PRiMUS CUT AND PASTE:

The BAR STAR NOTES

in
TAXATI0N
With selected Supreme Court decisions
up to May 10, 2009
VER: 09.05.12
by
ABELARDO T. DOMONDON
How to !e the Note!: These Notes in the form of
textual materials and representatie reie! "uestions !ere
!"e#$%&&' "(e"%(e) *' P(o+. Do,o-)o- +o( the e.#&!$/e
!e o+ B%( C%-)$)%te! who %tte-)e) h$! 2009 &e#t(e! o-
T%.%t$o-, and others he has personally authori#ed$
The purpose of these Notes is to test the candidate%s
ability to ans!er probable "uestions that may be as&ed in the
September '', 2009 (ar )xaminations in Taxation$ The last
ersion to be released is *er$ 09$0+$1, !hich may
substantially alter the contents of this *er$ 09$0-$12 (e sure
to secure the last ersion to replace this ersion$
./ N/T M)M/012) the su33ested ans!ers$ Some of
the ans!ers !ere purposely made to be len3thy in order to
sere as explanatory deices$ This is so because you do not
hae time anymore to refer bac& to your reie! materials$
The materials are arran3ed in accordance !ith the bar
examination coera3e$ The actual bar "uestions may not be
so arran3ed$ 4i&e!ise, these Notes are only indicatie of the
areas from !here (ar "uestions may be sourced$ The
"uestions sho!n in these Notes may or may not be exactly
!orded in the actual (ar "uestions$
The reader is adised to ta&e note of the areas mar&ed
!ith stars5
1f pressed for time, the reader should read only the
items mar&ed and $ These areas represent +06 to
906 of the sources of "uestions that !ould probably be 3ien
in the 2009 (ar exams$ The reader should merely bro!se
the areas mar&ed and the unmar&ed areas because they
represent only 106 to 206 of the areas from !here
"uestions may probably be sourced this year$
0ARN1N2:
These materials are copyri3hted and7or based on the
!riter%s boo&s on Taxation and future reisions$ 1t is
prohibited to reproduce any part of these Notes in any form
or any means, electronic or mechanical, includin3
photocopyin3 !ithout the !ritten permission of the author$
These materials are authori#ed for the use only of (ar
reie!ees the author has personally authori#ed$
8nauthori#ed users shall not be prosecuted but SHALL BE
SUB3ECT TO THE LA0 O4 KARMA SUCH THAT THE5
01LL NEVER PASS THE BAR OR 0OULD BE UNHAPP5 1N
L14E for stealin3 the intellectual property of the author$
/nly copies !ith the si3nature of 9rof$ .omondon, or
his authori#ed representatie and the correspondin3 number
on this pa3e are considered authori#ed copies$ :olders of
authori#ed copies are re"uested not to lend their copies for
reproduction throu3h ;erox or other!ise$
2ENERAL PR1NC1PLES O4 TA6AT1ON
TA6AT1ON7 1N 2ENERAL
1. 0h' %(e t%. &%w! #o-!t(e) !t($#t&' %8%$-!t the
St%te %-) &$*e(%&&' $- +%/o( o+ the St%te 9
S8<<)ST). =NSW)05 1n case of doubt, tax la!s must be
construed strictly a3ainst the State and liberally in faor of the
taxpayer because taxes, as burdens !hich must be endured by the
taxpayer, should not be presumed to 3o beyond !hat the la!
expressly and clearly declares$ (Lincoln Philippine Life Insurance
Company, Inc., etc., v. Court of Appeals, et al., 29' SC0= 92, 99>
2. 0h' %(e t%. e.e,"t$o-! %(e !t($#t&' #o-!t(e)
%8%$-!t the t%."%'e( %-) &$*e(%&&' $- +%/o( o+ the St%te 9
S8<<)ST). =NSW)05 Taxes are necessary for the
continued existence of the State$
:. St($#t $-te("(et%t$o- o+ t%. e.e,"t$o- &%w!.
Taxes are !hat ciili#ed people pay for ciili#ed society$ They are
the lifeblood of the nation$ Thus, statutes 3rantin3 tax exemptions
are construed stricissimi juris a3ainst the taxpayer and liberally in
faor of the taxin3 authority$ = claim of tax exemption must be
clearly sho!n and based on lan3ua3e in la! too plain to be
mista&en$ /ther!ise stated, taxation is the rule, exemption is the
exception$ ?Quezon City, et al., v. ABSCB! Broa"castin# Corporation, <$
0$ No$ 1@@A0+, /ctober @, 200+ citin3 $actan Ce%u International Airport
Authority v. $arcos, <$0$ No$ 1200+2, September 11, 199@, 2@1 SC0=
@@,, @+0> The burden of proof rests upon the party claimin3 the
exemption to proe that it is in fact coered by the exemption so
claimed$ ?Quezon City, supra citin3 =3palo, 0$)$, Statutory Construction,
200' ed$, p$ '01>
;. R%t$o-%&e +o( !t($#t $-te("(et%t$o- o+ t%.
e.e,"t$o- &%w!. The basis for the rule on strict construction to
statutory proisions 3rantin3 tax exemptions or deductions is to
minimi#e differential treatment and foster impartiality, fairness and
e"uality of treatment amon3 taxpayers$ ?Quezon City, et al., v. ABS
CB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+> :e
!ho claims an exemption from his share of common burden must
Bustify his claim that the le3islature intended to exempt him by
unmista&able terms$ Cor exemptions from taxation are not faored
in la!, nor are they presumed$ They must be expressed in the
clearest and most unambi3uous lan3ua3e and not left to mere
implications$ 1t has been held that Dexemptions are neer presumed
the burden is on the claimant to establish clearly his ri3ht to
exemption and cannot be made out of inference or implications but
must be laid beyond reasonable doubt$ 1n other !ords, since
taxation is the rule and exemption the exception, the intention to
ma&e an exemption ou3ht to be expressed in clear and
unambi3uous terms$ ?Quezon City, supra citin3 =3palo, 0$)$, Statutory
Construction, 200' ed$, p$ '02>
5. 0h%t $! the e++e#t o+ % B1R (e/e(!%& o+ % "(e/$o!
(&$-8 $-te("(et$-8 % &%w %! e.e,"t$-8 % t%."%'e( 9
S8<<)ST). =NSW)05 = reersal of a (10 rulin3 faorable
to a taxpayer !ould not necessarily create a perpetual exemption in
his faor, for after all the 3oernment is neer estopped from
collectin3 taxes because of mista&es or errors on the part of its
a3ents$ (Lincoln Philippine Life Insurance Company, Inc., etc., v.
Court of Appeals, et al., 29' SC0= 92, 99>
<. 0h' $! the ($8ht to #o&&e#t t%.e!
$,"(e!#($"t$*&e 9
S8<<)ST). =NSW)05
a$ =s a 3eneral rule, reenue la!s are not intended to be
liberally construed, and exemptions are not 3ien retroactie
application, considerin3 that taxes are the lifeblood of the
3oernment and in :olmes% memorable metaphor, the price !e pay
for ciili#ation, tax la!s must be faithfully and strictly implemented$
?Commissioner of Internal &evenue v. Acosta, etc.,<$ 0$ No$ 1-A0@+,
=u3ust ', 200,> :o!eer, statutes may proide for prescriptie periods
for the collection of particular &inds of taxes$
b$ Tax la!s, unli&e remedial la!s, are not to be applied
retroactiely$ 0eenue la!s are substantie la!s and their
application must not be e"uated !ith remedial la!s$ ?Acosta, supra'
=. 1t $! !%$) th%t t%.e! %(e the &$+e*&oo) o+ the
8o/e(-,e-t %-) %-' )e&%' $- $t! #o&&e#t$o- wo&) $,"%$( the
(e-)$t$o- o+ 8o/e(-,e-t !e(/$#e!. M%' the #o&&e#t$o- o+
t%.e! *e (e!t(%$-e) *' % #o(t 9
S8<<)ST). =NSW)05 =s a 3eneral rule, DNo court shall
hae the authority to 3rant an inBunction to restrain the collection of
any national internal reenue tax, fee or char3e$E ?Sec$ 21+, N10C>
:o!eer, the Court of Tax =ppeals is empo!ered to enBoin the
collection of taxes throu3h administratie remedies !hen collection
could Beopardi#e the interest of the 3oernment or taxpayer$ ?Sec$ 11,
0ep$ =ct No$ 112->
>. 0h%t %(e the 8(o-)! %-) "(o#e)(e +o(
!!"e-!$o- o+ #o&&e#t$o- o+ t%.e! 9
S8<<)ST). =NSW)05 Where the collection of the amount
of the taxpayer%s liability, sou3ht by means of a demand for payment,
by ley, distraint or sale of property of the taxpayer, or by !hateer
2
means, as proided under existin3 la!s, may Beopardi#e the interest
of the 3oernment or the taxpayer, an interested party may file a
motion for the suspension of the collection of the tax liability ?Sec$ 1,
0ule 10, 00CT= effectie .ecember 1-, 200-> !ith the Court of Tax
=ppeals$
The motion for suspension of the collection of the tax may be
filed to3ether !ith the petition for reie! or !ith the ans!er, or in a
separate motion filed by the interested party at any sta3e of the
proceedin3s$ ?Sec$ ', 0ule 10, 00CT= effectie .ecember 1-, 200->
9. E."&%$- the !,"t%(' "("o!e o+ t%.%t$o-.
S8<<)ST). =NSW)05 The sumptuary purpose of taxation
is to promote the 3eneral !elfare and to protect the health, safety or
morals of the inhabitants$ 1t is in the Boint exercise of the po!er of
taxation and police po!er !here re3ulatory taxes are collected$
Taxation may be made the implement of the state%s police
po!er$ The motiation behind many taxation measures is the
implementation of police po!er 3oals$ FSouthern Cross Cement
Corporation v. Cement $anufacturers Association of the Philippines,
et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200- citin3 Lutz v. Araneta, 9+
9hil$ 1A+, 1-2 ?19-->G in turn citin3 (reat Atl. ) Pac. *ea Co. v.
(rosjean, '02 8$S$ A12G +.S. v. Biutler, 29, 8$S$ 1G $cCulloch v.
$arylan", A Wheaton '1@H The reader should note that the =u3ust ',
200- Southern Cross case is the decision on the motion for
reconsideration of the Iuly +, 200A Southern Cross decision$
The soJcalled Dsin taxesE on alcohol and tobacco manufacturers
help dissuade the consumers from excessie inta&e of these
potentially harmful products$ ?Southern Cross Cement Corporation v.
Cement $anufacturers Association of the Philippines, et al., <$ 0$ No$
1-+-A0, =u3ust ', 200->
10. E."&%$- the #o,"e-!%to(' "("o!e o+ t%.%t$o-.
S8<<)ST). =NSW)05 The compensatory purpose of
taxation is to implement the social Bustice proisions of the
constitution throu3h the pro3ressie system of taxation, !hich !ould
result to e"ual distribution of !ealth, etc$
9ro3ressie income taxes alleiate the mar3in bet!een rich
and poor$ ?Southern Cross Cement Corporation v. Cement
$anufacturers Association of the Philippines, et al., <$ 0$ No$ 1-+-A0,
=u3ust ', 200->
11. 0h%t %(e the )$!t$-#t$o-! *etwee- % t%. %-) %
&$#e-!e +ee 9
S8<<)ST). =NSW)05 The follo!in3 are the distinctions
bet!een a tax and a license fee5
a$ 9809/S)5 = tax is imposed for reenue purposes
W:14) a license fee is imposed for re3ulatory purposes$ ?8nless it is
a Boint exercise of both the police po!er and the po!er of taxation>
b$ (=S1S5 = tax is imposed under the po!er of taxation
W:14) a license fee is imposed under police po!er$
c$ =M/8NT5 There is no limit as to the amount of a tax
W:14) the amount of license fee that could be collected is limited to
the cost of the license and the expenses of police sureillance and
re3ulation$
d$ T1M) /C 9=KM)NT5 Taxes are normally paid after the
start of a business W:14) a license fee before the commencement
of business$
e$ )CC)CT /C N/NJ9=KM)NT5 Cailure to pay a tax does
not ma&e the business ille3al W:14) failure to pay a license fee
ma&es the business ille3al$
f$ S800)N.)05 Taxes bein3 the lifeblood of the state,
cannot be surrendered except for la!ful consideration W:14) a
license fee may be surrendered !ith or !ithout consideration$
12. D$!t$-8$!h t%.%t$o- +(o, "o&$#e "owe(.
S8<<)ST). =NSSW)05 Taxation is distin3uishable from
police po!er as to the means employed to implement these public
3oals$ Those doctrines that are uni"ue to taxation arose from peculiar
considerations such as those especially punitie effects ?Southern
Cross Cement Corporation v. Cement $anufacturers Association of
the Philippines, et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200- citin3 8$ S$
Chief Marshall !ho once said, the po!er to tax inoles the po!er to
destroy, $cCulloch v. $arylan", A Wheaton '1@, cited in Sison v.
Ancheta, <$ 0$ No$ 4 L -9A'1, Iuly 2-, 1'0 SC0= @-A> and the belief
that taxes are lifeblood of the state$ ?Southern Cross Cement
Corporation v. Cement $anufacturers Association of the Philippines,
et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200- citin3 DFTHaxes bein3 the
lifeblood of the 3oernment, their prompt and certain aailability is of
the essence$E Sison v. Ancheta, i"., citin3 ,era v. -ernan"ez, <$ 0$
No$ 4J'1'@A, March '0, 19,9, +9 SC0= 199H
These considerations necessitated the eolution of taxation as
a distinct le3al concept from police po!er$ ?Southern Cross Cement
Corporation, supra>
1f the "uestion as&s for an enumeration of the distinctions
bet!een the po!er of taxation and police po!er, the candidate should
reformulate no$ 1, aboe$
1:. 0h%t $! the "("o!e o+ the S8%( A)?!t,e-t
A#t 9
3
S8<<)ST). =NSW)05 The Su3ar =dBustment =ct !hich
increased existin3 taxes on su3ar !as enacted to stabili#e the su3ar
industry to prepare it for the loss of its "uota in the 8$S$ mar&et !as
leied for a re3ulatory purpose to protect and promote the su3ar
industry !hich is also for a public purpose$ ?4utz v. Araneta, 9+ 9hil$
1A+>
The 9hilsu3in fund, an imposition on su3ar, to raise funds to
conduct research for the improement of the su3ar industry, is for the
purpose of stabili#in3 the su3ar industry !hich one of the pillars of the
9hilippine economy !hich affects the !elfare of the State$ The ley is
not so much an exercise of the po!er of taxation, nor the imposition
of a special ley, but the exercise of police po!er !hich is for the
3eneral !elfare of the entire country, therefore for a public purpose$
(&epu%lic v. Bacolo"$urcia Co., et al$, <$0$ No$ 4J19+2A, Iuly 9,
19@@>
1;. Se#t$o- ;0 @8A o+ the P*&$# Se(/$#e A#t
%tho($Be! the #o&&e#t$o- o+ . . . +ee! %! (e$,*(!e,e-t
o+ $t! e."e-!e! $- the %tho($B%t$o-7 !"e(/$!$o- %-)Co(
(e8&%t$o- o+ the "*&$# !e(/$#e!: . . . 8A 4o( e%#h "e(,$t7
%tho($B$-8 the $-#(e%!e $- eD$",e-t7 the $-!t%&&%t$o- o+
-ew -$t! o( %tho($B$-8 the $-#(e%!e o+ #%"%#$t'7 o( the
e.te-!$o- o+ ,e%-! o( 8e-e(%& e.te-!$o-! $- the !e(/$#e!7
twe-t' #e-t%/o! +o( e%#h o-e h-)(e) "e!o! o( +(%#t$o- o+
the %))$t$o-%& #%"$t%& -e#e!!%(' to #%((' ot the "e(,$t.
@"%(%"h(%!$-8 !""&$e)A
1! the $,"o!$t$o- % t%. ,e%!(e 9 E."&%$-.
S8<<)ST). =NSW)05 No$ 1t is not a tax measure but a
simple re3ulatory proision for the collection of fees imposed pursuant
to the exercise of the State%s police po!er$ = tax is imposed under
the taxin3 po!er of 3oernment principally for the purpose of raisin3
reenues$ The la! in "uestion, ho!eer, merely authori#es and
re"uires the collection of fees for the reimbursement of the
Commission%s expenses in the authori#ation, superision and7or
re3ulation of public serices$ ?&epu%lic, etc., v. International
Communications Corporation (ICC', <$ 0$ No$ 1A1@@,, Iuly 1,, 200@>
15. How ,%' the "owe( o+ t%.%t$o- %&!o *e !e) to
$,"&e,e-t "owe( o+ e,$-e-t )o,%$- 9
S8<<)ST). =NSW)05 Tax measures are but Eenforced
contributions exacted on pain of penal sanctionsE and Dclearly
imposed for public purpose$E 1n most recent years, the po!er to tax
has indeed become a most effectie tool to reali#e social Bustice,
public !elfare, and the e"uitable distribution of !ealth$
?Commissioner of Internal &evenue v. Central Luzon .ru#
Corporation, <$0$ No$ 1-9@A,, =pril 1@, 200->
)stablishments 3rantin3 the 206 senior citi#ens discount
may claim the discounts 3ranted to senior citi#ens %! t%. )e)#t$o-
based on the net cost of the 3oods sold or serices rendered5
Provi"e", That the cost of the discount shall be allo!ed as deduction
from 3ross income for the same taxable year that the discount is
3ranted$ Provi"e", further, That the total amount of the claimed tax
deduction net of alue added tax if applicable, shall be included in
their 3ross sales receipts for tax purposes and shall be subBect to
proper documentation and to the proisions of the National 1nternal
0eenue Code, as amended$ F$./. 0ol"in# Corporation v. Court of
Appeals, et al., <$0$ No$ 1@019', March ', 200+ citin3 )xpanded
Senior Citi#ens =ct of 200', Sec$ A ?a>H
1<. 0h%t $! "("o!e +o( the &$,$t%t$o-! o- the "owe(
o+ t%.%t$o- 9
S8<<)ST). =NSW)05 The inherent and constitutional
limitations to the "owe( o+ t%.%t$o- %(e !%+e8%()! !hich !ould
preent abuse in the exercise of this other!ise unlimited and plenary
po!er$
The limitations also sere as a standard to measure the alidity
of a tax la! or the act of a taxin3 authority$ = iolation of the
limitations seres to inalidate a tax la! or act in the exercise of the
po!er to tax$
1NHERENT L1M1TAT1ONS
1. 0h%t %(e the $-he(e-t &$,$t%t$o-! o- the
"owe( o+ t%.%t$o- 9
S8<<)ST). =NSW)05 The inherent limitations are
a$ 9ublic purpose$ The reenues collected from taxation
should be deoted to a public purpose$
b$ No improper dele3ation of le3islatie authority to tax$
/nly the le3islature can exercise the po!er of taxes unless the same
is dele3ated to some other 3oernmental body by the constitution or
throu3h a la! !hich does not iolate any proision of the constitution$
c$ Territoriality$ The taxin3 po!er should be exercised only
!ithin territorial boundaries of the taxin3 authority$
d$ 0eco3nition of 3oernment exemptionsG and
e$ /bserance of the principle of comity$ Comity is the
respect accorded by nations to each other because they are e"uals$
/n the other hand taxation is an act of soerei3n$ Thus, the po!er
should be imposed upon e"uals out of respect$
Some authorities include no double taxation$
4
2. 0he- %(e t%.e! #o-!$)e(e) %! *e$-8 +o( % "*&$#
"("o!e 9
S8<<)ST). =NSW)05 The tax reenues are for a public
purpose if utili#ed for the benefit of the community in 3eneral$ =n
alternatie meanin3 is that tax proceeds should be utili#ed only to
attain the obBecties of 3oernment$
9ublic use is no lon3er confined to the traditional notion of use
by the public but held synonymous !ith public interest, public benefit,
public !elfare, and public conenience$ ?Commissioner of Internal
&evenue v. Central Luzon .ru# Corporation, <$0$ No$ 1-9@A,, =pril
1@, 200->
:. De+$-e % t%."%'e(E! !$t.
S8<<)ST). =NSW)05 Taxpayers% suit is a case !here the
act complained of directly inoles the ille3al disbursement of public
funds deried from taxation$ ?Iustice Melo, dissentin3 in 1ilos%ayan,
Inc. v. (uin#ona, 2r$, 2'2 SC0= 110>
;. 0h%t $! locus standi ?
S8<<)ST). =NSW)05 Locus stan"i is Da ri3ht of
appearance in a court of Bustice on a 3ien "uestion$ ?A%aya v.
/%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>
1t is a party%s personal and substantial interest in the case, such
that the party has sustained or !ill sustain ?I%i".>direct inBury as a
result of the 3oernment act bein3 challen3ed$ 1t calls for more than
Bust a 3enerali#ed 3rieance$
= party need not be a party to the contract to challen3e its
alidity$ ?I%i".>
5. 0h%t $! ,e%-t *' the te(, ,%te($%& $-te(e!t 9
S8<<)ST). =NSW)05 The term DinterestE means a material
interest, an interest in issue affected by the decree, as distin3uished
from mere interest in the "uestion inoled, or a mere incidental
interest$ ?A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>
<. 0h%t $! the (%t$o-%&e +o( locus standi 9
S8<<)ST). =NSW)05 The rationale for re"uirin3 a party
!ho challen3es the constitutionality of a statute to alle3e such a
personal sta&e in the outcome of the controersy is Dto ensure that a
concrete aderseness !hich sharpens the presentation of issues upon
!hich the court so lar3ely depends for illumination of different
constitutional "uestions$E ?A%aya v. /%"ane, <$ 0$ No$ 1@,919,
Cebruary 1A, 200,>
=. 0he- ,%' locus standi *e *(!he) %!$)e 9
S8<<)ST). =NSW)05 1n cases of paramount importance
!here serious constitutional "uestions are inoled, the standin3
re"uirements may be relaxed and a suit may be allo!ed to prosper
een !here there is no direct inBury to the party claimin3 the ri3ht of
Budicial reie!$ FCoconut 3il &efiners Association, Inc., etc., et al., vs.
*orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200- citin3 Bayan
(Ba#on# Alyansan# $a4a%ayan' v. 5amora, <$ 0$ No$ 1'+-,0,
/ctober 10, 2000, 'A2 SC0= AA9, in turn citin3 1ilos%ayan, Inc. v.
(uin#ona, 2r$, <$ 0$ No$ 11'',-, May -, 199A, 2'2 SC0= 110H
>. 0h%t %(e the (eD$(e,e-t! th%t ,!t *e
,et *e+o(e t%."%'e(!7 #o-#e(-e) #$t$Be-! %-) &e8$!&%to(!
,%' *e %##o()e) !t%-)$-8 to !e 9
S8<<)ST). =NSW)05
a$ The case should inole constitutional issuesG
b$ Cor taxpayers, there must be a claim of ille3al
disbursement of public funds or that the tax measure is
unconstitutional$
c$ Cor oters, there must be a sho!in3 of obious interest
in the alidity of the election la! in "uestion$
d$ Cor concerned citi#ens, there must be a sho!in3 that
the issues raised are of transcendental importance !hich must be
settled early$
e$ Cor le3islators, there must be a claim that the official
action complained of infrin3es upon their prero3aties as le3islators$
?.avi", et al., v. Presi"ent (loria $acapa#alArroyo, etc., et al., <$
0$ No$ 1,1'9@, May ', 200@>
9. 0h%t %(e the (eD$!$te! +o( #h%&&e-8$-8
#o-!t$tt$o-%&$t' o+ &%w $-#&)$-8 % t%. &%w 9
S8<<)ST). =NSW)05 The party brin3in3 suit must sho!
Dnot only that the la! or act is inalid, but also that he has sustained
or is in immediate, or imminent dan3er of sustainin3 some direct
inBury as a result of its enforcement and not merely that he suffers
thereby in some indefinite !ay$E ?Soriano III v. Lista, et al., <$ 0$
No$ 1-'++1, March 2A, 200'>
10. Lo#! !t%-)$ *e$-8 ,e(e&' % ,%tte( o+
"(o#e)(e7 h%/e *ee- w%$/e) $- #e(t%$- $-!t%-#e! whe(e %
"%(t' who $! -ot "e(!o-%&&' $-?(e) ,%' *e %&&owe) to *($-8
!$t. 2$/e !o,e e.%,"&e!.
S8<<)ST). =NSW)05 The follo!in3 are examples of
instances !here suits hae been brou3ht by parties !ho hae not
5
hae been personally inBured by the operation of a la! or any other
3oernment act but by concerned citi#ens, taxpayers or oters !ho
actually sue in the public interest5
a$ Taxpayer%s suits to "uestion contracts entered into by the
national 3oernment or 3oernmentJo!ned or controlled corporations
alle3edly in contraention of the la!$
b$ = taxpayer is allo!ed to sue !here there is a claim that
public funds are ille3ally disbursed, or that public money is bein3
deflected to any improper purpose, or that there is a !asta3e of public
funds throu3h the enforcement of an inalid or unconstitutional la!$
?A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>
11. The "et$t$o-e(! $,"8- the /%&$)$t' o+ the
e!t%*&$!h,e-t o+ t%. %-) )t'F+(ee !ho"! w$th$- the S*$#
S"e#$%& E#o-o,$# Go-e @SSEGA %-) the (e,o/%& o+
#o-!,e( 8oo)! %-) $te,! +(o, the Bo-e! w$thot
"%',e-t o+ #o((e!"o-)$-8 )t$e! %-) t%.e! +o( the (e%!o-
th%t th$! #o-!t$tte e.e#t$/e &e8$!&%t$o- $- /$o&%t$o- o+ the
(&e o- !e"%(%t$o- o+ "owe(!7 th%t o-&' (%w ,%te($%&7
#%"$t%& %-) eD$",e-t !ho&) *e %&&owe) the "($/$&e8e.
R&e o- the o*?e#t$o-! %-) (e%!o- ot 'o( %-!we( *($e+&'.
S8<<)ST). =NSW)05 The obBections should not be 3ien
credence$ 1t is le3al to setup duly authori#ed dutyJfree shops in the
SS)2 to sell tax and dutyJfree consumer items in the Secured =rea$
This is in line !ith the policy enunciated in the la! that Dthe Subic
Special )conomic 2one shall be deeloped into a selfJsustainin3,
industrial, commercial, financial and inestment center to 3enerate
employment opportunities in and around the #one and to attract and
promote productie forei3n inestments$E
While it is true that Section 12 ?b> of 0ep$ =ct No$ ,22,
mentions only ra! materials, capital and e"uipment, this does not
necessarily mean that the tax and duty free buyin3 priile3e is limited
to these types of articles to the exclusion of consumer 3oods$
1t must be remembered that in construin3 statutes, the proper
course is to start out and follo! the true intent of the 4e3islature and
to adopt that sense !hich harmoni#es best !ith the context and
promotes to the fullest manner the policy and obBects of the
4e3islature$
The concept of inclusio unius est e6clusio alterius does not find
application because the phrase Dtax and dutyJfree importations of ra!
materials, capital and e"uipmentE !as merely cited as an example of
incenties that the SS)2 is authori#ed to 3rant, in line !ith its bein3 a
free port #one$ Thus, the le3islatie intent is that consumer 3oods
enterin3 the SS)2 !hich satisfy the needs of the #one and are
consumed there are not subBect to duties and taxes in accordance
!ith 9hilippine la!$ ?Coconut 3il &efiners Association, Inc., etc., et
al., v. *orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200->
M 0o&) 'o( %-!we( *e the !%,e $+ % P(e!$)e-t$%&
P(o#&%,%t$o- %&&owe) +o( the &$,$te) w$th)(%w%& +(o, the
C&%(H S"e#$%& E#o-o,$# Go-e o( the 3oh- H%' E#o-o,$#
Go-e o+ #o-!,e( 8oo)! t%. %-) )t'F+(ee 9
S8<<)ST). =NSW)05 The ans!er !ould not be the same$
This time the 9residential 9roclamation !ould be inalid as the
statutory tax exempt priile3e !as 3ranted only to the Subic Special
)conomic 2one and not to Iohn :ay or Clar&$ This is so because the
Constitution mandates that no la! 3rantin3 tax exemption shall be
passed !ithout the concurrence of a maBority of all the members of
Con3ress$ ?Coconut 3il &efiners Association, Inc., etc., et al., v.
*orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200- citin3 2ohn 0ay
People7s Alternative Coalition, et al., v. Lim, etc., et al., <$0$ No$
119,,-, /ctober 2A, 200', A1A SC0= '-@>
Curthermore, the la! is ery clear that the Dexportation or
remoal of 3oods from the territory of the Subic Special )conomic
2one to other parts of the 9hilippine territory shall be subBect to
customs duties and taxes under the Customs and Tariff Code and
other releant tax la!s of the 9hilippines$E ?I%i".>
11FA. N%t(e o+ %#t%& #%!e o( #o-t(o/e(!'. =n actual
case or controersy inoles a conflict of le3al ri3hts, an assertion of
opposite le3al claims susceptible of Budicial adBudication$
?ABA1A.A (uro Party List, etc., v. Purisima, etc., et al$, <$ 0$ No$
1@@,1-, =u3ust 1A, 200+ citin3 Cru#, 1sa3ani, 9:141991N)
C/NST1T8T1/N=4 4=W, 199- edition, p$ 2'>
11FB. C($te($% o+ *e$-8 ($"e +o( ?)$#$%& )ete(,$-%t$o-.
= closely related re"uirement is ripeness, that is, the "uestion must
be ripe for adBudication$ =nd a constitutional "uestion is ripe for
adBudication !hen the 3oernmental act bein3 challen3ed has a
direct aderse effect on the indiidual challen3in3 it $ ?ABA1A.A
(uro Party List, etc., v. Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A,
200+ citin3 (ernas, Ioa"uin, T:) 19+, C/NST1T8T1/N /C T:)
0)98(41C /C T:) 9:141991N)S5 = C/MM)NT=0K, 199@ edition, pp$
+A+J+A9> Thus, to be ripe for Budicial adBudication, the petitioner must
sho! a personal sta&e in the outcome of the case or an inBury to
himself that can be redressed by a faorable decision of the Court$
FABA1A.A (uro Party List, etc., supra, v. Purisima, etc., citin3 Cruz v.
Secretary of /nvironment an" !atural &esources, A00 9hil$ 90A ?2000>,
*itu3, I$, separate opinionH
6
11FC. Pe(!o-%& $-?(' ,!t *e !how- +o( ?)$#$%&
#o-t(o/e(!' to *e ($"e +o( ?)$#$%& )ete(,$-%t$o-. 1n this
case, aside from the 3eneral claim that the dispute has ripened into
a Budicial controersy by the mere enactment of the la! een
!ithout any further oert act$ ?ABA1A.A (uro Party List, etc., v.
Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 La Bu#al
B7Laan *ri%al Association, Inc. v. &amos, <$0$ No$ 12,++2, 01 .ecember
200A, AA- SC0= 1>
Thus, !here petitioners fail either to assert any specific and
concrete le3al claim or to demonstrate any direct aderse effect of
the la! on them or are unable to sho! a personal sta&e in the
outcome of this case or an inBury to themseles their petition is
procedurally infirm$ ?ABA1A.A (uro Party List, etc., supra>
11FD. Co-!t$tt$o-%&$t' o+ &%w $! e.#e"t$o- to the
)o#t($-e o+ ($"e +o( ?)$#$%& )ete(,$-%t$o-. This
not!ithstandin3, public interest re"uires the resolution of the
constitutional issues raised by petitioners$ The 3rae nature of their
alle3ations tends to cast a cloud on the presumption of
constitutionality in faor of the la!$ =nd !here an action of the
le3islatie branch is alle3ed to hae infrin3ed the Constitution, it
becomes not only the ri3ht but in fact the duty of the Budiciary to
settle the dispute$ FABA1A.A (uro Party List, etc., v. Purisima, etc., et
al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 *a8a"a v. An#ara, ''+ 9hil$
-A@ ?199,>H
12. The VAT &%w "(o/$)e! th%t7 the P(e!$)e-t7 "o-
the (e#o,,e-)%t$o- o+ the Se#(et%(' o+ 4$-%-#e7 !h%&&7
e++e#t$/e 3%-%(' 17 200<7 (%$!e the (%te o+ /%&eF%))e) t%.
to twe&/e "e(#e-t @12IA %+te( %-' o+ the +o&&ow$-8
#o-)$t$o-! h%/e *ee- !%t$!+$e). @$A /%&eF%))e) t%.
#o&&e#t$o- %! % "e(#e-t%8e o+ 2(o!! Do,e!t$# P(o)#t
@2DPA o+ the "(e/$o! 'e%( e.#ee)! two %-) +o(F+$+th
"e(#e-t @2 ;C5IA o( @$$A -%t$o-%& 8o/e(-,e-t )e+$#$t %! %
"e(#e-t%8e o+ 2DP o+ the "(e/$o! 'e%( e.#ee)! o-e %-)
o-eFh%&+ "e(#e-t @1 JIA.
0%! the(e %- $-/%&$) )e&e8%t$o- o+ &e8$!&%t$/e "owe( 9
S8<<)ST). =NSW)05 No$ There is no undue dele3ation of
le3islatie po!er but only of the discretion as to the execution of the
la!$ This is constitutionally permissible$
Con3ress does not abdicate its functions or unduly dele3ate
po!er !hen it describes !hat Bob must be done, !ho must do it, and
!hat is the scope of his authority$ 1n the aboe case the Secretary of
Cinance becomes merely the a3ent of the le3islatie department, to
determine and declare the een upon !hich its expressed !ill ta&es
place$ The 9resident cannot set aside the findin3s of the Secretary of
Cinance, !ho is not under the conditions actin3 as the execute alter
e3o or subordinate$ $ FA%a4a"a (uro Party List (etc.' v. /rmita, etc.,
et al., <$ 0$ No$ 1@+0-@, September 1, 200- and companion cases
citin3 arious casesHH
1:. The "owe( to t%. !ho&) *e e.e(#$!e) o-&' w$th$-
the te(($to($%& *o-)%($e! o+ the t%.$-8 %tho($t'. 1n theory, it is
only !ithin a state%s territorial boundaries that a state could 3ie
protection, hence it is only !ithin that territory that it could demand
support in the form of taxes$
1;. S$t! o+ t%.%t$o- $! the "&%#e o( the %tho($t' th%t
h%! the "owe( to #o&&e#t t%.e!$ 1t is premised upon the symbiotic
relation bet!een the taxpayer and the State$
15. The "&%#e th%t 8$/e! "(ote#t$o- $! the "&%#e th%t h%!
the ($8ht to )e,%-) th%t $t *e !""o(te) $- the +o(, o+ t%.e! !o $t
#o&) #o-t$-%&&' 8$/e "(ote#t$o-.
1<. The !$t! o+ (e%& "(o"e(t' t%.e! $! the "&%#e whe(e
the "(o"e(t' $! &o#%te) *e#%!e $t $! th%t "&%#e th%t 8$/e!
"(ote#t$o-. The %""&$#%*&e #o-#e"t $! lex situs o( lex rei sitae.
1=. The !$t! o+ t%.%t$o- o+ t%-8$*&e "e(!o-%& "(o"e(t' $!
the "&%#e whe(e the ow-e( $! &o#%te) because it is that place that
3ies protection to the o!ner !hich protection extends to the tan3ible
personal property$ The applicable concept is mo%ilia se9uuntur
personam.
1>. 1-t%-8$*&e "e(!o-%& "(o"e(t' ,%' h%/e o*t%$-e) %
*!$-e!! !$t! $- % "%(t$#&%( "&%#e e/e- $+ &o#%te) e&!ewhe(e.
Thus, the diidends earned from domestic corporations are
considered as income from !ithin, irrespectie !here the shares of
stoc& of such domestic corporation is located$
19. The !$t! o+ $-#o,e t%.%t$o- $! )ete(,$-e) *' the
-%t$o-%&$t'7 (e!$)e-#e o+ the t%."%'e( %-) !o(#e o+ $-#o,e.
9lease refer to 3eneral principles of income taxation under income
taxation$
20$ The !$t! o+ e.#$!e t%.e! $! the "&%#e whe(e the
"($/$&e8e $! e.e(#$!e) *e#%!e $t $! th%t "&%#e th%t 8$/e!
"(ote#t$o-.
7
21. The !$t! o+ t(%-!+e( t%.e!7 !#h %! e!t%te %-)
)o-o(E! t%.e!7 $! )ete(,$-e) *' the -%t$o-%&$t' %-) (e!$)e-#e o+
the t%."%'e( %-) the "&%#e whe(e the "(o"e(t' $! &o#%te). 9lease
refer to estate and donor%s taxes$
22. 3&$%-e % -o-F(e!$)e-t %&$e- %""o$-te) %! %
#o,,$!!$o- %8e-t *' % )o,e!t$# #o("o(%t$o- w$th % !%&e!
#o,,$!!$o- o+ 10I %&& !%&e! %#t%&&' #o-#&)e) %-)
#o&&e#te) th(o8h he( e++o(t!. The &o#%& #o,"%-' w$thhe&)
the %,o-t o+ P10=7000 +(o, he( !%&e! #o,,$!!$o- %-)
(e,$tte) the !%,e to the B1R.
She +$&e) % #&%$, +o( (e+-) %&&e8$-8 th%t he( !%&e!
#o,,$!!$o- $! -ot t%.%*&e *e#%!e the !%,e w%! %
#o,"e-!%t$o- +o( he( !e(/$#e! (e-)e(e) $- 2e(,%-' %-)
the(e+o(e #o-!$)e(e) %! $-#o,e +(o, !o(#e! ot!$)e the
Ph$&$""$-e!.
1! he( #o-te-t$o- #o((e#t 9
S8<<)ST). =NSW)05 Kes$ The important factor !hich
determines the source of income of personal serices is not the
residence of the payor, or the place !here the contract for serice is
entered into, or the place of payment, but the place !here the
serices !ere actually performed$
Since the actiity of securin3 the sales !ere in <ermany, then
the income did not ori3inate from sources from !ithin the 9hilippines$
?Commissioner of Internal &evenue v. Baier!ic4el, <$ 0$ No$ 1-',9',
=u3ust 29, 200@>
N/T) =N. C/MM)NTS5 1n the aboe case, the Supreme
Court reiterated the rule that D!o(#e o+ $-#o,e relates to the
property, actiity or serice that produced the income$ With respect
to rendition of labor or personal serice, it is the place !here the labor
or serice !as performed that determines the source of the income$
The aboe Baier!ic4el case discussed the import of the
landmar& cases ?0o:"en and B3AC' inolin3 sources of income for
tax purposes both of !hich may be dan3erous for (ar purposes5
2:. A )o,e!t$# $-!(%-#e #o,"%-' )e#$)e) to
(e$-!(e w$th % +o(e$8- (e$-!(e( the ($!H! $t h%! -)e(t%He-
w$th $t! &o#%& #&$e-t!. The +o(e$8- (e$-!(e( )oe! -ot h%/e
%- o++$#e7 -e$the( )oe! $t )o *!$-e!! $- the Ph$&$""$-e!.
A(e the (e$-!(%-#e "(e,$,! !*?e#t to Ph$&$""$-e $-#o,e
t%.%t$o- 9
S8<<)ST). =NSW)05 Kes because the underta&in3 of the
forei3n insurance company to indemnify the local insurance company
is the actiity that produced the income$
The reinsurance premiums remitted to the forei3n reinsurer had
for their source the underta&in3 to indemnify the local insurer a3ainst
liability$ Said underta&in3 is the actiity that produced there insurance
premiums, and the same too& place in the 9hilippines$ The reinsured,
the liabilities insured and the ris& ori3inally underta&en by the local
insurance company, upon !hich the reinsurance premiums and
indemnity !ere based, !ere all situated in the 9hilippines$ ?Ale6an"er
0o:"en ) Co., Lt". v. Collector of Internal &evenue, 121 9hil$ -,9G 1'
SC0= @01 ?19@-> cited in Baier!ic4el'
2;. BOAC7 % +o(e$8- %$(&$-e #o,"%-' wh$#h
)oe! -ot ,%$-t%$- %-' +&$8ht to %-) +(o, the Ph$&$""$-e!
!o&) %$( t$#Het! $- the Ph$&$""$-e!7 th(o8h % 8e-e(%& !%&e!
%8e-t7 (e&%t$-8 to the #%(($%8e o+ "%!!e-8e(! %-) #%(8o
*etwee- two "o$-t!7 *oth ot!$)e the Ph$&$""$-e!.
1! BOAC !*?e#t to $-#o,e t%.e! o- the !%&e o+ the
t$#Het! 9
S8<<)ST). =NSW)05 Kes$ The source of income !hich is
taxable is that DactiityE !hich produced the income$ The Esale of
tic&etsE in the 9hilippines is the actiity that determines !hether such
income is taxable in the 9hilippines$
The tic&ets exchan3ed hands here and payments for fares
!ere also made here in 9hilippine currency$ The situs of the source
of payments is the 9hilippines$ the flo! of !ealth proceeded from and
occurred, !ithin the 9hilippine territory, enBoyin3 the protection
accorded by the 9hilippine <oernment$ 1n consideration of such
protection, the flo! of !ealth should share the burden of supportin3
the 3oernment$ ?Commissioner of Internal &evenue v. British
3verseas Air:ays Corporation (B3AC', 1A9 SC0= '9- cited in
Bauer!ic4el'
N/T)S =N. C/MM)NTS5 The concept of imposition of the
3ross 9hilippine billin3s that taxes only fli3hts that ori3inate from the
9hilippines apply only to resident forei3n corporations doin3 business
in the 9hilippines FSec$ 2+ ?=> ?'> ?a>, N10C of 199,H =N. N/T T/
incomes of nonJresident forei3n corporations that are taxed on the
3ross income$ FSec$ 2+ ?(> ?1>H
25. No $,"(o"e( )e&e8%t$o- o+ &e8$!&%t$/e %tho($t'
to t%.. The po!er to tax is inherent in the State, such po!er bein3
inherently le3islatie, based on the principle that taxes are a 3rant of
the people !ho are taxed, and the 3rant must be made by the
immediate representaties of the peopleG and !here the people
hae laid the po!er, there it must remain and be exercised$
?Commissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$
8
Nos$ 1@,2,AJ,-, Iuly 21, 200+ citin3 C//4)K T=;=T1/N, '
rd
)d$, p$ A'
cited in .1M==M9=/, T=; 901NC194) =N. 0)M).1)S, p$ 1'>
2<. 1-!t%-#e! whe(e the -%t$o-%& (e/e-e o++$#e(!
h%) /e-t(e) $- the %(e% o+ -%tho($Be) %),$-$!t(%t$/e
&e8$!&%t$o-.
a$ (y addin3 the "ualification that the tax due after the
126 increase becomes effectie shall not be lo!er than the tax
actually paid prior to 1 Ianuary 2000, 0eenue 0e3ulation No$ 1,J
99 effectiely imposes a tax !hich is the hi3her amount bet!een the
a" valorem tax bein3 paid at the end of the three ?'>Jyear transition
period and the specific tax under para3raph C, subJpara3raph ?1>J
?A>, as increased by 126Na situation not supported by the plain
!ordin3 of Section 1A- of the Tax Code$ ?Commissioner of Internal
&evenue v. -ortune *o%acco Corporation, <$ 0$ Nos$ 1@,2,AJ,-, Iuly 21,
200+>
b$ 0espondent !as not informed in !ritin3 of the la! and
the facts on !hich the assessment of estate taxes !as made
pursuant to Section 22+ of the 199, Tax Code, as amended by
0epublic =ct ?0$=$> No$ +A2A$ She !as merely notified of the
findin3s by the Commissioner, !ho had simply relied upon the old
proisions of the la! and 0eenue 0e3ulation No$ 12J+- !hich !as
based on the old proision of the la!$ The Court held that in case of
discrepancy bet!een the la! as amended and the implementin3
re3ulation based on the old la!, the former necessarily preails$ The
la! must still be follo!ed, een thou3h the existin3 tax re3ulation at
that time proided for a different procedure$ ?I%i"., Commissioner of
Internal &evenue v. &eyes, <$0$ No$ 1-9@9A, 2, Ianuary 200@, A+0 SC0=
'+2 in turn citin3 Philippine Petroleum Corp. v. $unicipality of Pililla, &izal,
19+ SC0= +2, ++, ' Iune 1991, li&e!ise citin3 Shell Philippines, Inc. v.
Central Ban4 of the Philippines, 1@2 SC0= @2+, @'A, 2, Iune 19++>
c$ The tax authorities 3ae the term Dtax creditE in
Sections 2?i> and A of 0eenue 0e3ulation 2J9A a meanin3 utterly
disparate from !hat 0$=$ No$ ,A'2 proides$ Their interpretation
muddled up the intent of Con3ress to 3rant a mere discount
priile3e and not a sales discount$ The Court, stri&in3 do!n the
reenue re3ulation, held that an administratie a3ency issuin3
re3ulations may not enlar3e, alter or restrict the proisions of the la!
it administers, and it cannot en3raft additional re"uirements not
contemplated by the le3islature$ ?I%i"., Commissioner of Internal
&evenue v. Central Luzon .ru# Corporation, <$0$ No$ 1-9@A,, 1- =pril
200-, A-@ SC0= A1A>
d$ Commissioner Iose /n3 issued 0eenue
Memorandum /rder ?0M/> No$ 1-J91, as !ell as the clarificatory
0eenue Memorandum Circular ?0MC> A'J91, imposin3 a -6
lendin3 inestor%s tax under the 19,, Tax Code, as amended by
)xecutie /rder ?)$/$> No$ 2,', on pa!nshops$ The Commissioner
anchored the imposition on the definition of lendin3 inestors
proided in the 19,, Tax Code !hich, accordin3 to him, !as broad
enou3h to include pa!nshop operators$ :o!eer, the Court noted
that pa!nshops and lendin3 inestors !ere subBected to different tax
treatments under the Tax Code prior to its amendment by the
executie orderG that Con3ress neer intended to treat pa!nshops in
the same !ay as lendin3 inestorsG and that the particularly inoled
section of the Tax Code explicitly subBected lendin3 inestors and
dealers in securities only to percenta3e tax$ =nd so the Court
affirmed the inalidity of the challen3ed circulars, stressin3 that
Dadministratie issuances must not oerride, supplant or modify the
la!, but must remain consistent !ith the la! they intend to carry
out$E ?I%i"., citin3 Commissioner of Internal &evenue v. $ichel 2. Lhuillier
Pa:nshop, Inc., A-' 9hil$ 10A' ?200'>, at 10-2 in turn citin3 Commissioner
of Internal &evenue v. Court of Appeals, <$0$ No$ 10+'-+, 20 Ianuary
199-, 2A0 SC0= '@+, ',2G &omulo, $a%anta, Buenaventura, Sayoc ) .e
los An#eles v. 0ome .evelopment $utual -un", <$0$ No$ 1'10+2, 19 Iune
2000G ''' SC0= ,,,, ,+@>
e$ The then actin3 Commissioner issued 0MC ,J+-,
chan3in3 the prescriptie period of t!o years to ten years for claims
of excess "uarterly income tax payments, thereby creatin3 a clear
inconsistency !ith the proision of Section 2'0 of the 19,, Tax
Code$ The Court nullified the circular, rulin3 that the (10 did not
simply interpret the la!G rather it le3islated 3uidelines contrary to the
statute passed by Con3ress$ FI%i"., Philippine Ban4 of Communications v.
Commissioner of Internal &evenue, '@1 9hil$ 91@ ?1999>H
f$ The Supreme Court ruled as inalid 0M/ AJ+, !hich
had construed the amnesty coera3e under )$/$ No$ A1 ?19+@> to
include only assessments issued by the (10 after the promul3ation
of the executie order on 22 =u3ust 19+@ and not assessments
made to that date$ The Supreme Court resoled in the ne3atie$
FI%i"., Commissioner of Internal &evenue v. CA, et al., '10 9hil$ '92 ?199->H
2=. The (&eF,%H$-8 "owe( ,!t *e #o-+$-e) to )et%$&!
+o( (e8&%t$-8 the ,o)e o( "(o#ee)$-8! $- o()e( to #%((' $-to
e++e#t the &%w %! $t h%! *ee- e-%#te).
a$ 1t cannot be extended to amend or expand the statutory
re"uirements or to embrace matters not coered by the statute$
FCommissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$
Nos$ 1@,2,AJ,-, Iuly 21, 200+ citin3 Lan"%an4 of the Philippines v. Court
of Appeals, '2, 9hil$ 10A,, 10-2 ?199@>H =n administratie a3ency
issuin3 re3ulations may not enlar3e, alter or restrict the proisions of
the la! it administers, and it cannot en3raft additional re"uirements
not contemplated by the le3islature$ ?I%i"., Commissioner of Internal
&evenue v. Central Luzon .ru# Corporation, <$0$ No$ 1-9@A,, 1-
=pril 200-, A-@ SC0= A1A>
9
The Dplain meanin3 ruleE or ver%a le#is in statutory
construction should be applied such that !here the !ords of a
statute are clear, plain and free from ambi3uity, it must be 3ien its
literal meanin3 and applied !ithout attempted interpretation$ ?I%i".>
b$ =dministratie re3ulations must al!ays be in harmony
!ith the proisions of the la! because any resultin3 discrepancy
bet!een the t!o !ill al!ays be resoled in faor of the basic la!$
FCommissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$
Nos$ 1@,2,AJ,-, Iuly 21, 200+ citin3 Lan"%an4 of the Philippines v. Court
of Appeals, '2, 9hil$ 10A,, 10-2 ?199@>H
CONST1TUT1ONAL L1M1TAT1ONS
1. 0h%t %(e the #o-!t$tt$o-%& &$,$t%t$o-! o- the "owe( o+
t%.%t$o- 9
S8<<)ST). =NSW)05 The 3eneral or indirect constitutional
limitations as !ell as the specific or direct constitutional limitations$
2. 0h%t %(e the 8e-e(%& o( $-)$(e#t #o-!t$tt$o-%&
&$,$t%t$o-! o- the "owe( o+ t%.%t$o- 9
S8<<)ST). =NSW)05 The 3eneral or indirect constitutional
limitations are the follo!in35
a$ .ue process clauseG
b$ )"ual protection clauseG
c$ Creedom of the pressG
d$ 0eli3ious freedomG
e$ No ta&in3 of priate property !ithout Bust compensationG
f$ NonJimpairment clauseG
3$ 4a!Jma&in3 process5
1> (ill should embrace only one subBect expressed
in the title thereofG
2> Three ?'> readin3s on three separate daysG
'> 9rinted copies in final form distributed three ?'>
days before passa3e$
h$ 9residential po!er to 3rant repriees, commutations and
pardons and remittal of fines and forfeiture after coniction by final
Bud3ment$
:. 0h%t %(e the !"e#$+$# o( )$(e#t #o-!t$tt$o-%&
&$,$t%t$o- 9
S8<<)ST). =NSW)05
a$ No imprisonment for nonJpayment of a poll taxG
b$ Taxation shall be uniform and e"uitableG
c$ Con3ress shall eole a pro3ressie system of taxationG
d$ =ll appropriation, reenue or tariff bills shall ori3inate
exclusiely in the :ouse of 0epresentaties, but the Senate may
propose and concur !ith amendmentsG
e$ The 9resident shall hae the po!er to eto any particular
item or items in an appropriation, reenue, or tariff bill, but the eto
shall not affect the item or items to !hich he does not obBectG
f$ .ele3ated po!er of the 9resident to impose tariff rates,
import and export "uotas, tonna3e and !harfa3e dues5
1> .ele3ation by Con3ress
2> throu3h a la!
'> subBect to Con3ressional limits and
restrictions
A> !ithin the frame!or& of national deelopment
pro3ram$
3$ Tax exemption of charitable institutions, churches,
parsona3es and conents appurtenant thereto, mos"ues, and all
lands, buildin3s and improements of all &inds actually, directly and
exclusiely used for reli3ious, charitable or educational purposesG
h$ No tax exemption !ithout the concurrence of maBority
ote of all members of Con3ressG
i$ No use of public money or property for reli3ious
purposes except if priest is assi3ned to the armed forces, penal
institutions, 3oernment orphana3e or leprosariumG
B$ Money collected on tax leied for a special purpose to
be used only for such purpose, balance if any, to 3eneral fundsG
&$ The Supreme CourtOs po!er to reie! Bud3ments or
orders of lo!er courts in all cases inolin3 the le3ality of any tax,
impose, assessment or toll or the le3ality of any penalty imposed in
relation to the aboeG
l$ =uthority of local 3oernment units to create their o!n
sources of reenue, to ley taxes, fees and other char3es subBect to
3uidelines and limitations imposed by Con3ress consistent !ith the
basic policy of local autonomyG
m$ =utomatic release of local 3oernmentOs Bust share in
national taxesG
n$ Tax exemption of all reenues and assets of nonJstoc&,
nonJprofit educational institutions used actually, directly and
exclusiely for educational purposesG
o$ Tax exemption of all reenues and assets of proprietary or
cooperatie educational institutions subBect to limitations proided by
la! includin3 restrictions on diidends and proisions for reinestment
of profitsG
p$ Tax exemption of 3rants, endo!ments, donations or
contributions used actually, directly and exclusiely for educational
purposes subBect to conditions prescribed by la!$
10
:FA. No )e-$%& o+ )e "(o#e!! whe- the (e!"o-)e-t
$! 8$/e- the o""o(t-$t' to +$&e %++$)%/$t! %-) othe(
"&e%)$-8! )($-8 the "(e&$,$-%(' $-/e!t$8%t$o-. A
(e!"o-)e-t #%--ot claim denial of due process !hen she !as
3ien the opportunity to file her affidaits and other pleadin3s and
submit eidence before the ./I durin3 the preliminary inesti3ation
of her case and before the 1nformation !as filed a3ainst her$
.ue process is merely an opportunity to be heard$ 1n
addition, preliminary inesti3ation conducted by the ./I is merely
in"uisitorial$ 1t is not a trial of the case on the merits$ 1ts sole
purpose is to determine !hether a crime has been committed and
!hether the respondent therein is probably 3uilty of the crime$ 1t is
not the occasion for the full and exhaustie display of the parties%
eidence$ :ence, if the inesti3atin3 prosecutor is already satisfied
that he can reasonably determine the existence of probable cause
based on the parties% eidence thus presented, he may terminate the
proceedin3s and resole the case$ ?Santos v. People, et al, <$ 0$ No$
1,'1,@, =u3ust 2@, 200+ citin3 .e 3campo v. Secretary of 2ustice, <$0$
No$ <$0$ No$ 1A,9'2, 2- Ianuary 200@, A+0 SC0= ,1, +1J+2>
;. ED%& "(ote#t$o- o+ the &%w #&%!e $! !*?e#t to
(e%!o-%*&e #&%!!$+$#%t$o-. 1f the 3roupin3s are characteri#ed by
substantial distinctions that ma&e real differences, one class may be
treated and re3ulated differently from another$ The classification
must also be 3ermane to the purpose of the la! and must apply to all
those belon3in3 to the same class$ (*iu, et al., v. Court of Appeals, et
al., <$0$ No$ 12,A10, Ianuary 20, 1999>
;FA. The eD%& "(ote#t$o- o+ the &%w! #&%!e o+ the
Co-!t$tt$o- %&&ow! #&%!!$+$#%t$o-. Classification in la!, as in
the other departments of &no!led3e or practice, is the 3roupin3 of
thin3s in speculation or practice because they a3ree !ith one
another in certain particulars$ = la! is not inalid because of simple
ine"uality$ The ery idea of classification is that of ine"uality, so that
it 3oes !ithout sayin3 that the mere fact of ine"uality in no manner
determines the matter of constitutionality$
=ll that is re"uired of a alid classification is that it be
reasonable, !hich means that the classification should be based on
substantial distinctions !hich ma&e for real differences, that it must
be 3ermane to the purpose of the la!G that it must not be limited to
existin3 conditions onlyG and that it must apply e"ually to each
member of the class$ This Court has held that the standard is
satisfied if the classification or distinction is based on a reasonable
foundation or rational basis and is not palpably arbitrary$ FABA1A.A
(uro Party List, etc., v. Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A,
200+H
;FB. St%te h%! )$!#(et$o- to ,%He the #&%!!$+$#%t$o-.
1n the exercise of its po!er to ma&e classifications for the purpose of
enactin3 la!s oer matters !ithin its Burisdiction, the state is
reco3ni#ed as enBoyin3 a !ide ran3e of discretion$ 1t is not
necessary that the classification be based on scientific or mar&ed
differences of thin3s or in their relation$ Neither is it necessary that
the classification be made !ith mathematical nicety$ :ence,
le3islatie classification may in many cases properly rest on narro!
distinctions, for the e"ual protection 3uaranty does not preclude the
le3islature from reco3ni#in3 de3rees of eil or harm, and le3islation
is addressed to eils as they may appear$ FABA1A.A (uro Party List,
etc., v. Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+H
;FC. ED%& "(ote#t$o- )oe! -ot )e,%-) %*!o&te
eD%&$t'. The e"ual protection clause exists to preent undue
faor or priile3e$ 1t is intended to eliminate discrimination and
oppression based on ine"uality$ 0eco3ni#in3 the existence of real
differences amon3 men, the e"ual protection clause does not
demand absolute e"uality$ 1t merely re"uires that all persons shall
be treated ali&e, under li&e circumstances and conditions, both as to
the priile3es conferred and liabilities enforced$ ?Santos v. People, et
al, <$ 0$ No$ 1,'1,@, =u3ust 2@, 200+ citin3 0ima#an v. People, <$0$ No$
11'+11, , /ctober 199A, 2', SC0= -'+, --1$
1t is imperatie to duly establish that the one ino&in3 e"ual
protection and the person to !hich she is bein3 compared !ere
indeed similarly situated, i.e., that they committed identical acts for
!hich they !ere char3ed !ith the iolation of the same proisions of
the N10CG and that they presented similar ar3uments and eidence
in their defense J yet, they !ere treated differently$ (Santos, supra'
5. 0h%t %(e the (eD$!$te! +o( the /%&$)$t' o+ %
#&%!!$+$#%t$o- 9
S8<<)ST). =NSW)05 Classification, to be alid7 must
?a> rest on substantial distinctions,
?b> be 3ermane to the purpose of the la!,
?c> not be limited to existin3 conditions only, and
?d> apply e"ually to all members of the same class$ (*iu, et
al., v. Court of Appeals, et al., <$0$ No$ 12,A10, Ianuary 20, 1999>
<. The &%w 8(%-t o+ t%. %-) )t'F+(ee !t%t!
