XXSASTDASD

NATIONAL INTERNAL REVENUE CODE OF 1997
10. Donation to the National Social Action VALUE-ADDED TAX

Council
11. Donation to the Philippine American Q: What is value-added tax (VAT)?
Cultural Foundation
12. Donation to Task Force on Human A: It is an indirect tax and the amount of tax may,
Settlement on the donation of by law, be shifted or passed on to the buyer,
equipment, materials, and services transferee or lessee of the goods, properties or
services. (Sec. 105, NIRC)
It is a tax on the estimated market value added to a
PERSON LIABLE FOR DONORS TAX product or material at each stage of its
manufacture or distribution, ultimately passed on
Q: Who are required to file donors tax return? to the consumer.
A: Any person making a donation unless the Q: What is the nature of VAT?
donation is specifically exempted under NIRC or
other special laws, is required for every donation to A: It is an indirect tax. VAT is a tax on consumption
accomplish under oath a donors tax return in levied on the sale, barter, exchange, or lease of
duplicate. goods or properties and services in the Philippines
and on importation of goods into the Philippines
Q: What is the formula in computing taxable
donation? The seller is the one statutorily liable for the
payment of the tax but the amount of the tax may
A: be shifted or passed on to the buyer, transferee or
1. On the first donation of the year lessee of the goods, properties or services.
However, in the case of importation, the importer is
Gross Gift the one liable for the VAT. (Sec 4.105-2 RR 16-2005)
Less: deductions/exemption
------------------------------------------ Q: Explain VAT as an indirect tax.
Net gift
x Tax rate A: The amount of tax paid on the goods, properties
------------------------------------------ or services bought, transferred, or leased may be
Donors tax shifted or passed on by the seller, transferor, or
lessor to the buyer, transferee or lessee. Unlike a
2. On subsequent donation during the year direct tax, such as the income tax, which primarily
taxes an individuals ability to pay based on his
Gross gift income or net wealth, an indirect tax, such as the
Less: Deductions/exemptions VAT, is a tax on consumption of goods, services, or
------------------------------------------- certain transactions involving the same. The VAT,
Net gift thus, forms a substantial portion of consumer
expenditures.
Net gift
Add: Prior net gifts Further, in indirect taxation, there is a need to
----------------------- distinguish between the liability for the tax and the
Aggregate net gifts burden of the tax. As earlier pointed out, the
x Applicable tax rate amount of tax paid may be shifted or passed on by
------------------------------ the seller to the buyer. What is transferred in such
Donors tax on aggregate gifts instances is not the liability for the tax, but the tax
Less: prior donors tax paid burden. In adding or including the VAT due to the
-------------------------------------------- selling price, the seller remains the person primarily
Donors tax paid on this date and legally liable for the payment of the tax. What
is shifted only to the intermediate buyer and
ultimately to the final purchaser is the burden of
the tax. Stated differently, a seller who is directly
and legally liable for payment of an indirect tax,
such as the VAT on goods or services is not
necessarily the person who ultimately bears the
burden of the same tax. It is the final purchaser or
consumer of such goods or services who, although
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE Facultad
SANTO TOMAS
de Derecho Civil 153
VICE CHAIRS FOR LAYOUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011
not directly and legally liable for the payment Fashion Inc. filed with the BIR a claim for refund
thereof, ultimately bears the burden of the tax. for the input tax shifted to it by the suppliers. If
(Contex v. CIR, GR No. 151135, July 2, 2004) you were the CIR will you allow the refund?
Q: What is the effect of VAT being an indirect tax A: No. The exemption of Lilys Fashion Inc. is only
on exemptions? for taxes which it is directly liable, hence, it cannot
claim exemption for tax shifted to it, which is not at
A: If a special law merely exempts a party as a seller all considered a tax to the buyer but part of the
from its direct liability for payment of the VAT, but purchase price. Lilys Fashion Inc. is not a taxpayer
does not relieve the same party as a purchaser from in so far as the passed-on tax is concerned and
its indirect burden of the VAT shifted to it by its therefore, it cannot claim for a refund of a tax
VAT-registered suppliers, the purchase transaction merely, shifted to it. Only taxpayers are allowed to
is not exempt. It is because VAT is a tax on file a claim for refund. (2006 Bar Question)
consumption, the amount of which may be shifted
or passed on by the seller to the purchaser of the Q: What is Tax Cascading?
goods, properties or services. (CIR v. Seagate
Technology, G.R. No. 153866, Feb. 11, 2005) A: An item is taxed more than once as it makes its
way from production to final retail sale.
Q: How are transactions classified under the VAT
system? Q: Explain how VAT is not a cascading tax?
A: A: VAT is merely added as part of the purchase

1. VAT taxable transactions price and not as a tax because the burden is merely
a. Subject to 12% VAT rate shifted. Thus, there can be no tax on the tax itself.
b. Zero-rated transactions
2. Exempt transactions Q: What are the advantages in imposing VAT?
Q: Define taxable transactions under the VAT law. A:

1. Economic growth
A: Taxable transactions are those transactions 2. Simplified tax administration
which are subject to VAT either at the rate of 12% 3. Promote honesty
(effective January 1, 2006, VAT rate was increase 4. Higher governmental revenues
from 10-12%) or 0%, and the seller shall be entitled
to tax credit for the VAT paid on purchases and Q: Is the VAT law violative of the administrative
leases of goods, properties or services feasibility principle?
(Commissioner v. Cebu Toyo Corporation, G.R. No.
149073, February 16, 2005) A: No. The VAT law is principally aimed to
rationalize the system of taxes on goods and
Q: Mr. A, a VAT-exempt retailer sells to Mr. O, a services. Thus, simplifying tax administration and
non-VAT exempt purchaser. Is Mr. O liable to pay making the system more equitable to enable the
VAT on the transaction? country to attain economic recovery. (Kapatiran ng
Mga Naglilingkod sa Pamahalaan v. Tan,
A: Yes. The purchaser is subject to VAT because it is G.R.No.81311, June 30, 1988)
merely added as part of the purchase price and not
as a tax because the burden is merely shifted. The Q: Is VAT regressive?
seller is still exempt because it could pass on the
burden of paying the tax to the purchaser. A: Yes. By its very nature, it is regressive inasmuch
as the VAT paid by the consumer or business for
Q: Lilys Fashion Inc is a garment manufacturer every goods bought or services enjoyed is the same
located and registered as a Subic Bay Freeport regardless of income. In other words, the VAT paid
Enterprise under R.A. 7227 and a non-VAT eats the same portion of an income, whether big or
taxpayer. And as such, it is exempt from payment small.
of all local and national internal revenue taxes.
During its operations, it purchased various The VAT taxes you on how much you spend rather
supplies and materials necessary in the conduct of than how much you make. It is usually regressive
its manufacturing business. The supplier of these because lower income people generally spend a
goods shifted to Lilys Fashion, Inc. the 10% VAT on higher percentage of their income and save less
the purchased items amounting to P500,000. Lilys than higher income people.
TAXATION LAW TEAM:
154 ADVISER: ATTY. PRUDENCE ANGELITA A. KASALA; SUBJECT HEAD: RODOLFO N. ANG JR.;
ASST. SUBJECT HEADS: EDISON U. ORTIZ & VANNESSA ROSE S. HERNANDEZ;
MEMBERS: JOSE DUKE BAGULAYA, CHARLES L. GRANTOZA, CHRISTINE L. GUTIERREZ, CLARABEL ANNE R. LACSINA, DIVINE C. TEE, KEITH S. VALCOS
A: Under this doctrine, goods and services are taxed

Q: How is the regressive effect of VAT minimized? only in the country where they are consumed. No
VAT shall be imposed to form part of the cost of
A: In the case of VAT, the law minimizes the goods destined outside the territorial border of the
regressive effects of this imposition by providing for taxing authority. Thus, exports are zero-rated, while
zero rating of certain transactions while granting imports are taxed.
exemptions to other transactions. The transactions
which are subject to VAT are those which involve Actual shipment of the goods from the Philippines
goods and services which are used or availed of to a foreign country is a precondition of an export
mainly by higher income groups. (Ibid.) sale following the destination principle being
adhered to by our VAT system.
Characteristics of VAT Q: Is there any exception to the destination

principle?
Q: What are the characteristics of VAT?
A: Yes. The law clearly provides for an exception to
A: the destination principle; that is, for a zero percent
1. It is an indirect tax where tax shifting is VAT rate for services that are performed in the
always presumed Philippines, "paid for in acceptable foreign currency
2. It is consumption-based and accounted for in accordance with the rules and
3. It is imposed on the value-added in each regulations of the BSP."
stage of distribution
4. It is a credit-invoice method value-added Hence, actual or constructive export of goods and
tax services from the Philippines to a foreign country
5. It is not a cascading tax. (1996 Bar must be zero-rated for VAT; while, those destined
Question) for use or consumption within the Philippines shall
be imposed the twelve percent (12%) VAT.
Impact of Tax
PERSONS LIABLE FOR VAT
Q: Who bears the impact of tax (VAT)?
Q: Who are liable to pay VAT?
A: It is on the seller upon whom the tax has been
imposed. A: Any person who in the course of trade or
business:
1. Sells, barters, exchanges, leases goods or
Incidence of Tax properties;
2. Renders services; and
Q: Who bears the incidence of tax (VAT)? 3. Imports goods shall be subject to VAT
imposed in Sections 106 to 108 of the
A: It is on the final consumer, the place at which the NIRC. (Sec. 4.105-1, RR 16-2005)
tax comes to rest. The tax is shifted to the buyer of
the goods, properties, or services. Consequently, any sale, barter or exchange of
goods or services not in the course of trade or
business is not subject to VAT. (Commissioner v.
Tax Credit Method Magsaysay Lines Inc., G.R. No. 146984, July 28,
2006)
Q: Explain the Tax Credit Method (also called
invoice method) of collecting VAT? Q: Define in the course of trade or business
(Rule of Regularity) as used under the VAT law.
A: The input tax shifted by the seller to the buyer is
credited against the buyers output taxes when he A: It means the regular conduct or pursuit of a
in turn sells the taxable goods, properties or commercial or an economic activity, including
services. transactions incidental thereto, by any person
regardless of whether or not the person engaged
Q: What is the Destination Principle or the therein is a non-stock, non-profit private
Cross Border Doctrine as used in VAT? organization (irrespective of the disposition of its

SANTO TOMAS
net income and whether or not it sells exclusively to principally for subsistence or livelihood
members or their guests), or government entity. and not in the course of trade or business.
2. Services rendered in the Philippines by
GR: If the disposition of goods or services is not in non-resident foreign persons shall be
the course of trade or business then it is not subject considered as being rendered in the
to VAT course of trade or business. (Section
105,NIRC)
XPN: Importation is subject to VAT regardless of
whether or not it is in the course of trade or Q: When is a non-resident, deemed performing
business. service in the Philippines?
A: Non-resident persons who perform services in
Reason: This is to protect our local or domestic the Philippines are deemed to be making sales in
goods or articles and to regulate the entry or the course of trade or business, even if the
introduction of foreign articles to our local market. performance of services is not regular. (Sec 4.105-3,
RR 16-2005).
Q: Pursuant to the privatization program of the
government, National Development Company Q: Who are taxable persons?
(NDC) sold five of its vessels to Magsaysay Lines
Inc. (Magsaysay). In the sales contract it provides A: Taxable persons refer to any person liable for the
that VAT shall be paid by the purchaser Magsaysay payment of VAT, whether registered or registrable
Lines. Magsaysay asked BIR for a formal request in accordance with Sec. 236 of the Tax Code.
for a ruling whether said purchaser should pay
VAT on account of such sale. BIR held that it is Q: Who is a VAT-registered person?
liable to pay VAT. The CTA reversed the same on
the ground that it was not done in the ordinary A: A VAT-registered person refers to any person
course of business of NDC. who is registered as a VAT taxpayer under Sec. 236
of the Tax code or a person who opted to be
Is Magsaysay lines liable to pay VAT on such sale? registered as VAT taxpayer. His status as a VAT
registered person shall continue until the
A: No. VAT is a tax levied only on the sale, barter or cancellation of the registration.
exchange of goods or services by persons who
engage in such activities, in the course of trade or Q: Who are the persons required to register for
business. The "carrying on business" does not mean VAT?
the performance of a single disconnected act, but
means conducting, prosecuting and continuing A: Every person who in the course of trade of
business by performing progressively all the acts business, sells, barter, or exchanges goods or
normally incident thereof; while "doing business" properties, or engages in the sale or exchange of
conveys the idea of business being done, not from goods, services subject to VAT if:
time to time, but all the time. "Course of business" 1. The Gross sale or gross receipts have
is what is usually done in the management of trade exceeded 1.5 million; or
or business. 2. There are reasonable grounds to believe
that his gross receipts or gross sales in the
The act of NDC in selling the vessels was not done in next 12 month shall exceed 1.5 million.
the regular manner, not in the ordinary course of (Section 236(G), NIRC)
trade or business. In fact the sale was effected only
because of the privatization program of the Q: What is the penalty for failure to register as
government thus the sale was not subject to VAT. VAT taxpayer?
(CIR v. Magsaysay Lines Inc., G.R. No. 146984, July
28, 2006) A: He shall be held liable to pay the tax as if he is a
VAT registered person but he cannot avail of the
Q: What are the exemptions to the rule of input tax credit for the period that he has not
regularity? properly registered. (Section 236(G), NIRC)
A: Q: Who is a VAT-exempt person?

1. Any business where the gross sales or
receipts or do not exceed P100,000 during A: A person who is not liable to pay VAT. He either:
the 12-month period shall be considered 1. Engages only on VAT-exempt transactions
under Section 109(1) (A to U) of NIRC,
TAXATION LAW TEAM:
regardless of their annual gross sales (but A:

in sale of residential real property or lease 1. The seller executes a deed of sale,
of residential property, the specific including dacion en pago, barter or
threshold set by law should not be exchange, assignment, transfer, or
exceeded). He is exempted from VAT and conveyance, or merely contract to sell
Percentage tax under Section 116 of NIRC. involving real property
2. The real property is located within the
Note: Real estate seller of residential house and lot Philippines;
valued at P2.5M or less shall NOT pay VAT nether 3. The seller or transferor is a real estate
percentage tax (Sec. 109(1)(P), NIRC); or dealer
4. The real property is an ordinary asset held
2. Engages in transactions liable to VAT but primarily for sale or for lease in the
becomes exempted from VAT because his ordinary course of business
annual gross sales do not exceed P1.5M 5. The sale is not exempt from VAT under
(Sec 109(1)(V), NIRC). Though VAT Section 109 of NIRC, special law, or
exempt, he shall pay percentage tax international agreement binding upon the
under Section 116. government of the Philippines
6. The threshold amount set by law should
Note: A residential unit lessor with a monthly rental be met.
exceeding P10,000 (specific threshold) but whose
annual gross rentals do not exceed P1.5M (general Note: Absence of any of the above requisites EXEMPTS
threshold) shall NOT pay VAT but shall pay percentage the transaction from VAT. However, percentage taxes
tax (Sec 109(1)(Q), NIRC). may apply under Section 116 of NIRC.
He should register as a VAT-exempt person unless he

opts to register as VAT under Section 109(2) of NIRC. Q: What are the goods or properties which are
subject to VAT?
VAT ON SALE OF GOODS OR PROPERTIES A: The term goods or properties shall mean all
tangible and intangible objects which are capable of
Requisites of taxability of sale of goods or pecuniary estimation and shall include:
properties
1. Real properties held primarily for sale to
Q: What are the requisites for taxability of sale of customers or held for lease in the
goods and personal properties? ordinary course of trade or business
2. The right or the privilege to use patent,
A: copyright, design or model, plan secret
1. There is an actual or deemed sale, barter formula or process, goodwill, trademark,
or exchange of goods or personal trade brand or other like property or right
properties for valuable consideration; 3. The right or the privilege to use in the
2. The sale is in the course of trade or Philippines of any industrial, commercial
business or exercise of profession in the or scientific equipment
Philippines; 4. The right or the privilege to use motion
3. The goods or proerties are located in the picture films, films, tapes and discs
Philippines and are for use or 5. Radio, television, satellite transmission
consumption therein; and and cable television time
4. The sale is not exempt from VAT under (Sec. 106[A][1], NIRC)
Section 109 of NIRC, special law,
international agreement binding upon the Q: Are all intangible properties subject to VAT?
government of the Philippines.
A: No, only those capable of pecuniary estimation.
Note: Absence of any of the above requisites EXEMPTS (Sec. 4.106-2, RR 16-2005)
the transaction from VAT. However, percentage taxes
may apply (Section 116, NIRC).
Q: Is the sale of real properties subject to VAT?
Q: What are the requisites for taxability of sale or
A: Sale of real properties primarily for sale to
exchange of real property?
customers or held for lease in the ordinary course
of trade or business of the seller shall be subject to
st
VAT. (1 par., Sec. 4.16-3, RR 16-2005)
SANTO TOMAS
As such, capital transactions of individuals are not A: Payment/s which the seller receives before or
subject to VAT. Only real estate dealers are subject upon execution of the instrument of sale and
to VAT. payments which he expects or is scheduled to
receive in cash or property (other than evidence of
Q: What are taxable sales? indebtedness of the purchaser) during the year
when the sale or disposition of real property was
A: Taxable sales refers to the sale, barter, exchange made.
and/or lease of goods or properties, including
transactions deemed sale and the performance of Q: What are the distinctions between sale on
service for consideration, whether in cash or in installment plan and sale on a deferred payment
kind. basis?
Q: What is gross selling price? A:

Installment Plan Deferred Plan
A: It means the total amount of money or its Initial payments do not Initial payments exceed
equivalent which the purchaser pays or is obligated exceed 25% of the gross 25% of the gross selling
to pay to the seller in consideration of the sale, selling price price
barter or exchange of the goods or properties, Seller shall be subject to Transaction shall be
excluding the VAT. The excise tax, if any, on such output VAT on the treated as cash sale which
goods or properties shall form part of the gross installment payments makes the entire selling
selling price. (Ibid.) received, including the price taxable in the month
interests and penalties for of sale.
Q: What are the allowable deductions from the late payment, actually
and/or constructively
gross selling price?
received.
The buyer of the property Output tax shall be
A: can claim the input tax in recognized by the seller
1. Discounts determined and granted at the the same period as the and input tax shall accrue
time of the sale seller recognized the output to the buyer at the time of
2. Sales returns and allowances for which tax. the execution of the
proper credit or refund was made during instrument of sale.
the month or quarter to the buyer for Payments that are Payments that are
sales previously recorded as taxable sales. subsequent to initial subsequent to initial
payments shall be subject payments shall no longer
to output VAT be subject to output VAT
Q: When is the sale of real property subject to
VAT?
ZERO-RATED SALES OF GOODS OR PROPERTIES,
A:
AND EFFECTIVELY ZERO-RATED SALES OF GOODS
1. Residential lot with gross selling price
OR PROPERTIES
exceeding P1.5 million;
2. Residential house and lot or other
Q: What is the meaning of zero-rated transaction?
residential dwellings with gross selling
price exceeding P2.5 million.
A: The gross selling price of goods or properties is
multiplied by 0% VAT rate. Zero-rated sale of goods
Note: Whether the instrument is denominated as a
or properties by a VAT-registered person is a
deed of absolute sale, deed of conditional sale or
otherwise. taxable transaction for VAT purposes but the sale
does not result in any output tax.
Q: What is gross selling price (in case of sale or
exchange of real property)? However, the input tax on the purchases of goods,
properties or services related to such zero-rated
A: It is the consideration stated in the sales sale shall be available as tax credit or refund.
document or the fair market value whichever is
higher. If the VAT is not billed separately in the Q: What is the difference between zero-rated
document of sale, the selling price or the and VAT-exempt transactions?
consideration stated therein shall be deemed to be
inclusive of VAT. A. The difference lies in the input tax. In VAT-
exempt transactions there is no input tax credit
Q: Define initial payments. allowed. In the case of 0% rated transaction of a
TAXATION LAW TEAM:
VAT registered person, the sale of goods or in the Philippines of the said
properties is multiplied by 0% thus his output tax is buyers goods;
P 0.00. Since the person is VAT-registered, he can c. paid for in acceptable foreign
claim input tax for purchases made from VAT- currency;
registered entities. d. accounted in accordance with
the rules of BSP.
E.g.: Output tax -------------------- P 0.00
Less: Input tax ------------------- 5,000.00 3. Sale of raw material or packaging
VAT Creditable P 5, 000.00 materials to export oriented enterprise
whose export sales exceed 70% of total
EXEMPT ZERO-RATED annual production
Nature of transaction
Not taxable; removes VAT Transaction is taxable for 4. Sale of gold to BSP
at the exempt stage VAT purposes although the
tax levied is 0%
5. Those considered as export sales under
By whom made
the E.O. 226 (Omnibus Investment Code
Need not be a VAT- Made by a VAT-registered
registered person person of 1987)
Tax Credit/Refund
Cannot avail of tax credit Can claim or enjoy tax 6. The sale of goods, supplies, equipment
or refund. Thus, may credit/refund and fuel to persons engaged in
result in increased prices (Total Relief) international shipping or international air
(Partial Relief) transport operations. (Sec. 106[A][2][a],
NIRC as amended by RA 9337)
Q: What are the zero-rated sales of goods by a
VAT-registered person? Note: Under Omnibus Investment Code:
i. The Philippine port F.O.B. value determined from
A: invoices, bills of lading, inward letters of credit, landing
1. Export sales certificates, and other commercial documents, of
2. Foreign currency denominated sale export products exported directly by a registered
3. Sales to persons or entities whose export producer, or
exemption under special laws or
international agreements to which the ii. The net selling price of export products sold by a
registered export producer to another export
Philippines is a signatory effectively
producer, or to an export trader that subsequently
subjects such sales to zero rate. (Sec. 106,
export the same;
NIRC)
iii. Provided, that sales of export products to another
Q: What is meant by export sales? producer or to an export trader shall only be deemed
expoert sales when actually exported by the latter, as
A: The term export sales means: evidenced by landing certificates or similar commercial
1. The sale and actual shipment of goods documents
from the Philippines to a foreign country:
a. irrespective of any shipping Q: When is export sale exempt and when is it zero-
arrangement; rated?
b. paid for in acceptable foreign
currency or its equivalent in goods A: Export sale is exempt if made by a non-VAT
or services; person (Sec. 109, NIRC). On the other hand, it is
c. accounted for in accordance with zero-rated if made by VAT-registered person (Sec.
the rules and regulations of BSP. 4.106-5, RR 16-2005).
2. Sale of raw materials or packaging Q: Is the sale of goods to ecozone, such as PEZA,
materials by a VAT-registered entity to a considered as export sale?
non-resident buyer:
a. for delivery to a non resident A: Yes. Notably, while an ecozone is geographically
local export-oriented within the Philippines, it is deemed a separate
enterprise; customs territory and is regarded in law as foreign
b. used in the manufacturing, soil. Sales by suppliers from outside the borders of
processing, packing, repacking the ecozone to this separate customs territory are
deemed as exports and treated as export sales.

SANTO TOMAS
These sales are zero-rated or subject to a tax rate of

zero percent. (CIR v. Sekisui Jushi Philippines, Inc., Exportation of goods on consignment shall not be
G.R. No. 149671, July 21, 2006) deemed export sales until the export products
consigned are in facet sold the consignee.
Q: What is an ecozone?
Provided, finally, that sales of goods, properties or
A: An ecozone or a Special Economic Zone has been services made by a VAT-registered supplier to a BOI-
registered manufacturer/producer whose products are
described as selected areas with highly
100% exported are considered export sales
developed or which have the potential to be
developed into agro-industrial, industrial, tourist, A certification to this effect must be issued by the
recreational, commercial, banking, investment and Board of Investment (BOI) which shall be good for one
financial centers whose metes and bounds are fixed year unless subsequently re-issued by the BOI.
or delimited by Presidential Proclamations. An
ecozone may contain any or all of the following: Q: What is a Foreign Currency Denominated sale?
industrial estates (IEs), export processing zones
(EPZs), free trade zones and tourist/recreational A: The phrase 'foreign currency denominated sale'
centers. The national territory of the Philippines means sale to a nonresident of goods, except those
outside of the proclaimed borders of the ecozone mentioned in Sections 149 and 150, assembled or
shall be referred to as the Customs Territory. (CIR v. manufactured in the Philippines for delivery to a
Toshiba Information Equipment (Phils.), Inc., G.R.. resident in the Philippines, paid for in acceptable
No. 150154, August 9, 2005) foreign currency and accounted for in accordance
with the rules and regulations of the Bangko Sentral
Q: What are constructive exports? ng Pilipinas (BSP). (Sec. 106[A][2][b], NIRC)
A: Note: Section 149 refers to excise tax on automobiles.

