescrib e d for its paym e n t until full paym e n t . The issua nc e of an ass e s s m e n t is vital in det e r mi ni ng the period of limitation rega r ding its prope r issua n c e and the period within which to prot e s t it. -eces s a rily, the taxp a ye r mus t be cert ain that a specific docu m e n t constitut e s an ass e s s m e n t . !therwis e , confusion would arise rega r ding the period within which to ma k e an ass e s s m e n t or to prot e s t the sa me 9 or whet h e r inter e s t and pen alt y ma y accru e ther e o n . It should also be stre s s e d that the said docu m e n t is a notice duly sent to the taxp a ye r . Inde e d, an ass e s s m e n t is de e m e d ma d e only when the $I% rele a s e s , mails or send s such notice to the taxp a ye r . &ascor has also define d ass e s s m e n t as laying a tax.

$$A. Dis 4 5 s s t3 e !5r! o s e an d m e a n i n g of @a s s e s s m e n t A as 5s e d in 4on n e 4 t i o n wit3 tax a t i o n . ANS2-.& The word ass e s s m e n t when use d in conn e c tio n with taxa tion, ma y hav e mor e tha n one me a nin g . The ultima t e purpo s e of an ass e s s m e n t to such a conn e c tio n is to asc er t ai n the amo u n t that each taxp a y e r is to pay. .ore com m o nly the word 6ass e s s m e n t 7 me a n s the official valuatio n of a taxp a y e rs prop e r t y for purpo s e of taxa tion. The abov e definition of ass e s s m e n t finds application und er intern al reve n u e taxa tion, tariff and custo m s taxa tio n as well as local gover n m e n t taxa tion.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "8 of +$ #or real prop e r t y taxa tion, ther e may be a special me a nin g to the burd e n s that are impos e d upon real prop er ti e s that hav e bee n ben efit e d by a public works exp e n dit u r e of a local gover n m e n t . It is som e ti m e s called a special ass e s s m e n t or a special levy. The prescriptiv e periods for making ass e s s m e n t s are thre e =>; years from the last day within which to file a retur n or when the retur n was actu ally filed and ten years from discov er y of the failure to file the tax return or discov er y of falsity or fraud in the return. $7 . 23a t is m e a n t %y @(e o ! a r d y as s e s s m e n t A 6 ANS2-. : A delin"u e n c y tax ass e s s m e n t which was ass e s s e d withou t the ben efit of compl e t e or partial audit by an auth ori+ e d reve n u e officer, who has rea s o n to believ e that the ass e s s m e n t and collection of a deficiency tax will be ,eopar di+ e d by delay bec a u s e of the taxp a y e rs failure to comply with the audit and inves tig a tio n re"uir e m e n t s to pres e n t his books of accou n t s andTor pertin e n t record s, or to subs t a n ti a t e all or any of the ded uc tio n s , exe m p ti o n s , or credits claim e d in his retur n. R ec. >.: =a;, %ev. %egs. -o. O8 <FFF;
a. Eeo! ar d y as s e s s m e n t is an indication of the doubtful validity of the ass e s s m e n t , henc e it ma y be sub,ec t to a compr o mi s e . R ec. >.: =a;, %ev. %*gs. -o. O8 <FFFS

QQQ

b. .e? 5ir e m e n t s for vali di t y of for m a l let t e r of de m a n d and as s e s s m e n t noti 4 e . The letter of de m a n d calling for paym e n t of the taxp a ye rs deficienc y tax or taxe s shall stat e the facts, the law, rules and regula tion s, or ,urisprud e n c e on which the ass e s s m e n t is bas e d, other wis e , the formal letter of de m a n d and ass e s s m e n t notice shall be void. = ec. >.:.?, %ev. %egs. -o. :<8 CC;

$8 . @1A Cor! or a t i o n file d its in4 o m e tax ret 5 r n s in Ean5 ar y ' *F F 8 for its in4o m e for t3 e y e ar *F F 7 . /n 4t o % e r ' *F F : ' Dar43 ' *F F + an d Day' *F F + ' @1A t3ro 5 g 3 its a5 t 3 o ri C e d re!r e s e n t a t i v e sig n e d t3r e e <$= s e ! a r a t e w aiv e r s of t3 e @St a t 5 t e of Limita t i o n s 5n d e r t3 e N/.C.A T3e w aiv e r s w er e not sig n e d %y t3 e B/. Com m i s s i o n e r or 3is ag e n t s . /n *F F F ' t3 e B/. is s 5 e d lett e r s of d e m a n d ' a44 o m ! a n i e d %y as s e s s m e n t noti 4 e s as)i n g t3 e 4or! o r a t i o n to !ay t3 e d efi 4i e n 4 y int e r n a l rev e n 5 e tax e s for its in4 o m e for t3 e y e ar *F F 7 . @1A dis ! 5 t e d t3 e as s e s s m e n t an d re? 5 e s t e d a rein v e s t i g a t i o n . T3e B/. Com m i s s i o n e r d e n i e d t3 e !rot e s t . @1A a! ! e a l e d to t3 e Co5rt of Tax A!! e a l s ' on t3 e gro 5 n d of !re s 4 ri ! t i o n . De4i d e . ANS2-. : The $I%s aut hority to ass e s s has alre a d y pres crib e d . The thre e =>; waivers did not susp e n d the running of the prescriptiv e period. The only agr e e m e n t that could susp e n d the running of the prescriptiv e period for the collection of the tax in "ues tio n is a writte n agr e e m e n t betw e e n 647 corpor a tio n an the $I% ent er e d into befor e the expiration of the thre e =>; year pres criptiv e period ext e n din g the said period. ince, what is re"uire d is the sign a t u r e s of both the )om mis sion e r and the taxp a y e r , a unilat er al waiver on the part of the

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "9 of +$ taxp a y e r does not sus p e n d the pres criptiv e period .
=)om mi s si on e r of Intern al %even u e v. )ourt of Appe al s, et al., 0.%. -o. ::JD : < , #ebru a r y <J, :CCC = Carn a ti o n 4a s e =

$8A. 23a t ar e t3 e gro 5 n d s for s5 s ! e n d i n g st a t 5 t e of limit a t i o n s or !re s 4 ri ! t i v e ! eri o d s for as s e s s m e n t ' % e g i n n i n g or dis tr ai n t or lev y or !ro4 e e d i n g in 4o 5rt6 ANS2-.& The holding in the )arna tio n cas e that the waiver of the period for ass e s s m e n t mus t be in writing and hav e the writte n cons e n t of the $I% )ommis sio n e r is still doctrin al beca u s e of the provisions of ec. <<>, -I%) of :CCD which provid e s : a. @hen the )ommis sio n e r is prohibite d from making the ass e s s m e n t , or beginning distr aint, or levy or proce e di n g in court and for sixty =OF; days ther e af t e r9 b. @hen the taxp a y e r re"u e s t s for and is gran t e d a reinv e s tig a tio n by the com mis sion e r9 c. @hen the com mi s sion e r could not be locat e d in the addr e s s given by him in the retur n filed upon which the tax is being ass e s s e d or collect e d9 d. @hen the warra n t of distraint and levy is duly serv e d upon the taxp a y e r , his aut h ori+e d repr e s e n t a t iv e , or a me m b e r of his hous e h ol d with sufficient discretion, and no prop e r t y could be locat e d 9 and e. @hen the taxp a y e r is out of the &hilippin e s . (aw on prescription should be liberally constru e d in favor of the taxp a y e r . #or the purpos e of safeg u a r din g taxp a y e r s from an unre a s o n a bl e exa mi n a tio n, inves tig a tio n or ass e s s m e n t , our tax law provid e s a stat u t e of limitation on the collection of tax e s . Thus, the law on prescription, being a rem e di al me a s u r e , should be liberally constru e d in order to afford such prot e c tio n. As a corollary, the exce p tio n s to the law on prescription should perforc e be strictly constr u e d . =)om mi s sio n e r of Intern al %even u e v. $.#. 0oodrich &hils.,
Inc., et al., 0.%. -o. :F? : D : , #ebru a r y <?, :CC C;

$8B. 23a t ar e t3 e re? 5 ir e m e n t s for validi t y of tax ! a y e r s !rot e s t 6 ANS2-.& The taxp a y e r shall stat e the facts, the applica bl e law, rules and regula tio n s , or ,urispru d e n c e on which his prot e s t is bas e d, otherwis e, his prot e s t shall be consid er e d void and without force and effect. If ther e are sever al issue s involved in the disput e d ass e s s m e n t and the taxp a y e r fails to stat e the facts, the applica bl e law, rules and regula tio n s , or ,urispru d e n c e in suppor t of his prot e s t agains t som e of the sev er al issue s on which the ass e s s m e n t is bas e d, the sa m e shall be consid er e d undis p u t e d issue or issue s , in which cas e, the taxp a y e r shall be re"uire d to pay the corres p o n di n g deficienc y tax or taxe s attribu t a bl e ther e t o . = ec. >.:.J, %ev. %egs. :<8 CC; $9 . B.0. ,oodri4 3 av aili n g of t3 e Parity Am e n d m e n t to t3 e Con s ti t 5 t i o n !5r4 3 a s e d vario 5 s !ar4 e l s of lan d . 23 e n t3 e Parity Am e n d m e n t ex ! ir e d in *F : 7 ' it sold t3 e !ar4 e l s for P8 # # ' # # # . # # !ay a % l e in in s t a ll m e n t s an d lea s e d %a 4) t3 e !ro ! e r t i e s for "8 y e ar s . /t file d its *F : 7 ret 5 r n re! or ti n g t3 e s al e . A B/. as s e s s m e n t on its in4o m e for *F : 7 w a s !aid .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e ": of +$ /n *F + # it w a s as s e s s e d don o r s tax % e 4 a 5 s e t3 e B/. 4o n s i d e r e d t3 e 4o n s i d e r a t i o n for t3 e s al e ins 5 f fi 4i e n t ' an d t3 e diff er e n 4 e % e t w e e n t3 e fair m ar) e t val5 e an d t3 e a4t 5 a l !5r4 3 a s e !ri4 e ' a tax a % l e do n a t i o n . S5 % s e ? 5 e n t l y ' on A!ril F' *F + * t3 e B/. in4r e a s e d t3 e as s e s s m e n t . 2a s t3 er e a @fal s e an d fra5 d 5 l e n t ret 5 r n A wit3i n t3 e 4o n t e x t of t3 e Tax Cod e w 3i4 3 w o5 l d allo w as s e s s m e n t % e y o n d t3 e fiv e ye a r R5n d e r t3 e !re s e n t Tax Cod e ' t3r e e <$= y e ar s 6 ANS2-. : -o, the fact that $.#. 0oodrich sold the prop e r t y for a price lower than its declar e d fair mark e t value did not cons titu t e a 6false retur n7 which cont ains wrong inform a tio n due to mist ak e , carele s s n e s s or ignora n c e . It is possible that real prop er t y may be sold for less tha n ade " u a t e consid e r a tio n for a bona fide busin e s s purpo s e , in such eve n t, the sale rem ain s an 6ar ms lengt h7 tran s a c tio n. In the cas e at bar, $.#. 0oodrich was trying to minimi+e its loss bec a u s e of the expiration of the &arity Amen d m e n t . $eside s , the <J8 year leas e was anot h e r consid er a tio n. $.#. 0oodrich declar e d the sale in its :CD? return sub mitt e d to the $I% @ithin the prescriptiv e period, the $I% could hav e ma d e the ass e s s m e n t bec a u s e the declar e d fair mark e t value of said prop e r t y was of public record. That part of the sale trans a c tio n was actu ally a don a tion, did not eras e the fact that the inco m e had alre a d y bee n report e d . $.#. 0oodrich alre a d y report e d its inco m e by filing an inco m e tax return. *ven thou g h a donors tax is differe n t from capital gains tax, a tax on the gain from the sale of the taxp a y e rs prop e r t y forming part of capital ass e t s , the tax return filed by $.#. 0oodrich to report its inco m e for the year :CD? was sufficient complianc e with the legal re"uir e m e n t to file a return. The $I%s oversigh t on the issue of pres cription canno t pre,udice the taxp a y e r . %*A !-: The prescriptive period was precis ely inten d e d to give the taxp a y e r s peac e of mind. =)om mi s si on e r of Intern al
%eve n u e v. $.#. 0oodrich &hils., Inc., et al., 0.%. -o. :F?: D : , #ebru ar y <?, :CCC;

$: .

23y ar e as s e s s m e n t an d ref 5 n d 4a s e s 4o5l d not % e 4on s o l i d a t e d 6 If ther e is a pendin g

ANS2-.& %eas o n: (ifeblood doctrin e. ass e s s m e n t , refund should not be gran t e d .

$+ . 7* no n > lif e in s 5r a n 4 e 4or! or a t i o n s org a n i C e d an d exi s t i n g 5n d e r t3 e law s of t3 e P3ili! ! i n e s org a n i C e d a !o ol of m a 4 3 i n e r y ins 5 r e r s for t3 e !5r! o s e of en t e r i n g into a S5ot a S3 ar e .ein s 5 r a n 4 e Trea t y an d a S5r!l 5 s .ein s 5 r a n 4 e Trea t y wit3 t3 e D5n 4 3 e n e r .54) v e r s i 4 3 e r 5 n g s > ,e s s e l s 4 3 a f t <D5ni4 3 for %re vi t y = ' a no n > re si d e n t for ei g n ins 5r a n 4 e 4or! or a t i o n . n A!ril *7 ' *F : 9 t3 e !o ol s5 % m i t t e d a fina n 4 i a l st a t e m e n t an d file d an @/nf or m a t i o n .et 5r n of rg a n i C a t i o n -xe m ! t from /n4o m e TaxA for t3 e y e ar en d i n g *F : 8 ' on t3 e %a s i s of w 3i4 3 t3 e !o ol w a s as s e s s e d d efi 4i e n 4 y 4or! or a t e in4 o m e tax of P*. + millio n an d wit3 3 o l d i n g tax in t3 e am o 5 n t of P*. : millio n an d P+ F t3 o 5 s a n d an d to t3 e !o ol on divid e n d s !aid to D5ni4 3 an d t3 e !o ol m e m % e r s re s ! e 4 t i v e l y . T3e !o ol rais e s t3 e follo w i n g is s 5 e s w 3 y t3 e y s3 o 5 l d not % e s5 %( e 4 t to t3 e d efi 4i e n 4 y tax e s &

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "+ of +$ *. T3e y 3av e not form e d an 5nr e g i s t e r e d !art n e r s 3 i ! to % e tre a t e d as a 4or! o r a t i o n for tax !5r! o s e s I ". T3er e w o 5 l d % e do 5 % l e tax a t i o n if t3 e y w o 5 l d % e m a d e to !ay t3 e d efi 4i e n 4 y tax e s I an d $. T3e rig3 t of t3 e go v e r n m e n t to 4oll e 4 t 3a s alre a d y !re s 4 ri % e d . .5le on t3 e is s 5 e s rais e d dis 4 5 s s i n g e a 4 3 on e of t3 e m . ANS2-.S& :. They hav e forme d an associatio n which should be taxa bl e like a corpor a tio n. The Tax )ode has includ e d und er the ter m 6corpor a tio n7 part n e r s hip s , no ma t t e r how cre a t e d or orga ni+ e d, ,oint8 stock comp a ni e s , ,oint accou n t s = cuen t a s en participacion ;, ass ocia tion s , or insur a n c e comp a ni e s . R ec. <? now ec. <? =$; of the -I%) of :CCDS. In *vang elis t a v. )ollector, :F< &hil. :?F, the upre m e )ourt alre a d y held citing .erte n s that the ter m partn e r s hi p includ e s a syndic a t e , group, pool, ,oint vent ur e or other unincorp or a t e d orga ni+a tion, throu g h or by me a n s of which any busin e s s , financial oper a tio n, or vent ur e is carried on. There is no "ues tio n that the ?: non8 life corpor a tio n s ent e r e d into a &ool Agree m e n t or an ass ocia tion that would handle all the insur a n c e busin e s s e s cover e d und e r their "uot a8 shar e reins ur a n c e tre a t y and surplus reins ur a n c e tre a t y with .unich. This un mis t a k a bly indicat e s a part n e r s hip or an ass ocia tion which is consid er e d und e r the Tax )ode as a part n e r s hip or associa tio n tre a t e d like a corpor a tion. <. There is no double taxa tion which me a n s taxing the sa m e prop e r t y twice when it should be taxe d only once. The &ool is a taxa bl e entity sep a r a t e and distinct from the individu al corpor a t e entities of the &ool. >. The pres criptive period was not sus p e n d e d bec a u s e it ma y be susp e n d e d only 6if the taxp a y e r informs the )om mis sio n e r of Intern al %even u e of any chan g e in the addr e s s .7 The fact that the &ools inform a tio n retur n filed in :CKF indicat e d ther ein its 6pres e n t addr e s s 7 is not sufficient complianc e with the legal re"uir e m e n t .
BBB-!T* A-/ )!..*-T : The $ar exa mi n a ti on "ue s tion ma y be with resp e c t to the inco me of an est a t e that has not bee n partitione d or to a cas e wher e ther e is co8 owner s hip. )ert ain busine s s orga ni+ a tion s do not fall unde r the cat e g or y of 6corpor a tion s 7 und er the Tax )ode, and ther efor e not sub,ec t to tax as corpor a tions . They include : :. 0ener al profes sion al partn e r s hi p s 9 <. Goint vent ur e or consortiu m forme d for the purpos e of und er t a ki ng constr uc tion pro,ect s eng a gi ng in petrole u m, coal, geot h e r m a l , and other ener g y oper a tion s , pursu a n t to an oper a tion or consortiu m agr e e m e n t unde r a service contr a c t with the 0overn m e n t . R: st sent e n c e , ec. << =$;, $I%) of :CCDS

$F . 23a t is a !ay m e n t ord e r 6 ANS2-.& A paym e n t order cont ain s the particular kind of tax to be paid and the corre s p o n di n g T-) is issue d to a taxp a y e r to be pres e n t e d by him to the bank when he pays his tax e s .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e "F of +$ 7# . Ag5 s t i n die d in De4 e m % e r ' *F F F lea v i n g to 3is tw o s o n s ' 0ern a n d o an d Eos e ' an a! ar t m e n t %5ildi n g . Aft er t3 e s e t t l e m e n t of Ag5 s t i n s e s t a t e ' 3is tw o s o n s d e 4i d e d not to !artiti o n t3 e a! ar t m e n t %5ildi n g an d (5s t divid e d t3 e ren t a l s am o n g t3 e m s e l v e s for t3 e ye a r "# # # . a. 2a s a !art n e r s 3 i ! form e d w 3i4 3 is s5 %( e 4 t to 4or! o r a t e in4o m e tax e s for t3 e y e ar "# # # 6 .ea s o n o5 t yo5r an s w e r . %. /f' ins t e a d of dividi n g t3 e ren t a l s in "# # # ' t3 e %rot 3 e r s inv e s t e d t3 e s a m e in t3 e !5r4 3 a s e of a 3o 5 s e to % e ren t e d o5 t . Gow s3 all t3 e in4o m e from t3 e ren t a l s of t3 e 3o 5 s e % e tre a t e d for tax !5r! o s e s 6 -x!lai n %riefl y . 2o5ld yo5r an s w e r % e diff er e n t if t3 e 3o 5 s e w a s not !5r4 3 a s e d for t3 e !5r! o s e of ren ti n g o5 t t3 e s a m e %5t w a s lat er s ol d 6 -x!lai n %riefl y . ANS2-.S& a. -o. )o8 heirs who own inherit e d prop e r ti e s which produc e inco m e should not auto m a t ic ally be consid er e d as part n e r s of an unre gis t e r e d corpor a tio n sub,ect to incom e tax for the following reas o n s : :. the sharing of gros s retur n s does not of itself est a blish a part n e r s hip, whet h e r or not the pers o n s sharing the m hav e a ,oint or com m o n right or inter e s t in any prop e r t y from which the retur n s are derive d. There mus t be an unmis t a k a bl e inten tion to form a part n e r s hip or ,oint vent ur e . <. ther e is no contribution or inves t m e n t of addition al capital to incre a s e or exp a n d the inherit e d prop e r ti e s , mer ely continuin g the dedica tio n of the prop e r t y to the use to which it had bee n put by their foreb e a r s . = Ibid. ; >. &erson s who contribut e prop er t y or funds to a com m o n ent er p ris e and agre e to shar e the gros s return s of that ent e r p ris e in proportion to their contribu tion, but who sev er ally retain the title to their res p e c tiv e contribution, are not ther e b y rend e r e d partn e r s . They hav e no com m o n stock capital, and no com m u ni t y of inter e s t as principal propriet or s in the busin e s s itself from which the proce e d s were derive d. ?. In order to constitut e a partn e r s hi p inter ses e ther e mus t be: =a; an inten t to form the sa m e 9 =b; gen e r ally participa tin g in both profits and loss es 9 =c; and such a com m u nit y of inter e s t, as far as third pers o n s are conc er n e d as en a bl e s each party to mak e a contr a c t, ma n a g e the busin e s s , and dispos e of the whole prop e r t y. J. The com m o n owner s hip of prop er t y does not itself crea t e a partn e r s hi p betw e e n the owner s, thou g h they may use it for purpo s e of making gains, and they may, withou t beco min g part n e r s , are amo n g the m s e lv e s as to the ma n a g e m e n t and use of such prop er t y and the application of the proce e d s ther efro m .. b. The incom e from the rent al of the hous e shall be tre a t e d as the incom e of an unre gis t e r e d partn e r s hi p to be taxa bl e as a corpor a tio n bec a u s e of the clear inten tion of the broth e r s to ,oin toge t h e r in a vent ur e for making mon e y out of rent als. The answ e r would be differe n t bec a u s e ther e was no inten tion to ent er into a profit making vent ur e . They mer ely forme d a co8 owner s hip. This is evide n t from the following auth oritie s:

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $# of +$ @her e the plaintiff, his broth e r and, and anot h e r agr e e d to beco m e owner s of a single tract of realty holding as ten a n t s in com m o n , and to divide the profits of disposin g of it, the broth e r and the other not being entitle d to shar e in plaintiffs com mi s sion s , no part n e r s hip exist e d as betw e e n the thre e partie s, what e v e r their relation may hav e be e n as to third partie s. 7* . Li%oro is a !ra4 ti 4 i n g law y e r w 3 o on *8 A!ril *F F 8 file d 3is in4o m e tax ret 5r n for t3 e y e ar *F F 7 . U!o n ex a m i n a t i o n ' t3 e B/. fo5 n d 3is ret 5 r n d efi 4i e n t of P* 7 ' # # F . + 7 . n $# S e ! t e m % e r an d $# Nov e m % e r *F F 8 ' Li%oro w a s notifi e d of 3is tax d efi 4i e n 4 y . Ge re s ! o n d e d wit3 a !rot e s t let t e r dat e d *F De4 e m % e r *F F 8 . n ** Day *F F 9 ' t3 e Com m i s s i o n e r of /nt er n a l .ev e n 5 e d e n i e d Li%oro s !rot e s t for la4) of le g a l %a s i s . Ge t3 e n s e a s o n a % l y file d a ! e ti ti o n for revi e w % ef or e t3 e Co5rt of Tax A!! e a l s . n "F Dar4 3 *F F + ' t3 e CTA ren d e r e d a d e 4i s i o n dis m i s s i n g t3 e a! ! e a l w 3i4 3 Li%oro re4 e i v e d on "F Day *F F + . T35 s ' 3 e 3ad 5ntil *$ E5n e *F F + to file a ! e ti ti o n for revi e w % ef o r e t3 e Co5rt of A!! e a l s . n ** E5ne *F F + ' ins t e a d of filin g a ! e ti ti o n for revi e w wit3 t3 e Co5rt of A!! e a l s ' Li%oro file d a Noti4 e of A!! e a l wit3 t3 e Co5rt of A!! e a l s ' an d on *$ E5ne *F F + ' a m oti o n for an ext e n s i o n of t3irty <$ # = day s to file a ! e ti ti o n for revi e w % ef o r e t3 e Co5rt of A!! e a l s . Day t3 e Co5rt of A!! e a l s gra n t Li%oro an ext e n s i o n of tim e to file t3 e ! e ti ti o n for revi e w 6 ANS2-. : 3es. The prohibition ag ain s t grantin g an ext e n sio n of time applies only in a cas e wher e ordin ar y app e al is re"uire d to perfect an app e al and nothing mor e. 2owev er, it is differe n t in a petition for review wher e the plea din g is re"uir e d to be verified. A petition for review, unlike an ordinar y app e al, re"uire s careful prep a r a tio n and res e a r c h in order to put up a pers u a siv e and formid a bl e position. In other words, the drafting of a petition for review ent ails mor e time and effort than mer ely filing a notice of app e al. =(iboro v. )ourt of Appe al s, et al., 0.%. -o. :F:: > < and )om mis sion e r of
Intern al %even u e v. )ourt of Appe al s, et al., Ganuary <C, :CC>;

-!T* A-/ )!..*-T : ec. ?, %ule ?> of the :CCD %ules of )ivil &roce d ur e provide s , 6The app e al shall be take n within fiftee n =:J; days from notice of the ... ,udg m e n t . ... 'pon prope r motion and the paym e n t of the full a mo u n t of the docke t fee before the expiration of the regle m e n t a r y period, the )ourt of Appe als ma y gra nt an additional period of fiftee n =:J; days only within which to file the petition for review. -o furthe r ext e n sion shall be grant e d exce pt for the mos t comp elling rea s o n and in no cas e to exc e e d fiftee n =:J; days.7 =par a p hr a si n g supplie d;

7" . /s t3 er e a ne4 e s s i t y for an ad m i n i s t r a t i v e d e t e r m i n a t i o n t3 a t a tax is d5 e % ef o r e initi a ti o n of 4rimi n a l !ro s e 4 5 t i o n for tax ev a s i o n 6 ANS2-. : -o, bec a u s e of the following distinguis h e s a criminal charg e from an ass e s s m e n t : reas o n s , which

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $* of +$ a. )riminal charg e ne e d only be suppor t e d by a prima facie showing of failure to file a re"uir e d return @2I(* the fact of failure to file a retur n nee d not be prove n by an ass e s s m e n t . b. $efore an ass e s s m e n t is issu e d, ther e is, by practic e, a pre8 ass e s s m e n t notice sent to the taxp a y e r @2I(* such is not so with a criminal charg e . The charg e is filed directly with the /epar t m e n t of Gustice. c. A criminal complain t is institut e d not to de m a n d paym e n t , but to pen ali+e the taxp a y e r for violation of the Tax )ode @2I(* the purpos e of the issu a n c e of an ass e s s m e n t is to collect the tax.
=)om mi s sio n e r of Intern al %eve n u e v. &ascor %ealty and /evelop m e n t )orpor atio n, et al., 0.%. -o. :<K> : J , Gune <C, :CCC;

-!T* A-/ )!..*-T : #or Bar e x a m i n a t i o n !5r ! o s e s take note of the distinction betw e e n the #ortun e Tobacco cas e =)ommi s sion e r of Intern al %even u e v. )ourt of Appe als, et al., 0.%. -o. ::C> < <, Gune ?, :CCO; on one hand with the abov e &ascor cas e and that of 'nga b v. )usi, CD )%A KDD =:CKF;, which allowe d the tax eva sion cas e to proce e d notwiths t a n di n g no showing of an ad mi nis tr a tive finding that a tax is due. In 'nga b, ther e was a prima facie att e m p t to eva d e taxe s bec a u s e of the taxp a ye rs failure to declar e in his incom e tax return 6his inco me derive d from ban a n a saplings,7 @2I(* in the #ortun e Tobacco cas e, the regist e r e d whole s al e price of the goods, approv e d by the $I% is pres u m e d to be the actu al whole s al e price, ther efor e, not fraudul e n t and unles s and until the $I% has ma d e a final det er mi n a ti on of what is suppo s e d to be the correct taxe s, the taxp a ye r should not be plac e d in the crucible of criminal pros e c u tion

7$ . 23a t are t3 e tax 4a s e s w 3i4 3 m ay % e t3 e s5 %( e 4 t of a 4o m ! r o m i s e s e t t l e m e n t wit3 t3 e B/. 6 ANS2-. : The following may be the sub,ect mat t e r of compr o mi s e settle m e n t : a. /elin"u e n t accou n t s 9 b. )ase s und e r ad minis tr a tiv e prot e s t pendin g in the %egion al !ffices, %eve n u e /istrict !ffices, (egal ervice, (arge Taxp a ye r ervice =(T ;, *nforce m e n t ervice =* ;, *xcise Taxp a ye r ervice =*T ; and )ollection ervice =) ;9 c. )ivil tax cas e s being disput e d before the courts, e.g. )TA, )A, )9 d. )ollection cas e s filed in courts9 and e. )riminal violations , oth er than thos e alre a d y filed in court, or thos e involving criminal tax fraud. = ec. <, %ev. %egs. -o. O8 <FFF; 7$A. -n5 m e r a t e t3 e tax 4a s e s t3 e s5 %( e 4 t of 4o m ! r o m i s e . w 3i4 3 4o 5l d not % e

