GUIDE NOTES ON REMEDIES

(NATIONAL INTERNAL REVENUE CODE)

Q: Who are the Philippine tax authorities?
* (1) Bureau of Internal Revenue - The BIR is the agency of the government which is
primarily incharge of the administration and enforcement of tax laws under the
1997 Tax Code.
(2) Bureau of Customs - The BOC is in charge of the enforcement of tariff and
customs tax laws.
(3) Assessors and Treasurers of Local Government Units The assessors and
treasurers ofLGUs are in charge of the enforcement of local and real property tax
laws.
Q: How are taxes assessed?
* (1) Self-Assessment - Taxpayers are required to file tax returns for various kinds of
incomeearned which may be subject to tax. Examples are income tax, capital
gains tax, donors tax, andestate tax. When a taxpayer files the tax return, he is
actually making a self-assessment.
(2) Deficiency Assessment - Deficiency assessment is an assessment made by the
BIR after theconduct of an investigation or audit when it finds that the tax return
filed by the taxpayer contains,for example, an under-declaration of income, or
when the taxpayer does not at all file a tax return.
[NOTE: The provisions on tax remedies found in the 1997 Tax Code refer to the
governmentsright to make deficiency assessments.]
** The case of Philippine National Oil Company v. Court of Appeals made a distinction
between aself-assessed tax and a BIR-assessed tax. At issue in this case was the
validity of thecompromise agreement executed by PNOC pursuant to EO No. 44. Under
said law, the CIR wasauthorized to compromise delinquent accounts arising, among
others, from a self-assessed tax.According to the Supreme Court, PNOC could not avail
of the benefits of EO No. 44 because, forone, its tax liability was not a self-assessed
tax. The High Court differentiated a self-assessed taxand a BIR-assessed tax in this
sense: where tax liabilities are self-assessed, the compromisepayment shall be based
on the tax return filed by the taxpayer; on the other hand, where the BIRalready issued
an assessment, the compromise payment shall be computed based on the taxdue on
the assessment notice.[Philippine National Oil Company v. Court of Appeals, GR Nos. 109976
and 112800, 26 April2005.]

Q: How are remedies in taxation classified?

* Remedies in taxation may be grouped as follows:
(1) Remedies of the Government
(a) to make deficiency assessments within 3 or 10 years
(b) to enforce deficiency assessments and collect taxes within 5 years
(i) to effect distraint of personal property
(ii) to effect levy on real property

(iii) to pursue judicial proceeding to collect

(iv) to compromise, abate, or cancel taxes
(v) to enforce tax liens
(vi) to enforce statutory penal provisions
(vii) to enforce forfeiture or property
(2) Remedies of the Taxpayer
(a) to protest against an assessment (administrative claim)
(b) to appeal a decision on a protest to the Court of Tax Appeals (judicial
claim)
(c) to compromise taxes
(d) to release property before sale at public auction
(e) to redeem property after sale at public auction
(f) to avail of tax amnesty benefits

CHAPTER I - REMEDIES IN GENERAL

Sec. 202, Final Deed to Purchaser. - In case the taxpayer shall not redeem the property as
hereinprovided, the Revenue District Officer shall, as grantor, execute a deed conveying
to the purchaser so much ofthe property as has been sold, free from all liens of any kind
whatsoever, and the deed shall succinctly recite all
the proceedings upon which the validity of the sale depends.

Section 202 shall be discussed in relation to Section 214, which reads:

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 theRevenue District Officer the amount of the public taxes,
penalties, and interest thereonfrom the date of delinquency to the date of
sale, together with interest on said purchaseprice at the rate of fifteen
percent (15%) per annum from the date of purchase to the dateof
redemption, and such payment shall entitle the person paying to the
delivery of thecertificate issued to the purchaser and a certificate from the
said Revenue District Officerthat he has thus redeemed the property, and
the Revenue District Officer shall forthwithpay 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
andshall be entitled to the rents and other income thereof until the
expiration of the timeallowed for its redemption.

Q: What is the redemption period for properties of a delinquent taxpayer sold at public
auction?
[NOTE: Make a distinction between properties of a delinquent taxpayer and tax
delinquent
properties.]
* The case of City Mayor of Quezon City v. Rizal Commercial Banking Corporation dealt
with theinterpretation of the redemption period under RA No. 7160, otherwise known as

the 1991 LocalGovernment Code (real property taxes imposed by LGUs), but may be
relevant in thedetermination of the starting point of the redemption period provided in
the 1997 Tax Code(internal revenue taxes imposed by the National Government).
In the above case, the Supreme Court held that: (1) under PD No. 464, or the Real
Property TaxCode, the one-year redemption period for tax delinquent properties sold at
public auction wascounted from the date of registration of sale of the property; (2) under
RA No. 7160, or the 1991Local Government Code, the reckoning point of the
redemption period was the date of sale of theproperty; and (3) the latter law effectively
superseded the older law, such that the redemptionperiod for tax delinquent properties
should be counted from the date of sale of the property.However, the Supreme Court
likewise took note of the Quezon City Revenue Code of 1993,which provided that the
redemption period for tax delinquent properties within the city wascounted from the date
of annotation of sale of the property at the proper registry. A special lawprevails over a
general law. Thus, the Quezon City Revenue Code of 1993 prevailed over the1991
Local Government Code in that the redemption period in the case at bar was reckoned,
notfrom the date of sale of the property, but from the date of annotation of sale of the
property at theproper registry.[City Mayor of Quezon City v. Rizal Commercial Banking
Corporation, GR No. 171033, 3 August2010.]
Sec. 203, Period of Limitation Upon Assessment and Collection. - Except as provided in
Section222, internal revenue taxes shall be assessed within three (3) years after the last
day prescribed by law for thefiling of the return, and no proceeding in court without
assessment for the collection of such taxes shall bebegun after the expiration of such
period: Provided, That in a case where a return is filed beyond the periodprescribed by
law, the three (3)-year period shall be counted from the day the return was filed. For
purposes ofthis Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filedon such last day.

Q: Explain the statute of limitations on assessment and collection of taxes.

* The CIR has three years counted from the date of actual filing of the return or from the
last dateprescribed by law for the filing of such return, whichever comes later, to assess
a national internalrevenue tax. When the CIR validly issues an assessment, he has
another five years to collect thenational internal revenue tax due thereon by distraint,
levy, and/or court proceeding.[NOTE: Under the 1977 Tax Code, the government had
five (5) years to assess and another five(5) years to collect. By virtue of a 1984
amendment to the 1977 Tax Code, the assessment andcollection periods were both
reduced to three (3) years. Today, under the 1997 Tax Code, thegovernment has three
(3) years to assess and five (5) years to collect.]
** The provisions on the statute of limitations on assessment and collection of taxes
shall beconstrued and applied liberally in favor of the taxpayer and strictly against the
government.
*** According to CIR v. Philippine Global Communication, Inc., which cited other
promulgatedSupreme Court decisions, the statute of limitations for the collection of
taxes must benefit boththe Government and the taxpayer. Significantly, it intends to
afford protection to the taxpayeragainst unreasonable investigation.

In this case, the assessment was issued on 14 April 1994. [The 1977 Tax Code, as
amended,was the governing law; the CIR had 3 years to assess and another 3 years to
collect. Hence, theCIR had until 13 April 1997 to collect the tax due.] The earliest
attempt of the CIR to collect thetax due based on this assessment was when it filed its
Answer in the CTA case on 9 January2003 which was several years beyond the threeyear prescriptive period to collect. The SupremeCourt ruled that the CIR was barred
from collecting the assessed tax.[CIR v. Philippine Global Communication, Inc., GR No.
167146, 31 October 2006.]

Q: How should the statute of limitations or prescriptive period be computed?

* In CIR v. Primetown Property Group, Inc., the taxpayer filed a claim for tax refund or
credit ofincome tax paid in 1997. Pursuant to Section 229 of the 1997 Tax Code, it had 2
years from thefiling of its final adjusted return to file a claim for tax refund or credit. The
CIRs argument washinged on Article 13 of the Civil Code which states that a year is
understood to mean 365 days.Hence, the taxpayer had 730 days to file its claim for tax
refund or credit. The CIR maintainedthat the taxpayer filed its claim beyond the two-year
prescriptive period, i.e., on the 731st day,given that the year 2000 was a leap year. On
the other hand, the taxpayers contention wasbased on Section 31, Chapter VIII, Book I
of the Administrative Code of 1987 which says that ayear consists of 12 calendar
months. Having filed its claim on the last day of the 24th calendarmonth from the filing
of its final adjusted return, it maintained that its claim was filed within theprescriptive
period.
Clarifying the difference in treatment of legal periods by the Civil Code and the
AdministrativeCode of 1987, the Supreme Court held that:
(1) Under the Civil Code, a year is equivalent to 365 days, whether it be a regular
year or a leapyear.
(2) There exists a manifest incompatibility in the manner of computing legal periods
under the twolaws. However, given that the Administrative Code of 1987 is the
more recent law, its treatment ofa year, i.e., 24 calendar months, governs the
computation of legal periods.Hence, the taxpayers claim was filed within the
reglementary period.[CIR v. Primetown Property Group, Inc., GR No. 162155, 28
August 2007.]
Q: What is the reckoning point with respect to amended returns?
* In CIR v. Phoenix Assurance Co., Ltd., the taxpayer filed its income tax return for 1952
on 1April 1953. It amended said return on 30 August 1955. Thereafter, on 24 July 1958,
the CIRassessed deficiency income tax on the basis of the amended return. The CIR
contended that hisright to assess had not prescribed inasmuch as the same was availed
of within 5 years from thefiling of the amended return. [This case was governed by the
old law granting the CIR 5 years toassess and another 5 years to collect.] The Supreme
Court held that where the deficiencyassessment is based on the amended return, which
is substantially different from the originalreturn, the period of limitation of the right to
issue the same should be counted from the filing ofthe amended return. Here, the

changes and alterations embodied in the amended returnconstituted substantial ones,

i.e., exclusion of certain items from the gross income. Thus, theCIRs deficiency
assessment was not barred by prescription.[CIR v. Phoenix Assurance Co., Ltd., GR No. L19727, 20 May 1965.]

Q: What constitutes a valid assessment?

* In CIR v. Pascor Realty and Development Corporation, it was said that an assessment
not onlycontains a computation of tax liabilities, but also a demand for payment within a
prescribedperiod. It signals the time when penalties and interests begin to accrue
against the taxpayer.The Supreme Court ruled that the BIR examiners Joint Affidavit,
which was attached to thecriminal complaint filed with the Department of Justice against
the taxpayer, did not constitute anassessment. The Joint Affidavit served the purpose of
supporting and substantiating the criminalcomplaint for tax evasion, and was not meant
to be a notice of the tax due and a demand to thetaxpayer for payment thereof. [CIR v.
Pascor Realty and Development Corporation, GR No. 128315, 29 June 1999.]

** At issue in Adamson v. Court of Appeals was whether the CIRs recommendation

letter for thefiling of a criminal complaint against a taxpayer for fraudulent returns and
tax evasion can beconsidered a formal assessment. The Supreme Court held that the
recommendation letter wasnot equivalent to a formal assessment. In the context in
which it is used in the NIRC, anassessment is a written notice and demand made by the
BIR on the taxpayer for the settlement ofa due tax liability that is there definitely set and
fixed. A written communication containing acomputation by a revenue officer of the tax
liability of a taxpayer and giving him an opportunity tocontest or disprove the BIR
examiners findings is not an assessment since it is yet indefinite. [Adamson v. Court of
Appeals, GR No. 120935, 21 May 2009.]