1. Sales to bonded manufacturing Section 150 refers to excise tax on non-essential
warehouses of export-oriented goods.
manufacturers
2. Sales to export processing zones Q: Differentiate effectively zero-rated transaction
3. Sales to enterprises duly registered and from automatic zero-rated transaction.
accredited with the Subic Bay
Metropolitan Authority pursuant to RA A:
7227 EFFECTIVELY AUTOMATIC
4. Sales to registered export traders ZERO-RATED ZERO-RATED
operating bonded trading warehouses TRANSACTION TRANSACTION
supplying raw materials in the Nature
manufacture of export products under Refers to the sale of Refers to taxable
goods, properties or transaction for VAT
guidelines to be set by the Board in
services by a VAT- purposes, but shall not
consultation with the Bureau of Internal registered person to a result in any output tax.
Revenue (BIR) and the Bureau of Customs person, or entity who was However, the input tax on
(BOC) granted indirect tax purchases of goods,
5. Sales to diplomatic missions and other exemption under special properties or services
agencies and/or instrumentalities granted laws or international related to such zero-rated
tax immunities, of locally manufactured, agreements. sale, shall be available as
assembled or repacked products whether tax credit or refund.
paid for in foreign currency or not. Need to apply for zero-rating
An application for zero- Need not file an application
rating must be filed and form and to secure BIR
Q: What is the rationale for zero-rating exports the BIR approval is approval before sale.
sale? necessary before the
transaction may be
A: It is because the Philippine VAT system adheres considered effectively
to the cross border doctrine, according to which, no zero-rated.
VAT shall be imposed to form part of the cost of For whose benefit is it intended
goods destined for consumption outside of the Primarily intended to be Intended to benefit the
territorial border of the taxing authority. (Ibid.) enjoyed by the seller who purchaser who, not being
is directly and legally directly and legally liable
liable for the VAT, making for the payment of the
Note:
such seller internationally VAT, will ultimately bear
For purposes of zeo-rating, export sales of registered competitive by allowing the burden of the tax
export traders shall include commission income.
TAXATION LAW TEAM:
the refund or credit of shifted by the suppliers. Philippines. It is also registered with the PEZA to
input taxes that are engage in the manufacture of recording
attributable to export components primarily used in computers for
sales.
export. SEAGATE is a VAT-registered entity. An
Effect
administrative claim for refund of VAT input taxes
Results in no tax chargeable against the purchaser.
The seller can claim a refund or a tax credit certificate for
in the amount of P28, 369,226.38 with supporting
the VAT previously charged by suppliers. documents was filed with Revenue District Office
in Cebu. The administrative claim for refund was
Note: For zero-rated transactions, whether automatic not acted upon by the petitioner prompting the
or effectively zero-rated, the word ZERO-RATED respondent to elevate the case to the CTA. The CIR
must be prominently stamped on the face of the VAT contended that since taxes are presumed to have
invoice or receipt issued by the seller (failure to been collected in accordance with laws and
comply will make the transaction VAT taxable). regulations, Seagate has the burden of proof that
the taxes sought to be refunded were erroneously
Q: Cebu Toyo Corp., an export enterprise, is a or illegally collected. Unfortunately, Seagate failed
subsidiary of a foreign corporation duly registered to do so.
with the Philippine Economic Zone Authority
pursuant to PD 66 and is also registered with the Is Seagate entitled to the refund or issuance of Tax
BIR as a VAT taxpayer. It sells 80% of its products Credit Certificate representing alleged unutilized
to its mother corporation, and the rest are sold to input VAT paid on capital goods purchased?
various enterprises doing business in the Mactan
Export Processing Zone. Inasmuch as both sales A: Yes. No doubt, as a PEZA-registered enterprise
are considered export sales subject to VAT at 0% within a special economic zone, it is entitled to the
rate under the National Internal Revenue Code, as fiscal incentives and benefits provided for in either
amended, it filed an application for tax PD 66 or EO 226 which would not subject
credit/refund of VAT paid for the said period respondent to internal revenue laws and
representing excess VAT input payments. The CIR regulations for raw materials, supplies, articles, etc
belies the claim for refund. or would be entitled to income tax holiday;
additional deduction for labor expense, etc. It shall,
Is the grant of a refund representing unutilized moreover, enjoy all privileges, benefits, advantages
input VAT to Cebu Toyo proper? or exemptions under both Republic Act Nos. 7227
(duty-free importation) and 7844 (tax credits).
A: Yes. Cebu Toyo is engaged in taxable rather than Thus, Seagate enjoys preferential tax treatment.
exempt transactions. Taxable transactions are those The VAT on capital goods is an internal revenue tax
transactions which are subject to value-added tax from which the entity is exempt. Although the
either at the rate of ten percent (10%) or zero transactions involving such tax are not exempt,
percent (0%). In taxable transactions, the seller Seagate as a VAT-registered person, however, is
shall be entitled to tax credit for the value-added entitled to their credits.
tax paid on purchases and leases of goods,
properties or services. An exemption means that Since the purchases of Seagate are not exempt
the sale of goods, properties or services and the use from the VAT, the rate to be applied is zero. Its
or lease of properties is not subject to VAT (output exemption under both PD 66 and RA 7916
tax) and the seller is not allowed any tax credit on effectively subjects such transactions to a zero rate,
VAT (input tax) previously paid. A VAT-registered because the ecozone within which it is registered is
purchaser of goods, properties or services that are managed and operated by the PEZA as a separate
VAT exempt, is not entitled to any input tax on such customs territory. This means that in such zone is
purchases despite the issuance of a VAT invoice or created the legal fiction of foreign territory. Under
receipt. Under the system, a zero rated sale by a the cross-border principle of the VAT system being
VAT-registered person, which is a taxable enforced by the BIR, no VAT shall be imposed to
transaction for VAT purposes, shall not result in any form part of the cost of goods destined for
output tax, but the input tax on his purchase of consumption outside of the territorial border of the
goods, properties or services related to such zero- taxing authority. If exports of goods and services
rated sale shall be available as tax credit or refund from the Philippines to a foreign country are free of
(CIR v. Cebu Toyo Corporation, G.R. No. 149073, the VAT, then the same rule holds for such exports
Feb. 16, 2005). from the national territory -- except specifically
declared areas -- to an ecozone. (CIR v. Seagate
Q: SEAGATE is a resident foreign corporation duly Technology (Philippines), G.R. No. 153866, Feb. 11,
registered with the SEC to do business in the 2005)

SANTO TOMAS
Transactions Deemed Sale A:

1. Change of ownership of the business.
Q: What are the transactions deemed sale and There is change in the ownership of the
therefore subject to VAT? business when a single proprietorship
incorporates; or the proprietor of a single
A: proprietorship sells
1. Transfer, use or consumption not in the his entire business.
course of business of goods or properties
originally intended for sale or for use in 2. Dissolution of a partnership and creation
the course of business (i.e., when a VAT- of a new partnership which takes over the
registered person withdraws goods from business. (Sec. 4.106-7, RR 16-2005)
his business for his personal use);
Q: What is necessary to consider in determining
2. Distribution or transfer to: whether a transaction is deemed sale?
a. Shareholders or investors as share in
the profits of the VAT-registered A: Before considering whether the transaction is
persons; or deemed sale, it must first be determined whether
b. Creditors in payment of debt; the sale was in the ordinary course of trade or
business. Even if the transaction was deemed sale
Requisites: if it was not done in the ordinary course of trade or
a. The VAT-registered person distributing or business still the transaction is not subject to VAT.
paying is a domestic corporation; (CIR v. Magsaysay Lines Inc., G.R. No. 146984, July
b. What is being declared or paid is either 28, 2006)
real property owned by the company or
shares of stocks owned in another Q: What is the tax base of transactions deemed
company; and sale?
c. The domestic corporation is either a real
estate dealer (in case of real property) or A: The output tax shall be based on the market
dealer in securities (in case of shares of value of the goods deemed sold as of the time of
stock) the occurrence of the transactions enumerated
above in numbers 1, 2 and 3. However, in the case
Note: Only real estate dealers and dealer in of retirement or cessation of business, the tax base
securities are liable for payment of VAT in shall be the acquisition cost or the current market
case of sale, barter, or exchange of real price of the goods or properties, whichever is
property or share of stocks under Sections lower.
106 and 108, respectively. In the case of a sale where the gross selling price is
unreasonably lower than the fair market value, the
3. Consignment of goods if actual sale is not actual market value shall be the tax base.
made within sixty (60) days following the
date such goods were consigned.
Change or Cessation of Status as VAT-Registered
XPN: if the consigned goods were Person
physically returned by the consignee
within the 60-day period; Q: When is a change in or cessation of status of a
VAT registered person subject to VAT?
4. Retirement from or cessation of business,
with respect to inventories of taxable A: The following are subject to 12% output VAT:
goods existing as of such retirement or
cessation. (Sec. 106[B], NIRC) 1. Change of business activity from VAT
taxable status to VAT-exempt status
Note: The transactions are deemed sale because in
reality there is no sale, but still the law provides that 2. Approval of a request for cancellation of
the following transactions are considered as sale and
registration due to reversion to exempt
are thus subject to VAT.
status
Q: What transactions considered retirement or
3. Approval of a request for cancellation of
cessation of business deemed sale subject to
registration due to a desire to revert to
VAT?
exempt status after the lapse of 3
TAXATION LAW TEAM:
consecutive years from the time of importer prior to the release of such goods from
registration by a person who voluntarily customs custody. (Sec.107[A])
registered despite being exempt under
Sec 109 (2) of the Tax Code XPN: Where the customs duties are determined
on the basis of quantity or volume f the goods,
4. Approval of a request for cancellation of the VAT shall be based on the landed cost plus
registration of one who commenced excise taxes, if any.
business with the expectation of gross
sales or receipt exceeding P1,500,000 but Q: Who pays for the tax on imported goods?
who failed to exceed this amount during
the first 12 months of operations. A: The importer shall pay the tax prior to the
release of the imported goods.
Q: When is a change in or cessation of status of a
VAT registered person not subject to VAT? Q: Who is an importer?
A: The following are not subject to 12% output vat A: An importer is a person who brings goods into
the Philippines, whether or not made in the course
1. Change of control in the corporation of as of trade or business. It includes non-exempt
corporation by the acquisition of persons or entities who acquire tax free imported
controlling interest of the corporation by goods from exempt persons, entities or agencies.
another stockholder or group of
stockholders . Q: When does importation begin and end?
The goods or properties used in the A: Importation begins when a vessel or aircraft
business or those comprising the stock-in- enters the Philippine jurisdiction with the intention
trade of the corporation will not be to unload goods/cargo. Importation ends upon the
considered sold, bartered or exchanged payment of duties, taxes, and other charges due
despite the change in the ownership upon the article, or to be paid at the port of entry
interest. However, exchange of property and legal permit for withdrawal shall have been
by corporation acquiring control for the granted.
shares of stocks of the target corporation
is subject to VAT. Q: What is technical importation?
2. Change in the trade or corporate name of A: Sale of goods by a PEZA registered enterprise to
the business. a buyer from the customs territory shall be treated
as a technical importation. Such buyer shall be
3. Merger or consolidation of corporations. treated as an importer thereof and shall be
The unused input tax of the dissolved imposed with the corresponding import taxes.
corporation, as of the date of merger or
consolidation, shall be absorbed by the
surviving or new corporation. Transfer of Goods by Tax Exempt Persons
Q: What is the consequence if a tax exempt person

VAT on Importation of Goods would transfer imported goods to a non-exempt
person?
Q: Is importation subject to VAT?
A: The purchaser or transferee shall be considered
A: Yes. VAT shall be assessed and collected upon as an importer and shall be held liable for VAT and
goods brought into the Philippines whether for use other internal revenue tax due on such importation.
in business or not. (Sec. 107[B])
Q: What is the tax base of importation? Note: The tax due on such importation shall constitute
a lien on the goods superior to all charges or liens on
A: the goods, irrespective of the possessor thereof.
GR: The tax base shall be based on the total
value used by the BOC in determining tariff and Q: Anshari, an alien employee of Asian
customs duties plus customs duties, excise taxes, Development Bank (ADB) who is retiring soon has
if any, and other charges to be paid by the offered to sell his car to you, which he imported
tax-free for his personal use. The privilege of
SANTO TOMAS
exemption from tax is recognized by tax 6. The supply of technical advice, assistance
authorities. If you decide to purchase the car, is or services rendered in connection with
the sale subject to tax? Explain. technical management or administration
of any scientific, industrial or commercial
A: Yes. The sale is subject to tax. Sec. 107 (B) of the undertaking, venture, project or scheme
Tax Code provides that In case of tax-free 7. The lease of motion picture films, films,
importation of goods into the Philippines by tapes and discs
persons, entities or agencies exempt from tax, 8. The lease or the use of or the right to use
where the goods are subsequently, sold, radio, television, satellite transmission
transferred or exchanged in the Philippines to non- and cable television time. (Ibid.)
exempt persons or entities, the purchasers,
transferees or recipients shall be considered a the Note: Lease of properties shall be subject to the tax
importer thereof, who shall be liable for any herein imposed irrespective of the place where the
internal revenue tax on such importation. (2005 Bar contract of lease or licensing agreement was executed
Question) if the property is leased or used in the Philippines.
Q: What is meant by service?

VAT on Sale of Service and Use or Lease of
Properties A: Service has been defined as the art of doing
something useful for a person or company for a
Q: What is meant by sale or exchange of services fee or useful labor or work rendered or to be
subject to VAT? rendered another for a fee. (CIR v. American
Express International, Inc., G. R. No. 152609, June
A: It means the performance of all kinds of services 29, 2005)
in the Philippines for others for a fee, remuneration
or consideration. Q: What are the categories of Services:
Q: What does the phrase sale or exchange of A:

services likewise include? 1. Professional/ technical consultancy
2. Transfer of technology
A: 3. Lease or use of intangible property
1. The lease or the use of or the right or 4. Lease or use of tangible property
privilege to use any copyright, patent,
design or model plan, secret formula or Note: Non-life insurance policies are subject to VAT
process, goodwill, trademark, trade brand while life insurance policies are VAT exempt but
or other like property or right subject to 5% premium tax under Section 123 of NIRC.
2. The lease or the use of, or the right to use
of any industrial, commercial or, scientific Q: Are non-stock, non-profit entities liable to pay
equipment VAT for sale of goods and services?
3. The supply of scientific, technical,
industrial or commercial knowledge or A: Yes. As long as the entity provides service for a
information fee, remuneration or consideration, then the
4. The supply of any assistance that is service rendered is subject to VAT. (Commissioner v.
ancillary and subsidiary to and is CA, G.R. No. 125355, Mar. 30, 2000)
furnished as a means of enabling the
application or enjoyment of any such Q: What is the tax rate?
property, or right as is mentioned in
subparagraph (2) or any such knowledge A: 12% of the gross receipts derived from the sale
or information as is mentioned in or exchange of service, including the use or lease of
subparagraph (3) properties. (Section 108, NIRC)
5. The supply of services by a non-resident
person or his employee in connection Q: What is the meaning of gross receipts?
with the use of property or rights
belonging to, or the installation or A: It pertains to the total amount of money or its
operation of any brand, machinery or equivalent representing the contract price,
other apparatus purchased from such compensation, service fee, rental or royalty,
nonresident person including the amount charged for materials
supplied with the services and deposits and
advanced payments actually or constructively
TAXATION LAW TEAM:
received during the taxable quarter for the services Consequently, PHILHEALTH brought the matter to
performed or to be performed for another person, the CTA. The CTA declared that VAT Ruling 231-88
excluding VAT. (Sec. 108, NIRC) is void and without force and effect and
ordered it to pay the VAT deficiency, but
Q: What is the meaning of constructive receipt? canceling the payment of DST. After a Motion for
Partial Reconsideration, CTA overruled its decision
A: Constructive receipt occurs when the money with respect to the payment of deficiency VAT and
consideration or its equivalent is placed at the held that PHILHEALTH was entitled to the benefit
control of the person who rendered the service of non-retroactivity of rulings guaranteed under
without restrictions by the payor. Section 246 of the Tax Code, in the absence of
showing of bad faith on its part.
Q: Is a lease of property subject to VAT?
Are the services of PHILHEALTH subject to VAT?
A: All forms of property for lease, whether real or
personal, are liable to VAT. A: Yes. PHILHEALTHs services are not VAT-exempt.
Those exempted from VAT are those engaged in the
Q: Are advance payments made by lessee for lease performance of medical, dental, hospital and
of property subject to VAT? veterinary services except those rendered by
professionals. PHILHEALTH is not actually
A: If the advance payment is for the faithful rendering medical service but merely acting as a
performance of certain obligations of the lessee, it conduit between the members and their accredited
is not subject to VAT. A security deposit that is and recognized hospitals and clinics. It merely
applied to rental shall be subject to VAT at the time provides and arranges for the provision of pre-need
of its application. If the advance payment health care services to its members for a fixed
constitutes a pre-paid rental, then such payment is prepaid fee for a specified period of time; that it
taxable to the lessor in the month when received, then contracts the services of physicians, medical
irrespective of the accounting method employed by and dental practitioners, clinics and hospitals to
the lessor. perform such services to its enrolled members; and
that it enters into contract with clinics, hospitals,
Q: PHILHEALTH, a corporation that establishes, medical professionals and then negotiates with
maintains, conducts and operates a prepaid group them regarding payment schemes, financing and
practice health care delivery system or a health other procedures in the delivery of health
maintenance organization to take care of the sick services. (CIR v. Philippine Health Care Providers
and disabled persons enrolled in the health care Inc., G.R. No. 168129, Apr. 24, 2007)
plan, inquired before the Commissioner of
Internal Revenue (Commissioner) whether the Q: Are gross receipts derived from sales of
services it provided to the participants in its health admission tickets in showing motion pictures
care program were exempt from the payment subject to VAT?
of VAT. The Commissioner issued VAT Ruling 231-
88 stating that PHILHEALTH, as a provider of A: No. The legislative intent is not to impose VAT on
medical services, was exempt from the VAT persons already covered by the amusement tax.
coverage. The repeal by the Local Government Code of 1991
of the Local Tax Code transferring the power to
Meanwhile, Republic Act 7716 (E-VAT Law) impose amusement tax on cinema/theater
took effect, amending further the NIRC of 1977. operators or proprietors to the local government
Subsequently, R.A. 8424 (NIRC of 1997) took did not grant nor restore the said power to the
effect, substantially adopting and reproducing the national government nor did it expand the coverage
provisions of E.O. 273 on VAT and the E-VAT law. of VAT. Since the imposition of a tax is a burden on
With the passage of these laws, the BIR sent the taxpayer, it cannot be presumed nor can it be
PHILHEALTH a Preliminary Assessment Notice for extended by implication. As it is, the power to
deficiency in its payment of the VAT and impose amusement tax on cinema/theater
documentary stamp taxes (DST) for taxable years operators or proprietors remains with the local
1996 and 1997 and a letter demanding payment of government.
deficiency VAT and DST for taxable years 1996 to
1997. A contrary ruling will subject cinema/theater
operators or proprietors to a total of 40% tax, the
PHILHEALTH filed a protest with the Commissioner 10% VAT being on top of the 30% amusement tax
but the latter did not take action on its protest. imposed by the Local Government Code of 1991,

SANTO TOMAS
thereby killing the [goose] that lays the golden Philippines is a signatory effectively
egg[s].(CIR v. SM Prime Holdings, Inc., G.R. No. subjects the supply of such services to
185305, Feb. 26, 2010) zero percent (0%) rate;
4. Services rendered to persons engaged in

Requisites for Taxability international shipping or international air
transport operations, including leases of
Q: What are the requisites for the taxability of sale property for use thereof;
or exchange of services or lease or use of
property? 5. Services performed by subcontractors
and/or contractors in processing,
A: converting, or manufacturing goods for an
1. There is a sale or exchange of service or enterprise whose export sales exceed
lease or use of property enumerated in seventy percent (70%) of total annual
the law or other similar services; production;
2. The service is performed or to be
performed in the Philippines; 6. Transport of passengers and cargo by air
3. The service is in the course of trade of or sea vessels from the Philippines to a
taxpayers trade or business or foreign country; and
profession;
4. The service is for a valuable consideration 7. Sale of power or fuel generated through
actually or constructively received; and renewable sources of energy such as, but
5. The service is not exempt under the Tax not limited to, biomass, solar, wind,
Code, special law or international hydropower, geothermal, ocean energy,
agreement. and other emerging energy sources using
Note: Absence of any of the requisites renders the technologies such as fuel cells and
transaction exempt from VAT but may be subject to hydrogen fuels. (Sec. 108, NIRC as
other percentage tax under Title V of the Tax Code. amended by R.A. 9337)
ZERO-RATED Sale of Service VAT EXEMPT TRANSACTIONS
Q: What are the zero-rated services? Q: What are VAT-exempt transactions?
A: A: It involves goods or services which, by their

1. Processing, manufacturing or repacking nature, are specifically listed in and expressly
goods for other persons doing business exempted from VAT under the Tax Code, without
outside the Philippines which goods are regard to the tax status of the party to the
subsequently exported, where the transaction.
services are paid for in acceptable foreign
currency and accounted for in accordance Q: Define exemption under the VAT law.
with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP); A: An exemption means that the sale of goods,
properties or services and the use or lease of
2. Services other than those mentioned in properties is not subject to VAT (output tax) and
the preceding paragraph rendered to a the seller is not allowed any tax credit on VAT
person engaged in business conducted (input tax).
outside the Philippines or to a
nonresident person not engaged in Note: VAT-exempt transactions shall not be included in
business who is outside the Philippines determining the general threshold prescribed by law
when the services are performed, the (P1.5 million annual gross sales)
consideration for which is paid for in
acceptable foreign currency and Q: Who is a VAT-exempt party?
accounted for in accordance with the
rules and regulations of the BSP; A: It is a person or entity granted VAT exemption
under the Tax Code, a special law or an
3. Services rendered to persons or entities international agreement to which the Philippines is
whose exemption under special laws or a signatory, and by virtue of which its taxable
international agreements to which the transactions become exempt from VAT.
TAXATION LAW TEAM:
A: No longer exempt.
Note: The basis for the grant of VAT exemptions is
equity Q: When is the sale of real properties subject to
VAT? When is it exempt?
Q: What are the distinctions between exempt
transaction and exempt party? A: Real properties held primarily for sale to
customers or held for lease in the ordinary course
A: of trade or business is subject to VAT. (Sec.
EXEMPT PARTY EXEMPT TRANSACTION 106[A][1][a], NIRC)
A person or entity granted Involves goods or services
VAT exemption under the which, by their nature are
Whereas, real properties not primarily held for sale
Tax Code, special law or specifically listed in and
international agreement to expressly exempted from
to customers or held for lease in the ordinary
which RP is a signatory, the VAT under the Tax course of trade or business are exempt from VAT.
and by virtue of which its Code, without regard to the (Sec. 109, NIRC)
taxable transactions tax status of the parties in
become exempt from the the transactions. Q: When is fuel exempt from tax, and when is it
VAT. zero-rated?
Such party is not subject to Transaction is not subject
the VAT, but may be to VAT, but the seller is not A: Fuel is exempt if imported by persons engaged in
allowed a tax refund or allowed any tax refund or
international shipping or air transport operations
credit of input tax paid, credit for any input taxes
depending on its paid. (Sec. 109 [T], NIRC). On the other hand, fuel is zero-
registration as a VAT or rated when sold to persons engaged in
non-VAT taxpayer. international shipping or international air transport
operations without docking or stopping at any
Q: Does a VAT-registered individual have the other port in the Philippines. (Sec 4.106-5[A][6], RR
option to be subject to VAT rather than to avail of 16-2005]
the above-mentioned exemptions?
Q: State whether the following transactions are: a)
A: Yes. Under Sec. 109(2) of the Tax Code, the VAT Exempt, b) subject to VAT at 12%; or c)
taxpayer has the option to be: subject to VAT at 0%.
1. VAT exempt under Sec. 109(1) of the
NIRC; or 1. Sale of fresh vegetables by Aling Ining at
2. Be subject to VAT. the Pamilihang Bayan ng Trece Martirez.
2. Services rendered by Jake's Construction
Note: The choice of the taxpayer is irrevocable for a Company, a contractor to the World
period of 3 years from the quarter the election was Health Organization in the renovation of
made. its offices in Manila.
3. Sale of tractors and other agricultural
Q: Why would a VAT-exempt person choose to be implements by Bungkal Incorporated to
subject to VAT than to be VAT exempt? local farmers. [1%]
4. Sale of RTW by Cely's Boutique, a Filipino
A: A VAT-registered person who opted to be subject dress designer, in her dress shop and
to VAT may avail of the input tax credit. The input other outlets.
tax is deducted from the output tax thereby 5. Fees for lodging paid by students to
reducing his tax liabilities but a VAT-registered Bahay-Bahayan Dormitory, a private
person who opted to be exempt there from cannot entity operating a student dormitory
avail of the input tax credit. Thus a VAT-registered (monthly fee PI, 500).
person may choose to be subjected to rather than
exempt from payment of VAT. A:
1. VAT exempt. Sale of agricultural products,
Q: Will a VAT-registered purchaser of goods, such as fresh vegetables, in their original
properties or services that are VAT-exempt be state, of a kind generally used as, or
entitled to any input tax on such purchase? producing foods for human consumption
is exempt from VAT. (Sec. 109[A], NIRC)
A: No. 2. VAT at 0%. Since Jake's Construction
Company has rendered services to the
Q: Are petroleum products exempt from VAT? World Health Organization, which is an
entity exempted from taxation under

