TITLE VIII

TAX REMEDIES
CHAPTER 1 REMEDIES IN GENERAL
Section 202 to Section 204
Section 202. Final Deed to Purchaser
In the event that the delinquent taxpayer shall not redeem his property that
had been auctioned in order for the BIR to collect the delinquent taxes, the RDO
shall execute an Absolute Deed of Sale to the buyer of the property that had been
sold, free from all liens of any kind whatsoever, with a recitation of all the
proceedings that took place upon which the validity of the sale would now depend.
Section 203. Period of Limitation Upon Assessment and Collection
Except as provided in Sec 222, Internal Revenue 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:
Provided, That in a 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.
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.
Purpose of the Period of Limitation Upon Assessment and Collection of
Taxes
Beneficial both to the Government and to its citizens
o Government tax officers would be obliged to act promptly in the
making of assessment
o Citizens after the lapse of the period of prescription, citizens would
have a feeling of security against unscrupulous tax agents who will
always find an excuse to inspect the books of taxpayers
The law on prescription, being a remedial measure, should be liberally
construed in order to afford protection.
Two Kinds of Prescriptive Periods for the Assessment and Collection of
Taxes
1. Normal/Regular Prescriptive Period under Section 203 is available to the
government if the taxpayer filed a return and the return filed is not false or
fraudulent.
2. Exceptional Prescriptive Period under Section 222 is available to the
government in the following cases:
a. The taxpayer failed to file a return;
b. The taxpayer filed a false return with intent to evade tax;
c. The taxpayer filed a fraudulent return with intent to evade tax;
d. The taxpayer and the Commissioner agreed in writing to waive the
prescriptive period of assessment of tax.

Normal/Regular Prescriptive Period

Prior to the Tax Code of 1997, Batas Pambansa Blg. 700, shortened the
prescriptive period of assessment and collection of national internal revenue taxes
from five (5) years to three (3) years.
The Commissioner has three (3) years from the date of actual filing of the tax
return to assess a national internal revenue tax or to commence court proceedings
for the collection thereof without an assessment.
When the Commissioner validly issues an assessment notice within the 3year period for the assessment, he has another three years within which to collect
the tax due by distraint, levy, or court action, whether civil or criminal.
However, Section 203 of the Tax Code of 1997, as amended, expressly
provides only for the three year prescriptive period for the assessment but it is
silent as to the prescriptive period for collection.
How to count the normal 3-year prescriptive period of assessment
If the return was filed BEFORE or on the LAST DAY prescribed by law for
the filing of the return, the three year prescriptive period to assess shall
be counted from the date of the deadline (which is the last day for filing of
the return);
If the return was filed AFTER THE LAST DAY prescribed by law for filing of
return, the three year prescriptive period to assess shall be counted from
the day the return was filed;
If the return is AMENDED substantially different from the original return,
the 3 year prescriptive period shall be counted from the filing of the
amended return.
Rules on prescriptive period for the COLLECTION of taxes
The normal prescriptive period for the collection of taxes is applicable only in
case a return was filed, and the return is NOT fraudulent or false

In the case there is PRIOR ASSESSMENT, collection SHALL be made within

3 years from the date of the final assessment notice (FAN) of the tax due,
either or both simultaneously:
o By distraint of personal property, or by levy of real property of the
taxpayer or
o By judicial proceedings, thru civil or criminal action.

In case there in NO PRIOR ASSESSMENT, collection proceedings SHALL BE

BEGUN within 3 years from the date of the filing of the return, or from the
last day prescribed for the filing of the return whichever is later, but only
by judicial proceedings.

CIVIL TAX CASES involving the collection of internal revenue taxes prescription is
construed strictly against the government and liberally in favor of the taxpayer.
CRIMINAL TAX CASES involving tax offenses punishable under the Tax Code
prescription is construed strictly against the taxpayer.

Once the right to collect has prescribed, the Commissioner can no longer enforce
collection of the tax liability against the taxpayer.

Section 204. Authority of the Commissioner to Compromise, Abate and

Refund or Credit Taxes
Distinctions between Compromise and Abatement
COMPROMISE
Is the reduction of the taxpayers
tax liability.
CIR and National Evaluation Board
(NEB) & Regional Evaluation Board
(REB) are authorized to enter into
a compromise.
Grounds:
1. Reasonable doubt as to
validity of assessment; or
2. Financial incapacity of a
taxpayer.

ABATEMENT
Is
the
cancellation
of
the
taxpayers tax liability.
CIR has sole authority to abate or
cancel tax liability of a taxpayer.

Grounds:
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.