*** In Barcelon, Roxas Securities, Inc. v. CIR, the Supreme Court had occasion to say
that anassessment is deemed to have been made within the three-year prescriptive
period if notice tothat effect was released, mailed, or sent by the CIR to the taxpayer
within said period. Receipt bythe taxpayer within the prescriptive period is not
necessary. However, the taxpayer shouldactually receive, even beyond the prescriptive
period, the assessment notice which was timelyreleased, mailed, or sent. While a
mailed letter is deemed received by the addressee in theordinary course of mail, this is
still merely a disputable presumption subject to controversion, anda direct denial of the
receipt thereof shifts the burden upon the party favored by the presumptionto prove that
the mailed letter was indeed received by the addressee.Here, petitioner denied
receiving the assessment notice and the CIR failed to present substantialevidence that
such notice was indeed mailed or sent by the CIR before his right to assess
hadprescribed and that said notice was received by petitioner. Additionally, the Supreme
Court ruledthat independent evidence, such as the registry receipt of the assessment
notice or a certificationfrom the Bureau of Posts, would be acceptable. [Barcelon, Roxas
Securities, Inc. v. CIR, GR No. 157064, 7 August 2006.]
Sec. 204, Authority of the Commissioner to Compromise, Abate and Refund or
CreditTaxes. - The Commissioner may

204(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 basicassessed tax; and
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 thanthe prescribed minimum rates, the
compromise shall be subject to the approval of the Evaluation Board whichshall be
composed of the Commissioner and the four (4) Deputy Commissioners.

Q: What is meant by compromise?

* Article 2028 of the Civil Code defines compromise as an agreement whereby the
parties, bymaking reciprocal concessions, avoid litigation or put an end to one already
commenced. Asapplied to taxation, the parties concerned are the taxpayer and the
CIR.
Q: When may taxes be subject of a compromise?
* Read RR No. 30-02, as amended by RR No. 08-04, which implements Section 204(A)
of the1997 Tax Code on compromise. These RRs identify: (1) cases which may be
compromised andexceptions thereto; (2) bases for acceptance of compromise
settlement; (3) prescribed minimumpercentages of compromise settlement; (4)
documentary requirements; and (5) approvingauthorities of compromise offers. It states
in part:
SEC. 2. CASES WHICH MAY BE COMPROMISED. - The following cases
may, upontaxpayers compliance with the basis set forth under Section 3 of
these Regulations, bethe subject matter of compromise settlement, viz:
1. Delinquent accounts;
2. Cases under administrative protest after issuance of the Final
AssessmentNotice to the taxpayer which are still pending in the
Regional Offices, Revenue DistrictOffices, Legal Service, Large
Taxpayer Service (LTS), Collection Service, EnforcementService and
other offices in the National Office;
3. Civil tax cases being disputed before the courts;
4. Collection cases filed in courts;
5. Criminal violations, other than those already filed in court or those
involvingcriminal tax fraud.
EXCEPTIONS:
1. Withholding tax cases, unless the applicant-taxpayer invokes
provisions of lawthat cast doubt on the taxpayers obligation to
withhold;
2. Criminal tax fraud cases confirmed as such by the Commissioner of
InternalRevenue or his duly authorized representative;
3. Criminal violations already filed in court;

4. Delinquent accounts with duly approved schedule of installment

payments;
5. Cases where final reports of reinvestigation or reconsideration have
beenissued resulting to reduction in the original assessment and the
taxpayer is agreeableto such decision by signing the required
agreement form for the purpose. On the otherhand, other protested
cases shall be handled by the Regional Evaluation Board (REB)or the
National Evaluation Board (NEB) on a case to case basis;
6. Cases which become final and executory after final judgment of a court,
wherecompromise is requested on the ground of doubtful validity of the
assessment; and
7. Estate tax cases where compromise is requested on the ground of
financialincapacity of the taxpayer.
SEC. 3. BASIS FOR ACCEPTANCE OF COMPROMISE SETTLEMENT. - The
Commissioner may compromise the payment of any internal revenue tax
on thefollowing grounds:
1. Doubtful validity of the assessment. - The offer to compromise a
delinquentaccount or disputed assessment under these Regulations on
the ground of reasonabledoubt as to the validity of the assessment may
be accepted when it is shown that:
(a) The delinquent account or disputed assessment is one resulting
from ajeopardy assessment (For this purpose, jeopardy
assessment shall refer to a taxassessment which was assessed
without the benefit of complete or partial audit by anauthorized
revenue officer, who has reason to believe that the assessment
andcollection of a deficiency tax will be jeopardized by delay
because of the taxpayersfailure to comply with the audit and
investigation requirements to present his books ofaccounts
and/or pertinent records, or to substantiate all or any of the
deductions,exemptions, or credits claimed in his return); or
(b) The assessment seems to be arbitrary in nature, appearing to be
based onpresumptions and there is reason to believe that it is
lacking in legal and/or factualbasis; or
(c) The taxpayer failed to file an administrative protest on account
of the allegedfailure to receive notice of assessment and there is
reason to believe that theassessment is lacking in legal and/or
factual basis; or
(d) The taxpayer failed to file a request for
reinvestigation/reconsideration within 30days from receipt of
final assessment notice and there is reason to believe that
theassessment is lacking in legal and/or factual basis; or
(e) The taxpayer failed to elevate to the Court of Tax Appeals (CTA)
an adversedecision of the Commissioner, or his authorized
representative, in some cases, within30 days from receipt
thereof and there is reason to believe that the assessment
islacking in legal and/or factual basis; or
(f) The assessments were issued on or after January 1, 1998, where
the demandnotice allegedly failed to comply with the formalities
prescribed under Sec. 228 of theNational Internal Revenue Code
of 1997; or

(g) Assessments made based on the Best Evidence Obtainable

Rule and there isreason to believe that the same can be
disputed by sufficient and competent evidence;or
(h) The assessment was issued within the prescriptive period for
assessment asextended by the taxpayers execution of Waiver of
the Statute of Limitations the validityor authenticity of which is
being questioned or at issue and there is strong reason
tobelieve and evidence to prove that it is not authentic; or
(i) The assessment is based on an issue where a court of
competent jurisdiction madean adverse decision against the
Bureau, but for which the Supreme Court has notdecided upon
with finality.
2. Financial incapacity. - The offer to compromise based on financial
incapacity may beaccepted upon showing that:
(a) The corporation ceased operation or is already
dissolved.Provided, that tax liabilities corresponding to the
Subscription Receivable or Assetsdistributed/distributable to the
stockholders representing return of capital at the time
ofcessation of operation or dissolution of business shall not be
considered forcompromise; or
(b) The taxpayer, as reflected in its latest Balance Sheet supposed
to be filed withthe Bureau of Internal Revenue, is suffering from
surplus or earnings deficit resultingto impairment in the original
capital by at least 50%, provided that amounts payable ordue to
stockholders other than business-related transactions which are
properlyincludible in the regular accounts payable are by
fiction of law considered as part ofcapital and not liability, and
provided further that the taxpayer has no sufficient liquidasset to
satisfy the tax liability; or
(c) The taxpayer is suffering from a networth deficit (total liabilities
exceed totalassets) computed by deducting total liabilities (net
of deferred credits and amountspayable to stockholders/owners
reflected as liabilities, except business- relatedtransactions)
from total assets (net of prepaid expenses, deferred charges,
preoperatingexpenses, as well as appraisal increases in fixed
assets), taken from thelatest 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; or
(d) The taxpayer is a compensation income earner with no other
source of incomeand the familys gross monthly compensation
income does not exceed the levels ofcompensation income
provided for under Sec. 4.1.1 of these Regulations, and itappears
that the taxpayer possesses no other leviable or distrainable
assets, otherthan his family home; or
(e) The taxpayer has been declared by any
competenttribunal/authority/body/government agency as
bankrupt or insolvent.
The Commissioner shall not consider any offer for compromise settlement
on theground of financial incapacity of a taxpayer with Tax Credit

Certificate (TCC), issuedunder the National Internal Revenue Code of 1997

or Executive Order No. 226, on handor in transit, or with pending claim for
tax refund or tax credit with the Bureau ofInternal Revenue, Department of
Finance One-Stop-Shop Tax Credit and DutyDrawback Center (Tax
Revenue Group or Investment Incentive Group) and/or thecourts, or with
existing finalized agreement or prospect of future agreement with anyparty
that resulted or could result to an increase in the equity of the taxpayer at
thetime of the offer for compromise or at a definite future time. Moreover,
no offer ofcompromise shall be entertained unless and until the taxpayer
waives in writing hisprivilege of the secrecy of bank deposits under
Republic Act No. 1405 or under othergeneral or special laws, and such
waiver shall constitute as the authority of theCommissioner to inquire into
the bank deposits of the taxpayer.
Presence of circumstances that would place the taxpayer-applicants
inability to pay inserious doubt can be a ground to deny the application for
compromise based onfinancial incapacity of the taxpayer to pay the tax.
[Revenue Regulations No. 30-02, 16 December 2002; Revenue Regulations No. 08-04, 19
May2004.]

** The issue in Philippine National Oil Company v. Court of Appeals was the validity of
thecompromise agreement executed by PNOC and Philippine National Bank pursuant
to EO No. 44and the 1977 Tax Code. In ruling that the compromise agreement was
invalid, the Supreme Courtcited the following reasons: (1) the tax liabilities of PNOC and
PNB could not be compromisedunder EO No. 44; (2) their application for compromise
was filed beyond the effectivity of EO No.44; and (3) the compromise was contrary to
public policy.[Philippine National Oil Company v. Court of Appeals, GR Nos. 109976 and
112800, 26 April2005.]
Q: Who may compromise taxes?
* The case of Security Bank Corporation v. CIR dealt with the deficiency documentary
stamp tax
on Security Bank Corporations 1983 sales of securities under repurchase
agreements. TheSupreme Court held that under Section 204 of the 1977 Tax Code
(even the 1997 Tax Code), theBIR Commissioner had the sole power and authority to
compromise taxes. The act of certainrevenue officials in accepting Security Bank
Corporations offer of payment, without theCommissioners stamp of approval, was ultra
vires and could not have any valid and binding legaleffect upon the BIR. [Security Bank
Corporation v. CIR, GR No. 130838, 22 August 2006.]

Q: May a void assessment serve as basis for a compromise?

* According to CIR v. Reyes, an assessment that fails to inform the taxpayer of the law
and thefacts on which it is made is void. As a corollary, a void assessment cannot in
turn be used as abasis for the perfection of a tax compromise.
In the case at bar, Reyes was not informed in writing of the law and the facts on which
theassessment of estate taxes had been made. She was merely notified of the findings

by the CIR.Consequently, the Supreme Court said, it would be premature to declare that
the compromise onthe estate tax liability had been perfected and consummated,
considering the earlierdetermination that the assessment against the estate was void.
[CIR v. Reyes, GR No. 159694, 27 January 2006.]

Q: What is a compromise penalty?

* In all cases of criminal violations of the 1997 Tax Code, not involving the commission
offraudulent acts, payment of compromise penalties may be suggested to the taxpayer
in lieu ofcriminal prosecution. Since compromise penalties are only amounts suggested
in settlement ofcriminal liability and may therefore not be imposed on the taxpayer, the
violation shall be referredto the appropriate office for criminal action in the event the
taxpayer refuses to pay the suggestedcompromise penalty. A compromise penalty shall
be paid on top of the deficiency basic tax,surcharge, and interest.
On the other hand, cases involving fraud, such as acts committed as means of tax
evasion, shallbe referred directly to the appropriate office for criminal action. [Revenue
Memorandum Order No. 19-07, 8 August 2007.]

