THURS (QN)

TAXATION AS A POWER

Demand enforce contribution for public purpose

TAXATION AS A PROCESS

Legislative act to raise income and defray government expenses

TAX AS A MODE OF COST ALLOCATION

Allocate government burden to people

POWER OF TAXATION

Take property for support of the government and public purpose

POLICE POWER

Enact laws to promote general welfare of the people

POWER OF EMINENT DOMAIN

Take private property for public use

SIMILARITIES OF THE INHERENT POWERS OF THE STATE

• Necessary attributes of sovereignty, resting upon necessity

• Legislative in nature

• They are ways in which the State interferes with private rights and property

• Independent from Constitution

STAGES/ASPECTS OF TAXATION

• Levy/Imposition (Legislative Act; Impact of Taxation)

• Assessment/Collection (Administrative Act; Incidence of Taxation)

BENEFITS RECEIVED THEORY

Receipt of benefit is conclusively presumed

ABILITY TO PAY THEORY

Tax payments is relative to ability of taxpayer.

• Vertical Equity (Progressive)

• Horizontal Equity

BASIS OF TAXATION

The government and the people have reciprocal duties

THEORY OF TAXATION

Existence of government is a necessity

LIFE BLOOD DOCTRINE

Taxes are indispensable to the existence of the State

NATURE/CHARACTERISTICS OF POWER OF TAXATION

• For public use

• Inherently legislative in nature

• Subject to international comity or treaty

• Not absolute, being subject to constitutional and inherent limitations

• Exaction: Payable in money

• Territorial

PURPOSE OF TAXATION

Primary: To raise revenue

Secondary: Regulatory; Compensatory

SCOPE OF TAXATION

Comprehensive

Unlimited

Plenary

Supreme

CURRENT OBJECTS OF TAXATION

Businesses

Interests

Transactions

Rights

Acts

Persons

Properties

Privileges

PHILIPPINE GOVERNMENT

Agencies: Exempt

GOCCs: Taxable

XPN: SSS, GSIS, PhilHealth, Local Water Districts

PERSONS (SITUS)

Residence of taxpayers

COMMUNITY DEVELOPMENT TAX (SITUS)

Residence/Domicile

BUSINESS TAXES (SITUS)

Place of business/transaction

PRIVILEGE/OCCUPATION TAX (SITUS)

Where privilege is exercised

REAL PROPERTY TAX (SITUS)

Where property is located

TANGIBLE PERSONAL PROPERTY (SITUS)

Where they are physically located

INTANGIBLE PERSONAL PROPERTY (SITUS)

Domicile unless acquired situs elsewhere

INCOME (SITUS)

Where income is earned or residence/citizenship of taxpayer

TRANSFER TAX (SITUS)

Location of property or residence/citizenship of taxpayer

FRANCHISE TAX (SITUS)

The State that grants the franchise

CORPORATE TAX (SITUS)

Depends on the law of incorporation

DOUBLE TAXATION

Direct Double Tax (discouraged): Violates constitution as to uniformity and equality

Indirect Double Tax (allowed): No constitutional violation (same object, different tax authorities)

REMEDIES TO DOUBLE TAXATION

• Provision for tax exemption

• Allowance for tax credit

• Allowance for principle of reciprocity

• Enter into treaties or agreements with foreign government

INHERENT LIMITATIONS

Situs or Territoriality

Public purpose (CL)

International comity or treaty

Non-delegation of taxing power (CL)

Exemption of the government

CONSTITUTIONAL LIMITATIONS

• Due process of law

• Equal protection of the law

• Uniformity in taxation

• Progressive scheme of taxation

• Non-imprisonment for nonpayment of debt or poll tax

• Non-impairment of obligation and contract

• Free worship rule

• Non-appropriation of public funds for benefit of church, sector, or system of religion

