TARIFF AND CUSTOMS LAWS
Substantive Aspect of Tariff and Customs Laws
Meaning and Scope
Section 3514 (TCC)
Provides that Tariff and Customs Laws include not only the provisions of the code itself and regulations pursuant thereto but all other laws and regulation which are subject to enforcement by the Bureau of Customs or otherwise within its jurisdiction. It extend not only to the provisions of the Tariff Customs Code but to all other laws as well; like Central Bank Circulars, the enforcement of which is entrusted to the Bureau of Customs.
Nature of Customs Duties and Tariff
1. Custom duties:
Are duties which are one charged upon commodities on their being imported into or exported out of a country.
Means a book of rates, a table or catalogue drawn usually in alphabetical order containing the names of several kinds of merchandise with the duties to be paid for the same as settled or agreed upon between several states that holds commerce together.
Concept of Goods for Customs duty purposes:
As to Imported Articles:
All articles when imported from any foreign country into the Philippines shall be subject to duty upon each importation even thought previously exported from the Philippines. Except as otherwise specifically provided for in the code or other laws:
As to Exported Articles
Certain articles like specific types of wood, mineral plant, vegetable and animal products are subject to tariff and premium duties.
Note: Articles: When used with reference to importation or exportation includes goods, wares and merchandise and, in general anything that maybe made the subject of exportation and importation.
4 US dollars, having ceased to be legal tender in the Philippines, fall within the meaning of the term “merchandise” (Bastida vs. Acting Commissioner of Customs, et al, L-24011, Oct. 24, 1970)
Articles / Goods Covered under the Tariff and Customs Code:
General Rule: All articles when imported from a foreign country including those previously exported from the Philippines one subject to duty unless otherwise specifically provided for in the Tariff and Customs Code or other laws. (Sec. 100, TCS)
A. Articles which are absolutely prohibited:
1. weapons of war
2. gambling devices
3. narcotics or prohibited drugs
4. immoral, obscene or insidious articles
5. those prohibited under special laws
B. Articles Qualifiedly Prohibited:
Refers to those which maybe imported but subject to, and after compliance with, certain conditions.
1. Where such conditions as to warrant lawful importation neither do nor exist, the legal effects of the importation of qualifiedly prohibited articles are the same as those of absolutely prohibited articles. (Auyong Hian vs CTA, 59 SCRA 110)
2. Prohibited importations one subject to forfeiture whether the shipper and the consignee are one and the same person. (UTE PATEROR vs. Bureau of Customs, 193 S 132)
3. Conditionally-free importations:
These are articles which are exempt from import duties upon compliance with the formalities prescribed with regulations promulgated by the Commission of Customs with the approval of the Secretary of Finance. (Sec. 105, TCC)
This article includes:
1. Those prohibited for in Sec. 105 of the Tariff and Customs Code;
2. Those granted to government agencies, government-owned or controlled corporations with agreement with foreign countries;
3. Those given to international institutions, entitled to exemption by agreement or special laws; and
4. Those that maybe granted by the President upon NEDA’s recommendation.
Liability for Custom Duties
General Rule: All importations / exportation of articles / goods are subject to customs duties.
Liability of Importer for Custom Duties:
Valuation of the Goods:
Invoice value of the goods plus:
4. expenses, and
5. other necessary expenses.
Note: Imported goods must be entered into a custom house at their port of entry otherwise they shall be considered as contraband and the importer is liable for smuggling.
It is a declaration in the Bureau of Customs showing particulars of the imported article that will enable the customs authorities to determine the correct duties.
Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines with the intention to unlade therein.
Importation is deemed terminated upon payment of duties, taxes and other charges due upon the articles pr secured to be paid at a port of entry and the legal permit for withdrawal shall gave been granted or in case said articles are free of duties, taxes and other charges, until they have legally left the jurisdiction of the customs (Sec. 1202, TCC)
Note: All imported articles into the Philippines, whether subject to duty or not, shall be entered through a customs house at a port of entry.
1. Port of Entry
Means a domestic open to both foreign and continuous trade including airport of entry.
It is the bringing out of goods from the Philippines territorial jurisdiction.
3. Under Executive Order # 26, Series of 1986, Export taxes, except on logs, have been suspended
Kinds of Custom Duties
These are duties imposed on imported articles that enter the country of the Philippines in avoidance with the schedules and classifications provided under the Tariff and Customs Code.
1. Advalorem Duty
Duty based on the value of the imported article.
2. Specific Duty
Duty based on the dutiable weight of goods number or measurement.
Imposed in addition to regular or ordinary duties principally in order to protect local industries against unfair competition from foreign manufacturers or procedures; consumer against possible deceptions; and national interest.
1. Dumping Duty
Imposed by the secretary of Finance upon the recommendation of the Tariff Commission when:
a. The price of the imported article is deliberately or continually fixed at less than the fair market value or cost of production; and
b. Importation would cause or likely cause and injury to local industries engaged in the manufacture or production of the same or similar articles or prevent their establishment.