** The imposition of compromise penalty is warranted only when both the taxpayer and
the CIRconsented thereto. In Wonder Mechanical Engineering Corporation v. Court of
Tax Appeals, theCIR made an assessment against the taxpayer for deficiency sales and
percentage taxes, 25%surcharge, and compromise penalties. The Supreme Court
affirmed the Court of Tax Appealsdecision in deleting the compromise penalties in the
absence of proof that the taxpayer agreed orgave his conformity thereto.[Wonder
Mechanical Engineering Corporation v. Court of Tax Appeals, GR Nos. L-22805 and L27858, 30 June 1975.]
*** CIR v. First Express Pawnshop Company, Inc. has a similar set of facts. The
Supreme Courtaffirmed the Court of Tax Appeals decision in deleting the compromise
penalty in addition to thedeficiency documentary stamp taxes, in the absence of
showing that the taxpayer accepted thesame.[CIR v. First Express Pawnshop Company,
Inc., GR Nos. 172045-46, 16 June 2009.]
204(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.

Q: How is compromise different from abatement?

* In People v. Sandiganbayan, the Supreme Court explained abatement or cancellation
of a tax. Itdefined abatement as the diminution or decrease in the amount of tax
imposed, such that toabate is to nullify or reduce in value or amount. The Supreme
Court went on to say that: TheBIR may therefore abate or cancel the whole or any
unpaid portion of a tax liability, inclusive ofincrements, if its assessment is excessive or

10

erroneous; or if the administration costs involved donot justify the collection of the
amount due. No mutual concessions need be made, because anexcessive or erroneous
tax is not compromised; it is abated or canceled. Only correct taxesshould be paid.
Here, the Supreme Court found that although referred to in the pleadings as a
compromise, theagreement between the parties was actually an abatement or a
cancellation of an unjust,excessively assessed, and unreasonable tax. Compromise is
marked by mutual concessions,whereas in abatement or cancellation, no mutual
concessions between the taxpayer and the CIRare made. [People v. Sandiganbayan, GR
No. 152532, 16 August 2005.]
204(C) Credit or refund taxes erroneously or illegally received or penalties imposed
without authority, refundthe value of internal revenue stamps when they are returned in
good condition by the purchaser, and, in hisdiscretion, redeem or change unused
stamps that have been rendered unfit for use and refund their value uponproof 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 creditor refund.
A Tax Credit Certificate validly issued under the provisions of this Code may be applied
against any internalrevenue tax, excluding withholding taxes, for which the taxpayer is
directly liable. Any request for conversioninto 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
theappropriate revenue officer for verification and cancellation: Provided, further, That in
no case shall a tax refundbe given resulting from availment of incentives granted
pursuant to special laws for which no actual paymentwas made.
The Commissioner shall submit to the Chairmen of the Committee on Ways and Means
of both the Senate andHouse of Representatives, every six (6) months, a report on the
exercise of his powers under this Section, statingtherein the following facts and
information, among others: names and addresses of taxpayers whose cases havebeen
the subject of abatement or compromise; amount involved; amount compromised or
abated; and reasonsfor the exercise of power: Provided, That the said report shall be
presented to the Oversight Committee inCongress that shall be constituted to determine
that said powers are reasonably exercised and that thegovernment is not unduly
deprived of revenues.

Q: Who may file a claim for tax refund or credit under this provision?
* Silkair (Singapore) Pte. Ltd. was involved in a series of claims for tax refund or credit
for excisetaxes paid on its purchases of aviation jet fuel from Petron Corporation for
different taxableperiods. Silkairs main argument was that it was exempt from payment
of excise tax by virtue ofSection 135(b) of the 1997 Tax Code and Article 4(2) of the RPSingapore Air TransportAgreement. As between Petron, the seller, and Silkair, the
buyer, the latter contended that inreality, it paid the excise taxes due on the transactions
because said taxes, being indirect taxes,were made part of the purchase price of the
aviation jet fuel.

11

The Supreme Court ruled that based on Section 204(c) of the 1997 Tax Code, the
statutorytaxpayer (Petron in this case, being the manufacturer of the aviation jet fuel)
was the proper partythat can claim the refund. Section 204(C) of the 1997 Tax Code
states in part: No credit orrefund of taxes or penalties shall be allowed unless the
taxpayer files in writing with theCommissioner a claim for credit or refund within two (2)
years after the payment of the tax orpenalty: [Silkair (Singapore) Pte. Ltd. v. CIR, GR No.
171383, 14 November 2008; Silkair (Singapore) Pte.Ltd. v. CIR, GR No. 184398, 25 February
2010.]

** On the basis of CIR v. Smart Communications, Inc., the person entitled to claim a tax
refund isthe taxpayer. However, in case the taxpayer does not file a claim for refund of
withholding taxes,the withholding agent may file the claim. For this purpose, the
taxpayer and the withholding agentneed not be related parties. In view of the foregoing,
Smart Communications, Inc. as withholdingagent was allowed to file the claim for tax
refund on behalf of Prism Transactive (M) Sdn. Bhd., aMalaysian corporation.[CIR v.
Smart Communications, Inc., GR Nos. 179045-46, 25 August 2010.]
Q: When does the two-year prescriptive period under Section 204 apply? When does it
notapply?
* The issue in CIR v. Mirant Pagbilao Corporation revolved around whether MPC was
entitled to aclaim for tax refund or credit of unutilized input VAT from 1993 to 1996. In
ruling that MPCs claimwas filed out of time, it applied the two-year prescriptive period
under Section 112(A) of the 1997Tax Code (the starting point of which is the close of the
taxable quarter when the sales wheremade). Corollarily, the Supreme Court held that
the two-year prescriptive period under Section204(C) of the 1997 Tax Code (which
commences from the date of payment of the tax), wasinapplicable as it pertained to
taxes erroneously or illegally paid.[CIR v. Mirant Pagbilao Corporation, GR No. 172129, 12
September 2008; also, CIR v. AichiForging Company of Asia, Inc., GR No. 184823, 6 October
2010.]

JGGB: In the CIR vs. Mirant & CIR vs. Aichi, this is about the claim of Tax
Refund/Tax Credit on Input Taxes on VAT. Thus, the provision applicable is Sec. 112
OR APPLICATION OF Sec. 110 (B), of which are not claim of erroneous or illegally
collected taxes.
Q: Is a written claim for tax credit or refund always required to be filed?
* In CIR v. Acosta, Acosta sought to refund an overpayment of taxes withheld on
hercompensation income in the year 1996. At the time she filed her judicial claim, the
1997 TaxCode was already in effect. At issue was whether her amended return
indicating an overpaymentof taxes was sufficient compliance with the requirement of a
written claim for refund. TheSupreme Court resolved that the prevailing law at that time
was the 1977 Tax Code, not the 1997Tax Code.
Under Section 230 of the 1977 Tax Code, a claimant must first file a written claim for
refund,categorically demanding recovery of overpaid taxes with the CIR, before
resorting to an action incourt.

12

Under Section 204(c) of the 1997 Tax Code, a return filed showing an overpayment
shall beconsidered as a written claim for credit or refund.Hence, applying the old Tax
Code, for failure to file a written claim for refund which consisted of acategorical
demand of reimbursement, Acostas claim must be denied. [CIR v. Acosta, GR No. 154068,
3 August 2007.]

CHAPTER II - CIVIL REMEDIES FOR COLLECTION OF TAXES

To put the topic of remedies of the government in perspective, read Section 228.
Sec. 228, Protesting of Assessment. - When the Commissioner or his duly
authorized representative finds that proper taxes should be assessed, he
shall first notifythe taxpayer of his findings: provided, however, That a
preassessment notice shall notbe required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical
error in thecomputation 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 amountactually remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess
creditablewithholding tax for a taxable period was determined to have
carried over andautomatically applied the same amount claimed against
the estimated tax liabilities forthe 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 notlimited 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 theassessment is made; otherwise, the assessment shall be
void.Within a period to be prescribed by implementing rules and
regulations, the taxpayershall be required to respond to said notice. If the
taxpayer fails to respond, theCommissioner or his duly authorized
representative shall issue an assessment based onhis findings.
Such assessment may be protested administratively by filing a request
forreconsideration or reinvestigation within thirty (30) days from receipt of
the assessmentin 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 shallhave 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 thedecision or inaction may appeal to the Court of
Tax Appeals within thirty (30) days fromreceipt of the said decision, or from
the lapse of one hundred eighty (180)-day period;otherwise, the decision
shall become final, executory and demandable.

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JGGB: The taxpayer has two options on inaction or no decision rendered:

(1) File an appeal to the CTA within 30 days from the lapse of the 180 day period;
or
(2) Wait for the decision even if the 180 day period had already lapsed and make
an appeal within 30 days upon its receipt (Lascona Case).
* Upon receipt of a valid Preliminary Assessment Notice (PAN), the taxpayer may
respond to andseek clarification of the same.

JGGB: If the taxpayer will not respond on the PAN, it will not prejudice him.
** Upon receipt of a valid Final Assessment Notice (FAN), the taxpayer shall protest
against it byfiling a request for reconsideration or reinvestigation, otherwise the FAN will
become final and executory. Thereafter, the taxpayer must submit allrevelant supporting
documents. Failure to protest and submit all relevant supporting documentsshall cause
the assessment to become final. At this point, the government may resort to
distraint,levy, or judicial proceeding to collect.
*** If the taxpayer timely files a protest and such protest is denied (or is not acted upon),
thetaxpayer may appeal to the CTA by filing a petition for review. Failure to appeal shall
cause theassessment to become final. At this point, the government may resort to
distraint, levy, or judicialproceeding to collect.
**** The government may also:
(1) compromise, abate, or cancel taxes;
(2) enforce tax liens;
(3) enforce statutory penal provisions; and
(4) enforce forfeiture of property.
Sec. 205, Remedies for the Collection of Delinquent Taxes. - The civil remedies for the
collection ofinternal 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 stocksand other securities, debts, credits, bank accounts and
interest in and rights to personal property, and by levyupon 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 withthe collection of such taxes: Provided, however, That the
remedies of distraint and levy shall not be availed ofwhere 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 taxessubject 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 civilor criminal action, including the preservation or
transportation of personal property distrained and theadvertisement and sale thereof, as
well as of real property and improvements thereon.

14

Q: For the enforcement and collection of deficiency estate taxes, is the approval of the
probatecourt necessary?
* The issue in Marcos v. Court of Appeals was whether the BIR had the authority to
collect, by thesummary remedy of levying upon and sale of real properties of the
decedent, estate taxdeficiencies, without the cognition and authority of the court sitting
in probate over the supposedwill of the deceased. The Supreme Court answered in this
wise: There is nothing in the TaxCode, and in the pertinent remedial laws that implies
the necessity of the probate or estatesettlement courts approval of the states clam for
estate taxes, before the same can be enforcedand collected.
The High Court went on to say that the deficiency tax assessment, having already
become final,executory, and demandable, could already be collected through the
summary remedy of distraintor levy pursuant to Section 205 of the 1997 Tax Code.
[Marcos v. Court of Appeals, GR No. 120880, 5 June 1997.]

