Tax Reviewer 2

SEC. 105. Persons Liable.

Any person who, in the course of trade or business, sells barters, exchanges, leases goods or
properties, renders services, and any person who imports goods shall be subject to the value-added
tax (VAT) imposed in Sections 106 to 108 of this Code.

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the
buyer, transferee or lessee of the goods, properties or services.

This rule shall likewise apply to existing contracts of sale or lease of goods, properties or services at
the time of the effectivity of Republic Act No. 7716.

The phrase "in the course of trade or business" means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a nonstock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells exclusively
to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code rendered in
the Philippines by nonresident foreign persons shall be considered as being course of trade or
business.

Note:
A transaction characterized as having been entered into by a person in the course of trade or business, if it
is regularly conducted and undertaken in pursuit of a commercial or economic activity. Transactions that
are undertaken incidental to the pursuit of a commercial or economic activity are considered as entered
into in the course of trade or business

Incidental
Means depending upon or appertaining to something else as primary.

Characteristics of VAT:
1. It is a tax on value added of a taxpayer
2. It is collected through the tax credit method
3. It is transparent form of sales tax
4. It is broad-based tax on consumption of goods, properties or services in the Philippines
5. It is an indirect tax
6. It is in accordance with the tax-inclusive method
7. There is no cascading in the value added tax system

Note:
The fact that no income was derived from the sale or exchange transaction is not material and is still
susceptible to payment of VAT
Nature
1. An indirect tax; hence, amount of the tax may be shifted or passed on to the buyer
2. A privilege tax; hence, the tax is imposed not on the goods, properties or services as such but on
the sale, barter, exchange or lease of goods or properties, or the sale or performance of services
for a fee, remuneration, etc
3. A uniform tax computed at the rate of 0% or 12% of the gross selling price of goods or of gross
receipts realized from the sale of services
4. An ad valorem tax because it is based on the gross selling price or gross value in money, or gross
receipts derived from the transaction
5. A tax on the value added by every seller as the goods, properties or services pass along the
distribution chain, unless the seller is exempt.

Purposes of VAT system:

1. realizing the system of taxing goods and services;
2. simplifying tax administration; and
3. making the tax system more equitable, to enable the country to attain economic recovery.

VAT
It is a form of sales tax. It is a tax on consumption levied on the sale, barter, exchange or lease of goods or
properties and services in the Philippines and on importation of goods into the Philippines. It is an
indirect tax, which may be shifted or passed on to the buyer, transferee or lessee of goods, properties or
services

Tax Rates
On sale of goods and properties - twelve percent (12%) of the gross selling price or gross value in
money of the goods or properties sold, bartered or exchanged

On sale of services and use or lease of properties - twelve percent (12%) of gross receipts derived
from the sale or exchange of services, including the use or lease of properties

On importation of goods - twelve percent (12%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such as tax to be paid by the importer prior to the release of such goods from
customs custody; provided, that where the customs duties are determined on the basis of quantity
or volume of the goods, the VAT shall be based on the landed cost plus excise taxes, if any.

On export sales and other zero-rated sales - 0%

Value added
It is the difference between total sales of the taxpayer for the taxable quarter subject to value added tax
and his total purchases for the same period subject also to value added tax.
Output Tax
Means the VAT due on the sale or lease of taxable goods, properties or services by any person registered
or required to register under the tax code

Input tax
Means the VAT from or paid by a VAT registered person in the course of his trade or business on
importation of goods or local purchases of goods, properties or services including lease or use of property,
from a vat registered person

Comment:
It is the value paid by a person where as the output tax is the value included in the purchase price when
sold.

Note:
As a general rule the responsibility to pay VAT is imposable upon the seller except in cases where the
buyer is also the importer of the goods

Note:
A buyer becomes entitled to the input tax upon consummation of sale and issuance of a VAT invoice, in
the case of sale of goods or properties, and upon payment of service fee or compensation, in the case of
sale of services. It is not necessary that the inventory of goods or properties be sold before the buyer
thereof become entitled to it.

2 ways of computing the value added tax of a taxpayer:

1. Cost deduction method,
2. Tax credit method.

Cost deduction method

Refers to the manner of computing the taxpayers value added tax liability by deducting his costs and
expenses subject to VAT from his taxable goods properties or services, and multiplying the resulting
value added by 12%

Generally there must be an actual sale of goods, properties or services in the Philippine in order that VAT
may be imposed, except in:
1. Importation of goods by any person, who may not be engaged in trade or business in the
Philippines, in which case, the tax is imposed on the importer-buyer. Importation of servies is not
subject to VAT unless such service is performed within the Philippines
2. Issuance of VAT invoice for exempt sales of GPS.
a. Note must be taken that as a rule vat exempt transactions require a non-vat invoice,
however if the seller issues a vat invoice in a vat exempt transaction, the seller shall be
held liable for the payment of VAT
b. Deemed sales of goods or properties

VAT Taxable Transactions:

 1. Sale, barter of goods or properties in the course of a trade or business
2. Sale of services in the course of trade o business
3. An importation of goods, whether or not made in the course of trade or business
4. Deemed sale transactions

Note:
A sale of goods located and consumed outside the PH is exempt from VAT, even if the contracting parties
are both domestic corporations

Note:
Investments in capital goods such as machinery and equipment are effectively not subject to VAT due to
the provisions of the tax code allowing taxpayers to recover input taxes paid on acquisition of capital
goods through refund or tax credit

Destination principle
The destination of the goods determines taxation or exemption from tax.

Note:
Import sales are subject to 0% or are vat exempt. The reason why imports are tax exempt or subjected to a
0% VAT is because the goods will be made outside the PH, while imports of goods are subject to the 12%
VAT because they are for consumption within the PH.

Situs of service principle:

With respect to services, they are deemed consumed at the place where the serve is performed

Note:
Since VAT is an indirect tax, the impact of taxation is on the seller since it is upon him the tax has been
imposed while the incidence of tax is one the final consumer, the place at which the tax comes to rest.

SEC. 106. Value-Added Tax on Sale of Goods or Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, a value-added tax equivalent to ten percent (10%) of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged,
such tax to be paid by the seller or transferor: Provided, That the President, upon the
recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of
value-added tax to twelve percent (12%), after any of the following conditions has been
satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%).
1. The term 'goods or properties' shall mean all tangible and intangible objects which are
capable of pecuniary estimation and shall include:
a. Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
b. The right or the privilege to use patent, copyright, design or model, plan secret
formula or process, goodwill, trademark, trade brand or other like property or
right;
c. The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;
d. The right or the privilege to use motion picture films, films, tapes and discs; and
e. Radio, television, satellite transmission and cable television time.

The term 'gross selling price' means the total amount of money or its equivalent which the
purchaser pays or is obligated to pay to the seller in consideration of the sale, barter or
exchange of the goods or properties, excluding the value-added tax. The excise tax, if any,
on such goods or properties shall form part of the gross selling price.

2. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate:
a. Export Sales. - The term 'export sales' means:
(1) The sale and actual shipment of goods from the Philippines to a foreign country,
irrespective of any shipping arrangement that may be agreed upon which may
influence or determine the transfer of ownership of the goods so exported and
paid for in acceptable foreign currency or its equivalent in goods or services,
and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas,(BSP);
(2) Sale of raw materials or packaging materials to a nonresident buyer for delivery
to a resident local export-oriented enterprise to be used in manufacturing,
processing, packing or repacking in the Philippines of the said buyer's goods
and paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
(3) Sale of raw materials or packaging materials to export-oriented enterprise
whose export sales exceed seventy percent (70%) of total annual production;
(4) Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
(5) Those considered export sales under Executive Order No. 226, otherwise known
as the Omnibus Investment Code of 1987, and other special laws; and
(6) The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations.

b. Foreign Currency Denominated Sale. - The phrase 'foreign currency denominated

sale' means sale to a nonresident of goods, except those mentioned in Sections 149
and 150, assembled or manufactured in the Philippines for delivery to a resident in
the Philippines, paid for in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
 c. Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to
zero rate.

(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:

1. Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered persons: or
b. Creditors in payment of debt;
3. Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods, were consigned; and
4. Retirement from or cessation of business, with respect to inventories of taxable aoods
existing as of such retirement or cessation.

(C) Changes in or Cessation of Status of a VAT-registered Person. - The tax imposed in Subsection
(A) of this Section shall also apply to goods disposed of or existing as of a certain date if under
circumstances to be prescribed in rules and regulations to be promulgated by the Secretary of
Finance, upon recommendation of the Commissioner, the status of a person as a VAT-
registered person changes or is terminated.

(D) Sales Returns, Allowances and Sales Discounts. - The value of goods or properties sold and
subsequently returned or for which allowances were granted by a VAT-registered person may
be deducted from the gross sales or receipts for the quarter in which a refund is made or a
credit memorandum or refund is issued. Sales discount granted and indicated in the invoice at
the time of sale and the grant of which does not depend upon the happening of a future event
may be excluded from the gross sales within the same quarter it was given.

(E) Authority of the Commissioner to Determine the Appropriate Tax Base. - The Commissioner
shall, by rules and regulations prescribed by the Secretary of Finance, determine the
appropriate tax base incases where a transaction is deemed a sale, barter or exchange of goods
or properties under Subsection (B) hereof, or where the gross selling price is unreasonably
lower than the actual market value

Note:
A contract for a piece of work is not subject to the vat on sales or exchange of goods or services but is
more appropriately subjected to the sale of services

Note:
Export sales include sale of goods and services by a taxpayer located in the customs territory to a person
located in a special economic zone or Freeport zone
SEC. 107. Value-Added Tax on Importation of Goods. -

(A) In General. - There shall be levied, assessed and collected on every importation of goods a
value-added tax equivalent to ten percent (10%) based on the total value used by the Bureau of
Customs in determining tariff and customs duties, plus customs duties, excise taxes, if any, and
other charges, such tax to be paid by the importer prior to the release of such goods from
customs custody: Provided, That where the customs duties are determined on the basis of the
quantity or volume of the goods, the value-added tax shall be based on the landed cost plus
excise taxes, if any: Provided, further, That the President, upon the recommendation of the
Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve
percent (12%), after any of the following conditions has been satisfied:
(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one
and one-half percent (1 1/2%).

(B) Transfer of Goods by Tax-exempt Persons. - In the case of tax free importation of goods into
the Philippines by persons, entities or agencies exempt from tax where such goods are
subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or
entities, the purchasers, transferees or recipients shall be considered the importers thereof, who
shall be liable for any internal revenue tax on such importation. The tax due on such
importation shall constitute a lien on the goods superior to all charges or liens on the goods,
irrespective of the possessor thereof

Personal; Income Tax; Retiring Alien Employee (2005)

An alien employee of the Asian Development Bank (ADB) who is retiring soon has
offered to sell his car to you which he imported tax-free for his personal use. The privilege of
exemption from tax is granted to qualified personal use under the ADB Charter which is
recognized by the tax authorities. If you decide to purchase the car, is the sale subject to tax?
Explain. (5%)

SUGGESTED ANSWER:

The sales transaction is subject to value added tax (VAT) under Sec. 107(B) of the NIRC,
although this provision is expressly excluded from the coverage of the 2005 bar exam.

The proceeds from the sale are subject to income tax. The car is considered a capital asset of
the retiring alien employee because he is not engaged in the business of buying and
selling cars. He therefore derived income, which should be reported in his income tax return.
(Sees. 32 and 39, NIRC)

Zero rated sales vs vat exempt

 1. A zero rated scale is a taxable transaction but does not result in an output tax while an exempted
transaction is not subject to the output tax
2. The input vat on the purchases of a VAT registered person with zero-rated sales may be allowed
as tax credits or refunded while the seller in an exempt transaction is not entitled to any input tax
on his purchases despite the issuance of a VAT invoice or receipt
3. Persons engaged in transactions which are zero-rated, because subject to vat, are required to
register while registration is optional for VAT exempt persons.

Tax inclusive method

In this method the vat amount need not be shown in the invoice as it is presumed to be included, nor does
the seller required to prove to the BIR its imposition. The value of the VAT shall be determined by
dividing the selling price by the number 11, the resulting amount is the VAT imposed.

Characteristics of a VAT taxable person:

1. He undertakes taxable transactions in goods, properties or services consumed or destined for
consumption within the Philippines
2. Such transactions are entered into in the course of his trade or business
3. The amount of his gross sales or receipts is over the threshold fixed by law or regulations.
4. However, an importer of taxable goods, whether made in the course of trade or business, is a
taxable person

Note:
Failure to register does not exculpate a person from paying VAT taxes

Note:
As a general rule, non-stock, non-profit corporations or associations are usually VAT exempt in offering
their services to their members or for the use of their facilities under the reasoning that the services or
lease offered by them are not considered as one of the transactions which are subject to VAT. However
the moment that they enter into transactions subject to VAT, I.E opening of Canteens, the BIR has ruled
that they will be subjected to VAT.

Requisites of sale of goods to be subject to vat:

1. There must be an actual or deemed sale of goods or properties for valuable consideration
2. It must be undertaken in the course of trade or business
3. The goods are to be consumed or destined to be consumed in the Philippines
4. It is not an exempt transaction.

Note:
VAT attached only upon the consummation of the sale or of the exchange of goods, regardless of the
terms of payment between contracting parties.

Types of sales:
1. Actual sale
 2. Deemed sales

Transactions deemed sales:

(1) Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
(2) Distribution or transfer to:
(a) Shareholders or investors as share in the profits of the VAT-registered persons; or
(b) Creditors in payment of debt;
(3) Consignment of goods if actual sale is not made within sixty (60) days following the date such
goods were consigned; and
(4) Retirement from or cessation of business, with respect to inventories of taxable goods existing as
of such retirement or cessation.

Note:
In transactions deemed sales, the seller is also the buyer and no valuable consideration is thus paid.

SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. -

(A) Rate and Base of Tax. - There shall be levied, assessed and collected, a value-added tax equivalent to
ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or
lease of properties: Provided, That the President, upon the recommendation of the Secretary of
Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%),
after any of the following conditions has been satisfied:

(i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous
year exceeds two and four-fifth percent (2 4/5%); or
(ii) National government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).

The phrase 'sale or exchange of services' means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration, including those performed or rendered
by construction and service contractors; stock, real estate, commercial, customs and immigration
brokers; lessors of property, whether personal or real; warehousing services; lessors or distributors of
cinematographic films; persons engaged in milling, processing, manufacturing or repacking goods for
others; proprietors, operators or keepers of hotels, motels, rest-houses, pension houses, inns, resorts;
proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers; dealers in securities; lending investors; transportation contractors on their transport
of goods or cargoes, including persons who transport goods or cargoes for hire and other domestic
common carriers by land relative to their transport of goods or cargoes; common carriers by air and
sea relative to their transport of passengers, goods or cargoes from one place in the Philippines to
another place in the Philippines; sales of electricity by generation companies, transmission, and
distribution companies; services of franchise grantees of electric utilities, telephone and telegraph,
radio and television broadcasting and all other franchise grantees except those under Section 119 of
this Code and non-life insurance companies (except their crop insurances), including surety, fidelity,
 indemnity and bonding companies; and similar services regardless of whether or not the performance
thereof calls for the exercise or use of the physical or mental faculties. The phrase 'sale or exchange
of services' shall likewise include:

1. The lease or the use of or the right or privilege to use any copyright, patent, design or model plan,
secret formula or process, goodwill, trademark, trade brand or other like property or right;
2. The lease or the use of, or the right to use of any industrial, commercial or, scientific equipment;
3. The supply of scientific, technical, industrial or commercial knowledge or information;
4. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of
enabling the application or enjoyment of any such property, or right as is mentioned in
subparagraph (2) or any such knowledge or information as is mentioned in subparagraph (3)
5. The supply of services by a nonresident person or his employee in connection with the use of
property or rights belonging to, or the installation or operation of any brand, machinery or other
apparatus purchased from such nonresident person;
6. The supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking, venture,
project or scheme;
7. The lease of motion picture films, films, tapes and discs; and
8. The lease or the use of or the right to use radio, television, satellite transmission and cable
television time.

Lease of properties shall be subject to the tax herein imposed irrespective of the place where the
contract of lease or licensing agreement was executed if the property is leased or used in the
Philippines.

The term 'gross receipts' means the total amount of money or its equivalent representing the contract
price, compensation, service fee, rental or royalty, including the amount charged for materials
supplied with the services and deposits and advanced payments actually or constructively received
during the taxable quarter for the services performed or to be performed for another person, excluding
value-added tax.

(B) Transactions Subject to Zero Percent (0%) Rate. - The following services performed in the
Philippines by VAT-registered persons shall be subject to zero percent (0%) rate:

1. Processing, manufacturing or repacking goods for other persons doing business outside the
Philippines which goods are subsequently exported, where the services are paid for in acceptable
foreign currency and accounted for in accordance with the rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
2. Services other than those mentioned in the preceding paragraph rendered to a person engaged in
business conducted outside the Philippines or to a nonresident person not engaged in business
who is outside the Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);
 3. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services
to zero percent (0%) rate;
4. Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof;
5. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production;
6. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country;
and
7. Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels.

Note:
The sale and exchange of services under the VAT law embraces all transactions sales of exchanges not
covered by sales and exchanges of goods and properties regardless if it requires the application or use of
the physical or mental faculties of a person provided that it is not one of the exempt transactions.

Note:
Transport of passengers are not subject to vat but is subject to percentage tax.

Services of the following persons are subject to VAT:

1. construction and service contractors
2. stock, real estate, commercial, customs and immigration brokers
3. lessors of property, whether personal or real
4. warehousing services
5. lessors or distributors of cinematographic films
6. persons engaged in milling processing, manufacturing or repacking goods for others
7. proprietors, operators or keepers of hotels, motels, resthouses, pension houses, inns, resorts
8. proprietors or operators of restaurants, refreshment parlors, cafes and other eating places, including
clubs and caterers
9. dealers in securities
10. ending investors
11. transportation contractors on their transport of goods or cargoes, including persons who transport
goods or cargoes for hire and other domestic common carriers by land, air and water relative to their
transport of goods or cargoes (Comment, carriage of persons are not vatable)
12. Services of franchise grantees of telephone and telegraph, radio and television broadcasting and all
other franchise grantees except those under Section 119 of this Code
13. services of banks, non-bank financial intermediaries and finance companies
14. non-life insurance companies (except their crop insurances), including surety, fidelity, indemnity and
bonding companies
15. similar services regardless of whether or not the performance thereof calls for the exercise or use of
the physical or mental faculties
Categories of services:
1. professional/technical consultancy
The supply of technical advice, assistance, or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking
2. Transfer of technology
The supply of scientific, technical, industrial or commercial knowledge or information including
ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment
of the technology transfer.
3. Lease or use of intangible property, It may be grouped as follows:
a. Copyrights, patents, designs or models,
b. Plans, secret formula or processes
c. Goodwill, trademarks, trade brand or other like property or right
d. Right to use radio, television, satellite transmission and cable television time
4. Lease or use of tangible property, it may be grouped as follows:
a. Industrial. Commercial or scientific equipment, including the supply of any assistance
that is ancillary and subsidiary to and is furnished as a means of enabling the application
or enjoyment of such properties
b. Motion picture films, films, tapes and discs.

Requisites for taxability of services (VAT)

1. The service must be performed or is to be performed in the course of trade or business in the
Philippines
2. For valuable consideration actually or constructively received
3. The service is not an exempt transaction

Note:
Sale or exchanges of goods, properties or services in special economic zones and freeports zones are
considered as foreign territories by fiction of law hence not subject to vat

Note:
A contract of lease covering property situated in the Philippines is subject to VAT regardless of the
location of lessor or where the contract was executed. However if the lessor is an enterprise registered in
the Philippine Export Zone Authority the transaction shall be vat exempt

Constructive receipt
Occurs when the money consideration or its equivalent is placed under the control of the person who
rendered the service without any substantial restrictions by the payor.

VAT; Covered Transactions (1998)

State whether the following transactions are a) VAT Exempt, b) subject to VAT at 10%; or c) subject
to VAT at 0%:

1. Sale of fresh vegetables by Aling Ining at the Pamilihang Bayan ng Trece Martirez.
[1%]
 2. Services rendered by Jake's Construction Company, a contractor to the World Health
Organization in the renovation of its offices in Manila. [1%]
3. Sale of tractors and other agricultural implements by Bungkal Incorporated to local farmers.
[1%]
4. Sale of RTW by Cely's Boutique, a Filipino dress designer, in her dress shop and other
outlets. [1%]
5. Fees for lodging paid by students to Bahay-Bahayan Dormitory, a private entity operating
a student

SUGGESTED ANSWER:

1. VAT exempt. Sale of agricultural products, such as fresh vegetables, in their original state, of
a kind generally used as, or producing foods for human consumption is exempt from VAT.
(Section 109(c), NIRC).
2. VAT at 0%. Since Jake's Construction Company has rendered services to the World Health
Organization, which is an entity exempted from taxation under international agreements to
which the Philippines is a signatory, the supply of services is subject to zero percent (0%) rate.
(Sec. 108[B1(3), NIRC).
3. VAT at 10%. Tractors and other agricultural implements fall under the definition of
goods which include all tangible objects which are capable of pecuniary estimation (Sec.
106[A1(1), NIRC, the sales of which are subject to VAT at 10%.
4. This is subject to VAT at 10%. This transaction also falls under the definition of goods which
include all tangible objects which are capable of pecuniary estimation (Sec. 106[A1(1),
NIRC, the sales of which are subject to VAT at 10%.
5. VAT Exempt. The monthly fee paid by each student falls under the lease of residential units
with a monthly rental per unit not exceeding Php 8,000, which Is exempt from VAT
regardless of the amount of aggregate rentals received by the lessor during the year. (Sec.
109(x), NIRC). The term unit shall mean per person in the case of dormitories, boarding
houses and bed spaces (Sec. 4.103-1, RRNo. 7-95)

Note:
If one of the parties is granted tax exempt status, it is only exempted from paying VAT as a seller and
does not extend to it as a purchaser under the reasoning that as a seller it is liable to pay the VAT to the
government directly whereas as a purchaser it is not liable to pay directly to the government

Note:
The following are the effects of exemption:
1. Partial exemption
The seller has no output tax liability on his sales, but the input taxes passed on to him by his
suppliers of goods, properties or services form part of his assets or operating expenses
2. Total exemption
Total relief from VAT is accomplished by subjecting the sales to zero value rate, but the input
taxes passed on to him by his suppliers may be recovered from the BOR through claims for tax
credits or refunds
 Tax Exemptions: Nature & Coverage; Proper Party (2004)

As an incentive for investors, a law was passed giving newly established companies in
certain economic zone exemption from all taxes, duties, fees, imposts and other charges for a
period of three years. ABC Corp. was organized and was granted such incentive. In the
course of business, ABC Corp. purchased mechanical equipment from XYZ Inc. Normally, the
sale is subject to a sales tax.

XYZ Inc. claims, however, that since it sold the equipment to ABC Corp. which is
tax exempt, XYZ should not be liable to pay the sales tax. Is this claim tenable? (5%)

SUGGESTED ANSWER:

A. No. Exemption from taxes is personal in nature and covers only taxes for which the
taxpayer-grantee is directly liable. The sales tax is a tax on the seller who is not exempt
from taxes. Since XYZ Inc. is directly liable for the sales tax and no tax exemption privilege
is ever given to him, therefore, its claim that the sale is tax exempt is not tenable. A tax
exemption is construed in strictissimi juris and it can not be permitted to exist upon
vague implications (Asiatic Petroleum Co., Ltd. V. Llanes, 49 Phil

B. Assume arguendo that XYZ had to and did pay the sales tax. ABC Corp. later found out,
however, that XYZ merely shifted or passed on to ABC the amount of the sales tax by
increasing the purchase price. ABC Corp. now claims for a refund from the Bureau of Internal
Revenue in an amount corresponding to the tax passed on to it since it is tax exempt.
Is the claim of ABC Corp. meritorious? (5%)

SUGGESTED ANSWER;

B. No. The claim of ABC Corp. is not meritorious. Although the tax was shifted to ABC
Corp. by the seller, what is paid by it is not a tax but part of the cost it has assumed. Hence,
since ABC Corp. is not a taxpayer, it has no capacity to file a claim for refund. The taxpayer who
can file a claim for refund is the person statutorily liable for the payment of the tax

TAX BASE
Note:
The tax base shall be the gross selling price or gross receipt as defined in section 106 however when the
consideration is paid mixed by money and property the property shall be valued using its fair market
value at the time of sale or the estimated amount of the property whichever is higher. Further as per the
vat inclusive method, if the amount of the vat is not specified in the invoice or document representing the
sale or exchange it shall be the deemed inclusive thereof and may be determined using the divisor of 11.
Rules in determining the tax base of sale of goods
1. As a general rule, the output tax accrues on the sale of goods or properties(other real property) at
the time of the sale, when the sales invoice is issued, although none or only a part of the gross
selling price is paid by the buyer at the time of sale
2. In sales covering real property, the following rules shall govern:
a. If it is a sale on cash basis, the amount subject to VAT at the time of execution of the
document of sale
b. In deferred payments:
i. In the case of sale of real property on installment plan, where the initial payment
is more than 25% of the gross selling price, the tax base shall be the entire gross
selling price, or FMV as determined by the CIR, whichever is higher
ii. In the case of sale of real property is NOT on installment plan, where the initial
payment is less than 25% of the gross selling price, the tax base shall be the
amount actually or constructively received during the taxable quarter.
iii. If the sale of real property is on installment plan where the zonal value/FMV is
higher than the consideration exclusive of the VAT, the VAT shall be based on
the ratio of actual collection of the consideration, exclusive of VAT.
c. Sales discounts determined and granted at the time of sale, which are expressly indicated
in the sales invoice relating to sales of goods or properties do not form part of the tax
base provided:
i. The grant of sales discount must not depend upon the happening of a future event
ii. The discount must be recorded in the books of accounts of the seller
iii. The discount must be expressly indicated in the sales invoice
d. When the buyer is a senior citizen the tax base shall be net sales after deducting the 20%
senior citizen discount
e. The tax base for transactions deemed sale is generally the market value of such goods as
of the occurrence of the transaction deemed sale. However, in the case of retirement from
or cessation of business the tax base shall be the acquisition cost or the current market
price of the goods, whichever is lower.
f. If the gross selling price is lower than the actual market value by more than 30% percent
the gross selling price is considered as unreasonable lower than the actual market value.
As such the CIR is authorized to determine and prescribed the actual market value to be
used as a tax base

Gross receipts
The term means the total amount of money or its equivalent representing the contract price,
compensation, service fee, rental or royalty, including the amount charged for materials supplied with the
services and deposits and advanced payments actually or constructively received during the taxable
quarter for the services performed or to be performed for another person, excluding value-added tax,
EXCEPT those amounts earmarked for payment to unrelated third party or received as reimbursement for
advance payment on behalf of another, which do not redound to the benefit of the payor. (unrelated party)

Rules in determining the tax base of sale of service:

 1. The VAT accrues upon the actual or constructive receipt of payment by the seller of service.
Hence he is liable to pay the VAT once he receives the payment even if he has not rendered the
services, also he is not liable to pay the VAT despite the fact that he has rendered the service
provided he has not received the payment yet
2. Advance payment of by the lessee of rents which are actually in the nature of a loan, option
money or a security deposit to insure faithful compliance of an obligation to the lessor is not the
lease presumed under the VAT law and is therefore not subject to VAT.
3. Generally reimbursements do not form part of the tax base of the seller of service
4. Note payments made to another for the purpose of making payment to another for services
rendered by the latter is not subject to VAT under the reasoning that the first payment when made
is not for payment for a sale or exchange of property.
5. Requisites in order for advances made to a customs broker for port fees, arrastre wharfage stamps
etch services rendered by another not to be subject to vat:
a. The customs broker must issue a non-VAT receipt for the advances given him
b. The persons performing the services issues receipts to the brokers client
6. Payments made to hotels and restaurants and caterers shall not be subject to vat for any of the
following:
a. Service charges billed separately and actually distributed to the waiters and employees
b. Actual cost and charges of telecommunication companies collected by the establishment
c. Local taxes charged
7. Gross receipts does not include monies or receipt entrusted to the taxpayer which do not belong to
them and do not redound to the taxpayers benefit
8. Exclusions to the tax base of insurance companies:
a. Premiums refunded within 6 months after payment on account of rejection of risk or
returned for other reason to the insured
b. Premiums on reinsurance of a company that has already paid the tax
c. Premiums for reinsurance when the risk insured against covers property located outside
the Philippines
d. Doc stamp tax and local tax passed on by the insurance company to the insured.
e. Premiums collected from crop insurance, life and disability insurance, and health and
accident insurance policies.
9. Security agencies tax base is the agency fee excluding the amount earmarked for the salaries of
the guards

Rates of VAT

SEC. 110. Tax Credits. -

(A) Creditable Input Tax. -
1. Any input tax evidenced by a VAT invoice or official receipt issued in accordance with
Section 113 hereof on the following transactions shall be creditable against the output tax:
a. Purchase or importation of goods:
b. For sale; or
c. For conversion into or intended to form part of a finished product for sale including
packaging materials; or
 d. For use as supplies in the course of business; or
e. For use as materials supplied in the sale of service; or
f. For use in trade or business for which deduction for depreciation or amortization is
allowed under this Code.
g. Purchase of services on which a value-added tax has actually been paid.

2. The input tax on domestic purchase or importation of goods or properties by a VAT-

registered person shall be creditable:
a. To the purchaser upon consummation of sale and on importation of goods or
properties; and
b. To the importer upon payment of the value-added tax prior to the release of the
goods from the custody of the Bureau of Customs.

Provided, That the input tax on goods purchased or imported in a calendar month for use
in trade or business for which deduction for depreciation is allowed under this Code, shall
be spread evenly over the month of acquisition and the fifty-nine (59) succeeding months if
the aggregate acquisition cost for such goods, excluding the VAT component thereof,
exceeds One million pesos (P1,000,000): Provided, however, That if the estimated useful life
of the capital good is less than five (5) years, as used for depreciation purposes, then the
input VAT shall be spread over such a shorter period: Provided, finally, that in the case of
purchase of services, lease or use of properties, the input tax shall be creditable to the
purchaser, lessee or licensee upon payment of the compensation, rental, royalty or fee.

3. A VAT-registered person who is also engaged in transactions not subject to the value-added
tax shall be allowed tax credit as follows:
a. Total input tax which, can be directly attributed to transactions subject to value-add
tax; and
b. A ratable portion of any input tax which cannot be directly attributed to either
activity.

The term 'input tax' means the value-added tax due from or paid by a VAT-registered
person in the course of his trade or business on importation of goods or local purchase of
goods or services, including lease or use of property, from a VAT-registered person. It shall
also include the transitional input tax determined in accordance with Section 111 of this
Code.

The term 'output tax' means the value-added tax due on the sale or lease of taxable goods or
properties or services by any person registered or required to register under Section 236 of
this Code.

(B) Excess Output or Input Tax. - If at the end of any taxable quarter the output tax exceeds the
input tax, the excess shall be paid by the VAT-registered person. If the input tax exceeds the
output tax, the excess shall be carried over to the succeeding quarter or quarters: Provided,
That the input tax inclusive of input VAT carried over from the previous quarter that may be
 credited in every quarter shall not exceed seventy percent (70%) of the output VAT: Provided,
however, That any input tax attributable to zero-rated sales by a VAT-registered person may at
his option be refunded or credited against other internal revenue taxes, subject to the
provisions of Section 112.

(C) Determination of Creditable Input Tax. - The sum of the excess input tax carried over from the
preceeding month or quarter and the input tax creditable to a VAT-registered person during
the taxable month or quarter shall be reduced by the amount of claim for refund or tax credit
for value-added tax and other adjustments, such as purchase returns or allowances and input
tax attributable to exempt sale.

The claim for tax credit referred to in the foregoing paragraph shall include not only those filed
with the Bureau of Internal Revenue but also those filed with other government agencies, such
as the Board of Investments and the Bureau of Customs.

Output tax
1. 12%
2. 0%
Input tax
1. 12%
2. 0%
3. 2% transitional or 12% actual input tax
4. 4% presumptive input tax
5. 5% final withholding tax

Note:
Transitional input tax are applied to the value of foods existing at the date a person commences business
and/or becomes liable to pay VAT. Whereas presumptive input tax rate is applied to purchases of VAT-
exempt goods used as inputs by VAT registered person in manufacturing or processing certain food
products.

Zero rated transactions:

1. Sales of goods and properties
a. Export Export Sales. - The term 'export sales' means:
i. The sale and actual shipment of goods from the Philippines to a foreign country
1. irrespective of any shipping arrangement that may be agreed upon which
may influence or determine the transfer of ownership of the goods so
exported and
2. paid for in acceptable foreign currency or its equivalent in goods or
services, and accounted for in accordance with the rules and regulations
of the Bangko Sentral ng Pilipinas,(BSP);
ii. Sale of raw materials or packaging materials
1. to a nonresident buyer
2. for delivery to a resident local export-oriented enterprise
 3. to be used in manufacturing, processing, packing or repacking in the
Philippines of the said buyer's goods and
4. paid for in acceptable foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
iii. Sale of raw materials or packaging materials to export-oriented enterprise whose
export sales exceed seventy percent (70%) of total annual production;
iv. Sale of gold to the Bangko Sentral ng Pilipinas (BSP);
v. Those considered export sales under Executive Order No. 226, otherwise known
as the Omnibus Investment Code of 1987, and other special laws; and
vi. The sale of goods, supplies, equipment and fuel to persons engaged in
international shipping or international air transport operations.
b. Foreign Currency Denominated Sale.
i. means sale to a nonresident of goods,
ii. except those mentioned in Sections:
1. automobiles (149)
2. non-essential goods, such as jewelry, perfumes, toilet waters, yatchs and
other vesels intended for pleasure or sports,
iii. assembled or manufactured in the Philippines
iv. for delivery to a resident in the Philippines,
v. paid for in acceptable foreign currency and accounted for in accordance with the
rules and regulations of the Bangko Sentral ng Pilipinas (BSP).
c. Sales to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects such sales to zero
rate.

2. Sales or exchange of services

a. Processing, manufacturing or repacking goods:
i. for other persons doing business outside the Philippines
ii. which goods are subsequently exported,
iii. where the services are paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas
(BSP);
8. Services other than those mentioned in the preceding paragraph
a. rendered to a person engaged in business conducted outside the Philippines or to a
nonresident person not engaged in business who is outside the Philippines when the
services are performed,
b. the consideration for which is paid for in acceptable foreign currency and accounted for
in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);
9. Services rendered to persons or entities whose exemption under special laws or international
agreements to which the Philippines is a signatory effectively subjects the supply of such services
to zero percent (0%) rate;
10. Services rendered to persons engaged in international shipping or international air transport
operations, including leases of property for use thereof;
 11. Services performed by subcontractors and/or contractors in processing, converting, or
manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total
annual production;
12. Transport of passengers and cargo by air or sea vessels from the Philippines to a foreign country;
and
13. Sale of power or fuel generated through renewable sources of energy such as, but not limited to,
biomass, solar, wind, hydropower, geothermal, ocean energy, and other emerging energy sources
using technologies such as fuel cells and hydrogen fuels.

EFFECTIVELY ZERO-RATED TRANSACTIONS

Refers to Sales to whom: persons or entities exempted under special laws or international agreements to
which the Philippines is a signatory. Note the seller also enjoys the zero rating.

Note:
With respect to transactions requiring foreign currency, such requirement may be waived in exchange
deals provided the BIR and BSP issues a ruling confirming that the exchange deals complies with the
accounting requirements or liquidation of the foreign currency under the BSP circulars and the tax code

Note:
NPC by its special charter categorically makes it exempt from payment of all taxes, whether direct or
indirect, including taxes

Note:
In order for an effectively zero-rated transaction to be zero rated, an application must be filed with BIR
and approved accordingly prior to the execution of the transaction. Further the word zero-rated must be
stamped on the face of the VAT invoice or receipt to be issued by the seller of the goods or services.

Note:
Transactions with embassies of a foreign state and its personnel will not be zero-rated unless there is
existing international agreement showing that the said foreign government allows similar tax exemption
privilege to the Philippine embassy and its personnel on their purchases of goods or services in that
foreign country. Such vat exemption shall not extend to the individual purchases made by the members of
their diplomatic staff.

Exempt Transactions

SEC. 109. Exempt Transactions. - The following shall be exempt from the value-added tax:

(a) Sale of nonfood agricultural products; marine and forest products in their original state by the primary
producer or the owner of the land where the same are produced;

(b) Sale of cotton seeds in their original state; and copra;

(c) Sale or importation of agricultural and marine food products in their original state, livestock and
poultry of or king generally used as, or yielding or producing foods for human consumption; and breeding
stock and genetic materials therefor. Products classified under this paragraph and paragraph (a) shall be
considered in their original state even if they have undergone the simple processes of preparation or
preservation for the market, such as freezing, drying, salting, broiling, roasting, smoking or stripping.
Polished and/or husked rice, corn grits, raw cane sugar and molasses, and ordinary salt shall be
considered in their original state;

(d) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry
feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished
feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets);

(e) Sale or importation of coal and natural gas, in whatever form or state, and petroleum products (except
lubricating oil, processed gas, grease, wax and petrolatum) subject to excise tax imposed under Title VI;

(f) Sale or importation of raw materials to be used by the buyer or importer himself in the
manufacture of petroleum products subject to excise tax, except lubricating oil, processed gas, grease,
wax and petrolatum;

(g) Importation of passenger and/or cargo vessels of more than five thousand tons (5,000) whether
coastwise or ocean-going, including engine and spare parts of said vessel to be used by the importer
himself as operator thereof;

(h) Importation of personal and household effects belonging to the residents of the Philippines returning
from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are
exempt from customs duties under the Tariff and Customs Code of the Philippines;

(i) Importation of professional instruments and implements, wearing apparel, domestic animals, and
personal household effects (except any vehicle, vessel, aircraft, machinery other goods for use in the
manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to
settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such
persons, or arriving within ninety (90) days before or after their arrival, upon the production of
evidence satisfactory to the Commissioner, that such persons are actually coming to settle in the
Philippines and that the change of residence is bona fide;

(j) Services subject to percentage tax under Title V;

(k) Services by agricultural contract growers and milling for others of palay into rice, corn into grits
and sugar cane into raw sugar;

(l) Medical, dental, hospital and veterinary services subject to the provisions of Section 17 of Republic
Act No. 7716, as amended;

(m) Educational services rendered by private educational institutions, duly accredited by the Department
of Education, Culture and Sports (DECS) and the Commission on Higher Education (CHED), and those
rendered by government educational institutions;
(n) Sale by the artist himself of his works of art, literary works, musical compositions and similar
creations, or his services performed for the production of such works;

(o) Services rendered by individuals pursuant to an employer-employee relationship;

(p) Services rendered by regional or area headquarters established in the Philippines by multinational
corporations which act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the
Philippines;

(q) Transactions which are exempt under international agreements to which the Philippines is a signatory
or under special laws, except those under Presidential Decree Nos. 66, 529 and 1590;

(r) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority
to their members as well as sale of their produce, whether in its original state or processed form, to non-
members; their importation of direct farm inputs, machineries and equipment, including spare parts
thereof, to be used directly and exclusively in the production and/or processing of their produce;

(s) Sales by electric cooperatives duly registered with the Cooperative Development authority or
National Electrification Administration, relative to the generation and distribution of electricity as well
as their importation of machineries and equipment, including spare parts, which shall be directly used in
the generation and distribution of electricity;

(t) Gross receipts from lending activities by credit or multi-purpose cooperatives duly registered with the
Cooperative Development Authority whose lending operation is limited to their members;

(u) Sales by non-agricultural, non- electric and non-credit cooperatives duly registered with the
Cooperative Development Authority: Provided, That the share capital contribution of each member
does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net
surplus ratably distributed among the members;

(v) Export sales by persons who are not VAT-registered;

(w) 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 utilized for low-cost and socialized housing as defined by
Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other
related laws, house and lot and other residential dwellings valued at One million pesos (P1,000,000) and
below: Provided, That not later than January 31st of the calendar year subsequent to the effectivity of this
Act and each calendar year thereafter, the amount of One million pesos (P1,000,000) shall be adjusted to
its present value using the Consumer Price Index, as published by the national Statistics Office (NSO);

(x) Lease of a residential unit with a monthly rental not exceeding Eight thousand pesos (P10,000);
Provided, That not later than January 31st of the calendar year subsequent to the effectivity of Republic
Act No. 8241 and each calendar year thereafter, the amount of ten thousand pesos (P10,000) shall be
adjusted to its present value using the Consumer Price Index as published by the National Statistics Office
(NS0);
(y) Sale, importation, printing or publication of books and any newspaper, magazine review or bulletin
which appears at regular intervals with fixed prices for subscription and sale and which is not devoted
principally to the publication of paid advertisements; and

(z) Sale or lease of goods or properties or the performance of services other than the transactions
mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the
amount of Five hundred fifty thousand pesos (P550,000): Provided, That not later than January 31st of
the calendar year subsequent to the effectivity of Republic Act No. 8241 and each calendar year
thereafter, the amount of Five hundred fifty thousand pesos (550,000) shall be adjusted to its present
value using the Consumer Price Index, as published by the National Statistics Office (NSO).