Amount of special duty: extent of the under pricing.
2. Countervailing duty
Special duty imposed on imported articles which are granted any kind or form of subsidy by the government in the country or origin or exportation, the importation of which has caused or threatens to cause material injury to a domestic industry or has materially relaided the growth or, prevents the establishment of a domestic industry. (RA #8751)
1. The levy of an excise tax or inland tax or local goods of the same or similar class as the article imported or the grant of subsidy to the foreign exporter by his government; and
2. The importation is likely to insure materially established local industries or prevent their establishments.
Amount of special duty: Equal to the bounty or subsidy or subvention.
3. Marking Duty
Special duty of five percent (5%) advalorem imposed or articles properly marked, collected by the commissioner, except when such article is exported or destroyed under the customs supervision and prior to final liquidation of the corresponding entry.
Purpose: To prevent possible deception of the consumers.
4. Discriminatory/Retaliatory duty
Imposed on imported goods whenever it is found as a fact that the country of origin discriminates against the commerce of the Philippines in such a manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country.
5. Duties imposed under the Flexible Tariff Clause (Sec. 401, TCC)
Import duties which are modified by the President upon investigation of the Tariff Commissions and recommendation of the National Economic Development Authority in the interest of national economy, general welfare and national security.
The President is given by the Tariff and Customs Code ample powers to adjust tariff rates Sec. 401 of TCC; empowers the president to:
1. Increase, reduce, or remove existing protective rates of import duty;
2. Establish import quota or to ban imports of any commodity;
3. Impose and additional duty on all imports not exceeding 10% advalorem whenever necessary.
Limitations imposed regarding the Flexible Tariff Clause:
Administrative Aspect of
Tariff and Customs Laws
Agencies directly concerned with Tariff and Customs Administration:
Officials of the Tariff Commission are the chairman and 2 member Commissioners, all appointed by the President.
1. Administration and the fiscal and industrial effect of the Tariff and Customs laws of this country now in force or when hereafter be enacted;
2. Relations between the rates of duty on raw materials and the finished or partly finished products;
3. Effects of ad valorem and specific duties and of compound, specific and ad valorem duties;
4. All questions relative to the arrangement of schedules and classification of articles in several sections of the tariff law;
5. Tariff relations between the Philippines and the Foreign countries, commercial treaties, preferential provisions, economic alliances, the effect of export bounties and preferential transportation rate;
6. Volume of importations compared with domestic production and consumption;
7. Conditions, causes and effects relating to completion of foreign industries with those of the Philippines, including dumping and cost of production;
8. In general, to investigate the operation of customs and tariff laws, including their relations to the national revenues, their effect upon the industries or labor of the country and to submit reports of its investigation;
9. Nature and composition and the classification and heading number for customs revenue and other related purposes.
1. Ascertain conversion costs and costs of production:
a. In the principal growing, producing or manufacturing:
1. Centers in the Philippines whenever possible;
2. Centers in foreign countries; whenever necessary;
b. Including effects of tariff modifications or import restriction or prices.
2. Select and describe representative articles imported to the Philippines similar to or comparable with those locally produced
3. Ascertain imposts costs of such representative articles so selected.
4. Ascertain the grower’s producers or manufacturer’s selling prices.
5. Submit annual reports of these to the President of the Philippines, copies of which shall be furnished to the NEDA, BSP, Dept. of Finance and the Bureau of Investments.
BUREAU OF CUSTOMS
Composed of one chief and 2 assistant chiefs known as commissioner of customs, appointed by the President respectively.
Functions of the Bureau of Customs (CASE)
Commissioner of Customs is vested with authority to:
1. All lawful revenues from imported articles;
2. All other dues, fees, charges, fines and penalties.
Procedural Aspect of
the Tariff and Customs Laws
Nature of Customs Protest; Seizures and Forfeiture cases
There are two kinds of proceedings in the Bureau of Customs, these are:
Procedure in Custom Protest Cases
These are the steps:
1. The collector of customs shall cause all the articles entering the jurisdiction of his district and destined for importation through his port to be entered at the customs house. He shall appraise and classify such articles, and shall assess and collect the duties, taxes and other charges thereon. He shall also hold possession of all imported articles upon which duties, taxes, and other charges have not been paid of secured to be paid.
2. The importer / owner makes the payment after the final liquidation.
3. The importer / owner adversely affected by the collector’s ruling may file a written protest with the Collector of custom at the time of payment or within 15 days thereafter.
4. The Collector of Customs issues an order for hearing within 15 days from receipt of the protest and renders his decision within 30 days from the termination of hearing.
5. In case an adverse decision is rendered within the 30-day period from the termination, the importer/owner may appeal to the Commissioner of Customs within 15 days after notification of decision or lapse of the 30-day period to decide. The importer/ owner may give written notice to the collector and one copy furnished to the Commissioner of his desire to have the matter reviewed by the Commissioner. The Collector shall forthwith transmit all the seconds of the proceedings to the Commissioner.