-)e( Re". A#t No. =22=7 to (et%$&e(! $-!$)e the SSEG
w$thot 8(%-t$-8 the !%,e to tho!e ot!$)e the SSEG. 1!
the(e % /$o&%t$o- o+ the eD%& "(ote#t$o- #&%!e 9
11
S8<<)ST). =NSW)05 There is no iolation of e"ual
protection because there exists a alid classification as sho!n belo!5
a$ Si3nificant distinctions exist bet!een the t!o 3roups$
Those outside of the SS)2 maintain their business !ithin 9hilippine
customs territory !hile those !ithin the SS)2 operate !ithin the soJ
called Dseparate customs territory$E To 3rant the same priile3es
!ould clearly defeat the statue%s intent to care a territory out of the
military reserations in Subic (ay !here free flo! of 3oods and
capital is maintained$
b$ The classification is 3ermane to the purpose of 0ep$ =ct
No$ ,22,$ =s held in *iu, the real concern of the la! is to conert the
lands formerly occupied by the 8S military bases into economic or
industrial areas$ 1n furtherance of such obBectie, Con3ress deemed it
necessary to extend economic incenties, in terms of a complete
pac&a3e of tax incenties and other benefits, to the establishments
!ithin the #one to attract and encoura3e forei3n and local inestors$
c$ The classification is not limited to the existin3 conditions
!hen the la! !as promul3ated but to future conditions as !ell,
inasmuch as the la! enisioned the former military reseration to
ultimately deelop into a selfJsustainin3 inestment center$
d$ The classification applies e"ually to all retailers found
!ithin the Dsecured area$E =s ruled in *iu, the indiiduals and
businesses !ithin the Dsecured area,E bein3 in li&e circumstances or
contributin3 directly to the achieement of the end purposes of the
la!, are not cate3ori#ed further$ They are all similarly treated, both in
priile3es 3ranted and in obli3ations re"uired$ ?Coconut 3il &efiners
Association, Inc., etc., et al., v. *orres, etc., et al., <$ 0$ No$ 1'2-2,,
Iuly 29, 200- citin3 *iu, et al., v. Court of Appeals, et al., (.&. !o.
;<=>;?, Ianuary 20, 1999, '01 SC0= 2,+>
=. 1! the !t%tto(' 8(%-t o+ t%. %-) )t'F+(ee
$,"o(t%t$o- $-to the S*$# S"e#$%& E#o-o,$# Go-e /$o&%t$/e
the "(e+e(e-t$%& !e #o-#e"t o+ the Co-!t$tt$o- 9
S8<<)ST). =NSW)05 No$ The mere fact that the la!
authori#es the importation and trade of forei3n 3oods does not suffice
to declare it unconstitutional on this 3round$
While the Constitution does not encoura3e the unlimited entry
of forei3n 3oods, serices and inestments into the country, it does
not prohibit them either$ 1n fact, it allo!s an exchan3e on the basis of
e"uality and reciprocity, fro!nin3 only in forei3n competition that is
unfair$ ?Coconut 3il &efiners Association, Inc., etc., et al., v. *orres,
etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200- citin3 *ana"a v. An#ara,
<$ 0$ No$ 11+29-, May 2, 199,, 2,2 SC0= 1+>
>$ ED%&$t' %-) -$+o(,$t' o+ t%.%t$o- ,%' ,e%- the
!%,e %! eD%& "(ote#t$o-$ 1n such a case, the terms !ould mean
that all subBects and obBects of taxation !hich are similarly situated
shall be subBect to the same burdens and 3ranted the same priile3es
!ithout any discrimination !hatsoeer$
9. U-$+o(,$t' ,%' h%/e % (e!t($#t$/e ,e%-$-8 )$++e(e-t
+(o, eD%&$t' %-) eD%& "(ote#t$o-. 1t !ould mean then that the
same rate shall be imposed for the same subBects and obBects !ithin
the territorial boundaries of a taxin3 authority$
10. 1t $! $-he(e-t $- the "owe( to t%. th%t the St%te *e
+(ee to !e&e#t the !*?e#t! o+ t%.%t$o-7 and it has been repeatedly
held that, Pine"ualities !hich result from a sin3lin3 out of one
particular class of taxation, or exemption, infrin3e no constitutional
limitation$P (Commissioner of Internal &evenue, et al., v. Santos, et
al., 2,, SC0= @1,>
10FA. The &%w "(o/$)$-8 +$-%-#$%& (ew%()! to t%.
#o&&e#to(! $! #o-!t$tt$o-%&. 9ublic serice is its o!n re!ard$
Neertheless, public officers may by la! be re!arded for exemplary
and exceptional performance$ = system of incenties for exceedin3
the set expectations of a public office is not anathema to the
concept of public accountability$ 1n fact, it reco3ni#es and reinforces
dedication to duty, industry, efficiency and loyalty to public serice
of deserin3 3oernment personnel$
The 8$S$ Supreme Court alidated a la! !hich a!ards to
officers of the customs as !ell as other parties an amount not
exceedin3 oneJhalf of the net proceeds of forfeitures in iolation of
the la!s a3ainst smu33lin3$ FABA1A.A (uro Party List, etc., v.
Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 +nite"
States v. $atthe:s, 1,' 8$S$ '+1 ?1+99>H
The offer of a portion of such penalties to the collectors is to
stimulate and re!ard their #eal and industry in detectin3 fraudulent
attempts to eade payment of duties and taxes$ FABA1A.A (uro
Party List, etc., supra citin3 .orsheimer v. +nite" States, ,A 8$S$ 1@@
?1+@+>H
1n the same ein, employees of the (10 and the (/C may by
la! be entitled to a re!ard !hen, as a conse"uence of their #eal in
the enforcement of tax and customs la!s, they exceed their reenue
tar3ets$ 9ublic serice is its o!n re!ard$ Neertheless, public
officers may by la! be re!arded for exemplary and exceptional
performance$ = system of incenties for exceedin3 the set
expectations of a public office is not anathema to the concept of
public accountability$ 1n fact, it reco3ni#es and reinforces dedication
12
to duty, industry, efficiency and loyalty to public serice of deserin3
3oernment personnel$ ?ABA1A.A (uro Party List, etc., supra>
10FB. Rew%()! &%w e!t%*&$!he! !%+e8%()! to e-!(e
th%t the (ew%() !'!te, w$&& -ot #(e%te *o-t' h-te(!.
The =ttrition =ct of 2005 0= 9''- establishes safe3uards to ensure
that the re!ard !ill not be claimed if it !ill be either the fruit of
Dbounty huntin3 or mercenary actiityE or the product of the irre3ular
performance of official duties$ /ne of these precautionary measures
is embodied in Section + of the la!5
S)C$ +$ Lia%ility of 3fficials, /6aminers an" /mployees
of the BI& an" the B3C. @ The officials, examiners, and
employees of the F(10H and the F(/CH !ho iolate this =ct or
!ho are 3uilty of ne3li3ence, abuses or acts of malfeasance
or misfeasance or fail to exercise extraordinary dili3ence in
the performance of their duties shall be held liable for any
loss or inBury suffered by any business establishment or
taxpayer as a result of such iolation, ne3li3ence, abuse,
malfeasance, misfeasance or failure to exercise extraordinary
dili3ence$ ?ABA1A.A (uro Party List, etc., v. Purisima, etc., et al$,
<$ 0$ No$ 1@@,1-, =u3ust 1A, 200+>
10FC. The (ew%()! &%w to t%. #o&&e#to(! )oe! -ot
/$o&%te eD%& "(ote#t$o-. )"uality 3uaranteed under the e"ual
protection clause is e"uality under the same conditions and amon3
persons similarly situatedG it is e"uality amon3 e"uals, not similarity
of treatment of persons !ho are classified based on substantial
differences in relation to the obBect to be accomplished$ When thin3s
or persons are different in fact or circumstance, they may be treated
in la! differently$
The 3uaranty of e"ual protection of the la!s is not a 3uaranty
of e"uality in the application of the la!s upon all citi#ens of the
FSHtate$ 1t is not, therefore, a re"uirement, in order to aoid the
constitutional prohibition a3ainst ine"uality, that eery man, !oman
and child should be affected ali&e by a statute$ )"uality of operation
of statutes does not mean indiscriminate operation on persons
merely as such, but on persons accordin3 to the circumstances
surroundin3 them$ 1t 3uarantees e"uality, not identity of ri3hts$
The Constitution does not re"uire that thin3s !hich are
different in fact be treated in la! as thou3h they !ere the same$ The
e"ual protection clause does not forbid discrimination as to thin3s
that are different$ 1t does not prohibit le3islation !hich is limited
either in the obBect to !hich it is directed or by the territory !ithin
!hich it is to operate$ FABA1A.A (uro Party List, etc., v. Purisima, etc.,
et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+H
The e"ual protection clause reco3ni#es a alid classification,
that is, a classification that has a reasonable foundation or rational
basis and not arbitrary$
1F22H
With respect to 0= 9''-, its expressed
public policy is the optimi#ation of the reenueJ3eneration capability
and collection of the (10 and the (/C$ Since the subBect of the la!
is the reenueJ 3eneration capability and collection of the (10 and
the (/C, the incenties and7or sanctions proided in the la! should
lo3ically pertain to the said a3encies$ Moreoer, the la! concerns
only the (10 and the (/C because they hae the common distinct
primary function of 3eneratin3 reenues for the national 3oernment
throu3h the collection of taxes, customs duties, fees and char3es$
(oth the (10 and the (/C are bureaus under the ./C$ They
principally perform the special function of bein3 the instrumentalities
throu3h !hich the State exercises one of its 3reat inherent functions
L taxation$ 1ndubitably, such substantial distinction is 3ermane and
intimately related to the purpose of the la!$ :ence, the classification
and treatment accorded to the (10 and the (/C under 0= 9''-
fully satisfy the demands of e"ual protection$ FABA1A.A (uro Party
List, etc. supra>H
10FD. The "(o!e#t$o- o+ o-e 8$&t' "e(!o- wh$&e
othe(! eD%&&' 8$&t' %(e -ot "(o!e#te)7 howe/e(7 $! -ot7
*' $t!e&+7 % )e-$%& o+ the eD%& "(ote#t$o- o+ the &%w!. Where
the official action purports to be in conformity to the statutory
classification, an erroneous or mista&en performance of the statutory
duty, althou3h a iolation of the statute, is not !ithout more a denial
of the e"ual protection of the la!s$ The unla!ful administration by
officers of a statute fair on its face, resultin3 in its une"ual
application to those !ho are entitled to be treated ali&e, is not a
denial of e"ual protection unless there is sho!n to be present in it an
element of intentional or purposeful discrimination$ This may
appear on the face of the action ta&en !ith respect to a particular
class or person, or it may only be sho!n by extrinsic eidence
sho!in3 a discriminatory desi3n oer another not to be inferred from
the action itself$
(ut a discriminatory purpose is not presumed, there must be
a sho!in3 of Dclear and intentional discrimination$ FSantos v. People,
et al, <$ 0$ No$ 1,'1,@, =u3ust 2@, 200+ citin3 People v. .ela Pie"ra, A0'
9hil$ '1, -AJ-@ ?2001>H
10FE. The(e $! -o )e-$%& o+ eD%& "(ote#t$o- whe(e
the "(o!e#t$o- e.e(#$!e! $t! )$!#(et$o- $- )ete(,$-$-8
"(o*%*&e #%!e. The discretion of !ho to prosecute depends on
the prosecution%s sound assessment !hether the eidence before it
1
13
can Bustify a reasonable belief that a person has committed an
offense$ The presumption is that the prosecutin3 officers re3ularly
performed their duties, and this presumption can be oercome only
by proof to the contrary, not by mere speculation$ There must be
eidence to oercome this presumption$ The mere alle3ation a
Cebuana, !as char3ed !ith the commission of a crime, !hile a
2amboan3ueQa, !as not, is insufficient to support a conclusion that
the prosecution officers acted in denial of the e"ual protection of the
la!s$ ?Santos v. People, et al, <$ 0$ No$ 1,'1,@, =u3ust 2@, 200+>
10F4. ED%& "(ote#t$o- !ho&) -ot *e !e) to "(ote#t
#o,,$!!$o- o+ #($,e$ While all persons accused of crime are to
be treated on a basis of e"uality before the la!, it does not follo!
that they are to be protected in the commission of crime$ 1t !ould
be unconscionable, for instance, to excuse a defendant 3uilty of
murder because others hae murdered !ith impunity$ The remedy
for une"ual enforcement of the la! in such instances does not lie in
the exoneration of the 3uilty at the expense of society x x x$
9rotection of the la! !ill be extended to all persons e"ually in the
pursuit of their la!ful occupations, but no person has the ri3ht to
demand protection of the la! in the commission of a crime$
4i&e!ise, FiHf the failure of prosecutors to enforce the criminal
la!s as to some persons should be conerted into a defense for
others char3ed !ith crime, the result !ould be that the trial of the
district attorney for nonfeasance !ould become an issue in the trial
of many persons char3ed !ith heinous crimes and the enforcement
of la! !ould suffer a complete brea&do!n$ ?Santos v. People, et al, <$
0$ No$ 1,'1,@, =u3ust 2@, 200+>

11. A +$.e) %--%& &$#e-!e +ee o- tho!e e-8%8e) $- the
*!$-e!! o+ 8e-e(%& e-te("($!e w%! %&!o $,"o!e) o- the !%&e o+
*$*&e! *' % (e&$8$o! !e#t. 1! th$! /%&$) o( /$o&%t$/e o+ the
#o-!t$tt$o-%&&' 8%(%-tee) +(ee)o, o+ (e&$8$o- 9
S8<<)ST). =NSW)05 1t is not alid because it iolates the
constitutionally 3uaranteed freedom of reli3ion$ =s a license fee is
fixed in amount and unrelated to the receipts of the taxpayer, such a
license fee, !hen applied to a reli3ious sect is actually imposed as a
condition for the free exercise of reli3ion$ = license fee Drestrains in
adance those constitutional liberties of press and reli3ion and
ineitably tends to suppress their exercise$E
12. A &%w+& t%. o- % -ew !*?e#t7 o( %- $-#(e%!e) t%. o-
%- o&) o-e7 )oe! -ot $-te(+e(e w$th % #o-t(%#t o( $,"%$(! $t!
o*&$8%t$o-, !ithin the meanin3 of the constitution$ )en thou3h such
taxation may affect particular contracts, as it may increase the debt of
one person and lessen the security of another, or may impose
additional burdens upon one class and release the burdens of
another, still the tax must be paid unless prohibited by the
constitution, nor can it be said that it impairs the obli3ations of any
existin3 contract in its true and le3al sense$ (*olentino v. Secretary of
-inance, et al., an" companion cases, 2'- SC0= @'0>

1:. U-)e( the -ow "(e/%$&$-8 Co-!t$tt$o-7 whe(e the(e $!
-e$the( % 8(%-t -o( "(oh$*$t$o- *' !t%tte7 the t%.$-8 "owe( o+
&o#%& 8o/e(-,e-t! ,!t *e )ee,e) to e.$!t %&tho8h Co-8(e!!
,%' "(o/$)e !t%tto(' &$,$t%t$o-! %-) 8$)e&$-e! in order to
safe3uard the iability and selfJsufficiency of local 3oernment units
by directly 3rantin3 them 3eneral and broad tax po!ers$ ?City
(overnment of San Pa%lo, La#una, et al., v. &eyes, et al., <$0$ No$
12,,0+, March 2-, 1999>
1:FA. 4(%-#h$!e t%. $! % )$(e#t t%.. The franchise tax
is a percenta3e tax imposed only on franchise holders$ 1t is
imposed under Section 119 of the Tax Code and is a direct
liability of the franchise 3rantee$ ?Quezon City, et al., v. ABS
CB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @,
200+$ The author opines that since practically all franchises
3ranted to telecommunications companies are similarly
!orded that the aboe doctrine finds application to the
others$>
1;. The Lo#%& 2o/e(-,e-t Co)e e."&$#$t&' %tho($Be!
"(o/$-#e! %-) #$t$e!7 -otw$th!t%-)$-8 %-' e.e,"t$o- 8(%-te)
*' %-' &%w o( othe( !"e#$%& &%w to $,"o!e % t%. o- *!$-e!!e!
e-?o'$-8 % +(%-#h$!e. 1ndicatie of the le3islatie intent to carry out
the constitutional mandate of estin3 broad tax po!ers to local
3oernment units, the 4ocal <oernment Code has !ithdra!n tax
exemptions or incenties theretofore enBoyed by certain entities$ (City
(overnment of San Pa%lo, La#una, et al., v. &eyes, et al., <$0$ No$
12,,0+, March 2-, 1999>
15. Philippine Lon# .istance *elephone Company, Inc., v.
City of .avao, et al., etc., (. &. !o. ;>ABC=, Au#ust <<, <??;, upheld
the authority of the City of .aao, a local 3oernment unit, to impose
and collect a local franchise tax because the 4ocal <oernment has
!ithdra!n all tax exemptions preiously enBoyed by all persons and
authori#ed local 3oernment units to impose a tax on business
enBoyin3 a franchise tax not!ithstandin3 the 3rant of tax exemption to
them$
14
1<. E."&%$- the #o-#e"t o+ the "%(%)$8,
!h$+t $- &o#%& 8o/e(-,e-t t%.%t$o-.
S8<<)ST). =NSW)05 D9aradi3m shiftE from exclusie
Con3ressional po!er to direct 3rant of taxin3 po!er to local le3islatie
bodies$ The po!er to tax is no lon3er ested exclusiely on
Con3ressG local le3islatie bodies are no! 3ien direct authority to
ley taxes, fees and other char3es pursuant to =rticle ;, section - of
the 19+, Constitution$ ?Batan#as Po:er Corporation v. Batan#as
City, et al. <$ 0$ No$ 1-2@,-, and companion case, =pril 2+, 200A
citin3 !ational Po:er Corporation v. City of Ca%anatuan, <$ 0$ No$
1A9110, =pril 9, 200'>
1=. The +-)%,e-t%& &%w )$) -ot $-te-) the )$(e#t 8(%-t to
&o#%& 8o/e(-,e-t -$t! to *e %*!o&te %-) -#o-)$t$o-%&, the
constitutional obBectie obiously is to ensure that, !hile local
3oernment units are bein3 stren3thened and made more
autonomous, the le3islature must still see to it that5
a$ the taxpayer !ill not be oerJburdened or saddled !ith
multiple and unreasonable impositionsG
b$ each local 3oernment unit !ill hae its fair share of
aailable resourcesG
c$ the resources of the national 3oernment !ill be unduly
disturbedG and
d$ local taxation !ill be fair, uniform and Bust$ ?$anila
/lectric Company v. Province of La#una, et al., <$0$ No$ 1'1'-9, May
-, 1999>
1=FA. T%.$-8 "owe( o+ the &o#%& 8o/e(-,e-t $!
&$,$te). The taxin3 po!er of local 3oernments is limited in the
sense that Con3ress can enact le3islation 3rantin3 tax exemptions$
While the system of local 3oernment taxation has chan3ed
!ith the onset of the 19+, Constitution, the po!er of local
3oernment units to tax is still limited$
While the po!er to tax by local 3oernments may be
exercised by local le3islatie bodies, no lon3er merely be irtue of a
alid dele3ation as before, but pursuant to direct authority conferred
by Section -, =rticle ; of the Constitution, the basic doctrine on local
taxation remains essentially the same, Dthe po:er to ta6 is EstillF
primarily veste" in the Con#ress.G ?Quezon City, et al., v. ABSCB!
Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+ citin3 City
(overnment of Quezon City, et al. v. Bayan *elecommunications, Inc.,
<$0$ No$ 1@201-, March @, 200@, A+A SC0= 1@9 in turn referrin3 to
$actan Ce%u International Airport Authority, v. $arcos, <$0$ No$ 1200+2,
September 11, 199@, 2@1 SC0= @@,, @+0'
1=FB. 4(the( %,"&$+$#%t$o- *' Be(-%! o+ the &o#%&
8o/e(-,e-tE! "owe( to t%.. DWhat is the effect of Section - on
the fiscal position of municipal corporationsR Section - does not
chan3e the doctrine that municipal corporations do not possess
inherent po!ers of taxation$ What it does is to confer municipal
corporations a 3eneral po!er to ley taxes and other!ise create
sources of reenue$ They no lon3er hae to !ait for a statutory
3rant of these po!ers$ The po!er of the le3islatie authority relatie
to the fiscal po!ers of local 3oernments has been reduced to the
authority to impose limitations on municipal po!ers$ Moreoer,
these limitations must be Dconsistent !ith the basic policy of local
autonomy$E The important le3al effect of Section - is thus to
reerse the principle that doubts are resoled a3ainst municipal
corporations$ :enceforth, in interpretin3 statutory proisions on
municipal fiscal po!ers, doubts !ill be resoled in faor of municipal
corporations$ 1t is understood, ho!eer, that taxes imposed by local
3oernment must be for a public purpose, uniform !ithin a locality,
must not be confiscatory, and must be !ithin the Burisdiction of the
local unit to pass$E ?Quezon City, et al., v. ABSCB! Broa"castin#
Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+ citin3 City (overnment of
Quezon City, et al. v. Bayan *elecommunications, Inc., <$0$ No$ 1@201-,
March @, 200@, A+A SC0= 1@9>
1=FC. Re#o-#$&$%t$o- o+ the &o#%& 8o/e(-,e-tE!
%tho($t' to t%. %-) the Co-8(e!!$o-%& 8e-e(%& t%.$-8
"owe(. Con3ress has the inherent po!er to tax, !hich includes the
po!er to 3rant tax exemptions$ /n the other hand, the po!er of local
3oernments, such as proinces and cities for example Sue#on City, to tax
is prescribed by Section 1-1 in relation to Section 1', of the 4<C !hich
expressly proides that not!ithstandin3 any exemption 3ranted by any la!
or other special la!, the City or a proince may impose a franchise tax$ 1t
must be noted that Section 1', of the 4<C does not prohibit 3rant of future
exemptions$
The Supreme Court in a series of cases has sustained the
po!er of Con3ress to 3rant tax exemptions oer and aboe the
po!er of the local 3oernment%s dele3ated po!er to tax$ ?Quezon
City, et al., v. ABSCB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+,
/ctober @, 200+ citin3 City (overnment of Quezon City, et al. v. Bayan
*elecommunications, Inc., <$0$ No$ 1@201-, March @, 200@, A+A SC0= 1@>
D1ndeed, the 3rant of taxin3 po!ers to local 3oernment units
under the Constitution and the 4<C does not affect the po!er of
Con3ress to 3rant exemptions to certain persons, pursuant to a
declared national policy$ The le3al effect of the constitutional 3rant
to local 3oernments simply means that in interpretin3 statutory
proisions on municipal taxin3 po!ers, doubts must be resoled in
15
faor of municipal corporations$E FI%i"., referrin3 to Philippine Lon#
.istance *elephone Company, Inc. (PL.*' vs. City of .avaoF
1>. The w$th)(%w%& o+ % t%. e.e,"t$o- !ho&) -ot *e
#o-!t(e) %! "(oh$*$t$-8 +t(e 8(%-t! o+ e.e,"t$o- +(o, %&&
t%.e!. 1ndeed, the 3rant of taxin3 po!ers to local 3oernment units
under the 4ocal <oernment Code does not affect the po!er of
Con3ress to 3rant exemptions to certain persons, pursuant to a
declared national policy$ The le3al effect of the constitutional 3rant to
local 3oernments simply means that in interpretin3 statutory
proisions on municipal taxin3 po!ers, doubts must be resoled in
faor of municipal corporations$ (Philippine Lon# .istance *elephone
Company, Inc., v. City of .avao, et al., etc., <$ 0$ No$ 1A'+@,, =u3ust
22, 2001>
1>FA. T%. e.e,"t$o-! $- +(%-#h$!e! %(e %&w%'!
!*?e#t to w$th)(%w%&. Moreoer, Smart%s franchise !as 3ranted
!ith the express condition that it is subBect to amendment, alteration,
or repeal$ ?19+, C/NST1T8T1/N, =rt$ ;11, Sec$ 11>
1t is enou3h to say that the parties to a contract cannot,
throu3h the exercise of prophetic discernment, fetter the exercise of
the taxin3 po!er of the State$ Cor not only are existin3 la!s read
into contracts in order to fix obli3ations as bet!een parties, but the
reseration of essential attributes of soerei3n po!er is also read
into contracts as a basic postulate of the le3al order$ The policy of
protectin3 contracts a3ainst impairment presupposes the
maintenance of a 3oernment !hich retains ade"uate authority to
secure the peace and 3ood order of society$
1n truth, the Contract Clause has neer been thou3ht as a
limitation on the exercise of the State%s po!er of taxation sae only
!here a tax exemption has been 3ranted for a alid consideration$
Smart Communications, 1nc$ $ The City of .aao, etc$, et al$, <$ 0$
No$ 1--A91, September 1@, 200+ citin3 *olentino v. Secretary of
-inance, <$ 0$ No$ 11-A--, =u3ust 2-, 199A, 2'- SC0= @'0, @+-$
The author opines that since practically all franchises 3ranted to
telecommunications companies are similarly !orded that the aboe
doctrine finds application to the others>
19. 0he- Co-8(e!! %""(o/e) % "(o/$!$o- that, D=ny
adanta3e, faor, priile3e, exemption, or immunity 3ranted under
existin3 franchises, or may hereafter be 3ranted, shall ipso facto
become part of preiously 3ranted telecommunications franchises
and shall be accorded immediately and unconditionally to the
3rantees of such franchises5 9roided, ho!eer, That the fore3oin3
shall neither apply to nor affect proisions of telecommunications
franchises concernin3 territory coered by the franchise, the life span
of the franchise, or the type of serice authori#ed by the franchise$E
?8nderscorin3 supplied> the(e w%! -o $-te-t$o- +o( $t to o"e(%te %!
% *&%-Het t%. e.e,"t$o- to %&& te&e#o,,-$#%t$o-! e-t$t$e!.
=pplyin3 the rule of strict construction of la!s 3rantin3 tax exemptions
and the rule that doubts should be resoled in faor of municipal
corporations in interpretin3 statutory proisions on municipal taxation,
it !as held that said proisions cannot be considered as extendin3 its
application to franchises such as that of 94.T$ (Philippine Lon#
.istance *elephone Company, Inc., v. City of .avao, et al., etc$, <$ 0$
No$ 1A'+@,, =u3ust 22, 2001'
19FA. 1- &$e o+ %&& t%.e! $- the +(%-#h$!e o+ ABSFCBN
)oe! -ot e.e,"t $t +(o, &o#%& +(%-#h$!e t%.e!. The Din lieu
of all taxesE proision in the franchise of =(SJC(N does not
expressly proide !hat &ind of taxes =(SJC(N is exempted from$ 1t
is not clear !hether the exemption !ould include both local, !hether
municipal, city or proincial, and national tax$ Whether the Din lieu of
all taxes proisionE !ould include exemption from local tax is not
une"uiocal$
The ri3ht to exemption from local franchise tax must be
clearly established and cannot be made out of inference or
implications but must be laid beyond reasonable doubt$ *erily, the
uncertainty in the Din lieu of all taxesE proision should be construed
a3ainst =(SJC(N$ =(SJC(N has the burden to proe that it is in
fact coered by the exemption so claimed but has failed to do so$
?Quezon City, et al., v. ABSCB! Broa"castin# Corporation, <$ 0$ No$
1@@A0+, /ctober @, 200+$ This is practically the same holdin3 in an earlier
case inolin3 another telecommunications company$ Smart
Communications, 1nc$ $ The City of .aao, etc$, et al$, <$ 0$ No$ 1--A91,
September 1@, 200+$ The author opines that since practically all franchises
3ranted to telecommunications companies are similarly !orded that the
aboe doctrine finds application to the others$>
19FB. 1- &$e o+ %&& t%.e! (e+e(! to -%t$o-%& $-te(-%&
(e/e-e t%.e! %-) -ot to &o#%& t%.e!. The Din lieu of all taxesE
clause applies only to national internal reenue taxes and not to
local taxes$ =s appropriately pointed out in the separate opinion of
Iustice =ntonio T$ Carpio in a similar case inolin3 a demand for
exemption from local franchise taxes5
FTHhe Pin lieu of all taxesP clause in SmartOs franchise refers
only to taxes, other than income tax, imposed under the National
1nternal 0eenue Code$ The Pin lieu of all taxesP clause does not
apply to local taxes$ The proiso in the first para3raph of Section 9
of SmartOs franchise states that the 3rantee shall Pcontinue to be
liable for income taxes payable under Title 11 of the National 1nternal
16
0eenue Code$P =lso, the second para3raph of Section 9 spea&s of
tax returns filed and taxes paid to the PCommissioner of 1nternal
0eenue or his duly authori#ed representatie in accordance !ith
the National 1nternal 0eenue Code$P Moreoer, the same
para3raph declares that the tax returns Pshall be subBect to audit by
the (ureau of 1nternal 0eenue$P Nothin3 is mentioned in Section 9
about local taxes$ The clear intent is for the Pin lieu of all taxesP
clause to apply only to taxes under the National 1nternal 0eenue
Code and not to local taxes$ )en !ith respect to national internal
reenue taxes, the Pin lieu of all taxesP clause does not apply to
income tax$
1f Con3ress intended the Pin lieu of all taxesP clause in SmartOs
franchise to also apply to local taxes, Con3ress !ould hae
expressly mentioned the exemption from municipal and proincial
taxes$ Con3ress could hae used the lan3ua3e in Section 9?b> of
ClaecillaOs old franchise, as follo!s5
x x x in lieu of any and all taxes of any &ind, nature or
description leied, established or collected by any authority
!hatsoeer, municipal, provincial or national, from !hich the 3rantee
is hereby expressly exempted, x x x$ ?)mphasis supplied>$
:o!eer, Con3ress did not expressly exempt Smart from
local taxes$ Con3ress used the Pin lieu of all taxesP clause only in
reference to national internal reenue taxes$ The only interpretation,
under the rule on strict construction of tax exemptions, is that the Pin
lieu of all taxesP clause in SmartOs franchise refers only to national
and not to local taxes$ FSmart Communications, 1nc$ $ The City of
.aao, etc$, et al$, <$ 0$ No$ 1--A91, September 1@, 200+ citin3 Philippine
Lon# .istance *elephone Company, Inc. v. City of .avao, AA, 9hil$ -,1,
-9A ?200'>H
19FC. The $- &$e o+ %&& t%.e! #&%!e $- the +(%-#h$!e
o+ ABSFCBN h%! *e#o,e +-#t! o++$#$o w$th the %*o&$t$o-
o+ the +(%-#h$!e t%. o- *(o%)#%!t$-8 #o,"%-$e! w$th
'e%(&' 8(o!! (e#e$"t! e.#ee)$-8 Te- M$&&$o- Pe!o!. The
clause Din lieu of all taxesE does not pertain to *=T or any other tax$
1t cannot apply !hen !hat is paid is a tax other than a franchise tax$
Since the franchise tax on the broadcastin3 companies !ith yearly
3ross receipts exceedin3 ten million pesos has been abolished, the
Din lieu of all taxesE clause has no! become functus officio, rendered
inoperatie$ ?Quezon City, et al., v. ABSCB! Broa"castin# Corporation,
<$ 0$ No$ 1@@A0+, /ctober @, 200+$ This is practically the same holdin3 in
an earlier case inolin3 another telecommunications company$ Smart
Communications, 1nc$ $ The City of .aao, etc$, et al$, <$ 0$ No$ 1--A91,
September 1@, 200+$ The author opines that since practically all franchises
3ranted to telecommunications companies are similarly !orded that the
aboe doctrine finds application to the others$>
19FD. H$!to($#%& *%#H8(o-) o- wh' ABSFCBN $!
!*?e#t to VAT %-) -ot to the +(%-#h$!e t%.. =t the time of
the enactment of its franchise on May ', 199-, =(SJC(N !as
subBect to '6 franchise tax under Section 11,?b> of the 19,,
National 1nternal 0eenue Code ?N10C>, as amended$
/n Ianuary 1, 199@, 0$=$ No$ ,,1@, other!ise &no!n as the
)xpanded *alue =dded Tax 4a!, too& effect and subBected to *=T
those serices rendered by radio and7or broadcastin3 stations$
Notably, under the same la!, Dtelephone and7or tele3raph systems,
broadcastin3 stations and other franchise 3ranteesE !ere omitted
from the list of entities subBect to franchise tax$ The impression !as
that these entities !ere subBect to 106 *=T but not to franchise tax$
Subse"uently, 0$=$ No$ +2A1 too& effect on Ianuary 1, 199,
containin3 more amendments to the N10C$ 0adio and7or teleision
companies !hose annual 3ross receipts )o -ot e.#ee)
910,000,000$00 !ere 3ranted the option to choose bet!een payin3
'6 national franchise tax or 106 *=T
/n the other hand, radio and7or teleision companies !ith
yearly 3ross receipts e.#ee)$-8 910,000,000$00 !ere subBect to
106 *=T, pursuant to Section 102 of the N10C$
/n Ianuary 1, 199+, 0$=$ No$ +A2A !as passed confirmin3
the 106 *=T liability of radio and7or teleision companies !ith
yearly 3ross receipts exceedin3 910,000,000$00$
0$=$ No$ 9'', !as subse"uently enacted and became effectie on
Iuly 1, 200-$ The said la! further amended the N10C by increasin3
the rate of *=T to 126$ The effectiity of the imposition of the 126
*=T !as later moed from Ianuary 1, 200@ to Cebruary 1, 200@$
1n consonance !ith the aboe surey of pertinent la!s on the
matter, =(SJC(N is subBect to the payment of *=T$ 1t does not
hae the option to choose bet!een the payment of franchise tax or
*=T since it is a broadcastin3 company !ith yearly 3ross receipts
exceedin3 Ten Million 9esos ?910,000,000$00>$ ?Quezon City, et
al., v. ABSCB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @,
200+$ The author opines that since practically all franchises 3ranted to
telecommunications companies are similarly !orded that the aboe
doctrine finds application to the others$>
20. Do*&e t%.%t$o- $- $t! 8e-e($# !e-!e7 th$! ,e%-!
t%.$-8 the !%,e !*?e#t o( o*?e#t tw$#e )($-8 the !%,e t%.%*&e
"e($o).
1n its particular sense, it may mean direct duplicate taxation,
!hich is prohibited under the constitution because it iolates the
concept of e"ual protection, uniformity and e"uitableness of taxation$
1ndirect duplicate taxation is not anathemati#ed by the aboe
constitutional limitations$
17
21. 0h%t %(e the e&e,e-t! o+ )$(e#t )"&$#%te
t%.%t$o- 9
S8<<)ST). =NSW)05
a$ Same
1> SubBect or obBect is taxed t!ice
2> by the same taxin3 authority
'> for the same taxin3 purpose
A> durin3 the same taxable period
b$ Taxin3 all of the subBects or obBects for the first time
!ithout taxin3 all of them for the second time$
1f any of the elements are absent then there is indirect
duplicate taxation !hich is not prohibited by the constitution$
N/T)S =N. C/MM)NTS5
a$ P(e!e-#e o+ the 2
-)
e&e,e-t /$o&%te! the eD%&
"(ote#t$o- #&%!e. 1f only the 1
st
element is present, taxin3 the same
subBect or obBect t!ice, by the same taxin3 authority, etc$, there is no
iolation of the e"ual protection clause because all subBects and
obBects that are similarly situated are subBect to the same burdens and
3ranted the same priile3es !ithout any discrimination !hatsoeer,
The presence of the 2
nd
element, taxin3 all of the subBects and
obBects for the first time, !ithout taxin3 all for the second time, results
to discrimination amon3 subBects and obBects that are similarly
situated, hence iolatie of the e"ual protection clause$
22. Do*&e t%.%t$o- % /%&$) )e+e-!e %8%$-!t the &e8%&$t' o+
% t%. ,e%!(e $+ the )o*&e t%.%t$o- $! )$(e#t )"&$#%te t%.%t$o-,
because it !ould iolate the e"ual protection clause of the
constitution$
2:. 0he- %- $te, o+ $-#o,e $! t%.e) $- the Ph$&$""$-e!
%-) the !%,e $-#o,e $! t%.e) $- %-othe( #o-t('7 th$! wo&) *e
H-ow- %! $-te(-%t$o-%& ?($)$#%& )o*&e t%.%t$o- !hich is the
imposition of comparable taxes in t!o or more states on the same
taxpayer in respect of the same subBect matter and for identical
3rounds$ (Commissioner of Internal &evenue v. S.C. 2ohnson an"
Son, Inc., et al., <$0$ No$ 12,10-, Iune 2-, 1999>
2;. 0h%t %(e the ,etho)! +o( %/o$)$-8 )o*&e
t%.%t$o- @$-)$(e#t )"&$#%te t%.%t$o-A 9
S8<<)ST). =NSW)05 The follo!in3 are the methods of
aoidin3 double taxation5
a$ Tax treaties !hich exempts forei3n nationals from local
taxation and local nationals from forei3n taxation under the principle
of reciprocity$
b$ Tax credits !here forei3n taxes are allo!ed as
deductions from local taxes that are due to be paid$
c$ =llo!in3 forei3n taxes as a deduction from 3ross
income$
25. T%. #(e)$t 3enerally refers to an amount that is
subtracted directly from one%s total tax liability, an allo!ance a3ainst
the tax itself, or a deduction from !hat is o!ned$
= tax credit reduces the tax due, includin3 L!heneer
applicable L the income tax that is determined after applyin3 the
correspondin3 tax rates to taxable income$ ?Commissioner of Internal
&evenue v. Central Luzon .ru# Corporation, <$ 0$ No$ 1-9@A,, =pril
1-, 200->
2<. A t%. )e)#t$o- is defined as a subtraction fro income
for tax purposes, or an amount that is allo!ed by la! to reduce
income prior to the application of the tax rate to compute the amount
of tax !hich is due$
= tax deduction reduces the income that is subBect to tax in
order to arrie at taxable income$ ?Commissioner of Internal &evenue
v. Central Luzon .ru# Corporation, <$ 0$ No$ 1-9@A,, =pril 1-, 200->
2=. The "et$t$o-e(! %&&e8e th%t the RFVAT &%w $!
#o-!t$tt$o-%& *e#%!e the B$#%,e(%& Co-+e(e-#e
Co,,$tte) h%! e.#ee)e) $t! %tho($t' $- $-#&)$-8
"(o/$!$o-! wh$#h we(e -e/e( $-#&)e) $- the /e(!$o-! o+
*oth the Ho!e %-) Se-%te !#h %! $-!e(t$-8 the !t%-)F*'
%tho($t' to the P(e!$)e-t to $-#(e%!e the VAT +(o, 10I to
12IK )e&et$-8 e-t$(e&' the -o "%!!Fo- "(o/$!$o-! +o-) $-
*oth the Ho!e %-) Se-%te B$&&!K $-!e(t$-8 the "(o/$!$o-
$,"o!$-8 % =0I &$,$t o- the %,o-t o+ $-"t t%. to *e
#(e)$te) %8%$-!t the ot"t t%.K %-) $-#&)$-8 the
%,e-),e-t! $-t(o)#e) o-&' *' Se-%te B$&& No. 1950
(e8%()$-8 othe( H$-)! o+ t%.e! $- %))$t$o- to the /%&eF
%))e) t%.. Th!7 the(e w%! % /$o&%t$o- o+ the #o-!t$tt$o-%&
,%-)%te th%t (e/e-e *$&&! !h%&& o($8$-%te e.#&!$/e&' +(o,
the Ho!e o+ Re"(e!e-t%t$/e!.
A(e the #o-te-t$o-! o+ !#h we$8ht %! to #o-!t$tte
8(%/e %*!e o+ )$!#(et$o- wh$#h ,%' $-/%&$)%te the &%w 9
E."&%$- *($e+&'.
S8<<)ST). =NSW)05 No$ There !as no 3rae abuse of
discretion because all the chan3es and modifications made by the
(icameral Conference Committee !ere 3ermane to subBects of the
proisions referred to it for reconciliation$
18
The (icameral Conference Committee merely exercised the
Budicially reco3ni#ed lon3Jstandin3 le3islatie practice of 3iin3 said
conference committee ample latitude for compromisin3 differences
bet!een the Senate and the :ouse$ FA%a4a"a (uro Party List (etc.'
v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200- and
companion cases citin3 Philippine 2u"#es Association v. Par"o, <$ 0$
No$ 10-',1, Noember 11, 199', 22, SC0= ,0'G *olentino v.
Secretary of -inance, et al., <$ 0$ No$ 11-A--, =u3ust 2-, 199A,
2'-SC0= @'0H
2>. The VAT $! %!!%$&e) %! *e$-8 (e8(e!!$/e %-)
the(e+o(e /$o&%t$/e o+ the ,%-)%te to e/o&/e % "(o8(e!!$/e
!'!te, o+ t%.%t$o-. Do 'o %8(ee 9 E."&%$- 'o( %-!we(.
S8<<)ST). =NSW)05 No$ The *=T does not iolate the
pro3ressie system of taxation$ The mandate to Con3ress is not to
prescribe but to eole a pro3ressie system of taxation$ /ther!ise,
sales taxes !hich perhaps are the oldest form of indirect taxes, !ould
hae been prohibited !ith the proclamation of the constitutional
proision$ Sales taxes are also re3ressie$ $ FA%a4a"a (uro Party
List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200-
and companion cases citin3 *olentino v. Secretary of -inance, et al.,
<$ 0$ No$ 11-A--, =u3ust 2-, 199A, 2'- SC0= @'0H
29. A&& (e/e-e! %-) %!!et! o+ -o-F!to#H7 -o-F"(o+$t
e)#%t$o-%& $-!t$tt$o-! th%t %(e %#t%&&'7 )$(e#t&' %-) e.#&!$/e&'
!e) +o( e)#%t$o-%& "("o!e! !h%&& *e e.e,"t +(o, t%.%t$o-.
:0$ Re/e-e! %-) %!!et! o+ "(o"($et%(' e)#%t$o-%&
$-!t$tt$o-!7 $-#&)$-8 tho!e wh$#h %(e #oo"e(%t$/e&' ow-e)7
,%' *e e-t$t&e) to e.e,"t$o-! !*?e#t to &$,$t%t$o-! "(o/$)e) *'
&%w $-#&)$-8 (e!t($#t$o-! o- )$/$)e-)! %-) "(o/$!$o-! +o(
(e$-/e!t,e-t!. There is no la! at the present !hich 3rants
exemptions, other the exemptions 3ranted to cooperaties$
OTHER CONCEPTS
1. 0h%t $! % t%. %,-e!t' 9
S8<<)ST). =NSW)05 = tax amnesty is a 3eneral pardon
or intentional oerloo&in3 by the State of its authority to impose
penalties on persons other!ise 3uilty of easion or iolation of a
reenue or a tax la!$
1t parta&es of an absolute !aier by the 3oernment of its
ri3ht to collect !hat is due it and to 3ie tax eaders !ho !ish to
relent a chance to start !ith a clean slate$ = tax amnesty, much li&e
a tax exemption, is neer faored nor presumed in la!$ The 3rant of
a tax amnesty, similar to a tax exemption, must be construed strictly
a3ainst the taxpayer and liberally in faor of the taxin3 authority$
?Philippine Ban4in# Corporation, etc., v. Commissioner of Internal
&evenue, (. &. !o. ;=?H=>, 2anuary A?, <??I citin3 Commissioner
of Internal &evenue v. $aru%eni Corp., A2' 9hil$ +@2, +,A ?2001>$
1FA. The "("o!e o+ t%. %,-e!t' is to
a$ 3ie tax eaders !ho !ish to relent a chance to start a
clean slate, and to
b$ 3ie the 3oernment a chance to collect uncollected tax
from tax eaders !ithout hain3 to 3o throu3h the tedious
process of a tax case$ (Banas, 2r. v. Court of Appeals, et al., <$0$
No$ 1029@,, Cebruary 10, 2000'
2. D$!t$-8$!h t%. %,-e!t' +(o, t%. e.e,"t$o-.
S8<<)ST). =NSW)05
a$ Tax amnesty is an immunity from all criminal, ciil and
administratie liabilities arisin3 from nonpayment of taxes ?People v.
Castane"a, <$0$ No$ 4JA@++1, September 1-, 19++> W:14) a tax
exemption is an immunity from ciil liability only$ 1t is an immunity or
priile3e, a freedom from a char3e or burden to !hich others are
subBected$ (-lorer v. Sheri"an, ;A= In". <B, AC !/ ACH'
b$ Tax amnesty applies only to past tax periods, hence of
retroactie application (Castane"a, supra> W:14) tax exemption has
prospectie application$
:. De+$-e t%. %/o$)%-#e %-) t%. e/%!$o-.
S8<<)ST). =NSW)05 Tax aoidance is the use of le3ally
permissible means to reduce the tax !hile tax easion is the use of
ille3al means to escape the payment of taxes$
N/T)S =N. C/MM)NTS5
a$ T%. e/%!$o- #o--ote! the $-te8(%t$o- o+ th(ee
+%#to(!:
1> the end to be achieed, i$e$, the payment of less
than that &no!n by the taxpayer to be le3ally due, or the nonJ
payment of tax !hen it is sho!n that a tax is dueG
2> an accompanyin3 state of mind !hich is described
as bein3 DeilE on Dbad faith,E D!illful,E or Edeliberate and not
accidentalEG and
'> a course of action or failure of action !hich is
unla!ful$ ?Commissioner of Internal &evenue v. *he /state of
Beni#no P. *o"a, 2r., , etc., <$ 0$ No$ 1A,1++, September 1A,
200A>
19
;. D$!t$-8$!h *etwee- the t%. %/o$)%-#e
%-) t%. e/%!$o-.
S8<<)ST). =NSW)05
a$ Tax aoidance is le3al !hile tax easion is ille3al$
b$ The obBectie of tax aoidance in most instances is
merely to reduce the tax that is due !hile is tax easion the obBect is
to entirely escape the payment of taxes$
c$ Tax easion !arrants the imposition of ciil,
administratie and criminal penalties !hile tax aoidance does not$
5. 0h%t %(e the (e%!o-! wh' -%t$o-%& t%.e! #%--ot *e
the !*?e#t o+ #o,"e-!%t$o- %-) !etFo++ w$th )e*t! 9
S8<<)ST). =NSW)05
a$ The lifeblood theoryG
b$ Taxes are not contractual obli3ations but arise out of a
duty to, and are the positie acts of 3oernment, to the ma&in3 and
enforcin3 of !hich the personal consent of the indiidual taxpayer is
not re"uired$ (&epu%lic v. $am%ulao Lum%er Co., A SC0= @22>
c$ The 3oernment and the taxpayer are not mutually
creditors and debtors of each other and a claim for taxes is no such
debt, demand, contract or Bud3ment as is allo!ed to be setJoff$
(Calte6 Philippines, Inc. v. Commission on Au"it, 20+ SC0= ,2@, ,-@>
<. Co,"e-!%t$o- ta&es place by operation of la!, !here
the local 3oernment and the taxpayer are in their o!n ri3ht
reciprocally debtors and creditors of each other, and that the debts are
both due and demandable, in conse"uence of =rticles 12,+ and 12,9
of the Ciil Code$ (.omin#o v. (arlitos, + SC0= AA'>
=. 1- #%!e o+ % t%. o/e("%',e-t7 whe(e the B1RE!
o*&$8%t$o- to (e+-) o( !etFo++ %($!e! +(o, the ,o,e-t the t%.
w%! "%$) -)e( the "($-#$"&e o+ solutio indebeti. (Commissioner
of Internal &evenue v. /sso Stan"ar" /astern, Inc, 1,2 S0C= '@A>
>. Bt -ote Nestle Phil. v. Court of Appeals, et al., 2.R.
No. 1:;11;7 3&' <7 2001 !hich held that in order for the rule on
solutio in"e%eti to apply it is an essential condition that the petitioner
must first sho! that its payment of the customs duties !as in excess
of !hat !as re"uired by the la! at the time the subBect 1@
importations of mil& and mil& products !ere made$ 8nless sho!n
other!ise, the disputable presumption of re3ularity of performance of
duty lies in faor of the Collector of Customs$
9. A )$(e#t t%. $! % t%. +o( wh$#h % t%."%'e( $! )$(e#t&'
&$%*&e o- the t(%-!%#t$o- o( *!$-e!! $t e-8%8e! $-7 w$thot
t(%-!+e(($-8 the *()e- to !o,eo-e e&!e. )xamples are indiidual
and corporate income taxes, transfer taxes, and residence taxes$
?A%a4a"a (uro Party List (etc.' v. /rmita, etc., et al., <$ 0$ No$
1@+0-@, September 1, 200- and companion cases, citin3 $ace"a v.
$acarai#, 2r., <$0$ No$ ++291, Iune +, 199', 22' SC0= 21,>
10. The ,%$- )$++e(e-#e *etwee- )$(e#t t%.e! %-) $-)$(e#t
t%.e! is that the burden of direct taxes could not be shifted by the
taxpayer to another !hile the burden of indirect taxes could be shifted
to another person, such the burden alueJadded taxes bein3 shifted or
transferred by the taxpayer, the seller, to the buyer$
11. A#e!$te $! the ow-e( %-) o"e(%to( o+ (e!t%(%-t
wh$#h #%te(! to the "%t(o-! o+ % #%!$-o o"e(%te) *' PA2COR
w$th$- $t! "(e,$!e!. $t *$&&e) PA2COR +o( the #o!t o+ the +oo)
%-) *e/e(%8e! #o-!,e) *' the PA2CORE! "%t(o-! %! we&& %!
the &e%!e o+ the "(e,$!e! "&! the VAT o- the!e $te,!. PA2COR
"%$) A#e!$te ,$-! the VAT #&%$,$-8 e.e,"t$o- wh$&e A#e!$te7 $-
o()e( to %/o$) &e8%& $,"&$#%t$o-!7 "%$) the P:0 ,$&&$o- t%. %-)
%""&$e) +o( % (e+-) o- the 8(o-) o+ !o&t$o $-)e*et$.
A#e!$te #$te! the t%. e.e,"t$o- 8(%-t $- PA2CORE!
+(%-#h$!e %! +o&&ow!: D*he e6emptions herein #rante" for earnin#s
"erive" from the operations con"ucte" un"er the franchise specifically
from the payment of any ta6, income, or other:ise, as :ell as any
form of char#es, fees or levies, shall inure to the benefit of and
extend to corporation(s), association (s), aenc! (cies), or
individual(s) "ith "ho# the Corporation or operator has an!
contractual relationship in connection "ith the operations of the
casino (s) authori$ed to be conducted under this %ranchise an"
to those receivin# compensation or other remuneration from the
Corporation or operator as a result of essential facilities furnishe"
an"Jor technical services ren"ere" to the Corporation or operator.G
(emphasis supplie"'
The B1R )e-$e) the #&%$, o- the 8(o-) th%t PA2COR $!
e.e,"t o-&' +(o, )$(e#t t%.e! %-) -ot +(o, $-)$(e#t t%.e! !o
A#e!$te ,%' -ot %/%$& o+ the e.e,"t$o-. 1! th$! #o((e#t 9
S8<<)ST). =NSW)05 No$ =s the la! is !orded the
exemption flo!s to =cesite$ The la! is clear that the exemption
extends the exemption to entities or indiiduals dealin3 !ith
9=<C/0$ ?Commissioner of Internal &evenue v. Acesite
(Philippines' 0otel Corporation, <$ 0$ No$ 1A,29-, Cebruary 1@, 200,>
N/T)S =N. C/MM)NTS5
a$ The aboe holdin3 should be differentiated from
Philippine Acetylene Co. v. Commissioner of Internal &evenue, 20
SC0= 10-@, !here the tax exemption did not flo! to priate entities$
?cited in A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>, and
20
in the follo!in3 case of Sil4air (Sin#apore' P*/, Lt"., v.
Commissioner of Internal &evenue, <$0$ No$ 1,'-9A, Cebruary @,
200+$
b$ So also, the tax exemption of 9=<C/0 has already
been !ithdra!n by 0ep$ =ct No$ 9'',$
12. S$&H%$( @S$-8%"o(eA PTE7 Lt).7 %-
$-te(-%t$o-%& #%(($e(7 "(#h%!e) %/$%t$o- 8%! +(o, Pet(o-
Co("o(%t$o-7 wh$#h $t !e! +o( $t! o"e(%t$o-!. 1t -ow #&%$,!
+o( (e+-) o( t%. #(e)$t +o( the e.#$!e t%.e! $t "%$) #&%$,$-8
th%t $t $! e.e,"t +(o, the "%',e-t o+ e.#$!e t%.e! -)e(
the "(o/$!$o-! o+ Se#. 1:5 o+ the N1RC o+ 199=.
S$&H%$( +(the( %-#ho(! $t! #&%$, o- A(t$#&e ;@2A o+ the
A$( T(%-!"o(t A8(ee,e-t *etwee- the 2o/e(-,e-t o+ the
Re"*&$# o+ the Ph$&$""$-e! %-) the 2o/e(-,e-t o+ the
Re"*&$# o+ S$-8%"o(e @A$( T(%-!"o(t A8(ee,e-t *etwee-
RP %-) S$-8%"o(eA.
S$&H%$( &$Hew$!e %(8e! th%t $t $! e.e,"t +(o, $-)$(e#t
t%.e! *e#%!e the A$( T(%-!"o(t A8(ee,e-t *etwee- RP
%-) S$-8%"o(e 8(%-t! e.e,"t$o- +(o, the !%,e #!to,!
)t$e!7 $-!"e#t$o- +ee! %-) othe( )t$e! o( t%.e! $,"o!e)
$- the te(($to(' o+ the +$(!t Co-t(%#t$-8 P%(t'. 1t $-/oHe!
Maceda v. Macarai, &r., 2.R. No. >>2917 M%' :17 19917
19= SCRA ==1.wh$#h "he&) the #&%$, +o( t%. #(e)$t o(
(e+-) *' the N%t$o-%& Powe( Co("o(%t$o- @NPCA o- the
8(o-) th%t the NPC $! e.e,"t e/e- +(o, the "%',e-t o+
$-)$(e#t t%.e!.
1! S$&H%$( e-t$t&e) to the t%. (e+-) o( #(e)$t $t !eeH! 9
Re%!o- ot 'o( %-!we(.
S8<<)ST). =NSW)05 Sil&air is not entitled to tax refund
or credit for the follo!in3 reasons5
a$ The excise tax on aiation fuel is an indirect tax$ The
proper party to "uestion, or see& a refund of, an indirect tax is the
statutory taxpayer, the person on !hom the tax is imposed by la!
and !ho paid the same een if he shifts the burden thereof to
another$ ?Philippine (eothermal, Inc. v. Commissioner of Internal
&evenue, <$0$ No$ 1-A02+, Iuly 29, 200-, A@- SC0= '0+, '1,J'1+>
The N10C proides that the excise tax should be paid by the
manufacturer or producer before remoal of domestic products from
place of production$ Thus, 9etron Corporation, not Sil&air, is the
statutory taxpayer !hich is entitled to claim a refund based on
Section 1'- of the N10C of 199, and =rticle A?2> of the =ir Transport
=3reement bet!een 09 and Sin3apore$
)en if 9etron Corporation passed on to Sil&air the burden of
the tax, the additional amount billed to Sil&air for Bet fuel is not a tax
but part of the price !hich Sil&air had to pay as a purchaser$
FPhilippine Acetylene Co., Inc. v. Commissioner of Internal &evenue,
12, 9hil$ A@1, A,0 ?19@,>H
b$ Sil&air could not see& refu3e under $ace"a v. $acarai#,
2r., <$0$ No$ ++291, May '1, 1991, 19, SC0= ,,1$!hich upheld the
claim for tax credit or refund by the National 9o!er Corporation
?N9C> on the 3round that the N9C is exempt een from the payment
of indirect taxes$
1n Commissioner of Internal &evenue v. Philippine Lon#
.istance *elephone Company, <$0$ No$ 1A02'0, .ecember 1-,
200-, A,+ SC0= @1 the Supreme Court clarified the rulin3 in
$ace"a v. $acarai#, 2r., viz5 1t may be so that in $ace"a vs.