The foregoing exemptions to the contrary notwithstanding, any person whose sale of goods or properties
or services which are otherwise not subject to VAT, but who issues a VAT invoice or receipt therefor
shall, in addition to his liability to other applicable percentage tax, if any, be liable to the tax imposed
in Section 106 or 108 without the benefit of input tax credit, and such tax shall also be recognized as
input tax credit to the purchaser under Section 110, all of this Code.

Zero rated VAT exempt

all VAT is removed from the goods, activity or removes the VAT only at the exempt stage
transaction
the taxpayer can claim the refund or input taxes the taxpayer is not entitled to credit or refund of the
passed on to him by the supplier, etc. or credit such input tax passed on to him by the supplier, etc.
input taxes on his nonzero-rated transactions

Input Tax

SEC. 111. Transitional/ Presumptive Input Tax Credits. -

(A) Transitional Input Tax Credits. - A person who becomes liable to value-added tax or any
person who elects to be a VAT-registered person shall, subject to the filing of an inventory
according to rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be allowed input tax on his beginning inventory of
goods, materials and supplies equivalent to two percent (2%) of the value of such inventory
or the actual value-added tax paid on such goods, materials and supplies, whichever is
higher, which shall be creditable against the output tax.

(B) Presumptive Input Tax Credits. -

Persons or firms engaged in the processing of sardines, mackerel and milk, and in
manufacturing refined sugar, cooking oil and packed noodle based instant meals, shall be
allowed a presumptive input tax, creditable against the output tax, equivalent to four
percent (4%) of the gross value in money of their purchases of primary agricultural
products which are used as inputs to their production.

As used in this Subsection, the term 'processing' shall mean pasteurization, canning and
activities which through physical or chemical process alter the exterior texture or form or
 inner substance of a product in such manner as to prepare it for special use to which it
could not have been put in its original form or condition.

SEC. 114. Return and Payment of Value-Added Tax. -

(A) In General. - Every person liable to pay the value-added tax imposed under this Title shall file a
quarterly return of the amount of his gross sales or receipts within twenty-five (25) days following the
close of each taxable quarter prescribed for each taxpayer: Provided, however, That VAT-registered
persons shall pay the value-added tax on a monthly basis.

Any person, whose registration has been cancelled in accordance with Section 236, shall file a return
and pay the tax due thereon within twenty-five (25) days from the date of cancellation of registration:
Provided, That only one consolidated return shall be filed by the taxpayer for his principal place of
business or head office and all branches.

(B) Where to File the Return and Pay the Tax. - Except as the Commissioner otherwise permits, the return
shall be filed with and the tax paid to an authorized agent bank, Revenue Collection Officer or duly
authorized city or municipal Treasurer in the Philippines located within the revenue district where the
taxpayer is registered or required to register.

"(C) Withholding of Value-Added Tax. - The Government or any of its political subdivisions,
instrumentalities or agencies, including government-owned or -controlled corporations (GOCCs) shall,
before making payment on account of each purchase of goods and services which are subject to the value-
added tax imposed in Sections 106 and 108 of this Code, deduct and withhold a final value-added tax at
the rate of five percent (5%) of the gross payment thereof: Provided, That the payment for lease or use of
properties or property rights to nonresident owners shall be subject to ten percent (10%) withholding tax
at the time of payment. For purposes of this Section, the payor or person in control of the payment shall
be considered as the withholding agent.

"The value-added tax withheld under this Section shall be remitted within ten (10) days following the end
of the month the withholding was made.
5 categories of input tax
1. Input tax credit on importation of goods, properties and services
2. Transitional input tax
3. Presumptive input tax
4. Final withholding tax
5. Excess input tax

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-Rated or Effectively Zero-Rated Sales.

Any VAT-registered person, whose sales are zero-rated or effectively zero-rated may, within two (2)
years after the close of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such sales, except
 transitional input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2) and (b) and
Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds thereof had been duly
accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP):
Provided, further, That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and
also in taxable or exempt sale of goods of properties or services, and the amount of creditable input
tax due or paid cannot be directly and entirely attributed to any one of the transactions, it shall be
allocated proportionately on the basis of the volume of sales: Provided, finally, That for a person
making sales that are zero-rated under Section 108 (B)(6), the input taxes shall be allocated ratably
between his zero-rated and non-zero-rated sales.

(B) Cancellation of VAT Registration. - A person whose registration has been cancelled due to retirement
from or cessation of business, or due to changes in or cessation of status under Section 106(C) of this
Code may, within two (2) years from the date of cancellation, apply for the issuance of a tax credit
certificate for any unused input tax which may be used in payment of his other internal revenue taxes.

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper cases, the
Commissioner shall grant a refund or issue the tax credit certificate for creditable input taxes within
one hundred twenty (120) days from the date of submission of complete documents in support of the
application filed in accordance with Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the part of the
Commissioner to act on the application within the period prescribed above, the taxpayer affected
may, within thirty (30) days from the receipt of the decision denying the claim or after the expiration
of the one hundred twenty day-period, appeal the decision or the unacted claim with the Court of Tax
Appeals.

(D) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the Commissioner or
by his duly authorized representative without the necessity of being countersigned by the Chairman,
Commission on Audit, the provisions of the Administrative Code of 1987 to the contrary
notwithstanding: Provided, That refunds under this paragraph shall be subject to post audit by the
Commission on Audit."

Rules and process for vat refund:

1. The taxpayer must claim a refund or certificate of credit within two years from:
a. The close of the quarter from which the sales were made
b. Upon cancellation of his registration
2. The judicial and extrajudicial claim must be made within the 2 year period mentioned above.
3. Grounds:
a. Zero-Rated or Effectively Zero-Rated Sales
b. Cessation of business or dissolution of the corporation
4. Rules when filing a refund or tax credit for input tax:
a. It shall not cover transitional input tax
 b. That in the case of zero-rated sales the acceptable foreign currency exchange proceeds
thereof had been duly accounted for in accordance with the rules and regulations of the
BSP
c. The tax credit or refund is to the extent not applied against the output tax
5. Rules regarding cancellation of his registration:
a. He can only claim for tax credit
b. To the extent of any unused input tax which may be used in payment of his other internal
revenue taxes
6. The CIR has a 120 days upon submission of complete documents to rule upon the refund or credit
7. The partial or full denial of the claim or when the claim has not been acted upon by the CIR, the
claimant may appeal his claim to the CTA within 30 days from:
a. Date of full or partial denial
b. Expiration of the 120 day period

Note:
In cases of zero rated sales it is the seller who is entitled to a tax refund or credit. However in cases of
purchase of capital goods, the purchaser is the one entitled to the refund or tax credit.

Requisites of refund of zero rated sales:

1. The claimant must be a VAT-registered person.
2. The claim is filed within the 2 year period from the close of the taxable quarter upon which the
sale was made
3. The claimed input tax were not applied against any output tax during the period
4. The claimant must deduct from its VAT quarterly return the input tax being claimed as refund or
tax credit
5. The claimed input VAT payments are directly attributable to a zero rated or effectively zero rated
sale
6. The claimed input tax are duly substantiated by official receipts
7. The VAT return for the succeeding quarters covered by the claim for tax refund or credit must be
submitted with the CTA

Note:
Input taxes on purchases directly and entirely attributable to transactions exempt from value added tax
becomes part of the cost of the asset or operating expens of the taxpayer deductible only from his gross
income.

3 instances where a person may claim transitional input tax

1. When he becomes liable to VAT for the first time under a new legislation or when his taxable
transaction exceed the VAT registration threshold
2. When he elects to register as a VAT registered person provided he is eligible
3. If he is already VAT-registered person and also deals in goods or properties, the sale of which is
exempt, but ut becomes a taxable transaction under a new or amendatory law.
 Registration requirements

Note:
Failure to register as a VAT person does not relieve him of his liability to pay VAT however he can not
claim the benefits of input tax.

Persons not liable to pay VAT but may be registered:

1. Any person who is VAT-exempt may elect to be registered as a VAT person
2. Any person who is VAT registered but enters into transaction which are exempt from VAT may
opt that the VAT apply to his transactions which would have been exempt under the law
3. Franchise grantees of radio and/or television broadcasting whose annual gross receipts of the
preceding year do not exceed 10M derived from business covered by the law granting the
franchise
4. Radio and TV broadcasting whose gross annual receipts do not exceed 10M and which do not opt
to be vat registered
5. PEZA and under ecozone registered enterprise enhoying the preferential rate of 5% in lieu of
taxes
6. SBMA and other Freeport zone registered enterprises enjoying the preferential tax rate of 5% in
lieu of taxes

Effect of issuing VAT invoice for a vat exempt transaction:

1. The issuing vat registered person shall be liable to pay the taxes applicable to the transation
2. He cannot claim vat input credit
3. He shall be liable to pay a 50% surcharge
4. The vat paid shall be recognized as an input tax credit to the purchaser

Note:
The failure of a vat registered person to mark a receipt as vat-exempt when the transaction is in fact vat
exempt shall render him liable to pay the VAT thereon. The purchaser shall be entitled to claim input tax
credit on the said purchase.

Tax Remedies

SEC. 205. Remedies for the Collection of Delinquent Taxes.

The civil remedies for the collection of internal revenue taxes, fees or charges, and any increment
thereto resulting from delinquency shall be:
(a) By distraint of goods, chattels, or effects, and other personal property of whatever
character, including stocks and other securities, debts, credits, bank accounts and interest
in and rights to personal property, and by levy upon real property and interest in rights to
real property; and
(b) By civil or criminal action.
Either of these remedies or both simultaneously may be pursued in the discretion of the authorities
charged with the collection of such taxes: Provided, however, That the remedies of distraint and
levy shall not be availed of where the amount of tax involve is not more than One hundred pesos
(P100).

The judgment in the criminal case shall not only impose the penalty but shall also order payment of
the taxes subject of the criminal case as finally decided by the Commissioner.

The Bureau of Internal Revenue shall advance the amounts needed to defray costs of collection by
means of civil or criminal action, including the preservation or transportation of personal property
distrained and the advertisement and sale thereof, as well as of real property and improvements
thereon.

Agencies Involved in Tax Administration

1. BIR
2. Bureau of Customs
3. Provincial, city, and municipal assessors and treasurers

Powers and Duties of the BIR (Sec. 2, CTRP) (Key: AGEE)

1. Assessment and collection of all national internal revenue taxes, fees, and charges
2. Give effect to and administer the supervisory and police power conferred to it by the Tax Code or
other laws
3. Enforcement of all forfeitures, penalties and fines in connection therewith
4. Execution of judgments in all cases decided in its favor by the Court of Tax Appeals and the ordinary
courts

Powers of the CIR:

1. Power to interpret tax laws and decide cases
2. Power to Obtain Information, and to Summon, Examine, and Take Testimony of Persons:
a. To examine any book, paper, record, or other data which may be relevant or material to
such inquiry
b. To obtain on a regular basis from any person other than the person whose internal
revenue tax liability is subject to audit or investigation any information and financial
statements of any person except bank deposits unless in pursuance to sec 6 F
c. subpoena power
d. To take such testimony
e. To cause revenue officers and employees to make a canvass from time to time of any
revenue district or region
3. Power of the Commissioner to Make assessments and Prescribe additional Requirements for Tax
Administration and Enforcement:
a. Examination of Returns and Determination of Tax Due
b. Use of the best evidence obtainable where there is a failure to Submit Required Returns,
Statements, Reports and other Documents shall authorize:
i. The Commissioner shall assess the proper tax on the best evidence obtainable.
 ii. The Commissioner shall make or amend the return from his own knowledge and
from such information as he can obtain through testimony or otherwise, which
shall be prima facie correct and sufficient for all legal purposes.
c. Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross
Sales and Receipts
i. The findings may be used as the basis for assessing the taxes for the other months
or quarters of the same or different taxable years and such assessment shall be
deemed prima facie correct.
ii. The CIR shall have the authority to prescribe a minimum amount of gross
receipts, sales and taxable base which are presumed to be prima facie correct
under the following instances:
1. The tax payer failed to issue receipts and invoices
2. When there is reason to believe that the books of accounts or other
records do not correctly reflect the declarations made or to be made in a
return required to be filed
d. Authority to Terminate Taxable Period
e. Authority of the Commissioner to Prescribe Real Property Values
f. Authority of the Commissioner to inquire into Bank Deposit Accounts
g. Authority to Accredit and Register Tax Agents
h. Authority of the Commissioner to Prescribe Additional Procedural or Documentary
Requirements

Power to interpret tax laws and decide cases

SEC. 4. Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases - The power to
interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.

The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other matters arising under this Code or other laws or
portions thereof administered by the Bureau of Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the Court of Tax Appeals.

BIR; Jurisdiction; Review Rulings of the Commissioner (2006)

Mr. Abraham Eugenio, a pawnshop operator, after having been required by the Revenue
District Officer to pay value added tax pursuant to a Revenue Memorandum Order (RMO)
of the Commissioner of Internal Revenue, filed with the Regional Trial Court an action
questioning the validity of the RMO. If you were the judge, will you dismiss the case? (5%)

SUGGESTED ANSWER:

Yes. The RMO is in reality a ruling of the Commissioner in implementing the provisions of
the Tax Code on the taxability of pawnshops. Jurisdiction to review rulings of the
Commissioner is lodged with the Court of Tax Appeals and not with the Regional
 Trial Court (CIR v.Josefina Leal, G.R. No. 113459, November 18, 2002; Tax Reform Act,
RA 8424, Title I, Sec. 4 [1997]).

Note:
The power of the CIR to decide disputed assessment, refunds of taxes, fees or other charges, penalties and
other matters arising in the tax code is subject to the exclusive appellate jurisdiction of the CTA as per
RA 9282

Note:
The power to review decisions of the CIR by the SEC of finance is limited to cases which are adverse to
the tax payer and as such the filing of an appeal to the secretary of finance shall not stop the running of
the period to make an appeal to the CTA.

SEC. 5 Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take
Testimony of Persons - In ascertaining the correctness of any return, or in making a return when
none has been made, or in determining the liability of any person for any internal revenue tax, or in
collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized:

(A) To examine any book, paper, record, or other data which may be relevant or material to such
inquiry;

(B) To obtain on a regular basis from any person other than the person whose internal revenue tax
liability is subject to audit or investigation, or from any office or officer of the national and
local governments, government agencies and instrumentalities, including the Bangko Sentral
ng Pilipinas and government-owned or -controlled corporations, any information such as, but
not limited to, costs and volume of production, receipts or sales and gross incomes of
taxpayers, and the names, addresses, and financial statements of corporations, mutual fund
companies, insurance companies, regional operating headquarters of multinational companies,
joint accounts, associations, joint ventures of consortia and registered partnerships, and their
members;

(C) To summon the person liable for tax or required to file a return, or any officer or employee of
such person, or any person having possession, custody, or care of the books of accounts and
other accounting records containing entries relating to the business of the person liable for tax,
or any other person, to appear before the Commissioner or his duly authorized representative
at a time and place specified in the summons and to produce such books, papers, records, or
other data, and to give testimony;

(D) To take such testimony of the person concerned, under oath, as may be relevant or material to
such inquiry; and

(E) To cause revenue officers and employees to make a canvass from time to time of any revenue
district or region and inquire after and concerning all persons therein who may be liable to
 pay any internal revenue tax, and all persons owning or having the care, management or
possession of any object with respect to which a tax is imposed.

The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be
construed as granting the Commissioner the authority to inquire into bank deposits other than as
provided for in Section 6(F) of this Code.

Taxpayer: BIR Audit or Investigation (1999)

A Co., a Philippine corporation, is a big manufacturer of consumer goods and has several
suppliers of raw materials. The BIR suspects that some of the suppliers are not properly
reporting their income on their sales to A Co. The CIR therefore:

1) Issued an access letter to A Co. to furnish the BIR information on sales and payments to
its suppliers.
2) Issued an access letter to a bank (CX Bank) to furnish the BIR on deposits of some
suppliers of A Co. on the alleged ground that the suppliers are committing tax evasion.

A Co., X Bank and the suppliers have not been issued by the BIR letter of authority to examine.
A Co. and X Bank believe that the BIR is on a "fishing expedition" and come to you for counsel.
What is your advice? (10%)

SUGGESTED ANSWER:

I will advise A Co. and B Co. that the BIR is justified only in getting information from the former
but not from the latter. The BIR is authorized to obtain information from other persons other than
those whose internal revenue tax liability is subject to audit or investigation. However, this
power shall not be construed as granting the Commissioner the authority to inquire
into bank deposits. (Section 5. NIRC).

BIR: Bank Deposits Secrecy Violation (2000)

A taxpayer is suspected not to have declared his correct gross income in his return filed
for 1997. The examiner requested the Commissioner to authorize him to inquire into the
bank deposits of the taxpayer so that he could proceed with the net worth method of
investigation to establish fraud. May the examiner be allowed to look into the taxpayer's bank
deposits? In what cases may the Commissioner or his duly authorized representative be
allowed to inquire or look into the bank deposits of a taxpayer? (5%)

SUGGESTED ANSWER:

No. as this would be violative of Republic Act No. 1405, the Bank Deposits Secrecy Law. The
Commissioner of Internal Revenue or his duly authorized representative may be
allowed to inquire or look into the bank deposits of a taxpayer in the following cases:
For the purpose of determining the gross estate of a decedent;
 Where the taxpayer has filed an application for compromise of his tax liability by
reason of financial incapacity to pay such tax liability. (Sec. 6 (F), NIRC of 1997]
Where the taxpayer has signed a waiver authorizing the Commissioner or his duly
authorized representatives to Inquire into the bank deposits.

BIR: Secrecy of Bank Deposit Law (2003)

X dies in year 2000 leaving a bank deposit of P2,000,000.00 under joint

account with his associates in a law office. Learning of X's death from the
newspapers, the Commissioner of Internal Revenue wrote to every bank in the
country asking them to disclose to him the amount of deposits that might be
outstanding in his name or jointly with others at the date of his death. May the
bank holding the deposit refuse to comply on the ground of the Secrecy of Bank Deposit
Law? Explain. (8%)

SUGGESTED ANSWER:

No. The Commissioner of Internal Revenue has the authority to inquire into bank
deposit accounts of a decedent to determine his gross estate notwithstanding the
provisions of the Bank Secrecy Law. Hence, the banks holding the deposits in
question may not refuse to disclose the amount of deposits on the ground of secrecy
of bank deposits. (Section 6(F) of the 1997 Tax Code). The fact that the deposit
is a joint account will not preclude the Commissioner from inquiring thereon
because the law mandates that if a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with another, it shall not
allow any withdrawal from the said deposit account, unless the Commissioner has
certified that the taxes imposed thereon have been paid. (Section 97 of the
1997 Tax Code). Hence, to be able to give the required certification, the inclusion of
the deposit is imperative, which may be made possible only through the inquiry
made by the Commissioner.

SEC. 6. Power of the Commissioner to Make assessments and Prescribe additional Requirements
for Tax Administration and Enforcement.
(A) Examination of Returns and Determination of Tax Due - After a return has been filed as
required under the provisions of this Code, the Commissioner or his duly authorized
representative may authorize the examination of any taxpayer and the assessment of the correct
amount of tax: Provided, however; That failure to file a return shall not prevent the
Commissioner from authorizing the examination of any taxpayer

Any return, statement of declaration filed in any office authorized to receive the same shall not
be withdrawn: Provided, That within three (3) years from the date of such filing, the same may
be modified, changed, or amended: Provided, further, That no notice for audit or investigation
of such return, statement or declaration has in the meantime been actually served upon the
taxpayer.
(B) Failure to Submit Required Returns, Statements, Reports and other Documents - When a
report required by law as a basis for the assessment of any national internal revenue tax shall
not be forthcoming within the time fixed by laws or rules and regulations or when there is
reason to believe that any such report is false, incomplete or erroneous, the Commissioner shall
assess the proper tax on the best evidence obtainable.

In case a person fails to file a required return or other document at the time prescribed by law,
or willfully or otherwise files a false or fraudulent return or other document, the Commissioner
shall make or amend the return from his own knowledge and from such information as he can
obtain through testimony or otherwise, which shall be prima facie correct and sufficient for all
legal purposes.

(C) Authority to Conduct Inventory-taking, surveillance and to Prescribe Presumptive Gross Sales
and Receipts - The Commissioner may, at any time during the taxable year, order inventory-
taking of goods of any taxpayer as a basis for determining his internal revenue tax liabilities, or
may place the business operations of any person, natural or juridical, under observation or
surveillance if there is reason to believe that such person is not declaring his correct income,
sales or receipts for internal revenue tax purposes.

The findings may be used as the basis for assessing the taxes for the other months or quarters of
the same or different taxable years and such assessment shall be deemed prima facie correct.

When it is found that a person has failed to issue receipts and invoices in violation of the
requirements of Sections 113 and 237 of this Code, or when there is reason to believe that the
books of accounts or other records do not correctly reflect the declarations made or to be made
in a return required to be filed under the provisions of this Code, the Commissioner, after
taking into account the sales, receipts, income or other taxable base of other persons engaged in
similar businesses under similar situations or circumstances or after considering other relevant
information may prescribe a minimum amount of such gross receipts, sales and taxable base,
and such amount so prescribed shall be prima facie correct for purposes of determining the
internal revenue tax liabilities of such person.

(D) Authority to Terminate Taxable Period - When it shall come to the knowledge of the
Commissioner that a taxpayer is retiring from business subject to tax, or is intending to leave
the Philippines or to remove his property therefrom or to hide or conceal his property, or is
performing any act tending to obstruct the proceedings for the collection of the tax for the past
or current quarter or year or to render the same totally or partly ineffective unless such
proceedings are begun immediately, the Commissioner shall declare the tax period of such
taxpayer terminated at any time and shall send the taxpayer a notice of such decision, together
with a request for the immediate payment of the tax for the period so declared terminated and
the tax for the preceding year or quarter, or such portion thereof as may be unpaid, and said
taxes shall be due and payable immediately and shall be subject to all the penalties hereafter
prescribed, unless paid within the time fixed in the demand made by the Commissioner.
(E) Authority of the Commissioner to Prescribe Real Property Values - The Commissioner is
hereby authorized to divide the Philippines into different zones or areas and shall, upon
consultation with competent appraisers both from the private and public sectors, determine the
fair market value of real properties located in each zone or area.

For purposes of computing any internal revenue tax, the value of the property shall be,
whichever is the higher of:
1. the fair market value as determined by the Commissioner, or
2. the fair market value as shown in the schedule of values of the Provincial and City
Assessors.

(F) Authority of the Commissioner to inquire into Bank Deposit Accounts - Notwithstanding any
contrary provision of Republic Act No. 1405 and other general or special laws, the
Commissioner is hereby authorized to inquire into the bank deposits of:
1. A decedent to determine his gross estate; and
2. Any taxpayer who has filed an application for compromise of his tax liability under Sec. 204
(A) (2) of this Code by reason of financial incapacity to pay his tax liability.

In case a taxpayer files an application to compromise the payment of his tax liabilities on his
claim that his financial position demonstrates a clear inability to pay the tax assessed, his
application shall not be considered unless and until he waives in writing his privilege under
Republic Act No. 1405 or under other general or special laws, and such waiver shall constitute
the authority of the Commissioner to inquire into the bank deposits of the taxpayer.

(G) Authority to Accredit and Register Tax Agents - The Commissioner shall accredit and register,
based on their professional competence, integrity and moral fitness, individuals and general
professional partnerships and their representatives who prepare and file tax returns,
statements, reports, protests, and other papers with or who appear before, the Bureau for
taxpayers.

Within one hundred twenty (120) days from January 1, 1998, the Commissioner shall create
national and regional accreditation boards, the members of which shall serve for three (3)
years, and shall designate from among the senior officials of the Bureau, one (1) chairman and
two (2) members for each board, subject to such rules and regulations as the Secretary of
Finance shall promulgate upon the recommendation of the Commissioner.

Individuals and general professional partnerships and their representatives who are denied
accreditation by the Commissioner and/or the national and regional accreditation boards may
appeal such denial to the Secretary of Finance, who shall rule on the appeal within sixty (60)
days from receipt of such appeal.

Failure of the Secretary of Finance to rule on the Appeal within the prescribed period shall be
deemed as approval of the application for accreditation of the appellant.
(H) Authority of the Commissioner to Prescribe Additional Procedural or Documentary
Requirements - The Commissioner may prescribe the manner of compliance with any
documentary or procedural requirement in connection with the submission or preparation of
financial statements accompanying the tax returns.

SEC. 7. Authority of the Commissioner to Delegate Power - The Commissioner may delegate the powers
vested in him under the pertinent provisions of this Code to any or such subordinate officials with the
rank equivalent to a division chief or higher, subject to such limitations and restrictions as may be
imposed under rules and regulations to be promulgated by the Secretary of finance, upon recommendation
of the Commissioner: Provided, however, That the following powers of the Commissioner shall not be
delegated:
(a) The power to recommend the promulgation of rules and regulations by the Secretary of
Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing
ruling of the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax
liability: Provided, however, That assessments issued by the regional offices involving
basic deficiency taxes of Five hundred thousand pesos (P500,000) or less, and minor
criminal violations, as may be determined by rules and regulations to be promulgated by
the Secretary of finance, upon recommendation of the Commissioner, discovered by
regional and district officials, may be compromised by a regional evaluation board which
shall be composed of the Regional Director as Chairman, the Assistant Regional Director,
the heads of the Legal, Assessment and Collection Divisions and the Revenue District
Officer having jurisdiction over the taxpayer, as members; and
(d) The power to assign or reassign internal revenue officers

Substantive remedies

Kinds of substantive remedies:

1. Imposition of withholding tax on certain income payments
2. Issuance of revenue regulations by administrative agency
3. Failure to obey summons is subject to penalty
4. Any declaration, return and other statements required under the tax code, shall, in lieu of an oath,
contain a written statement that they are made under the penalties of perjury.
5. The interpretation given by an administrative officer charged by reason of his office to carry out
the provisions of a statue should be respected whenever such interpretation is assailed by
someone who alleges no reasons of weight to contradict or weaken it.
6. The principle of legislative approval of administrative interpretation of a statue is to the effect
that the re-enactment of a statue substantially unchanged is persuasive indication of the adoption
by the congress of a prior executive construction
 ASSESSMENT and Protest

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly authorized
representative finds that proper taxes should be assessed, he shall first notify the taxpayer of his
findings: Provided, however, That a pre-assessment notice shall not be required in the following
cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation
of the tax as appearing on the face of the return; or
(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax
for a taxable period was determined to have carried over and automatically applied the same
amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the
succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons.

The taxpayers shall be informed in writing of the law and the facts on which the assessment is
made; otherwise, the assessment shall be void.

Within a period to be prescribed by implementing rules and regulations, the taxpayer shall be
required to respond to said notice.

If the taxpayer fails to respond, the Commissioner or his duly authorized representative shall issue
an assessment based on his findings.

Such assessment may be protested administratively by filing a request for reconsideration or

reinvestigation within thirty (30) days from receipt of the assessment in such form and manner as
may be prescribed by implementing rules and regulations.

Within sixty (60) days from filing of the protest, all relevant supporting documents shall have been
submitted; otherwise, the assessment shall become final.

If the protest is denied in whole or in part, or is not acted upon within one hundred eighty (180)
days from submission of documents, the taxpayer adversely affected by the decision or inaction
may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the said decision, or
from the lapse of one hundred eighty (180)-day period; otherwise, the decision shall become final,
executory and demandable.

Assessment
It is the notice to the effect that the amount therein stated is due from a taxpayer as a tax with a demand
for payment of the same within a stated period of time.
Forms of assessments:
1. Formal assessment notice
2. Informal notice

When may an assessment be made:

1. Taxes shall be assessed within 3 years after the last day prescribed by law for the filing of the
return and no proceeding in court without assessment for the collection of such taxes shall be
begun after the expiration of such period
2. In case where a return is filed beyond the period prescribed by law, the 3 year period shall be
counted from the day the return was filed.
3. In the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or
omission:

General Rule:
Tax collection cannot be enjoined by court injunction. Tax Code provides that no court shall have the
authority to grant an injunction to restrain the collection of any national internal revenue tax, fee or charge
imposed by this Code. (Sec. 18, NIRC)

Exception:
An injunction that may be issued by the CTA in aid of its appellate jurisdiction under RA 1125

Note:
An assessment made by the government is presumed to be correct and the burden of proof is on the
taxpayer contesting the validity or correctness of an assessment to prove that the CIR is wrong and the
taxpayer is correct.

Note:
An assessment is issued by the BIR based on findings of fact and/or law. The failure to state the factual
and legal basis of an assessment will render the same void.

Note:
The assessment process usually starts with the self-assessment by the taxpayer of his tax liability, filing of
the tax return, and payment of the entire tax due shown on his return

Means Employed in the Assessment of Taxes (Sec. 6, CTRP) (Key: BETI-PPEA)

1. Use of the best evidence obtainable
2. Examination of tax returns
3. Termination of taxable period
4. Inventory taking, surveillance and use of presumptive gross sales and receipts
5. Prescription of real property values
6. Prescription of additional procedural or documentary requirements.
7. Examination of bank deposits to determine the correct amount of the gross estate
 8. Accreditation and registration of tax agents.

Role of the government in assessment process:

1. Examination of books of accounts and other accounting records of taxpayer by revenue officers to
determine correct tax liability.
2. Preparation of tentative findings
3. Issuance of preliminary assessment notice
4. Issuance of formal assessment notice

Note:
As a general rule internal revenue taxes are self-assessing and no further assessment by the government is
required to create tax liability The taxpayer himself assesses his liability, files the tax return and pays the
tax within the prescribed rates. The collection of the unpaid taxes reflected in the self-assessed return may
be collected without the need of issuing an assessment since the government adopts the assessment made
by the taxpayer.

However the following instances require an assessment notice to be made by the government in order to
establish tax liability of a tax payer:
1. Instances mentioned in sec 6 (d)
2. Deficiency tax liability arising from a tax audit conducted by the BIR
3. Instances where a tax lien is effected
4. In instances where a corporation is being or will be dissolved.

Examination of books of accounts and other accounting records of taxpayer by revenue officers to
determine correct tax liability.

Note:
Letter of Authority must be served to the concerned taxpayer within thirty (30) days from its date of
issuance otherwise it hall be null and void. Revenue officer is allowed only 120 days from the date of
receipt of a letter of authority by the taxpayer to conduct the audit and submit the required report of
investigation.

Who may issue letter of authority?

After a return has been filed, the commissioner or his duly authorized representative may authorize the
examination of the books of any taxpayer and the assessment of the correct amount tax. (Sec. 6, NIRC)
The Revenue Regional Director shall approve and sign all LAs for all audit cases within his regional
jurisdiction, EXCEPT
1. cases involving civil or criminal tax fraud under the jurisdiction of the tax fraud division of the
enforcement service;
2. policy cases under audit by Special Teams in the National Office. (RAMO 36-99)

Note:
If the taxpayer does not submit the documents or information requested by the BIR, the person may be
required to testify or the document may be summoned and required to be presented to the BIR
Q. Can the BIR issue LOA more than once within a taxable year?
A. No. BIR officer are allowed to issue LOA only once. EXCEPT:
1. When BIR determines that there is fraud or irregularities was committed by taxpayer
2. Taxpayer itself request for an examination of his accounts
3. When there is a need to verify the withholding taxes required by the BIR.
4. When capital gains tax must be verified.

Power of the Commissioner to assess deficiency tax based on best evidence obtainable
Sec. 6B of R.A. 8424 empowers the Commissioner to assess the proper tax and make or amend the return
based on the best evidence obtainable (from his own knowledge and from such information as he can
obtain through testimony or otherwise) when:
1. a report required by law as a basis for the assessment of any national internal revenue tax shall
not be forthcoming within the time fixed by laws or rules and regulations; or
2. there is reason to believe that any such report is
a. false
b. incomplete
c. erroneous.
The return made by the Commissioner, in this instance, shall be prima facie correct and sufficient for all
legal purposes.

Doctrine of best evidence obtainable

This doctrine is embodied in sec 6 (B) of the NIRC which in essence allows the CIR or his duly
authorized representative to use any evidence he may obtain to determine the amount the taxpayer will be
assessed. This may be availed of in instances where the taxpayer is reluctant or hesitant to provide
documents or records required by law to be presented to the BIR or in cases where there is reason to
believe that the information embodied in such documents are incorrect or fraudulent. The assessment of
the BIR based on the evidence presented is presumed prima facie correct.

Procedure Preparation of tentative findings stage

1. Soon after the completion of the tax audit the revenue officer will render a written report stating
therein the factual and legal basis of his findings and whether or not the taxpayer agrees with his
findings
2. If the taxpayer is not amenable, the taxpayer shall be informed in writing by the Revenue District
Officer of by the Chief of the Division of the discrepancies in the taxpayers liability for the
purpose of informal conference, in order to afford the taxpayer with an opportunity to present his
side of the case.
3. If the taxpayer fails to respond within 15 days from date of receipt of the notice for informal
conference, he shall be considered in default
4. In such a case, the Revenue District Officer of the Chief of the Division shall endorse the case to
the Assessment Division for review and issuance of deficiency tax assessment, if warranted.
Note:
As a general rule the government is not estopped to collect taxes by reason of the incorrect determination
of its officials. However the CIR is precluded from adopting a position inconsistent with one previously
taken where injustice would result therefrom or where there has been misrepresentation to the tax payer.

Issuance of preliminary assessment notice (PAN)

Rules:
1. If after review and evaluation by the assessment division or by the CIR or his duly authorized
representative, it is determined that there exist sufficient basis to assess the taxpayer deficiency
taxes.
2. The assessment division or the CIR or his duly authorized representative shall forthwith issue to
the taxpayer, at least by registered mail a PAN for the proposed assessment is based.
3. If the taxpayer fails to respond within 15 days from date of receipt of the PAN. He shall be
considered in default in which case a formal letter of demand and assessment notice shall be
caused to be issued, calling for payment of the deficiency inclusive of applicable penalties

5 Instances wherein PAN is NO longer required:

1. When the finding for any deficiency tax is the result of mathematical error in the computation of
the tax appearing on the face of the tax return filed by the taxpayer;
2. when a taxpayer who opted to claim a refund or tax credit of excess creditable withholding tax for
a taxable period was determined to have carried over and automatically applied the same amount
claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding
taxable year;
3. when a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent;
4. when an excise tax due on excisable articles has not been paid; or
5. when an article locally purchased of imported by an exempt person, such as, but not limited to
vehicles, capital equipment, machineries, and spare parts, has been sold, treated or transferred to
non-exempt persons.

Reply
If the taxpayer contests the a contents of the proposed assessment he shall answer by means of a reply
setting forth in writing the findings of the revenue officers contained in a PAN and his arguments and the
basis thereof.

Reply vs protest
1. A reply is made in response of a PAN, whereas a protest is made in contesting a FAN.
2. A TX is generally given under the regulations 15 fays from the date of receipt of the PAN within
which to make his written reply thereto, while in a protest the TX is given 30 days to file a protest
3. Due to the shorter time given to the TX to make a reply, a TX generally does not respond in an
adequate manner whereas in a protest is usually sufficient and comprehensive to explain the legal
and factual bases why the assessment is in correct.
 4. Failure to reply to a PAN makes the TX in default and authorizes the revenue official to issue a
FAN.

Issuance of formal assessment notice

It is a formal letter of demand and assessment notice issued by the Regional assessment Division, or any
other concerned BIR office, informing a taxpayer who has been audited of the findings of the BIR officer
following the review of these findings. It must show in detail the facts and law on which the proposed
assessment is based, otherwise its fatal to BIR.

Note
If the taxpayer disagrees with the findings stated in the PAN, he shall then have 15 days from his receipt
of the PAN to file a written reply contesting the proposed assessment.

Note:
The FAN must be sent by registered mail however if personally delivered to the TX or to his authorized
representative. The TX or his duly authorized representative shall acknowledge receipt thereof in the
duplicate copy of the letter of demand showing the following:
1. His name
2. Signature
3. Designation and authority to act for and in behalf of the TX if received by a person other than the
TX
4. Date of receipt thereof.

Note:
If the TX disagrees with the final assessment he must file a protest within 30 days from receipt of the
assessment otherwise the assessment shall become final and executory.

TAX ASSESSMENT
It is the official action of an officer authorized by law in ascertaining the amount of tax due under the law
from a taxpayer. This action necessarily involves:
1. the computation of the sum due;
2. giving notice to that effect to the taxpayer; and
3. the making, simultaneously with or sometime after the giving of notice, of a demand upon him
for the payment of the tax deficiency stated.

Note
Assessment contains not only computation of tax liabilities but also a demand for payment within a
prescribed period. [CIR vs. PASCOR, 309 SCRA 402]

Note:
Notice of assessment is presumed valid. If the taxpayer contested such a determination, the burden of
proving the determination wrong, together with the corresponding burden of first going forward with
evidence, is on the taxpayer. [ Cyanamid Philippines, Inc. vs. CA, 322 SCRA 639]
Q. When is an assessment deemed made?
An assessment is deemed made only when the collector of internal revenue releases, mails, or sends such
notice to the taxpayer regardless whether the taxpayer received the notice within the prescriptive period.
[Basilan Estates, Inc. vs. CIR, 21 SCRA 17]

Note:
In order for the presumption of receipt to arise the following facts must be present:
1. The letter was properly addressed with postage prepaid
2. The fact that the assessment has been mailed.

POWER TO COLLECT:

Instances where a TX is considered Delinquent:

1. When the self-assessed tax per return filed on the prescribed date was not paid at all or was only
partially paid, or
2. The deficiency tax assessed by the BIR became final and executory.

