Taxation Second Coverage

Sourced from SBSOL memory aid, Income Taxation Tabag, De Leon Fundamentals of Taxation

What are the only independent sources of Philippine tax law?

1. The Constitution and legislation (statutes, Presidential Decrees, and Executive Orders on taxation);

2. Administrative rules,

3. BIR rulings, and

4. Local tax ordinances are subordinate to these.

What is the nature of judicial decisions as a source of tax law?

Judicial decisions are not, strictly speaking, laws, but are evidence of what the law means and form part of the legal system under Art. 8 of the Civil Code.

What is the main statutory law on internal revenue taxes?

The National Internal Revenue Code of 1997 (Pres. Decree No. 1158, as amended by R.A. No. 8424).

What law governs local taxation by provinces, cities, municipalities, and barangays?

The Local Government Code (R.A. No. 7160), along with the respective tax ordinances of the LGUs, subject to the fundamental principles and common limitations in the Code.

What are the three stages of taxation?

Levy, assessment, and collection.

What is levy, and why can there be no tax without it being fixed by law?

Levy is the legislative act determining that a tax of a certain amount or percentage shall be imposed on persons, properties, or acts; an undetermined tax is, in law, no tax at all.

What is assessment?

The official act of an authorized officer ascertaining the amount of tax due from a taxpayer, involving computing the sum due, giving notice, and demanding payment.

What is collection?

The actual getting of the taxes imposed by the proper governmental agencies, embracing remedies for enforcing payment, including criminal prosecution of violators.

Why does tax administration involve only assessment and collection, and not levy?

Because levy is an act of the legislature that precedes tax administration proper, which is an executive/administrative function.

What is the role of the Department of Finance in tax administration?

It exercises executive supervision and control over the BIR and Bureau of Customs, oversees administration of national taxes, and its Secretary promulgates rules and regulations for enforcement of the Tax Code and issues revenue regulations upon recommendation of the CIR.

What is the primary function of the BIR, and who has the power to interpret tax laws?

The BIR administers national internal revenue laws and regulations under the DOF's supervision; the power to interpret the Tax Code and other tax laws belongs to the exclusive and original jurisdiction of the Commissioner of Internal Revenue, subject to review by the Secretary of Finance.

What is the BOC's function, and who acts as agents of the CIR for taxes on imported articles?

The BOC administers the tariff and customs laws; for collection of national internal revenue on imported articles, the Commissioner of Customs and subordinates, together with heads of appropriate government offices and duly authorized banks, act as agents of the CIR.

Under what law do LGUs exercise their taxing powers, and what limits them?

Under the Local Government Code (R.A. No. 7160), subject to the fundamental principles and common limitations set out in that Code.

What court has exclusive appellate jurisdiction over disputed tax assessments?

The Court of Tax Appeals, a regular court (not a quasi

What is taxation as a power?

The inherent power of the state to demand enforced contributions for public purpose or purposes; it is the process by which the sovereign raises income to defray the necessary expenses of government.

What are the independent versus dependent sources of Philippine tax law?

The Constitution and legislation are independent sources; administrative issuances, rulings, local ordinances, and judicial decisions are dependent upon and interpretive of these.

What are the three principles of a sound tax system?

Fiscal adequacy, equality or theoretical justice, and administrative feasibility.

Explain fiscal adequacy.

Sources of revenue, taken as a whole, should be sufficient to meet the demands of public expenditure and should be elastic enough to expand or contract with variations in public expenditure.

Explain equality or theoretical justice.

The tax burden should be distributed in proportion to the taxpayer's ability to pay; similarly situated taxpayers pay equal taxes, and those who have more should pay more.

Explain administrative feasibility.

Tax laws should be capable of convenient, just, and effective administration at reasonable cost, and should be clear, uniformly enforceable, and not unduly burdensome.

Does non

observance of these principles invalidate a tax law?

How do taxation, police power, and eminent domain differ as to purpose?

In taxation, property (generally money) is taken to support the government. In police power, property is taken or destroyed to promote general welfare, with generally no transfer of title. In eminent domain, private property is taken for public use upon payment of just compensation.

How do the three powers differ as to compensation received?

In taxation, the taxpayer receives general benefits and protection from government. In eminent domain, the owner receives the market value of the property taken. In police power, the person affected receives the intangible, altruistic feeling of having contributed to the general welfare.

How do the three powers differ as to the authority that may exercise them?

Taxation and police power may be exercised only by the government or its political subdivisions; the power of eminent domain may also be granted to public service companies or public utilities.

What are the inherent limitations on the power of taxation?

Public purpose, non

Give examples of constitutional limitations on the power of taxation.

Due process of law, equal protection of the laws, rule of uniformity and equity in taxation, no imprisonment for non

On what income is a resident citizen taxable, and what principle does this reflect?

A resident citizen is taxable on all income derived from sources within and without the Philippines, illustrating the citizenship principle combined with residence.

On what income is a non

resident citizen taxable?

On what income is a resident or non

resident alien taxable, and what principle does this illustrate?

Which taxpayers are taxable on income from all sources, within or without the Philippines?

Only resident citizens and domestic corporations, reflecting both the citizenship/nationality principle and the residence principle; all other taxpayers are taxable only on Philippine

How is income defined for tax purposes?

The gain derived from capital, from labor, or from both combined, including profits from dealings in property and any asset clearly realized (e.g., bonuses, prizes, awards), whether earned or not — in its broad sense, all wealth that flows into the taxpayer other than as a mere return on capital.

What kind of tax is income tax, and what is its true object of taxation?

It is generally regarded as an excise tax (a privilege tax), not a tax on persons, property, funds, or profits, but really a tax on the right to earn income; it is self

What are the requisites for income to be taxable?

There must be gain or profit; the gain must be received or realized; and the gain must not be excluded or exempt by law or treaty from taxation.

Explain the flow of wealth test.

Anything that increases a taxpayer's net worth, from whatever source, and that is not a mere return of capital, is treated as income.

Explain the realization/severance test.

A mere increase in the value of property is not income but an unrealized increase in capital; income is recognized only upon a closed and completed transaction, such as an actual sale or exchange.

Does this reviewer's source book contain a dedicated discussion of the Claim of Right Doctrine?

No; the closest related principle discussed is constructive receipt of income, which captures when income not yet physically received is nonetheless considered realized or taxable.

Is the All

Events Test discussed under its own heading in this material?

What principle in this material corresponds to the economic benefit and control tests, and how is it explained?

Constructive receipt of income: taxable income is realized without actual receipt of cash or property where it is credited to, or set apart for, a taxpayer and may be drawn upon at any time, reflecting that income is taxable once the taxpayer has unrestricted control over it.

When is the government's right to assess and collect taxes imprescriptible?

Where there is no express statutory provision limiting the government's right to assess and collect, or providing for its prescription, such right is imprescriptible and the tax may be assessed at any time.

What is the general rule on the application of tax laws, and what is the exception?

Tax laws are generally prospective in operation, since the nature and amount of the tax could not be foreseen at the time the transaction was completed; as an exception, a statute may operate retroactively if expressly declared or clearly intended by the legislature, provided it is not so harsh and oppressive as to violate due process.

Why can taxes generally not be the subject of set

off or compensation?

What underlying policy does the inapplicability of estoppel against the government reflect, even though it is not given its own heading in the source material?

That the government's power to collect taxes lawfully due it is not readily defeated by the errors, omissions, or agreements of its own officers or agents — illustrated by the rule that the Commissioner cannot validly agree to reduce the prescriptive period to the detriment of the State.