Grounds:
Doubtful validity of the assessment the offer to compromise a
delinquent account of disputed assessment on the ground of reasonable
doubt as to validity of the assessment may be accepted when it is shown
that:
o The delinquent account or disputed assessment is one resulting
from a jeopardy assessment;
o The assessment seems to be arbitrary in nature, appearing to be
based on presumptions and there is reason to believe that it is
lacking in legal and/or factual basis;
o The taxpayer failed to file an administrative protest on account of
the alleged failure to receive notice of final assessment and there is
reason to believe that the assessment is lacking in legal and/or
factual basis;
o The
taxpayer
failed
to
file
a
request
for
reinvestigation/reconsideration within 30 days from receipt of final
assessment notice and there is reason to believe that the
assessment is lacking in legal and/or factual basis;

o
o

The taxpayer failed to elevate to the CTA an adverse decision of the

Commissioner, or his authorized representative, in some cases,
within 30 days from receipt thereof and there is reason to believe
that the assessment is lacking in legal and/or factual basis;
The assessments were issued on or after January 1, 1998, where
the demand notice allegedly failed to comply with the formalities
prescribed under Section 228 of the NIRC of 1997 (Protesting an
assessment);
Assessments made based on the best evidence obtainable rule
and there is reason to believe that the same can be disputed by
sufficient and competent evidence;
The assessment was issued within the prescriptive period for
assessment as extended by the taxpayers execution of Waiver of
the Statute of Limitation the validity or authenticity of which is
being questioned or at issue and there is strong reason to believe
and evidence to prove that it is not authentic;
The assessment is based on an issue where a court of competent
jurisdiction made an adverse decision against the Bureau, but for
which the Supreme Court has not decided upon with finality.

Financial Incapacity
o The corporation ceased operation or is already dissolved;
o The taxpayer, as reflected in its latest Balance Sheet supposed to
be filed with the BIR, is suffering from surplus or earnings deficit
resulting to impairment in the original capital by at least 50%;
o The taxpayer is suffering from a net worth deficit (total liabilities
exceeds total assets) computed by deducting total liabilities (net of
deferred credits and amounts payable to stockholders/owners
reflected as liabilities, except business-related transactions) from
total assets (net of prepaid expenses, deferred charges, preoperating expenses, as well as appraisal increases in fixed assets),
taken from the latest audited financial statements, provided that in
the case of an individual taxpayer, he has no other leviable
properties under the law other than his family home;
o The taxpayer is a compensation income earner with no other source
of income and the familys gross monthly compensation income
does not exceed the levels of compensation income provided for
under Section 4.1.1 of RR 6-2000, as last amended by RR 8-2004,
and it appears that the taxpayer possesses no other liable or
distrainable assets, other than his family home;
o The
taxpayer
has
been
declared
by
any
competent
tribunal/authority/body/government
agency
as
bankrupt
or
insolvent.

Cases which may be compromised

Delinquent accounts;
Cases under administrative protest after issuance of the final assessment
notice to the taxpayer which are still pending in the regional Offices, RDOs,

Legal Service, LTS, Collection Service, Enforcement Service and other offices
in the National Office;
Civil Tax cases being disputed before the courts;
Collection cases filed in courts;
Criminal violations, except (a) those already filed in court, or (b) those
involving criminal tax fraud.
Exceptions:
Withholding tax cases, unless the applicant-taxpayer invokes provisions of
law that cast doubt on the taxpayers obligation to withhold;
Criminal tax fraud cases confirmed as such by the Commissioner of Internal
Revenue or his duly authorized representative;
Criminal violations already filed in court;
Delinquent accounts with duly approved schedule of installment payments;
Cases where final reports of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment and the taxpayer is
agreeable to such decision by signing the required agreement form for the
purpose.
Cases which become final and executory after final judgment of a court,
where compromise is requested on the ground of doubtful validity of the
assessment; and
Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer.
Prescribed Minimum Percentages of Compromise Settlement
The compromise settlement of the internal revenue tax liabilities of
taxpayers, reckoned on a per tax assessment basis shall be subject to the following
minimum rates based on the basic assessed tax:
I.

For cases of financial incapacity

1.1
If a taxpayer is an individual whose only source of
income is from employment and whose monthly
salary, if single is P10,500 or less, or if married,
whose salary together with his spouse is P21,000
per month, or less, and it appears that the taxpayer
possesses no other leviable/distrainable assets,
other than his family home.
1.2
If taxpayer is an individual without any source of
income
1.3
Where the taxpayer is under any of the following
conditions:
- Zero net worth computed in accordance
with Section 3.2
- Negative
net
worth
computed
in
accordance with Section 3.2
- Dissolved corporations
- Already non-operating companies for a

10%

10%

10%
10%
20%

II.

period of:
(a) Three (3) years or more as of the date
of
application
for
compromise
settlement;
(b) Less than 3 years
Surplus or earnings deficit resulting to
impairment in the original capacity by at
least 50%
Declared insolvent or bankrupt, unless
taxpayer falls under any situation as
discussed above, thus resulting to the
application of the appropriate rate

10%
20%
40%

20%

For cases of doubtful validity a minimum compromise rate

equivalent to 40% of the basic assessed tax.