ANS2-.& :; @ithholding tax cas e s 9 <; )riminal tax fraud cas e s 9 >; )riminal violations alre a d y filed in court9 and ?; /elin"u e n t accou n t s with duly approv e d sche d ul e of installm e n t paym e n t s . = ec. <, %ev. %egs. -o. O8 <FFF; 77 . n E5ne *8' *F F 9 ' Dr. ,ran t . Ne al ' !aid 3is in4o m e tax for t3 e ye a r *F F 8 . n Dar4 3 *8 ' *F F + ' 3 e dis 4 o v e r e d t3 a t t3 e B/. ex 4 e s s i v e l y 4oll e 4 t e d from 3is t3 e am o 5 n t of P: 8 ' # # # . # # . T35 s ' on t3 e sa m e day 3 e file d wit3 t3 e Com m i s s i o n e r of /nt er n a l .ev e n 5 e a writt e n 4lai m for ref 5 n d .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $" of +$ n A5g 5 s t *8' *F F + 3 e re4 e i v e d t3 e Com m i s s i o n e r s let t e r d e n y i n g 3is 4lai m for ref 5 n d . n S e ! t e m % e r *' *F F + ' or wit3i n t3irt y <$ # = day s fro m re4 e i ! t of t3 e let t e r ' 3 e file d a ! e ti ti o n for revi e w wit3 t3 e Co5rt of A!! e a l s for t3 e ref 5 n d of t3 e P: 8 ' # # # . # # . /n 4o n f o r m a n 4 e wit3 t3 e m a t e r i a l dat a r5le ' 3 e all e g e d t3 a t S e 4 t i o n ** of .e! 5 % li 4 A4t No. ** " 8 ' !rovi d e s t3 a t a tax ! a y e r ad v e r s e l y aff e 4 t e d %y a r5lin g or d e 4i s i o n of t3 e Com m i s s i o n e r of /nt er n a l .ev e n 5 e m a y a! ! e a l to t3 e Co5rt of Tax A!! e a l s wit3i n t3irty <$ # = day s fro m re4 e i ! t of t3 e ad v e r s e d e 4i s i o n . De4i d e t3 e 4a s e . ANS2-.& The petition should be dis mis s e d for having be e n filed out of time. ec. <<C, -I%) of :CCD provid e s that court action for the recov e r y of intern al reve n u e tax should be filed within two =<; years from the dat e such tax was paid. The petition should hav e bee n filed no later than Gune :O, :CCK. There was as yet no decision of the )om mis sion e r to be app e al e d but this cont e n tio n is bereft of merit, as it would leav e the taxp a y e r at the merc y of the $I% )om mis sion e r without any positive and exp e di e n t relief from the )ourt. It is dishe a r t e ni n g enou g h to a taxp a y e r to be kept waiting for an indefinite period for the ruling. It would mak e mat t e r s mor e exas p e r a ti n g for the taxp a y e r if the doors of ,ustice would be close d for such a relief until after the )om mis sion e r , would hav e, at his pers o n al conv e ni e n c e , given his go signal. 78 . P3ili! ! i n e Ban) of Com m 5 n i 4 a t i o n s file d its ?5 ar t e rl y in4 o m e tax ret 5r n s for t3 e firs t an d s e 4 o n d ?5 ar t e r s of *F + 8 ' re! or ti n g !rofit s an d !aid t3 e tot a l in4o m e tax of P8 millio n . T3e tax e s d5 e w er e s e t t l e d %y a! !l y i n g t3 e Ban) s tax 4re d i t m e m o s ' an d a44 o r d i n g l y ' t3 e B/. is s 5 e d t3 e a! !r o ! ri a t e Tax De% i t Dem o s . S5 % s e ? 5 e n t l y ' t3 e Ban) s5ff e r e d los s e s s o t3 a t w 3 e n it file d its Ann 5 a l /n4o m e Tax .et 5 r n s for t3 e y e ar> en d e d De4 e m % e r $*' *F + 8 ' it d e 4l ar e d a n e t los s of P" 8 millio n ' t3 er e % y s3 o w i n g no tax lia%ilit y . 0or t3 e s5 4 4 e e d i n g ye ar ' en d i n g De4 e m % e r $* ' *F + 9 ' it li)e w i s e re! or t e d a n e t los s of P* 7 millio n an d t3 5 s d e 4l a r e d no in4 o m e tax !ay a % l e for t3 e ye a r . D5rin g *F + 8 an d *F + 9 ' t3 e Ban) ear n e d ren t a l in4 o m e from lea s e d !ro ! e r t i e s from w 3 e r e t3 e le s s e e s wit3 3 e l d an d rem i t t e d to t3 e B/. wit3 3 o l d i n g 4re d i t a % l e tax e s of P" + " t3 o 5 s a n d for *F + 8 ' an d P" $ 7 t3 o 5 s a n d for *F + 9 . n A5g 5 s t :' *F + : ' t3 e Ban) re? 5 e s t e d t3 e Com m i s s i o n e r of /nt er n a l .ev e n 5 e ' am o n g ot3 e r s for a tax 4re d i t of P8 millio n re!r e s e n t i n g t3 e ov e r ! a y m e n t of tax e s in t3 e firs t an d s e 4 o n d ?5 ar t e r s of *F + 8 . T3er e a f t e r ' on E5ly "8 ' *F + + ' t3 e Ban) file d a 4lai m for ref 5 n d of 4re d i t a % l e tax e s wit3 3 e l d %y its le s s e e s fro m !ro! e r t y ren t a l s in *F + 8 an d in *F + 9 . Bot 3 t3 e re? 5 e s t an d t3 e 4lai m w er e s e a s o n a % l y file d wit3i n t3 e te n <* # = y e ar ! eri o d for filin g 4lai m s of ex4 e s s ?5 ar t e rl y in4o m e tax !ay m e n t s as !rovi d e d for in .DC :> +8 is s 5 e d %y t3 e t3 e n A4t g . B/. Com m i s s i o n e r .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $$ of +$ n Nov e m % e r *+ ' *F + + t3 e Ban) ins ti t 5 t e d a Peti ti o n for .evi e w % ef o r e t3 e Co5rt of Tax A!! e a l s . 2o5ld t3 e ! e ti ti o n !ro s ! e r 6 ANS2-. : -o. It was filed out of time and since the taxp a y e r decid e d to avail of the tax credit it could not anym o r e seek a refund. The two =<; year prescriptiv e period should be comp u t e d from the time of filing the Ad,ust m e n t %eturn and final paym e n t of the tax for the year. The claim for refund should be exercis e d within the time fixed by law. %*A !-: The $ure a u of Intern al %even u e being an ad ministr a tiv e body enforc e d to collect taxe s , its function s should not be unduly delaye d or ha m p e r e d by incide n t al ma t t e r s . = Ibid. ; The issua n c e of %.) D8 KJ chan gin g the stat u t o r y prescriptive period of two =<; years to ten =:F; year s on claims of exce s s "uart e rly inco m e tax paym e n t s did not mer ely interpr e t the law, rath e r it legislat e d guideline s contr ar y to the stat u t e pas s e d by )ongr e s s . %even u e .emor a n d u m )irculars are consid er e d ad minis tr a tiv e rulings =in the sens e of mor e specific and less gen e r al interpr e t a ti o n s of tax laws; which are issue d from time to time by the )om mis sion e r of Intern al %even u e . It is widely acce p t e d that the interpr e t a ti o n place d upon a stat u t e by the exec u tiv e officers, whos e duty it is to enforc e it, is entitle d to gre a t res p e c t by the courts. -evert h el e s s , such interpr e t a ti o n is not conclusiv e and will be ignore d if ,udicially found to be erron e o u s . %ules and regula tio n s issu e d by ad minis tr a tiv e officials to imple m e n t a law canno t go beyo n d the ter m s and provisions of the latter. #urth er, fund a m e n t a l is the rule that the tat e canno t be put in esto p p el by the mist ak e s or errors of its officials or age n t s . = supra ; #inally, ec. OC of the :CDD -I%) =now ec. DO of the :CCD -I%); provid e s that any exce s s of the total "uart e rly paym e n t s over the actu al inco m e tax comp u t e d in the ad,us t m e n t or final corpor a t e inco m e tax return, shall eith er =a; be refund e d to the corpor a tio n, or =b; ma y be credit e d agains t the estim a t e d "uart e rly incom e tax liabilities for the "uart e r s of the succ e e di n g tax a bl e year. To eas e the ad ministr a tio n of tax collection, thes e re m e di e s are in the altern a tiv e and the choice of one preclud e s the oth er. ince the $ank has chos e n the tax credit appro a c h it canno t anym o r e avail of the tax refund.. = supra ; 79 . n E5ly *+' *F + 9 ' t3 e B/. is s 5 e d to Sal5 d H. GiCo n a d efi 4i e n 4 y in4 o m e tax as s e s s m e n t . Sin 4 e t3 e as s e s s m e n t w a s not 4o n t e s t e d ' t3 e B/. on Ean5 ar y *"' *F + F ' s er v e d w arra n t s of dis tr a i n t an d lev y to 4oll e 4 t t3 e tax d efi 4i e n 4 y . 0or 5n) n o w n rea s o n s ' t3 e B/. did not !ro4 e e d to dis ! o s e of t3 e att a 4 3 e d !ro! e r t i e s . n Nov e m % e r $' *F F " ' Sal5 d wro t e t3 e B/. re? 5 e s t i n g a re4 o n s i d e r a t i o n of 3 er tax d efi 4i e n 4 y as s e s s m e n t . T3e B/.' in a let t e r dat e d A5g 5 s t ** ' *F F 7 ' d e n i e d . n Ean5 ar y *' *F F : ' t3 e B/. file d wit3 t3 e .TC a 4a s e to 4oll e 4 t t3 e tax d efi 4i e n 4 y . T3e 4o m ! l a i n t w a s si g n e d %y t3 e C3ief of t3 e Leg a l Divis i o n of t3 e .e gi o n an d verifi e d %y t3 e .e gi o n a l Dire 4 t o r . Sal5 d no w s e e ) s t3 e dis m i s s a l of t3 e 4a s e on t3 e follo w i n g gro 5 n d s &

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $7 of +$ a. T3e 4o m ! l a i n t w a s not file d 5! o n a5 t 3 o ri t y of t3 e B/. Com m i s s i o n e r as re? 5 ir e d 5n d e r S e 4 t i o n "" # of t3 e Tax Cod e I %. T3e a4ti o n 3a s alr e a d y !re s 4 ri % e d . .es o l v e t3 e is s 5 e s rais e d . ANS2-.S : a. %even u e Administr a tiv e !rder -o. :F8 CJ specifically aut h ori+e s the (itigation and &ros ec u tion ection of the (egal /ivision of the region al district offices to institut e the nec e s s a r y civil and crimin al actions for tax collection. As the complain t filed in this cas e was sign e d by the $I%s )hief of (egal /ivision for the region and verified by the %egion al /irector, ther e was, ther efor e , complia nc e with the law. ec. D of the pres e n t Tax )ode auth ori+e s the $I% )ommis sio n e r to deleg a t e som e of his pow ers . b . ec. <<K of the -I%) of :CCD ma n d a t e s that a re"u e s t for reconsid e r a ti o n mus t be ma d e within >F days from the taxp a y e rs receipt of the tax deficienc y ass e s s m e n t , otherwis e the ass e s s m e n t beco m e s final, una p p e a l a bl e and, ther efor e de m a n d a b l e . The notice was receive d by alud on Guly :K, :CKO and she ma d e her re"u e s t for recon sid e r a tio n ther e of only on -ove m b e r >, :CC<. *ven ass u mi n g that she first learn e d of the notice on the day the warra n t s were serv e d on Ganuary :<, :CKC, her re"u e s t for reconsid e r a ti o n was still filed beyo n d the >F day period. 2ence, her re"u e s t for recon sid e r a ti o n did not sus p e n d the running of the pres criptive period. Althoug h the )ommis sio n e r act e d on aluds re"u e s t , eve n t u ally denying it on Augus t ::, :CC?, this is of no mo m e n t and does not detr a c t from the fact that the ass e s s m e n t had long beco m e de m a n d a b l e . =%epu blic of the &hilippin e s, etc. v. 2i+on, 0.%.
-o. :>F?, prom . /ece m b e r :>, :CC C;

79A. 23a t is t3 e eff e 4 t of s er vi 4 e of w arra n t of dis tr a i n t or lev y . ANS2-.& The timely service of a warra n t of distraint or levy susp e n d s the running of the period to collect the tax deficiency in the sens e that the disposition of the att a c h e d prop e r ti e s might well take time to acco m plis h, ext e n di n g eve n after the laps e of the stat u t o r y period for collections . In thos e cas e s , the $I% did not file any collection cas e but mer ely relied on the sum m a r y rem e d y of distr aint and levy to collect the tax deficiency. Thus, the enforc e m e n t of tax collection throu g h sum m a r y proce e di n g s may be carrie d out beyo n d the stat u t o r y period. The stat u t o r y period for collection applies only wher e a court suit is availed of for collection. 79B. 23a t is t3 e form an d m o d e of !ro 4 e e d i n g in a4ti o n s arisi n g 5n d e r t3 e Tax Cod e 6 ANS2-.& 6)ivil and crimin al actions and proce e di n g s institut e d in beh alf of the 0overn m e n t und e r the aut hority of this )ode or other law enforc e d by the $ure a u of Intern al %eve n u e shall be broug h t in the na m e of the 0overn m e n t of the &hilippine s and shall be conduc t e d by legal officers of the $ure a u of Intern al %even u e but no civil or crimin al action for the recov er y of taxe s or the enforc e m e n t of any fine, pen alt y or forfeitur e und e r this )ode shall be filed in court withou t the approv al of the )om mis sion e r .I = ec. <<F, -I%) of :CCD;

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $8 of +$ 7: . Aft er dis s o l 5 t i o n of Para m o 5 n t on Dar4 3 $* ' *F + 9 ' BP/ a4t e d as li?5id a t o r . n Day $#' *F + 8 Para m o 5 n t !aid P$ # + ' : : F . # # in in4 o m e tax e s for t3 e * st ?5 ar t e rI for t3 e " nd ?5 ar t e r ' it !aid P9 " 9 ' # # # . # # on A5g 5 s t "F ' *F + 8 I for t3 e $ rd ?5 ar t e r ' it !aid P" + 7 ' * 9 * . # # on Nov e m % e r "F' *F + 8 . n A!ril "' *F + 9 ' Para m o 5 n t file d its 4or! or a t e an n 5 a l in4 o m e tax ret 5r n for t3 e 4al e n d a r ye a r en d i n g De 4 e m % e r $* ' *F + 8 . All in all' Para m o 5 n t !aid t3 e tot a l am o 5 n t of P*' " * + ' F 7 # . # # t3 er e % y s3 o w i n g a ref 5 n d a % l e am o 5 n t of P9 8 ' " 8 F . # # . n A!ril *7 ' *F + + ' BP/' as li?5id a t o r of Para m o 5 n t ' file d wit3 t3 e Co5rt of Tax A!! e a l s a let t e r dat e d A!ril *" ' *F + + reit e r a t i n g its 4lai m for t3 e ref 5 n d of P9 8 ' " 8 F . # # as ov e r ! a i d in4 o m e tax for 4al e n d a r y e ar *F + 8 . n A!ril *8' *F + + ' t3 e Para m o 5 n t re!r e s e n t a t i v e ' file d wit3 t3 e Co5rt of Tax A!! e a l s a ! e ti ti o n to toll t3 e r5n ni n g of t3 e !re s 4 ri ! t i v e ! eri o d for filin g a 4lai m for ref 5 n d of ov er ! a i d in4o m e tax e s . T3e Co5rt of Tax A!! e a l s r5le d t3 a t t3 e tw o> y e ar !re s 4 ri ! t i v e ! eri o d 4o m m e n 4 e d to r5n from A!ril *8' *F + 9 ' t3 e las t day for filin g t3 e 4or! or a t e in4o m e tax ret 5 r n an d gra n t e d t3 e ref 5 n d . 2as t3 e gra n t of t3 e ref 5 n d !ro! e r 6 ANS2-.& -o. The two8 year prescriptiv e period for actions for refund of corpor a t e inco m e tax should be comp u t e d from the time of actu al filing of the #inal Ad,ust m e n t %eturn or Annual Incom e Tax %eturn. %*A !-: At That point, it can alre a d y be det e r mi n e d whet h e r ther e has be e n an overp a y m e n t ma d e by the taxp a y e r . .oreov e r, paym e n t is ma d e at the time the retur n is filed. ince &ara m o u n t filed its corpor a t e ann u al inco m e tax return on April <, :CKO, it had only two8 year s from dat e within which to file its writte n claim for refund. @hen it filed a writte n claim for refund on April :?, :CKK, and a petition for refun d only on April :J, :CKK, both claim and action for refund were thus barr e d by prescription.
=)om mi s sio n e r of Intern al %eve n u e v. )ourt of Appe al s, et al., 0.%. -o. ::D< J ? , Ganuary <:, :CCC;

-!T* A-/ )!..*-T : #or corpor a tion s , the two year pres criptive period und er ec. <>F =now ec. <<C, -I%) of :CCD;, for instituting tax refund cas e s in court com m e n c e to run only from the time the refund is asc e r t ai n e d , which can only be det e r mi n e d after a final ad,ust m e n t retur n is acco m plis h e d . Two ye ar s not ,urisdiction al and ma y be sus p e n d e d . = )ommi s sion e r of Intern al %even u e v. The &hilippine (ife Insur a n c e )o.,et al. 0.%. -o. :FJ<F K, .ay <C, :CCJ reiter a tin g the T.4 cas e;. The two year period applies only to recove r y of taxe s or pen altie s -!T to tax credits availme n t . Absent a specific provision in the Tax )ode or special laws, the period would be :F year s . <E5sti 4 e Hit5 g ' 4on 4 5 rri n g in t3 e a% o v e 4a s e = A simult a n e o u s filing of the application with the $I% for refundTcr e dit and the institution of the court suit with the )TA is allowe d. -o nee d to wait for a $I% denial. %*A !- : a. The positive re"uire m e n t of ection <>F -I%) =now ec. <<C, -I%) of :CCD;9 b. The doctrine that delay of the )ommi s sion e r in rend e ring decision doe s not exte n d the per e m p t o r y period fixed by the stat ut e 9 c. The law fixed the sa m e period two year s for filing a claim for refund with the )ommi s sion e r und er ec. <F?, par. >, -I%) =now ec. <F? R)S, -I%) of :CCD;, and for filing suit in court unde r ec. <>F, -I%) =now ec. <<C, -I%) of :CCD;, unlike in prot e s t s of ass e s s m e n t s unde r ec. <<C =now ec.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $9 of +$
<<K, -I%) of :CCD;, which fixed the period =thirty days from receipt of decision; for app e aling to the court, thus clearly implying that the prior decision of the )ommi s sion e r is nec e s s a r y to take cogni+a n c e of the cas e . If the prot e s t is denie d in whole or in part or n the inst a n c e wher e the )ommi s sion e r of Intern al %eve nu e does not act within one hundr e d eight y =:KF; days from sub mi s sion of docu m e n t s , the taxp a ye r adver s ely affect e d ma y app e al to the )ourt of Tax Appe als within thirty =>F; days from rec eipt of the said decision, or from the laps e of the one hundr e d eighty =:KF; days, otherwis e the decision shall beco m e final, exec ut or y and de ma n d a b l e . =last par., ec. <<K, -I%) of :CCD;

7+ . P3ili! ! i n e Gom e As s 5 r a n 4 e Cor! or a t i o n !aid do 4 5 m e n t a r y st a m ! tax e s on 4er t a i n no n > life ins 5r a n 4 e !oli4i e s it is s 5 e d . Gow e v e r ' t3 e !re m i 5 m s w er e not !aid . T3e 4o m ! a n y on %a s i s t3 e !ro vi s i o n s of S e 4 t i o n :: of t3 e /ns 5r a n 4 e Cod e to t3 e eff e 4 t t3 a t ' @N o t w i t 3 s t a n d i n g an y agr e e m e n t to t3 e 4on tr a r y ' no !oli4 y or 4o n tr a 4 t of in s 5 r a n 4 e is s 5 e d %y an ins 5r a n 4 e 4o m ! a n y is valid an d %in di n g 5nl e s s an d 5n til t3 e !re m i 5 m t3 er e o f 3a s % e e n !aid xxx' A no w 4lai m s for a ref 5 n d of t3 e do4 5 m e n t a r y st a m ! s it !aid % e 4 a 5 s e t3 e !oli4i e s n e v e r % e 4 a m e eff e 4 t i v e . S3 o 5 l d t3 e ref 5 n d % e gra n t e d 6 Alter n a t i v e l y ' 4o5l d t3 e r e % e a ref 5 n d of do4 5 m e n t a r y st a m ! tax !ay m e n t s 6 ANS2-.& -o. /ocu m e n t a r y sta m p tax e s are levied upon the privileg e, opport u nity, or facility to exec u t e cert ain instru m e n t s irres p e c tiv e of whet h e r the contr a c t s are subs e " u e n t l y declar e d to be rescissible, void, voida bl e or une nforc e a bl e . The docu m e n t a r y sta m p tax e s are impos e d on the mer e issua n c e of the policies eve n if thes e policies subs e " u e n tl y are consid er e d as not valid or binding und e r the law. =&hilippin e 2om e
Assur a n c e )orpor a tio n, et al., v. )ourt of Appe al s, et al., 0.%. -o. ::C? ? O , pro m. Ganuary <:, :CCC;

7F . S3 o 5 l d int e r e s t % e !aid w 3 e r e a tax is ref 5 n d e d %y t3 e ,ov e r n m e n t to a tax ! a y e r 6 ANS2-. : The rule is that no inter e s t on refund of tax can be aw ard e d unles s aut hori+ e d by law or the collection of the tax was att e n d e d by arbitr arin e s s . An action is not arbitr ar y when exercis e d hon e s tly and upon due consid er a tio n wher e ther e is roo m for two opinions, how ev e r much it may be believ e d that an erron e o u s conclusion was reac h e d . Arbitrarin e s s pres u p p o s e s inexcus a bl e or obstin a t e disreg a r d of legal provisions. =&hilex .ining )orpor atio n v. )om mis si on e r of Intern al %even u e , et
al., 0.%. -o. :<F> < ? , pro m. April <:, :CCC;

8# . 23a t is t3 e nat 5 r e of a tax am n e s t y 6 ANS2-. : A tax amn e s t y is a gen e r al pardo n to taxp a y e r s who want to start a clean slat e. It also gives the gover n m e n t a chanc e to collect uncollect e d tax from tax eva d e r s without having to go throu g h the tediou s proc e s s of a tax cas e. To avail of a tax amn e s t y gran t e d by the gover n m e n t , and to be immu n e from suit on its delin"u e n ci e s , the taxp a y e r mus t hav e volunt a rily disclos e d his previously unt ax e d inco m e and mus t hav e paid the corre s p o n di n g tax on such previously unta x e d inco m e .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $: of +$ A tax amn e s t y, much like a tax exe m p tio n, is nev er favore d nor pres u m e d in law and if gran t e d by stat u t e , the ter m s of the amn e s t y like that of a tax exe m p ti o n mus t be cons tr u e d strictly ag ain s t the taxp a y e r and liberally in favor of the taxing auth ority. =$an a s, Gr. v. )ourt
of Appe al s, et al., 0.%. -o. :F< C O D , prom . #ebru a r y :F, <FF F; NAT/ NAL /NT-.NAL .-H-NU- C DTG- BU.-AU 0 /NT-.NAL .-H-NU-

8* . An int e r n a l rev e n 5 e offi4 e r ' 3avi n g % e e n relia % l y infor m e d %y an 5ni m ! e a 4 3 a % l e s o 5 r 4 e ' t3 a t 4ig a r s ' (ew e lri e s ' li?5 or an d ot3 e r arti4l e s s5 %( e 4 t to ex4i s e tax e s ar e )e ! t in t3 e 3o 5 s e of Dr. Tom a s ' en t e r e d said 3o 5 s e ' s ei C e d t3 e arti4l e s an d arr e s t e d Dr. Tom a s on t3 e str e n g t 3 of a w arr a n t sig n e d %y t3 e Com m i s s i o n e r of /nt er n a l .ev e n 5 e . a. Dr. Tom a s d e n o 5 n 4 e d t3 e s e a r 4 3 ' s ei C 5 r e an d 3is arr e s t as viola t i v e of t3 e 4o n s t i t 5 t i o n % e 4 a 5 s e it w a s eff e 4 t e d wit3 o 5 t a s e a r 4 3 w arra n t an d w arra n t of arr e s t is s 5 e d %y t3 e a! !r o ! ri a t e 4o 5rt . Und e r t3 e 4ir45 m s t a n 4 e s ' is t3 e a4t 5 a t i o n of t3 e int er n a l rev e n 5 e offi4 e r s a n 4 t i o n e d %y law 6 23y6 %. 2o5l d yo5r an s w e r % e t3 e sa m e if t3 e s e a r 4 3 ' s ei C 5 r e an d arr e s t w a s eff e 4 t e d %y 45 s t o m s offi4 e r s %y virt5 e of a w arra n t of s ei C 5 r e an d d e t e n t i o n sig n e d %y t3 e 4oll e 4 t o r of 45 s t o m s 6 -x!lai n . ANS2-. : a. 3es. Any intern al reve n u e officer in the disch ar g e of his official duties ma y ent e r any hous e, building or plac e wher e articles sub,ect to excis e taxe s are produc e d or kept, or are believ e d by him upon rea s o n a bl e grou n d s to be produc e d or kept so far as ma y be nec e s s a r y to exa mi n e , discov e r or sei+e the sa m e . =:st par., ec. :D:, -I%) of :CCD; Intern al reve n u e officers shall hav e aut h ority to mak e arre s t s and sei+ur e s for violation of any pen al law or regula tion ad minist e r e d by the $ure a u of Intern al %even u e . Any pers o n so arre s t e d shall forthwith be brou g h t befor e a court, ther e to be de alt with accordin g to law. = ec. :>, -I%) of :CCD; -o searc h warra n t or warra n t of arres t is re"uire d und er the doctrin e of primar y ,urisdiction which posits that in tech nic al mat t e r s wher e the ad minis tr a tiv e bodies hav e obt ain e d exp er tis e, the courts will defer. This is likewis e pre mis e d on the lifeblood theor y which ma n d a t e s the imme di a t e collection of tax e s to ens ur e the continu e d exist e n c e of the tat e. b. .y answ e r would be differe n t bec a u s e custo m s auth orities may searc h a dwelling plac e only upon a warra n t issu e d by a Gudge of the appro p ri a t e court upon sworn application showing prob a bl e caus e and particularly describing the plac e to be searc h e d and pers o n or thing to be sei+ed. = ec. <<FK, <<FC, Tariff P )usto m s )ode;. The custo m s aut horitie s could det ain pers o n s only if they are coming to the &hilippine s from foreign countries = ec. <<:<, Ibid.; not in the abov e8 entitled proble m wher e they are alre a d y in the &hilippin e s . 8" . -x!lai n t3 e r5le m a)i n g !o w e r of B/.. /ll5s tr a t e . ANS2-. :

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $+ of +$ a. There are two kinds of rulings the $I% ma y issue 8 interpr e t a tiv e rulings and legislative rulings. Interpr e t a tiv e rules are design e d to provide guideline s to the law which the ad minis tr a tiv e ag e n c y is in charg e of enforcing. -o notice, hearin g or publication is re"uir e d, as they are issue d mer ely for the guida n c e of ad ministr a tiv e officers. Illustra tion: %eve n u e .emor a n d u m )ircular -o. ?D8 C: classifying copr a as an agricultur al non8 food ite m declaring it exe m p t from 1AT only if the sale is ma d e by the prima r y prod uc e r. (egislativ e rules are in the natur e of subordin a t e legislation, design e d to imple m e n t a prima r y legislation by providing the det ails ther e of. They are issu e d und e r the "ua si8 legislative aut hority of the $I% )ommis sio n e r. There is a re"uire m e n t for notice, he aring and publication. Illustra tion: %even u e .emor a n d u m )ircular -o. >D8 C> which plac e d 2ope (uxury, &remiu m .ore and )ha m pio n cigar e t t e s within the scop e of the am e n d a t o r y law %.A. -o. DOJ? and sub,ect e d the m to the incre a s e d tax rat e re"uire s notice, hearin g and publication.
=)om mi s sio n e r of Intern al %eve n u e v. )ourt of Appe al s, et al., <O: )%A <>O;

-!T* A-/ )!..*-T : The rulings and circular s promul g a t e d by the )ommi s sion e r do not have retro a c tive applica tion if the revoc a tion, modification, or rever s al would be pre,udicial to the taxp a ye r s . = ec. <?O, -I%) of :CCD9 )ommi s sion e r of Intern al %even u e v. )ourt of Appe als, et al., <OD )%A JJD; *xception s: Insta nc e s whe n reve n u e rulings and regul ations have retroa c tive effect eve n if pre,udicial to the taxp a ye r : a. @her e the taxp a ye r deliber a t el y miss t a t e s or omits ma t e ri al facts from his retur n or in any docu m e n t re"uire d of him by the $I%9 b. @here the facts subs e " u e n t l y gath e r e d by the $I% are ma t e ri ally differe nt from the facts on which the ruling is bas e d , or c. @her e the taxp a ye r act e d in bad faith. = ec. <?O, -I%) of :CCD;

8$ . /n w 3 a t ins t a n 4 e s m a y t3 e B5r e a 5 of /nt er n a l .ev e n 5 e s5 s ! e n d or te m ! o r a r il y 4lo s e t3 e %5 s i n e s s e s t a % l i s 3 m e n t of a tax ! a y e r 6 Gow lon g do e s t3 e s5 s ! e n s i o n las t 6 ANS2-. : The )om mis sio n e r or his auth ori+ e d repr e s e n t a t iv e is emp o w e r e d to sus p e n d the busin e s s oper a tio n s and te m p o r a rily clos e the busin e s s est a blis h m e n t of any pers o n for any of the following violations 7 a. In cas e of a 1AT8regist e r e d pers o n: :; #ailure to issue receipt s or invoices9 <; #ailure to file a 1AT return as re"uir e d und er the Tax )ode9 >; 'nders t a t e m e n t of taxa bl e sales or receipt s by >FH or mor e of his correct taxa bl e sales or receipt s for the taxa bl e "uart e r. b. #ailure to regist e r und er the 1AT provisions of the Tax )ode. The te m p o r a r y closur e of the est a blish m e n t shall for the duration of not less than five =J; days and shall be lifted only upon complianc e with what e v e r re"uire m e n t s prescrib e d by the )om mis sion e r in the closur e order. =Atlas )onsolid at e d .ining P /evelo p m e n t )orpor atio n v.
)om mi ssio n e r of Intern al %even u e , 0.%. -o. :>? ? O D , prom . -ove m b e r :D, :CC C;

87 . T3e Com m i s s i o n e r of /nt er n a l .ev e n 5 e is a5 t 3 o ri C e d 5n d e r t3 e Tax Cod e to d el e g a t e t3 e !o w e r s ve s t e d in 3im 5n d e r t3 e ! erti n e n t !ro vi s i o n s of t3 e Tax Cod e to an y

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e $F of +$ s5 % o r d i n a t e offi4i al wit3 t3 e ran) e? 5 i v a l e n t to a divi s i o n 43i e f or 3ig 3 e r . 23a t are t3 e ex4 e ! t i o n s to t3i s r5l e on d el e g a t i o n or alt er n a t i v e l y s! e a ) i n g ' w3at ar e t3 e !o w e r s of t3 e Com m i s s i o n e r t3 a t 3 e 4o 5l d not d el e g a t e 6 ANS2-. : The following are som e of the pow er s that he could not deleg a t e : a. The pow er to reco m m e n d the rules and regula tion s by the ecr e t a r y of #inanc e9 b. The pow er to issue rulings of first impre s sio n or to revers e , revok e, or modify any existing ruling of the $ure a u 9 c. The pow er to compro mi s e or ab a t e , any tax deficiency, &rovide d, how ev e r, that ass e s s m e n t s issu e d by the %egion al !ffices involving basic deficiency taxe s of &JFF,F F F . F F or less, and minor crimin al violation s as ma y be det e r mi n e d by rules and regula tion s to be pro m ulg a t e d by the ecre t a r y of #inanc e, upon the reco m m e n d a t i o n of the )om mis sion e r , discov er e d by region al and district officials, may be compr o mi s e d by a region al evalu a tio n board which shall be comp o s e d of the %egion al /irector as )hairm a n , the Assista n t %egion al /irector, hea d s of the (egal, Asses s m e n t and )ollection /ivisions and the %even u e /istrict !fficer having ,urisdiction over the taxp a y e r , as me m b e r s 9 and d. The pow er to assign or reas sig n intern al reve n u e officers to est a blis h m e n t s wher e articles sub,ect to excis e tax are produc e d or kept. = ec. D, -I%) of :CC D cited in %epu blic of the &hilippin e s, etc. v. 2i+on, 0.%.
-o. :>F? > F , pro m. /ece m b e r :>, :CCC; /NC D- TA1AT/ N

88 .

