Tax law exam; last-minute predictions

Below are last-minute tips and pointers to review for your major examination in tax law. The items below were chosen from different reviewers (review books) in taxation, based on a pattern normally used by teachers in giving final and other major tests.

Tax law or revenue law is an area of legal study which deals with the constitutional, common-law, statutory, tax treaty, and regulatory rules that constitute the law applicable to taxation.

[1] A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines.

A nonresident citizen is taxable only on income derived from sources within the Philippines.

An individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income derived from sources within the Philippines: Provided, That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker.

An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines.

A domestic corporation is taxable on all income derived from sources within and without the Philippines.

A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines.

[2] The transfer of property due to to the dissolution of community property is not subject to capital gains tax as such transfer is equivalent to a conveyance without monetary consideration and made merely in accordance with the decision of a court. (BIR Ruling No. DA 029-08)

[3] Regarding the passive income of foreign resident corporation, the Tax Code imposes a final tax at rates prescribed upon the net capital gains realized during the taxable year from the sale, barter, exchange or other disposition of shares of stock in a domestic corporation, except shares sold, or disposed of through the stock exchange.

[4] Personal and Equity Retirement Account (PERA) refers to the voluntary retirement account established by and for the exclusive use and benefit of the Contributor for the purpose of being invested solely in PERA investment products in the Philippines. Contributor shall retain the ownership, whether legal or beneficial, of funds placed therein, including all earnings of such funds. He makes all investment decisions pertaining to his PERA, with an option to appoint an Investment Manager.

Such contribution shall be allowed as a deduction from the employer's gross income. (Section 6 of the PERA Act of 2008 or RA 9505)  On the part of the employee, the employer's contribution shall not form part of the employee's taxable gross income. Hence, it is exempt from the withholding tax on income, whether withholding tax on compensation or fringe benefits. (Revenue Regulation [RR] 17-2011)

[5] The term "debt" is properly used in a comprehensive sense as embracing not merely money due by contract but whatever one is bound to render to another, either for contract, or the requirement of the law. (Camben vs. Fink Coule & Coke Co. 61 LRA 584). Although taxes already due have not, strictly speaking, the same concept as debts, they are, however, obligations that may be considered as such. Therefore, interests incurred due to late payment of tax (late payment of tax, being deemed debt) is considered interest on indebtedness; such is deductible from gross income. (G.R. No. L-13912. September 30, 1960)

[6] Personal, living or family expenses. As a general rule, expenses can only be claimed if they are paid or incurred as part of the profession, trade or business operations of the taxpayer. Hence, personal expenses, living or family expenses are not deductible. (Section 36. Items Not Deductible)

Other non-deductible items are: Any amount paid out for new buildings or for permanent improvements, or betterments made to increase the value of any property or estate; Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made; or Premiums paid on any life insurance policy covering the life of any officer or employee, or of any person financially interested in any trade or business carried on by the taxpayer, individual or corporate, when the taxpayer is directly or indirectly a beneficiary under such policy.

[7] A withholding agent has the legal interest to file a claim for refund for two reasons. First, he is considered a "taxpayer" under the Tax Code as he is personally liable for the withholding tax as well as for deficiency assessments, surcharges, and penalties, should the amount of the tax withheld be finally found to be less than the amount that should have been withheld under law.  Second, as an agent of the taxpayer, his authority to file the necessary income tax return and to remit the tax withheld to the government impliedly includes the authority to file a claim for refund and to bring an action for recovery of such claim. (G.R. Nos. 179045-46, August 25, 2010)

[8] Estate tax is the tax on the right of the deceased person to transfer his or her estate to the lawful heirs at the time of his or her death. It is not a tax on the property itself, but a tax imposed on the act or the privilege of passing the ownership of the property onto another party upon the death of the owner. It accrues upon the death of the decedent.

