Tax Generalprinciples-abella Notes[1]

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TAX LAW REVIEWER Part I - General Principles Principles 1. Taxa Taxati tion on De Defi fine ned d Taxation is the power by which the sovereign raises revenue to defray the necessary expenses of the government. It is the means of apportioning the costs of governance among those who in some measure enjoy the privilege of its benefits and must bear its burden. 2. o!rce • • • • Constitution Statutes Jurisprudence Revenue regulations ". #a #at! t!re re $IL $ILL% 1. Inhere Inherent nt attr attribu ibute te of sovere sovereign ignty  ty  • • It belongs belongs to the State as a matter matter of right. right. It does not need need of constitutio constitutional nal conferment conferment.. Constituti Constitutional onal provisions provisions do not give rise to the power to tax but merely impose limitations on what would otherwise be an invincible power. Taxation being an attribute of sovereignty its relin!uishment is never presumed. 2. Legi Legisla slati tive ve in in char charac acte ter  r  • • • • The power cannot be exercised by other branches of the government except upon valid delegation. This is based upon the principle that "taxes are a grant of the people who are taxed and the grant must be made by the immediate representatives of the people. #nd where the people have have laid the power there there it must remain and be exercised. Cour Courts ts have have no powe powerr to powe powerr to in!u in!uir ire e into into or inte interf rfer ere e in the the wisd wisdom om objective objective motive motive or expediency in the passage of a tax law as this is p!rel& le'islati(e in character. cope of t)e le'islati(e po*er to tax a. $isc $iscre reti tion on as to p!rposes for which taxes shall be levied 1  Courts may review the levy to determine whether the purpose is a public one but once determined that the purpose is a public one courts can ma%e no other in!uiry as to the purpose of the tax as such in!uiry affects the power to impose it.  Lutz v. Araneta: &rotection and promotion of sugar industry is a matter of public public concer concern. n. 'egisl 'egislatu ature re may determi determine ne within within reasonab reasonable le bounds bounds what what is necess necessary ary for its protecti protection on and expedi expedient ent for its promotion. Such legislative discretion discretion must be allowed allowed full play subject only to the test of reasonableness. b. $isc $iscre reti tion on as as to to the the s!+,ects of taxation  Ine!ua Ine!ualit lities ies which which result result from from singli singling ng out of one partic particula ularr class class infringe no constitutional limitation.  Punsal Punsalan an v. City City of Manila: Manila: It is not for the courts to judge what partic particula ularr cities cities or munici municipali palitie ties s should should be empowe empowered red to impose impose occu occupa pati tion on taxe taxes s in addi additi tion on to thos those e impo impose sed d by the the (ati (ation onal al )overnment. The matter is peculiarly within the domain domain of the political political departments and the courts would do well not to encroach upon it. c. $isc $iscre reti tion on as as to to the the ao!nt or rate  of tax  The power may be carried out even to the extent of exhaustion or destruction thus becoming in its exercise a power to destroy. d. $isc $iscre reti tion on as as to to the the anner eans and a'encies of collection  of taxes • McCul McCulloc loch h v. Maryl Maryland and (Mars (Marshal hall): l): The power power to tax involve involves s the power to estroy .  It means that the power to tax includes the power to regulate even to the extent of prohibition or destruction since the inherent power to tax vested in the legislature includes the power to determine who to tax what to tax and how much tax is to be imposed.  Such maxim is used to describe not the purposes for which the taxing power may be used but the  de'ree of (i'or  with  with which the taxing power may be employed in order to raise revenue.  The power to tax includes the power to destroy if it is used validly validly as an discouraging and in effect ultimately ultimately ipleent of police po*er  in discouraging prohibiting certain things or enterprises inimical to the public welfare.  *ut *ut wher where e the the powe powerr to tax is used used solely  for the purpose of raising revenues the modern view is that it cannot be allowed to confiscate or 2  Courts may review the levy to determine whether the purpose is a public one but once determined that the purpose is a public one courts can ma%e no other in!uiry as to the purpose of the tax as such in!uiry affects the power to impose it.  Lutz v. Araneta: &rotection and promotion of sugar industry is a matter of public public concer concern. n. 'egisl 'egislatu ature re may determi determine ne within within reasonab reasonable le bounds bounds what what is necess necessary ary for its protecti protection on and expedi expedient ent for its promotion. Such legislative discretion discretion must be allowed allowed full play subject only to the test of reasonableness. b. $isc $iscre reti tion on as as to to the the s!+,ects of taxation  Ine!ua Ine!ualit lities ies which which result result from from singli singling ng out of one partic particula ularr class class infringe no constitutional limitation.  Punsal Punsalan an v. City City of Manila: Manila: It is not for the courts to judge what partic particula ularr cities cities or munici municipali palitie ties s should should be empowe empowered red to impose impose occu occupa pati tion on taxe taxes s in addi additi tion on to thos those e impo impose sed d by the the (ati (ation onal al )overnment. The matter is peculiarly within the domain domain of the political political departments and the courts would do well not to encroach upon it. c. $isc $iscre reti tion on as as to to the the ao!nt or rate  of tax  The power may be carried out even to the extent of exhaustion or destruction thus becoming in its exercise a power to destroy. d. $isc $iscre reti tion on as as to to the the anner eans and a'encies of collection  of taxes • McCul McCulloc loch h v. Maryl Maryland and (Mars (Marshal hall): l): The power power to tax involve involves s the power to estroy .  It means that the power to tax includes the power to regulate even to the extent of prohibition or destruction since the inherent power to tax vested in the legislature includes the power to determine who to tax what to tax and how much tax is to be imposed.  Such maxim is used to describe not the purposes for which the taxing power may be used but the  de'ree of (i'or  with  with which the taxing power may be employed in order to raise revenue.  The power to tax includes the power to destroy if it is used validly validly as an discouraging and in effect ultimately ultimately ipleent of police po*er  in discouraging prohibiting certain things or enterprises inimical to the public welfare.  *ut *ut wher where e the the powe powerr to tax is used used solely  for the purpose of raising revenues the modern view is that it cannot be allowed to confiscate or 2 destroy. destroy. +therwise +therwise the tax statute statute may be successful successfully ly attac%ed attac%ed as unconstitutional. • The power to tax is not the power to destroy as long as the Supreme Court sits.  The Consti Constitut tution ion as the fundam fundament ental al law overri overrides des any legisla legislativ tive e or executive act that runs counter to it. Thus where it can be demonstrated that the challenged statutory provision fails to abide by its command then the court must so declare and adjudge it null.   #s regards inferior courts the power of judicial review should be exercised with due care and circumspection considering not only the presumption of validity but also the relatively modest ran% of a city court in the judicial hierarchy. !. "ub#ect "ub#ect to to inherent inherent an constituti constitutional onal li$ita li$itations tions /. 