Defi n e in4 o m e in in4 o m e tax law .

ANS2-.& 6An amo u n t of mon e y coming to a pers o n within a specified time, whet h e r as paym e n t for service s, inter e s t , or profit from inves t m e n t . 7 It me a n s cash or its e"uivale n t. It is gain derive d and sev er e d from capit al, from labor or from both combin e d . #or exa m pl e, to tax a stock dividen d would be to tax a capit al incre a s e rath e r tha n the incom e . 88A. /n4o m e dis ti n g 5 i s 3 e d from 4a !i t a l .

ANS2-.& a. )apital is wealth or fund, @2I(* inco m e is profit or gain from the flow of wealth. )apital is a fund of prop er t y existing at an insta n t of time @2I(* inco m e is that flow of service s rend e r e d by that capit al by the paym e n t of mon e y from it or any oth er ben efit rend e r e d by a fund of capit al in relation to such fund throu g h a period of time. b. )apital is wealth @2I(* inco m e is the service of wealth9 and c. )apital is the tre e @2I(* inco m e is the fruit. %eali+ation is det e r mi n a tiv e of earning proc e s s res ulting to inco m e . @ithout reali+ation, ther e is no incom e . The det e r mi nin g factor for the imposition of incom e tax is whet h e r any gain or profit was derive d from the trans a c tio n. In the met a p h o r of *isner v. .aco mb e r , <J< '. . ?<O, incom e is not de e m e d 6reali+ed7 until the fruit has fallen

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7# of +$ 89 . 23a t ar e t3 e g e n e r a l !rin 4i ! l e s of in4o m e tax a t i o n in t3 e P3ili! ! i n e s 6 ANS2-.& a. A citi+en of the &hilippine s residing ther ein is taxa bl e on all inco m e derive d from sourc e s within and withou t the &hilippin e s . b. A nonr e sid e n t citi+en is tax a bl e only on incom e derive d from sourc e s within the &hilippine s . c. An individu al citi+en of the &hilippin e s who is working and deriving inco m e from abro a d as an overs e a s contr a c t worker is taxa bl e only on inco m e from sourc e s within the &hilippin e s , Provide d, That a sea m a n who is a citi+en of the &hilippin e s and who receiv e s comp e n s a t i o n for service s rend e r e d abro a d as a me m b e r of the comple m e n t of a vess el eng a g e d exclusiv ely in intern a tio n al trad e shall be tre a t e d as an overs e a s cont a c t worker. d. An alien individu al, whet h e r a reside n t or not of the &hilippin e s , is tax a bl e only on incom e derive d from sourc e s within the &hilippin e s . e. A dom e s tic corpor a tio n is tax a bl e on all incom e derive d from sourc e s within and withou t the &hilippin e s . f. A foreign corpor a tio n, whet h e r eng a g e d or not in trad e or busin e s s in the &hilippin e s , is tax a bl e only on inco m e derive d from sourc e s within the &hilippine s . = ec. <>, -I%) of :CCD; 8: . Are st o 4 ) divid e n d s s5 %( e 4 t to in4 o m e tax a t i o n 6 ANS2-. : tock dividen d s are unre ali+e d gain and cann o t be sub,ect to inco m e tax until the gains hav e bee n reali+e d. tock divide n d s repr e s e n t capit al and do not constitu t e incom e to its recipie n t. The mer e issu a n c e ther e of is not sub,ect to incom e tax as they are nothing but an 6enrich m e n t throu g h incre a s e in value of capit al inves t m e n t . 7 As capital, stock divide n d s post p o n e the reali+ation of profits bec a u s e the 6fund repr e s e n t e d by the new stock has be e n tran sf e rr e d from surplus to capital and no longer available for actu al distribu tion.7 $efore reali+ation, stock divide n d s are nothing but a repr e s e n t a t i o n of an inter e s t in the corpor a t e prop er ti e s . As capital, it is not yet sub,ect to incom e tax. 8+ . 23a t is m e a n t %y red e m ! t i o n of s3 ar e s of st o 4 ) 6 ANS2-. : %ede m p tio n is repurc h a s e , a reac " uisition of stock by a corpor a tio n which issue d the stock in exch a n g e for prop er t y, whet h e r or not the ac"uir e d stock is canc elled, retire d or held in tre a s u r y. *sse n tially, the corpor a tio n gets back som e of its stock, distribut e s cash or prop er t y to the shar e h ol d e r in paym e n t for the stock, and continu e s in busin e s s as befor e. The red e m p ti o n of stock divide n d s previou sly issu e d is used as a veil for the constru c tiv e distribution of cash divide n d s . 8+A. Dis 4 5 s s t3 e tax a % ilit y 4or! o r a t i o n of s3 ar e s of st o 4 ) . of red e m ! t i o n %y is s 5 i n g

ANS2-.& It is sugg e s t e d that the $ar review e e ignore s the conc e p t s of taxa bility of red e m p tio n of shar e s is stock by the issuing corpor a tio n as discus s e d in )ommi s sion e r of Intern al %even u e v. )ourt of Appe als, et al., 0.%. -o. :FKJD O, Ganuar y <F, :CCC =the A- )!% cas e;,

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7* of +$ wher e the pres e n t provisions of the Tax )ode on trans a c tio n tax R ec. :<D =A;, -I%) of :CCDS, and capit al gains tax find application. The only conc e p t s that should be retain e d is the definition of red e m p ti o n , and the applicability of the A- )!% cas e conce p t of red e m p ti o n wher e the shar e s of stock that are red e e m e d are ordinar y ass e t s . The tax tre a t m e n t of red e m p tio n of shar e s of stock, und er the pres e n t provisions of the Tax )ode shall be discus s e d below. Tax tre a t m e n t of red e m ! t i o n %y is s 5 i n g 4or! or a t i o n of s3 ar e s of st o 4 ) 5n d e r t3 e !re s e n t !rovi s i o n s of t3 e Tax Cod e ' not 5n d e r t3 e form e r !rovi s i o n s of t3 e Tax Cod e as int er ! r e t e d in t3 e ANSC . 4a s e . The tax tre a t m e n t would be dep e n d e n t upon the following factors: a. The natur e of the shar e s of stock being dispos e d of, whet h e r the shar e s are capital ass e t s or ordinar y ass e t s 9 b. @heth e r or not the shar e s of stock are listed and trad e d and listed in the stock exch a n g e . Taxa % ilit y of s al e s ' %art e r or ex 4 3 a n g e of s3 ar e s of st o 4 ) s & a. har e s of stock are 4a!i t a l as s e t s an d not list e d an d trad e d in t3 e st o 4 ) ex4 3 a n g e . @her e the shar e s of stock are capit al ass e t s bec a u s e the seller is not eng a g e d in the busin e s s of buying and selling shar e s of stock =a dealer in securitie s;, and not listed and trad e d in the stock exch a n g e , the sale is sub,ect to a JH tax on net capital gain not over &:FF,F F F . F F while the net capit al gain over &:FF,F F F . F F is sub,ect to a tax of :FH. -ote that the holding period is not applied. The capit al gains tax is an inco m e tax beca u s e the tax falls und e r title II of the Tax )ode, entitle d, 6Inco m e Tax7 b. har e s of stock w 3 e t 3 e r 4a !i t a l or ordin a r y as s e t s %5 t ar e list e d an d trad e d in the stock exch a n g e are sub,ect to the trans a c tio n tax of U of :H of the gross selling or tran s a c tio n price. The holding period is not applied and the trans a c tio n tax is in lieu of all inco m e taxe s that may be collect e d. c. har e s of stock ordin ar y as s e t s %5t not list e d an d trad e d in t3 e st o 4 ) ex 4 3 a n g e . If the shar e s of stock are ordin ary ass e t s bec a u s e the seller is eng a g e d in the busin e s s of buying and selling shar e s of stock =de aler in securities;, the trans a c tio n shall be sub,ect to inclusion in the inco m e tax return dep e n di n g on cert ain circu m s t a n c e s . ee discus sio n on tax tre a t m e n t of red e m p ti o n of shar e s of sock wher e the shar e s that are red e e m e d are ordin ary ass e t s and not listed and trad e d in the stock exch a n g e . Tax tre a t m e n t of red e m ! t i o n of s3 ar e s of st o 4 ) w 3 e r e t3 e s3 ar e s t3 a t are red e e m e d ar e ordin ar y as s e t s an d not list e d an d tra d e d in t3 e st o 4 ) ex4 3 a n g e . @heth e r the tran s a c tio n is to be sub,ect to incom e taxa tion or not would be dep e n d e n t upon the nat ur e and char a c t e r of the shar e s of stock that are the sub,ect of red e m p tio n . If the sourc e is the original capit al subs cription s upon the est a blis h m e n t of the corpor a tio n or from initial capit al inves t m e n t in an existing ent er p ris e , the red e m p tio n to the concurr e n t value of ac"uisition is not sub,ect to inco m e tax a tio n, as it is not inco m e but a mer e retur n of capital.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7" of +$ !n the contr a r y, if the red e e m e d shar e s are from stock divide n d declar a tio n s other than as initial capit al inves t m e n t , the proce e d s of the red e m p tio n is addition al wealth, for it is not mer ely a return of capit al but a gain ther efro m . The test for tax a bility ther efor, as would mak e the red e m p tio n 6ess e n ti ally e"uivale n t to the distribution of a taxa bl e divide n d ,7 is whet h e r the red e m p ti o n res ult e d into a flow of wealth. If no wealth is reali+ed from the red e m p tio n , ther e may not be a divide n d e"uivale n c e tre a t m e n t . =)om mi s sio n e r of Intern al %eve n u e v. )ourt
of Appe al s, et al., 0.%. -o. :FK J D O , Ganuary <F, :CCC;

8F . 23a t are im !r o ! e r l y a44 5 m 5 l a t e d e ar n i n g s 6 ANS2-. : Thes e are the earnin g s or profits of a corpor a tio n which are per mit t e d to accu m ul a t e inste a d of being divide d by a corpor a tio n to its shar e h ol d e r s for the purpo s e of avoiding the incom e tax with resp e c t to its shar e h ol d e r s or the shar e h ol d e r s of anot h e r corpor a tio n. If the incom e were divide d and distribut e d , they would hav e bee n taxe d as divide n d s . 8FA. 23a t is t3 e im!ro ! e r l y a44 5 m 5 l a t e d ear n i n g s tax6 ANS2-.& In addition to oth er incom e tax e s , ther e is impos e d for each taxa bl e year on the improp e rly accu m ul a t e d taxa bl e inco m e of each corpor a tion, an improp e rly accu m ul a t e d earnin g s tax e"u al to ten perc e n t of the improp e rly accu m ul a t e d tax a bl e incom e . R ec. <C =A;, -I%) of :CCDS 8FB. 23o e ar n i n g s tax6 ar e lia%l e for t3 e im !r o ! e r l y a44 5 m 5 l a t e d

ANS2-.& *very corpor a tio n forme d or availed for the purpos e of avoiding inco m e tax with resp e c t to its shar e h ol d e r s or the shar e h old e r s of anot h e r corpor a tion, by per mittin g earnin g s and profits to accu m ul a t e inste a d of being divided or distribut e d . R ec. <C =$; =:;, -I%) of :CCDS 8FC. 23a t 4or! or a t i o n s ex e m ! t from t3 e im!ro ! e r l y a44 5 m 5 l a t e d e ar n i n g s tax6 ANS2-.& :; &ublicly8 held corpor a tio n s 9 <; $anks and oth er nonb a n k financial inter m e di a ri e s 9 and >; Insur a n c e comp a ni e s . R ec. <C =$; =<;, -I%) of :CCDS 8F D . 23a t evi d e n 4 e ar e av oi d tax 5! o n s3 ar e 3 o l d e r s 6 det er m in a tiv e of !5r! o s e to

ANS2-.& The fact that the earnin g s or profits of a corpor a tio n are per mitt e d to accu m ul a t e d beyo n d the reas o n a bl e ne e d s of the busin e s s shall be det er mi n a tiv e of the purpos e to avoid the tax upon its shar e h old e r s or me m b e r s unles s the corpor a tio n, by clear prep o n d e r a n c e of evide n c e , shall prove the contr ar y. R ec. <C =); =<;, -I%) of :CCDS %eas o n a bl e nee d s of busin e s s includ e s the rea s o n a bl y anticip a t e d nee d s of the busin e s s . R ec. <C =*;, -I%) of :CCDS

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7$ of +$ In order to det er mi n e whet h e r profits are accu m ul a t e d for the reas o n a bl e nee d s of the busin e s s to avoid the surt ax upon shar e h old e r s , it mus t be shown that the controlling inten tio n of the taxp a y e r is ma nife s t e d at the time of the accu m ul a tio n, not inten tio n s declar e d subs e " u e n t l y, which are mer e aftert h o u g h t s . #urth er m o r e , the accu m ul a t e d profits mus t be used within a reas o n a bl e time after the close of the tax a bl e year. =)yan a m i d
&hilippin e s, Inc. v. )ourt of Appe al s, et al., 0.%. -o. :FK F O D , prom . Ganuary <F, <FF F;

8F-. ,iv e t3 e te s t s to d e t e r m i n e (5s tifi e d a4 4 5 m 5 l a t i o n not s5 %( e 4 t to tax6 ANS2-.& :; /mm e d i a 4 y Tes t . 6%eas o n a bl e ne e d s of the busin e s s 7 me a n s the imm e di a t e ne e d s of the busin e s s , and it was gen e r ally held that if the corpor a tio n did not prov e an imm e di a t e ne e d for the accu m ul a tio n of the earning s and profits, the accu m ul a tio n was not for the reas o n a bl e nee d s of the busin e s s and the pen alt y tax would apply.
=)yan a m i d &hilippin e s, Inc. v. )ourt of Appe al s, et al., 0.%. -o. :FK F O D , prom . Ganuary <F, <FFF citing .anila @ine .erch a n t s, Inc. v. )om mi ssio n e r of Intern al %eve n u e in turn citing .ert en s;

<; @" to *A .5le . The ratio of curre n t ass e t s to curre n t liabilities and the adop tion of the indus tr y stan d a r d . The ratio of curre n t ass e t s to curre n t liabilities is used to det e r mi n e the sufficiency of working capital. Ideally, the working capital should e"u al the curre n t liabilities and ther e mus t be < units of curre n t ass e t s for every unit of curre n t liability, henc e the so8 called 6< to :7 %ule. = Ibid. ; >; @Bar d a 3 l A 0orm 5 l a . Allows rete n tio n as working capit al res erv e , sufficient amo u n t s of li"uid ass e t s to carry the comp a n y throu g h one oper a tin g cycle. The formula re"uire s an exa mi n a tio n of whet h e r the taxp a y e r has sufficient li"uid ass e t s to pay all its curre n t liabilities and any extr a o r din a r y exp e n s e s rea s o n a bl y anticip a t e d , plus enou g h to oper a t e the busin e s s during one oper a tin g cycle. ! er a t i n g 4y4l e is the period of time it take s to conver t cash into raw mat e ri als, raw mat e ri als into inven t or y, and invent o r y into sales, including the time it take s to collect paym e n t for the sales. There are variation s in the application of the 6$ard a hl7 formul a, such as aver a g e oper a tin g cycle or peak oper a tin g cycle. In time s when ther e is no recurr e n c e of a busin e s s cycle, the working capital ne e d s canno t be predict e d with accur a c y. Althoug h the 6$ard a hl7 formula is well8 est a blis h e d and routin ely applied by the courts, it is not a precis e rule. It is use d only for ad ministr a tiv e conve ni e n c e . = Ibid. ; 9# . 23a t is m e a n t %y t3 e a44r 5 a l m e t 3 o d of a4 4 o 5 n t i n g 6

ANS2-.& Incom e is report a bl e when all the eve n t s hav e occurr e d that fix the taxp a y e rs right to receive the inco m e , and the amo u n t can be det e r mi n e d with rea s o n a bl e accur a c y. Thus it is the right to receiv e inco m e , and not the actu al receipt, that det er mi n e s when to includ e the amo u n t in gros s incom e . )ons e " u e n tl y, the following are the re"uisit e s : :; That the right to receiv e the incom e mus t be valid, uncon dition al and enforc e a bl e , i.e. not conting e n t upon futur e time9 <; The amo u n t mus t be rea s o n a bl y susc e p tibl e of accur a t e estim a t e 9 and >; There mus t be a rea s o n a bl e exp e c t a ti o n that the amo u n t will be paid in due cours e. =#ilipinas #iber )orpor ati on v. )ourt of Appe al s, et
al., 0.%. -os. ::K? C K P :<?> D D , prom . !ctob er :<, :CC C;

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 77 of +$ 9#A. 23a t ar e t3 e tw o !rin 4i ! a l a44 o 5 n t i n g m e t 3 o d s for re4 o g n i t i o n of in4o m e 6 ANS2-. : The two =<; principal accou n tin g met h o d s for recog nition of incom e are the :; accru al me t h o d 9 and the =<; cas h met h o d . 'nder the cas h me t h o d incom e is to be cons tr u e d as incom e for tax purpo s e s only upon actu al receipt of the cas h paym e n t . It is also referr e d to as the 6cas h receipt s and disburs e m e n t s met h o d 7 beca u s e both the receipt and disburs e m e n t s are consid er e d . Thus, incom e is recog ni+ e d only upon actu al receipt of the cas h paym e n t but no dedu c tion s are allowe d from the cash incom e unles s actu ally disburs e d throu g h an actu al paym e n t in cash. 9#B. ,iv e ex a m ! l e s of t3 e tw o m e t 3 o d s . ANS2-.& (eon the owner of a building leas e d the sa m e to .iguel for &JF,FF F. F F mont hly, paya bl e every : st day of the mont h. If (eon use s the accru al met h o d of incom e recog nition, he would hav e an incom e of &JF,FF F. F F on the : st day of eac h mont h irres p e c tiv e of whet h e r he receive s the rent from .iguel. !n the oth er hand, if (eon use s the cas h me t h o d , he would hav e inco m e only when he physic ally receive s the cash from .iguel. 9#C. 23a t are ot3 e r m e t 3 o d s of a44 o 5 n t i n g 6 ANS2-.& :; Com !l e t i o n of Con tr a 4 t %a s i s . 'nder this met h o d , gross inco m e is to be report e d in the tax a bl e year in which the contr a c t is fully comple t e d and acce p t e d by the contr a c t e e if the taxp a y e r elect e d it as a consist e n t practice to tre a t such inco m e , provide d that such met h o d clearly reflects the net inco m e . This met h o d is applica bl e to contr a c t o r s in the constru c tion of building, installation of e"uip m e n t and other fixed ass e t s , or other cons tr uc tio n work covering a period in exce s s of one year. This is not recog ni+e d und e r the -I%) of :CCD. <; Per4 e n t a g e of 4o m ! l e t i o n %a s i s . >; /nst a ll m e n t %a s i s which is a met h o d consid er e d when collection s ext e n d over relativ ely long periods of time and ther e is a stron g possibility that full collection will not be ma d e . As custo m e r s mak e installm e n t paym e n t s , the seller recog ni+ e s the gros s profit on sale in proportion to the cash collect e d . =)hapt e r II, Accounting .ethod s , 2and b o ok on Audit &roced u r e s and Techni"u e s N 1olume I, %evision <FFF, pp. >8 ?; 9* . 23a t is a frin g e % e n e f i t s tax6 ANS2-. : A final withholding tax impos e d on the gross e d8 up mon e t a r y value of fringe ben efits furnish e d, grant e d or paid by the employe r to the employe e , exce p t rank and file employe e s . =: st par., ec. <.>> RAS, %ev. %egs. -o. >8 CK; 9" . 23a t are 4on s i d e r e d as frin g e % e n e f i t s for !5r! o s e s of tax a t i o n 6 ANS2-. : #or purpo s e s of tax a tio n, fringe ben efit me a n s any good, service, or oth er ben efit furnish e d or grant e d in cash or in kind

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 78 of +$ by an employe r to an individu al employe e =exce p t rank and file employe e s ;, such as but not limite d to: a. 2ousing9 b. *xpen s e accou n t 9 c. 1ehicle of any kind9 d. 2ous e h old pers o n n el, such as maid, driver and other s 9 e. Inter e s t on loan at less than mark e t rat e to the ext e n t of the differe n c e betw e e n the mark e t rate and actu al rat e grant e d 9 f. .emb e r s hip fees, due s and oth er exp e n s e s born e by the employe r for the employe e in social and athletic clubs or other similar orga ni+a tion s 9 g. *xpen s e s for foreign trav el9 h. 2oliday and vaca tio n exp e n s e s 9 i. *duca tio n al assist a n c e to the employe e or his dep e n d e n t s 9 and ,. (ife or healt h insura n c e and other non8 life insura n c e pre miu m s or similar amo u n t s in exce s s of what the law allows. R ec. >> =$;, -I%) of :CCD9 : st par., ec. <.>> =$;, %ev. %egs. -o. >8 CKS 9$ . 23a t ar e t3 e )ind s of frin g e % e n e f i t s s5 %( e 4 t to t3 e frin g e % e n e f i t s tax6 t3 a t are not

ANS2-. : a. @hen the fringe ben efit is re"uir e d by the nat ur e of, or nec e s s a r y to the trad e, busin e s s or profes sion of the employe r9 or b. @hen the fringe ben efit is for the conve ni e n c e or adv a n t a g e of the employe r. c. #ringe ben efits which are auth ori+e d and exe m p t e d from inco m e tax und er the Tax )ode or und e r any special law9 d. )ontribution s of the employe r for the ben efit of the employe e to retire m e n t , insura n c e and hos pit ali+ation ben efit plans9 e. $enefits given to the rank and file employe e s , whet h e r gran t e d und er a collective barg aining agr e e m e n t or not9 and f. De mini mis ben efits as define d in the rules and regula tion s to be pro m ulg a t e d by the ecr e t a r y of #inanc e upon reco m m e n d a t i o n of the )ommis sio n e r of Intern al %eve n u e . 97 . 23a t are d e mini m i s % e n e f i t s 6 ANS2-. : #acilities and privileg e s =such as ent er t ai n m e n t , me dic al service s, or so8 called 6court e s y discou n t s 7 on purch a s e s ; , furnish e d or offere d by an employe r to his employe e s . They are not consid e r e d as comp e n s a t i o n sub,ect to incom e tax and cons e " u e n t l y to withholding tax, if such facilities are offere d or furnish e d by the employe r mer ely as a me a n s of pro mo tin g the healt h, goodwill, cont e n t m e n t , or efficiency of his employe e s . 98 . 23a t ar e 4on s i d e r e d as d e mini m i s % e n e f i t s not s5 %( e 4 t to wit3 3 o l d i n g tax on 4o m ! e n s a t i o n in4 o m e of %ot 3 m a n a g e r i a l an d ran) an d file em ! l o y e e s 6 ANS2-. : The following shall be consid er e d as de mini mis ben efits not sub,ect to withholding tax on comp e n s a t i o n inco m e of both ma n a g e ri al and rank and file employe e s : a. .oneti+e d unus e d vaca tio n leav e credits of employe e s not exce e di n g ten =:F; days during the year9 b. .edical cas h allow an c e to dep e n d e n t s of employe e s not exce e di n g &DJF.F F per employe e per se m e s t e r or &:<J per mon t h9

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 79 of +$ c. %ice subsidiy of &:,FFF.F F or one =:; sack of JF8 kg. rice per mont h amo u n ti n g to not mor e tha n &:,FFF. F F 9 d. 'niforms and clothing allow an c e not exce e di n g &>,FF F. F F per annu m 9 e. Actual yearly me dic al ben efits not exce e di n g &:F,FF F. F F per annu m 9 f. (aundry allowa nc e not exce e di n g &>FF per mont h9 g. *mploye e s achiev e m e n t awar d s , e.g. for lengt h of service or safet y achiev e m e n t , which mus t be in the form of a tan gible pers o n a prop e r t y oth er tha n cash or gift certificat e , with an ann u al mon e t a r y value not exce e di n g &:F,FF F. F F receiv e d by an employe e und er an est a blis h e d writte n plan which does not discrimin a t e in favor of highly paid employe e s 9 h. 0ifts given during )hrist m a s and ma,or anniver s a r y celebr a tio n s not exce e di n g &J,FF F per employe e per ann u m 9 i. #lowers, fruits, books, or similar ite ms given to employe e s und er special circu m s t a n c e s , e.g. on accou n t of illnes s, marria g e , birth of a baby, etc.9 and ,. /aily me al allow an c e for overti m e work not exce e di n g twent y five perc e n t =<JH; of the basic minimu m wag e. The amo u n t of de mini mis ben efits confor min g to the ceiling her ein prescrib e d shall not be consid er e d in det e r mi nin g the &>F,FF F ceiling of 6oth er ben efits7 provide d und e r ection >< =$;=D;=e; of the )ode. 2owev er, if the employe r pays more tha n the ceiling pres crib e d by thes e regula tion s , the exce s s shall be tax a bl e to the employe e receiving the ben efits only if such exce s s is beyo n d the &>F,FF F. F F ceiling, provide d, furth er, that any amo u n t given by the employe r as ben efits to its employe e s , whet h e r classified as de mini mis ben efits or fringe ben efits, shall constitu t e as ded uc tible exp e n s e upon such employe r.
-!T* A-/ )!..*-T : The above provision of %ev. %egs. -o. K8 <FFF likewise modified ec. <.>> =);, %ev. %egs. -o. >8 CK, which enu m e r a t e s the de mini mis ben efits exe m p t from fringe ben efits taxe s .

