INTERNAL REVENUE LAWS, ORGANIZATION AND FUNCTIONS OF THE BIR
Interpretation of Tax Laws
What is the general rule of statutory construction involving tax laws? What is the reason thereof? (1964)
How are tax laws to be construed? Discuss briefly. (1966)
State the rule on the construction or interpretation of laws imposing taxes. What is the rationale behind it? (1979)
Tax laws are liberally construed in favor of the taxpayer and strictly against the government. The reason is that burdens are not to be imposed nor presumed beyond what the statutes expressly and clearly import. (MRR v. Collector of Customs, 52 Phil 950 reiterated in Republic v. intermediate Appellate Court, 196 SCRA 335)
No person or property is subject to taxation unless they fall within the terms or plain import of a taxing statute. (Commissioner of Internal Revenue v. Court of Appeals, et al, 204 SCRA 182)
Since taxation is a destructive power which interferes with the personal and property rights of the people and takes from them a portion of their property for the support of the government, tax statutes must be construed strictly against the government and liberal in favor of the taxpayer. (Mactan Cebu International Airport Authority v. Marcos et al., 261 SCRA 667)
Revenue laws are in no just sense either remedial laws or laws founded upon a permanent public policy, and therefore they are not to be liberally construed. (Froehlich & Kttner v. Insular Collector of Customs, 18 Phil 462)
What is the nature of our internal revenue laws? Explain briefly. (1979)
Internal revenue laws are civil and not political (Hilado v, Collector of Internal Revenue, et al., 100 Phil 288). It does not deal with the organization and operation of the governmental organs of the state and neither do they define the relations of sate with the inhabitants of its territory. (People v. Perfecto, 43 Phil 887)
Revenue laws are not classed as penal laws, although they prescribe penalties for violations. The reason is that they do not define crimes and provide for their punishment. (Republic v. Vda. de Fernandez, 99 Phil 935)
Revenue laws are not part of remedial law because they do not provide the procedure for the protection or rights or the prevention or redress of wrongs.
Revenue laws are special laws which prevail over general laws. (CIR v. Ilagan Electric and Ice Plant, September 30, 1969). Thus, prescriptive periods under the NIRC of 1997 takes precedence over the provisions of the Civil Code on prescriptions.
How are grants of tax exemption construed in our jurisdiction? (1971)
Explain the principle of strictissimi juris in connection with tax exemption? (1972)
State the rule on the construction or interpretation of laws granting tax exemptions or allowing tax deductions. What is the rationale behind it? (1979)
Tax exemption should be construed in strictissimi juris against the taxpayer. One who claims to be exempted from payment of a particular tax must show exemption under clear and unmistakable terms found in the exempting statute. (Philippine Acetylene Co., v. CIR, 20 SCRA 1056)
The power of taxation is a high prerogative of sovereignty. The relinquishment is never presumed. Any reduction or diminution thereof must be strictly construed, and the same must be couched in clear and unmistakable terms. Exemption cannot be allowed to exist upon a mere vague implication or inference. (Floro Cement Corporation v. Judge Gorospe and the Municipality of Lugait, 200 SCRA 480)
The reasons for strictissimi juris interpretation of tax exemptions are (1) Under the lifeblood theory, that is, taxes are what we pay for civilized society (Mactan Cebu International Airport V. Marcos, et. al., 261 SCRA 667; (2) To minimize differential treatment and foster impartiality, fairness and equality of treatment among taxpayers, (Maceda v. Macaraig, Jr., 197 SCRA 771) and (3) Taxation is a high prerogative of the state whose relinquishment is never presumed. (Luzon Stevedoring Corporation v. CA, 163 SCRA 647)
The rule that tax exemptions are to be strictly construed has certain exceptions. What are they? (1966)
The exceptions to strictissimi juris interpretation of tax exemptions are:
a. When the statute granting exemption provides for liberal construction thereof.
b. In case of special taxes relating to special cases and affecting only special classes of persons.
c. If exemptions refer to public property.
d. In case of exemptions granted to charitable and educational institutions or their property. (Cooley)
e. In cases of exemptions in favor of a government, political subdivision or instrumentality. (Maceda v. Macaraig, Jr., 197 SCRA 771)
What is the effect of the repeal of a revenue law on a tax previously assessed and demandable? (1979)
None. The previously assessed taxes may still be collected unless the repealing law is expressly made to be retroactive. (Intestate Estate of Jovito Co v. Collector, 100 Phil 464)
National Internal Revenue Taxes
Name five (5) kinds of taxes, fees and charges which are considered to be national internal revenue taxes. (1964)
What are considered national internal revenue taxes? (1966)
Taxes, fees and charges deemed to be national internal revenue taxes are:
a. Income tax
b. Estate and donor’s tax
c. Value added tax
d. Other percentage tax
e. Excise tax
f. Documentary stamp tax
g. Such other taxes as are or hereafter may be imposed and collected by the BIR (Sec. 21, NIRC of 1997)
Authority of the CIR
Can the CIR inquire into the bank deposits of a taxpayer? If so, does this power conflict with R.A. 1405 (Secrecy of Bank Deposit Law)?