0ases • )overnment can neither neither exist nor endure endure without without taxation. taxation. Life+lood doctrine. )overnment Taxes are the lifeblood of the government and their prompt and certain availability is an imperious need. The collection of taxes taxes must be without without hindrance if the state is to maintain its orderly orderly existence. existence. The government,s government,s ability ability to serve and protect protect the people depends largely upon taxes. Taxes are what we pay for a civili-ed society. CIR v. Pineda (196!: The eldest son of the deceased who is an heir and holder transferee of property belonging to the estate/taxpayer is to be treated0 12 #s an 34IR 34IR he is indi indivi vidu dual ally ly answ answer erab able le for for the the part part of the tax tax proportion proportionate ate to the share he received received from the inheritance. inheritance. 3is liability liability cannot exceed the amount of his share. 52 #s a 3+'$4R 3+'$4R of proper property ty belonging belonging to to the estate estate he is liable liable for for the tax tax up to the amount amount of the property property in his possession. R4#S+(0 The government government has a lien on the value of the property received by him from the estate as his share in the inheritance for unpaid taxes for which the estate is liable pursuant to Sec. 516 (IRC. (IRC. *y virtue virtue of such lien the government government has the the right to subject the property in said heir,s possession to satisfy the income tax assessment. The second remedy 7tax lien2 is the avenue the government too% in this case to collect the tax. The *IR should be given in instances li%e the case at bar the necessary discretion to avail itself the most expeditious way to collect the tax because taxes taxes are the lifebloo lifebloo of the govern$ent govern$ent an their pro$pt an certain availability is an i$perious nee. "era v. #ernandez #ernandez (199!: The statute of nonclaims under Sec. 8 Rules 9: of the Rules of Court does not apply to taxation. The reason for the the more liberal treatment treatment of claims for taxes against a decedent,s estate is because taxes are the lifeblood of 3 the government. ;pon taxation depends the the government,s ability to to serve the people for whose benefit taxes are collected. CIR v. C$A and Citytrust (199%!: The )over )overnme nment nt is not bound bound by the the errors errors commit committed ted by its agents. agents. #lthou #lthough gh it may may genera generally lly be estopp estopped ed through through the affirm affirmati ative ve acts acts of public public office officers rs acting acting within within their their author authority ity their their neglec neglectt or omission omission of public duties duties will not and should not produce that that effect. effect. )overnment )overnment cannot and must must not be estopped particularly particularly in matters involving taxes. Taxes are the lifebl lifeblood ood of the nation nation throug through h which which the govern governmen mentt agenci agencies es contin continue ue to operat operate e and with which which the State State exerci exercises ses its functi functions ons for the welfare welfare of its constituents. CIR vs. Al&ue (19''!: Taxes are the the lifeblood of the government and so should be collected without unnecessary hindrance. %n the other han& such collection should be made in accordance accordance with law as any arbitrarine arbitrariness ss will negate the very reason for the government itself. itself. It is therefore therefore necessary to reconcile the apparently apparently conflicting interests of the authorities and the taxpayers so that the real purpose of taxation which is the promotion of common good may be achieved. Reye Reyes s v. Ala Alanz nzor or (196 (196 )CRA )CRA *++! *++!:: ithout taxes the government would be paraly-ed for lac% of the motive power to activate and operate it. 3ence despite the natural reluctance to surrender part of one,s hardearned income to the taxing authorities every person who is able to must contribute his share in the burden of running the government. The government for its part is expected to respond in the form of tangible and intangible benefits intended to improve the lives of the people and enhance their material and moral values. 3. P!rposes of Taxation P!rposes of Taxation 1. 5. ?. @. 8. :. Raise Revenue Regulation &romotion of )eneral >elfare 4ncourage 4conomic )rowth Reduce Social Ine!uality &rotect 'ocal Industries Priary Pur/ose 1. To raise revenue • • To provide funds with which the State delivers the basic services to the people. The government cannot simply be operated without the funds to finance its multifarious functions including the delivery of basic services education etc. Thus& in case of eficit spening& the govern$ent resorts to borrowing& locally an internationally. )econdary Pur/oses (non'revenue purpose) 5 5. Regulation • • • •  #s an implement of police power  Taxation has a regulatory purpose as in the case of taxes levied on excises or privileges 7sin taxes2 li%e those imposed on tobacco and alcoholic products or amusement places li%e night clubs cabarets coc%pits etc. *ut the power to tax must be exercised with caution to minimi-e injury to the proprietary rights of taxpayers. It must be exercise fairly e!ually and uniformly lest the tax collector %ill the Ahen that lays the golden egg., %ther exa$ple: Improperly accumulated earnings tax B tax to regulate ?. &romotion of general welfare • • •  #s an implement of police power Lut v. raneta (*+ ,hil 1-+): SC upheld the validity of the Sugar #djustment #ct which imposed a tax on milled sugar since the purpose of the law was to strengthen an industry that is undeniably vital to the economy B the sugar industry. %s$ena v. +rbos 7arch ?1 166?20 >hile the funds collected under the +&S= are referred to as taxes they are exacted in the exercise of the police power of the State. =rom such fund amounts are drawn to reimburse oil companies when appropriate situations arise li%e increases in as well as underrecovery of the cost of crude oil importation. @. Reduction of social ine!uity • • This is made possible through the progressive system of taxation where the objective is to prevent the undue concentration of wealth in the hands of few individuals. Pro'ressi(it& is %eystoned on the principle that those who are able to pay should shoulder the bigger portion of the tax burden. xa$ples: Income tax  donor,s tax estate tax Taxes under (IRC are either proportionate or progressive. The latter is mandated by the Constitution 7to evolve2. &rogressive means the tax rate increases as the tax base increases. 8. 4ncourage economic growth • The law at times grants incentives or exemptions in order to encourage investments and thereby promotes the country,s growth. a. Tax Sparing Rule b. Income tax holidays B to allow pioneer industries to prosperD to enable them to recover their investment before being taxed 6 c. &4E#registered enterprises B given tax relief 7all forms2D only 8F of their gross income is being taxed the reason being that these are export oriented industriesD so that their products will be competitive to the foreign mar%et :. &rotectionism • • • It protects local industries from foreign competition i.e. protective tariffs and customs duties "outhern /ross /e$ent v. "ec. of finance (0uly +& 2-): The Safeguard easures #ct allows the imposition of emergency measures including tariffs to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them. The power to impose general safeguard measure is vested upon the $TI Secretary upon compliance with two conditions vi-0 12 there must be a positive final determination of the Tariff Commission that a product is being imported into the country in increased !uantities as to be a substantial cause of serious injury or threat to the domestic industry and 52 $TI Sec. must establish that the application of such safeguard measures is in the public interest. $estinationtype <#T    • local products consumed within B 1GF all products of the same %ind 7foreign2 B 1GF <#T on top of excise for export B -erorated Taxes on supply and labor may be recovered in form of refund 4. 