Documentary Requirements
1. If the application for compromise is premised under Section 4.1.1 or RR 62000, as amended, the taxpayer-applicant shall submit with his application:
a. Certification from his employer on his prevailing monthly salary,
including allowances;
b. A sworn statement that he has no other source of income other than
from employment.
2. If the application is premised under Section 4.1.2 of RR 6-2000, as amended,
that taxpayer-applicant shall submit with his application a sworn statement
that he derives no income from any source whatever;
3. If the application is premised under Section 4.1.3 of RR 6-2000, as amended,
a copy of the applicants latest audited financial statements or audited
Account Information Form filed with the BIR shall be submitted with the
application. Notice of Dissolution submitted to SEC should be likewise
submitted.
Approval of offer of compromise
All compromise settlements within the jurisdiction of the National Office (NO)
shall be approved by a majority of all the members of the National Evaluation
Board (NEB) composed of the Commissioner and the four Deputy
Commissioners. All decisions of the NEB granting the request of the taxpayer
or favorable to the taxpayer shall have the concurrence of the Commissioner.
Offers of compromise of assessments issued by the Regional Offices involving
basic deficiency taxes of P500,000 or less and for minor criminal violations
discovered by the Regional and District Offices shall be subject to the
approval by the Regional Evaluation Board (REB).
Criminal violation, except those already filed in court or those involving fraud, may
be compromised, but the payment of the tax due after apprehension shall not
constitute a valid defense in any prosecution for violation of any provisions of the
Tax Code.

COMMISSIONERS AUTHORITY TO ABATE OR CANCEL TAX LIABILITY,

GROUNDS FOR ABATEMENT OR CANCELLATION OF TAX LIABILITIES
Grounds for abatement:
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.
Commissioner has the sole authority to abate or cancel tax, penalties and/or
interest.
When penalties and/or interest imposed may be abated or cancelled on
the ground that the imposition is unjust or excessive
1. When the filing of the return/payment of the tax is made at the wrong venue;
2. When the taxpayers mistake in payment of his tax is due to erroneous
written official advice of the revenue officer;
3. When the taxpayer fails to file the return and pay the tax on time due to
substantial losses from prolonged labor dispute, force majeure, legitimate
business reverses such as in the following instances, provided that the
abatement shall only cover the surcharge and the compromise penalty and
not the interest imposed under Section 249 of the Code:
a. Labor strike for more than six months which has caused the temporary
shutdown of business;
b. Public turmoil
c. Natural calamity, such as lightning, earthquake, storm, flood and the
like;
d. Armed conflict, such as war or insurgency;
e. Substantial losses sustained due to fire, robbery, theft, embezzlement;
f. Continuous heavy losses incurred by the taxpayer for the last two
years;
g. Liquidity problem of the taxpayer for the last three years;
h. Such other instances which the Commissioner may deem analogous to
the enumeration above.
4. When the assessment is brought about or the result of taxpayers noncompliance with the law due to a difficult interpretation of the said law;
5. When the taxpayer fails to file the return and pay the correct tax on time due
to circumstances beyond his control;
6. Late payment of the tax under meritorious circumstances such as:
a. Use of wrong tax form
b. Filing an amended return under meritorious circumstances;
c. Surcharge erroneously imposed;
d. Late filing of return due to unresolved issue on classification/valuation
of real property;
e. Offsetting of taxes of the same kind;
f. Automatic offsetting of overpayment of one kind of withholding tax
against the underpayment in another kind;
g. Late remittance of withholding tax on compensation of expatriate for
services rendered in the Philippines pending the issuance by the SEC of
the license to the Philippine branch office of subsidiary;