$acarai#, 2r., the Court held that an exemption from Dall taxesE
3ranted to the National 9o!er Corporation ?N9C> under its charter
includes both direct and indirect taxes$
=n exemption from Dall taxesE excludes indirect taxes, unless
the exemptin3 statute, li&e N9C%s charter, is so couched as to include
indirect tax from the exemption$ The amendment under 0epublic =ct
No$ @'9- enumerated the details coered by N9C%s exemption$
Subse"uently, 9$.$ '+0, made een more specific the details of the
exemption of N9C to coer, amon3 others, %oth "irect an" in"irect
ta6es on all petroleum products used in its operation$ 9residential
.ecree No$ 9'+ FN9C%s amended charterH amended the tax
exemption by simplifyin3 the same la! in 3eneral terms$ 1t succinctly
exempts N9C from Dall forms of taxes, dutiesF,H feesTE The use of
the phrase Dall formsE of taxes demonstrates the intention of the la!
to 3ie N9C all the tax exemptions it has been enBoyin3 before$
The exemption 3ranted under Section 1'- ?b> of the N10C of
199, and =rticle A?2> of the =ir Transport =3reement bet!een 09
and Sin3apore cannot, !ithout a clear sho!in3 of le3islatie intent,
be construed as includin3 indirect taxes$ Statutes 3rantin3 tax
exemptions must be construed in strictissimi juris a3ainst the
taxpayer and liberally in faor of the taxin3 authority, and if an
exemption is found to exist, it must not be enlar3ed by construction$
?Sil4air (Sin#apore' P*/, Lt"., v. Commissioner of Internal &evenue,
<$0$ No$ 1,'-9A, Cebruary @, 200+>
NAT1ONAL 1NTERNAL REVENUE CODE
OR2AN1GAT1ON AND 4UNCT1ONS O4 THE BUREAU O4
1NTERNAL REVENUE
21
1. Re". A#t No. 1;057 the B%-H De"o!$t! Se#(e#' L%w
"(oh$*$t! $-D$(' $-to *%-H )e"o!$t!. A! e.#e"t$o-! to Re". A#t
No. 1;057 the Co,,$!!$o-e( o+ 1-te(-%& Re/e-e $! o-&'
%tho($Be) to $-D$(e $-to the *%-H )e"o!$t! o+:
a$ a decedent to determine his 3ross estateG and
b$ any taxpayer !ho has filed an application for
compromise of his tax liability by reason of financial incapacity to pay
his tax liability$ FSec$ - ?C>, N10C of 199,H
c$ = taxpayer !ho authori#es the Commissioner to in"uire
into his ban& deposits$
2. P("o!e o+ the N1RC o+ 199=. Re/e-e 8e-e(%t$o-
h%! -)o*te)&' *ee- % ,%?o( #o-!$)e(%t$o- $- the "%!!%8e o+
the T%. Co)e. ?Commissioner of Internal &evenue v. -ortune
*o%acco Corporation, <$ 0$ Nos$ 1@,2,AJ,-, Iuly 21, 200+>

:. P("o!e o+ !h$+t +(o, %) /%&o(e, !'!te, to !"e#$+$#
t%. !'!te, $- t%.%t$o- o+ #$8%(ette!. The shift from the a"
valorem system to the specific tax system is li&e!ise meant to
promote fair competition amon3 the players in the industries
concerned, to ensure an e"uitable distribution of the tax burden and
to simplify tax administration by classifyin3 ci3arettes, amon3
others, into hi3h, medium and lo!Jpriced based on their net retail
price and accordin3ly 3raduatin3 tax rates$ ?Commissioner of
Internal &evenue v. -ortune *o%acco Corporation, <$ 0$ Nos$
1@,2,AJ,-, Iuly 21, 200+ citin3 0ecord of the Senate, pp$ 22AJ22->
TA6 ON 1NCOME
1. The T%. Co)e h%! $-#&)e) -)e( the te(,
#o("o(%t$o- "%(t-e(!h$"!7 -o ,%tte( how #(e%te) or or3ani#ed,
BointJstoc& companies, Boint accounts ?cuentas en participacion>,
associations, or insurance companies$ FSec$ 2A no! Sec$ 2A ?(> of
the N10C of 199,H
2. 1n /van#elista v. Collector, ;?< Phil. ;>?, the Supreme
Court held citin3 Mertens that the te(, "%(t-e(!h$" $-#&)e! a
syndicate, 3roup, pool, Boint enture or other unincorporated
or3ani#ation, throu3h or by means of !hich any business, financial
operation, or enture is carried on$
:$ Ce(t%$- *!$-e!! o(8%-$B%t$o-! )o -ot +%&& -)e( the
#%te8o(' o+ #o("o(%t$o-! -)e( the T%. Co)e, and therefore not
subBect to tax as corporations, include5
a$ <eneral professional partnershipsG
b$ Ioint enture or consortium formed for the purpose of
underta&in3 construction proBects en3a3in3 in petroleum, coal,
3eothermal, and other ener3y operations, pursuant to an operation or
consortium a3reement under a serice contract !ith the <oernment$
F1
st
sentence, Sec$ 22 ?(>, (10C of 199,H
;. CoFhe$(! who ow- $-he($te) "(o"e(t$e! wh$#h
"(o)#e $-#o,e !ho&) -ot %to,%t$#%&&' *e #o-!$)e(e) %!
"%(t-e(! o+ %- -(e8$!te(e) #o("o(%t$o- !*?e#t to $-#o,e t%.
+o( the +o&&ow$-8 (e%!o-!:
a$ The sharin3 of 3ross returns does not of itself establish a
partnership, !hether or not the persons sharin3 them hae a Boint or
common ri3ht or interest in any property from !hich the returns are
deried$ There must be an unmista&able intention to form a
partnership or Boint enture. (3%illos, 2r. v. Commissioner of Internal
&evenue, 1'9 SC0= A'@>
b$ There is no contribution or inestment of additional
capital to increase or expand the inherited properties, merely
continuin3 the dedication of the property to the use to !hich it had
been put by their forebears$ ?I%i".>
c$ 9ersons !ho contribute property or funds to a common
enterprise and a3ree to share the 3ross returns of that enterprise in
proportion to their contribution, but !ho seerally retain the title to
their respectie contribution, are not thereby rendered partners$ They
hae no common stoc& capital, and no community of interest as
principal proprietors in the business itself from !hich the proceeds
!ere deried$ ?)lements of the 4a! of 9artnership by Cloyd 0$
Mechem, 2
nd
)d$, Sec$ +', p$ ,A cited in Pascual v. Commissioner of
Internal &evenue, 1@@ SC0= -@0>
5. The #o,,o- ow-e(!h$" o+ "(o"e(t' )oe! -ot $t!e&+
#(e%te % "%(t-e(!h$" *etwee- the ow-e(!, thou3h they may use it
for purpose of ma&in3 3ains, and they may, !ithout becomin3
partners, are amon3 themseles as to the mana3ement and use of
such property and the application of the proceeds therefrom$$
?Spurloc4 v,. Kilson, 1A2 S$W$ '@', 1@0 !o. App. ;>, cited in Pascual
v. Commissioner of Internal &evenue, 1@@ SC0= -@0>
<. The $-#o,e +(o, the (e-t%& o+ the ho!e7 *o8ht
+(o, the e%(-$-8! o+ #oFow-e) "(o"e(t$e!7 !h%&& *e t(e%te) %!
the $-#o,e o+ %- -(e8$!te(e) "%(t-e(!h$" to be taxable as a
corporation because of the clear intention of the brothers to Boin
to3ether in a enture for ma&in3 money out of rentals$
22
=. 1-#o,e is 3ain deried and seered from capital, from
labor or from both combined$ Cor example, to tax a stoc& diidend
!ould be to tax a capital increase rather than the income$
(Commissioner of Internal &evenue v. Court of Appeals, et al., (.&.
!o. ;?BH=C, 2anuary <?, ;III'
>. The term t%.%*&e $-#o,e means the pertinent items of
3ross income specified in the Tax Code, less the deductions and7or
personal and additional exemptions, if any, authori#ed for such types
of income by the Tax Code or other special la!s$ ?Sec$ '1, N10C of
199,>
9. The #%-#e&&%t$o- %-) +o(8$/e-e!! o+ $-)e*te)-e!!
may amount to ?a> payment of incomeG ?b> 3iftG or to a ?c> capital
transaction dependin3 upon the circumstances$
10. 1f an indiidual performs serices for a creditor !ho, in
consideration thereof, cancels the debt, it is income to the extent of
the amount reali#ed by the debtor as compensation for his serices$
11. =n insolent debtor does not reali#e taxable income
from the cancellation or for3ieness$ (Commissioner v. Simmons (in
Co., A' Cd '2, CC= 10
th
>
12. The insolent debtor reali#es income resultin3 from the
cancellation or for3ieness of indebtedness !hen he becomes
solent$ (La4elan" (rocery Co., v. Commissioner '@ (T= ?C> 2+9>
1:. 1f a creditor merely desires to benefit a debtor and
!ithout any consideration therefor cancels the amount of the debt it is
a 3ift from the creditor to the debtor and need not be included in the
latter%s income$
1;. 1f a corporation to !hich a stoc&holder is indebted
for3ies the debt, the transaction has the effect of payment of a
diidend$ ?Sec$ -0, 0e$ 0e3s$ No$ 2>
15. The 2&o*%& !'!te, o+ $-#o,e t%.%t$o- is a system
employed !here the tax system ie!s indifferently the tax base and
3enerally treats in common all cate3ories of taxable income of the
indiidual$ (*an v. "el &osario, 2r., 2', SC0= '2A, ''1>
1<. The S#he)&%( !'!te, o+ $-#o,e t%.%t$o- is a system
employed !here the income tax treatment aries and is made to
depend on the &ind or cate3ory of taxable income of the taxpayer$
(*an v. "el &osario, 2r., <A= SC&A A<>, AA;'
1=. 8nder the National 1nternal 0eenue Code the 3lobal
system is applicable to taxable corporations and the schedular to
indiiduals$
1>. 0h%t %(e 8e-e(%& "($-#$"&e! o+ $-#o,e
t%.%t$o- $- the Ph$&$""$-e! OR the !$t! o+ $-#o,e t%.%t$o-
$- the Ph$&$""$-e! OR the !o(#e (&e o+ $-#o,e t%.%t$o- %!
%""&$e) $- the Ph$&$""$-e! 9
S8<<)ST). =NSW)05
a$ = citi#en of the 9hilippines residin3 therein is taxable on
all income deried from sources !ithin and !ithout the 9hilippines$
b$ = nonresident citi#en is taxable only on income deried
from sources !ithin the 9hilippines$
c$ =n indiidual citi#en of the 9hilippines !ho is !or&in3
and deriin3 income from abroad as an oerseas contract !or&er is
taxable only on income from sources !ithin the 9hilippines5 9roided,
That a seaman !ho is a citi#en of the 9hilippines and !ho receies
compensation for serices rendered abroad as a member of the
complement of a essel en3a3ed exclusiely in international trade
shall be treated as an oerseas contract !or&er$
d$ =n alien indiidual, !hether resident or not of the
9hilippines, is taxable only on income deried from sources !ithin the
9hilippines$
e$ = domestic corporation is taxable on all income deried
from sources !ithin and !ithout the 9hilippines$
f$ = forei3n corporation, !hether en3a3ed or not in trade or
business in the 9hilippines, is taxable only on income deried from
sources !ithin the 9hilippines$ ?Sec$ 2', N10C of 199,>
19. Co,"e-!%t$o- $-#o,e $! #o-!$)e(e) %! h%/$-8 *ee-
e%(-e) $- the "&%#e whe(e the !e(/$#e w%! (e-)e(e) and not
considered as sourced from the place of ori3in of the money$
20. P%',e-t +o( !e(/$#e!7 othe( th%- #o,"e-!%t$o-
$-#o,e7 $! #o-!$)e(e) %! h%/$-8 *ee- e%(-e) %t the "&%#e whe(e
the %#t$/$t' o( !e(/$#e w%! "e(+o(,e).
21. = nonJresident alien, !ho has stayed in the 9hilippines
for an a33re3ate period of more than 1+0 days durin3 any calendar
year, shall be considered as a nonJresident alien doin3 business in
the 9hilippines$ Conse"uently, he shall be subBect to income tax on
his income deried from sources from !ithin the 9hilippines$ FSec$ 2-
?=> ?1>, N10CH
23
:e is allo!ed to aail of the itemi#ed deductions includin3 the
personal and additional exemptions subBect to the rule on reciprocity$
22. 0h%t %(e #o-!$)e(e) %! de #ini#is
*e-e+$t! -ot !*?e#t to w$thho&)$-8 t%. o- #o,"e-!%t$o-
$-#o,e o+ *oth ,%-%8e($%& %-) (%-H %-) +$&e e,"&o'ee! 9
S8<<)ST). =NSW)05
a$ Moneti#ed unused acation leae credits of employees
not exceedin3 ten ?10> days durin3 the yearG
b$ Medical cash allo!ance to dependents of employees not
exceedin3 9,-0$00 per employee per semester or 912- per monthG
c$ 0ice subsidy of 91,000$00 or one ?1> sac& of -0J&3$ rice
per month amountin3 to not more than 91,000$00G
d$ 8niforms and clothin3 allo!ance not exceedin3 9',000$00
per annumG
e$ =ctual yearly medical benefits not exceedin3 910,000$00
per annumG
f$ 4aundry allo!ance not exceedin3 9'00 per monthG
3$ )mployees achieement a!ards, e$3$ for len3th of
serice or safety achieement, !hich must be in the form of a
tan3ible persona property other than cash or 3ift certificate, !ith an
annual monetary alue not exceedin3 910,000$00 receied by an
employee under an established !ritten plan !hich does not
discriminate in faor of hi3hly paid employeesG
h$ <ifts 3ien durin3 Christmas and maBor anniersary
celebrations not exceedin3 9-,000 per employee per annumG
i$ Clo!ers, fruits, boo&s, or similar items 3ien to
employees under special circumstances, e$3$ on account of illness,
marria3e, birth of a baby, etc$G and
B$ .aily meal allo!ance for oertime !or& not exceedin3
t!enty fie percent ?2-6> of the basic minimum !a3e$
The amount of "e minimis benefits conformin3 to the ceilin3
herein prescribed shall not be considered in determinin3 the 9'0,000
ceilin3 of Dother benefitsE proided under Section '2 ?(>?,>?e> of the
Code$ :o!eer, if the employer pays more than the ceilin3
prescribed by these re3ulations, the excess shall be taxable to the
employee receiin3 the benefits only if such excess is beyond the
9'0,000$00 ceilin3, proided, further, that any amount 3ien by the
employer as benefits to its employees, !hether classified as "e
minimis benefits or frin3e benefits, shall constitute as deductible
expense upon such employer$ FSec$ 2$,+$1 ?=> ?'>, 0e$ 0e3s$ 2J9+
as amended by 0e$ 0e3s$ No$ +J2000H
2:. 1-#o,e !*?e#t to +$-%& t%. (e+e(! to %- $-#o,e
#o&&e#te) th(o8h the w$thho&)$-8 t%. !'!te,. The payor of the
income !ithholds the tax and remits it to the 3oernment as a final
settlement of the income tax as a final settlement of the income tax
due on said income$ The recipient is no lon3er re"uired to include the
income subBected to a final tax as part of his 3ross income in his
income tax return$
2;. D$!t$-8$!h e.#&!$o-! +(o, )e)#t$o-!.
S8<<)ST). =NSW)05
a$ )xclusions from 3ross income refer to a flo! of !ealth to
the taxpayer !hich are not treated as part of 3ross income for
purposes of computin3 the taxpayer%s taxable income, due to the
follo!in3 reasons5 ?1> 1t is exempted by the fundamental la!G ?2> 1t
is exempted by statuteG and ?'> 1t does not come !ithin the definition
of income ?Sec$ @1, 0e$ 0e3s$ No$ 2> W:14) deductions are the
amounts !hich the la! allo!s to be subtracted from 3ross income in
order to arrie at net income$
b$ )xclusions pertain to the computation of 3ross income
W:14) deductions pertain to the computation of net income$
c$ )xclusions are somethin3 receied or earned by the
taxpayer !hich do not form part of 3ross income W:14) deductions
are somethin3 spent or paid in earnin3 3ross income$
=n example of an exclusion from 3ross income are life
insurance proceeds, and an example of a deduction are losses$
25. 0h%t %(e e.#&)e) +(o, 8(o!! $-#o,e 9
S8<<)ST). =NSW)05
a$ 9roceeds of life insurance policies paid to the heirs or
beneficiaries upon the death of the insured !hether in a sin3le sum or
other!ise$
b$ =mounts receied by the insured as a return of
premiums paid by him under life insurance, endo!ment or annuity
contracts either durin3 the term, or at maturity of the term mentioned
in the contract, or upon surrender of the contract$
c$ *alue of property ac"uired by 3ift, be"uest, deise, or
descent$
d$ =mounts receied, throu3h accident or health insurance or
Wor&men%s Compensation =cts as compensation for personal inBuries
or sic&ness, plus the amounts of any dama3es receied on !hether
by suit or a3reement on account of such inBuries or sic&ness$
e$ 1ncome of any &ind to the extent re"uired by any treaty
obli3ation bindin3 upon the <oernment of the 9hilippines$
f$ 0etirement benefits receied under 0epublic =ct No$
,@A1$ 0etirement receied from reasonable priate benefit plan after
compliance !ith certain conditions$ =mounts receied for beyond
24
control separation$ Corei3n social security, retirement 3ratuities,
pensions, etc$ 8S*= benefits, SSS benefits and <S1S benefits$
2<. 0h%t %(e the #o-)$t$o-! +o( e.#&)$-8
(et$(e,e-t *e-e+$t! +(o, 8(o!! $-#o,e7 he-#e t%.Fe.e,"t 9
S8<<)ST). =NSW)05
a$ 0etirement benefits receied under 0epublic =ct No$
,@A1 and those receied by officials and employees of priate firms,
!hether indiidual or corporate, in accordance !ith the employer%s
reasonable priate benefit plan approed by the (10$
b$ 0etirin3 official or employee
1> 1n the serice of the same employer for at least
ten ?10> yearsG
2> Not less than fifty ?-0> years of a3e at time of
retirementG
'> =ailed of the benefit of exclusion only once$
FSec$ '2 ?(> ?@> ?a>, N10C of 199,H The retirin3 official or
employee should not hae preiously aailed of the priile3e
under the retirement plan of the same or another employer$ F1
st
par$, Sec$ 2$,+ ?(> ?1>, 0e$ 0e3s$ No$ 2J9+H
2=. 0h%t H$-) o+ !e"%(%t$o- @(et$(e,e-tA "%' $!
e.#&)e) +(o, 8(o!! $-#o,e7 he-#e t%.Fe.e,"t 9
S8<<)ST). =NSW)05
a$ =ny amount receied by an official, employee or by his
heirs,
b$ Crom the employer
c$ =s a conse"uence of separation of such official or
employee from the serice of the employer because of
1> .eath, sic&ness or other physical disabilityG or
2> Cor any cause beyond the control of said official
or employee FSec$ '2 ?(> ?@> ?b>, N10C of 199,H, such as
retrenchment, redundancy and cessation of business$ F1
st
par$, Sec$ 2$,+ ?(>, ?1> ?b>, 0e$ 0e3s$ No$ 2J9+H
2>. 0h%t %(e the 1te,$Be) )e)#t$o-! +(o, 8(o!!
$-#o,e %-) who ,%' %/%$& o+ the, 9
a$ O()$-%(' %-) -e#e!!%(' trade, business or professional
e."e-!e!$
b$ The amount of $-te(e!t paid or incurred !ithin a taxable
year on indebtedness in connection !ith the taxpayer%s profession,
trade or business$
0esident citi#ens, resident alien indiiduals and nonresident
alien indiiduals !ho are en3a3ed in trade and business, on their
3ross incomes other from compensation income are allo!ed to deduct
these expenses$ .omestic corporations, estates and trusts may also
deduct this expense$ Nonresident citi#ens and forei3n corporations on
their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
c$ T%.e! paid or incurred !ithin the taxable year in
connection !ith the taxpayer%s profession$
0esident citi#ens, resident alien indiiduals and nonresident
alien indiiduals !ho are en3a3ed in trade and business, on their
3ross incomes other from compensation income are allo!ed to deduct
these expenses$ .omestic corporations, estates and trusts may also
deduct this expense$ Nonresident citi#ens and forei3n corporations on
their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
d$ /rdinary &o!!e!, losses from casualty, theft or
embe##lementG and net operatin3 losses$
0esident citi#ens, resident alien indiiduals and nonresident
alien indiiduals !ho are en3a3ed in trade and business, on their
3ross incomes other from compensation income are allo!ed to deduct
these expenses$ .omestic corporations, estates and trusts may also
deduct this expense$ Nonresident citi#ens and forei3n corporations on
their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
e$ B%) )e*t! due to the taxpayer, actually
ascertained to be !orthless and char3ed off !ithin the taxable year,
connected !ith profession, trade or business, not sustained bet!een
related parties$
0esident citi#ens, resident alien indiiduals and nonresident
alien indiiduals !ho are en3a3ed in trade and business, on their
3ross incomes other from compensation income are allo!ed to deduct
these expenses$ .omestic corporations, estates and trusts may also
deduct this expense$ Nonresident citi#ens and forei3n corporations on
their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
f$ De"(e#$%t$o- or a reasonable allo!ance for the
exhaustion, !ear and tear ?includin3 reasonable allo!ance for
obsolescence> of property used in trade or business$
0esident citi#ens, resident alien indiiduals and nonresident
alien indiiduals !ho are en3a3ed in trade and business, on their
3ross incomes other from compensation income are allo!ed to deduct
these expenses$ .omestic corporations, estates and trusts may also
25
deduct this expense$ Nonresident citi#ens and forei3n corporations on
their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
3$ De"&et$o- or deduction arisin3 from the exhaustion of a
nonJreplaceable asset, usually a natural resource$
0esident citi#ens, resident alien indiiduals and nonresident
alien indiiduals !ho are en3a3ed in trade and business, on their
3ross incomes other from compensation income are allo!ed to deduct
these expenses$ .omestic corporations, estates and trusts may also
deduct this expense$ Nonresident citi#ens and forei3n corporations on
their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
h$ Ch%($t%*&e and other #o-t($*t$o-!$ 0esident
citi#ens, resident alien indiiduals and nonresident alien indiiduals
!ho are en3a3ed in trade and business, on their 3ross incomes other
from compensation income are allo!ed to deduct these expenses$
.omestic corporations, estates and trusts may also deduct this
expense$ Nonresident citi#ens and forei3n corporations on their 3ross
incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
i$ Re!e%(#h %-) )e/e&o",e-t expenditures treated as
deferred expenses paid or incurred by the taxpayer in connection !ith
his trade, business or profession, not deducted as expenses and
char3eable to capital account but not char3eable to property of a
character !hich is subBect to depreciation or depletion$
0esident citi#ens, resident alien indiiduals and nonresident
alien indiiduals !ho are en3a3ed in trade and business, on their
3ross incomes other from compensation income are allo!ed to deduct
these expenses$ .omestic corporations, estates and trusts may also
deduct this expense$ Nonresident citi#ens and forei3n corporations on
their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
B$ Co-t($*t$o-! to "e-!$o- t(!t!$ 0esident citi#ens,
resident alien indiiduals and nonresident alien indiiduals !ho are
en3a3ed in trade and business, on their 3ross incomes other from
compensation income are allo!ed to deduct these expenses$
.omestic corporations, estates and trusts may also deduct this
expense$ Nonresident citi#ens and forei3n corporations on their 3ross
incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
&$ 1-!(%-#e "(e,$,! for health and hospitali#ation$
0esident citi#ens, resident alien indiiduals and nonresident alien
indiiduals !ho are en3a3ed in trade and business, on their 3ross
incomes other from compensation income are allo!ed to deduct
these expenses$ Nonresident citi#ens and nonresident alien indiidual
en3a3ed in trade or business in the 9hilippine on their 3ross incomes
from !ithin may also deduct these premiums$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct these premiums$
l$ Pe(!o-%& %-) %))$t$o-%& e.e,"t$o-!$ 0esident citi#ens,
and resident alien on their 3ross incomes and from compensation
income are allo!ed to deduct these premiums$ Nonresident citi#ens
on their 3ross incomes from !ithin may also deduct this expense$
Nonresident alien indiiduals en3a3ed in trade or business in the
9hilippines are allo!ed to deduct these exemptions under reciprocity$
Nonresident alien indiiduals not en3a3ed in trade or
business in the 9hilippines are not allo!ed to deduct this expense$
29. D$!t$-8$!h o()$-%(' e."e-!e! +(o, #%"$t%&
e."e-)$t(e!.
S8<<)ST). =NSW)05 /rdinary expenses are those
!hich are common to incur in the trade or business of the taxpayer
W:14) capital expenditures are those incurred to improe assets and
benefits for more than one taxable year$ /rdinary expenses are
usually incurred durin3 a taxable year and benefits such taxable year$
Necessary expenses are those !hich are appropriate or helpful to the
business$
:0. 0h%t %(e the (eD$!$te! +o( the
)e)#t$*$&$t' o+ *!$-e!! e."e-!e! 9
S8<<)ST). =NSW)05 The follo!in3 are the re"uisites for
deductibility of business expenses5
a$ Compliance !ith the business test5
1> Must be ordinary and necessaryG
2> Must be paid or incurred !ithin the taxable
yearG
'> Must be paid or incurred in carryin3 on a
trade or business$
A> Must not be bribes, &ic&bac&s or other ille3al
expenditures
b$ Compliance !ith the substantiation test$ 9roof by eidence
or records of the deductions allo!ed by la! includin3 compliance !ith
the business test$
26
:1. 0h%t %(e the (eD$!$te! +o( the
)e)#t$*$&$t' o+ o()$-%(' %-) -e#e!!%(' t(%)e7 *!$-e!!7 o(
"(o+e!!$o-%& e."e-!e!7 &$He e."e-!e! "%$) +o( &e8%& %-)
%)$t$-8 !e(/$#e! 9
S8<<)ST). =NSW)05
a$ the expense must be ordinary and necessaryG
b$ it must hae been paid or incurred durin3 the taxable
year dependent upon the method of accountin3 upon the basis of
!hich the net income is computed$
c$ it must be supported by receipts, records or other
pertinent papers$ ?Commissioner of Internal &evenue v, Isa%ela
cultural Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,>
:2. TM2 Co("o(%t$o- $! $!!$-8 the %##(%&
,etho) o+ %##o-t$-8. 1- 2005 65G L%w 4$(, %-) ABC
A)$t$-8 4$(, (e-)e(e) /%($o! !e(/$#e! wh$#h we(e *$&&e)
*' the!e +$(,! o-&' )($-8 the +o&&ow$-8 'e%( 200<. S$-#e
the *$&&! +o( &e8%& %-) %)$t$-8 !e(/$#e! we(e (e#e$/e) o-&'
$- 200< %-) "%$) $- the !%,e 'e%(7 TM2 )e)#te) the !%,e
+(o, $t! 200< 8(o!! $-#o,e. The B1R )$!%&&owe) the
)e)#t$o- 9
0ho $! #o((e#t7 TM2 o( B1R 9 E."&%$-.
S8<<)ST). =NSW)05 The (10 is correct$ TM< should
hae deducted the professional and le3al fees in the year they !ere
incurred in 200- and not in 200@ because at the time the serices
!ere rendered in 200-, there !as already an obli3ation to pay them$
?Commissioner of Internal &evenue v, Isa%ela Cultural Corporation, <$
0$ No$ 1,22'1, Cebruary 12, 200,>
N/T)S =N. C/MM)NTS5
a$ A##o-t$-8 ,etho)! for tax purposes comprise a set
of rules for determinin3 !hen and ho! to report income and
deductions$ ?Commissioner of Internal &evenue v, Isa%ela cultural
Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,>
The t!o ?2> principal accountin3 methods for reco3nition of
income are the ?a> accrual methodG and the ?b> cash method$
b$ Re#o8-$t$o- o+ $-#o,e %-) e."e-!e! -)e( the
%##(%& ,etho) o+ %##o-t$-8. =mounts of income accrue !here
the ri3ht to receie them becomes fixed, !here there is created an
enforceable liability$ 4iabilities, are incurred !hen fixed and
determinable in nature !ithout re3ard to indeterminacy merely of time
of payment$$ ?Commissioner of Internal &evenue v, Isa%ela cultural
Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,>
The accrual of income and expense is permitted !hen the allJ
eents test has been met$ ?I%i".>
c$ A&&Fe/e-t! te!t. This test re"uires5
1> fixin3 of a ri3ht to income or liability to payG and
2> the aailability of the reasonable accurate
determination of such income or liability$
The test does not demand that the amount of such income or
liability be &no!n absolutely, only that a taxpayer has at his disposal
the information necessary to compute the amount !ith reasonable
accuracy$
The allJeents test is satisfied !here computation remains
uncertainG if its basis is unchan3eable, the test is satisfied !here a
computation may be un&no!n, but is not as much as un&no!able,
!ithin the taxable year$ The amount of liability does not hae to be
determined exactly,G it must be determined !ith Dreasonable
accuracyE implies somethin3 less than an exact or completely
accurate amount$
The propriety of an accrual must be Bud3ed by the fact that a
taxpayer &ne!, or could reasonably be expected to hae &no!n, at
the closin3 of its boo&s for the taxable year$ =ccrual method of
accountin3 presents lar3ely a "uestion of factG such that the taxpayer
bears the burden of proof of establishin3 the accrual of an item of
income or deduction$ ?Commissioner of Internal &evenue v, Isa%ela
cultural Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,>
d$ 8nder the #%!h ,etho) income is to be construed as
income for tax purposes only upon actual receipt of the cash
payment$ 1t is also referred to as the Dcash receipts and
disbursements methodE because both the receipt and disbursements
are considered$ Thus, income is reco3ni#ed only upon actual receipt
of the cash payment but no deductions are allo!ed from the cash
income unless actually disbursed throu3h an actual payment in cash$
::. The +($-8e *e-e+$t! t%. is a final !ithholdin3 tax
imposed on the 3rossedJup monetary alue of frin3e benefits
furnished, 3ranted or paid by the employer to the employee, except
ran& and file employees$ F1
st
par$, Sec$ 2$'' ?=>, 0e$ 0e3s$ No$ 'J9+H
:;. 0h%t $! ,e%-t *' +($-8e *e-e+$t +o( "("o!e!
o+ t%.%t$o- 9
S8<<)ST). =NSW)05 Cor purposes of taxation, frin3e
benefit means any 3ood, serice, or other benefit furnished or 3ranted
in cash or in &ind by an employer to an indiidual employee ?except
ran& and file employees>, such as but not limited to5
a$ :ousin3G
b$ )xpense accountG
c$ *ehicle of any &indG
d$ :ousehold personnel, such as maid, drier and othersG
27
e$ 1nterest on loan at less than mar&et rate to the extent of
the difference bet!een the mar&et rate and actual rate 3rantedG
f$ Membership fees, dues and other expenses borne by the
employer for the employee in social and athletic clubs or other similar
or3ani#ationsG
3$ )xpenses for forei3n traelG
h$ :oliday and acation expensesG
i$ )ducational assistance to the employee or his
dependentsG and
B$ 4ife or health insurance and other nonJlife insurance
premiums or similar amounts in excess of !hat the la! allo!s$ FSec$
'' ?(>, N10C of 199,G 1
st
par$, Sec$ 2$'' ?(>, 0e$ 0e3s$ No$ 'J9+H
:5. 4($-8e *e-e+$t! th%t %(e -ot !*?e#t to the +($-8e
*e-e+$t! t%.:
a$ When the frin3e benefit is re"uired by the nature of, or
necessary to the trade, business or profession of the employerG or
b$ When the frin3e benefit is for the conenience or
adanta3e of the employer$ FSec$ '2?=>, N10C of 199,G 1
st
par$, Sec$
2$'' ?=>, 0e$ 0e3s$ No$ 'J9+H
c$ Crin3e benefits !hich are authori#ed and exempted from
income tax under the Tax Code or under any special la!G
d$ Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitali#ation benefit plansG
e$ (enefits 3ien to the ran& and file employees, !hether
3ranted under a collectie bar3ainin3 a3reement or notG and
f$ .e minimis benefits as defined in the rules and
re3ulations to be promul3ated by the Secretary of Cinance upon
recommendation of the Commissioner of 1nternal 0eenue$ F1
st
par$,
Sec$ '2 ?C>, N10C of 199,G Sec$ 2$'' ?C>, 0e$ 0e3s$ No$ 'J9+H
:<. 'e #ini#is *e-e+$t! %(e +%#$&$t$e! %-)
"($/$&e8e! ?such as entertainment, medical serices, or soJcalled
Dcourtesy discountsE on purchases>, furnished or offered by an
employer to his employees$ They are not considered as
compensation subBect to income tax and conse"uently to !ithholdin3
tax, if such facilities are offered or furnished by the employer merely
as a means of promotin3 the health, 3ood!ill, contentment, or
efficiency of his employees$ FSec$ 2$,+,1 ?=> ?'>, 0e$ 0e3s$ 2J9+ as
amended by 0e$ 0e3s$ No$ +J2000H
:=. P(e+e((e) !h%(e! %(e #o-!$)e(e) #%"$t%& (e8%()&e!! o+
the #o-)$t$o-! -)e( wh$#h !#h !h%(e! %(e $!!e) %-)
)$/$)e-)! o( $-te(e!t! "%$) the(eo- %(e -ot %&&owe) %!
)e)#t$o-! +(o, the 8(o!! $-#o,e o+ #o("o(%t$o-!$ ?0eenue
Memorandum Circular No$ 1,J,1>
:>. B%) )e*t! are those !hich result from the !orthlessness
or uncollectibility, in !hole or in part, of amounts due the taxpayer by
others, arisin3 from money lent or from uncollectible amounts of
income from 3oods sold or serices rendered$ ?Sec$ 2$a, 0e$ 0e3s$
-J99>
:9. 0ho %(e (e&%te) "%(t$e! 9
S8<<)ST). =NSW)05 The follo!in3 are related parties:
a$ Members of the same family$ The family of an
indiidual shall include only his brothers and sisters ?!hether by the
!hole or halfJblood>, spouse, ancestors, and lineal descendantsG
b$ =n indiidual and a corporation more than fifty percent
?-06> in alue of the outstandin3 stoc& of !hich is o!ned, directly or
indirectly, by or for such indiidualG
c$ T!o corporations more than fifty percent ?-06> in alue
of the outstandin3 stoc& of !hich is o!ned, directly or indirectly, by or
for the same indiidualG
d$ = 3rantor and a fiduciary of any trustG or
e$ The fiduciary of a trust and the fiduciary of another trust
if the same person is a 3rantor !ith respect to each trustG or
f$ = fiduciary of a trust and a beneficiary of such$ FSec$ '@
?(>, N10C of 199,H
;0$ 0h%t %(e the (eD$!$te! +o( /%&$) )e)#t$o- o+
*%) )e*t! +(o, 8(o!! $-#o,e 9
S8<<)ST). =NSW)05
a$ There must be an existin3 indebtedness due to the taxpayer
!hich must be alid and le3ally demandableG
b$ The same must be connected !ith the taxpayer%s trade,
business or practice of professionG
c$ The same must not be sustained in a transaction entered
into bet!een related partiesG
d$ The same must be actually char3ed off the boo&s of
accounts of the taxpayer as of the end of the taxable yearG and
e$ The debt must be actually ascertained to be !orthless
and uncollectible durin3 the taxable yearG
f$ The debts are uncollectible despite dili3ent effort exerted by
the taxpayer$ FSec$ 'A ?)> ?1>, N10C of 199,G Sec$ ', 0e$ 0e3s$ No$
-J99 reiterated in 0e$ 0e3s$ No$ 2-J2002G Philippine &efinin#
Corporation v. Court of Appeals, et al., <HC SC&A CC=H
3$ Must hae been reported as receiables in the income tax
return of the current or prior years$ ?Sec$ 10', 0e$ 0e3s$ No$ 2>
5
;1. 0h%t $! the t%. *e-e+$t (&e 9
28
S8<<)ST). =NSW)05 The Dtax benefit ruleE posits that the
recoery of bad debts preiously allo!ed as deduction in the
precedin3 year or years shall be included as part of the taxpayer%s
3ross income in the year of such recoery to the extent of the income
tax benefit of said deduction$
;2. 1f in the year the taxpayer claimed deduction of bad
debts !rittenJoff, he reali#ed a reduction of the income tax due from
him on account of the said deduction, his subse"uent recoery thereof
from his debtor shall be treated as a receipt of reali#ed taxable
income$ ?Sec$ A, 0e$ 0e3s$ -J99>
;:. 1f the said taxpayer did not benefit from the deduction of
the said bad debt !rittenJoff because it did not result to any reduction
of his income tax in the year of such deduction ?i$e$ !here the result of
his business operation !as a net loss een !ithout deduction of the
bad debts !rittenJoff>, then his subse"uent recoery thereof shall be
treated as a mere recoery or a return of capital, hence, not treated
as receipt of reali#ed taxable income$ ?Sec$ A, 0e$ 0e3s$ -J99>
;;. De"(e#$%t$o- is the 3radual diminution in the useful
alue of tan3ible property resultin3 from ordinary !ear and tear and
from normal obsolescence$ The term is also applied to amorti#ation
of the alue of intan3ible assets the use of !hich in the trade or
business is definitely limited in duration$
;5. The ,etho)! o+ )e"(e#$%t$o- %(e the +o&&ow$-8:
a$ Strai3ht line methodG
b$ .eclinin3 balance methodG
c$ Sum of years di3its methodG and
d$ =ny other method prescribed by the Secretary of
Cinance upon the recommendation of the Commissioner of 1nternal
0eenue5
1> =pportionment to units of productionG
2> :ours of productie useG
'> 0ealuation methodG and
A> Sin&in3 fund method$
;<. 0h%t %(e "e(!o-%& %-) %))$t$o-%& e.e,"t$o-! 9
S8<<)ST). =NSW)05 These are the theoretical persona,
liin3 and family expenses of an indiidual allo!ed to be deducted
from the 3ross or net income of an indiidual taxpayer$
These are arbitrary amounts !hich hae been calculated by our
la!ma&ers to be rou3hly e"uialent to the minimum of subsistence,
ta&in3 into account the personal status and additional "ualified
dependents of the taxpayer$ They are fixed amounts in the sense that
the amounts hae been predetermined by our la!ma&ers and until our
la!ma&ers ma&e ne! adBustments on these personal exemptions, the
amounts allo!ed to be deducted by a taxpayer are fixed as
predetermined by Con3ress$ FPansacola v. Commissioner of Internal
&evenue, <$ 0$ No$ 1-9991, Noember 1@, 200@ citin3 $a"ri#al an"
Paterno v. &afferty an" Concepcion, '+ 9hil$ A1A, A1+ ?191+>H
;=. C%"$t%& %!!et! shall refer to all real properties held by
a taxpayer, !hether or not connected !ith his trade or business, and
!hich are not included amon3 the real properties considered as
ordinary assets$ ?Sec$ 2$a, 0e$ 0e3s$ No$ ,J200'>
The term Dcapital assetsE means property held by the taxpayer
?!hether or not connected !ith his trade or business>, (8T ./)S
N/T 1NC48.)5
a$ Stoc& in trade of the taxpayer, or
b$ /ther property of a &ind !hich !ould properly be included
in the inentory of the taxpayer if on hand at the close of the taxable
year, or
c$ 9roperty held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business, or
d$ 9roperty used in the trade or business, of a character !hich is
subBect to the allo!ance for depreciationG or real property used in the
trade or business of the taxpayer$ FSec$ '9 ?=> ?1>, N10C of 199,,
capitali#ed !ords, numberin3 and arran3ement suppliedG Sec$ 2$a,
0e$ 0e3s$ No$ ,J200'H

;=FA. E.%,"&e! o+ #%"$t%& %!!et!:
a$ Stoc& and securities held by taxpayers other than dealers in
securitiesG
b$ Ie!elry not used for trade and businessG
c$ 0esidential houses and lands o!ned and used as suchG
d$ =utomobiles not used in trade and businessG
e$ 9aintin3s, sculptures, stamp collections, obBects of arts
!hich are not used in trade or businessG
f$ 1nherited lar3e tracts of a3ricultural land !hich !ere
subdiided pursuant to the 3oernment mandate under land reform,
then sold to tenants$ (&o6as v. Court of *a6 Appeals, etc. L<H?>A,
April <C, ;ICB'
3$ D0eal property used by an exempt corporation in its
exempt operations, such as a corporation included in the enumeration
of Section '0 of the Code, shall not be considered used for business
purposes, and therefore considered as capital asset$E ?last sentence,
'
rd
par$, Sec$ '$b, 0e$ 0e3s$ No$ ,J200'>
h$ D0eal property, !hether sin3le detached, to!nhouse, or
condominium unit, not used in trade or business as eidenced by a
29
certification from the (aran3ay Chairman or from the head of
administration, in case of condominium unit, to!nhouse or apartment,
and as alidated from the existin3 aailable records of the (ureau of
1nternal 0eenue, o!ned by an indiidual en3a3ed in business, shall
be treated as capital asset$E ?last par$, Sec$ '$b$, 0e$ 0e3s$ No$ ,J
200'>
;>. O()$-%(' %!!et! !h%&& (e+e( to %&& (e%& "(o"e(t$e!
!"e#$+$#%&&' e.#&)e) +(o, the )e+$-$t$o- o+ #%"$t%& %!!et!7
namely5
a$ Stoc& in trade of a taxpayer or other real property of a &ind
!hich !ould properly be included in the inentory of a taxpayer if on
hand at the close of the taxable yearG or
b$ 0eal property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or businessG or
c$ 0eal property used in trade or business ?i$e$ buildin3s and7or
improements>, of a character !hich is subBect to the allo!ance for
depreciationG or
d$ 0eal property used in trade or business of the taxpayer$
?Sec$ 2$ b, 0e$ 0e3s$ No$ ,J200'>
;9.$ E.%,"&e! o+ o()$-%(' %!!et! he-#e -ot #%"$t%&
%!!et!:
a$ The machinery and e"uipment of a manufacturin3
concern subBect to depreciationG
b$ The tractors, trailers and truc&s of a haulin3 companyG
c$ The condominium buildin3 o!ned by a realty company the
units of !hich are for rent or for saleG
d$ The !ood, paint, arnish, nails, 3lue, etc$ !hich are the
ra! materials of a furniture factoryG
e$ 1nherited parcels of land of substantial areas located in
the heart of Metro Manila, !hich !ere subdiided into smaller lots
then sold on installment basis after introducin3 comparatiely
aluable improements not for the purpose of simply li"uidatin3 the
estate but to ma&e them more saleable G the employment of an
attorneyJinJfact for the purpose of deelopin3, mana3in3,
administerin3 and sellin3 the lotsG sales made !ith fre"uency and
continuityG annual sales income from the sales !as considerableG and
the heir !as not a stran3er to the real estate business$ (*uazon, 2r.
v. Lin#a", HB SC&A ;=?'
f$ 1nherited a3ricultural property improed by introduction of
3ood roads, concrete 3utters, draina3e and li3htin3 systems conerts
the property to an ordinary asset$ The property forms part of the stoc&
in trade of the o!ner, hence an ordinary asset$ This is so, as the
o!ner is no! en3a3ed in the business of subdiidin3 real estate$
?Calasanz v. Commissioner of Internal &evenue, 1AA SC0= at p$
@,2>
50. T%. t(e%t,e-t o+ (e%& "(o"e(t$e! th%t h%/e *ee-
t(%-!+e((e). 0eal properties classified as capital or ordinary asset
in the hands of the seller7transferor may chan3e their character in the
hands of the buyer7transferee$ The classification of such property in
the hands of the buyer7transferee shall be determined in accordance
!ith the follo!in3 rules5
a$ 0eal property transferred throu3h succession or donation
to the heir or donee !ho is not en3a3ed in the real estate business
!ith respect to the real property inherited or donated, and !ho does
not subse"uently use such property in trade or business, shall be
considered as a capital asset in the hands of the heir or donee$
b$ 0eal property receied as diidend by stoc&holders !ho
are not en3a3ed in the real estate business and !ho not subse"uently
use such real property in trade or business shall be treated as capital
assets in the hands of the recipient een if the corporation !hich
declared the real property diidend is en3a3ed in real estate business$
c$ The real property receied in an exchan3e shall be treated
as ordinary asset in the hands of the transferee in the case of a taxJ
free exchan3e by taxpayer not en3a3ed in real estate business to a
taxpayer !ho is en3a3ed in real estate business, or to a taxpayer !ho,
een if not en3a3ed in real estate business, !ill use in business the
property receied in the exchan3e$ ?Sec$ '$f$, 0e$ 0e3s$ No$ ,J200'>
51. The t%. $! $,"o!e) "o- #%"$t%& 8%$-!
"(e!,e) to h%/e *ee- (e%&$Be) +(o, the !%&e7 e.#h%-8e7
o( othe( )$!"o!$t$o- o+ (e%& "(o"e(t' &o#%te) $- the
Ph$&$""$-e!7 #&%!!$+$e) %! #%"$t%& %!!et!. FSec$ 2A ?.> ?1M>,
N10C of 199,H 0eenue 0e3ulations No$ ,J200' has defined real
property as hain3 Dthe same meanin3 attributed to that term under
=rticle A1- of 0epublic =ct No$ '+@, other!ise &no!n as the UCivil
Co"e of the Philippines.7 ?Sec$ 2$c, 0e$ 0e3s$ No$ ,J200'>
52. T(%-!%#t$o-! #o/e(e) *' the "(e!,e) #%"$t%&
8%$-! t%. o- (e%& "(o"e(t':
a$ sale,
b$ exchan3e,
c$ or other disposition, includin3 pacto "e retro sales and other
forms of conditional sales$ FSec$ 2A ?.> ?1>, N10C of 199,,
numberin3 and arran3ement suppliedH
d$ DSale, exchan3e, or other dispositionE includes ta&in3 by the
3oernment throu3h condemnation proceedin3s$ ((utierrez v. Court
30
of *a6 Appeals, et al., 101 9hil$ ,1'L (onzales v. Court of *a6
Appeals, et al., 121 9hil$ +@1>
5:. 1- #%!e the ,o(t8%8o( e.e(#$!e! h$! ($8ht o+
(e)e,"t$o- !ithin one ?1> year from the issuance of the certificate of
sale, in a foreclosure of mort3a3e sale of real property, no capital
3ains tax shall be imposed because no capital 3ains has been deried
by the mort3a3or and no sale or transfer of real property !as reali#ed$
FSec$ ' ?1>, 0e$ 0e3s$ No$ AJ99H
5;. 1- #%!e o+ -o-F(e)e,"t$o- o+ the "(o"e(t' !o&) upon a
foreclosure of mort3a3e sale, the presumed capital 3ains tax shall be
imposed, based on the bid price of the hi3hest bidder but only upon
the expiration of the one year period of redemption proided for under
Sec$ @ of =ct No$ '1'-, as amended by =ct No$ A11+, and shall be
paid !ithin thirty ?'0> days from the expiration of the said oneJyear
redemption period$ FSec$ ' ?2>, 0e$ 0e3s$ No$ AJ99H
55. The *%!$! +o( the +$-%& "(e!,e) #%"$t%& 8%$-!
t%. o+ !$. "e( #e-t @<IA is !hicheer is the hi3her of the
a$ 3ross sellin3 price, or
b$ the current fair mar&et alue as determined belo!5
1> the fair mar&et alue or real properties located in
each #one or area as determined by the Commissioner of
1nternal 0eenue after consultation !ith competent
appraisers both from the priate and public sectorsG or
2> the fair mar&et alue as sho!n in the schedule of
alues of the 9roincial and City =ssessors$ FSec$ 2A ?.> ?1>
in relation to Sec$ @ ?)>, both of the N10C of 199,H
1t does not matter !hether there !as an actual 3ain or loss
because the tax is a DpresumedE capital 3ains tax$ 1t is the transaction
that is taxed not the 3ain$
5<. Ho&)$-8 "e($o) -ot %""&$e) to the taxation of the
presumed capital 3ains deried from the sale of real property
considered as capital assets$
5=. The t%. &$%*$&$t'7 o+ $-)$/$)%& t%."%'e(! @-ot
#o("o(%teA7 $+ %-'7 o- 8%$-! +(o, !%&e! o( othe( )$!"o!$t$o-!
o+ (e%& "(o"e(t'7 #&%!!$+$e) %! #%"$t%& %!!et!7 to the
8o/e(-,e-t or any of its political subdiisions or a3encies or to
3oernment o!ned or controlled corporations shall be determined, at
the option of the taxpayer, by includin3 the proceeds as part of 3ross
income to be subBected to the allo!able deductions and7or personal
and additional exemptions, then to the schedular tax FSec$ 2A ?.> ?1>,
in relation to Sec$ 2A ?=> ?1>, both of the N10C of 199,H or the final
presumed capital 3ains tax of six percent ?@6>$ FSec$ 2A ?.> ?1> in
relation to Sec$ @ ?)>, both of the N10C of 199,H
5>. The !e&&e( o+ the (e%& "(o"e(t'7 #&%!!$+$e) %! % #%"$t%&
%!!et7 "%'! the "(e!,e) #%"$t%& 8%$-! t%. !hether5
a$ an indiidual FSec$ 2A ?.> ?1>, N10C of 199,HG
1> Citi#en, !hether resident or not FI%i".HG
2> 0esident alien FI%i".HG
'> Nonresident alien en3a3ed in trade or business in the
9hilippines FSec$ 2- ?=> ?'> in relation to Sec$ 2A ?.> ?1>, both
of the N10C of 199,HG
A> Nonresident alien not en3a3ed in trade or business
in the 9hilippines FSec$ 2- ?(> in relation to Sec$ 2A ?.> ?1>,
both of the N10C of 199,HG
b$ an estate or trust ?I%i".>G
c$ a domestic corporation$ FSec$ 2, ?.> ?->, N10C of 199,H

59. E.#e"te) +(o, the "%',e-t o+ the "(e!,e)
#%"$t%& 8%$-! t%. %(e tho!e "(e!,e) to h%/e *ee- (e%&$Be)
+(o, the )$!"o!$t$o- *' -%t(%& "e(!o-! o+ the$( "($-#$"%&
"&%#e o+ (e!$)e-#e
a$ the proceeds of !hich is fully utili#ed in ac"uirin3 or
constructin3 a ne! principal residenceG
b$ !ithin ei3hteen ?1+> calendar months from the date of
sale or disposition
c$ the (10 Commissioner shall hae been duly notified by
the taxpayer !ithin thirty ?'0> days from the date of sale or disposition
throu3h a prescribed return of his intention to aail of the tax
exemptionG and
d$ the said tax exemption can only be aailed of once
eery ten ?10> years$ FSec$ 2A ?.> ?2>, N10C of 199,H
<0. A +$-%& w$thho&)$-8 t%. @40TA o+ 20I o- "%!!$/e
$-#o,e $! #o&&e#te) +(o, the $-te(e!t $-#o,e o+ *%-H!. 1t
&$Hew$!e h%! to "%' % 5I 8(o!! (e#e$"t! t%. @2RTA o- 8(o!!
(e#e$"t! wh$#h $-#&)e! the$( "%!!$/e $-#o,e. 65G B%-H -ow
#&%$,! th%t the 2RT !ho&) *e #o,"te) %+te( )e)#t$-8 the
20I "%!!$/e $-#o,e t%. o- the 8(o-) th%t the ,o-$e! o(
(e#e$"t! th%t )o -ot (e)o-) to the *e-e+$t o+ the t%."%'e( %(e
-ot "%(t o+ $t! 8(o!! (e#e$"t!. To $,"o!e the 2RT w$thot
)e)#t$-8 the 20I wo&) *e )o*&e t%.%t$o-. 1t %&!o #o-te-)!
th%t !$-#e the 20I w%! w$thhe&) %t !o(#e %-) $! "%$) )$(e#t&' to
the 8o/e(-,e-t7 the- the *%-H h%! -ot (e#e$/e) the !%,e. Th!7
$t !ho&) -ot *e $-#&)e) $- the 8(o!! (e#e$"t! !*?e#t to t%..
31
Re!o&/e the $!!e o+ whethe( the 20I 40T o- the *%-HE!
"%!!$/e $-#o,e +o(, "%(t o+ the t%.%*&e 8(o!! (e#e$"t! +o( the
"("o!e o+ #o,"t$-8 the 5I 2RT.
S8<<)ST). =NSW)05 No$ The !ord D3rossE must be used
in its plain and ordinary meanin3$ 1t is defined as D!hole, entire, total,
!ithout deduction$E Thus, the 206 should not be deducted for
purposes of computin3 the -6 3ross receipts tax$
0eceipt may either be actual or constructie$ There is prior to
the !ithholdin3 a constructie receipt of the interest, other!ise there
!ould be no interest from !here the 206 tax may be !ithheld from$
There is no double taxation because there are t!o &inds of
taxes, the 206 CWT !hich is an income tax and the -6 <0T !hich
is a percenta3e tax$ ?Commissioner of Internal &evenue v. Citytrust
Investment Phils., Inc., <$ 0$ No$ 1'9,+@, September 2,, 200@ and
companion case>
N/T)S =N. C/MM)NTS5
a$ Co##issioner of (nternal Revenue v. Manila &oc)e!
Club, 10> Ph$&. >21 @19<0A $! )$++e(e-t +(o, Co##issioner of
(nternal Revenue v. Cit!trust (nvest#ent Phils., (nc., 2. R. No.
1:9=><7 Se"te,*e( 2=7 200< %-) #o,"%-$o- #%!e. Manila Ioc&ey
Club paid amusement taxes on its commission in the total amount of
bets called !a3er funds and did not include the -V6 of the fund
!hich !ent to the (oard on 0aces and to the o!ners of horses and
Boc&eys$ The Supreme Court rules that the 3ross receipts of Manila
Ioc&ey Club should not include the -V6 because althou3h deliered
to the Club, such money has been especially earmar&ed by la! or
re3ulation for other persons$
Manila Ioc&ey does not apply because !hat happened there
!as earmar&in3 and not !ithholdin3$ )armar&in3 is not the same as
!ithholdin3$ =mounts earmar&ed do not form part of 3ross receipts
because these are by la! or re3ulation resered for some person
other than the taxpayer, althou3h deliered or receied$ /n the
contrary, amounts !ithheld form part of 3ross receipts because there
are in constructie possession and not subBect to any reseration, the
!ithholdin3 a3ent bein3 merely a conduit in the collection process$
?Commissioner of Internal &evenue v. Citytrust Investment Phils., Inc.,
<$ 0$ No$ 1'9,+@, September 2,, 200@ and companion case>
b$ The(e %(e )$!t$-#t$o-! *etwee- the 20I 40T o-
$-te(e!t $-#o,e %-) the 5I 2RT o- *%-H!. S$-#e the two %(e
)$++e(e-t the(e $! -o )o*&e t%.%t$o-.
1> CWT is an income tax under Title 11 of the Code
?Tax on 1ncome> !hile <0T is a percenta3e tax under Title * of
the Tax Code$
2> 9ercenta3e tax is a national tax measured by a
certain percenta3e of the 3ross sellin3 price or 3ross alue in
money of 3oods sold, bartered or importedG or of the 3ross
receipts or earnin3s deried by any person en3a3ed in the sale
of serices !hile an income tax is a national tax imposed on
the net or 3ross income reali#ed in a taxable year$
'> 1ncome tax is subBect to !ithholdin3 !hile
percenta3e is not$ ?Commissioner of Internal &evenue v.
Citytrust Investment Phils., Inc., <$ 0$ No$ 1'9,+@, September
2,, 200@ and companion case>
<1. MBC w%! $-#o("o(%te) $- 19<1 %-) e-8%8e) $-
#o,,e(#$%& *%-H$-8 o"e(%t$o-! !$-#e 19>=. O- M%' 227 19>=7 $t
#e%!e) o"e(%t$o-! th%t 'e%( *' (e%!o- o+ $-!o&/e-#' %-) $t!
%!!et! %-) &$%*$&$t$e! we(e "&%#e) -)e( the #h%(8e o+ %
8o/e(-,e-tF%""o$-te) (e#e$/e(. O- 3-e 2:7 19997 the BSP
%tho($Be) MBC to o"e(%te %! % th($+t *%-H.
1- 20007 1t +$&e) $t! t%. (et(- +o( the 'e%( 1999 "%'$-8 the
%,o-t o+ P:: ,$&&$o- #o,"te) $- %##o()%-#e w$th the
,$-$,, #o("o(%te $-#o,e t%. @MC1TA. 1t !o8ht the B1RE!
(&$-8 o- whethe( $t $! e-t$t&e) to the +o( @;A 'e%( 8(%#e "e($o)
+o( "%'$-8 o- the *%!$! o+ MC1T (e#Ho-e) +(o, 1999. B1R the-
(&e) th%t #e!!%t$o- o+ *!$-e!! %#t$/$t$e! %! % (e!&t o+ *e$-8
"&%#e) -)e( $-/o&-t%(' (e#e$/e(!h$" ,%' *e %- e#o-o,$#
(e%!o- +o( !!"e-)$-8 the $,"o!$t$o- o+ the MC1T.
A! % (e!&t o+ the (&$-8 MBC +$&e) %- %""&$#%t$o- +o(
(e+-) o+ the P:: ,$&&$o-. De to the B1RE! $-%#t$o-7 MBC +$&e) %
"et$t$o- +o( (e/$ew w$th the CTA.
The CTA )e-$e) the "et$t$o- o- the 8(o-) th%t MBC $!
-ot % -ew&' o(8%-$Be) #o("o(%t$o-. 1- % /o&te +%#$e the B1R -ow
,%$-t%$-! th%t MBC !ho&) "%' the MC1T *e8$--$-8 3%-%(' 17
199> %! $t )$) -ot #&o!e $t! *!$-e!! o"e(%t$o-! $- 19>= *t
,e(e&' !!"e-)e) the !%,e. E/e- $+ "&%#e) -)e( (e#e$/e(!h$"7
the #o("o(%te e.$!te-#e w%! -e/e( %++e#te). Th!7 $t +%&&! -)e(
the #%te8o(' o+ %- e.$!t$-8 #o("o(%t$o- (e#o,,e-#$-8 $t!
*%-H$-8 o"e(%t$o-!.