SANTO TOMAS
international agreements to which the for the market, such as freezing, drying,
Philippines is a signatory, the supply of salting, broiling, roasting, smoking or
services is subject to zero percent (0%) stripping. Polished and/or husked rice,
rate. (Sec. 108[B][3], NIRC) corn grits, raw cane sugar and molasses,
3. VAT at 12%. Tractors and other ordinary salt, and copra shall be
agricultural implements fall under the considered in their original state (Sec.
definition of goods which include all 109[A], NIRC]);
tangible objects which are capable of
pecuniary estimation. (Sec. 106[A][1], Note: Fighting cocks, race horses, zoo
NIRC) animals and other animals generally
4. This is subject to VAT at 12%. This considered as pets are not included in the
transaction also falls under the definition term livestock and poultry.
of goods which include all tangible objects
which are capable of pecuniary It is not a simple process if it is a physical or
estimation (Sec. 106[A][1], NIRC) chemical process which would alter the
exterior or inner substance of a product in
5. VAT Exempt. The monthly fee paid by
such a manner as to prepare it for special
each student falls under the lease of
use to which it could not have been put in
residential units with a monthly rental per its original form or condition; like the
unit not exceeding P10,000, which is addition of preservatives or anti oxidants.
exempt from VAT regardless of the
amount of aggregate rentals received by b. Sale of fertilizers; seeds, seedlings and
the lessor during the year. (Sec. 109[Q], fingerlings; fish, prawn, livestock and
NIRC). The term unit shall mean per poultry feeds, including ingredients,
person in the case of dormitories, whether locally produced or imported,
boarding houses and bed spaces (Sec. used in the manufacture of finished feeds.
4.103-1, RR No. 7-95).(1998 Bar Except specialty feeds for race horses,
Question) fighting cocks, aquarium fish, zoo animals
and other animals generally considered as
Q: What is the tax on persons who are exempt pets (Sec. 109[B], NIRC]);
from VAT?
c. Transactions which are exempt under
A: Persons who are exempt from the payment of international agreements to which the
VAT and who is not a VAT-registered person shall Philippines is a signatory or under special
pay a tax equivalent to three percent (3%) of his laws, except those under P.D. No. 529
gross quarterly sales or receipts, except (Sec. 109[K], NIRC]);
cooperatives shall not be held liable to pay for
three percent (3%) gross receipts tax. Note: PD 529 is Petroleum Exploration
Concessionaires under the Petroleum Act of
1949
Exempt transactions, Enumerated
d. Sales by agricultural cooperatives duly
Q: What are the VAT exempt transactions? registered with the Cooperative
Development Authority (CDA) to their
A: members as well as sale of their produce,
1. Sale Of Goods And Property whether in its original state or processed
form, to non-members; their importation
a. Sale or importation of agricultural and of direct farm inputs, machineries and
marine food products in their original equipment, including spare parts thereof
state, livestock and poultry of a kind to be used directly and exclusively, in the
generally used as, or yielding or producing production and/or processing of their
foods for human consumption; and produce (Sec. 109[L], NIRC]);
breeding stock and genetic materials
therefor. Note: Unlike in paragraph A, the sales made
by agricultural cooperatives duly accredited
Products classified under this paragraph by CDA may be in original state or processed
shall be considered in their original state form is exempt from VAT.
even if they have undergone the simple
processes of preparation or preservation e. Sales by non-agricultural, non-electric and
non-credit cooperatives duly registered with
TAXATION LAW TEAM:
the Cooperative Development Authority: j. Sale of goods or properties other than the
Provided that the share capital contribution transactions mentioned in the preceding
of each member does not exceed Fifteen paragraphs, the gross annual sales and/or
thousand pesos (P15, 000.00) and regardless receipts do not exceed the amount of One
of the aggregate capital and net surplus million five hundred thousand pesos (P1,
ratably distributed among the members 500,000): Provided, That not later than
(Sec. 109[N], NIRC]); January 31, 2009 and every three (3) years
thereafter, the amount herein stated shall
f. Export sales by persons who are not VAT- be adjusted to its present value using the
registered (Sec. 109[O], NIRC]); Consumer Price Index as published by the
NSO (Sec. 109[V], NIRC);
g. Sale of real properties not primarily held for
sale to customers or held for lease in the
ordinary course of trade or business, or real 2. Sale of Services
property utilized for low-cost and socialized
housing as defined by R.A. No. 7279, a. Services subject to percentage tax under
otherwise known as the Urban Development Title V (Sec. 109[E], NIRC);
and Housing Act of 1992, and other related
laws, residential lot valued at One million b. Services by agricultural contract growers
five hundred thousand pesos (P1,500,000) and milling for others of palay into rice,
and below, house and lot, and other corn into grits and sugar cane into raw
residential dwellings valued at Two million sugar (Sec. 109[F], NIRC);
five hundred thousand pesos (P2,500,000)
and below: Provided, That not later than c. Medical, dental, hospital and veterinary
January 31, 2009 and every three (3) years services except those rendered by
thereafter, the amounts herein stated shall professionals (Sec. 109[G], NIRC);
be adjusted to their present values using the
Consumer Price Index, as published by the Note: Laboratory services are exempted
National Statistics Office (NSO) (Sec. 109[P], because it is a hospital service.
NIRC]);
The sale of medicines by the pharmacy of a
h. Sale of books and any newspaper, magazine, hospital or a clinic to its in-patients is
review or bulletin which appears at regular considered hospital service hence, VAT
intervals with fixed prices for subscription exempt. If the sale of medicine is made to
an out-patient, such sale is subject to VAT
and sale and which is not devoted
(Mamalateo, Value Added Tax, 2007 ed., pp.
principally to the publication of paid
163 and 274)
advertisements (Sec. 109[R], NIRC);
d. Educational services rendered by private
i. Sale of passenger or cargo vessels and
educational institutions, duly accredited
aircraft, including engine, equipment and
by the DEPED, CHED, TESDA and those
spare parts thereof for domestic or
rendered by government educational
international transport operations and
institutions (Sec. 109[H], NIRC);
provided that (Sec. 109[S], NIRC);
I. Exemption from VAT on the importation Note: In this section for private educational
and local purchase of passenger and/or institution to be exempt from VAT they
cargo vessel shall be limited to those of must be duly accredited by DEPED, CHED
one hundred fifty tons (150) and above, and TESDA on there other hand,
including engine and spare parts of the government educational institutions are
said vessels; exempt without the need of the said
II. Vessels to be imported shall comply with accreditation requirements.
the age limit requirements:
Passenger and/or cargo-vessels- e. Services rendered by individuals pursuant
15 years old to an employer-employee relationship
Tanker-10 years old (Sec. 109[I], NIRC);
High speed passenger craft-5
years old f. Services rendered by regional or area
headquarters established in the
Philippines by multinational corporations

SANTO TOMAS
which act as supervisory, communications that such persons are actually coming to
and coordinating centers for their settle in the Philippines and that the change
affiliates, subsidiaries or branches in the of residence is bona fide (Sec. 109[D], NIRC);
Asia-Pacific Region and do not earn or c. Importation of books and any newspaper,
derive income from the Philippines (Sec. magazine, review or bulletin which appears
109[J], NIRC); at regular intervals with fixed prices for
g. Transactions which are exempt under subscription and sale and which is not
international agreements to which the devoted principally to the publication of
Philippines is a signatory or under special paid advertisements (Sec. 109[R], NIRC);
laws, except those under P.D. No. 529
(Sec. 109[K], NIRC); d. Importation of passenger or cargo vessels
and aircraft, including engine, equipment
h. Gross receipts from lending activities by and spare parts thereof for domestic or
credit or multi-purpose cooperatives duly international transport operations and
registered with the Cooperative provided that (Sec. 109[S], NIRC);
Development Authority (Sec. 109[M], I. Exemption from VAT on the importation
NIRC); and local purchase of passenger and/or
cargo vessel shall be limited to those of
i. Services of banks, non-bank financial one hundred fifty tons (150) and above,
intermediaries performing quasi-banking including engine and spare parts of the
functions, and other non-bank financial said vessels
intermediaries (Sec. 109[U], NIRC); and II. Vessels to be imported shall comply with
the age limit requirements
j. Performance of services other than the Passenger and/or cargo-vessels
transactions mentioned in the preceding 15 years old;
paragraphs, the gross annual sales and/or Tanker-10 years old;
receipts do not exceed the amount of High speed passenger craft-5
One million five hundred thousand pesos years old
(P1, 500,000): Provided, That not later
than January 31, 2009 and every three (3) e. Importation of fuel, goods and supplies by
years thereafter, the amount herein persons engaged in international shipping or
stated shall be adjusted to its present air transport operations (Sec. 109[T], NIRC).
value using the Consumer Price Index as
published by the NSO (Sec. 109[V], NIRC); 4. Lease Of Property
3. Importation a. Lease of a residential unit with a monthly

a. Importation of personal and household rental not exceeding Ten thousand pesos
effects belonging to the residents of the (P10,000) Provided, That not later than
Philippines returning from abroad and January 31, 2009 and every three (3) years
nonresident citizens coming to resettle in thereafter, the amount herein stated shall
the Philippines: Provided, That such goods be adjusted to its present value using the
are exempt from customs duties under the Consumer Price Index as published by the
Tariff and Customs Code of the Philippines NSO (Sec. 109[Q], NIRC);
(Sec. 109[C], NIRC);
b. Lease of passenger or cargo vessels and
b. Importation of professional instruments and aircraft, including engine, equipment and
implements, wearing apparel, domestic spare parts thereof for domestic or
animals, and personal household effects international transport operations (Sec.
(except any vehicle, vessel, aircraft, 109[S], NIRC);
machinery, other goods for use in the
manufacture and merchandise of any kind in c. Lease of goods or properties or the
commercial quantity) belonging to persons performance of services other than the
coming to settle in the Philippines, for their transactions mentioned in the preceding
own use and not for sale, barter or paragraphs, the gross annual sales and/or
exchange, accompanying such persons, or receipts do not exceed the amount of One
arriving within ninety (90) days before or million five hundred thousand pesos (P1,
after their arrival, upon the production of 500,000): Provided, That not later than
evidence satisfactory to the Commissioner, January 31, 2009 and every three (3) years
TAXATION LAW TEAM:
thereafter, the amount herein stated shall

be adjusted to its present value using the
Consumer Price Index as published by the Sources of Input Tax
NSO. (Sec. 109[V], NIRC)
Q: What are creditable input taxes?
Summary of rules: A: The input tax evidenced by a VAT invoice or

a. Monthly rental P10,000 or less regardless official receipt issued in accordance with Section
of annual gross sales = VAT exempt and 113 of the NIRC on the following transactions shall
no percentage tax ( VAT-exempt be creditable against the output tax:
transactions shall pay no VAT neither 3% 1. Purchase or importation of goods:
percentage tax under Section 116 of a. For sale; or
NIRC) b. For conversion into or intended to
b. Monthly rental above P10,000 but annual form part of a finished product for
gross sales do not exceed P1.5M = VAT- sale including packaging materials; or
exempt but shall pay 3% percentage tax c. For use as supplies in the course of
under Section 116 of NIRC. business; or
c. Monthly rental above P10,000 and annual d. For use as materials supplied in the
gross sales exceed P1.5M = there shall be sale of service; or
VAT. e. For use in trade or business for
which deduction for depreciation or
Note: The foregoing enumerations are taken from Sec. amortization is allowed under this
109 of theNIRC as amended by RA 9337. There are 22 Code, except automobiles, aircraft
exemptions under the law but in this enumeration the and yachts.
said exemptions are classified into sale of goods, sale
of services, importation and lease of property. Thus, 2. Purchase of services on which a VAT has
there are some repetitions in the enumeration as they
been actually paid. (Sec. 110 [A][1], NIRC)
were classified into four categories.
Q: What are included as input tax credits?
INPUT TAX AND OUTPUT TAX, DEFINED
A:
1. Transactions deemed sale
Q: Define Input Tax.
2. Transitional input tax credits
3. Presumptive input tax credits
A: It means the value-added tax due from or paid
4. Purchase of real properties for which a
by a VAT-registered person in the course of his
VAT has actually been paid
trade or business on importation of goods or local
5. Transitional input tax credits allowed under
purchase of goods or services, including lease or
the transitory and other provisions of the
use of property, from a VAT-registered person. It
Regulations
shall also include the transitional input tax
6. Creditable Withholding VAT on payments
determined in accordance with Section 111 of the
to non-residents
NIRC. (Sec.110 [A][3], NIRC)
Q: What is transitional input tax credit?
Q: Is input tax a property right within the
Constitutional purview of the due process clause?
A: It is an input tax credit allowed to person who
becomes liable to value-added tax or any person
A: No. A VAT-registered persons entitlement to the
who elects to be a VAT-registered person. The
creditable input tax is a mere statutory privilege
allowed input tax shall be whichever is higher
which may be limited or removed by law.
between:
1. 2% of the value of the taxpayers
Q: Define Output Tax.
beginning inventory of goods, materials
and supplies;or
A: It means the value-added tax due on the sale or
2. The actual value-added tax paid on such
lease of taxable goods or properties or services by
goods. (Sec.111[A], NIRC)
any person registered or required to register under
Sec. 236 of the NIRC. (Sec. 110[A][3], NIRC)

SANTO TOMAS
Q: What is the purpose of transitional input tax prepare it for special use to which it could not have
credit? been put in its original form or condition.
A: It operates to benefit newly VAT-registered

persons, whether or not they previously paid taxes Persons Who Can Avail of Input Tax Credit
in the acquisition of their beginning inventory of
goods, materials, and supplies. During that period Q: To whom shall the input tax be creditable?
of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the A:
impact of the VAT on the taxpayer. At the very 1. To the purchaser upon consummation of
beginning, the VAT-registered taxpayer is obliged to sale and on importation of goods or
remit a significant portion of the income it derived properties; and
from its sales as output VAT. The transitional input 2. To the importer upon payment of the VAT
tax credit mitigates this initial diminution of the prior to the release of the goods from the
taxpayers income by affording the opportunity to custody of the Bureau of Customs.
offset the losses incurred through the remittance of However, in the case of purchase of
the output VAT at a stage when the person is yet services, lease or use of properties, the
unable to credit input VAT payments. (Fort input tax shall be creditable to the
Bonifacio Development Corporation v. CIR, G.R. No. purchaser, lessee or licensee upon
158885; G.R. No. 170680, Apr. 2, 2009) payment of the compensation, rental,
royalty or fee. (Sec. 110 [A][2], NIRC)
Q: Is the allowance for transitional input tax credit
applicable to real property?
DETERMINATION OF OUTPUT/INPUT TAX; VAT
A: Yes. Under Sec. 105 of the old NIRC (now Sec. PAYABLE; EXCESS INPUT TAX CREDITS
111[A]), the beginning inventory of goods forms
part of the valuation of the transitional input tax Q: How is output tax determined?
credit. Goods, as commonly understood in the
business sense, refer to the product which the VAT- A: Sellers of goods or properties:
registered person offers for sale to the public. With Gross selling price (X) VAT rate
respect to real estate dealers, it is the real
properties themselves which constitute their Sellers of service:
goods. Such real properties are the operating Gross receipts (X) VAT rate
assts of the real estate dealer. (Ibid.)
Q: What is presumptive input tax credit? Determination of Input Tax Creditable
A: It is an input tax credit allowed to persons or Q: How is creditable input tax determined?
firms engaged in the:
1. processing of: A: The sum of the excess input tax carried over
a. sardines from the preceding month or quarter and the input
b. mackerel tax creditable to a VAT-registered person during the
c. milk taxable month or quarter shall be reduced by the
2. manufacturing of: amount of claim for refund or tax credit for VAT and
a. refined sugar other adjustments, such as purchase returns or
b. cooking oil allowances and input tax attributable to exempt
c. packed noodle based instant meals sale.
The allowed input tax shall be equivalent to four The claim for tax credit referred to in the foregoing
percent (4%) of the gross value in money of their paragraph shall include not only those filed with the
purchases of primary agricultural products which BIR but also those filed with other goverment
are used as inputs to their production. (Sec. 111 [B], agencies, such as the Board of Investments or the
NIRC) Bureau of Customs [Sec. 110 [C], NIRC]
Note: The term 'processing' shall mean pasteurization, Allocation of Input Tax on Mixed Transactions
canning and activities which through physical or
chemical process alter the exterior texture or form or Q: May a VAT- registered person who is also
inner substance of a product in such manner as to engaged in transactions not subject to VAT be
allowed tax credit?
TAXATION LAW TEAM:
A: Output tax
A: Yes. A VAT-registered person who is also LESS: Input tax__________
engaged in transactions not subject to the VAT shall VAT payable/ ecess tax credits
be allowed tax credit as follows:
1. Total input tax which can be directly Q: What are the rules in computing VAT?
attributed to transactions subject to
value-added tax; and A:
2. A ratable portion of any input tax which 1. If at the end of any taxable quarter the
cannot be directly attributed to either output tax exceeds the input tax The
activity. (Sec. 110 [A][3], NIRC) excess shall be paid by the VAT-registered
person.
Q: How is input tax allocated on mixed
transactions? 2. If the input tax exceeds the output tax
The excess shall be carried over to the
A: A VAT-registered person who is also engaged in succeeding quarter or quarters.
transactions not subject to VAT shall be allowed to
recognize input tax credit on transactions subject to Note: Any input tax attributable to the purchase of
VAT as follows: capital goods or to zero-rated sales by a VAT-
registered person may at his option be refunded or
1. All the input taxes that can be directly credited against other internal revenue taxes, subject
attributed to transactions subject to VAT to the provisions of Section 112.
may be recognized for input tax credit:
provided, that input taxes which are
directly attributable to VAT taxable sales SUBSTANTIATION OF INPUT TAX CREDITS
of goods and services from the
Government or any of its political Q: What are the substantiation requirements for
subdivisions, instrumentalities or input tax credits?
agencies, including GOCCs shall not be A:
credited against output taxes arising from
sales to non-government entities. Transactions Required Support
Input taxes on domestic VAT invoice
purchases of goods or
2. If any input tax cannot be directly properties made in the
attributed to either a VAT taxable or VAT- course of trade or
exempt transaction, the input tax shall be business
pro-rated to the VAT taxable and VAT-
exempt transactions; only the ratable
portion pertaining to transactions subject
to VAT may be recognized for input tax Input tax on purchases of
credit real property
a. Cash/deferred basis Public instrument (i.e.,

Note: deed of absolute sale,
Input tax attributable to VAT-exempt sales shall not be deed of conditional sale,
allowed as credit against the output tax but should be contract/agreement to
treated as part of cost of goods sold sell, etc.) together with
the VAT invoice for the
For persons engaged in both zero-rated sales and non- entire selling price and
zero rated sales, the aggregate input taxes shall be non-VAT Official Receipt
allocated ratably between the zero-rated and non-zero for the initial and
rated sales succeeding payments.
Public instrument and

VAT Official Receipt for
Determination of the output tax and VAT payable
b. Installment basis every payment
and computation of VAT payable or excess tax
credits Input tax on domestic VAT Official Receipt
purchases of service
Q: How to compute the VAT payable?
Input tax on importation Import entry or other
of goods equivalent document
showing actual payment

SANTO TOMAS
of VAT on the imported v. CIR, G.R. No. 125704, Aug. 29, 1998) (2001 Bar
goods Question)
Transitional input tax Inventory of goods as
shown in a detailed list to
be submitted to the BIR
Period to File Claim/Apply for Issuance of TCC
Input tax on deemed sale Required invoices
transaction
Input tax from payments Monthly Remittance Q: When must the options be availed of?
made to non-residents Return of Value Added
(such as for services, Tax Withheld (BIR Form A: The claim, which must be in writing, for both
rentals, or royalties) 1600) filed by the resident cases, must be filed within 2 years after the close of
payor in behalf of the the taxable quarter when the sales were made
non-resident evidencing apply for:
remittance of VAT due 1. The issuance of a tax credit certificate;
which was withheld by
2. Refund of creditable input tax due or paid
the payor.
Advance VAT on sugar Payment order showing attributable to such sales. (Ibid.)
payment of the advance
VAT Note:
The creditable input tax allowed to be refunded does
not include transitional input tax
REFUND OR TAX CREDIT OF EXCESS INPUT TAX
In case the taxpayer is engaged in zero-rated and also
in taxable or exempt sale, and the amount of
Who may claim for refund/apply for issuance of
creditable input tax due or paid cannot be directly and
tax credit certificate (TCC) entirely attributed to any one of the transactions, it
shall be allocated proportionately on the basis of the
Q: What are the options available to a VAT- volume of sales
registered person, whose sales are zero-rated or
effectively zero-rated?
Manner of Giving Refund
A:
1. To claim for tax credit; or Q: What is the manner of giving refund?
2. To claim for refund. (Sec. 112[A], NIRC)
A: Refund shall be made upon warrants drawn by
Q: For a claim for tax refund to prosper, what must the Commissioner or by his duly authorized
the VAT-registered entity prove? representative without the necessity of being
countersigned by the Chairman of Commission on
A: The taxpayer must prove the following: Audit (COA). Refund shall be subject to post audit
1. That it is a VAT-registered entity; by COA. (Sec 112( D) NIRC)
2. It must substantiate the input VAT paid by
purchase invoices or official receipts
(Commissioner v. Manila Mining INVOICING REQUIREMENTS
Corporation, G.R. No. 153204, Aug. 31,
2005). Invoicing requirements in general
Q: May a taxpayer who has pending claims for VAT Q: What is required from VAT-registered person to
input credit or refund, set off said claims against issue?
his other tax liabilities? Explain your answer.
A: A VAT-registered person shall issue:
A: No. Set-off is available only if both obligations 1. A VAT invoice for every sale, barter or
are liquidated and demandable. Liquidated debts exchange of goods or properties; and
are those where the exact amounts have already 2. A VAT official receipt for every lease of
been determined. In the instant case, a claim of the goods or properties, and for every sale,
taxpayer for VAT refund is still pending and the barter or exchange of services. (Sec.
amount has still to be determined. A fortiori, the 113[A], NIRC)
liquidated obligation of the taxpayer to the
government cannot, therefore, be set-off against Q: What are the information contained in the
the unliquidated claim which the Taxpayer VAT invoice or VAT official receipts?
conceived to exist in his favor. (Philex Mining Corp.
TAXATION LAW TEAM:
A: Sample Receipt
1. A statement that the seller is a VAT-
registered person, and the taxpayer's ABC CORPORATION
identification number (TIN); 40 Katipunan Ave. Quezon City
2. The total amount which the purchaser VAT Reg. TIN:456-378-112-037-000
pays or is obligated to pay to the seller
April 20, 2009
with the indication that such amount Sold To: Tommy Corporation
includes the value-added tax: Provided Address: 44 Torro St. Project 8, Quezon City
that: TIN:478-808-000VAT
a. The amount of the tax shall be
shown as a separate item in the Unit Transaction
Description Qty. Total
invoice or receipt; Cost Type
b. If the sale is exempt from value- Pad Paper
40 2, 500 100,000 VATable
added tax, the term "VAT-exempt 100pcs/box
sale" shall be written or printed Poultry
Product VAT exempt
prominently on the invoice or 120 30 3, 600
Eggs per Sale
receipt; dozen
c. If the sale is subject to zero percent Native
(0%) value-added tax, the term products 56 8, 000 448, 000 Zero-rated
"zero-rated sale" shall be written or for export
printed prominently on the invoice
or receipt; Vatable sales--------------------------------------- 100,000
d. If the sale involves goods, properties Vat exempt sale------------------------------------ 3, 600
or services some of which are subject Zero-rated sale------------------------------------- 448,000
Total Sales------------------------------------------ 551,600
to and some of which are VAT zero-
12% Vat--------------------------------------------- 12,000
rated or VAT-exempt, the invoice or Total TAXPAYER Payable ----------------------- 563,600
receipt shall clearly indicate the
breakdown of the sale price between
its taxable, exempt and zero-rated Q: What are the accounting requirements for VAT
components, and the calculation of registered persons?
the value-added tax on each portion
of the sale shall be shown on the A: All persons subject to the VAT under Sec. 106
invoice or receipt: "Provided, That and 108 shall, in addition to the regular accounting
the seller may issue separate records required, maintain a subsidiary sales
invoices or receipts for the taxable, journal and subsidiary purchase journal on which
exempt, and zero-rated components the daily sales and purchases are recorded. (Sec.
of the sale. 113[C], NIRC)
3. The date of transaction, quantity, unit
cost and description of the goods or
properties or nature of the service; and Consequence of Issuing Erroneous VAT Invoice or
4. In the case of sales in the amount of one VAT Official Receipt
thousand pesos (P1, 000) or more where
the sale or transfer is made to a VAT- Q: What are the consequences of issuing an
registered person, the name, business erroneous VAT invoice/VAT official receipt?
style, if any, address and taxpayer
identification number (TIN) of the A:
purchaser, customer or client. (Sec. 1. In case of non-VAT registered person who
113[B], NIRC) issues a VAT invoice/receipt shall be held
liable to:
a. payment of percentage tax if
applicable;
b. payment of VAT without input tax;
c. 50% surcharge on tax due; and
d. the purchaser shall be allowed to
recognize an input tax credit
provided that the invoice/official
receipt contains the required
information.