6. In case an adverse decision is rendered, the importer/ owner may appeal to the Court of Tax Appeals within 30 days from receipt of the decision; and
7. In case an adverse decision is still rendered, the importer/ owner may appeal to the Court of Appeals and the Supreme Court.
Automatic Review in Customs Proceedings
Whenever the decision of the Collector is adverse to the Government, said decision is automatically elevated to the Commissioner for review, and if such decision is affirmed by the commissioner, the same shall be automatically elevated to and finally received by the Secretary of Finance.
Rationale: It is intended to protect the interest of the Government in the collection of taxes and custom duties in seizures and protest cases. Moreover, a favorable decision will no be appealed by the taxpayer and certainly a collector will not appeal his own decision (See Yaokasin vs. Commissioner of Customs, et al. G.R. No. 84111; Dec. 22, 1989.)
Automatic Review Applies to:
1) Custom Protest Cases
2) Seizures and Forfeiture Cases
Custom Seizures and Forfeiture Cases
a) Jurisdiction of Customs in Seizures and Forfeiture
The territorial jurisdiction of the Bureau of Customs embraces “all seas within the jurisdiction of the Philippines, and over all coasts, ports, harbors, bays, rivers and inland waters whether navigable or not from the sea.” (Sec. 603, TCC)
(Right of Hot Pursuit):
“Whether a vessel becomes a subject to a seizure by reason of an act done in the Philippine waters, in violation of the Tariff and Customs Laws, a pursuit of such vessel, begins with the jurisdictional waters may contain beyond the maritime zone, and the vessel may be seized in the high seas. (Sec. 603, TCC).
“Imported articles which Maybe the subject to seizures for violation of the Tariff and Customs laws maybe pursued in their transportation in the Philippines by land, water or air, and such jurisdiction exerted over them at any place therein as may be necessary for the due enforcement of the law. (Sec. 603, TCC)
The Supreme Court upheld the seizure and forfeiture as valid despite the fact that the importation had not yet begun and that the seizure was affected outside the Philippine waters. The Supreme Court held that the authority of a nation within its own territory is absolute and exclusive. The power to secure itself from injury may certainly be exercised beyond the limits of its territory. (Qiluh Asaali, et al. vs. Commissioner of Customs, L- 24170, Feb. 28, 1969).
b) Place where Searchers and Seizures may be conducted
1) Right of the Police \ officers to Enter Enclosure
Any person exercising police power conferred under such code may at any time enter, pass through, or search any land or enclosure, or any warehouse, store or other building, not being a dwelling house.
A warehouse, store or other building or enclosure used for the keeping or storage of article does not become a dwelling house within the meaning hereof merely by reason of the fact that a person employed as a watchman lives in the place, nor will the fact that his family stays there with him alter the case.
2) Search of Dwelling House
A Dwelling house may be entered and searched only upon warrant issued by a judged.
Note: Except in the case of the search of a dwelling house, persons exercising police authority under the customs may effect search and seizure without a search warrant in the enforcement of custom laws.
3) Right to search vessels or Aircraft and Persons or Articles Conveyed therein
It is lawful for any person exercising police authority under the TCC to go aboard any vessel or aircraft within the limits of any Collection district and to inspect, search and examine said vessel or aircraft and any other trunk, package, box as envelope on board, and to search any person on board the said vessel or aircraft if underway, to use all necessary force to compel compliance; and if it shall appear that any breach or violation of the customs and tariff laws of the Philippines has been committed, whereby or in consequence of which such vessel or aircraft, or the article, or any part thereof on, on board of or imported by such vessel or aircraft is liable to forfeiture, to make seizure of the same.
Note: 1) Such power shall extend to the removal of any false bottom, partition, bulkhead or other obstruction. 2) No proceeding herein shall give rise to any claim fro the damage caused to the article or vessel or aircraft.
1) Right to Search Vehicles, Beast and Persons
It shall also be lawful for a person exercising authority to open and examine any box, trunk, envelope or other container, wherever found when he has reasonable cause to suspect the presence of dutiable or prohibited article or article introduced into the Philippines contrary to law and likewise to stop, search ad examine any vehicle, beast or person reasonably suspected of holding or conveying such article.
2) Search of Persons Arriving from Foreign Countries
All persons coming in the Philippines from the foreign countries shall be liable to detention and search by the Customs Authorities under such regulations as may be prescribed relative thereto. (Sec. 603, TCC)
Non-necessity of Search Warrant
General Rule: Persons exercising police authority under the customs laws may effect search and seizures without a search warrant in the enforcement of customs laws. (See Sec. 2208, TCC)
Exception: In the case of a dwelling house (Pacis etc. vs. Pamaran, March 15, 1974).
Reason: On grounds of practicality.