Instances there is a Deficiency tax

1. The amount by which the income tax as determined by the BIR exceeds the amount shown as tax
per return, or
2. If no amount is shown or if no return is made, then the amount by which the tax as determined by
the BIR exceeds the amounts previously assessed (or collected without assessment) as a
deficiency

Delinquency Deficiency
Failure to pay the tax due on the date fixed by law The amount still due and collectible from a
or indicated in the assessment notice or letter of taxpayer upon audit or investigation.
demand

Delinquent Tax Return (1998)

When is a revenue tax considered delinquent? [3%)

SUGGESTED ANSWER:

A revenue tax is considered delinquent when it is unpaid after the lapse of the last day
prescribed by law for its payment. Likewise, it could also be considered as
delinquent where an assessment for deficiency tax has become final and the taxpayer has not
paid it within the period given in the notice of assessment.

Distinction between remedies in collection of deficiency tax and delinquency tax

1. A delinquent tax can immediately be collected administratively through the issuance of the
warrant of distraint and levy, and/or judicial action, while a deficiency tax can be collected also
 through administrative and/or judicial remedies but it has to go through the process of filing the
protest against the assessment by the taxpayer
2. The filing of a civil action for collection of the delinquent tax in the ordinary court is a proper
remedy, while the filing of a civil action at the ordinary court for the collection of a deficiency tax
during the pendency of the protest may be subject of a motion to dismiss. In addition, a petition
or review must be filed with the CTA within the 30 days to toll the running of the prescriptive
period.

If the TX does not agree with the FAN he may question the same in accordance with the following
process:
1. He must file an administrative protest against the assessment within 30 days from the date of
receipt of the assessment
a. if there are several issues involved in the FAN but the TX only disputes or protests
against the validity of some of the issues raised, the TX shall be required to pay the
deficiency tax or rates attributable to the undisputed issues, in which case, a collection
letter shall be issued to the taxpayer calling for payment of the said deficiency tax,
inclusive of the applicable surcharge and/or interest. NO ACTION shall be taken on the
TX disputed issues until the TX has paid the deficiency tax or taxes attributable to the
said undisputed issues.
b. The prescriptive period for assessment or collection of the tax or taxes attributable to the
disputed issues shall be suspended.
c. The TX must state the facts, the applicable law, rules and regulations, or jurisprudence on
which his protest is based otherwise his protest shall be considered void and without
force and effect.
d. If the TX disputes some or all of the issues raised in the FAN but only provides for facts
and law relied upon with respect to some of the issues, those which he did not provide for
arguments and supporting facts and law shall be DEEMED undisputed, hence he shall be
liable to pay for the same
e. Failure to file a protest within the protest period shall render the FAN final and
executory.
2. Submission of documentary evidence and arguments
a. Within 60 days from date of filing of protest
b. Failure to submit would render the assessment final, executory and demandable
3. Denial of protest
a. The taxpayer may appeal to the Court of Tax Appeals (CTA) within 30 days from date of
receipt of the decision
b. Otherwise, the assessment shall become final, executory and demandable
4. Inaction of the CIR
a. Failure to act on the protest within 180 days from date of submission of the required
documents would give rise to the right of the taxpayer to appeal
b. The appeal should be made within 30 days from the lapse of the said 180-day period
c. Otherwise, the assessment shall become final, executory and demandable.
Forms of protest:
1. Request for reconsideration, where the protest is anchored on documents, arguments and legal
authorities already submitted or presented to the BIR
2. Request for reinvestigation, where the protest is grounded on new or additional evidence not yet
submitted to the BIR.

Requirements for a protest to suspend the running of the prescriptive period:

1. It must be valid,
2. It must be coupled with the written waiver of the statute of limitations duly signed by the TX and
the CIR or his authorized representative

Note:
The when to file an appeal:
1. Within 30 days after denial full or partial by the CIR of his protest
2. In case the CIR has not decided his protest he has 2 options:
a. Within 30 days after expiration of the 180 days counted from the submission of the
complete set of documents; or
b. Even if after the 180 days, he can wait for the decision of the CIR and appeal the same to
the CTA within 30 days therefrom

Note:
Perfection of an appeal with the CTA shall not suspend the administrative remedies availed of by the
government. However the CTA is duly authorized to issue injunctions when warranted.

Taxpayer; Assessment; Deficiency Tax (2006)

On June 1, 2003, Global Bank received a final notice of assessment from the BIR for
deficiency documentary stamp tax in the amount of P5 Million. On June 30, 2003, Global Bank
filed a request for reconsideration with the Commissioner of Internal Revenue. The
Commissioner denied the request for reconsideration only on May 30, 2006, at the same
time serving on Global Bank a warrant of distraint to collect the deficiency tax. If you were
its counsel, what will be your advice to the bank? Explain. (5%)

ALTERNATIVE ANSWER:

The denial for the request for reconsideration is the final decision of the CIR.. I would advise
Global Bank to appeal the denial to the Court of Tax Appeals (CTA) within 30 days
from receipt. I will further advise the bank to file a motion for injunction with the Court of
Tax Appeals to enjoin the Commissioner from enforcing the assessment pending resolution
of the appeal. While an appeal to the CTA will not suspend the payment, levy, distraint,
and/or sale of any property of the taxpayer for the satisfaction of its tax liability, the CTA is
authorized to give injunctive relief if the enforcement would jeopardize the interest of the
taxpayer, as in this case, where the assessment has not become final (Lascona Land Co.
 v,CIR, CTA Case No. 5777, January 4, 2000; See also Revised CTA Rules, approved by the
Supreme Court on December 15, 2005).

ALTERNATIVE ANSWER:

I will advice the Bank to promptly pay the deficiency documentary stamp tax and the
interest charges to avoid any further increase in the tax liability. The Bank should have appealed
to the Court of Tax Appeals when the BIR failed to decide on its Request for Reconsideration
within thirty (30) days after the inaction of the BIR for one hundred eighty (180) days or
on December 31, 2003. The Tax Assessment has already become final, executory and
unappealable at that point (BPI v. CIR, G.R. No. 139736, October 17, 2005).

Taxpayer: Assessment; Injunction (2004)

RR disputed a deficiency tax assessment and upon receipt of an adverse decision by the
Commissioner of Internal Revenue, filed an appeal with the Court of Tax Appeals. While the
appeal is pending, the BIR served a warrant of levy on the real properties of RR to enforce the
collection of the disputed tax. Granting arguendo that the BIR can legally levy on the
properties, what could RR do to stop the process? Explain briefly. (5%)

SUGGESTED ANSWER:

RR should file a motion for injunction with the Court of Tax Appeals to stop the administrative
collection process. An appeal to the CTA shall not suspend the enforcement of the tax liability,
unless a motion to that effect shall have been presented in court and granted by it on the basis
that such collection will jeopardize the interest of the taxpayer or the Government (Pirovano
v. CIR, 14 SCRA 832 [1965]).

The CTA is empowered to suspend the collection of internal revenue taxes and customs
duties in cases pending appeal only when: (1) in the opinion of the court the collection by
the BIR will jeopardize the interest of the Government and/or the taxpayer; and (2) the
taxpayer is willing to deposit the amount being collected or to file a surety bond for not more
than double the amount of the tax to be fixed by the court (Section 11, JR.A. No. 1125).

Note:
Denial of a protest or an MR may be direct or indirect. What is controlling is whether the response given
by the BIR clearly indicates its intention to collect the taxes despite the arguments presented in the protest
and that there is no other correspondence or notice which would indicate otherwise. The reglementary
period begins upon receipt of the indirect notice of denial of the protest.

Taxpayer; Appeal to the Court of Tax Appeals (2005)

A taxpayer received a tax deficiency assessment of P1.2 Million from the BIR demanding
payment within 10 days, otherwise, it would collect through summary remedies. The
 taxpayer requested for a reconsideration stating the grounds therefor. Instead of resolving
the request for reconsideration, the BIR sent a Final Notice before Seizure to the
taxpayer.

May this action of the Commissioner of Internal Revenue be deemed a denial of the request for
reconsideration of the taxpayer to entitle him to appeal to the Court of Tax Appeals? Decide
with reasons. (5%)

SUGGESTED ANSWER:

Yes, the final notice before seizure was in effect a denial of the taxpayer's request for
reconsideration, not only was the notice the only response received, its nature, content and tenor
supports the theory that it was the BIR's final act regarding the request for reconsideration.
(CIR v. Isabela Cultural Corporation, G.R. No. 135210, July 11, 2001)

Administrative remedies of the Government

Administrative remedies of the government:

1. Tax lien
2. Distraint of personal property, or levy of property, or garnishment of bank deposits
3. Sale of property
4. Forfeiture
5. Compromise agreement and abatement
6. Penalties and fines
7. Suspension of business operations

Judicial Remedies:
1. Civil actions
2. Criminal action

SEC. 219. Nature and Extent of Tax Lien. - If any person, corporation, partnership, joint-account
(cuentas en participacion), association or insurance company liable to pay an internal revenue tax,
neglects or refuses to pay the same after demand, the amount shall be a lien in favor of the
Government of the Philippines from the time when the assessment was made by the Commissioner
until paid, with interests, penalties, and costs that may accrue in addition thereto upon all property
and rights to property belonging to the taxpayer: Provided, That this lien shall not be valid against
any mortgagee purchaser or judgment creditor until notice of such lien shall be filed by the
Commissioner in the office of the Register of Deeds of the province or city where the property of the
taxpayer is situated or located.

Tax Lien
It is understood to denote a legal claim or charge on property, either personal as security for the payment
of some debt or obligation.
Rules:
1. The levy shall affect all the properties and rights to property belonging to the taxpayer
2. It shall not cover properties belonging to another
3. The lien shall not be valid against any mortgagee, purchaser or judgment creditor until notice of
such lien has been filed with the RD
4. Once filed it shall be superior to the claim of a private litigant and shall be given preference over
all other claims.
5. The tax lien shall attach not only from the service of the warrant of distraint of personal property
but from the time the tax became due and payable.
6. It shall cover the unpaid tax with interests, penalties, and costs that may accrue.

BIR: Unpaid Taxes vs. Claims for Unpaid Wages (1995)

For failure of Oceanic Company, Inc. (OCEANIC), to pay deficiency taxes of P20 Million,
the Commissioner of Internal Revenue issued warrants of distraint on OCEANIC's
personal properties and levied on its real properties. Meanwhile, the Department of Labor
through the Labor Arbiter rendered a decision ordering OCEANIC to pay unpaid
wages and other benefits to its employees. Four barges belonging to OCEANIC were levied
upon by the sheriff and later sold at public auction.

The Commissioner of Internal Revenue filed a motion with the Labor Arbiter to annul
the sale and enjoin the sheriff from disposing the proceeds thereof. The employees
of OCEANIC opposed the motion contending that Art. 110 of the Labor Code gives first
preference to claims for unpaid wages.

Resolve the motion. Explain.

SUGGESTED ANSWER:

The motion filed by the Commissioner should be granted because the claim of the government
for unpaid taxes are generally preferred over the claims of laborers for unpaid wages. The
provision of Article 110 of the Labor Code, which gives laborers' claims for preference
applies only in case of bankruptcy or liquidation of the employer's business. In
the instant case, Oceanic is not under bankruptcy or liquidation at the time the
warrants of distraint and levy were issued hence, the opposition of the employees is
unwarranted. (CIR vs. NLRC et al G.R. No. 74965, November 9, 1994).

Distraint and/or levy

SEC. 207. Summary Remedies.

(A) Distraint of Personal Property. - Upon the failure of the person owing any delinquent tax or
delinquent revenue to pay the same at the time required, the Commissioner or his duly
authorized representative, if the amount involved is in excess of One million pesos
 (P1,000,000), or the Revenue District Officer, if the amount involved is One million pesos
(P1,000,000) or less, shall seize and distraint any goods, chattels or effects, and the personal
property, including stocks and other securities, debts, credits, bank accounts, and interests in
and rights to personal property of such persons ;in sufficient quantity to satisfy the tax, or
charge, together with any increment thereto incident to delinquency, and the expenses of the
distraint and the cost of the subsequent sale.

A report on the distraint shall, within ten (10) days from receipt of the warrant, be submitted
by the distraining officer to the Revenue District Officer, and to the Revenue Regional
Director: Provided, That the Commissioner or his duly authorized representative shall, subject
to rules and regulations promulgated by the Secretary of Finance, upon recommendation of
the Commissioner, have the power to lift such order of distraint: Provided, further, That a
consolidated report by the Revenue Regional Director may be required by the Commissioner
as often as necessary.

(B) Levy on Real Property.- After the expiration of the time required to pay the delinquent tax or
delinquent revenue as prescribed in this Section, real property may be levied upon, before
simultaneously or after the distraint of personal property belonging to the delinquent.

To this end, any internal revenue officer designated by the Commissioner or his duly
authorized representative shall prepare a duly authenticated certificate showing the name of
the taxpayer and the amounts of the tax and penalty due from him.

Said certificate shall operate with the force of a legal execution throughout the Philippines.

Levy shall be affected by writing upon said certificate a description of the property upon
which levy is made.

At the same time, written notice of the levy shall be mailed to or served upon the Register of
Deeds for the province or city where the property is located and upon the delinquent taxpayer,
or if he be absent from the Philippines, to his agent or the manager of the business in respect to
which the liability arose, or if there be none, to the occupant of the property in question.

In case the warrant of levy on real property is not issued before or simultaneously with the
warrant of distraint on personal property, and the personal property of the taxpayer is not
sufficient to satisfy his tax delinquency, the Commissioner or his duly authorized
representative shall, within thirty (30) days after execution of the distraint, proceed with the
levy on the taxpayer's real property.

Within ten (10) days after receipt of the warrant, a report on any levy shall be submitted by
the levying officer to the Commissioner or his duly authorized representative: Provided,
however, That a consolidated report by the Revenue Regional Director may be required by the
Commissioner as often as necessary: Provided, further, That the Commissioner or his duly
authorized representative, subject to rules and regulations promulgated by the Secretary of
 Finance, upon recommendation of the Commissioner, shall have the authority to lift warrants
of levy issued in accordance with the provisions hereof.

SEC. 208. Procedure for Distraint and Garnishment.

The officer serving the warrant of distraint shall make or cause to be made an account of the goods,
chattels, effects or other personal property distrained, a copy of which, signed by himself, shall be
left either with the owner or person from whose possession such goods, chattels, or effects or other
personal property were taken, or at the dwelling or place of business of such person and with
someone of suitable age and discretion, to which list shall be added a statement of the sum
demanded and note of the time and place of sale.

Stocks and other securities shall be distrained by serving a copy of the warrant of distraint upon
the taxpayer and upon the president, manager, treasurer or other responsible officer of the
corporation, company or association, which issued the said stocks or securities.
Debts and credits shall be distrained by leaving with the person owing the debts or having in his
possession or under his control such credits, or with his agent, a copy of the warrant of distraint.

The warrant of distraint shall be sufficient authority to the person owning the debts or having in his
possession or under his control any credits belonging to the taxpayer to pay to the Commissioner
the amount of such debts or credits.

Bank accounts shall be garnished by serving a warrant of garnishment upon the taxpayer and upon
the president, manager, treasurer or other responsible officer of the bank.

Upon receipt of the warrant of garnishment, the bank shall turn over to the Commissioner so much
of the bank accounts as may be sufficient to satisfy the claim of the Government.

Levy of real property

It is a remedy whereby the collection of delinquent taxes is enforced on the real property belonging to the
delinquent taxpayer.

Note:
Levy is effected by writing upon an authenticated certificate showing the name of the TX, the amounts of
the Tax and penalty due, and a description of the property upon which levy is made.

Note:
Real property may be levied upon before, simultaneously, or after the distraint of personal property
belonging to the delinquent.

Note:
Notice of levy must be given:
1. RD of the province or city where the property is located
2. The TX
 3. If the TX is absent or cannot be found to his agent or the manager of the business in respect to
which the liability arose,
4. If there be none, to the occupant of the property in question.

SEC. 206. Constructive Distraint of the Property of a Taxpayer. - To safeguard the interest of the
Government, the Commissioner may place under constructive distraint the property of a
delinquent taxpayer or any taxpayer who, in his opinion, is retiring from any business subject to
tax, or is intending to leave the Philippines or to remove his property therefrom or to hide or
conceal his property or to perform any act tending to obstruct the proceedings for collecting the tax
due or which may be due from him.

The constructive distraint of personal property shall be affected by requiring the taxpayer or any
person having possession or control of such property to sign a receipt covering the property
distrained and obligate himself to preserve the same intact and unaltered and not to dispose of the
same;in any manner whatever, without the express authority of the Commissioner.

In case the taxpayer or the person having the possession and control of the property sought to be
placed under constructive distraint refuses or fails to sign the receipt herein referred to, the
revenue officer effecting the constructive distraint shall proceed to prepare a list of such property
and, in the presence of two (2) witnessed, leave a copy thereof in the premises where the property
distrained is located, after which the said property shall be deemed to have been placed under
constructive distraint.

Distraint of personal property

It is a remedy whereby the collection of delinquent taxes is enforced on the goods, chattels or effect and
other personal property of whatever character of the TX, including stocks and other securities, debts,
credits, (Garnishment) bank accounts and interest in and rights to personal property

WHO may effect distraint?

1. Commissioner or his duly authorized representative if the amount involved is more than
P1,000,000.00
2. Revenue District Officer if the amount involved is P1,000,000.00 or less than

Requisites of distraint:
1. the taxpayer must be delinquent (except in constructive distraint) in the payment of tax;
2. there must be a subsequent demand for its payment (assessment);
3. the taxpayer fails to pay the tax at the time required; and
4. the period within which to assess or collect the tax has not yet prescribed.

Kinds of distraint of personal property:

1. actual distraint
2. constructive distraint
Actual Distraint
It is resorted to when at the time required for payment, a person fails to pay his delinquent tax obligation.
It consists in the actual seizure and taking possession of personal property of the TX

Procedure on actual distraint

1. Goods, effects, chattels and other personal property
a. Seizure of the personal property of sufficient value to cover tax liability
b. A copy of an account of the property distrained, signed by the officer, shall be left either
from the owner or the person from whom the property was taken or at the dwelling or
place of business of such person and with someone of suitable age and discretion
c. statement of the sum demanded
d. time and place of sale
2. Stocks and other Securities
a. serving a copy of the warrant upon the taxpayer AND upon the president, manager,
treasurer or other responsible officer of the issuing corporation, company, association
3. Debts and Credits
a. leaving a copy of the warrant with the person owing the debts or having in his possession
such credits or his agent
b. warrant shall be sufficient authority to pay the Commissioner the amount of such debts or
credits
4. Bank accounts (garnishment)
a. serve a warrant of garnishment upon the taxpayer AND upon the president, manger,
treasurer or other responsible officer of the bank
b. bank shall turn over to the Commissioner so much of the bank accounts as may be
sufficient (Sec. 208 NIRC)

Note:
Report on the Distraint by the distraining officer must be submitted within 10 days from receipt of the
warrant to the Revenue District Officer and to the Revenue Regional Director. The order of Distraint may
be lifted by the Commissioner or his representative (Sec. 207 A NIRC)

Constructive distraint
It is an administrative remedy given to the government once imposed shall prohibit the owner of a
personal property to preserve and not to alienate in whatever manner the property without express
authority from the CIR

Grounds for constructive distraint of property:

1. The TX is delinquent or
2. The CIR or the RDO is in the opinion that the TX:
a. is retiring from any business subject to tax,
b. is intending to leave the Philippines
c. to remove his property therefrom or
d. hide or conceal his property or
 e. perform any act tending to obstruct the proceedings for collecting the tax due or which
may be due from him

Process of constructive distraint of personal property

1. Require the taxpayer or any person having control of the property to:
a. sign a receipt covering property distrained
b. obligate himself to preserve the same intact and unaltered not to dispose of the property
in any manner, without the authority of the Commissioner
2. Where taxpayer or person in possession refuses to sign:
a. distraining officer shall prepare a list of the property distrained
b. in the presence of 2 witnesses, leave a copy in the premises where the property is located
(Sec. 206 NIRC)

Actual Distraint of personal property Constructive Distraint of property

Made only on the property of a delinquent taxpayer Made on the property of any taxpayer whether
delinquent or not

There is taking of possession The taxpayer is merely prohibited from disposing

of his property
Effected by leaving a list of distrained property or Effected by requiring the taxpayer to sign a receipt
by service of a warrant of distraint or garnishment of the property or by the revenue officer preparing
and leaving a list of such property
An immediate step for collection of taxes Not necessarily so.

Note:
Distraint and levy may be repeated as often as required to satisfy unpaid taxes and its corresponding
charges.

SEC. 217. Further Distraint or Levy. - The remedy by distraint of personal property and levy on
realty may be repeated if necessary until the full amount due, including all expenses, is collected.

Note:
The prescriptive period to collect taxes is suspended by initiating any of the process of collection, the SC
has held that the issuing of a warrant to levy or distraint property is sufficient to toll the prescriptive
period.

BIR: Summary Remedy: Estate Tax Deficiencies (1998)

Is the BIR authorized to collect estate tax deficiencies by the summary remedy of levy
upon and sale of real properties of the decedent without first securing the authority of
the court sitting in probate over the supposed will of the decedent?

SUGGESTED ANSWER:
 Yes. The BIR is authorized to collect estate tax deficiency through the summary remedy of
levying upon and sale of real properties of a decedent, without the cognition and authority
of the court sitting in probate over the supposed will of the deceased, because the collection of
estate tax is executive in character. As such the estate tax is exempted from the application of
the statute of non-claims, and this is justified by the necessity of government funding,
immortalized in the maxim that taxes are the lifeblood of the government (Marcos v. CIR, G.R.
No. 120880, June 5, 1997).

ALTERNATIVE ANSWER:

Yes, if the tax assessment has already become final, executory and enforceable. The
approval of the court sitting in probate over the supposed will of the deceased is not a
mandatory requirement for the collection of the estate tax. The probate court is determining
issues which are not against the property of the decedent, or a claim against the estate as
such, but is against the interest or property right which the heir, legatee, devisee, etc. has in
the property formerly held by the decedent. (Marcos v. CIR, G.R, No. 120880, June 5,
1997).

SEC. 209. Sale of Property Distrained and Disposition of Proceeds. - The Revenue District Officer
or his duly authorized representative, other than the officer referred to in Section 208 (comment:
garnishing or distraining officer) of this Code shall, according to rules and regulations prescribed
by the Secretary of Finance, upon recommendation of the Commissioner, forthwith cause a
notification to be exhibited in not less than two (2) public places in the municipality or city where
the distraint is made, specifying; the time and place of sale and the articles distrained.

The time of sale shall not be less than twenty (20) days after notice.

One place for the posting of such notice shall be at the Office of the Mayor of the city or
municipality in which the property is distrained.

At the time and place fixed in such notice, the said revenue officer shall sell the goods, chattels, or
effects, or other personal property, including stocks and other securities so distrained, at public
auction, to the highest bidder for cash, or with the approval of the Commissioner, through duly
licensed commodity or stock exchanges.

In the case of Stocks and other securities, the officer making the sale shall execute a bill of sale
which he shall deliver to the buyer, and a copy thereof furnished the corporation, company or
association which issued the stocks or other securities.

Upon receipt of the copy of the bill of sale, the corporation, company or association shall make the
corresponding entry in its books, transfer the stocks or other securities sold in the name of the
buyer, and issue, if required to do so, the corresponding certificates of stock or other securities.

Any residue over and above what is required to pay the entire claim, including expenses, shall be
returned to the owner of the property sold.
The expenses chargeable upon each seizure and sale shall embrace only the actual expenses of
seizure and preservation of the property pending; the sale, and no charge shall be imposed for the
services of the local internal revenue officer or his deputy

Sale of distrained property:

1. notification specifying the time and place of sale and the articles distrained shall be exhibited in
not less than 2 public places:
a. one place shall be at the office of the Mayor
b. in the municipality or city where the distraint is made
2. The time of sale shall not be less than 20 days after notice to the owner or possessor of the
property and the publication or posting of such notice
3. The property distrained shall be sold in a public auction, to the highest bidder or with the
approval of the Commissioner, through duly licensed commodity or stock exchanges.

SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior to the
consummation of the sale all proper charges are paid to the officer conducting the sale, the goods or
effects distrained shall be restored to the owner.

SEC. 211. Report of Sale to Bureau of Internal Revenue. - Within two (2) days after the sale, the
officer making the same shall make a report of his proceedings in writing to the Commissioner and
shall himself preserve a copy of such report as an official record.

SEC. 212. Purchase by Government at Sale Upon Distraint. - When the amount bid for the property
under distraint is not equal to the amount of the tax or is very much less than the actual market
value of the articles offered for sale, the Commissioner or his deputy may purchase the same in
behalf of the national Government for the amount of taxes, penalties and costs due thereon.

Property so purchased may be resold by the Commissioner or his deputy, subject to the rules and
regulations prescribed by the Secretary of Finance, the net proceeds therefrom shall be remitted to
the National Treasury and accounted for as internal revenue.

SEC. 213. Advertisement and Sale. - Within twenty (20) days after levy, the officer conducting the
proceedings shall proceed to advertise the property or a usable portion thereof as may be necessary
to satisfy the claim and cost of sale; and such advertisement shall cover a period of a least thirty
(30) days.

It shall be effectuated by posting a notice at the main entrance of the municipal building or city hall
and in public and conspicuous place in the barrio or district in which the real estate lies and; by
publication once a week for three (3) weeks in a newspaper of general circulation in the
municipality or city where the property is located.

The advertisement shall contain a statement of the amount of taxes and penalties so due and the
time and place of sale, the name of the taxpayer against whom taxes are levied, and a short
description of the property to be sold.
At any time before the day fixed for the sale, the taxpayer may discontinue all proceedings by paying
the taxes, penalties and interest.

If he does not do so, the sale shall proceed and shall be held either at the main entrance of the
municipal building or city hall, or on the premises to be sold, as the officer conducting the
proceedings shall determine and as the notice of sale shall specify.

Within five (5) days after the sale, a return by the distraining or levying officer of the proceedings
shall be entered upon the records of the Revenue Collection Officer, the Revenue District officer
and the Revenue Regional Director.

The Revenue Collection Officer, in consultation with the Revenue district Officer, shall then make
out and deliver to the purchaser a certificate from his records, showing the proceedings of the sale,
describing the property sold stating the name of the purchaser and setting out the exact amount of
all taxes, penalties and interest: Provided, however, That in case the proceeds of the sale exceeds the
claim and cost of sale, the excess shall be turned over to the owner of the property.

The Revenue Collection Officer, upon approval by the Revenue District Officer may, out of his
collection, advance an amount sufficient to defray the costs of collection by means of the summary
remedies provided for in this Code, including; the preservation or transportation in case of
personal property, and the advertisement and subsequent sale, both in cases of personal and real
property including improvements found on the latter.

In his monthly collection reports, such advances shall be reflected and supported by receipts.

Advertisement in case of sale of levied real property:

1. Advertisement of the time and place of sale of the taxpayers property or so much thereof as may
be necessary to satisfy the claim within 20 days after the levy, it shall cover a period of at least 30
days
a. Posting a notice at the main entrance of the municipal building or city hall and
b. In a public and conspicuous place in the barrio or district in which the real estate lies and
c. By publication once a week for 3 weeks in a newspaper of general circulation in the
municipality or city where the property is located.
2. Location of public auction to the highest bidder,
a. At the main entrance of the municipal building or city hall,
b. On the premises to be sold, as the officer conducting the proceedings shall determine and
as the notice shall specify
3. Disposition of proceeds of sale
a. In case the proceeds of the sale exceed the claim (taxes, penalties, and interest) and cost
of the sale, the excess shall be turned over to the owner of the property.
SEC. 214. Redemption of Property Sold. - Within one (1) year from the date of sale, the delinquent
taxpayer, or any one for him, shall have the right of paying to the Revenue District Officer the
amount of the public taxes, penalties, and interest thereon from the date of delinquency to the date
of sale, together with interest on said purchase price at the rate of fifteen percent (15%) per annum
from the date of purchase to the date of redemption, and such payment shall entitle the person
paying to the delivery of the certificate issued to the purchaser and a certificate from the said
Revenue District Officer that he has thus redeemed the property, and the Revenue District Officer
shall forthwith pay over to the purchaser the amount by which such property has thus been
redeemed, and said property thereafter shall be free form the lien of such taxes and penalties.

The owner shall not, however, be deprived of the possession of the said property and shall be entitled to
the rents and other income thereof until the expiration of the time allowed for its redemption.

SEC. 215. Forfeiture to Government for Want of Bidder. - In case there is no bidder for real
property exposed for sale as herein above provided or if the highest bid is for an amount
insufficient to pay the taxes, penalties and costs, the Internal Revenue Officer conducting the sale
shall declare the property forfeited to the Government in satisfaction of the claim in question and
within two (2) days thereafter, shall make a return of his proceedings and the forfeiture which shall
be spread upon the records of his office.

It shall be the duty of the Register of Deeds concerned, upon registration with his office of any such
declaration of forfeiture, to transfer the title of the property forfeited to the Government without
the necessity of an order from a competent court.

Within one (1) year from the date of such forfeiture, the taxpayer, or any one for him may redeem
said property by paying to the Commissioner or the latter's Revenue Collection Officer the full
amount of the taxes and penalties, together with interest thereon and the costs of sale, but if the
property be not thus redeemed, the forfeiture shall become absolute.

SEC. 216. Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge of any real
estate obtained by the Government of the Philippines in payment or satisfaction of taxes, penalties
or costs arising under this Code or in compromise or adjustment of any claim therefore, and said
Commissioner may, upon the giving of not less than twenty (20) days notice, sell and dispose of the
same of public auction or with prior approval of the Secretary of Finance, dispose of the same at
private sale.

In either case, the proceeds of the sale shall be deposited with the National Treasury, and an
accounting of the same shall rendered to the Chairman of the Commission on Audit.

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -
The Commissioner may -
(A) Compromise the Payment of any Internal Revenue Tax, when:
1. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.
 The compromise settlement of any tax liability shall be subject to the following minimum
amounts:

For cases of financial incapacity, a minimum compromise rate equivalent to ten percent
(10%) of the basic assessed tax; and (comment: amount payable is the 10%)

For other cases, a minimum compromise rate equivalent to forty percent (40%) of the basic
assessed tax.

Where the basic tax involved exceeds One million pesos (P1,000.000) or where the settlement
offered is less than the prescribed minimum rates, the compromise shall be subject to the
approval of the Evaluation Board which shall be composed of the Commissioner and the four
(4) Deputy Commissioners.

(B) Abate or Cancel a Tax Liability, when:

1. The tax or any portion thereof appears to be unjustly or excessively assessed; or
2. The administration and collection costs involved do not justify the collection of the amount
due.

All criminal violations may be compromised except:

a. those already filed in court, or
b. those involving fraud.

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without authority,
refund the value of internal revenue stamps when they are returned in good condition by the
purchaser, and, in his discretion, redeem or change unused stamps that have been rendered
unfit for use and refund their value upon proof of destruction.

No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment of
the tax or penalty: Provided, however, That a return filed showing an overpayment shall be
considered as a written claim for credit or refund.

A Tax Credit Certificate validly issued under the provisions of this Code may be applied
against any internal revenue tax, excluding withholding taxes, for which the taxpayer is directly
liable.

Any request for conversion into refund of unutilized tax credits may be allowed, subject to the
provisions of Section 230 (Comment: Forfeiture of Cash Refund and of Tax Credit) of this Code:
Provided, That the original copy of the Tax Credit Certificate showing a creditable balance is
surrendered to the appropriate revenue officer for verification and cancellation: Provided, further,
That in no case shall a tax refund be given resulting from availment of incentives granted pursuant
to special laws for which no actual payment was made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of both the
Senate and House of Representatives, every six (6) months, a report on the exercise of his powers
under this Section, stating therein the following facts and information, among others: names and
addresses of taxpayers whose cases have been the subject of abatement or compromise; amount
involved; amount compromised or abated; and reasons for the exercise of power: Provided, That
the said report shall be presented to the Oversight Committee in Congress that shall be constituted
to determine that said powers are reasonably exercised and that the government is not unduly
deprived of revenues.

Compromise
A contract whereby the parties by reciprocal concessions, avoid litigation or put an end to one already
commenced.

Requisites:
1. the taxpayer must have a tax liability;
2. there must be acceptance (by the Commissioner or taxpayer as the case may be) of the offer in the
settlement of the original claim;
3. there must be an offer (by the taxpayer of an amount to be paid by him)

Officers authorized to compromise:

1. Commissioner of Internal Revenue is the only official vested with such power and discretion;
2. Subordinate officials may preliminarily enter into compromise. The effects are:
a. acceptance of an offer of compromise: not final and may be reviewed by the
Commissioner;
b. rejection of an offer of compromise: final and binding unless revoked or set aside by the
Commissioner.

Grounds to compromise (civil cases)

1. When a reasonable doubt as to the validity of the claim against the taxpayer exists;
2. When the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

Limitation as to amount of:

1. In case of financial incapacity: 10% of the basic assessed tax
2. Other cases: 40% of the basic assessed tax

The approval of the Evaluation Board (composed of the CIR and the Deputy Commissioners) is required
when:
1. The basic tax involved exceeds Php1,000,000; or
2. The settlement offered is less than the MCR

Note: The MCR may be less than the prescribed rates of 10% or 40%, as the case may be, provided it is
approved by the Evaluation Board
Limitation as to coverage:
1. With respect to the liability of the taxpayer for surcharges as their imposition is mandatory
2. In cases finally decided by the courts

Compromise in criminal violations can be compromised except:

1. those already filed in court
2. those involving fraud.

Extent of discretion:
1. before the complaint is filed with the prosecutors office, the Commissioner has full discretion to
compromise except those involving fraud
2. After the complaint is filed with the prosecutors office but before the information is filed with
the court, the Commissioner can still compromise provided the prosecutor consented;
3. after the information is filed with the court, the Commissioner is no longer permitted to
compromise with or without the consent of the prosecutor.

Remedies when taxpayer refuses or fails to abide by a tax compromise:

1. enforce the compromise
a. judicial compromise can be enforced by mere execution
b. extrajudicial can only be enforced by court action
2. regard it as rescinded and insists upon original demand (Art. 2041, NCC)

Compromise penalty
It is a mutual agreement between the taxpayer and the government where the former agrees to pay a
certain amount of money, as to compromise a tax violation that may be subject of criminal prosecution

Compromise Penalty:
An amount which the taxpayer pays to compromise a tax violation
Paid in lieu of criminal prosecution
A taxpayer cannot be compelled to pay a compromise penalty
If he does not want to pay, the CIR must institute a criminal action.

Abatement
Cancellation of the tax liability

Grounds:
1. When the tax assessed or any portion thereof appears to be unjustly or excessively demanded, or
2. When the administration and collection costs involved do not justify the collection of the amount
due

GEN RULE:
the power to compromise and abate cannot be delegated by the CIR

EXCEPT:
 1. assessments issued by regional offices involving basic taxes of Php500,000 or less;
2. minor criminal violations.
BIR; Compromise (2005)

State and discuss briefly whether the following cases may be compromised or may not be
compromised:
a) Delinquent accounts;
b) Cases under administrative protest, after issuance of the final assessment notice to the
taxpayer, which are still pending;
c) Criminal tax fraud cases;
d) Criminal violations already filed in court;
e) Cases where final reports of reinvestigation or reconsideration have been issued
resulting in the reduction of the original assessment agreed to by the taxpayer when he
signed the required agreement form. (5%)

SUGGESTED ANSWERS:

The following cases may still be compromised (R.R. 30-02 [2002]) because of the taxpayer's
financial incapacity to pay the tax due or the assessment's doubtful validity:

a) DELINQUENT ACCOUNTS provided that it can be shown that the failure to pay is due to
the financial incapacity or that the assessment is of doubtful validity
b) Cases under administrative protest, after issuance of the final assessment notice to the
taxpayer, which are still pending.

The following cases MAY NO LONGER BE COMPROMISED (R.R. 30-02 [2002])

because the taxpayer has not paid his taxes for reasons other than his financial incapacity or the
doubtful validity of the assessment:

a) CRIMINAL TAX FRAUD cases by express provision of the code to discourage

commission of fraud
b) CRIMINAL VIOLATIONS ALREADY FILED IN COURT so that the taxpayer will not
profit from his fraud which would encourage tax evasion; and
c) Cases where final reports of reinvestigation or reconsideration have been issued
resulting in the reduction of the original assessment agreed to by the taxpayer
when he signed the required agreement form. The taxpayer is estopped from
applying for a compromise.

BIR; Compromise (2004)

After the tax assessment had become final and unappealable, the Commissioner
of Internal Revenue initiated the filing of a civil action to collect the tax due from NX. After
several years, a decision was rendered by the court ordering NX to pay the tax due plus
 penalties and surcharges. The judgment became final and executory, but attempts
to execute the judgment award were futile.

Subsequently, NX offered the Commissioner a compromise settlement of 50% of

the judgment award, representing that this amount is all he could really afford. Does the
Commissioner have the power to accept the compromise offer? Is it legal and ethical?
Explain briefly. (5%)

SUGGESTED ANSWER:

Yes. The Commissioner has the power to accept the offer of compromise if the financial
position of the taxpayer clearly demonstrates a clear inability to pay the tax (Section
204, NIRC).

As represented by NX in his offer, only 50% of the judgment award is all he could
really afford. This is an offer for compromise based on financial incapacity which the
Commissioner shall not accept unless accompanied by a waiver of the secrecy of bank
deposits (Section 6[F}, NIRC). The waiver will enable the Commissioner to ascertain the
financial position of the taxpayer, although the inquiry need not be limited only to the bank
deposits of the taxpayer but also as to his financial position as reflected in his financial
statements or other records upon which his property holdings can be ascertained.

If indeed, the financial position of NX as determined by the Commissioner demonstrates a clear

inability to pay the tax, the acceptance of the offer is legal and ethical because the ground upon
which the compromise was anchored is within the context of the law and the rate of compromise
is well within and far exceeds the minimum prescribed by law which is only 10% of the basic tax
assessed.

BIR: Compromise; Conditions (2000)

Under what conditions may the Commissioner of Internal Revenue be authorized to:
A. Compromise the payment of any internal revenue tax? (2%)

SUGGESTED ANSWER:

The Commissioner of Internal Revenue may be authorized to compromise the payment

of any internal revenue tax where:

1. A reasonable doubt as to the validity of the claim against the taxpayer exists; or
2. the financial position of the taxpayer demonstrates a clear inability to pay the assessed tax.

B. Abate or cancel a tax liability? (3%)

SUGGESTED ANSWER:
 The Commissioner of Internal Revenue may abate or cancel a tax liability when:
1. The tax or any portion thereof appears to be unjustly or excessively assessed; or
2. The administration and collection costs involved do not justify the collection of the
amount due. [Sec. 204 (B), NIRC of 1997]

BIR: Compromise; Withholding Agent (1998)

May the Commissioner of the Internal Revenue compromise the payment of withholding tax
(tax deducted and withheld at source) where the financial position of the taxpayer
demonstrates a clear inability to pay the assessed tax? [5%1

SUGGESTED ANSWER:

No. A taxpayer who is constituted as withholding agent who has deducted and withheld at
source the tax on the income payment made by him holds the taxes as trust funds for the
government (Sec. 58[D]) and is obligated to remit them to the BIR. The subsequent inability
of the withholding agent to pay/remit the tax withheld is not a ground for compromise
because the withholding tax is not a tax upon the withholding agent but it is only a
procedure for the collection of a tax.