Sho&) the (e+-) *e 8(%-te) 9
S8<<)ST). =NSW)05 Kes$ The MC1T shall be imposed
be3innin3 in the fourth taxable year immediately follo!in3 the year in
!hich the corporation commenced its business operations$ FSec$ 2,
?)> ?1>, N10C of 199,H
The date of commencement of operations of a thrift ban& is the
date it !as re3istered !ith the S)C or the date !hen the Certificate of
=uthority to /perate !as issued to it by the Monetary (oard,
!hicheer comes later$ ?Sec$ @, 0e$ 0e3s$ No$ AJ9->
Clearly then$ M(C is entitled to the 3race period of four years
from Iune 2', 1999 !hen it !as authori#ed by the (S9 to operate as
a thrift ban& before the MC1T should be applied to it$ ?$anila Ban4in#
32
Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1@+11+,
=u3ust 2@, 200@>
N/T)S =N. C/MM)NTS5
a$ The MC1T %-) whe- !ho&) *e $,"o!e) %-) the +o(
@;A 'e%( 8(%#e "e($o). D= minimum corporate income tax of t!o
percent ?26> of the 3ross income as of the end of the taxable year, as
defined herein, is hereby imposed on a corporation taxable under this
Title, be3innin3 on the fourth taxable year immediately follo!in3 the
year in !hich such corporation commenced its business operations,
!hen the minimum corporate income tax is 3reater than the tax
computed under Subsection ?=> of this section for the taxable year$E
FSec$ 2, ?)> ?1>, N10C of 199,H
b$ Pe($o) whe- % #o("o(%t$o- *e#o,e! !*?e#t to the
MC1T. D?-> Specific rules for determinin3 the period !hen a
corporation becomes subBect to the MC1T ?minimum corporate
income tax> J
Cor purposes of the MC1T, the taxable year in !hich business
operations commenced shall be the year in !hich the domestic
corporation re3istered !ith the (ureau of 1nternal 0eenue ?(10>$
Cirms !hich !ere re3istered !ith (10 in 199A and earlier years
shall be coered by the MC1T be3innin3 Ianuary 1, 199+$ x x xE
?0e$ 0e3s$ No$ 9J9+>
$anila Ban4in# Corporation v. Commissioner of Internal
&evenue, <$ 0$ No$ 1@+11+, =u3ust 2@, 200@ did not apply 0e$
0e3s$ No$ 9J9+ because 0e$ 0e3s$ No$ AJ9- specifically refers to
thrift ban&s$>
c$ P("o!e o+ the +o( @;A 'e%( 8(%#e "e($o). The intent
of Con3ress relatie to the MC1T is to 3rant a four ?A'> L year
suspension of tax payment to ne!ly or3ani#ed corporations$
Corporations still startin3 their business operations hae to stabili#e
their enture in order to obtain a stron3hold in the industry$ 1t does not
come as a surprise then !hen many companies reported losses in
their initial years of operations$
Thus, in order to allo! ne! corporations to 3ro! and deelop at
the initial sta3es of their operations, the la!ma&in3 body sa! the need
to proide a 3race period of four years from their re3istration before
they pay their minimum corporate income tax$ ?$anila Ban4in#
Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1@+11+,
=u3ust 2@, 200@>
ESTATE TA6ES
1. The 8(o!! e!t%te +o( "("o!e! o+ e!t%te
t%.%t$o- o+ 4$&$"$-o #$t$Be-!7 whethe( (e!$)e-t! o(
-o-(e!$)e-t! %-) (e!$)e-t %&$e- includes the alue at the time of
his death of all his real property, !hereer situated, personal property,
!hether tan3ible, intan3ible or mixed, !hereer situated, to the extent
of the interest existin3 therein of the decedent at the time of his death$
2. The 8(o!! e!t%te +o( "("o!e! o+ e!t%te
t%.%t$o- o+ -o-F(e!$)e-t %&$e-! includes the alue at the time of
his death of all the real property situated in the 9hilippines, personal
property !hether tan3ible, intan3ible or mixed, situated in the
9hilippines, to the extent of the interest therein of the decedent at the
time of his death$
:$ 1te,! )e)#t$*&e +(o, the 8(o!! e!t%te o+ % (e!$)e-t
o( -o-(e!$)e-t 4$&$"$-o )e#e)e-t o( (e!$)e-t %&$e- )e#e)e-t:
a$ )xpenses, losses, claims, indebtedness and taxesG
b$ 9roperty preiously taxedG
c$ Transfers for public useG
d$ The Camily :ome up to a alue not exceedin3 91
millionG
e$ Standard deduction of 91 millionG
f$ Medical expenses not exceedin3 9-00,000$00G
3$ =mount of exempt retirement receied by the heirs
under 0ep$ =ct Mo$ A91,G
h$ Net share of the suriin3 spouse in the conBu3al
partnership$
;. Not eery interJios transfer in anticipation of death is
considered Dtransfer in contemplation of deathE for purposes of
determinin3 the property to be included in the 3ross estate of a
decedent$
5. To be considered a t(%-!+e( $- #o-te,"&%t$o- o+
)e%thE Dthe decedent has at any time made a transfer, by trust or
other!ise, in contemplation of or intended to ta&e effect in possession
or enBoyment at or after deathE FSec$ +- ?(>, N10C of 199,H$ 1t is
clear that the properties are not transferred in contemplation of or
intended to ta&e effect in possession or enBoyment at or after death$
<. There is no transfer in contemplation of death if there is
no sho!in3 the transferor Dretained for his life or for any period !hich
does not in fact end before his death5 ?1> the possession or
enBoyment of, or the ri3ht to the income from the property, or ?2> the
ri3ht, either alone or in conBunction !ith any person, to desi3nate the
person !ho shall possess or enBoy the property or the income
therefrom$E FSec$ +- ?(>, N10C of 199,H
33
=. The %""(o/%& o+ the #o(t !$tt$-8 $- "(o*%te7 o(
%! % !ett&e,e-t t($*-%& o/e( the e!t%te o+ the )e#e%!e) $!
-ot % ,%-)%to(' (eD$(e,e-t +o( the #o&&e#t$o- o+ the
e!t%te. The probate court is determinin3 issues !hich are not
a3ainst the property of the decedent, or a claim a3ainst the estate as
such, but is a3ainst the interest or property ri3ht !hich the heir,
le3atee, deisee, etc$ has in the property formerly held by the
decedent$
The notices of ley !ere re3ularly issued !ithin the prescriptie
period$
The tax assessment hain3 become final, executory and
enforceable, the same can no lon3er be contested by means of a
dis3uised protest$ ($arcos, II v. Court of Appeals, et al$, 2,' SC0=
A,>
DONORES TA6ES
1. 0h%t $! the )o-o(E! t%. (%te $+ the )o-ee $! %
!t(%-8e( 9
S8<<)ST). =NSW)05 When the donee or
beneficiary is a stran3er, the tax payable by the donor shall be '06 of
the net 3ifts$
2. 4o( "("o!e! o+ the )o-o(E! t%. who $! %
!t(%-8e( 9
S8<<)ST). =NSW)05 = stran3er is a is person !ho is not
a5
a$ (rother, sister ?!hether by !hole or halfJblood>, spouse,
ancestor and lineal descendantG or
b$ 0elatie by consan3uinity in the collateral line !ithin the
fourth de3ree of relationship$E FSec$ 99 ?(>, N10C of 199,H
N/T)S =N. C/MM)NTS5 =ll relaties by affinity,
irrespectie of the de3ree, are considered as stran3ers$
:. 0h%t $! the t%. *%!e +o( )o-%t$o-! 9
S8<<)ST). =NSW)05 The net 3ifts made durin3 the
calendar year$ FSec$ 99 ?=>, N10C of 199,H
;. 4o( "("o!e! o+ the )o-o(E! t%.7 wh%t $! ,e%-t
*' -et 8$+t! 9
S8<<)ST). =NSW)05 The net economic benefit from
the transfer that accrues to the donee$ =ccordin3ly, if a
mort3a3ed property is transferred as a 3ift, but imposin3 upon
the donee the obli3ation to pay the mort3a3e liability, then the
net 3ift is measured by deductin3 from the fair mar&et alue
of the property the amount of the mort3a3e assumed$ ?last
par$, Sec$ 11, 0e$ 0e3s$No$2J200'>
5. How %(e 8$+t! o+ "e(!o-%& "(o"e(t' to *e /%&e)
+o( )o-o(E! t%. "("o!e! 9
S8<<)ST). =NSW)05 The mar&et alue of the personal
property at the time of the 3ift shall be considered the amount of the
3ift$ ?Sec$ 102, N10C of 199,>
<. 0h%t $! the /%&%t$o- o+ )o-%te) (e%& "(o"e(t'
+o( )o-o(E! t%. "("o!e! 9
S8<<)ST). =NSW)05 The real property shall be appraised
at its fair mar&et alue as of the time of the 3ift$
:o!eer, the appraised alue of the real property at the time of
the 3ift shall be !hicheer is the hi3her of5
a$ the fair mar&et alue as determined by the
Commissioner of 1nternal 0eenue ?#onal aluation> or
b$ the fair mar&et alue as sho!n in the schedule of alues
fixed by the 9roincial and City =ssessors$ FSec$ 102, in relation to
Sec$ ++ ?(> both of the N10C of 199,H
=. A )$e) &e%/$-8 %! h$! o-&' he$(!7 h$! !(/$/$-8
!"o!e B7 %-) th(ee ,$-o( #h$&)(e-7 67 5 %-) G. S$-#e B
)oe! -ot w%-t to "%(t$#$"%te $- the )$!t($*t$o- o+ the
e!t%te7 !he (e-o-#e) he( he(e)$t%(' !h%(e $- the e!t%te.
%. 1! the (e--#$%t$o- !*?e#t to )o-o(E! t%. 9
E."&%$-.
S8<<)ST). =NSW)05 No$ The 3eneral renunciation by an
heir, includin3 the suriin3 spouse, as in the case (, of her share in
the hereditary estate left by the decedent is not subBect to donor%s
tax$ ?A
th
par$, Sec$ 11, 0e$ 0e3s$ No$ 2J200'>
This is so because the 3eneral renunciation by ( !as not
specifically and cate3orically done in faor of identified heir7s to the
exclusion or disadanta3e of the other coJheirs in the hereditary
estate$
*. S""o!$-8 th%t $-!te%) o+ % 8e-e(%&
(e--#$%t$o-7 B (e-o-#e) he( he(e)$t%(' !h%(e $- AE!
e!t%te to 6 who $! % !"e#$%& #h$&)7 wo&) 'o( %-!we( *e
the !%,e 9 E."&%$-.
S8<<)ST). =NSW)05 My ans!er !ould be different$ The
renunciation in faor of ; !ould be subBect to donor%s tax$
This is so because the renunciation !as specifically and
cate3orically done in faor of ; and identified heir to the exclusion
34
or disadanta3e of K and 2, the other coJheirs in the hereditary
estate$ ?A
th
par$, Sec$ 11, 0e$ 0e3s$ No$ 2J200'>
>. 2$/e !o,e )o-%t$o-! th%t %(e e.e,"t +(o,
)o-o(E! t%..
S8<<)ST). =NSW)05
a. The first 9100,000$00 net donation durin3 a calendar
year is exempt from donor%s tax FSec$ 99 ?=>, N10C of 199,H made by
a resident or non residentG
b$ The donation by a resident or nonJresident of a pri#e to
an athlete in an international sports tournament held abroad and
sanctioned by the national sports association is exempt from donor%s
tax ?Sec$ 1, 0ep$ =ct No$ ,-A9>
c. 9olitical contributions made by a resident or nonJresident
indiidual if re3istered !ith the C/M)4)C irrespectie of !hether
donated to a political party or indiidual$
:o!eer, the Corporation Code prohibits corporations from
ma&in3 political contributions$ ?Corp$ Code, Title 1*, Sec$ '@$9>
d$ .o!ries or 3ifts made on account of marria3e and
before its celebration or !ithin one year thereafter by residents !ho
are parents to each of their le3itimate, reco3ni#ed natural, or
adopted children to the extent of the first ten thousand pesos
?910,000$00>G
e$ <ifts made by residents or nonJresidents to or for the
use of the National <oernment or any entity created by any of its
a3encies !hich is not conducted for profit, or to any political
subdiisions of the said <oernmentG
f$ <ifts made by residents or non residents in faor of an
educational and7or charitable, reli3ious, cultural or social !elfare
corporation, institution, foundation, trust or philanthropic
or3ani#ation or research institution or or3ani#ation5 9roided,
ho!eer, That not more than thirty percent ?'06> of said 3ifts shall
be used by such donee for administration purposes$ FSec$ 101 ?=>,
N10C of 199,, numberin3 and arran3ement suppliedH
3$ <ifts made by nonJresident aliens outside of the
9hilippines to 9hilippine residents are exempt from donor%s taxes
because taxation is basically territorial$ The transaction, !hich should
hae been subBect to tax !as made by nonJresident aliens and too&
place outside of the 9hilippines$
9. 0h%t $! the #o-#e"t o+ )o-%t$o- o( 8$+t
!"&$tt$-8 9 1&&!t(%te.
SU22ESTED ANS0ER: .onation or 3ift splittin3 is
spreadin3 the 3ift oer numerous calendar years in order to aail of
lo!er donor%s taxes$
1n 200+ 4eon !as thin&in3 of donatin3 a 9200,000$00 to
Mi&los, his first cousin$ The 9200,000$00 is the totality of the net
3ifts for 200+$ 1f he donated the 9200,000$00 in 200+ the first
9100,000 !ould be exempt and the remainin3 9-0,000$00 !ould be
subBect to donor%s tax
1f 4eon spreads the 9200,000 donation oer t!o ?2> calendar
years, donatin3 9100,000$00 on .ecember '0, 200+ and the
remainin3 9100,000$00 on Ianuary 1, 2009 the transaction !ould be
exempt from donor%s tax$ This is so een if the donation is
separated only by t!o days because the basis is the calendar year$
4eon !ould be enBoyin3 the exemption for the first 9100,000$00 net
3ifts for each calendar year$
10. A !o&) to B %-) P= ,$&&$o- 3%8%( +o( o-&' P;
,$&&$o-. The "(o"e( VAT o- the !%&e w%! "%$). 1+ 'o %(e
the B1R e.%,$-e( %!!$8-e) to (e/$ew the !%&e7 wo&) 'o
$!!e % t%. %!!e!!,e-t o- the t(%-!%#t$o- 9 E."&%$- 'o(
%-!we( *($e+&'.
S8<<)ST). =NSW)05 .onor%s taxes !ould be due on the
insufficiency of consideration$
Where property, other than real property that has been
subBected to the final capital 3ains tax, is transferred for less than an
ade"uate and full consideration in money or money%s !orth, then the
amount by !hich the fair mar&et alue of the property at the time of
the execution of the Contract to Sell or execution of the .eed of
Sale !hich is not preceded by a Contract to Sell exceeded the alue
of the a3reed or actual consideration or sellin3 price shall be
deemed a 3ift, and shall be included in computin3 the amount of
3ifts made durin3 the calendar year$ ?-
th
par$, Sec$ 11, 0e$ 0e3s$
No$ 2J200'>
VALUEFADDED TA6ES @VATA
1. De+$-e /%&eF%))e) t%. @VATA.
S8<<)ST). =NSW)05 = tax !hich is imposed only on the
increase in the !orth, merit or importance of 3oods, properties or
serices, and not on the total alue of the 3oods or serices bein3
sold or rendered$
2. 0h%t $! the -%t(e o+ VAT 9
S8<<)ST). =NSWS)05 *=T is an indirect tax that may
be shifted or passed on to the buyer, transferee or lessee of the
3oods, properties or serices$ =s such, it should be understood not
in the context of the person or entity that is primarily, directly liable
for its payment, but in terms of its nature as a tax on consumption$
35
FCommissioner of Internal &evenue v. Sea#ate *echnolo#y
(Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200- citin3 arious
authoritiesW
=s an indirect tax on serices, its main obBect is the
transaction itself or, more concretely, the performance of all &inds of
serices conducted in the course of trade or business in the
9hilippines$ These serices must be re3ularly conducted in this
country, underta&en in Dpursuit of a commercial or an economic
actiity,E for a aluable consideration, and not exempt under the Tax
Code, other special la!s, or any international a3reement$
?Commissioner, of Internal &evenue v. American /6press
International, Inc. (Philipppine Branch', <$ 0$ No$ 1-2@09, Iune 29,
200- citin3 arious cases and authorities>
*=T is a percenta3e tax imposed on any person !hether or
not a franchise 3rantee, !ho in the course of trade or business,
sells, barters, exchan3es, leases, 3oods or properties, renders
serices$ 1t is also leied on eery importation of 3oods !hether or
not in the course of trade or business$ The tax base of the *=T is
limited only to the alue added to such 3oods, properties, or
serices by the seller, transferor or lessor$ Curther, the *=T is an
indirect tax and can be passed on to the buyer$ ?Quezon City, et al.,
v. ABSCB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober
@, 200+>
:. 0h%t $! the e++e#t o- e.e,"t$o-! o+ VAT *e$-8
%- $-)$(e#t t%. 9 Re%!o- ot %-) $&&!t(%te 'o( %-!we(.
S8<<)ST). =NSW)05 1f a special la! merely exempts a
party as a seller from its direct liability for payment of the *=T, but
does not reliee the same party as a purchaser from its indirect
burden of the *=T shifted to it by its *=TJre3istered suppliers, the
purchase transaction is not exempt$
0)=S/N5 The *=T is a tax on consumption, the amount of
!hich may be shifted or passed on by the seller to the purchaser of
the 3oods, properties or serices$ FCommissioner of Internal
&evenue v. Sea#ate *echnolo#y (Philippines', <$ 0$ No$ 1-'+@@,
Cebruary 11, 200->
1llustration5 = *=T exempt seller sells to a nonJ*=T exempt
purchaser$ The purchaser is subBect to *=T because the *=T is
merely added as part of the purchase price and not as a tax because
the burden is merely shifted$ The seller is still exempt because it
could pass on the burden of payin3 the tax to the purchaser$
;. The VAT $! % t%. o- #o-!,"t$o-. E."&%$- the
,e%-$-8 o+ #o-!,"t$o- %! !e) -)e( the VAT !'!te,.
2$/e %- e.%,"&e.
S8<<)ST). =NSW)05 Consumption is Pthe use of a thin3
in a !ay that thereby exhausts it$P
=pplied to serices, the term means the performance or
Psuccessful completion of a contractual duty, usually resultin3 in the
performerOs release from any past or future liability x x xP 8nli&e
3oods, serices cannot be physically used in or bound for a specific
place !hen their destination is determined$ 1nstead, there can only
be a Ppredetermined end of a courseP !hen determinin3 the serice
Plocation or position x x x for le3al purposes$P
Cor example the serices rendered by a local firm to its
forei3n client are performed or successfully completed upon its
sendin3 to a forei3n client the drafts and bills it has 3athered from
serice establishments here$ 1ts serices, hain3 been performed in
the 9hilippines, are therefore also consumed in the 9hilippines$
Such facilitation serice has no physical existence, yet ta&es place
upon rendition, and therefore upon consumption, in the 9hilippines$
FCommissioner of Internal &evenue v. American /6press <$0$ No$
1-2@09, 29 Iune 200-, A@2 SC0= 19, cited in Commissioner of
Internal &evenue v. Placer .ome *echnical Services (Phils.', Inc. <$
0$ No$ 1@A'@-, Iune +, 200,H
5. 0ho %(e &$%*&e +o( the /%&eF%))e) t%. 9
S8<<)ST). =NSW)05
a$ =ny person !ho, in the course of his trade or business,
1> Sells, barters, exchan3es or leases 3oods or
properties, or
2> renders serices, and
b$ any person !ho imports 3oods xxx
:o!eer, in the case of importation of taxable 3oods, the
importer, !hether an indiidual or corporation and !hether or not
made in the course of his trade or business, shall be liable to *=T
xxx$ ?0e$ 0e3s$ No$ 1@J200-,Sec$ A$10-J1, paraphrasin3 supplied>
<. 0h%t %(e the /%($o! VAT ,etho)! %-)
!'!te,! 9
S8<<)ST). =NSW)05
a$ Co!t )e)#t$o- ,etho). This is a sin3leJsta3e tax
!hich is payable only by the ori3inal sellers$ FA%a4a"a (uro Party
List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1,
200- and companion cases citin3 .eoferio, Ir$ *$ =$ and
Mamalateo, *$C$, *he ,alue A""e" *a6 in the Philippines ?Cirst
)dition 2000>H This !as subse"uently modified and a mixture of
Dcost deduction methodE and Dtax credit methodE !as used to
determine the alueJadded tax payable$ ?I%i".>
36
b$ T%. #(e)$t ,etho). This method relies on inoices,
an entity can credit a3ainst or subtract from the *=T char3ed on its
sales or outputs the *=T paid on its purchases, inputs and imports$
FCommissioner of Internal &evenue v. Sea#ate *echnolo#y
(Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200- citin3 arious
cases and authoritiesG A%a4a"a (uro Party List (etc.' v. /rmita, etc.,
et al., <$ 0$ No$ 1@+0-@, September 1, 200- and companion cases>
1f at the end of a taxable period, the output taxes char3ed by
a seller are e"ual to the input taxes passed on by the suppliers, no
payment is re"uired$ 1t is !hen the output taxes exceed the input
taxes that the excess has to be paid$ 1f ho!eer, the input taxes
exceed the output taxes, the excess shall be carried oer to the
succeedin3 "uarter or "uarters$ Should the input taxes result from
#eroJrated or effectiely #eroJrated transactions or from ac"uisition
of capital 3oods, any excess oer the output taxes shall instead be
refunded to the taxpayer or credited a3ainst other internal reenue
taxes$ FCommissioner of Internal &evenue v. Sea#ate *echnolo#y
(Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200- citin3 arious
cases and authoritiesH
=. The VAT *e$-8 $,"o!e) o- the $-#(e%!e $-
wo(th ,e($t o( $,"(o/e,e-t o+ the 8oo)! o( !e(/$#e!.
How $! th$! )o-e 9
S8<<)ST). =NSW)05 The *=T utili#es the concept of the
output and input taxes$
>. De+$-e ot"t t%..
S8<<)ST). =NSW)05 The alueJadded tax due on the
sale or lease or taxable 3oods, properties or serices by any *=TJ
re3istered person$
9. De+$-e $-"t t%..
S8<<)ST). =NSW)05 The *=T due on or paid by a *=TJ
re3istered person on importation of 3ood or local purchases of
3oods or serices, includin3 lease or use of properties, in the course
of his trade or business$ ?0e$ 0e3s$ No$ A$110J1, 1
st
par$>
10. 0h%t %(e $-#&)e) $- the $-"t t%..
S8<<)ST). =NSW)05 1t shall also include5
a$ the transitional input tax and
b$ the presumptie input tax xxx$
1t includes
c$ input taxes !hich can be directly attributed to
transactions subBect to the *=T plus a ratable portion of any input
tax !hich cannot be directly attributed to either the taxable or
exempt actiity$ ?0e$ 0e3s$ No$ A$110J1, 1
st
par$, 2
nd
sentence,$
=nd 2
nd
par$, paraphrasin3, arran3ement and numberin3 supplied >
11. M%' the ($8ht to #(e)$t the $-"t t%. *e &$,$te)
*' &e8$!&%t$o- 9
S8<<)ST). =NSW)05 Kes because it $! % ,e(e #(e%t$o-
o+ &%w. 9rior to the enactment of multiJsta3e sales taxation, the
sales taxes paid at eery leel of distribution are not recoerable
from the taxes payable$ With the adent of )xecutie /rder No$
2,' imposin3 a 106 multiJsta3e tax on all sales, it !as only then
that the creditin3 of the input tax paid on purchase or importation of
3oods and serices by *=TJre3istered persons a3ainst the output
tax !as established$ This continued !ith the )xpanded *=T 4a!
?0$=$ No$ ,,1@>, and The Tax 0eform =ct of 199, ?0$=$ No$ +A2A>$
The ri3ht to credit input tax as a3ainst the output tax is clearly a
priile3e created by la!, a priile3e that also the la! can limit$ 1t
should be stressed that a person has no ested ri3ht in statutory
priile3es$ (ABA1A.A (uro Party List, etc. et al. vs. /rmita, <$0$
No$ 1@+20,, /ctober 1-, 200-, and companion cases, on the motion
for reconsideration>
12. 0h%t $! the #o-#e"t o+ t(%-!$t$o-%& $-"t t%.
#(e)$t! o- *e8$--$-8 $-/e-to($e! 9
S8<<)ST). =NSW)05 Taxpayers !ho become *=TJ
re3istered persons upon exceedin3 the minimum turnoer of
91,-00,000$00 in any 12Jmonth period, or !ho oluntarily re3ister
een if their turnoer does not exceed 91,-00,000$00 ?except
franchise 3rantees of radio and teleision broadcastin3 !hose
threshold is 910,000,000$00> shall be entitled to a transitional input
tax on the inentory on hand as of the effectiity of their *=T
re3istration, on the follo!in35
a$ 3oods purchased for resale in their present conditionG
b$ materials purchased for further processin3, but !hich
hae not yet under3one processin3G
c$ 3oods !hich hae been manufactured by the taxpayerG
d$ 3oods in process for saleG or
e$ 3oods and supplies for use in the course of the
taxpayer%s trade or business as a *=TJre3istered person$ F0e$
0e3s$ No$ 1@J200-, Sec$A$111J1, ?a>, 1
st
par$, arran3ement and
numberin3 suppliedH
1;. 0h%t $! the #o-#e"t o+ "(e!,"t$/e $-"t t%.
#(e)$t! 9
S8<<)ST). =NSW)05 9ersons or firms en3a3ed in the
processin3 of sardines, mac&erel, and mil&, and in manufacturin3
37
refined su3ar, coo&in3 oil and pac&ed noodleJbased instant meals,
shall be allo!ed a presumptie input tax, creditable a3ainst the
output tax, e"uialent to four percent ?A6> of the 3ross alue in
money of their purchases of primary a3ricultural products !hich are
used as inputs to their production$
=s used in this para3raph, the term processin3 shall mean
pasteuri#ation, cannin3 and actiities !hich throu3h physical or
chemical process alter the exterior texture or form or inner
substance of a product in such a manner as to prepare it for special
use to !hich it could not hae been put in its ori3inal form or
condition$ F0e$ 0e3s$ No$ 1@J200-, Sec$A$111J1, ?b>H
15. Doe! the VAT (e8$!t(%t$o- +ee /$o&%te (e&$8$o!
+(ee)o, 9
S8<<)ST). =NSWS)05 The *=T re3istration fee imposed
on nonJ*=T enterprises !hich includes amon3 others, reli3ious
sects !hich sells and distributes reli3ious literature is not iolatie of
reli3ious freedom, althou3h a fixed amount is not imposed for the
exercise of a priile3e but only for the purpose of defrayin3 part of
the cost of re3istration$
The re3istration fee is thus more of an administratie fee, one
not imposed on the exercise of a priile3e, much less a
constitutional ri3ht$ (*olentino v. Secretary of -inance, et al., an"
companion cases, 2'- SC0= @'0>
1<. E."&%$- the "(o"e( $-te("(et%t$o- o+ the
te(, 1- the Co(!e o+ T(%)e o( B!$-e!!.
S8<<)ST). =NSWS)05 *=T is not a sin3ularJ
minded tax on eery transactional leel$ 1ts assessment bears direct
releance to the taxpayer% s role or lin& in the production chain$
:ence, as affirmed by Section 99 of the Tax Code and its
subse"uent incarnations, the tax is leied only on the sale, barter or
exchan3e of 3oods or serices by persons !ho en3a3e in such
actiities, $- the #o(!e o+ t(%)e o( *!$-e!!$ These transactions
outside the course of trade or business may inariably contribute to
the production chain, but they do so only as a matter of accident or
incident$ =s the sales of 3oods or serices do not occur !ithin the
course of trade or business, the proiders of such 3oods or serices
!ould hardly, if at all, hae the opportunity to appropriately credit
any *=T liability as a3ainst their o!n accumulated *=T collections
since the accumulation of output *=T arises in the first place only
throu3h the ordinary course of trade or business$ ?Commissioner of
Internal &evenue v. $a#saysay Lines, Inc., et al., <$ 0$ No$ 1A@9+A,
Iuly 2+, 200@>
1<FA. P(!%-t to % 8o/e(-,e-t "(o8(%, o+
"($/%t$B%t$o-7 NDC7 % VATF(e8$!te(e) e-t$t' #(e%te) +o( the
"("o!e o+ !e&&$-8 (e%& "(o"e(t'7 )e#$)e) to !e&& to "($/%te
e-te("($!e %&& o+ $t! !h%(e! $- $t! who&&'Fow-e) !*!$)$%('
the N%t$o-%& M%($-e Co("o(%t$o- @NMCA. The NDC )e#$)e)
to !e&& $- o-e &ot $t! NMC !h%(e! %-) +$/e @5A o+ $t! !h$"!7
wh$#h %(e :7=00 D0T Twee-FDe#He(7 LM&oe#H-e(L t'"e
/e!!e&!. The /e!!e&! we(e #o-!t(#te) +o( the NDC
*etwee- 19>1 %-) 19>;7 the- $-$t$%&&' &e%!e) to LBo-
Ste/e)o($-8 Co,"%-'7 %&!o $t! who&&'Fow-e) !*!$)$%('.
S*!eDe-t&'7 the /e!!e&! we(e t(%-!+e((e) %-) &e%!e)7
o- % *%(e*o%t *%!$!7 to the NMC. The NMC !h%(e!
%-) the /e!!e&! we(e o++e(e) +o( "*&$# *$))$-8. A,o-8
the !t$"&%te) te(,! %-) #o-)$t$o-! +o( the "*&$# %#t$o-
w%! th%t the w$--$-8 *$))e( w%! to "%' L% /%&e %))e) t%.
o+ 10I o- the /%&e o+ the /e!!e&!.L M%8!%'!%' L$-e!7
1-#.7 o++e(e) to *' the !h%(e! %-) the /e!!e&! +o(
P1<>70007000.00. The *$) w%! ,%)e *' M%8!%'!%' L$-e!7
"("o(te)&' +o( % -ew #o,"%-' !t$&& to *e +o(,e)
#o,"o!e) o+ $t!e&+7 B%&$w%8 N%/$8%t$o-7 1-#.7 %-) 41M
L$,$te) o+ the M%()e- 2(o" *%!e) $- Ho-8Ho-8 . The *$)
w%! %""(o/e) *' the Co,,$ttee o- P($/%t$B%t$o-7 %-) %
Not$#e o+ Aw%() w%! $!!e) to M%8!%'!%' L$-e!.
1! the !%&e !*?e#t to VAT 9
S8<<)ST). =NSW)05 No$ The sale is not subBect to
*=T$ 1n 1mperial $ Collector of 1nternal 0eenue, <$0$ No$ 4J
,92A, September '0, 19-- ?9, 9hil$ 992>, the term Pcarryin3 on
businessP does not mean the performance of a sin3le disconnected
act, but means conductin3, prosecutin3 and continuin3 business by
performin3 pro3ressiely all the acts normally incident thereofG !hile
P)o$-8 *!$-e!!P coneys the idea of business bein3 done, not
from time to time, but all the time$ FI$ =ranas, 89.=T).
N=T1/N=4 1NT)0N=4 0)*)N8) C/.) ?W1T: =NN/T=T1/NS>,
p$ @0+J9 ?19++>H$ PCo(!e o+ *!$-e!!P is !hat is usually done in
the mana3ement of trade or business$ F1),$ /. 0eeH! N R!!e&, 99
So$ ,@1, ,@A, 1'- Miss$ @-, cited in Words X 9hrases, *ol$ 10,
?19+A>H$ What is clear therefore, based on the aforecited
Burisprudence, is that Pcourse of businessP or Pdoin3 businessP
connotes re3ularity of actiity$ 1n the instant case, the sale !as an
isolated transaction$ The sale !hich !as inoluntary and made
pursuant to the declared policy of <oernment for priati#ation
could no lon3er be repeated or carried on !ith re3ularity$ 1t should
be emphasi#ed that the normal *=TJre3istered actiity of N.C is
38
leasin3 personal property$ This findin3 is confirmed by the
0eised Charter of the N.C !hich bears no indication that the N.C
!as created for the primary purpose of sellin3 real property$
?Commissioner of Internal &evenue v. $a#saysay Lines, Inc., et al.,
<$ 0$ No$ 1A@9+A, Iuly 2+, 200@>
1=. U-)e( the V%&e A))e) T%. @VATA7 the t%. $!
$,"o!e) o- !%&e!7 *%(te(7 o( e.#h%-8e o( 8oo)! %-)
!e(/$#e!. The VAT $! %&!o $,"o!e) o- #e(t%$-
t(%-!%#t$o-! )ee,e) !%&e!. 0h%t %(e the!e !oF#%&&e)
t(%-!%#t$o-! )ee,e) !%&e! 9
S8<<)ST). =NSW)05 a$
Transfer, use or consumption not in the course of
business or properties ori3inally intended for sale or for use in the
course of business$ xxx
b$ .istribution or transfer to5
1> Shareholders or inestors as share in the profits
of the *=TJ re3istered personG xxx or
2> Creditors in payment of debt or obli3ation
c$ Consi3nment of 3oods if actual sale is not made
!ithin sixty ?@0> days follo!in3 the date such 3oods !ere consi3ned$
Consi3ned 3oods returned by the consi3nee !ithin the @0Jday period
are not deemed sold$
d$ 0etirement from or cessation of business, !ith
respect to all 3oods on hand,
1> !hether capital 3oods, stoc&JinJtrade, supplies or
materials as of the date of such retirement, or cessation,
2> !hether or not the business is continued by the
ne! o!ner or successor$ xxx F0e$ 0e3s$ No$ 1@J200-,
Sec$ A$10@J,, paraphrasin3, arran3ement and numberin3
suppliedH
1>. 0h%t t(%-!%#t$o-! #o-!$)e(e) (et$(e,e-t o(
#e!!%t$o- o+ *!$-e!! )ee,e) !%&e !*?e#t to VAT 9
S8<<)ST). =NSW)05
a$ Chan3e of o!nership of the business$ There is chan3e
in the o!nership of the business !here a sin3le proprietorship
incorporatesG or
1> the proprietor of a sin3le proprietorship sells his
entire business$
b$ .issolution of a partnership and creation of a ne!
partnership !hich ta&es oer the business$ F0e$ 0e3s$ No$ 1@J
200-, Sec$ A$10@J, ?a>, ?A> paraphrasin3, arran3ement and
numberin3 suppliedH
19. 0h%t !%&e o+ o( &e%!e o+ (e%& "(o"e(t$e! !*?e#t
to VAT 9
S8<<)ST). =NSW)05 Sale of real properties primarily for
sale to customers or held for lease in the ordinary course of trade or
business of the seller shall be subBect to *=T$ ?0e$ 0e3s$ No$ 1@J
200-, Sec$ A$10@J', 1
st
par$>
Thus, capital transactions of indiiduals are not subBect to
*=T$ /nly real estate dealers are subBect to *=T$
20. O- 3%-. 107 200>7 67 % )o,e!t$# #o("o(%t$o-
e-8%8e) $- the (e%& e!t%te *!$-e!!7 !o&) % *$&)$-8 +o(
P1070007000.00. 1! the !%&e !*?e#t to the /%&eF%))e) t%.
@VATA9 1+ !o7 how ,#h9 E."&%$-$
S8<<)ST). =NSW)05 Kes$ 126 on the 3ross sellin3
price because the sale !as made in the ordinary course of trade of
business of ;, a domestic corporation en3a3ed in the real estate
business$
21. 0h%t !%&e o+ (e%& "(o"e(t' e.e,"t +(o,
VAT 9
S8<<)ST). =NSW)05 The follo!in3 sales of real
properties are exempt from *=T, namely5
a$ Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
businessG
b$ Sale of real properties utili#ed for lo!Jcost housin3 as
defined by 0= No$ ,2,9, other!ise &no!n as the D8rban and
.eelopment :ousin3 =ct of 1992E and other related la!s, such as
0= No$ ,+'- and 0= No$ +,@'$
xxx xxx xxx
c$ Sale of real properties utili#ed for sociali#ed housin3
as defined under 0= No$ ,2,9, and other related la!s !herein the
price ceilin3 per unit is 922-,000$00 or as may from time to time be
determined by the :8.CC and the N).= and other related la!s$
xxx xxx xxx
d$ Sale of residential lot alued at /ne Million Cie
:undred Thousand 9esos ?91,-00,000$00> and belo!, or house X
lot and other residential d!ellin3s alued at T!o Million <ie
:undred Thousand 9esos ?92,-00,000$00> and belo! !here the
instrument of sale7transfer7disposition !as executed on or after
Noember 1, 200-, proided, That not later than Ianuary '1, 2009
and eery three ?'> years thereafter, the amounts stated herein shall
be adBusted to its present alue usin3 the Consumer 9rice 1ndex, as
published by the National Statistics /ffice ?NS/>G proided, further,
39
that such adBustment shall be published throu3h reenue re3ulations
to be issued not later than March '1 of each year$
1f t!o or more adBacent residential lots are sold or disposed in
faor of one buyer, for the purpose of utili#in3 the lots as one
residential lot, the sale shall be exempt from *=T only if the
a33re3ate alue of the lots do not exceed 91,-00,000$00$ =dBacent
residential lots, althou3h coered by separate titles and7or separate
tax declarations, !hen sold or disposed of to one and the same
buyer, !hether coered by one or separate .eed of Coneyance,
shall be presumed as a sale of one residential lot$ F0e$ 0e3s$ No$
A$109J1 ?(>, ?p>, paraphrasin3 and numberin3 suppliedH
22. 0h%t $! the VAT o- !e(/$#e! %-) &e%!e o+
"(o"e(t$e! 9
S8<<)ST). =NSW)05
a$ There shall be leied, assessed, and collected,
b$ a alueJadded tax e"uialent to ten percent ?106> of
3ross receipts
c$ deried from the sale or exchan3e of serices,
1> includin3 the use or lease of properties$
d$ 9roided, That the 9resident, upon the
recommendation of the Secretary of Cinance, shall, effectie
Ianuary 1, 200@, raise the rate of alueJadded tax to t!ele percent
?126>, after any of the follo!in3 conditions has been satisfied5
1> *alueJadded tax collection as a percenta3e of
<ross .omestic product ?<.9> of the preious year
exceeds t!o and fourJfifth percent ?2 A7-6>G or
2> National 3oernment deficit as a percenta3e of
<.9 of the preious year exceeds one and oneJhalf percent
?1 1726>$ FN10C of 199,, Sec$ 10+ ?=>, as amended by 0$=$
No$ 9'',, arran3ement and numberin3 suppliedH
2:. S%&e o( e.#h%-8e o+ !e(/$#e!7 )e+$-e).
The term Dsale or exchan3e of sericesE means the performance of
all &inds of serices in the 9hilippines for others for a fee,
remuneration or consideration, !hether in &ind or in cash, includin3
those performed or rendered by the follo!in35
a$ construction and serice contractorsG
b$ stoc&, real estate, commercial, customs and
immi3ration bro&ersG
c$ lessors of property, !hether personal or realG
d$ persons en3a3ed in !arehousin3 serices
e$ lessors or distributors of cinemato3raphic filmsG
f$ persons en3a3ed in millin3, processin3,
manufacturin3 or repac&in3 3oods for othersG
3$ proprietors, operators or &eepers of
hotels, motels, restJhouses, pension houses, inns, resortsG theaters,
and moie housesG h$ proprietors or operators of restaurants,
refreshment parlors, cafes and other eatin3 places, includin3 clubs
and caterersG i$ dealers in securitiesG
B$ lendin3 inestorsG
&$ transportation contractors on their
transport of 3oods or car3oes, includin3 persons !ho transport
3oods or car3oes for hire and other domestic common carriers by
land relatie to their transport of 3oods or car3oesG
l$ common carriers by air and sea
relatie to their transport of passen3ers, 3oods or car3oes from one
place in the 9hilippines to another place in the 9hilippinesG
m$ sales of electricity by 3eneration
companies, transmission, and7or distribution companiesG
n$ franchise 3rantees of electric utilities,
telephone and tele3raph, radio and teleision broadcastin3 and all
other franchise 3rantees except franchise 3rantees of radio and7or
teleision broadcastin3 !hose annual 3ross receipts of the
precedin3 year do not exceed Ten Million 9esos ?910,000,000$00>,
and franchise 3rantees of 3as and !ater utilitiesG
o$ nonJlife insurance companies ?except
their crop insurances>, includin3 surety, fidelity, indemnity and
bondin3 companiesG and
p$ similar serices re3ardless of !hether or not the
performance thereof calls for the exercise or use of the physical or
mental faculties. FN10C of 199,, Sec$ 10+ ?=>, as amended by 0$=$
No$ 9'',G 0e$ 0e3s$ No$ 1@J200-, Sec$ A,10+J2, 1
st
par$,
arran3ement and numberin3 suppliedH
2;. 6 Co("o(%t$o- (e-)e(e) te#h-$#%&
!e(/$#e! th(o8h $t! wo(H e-8$-ee(! to PNB %-) SSS $-
the #o-!t(#t$o- o+ the$( *$&)$-8!. The wo(H e-8$-ee(!
%#te) %! o/e(!ee(! o+ 6 Co("o(%t$o-7 (e-)e($-8 the$(
"(o+e!!$o-%& !e(/$#e! %! e,"&o'ee! o+ 6 #o("o(%t$o-.
Sho&) 6 Co("o(%t$o- *e !*?e#te) to VAT o( !ho&) $t *e
!*?e#te) to t%. o- the "(o+e!!$o-%& !e(/$#e! o+ tho!e
e,"&o'ee! the,!e&/e!9 De#$)e the #%!e w$th (e%!o-.
S8<<)ST). =NSW)05 ; Corporation is subBect to *=T$
25. A&!o $-#&)e) $- the "h(%!e !%&e o( e.#h%-8e
o+ !e(/$#e!.
a$ The lease or the use of or the ri3ht or priile3e to use
any copyri3ht, patent, desi3n or model, plan, secret formula or
40
process, 3ood!ill, trademar&, trade brand or other li&e property or
ri3htG
b$ The lease or the use of, or the ri3ht to use any
industrial, commercial or scientific e"uipmentG
c$ The supply of scientific, technical, industrial or
commercial &no!led3e or informationG
d$ The supply of any assistance that is ancillary and
subsidiary to and is furnished as a means of enablin3 the application
or enBoyment of any such property, or ri3ht as is mentioned in
subpara3raph ?2> hereof or any such &no!led3e or information as is
mentioned in subpara3raph ?'> hereofG or
e$ The supply of serices by a nonJresident person or his
employee in connection !ith the use of property or ri3hts belon3in3
to, or the installation or operation of any brand, machinery or other
apparatus purchased from such nonJresident personG
f$ The supply of technical adice, assistance or serices
rendered in connection !ith technical mana3ement or administration
of any scientific, industrial or commercial underta&in3, enture,
proBect of schemeG
3$ The lease of motion picture films, film tapes and
discsG
h$ The lease or the use of or the ri3ht to use radio,
teleision, satellite transmission and cable teleision time$ ?0e$
0e3s$ No$ 1@J200-, Sec$ A$10+J2, 2
nd
par$>
2<. Ge(oF(%te) S%&e! o+ 2oo)! o( P(o"e(t$e!. =
#eroJrated sale of 3oods or properties by a sale by a *=TJre3istered
person is a taxable transaction for *=T purposes but the sale does
not result in any output tax$
:o!eer, the input tax on the purchases of 3oods, properties or
serices related to such #eroJrated sale shall be aailable as tax
credit or refund in accordance !ith 0e$ 0e3ulations No$ 1@J200-$
?0e$ 0e3s$ No$ 1@J200-, 1
st
par$>
2=. Co-#e"t o+ VAT Be(oF(%t$-8. The tax rate is set at
#ero$ When applied to the tax base, such rate obiously results in
no tax char3eable a3ainst the purchaser$ The seller of such
transactions char3es no output tax, but can claim a refund or a tax
credit certificate for the *=T preiously char3ed by suppliers$
FCommissioner of Internal &evenue v. Sea#ate *echnolo#y
(Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200-H
8nder a #eroJratin3 scheme, the sale or exchan3e of a
particular serice is completely freed from the *=T, because the
seller is entitled to recoer, by !ay of a refund or as an input tax
credit, the tax that is included in the cost of purchases attributable to
the sale or exchan3e$ The tax paid or !ithheld is not deducted from
the tax base$ ?Commissioner, of Internal &evenue v. American
/6press International, Inc. (Philippine Branch', <$ 0$ No$ 1-2@09,
Iune 29, 200- citin3 arious cases>
2>. S$t! o+ t%.%t$o- o+ Be(oF(%te) VAT !e(/$#e!
!#h %! +%#$&$t%t$-8 the #o&&e#t$o- o+ (e#e$/%*&e! +(o,
#(e)$t #%() ,e,*e(! !$t%te) $- the Ph$&$""$-e! %-)
"%',e-t to !e(/$#e e!t%*&$!h,e-t! $- the Ph$&$""$-e!. The
place !here the serice is rendered determines the Burisdiction
?Commissioner of Internal &evenue v. American /6press
International, Inc. (Philipppine Branch', <$ 0$ No$ 1-2@09, Iune 29,
200- citin3 DFNHo state may tax anythin3 not !ithin its Burisdiction
!ithout iolatin3 the due process clause of the FCHconstitution$E
$anila (as Corp. v. Collector of Internal &evenue, @2 9hil$ +9-, 900,
Ianuary 1,, 19'@, per Malcolm, I$> to impose the *=T
FCommissioner, supra citin3 .eoferio, Ir$ and Mamalateo, *he
,alue A""e" *a6 in the Philippines ?2000>, p$ 9'H
9erformed in the 9hilippines, the serice is necessarily
subBect to its Burisdiction FCommissioner, supra citin3 =leBandro, *he
La: on *a6ation ?19@@ re$ ed$> p$ ''H, for the State necessarily has
to hae a Dsubstantial connectionE FCommissioner, supra citin3
<arner ?ed$ in chief>, Blac47s La: .ictionary ?+
th
ed$, 1999>, p$ 1-0'H
to it in order to enforce a #ero rate$ FCommissioner, supra citin3 .e
4eon, *he -un"amentals of *a6ation ?12
th
ed$, 199+>, p$ 'H The
place of payment is immaterial FCommissioner, supra citin3
.eoferio, Ir$ and Mamalateo, *he ,alue A""e" *a6 in the
Philippines ?2000>, p$ 9'H, much less is the place !here the output of
the serice !ill be further or ultimately used$
This is so because the la! neither ma&es a "ualification nor
adds a condition in determinin3 the tax situs of a #eroJrated serice$
?Commissioner, supra>
29. 0h%t $! the )e!t$-%t$o- "($-#$"&e the
VAT 9
S8<<)ST). =NSW)05 =s a 3eneral rule, the *=T
system uses the destination principle as a basis for the Burisdictional
reach of the tax$
<oods and serices are taxed only in the country !here they
are consumed$ Thus, exports are #eroJrated, !hile imports are
taxed$
:0. 1! the(e %-' e.#e"t$o- to the )e!t$-%t$o-
"($-#$"&e 9
41
S8<<)ST). =NSW)05 Kes$ The la! clearly proides for
an exception to the destination principleG that is, for a #ero percent
*=T rate for serices that are performed in the 9hilippines, Ppaid for
in acceptable forei3n currency and accounted for in accordance !ith
the rules and re3ulations of the F(S9H$P
:1. R%t$o-%&e +o( Be(oF(%t$-8 o+ e."o(t!. The
9hilippine *=T system adheres to the Cross (order .octrine,
accordin3 to !hich, no *=T shall be imposed to form part of the cost
of 3oods destined for consumption outside of the territorial border of
the taxin3 authority$ FCommissioner of Internal &evenue v. *oshi%a
Information /9uipment (Phils.', Inc., <$ 0$$ No$ 1-01-A, =u3ust 9,
200-H
The DCross (order .octrineE is also &no!n as the destination
principle$
:ence, actual or constructie export of 3oods and serices
from the 9hilippines to a forei3n country must be #eroJrated for
*=TG !hile, those destined for use or consumption !ithin the
9hilippines shall be imposed the t!ele percent ?126> *=T$
:2. Ge(oF(%te) !%&e )$!t$-8$!he) +(o, e.e,"t
t(%-!%#t$o-!:
a$ = #eroJrated sale is a taxable transaction but does not
result in an output tax W:14) an exempt transaction is not subBect
to the output tax$
b$ The input tax on the purchases of a *=T re3istered
person !ho has #eroJrated sales may be allo!ed as tax credits or
refunded W:14) the seller in an exempt transaction is not entitled to
any input tax on his purchases despite the issuance of a *=T
inoice or receipt$
c$ 9ersons en3a3ed in transactions !hich are #ero rated
bein3 subBect to *=T are re"uired to re3ister W:14) re3istration is
optional for *=TJexempt persons$
::. Ge(oF(%te) !%&e! *' VATF(e8$!te(e) "e(!o-!.
The follo!in3 sales by *=TJre3istered persons shall be subBect to
#ero percent ?06> rate5
a$ )xport salesG
b$ Considered export sales under )xecutie /rder No$
22AG
c$ Corei3n currency denominated saleG and
d$ Sales to persons or entities demed taxJexempt under
special la! or international a3reement$ ?0e$ 0e3s$ No$ 1@J200-,
Sec$ A$10@J-, 2
nd
par$, paraphrasin3 supplied>
:;. S%&e o+ 8o&) to the Ce-t(%& B%-H #o-!$)e(e) %!
e."o(t !%&e!. =s export sales, the sale of 3old to the Central
(an& is #eroJrated, hence, no tax is char3eable to it as purchaser$
2ero ratin3 is primarily intended to be enBoyed by the seller, !hich
char3es no output *=T but can claim a refund of or a tax credit
certificate for the input *=T preiously char3ed to it by suppliers$
?Commissioner of Internal &evenue v. $anila $inin# Corporation,
<$0$ No$ 1-'20A, =u3ust '1, 200->
:5. S%&e! to e#oBo-e7 !#h %! PEGA7 #o-!$)e(e)
e."o(tF!%&e. Notably, !hile an eco#one is 3eo3raphically !ithin
the 9hilippines, it is deemed a separate customs territory and is
re3arded in la! as forei3n soil$ Sales by suppliers from outside the
borders of the eco#one to this separate customs territory are
deemed as exports and treated as export sales$ These sales are
#eroJrated or subBect to a tax rate of #ero percent$ ?Commissioner
of Internal &evenue v. Se4isui 2ushi Philippines, Inc., <$ 0$ No$
1A9@,1, Iuly 21, 200@ citin3 arious authorities>
:<. E#oBo-e7 )e+$-e). =n )C/2/N) or a Special
)conomic 2one has been described as L FSHelected areas !ith
hi3hly deeloped or !hich hae the potential to be deeloped into
a3roJindustrial, industrial, tourist, recreational, commercial, ban&in3,
inestment and financial centers !hose metes and bounds are fixed
or delimited by 9residential 9roclamations$ =n )C/2/N) may
contain any or all of the follo!in35 industrial estates ?1)s>, export
processin3 #ones ?)92s>, free trade #ones and tourist7recreational
centers$ The national territory of the 9hilippines outside of
the proclaimed borders of the )C/2/N) shall be referred to as the
Customs Territory$ FCommissioner of Internal &evenue v. *oshi%a
Information /9uipment (Phils.', Inc., <$ 0$$ No$ 1-01-A, =u3ust 9,
200-H
:=. Ge(oF(%te) !%&e o+ !e(/$#e7 )e+$-e). = #eroJrated
sale of serice ?by a *=TJre3istered person> is a taxable transaction
for *=T purposes, but shall not result in any output tax$ :o!eer,
the input tax on purchases of 3oods, properties or serices related to
such #eroJrated sale shall be aailable as tax credit or refund in
accordance !ith &ev. &e#s. !o. ;C<??H. F0e$ 0e3s$ No$ 1@J200-,
Sec$ Sec$ A$10+J- ?a>, !ords in italics supplied>
:>. Se(/$#e "e(+o(,e) *' A,e($#%- E."(e!! $-
+%#$&$t%t$-8 the #o&&e#t$o- o+ (e#e$/%*&e! +(o, #(e)$t #%()
,e,*e(! !$t%te) $- the Ph$&$""$-e! %-) "%',e-t to
!e(/$#e e!t%*&$!h,e-t! $- the Ph$&$""$-e! $- *eh%&+ o+ $t!
42
Ho-8FMo-8 *%!e) #&$e-t $! !*?e#t to VAT *t Be(oF(%te).
This is so because it meets all the re"uirements for *=T imposition,
as follo!s5
a$ 1t re3ularly renders in the 9hilippines the serice of
facilitatin3 the collection and payment of receiables belon3in3 to a
forei3n company that is a clearly separate and distinct entity$
b$ Such serice is commercial in natureG carried on oer a
sustained period of timeG on a si3nificant scale !ith a reasonable
de3ree of fre"uencyG and not at random, fortuitous, or attenuated$
c$ Cor this serice, it definitely receies consideration in
forei3n currency that is accounted for in conformity !ith la!$
d$ 1t is not an entity exempt under any of our la!s or
international a3reements$ ?Commissioner, of Internal &evenue v.
American /6press International, Inc. (Philipppine Branch', <$ 0$ No$
1-2@09, Iune 29, 200->
:9. 0h$&e the !e(/$#e "e(+o(,e) *' A,e($#%-
E."(e!! $! !*?e#t to VAT $t $! Be(oF(%te)7 %-) B1R
Re/e-e Re8&%t$o-! th%t %&te( the &e8%& (eD$(e,e-t! +o(
Be(oF(%t$-8 %(e ultra vires %-) $-/%&$). The *=T system uses
the destination principle !hich posits that the 3oods and serices are
taxed only in the country !here they are consumed,
:o!eer, the la! itself proides for clear exceptions under
!hich the supply of serices shall be #eroJrated, amon3 !hich are
the follo!in35
a$ The serice is performed in the 9hilippinesG
b$ The serices are !ithin the cate3ories proided for
under the Tax CodeG and
c$ 1t is paid for in acceptable forei3n currency of the
(an3&o Sentral n3 9ilipinas$
=merican )xpress renders assistance to its forei3n clients by
receiin3 the bills of serice establishments located in the country
and for!ardin3 them to their clients abroad$ The serices are
performed or successfully completed upon send to its forei3n clients
the drafts and bills it has 3athered from serice establishments here,
1ts serices, hain3 been performed in the 9hilippines are therefore
also consumed in the 9hilippines$ Thus, its serices are exempt
from the destination principle and are #eroJrated$
The (10 could not chan3e the la!$ ?Commissioner, of
Internal &evenue v. American /6press International, Inc. (Philipppine
Branch', <$ 0$ No$ 1-2@09, Iune 29, 200->
;0. A +o(e$8- Co-!o(t$, #o,"o!e) o+ B0SCF
De-,%(H7 M$t!$ E-8$-ee($-8 %-) Sh$"*$&)$-8 Lt).7 %-)
M$!$ %-) Co.7 Lt).7 wh$#h e-te(e) $-to % #o-t(%#t w$th
NAPOCOR +o( the o"e(%t$o- %-) ,%$-te-%-#e o+ two
"owe( *%(8e! %""o$-te) B0SCFDe-,%(H %! $t!
#oo()$-%t$o- ,%-%8e(. B0SCM1 w%! e!t%*&$!he) %! the
!*#o-t(%#to( to "e(+o(, the %#t%& wo(H $- the
Ph$&$""$-e!. The Co-!o(t$, "%$) B0SCM1 $- %##e"t%*&e
+o(e$8- e.#h%-8e %-) %##o-te) +o( $- %##o()%-#e w$th
the (&e! %-) (e8&%t$o-! o+ the BSP.
Th(o8h % 4e*(%(' 1;7 1995 (&$-8 the B1R )e#&%(e)
th%t B0SCM1 ,%' #hoo!e to (e8$!te( %! % VAT "e(!o-!
!*?e#t to VAT %t Be(o (%te. 4o( 199<7 $t +$&e) the "(o"e(
VAT (et(-! !how$-8 Be(o (%t$-8. O- De#e,*e( 297 199=7
*e&$e/$-8 th%t $t $! #o/e(e) *' Re/. Re8!. 5F9<7 )%te)
4e*(%(' 207 199<7 B0SCM1 "%$) 10I ot"t VAT +o( the
"e($o) A"($&FDe#e,*e( 199<7 th(o8h the Vo&-t%('
A!!e!!,e-t P(o8(%, @VAPA.
O- 3%-%(' =7 19997 B0SCM1 w%! %*&e to o*t%$- %
R&$-8 +(o, the B1R (e#o-+$(,$-8 th%t $t $! !*?e#t to VAT
%t Be(oF(%t$-8. O- th$! *%!$!7 B0SCM1 %""&$e) +o( % (e+-)
o+ the ot"t VAT $t "%$).
%. 1! B0SCM1 !*?e#t to the 10I VAT o( $! $t Be(o
(%te) 9
S8<<)ST). =NSW)05 Kes$ (WSCM1 is not #ero rated
and is subBect to the 106 *=T$ 1t is renderin3 serice for the
Consortium !hich is not doin3 business in the 9hilippines$ 2eroJ
ratin3 finds application only !here the recipient of the serices are
other persons doin3 business outside of the 9hilippines$ (WSCM1
proides serices to the Consortium !hich by irtue of its contract
!ith N=9/C/0 is doin3 business !ithin the 9hilippines$
?Commissioner of Internal &evenue v. Burmeister an" Kain
Scan"inavian Contractor $in"anao, Inc., <$ 0$ No$ 1-'20-, Ianuary
22, 200,>
*. Co&) $t o*t%$- % (e+-) o+ the VAT $t "%$)
th(o8h the VAP 9 E."&%$-.