99 . T3e follo w i n g w er e t3 e ev e n t s an d tra n s a 4 t i o n s of .os ali n d a ' a re s i d e n t alie n ' in "# # # & a. .e4 e i v e d P:. # millio n as 4o m m i s s i o n s for % ei n g t3 e ag e n t of a4t o r Di) e y an d a4tr e s s De g g y I %. .e4 e i v e d P". # millio n as %la4 ) m a i l m o n e y for not ex! o s i n g t3 e indi s 4 r e t i o n s of m o vi e a4tr e s s Alm aI 4. Sold 3 er re s i d e n t i a l 4on d o m i n i 5 m at Ayal a Ave n 5 e for P$ # millio n . S3 e %o 5 g 3 t t3 e s a m e in *F F : for only P* # millio n I d. Dad e a @)illin g A at t3 e st o 4 ) m ar) e t w 3 e n s3 e s ol d for P8. # millio n Prim 5 s ' /n4. s3 ar e s w 3i4 3 w er e not trad e d in t3 e st o 4 ) ex 4 3 a n g e . S3 e %o 5 g 3 t t3 e s3 ar e s in *F + 8 for only P8 # # ' # # # . # # I e. D5rin g 3 er %irt3 d a y ' Drs. 2at e r Lily' t3 e fam o 5 s !rod 5 4 e r ga v e 3 er a te n 4ara t dia m o n d rin g w ort 3 P: 8 # ' # # # . # # I f. .e4 e i v e d P$ 9 # ' # # # . # # an n 5 a l sal ar y as P... . of .e g a l Prod 5 4 t i o n s I g. Aw ard e d P*. 8 millio n da m a g e s fro m t3 e li% el s5it s3 e file d ag ai n s t a4tr e s s Nat ali a I 3. 2as s e n t %y .e g a l Prod 5 4 t i o n s to Golly w o o d ' U.S.A . to o% s e r v e m o vi e m a)in g at vario 5 s st5 d i o s . S3 e trav e l e d at

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7: of +$ .e g a l s ex! e n s e t3ro 5 g 3 0irst Clas s Airfar e ' an d .e g a l s! e n t USP 8 # # . # # a day for 3 er 3ot e l an d a44 o m m o d a t i o n s w 3i4 3 w er e all reim % 5 r s e d to .os ali n d a I i. .e4 e i v e d P: 8 # ' # # # . # # from .e g a l Prod 5 4 t i o n s as s e ! a r a t i o n !ay w 3 e n s3 e w a s ter m i n a t e d as t3 e re s 5 l t of 3 er invol v e m e n t in a w ell !5 %li 4i C e d s4 a n d a l I (. U!o n no m i n a t i o n of 3 er frie n d ' .os a li n d a w a s aw ar d e d t3 e % e s t P... . of t3 e ye a r wit3 t3 e a4 4 o m ! a n y i n g tro! 3 y w ort 3 P8 # ' # # # . # # an d 4a s 3 !ri4 e of P* # # ' # # # . S3 e w a s re? 5 ir e d to d eli v e r at lea s t *" le4 t 5 r e s % ef o r e P... . s I ). 2on a %ra n d n e w Der4 e d e s Ben C C9# # ; w ort 3 P9' 8 # # ' # # # . # # d5rin g a raffl e 4on d 5 4 t e d %y a w ell> )no w n s5 ! e r m a r ) e t I l. P" 8 # ' # # # . # # !ro4 e e d s of a %o 5 n 4 i n g 43 e 4 ) s3 e is s 5 e d to 3 er frie n d Ds. Cris Ty' w 3 o ins ti t 5 t e d a 4rimin a l 4a s e for viola t i o n of B.P. Blg. ""I an d m. P8 # # ' # # # . # # w 3i4 3 4on s t i t 5 t e d t3 e s al e s !ro 4 e e d s of t3 e (ew e lr y s3 e st ol e fro m m o vi e !ro d 5 4 e r ' Alin g Pe ! a . *= 23a t ite m s are to % e in4l5 d e d as !art of .os ali n d a J s 4o m ! e n s a t i o n in4 o m e ' or in4 o m e fro m s elf> e m ! l o y m e n t 6 -x!lai n . "= 23y w er e t3 e ite m s yo5 ex4l 5 d e d not in4l5 d i % l e as !art of .os a li n d a s 4o m ! e n s a t i o n in4o m e or in4 o m e fro m s elf > e m ! l o y m e n t 6 -x!lai n . ANS2-.& a. The following are the ite ms to be includ e d as part of %osalind as comp e n s a ti o n incom e bec a u s e they were derive d from employe r8 employe e relations hip from %egal &roduction s : :.; The &>OF,F F F . F F ann u al salary as &.%.!. of %egal &roduction s . <.; The cost of the #irst )lass Airfare Ticket exce e di n g the cost of a busin e s s class ticket for the trav el to 2ollywood in purs uit by %osalind a of %egalAs trad e and busin e s s is includible as part of %osalind as comp e n s a t i o n incom e . =-o. >, >.:, %even u e Audit .emor a n d u m -o. :8 KD;. >.; The amo u n t reimb u r s e d to %osalind a for me als and lodging during her stay in the '. .A. exc e e di n g '. .Q:J F. F F per day or in the proble m '. .Q>J F. F F per day forms part of %osalind as comp e n s a t i o n inco m e . =-o. >, >.<, Ibid.; The following are the ite ms to be includ e d as part of %osalind as inco m e from self8 employ m e n t eng a g e d in the busin e s s of being an age n t for actors and actr e s s e s : :; The &D.F million com mis sio n s for being the ag e n t of actor .ikey and actr e s s .eggy9 <; The &<.F million black m ail mon e y is consid er e d as other incom e coming from sourc e s other tha n thos e me n tion e d in ec. >=A; of %even u e %egulatio n -o. <8 C> as well as incom e from what e v e r sourc e derive d. = ection >< RAS, -I%) of :CCD; The sa m e is true with the &<JF,F F F . F F proce e d s of the bouncing check and the &JFF,F F F . F F sales proce e d s of the ,ewelry she stole. Thus, all incom e s , illegal or legal, are includ e d . #or &hilippine tax purpo s e s all incom e not expr e s sly exclud e d or exe m p t e d from the class of tax a bl e incom e , irres p e c tiv e of the volunt a r y or involunt a r y action of the taxp a y e r in producin g the incom e are sub,ect to inco m e taxa tio n. 99A. 23a t ar e t3 e ex 4l 5 d e d ite m s an d giv e t3 e rea s o n s for t3 e ir ex 4l 5 s i o n 6

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7+ of +$ ANS2-.& The following are the exclud e d item s and reas o n s for their exclusion: :; &>F million proce e d s from the sale of her reside n ti al condo mi niu m bec a u s e the sa m e is sub,ect to final taxe s in the form pres u m e d capit al gains tax e s from the sale of real prop e r t y und e r ec. <? =/; of the -I%) of :CCD;. <; The gains from the sale of &rimus shar e s bec a u s e the gains are sub,ect to final tax e s for the capital gains from sales of stock not trad e d in the stock exch a n g e und e r ec. <? =); of the -I%) of :CCD. >; The &DJF,F F F. F F dia mo n d ring bec a u s e it is a gift exclud e d from gross inco m e = ec. >< R$S V>W of the -I%) of :CCD; It is sub,ect to gift tax e s und e r ec. CK of the -I%) of :CCD. The giving of the gift was a pure act of liberality and not in consid e r a tio n of any service. ?; &DJF,F F F . F F sep a r a tio n pay as %osalind as service s were ter min a t e d for a caus e beyo n d her control in accord a n c e with ec. >< =$; ROS VbW of the -I%) of :CCD, henc e exclud e d from gros s inco m e . J; The &O,JF F,F F F . F F value of the .erced e s $en+ she won bec a u s e it is sub,ect to a final tax of <FH on pas siv e incom e und er the provisions of ec. <? =$; R:S of the -I%) of :CCD. 9: . /n *F F + ' Dan g Eoe Li%y aft e r t3irty <$ # = y e ar s ex! e r i e n 4 e as a m e 4 3 a n i 4 for Der4 e d e s Ben C d e 4i d e d to e s t a % l i s 3 3is ow n a5 t o re! air s3 o ! wit3 tw o of 3is form e r s5 ! e r v i s o r s as 3is !art n e r s . 0or t3 e y e ar "# # # ' t3 e a5 t o re! a ir s3 o ! in45rr e d t3 e follo w i n g & a. Adv e r t i s i n g ex ! e n s e s I %. Don a t i o n s to t3 e Sa m a 3 a n g .iCali s t a ' a no n > !rofit ' no n > st o 4 ) reli gi o 5 s 4or! or a t i o n w 3i4 3 ve n e r a t e s as its ,od' t3 e 3 er o Eos e .iCalI 4. Tax e s !aid on t3 e im! or t a t i o n of a5 t o re! a ir e? 5 i ! m e n t I d. Los s e s w 3 e n t3 e a5 t o re! air s3 o ! w a s %5rn e d I e. /ns 5r a n 4 e !re m i 5 m s on t3 e lif e of Dan g Eoe Li%y !ay a % l e to t3 e !art n e r s 3 i ! I f. Salari e s of m e 4 3 a n i 4 s . Dan g Eoe an d 3is !art n e r s no w as) s yo5 3o w t3 e ir !art n e r s 3 i ! in4 o m e s3 all % e tax e d in t3 e lig3 t of t3 e !rovi s i o n s of t3 e N/.C of *F F : . 23a t ad vi s e s3 all yo5 giv e 6 ANS2-. : .ang Goe and his part n e r s shall be tax e d like a corpor a tio n. As define d und er ec. << =$;, of the -I%) of :CCD, a corpor a tio n includ e s partn e r s hi p s no mat t e r how cre a t e d or orga ni+e d , but does not includ e gen e r al profes sion al part n e r s hip. ince what was form e d by .ang Goe and his part n e r s was a busin e s s part n e r s hip, they should be consid er e d as having form e d a corpor a tio n for tax purpos e s . ince the partn e r s hi p was orga ni+ e d and existing und er &hilippin e law, its tax a bl e inco m e shall be sub,ect to the reduc e d rat e of ><H on taxa bl e inco m e effective Ganuary :, <FFF. = ec. <D RAS, -I%) of :CCD; To arrive at its taxa bl e inco m e , the part n e r s hip is allowe d to use the allowe d ite mi+e d dedu c tion und e r ec. >? also of the -I%) of :CCD. All of the abov e exp e n s e s , exce p t the insura n c e pre mi u m are all dedu c tible.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 7F of +$ The part n e r s hip shall not be sub,ect to the minimu m corpor a t e inco m e tax on dom e s tic corpor a tion s , bec a u s e it is only on its secon d taxa bl e year imm e di a t el y following the com m e n c e m e n t of its busin e s s oper a tio n s . The minimu m corpor a t e incom e tax is comp u t e d only beginnin g the fourth tax a bl e year imm e di a t ely following the year the taxp a y e r corpor a tio n com m e n c e d busin e s s . = ec. <D R*S V:W, -I%) of :CCD; hould the part n e r s hip distribu t e its net incom e after tax to .ang Goe and his partn e r s hi p s , their individu al shar e s in the distribution shall be sub,ect to tax on divide n d s . = ec. <? R$S V<W, -I%) of :CCD; 9+ . Aft er te n <* # = y e ar s ex! e r i e n 4 e w or)in g as t3 e ,en e r a l Dan a g e r of a fa s t f o o d 43 ai n ' 2e n d y d e 4i d e d to % e 4 o m e s elf e m ! l o y e d an d o! e n e d an e a t e r y w 3i4 3 s3 e 4all e d @D42 e n d y s PiCCa . A S3 e re gi s t e r e d t3 e ea t e r y as a sin g l e !ro!ri e t o r s 3 i ! . /n "# # # ' 2e n d y 3ad t3 e follo w i n g in4 o m e ite m s & a. ,ros s re4 e i ! t s from o! e r a t i o n of @D42 e n d y s PiCCa A am o 5 n t i n g to P8 millio n . %. Pro4 e e d s from t3 e s al e of 3 er 3o5 s e an d lot am o 5 n t i n g to P$ millio n w 3i4 3 s3 e inv e s t e d in @D42 e n d y s PiCC a A . 4. Cas 3 !riC e of P* 8 ' # # # w 3i4 3 s3 e w o n in a sin g i n g 4o n t e s t . d. Cas 3 divid e n d s of P$ 8 ' # # # . # # w 3i4 3 s3 e re4 e i v e d from D-.ALC ' a do m e s t i 4 4or! o r a t i o n . e. Life ins 5 r a n 4 e !ro 4 e e d s w 3i4 3 s3 e re4 e i v e d fro m t3 e d e a t 3 of 3 er ! e t do g am o 5 n t i n g to P* 8 ' # # # . # # . f. P" 8 ' # # # . # # 4a s 3 !riC e for % ei n g t3 e Be s t PiCCa Parlor in Detr o Danil a . T3e aw ar d w a s m a d e %y an ind e ! e n d e n t %od y 4o m ! ri s e d of s el e 4 t e d !iCC a !arlor o! e r a t o r s w 3i4 3 ' wit3 o 5 t t3 e )no w l e d g e of !iCC a !arlor o! e r a t o r s ' w e n t aro 5 n d Detr o Danila s a m ! li n g t3 e foo d ' ratin g t3 e fa4iliti e s an d ! er s o n n e l . T3er e w er e no en tri e s to t3 e 4on t e s t as t3 e win n e r s w er e 43 o s e n %y t3 e ind e ! e n d e n t %o d y . g. Tw o ro5 n d tri! ti4) e t s for t3 e U.S.A . val5 e d at U.S. P$ ' 8 # # . # # wit3 U.S. P 8 ' # # # . # # !o4) e t m o n e y w o n fro m t3 e an n 5 a l raffl e of 3 er d e ! o s i t o r y %an ) . 3. P7 8 ' # # # . # # int e r e s t e ar n e d fro m 3 er tim e d e ! o s i t wit3 a lo4 al %a n ) . /. P7 # ' # # # . # # do w r y from 3 er !ro s ! e 4 t i v e m ot 3 e r > in> law ' an Am eri4 a n livin g in Ne w Nor)' U.S .A. ' as 2e n d y w a s g e t t i n g m arri e d in *F F F . (. P8 # ' # # # . # # n e t !rofit from t3 e sal e of Prim 5 s Cor! or a t i o n st o 4 ) s w 3i4 3 w er e not trad e d at t3 e P3il. Sto 4 ) -x43 a n g e . U!o n t3 e ot3 e r 3an d ' 2e n d y 3a d t3 e follo w i n g dis % 5 r s e m e n t s & a. P8 # ' # # # . # # le g a l fe e s for t3 e org a n i C a t i o n of @D42 e n d y s PiCCaI A %. P* " # ' # # # . # # for radi o an d TH tim e to ad v e r t i s e @D42 e n d y s PiCCaI A 4. P" 8 ' # # # . # # as 4on tri % 5 t i o n to t3 e 0irst Lady s @Do 4 t o r for t3 e Poor A Pro gr a m s I d. P$ 8 ' # # # . # # w ort 3 of foo d w 3i4 3 2en d y ! er s o n a l l y dis tri% 5 t e d to fam ili e s dis ! l a 4 e d %y la3 ar in Pa m ! a n g a ' a 4ala m i t y > stri4) e n ar e a d e 4l a r e d %y t3 e Pre s i d e n t I

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8# of +$ e. P* # ' # # # . # # do n a t i o n to 3 er alm a m at e r ' t3 e Univ e r s i t y of t3 e P3ili! ! i n e s I f. P* 8 # ' # # # . # # val5 e of s! oil e d foo d re s 5 l t i n g fro m a %ro w n > o5 tI g. P" 8 ' # # # . # # 45 s t o m s d5 ti e s an d val5 e ad d e d tax e s on t3 e im ! or t a t i o n of foo d 3 e a t e r s I 3. P* " ' # # # . # # !aid to t3 e ind e ! e n d e n t CPA w 3 o a5 d i t e d D42 e n d y s Boo) s of A44 o 5 n t s I /. P$ 8 ' # # # . # # m e d i 4 a l ex ! e n s e s for on e of 3 er w ait e r s w 3 o w a s in(5r e d in a (o% rela t e d a44i d e n t I (. P+ 8 ' # # # . # # !aid as int e r e s t to 3 er sis t e r w 3 o len t 3 er P8 # # ' # # # . # # as !art of t3 e initi al 4a !it a li C a t i o n for D42 e n d y s I ). P$ 8 ' # # # . # # int e r e s t !ay m e n t s for t3 e 4ar 2e n d y %o 5 g 3 t on ins t a ll m e n t %a s i s w 3i4 3 4ar w a s %o 5 g 3 t fro m a 4ar 4o m ! a n y %5t fin a n 4 e d %y C/TNT.UST' a %a n ) a5 t 3 o ri C e d to o! e r a t e %y t3 e Ban g ) o S e n t r a l ng Pili!in a s I an d l. P* 8 # ' # # # . # # w 3i4 3 2en d y s! e n t in o% s e r v i n g tre n d s in t3 e fas t f o o d %5 s i n e s s in t3 e Unit e d Sta t e s an d -5ro! e . a. 23i4 3 of t3 e a% o v e in4o m e ite m s s3 o 5 l d % e re! or t e d %y 2en d y on 3 er "# # # /n4o m e Tax .et 5r n 6 -x!lai n . %. 23i4 3 of t3 e a% o v e dis % 5 r s e m e n t s ar e !ro! e rl y d e d 5 4 t i % l e in 4o m ! 5 t i n g t3 e tax a % l e in4 o m e of 2e n d y 6 -x!lai n . ANS2-. : a. T3e follo w i n g are t3 e in4 o m e ite m s to % e re! or t e d %y 2e n d y in 3 er "# # # in4 o m e tax ret 5r n & :; &J million gros s receipt s from oper a tio n of .c@endys &i++a derive d as incom e from self8 employm e n t und er sec. :=:<; %ev. %egs. -o. <8 C>. <; &:J,FF F. F F life insura n c e proc e e d s derive d from the dea t h of her dog. The tax impos e d on inco m e from self8 employ m e n t is impos e d on incom e receiv e d from all sourc e s oth er tha n comp e n s a t i o n inco m e , cert ain pas sive incom e s , capit al gains from the sales of shar e s of stock and capit al gains from sales of real prop e r t y = ec. >=A; %ev. %egs. <8 C>; @hile the &:J,FF F. F F is sourc e d from life insur a n c e proce e d s , the sa m e is not exclud e d und er ec. >< =$; R:S of the -I%) of :CCD bec a u s e the exclusion pres u p p o s e s life insur a n c e proce e d s from the de a t h of a pers o n and not of anim als. >; &<J,FF F. F F cash pri+e as the $est &i++a &arlor bec a u s e this is a pri+e was not given prima rily in recog nition religious, charit a bl e, scientific, educ a tio n al, artistic, literary or civic achiev e m e n t but rath e r as part of busin e s s activity. It does not mat t e r that .c@endys &i++a was select e d without any action on its part to ent er the cont e s t or proce e di n g and .c@endys &i++a is not re"uir e d to rend e r subs t a n ti al futur e service s as a condition to receiving the pri+e. = ec. >< =$; VDW =c;, -I%) of :CCD; T3e follo w i n g ite m s ar e ex 4l 5 d e d fro m 3 er in4 o m e re! or t a % l e in 3 er in4o m e tax ret 5r n s & :; &> million proc e e d s from sale of hous e and lot as sub,ect to capit al gains from sale of real prop e r t y which is a final tax. = ec. <? R/S, -I%) of :CCD; <; &>J,FF F. F F divide n d s from .*%A()!, a dom e s tic corpor a tio n is sub,ect to a final tax on divide n d s und e r ec. <? =$; R<S, -I%) of :CCD.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8* of +$ >; &:J,FF F. F F won in a singing cont e s t as this is a pri+e exce e di n g &:F,FF F. F F sub,ect to a final tax on pas siv e incom e in accord a n c e with ec. <? =$; R:S, -I%) of :CCD. ?; 1alue of the tickets and pocke t mon e y won from the annu al raffle of @endys $ank for the sa m e reas o n as abov e. J; &?J,FF F. F F inter e s t inco m e for the sa m e reas o n as abov e. O; -et profit from sale of &rimus shar e s as thes e are sub,ect to final tax on the sales of shar e s of stock not trad e d in the stock exch a n g e und e r ec. <? =); of the -I%) of :CCD. D; &?F,FF F. F F dowry beca u s e it is a gift. = ec. >< R$S V>W, -I%) of :CCD; b. !nly the &JF,FF F. F F dona tion to the 'niversity of the &hilippin e s is allow ed to be ded uc t e d from @endys incom e from self8 employm e n t to arrive at her tax a bl e incom e . This is so, bec a u s e it is a don a tio n to the gover n m e n t und er ec. >? =2; R<S VaW, -I%) of :CCD. The gover n m e n t as us ed her e refers to the 0overn m e n t of the &hilippin e s or any of its age n cie s or political subdivisions and includ e s amo n g other s stat e colleg e s and universitie s. The 'niversity of the &hilippin e s is a stat e university = ec. >=b;=f; %ev. %egs. -o. <8 C>;. c. The &JF,FF F. F F legal fees, the &:<F,F F F . F F adv er tising exp e n s e s for radio and T1 time9 the &:JF,F F F. F F value of the spoiled food, the &<J,FF F. F F taxe s , the &:<,FF F. F F audit fee, the &>J,FF F. F F me dic al exp e n s e s and the &:JF,F F F . F F exp e n s e s to obs erv e tren d s in the fastfood busin e s s are ded uc tible as ordinar y and nec e s s a r y exp e n s e s incurre d in conn e c tion with @endyA s trad e and busin e s s . T3e follo w i n g ar e not d e d 5 4 t i % l e from 3 er gro s s in4 o m e & :. &<J,FF F. F F contribution to the 6/octor for the &oor &rogra m 7 bec a u s e it is a contribu tio n to a privat e orga ni+a tion and not to the gover n m e n t . <. @hile it is true that the &>J,FF F. F F worth of food was distribut e d to families in a cala mit y stricke n are a declar e d by the &resid e n t , the sa m e was not don a t e d to the gover n m e n t or to a relief orga ni+a tion duly accre dit e d as such by the /epar t m e n t of ocial @elfare and the $urea u of Intern al %even u e . >. The inter e s t paid to her sister amo u n ti n g to &KJ,FF F. F F bec a u s e her sister is a relat e d party. ?. The &>J,FF F. F F inter e s t paym e n t s to )IT3T%' T bec a u s e ther e is no showing in the proble m that it has be e n paid or incurre d in conn e c tion with the conduc t of @endys busin e s s . ince she is a reside n t , @endy could, inste a d of availing of the itemi+ e d ded uc tio n s , choos e to avail of the option al sta n d a r d dedu c tion of ten perc e n t =:FH; of gros s incom e . 9F . 23a t is 4o n s i d e r e d %5 s i n e s s los s e s 6 as 4o n 4l 5 s i v e !ro o f of s eri o 5 s

ANS2-. : #inancial stat e m e n t s audit e d by in dep e n d e n t ext er n al auditors constitu t e the nor m al me t h o d of proof of the profit and loss perfor m a n c e of a comp a n y. A comp a r a tiv e stat e m e n t of reve n u e and exp e n s e s for two years , by itself, is not conclusiv e proof of serious busin e s s loss e s. :# . 23a t are %ad d e % t s 6

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8" of +$ ANS2-. : Thos e debt s res ulting from the worthle s s n e s s uncollectibility, in whole or in part, of amo u n t s due the taxp a y e r other s , arising from mon e y lent or from uncollectible amo u n t s inco m e from good s sold or service s rend e r e d . = ec. <.a, %ev. %egs. CC; or by of J8

:* . P3ili! ! i n e .efini n g Com ! a n y w a s as s e s s e d %y t3 e B5r e a 5 of /nt er n a l .ev e n 5 e d efi 4i e n 4 y tax e s % e 4 a 5 s e of dis all o w a n 4 e s of @% a d d e % t s A ex ! e n s e . 23a t are t3 e re? 5 ir e m e n t s % ef or e @% a d d e % t s A ex! e n s e ar e allo w e d to % e ded5 4ti%l e 6 ANS2-. : a. In gen e r al, the re"uisit e s for ded uc tibility of bad debt s are: :; There mus t be an existing indeb t e d n e s s due to the taxp a y e r which mus t be valid and legally de m a n d a b l e 9 <; The sa m e mus t be conn e c t e d with the taxp a y e rs trad e , busin e s s or practic e of profes sio n9 >; The sa m e mus t not be sust ain e d in a trans a c tio n ent er e d into betw e e n relat e d partie s as enu m e r a t e d und e r the Tax )ode of :CCD9 ?; The sa m e mus t be actu ally charg e d off the books of accou n t s of the taxp a y e r as of the end of the taxa bl e year9 and J; The sa m e mus t be actu ally ascer t ai n e d to be worthle s s and uncollectible as of the end of the taxa bl e year. = ec. >, %ev. %egs. J8 CC; b. The following step s mus t be und er t a k e n by the taxp a y e r to prove d that it exert e d diligen t efforts to collect the debt s : :; ending of stat e m e n t s of accou n t s 9 <; ending of collection letter s 9 >; 0iving the accou n t to a lawyer for collection9 ?; #iling a collection cas e in court. @hile it is not re"uir e d to file suit, a taxp a y e r is at leas t exp e c t e d by the law to produc e reas o n a bl e proof that the debt s are uncollectible althou g h diligent efforts were exert e d to collect the sa m e . :*A. 23o ar e rela t e d !arti e s 6 ANS2-.& a. .emb e r s of the sa m e family. The family of an individu al shall includ e only his broth e r s and sister s =whet h e r by the whole or half8 blood;, spou s e , anc e s t o r s , and lineal desc e n d a n t s 9 b. An individu al and a corpor a tio n mor e tha n fifty perc e n t =JFH; in value of the outs t a n di n g stock of which is owne d, directly or indirectly, by or for such individu al9 c. Two corpor a tio n s mor e than fifty perc e n t =JFH; in value of the outs t a n di n g stock of which is owne d, directly or indirectly, by or for the sa m e individu al9 d. A gran t or and a fiduciary of any trus t9 or e. The fiduciary of a trust and the fiduciary of anot h e r trus t if the sa m e pers o n is a grant o r with resp e c t to each trus t9 or f. A fiduciary of a trust and a ben eficiary of such. R ec. >O =$;, -I%) of :CCDS :" . 23a t is m e a n t %y t3 e @ta x % e n e f i t r5le A 6 /ll5s tr a t e %y ex a m ! l e .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8$ of +$ ANS2-. : The recov e r y of bad debt s previou sly allow ed as dedu c tion in the prec e din g year or years shall be includ e d as part of the taxp a y e rs gross incom e in the year of such recov er y to the ext e n t of the incom e tax ben efit of said ded uc tio n. 0or ex a m ! l e : If in the year the taxp a y e r claim e d ded uc tio n of bad debt s writte n8 off, he reali+ed a reduction of the inco m e tax due from him on accou n t of the said dedu c tion, his subs e " u e n t recov er y ther e of from his debt or shall be tre a t e d as a receipt of reali+e d taxa bl e inco m e . )onver s ely, if the said taxp a y e r did not ben efit from the dedu c tion of the said bad debt writte n8 off bec a u s e it did not res ult to any reduction of his incom e tax in the year of such ded uc tio n =i.e. wher e the result of his busin e s s oper a tio n was a net loss eve n without dedu c tion of the bad debt s writte n8 off;, the n his subs e " u e n t recov e r y ther e of shall be tre a t e d as a mer e recov er y or a retur n of capit al, henc e , not tre a t e d as receipt of reali+ed tax a bl e inco m e . = ec. ?, %ev. %egs. J8 CC; :$ . 23a t is m e a n t %y d e ! r e 4 i a t i o n . 23a t ar e diff er e n t m e t 3 o d s of d e ! r e 4 i a t i o n allo w e d 5n d e r t3 e law 6 t3 e

ANS2-. : a. /epre ci a tion is the grad u al diminu tion in the useful value of tan gible prop e r t y resulting from ordin ary wear and tear and from nor m al obsole s c e n c e . The ter m is also applied to amor ti+a tio n of the value of intan gible ass e t s the use of which in the trad e or busin e s s is definitely limite d in dura tio n. %. T3e m e t 3 o d s of d e ! r e 4 i a t i o n ar e t3 e follo w i n g & :; traigh t line me t h o d 9 <; /eclining bala nc e me t h o d 9 >; um of years digits met h o d 9 and ?; Any oth er met h o d prescrib e d by the ecr e t a r y of #inanc e upon the reco m m e n d a t i o n of the )ommis sio n e r of Intern al %even u e : a; Apportion m e n t to units of produc tion9 b; 2ours of produc tiv e use9 c; %evalu a tio n me t h o d 9 and d; sinking fund me t h o d . :7 . 23a t ar e ordin ar y an d n e 4 e s s a r y !5r! o s e s 6 ex ! e n s e s for tax

ANS2-. : !rdinary expenses are those which are common to incur in the trade or business of the taxpayer @2I(* capital expenditures are those incurred to improve assets and benefits for more than one taxable year. !rdinary exp e n s e s are usu ally incurre d during a tax a bl e year and ben efits such tax a bl e year. -eces s a r y exp e n s e s are thos e which are appro p ri a t e or helpful to the busin e s s . :7A. 23a t ar e t3 e re? 5 ir e m e n t s % ef or e ex! e n s e s m a y % e d e d 5 4 t e d fro m gro s s in4o m e 6 %5 s i n e s s

ANS2-.& The following are the re"uisite s for dedu c tibility of busin e s s exp e n s e s : :; )omplianc e with the busin e s s test: a; .ust be ordin ary and nec e s s a r y9