BIR; Taxpayer: Civil Action & Criminal Action (2002)

Minolta Philippines, Inc. (Minolta) is an EPZA-registered enterprise enjoying preferential tax

treatment under a special law. After investigation of its withholding tax returns for the
taxable year 1997, the BIR issued a deficiency withholding tax assessment in the amount
of P150.000.00. On May 15, 1999, because of financial difficulty, the deficiency tax
remained unpaid, as a result of which the assessment became final and executory. The BIR also
found that, in violation of the provisions of the National Internal Revenue Code, Minolta did
not file its final corporate income tax return for the taxable year 1998, because it
allegedly incurred net loss from its operations. On May 17, 2002, the BIR filed with
the Regional Trial Court an action for collection of the deficiency withholding tax for
1997.

A. Will the BIR's action for collection prosper? As counsel of Minolta, what action
will you take?

Explain your answer. (5%)

SUGGESTED ANSWER:

A. Yes, BIR's action for collection will prosper because the assessment is already final and
executory, it can already be enforced through judicial action.
 As counsel of Minolta, I will introduce evidence that the income payment was reported by the
payee and the income tax was paid thereon in 1997 so that my client may only be
allowed to pay the civil penalties for non-withholding pursuant to RMO No. 38-83.
[Note: It is not clear whether this is a case of non-withholding/ underwithholding or non-
remittance of tax withheld. As such, the tax counsel may be open to other remedies
against the assessment.]

B. May criminal violations of the Tax Code be compromised? If Minolta makes a

voluntary offer to compromise the criminal violations for non- filing and non-payment of
taxes for the year 1998, may the Commissioner accept the offer? Explain (5%)

SUGGESTED ANSWER:

B. All criminal violations of the Tax Code may be compromised except those already
filed in court or those involving fraud (Section 204, NIRC). Accordingly, if Minolta
makes a voluntary offer to compromise the criminal violations for non-filing and non-
payment of taxes for the year 1998, the Commissioner may accept the offer which is allowed
by law. However, if it can be established that a tax has not been paid as a consequence of
non-filing of the return, the civil liability for taxes may be dealt with independently of the
criminal violations. The compromise settlement of the criminal violations will not relieve the
taxpayer from its civil liability. But the civil liability for taxes may also be compromised if
the financial position of the taxpayer demonstrates a clear inability to pay the tax.

Taxpayer: Failure to Withheld & Remit Tax (2000)

A domestic corporation failed to withhold and remit the tax on income received from Philippine
sources by a non- resident foreign corporation. In addition to the civil penalties
provided for under the Tax Code, a compromise penalty was imposed for violation of the
withholding tax provisions. May the Commissioner of Internal Revenue legally enforce the
collection of compromise penalty? (5%)

SUGGESTED ANSWER:

No. There is no showing that the compromise penalty was imposed by the Commissioner of
Internal Revenue with the agreement and conformity of the taxpayer. (Wonder Mechanical
Engineering Corporation u. Court of Tax Appeals, et. al., 64 SCRA 555).

Judicial Remedies

SEC. 220. Form and Mode of Proceeding in Actions Arising under this Code. - Civil and criminal actions
and proceedings instituted in behalf of the Government under the authority of this Code or other law
enforced by the Bureau of Internal Revenue shall be brought in the name of the Government of the
Philippines and shall be conducted by legal officers of the Bureau of Internal Revenue but no civil or
criminal action for the recovery of taxes or the enforcement of any fine, penalty or forfeiture under this
Code shall be filed in court without the approval of the Commissioner.

SEC. 218. Injunction not Available to Restrain Collection of Tax. - No court shall have the authority to
grant an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by
this Code.

2 ways for the BIR to institute a civil action

1. Filing an action with the regular courts for collection of sum of money
2. Filing an answer to the petition for review filed by the TX with the CTA

Note:
Civil actions for collection of sum of money based on an assessment which has become final and
executory for an amount of 1M or less shall be with the RTC but if it is more than 1M it is with the CTA

Civil Actions
Actions instituted by the government to collect internal revenue taxes. It includes filing by the
government with the probate court claims against the deceased taxpayer.

Enforced by:
1. filing a civil case for the collection of a sum of money with the proper regular court (i.e. MTC or
RTC); or
2. filing an answer to the petition for review filed by the taxpayer with the CTA

Requisites for the institution of a civil action filed with the ordinary court:
1. delinquent
2. collectible

Collectibility arises when:

1. Self-assessed tax shown in the return was not paid within the date prescribe by law;
2. Final assessment is not protested administratively within 30 days from date of receipt;
3. Non-compliance with the condition laid in the approval of protest;
4. Failure to file a timely appeal to the CTA on the final decision of the CIR or his authorized
representative on the disputed assessment.

Defenses precluded by final and executory assessments:

1. Invalidity or illegality of the assessment; and
2. Prescription of the governments right to assess.

Civil action filed with CTA

1. The fact that no civil action was filed before the ordinary courts to collect the tax liability is no
ground for claiming that the right to collect had already prescribed.
 2. The answer filed by the government in the CTA is tantamount to the filing of a civil action for
collection the regular court and has the effect of tolling the prescriptive period. (Hermanos, Inc.
vs. CIR, 29 SCRA 552)

Note:
Whenever instituting an action in the civil courts, the SOL GEN must approved. However in cases where
the action was instituted by the BIR legal officers deputized by as special attorneys, they need only to
furnish the sol gen a copy of the complaint, and thereafter, the sol gen files a notice of appearance in the
court where the action is filed. Failure to comply with these requisites renders the action susceptible to a
motion to dismiss.

Note:
In the event a protest is pending with BIR and the latter institutes a civil action, it is appropriate for the
TX to file an appeal to the CTA since the filing of the civil action constitutes the indirect denial of his
protest and once he has filed his action in the CTA, he can move to dismiss the action in the RTC since
jurisdiction over the case is properly lodged now with the CTA.

SEC. 253. General Provisions. -

(a) Any person convicted of a crime penalized by this Code shall, in addition to being liable for the
payment of the tax, be subject to the penalties imposed herein: Provided, That payment of the tax due
after apprehension shall not constitute a valid defense in any prosecution for violation of any
provision of this Code or in any action for the forfeiture of untaxed articles.

(b) Any person who willfully aids or abets in the commission of a crime penalized herein or who causes
the commission of any such offense by another shall be liable in the same manner as the principal.

(c) If the offender is not a citizen of the Philippines, he shall be deported immediately after serving the
sentence without further proceedings for deportation.

If he is a public officer or employee, the maximum penalty prescribed for the offense shall be
imposed and, in addition, he shall be dismissed from the public service and perpetually disqualified
from holding any public office, to vote and to participate in any election.

If the offender is a Certified Public Accountant, his certificate as a Certified Public Accountant shall,
upon conviction, be automatically revoked or cancelled.

(d) In the case of associations, partnerships or corporations, the penalty shall be imposed on the partner,
president, general manager, branch manager, treasurer, officer-in-charge, and the employees
responsible for the violation.

(e) The fines to be imposed for any violation of the provisions of this Code shall not be lower than the
fines imposed herein or twice the amount of taxes, interest and surcharges due from the taxpayer,
whichever is higher
2 common crimes punishable under the NIRC:
1. Attempt to evade or defeat tax:

SEC. 254. Attempt to Evade or Defeat Tax. - Any person who willfully attempts in any manner to
evade or defeat any tax imposed under this Code or the payment thereof shall, in addition to other
penalties provided by law, upon conviction thereof, be punished by a fine not less than Thirty
thousand (P30,000) but not more than One hunderd thousand pesos (P100,000) and suffer
imprisonment of not less than two (2) years but not more than four (4) years: Provided, That the
conviction or acquittal obtained under this Section shall not be a bar to the filing of a civil suit
for the collection of taxes.

2. Failure to file a return supply correct and accurate information, pay tax, withhold and remit and
refund excess taxes withheld on compensation

SEC. 255. Failure to File Return, Supply Correct and Accurate Information, Pay Tax Withhold
and Remit Tax and Refund Excess Taxes Withheld on Compensation. - Any person required
under this Code or by rules and regulations promulgated thereunder to pay any tax make a return,
keep any record, or supply correct the accurate information, who willfully fails to pay such tax,
make such return, keep such record, or supply correct and accurate information, or withhold or
remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times
required by law or rules and regulations shall, in addition to other penalties provided by law, upon
conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and
suffer imprisonment of not less than one (1) year but not more than ten (10) years.

Any person who attempts to make it appear for any reason that he or another has in fact filed a
return or statement, or actually files a return or statement and subsequently withdraws the same
return or statement after securing the official receiving seal or stamp of receipt of internal revenue
office wherein the same was actually filed shall, upon conviction therefor, be punished by a fine
of not less than Ten thousand pesos (P10,000) but not more than Twenty thousand pesos
(P20,000) and suffer imprisonment of not less than one (1) year but not more than three (3) years.

SEC. 281. Prescription for Violations of any Provision of this Code. - All violations of any provision
of this Code shall prescribe after Five (5) years.

Prescription shall begin to run from the day of the commission of the violation of the law, and if the
same be not known at the time, from the discovery thereof and the institution of judicial
proceedings for its investigation and punishment.

The prescription shall be interrupted when proceedings are instituted against the guilty persons
and shall begin to run again if the proceedings are dismissed for reasons not constituting jeopardy.

The term of prescription shall not run when the offender is absent from the Philippines.
Important Principles on criminal actions:
1. No criminal action for recovery of taxes or the enforcement of any fine, penalty or forfeiture shall
be filed in court without the approval of the commissioner.
2. The CIR has delegated the authority to institute a criminal action to his subordinates in the legal
services
3. All violations of any penal provision of the tax code shall prescribed after five years from the day
of the commission of the violation of the law, and if the same be not known at the time, from the
discovery thereof and the institution of judicial proceedings for its investigation and punishment.
4. Even if the civil action to institute recovery of the unpaid tax has prescribe, it does not necessarily
follow that the criminal action shall have prescribed as well. Note that the prescriptive period of
the action begins from the day the act or omission constituting the offense has been discovered
AND institution of proceedings for its investigation
5. Payment of the tax due after apprehension shall not constitute a valid defense in any prosecution
for violation of any provision of this code or in any action for the forfeiture of untaxed articles.
Except if such payment takes the form of a compromise agreement.
6. If there is a prima facie case against the accused for tax evasion, assessment in not a pre-requisite
for its institution, the requirement of a final assessment is geared towards the institution of a civil
action for recovery and not a criminal action for punishment of the offense provided that there is
a prima facie evidence to prove that the accused willingly and knowingly evaded to pay taxes
and what is being questioned in the assessment is the mathematical computation only.

BIR; Assessment; Criminal Complaint (2005)

In 1995, the BIR filed before the Department of Justice (DOJ) a criminal complaint against
a corporation and its officers for alleged evasion of taxes. The complaint was supported by
a sworn statement of the BIR examiners showing the computation of the tax liabilities of the
erring taxpayer. The corporation filed a motion to dismiss the criminal complaint on the
ground that there has been, as yet, no assessment of its tax liability; hence, the criminal
complaint was premature. The DOJ denied the motion on the ground that an assessment of the
tax deficiency of the corporation is not a precondition to the filing of a criminal
complaint and that in any event, the joint affidavit of the BIR examiners may be
considered as an assessment of the tax liability of the corporation. Is the ruling of the
DOJ correct? Explain. (5%)

SUGGESTED ANSWER:

The DOJ is correct in ruling that an assessment of the tax deficiency of the corporation is not a
precondition to the filing of a criminal complaint. There is no need for an assessment so
long as there is a prima facie showing of violation of the provisions of the Tax Code. After all,
a criminal charge is instituted not to demand payment, but to penalize the tax payer for
violation of the Tax Code. (Commissioner of Internal Revenue v. Pascor Realty and
Development Corporation, G.R. No. 128315, June 29, 1999) Furthermore, there is
nothing in the problem that shows that the BIR in filing the case is also interested in
collecting the tax deficiency.
 However, it is in error when it ruled that the joint affidavit of the BIR examiners may be
considered as an assessment of the tax liability of the corporation. The joint affidavit
showing the computation of the tax liabilities of the erring taxpayer is not a tax assessment
because it was not sent to the taxpayer, and does not demand payment of the tax within
a certain period of time. An assessment is deemed made only when the BIR releases,
mails or sends such notice to the taxpayer. (Commissioner of Internal Revenue v. Pascor
Realty and Development Corporation, G.R. No. 128315, June 29, 1999)

BIR: Criminal Prosecution: Tax Evasion (1998)

Is assessment necessary before a taxpayer may be prosecuted for willfully attempting in

any manner to evade or defeat any tax imposed by the Internal Revenue Code? [5%)
SUGGESTED ANSWER:

No. Assessment is not necessary before a taxpayer maybe prosecuted if there is a prima facie
showing of a willful attempt to evade taxes as in the taxpayer's failure to declare a
specific item of taxable income in his income tax returns (Ungab v. Cusi 97 SCRA 877). On the
contrary, if the taxes alleged to have been evaded is computed based on reports
approved by the BIR there is a presumption of regularity of the previous payment of
taxes, so that unless and until the BIR has made a final determination of what is supposed
to be the correct taxes, the taxpayer should not be placed in the crucible of criminal
prosecution (CIR v. Fortune Tobacco Corp., GR No. 119322, June 4, 1996).

BIR; Prescriptive Period; Criminal Action (2006)

Gerry was being prosecuted by the BIR for failure to pay his income tax liability for Calendar
Year 1999 despite several demands by the BIR in 2002. The Information was filed with the
RTC only last June 2006. Gerry filed a motion to quash the Information on the ground
of prescription, the Information having been filed beyond the 5-year reglementary period. If
you were the judge, will you dismiss the Information? Why? (5%)

SUGGESTED ANSWER:

No. The trial court can exercise jurisdiction. Prescription of a criminal action begins to run
from the day of the violation of the law. The crime was committed when Gerry willfully
refused to pay despite repeated demands in 2002. Since the information was filed in June
2006, the criminal case was instituted within the five-year period required by law (Tupaz v.
Ulep, G.R. No. 127777, October 1, 1999; Section 281, NIRC).

BIR: Prescriptive Period; Criminal Action (2002)

TY Corporation filed its final adjusted income tax return for 1993 on April 12, 1994 showing
a net loss from operations. After investigation, the BIR issued a pre-assessment notice on
 March 30, 1996. A final notice and demand letter dated April 15, 1997 was issued, personally
delivered to and received by the company's chief accountant. For willful refusal
and failure of TY Corporation to pay the tax, warrants of distraint and levy on its properties
were issued and served upon it. On January 10, 2002, a criminal charge for violation of
the Tax Code was instituted in the Regional Trial Court with the approval of the Commissioner.

The company moved to dismiss the criminal complaint on the ground that an act for violation
of any provision of the Tax Code prescribes after five (5) years and, in this case, the
period commenced to run on March 30, 1996 when the pre-assessment was issued. How will
you resolve the motion? Explain your answer. (5%)

SUGGESTED ANSWER:

The motion to dismiss should not be granted. It is only when the assessment has become
final and unappealable that the 5-year period to file a criminal action commences to run (Tupaz
v. Ulop, 316 SCRA 118 [1999]). The pre- assessment notice issued on March 30, 1996 is not a
final assessment which is enforceable by the BIR. It is the issuance of the final notice and
demand letter dated April 15, 1997 and the failure of the taxpayer to protest within 30 days
from receipt thereof that made the assessment final and unappealable. The earliest date
that the assessment has become final is May 16, 1997 and since the criminal charge was
instituted on January 10, 2002, the same was timely filed.

Civil Penalties
SEC. 248. Civil Penalties.
(A) There shall be imposed, in addition to the tax required to be paid, a penalty equivalent to
twenty-five percent (25%) of the amount due, in the following cases:
1. Failure to file any return and pay the tax due thereon as required under the provisions of
this Code or rules and regulations on the date prescribed; or
2. Unless otherwise authorized by the Commissioner, filing a return with an internal revenue
officer other than those with whom the return is required to be filed; or
3. Failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment; or
4. Failure to pay the full or part of the amount of tax shown on any return required to be filed
under the provisions of this Code or rules and regulations, or the full amount of tax due for
which no return is required to be filed, on or before the date prescribed for its payment.
(B) In case of willful neglect to file the return within the period prescribed by this Code or by rules
and regulations, or in case a false or fraudulent return is willfully made, the penalty to be
imposed shall be fifty percent (50%) of the tax or of the deficiency tax, in case, any payment has
been made on the basis of such return before the discovery of the falsity or fraud: Provided,
That a substantial under-declaration of taxable sales, receipts or income, or a substantial
overstatement of deductions, as determined by the Commissioner pursuant to the rules and
regulations to be promulgated by the Secretary of Finance, shall constitute prima facie evidence
of a false or fraudulent return: Provided, further, That failure to report sales, receipts or
income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of
 deductions in an amount exceeding (30%) of actual deductions, shall render the taxpayer liable
for substantial under-declaration of sales, receipts or income or for overstatement of
deductions, as mentioned herein.

Note:
The liability to pay the surcharge arises upon the lapse of the period where the taxpayer is required to pay
despite the absence of any assessment.

Surcharges:
1. Not really a penalty as used in criminal law but a civil administrative sanction designed primarily
to:
a. protect the State revenue, and
b. reimburse the government for the expenses in investigating and the loss resulting from
the taxpayers fraud.
2. Penalty of 25% of the amount due for:
a. Failure to file any return and pay the tax due thereon;
b. Filing a return with the wrong agent of the BIR, unless otherwise authorized by the CIR
c. failure to pay the deficiency tax within the time prescribed for its payment in the notice of
assessment;
d. Failure to pay the full or part of the tax as shown on the return on or before the due date

ITR; Taxpayer; Liabilities; Falsified Tax Return (2005)

Danilo, who is engaged in the trading business, entrusted to his accountant the preparation of his
income tax return and the payment of the tax due. The accountant filed a falsified tax
return by underdeclaring the sales and overstating the expense deductions by Danilo.

Is Danilo liable for the deficiency tax and the penalties thereon? What is the liability, if
any, of the accountant? Discuss. (5%)

SUGGESTED ANSWER:

Danilo is liable for the deficiency tax as well as for the deficiency interest. He should
not be held liable for the fraud penalty because the accountant acted beyond the limits of
his authority. There is no showing in the problem that Danilo signed the falsified return or
that it was prepared under his direction. {On the other hand the accountant may be held
criminally liable for violation of the Tax Code when he falsified the tax return by underdeclaring
the sale and overstating the expense deductions. If Danny's accountant is a Certified Public
Accountant, his certificate as a CPA shall automatically be revoked or cancelled upon
conviction.
SEC. 249. Interest. -
(A) In General. - There shall be assessed and collected on any unpaid amount of tax, interest at the rate of
twenty percent (20%) per annum, or such higher rate as may be prescribed by rules and regulations,
from the date prescribed for payment until the amount is fully paid.

(B) Deficiency Interest. - Any deficiency in the tax due, as the term is defined in this Code, shall be
subject to the interest prescribed in Subsection (A) hereof, which interest shall be assessed and
collected from the date prescribed for its payment until the full payment thereof.

(C) Delinquency Interest. - In case of failure to pay:

1. The amount of the tax due on any return to be filed, or
2. The amount of the tax due for which no return is required, or
3. A deficiency tax, or any surcharge or interest thereon on the due date appearing in the notice and
demand of the Commissioner, there shall be assessed and collected on the unpaid amount, interest
at the rate prescribed in Subsection (A) hereof until the amount is fully paid, which interest shall
form part of the tax.

(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and elects to pay the
tax on installment under the provisions of this Code, but fails to pay the tax or any installment hereof,
or any part of such amount or installment on or before the date prescribed for its payment, or where
the Commissioner has authorized an extension of time within which to pay a tax or a deficiency tax or
any part thereof, there shall be assessed and collected interest at the rate hereinabove prescribed on
the tax or deficiency tax or any part thereof unpaid from the date of notice and demand until it is paid.

Interest:
1. Deficiency interest
a. 20% per annum from the date prescribed for its payment until the full payment thereof
2. Delinquency interest
a. Interest of 20% or the Manila Reference rate, whichever is higher, required to be paid in
case of failure to pay:
i. the amount of the tax due on any return required to be filed;
ii. amount of the tax due for which return is required;
iii. the deficiency tax or any surcharge or interest thereon, on the date appearing in
the notice and demand of the CIR.

Interest: Deficiency Interest: define (1995 Bar)

What is a "deficiency interest" for purposes of the income tax? Illustrate.

SUGGESTED ANSWER:

DEFICIENCY INTEREST for purposes of the income tax is the interest due on any
amount of tax due or installment thereof which is not paid on or before the date prescribed
 for its payment computed at the rate of 20% per annum or the Manila Reference Rate,
whichever is higher, from the date prescribed for its payment until it is fully paid.

If for example after the audit of the books of XYZ Corp. for taxable year 1993 there was
found to be due a deficiency income tax of P125,000.00 inclusive of the 25% surcharge
imposed under Section 248 of the Tax Code, the interest will be computed on the
P125.000.00 from April 15, 1994 up to its date of payment.

Interest: Delinquency Interest: define (1995)

What is a "delinquency interest" for purposes of the income tax? Illustrate.

SUGGESTED ANSWER:

Delinquency interest is the interest of 20% or the Manila Reference Rate, whichever is higher,
required to be paid in case of failure to pay:

(a) the amount of the tax due on any return required to be filed; or
(b) the amount of the tax due for which return is required; or
(c) the deficiency tax or any surcharge or interest thereon, on the due date
appearing in the notice and demand of the Commissioner of Internal Revenue.

If in the above illustration the assessment notice was released on December 31, 1994
and the amount of deficiency tax, inclusive of surcharge and deficiency interest were
computed up to January 30, 1995 which is the due date for payment per assessment notice,
failure to pay on this latter date will render the tax delinquent and will require the
payment of delinquency interest.

Compromise:
1. Similarities of compromise and compromise penalty:
a. They both imply mutual agreement.
b. A compromise penalty cannot be imposed in the absence of a showing that the taxpayer
consented thereto.
2. The CIR has no power to impose and collect the compromise penalties in the absence of a
compromise agreement validly entered into between the taxpayer and the CIR

Compromise Compromise Penalty

Definition: Definition:
An amount of money paid by the taxpayer to settle An amount of money paid to compromise a tax
his civil liability for tax assessed violation that he has committed, which may be the
subject of criminal prosecution
Basis of amount paid: Basis of amount paid:
Basic tax assessed Gross sales or receipts during the year of the tax
due
Minimum amount: Minimum amount:
The limitation depends on the legal grounds used Depends on the nature of the tax violation and the
by the taxpayer minimum amount is generally not less than
Php1,000

REMEDIES OF TAXPAYER
1. Administrative:
a. before payment:
i. protest
ii. entering into a compromise.
b. after payment:
i. filing of claim for refund or tax credit within two years from date of payment
regardless of any supervening cause.
2. Judicial:
a. civil action:
i. appeal to CTA within 30 days from receipt of decision on the protest or from
the lapse of 180 days due to inaction of the Commissioner;
ii. action to contest forfeiture of chattel; and
iii. action for damages
b. criminal action:
i. Filing of criminal complaint against erring BIR official and employees; and
ii. Injunction when the CTA in its opinion the collection by the BIR may
jeopardize taxpayer.

Protest of Assessment:
1. File a request for reinvestigation or reconsideration within 30 days from receipt of the assessment
a. Request for reinvestigation-a plea for re-evaluation of an assessment on the basis of
newly discovered or additional evidence that a taxpayer intends to present in the
reinvestigation. Involves a question of fact or law or both.
b. Request for reconsideration-a plea for re-evaluation of the assessment on the basis of
existing records without need of additional evidence. Involves a question of fact or law or
both. (Revenue Regulation No. 12-85)
2. Within 60 days from filing of protest, all relevant supporting documents should have been
submitted, otherwise, the assessment shall become FINAL (cannot be appealed). (Sec. 228 NIRC)

SEC. 231. Action to Contest Forfeiture of Chattel. - In case of the seizure of personal property under
claim of forfeiture, the owner desiring to contest the validity of the forfeiture may, at any time before sale
or destruction of the property, bring an action against the person seizing the property or having possession
thereof to recover the same, and upon giving proper bond, may enjoin the sale; or after the sale and within
six (6) months, he may bring an action to recover the net proceeds realized at the sale.

CTA
1. Appeal of Protest to the CTA (Sec. 228 NIRC)
a. Grounds:
i. if the protest is denied in whole or in part or
ii. is not acted upon within 180 days from submission of documents
 2. Appellate Court: Court of Tax Appeals
3. Period to appeal:
a. within 30 days from receipt of decision denying the protest or
b. 30 days from the lapse of 180 day period
4. Effect of failure to appeal: the decision shall be final, executory and demandable

Taxpayers suit.
Requisites:
1. the tax money is being extracted and spent in violation of specific Constitutional protections
against abuses of legislative power
2. that public money is being deflected to any improper purpose
3. that the petitioner seeks to restrain the respondents from wasting public funds through
enforcement of invalid or unconstitutional law

Note:
However, the Supreme Court has discretion whether or not to entertain a taxpayers suit and could brush
side the lack of locus standi where the issues are transcendental importance in keeping with the courts
duty to determine that public officers have not abused the discretion given to them.

Taxpayer: NIRC vs. TCC Remedies (1996)

Compare the taxpayer's remedies under the National Internal Revenue Code and the
Tariff and Customs Code.

SUGGESTED ANSWER:

The taxpayer's remedies under the NATIONAL INTERNAL REVENUE CODE may
be categorized into remedies before payment and remedies after payment. The remedy
BEFORE PAYMENT consists of

1. Administrative Remedy which is the filing of protest within 30 days from receipt
of assessment, and
2. Judicial Remedy which is the appeal of the adverse decision of the Commissioner on the
protest with the Court of Tax Appeals, and finally with the Supreme Court.

The remedy AFTER PAYMENT is availed of

1. by paying the assessed tax within 30 days from receipt of assessment and
2. the filing of a claim for refund or tax credit of these taxes on grounds that they are
erroneously paid within two years from date of payment.
3. If there is a denial of the claim, appeal to the CTA shall be made within 30 days from denial
but within two years from date of payment.
 If the Commissioner fails to act on the claim for refund or tax credit and the two-year
period is about to expire, the taxpayer should consider the continuous inaction of the
Commissioner as a denial and elevate the case to the CTA before the expiration of the
two-year period.

Under the Tariff and Customs Code, taxpayer's remedies arise only after payment of duties.

1. The administrative remedies consist of filing a claim for refund which may take the form
of abatement or drawback.
2. The taxpayer can also file a protest within 15 days from payment if he disagrees
with the ruling or decision of the Collector of Customs regarding the legality or
correctness of the assessment of customs duties.
3. If the decision of the Collector is adverse to the taxpayer, he can notify the
Collector within 15 days from receipt of said decision of his desire to have his case
reviewed by the Commissioner.

The decision of the Collector on the taxpayer's protest, if adverse to the

Government, is automatically elevated to the Commissioner for review; and if
such decision is affirmed by the Commissioner, the same shall be
automatically elevated to and finally reviewed by the Secretary of Finance.
Resort to judicial relief can be had by the taxpayer by appealing the
decision of the Commissioner or of the Secretary of Finance (for cases subject
to automatic review) within 30 days from the promulgation of the adverse
decision to the CTA.

Substantive rights or remedies allowed a taxpayer:

1. To question the constitutionality of tax statutes or regulations
2. Non-retroactivity of rulings, BIR rulings may be modified reversed or revoked by the CIR at
anytime, but such modification, reversal or revocation shall not be given retroactive application to
the prejudice of a taxpayer who relied on the previous ruling, except:
a. Where the taxpayer deliberately misstates or omits material facts from his return or in any
document required of him by the BIR
b. Where the facts subsequently gathered by the BIR are materially different from the facts
on which the ruling is based
c. Where the taxpayer acted in bad faith
3. The failure of the government to inform the taxpayer in writing of the legal and factual bases of
assessment makes it void
4. Preservation of books of accounts and once-a-year examination.
5. Failure to publish documents which the law requires to be published.

Note:
Examination of the books of account of corporations and partnership is only allowable once a year except
in the following cases:
1. Fraud, irregularity or mistakes, as determined by the commissioner
2. The taxpayer requests reinvestigation
3. Verification of compliance with withholding tax laws and regulations
4. Verification of capital gains tax liabilities
5. In the exercise of the CIR power to obtain information from other persons in which case, another
or separate examination and inspection may be made

Taxpayer: Administrative & Judicial Remedies (2000)

Describe separately the procedures on the legal remedies under the Tax Code available to an
aggrieved taxpayer both at the administrative and judicial levels. (5%)

SUGGESTED ANSWER:

The legal remedies of an aggrieved taxpayer under the Tax Code, both at the administrative
and judicial levels, may be classified into those for assessment, collection and refund.

The procedures for the ADMINISTRATIVE REMEDIES for ASSESSMENT are as

follows:

a. After receipt of the Pre-Assessment Notice, he must within fifteen (15) days from receipt
explain why no additional taxes should be assessed against him.

b. If the Commissioner of Internal Revenue issues an assessment notice, the taxpayer

must administratively protest or dispute the assessment by filing a motion for reconsideration
or reinvestigation within thirty (30) days from receipt of the notice of assessment. (4th
par.. Sec. 228, NIRC of 1997)

c. Within sixty (60) days from filing of the protest, the taxpayer shall submit all
relevant supporting documents.

The JUDICIAL REMEDIES of an aggrieved taxpayer relative to an ASSESSMENT

NOTICE are as follows:

a. Where the Commissioner of Internal Revenue has not acted on the taxpayer's protest
within a period of one hundred eighty (180) days from submission of all relevant documents,
then the taxpayer has a period of thirty (30) days from the lapse of said 180 days within which
to interpose a petition for review with the Court of Tax Appeals.

b. Should the Commissioner deny the taxpayer's protest, then he has a period of thirty (30)
days from receipt of said denial within which to interpose a petition for review with the Court of
Tax Appeals.
 In both cases the taxpayer must apply with the Court of Tax Appeals for the Issuance of an
Injunctive writ to enjoin the Bureau of Internal Revenue from collecting the disputed tax
during the pendency of the proceedings.

NOTE: A 2004 Amendment - The decision of the division of CTA is in turn appeallable
within fifteen (15) days to the CTA en banc. The decision of the CTA en banc is directly
appeallable to the Supreme Court on question of law on certiorari.

The employment by the Bureau of Internal Revenue of any of the Administrative Remedies
for the collection of the tax like distraint, levy, etc. may be administratively appealed by the
taxpayer to the Commissioner whose decision is appealable to the Court of Tax Appeals under
other matter arising under the provisions of the National Internal Revenue Code.

The judicial appeals starts with the Court of Tax Appeals, and continues in the same manner as
shown above.

Should the Bureau of Internal Revenue decide to utilize its Judicial tax remedies for collecting
the taxes by means of an ordinary suit filed with the regular courts for the collection of a
sum of money, the taxpayer could oppose the same going up the ladder of judicial processes
from the Municipal Trial Court (as the case may be) to the Regional Trial Court, to the
Court of Appeals, thence to the Supreme Court. (comment claims greater than 1M must be filed
with the CTA)

The remedies of an aggrieved taxpayer on a claim for refund is to appeal the adverse
decision of the Commissioner to the CTA in the same manner outlined above.

Prescription

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in Section
222, internal revenue taxes shall be assessed within three (3) years after the last day prescribed by
law for the filing of the return, and no proceeding in court without assessment for the collection of
such taxes shall be begun after the expiration of such period: Provided, That in a case where a
return is filed beyond the period prescribed by law, the three (3)-year period shall be counted from
the day the return was filed.

For purposes of this Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.

SEC. 222. Exceptions as to Period of Limitation of Assessment and Collection of Taxes. -

(a) In the case of a false or fraudulent return with intent to evade tax or of failure to file a return,
the tax may be assessed, or a proceeding in court for the collection of such tax may be filed
without assessment, at any time within ten (10) years after the discovery of the falsity, fraud or
omission: Provided, That in a fraud assessment which has become final and executory, the fact
 of fraud shall be judicially taken cognizance of in the civil or criminal action for the collection
thereof.

(b) If before the expiration of the time prescribed in Section 203 for the assessment of the tax, both
the Commissioner and the taxpayer have agreed in writing to its assessment after such time, the
tax may be assessed within the period agreed upon.

The period so agreed upon may be extended by subsequent written agreement made before the
expiration of the period previously agreed upon.

(c) Any internal revenue tax which has been assessed within the period of limitation as prescribed
in paragraph (a) hereof may be collected by distraint or levy or by a proceeding in court within
five (5) years following the assessment of the tax.

(d) Any internal revenue tax, which has been assessed within the period agreed upon as provided in
paragraph (b) hereinabove, may be collected by distraint or levy or by a proceeding in court
within the period agreed upon in writing before the expiration of the five (5) -year period.

The period so agreed upon may be extended by subsequent written agreements made before the
expiration of the period previously agreed upon.

(e) Provided, however, That nothing in the immediately preceding and paragraph (a) hereof shall
be construed to authorize the examination and investigation or inquiry into any tax return filed
in accordance with the provisions of any tax amnesty law or decree.

Note:
The tax code provisions on prescription shall prevail over those of the civil code in actions relating to tax
collections

General rules covering prescriptive periods of taxes

Imprescriptibility of Tax Laws (1997)

General Rules:
1. When the tax law itself is silent on prescription, tax is imprescriptible;
2. When no return is required, tax is imprescriptible;
3. Defense of prescription is waivable; and
4. Provisions on prescriptions, being remedial in nature should be liberally interpreted to carry out
its intent.

Taxes were generally imprescriptible; statutes, however, may provide otherwise. State the rules
that have been adopted on this score by -

1. The National Internal Revenue Code;

 2. The Tariff and Customs Code; and
3. The Local Government Code Answer:

SUGGESTED ANSWERS:

The rules that have been adopted on prescription are as follows:

1. National Internal Revenue Code - The statute of limitation for assessment of tax if a return is
filed is within three (3) years from the last day prescribed by law for the filing of the return or if
filed after the last day, within three years from date of actual filing. If no return is filed
or the return filed is false or fraudulent, the period to assess is within TEN YEARS
from discovery of the omission, fraud or falsity.

The period to collect the tax is within THREE YEARS from date of assessment. In
the case, however, of omission to file or if the return filed is false or fraudulent, the period
to collect is within TEN YEARS from discovery without need of an assessment.

2. Tariff and Customs Code - It does not express any general statute of limitation; it provided,
however, that "when articles have entered and passed free of duty or final adjustment
of duties made, with subsequent delivery, such entry and passage free of duty or
settlement of duties will, after the expiration of ONE (1) YEAR, from the date of the final
payment of duties, in the absence of fraud or protest, be final and conclusive upon all parties,
unless the liquidation of Import entry was merely tentative" (Sec 1603, TCC).

3. Local Government Code - Local taxes, fees, or charges shall be assessed within
FIVE (5) YEARS from the date they became due. In case of fraud or intent to evade the
payment of taxes, fees or charges the same maybe assessed within TEN YEARS from discovery
of the fraud or intent to evade payment. They shall also be collected either by
administrative or judicial action within FIVE (5) YEARS from date of assessment (Sec. 194,
LGC).

Note:
IAC is not covered by the prescriptive period

3 prescriptive period in the NIRC:

1. Period to assess the tax
2. Period to collect the tax
3. Period to institute a criminal action

GENERAL RULE:
three years after the date the return is due or filed, whichever is later.

EXCEPTIONS:
 1. failure to file a return: ten (10) years from the date of the discovery of the omission to file
the return;
2. false or fraudulent return with intent to evade the tax: ten (10) years from the date of the
discovery of the falsity or fraud;
3. agreement in writing: to the extension (not reduction) of the period to assess between the
Commissioner and the taxpayer before the expiration of the three year period.
i. the extended period agreed upon can further be extended by a subsequent written
agreement made before the expiration of the extended period previously agreed
upon.

FALSE RETURN FRAUDULENT RETURN

it merely implies a decision from the truth or fact It is intentional and deceitful with the aim of
whether intentional or not evading the correct tax due.

BIR; False vs. Fraudulent Return (1996)

Distinguish a false return from a fraudulent return.

SUGGESTED ANSWER:

The distinction between a false return and a fraudulent return is that the first merely implies
a deviation from the truth or fact whether intentional or not, whereas the second is
intentional and deceitful with the sole aim of evading the correct tax due (Aznar us.
Commissioner, L-20569, August 23, 1974).

BIR: Fraudulent Return; Prima Facie Evidence (1998)

What constitutes prima facie evidence of a false or fraudulent return? [2%]

SUGGESTED ANSWER:

There is prima facie evidence of a false or fraudulent return when the taxpayer has willfully
and knowingly filed it with the intent to evade a part or all of the tax legally due from him
(Ungab v. Cusi,, 97 SCRA 877). There must appear a design to mislead or deceive on the part
of the taxpayer, or at least culpable negligence. A mistake not culpable in respect of its value
would not constitute a false return. (Words and Phrases, Vol. 16, page 173).

BIR: Fraudulent Return; Prima Facie Evidence (2002)

What constitutes prima facie evidence of a false or fraudulent return to justify the
imposition of a 50% surcharge on the deficiency tax due from a taxpayer? Explain. (5%)
SUGGESTED ANSWER:

There is a prima facie evidence of false or fraudulent return when the taxpayer
SUBSTANTIALLY UNDER- DECLARED his taxable sales, receipts or income, or

SUBSTANTIALLY OVERSTATED his deductions, the taxpayer's failure to report sales,

receipts or income in an amount exceeding 30% of that declared per return, and a claim of
deduction in an amount exceeding 30% of actual deduction shall render the taxpayer liable
for substantial underdeclaration and overdeclaration, respectively, and will justify the
imposition of the 50% surcharge on the deficiency tax due from the taxpayer. (Sec. 248,
NIRC).

Prescriptive period for the COLLECTION of taxes:

1. Five (5) years - from assessment or within period for collection agreed upon in writing before
expiration of the five-year period.
2. Ten (10) years - without assessment in case of false or fraudulent return with intern to evade or
failure to file return.

Taxpayer; Prescriptive Period; Assessment; Deficiency Income Tax (2006)

The Commissioner of Internal Revenue issued an assess- ment for deficiency income tax for
taxable year 2000 last July 31, 2006 in the amount of P 10 Million inclusive of surcharge and
interests. If the delinquent taxpayer is your client, what steps will you take? What is your
defense? (10%)

ALTERNATIVE ANSWER:

As Counsel, I shall move to cancel the Assessment because of prescription. The

three (3) year period of assessment for the Income Tax Returns of 2000 starts on April 15,
2001 and ends on April 16, 2004. The assessment of July 31, 2006 is beyond the
three (3) year prescriptive period and can no longer have any legal, binding effect (Tax
Reform Act, Title VIII, Chapter I, Section 203 [1997]).

ALTERNATIVE ANSWER:

Since my client has lost his right to protest, I will advise him to wait for a collection action by the
Commissioner. Then, I will file a petition for review with the CTA to question the
collection. Since the assessment was issued beyond the prescriptive period to assess, the
action to collect an invalid assessment is not warranted (Phil. Jour- nalists, Inc. v. CIR, G.R.
No. 162852, December 16, 2004).

BIR; Prescriptive Period; Assessment; Fraudulent Return (2002)

 Mr. Castro inherited from his father, who died on June 10, 1994, several pieces of real property
in Metro Manila. The estate tax return was filed and the estate tax due in the amount of
P250.000.00 was paid on December 06, 1994. The Tax Fraud Division of the BIR investigated
the case on the basis of confidential information given by Mr. Santos on January 06,
1998 that the return filed by Mr. Castro was fraudulent and that he failed to declare all
properties left by his father with intent to evade payment of the correct tax. As a result, a
deficiency estate tax assessment for P1,250,000.00, inclusive of 50% surcharge for
fraud, interest and penalty, was issued against him on January 10, 2001. Mr. Castro
protested the assessment on the ground of prescription.