S8<<)ST). =NSW)05 Kes$ (WSCM1 is entitled to refund
of the 106 output *=T it paid the based on the nonJretroactiity of
the preBudicial reocation of the (10 0ulin3s !hich held that it%s
serices are subBect to 06 *=T and !hich (WSCM1 ino&ed in
applyin3 for refund of the output *=T$ ?Commissioner of Internal
&evenue v. Burmeister an" Kain Scan"inavian Contractor $in"anao,
Inc., supra>
N/T)S =N. C/MM)NTS5
a$ Do -ot #o-+!e the B0SCM1 #%!e w$th the
A,e($#%- E."(e!! #%!e. =merican )xpress 1nternational, 1nc$
43
?9hilippine (ranch>H is a *=TJre3istered person that facilitates the
collection and payment of receiables belon3in3 to its -o-F(e!$)e-t
+o(e$8- #&$e-t F=merican )xpress 1nternational, 1nc$ ?:on3&on3
(ranch>H, for !hich it 3ets paid in acceptable forei3n currency
in!ardly remitted and accounted for in accordance !ith (S9 rules
and re3ulations$ ?Commissioner of Internal &evenue v. Burmeister
an" Kain Scan"inavian Contractor $in"anao, Inc., <$ 0$ No$ 1-'20-,
Ianuary 22, 200,>
;1. VATFE.e,"t t(%-!%#t$o-!7 )e+$-e).
a$ The sale of 3oods or properties and7or serices and the
use or lease of properties that is
b$ not subBect to *=T ?output tax> and
c$ the seller is not allo!ed any tax credit on *=T ?input
tax> purchases$
The person ma&in3 the exempt sale of 3oods, properties or
serices shall not bill any output tax to his customers because the
said transaction is not subBect to *=T$ F0e$ 0e3s$ No$ 1@J200-,
Sec$ A$109J1 ?=>, arran3ement and numberin3 suppliedH
;2. VATFe.e,"t t(%-!%#t$o-! )$!t$-8$!he) +(o,
VATFe.e,"t e-t$t$e!. a$
=n exempt transaction, on the one hand, inoles 3oods or
serices !hich, by their nature, are specifically listed in and
expressly exempted from the *=T under the Tax Code, !ithout
re3ard to the tax status L *=TJexempt or not L of the party to the
transaction$ =n
exempt party, on the other hand, is a person or entity 3ranted *=T
exemption under the Tax Code, a special la! or an international
a3reement to !hich the 9hilippines is a si3natory, and by irtue of
!hich its taxable transactions become exempt from *=T$
FCommissioner of 1nternal 0eenue $ Toshiba 1nformation
)"uipment ?9hils$>, 1nc$, <$ 0$ No$ 1-01-A, =u3ust 9, 200-H
b$ =n exempt transaction shall not be the subBect of any
billin3 for output *=T but it shall not also be allo!ed any input tax
credits W:14) an exempt party bein3 #eroJrated is allo!ed to claim
input tax credits$
;:. 0h%t t(%-!%#t$o-! %(e +(o, VAT 9
S8<<)ST). =NSW)05 ?SubBect to the election by a *=TJ
re3istered person not to be subBect to the alueJadded ta6', the
follo!in3 shall be exempt from *=T5
?=> Sale or importation of a3ricultural and marine food
products in their ori3inal state, liestoc& and poultry of a &ind
3enerally used as, or yieldin3 or producin3 foods for human
consumptionG and breedin3 stoc& and 3enetic materials therefor$
4iestoc& shall include co!s, bulls and cales, pi3s, sheep,
3oats and rabbits$ 9oultry shall include fo!ls, duc&s, 3eese and
tur&ey, 4iestoc& or poultry does not include fi3htin3 coc&s, race
horses, #oo animals and other animals 3enerally considered as pets$
Marine food products shall include fish and crustaceans, such
as, but not limited to, eels, trout, lobster, shrimps, pra!ns, oysters,
mussels and clams$
Meat, fruit, fish, e3etables and other a3ricultural and marine
food 9roducts classified under this para3raph shall be considered in
their ori3inal state een if they hae under3one the simple
processes of preparation or preseration for the mar&et, such as
free#in3, dryin3, saltin3, broilin3, roastin3, smo&in3 or strippin3,
includin3 those usin3 adanced technolo3ical means of pac&a3in3,
such as shrin& !rappin3 in plastics, acuum pac&in3, tetraJpac&, and
other similar pac&a3in3 methods$ 9olished and7or hus&ed rice, corn
3rits, ra! cane su3ar and molasses, ordinary salt, and copra shall be
considered in their ori3inal state$
Su3ar !hose content of sucrose by !ei3ht, in the dry state,
has a polarimeter readin3 of 99$-o and aboe are presumed to be
refined su3ar$
Cane su3ar produced from the follo!in3 shall be presumed,
for internal reenue purposes, to be refined su3ar5
?1> product of a refinin3 process,
?2> products of a su3ar refinery, or
?'> product of a production line of a su3ar mill
accredited by the (10 to be producin3 su3ar !ith polarimeter
readin3 of 99$-o and aboe, and for !hich the "uedanissued
therefor, and erified by the Su3ar 0e3ulatory =dministration,
identifies the same to be of a polarimeter readin3 of 99$-o and
aboe$
(a3asse is not included in the exemption proided for under
this section$
?(> Sale or importation of fertili#ersG seeds, seedlin3s and
fin3erlin3sG fish, pra!n, liestoc& and poultry feeds, includin3
in3redients, !hether locally produced or imported, used in the
manufacture of finished feeds ?except specialty feeds for race
horses, fi3htin3 coc&s, a"uarium fish, #oo animals and other animals
3enerally considered as pets>G
DSpecialty feedsE refers to nonJa3ricultural feeds or food for
race horses, fi3htin3 coc&s, a"uarium fish, #oo animals and other
animals 3enerally considered as pets$
?C> 1mportation of personal and household effects
belon3in3 to the residents of the 9hilippines returnin3 from abroad
and nonresident citi#ens comin3 to resettle in the 9hilippines5
44
9roided, That such 3oods are exempt from customs duties under
the Tariff and Customs Code of the 9hilippinesG
?.> 1mportation of professional instruments and
implements, !earin3 apparel, domestic animals, and personal
household effects ?except any ehicle, essel, aircraft, machinery,
other 3oods for use in the manufacture and merchandise of any &ind
in commercial "uantity> belon3in3 to persons comin3 to settle in the
9hilippines, for their o!n use and not for sale, barter or exchan3e,
accompanyin3 such persons, or arriin3 !ithin ninety ?90> days
before or after their arrial, upon the production of eidence
satisfactory to the Commissioner of 1nternal 0eenue, that such
persons are actually comin3 to settle in the 9hilippines and that the
chan3e of residence is bona fideG
?)> Serices subBect to percenta3e tax under Title * of the
Tax Code, as enumerated belo!5
?1> Sale or lease of 3oods or properties or the
performance of serices of nonJ*=TJre3istered persons,
other than the transactions mentioned in para3raphs ?=> to
?8> of Sec$ 109 ?1> of the Tax Code, the annual sales and7or
receipts of !hich does not exceed the amount of /ne
Million Cie :undred thousand 9esos ?91,-00,000$00>,
9roided, That not later than Ianuary '1, 2009 and eery
three ?'> years thereafter, the amount herein stated shall be
adBusted to its present alue usin3 the Consumer 9rice
1ndex, as published by the National Statistics /ffice ?NS/>$
?Sec$ 11@, Tax Code>
?2> Serices rendered by domestic common carriers
by land for the transport of passen3ers and &eepers of
3ara3es$ ?Sec$ 11,>
?'> Serices rendered by international air7shippin3
carriers$ ?Sec$ 11+>
?A> Serice rendered by franchise 3rantees of radio
and7or teleision broadcastin3 !hose annual 3ross receipts
of the precedin3 year do not exceed Ten Million 9esos
?910,000,000$00> and by franchises of 3as and !ater
utilities$ ?Sec$ 119>
?-> Serice rendered for oerseas dispatch messa3e
or conersation ori3inatin3 from the 9hilippines$ ?Sc$ 120>
?@> Serices rendered by any person, company or
corporation ?except purely cooperatie companies or
associations > doin3 life insurance business of any sort in
the 9hilippines$ ?Sec$ 12'>
?,> Serices rendered by fire, marine or
miscellaneous insurance a3ents of forei3n insurance
companies$ ?Sec$ 12A>
?+> Serices of proprietors, lessees or operators of
coc&pits, cabarets, ni3ht or day clubs, boxin3 exhibitions
professional bas&etball 3ames, BaiJ=lai and race trac&s$
?Sec$ 12->$ and
?9> 0eceipts on sale, barter or exchan3e of shares of
stoc& listed and traded throu3h the local stoc& exchan3e or
throu3h initial public offerin3$ ?Sec$ 12,>
?C> Serices by a3ricultural contract 3ro!ers and millin3 for
others of palay into rice, corn into 3rits and su3ar cane into ra!
su3arG
D=3ricultural contract 3ro!ersE refers to those persons
producin3 for others poultry, liestoc& or other a3ricultural and
marine food products in their ori3inal state$
?<> Medical, dental, hospital and eterinary serices except
those rendered by professionalsG
4aboratory serices are exempted$ 1f the hospital or clinic
operates a pharmacy or dru3 store, the sale of dru3s and medicine
is subBect to *=T$
?:> )ducational serices rendered by priate educational
institutions, duly accredited by the .epartment of )ducation
?.)9).>, the Commission on :i3her )ducation ?C:).>, the
Technical )ducation =nd S&ills .eelopment =uthority ?T)S.=>
and those rendered by 3oernment educational institutionsG
D)ducational sericesE shall refer to academic, technical or
ocational education proided by priate educational institutions
duly accredited by the .ep)., the C:). and T)S.= and those
rendered by 3oernment educational institutions and it does not
include seminars, inJserice trainin3, reie! classes and other
similar serices rendered by persons !ho are not accredited by the
.ep)., the C:). and7or the T)S.=$
?1> Serices rendered by indiiduals pursuant to an
employerJemployee relationshipG
?I> Serices rendered by re3ional or area head"uarters
established in the 9hilippines by multinational corporations !hich act
as superisory, communications and coordinatin3 centers for their
affiliates, subsidiaries or branches in the =siaJ9acific 0e3ion and do
not earn or derie income from the 9hilippinesG
?Y> Transactions !hich are exempt under international
a3reements to !hich the 9hilippines is a si3natory or under special
la!s, except those under 9residential .ecree No$ -29 L 9etroleum
)xploration Concessionaires under the 9etroleum =ct of 19A9G andG
?4> Sales by a3ricultural cooperaties duly re3istered !ith
the Cooperatie .eelopment =uthority ?C.=> to their members as
!ell as sale of their produce, !hether in its ori3inal state or
processed form, to nonJmembersG their importation of direct farm
inputs, machineries and e"uipment, includin3 spare parts thereof, to
45
be used directly and exclusiely in the production and7or processin3
of their produceG
?M> <ross receipts from lendin3 actiities by credit or multiJ
purpose cooperaties duly re3istered and in 3ood standin3 !ith the
Cooperatie .eelopment =uthorityG
?N> Sales by nonJa3ricultural, nonJelectric and nonJcredit
cooperaties duly re3istered !ith the Cooperatie .eelopment
=uthority5 9roided, That the share capital contribution of each
member does not exceed Cifteen thousand pesos ?91-,000> and
re3ardless of the a33re3ate capital and net surplus ratably
distributed amon3 the membersG
1mportation by nonJa3ricultural, nonJelectric and nonJcredit
cooperaties of machineries and e"uipment, includin3 spare parts
thereof, to be used by them are subBect to *=T$
?/> )xport sales by persons !ho are not *=TJre3isteredG
?9> Sale of real properties not primarily held for sale to
customers or held for lease in the ordinary course of trade or
business, or real property utili#ed for lo!Jcost and sociali#ed housin3
as defined by 0epublic =ct No$ ,2,9, other!ise &no!n as the 8rban
.eelopment and :ousin3 =ct of 1992, and other related la!s, such
as 0= No$ ,+'- and 0= No$ +,@-, residential lot alued at /ne
million fie hundred thousand pesos ?9 1,-00,000> and belo!, house
and lot, and other residential d!ellin3s alued at T!o million fie
hundred thousand pesos ?9 2,-00,000> and belo!5 9roided, That
not later than Ianuary '1, 2009 and eery three ?'> years thereafter,
the amounts herein stated shall be adBusted to their present alues
usin3 the Consumer 9rice 1ndex, as published by the National
Statistics /ffice ?NS/>G
?S> 4ease of a residential unit !ith a monthly rental not
exceedin3 Ten thousand pesos ?9 10,000> 9roided, That not later
than Ianuary '1, 2009 and eery three ?'> years thereafter, the
amount herein stated shall be adBusted to its present alue usin3 the
Consumer 9rice 1ndex as published by the National Statistics /ffice
?NS/>G
?0> Sale, importation, printin3 or publication of boo&s and
any ne!spaper, ma3a#ine, reie! or bulletin !hich appears at
re3ular interals !ith fixed prices for subscription and sale and
!hich is not deoted principally to the publication of paid
adertisementsG
?S> Sale, importation or lease of passen3er or car3o
essels and aircraft, includin3 en3ine, e"uipment and spare parts
thereof for domestic or international transport operationsG 9roided,
that the exemption from *=T on the importation and local purchase
of passen3er and7or car3o essels shall be limited to those of one
hundred fifty ?1-0> tons and aboe, includin3 en3ine and spare parts
of said esselsG 9roided, further, that the essels be imported shall
comply !ith the a3e limit re"uirement, at the time of ac"uisition
counted from the date of the essel%s ori3inal commissionin3, as
follo!s5 ?i> for passen3er and7or car3o essels, the a3e limit is
fifteen years ?1-> years old, ?ii> for tan&ers, the a3e limit is ten ?10>
years old, and ?iii> Cor hi3hJspeed passen3er cars, the a3e limit is
fie ?-> years old, 9roided, finally, that exemption shall be subBect
to the proisions of section A of 0epublic =ct No$ 929-, other!ise
&no!n as DThe .omestic Shippin3 .eelopment =ct of 200A$E
?T> 1mportation of fuel, 3oods and supplies by persons
en3a3ed in international shippin3 or air transport operationsG
9roided, that the said fuel, 3oods and supplies shall be used
exclusiely or shall pertain to the transport of 3oods and7or
passen3er from a port in the 9hilippines directly to a forei3n port
!ithout stoppin3 at any other port in the 9hilippinesG proided,
further, that if any portion of such fuel, 3oods or supplies is used for
purposes other than that mentioned in this para3raph, such portion
of fuel, 3oods and supplies shall be subBect to 106 *=T ?no! 126>G
?8> Serices of ban&s, nonJban& financial intermediaries
performin3 "uasiJban&in3 functions, and other nonJban& financial
intermediariesG and
?*> Sale or lease of 3oods or properties or the performance
of serices other than the transactions mentioned in the precedin3
para3raphs, the 3ross annual sales and7or receipts do not exceed
the amount of /ne million fie hundred thousand pesos
?91,-00,000>5 9roided, That not later than Ianuary '1, 2009 and
eery three ?'> years thereafter, the amount herein stated shall be
adBusted to its present alue usin3 the Consumer 9rice 1ndex as
published by the National Statistics /ffice ?NS/>$
Cor purposes of the threshold of 91,-00,000$00, the husband
and !ife shall be cnsidered separate taxpayers$ :o!eer, the
a33re3ation rule for each taxpayer shall apply$ Cor instance, if a
profesional, aside from the practice ofhis profession, also deries
reenue from other lines of business !hich are other!ise subBect to
*=T, the same shall be combined for purposes of determinin3
!hether the threshold has been exceeded$ Thus, the *=TJexempt
sales shall to be icluded in determinin3 the threshold$ FN10C of
199,, Sec$ 109 ?1>, as amended by 0$ =$ No$ 9'',G !ords in italics
from 0e$ 0e3s$ No$ 1@J200-, Sec$ A$109J1 ?(>, !ords in
parentheses suppliedH
;;. 6 $! e-8%8e) $- the $,"o(t%t$o- %-) !%&e o+
*ooH! %-) ,%8%B$-e!. 1! the $,"o(t%t$o- o+ *ooH! %-)
,%8%B$-e! !*?e#t to the 10I VAT9 E."&%$-.
S8<<)ST). =NSW)05 No$ Sale, importation, printin3 or
publication of boo&s and any ne!spaper, ma3a#ine, reie! or
46
bulletin !hich appears at re3ular interals !ith fixed prices for
subscription and sale and !hich is not deoted principally to the
publication of paid adertisementsG
;5. 1! the(e %-' t%. to *e "%$) *' "e(!o-! e.e,"t
+(o, VAT 9
S8<<)ST). =NSW)05 Kes$
a$ =ny person, !hose sales or receipts are exempt under
Sec$ 109 ?1> ?*> of the Tax Code,
?*> Sale or lease of 3oods or properties or the
performance of serices other than the transactions
mentioned in the precedin3 para3raphs, the 3ross annual
sales and7or receipts do not exceed the amount of /ne
million fie hundred thousand pesos ?91,-00,000>5
9roided, That not later than Ianuary '1, 2009 and eery
three ?'> years thereafter, the amount herein stated shall be
adBusted to its present alue usin3 the Consumer 9rice
1ndex as published by the National Statistics /ffice ?NS/>,
from the payment of *=T and
b$ !ho is not a *=TJre3istered person
c$ shall pay a tax e"uialent to three percent ?'6> of his
3ross monthly sales or receiptsG
9roided, that cooperaties shall be exempt from the three
?'6> 3ross receipts tax herein imposed$ ?0e$ 0e3s$ No$ 1@J200-,
Sec$ A$11@J1, arran3ement, numberin3 and !ords in italics supplied>
RETURNS AND 01THHOLD1N2
1. 1-#o,e t%. (et(-! bein3 "*&$# )o#,e-t!, until
controerted by competent eidence, are competent eidence, are
prima facie correct !ith respect to the entries therein$ (&opali *ra"in#
v. !L&C, et al., 29@ SC0= '09, '1,>
2. DM%(($e) $-)$/$)%&!7 whethe( #$t$Be-!7 (e!$)e-t o(
-o-F(e!$)e-t %&$e-!7 who )o -ot )e($/e $-#o,e "(e&' +(o,
#o,"e-!%t$o- !h%&& +$&e % (et(- +o( the t%.%*&e 'e%( to $-#&)e
the $-#o,e o+ *oth !"o!e!7 but !here it is impracticable for the
spouses to file one return, each spouse may file a separate return of
income but the returns so filed shall be consolidated by the (ureau
for purposes of erification$E FSection -1 ?.> of the N10C of 199,H
:$ 1-)$/$)%&! (eD$(e) to +$&e %- $-#o,e t%. (et(-.
a$ )ery Cilipino citi#en residin3 in the 9hilippinesG
b$ )ery Cilipino citi#en residin3 outside the 9hilippines on
his income from sources !ithin the 9hilippinesG
c$ )ery alien residin3 in the 9hilippines on income deried
from sources !ithin the 9hilippinesG and
d$ )ery nonresident alien en3a3ed in trade or business or
in the exercise of profession in the 9hilippines$ FSec$ -1 ?=> ?1>, N10C
of 199,H
;. 1-)$/$)%&! who %(e -ot (eD$(e) to +$&e %- $-#o,e t%.
(et(-$
a$ =n indiidual !hose 3ross income does not exceed his
total personal and additional exemptions for dependents, Provi"e",
That a citi#en of the 9hilippines and any alien indiidual en3a3ed in
business or practice of profession !ithin the 9hilippines shall file an
income tax return re3ardless of the amount of 3ross incomeG
b$ =n indiidual !ith respect to pure compensation income
for serices in !hateer form paid, includin3, but not limited to fees,
salaries, !a3es, commissions, and similar items, deried from
sources !ithin the 9hilippines, the income tax on !hich has been
correctly !ithheld, Provi"e", That an indiidual deriin3 compensation
concurrently from t!o or more employers at any time durin3 the
taxable year shall file an income tax return5 Provi"e", further, That an
indiidual !hose pure compensation income deried from sources
!ithin the 9hilippines exceeds Sixty thousand pesos ?9@0,000$00>,
shall also file an income tax returnG
c$ =n indiidual !hose sole income has been subBect to
final !ithholdin3 taxG
d$ =n indiidual !ho is exempt from income tax pursuant to
the proisions of the N10C of 199,, and other la!s, 3eneral or special$
FSec$ -1 ?=> ?2>, N10C of 199,H
N/T)S =N. C/MM)NTS5 =mendments under 0ep$ =ct No$
9-0A are not incouded$
5. A- $-)$/$)%& who $! -ot (eD$(e) to +$&e %- $-#o,e
t%. (et(- ,%' -e/e(the&e!! *e (eD$(e) to +$&e %- $-+o(,%t$o-
(et(-. FSec$ -1 ?=> ?'>, N10C of 199,H
<. A #o("o(%t$o- +$&e! $t! $-#o,e t%. (et(- %-) "%'! $t!
$-#o,e t%. +o( @;A t$,e! )($-8 % !$-8&e t%.%*&e 'e%(. Suarterly
returns are re"uired to be filed for the first three "uarters, then a final
adBustment return is filed coerin3 the total taxable income for the
!hole taxable year, be it calendar or fiscal$
=. A- $-)$/$)%& e%(-$-8 +(o, the "(%#t$#e o+ h$!
"(o+e!!$o- o( who e-8%8e! $- t(%)e o( *!$-e!! +$&e! h$! $-#o,e
t%. (et(- %-) "%'! h$! $-#o,e t%. +o( @;A t$,e! )($-8 % !$-8&e
t%.%*&e 'e%(. Suarterly returns are re"uired to be filed for the first
47
three "uarters, then an annual income tax return is filed coerin3 the
total taxable income for the !hole of the preious calendar year$
>. The "("o!e o+ the %*o/e +o( @;A t$,e! % 'e%(
(eD$(e,e-t $! to ,%He %/%$&%*&e !++$#$e-t +-)! to ,eet the
*)8et%(' (eD$(e,e-t!7 on a "uarterly basis thereby increasin3
3oernment li"uidity$ 1t also eases hardships on the part of
indiiduals !ho are re"uired to ma&e this four time return$ Thus, the
taxpayer does not hae to raise lar3e sums of money in order to pay
the tax$
9. A- $-)$/$)%& e%(-$-8 "(e&' #o,"e-!%t$o- $-#o,e
+$&e! o-&' o-e %--%& $-#o,e t%. (et(- coerin3 the total taxable
compensation income for the !hole of the preious calendar year$
10. U-)e( the w$thho&)$-8 t%. !'!te,7 t%.e! $,"o!e) o(
"(e!#($*e) *' the N1RC o+ 199= %(e to *e )e)#te) %-) w$thhe&)
*' the "%'o(! +(o, "%',e-t! ,%)e to "%'ee! +o( the +o(,e( to
"%' )$(e#t&' to the B(e% o+ 1-te(-%& Re/e-e$ 1t is also &no!n as
collection of the tax at source$
11. A w$thho&)$-8 %8e-t $! e."&$#$t&' ,%)e "e(!o-%&&'
&$%*&e -)e( the T%. Co)e +o( the "%',e-t o+ the t%. (eD$(e) to
*e w$thhe&)7 in order to compel the !ithholdin3 a3ent to !ithhold the
tax under any and all circumstances$ 1n effect, the responsibility for
the collection of the tax as !ell as the payment thereof is
concentrated upon the person oer !hom the <oernment has
Burisdiction$ ?Cilipinas Synthetic Ciber Corporation $ Court of
=ppeals, et al$, <$0$ Nos$ 11+A9+ X 12A',,, /ctober 12, 1999> The
system facilitates tax collection$
12. The t!o ?2> types of !ithholdin3 at source are the 1> final
!ithholdin3 taxG and 2> creditable !ithholdin3 tax$
1:. U-)e( the +$-%& w$thho&)$-8 t%. !'!te, the %,o-t o+
$-#o,e t%. w$thhe&) *' the w$thho&)$-8 %8e-t $! #o-!t$tte) %! %
+&& %-) +$-%& "%',e-t o+ the $-#o,e )e +(o, the "%'ee o- the
!%$) $-#o,e$ F1
st
sentence, 1
st
par$, Sec$ 2$-, ?=>, 0e$ 0e3s$ No$ 2J
9+H
The liability for payment of the tax rests primarily on the payor
or the !ithholdin3 a3ent$$ Thus, in case of his failure to !ithhold the
tax or in case of under !ithholdin3, the deficiency tax shall be
collected from the payor !ithholdin3 a3ent$ The payee is not re"uired
to file an income tax return for the particular income$
1;. U-)e( the #(e)$t%*&e w$thho&)$-8 t%. !'!te,7 t%.e!
w$thhe&) o- #e(t%$- $-#o,e "%',e-t! %(e $-te-)e) to eD%& o( %t
&e%!t %""(o.$,%te the t%. )e +(o, the "%'ee o- the !%$)
$-#o,e. The income recipient is still re"uired to file an income tax
return and7or pay the difference bet!een the tax !ithheld and the tax
due on the income$ F1
st
and 2
nd
sentences, Sec$ 2-,?(>, 0e$ 0e3s$
No$ 2J9+H
15. The two H$-)! o+ #(e)$t%*&e w$thho&)$-8 t%.e! are ?a>
taxes !ithheld on income payments coered by the expanded
!ithholdin3 taxG and ?b> taxes !ithheld on compensation income$
1<. P%',e-t! to the +o&&ow$-8 %(e e.e,"t +(o, the
(eD$(e,e-t o+ w$thho&)$-8 o( whe- -o w$thho&)$-8 t%.e!
(eD$(e):
a$ National <oernment and its instrumentalities includin3
proincial, city, or municipal 3oernmentsG
b$ 9ersons enBoyin3 exemption from payment of income
taxes pursuant to the proisions of any la!, 3eneral or special, such
as but not limited to the follo!in35
1> Sales of real property by a corporation !hich is
re3istered !ith and certified by the :480( or :8.CC as
en3a3ed in sociali#ed housin3 proBect !here the sellin3 price of
the house and lot or only the lot does not exceed 91+0,000$00
in Metro Manila and other hi3hly urbani#ed areas and
91-0,000$00 in other areas or such adBusted amount of sellin3
price for sociali#ed housin3 as may later be determined and
adopted by the :480(G
2> Corporations re3istered !ith the (oard of
1nestments and enBoyin3 exemptions from income under the
/mnibus 1nestment Code of 199,G
'> Corporations exempt from income tax under Sec$
'0, of the Tax Code, li&e the SSS, <S1S, the 9CS/, etc$
:o!eer, income payments arisin3 from any actiity !hich is
conducted for profit or income deried from real or personal
property shall be subBect to a !ithholdin3 tax$ ?Sec$ -,$-, 0e$
0e3s$ No$ 2J9+>
1=. AE e((o-eo!&' w$thhe&) the %,o-t o+ 15I +(o, the
!e&&$-8 "($#e o+ *ooH! %tho(e) *' 0 whe- the #o((e#t (%te
!ho&) h%/e *ee- 10I o-&'. S$-#e 0 $! ot o+ the #o-t('7
A %""&$e) +o( % (e+-) o+ the e.#e!! w$thho&)$-8 o+ 5I. M%'
A "(o"e(&' %""&' +o( the (e+-) 9 E."&%$-.
S8<<)ST). =NSW)05 Kes$ 1n applications for refund, the
!ithholdin3 a3ent is a taxpayer because if he does not pay the tax
shall be collected from him$ (Commissioner of Internal &evenue v.
48
Procter ) (am%le Philippine $anufacturin# Corporation, 20A SC0=
',,, '+'J'+@>,
N/T)S =N. C/MM)NTS5
a$ 4o( t%. %,-e!t' "("o!e!7 the w$thho&)$-8 %8e-t $!
-ot % t%."%'e( because he is made to pay the tax !here he fails to
!ithhold as a penalty and not that the tax is due from him$
?Commissioner of Internal &evenue v. Court of Appeals, et al$, <$0$
No$ 10+-,@, Ianuary 20, 1999, the Anscor case'
PENALT1ES7 1NTERESTS AND SURCHAR2ES
1. *hat are surtaxes or surchares ?
S8<<)ST). =NSW)05 Surtaxes or surchar3es, also &no!n
as the ciil penalties, are the amounts imposed in addition to the tax
re"uired$
They are in the nature of penalties and shall be collected at the
same time, in the same manner, and as part of the tax$ FSec$2A+ ?=>,
N10C of 199,H
2. *hat are the t"o (+) )inds of civil penalties ?
S8<<)ST). =NSW)05
a$ the 2-6 surchar3e for late filin3 or late payment FSec$
2A+ ?=>, N10C of 199,H ?also &no!n as the delin"uency surchar3e>,
and
b$ the -06 !illful ne3lect or fraud surchar3e$ FSec$ 2A+
?(>, I%i".H
:. 'efine deficienc! inco#e tax.
S8<<)ST). =NSW)05 .eficiency income tax is the amount
by !hich the tax imposed under the N10C of 199, exceeds the
amount sho!n as the tax due by the taxpayer upon his return$ FSec$
-@ ?(> ?1>, N10C of 199,H
;. De+$#$e-#' $-te(e!t7 )e+$-e). The interest assessed
and collected on any unpaid amount of tax at the rate of 206 per
annum or such hi3her rate as may be prescribed by re3ulations, from
the date prescribed for payment until the amount is fully paid$ FSec$
2A9 ?=> ?(>, N10C of 199,H
5. De&$-De-#' $-te(e!t7 )e+$-e). The interest assessed
and collected on the unpaid amount until fully paid !here there is
failure on the part of the taxpayer to pay the amount die on any return
re"uired to be filedG or the amount of the tax due for !hich no return is
re"uiredG or a deficiency tax, or any surchar3e or interest thereon, on
the date appearin3 in the notice and demand by the Commissioner of
1nternal 0eenue$ FSec$2A9 ?c>, N10C of 199,H
<. A+te( (e!o&/$-8 the $!!e! the B1R Co,,$!!$o-e(
(e)#e) the %!!e!!,e-t. 0%! $t "(o"e( to $,"o!e )e&$-De-#'
$-te(e!t )e!"$te the (e)#t$o- o+ the %!!e!!,e-t 9 0h' 9
S8<<)ST). =NSW)05 Kes$ The intention of the la! is to
discoura3e delay in the payment of taxes due to the State and in this
sense the surchar3e and interest char3ed are not penal but
compensatory in nature L they are compensation to the State for the
delay in payment, or for the concomitant tuse of the funds by the
taxpayer beyond the date he is supposed to hae paid them to the
State$ ?Ban4 of the Philippine Islan"s v. Commissioner of Internal
&evenue, <$ 0$ No$ 1',002, Iuly 2,, 200@>
=. Co,"(o,$!e "e-%&t'7 )e+$-e). The amount a3reed
upon bet!een the taxpayer and the <oernment to be paid as a
penalty in cases of a compromise$
>. A! % (e!&t o+ )$/e(8e-t (&$-8! o- whethe( $t $!
!*?e#t to t%. o( -ot7 the t%."%'e( w%! -ot %*&e to "%' h$! t%.e!
o- t$,e. 1,"o!e) !(#h%(8e! %-) $-te(e!t! +o( !#h )e&%'7 the
t%."%'e( -ot $-/oHe! 8oo) +%$th w$th the B1R #o-te($-8 *'
!%'$-8 th%t 8oo) +%$th $! -ot % /%&$) )e+e-!e +o( /$o&%t$o- o+ %
!"e#$%& &%w. 4(the(,o(e7 the B1R +(the( (%$!e! the )e+e-!e th%t
the 8o/e(-,e-t $! -ot *o-) *' the e((o(! o+ $t! %8e-t!. 0ho $!
#o((e#t 9
=NSW)05 The taxpayer is correct$ The settled rule is that
3ood faith and honest belief that one is not subBect to tax on the basis
of preious interpretation of 3oernment a3encies tas&ed to
implement the tax, are sufficient Bustification to delete the imposition
of surchar3es$ ?$ichel 2. Lhuillier Pa:nshop, Inc. v. Commissioner of
Internal &evenue, <$ 0$ No$ 1@@,+@, September 11, 200@>
REPUBL1C ACT NO. 11257 CREAT1N2 THE
COURT O4 TA6 APPEALS 1NCLUD1N2
3UR1SD1CT1ON O4 THE CTA7 AS AMENDED
1. The Co(t o+ T%. A""e%&! $! the !"e#$%& t%. #o(t
#(e%te) -)e( Re"*&$# A#t No. 1125, as amended, and is
composed of a 9residin3 Iustice and ei3ht ?+> =ssociate Iustices,
or3ani#ed into three ?'> diisions$
2. *h! "as the Court of ,ax Appeals created ?
S8<<)ST). =NSW)05
a$ To preent delay in the disposition of tax cases by the
then Courts of Cirst 1nstance ?no! 0TCs>, in ie! of the bac&lo3 of
49
ciil, criminal, and cadastral cases accumulatin3 in the doc&ets of
such courtsG and
b$ To hae a body !ith special &no!led3e !hich ordinary
Iud3es of the then Courts of Cirst 1nstance ?no! 0TCs>, are not li&ely
to possess, thus proidin3 for an ade"uate remedy for a speedy
determination of tax cases$ ?+rsal v. Court of *a6 Appeals, et al., 101
9hil$ 209G Lacsamana, et al., etc., v. C*A, et al., 102 9hil$ 9'1>
:. The &e8%& (e,e)$e! -)e( the N1RC o+ 199= %-)
othe( &%w! aailable to an a33rieed taxpayer may be classified into
the tax remedies !ith respect to5
a$ assessmentG
b$ collection, and
c$ refund of internal reenue taxes$
The remedies may also be classified into the administratie or
the Budicial remedies$
;. The &e8%& (e,e)$e! -)e( the N1RC o+ 199= %/%$&%*&e
to %- %88($e/e) t%."%'e( %t the %),$-$!t(%t$/e &e/e& !ith respect to
assessment of internal reenue taxes are the follo!in35
a$ 8pon receipt of a preJassessment notice, the taxpayer
shall respond to the same !ithin fifteen ?1-> days from receipt !hich
is the period proided for by implementin3 rules and re3ulations$ F'
rd
par$, Sec$ 22+ ?e>, N10C of 199,H
b$ 8pon the issuance of an assessment notice, the
taxpayer shall protest administratiely by filin3 a re"uest for
reconsideration or reinesti3ation !ithin thirty ?'0> days from receipt
of the assessment in such form and manner as may be prescribed by
implementin3 rules and re3ulations$
c$ Within sixty ?@0> days from the filin3 of the protest, all
releant supportin3 documents shall be submittedG other!ise the
assessment shall become final$ ?A
th
par$, I%i".>
5. The &e8%& (e,e)$e! -)e( the N1RC o+ 199= %/%$&%*&e
to %- %88($e/e) t%."%'e( %t the ?)$#$%& &e/e& !ith respect to
assessment of internal reenue taxes5
a$ 1f the protest is denied in !hole or in part, or
b$ is not acted upon !ithin one hundred ei3hty ?1+0> days
from submission of documents,
c$ the taxpayer adersely affected by the decision or inaction
may appeal to the Court of Tax =ppeals !ithin thirty ?'0> days from
receipt of the said decision, or from the lapse of the one hundred
ei3hty ?1+0> L day periodG other!ise, the decision shall become final,
executory and demandable$ Flast par$, Sec$ 22+ ?e>, N10C of 199,H
d$ /n appeal, the taxpayer should apply for the issuance of a
!rit of preliminary inBunction to enBoin the (10 from collectin3 the tax
subBect of the appeal$
e$ = decision of a diision of the Court of Tax =ppeals
aderse to the taxpayer or the 3oernment may be the subBect of a
motion for reconsideration or ne! trial, a denial of !hich is
appealable to the Court of Tax =ppeals en %anc by means of a
petition for reie!$
f$ = decision of the Court of Tax =ppeals en %anc aderse to
the taxpayer or the 3oernment may be appealed to the Supreme
Court throu3h a petition for reie! on certiorari filed !ith fifteen ?1->
days from notice, and extendible for Bustifiable reasons for thirty ?'0>
days only$
<. The &e8%& (e,e)' -)e( the N1RC o+ 199= %/%$&%*&e to %-
%88($e/e) t%."%'e( %t the %),$-$!t(%t$/e &e/e& !ith respect to
refund or recoery of tax erroneously or ille3ally collected, is to file a
claim for refund or credit !ith the Commissioner of 1nternal 0eenue$
?1
st
par$, Sec$ 229, N10C of 199,>
=. 0h%t $! the &e8%& (e,e)' -)e( the N1RC o+ 199= %t
the ?)$#$%& &e/e& w$th (e!"e#t to (e+-) o( (e#o/e(' o+ t%.
e((o-eo!&' o( $&&e8%&&' #o&&e#te) 9
S8<<)ST). =NSW)0$ The le3al remedy under the N10C of
199, at the Budicial leel !ith respect to refund or recoery of tax
erroneously or ille3ally collected, is the filin3 of a suit or proceedin3
!ith the Court of Tax =ppeals
a$ before the expiration of t!o ?2> years from the date of
payment of the tax re3ardless of any superenin3 cause that may
arise after payment ?2
nd
par$, Sec$ 229, N10C of 199,>, or
b$ !ithin thirty ?'0> days from receipt of the denial by the
Commissioner of the application for refund or credit$ ?Sec$ 11, 0$=$
No$ 112->
>. The t!o ?2> year period and the thirty ?'0> day period
should be applied on a !hicheer comes first basis$ Thus, if the '0
days is !ithin the 2 years, the '0 days applies, if the 2 year period is
about to lapse but there is no decision yet by the Commissioner !hich
!ould tri33er the '0Jday period, the taxpayer should file an appeal,
despite the absence of a decision$ (Commissioners, etc. v. Court of
*a6 Appeals, et al., (. &. !o. B<C;B, $arch ;C, ;IBI, unrep.'
9. Where the taxpayer is a corporation the t!o year
prescriptie period from Ddate of paymentE for refund of income taxes
should be the date !hen the corporation filed its final adBustment
50
return not on the date !hen the taxes !ere paid on a "uarterly basis$
(Philippine Ban4 of Communications v. Commissioner of Internal
&evenue, et al., (.&. !o. ;;<?<>, 2anuary <B, ;III'
<enerally spea&in3 it is the Cinal =dBustment 0eturn, in !hich
amounts of the 3ross receipts and deductions hae been audited and
adBusted, !hich is reflectie of the results of the operations of a
business enterprise$ 1t is only !hen the return, coerin3 the !hole
year, is filed that the taxpayer !ill be able to ascertain !hether a tax is
still due or refund can be claimed based on the adBusted and audited
fi3ures$ (Ban4 of the Philippine Islan"s v. Commissioner of Internal
&evenue, (.&. !o. ;>>CHA, Au#ust <B, <??;>
10. /utline of tax remedies of a taxpayer and the
3oernment relatie to =SS)SSM)NT of internal reenue taxes.
a$ The taxpayer files his tax return$
b$ = 4etter of =uthority is issued authori#in3 (10 examiner to
audit or examine the tax return and determines !hether the full and
complete taxes hae been paid$
c$ 1f the examiner is satisfied that the tax return is truly
reflectie of the taxable transaction and all taxes hae been paid, the
process ends$ :o!eer, if the examiner is not satisfied that the tax
return is truly reflectie of the taxable transaction and that the taxes
hae not been fully paid, a Notice of 1nformal Conference is issued
initin3 the taxpayer to explain !hy he should not be subBect to
additional taxes$
d$ 1f the taxpayer attends the informal conference and the
examiner is satisfied !ith the explanation of the taxpayer, the process
is a3ain ended$
1f the taxpayer i3nores the initation to the informal
conference, or if the examiner is not satisfied !ith taxpayer%s
explanation,, and he beliees that proper taxes should be assessed,
the Commissioner of 1nternal 0eenue or his duly authori#ed
representatie shall then notify the taxpayer of the findin3s in the form
of a preJassessment notice$ The preJassessment notice re"uires the
taxpayer to explain !ithin fifteen ?1-> days from receipt !hy no notice
of assessment and letter of demand for additional taxes should be
directed to him$
e$ 1f the Commissioner is satisfied !ith the explanation of the
taxpayer, then the process is a3ain ended$
1f the taxpayer i3nores the preJassessment notice by not
respondin3 or his explanations are not accepted by the
Commissioner, then a notice of assessment and a letter of demand is
issued$
The notice of assessment must be issued by the
Commissioner to the taxpayer !ithin a period of three ?'> years from
the time the tax return !as filed or should hae been filed !hicheer
is the later of the t!o eents$ Where the taxpayer did not file a tax
return or !here the tax return filed is false or fraudulent, then the
Commissioner has a period of ten ?10> years from discoery of the
failure to file a tax return or from discoery of the fraud !ithin !hich to
issue an assessment notice$ The runnin3 of the aboe prescriptie
periods may ho!eer be suspended under certain instances$
The notice of assessment must be issued !ithin the
prescriptie period and must contain the facts, la! and Burisprudence
relied upon by the Commissioner$ /ther!ise it !ould not be alid$
f$ The taxpayer should then file an administratie protest by
filin3 a re"uest for reconsideration or reinesti3ation !ithin thirty ?'0>
days from receipt of the assessment notice$
The taxpayer could not immediately interpose an appeal to
the Court of Tax =ppeals because there is no decision yet of the
Commissioner that could be the subBect of a reie!$
To be alid the administratie protest must be filed !ithin the
prescriptie period, must sho! the error of the (ureau of 1nternal
0eenue and the correct computations supported by a statement of
facts, and the la! and Burisprudence relied upon by the taxpayer$
There is no need to pay under protest$ 1f the protest !as not
seasonably filed the assessment becomes final and collectible and
the (ureau of 1nternal 0eenue could use its administratie and
Budicial remedies in collectin3 the tax$
3$ Within sixty ?@0> days from filin3 of the protest, all releant
supportin3 documents shall be submitted, other!ise the assessment
shall become final and collectible and the (10 could use its
administratie and Budicial remedies to collect the tax$
/nce an assessment has become final and collectible, not
een the (10 Commissioner could chan3e the same$ Thus, the
taxpayer could not pay the tax, then apply for a refund, and if denied
appeal the same to the Court of Tax =ppeals$
h$ 1f the protest is denied in !hole or in part, or is not acted
upon !ithin one hundred ei3hty ?1+0> days from the submission of
documents, the taxpayer adersely affected by the decision or
inaction may appeal to the Court of Tax =ppeals !ithin thirty ?'0>
days from receipt of the aderse decision, or from the lapse of the
one hundred ei3hty ?1+0J> day period, !ith an application for the
issuance of a !rit of preliminary inBunction to enBoin the (10 from
collectin3 the tax subBect of the appeal$
1f the taxpayer fails to so appeal, the denial of the
Commissioner or the inaction of the Commissioner !ould result to the
notice of assessment becomin3 final and collectible and the (10 could
then utili#e its administratie and Budicial remedies to collect the tax$
i$ = decision of a diision of the Court of Tax =ppeals
aderse to the taxpayer or the 3oernment may be the subBect of a
51
motion for reconsideration or ne! trial, a denial of !hich is
appealable to the Court of Tax =ppeals en %anc by means of a
petition for reie!$ $
The Court of Tax =ppeals, has a period of t!ele ?12> months
from submission of the case for decision !ithin !hich to decide$
B$ 1f the decision of the Court of Tax =ppeals en %anc affirms
the denial of the protest by the Commissioner or the assessment in
case of failure by the Commissioner to decide the taxpayer must file a
petition for reie! on certiorari !ith the Supreme Court !ithin fifteen
?1-> days from notice of the Bud3ment on "uestions of la!$ =n
extension of thirty ?'0> days may for Bustifiable reasons be 3ranted$ 1f
the taxpayer does not so appeal, the decision of the Court of Tax
=ppeals !ould become final and this has the effect of ma&in3 the
assessment also final and collectible$ The (10 could then use its
administratie and Budicial remedies to collect the tax$
11. ReD$!$te! +o( 4o(,%& Lette( o+ De,%-) %-)
A!!e!!,e-t Not$#e$ The formal letter of demand and assessment
notice shall be issued by the Commissioner or his duly authori#ed
representatie$ The letter of demand callin3 for payment of the
taxpayer%s deficiency tax or taxes shall state the facts, the la!, rules
and re3ulations, or Burisprudence on !hich the assessment is based,
other!ise, the formal letter of demand and assessment notice shall
be oid$ The same shall be sent to the taxpayer only by re3istered
mail or by personal deliery$
11FA.. 0h%t $! the *()e- o+ t%."%'e(! !eeH$-8 t%. (e+-)!
o( #(e)$t! 9
S8<<)ST). =NSW)05 1t has al!ays been the rule that
those see&in3 tax refunds or credits bear the burden of proin3 the
factual basis of their claims and of sho!in3, by !ords too plain to be
mista&en, that the le3islature intended to entitle them to such claims$
?Atlas Consoli"ate" $inin# an" .evelopment Corporation v.
Commissioner of Internal &evenue, <$ 0$ No$ 1A--2@, March 1@,
200,, See Commissioner of Internal &evenue v. Sea#ate *echnolo#y
(Philippines' <$ 0$ No$ 1-'+@@, 11 Cebruary 200-, A-1 SC0= 1'2>
12. 0h%t $! the -%t(e o+ "(o#ee)$-8! *e+o(e the Co(t
o+ T%. A""e%&! 9
S8<<)ST). =NSW)05
Cirst, a Budicial claim for refund or tax credit in the CT= is by no
means an ori3inal action, but rather an appeal by !ay of petition for
reie! of a preious, unsuccessful administratie claim$
Therefore, as in eery appeal or petition for reie!, a petitioner
has to conince the appellate court that the "uasiJBudicial a3ency a
9uo did not hae any reason to deny its claims$
Second, cases filed in the CT= are liti3ated "e novo$ Thus, a
petitioner should proe eery minute aspect of its case by presentin3,
formally offerin3 and submittin3 its eidence to the CT=$
Since it is crucial for a petitioner in a Budicial claim for refund or
tax credit to sho! that its administratie claim should hae been
3ranted in the first place, part of the eidence to be submitted to the
CT= must necessarily include !hateer is re"uired for the successful
prosecution of an administratie claim$ ?Atlas Consoli"ate" $inin#
an" .evelopment Corporation v. Commissioner of Internal &evenue,
<$ 0$ No$ 1A--2@, March 11@, 200,>
1:. 0h%t $! the ?($!)$#t$o- o+ the Co(t o+ T%.
A""e%&! 9
S8<<)ST). =NSW)05
Da$ E.#&!$/e %""e&&%te ?($!)$#t$o- to (e/$ew *' %""e%&7
%! he(e$- "(o/$)e):
1$ .ecisions of the Commissioner of 1nternal
0eenue in cases inolin3 disputed assessments, refunds of
internal reenue taxes, fees or other char3es, penalties, in
relation thereto, or other matters arisin3 under the National
1nternal 0eenue Code or other la!s administered by the (ureau
of 1nternal 0eenue%G ?.1*1S1/N>
2$ 1naction by the Commissioner of 1nternal 0eenue
in cases inolin3 disputed assessments, refunds or internal
reenue taxes, fees or other char3es, penalties in relation
thereto, or other matter arisin3 under the National 1nternal
0eenue Code or other la!s administered by the (ureau of
1nternal 0eenue, !here the National 1nternal 0eenue Code
proides a specific period of action, in !hich case the inaction
shall be deemed a denialG ?The inaction on refunds in t!o years
from the time tax !as paid$ Thus, if the prescriptie period of
t!o years is about to expire, the taxpayer should interpose a
petition for reie! !ith the CT= L .1*1S1/N>
'$ .ecisions, orders or resolutions of the 0e3ional
Trial Courts in local tax cases ori3inally decided or resoled by
them in the exercise of their ori3inal or appellate BurisdictionG ?1f
ori3inal .1*1S1/NG if appellate /! BA!C>
A$ .ecisions of the Commissioner of Customs in
cases inolin3 liability for customs duties, fees or other money
char3es, sei#ure, detention or release of property affected, fines,
forfeitures or other penalties in relation thereto, or other matters
arisin3 under the Customs 4a! or other la!s administered by the
(ureau of CustomsG ?.1*1S1/N>
-$ .ecisions of the Central (oard of =ssessment
=ppeals in the exercise of its appellate Burisdiction oer cases
52
inolin3 the assessment and taxation of real property ori3inally
decided by the proincial or city board of assessment appealsG
?/! BA!C>
@$ .ecisions of the Secretary of Cinance on customs
cases eleated to him automatically for reie! from decisions of
the Commissioner of Customs !hich are aderse to the
<oernment under Section 2'1- of the Tariff and Customs
CodeG ?This has reference to forfeiture cases !here the decision
is to release the sei#ed articles L .1*1S1/N>
,$ .ecisions of the Secretary of Trade and 1ndustry,
in case of nona3ricultural product, commodity or article, and the
Secretary of =3riculture in the case of a3ricultural product,
commodity or article, inolin3 dumpin3 and counterailin3
duties under Section '01 and '02, respectiely, of the Tariff and
Customs Code, and safe3uard measures under 0epublic =ct No$
++00, !here either party may appeal the decision to impose or
not to impose said duties$ ?.1*1S1/N>
b$ 3($!)$#t$o- o/e( #%!e! $-/o&/$-8 #($,$-%& o++e-!e! %!
he(e$- "(o/$)e):
1$ E.#&!$/e o($8$-%& ?($!)$#t$o- o/e( %&& #($,$-%&
#%!e! arisin3 from iolations of the National 1nternal 0eenue
Code or Tariff and Customs Code and other la!s administered
by the (ureau of 1nternal 0eenue or the (ureau of Customs5
Provi"e", ho:ever, That offenses or felonies mentioned in this
para3raph !here the principal amount of taxes and fees,
exclusie of char3es and penalties claimed, is less than /ne
million pesos ?91,000,000$00> or !here there is no specified
amount claimed shall be tried by the re3ular Courts and the
Burisdiction of the CT= shall be appellate$ =ny proision of la! or
the 0ules of Court to the contrary not!ithstandin3, the criminal
action and the correspondin3 ciil action for the recoery of ciil
liability for taxes and penalties shall at all times be
simultaneously instituted !ith, and Bointly determined in the same
proceedin3 by the CT=, the filin3 of the criminal action bein3
deemed to necessarily carry !ith it the filin3 of the ciil action,
and no ri3ht to resere the filin3 of such ciil action separately
from the ciil action !ill be reco3ni#ed$
2$ E.#&!$/e %""e&&%te ?($!)$#t$o- $- #($,$-%&
o++e-!e!:
a> /er appeals from the Bud3ments,
resolutions or orders of the 0e3ional Trial Courts in tax
cases ori3inally decided by them, in their respectie
territorial Burisdiction$
b> /er petitions for reie! of the Bud3ments,
resolutions or orders of the 0e3ional Trial Courts in the
exercise of their appellate Burisdiction oer tax cases
ori3inally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts
in their respectie Burisdiction$
c$ 3($!)$#t$o- o/e( t%. #o&&e#t$o- #%!e!:
1$ )xclusie ori3inal Burisdiction in tax collection
cases inolin3 final and executory assessments for taxes,
fees, char3es and penalties5 Provi"e", ho:ever, That collection
cases !here the principal amount of taxes and fees, exclusie
of char3es and penalties, claimed is less than /ne million
pesos ?91,000,000> shall be tried by the proper Municipal Trial
Court, Metropolitan Trial Court and 0e3ional Trial Court$
2$ )xclusie appellate Burisdiction in tax collection
cases5
a$ /er appeals from Bud3ments, resolutions,
or orders of the 0e3ional Trial Courts in tax collection
cases ori3inally decided by them, in their respectie
territorial Burisdiction$
b$ /er petitions for reie! of the Bud3ments,
resolutions or orders of the 0e3ional Trial Courts in the
exercise of their appellate Burisdiction oer tax collection
cases ori3inally decided by the Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts,
in their respectie Burisdiction$E ?Sec$ ,, 0$ =$ No$ 112-,
as amended by 0$ =$ No$ 92+2, emphasis and !ords in
parentheses supplied>
The "et$t$o- +o( (e/$ew to *e +$&e) w$th the
CTA en banc %! the ,o)e +o( %""e%&$-8 %
)e#$!$o-7 (e!o&t$o-7 o( o()e( o+ the CTA
D$/$!$o-7 -)e( Se#t$o- 1> o+ Re"*&$# A#t No.
11257 %! %,e-)e)7 $! -ot % tot%&&' -ew (e,e)'7
-$De to the CTA7 w$th % !"e#$%& %""&$#%t$o- o(
!e the(e$-. To the contrary, the CT= merely adopts
the procedure for petitions for reie! and appeals lon3
established and practiced in other 9hilippine courts$
=ccordin3ly, doctrines, principles, rules, and
precedents laid do!n in Burisprudence by this Court as
re3ards petitions for reie! and appeals in courts of
3eneral Burisdiction should li&e!ise bind the CT=, and it
cannot depart therefrom$ ?Santos v. People, et al, <$ 0$
No$ 1,'1,@, =u3ust 2@, 200+>
1:FA. 2e-e(%& (&e: The )e-$%& o+ % ,ot$o- to
D%!h $! %- $-te(&o#to(' o()e( wh$#h $! -ot the "(o"e(
!*?e#t o+ %- %""e%& o( % "et$t$o- +o( #e(t$o(%($.
=ccordin3 to Section 1, 0ule A1 of the 0eised 0ules of Court,
53
3oernin3 appeals from the 0e3ional Trial Courts ?0TCs> to the
Court of =ppeals, an appeal may be ta&en only from a Bud3ment
or final order that completely disposes of the case or of a matter
therein !hen declared by the 0ules to be appealable$ Said
proision, thus, explicitly states that no appeal may be ta&en
from an interlocutory order$ ?Santos v. People, et al, <$ 0$ No$
1,'1,@, =u3ust 2@, 200+>
1;. A""&$#%*$&$t' o+ Proton Pilipinas Corporation vs.
Republic, etc., 2. R. No. 1<502=7 O#to*e( 1<7 200<. The case !as
decided on factual antecedents before 0$ =$ No$ 92+2 !hich 3rants
criminal Burisdiction to the Court of Tax =ppeals if the alue of the tax
is 91 million or more$
1nterpretin3 the proisions of 0epublic =ct No$ +2A9, !hich
proides that the ciil action for recoery of ciil liability should be
Bointly determined in the criminal proceedin3 by the Sandi3anbayan or
appropriate courts, the prohibition of reseration of the criminal
aspect, the Supreme Court said that tax collection cases may be tried
separately, and not before the Sandi3anbayan in 0ep$ =ct No$ '019
cases$ This is so because, 0ep$ =ct No$ '019 is silent on the
definition of ciil liability and the application of =rt$ 10A of the 0eised
9enal Code does not coer taxes$ Conse"uently, the Supreme Court
ruled that on the tax collection case the 0TC !ould hae Burisdiction$
1-te("(et%t$o- *' the %tho( $- the &$8ht o+ Re". A#t. 92>2. 1f
it is a criminal case co3ni#able by the Sandi3anbayan, then this court
retains Burisdiction, !ith the ciil Burisdiction bein3 co3ni#able by the
CT= or the lo!er courts dependin3 on the amount$
1f the issue is a purely tax case, een if it inoles cases
co3ni#able by the Sandi3anbayan, then Burisdiction ests upon the
CT= or the lo!er courts dependin3 on the amount of the tax$
15. O- 3%-%(' 2;7 19957 the the- Se#(et%(' o+
4$-%-#e7 th(o8h the (e#o,,e-)%t$o- o+ the the-
Co,,$!!$o-e( o+ 1-te(-%& Re/e-e $!!e) Re/e-e
Re8&%t$o-! ORe/. Re8.P No. 1F957 "(o/$)$-8 the R&e! %-)
Re8&%t$o-! to 1,"&e,e-t the T%. 1-#e-t$/e! P(o/$!$o-! U-)e(
P%(%8(%"h! @*A %-) @#A o+ Se#t$o- 127 OR.A.P No. =22=7
OoPthe(w$!e H-ow- %! the B%!e! Co-/e(!$o- %-) De/e&o",e-t
A#t o+ 1992. S*!eDe-t&'7 Re/. Re8. No. 12F9= w%! $!!e)
"(o/$)$-8 +o( the Re8&%t$o-! 1,"&e,e-t$-8 Se#t$o-! 12@#A
%-) 15 o+ OR.A.P No. =22= %-) Se#t$o-! 2;@*A %-) @#A o+ OR.A.P
No. =91< A&&o#%t$-8 Two Pe(#e-t @2IA o+ the 2(o!! 1-#o,e
E%(-e) *' A&& B!$-e!!e! %-) E-te("($!e! 0$th$- the S*$#7
C&%(H7 3oh- H%'7 Po(o Po$-t S"e#$%& E#o-o,$# Go-e! %-) othe(
S"e#$%& E#o-o,$# Go-e! -)e( PEGA. On Se"te,*e( 2=7 19997
Re/. Re8. No. 1<F99 w%! $!!e) A,e-)$-8 ORRP No. 1F957 %!
%,e-)e)7 %-) othe( (e&%te) R&e! %-) Re8&%t$o-! to
1,"&e,e-t the P(o/$!$o-! o+ "%(%8(%"h! @*A %-) @#A o+ Se#t$o-
12 o+ OR.A.P No. =22=7 othe(w$!e H-ow- %! the QB%!e!
Co-/e(!$o- %-) De/e&o",e-t A#t o+ 1992E Re&%t$/e to the T%.
1-#e-t$/e! 2(%-te) to E-te("($!e! Re8$!te(e) $- the S*$#
S"e#$%& E#o-o,$# %-) 4(ee"o(t Go-e.
O- 3-e :7 200:7 the Co,,$!!$o-e( o+ 1-te(-%& Re/e-e
$!!e) Re/e-e Me,o(%-), C$(#&%( @RMCA No. :1F200:
!ett$-8 the U-$+o(, 2$)e&$-e! o- the T%.%t$o- o+ 1,"o(te)
Moto( Veh$#&e! th(o8h the S*$# 4(ee Po(t Go-e %-) Othe(
4(ee"o(t Go-e! th%t %(e So&) %t P*&$# A#t$o-7 wh$#h
"(o/$)e) +o( the t%. t(e%t,e-t! o- the t(%-!%#t$o-! $-/o&/e) $-
the $,"o(t%t$o- o+ ,oto( /eh$#&e! th(o8h the SSE4G %-) othe(
&e8$!&%te) 4(ee"o(t Bo-e! %-) !*!eDe-t !%&e the(eo+ th(o8h
"*&$# %#t$o-. Th$! w%! &%te( %,e-)e) *' RMC No. :2F200:.
A!$% 1-te(-%t$o-%& A#t$o-ee(! %-) othe(! +$&e) %
#o,"&%$-t *e+o(e the RTC o+ O&o-8%"o C$t'7 to )e#&%(e Vo$)7
U&t(% V$(e!7 %-) U-#o-!t$tt$o-%& ORMCP No. :1F200: )%te) 3-e
:7 200: %-) ORMCP No. :2F200: )%te) 3-e 57 200:, Re/. Re8.
No!. 1F957 12F9= %-) 1<F99 )%te) 3%-%(' 2;7 19957 A8!t =7
199= %-) Se"te,*e( 2=7 19997 (e!"e#t$/e&',
The' #o-te-)e) th%t ?($!)$#t$o- o/e( the #%!e %t *%(
"(o"e(&' "e(t%$-! to the (e8&%( #o(t! %! th$! $! %- %#t$o- to
)e#&%(e %! -#o-!t$tt$o-%&7 /o$) %-) %8%$-!t the "(o/$!$o-! o+
OR.A. No.P =22= the RMC! $!!e) *' the C1R. The' )o )o -ot
#h%&&e-8e the (%te7 !t(#t(e o( +$8(e! o+ the $,"o!e) t%.e!7
(%the( the' #h%&&e-8e the %tho($t' o+ the (e!"o-)e-t
Co,,$!!$o-e( to $,"o!e %-) #o&&e#t the !%$) t%.e!. The' %&!o
#&%$, th%t the #h%&&e-8e o- the %tho($t' o+ the C1R to $!!e the
RMC! )oe! -ot +%&& w$th$- the ?($!)$#t$o- o+ the Co(t o+ T%.
A""e%&! @CTAA.