The power of the CIR does not conflict with R.A. 1405 because the same is an exception to the said law.
Notwithstanding any contrary provision of R.A. 1405 and other general or special laws, the CIR is authorized to inquire into bank deposits of:
a. A decedent to determine his gross estate; and
b. Any taxpayer who has filed an application for compromise of his tax liability by reason of his financial incapacity to pay his tax liability. (1st par., Sec 6 (F) (1), NIRC of 1997)
A Co., a Philippine corporation, is a big manufacturer of consumer goods. It has several raw materials. The BIR suspects that some of the suppliers are not properly reporting their income on their sales to A Co. The CIR therefore:
1. Issued an access letter to A Co. to furnish the BIR information on sales and payments to its suppliers.
2. Issued an access letter to bank (CX Bank) to furnish the BIR on deposits of some suppliers of A Co. on the alleged ground that the suppliers are committing tax evasion.
A Co., X Bank and the suppliers have not been issued by the BIR letters of authority to examine. A Co. and X Bank believe that the BIR is on a “fishing expedition” and come to you for counsel. What is your advice? (1999)
I would advise A Co. to supply the BIR with the information desired. The BIR is authorized under the NIRC of 1997 to secure information even from persons who are not under tax investigation.
I would advise CX Bank to invoke the Bank Deposit Secrecy Law because there is no showing that there was an offer by the taxpayer to compromise his tax liability premised upon financial capacity to pay.
A taxpayer is suspected not to have declared his correct gross income in his return for 1999. The examiner requested the Commissioner to authorize him to inquire into the bank deposits of the taxpayer so that he could proceed with the net worth method of investigation to establish fraud. May the examiner be allowed to look into the taxpayer’s bank deposits? In what cases may the Commissioner or his duly authorized representative be allowed to inquire or look into the bank deposits of a taxpayer. (2000)
No. There is no showing in the problem of the instances where the Commissioner or his representative is allowed to examine bank deposits as exception to the Bank Deposit Secrecy Law.
The Commissioner is authorized to inquire into the bank deposit of:
a. A decedent to determine his gross estate; and
b. Any taxpayer who has filed an application for compromise of his tax liability by reason of his financial incapacity to pay his tax liability. (1st par., Sec 6 (F) (1), NIRC of 1997)
Other Duties, Powers and Authority of the Commissioner
The Secretary of Finance, upon the recommendation of the Commissioner of Internal Revenue, issued a Revenue Regulation using gross income as the tax base for corporations doing business in the Philippines. Is the Revenue Regulation valid? (1994)
No. The revenue regulation would have the effect of amending the NIRC of 1997.
Administrative rules and regulations like revenue regulations issued by the Secretary of Finance, upon recommendation of the Commissioner of Internal Revenue, are intended to carry out and not to supplant or modify the law.
An internal revenue officer, having been reliably informed from unimpeachable sources, that articles subject to excise taxes were kept in the house of Y, entered said house to look for and to seize the aforementioned articles over the objection of Y. Since said officer was not armed with a search warrant, Y invoked the sanctity of his home. Is the internal revenue officer’s actuation described above sanctioned by law or not? Why? (1996)
Yes, the revenue officer’s actuation is sanctioned by law because articles on which excise taxes are due but not paid may be seized without need of a judicially issued search warrant. (1st par., Sec. 171, NIRC of 1997)
This is so because of the application of the principle of primary jurisdiction. The determination of whether excise taxes are due requires the expertise, specialized skills and knowledge of the revenue officers because technical matters or intricate questions of fact are involved.
Furthermore, the lifeblood theory of taxation which abhors any delay in the collection of taxes as a threat to the existence of the State supports the application of the principle of primary jurisdiction. The seizure without resort to the courts would hasten the tax collection effort.
A store in the Cartimar market in Pasay City was discovered by the BIR agents selling luxury items worth about P500,000 suspected to have been smuggled into the country by the storeowner. May the Commissioner put under “preventive embargo” said luxury items? If so, what is the meaning of the said action and under what authority of law? (1975)
Yes, the Commissioner may place the luxury items under “preventive embargo”.
“Preventive embargo” refers to the power of Commissioner to place under constructive distraint the property of a delinquent taxpayer, or of any taxpayer who, in his opinion, performs any act tending to obstruct the proceeding for collecting the tax due or which may be due him. (1st par. Sec. 206, NIRC of 1997)