A. Decide Mr. Castro's protest. (2%)

SUGGESTED ANSWER:

A. The protest should be resolved against Mr. Castro. What was filed is a fraudulent
return making the prescriptive period for assessment ten (10) years from discovery of the
fraud (Section 222, NIRC). Accordingly, the assessment was issued within that prescriptive
period to make an assessment based on a fraudulent return.

Note:
The CIR may issue a revised assessment and the same shall be valid even if issued during the pendency of
any appeal provided however that the same is issued within the prescriptive period.

Requisites of a valid waiver of the period (222(b))

1. In writing;
2. Agreed to by both the Commissioner and the taxpayer;
3. Before the expiration of the ordinary prescriptive periods for assessment and collection;
4. For a definite period beyond the ordinary prescriptive periods for assessment and collection
5. The waiver must be in the proper form prescribed by RMO 20-90.
a. The phrase but not after ______ 19 ___, which indicates the expiry date of the period
agreed upon to assess/collect the tax after the regular three-year period of prescription,
should be filled up.

b. The waiver must be signed by the taxpayer himself or his duly authorized representative.
In the case of a corporation, the waiver must be signed by any of its responsible officials.
In case the authority is delegated by the taxpayer to a representative, such delegation
should be in writing and duly notarized.

c. The waiver should be duly notarized.

d. The CIR or the revenue official authorized by him must sign the waiver indicating that
the BIR has accepted and agreed to the waiver. The date of such acceptance by the BIR
should be indicated. However, before signing the waiver, the CIR or the revenue official
 authorized by him must make sure that the waiver is in the prescribed form, duly
notarized, and executed by the taxpayer or his duly authorized representative.

e. Both the date of execution by the taxpayer and date of acceptance by the Bureau should
be before the expiration of the period of prescription or before the lapse of the period
agreed upon in case a subsequent agreement is executed.

f. The waiver must be executed in three copies, the original copy to be attached to the
docket of the case, the second copy for the taxpayer and the third copy for the Office
accepting the waiver. The fact of receipt by the taxpayer of his/her file copy must be
indicated in the original copy to show that the taxpayer was notified of the acceptance of
the BIR and the perfection of the agreement.

Requisites of a tax return for purposes of starting the running of the period of limitation:
1. the return is valid - it has complied substantially with the requirements of the law; and
2. the return is appropriate it is a return for the particular tax is required by law.

Note: A defective tax return is the same as if no return was filed at all.

Amended return Allowed when:

1. the amendment is made within 3 years from the date of filing the original return; and
2. no notice of audit or investigation of such return has, in the meantime, been actually served upon
the taxpayer.

Effect of amended return on prescription:

1. The prescriptive period starts to run from the filing of the original return, if the same is
sufficiently complete to enable the CIR to intelligently determine the proper amount of tax to be
assessed.
2. However, where the amended return is substantially different from the original, the right to assess
is counted from the filing of the amended return.

Note:
As a general rule the prescriptive period for assessment starts to run from the filing of the original return,
if the same is sufficiently complete to enable the CIR to intelligently determine the proper amount of tab
to be assessed. However where the amended return is substantially different from the original retur, the
right of the BIR to assess the tax is counted from the filing of the amended return.

BIR: Prescriptive Period; Assessment & Collection (1999)

A Co., a Philippine Corporation, filed its 1995 Income Tax Return (ITR) on April 15,
1996 showing a net loss. On November 10, 1996, it amended its 1995 ITR to show more
losses. After a tax investigation, the BIR disallowed certain deductions claimed by A Co.,
putting A Co. in a net income position. As a result, on August 5, 1999, the BIR issued a
 deficiency income assessment against A Co. A Co. protested the assessment on the ground that it
has prescribed: Decide. (5%)

SUGGESTED ANSWER:

The right of the BIR to assess the tax has not prescribed.

The rule is that internal revenue taxes shall be assessed within three years after the last day
prescribed by law for the filing of the return.(Section 203, NIRC), However, if the return
originally filed is amended substantially, the counting of the three-year period starts from
the date the amended return was filed. (CIR v. Phoenix Assurance Co., Ltd., 14 SCRA 52). There
is a substantial amendment in this case because a new return was filed declaring more losses,
which can only be done either (1) in reducing gross income or (2) in increasing the items of
deductions, claimed.

SEC. 223. Suspension of Running of Statute of Limitations.

The running of the Statute of Limitations provided in Sections 203 and 222 on the making of
assessment and the beginning of distraint or levy a proceeding in court for collection, in respect of
any deficiency, shall be suspended for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or a proceeding in court and for sixty
(60) days thereafter; when the taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address given by him in the return filed
upon which a tax is being assessed or collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of the Statute of Limitations will not be
suspended; when the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could be
located; and when the taxpayer is out of the Philippines

Grounds for suspension of the running of prescriptive period for assessment and collection:
1. when the Commissioner is prohibited from making the assessment or beginning the distraint or
levy or proceeding in court, and for sixty days thereafter;
2. when the taxpayer requests for a reinvestigation which is granted by the Commissioner;
3. when the taxpayer cannot be located in the address given by him in the return, unless he informs
the Commissioner of any change in his address;
4. when the warrant of distraint or levy is duly served, and no property is located; and
5. when the taxpayer is out of the Philippines.

BIR: Prescriptive Period: Civil Action (2002)

On August 5, 1997, Adamson Co., Inc. (Adamson) filed a request for reconsideration of the
deficiency withholding tax assessment on July 10, 1997, covering the taxable year 1994. After
administrative hearings, the original assessment of P150,000.00 was reduced to P75.000.00
and a modified assessment was thereafter issued on August 05, 1999. Despite repeated
 demands, Adamson failed and refused to pay the modified assessment. Consequently, the BIR
brought an action for collection in the Regional Trial Court on September 15, 2000.
Adamson moved to dismiss the action on the ground that the government's right to collect the tax
by judicial action has prescribed. Decide the case. (5%)

SUGGESTED ANSWER:

The right of the Government to collect by judicial action has not prescribed. The filing of
the request for reconsideration suspended the running of the prescriptive period and
commenced to run again when a decision on the protest was made on August 5, 1999. It must be
noted that in all cases covered by an assessment, the period to collect shall be five (5)
years from the date of the assessment but this period is suspended by the filing of a request
for reconsideration which was acted upon by the Commissioner of Internal Revenue (CIR v.
Wyeth Suaco Laboratories, Inc., 202 SCRA 125 [1991])

Summary of rules on prescription (memorize BPI vs CIR G.R. No. 139736)

1. as to commencement of the prescriptive period:
a. the BIR has three years, counted from the date of actual filing of the return or from the
last date prescribed by law for the filing of such return, whichever comes later, to assess a
national internal revenue tax or to begin a court proceeding for the collection thereof
without an assessment.
b. In case of a false or fraudulent return with intent to evade tax or the failure to file any
return at all, the prescriptive period for assessment of the tax due shall be 10 years from
discovery by the BIR of the falsity, fraud, or omission.
2. When the BIR validly issues an assessment, within either the three-year or ten-year period,
whichever is appropriate, then the BIR has another five years after the assessment within which to
collect the national internal revenue tax due thereon by distraint, levy, and/or court proceeding.
3. The assessment of the tax is deemed made and the three-year period for collection of the assessed
tax begins to run on the date the assessment notice had been released, mailed or sent by the BIR
to the taxpayer.
4. Existing jurisprudence establishes that distraint and levy proceedings are validly begun or
commenced by the issuance of the Warrant and service thereof on the taxpayer.
5. A request for reconsideration or reinvestigation if coupled with a valid waiver of the statute of
limitations will extend the prescriptive period to the date specified therein
6. Request for reconsideration. refers to a plea for a re-evaluation of an assessment on the basis of
existing records without need of additional evidence. It may involve both a question of fact or of
law or both.
7. Request for reinvestigation. refers to a plea for re-evaluation of an assessment on the basis of
newly-discovered or additional evidence that a taxpayer intends to present in the reinvestigation.
It may also involve a question of fact or law or both.
8. As to motions for reconsideration and reinvestigation of assessment:
a. A request for reinvestigation shall toll the prescriptive period only if:
i. If timely filed by the taxpayer
 ii. The CIR has granted the motion either expressly or impliedly by its acts of
investigating again the facts and laws of the case
b. A request for reconsideration will generally not toll the prescriptive period except when:
i. It is coupled with a valid waiver of the statute of limitations, extending the
prescriptive period
ii. When the reconsideration was in fact a request for re-investigation
iii. When the request for reconsideration constitutes estoppel on the part of the
taxpayer, preventing him from raising the defense of prescription as when his
own repeated requests or positive acts, the Government had been, for good
reasons, persuaded to postpone collection to make the taxpayer feel that the
demand is not unreasonable or that no harassment or injustice is meant by the
Government.
9. The burden of proof that the taxpayers request for reinvestigation had been actually granted shall
be on respondent BIR Commissioner. The grant may be expressed in communications with the
taxpayer or implied from the actions of the respondent BIR Commissioner or his authorized BIR
representatives in response to the request for reinvestigation.
10. The existence of any of the following grounds which will toll the prescriptive period:
a. when the taxpayer cannot be located in the address given by him in the return, unless he
informs the Commissioner of any change in his address;
b. when the warrant of distraint or levy is duly served, and no property is located; and
c. when the taxpayer is out of the Philippines.

Taxpayer: Prescriptive Period: Suspended (2000)

Mr. Reyes, a Filipino citizen engaged in the real estate business, filed his 1994 income
tax return on March 20, 1995. On December 15, 1995, he left the Philippines as an immigrant
to join his family in Canada. After the investigation of said return/the BIR issued a
notice of deficiency income tax assessment on April 15, 1998. Mr. Reyes returned to the
Philippines as a balikbayan on December 8, 1998. Finding his name to be in the list of
delinquent taxpayers, he filed a protest against the assessment on the ground that he
did not receive the notice of assessment and that the assessment had prescribed. Will
the protest prosper? Explain. (5%)

SUGGESTED ANSWER:

No. Prescription has not set in because the period of limitations for the Bureau of Internal
Revenue to issue an assessment was SUSPENDED during the time that Mr. Reyes was out of
the Philippines or from the period December 15, 1995 up to December 8, 1998.

Taxpayer: Exhaustion of Administrative Remedies (1997)

(a) A taxpayer received, on 15 January 1996 an as- sessment for an internal revenue
tax deficiency. On 10 February 1996, the taxpayer forthwith filed a petition for review
with the Court of Tax Appeals. Could the Tax Court entertain the petition?
 (b) Under the above factual setting, the taxpayer, instead of questioning the assessment
he received on 15 January 1996 paid, on 01 March 1996 the "deficiency tax" assessed. The
taxpayer requested a refund from the Commissioner by submitting a written claim on 1
March 1997. It was denied. The taxpayer, on 15 March 1997, filed a petition for review
with the Court of Appeals. Could the petition still be entertained?

SUGGESTED ANSWER:

(a) No. Before taxpayer can avail of Judicial remedy he must first exhaust
administrative remedies by filing a protest within 30 days from receipt of the assessment. It is
the Commissioner's decision on the protest that give the Tax Court jurisdiction over the case
provided that the appeal is filed within 30 days from receipt of the Commissioner's
decision. An assessment by the BIR is not the Commissioner's decision from which a
petition for review may be filed with the Court of Tax Appeals. Rather, it is the action
taken by the Commissioner in response to the taxpayer's protest on the assessment that would
constitute the appealable decision (Section 7, RA 1125).

(b) No, the petition for review can not be entertained by the Court of Appeals, since
decisions of the Commissioner on cases involving claim for tax refunds are within the
exclusive and primary jurisdiction of the Court of Tax Appeals (Section 7.RA1125).

Taxpayer: Protest against Assessment (1999)

A Co., a Philippine corporation, received an income tax deficiency assessment from the BIR
on May 5, 1995. On May 31, 1995, A Co. filed its protest with the BIR. On July 30,
1995, A Co. submitted to the BIR all relevant supporting documents. The CIR did not
formally rule on the protest but on January 25, 1996, A Co. was served a summons and a copy
of the complaint for collection of the tax deficiency filed by the BIR with the Regional Trial
Court (RTC). On February 20, 1996, A Co. brought a Petition for Review before the CTA.
The BIR contended that the Petition is premature since there was no formal denial of the
protest of A Co. and should therefore be dismissed.

1. Has the CTA jurisdiction over the case?

SUGGESTED ANSWER;

Yes, the CTA has jurisdiction over the case because this qualifies as an appeal from the
Commissioner's decision on disputed assessment. When the Commissioner decided to collect
the tax assessed without first deciding on the taxpayer's protest, the effect of the
Commissioners action of filing a judicial action for collection is a decision of denial of
the protest, in which event the taxpayer may file an appeal with the CTA. (Republic v. Lim Tian
Teng & Sons, Inc., 16 SCRA 584; Dayrit v. Cruz, L-39910, Sept. 26, 1988).
 Tax Credit or Refund
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. - no suit or proceeding shall be
maintained in any court for the recovery of any national internal revenue tax hereafter alleged to
have been erroneously or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, of any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund or credit has been duly filed with the
Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the
date of payment of the tax or penalty regardless of any supervening cause that may arise after
payment: Provided, however, That the Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon which payment was made, such
payment appears clearly to have been erroneously paid.
SEC. 230. Forfeiture of Cash Refund and of Tax Credit. -
(A) Forfeiture of Refund.- A refund check or warrant issued in accordance with the pertinent
provisions of this Code, which shall remain unclaimed or uncashed within five (5) years
from the date the said warrant or check was mailed or delivered, shall be forfeited in favor
of the Government and the amount thereof shall revert to the general fund. cralaw
(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the pertinent
provisions of this Code, which shall remain unutilized after five (5) years from the date of
issue, shall, unless revalidated, be considered invalid, and shall not be allowed as payment
for internal revenue tax liabilities of the taxpayer, and the amount covered by the certificate
shall revert to the general fund

SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund or Credit Taxes. -
The Commissioner may -

XXXXXX

(C) Credit or refund taxes erroneously or illegally received or penalties imposed without
authority, refund the value of internal revenue stamps when they are returned in good
condition by the purchaser, and, in his discretion, redeem or change unused stamps that
have been rendered unfit for use and refund their value upon proof of destruction.

No credit or refund of taxes or penalties shall be allowed unless the taxpayer files in writing
with the Commissioner a claim for credit or refund within two (2) years after the payment
of the tax or penalty: Provided, however, That a return filed showing an overpayment shall
be considered as a written claim for credit or refund.

A Tax Credit Certificate validly issued under the provisions of this Code may be applied
against any internal revenue tax, excluding withholding taxes, for which the taxpayer is
directly liable.

Any request for conversion into refund of unutilized tax credits may be allowed, subject to
the provisions of Section 230 of this Code: Provided, That the original copy of the Tax
Credit Certificate showing a creditable balance is surrendered to the appropriate revenue
officer for verification and cancellation: Provided, further, That in no case shall a tax
refund be given resulting from availment of incentives granted pursuant to special laws for
which no actual payment was made.

The Commissioner shall submit to the Chairmen of the Committee on Ways and Means of
both the Senate and House of Representatives, every six (6) months, a report on the exercise
of his powers under this Section, stating therein the following facts and information, among
others: names and addresses of taxpayers whose cases have been the subject of abatement
or compromise; amount involved; amount compromised or abated; and reasons for the
exercise of power: Provided, That the said report shall be presented to the Oversight
 Committee in Congress that shall be constituted to determine that said powers are
reasonably exercised and that the government is not unduly deprived of revenues.

SEC. 112. Refunds or Tax Credits of Input Tax. -

(A) Zero-Rated or Effectively Zero-Rated Sales.- any VAT-registered person, whose sales are
zero-rated or effectively zero-rated may, within two (2) years after the close of the taxable
quarter when the sales were made, apply for the issuance of a tax credit certificate or
refund of creditable input tax due or paid attributable to such sales, except transitional
input tax, to the extent that such input tax has not been applied against output tax:
Provided, however, That in the case of zero-rated sales under Section 106(A)(2)(a)(1), (2)
and (B) and Section 108 (B)(1) and (2), the acceptable foreign currency exchange proceeds
thereof had been duly accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP): Provided, further, That where the taxpayer is engaged
in zero-rated or effectively zero-rated sale and also in taxable or exempt sale of goods of
properties or services, and the amount of creditable input tax due or paid cannot be directly
and entirely attributed to any one of the transactions, it shall be allocated proportionately
on the basis of the volume of sales.

(B) Capital Goods.- A VAT-registered person may apply for the issuance of a tax credit
certificate or refund of input taxes paid on capital goods imported or locally purchased, to
the extent that such input taxes have not been applied against output taxes.

The application may be made only within two (2) years after the close of the taxable quarter
when the importation or purchase was made.

(C) Cancellation of VAT Registration. - A person whose registration has been cancelled due to
retirement from or cessation of business, or due to changes in or cessation of status under
Section 106(C) of this Code may, within two (2) years from the date of cancellation, apply
for the issuance of a tax credit certificate for any unused input tax which may be used in
payment of his other internal revenue taxes.

(D) Period Within Which Refund or Tax Credit of Input Taxes Shall be Made. - In proper
cases, the Commissioner shall grant a refund or issue the tax credit certificate for creditable
input taxes within one hundred twenty (120) days from the date of submission of compete
documents in support of the application filed in accordance with Subsections (A) and (B)
hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on the
part of the Commissioner to act on the application within the period prescribed above, the
taxpayer affected may, within thirty (30) days from the receipt of the decision denying the
claim or after the expiration of the one hundred twenty day-period, appeal the decision or
the unacted claim with the Court of Tax Appeals.
 (E) Manner of Giving Refund. - Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized representative without the necessity of being
countersigned by the Chairman, Commission on audit, the provisions of the Administrative
Code of 1987 to the contrary notwithstanding: Provided, That refunds under this
paragraph shall be subject to post audit by the Commission on Audit.

Refund Credit
There is actual reimbursement of the tax The reimbursable mount is applied against the
sum that may be due of collectible from the
taxpayer

Grounds:
1. tax is collected erroneously or illegally;
2. penalty is collected without authority;
3. sum collected is excessive

Requisites:
1. claim must be in writing;
2. it must be filed with the Commissioner within two years (2) after the payment of the tax or
penalty; and
3. Show proof of payment.

Tax credit
A claim for issuance of a tax credit certificate, showing an amount owing from the government to the
taxpayer which the latter is legally authorized to credit or offset against national internal taxes payable by
him, except withholding taxes.

SEC. 76. Final Adjustment Return. - Every corporation liable to tax under Section 27 shall file a
final adjustment return covering the total taxable income for the preceding calendar or fiscal year.

If the sum of the quarterly tax payments made during the said taxable year is not equal to the total
tax due on the entire taxable income of that year, the corporation shall either:

(A) Pay the balance of tax still due; or

(B) Carry-over the excess credit; or
(C) Be credited or refunded with the excess amount paid, as the case may be.

In case the corporation is entitled to a tax credit or refund of the excess estimated quarterly income
taxes paid, the excess amount shown on its final adjustment return may be carried over and
credited against the estimated quarterly income tax liabilities for the taxable quarters of the
succeeding taxable years.
Once the option to carry-over and apply the excess quarterly income tax against income tax due for
the taxable quarters of the succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance of a tax credit
certificate shall be allowed therefor.
Rules as to the commencement date of the 2 year prescriptive period:
1. As a general rule the commencement date of the 2 year period is from the date of payment
regardless of any supervening cause that may arise after payment:
2. EXCEPTIONS:
a. Corporate Income tax
i. Where a corporation paid quarterly income taxes in any of the first 3 quarters
during the taxable year but incurs a net loss during the taxable year, the 2-year
period for the filing of the claim for refund or credit shall be counted from the
date of the filing of the annual corporate ITR.
b. Income tax paid in installments
i. Where the tax paid had been paid in installment, the taxes are deemed paid, for
purposes of determining the commencement of the 2-year period for filing a
written claim for the refund or credit therefore on the date the last installment
was paid.

Taxpayer: Prescriptive Period; Claim for Refund (1997)

A corporation files its income tax return on a calendar year basis. For the first quarter of
1993, it paid on 30 May 1993 its quarterly income tax in the amount of P3.0 million. On
20 August 1993, it paid the second quarterly income tax of P0.5 million. The third quarter
resulted in a net loss, and no tax was paid. For the fourth and final return for 1993, the
company reported a net loss for the year, and the taxpayer indicated in the income tax return that
it opted to claim a refund of the quarterly income tax payments. On 10 January 1994, the
corporation filed with the Bureau of Internal Revenue a written claim for the refund of
P3.5 million.

BIR failed to act on the claim for refund; hence, on 02 March 1996, the corporation
filed a petition for review with the Court of Tax Appeals on its claim for refund of the
overpayment of its 1993 quarterly income tax. BIR, in its answer to the petition, alleged that the
claim for refund was filed beyond the reglementary period. Did the claim for refund prescribe?

SUGGESTED ANSWER:

The claim for refund has prescribed. The counting of the two-year prescriptive period for
filing a claim for refund is counted not from the date when the quarterly income taxes were
paid but on the date when the final adjustment return or annual income tax return was
filed (CIR v. TMX Sales Inc., G.R. No. 83736, January 15, 1992; CIR v. Phi/Am Life Insurance
Co., Inc., G.R. No. 105208, May 29, 1995). It is obvious that the annual income tax return
was filed before January 10, 1994 because the written claim for refund was filed with the
BIR on January 10, 1994. Since the two-year prescriptive period is not only a limitation of
action in the administrative stage but also a limitation of action for bringing the case to the
judicial stage, the petition for review filed with the CTA on March 02, 1996 is beyond the
reglementary period.
 Taxpayer: Prescriptive Period; Claims for Refund (1994)

XCEL Corporation filed its quarterly income tax return for the first quarter of 1985 and
paid an income tax of P500.000.00 on May 15, 1985. In the subsequent quarters, XCEL
suffered losses so that on April 15, 1986 it declared a net loss of P1,000,000.00 in its annual
income tax return. After failing to get a refund, XCEL filed on March 1, 1988 a case with the
Court of Tax Appeals to recover the P500.000.00 in taxes paid on May 15, 1985.

Is the action to recover the taxes filed timely?

SUGGESTED ANSWER:

The action for refund was filed in the Court of Tax Appeals on time. In the case of
Commissioner v. TMX Sales, Inc., 205 SCRA 184, which is similar to this case, the Supreme
Court ruled that in the case of overpaid quarterly corporate income tax, the two-year period for
filing claims for refund in the BIR as well as in the institution of an action for refund in
the CTA, the two-year prescriptive period for tax refunds (Sec. 230, Tax Code) is
counted from the filing of the final, adjustment return under Sec. 67 of the Tax Code, and
not from the filing of the quarterly return and payment of the quarterly tax. The CTA
action on March 1, 1988 was clearly within the reglementary two-year period from the
filing of the final adjustment return of the corporation on April 15, 1986.

Note:
A return filed showing an overpayment shall be considered as a written claim for credit or refund.

Note:
Once the option to carry-over and apply the excess quarterly income tax against income tax due for the
taxable quarters of the succeeding taxable years has been made such option shall be considered
irrevocable for that taxable period and no application for cash refund or issuance of a tax credit shall be
allowed therefor

Taxpayer; Claim for Tax Credits (2006)

Congress enacts a law granting grade school and high school students a 10% discount on
all school-prescribed textbooks purchased from any bookstore. The law allows bookstores to
claim in full the discount as a tax credit.

1. If in a taxable year a bookstore has no tax due on which to apply the tax credits, can
the bookstore claim from the BIR a tax refund in lieu of tax credit? Explain. (2.5%)

SUGGESTED ANSWER:
 No, the bookstore cannot claim from the BIR a tax refund in lieu of tax credit. There is
nothing in the law that grants a refund when the bookstore has no tax liabil- ity against which
the tax credit can be used (CIR v. Central Luzon Drug, G.R. No 159647, April 15, 2005). A tax
credit is in the nature of a tax exemption and in case of doubt, the doubt should be resolved in
strictissimi juris against the claimant.

2. Can the BIR require the bookstores to deduct the amount of the discount from their gross
income? Explain. (2.5%)
SUGGESTED ANSWER:

No. Tax credit which reduces the tax liability is different from a tax deduction which merely
reduces the tax base. Since the law allowed the bookstores to claim in full the discount as a tax
credit, the BIR is not allowed to expand or contract the legislative mandate (CIR v.
Bicolandia Drug Corp., G.R. No. 148083, July 21, 2006; CIR v. Central Luzon Drug Corp., G.R.
No. 159647, April 15, 2005).

3. If a bookstore closes its business due to losses with- out being able to recoup the
discount, can it claim reimbursement of the discount from the government on the ground that
without such reimbursement, the law constitutes taking of private property for public
use without just compensation? Explain. (5%)

SUGGESTED ANSWER:

A bookstore, closing its business due to losses, cannot claim reimbursement of the
discount from the government. If the business continues to operate at a loss and no other
taxes are due, thus compelling it to close shop, the credit can never be applied and will
be lost altogether (CIR v. Central Luzon Drug, G.R. No. 159647, April 15, 2005). The grant of
the discount to the taxpayer is a mere privilege and can be revoked anytime.

Options available to the taxpayer when the tax paid is not equal to the tax due:
1. If there is a deficiency in payment, to pay the balance of the tax due
2. Carry over the excess credit
3. Be credited or refunded the amount paid.

Note:
Once the option of applying the tax credit has been made, it may no longer be revoked.

Note:
A tax refund is treated as a tax exemption as such it is strictly construed against the taxpayer and the
burden of proof is on the taxpayer to prove that he is entitled to the tax refund requested.

Note:
It is a precondition to the filing of an action for refund in the courts that an request for refund be filed with
the CIR. However the adverse decision of the CIR is not required to the institution of the action in the
courts hence if within the 2 year prescriptive period is about to lapse and there has been no action on the
part of the CIR as to the request for refund the taxpayer must institute an action before the CTA otherwise
his claim will be barred by prescription.

Taxpayer: Prescriptive Period; Claims for Refund (2004)

On March 12, 2001, REN paid his taxes. Ten months later, he realized that he had
overpaid and so he immediately filed a claim for refund with the Commissioner
of Internal Revenue.

On February 27, 2003, he received the decision of the Commissioner denying REN's
claim for refund. On March 24, 2003, REN filed an appeal with the Court of Tax
Appeals. Was his appeal filed on time or not? Reason. (5%)

SUGGESTED ANSWER:

The appeal was not filed on time. The two-year period of limitation for filing a claim for
refund is not only a limitation for pursuing the claim at the administrative level but also a
limitation for appealing the case to the Court of Tax Appeals. The law provides that "no suit or
proceeding shall be filed after the expiration of two years from the date of the payment of
the tax or penalty regardless of any supervening cause that may arise after payment (Section
229, JVZRCJ. Since the appeal was only made on March 24, 2003, more than two years had
already elapsed from the time the taxes were paid on March 12, 2003. Accordingly,
REN had lost his judicial remedy because of prescription.

BIR; Authority; Refund or Credit of Taxes (2005)

State the conditions required by the Tax Code before the Commissioner of Internal Revenue
could authorize the refund or credit of taxes erroneously or illegally received.

SUGGESTED ANSWER:

Under Sec. 204(C), NIRC, the following conditions must be met:

1. There must be a written claim for refund filed by the taxpayer with the
Commissioner.
2. The claim for refund must be a categorical demand for reimbursement.
3. The claim for refund must be filed within two (2) years from date of
payment of the tax or penalty regardless of any supervening cause.

Taxpayer; Withholding Agent; Claim of Tax Refund (2005)

Does a withholding agent have the right to file an application for tax refund? Explain.
SUGGESTED ANSWER:

Yes. A taxpayer is "any person subject to tax." Since, the withholding tax agent who is
"required to deduct and withheld any tax" is made "personally liable for such tax" should the
amount of the tax withheld be finally found to be less than that required to be withheld by law,
then he is a taxpayer. Thus, he has sufficient legal interest to file an application for refund, of
the amount he believes was illegally collected from him. (Commissioner of Internal
Revenue v. Procter & Gamble, G.R. No. 66838, December 2, 1991)

Taxpayer: Claim for Refund; Procedure (2002)

A. What must a taxpayer do in order to claim a refund of, or tax credit for, taxes and
penalties which he alleges to have been erroneously, illegally or excessively assessed or
collected? (3%)

SUGGESTED ANSWER:

The taxpayer must comply with the following procedures in claiming a refund of, or tax credit
for, taxes and penalties which he alleges to have been erroneously, illegally or excessively
assessed or collected:
1. He should file a written claim for refund with the Commissioner within two years after
the date of payment of the tax or penalty (Sec. 204, NIRC);
2. The claim filed must state a categorical demand for reimbursement (Bermejo v.
Collector, 87 Phil. 96 [1950]).
3. The suit or proceeding for recovery must be commenced in court within two years from
date of payment of the tax or penalty regardless of any supervening event that will arise
after payment (Sec. 229, NIRC).

B. Can the Commissioner grant a refund or tax credit even without a written claim for it?
(2%)

SUGGESTED ANSWER:

B. Yes. When the taxpayer files a return which on its face shows an overpayment of the tax
and the option to refund/ claim a tax credit was chosen by the taxpayer, the Commissioner
shall grant the refund or tax credit without the need for a written claim. This is so, because a
return filed showing an overpayment shall be considered as a written claim for credit or
refund. (Sees. 76 and 204, NIRC). Moreover, the law provides that the
Commissioner may, even without a written claim therefor, refund or credit any tax where on the
face of the return upon which payment was made, such payment appears clearly to have
been erroneously paid. (Sec. 229, NIRC).

Periods of refund with respect to VAT:

 1. At the administrative level, the 2 year period for the filing of a written claim with the BIR is
counted from the close of the taxable quarter when the sales or importation or purchase were
made.
2. At the judicial level, the two year prescriptive period should not immediately be counted from the
close of the quarter but from the date of filing of the vat return, since it is on that date it can be
determine whether the input tax has been applied to the output tax.

Taxpayer: Assessment: Protest: Claims for refund (2000)

On June 16, 1997, the Bureau of Internal Revenue (BIR) issued against the Estate of Jose de
la Cruz a notice of deficiency estate tax assessment, inclusive of surcharge, interest and
compromise penalty. The Executor of the Estate of Jose de la Cruz (Executor) filed a timely
protest against the assessment and requested for waiver of the surcharge, interest and
penalty. The protest was denied by the Commissioner of Internal Revenue (Commissioner)
with finality on September 13, 1997. Consequently, the Executor was made to pay the
deficiency assessment on October 10, 1997. The following day, the Executor filed a Petition
with the Court of Tax Appeals (CTA) praying for the refund of the surcharge, interest and
compromise penalty. The CTA took cognizance of the case and ordered the Commissioner
to make a refund. The Commissioner filed a Petition for Review with the Court of
Appeals assailing the jurisdiction of the CTA and the Order to make refund to the Estate on
the ground that no claim for refund was filed with the BIR.

A. Is the stand of the Commissioner correct? Reason. (2%)

SUGGESTED ANSWER:

Yes. There was no claim for refund or credit that has been duly filed with the Commissioner
of Internal Revenue which is required before a suit or proceeding can be filed in any court
(Sec. 229. NIRC of 1997). The denial of the claim by the Commissioner is the one which will
vest the Court of Tax Appeals jurisdiction over the refund case should the taxpayer decide
to appeal on time.

B. Why is the filing of an administrative claim with the BIR necessary? (3%)

SUGGESTED ANSWER:

The filing of an administrative claim for refund with the BIR is necessary in order:
1) To afford the Commissioner an opportunity to consider the claim and to have a
chance to correct the errors of subordinate officers (Gonzales v. CTA, et al, 14 SCRA 79);
and

2) To notify the Government that such taxes have been questioned and the notice
should be borne in mind in estimating the revenue available for expenditures. (Bermejo
v. Collector, G.R. No. L- 3028. July 29, 1950)
Taxpayer: Protest against Assessment (1999)

A Co., a Philippine corporation, received an income tax deficiency assessment from the
BIR on November 25, 1996. On December 10, 1996, A Co. filed its protest with the BIR On
May 20, 1997, the BIR issued a warrant of distraint to enforce the assessment. This
warrant was served on A Co. on May 25, 1997. In a letter dated June 4, 1997 and received by A
Co. 5 days later, the CIR formally denied A Co.'s protest stating that it constitutes his final
decision on the matter. On July 6, 1997, A Co. filed a Petition for Review with the
CTA. The BIR moved to dismiss the Petition on the ground that the CTA has no jurisdiction
over the case. Decide. (10%)

SUGGESTED ANSWER:

The CTA has jurisdiction over the case. The appealable decision is the one which
categorically stated that the Commissioner's action on the disputed assessment is final and,
therefore, the reckoning of the 30-day period to appeal was on June 9, 1999. The filing of the
petition for review with the CTA was timely made. The Supreme Court has ruled that the
CIR must categorically state that his action on a disputed assessment is final; otherwise, the
period to appeal will not commence to run. That final action cannot be implied from the
mere issuance of a warrant "of distraint and levy. (CIR v. Union Shipping Corporation, 185
SCRA 547).

Taxpayer: Protest; Claim of Refund (1996)

Is protest at the time of payment of taxes and duties a requirement to preserve the
taxpayers' right to claim a refund? Explain.

SUGGESTED ANSWER:

For TAXES imposed under the NIRC, protest at the time of payment is not required to
preserve the taxpayers' right to claim refund. This is clear under Section 230 of the NIRC which
provides that a suit or proceeding maybe maintained for the recovery of national internal
revenue tax or penalty alleged to have been erroneously assessed or collected, whether
such tax or penalty has been paid under protest or not.

For DUTIES imposed under the Tariff and Customs Code, a protest at the time of
payment is required to preserve the taxpayers' claim for refund. The procedure under the
TCC is to the effect that when a ruling or decision of the Collector of Customs is made
whereby liability for duties is determined, the party adversely affected may protest such
ruling or decision by presenting to the Collector, at the time when payment is made, or
within 15 days thereafter, a written protest setting forth his objections to the ruling or
decision in question (Sec. 2308. TCC).
Note:
An appeal to the SEC of finance over the decision of the CIR except on tariff cases, will not suspend the
prescriptive period to institute an action in the CTA since it is not the officer which the law has specified
to whom the appeal should be taken.

VAT; Non-VAT taxpayer; Claim for Refund (2006)

Lily's Fashion, Inc. is a garment manufacturer located and registered as a Subic Bay
Freeport Enterprise under Republic Act No. 7227 and a non-VAT taxpayer. As such, it is
exempt from payment of all local and national internal revenue taxes. During its operations, it
purchased various supplies and materials necessary in the conduct of its manufacturing
business. The suppliers of these goods shifted to Lily's Fashion, Inc. the 10% VAT on
the purchased items amounting to P 500,000.00. Lily's Fashion, Inc. filed with the BIR a
claim for refund for the input tax shifted to it by the suppliers. If you were the
Commissioner of Internal Revenue, will you allow the refund? (5%)

ALTERNATIVE ANSWER:

No, I will not allow the refund. Only VAT-Registered taxpayers are entitled to a
refund of their unapplied/unused Input VAT (Tax Reform Act, Section 112[A] [1997]).

ALTERNATIVE ANSWER:

No. The exemption of Lily's Fashion, Inc. is only for taxes for which it is directly liable.
Hence, it can not claim exemption for a tax shifted to it, which is not at all considered a
tax to the buyer but a part of the purchase price. Lily's fashion is not the taxpayer in so far
as the passed-on tax is concerned and therefore, it can not claim for a refund of a tax merely
shifted to it (Phil. Acetylene Co., Inc. v. CIR, L-19707,Aug. 17, 1987)

Note:
Once an appeal on the decision of the CIR as to the validity of assessment is filed to the CTA, it has the
effect of divesting the RTC (when appropriate) of jurisdiction under the reasoning that there is no cause
of action since the RTC requires a valid assessment to anchor its decision upon since the assessment itself
is being reviewed in the CTA hence there is nothing for the RTC to enforce.

BIR: Court of Tax Appeals: Collection of Taxes; Grounds for Compromise (1996)

1. May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes
by the Bureau of Internal Revenue? Explain.

SUGGESTED ANSWER:

Yes. When a decision of the Commissioner on a tax protest is appealed to the CTA
pursuant to Sec. 11 of RA. No. 1125 (law creating the CTA) in relation to Sec. 229 of the
 NIRC, such appeal does not suspend the payment, levy, distraint and/or sale of any of the
taxpayer's property for the satisfaction of his tax liability. However, when in the opinion of
the CTA the collection of the tax may jeopardize the interest of the Government
and/or the taxpayer, the Court at any stage of the proceedings may suspend or restrain
the collection of the tax and require the taxpayer either to deposit the amount claimed or
to file a surety bond for not more than double the amount with the Court.

2. May the tax liability of a taxpayer be compromised during the pendency of an appeal?
Explain.

SUGGESTED ANSWER:

Yes. During the pendency of the appeal, the taxpayer may still enter into a compromise
settlement of his tax liability for as long as any of the grounds for a compromise i.e.; doubtful
validity of assessment and financial incapacity of taxpayer, is present. A compromise of a tax
liability is possible at any stage of litigation, even during appeal, although legal propriety
demands that prior leave of court should be obtained

COURT OF TAX APPEALS (R.A. 9282- approved March 30, 2004)

COMPOSITION
1. Presiding Justice and 5 Associate Justices
2. May sit en banc or in two divisions, each division consisting of 3 justices. The presiding justice
and the most senior associate justice shall serve as chairmen of the two divisions.

POWERS of the Court of Tax Appeal

1. to administer oaths;
2. to receive evidence;
3. to summon witness by subpoena;
4. to inquire production of papers or documents by subpoena duces tecum;
5. to punish contempt;
6. to promulgate rules and regulations for the conduct of its business;
7. to assess damage against appellant if appeal to CTA is found to be frivolous or dilatory;
8. to suspend the collection of tax pending appeal; and
9. to render decisions on case brought before it.
10. to issue order authorizing distraint of personal property and levy of real personal property.

DISTRAINT OF DISTRAINT OF PERSONAL PROPERTY AND LEVY OF REAL PROPERTY

Upon the issuance of any ruling, order or decision by the CTA favorable to the national government, the
CTA shall issue an order authorizing the BIR, through the commissioner:
1. to seize and distrait any goods, chattels, or effects and personal property, including stocks and
other securities, debts, credits, bank accounts, and interest in and rights to personal property
and/or
 2. levy the real property of such persons in sufficient quantity to satisfy the tax or charge together
with any increment thereto incident to delinquency.

Note:
The remedy shall not be exclusive and shall not preclude the court from availing of other means under the
Rules of Court.