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 87 of +$ b; .ust be paid or incurre d within the taxa bl e year9 c; .ust be paid or incurre d in carrying on a trad e or busin e s s . d; .ust not be bribe s, kickbacks or other illegal exp e n dit u r e s <; )omplianc e with the subs t a n ti a tio n test. &roof by evide n c e or record s the ded uc tio n s allowe d by law including complianc e with the busin e s s test. :8 . /n "# # # ' Dara' /n4.' in45rr e d P$ 8 # ' # # # . # # in ord e r to !ro m o t e t3 e s al e of its lin e of ladi e s dre s s e s w 3i4 3 w er e s! e 4 i a ll y d e s i g n e d an d tar g e t t e d t3 e Hal e n t i n e s day m ar) e t for t3 a t y e ar . /t li) e w i s e in45rr e d P8 # # ' # # # . # # to !ro m o t e its im a g e in t3 e lo4 al m ar) e t an d an o t 3 e r P" 8 # ' # # # . # # to !ro m o t e t3 e sal e of its s3 ar e s of st o 4 ) w 3i4 3 it w a s off e ri n g to t3 e g e n e r a l !5 %li4 for s al e . /t as) s yo5r ad vi 4 e on 3o w to tre a t t3 e s e ad v e r t i s i n g ex! e n s e s . ANS2-.& a. It should dedu c t the &>JF,F F F . F F from its <FFF gros s incom e as ordinar y and nece s s a r y exp e n s e s bec a u s e thes e are adv er tisin g exp e n s e s use d to stimul a t e the curre n t sale of merc h a n di s e . b. It should not dedu c t the &JFF,F F F . F F adv er tising exp e n s e from its <FFF gros s inco m e as thes e are adv er tising exp e n s e s design e d to stimula t e the futur e sale of merch a n di s e . Thes e are exp e n dit u r e s in order to cre a t e or maint ain som e form of goodwill for .ara, Inc.s trad e or busin e s s . Thes e exp e n dit u r e s are to be spre a d over a reas o n a bl e period of time bec a u s e they are consid e r e d that a capit al ass e t which has a det er mi n a bl e life has bee n ac"uire d. c. It should likewis e spre a d the &<JF,F F F. F F over a rea s o n a bl e period of time bec a u s e the s e are exp e n s e s incurr e d to cre a t e a favor a bl e imag e for the corpor a tio n to gen e r a t e sales of its shar e s of stock. Thes e constitu t e capit al inves t m e n t bec a u s e the particular adv er tising exp e n s e was incurr e d in relation to the capital ass e t or e"uity of the comp a n y. :9 . Di) e y Cor! or a t i o n is s 5 e d !ref e rr e d s3 ar e s wit3 t3 e follo w i n g 4on d i t i o n & @T3 e 3old e r s of !ref e rr e d s3 ar e s s3 all % e en ti tl e d to an an n 5 a l :B int er e s t ' an d s3 all li)e w i s e !arti4i ! a t e in t3 e g e n e r a l dis tri% 5 t i o n of divid e n d s to 4o m m o n s3 ar e s . A /n "# # # Di)e y Cor! or a t i o n !aid P7 millio n to its !ref e rr e d s3 ar e 3 o l d e r s re!r e s e n t i n g t3 e :B int er e s t . /t s e e ) s yo5r ad vi s e w 3 e t 3 e r it 4o5l d d e d 5 4 t t3 e sai d am o 5 n t from its gro s s in4 o m e . 23a t w o 5 l d yo5r ad vi 4 e % e 6 ANS2-. : It is not allowe d to ded uc t said inter e s t s . &referr e d shar e s are consid e r e d capital reg ar dl e s s of the conditions und er which such shar e s are issue d and divide n d s or 6inter e s t s 7 paid ther e o n are not allowe d as dedu c tion s from the gros s incom e of corpor a tio n s . :: . Ea4)' 78 y e ar s old wit3 *# ye a r s s er vi 4 e wit3 3is e m ! l o y e r ' d e 4i d e d to av ail of t3 e li% er al e arly vol5 n t a r y retir e m e n t !ro gr a m off er e d %y 3is em ! l o y e r . T3e !ro g r a m w a s !art of t3 e !rofit im!ro v e m e n t !ro g r a m of t3 e 4o m ! a n y . T3e

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 88 of +$ !o s i ti o n s of t3 o s e w 3 o w o 5 l d av ail of t3 e !ro g r a m w o 5l d not % e fille d 5! on 4 e t3 e y are va4 a t e d as a re s 5 l t of t3 e vol5 n t a r y e arly retir e m e n t . Are an y am o 5 n t s re4 e i v e d %y Ea4) as a re s 5 l t of 3is av ail m e n t of s5 4 3 !ro g r a m tax> fre e 6 23a t s3 o 5 l d % e don e in ord e r to 3a v e 3is retir e m e n t !ay % e ex e m ! t from tax a t i o n 6 -x!lai n %riefl y . ANS2-. : Any amo u n t he shall receive shall be sub,ect to tax, consid ering that he is below JF years of age and that his retire m e n t is volunt a r y in char a c t e r . #or Gack to avail of the tax exe m p tio n his employe r should 6fire7 him. 2enc e, any amo u n t he would be receiving would be as a cons e " u e n c e of his sep a r a tio n for a caus e beyo n d his control such as retr e n c h m e n t . R: st par., ec. <.DK.: =$; V:W VbW, %ev. %egs. -o. <8 CKS ::A. 23a t are t3 e 4o n d i ti o n s % e n e f i t s from gro s s in4 o m e 6 for ex 4l 5 d i n g retir e m e n t

ANS2-.& :; %etire m e n t ben efits receiv e d und er %epublic Act -o. DO?: and thos e receive d by officials and employe e s of privat e firms, whet h e r individu al or corpor a t e , in accord a n c e with the employe rs reas o n a bl e privat e ben efit plan approv e d by the $I%. <; %etiring official or employe e a; In the service of the sa m e employe r for at leas t ten =:F; years 9 b; -ot less tha n fifty =JF; years of age at time of retire m e n t 9 c; Availed of the ben efit of exclusion only once. The retiring official or employe e should not hav e previou sly availed of the privileg e und e r the retire m e n t plan of the sa m e or anot h e r employe r. ::B. /s s e ! a r a t i o n <re tir e m e n t = !ay ex 4l 5 d e d from gro s s in4 o m e ' 3 e n 4 e tax> ex e m ! t 6 ANS2-. : 3* . :; Any amo u n t receive d by an official, employe e or by his heirs, <; #rom the employe r >; As a cons e " u e n c e of sep a r a tio n of such official or employe e from the service of the employe r bec a u s e of a; /eat h, sickn e s s or other physic al disability9 or b; #or any caus e beyo n d the control of said official or employe e R ec. >< =$; VOW VbW, -I%) of :CCDS, such as retr e n c h m e n t , redu n d a n c y and cess a tio n of busin e s s . R: st par., ec. <.DK =$;, V:W VbW, %ev. %egs. -o. <8 CKS :+ ' 23a t are t3 e !riC e s in4 o m e ' 3 e n 4 e not tax a % l e 6 t3 a t ar e ex4l 5 d e d from gro s s

ANS2-. : a. &ri+es and awar d s ma d e primarily in recog nition of religious, charit a bl e, scientific, educ a tio n al, artistic, literary, or civic achiev e m e n t but only if

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 89 of +$ :; The recipien t was select e d without any action on his part to ent er the cont e s t or proce e di n g 9 and <; The recipien t is not re"uire d to rend e r subs t a n ti al futur e service s as a condition to receiving the pri+e or aw ard. R ec. >< =$; VDW VcW, -I%) of :CCDS b. All pri+es and aw ard s :; 0rant e d to athle t e s <; In local and intern a tio n al sports tourn a m e n t s and comp e tition s >; @heth e r held in the &hilippin e s or abro a d , and ?; anction e d by their nation al sports ass ocia tion s R ec. ><=$; VDW VdW, -I%) of :CCDS, which per $I% ruling is accre dit a tio n with the &hilippine !lympic )ommit t e e . -ote that the exe m p tio n refers only to am a t e u r sports. #or profes sion al boxing, a special law grant s the exe m p ti o n not the -I%). :F. @AA w a s s eri o 5 s l y in(5r e d in a ve 3 i 4 5 l a r a44i d e n t . As a re s 5 l t of 3is in(5ri e s ' 3 e w a s a%l e to re4 o v e r P* millio n re!r e s e n t i n g 5n e a r n e d in4 o m e ' an d P8 millio n for m or al an d ex e m ! l a r y da m a g e s . Are t3 e am o 5 n t s s5 %( e 4 t to tax 6 ANS2-. : -o. *xclud e d from gross incom e , henc e exe m p t from inco m e tax are amo u n t s receiv e d as comp e n s a ti o n for pers o n al in,uries plus the amo u n t s of any da m a g e s receive d whet h e r by suit or agr e e m e n t on accou n t of such in,uries. +# . /n *F + 9 Bella !5r4 3 a s e d a !ar4 e l ' of lan d ad(oi ni n g t3 e City Cam ! Lag o o n in Ba g 5 i o City for P". 8 millio n . S3 e int e n d e d to %5ild 3 er fam ily 3o m e on t3 e sai d !ar4 e l of lan d . Unf ort 5 n a t e l y for 3 er' t3 e e m % a n ) m e n t w a s d e s t r o y e d d5rin g t3 e E5ly 9' "# # * fla s 3 floo d s 4a5 s i n g ero s i o n w 3i4 3 led to a d e t e r i o r a t i o n of t3 e m ar) e t val5 e to only P*. 8 millio n . T3e City As s e s s o r as s e s s e d t3 e !ro! e r t y for tax !5r! o s e s at P*. " millio n w 3il e t3 e B/. Con a l val5 a t i o n is P*. 7 millio n . a. S5 ! ! o s i n g t3 a t on A5 g 5 s t $*' "# # * ' t3 e ow n e r of t3 e ad(oin i n g !ro! e r t y %5 y s t3 e !ro ! e r t y at P*. $ millio n ' w 3 a t w o 5l d % e t3 e tax 4on s e ? 5 e n 4 e s to Bella 4on s i d e r i n g t3 a t s3 e s5f f e r e d a los s 6 -x!lai n . %. 2o5l d yo5r an s w e r % e t3 e s a m e if t3 e go v e r n m e n t ex! r o ! ri a t e d t3 e !ro! e r t y at its !re s e n t m ar) e t val5 e of P*. 8 millio n 6 23y6
ANS2-.S&

a. The parc el of land is a capital ass e t of $ella. This is so bec a u s e it is not her stock in trad e , or prop e r t y includible as part of her invent o r y at the end of the taxa bl e year, or prop e r t y primarily held by her for sale to custo m e r s in the ordinar y cours e of trad e or busin e s s , or prop e r t y used in trad e or busin e s s sub,ect to depr e ci a tio n, or real prop er t y us ed by $ella in her trad e or busin e s s . )ons e " u e n tl y, irres p e c tiv e of the holding period und e r the provisions of ec. >C =$; of the -I%) of :CCD, the capit al gains pres u m e d to hav e bee n reali+ed from the sale shall be tax e d at the rate of OH bas e d on the gros s selling price or the fair mark e t value at the time of the sale which ev e r is high er. ince the mark e t value of &:.J million is high er than the gross selling price of &:.> million, the n the pres u m e d capital gains tax of OH should be bas e d on &:.J million not &:.> million.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8: of +$ The tax is deno mi n a t e d as a pres u m e d capital gains tax henc e it is impos e d eve n if ther e was a loss. b. -o. The taxp a y e r , in this cas e $ella, has the option of reportin g her actu al gains from the expro pria tio n as part of her inco m e sub,ect to the rat e s for comp e n s a t i o n incom e und er ec <:=a; of the -ation al Intern al %even u e )ode or to pay a OH pres u m e d capit al gains tax bas e d on the fair mark e t value of &:.J million. = ec. <? =/; R:S, -I%) of :CCD; ince she suffer e d a loss and ther e is no gain, she should choos e the first option9 she should not be sub,ect e d to any tax. +* . /n *F F 7 ' a do m e s t i 4 4or! or a t i o n en g a g e d in t3 e m a n 5 f a 4 t 5 r e of s e m i > 4o n d 5 4 t o r d e vi 4 e s %o 5 g 3 t a !ar4 e l of lan d for P". # millio n . n A5g 5 s t ": ' "# # * ' it s ol d t3 e !ar4 e l of lan d for P8. 8 millio n . T3e fair m ar) e t val5 e at t3 e tim e w a s P8. : millio n ' t3 e as s e s s e d val5 e was P7. 8 millio n an d t3 e B/. Con a l val5 a t i o n w a s P8. 9 millio n . T3e 4or! or a t i o n realiC e d a n e t !rofit of P$. 8 millio n on t3 e tran s a 4 t i o n . T3e lan d w a s not !art of t3 e 4or! or a t i o n s st o 4 ) in trad e ' or !ro! e r t y in4l5 d i % l e as !art of its inv e n t o r y at t3 e en d of t3 e tax a % l e y e ar ' or !ro ! e r t y !rim arily 3 el d %y it for s al e to 45 s t o m e r s in t3 e ordin a r y 4o 5r s e of trad e or %5 s i n e s s or !ro! e r t y 5s e d in trad e or %5 s i n e s s s5 %( e 4 t to d e ! r e 4 i a t i o n ' or real !ro! e r t y 5s e d %y t3 e 4or! or a t i o n in its trad e or %5 s i n e s s . To w 3 a t tax s3 o 5 l d t3 e 4or! or a t i o n % e s5 %( e 4 t to an d w3y6 ANS2-.& A final tax of six perc e n t =OH; bas e d on the gross selling price or fair mark e t value as det er mi n e d by the )om mis sio n e r of Intern al %even u e or as show n in the sche d ul e of value s of the &rovincial and )ity Asses s or s . = ec. <D R/S VJW, -I%) of :CCD in relation to ec. O R*S; +" . Defin e 4arry> ov e r . n e t los s 4arry> ov e r an d n e t o! e r a t i n g los s

ANS2-. : -et loss carry8 over me a n s the ded uc tio n from net capit al gains of a succe e di n g year the net capit al loss suffer e d during the prior year. -et oper a tin g loss carry8 over is the ded uc tio n from gross inco m e for the next thre e =>; cons e c u tiv e taxa bl e years following the year of such loss, the exce s s of allow able ded uc tio n over the gros s incom e . +"A. Dis ti n g 5 i s 3 im!li4 a t i o n s of ea 4 3 . t3 e tw o 4o n 4 e ! t s an d dis 4 5 s s tax

ANS2-.& /istinctions betw e e n net loss carry8 over and net oper a tin g loss carry8 over. ourc e : The sourc e of net loss carry8 over are capit al loss e s only @2I(* the sourc e of net oper a tin g loss carry8 over are from the ordinar y trad e and busin e s s of the taxp a y e r . @ho ma y en,oy the carry8 over : !nly taxp a y e r s oth er than corpor a tio n s may en,oy net loss carry8 over @2I(* only corpor a tio n s may en,oy the net oper a tin g loss carry8 over. Any taxp a y e r , other tha n a corpor a tio n =individu als including trust s and est a t e s ; , who sust ain s in any taxa bl e year a net capit al loss from capit al trans a c tio n s involving capit al ass e t s =oth er than real prop e r t y or shar e s of stock not listed or trad e d in the stock exch a n g e ; ,

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8+ of +$ is allowe d to tre a t during the succe e di n g year such net capital loss as a loss from the sale or exch a n g e of a capit al ass e t =oth er tha n real prop e r t y or shar e s of stock not listed and trad e d in the stock exch a n g e ; , held for mor e than twelve mon t h s . = ec. >C R/S, -I%) of :CCD; +$ . /n *F F 8 ' Ds. Da ,an d a %o5 g 3 t a dia m o n d rin g w ort 3 P: 8 ' # # # . # # for 5s e d5rin g 3 er d e % 5 t . n S e ! t e m % e r 8' "# # * ' 3a vi n g no f5rt3 e r 5s e for t3 e rin g ' s3 e d e 4i d e d to s ell it to Drs. D. Aya m a n for P$ 8 # ' # # # . # # . 2it3 o 5 t goi n g int o arit3 m e t i 4 a l 4o m ! 5 t a t i o n s ' 3o w s3 o 5 l d Ds. ,an d a % e tax e d on t3 e sal e of 3 er rin g . ANS2-. : The ring is .s. 0and as capit al ass e t bec a u s e she is not in the busin e s s of buying and selling ,ewelry. he boug h t the ring for her pers o n al use and not for trad e or busin e s s . )ons e " u e n tl y, she should det e r mi n e the net profit from the sales of the ring and applying the holding period should report fifty perc e n t =JFH; of such net profit in her incom e tax retur n for :CCC as part of ordinar y incom e . The holding period should be applied bec a u s e she held the dia mo n d ring, her capit al ass e t , for mor e tha n twelve =:<; mont h s . +7 . /n *F + # ' C3in a Ban)in g Cor! or a t i o n m a d e a 8$B e? 5 i t y inv e s t m e n t in t3 e 0irst CBC Ca!it al <Asia = Ltd.' a Gon g ) o n g s5 % s i d i a r y en g a g e d in fina n 4 i n g an d inv e s t m e n t wit3 @d e ! o s i t > ta)in g A f5n 4 ti o n . T3e inv e s t m e n t am o 5 n t e d to P* 9 ' " " : ' + 8 * . + # ' 4o n s i s t i n g of *# 9 ' # # # s3 ar e s wit3 a !ar val5 e of P* # # ! er s3 ar e . S5 % s e ? 5 e n t l y ' 0irst CBC Ca!it al <Asi a = ' Ltd.' 3a s % e 4 o m e ins ol v e n t . C3in a Ban)i n g tre a t e d t3 e inv e s t m e n t in its *F + : /n4o m e Tax .et 5 r n as a %ad d e % t or as an ordin ar y los s d e d 5 4 t i % l e from its gro s s in4 o m e . T3e B/. dis all o w e d t3 e d e d 5 4 t i o n % e 4 a 5 s e t3 e inv e s t m e n t s3 o 5 l d not % e 4la s s i f i e d as @w or t 3 l e s s . A .5le on t3 e dis a ll o w a n 4 e . ANS2-. : $I% was correct. The e"uity inves t m e n t is capit al in char a c t e r , the loss of which could be ded uc tible only from capit al gains, and not from any oth er inco m e of the taxp a y e r . #irst )$) )apital =Asia;, (td., the inves t e e corpor a tio n, is a subsisid ar y corpor a tio n of )hina $anking whos e shar e s in said inves t e e corpor a tio n are not inten d e d for purch a s e or sale but an inves t m e n t . =)hina $anking )orpor atio n v. )ourt of Appe al s, et al., 0.%. -o.
:<J F K , pro m. Guly :C, <FF F;

+7A. 23a t is t3 e tre a t m e n t w ort 3 l e s s 6

of s e 4 5 ri ti e s

w 3i4 3 % e 4 o m e

ANS2-.& @hen securities beco m e worthles s , the law dee m s the loss to be a loss from the sale or exch a n g e of capit al ass e t s . An e"uity inves t m e n t is a capital, not ordin ar y, ass e t of the inves t or, the sale or exch a n g e of which results in eith er a capital gain or a capit al loss. The gain or the loss is ordinary when the prop e r t y sold or exch a n g e d is not a capit al ass e t . The loss sust ain e d by the holder of the securities, which are capit al ass e t s =to him;, is to be tre a t e d as a capital loss as if incurre d

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 8F of +$ from a sale or exch a n g e tran s a c tio n. A capit al gain or a capit al loss nor m ally re"uir e s the concurr e n c e of two conditions for it to result: :; There is a sale or exch a n g e 9 and <; The thing sold or exch a n g e d is a capital ass e t . @hen securitie s beco m e worthle s s ther e is strictly no sale or exch a n g e but the law dee m s the loss anyw a y to be 6a loss from the sale or exch a n g e of capit al ass e t s .7 =)hina $anking )orpor a ti on v. )ourt of
Appe al s, et al., 0.%. -o. :<JF K, prom . Guly :C, <FFF;

+7B. Defi n e %a d d e % t s 6

s e 4 5 ri ti e s '

for !5r! o s e s

of d e d 5 4 t i % ili t y

of

ANS2-.& har e s of stock in a corpor a tion and rights to subscrib e for or to receiv e such shar e s . The ter m includ e s bond s, deb e n t u r e s , not e s or certificat e s , or other evide n c e of inde b t e d n e s s , issu e d by any corpor a tio n, including thos e issu e d by a gover n m e n t or political subdivision ther e of, with inter e s t coupo n s or in regist e r e d form. = ec. <.b, %ev. %egs. -o. J8 CC; +7C. 23a t is t3 e tax tre a t m e n t w ort 3 l e s s . of s e 4 5 r i ti e s %e4o m in g

ANS2-.& If securitie s, as define d und er ec. < =b; here of, held as capit al ass e t, are ascer t ain e d to be worthles s and charg e d off within the taxa bl e year, the loss resulting ther efro m shall be consid er e d as a loss from the sale or exch a n g e of capit al ass e t ma d e on the last day of such taxa bl e year. The taxp a y e r , how ev e r, has to prove throu g h clear and convincing evide n c e that the securities are in fact worthle s s . This rule, how ev e r, is not true in the cas e of banks or trus t comp a ni e s incorpor a t e d und e r the laws of the &hilippine s , a subs t a n ti al part of whos e busin e s s is the receipt of depo sits. = ec. J, %ev. %egs. -o. J8 CC; +8 . 1N; Cor! or a t i o n 3a s an a5 t 3 o ri C e d 4a !i t a l st o 4 ) of P8 millio n divid e d into 8# ' # # # s3 ar e s wit3 !ar val5 e of P* # # . # # ! er s3 ar e . P" millio n of t3 e a5 t 3 o ri C e d 4a!i t a l st o 4 ) w er e s5 % s 4 ri % e d ' %y vario 5 s st o 4 ) 3 o l d e r s in4l5 d i n g Dr. 0lor e s w 3 o s5 % s 4 ri % e d for st o 4 ) s wit3 !ar val5 e of P*. 8 millio n . To f5lly !ay for 3is s5 % s 4 r i ! t i o n ' Dr. 0lor e s tran s f e r r e d in "# # # to 1N; Cor! or a t i o n a !ar4 e l of lan d . /t w a s s5 % s e ? 5 e n t l y dis 4 o v e r e d %y t3 e B5r e a 5 of /nt er n a l .ev e n 5 e t3 a t t3 e !ar4 e l of lan d 3a d a fair m ar) e t val5 e of only P* millio n . a. Sin 4 e t3 e val5 e of t3 e !ar4 e l of lan d w a s only P* millio n w 3il e Dr. 0lor e s re4 e i v e d s3 ar e s of st o 4 ) w ort 3 P*. 8 millio n did Dr. 0lor e s e ar n in4o m e am o 5 n t i n g to P8 # # ' # # # . # # w 3i4 3 s3 o 5 l d % e s5 %( e 4 t to in4o m e tax 6 n t3 e ot3 e r 3an d ' s3 o 5 l d t3 e 4or! o r a t i o n % e allo w e d to d e d 5 4 t a los s am o 5 n t i n g to P8 # # ' # # # . # # 6 %. 23a t w o 5l d % e t3 e tax tre a t m e n t ' if in "# # * ' Dr. 0lor e s s ol d t3 e s3 ar e s of st o 4 ) in 1N; Cor! or a t i o n w 3i4 3 are not list e d or trad e d in t3 e st o 4 ) ex4 3 a n g e for P*. " millio n 6 4. S5 ! ! o s i n g t3 a t in "# # * 1N; Cor! or a t i o n s ol d t3 e !ar4 e l of lan d for P* millio n w 3i4 3 is its Con a l val5 a t i o n in "# # * . 1N; is not en g a g e d in t3 e real e s t a t e %5 s i n e s s . 23a t w o 5 l d % e t3 e tax tre a t m e n t for s5 4 3 a sal e 6 ANS2-. :

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9# of +$ a. .r. #lores did not earn any inco m e sub,ect to tax neith e r did 435 incur a loss which it could dedu c t from its <FFF gross inco m e . The tran s a c tio n is known as a tax8 free exch a n g e solely in kind, henc e no gain or loss is recog ni+e d . It is an exch a n g e solely in kind bec a u s e prop e r t y =land; was exch a n g e d for anot h e r prop er t y =shar e s of stock;. It is a tax8 free exch a n g e bec a u s e as a res ult of the exch a n g e , .r. #lores by hims elf was able to obt ain control of the corpor a tio n. b. If in <FF:, .r. #lores sold the shar e s of stock for &:.< million, the basis for the shar e s of stock would be the value of the parc el of land. In this cas e, it would be consid e r e d as if .r. #lores ac"uir e d the shar e s of stock for &: million the value of the prop e r t y he has exch a n g e d for the shar e s of stock. ince ther e is no showing in the proble m that .r. #lores is eng a g e d in the busin e s s of buying and selling shar e s of stock, then the net gain should be comp u t e d , by dedu c tin g the ac"uisition price =&: million; from the selling price =&:.< million;. Thus, the net gain is &<FF,F F F . F F . !n the first &:FF,F F F . F F net gain the tax should be JH and on the amo u n t exce e di n g the first &:FF,F F F. F F net gain the n the tax should be :FH. It is to be not e d that the holding period is not applied. c. A corpor a tio n is now sub,ect to capit al gains tax e s and all proce e d s from sales of real prop e r t y owne d by a corpor a tio n which are not use d in trad e or busin e s s is sub,ect to the OH pres u m e d capit al gains tax.
-!T* A-/ )!..*-T : %eme m b e r that the first trans a c tion is tax8 free but the secon d trans a c tion is taxa bl e. The proble m that ma y be given ma y involve a mer g e r or consolida tion in which cas e the abov e principle s also find applica tion. (ikewis e, if ther e are mor e partie s involved tha n .r. #lores, the n .r. #lores toge t h e r with other s not mor e tha n four should obtain control of the corpor a tion. If the excha n g e is not solely in kind =for exa m pl e , mon e y plus prope r t y was exch a n g e d or shar e s of stock or vice8 vers a;, then ther e is no tax8 free excha n g e bec a u s e the gain is taxe d but the loss is not allowe d to be deduc tible.

+9 . /n tax> fre e ex4 3 a n g e s %y %o o t 6 23a t a% o 5 t %a s i s 6

sol e l y in )ind ' w 3 a t is m e a n t

ANS2-. : $oot is the prop e r t y exch a n g e d for stocks or securities . #or exa m pl e , .r. (eon exch a n g e s his parc el of land for shar e s of stock in .ickey, Inc. The boot is the parc el of land. $asis is the value assign e d to the land or the shar e s of stock.
T.ANS0-. TA1-S

+: . Don Ces a r Soria n o ' a S! a n i s 3 nati o n a l ' die d on S e ! t e m % e r 8' "# # # in 3is villa at L54 er n e ' Swit C e r l a n d . Ge ex e 4 5 t e d a will % ef or e 3is d e a t 3 lea v i n g all of 3is !ro! e r t i e s to 3is girl frie n d Dari4 e l Don t a n o ' a 0ili!in o re si d i n g in Br5 g e ' Bel gi 5 m . T3e girl frie n d d e 4i d e d to %rin g t3 e rem a i n s of Don Ces ar ' w 3 o w a s a re s i d e n t of t3 e P3ili! ! i n e s from *F $ 8 5! to *F F : to t3 e P3ili! ! i n e s for %5rial % e 4 a 5 s e t3 a t w a s 3is wis 3 as m o s t of 3is frie n d s ar e still livin g in t3 e P3ili! ! i n e s . S3 e s! e n t a% o 5 t P: 8 # ' # # # . # # for f5n e r a l ex ! e n s e s .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9* of +$ n S e ! t e m % e r *:' "# # # Dari4 e l m e t yo5 in Gon g ) o n g an d en g a g e d yo5r s er vi 4 e s in ord e r to s e t t l e t3 e e s t a t e of Don Ces ar in a44 or d a n 4 e wit3 t3 e will w 3i4 3 w a s !ro ! e r l y !ro% a t e d in Sw it C e rl a n d . S3 e !re s e n t s to yo5 an inv e n t o r y of t3 e !ro ! e r t i e s left %y Don Ces a r wit3 t3 eir 4orr e s ! o n d i n g val5 e s as of S e ! t e m % e r 8' "# # # ' Don Ces ar s dat e of d e a t 3 . T3e villa in Swit C e r l a n d USP * millio n I an a! ar t m e n t %5ildin g lo4 a t e d in Ne w Nor)' USP 8 millio n I a 3a4i e n d a in Dav a o P" 8 millio n %5t t3 e !re s e n t val5 a t i o n is no w P7 # millio n % e 4 a 5 s e of roa d 4on s t r 5 4 t i o n s w 3i4 3 en 3 a n 4 e d t3 e val5 e of t3 e !ro! e r t y I USP * 8 millio n t3 e val5 e of life in s 5r a n 4 e !ro4 e e d s from an ins 5 r a n 4 e ta) e n o5 t %y Don Ces ar on 3is ow n lif e d e s i g n a t i n g 3is e s t a t e as % e n e f i 4 i a r y from t3 e Cant o n Sw i s s /ns 5r a n 4 e at Cant o n ' Sw it C e r l a n d I P" 8 millio n !ro 4 e e d s of life ins 5 r a n 4 e ta) e n %y Don Ces ar on 3is ow n life fro m P3ila m lif e /ns 5r a n 4 e in t3 e P3ili! ! i n e s !ay a % l e to Dari4 e l as irre v o 4 a % l e % e n e f i 4 i a r y I o5 t s t a n d i n g %a n ) %ala n 4 e wit3 P3ili! ! i n e Ban) of Com m e r 4 e in t3 e am o 5 n t of P8 millio n wit3 Nan e t t e as 3is an d K or 4o> d e ! o s i t o r . S3 ar e s of st o 4 ) of a Gon g ) o n g 4o m ! a n y %5 t m a n a g e d from t3 e P3ili! ! i n e s an d a P* 8 millio n a! ar t m e n t lo4 a t e d in Danila ' P3ili! ! i n e s w 3i4 3 3 e do n a t e d to 3is 4lo s e frie n d on A!ril "8' *F + F s5 %( e 4 t to t3 e 4on d i ti o n t3 a t t3 e frie n d rem i t s to Don Ces s a r all t3 e ren t a l s of t3 e !ro! e r t y d5rin g t3 e lif e ti m e of Don Ces ar . a. 23a t s3 o 5 l d % e re! or t e d as !art of Don Ces ar s gro s s e s t a t e an d w 3 a t d e d 5 4 t i o n s ar e allo w a % l e to d e t e r m i n e 3is n e t e s t a t e 6 -x!lai n . %. Are t3 e !ro4 e e d s of t3 e P" 8 millio n lif e ins 5r a n 4 e to % e 4o n s i d e r e d as !art of t3 e gro s s e s t a t e of Don Ces ar or Dari4 e l s in4o m e 6 23y6 4. S5 ! ! o s i n g Dari4 e l w a n t s to wit3 d r a w t3 e P8 millio n from t3 e %an ) ' w 3 a t ad vi s e s3 o 5 l d yo5 giv e 3 er6 d. /s Dari4 e l % ei n g t3 e sol e % e n e f i 4 i a r y lia%l e for t3 e !ay m e n t of t3 e e s t a t e tax e s 6 ANS2-. : a. ince /on )esar was a 6non8 resid e n t dec e d e n t who at the time of his dea t h was not a citi+en of the &hilippine s , only that part of the entire gros s est a t e which is situ a t e d in the &hilippine s , shall be includ e d in his tax a bl e est a t e . 7 = ec. KJ, -I%) of :CCD; The proble m is clear that /on )es ar reside d in the &hilippin e s only from :C>J to :CCD. pecifically, the part of his gros s est a t e which are situa t e d outsid e of the &hilippin e s and exclud e d from the taxa bl e est a t e are the ' Q: million villa in wit+erla n d , the ' QJ million ap art m e n t building in -ew 3ork, '. .A., and the proce e d s of the ' Q:J million life insur a n c e from the )anton wiss Insur a n c e . The following prop e r ti e s are part of his gross est a t e beca u s e they are situa t e d in the &hilippin e s . The &<J million /avao 2acien d a , the &J million bank balanc e with the &hilippin e $ank of )om m e r c e , the shar e s of stock in the 2ongkon g corpor a tio n and the &:J million apar t m e n t . The shar e s of stock hav e ac"uire d a busin e s s situs in the &hilippin e s beca u s e the foreign corpor a tion is ma n a g e d from the &hilippin e s henc e , includible as part of /on )es arss gross est a t e .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9" of +$ The &:J million apar t m e n t is part of the gross est a t e bec a u s e it was tran sf e rr e d in cont e m pl a tio n of dea t h . /on )es ar has ret ain e d for his life the en,oym e n t of the fruits of the prop e r t y. = ec. KJ =$;, -I%) of :CD; b. The proc e e d s of the &<J million life insura n c e is neith e r part of the gros s est a t e nor incom e to .aricel. The proce e d s are not part of the est a t e bec a u s e the ben eficiary is not the est a t e of /on )esar, his exec u t o r or ad minis tr a t o r and the design a tio n of the ben eficiary is irrevoc a bl e . = ec. KJ =*;, -I%) of :CCD; The &<J million is not also inco m e to .aricel beca u s e life insura n c e proc e e d s paid to ben eficiarie s upon the de a t h of the insure d are exclusion s from gross inco m e . = ec. >< R$S V:W, -I%) of :CCD; c. I would advis e .aricel to first secur e a certification from the )om mis sion e r of Intern al %eve n u e that the appro p ri a t e est a t e taxe s were alre a d y paid. If the amo u n t to be withdr a w n does not exce e d &<F,FF F. F F, she should secur e an aut hori+ a tion from the )om mis sion e r eve n if said taxe s hav e not yet bee n paid. =<nd par., ec. CD, -I%) of :CCD; d. If .aricel is at the sa m e time the exec u t o r or ad ministr a t o r of the est a t e , then she is primarily liable. If she is not the exec u t o r or ad ministr a t o r, the n being the ben eficiary, she is subsidiary liable to the said exec u t o r or ad ministr a t o r. = ec. C: R)W, -I%) of :CCD; -!T* A-/ )!..*-T : The valua tion to be used is the valua tio n at the time of the dec e d e n t s de a t h -!T at the time of filing retur n or paym e n t of est a t e tax. ++ . T3e N/.C of *F F : allo w s as a d e d 5 4 t i o n from t3 e gro s s e s t a t e of a 4itiC e n or re s i d e n t of t3 e P3ili! ! i n e s @(5di 4i a l ex! e n s e s of t3 e te s t a m e n t a r y or int e s t a t e !ro4 e e d i n g s A in ord e r to arriv e at t3 e n e t e s t a t e s5 %( e 4 t to e s t a t e tax e s . RS e 4 . +9 <A= <%=T. Are not a ri a l fe e s !aid for t3 e extr a( 5 d i 4 i a l s e t t l e m e n t of t3 e e s t a t e as w ell as att or n e y s fe e s for t3 e g5 ar d i a n d e d 5 4 t i % l e fro m t3 e gro s s e s t a t e as @(5di 4i a l ex! e n s e s A 6 -x!lai n %riefl y . ANS2-. : 3es. The notarial fee paid for the extr a,u dicial settle m e n t is clearly a dedu c tible exp e n s e since such settle m e n t effect e d a distribu tion of the est a t e to his lawful heirs. imilarly, the attor n e ys fees for a guardia n of the prop e r t y during the dec e d e n t s lifetime should also be consid e r e d as a dedu c tible ad ministr a tio n exp e n s e . The guardia n gives a det ailed accou n tin g of dec e d e n ts prop er t y and gives advice as to the prop e r settle m e n t of the est a t e , acts which contribut e d tow ard s the collection of dec e d e n ts ass e t s and the subs e " u e n t settle m e n t of the cas e.
=)om mi s sio n e r of Intern al %eve n u e v. )ourt of Appe al s, et al., 0.%. -o. :<>< F O , prom . .arch <<, <FFF;