5+,ecti(es of Taxation • • • Robust environment Sustainable economy 4!uitable relief  6. Taxation (s. 5t)er In)erent Po*ers of t)e tate Po*er to Tax Police Po*er Po*er of Einent Doain  As to /ur/ose To raise revenue 7regulation is incidental2 To ta%e private property for public use  As to aount of e0action Contemplates no limits  As (o special or direct benefit To promote public welfare through regulation 7revenue is incidental2 4xaction limited to cost of regulation issuance of the license or surveillance Similarly no direct benefits to enefits 7 Just compensation is received ta0/ayer  y  As to su/eriority of Contracts  As to transfer of  /ro/erty ri&hts  As to /ersons affected  other than the fact that the are received yet a healthy government secures to the economic standard of citi-en that general benefit society is maintain resulting from the protection of his person and the welfare of all. Recogni-es the obligations $oes not apply imposed by contracts Taxes paid form part of  #llows merely the restraint public funds on the exercise of property rights  #pplies to all persons property and excises that may be subject thereto given the owner of the expropriated property 7# particular person is affected2 +nly a particular property is comprehended 7. Extent of t)e Taxin' Po*er  • • • • Co/rehensive. It covers persons businesses activities professions rights and privileges. 2nliited. ;nlimited in force and so searching in extent that the courts scarcely venture to declare that it is subject to any restrictions whatever except such as rest in the discretion of the authority which exercises it. Plenary. It is complete. *IR may avail of certain remedies to ensure the collection of taxes. )u/ree. Insofar as the selection of the subject of taxation is concerned. 8. 0asic Principles of a o!nd Tax &ste $9AT% 1. #iscal Ade3uacy 4 the sources of government revenue must be sufficient to meet government expenditures and other public needs 7not excessive not deficient2. This is essential to avoid budgetary deficits and to minimi-e foreign and local borrowings. This is in consonance with the lifeblood doctrine. •  # violation of this principle will not render the tax law unconstitutional or invalid because there is no constitutional provision or statute which mandates the observance of this principle. Thus even if a tax law were enacted in violation of this principle the tax law would remain valid. It merely affects the S+;($(4SS of the system of taxation. 5.  Adinistrative #easiility  B Tax laws should be capable of being effectively and efficiently enforced. 3ence it must not lay down obstacles to business growth and development. • This principle re!uires that each tax law should be B a. clear and plain to the taxpayers 8 b. capable of enforcement by an ade!uate and welltrained staff of public officials c. convenient as to the time and manner of payment d. not unduly burdensome upon or discouraging business activity. • • •  # violation of this principle will not render the tax law unconstitutional. It merely affects the S+;($(4SS of the system of taxation. 5a/atiran v. $an (16* )CRA *1!: <#T law is principally aimed to rationali-e the system of taxes on goods and services SI&'I=H tax administration and ma%e the system more e!uitable to enable the country to attain economic recovery. )overnment should come out with simple law/rules so the taxpayers can easily comply especially our tax system is based on self assessment/voluntary compliance system. ?. $heoretical ustice  B This is the principle behind the progressive system of taxation. It means that the stress on a set of revenue laws is on ability to pay which means that those in a better financial position to pay are taxed more than those who are not. • • 4!uitable tax systemD to comply with constitutional mandate. # violation of this principle will render the tax law unconstitutional. This principle calls for <4RTIC#' 4;ITH B those who have more income should pay more. (versus %3I4%5TL 67IT8 9 all taxpayers belonging to the sa$e class $ust be taxe alie) ------------@. 7conoic 7fficiency. The tax system must not distort the decision of businessmen as to what businesses to put up. 'i%ewise the system of taxation must not distort the decision of the consumers as to what to consume. • 70a/le: %riginal sales tax before ;T  1GF  essential articles 5GF  semiessential ?GF  luxury item Such system distorts the economic decisions of businessmen. If you were a taxconscious businessman you would not want to manufacture luxury items because the tax is high. This system encourages people to manufacture lowend articles.  +nly a unitary rate of tax will remove the distortion. >ith <#T there is a unitary rate. 4verything else being e!ual they can do whatever they want. 9   # unitary rate of tax will encourage competition. It will insure that the tax system will not have an inflammatory effect on prices. +nly the law on supply and demand will determine the prices.  =iscal ade!uacy and #dministrative feasibility B #dam Smith.  =iscal ade!uacy #dministrative feasibility economic inefficiency soundness if not followed will not render the tax law unconstitutional.  Theoretical justice B if not followed will render the tax law unconstitutional. It is a constitutional limitation. B affects 1:. TAXE Taxes • It is the product of the exercise of the power. • Taxes are enforced social contributions from persons and property levied by the state by virtue of its sovereignty for the support of the government and for all its public needs. • • 4xaction that is collected by the government from all persons property and privileges within its jurisdiction. 0asic )aracteristics 0asic )aracteristics of Tax 1)nforce contributions 2)/ollecte for public purpose !),ecuniary in nature)Must be collecte uring regular intervals 12 nforce contributions  B anybody within the taxing authority can be compelled to contribute 52 /ollecte for public purpose B ?2 ,ecuniary in nature) Must be collecte uring regular intervals 11. VI-;-VI T# can +e set- (ot subject to setoffL off  Can,t be assigned Assi'na+ilit& $ue to the government in its sovereign capacity (CC Contracts express or implied >ith interestsD once debtor becomes in default the obligation bears interest whether or not there is a stipulation &ayable in money property or services Can be set off/ legal compensation Can be assigned $ue to the government in its corporate capacity ;hether of not ta0es can e suhen the government tried to collect from ambulao the latter refused to pay. >eld: Taxes and debts are of different nature. Thus they can not be set off. Taxes are the lifeblood of the nation. Its availability is an imperious need. The government must collect first the tax due. 12 • • • • • • • oin&o v. Garlitos $?!ne 184"%@  SC reconsidered ambulao ruling. It held that if *+T3 obligations are o(erd!e deanda+le as well as f!ll& li!idated  then compensation ta%es place and the obligations are extinguished as to their concurrent amount. I#C vs. =rancia Caltex v. C+# &hilex ining v. CIR0 reverted to ambulao #rancia: &roperty was expropriated by the government so the government is liable to pay just compensation. *ut property owner 7=rancia2 has delin!uent taxes. >eld: +bligations are of different nature. Taxes cannot be offset against an ordinary monetary obligation. *ut )arlitos case is not an exception to the general rule because there are re!uirements to be considered. *oth obligations must be due demandable and fully li!uidated. Phile0 Minin& case: &hilex owed the government mining taxes. &hilex refused to pay because it had a multimillion pending claims for refund of input tax. SC did not allow set off because &hilex,s claim was not yet fully li!uidated. (o final determination as yet as to how much the refund was. Its tax liability on the other hand had been fully li!uidated. Thus any offset is premature. Re: $emandable0 Taxes are demandable when not paid on the due date. >ith regard to assessed taxes the latter becomes due when the assessment has become final under sec. 559 (IRC. #ernandez .v Mun. of )M-0 $ebt when demandableM In this case the municipality owed certain private contractors an amount of money for services rendered. The private contractors demanded payment from the municipality but the latter refused. Judge =ernande- issued a favorable  judgment. # writ of execution was issued. The judge issued a warrant of arrest against the un. Treasurer. The latter went to SC under Rule :8. hat S4T +== only if0 712 $ue 752 $emandable 7?2 =ully li!uidated and 7@2 There,s an appropriation ordinance e. $a0es vs. )/ecial levy  •  # special assessent is in the nature of a tax upon a property levied according to the benefits conferred on the property. 