Pertinent Cases on Searches and Seizures
1) The legality of a search can be contested only by the party whose rights have been impaired thereby and that the objection to an unlawful search and seizure is purely personal and cannot be availed of by third parties. (Nasiad, et al. vs. CTA, Nov. 29, 1994)
2) Warrants of seizure and detention issued by the Collector of C covering the seizure of imported goods are not general warrant issued in violation of Section 3 (now section 4), rule 126 of the Rules of Court. Upon effecting the seizure of the goods, the Bureau of Customs acquired exclusive jurisdiction not only over the case but also over the goods seized for the purpose of enforcing the tariff and Customs laws. (Chia vs. Acting Collector of Customs, Sept. 26, 1989)
3) The proceedings upon search warrants must be absolutely legal, “for there is not a description of process known to the law, the execution of which is more distressing to the citizen. Perhaps there is none which excites such intense feeling in the consequence of its humiliating and degrading effect.” The warrants will always be constured strictly without however, going the full length of requiring technical accuracy. No presumptions of regularity are to be invoked in aid of process when an officer undertakes to justify under it. (Uy vs. BIR, Oct. 20, 2000)
Customs Forfeiture Actions
An action for the forfeiture of seized goods in the Bureau of Customs is an action in rem, or action taken against the Imported goods themselves independently arising from any criminal action or action in personam that may result as a consequence of a violation of an existing law. Lack of knowledge by the owner does not generally render the vessel immune from forfeiture. However, the forfeiture of a private carrier used in the conveyance of illegally imported or exported articles requires knowledge on the part of the carrier-owner or his agent of the unlawful act. A prima facie presumption shall exist against the vessel, vehicle or aircraft under any of the following circumstances:
1. If the conveyance has been used for smuggling at least twice before;
2. If the owner is not in the business for which the conveyance is generally used; and,
3. If the owner is not financially in a position to own such conveyance.
Acting Commissioner of Customs
The dismissal of the criminal charge in the office against respondent Andrulis does not constitute re judicata in the forfeiture proceedings. Forfeiture is in rem, whereas a criminal action is in personam. Conviction in the criminal action is not a bar to forfeiture. Results of a criminal proceeding being dependent on the evidence therein will not necessarily influence judgment in the forfeiture proceedings.
Llamado vs. Commissioner of Customs
123 SCRA 118
A Cessna plane carrying persons engaged in the smuggling of untaxed “blue seal” cigarettes, landed at an airstrip in Alabat, Quezon Province. The plane was also used to bring in “de gaza” kerosene lanterns and kerosene used to light the airstrip to facilitate the loading of the cigarettes. The plane was subject to forfeiture pursuant to Sec. 2530 (a) of the Tariff and Customs Code. It is not necessary that the vessel or aircraft must carry the contraband. It is not likewise essential that the vessel or aircraft must come from foreign country.
Commissioner of Customs vs.
CTA and Jose Pascual
138 SCRA 581
The Supreme Court ruled that the forfeiture of Pascual’s vessel used in the illegal importation of untaxed cigarettes is justified.
Forfeiture, according to the Citing the case of Vierneya vs. Commissioner of Customs (July 30, 1968), is in the nature of proceedings in rem and is directed against the res. The fact that the owner of the vessel had no actual knowledge that the vessel was illegally used does not render the vessel immune from forfeiture. This is so because the forfeiture action is against the vessel itself.
Note: The said vessel was duly authorized to engage in coasturse trade but has no certificate of public convenience.
Transglobe International Inc.
vs. Court of Appeals
G.R. No. 126634,
January 25, 1999.
Forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner. It is the nature of a proceeding in rem, i.e. directed against the res or imported article and entails a determination of the legality of their importation. In this proceeding, it is in legal contemplation the property itself which commits the violation and is treated as the offender, without reference whatsoever to the character or conduct of the owner.
The Doctrine of primary jurisdiction provides that the Bureau of Customs acquired exclusive jurisdiction over imported goods for the purpose of the enforcement of the Customs laws from the moment the goods are actually in its possession or control even if no warrant of seizure or detention had previously been issued by the collector of the Customs. Primary jurisdiction is vested in seizures and forfeiture proceedings in the collector and the Commissioner or the Customs to the exclusion of the regular courts. (Commissioner of Customs vs. Navarro, L-33146, May 31, 1977)
Rationale of the doctrine: It is anchored on the policy of placing no necessary hindrance on the Government’s drive not only to prevent smuggling and other frauds upon Customs but also to render effective the collection of import and export duties duet to the State. (Jao, et, al. vs. Court of Appeals, et al. G.R. Nos. 104604 and 111223, Oct. 6, 1995).
1. Proceedings for the forfeiture of goods illegally imported are civil and administrative not criminal in nature since they do not result in the conviction of the wrongdoer nor in the imposition upon him of a penalty (Collector vs. Villaluz, L-34038, June 18, 1976; Commissioner vs. Navarro, supra; Republic vs. Bocar, supra).