-!T* A-/ )!..*-T : Gudicial expe n s e s are expe n s e s of ad ministr a tion. Administr a tion expe n s e s , as an allowa bl e deduc tion from gros s est a t e of the dec e d e n t for purpos e s of arriving at the value of the net est a t e , have bee n constr u e d to include all expe n s e s 6es s e n ti al to the collection of the ass e t s , paym e n t of debt s or the distribution of the prope r t y

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9$ of +$
to the perso n s entitle d to it.7 In other words, the expe n s e s mus t be ess e n ti al to the prope r settle m e n t of the est a t e . -ot deduc tible are expe n di t ur e s incurre d for the individual ben efit of the heirs, devis e e s or legat e e s . Thus, in (oren+o v. &osa d a s , the )ourt constr u e d the phra s e 6,udicial expe n s e s of the test a m e n t a r y or intes t a t e proc e e di n g s 7 as not including the comp e n s a ti o n paid to a trust e e of the dec e d e n ts est a t e whe n it app e a r e d that such trust e e was appoint e d for the purpos e of ma n a gi n g the dec e d e n ts real prope r t y for the ben efit of the test a m e n t a r y heir. In anot h e r cas e , the )ourt disallowe d the pre mi u m s paid on the bond filed by the ad ministr a t or as an expe n s e of ad ministr a tion since the giving of a bond is in the natur e of a "ualification for the office, and not nec e s s a r y in the settle m e n t of the est a t e . -either ma y attor n e ys fees incide nt to litigation incurr e d by the heirs in ass e r ting their resp e c tiv e rights be claime d as a deduc tion from the gross est a t e . =)om mi s sion e r of Intern al %even u e v. )ourt of Appe als, et al., 0.%. -o. :<><F O, prom. .arch <<, <FFF;

+F . /n *F F F Atty . C3ari T. A%le m a d e t3 e follo w i n g do n a t i o n s & a. P "8 # ' # # # . # # al5 m n i as s o 4 i a t i o n of 3 er alm a m a t e r ' t3 e Univ e r s i t y of t3 e P3ili! ! i n e s I %. P$ 8 # ' # # # . # # to S5 e C o n City Gig3 S43 o o l ' a !5 %li4 s4 3 o o l lo4 a t e d in Oam 5 n i n g ' S5 e C o n CityI 4. P8 # # ' # # # . # # as !riC e to D. Ala) a s ' a 0ili!in o at3l e t e w 3 o gar n e r e d t3 e gol d m e d a l in an int e r n a t i o n a l w ei g 3 t liftin g 4on t e s t 3 el d in Dos 4 o w w 3i4 3 4on t e s t w a s san4tion e d %y t3 e P3ili! ! i n e 2ei g 3 t lif ti n g As s o 4 i a t i o n ' t3 e nati o n a l w ei g 3 t l if ti n g as s o 4 i a t i o n I d. P8 # ' # # # . # # to a frie n d s3 e 3a s not s e e n for a lon g tim e I e. n De4 e m % e r $* ' *F F + s3 e do n a t e d on e > 3alf of 3 er !ar4 e l of lan d w ort 3 P". 8 millio n to 3 er s o n ' an d on Ean5 ar y "' *F F F ' s3 e do n a t e d t3 e re> m ai ni n g on e > 3alf of t3 e s a m e !ar4 e l of lan d to t3 e sa m e s o n I an d f. P: 8 # ' # # # . # # to t3 e Goly rd er of 0riars ' a reli gi o 5 s 4o n g r e g a t i o n to % e 5s e d for t3 e 4on s t r 5 4 t i o n of a 43 5r4 3 . Atty . C3ari T. A%le d eriv e s 3 er in4o m e s ol e l y from t3 e !ra4 ti 4 e of 3 er !rof e s s i o n . a= S3 o 5 l d s3 e % e s5 %( e 4 t to don o r s tax e s on t3 e a% o v e do n a t i o n s 6 %= /s s3 e en ti tl e d to an y ex e m ! t i o n s 6 4= S3 o 5 l d t3 e do n a t i o n m a d e to 3 er so n % e tre a t e d as a sin g l e do n a t i o n % e 4 a 5 s e only tw o day s s e ! a r a t e t3 e do n a t i o n s 6 d= S3 o 5 l d s3 e % e allo w e d to d e d 5 4 t t3 e do n a t i o n s from 3 er in4 o m e d eriv e d fro m t3 e ex e r 4 i s e of 3 er !rof e s s i o n 6 ANS2-. : a. Atty. Able is sub,ect to the paym e n t of donors tax e s on the following dona tion s : :; &<JF,F F F . F F don a tion to the alum ni associa tio n of the 'niversity of the &hilippine s bec a u s e the alu mni associa tio n is not a school9 <; The &JF,FF F. F F dona tion to a friend =not relat e d to Atty. Able by cons a n g ui nity within the fourth degr e e ; which is consid er e d as a don a tion to a stra n g e r henc e sub,ect to a donors tax of thirty perc e n t =>FH; of the net gift9 and >; the don a tio n to her son.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 97 of +$ b. he is entitled to an exe m p tio n on the first &:FF,F F F. F F of the :CCC net dona tion s . #urth er m o r e , the following dona tion s are exe m p t from donors taxe s : :; &<JF,F F F. F F don a tion to Lue+on )ity 2igh chool as the sa m e is consid e r e d as a don a tio n to the gover n m e n t 9 <; the don a tion to ..A. (akas und e r the provisions of %epublic Act -o. DJ?C, as it is clear that the condition s in the said law are me t9 and >; the don a tion to the religious congr e g a ti o n beca u s e it is evide n t that the whole amo u n t is not to be us ed for ad minis tr a tio n purpo s e s . c. The don a tio n to the son should be tre a t e d as sep ar a t e don a tio n s bec a u s e donors tax e s are comp u t e d on the basis of net gifts ma d e during a calen d a r year. d. The don a tio n to ..A. (akas is allow ed as a dedu c tion bec a u s e it is a pri+e to an athle t e in an intern a tio n al sports tourn a m e n t held abro a d and sanction e d by the nation al sports associa tio n. = ec. :, %.A. -o. DJ?C; Also allowed as a ded uc tio n is the don a tio n to Lue+o n )ity 2igh chool. F# . n S e ! t e m % e r "F ' *F + F ' form e r Pre s i d e n t Dar4 o s die d in Gaw aii' U.S.A . A s! e 4 i a l a5 di t te a m 4re a t e d to 4on d 5 4 t inv e s t i g a t i o n s an d ex a m i n a t i o n s of t3 e tax lia%ilit y of t3 e lat e !re s i d e n t dis 4l o s e d t3 a t t3 e Dar4 o s e s fail e d to file a writt e n noti 4 e of d e a t 3 of t3 e d e 4 e d e n t an d an e s t a t e tax ret 5r n in viola t i o n of t3 e N/.C. T3e Com m i s s i o n e r of /nt er n a l .ev e n 5 e t3 er e % y 4a 5 s e d t3 e !re ! a r a t i o n an d filin g of t3 e -sta t e Tax .et 5 r n for t3 e e s t a t e of t3 e lat e !re s i d e n t . n E5ly "9 ' *F F * ' t3 e B/. is s 5 e d a d efi 4i e n 4 y tax as s e s s m e n t ag ai n s t t3 e e s t a t e w 3i4 3 w er e s er v e d 4on s t r 5 4 t i v e l y 5! o n Ds. /m el d a Dar4 o s <t3r o 5 g 3 3 er 4ar e t a ) e r Dr. Dartin e C = at 3 er las t )n o w n ad dr e s s at No. "# 7 rt e g a St.' Sa n E5an' D .D. T3e d efi 4i e n 4 y tax as s e s s m e n t was not !rot e s t e d ad m i n i s t r a t i v e l y %y Drs. Dar4 o s an d t3 e ot3 e r 3 eir s of t3 e lat e !re s i d e n t . n 0e%r 5 a r y ""' *F F $ ' t3 e B/. Com m i s s i o n e r is s 5 e d tw e n t y > tw o noti 4 e s of lev y on real !ro ! e r t y ag ai n s t 4er t a i n !ar4 e l s of lan d ow n e d %y t3 e Dar4 o s e s > to s a ti s f y t3 e alle g e d e s t a t e tax' am o n g ot3 e r s . t3 er noti 4 e s of lev y w er e m a d e 5ntil t3 e !ro! e r t i e s w er e s ol d at !5 %li 4 a5 4 ti o n ' wit3 t3 e lot s % ei n g forf ei t e d in fav or of t3 e go v e r n m e n t for la4) of %id d e r s . T3e validi t y of t3 e B/.Js a4ti o n s is no w rais e d . ANS2-. : The approv al of the court sitting in prob a t e , or as a settle m e n t tribun al over the est a t e of the dec e a s e d is not a ma n d a t o r y re"uir e m e n t for the collection of the est a t e . The prob a t e court is det er mi nin g issue s which are not ag ains t the prop er t y of the dece d e n t , or a claim ag ain s t the est a t e as such, but is ag ain s t the inter e s t or prop er t y right which the heir, legat e e , devis e e , etc. has in the prop e r t y forme rly held by the dec e d e n t . The notices of levy were regularly issue d within the prescriptiv e period. The tax ass e s s m e n t having beco m e final, exec u t o r y and enforc e a bl e , the sa m e can no long er be cont e s t e d by me a n s of a disguis e d prot e s t. =.arcos, II v. )ourt of Appe al s, et al., <D> )%A ?D; F* . Dr. 0il /. Pin o ' a Can a d i a n 4itiC e n an d a re s i d e n t of nt ari o ' Can a d a ' s e n d s a gift of US P " # ' # # # . # # to 3is f5t 5r e

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 98 of +$ da 5 g 3 t e r > in> law w 3 o is to % e m arri e d to 3is only so n in t3 e P3ili! !i n e s . T3e m arria g e a4t 5 a ll y too ) !la 4 e on t3 e dat e t3 e gift w a s re4 e i v e d . a. /s t3 e don a t i o n %y Dr. Pin o s5 %( e 4 t to tax 6 -x!lai n . 2o5ld yo5r an s w e r % e t3 e sa m e if Dr. Pin o is a 0ili!in o 4itiC e n %5t is a no n > re si d e n t 6 %. 23a t is t3 e tax 4o n s e ? 5 e n 4 e ' if an y ' to t3 e Dr. Pin o s da 5 g 3 t e r > in> law 6 ANS2-. : a. 3es, bec a u s e a non8 resid e n t alien is exe m p t only from the paym e n t of donors taxe s if his gifts are ma d e to or for the use of the -ation al 0overn m e n t or any entity crea t e d by any of its age n cie s which is not conduc t e d for profit, or to any political subdivision of the said 0overn m e n t . 2e is sub,ect to tax bec a u s e the gift was not ma d e in favor of an educ a tio n al andTor charita bl e, religious, cultur al or social welfar e corpor a tio n, institution, found a tio n, trus t or philant hr o pic orga ni+ a tio n or res e a r c h institution or corpor a tio n which does not use mor e tha n >FH of the dona tion for ad ministr a tio n purpos e s . If .r. &ino was a non8 resid e n t #ilipino my answ er would still be the sa m e . b. -one. the amo u n t should not be consid er e d as part of her inco m e as the sa m e is one of the exclusions , -eith er is ther e any donors tax due from her bec a u s e the tax is to be paid by the donor and not the recipien t.
.-TU.NS

F" . 23a t is t3 e !ro % a t i v e val5 e of in4o m e tax ret 5r n s as evi d e n 4 e 6 ANS2-. : Incom e tax retur n s being public docu m e n t s , until controv e r t e d by comp e t e n t evide n c e , are comp e t e n t evide n c e , are prima facie correc t with res p e c t to the entrie s ther ein. F$ . Bill an d Gillary are m arri e d to e a 4 3 ot3 e r . Bill is e m ! l o y e d as a go v e r n m e n t em ! l o y e e d erivi n g an n 5 a l gro s s 4o m ! e n s a t i o n in4 o m e am o 5 n t i n g to P* " # ' # # # . # # w 3il e Gillary d eriv e s in4 o m e from s elli n g %a % y dre s s e s . Ger mont3ly in4 o m e fl54 t 5 a t e s ' %5t for t3 e y e ar "# # # ' s3 e gro s s e d P8 # # ' # # # . # # . T3e 4o5 ! l e 3a v e no 43ildr e n . Are t3 e y allo w e d to file s e ! a r a t e in4 o m e tax ret 5 r n s 6 23y 6 ANS2-. : -o. As a gen e r al rule, they are not allowe d to file sep a r a t e return s as only marrie d individu als who are both earning purely comp e n s a t i o n incom e are allowe d to file sep a r a t e incom e tax retur n s . ection J: =/; of the -I%) of :CCD provid e s that, 6.arried individu als, whet h e r citi+en s, resid e n t or non8 resid e n t aliens, who do not derive incom e purely from comp e n s a t i o n shall file a retur n for the taxa bl e year to includ e the incom e of both spous e s , but wher e it is impr ac tic a bl e for the spous e s to file one return, each spou s e ma y file a sep ar a t e retur n of incom e but the retur n s so filed shall be cons olida t e d by the $ure a u for purpos e s of verification7

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 99 of +$ There is no showing in the proble m that it is imprac tic a bl e for $ill and 2illary to file one return, henc e they should file a single retur n. F7 . 23o are t3 e indivi d 5 a l s re? 5 ir e d to file an in4o m e tax ret 5r n 6 ANS2-. : a. *very #ilipino citi+en residing in the &hilippin e s9 b. *very #ilipino citi+en residing outsid e the &hilippin e s on his inco m e from sourc e s within the &hilippine s 9 c. *very alien residing in the &hilippine s on inco m e derive d from sourc e s within the &hilippine s 9 and d. *very nonr e sid e n t alien eng a g e d in trad e or busin e s s or in the exercis e of profes sio n in the &hilippin e s . = ec. J: RAS V:W, -I%) of :CCD; F8 . 23o are t3 e indivi d 5 a l s w 3 o are not required to file an in4 o m e tax ret 5 r n M ANS2-. : a. An individu al whos e gros s inco m e does not exce e d his tot al pers o n al and addition al exe m p tio n s for dep e n d e n t s , Provide d, That a citi+en of the &hilippin e s and any alien individu al eng a g e d in busin e s s or practic e of profes sion within the &hilippine s shall file an inco m e tax return reg ar dl e s s of the amo u n t of gros s incom e 9 b. An individu al with res p e c t to pure comp e n s a ti o n inco m e for service s in what e v e r form paid, including, but not limite d to fees, salaries , wag e s , com mi s sion s , and similar item s , derive d from sourc e s within the &hilippine s , the inco m e tax on which has be e n correc tly withh eld, Provide d, That an individu al deriving comp e n s a t i o n concurr e n tly from two or mor e employe r s at any time during the taxa bl e year shall file an incom e tax retur n: Provide d, furth er, That an individu al whos e pure comp e n s a ti o n inco m e derive d from sourc e s within the &hilippine s exce e d s ixty thou s a n d peso s =&OF,FF F. F F ;, shall also file an incom e tax retur n9 c. An individu al whos e sole incom e has bee n sub,ect to final withholding tax9 d. An individu al who is exe m p t from incom e tax purs u a n t to the provisions of the -I%) of :CCD, and other laws, gen e r al or special. = ec. J: RAS V<W, -I%) of :CCD; = ** (AT* T %'(* !- -!-8#I(I-0 !# )!.&*- ATI!- *A%-*% @2! * @IT22!(/I-0 A%* *L'A( T! A.!'-T !# TA4 /'*; F9 . @0A Cor! or a t i o n %ro5 g 3 t to 4o 5rt t3 e is s 5 e of w 3 e t 3 e r it s3 o 5 l d % e m a d e lia%l e for t3 e !ay m e n t of t3 e wit3 3 o l d i n g tax at s o 5 r 4 e sin 4 e it is m er e l y an ag e n t an d not t3 e tax !ay e r . .5le on t3 e is s 5 e wit3 rea s o n s . ANS2-.& 6#7 )orpor a tio n as the withholding ag e n t is explicitly ma d e pers o n ally liable und er the Tax )ode for the paym e n t of the tax re"uir e d to be withh eld. %eas o n: The law sets no condition for the pers o n al liability of the withholding ag e n t to att a c h. This is in order to comp el the withholding age n t to withhold the tax und er any and all circu m s t a n c e s .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9: of +$ In effect, the respo n sibility for the collection of the tax as well as the paym e n t ther e of is conce n t r a t e d upon the pers o n over who m the 0overn m e n t has ,urisdiction. Thus, the withholding age n t is the constitu t e d age n t both of the gover n m e n t and the taxp a y e r . @ith resp e c t to the collection andTor withholding of the tax, he is the 0overn m e n t s age n t. In reg ar d to the filing of the nece s s a r y incom e tax retur n and the paym e n t to the 0overn m e n t , he is the age n t of the taxp a y e r . The withholding age n t, ther efor e, is no ordin ar y gover n m e n t age n t esp e ci ally bec a u s e und er the Tax )ode he is pers o n ally liable for the tax he is duty boun d to withhold9 wher e a s , the )ommis sio n e r of Intern al %even u e and his dep u ti e s are not ma d e liable und er the law. =#ilipinas ynt h e ti c #iber )orpor atio n v. )ourt of Appe al s, et al., 0.%. -os.
::K ? C K P :<?> D D , pro m. !ctob er :<, :CC C;

-!T* A-/ )!..*-T : /o not confus e the above holding with "ue s tion no. CD, infra. The issue in this "ue s tion is the liability of the withholding age n t for the unp aid taxe s @2I(* unde r "ue s tion no. CD the issue is whet h e r a withholding age n t is within legal cont e m pl a tio n a taxp a ye r who could avail of the tax a mn e s t y.

F9A. 23a t are t3 e tw o ty ! e s of wit3 3 o l d i n g at s o 5 r 4 e 6 ANS2-.& The two =<; type s of withholding at sourc e are the :; final withholding tax9 and <; credit a bl e withholding tax. 'nder the fin al wit3 3 o l d i n g tax sy s t e m the amo u n t of inco m e tax withh eld by the withholding ag e n t is constitu t e d as a full and final paym e n t of the inco m e due from the paye e on the said incom e . R: st sent e n c e , : st par., ec. <.JD =A;, %ev. %egs. -o. <8 CKS The liability for paym e n t of the tax rests primarily on the payor or the withholding age n t . Thus, in cas e of his failure to withhold the tax or in cas e of und er withholding, the deficiency tax shall be collect e d from the payor withholding ag e n t . The paye e is not re"uire d to file an incom e tax retur n for the particular incom e . *xa mpl e: .ara won &<FF,F F F . F F from the &era or $ayong cont e s t . It should be the spons or8 payor who is re"uire d to ded uc t the appro pria t e withholding tax from the &<FF,F F F . F F pri+e before it is given to .ara. .ara, the paye e is not re"uire d to file an incom e tax retur n for the &<FF,F F F . F F . #ailure to withhold sub,ect s the spons or8 paye e to the tax. 'nder the 4re d i t a % l e wit3 3 o l d i n g tax sy s t e m , taxe s withh eld on cert ain incom e paym e n t s are inten d e d to e"u al or at leas t approxi m a t e he tax due from the paye e on the said incom e . The inco m e recipien t is still re"uir e d to file an inco m e tax return andTor pay the differe n c e betw e e n the tax withh eld and the tax due on the inco m e . R: st and < nd sent e n c e s , ec. <JD=$;, %ev. %egs. -o. <8 CKS The two kinds of credit a bl e withholding tax e s are :; taxe s withh eld on incom e paym e n t s cover e d by the exp a n d e d withholding tax9 and <; tax e s withh eld on comp e n s a ti o n incom e . *xe mp tio n s from the re"uir e m e n t of withholding or when no withholding taxe s re"uire d: &aym e n t s to the following: :. -ation al 0overn m e n t and its instru m e n t a lities including provincial, city, or municipal gover n m e n t s 9 <. &erson s en,oying exe m p ti o n from paym e n t of inco m e taxe s purs u a n t to the provisions of any law, gen e r al or special, such as but not limited to the following: a. ales of real prop e r t y by a corpor a tio n which is regist e r e d with and certified by the 2('%$ or 2'/)) as

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9+ of +$ eng a g e d in sociali+ed housing pro,ect wher e the selling price of the hous e and lot or only the lot does not exce e d &:KF,F F F. F F in .etro .anila and other highly urb a ni+ e d are a s and &:JF,F F F. F F in other are a s or such ad,us t e d amo u n t of selling price for sociali+ed housin g as ma y later be det e r mi n e d and adop t e d by the 2('%$9 b. )orpor a tion s regist e r e d with the $oard of Inves t m e n t s and en,oying exe m p ti o n s from inco m e und er the !mnibus Inves t m e n t )ode of :CCD9 c. )orpor a tion s exe m p t from incom e tax und e r ec. >F, of the Tax )ode, like the , 0 I , the &) !, etc. 2owev er, inco m e paym e n t s arising from any activity which is conduc t e d for profit or inco m e derive d from real or pers o n al prop er t y shall be sub,ect to a withholding tax. = ec. JD.J, %ev. %egs. -o. <8 CK; F: . Andr e s Soria n o ' a U.S. 4itiC e n an d re si d e n t ' form e d @A. Soria n o N Cia'A w 3i4 3 w a s s5 % s e ? 5 e n t l y ren a m e d ANSC .. Ge ow n e d origi n a ll y is s 5 e d 4o m m o n s3 ar e s w 3i4 3 s5 % s e ? 5 e n t l y ear n e d st o 4 ) divid e n d s . 23 e n 3 e die d ' !art of t3 e s3 ar e s !a s s e d on to 3is wid o w an d an o t 3 e r !art to 3is estat e . Sto 4 ) divid e n d s w er e ag a i n d e 4l ar e d . S5 % s e ? 5 e n t l y ' ANSC . re4l a s s i f i e d its exi s t i n g 4o m m o n s3 ar e s int o 4o m m o n an d !ref e rr e d s3 ar e s . T3e wid o w an d t3 e e s t a t e ex 4 3 a n g e d t3 e ir 4o m m o n st o 4 ) 3 o l d i n g s for !ref e rr e d s3 ar e s ' wit3 t3 e e s t a t e ret ai n i n g s o m e 4o m m o n s3 ar e s . ANSC . t3 e n red e e m e d t3 e 4o m m o n s3 ar e s % el o n g i n g to t3 e e s t a t e aft e r w 3i4 3 t3 e B/. as s e s s e d ANSC . for d efi 4i e n 4 y wit3 3 o l d i n g tax> at s o 5 r 4 e on t3 e tran s a 4 t i o n s of ex4 3 a n g e an d red e m ! t i o n of st o 4 ) s . Day ANSC .' as t3 e wit3 3 o l d i n g ag e n t av ail of t3 e % e n e f i 4 e n t !rovi s i o n s of P.D. No. 9: ' w 3i4 3 4on d o n e s ' @t3 e 4oll e 4 t i o n of all int er n a l rev e n 5 e tax e s in4l5 d i n g t3 e in4r e m e n t s of ! e n a l t i e s on a44 o 5 n t of no n > !ay m e n t as w ell as all 4ivil' 4rimin a l or ad m i n i s t r a t i v e lia%iliti e s arisi n g from or in4id e n t toA <vol 5 n t a r y = dis 4l o s 5 r e s 5n d e r t3 e N/.C of !re v i o 5 s l y 5n t a x e d in4o m e an d K or w e a l t 3 @re a li C e d 3 er e or a%ro a d %y an y tax ! a y e r ' nat 5 r a l or (5ridi4 a l . A 6 ANS2-.& -o. In the oper a tio n of the withholding tax syst e m , the withholding ag e n t is the payor, a sep a r a t e entity acting no mor e tha n an age n t of the gover n m e n t for the collection of the tax in order to ens ur e its paym e n t s . The payor of the tax is the taxp a y e r , he is the pers o n sub,ect to tax impos e d by law9 and the paye e is the taxing auth ority. In oth er words, the withholding age n t is mer ely a tax collector, not a taxp a y e r . 'nder the withholding syst e m , how ev e r, the age n t8 payor beco m e s a paye e by fiction of law. 2is =ag e n t ; liability is direct and indep e n d e n t from the taxp a y e r , bec a u s e the inco m e tax is still impos e d on and due from the latter. The age n t is not liable for the tax as no wealth flowed into him, he earn e d no inco m e . The Tax )ode only mak e s the age n t pers o n ally liable for the tax arising from the bre a c h of its legal duty to withhold as distinguis h e d from its duty to pay tax since, the gover n m e n t caus e of action ag ain s t the withholding ag e n t is not for the collection of inco m e tax, but for the enforc e m e n t of the withholding provisions of the Tax )ode,

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e 9F of +$ complia nc e with which is impos e d on the withholding ag e n t and not upon the taxp a y e r . A withholding age n t, not being a taxp a y e r is not cover e d by the prot e c tiv e emb r a c e of a tax amn e s t y bec a u s e the provisions of the imple m e n ti n g rules of &./. -o. >DF which exp a n d e d amn e s t y on previou sly unt ax e d incom e is explicit in excluding tax liabilities on withholding tax at sourc e. =)om mi s si on e r of Intern al %even u e v. )ourt of
Appe al s, et al., 0.%. -o. :FKJ D O , Ganuar y <F, :CC C;

-!T*

A-/ )!..*-T : The abov e )ommi s sion e r of Intern al %eve nu e v. )ourt of Appe als, et al., =A- )!%;, cas e ma y have an impa c t on the doctrine enuncia t e d in )ommi s sion e r of Intern al %eve nu e v. &roct er P 0a mbl e &hilippine .anufact uring )orpor a tion, <F? )%A >DD, >K>8 >KO. &roct er P 0a mbl e held that a taxp a ye r is define d unde r the -I%) as 6any pers on sub,ect to tax.7 ince, the withholding age nt who is 6re"uir e d to deduc t and withhold any tax7 is ma d e 6pers on ally liable for such tax,7 sub,ect to and liable for deficienc y ass e s s m e n t s , surch a r g e s and pen altie s should the a mo u n t of the tax be finally det er mi n e d to be less tha n that re"uire d to he withh el d by law, then he is a taxp a ye r . 2e has sufficient legal inter e s t to bring a suit for refund of taxe s he believe s wer e illegally collect e d from him. =citing &hilippine 0uar a n t y )omp a n y, Inc. v. )ommi s sion e r of Intern al %even u e , :J )%A :; The read e r should take not e that, in cas e of doubt, tax a mn e s ti e s are to be strictly constr u e d agains t the gover n m e n t . Tax stat u t e s being burd e n s are not to be pres u m e d beyon d what the tax amn e s t y expr e s sl y and clearly declar e s . =%epublic v. Inter m e di a t e Appellat e )ourt, :CO )%A >>J; To su m m a ri+ e , if the issue is applica tion for refund, the withholding age n t is a taxp a ye r =&roct e r P 0a mbl e;, but for tax amn e s t y purpos e s , he is not. =Anscor;

TA./00 AND CUST DS C D-

F+ .

