Taxation 101 - General Principles

Taxation 101 - General Principles

• Tax Types and Basis: National Internal Revenue taxes are based on the National Internal Revenue Code/Tax Code as amended by the TRAIN law.

• Prescriptive Periods (Assessment): Generally, taxes are assessable within 3 years of the legally mandated filing deadline for the return or, if filed later, within 3 years from the actual filing date. Exceptions involve fraud or omissions, with assessment possible within 10 years of discovery.

• Prescriptive Periods (Collection): Tax collection has a 3-year window from the date of assessment. This timeframe expands to 10 years from the discovery of an omission or fraud, regardless of whether an assessment has been made.

• Agencies and Agents responsible for Tax Administration: Various government agencies and officers are involved in tax administration, including the Bureau of Internal Revenue (BIR). At the head is the Commissioner, appointed by the President, with regional directors, revenue district officers, revenue collection officers, and deputized treasurers as key elements. Authorized Agent Banks(AAB) are also responsible for collection.

• Tariff and Customs Duties: Customs duties are handled by the Bureau of Customs. A 1-year timeframe starts from the final date the duties were paid, unless the import liquidation process was just tentative.

• Local Taxes, Fees, or Charges: Local governments collect taxes (e.g., Local Business Tax (LBT), Real Property Tax (RPT)) based on Local Government Code (LGC). Assessments may occur within five years from due dates, or even 10 years if fraudulent activity is detected.

• Sources of Tax Laws: Tax laws come from various sources, including statutes (e.g., Train Law), Presidential Decrees, Executive Orders, Court Decisions; Tax Codes (e.g., National Internal Revenue Code), Revenue Regulations, and Administrative Issuances. These must align or if there is conflict, basic law prevails.

• Enforcement and Administration: The BIR, along with Local Tax Ordinances and Tax Treaties and Conventions, enforces tax laws.

• Rule of No Estoppel: The government generally isn't bound by the errors of its agents. However, justice and fair play may mean an exception should the erroneous policies cause injustices for taxpayers involved.

• Nature of Internal Revenue Laws: Tax laws are civil, not political, and aim to compel timely payments. Tax Laws are also not subject to ex-post facto laws.

• Construction of Tax Laws: Tax laws are viewed with a certain purpose in mind and are construed favorably towards the taxpayer in cases of doubt. Generally, tax laws apply prospectively. Exceptions exist if expressly stated or clearly implied in the legislation. Tax laws are special laws and prevail over general laws.

• Provisions of Tax Laws: The provisions of tax laws may be mandatory (regarding notice and tax amounts/rates), or directory (related to tax officer guidelines and methods).

• Powers of the Secretary of Finance: The Secretary of Finance, guided by the Commissioner of Internal Revenue (CIR), is empowered to create regulations to bolster the enforcement of tax codes. They cannot, however, utilize these powers to make laws.

• Powers of the Commissioner of Internal Revenue (CIR): The CIR has exclusive authority to interpret and decide tax-related issues, but these interpretations are subject to the Secretary of Finance's review. However, the CIR cannot delegate the recommendation of internal revenue rules and regulations to their subordinates. Certain important ruling creation can't be delegated.

• CIR Issuances/Regulation types: Revenue Memorandum Circulars(RMCS), Revenue Memorandum Orders (RMOs), and BIR Rulings explain or clarify tax laws.

• Tax Regulations: Regulations are essential for enforcing and executing tax laws. Regulations' validity depends on adherence to the law, consistency with the constitution, and official publishing. They operate prospectively unless expressly stated otherwise.

• Force and Effect of Regulations: Tax Regulations have the same force as laws, but they may be declared null and void if deemed legally contradictory. Courts pay attention to executive policies but aren't bound by them.

• Court Decisions: Tax cases can be judged by the Court of Tax Appeals (CTA) and appealed further to the Supreme Court.