JURISDICTION OF THE CTA

1. EXCLUSIVE APPELATE JURISDICTION TO REVIEW BY APPEAL
a. decision or inaction of the CIR in:
i. disputed assessment; refunds of internal revenue taxes, fees and other charges;
penalties imposed in relation thereto; and
ii. other matters arising under the NIRC; or other law or part of law administered by
BIR.
b. Decisions, order or resolution of the RTCs in local tax cases originally decided or
resolved by them in the exercise of their original or appellate jurisdiction.
c. Decisions of Commissioner of Customs in:
i. cases involving liability from customs duties, fees and other money charges;
seizures, detention or release of property affected; fines, forfeitures and other
penalties imposed in relation thereto; and
ii. other matters arising under the Customs Law or other laws or part of laws
administered by the BOC.
d. Decisions of the CBAA (Central Board of Assessment Appeals) in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real property
originally decided by the LBAA;
e. Decisions of the Secretary of Finance on customs cases elevated to him automatically for
review from decisions of the Commissioner of Customs which are adverse to the
government;
f. Decisions of the Secretary of Trade and Industry, in the case of nonagricultural products,
and the Secretary of Agriculture in the case of agricultural products, involving dumping
and countervailing duties
2. JURISDICTION OVER CRIMINAL CASES
a. Exclusive original jurisdiction over all criminal offenses arising from violations of the
NIRC or tariff and Customs Code and other laws administered by the BIR and BOC.
HOWEVER, offenses:
i. where the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than 1 million pesos, or
ii. where there is no specified amount claimed shall be tried by the regular courts
and the jurisdiction of the CTA shall be appellate.
b. The criminal action and the corresponding civil action for the recovery of civil liability
for taxes and penalties shall at all times be simultaneously instituted with, and jointly
determined in the same proceeding by the CTA, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action,
 c. No right to reserve the filing of such civil action separately from the criminal action shall
be recognized
d. Exclusive appellate jurisdiction in criminal offenses:
i. over appeals from the judgments, resolutions or orders of the RTC in tax cases
originally decided by them;
ii. over petitions for review of the judgments, resolutions or orders of the RTC in
the exercise of their appellate jurisdiction over tax cases originally decided by the
MTC.
3. JURISDICTION OVER TAX COLLECTION CASES
a. Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties. Collection where the principal amount
of taxes and fees, exclusive of charges and penalties, claimed is less than 1 million pesos
shall be tried by the proper MTC and RTC;
b. Exclusive appellate jurisdiction in tax collection cases:
i. over appeals from the judgments, resolutions or orders of the RTC in tax
collection cases originally decided by them;
ii. over petitions for review of the judgments, resolutions or orders of the RTC in
the exercise of their appellate jurisdiction over tax collection cases originally
decided by the MTC.

GEN. RULE:
No appeal taken to the CTA shall suspend the payment, levy or distrait, and/or sale of any property of the
taxpayer.

EXCEPTIONS:
1. there must be a showing that collection of the tax may jeopardize the interest of the government
and/or taxpayer;
2. deposit of the amount claimed or file a surety bond for not more that double the amount of tax
with the Court when required; and
3. showing by taxpayer that appeal is not frivolous or dilatory.

CAN THE CTA ENJOIN COLLECTION OF TAXES?

Sec. 11 of R.A. 1125 as amended by Sec. 9 of R.A. 9282 grants CTA power to suspend collection of tax
if such collection works to serious prejudice of either taxpayer or government. HOWEVER, Sec. 218 of
NIRC provides no court any grant injunction to restrain collection of any tax, fee, charge imposed by the
Tax code. The provision in Tax Code refers to courts OTHER THAN the CTA. [Blaquera vs. Rodriguez,
G.R. no. L-11295, March 29, 1958]

Note:
Appeal to the CTA does not automatically suspend collection UNLESS CTA issues suspension order at
any stage of proceedings.
Note:
PD 242, granting jurisdiction to the DOJ only of cases or controversies within and among the government
offices, agenies and instrumentalities, including GOCC. Whereas the law creating CTA governs all
revenue and customs controversies involving private litigants and the government

Jurisdiction: Customs vs. CTA (2000)

a) On the basis of a warrant of seizure and detention issued by the Collector of

Customs for the purpose of enforcing the Tariff and Customs Laws, assorted brands of
cigarettes said to have been illegally imported into the Philippines were seized from a store
where they were openly offered for sale. Dissatisfied with the decision rendered after hearing
by the Collector of Customs on the confiscation of the articles, the importer filed a
petition for review with the Court of Tax Appeals. The Collector moved to dismiss the
petition for lack of Jurisdiction. Rule on the motion. (2%)

SUGGESTED ANSWER:

Motion granted. The Court of Tax Appeals has jurisdiction only over decisions of
the Commissioner of Customs in cases involving seizures, detention or release of property
affected. (Sec. 7, R.A. No. 1125). There is no decision yet of the Commissioner which is
subject to review by the Court of Tax Appeals.

ALTERNATIVE ANSWER:

Motion granted. The Court of Tax Appeals has no jurisdiction because there is no
decision rendered by the Commissioner of Customs on the seizure and forfeiture case. The
taxpayer should have appealed the decision rendered by the Collector within fifteen (15)
days from receipt of the decision to the Commissioner of Customs. The Commissioners
adverse decision would then be the subject of an appeal to the Court of Tax Appeals.

b) Under the same facts, could the importer file an action in the Regional Trial Court for
replevin on the ground that the articles are being wrongfully detained by the Collector of
Customs since the importation was not illegal and therefore exempt from seizure?
Explain. (3%)

SUGGESTED ANSWER:

No. The legislators intended to divest the Regional Trial Courts of the jurisdiction to replevin a
property which is a subject of seizure and forfeiture proceedings for violation of the Tariff and
Customs Code otherwise, actions for forfeiture of property for violation of the Customs
laws could easily be undermined by the simple device of replevin. (De la Fuente v. De
Veyra, et. al, 120 SCRA 455)
 There should be no unnecessary hindrance on the government's drive to prevent
smuggling and other frauds upon the Customs. Furthermore, the Regional Trial Court do not
have Jurisdiction in order to render effective and efficient the collection of Import and export
duties due the State, which enables the government to carry out the functions It has been
Instituted to perform. (Jao, et al, Court of Appeals, et al, and companion case, 249
SCRA 35, 43)

Taxpayer: City Board of Assessment Decision; Where to appeal (1999)

A Co., a Philippine corporation, is the owner of machin- ery, equipment and fixtures located
at its plant in Muntinlupa City. The City Assessor characterized all these properties as real
properties subject to the real property tax. A Co. appealed the matter to the Muntinlupa Board
of Assessment Appeals. The Board ruled in favor of the City. In accordance with RA 1125
(An Act creating the Court of Tax Appeals). A Co. brought a petition for review before
the CTA to appeal the decision of the City Board of Assessment Appeals. Is the Petition for
Review proper? Explain. (5%)

SUGGESTED ANSWER:

No. The CTAs devoid of jurisdiction to entertain appeals from the decision of the City
Board of Assessment Appeals. Said decision is instead appealable to the Central Board of
Assessment Appeals, which under the Local Government Code, has appellate jurisdiction
over deci- sions of Local Board of Assessment Appeals. (Caltex Phils, foe. v. Central
Board of Assessment Appeals, L- 50466, May 31, 1982).

Collection of Taxes: Prescription (2001)

May the collection of taxes be barred by prescription? Explain your answer. (3%)

SUGGESTED ANSWER:

Yes. The collection of taxes may be barred by prescription. The prescriptive

periods for collection of taxes are governed by the tax law imposing the tax. However, if
the tax law does not provide for prescription, the right of the government to collect taxes
becomes imprescriptible.

BIR: Court of Tax Appeals: Collection of Taxes; Grounds for Compromise (1996)

1. May the Court of Tax Appeals issue an injunction to enjoin the collection of taxes
by the Bureau of Internal Revenue? Explain.

SUGGESTED ANSWER:
 Yes. When a decision of the Commissioner on a tax protest is appealed to the CTA
pursuant to Sec. 11 of RA. No. 1125 (law creating the CTA) in relation to Sec. 229 of the
NIRC, such appeal does not suspend the payment, levy, distraint and/or sale of any of the
taxpayer's property for the satisfaction of his tax liability. However, when in the opinion of
the CTA the collection of the tax may jeopardize the interest of the Government
and/or the taxpayer, the Court at any stage of the proceedings may suspend or restrain
the collection of the tax and require the taxpayer either to deposit the amount claimed or
to file a surety bond for not more than double the amount with the Court.

2. May the tax liability of a taxpayer be compromised during the pendency of an appeal?
Explain.

SUGGESTED ANSWER:

Yes. During the pendency of the appeal, the taxpayer may still enter into a compromise
settlement of his tax liability for as long as any of the grounds for a compromise i.e.; doubtful
validity of assessment and financial incapacity of taxpayer, is present. A compromise of a tax
liability is possible at any stage of litigation, even during appeal, although legal propriety
demands that prior leave of court should be obtained (Pasudeco vs. CIR L-39387, June 29,
1982).

Collection of Taxes: Authority; Ordinary Courts (2001)

May the courts enjoin the collection of revenue taxes? Explain your answer. (2%)

SUGGESTED ANSWER:

As a general rule, the courts have no authority to enjoin the collection of revenue taxes.
(Sec. 218, NIRC). However, the Court of Tax Appeals is empowered to enjoin the
collection of taxes through administrative remedies when collection could jeopardize the
interest of the government or taxpayer. (Section 11, RA 1125).

Local Government Code

Article 10 Section 5.
Each local government unit shall have the power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and charges shall accrue
exclusively to the local governments

Note:
The LGUs have no power to tax instrumentalities of the national government, this doctrine emanates
from the supremacy of the national government over the local government
Power to Create Sources of Revenue Each local government unit has the power to:
1. create its own sources of revenue and
2. levy taxes, fees, and charges subject to the provisions herein, consistent with the basic policy of
local autonomy. (Sec. 129)
Note:
Such taxes, fees, and charges shall accrue exclusively to the local government units.

Section 130. Fundamental Principles. - The following fundamental principles shall govern the
exercise of the taxing and other revenue-raising powers of local government units:

(a) Taxation shall be uniform in each local government unit;

(b) Taxes, fees, charges and other impositions shall:

(1) be equitable and based as far as practicable on the taxpayer's ability to pay;

(2) be levied and collected only for public purposes;

(3) not be unjust, excessive, oppressive, or confiscatory;

(4) not be contrary to law, public policy, national economic policy, or in the restraint of trade;

(c) The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person;

(d) The revenue collected pursuant to the provisions of this Code shall inure solely to the benefit of,
and be subject to the disposition by, the local government unit levying the tax, fee, charge or
other imposition unless otherwise specifically provided herein; and,

(e) Each local government unit shall, as far as practicable, evolve a progressive system of taxation.

FUNDAMENTAL PRINCIPLES (SEC. 130, LGC)

The fundamental principles governing the exercise of the taxing and other revenue-raising powers of
LGUs are:
1. Taxation shall be Uniform in each local government unit;
2. Taxes, fees, charges and other impositions shall
a. be equitable and based as far as practicable on the taxpayer's ability to pay;
b. be levied and collected only for public purposes;
c. not be unjust, excessive, oppressive, or confiscatory;
d. not be contrary to Law, public policy, national economic policy, or in the restraint of
trade;
3. The collection of local taxes, fees, charges and other impositions shall in no case be let to any
private person;
 4. The revenue collected shall inure solely to the benefit of the local government unit levying the
tax, fee, charge or other imposition unless otherwise specifically provided for in the LGC; and,
5. Each local government unit shall, as far as practicable, evolve a progressive system of taxation.

LOCAL TAXING AUTHORITY

The power to tax is exercised by the Sanggunian of the LGU concerned through an appropriate ordinance.
(Sec. 132, LGC)

Local Taxation: Power to Impose (2003)

In order to raise revenue for the repair and maintenance of the newly constructed City Hall of
Makati, the City Mayor ordered the collection of P1.00, called "elevator tax", every time
a person rides any of the high-tech elevators in the city hall during the hours of 8:00 a.m. to
10:00 a.m. and 4:00 p.m. to 6:00 p.m. Is the "elevator tax" a valid imposition? Explain. (8%)

SUGGESTED ANSWER:

No. The imposition of a tax, fee or charge or the generation of revenue under the
Local Government Code, shall be exercised by the SANGUNIAN of the local government
unit concerned through an appropriate ordinance (Section 132 of the Local Government
Code). The city mayor alone could not order the collection of the tax; as such, the "elevator tax"
is an invalid imposition.

POWER TO ADJUST LOCAL TAX RATE (SEC. 191, LGC)

Adjustment of the tax rates as prescribed herein should not be oftener than once every five (5) years, and
in no case shall such adjustment exceed 10% of the rates fixed under the LGC.

POWER TO GRANT TAX EXEMPTIONS

(SEC. 192, LGC)
LGU may, through ordinances duly approved, grant tax exemptions, incentives or reliefs under such
terms and conditions, as they may deem necessary.

RESIDUAL TAXING POWERS OF THE LGU (SEC. 186, LGC)

To levy taxes, fees, or charges on any base or subject NOT:
1. specifically enumerated in LGC
2. taxed under the provisions of the NIRC
3. other applicable laws.

Section 133. Common Limitations on the Taxing Powers of Local Government Units. - Unless
otherwise provided herein, the exercise of the taxing powers of provinces, cities, municipalities, and
barangays shall not extend to the levy of the following:
(a) Income tax, except when levied on banks and other financial institutions;

(b) Documentary stamp tax;

(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;

(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;

(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for
wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form whatsoever
upon such goods or merchandise;

(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;

(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of registration;

(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;

(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;

(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water,
except as provided in this Code;

(k) Taxes on premiums paid by way or reinsurance or retrocession;

(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;

(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;

(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-
eight (R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines"
respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units

Limitations of the Residual Power:

1. constitutional limitations on taxing power
2. common limitation prescribed in Sec. 133, LGC
3. fundamental principles governing the exercise of the taxing power of the LGUs prescribed under
Sec. 130 LGC
4. the ordinance levying such residual taxes shall not be enacted without any prior public hearing
conducted for the purpose
5. the principle of preemption.

PRINCIPLE OF PREEMPTION OR EXCLUSIONARY DOCTRINE

Where the National Government elects to tax a particular area, it impliedly withholds from the local
government the delegated power to tax the same field. This doctrine rest on the intention of the Congress.

Excluded imposition:
1. taxes which are levied under the NIRC, unless otherwise provided by LGC;
2. taxes which are imposed under the Tariff and Customs code
3. taxes imposition of which contravenes existing governmental policies or which violates the
fundamental principles of taxation
4. taxes and other charges imposed under special law.

LIMITATION ON LOCAL TAXING POWER (SEC. 133,LGC)

1. Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds of
licenses or permits for the driving thereof, except tricycles;
2. Taxes, fees or charges of any kind on the National Government, its agencies and
Instrumentalities, and local government units.
3. Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives duly
registered under R.A. 6810 and R.A. 6938 (Cooperative Code of the Philippines);
4. Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided;
5. Taxes on premiums paid by way or reinsurance or retrocession;
6. Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, except
as provided in the Code;
7. Customs duties, registration fees of vessel ( except the fee that may be imposed on the issuance of
licenses for the operation of fishing vessels of three tons gross or less by municipalities) and
wharfage on wharves, tonnage dues, and all other kinds of customs fees, charges and dues, except
wharfage on wharves constructed and maintained by the local government unit concerned;
8. Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
9. Documentary stamp tax;
 10. Estate Tax, inheritance, gifts, legacies and other acquisitions mortis causa, except as otherwise
provided;
11. Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for
wharfage, tolls for bridges or otherwise,
12. Percentage or VAT on sales, barters or exchanges or similar transactions on goods or services
except as otherwise provided;
13. Income tax, except on banks and other financial institutions;
14. Taxes on business enterprises certified to by the Board of Investments as pioneer or non-pioneer
for a period of 6 and 4 years, respectively from the date of registration;
15. Excise taxes on articles enumerated under the national Internal Revenue Code, as amended, and
taxes, fees or charges on petroleum products.

Note:
Ordinance which would prohibit the free flow of goods into, or out of, the territorial jurisdictions of local
governments are invalid.

OTHER IMPOSITIONS THAT THE LGU MAY LEVY

1. provinces
2. municipalities
3. cities
4. barangays
Review of tax ordinance

Section 187. Procedure for Approval and Effectivity of Tax, Ordinances and Revenue Measures;
Mandatory Public Hearings. - The procedure for approval of local tax ordinances and revenue
measures shall be in accordance with the provisions of this Code: Provided, That public hearings
shall be conducted for the purpose prior to the enactment thereof: Provided, further, That any
question on the constitutionality or legality of tax ordinances or revenue measures may be raised on
appeal within thirty (30) days from the effectivity thereof to the Secretary of Justice who shall
render a decision within sixty (60) days from the date of receipt of the appeal: Provided, however,
That such appeal shall not have the effect of suspending the effectivity of the ordinance and the
accrual and payment of the tax, fee, or charge levied therein: Provided, finally, That within thirty
(30) days after receipt of the decision or the lapse of the sixty-day period without the Secretary of
Justice acting upon the appeal, the aggrieved party may file appropriate proceedings with a court
of competent jurisdiction.

Section 56. Review of Component City and Municipal Ordinances or Resolutions by the
Sangguniang Panlalawigan.

(a) Within three (3) days after approval, the secretary to the sanggunian panlungsod or
sangguniang bayan shall forward to the sangguniang panlalawigan for review, copies of approved
ordinances and the resolutions approving the local development plans and public investment
programs formulated by the local development councils.
(b) Within thirty (30) days after the receipt of copies of such ordinances and resolutions, the
sangguniang panlalawigan shall examine the documents or transmit them to the provincial
attorney, or if there be none, to the provincial prosecutor for prompt examination. The provincial
attorney or provincial prosecutor shall, within a period of ten (10) days from receipt of the
documents, inform the sangguniang panlalawigan in writing of his comments or recommendations,
which may be considered by the sangguniang panlalawigan in making its decision.

(c) If the sangguniang panlalawigan finds that such an ordinance or resolution is beyond the power
conferred upon the sangguniang panlungsod or sangguniang bayan concerned, it shall declare such
ordinance or resolution invalid in whole or in part. The sangguniang panlalawigan shall enter its
action in the minutes and shall advise the corresponding city or municipal authorities of the action
it has taken.

(d) If no action has been taken by the sangguniang panlalawigan within thirty (30) days after
submission of such an ordinance or resolution, the same shall be presumed consistent with law and
therefore valid.

Section 57. Review of Barangay Ordinances by the Sangguniang Panlungsod or Sangguniang

Bayan. -

(a) Within ten (10) days after its enactment, the sangguniang barangay shall furnish copies of all
barangay ordinances to the sangguniang panlungsod or sangguniang bayan concerned for review
as to whether the ordinance is consistent with law and city or municipal ordinances.

(b) If the sangguniang panlungsod or sangguniang bayan, as the case may be, fails to take action on
barangay ordinances within thirty (30) days from receipt thereof, the same shall be deemed
approved.

(c) If the sangguniang panlungsod or sangguniang bayan, as the case may be, finds the barangay
ordinances inconsistent with law or city or municipal ordinances, the sanggunian concerned shall,
within thirty (30) days from receipt thereof, return the same with its comments and
recommendations to the sangguniang barangay concerned for adjustment, amendment, or
modification; in which case, the effectivity of the barangay ordinance is suspended until such time
as the revision called for is effected.

Requisites of a valid ordinance:

1. it must not contravene the constitution or any state
2. it must not be unfair or oppressive
3. it must not be partial or discriminatory
4. it must not prohibit but may regulate trade
5. it must be general and consistent with public policy
6. it must not be unreasonable.
Review by Sangguniang of ordinance passed by barangay, municipal and city sangguniang:
1. within 3 days after its approval, copies of the approved tax ordinance of the municipality or a
component city shall be furnished to the sangguniang; in the case of barangay ordinances, within
10 days from enactment, copies thereof shall be forwarded to the municipal sanngunian, or the
city sangguniang as the case may be for the review of the ordinance
2. the provincial sangguniang shall review the tax ordinance within 30 days after receipt of a copy
thereof
a. They shall examine the ordinance or require the provincial attorney or prosecutor to
provide it with his written comments or recommendation which may be considered by the
sangguniang in making its decision.
b. It may declare the ordinance invalid, in whole or in part, if it finds that such ordinance to
be beyond the power conferred upon the city or municipal sangguniang
3. In the case of barangay ordinance, the city or municipal sangguniang, if it finds the ordinance
inconsistent with law, shall return the same for adjustment, amendment or notification that would
thereby render the ordinance suspended until such time the revision call for is effected.
4. If within the 30 day review period, the provincial, municipal or city sangguniang takes not action,
the tax ordinance shall be deemed approved.

Review by the Secretary of Justice:

1. Any question on the constitutionality or legality of tax ordinances may be raised on appeal within
30 days from the effectivity thereof
2. To the Secretary of Justice
3. Who shall render a decision within 60 days from date of receipt of appeal
4. Such appeal shall not suspend the effectivity of the ordinance, as well as the accrual and payment
of the tax
5. In case of adverse decision or inaction by the Secretary of Justice, the aggrieved party may file
appropriate proceedings with a court of competent jurisdiction.

Local Taxation: Legality/ Constitutionality; Tax Ordinance (2003)

X, a taxpayer who believes that an ordinance passed by the City Council of Pasay is
unconstitutional for being discriminatory against him, want to know from you, his tax
lawyer, whether or not he can file an appeal. In the affirmative, he asks you where such
appeal should be made: the Secretary of Finance, or the Secretary of Justice, or the Court of
Tax Appeals, or the regular courts. What would your advice be to your client, X? (8%)

SUGGESTED ANSWER:

The appeal should be made with the Secretary of Justice. Any question on the constitutionality
or legality of a tax ordinance may be raised on appeal with the Secretary of Justice within 30
days from the effectivity thereof. (Sec. 187, LGC; Hagonoy Market Vendor
Association v. Municipality of Hagonoy, 376 SCRA 376 [2002]).
 PROVINCES
Taxes that may be imposed by provinces
1. tax on transfer of real property
2. tax on business of printing and publication
3. franchise tax
4. tax on sand gravel and other quarry resources extracted from public land
5. professional tax
6. amusement tax
7. annual fixed tax for delivery truck or van manufacturers or producers, wholesalers of, dealer, or
retailers in, certain products.

Tax on Transfer of Real Property Ownership.

The province may impose a tax on the sale, donation, barter, or on any other mode of transferring
ownership or title of real property.

Rate:
Not more than 50% of the 1% of the total consideration or of the fair market value, whichever is higher

Exception:
Sale, transfer or other disposition of real property pursuant to R.A. No. 6657 (CARL).

Note: It shall be the duty of the seller, donor, transferor or administrator to pay the tax imposed within 60
days from the date of the execution of the deed or from the date of the decedent's death

Tax on Business of Printing and Publication.

The province may impose a tax on the business of persons engaged in the printing and/or publication of
books, cards, posters, leaflets, handbills, certificates, receipts, pamphlets, and others of similar nature.

Rate:
Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year

Exceptions:
Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment. School texts or
references, prescribed by the DECS shall be exempt from the tax.

Franchise Tax.
Notwithstanding any exemption granted by any law or other special law, the province may impose a tax
on businesses enjoying a franchise.

Rate:
Not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year, within its
territorial jurisdiction.

Exceptions:
Newly started business, the tax shall not exceed 1/20 of 1% of the capital investment.

Tax on Sand, Gravel and Other Quarry Resources.

The province may levy and collect taxes on ordinary stones, sand, gravel, earth, and other quarry
resources extracted from public lands or from the beds of seas, lakes, rivers, streams, creeks, and other
public waters within its territorial jurisdiction.

Rate:
Not more than 10% of fair market value in the locality

Note:
The permit to extract resources shall be issued exclusively by the provincial governor, pursuant to the
ordinance of the sangguniang panlalawigan. Proceeds distributed as follows:
1. Province -30%
2. Component City or Municipality where the quarry resources are extracted - 30%
3. Barangay where the quarry resources are extracted - 40%.

Professional Tax.
The province may levy an annual professional tax on each person engaged in the exercise or practice of
his profession requiring government examination. To be paid on or before the 31st day of January.

Note:
Any person first beginning to practice a profession after the month of January must, however, pay the full
tax before engaging therein.

Rate:
At such amount and reasonable classification as the sangguniang panlalawigan may determine but shall in
no case exceed P300.00.

Exception:
Professionals exclusively employed in the government shall be exempt from the payment of this tax.

Note:
To be paid to the province where he/she practices his/her profession or where he/she maintains principal
office in case the practice is in several places provided, after payment he/she shall be entitled to practice
his/her profession in any part of the Philippines. W/out being subjected to any other national or local tax,
license, or fee for the practice of the profession.
 Local Taxation; Situs of Professional Taxes (2005)

Mr. Fermin, a resident of Quezon City, is a Certified Public Accountant-Lawyer engaged in

the practice of his two professions. He has his main office in Makati City and maintains a
branch office in Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and
his professional tax as a lawyer in Pasig City. (5%)

a) May Makati City, where he has his main office, require him to pay his professional tax as a
lawyer? Explain.

SUGGESTED ANSWER:

No. Makati City where Mr. Fermin has his main office may not require him to pay his
professional tax as a lawyer. Mr. Fermin has the option of paying his professional
tax as a lawyer in Pasig City where he practices law or in Makati City where he
maintains his principal office. (Sec. 139[b], Local Government Code)

b) May Quezon City, where he has his residence and where he also practices his two
professions, go after him for the payment of his professional tax as a CPA and a lawyer?
Explain.

SUGGESTED ANSWER:

No, the situs of the professional tax is the city where the professional practices his
profession or where he maintains his principal office in case he practices his
profession in several places. The local government of Quezon City has no right to collect
the professional tax from Mr. Fermin as the place of residence of the taxpayer is not the proper
situs in the collection of the professional tax.

Amusement Tax.
The province may levy an amusement tax to be collected from the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadium, and other places of amusement where one
seeks admission to entertain himself by seeing or viewing a show or performance

Rate:
Not more than 30% of the gross receipts from admission fees.

Exception:
The holding of operas, concerts, dramas, recitals, painting and art exhibitions, flower shows, musical
programs, literary and oratorical presentations, except pop, rock, or similar concerts shall be exempt.

Note:
Sangguniang panlalawigan may prescribe the time, manner, terms and conditions for the payment of tax.
In case of fraud or failure to pay, the sangguniang panlalawigan may impose surcharges, interest and
penalties. The proceeds from the amusement tax shall be shared equally by the province and the
municipality where such amusement places are located.

Annual Fixed Tax for Every Delivery Truck or Van of Manufacturers or Producers, Wholesalers of,
Dealers, or Retailers in, Certain Products.
The province may levy an annual fixed tax for every truck or any vehicle used by manufacturers,
producers, wholesalers, dealers or retailers in the delivery of distilled spirits, soft drinks, cigars and
cigarettes, and other products as may be determined by the sanggunian, to sales outlets, or consumers,
whether directly or indirectly, within the province.

Rate:
Amount not exceeding P500.00.

MUNICIPALITIES (SEC. 143 LGC)

The municipality may impose taxes on the following business:

1. On manufacturers, assemblers, repackers, processors, brewers, distillers, rectifiers, and
compounders of liquors, distilled spirits, and wines or manufacturers of any article of commerce
of whatever kind or nature.
2. On wholesalers, distributors, or dealers in any article of commerce of whatever kind or nature.
3. On exporters, and on manufacturers, millers, producers, wholesalers, distributors, dealers or
retailers of the essential commodities
4. On retailers
5. On contractors and other independent contractors
6. On banks and other financial institutions,
7. On peddlers engaged in the sale of any merchandise or article of commerce
8. On any business, which the sangguniang concerned may deem proper to tax. For businesses
subject to the excise, value added or percentage tax, the tax rate shall not exceed 2% of gross
sales of the preceding calendar year.

Note:
Rates of Tax within the Metropolitan Manila Area shall not exceed by 50% the maximum rates prescribed
for municipalities (1-8 above). (Sec. 144 LGC)

Note:
The tax is payable for every separate or distinct establishment or place where business is conducted. (Sec.
146 LGC)

Municipal non-revenue fees and charges

The municipality may impose and collect such reasonable fees and charges on business and occupation
except professional taxes reserved for provinces. (Sec 147 LGC)

Municipalities shall have the exclusive authority to grant fishery privileges in the municipal
waters. The sanggunian may:
1. Grant fishery privileges to erect fish corrals, oysters, or other aquatic beds or bangus fry areas:
a. Duly registered organizations and cooperatives of marginal fishermen shall have the
preferential right;
b. The sanggunian may require a public bidding pursuant to an ordinance for the grant of
such privilege;
c. Absent of such orgs. and coops or their failure to exercise their preferential right, other
parties may participate in the public bidding
2. Grant the privilege to gather, take or catch bangus fry, prawn fry or fry of other species and fish
from the municipal waters by nets or other fishing gears to marginal fishermen free of rental or
fee
3. Issue licenses for the operation of fishing vessels of three (3) tons or less. (Sec. 149)

CITIES (SEC. 151,LGC)

The city may levy the taxes and other charges which the province or municipalities may impose. The tax
rates that the city may levy may exceed the maximum rates allowed for the province or municipality by
not more than 50% except the rates of professional and amusement taxes.

BARANGAYS (SEC. 152, LGC)

The barangay may levy the following taxes:

1. taxes on stores or retailers with fixed business establishments with the gross sales for the
preceding calendar year of P50,000 or less ( for barangay in the cities) and P30,000 or less
(barangays in municipalities)
2. services or charges
3. barangay clearance
4. other fees and charges.

SITUS OF LOCAL TAXATION (SEC. 150,LGC)

1. For purposes of collection of the taxes under Section 143 (tax on business), businesses
maintaining or operating branch or sales outlet elsewhere shall record the sale in the branch or
sales outlet making the sale or transaction, and the tax thereon shall accrue and shall be paid to
the municipality where such branch or sales outlet is located.
2. In case there is no branch or sales outlet in the city or municipality where the sale made, the sale
shall be recorded in the principal office and the taxes due shall accrue and be paid to such city or
municipality.
3. The following sales allocation for sales recorded in the principal office of businesses with
factories, project offices, plants, and plantations:
a. 30% of all sales recorded in the principal office shall be taxable by the city or
municipality where the principal office is located; and
b. 70% of all sales recorded in the principal office shall be taxable by the city or
municipality where the factory, project office, plant, or plantation is located.
 c. Where the plantation located at a place other than the place where the factory is located,
the above mentioned 70% shall be divided as follows:
i. 60% to the city or municipality where the factory is located; and
ii. 40% to the city or municipality where the plantation is located.
d. Where there are 2 or more factories, project offices, plants, or plantations located in
different localities, the above mentioned 70% shall be prorated among the localities
where the factories, project offices, plants, and plantations are located in proportion to
their respective volumes of production during the period for which the tax is due.

COMMUNITY TAX
Cities or municipalities may levy a community tax (Sec. 156)
1. Individuals Liable to Community Tax:
a. Inhabitant of the Philippines
b. Eighteen years of age or over
c. Regularly employed on a wage or salary
d. basis for at least 30 consecutive working days during any calendar year,
e. Who is engaged in business or occupation,
f. who owns real property with an aggregate assessed value of P1, 000.00 or more,
g. who is required by law to file an income tax return

Tax rate:
1. Individual
a. P5.00 and an annual additional tax of P1.00 for every P1, 000.00 of income regardless of
whether from business, exercise of profession or from property which in no case shall
exceed P5, 000.00.
b. In the case of husband and wife, the tax imposed shall be based upon the total property
owned by them and the total gross receipts or earnings derived by them. (Sec. 157)
2. Juridical Personalities (Sec. 158, LGC)
a. Every corporation, no matter how created or organized, whether domestic or resident
foreign, engaged in or doing business in the Philippines is also liable to pay an annual
community tax.
b. Tax rate: P500.00 and an annual additional tax, which shall exceed P10, 000.00 in
accordance with the following schedule:
i. For every P5,000.00 worth of real property in the Philippines owned by it during
the preceding year based on the valuation used for the payment of real property
tax - P2.00;
ii. For every P5, 000.00 of gross receipts derived by it from its business in the
Philippines during the preceding year P2.00.

EXEMPT FROM COMMUNITY TAX

1. Diplomatic and consular representatives; and
2. Transient visitors when their stay does not exceed 3 months.

Place of Payment:
place of residence of the individual, or in the place where the principal office of the juridical entity is
located. (Sec. 160)

Time for Payment:

accrues on the 1st day of Jan. of each year which shall be paid not later than the last day of Feb. of each
year

Penalties for Delinquency.

An interest of 24% per annum from the due date until it is paid shall be added on the amount due.

Note:
A community tax certificate may also be issued to any person or corporation not subject to the community
tax upon payment of P1.00. (Sec. 162,LGC)

Sec. 163, LGC Presentation of Community Tax Certificate On Certain Occasions

1. Individual
a. When an individual subject to the community tax acknowledges any document before a
notary public,
b. takes the oath of office upon election or appointment to any position in the government
service;
c. receives any license, certificate or permit from any public authority; pays any tax or fee;
d. receives any money from any public fund;
e. transacts other official business; or
f. receives any salary or wage from any person or corporation.
2. Corporation
a. receives any license, certificate, or permit from any public authority,
b. pays any tax or fee,
c. receives money from public funds, or
d. transacts other official business.

Note:
The city or municipal treasurer deputizes the barangay treasurer to collect the community tax in their
respective jurisdictions.

Note:
The proceeds of the community tax actually and directly collected by the city or municipal treasurer shall
accrue entirely to the general fund of the city or municipality concerned.

Proceeds of the community tax collected through the barangay treasurers shall be apportioned as follows:
(Sec. 164):
1. 50% accrues to the general fund of the city or municipality concerned; and
2. 50% accrues to the barangay where the tax is collected.

Note:
The community tax certificate shall not be required in the registration of a voter.

Accrual and Payment of Tax

Section 165. Tax Period and Manner of Payment. - Unless otherwise provided in this Code, the tax
period of all local taxes, fees and charges shall be the calendar year. Such taxes, fees and charges
may be paid in quarterly installments.

Section 166. Accrual of Tax. - Unless otherwise provided in this Code, all local taxes, fees, and
charges shall accrue on the first (1st) day of January of each year. However, new taxes, fees or
charges, or changes in the rates thereof, shall accrue on the first (1st) day of the quarter next
following the effectivity of the ordinance imposing such new levies or rates.

Section 167. Time of Payment. - Unless otherwise provided in this Code, all local taxes, fees, and
charges shall be paid within the first twenty (20) days of January or of each subsequent quarter, as
the case may be. The sanggunian concerned may, for a justifiable reason or cause, extend the time
for payment of such taxes, fees, or charges without surcharges or penalties, but only for a period
not exceeding six (6) months.

TAX REMEDIES UNDER THE LOCAL GOVERNMENT CODE

Section 173. Local Government's Lien. - Local taxes, fees, charges and other revenues constitute a
lien, superior to all liens, charges or encumbrances in favor of any person, enforceable by
appropriate administrative or judicial action, not only upon any property or rights therein which
may be subject to the lien but also upon property used in business, occupation, practice of
profession or calling, or exercise of privilege with respect to which the lien is imposed. The lien may
only be extinguished upon full payment of the delinquent local taxes fees and charges including
related surcharges and interest.

Section 174. Civil Remedies. - The civil remedies for the collection of local taxes, fees, or charges,
and related surcharges and interest resulting from delinquency shall be:

(a) By administrative action thru distraint of goods, chattels, or effects, and other personal property
of whatever character, including stocks and other securities, debts, credits, bank accounts, and
interest in and rights to personal property, and by levy upon real property and interest in or rights
to real property;

(b) By judicial action.

Either of these remedies or all may be pursued concurrently or simultaneously at the discretion of
the local government unit concerned.

Section 175. Distraint of Personal Property. - The remedy by distraint shall proceed as follows:
(a) Seizure - Upon failure of the person owing any local tax, fee, or charge to pay the same at the
time required, the local treasurer or his deputy may, upon written notice, seize or confiscate any
personal property belonging to that person or any personal property subject to the lien in sufficient
quantity to satisfy the tax, fee, or charge in question, together with any increment thereto incident
to delinquency and the expenses of seizure. In such case, the local treasurer or his deputy shall issue
a duly authenticated certificate based upon the records of his office showing the fact of delinquency
and the amounts of the tax, fee, or charge and penalty due. Such certificate shall serve as sufficient
warrant for the distraint of personal property aforementioned, subject to the taxpayer's right to
claim exemption under the provisions of existing laws. Distrained personal property shall be sold at
public auction in the manner hereon provided for.

(b) Accounting of distrained goods. - The officer executing the distraint shall make or cause to be
made an account of the goods, chattels or effects distrained, a copy of which signed by himself shall
be left either with the owner or person from whose possession the goods, chattels or effects are
taken, or at the dwelling or place or business of that person and with someone of suitable age and
discretion, to which list shall be added a statement of the sum demanded and a note of the time and
place of sale.

(c) Publication - The officer shall forthwith cause a notification to be exhibited in not less than three
(3) public and conspicuous places in the territory of the local government unit where the distraint is
made, specifying the time and place of sale, and the articles distrained. The time of sale shall not be
less than twenty (20) days after the notice to the owner or possessor of the property as above
specified and the publication or posting of the notice. One place for the posting of the notice shall be
at the office of the chief executive of the local government unit in which the property is distrained.

(d) Release of distrained property upon payment prior to sale - If at any time prior to the
consummation of the sale, all the proper charges are paid to the officer conducting the sale, the
goods or effects distrained shall be restored to the owner.

(e) Procedure of sale - At the time and place fixed in the notice, the officer conducting the sale shall
sell the goods or effects so distrained at public auction to the highest bidder for cash. Within five (5)
days after the sale, the local treasurer shall make a report of the proceedings in writing to the local
chief executive concerned.

Should the property distrained be not disposed of within one hundred and twenty (120) days from
the date of distraint, the same shall be considered as sold to the local government unit concerned
for the amount of the assessment made thereon by the Committee on Appraisal and to the extent of
the same amount, the tax delinquencies shall be cancelled.

Said Committee on Appraisal shall be composed of the city or municipal treasurer as chairman,
with a representative of the Commission on Audit and the city or municipal assessor as members.

(f) Disposition of proceeds - The proceeds of the sale shall be applied to satisfy the tax, including the
surcharges, interest, and other penalties incident to delinquency, and the expenses of the distraint
and sale. The balance over and above what is required to pay the entire claim shall be returned to
the owner of the property sold. The expenses chargeable upon the seizure and sale shall embrace
only the actual expenses of seizure and preservation of the property pending the sale, and no charge
shall be imposed for the services of the local officer or his deputy. Where the proceeds of the sale
are insufficient to satisfy the claim, other property may, in like manner, be distrained until the full
amount due, including all expenses, is collected.

Section 176. Levy on Real Property. - After the expiration of the time required to pay the
delinquent tax, fee, or charge, real property may be levied on before, simultaneously, or after the
distraint of personal property belonging to the delinquent taxpayer. To this end, the provincial, city
or municipal treasurer, as the case may be, shall prepare a duly authenticated certificate showing
the name of the taxpayer and the amount of the tax, fee, or charge, and penalty due from him. Said
certificate shall operate with the force of a legal execution throughout the Philippines. Levy shall be
effected by writing upon said certificate the description of the property upon which levy is made. At
the same time, written notice of the levy shall be mailed to or served upon the assessor and the
Register of Deeds of the province or city where the property is located who shall annotate the levy
on the tax declaration and certificate of title of the property, respectively, and the delinquent
taxpayer or, if he be absent from the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or if there be none, to the occupant of the property in question.

In case the levy on real property is not issued before or simultaneously with the warrant of distraint
on personal property, and the personal property of the taxpayer is not sufficient to satisfy his
delinquency, the provincial, city or municipal treasurer, as the case may be, shall within thirty (30)
days after execution of the distraint, proceed with the levy on the taxpayer's real property.

A report on any levy shall, within ten (10) days after receipt of the warrant, be submitted by the
levying officer to the sanggunian concerned.