Q: A precise computation and assessment is required for a civil action to collect tax
deficiencies.Is such computation and assessment necessary prior to criminal
prosecution for, say, taxevasion?
* In Ungab v. Cusi, the Supreme Court held that an assessment of a deficiency is not
necessaryto a criminal prosecution for willful attempt to defeat and evade the income
tax. The facts of thiscase are as follows: Upon examination of the income tax returns
filed by Ungab for the calendaryear ended 31 December 1973, the BIR examiner
discovered that Ungab failed to declare hisincome derived from banana saplings.
Ungab received an assessment representing income tax,business tax, and forest
charges, which he filed a protest against. Meanwhile, six informationswere filed against
Ungab. His contention was that the filing of the informations was prematurebecause the
CIR had not yet resolved his protest on the assessment. The Supreme Court ruledthat
while there can be no civil action to enforce collection before the assessment
procedureshave been followed, there is no requirement for the precise computation and
assessment of thetax before there can be a criminal prosecution. A crime is complete
when the violator hasknowingly and wilfullly filed a fraudulent return with intent to evade
and defeat the tax. Theperpetration of the crime is grounded upon knowledge on the
part of the taxpayer that he hasmade an inaccurate return, and the government's failure
to discover the error and promptly toassess has no connections with the commission of
the crime.[Ungab v. Cusi, GR Nos. L-41919-24, 30 May 1980.]
** Sixteen years later, the decision in CIR v. Court of Appeals was promulgated. In this
case, thecomplaints filed before the DOJ for investigation charged private respondents
with fraudulentconcealment of the actual price of products sold, through declaration of
registered wholesaleprices lower than the actual wholesale prices resulting in
underpayment of income, ad valorem,and value-added taxes.
In holding that Ungab v. Cusi was inapplicable, the Supreme Court clarified the Ungab
v. Cusidecision in this wise: Reading [Ungab v. Cusi] carefully, the pronouncement
therein thatdeficiency assessment is not necessary prior to prosecution is pointedly and
deliberately qualifiedby the Court with the following statement quoted from Guzik v.
U.S.: The crime is complete whenthe violator has knowingly and willfully filed a

15

fraudulent return with intent to evade and defeat apart or all of the tax. In plain words,
for criminal prosecution to proceed before assessment, theremust be a prima facie
showing of a willful attempt to evade taxes. There was a willful attempt toevade tax in
[Ungab v. Cusi] because of the taxpayers failure to declare in his income tax returnhis
income derived from banana saplings. In the mind of the trial court and the Court of
Appeals,Fortunes situation is quite apart factually since the registered wholesale price
of the goods,approved by the BIR, is presumed to be the actual wholesale price,
therefore, not fraudulent andunless and until the BIR has made a final determination of
what is supposed to be the correcttaxes, the taxpayer should not be placed in the
crucible of criminal prosecution. Herein lies awhale of difference between [Ungab v.
Cusi] and the case at bar.[CIR v. Court of Appeals, GR No. 119322, 4 June 1996.]
*** In Adamson v. Court of Appeals, respondents were involved in sales of common
shares ofstock for which they had paid capital gains tax and value-added tax. Later, the
CIR sent them aNotice of Taxpayer informing them of deficiencies on their payment of
capital gains tax andvalue-added tax. Meanwhile, the CIR filed a complaint for violation
of the criminal provisions ofthe Tax Code. Respondents sought to suspend the criminal
proceedings as there was yet no finalassessment on their tax liability. (The Notice of
Taxpayer they had earlier received was notequivalent to a formal assessment.)The
issue was whether the filing of the criminal complaints by the DOJ was premature for
lack ofa formal assessment. The Supreme Court held that when fraudulent tax returns
are involved, nowSection 222(a) of the 1997 Tax Code says that a proceeding in court
for the collection of suchtax may be filed without assessment, at any time within ten (10)
years from discovery of thefalsity, fraud or omission. An assessment of a deficiency is
not necessary to a criminalprosecution for willful attempt to defeat and evade the tax.
Here, the Supreme Court said,[a]rguably, the gross disparity in the taxes due and the
amounts actually declared by the privaterespondents constitutes badges of fraud. The
Supreme Court likewise confirmed the applicabilityof and upheld the decision in Ungab
v. Cusi.[Adamson v. Court of Appeals, GR No. 120935, 21 May 2009.]
[NOTE: Reconciling these three cases together, it appears that the general rule still is
that agross disparity in the taxes due and the amounts actually declared by the taxpayer
gives causefor the CIR to pursue his/its criminal prosecution for filing a fraudulent tax
return, regardless ofwhether a deficiency assessment has been made.
The second case, CIR v. Court of Appeals, was decided differently because the facts
surroundingit varied from the situation in Ungab v. Cusi and Adamson v. Court of
Appeals. In CIR v. Court ofAppeals, there arose a legal question on the proper tax base,
i.e., whether it should be the (lower)registered wholesale price or the (higher) actual
wholesale price. Otherwise stated, the CIR failedto point to a specific law or rule which
required that the tax base must be the (higher) actualwholesale price, non-compliance
of which was tantamount to a criminal violation.]
Sec. 206, Constructive Distraint of the Property of A Taxpayer. - To safeguard the interest
of theGovernment, the Commissioner may place under constructive distraint the
property of a delinquent taxpayer orany taxpayer who, in his opinion, is retiring from any
business subject to tax, or is intending to leave thePhilippines or to remove his property
therefrom or to hide or conceal his property or to perform any act tendingto obstruct the
proceedings for collecting the tax due or which may be due from him.

16

The constructive distraint of personal property shall be affected by requiring the

taxpayer or any person havingpossession or control of such property to sign a receipt
covering the property distrained and obligate himself topreserve the same intact and
unaltered and not to dispose of the same in any manner whatever, without theexpress
authority of the Commissioner.
In case the taxpayer or the person having the possession and control of the property
sought to be placed underconstructive distraint refuses or fails to sign the receipt herein
referred to, the revenue officer effecting theconstructive 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 shallbe deemed to have been placed under constructive distraint.

Q: Does a custodian of a distrained property, who is a private individual, become a

public officerfor that purpose?
* In Azarcon v. Sandiganbayan, the BIR effected a constructive distraint over the truck
owned bya certain Ancla which was in the possession of Azarcon. The latter signed the
receipt for thedistrained property. Later, a complaint was filed against Azarcon, a private
individual, formalversation of public funds. The issue was whether the Sandiganbayan
had jurisdiction over theperson of Azarcon. (The Sandiganbayan generally has
jurisdiction over crimes or offensescommitted by: (1) a public officer; and (2) a private
individual when the complaint charges thatprivate individual either as a co-principal,
accomplice, or accessory of a public officer.) TheSupreme Court ruled in the negative,
stating that the BIRs power to authorize a private individualto act as a depositary or
custodian could not be stretched to include the power to appoint him asa public officer.
[Azarcon v. Sandiganbayan, GR No. 116033, 16 February 1997.]
Sec. 207, Summary Remedies. 207(A) Distraint of Personal Property. - Upon the failure of the person owing any
delinquent tax ordelinquent 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 theamount involved
is One million pesos (P1,000,000) or less, shall seize and distraint any goods, chattels
oreffects, and the personal property, including stocks and other securities, debts,
credits, bank accounts, andinterests 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
thesubsequent sale.
A report on the distraint shall, within ten (10) days from receipt of the warrant, be
submitted by the distrainingofficer to the Revenue District Officer, and to the Revenue
Regional Director: Provided, That the Commissioner orhis duly authorized representative
shall, subject to rules and regulations promulgated by the Secretary ofFinance, 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 asoften as necessary.
207(B) Levy on Real Property. - After the expiration of the time required to pay the
delinquent tax ordelinquent revenue as prescribed in this Section, real property may be
levied upon, before simultaneously orafter the distraint of personal property belonging to

17

the delinquent. To this end, any internal revenue officerdesignated by the Commissioner
or his duly authorized representative shall prepare a duly authenticatedcertificate
showing the name of the taxpayer and the amounts of the tax and penalty due from him.
Saidcertificate 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. Atthe same time, written notice of the levy shall be mailed to or
served upon the Register of Deeds for the provinceor city where the property is located
and upon the delinquent taxpayer, or if he be absent from the Philippines, tohis agent or
the manager of the business in respect to which the liability arose, or if there be none, to
theoccupant 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 onpersonal property, and the personal property of the taxpayer is
not sufficient to satisfy his tax delinquency, theCommissioner 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 tothe Commissioner or his duly authorized representative:
Provided, however, That a consolidated report by theRevenue Regional Director may be
required by the Commissioner as often as necessary: Provided, further, Thatthe
Commissioner or his duly authorized representative, subject to rules and regulations
promulgated by theSecretary of Finance, upon recommendation of the Commissioner,
shall have the authority to lift warrants of levyissued in accordance with the provisions
hereof.
Sec. 208, Procedure for Distraint and Garnishment. - The officer serving the warrant of
distraint shallmake or cause to be made an account of the goods, chattels, effects or
other personal property distrained, acopy of which, signed by himself, shall be left either
with the owner or person from whose possession suchgoods, chattels, or effects or
other personal property were taken, or at the dwelling or place of business of
suchperson and with someone of suitable age and discretion, to which list shall be
added a statement of the sumdemanded 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 taxpayerand upon the president, manager, treasurer or other
responsible officer of the corporation, company orassociation, 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 orunder his control such credits, or with his agent, a copy of
the warrant of distraint. The warrant of distraint shallbe sufficient authority to the person
owning the debts or having in his possession or under his control anycredits 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 thepresident, manager, treasurer or other responsible officer of the
bank. Upon receipt of the warrant ofgarnishment, the bank shall turn over to the
Commissioner so much of the bank accounts as may be sufficient tosatisfy the claim of
the Government.

18

Sec. 209, Sale of Property Distrained and Disposition of Proceeds. - The Revenue District
Officeror his duly authorized representative, other than the officer referred to in Section
208 of this Code shall,according to rules and regulations prescribed by the Secretary of
Finance, upon recommendation of theCommissioner, forthwith cause a notification to be
exhibited in not less than two (2) public places in themunicipality 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 shallbe 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, orother personal property, including stocks and other securities so
distrained, at public auction, to the highestbidder 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 shalldeliver to the buyer, and a copy thereof furnished the corporation, company or
association which issued thestocks or other securities. Upon receipt of the copy of the
bill of sale, the corporation, company or associationshall make the corresponding entry
in its books, transfer the stocks or other securities sold in the name of thebuyer, 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 theowner of the property sold. The expenses chargeable upon each
seizure and sale shall embrace only the actualexpenses of seizure and preservation of
the property pending ;the sale, and no charge shall be imposed for theservices of the
local internal revenue officer or his deputy.
Sec. 210, Release of Distrained Property Upon Payment Prior to Sale. - If at any time prior
to theconsummation of the sale all proper charges are paid to the officer conducting the
sale, the goods or effectsdistrained shall be restored to the owner.
Sec. 211, Report of Sale to Bureau of Internal Revenue. - Within two (2) days after the
sale, theofficer making the same shall make a report of his proceedings in writing to the
Commissioner and shall himselfpreserve a copy of such report as an official record.
Sec. 212, Purchase by Government at Sale Upon Distraint. - When the amount bid for the
propertyunder distraint is not equal to the amount of the tax or is very much less than
the actual market value of thearticles offered for sale, the Commissioner or his deputy
may purchase the same in behalf of the nationalGovernment 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 regulationsprescribed by the Secretary of Finance, the net proceeds therefrom
shall be remitted to the National Treasury andaccounted for as internal revenue.
Sec. 213, Advertisement and Sale. - Within twenty (20) days after levy, the officer
conducting theproceedings shall proceed to advertise the property or a usable portion
thereof as may be necessary to satisfythe claim and cost of sale; and such
advertisement shall cover a period of a least thirty (30) days. It shall beeffectuated by
posting a notice at the main entrance of the municipal building or city hall and in public
andconspicuous 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. Theadvertisement shall contain a
statement of the amount of taxes and penalties so due and the time and place ofsale, the