13  • &roperty against which it is levied derives some special benefit from the improvement. Distinctions@ Special assessment  'evied only on lands  Cannot as a rule be made a personal liability of the persons assessed  *ased wholly on benefits  4xceptional as to both time and locality  The imposition of a c)ar'e on all propert&  real or personal in a prescribed area is a tax not an assessment although the purpose is to ma%e a local improvement on a street or highway.   # charge iposed onl& on propert& o*ners +enefited  is a special assessment rather than a tax.  The power to levy such assessments is undoubtedly an exercise of the taxing power but the exercise of the taxing power in imposing an assessment does not necessarily ma%e an assessment a tax. 12. LAI9IATI5# 59 TAXE $0APG -- subject matter burden amount purpose scope gradation2  #. Subject matter0 personal& capitation& poll& property& excise 1. Personal ta0. Tax on individuals whether citi-en or not residing within a specified territory without regard to their property and occupation. -asic counity ta0 4 &8  #dditional not to exceed &8T B &1 for every &1T Salaries from gross receipts or earnings from other occupation B &1/&1T  The basic community tax of &8 is not based on income. If a tax is payable under a community tax certificate the tax is not necessarily a personal tax. The personal tax therein is only the basic community tax of &8 for which a person under the Constitution can not be imprisoned for nonpayment thereof. 3eason for the provision: =ramers of the alolos Constitution considered it as an affront if one will be imprisoned for not paying a minimal amount.  Thus if referring to income or property taxpayer may be imprisoned.  Poll ta0?ca/itation?counity ta0es . *ased upon the residence of the taxpayer regardless of the source of income or location of the property of a tax payer.  Community tax  basic 14   4xcise tax B tax on a privilege 7all (IRC taxes2D $ST is an excise taxD Income tax B tax on the privilege to earn  #d ho is the taxpayer who is re!uired to payM2 versus cono$ic incience 7>ho bears the burdenM >ho in reality shoulders the burden of the taxM2 If statutory incidence and economic incidence fall on one person it is a $IR4CT T#K. <#T under Sec. 1G8 the statutory incidence is on the seller but the economic incidence is on buyer. Shifting is always presumed. There are 11 components in the invoice. In case of indirect tax and the tax is not paid the government can not go after the buyer. C. #S T+ #+;(T 1. )/ecific   based on the number or some other forms of weight and measurement 4xamples0 Tax on leaded gas B per liter  Tax on distilled spirits B based on proof  Tax on fermented li!uor B gauge liter  Cigarette B per stic% 2.  Ad "alore 9 base on value Real property tax 4state tax  based on the value of the property left by the decedent 15 Income tax B based on the value of the income B: ?hich is easier to a$inister& specific or a valore$= A@  Specific tax. Hou do no go beyond counting. In ad valorem there is a tendency for the taxpayer to lower the prices as exemplified by =ortune Tobacco case. =ormerly cigarette is subject to ad valorem tax. It was taxed on original sale. =ortune Tobacco incorporated nine 762 mar%eting corporations. =ortune sells its tobacco to its mar%eting companies. &1.GG 7taxed2 =ortune &8.GG 7not taxed2 ar%eting co. &ublic Thus the government reverted to specific tax system. 3owever the problem with S&4CI=IC taxation is that it fails to capture the effects of inflation. ost of ci'arette pecific tax &1G/pac% &1GG/pac% &1/pac% &1/pac% 0efore 1: &ears later  Tax 1GF 7&1 is 1GF of &1G2 1F 7&1 is 1F of &1GG2 4xcise tax indexation was designed to capture the effects of inflation. In an evolving economy ad valorem is preferred against purely specific. $. #S T+ &;R&+S4 (@eneral or )/ecial! 1. @eneral B needed for general purposeD tax collected will accrue to the general fund 5. )/ecial  must be utili-ed for the special purpose alone. +therwise there would be technical malversation. If the purpose had already been accomplished or abandoned that is the only time that the amount collected can be used for other purposes. 4. #S T+ SC+&4 1. ational 4 imposed by the (IRC Tariff and Customs Code 5. Local 4 imposed by the local taxing authority =. #S T+ )R#$#TI+( 1. Pro&ressive 4 the tax rate increases as the tax base increases 16 5. Re&ressive B tax rate increases as the tax base decreases ?. Mi0ed 4 at certain point progressive then regressive. • • The Constitution calls for ;(I=+RITH.  #ll indirect taxes are regressive taxes.  Atty. Aella: <#T is not really a regressive tax. The rate is ='#T. It is regressive only because of the impact of the tax burden on different taxpayers. Impact of the tax burden N amount paid by a consumer as a percentage of his disposable income. =or example a person earning &1GGGG.GG 7net of income tax2 a month eats a &1GGmeal O Jollibee. #t 1GF rate of <#T he pays &1G or .G1 percent of his disposable income 7&1GGGG.GG2 for that meal. >hilst a consumer earning &1GGGGG.GG 7net of income tax2 a month who also eats a &1GGmeal O Jollibee also pays &1G in <#T if the rate is 1GF. This amount is just .GG1 percent of his disposable income 7&1GGGGG.GG2. The impact is high on low income earner and negligible on high income earner. • >e do not adhere to tax cascading at tax upon a tax situation. 1". LI=ITATI5# CP5# There an assailed tax measure is not for public purpose such an act is tantamount to confiscation of property. $irect and indirect public benefit. #s long as the ultimate result favors the welfare of the public in general. 5. Territorialit& 7Jurisdictional Sec. 5? B Resident (onresident Citi-en #lien2  most important0 SIT;S • The taxing power of a country is limited to persons properties and privileges within its territory. 18 • it!s is the place or state which has the power to impose a tax upon a person property or privilege. • • Congress by law determines situs. It depends on the nature and character of the tax and the object sought to be achieved. R!les on sit!s@ a. Real property tax B property located within b. &ersonal property B domicile of the owner following the principle of Mobilia se@uuntur persona$ 7ovables follow the person2. Moilia se3uuntur /ersona ovables follow the person. #lthough a mere fiction of law without any constitutional foundation it is nevertheless applied when convenient  712 provided it is not inconsistent with express provisions of the law or 752 when its application would result in injustice or 7?2 unless such property has ac!uired a situs elsewhere. • • • To ac!uire a situs in a state other than the domicile of the owner tangible property must have a definite location here accompanied by some degree of permanencyD mere temporary or transient presence in the state is not sufficient. Thus in case of shares of stoc% its situs for purposes of taxation is the state in which they are permanently %ept regardless of the domicile of the owner or the state in which the corporation was organi-ed. Wells-9ar'o 0an@ Shares of stoc% left by a nonresident alien decedent in an anonymous partnership in the &hilippines are subject to &hilippine inheritance tax notwithstanding the $obilia rule. The $obilia rule should yield to reason. The shares of stoc% are also taxable in the situs of their actual location i.e. the &hilippines. • TRA#9ER TAXE@ ec.  1G@ R# 9@5@0 &roperties which have ac!uired situs in R&0 a. =ranchise exercised in R& b. S/S obligations bonds issued by domestic corporations organi-ed and constituted in accordance with R& lawsD 19 c. S/S obligations bonds issued by a foreign corporation where 98F of its business is located in the &hilippines 7subject to donors and estate tax2D d. S/S obligations bonds issued by foreign corporations which has ac!uired business situs when such have been used in the furtherance of the business of the foreign corporationD e. Shares/rights in a established in R& partnership business or industry  These properties are considered situated thus taxed in R& the residence of their owners is immaterial.  