2. “Proof beyond reasonable doubt” is not required to warrant forfeiture (Feeder International vs. CA, 197 SCRA 842).
1. is not included in the baggage declaration;
2. breach of bond;
3. unlawful boarding as leaving of vessel or aircraft;
4. unloading of cargo before arrival at ports of destination, or at improper time or place after arrival; and
5. failure to supply the requisite manifest.
The requisite for forfeiture are:
Remedies under the
Tariff and Customs Code
A. Government Remedies:
1. Enforcement or tax lien
A tax lien attaches on the goods, regardless of the ownership while still in the custody or control of the government
Proceeds of sale are applied to the tax due. Any deficiency or excess is for the account or credit, respectively of the taxpayer
This is availed of when the importation is neither nor improperly made
Generally applied when the penalty is fine or forfeiture which is imposed when the importation is unlawful and it may be exercised even where the articles are not or no longer in Customs Custody, unless the importation is merely attempted.
In the case of attempted importation, administrative fine or forfeiture may be affected only;
a. while the goods are still within the customs jurisdiction, or
b. in the hands or under the control of the importer or person who is aware thereof.
3. Sale of Property
Property in the customs custody shall be subject to sale under the following conditions;
a. abandoned articles;
b. articles entered under warehousing entry not withdrawn nor the duties and taxes paid thereon within the period provided under Section 1908, TCC;
c. seized property, other than contraband, after liability to sale shall have been established by proper administrative or judicial proceedings in conformity with the provision of this code: and
d. Any articles subject to a valid lien for customs duties, taxes or other charges collectible by the Bureau of Customs, after the expiration of the period allowed for the satisfaction of the same.
Note: Goods in the collector’s possession or of Customs authorities pending payment of customs duties are beyond the reach of attachment.
b. Judicial Action
The tax liability of the importer constitutes a personal debt to the government, enforceable by action (Sec. 1204, TCC)
This is availed of when the tax lien is lost by the release of the goods.
B. Taxpayer’s Remedies
Claim for refund—a written claim for refund may be submitted by the importer:
1. In abatement uses such as:
a. on missing packages;
b. deficiencies in the contents of packages or shortage before arrival of the goods in the Philippines;
c. articles lost or destroyed after such arrival,
d. articles lost or destroyed
e. dead or injured animals; and
f. for manifest classical errors; (see section 1701-1708, TCC)
2. Judicial relief
In drawback cases where the goods are re-exported
see the earlier discussions on “Customs Protest Cases”
b. In seizure cases
see earlier discussion on the subject
c.Settlement of case by the payment of fine or redemption of forfeited property
see earlier discussions on the subject
Note: The owner or importer may abandon either expressly or By importation in favor of the Government thus relieving himself of the tax liability but not from the possible criminal liability.
The taxpayer may appeal to the Court of Appeals which has exclusive jurisdiction to review decisions of the Commissioner of Custom in cases involving:
a) liability for customs duties, fees or other money charges;
b) seizures, detention or release of property affected;
c) fines forfeitures or other penalties imposed in relation thereto; and
d) other matters arising under the customs Law or other laws administered by the Revenue of Customs.
Remedies of the Government
Enumeration of the Remedies
1. Distraint of Personal Property
2. Levy of Real Property
3. Tax Lien
6. Other Administrative Remedies
7. Civil Action
8. Criminal Action
Distraint of Personal Property
Distraint- Seizure by the government of personal property, tangible or intangible, to enforce the payment of faces, to be followed by its public sale, if the taxes are not voluntarily paid.
a. Actual – There is taking of possession of personal property out of the taxpayer into that of the government. In case of intangible property. Taxpayer is also diverted of the power of control over the property;
b. Constructive – The owner is merely prohibited from disposing of his personal property.
Made on the property only of a delinquent taxpayer.
May be made on the property of any taxpayer whether delinquent or not
There is actual taking or possession of the property.
Taxpayer is merely prohibited from disposing of his property.
Effected by having a list of the distraint property or by service or warrant of distraint or garnishment.
Effected by requiring the taxpayer to sign a receipt of the property or by leaving a list of same
An immediate step for collection of taxes where amount due is definite.
Such immediate step is not necessary; tax due may not be definite or it is being questioned.
When remedy not available:
Where amount involved does not exceed P100 (Sec. 205 TC). In keeping with the provision on the abatement of the collection of tax as the cost of same might even be more than P100.
Who may effect distraint
In excess of P1,000,000.00
P1,000,000.00 or less
How Actual Distraint Effected
Serving a copy of the warrant upon taxpayer and upon president, manager, treasurer or other responsible officer of the issuing corporation, company or association.