19

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 ofthe municipal
building or city hall, or on the premises to be sold, as the officer conducting the
proceedings shalldetermine 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 enteredupon the records of the Revenue Collection Officer, the
Revenue District officer and the Revenue RegionalDirector. The Revenue Collection
Officer, in consultation with the Revenue district Officer, shall then make outand deliver
to the purchaser a certificate from his records, showing the proceedings of the sale,
describing theproperty sold stating the name of the purchaser and setting out the exact
amount of all taxes, penalties andinterest: Provided, however, That in case the proceeds
of the sale exceeds the claim and cost of sale, the excessshall 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 inthis Code, including; the preservation or
transportation in case of personal property, and the advertisement andsubsequent sale,
both in cases of personal and real property including improvements found on the latter.
In hismonthly collection reports, such advances shall be reflected and supported by
receipts.
Sec. 214, Redemption of Property Sold. - Within one (1) year from the date of sale, the
delinquenttaxpayer, or any one for him, shall have the right of paying to the Revenue
District Officer the amount of thepublic taxes, penalties, and interest thereon from the
date of delinquency to the date of sale, together withinterest on said purchase price at
the rate of fifteen percent (15%) per annum from the date of purchase to thedate of
redemption, and such payment shall entitle the person paying to the delivery of the
certificate issued tothe 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 propertyhas 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 therents 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
propertyexposed 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 theGovernment in satisfaction of the claim
in question and within two (2) days thereafter, shall make a return of hisproceedings and
the forfeiture which shall be spread upon the records of his office. It shall be the duty of
theRegister of Deeds concerned, upon registration with his office of any such
declaration of forfeiture, to transferthe 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 bypaying to the Commissioner or the latter's Revenue Collection
Officer the full amount of the taxes and penalties,together with interest thereon and the

20

costs of sale, but if the property be not thus redeemed, the forfeiture shallbecome
absolute.
Sec. 216, Resale of Real Estate Taken for Taxes. - The Commissioner shall have charge
of any realestate obtained by the Government of the Philippines in payment or
satisfaction of taxes, penalties or costsarising 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
withprior approval of the Secretary of Finance, dispose of the same at private sale. In
either case, the proceeds of thesale shall be deposited with the National Treasury, and
an accounting of the same shall rendered to the Chairmanof the Commission on Audit.
Sec. 217, Further Distraint or Levy. - The remedy by distraint of personal property and
levy on realty maybe repeated if necessary until the full amount due, including all
expenses, is collected.
Sec. 218, Injunction not Available to Restrain Collection of Tax. - No court shall have the
authorityto grant an injunction to restrain the collection of any national internal revenue
tax, fee or charge imposed by thisCode.

Q: Explain the governments policy on injunctions that restrain the collection of taxes.
* On whether the courts can restrain the collection of taxes on the ground that their
validity isdisputed by the taxpayer, David v. Ramos answered in the negative. The case
provided a surveyof cases discussing the prohibition against injunctions that restrain the
collection of taxes,eventually ruling that Courts of First Instance, now Regional Trial
Courts, have no jurisdiction torestrain the collection of taxes. [David v. Ramos, GR No. L4300, 31 October 1951.]

** In Angeles City v. Angeles Electric Corporation, the ruling of the Supreme Court was
that theprohibition on the issuance of a writ of injunction to enjoin the collection of taxes
applied only tonational internal revenue taxes, not to local taxes. Section 218 of the
1997 Tax Code does nothave a counterpart provision in the 1991 Local Government
Code. Thus, the Supreme Courtupheld the RTCs decision in ordering the issuance of
the writ of preliminary injunction enjoiningAngeles City and its City Treasurer from
levying, selling, and disposing the properties of AngelesElectric Corporation. However,
the High Court likewise noted that injunctions enjoining thecollection of local taxes are
frowned upon.[Angeles City v. Angeles Electric Corporation, GR No. 166134, 29 June 2010.]
*** Previously, Section 131 of the 1997 Tax Code exempted from payment of tax all
importationsof cigars, cigarettes, distilled spirits, fermented liquors, and wines into the
Subic SpecialEconomic Freeport Zone. Section 6 of RA No. 9334, which was enacted in
2005, amendedSection 131 of the 1997 Tax Code, effectively imposing tax on all
importations of theabovementioned products in to the Subic Special Economic Freeport
Zone.
At issue in Republic v. Caguioa was the preliminary injunction granted by Judge
Caguioa whichstayed the implementation of RA No. 9334. The Supreme Court nullified
Judge Caguioas ordergranting the preliminary injunction on the ground that no clear
case of abuse was established.Moreover, the Supreme Court stated that the
suspension of the implementation of the assailedlaw was tantamount to an injunction

21

that restrained the collection of taxes.[Republic v. Caguioa, GR No. 168584, 15 October

2007.]
Sec. 219, Nature and Extent of Tax Lien. - If any person, corporation, partnership, jointaccount(cuentas en participacion), association or insurance company liable to pay an
internal revenue tax, neglects orrefuses to pay the same after demand, the amount shall
be a lien in favor of the Government of the Philippinesfrom the time when the
assessment was made by the Commissioner until paid, with interests, penalties,
andcosts 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 ofsuch lien shall be filed by the
Commissioner in the office of the Register of Deeds of the province or city wherethe
property of the taxpayer is situated or located.

Q: What is the nature of a tax lien?

* Does the lien for internal revenue tax follow the property subject to the tax into the
hands of athird party when at the time of transfer, no demand had been made and the
purchaser had nonotice of the existence of the lien? In Hongkong & Shanghai Banking
Corporation v. Rafferty, theSupreme Court answered in this wise: When the Hongkong
& Shanghai Banking Corporationpurchased and acquired these 2,000 ties in February
1015, there was nothing to show thatPujalte & Co. were delinquent taxpayers [for forest
charges]. No public record could be consultedTAXto protect the purchaser from loss by
reason of the existence of a secret lien. A business ofordinary prudence could not be
expected to foresee that the personal property which he hadtaken in satisfaction of a
debt was burdened by a tax. On this date, because no demand hadbeen made and
because the plaintiff had no notice of the tax, there was no valid subsisting lienupon the
ties.[Hongkong & Shanghai Banking Corporation v. Rafferty, GR No. L-13188, 15 November
1918.]

** In Republic v. Enriquez, the CIR served a warrant of distraint over two barges owned
byMaritime Company of the Philippines to satisfy various deficiency taxes of said
company. Later,the same two barges were subject to levy on execution by virtue of a
civil case filed and wonagainst Maritime Company of the Philippines. The Supreme
Court ruled that the claim of thegovernment predicated on a tax lien is superior to the
claim of a private litigant predicated on ajudgment. The tax lien attaches not only from
the service of the warrant of distraint of personalproperty but from the time the tax
became due and payable. Besides, the distraint was madelong before the writ of
execution was issued to implement the levy on execution. [Republic v. Enriquez, GR No. L78391, 21 October 1988.]

*** Related to the previous case, in CIR v. NLRC, the CIR served a warrant of distraint
over fourbarges owned by Maritime Company of the Philippines to satisfy various
deficiency taxes of saidcompany. Later, the same four barges were levied upon
execution to satisfy a judgment forunpaid wages and other benefits of employees of
Maritime Company of the Philippines. Adoptingthe rationale in Republic v. Enriquez, the
Supreme Court held that the claim of the governmentpredicated on a tax lien is
superior to the claim of a private litigant predicated on a judgment. Thetax lien attaches
not only from the service of the warrant of distraint of personal property but fromthe time

22

the tax became due and payable. As in the previous case, here, the distraint was
alsomade long before the writ of execution was issued to implement the levy on
execution.[CIR v. NLRC, GR No. 74965, 9 November 1994.]
Sec. 220, Form and Mode of Proceeding in Actions Arising under this Code. - Civil
andcriminal actions and proceedings instituted in behalf of the Government under the
authority of this Code or otherlaw enforced by the Bureau of Internal Revenue shall be
brought in the name of the Government of thePhilippines and shall be conducted by
legal officers of the Bureau of Internal Revenue but no civil or criminalaction for the
recovery of taxes or the enforcement of any fine, penalty or forfeiture under this Code
shall be filedin court without the approval of the Commissioner.
Sec. 221, Remedy for Enforcement of Statutory Penal Provisions. - The remedy for
enforcementof statutory penalties of all sorts shall be by criminal or civil action, as the
particular situation may require,subject to the approval of the Commissioner.
Sec. 222, Exceptions as to Period of Limitation of Assessment and Collection of
Taxes.222(a) In the case of a false or fraudulent return with intent to evade tax or of
failure to file a return, the tax maybe assessed, or a proceeding in court for the collection
of such tax may be filed without assessment, at any timewithin ten (10) years after the
discovery of the falsity, fraud or omission: Provided, That in a fraud assessmentwhich
has become final and executory, the fact of fraud shall be judicially taken cognizance of
in the civil orcriminal action for the collection thereof.

Q: Cite instances when the ten-year prescriptive period to assess applies.

* Section 222(a) of the 1997 Tax Code specifies three instances when the running of the
threeyearprescriptive period does not apply. They are: (1) filing a false return; (2) filing a
fraudulentreturn with intent to evade tax; and (3) failure to file a return. The period within
which to assesstax is ten years from discovery of the fraud, falsification, or omission.
Thereafter, the CIR hasanother five years to collect.
** In CIR v. Tulio, Tulio failed to file his tax returns (covering percentage taxes) for 1986
and1987. In September 1989, the CIR discovered Tulios omission. Two final
assessment noticeswere issued in February 1991. The Supreme Courts ruling was that
the two assessments wereissued well within the ten-year prescriptive period. [CIR v.
Tulio, GR No. 139858, 25 October. 2005.]
222(b) If before the expiration of the time prescribed in Section 203 for the assessment of
the tax, both theCommissioner and the taxpayer have agreed in writing to its assessment
after such time, the tax may beassessed within the period agreed upon. The period so
agreed upon may be extended by subsequent writtenagreement made before the
expiration of the period previously agreed upon.

Q: What is a waiver of the statute of limitations? What are the requirements for a valid
waiver ofthe statute of limitations?

23

* RMO No. 20-90 and RDAO No. 05-01 set the rules for the proper execution of the
waiver.
Among these rules are the following:
(1) The waiver must be in proper form prescribed by RMO No. 20-90. The phrase but
not after___ [20___], which indicates the expiry date of the period agreed upon to
assess/collect thetax after the regular three-year period of prescription, should be
filled up.
(2) The waiver must be signed by the taxpayer himself or his duly authorized
representative.
(3) The waiver must be duly notarized.
(4) The CIR or the revenue official authorized by him must sign the waiver indicating
the BIRsacceptance and agreement to the waiver, and the date of such acceptance
by the BIR shouldbe indicated.
(5) Both the date of execution by the taxpayer and the date of acceptance by the BIR
should beprior to the expiration of the period of prescription or before the lapse of
the period agreedupon in case a subsequent agreement is executed.
(6) The waiver must be 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.
[Revenue Memorandum Order No. 20-90, 4 April 1990; Revenue Delegation Authority Order
No.05-01, 2 August 2001.]

** Philippine Journalists, Inc. v. CIR explained the rationale of a waiver of the statute
oflimitations, thus: A waiver of the statute of limitations under the NIRC, to a certain
extent, is aderogation of the taxpayers right to security against prolonged and
unscrupulous investigationsand must therefore be carefully and strictly construed. The
waiver of the statute of limitations isnot a waiver of the right to invoke the defense of
prescription as erroneously held by the Court ofAppeals. It is an agreement between the
taxpayer and the BIR that the period to issue anassessment and collect the taxes due is
extended to a date certain. The waiver does not meanthat the taxpayer relinquishes the
right to invoke prescription unequivocally particularly where thelanguage of the
document is equivocal. For the purpose of safeguarding taxpayers from
anyunreasonable examination, investigation or assessment, our tax law provides a
statute oflimitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure,should be liberally construed in order to afford such protection. As a
corollary, the exceptions tothe law on prescription should perforce be strictly construed.
In this case, the Supreme Court found that the waiver of the statute of limitations was
invalid andnot binding for the following reasons: (1) the waiver did not specify a definite
agreed datebetween the BIR and the taxpayer within which the former could assess and
collect revenuetaxes; (2) it was signed only by a revenue district officer, and not by the
CIR; (3) the date ofacceptance by the BIR could not be ascertained; and (4) the
taxpayer was not furnished a copy ofthe waiver.
[Philippine Journalists, Inc. v. CIR, GR No. 162852, 16 December 2004.]