R;'40 Irrespective of the owner donor,s tax or estate tax can be imposed upon these properties 4KC4&T where the foreign country grants exemption or does not impose taxes on intangible properties of =ilipino citi-ens.  4xample0 donation of S/S made by a =C are not subject to tax. 3owever if the transaction falls under par. c or d the donation shall be subject to tax.  The income of intangible properties li%e royalties and dividends are subject to taxes 7Secs. 5@P 58 5 59 R# 9@5@2. c. Community Tax B taxable if resident for a period of at least six 7:2 months 719G days2. d. 4xcise Tax B imposed on the exercise of a right or privilege • Income tax 7sec. 5?2 Criteria0 &lace   (ationality Residence 12 Resident citi-ens and domestic corporations B taxable within and without 52 (RC R# (R# =C B taxable only within  CIR v. -AC: (+D -ar 70a 4 Ruling no longer applies in view of the new provision in the Tax Code2 This case was iscusse in inco$e taxation. Aross receipts an origination rule. 20 Transfer tax 7Sec. 982 • Criteria0 12 Residence of the transferor B RC/$C 52 (ationality of the transferor B RC/$C ?2 'ocation of the property B within R&    #ll others taxable wherever situated. *usiness tax B taxed on conducted within <#T B place where the transaction is made • • • (R# B property situated within taxable. B/,T: Section 1G@ 7reciprocity rule2 Do!+le taxation  $efinition B >hen the same property is taxed twice when it should be taxed but onceD both taxes must be imposed B        on the same property or subject matter for the same purpose by the same state government or taxing authority within the same jurisdiction or taxing district during the same taxable period and the same %ind or character of tax. Qinds of $ouble Taxation 1. $irect double taxation 7prohibitive double taxation B taxing twice by the same authority for the same purpose in the same year some of the property in a given territory in which the tax is laid without taxing all of the$ the second time This type of double taxation is prohibited by the Constitution as it violates the rule on ;(I=+RITH. 5. Indirect double taxation B This type of double taxation is (+T prohibited. Thus a lessor who derives rental income from his land may be re!uired to pay income tax on the net rentals real estate tax on the assessed value of the land and community tax also on the assessed value of the land. (;illanueva v. /ity of Iloilo& 2C "/3 >D+) • International $ouble Taxation 21 - Tax on the same S;*J4CT #TT4R Tax on the same &4RI+$ Tax by $I==4R4(T T#KI() #;T3+RITH/J;RIS$ICTI+( xa$ple: Income of a resident citi-en from a foreign country adopting the source principle in imposing income tax - Thus this is not a direct d!plicate taxation   because it is being imposed by different taxing authorities. This does not constitute the prohibited type of double taxation. - There is no law that prohibits double taxation what is violated is the ;(I=+RITH R;'4 because Ataxed twice when it should be taxed only once., - Tax situs for income tax purposes0 Sec. 5? - Sources of income 7Sec. @52  - Sale of shares of stoc%s of a domestic corporation is an income from within irrespective of the place of sale. Reedies a'ainst International Do!+le Taxation@ • • • • Reciprocal tax exemption Tax deduction Tax credit Tax refund 12 Reciprocal tax exemption  Sec. 1G@ (IRC B Rule on reciprocity in limited context 7only in cases of intan'i+le personal propert&2  Treaty provisions 52 Tax deduction B amount allowed by law in order to reduce tax due  4x. *usiness expenses B Sec. ?@ B@  #re incoe  taxes paid in foreign country allowed as deductionsM A@ Hes *;T the taxpayer must not have signified his intention to avail claim it as tax credit 7Sec. ?@2. ?2 Tax creit   B reduction of tax lia+ilit& 7vs. tax euction which is the reduction of the tax +ase2 22  Tax CR4$IT is better. reduced. The liability itself is  Income taxes paid in foreign country B to avail of tax credit taxpayer must signify his intention to avail tax creditD otherwise will only be allowed as deduction enior itiensF Disco!nt>entral L!on Dr!' ase $2::4%@ 1668 TR#(S#CTI+(S. +ld Senior Citi-ens 'aw provides that discounts given to senior citi-ens may be availed of as tax credit by the establishment. SC said in a 5GG: decision that there,s no room for interpretation. The law explicitly provides that discounts given may be availed of as tax credit. /o$$ent: 'ugi ang government. Tax CR4$IT reduces tax liability not tax base. If total discounts given amount to &8GGQ and total taxable income is &1G tax due at ?8F is &?.8. If discounts given 7&8GGQ2 is to be availed of as tax credit tax due is &? only. >hereas if it will only be allowed as tax deduction discounts given in the amount of &8GGQ will be deducted from the tax base of &1G so taxable income will be &6.8. #t ?8F tax due is &?.?58. Ta%e note Senior Citi-ens 'aw was enacted to favor senior citi-ens not the establishments giving discounts. The discounts given are income which should have been reali-ed were it not for the law mandating the giving of discounts to senior citi-ens. So it is but proper to deduct the discounts given from the gross income not from the tax base. +n arch @ 5GG@ R# 658 otherwise %nown as the (ew Senior Citi-ens 'aw too% effect. ;nder said law discounts given should be treated as T#K $4$;CTI+( not as tax CR4$IT. *ut said law cannot be made to apply to Central 'u-on $rug Case because said case involves 1668 transactions. 1/. #on-dele'a+ilit& of the power  General R!le@ &ower to tax is nondelegable. 23 &ower to fix the object purpose and rate Exceptions0 1. To the &resident 7tariff2 5. $elegation to &olitical subdivisions ?. $elegation to administrative bodies 12 to the &resident 7#rt. hat must originate exclusively from the 'ower 3ouse is not the law but only the revenue bill. Senate may propose or concur with amendments. The same Tolentino case on old <#T law. 5. $4'4TI+( += A(+ &#SS +(, &R+. ach local govern$ent unit shall have the  power to create its own sources of revenues an to levy taxes& fees& an 25 charges sub#ect to such guielines an li$itations as the /ongress $ay  provie& consistent with the basic policy of local autono$y. "uch taxes& fees& an charges shall accrue exclusively to the local govern$ents. • • Pe/si Cola v. City of -utuan: The theory of nondelegation of legislative power does not apply to maters of local concern. ld case: 4ven if no such Constitutional provision '); has the power to tax because the power to create '); by implication confers upon it the power to tax. ?2 to the administrative bodies • Tax legislation 7covers Alevy, and Aimposition,2 B not delegable to administrative bodies. It refers to the elements that enter into the imposition of the tax. The scope of legislative taxing power 7power to tax2 extends to the following0 a. the subject 7person property or occupation to be taxed2 b. the amount or rate of the tax c. the purpose for which taxes shall be levied 7public purposes only2 d. the %ind of tax to be collected e. the apportionment of the tax 7general or limited to a particular locality2 f. the situs of taxation g. the method of collection • • Tax #dministration B delegable to 7assessment and collection functions2 administrative bodies 4T3+$S of T#K C+''4CTI+(0 Tax 'egislative Scheme and hen an inherent limitation is violated there is a violation of S;*ST#(TI<4 $;4 &R+C4SS 7"ta%ing of property without due process of law2  #s a proced!ral liitation it prohibits the state from utili-ing any form of assessment or review which is arbitrary or unfair or which may deny a taxpayer a fair opportunity to assert his substantial rights before a competent tribunal. If procedures intended to protect taxpayers are not followed then there is a denial of &R+C4$;R#' due process. 