• Exemption of nonprofit, non-stock, educational institutions

• For granting tax exemption, concurrence of majority of all members of Congress

• Non-diversification of tax collections

• Non-delegation of taxing power

XPN: - to the President under Flexibility Clause of the tariff and custom code

- to the LGU under the Local Gov’t Code

- Expedient administration of tax assessment/collections

ESCAPE FROM TAXATION (LOSS)

Tax Evasion (Tax Dodging): Illegal

Tax Avoidance (Tax Minimization): Legal

Tax Exemption: Immunity, freedom from payment

ESCAPE FROM TAXATION (NOT LOSS)

Shifting: transfer tax burden to another

Capitalization: lower price of goods/service, buyer shoulder tax

Transformation: increase quantity of production

FISCAL ADEQUACY

Sufficient source of revenue to meet public expenditure demand

ADMINISTRATIVE FEASIBILITY

Tax laws capable of convenient, just, and effective administration

THEORETICAL JUSTICE

• Tax is imposed with equity and certainty

• Must consider taxpayers ability to pay and benefits received (Progressive Tax System)

TAX EXEMPTION VS. TAX AMNESTY

Tax Exemption

• No tax liability at all

• Grantee need not pay anything

• Can be availed by any person qualified

  
  

Tax Amnesty

• Connotes condonation from payment of existing liability

• The grantee pays a portion

• Not always available

TAX CONDONATION VS. TAX AMNESTY

Tax Condonation

• specific person

• Prospective

• No condition

• Forgive civil penalties

  
  

Tax Amnesty

• general pardon

• Retrospective

• Conditional

• Forgive criminal, civil, and administrative penalties

CLASSIFICATION OF TAX AS TO PURPOSE

• Fiscal (primary): General, Fiscal, Revenue (to raise revenue. Income Tax)

• Regulatory (secondary): Special, Sumptuary (special purpose. TCC)

CLASSIFICATION OF TAX AS TO SUBJECT MATTER

• Personal, poll, privilege tax (indi residing within a specified territory. CTC)

• Property tax (imposed on property. Real Estate Tax)

• Excise tax or privilege tax (performance of an act. Income Tax, VAT)

CLASSIFICATION OF TAX AS TO INCIDENCE

• Direct (statutory=economic. Income Tax)

• Indirect (statutory≠economic. VAT)

CLASSIFICATION OF TAX AS TO AMOUNT

• Specific tax (per piece)

• Ad valorem (X% of SP)

CLASSIFICATION OF TAX AS TO RATE

• Proportional/Flat rate (based on a fixed percentage)

• Progressive/Graduated tax (tax rate increases as the tax base increases)

• Regressive tax (not in PH)

• Mixed tax

CLASSIFICATION OF TAX AS TO IMPOSING AUTHORITY

• National Tax (VIDEEO): VAT, Income Tax, DST, Estate and Donor’s Tax, Excise Tax, OPT

• Local Tax (RPBCT): Real Property Tax, Professional Tax, Business Taxes, Fees and Charges, Community Tax, Tax on banks and financial institutions

SOURCES OF TAX LAWS

Constitution

Local ordinaces

Administrative issuance or BIR rullings

Statutes and Presidential Decree (least source)

Tax Treaties and conventions with foreign countries

Executive Orders and Batas Pambansa

Revenue Regulation by DoF

Judicial Decisions

COMPOSITION OF BIR

Chief Officer

Assistant Chiefs: Operational Group, Legal Group, Information System Group, Resource Management Group

POWERS OF THE BUREAU

• Assessment and collection of taxes

• Enforcement of forfeitures, penalties, and fines and judgments

• Administer supervisory and police powers

• Assignment of duties to their officials and employees

• Provision or distribution of forms, certificate, stamps

• Issuance of receipts and clearances

• Submit annual report to Congress

POWERS OF THE COMMISSIONER (CIR)

• Interpret provisions of NIRC (subject to review by Secretary of Finance)

• Decide tax cases (subject to jurisdiction of CTA)