Doe! the RTC h%/e ?($!)$#t$o- 9
S8<<)ST). =NSW)05 No$ 1t is the Court of Tax
=ppeals that has exclusie Burisdiction$
1n the case at bar, the assailed reenue re3ulations and
reenue memorandum circulars are actually rulin3s or opinions of
the C10 on the tax treatment of motor ehicles sold at public auction
!ithin the SS)2 to implement Section 12 of 0$=$ No$ ,22, !hich
proides that Dexportation or remoal of 3oods from the territory of
the FSS)2H to the other parts of the 9hilippine territory shall be
subBect to customs duties and taxes under the Customs and Tariff
Code and other releant tax la!s of the 9hilippines$E They !ere
issued pursuant to the po!er of the C10 under Section A of the
National 1nternal 0eenue Code, viz5
Section A$ 9o!er of the Commissioner to 1nterpret Tax
4a!s and to .ecide Tax Cases$JJ The po!er to interpret the
54
proisions of this Code and other tax la!s shall be under the
exclusie and ori3inal Burisdiction of the Commissioner, subBect to
reie! by the Secretary of Cinance$
The po!er to decide disputed assessments, refunds of internal
reenue taxes, fees or other char3es, penalties imposed in relation
thereto, or other matters arisin3 under this Code or other la!s or
portions thereof administered by the (ureau of 1nternal 0eenue is
ested in the Commissioner, subBect to the exclusie appellate
Burisdiction of the Court of Tax =ppeals$ ?as amended by the N10C
of 199,, emphases supplie", Asia International Auctioneers, Inc., etc
et al., .v. Parayno, 2r., etc.,, et al., <$ 0$ No$ 10'AA-, .ecember 1+,
200,>
N/T)S =N. C/MM)NTS5 The author disputes this doctrine$
The decisions of the Commission under Dother matterE refers to the
"uasiJBudicial decisions and not to the "uasiJle3islatie po!ers of the
Commissioner$
1<. 0h%t $! the #h%(%#te($!t$# o+ % B1R )e-$%& o+ %
"(ote!t !#h %! wo&) e-%*&e the t%."%'e( to %""e%& the
!%,e to the Co(t o+ T%. A""e%&! 9
S8<<)ST). =NSW)05 The Commissioner of 1nternal
0eenue should al!ays indicate to the taxpayer in clear and
une"uiocal lan3ua3e !heneer his action on an assessment
"uestioned by a taxpayer constitutes his final determination on the
disputed assessment$
/n the basis of his statement indubitably sho!in3 that the
Commissioner%s communicated action is his final decision on the
contested assessment, the a33rieed taxpayer !ould then be able to
ta&e recourse to the tax court at the opportune time$ Without
needless difficulty, the taxpayer !ould be able to determine !hen his
ri3ht to appeal to the tax court accrues$ ?Commissioner of Internal
&evenue v. Ban4 of the Philippines Islan"s, <$ 0$ No$ 1'A0@2, =pril
1,, 200, citin3 3ceanic Kireless !et:or4, Inc. v. Commissioner of
Internal &evenue, <$ 0$ No$ 1A+'+0, 9 .ecember 200-, A,, SC0=
20-, 211J212, citin3 Suri#ao /lectric Co., Inc. v. Court of *a6
Appeals, <$ 0$ No$ 4J2-A2+9, 2+ Iune 19,A, -, SC0= -2'>
N/T)S =N. C/MM)NTS5
a$ Re%!o-! +o( the (&e (eD$($-8 C1RE! -eD$/o#%&
&%-8%8e o- h$! %#t$o- o- the "(ote!t.
1> 1t !ould obiate all desire and opportunity on the
part of the taxpayer to continually delay the finality of the
assessment L and, conse"uently, the collection of the amount
demanded as taxes L by repeated re"uests for recomputation
and reconsideration$
2> /n the part of the Commissioner of 1nternal
0eenue, this !ould encoura3e his office to conduct a careful
and thorou3h study of eery "uestioned assessment and
render a correct and define decision thereon in the first
instance$
'> This !ould also deter the Commissioner of
1nternal 0eenue from unfairly ma&in3 the taxpayer 3rope in
the dar& and speculate as to !hich action constitutes the
decision appealable to the tax court$
A> /f 3reater import, this rule of conduct !ould meet
a pressin3 need for fair play, re3ularity, and orderliness in
administratie action$ $ ?Commissioner of Internal &evenue v.
Ban4 of the Philippines Islan"s, <$ 0$ No$ 1'A0@2, =pril 1,,
200, citin3 3ceanic Kireless !et:or4, Inc. v. Commissioner of
Internal &evenue, <$ 0$ No$ 1A+'+0, 9 .ecember 200-, A,,
SC0= 20-, 211J212, citin3 Suri#ao /lectric Co., Inc. v. Court of
*a6 Appeals, <$ 0$ No$ 4J2-A2+9, 2+ Iune 19,A, -, SC0=
-2'>
1=. C$te %#t! o+ B1R Co,,$!!$o-e( th%t ,%' *e
#o-!$)e(e) %! )e-$%& o+ % "(ote!t wh$#h !e(/e %! *%!$! +o(
%""e%& to the Co(t o+ T%. A""e%&!.
S8<<)ST). =NSW)05
a$ Cilin3 by the (10 of a ciil suit for collection of the
deficiency tax is considered a denial of the re"uest for
reconsideration$ ?Commissioner of Internal &evenue v. +nion
Shippin# Corporation, 1+- SC0= -A,>
b$ =n indication to the taxpayer by the Commissioner Din
clear and une"uiocal lan3ua3eE of his final denial not the issuance of
the !arrant of distraint and ley$ What is the subBect of the appeal is
the final decision not the !arrant of distraint$ (Commissioner of
Internal &evenue v. +nion Shippin# Corporation, 1+- SC0= -A,'
c$ = (10 demand letter sent to the taxpayer after his
protest of the assessment notice is considered as the final decision of
the Commissioner on the protest$ (Suri#ao /lectric Co., Inc. v. Court
of *a6 Appeals, et al., -, SC0= -2'>
d$ = letter of the (10 Commissioner reiteratin3 to a
taxpayer his preious demand to pay an assessment is considered a
denial of the re"uest for reconsideration or protest and is appealable
to the Court of Tax =ppeals$ (Commissioner v. Ayala Securities
Corporation, ,0 SC0= 20A>
e$ Cinal notice before sei#ure considered as
commissioner%s decision of taxpayer%s re"uest for reconsideration !ho
receied no other response$ Commissioner of Internal &evenue v.
Isa%ela Cultural Corporation, <$0$ No$ 1'-210, Iuly 11, 2001 held that
55
not only is the Notice the only response receied5 its content and
tenor supports the theory that it !as the C10%s final act re3ardin3 the
re"uest for reconsideration$ The ery title expressly indicated that it
!as a final notice prior to sei#ure of property$ The letter itself clearly
stated that the taxpayer !as bein3 3ien Dthis 4=ST /99/0T8N1TKE
to payG other!ise, its properties !ould be subBected to distraint and
ley$
1>. The t%."%'e( !e%!o-%*&' "(ote!te) the
%!!e!!,e-t $!!e) *' the Co,,$!!$o-e( o+ 1-te(-%&
Re/e-e. D($-8 the "e-)e-#' o+ the "(ote!t the C1R
$!!e) % w%((%-t o+ )$!t(%$-t %-) &e/' to #o&&e#t the t%.e!
!*?e#t o+ the "(ote!t.
A! #o-!e& wh%t %)/$#e !h%&& 'o 8$/e the t%."%'e(.
E."&%$- *($e+&' 'o( %-!we(.
S8<<)ST). =NSW)05 The taxpayer should appeal, by !ay
of a petition for reie!, to the Court of Tax =ppeals not on the 3round
of the denial of the protest but on other matter arisin3 under the
proisions of the National 1nternal 0eenue Code$ The actual
issuance of a !arrant of distraint and ley in certain cases cannot be
considered a final decision on a disputed assessment$
To be a alid decision on a disputed assessment, the decision
of the Commissioner or his duly authori#ed representatie shall ?a>
state the facts, the applicable la!, rules and re3ulations, or
Burisprudence on !hich such decision is based, other!ise, the decision
shall be oid, in !hich case the same shall not be considered a
decision on the disputed assessmentG and ?b> that the same is his final
decision$ ?Sec$ '$1$@, 0e$ 0e3s$ 12J99> These conditions are not
complied !ith by the mere issuance of a !arrant of distraint and ley$
(Commissioner of Internal &evenue v. +nion Shippin# Corp., 1+-
SC0= -A,'
Curthermore, a motion for the suspension of the collection of
the tax may be filed to3ether !ith the petition for reie! ?Sec$ ', 0ule
10, 00CT= effectie .ecember 1-, 200-> because the collection of
the tax may Beopardi#e the interest of the taxpayer$
1>FA. A! % 8e-e(%& (&e7 the(e ,!t %&w%'! *e % )e#$!$o-
o+ the Co,,$!!$o-e( o+ 1-te(-%& Re/e-e o( Co,,$!!$o-e( o+
C!to,! *e+o(e the Co(t o+ T%. A""e%&!7 wo&) h%/e
?($!)$#t$o-. 1f there is no such decision, the petition !ould be
dismissed for lac& of Burisdiction unless the case falls under any of the
follo!in3 exceptions$
19. 1-!t%-#e! whe(e the Co(t o+ T%. A""e%&!
wo&) h%/e ?($!)$#t$o- e/e- $+ the(e $! -o )e#$!$o- 'et *'
the Co,,$!!$o-e( o+ 1-te(-%& Re/e-e:
a$ Where the Commissioner has not acted on the disputed
assessment after a period of 1+0 days from submission of complete
supportin3 documents, the taxpayer has a period of '0 days from the
expiration of the 1+0 day period !ithin !hich to appeal to the Court of
Tax =ppeals$ ?last par$, Sec$ 22+ ?e>, N10C of 199,L Commissioner of
Internal &evenue v. Isa%ela Cultural Corporation, (.&. !o. ;AH<;?,
2uly ;;, <??;'
b$ Where the Commissioner has not acted on an application
for refund or credit and the t!o year period from the time of payment
is about to expire, the taxpayer has to file his appeal !ith the Court of
Tax =ppeals before the expiration of t!o years from the time the tax
!as paid$
1t is disheartenin3 enou3h to a taxpayer to be &ept !aitin3 for
an indefinite period for the rulin3,$ 1t !ould ma&e matters more
exasperatin3 for the taxpayer if the doors of Bustice !ould be closed
for such a relief until after the Commissioner, !ould hae, at his
personal conenience, 3ien his 3o si3nal$ (Commissioner of
Customs, et al, v. Court of *a6 Appeals, et al., (.&. !o. B<C;B, $arch
;C, ;IBI, unrep.'
20. 1-!t%-#e! whe(e the Co(t o+ T%. A""e%&!
wo&) h%/e ?($!)$#t$o- e/e- $+ the(e $! -o )e#$!$o- o+ the
Co,,$!!$o-e( o+ C!to,!5
a$ .ecisions of the Secretary of Trade and 1ndustry or the
Secretary of =3riculture in antiJdumpin3 and counterailin3 duty cases
are appealable to the Court of Tax =ppeals !ithin thirty ?'0> days
from receipt of such decisions$
b$ 1n case of automatic reie! by the Secretary of Cinance in
sei#ure or forfeiture cases !here the alue of the importation exceeds
9- million or !here the decision of the Collector of Customs !hich
fully or partially releases the shipment sei#ed is affirmed by the
Commissioner of Customs$
c$ 1n case of automatic reie! by the Secretary of Cinance of a
decision of a Collector of Customs actin3 faorably upon a customs
protest$
21. A! % 8e-e(%& (&e7 No #o(t !h%&& h%/e the
%tho($t' to 8(%-t %- $-?-#t$o- to (e!t(%$- the #o&&e#t$o- o+
%-' -%t$o-%& $-te(-%& (e/e-e t%.7 +ee o( #h%(8e$E ?Sec$ 21+,
N10C>
56
DNo appeal ta&en to the CT= from the decision of the
Commissioner of 1nternal 0eenue or the Commissioner of Customs
or the 0e3ional Trial Court, proincial, city or municipal treasurer or
the Secretary of Cinance, the Secretary of Trade and 1ndustry and
Secretary of =3riculture, as the case may be shall suspend the
payment, ley, distraint, and7or sale of any property of the taxpayer
for the satisfaction of his tax liability as proided by existin3 la!5
9roided, ho!eer, That !hen in the opinion of the Court the
collection by the aforementioned 3oernment a3encies may
Beopardi#e the interest of the <oernment and7or the taxpayer the
Court at any sta3e of the proceedin3 may suspend the said collection
and re"uire the taxpayer either to deposit the amount claimed or to
file a surety bond for not more than double the amount !ith the
Court$E ?Sec$ 11, 0ep$ =ct No$ 112-, as amended by Sec$9, 0ep$ =ct
No$ 92+2 >
The Supreme Court may enBoin the collection of taxes under its
3eneral Budicial po!er but it should be apparent that the source of the
po!er is not statutory but constitutional$
The Supreme Court did not 3rant the proisional remedy
prayed for in Southern Cross Cement Corporation v. *he Philippine
Cement $anufacturers Corp., et al., <$ 0$ No$ 1-+-A0, Iuly +, 200A
for it !ould be tantamount to enBoinin3 the collection of taxes, a
peremptory Budicial act !hich is traditionally fro!ned upon unless
there is a clear statutory basis for it$ )ident is the clear le3islatie
intent that the imposition of safe3uard measures, despite the
aailability of Budicial reie!, should not be enBoined not!ithstandin3
any timely appeal of the imposition$ This so because the Safe3uard
Measures =ct states that the filin3 of a petition for reie! before the
CT= does not stop, suspend, or other!ise toll the imposition or
collection of the appropriate tariff duties or the adoption of other
appropriate safe3uard measures$
22. 2e-e(%& (&e: DThe rule is that in the absence of
accountin3 records of a taxpayer, his tax liability may be determined
by estimation$ The petitioner ?Commissioner of 1nternal 0eenue> is
not re"uired to compute such tax liabilities !ith mathematical
exactness$ =pproximation in the calculation of taxes due is Bustified$
To hold other!ise !ould be tantamount to holdin3 that s&illful
concealment is an inincible barrier to proof$E FCommissioner of
Internal &evenue v. 0ante6 *ra"in# Co., Inc. <$ 0$ No$ 1'@9,-,
March '1, 200- citin3 +nite" States v. 2ohnson, '19 8$S$ 12''
?19A'>H D:o!eer, the rule does not apply !here the estimation is
arried at arbitrarily and capriciously$E FCommissioner of Internal
&evenue v. 0ante6 *ra"in# Co., Inc., citin3 +nite" States v.
&in"s4opf, 10- 8$S$A1+ ?1++1>H
2:. Me%-$-8 o+ L*e!t e/$)e-#e o*t%$-%*&eP under Sec$ @
?(>, N10C of 199,$ This means that the ori3inal documents must
be produced$ 1f it could not be produced, secondary eidence must
be adduced$ ?0ante6 *ra"in# Co., Inc. v. Commissioner of Internal
&evenue, C= J <$0$ S9 No$ A,1,2, September '0, 199+>
N/T)S =N. C/MM)NTS5
a$ The !e#o-)%(' e/$)e-#e referred to are those that
may be adduced usin3 the 3eneral methods for reconstructin3 a
taxpayer%s income or the indirect approach to tax inesti3ation$
The Dbest eidenceE enisa3ed in Section 1@ of the 19,, N10C
Fno! Sec$ @ ?(>,N10C of 199,H Dincludes the corporate and accountin3
records of the taxpayer !ho is the subBect of the assessment process,
the accountin3 records of other taxpayers en3a3ed in the same line of
business, includin3 their 3ross profit and net profit sales$E
?Commissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc. <$ 0$
No$ 1'@9,-, March '1, 200- citin3 .e 4eon, *he !ational Internal
&evenue Co"e Annotate", p$ ',>
DSuch eidence also includes data, record, paper, document or
any eidence 3athered by internal reenue officers from other
taxpayers !ho had personal transactions or from !hom the subBect
taxpayer receied any incomeG and record, data, document and
information secured from 3oernment offices or a3encies, such as the
S)C, the Central (an& of the 9hilippines, the (ureau of Customs, and
the DTariff and Customs Commission$E ?sic, Commissioner v. 0ante6
*ra"in# Co., Inc., supra>
DThe la! allo!s the (10 access to all releant or material
records or data in the person of the taxpayer$ 1t places no limit or
condition on the type or form of the medium by !hich the record
subBect of the order of the (10 is &ept$E ?I%i".>
9urpose of the Dbest eidence obtainableE rule under Sec, @
?(>, N10C of 199,$ DThe purpose of the la! is to enable the (10 to 3et
at the taxpayer%s records in !hateer form they may be &ept$E
?Commissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc. <$ 0$
No$ 1'@9,-, March '1, 200->
2;. Se#. < @BA o+ the N1RC o+ 199= %&&ow! the B1R to
,%He o( %,e-) % t%. (et(- +(o, h$! ow- H-ow&e)8e o( o*t%$-e)
th(o8h te!t$,o-' o( othe(w$!e$ Thus, the Commissioner of
1nternal 0eenue inesti3ates Eany circumstance !hich led him to
beliee that the taxpayer had taxable income lar3er than that
reported$ Necessarily, this in"uiry !ould hae to be outside of the
boo&s because they supported the return as filed$ :e may ta&e the
s!orn testimony of the taxpayer, he may ta&e the testimony of third
partiesG he may examine and subpoena, if necessary, traders% and
bro&ers% accounts and boo&s and the taxpayer%s boo&s of accounts$
The Commissioner is not bound to follo! any set of patterns$ The
57
existence of unreported income may be sho!n by any particular proof
that is aailable in the circumstances of the particular situation$
FCommissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc. citin3
Camp%ell, 2r., v. (uetersloh, 2+, C$2d +,+ ?19@1>H
Citin3 its rulin3 in a preious case, a D8$S$ appellate court
declared that !here the records of the taxpayer are manifestly
inaccurate and incomplete, the Commissioner may loo& to other
sources of information to establish income made by the taxpayer
durin3 the years in "uestion$ ?I%i"., in turn citin3 1enney v.
Commissioner, 111 C$2d ',A>
25. The follo!in3 are the 8e-e(%& ,etho)! )e/e&o"e) *' the
B(e% o+ 1-te(-%& Re/e-e +o( (e#o-!t(#t$-8 % t%."%'e(E!
$-#o,e !here the records do not sho! the true income or !here no
return !as filed or !hat !as filed !as a false and fraudulent return
?a> 9ercenta3e methodG
?b> Net !orth method$G
?c> (an& deposit methodG
?d> Cash expenditure methodG
?e> 8nit and alue methodG
?f> Third party information or access to records methodG
?3> Sureillance and assessment method$ ?Chapter ;111$
1ndirect =pproach to 1nesti3ation, :andboo& on =udit 9rocedures
and Techni"ues L *olume 1, pp$ @+J,A>
2<. Th$() "%(t' $-+o(,%t$o- o( %##e!! to (e#o()! ,etho).
The (10 may re"uire third parties, public or priate to supply
information to the (10, and thus, Dobtain on a re3ular basis from any
person other than the person !hose internal reenue tax liability is
subBect to audit or inesti3ation, or from any office or officer of the
national and local 3oernments, 3oernment a3encies and
instrumentalities includin3 the (an3&o Sentral n3 9ilipinas and
3oernmentJo!ned or Lcontrolled corporations, any information such
as, but not limited to, costs and olume of production, receipts or
sales and 3ross incomes of taxpayers, and the names , addresses,
and financial statements of corporations, mutual fund companies,
insurance companies, re3ional operatin3 head"uarters or
multinational companies, Boint accounts, associations, Boint entures
or consortia and re3istered partnerships, and their membersG xxxE
FSec$ - ?(>, N10C of 199,>
2=. A "(eF%!!e!!,e-t -ot$#e is a letter sent by the (ureau
of 1nternal 0eenue to a taxpayer as&in3 him to explain !ithin a
period of fifteen ?1-> days from receipt !hy he should not be the
subBect of an assessment notice$ 1t is part of the due process ri3hts of
a taxpayer$
=s a 3eneral rule, the (10 could not issue an assessment
notice !ithout first issuin3 a preJassessment notice because it is part
of the due process ri3hts of a taxpayer to be 3ien notice in the form
of a preJassessment notice, and for him to explain !hy he should not
be the subBect of an assessment notice$
2>. 1-!t%-#e! whe(e % "(eF%!!e!!,e-t -ot$#e $!
-ot (eD$(e) *e+o(e % -ot$#e o+ %!!e!!,e-t $! !e-t to the
t%."%'e(.
a$ When the findin3 for any deficiency tax is the result of
mathematical error in the computation of the tax as appearin3 on the
face of the returnG or
b$ When a discrepancy has been determined bet!een the tax
!ithheld and the amount actually remitted by the !ithholdin3 a3entG or
c$ When a taxpayer opted to claim a refund or tax credit of
excess creditable !ithholdin3 tax for a taxable period !as determined
to hae carried oer and automatically applied the same amount
claimed a3ainst the estimated tax liabilities for the taxable "uarter or
"uarters of the succeedin3 table yearG or
d$ When the excess tax due on excisable articles has not been
paidG or
e$ When an article locally purchased or imported by an exempt
person, such as, but not limited to ehicles, capital e"uipment,
machineries and spare parts, has been sold, trade or transferred to
nonJexempt persons$ ?Sec$ 22+, N10C of 199,>
29. The !ord assessment !hen used in connection !ith
taxation, may hae more than one meanin3. Mo(e #o,,o-&' the
wo() %!!e!!,e-t ,e%-! the o++$#$%& /%&%t$o- o+ % t%."%'e(E!
"(o"e(t' +o( "("o!e o+ t%.%t$o-. The %*o/e )e+$-$t$o- o+
%!!e!!,e-t +$-)! %""&$#%t$o- -)e( t%($++ %-) #!to,! t%.%t$o-
%! we&& %! &o#%& 8o/e(-,e-t t%.%t$o-$
Cor (e%& "(o"e(t' t%.%t$o-7 the(e ,%' *e % !"e#$%& ,e%-$-8
to the *()e-! th%t %(e $,"o!e) "o- (e%& "(o"e(t$e! th%t h%/e
*ee- *e-e+$te) *' % "*&$# wo(H! e."e-)$t(e o+ % &o#%&
8o/e(-,e-t. 1t is sometimes called a special assessment or a
special ley$ (Commissioner of Internal &evenue v. Pascor &ealty an"
.evelopment Corporation, et al., <$0$ No$ 12+'1-, Iune 29, 1999>
4o( $-te(-%& (e/e-e t%.%t$o- %!!e!!,e-t %! &%'$-8 % t%..
The ultimate purpose of an assessment to such a connection is to
ascertain the amount that each taxpayer is to pay$ (Commissioner of
Internal &evenue v. Pascor &ealty an" .evelopment Corporation, et
al., <$0$ No$ 12+'1-, Iune 29, 1999>
58
:0. A- %!!e!!,e-t $! % -ot$#e )&' !e-t to the
t%."%'e( wh$#h $! )ee,e) ,%)e o-&' whe- the B1R
(e&e%!e!7 ,%$&! o( !e-)! !#h -ot$#e to the t%."%'e(.
(Commissioner of Internal &evenue v. Pascor &ealty an"
.evelopment Corporation, et al., <$0$ No$ 12+'1-, Iune 29, 1999>
:1. 0h%t $! % !e&+F%!!e!!e) t%. 9
S8<<)ST). =NSW)05 = tax that the taxpayer himself
assesses or computes and pays to the taxin3 authority$ 1t is a tax that
selfJassessed by the taxpayer !ithout the interention of an
assessment by the tax authority to create the tax liability$
The Tax Code follo!s the payJasJyouJfile system of taxation
under !hich the taxpayer computes his o!n tax liability, prepares the
return, and pays the tax as he files the return$ The payJasJyouJfile
system is a selfJassessin3 tax return$
1nternal reenue taxes are selfJassessin3$ F.issent of I$ Carpio
in Philippine !ational 3il Company v. Court of Appeals, et al., <$ 0$
No$ 1099,@, =pril 2@, 200- and companion case citin3 *upaz v. +lep,
'1@ SC0= 11+ ?1999> in turn citin3 *itu3 and =costa, *a6 La: an"
2urispru"ence, 1
st
edition, 199,, p$ 2@,H
= clear example of a selfJassessed tax is the annual income
tax, !hich the taxpayer himself computes and pays !ithout the
interention of any assessment by the (10$ The annual income tax
becomes due and payable !ithout need of any prior assessment by
the (10$ The (10 may or may not inesti3ate or audit the annual
income tax return filed by the taxpayer$ The taxpayer%s liability for the
income tax does not depend on !hether or not the (10 conducts such
subse"uent inesti3ation or audit$
:o!eer, if the taxin3 authority is first re"uired to inesti3ate,
and after such inesti3ation to issue the tax assessment that creates
the tax liability, then the tax is no lon3er selfJassessed$ ?.issent of I$
Carpio in Philippine !ational 3il Company v. Court of Appeals, et al.,
<$ 0$ No$ 1099,@, =pril 2@, 200- and companion case>
:2. O- O#to*e( 2>7 19>> t%."%'e( *%-H (e#e$/e) % -ot$#e
o+ %!!e!!,e-t +(o, the B1R $-+o(,$-8 $t th%t )e+$#$e-#' t%.e!
%(e )e +(o, the !%$) t%."%'e( *%-H w$thot %-' +$-)$-8! o+ &%w
o( +%#t *t !""o(te) o-&' w$th % #o,"t%t$o-. O- De#e,*e( 107
19>>7 the t%."%'e( *%-H #o-!e& +$&e) % &ette( th%t %! !oo- %!
th$! $! e."&%$-e) %-) #&%($+$e) $- % "(o"e( -ot$#e o+ %!!e!!,e-t7
we !h%&& $-+o(, 'o o+ the t%."%'e(E! )e#$!$o- o- whethe( to "%'
o( "(ote!t the %!!e!!,e-t. The t%."%'e( *%-H $-!$!t! th%t the
%!!e!!,e-t w%! -ot /%&$). O+ #o(!e7 B1R tooH the o""o!$te
/$ew #o-te-)$-8 +(the( th%t the(e w%! -o !e%!o-%*&e "(ote!t7
he-#e the t%. $! !e %-) #o&&e#t$*&e. 0ho $! #o((e#t 9
S8<<)ST). =NSW)05 The (10 is correct$ 8nder the old
la! Sec$ 2,0, it is enou3h merely that the (10 Commissioner shall
Dnotify the taxpayer of his findin3s
The taxpayer ban& counsel%s .ecember 10, 19++ letter is not a
seasonable protest because it !as filed thirty ?'0> days after receipt of
the assessment on /ctober 2+, 19++$ ?Commissioner of Internal
&evenue v. Ban4 of Philippine Islan"s, <$ 0$ No$ 1'A0@2, =pril 1,,
200,>
N/T)S =N. C/MM)NTS5 The statement, DThe taxpayer shall
be informed in !ritin3 of the la! and the facts on !hich the
assessment is madeG other!ise the assessment shall be oidE is an
amendment to Sec$ 2,0 ?no! renumbered to Sec$ 22+> !hich too&
effect only on Ianuary 1, 199+ upon the effectiity of the Tax 0eform
=ct of 199,$
::. 0h%t %(e the "(e!#($"t$/e "e($o)! +o( ,%H$-8
%!!e!!,e-t! o+ $-te(-%& (e/e-e t%.e! 9
S8<<)ST). =NSW)05
a$ Three ?'> years from the last day !ithin !hich to file a
return or !hen the return !as actually filed, !hicheer is later ?Sec$
20', N10C of 199,>$ The C10 has three ?'> years from the date of
actual filin3 of the tax return to assess a national internal reenue
tax or to commence court proceedin3s for the collection thereof
!ithout an assessment$ FBan4 of Philippine Islan"s (-ormerly -ar
/ast Ban4 an" *rust Company' v. Commissioner of Internal
&evenue, <$ 0$ No$ 1,A9A2, March ,, 200+H
b$ ten years from discoery of the failure to file the tax return
or discoery of falsity or fraud in the return FSec$ 222 ?a>, N10C of
199,> G or
c$ !ithin the period a3reed upon bet!een the 3oernment
and the taxpayer !here there is a !aier of the prescriptie period for
assessment ?Sec$ 222 ?b>, N10C of 199,>$
:;. P("o!e o+ "e($o) o+ &$,$t%t$o-! $- t%.%t$o-.
Cor the purpose of safe3uardin3 taxpayers from any unreasonable
examination, inesti3ation or assessment, our tax la! proides a
statute of limitations in the collection of taxes$ FCommissioner of
Internal &evenue v. B.-. (oo"rich Phils, Inc., ?no: Sime .ar%y
International *ire Co., Inc.>, et al., <$0$ No$ 10A1,1, Cebruary 2A,
1999, '0' SC0= -A@G Philippine 2ournalists, Inc. v. Commissioner of
Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200AGH, as !ell as
their assessments$
59
The la! prescribin3 a limitation of actions for the collection of
the income tax is beneficial both to the <oernment and to its
citi#ensG to the <oernment because tax officers !ould be obli3ed to
act promptly in the ma&in3 of assessment, and to citi#ens because
after the lapse of the period of prescription citi#ens !ould hae a
feelin3 of security a3ainst unscrupulous tax a3ents !ho !ill al!ays
find an excuse to inspect the boo&s of taxpayers, not to determine the
latter%s real liability, but to ta&e adanta3e of eery opportunity to
molest peaceful, la!Jabidin3 citi#ens$ Without such a le3al defense
taxpayers !ould furthermore be under obli3ation to al!ays &eep their
boo&s and &eep them open for inspection subBect to harassment by
unscrupulous tax a3ents$ The la! on prescription bein3 a remedial
measure should be interpreted in a !ay conducie to brin3in3 about
the beneficent purpose of affordin3 protection to the taxpayer !ithin
the contemplation of the Commission !hich recommend the approal
of the la!$ F&epu%lic of the Philippines v. A%laza, 10+ 9hil$ 110-,
110+, cited in Ban4 of Philippine Islan"s (-ormerly -ar /ast Ban4 an"
*rust Company' v. Commissioner of Internal &evenue, <$ 0$ No$
1,A9A2, March ,, 200+H
:5. U-(e%!o-%*&e $-/e!t$8%t$o- #o-te,"&%te! #%!e!
whe(e the "e($o) +o( %!!e!!,e-t e.te-)! $-)e+$-$te&' because
this depries the taxpayer of the assurance that it !ill not lon3er be
subBected to further inesti3ation for taxes after the expiration of a
reasonable period of time$ ?Philippine 2ournalists, Inc. v.
Commissioner of Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@,
200A !ith note to see &epu%lic v. A%laza, 10+ 9hil$ 110-$ 110+>
4a!s on prescription should be liberally construed in faor of
the taxpayer$ 0eason5 for the purpose of safe3uardin3 taxpayers
from an unreasonable examination, inesti3ation or assessment, our
tax la!s proide a statute of limitation on the collection of taxes$
Thus, the la! on prescription, bein3 a remedial measure, should be
liberally construed in order to afford such protection, =s a corollary,
the exceptions to the la! on prescription should perforce be strictly
construed. FPhilippine 2ournalists, Inc. v. Commissioner of Internal
&evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200A citin3 Commissioner
of Internal &evenue v. B.-. (oo"rich Phils, Inc (no: Sime .ar%y
International *ire Co., Inc.',., et al., <$0$ No$ 10A1,1, Cebruary 2A,
1999, '0' SC0= -A@H
The prescriptie period !as precisely intended to 3ie the
taxpayers peace of mind$ (Commissioner of Internal &evenue v. B.-.
(oo"rich Phils., Inc., et al$, <$0$ No$ 10A1,1, Cebruary 2A, 1999>
:<. A ?eo"%()' %!!e!!,e-t is a delin"uency tax
assessment !hich !as assessed !ithout the benefit of complete or
partial audit by an authori#ed reenue officer, !ho has reason to
beliee that the assessment and collection of a deficiency tax !ill be
Beopardi#ed by delay because of the taxpayer%s failure to comply !ith
the audit and inesti3ation re"uirements to present his boo&s of
accounts and7or pertinent records, or to substantiate all or any of the
deductions, exemptions, or credits claimed in his return$ FSec$ '$1 ?a>,
0e$ 0e3s$ No$ @J2000>
Ieopardy assessment is an indication of the doubtful alidity of
the assessment, hence it may be subBect to a compromise$ FSec$ '$1
?a>, 0e$ 0e3s$ No$ @J2000H
:=. D($-8 3&$%-%E! &$+et$,e7 he( *!$-e!! %++%$(! we(e
,%-%8e) *' the Ph$&$""$-e T(!t Co,"%-' @Ph$&t(!tA. She )$e)
o- A"($& :7 2001.Two )%'! %+te( he( )e%th7 Ph$&t(!t7 th(o8h $t!
T(!t O++$#e(7 +$&e) he( 1-#o,e T%. Ret(- +o( 20007 w$thot
$-)$#%t$-8 th%t 3&$%-% )$e).
O- M%' 227 20017 Ph$&t(!t +$&e) % /e($+$e) "et$t$o- w$th the
RTC +o( %""o$-t,e-t %! S"e#$%& A),$-$!t(%to(. Th$! w%! )e-$e)
*' the #o(t who %""o$-te) o-e o+ the he$(! %! S"e#$%&
A),$-$!t(%to(. Ph$&t(!tE! ,ot$o- +o( (e#o-!$)e(%t$o- w%!
)e-$e).
A+te( %- $-/e!t$8%t$o- *' the B1R o+ the )e#e)e-tE! $-#o,e
t%. &$%*$&$t'7 $t !e-t7 o- No/e,*e( 1>7 200:7 % )e,%-) &ette( %-) %
Not$#e o+ A!!e!!,e-t to 3&$%-% #Co Ph$&t(!t %t the &%tte(E!
%))(e!! wh$#h w%! !t%te) $- the 199> 1-#o,e T%. Ret(-. No
(e!"o-!e w%! ,%)e -e$the( w%! the B1R %)/$!e) th%t 3&$%-%
%&(e%)' )$e).
O- 3-e 1>7 20057 the B1R Co,,$!!$o-e( $!!e) w%((%-t!
o+ )$!t(%$-t %-) &e/' to e-+o(#e #o&&e#t$o- o+ the )e+$#$e-#'
$-#o,e t%. &$%*$&$t' wh$#h w%! !e(/e) o- 3&$%-%E! he$(. O-
No/e,*e( 227 20057 the B1R +$&e) w$th the e!t%te #o(t % ,ot$o-
+o( %&&ow%-#e o+ #&%$,. The he$( #&%$,e) th%t the(e w%! -o
"(o"e( !e(/$#e o+ the -ot$#e o+ %!!e!!,e-t %-) th%t the +$&$-8 o+
the ,ot$o- w%! t$,eF*%((e). O- the othe( h%-) the B1R ,%)e
the !*,$!!$o- th%t *oth the $!!%-#e o+ the %!!e!!,e-t -ot$#e
%-) the ,ot$o- we(e %&& "(o"e(&' ,%)e o- Ph$&t(!t.
4(the(,o(e the &%"!e o+ the :0F)%' "e($o) w$th$- wh$#h to
"(ote!t ,%)e the %!!e!!,e-t +$-%&7 e.e#to(' %-) -#o-te!t%*&e
%-) -ot t$,e *%((e).
R&e o- the #o-+&$#t$-8 #&%$,! o+ the "%(t$e!.
S8<<)ST). =NSW)05 1 !ould rule in faor of the heir$
There !as no proper serice of the notice of assessment
because the death of Iuliana automatically seered the le3al
relationship of principal and a3ent bet!een her and 9hiltrust$ The
seered relationship could not be reied on the mere fact that
9hiltrust filed her Tax 0eturn t!o days after her death$
60
9hiltrust%s failure to file a notice of death subBects it to penal
sanctions !hich do not include the indefinite tollin3 of the prescriptie
period for ma&in3 deficiency tax assessments, or the !aier of the
notice re"uirement for such assessments$ ?/state of the late 2uliana
.iez ,"a. "e (a%riel v. Commissioner of Internal &evenue, <$0$ No$
1---A1, Ianuary 2,, 200A>
:>. 0h%t %(e the (eD$(e,e-t! +o( the /%&$)$t' o+ %
+o(,%& &ette( o+ )e,%-) %-) %!!e!!,e-t -ot$#e 9
S8<<)ST). =NSW)05
a$ There must hae been preiously issued a preJ
assessment notice until exceptedG
b$ 1t must hae been issued prior to the prescriptie periodG
and
c$ The letter of demand callin3 for payment of the taxpayer%s
deficiency tax or taxes shall state the facts, the la!, rules and
re3ulations, or Burisprudence on !hich the assessment is based,
other!ise, the formal letter of demand and assessment notice shall be
oid$ ?Sec$ '$1$A, 0e$ 0e3s$ No$ 12J99>
:9. 0h%t $! the "(e!,"t$o- th%t +&ow! +(o, % t%."%'e(E!
+%$&(e to "(ote!t %- %!!e!!,e-t 9
S8<<)ST). =NSW)05 DTax assessments by tax
examiners are presumed correct and made in 3ood faith$ The
taxpayer has the duty to proe other!ise$ 1n the absence of proof of
any irre3ularities in the performance of duties, an assessment duly
made by a (ureau of 1nternal 0eenue examiner and approed by his
superior officers !ill not be disturbed$ =ll presumptions are in faor of
the correctness of tax assessments$E ?Commissioner of Internal
&evenue v. Ban4 of Philippine Islan"s., <, 0$ No$ 1'A0@2, =pril 1,,
200, citin3 Sy Po v. Court of Appeals, <$ 0$ No$ 4J+1AA@, 1+ =u3ust
19++, 1@A SC0= -2A, -'0, citations omitted>
;0. 0h%t %(e the (e%!o-! +o( "(e!,"t$o- o+ #o((e#t-e!!
o+ %!!e!!,e-t! 9
S8<<)ST). =NSW)05
a$ 4ifeblood theory
b$ 9resumption of re3ularity ?Commissioner of Internal
&evenue v. 0ante6 *ra"in# Co., Inc., <, 0$ No$ 1'@9,-, March '1,
200-> in the performance of public functions$ ?Commissioner of
Internal &evenue v. *uazon, Inc., 1,' SC0= '9,>
c$ The li&elihood that the taxpayer !ill hae access to the
releant information FCommissioner of Internal &evenue, supra citin3
+nite" States v. &e6ach, A+2 C$2d 10 ?19,'>$ The certiorari !as
denied by the 8nited States Supreme Court on Noember 19, 19,'>
d$ The desirability of bolsterin3 the recordJ&eepin3
re"uirements of the N10C$ ?I%i".>
;1. 2$/e $-!t%-#e! whe(e "($,% +%#$e #o((e#t-e!!
o+ % t%. %!!e!!,e-t )oe! -ot %""&'.
S8<<)ST). =NSW)05 The Dprima facie correctness of a
tax assessment does not apply upon proof that an assessment is
utterly !ithout foundation, meanin3 it is arbitrary and capricious$
Where the (10 has come out !ith a Dna&ed assessmentE i$e$, !ithout
any foundation character, the determination of the tax due is !ithout
rational basis$E FCommissioner of Internal &evenue v. 0ante6 *ra"in#
Co., Inc., <, 0$ No$ 1'@9,-, March '1, 200- citin3 +nite" States v.
2anis, A9 4$ )d$ 2d 10A@ ?19,@>G A2+ 8S A'' ?19,@>H 1n such a
situation, Dthe determination of the Commissioner contained in a
deficiency notice disappears$E FCommissioner of Internal &evenue,
supra citin3 a 8$S$ Court of =ppeals rulin3, in Clar4 an" Clar4 v.
Commissioner of Internal &evenue, 2@@ C$ 2d @9+ ?19-9>H D:ence,
the determination by the CT= must rest on all the eidence introduced
and its ultimate determination must find support in credible eidence$E
FCommissioner of Internal &evenue, supraH
;2. 0h%t %(e the $-!t%-#e! th%t !!"e-)! the
(--$-8 o+ the "(e!#($"t$/e "e($o)! @St%tte o+ L$,$t%t$o-!A
w$th$- wh$#h to ,%He %- %!!e!!,e-t %-) the *e8$--$-8 o+
)$!t(%$-t o( &e/' o( o+ % "(o#ee)$-8 $- #o(t +o( the
#o&&e#t$o-7 $- (e!"e#t o+ %-' t%. )e+$#$e-#$e!9
S8<<)ST). =NSW)05
a$ When the Commissioner is prohibited from ma&in3 the
assessment, or be3innin3 distraint, or ley or proceedin3 in court and
for sixty ?@0> days thereafterG
b$ When the taxpayer re"uests for and is 3ranted a
reinesti3ation by the commissionerG
c$ When the taxpayer could not be located in the address
3ien by him in the return filed upon !hich the tax is bein3 assessed
or collectedG
d$ When the !arrant of distraint and ley is duly sered upon
the taxpayer, his authori#ed representatie, or a member of his
household !ith sufficient discretion, and no property could be locatedG
and
e$ When the taxpayer is out of the 9hilippines$
N/T)S =N. C/MM)NTS5
The holdin3 in Commissioner of Internal &evenue v. Court of
Appeals, et al., <$0$ No$ 11-,12, Cebruary 2-, 1999 ?Carnation case>
that the !aier of the period for assessment must be in !ritin3 and
hae the !ritten consent of the (10 Commissioner is still doctrinal
61
because of the proisions of Sec$ 22', N10C of 199, !hich proides
for the suspension of the prescriptie period5
;:. The !$8-%t(e! o+ *oth the Co,,$!!$o-e(
%-) the t%."%'e(7 %(e (eD$(e) +o( % w%$/e( o+ the
"(e!#($"t$/e "e($o), thus a unilateral !aier on the part of the
taxpayer does not suspend the prescriptie period$ FCommissioner of
Internal &evenue v. Court of Appeals, et al., <$0$ No$ 11-,12,
Cebruary 2-, 1999 ?Carnation case>H
;;. The %#t o+ (eDe!t$-8 % (e$-/e!t$8%t$o- %&o-e )oe!
-ot !!"e-) the (--$-8 o+ the "(e!#($"t$/e "e($o). The (eDe!t
+o( (e$-/e!t$8%t$o- ,!t *e 8(%-te) *' the C1R. The Supreme
Court declared that the burden of proof that the re"uest for
reinesti3ation had been actually 3ranted shall be on the
Commissioner of 1nternal 0eenue$ Such 3rant may be expressed
in its communications !ith the taxpayer or implied from the action of
the Commissioner or his authori#ed representatie in response to
the re"uest for reinesti3ation$ FBan4 of Philippine Islan"s (-ormerly
-ar /ast Ban4 an" *rust Company' v. Commissioner of Internal
&evenue, <$ 0$ No$ 1,A9A2, March ,, 200+H
;5. Ph$&$""$-e 3o(-%&$!t!7 1-#. @P31A +$&e) $t! A--%&
1-#o,e T%. Ret(- +o( the #%&e-)%( 'e%( e-)e) De#e,*e( :17
199; wh$#h !howe) % -et $-#o,e o+ P:0 ,$&&$o- %-) the t%. )e
%! P10 ,$&&$o-. A- e.%,$-%t$o- o+ P31E! *ooH! o+ %##o-t %-)
othe( %##o-t$-8 (e#o()! +o( the "e($o) 3%-%(' 17 199; to
De#e,*e( :17 199; !howe) )e+$#$e-#' VAT7 1-#o,e T%. %-)
0$thho&)$-8 T%. $- the tot%& %,o-t o+ P1R2= ,$&&$o-. D($-8 the
Se"te,*e( 227 199= $-+o(,%& #o-+e(e-#e w$th the Re/e-e
D$!t($#t O++$#e(7 P31E! Co,"t(o&&e( e.e#te) % w%$/e( o+ !t%tte o+
&$,$t%t$o-! "(o/$)e) +o( -)e( !e#t$o-! 22: %-) 22; o+ the N1RC.
O- O#to*e( 57 199>7 the B1R $!!e) % P(eFA!!e!!,e-t Not$#e
wh$#h w%! +o&&owe) *' A!!e!!,e-tCDe,%-) No.::F1F000=5=F9;
!t%t$-8 % tot%& )e+$#$e-#' t%.e! $- the %,o-t o+ P111 ,$&&$o- +o(
$-#o,e t%.7 VAT %-) e."%-)e) w$thho&)$-8 t%.e!7 $-#&!$/e o+
$-te(e!t %-) #o,"(o,$!e "e-%&t'.
O- M%(#h 1<7 19997 the B1R !e-t to P31 % P(e&$,$-%('
Co&&e#t$o- Lette( to "%' the %!!e!!,e-t w$th$- 10 )%'! +(o,
(e#e$"t. O- No/e,*e( 10719997 % 4$-%& Not$#e Be+o(e Se$B(e
w%! $!!e) 8$/$-8 P31 10 )%'! +(o, (e#e$"t w$th$- wh$#h to "%'.
P31 (e#e$/e) the +$-%& -ot$#e o- No/e,*e( 2;7 1999 %-) o-
No/e,*e( 2<7 1999 P31 %!He) th%t $t *e #&%($+$e) o- how the t%.
&$%*$&$t' o+ P111 ,$&&$o- w%! %(($/e) %t %-) (eDe!te) +o( %-
e.te-!$o- o+ :0 )%'! +(o, (e#e$"t o+ the #&%($+$#%t$o- w$th$-
wh$#h to (e"&'. P317 th(o8h % +o&&owF" &ette(7 %!!e(te) $t -e/e(
(e#e$/e) A!!e!!,e-tCDe,%-) No. ::F1F000=5=F9;. O- M%(#h 2>7
2000 P31 (e#e$/e) % 0%((%-t o+ D$!t(%$-t %-)Co( Le/'. P31 the-
%""e%&e) to the CTA.
The +o&&ow$-8 $!!e! %(e +o( (e!o&t$o- $- the %""e%&:
%. Doe! the CTA h%/e ?($!)$#t$o- o/e( the %""e%& 9
*. 0%! the 0%$/e( o+ the St%tte o+ L$,$t%t$o-! /%&$) 9
#. 0e(e the A!!e!!,e-tCDe,%-) %-) the 0%((%-t o+
D$!t(%$-t %-)Co( Le/' /%&$) 9
0$&& the %""e%& "(o!"e(9 E."&%$- *($e+&' 'o( %-!we(.
S8<<)ST). =NSW)05 Kes, it !ill prosper$
a$ The CT= has Burisdiction to determine if the !arrant of
distraint and ley issued by the (10 is alid and to rule if the Waier
of the Statute of 4imitations !as alidly effected$ This is so because
the CT= has exclusie appellate Burisdiction to reie! by appeal
decisions of the Commissioner of 1nternal 0eenue in cases inolin3
Dother matters arisin3 under the National 1nternal 0eenue Code or
other la!s administered by the (ureau of 1nternal 0eenue$E FSec$ ,
?a> ?1>$ 0$ =$ No$ 112-, as amended by 0$ =$ No$ 92+2> Thus it !as
preiously ruled that the CT= had Burisdiction to act on a petition to
inalidate and annul the distraint orders of the Commissioner$
FKnaresJSantia3o, I$ Philippine 2ournalists, Inc. v. Commissioner of
Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200A citin3
Panrtoja v. .avi", 111 9hil$ 19,G 1 SC0= @0+ ?19@1>H 4i&e!ise
upheld by the Supreme Court !as the decision of the CT= declarin3
seeral !aiers executed by the taxpayer as null and oid, thus
inalidatin3 the assessments issued by the (10$ ?I%i"., citin3
Commissioner of Internal &evenue v. Court of Appeals, <$ 0$ No$
11-,12, 2- Cebruary 1999, '0' SC0= @1A>
b$ The Waier of the Statute of 4imitations is not alid
because it did not specify a definite a3reed date bet!een the (10 and
9I1, !ithin !hich the former may assess and collect reenue taxes$
Curthermore, the !aier is also defectie from the 3oernment
side because it !as si3ned only by a reenue district officer, and not
the Commissioner, as so re"uired$ Cinally, 9I1 !as not furnished a
copy of the !aier$
c$ The !aier document is incomplete and defectie and
thus the threeJyear prescriptie period !ithin !hich to assess !as not
tolled or extended and continued to run until =pril 1,, 199+$
Conse"uently, =ssessment7.emand No$ ''J1J000,-,J9A issued on
.ecember 9, 199+ !as inalid because it !as issued beyond the
three ?'> year period$ 1n the same manner, the Warrant of .istraint
and7or 4ey !hich 9I1 receied on March 2+, 2000 is also null and
oid for hain3 been issued pursuant to an inalid assessment$
?Philippine 2ournalists, Inc. v. Commissioner of Internal &evenue, <$
0$ No$ 1@2+-2, .ecember 1@, 200A>
62
;<. 0h%t %(e the two w%'! o+ "(ote!t$-8 %-
%!!e!!,e-t -ot$#e +o( %- $-te(-%& (e/e-e t%. 9
A&te(-%t$/e&'7 wh%t %(e the two t'"e! o+ "(ote!t! 9 E."&%$-
*($e+&'.
S8<<)ST). =NSW)05
a$ 0e"uest for reconsideration !hich refers to a plea for reJ
ealuation of an assessment on the basis of existin3 records !ithout
need of additional eidence$ 1t may inole both a "uestion of fact or
of la! or both$
b$ 0e"uest for reinesti3ation !hich refers to a plea for reJ
ealuation of an assessment on the basis of ne!lyJdiscoered
eidence or additional eidence that a taxpayer intends to present in
the inesti3ation$ 1t may also inole a "uestion of fact or la! or both$
?Commissioner of Internal &evenue v. Philippine (lo%al
Communication, Inc., <$ 0$ No$ 1@,1A@, /ctober '1, 200@ citin3 0e$
0e3s$ No$ 12J+->
;=. 0h%t $! th%t t'"e o+ "(ote!t th%t !!"e-)!
the (--$-8 o+ the !t%tte o+ &$,$t%t$o-! +o( the *e8$--$-8 o+
)$!t(%$-t o( &e/' o( % "(o#ee)$-8 $- #o(t +o( #o&&e#t$o- 9
0h' 9
S8<<)ST). =NSW)05 1t is that type of protest D!hen the
taxpayer re"uests for a reinesti3ation !hich is 3ranted by the
CommissionerE ?Sec$ 22', N10C of 199,>, that suspends the runnin3
of the statute of limitations for collection of the tax$ ?Commissioner of
Internal &evenue v. Philippine (lo%al Communication, Inc., <$ 0$ No$
1@,1A@, /ctober '1, 200@ citin3 Sec$ 2,1, no! Sec$ 22', N10C of
199,> When a taxpayer demands a reinesti3ation, the time
employed in reinesti3ation should be deducted from the total period
of limitation$ FCommissioner of Internal &evenue, supra citin3
&epu%lic v. Lopez, 11, 9hil$ -,-, -,+G , SC0= -@@, -@+J-@9 ?19@'>H
8ndoubtedly, a reinesti3ation, !hich entails the reception and
ealuation of additional eidence, !ill ta&e more time than a
reconsideration of a tax assessment !hich !ill be limited to the
eidence already at handG this Bustifies !hy the former can suspend
the runnin3 of the statute of limitations on collection of the assessed
tax, !hile the latter cannot$ ?Commissioner of Internal &evenue v.
Philippine (lo%al Communication, Inc., <$ 0$ No$ 1@,1A@, /ctober '1,
200@ citin3 Ban4 of Philippine Islan"s v. Commissioner of Internal
&evenue, <$ 0$ No$ 1'9,'@, 1, /ctober 200-, A,' SC0= 20-, 2'0J
2'1>
;>. 0h%t %(e the (eD$(e,e-t! +o( the /%&$)$t'
o+ % t%."%'e(E! "(ote!t 9
S8<<)ST). =NSW)05
a$ 1t must be filed !ithin the re3lementary period of thirty
?'0> days from receipt of the notice of assessment$
b$ The taxpayer must not only sho! the errors of the
(ureau of 1nternal 0eenue but also the correct computation throu3h
1> = statement of the facts, the applicable la!, rules
and re3ulations, or Burisprudence on !hich the taxpayer%s
protest is based,
2> 1f there are seeral issues inoled in the disputed
assessment and the taxpayer fails to state the facts, the
applicable la!, rules and re3ulations, or Burisprudence in
support of his protest a3ainst some of the seeral issues on
!hich the assessment is based, the same shall be considered
undisputed issue or issues, in !hich case, the taxpayer shall be
re"uired to pay the correspondin3 deficiency tax or taxes
attributable thereto$ ?Sec$ '$1$-, 0e$ 0e3s$ 12J99>
c$ Within sixty ?@0> days from filin3 of the protest, the
taxpayer shall submit all releant supportin3 documents$ FA
th
par$,
Sec$ 22+ ?e>, N10C of 199,H
;9. 0h%t $! the "(o#e)(e +o( !!"e-!$o- o+ #o&&e#t$o-
o+ t%.e! 9
S8<<)ST). =NSW)05 Where the collection of the amount
of the taxpayer%s liability, sou3ht by means of a demand for
payment, by ley, distraint or sale of property of the taxpayer, or by
!hateer means, as proided under existin3 la!s, may Beopardi#e
the interest of the 3oernment or the taxpayer, an interested party
may file a motion for the suspension of the collection of the tax
liability ?Sec$ 1, 0ule 10, 00CT= effectie .ecember 1-, 200-> !ith
the Court of Tax =ppeals$
The motion for suspension of the collection of the tax may be
filed to3ether !ith the petition for reie! or !ith the ans!er, or in a
separate motion filed by the interested party at any sta3e of the
proceedin3s$ ?Sec$ ', 0ule 10, 00CT= effectie .ecember 1-,
200->
50. A #o,"(o,$!e $! % #o-t(%#t !hereby the parties,
by ma&in3 reciprocal concessions, aoid a liti3ation or put an end to
one already commenced$ ?=rt$ 202+, Ciil Code>
= compromise penalty could not be imposed by the (10, if
the taxpayer did not a3ree$ = compromise bein3, by its nature,
mutual in essence re"uires a3reement$ The payment made under
protest could only si3nify that there !as no a3reement that had
effectiely been reached bet!een the parties$ ?,"a. "e San A#ustin,
63
et al., v. Commissioner of Internal &evenue, (. &. !o. ;AB>BH,
Septem%er ;?, <??;'
50FA. 0h%t t%. #%!e! ,%' *e the !*?e#t o+ %
#o,"(o,$!e 9
S8<<)ST). =NSW)05 The follo!in3 cases may, upon
taxpayer%s compliance !ith the basis for compromise, be the subBect
matter of compromise settlement5
a$ .elin"uent accountsG
b$ Cases under administratie protest after issuance of the
Cinal =ssessment Notice to the taxpayer !hich are still pendin3 in the
0e3ional /ffices, 0eenue .istrict /ffices, 4e3al Serice, 4ar3e
Taxpayer Serice ?4TS>, Collection Serice, )nforcement Serice
and other offices in the National /fficeG
c$ Ciil tax cases bein3 disputed before the courtsG
d$ Collection cases filed in courtsG
e$ Criminal iolations, other than those already filed in court,
or those inolin3 criminal tax fraud$ ?Sec$ 2, 0e$ 0e3s$ No$ '0J
2002>
51. 0h%t t%. #%!e! #o&) -ot *e the !*?e#t o+
#o,"(o,$!e 9
S8<<)ST). =NSW)05
a$ Withholdin3 tax cases unless the applicantJtaxpayer
ino&es proisions of la! that cast doubt on the taxpayer%s obli3ation
to !ithhold$G
b$ Criminal tax fraud cases, confirmed as such by the
Commissioner of 1nternal 0eenue or his duly authori#ed
representatieG
c$ Criminal iolations already filed in courtG
d$ .elin"uent accounts !ith duly approed schedule of
installment paymentsG
e$ Cases !here final reports of reinesti3ation or
reconsideration hae been issued resultin3 to reduction in the ori3inal
assessment and the taxpayer is a3reeable to such decision by si3nin3
the re"uired a3reement form for the purpose$ /n the other hand,
other protested cases shall be handled by the 0e3ional )aluation
(oard ?0)(> or the National )aluation (oard ?N)(> on a case to
case basisG
f$ Cases !hich become final and executory after final
Bud3ment of a court !here compromise is re"uested on the 3round of
doubtful alidity of the assessmentG and
3$ )state tax cases !here compromise is re"uested on the
3round of financial incapacity of the taxpayer$ ?Sec$ 2, 0e$ 0e3s$
No$ '0J2002>
52. The Co,,$!!$o-e( ,%' #o,"(o,$!e the
"%',e-t o+ %-' $-te(-%& (e/e-e t%. whe-:
a$ = reasonable doubt as to the alidity of the claim a3ainst
the taxpayer exists proided that the minimum compromise entered
into is e"uialent to forty percent ?A06> of the basic taxG or
b$ The financial position of the taxpayer demonstrates a clear
inability to pay the assessed tax proided that the minimum
compromise entered into is e"uialent to ten percent ?106> of the
basic assessed tax
1n the aboe instances the Commissioner is allo!ed to enter
into a compromise only if the basic tax inoled does not exceed /ne
million pesos ?91,000,000$00>, and the settlement offered is not less
than the prescribed percenta3es$ FSec$ 20A ?=>, N10C of 199,H
1n instances !here the Commissioner is not authori#ed, the
compromise shall be subBect to the approal of the )aluation (oard
composed of the Commissioner and the four ?A> .eputy
Commissioners$
5:. The Co,,$!!$o-e( o+ 1-te(-%& Re/e-e $!