7#ssessment etc.2 28 • The following are illustrative of violations of due process clause0       • • • If the tax amounts to a confiscation of propertyD If the subject of confiscation is outside the jurisdiction of the taxing authorityD If the law is imposed for a purpose other than a public purposeD If the law which is applied retroactively imposes unjust and oppressive taxesD  #rbitrary or oppressive methods are usedD and >here the law is in violation of inherent limitations. Reyes v. Alanzor: The due process clause may be invo%ed where a taxing statute is so arbitrary that it finds no support in the Constitution as it can be shown to amount to a confiscation of property. *ut mere allegation is not enough. There must be a clear and une!uivocal breach of the Constitution and proof of arbitrariness. CIR vs. C$A and #ortune: >hen an administrative rule goes beyond merely providing for the means that can facilitate or render least cumbersome the implementation of the law but substantially adds to or increases the burden of those governed it behooves the agency to accord at least to those directly affected a chance to be heard and thereafter to be duly informed before that new issuance is given the force and effect of law. +. 73ual /rotection clause (Rule on unifority and e3uity! "ec. 1& rt. III ' .. nor shall any person be enie of the e@ual protection of the laws.F  "/TI%5 2+. • (1) The rule of taxation shall be unifor$ an e@uitable. E!alit& of taxation is accomplished when the burden of tax falls e!ually and impartially upon all persons and property subject to it so that no higher rate or greater levy in proportion to value is imposed upon one person or species or property than upon others similarly situated or of li%e character. The /onstitution re@uires 75IG%3MIT8& not e@uality in taxation. • Cniforit& means that all properties or other taxable subjects belonging to the same class be taxed at the same rate or measure otherwise it is discriminatory. • E!it&  means that the apportionment of the tax burden among the taxpayer be just or e!uitable ta%ing into account the taxpayer,s ability to pay the burden. • A+ilit& to pa& means that the subjects of the state must contribute to government support as nearly as possible in proportion to the revenue/income which they respectively enjoy under the protection of the state. 29 • • • • • • City of -a&uio v. e Leon: 7nifor$ity an e@uality. 4!uality and uniformity in taxation means that all taxable articles or %ind of property of the same class be taxed at the same rate. # tax is considered uniform when it operates with the same force and effect in every place where the subject may be found. Pe/si Cola v. City of -utuan: ;niformity in taxation re!uiring all subjects or objects or objects of taxation similarly situated to be treated ali%e or on e!ual footing does not disallow a classification of such objects as long as the standards used therefore are not arbitrary and germane to the intendment of the law and are substantial. )hell v. "ano: Ine!ualities resulting from the singling out of one particular class from other classes do not infringe the Constitution. roc )u&ar Central v. City of roc: +rdinance in this case is unconstitutional. It taxes only the produce of +rmoc Sugar Co. It is true that at the time of its enactment +rmoc Sugar Co. was the only sugar central in the city. 3owever the ordinance as worded is not applicable to future conditions. PAL v. )ec. of #inance: Regressive taxes do not go against the constitutional mandate that Congress shall evolve a progressive system of taxation. The Constitution does not really prohibit the imposition of indirect taxes which li%e the <#T are regressive. >hat it imply provides is that congress shall evolve a progressive system of taxation. Resort to indirect taxes should be minimi-ed but not avoided entirely because it is difficult if not impossible to avoid them by imposing such taxes according to the taxpayers, ability to pay. lassification *)en proper  *)en reasona+le i.e. !st satisf& t)e follo*in'@ a. b. c. d. It must be based on substantial distinction It must apply both to present and future conditions It must be germane to the purposes of the law It must apply e!ually to all members of the same class. *. Pro&ressive ta0ation The /ongress shall evolve a progressive syste$ of taxation. • • Taxation is progressive when its rate goes up depending on the resources of the person affected. The Constitution does (+T really prohibit the imposition of regressive taxes. >hat it simply provides is that /ongress shall evolve a progressive syste$ of taxation. This is a mere directive upon Congress not a justiciable right or a 30 legally enforceable one. >e cannot avoid regressive taxes but only minimi-e them. %. non=i/airent of contracts clause S4CTI+( 1G. • • • (o law impairing the obligation of contracts shall be passed. This applies only when the government 7taxing authority2 itself is a party to the contract. ;nilateral tax exemption may be withdrawn unilaterally. There is impairment if the new law ma%es it more burdensome for the other party to perform his part of the contract. 70a/le: 4R#& bonds/peace bonds. The withdrawal of contractual tax exemptions thereof would amount to impairment because the impelling reason why they invested is the tax exemption D. 70e/tion of reli&iousE educational and charitale institutions "ec. 2+ (!)& rt. ;I. /haritable institutions& churches an parsonages or convents appurtenant thereto& $os@ues& non'profit ce$eteries& an all lans& builings& an i$prove$ents& actually& irectly& an exclusively use for religious& charitable& or eucational purposes shall be exe$pt fro$ taxation. • • • • • • • 4xemption from taxation of cemeteries churches parsonages or convents appurtenant thereto as well as lands buildings and improvements used exclusively for religious charitable and educational purposes. Real property taxes only Standard applied by the constitution is ;S4 of property not +>(4RS3I& Qind of use0 It should be actually directly and exclusively used  Ara "alley Colle&e v. A3uino (19''!: The term "exclusively used does not necessarily mean total or absolute use. 4ven if the property is used for incidental purposes the tax exemption will apply. >errera v. 8C -AA: exclusively means Aprimarily, not Asolely,D property used as canteen and dormitory still exempt from real property taxes as long as they cater exclusively to the students of the school and not to the public. (onstoc% nonprofit educational institutions now enjoy oni+!s exeption or exemption from all taxes 7Sec. @ par. ? #rticle KI<2 as long as0 712 property being exclusively used for educational purposes and 752 no part of income inures to private persons. 31 • Lun& Center v. 8C (+%!: &ortions of the land leased to private entities as well as those parts of the hospital leased to private individuals are (+T tax exempt. The portions of the land occupied by the hospital used for its patients whether paying or nonpaying are exempt from real property taxes. >hat determines exemption is the Ause,D not ownership. 6. 70e/tion of non=stocBE non=/rofit educational institutions (!) ll revenues an assets of non'stoc& non'profit eucational institutions use actually& irectly& an exclusively for eucational purposes shall be exe$pt fro$ taxes an uties. 7pon the issolution or cessation of the corporate existence of such institutions& their assets shall be ispose of in the $anner provie by law. Pro/rietary educational institutions & incluing those cooperatively owne& $ay liewise be entitle to such exe$ptions sub#ect to the li$itations provie by law incluing restrictions on iviens an provisions for reinvest$ent. • • • +mnibus exemption B only for non-stoc non-profit ed!cational instit!tions D If it is a proprietary educational institution B exemption is on real property taxes only and it must satisfy the re!uirements for exemption i.e. actually directly and exclusively used for educational purposesD as regards its revenues the proprietary educational institution is not exempt but it is subject to preferential treatment i.e. 1GF tax rate if more than 8GF of its income is derived from educational purposes 7predominance test2D if more than 8GF of its income is from other purposes the regular tax rate for corporation applies i.e. ?8F. This provision applies to re(en!es and assets  of educational institutions only. (o similar exemption regarding the re(en!es of religious and charitable institutions. vs. #rt. RE and the senate ay /ro/ose or concur Fith aendents. 