• Obtain information and effect tax collection

• To make assessment and prescribe additional requirement

• Make or amend a return in behalf of the taxpayer

• Change a tax period

• Compromise tax liabilities of taxpayer

• Conduct inventory surveillance

• Prescribe presumptive gross sales or receipts

• Prescribe real estate values

• Accredited tax agents

• Inquire into bank deposit under certain cases

• Prescribe additional procedures or documentary requirements

• Delegate his powers to at least chief of division

• Refund or credit internal revenue taxes

• Abate or cancel tax liability in certain cases

• Examine tax returns and determine tax due thereon

• Cost officers/employees to canvass any revenue district/region

POWERS OF THE CIR THAT CANNOT BE DELEGATED

• Recommend the promulgation of rules and regulations to the Secretary of Finance

• Issue ruling of first impression, or to reverse, revoke, or modify existing rules of Bureau

• Compromise or abate any tax liabilities

  XPN:

  • Issued by regional offices involving basic deficiency tax of 500,000 or less

  • Involves spinal criminal violations, discovered the regional and district officials

• Assign/reassign officers to establishment where excise tax articles are kept/produce

RULES IN ASSIGNMENT TO OTHER DUTIES

Special duties: not more than 1 year

Involving excise articles: Not more than 2 years

Assessment and collection of taxes: not more than 3 years

MARSHALL DICTUM

Power to tax includes the power to destroy

HOLMES DOCTRINE

Taxation power is the power to build

DOCTRINE OF JUDICIAL NON-INTERFERENCE

Courts cannot inquire into wisdom of taxing act

IMPRESCRIPTIBILITY IN TAXATION

Imprescriptible unless otherwise provided

PROSPECTIVITY OF TAX LAWS

Prospective in character and application

XPN:

• Necessarily implied from provisions of law

• Involves income tax

• Clearly the intent of the Congress

STRICTISSIMI JURIS

Taxation is the rule, the exemption is the exception

DOCTRINE OF EQUITABLE RECOUPMENT

Doctrine of no prescription (not applicable in PH)

RULINGS/ORDERS/CIRCULARS

RR: signed by the secretary of finance, issuance that prescribe or define the RR

RMC: issuances that publish those issued by BIR or other offices

RMO: provide directive/guidelines

Rulings: answer by CIR of taxpayers query

RMR: how provisions are interpreted

COMPROMISE (WHERE TO REPORT)

Lower than minimum: CIR

500k or less: REB

500k to 1M: CIR

More than 1M: NEB

CHARACTERISTICS OF GROSS INCOME

Return ON Capital

Realized benefit

Not exempted by law, contract, treaty or the consti

Return OF Capital

Unrealized income

Exempted by law, contract, treaty or the consti

INCOME TAX SCHEMES

Taxable to any one:

• Final Income Tax

• Capital Gains Tax

• Regular Income Tax

TAXABLE WITHIN AND WITHOUT

• Resident Citizen

• Domestic Corporation

INDIVIDUAL TAXPAYERS WHO ARE TAXABLE WITHIN ONLY

• Nonresident Citizen

• Resident Alien

• NRA-ETB

• NRA-NETB

CORPORATION TAXPAYERS WHO ARE TAXABLE WITHIN ONLY

• Resident Foreign Corporation

• Nonresident Foreign Corporation

RC TO NRC

At least 183 days without

NRA TO RA

More than 1 year within

NRA-NETB TO NRA-ETB

More than 180 days within

DOES PARTNERSHIP TAXABLE?

GPP: Withholding Agent, Common Profession(Not Taxable)

General Co-Partnership: Business Partnership, Withholding Agent AND Taxpayers (Taxable)

DOES JOINT VENTURE TAXABLE?

Not Exempt: Taxable as corporation

Exempt: Oil exploration, Construction

DOES ESTATE TAXABLE?

Judicial Partition: Tax as individual

Extrajudicial Partition: Not taxable, heirs will record

DOES TRUST TAXABLE?

Revocable: Donor retains control/ownership of property

Irrevocable: Donor is taxed

DOES CO-OWNERSHIP TAXABLE?