*** In the case of CIR v. FMF Development Corporation, the corporation filed its annual
incometax return in April 1996, followed by an amended return filed the next month. In
February 1999,the corporations president executed a waiver of the statute of
limitations, which would haveextended the assessment period until October 1999. In

24

dispute was the validity of the waiver. TheSupreme Court held that the waiver was
incomplete and defective for non-compliance with theprocedures laid down in RMO No.
20-90, to wit: (1) the taxpayer was not furnished a copy of thewaiver; (2) the waiver was
signed only by a revenue district officer, and not by the CIR; and (3) itdid not contain the
date of acceptance by the BIR. Hence, the waiver did not validly extend theassessment
period.
[CIR v. FMF Development Corporation, GR No. 167765, 30 June 2008.]

**** In CIR v. Kudos Metal Corporation, the CIR was unable to assess Kudos Metal
Corporationof its tax liability for the taxable year 1998 within the three-year prescriptive
period stated inSection 203 of the 1997 Tax Code. However, the corporations
accountant executed two Waiversof the Defense of Prescription on different dates. The
CIR banked on these waivers to sustain thevalidity of the assessment made against the
corporation. The Supreme Court ruled against theCIR as the two waivers were not
compliant with the procedures laid down in RMO No. 20-90 andRDAO No. 05-01. Due
to the defects in the waivers, the period to assess or collect taxes was notextended.
Consequently, the assessments were issued by the CIR beyond the three-year
periodand are void.
The Supreme Court enumerated the defects in the waivers, thus: (1) the waivers were
executedwithout the notarized written authority of the representative to sign the waiver
in behalf of thetaxpayer; (2) the waivers failed to indicate the date of acceptance; and
(3) the fact of receipt bythe taxpayer of its file copy was not indicated in the original
copies of the waivers.[CIR v. Kudos Metal Corporation, GR No. 178087, 5 May 2010.]
222(c) Any internal revenue tax which has been assessed within the period of limitation
as prescribed inparagraph (a) hereof may be collected by distraint or levy or by a
proceeding in court within five (5) yearsfollowing the assessment of the tax.

[NOTE: Recall that the government has either 3 years or 10 years to assess. In both
cases, thegovernment has 5 years to collect.]
222(d) Any internal revenue tax, which has been assessed within the period agreed upon
as provided inparagraph (b) hereinabove, may be collected by distraint or levy or by a
proceeding in court within the periodagreed upon in writing before the expiration of the
five (5)-year period. The period so agreed upon may beextended by subsequent written
agreements made before the expiration of the period previously agreed upon.
222(e) Provided, however, That nothing in the immediately preceding and paragraph (a)
hereof shall beconstrued to authorize the examination and investigation or inquiry into
any tax return filed in accordance withthe provisions of any tax amnesty law or decree.
Sec. 223, Suspension of Running of Statute of Limitations. - The running of the Statute
ofLimitations provided in Sections 203 and 222 on the making of assessment and the
beginning of distraint or levya proceeding in court for collection, in respect of any
deficiency, shall be suspended for the period during whichthe Commissioner is
prohibited from making the assessment or beginning distraint or levy or a proceeding
incourt and for sixty (60) days thereafter; when the taxpayer requests for a
reinvestigation which is granted by theCommissioner; when the taxpayer cannot be
located in the address given by him in the return filed upon which atax is being assessed

25

or collected: Provided, that, if the taxpayer informs the Commissioner of any change
inaddress, the running of the Statute of Limitations will not be suspended; when the
warrant of distraint or levy isduly served upon the taxpayer, his authorized
representative, or a member of his household with sufficientdiscretion, and no property
could be located; and when the taxpayer is out of the Philippines. [Emphasis supplied.]

[NOTE: Remember that any suspension of the running of the statute of limitations works
to thedetriment of the taxpayer in that the tax authorities are given more time to assess
and/or tocollect.]
Q: Cite instances on the suspension or interruption of the running of statute of
limitations. [Relatethe following cases to Section 222(c).]
* Bank of the Philippine Islands v. CIR is instructive on the topic of suspension of
running of thestatute of limitations on collection. [This case was governed by the
provisions of the 1977 TaxCode.] In ruling that the governments right to collect had
already prescribed, the Supreme Courtmade the following points:
(1) A request for reconsideration or reinvestigation by the taxpayer, without a valid
waiver of theprescriptive periods for the assessment and collection of tax, will not
suspend the running thereof.
(2) Even in the absence of a waiver, the running of the statute of limitations on
assessment andcollection of taxes is considered suspended when the taxpayer
requests for a reinvestigationwhich is granted by the Commissioner. [Section 223,
1997 Tax Code.]
(3) A request for reconsideration refers to a plea for a re-evaluation of an assessment
on thebasis of existing records without need of additional evidence, while a request
for reinvestigationrefers to a plea for re-evaluation of an assessment on the basis of
newly-discovered or additionalevidence that a taxpayer intends to present in the
reinvestigation.
(4) The request for reinvestigation must also be granted by the BIR Commissioner to
suspend therunning of the statute of limitations. The burden of proof that the
taxpayers request forreinvestigation had been actually granted shall be on the BIR
Commissioner.
(5) The Supreme Court had occasion to discuss the case of CIR v. Suyoc Consolidated
MiningCo. which provides one other exception to the statute of limitations on
collection of taxes.Generally, a request for reconsideration or reinvestigation by the
taxpayer, in order to suspendthe running of the statute of limitations, must be
preceded by a waiver of the statute of limitations.According to CIR v. Suyoc
Consolidated Mining Co., even in the absence of waiver, the taxpayermay be
estopped from raising the defense of prescription when by his repeated requests
orpositive acts, he has induced government authorities to delay collection of the
assessed tax.[Bank of the Philippine Islands v. CIR, GR No. 139736, 17 October 2005,
citing CIR v. SuyocConsolidated Mining Co., 104 Phil. 819 (1958).]

** Read also CIR v. Philippine Global Communications, Inc. where the Supreme Court
said: Inthis case, where the taxpayer merely filed two protest letters requesting for a
reconsideration, andwhere the BIR could not have conducted a reinvestigation because
no new or additional evidencewas submitted, the running of statute of limitations cannot
be interrupted. Consequently, thegovernments right to collect the alleged deficiency tax

26

was barred by prescription.[CIR v. Philippine Global Communications, Inc., GR No. 167146,

31 October 2006.]
Sec. 224, Remedy for Enforcement of Forfeitures. - The forfeiture of chattels and
removable fixturesof any sort shall be enforced by the seizure and sale, or destruction,
of the specific forfeited property. Theforfeiture of real property shall be enforced by a
judgment of condemnation and sale in a legal action orproceeding, civil or criminal, as
the case may require.
Sec. 225, When Property to be Sold or Destroyed. - Sales of forfeited chattels and
removable fixturesshall be effected, so far as practicable, in the same manner and under
the same conditions as the public noticeand the time and manner of sale as are
prescribed for sales of personal property distrained for the non-paymentof taxes.
Distilled spirits, liquors, cigars, cigarettes, other manufactured products of tobacco, and
all apparatus used I orabout the illicit production of such articles may, upon forfeiture, be
destroyed by order of the Commissioner,when the sale of the same for consumption or
use would be injurious to public health or prejudicial to theenforcement of the law.
All other articles subject to excise tax, which have been manufactured or removed in
violation of this Code, aswell as dies for the printing or making of internal revenue
stamps and labels which are in imitation of or purportto be lawful stamps, or labels may,
upon forfeiture, be sold or destroyed in the discretion of the Commissioner.Forfeited
property shall not be destroyed until at least twenty (20) days after seizure.
Sec. 226, Disposition of Funds Recovered in Legal Proceedings or Obtained
fromForfeitures. - All judgments and monies recovered and received for taxes, costs,
forfeitures, fines andpenalties shall be paid to the Commissioner or his authorized
deputies as the taxes themselves are required tobe paid, and except as specially
provided, shall be accounted for and dealt with the same way.
Sec. 227, Satisfaction of Judgment Recovered Against any Internal Revenue Officer.
Whenan action is brought against any Internal Revenue officer to recover damages by
reason of any act done in theperformance of official duty, and the Commissioner is
notified of such action in time to make defense against thesame, through the Solicitor
General, any judgment, damages or costs recovered in such action shall be satisfiedby
the Commissioner, upon approval of the Secretary of Finance, or if the same be paid by
the person used shallbe repaid or reimbursed to him.
No such judgment, damages, or costs shall be paid or reimbursed in behalf of a person
who has actednegligently or in bad faith, or with willful oppression.

CHAPTER III PROTESTING AN ASSESSMENT, REFUND, ETC.

Sec. 228, Protesting of Assessment. - When the Commissioner or his duly authorized
representativefinds that proper taxes should be assessed, he shall first notify the
taxpayer of his findings: provided, however,That a preassessment 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 asappearing on the face of the return; or

27

(b) When a discrepancy has been determined between the tax withheld and the amount
actually remitted by thewithholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxableperiod was determined to have carried over and
automatically applied the same amount claimed against theestimated 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 torespond to said notice. If the taxpayer fails to respond, the
Commissioner or his duly authorized representativeshall issue an assessment based on
his findings.
Such assessment may be protested administratively by filing a request for
reconsideration or reinvestigationwithin thirty (30) days from receipt of the assessment
in such form and manner as may be prescribed byimplementing rules and regulations.
Within sixty (60) days from filing of the protest, all relevant supportingdocuments 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 fromsubmission of documents, the taxpayer adversely affected by the
decision or inaction may appeal to the Court ofTax 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 in general

Filing of return

Issuance of Letter of Authority (LA)

Notice of Informal Conference

Audit

Preliminary Assessment Notice (PAN)

Final Assessment Notice (FAN)

When a Preliminary Assessment Notice is not required
Filing of return

28

Final Assessment Notice (FAN)

If protest is denied
Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

JGGB: (if no protest filed the FAN will become final and executory)
Relevant supporting documents are submitted within 60 days

JGGB: (If documents not filed within 60 days, the FAN will become final and executory)

CIR denies protest

Appeal to the CTA within 30 days
Appeal to the CTA En Banc
Appeal to the Supreme Court
If protest is not acted upon
Final Assessment Notice (FAN)

Taxpayer files protest within 30 days

Relevant supporting documents are submitted within 60 days 1

CIRs inaction for 180 days

Appeal to the CTA within 30 days

JGGB: (Or wait for the decision even if the 180 day period had already lapsed
and upon its receipt, appeal to the CTA within 30 days (Lascona Case)

1When the taxpayer files the protest and submits his/her/its supporting documents on the
same date, the one hundred eighty-day period shall be reckoned from such date.
29

Appeal to the CTA En Banc

Appeal to the Supreme Court

Q:What is a Letter of Authority?
* Section 13 of the 1997 Tax Code provides that: Subject to the rules and regulations to
beprescribed by the Secretary of Finance, upon recommendation of the Commissioner,
a RevenueOfficer assigned to perform assessment functions in any district may,
pursuant to a Letter ofAuthority issued by the Revenue Regional Director, examine
taxpayers within the jurisdiction ofthe district in order to collect the correct amount of
tax, or to recommend the assessment of anydeficiency tax due in the same manner that
the said acts could have been performed by theRevenue Regional Director himself. In
other words, the Letter of Authority (LA/LOA) is theauthority given to the revenue officer
to perform assessment functions.
** A Letter of Authority should cover a taxable period not exceeding one taxable year.
Thepractice of issuing LAs covering audit of unverified prior years is prohibited. If the
audit of ataxpayer shall include more than one taxable period, the other periods shall be
specificallyindicated in the LA.[Revenue Memorandum Order No. 43-90, 20 September
1990.]