When the tax liabilities, penalties, and/or interest may be abated or

cancelled on the ground that the administration and collection cost are
more than the amount sought to be collected
1. Abatement of penalties on assessment confirmed by lower court but
appealed by the taxpayer to a higher court;
2. Abatement of penalties on withholding tax assessment under meritorious
circumstances;
3. Abatement of penalties on delayed installment payment under meritorious
circumstance;
4. Abatement of penalties on assessment reduced after reinvestigation but
taxpayer is still contesting reduced assessment; and
5. Such other instances which the Commissioner may deem analogous to the
enumeration above.
Processing time: The application for abatement or cancellation of tax, penalties
and/or interest should be acted upon by the processing office and reviewing office
within 5 days from receipt by said office. The BIR National Office has 30 days within
which to act on the case.
Commissioners authority to refund erroneously or illegally collected taxes
under Section 204:
1. Credit or refund taxes erroneously or illegally collected;
2. Credit or refund penalties imposed without authority;
3. Credit or refund any sum of money alleged to have been excessively or in
any manner wrongfully collected;
4. Refund the value of internal revenue stamps when they are returned in
good condition by the purchaser; and
5. In his discretion, redeem or change unused stamps that have been
rendered unfit for use and refund their value upon proof of destruction.
Refunds referred to under Sections 204(C) and 229 of the NIRC of 1997, as
amended.
Sections 204(c) and 229 apply only to instances of refund of erroneously paid
or illegally collected internal revenue taxes NOT the refund of VAT input taxes of
VAT-registered taxpayers. (CIR vs. Mirant Pagbilao Corp., G.R. No. 172128, Sept. 12,
2008)

CIR vs. Mirant Pagbilao Corp. GR. No. 172129 Sept. 12,
2008
Facts:
Migrant Pagbilao Corporation (MPC) is a corporation
engaged in the business of power generation and distribution.
It accumulated input taxes in the amount of 39,330,500.85 from

April 1, 1996 to December 31, 1996. MPC claims that it paid

these input taxes to the suppliers of capital goods and services
for the construction and development of power plants. MPC
applied for tax credit/refund on the unutilized VAT paid on
capital goods. Without waiting for the BIR Commissioner
to answer, MPC filed a petition for review to toll the running of
the2-year prescriptive period for claiming a refund under the
law. The BIR in its answer denied MPCs application citing that
MPCs claim for refund is still being investigated before the BIR,
that the action is premature, and that tax credit laws are
construed against MPC. Upon investigation, the Revenue
Officer recommended for the approval of the tax credit but it
reduced the amount from39,330,500.85
to
28,745,502.40,
as duly proven by valid invoices or official receipts. The
CTA ruled that indeed, MPC is entitled to tax credit but the
amount is reduced in line with the Revenue Officers findings.
The BIR filed a motion for reconsideration that was subsequently
denied. On appeal, the BIR raised that MPC being an electric
utility is subject to franchise tax and not VAT and since it is VAT
exempt, it cant claim tax refund. The CA denied BIRs appeal
upholding that it is not allowed to change its theory on appeal.
Issues: 1. Whether the BIR is allowed to change its theory on
appeal.
2. Whether Input VAT on capital goods and services is
allowed.
Ruling: 1. The SC prohibited the BIR from changing its theory on
the case and raising anew issue on appeal. As a rule, a party is
never allowed to change its theory or raise a totally new issue
on appeal. On exceptional cases, the rules may be relaxed
allowing new issues on appeal but it is only done for good and
sufficient causes in order to pave way for justice. The BIR has
not shown any good or sufficient cause for relaxing the rules. 2.
Input VAT on capital goods and services may be claimed as tax
refund. The BIR is erroneous in stating that a VAT exempt or zero
rated VAT payer is not allowed to claim tax credits. Pertinent
provisions of the Tax Code allow that Input VAT on capital goods
be claimed as tax credit. Sec 106 (b) of the Tax Code of1986 as
amended by RA 7716 expressly states that A VAT- registered
person may apply for the issued 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.
Nature of a Tax Refund
A tax refund is in the nature of a tax exemption which must be construed
strictissimi juris against the taxpayer. The taxpayer must present convincing
evidence to substantiate a claim for refund.