%tho($Be) to %*%te o( #%-#e& % t%. &$%*$&$t'7 whe-5
a$ The tax or any portion thereof appears to be unBustly or
excessiely assessedG or
b$ The administration and collection costs inoled do not
Bustify the collection of the amount due$ FSec$ 20A ?(>, N10C of 199,H
5;. 0h%t $! the "(e!#($"t$/e "e($o) +o( #o&&e#t$-8 $-te(-%&
(e/e-e t%.e! 9
S8<<)ST). =NSW)05 There are four ?A> prescriptie
periods for the collection of an internal reenue tax5
a$ Collection upon a false or fraudulent return or no return
!ithout assessment$ 1n case of a false or fraudulent return !ith the
intent to eade tax or of failure to file a return, Da proceedin3 in court
for the collection of such tax may be filed !ithout assessment, at any
time !ithin ten ?10> years after the discoery of the falsity, fraud or
omission$E FSec$ 222 ?a>, N10C of 199,>
b$ Collection upon a false or fraudulent return or no return
!ith assessment$ =ny internal reenue tax !hich has been assessed
?because the return is false or fraudulent !ith intent to eade tax or of
failure to fail a return>, !ithin a period of ten ?10> years from discoery
of the falsity, fraud or omission D,%' *e #o&&e#te) *' )$!t(%$-t o(
&e/' o( *' % "(o#ee)$-8 $- #o(t w$th$- +$/e @5A 'e%(! +o&&ow$-8
the %!!e!!,e-t o+ the t%.$E FSec$ 222 ?c>, in relation to Sec$ 222 ?a>
N10C of 199,, emphasis supplied>
64
c$ Collection upon an extended assessment$ Where a tax
has been assessed !ith the period a3reed upon bet!een the
Commissioner and the taxpayer in !ritin3 ?!hich should initially be
!ithin three ?'> years from the time the return !as filed or should hae
been filed>, or any extensions before the expiration of the period
a3reed upon, the t%. ,%' *e #o&&e#te) *' )$!t(%$-t o( &e/' o( *' %
"(o#ee)$-8 $- #o(t w$th$- the "e($o) %8(ee) "o- $- w($t$-8
*e+o(e the e."$(%t$o- o+ the +$/e @5A 'e%( "e($o)$ The period so
a3reed upon may be extended by subse"uent !ritten a3reements
made before the expiration of the period preiously a3reed upon$E
FSec$ 222 ?d>, in relation to Secs$ 222 ?b> and 20', N10C of 199,,
emphasis supplied>
d$ Collection upon a return that is not false or fraudulent, or
!here the assessment is not an extended assessment$ D)xcept as
proided in Section 222, internal reenue taxes shall be assessed
!ithin three ?'> years after the last day prescribed by la! for the filin3
of the return, and -o "(o#ee)$-8 $- #o(t w$thot %!!e!!,e-t +o(
the #o&&e#t$o- o+ !#h t%.e! !h%&& *e *e8- %+te( the e."$(%t$o- o+
!#h "e($o)G 9roided, That in case !here a return is filed beyond
the period prescribed by la!, the three ?'> year period shall be
computed from the day the return !as filed$ Cor purposes of this
Section, a return filed before the last day prescribed by la! for the
filin3 thereof shall be considered filed on such last day$E ?Sec$ 20',
N10C of 199,, emphasis supplied>
When the (10 alidly issues an assessment !ithin the three
?'>Jyear period, it has another three ?'> years !ithin !hich to collect
the tax due by distraint, ley, or court proceedin3$ The assessment
of the tax is deemed made and the three ?'>Jyear period for
collection of the assessed tax be3ins to run on the date the
assessment notice had been released, mailed or sent to the
taxpayer$ FBan4 of Philippine Islan"s (-ormerly -ar /ast Ban4 an"
*rust Company' v. Commissioner of Internal &evenue, <$ 0$ No$
1,A9A2, March ,, 200+ citin3 BPI v. Commissioner of Internal
&evenue, <$0$ No$ 1'9,'@, 1, /ctober 200-, A,' SC0= 20-, 222J
22'>
N/T)S =N. C/MM)NTS5
a$ Both the +o(,e( Se#. 2<97 N1RC o+ 19== %-) Se#.222
o+ N1RC o+ 199= )o -ot (e+e( to % (e8&%( (et(-. 1t is clear that
in enactin3 Sec$ 222, entitled D)xceptions as to the period of limitation
of assessment and collection of taxes,E the N10C of 199, has
eliminated subJpara3raph c of the former Sec$ 2@9 of the N10C, also
entitled D)xceptions as to the period of limitation of assessment and
collection of taxes$E Said Sec$ 2@9 ?c>, reads D=ny internal reenue
tax !hich has been assessed !ithin the period of limitation aboeJ
prescribed may be collected by distraint or ley or by a proceedin3 in
court !ithin three years follo!in3 the assessment of the tax$E
= perusal of Sec$ 222 of the N10C is clear that it coers only
three scenarios only$ 1> No assessment !as made upon a false or
fraudulent return or omission to file a returnG 2> an assessment !as
made upon a false or fraudulent return or omission to file a returnG and
'> an extended assessment issued !ithin a period a3reed upon by
the Commissioner and the taxpayer$ The same scenarios are those
referred to in the former Sec$ 2@9 !hich proided for a prescriptie
period for collection of three ?'> years$
1t is clear therefore that neither Sec$ 222 nor the former Sec$
2@9 proide for an instance !here the assessment !as made upon a
Dre3ular returnE or one that is not false or fraudulent, or that there !as
an a3reement to extend the period for assessment$
0esort should therefore be made to the three ?'> year period
referred to in Sec$ 20' of the N10C of 199, !hich reads, D)xcept as
proided in Section 222, internal reenue taxes shall be assessed
!ithin three ?'> years after the last day prescribed by la! for the filin3
of the return, and -o "(o#ee)$-8 $- #o(t w$thot %!!e!!,e-t +o(
the #o&&e#t$o- o+ !#h t%.e! x x x D ?paraphrasin3 and emphasis
supplied>
55. 0h%t $! !o&t$o $-)e*et$ %! %""&$e) to t%. #%!e! 9
S8<<)ST). =NSW)05 This is erroneous payment of taxes
and occurs !hen the taxpayer pays under a mista&e of fact, as for the
instance in a case !here he is not a!are of an existin3 exemption in
his faor at the time the payment !as made$ Such payment is held to
be not oluntary and therefore, can be recoered or refunded$
?Commissioner of Internal &evenue v. Acesite (Philippines' 0otel
Corporation, <$ 0$ No$ 1A,29-, Cebruary 1@, 200,>
N/T)S =N. C/MM)NTS5 Technicalities and le3alisms,
ho!eer exalted, should not be misused by the 3oernment to &eep
money not belon3in3 to it, thereby enrichin3 itself at the expense of
its la!Jabidin3 citi#ens$ State Lan" Investment Corporation v.
Commissioner of Internal &evenue, <$ 0$ No$ 1,19-@, Ianuary 1+,
200+ citin3 BPI-amily Savin#s Ban4, Inc. v. Court of Appeals, <$0$
No$ 122A+0, =pril 12, 2000, ''0 SC0= -0,$
8nder the principle of solutio in"e%iti proided in =rt$ 21-A,
Ciil Code, D1f somethin3 is receied !hen there is no ri3ht to
demand it, and it !as unduly deliered throu3h mista&e, the
obli3ation to return it arises$E The (10 receied somethin3 D!hen
there F!asH no ri3ht to demand it,E and thus, it has the obli3ation to
return it$ State Lan" Investment Corporation v. Commissioner of
Internal &evenue supra citin# Citi%an4, !. A. v. Court of Appeals an"
Commissioner of Internal &evenue, <$0$ No$ 10,A'A, /ctober 10,
199,, 2+0 SC0= A-9, in turn citin3 &amie *e6tiles, Inc. v. $athay,
Sr., +9 SC0= -+@ ?19,9>$ 1t is an ancient principle that no one, not
een the state, shall enrich oneself at the expense of another$
65
1ndeed, simple Bustice re"uires the speedy refund of the !ron3ly
held taxes$ ?I%i".>
5<. 0h%t %(e the (e%!o-! +o( (eD$($-8 the +$&$-8 o+ %-
%),$-$!t(%t$/e %""&$#%t$o- +o( (e+-) o( #(e)$t w$th the
BS8<<)ST).
5<. The +$&$-8 o+ %- %),$-$!t(%t$/e #&%$, +o(
(e+-) w$th the B1R7 *e+o(e +$&$-8 % #%!e w$th the Co(t o+
T%. A""e%&!7 $! -e#e!!%(' +o( the +o&&ow$-8 (e%!o-!5
a$ To afford the Commissioner an opportunity to correct his
errors or that of subordinate officers$ ((onzales v. Court of *a6
Appeals, et al., 1A SC0= ,9>
b$ To notify the <oernment that such taxes hae been
"uestioned and the notice should be borne in mind in estimatin3 the
reenue aailable for expenditures$ (Bermejo v. Collector, <$0$ No$
4J'02+, Iuly 2+, 19-0>
5=. A! % 8e-e(%& (&e the +$&$-8 o+ %- %""&$#%t$o- +o(
(e+-) o( #(e)$t w$th the B(e% o+ 1-te(-%& Re/e-e $! %-
%),$-$!t(%t$/e "(e#o-)$t$o- *e+o(e % !$t ,%' *e +$&e) w$th the
Co(t o+ T%. A""e%&!. 1! the(e %-' e.#e"t$o- 9
S8<<)ST). =NSW)05 Kes$ The failure to first file a !ritten
claim for refund or credit is not fatal to a petition for reie! inolin3 a
disputed assessment !here an assessment !as disputed but the
protest !as denied by the (ureau of 1nternal 0eenue$
To hold that the taxpayer has no! lost the ri3ht to appeal
from the rulin3 on the disputed assessment and re"uire him to file a
claim for a refund of the taxes paid as a condition precedent to his
ri3ht to appeal, !ould in effect re"uire of him to 3o throu3h a useless
and needless ceremony that !ould only delay the disposition of the
case, for the Commissioner !ould certainly disallo! the claim for
refund in the same !ay as he disallo!ed the protest a3ainst the
assessment$ The la!, should not be interpreted as to result in
absurdities. (v"a. "e San A#ustin., etc., v. Commissioner of Internal
&evenue, (.&. !o. ;AB>BH, Septem%er ;?, <??; citin3 &oman
Catholic Arch%ishop of Ce%u v. Collector of Internal &evenue, > SC&A
<=I'
N/T)5 Re#o-#$&$%t$o- *etwee- %*o/e two -,*e(! @5<
%-) 5=A$ =n application for refund or credit under Sec$ 229 of the
N10C of 199, is re"uired !here the case filed before the CT= is a
refund case, !hich is not premised upon a disputed assessment$
There is no need for a prior application for refund or credit, if the
refund is merely a conse"uence of the resolution of the (10%s denial
of a protested assessment$
5>. 0h%t $! the -%t(e o+ the t%."%'e(E! (e,e)' o+ e$the(
to %!H +o( % (e+-) o+ e.#e!! t%. "%',e-t! o( to %""&' the !%,e
$- "%',e-t o+ !##ee)$-8 t%.%*&e "e($o)!E t%.e! 9
S8<<)ST). =NSW)05 Sec$ @9 of the 19,, N10C ?no!
Sec$ ,@ of the N10C of 199,> proides that any excess of the total
"uarterly payments oer the actual income tax computed in the
adBustment or final corporate income tax return, shall either ?a> be
refunded to the corporation, or ?b> may be credited a3ainst the
estimated "uarterly income tax liabilities for the "uarters of the
succeedin3 taxable year$ To ease the administration of tax collection,
these remedies are in the alternatie and the choice of one precludes
the other$ Since the (an& has chosen the tax credit approach it
cannot anymore aail of the tax refund$ (Philippine Ban4 of
Communications v. Commissioner of Internal &evenue, et al., <$0$
No$ 11202A, Ianuary 2+, 1999>
N/T)S =N. C/MM)NTS5
a$ The #ho$#e7 $! 8$/e- to the t%."%'e(7 whethe( to
#&%$, +o( (e+-) -)e( Se#. =< o( h%/e $t! e.#e!! taxes applied as
tax credit for the succeedin3 taxable year, such election is not final$
9rior erification and approal by the Commissioner of 1nternal
0eenue is re"uired$ The aailment of the remedy of tax credit is not
absolute and mandatory$ 1t does not confer an absolute ri3ht on the
part of the taxpayer to aail of the tax credit scheme if it so chooses$
Neither does it impose a duty on the part of the 3oernment to sit
bac& and allo! an important facet of tax collection to be at the sole
control and discretion of the taxpayer$ ?Paseo &ealty ) .evelopment
Corporation v. Court of Appeals, et al., <$ 0$ No$ 1192+@, /ctober 1',
200A>
59. 0h%t $! the $((e/o#%*$&$t' (&e $- #&%$,! +o(
(e+-) %-) wh%t $! the (%t$o-%&e *eh$-) th$! 9
S8<<)ST). =NSW)05 = corporation entitled to a tax credit
or refund of the excess estimated "uarterly income taxes paid has
t!o options5 ?1> to carry oer the excess credit or ?2> to apply for the
issuance of a tax credit certificate or to claim a cash refund$ 1f the
option to carry oer the excess credit is exercised, the same shall be
irreocable for that taxable period$
66
1n exercisin3 its option, the corporation must si3nify in its
annual corporate adBustment return ?by mar&in3 the option box
proided in the (10 form> its intention either to carry oer the excess
credit or to claim a refund$ To facilitate tax collection, these
remedies are in the alternatie and the choice of one precludes the
other$ FSystra Philippines, Inc., v. Commissioner of Internal
&evenue, <$ 0$ No$ 1,@290, September 21, 200, citin3 Philippine
Ban4 of Communications v. Commissioner of Internal &evenue, '@1
9hil$ 91@ ?1999>H
This is &no!n as the irreocability rule and is embodied in
the last sentence of Section ,@ of the Tax Code$ The phrase Dsuch
option shall be considered irreocable for that taxable periodE
means that the option to carry oer the excess tax credits of a
particular taxable year can no lon3er be reo&ed$
The rule preents a taxpayer from claimin3 t!ice the excess
"uarterly taxes paid5 ?1> as automatic credit a3ainst taxes for the
taxable "uarters of the succeedin3 years for !hich no tax credit
certificate has been issued and ?2> as a tax credit either for !hich a
tax credit certificate !ill be issued or !hich !ill be claimed for cash
refund$ ?Systra Philippines, Inc., supra citin3 .e 4eon, :ector, T:)
N=T1/N=4 1NT)0N=4 0)*)N8) C/.), Seenth )dition, 2000, p$
A'0>
<0. 1- the 'e%( 2000 S'!t(% )e($/e) e.#e!! t%. #(e)$t!
%-) e.e(#$!e) the o"t$o- to #%((' the, o/e( %! t%. #(e)$t! +o(
the -e.t t%.%*&e 'e%(. Howe/e(7 the t%. )e +o( the -e.t t%.%*&e
'e%( $! &owe( th%- e.#e!! t%. #(e)$t!. 1t -ow %""&$e! +o( %
(e+-) o+ the -%""&$e) t%. #(e)$t!. M%' $t! (e+-) *e
8(%-te) 9 1+ the (e+-) $! )e-$e)7 )oe! S'!t(% &o!e the
-%""&$e) t%. #(e)$t! 9 E."&%$- *($e+&' 'o( %-!we(.
S8<<)ST). =NSW)05 Systra%s claim for refund should
be denied$ /nce the carry oer option !as made, actually or
constructiely, it became foreer irreocable re3ardless of !hether
the excess tax credits !ere actually or fully utili#ed 8nder Section
,@ of the Tax Code, a claim for refund of such excess credits can no
lon3er be made$ The excess credits !ill only be applied Da3ainst
income tax due for the taxable "uarters of the succeedin3 taxable
years$E
.espite the denial of its claim for refund, Systra does not lose
the unapplied tax credits$ The amount !ill not be forfeited in faor
of the 3oernment but !ill remain in the taxpayer%s account$
9etitioner may claim and carry it oer in the succeedin3 taxable
years, creditable a3ainst future income tax liabilities until fully
utili#ed$ ?Systra Philippines, Inc., v. Commissioner of Internal
&evenue, <$ 0$ No$ 1,@290, September 21, 200, citin3 Philam
Asset $ana#ement, Inc. v. Commissioner of Internal &evenue, <$0$
Nos$ 1-@@',71@200A, 1A .ecember 200-, A,, SC0= ,@1>
S""o!$-8 $- the %*o/e "(o*&e, th%t S'!t(% "e(,%-e-t
#e%!e) o"e(%t$o-!7 wh%t h%""e-! to the -%""&$e) #(e)$t! 9
S8<<)ST). =NSW)05 Where, the corporation
permanently ceases its operations before full utili#ation of the tax
credits it opted to carry oer, it may then be allo!ed to claim the
refund of the remainin3 tax credits$ 1n such a case, the remainin3
tax credits can no lon3er be carried oer and the irreocability rule
ceases to apply$ Cessante ratione le#is, cessat ipse le6$ ?Cootnote
no$ 2', Systra Philippines, Inc., v. Commissioner of Internal
&evenue, <$ 0$ No$ 1,@290, September 21, 200,>
N/T)S =N. C/MM)NTS5 The holdin3 in State Lan"
Investment Corporation v. Commissioner of Internal &evenue, <$ 0$
No$ 1,19-@, Ianuary 1+, 200+ that the taxpayer is entitled to a
refund because durin3 the succeedin3 year there !as no tax due
a3ainst !hich the excess tax credits may be applied is not doctrinal$
This is so because it interpreted the proisions of then Sec$ @9 of the
N10C, !hich did not proide for the Dirreocability ruleE no!
contained in Sec$ ,@ of the N10C of 199,$
<0FA. 1- e%(&' A"($& 1999 65G B%-H %)/%-#e) the %,o-t
o+ P1>0 ,$&&$o- to the B1R $t! $-#o,e t%. "%',e-t +o( the *%-HE!
1999 o"e(%t$o-! $- (e!"o-!e +o( the 8o/e(-,e-tE! #%&& to
8e-e(%te ,o(e (e/e-e! +o( -%t$o-%& )e/e&o",e-t. 1- !e"%(%te
&ette(! )%te) A"($& 19 %-) 297 1999 %-) M%' 1;7 1999 65G
(eDe!te) +o( the $!!%-#e o+ % T%. C(e)$t Ce(t$+$#%te @TCCA to *e
t$&$Be) %8%$-!t +t(e t%. o*&$8%t$o-! o+ the *%-H.
B' the e-) o+ 19997 % #(e)$t *%&%-#e $- the %,o-t o+ P=:
,$&&$o- (e,%$- wh$#h w%! #%(($e) o/e( +o( the 'e%(! 2000 to 200;
*t w%! -ot %/%$&e) o+ *e#%!e 65G $-#((e) &o!!e! )($-8 the
"e($o). O- 3&' 2>7 2005 PNB (e$te(%te) $t! (eDe!t +o( the
$!!%-#e o+ % TCC +o( the P=: ,$&&$o- *%&%-#e. The B1R (e?e#te)
the (eDe!t o- the 8(o-) o+ %,o-8 othe(! "(e!#($"t$o- h%/$-8
*ee- %""&$e) +o( *e'o-) the twoF'e%( (e8&e,e-t%(' "e($o) +o(
+$&$-8 #&%$,! +o( (e+-) %! !et +o(th $- Se#. 229 o+ the N1RC o+
199=.
H%! the #&%$, "(e!#($*e) 9 E."&%$- *($e+&' 'o( %-!we(.
S8<<)ST). =NSW)05 The claim has not prescribed$ Sec$
229 of the Tax Code, as couched, particularly its statute of limitations
component, is in context intended to apply to suits for any national
internal reenue tax Dalle3ed to hae been erroneously or ille3ally
assessed or collected, or of any penalty claimed to hae been
collected !ithout authority, or of any sum alle3ed to hae excessiely
or in any manner !ron3fully collected$E
67
=naly#in3 the underlyin3 reason behind the adance payment
?to help the 3oernment> made by ;K2 it !ould be improper to treat
the same as erroneous, !ron3ful or ille3al payment of tax !ithin the
meanin3 of Sec$ 229 of the N10C of 199,$
=n aailment of tax credit due for reasons other than the
erroneous or !ron3ful collection of taxes may hae a different
prescriptie period$ ?Commissioner of Internal &evenue v. Philippine
!ational Ban4, <$0$ No$ 1@199,, /ctober 2-, 200- citin3
Commissioner of Internal &evenue v. *he Philippine Life Insurance
Co., et al$ <$0$ No$ 10-20+, May 29, 199-> =bsent any specific
proision in the Tax Code or special la!s, that period !ould be ten
?10> years under =rticle 11AA of the Ciil Code$ ?Commissioner of
Internal &evenue v. Philippine !ational Ban4, supra>
<1. ABC B%-H +$&e) w$th the B1R %- %""&$#%t$o- +o( % t%.
#(e)$tC(e+-) +o( %&&e8e) e.#e!! "%',e-t! o+ $t! 8(o!! (e#e$"t!
t%. @2RTA +o( the :
()
%-) ;
th
D%(te(! o+ 200: %-) the e-t$(e 200;
%,o-t$-8 to P1; ,$&&$o-. S$-#e -o %#t$o- w%! t%He- *' the
Co,,$!!$o-e( o- $t! #&%$,7 ABC +$&e) % #%!e w$th the CTA o-
O#to*e( 1>7 2005 to #o,"&' w$th the twoF'e%( (e8&e,e-t%('
"e($o) %-) %/o$) the "(e!#($"t$o- o+ $t! %#t$o-. O-&' 3&' :07
200=7 the CTA (e-)e(e) % )e#$!$o- )e-'$-8 the #&%$, +o( ABCE!
+%$&(e to +$&e $t! +o(,%& o++e( o+ e/$)e-#e $- the CTA.
ABC B%-H -ow !eeH! (e+8e $- O-%te /. Co(t o+ A""e%&!7
:20 Ph$&. :;;K 250 SCRA 2>: @1995A whe(e the S"(e,e Co(t
%&&owe) e/$)e-#e7 -ot +o(,%&&' o++e(e)7 to *e #o-!$)e(e) o-
#o-)$t$o- th%t: @1A e/$)e-#e ,!t h%/e *ee- $)e-t$+$e) *'
te!t$,o-' )&' (e#o()e) %-) @2A $t ,!t h%/e *ee- $-#o("o(%te)
$- the (e#o()! o+ the #%!e.
1! ABC #o((e#t 9
S8<<)ST). =NSW)05 No$ = tax refund s in the nature of a
tax exemption !hich must be construed strictissimi juris a3ainst the
taxpayer$ The taxpayer must present conincin3 eidence to
substantiate a claim for refund$ Without any documentary eidenced
on record, =(C failed to dischar3e the burden of proin3 its ri3ht to a
tax credit7tax refund$ ?-ar /ast Ban4 ) *rust Company v.
Commissioner of Internal &evenue, <$ 0$ No$ 1A9-+9, September 1-,
200@>
<2. A !$,&t%-eo! +$&$-8 o+ the %""&$#%t$o- w$th the B1R
+o( (e+-)C#(e)$t %-) the $-!t$tt$o- o+ the #o(t !$t w$th the
CTA $! %&&owe)$ There is no need to !ait for a (10 denial$
0)=S/NS5
a$ The positie re"uirement of Section 2'0 N10C ?no! Sec$
229, N10C of 199,>G
b$ The doctrine that delay of the Commissioner in renderin3
decision does not extend the peremptory period fixed by the statuteG
c$ The la! fixed the same period t!o years for filin3 a claim
for refund !ith the Commissioner under Sec$ 20A, par$ ', N10C ?no!
Sec$ 20A FCH, N10C of 199,>, and for filin3 suit in court under Sec$
2'0, N10C ?no! Sec$ 229, N10C of 199,>, unli&e in protests of
assessments under Sec$ 229 ?no! Sec$ 22+, N10C of 199,>, !hich
fixed the period ?thirty days from receipt of decision> for appealin3 to
the court, thus clearly implyin3 that the prior decision of the
Commissioner is necessary to ta&e co3ni#ance of the case$
(Commissioner of Internal &evenue v. Ban4 of Philippine Islan"s, etc.
et al., CA(.&. SP !o. A>;?<, Septem%er I, ;II>L (i%%s v. Collector
of Internal &evenue, et al., ;?= Phil, <A<L 2ohnston Lum%er Co. v.
C*A, ;?; Phil. ;H;'
<:. The 8(%-t o+ % (e+-) $! +o-)e) o- the %!!,"t$o-
th%t the t%. (et(- $! /%&$)7 i$e$ that the facts stated therein are true
and correct$ ?Commissioner of Internal &evenue v. Court of *a6
Appeals, <$ 0$ No$ 10@@11, Iuly 21, 199A, 2'A SC0= 'A+> Without
the tax return it !ould be irtually impossible to determine !hether the
proper taxes hae been assessed and paid$ =fter all, it is axiomatic
that a claimant has the burden of proof to establish the factual basis
of his or her claim for tax credit or refund$ Tax refunds, li&e tax
exemptions, are construed strictly a3ainst the taxpayer$ ?Paseo
&ealty ) .evelopment Corporation v. Court of Appeals, et al., <$ 0$
No$ 1192+@, /ctober 1', 200A>
:o!eer, in BPI-amily Savin#s Ban4 v. Court of Appeals, '+@
9hil$ ,19G '2@ SC0= @A1 ?2000>, refund !as 3ranted, despite the
failure to present the tax return, because other eidence !as
presented to proe that the oerpaid taxes !ere not applied$ ?I%i".>
<;. D$!#!! the )$++e(e-#e *etwee- t%. (e+-) %-) t%.
#(e)$t$
S8<<)ST). =NSW)05 There are unmista&able formal and
practical differences bet!een the t!o modes$ Cormally, a tax refund
re"uires a physical return of the sum erroneously paid by the
taxpayer, !hile a tax credit inoles the application of the
reimbursable amount a3ainst any sum that may be due and collectible
from the taxpayer$
/n the practical side, the taxpayer to !hom the tax is refunded
!ould hae the option, amon3 others, to inest for profit the returned
sum, an option not proximately aailable if the taxpayer chooses
instead to receie a tax credit$ ?Commissioner of Customs v.
Philippine Phosphate -ertilizer Corporation, <$ 0$ No$ 1AAAA0,
September 1, 200A>
68
N/T)S =N. C/MM)NTS5 1t may be that there is no essential
difference bet!een a tax refund and a tax credit since both are moes
of recoerin3 taxes erroneously or ille3ally paid to the 3oernment$
?Commissioner of Customs v. Philippine Phosphate -ertilizer
Corporation, <$ 0$ No$ 1AAAA0, September 1, 200A>
<5. 0h%t %(e the th(ee @:A #o-)$t$o-! +o( the
8(%-t o+ % #&%$, +o( (e+-) o+ #(e)$t%*&e w$thho&)$-8 t%. 9
S8<<)ST). =NSW)05
a$ The claim is filed !ith the Commissioner of 1nternal
0eenue !ithin the t!oJyear period from the date of the payment of
the tax$
b$ 1t is sho!n on the return of the recipient that the income
payment receied !as declared as part of the 3ross incomeG and
c$ The fact of !ithholdin3 is established by a copy of a
statement duly issued by the payee sho!in3 the amount paid and the
amount of tax !ithheld therefrom$ ?Banco -ilipino Savin#s an"
$ort#a#e Ban4 v. Court of Appeals, et al., <$ 0$ No$ 1--@+2, March
2,, 200,>
N/T)S =N. C/MM)NTS5
a$ P(oo+ o+ +%#t o+ w$thho&)$-8. DSec$ 10$ Claim for ta6
cre"it or refun". @ ?a> Claims for Tax Credit or 0efund of 1ncome tax
deducted and !ithheld on income payments shall be 3ien due
course only !hen it is sho!n on the return that the income payment
receied has been declared as part of the 3ross income and the fact
of !ithholdin3 is established by a copy of the Withholdin3 Tax
Statement duly issued by the payor to the payee sho!in3 the amount
paid and the amount of the tax !ithheld therefrom 666G ?0e$ 0e3s$
No$ @J+-, as amended>
The document !hich may be accepted as eidence of the third
condition, that is, the fact of !ithholdin3, must emanate from the
payor itself, and not merely from the payee, and must indicate the
name of the payor, the income payment basis of the tax !ithheld, the
amount of the tax !ithheld and the nature of the tax paid$ $ ?Banco
-ilipino Savin#s an" $ort#a#e Ban4 v. Court of Appeals, et al., <$ 0$
No$ 1--@+2, March 2,, 200,>
<5FA. 0h%t !ho&) *e e!t%*&$!he) *' % t%."%'e( +o(
the 8(%-t o+ % t%. (e+-) 9 0h' 9
S8<<)ST). =NSW)05 = taxpayer needs to establish not
only that the refund is Bustified under the la!, but also the correct
amount that should be refunded$
1f the latter re"uisite cannot be ascertained !ith particularity,
there is cause to deny the refund, or allo! it only to the extent of the
sum that is actually proen as due$
Tax refunds parta&e of the nature of tax exemptions and are
thus construed strictissimi juris a3ainst the person claimin3 the
exemption$ The burden in proin3 the claim for refund necessarily
falls on the taxpayer$ ?-ar /ast Ban4 *rust an" Company, etc., v.
Commissioner of Internal &evenue, et al., <$ 0$ No$ 1'+919, May 2,
200@>
<<. 0h%t %(e the (eD$!$te! +o( the (e+-) o+
$&&e8%&&' )e)#te) t%.e! +(o, the $-#o,e o+ %- e,"&o'ee!E
t(!t +-) 9
S8<<)ST). =NSW)05 What has to be established, as a
matter of eidence, is that the amount sou3ht to be refunded to the
ban&Jtrustee corresponds to the tax !ithheld on the interest income
earned from the exempt employees% trust$ The need to be
determinate is important, specially if the ban& trustee, in the ordinary
course of its ban&in3 business, earns interest income not only from its
inestments of employees% trusts, but on a !hole ran3e of accounts
!hich do not enBoy the same broad exemption as employees% trusts$
?-ar /ast Ban4 *rust an" Company, etc., v. Commissioner of Internal
&evenue, et al., <$ 0$ No$ 1'+919, May 2, 200@>
N/T)S =N. C/MM)NTS5
a$ E,"&o'ee!E t(!t +-)7 )e+$-e). =n employees% trust
fund is a trust established by an employer to proide retirement,
pension, or other benefits to employees J it is a separate taxable
entity established for the exclusie benefit of the employees$
?.evelopment Ban4 of the Philippines v. Commission on Au"it, A22
SC0= A-9>
b$ 1-#o,e o+ e,"&o'ee!E t(!t $! t%. e.e,"t. D=ny
proision of la! to the contrary not!ithstandin3, the retirement
benefits receied by official and employees of priate firms, !hether
indiidual or corporate, in accordance !ith a reasonable priate
benefit plan maintained by the employer shall be exempt from all
taxes and shall not be liable to amendment, ley or sei#ure by or
under any le3al or e"uitable process !hatsoeer except to pay a debt
of the official or employee concerned to the priate benefit plan or
that arisin3 from liability imposed in a criminal action% x x x D ?Sec$ 1,
0ep$ =ct A91,>
= taxJexempt employees% trust fund is referred to under the
N10C of 199, as a Dreasonable priate retirement plan, !hich means
Da pension, 3ratuity, stoc& bonus or profitJsharin3 plan maintained by
an employer for the benefit of some or all of his officials or
employees, !herein contributions are made by such employer for the
officials or employees, or both, for the purpose of distributin3 to such
officials and employees the earnin3s and principal of the fund thus
accumulated, and !herein it is proided in said plan that at no time
69
shall any part of the corpus or income of the fund be used for, or be
dierted to, any purpose other than for the exclusie benefit of the
said officials or employees$E FSec$ '2 ?(> ?@ > ?a>, N10C of 199,H
c$ E.te-t o+ e.e,"t$o-. The tax exemption enBoyed by
employees% trust is absolute irrespectie of the nature of the tax$ 1t
does not apply only to the tax on interest income from money mar&et
placements, ban& deposits, other deposit substitute instruments and
3oernment security, because the source of the interest income does
not hae any effect on the exemption enBoyed by employee%s trusts$
?-ar /ast Ban4 *rust an" Company, etc., v. Commissioner of Internal
&evenue, et al., <$ 0$ No$ 1'+919, May 2, 200@>
<=. A *%-HFt(!tee o+ e,"&o'ee t(!t! +$&e) %-
%""&$#%t$o- +o( the (e+-) o+ t%.e! w$thhe&) o- the $-te(e!t
$-#o,e! o+ the $-/e!t,e-t! ,%)e o+ the +-)! o+ the
e,"&o'ee!E t(!t!. 1-!te%) o+ "(e!e-t$-8 !e"%(%te %##o-t! +o(
$-te(e!t $-#o,e! ,%)e o+ the!e $-/e!t,e-t!7 the *%-HFt(!tee
$-!te%) "(e!e-te) w$t-e!! to e!t%*&$!h th%t $t wo&) -e.t to
$,"o!!$*&e to !$-8&e ot the !"e#$+$# t(%-!%#t$o-! $-/o&/$-8 the
e,"&o'ee!E t(!t +-)! +(o, the tot%&$t' o+ %&& $-te(e!t $-#o,e
+(o, $t! tot%& $-/e!t,e-t!. O- the %*o/e *%!$! w$&& the
%""&$#%t$o- +o( (e+-) "(o!"e( 9
S8<<)ST). =NSW)05 No$ The application for refund !ill
not prosper$
The ban&Jtrustee needs to establish not only that the refund is
Bustified under the la! ?!hich is so because incomes of employees%
trusts are tax exempt>, but also the correct amount that should be
refunded$
Tax refunds parta&e of the nature of tax exemptions and are
thus construed strictissimi juris a3ainst the person or entity claimin3
the exemption$ The burden in proin3 the amount to be refunded
necessarily falls on the ban&Jtrustee, and there is an apparent failure
to do so$
= necessary conse"uence of the special exemption enBoyed
alone by employees% trusts !ould be a necessary se3re3ation in the
accountin3 of such income, interest or other!ise, earned from those
trusts from that earned by the other clients of the ban&Jtrustee$
?-ar /ast Ban4 an" *rust Company, etc., v. Commissioner, etc., et
al., <$0$ No$ 1'+919, May 2, 200@> The amounts that are the
exempt earnin3s of the employee%s trust has not been sho!n as they
hae been commin3led !ith the interest income of the other clients
of the ban&Jtrustee$
<>. CTA C$(#&%( No. 1F95 #&e%(&' (eD$(e! th%t
"hoto#o"$e! o+ the (e#e$"t! o( $-/o$#e! ,!t *e "(eF,%(He)
%-) !*,$tte) to the CTA to /e($+' the #o((e#t-e!! o+ the
!,,%(' &$!t$-8 %-) the CPA #e(t$+$#%t$o-$ CT= Circular No$ 1J
9-, issued on 2- Ianuary 199-, reads5
D1$ The party !ho desires to introduce as eidence such
oluminous documents must present5 ?a> Summary containin3 the
total amount7s of the tax account or tax paid for the period inoled
and a chronolo3ical or numerical list of the numbers, dates and
amounts coered by the inoices or receiptsG and ?b> a Certification
of an independent Certified 9ublic =ccountant attestin3 to the
correctness of the contents of the summary after ma&in3 an
examination and ealuation of the oluminous receipts and inoices$
Such summary and certification must properly be identified by a
competent !itness from the accountin3 firm$
2$ The method of indiidual presentation of each and eery
receipt or inoice or other documents for mar&in3, identification and
comparison !ith the ori3inals thereof need not be done before the
Court or the Commissioner anymore after the introduction of the
summary and C9= certification$ 1t is enou3h that the (e#e$"t!7
$-/o$#e! %-) othe( )o#,e-t! #o/e($-8 the !%$) %##o-t! o(
"%',e-t! ,!t *e "(eF,%(He) *' the "%(t' #o-#e(-e) %-)
!*,$tte) to the Co(t $- o()e( to *e ,%)e %##e!!$*&e to the
%)/e(!e "%(t' whe-e/e( heC!he )e!$(e! to #he#H %-) /e($+' the
#o((e#t-e!! o+ the !,,%(' %-) CPA #e(t$+$#%t$o-. :o!eer, the
ori3inals of the said receipts, inoices or documents should be ready
for erification and comparison in case doubt on the authenticity of
the particular documents presented is raised durin3 the hearin3 of
the case$E ?)mphasis supplied>
<9. M%-$&% E&e#t($# Co,"%-' % 8(%-tee o+ % &e8$!&%t$/e
+(%-#h$!e -)e( A#t No. ;>;7 %! %,e-)e) *' Re"*&$# A#t No.
;159 %-) P(e!$)e-t$%& De#(ee No. 5517
2O:P
h%) *ee- "%'$-8 % 2I
+(%-#h$!e t%. *%!e) o- $t! 8(o!! (e#e$"t!7 $- &$e o+ %&& othe(
t%.e! %-) %!!e!!,e-t! o+ wh%te/e( -%t(e. U"o- the
e++e#t$/$t' o+ E.e#t$/e O()e( No. =2 o- 4e*(%(' 107 19>=7
howe/e(7 (e!"o-)e-t *e#%,e !*?e#t to the "%',e-t o+ (e8&%(
#o("o(%te $-#o,e t%..
4o( the &%!t D%(te( e-)$-8 De#e,*e( :17 19>=7
(e!"o-)e-t +$&e) o- A"($& 157 19>> $t! te-t%t$/e $-#o,e t%.
(e+&e#t$-8 % (e+-)%*&e %,o-t o+ P1017>9=7=;17 *t o-&'
P==79:17>12 w%! %""&$e) %! t%. #(e)$t +o( the !##ee)$-8
t%.%*&e 'e%( 19>>.
A#t$-8 o- % 'e%(&' (ot$-%(' Lette( o+ Atho($t' No.
001>0<; NA )%te) 3-e 2=7 19>> $!!e) *' "et$t$o-e(7 )$(e#t$-8
the $-/e!t$8%t$o- o+ t%. &$%*$&$t$e! o+ (e!"o-)e-t +o( t%.%*&e 'e%(
19>=7 %- $-/e!t$8%t$o- w%! #o-)#te) *' Re/e-e O++$#e(
2 [3]
Id. at 11.
70
4(e)e($#H C%"$t%- wh$#h !howe) th%t (e!"o-)e-t w%! &$%*&e +o(
1. )e+$#$e-#' $-#o,e t%. $- the %,o-t o+ P27:;07902.52K %-)
2. )e+$#$e-#' +(%-#h$!e t%. $- the %,o-t o+ P27>:>7::5.>;.
O- A"($& 1=7 19>97 (e!"o-)e-t +$&e) %- %,e-)e) +$-%&
#o("o(%te 1-#o,e T%. Ret(- e-)$-8 De#e,*e( :17 19>>
(e+&e#t$-8 % (e+-)%*&e %,o-t o+ P10=7<;97=29.
Re!"o-)e-t th! +$&e) o- M%(#h :07 1990 % &ette(F#&%$, +o(
(e+-) o( #(e)$t $- the %,o-t o+ P10=7<;97=29 (e"(e!e-t$-8
o/e("%$) $-#o,e t%.e! +o( the 'e%(! 19>= %-) 19>>.
Pet$t$o-e( -ot h%/$-8 %#te) o- $t! (eDe!t7 (e!"o-)e-t
+$&e) o- A"($& <7 1990 % ?)$#$%& #&%$, +o( (e+-) o( #(e)$t w$th
the Co(t o+ T%. A""e%&!.
1t $! 8%the(e) th%t (e!"o-)e-t "%$) the )e+$#$e-#'
+(%-#h$!e t%. $- the %,o-t o+ P27>:>7::5.>;. 1t "(ote!te) the
"%',e-t o+ the %&&e8e) )e+$#$e-#' $-#o,e t%. %-) #&%$,e) %!
%- %&te(-%t$/e (e,e)' the )e)#t$o- the(eo+ +(o, $t! #&%$, +o(
(e+-) o( #(e)$t.
The Co(t o+ T%. A""e%&! 8(%-te) the P10=7<;97=29 #&%$,
+o( (e+-)7 o( $- the %&te(-%t$/e +o( the B1R to $!!e % t%. #(e)$t.
1! the Co(t o+ T%. A""e%&! #o((e#t 9
S8<<)ST). =NSW)05 Kes$ Section @9 of the National
1nternal 0eenue Code of 19+@, no! Sec$ ,@ proides, if the sum
of the "uarterly tax payments made durin3 a taxable year is not
e"ual to the total tax due on the entire taxable income of that year
as sho!n in its final adBustment return, the corporation has the
option to either5 ?a> pay the excess tax still due, or ?b> be refunded
the excess amount paid$ The returns submitted are Dmerely preJ
audited !hich consist mainly of chec&in3 mathematical accuracy of
the fi3ures in the return$E =fter such chec&in3, the purpose of !hich
bein3 to Dinsure prompt action on corporate annual income tax
returns sho!in3 refundable amounts arisin3 from oerpaid "uarterly
income taxes,E ?0eenue Memorandum /rder No$ '2J,@ dated Iune
11, 19,@> the refund or tax credit is 3ranted$ ?Commissioner of
Internal &evenue v. $anila /lectric Company, <$ 0$ No$ 121@@@,
/ctober 10, 200,>
TAR144 AND CUSTOMS LA0S
OR2AN1GAT1ON AND 4UNCT1ONS O4 THE BUREAU O4
1NTERNAL REVENUE
TAR144 AND CUSTOMS CODE
1. 0he- )oe! $,"o(t%t$o- *e8$-7 %-) wh' $! $t
$,"o(t%-t to H-ow whethe( $,"o(t%t$o- h%! %&(e%)' *e8-
o( -ot 9
S8<<)ST). =NSW)05 1mportation be3ins !hen the
coneyin3 essel or aircraft enters the Burisdiction of the 9hilippines
!ith intention to unlade therein$ ?Sec$ 1202, TCC9>
The Burisdiction of the (ureau of Customs to enforce the
proisions of the TCC9 includin3 sei#ure and forfeiture also be3ins
from the be3innin3 of importation$ Thus, the (ureau of Customs
obtains Burisdiction oer imported articles only after importation has
be3un$
2. 0he- $! $,"o(t%t$o- )ee,e) te(,$-%te)
%-) wh' $! $t $,"o(t%-t to H-ow whethe( $,"o(t%t$o- h%!
%&(e%)' e-)e)9
S8<<)ST). =NSW)05 1mportation is deemed terminated
upon payment of the duties, taxes and other char3es due upon the
a3encies, or secured to be paid, at the port of entry and the le3al
permit for !ithdra!al shall hae been 3ranted$
1n case the articles are free of duties, taxes and other char3es,
until they hae le3ally left the Burisdiction of the customs$ ?Sec$ 1202,
TCC9> The (ureau of Customs loses Burisdiction to enforce the
TCC9 and to ma&e sei#ures and forfeitures after importation is
deemed terminated$
:. The +&e.$*&e t%($++ #&%!e $! % "(o/$!$o- $- the
T%($++ %-) C!to,! Co)e, !hich implements the constitutionally
dele3ated po!er to the Con3ress to further dele3ate to the 9resident
of the 9hilippines, in the interest of national economy, 3eneral !elfare
and7or national security upon recommendation of the N).= ?a> to
increase, reduce or remoe existin3 protectie rates of import duty,
proided that, the increase should not be hi3her than 1006 ad
aloremG ?b> to establish import "uota or to ban imports of any
commodity, and ?c> to impose additional duty on all imports not
exceedin3 106 ad alorem, amon3 others$
;. C!to,! )t$e! )e+$-e). Customs duties is the name
3ien to taxes on the importation and exportation of commodities, the
tariff or tax assessed upon merchandise imported from, or exported
to, a forei3n country$ ?!estle Phils. v. Court of Appeals, et al., <$0$
No$ 1'A11A, Iuly @, 2001>
5. S"e#$%& #!to,! )t$e! %(e %))$t$o-%& $,"o(t )t$e!
$,"o!e) o- !"e#$+$# H$-)! o+ $,"o(te) %(t$#&e! -)e( #e(t%$-
71
#o-)$t$o-!$ The special customs duties under the Tariff and
Customs Code ?TCC9> are the antiJdumpin3 duty, the counterailin3
duty, the discriminatory duty, and the mar&in3 duty, and under the
Safe3uard Measures =ct ?SM=> additional tariffs as safe3uard
measures$
<. The !"e#$%& #!to,! )t$e! %(e $,"o!e) +o( the
"(ote#t$o- o+ #o-!,e(! %-) ,%-+%#t(e(!7 %! we&& %!
Ph$&$""$-e "(o)#t!.
=. D,"$-8 )t' $! %- %))$t$o-%& !"e#$%& )t'
%,o-t$-8 to the )$++e(e-#e *etwee- the e."o(t "($#e %-)
the -o(,%& /%&e o+ !#h "(o)#t7 #o,,o)$t' o( %(t$#&e
?Sec$ '01 ?s> ?1>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ
.umpin3 =ct of 1999$E> imposed on the importation of a product,
commodity or article of commerce into the 9hilippines at less than its
normal alue !hen destined for domestic consumption in the
exportin3 country !hich is causin3 or is threatenin3 to cause material
inBury to a domestic industry, or materially retardin3 the establishment
of a domestic industry producin3 the li&e product$ FSec$ '01 ?s> ?->,
TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999EH
>. 0he- $! the %-t$F),"$-8 )t' $,"o!e) 9
S8<<)ST). =NSW)05 The antiJdumpin3 duty is imposed
a$ Where a product, commodity or article of commerce is
exported into the 9hilippines at a price less than its normal alue
!hen destined for domestic consumption in the exportin3 country,
b$ and such exportation is causin3 or is threatenin3 to cause
material inBury to a domestic industry, or materially retards the
establishment of a domestic industry producin3 the li&e product$ FSec$
'01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct
of 1999EH

9. No(,%& /%&e +o( "("o!e! o+ $,"o!$-8 the %-t$F
),"$-8 )t' is the comparable price at the date of sale of li&e
product, commodity, or article in the ordinary course of trade !hen
destined for consumption in the country of export$ FSec$ '01 ?s> ?' >,
TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999EH
10. The $,"o!$-8 %tho($t' +o( the %-t$F),"$-8 )t' $!
the Se#(et%(' o+ T(%)e %-) 1-)!t(' $- the #%!e o+ -o-F
%8($#&t(%& "(o)#t7 #o,,o)$t'7 o( %(t$#&e o( the Se#(et%(' o+
A8($#&t(e7 $- the #%!e o+ %8($#&t(%& "(o)#t7 #o,,o)$t' o(
%(t$#&e7 after formal inesti3ation and affirmatie findin3 of the Tariff
Commission$ FSec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2,
D=ntiJ.umpin3 =ct of 1999EH
11. E/e- whe- %&& the (eD$(e,e-t! +o( the $,"o!$t$o-
h%/e *ee- +&+$&&e)7 the )e#$!$o- o- whethe( o( -ot to $,"o!e %
)e+$-$t$/e %-t$F),"$-8 )t' (e,%$-! the "(e(o8%t$/e o+ the T%($++
Co,,$!!$o-$ FSec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$
+,-2, D=ntiJ.umpin3 =ct of 1999EH Thus, the cabinet secretaries
could not contraene the recommendation of the Tariff Commission$
They could not impose the antiJdumpin3 duty or any special customs
duty !ithout the faorable recommendation of the Tariff Commission$
12. 1- the )ete(,$-%t$o- o+ whethe( to $,"o!e the %-t$F
),"$-8 )t'7 the T%($++ Co,,$!!$o-7 ,%' #o-!$)e( %,o-8
othe(!7 the e++e#t o+ $,"o!$-8 %- %-t$F),"$-8 )t' o- the
we&+%(e o+ the #o-!,e(! %-)Co( the 8e-e(%& "*&$#7 %-) othe(
(e&%te) &o#%& $-)!t($e!. ?Sec$ '01 ?a>, TCC, as amended by 0ep$
=ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999E>
1:. The %,o-t o+ %-t$F),"$-8 )t' th%t ,%' *e
$,"o!e) $! the )$++e(e-#e *etwee- the e."o(t "($#e %-) the
-o(,%& /%&e o+ !#h "(o)#t7 #o,,o)$t' o( %(t$#&e. ?Sec$ '01
?s> ?1>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of
1999E>
The antiJdumpin3 duty shall be e"ual to the mar3in of dumpin3
on such product, commodity or article thereafter imported to the
9hilippines under similar circumstances, in addition to ordinary duties,
taxes and char3es imposed by la! on the imported product,
commodity or article$
1;. 0h%t %(e #o-te(/%$&$-8 )t$e! %-) whe- %(e
the' $,"o!e) 9
S8<<)ST). =NSW)05 Counterailin3 duties are additional
customs duties imposed on any product, commodity or article of
commerce !hich is 3ranted directly or indirectly by the 3oernment in
the country of ori3in or exportation, any &ind or form of specific
subsidy upon the production, manufacture or exportation of such
product commodity or article, and the importation of such subsidi#ed
product, commodity, or article has caused or threatens to cause
material inBury to a domestic industry or has materially retarded the
3ro!th or preents the establishment of a domestic industry$ ?Sec$
'02, TCC9 as amended by Section 1, 0$=$ No$ +,-1>
15. The $,"o!$-8 %tho($t' +o( the #o-te(/%$&$-8 )t$e! $!
the Se#(et%(' o+ T(%)e %-) 1-)!t(' $- the #%!e o+ -o-F
72
%8($#&t(%& "(o)#t7 #o,,o)$t'7 o( %(t$#&e o( the Se#(et%(' o+
A8($#&t(e7 $- the #%!e o+ %8($#&t(%& "(o)#t7 #o,,o)$t' o(
%(t$#&e7 after formal inesti3ation and affirmatie findin3 of the Tariff
Commission$
)en !hen all the re"uirements for the imposition hae been
fulfilled, the decision on !hether or not to impose a definitie antiJ
dumpin3 duty remains the prero3atie of the Tariff Commission$
?Sec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ
.umpin3 =ct of 1999E>
1<. The #o-te(/%$&$-8 )t' $! eD$/%&e-t to the /%&e o+
the !"e#$+$# !*!$)'.
1=. M%(H$-8 )t$e! are the additional customs duties
imposed on forei3n articles ?or its containers if the article itself cannot
be mar&ed>, not mar&ed in any official lan3ua3e in the 9hilippines, in
a conspicuous place as le3ibly, indelibly and permanently in such
manner as to indicate to an ultimate purchaser in the 9hilippines the
name of the country of ori3in$

1>. The Co,,$!!$o-e( o+ C!to,! $,"o!e! the ,%(H$-8
)t'.
19. The ,%(H$-8 )t' $! eD$/%&e-t to +$/e "e(#e-t @5IA %)
/%&o(e,.
20. A )$!#($,$-%to(' )t' is a ne! and additional
customs duty imposed upon articles !holly or in part the 3ro!th or
product of, or imported in a essel, of any forei3n country !hich
imposes, directly or indirectly, upon the disposition or transportation in
transit throu3h or reJexportation from such country of any article
!holly or in part the 3ro!th or product of the 9hilippines, any
unreasonable char3e, exaction, re3ulation or limitation !hich is not
e"ually enforced upon li&e articles of eery forei3n country, or
discriminates a3ainst the commerce of the 9hilippines, directly or
indirectly, by la! or administratie re3ulation or practice, by or in
respect to any customs, tonna3e, or port duty, fee, char3e, exaction,
classification, re3ulation, condition, restriction or prohibition, in such
manner as to place the commerce of the 9hilippines at a
disadanta3e compared !ith the commerce of any forei3n country$
21. The P(e!$)e-t o+ the Ph$&$""$-e! $,"o!e! the
)$!#($,$-%to(' )t$e!.
22. S%+e8%() ,e%!(e! are emer3ency measures,
includin3 tariffs, to protect domestic industries and producers from
increased imports !hich inflict or could inflict serious inBury on them$
The CT= is ested !ith Burisdiction to reie! decisions of the
Secretary of Trade and 1ndustry imposin3 safe3uard measures as
proided under 0ep$ =ct No$ ++00 the Safe3uard Measures =ct
?SM=>$ ?Southern Cross Cement Corporation v. *he Philippine
Cement $anufacturers Corp., et al., <$ 0$ No$ 1-+-A0, Iuly +, 200A>
The .T1 Secretary cannot impose the safe3uard measures if
the Tariff Commission does not faorably recommend its imposition$
2:. 1,"o!$-8 %tho($t' +o( !%+e8%() ,e%!(e!. The
$,"o!$-8 %tho($t' +o( the #o-te(/%$&$-8 )t$e! $! the Se#(et%('
o+ T(%)e %-) 1-)!t(' $- the #%!e o+ -o-F%8($#&t(%& "(o)#t7
#o,,o)$t'7 o( %(t$#&e o( the Se#(et%(' o+ A8($#&t(e7 $- the #%!e
o+ %8($#&t(%& "(o)#t7 #o,,o)$t' o( %(t$#&e7 after formal
inesti3ation and affirmatie findin3 of the Tariff Commission$
2;. S%+e8%()! ,e%!(e! th%t ,%' *e $,"o!e).
=dditional tariffs, import "uotas or bannin3 of imports$
25$ The *%!$! o+ )t$%*&e /%&e o+ ,e(#h%-)$!e th%t $!
!*?e#t to %) /%&o(e, #!to,! )t$e! the t(%-!%#t$o- /%&e7
!hich shall be the price actually paid or payable for the 3oods !hen
sold for export to the 9hilippines, adBusted by addin3 certain cost
elements to the extent that they are incurred by the buyer but are not
included in the price actually paid or payable for the imported 3oods,
and may include the follo!in35
a$ Cost of containers and pac&in3,
b$ 1nsurance, and
c$ Crei3ht$ ?Sec$ 201, TCC as amended by Sec$ 1, 0ep$
=ct No$ 91'->
2<. The %*o/e t(%-!%#t$o- /%&e $! the "($,%(' ,etho)
o+ )ete(,$-$-8 )t$%*&e /%&e. 1+ the t(%-!%#t$o- /%&e o+ the
$,"o(te) %(t$#&e #o&) -ot *e )ete(,$-e) !$-8 the %*o/e7 the
+o&&ow$-8 %&te(-%t$/e ,etho)! !ho&) *e !e) o-e %+te( the
othe(:
a$ Transaction alue of identical 3oods
b$ Transaction alue of similar 3oods
c$ .eductie method
d$ Computed method
e$ Callbac& method
73
2=. How %-) to who, !ho&) #&%$,! +o( (e+-) o+
#!to,! )t$e! *e ,%)e 9
S8<<)ST). =NSW)05 =ll claims for refund of duties shall
be made in !ritin3 and for!arded to the Collector of Customs to
!hom such duties are paid, !ho upon receipt of such claim, shall
erify the same by the records of his /ffice, and if found to be correct
and in accordance !ith la!, shall certify the same to the
Commissioner of Customs !ith his recommendation to3ether !ith all
necessary papers and documents$ 8pon receipt by the
Commissioner of such certified claim he shall cause the same to be
paid if found correct$ ?Sec$ 1,0+, TCC>
2>. 0h%t $! ,e%- *' the te(, e-t(' $- C!to,!
L%w 9
S8<<)ST). =NSW)05 1t has a triple meanin3$
a$ the documents filed at the Customs houseG
b$ the submission and acceptance of the documentsG and
c$ Customs declaration forms or customs entry forms
re"uired to be accomplished by passen3ers of incomin3 essels or
passen3er planes as enisa3ed under Sec$ 2-0- of the TCC9
?Cailure to declare ba33a3e>$ ?2ar"eleza v. People, <$0$ No$
1@-2@-, Cebruary @, 200@>
29. A +&$8ht !tew%()e!! %(($/e) +(o, S$-8%"o(e. U"o- he(
%(($/%& !he w%! %!He) whethe( !he h%! %-'th$-8 to )e#&%(e. She
%-!we(e) -o-e7 %-) !he !*,$tte) he( C!to,! B%88%8e
De#&%(%t$o- 4o(, wh$#h !he %##o,"&$!he) %-) !$8-e) w$th
-oth$-8 o( w($tte- o- the !"%#e +o( $te,! to *e )e#&%(e). 0he-
he( h%-8e( *%8 w%! e.%,$-e) !o,e "$e#e! o+ ?ewe&(' we(e
+o-) #o-#e%&e) w$th$- the &$-$-8 o+ !%$) *%8.
She w%! the- #o-/$#te) o+ /$o&%t$-8 o+ Se#. :<01 o+ the
T%($++ %-) C!to,! Co)e +o( -&%w+& $,"o(t%t$o- wh$#h
"e-%&$Be! %-' "e(!o- who !h%&& +(%)&e-t&' $,"o(t o( *($-8 $-to
the Ph$&$""$-e! %-' %(t$#&e #o-t(%(' to &%w.
She -ow %""e%&! #&%$,$-8 th%t &owe( #o(t e((e) -
#o-/$#t$-8 he( -)e( Se#. :<01 whe- the +%#t! %&&e8e) *oth $-
the $-+o(,%t$o- %-) tho!e !how- *' the "(o!e#t$o- #o-!t$tte
the o++e-!e -)e( Se#. 2505 4%$&(e to De#&%(e B%88%8e7 o+
wh$#h !he w%! %#D$tte). 1! !he #o((e#t 9
S8<<)ST). =NSW)05 No$ Sec$ '@01 does not define a
crime$ 1t merely proides, inter alia, the administratie remedies
!hich can be resorted to by the (ureau of Customs !hen sei#in3
dutiable articles found the ba33a3e of any person arriin3 in the
9hilippines !hich is not included in the accomplished ba33a3e
declaration submitted to the customs authorities, and the
administratie penalties that such person must pay for the release of
such 3oods if not imported contrary to la!$
Such administratie penalties are independent of the criminal
liability for smu33lin3 that may be imposed under Sec$ '@01, and
other proisions of the TCC !hich can only be determined after the
appropriate criminal proceedin3s, prescindin3 from the outcome in
any administratie case that may hae been filed and disposed of by
the customs authorities$
1ndeed the second para3raph of Sec$ 2-0- proides that
nothin3 shall preent the brin3in3 of a criminal action a3ainst the
offender for smu33lin3 under Section '@01$ ?2ar"eleza v. People, <$
0$ No$ 1@-2@-, Cebruary @, 200@>
29FA. P%',e-t $! -ot % )e+e-!e $- !,88&$-8. DWhen upon
trial for iolation of this section, the defendant is sho!n to hae
possession of the article in "uestion, possession shall be deemed
sufficient eidence to authori#e coniction, unless the defendant shall
explain the possession to the satisfaction of the court5 9roided,
ho!eer, That payment of the tax due after apprehension shall not
constitute a alid defense in any prosecution under this section$E ?last
par$, Sec$ '@01, TCC>
:0. -o" is s#ulin co##itted ?