GR: Exempt

XPN (Taxable):

• Investment in income-producing property (becomes business partnership)

INTEREST (SITUS OF INCOME)

Debtor’s residence

DIVIDENDS BY DC (SITUS OF INCOME)

Within the PH

DIVIDENDS BY FC (SITUS OF INCOME)

Income Dominance Test

(GI - 3yrs prior to yr of declaration)

GI-Ph/GI-World=%

% - 50% or more = % x Div = within

% - Less than 50% = 100% without

SERVICE (SITUS OF INCOME)

Place of performance

RENT (SITUS OF INCOME)

Location of property

ROYALTIES (SITUS OF INCOME)

Place where intangible is used

GAIN ON SALE ON REAL PROPERTY (SITUS OF INCOME)

Location of property

GAIN ON SALE ON PERSONAL PROPERTY (SITUS OF INCOME)

Place of sale (agreement)

GAIN ON SALE ON DOMESTIC STOCKS (SITUS OF INCOME)

Always within the PH

MINING (SITUS OF INCOME)

Location of mine

FARMING (SITUS OF INCOME)

Location of farm

MERCHANDISING (SITUS OF INCOME)

Place of sale

MANUFACTURING (SITUS OF INCOME)

Place of production and sale

DEADLINE (REPORTING)

15 days after 4th month

TAXABLE YEAR (REPORTING)

Calendar year: Individual and corporation may report

Fiscal year: Only corporation may report

SHORT ACCOUNTING PERIOD (REPORTING)

• Death of taxpayer

• Newly organized business

• Dissolution of business

• Change in accounting period

• Termination of period by CIR

PRINCIPAL METHODS (TAX ACCOUNTING METHODS)

Cash basis: Record in actual receipt/payment

Accrual basis: Record when earned/incurred

Hybrid: Combination

INSTALLMENT METHOD (TAX ACCOUNTING METHODS)

GR: Initial payment is less than 25% of SP

XPN: Dealer of immovable property (25% is not applicable anymore)

LONG-TERM CONSTRUCTION CONTRACTS (TAX ACCOUNTING METHODS)

Percentage of Completion: LTCC period of more than 1 year

Completed Contract: Gross income is recognized upon completion

FARMING INCOME (TAX ACCOUNTING METHODS)

Crop-year basis: Expense is deductible in year income is realized

LEASEHOLD IMPROVEMENT (TAX ACCOUNTING METHODS)

Outright Method: Reported at a time of completion of leasehold

Spread-out Method: Recognized over the lease term

CRITERIA FOR LARGE TAXPAYERS

Tax payments (VIEW)

• VAT: more than 200k per quarter

• Income Tax, Excise Tax, Withholding Tax: more than 1M per annum

Financials

• Sales Revenue: more than 1B per annum

• Purchases: more than 800M per annum

• Net Worth: more than 300M per annum

TAXPAYERS’ OBLIGATIONS (INCOME TAX COMPLIANCE)

• File Income Tax Returns

• File Withholding Tax Returns

• File Required Information Returns

• Compliance with administrative requirements

MODE OF TAX PAYMENTS (INCOME TAX COMPLIANCE)

Self-assessment Method: CGT and RIT

Withholding Method: FIT and Creditable Withholding Tax (RIT)

TYPES OF TAX RETURNS (INCOME TAX COMPLIANCE)

Income Tax Return (ITR)

• Regular Income Tax (RIT): Individual (Form 1701); Corporation (Form 1702)

• Capital Gains Tax (CGT): Individual (Form 1706); Corporation (Form 1707)

Withholding Tax Return (WTR)

• Creditable Withholding Tax (CWT): Withholding Tax on Compensation; Expanded Withholding Tax (EWT)

FREQUENCY OF RIT PAYMENTS (INCOME TAX COMPLIANCE)

Individual

• PCIE - Annual

• PB/PIE - Quarterly + Annual

• MIE - Quarterly + Annual

Corporation: Quarterly + Annual