*** In CIR v. Sony Philippines, Inc., the relevant Letter of Authority covered the period
1997 andunverified prior years. However, the deficiency VAT assessment the CIR
arrived at was basedon records from January to March 1998. It was the CIRs
contention that the LA, although itstated the period 1997 and unverified prior years,
should be understood to mean the fiscal yearended 31 March 1998. The Supreme
Court held that clearly, the CIR, acting through the revenueofficers, went beyond the
scope of their authority as indicated in the LA. Hence, the deficiencyVAT assessment
made on the basis thereof must be disallowed.[CIR v. Sony Philippines, Inc., GR No.
178697, 17 November 2010.]

**** Effective 1 July 2010, the manual issuance of LAs has been discontinued. In place
thereof,electronic LAs shall be issued through the Letter of Authority Monitoring System
(LAMS).
Q: What is a Letter Notice? Is it equivalent to a Letter of Authority?
* A Letter Notice is a discrepancy notice issued by the CIR after conducting data
matchingprocesses, informing the taxpayer of findings of discrepancy, e.g., underdeclared sales and overclaimedpurchases. An LN shall cover only the tax indicated
therein on a given particular periodor quarter, e.g., VAT liabilities for 2002 3rd quarter.
Compared with a Letter of Authority, thecoverage of an LA is more comprehensive than
that of an LN.[Revenue Memorandum Order No. 42-2003, 23 October 2003.]

30

** RMO No. 55-10 provides that a Letter Notice shall be treated as a notice of audit
orinvestigation in the absence of evident error or clear abuse of discretion. In order to
expedite theprocessing of LN cases, the issuance of Notices of Informal Conference
may immediatelycommence, even without the prior issuance of Letters of Authority. On
the basis of RMO No. 55-10, it appears that an LN is effectively equated to an LA.
[NOTE: Relate this revenue issuance toSection 13 of the 1997 Tax Code which
essentially states that a revenue officer shall beauthorized to perform assessment
functions on the strength of an LA, and not merely an LN.][Revenue Memorandum
Order No. 55-10, 11 June 2010.]
Q: What constitutes a valid assessment?
* The old requirement of merely notifying the taxpayer of the CIRs findings was
changed in 1998to informing the taxpayer of not only the law, but also of the facts on
which an assessment wouldbe made. In CIR v. Reyes, the Supreme Court spoke of the
now mandatory requirement to informthe taxpayer of the law and the facts on which the
assessment is made. It said: To be simplyinformed in writing of the investigation being
conducted and of the recommendation for theassessment of the estate taxes due is
nothing but a perfunctory discharge of the tax function ofcorrectly assessing a taxpayer.
The act cannot be taken to mean that Reyes already knew thelaw and the facts on
which the assessment was based. It does not at all conform to thecompulsory
requirement under Section 228. [CIR v. Reyes, GR No. 159694, 27 January 2006.]
Q: Discuss the rule that all presumptions are in favor of the correctness of a tax
assessment. Isthere an exception to the rule?
* In Sy Po v. Court of Tax Appeals, the late Po Bien Sing was the sole proprietor of
Silver CupWine Factory, engaged in the manufacture and sale of compounded liquors.
He was assesseddeficiency income tax and specific tax for various years after the BIR
conducted investigation. Atissue was whether the deficiency assessments had valid and
legal bases. In ruling that thedeficiency assessments were valid, the Supreme Court
noted that the BIRs resort to the bestevidence obtainable was warranted by the
circumstances as the taxpayer failed to respond tothe BIRs subpoena duces tecum.
Moreover, the High Court found that the tax figures arrived atby the CIR after
investigation were by no means arbitrary as they were made on the basis of thequantity
of wine bottles seized during the raid conducted, as well as sworn statements of
theproprietorships former employees. Tax assessments by tax examiners are
presumed correctand made in good faith. The taxpayer has the duty to prove
otherwise.[Sy Po v. Court of Tax Appeals, GR No. L-81446, 18 August 1988.]
** In CIR v. Hantex Trading Co., Inc., the taxpayer was engaged in the importation of
syntheticresin. Prompted by confidential information that the taxpayer under-declared its
importations for1987, the CIR issued subpoena duces tecum and ad testificandum
against it. However, thetaxpayer failed to comply with said subpoena. The CIR then
issued a deficiency income taxassessment on the basis of photocopies of import entries
and financial statements. The SupremeCourt held that under Section 16 of the 1977 Tax
Code (now Section 6 of the 1997 Tax Code),best evidence obtainable does not include
mere photocopies of records or documents.Moreover, while the Supreme Court agreed

31

that as a general rule, tax assessments by taxexaminers are presumed correct and
made in good faith, the rule does not apply when the CIRcomes out with a naked
assessment, i.e., an assessment that is without any foundation andhence, arbitrary and
capricious.
[CIR v. Hantex Trading Co., Inc., GR No. 136975, 31 March 2005.]

Q: Is receipt by the taxpayer of the Final Assessment Notice, without the Preliminary
AssessmentNotice, sufficient?
* In CIR v. Metro Star Superama, Inc., the taxpayer received a Final Assessment Notice,
butdenied receiving a Preliminary Assessment Notice. The issue was whether receipt of
only theFAN amounted to a denial of due process. The Supreme Court answered in the
affirmative, thus:Indeed, Section 228 of the Tax Code clearly requires that the taxpayer
must first be informedthat he is liable for deficiency taxes through the sending of a PAN.
He must be informed of thefacts and the law upon which the assessment is made. The
law imposes a substantive, notmerely a formal, requirement. To proceed heedlessly with
tax collection without first establishinga valid assessment is evidently violative of the
cardinal principle in administrative investigations that taxpayers should be able to
present their case and adduce supporting evidence. [CIR v. Metro Star Superama, Inc., GR
No. 185371, 8 December 2010.]

Q: What happens when a taxpayer fails to timely protest an assessment? [NOTE:

Remember thatappealable to the CTA is a decision that refers not to the assessment
itself, but to one made onthe protest against such assessment.]
* In CIR v. Bank of the Philippine Islands, the taxpayer failed to timely file a protest on
theassessment made against it. The Supreme Court discussed the implications of a
taxpayersfailure to protest an assessment within the thirty-day period. (1) The
assessment shall becomefinal. The taxpayer will then be barred from disputing the
correctness of the assessment orinvoking any defense that will reopen the question of
its liability on the merits. (2) There arises apresumption of correctness of the tax
assessment.[CIR v. Bank of the Philippine Islands, GR No. 134062, 17 April 2007.]
** When a taxpayer files a protest and the CIR acts upon said protest, the taxpayer has
30 daysfrom receipt thereof to file a judicial claim. If the protest is not acted upon within
180 days fromsubmission of documents, the taxpayer has 30 days from the lapse
thereof to file a judicial claim.In CIR v. Isabela Cultural Corporation and Oceanic
Wireless Network, Inc. v. CIR, the SupremeCourt stated that a final demand letter for
payment of delinquent taxes may be considered adecision on a disputed or protested
assessment, and thus may be appealed to the CTA, if theletter indicates to the taxpayer
in clear and unequivocal language that it constitutes the CIRs finalaction on the
disputed assessment.[CIR v. Isabela Cultural Corporation, GR No. 135210, 11 July 2001;
Oceanic Wireless Network,Inc. v. CIR, GR No. 148380, 9 December 2005.]

*** In Allied Banking Corporation v. CIR, a Preliminary Assessment Notice was sent to
AlliedBanking Corporation for deficiency documentary stamp tax and gross receipts tax.
Petitioner fileda protest against it. Thereafter, petitioner received a Formal Letter of
Demand with AssessmentNotices, in response to which petitioner filed a claim with the

32

CTA. At issue was whether in filingthe judicial claim, without filing a protest against the
Formal Letter of Demand, petitioner failed toexhaust its administrative remedies.
The Supreme Court held that procedurally, it is the FAN, and not the PAN, which should
beprotested administratively. If the rules were to be strictly applied, the dismissal of the
judicial claimwas proper for failure to exhaust administrative remedies. However, the
Supreme Court likewiseheld that the case constituted an exception to the rule on
exhaustion of administrative remedies,i.e., estoppel on the party of the administrative
agency concerned. The Formal Letter of Demandcould be considered a final decision of
the CIR appealable to the CTA because the words usedtaken together led petitioner to
believe that it was the final decision of the CIR on the letter-protestit filed and that the
available remedy was to appeal the same to the CTA. [Allied Banking Corporation v. CIR,
GR No. 175097, 5 February 2010.]

Q: What happens when a taxpayer fails to timely appeal to the CTA?

* When a taxpayer files a protest, he has 60 days from filing of the protest to submit all
relevantsupporting documents. If the protest is not acted upon within 180 days from
submission ofdocuments, the taxpayer has 30 days from the lapse thereof to file a
judicial claim. In RizalCommercial Banking Corporation v. CIR, the taxpayer failed to
appeal to the CTA within 30 daysupon the lapse of 180 days from submission of
documents. The Supreme Court held thatcompliance with the thirty-day period was
jurisdictional. As a consequence of the taxpayersfailure to appeal to the CTA within the
thirty-day period, the assessment became final, executory,and demandable. [Rizal
Commercial Banking Corporation v. CIR, GR No. 168498, 16 June 2006, citing Ker &Company,
Ltd. v. Court of Tax Appeals, GR No. L-12396, 31 January 1962.]

** When a taxpayer files a protest, he has 60 days from filing of the protest to submit all
relevantsupporting documents. If the protest is not acted upon within 180 days from
submission ofdocuments, the taxpayer has 30 days from the lapse thereof to file a
judicial claim. In CIR v. FirstExpress Pawnshop Company, Inc., the taxpayer filed its
protest and submitted all relevantsupporting documents on the same date. Within 30
days upon the lapse of 180 days from thatdate, the taxpayer appealed to the CTA. The
issue was whether the judicial claim was premature.The Supreme Court ruled that the
starting point of the 180 days was the date the protest and therelevant supporting
documents were simultaneously filed. Hence, the judicial claim was notpremature.
Additionally, the Supreme Court indicated that the term relevant supporting documents
werethose documents necessary to support the legal basis in disputing a tax
assessment asdetermined by the taxpayer. The BIR can only inform the taxpayer to
submit additionaldocuments. The BIR cannot demand what type of supporting
documents should be submitted.Otherwise, a taxpayer will be at the mercy of the BIR,
which may require the production ofdocuments that a taxpayer cannot submit. [CIR v.
First Express Pawnshop Company, Inc., GR No. 172045, 16 June 2009.]
Sec. 229, Recovery of Tax Erroneously or Illegally Collected. - No suit or proceeding shall
bemaintained in any court for the recovery of any national internal revenue tax hereafter
alleged to have beenerroneously 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 anysum
alleged to have been excessively or in any manner wrongfully collected, until a claim for
refund or credit hasbeen duly filed with the Commissioner; but such suit or proceeding

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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 ofpayment 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 onthe face of the return upon
which payment was made, such payment appears clearly to have been erroneouslypaid.