S8<<)ST). =NSW)05 Smu33lin3 is committed by any
person !ho5
a$ fraudulently imports or brin3s into the country any
article contrary to la!G
b$ assists in so doin3 any article contrary to la!G or
c$ receies, conceals, buys, sells or in any manner
facilitates the transportation, concealment or sale of such 3oods
after importation, &no!in3 the same to hae been imported contrary
to la!$ ?2ar"eleza v. People, <$0$ No$ 1@-2@-, Cebruary @, 200@
citin3 &o"ri#uez v. Court of Appeals, <$ 0$ No$ 11-21+, September
1+, 199-, 2A+ SC0= 2++, 29@>
N/T)S =N. C/MM)NTS5
a$ 1,"o(t%t$o- consists of brin3in3 an article into the
country from the outside$ 1mportation be3ins !hen the coneyin3
essel or aircraft enters the Burisdiction of the 9hilippines !ith
intention to unload therein$
b$ 0he- -&%w+& $,"o(t%t$o- $! #o,"&ete. 1n the
absence of a bona fide intent to ma&e entry and pay duties !hen the
prohibited article enters the 9hilippine territory$ 1mportation is
complete !hen the taxable, dutiable commodity is brou3ht !ithin the
limits of the port of entry$ )ntry throu3h a custom house is not the
essence of the act$ ?2ar"eleza v. People, <$0$ No$ 1@-2@-,
Cebruary @, 200@>
74
:1. The Co&&e#to( o+ C!to,! !$tt$-8 $- !e$B(e
%-) +o(+e$t(e "(o#ee)$-8! h%! e.#&!$/e ?($!)$#t$o- to
he%( %-) )ete(,$-e %&& De!t$o-! to#h$-8 o- the !e$B(e
%-) +o(+e$t(e o+ )t$%*&e 8oo)!. RTC! %(e "(e#&)e) +(o,
%!!,$-8 #o8-$B%-#e o/e( !#h ,%tte(! e/e- th(o8h
"et$t$o-! o+ #e(t$o(%($7 "(oh$*$t$o- o( ,%-)%,!. (*he
Bureau of Customs, et al., v. 3#ario, et al., <$0$ No$ 1'+0+1,
March 20, 2000>
0h%t $! the (%t$o-%&e +o( th$! )o#t($-e 9
S8<<)ST). =NSW)05
a$ 0e3ional Trial Courts hae no Burisdiction to replein a
property !hich is subBect to sei#ure and forfeiture proceedin3s for
iolation of the Tariff and Customs Code other!ise, actions for
forfeiture of property for iolation of the Customs la!s could easily be
undermined by the simple deice of replein$ ?.e la -uente v. .e
,eyra, et al., 120 SC0= A-->
b$ The doctrine of exclusie customs Burisdiction oer
customs cases to the exclusion of the 0TCs is anchored upon the
policy of placin3 no unnecessary hindrance on the 3oernment%s
drie, not only to preent smu33lin3 and other frauds upon Customs,
c$ but more importantly, to render effectie and efficient
the collection of import and export duties due the State, !hich
enables the 3oernment to carry out the functions it has been
instituted to perform$ (2ao, et al., v. Court of Appeals, et al., an"
companion case, 2A9 SC0= '-, A'>
d$ The issuance by re3ular courts of !rits of preliminary
inBunction in sei#ure and forfeiture proceedin3s before the (ureau of
Customs may arouse suspicion that the issuance or 3rant !as for
consideration other than the strict merits of the case$ ?5uno v.
Ca%re"o, A02 SC0= ,- F200'H>
e$ 8nder the doctrine of primary Burisdiction, the (ureau of
Customs has exclusie administratie Burisdiction to conduct
searches, sei#ures and forfeitures of contraband !ithout interference
from the courts$ 1t could conduct searches and sei#ures !ithout need
of a Budicial !arrant except if the search is to be conducted in a
d!ellin3 place$
Where an administratie office has obtained a technical
expertise in a specific subBect, een the courts must defer to this
expertise$
:2. A #&%$,$-8 to *e the ow-e( o+ % /e!!e& wh$#h $!
the !*?e#t o+ #!to,! w%((%-t o+ !e$B(e %-) )ete-t$o- !o8ht
the $-te(#e!!$o- o+ the RTC to (e!t(%$- the B(e% o+ C!to,!
+(o, $-te(+e($-8 w$th h$! "(o"e(t' ($8ht! o/e( the /e!!e&. 0o&)
the !$t "(o!"e(9
S8<<)ST). =NSW)05 No$ :is remedy !as not !ith the
0TC but !ith the CT=, as issues of o!nership of 3oods in the
custody of customs officials are !ithin the po!er of the CT= to
determine$
The Collector of Customs has exclusie Burisdiction oer
sei#ure and forfeiture proceedin3s and trial courts are precluded
from assumin3 co3ni#ance oer such matters een throu3h petitions
for certiorari, prohibition or mandamus$ ?Commissioner of Customs
v. Court of Appeals, et al., <$ 0$ Nos$ 111202J0-, Ianuary '1, 200@>
::. The #!to,! %tho($t$e! )o -ot h%/e to "(o/e to the
!%t$!+%#t$o- o+ the #o(t th%t the %(t$#&e! o- *o%() % /e!!e& we(e
$,"o(te) +(o, %*(o%) o( %(e $-te-)e) to *e !h$""e) %*(o%)
*e+o(e the' ,%' e.e(#$!e the "owe( to e++e#t #!to,! !e%(#he!7
!e$B(e!7 o( %((e!t! "(o/$)e) *' &%w %-) #o-t$-e w$th the
%),$-$!t(%t$/e he%($-8!$ (*he Bureau of Customs, et al., v. 3#ario,
et al$, <$0$ No$ 1'+0+1, March 20, 2000>
:;. The Tariff and Customs Code allo!s the (ureau of
Customs to resort to the %),$-$!t(%t$/e (e,e)' o+ !e$B(e7 !#h %!
*' e-+o(#$-8 the t%. &$e- o- the $,"o(te) %(t$#&e whe- the
$,"o(te) %(t$#&e! #o&) *e +o-) %-) *e !*?e#t to !e$B(e %-)
+o(+e$t(e.
:5. The Tariff and Customs Code allo!s the (ureau of
Customs to resort to the ?)$#$%& (e,e)' o+ +$&$-8 %- %#t$o- $- #o(t
whe- the $,"o(te) %(t$#&e! #o&) -ot %-',o(e *e +o-).
:<. 1-!t%-#e! whe(e the(e $! -o ($8ht o+ (e)e,"t$o- o+
!e$Be) %-) +o(+e$te) %(t$#&e!:
a$ There is fraudG
b$ The importation is absolutely prohibited, or
c$ The release of the property !ould be contrary to la!$
(*rans#lo%e International, Inc. v. Court of Appeals, et al., <$0$ No$
12@@'A, Ianuary 2-, 1999>
:=. 1n Aznar v. Court of *a6 Appeals, HB SC&A H;I, reiterated
in -arolan, 2r. v. Court of *a6 appeals, et al., <;= SC&A <IB, the
Supreme Court clarified that the +(%) #o-te,"&%te) *' &%w ,!t
*e %#t%& %-) -ot #o-!t(#t$/e. 1t must be intentional, consistin3 of
deception, !illfully and deliberately done or resorted to in order to
induce another to 3ie up some ri3ht$
75
:>. ReD$!$te! +o( +o(+e$t(e o+ $,"o(te)
8oo)!:
a$ Wron3ful ma&in3 by the o!ner, importer, exporter or
consi3nee of any declaration or affidait, or the !ron3ful ma&in3 or
deliery by the same person of any inoice, letter or paper L all
touchin3 on the importation or exportation of merchandise$
b$ the falsity of such declaration, affidait, inoice, letter or
paperG and
c$ an intention on the part of the importer7consi3nee to
eade the payment of the duties due$ (&epu%lic, etc., v. *he Court of
Appeals, et al$, <$0$ No$ 1'90-0, /ctober 2, 2001>
:9. O- 3%-%(' =7 19>97 the /e!!e& MCV St%( A#e7
#o,$-8 +(o, S$-8%"o(e &%)e- w$th #%(8o7 e-te(e) the Po(t o+
S%- 4e(-%-)o7 L% U-$o- +o( -ee)e) (e"%$(!. 0he- the B(e% o+
C!to,! &%te( *e#%,e !!"$#$o! th%t the /e!!e&E! (e%& "("o!e
$- )o#H$-8 w%! to !,88&e #%(8o $-to the #o-t('7 !e$B(e
"(o#ee)$-8! we(e $-!t$tte) %-) !*!eDe-t&' two 0%((%-t! o+
Se$B(e %-) Dete-t$o- we(e $!!e) +o( the /e!!e& %-) $t! #%(8o.
Ce!%( )oe! -ot ow- the /e!!e& o( %-' o+ $t! #%(8o *t
#&%$,e) % "(e+e((e) ,%($t$,e &$e-. Ce!%( the- *(o8ht !e/e(%&
#%!e! $- the RTC to e-+o(#e h$! &$e-. 0o&) the!e !$t!
"(o!"e( 9
S8<<)ST). =NSW)05 No$ The (ureau of Customs hain3
first obtained possession of the essel and its 3oods has obtained
Burisdiction to the exclusion of the trial courts$
When Cesar has impleaded the essel as a defendant to
enforce his alle3ed maritime lien, in the 0TC, he brou3ht an action in
rem under the Code of Commerce under !hich the essel may be
attached and sold$
:o!eer, the basic operatie fact is the actual or constructie
possession of the res by the tribunal empo!ered by la! to conduct
the proceedin3s$ This means that to ac"uire Burisdiction oer the
essel, as a defendant, the trial court must hae obtained either
actual or constructie possession oer it$ Neither !as accomplished
by the 0TC as the essel !as already in the possession of the (ureau
of Customs$ ?Commissioner of Customs v. Court of Appeals, et al.,
<$ 0$ Nos$ 111202J0-, Ianuary '1, 200@>
N/T)S =N. C/MM)NTS5
a$ 4o(+e$t(e o+ !e$Be) 8oo)! $- the B(e% o+ C!to,!
$! $- the -%t(e o+ % "(o#ee)$-8 in re# 7 i$e$ directed a3ainst the res
or imported 3oods and entails a determination of the le3ality of their
importation$ 1n this proceedin3, it is in le3al contemplation the
property itself !hich commits the iolation and is treated as the
offender, !ithout reference !hatsoeer to the character or conduct of
the o!ner$
The issue is limited to !hether the imported 3oods should be
forfeited and disposed of in accordance !ith la! for iolation of the
Tariff and Customs Code$ .(*rans#lo%e International, Inc. v. Court of
Appeals, et al$, <$0$ No$ 12@@'A, Ianuary 2-, 1999>
Corfeiture of sei#ed 3oods in the (ureau of Customs is a
proceedin3 a3ainst the 3oods and not a3ainst the o!ner$ ?Asian
*erminals, Inc. v. Bautista&icafort, < $0$ No$ 1@@901, /ctober 2,,
200@ citin3 *rans#lo%e'
;0. The Co&&e#to( o+ C!to,! "o- "(o*%*&e #%!e th%t
the %(t$#&e! %(e $,"o(te) o( e."o(te)7 o( %(e %tte,"te) to *e
$,"o(te) o( e."o(te)7 $- /$o&%t$o- o+ the t%($++ %-) #!to,! &%w!
!h%&& $!!e % w%((%-t o+ !e$B(e. ?Sec$ @, Title 111, C=/ No$ 9J9'>
1f the search and sei#ure is to be conducted in a d!ellin3 place,
then a search !arrant should be issued by the re3ular courts not the
(ureau of Customs$
There may be instances !here no !arrants issued by the
(ureau of Customs or the re3ular courts is re"uired, as in search and
sei#ures of motor ehicles and essels$
;1. S,88&e) 8oo)! !e$Be) *' /$(te o+ % #o(t w%((%-t
!ho&) *e !((e-)e(e) to the #o(t th%t $!!e) the w%((%-t %-)
-ot to the B(e% o+ C!to,! because the 3oods are in custo"ia
le#is.
LOCAL 2OVERNMENT TA6AT1ON
LOCAL 2OVERNMENT TA6AT1ON7 1N 2ENERAL
1. The +-)%,e-t%& "($-#$"&e! o+ &o#%& t%.%t$o- are5
a$ 8niformityG
b$ Taxes, fees, char3es and other impositions shall be
e"uitable and based on ability to pay, for public purposes, not unBust,
excessie, oppressie or confiscatory, not contrary to la!, public
policy, national economic policy or in restraint of tradeG
c$ The ley and collection shall not be let to any priate
personG
d$ 1nures solely to the local 3oernment unit leyin3 the
taxG
e$ The pro3ressiity principle must be obsered$
2. A &%w wh$#h )e"($/e! &o#%& 8o/e(-,e-t -$t! o+ the$(
"owe( to t%. wo&) *e -#o-!t$tt$o-%&. The constitution has
76
dele3ated to local 3oernments the po!er to ley taxes, fees and
other char3es$ This constitutional dele3ation may only be remoed by
a constitutional amendment$
:. The "($,%(' (e%!o- +o( the w$th)(%w%& o+ t%.
e.e,"t$o- "($/$&e8e! 8(%-te) to 8o/e(-,e-t ow-e) %-)
#o-t(o&&e) #o("o(%t$o-! and all other units of 3oernment !as that
such priile3e resulted to serious tax base erosion and distortions in
the tax treatment of similarly situated enterprises, hence resultin3 in
the need for these entities to share in the re"uirements of
deelopment, fiscal or other!ise, by payin3 the taxes and other
char3es due them$ ?Philippine Ports Authority v. City of Iloilo, <$ 0$
No$ 109,91, Iuly 1A, 200'>
;. N%t$o-%& Powe( Co("o(%t$o- @NPCA $! o+ the
$-!$!te-#e th%t $t $! -ot !*?e#t to the "%',e-t o+ +(%-#h$!e!
t%.e! $,"o!e) *' the P(o/$-#e o+ 1!%*e&% *e#%!e %&& o+ $t!
!h%(e! %(e ow-e) *' the Re"*&$# o+ the Ph$&$""$-e!. 1t $! th!7
%- $-!t(,e-t%&$t' o+ the N%t$o-%& 2o/e(-,e-t wh$#h $! e.e,"t
+(o, &o#%& t%.%t$o-. A! !#h $t $! -ot % "($/%te #o("o(%t$o-
e-8%8e) $- *!$-e!! e-?o'$-8 +(%-#h$!e
1! !#h #o-te-t$o- ,e($to($o! 9
S8<<)ST). =NSW)05 No$ Philippine Lon# .istance
*elephone Company, Inc., v. City of .avao, et al., etc$, <$ 0$ No$
1A'+@,, =u3ust 22, 2001, upheld the authority of the City of .aao, a
local 3oernment unit, to impose and collect a local franchise tax
because the 4ocal <oernment Code has !ithdra!n all tax
exemptions preiously enBoyed by all persons and authori#ed local
3oernment units to impose a tax on business enBoyin3 a franchise
tax not!ithstandin3 the 3rant of tax exemption to them$
5. P(o+e!!$o-%& t%. ,%' *e $,"o!e) *' % "(o/$-#e o(
#$t' *t -ot *' % ,-$#$"%&$t' o( *%(%-8%'.
a$ Transaction taxed5 )xercise or practice of profession
re"uirin3 3oernment licensure examination$
b$ Tax rate5 1n =ccordance !ith a taxin3 ordinance !hich
should not exceed 9'00$00$
c$ Tax base5 0easonable classification by the san33unian$
d$ )xception5 9ayment to one proince or city no lon3er
subBect to any other national or local tax, license or fee for the practice
of such profession in any part of the 9hilippine professionals
exclusiely employed in the 3oernment$
e$ .ate of payment5 or on before Ianuary '1 or en3a3in3
in the profession$
f$ 9lace of payment5 9roince or city !here the
professional practices his profession or !here he maintains his
principal office in case he practices his profession in seeral places$
<. ReD$(e,e-t!: =ny indiidual or corporation employin3
a person subBect to professional tax shall re"uire payment by that
person of the tax on his profession before employment and annually
thereafter$
=ny person subBect to the professional tax shall !rite in deeds,
receipts, prescriptions, reports, boo&s of account, plans and desi3ns,
sureys and maps, as the case may be, the number of the official
receipt issued to him$
)xemption5 9rofessionals exclusiely employed in the
3oernment shall be exempt from payment$ ?Sec$ 1'9, 4<C>
N/T)5 Cor the purpose of collectin3 the tax, the proincial or city
treasurer or his duly authori#ed representatie shall re"uire from such
professionals their current annual re3istration cards issued by
competent authority before acceptin3 payment of their professional
tax for the current year$ The 90C shall li&e!ise re"uire the
professionals presentation of proof of payment before re3istration of
professionals or rene!al of their licenses$ ?last par$, =rt$ 22+, 0ules
and 0e3ulations 1mplementin3 the 4ocal <oernment Code of 1991>
=. 0ho %(e the "(o+e!!$o-%&! who7 $+ the' %(e $- "(%#t$#e
o+ the$( "(o+e!!$o-7 %(e !*?e#t to "(o+e!!$o-%& t%. 9
S8<<)ST). =NSW)05 The professionals subBect to the
professional tax are only those !ho hae passed the bar
examinations, or any board or other examinations conducted by the
9rofessional 0e3ulation Commission ?90C>$ for example, a la!yer
!ho is also a Certified 9ublic =ccountant ?C9=> must pay the
professional tax imposed on la!yers and that fixed for C9=s, if he is
to practice both professions$ FSec$ 2'+ ?f>, 0ule ;;;, 0ules and
0e3ulations 1mplementin3 the 4ocal <oernment Code of 1991H
>. 6 C$t' $!!e) % -ot$#e o+ %!!e!!,e-t %8%$-!t ABC
Co-)o,$-$, Co("o(%t$o- +o( -"%$) *!$-e!! t%.e!. The
Co-)o,$-$, Co("o(%t$o- $! % )&' #o-!t$tte) #o-)o,$-$,
#o("o(%t$o- $- %##o()%-#e w$th the Co-)o,$-$, A#t wh$#h
ow-! %-) ho&)! t$t&e to the #o,,o- %-) &$,$te) #o,,o- %(e%!
o+ the #o-)o,$-$,. 1t! ,e,*e(!h$" #o,"($!e! the -$t
ow-e(! %-) $! %tho($Be) -)e( $t! B'FL%w! to #o&&e#t (e8&%(
%!!e!!,e-t! +(o, $t! ,e,*e(! +o( o"e(%t$-8 e."e-!e!7 #%"$t%&
e."e-)$t(e! o- the #o,,o- %(e%! %-) othe( !"e#$%&
%!!e!!,e-t! %! "(o/$)e) +o( $- the M%!te( Dee) w$th 9
De#&%(%t$o- o+ Re!t($#t$o-! o+ the Co-)o,$-$,.
77
ABC Co-)o,$-$, Co("o(%t$o- $-!$!t! th%t the 6 C$t'
Re/e-e Co)e %-) the Lo#%& 2o/e(-,e-t Co)e )o -ot #o-t%$-
"(o/$!$o-! "o- wh$#h the %!!e!!,e-t #o&) *e *%!e).
Re!o&/e the #o-t(o/e(!'.
S8<<)ST). =NSW)05 =(C is correct$ Condominium
corporations are 3enerally exempt from local business taxation under
the 4ocal <oernment Code, irrespectie of any local ordinance that
see&s to declare other!ise$
; City, is authori#ed under the 4ocal <oernment Code, to
impose a tax on business, !hich is defined under the Code as Etrade
or commercial actiity re3ularly en3a3ed in as a means of lielihood
or !ith a ie! to profit$E (y its ery nature a condominium corporation
is not en3a3ed in business, and any profit that it deries is merely
incidental, hence it may not be subBect to business taxes$ ?Mamane ,
etc. v. BA Lepanto Con"ominium Corporation, <$ 0$ No$ 1-A99',
/ctober 2-, 200->
REAL PROPERT5 TA6AT1ON
1. 0h%t %(e the +-)%,e-t%& "($-#$"&e! o+ (e%&
"(o"e(t' t%.%t$o- 9
S8<<)ST). =NSW)05 The fundamental principles of real
property taxation are5
a$ =ppraisal at current and fair mar&et alueG
b$ Classification for assessment on the basis of actual useG
c$ =ssessment on the basis of uniform classificationG
d$ =ppraisal, assessment, ley and collection shall not be
let to a priate personG
e$ =ppraisal and assessment shall be e"uitable$
N/T)S =N. C/MM)NTS5 0eal properties shall be appraised at the
current and fair mar&et alue preailin3 in the locality !here the property is
situated and classified for assessment purposes on the basis of its actual
use$ ?Allie" Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$
0$ No$ 1-A12@, /ctober 11, 200->
2. 0ho )ete(,$-e! the +%$( ,%(Het /%&e o+ "(o"e(t$e! 9
S8<<)ST). =NSW)05 The reasonable mar&et alue is
determined by the assessor in the form of a schedule of fair mar&et
alues$ The schedule is then enacted by the local san##unian.
:. 0h%t $! the +%$( ,%(Het /%&e o+ "(o"e(t$e! 9
=NSW)05 Cair mar&et alue is the price at !hich a property
may be sold by a seller !ho is not compelled to sell and bou3ht by a
buyer !ho is not compelled to buy, ta&in3 into consideration all uses
to !hich the property is adopted and mi3ht in reason be applied$
The criterion established by the statute contemplates a
hypothetical sale$ :ence, the buyers need not be actual and existin3
purchasers$ ?Allie" Ban4in# Corporation, etc., v. Quezon City
(overnment, et al., <$ 0$ No$ 1-A12@, /ctober 11, 200- citin3 Army
an" !avy Clu%, $anila v. *rini"a", AA 9hil$ '+' >
N/T)5 1n fixin3 the alue of real property, assessors hae to
consider all the circumstances and elements of alue and must
exercise prudent discretion in reachin3 conclusions$ FAllie" Ban4in#
Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$
1-A12@, /ctober 11, 200- citin3 &eyes v. Almanzor, 19@ SC0= '22,
'2, ?1991>H>
P(e"%(%t$o- o+ +%$( ,%(Het /%&e!:
a$ The city or municipal assessor shall prepare a schedule
of fair mar&et alues for the different classes of real property situated
in their respectie 4ocal <oernment 8nits for the enactment of an
ordinance by the san##unian concernedG and
b$ The schedule of fair mar&et alues shall be published in a
ne!spaper of 3eneral circulation in the proince, city or municipality
concerned or the postin3 in the proincial capitol or other places as
re"uired by la!$ (Lopez v. City of $anila, et al., <$0$ No$ 12,1'9,
Cebruary 19, 1999>
P(o"o!e) +%$( ,%(Het /%&e! o+ (e%& "(o"e(t' $- % &o#%&
8o/e(-,e-t -$t %! we&& %! the o()$-%-#e #o-t%$-$-8 the
!#he)&e ,!t *e "*&$!he) $- +&& for three ?'> consecutie days
in a ne!spaper of local circulation, !here aailable, !ithin ten ?10>
days of its approal, and posted in at lease t!o ?2> prominent places
in the proincial capitol, city, municipal or %aran#ay hall for a
minimum of three ?'> consecutie !ee&s$ (-i#uerres v. Court of
Appeals, et al,. <$0$ No$ 1191,2, March 2-, 1999>
;. 0h%t %(e the %""(o%#he! $- e!t$,%t$-8 the +%$( ,%(Het
/%&e o+ (e%& "(o"e(t' +o( (e%& "(o"e(t' t%. "("o!e! 9
=NSW)05
a$ Sales =nalysis =pproach$ The sales price paid in actual
mar&et transactions is considered by ta&in3 into account alid sales
data accumulated from amon3 the 0e3istrar of .eeds, notaries
public, appraisers, bro&ers, dealers, ban& officials, and arious
sources stated under the 4ocal <oernment Code$
b$ 1ncome Capitali#ation =pproach$ The alue of an
incomeJproducin3 property is no more than the return deried from it$
=n analysis of the income produced is necessary in order to estimate
the sum !hich mi3ht be inested in the purchase of the property$
c$ 0eproduction cost approach is a formal approach used
exclusiely n appraisin3 manJmade improements such as buildin3s
78
and other structures, based on such data as materials and labor costs
to reproduce a ne! replica of the improement$
The assessor uses any or all of these approaches in analy#in3
the data 3athered to arrie at the estimated fair mar&et alue to be
included in the ordinance containin3 the schedule of fair mar&et
alues$ ?Allie" Ban4in# Corporation, etc., v. Quezon City
(overnment, et al., <$ 0$ No$ 1-A12@, /ctober 11, 200- citin3 4ocal
=ssessment 0e3ulations No$ 1J92>
5. SeBo- C$t' "%!!e) %- o()$-%-#e whe(e*' the
"%(#e&! o+ &%-) !o&)7 #e)e). T(%-!+e((e) %-) #o-/e'e) +o(
(e,-e(%to(' #o-!$)e(%t$o- %+te( the e++e#t$/$t' o+ th$! (e/$!$o-
!h%&& *e !*?e#t to (e%& e!t%te t%. *%!e) o- the %#t%& %,o-t
(e+&e#te) $- the )ee) o+ #o-/e'%-#e o( the #((e-t %""(o/e)
Bo-%& /%&%t$o- o+ the B(e% o+ 1-te(-%& Re/e-e "(e/%$&$-8 %t
the t$,e o+ !%&e7 #e!!$o-7 t(%-!+e( %-) #o-/e'%-#e7 wh$#he/e( $!
h$8he(7 %! e/$)e-#e) *' the #e(t$+$#%te o+ "%',e-t o+ the #%"$t%&
8%$-! t%. $!!e) the(e+o(e.
1! the "(o/$!o +o( the *%!$! $- )ete(,$-$-8 the /%&e +o(
(e%& "(o"e(t' t%. "("o!e! /%&$) 9
S8<<)ST). =NSW)05 No$ The proiso bein3 contrary to
public policy and for restrainin3 trade is not alid for the follo!in3
reasons5
a$ 1t mandates an exclusie rule in determinin3 the fair
mar&et alue and departs from the established procedures such as
the sales analysis approach, the income capitali#ation approach and
the reproduction approach proided under the rules implementin3 the
statute$ 1t unduly interferes !ith the duties statutorily placed upon the
local assessor by completely dispensin3 !ith his analysis and
discretion !hich the 4ocal <oernment Code and the re3ulations
re"uire to be exercised$ =n ordinance that contraenes any statute is
ultra vires and oid$
b$ The Dconsideration approachE in the ordinance is ille3al
since Dthe appraisal, assessment, ley and collection of real property
tax shall not be let to any priate personE, it !ill also completely
destroy the fundamental principle in real property taxation L that real
property shall be classified, alued and assessed on the basis of its
actual use re3ardless of !here located, !hoeer o!ns it, and !hoeer
uses it$ =llo!in3 the parties to a priate sale to dictate the fair mar&et
alue of the property !ill dispense !ith the distinctions of actual use
stated in the 4ocal <oernment Code and in the re3ulations$
c$ The inalidity is not cured by the prhase D!hicheer is
hi3herE because an inte3ral part of that system still permits aluin3
real property in disre3ard of its Dactual use$E
d$ The ordinance !ould result to real property assessments
more than once eery three ?'> years and that is not the con3ressional
intent as sho!n in the proisions of the 4ocal <oernment Code and
the re3ulations$ Conse"uently, the real property tax burden should
not be interpreted to include those beyond !hat the Code or the
re3ulations expressly clearly state$
e$ The proiso !ould proide a chillin3 effect on real
property o!ners or administrators to enter freely into contracts
reflectin3 the increasin3 alue of real properties in accordance !ith
preailin3 mar&et conditions$
While the 4ocal <oernment Code proides that the
assessment of real property shall not be increased once eery three
?'> years, the "uestioned proiso subBects the property to a hi3her
assessment eery time a sales transaction is made$ 0eal property
o!ners !ould therefore postpone sales until after the lapse of the
three ?'> year period, or if they do so !ithin the said period they shall
be compelled to dispose of the property at a price not exceedin3 the
last prior coneyance in order to aoid a hi3her tax assessment$
1n the aboe t!o scenarios real property o!ners are effectiely
preented from obtainin3 the best price possible for their properties
and unduly hampers the e"uitable distribution of !ealth$ ?Allie"
Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$ 0$
No$ 1-A12@, /ctober 11, 200->
<. 0h%t $! the -%t(e o+ % t%. )e#&%(%t$o- 9
S8<<)ST). =NSW)05 =s a rule, tax declarations or realty
tax payments of property are not conclusie eidence of o!nership,
neertheless, they are 3ood in"icia of possession in the concept of
o!ner, for no one in his ri3ht mind !ould be payin3 taxes for a
property that is not in his actual or constructie possession$ They
constitute at least proof that the holder has a claim of title oer the
property$
The oluntary declaration of a piece of property for taxation
purposes manifests not only one%s sincere and honest desire to obtain
title to the property and announces his aderse claim a3ainst the
State and all other interested parties, but also the intention to
contribute needed reenues to the 3oernment$ Such an act
stren3thens one%s %ona fi"e claim of ac"uisition of o!nership$
?Buenaventura, et al., v. &epu%lic, <$ 0$ No$ 1@@+@-, $arch 2,
200, citin3 0eirs of Simplicio Santia#o v. 0eirs of $ariano /.
Santia#o, <$ 0$ No$ 1-1AA0, 1, Iune 200', A0A SC0= 19', 199 L
200>
79
=. 2$/e e.%,"&e! o+ "e(!o-%& "(o"e(t' -)e( the #$/$&
&%w th%t ,%' *e #o-!$)e(e) %! (e%& "(o"e(t' +o( "("o!e! o+
t%.e!$
S8<<)ST). =NSW)05 9ersonal property under the ciil la!
may be considered as real property for purposes of taxes !here the
property is essential to the conduct of the business$
a$ 8nder3round tan&s are essential to the conduct of the
business of a 3asoline station !ithout !hich it !ould not be
operational$ ?Calte6 Phils., Inc. v. Central Boar" of Assessment
Appeals, et al., 11A SC0= 29@>
b$ 4i3ht 0ail Transit ?40T> improements such as buildin3s,
carria3e!ays, passen3er terminals stations, and similar structures do
not form part of the public roads since the former are constructed oer
the latter in such a !ay that the flo! of ehicular traffic !ould not be
impaired$ The carria3e!ays and terminals sere a function different
from the public roads$ Curthermore, they are not open to use by the
3eneral public hence not exempt from real property taxes$ )en
3rantin3 that the national 3oernment o!ns the carria3e!ays and
terminal stations, the property is not exempt because their beneficial
use has been 3ranted to 40T= a taxable entity$ (Li#ht &ail *ransit
Authority v. Central Boar" of Assessment Appeals, et al., <$ 0$ No$
12,'1@, /ctober 12, 2000>
c$ The Supreme Court of Ne! Kor& in Consoli"ate" /"ison
Company of !e: Mor4, Inc., et al., v. *he City of !e: Mor4, et al., +0
Misc$ 2d 10@- ?19,-> cited in -/LS /ner#y, Inc., v. Province of
Batan#as, <$ 0$ No$ 1@+--,, Cebruary 1@, 200, and companion case,
held that bar3es on !hich !ere mounted 3as turbine po!er plants
desi3nated to 3enerate electrical po!er, the fuel oil bar3es !hich
supplied fuel oil to the po!er plant bar3es, and the accessory
e"uipment mounted on the bar3es !ere subBect to real property taxes$
Moreoer, =rticle A1-?9> of the Ciil Code proides that
DFdHoc&s and structures !hich, thou3h floatin3, are intended by their
nature and obBect to remain at a fixed place on a rier, la&e or coastE
are considered immoable property by destination bein3 intended by
the o!ner for an industry or !or& !hich may be carried on in a
buildin3 or on a piece of land and !hich tend directly to meet the
needs of said industry or !or&$
>. The (e!t($#t$o- "o- the "owe( o+ #o(t! to $,"e%#h t%.
%!!e!!,e-t w$thot % "($o( "%',e-t7 -)e( "(ote!t7 o+ the t%.e!
%!!e!!e) $! #o-!$!te-t w$th the )o#t($-e th%t t%.e! %(e the
&$+e*&oo) o+ the -%t$o-7 and as such their collection cannot be
curtailed by inBunction or any li&e actionG other!ise, the state or, in this
case, the local 3oernment unit, shall be crippled in dispensin3 the
needed serices to the people, and its machinery 3raely disabled$
($anila /lectric Company v. Barlis, <$0$ No$ 11A2'1, May 1+, 2001>
Thus, the trial court has no Burisdiction to entertain a petition for
prohibition absent payment under protest of the tax assessed$ ?I%i".'
N/T)S =N. C/MM)NTS5 While the aboe May 1+, 2001
decision !as set aside by the Supreme Court !hen it 3ranted the
petitioner%s second motion for reconsideration on Iune 29, 200A, the
author submits that the aboe doctrine in the May 1+, 2001 decision is
still alid, because !hat !as reersed in the second motion for
reconsideration !as the 3arnishment of Meralco%s assets$ The
remand to the lo!er court !as for the resolution of !hether or not an
assessment !as issued to Meralco$
9. U-"%$) (e%&t' t%.e! %tt%#h to the "(o"e(t' %-) $!
#h%(8e%*&e %8%$-!t the "e(!o- who h%) %#t%& o( *e-e+$#$%& !e
%-) "o!!e!!$o- o+ $t (e8%()&e!! o+ whethe( o( -ot he $! the
ow-e(. To impose the real property tax on the subse"uent o!ner
!hich !as neither the o!ner not the beneficial user of the property
durin3 the desi3nated periods !ould not only be contrary to la! but
also unBust$
Conse"uently, M)0=4C/ the former o!ner7user of the
property !as re"uired to pay the tax instead of the ne! o!ner
N=9/C/0. ($anila /lectric Company v. Barlis, (.&. !o. ;;><A;,
$ay ;B, <??;'
N/T)5 The aboe May 1+, 2001 decision !as set aside by
the Supreme Court !hen it 3ranted the petitioner%s second motion for
reconsideration on Iune 29, 200A$ The author submits that the aboe
rulin3 in the May 1+, 2001 decision is still alid, not on the basis of the
May 1+, 2001 decision but in the li3ht of pronouncements of the
Supreme Court in other cases$ Thus, do not cite the doctrine as
emanatin3 from the May 1+, 2001 decision$

10. Se#(et%(' o+ 3!t$#e #%- t%He #o8-$B%-#e o+ % #%!e
$-/o&/$-8 the #o-!t$tt$o-%&$t' o( &e8%&$t' o+ t%. o()$-%-#e!
whe(e the(e %(e +%#t%& $!!e! $-/o&/e). (-i#uerres v. Court of
Appeals, et al., <$0$ No$ 1191,2, March 2-, 1999>
T%."%'e( +$&e! %""e%& to the Se#(et%(' o+ 3!t$#e7 w$th$- :0
)%'! +(o, e++e#t$/$t' the(eo+. 1n case the Secretary decides the
appeal, a period also of '0 days is allo!ed for an a33rieed party to
3o to court$ (ut if the Secretary does not act thereon, after the lapse
of @0 days, a party could already see& relief in court !ithin '0 days
from the lapse of the @0 day period$
These three separate periods are clearly 3ien for compliance
as a prere"uisite before see&in3 redress in a competent court$ Such
statutory periods are set to preent delays as !ell as enhance the
80
orderly and speedy dischar3e of Budicial functions$ Cor this reason the
courts construe these proisions of statutes as mandatory$ (&eyes, et
al., v. Court of Appeals, et al$, <$0$ No$ 11+2'', .ecember 10, 1999>
11. P*&$# he%($-8! %(e ,%-)%to(' "($o( to %""(o/%& o+
t%. o()$-%-#e, but this still re"uires the taxpayer to adduce eidence
to sho! that no public hearin3s eer too& place$ (&eyes, et al., v.
Court of Appeals, et al., <$0$ No$ 11+2'', .ecember 10, 1999>
9ublic hearin3s are re"uired to be conducted prior to the enactment of
an ordinance imposin3 real property taxes$ ?-i#uerres v. Court of
Appeals, et al., <$0$ No$ 1191,2, March 2-, 1999>
12. The #o-#((e-t %-) !$,&t%-eo! (e,e)$e! %++o()e)
&o#%& 8o/e(-,e-t -$t! $- e-+o(#$-8 #o&&e#t$o- o+ (e%& "(o"e(t'
t%.e!:
a$ .istraint of personal propertyG
b$ Sale of delin"uent real property, and
c$ Collection of real property tax throu3h ordinary court
action$
1:. The (e,e)' o+ &e/' #%- *e "(!e) *' "tt$-8 " +o(
!%&e the (e%& "(o"e(t' !*?e#t o+ t%., i$e$, the delin"uent property
upon !hich the tax lien attaches, re3ardless of the present o!ner or
possessor thereof$ :o!eer this remedy is only one of the other
remedies$ ($anila /lectric Company v. Barlis, <$0$ No$ 11A2'1, May
1+, 2001>
N/T)5 The aboe May 1+, 2001 decision !as set aside by the
Supreme Court !hen it 3ranted the petitioner%s second motion for
reconsideration on Iune 29, 200A$ The author submits that the aboe
rulin3 in the May 1+, 2001 decision is still alid, not on the basis of the
May 1+, 2001 decision, in the li3ht of pronouncements of the
Supreme Court in other cases$ Thus, do not cite the doctrine as
emanatin3 from the May 1+, 2001 decision$
1;. The L2U #o&) %&!o %/%$& o+ the (e,e)' o+ )$!t(%$-t
%-) &e/' o+ "e(!o-%& "(o"e(t' !*?e#t$-8 %-' "e(!o-%& "(o"e(t'
o+ the t%."%'e( to e.e#t$o-. thus, the issuance of the !arrants of
3arnishment oer M)0=4C/%s ban& deposits !as not improper or
irre3ular$ ($anila /lectric Company v. Barlis, et al$, <$0$ No$ 11A2'1,
May 1+, 2001>
N/T)5 The aboe May 1+, 2001 decision !as set aside by the
Supreme Court !hen it 3ranted the petitioner%s second motion for
reconsideration on Iune 29, 200A$ The author submits that the aboe
rulin3 in the May 1+, 2001 decision is still alid, not on the basis of the
May 1+, 2001 decision, in the li3ht of pronouncements of the
Supreme Court in other cases$ Thus, do not cite the doctrine as
emanatin3 from the May 1+, 2001 decision$
5>. Not$#e %-) "*&$#%t$o-7 %! we&& %! the &e8%&
(eD$(e,e-t! +o( % t%. )e&$-De-#' !%&e7 %(e ,%-)%to(', and the
failure to comply there!ith can inalidate the sale$ The prescribed
notices must be sent to comply !ith the re"uirements of due process.
(.e 1necht, et al,. v. Court of AppealsL .e 1necht, et al., v. 0onora%le
Sayo, 290 SC0= 22',2'@>
1<. The (e%!o- *eh$-) the -ot$#e (eD$(e,e-t $! th%t t%.
!%&e! %(e %),$-$!t(%t$/e "(o#ee)$-8! wh$#h %(e in persona# $-
-%t(e$ (Puzon v. A%ellera, 1@9 SC0= ,+9, ,9-L .e Asis v. I.A.C.,
1@9 SC0= '1A>
1=. 4ELS E-e(8'7 1-#.7 h%) % #o-t(%#t to !""&' NPC
w$th the e&e#t($#$t' 8e-e(%te) *' 4ELSE "owe( *%(8e!. The
#o-t(%#t %&!o !t%te) th%t NPC !h%&& *e (e!"o-!$*&e +o( %&& (e%&
e!t%te t%.e! %-) %!!e!!,e-t!. 4ELS the- (e#e$/e) %-
%!!e!!,e-t o+ (e%& "(o"e(t' t%.e! o- $t! "owe( *%(8e! +(o, the
P(o/$-#$%& A!!e!!o( o+ B%t%-8%!. 1+ +$&e) % ,ot$o- +o(
(e#o-!$)e(%t$o- w$th the P(o/$-#$%& A!!e!!o(.
%. U"o- )e-$%&7 4ELS e&e/%te) the ,%tte( to the Lo#%&
Bo%() o+ A!!e!!,e-t A""e%&! @LBAAA7 whe(e $t (%$!e) the
+o&&ow$-8 $!!e!:
1A S$-#e NPC $! t%.Fe.e,"t the- 4ELE! !ho&)
%&!o *e t%.Fe.e,"t *e#%!e o+ $t! #o-t(%#t w$th NPC.
2A The "owe( *%(8e! %(e -ot (e%& "(o"e(t'
!*?e#t to (e%& "(o"e(t' t%.e!.
*. U"o- the othe( h%-) the Lo#%& T(e%!(e( $-!$!t! th%t
the %!!e!!,e-t h%! %tt%$-e) % !t%te o+ +$-%&$t' he-#e the %""e%&
to the LBAA !ho&) *e )$!,$!!e).
R&e o- the #o-+&$#t$-8 #o-te-t$o-!.
S8<<)ST). =NSW)05
a$ =ll the contentions of C)4S are !ithout merit5
1> N9C is not the o!ner of the po!er bar3es nor the
operator of the po!er bar3es$ The tax exemption priile3e
3ranted to N9C cannot be extended to C)4S$ the coenant is
bet!een N9C and C)4s and does not bind a third person not
priy to the contract such as the 9roince of (atan3as$
2> The Supreme Court of Ne! Kor& in Consoli"ate"
/"ison Company of !e: Mor4, Inc., et al., v. *he City of !e:
Mor4, et al., +0 Misc$ 2d 10@- ?19,-> cited in -/LS /ner#y,
81
Inc., v. Province of Batan#as, <$ 0$ No$ 1@+--,, Cebruary 1@,
200, and companion case, held that bar3es on !hich !ere
mounted 3as turbine po!er plants desi3nated to 3enerate
electrical po!er, the fuel oil bar3es !hich supplied fuel oil to
the po!er plant bar3es, and the accessory e"uipment mounted
on the bar3es !ere subBect to real property taxes$
Moreoer, =rticle A1-?9> of the Ciil Code proides that
DFdHoc&s and structures !hich, thou3h floatin3, are intended by
their nature and obBect to remain at a fixed place on a rier,
la&e or coastE are considered immoable property by
destination bein3 intended by the o!ner for an industry or !or&
!hich may be carried on in a buildin3 or on a piece of land and
!hich tend directly to meet the needs of said industry or !or&$
b$ The Treasurer is correct$ The procedure do not allo! a
motion for reconsideration to be filed !ith the 9roincial =ssessor$
To allo! the procedure !ould indeed inite corruption in the
system of appraisal and assessment$ it coneniently courts a 3raftJ
prone situation !here alues of real property ay be initially set
unreasonably hi3h, and then subse"uently reduced upon the re"uest
of a property o!ner$ 1n the latter instance, allusions of possible coer,
illicit tradeJoff cannot be aoided, and in fact can coneniently ta&e
place$ Such occasion for mischief must be preented and excised
from our system$ ?-/LS /ner#y, Inc., v. Province of Batan#as, <$ 0$
No$ 1@+--,, Cebruary 1@, 200, and companion case, citin3 Callanta
v. 3ffice of the 3m%u"sman. <$ 0$ Nos$ 11-2-'J,A, Ianuary '0,
199+, 2+- SC0= @A+>
1>. = special ley or special assessment is an imposition by a
proince, a city, a municipality !ithin the Metropolitan Manila =rea, a
municipality or a baran3ay upon real property specially benefited by a
public !or&s expenditure of the 4<8 to recoer not more than @06 of
such expenditure$
19. 1+ the 8(o-) +o( the "(ote!t $! /%&$)$t' o+ the (e%&
"(o"e(t' t%. o()$-%-#e and not the unreasonableness of the amount
collected the tax must be paid under protest, and the issue of le3ality
may be raised to the proper courts on certiorari !ithout need of
exhaustin3 administratie remedies$
20. 1+ the 8(o-) +o( the "(ote!t $! -(e%!o-%*&e-e!! o+
the %,o-t! #o&&e#te) the(e $! -ee) to "%' -)e( "(ote!t and
administratie remedies must be resorted to before recourse to the
proper courts$
21. P(o#e)(e +o( (e+-) o+ (e%& "(o"e(t' t%.e! *%!e) o-
-(e%!o-%*&e-e!! o( e.#e!!$/e-e!! o+ %,o-t! #o&&e#te).
a$ 9ayment under protest at the time of payment or !ithin
thirty ?'0> days thereafter, protest bein3 lod3ed to the proincial, city
or in the case of a municipality !ithin the Metro Manila =rea the
municipal treasurer$
b$ The treasurer has a period of sixty ?@0> days from receipt
of the protest !ithin to decide$
c$ Within thirty ?'0> days from receipt of treasurer%s
decision or if the treasurer does not decide, !ithin thirty ?'0> days
from the expiration of the sixty ?@0> period for the treasurer to decide,
the taxpayer should file an appeal !ith the 4ocal (oard of
=ssessment =ppeals$
d$ The 4ocal (oard of =ssessment =ppeals has 120 days
from receipt of the appeal !ithin !hich to decide$
e$ The aderse decision of the 4ocal (oard of =ssessment
=ppeals should be appealed !ithin thirty ?'0> days from receipt to the
Central (oard of =ssessment =ppeals$
f$ The aderse decision of the Central (oard of
=ssessment =ppeals shall be appealed to the Court of Tax =ppeals
?/n Banc> by means of a petition for reie! !ithin thirty ?'0> days
from receipt of the aderse decision$
3$ The decision of the CT= may be the subBect of a motion
for reconsideration or ne! trial after !hich an appeal may be
interposed by means of a petition for reie! on certiorari directed to
the Supreme Court on pure "uestions of la! !ithin a period of fifteen
?1-> days from receipt extendible for a period of thirty ?'0> days$
22. A Cit! .rdinance adoptin a #ethod of assess#ent
"as nullified b! the /upre#e Court. A taxpa!er "ho has paid
his real propert! taxes on the basis of the nullified ordinance
no" posits that the return of the real propert! tax erroneousl!
collected and paid is a necessar! conse0uence of the /upre#e
Court1s nullification of the ordinance and there is no need to
clai# for a refund. (s this correct ?
S8<<)ST). =NSW)05 No$ The entitlement to a tax refund
does not necessarily call for the automatic payment of the sum
claimed$ The amount of the claim bein3 a factual matter, it must still
be proen in the normal course and in accordance !ith the
administratie procedure for obtainin3 a refund of real property taxes,
as proided under the 4ocal <oernment Code$ ?Allie" Ban4in#
Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$
1-A12@, September 1-, 200@>
N/T)5 1n the aboe Allie" Ban4in# case, the Supreme Court
proided for the startin3 date of computin3 the t!oJyear prescriptie
period !ithin !hich to file the claim !ith the Treasurer, !hich is from
finality of the .ecision$ The procedure to be follo!ed is that sho!n
belo!$
82
2:. P(o#e)(e +o( (e+-) o+ (e%& "(o"e(t' t%.e! *%!e) o-
/%&$)$t' o+ the t%. ,e%!(e o( solutio indebeti.
a$ 9ayment under protest not re"uired, claim must be
directed to the local treasurer, !ithin t!o ?2> years from the date the
taxpayer is entitled to such reduction or readBustment, !ho must
decide !ithin sixty ?@0> days from receipt$
b$ The denial by the local treasurer of the protest !ould fall
!ithin the 0e3ional Trial Court%s ori3inal Burisdiction, the reie! bein3
the initial Budicial co3ni#ance of the matter$ .espite the lan3ua3e of
Section 19- of the 4ocal <oernment Code !hich states that the
remedy of the taxpayer !hose protest is denied by the local treasurer
is Dto appeal !ith the court of competent Burisdiction,E labelin3 the
said reie! as an exercise of appellate Burisdiction is inappropriate
since the denial of the protest is not the Bud3ment or order of a lo!er
court, but of a local 3oernment official$ ?Mamane , etc. v. BA
Lepanto Con"ominium Corporation, <$ 0$ No$ 1-A99', /ctober 2-,
200->
c$ The decision of the 0e3ional Trial Court should be
appealed by means of a petition for reie! directed to the Court of
Tax =ppeals ?.iision>$
d$ The decision of the Court of Tax =ppeals ?.iision> may
be the subBect of a reie! by the Court of Tax =ppeals ?en %anc>$
e$ The decision of the Court of Tax =ppeals ?en %anc> may
be the subBect of a petition for reie! on certiorari on pure "uestions
of la! directed to the Supreme Court$
2;. Ch%($t%*&e $-!t$tt$o-!7 #h(#he! %-) "%(!o-%8e!
o( #o-/e-t! %""(te-%-t the(eto7 ,o!De!7 -o-F"(o+$t
#e,ete($e!7 %-) %&& &%-)!7 *$&)$-8! %-) $,"(o/e,e-t! th%t %(e
%#t%&&'7 )$(e#t&' %-) e.#&!$/e&' !e) +o( (e&$8$o!7 #h%($t%*&e o(
e)#%t$o-%& "("o!e! %(e e.e,"t +(o, t%.%t$o-. FSec$2+ ?'>
=rticle *1, 19+, ConstitutionH
25. The #o-!t$tt$o-%& t%. e.e,"t$o-! (e+e( o-&' to (e%&
"(o"e(t' that are actually, directly and exclusiely used for reli3ious,
charitable or educational purposes, and that the only constitutionally
reco3ni#ed exemption from taxation of reenues are those earned by
nonJprofit, nonJstoc& educational institutions !hich are actually,
directly and exclusiely used for educational purposes$
(Commissioner of Internal &evenue v. Court of Appeals, et al., 29+
SC0= +'>
The constitutional tax exemption coers property taxes only$
What is exempted is not the institution itself, those exempted from
real estate taxes are lands, buildin3s and improements actually,
directly and exclusiely used for reli3ious, charitable or educational
purposes$ ?Lun# Center of the Philippines v. Quezon City, et al., etc.,
<$ 0$ No$ 1AA10A, Iune 29, 200A citin3 Iustice .aide>
:1. The 19:5 Co-!t$tt$o- !t%te) th%t the &%-)!7
*$&)$-8!7 %-) $,"(o/e,e-t! %(e !e) e.#&!$/e&' *t the
"(e!e-t Co-!t$tt$o- (eD$(e! th%t the &%-)!7 *$&)$-8! %-)
$,"(o/e,e-t! %(e %#t%&&'7 )$(e#t&' %-) e.#&!$/e&' !e). The
chan3e should not be i3nored$ 0eliance on past decisions !ould
hae sufficed !ere the !ords DactuallyE as !ell as 5directlyE are not
added$ There must be proof therefore of the actual and direct use to
be exempt from taxation$ ?Lun# Center of the Philippines v. Quezon
City, et al., etc., <$ 0$ No$ 1AA10A, Iune 29, 200A citin3 Province of
A%ra v. 0ernan"o, 10, SC0= 10->
2<. 0h%t $! ,e%-t *' %#t%&7 )$(e#t %-) e.#&!$/e !e
o+ the "(o"e(t' +o( #h%($t%*&e "("o!e! $! the )$(e#t %-)
$,,e)$%te %-) %#t%& %""&$#%t$o- o+ the "(o"e(t' $t!e&+ to the
purposes for !hich the charitable institution is or3ani#ed$ 1t is not the
use of the income from the real property that is determinatie of
!hether the property is used for taxJexempt purposes$
1f real property is used for one or more commercial purposes, it
is not exclusiely used for the exempted purpose but is subBect to
taxation,$ The !ords Ddominant useE or Dprincipal useE cannot be
substituted for the !ords Dused exclusielyE !ithout doin3 iolence to
the Constitution and the la!$ Solely is synonymous !ith exclusiely$
?Lun# Center of the Philippines v. Quezon City, et al., etc., <$ 0$ No$
1AA10A, Iune 29, 200A>
2=. Po(t$o-! o+ the &%-) o+ % #h%($t%*&e $-!t$tt$o-7 !#h %!
% ho!"$t%&7 &e%!e) to "($/%te e-t$t$e! %! we&& %! tho!e "%(t! o+ the
ho!"$t%& &e%!e) to "($/%te $-)$/$)%&! %(e -ot e.e,"t +(o, (e%&
"(o"e(t' t%.e!. /n the other hand, the portion of the land occupied
by the hospital and portions of the hospital used for its patients,
!hether payin3 or nonJpayin3, are exempt from real property taxes$
?Lun# Center of the Philippines v. Quezon City, et al., etc., <$ 0$ No$
1AA10A, Iune 29, 200A>
2>. A! % 8e-e(%& "($-#$"&e7 % #h%($t%*&e $-!t$tt$o- )oe!
-ot &o!e $t! #h%(%#te( %! !#h %-) $t! e.e,"t$o- +(o, t%.e!
!$,"&' *e#%!e $t )e($/e! $-#o,e +(o, "%'$-8 "%t$e-t!7 whethe(
otF"%t$e-t7 o( #o-+$-e) $- the ho!"$t%&7 o( (e#e$/e! !*!$)$e!
+(o, the 8o/e(-,e-t. So lon3 as the money receied is deoted or
used alto3ether to the charitable obBect !hich it is intended to achieeG
and no money inures to the priate benefit of the persons mana3in3
83
or operatin3 the institution$ ?Lun# Center of the Philippines v. Quezon
City, et al., etc., <$ 0$ No$ 1AA10A, Iune 29, 200A>
29. *hat propert! are exe#pt fro# the pa!#ent of real
propert! tax under the 2ocal 3overn#ent Code ?
S8<<)ST). =NSW)05
a$ 0eal property o!ned by the 0epublic of the 9hilippines
or any of its political subdiisions except !hen the beneficial use
thereof has been 3ranted to a taxable person for a consideration or
other!iseG
b$ Charitable institutions, churches, parsona3es or
conents appurtenant thereto, mos"ues, nonJprofit or reli3ious
cemeteries, and all lands, buildin3s and improements actually,
directly and exclusiely used for reli3ious, charitable and educational
purposesG
c$ Machineries and e"uipment, actually, directly and
exclusiely used by local !ater districtsG and 3oernment o!ned and
controlled corporations en3a3ed in the supply and distribution of !ater
and 3eneration and transmission of electric po!erG
d$ 0eal property o!ned by duly re3istered cooperatiesG
e$ Machinery and e"uipment used for pollution control and
enironmental protection$
:0. ,he Manila (nternational Airport Authorit!
(M(AA) "as sub4ect to real propert! taxes b! the #unicipalit! of
Parana0ue on its airport lands, and buildins on the round
that the 2ocal 3overn#ent Code has "ithdra"n exe#ptions
previousl! en4o!ed b! overn#ent5o"ned and controlled
corporations. M(AA contends other"ise as it clai#s it is not a
overn#ent o"ned or controlled corporation. *ho is correct.
S8<<)ST). =NSW)05 M1== is correct because it is not
a 3oernment o!ned or controlled corporation but an instrumentality
of the 3oernment that is exempt from taxation$
1t is not a stoc& corporation because its capital is not diided
into shares, neither is it a nonJstoc& corporation because there are
no members$ 1t is instead an instrumentality of the 3oernment
upon !hich the local 3oernments are not allo!ed to ley taxes,
fees or other char3es$
=n instrumentality Drefers to any a3ency of the National
<oernment, not inte3rated !ithin the department frame!or& ested
!ith special functions or Burisdiction by la!, endo!ed !ith some if
not all corporate po!ers, administerin3 special funds, and enBoyin3
operational autonomy, usually throu3h a charter$ This term includes
re3ulatory a3encies chartered institutions and 3oernmentJo!ned or
controlled corporations$E FSec$ 2 ?10>, 1ntroductory 9roisions,
=dministratie Code of 19+,H 1t is an instrumentality exercisin3 not
only 3oernmental but also corporate po!ers$ 1t exercises
3oernmental po!ers of eminent domain, police po!er authority,
and leyin3 of fees and char3es$
Cinally, the airport lands and buildin3s are property o!ned
by the 3oernment that are deoted to public use and are properties
of the public domain$ ?$anila International Airport Authority v. City
of Pasay, et al., <$ 0$ No$ 1@'0,2, =pril 2, 2009 citin3 $anila
International Airport Authority v. Court of Appeals, et al., <$ 0$ No$
1--@-0, Iuly 20, 200@>
:1. A teleco##unications co#pan! "as ranted b!
Conress on &ul! +6, 788+, after the effectivit! of the 2ocal
3overn#ent Code on &anuar! 7, 788+, a leislative franchise
"ith tax exe#ption privilees "hich partl! reads, 9,he rantee,
its successors or assins shall be liable to pa! the sa#e taxes
on their real estate, buildins and personal propert!, e6clusive
of this franchise, as other persons or corporations are no" or
hereafter #a! be re0uired b! la" to pa!.: ,his provision
existed in the co#pan!1s franchise prior to the effectivit! of the
2ocal 3overn#ent Code. A Cit! then enacted an ordinance in
788; i#posin a real propert! on all real properties located
"ithin the cit! li#its, and "ithdra"in all tax exe#ptions
previousl! ranted. A#on properties covered are those
o"ned b! the co#pan! fro# "hich the Cit! is no" collectin
P<; #illion. ,he properties of the co#pan! "ere then
scheduled b! the Cit! for sale at public auction.
,he co#pan! then filed a petition for the issuance of a
"rit of prohibition clai#in exe#ption under its leislative
franchise. ,he Cit! defended its position raisin the follo"in=
a. ,here "as no exhaustion of ad#inistrative
re#edies because the #atter should have first been filed before
the 2ocal >oard of Assess#ent Appeals?
b. ,he co#pan!1s properties are exe#pt fro# tax
under its franchise.
Resolve the issues raised.
S8<<)ST). =NSW)0S5
a$ There is no need to exhaust administratie remedies as
the appeal to the 4(== is not a speedy and ade"uate remedy !ithin
the la!$ This is so because the properties are already scheduled for
auction sale$
Curthermore one of the reco3ni#ed exceptions to the rule on
exhaustion is that if the issue is purely le3al in character !hich is so
in this case$
84
b$ The properties are exempt from taxation$ The 3rant of
taxin3 po!ers to local 3oernments under the Constitution and the
4ocal <oernment Code does not affect the po!er of Con3ress to
3rant tax exemptions$
The term Dexclusie of this franchiseE is interpreted to mean
properties actually, directly and exclusiely used in the radio or
telecommunications business$ The subse"uent piece of le3islation
!hich reiterated the phrase Dexclusie of this franchiseE found in the
preious tax exemption 3rant to the company is an express and real
intention on the part of Con3ress to once a3ainst remoe from the
4<C%s dele3ated taxin3 po!er, all of the company%s properties that
are actually, directly and exclusiely used in the pursuit of its
franchise$ ?*he City (overnment of Quezon City, et al., v. Bayan
*elecommunications, Inc., <$ 0$ No$ 1@201-, March @, 200@>
N/T)S =N. C/MM)NTS5
a$ Note the #o-+!$o- $- the )e#$!$o-. 1t cited Mactan
Cebu !hich stated that the taxin3 po!er of local 3oernment units is
Dno lon3er merely by irtue of a alid dele3ation as before, but
pursuant to direct authorityE but in the concludin3 portion referred to
it as Dthe 4<C%s dele3ated taxin3 po!er$E Which is !hich, dele3ated
or direct 3rant R The author submits that the !ei3ht of Burisprudence
sho!s that it is a direct 3rant not a dele3ated po!er$ 1f a "uestion is
as&ed then state it is a direct 3rant$
:2. The ow-e( o"e(%to( o+ % BOT %-) -ot the &t$,%te
ow-e( $! !*?e#t to (e%& "(o"e(t' t%.e!. Consistent !ith the (/T
concept and as implemented, (99C L the o!nerJmana3erJoperator
of the proBect L is the actual user of its machineries and e"uipment$
(99C%s o!nership and use of the machineries and e"uipment are
actual, direct, and immediate, !hile N=9/C/0%s is contin3ent and,
at this sta3e of the (/T =3reement, not sufficient to support its
claim for tax exemption$ ?!ational Po:er Corporation v. Central
Boar" of Assessment Appeals, et al., <, 0$ No$ 1,1A,0, Ianuary '0,
2009>
ADVANCE CONGRATULATIONS
AND SEE YOU IN COURT
85