SANTO TOMAS
2. In case of VAT-registered who issues a A: GR: VAT-registered persons shall pay the VAT on
VAT invoice/official receipt for a VAT- a monthly basis
exempt sale without the words VAT
Exempt Sale shall be held liable to pay XPN: Persons whose registration has been
12% VAT. (Sec. 113[D], NIRC) cancelled in accordance with Section 236 who shall
pay the tax due thereon within 25 days from the
date of cancellation of registration.
Filing of Return and Payment
Note: Under Section 236 of NIRC, a VAT registered
Q: Who are required to file a VAT return? person may cancel his registration for VAT if:
a. He makes written application and can
A: demonstrate to the commissioners
1. Every person or entity who in the course satisfaction that his gross sales or receipts
of trade or business, sells or leases goods, for the following twelve (12) months, other
properties, and services subject to VAT, if than those that are exempt under Section
109(A) to (U), will not exceed one million
the aggregate amount of actual gross
five hundred thousand pesos (P1,500,000)
sales or receipts exceed P1.5 million for
or
any twelve month period b. He has ceased to carry on his trade or
2. A person required to register as VAT business, and does not expect to
taxpayer but failed to register recommence any trade or business within
3. Any person who imports goods the next twelve (12) months.
4. Professional practitioners
The cancellation of registration will be effective
Note: Services of Professional Practitioners are subject from the first day of the following month.
to:
VAT if the gross professional fees exceed P1.5 million
for a 12-month period;or WITHHOLDING OF FINAL VAT ON SALES TO
GOVERNMENT
3% percentage tax if the gross professional fees does
not exceed P1.5 million for a 12-month period
Q: State the rule regarding the withholding of Final
(Revenue Regulation No. 16-2005)
VAT on sales to government.
Q: State the rules regarding filing of return.
A: The Government or any of its political
subdivisions, instrumentalities or agencies,
A:
including government owned or controlled
GR: Every person liable to pay the VAT shall file a
corporations (GOCCs) shall, before making payment
quarterly return of the amount of his gross sales
on account of its purchase of goods and/or services
or receipts within 25 days following the close of
taxed at 12% shall deduct and withhold a final VAT
each taxable quarter prescribed for each
of 5% of the gross payment. (Section 114(C), NIRC)
taxpayer.
Note:
XPN: Any person, whose registration has been The five percent (5%) final VAT withholding rate shall
cancelled in accordance with Section 236, shall represent the net VAT payable to the seller
file a return:
1. Within 25 days from the date of The remaining seven percent (7%) effectively accounts
cancellation of registration; for the standard input VAT for sales of goods or
2. Provided, that only one consolidated services to government or any of its political
return shall be filed by the taxpayer for subdivisions, instrumentalities or agencies including
his principal place of business or head GOCCs, in lieu of the actual Input VAT directly
office and all branches. (Sec. 114[A], attributable or ratably apportioned to such sales.
NIRC)
Should actual input VAT attributable to sale to
Note: VAT-registered shall pay the VAT on a monthly government exceed seven percent (7%) of gross
basis. The monthly return shall be filed not later than payments, the excess may form part of the sellers
the 20th day following the end of each month. expense or cost
Q: When should VAT be paid? If actual input VAT attributable to sale to government
is less than 7% of gross payment, the difference must
be closed to expense or cost.
TAXATION LAW TEAM:
COMPLIANCE REQUIREMENTS A: The following are exempted from payment of

annual registration fee:
Administrative Requirements 1. Cooperatives;
2. Individuals earning purely compensation
Registration Requirements income (locally or abroad);
3. Overseas workers. (Sec. 236B, NIRC)
Q: How many times should a person subject to any
internal tax revenue register? Q: What shall be registered?
A: Once. A: He shall register each type of internal revenue

tax for which he is obligated, file a return and pay
Q: Where shall he register? such taxes. He shall also update the registration
information with the Revenue District Office where
A: With the appropriate Revenue District Officer. he is registered, specifying any changes in tax type
and other details. (Sec. 236C, NIRC)
Q: When shall he register?
Q: What shall the BIR do after the taxpayer
A: One shall register: registers?
1. Within 10 days from date of employment;
or A: The BIR shall assign a Taxpayer Identification
2. On or before commencement of business; Number (TIN) which the taxpayer shall indicate in
or every return, statement and document filed with
3. Before payment of any tax; or the BIR.
4. Upon filing of a return, statement, or
declaration as required in the code. (Sec. Q: What is the General Rule in the Cancellation of
236, NIRC) Registration?
Q: What shall the registration contain? A: The registration of any person who ceases to be
liable to a tax type shall be cancelled upon filing
A: It shall contain the taxpayers name, style, place with RDO an application for registration
of business, and such other information as may be information update. (Sec. 236 F1)
required by the Commissioner.
Q: What is the penalty for failure to register?
Q: What is a facility?
A: The Commissioner has the power to suspend the
A: Facility may include but not limited to sale business of any person who fails to register.
outlets, places of production, warehouses or
storage places.
Persons Required To Register For VAT
Q: What is required of a person who maintains a
head office, branch or facility? Q: Who are the persons required to register for
VAT?
A: He shall register with the Revenue District Officer
who has jurisdiction over the head office, branch or A: Every person who in the course of trade of
facility. (Sec. 236, NIRC) business sells, barter, or exchanges goods or
properties, or engages in the sale or exchange of
Q: How much is the annual registration fee? goods, services subject to VAT if:
A: An annual registration fee in the amount of P500 1. The Gross sale or gross receipts have
for every separate or distinct establishment or exceeded 1.5 million or
place of business, including facility types where 2. There are reasonable grounds to believe
sales transactions occur, shall be paid upon that his gross sales in the next 12 month
registration and every year thereafter on or before shall exceed 1.5 million.
the last day of January. (Sec. 236B, NIRC)
Q: Who is a VAT-registered person?
Q: Who are exempted from the annual registration
fee? A: Any person who has registered VAT as a tax type
in accordance with Subsection C shall be referred to

SANTO TOMAS
as a VAT-registered person who shall be assigned Q: When is the cancellation effective?

only one TIN. (Sec. 236 H)
A: It is effective from the first day of the following
Q: What is the effect of a franchise grantee of month. (Sec. 236[F2], NIRC)
radio and TV broadcasting, whose annual gross
receipts for the preceding year do not exceed ten Q: What are the other instances where a VAT-
million, who opts for VAT registration? registered person may apply for cancellation of
registration?
A: The registration becomes irrevocable.
A:
Q: Who may optionally register for VAT? 1. A change of ownership, in case of a single
proprietorship
A: Any person who is not required to register for 2. Dissolution of a partnership or
VAT under Subsection G may elect to register for corporation
VAT by registering with the RDO that has 3. Merger or consolidation with respect to
jurisdiction over the head office of that person, and the dissolved corporation
paying the annual registration fee in Subsection B. 4. A person who has registered prior to
(Sec. 236H, NIRC) commencement of a planned business,
but failed to actually start his business
Note: Under RR-16-05
1. Any person who is VAT-exempt under Sec. 4. Q: What is the tax on persons who are exempt
109-1 (VAT- exempt transactions) may elect from VAT?
to be Vat-registered.
2. Any person who is VAT-registered but enters A: Persons who are exempt from the payment of
into transaction which are exempt from VAT VAT and who is not a VAT-registered person shall
(mixed transactions) may opt that the VAT pay a tax equivalent to three percent (3%) of his
apply to his transaction which would have
gross quarterly sales or receipts, except
been exempt under Section 109 (2) of the
cooperatives shall not be held liable to pay for
Tax Code. Registration is irrevocable for
three years.
three percent (3%) gross receipts tax.
3. Franchise grantees of radio and television
broadcasting with annual gross receipts of
the preceding year do not exceed 10 million Supplying Taxpayer Identification Number (TIN)
may opt for VAT registration. Registration is
irrevocable. Q: How many TI numbers shall a tax payer must
have?
Q: What is the effect of optional registration?
A: Only one TIN. Any person who secures more
A: He shall not be entitled to cancel his registration than one TIN shall be criminally liable. (Sec. 236 [I],
under Subsection F 2 for the next 3 years, except a NIRC)
franchise grantee, with gross receipts of 10 million
and below, who opts for VAT registration.
Issuance of Reciepts of Sales or Commercial
Q: What is required for the cancellation of VAT Invoices
registration?
Q: When are receipts or Sales or Commercial
A: Invoices issued?
1. The VAT-registered person makes written
application and demonstrates to the A: All persons subject to an internal revenue tax
Commissioners satisfaction that his gross shall, for each sale or transfer of merchandise or for
sales or receipts for the following 12 services rendered valued at 25 pesos or more, issue
months, other than those that are exempt duly registered receipts or sales or commercial
under Section 109 1A to U, will not invoices, prepared at least in duplicate, showing the
exceed P1.5 million. date of transaction, quantity, unit cost and
2. He has ceased to carry on his trade or description of merchandise or nature of service.
business and does not expect to (Sec. 237, NIRC)
recommence any trade or business within
the next 12 months. (Sec. 236 [F2], NIRC) Q: How many years should the issuer and
purchaser keep the receipts?
TAXATION LAW TEAM:
d.
If the sale involves goods,
A: They shall keep the receipts for a period of three properties or services
years from the close of the taxable year in which some of which are subject
such invoice was issued. (Sec. 237, NIRC) to and some of which are
VAT zero-rated or VAT-
Q: Is there a need for an authority to print receipts exempt, the invoice or
from the BIR? receipt shall clearly
indicate the breakdown of
A: Yes. All persons who are engaged in business the sale price between its
shall secure from the BIR an authority to print taxable, exempt and zero-
receipts or sales or commercial invoices before a rated components, and the
printer can print the same. (Sec. 238, NIRC) calculation of the value-
added tax on each portion
Q: What are required in the printing of receipts? of the sale shall be shown
on the invoice or receipt:
A: Receipts must be serially numbered and shall "Provided, That the seller
show the name, style, TIN and the business address may issue separate
of the person. (Sec. 238, NIRC) invoices or receipts for the
taxable, exempt, and zero-
Q: What are the accounting requirements for VAT rated components of the
registered persons? sale.
3. The date of transaction, quantity, unit
A: All persons subject to the VAT under Sec. 106 cost and description of the goods or
and 108 shall, in addition to the regular accounting properties or nature of the service; and
records required, maintain a subsidiary sales 4. In the case of sales in the amount of one
journal and subsidiary purchase journal on which thousand pesos (P1, 000) or more where
the daily sales and purchases are recorded. (Sec. the sale or transfer is made to a VAT-
113[C], NIRC) registered person, the name, business
style, if any, address and taxpayer
Q: What are the information contained in the VAT identification number (TIN) of the
invoice or VAT official receipts? purchaser, customer or client. (Sec.
113[B], NIRC)
A:
1. A statement that the seller is a VAT- Q: What are the consequences of issuing an
registered person, and the taxpayer's erroneous VAT invoice/VAT official receipt?
identification number (TIN);
2. The total amount which the purchaser A:
pays or is obligated to pay to the seller 1. In case of non-VAT registered person
with the indication that such amount who issues a VAT invoice/receipt
includes the value-added tax: Provided shall be held liable to:
that: a. payment of percentage tax if
a. The amount of the tax shall applicable;
be shown as a separate b. payment of VAT without input
item in the invoice or tax;
receipt; c. 50% surcharge on tax due; and
b. If the sale is exempt from d. the purchaser shall be allowed
value-added tax, the term to recognize an input tax credit
"VAT-exempt sale" shall be provided that the
written or printed invoice/official receipt contains
prominently on the invoice the required information.
or receipt; 3. In case of VAT-registered who issues
c. If the sale is subject to zero a VAT invoice/official receipt for a
percent (0%) value-added VAT-exempt sale without the words
tax, the term "zero-rated VAT Exempt Sale shall be held
sale" shall be written or liable to pay 12% VAT. (Sec. 113[D],
printed prominently on the NIRC)
invoice or receipt;

SANTO TOMAS
Exhibition Of Certificate Of Payment At Place Of A: A tax return is a report made by the taxpayer to
Business the BIR on all gross income received during the
taxable year, the allowable deduction including
Q: Is the certificate of payment required to be exemptions, the net taxable income, the income tax
exhibited? rate, the income tax due, the income tax withheld,
if any, and the income tax still to be paid or
A: Yes. The certificate or receipts showing payment refundable.
of taxes issued to a person engaged in a business
subject to an annual registration fee shall be kept Individual Tax Return
conspicuously exhibited in plain view in or at the
place where the business is conducted. Peddlers are Q: Who are required to file an Income Tax Return
required to show the certificate upon demand. (Sec. (ITR)?
241, NIRC)
A: The following individuals are required to file an
income tax return:
Continuation Of Business Of Deceased Person a. Resident citizens receiving
income from sources within or outside
Q: What is required in cases of continuation of the Philippines
business of a diseased person or transfer of i. Individuals deriving
ownership or change of name of business compensation income
establishment? from 2 or more
employers,
A: The person interested in the estate should concurrently or
submit to the BIR inventories of goods and stocks successively at anytime
had at the time of such death, transfer or change of during the taxable year;
name. (Sec. 242, NIRC) ii. Employees deriving
compensation income
Q: In case of continuing the business of a deceased regardless of the
person, is there an additional fee to be paid? amount, whether from
a single or several
A: None. No additional payment shall be required employers during the
for the residue of the term of which the tax was calendar year, the
paid. (Sec. 242, NIRC) income tax of which
has not been withheld
correctly resulting to
Removal of business to other location collectible or
refundable return;
Q: Is the taxpayer required to pay another annual iii. Employees whose
registration fee in case his business is transferred monthly gross
to another place? compensation income
does not exceed 5,000
A: Any business for which the annual registration or the statutory
fee has been paid may be removed and continued minimum wage,
in any other place without the payment of whichever is higher,
additional tax during the term for which the and opted for non-
payment was made subject to the rules prescribed withholding of tax on
by the Secretary of Finance and upon said income;
recommendation of the Commissioner. (Sec. 243, iv. Individuals deriving
NIRC) non-business, non-
professional related
income in addition to
TAX RETURNS compensation income
not otherwise subject
Income Tax Return to a final tax;
v. Individuals receiving
Q: What is a tax return? purely compensation
income from a single
employer, although the
TAXATION LAW TEAM:
income of which has XPNs:

been correctly 1. when the donors tax has been paid
withheld, but whose on such property or
spouse is not entitled 2. when the transfer of such property
to substituted filing. is exempt from donors tax. (Sec. 51
b. Non-resident citizens [E], NIRC)
receiving income from sources within the
Philippines. Q: Who may file a return for the disabled
c. Citizens working abroad taxpayer?
receiving income from sources within the
Philippines. A: If the taxpayer is unable to make his own return,
d. Aliens, whether resident or the return may be made by his duly authorized
not, receiving income from sources within agent or representative or by the guardian or other
the Philippines. person charged with the care of his person or
property, the principal and the representative or
Q: Who are the individuals not required to file an guardian assuming the responsibility of making the
ITR? return and incurring penalties provided for
erroneous, false or fraudulent returns. (Sec. 51[F],
A: NIRC)
1. An individual whose gross income does
not exceed the total personal and Q: Where to file the ITR?
additional exemptions;
2. An individual with respect o pure A: Except in cases where the Commissioner
compensation derived from sources otherwise permits, the return shall be filed with any
within the Philippines, the income tax on authorized agent bank, Revenue District Officer,
which has been correctly withheld; Collection agent or duly authorized Treasurer of the
3. An individual whose sole income has been municipality or city where such person has his legal
subjected to final withholding tax; residence or principal place of business or if there
4. A minimum wage earner or who are be no legal residence or principal place of business,
exempt from income tax. (Sec.51, NIRC) with the Office of the Commissioner. For non-
resident citizens, with the Philippine Embassy or
Note: Individuals not required to file an income tax nearest Philippine Consulate or mailed directly to
return may nevertheless be required to file an CIR. (Sec.51 [B], NIRC)
information return. Under R.A. 9504, minimum wage
earners are granted full tax exemption from paying Q: When to file the ITR?
income tax.
A: The return of any individual required to file the
Q: What is the rule on married individuals tax th
same shall be filled on or before April 15 day of
return? each year covering income for the preceding
taxable year.
A: Married individuals, whether citizens, resident,
or non-resident aliens, who do not derive income However, individuals who are self-employed or in
purely from compensation, shall file a return for the practice of a profession are required to file and pay
taxable year to include the income of both spouses. estimated income tax every quarter as follows:
If it is impracticable to file one return, each spouse 1. First Quarter - April 15
may file a separate return of income but the returns 2. Second Quarter - August 15
so filed shall be consolidated by the Bureau for 3. Third Quarter - November 15
purposes of verification for the taxable year. (Sec. 4. Final Quarter - April 15 of the following
51 [D], NIRC) year
Q: What is the rule on income of unmarried Q: When do individuals subject to capital gains tax
minors / children? file a tax return?
A: A:
GR: The income of unmarried minors derived 1. From the sale or exchange of shares
from property received from a living of stock not traded thru a local stock
parent shall be included in the return of exchange as prescribed under
the parent. Section 24 (C) shall file a return

SANTO TOMAS
within 30 days after each transaction A:

and a final consolidated return on or 1. Employee receives purely compensation
before April 15 of each year covering income, regardless of amount, during the
all stock transactions of the taxable year;
preceding taxable year; and 2. He receives the income only from one
2. From the sale or disposition of real employer;
property under Section 24 (D) shall 3. Income tax withheld is equal to income
file a return, within 30 days following tax due;
each sale or other disposition. (Sec. 4. Employer filed information return
51 [C][2], NIRC) showing the income tax withheld on
employees compensation income. (RR No.
Q: What is the confidentiality rule with respect to 3-2002)
tax returns filed with the BIR?
A: This means that although Sec. 71 of the NIRC Corporate Returns

provides that the tax returns shall constitute public
records, it is necessary to know that these are Q: Who are required to file a Corporate Tax
confidential in nature and may not be inquired into Return?
in unauthorized cases under the pain of penalty
provided for in Sec. 270 of the NIRC. A:
GR: Every corporation subject to tax under the
Note: For conviction of each act or omission, the NIRC shall file a corporate tax return.
penalty of fine of not less than P50,000 but not more
than P100,000 or imprisonment of not less than 2 XPN: Foreign corporations not engaged in trade
years but not more than 5 years. or business in the Philippines (Sec. 52, NIRC)
Q: What are the instances wherein inquiry into the Q: What are the requirements for corporations in
income tax returns of taxpayers may be filing their returns?
authorized?
A: Every corporation subject to the tax under the
A: Inquiry into the ITR of taxpayers may be had code, except foreign corporation not engaged in
when: trade or business, shall render, induplicate, a true
1. the inspection of the return is authorized and accurate quarterly income tax return and final
upon the written order of the President of or adjustment return. The returns shall be filed by
the Philippines; the president, vice-president or other principal
2. the inspection is authorized under officer, and shall be sworn to by such officer and by
Finance Regulation No. 33 of the the treasurer or assistant treasurer. (Sec. 52, NIRC)
Secretary of Finance;
3. the production of the tax return is a Q: What shall be the accounting period that a
material evidence in a criminal case corporation may employ as its basis for filing its
where the Government is interested in annual income tax return?
the result;
4. the production or inspection thereof is A: A corporation may employ either a calendar year
authorized by the taxpayer himself. or fiscal year, provided, that the corporation may
not change the accounting period employed
Q: What is substituted filing? without prior approval from the Commissioner in
accordance with the provisions os Section 47 of the
A: It is when the employers annual return may be NIRC. (Sec. 52 [B])
considered as the substitute Income Tax Return
(ITR) of an employee inasmuch as the information Q: What is the rule on the declaration of quarterly
provided in his income tax return would exactly be corporate income tax?
the same information contained in the employers
annual return. A: Every corporation shall file in duplicate a
quarterly summary declaration of its gross income
Q: What are the conditions for the substitute filing and deductions on a cumulative basis for the
of ITR? preceding quarter or quarters upon which the
income tax shall be levied, collected and paid. The
tax so computed shall be decreased by the amount
TAXATION LAW TEAM:
of tax previously paid or assessed during the A: The two year period shall be computed from the
preceding quarters and shall be paid not later than time of filing the adjustment return or annual
60 days from the close of each of the 3 quarters of income tax return and final payment of income tax.
the taxable year, whether calendar or fiscal year. (Atlas Consolidated v. CIR, June 8, 2007)
(Sec. 75, NIRC)
Q: When does a corporation file the income tax
Q: What is the Final Adjustment Return? return?
A: It is a return that covers the total taxable income A: The corporate quarterly declaration shall be filed
of a corporation for the preceding calendar or fiscal within sixty days (60) following the close of each of
year. The quarterly tax payments are in the nature the first three quarters of the taxable year. (Sec.
of advances or portions of the annual income tax 77[B], NIRC)
due. They have to be adjusted at the end of the
calendar or fiscal year through the Final Adjustment The final adjustment return shall be filed on or
return. before the 15th day of April, or on or before the 15th
day of the fourth month following the close of the
Q: What is the rule as regards the declaration by a fiscal year, as the case may be. (Sec. 77[B], NIRC)
corporation of its income adopting a final
adjustment return? For return on capital gains realized from sale of
shares of stocks not traded in the local stock
A: Every corporation liable to tax under Section 27 exchange, the corporation shall file a return 30 days
shall file a final adjustment return covering the after each transaction and a final consolidated
taxable income for the preceding calendar or fiscal return of all transactions during the taxable year on
th th
year. or before the 15 day of the 4 month following
the close of the taxable year. (Sec. 52[D], NIRC)
Q: What are the options of the corporation if the
sum of the quarterly tax payments made during Q: Where does a corporation file the tax returns?
the taxable year is not equal to the total tax due
on the entire taxable year? A: The quarterly income tax return and final
adjustment return shall be filed with the authorized
A: agent banks or Revenue District Officer or
1. Pay the balance of tax still due; or Collection agent or duly authorized treasurer of the
2. Carry-over the excess credit; city or municipality having jurisdiction over the
3. Be credited or refunded with the excess location of the principal office of the corporation
amount paid, as the case may be. (Sec. 76, filing the return or place where its main books of
NIRC) accounts and other data from which the return is
prepared are kept. (Sec. 77[A], NIRC)
Note: In case the corporation is entitled to a tax
credit or refund of the excess estimated quarterly Q: Is an extension of time allowed in the filing of
income taxes paid, the excess amount shown on its return?
final adjustment return may be carried over and
credited against the estimated quarterly income tax A: Yes. The Commissioner, may, in meritorious
liabilities for the taxable quarters of the succeeding cases, grant a reasonable extension of time for
taxable years. (Sec. 76, NIRC) filing returns of income (or final and adjustment
returns in case of corporations), subject to the
Q: Is the option of carry- over exclusive? provisions of Section 56 of the NIRC. (Sec.53, NIRC)
A: Yes. Once the option to carry-over and apply the Q: What is required from a Corporation
excess quarterly income tax against income tax due Contemplating Dissolution or Reorganization as
for the taxable quarters of the succeeding taxable regards the filing of return?
quarters has been made, such option shall be
considered irrevocable for the taxable period and A: Every corporation shall, within 30 days after the
no application for cash refund or issuance of tax adoption by the corporation of a resolution or plan
credit certificate shall be allowed. (Sec. 76, NIRC) for its dissolution; or for the liquidation of the
whole or any part of its capital stock, including a
Q: What is the importance of the Final Adjustment corporation which has been notified of possible
Return to the refund of erroneously paid taxes? involuntary dissolution by the SEC; or for its
reorganization, shall render a correct return to the