23 e n do e s im ! or t a t i o n % e g i n an d w 3 e n do e s it en d 6

ANS2-. : Import a tio n begins when the conv e yin g vess el or aircraft ent e r s the ,urisdiction of the &hilippine s with inten tio n to unlad e ther ein. Import a tio n is dee m e d ter min a t e d upon paym e n t of the duties, taxe s and other charg e s due upon the ag e n ci e s , or secur e d to be paid, at the port of entry and the legal per mit for withdr a w al shall hav e bee n gran t e d . In cas e the articles are free of duties, tax e s and oth er charg e s , until they hav e legally left the ,urisdiction of the custo m s . = ec. :<F<, T))&; FF . 23a t is m e a n t %y t3 e fle xi % l e tariff 4la5 s e 6 ANS2-.& This is a provision in the Tariff and )usto m s )ode, which imple m e n t s the cons titu tion ally deleg a t e d pow er of the &resid e n t of the &hilippine s , in the inter e s t of nation al econo m y, gen e r al welfar e andTor nation al security upon reco m m e n d a t i o n of the -*/A to incre a s e , reduc e or remo v e existing prot e c tiv e rate s of import duty, &%!1I/*/ T2AT, the incre a s e should not be higher tha n :FFH ad valore m 9 to est a blis h import "uot a or to ban imports of any com m o dit y, to impos e addition al duty on all import s not exce e di n g :FH ad valore m .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :# of +$ *# # . T3e Tariff an d C5s t o m s Cod e !rovi d e s for t3 e im! o s i t i o n of s! e 4 i a l 45 s t o m s d5ti e s . 23a t are t3 e s e d5 ti e s an d w 3 a t is t3 eir nat 5 r e an d !5r! o s e 6 ANS2-.& pecial custo m s duties are addition al import duties impos e d on specific kinds of import e d articles und e r cert ain conditions . The special custo m s duties are the anti8 du mpin g duty, the count e r v ailing duty, the discrimin a t o r y duty and the marking duty. The special custo m s duties are impos e d for the prot e c tio n of cons u m e r s and ma n uf a c t u r e r s , as well as &hilippin e produc t s . *# * . -x!lai n %riefl y w 3 a t is m e a n t %y an ti> d5 m ! i n g d5t y an d w 3 e n is it im ! o s e d 6 ANS2-.& A special duty impos e d on the import a tio n of a produc t, com m o dit y or article of com m e r c e into the &hilippin e s at less tha n its nor m al value when des tin e d for dom e s tic cons u m p ti o n in the export countr y, which is the differe n c e betw e e n the export price and the norm al value of such produc t, com m o dit y or article. = ec. >F: =s; =:;, T)), as am e n d e d by %.A. -o. KDJ<, 6Anti8 /umping Act of :CCC.7; The anti8 du mpin g duty is impos e d wher e the import a tio n of the produc t, com m o di t y or article of com m e r c e describ e d abov e is causing or is thre a t e ni n g to caus e ma t e ri al in,ury to a dom e s tic indus try, or mat e ri ally retar d s the est a blis h m e n t of a dom e s tic indus tr y producing the like produc t. = ec. >F: =a;, T)), Ibid. 7; The definition und e r the %.A. -o. KDJ<, the 6Anti8 /umping Act of :CCC,7 is subs t a n ti ally the definition provide d for und e r %.A. -o. DK?>, the 6Anti8 /umpin g Act of :CC?.7 *# " . -x!lai n t3 e m e a n i n g of norm a l val5 e for !5r! o s e s of im! o s i n g t3 e an ti> d5 m ! i n g d5 t y . ANS2-.& It is the comp a r a bl e price at the dat e of sale of like produc t, com m o di t y, or article in the ordinar y cours e of trad e when des tin e d for cons u m p ti o n in the countr y of export. = ec. >F: =s; => ;, T)), as am e n d e d by %.A. -o. KDJ<, 6Anti8 /umping Act of :CCC.7; *# $ . 23a t is m e a n t %y d5 m ! e d im! or t K ! r o d 5 4 t 6

ANS2-. : Any produc t, com m o di t y or article of com m e r c e introdu c e d into the &hilippin e s at an export price less tha n its nor m al value in the ordinar y cours e of trad e, for the like produc t, com m o dit y or article des tin e d for cons u m p ti o n in the exporting country, which is causing or is thre a t e n i n g to caus e ma t e ri al in,ury to a dom e s tic indus tr y, or mat e ri ally retar din g the est a blish m e n t of a dom e s tic indus tr y prod ucin g the like produc t. = ec. >F: =s; =J;, T)), as am e n d e d by %.A. -o. KDJ<, 6Anti8 /umpin g Act of :CCC.7; *# 7 . 23o im! o s e s t3 e an ti> d5 m ! i n g d5 t y .

ANS2-. : The ecre t a r y of Trade and Indus tr y in the cas e of non8 agricultur al prod uc t, com m o dit y, or article or the ecr e t a r y of Agricultur e, in the cas e of agricultur al produc t, com m o di t y or article, after form al inves tig a tio n and affirm a tiv e finding of the Tariff )om mis sion. *ven when all the re"uire m e n t s for the imposition hav e be e n fulfilled, the decision on whet h e r or not to impos e a definitive anti8

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :* of +$ du mpin g duty rem ai n s the prero g a tiv e of the Tariff )ommis sio n. = ec. >F: =a;, T)), as am e n d e d by %.A. -o. KDJ<, 6Anti8 /umping Act of :CCC.7;
-!T* A-/ )!..*-T : %.A. -o. KDJ<, 6Anti8 /umping Act of :CCC7 abolish e d the pecial )ommi t t e e on Anti8 /umping crea t e d unde r %.A. -o. DK?>, the 6Anti8 /umping Act of :CC?7. )riteria use d by the Tariff )ommi s sion whet h e r or not to impos e the anti8 du mpin g duty. It ma y conside r a mo n g other s, the effect of imposing an anti8 du mpin g duty on the welfare of the cons u m e r s andTor the gen e r al public, and other relat e d local industrie s . = ec. >F: =a;, T)), as ame n d e d by %.A. -o. KDJ<, 6Anti8 /umping Act of :CCC.7;

*# 8 . 23a t is t3 e am o 5 n t of an ti> d5 m ! i n g d5t y t3 a t m ay % e im! o s e d 6 ANS2-. : The differe n c e betw e e n the export price and the nor m al value of such produc t, com m o di t y or article. = ec. >F: =s; =:;, T)), as am e n d e d by %.A. -o. KDJ<, 6Anti8 /umping Act of :CCC.7; The anti8 du mpin g duty shall be e"u al to the mar gin of dum pin g on such produc t, com m o dit y or article ther e a f t e r import e d to the &hilippin e s und e r similar circu m s t a n c e s , in addition to ordinar y duties, taxe s and charg e s impos e d by law on the import e d produc t, com m o dit y or article. *# 9 . 23a t are 4o5 n t e r v a i li n g d5ti e s 6

ANS2-.& Addition al custo m s duties impos e d on any produc t, com m o dit y or article of com m e r c e which is grant e d directly or indirectly by the gover n m e n t in the country of origin or export a tio n, any kind or form of specific subsidy upon the produc tion, ma n uf a c t u r e or export a tio n of such produc t com m o di t y or article, and the import a tio n of such subsidi+e d produc t, com m o dit y, or article has caus e d or thre a t e n s to caus e ma t e ri al in,ury to a dom e s tic indus try or has mat e ri ally retar d e d the growt h or prev e n t s the est a blish m e n t of a dom e s tic indus try. = ec. >F<, T))& as am e n d e d by ection :, %.A. -o. KDJ:; *# : . 23a t are m ar)in g d5 ti e s 6

ANS2-. : Addition al custo m s duties impos e d on foreign articles =or its cont ain e r s if the article itself canno t be mark e d ;, not mark e d in any official langu a g e in the &hilippine s , in a cons picuo u s plac e as legibly, indelibly and per m a n e n t l y in such ma n n e r as to indicat e to an ultima t e purch a s e r in the &hilippin e s the na m e of the countr y of origin. *# + . 23a t is a dis 4ri m i n a t o r y d5 t y 6

ANS2-. : -ew and addition al custo m s duty impos e d upon articles wholly or in part the growth or produc t of, or import e d in a ves s el, of any foreign country which impos e s , directly or indirectly, upon the disposition or tran s p o r t a ti o n in tran sit throu g h or reexp o r t a ti o n from such countr y of any article wholly or in part the growt h or produc t of the &hilippin e s , any unre a s o n a bl e charg e , exac tion, regula tio n or limitation which is not e"u ally enforc e d upon like articles of every foreign countr y, or discrimin a t e s ag ain s t the com m e r c e of the &hilippine s , directly or indirectly, by law or

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :" of +$ ad ministr a tiv e regula tio n or practice, by or in res p e c t to any custo m s , tonn a g e , or port duty, fee, charg e , exac tion, classification, regula tio n, condition, restriction or prohibition, in such ma n n e r as to place the com m e r c e of the &hilippin e s at a disadv a n t a g e comp a r e d with the com m e r c e of any foreign country. *# F . 23a t is t3 e do4 tri n e of !rim ar y (5ris di 4 t i o n 6

ANS2-. : The $urea u of )usto m s has exclusive ad minis tr a tiv e ,urisdiction to conduc t searc h e s , sei+ur e s and forfeitur e s of contr a b a n d withou t interfer e n c e from the courts. It could conduc t searc h e s and sei+ure s withou t ne e d of a ,udicial warra n t exc e p t if the searc h is to be conduc t e d in a dwelling plac e. ** # . T3e Colle 4 t o r of C5s t o m s is s 5 e d a 2arra n t of S ei C 5 r e an d Det e n t i o n of "8 ' # # # %a g a of ri4 e ' % e ari n g t3 e na m e of @SN 2DAN' Dille d in Pala w a n A s3i ! ! e d on %o ar d t3 e DKH @Al% er t o A w 3i4 3 w a s t3 e n do 4) e d at Pier 9 at Ce% 5 City. T3e w arra n t w a s is s 5 e d on t3 e %a s i s of a re! or t t3 a t t3 e ri4 e 3ad % e e n ille g a l l y im! or t e d as it w a s lan d e d in Pala w a n %y a for ei g n ve s s e l an d t3 e n !la4 e d in s a 4 ) s m ar) e d @SN 2DAN' Dille d in Pala w a n . A /t w a s t3 e n s3i! ! e d to Ce% 5 City on %o ar d t3 e DKH @Al% er t o . A 0orf ei t 5 r e !ro4 e e d i n g s w er e t3 e n st ar t e d in t3 e Ce% 5 City 45 s t o m s offi4 e . T3e 4on s i g n e e t3 e n file d a 4ivil s5it for in(5 n 4 ti o n % ef or e t3 e Ce% 5 City .TC' w 3i4 3 is s 5 e d t3 e in(5 n 4 ti o n % e 4 a 5 s e t3 er e w a s all e g e d la4) of !ro % a % l e 4a5 s e for 45 s t o m s to eff e 4 t t3 e s ei C 5 r e . 2as t3 e is s 5 a n 4 e of t3 e in(5n 4 t i o n !ro! e r 6 ANS2-. : -o. There is no "ues tio n that %T)s are devoid of any comp e t e n c e to pas s upon the validity or regularity of sei+ure and forfeitur e proce e di n g s conduc t e d by the $ure a u of )usto m s and to en,oin or otherwis e interfer e with thes e proce e di n g s . The )ollector of )usto m s sitting in sei+ur e and forfeitur e proce e di n g s has exclusiv e ,urisdiction to he ar and det e r mi n e all "ues tio n s touching on the sei+ur e and forfeitur e of dutiable goods . %T)s are preclud e d from ass u mi n g cogni+a nc e over such mat t e r s eve n throu g h petitions of certiorari, prohibition or ma n d a m u s .
=The $ure a u of )usto m s, et al., v. !gario, et al., 0.%. -o. :>K F K : , prom . .arch <F, <FF F;

** # A . 23 er e is t3 e !ro! e r for5 m for t3 e ve n t il a t i o n of an t e le g a l o%( e 4 t i o n s or is s 5 e s rais e d 4o n 4 e r n i n g s ei C 5 r e an d forf ei t 5 r e !ro4 e e d i n g s 6 ANS2-.& The Tariff and )usto m s )ode and the Act )reatin g the )ourt of Tax Appe als specify the prop e r fora and proce d u r e for the ventilation of ant e legal ob,ection s or issue s rais e d conc er nin g sei+ur e and forfeitur e proc e e di n g s . Thus, actions of the )ollector of )usto m s are app e al a bl e to the )om mis sion e r of )usto m s , whos e decision, in turn, is sub,ect to the exclusiv e app ellat e ,urisdiction of the )ourt of Tax Appe als and from ther e to the )ourt if Appe als. The rule that %T)s hav e no review pow ers over such proce e di n g s is anchor e d upon the policy of placing no unn e c e s s a r y hindr a n c e on the gover n m e n t s drive, not only to prev e n t smu g gling and oth er frauds upon )usto m s , but mor e import a n tly, to rend e r effective and efficient the collection of import and export duties due

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :$ of +$ the tat e , which ena bl e s the gover n m e n t to carry out the function s it has bee n institut e d to perfor m. ** # B . Day t3 e B C 3a v e to !ro v e to t3 e 4o 5rt t3 a t arti4l e s on %o ar d a ve s s e l w er e im ! or t e d % ef or e it 4an ex e r 4 i s e its !o w e r to eff e 4 t 45 s t o m s s e a r 4 3 e s ' s ei C 5 r e s ' or arr e s t s 6 ANS2-. : The custo m s aut horitie s do not hav e to prov e to the satisfactio n of the court that the articles on boar d a vess el were import e d from abro a d or are inten d e d to be shipp e d abro a d befor e they may exercis e the pow er to effect custo m s searc h e s , sei+ur e s , or arre s t s provid e d by law and continu e with the ad minis tr a tiv e hearin g s .
=The $ure a u of )usto m s, et al., v. !gario, et al., 0.%. -o. :>K F K : , prom . .arch <F, <FF F;

** * . A4tin g on inf or m a t i o n t3 a t a s3i ! m e n t from Gon g ) o n g on %o ar d t3 e SKS Sa Dra g o n viola t e d t3 e Tariff an d C5s t o m s Cod e ' as am e n d e d ' ag e n t s of t3 e -//B s ei C e d t3 e s3i ! m e n t . /t w a s fo5 n d t3 a t t3 e 7# ft. van w a s m a d e to a! ! e a r as a 4o n s o l i d a t i o n s3i! m e n t 4o n s i s t i n g of "$ " !a 4) a g e s wit3 Tran s li n ) /ntl. 0rei g 3 t 0orw ar d e d as s3i! ! e r an d Tran s g l o % e /ntl. /n4.' as 4on s i g n e e I t3 a t t3 er e w er e ei g 3 t <+= s3i! ! e r s an d ei g 3 t <+= 4on s i g n e e s d e 4l ar e d as 4o> loa d e r s an d 4o> ow n e r s of t3 e 4on t e n t s of t3 e va n ' w 3 e n in tr5 t 3 t3 e en tir e s3i! m e n t % el o n g s only to on e en ti t y I t3 a t t3 e ite m s as d e 4l ar e d <vario 5 s ind 5 s t ri a l ite m s = w er e fo5 n d in t3 e van ' ins t e a d it w a s fo5 n d to % e f5lly st 5 f f e d wit3 te x til e !ie 4 e go o d s . As a re s 5 l t of t3 e a% o v e ' t3 e a! !r o ! ri a t e w arra n t of s ei C 5 r e w a s is s 5 e d an d t3 e go o d s forf ei t e d in fav or of t3 e go v e r n m e n t . T3e 4o n s i g n e e file d a ! e ti ti o n for red e m ! t i o n of t3 e s3i ! m e n t an d t3 e 3 e a ri n g offi4 e r re4 o m m e n d e d t3 e rel e a s e of t3 e s3i ! m e n t 5! o n t3 e !ay m e n t of its do m e s t i 4 val5 e as @t3 e s3i ! m e n t 4on s i s t s of go o d s w 3i4 3 are in le g a l 4o n t e m ! l a t i o n not !ro 3i % i t e d ' nor t3 e rel e a s e t3 er e o f to t3 e 4lai m a n t 4o n tr ar y to law . A T3e Com m i s s i o n e r of C5s t o m s d e n i e d t3 e off e r of red e m ! t i o n on t3 e gro 5 n d s <*= t3 a t t3 e s3i! m e n t w a s m a d e to a! ! e a r an inn o 4 5 o 5 s 4on s o l i d a t i o n s3i ! m e n t d e s t i n e d for s3i ! m e n t o5 t s i d e of t3 e CN>C0S in ord e r to 4o n 4 e a l t3 e te x t il e fa%ri4 s I <"= t3 e ei g 3 t 4o> loa d e r s K 4 o n s i g n e s of t3 e s3i ! m e n t are all fi4titi o 5 s I an d <$= CD +:> F" !ro vi d e s for a d e n i a l of an off e r of red e m ! t i o n w 3 e n t3 e s ei C e d s3i! m e n t is 4o n s i g n e d to a fi4titi o 5 s ! er s o n . 2o5ld yo5 allo w t3 e red e m ! t i o n 6 23y 6 ANS2-. : 3es. There is abs e n t the following circu m s t a n c e s henc e , it would be prop e r to allow the red e m p tio n of forfeite d prop e r t y upon paym e n t of its comp u t e d dom e s tic mark e t value.
=Trans gl o b e Intern a ti o n al, Inc. v. )ourt of Appe al s, et al., 0.%. -o. :<O O > ? , Ganuar y <J, :CC C;

a. There is fraud9 b. The import a tio n is abs olut ely prohibite d , or c. The rele a s e of the prop e r t y would be contr a r y to law. = Ibid. ; .isdeclar a tio n s in ma nifes t and rider canno t be ascribe d to a consign e e since it was not the one that prep a r e d the m. As said in #arolan, if at all, the wrongful making or falsity of the docu m e n t s can only be attribu t e d to the foreign suppliers or shipp e r s . .= Ibid. ;

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :7 of +$ ** * A . 23a t is t3 e nat 5 r e of forf ei t 5 r e !ro4 e e d i n g s 6

ANS2-. : #orfeitur e proce e di n g s are in the nat ur e of proce e di n g s in rem. #orfeitur e of sei+e d goods in the $ure a u of )usto m s is a proce e di n g ag ain s t the good s and not agains t the owner. It is in the natur e of a proce e di n g in rem , i.e. direct e d ag ain s t the res or import e d goods and ent ails a det er mi n a ti o n of the legality of their import a tio n. In this proce e di n g , it is in legal cont e m p l a tio n the prop e r t y itself which com mit s the violation and is tre a t e d as the offend e r, withou t refer e n c e what s o e v e r to the char a c t e r or conduc t of the owner. The issu e is limite d to whet h e r the import e d goods should be forfeite d and dispos e d of in accord a n c e with law for violation of the Tariff and )usto m s )ode. The one8 year pres criptive period for forfeitur e proce e di n g s applies only in the abs e n c e of fraud. ** " . n A!ril *# ' *F F : ' t3 e Colle 4 t o r of C5s t o m s 4o n d 5 4 t e d a !5 %li 4 a5 4 ti o n sal e of Lot No. *8 4on s i s t i n g of vario 5 s m ar%l e !ro 4 e s s i n g m a 4 3 i n e an d grin d i n g m a 4 3 i n e w 3i4 3 in4l5 d e d a S! e 4 i a l Cir45l ar Sa w an d a Dia m o n d Sa w i n g Da4 3i n e . T3e aw ar d w a s m a d e to -ngr. 0ran)lin Poli4 ar ! i o ' t3 e 3ig 3 e s t %id d e r . Aft er -ngr. Poli4 ar ! i o sig n e d t3 e ,at e Pa s s evi d e n 4 i n g wit3 d r a w a l of Lot No. *8 from 45 s t o m s 45 s t o d y ' 3 e fo5 n d t3 a t t3 e tw o s a w s w er e mis s i n g an d 5! o n 3is inv e s t i g a t i o n fo5 n d t3 a t t3 e ite m s w er e ins t a ll e d in t3 e 4o m ! o 5 n d of Carrar a Dar%l e P3ili! ! i n e s ' /n4. Con s e ? 5 e n t l y ' for all e g e d viol a ti o n s of S e 4 t i o n "8 $ 9 <no n > !ay m e n t of d5 ti e s an d tax e s = an d S e 4 t i o n "8 $ # ReT <ille g a l rem o v a l of arti4l e s from w ar e 3 o 5 s e = of t3 e Tariff an d C5s t o m s Cod e <TCC= t3 e sa w s w er e s ei C e d %y a5 t 3 o ri t y of a 2arra n t of S ei C 5 r e an d Det e n t i o n dat e d Day "F' *F F * ' from t3 e 4o m ! o 5 n d of Carrar a Dar%l e . Carrara Dar%l e fail e d to !re s e n t evi d e n 4 e of !ay m e n t of d5ti e s an d tax e s an d its d ef e n s e is an alle g e d lo4 al s al e evi d e n 4 e d %y not ari C e d De e d s of Sal e . /n t3 e m e a n t i m e ' -ngr. Poli4 ar ! i o int er v e n e d an d 4lai m e d ow n e r s 3 i ! of t3 e s a w s . Carrara Dar%l e t3 e n off er e d to s e t t l e t3 e 4a s e in a44 or d a n 4 e wit3 t3 e !ro vi s i o n s of t3 e TCC. Gow e v e r ' t3 e off er w a s ref 5 s e d %y t3 e B5r e a 5 of C5s t o m s ' w 3i4 3 t3 e n d e 4l a r e d t3 e arti4l e s forf ei t e d in fav or of t3 e ,ov er n m e n t . .es o l v e t3 e follo w i n g is s 5 e s ex ! l a i n i n g %riefl y t3 e rea s o n s for yo5r an s w e r & a. /s it valid to forf ei t an arti4l e fo5 n d in t3 e !o s s e s s i o n of a t3ird !art y aft e r t3 e s al e at !5 %li4 a5 4 ti o n 6 %. Gas t3 e im! or t a t i o n % e e n ter m i n a t e d 6 4. 23o 3a s t3 e rig3 t to ret ai n !o s s e s s i o n ov e r t3 e tw o <"= s a w s 6 ANS2-.S : a. 3es, bec a u s e ther e is showing that the import e d saws were ac"uir e d by )arrar a .arble while they were in custo m s custo d y withou t showing that the correc t duties and tax e s were paid ther e o n . The T)) sub,ect s to forefeitur e any article which is remov e d contr ar y to law from any public or privat e ware h o u s e und er custo m s sup e rvision, or relea s e d irregul arly from custo m s custo d y.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :8 of +$ $efore forfeitur e proce e di n g s are institut e d , the law re"uir e s the pres e n c e of prob a bl e caus e. !nce est a blish e d the burd e n of proof is shifte d to the claim a n t . )usto m s officers with prop er auth ori+ a tion from the )om mis sion e r in writing, may de m a n d evide n c e of paym e n t of duties and tax e s on foreign articles ope nly offere d for sale or kept in stor a g e 9 and if no such evide n c e can be produc e d , such articles may be sei+ed and sub,ect e d to forfeitur e proce e di n g 9 provid e d how ev e r, that during such proc e e di n g s the pers o n or entity from who m such articles were sei+ed shall be given an opport u nity to prov e or show the sourc e of such articles and the paym e n t of duties and tax e s ther e o n . 'nder the circu m s t a n c e s , it is clear that before the delivery of the item s to *ngr. &olicarpio, the $ure a u of )usto m s had custo d y of said saws. It was only when the whole was han d e d over to *ngr. &olicarpio that it was discov er e d that the two saws were missing. In this cas e the forfeitur e take s effect imm e di a t ely upon the com mis sio n of the offens e . The forfeitur e of the sub,ect mac hin e ri e s , retro a c t e d to the dat e they were illegally withdr a w n from custo m s custo d y. The gover n m e n t s right to recov e r the mac hin e ri e s proce e d s from its right as lawful owner and poss e s s o r ther e of upon aba n d o n m e n t by the import e r. uch right may be ass e r t e d no mat t e r in whos e han d s the prop e r t y ma y hav e come , and the cond e m n a t i o n when obt ain e d avoids all inter m e d i a t e alien a tion s . The forfeitur e of the saws rests on a differe n t stat u t o r y basis from &olicarpios right to receive the prop e r t y as the winning bidder in the auction sale. It was bas e d upon the gover n m e n t s right to recov er prop e r t y illegally withdr a w n from its custo d y. b. Import a tio n was alre a d y ter min a t e d after *ngr. &olicarpio has signe d the 0ate &ass evide n cin g withdr a w al of (ot :J from custo m s custo d y. Import a tio n is dee m e d ter min a t e d upon paym e n t of duties , taxe s and other charg e s due or secur e d to be paid upon the articles at a port of entry, and upon the gran t of a legal per mit for withdr a w al9 or in cas e said articles are free of duties, taxe s and other charg e s , until they hav e legally left the ,urisdiction of the custo m s . The forfeitur e of the sub,ect saws how ev e r, is not dep e n d e n t on whet h e r or not the import a tio n was ter min a t e d 9 rath e r it is pre mis e d on the illegal withdr a w al of goods from custo m s custo d y. Thus, reg ar dl e s s of the ter min a tio n of import a tio n, custo m s aut h oritie s may validly sei+e goods which, for all inten t s and purpos e s , still belon g to the gover n m e n t . c. )ompro mi s e could not be allow ed anym o r e since the sub,ect mac hin e ri e s had alre a d y be e n aw ard e d to &olicarpio, being the highe s t bidd er in the public auction. The gover n m e n t has the rightful poss e s sio n of the saws but it should turnov e r the sa m e to &olicarpio. =)arrar a .arble &hilippin e s, Inc., v. )om mis si on e r of )usto m s, 0.%. -o.
:<C O K F , prom . ept e m b e r :, :CCC;

** " A . !ro4 e d 5 r e s forf ei t 5 r e s .

Dis 4 5 s s t3 e ad m i n i s t r a t i v e rela ti v e to 45 s t o m s sear43 e s ' of prob a bl e caus e

an d (5di4i al s ei C 5 r e s an d and issu a n c e of

ANS2-.& /eter mi n a tio n warra n t .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :9 of +$ The )ollector of )usto m s upon prob a bl e caus e that the articles are import e d or export e d , or are att e m p t e d to be import e d or export e d , in violation of the tariff and custo m s laws shall issu e a warra n t of sei+ur e. = ec. O, Title III, )A! -o. C8 C>; If the searc h and sei+ur e is to be conduc t e d in a dwelling plac e, the n a searc h warra n t should be issue d by the regular courts not the $ure a u of )usto m s . There ma y be insta n c e s wher e no warra n t s issu e d by the $urea u of )usto m s or the regular courts is re"uir e d, as in searc h and sei+ur e s of motor vehicles and ves s els. b. Actual sei+ur e of the articles. .aster this proce d u r e . %e"uire m e n t s for rele a s e und er bond of sei+e d articles: This is a prob a bl e are a so mas t e r. ettle m e n t of sei+ur e cas e by paym e n t of fine or red e m p ti o n of forfeite d prop e r t y. This is anot h e r prob a bl e are a .
L CAL TA1AT/ N