Estate Tax is a tax on the right of the deceased person to transmit his/her estate to his/her lawful heirs and beneficiaries at the time of death and on certain transfers, which are made by law as equivalent to testamentary disposition. It is not a tax on property. It is a tax imposed on the privilege of transmitting property upon the death of the owner. The Estate Tax is based on the laws in force at the time of death notwithstanding the postponement of the actual possession or enjoyment of the estate by the beneficiary.[9] The standard deduction from the gross estate for estate tax purposes is now 5 million pesos. The family home (deduction) shall not exceed 10 million pesos; otherwise, the excess shall be subject to estate tax. (RR No. 12-2018)

[10] In the law on value-added tax (VAT), the term "gross selling price" means the total amount of money or its equivalent which the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or exchange of the goods or properties, excluding the value-added tax. The excise tax, if any, on such goods or properties shall form part of the gross selling price. (RA 7716)

[11] Under our VAT law, capital goods or properties refer to goods or properties with estimated useful life of more than one year and which are treated as depreciable under the income tax law, used directly or indirectly in the production or sale of taxable goods or services.

[12] There are only three instances justifying the Commissioner on Internal Revenue (CIR) in inquiring into the bar deposits of a taxpayer. First is to determine the gross estate of the decedent. Second is to determine financial capacity or establish clear inability to pay if an application for compromise has been filed. Third is to respond to a request by a foreign state or jurisdiction for such inquiry based on a tax treaty or international convention.

Without any of the three above, the CIR cannot inquire into the bank deposits of any person.

[13] Informer's Reward. Any person, except an internal revenue official or employee, or other public official or employee, or his relative within the sixth degree of consanguinity, who voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal Revenue, leading to the discovery of frauds upon the internal revenue laws or violations of any of the provisions thereof, thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party and/or the imposition of any of the fine or penalty, shall be rewarded in a sum equivalent to ten percent (10%) of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One Million Pesos (P1,000,000) per case, whichever is lower.

Note that the cash rewards of informers shall be subject to income tax.

[14] The general rule is that the prescriptive period to collect the taxes due is five years from date of assessment. However, if there is a false or fraudulent return with intent to evade taxes, the period shall be 10 years from discovery even without prior assessment.

If there is failure to file a return, the period shall be 10 years from discovery of such failure without the need of prior assessment. Also, there can be waiver of the period; it must be in writing executed before the five-year period expires and the period shall be that agreed upon.

[15] The Court of Tax Appeals (CTA) has exclusive appellate jurisdiction over appeals from the Regional Trial Courts (RTCs) in tax cases originally decided by them; and over petitions for review from the RTCs in tax cases which have been originally decided by the Municipal Trial Courts (MTCs). In short, in tax cases, the CTA replaces the Court of Appeals' (CA's) role.

[16] In local taxation, "business" means trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. Local business taxes are based on gross receipts.

"Gross receipts" include money or its equivalent actually or constructively received in consideration of services rendered or articles sold, exchanged or leased, whether actual or constructive.

[17] If a taxpayer disputes the reasonableness of an increase in a real estate tax assessment, he is required to “first pay the tax” under protest. Otherwise, the city or municipal treasurer will not act on his protest. However, in the case of Ty v. Judge Trampe, however, the petitioners are questioning the very authority and power of the assessor, acting solely and independently, to impose the assessment and of the treasurer to collect the tax. These are not questions merely of amounts of the increase in the tax but attacks on the very validity of any increase. (G.R. No. 118900, February 27, 2003)

[18] Regarding the collection of real property tax, said tax for any year shall accrue on the first day of January and from that date it shall constitute a lien on the property which shall be superior to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only upon the payment of the delinquent tax. (Section 246 of the Local Government Code)

[19] Conditionally-free imports are exempt from payment of import duties provided they comply with formalities and regulations promulgated by the Commissioner of Customs, with the approval of the Secretary of Finance. The President may suspend, disallow or completely withdraw, in whole or in part, any of the conditionally-free importation.

[20] Under our tariff and customs law, the four remedies of a taxpayer are: abatement; refund; protest; and abandonment.