SANTO TOMAS
Commissioner, verified under oath, setting forth Such fiduciary or person filing the return for him or
the terms of such resolution or plan and such other it, shall take oath that he has sufficient knowledge
information as the Secretary of Finance, upon of the affairs of such person, trust or estate to
recommendation of the Commissioner, shall by enable him to make such return and that the same
rules and regulations, prescribe. (Sec. 52[C], NIRC) is, to the best of his knowledge and belief, true and
correct, and subject to the provisions applicable to
Note: The dissolving or reorganizing corporation, shall individual taxpayers under Title II of the NIRC.
prior to the issuance by the SEC of the certificate of
dissolution or Reorganization, secure a certificate of Note: The return made by or for one or two or more
tax clearance from the BIR which shall be submitted to joint fiduciaries filed in the province where such
the SEC. (Sec. 52[C], NIRC) fiduciaries reside, shall be a sufficient compliance with
the requirements of Sec. 65, NIRC.
Q: What is the rule on returns of receivers,
trustees in bankruptcy or assignees? Furthermore, trustees, executors, administrators and
other fiduciaries are indemnified against the claims or
A: In cases wherein receivers, trustees or assignees demands of every beneficiary for all payments of taxes
are operating the property or business of a which they shall be required to pay, and they shall
corporation, they shall make returns of net income have credit for the amount of such payments against
as and for such corporation, in the same manner the beneficiary or principal in any accounting which
and form as such organization is hereinbefore they make as such trustees or other fiduciaries. (Sec.
66, NIRC)
required to make returns. Any tax due on the
income as returned by receivers, trustees or
Estate Tax Return
assignees shall be assessed and collected in the
same manner as if assessed directly against the
Q: When is a notice of death required to be filed?
organizations of whose businesses or properties
they have custody or control. (Sec. 54, NIRC)
A: A notice of death is required to be filed:
1. In all cases of transfers subject to tax; or
Q: What is the rule on the returns of General
2. Even if exempt from tax, if gross value of
Professional Partnership?
estate exceeds P20,000. (Sec. 89, NIRC)
A: Every general professional partnership shall file,
Q: Who shall file the notice of death?
in duplicate, a return of its income, except income
exempt under Section 32 B, setting forth the items
A: Notice of death must be filed by the executor,
of gross income and of deductions allowed by this
administrator or any of the legal heirs, as the case
title, and the names, TIN, addresses and shares of
may be. (Sec. 89, NIRC)
each of the partners. (Sec. 55, NIRC)
Q: When must the notice of death be filed?
Note: A GPP is not subject to income tax, but it is
required to file a return of its income for the purpose
of furnishing information as to the share in the gains or A: It shall be filed within two (2) months after
profits which each partner shall include in his decedents death or within the same period after
individual return. The individual partner is taxable on qualifying as such executor or administrator. (Sec.
his distributive share of the net income of the 89, NIRC)
partnership, whether distributed or not, and are
required to include such distributive shares in their Q: To whom shall the notice be filed?
individual returns (Sec. 22, Regs. No. 2 as amended).
A: The notice shall be filed with the Commissioner.
Q: What are the rules governing Fiduciary (Sec. 89, NIRC)
Returns?
Q: When is an Estate Tax Return required?
A: Guardians, trustees, executors, administrators,
receivers, conservators and all persons or A: An estate tax return is required:
corporations, acting in any fiduciary capacity, shall 1. In all cases of transfers subject to tax;
render, in duplicate, a return of the income of the 2. Even though exempt, where gross value
person, trust or estate for whom or which they act, of estate exceeds P200,000;
in case such person, trust, estate has a gross 3. When the gross estate consists of
income of 20,000 pesos or over during the taxable registered or registrable property,
year. regardless of amount.(Sec.90, NIRC)
TAXATION LAW TEAM:
Note: Real property, motor vehicle, shares of stocks XPN:

and other similar properties are considered registered 1. Donation to NGO worth at least P50, 000
or registrable property. Provided, not more than 30% of which
will be used for administration purposes.
Q: Who shall file the Estate Tax Return? 2. Donation to any candidate, political party,
or coalition of parties
A: The return shall be filed by:
1. The executor, or administrator, or any of Q: Who shall file the notice of donation?
the legal heirs of the decedent, whether
resident or non-resident of the A: Any person making a donation shall file such
Philippines notice, unless the donation is specifically exempted
2. any person in actual or constructive under NIRC or other special laws. (Sec.103 [A],
possession of any property of the NIRC)
decedent.
Q: When must this return be filed?
Q: When must this return be filed?
A: Any person making a donation shall file a return
A: The return must be filed within six (6) months within 30 days after the date the gift is made.
from the decedent's death. (Sec. 90 [B]), NIRC) (Sec.103 [B], NIRC)
Note: Extension of time for the filing of the return, on Q: Where to file the return?
meritorious cases, may be allowed by the
Commissioner. The period of extension is limited to a A: The return must be filed with:
period not exceeding thirty (30) days. (Sec. 90 [C]), 1. AAB, RDO, RCO, or duly authorized
NIRC)
treasurer of the City or municipality
where the donor was domiciled at the
Q: Where must the return be filed?
time of the transfer;
2. If there is no legal residence in the
A:
Philippines, with the office of the
If it is a Resident Decedent
Commissioner;
i. Authorized Agent Bank (AAB) or
3. For gifts made by non-residents, with the
ii. Revenue District Officer (RDO),
Phil embassy or Consulate in the country
Collection Officer, or
where he is domiciled at the time of the
iii. Duly authorized Treasurer of the city
transfer or directly with the office of the
or municipality in which the
Commissioner. (Sec.103 [B], NIRC)
decedent was domiciled at the time
of his death, or
iv. Any other place where the CIR
VAT Return
permits the estate tax return to be
filed (Sec. 90 [D], NIRC)
Q: What is the rule governing the filing of a VAT
return?
If it is a Non-Resident Decedent
i. Office of the CIR
A: Every person liable to pay VAT shall file a
ii. Revenue District Officer or
quarterly return of the amount of his gross sales or
iii. Philippine Embassy or Consulate in
receipts within 25 days following the close of each
the country where decedent is
taxable quarter. However, a VAT-registered person
residing at the time of his/her death
shall pay the VAT on a monthly basis.
iv. Any other place where the CIR
permits the estate tax return to be
Any person, whose registration has been cancelled,
filed
shall file a return and pay the tax due within 25
days from the date of cancellation of registration;
Provided, that only one consolidated return shall be
Donors Tax Return
filed by the taxpayer for his principal place of
business or head and all his branches. (Sec. 114[A],
Q: Is a notice of donation required?
NIRC)
A:
GR: Notice of donation is not required.

SANTO TOMAS
A: Except as the Commissioner otherwise permits, due thereon before their departure. Upon failure to
the return shall be filed with the authorized agent file the return and pay the tax due, the Bureau of
bank, revenue collection officer or duly authorized Customs is authorized to hold the vessel and
city or municipal treasurer in the Philippines located prevent its departure until proof of payment of the
within the revenue district where the taxpayer is tax is presented or a sufficient bond is filed to
registered or required to register. (Sec. 114 [B], answer for the tax due. (Sec. 56 [A][1], NIRC)
NIRC)
XPN: When the tax due is in excess of Two
Thousand Pesos (P2,000.00), the taxpayer other
Withholding Tax Return than a corporation may elect to pay in two (2) equal
installments in which case:
Q: What is the rule as regards the filing of a. the first installment shall be paid at the
Withholding Tax Return? time the return is filed and
b. the second installment, on or before July
A: Taxes deducted and withheld under Sec.57 by 15 following the close of the calendar
withholding agents shall be covered by a return and year.
paid to, except in cases where the Commissioner
otherwise permits, an authorized agent bank, If any installment is not paid on or before the date
revenue district officer, collection agent or duly fixed for its payment, the whole amount of the tax
authorized treasurer of the city or municipality unpaid becomes due and payable, together with
where the withholding agent has his legal residence the delinquency penalties. (Sec. 56 [A][2], NIRC)
or place of business, or where the withholding
agent is a corporation, where the principal office is Q: What is the rule as regards the payment of
located. (Sec.58, NIRC) capital gains tax?
Note: The taxes deducted and withheld by the A: The total amount of tax imposed and prescribed
withholding agent shall be held as special fund in trust under Sec.24[C], 24[D], 27[E][2], 28[A][8][c], and
for the government until paid to the collecting officers. 28[B][5][c] shall be paid on the date the return is
filed; Provided, that if the seller submits proof of his
The return for final withholding tax shall be filed and intention to avail himself of the benefit of
the payment made within 25 days from the close of exemption of capital gains under existing special
each calendar quarter, while the return for creditable laws, no such payment shall be required.
withholding taxes shall be filed and payment made not
later than the last day of the month following the close
In case of failure to qualify for exemption, the tax
of the quarter during which the withholding was
made; Provided, that the Commissioner, with the
due on the gains realized from the original
approval of the Secretary of Finance, may require transaction shall immediately become due and
these withholding agents to pay or deposit the taxes payable, and subject to the penalties prescribed
deducted or withheld at more frequent intervals when under the rules and the NIRC.
necessary to protect the interest of the government.
(Sec.58[B], NIRC) If the seller, having paid the tax, submits such proof
of intent within 6 months from the registration of
the document transferring the real property, he
PAYMENT OF TAXES shall be entitles to a refund of such tax upon
verification of his compliance with the
Income Tax requirements for such exemption.
Q: What is the manner of paying income tax? In case the taxpayer elects and is qualified to report
the gin by installments under Sec.49 of the NIRC,
A: the tax due from each installment shall be paid
GR: Pay-as-you-file system. within 30 days from receipt of such payments.
(Sec.56 [A] [3], NIRC)
Note: It is a system where the income tax shown on
the return should be paid at the time the return is Note: No registration of any document transferring
filed. real property shall be effected by the Register of
deeds unless the Commissioner or his duly
In case of tramp vessels, the shipping agents and/or authorized representative has certified that such
the husbanding agents, and in their absence, the transfer has been reported, and the tax imposed, if
captains thereof are to file a return and pay the tax any, has been paid. (Sec.56 [A] [3], NIRC)
TAXATION LAW TEAM:
3. Any amount paid after the statutory due

Q: When does a corporation pay the income tax? date of the tax, but within the extension
period, shall be subject to interest but not
A: The income tax due on the corporate quarterly to surcharge. (Sec.91[B], NIRC )
returns and the final adjustment return shall be
paid at the time the declaration or return is filed in Note: There can be no extension of the period of
a manner prescribed by the Commissioner. payment if there is negligence, intentional disregard of
(Sec.77[C], NIRC) rules and regulations or fraud.
Q: May estate taxes be paid in installment?

Estate Tax
A: Yes. In case the available cash of the estate is not
Q: Who shall pay the estate tax due? sufficient to pay its total estate tax liability, the
estate may be allowed to pay the tax by installment
A: It is the executor, administrator or any of the and a clearance shall be released only with respect
legal heirs, as the case may be, who shall pay the to the property, the corresponding/computed tax
estate tax. (Sec. 89, NIRC) on which has been paid.
Q: When is the Estate Tax paid? Q: Who are the persons liable for the payment of
estate tax?
A: At the time the return is filed and before delivery
to any heir or beneficiary, of his distributive share A: Where there are two or more executors or
of the estate. (Sec.91 [A], NIRC) administrators, all of them are severally liable for
the payment of the tax.
Note: Philippines implement the Pay as you file The primary obligation to pay the estate tax falls
system. upon the executor or administrator of an estate.
But the heir or beneficiary has subsidiary liability for
Q: May the period of payment of estate tax be the payment of that portion of the estate which his
extended? distributive share bears to the value of the total net
estate. The extent of his liability, however, shall in
A: Yes. An extension for the payment of the estate no case exceed the value of his share in the
tax may be granted by the Commissioner on inheritance. (Sec.91[C], NIRC)
meritorious cases.
Note: The estate tax clearance issued by the
Q: What is the period of extension? Commissioner or the Revenue District Officer (RDO)
having jurisdiction over the estate, will serve as the
A: authority to distribute the remaining/distributable
1. In case of judicial settlement of estate not properties/share in the inheritance to the heir or
exceeding five (5) years beneficiary.
Q: What are the rules governing the discharge of

2. In case of extra judicial settlement of estate
executors and administrators personal liability?
not exceeding two (2) years (Sec.91 [B], NIRC )
A: If one wants to be relieved from his liability as an
Q: What are the effects of granting an extension of
executor or administrator, he must:
time to pay estate taxes?
1. File a written application to the
Commissioner for the determination of
A:
the amount of the estate tax and further
1. The amount shall be paid on or before
stating his desire to be absolved or to be
expiration of the extension and running of
discharged from the liability.
the statute of limitations for assessment
shall be suspended for the period of any
2. The Commissioner must notify the
of such extension.
executor or administrator
2. The CIR may require a bond not exceeding
double the amount of the tax and with
a. If there has been a Return filed - within
such sureties as the CIR deems necessary
one (1) year after the return is filed
when the extension of payment is
granted.
b. If Return has not been filed - within one
(1) year after the making of such application

SANTO TOMAS
But not after the expiration of the period Note: There shall not be transferred to any new owner
prescribed for the assessment of the tax in Section in the books of any corporation, sociedad anonima,
203. partnership, business, or industry organized or
established in the Philippines any share, obligation,
3. The executor or administrator, upon bond or right by way of gift inter vivos or mortis causa,
payment of the amount of which he is legacy or inheritance, unless a certification from the
notified, shall be discharged from Commissioner that the taxes fixed in this Title and due
thereon have been paid is shown. (Sec. 97, NIRC)
personal liability for any deficiency in the
tax thereafter found to be due and shall
Q: What are the instances where a Certificate of
be entitled to a receipt or writing showing
Payment from the Commissioner is required?
such discharge. (Sec.92, NIRC)
A: The following are instances when a Certificate of
Note: The one year period shall be counted from the
filing of the written application.
Payment of Tax from the Commissioner is required:
1. Before a judge shall authorize the
Q: What is meant by deficiency assessment? executor or judicial administrator to
deliver a distributive share to any party
A: The term deficiency means interested in the estate;
1. The amount by which the tax imposed by 2. Before the Register of Deeds shall
this Chapter exceeds the amount shown register in the Registry of Property any
as the tax by the executor, administrator document transferring real property or
or any of the heirs upon his return; but real rights therein or any chattel
the amounts so shown on the return shall mortgage, by way of gifts inter vivos or
first be increased by the amounts mortis causa, legacy or inheritance; (Sec.
previously assessed (or collected without 95, NIRC)
assessment) as a deficiency and 3. When a lawyer, by reason of his official
decreased by the amount previously duties, intervenes in the preparation or
abated, refunded or otherwise repaid in acknowledgment of documents regarding
respect of such tax; or partition or disposal of donation inter
2. If no amount is shown as the tax by the vivos or mortis causa, legacy or
executor, administrator or any of the inheritance; (Sec. 95, NIRC)
heirs upon his return, or if no return is 4. When a notary public, by reason of his
made by the executor, administrator, or official duties, intervenes in the
any heir, then the amount by which the preparation or acknowledgment of
tax exceeds the amounts previously documents regarding partition or disposal
assessed (or collected without of donation inter vivos or mortis causa,
assessment) as a deficiency; but such legacy or inheritance; (Sec. 95, NIRC)
amounts previously assessed or collected 5. When a government officer, by reason of
without assessment shall first be his official duties, intervenes in the
decreased by the amounts previously preparation or acknowledgment of
abated, refunded or otherwise repaid in documents regarding partition or disposal
respect of such tax. (Sec.93, NIRC) of donation inter vivos or mortis causa,
legacy or inheritance; (Sec. 95, NIRC)
Note: Deficiency occurs when, one files a return and 6. Before a debtor of the deceased pay his
pay the tax but the tax paid is less than the amount of debts to the heirs, legatee, executor or
tax due, or if a return is filed but the taxpayer did not administrator of his creditor; (Sec. 95,
pay the tax, or when one did not file the return nor NIRC)
paid the tax. 7. Before a transfer to any new owner in the
books of any corporation, sociedad
Q: May there be delivery of distributable share anonima, partnership, business, or
even before payment of estate tax? industry organized or established in the
Philippines any share, obligation, bond or
A: No. Under the Tax Code, no judge shall authorize right by way of gift inter vivos or mortis
the executor or judicial administrator to deliver a causa, legacy or inheritance;
distributive share to any party interested in the 8. Before a bank, which has knowledge of
estate unless a certification from the Commissioner the death of a person who maintained a
that the estate tax has been paid is shown. (Sec. 94, bank deposit account alone, or jointly
NIRC) with another, shall allow any withdrawal
TAXATION LAW TEAM:
from the said deposit account. (Sec. 97,

NIRC) Value Added Tax
Q: What is the rule on restitution of tax upon Q: How is VAT paid?

satisfaction of outstanding obligations?
A: Every person liable to pay VAT, upon filing a
A: If after the payment of the estate tax, new quarterly return of the amount of his gross sales or
obligations of the decedent shall appear, and the receipts within 25 days following the close of each
persons interested shall have satisfied them by taxable quarter, shall pay the same. However, a
order of the court, they shall have a right to the VAT-registered person shall pay the VAT on a
restitution of the proportional part of the tax paid. monthly basis.
Donors Tax Any person, whose registration has been cancelled,

shall file a return and pay the tax due within 25
Q: Who are required to pay donors tax? days from the date of cancellation of registration;
Provided, that only one consolidated return shall be
A: filed by the taxpayer for his principal place of
1. Resident Citizen (Sec.101 [A], NIRC) business or head and all his branches. (Sec. 114[A],
2. Resident Alien (Sec.101 [A], NIRC) NIRC)
3. Domestic Corporation (Sec.101 [A], NIRC
and PD 1457)
4. Non-Resident Corporation (Sec.101 [B], A: Except as the Commissioner otherwise permits,
NIRC and Sec.86 [A], NIRC) the tax shall be paid to the authorized agent bank,
5. Domestic Alien (Sec.101 [B], NIRC) revenue collection officer or duly authorized city or
6. Foreign Corporation (Sec.101 [B], NIRC) municipal treasurer in the Philippines located
within the revenue district where the taxpayer is
Note: Domestic and foreign corporation are subject registered or required to register. (Sec. 114 [B],
only to donors tax and not to estate tax because it is NIRC)
not capable of death but may enter into contract of
donation. Q: What is the rule as regards the return covering
withholding of VAT?
Q: What is the time of payment of donors tax?
A: The government or any of its political
A: Donors tax is paid at the time the return is filed subdivisions, instrumentalities or agencies,
since the Philippine Tax system observes the Pay including GOCCs shall, before making payment on
as you file system. account of each purchase of goods and services
which are subject of VAT in Sections 106 and 108,
deduct and withhold the VAT due at the rate of 5%
Q: Where is the donors tax paid? of the gross payment thereof; Provided, that the
payment foe lease or use of properties or property
A: Donors tax is paid with the rights to non resident owners shall be subject to
1. Authorized agent bank, Revenue district 12% withholding tax at the time of payment. The
officer, Revenue Collection Officer, or payor or person in control of the payment shall be
duly authorized treasurer of the City or considered as the withholding agent. (Sec. 114 [C],
NIRC, as amended by RMC 7-2006)
municipality where the donor was
domiciled at the time of the transfer;
The VAT withheld shall be remitted within 10 days
2. If there is no legal residence in the following the end of the month the withholding was
Philippines, with the office of the made. (Sec. 114 [C], NIRC)
Commissioner;
3. For gifts made by non-residents, with the
Phil embassy or Consulate in the country TAX REMEDIES UNDER THE NIRC
where he is domiciled at the time of the
1. Taxpayers Remedies
transfer or directly with the office of the 2. Government Remedies
Commissioner.