CIR vs. Fortune Tobacco Corporation, [G.R. Nos. 167274-75, July 21, 2008]
Facts:
Respondent FTC is a domestic corporation that
manufactures cigarettes packed by machine under
several brands. Prior to January 1, 1997, Section 142 of
the 1977 Tax Code subjected said cigarette brands to ad
valorem tax. Annex D of R.A. No. 4280 prescribed the
cigarette brands tax classification rates based on their
net retail price. On January 1, 1997, R.A. No. 8240 took
effect. Sec. 145 thereof now subjects the cigarette brands
to specific tax and also provides that: (1) the excise tax
from any brand of cigarettes within the next three (3)
years from the effectivity of R.A. No. 8240 shall not be
lower than the tax, which is due from each brand on
October 1, 1996; (2) the rates of excise tax on cigarettes
enumerated therein shall be increased by 12% on January
1, 2000; and (3) the classification of each brand of
cigarettes based on its average retail price as of October
1, 1996, as set forth in Annex D shall remain in force until
revised by Congress.
The Secretary of Finance issued RR No. 17-99 to
implement the provision for the 12% excise tax increase.
RR No. 17-99 added the qualification that the new
specific tax rate xxx shall not be lower than the excise tax
that is actually being paid prior to January 1, 2000. In
effect, it provided that the 12% tax increase must be
based on the excise tax actually being paid prior to
January 1, 2000 and not on their actual net retail price.
FTC filed 2 separate claims for refund or tax credit of its
purportedly overpaid excise taxes for the month of
January 2000 and for the period January 1-December 31,
2002. It assailed the validity of RR No. 17-99 in that it
enlarges Section 145 by providing the aforesaid
qualification. In this petition, petitioner CIR alleges that
the literal interpretation given by the CTA and the CA of
Section 145 would lead to a lower tax imposable on 1
January 2000 than that imposable during the transition
period, which is contrary to the legislative intent to raise
revenue.
Issue:
Should the 12% tax increase be based on the net
retail price of the cigarettes in the market as outlined in
Section 145 of the 1997 Tax Code?
Held:

YES. Section 145 is clear and unequivocal. It states

that during the transition period, i.e., within the next 3
years from the effectivity of the 1997 Tax Code, the excise
tax from any brand of cigarettes shall not be lower than
the tax due from each brand on 1 October 1996. This
qualification, however, is conspicuously absent as regards
the 12% increase which is to be applied on cigars and
cigarettes packed by machine, among others, effective on
1 January 2000.
Clearly, Section 145 mandates a new rate of excise tax for
cigarettes packed by machine due to the 12% increase
effective on 1 January 2000 without regard to whether the
revenue collection starting from this period may turn out
to be lower than that collected prior to this date.
The qualification added by RR No. 17-99 imposes a tax
which is the higher amount between the ad valorem tax
being paid at the end of the 3-year transition period and
the specific tax under Section 145, as increased by 12%
a situation not supported by the plain wording of Section
145 of the 1997 Tax Code. Administrative issuances must
not override, supplant or modify the law, but must remain
consistent with the law they intend to carry out.
Revenue generation is not the sole purpose of the
passage of the 1997 Tax Code. The shift from the ad
valorem system to the specific tax system in the Code is
likewise meant to promote fair competition among the
players in the industries concerned and to ensure an
equitable distribution of the tax burden.
When there is parity between tax refund and tax exemption?
There is parity only when the tax refund is based either on a tax
exemption statute or a tax refund statute.
The rule is that tax exemptions must be strictly construed such
that the exemption will not be held to be conferred unless the terms
under which it is granted clearly and distinctly show that such was the
intention. (CIR vs. Fortune Tobacco Corp., G.R. Nos. 167274-75, July 21,
2008)
Tax refund vis--vis Tax Credit
Tax refund refers to the actual reimbursement of the erroneously or
illegally collected taxes.

Tax credit refers to the issuance of a Tax Credit Certificate (TCC) which
may be utilized in the payment of the internal revenue taxes, excluding withholding
taxes.
Conditions required by the Tax Code before application for refund or tax
credit certificate due to taxes erroneously or illegally received may be
granted by the CIR.
1. That the taxpayer should file a written claim for refund or tax credit with the
BIR Commissioner within 2 years from the date of payment of tax or penalty;
2. That if denied or not acted upon within said period, the petition for refund be
filed with the CTA within 30 days from receipt of the denial and within said 2
year period from the date of payment of the tax or penalty regardless of any
supervening cause;
3. The claim for refund must be a categorical demand for reimbursement;
4. There must be a proof of payment of the erroneously or illegally collected
taxes;
5. No refund shall be given resulting from availment of incentives granted
pursuant to special laws.
Conditions in order that a claim for refund of creditable withholding taxes
may be granted
1. A written claim must be filed with the Commissioner within 2 years from the
date of payment of tax;
2. It is shown on the return of the recipient that the income payment received
was declared as part of the gross income; and
3. The fact of withholding is established by a copy of a statement duly issued by
the payor to the payee showing the amount paid and the amount of the tax
withheld therefrom.
When the Commissioner may also grant a refund even without a written
claim for it
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. The return filed showing an overpayment shall be considered as a written
claim for credit or refund.
When request for the issuance of tax credit certificate may not be subject
to the 2-year limitation period
Request for issuance of TCC is not subject to the 2year limitation upon basic
consideration of equity and fairness. When it is undisputed that a taxpayer is
entitled to a refund, the State should not invoke technicalities to keep money not
belonging to it.