32 "/TI%5 2-. ll appropriation& revenue or tariff bills& bills authoriing increase of public ebt& bills of local application& an private bills shall originate exclusively in the ouse of 3epresentatives& but the "enate $ay propose or concur with a$en$ents. • Taxation must be by proper representation. representation. (o taxation without proper '. $a0 e0e/tion statute= ahile a person may not be imprisoned for nonpayment of poll tax he may be imprisoned for nonpayment of other taxes. Poll ta0?ca/itation?counity ta0es. *ased upon the residence of the taxpayer regardless of the source of income or location of the property of a tax payer. If a tax is payable under a community tax certificate the tax is not necessarily a personal tax. The personal tax therein is only the basic community tax of &8 for 33 which a person under the Constitution cannot be imprisoned for nonpayment thereof. The community tax certificate 11. "eto /oFer of the President  The ,resient shall have the power to veto any particular ite$ or ite$s in an appropriation& revenue& or tariff bill& but the veto shall not affect the ite$ or ite$s to which he oes not ob#ect. • 1+. The item or items in vetoed shall be returned to the 'ower house of Congress with the objections of the &resident. If after a reconsideration 5/? of #'' the members of such 3ouse shall agree to pass the bill it shall be sent together with the objection to the other house by which it shall li%ewise be reconsidered and if approved by 5/? of #'' the members of the 3ouse it shall become a law. PresidentGs /oFer to ta0  The /ongress $ay& by law& authorie the ,resient to fix within specifie li$its& an sub#ect to such li$itations an restrictions as it $ay i$pose& tariff rates& i$port an export @uotas& tonnage an wharfage ues& an other uties or i$posts within the fra$ewor of the national evelop$ent progra$ of the Aovern$ent. R4;IR44(TS0 a. 4nabling law b. 'aw must provide for limitations and restrictionsD and c. ust be within the framewor% of national development 1*. $a0ation and #reedo of the /ress "/TI%5 -. 5o law shall be passe abriging the freeo$ of speech& of expression& or of the pressHF  • 3owever li%e others the media organi-ation must pay e!uitable and non discriminatory taxes on its business. 16. EXE=PTI5# 9R5= TAXATI5# • =eanin'@ )rant of immunity express or implied to particular persons. corporations or to persons or corporations of a particular class from a tax upon a property or an excise which persons and corporations generally within the same taxing district are obliged to pay. *riefly it is the privilege of not being imposed a financial burden to which others are subject. ,rivilege of not being i$pose a financial buren to which others are sub#ect. • Po*er of le'islat!re to 'rant exeption@ &ower to tax includes the power to exempt. In the exercise of its inherent power to tax the state through its legislature 34 has the full power to exempt any person corporation class of property from taxation as its views of public policy and expediency may dictate. • Interpretation of tax exeption 'rants@ Strictly construed against the person entity or property claiming the exemption. +ne claiming the exemption must justify such claim by clear and positive grant. • #at!re of tax exeption pri(ile'e  It is personal and cannot be assigned or transferred by the person to whom it is given without the consent of the state given in clear and unmista%able terms. • T&pes of exeption. a. 70/ressed B expressly granted by law b. I/lied B exemption by omission. (ut 1**D 5I3/ on inco$e tax provies& inco$e Efro$ whatever source& incluing but not li$ite toF so how can there be an exe$ption by o$ission when it co$es to I5/%M tax). c. Contractual  B the elements of a valid contract must be present d. 2nilateral B granted at will  • Significance of %nowing whether contractual or unilateral0 If ;(I'#T4R#' it could be withdrawn at will 7the power to exempt carries with it the power to withdraw at will2D If C+(TR#CT;#' cannot be withdrawn at will Tax Anest&. It is an immunity from all criminal and civil obligations arising from nonpayment of taxes. It is general pardon given to all taxpayers. It applies only to past tax periods hence retroactive application. Tax amnesty is retroactive in application. $a0 e0e/tion on the other hand is an immunity from the civil liability only. It is an immunity or privilege a freedom from a charge or burden of which others are subjected. It is prospective in application. 17. 95R= 59 EAPE 9R5= TAXATI5# • • • • • • hifting apitali-ation Avoidance Transformation Evasion B unlawful Exemption 7$iscussed above2 a! $a0 7vasion  deliberate adoption of I''4)#' 4#(S to defeat or lessen the payment of tax otherwise %nown as Tax Dod'in' and punishable by law 35 i. Exaples@ deliberate failure to report taxable income deliberate padding of expenses ii. CIR v. 7state of -eni&no $oda (+%!: Tax evasion connotes the integration of three factors0 (JonKt forget 5agaga$it ito sa hypothetical @uestion=;'. iii. 0ad'es of 9ra!d 7Reyes v. CIR2 aunin itong bages of frau sa loob ng La "alle sa 2 n  "unay  1. $eliberate overclaim of deductions 5. $eliberate underdeclaration of income ?. Recurrence of both . $a0 Avoidance B use by the taxpayer of legally permissible methods in order to reduce tax liabilityD otherwise called Tax =iniiation a. Exaples@ >ithdrawal of the deposit of money in ban%s 7interest of which is subject to 5GF withholding tax2 and investment of said idle funds in taxfree government securities to avoid payment of interest income postponing sale of capital assets $ot)er t)an realt& and s)ares of stocs%  until 15 months shall have elapsed from date of ac!uisition so as to reduce the taxable capital gain thereon by 8GF. ot)er t)an real and s)ares of stocsF - because if what is involved is realty or shares of stoc%s there is a presumed capital gains of :F c. )hiftin&  the process by which the tax burden is transferred from the statutory taxpayer (impact of taxation) to another (incident of taxation) without vioatin! the aw" I=PAT 59 TAXATI5#  point on which tax is originally imposed. I#IDE#T 59 TAXATI5#  B point on which the tax burden finally rests or settles down. x. ithin ? years from the date of filing *;T before service of audit notice )7C. 6. PoFer of the Coissioner to MaBe assessents and Prescrie additional Re3uireents for $a0 Adinistration and 7nforceent . ' () xa$ination of 3eturns an Jeter$ination of Tax Jue. ' fter a return has been file as re@uire uner the provisions of this /oe& the /o$$issioner or his uly authorie representative ay   authorie the exa$ination of any taxpayer an the assess$ent of the correct a$ount of tax: ,rovie& however That failure to file a return shall not prevent the /o$$issioner fro$ authoriing the exa$ination of any taxpayer. The tax or any eficiency tax so assesse shall be pai upon notice an e$an fro$ the /o$$issioner or fro$ his uly authorie representative.  ny return& state$ent of eclaration file in any office authorie to receive the sa$e shall not be withrawn: • •  ,rovie& That Fithin three (*! years fro the date of such filin& & the sa$e $ay be $oifie& change& or a$ene: ,rovie& further& That no notice for auit or investigation of such return& state$ent or eclaration has in the $eanti$e been actually serve upon the taxpayer. 0est e(idence o+taina+le r!le () #ailure to )uit Re3uired ReturnsE )tateentsE Re/orts and other ocuents.  ?hen 9 • •     report re@uire by law as a basis for the assess$ent of any national internal revenue tax shall not be forthco$ing within the ti$e fixe by laws or rules an regulations or There is reason to believe that any such report is false& inco$plete or erroneous the /o$$issioner shall assess the proper tax on the est evidence otainale. In case a person 9 39 • •   fails to file a re@uire return or other ocu$ent at the ti$e  prescribe by law& or willfully or otherwise files a false or frauulent return or other ocu$ent& the /o$$issioner shall aBe or aend the return fro$ his own nowlege an fro such inforation as he can otain throu&h testiony or otherFise & which shall be pri$a facie correct an sufficient for all legal purposes. In!ir& into +an deposits • T*o 'ro!nds@ 1. $etermine the gross estate of the decedent 5. +ffer for compromise based on financial incapacity C (G) uthority of the /o$$issioner to in@uire into an Jeposit ccounts. ' 5otwithstaning  any contrary provision of 3epublic ct 5o. 1-> an other general or special laws& the /o$$issioner is hereby authorie to in@uire into the ban eposits of: (1) a eceent to eter$ine his gross estate an  (2) any taxpayer who has file an application for co$pro$ise of his tax liability uner  "ec. 2- () (2) of this /oe by reason of financial incapacity to pay his tax liability. In case a taxpayer files an application to co$pro$ise the  pay$ent of his tax liabilities on his clai$ that his financial /osition deonstrates a clear inaility to /ay the ta0 assessed & his application shall not be consiere !nless an until he waives in writing his privilege uner 3epublic ct 5o. 1-> or uner other general or special laws& an such waiver shall constitute the authority of the Coissioner to in3uire into the anB de/osits of the ta0/ayer . • *an% shall not allow withdrawal unless there is a certification that a tax thereon has been paid 4KC4&T0 4ven if without a certification that tax had been paid withdrawal of not exceeding &5GQ allowed if there is a prior authority from the *IR  (/)  Authority to Conduct Inventory=taBin&E surveillance and to Prescrie Presu/tive @ross )ales and Recei/ts. • If there is reason to believe that such person is not eclaring his correct inco$e& sales or receipts for internal revenue tax purposes& the /o$$issioner $ay& at any ti$e uring the taxable year& '' 40  •  %rer inventory'taing of goos of any taxpayer as a basis for eter$ining his internal revenue tax liabilities& or  ,lace the business operations of any person& natural or #uriical& uner observation or surveillance The finings $ay be use as the basis for assessing the taxes for the other $onths or @uarters of the sa$e or ifferent taxable years an such assess$ent shall be ee$e pri$a facie correct. The /o$$issioner& after taing into account the sales& receipts& inco$e or other taxable base of other persons engage in si$ilar businesses uner si$ilar situations or circu$stances or after consiering other relevant infor$ation $ay  /rescrie a iniu aount of such gross receipts& sales an taxable base& an such a$ount so prescribe shall be pri$a facie correct for purposes of eter$ining the internal revenue tax liabilities of such person 9    ?hen it is foun that a person has faile to issue receipts an invoices in violation of the re@uire$ents of "ections 11! an 2!D of this /oe& or  ?hen there is reason to believe that the boos of accounts or other recors o not correctly reflect the eclarations $ae or to be $ae in a return re@uire to be file uner the provisions of this /oe& (J) Authority to $erinate $a0ale Period . ' ?hen it shall co$e to the nowlege of the /o$$issioner that a taxpayer is 9 1) 3etiring fro$ business sub#ect to tax& or 2) Intening to leave the ,hilippines or to re$ove his property therefro$ or to hie or conceal his property& or !) ,erfor$ing any act tening to obstruct the proceeings for the collection of the tax for the past or current @uarter or year or to rener the sa$e totally or  partly ineffective (unless such proceeings are begun i$$eiately)   The /o$$issioner shall eclare the tax perio of such taxpayer ter$inate at any ti$e an shall sen the taxpayer a notice of such ecision& together with a re@uest for the i$$eiate pay$ent of the tax for the perio so eclare ter$inate an the tax for the preceing year or @uarter& or such portion thereof as $ay be unpai& an  "ai taxes shall be ue an payable i$$eiately an shall be sub#ect to all the  penalties hereafter prescribe& unless pai within the ti$e fixe in the e$an $ae by the /o$$issioner. ()  Authority of the Coissioner to Prescrie Real Pro/erty "alues. ' The /o$$issioner is hereby authorie to ivie the ,hilippines into ifferent ones or areas an shall& upon consultation with co$petent appraisers both fro$ the private an public sectors& eter$ine the fair $aret value of real properties locate in each one or area. Gor purposes of co$puting any internal revenue tax& the value of the  property shall be& whichever is the higher of: (1) the fair $aret value as eter$ine by the /o$$issioner& or 41 (2) the fair $aret value as shown in the scheule of values of the ,rovincial an /ity ssessors.  ( )2 Authority to Accredit and Re&ister $a0 A&ents. B • • •  The Commissioner shall accredit and register based on their professional competence integrity and moral fitness individuals and general professional partnerships and their representatives who prepare and file tax returns statements reports protests and other papers with or who appear before the *ureau for taxpayers. >ithin one hundred twenty 715G2 days from January 1 1669 the Commissioner shall create national and regional accreditation boards the members of which shall serve for three 7?2 years and shall designate from among the senior officials of the *ureau one 712 chairman and two 752 members for each board subject to such rules and regulations as the Secretary of =inance shall promulgate upon the recommendation of the Commissioner. Individuals and general professional partnerships and their representatives who are denied accreditation by the Commissioner and/or the national and regional accreditation boards may appeal such denial to the Secretary of =inance who shall rule on the appeal within sixty 7:G2 days from receipt of such appeal. Gailure of the "ecretary of Ginance to rule on the ppeal within the prescribe perio shall be ee$e as approval of the application for accreitation of the appellant. 732  Authority of the Coissioner to Prescrie Additional Procedural or ocuentary  Re3uireents.   The Commissioner may prescribe the manner of compliance with any documentary or procedural re!uirement in connection with the submission or preparation of financial statements accompanying the tax returns. 2". DELEGATI5# 59 P5WER )7C. . Authority of the Coissioner to ele&ate PoFer . ' The /o$$issioner $ay elegate the powers veste in hi$ uner the pertinent provisions of this /oe to any or such suborinate officials with the ran e@uivalent to a ivision chief or higher& sub#ect to such li$itations an restrictions as $ay be i$pose uner rules an regulations to be  pro$ulgate by the "ecretary of Ginance& upon reco$$enation of the /o$$issioner: ,rovie& however& That the following powers of the /o$$issioner shall not e dele&ated: (=7L7@A-L7! (a) The /oFer to recoend   the pro$ulgation of rules an regulations by the "ecretary of Ginance (b) The  /oFer to issue rulin&s of first i$pression or to reverse& revoBe or odify  any existing ruling of the ureau (c) The  /oFer to co/roise or aate& uner "ec. 2- () an () of this /oe& any tax liability: 42 B/,T (to the exception) 9 $eaning the following powers are dele&ale: The following $ay be co$pro$ise by a re&ional evaluation oard  which shall be co$pose of the 3egional Jirector as /hair$an& the ssistant 3egional Jirector& the heas of the Legal&  ssess$ent an /ollection Jivisions an the 3evenue Jistrict %fficer having #urisiction over the taxpayer& as $e$bers (3an 9 Jivision /hief) • •  ssess$ents issue by the regional offices involving basic eficiency taxes of Give hunre thousan pesos (,>&) or less& 7if the assessment originates from the (ational 'evel can,t be compromised by a delegate irrespective of the amount ) an Minor cri$inal violations& as $ay be eter$ine by rules an regulations to be pro$ulgate by the "ecretary of Ginance& upon reco$$enation of the /o$$issioner& iscovere by regional an istrict officials& () The power to assign or reassign internal revenue officers to establish$ents where articles sub#ect to excise tax are prouce or ept. )uary: General R!le@ Commissioner may delegate his powers to his subordinates Exception@ The following powers may (+T be delegated 1. The  /oFer to recoend  the pro$ulgation of rules an regulations by the "ecretary of Ginance 5. The /oFer to issue rulin&s of first i$pression or to reverse& revoBe or odify  any existing ruling of the ureau ?. The /oFer to co/roise or aate& uner "ec. 2- () an () of this /oe& any tax liability: Exceptions to t)e exceptions@ The following may nonetheless be delegated even if they involve nondelegable powers provided the conditions for delegation to be valid are present. Regional evaluation board may compromise the following0 •  ssess$ents issue by the regional offices involving basic eficiency taxes of Give hunre thousan pesos (,>&) or less& 7if the assessment originates from the (ational 'evel canFt be compromised by a delegate irrespective of the amount ) an 43