SANTO TOMAS
Taxpayers Remedies Q: State the No injunction to restrain tax

collection rule.
Q: What are the remedies available to the
taxpayer? A:
GR: Under this rule, No court shall have the
A: authority to grant an injunction to restrain the
1. Administrative collection of any national internal revenue, tax,
a. Before payment of taxes: fee or charge. (Sec. 219, R.A. 8424)
a. Dispute Assessment (Protest)
i. Request for reconsideration XPN: The CTA can issue injunction in aid of its
ii. Request for reinvestigation appellate jurisdiction if in its opinion the same
b. Entering a compromise agreement may jeopardize the interest of the government
b. After payment of taxes: and/or the taxpayer. In this instance, the court
a. Claim for Tax Refund may require the taxpayer either to deposit the
amount claimed or file a surety bond for not
2. Judicial more than double the amount with the court.
a. Civil (RA 1125 as amended by RA 9282)
b. Criminal
Note: The Lifeblood doctrine requires that the
3. Substantive collection of taxes cannot be enjoined, without
a. Question validity of tax statute/ taxation, a government can neither exist nor endure.
regulation
b. Non-retroactivity of rulings
c. Must be informed of the legal and factual Assessment
bases of assessment
d. Preservation of books of accounts and Q: What is a notice of assessment?
examination once a year
A: It is a written notice to a taxpayer to the effect
Q: What is the importance of tax remedies? that the amount stated therein is due as tax and
containing a demand for the payment. It is a finding
A: by the taxing agency that the taxpayer has not paid
1. To the government - For the regular his correct taxes.
collection of revenue necessary for the
existence of the government. Note: A notice of assessment contains not only a
2. To the taxpayer - They are safeguards of computation of tax liabilities but also a demand for the
the taxpayers rights against arbitrary payment within a prescribed period. It also signals the
action. time when penalties and interests begin to accrue.
Q: What are the subjects of tax remedies in Q: What is the importance of a tax assessment?
internal revenue taxation?
A:
TO THE GOVERNMENT TO THE TAXPAYER
A: They include the action of the BIR where there
1. In the proper pursuit of 1. To inform the
may be controversy between the taxpayer and the
judicial and extrajudicial taxpayer of his
State such as:
remedies to enforce liabilities;
1. Assessment of internal revenue taxes
taxpayer liabilities and 2. To determine
2. Collection of internal revenue taxes certain matters that relate the period
3. Refund of internal revenue taxes to it, such as the imposition within which to
4. Imposition of administrative or civil of surcharges and interests; protest.
fines, penalties, interests or 2. In the application of the 3. To determine
surcharges; promulgation and/or Statute of Limitations; prescription of
enforcement of administrative rules 3. In the establishment of tax government
and regulations for the effective and liens; and claim.
efficient enforcement of internal 4. In estimating the revenues
revenue laws that may be collected by the
5. Prosecution of criminal violations of government.
internal revenue laws.
Q: What is the nature of an assessment?
TAXATION LAW TEAM:
A: It is merely a notice to the effect that the amount Q: What are the different ways of paying taxes?
stated therein is due as tax and containing a
demand for the payment. (Alhambra Cigar Mfg. Co. A:
v. CIR, GR L-23226, Nov. 28, 1967) 1. Pay-as-you-file system Income for
individuals and corporation shall be paid
Q: Who has the burden of proof in pre-assessment by the person subject thereto at the time
proceedings? the return is filed. (Sec. 56, NIRC)
A: The burden of proof is on the taxpayer for there 2. Installment payment When income tax
is a presumption of correctness on the part of the due is in excess of P2,000 and the
CIR. Otherwise, the finding of the CIR will be taxpayer is not a corporation, he may
conclusive and the CIR will assess the taxpayer. If elect to pay the tax in two equal
the taxpayer does not controvert, such finding is installments. First installment is when the
conclusive, even if the CIR is wrong. return is filed and the second installment
is on or before July 15 following the close
Q: What are the principles governing tax of the calendar year. (Sec. 56 A [2], NIRC)
assessments?
A: PAD3 Concept of Assessment

1. Assessments:
a. Prima facie presumed correct and Requisites for Valid Assessment
made in good faith;
b. Should be based on Actual facts; Q: What are the requisites for a valid assessment?
(estimates can also be a basis given
that it is not arrived at arbitrarily or A: The assessment must:
capriciously) 1. Be in writing and signed by the BIR;
c. Discretionary on the part of the 2. Contain the law and the facts on which
Commissioner; the assessment is made; and
d. Must be DIrected to the right party. 3. Contain a demand for payment within the
2. The authority vested in the Commissioner prescribed period. (Sec. 228, NIRC)
to assess taxes may be Delegated
Q: Is the assessment made by the CIR subject to Constructive Method of Income Determination
judicial review?
Q: If the taxpayers record or methods of
A: No, for such power is discretionary. What may accounting are not reflective of his true income,
be the subject of a judicial review is the decision of what methods may be utilized by the CIR to
the CIR on the protest against the assessment, not determine the correct taxable income of the
the assessment itself. taxpayer?
Q: Are taxes self-assessing? A: NCPBUTTS

1. Net worth method
A: 2. Cash expenditure method
GR: Taxes are generally self-assessing and do not 3. Percentage method
require the issuance of an assessment notice in 4. Bank deposit method
order to establish the tax liability of a taxpayer. 5. Unit and value method
6. Third party information or access to
XPNs: records method
1. Improperly Accumulated Earnings Tax 7. Surveillance and assessment method
(Sec. 29, NIRC) 8. Such methods as in the opinion of the BIR
2. When the taxable period of a taxpayer is Commissioner clearly reflect the income
terminated (Sec. 6 [D], NIRC) (1969 Bar Question)
3. In case of deficiency tax liability arising
from a tax audit conducted by the BIR Q: A Co., a DC, is a big manufacturer of consumer
(Sec. 56 [B], NIRC) goods and has several suppliers of raw materials.
4. Tax lien (Sec. 219, NIRC) The BIR suspects that some of the suppliers are
5. Dissolving corporation (Sec. 52 [c], NIRC) not properly reporting their income on their sales
to A Co. The CIR therefore: 1) Issued an access

SANTO TOMAS
letter to A Co. to furnish the BIR information on right to assess VAT on such royalty payment has
sales and payments to its suppliers. 2) Issued an prescribed. Is the assessment made on the royalty
access letter to X Bank to furnish the BIR on payment outside the scope of the Audit Notice and
deposits of some suppliers of A Co. on the alleged has the right of the government to assess
ground that the suppliers are committing tax deficiency VAT thereon prescribed?
evasion. A Co., X Bank and the suppliers have not
been issued by the BIR letter of authority to A: B Corp. paid royalties to a NRFC in 1997 but
examine. A Co. and X Bank believe that the BIR is failed to pay VAT thereon. Hence, B Corps VAT
on a "fishing expedition" and come to you for liability is incontrovertible. Notwithstanding the
counsel. What is your advice? absence of an Audit Notice to conduct a tax
investigation for the year 1997, the CTA ruled, on
A: I will advise A Co. and X Bank that the BIR is the basis of Sec. 6 (A) and (B), NIRC, that the power
justified only in getting information from the of the CIR to assess B Corp. deficiency VAT is valid.
former but not from the latter. The BIR is The CTA further ruled that the power of the
authorized to obtain information from other government to assess deficiency VAT has not
persons other than those whose internal revenue prescribed since the royalty payment was not
tax liability is subject to audit or investigation. reflected in the 1997 and 1998 VAT returns of B
However, this power shall not be construed as Corp. For filing false returns, the ten year
granting the CIR the authority to inquire into bank prescriptive period for the assessment of deficiency
deposits. (Sec. 5, NIRC) (1999 Bar Question) taxes applies. (Business One, Inc. v. CIR, CTA Case
No. 6832, Oct. 7, 2008)
Q: BIR assessed the taxpayer for alleged deficiency
taxes. The assessment was based on photocopies
of 77 Consumption Entries furnished by an Inventory Method for Income Determination
informer, the taxpayer understated its
importations. However, the BIR failed to secure Q: What are the Inventory methods for income
certified true copies of the subject Consumption determination?
Entries from the Bureau of Customs since,
according to the custodian, the originals had been A: The International Accounting Standard
eaten by termites. Can the BIR base its assessment enumerated the following:
on mere photocopies of records/documents? 1. Last In First Out (LIFO)
2. First In First Out (FIFO)
A: No, mere photocopies of the Consumption 3. Weighted Average
Entries have no probative weight if offered as proof 4. Specific identification
of the contents thereof. While it is true that under
the Tax Code, the BIR can assess taxpayers based Q: What is LIFO and FIFO?
on the best evidence obtainable and that tax
assessments are presumed correct and made in A: A method of assigning costs to both inventory
good faith, it is elementary that the assessment and cost of goods sold. With regard to LIFO the
must be based on actual facts. The best evidence assumption is that the most recent inventory is the
obtainable provided under the Tax Code does not one sold first as compared to FIFO wherein the
include mere photocopies of records or documents. inventory items are sold in the order they are
The presumption of the correctness of an acquired.
assessment, being a mere presumption, cannot be
made to rest on another presumption. (CIR v. Q: What is Weighted Average?
Hantex Trading Co., Inc., GR 136975, Mar. 31, 2005)
A: A method of assigning cost which requires that
Q: B Corp. received an Audit Notice authorizing we compute the weighted average cost per unit at
the examination of its books of accounts and other the time of each sale, equals the cost of goods
accounting records for all internal revenue taxes available for sale divided by the units available.
for the period Jan. 31, 1998 to Dec. 31, 1998. Thus, the cost of goods sold would be dependent
Under the aforesaid Audit Notice, B Corp. was on the average acquisition cost of the inventory
assessed deficiency VAT on payments made in currently available when a sale is done.
1997 to a nonresident foreign corporation. B Corp.
protested the assessment alleging, among others, Q: What is Specific Identification?
that the audit conducted regarding the 1997
royalty payment is beyond the authority of the A: A meticulous method wherein each item in
auditing officers under the Audit Notice and the inventory can be identified with a specific purchase
TAXATION LAW TEAM:
and invoice, when each item is sold the sales record required to execute a waiver of the statute
should also contain the same. Thus the cost of of limitations.
goods sold would depend on which item was sold
for that particular sale.
Tax Delinquency and Tax Deficiency
Jeopardy Assessment Q: What is Delinquency Tax and Deficiency Tax?
Q: What are the different kinds of assessments A:

and what is jeopardy assessment? 1. Delinquency Tax a taxpayer is considered
delinquent in the payment of taxes when:
A: a. Self-assessed tax per return filed by the
1. Pre-Assessment informs the taxpayer taxpayer on the prescribed date was
of the findings of the examiner who not paid at all or only partially paid; or
recommends a deficiency assessment. b. Deficiency tax assessed by the BIR
The taxpayer is usually given 10 days becomes final and executory.
from notice within which to explain his
side. 2. Deficiency Tax
a. The amount by which the tax imposed
2. Self-Assessment one in which the tax by law as determined by the CIR or his
is assessed by the taxpayer himself. authorized representative exceeds the
amount shown as tax by the taxpayer
3. Official Assessment issued by the BIR upon his return; or
in case the taxpayer fails to respond to b. If no amount is shown as tax by the
the pre-assessment, or his explanation taxpayer upon his return is made by
is not satisfactory to the CIR. the taxpayer, then the amount by
which the tax as determined by the CIR
4. Illegal and Void Assessment tax or his authorized representative
assessor has no power to assess at all. exceeds the amounts previously
assessed or collected without
5. Erroneous Assessment assessor has assessment as deficiency.
power to assess but errs in the exercise
thereof. Q: Distinguish Delinquency Tax from Deficiency
Tax?
6. Jeopardy Assessment a delinquency
tax assessment made without the A:
benefit of a complete or partial Delinquency Tax Deficiency Tax
investigation by a belief that the Collection
assessment and collection of a Can immediately be Can be collected through
collected administrative and/or judicial
deficiency tax will be jeopardized by
administratively remedies but has to go
delay caused by the taxpayers failure through the issuance through the process of filling
to: of a warrant of the protest by the taxpayer
distraint and levy, against the assessment and
a. Comply with audit and investigation and/or judicial action the denial of such protest by
requirements to present his books of the BIR
accounts and/or pertinent records, Civil Action
or The filing of a civil The filling of a civil action at
b. Substantiate all or any of the action for the the ordinary court for
collection of the collection during the
deductions, exemptions or credits
delinquent tax in the pendency of protest may be
claimed in his return. ordinary court is a the subject of a motion to
proper remedy dismiss. In addition to a
Note: This is issued when the revenue motion to dismiss, the
officer finds himself without enough time to taxpayer must file a petition
conduct an appropriate or thorough for review with the CTA to toll
examination in view of the impending the running of the
expiration of the prescriptive period for prescriptive period
assessment. To prevent the issuance of a Penalties
jeopardy assessment, the taxpayer may be A delinquent tax is A deficiency tax is generally
subject to not subject to the 25%

SANTO TOMAS
administrative surcharge, although subject d. Where the taxpayer has signed a

penalties such as 25% to interest and compromise waiver authorizing the Commissioner
surcharge, interest, penalty or his duly authorized representative
and compromise
to inquire into the bank deposits.
penalty
7. Authority to accredit and register tax
agents
8. Authority to prescribe additional
Power of the Commissioner to Make Assessments
procedural or documentary requirements.
and Prescribe Additional Requirements for Tax
Administration and Enforcement
Q: What is the Best Evidence Obtainable?
Q: What are the powers of the Commissioner in
A: Any data, record, papers, documents or any
the assessment of taxes?
evidence gathered by internal revenue officers from
government offices/agencies, corporations,
A: The CIR or his duly authorized representative is
employees, clients, patients, tenants, lessees,
authorized to use the following powers: (Sec. 6,
vendees and from all other sources with whom the
NIRC)
taxpayer had previous transactions or from whom
1. Examination of return and determination
he received any income.
of tax due
2. Use of the best evidence available
Q: When may the CIR assess the tax on best
3. Authority to conduct inventory taking,
obtainable evidence?
surveillance and prescribe gross sales and
receipts if there is reason to believe that
A: FINE
the taxpayer is not declaring his correct
1. When a return is required by law as a
income, sales or receipts for internal
basis for assessment of internal revenue
revenue purposes
tax shall not be forthcoming within the
4. Authority to terminate taxable period in
time fixed by law or regulation (No return
the following instances:
filed); or
a. Taxpayer is retiring from business
2. Any return which is False, Incomplete or
subject to tax;
Erroneous. (Sec. 6, NIRC)
b. Taxpayer is intending to leave the
Philippines or to remove his property
Q: Does the power of the CIR to inquire into bank
therefrom or to hide or conceal his
deposits of a taxpayer conflict with RA 1405,
property and
Secrecy of Bank Deposits Law?
c. Taxpayer is performing any act
tending to obstruct the proceedings
A: The limited power of the CIR does not conflict
for the collection of taxes.
with RA 1405 because the provisions of the Tax
5. Authority to prescribe real property
Code granting this power is an exception to the
values
Secrecy of Bank Deposits Law as embodied in a
6. Authority to inquire into bank deposits
later legislation.
accounts in the following instances:
a. A decedent to determine his gross
Furthermore, in case a taxpayer applies for an
estate;
application to compromise the payment of his tax
b. Any taxpayter who has filed an
liabilities on his claim that his financial position
application for compromise of his tax
demonstrates a clear inability to pay the tax
liability by reason of financial
assessed, his application shall not be considered
incapability to pay;
unless and until he waives in writing his privilege
c. A specific taxpayer/s is subject of a
under RA 1405, and such waiver shall constitute the
request for the supply of tax
authority of the CIR to inquire into the bank
information a foreign tax authority
deposits of the taxpayer. (1998 Bar Question)
pursuant to an intentional
convention or agreement on tax
matters to which the Philippines is a
signatory or a party of. Provided that
the requesting foreign tax authority
is able to demonstrate the
foreseeable relevance of certain
information required to be given to
the request. (Sec. 3 & 8, RA 10021)
TAXATION LAW TEAM:
Power of the Commissioner to Obtain having the care, management or

Information, and to Summon/ Examine, possession of any object with respect to
and Take Testimony of Persons which a tax is imposed. (Sec. 5, NIRC)
Q: What is the power of the CIR to obtain

information, and to summon, examine and take When is Assessment Made
testimony of persons?
Q: When is an assessment deemed made?
A: This power is for ascertaining the correctness of
any return, or in making a return when none has A: When it is released, mailed or sent by the
been made, or in determining the liability of any collector of internal revenueto the taxpayer within
person for any internal revenue tax, or in collecting the three-year or ten-year period, as the case may
any such liability, or in evaluating tax compliance, be. (CIR v. Pascor, GR 128315, June 29, 1999)
the Commissioner is authorized:
Q: A notice of assessment was mailed within the
1. To examine any book, paper, record, or period prescribed by law but the same was
other data which may be relevant or received by the taxpayer beyond the period. Was
material to such inquiry; there a valid assessment?
2. To obtain on a regular basis from any
person other than the person whose A: Yes. There was an assessment made within the
internal revenue tax liability is subject to period. If the notice is sent through registered mail,
audit or investigation, or from any office the running of the prescriptive period is stopped.
or officer of the national and local What matters is the sending of the notice is made
governments, government agencies and within the period of prescription. It is the sending of
instrumentalities, including the BSP and the notice and not the receipt that tolls the
GOCCs, any information such as, but not prescriptive period. (Basilan v. CIR, GR L-22492,
limited to, costs and volume of Sept. 5, 1967)
production, receipts or sales and gross
incomes of taxpayers, and the names,
addresses, and financial statements of Prescriptive Periods
corporations, mutual fund companies,
insurance companies, regional operating Q: What is the rationale of prescriptive periods?
headquarters of multinational companies,
joint accounts, associations, joint A: To secure the taxpayers against unreasonable
ventures of consortia and registered investigation after the lapse of the period
partnerships, and their members; prescribed. They are beneficial to the government
3. To summon the person liable for tax or because tax officers will be obliged to act promptly
required to file a return, or any officer or in the assessment and collection of the taxes, for
employee of such person, or any person when such period have lapsed their right to assess
having possession, custody, or care of the and collect would be barred by the statute of
books of accounts and other accounting limitations.
records containing entries relating to the
business of the person liable for tax, or Q: State the basic rules on prescription.
any other person, to appear before the
CIR or his duly authorized representative A:
at a time and place specified in the 1. When the tax law itself is silent on
summons and to produce such books, prescription, the tax is imprescriptible;
papers, records, or other data, and to give
testimony; 2. When no return is required, tax is
4. To take such testimony of the person imprescriptible and tax may be assessed
concerned, under oath, as may be at any time as the prescriptive periods
relevant or material to such inquiry; and provided in Sec. 203 and 222, NIRC are
5. To cause revenue officers and employees not applicable. Remedy of the taxpayer is
to make a canvass from time to time of to file a return for the prescriptive period
any revenue district or region and inquire to commence.
after and concerning all persons therein
who may be liable to pay any internal Note: Limitation on the right of the
revenue tax, and all persons owning or government to assess and collect taxes will

SANTO TOMAS
not be presumed in the absence of a clear Prescriptive Period for Assessment

legislation to the contrary.
Q: What are the prescriptive periods for the
3. Prescription is a matter of defense, and it assessment of taxes?
must be proved or established by the
party (taxpayer) relying upon it. A:
1. Where a return was filed:
4. Defense of prescription is waivable, such
defense is not jurisdictional and must be GR: The period for assessment is within 3
raised seasonably, otherwise it is deemed years after the date the return was due or
waived. if the return is filed after the due date
prescription will start on the date the
5. The law on prescription, being a remedial return was filed.
measure, should be interpreted liberally
in order to protect the taxpayer.
XPNS:
6. If the last day of the period falls on a a. If there is failure to file the required
Saturday, a Sunday or a legal holiday in return, the period is within 10 years
the place where the Court sits, the time after the date of discovery of the
shall not run until the next working day. omission to file the return.
(Sec. 1, Rule 22, Rules of Court)
Note: Date of discovery must be made
Note: Assessment and collection by the government of within the three-year period following
the tax due must be made within the prescribed period the general rule.
as provided by the Tax Code; otherwise, the right of
the government to collect will be barred. b. If the return is filed but it is false or
fraudulent and made with intent to
Q: How should the prescriptive period be evade the tax, the period is 10 years
computed? from the date of discovery of the
falsity or fraud.
A: It is computed based on the Administrative Code.
Sec. 31 of the Administrative Code of 1987 provides Note: Nothing in Sec. 222 (A) shall be
that a year shall be understood to be 12 calendar construed to authorize the examination
months. Both Article 13 of the Civil Code and Sec. and investigation or inquiry into any tax
31 of the Administrative Code of 1987 deal with the return filed in accordance with the
same subject matter the computation of legal provisions of any tax amnesty law or
periods. Under the Civil Code, a year is equivalent decree.
to 365 days whether it be a regular year or a leap
year. Under the Administrative Code of 1987, c. Where the CIR and taxpayer, before
however, a year is composed of 12 calendar months the expiration of the 3-year period
and the number of days is irrelevant. There have agreed in writing to the
obviously exists a manifest incompatibility in the extension of the period, the period
manner of computing legal periods under the Civil so agreed upon may thereafter be
Code and the Administrative Code of 1987. For this extended by subsequent agreements
reason, Sec. 31, Chapter VIII, Book I of the in writing made before the
Administrative Code of 1987, being the more recent expiration of the period previously
law governs the computation of legal periods. (CIR agreed upon.
v. Primetown Property Group, Inc., GR 162155, Aug.
28, 2007) d. Where there is a written waiver or
renunciation of the original 3-year
Q: Compare Secs. 203 and 222 of the NIRC. limitation signed by the taxpayer.
A: Sec. 203 covers tax returns which is neither false Note: Requests for reconsideration of tax
nor fraudulent whereas, Sec. 222 covers: assessments, as required by the BIR, must be
1. Fraudulent returns, accompanied by a waiver of statute of limitations
2. False returns and; accomplished by the taxpayer.
3. Failure to file a return.
TAXATION LAW TEAM:
2. The return was amended substantially (Aznar v. CIR, GR L-20569, Aug. 23, 1974)
The prescriptive period shall be counted
from the filing of the amended return. Q: When is an amendment considered substantial?
Q: When is a return considered filed for purposes A:

of prescription? 1. There is under declaration (exceeding
30% of that declared) of taxable sales,
A: When the return is valid and appropriate. receipts or income; or
1. Valid When it has complied substantially 2. There is overstatement (exceeding 30% of
with the requirements of law. deductions) (Sec. 248, NIRC)
2. Appropriate When it is a return for the
particular tax required by law. Q: When does the taxpayers liability attach?
Q: What is the effect of filing a defective return? A: Only after receipt of the letter-assessment was
coupled with the willful refusal to pay the taxes due
A: If the return was defective, it is as if no return within the allotted period.
was filed. The corollary prescription will be 10 years
from and after the discovery of the failure or Q: Is it necessary that the notice of assessment be
omission and not the 3 year prescriptive period. received by the taxpayer within the prescriptive
There is an omission when the taxpayer failed to file period?
a return for the particular tax required by law.
(Butuan Sawmill v. CTA, GR L-20601, Feb. 28, 1966) A: No, notice of the assessment must be released,
mailed or sent to the taxpayer within the 3 year
period. It is not required that the notice be received
False, Fraudulent and Non-filing of Returns by the taxpayer within the prescribed period, but
the sending of the notice must clearly be proven.
Q: What is the prescriptive period where the (Basilan Estate, Inc. v. CIR, GR L-22492, Sept. 5,
return was false, fraudulent or there was no return 1967)
filed?
Q: A Co., a DC filed its 1995 ITR on Apr. 15, 1996
A: The prescription period is 10 years from the showing a net loss. On Nov. 10, 1996, it amended
discovery of the falsity, fraud or from the omission its 1995 ITR to show more losses. After an
to file the return. (Sec. 222, NIRC) investigation, the BIR disallowed certain
deductions claimed by A Co., putting A Co., in a
Q: When is a return considered fraudulent? net income position. As a result, on Aug. 5, 1999,
the BIR issued a deficiency income assessment
A: Fraud is never presumed and the circumstances against A Co. A Co., protested the assessment on
constituting it must be alleged and proved to exist the ground that it has prescribed.
by clear and convincing evidence. It may be
established by the: A: The right of the BIR to issue an assessment has
1. Intentional and substantial understatement not yet prescribed since the return was amended.
of tax liability by the taxpayer; The rule is that internal revenue taxes shall be
2. Intentional and substantial overstatement of assessed within 3 years after the last day prescribed
deductions of exemptions; and/or by law for the filing of the return. (Sec. 203, NIRC)
3. Recurrence of the above circumstances However if the return originally filed is amended
substantially, the counting of the 3-year period
Q: When is a return considered false? starts from the date the amended return was filed.
There is substantial amendment in this case
A: When there is a deviation from the truth due to because a new return was filed declaring more
mistake, carelessness or ignorance. losses, which can only be done either in reducing
gross income or in increasing the items of
Q: Distinguish a false return from a fraudulent deduction. Thus, the period within which to assess
return. shall prescribe on Nov. 10, 1999. (1999 Bar
Question)
A:
False Return Fraudulent Return Q: Mr. Reyes, a Filipino citizen engaged in the real
A deviation from the Intentional and deceitful with estate business, filed his 2004 ITR on Mar. 30,
truth or fact whether the sole aim of evading the 2005. On Dec. 30, 2005, he left the Phil. as an
intentional or not correct tax due

SANTO TOMAS
immigrant to join his family in Canada. After

investigation of said return, the BIR issued a notice 2. When the taxpayer is Out of the
of deficiency income tax assessment on Apr. 15, Philippines (Sec. 223, NIRC)
2008. Mr. Reyes returned to the Phil. as a
balikbayan on Dec. 8, 2008. Finding his name to be 3. When the Warrant of distraint and levy is
in the list of delinquent taxpayers, he filed a duly served upon the taxpayer, his
protest against the assessment on the ground that authorized representative or a member of
he did not receive a notice of assessment and the his household with sufficient discretion
assessment had prescribed. Will the protest and no property is located (proper only
prosper? for suspension of the period to collect);
A: No, the assessment has not yet prescribed since 4. Where the CIR is prohibited from making
the BIR has a period of 3 years from the last day the assessment or beginning distraint or
prescribed by law for the filing of the return. The levy or a proceeding in court for 60 days
return was filed on Mar. 30, 2005 with a due date thereafter, such as where there is a
of Apr. 15, 2005. The assessment issued on Apr. 15, Pending petition for review in the CTA
2008 is within the 3 year prescriptive period. (2000 from the decision on the protested
Bar Question) assessment (Republic v. Ker & Co., GR L-
21609);
Q: Mr. Sebastian is a Filipino seaman employed by
a Norwegian company which is engaged 5. Where CIR and the taxpayer Agreed in
exclusively in international shipping. He and his writing for the extension of the
wife, who manages their business, filed a joint ITR assessment, the tax may be assessed
for 1997 on Mar. 15, 1998. After an audit of the within the period so agreed upon (Sec.
return, the BIR issued on Apr. 20, 2001 a deficiency 222 [b], NIRC);
income tax assessment for the sum of P250,000
inclusive of interest and penalty. For failure of Mr. 6. When the taxpayer Requests for
and Mrs. Sebastian to pay the tax within the reinvestigation which is granted by the
period stated in the notice of assessment, the BIR Commissioner (Collector v. Suyoc
issued on Aug. 19, 2001 warrants of distraint and Consolidated Mining Co., GR L-11527,
levy to enforce collection of the tax. Nov. 25, 1958);
If you are the lawyer of Mr. and Mrs. Sebastian, Note: A request for reconsideration alone does
what possible defenses will you raise in behalf of not suspend the period to assess/collect.
your clients against the action of the BIR in
enforcing collection of the tax? 7. When there is an Answer filed by the BIR
to the petition for review in the CTA
A: I will raise the defense of prescription. The right (Hermanos v. CIR, GR. No. L-24972. Sept.
of the BIR to assess prescribes after three years 30, 1969) where the court justified this by
counted from the last day prescribed by law for the saying that in the answer filed by the BIR,
filing of the income tax returns when the said it prayed for the collection of taxes.
return is filed on time. (Sec. 203, NIRC) The last day
for filing the 1997 income tax return is Apr. 15,
1998. Since the assessment was issued only on Apr. Waiver of Statute of Limitations..
20, 2001, the BIR's right to assess has already
prescribed. (2002 Bar Question) Q: What is a waiver of statute of limitations?
A: It is an agreement between the taxpayer and the

Suspension of Running of Statute of Limitations BIR that a period to issue an assessment and collect
taxes due is extended to a date certain. (Philippine
Q: What are the grounds for suspension of the Journalists, Inc. v. CIR, GR 162852, Dec. 16, 2004)
prescriptive periods?
A: LOW-PARA Q: What is the nature of such waiver?