Section 183. Collection of Delinquent Taxes, Fees, Charges or other Revenues through Judicial
Action. - The local government unit concerned may enforce the collection of delinquent taxes, fees,
charges or other revenues by civil action in any court of competent jurisdiction. The civil action
shall be filed by the local treasurer within the period prescribed in Section 194 of this Code.

Section 194. Periods of Assessment and Collection. -

(a) Local taxes, fees, or charges shall be assessed within five (5) years from the date they became
due. No action for the collection of such taxes, fees, or charges, whether administrative or
judicial, shall be instituted after the expiration of such period: Provided, That. taxes, fees or
charges which have accrued before the effectivity of this Code may be assessed within a period
of three (3) years from the date they became due.

(b) In case of fraud or intent to evade the payment of taxes, fees, or charges, the same may be
assessed within ten (10) years from discovery of the fraud or intent to evade payment.
(c) Local taxes, fees, or charges may be collected within five (5) years from the date of assessment
by administrative or judicial action. No such action shall be instituted after the expiration of
said period: Provided, however, That, taxes, fees or charges assessed before the effectivity of
this Code may be collected within a period of three (3) years from the date of assessment.

(d) The running of the periods of prescription provided in the preceding paragraphs shall be
suspended for the time during which:

(1) The treasurer is legally prevented from making the assessment of collection;

(2) The taxpayer requests for a reinvestigation and executes a waiver in writing before
expiration of the period within which to assess or collect; and

(3) The taxpayer is out of the country or otherwise cannot be located.

Section 195. Protest of Assessment. - When the local treasurer or his duly authorized representative
finds that correct taxes, fees, or charges have not been paid, he shall issue a notice of assessment
stating the nature of the tax, fee, or charge, the amount of deficiency, the surcharges, interests and
penalties. Within sixty (60) days from the receipt of the notice of assessment, the taxpayer may file a
written protest with the local treasurer contesting the assessment; otherwise, the assessment shall
become final and executory. The local treasurer shall decide the protest within sixty (60) days from
the time of its filing. If the local treasurer finds the protest to be wholly or partly meritorious, he
shall issue a notice cancelling wholly or partially the assessment. However, if the local treasurer
finds the assessment to be wholly or partly correct, he shall deny the protest wholly or partly with
notice to the taxpayer. The taxpayer shall have thirty (30) days from the receipt of the denial of the
protest or from the lapse of the sixty (60) day period prescribed herein within which to appeal with
the court of competent jurisdiction otherwise the assessment becomes conclusive and unappealable.

Section 196. Claim for Refund of Tax Credit. - No case or proceeding shall be maintained in any
court for the recovery of any tax, fee, or charge erroneously or illegally collected until a written
claim for refund or credit has been filed with the local treasurer. No case or proceeding shall be
entertained in any court after the expiration of two (2) years from the date of the payment of such
tax, fee, or charge, or from the date the taxpayer is entitled to a refund or credit.

Tax Remedies of Local Government Units

1. Impose penalties (surcharges and penalty interest) in case of delinquency;
2. Avail local governments liens;
3. Administrative action through distraint of goods, chattels and other personal property; and
4. By judicial action.

Civil remedies for collection

1. tax lien;
2. distraint;
3. levy;
 4. civil action;
5. purchase of property by LGUs for want of bidder; property distrained not disposed within 120
days from date of distraint considered sold to the LGU.

Note:
Any of these remedies or all may be pursued concurrently or simultaneously at the discretion of the local
government unit concerned.

Tax lien
Local taxes constitute a lien, superior to all liens, charges or encumbrances in favor of any person,
enforceable by appropriate administrative of judicial action, not only upon any property or rights therein
which may be the subject of the lien but also upon property used in business, occupation, practice of
profession or calling, or exercise of privilege with respect to which the lien is imposed
Judicial action
1. civil action only; it precludes a criminal case as a proper remedy for collection of delinquent
local taxes.
2. The treasurer of the concerned Local Government Unit shall file the collection case.
3. The CTA has coordinate jurisdiction over the tax collection cases of the LGU

Prescriptive Periods under the LGC:

1. Assessment of Local Taxes
a. General rule five years (5) from the date they became due.
b. Exception: When there is fraud or intent to evade the payment of taxes, fees, or charges,
ten (10) years from discovery of the fraud or intent to evade the payment.
2. Collection of Local taxes:
a. Five (5) years from the date of assessment by administrative or judicial action.
b. Interruption of the period of prescription:
i. The treasurer is legally prevented from making the assessment or collection of
the tax;
ii. The taxpayer requests for a reinvestigation and executes a waiver in writing
before the expiration of the period within which to assess or collect;
iii. The taxpayer is out of the country or otherwise cannot be located.

Remedies of the Taxpayer under the LGC:

2. ADMINISTRATIVE
1. Prior to assessment:
i. Administrative appeal to the Secretary of Justice; and
ii. Action for declaratory relief
2. After an assessment:
i. Protest of the assessment within 60 days from receipt of assessment. Payment
under protest is not necessary.
ii. Action for refund within 2 years from payment of tax to local revenue taxes the
supervening cause applies in local taxation because the period for the filling of
 claims for refund is counted not necessarily from the date of payment but from
the date the taxpayer is entitled to a refund or credit.
3. Right of redemption- 1 year from the date of sale or forfeiture. (SEC. 179, LGC)
3. JUDICIAL
1. Appeal
i. within 60 days from assessment of provincial, city or municipal assessor to Local
Board of Assessment Appeals;
ii. within 30 days from receipt of decision of LBAA to Central Board of
Assessment Appeals;
iii. in case of denial of refund or credit, appeal to the Board of Assessment Appeals
as in a protest case
2. court action appeal of CBAAs decision to the Supreme Court by certiorari;
3. suit assailing validity of tax, recovery or refund of taxes paid;
4. suit to declare invalidity of tax due to irregularity in assessment and collection;
5. suit assailing the validity of tax sale
4. Appeal to the Secretary of Justice:
1. Any question on the constitutionality or legality of tax ordinances may be raised on
appeal within 30 days from the effectivity thereof
2. To the Secretary of Justice
3. Who shall render a decision within 60 days from date of receipt of appeal
4. Such appeal shall not suspend the effectivity of the ordinance, as well as the accrual and
payment of the tax
5. In case of adverse decision or inaction by the Secretary of Justice, the aggrieved party
may file appropriate proceedings with a court of competent jurisdiction.

Protest
Within 60 days from receipt of assessment. Payment under protest not necessary.

Note:
Payment and subsequent refund or tax credit
1. within two (2) years from payment of tax to local treasurer.
2. Right of redemption one (1) year from the date of sale or from the date of forfeiture.

Note:
Action for declaratory relief injunction is available if irreparable damage would be caused to the taxpayer
and no adequate remedy is available.

REAL PROPERTY TAXATION CHARACTERISTIC OF REAL PROPERTY TAX

Characteristics:
1. Direct tax on the ownership of real property
2. Ad Valorem tax. The value is based on the tax base
3. Proportion - the tax is calculated on the basis of a certain percentage of the value assessed
4. Indivisible single obligation
 5. Local Tax

PROPERTIES LIABLE UNDER REALPROPERTY TAX

Section 232. Power to Levy Real Property Tax. - A province or city or a municipality within the
Metropolitan Manila Area my levy an annual ad valorem tax on real property such as land,
building, machinery, and other improvement not hereinafter specifically exempted.

Section 233. Rates of Levy. - A province or city or a municipality within the Metropolitan Manila
Area shall fix a uniform rate of basic real property tax applicable to their respective localities as
follows:

(a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed value of real
property; and

(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate not
exceeding two percent (2%) of the assessed value of real property.

Section 234. Exemptions from Real Property Tax. - The following are exempted from payment of
the real property tax:
(a) Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise, to a
taxable person;

(b) Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,

non-profit or religious cemeteries and all lands, buildings, and improvements actually,
directly, and exclusively used for religious, charitable or educational purposes;

(c) All machineries and equipment that are actually, directly and exclusively used by local
water districts and government owned or controlled corporations engaged in the supply and
distribution of water and/or generation and transmission of electric power;

(d) All real property owned by duly registered cooperatives as provided for under R.A. No.
6938; and

(e) Machinery and equipment used for pollution control and environmental protection.

Except as provided herein, any exemption from payment of real property tax previously granted to,
or presently enjoyed by, all persons, whether natural or juridical, including all government-owned
or controlled corporations are hereby withdrawn upon the effectivity of this Code.

According to the Local Government Code, Real Property liable for Real Prop tax are:
1. Land,
2. Buildings
 3. Machinery and
4. Other improvements not otherwise exempted under said code (Sec 232, LGC)

Note:
Although the term real property has not been expressly defined in the LGC, early decisions of the
Supreme Court in Mindanao Bus Co. v City Assessor of Cagayan de Oro, 6 SCRA `97; Board of
Assessment Appeals v Meralco, 119 PHIL 328; Manila Electric Co. v Board of Assessment Appeals, 10
SCRA 68 seem to suggest that Art 415 of the Civil Code could also be controlling.

CLASSIFICATION OF LAND for purposes of assessment Sec 218 (a)

1. Commercial
2. Agricultural
3. Residential
4. Mineral
5. Industrial
6. Timberland
7. Special

SPECIAL CLASSES OF REAL PROPERTY (sec 216, LGC)

1. Hospitals
2. Cultural and scientific purposes
3. owned and used by local water districts
4. GOCCs rendering essential public services in the supply and distribution of water and/or
generation or transmission of electric power.

PROPERTIES EXEMPT FROM TAXES

(Sec. 234)
1. Owned by the Republic of the Philippines or its political subdivisions Except: when beneficial
use has been granted to a taxable person
2. Charitable institutions, churches, parsonages, and convents thereto, mosques, non-profit or
religious cemeteries, buildings and improvements actually directly and exclusively used for
religious, charitable or educational purposes.
3. Machinery and Equipment actually, directly, and exclusively used by local Water districts and
GOCCs engaged in the supply and distribution of water and/or generation and transmission of
electric power
4. Real property owned by duly registered Cooperatives under RA 6938
5. Machinery & equipment for pollution control and Environment protection Exemptions previously
granted, (not falling within the above enumeration) are withdrawn.

FUNDAMENTAL PRINCIPLES IN Assessment REAL PROP TAXES (Art 198)

1. Current and fair market value is the basis of appraisal
2. Uniformity in classification in each local govt unit should be observed
3. Actual use of the property should be the basis of classification
4. Appraisal, assessment, levy and collection should not be let to any private person.
 5. Equitable appraisal and assessment

Local Taxation: Actual Use of Property (2002)

The real property of Mr. and Mrs Angeles, situated in a commercial area in front of
the public market, was declared in their Tax Declaration as residential because it had been
used by them as their family residence from the time of its construction in 1990. However, since
January 1997, when the spouses left for the United States to stay there permanently with their
children, the property has been rented to a single proprietor engaged in the sale of appliances
and agri-products. The Provincial Assessor reclassified the property as commercial for tax
purposes starting January 1998. Mr. and Mrs. Angeles appealed to the Local Board of
Assessment Appeals, contending that the Tax Declaration previously classifying their
property as residential is binding. How should the appeal be decided? (5%)

SUGGESTED ANSWER:

The appeal should be decided against Mr. and Mrs. Angeles. The law focuses on the actual
use of the property for classification, valuation and assessment purposes regardless of
ownership. Section 217 of the Local Government Code provides that "real property
shall be classified, valued, and assessed on the basis of its actual use regardless of where
located, whoever owns it, and whoever uses it".

Real Property Taxation: Fundamental Principles (1997)

State the fundamental principles underlying real property taxation in the Philippines.

SUGGESTED ANSWER:

The following are the fundamental principles governing real property taxation:
1) Real property shall be appraised at its current and fair market value;
2) Real property shall be classified for assessment purposes on the basis of its actual
use:
3) Real property shall be assessed on the basis of a uniform classification within each
local government unit;
4) The appraisal, assessment, levy, and collection of real property tax shall not be let to
any private person; and
5) The appraisal and assessment of real property shall be equitable.

PROCEDURE:

Section 201. Appraisal of Real Property. - All real property, whether taxable or exempt, shall be
appraised at the current and fair market value prevailing in the locality where the property is
situated. The Department of Finance shall promulgate the necessary rules and regulations for the
classification, appraisal, and assessment of real property pursuant to the provisions of this Code.
Section 202. Declaration of real Property by the Owner or Administrator. - It shall be the duty of
all persons, natural or juridical, owning or administering real property, including the
improvements therein, within a city or municipality, or their duly authorized representative, to
prepare, or cause to be prepared, and file with the provincial, city or municipal assessor, a sworn
statement declaring the true value of their property, whether previously declared or undeclared,
taxable or exempt, which shall be the current and fair market value of the property, as determined
by the declarant. Such declaration shall contain a description of the property sufficient in detail to
enable the assessor or his deputy to identify the same for assessment purposes. The sworn
declaration of real property herein referred to shall be filed with the assessor concerned once every
three (3) years during the period from January first (1st) to June thirtieth (30th) commencing with
the calendar year 1992.

Section 203. Duty of Person Acquiring Real Property or Making Improvement Thereon. - It shall
also be the duty of any person, or his authorized representative, acquiring at any time real property
in any municipality or city or making any improvement on real property, to prepare, or cause to be
prepared, and file with the provincial, city or municipal assessor, a sworn statement declaring the
true value of subject property, within sixty (60) days after the acquisition of such property or upon
completion or occupancy of the improvement, whichever comes earlier.

Section 204. Declaration of Real Property by the Assessor. - When any person, natural or juridical,
by whom real property is required to be declared under Section 202 hereof, refuses or fails for any
reason to make such declaration within the time prescribed, the provincial, city or municipal
assessor shall himself declare the property in the name of the defaulting owner, if known, or against
an unknown owner, as the case may be, and shall assess the property for taxation in accordance
with the provision of this Title. No oath shall be required of a declaration thus made by the
provincial, city or municipal assessor

STEP 1 - DECLARATION OF REAL PROPERTY

1. Declared by Owner or Administrator (Sec 202-203)
a. If newly acquired property:
i. files with assessor within 60 DAYS from date of transfer a SWORN statement
containing FMV and description of property
b. If improvement on real property:
i. File w/in 60 DAYS upon completion or occupation (whichever is earlier)
ii. SWORN statement containing FMV and description of property
2. Declared by Provincial / City / Municipal Assessor (Sec 204)
a. only when the person under Sec 202 refuses or fails to make the declaration within the
prescribed time
b. No oath is required

Section 206. Proof of Exemption of Real Property from Taxation. - Every person by or for whom
real property is declared, who shall claim tax exemption for such property under this Title shall file
with the provincial, city or municipal assessor within thirty (30) days from the date of the
declaration of real property sufficient documentary evidence in support of such claim including
corporate charters, title of ownership, articles of incorporation, by-laws, contracts, affidavits,
certifications and mortgage deeds, and similar documents.

If the required evidence is not submitted within the period herein prescribed, the property shall be
listed as taxable in the assessment roll. However, if the property shall be proven to be tax exempt,
the same shall be dropped from the assessment roll.

IF FILING FOR EXEMPTION (Sec 206)

1. person claiming exemptions must file with assessor sufficient documentary evidence to support
claim within 30 days from the date of DECLARATION of property
2. If required evidence is not submitted within 30 days, the property will be listed as taxable in the
roll.
3. If proven to be tax-exempt, property will be dropped from the roll

Section 222. Assessment of Property Subject to Back Taxes. - Real property declared for the first
time shall be assessed for taxes for the period during which it would have been liable but in no case
of more than ten (10) years prior to the date of initial assessment: Provided, however, That such
taxes shall be computed on the basis of the applicable schedule of values in force during the
corresponding period.

If such taxes are paid on or before the end of the quarter following the date the notice of assessment
was received by the owner or his representative, no interest for delinquency shall be imposed
thereon; otherwise, such taxes shall be subject to an interest at the rate of two percent (2%) per
month or a fraction thereof from the date of the receipt of the assessment until such taxes are fully
paid.

Note:
IF PROPERTY DECLARED FOR THE FIRST TIME (Sec. 222)
If declared for 1st time, real property shall be assessed for back taxes for not more than 10 years prior to
the date of initial assessment taxes shall be computed on the basis of applicable schedule of values in
force during the corresponding periods

Section 205. Listing of Real Property in the Assessment Rolls. -

(b) In every province and city, including the municipalities within the Metropolitan Manila Area,
there shall be prepared and maintained by the provincial, city or municipal assessor an
assessment roll wherein shall be listed all real property, whether taxable or exempt, located
within the territorial jurisdiction of the local government unit concerned. Real property shall be
listed, valued and assessed in the name of the owner or administrator, or anyone having legal
interest in the property.
(c) The undivided real property of a deceased person may be listed, valued and assessed in the
name of the estate or of the heirs and devisees without designating them individually; and
undivided real property other than that owned by a deceased may be listed, valued and assessed
in the name of one or more co-owners: Provided, however, That such heir, devisee, or co-owner
shall be liable severally and proportionately for all obligations imposed by this Title and the
payment of the real property tax with respect to the undivided property.

(c) The real property of a corporation, partnership, or association shall be listed, valued and
assessed in the same manner as that of an individual.

(d) Real property owned by the Republic of the Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been granted, for consideration or otherwise, to a
taxable person, shall be listed, valued and assessed in the name of the possessor, grantee or of the
public entity if such property has been acquired or held for resale or lease.

Section 207. Real Property Identification System. - All declarations of real property made under
the provisions of this Title shall be kept and filed under a uniform classification system to be
established by the provincial, city or municipal assessor.

STEP 2: LISTING OF REAL PROPERTY IN THE ASSESSMENTROLLS (Sec 205, 207)

1. All declaration shall be kept and filed under a uniform classification system to be established by
the provincial, city or municipal assessor.

STEP 3: APPRAISAL AND VALUATION OF REAL PROPERY (Sec 212-214, 224-225)

Determining Fair Market Value

1. Land
a. Assessor of the province, city, and municipalities gives summons to owners of affected
properties
b. Assessor prepares a schedule of FMV for different classes of properties
c. Sanggunian enacts an ordinance
d. the schedule of FMV is published or posted
2. Machinery
a. For Brand New machinery: FMV is acquisition cost
b. In all other cases: FMV = Remaining eco. life X Replacement Estimated Eco. Life Cost

STEP 4: DETERMINE ASSESSED VALUE (Sec 218)

Procedure
1. take the schedule of FMV
2. Assessed value = FMV X Assessment level
3. Tax = Assessed value X Tax rate
STEP 5: PAYMENT AND COLLECTION OF TAX

Section 246. Date of Accrual of Tax. - The real property tax for any year shall accrue on the first
day of January and from that date it shall constitute a lien on the property which shall be superior
to any other lien, mortgage, or encumbrance of any kind whatsoever, and shall be extinguished only
upon the payment of the delinquent tax.

When:
1. Period: January 1 of every year (Sec 246)
2. tax shall constitute as superior lien (Sec 246)

HOW?
1. basic real prop tax in 4 equal installments (Mar 31, June 30,Sept. 30, Dec. 31)
2. special levy - governed by ordinance

Note:
INTEREST for LATE PAYMENT Two percent (2%) each month on unpaid amt. until the delinquent amt
is paid. Provided in no case shall the total interest exceed thirty-six (36) months

Note:
FOR ADVANCE and PROMPT PAYMENT
1. advance payment -discount not exceeding 20% of annual tax (Sec 251, LGC)
2. prompt payment -discount not exceeding 10% of annual tax due (Art 342 IRR)

WHO COLLECTS?
The provincial, city, municipal or barangay treasurer within which to collect.

Section 235. Additional Levy on Real Property for the Special Education Fund. - A province or city, or a
municipality within the Metropolitan Manila Area, may levy and collect an annual tax of one percent
(1%) on the assessed value of real property which shall be in addition to the basic real property tax. The
proceeds thereof shall exclusively accrue to the Special Education Fund (SEF).

Section 236. Additional Ad Valorem Tax on Idle Lands. - A province or city, or a municipality within
the Metropolitan Manila Area, may levy an annual tax on idle lands at the rate not exceeding five
percent (5%) of the assessed value of the property which shall be in addition to the basic real property tax.

Section 237. Idle Lands, Coverage. - For purposes of real property taxation, idle lands shall include the
following:

(a) Agricultural lands, more than one (1) hectare in area, suitable for cultivation, dairying, inland fishery,
and other agricultural uses, one-half (1/2) of which remain uncultivated or unimproved by the owner of
the property or person having legal interest therein. Agricultural lands planted to permanent or perennial
crops with at least fifty (50) trees to a hectare shall not be considered idle lands. Lands actually used for
grazing purposes shall likewise not be considered idle lands.

(b) Lands, other than agricultural, located in a city or municipality, more than one thousand (1,000)
square meters in area one-half (1/2) of which remain unutilized or unimproved by the owner of the
property or person having legal interest therein.

Regardless of land area, this Section shall likewise apply to residential lots in subdivisions duly approved
by proper authorities, the ownership of which has been transferred to individual owners, who shall be
liable for the additional tax: Provided, however, That individual lots of such subdivisions, the ownership
of which has not been transferred to the buyer shall be considered as part of the subdivision, and shall be
subject to the additional tax payable by subdivision owner or operator.

Section 238. Idle Lands Exempt from Tax. - A province or city or a municipality within the Metropolitan
Manila Area may exempt idle lands from the additional levy by reason of force majeure, civil disturbance,
natural calamity or any cause or circumstance which physically or legally prevents the owner of the
property or person having legal interest therein from improving, utilizing or cultivating the same.

Section 239. Listing of Idle Lands by the Assessor. - The provincial, city or municipal assessor shall
make and keep an updated record of all idle lands located within his area of jurisdiction. For purposes of
collection, the provincial, city or municipal assessor shall furnish a copy thereof to the provincial or city
treasurer who shall notify, on the basis of such record, the owner of the property or person having legal
interest therein of the imposition of the additional tax.

Types of real property tax:

1. annual ad valorem tax that is levied by a province, city or municipality within metro manila on
real property hereinafter specifically exempted at the following rates:
a. province, not exceeding 1% of the assessed value
b. cities and municipalities in MM, not more than 2% of the assessed value
2. in addition to the basic real property tax, special levies may be imposed by the same LGU on the
said real properties such as:
a. additional 1% for the special education fund
b. additional five percent tax on idle lands:
i. agricultural lands, of which remain uncultivated or unimproved by the owner
or owners thereof
ii. non-agrcultural land, including residential lots in subdivisions, of more than 1k
2meter
iii. regardless of land area, this provision applies to residential lots in subdivisions
duly approved by proper authorities, the ownership of which has been transferred
to individuals owners, who shall be liable for the additional tax
c. A province, city or municipality may impose a special levy on the lands comprised within
its territorial jurisdiction specially benefited by public works projects or improvements
funded by the local government unit concerned: Provided, however, That the special levy
shall not exceed sixty percent (60%) of the actual cost of such projects and
 improvements, including the costs of acquiring land and such other real property in
connection therewith: Provided, further, That the special levy shall not apply to lands
exempt from basic real property tax and the remainder of the land portions of which have
been donated to the local government unit concerned for the construction of such projects
or improvements

Local Taxation; Special Levy on Idle Lands (2005)

A city outside of Metro Manila plans to enact an ordinance that will impose a
special levy on idle lands located in residential subdivisions within its territorial
jurisdiction in addition to the basic real property tax. If the lot owners of a subdivision
located in the said city seek your legal advice on the matter, what would your advice be?
Discuss. (5%)

SUGGESTED ANSWER:

I would advise the lot owners that a city, even if it is outside Metro Manila, may levy an
annual tax on idle lands at the rate not exceeding five percent (5%) of the assessed value of the
property which shall be in addition to the basic real property tax. (Sec. 236, Local
Government Code) I would likewise advise them that the levy may apply to residential
lots, regardless of land area, in subdivisions duly approved by proper authorities, the
ownership of which has been transferred to individual owners who shall be liable for the
additional tax. (Last par., Sec. 237)

The term "Idle Lands" means, land not devoted directly to any crop or to any definite purpose for
at least one year prior to the notice of expropriation, except for reasons other than force
majeure or any fortuitous event, but used to be devoted or is suitable to such crop or is
contiguous to land devoted directly to any crop and does not include land devoted
permanently or regularly to other essential and more productive purpose. (Philippine Legal
Encyclopedia, by Sibal, 1986 Ed.)

Finally, I would advise them to construct or place improvements on their idle lands
by making valuable additions to the property or ameliorations in the land's conditions so
the lands would not be considered as idle. (Sec. 199[m]) In this manner their properties would
not be subject to the ad valorem tax on idle lands.

Local Taxation: Coverage (2002)

Aside from the basic real estate tax, give three (3) other taxes which may be imposed
by provincial and city governments as well as by municipalities in the Metro Manila
area. (3%)

SUGGESTED ANSWER:
 The following real property taxes aside from the basic real property tax may be imposed by
provincial and city governments as well as by municipalities in the Metro Manila area:
1. Additional levy on real property for the Special Education Fund (Sec. 235, LGC);
2. Additional Ad-valorem tax on Idle lands (Sec. 23, LGC); and
3. Special levy (Sec. 240).

Real Property Tax: Underground Gasoline Tanks (2003)

Under Article 415 of the Civil Code, in order for machinery and equipment to be
considered real property, the pieces must be placed by the owner of the land and, in addition,
must tend to directly meet the needs of the industry or works carried on by the owner. Oil
companies install underground tanks in the gasoline stations located on land leased by the oil
companies from the owners of the land where the gasoline stations [are] located. Are those
underground tanks, which were not placed there by the owner of the land but which were instead
placed there by the lessee of the land, considered real property for purposes of real
property taxation under the local Government Code? Explain. (8%)

SUGGESTED ANSWER:

Yes. The properties are considered as necessary fixtures of the gasoline station, without which
the gasoline station would be useless. Machinery and equipment installed by the lessee of
leased land is not real property for purposes of execution of a final judgment only. They are
considered as real property for real property tax purposes as "other improvements to affixed
or attached real property under the Assessment Law and the Real Property Tax Code
(Caltex v. Central Board of Assessment Appeals, 114 SCRA 296 [1982]).

Section 270. Periods Within Which To Collect Real Property Taxes. - The basic real property tax
and any other tax levied under this Title shall be collected within five (5) years from the date they
become due. No action for the collection of the tax, whether administrative or judicial, shall be
instituted after the expiration of such period. In case of fraud or intent to evade payment of the tax,
such action may be instituted for the collection of the same within ten (10) years from the discovery
of such fraud or intent to evade payment.

The period of prescription within which to collect shall be suspended for the time during which:

(4) The local treasurer is legally prevented from collecting the tax;

(5) The owner of the property or the person having legal interest therein requests for
reinvestigation and executes a waiver in writing before the expiration of the period within
which to collect; and
 (6) The owner of the property or the person having legal interest therein is out of the country
or otherwise cannot be located.

PERIOD:
1. within five (5) years from the date they become due
2. within ten (10) yrs. from discovery of fraud, in case there is fraud or intent to evade

Instances when PRESCRIPTION SHALL BE SUSPENDED:

1. local treasurer is legally prevented to collect tax
2. the owner of prop requests for reinvestigation and writes a waiver before expiration of period to
collect
3. the owner of the prop is out of the country or cannot be located

REMEDIES IN REAL PROPERTY TAXATION

REMEDIES OF TAXPAYER
1. PAYMENT UNDER PROTEST (Sec 252)
a. file protest with province, city, or municipality with treasurer concerned
b. indicate amount contested
c. annotate on tax receipt paid under protest
d. Within 30 days, confirm protest in writing stating grounds therefor
e. Treasurer shall decide protest within 60 days
2. REFUND IN CASE OF EXCESSIVE COLLECTION (Sec 253)
a. File a written claim for refund within two (2) years from date taxpayer is entitled thereto

Section 252. Payment Under Protest. -

(a) No protest shall be entertained unless the taxpayer first pays the tax. There shall be
annotated on the tax receipts the words "paid under protest". The protest in writing must
be filed within thirty (30) days from payment of the tax to the provincial, city treasurer or
municipal treasurer, in the case of a municipality within Metropolitan Manila Area, who
shall decide the protest within sixty (60) days from receipt.

(b) The tax or a portion thereof paid under protest, shall be held in trust by the treasurer
concerned.

(c) In the event that the protest is finally decided in favor of the taxpayer, the amount or
portion of the tax protested shall be refunded to the protestant, or applied as tax credit
against his existing or future tax liability.

(d) In the event that the protest is denied or upon the lapse of the sixty day period prescribed in
subparagraph (a), the taxpayer may avail of the remedies as provided for in Chapter 3,
Title II, Book II of this Code.
Note: No protest shall be entertained unless THE TAX IS FIRST PAID.

IF PROTEST DECIDED IN FAVOR of taxpayer, amount may either be

1. refunded or
2. applied as tax credit

IF DENIED or NOT DECIDED WITHIN 60 DAYS BY TREASURER:

1. taxpayer may appeal to board of assessment appeal or
2. avail of remedies under Ch 3 title 2 Book II (Local Board of Assessment Appeals and Central
Board of Assessment Appeals)

Section 253. Repayment of Excessive Collections. - When an assessment of basic real property tax,
or any other tax levied under this Title, is found to be illegal or erroneous and the tax is accordingly
reduced or adjusted, the taxpayer may file a written claim for refund or credit for taxes and
interests with the provincial or city treasurer within two (2) years from the date the taxpayer is
entitled to such reduction or adjustment.

The provincial or city treasurer shall decide the claim for tax refund or credit within sixty (60) days
from receipt thereof. In case the claim for tax refund or credit is denied, the taxpayer may avail of
the remedies as provided in Chapter 3, Title II, Book II of this Code.

REMEDIES OF GOVERNMENT
Remedies may be enforced either through administrative or judicial action or both, alternative or
simultaneously. Use or non-use of one remedy shall not be a bar against the other (Sec 258)

ADMINISTRATIVE Remedies
1. Levy on Real property (Sec 258 and 259)
2. Sale of Real Property (Sec 260)
3. Local Governments Lien (Sec 256)
4. Further Distraint or Levy (Sec 265)

Section 256. Remedies For The Collection Of Real Property Tax. - For the collection of the basic
real property tax and any other tax levied under this Title, the local government unit concerned
may avail of the remedies by administrative action thru levy on real property or by judicial action.

Section 257. Local Governments Lien. - The basic real property tax and any other tax levied under
this Title constitutes a lien on the property subject to tax, superior to all liens, charges or
encumbrances in favor of any person, irrespective of the owner or possessor thereof, enforceable by
administrative or judicial action, and may only be extinguished upon payment of the tax and the
related interests and expenses.

Section 258. Levy on Real Property. - After the expiration of the time required to pay the basic real
property tax or any other tax levied under this Title, real property subject to such tax may be levied
upon through the issuance of a warrant on or before, or simultaneously with, the institution of the
civil action for the collection of the delinquent tax. The provincial or city treasurer, or a treasurer
of a municipality within the Metropolitan Manila Area, as the case may be, when issuing a warrant
of levy shall prepare a duly authenticated certificate showing the name of the delinquent owner of
the property or person having legal interest therein, the description of the property, the amount of
the tax due and the interest thereon. The warrant shall operate with the force of a legal execution
throughout the province, city or a municipality, within the Metropolitan Manila Area. The warrant
shall be mailed to or served upon the delinquent owner of the real property or person having legal
interest therein, or in case he is out of the country or cannot be located, the administrator or
occupant of the property. At the same time, written notice of the levy with the attached warrant
shall be mailed to or served upon the assessor and the Registrar of Deeds of the province, city or
municipality within the Metropolitan Manila Area where the property is located, who shall
annotate the levy on the tax declaration and certificate of title of the property, respectively.

The levying officer shall submit a report on the levy to the sanggunian concerned within ten (10)
days after receipt of the warrant by the owner of the property or person having legal interest
therein.

Section 259. Penalty for Failure to Issue and Execute Warrant. - Without prejudice to criminal
prosecution under the Revised Penal Code and other applicable laws, any local treasurer or his
deputy who fails to issue or execute the warrant of levy within one (1) year from the time the tax
becomes delinquent or within thirty (30) days from the date of the issuance thereof, or who is found
guilty of abusing the exercise thereof in an administrative or judicial proceeding shall be dismissed
from the service.

Section 260. Advertisement and Sale. - Within thirty (30) days after service of the warrant of levy,
the local treasurer shall proceed to publicly advertise for sale or auction the property or a usable
portion thereof as may be necessary to satisfy the tax delinquency and expenses of sale. The
advertisement shall be effected by posting a notice at the main entrance of the provincial, city or
municipal building, and in a publicly accessible and conspicuous place in the barangay where the
real property is located, and by publication once a week for two (2) weeks in a newspaper of general
circulation in the province, city or municipality where the property is located. The advertisement
shall specify the amount of the delinquent tax, the interest due thereon and expenses of sale, the
date and place of sale, the name of the owner of the real property or person having legal interest
therein, and a description of the property to be sold. At any time before the date fixed for the sale,
the owner of the real property or person having legal interest therein may stay the proceedings by
paying the delinquent tax, the interest due thereon and the expenses of sale. The sale shall be held
either at the main entrance of the provincial, city or municipal building, or on the property to be
sold, or at any other place as specified in the notice of the sale.

Within thirty (30) days after the sale, the local treasurer or his deputy shall make a report of the
sale to the sanggunian concerned, and which shall form part of his records. The local treasurer
shall likewise prepare and deliver to the purchaser a certificate of sale which shall contain the name
of the purchaser, a description of the property sold, the amount of the delinquent tax, the interest
due thereon, the expenses of sale and a brief description of the proceedings: Provided, however,
That proceeds of the sale in excess of the delinquent tax, the interest due thereon, and the expenses
of sale shall be remitted to the owner of the real property or person having legal interest therein.

The local treasurer may, by ordinance duly approved, advance an amount sufficient to defray the
costs of collection thru the remedies provided for in this Title, including the expenses of
advertisement and sale.

Section 265. Further Distraint or Levy. - Levy may be repeated if necessary until the full amount
due, including all expenses, is collected.

Real Property Tax; Requirements; Auction Sales of Property for Tax Delinquency (2006)
Note: the answer of mamaleteo seems to be more accurate pp 593
Quezon City published on January 30, 2006 a list of delinquent real property taxpayers
in 2 newspapers of general circulation and posted this in the main lobby of the City
Hall. The notice requires all owners of real properties in the list to pay the real property
tax due within 30 days from the date of publication, otherwise the properties listed shall be sold
at public auction.

Joachin is one of those named in the list. He purchased a real property in 1996 but failed to
register the document of sale with the register of Deeds and secure a new real property tax
declaration in his name. He alleged that the auction sale of his property is void for lack of due
process considering that the City Treasurer did not send him personal notice. For his part,
the City Treasurer maintains that the publication and posting of notice are sufficient
compliance with the requirements of the law.

1. If you were the judge, how will you resolve this issue? (2.5%)

SUGGESTED ANSWER:

I will resolve the issue in favor of Joachin. In auction sales of property for tax delinquency,
notice to delinquent landowners and to the public in general is an essential and indispensable
requirement of law, the non-fulfillment of which vitiates the same (Tiongco v. Phil.
Veterans Bank, G.R. No. 82782, Aug. 5, 1992). The failure to give notice to the right person i.e.,
the real owner, will render an auction sale void (Tan v. Bantegui, G.R. No, 154027, October
24, 2005; City Treasurer of Q.C. v. CA, G.R. No. 120974, Dec. 22, 1997).

2. Assuming Joachin is a registered owner, will your answer be the same? (2.5%)

SUGGESTED ANSWER:

Yes. The law requires that a notice of the auction sale must be properly sent to Joachin and
not merely through publication (Tan v. Bantegui, G.R. No, 154027, October 24,2005; Estate
of Mercedes Jacob v. CA, G.R. No. 120435, Dec. 22, 1997).
JUDICIAL (Sec 266)
Civil action filed by the local treasurer within 5 yrs. from due date

Section 266. Collection of Real Property Tax Through the Courts. - The local government unit
concerned may enforce the collection of the basic real property tax or any other tax levied under
this Title by civil action in any court of competent jurisdiction. The civil action shall be filed by the
local treasurer within the period prescribed in Section 270 of this Code

CONDONATION and REMISSION:

Section 276. Condonation or Reduction of Real Property Tax and Interest. - In case of a general
failure of crops or substantial decrease in the price of agricultural or agribased products, or
calamity in any province, city or municipality, the sanggunian concerned, by ordinance passed
prior to the first (1st) day of January of any year and upon recommendation of the Local Disaster
Coordinating Council, may condone or reduce, wholly or partially, the taxes and interest thereon
for the succeeding year or years in the city or municipality affected by the calamity.

Section 277. Condonation or Reduction of Tax by the President of the Philippines. - The President
of the Philippines may, when public interest so requires, condone or reduce the real property tax
and interest for any year in any province or city or a municipality within the Metropolitan Manila
Area.

The PRESIDENT may remit or reduce real prop tax in any province, city, municipalities if he deems that
PUBLIC INTEREST so requires (Sec 277) THE SANGGUNIAN concerned may CONDONE or
REDUCE the tax in cases where:
1. there is a general failure of crops
2. substantial decrease in the price of products
3. calamity (Sec 276)by an ordinance
a. passed before Jan 1 of any year and upon recommendation by an ordinance and upon
recommendation of the Local Disaster Coordinating Council

APPEALS IN REAL PROPERTY TAXATION

1. OWNER OR PERSON WITH LEGAL INTEREST Files within 60 days:
a. Written Petition under Oath
b. With Supporting Documents
2. Within 30 days-LOCAL BOARD OF ASSESSMENT APPEALS
a. (LBAA should decide win 120 DAYS from receipt of petition)
3. Within 30 days - CENTRAL BOARD OF ASSESSMENT APPEALS
4. Within 15 days - SUPREME COURT

Local Taxation: Legality; Imposition of Real Property Tax Rate (2002)

An Ordinance was passed by the Provincial Board of a Province in the North, increasing
the rate of basic real property tax from 0.006% to 1 % of the assessed value of the real
 property effective January 1, 2000. Residents of the municipalities of the said province
protested the Ordinance on the ground that no public hearing was conducted and,
therefore, any increase in the rate of real property tax is void. Is there merit in the protest?
Explain your answer. (2%)

SUGGESTED ANSWER:

The protest is devoid of merit. No public hearing is required before the enactment of a
local tax ordinance levying the basic real property tax (Art. 324, LGC Regulations).

ALTERNATIVE ANSWER:

Yes, there is merit in the protest provided that sufficient proof could be introduced for the
non-observance of public hearing. By implication, the Supreme Court recognized that
public hearings are required to be conducted prior to the enactment of an
ordinance imposing real property taxes. Although it was concluded by the highest tribunal
that presumption of validity of a tax ordinance can not be overcome by bare assertions of
procedural defects on its enactment, it would seem that if the taxpayer had presented
evidence to support the allegation that no public hearing was conducted, the Court should
have ruled that the tax ordinance is invalid. (Belen Figuerres v. Court of Appeals, GRNo. 119172,
March 25, 1999).

TARIFF AND CUSTOMS CODE

TARIFF
custom duties, toll of tribute payable upon merchandise to the government.

CUSTOM DUTIES
This is a tax which are assessed at the at the prescribed tariff rates which are likely imposed for both
revenue raising and for regulatory purposes. It is the name given to taxes on the importation and
exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a
foreign country.[ Garcia vs. Executive Sec., G.R. no. 101273, July 3, 1992]

Note:
Customs duties and tariffs are synonymous with one another. They both refer to the taxes imposed on
imported or exported wares, articles, or merchandise.