1. Leaving a copy of the warrant with the person owing the debts or having in his possession such credits or his agent.
2. Warrant shall be sufficient authority for such person to pay CIR his credits or debts.
1. Serve warrant upon taxpayer and president, manager, treasurer or responsible officer of the bank.
2. Bank shall turn over to CIR so much of the bank accounts as may be sufficient.
How constructive Distraint Effected
a. Sign a receipt covering property distrained
b. Obligate him to preserve the same properties.
c. Prohibit him from disposing the property from disposing the property in any manner, with out the authority of the CIR.
a. Officer shall prepare list of the property distrained.
b. In the presence of two witnesses of sufficient age and discretion, leave a copy in the premises where property is located.
Grounds of Constructive Distraint
Levy of Real Property
Levy – Act of seizure of real property in order to enforce the payment of taxes. The property may be sold at public sale, if after seizure; the taxes are not voluntarily paid. The requisites are the same as that of distraint.
- enforceable through out the Philippines
a. The taxpayer, and
b. RD where property is located.
The excess shall be turned over to owner.
Redemption of property sold or forfeited
- Begins from registration of the deed of sale or declaration of forfeiture.
- Cannot be extended by the courts.
Distraint and Levy compared
Levy – real property
Levy – forfeiture by government authorized where there is no bidder or the highest bid is not sufficient to pay the taxes, penalties and costs.
Levy – Taxpayer can redeem properties levied upon and sold/forfeited to the government.
Enforcement of Tax Lien
Tax Lien—a legal claim or charge on property, either real or personal, established by law as a security in default of the payment of taxes.
A lien in favor of the government of the Philippines when a person liable to pay a tax neglects or fails to do so upon demand.\
Exists from time assessment is made by the CIR until paid, with interests, penalties and costs.
Upon all property and rights to property belonging to the taxpayer.
Only when notice of such lien is filed by the CIR in the Register of Deeds concerned.
Extinguishment of Tax Lien
In case Nos. 1 and 2, there is no more tax liability. Under nos. 3 and 4, the taxpayer is still liable.
Enforcement of Tax Lien vs. Distraint
A tax lien is distinguished from disttraint in that, in distraint the property seized must be that of the taxpayer, although it need not be the property in respect to the tax is assessed. Tax lien is directed to the property subject to the tax, regardless of its owner.
Compromise—a contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one already commenced.
When taxes may be compromised:
a. Those already filed in court
b. Those involving fraud.
a. When basic tax involved exceeds P1,000,000.00 or
b. Where settlement offered is less than the prescribed minimum rates.
Delegation of Power to Compromise
General Rule: The power to compromise or abate shall not be delegated by the commissioner.
Exception: The Regional Evaluation Board may compromise the assessment issued by the regional offices involving basic taxes of P 500 K or less.
Remedy in case of failure to comply:
The CIR may either:
Enforcement of forfeiture
Forfeiture—implies a divestiture of property with out compensation, in consequence of a default or offense. It includes the idea of not only losing but also having the property transferred to another with out the consent of the owner and wrongdoer.
- With in two days thereafter, a return of the proceeding is duly made.
a. In case of personal property – by seizure and sale or destruction of the specific forfeited property.
b. In case of real property – by a judgment of condemnation and sale in a legal action or proceeding, civil or criminal, as the case may require.
a. To be destroyed – by order of the CIR when the sale for consumption or use of the following would be injurious to the public health or prejudicial to the enforcement of the law: (at least 20 days after seizure)
1. distilled spirits
4. cigarettes, and other manufactured products of tobacco
5. playing cards
6. All apparatus used in or about the illicit production of such articles.
b. To be sold or destroyed – depends upon the discretion of CIR
1. All other articles subject to exercise tax, (wine, automobile, mineral products, manufactured oils, miscellaneous products, non-essential items a petroleum products) manufactured or removed in violation of the Tax Code.
2. Dies for printing or making IR stamps, labels and tags, in imitation of or purport to be lawful stamps, labels or tags.
a. Public sale: provided, there is notice of not less than 20 days.
b. Private sale: provided, it is with the approval of the Secretary of Finance.
a. Personal entitled – taxpayer or anyone for him
b. Time to redeem – with in one (1) year from forfeiture
c. Amount to be paid – full amount of the taxes and penalties, plus interest and cost of the sale
d. To whom paid – Commissioner or the Revenue Collection Officer
e. Effect of failure to redeem – forfeiture shall become absolute.
Note: The Register of Deeds is duty bound to transfer the title of property forfeited to the government with our necessity of an order from a competent court.
Other Administrative Remedies
1. Requiring filing of bonds – in the following instances:
a. Estate and donor’s tax
b. Excise taxes
c. Exporter’s bond
d. Manufacturer’s and importer’s bond
2. Requiring proof of filing income tax returns
Before a license to engage in trade, business or occupation or to practice a profession can be issued.
3. Giving reward to informers – Sum equivalent to 10% of revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or P1, 000,000.00 per case, whichever is lower.
4. Imposition of surcharge and interest.
5. Making arrest, search and seizure
Limited to violations of any penal law or regulation administered by the BIR, committed with in the view of the Internal Revenue Officer or EE.