1. When taxpayer cannot be Located in the
address given by him in the return, unless A: It is to a certain extent a derogation of the
he informs the CIR of any change in his taxpayers right to security against prolonged and
address thru a written notice to the BIR; unscrupulous investigations and must be carefully
and strictly construed.
TAXATION LAW TEAM:
null and void. The taxpayer shall then have the right
to refuse the service of this LA, unless the LA is
Q: What are the requisites of an agreement revalidated.
waiving the statute of limitations?
Q: How is LA revalidated? How often can it be
A: revalidated?
1. Entered before the expiration of the 3
year period for assessment of the tax; A: Revalidated through the issuance of a new LA. It
2. In writing; can be revalidated only once, if issued by the
3. Signed by the taxpayer; Regional Director; twice, if issued by the CIR. The
4. Must specify a definite date agreed upon suspended LA(s) must be attached to the new
between the parties within which to issued LA. (RMO 38-88)
assess and collect taxes;
5. Signed and accepted by the CIR or his duly
authorized representative; and Audit Stage.
6. Date of acceptance must be indicated.
(RMC 06-05) Q: Within what period should a RO conduct an
audit?
*See discussion on General provision on Addition to
the Tax A: A RO is allowed only 120 days to conduct the
audit and submit the required report of
investigation from the date of receipt of a LA by the
Assessment Process taxpayer. If the RO is unable to submit his final
report of investigation within the 120-day period,
1. Issuance of a letter of authority he must then submit a Progress Report to his Head
2. Audit stage of Office, and surrender the LA for revalidation.
3. Issuance of notice of informal conference
4. Informal conference Q: How many times can a taxpayer be subjected to
5. Issuance of preliminary assessment notice examination and inspection for the same taxable
6. Issuance of formal letter of demand and year?
assessment notice
A:
GR: Only once per taxable year.
Issuance of a Letter Of Authority
XPNs: FRC3
Q: What is a Letter of Authority (LA)? 1. When the CIR determines that Fraud,
irregularities, or mistakes were
A: It is an official document that empowers a committed by the taxpayer;
Revenue Officer (RO) to examine and scrutinize a 2. When the taxpayer himself requests for
taxpayers books of accounts and other accounting the Re-investigation or re-examination of
records, in order to determine the taxpayers his books of accounts and it was granted
correct internal revenue tax liabilities. by the commissioner;
3. When there is a need to verify the
Q: What are the cases which need not be covered taxpayers Compliance with withholding
by a valid LA? and other internal revenue taxes as
prescribed in a Revenue Memorandum
A: Order issued by the Commissioner;
1. Cases involving civil or criminal tax fraud 4. When the taxpayers Capital gains tax
which fall under the jurisdiction of the tax liabilities must be verified; and
fraud division of the Enforcement 5. When the Commissioner chooses to
Services; and exercise his power to obtain information
2. Policy cases under audit by the Special relative to the examination of other
Teams in the National Office (RMO 36-99) taxpayers (Secs. 5 and 235, NIRC)
Q: When must a LA be served?

Issuance of Notice of Informal Conference.
A: It must be served to the taxpayer within 30 days
from its date of issuance; otherwise, it shall become Q: What is a Notice for Informal Conference (NIC)?

SANTO TOMAS
determined to have Carried over and

A: It is a written notice informing a taxpayer that automatically applied the same amount
the findings of the audit conducted on his books of claimed against the estimated tax
accounts and accounting records indicate that liabilities for the taxable quarter or
additional taxes or deficiency assessments have to quarters of the succeeding taxable year.
be paid. If, after the culmination of an audit, a RO (Sec 3.1.3, RR 12-99)
recommends the imposition of deficiency
assessments, this is communicated by the Bureau
to the taxpayer concerned during an informal Informal Conference
conference called for this purpose.
Q: What is the purpose of Informal Conference?
Q: Within how many days must the taxpayer
respond to the NIC? A: It is to afford the taxpayer the opportunity to
present his case.
A: The taxpayer have 15 days from the date of his
receipt to explain his side. Q: What matters are taken up during the Informal
Conference?
Q: What is the effect if taxpayer fails to respond to
the NIC? A:
1. Discussion on the merits of the
A: If the taxpayer fails to respond within 15 days assessment
from date of receipt of the NIC, he shall be 2. Attempt of the taxpayer to convince the
considered in default, in which case, the Revenue examiner to conduct a reinvestigation
District Officer or the Chief of the Special and/or re-examination
Investigation Division of the Revenue Regional 3. Evaluate if submission of the waiver of
Office, or the Chief of Division in the National the statute of limitations is
Office, as the case may be, shall endorse the case necessarybecause evaluation may extend
with the least possible delay to the Assessment beyond 3 years
Division of the Revenue Regional Office or to the 4. Taxpayer to advise the examiner if
CIR or his duly authorized representative, as the position paper will be submitted
case may be, for appropriate review and issuance of
a deficiency tax assessment, if warranted. (Sec
3.1.1, RR 12-99) Issuance of Preliminary Assessment Notice
Q: What are the instances where NIC may be Q: What is a Pre-Assessment Notice (PAN)?
dispensed with?
A: It is a communication issued by the Regional
A: NIC can be dispensed with: MEDEC Assessment Division, or any other concerned BIR
1. When the finding for any deficiency tax is Office, informing a taxpayer who has been audited
the result of Mathematical error in the of the findings of the RO, following the review of
computation of the tax appearing on the these findings.
face of the tax return filed by the
taxpayer; or Q: What are the requirements of a valid PAN?
2. When the Excise tax due on excisable
articles has not been paid; or A:
3. When a Discrepancy has been determined 1. In writing; and
between the tax withheld and the 2. Should inform the taxpayer of the law and
amount actually remitted by the the facts on which the assessment is
withholding agent; or made (Sec. 228, NIRC)
4. When an article locally purchased or Note: This is to give the taxpayer the opportunity to
imported by an Exempt person, such as, refute the findings of the examiner and give a more
but not limited to, vehicles, capital accurate and detailed explanation regarding the
equipment, machineries and spare parts, assessments. The absence of any of the requirements
has been sold, traded or transferred to shall render the assessment void.
non-exempt persons; or
5. When a taxpayer who opted to claim a Q: Within what period must the taxpayer respond
refund or tax credit of excess creditable to PAN?
withholding tax for a taxable period was
TAXATION LAW TEAM:
A: If the taxpayer disagrees with the findings stated P250,000.00. Counsel for AZ protested the
in the PAN, he have 15 days from receipt of the assessment for being null and void on the ground
PAN, to file a written reply contesting the proposed that no pre-assessment notice had been issued. Is
assessment. (Sec. 3.1.2, RR 12-99) the contention of the counsel tenable?
Q: What is the effect of taxpayers failure to A: No, the contention of the counsel is untenable.
respond within 15 days? Sec. 228, NIRC expressly provides that no pre-
assessment notice is required when a discrepancy
A: The taxpayer shall be considered in default, in has been determined between the tax withheld and
which case a formal letter of demand and the amount actually remitted by the withholding
assessment notice shall be issued by the BIR. (Sec. agent. Since the amount assessed relates to
3.1.2, RR 12-99) deficiency withholding taxes, the BIR is correct in
issuing the assessment and demand letter calling
for the immediate payment of the deficiency
Exceptions to Issuance of PAN withholding taxes. (2002 Bar Question)
Q: Under what instances is PAN no longer

required?
Reply to PAN
A: Same as the instances where NIC may be
dispensed with, to wit: MEDEC Q: What is a reply?
1. When the finding for any deficiency tax is
the result of Mathematical error in the A: A reply is the answer of the taxpayer in
computation of the tax appearing on the contesting the findings of the revenue officers
face of the tax return filed by the contained in a PAN and must be filed within 15 days
taxpayer; or from receipt of the PAN. Failure of the taxpayer to
2. When the Excise tax due on excisable file a reply would now enable the RO to issue a
articles has not been paid; or FAN. However no liability for additional or
3. When a Discrepancy has been determined deficiency tax arises from such failure. The tax code
between the tax withheld and the used the term reply to distinguish it from a
amount actually remitted by the protest.
withholding agent; or
4. When an article locally purchased or
imported by an Exempt person, such as, Issuance of Formal Letter of Demand
but not limited to, vehicles, capital and Assessment Notice.
equipment, machineries and spare parts,
has been sold, traded or transferred to Q: What is a Notice of Assessment/Formal Letter
non-exempt persons; or of Demand (FAN)?
5. When a taxpayer who opted to claim a
refund or tax credit of excess creditable A: It is a declaration of deficiency taxes issued to a
withholding tax for a taxable period was taxpayer who fails to respond to a PAN within the
determined to have Carried over and prescribed period of time, or whose reply to the
automatically applied the same amount PAN was found to be without merit.
claimed against the estimated tax
liabilities for the taxable quarter or Q: Who issues the FAN?
quarters of the succeeding taxable year.
(Sec 3.1.3, RR 12-99) A: It shall be issued by the Commissioner or his duly
authorized representative.
Q: In the investigation of the withholding tax
returns of AZ Medina Security Agency (AZ) for the Q: In what form shall the FAN be and what should
taxable years 1997 and 1998, a discrepancy it contain?
between the taxes withheld from its employees
and the amounts actually remitted to the A:
government was found. Accordingly, before the 1. In writing; and
period of prescription commenced to run, the BIR 2. Shall state the facts, the law, rules and
issued an assessment and a demand letter calling regulations, or jurisprudence on which the
for the immediate payment of the deficiency assessment is based, otherwise, the FAN
withholding taxes in the total amount of

SANTO TOMAS
shall be void. (Sec. 228, NIRC; Sec. 3.1.4 RR FAN did not provide Enron with the written
12-99) bases of the law and facts on which the
subject assessment is based. The CIR did not
Q: What does the phrase in writing under Sec. bother to explain how it arrived at such an
228 mean? assessment. Furthermore, he failed to
mention the specific provision of the Tax
A: It does not exclusively mean written words. Code or rules and regulations which were
Writing consists of letters, word, numbers, or not complied with by Enron.
their equivalent, set down by handwriting, 2. The advice of tax deficiency given to the
typewriting, printing, photostating, photographing, taxpayers employee during the pre-
magnetic impulse, mechanical or electronic assessment stage, as well as the preliminary
recording, or other form of data compilation. five-day letter, were not valid substitutes for
Indubitably, figures are also writings and if the the mandatory notice in writing of the legal
numerical presentation is understandable enough, and factual bases of the assessment. (CIR v.
then there is no reason why it should be Enron Subic Power Corp., GR 166387, Jan.
automatically rejected as inadequate compliance 19, 2009)
with the law. (Sevilla, et. al., v. CIR, CTA Case 6211,
Oct. 4, 2004)
Q: What are the remedies of the taxpayer after the Disputed Assessment
issuance of a FAN?
Q: When is an assessment considered disputed?
A: The taxpayer may protest the assessment within
30 days from receipt otherwise the assessment A: When the taxpayer, indicates its protest against
becomes final, executory, demandable and not the delinquent assessment of the RO and requests
appealable to the CTA. for reconsideration, through a letter. After the
request is filed and received by the BIR, the
Q: Enron, a duly registered Subic Bay Freeport assessment becomes a disputed assessment. (CIR v.
Zone enterprise received a FAN from the CIR Isabela Cultural Corp., GR 135210, July 11, 2001)
despite filing its protest letter to the preliminary
five-day letter. Enron filed a Petition for Review
with the CTA since the CIR failed to resolve its Administrative Decision on a Disputed Assessment
protest against the FAN within the mandated 180-
day period. Enron alleged that the BIR failed to Q: Can a taxpayer go to the CIR when a protest is
provide the legal and factual basis of the denied by the CIRs authorized Representative?
assessment in violation of Sec. 3.1.4, RR 12-99.
Finding for Enron, the CTA held that the FAN sent A: Yes, the taxpayer may elevate the protest to the
to the Company failed to comply with the CIR within 30 days from receipt of the decision for a
requirements of a written notice set by the law as request for reconsideration and that his case is
there was no mention of the applicable law and referred to the Bureaus Appellate Division.
facts. The CIR then elevated the case to the SC Otherwise, it becomes final and appeal to the CTA
claiming that Enron was informed of the legal and may be taken.
factual bases of the deficiency assessment against Note: The authority to make tax assessments may be
it. delegated to subordinate officers. Said assessment has
the same force and effect as that issued by the CIR if
1. Was there a valid assessment? not revised or reviewed by the latter. (Oceanic
2. Is the notice requirement satisfied when the Network Wireless Inc. V. CIR, GR 148380, Dec. 9, 2005)
BIR advised the taxpayers representative of
the tax deficiency during the pre-assessment
stage, and furnished the taxpayer of a copy of Protesting Assessment
the audit working papers?
Q: What is a protest?
A:
1. There was no valid assessment made. The A: It is the act by the taxpayer of questioning the
CIR merely issued a formal assessment and validity of the imposition of the corresponding
indicated therein the supposed tax, delinquency increments for internal revenue taxes
surcharge, interest and compromise penalty as shown in the notice of assessment and letter of
due thereon. The ROs in the issuance of the demand.
TAXATION LAW TEAM:
Q: What are the requisites of a protest? A: Prescriptive period provided by law to make
collection by distraint or levy or by a proceeding in
A: court is interrupted once a taxpayer protests the
1. In writing; assessment and requests for its cancellation.
2. Addressed to the CIR;
3. Accompanied by a waiver of the Statute
of Limitations in favor of the When to File Protest
Government. Without the waiver the
prescriptive period will not be tolled; (BPI Q: What is the procedure to be followed in
v. CIR, GR 139736, Oct. 17, 2005) protesting an assessment?
4. State the facts, applicable law, rules and
regulations or jurisprudence on which A:
the protest is based otherwise the 1. BIR issues assessment notice.
protest would be void; and 2. The taxpayer files an administrative
5. Must contain the following: protest against the assessment. Such
a. Name of the taxpayer and address protest may either be a request for
for the immediate past 3 taxable reconsideration or for reinvestigation.
years; The protest must be filed within 30 days
b. Nature of the request, specifying the from receipt of assessment.
newly discovered evidence to be 3. All relevant documents must be
presented; submitted within 60 days from filing of
c. Taxable periods covered by the protest; otherwise, the assessment shall
assessment; become final and unappealable.
d. Amount and kind of tax involved and 4. In case the CIR decides adversely or if no
the assessment notice number; decision yet at the lapse of 180 days, the
e. Date of receipt of the assessment taxpayer may appeal to the CTA Division,
notice or letter of demand; 30 days from the receipt of the decision
f. Itemized statement of the finding to or from the lapse of the 180 days
which the taxpayer agrees (if any) as otherwise the decision shall become
basis for the computation of the tax final, executory and demandable. (RCBC
due, which must be paid upon filing v. CIR, GR 168498, Apr. 24, 2007)
of the protest; 5. If the decision is adverse to the taxpayer,
g. Itemized schedule of the he may file a motion for reconsideration
adjustments to which the taxpayer or new trial before the same Division of
does not agree; the CTA within 15 days from notice
h. Statements of facts or law in thereof.
support of the protest; and 6. In case the resolution of a Division of the
i. Documentary evidence as it may CTA on a motion for reconsideration or
deem necessary and relevant to new trial is adverse to the taxpayer, he
support its protest to be submitted may file a petition for review with the
60 days from the filing thereof. CTA en banc.
7. The ruling or decision of the CTA en banc
Q: What must a motion for reconsideration raise? may be appealed with the Supreme
Court through a verified petition for
A: It must raise new grounds, which have not been review on certiorari pursuant to Rule 45
raised in that request for reconsideration or of the 1997 Rules of Civil Procedure.
reinvestigation.
Q: A taxpayer receives two final assessments, one
Note: A motion for reconsideration of the denial of the for Net Income Tax (NIT) and one for VAT. If the
administrative protest does not toll the 30-day period taxpayer would only like to protest the one for NIT
to appeal to the CTA. (Fishwealth Canning Corporation and not the one for VAT, what should he do to file
v. CIR, GR 179343, Jan. 21, 2010) a protest for the NIT?
A: The taxpayer should first pay the tax due under

Protested Assessment the VAT, where he does not intend to file a protest.
Q: What is the effect of a protest against an Note: This is not payment under protest for this is
assessment? neither a tax under the TCC nor a Real Property Tax.
(RR 12-99)
SANTO TOMAS
A: It makes the FAN final and executory, and the

taxpayer loses his right to contest the assessment,
Forms of Protest at the administrative and judicial levels. Thus the
filing of the protest within 30 days from the receipt
Q: What are the kinds of protest to an of the assessment would be mandatory for the
assessment? taxpayer to use the other administrative and
judicial remedies.
A:
1. Request for reconsideration - a claim for
re-evaluation of the assessment based on Rendition of Decision by Commissioner
existing records without need of
additional evidence. It may involve a Denial of Protest
question of fact or law or both. It does
not toll the statute of limitations. Q: What are the forms of denial of the protest?
2. Request for reinvestigation - a claim for
re-evaluation of the assessment based on A:
newly-discovered or additional evidence. 1. Direct Denial of Protest By an
It may also involve a question of fact or administrative decision on a disputed
law or both. It tolls the the statute of assessment, stating the facts, applicable
limitations. law, rules and regulations or
jurisprudence on which such decision is
Note: Under Sec. 223, NIRC, the running of the based otherwise, the decision shall be
prescriptive period can only be suspended by a request void in which case the same shall not be
for reinvestigation, not a request for reconsideration. considered a decision on a disputed
assessment and that the same is his final
RECONSIDERATION REINVESTIGATION decision. (RR 12-99)
Involves re-evaluation of Involves presentation of
assessment based on newly-discovered or
2. Indirect Denial of Protest:
existing records. additional evidence.
a. Formal and final letter of demand
It does not toll the Statute It tolls the Statute of
of Limitations. Limitations. from the BIR to the taxpayer.
b. Civil collection can also be
considered as denial of protest of
Submission of Documents within assessment (BIR v. Union Shipping
60 Days from Filing of Protest Corp., GR 66160, May 21, 1990)
c. Commissioner did not rule on the
Q: What is a supporting document? taxpayers motion for
reconsideration of the assessment,
A: These are documents which the taxpayer feels the period to appeal will only start
would be necessary to support his protest and not when the respondent would receive
what the Commissioner feels should be submitted, the summons for the civil action for
otherwise, the taxpayer would always be at the collection of deficiency tax (BIR v.
mercy of the BIR which may require production of Union Shipping Corp., GR 66160, May
such documents which taxpayer could not produce. 21, 1990)
(Standard Chartered Bank v. CIR, CTA case No.
Note: Preliminary collection letter may
5696, Aug. 16, 2001)
serve as assessment notice. (United
International Pictures v. CIR, GR
1. The 60 day period is counted from the
110318, Aug. 28, 1996)
filling of the protest.
2. Non-submission of the documents
d. Issuance of warrant of distraint and
renders the assessment final, executory
levy to enforce collection of
and demandable.
deficiency assessment is outright
denial of the request for
reconsideration (Hilado v. CIR. CTA
Effect of Failure to Protest
case 1256, Feb. 25, 1964)
Q: What is the effect of failure to protest a FAN?
TAXATION LAW TEAM:
Remedies of Taxpayer to Action by Commissioner 5. The assessment which has become final
and executor cannot be superseded by a
In Case of Denial of Protest new assessment.
Q: What is the remedy available to the taxpayer if

the CIR denies his protest in whole or in part? Informers Reward
A: The remedy is to appeal such decision to the CTA Q: To whom is the informers reward given?
within 30 days from receipt of the decision
otherwise, the assessment will become final, A: To persons instrumental:
executor and demandable. 1. In the discovery of violations of the NIRC;
and
Note: If the taxpayer elevates his protest to the CIR 2. In the discovery and seizure of smuggled
within 30 days from date of receipt of the final goods.
decision of the CIRs duly authorized representative,
such decision will not be final and executory. Q: What are the legal requirement/s must be
complied with to claim the reward?
A:
1. Voluntarily file a confidential information
In Case of Inaction by Commissioner within under oath with the Law Division of the
180 days from Submission of Documents BIR alleging therein the specific violations
constituting fraud;
Q: What are the options given to the taxpayer if 2. The information must not yet be in the
there would be inaction by the CIR within 180 days possession of the BIR, or refer to a case
from submission of the documents? already pending or previously
investigated by the BIR;
A: The taxpayer has two alternative options: 3. One should not be a government
1. File a petition for review with the CTA employee or a relative of a government
within 30 days after the expiration of the employee within the sixth degree of
180-day period; or consanguinity; and
2. Wait for the final decision of the CIR on 4. The information must result to collections
the disputed assessment and appeal the of revenues and/or fines and penalties
final decision to the CTA within 30 days (Sec. 282, NIRC) (2002 Bar Question)
from the receipt of the decision.
Q: How much is the amount of the reward?
Effect of Failure to Appeal A:

1. For discovery of violations of the NIRC -
Q: What is the effect of the failure to appeal by a The amount of reward shall be whichever
taxpayer? is lower between:
a. 10% of the revenues, surcharges or
A: fees recovered and/or fine/penalty
1. The decision or assessment becomes final imposed; or
and executory. b. One Million Pesos (P1, 000,000)
2. In an action for the collection of the tax
by the government, the taxpayer is barred Note: The same amount of reward shall also
from re-opening the question already be given to an informer where the offender
decided. has offered to compromise the violation of
3. The assessment is considered correct law committed by him and his offer has
which may be enforced by summary or been accepted by the CIR and collected from
judicial remedies. the offender.
4. In a proceeding for collection of tax by
judicial action, the taxpayers defenses 2. For discovery and seizure of smuggled
are similar to those of the defendant in a goods - a cash reward equivalent to
case for the enforcement of a judgment whichever is lower between:
by judicial action. a. 10% of the fair market value of the
smuggled and confiscated goods; or
b. One Million Pesos (P1, 000,000)

SANTO TOMAS
without assessment, at any time within

Note: The informer shall not be entitled to a reward 10 years after the discovery of the falsity,
where no revenue, surcharges or fees be actually fraud or omission. (Sec.222 [a], NIRC)
recovered or collected.
XPNs:
1. The same exceptions relative to the
COLLECTION prescriptive periods for assessment are
also applicable.
Q: What is the method used in the collection of 2. If the government makes another
taxes? assessment or the assessment made is
revised, the prescriptive period for
A: The legislature may adopt any reasonable collection of such tax should be counted
method for the effective enforcement of the from the date the last or revised
collection of taxes, subject to: assessment was made.
1. The right of the person to notice; and 3. Where an action is brought to enforce a
2. The opportunity to be heard. compromise, the prescriptive period is 10
years from the time the right of action
Note: The power to impose taxes is clothed with the accrues as fixed in the Civil Code. (Art.
implied authority to devise ways and means to 1144 [1], NCC)
accomplish collection in the most effective manner.
Without this implied power, the ends of government Note: When it comes to self-assessed taxes
may fail. (CIR v. Pineda, GR L-22734, Sept. 15, 1967) where a return is filed by the taxpayer. The
taxpayer is the one to assess himself and such
assessment is deemed to be adopted by the
Requisites government. Thus, the filing of the return would
also be the date of the assessment.
Q: What is the requirement before collection can
be made?
Q: How is judicial action for the collection of tax
A: Collection is only allowed when there is already a commences?
final assessment made for the determination of the
tax due. Assessments are deemed final when: A:
1. The taxpayer failes to file a protest 30 1. By the filing of a complaint with the
days from receipt of the assessment proper court of first instance, or where
2. After the 180 day period and the CIR has the assessment is appealed to the CTA; or
not yet acted on the protest the taxpayer 2. By filing an answer to the taxpayer's
fails to appeal it petition for review wherein payment of
3. After 30 days from the receipt of the the tax is prayed for. (Fernandez
decision of the CIR the taxpayer fails to Hermanos, Inc. v. CIR, GR L-21551, Sept.
appeal. 30, 1969)
Q: When is collection by judicial action deemed