Purposes of tariffs:
1. Revenue tariffs, those whose rates are relatively low so that goods may be readily imported and
duties may be easily collected.
2. Protective tariffs, those whose rates are relatively high to keep certain imports out of the domestic
market or to raise domestic price on certain imports so that they may be manufactured profitably
at domestically;
 3. Bargaining tariffs, those whose schedules include rates designed primarily for bargaining
purposes or which contain some general provision for the imposition of higher duties upon
products of countries whose tariff policies are considered unsatisfactory or unfair.

Scope of Tariff and Custom Laws:

Include not only the provisions of the Tariff and Custom Code (TCC) and regulations pursuant thereto,
but all other laws and regulations that are subject to the Bureau of Customs (BOC) or otherwise within its
jurisdiction.

As to the scope
Tariff and Custom laws extend not only to the provisions of the TCC but to all other laws as well the
enforcement of which is entrusted to the BOC.

BUREAU OF CUSTOMS (BOC)

DUTIES, POWERS AND JURISDICTION OF THE BOC

1. The assessment and collection of the lawful revenues from imported articles and all other dues,
fees, charges, fines, and penalties accruing under the tariff and customs laws.
2. The prevention and the suspension of smuggling and other frauds upon the customs
3. The supervision and control over the entrance and clearance of vessels and aircraft engaged in
foreign commerce.
4. The enforcement of tariff and custom laws and all other laws, rules and regulations relating to
tariff and custom administration.
5. The supervision and control over the handling of foreign mails arriving in the Philippines, for the
purpose of the collection of the lawful duty on the dutiable articles thus impoprted and the
prevention of smuggling through the medium of such mails.
6. Supervision and control over all import and export cargoes, landed or stored in piers, airport,
terminal facilities, including container yards and freight stations, for the protection of government
revenue.
7. Exclusive original jurisdiction over seizure and forfeiture cases under the tariff and custom laws.

ARTICLES SUBJECT TO CUSTOM DUTIES

Articles, when imported from any foreign country into the Philippines, shall be subject to duty upon each
importation, even though previously exported from the Philippines, EXCEPT as otherwise specifically
provided for in this Code or in other laws. [SEC. 100, TOC]

MERCHANDISE
The Revised Administrative Code defines merchandise, when used with reference to importation or
exportation, to include goods, wares and in, general anything that may be the subject or exportation.
Checks, money orders and dollar bills properly within the concept of merchandise as used in Revised
Administrative Code, are merchandise. [Bastida vs. CIR]
Kinds of Goods/Merchandise
1. Articles subject to duty ( Dutiable Goods)
2. Prohibited importation
3. Conditionally-free importations

DUTIABLE GOODS [Code: AFP-CPPNPA-VMH-FAT-WE-MAMO]

1. Animals and animals product
2. Animal or vegetable Fats; oil and their cleavage products
3. Prepared foodstuffs; beverages, spirits and vinegar; tobacco and manufactured tobacco
4. Products of Chemical or allied industries
5. Plastic and rubber articles
6. Pulp or wood;
7. Natural or cultural stones
8. Plaster, cements and other related articles
9. Arms and ammunitions
10. Vegetable products
11. Mineral products
12. Hides ( skin, fur, leather)
13. Footwear, headgear, etc.
14. Aircraft, vessels, vehicles and all other mode of transportation
15. Textile and textile products
16. Wood and related articles
17. Electrical and mechanical machineries
18. Metals
19. Artworks, antique
20. Manufactured/miscellaneous articles
21. Optical products, medical and surgical products [SEC. 104, Title 1, TCC]

PROHIBITED IMPORATTIONS [Code: HOT-DOG-TAMAD]

1. Heroine, marijuana and other dangerous drugs, narcotics and pharmaceutical products EXCEPT
when made by the government designed for medical purpose.
2. Opium pipes and other drugs paraphernalia
3. Written or printed materials containing any matter advocating of inciting Treason, sedition,
rebellion materials.
4. Dynamite, ammunition and other explosive weapons EXCEPT when authorized by law
5. Written or printed articles involving Obscene or immoral character
6. Gambling Devices
7. Lottery and sweepstakes Tickets EXCEPT those authorized by the Philippine Government
8. Articles, instruments, drugs and substances designed and intended to produce unlawful Abortion
and printed materials promoting unlawful abortion
9. Articles made of precious Metal but actual fineness of quality not indicated
10. other Articles (P.D. 34)
11. Any Adulterated or misbranded drug in violation of the Food and Drugs Act.(SEC. 102,TCC)
Note:
All the above merchandise/goods cannot be brought in or out of the Philippines.

CONDITIONALLY-FREE IMPORTATION [Code: PSST-BAR-FEW-PERA-SAM-CPPVICE]

1. Professional instruments and implements
2. Sea store supplies to the vessel or aircraft
3. Salvage articles recovered from an abandoned vessel
4. Trailer chassis by a shipping company
5. Books
6. Aquatic products
7. Relief organization and articles used for relief operations
8. Film production by foreign media or movie outfit
9. Equipment used in salvaging vessels
10. Wearing apparels
11. Personal and household effects
12. importation for the use of foreign Embassies
13. Receptacles, containers holders and other similar boxes
14. Animals, EXCEPT race horse
15. Samples of any kind
16. Articles for repair, re-conditioning for export
17. Mining equipment and tools
18. Cost of repair made abroad upon a vessel registered in the Philippines
19. articles which are previously exported but returned in the Philippines
20. Prizes, medals, trophies, badges and other
21. thing bestowed as an award
22. Vessels spare part of foreign vessel and aircraft
23. articles which are Imported subsequently in the Philippines
24. Coffin, caskets
25. Exhibition, competition articles for display

Note:
These articles which are exempt from import duties upon compliance with the formalities prescribed in or
with regulations promulgated by the Commissioner of Customs with the approval of the Sec. of Finance.

Classification of Custom Duties

1. Ordinary or Regular Custom duty- imposed and collected merely as a source of revenue .
2. Ad Valorem- the duty is based on the market value or price of the imported article.
3. Specific- the duty is based on the weight or volume of the imported article.
4. Special Custom duties- imposed and collected in addition to ordinary customs duties usually to
protect local industries against foreign competition.

Basis of Dutiable Value

The dutiable value of the imported article subject to an ad valorem of duty shall be transaction value.
TRANSACTION VALUE
It is the price actually paid or payable for the goods when sold for export to the Philippines.
1. It is adjusted by adding certain expenses to the extent that they are incurred by the buyer but are
not included in the price actually paid or payable for the imported goods, the value of the
materials, components, parts and items incorporated in the imported goods; amount of royalties
and license fees; cost of transport; loading, unloading and handling charges; and the cost of the
insurance.

Sequence in Determination of Value

1. transaction value
2. transaction value of identical goods
3. transaction value of similar goods
4. deductive value
5. computed value
6. other reasonable means or fallback value

Basis for dutiable weight for specific custom duties

1. gross weight
2. legal weight
3. net weight

KINDS OF SPECIAL CUSTOM DUTIES

1. Dumping Duty, imposed upon foreign products with value lower than their fair market value to
the detriment of local products.
a. Rate: difference between the actual price and the normal value of the article.
b. Imposing authority: Special Committee on Anti-Dumping composed of:
i. The Sec. of Finance as chairman;
ii. members:
1. Sec. of DTI,
2. and either the Sec. of Agriculture if the article in question is agricultural
product or the Sec. of Labor if non-agricultural product.
2. Countervailing Duty, imposed upon foreign goods enjoying subsidy thus allowing them to sell at
lower prices to the detriment of local products similarly situated.
a. Rate: equivalent to the bounty, subsidy or subvention
b. Imposing authority: Sec. Of Finance
3. Marking Duty, imposed upon those not properly marked as to place of origin of the goods.
a. Rate: 5% ad valorem of articles
b. Imposing authority: Commissioner of Custom
4. Discriminatory Duty- imposed upon goods coming from countries that discriminate against
Philippine products.
a. Rate: any amount not exceeding 100% ad valorem of the subject articles
b. Imposing authority: president of the Philippines
DRAWBACK
It is a device resorted to for enabling a commodity affected by taxes to be exported and sold in foreign
markets upon the same terms as if it not been taxed at all. It may be full or partial.

OTHER CUSTOMS FEES, DUES, OR CHARGES PAYABLE

1. Harbor Fees, are imposed on vessels entering into or departing from a port of entry of the
Philippines.
2. Wharfage dues, are assessed against the cargo of a vessel engaged in foreign or coastwise trade,
based on the quantity weight or measure received and/or discharged by such vessel.
3. Berthing dues, are assessed against a vessel for mooring or berthing at a pier, wharf, or river at
any port in the Philippines.
4. Storage dues, are assessed on articles for storage in customs premises, cargo shed.
5. Arrastre dues, are imposed on all imported and exported articles and baggage of passenger for
their handling, receiving, and custody.
6. Tonnage dues- are paid by the owner, agent, operator or master of a vessel engaged in foreign
trade based on the net tonnage of the vessel or weight of the articles discharged or laden.
7. Other fees- charged and collected for services rendered and documents issued by the BOC.

IMPORTATION UNDER TCC

1. Who are authorized to make import entry?
a. The importer being holder of the bill of lading;
b. A customs broker acting under authority of the holder of the bill; or A person duly
empowered to act as agent or attorney-in-fact.
2. Liability for Custom Duties
a. GEN. RULE: All importations exportations of goods are subject to custom duties. (Sec.
105, TCC)
b. EXCEPTIONS:
i. Exemption under the TCC
ii. Exemptions granted government agencies or GOCCs with existing contracts,
commitments, agreements, or obligations with foreign countries.
iii. International organization pursuant to agreement and special law
iv. Exemption granted by the President of the Philippines upon recommendation of
NEDA.

Liability of importers for duties

The Code provides that all articles imported into the Philippines shall be held to be the property of the
person to whom the same are consigned: and the holder of the bill of lading duly endorse by the
consignee thereof therein named, or if consigned to order by the consignor, shall be deemed the consignee
thereof. The under writers of abandoned articles and the salvors of articles saved from a wreck at sea,
along a coast, or in any area of the Philippines, maybe regarded as the consignees [Section 1203, Tariff
and Custom Code]

Unless otherwise relieved by laws or regulation, the liability for duties, taxes, fees, and other charges
attaching on importation constitutes a personal debt due to the importer of the government which can be
discharged only by payment of said duties and charge. It also constitutes a lien upon the articles imported
which maybe enforced while such articles are in custody or subject to the control of the government.

Government importations
All importations by the government for its own use or that of its own subordinates branches or
instrumentalities or corporations, agencies or instrumentalities owned or controlled by the government
shall be subject to the duties, taxes , fees and charges provided in the Tariff and Customs Code.[Section
1205,Tariff and Customs Code]

When importation begins and deemed terminated

Importation begins when carrying vessel or aircraft enters the jurisdiction of the Philippines with
an intent to unload.
Importation terminates:
o Upon payment of the duties and other charges due upon the articles, or secured to be
paid, at the port of entry ant the legal permit for withdrawal shall have been granted.
o In the case of articles that are free of duties, taxes and other charges, importation is
deemed terminated from the time they have legally left the jurisdiction of the customs

Import Entry
A declaration to the BOC showing the description, value, tariff classification and other particulars of the
imported article to enable the customs authorities to determine the correct customs duties and internal
revenue taxes due on the importation.

Abandonment
It is the renunciation by an importer of all his interest in the property rights in the imported article. It may
be express or implied.

Smuggling or Unlawful Importation

Any person who shall fraudulently import or bring into the Philippines, or assist in doing so, any article,
contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation,
concealment, or sale of such article after importations, knowing the same to have been imported contrary
to law, shall be guilty of smuggling. (sec. 3601 TCC)

Fraudulent Practices (Criminal Offense) against Custom Revenues under Sec. 3602
1. Entry of imported articles by means of any false or fraudulent invoice.
2. Entry of goods at less than the true weight or measure.
3. Filling of any false or fraudulent entry for the payment of drawbacks or refund of duties.

Returning residents
1. For the purpose of conditionally free importation of personal and household effects, they are
nationals who have stayed in a foreign country for a period of at least six (6) months.
BALIKBAYAN
For the purpose of tax-free purchase at Philippine Duty-free shops, he must be:
1. Filipino citizen who has been continuously out of the Philippines for a period of at least one (1)
year; or
2. Filipino overseas worker; or
3. Former Filipino citizen and his family who had been naturalized in a foreign country and comes
or returns to the Philippines
4. The term family shall mean the spouse and children of the balikbayan who are not balikbayan in
their own right traveling with the latter to the Philippines.

FLEXIBLE TARIFF CLAUSE

Authority of the President to adjust the tariff rates prescribed under the Tariff and Customs Code, which
is the enabling law that made effective the delegation of the taxing power to the President under the
Constitution.
1. The Congress may, by law, authorize the President to fix within specified limits and subject to
such limitations and restrictions as it may impose:
a. tariff rates, import and export quotas, tonnage and wharfage dues; and
b. other duties or imports within the framework of the national development program of the
government (Art. VI, Sec. 28(2), Constitution)

Sec. 401, TCC: In the interest of national economy, general welfare and/or national security, the President
upon recommendation of the NEDA, is empowered:
1. to increase, reduce, or remove existing protective rates of import duty, provided that the increase
should not be higher than 100% ad valorem;
2. to establish import quota or to ban imports of any commodity; and
3. to impose additional duty on all imports not exceeding 10% ad valorem.

LIMITATIONS TO FLEXIBLE TARIFF CLAUSE

1. Conduct by the Tariff Commission of an investigation in a public hearing.
a. The commission shall also hear the views and recommendations of any government
office, agency or instrumentality concerned.
b. The commission shall submit their findings and recommendations to the NEDA within 30
days after the termination of the public hearing. The NEDA thereafter submits the
recommendation to the President.
2. The power of the President to increase or decrease the rates of import duty within the
abovementioned limits fixed in the Code shall include the modification in the form of duty. In
such case the corresponding ad valorem or specific equivalents of the duty with respect to the
imports from the principal competing foreign country for the most recent representative period
shall be used as bases.

(Sec. 401, TCC) THE TARIFF COMMISIONS (TC) FUNCTIONS OF THE TARIFF COMMISSION
A. The Commission shall investigate:
1. the administration of and the fiscal and industrial effects of the countrys tariff and customs laws;
2. the relations between the rates of duty on raw materials and finished or partly finished goods;
 3. the effects of ad valorem and specific duties and of compound specific and ad valorem duties;
4. all questions relative to the arrangement of schedules and classifications of articles under the
tariff laws;
5. the tariff relations between the Philippines and foreign countries, commercial treaties, etc.;
6. the volume of importation compared with domestic production and consumption;
7. conditions, causes, and effects relating to competition of foreign industries with those of the
Philippines;
8. in general, to investigate the operation of customs and tariff laws and to submit report of its
investigation; and
9. the nature, composition, and classification of articles for customs revenue and other related
purposes which shall be furnished to NEDA, Board of Investments, Central Bank, and Sec. of
Finance.
B. Administrative assistance to the President and Congress (Sec. 506, TCC)

TAX REMEDIES UNDER THE TARIFF AND CUSTOMS CODE (TCC)

TAX REMEDIES OF THE GOVERNMENT

1. ADMINISTRATIVE
a. Tax Lien (sec. 1204 TCC)
i. attaches on the goods, regardless of ownership, while still in the custody or
control of the Government
ii. Availed of when the importation is neither prohibited nor improperly made.
b. Administrative Fines and Forfeitures
i. applied when the importation is unlawful and it may be exercised even where the
articles are not or no longer in customs custody UNLESS the importation is
merely attempted in which case it may be effected only while the goods are still
within the Customs jurisdiction or in the hands of a person who is aware thereof.
(sec. 2531 and 2530 TCC)
ii. Under Sec. 2530 (a), TCC in order to warrant forfeiture, it is not necessary that
the vessel or aircraft must itself carry the contraband. The complementary if
collateral use of there Cessna plane for smuggling operation is sufficient for it to
be deemed to have been used in smuggling. [Llamado vs. Commissioner of
Customs, G.R. no. L-28809, may 16, 1983]
c. Reduction of Custom Duties/ Compromise
i. Subject to approval of Sec. of Finance(sec. 709, 2316 TCC)
ii. Seizure, search, arrest (sec. 2205, 2210, 2211 TCC)
2. JUDICIAL
a. This remedy is normally availed of when the tax lien is lost by the release of the goods.
i. Civil action (se. 1204 TCC)
ii. Criminal Action
TAX REMEDIES OF THE TAXPAYER
1. ADMINISTRATIVE
a. Protest
i. Any importer or interested party if dissatisfied with published value within 15
days from date of publication or within 5 days from the date of importation, is
entitled to refund if payment is rendered erroneous or illegal by events occurring
after the payment.
ii. Taxpayer within 15 days from assessment. (sec. 2308, 2210 TCC)
1. Note: Payment under protest is necessary.
b. Refund
i. A written claim for refund may be submitted by the importer in abatement cases
on missing packages, deficiencies in the contents of packages or shortages before
arrival of the goods in the Philippines, articles, lost or destroyed after such
arrival, dead or injured animals, and for manifest clerical errors; and
ii. Drawback cases where the goods are reexported (sec. 1701-1708 TCC)
c. Settlement of any seizure by payment of fine or redemption
i. But this shall not be allowed in any case where importation is absolutely
prohibited or the release would contrary to law, or when there is an actual and
intentional fraud (sec. 2307 TCC).
d. Appeal
i. Within 15 days to the Commissioner after notification by Collector of his
decision (sec. 2313 TCC).
2. JUDICIAL
a. Appeal
i. Within 30 days from receipt of decision of the Commissioner or Secretary of
Finance to the division of the CTA (sec. 2403 TCC, sec. 7 RA 1125, as amended
by sec. 9 RA 9282)
ii. The CTA is empowered to issue injunctions, it would appear that an importer
may appeal without first paying the duties, such as in seizure, but not in protest
cases.
b. Action to question the legality of seizure
c. Abandonment
i. failure to file an import entry within 30 days from the discharge of goods or
having filed an entry fails to claim within 15 days but it shall not be so effective
until so declared by the collector. (sec. 1801 as amended by RA 7651)

REMEDIES IN THE BUREAU OF CUSTOMS (BOC)

CUSTOM PROTEST CASES

These are cases which deal solely with liability for custom duties, fees, and other charges.

Note:
Before filing a protest, there must first be a payment under protest.
Requirements for making a Protest:
1. must be in writing
2. must point out the particular decision or ruling of the Collector of Customs to which exception is
taken or objection made
3. must state the grounds relied upon for relief
4. must be limited to the subject matter of a single adjustment
5. must be filed when the amount claimed is paid or within 15 days after the payment
6. protest must furnish samples of goods under protest when required.
 SEIZURE AND FORFEITURE CASES

This refers to the matters involving smuggling. It is administrative and civil in nature and is directed
against the res or imported articles and entails a determination of the legality of importation.

Note:
These are action in rem.

Smuggling or Unlawful Importation

Any person who shall fraudulently import or bring into the Philippines, or assist in doing so, any article,
contrary to law, or shall receive, conceal, buy, sell, or in any manner facilitate the transportation,
concealment, or sale of such article after importations, knowing the same to have been imported contrary
to law, shall be guilty of smuggling (sec. 3601 TCC).

Note:
anything that was used for smuggling is subject to confiscation. [Lladoc vs. Com of Custom, R.R. L-
28809, May 16, 1983] EXCEPT Common carriers that are not privately chartered cannot be confiscated.

Note:
Mere possession of the article in question by the defendant renders him liable UNLESS defendant could
explain that his possession is lawful to the satisfaction of the court (sec. 3601,TCC)
Note:
Payment of the tax due after apprehension is not a valid defense.[Rodriguez vs. CA, G.R. no. 115218,
September 18, 1995]

Port of Entry
A domestic port open to both foreign and coastwise trade including airport of entry (sec. 3514, TCC).
All articles imported into the Philippines whether subject to duty or not shall be entered through a
customhouse at a port of entry.

Three meanings of term ENTRY

1. documents filed at the custom house
2. submission and acceptance of the documents
3. procedure of passing the goods through the custom house. [ Rodriguez vs. CA, G.R. no. 115218,
September 18, 1995]

Right of Custom Officers to Effect Seizure and Arrest

1. May seize any vessel, aircraft, cargo, article, animal or other movable property when the same is
subject to forfeiture or liable for any time as imposed under TCC, rules and regulation.
2. May exercise only in conformity with the laws and TCC.(sec. 2205 TCC)

Articles subject to Seizures and Forfeitures [Code: FEU-UE-UM-UP-BIR]

1. Fraudulent removal of cargoes
2. Excessive sea store
3. Undeclared cargoes
4. Unlawful use of aircraft or vessel EXCEPT if there is Certificate of Public Convenience and
Necessity
5. Excessive cargoes
6. Unlawful transfer of cargoes
7. Money used to bribe
8. Unauthorized removal of goods
9. Prohibited articles
10. Beast, actually used for the consequence that is subject of forfeiture
11. Instruments used in the loading or unloading of goods subject of forfeiture
12. Receptacles, boxes used to conceal good subject of forfeiture (sec. 2530,TCC)

Article NOT subject to Forfeiture or Seizure

The forfeiture of vessel or aircraft or seizure of articles shall not be effected if it is established that the
owner thereof or his agent in charge of the means of conveyance used as aforesaid has no knowledge of a
participation in the unlawful act. In other words, no forfeiture or seizure in the absence of prima facie
evidence. HOWEVER, that a prima facie presumption shall exist against the vessel, vehicle or aircraft
under any of the following circumstances:
1. if the conveyance has been used for smuggling at least twice before;
2. if the owner is not in the business for which the conveyance is generally used; and
3. if the owner is financially not in a position to own such conveyance.
DOCTRINE OF PRIMARY JURISDICTION OVER SEIZURE AND FORFEITURE CASES
The prevailing doctrine is that the exclusive jurisdiction in seizure and forfeiture cases vested in the
collector of customs precludes a regular court from assuming cognizance of such matter.
It is the settled rule that the BOC acquires exclusive jurisdiction over imported goods, for the
purpose of enforcement of the customs laws, form the moment the goods actually in its
possession or control, even if no warrant of seizure or detention had previously been issued by the
Collector of Custom in connection with seizure and forfeiture proceedings.
Thus, the RTC does not have jurisdiction over seizure and forfeiture proceedings conducted by
the BOC. Even if a Custom seizure is illegal, exclusive jurisdiction still belongs to the BOC. [Jao
vs. CA, G.R. no. 104604,October 6, 1995]

DOCTRINE OF HOT PURSUIT

Requisites:
1. Over Vessels
a. an act is done in Philippine water which constitutes a violation of the TCC
b. a pursuit of such vessel began within the jurisdictional waters which may continue
beyond the maritime zone and the vessel may be seized on the high seas.
2. Over Imported Articles
a. there is a violation of TCC
b. they may be pursued in the Philippines with the jurisdiction over them at any place
therein for the enforcement of the law. (2nd par. Sec. 603,TCC).

Jurisdiction of the BOC

The BOC has the right of supervision and police authority over all seas within the jurisdiction of the
Philippines and over all coasts, ports, harbours, bays, rivers and inland waters whether navigable from the
sea or not. (sec. 603,TCC).

Note:
In Assali vs. Commissioner, 27SCRA312, the SC held as a valid the interception and seizure of a vessel
on the high seas, saying that the authority of a nation within its territory is absolute and exclusive. The
power to secure itself from injury may certainly be exercised beyond the limits of its territory. Places
where searches and seizures may be conducted:
1. Right of police officer to enter enclosure WITHOUT a warrant, EXCEPT a dwelling house
2. Search with dwelling house must be with proper warrant
3. right to search vehicles or aircrafts and person or articles conveyed therein
4. Right to search vehicles, beast and person
5. Search of person arriving from foreign countries.
SETTLEMENT OF FORFEITURE CASES
GEN. RULE:
Settlement of cases by payment of fine or redemption of forfeited property is allowed.

EXCEPTIONS:
1. the importation is absolutely prohibited or
2. the surrender of the property to the person offering to redeem would be contrary to law
3. when there is fraud. (sec. 2307,TCC)

Note:
Acquittal in criminal charged is not a res judicata in seizure or forfeiture proceedings. Since criminal
proceeding are actions in personam while the latter is action in rem.

Note:
Burden of proof in seizure or forfeiture case is on the claimant. (sec. 2535, TCC)
MANIFEST
Manifest in coastwise trade for cargo and passengers transported from one place to another are required
when one or both of such places are a port of entry (sec.906,TCC).
Manifest is not only required to imported goods. It is also required for articles found on vessels or
aircraft engaged in coastwise trade.
Whether the act of smuggling is established or not under the principle of res ipsa loquitur. It is
enough that the cargo was unmanifested and that there was no showing that payment of duties
thereon had been made for it to be subject to forfeiture.Thus, unmanifested cargo is subject to
forfeiture.

SURCHARGE
To overcharge or to charge again as in an accounting between parties.

Articles Subject to Surcharge [Code: DEMI]

1. Failure to pay Duties (sec. 2501,TCC)
2. Failure or refusal of a party to submit evidence (sec. 2504,TCC)
3. Misclassification, misdeclaration or under-evaluation of article
4. Failure to submit or supply invoice (sec.2502,TCC)

FINES
Subject to Fines [Code: BRUCE]
1. Breach of a
2. Failure to supply or manifest requirements provided by law (sec. 2521, TCC)
3. Unlawful loading and unloading of cargoes (Secs. 2524, 2517,TCC)
4. Failure to produce all the crew members
5. Failure to exhibit the documents related to the vessel (Secs. 2519,2507,2508-2514, TCC)

Customs: Flexible Tariff Clause (2001)

What do you understand by the term "flexible tariff clause" as used in the Tariff and
Customs Code? (5%)

SUGGESTED ANSWER:
The term "flexible tariff clause "refers to the authority given to the President to adjust tariff
rates under Section 401 of the Tariff and Customs Code, which is the enabling law
that made effective the delegation of the taxing power to the President under the
Constitution.

Customs: Administrative vs. Judicial Remedies (1997)

The Tariff and Customs Code allows the Bureau of Customs to resort to the administrative
remedy of seizure, such as by enforcing the tax lien on the imported article, and to the judicial
remedy of filing an action in court. When does the Bureau of Customs normally avail itself;
 (a) of the administrative, instead of the judicial remedy, or
(b) of the latter, instead of the former, remedy?

SUGGESTED ANSWER:

(a) The Bureau of Customs normally avails itself of the ADMINISTRATIVE REMEDY of
seizure, such as by enforcing the tax lien on the imported articles, instead of the judicial
remedy when the goods to which the tax lien attaches, regardless of ownership, is still in the
custody or control of the Government. In the case, however, of importations which are
prohibited or undeclared, the remedy of seizure and forfeiture may still be exercised by the
Bureau of Customs even if the goods are no longer in its custody.

(b) On the other hand, when the goods are properly released and thus beyond the reach
of tax lien, the government can seek payment of the tax liability through judicial action since the
tax liability of the importer constitutes a personal debt to the government, therefore,
enforceable by action. In this case judicial remedy is normally availed of instead of the
administrative remedy.

Customs: Importation (1995)

When does importation begin and when does it end?

SUGGESTED ANSWER:

IMPORTATION begins from the time the carrying vessel or aircraft enters Philippine territorial
jurisdiction with the intention to unload therein and ends at the time the goods are released or
withdrawn from the customhouse upon payment of the customs duties or with legal permit to
withdraw (Viduya vs. Berdiago, 73 SCRA 553).

Customs: Jurisdiction; Seizure & Forfeiture Proceedings (1996)

On January 1, 1996, armed with warrants of seizure and detention issued by the Bureau of
Customs, members of the customs enforcement and security services coordinated
with the Quezon City police to search the premises owned by a certain Mr. Ho along
Kalayaan Avenue, Quezon City, which allegedly contained untaxed vehicles and parts. While
inside the premises, the member of the customs enforcement and security services noted
articles which were not included in the list contained in the warrant. Hence, on January
15, 1996, an amended warrant and seizure was issued.

On January 25, 1996, the customs personnel started hauling the articles pursuant to the
amended warrant. This prompted Mr. Ho to file a case for injunction and damages
with a prayer for a restraining order before the Regional Trial Court of Quezon City
against the Bureau of Customs on January 27, 1996. On the same date, the Trial Court issued a
temporary restraining order.
 A motion to dismiss was filed by the Bureau of Customs on the ground that the Regional Trial
Court has no jurisdiction over the subject matter of the complaint claiming that it was the
Bureau of Customs that has exclusive jurisdiction over it. Decide.

SUGGESTED ANSWER:

The motion to dismiss should be granted. Seizure and forfeiture proceedings are within the
exclusive jurisdiction of the Collector of Customs to the exclusion of regular Courts.
Regional Trial Courts are devoid of competence to pass upon the validity or regularity of
seizure and forfeiture proceedings conducted by the Bureau of Customs and to enjoin
or otherwise interfere with these proceedings (Republic vs. CFI of Manila [Branch XXII],
G.R. No. 43747, September 2, 1992; Jao vs. CA, G.R. No. 104604, October 6, 1995).

Customs: Kinds of Custom Duties (1995)

Under the Tariff and Customs Code, what are

a) dumping duties
b) countervailing duties
c) marking duties
d) discriminatory duties?

SUGGESTED ANSWER:

a) Dumping duties are special duties imposed by the Secretary of Finance upon
recommendation of the Tariff Commission when it is found that the price of the imported
articles is deliberately or continually fixed at less than the fair market value or cost of
production, and the importation would cause or likely cause an injury to local industries
engaged in the manufacture or production of the same or similar articles or prevent
their establishment.

b) Countervailing duties are special duties imposed by the Secretary of Finance upon
prior investigation and report of the Tariff Commission to offset an excise or inland
revenue tax upon articles of the same class manufactured at home or subsidies to foreign
producers or manufacturers by their respective governments.

c) Marking duties are special duties equivalent to 5% ad valorem imposed on articles

not properly marked. These are collected by the Commissioner of Customs except when the
improperly marked articles are exported or destroyed under customs supervision and prior
to final liquidation of the corresponding entry. These duties are designed to prevent
possible deception of the customers.

d) Discriminatory duties are special duties collected in an amount not exceeding

100% ad valorem, imposed by the President of the Philippines against goods of a foreign
 country which discriminates against Philippine commerce or against goods coming
from the Philippines and shipped to a foreign country.

Customs: Kinds of Custom Duties (1997)

Explain briefly each of the special customs duties authorized under the Tariff and
Customs Code.

SUGGESTED ANSWER:

The following are the Special Duties imposed under the Tariff and Customs Code:
(a) Dumping Duty - This is a duty levied on imported goods where it appears that a specific kind
or class of foreign article is being imported into or sold or is likely to be sold in the
Philippines at a price less than its fair value;

(b) Countervailing Duty - This is a duty equal to the ascertained or estimated amount of
the subsidy or bounty or subvention granted by the foreign country on the production,
manufacture, or exportation into the Philippines of any article likely to injure an
industry in the Philippines or retard or considerable retard the establishment of such industry;

(c) Marking Duty - This is a duty on an ad valorem basis imposed for improperly
marked articles. The law requires that foreign importations must be marked in any
official language of the Philippines the name of the country of origin of the article;

(d) Discriminatory or Retaliatory Duty - This is a duty imposed on imported goods whenever it
is found as a fact that the country of origin discriminates against the commerce of the
Philippines in such a manner as to place the commerce of the Philippines at a
disadvantage compared with the commerce of any foreign country.

Customs: Remedies of an Importer (1996)

Discuss briefly the remedies of an importer during the pendency of seizure proceedings.

SUGGESTED ANSWER:

During the pendency of seizure proceedings the importer may secure the release of the
imported property for legitimate use by posting a bond in an amount to be fixed by the
Collector, conditioned for the payment of the appraised value of the article and/or any
fine, expenses and costs which may be adjudged in the case; provided, that articles the
importation of which is prohibited by law shall not be released under bond.

The importer may also offer to pay to the collector a fine imposed by him upon the property to
secure its release or in case of forfeiture, the importer shall offer to pay for the domestic market
value of the seized article, which offer subject to the approval of the Commissioner may
 be accepted by the Collector in settlement of the seizure case, except when there is fraud.
Upon payment of the fine or domestic market value, the property shall be forthwith released
and all liabilities which may or might attach to the property by virtue of the offense which was
the occasion of the seizure and all liability which might have been incurred under any bond
given by the importer in respect to such property shall thereupon be deemed to be
discharged.

Customs: Returning Residents: Tourist/Travelers (2003)

X and his wife, Y, Filipinos living in the Philippines, went on a three-month pleasure trip
around the world during the months of June, July and August 2002. In the course of their trip,
they accumulated some personal effects which were necessary, appropriate and normally
used in leisure trips, as well as souvenirs in non-commercial quantities. Are they
"returning residents" for purposes of Section 105 of the Tariff and Customs Code? Explain.
(8%)

SUGGESTED ANSWER:

No. The term "returning residents" refers to nationals who have stayed in a foreign
country for a period of at least six (6) months. (Section 105(f) of the Tariff and Customs
Code). Due to their limited duration of stay abroad X and Y are not considered as "returning
residents" but they are merely considered as travelers or tourists who enjoy the benefit of
conditionally free importation.

[Note: Credit must likewise be given if the candidate answered in the affirmative, considering
that travelers or tourists are given the same tax treatment as that of returning residents,
treating their personal effects, not in commercial quantities, as conditionally free
importation.]

Customs: Seizure & Forfeiture: Effects (1994)

In smuggling a shipment of garlic, the smugglers used an eight-wheeler truck which they hired
for the purpose of taking out the shipment from the customs zone. Danny, the truck owner,
did not have a certificate of public convenience to operate his trucking business. Danny did
not know that the shipment of garlic was illegally imported.

Can the Collector of Customs of the port seize and forfeit the truck as an instrument in the
smuggling?

SUGGESTED ANSWER:

Yes, the Collector of Customs of the port can seize and forfeit the truck as an instrument in the
smuggling activity, since the same was used unlawfully in the importation of smuggled articles.
The mere carrying of such articles on board the truck (in commercial quantities) shall
 subject the truck to forfeiture, since it was not being used as a duly authorized common
carrier, which was chartered or leased as such. (Sec. 2530 [a], TCC)

Moreover, although forfeiture of the vehicle will not be effected if it is established that the
owner thereof had no knowledge of or participation in the unlawful act, there arises a
prima facie presumption or knowledge or participation if the owner is not in the business
for which the conveyance is generally used. Thus, not having a certificate of public
convenience to operate a trucking business, he is legally deemed not to have been engaged in
the trucking business. (Sec. 2531, Tariff and Customs Code)

Customs: Steps involving Protest Cases (1994)

The Collector of Customs instituted seizure proceedings against a shipment of motor

vehicles for having been misdeclared as second-hand vehicles. State the procedure for the
review of the decision up to the Supreme Court of the Collector of Customs adverse to the
importer.

SUGGESTED ANSWER:

The procedure in seizure cases may be summarized as follows:

(a) The collector issues a warrant for the detention or forfeiture of the imported articles;
(Sec. 2301, Tariff and Customs Code)
(b) The Collector gives the importer a written notice of the seizure and fixes a hearing date
to give the importer an opportunity to be heard; (Sec. 2303, TCC)
(c) A formal hearing is conducted; (Sec. 2312, TCC)
(d) The Collector renders a declaration of forfeiture; (Sec. 2312, TCC)
(e) The Importer aggrieved by the action of the Collector in any case of seizure may
appeal to the Commissioner for his review within fifteen (15) days from written notice of
the Collector's decision; (Sec. 2313, TCC)
(f) The importer aggrieved by the action or ruling of the Commissioner in any case of seizure
may appeal to the Court of Tax Appeals; (Sec. 2402, TCC)
(g) The importer adversely affected by the decision of the Court of Tax Appeals
(Division) may appeal to the Court of Tax Appeals (en banc) within fifteen
a. (15) days which may be extended for another fifteen (15) days or such period as the
Court of Tax Appeals may decide.

Customs; Basis of Dutiable Value; Imported Article (2005)

State and explain the basis of dutiable value of an imported article subject to an ad
valorem tax under the Tariff and Customs Code.
ALTERNATIVE ANSWER:

The basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff
and Customs Code is its TRANSACTION VALUE. (Sec. 201[A], Tariff and Customs
Code, as amended by R.A. No. 9135) If such value could not be determined, then the
following values are to be utilized in their sequence: Transaction value of identical
goods (Sec. 201[B]); Transaction value of similar goods (Sec. 201[C]); Deductive value
(Sec. II.E.1, CA.O. No. 4-2004); Computed value (Sec., II.F.l, C.A.O. No. 1-20040) and
Fallback value. (Sec. 201[F])

ALTERNATIVE ANSWER:

The basis of dutiable value of an imported article subject to an ad valorem tax under the Tariff
and Customs Code is its transaction value, which shall be the price actually paid or
payable for the goods when sold for export to the Philippines, adjusted by adding 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 goods. (Sec. 201[A], Tariff and Customs Code,
as amended by R.A. 9135)

If such value could not be determined, then the following values are to be utilized in their
sequence: Transaction value of identical goods (Sec. 201[B]); Transaction value of similar
goods (Sec. 201[C]); Deductive value (Sec. II.E.1, CA.O. No. 4-2004); Computed value
(Sec. II.F.l, C.A.O. No. 1-20040) and Fallback value. (Sec. 201[F])

Customs; Countervailing Duty vs. Dumping Duty (2005)

Distinguish countervailing duty from dumping duty. (5%)

SUGGESTED ANSWER:

The distinctions between countervailing duty and dumping duty are the following:
1. Basis: The countervailing duty is imposed whenever there is granted upon the imported article by
the country of origin a specific subsidy upon its production, manufacture or
exportation and this results or threatens injury to local industry while the basis for the
imposition of dumping duty is the importation and sale of imported items at below their
normal value causing or likely to cause injury to local industry.
2. Amount: The countervailing duty imposed is equivalent to the value of the specific
subsidy while the dumping duty is equivalent to the margin of dumping which is equal to
the difference between the export price to the Philippines and the normal value of the imported
article.
 Customs; Taxability; Personal Effects (2005)

Jacob, after serving a 5-year tour of duty as military attache in Jakarta, returned to the
Philippines bringing with him his personal effects including a personal computer and
a car. Would Jacob be liable for taxes on these items? Discuss fully. (5%)

SUGGESTED ANSWER:

No, Jacob is not liable for taxes on his personal computer and the car because he is tax-exempt
by law. He has met the following requirements for exemption under P.D. No. 922 (1976):
a) He was a military attache assigned to Jakarta;
b) He has served abroad for not less than two (2) years;
c) He is returning to the Philippines after serving his tour of duty; and
d) He has not availed of the tax exemption for the past four (4) years.

He is entitled to tax exemption on his personal and household effects including a car;
provided:

a) The car must have been ordered or purchased prior to the receipt by the Philippine
mission or consulate in Jakarta of Jacob's recall order;
b) the car is registered in Jacob's name;
c) the exemption shall apply to the value of the car;
d) the exemption shall apply to the aggregate value of his personal and
household effects (including the personal computer) not exceeding thirty per
centum (30%) of the total amount received by Jacob as salary and allowances
during his assignment in Jakarta, but not to exceed four (4) years;
e) Jacob must not have availed of the exemption more oftener than one every four
years. (Last par., Sec. 105, Tariff and Customs Code)