Procedure for recovery of internal revenue tax

Payment

Administrative claim filed with the CIR within 2 years 2

Claim is denied

Claim is not acted upon

Appeal to the CTA within 30 days

but always within 2 years from payment

Judicial claim filed with the CTA

within 2 years from payment

JGGB: The 2 year period is counted from the date of payment regardless of the
supervening event that will give rise to a tax refund or tax credit.
Q: When does the two-year prescriptive period under Section 204 in relation to Section
229apply? When does it not apply?
* A taxpayer claiming for a tax refund or credit of creditable withholding tax must comply
with thefollowing requisites:
(1) The administrative and judicial claims must be filed within two years from the date
of paymentof the tax [Section 229, 1997 Tax Code];(2) It must be shown on the
return that the income received was declared as part of the grossincome [RR No. 685]; and
(3) The fact of withholding must be established by a copy of a statement duly issued by
the payorto the payee showing the amount paid and the amount of the tax withheld
[RR No. 6-85].In CIR v. Far East Bank & Trust Company, while the taxpayer timely
filed its claim for refund, itfailed to prove that its income derived from rentals and
sale of real property was included in itsgross income as reflected in its return. It also
failed to prove the fact of withholding as ordinarilyestablished by Certificates of
2CIR v. PNB (G.R. No. 161997, Oct. 25, 2005): When the taxpayer files a claim for refund of its advance income tax payment,
i.e. a lump sum payment to cover future tax obligations, and not for the recovery of erroneously, excessively, illegally or
wrongfully collected tax or penalty, the 2-year prescriptive period does not apply. Instead, Article 1144 of the Civil Code prevails
and that period would be 10 years.

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Creditable Tax Withheld at Source.[CIR v. Far East Bank & Trust Company, GR No.
173854, 15 March 2010.]

** Sometime in 1985, RMC No. 7-85 was issued. It stated that overpaid income taxes
were notcovered by the two-year prescriptive period under the 1977 Tax Code and that
taxpayers couldclaim tax refunds or credits for the excess quarterly income tax with the
BIR within 10 years underArticle 1144 of the Civil Code. Later, RMC No. 7-85 was
nullified for being inconsistent with the1977 Tax Code. In Philippine Bank
Communications v. CIR, petitioners claim was filed beyondthe two-year prescriptive
period, but within the ten-year period. Having relied on RMC No. 7-85,petitioner invoked
the applicability of said nullified revenue issuance. The Supreme Court
deniedpetitioners claim.[Philippine Bank Communications v. CIR, GR No. 112024, 28 January
1999.]

*** In CIR v. Philippine National Bank, the bank issued to the BIR a check for Php 180
million,representing its advance income tax payment for its 1991 operations and was
remitted inresponse to the late President Aquinos call to generate more revenues for
national development.Thereafter, the bank requested that it be allowed to apply its
unutilized advance income taxpayment of about Php 73.3 million to its future gross
receipts tax liability. The CIR denied thebanks request. The bank appealed to the CTA,
but the latter dismissed the judicial claim forhaving been filed beyond the two-year
prescriptive period under Section 229 of the 1997 TaxCode. The Supreme Court ruled in
favor of the bank, holding that an availment of tax credit duefor reasons other than the
erroneous or wrongful collection of taxes, as in this case, would not becovered by the
two-year prescriptive period. By virtue of Article 1144 of the Civil Code, the periodwould
be 10 years. Hence, the banks claim for tax credit was not yet barred by prescription.
[CIR v. Philippine National Bank, GR No. 161997, 25 October 2005.]

**** The issue in CIR v. Mirant Pagbilao Corporation revolved around whether MPC was
entitledto a claim for tax refund or credit of unutilized input VAT from 1993 to 1996. In
ruling that MPCsclaim was filed out of time, it applied the two-year prescriptive period
under Section 112(A) of the1997 Tax Code (the starting point of which is the close of the
taxable quarter when the saleswhere made). Corollarily, the Supreme Court held that
the two-year prescriptive period underSection 204(C) of the 1997 Tax Code (which
commences from the date of payment of the tax),was inapplicable as it pertained to
taxes erroneously or illegally paid.[CIR v. Mirant Pagbilao Corporation, GR No. 172129, 12
September 2008; also, CIR v. AichiForging Company of Asia, Inc., GR No. 184823, 6 October
2010.]

Q: Who may file a claim for tax refund or credit under this provision?
* Silkair (Singapore) Pte. Ltd. was involved in a series of claims for tax refund or credit
for excisetaxes paid on its purchases of aviation jet fuel from Petron Corporation for
different taxableperiods. Silkairs main argument was that it was exempt from payment
of excise tax by virtue ofSection 135(b) of the 1997 Tax Code and Article 4(2) of the RPSingapore Air TransportAgreement. As between Petron, the seller, and Silkair, the
buyer, the latter contended that inreality, it paid the excise taxes due on the transactions
because said taxes, being indirect taxes,were made part of the purchase price of the
aviation jet fuel.

35

The Supreme Court ruled that based on Section 204(c) of the 1997 Tax Code, the
statutorytaxpayer (Petron in this case, being the manufacturer of the aviation jet fuel)
was the proper partythat can claim the refund. Section 204(C) of the 1997 Tax Code
states in part: No credit orrefund of taxes or penalties shall be allowed unless the
taxpayer files in writing with theCommissioner a claim for credit or refund within two (2)
years after the payment of the tax orpenalty: [Silkair (Singapore) Pte. Ltd. v. CIR, GR No.
171383, 14 November 2008; Silkair (Singapore) Pte.Ltd. v. CIR, GR No. 184398, 25 February
2010.]

** On the basis of CIR v. Smart Communications, Inc., the person entitled to claim a tax
refund isthe taxpayer. However, in case the taxpayer does not file a claim for refund of
withholding taxes,the withholding agent may file the claim. For this purpose, the
taxpayer and the withholding agentneed not be related parties. In view of the foregoing,
Smart Communications, Inc. as withholdingagent was allowed to file the claim for tax
refund on behalf of Prism Transactive (M) Sdn. Bhd., aMalaysian corporation.[CIR v.
Smart Communications, Inc., GR Nos. 179045-46, 25 August 2010.]
Q: What are the special rules in computing the two-year prescriptive period for filing
suit?
In the case of corporations
Tax paid in installments
Sale of property levied, seized or
distrained
Purchase by or forfeiture in favor of
theGovernment
Excise tax on domestic petroleum
products
Excise tax on imported petroleum
products
Value-added tax and other
percentage taxes

From the time of filing of FinalAdjustment

Return and finalpayment of tax
From the time of payment oflast installment
At the time of application ofproceeds to tax
deficiency
At the time of purchase or forfeiture
At the time of removal fromplace of production
At the time of release from customshouse
From the time of filing ofquarterly VAT return,
i.e. within25 days after the close of eachtaxable
quarter

Sec. 230, Forfeiture of Cash Refund and of Tax Credit.

230(A) Forfeiture of Refund. - A refund check or warrant issued in accordance with the
pertinentprovisions of this Code, which shall remain unclaimed or uncashed within five
(5) years from the date the saidwarrant or check was mailed or delivered, shall be
forfeited in favor of the Government and the amount thereofshall revert to the general
fund.
230(B) Forfeiture of Tax Credit. - A tax credit certificate issued in accordance with the
pertinentprovisions of this Code, which shall remain unutilized after five (5) years from
the date of issue, shall, unlessrevalidated, be considered invalid, and shall not be

36

allowed as payment for internal revenue tax liabilities of thetaxpayer, and the amount
covered by the certificate shall revert to the general fund.
230(C) Transitory Provision. - For purposes of the preceding Subsection, a tax credit
certificate issued bythe Commissioner or his duly authorized representative prior to
January 1, 1998, which remains unutilized or hasa creditable balance as of said date,
shall be presented for revalidation with the Commissioner or his dulyauthorized
representative or on before June 30, 1998.
Sec. 231, Action to Contest Forfeiture of Chattel. - In case of the seizure of personal
property underclaim of forfeiture, the owner desiring to contest the validity of the
forfeiture may, at any time before sale ordestruction of the property, bring an action
against the person seizing the property or having possession thereofto 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.

Q: Does a taxpayer have any other remedy apart from those provided in the 1997 Tax
Code?
* Every so often, to enhance revenue administration and collection, the National
Governmentenacts tax amnesty laws covering unpaid internal revenue taxes for specific
taxable periods. Forexample, see RA No. 9480, a tax amnesty law covering the taxable
year 2005 and prior years.Under Section 6(a) of RA No. 9480, the taxpayer shall be
immune from the payment of taxes, aswell as additions thereto, and the appurtenant
civil, criminal or administrative penalties under the1997 Tax Code arising from the failure
to pay any and all internal revenue taxes for taxable year2005 and prior years. [Republic
Act No. 9480, 24 May 2007.]

** In Philippine Health Care Providers, Inc. v. CIR, the Supreme Court categorically
stated thatdocumentary stamp taxes are within the coverage of RA No. 9480. Hence, in
view of thetaxpayers compliance with the requirements of said tax amnesty law, its tax
liabilities wereextinguished.[Philippine Health Care Providers, Inc. v. CIR, GR No.
167330, 18 September 2009.]
======
Sec. 246, Non-Retroactivity of Rulings. Any revocation, modification or reversal of any
of the rulesand regulations promulgated in accordance with the preceding Sections or
any of the rulings or circularspromulgated by the Commissioner shall not be given
retroactive application if the revocation, modification orreversal will be prejudicial to the
taxpayers, except in the following cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or
any document required ofhim by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from thefacts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.

Q: Discuss the rule on non-retroactivity of rulings.

* Rulings or circulars promulgated by the CIR have no retroactive application where to
so applythem would be prejudicial to taxpayers. In ABS-CBN Broadcasting Corporation
v. Court of TaxAppeals, the Supreme Court disallowed the retroactive application of a

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Revenue MemorandumCircular because to do so would hold the taxpayer liable for

deficiency withholding income taxesthree years after the fact. The taxpayer was no
longer in a position to withhold taxes due fromforeign corporations because it had
already remitted all film rentals and no longer had any controlover them. [ABS-CBN
Broadcasting Corporation v. Court of Tax Appeals, GR No. L-52306, 12 October1981.]

** In several cases, the retroactive application of revenue issuances was disallowed

because thetaxpayer would have suffered substantial economic prejudice, i.e.,
assessment and payment ofdeficiency taxes in large sums. [CIR v. Burroughs Limited,
GR No. L-66653, 19 June 1986; CIR v.Benguet Corporation, GR No. 145559, 14 July
2006.]
*** As a general rule, issuances by the BIR shall not be given retroactive application if it
would beprejudicial to the taxpayer, except when, for instance, the taxpayer acted in
bad faith. In CIR v.Court of Appeals, the Supreme Court had occasion to say that there
must be convincing evidenceof bad faith which imports dishonest purpose or some
moral obliquity and conscious doing ofwrong. It partakes of the nature of fraud; a breach
of a known duty through some motive ofinterest or ill will. In this instance, the Supreme
Court found that the taxpayer was not guilty ofacting with bad faith.
On the other hand, CIR v. Philippine Health Care Providers, Inc. defined good faith as
"that stateof mind denoting honesty of intention and freedom from knowledge of
circumstances which oughtto put the holder upon inquiry; an honest intention to abstain
from taking any unconscientiousadvantage of another, even through technicalities of
law, together with absence of all information,notice, or benefit or belief of facts which
render transaction unconscientious." Likewise in thiscase, the Supreme Court found that
the taxpayer was not guilt of acting with bad faith. [CIR v. Court of Appeals, GR No. 117982,
6 February 1997; CIR v. Philippine Health CareProviders, Inc., GR No. 168129, 24 April 2007.]

**** An administrative rule interpretative of a statute, and not declarative of certain rights
andcorresponding obligations, is given retroactive effect as of the date of effectivity of
the statute. InCIR v. Reyes, a Revenue Regulation issued in September 1999 was
made to retroact to 1January 1998, i.e., the date of effectivity of the 1997 Tax Code. [CIR
v. Reyes, GR Nos. 159694 & 163581, 27 January 2006.]

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