6. Deportation in case of aliens – on the following grounds
a. Knowingly and fraudulently evades payment of IR taxes.
b. Willfully refuses to pay such tax and its accessory penalties, after decision on his tax liability shall have become final and executory.
7. Inspection of books
Books of accounts and other accounting records of taxpayer must be preserved, generally within three years after date the tax return was due or was filed whichever is later.
8. Use of National Tax Register
9. Obtaining information on tax liability of any person
10. Inventory – Taking of stock-in-trade and making surveillance.
11. Prescribing presumptive gross sales or receipt:
a. Person failed to issue receipts and invoices
b. Reason to believe that records do not correctly reflect declaration in return.\
12. Prescribing real property values
13. Inquiring into bank deposit accounts of
a. A deceased person to determine gross estate
b. Any taxpayer who filed application for compromise by reasons of financial incapacity his tax liability.
14. Registration of Taxpayers.
Civil and Criminal Actions:
1. Brought in the name of the Government of the Philippines.
2. Conducted by Legal Officer of BIR
3. Must be with the approval of the CIR, in case of action, for recovery of taxes, or enforcement of a fine, penalty or forfeiture.
Actions instituted by the government to collect internal revenue taxes in regular courts (RTC or MTCs, depending on the amount involved)
When assessment made has become final and executory for failure or taxpayer to:
a. Dispute same by filing protest with CIR
b. Appeal adverse decision of CIR to CTA
A direct mode of collection of taxes, the judgment of which shall not only impose the penalty but also order payment of taxes.
An assessment of a tax deficiency is not necessary to a criminal prosecution for tax evasion, provided there is a prima facie showing of willful attempt to evade.
Effect of Acquittal on Tax Liability:
Does not exonerate taxpayer his civil liability to pay the tax due. Thus, the government may still collect the tax in the same action.
Reason: Tax is an obligation, does not arise from a criminal act.
Effect of Satisfaction of Tax Liability on Criminal Liability
Will not operate to extinguish taxpayer’s criminal liability since the duty to pay the tax is imposed by statute, independent of any attempt on past of taxpayers to evade payment.
This is true in case the criminal action is based on the act to taxpayer of filing a false and fraudulent tax return and failure to pay the tax.
Note: The satisfaction of civil liability is not one of the grounds for the extinction of criminal action.
Prescriptive Periods /
Statute Of Limitation
For purposes of Taxation, statue of limitation is primarily designed to protect the rights of the taxpayer’s against unreasonable investigation of the taxing authority with respect to assessment and collection of Internal Revenue Taxes.
Prescription of Government’s Right to Assess Taxes:
General Rule: Internal Revenue Taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return or from the day the return was filed, in case it is filed beyond the period prescribed thereof. (Section 203 of the Tax Code)
1. A return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day.
2. In case a return is substantially amended, the government right to assess the tax shall commence from the filing of the amended return (CIR vs. Phoenix, May 20, 1965; Kei & Co. vs. Collector, 4 SCRA 872)
3. In computing the prescriptive period for assessment, the latter is deemed made when notice to this effect is released, mailed or sent by the Commissioner to the correct address of the taxpayer. However, the law does not require that the demand/notice be received within the prescriptive period. (Basilan Estates, Inc. vs. Commissioner 21, SCRA 17; Republic vs. CA April 30, 1987)
4. An affidavit executed by a revenue office indicating the tax liabilities of a taxpayer and attached to a criminal complaint for tax evasion, cannot be deemed an assessment. ( CIR vs. Pascoi Realty Corp. June 29, 1999)
5. A transcript sheets are not returns, because they do not contain information necessary and required to permit the computation and assessment of taxes (Sinforo Alca vs. Commissioner, Dec. 29, 1964)
Exceptions: (Sec. 222 ic)
Nature of Fraud:
a. Fraud is never presumed and the circumstances consisting it must be alleged and proved to exist by clear & convincing evidence (Republic vs. Keir, Sept. 30, 1966)
b. The fraud contemplated by law is actual and not constructive. It must amount to intentional wrongdoing with the sole object of avoiding the tax. A mere mistake is not a fraudulent intent. (Aznar case, Aug. 23, 1974)
c. A fraud assessment which has become final and executory, the fact of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection thereof. (Sec. 222 paragraph (a))
Fraud may be established by the following : (Badges of Fraud)
a. Intentional and substantial understatement of tax liability of the taxpayer.
b. Intentional and substantial overstatement of deductions of exemption
c. Recurrence of the foregoing circumstances.