** $ . tax a t i o n 6

23a t

are

t3 e

f5n d a m e n t a l

!rin 4i ! l e s

of

lo4 al

ANS2-. : The fund a m e n t a l principles of local taxa tion are: a. 'niformity9 b. Taxes, fees, charg e s and oth er imposition s shall be e"uit a bl e and bas e d on ability to pay, for public purpo s e s , not un,us t, exce s siv e, oppr e s siv e or confisca t or y, not contr ar y to law, public policy, nation al econ o mic policy or in restr ain t of trad e 9 c. The levy and collection shall not be let to any privat e pers o n9 d. Inures solely to the local gover n m e n t unit levying the tax9 e. The progr e s sivity principle mus t be obs erv e d . ** 7 . n E5n e "9' *F F " ' t3 e Sa n g g u n i a n g Panl al a w i g a n of B5la 4 a n !a s s e d Provi n 4 i a l rdin a n 4 e No. $' to ta) e eff e 4 t on E5ly *' *F F " ' w 3i4 3 levi e s a tax of *#B of t3 e fair m ar) e t val5 e in t3 e lo4 ali t y ! er 45 %i 4 m e t e r of ordin a r y st o n e s ' gra v e l ' s a n d ' e art 3 an d ot3 e r ?5 arry re s o 5 r 4 e s extr a 4 t e d fro m ar e a s of !5 %li4 lan d wit3i n its territ ori al (5ris d i 4 t i o n . /t no w 4oll e 4 t s t3 e s ai d tax 5! o n ?5 arry re s o 5 r 4 e s extr a 4 t e d from !riv a t e lan d s %y .e! 5 % li 4 Cem e n t . /t 4lai m s a5 t 3 o ri t y to do s o 5n d e r t3 e !rovi s i o n s of t3 e Lo4al ,ov er n m e n t Cod e as w ell as 5n d e r t3 e .e g a li a n t3 e o r y of Sta t e ow n e r s 3 i ! ov e r all nat 5 r a l re s o 5 r 4 e s . /s t3 e 4oll e 4 t i o n 4orr e 4 t 6 ANS2-. : -o, bec a u s e the auth ority und er the (ocal 0overn m e n t )ode to collect tax e s on "uarry reso urc e s applies only to thos e extr ac t e d from public lands. = ec. :>? in relation to ec. :>K, (ocal 0overn m e n t )ode; #urth er m o r e , the (ocal 0overn m e n t )ode prohibits local gover n m e n t units from collecting excis e taxe s on articles enu m e r a t e d und er the -I%), and taxe s , fees or charg e s on petrole u m produc t s . = ec. :>> RhS, (ocal 0overn m e n t )ode in relation to the Tax )ode; The tax impos e d is an excis e tax upon the perfor m a n c e , carrying on, or the exercis e of an activity.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :: of +$ @hile the Tax )ode levies a tax on all "uarry resourc e s , reg ar dl e s s of origin, whet h e r extr ac t e d from public or privat e lands, the (ocal 0overn m e n t )ode auth ori+e s the local gover n m e n t unit to impos e such taxe s on thos e take n from public lands. Thus, thos e extr ac t e d from privat e lands are taxa bl e und e r the -I%) and not by local gover n m e n t units. The %egalian doctrin e ma y not be applied bec a u s e taxe s , being burd e n s , are not to be pres u m e d beyo n d what the applica bl e stat u t e expr e s sly and clearly declar e s , tax stat u t e s being cons tr u e d stricitssi mi juris agains t the gover n m e n t . =The &rovinc e of $ulac a n, et al., v.
The )ourt of Appe al s, etc., et al., <CC )%A ??<;

** 8 . P3ili! ! i n e Ba s ) e t % a l l As s o 4 i a t i o n 4on t e s t e d t3 e d efi 4i e n 4 y am 5 s e m e n t tax as s e s s e d ag a i n s t it %y t3 e B/. for 4o n d 5 4 t i n g t3 e !rof e s s i o n a l %a s ) e t % a l l ga m e s an d for t3 e 4e s s i o n of ad v e r t i s i n g an d str e a m e r s! a 4 e s to Hint a g e -nt er ! ri s e s ' /n4. a= S3 o 5 l d t3 e am 5 s e m e n t tax e s % e !aid to t3 e lo4 al go v e r n m e n t ins t e a d of t3 e B/. 6 %= /s t3 e 4e s s i o n of ad v e r t i s i n g an d str e a m e r s! a 4 e s to Hint a g e -nt er ! ri s e s ' /n4. s5 %( e 4 t to t3 e !ay m e n t of am 5 s e m e n t tax e s 6 ANS2-. : a. -o. &rofes sion al bask e t b all ga m e s should pay the amu s e m e n t tax e s collect e d by the $I% and not the amu s e m e n t taxe s collect e d by the local gover n m e n t s . The amu s e m e n t tax which provinc e s and cities are allowe d to collect und er ec. :?F of the (ocal 0overn m e n t )ode, refers to 6an amu s e m e n t tax to be collect e d from propriet o r s , less e e s , or oper a t o r s of the a t e r s , cine m a s , conc er t halls, circus e s , boxing sta di a, and oth er plac e s of amu s e m e n t . 7 The auth ority to tax profes sio n al bask e t b all ga m e s is not includ e d ther ein beca u s e it is a nation al tax provid e d for und e r ec. :<J of the :CCD Tax )ode which provide s that, 6Ther e shall be collect e d from the proprie t or, less e e or oper a t o r of cockpits, cab a r e t s , night or day clubs, boxing exhibitions, profes sio n al bask e t b all ga m e s , Gai8Alai and race tr a c k s , a tax e"uiv al e n t to: xxxx =d; #iftee n perc e n t =:JH; in the cas e of profes sio n al bask e t b all ga m e s envision e d in &resid e n ti al /ecre e -o. CD:: Provide d, how e v e r , That the tax herein shall be in lieu of all oth er perc e n t a g e tax e s of what e v e r natur e and description9 xxx7 b; 3es. The seco n d to the last para g r a p h of ec. :<J of the :CCD Tax )ode provid e s that, the ter m 6gros s receipt s embr a c e s all the receipt s of the proprie t or, less e e or oper a t o r of the amu s e m e n t plac e.. This ter m is broa d enou g h to embr a c e the ces sion of adv er tising and stre a m e r spac e s as the sa m e embr a c e s all the receipt s of the propriet or, less e e or oper a t o r of the amu s e m e n t plac e. It is thus, a nation al tax not a local tax. The recog nition by the $I% of such inco m e from ces sion as a local tax is of no mo m e n t bec a u s e the 0overn m e n t is nev er esto p p e d by the mist ak e or error on the part of its ag e n t s , specially on the mat t e r of taxe s . =&hilippin e $asket b all Associ ation v. )ourt of Appe al s, et al.,
0.%. -o. ::C: < < , prom . August K, <FFF;

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :+ of +$ ** 9 . T3e City Trea s 5 r e r dis 4 o v e r e d t3 a t t3 e One 4 3 t s fail e d to !ay t3 e ir real !ro! e r t y tax e s on t3 eir !ro! e r t y 4o n s i s t i n g of a !ar4 e l of lan d wit3 an are a of +' * # " s? . m . T3e !ro! e r t y w a s s5 % s e ? 5 e n t l y sold at !5 %li4 a5 4 ti o n for t3 e tax d eli n ? 5 e n 4 y . Gow e v e r ' t3 e One 4 3 t s did not re4 e i v e an y noti 4 e of t3 e ir tax d eli n ? 5 e n 4 y an d t3 a t t3 e .gis t e r of De e d s did not ord e r t3 e m to s5rr e n d e r t3 eir ow n e r s d5 !li4 a t e for an n o t a t i o n of t3 e tax lien !rior to t3 e sal e . Neit 3 e r did t3 e y 3av e noti 4 e of t3 e a5 4 ti o n s al e nor w a s t3 e 4ertifi 4 a t e of s al e an n o t a t e d on t3 e ir titl e nor wit3 t3 e titl e in t3 e !o s s e s s i o n of t3 e .e gi s t e r of De e d s . /s t3 e tax sal e valid 6 .ea s o n o5 t yo5r an s w e r . ANS2-. : -o. It has bee n ruled that the notice and publication, as well as the legal re"uir e m e n t s for a tax delin"u e n c y sale, are ma n d a t o r y, and the failure to comply ther e with can invalida t e the sale. The prescrib e d notice s mus t be sent to comply with the re"uire m e n t s of due proc e s s . =/e Xnecht, et al,. v. )ourt of
Appe al s9 /e Xnecht, et al., v. 2onor a bl e ayo, <CF )%A <<>,< > O ;

The reas o n behind the notice re"uire m e n t is that tax sales are ad ministr a tiv e proc e e di n g s which are in person a m in natur e . =&u+on v.
Abbeller a, :OC )%A DKC, DCJ9 /e Asis v. I.A. )., :OC )%A >:?;

-!T* A-/ )!..*-T : All of the abov e cas e s were decid e d interpr e ti n g the provisions of ).A. -o. ?DF, the old Asses s m e n t (aw, and &./. -o. ?O?, the %eal &ropert y Tax )ode, both of which re"uire d pers o n al notice to the taxp a y e r in addition to the re"uisit e adv er tis e m e n t . The provisions of ec. <OF of the (ocal 0overn m e n t )ode on 6Advertis e m e n t and ale7 does not re"uir e pers o n al notice to the delin"u e n t taxp a y e r . In view of the abov e , the aut h or believ e s that pers o n al notice of the auction sale is not re"uir e d anym o r e und e r the provisions of the (ocal 0overn m e n t )ode of :CC which rep e al e d ).A. -o. ?DF and &./. -o. ?O?;
.-AL P. P-.TN TA1AT/ N

** : . 23a t ar e !ro! e r t y tax a t i o n 6

t3 e

f5n d a m e n t a l

!rin 4i ! l e s

of

real

ANS2-.& a. Apprais al at curre n t and fair mark e t value9 b. )lassification for ass e s s m e n t on the basis of actu al us e9 c. Asses s m e n t on the basis of uniform classification9 d. Apprais al, ass e s s m e n t , levy and collection shall not be let to a privat e pers o n9 e. Apprais al and ass e s s m e n t shall be e"uit a bl e. ** + . Det e r m i n a t i o n of vario 5 s ite m s &

ANS2-. : a. The reas o n a bl e mark e t value is det er mi n e d by the ass e s s o r in the form of a sche d ul e of fair mark e t value s . The sche d ul e is then enac t e d by the local san g g u ni a n . b. The ass e s s m e n t level is fixed by ordina n c e s of the appro pria t e san g g u ni a n .

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e :F of +$ c. The tax rat e is also fixed by ordina n c e s of the appro p ri a t e san g g u ni a n . ** F . tax& ANS2-.& a. %eal prop er t y owne d by the %epublic of the &hilippine s or any of its political subdivisions exc e p t when the ben eficial use ther e of has bee n gran t e d to a tax a bl e pers o n for a consid er a tio n or oth erwis e9 b. )harita bl e institutions , church e s , pars o n a g e s or conv e n t s appur t e n a n t ther e t o, mos " u e s , non8 profit or religious cem e t e ri e s , and all lands, buildings and improv e m e n t s actu ally, directly and exclusiv ely use d for religious, charit a bl e and educ a tio n al purpos e s 9 c. .achin erie s and e"uip m e n t , actu ally, directly and exclusiv ely use d by local wat er districts9 and gover n m e n t owne d and controlled corpor a tio n s eng a g e d in the supply and distribution of wat er and gen e r a tio n and tran s mi s sion of electric pow er9 d. %eal prop e r t y owne d by duly regist e r e d coop e r a tiv e s 9 e. .achin ery and e"uip m e n t used for pollution control and environ m e n t a l prot e c tio n. *" # . 23 e n is !rot e s t n e 4 e s s a r y 6 Pro! e r t y ex e m ! t fro m t3 e !ay m e n t of real !ro ! e r t y

ANS2-.& The prot e s t cont e m p l a t e d und e r ection <J< of %.A. -o. D:OF is nee d e d wher e ther e is a "ue s tion of reas o n a bl e n e s s of the amo u n t ass e s s e d , not wher e the "ue s tion raise d is on the very aut h ority and pow er of the ass e s s o r to impos e the ass e s s m e n t and of the tre a s u r e r to collect the tax. *" * . n A!ril $' *F + : ' .a5l !5r4 3 a s e d fro m -str ell a tw o lot s ' %ot 3 lo4 a t e d in Ce% 5 City. Lot no. * 4o n t a i n e d an ar e a of 7F s? . m . w 3il e lot no. " 4o n t a i n e d an ar e a of 7+ s? . m . m or e or le s s . Bot 3 lot s 3a d im!ro v e m e n t s ' w 3i4 3 w er e d e s 4 ri % e d as La re si d e n t i a l 3o5 s e of stro n g m a t e ri a l s 4o n s t r 5 4 t e d on t3 e lot s a% o v e > m e n t i o n e d . L .a5l d e 4l a r e d t3 e real !ro ! e r t y 4o n s t r 5 4 t e d on t3 e s ai d lot s for !5r! o s e s of tax as s e s s m e n t as a re s i d e n t i a l 3o 5 s e of str o n g m a t e r i a l s wit3 a floor are a of 9# s? . m . -ffe 4 t i v e *F + : ' t3 e d e 4l a r e d !ro! e r t y w a s as s e s s e d %y t3 e City As s e s s o r 5n d e r Tax De 4l ar a t i o n * at a m ar) e t val5 e of P9 # ' # # # . # # an d an as s e s s e d val5 e of P$ 9 ' F # # . # # . D5rin g a tax> m a ! ! i n g o! e r a t i o n 4on d 5 4 t e d in 0e%r 5 a r y *F F 9 ' t3 e City As s e s s o r dis 4 o v e r e d t3 a t t3 e real !ro! e r t y d e 4l a r e d an d as s e s s e d 5n d e r Tax De4l ar a t i o n No. * w a s a4t 5 a l l y a re s i d e n t i a l %5ildin g 4o n s i s t i n g of fo5r <7= st or e y s wit3 a fift3 st or e y 5s e d as a roof d e 4 ) . T3e %5ildin g 3a s a tot al floor ar e a of 8# # . " # s? . m. T3e ar e a for e a 4 3 floor w a s *# # . # 7 s? 5 a r e m e t e r s . As a re s 5 l t of t3 e findi n g s ' t3 e City As s e s s o r is s 5 e d Tax De4l ar a t i o n No. " eff e 4 t i v e in t3 e ye a r *F F 9 ' 4a n 4 e l i n g t3 e !re v i o 5 s Tax De 4l ar a t i o n an d as s e s s i n g t3 e %5ildi n g t3 er e i n at a n e t m ar) e t val5 e of P7 F F ' + 9 # . # # an d an as s e s s e d val5 e of P$ : 7 ' F # # . # # . T3e *F + : > *F F * S43 e d 5 l e of Dar) e t Hal5 e w a s a! !li e d in t3 e as s e s s m e n t . .a5l !rot e s t e d t3 e n e w as s e s s m e n t for % ei n g Lex4 e s s i v e an d 5n 4 o n s 4 i o n a % l e 'L 4o n t e n d i n g t3 a t it w a s in4r e a s e d %y m or e t3 a n *' # # # B as 4o m ! a r e d to its !re vi o 5 s m ar) e t of

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e +# of +$ P9 # ' # # # . # # or as s e s s e d val5 e of P$ 9 ' F # # . # # 5n d e r Tax De4l ar a t i o n No. #"> "# 7 8 7 an d Lt3a t 3 e %o 5 g 3 t t3 e %5ildin g in4l5 d i n g t3 e lot s for only P* # # ' # # # . # # on A!ril $' *F + : ' w 3i4 3 am o 5 n t s3 o 5 l d % e t3 e m ar) e t val5 e of t3 e %5ildi n g for !5r! o s e s of d e t e r m i n i n g its as s e s s e d val5 e .L Ge ?5 e s t i o n e d t3 e n e w as s e s s m e n t % ef o r e t3 e Lo4al Boar d of As s e s s m e n t A!! e a l s of Ce% 5 City' w 3i4 3 dis m i s s e d 3is a! ! e a l on Ean5 ar y **' *F F : . .a5l el e v a t e d 3is 4a s e to t3 e Cen tr al Boar d of As s e s s m e n t A!! e a l s . n S e ! t e m % e r *:' *F F + ' t3 e CBAA ren d e r e d a d e 4i s i o n ord e ri n g t3 e Ce% 5 City As s e s s o r to is s 5 e a n e w Tax De4l ar a t i o n in t3 e am o 5 n t of P" + * ' 8 + + . # # . .a5l t3 e n file d a m oti o n for t3 e re4 o n s i d e r a t i o n of t3 e CBAAJs d e 4i s i o n . .a5l an d t3 e City As s e s s o r (oin tl y agr e e d t3 a t t3 e revi s e d val5 a t i o n of t3 e !ro ! e r t y is P: + ' $ $ # . # # as as s e s s e d val5 e ' 4la s s i f y i n g t3 e !ro! e r t y at P*' * * # ! er s? . m.' t3 e %5ildi n g 3a vi n g % e e n 4o m ! l e t e d an d o4 4 5 ! i e d in *F 8 : or forty > tw o <7 " = y e ar s ag o . T3e CBAA t3 e n r5le d t3 a t for !5r! o s e s of d e t e r m i n i n g t3 e %a 4) tax e s d5 e on t3 e ex4 e s s are a of s5 %( e 4 t %5ildin g from *F + + to *F F 9 ' t3 e Ce% 5 City As s e s s o r s3 o 5 l d is s 5 e in a44 or d a n 4 e wit3 S e 4 . "" " of t3 e Lo4al ,ov e r n m e n t Cod e& a. Tax De 4l ar a t i o n eff e 4 t i v e *F + + to E5ne $#' *F F 9 ' %a s e d on t3 e mini m 5 m rat e ! er s? . m. for t3 e ty! e of %5ildi n g in a44 or d a n 4 e wit3 t3 e *F + 8 > *F + 9 S43 e d 5 l e of Hal5 e s I %. Tax De4l ar a t i o n to s5 ! e r s e d e Tax De4l ar a t i o n No. * to % e eff e 4 t i v e fro m E5ly *' *F F 7 to t3 e y e ar *F F 8 ' %a s e d on t3 e mini m 5 m rat e ! er s? . m. for t3 e ty! e of %5ildi n g ' in a44 or d a n 4 e wit3 t3 e *F + + > *F F * S43 e d 5 l e of Hal5 e s I an d 4. Tax De 4l ar a t i o n to s5 ! e r s e d e Tax De 4l ar a t i o n No. " to ta) e eff e 4 t in *F F 9 ' %a s e d on t3 e revi s e d val5 a t i o n of t3 e !ro! e r t y as agr e e d 5! o n %y t3 e !arti e s . .a5l dis a g r e e s wit3 t3 e a% o v e findin g s ' %a s e d on t3 e follo w i n g & a= T3e CBAA err e d in re s o l v i n g t3 e is s 5 e of %a 4) tax e s from *F + + to *F F 8 ' d e s ! i t e t3 e fa4 t t3 a t s5 4 3 is s 5 e w a s not rais e d in t3 e a! ! e a l to it' 5n d e r its !re t e x t t3 a t it is a! ! l yi n g S e 4 . "" " of t3 e Lo4al ,ov e r n m e n t Cod e . %= T3e CBAA err e d in not stri4 tl y a! !l y i n g !ar. <l=' S e 4 . *F F of t3 e Lo4al ,ov er n m e n t Cod e ' d efi n i n g L0air Dar) e t Hal5 eL as %a s i s for 4o m ! 5 t i n g t3 e Las s e s s e d val5 e .L 4= T3e CBAAJs r5lin g is dis 4ri m i n a t o r y ' 5n(5 s t ' 4o n fi s 4 a t o r y an d 5n 4 o n s t i t 5 t i o n a l . To w 3 a t 4o 5rt s3 o 5 l d .a5l el e v a t e t3 e ad v e r s e d e 4i s i o n of t3 e CBAA 6 2o5l d 3is a! ! e a l !ro s ! e r 6 ANS2-. : %aul should app e al the decision of the )$AA to the )ourt of Appe als, und e r %ule ?> of the :CCD %ules of )ivil &roce d u r e , by filing a petition for review within a period of fiftee n =:J; days from receipt of the adv er s e )$AA decision. %aulAs app e al would not pros p e r for the following rea s o n s : a. The facts of the cas e do not show that %aul has paid und e r prot e s t the tax ass e s s e d agains t his prop e r t y. This is a ma n d a t o r y re"uir e m e n t und er ec. <J< of the (ocal 0overn m e n t )ode.

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e +* of +$ This is so, bec a u s e the issue is reas o n a bl e n e s s of the amo u n t ass e s s e d and not on the very auth ority and pow er of the ass e s s o r to impos e the ass e s s m e n t and of the tre a s u r e r to collect the tax. b. Appellat e courts as well as app ellat e ad ministr a tiv e ag e n ci e s , hav e inher e n t auth ority to review unas sig n e d errors =:; which are clos ely relat e d to an error prop erly raise d, or =<; upon which the det er mi n a tio n of the error prop erly assign e d is dep e n d e n t , or =>; wher e the court or ad minis tr a tiv e ag e n c y finds that consid er a tio n of the m is nec e s s a r y in arriving at a ,ust decision of the cas e. There was no error, beca u s e %aul hims elf is ass ailing the sub,ect ass e s s m e n t as Iexce s siv e and uncon s cio n a bl e.I Thus, )$AA was duty8 boun d to review the factu al ant e c e d e n t s of the cas e and to apply her e o n the pertin e n t provisions of law. In the proce s s , )$AA has to apply ec. <<< of the (ocal 0overn m e n t )ode which aut hori+ e s the collection of back taxe s . c. The exce s s are a s resulting from the revision mus t be und er s t o o d as nev er having bee n declar e d befor e. This is evide n t from the provisions of ec. <<< of the (ocal 0overn m e n t )ode which read s : I ec. <<<. Asse s s m e n t of Propert y Subject to Back a!e s . " %eal prop e r t y declar e d for the first time shall be ass e s s e d for taxe s for the period during which it would hav e be e n liable but in no cas e for mor e tha n ten =:F; year s prior to the dat e of initial ass e s s m e n t : Provide d, how e v e r , That such taxe s shall be comp u t e d on the basis of the applica bl e sch e d ul e of value s in force during the corre s p o n di n g period.I It is neith e r ,ust that a landow n e r should be per mitt e d by an involunt a r y mist ak e or throu g h other caus e s , not to say bad faith, to stat e an are a far less than that actu ally cont ain e d in his land and pay a tax to the tat e a tax far below that which he should really pay. d. %aulAs cont e n tio n on the use of mark e t value for the comp u t a ti o n of the ass e s s e d value is erron e o u s . &ar. =l; ec. :CC of the (ocal 0overn m e n t )ode mer ely defines I#air .arket 1alue.I It does not in any way direct that the I#air .arket 1alueI should be use d as a basis for purpos e s of real prop er t y taxa tion. !n the oth er hand, par. =a;, ec. :CK of the sa m e )ode provide s une " uivoc ally that, I%eal prop er t y shall be appr ais e d at its curre n t and fair mark e t value.I The curre n t value of like prop e r ti e s and their actu al or pote n ti al use s, amo n g other s , are also consid er e d . 'nscru p ulo u s sellers of real est a t e often und e r s t a t e the selling price in the dee d of sale to minimi+e their tax liability. .oreov er, the value of real prop e r t y does not re m ai n stag n a n t , it is unre alis tic to exp e c t that the curre n t mark e t value of a prop er t y is the sa m e as its cost of ac"uisition ten year s ago. In this light, a gen e r al revision of real prop e r t y ass e s s m e n t is re"uir e d by law within two =<; years after the effectivity of the (ocal 0overn m e n t )ode and every thre e =>; year s ther e a f t e r . = ec. <:C, (ocal 0overn m e n t )ode; e. @hen back taxe s were impos e d on %aulAs prop e r t y, ther e was no violation of the rule that laws shall hav e only pros p e c tiv e applica bility. The provisions of ec. <J of &./. -o. ?O?, The %eal &roper t y Tax )ode =now ec. <<< of the (ocal 0overn m e n t )ode; is not pen al in char a c t e r, henc e it may not be consid er e d as an e! post facto law.
= esbr e n o v. )entr al $oard of Asses s m e n t Appe al s, et al., 0.%. -o. :FOJ K K , .arch <?, :CC D;

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e +" of +$ *" " . 23a t are t3 e ad m i n i s t r a t i v e rem e d i e s t3 a t are !rovi d e d for 5n d e r t3 e !ro vi s i o n s of ..A. No. :* 9 # ' t3 e Lo4al ,ov er n m e n t Cod e ' % ef o r e re s o r t to 4o5r t s is m a d e rela ti v e to real !ro! e r t y tax e s 6 ANS2-. : A taxp a y e r may "ue s tion the constitutio n ality or legality of a tax ordin a n c e on app e al within thirty =>F; days from effectivity ther e of, to the ecre t a r y of Gustice. The taxp a y e r after finding that his ass e s s m e n t is un,us t, confisca t or y, or exc e s siv e, mus t bring the cas e befor e the ecre t a r y of Gustice for "ue s tion s of legality or cons titu tion ality of a city ordin a n c e . An owner of real prop e r t y who is not satisfied with the ass e s s m e n t of his prop e r t y ma y, within sixty =OF; days from notice of ass e s s m e n t , app e al to the (ocal $oard of Asses s m e n t Appe als. hould the taxp a y e r "ues tio n the exc e s siv e n e s s of the amo u n t of tax, he mus t first pay the amo u n t due. Then, he mus t re"u e s t the anno t a tio n of the phra s e 6paid und e r prot e s t 7 and accordin gly app e al to the (ocal $oard of Asses s m e n t Appe als by filing a petition und e r oath tog e t h e r with copies of the tax declar a tio n s and affidavits or docu m e n t s to supp ort his app e al.
-!T* A-/ )!..*-T : %eme di e s of real prope r t y owner who "ue s tions validity of tax ordina n c e : ecr e t a r y of Gustice can take cogni+a nc e of a cas e involving the constitution ality or legality of tax ordina n c e s wher e ther e are factu al issue s involved. =#iguerr e s v. )ourt of Appe als, et al., 0.%. -o. ::C:D <, .arch <J, :CCC;

S5 e s t i o n s on validi t y or le g a li t y of a tax ordin a n 4 e . Taxp a ye r files app e al to the ecre t a r y of Gustice, within >F days from effectivity ther e of. In cas e the ecre t a r y decid e s the app e al, a period also of >F days is allow ed for an aggriev e d party to go to court. $ut if the ecr e t a r y does not act ther e o n , after the laps e of OF days, a party could alre a d y seek relief in court. Thes e thre e sep a r a t e periods are clearly given for complianc e as a prer e " uisit e before seeking redr e s s in a comp e t e n t court. uch stat u t o r y periods are set to prev e n t delays as well as enh a n c e he orderly and spe e d y disch a r g e of ,udicial functions. #or this rea s o n the courts cons tr u e thes e provisions of stat u t e s as ma n d a t o r y. =%eye s , et al., v. )ourt of Appe als, et al., 0.%. -o. ::K< > >, pro m. /ece m b e r :F, :CCC; &ublic he aring s are ma n d a t o r y prior to approv al of tax ordina n c e , but this still re"uire s the taxp a y e r to add uc e evide n c e to show that no public he aring s ever took plac e. = Ibid. ; *" $ . 23a t ar e t3 e st e ! s to % e follo w e d for t3 e m a n d a t o r y 4o n d 5 4 t of ,en e r a l .evi s i o n of .eal Pro! e r t y As s e s s m e n t s 6 ANS2-.& a. &rep ar a tio n of che d ul e of #air .arket 1alues9 b . *nact m e n t of !rdina n c e s 9 :; levying an annu al 6ad valore m7 tax on real prop e r t y and an addition al tax accruing to the pecial *duca tion #und9 <; #ixing the ass e s s m e n t levels to be applied to the mark e t value s of real prop e r ti e s 9

Sillim a n Univ e r s i t y Colle g e of Law Prof . A. Do m o n d o n s Not e s in Taxa ti o n Law Bar ! s "# # $ %y& att y s . de n ' d()tt ' rta MIRROR WEEK NOTES !a g e +$ of +$ >; &roviding the nec e s s a r y appro pria tio n s to defray exp e n s e s incide n t to gen e r al revision of real prop e r t y ass e s s m e n t s , 9 and ?; Adopting the che d ul e of #air .arket 1alues prep a r e d by the ass e s s o r s . =(ope+ v. )ity of .anila, et al., 0.%. -o. :<D: > C ,
#ebru a r y :C, :CC C;

-!T* A-/ )!..*-T : &ublic hearings are re"uire d to be conduc t e d prior to the enac t m e n t of an ordina nc e imposing real prop er t y taxe s . =#iguerr e s v. )ourt of Appe als, et al., 0.%. -o. ::C: D <, .arch <J, :CCC;

*" 7 . 23a t are t3 e st e ! s !re ! a r a t i o n of fair m ar) e t val5 e s 6

to

%e

follo w e d

in

t3 e

ANS2-.& a. The city or municipal ass e s s o r shall prep a r e a sch e d ul e of fair mark e t value s for the differe n t class e s of real prop e r t y situa t e d in their res p e c tiv e (ocal 0overn m e n t 'nits for the enac t m e n t of an ordina n c e by the san# # u nia n concer n e d 9 and b. The sche d ul e of fair mark e t value s shall be publish e d in a news p a p e r of gen e r al circulation in the provinc e, city or municipality conc er n e d or the posting in the provincial capitol or oth er plac e s as re"uir e d by law. =(ope+ v. )ity of .anila, et al., 0.%. -o. :<D: > C , #ebru a r y :C,
:CC C;

-!T* A-/ )!..*-T : &ropos e d fair mark e t value s of real prope r t y in a local gover n m e n t unit as well as the ordina nc e cont aining the sche d ul e mus t be publish e d in full for thre e =>; cons e c u tiv e days in a news p a p e r of local circulation, wher e available, within ten =:F; days of its approv al, and post e d in at leas e two =<; promi n e n t plac e s in the provincial capitol, city, municipal or bara n g a y hall for a mini mu m of thre e =>; cons e c u tive weeks . =#iguerr e s v. )ourt of Appe als, et al,. 0.%. -o. ::C: D <, .arch <J, :CCC;

*" 8 . 23a t is t3 e !ro 4 e d 5 r e to % e follo w e d in 4o m ! 5 t i n g real !ro! e r t y tax e s 6 ANS2-.& a. Ascert ain the ass e s s m e n t level of the prop er t y9 b. .ultiply the mark e t value by the applicable ass e s s m e n t level of the prop er t y9 and c. #ind the tax rat e which corres p o n d s to the class =use; of the prop e r t y and multiply the ass e s s e d value by the applicable tax rat e. #or eas y refer e n c e , the comp u t a ti o n of real prop e r t y tax is cited below: .arket value &x x x .ultiplied by Asses s m e n t (evel = x H; Asses s e d value &x x x .ultiplied by %ate of Tax = x H; %eal &ropert y Tax &x x x