Instances/Circumstances negating fraud:
a. When the Commissioner fails impute fraud in the assessment notice/demand for payment.
b. When the Commissioner failed to allege in his answer to the taxpayer’s petition for review when the case is appealed to the CTA.
c. When the Commissioner raised the question of fraud only for the first time in his memorandum which was filed the CTA after he had rested his case.
d. Where the BIR itself appeared, “not sure” as to the real amount of the taxpayer’s net income.
e. A mere understatement of income does not prove fraud, unless there is a sufficient evidence shaving fraudulent intent.
a. The agreement extending the period of prescription should be in writing and duly signed by the taxpayer and the commissioner.
b. The agreement to extend the same should be mode before the expiration of the period previously agreed upon.
a. The waiver to be valid must be executed by the parties before the lapse of the prescriptive period.
b. A waiver is inefficient I it is executed beyond the original three year.
c. The commissioner can not valid agree to reduce the prescriptive period to less than that granted by law.
Prescription of Government’s
Right to Collect Taxes
1. Where an assessment was made – Any internal revenue tax which has been assessed within the period of limitation may be collected by distraint or levy or by proceeding in court within 5 years following the date of assessment.
2. Where no assessment was made and a return was filed and the same is not fraudulent or false- the tax should be collected within 3 years after the return was due or was filed, whichever is later.
1. Where a fraudulent/false return with intent to evade taxes was filed a proceeding in court for the collection of the tax may be filed without assessment, at anytime within ten years after the discovery of the falsity or fraud.
Note: The 10-year prescriptive period for collector thru action does not apply if it appears that there was an assessment. In such case, the ordinary 5-year period (now 3 years) would apply (Rep. vs. Ret., March 31, 1962)
2. When the taxpayer omits to file a return – a court proceeding for the collection of such tax may be filed without assessment, at anytime within 10 years after the discovery of the omission.
3. Waiver of statute of limitations – any internal revenue tax, which has been assessed within the period agreed upon, may be collected be distinct or levy of by a proceeding in court within the period agreed upon in writing before the expiration of 5-year period.
4. Where the government makes another assessment on the basis of reinvestigation requested by the taxpayer – the prescriptive period for collection should be counted from the last assessment. (Rep. vs. Lopez, March 30, 1963)
5. Where the assessment is revised because of an amended return – the period for collection is counted from the last revised assessment.
6. Where a tax obligation is secured by a surety bond – the government may proceed thru a court action to forfeit a bond and enforce such contractual obligation within a period of ten years.
7. Where the action is brought to enforce a compromise entered into between the commission and the taxpayer – the prescriptive period is ten years.
1. Collection by summary remedies – It is effected by summary methods when the government avail of distraint and levy procedure.
2. Collection by judicial action – The collection begins by filing the complaint with the proper court. (RTC)
3. Where assessment of the commissioner is protected & appealed to the CTA – the collection begin when the government file its answer to taxpayer’s petition for review.
Rules of Prescription in Criminal Cases
Rule: All violations of any provision of the tax code shall prescribe after five (5) years.
When it should commence?
The five (5) year prescriptive period shall begin to run from the:
a. Day of the commission of the violation, if know.
b. If not known, from the time of discovery and the institution of judicial proceeding for its investigation and punishment.
When it is interrupted:
a. When a proceeding is instituted against the guilty person
b. When the offender is absent from the Philippines.
When it should run again:
When the proceeding is dismissed for reason not Constituting jeopardy.
When does the defense of prescription may be raised:
a. In civil case – If not raised in the lower court, it is bailed permanently; if can not be raised for the first time on appeal.
b. In criminal case – It can be raised even if the case has been decided by the lower court but pending decision on appeal.
Interruption of the Prescriptive Period
1. Where before the expiration of the time prescribed for the assessment of the tax, both the commissioner and the taxpayer have consented in writing to its assessment after such time, the tax may be assessed prior to the expiration of the period agreed upon.
2. The running of statute of limitations on making an assessment and the beginning of distraint/levy or a proceeding in court for collection shall be suspended for the period.
During which the Commissioner is prohibited from making the assessment or beginning distraint/levy or a proceeding in court and for 60 days thereafter; e.g.
a. Filing a petition for review in the CTA from the decision of the Commissioner. The commissioner is prevented from filing an ordinary action to collect the tax.
b. When CTA suspends the collection of tax liability of the taxpayer pursuant to Section 11 of RA 1125 upon proof that its collection may jeopardizes the government and /or the taxpayer.
c. When the taxpayer requests for reinvestigation which is granted by commissioner.
Note: A mere request for reinvestigation without any action or the part of the Commissioner does not interrupt the running of the prescriptive period. The request must not be a mere pro-former. Substantial issues must be raised.
d. When the taxpayer cannot be located in the address given by him in the return.
Note: If the taxpayer informs the Commissioner of any change in address the statute will not be suspended.
e. When the warrant of distraint or levy is duly served upon any of the following person:
2. his authorized representative
3. Member of his household with sufficient discretion and no property could be located.
f. When the taxpayer is out of the Philippines.
g. In criminal cases for violation of tax code – the period shall not run when the offender is absent from the Philippines.
Note: A petition for reconsideration of a tax assessment does not suspend the criminal action. Reason: No requirement for assessment of the tax before the criminal action may be instituted.