Prescriptive Period for Collection of Tax instituted?
Q: What are the prescriptive periods for the A: Upon filing of the corresponding complaint in the
collection of tax? court of competent jurisdiction. In administrative
remedies, upon service of the distraint and levy on
A: the taxpayer or persons or entity authorized to
GR: receive the same. (Diluangco v. CIR, GR L-16661,
1. Where an assessment was made - period Jan. 31, 1962)
for collection (by distraint or levy or by a
proceeding in court) is within 3 years Q: What is the prescriptive period where the
following the assessment has been government action is on a bond which the
released, mailed, or sent. (BPI v. CIR, GR taxpayer executes in order to secure the payment
139736, Oct. 17, 2005) of his tax obligation?
2. In the case of a false or fraudulent return
with intent to evade tax or of failure to file A: 10 years under Art. 1144 (1) of the Civil Code and
a return, a proceeding in court for the not 3 years under the NIRC. In this case, the
collection of such tax may be filed Government proceeds by court action to forfeit a
TAXATION LAW TEAM:
bond. The action is for the enforcement of a

contractual obligation. (Republic v. Araneta, GR L- Judicial Remedies of a Taxpayer
14142, May 30, 1961)
Civil Action.
Q: On Aug. 5, 1997, Adam filed a request for
reconsideration of the deficiency withholding tax Q: What are the civil actions available to the
assessment on July 10, 1997, covering the taxable taxpayer?
year 1994. After administrative hearings, the
original assessment of P150,000 was reduced to A:
P75,000. A modified assessment was thereafter 1. Appeal to the CTA in devision within 30
issued on Aug. 5, 1999. Despite repeated days from receipt of decision on the
demands, Adam failed and refused to pay the protest or from the lapse of 180 days due
modified assessment. Consequently, the BIR to inaction of the CIR. (Sec. 228, NIRC)
brought an action for collection in the RTC on Sept. 2. Appeal to the CTA en banc the party
15, 2000. Adam moved to dismiss the action on adversely affected by the decision of a
the ground that the government right to collect CTA division may file a motion for
the tax by judicial action has prescribed. Decide. reconsideration or new trial within 15
days from receipt of the decision with the
A: The right of the Government to collect by judicial CTA division. If the MR is denied file a
action has not prescribed. The filing of the request petition for review with the CTA en banc.
for reconsideration which was acted upon by the 3. Appeal to the SC within 15 days from
CIR suspended the running of the 3-year the receipt of the decision of the CTA.
prescriptive period for collection and commenced 4. By way of special civil action Petition for
to run again when a decision on the protest was certiorari, prohibition and mandamus to
made on Aug. 5, 1999. (2002 Bar Question) the SC in cases of grave abuse of
discretion, lack or excess of jurisdiction.
Q: Explain the rules on assessment and collection. 5. Action to contest forfeiture of chattel, at
any time before the sale or destruction
A: thereof, to recover the same, and upon
NO RETURN WAS FILED, giving proper bond, enjoin the sale; or
RETURN FILED WAS NOT OR THE RETURN FILED after the sale and within 6 months, an
FALSE OR FRAUDULENT WAS FALSE OR action to recover the net proceeds
FRAUDULENT
realized at the sale (Sec. 231, 1997 NIRC);
Collection With Prior Assessment
and
Assessment should be
made within 3 years from
Assessment should be 6. Action for damages against a RO by
made within 10 years from reason of any act done in the
the date of filing of the
the date of discovery of the performance of official duty. (Sec. 227,
return or from the last day
failure to file the return, or
required by law for filing, 1997 NIRC)
the falsity or fraud in the
whichever is later (Sec.
return (Sec.222 [a], NIRC)
7. Injunction when the CTA is in the
203, NIRC) opinion that the collection by the BIR may
Collection should be made within 3 years from the date of jeopardize taxpayer.
assessment or from the filing of the return, either by:
1. Summary proceedings; or
Q: What may the CTA review in case of an appeal
2. Judicial proceedings (Sec.222 [c], NIRC)
Collection Without Prior Assessment to them?
Assessment should be A: CTA may review the decision of the CIR on the
Assessment should be
made within 3 years from
made within 10 years from disputed assessments. (CIR v. Villa, GR L-23988, Jan.
the date of filing of the
the date of discovery of the 2, 1968)
return or from the last day
failure to file the return, or
required by law for filing,
the falsity or fraud in the Q: May the CIR still modify its assessment despite
whichever is later (Sec.
return (Sec.222 [a], NIRC)
203, NIRC) the CTA has already acquired jurisdiction?
Collection should be made within 10 years after the
A: Yes, provided it would be done before an answer
discovery of falsity or fraud or non-filing and it should only
be by judicial proceeding (Sec. 222 [a], NIRC) is filed with the court.
Q: Is protest at the time of payment of taxes and

*See discussion on Distraint, Levy, Forfeiture, Tax duties a requirement to preserve the taxpayer's
Lien, Compromise and Abatement right to claim a refund?

SANTO TOMAS
Claim For Refund

A:
1. For taxes imposed under the NIRC - Q: What is a tax refund?
protest at the time of payment is not
required to preserve the taxpayers right A: It is an actual reimbursement of tax.
to claim refund. This is clear under Sec.
230 of the NIRC which provides that a suit Q: When may this be availed of?
or proceeding maybe maintained for the
recovery of national internal revenue tax A: This is a remedy after the payment of tax
or penalty alleged to have been liability.
erroneously assessed or collected,
whether such tax or penalty has been paid Q: What are the distinctions between tax refund
under protest or not. and tax credit?
2. For duties imposed under the Tariff and A:

Customs Code (TCC) - a protest at the time TAX REFUND TAX CREDIT
of payment is required to preserve the The taxpayer asks for The taxpayer asks that the
taxpayers' claim for refund. The restitution of the money money paid be applied to
procedure under the TCC is to the effect paid as tax his existing tax liability
2-yr period to file the 2-yr period starts from the
that when a ruling or decision of the
claim with the CIR starts date such credit was
Collector of Customs is made whereby after the payment of the allowed in case credit is
liability for duties is determined, the party tax or penalty wrongly made
adversely affected may protest such
ruling or decision by presenting to the Q: Who may claim a tax refund?
Collector, at the time when payment is
made, or within 15 days thereafter, a A:
written protest setting forth his GR: The taxpayer who paid the same
objections to the ruling or decision in
question. (Sec. 2308, TCC) (1996 Bar XPN:
Question)
Case The one Reason
entitled for the
Criminal Action. refund
Where the tax The taxpayer The sales tax is
Q: What are the criminal actions available for the has been (even if the tax imposed directly
taxpayer? shifted was shifted by on the seller as an
the taxpayer to occupation tax.
his customers as Once recovered,
A: Filing of criminal complaint against erring BIR in sales tax and the seller must
officials and employees. even if the tax hold the refunded
has been billed taxes in trust for
Note: With the enactment of the new CTA law (RA as a separate the individual
9282) amending RA No. 1125, CTA now has jurisdiction item in the purchasers who
over criminal cases. invoice) (CIR v. advanced
American payment thereof
Rubber GR L- and whose name
SUBSTANTIVE REMEDIES 19667, Nov. 29, must appear on
1966) his record
Where the Theater goers
1. Questioning the constitutionality or validity of payer is not the are not entitled
tax statutes or regulations taxpayer (i.e. to claim the
2. Non-retroactivity of rulings (Sec.246, NIRC) theater owners refund of such
3. Failure to inform the taxpayer in writing of the who paid illegal taxes (Medina v.
legal and factual bases of assessment makes it municipal taxes Baguio, GR L-
void (Sec. 228, NIRC) billed and 4060, Aug. 29,
4. Preservation of books of accounts and once a collected from 1952)
theater goers)
year examination (Sec. 235, NIRC)
Where the The withholding The withholding
payer is the agent (CIR v. agent is directly
withholding Proter and and
agent Gamble, GR L- independently
66838, Apr. 15, liable for the
TAXATION LAW TEAM:
1988) correct amount of Q: How are claims for refund construed?

tax that should be
withheld of A: Tax refunds, condonations and amnesties, being
deficiency
in the nature of tax exemptions, must be strictly
assessments
surcharges and
construed against the taxpayer and liberally in favor
penalties. of the government.
Where the Donee is the
donors tax was proper party to Q: Are claims for refund always construed strictly
assumed by the claim the refund against the taxpayer?
donee of the donors
tax (even if the A: No, not all claims for tax refunds are in the
tax was nature of tax exemptions. A tax refund may only be
advanced by the
considered as a tax exemption when it is based on a
donor)
tax-exemption statute or a tax-refund statute. In
such cases, the rule of strict interpretation against
Q: What are the requisites for a tax refund or tax
the taxpayer is applicable as the claim for refund
credit?
partakes of the nature of an exemption. Tax refunds
or tax credits are not founded principally on
A:
legislative grace, but on the legal principle of quasi-
1. There must be a written claim with the
contracts against a persons unjust enrichment at
CIR, as it would enable the CIR to correct
the expense of another. The erroneous payment of
the errors of his subordinate and to notify
tax as a basis for a claim of refund may be
the government;
considered as a case of solutio indebiti, which the
2. Must be a categorical claim for refund or
government is not exempt from its application and
credit;
has the duty to refund without any unreasonable
3. Must be filed within 2 years after the
delay what it has erroneously collected. (CIR v.
payment of the tax or penalty otherwise
Fortune Tobacco Corp., GR 167274, July 21, 2008)
no refund or credit could be taken. No
suit or proceeding shall be instituted after
Q: What is the Irrevocability Rule?
the expiration of the 2 year period
regardless of any supervening cause that
A: The exercise of the option to carry over excess
may arise after payment; and
tax credits bars a taxpayer from claiming the same
4. Present proof of payment of the tax.
excess tax credits for refund in the succeeding
taxable year. Sec. 76 of the NIRC provides that once
Q: What are the grounds for filing a claim for tax
the option to carry over and apply the excess
refund or tax credits?
quarterly income tax due for the taxable quarters of
the succeeding taxable years has been made, such
A: EEW
option shall be considered irrevocable for that
1. Tax is Erroneously or illegally collected.
taxable period and no application for cash refund or
2. Sum collected is Excessive or in any
issuance of tax credit certificate shall be allowed.
manner wrongfully collected.
These remedies are in the alternative and the
3. Penalty is collected Without authority.
choice of one precludes the other.
Q: Distinguish between illegally collected tax and
The phrase such option shall be considered
erroneously collected tax?
irrevocable for that taxable period in Sec. 76 of the
NIRC means that the option to carry over the excess
A:
tax credits of a particular taxable year can no longer
Illegaly Collected Tax Erroneously collected tax
Definition be revoked. (SYSTRA Phil., Inc. v. CIR, GR 176290,
There is a violation of No violation of the law but Sept. 21, 2007)
certain provisions of tax there is a mistake in
law or statute. collection. Q: What is a Tax Credit Certificate?
On the part of the Taxpayer
The tax was paid by him The payment was made under A: It is validly issued under the provisions of the
under duress. a mistake of fact. NIRC and may be applied against any internal
On the part of the Government revenue tax, excluding withholding taxes, for which
The tax was collected in The collection was made the taxpayer is directly liable. (Sec. 204 [C], NIRC)
patent disregard of the based on a misapplication of
law. the law.

SANTO TOMAS
Q: Is a deficiency tax assessment a bar to a claim 2. Payments effected through the

for tax refund or tax credit? withholding tax system It is from the
end of the taxable year or when the tax
A: Yes, the deficiency tax assessment is a bar to a liability falls due that the 2 year
tax refund or credit. The taxpayer cannot be prescriptive starts to run.
entitled to a refund and at the same time liable for 3. In corporate dissolution The 2-year
a tax deficiency assessment for the same year. The prescriptive period should be counted
deficiency assessment creates a doubt as to the from 30 days after the approval by the
truth and accuracy of the Tax Return. Said Return SEC of its plan of dissolution.
cannot therefore be the basis of the refund. ( CIR v.
CA, GR 106611, July 21, 1994) (2005 Bar Question) Q: What are the conditions for the grant of tax
refund when the creditable withholding tax is in
Q: Is the government liable for interests on tax excess of the amount of the tax due?
refunds?
A:
A: 1. The claim is filed with the CIR within the
GR: There can be no interest on refund of tax. 2-year period from the date of payment
of the tax or from the date of the filing of
XPNs: the Final Adjustment Return;
1. If interest is authorized by law. 2. It must be shown in the return of the
2. Arbitrariness in the collection of tax. recipient that the income payment
3. Under Sec. 79 C [2] with respect to received was declared as part of the gross
income taxes withheld on the wages of income; and
the employees. 3. The fact of withholding is established by a
copy of a statement duly issued by the
Note: An action is not arbitrary when exercised payor to the payee showing the amount
honestly and upon due consideration where of the tax withheld therefrom. (Citytrust
there is room for two opinions, however much it Finance Corp. v. CTA and CIR, CA GR. SP
may be believed that an erroneous conclusion No. 28239)
was reached. Arbitrariness presupposes
inexcusable or obstinate disregard of legal Q: Distinguish between a taxpayers remedies in
provisions. (Philex Mining Corp. v. CIR, GR connection with his tax assessment and/or
120324, Apr. 21, 1999)
demand and his claim for refund of taxes alleged
to have been erroneously or illegally collected?
Q: What should be done within the the 2-year
prescriptive period for tax refund?
A:
Against an Assessment
A: It is necessary that the: A tax assessment becomes final unless it is disputed or
1. Claim for refund in the BIR; and contested within 30 days from receipt thereof by the
2. Proceeding in the CTA taxpayer. If the action taken by the CIR on the request for
reconsideration is unacceptable to the taxpayer, the latter
Is commenced within the 2-year prescriptive period must then appeal, by way of Petition for Review to the
counted from the date of full payment of the tax or CTA within 30 days from receipt of the decision of the CIR.
penalty regarless of any supervening event. (Sec. The taxpayer may also opt to pay the tax before the
finality of the assessment (e.g., within 30 days from
229, NIRC)
receipt of the assessment) and then file within 2 years a
written claim for the refund of the tax.
Note: This 2-year prescriptive period applies only for Claim for Refund
the recovery of taxes or penalties erroneously, A denial by the CIR of a claim for refund must be appealed
excessively, illegally or wrongfully collected. to the CTA within 30 days from receipt of notice of denial
Accordingly, an ordinary claim for tax credit would and within 2 years from the day of full and final payment.
prescribe in 10 years under Art 1144 NCC. Continued inaction by the CIR on claims for refund may
thus be taken as a denial appealable to the CTA, in order
Q: State the reckoning of the 2-year prescriptive to permit the appeal to be considered or having been
periods for tax refunds. made within the two-year mandatory period.
A: Q: XCEL Corp. filed its quarterly income tax return

1. Tax is paid in installments 2 years for the first quarter of 1985 and paid P500.000 on
should be counted from the date of the May 15, 1985. In the subsequent quarters, XCEL
final payment. suffered losses. On Apr. 15, 1986 it declared a net
TAXATION LAW TEAM:
loss of P1,000,000 in its annual income tax return. filed with the CTA on Mar. 02, 1996 is beyond the
After failing to get a refund, XCEL filed on Mar. 1, reglementary period. (1997 Bar Question)
1988 a case with the CTA to recover the P500.000
in taxes paid on May 15, 1985. Is the action to Q: On Mar. 12, 2001, REN paid his taxes. Ten
recover the taxes filed timely? months later, he realized that he had overpaid and
immediately filed a claim for refund with the CIR.
A: The action for refund was filed in the CTA on On Feb. 27, 2003, he received the decision of the
time. In the case of CIR v. TMX Sales, Inc., GR 83736, CIR denying REN's claim for refund. On Mar. 24,
Jan. 15, 1992, which is similar to this case, the SC 2003, REN filed an appeal with the CTA. Was his
ruled that in the case of overpaid quarterly appeal filed on time or not?
corporate income tax, the two-year period for filing
claims for refund in the BIR as well as in the A: No, his appeal was not filed on time. The 2-year
institution of an action for refund in the CTA, the period for filing a claim for refund is not only a
two-year prescriptive period for tax refunds is limitation for pursuing the claim at the
counted from the filing of the final, adjustment administrative level but also for appealing the case
return under Sec. 67 of the NIRC, and not from the to the CTA. The law provides that "no suit or
filing of the quarterly return and payment of the proceeding shall be filed after the expiration of 2
quarterly tax. The CTA action on Mar. 1, 1988 was years from the date of the payment of the tax or
clearly within the reglementary 2-year period from penalty regardless of any supervening cause that
the filing of the final adjustment return of the may arise after payment. Since the appeal was only
corporation on Apr. 15, 1986. (1994 Bar Question) made on Mar. 24, 2003, more than two years had
already elapsed from the time the taxes were paid
Q: A Corp. files its income tax return on a calendar on Mar. 12, 2003. Accordingly, REN had lost his
year basis. For the first quarter of 1993, it paid on judicial remedy because of prescription. (2004 Bar
May 30, 1993 its quarterly income tax of P3 Question)
million. On Aug. 20, 1993, it paid the second
quarterly income tax of P0.5 million. The third Q: When must an appeal to CTA be filed if the
quarter resulted in a net loss, and no tax was paid. claim for refund was denied by the CIR?
For the fourth and final return for 1993, the
company reported a net loss for the year, and the A: It must be filed within 30 days from receipt of
taxpayer indicated in the income tax return that it the decision of the CIR but not to exceed the 2-year
opted to claim a refund of the quarterly income period from date of payment of the tax or penalty
tax payments. On Jan. 10, 1994, the corporation regardless of any supervening cause that may arise
filed with the BIR a written claim for the refund of after payment.
P3.5 million.
Note: If the decision of the CIR takes too long and the
BIR failed to act on the claim for refund; hence, on 2-year period is about to end, proceedings in the CTA
Mar. 2, 1996, the A Corp. filed a petition for review must be commenced and there would no longer be
with the CTA on its claim for refund of the any need to wait for the decision of the CIR.
overpayment of its 1993 quarterly income tax. BIR,
in its answer to the petition, alleged that the claim Q: Alyanna has a pending claim for refund with the
for refund was filed beyond the reglementary CIR. The 2-year period is about to end and the CIR has
yet to decide on the claim. What must Alyanna do to
period. Did the claim for refund prescribe?
pursue her claim for refund?
A: Yes, the counting of the two-year prescriptive A: A claim for refund must be filed with the BIR and
period for filing a claim for refund is counted not the commencement of the proceedings in the CTA
from the date when the quarterly income taxes must be done within the 2-year period from the date
were paid but on the date when the final of full payment of the tax or penalty regarless of any
adjustment return or annual income tax return was supervening event. Thus, Alyanna must commence the
filed. (CIR v. PhilAm Life Insurance Co., Inc., GR proceedings with the CTA before the end of the 2-year
105208, May 29, 1995) It is obvious that the annual period without waiting for the decision of the CIR.
income tax return was filed before Jan. 10, 1994
because the written claim for refund was filed with Q: Who is the proper party to question/seek a tax
the BIR on Jan. 10, 1994. Since the 2-year refund in indirect taxes?
prescriptive period is not only a limitation of action
in the administrative stage but also for bringing the A: In indirect taxes, the proper party who can
case to the judicial stage, the petition for review question or seek a refund of the tax is the person
on whom the tax is imposed by law and who paid

SANTO TOMAS
the tax even when he shifts the burden thereof to Q: Does a withholding agent or a subsidiary
another. (Cebu Portland Cement Co. v. Collector, GR corporation have the personality to file a written
L-20563, Oct. 29, 1968) claim for refund?
Q: Silkair purchased aviation jet fuel from Petron A: Yes, a withholding agent is technically a taxpayer
for use on Silkair international flights. Silkair, because it is required to deduct and withhold the
contending that it is exempt from the payment of tax, and the obligation to remit the same to the
excise taxes, filed a formal claim for refund with government. So the withholding agent is liable for
the CIR. Silkair claims that it is exempt from the the tax. It has therefore the personality to file a
payment of excise tax under the NIRC, specifically written claim for refund.
Sec. 135, and under Art. 4 of the Air Transport
Agreement between the Governments of the Withholding agent is not only an agent of the
Republic of the Philippines and the Republic of taxpayer but also an agent of the government.
Singapore (Air Agreement). The CIR denied the Since it is an agent of the taxpayer, it is ipso facto
claim contending that since the liability for the authorized to file a written claim for refund.
excise tax payment is imposed by law on Petron as
the manufacturer of the petroleum products, any Note: However, as a rule, the withholding agent is not
claim for refund should only be made by Petron as considered as the taxpayer, hence he is not entitled to
the statutory taxpayer. On appeal, the CTA a tax amnesty due for the taxpayers account.
resolved to deny the claim. Silkair thus filed this
Petition for Review. Q: Is payment under protest a requirement?
1. Whether or not Silkair is the proper party to A: No. A suit or proceeding for tax refund may be
claim a refund for the excise taxes paid. maintained whether or not such tax, penalty or
2. What is the proper remedy of the Silkair? sum has been paid under protest or duress. (Sec.
204 [3], NIRC)
A:
1. The SC held that the proper party to Note: The taxpayers willingness to pay the tax is no
question, or seek a refund of an indirect waiver to raise, defenses against the taxs legality. (CIR
tax is the statutory taxpayer, the person v. Gonzales, GR L-19495, Nov. 24, 1966)
on whom the tax is imposed by law and
who paid the same even if he shifts the Q: When is payment under protest required?
burden thereof to another.
A: Payment under protest is necessary in claims for
Excise tax on petroleum is an indirect tax. refund for real property taxes under Sec. 252, LGC
Although the burden to pay an indirect and for customs duties under Sec. 2308, TCC.
tax can be passed on to the purchaser of
the goods, the liability to pay the indirect Q: PERF filed an administrative claim with the
tax remains with the petroleum appellate division of the BIR for refund of overpaid
manufacturer or seller. When the income taxes. Due to the inaction of the BIR, PERF
manufacturer or seller decides to shift the filed a petition for review with the CTA seeking for
burden of the excise tax to the tax- the said refund. The CTA denied the petition of
exempt purchaser, the tax becomes a part PERF on the ground of insufficiency of evidence.
of the price of the commodity. Thus, in The CTA noted that PERF did not indicate in its
this case, the petroleum manufacturer 1997 ITR the option to either claim the excess
who is the statutory taxpayer is the income tax as a refund or tax credit pursuant to
proper party to claim the refund. Sec. 76, NIRC. It held that the failure of PERF to
signify its option on whether to claim for refund or
2. The exempt entitys remedy is to invoke opt for an automatic tax credit and to present its
its tax exemption before buying the 1998 ITR left the Court with no way to determine
petroleum so that the petroleum with certainty whether or not PERF has applied or
manufacturer would not pass on the credited the refundable amount sought for in its
excise taxes as part of the purchase price. administrative and judicial claims for refund.
(Silkair Singapore PTE. Ltd. v. CIR, GR
171383 & 172379, Nov. 14, 2008) 1. Is the failure of PERF to indicate its choice to
avail of either the tax refund or the tax credit
in the annual ITR fatal to its claim for refund?
2. Is the failure of PERF to present in evidence
the 1998 ITR fatal to its claim for refund?
TAXATION LAW TEAM:
defense in its answer to the petition for

A: review.
1. No, failure to indicate a choice to avail of
either the tax refund or the tax credit in the XPN: Taxpayer amends his petition for review
annual ITR is not fatal to a claim for refund and alleging therein a new cause of action and the
should not bar the availment of such remedy. government pleads prescription in his answer
While a taxpayer is required to mark its choice to the amended petition for review.
in the form provided by the BIR, this
requirement is only for the purpose of Q: On June 16, 1997, the BIR issued against the
facilitating tax collection. A taxpayer that Estate of Mott a notice of deficiency estate tax
makes a choice expresses certainty or assessment, inclusive of surcharge, interest and
preference and thus demonstrates clear compromise penalty. The Executor of the Estate of
diligence. Conversely, a taxpayer that makes Mott filed a timely protest against the assessment
no choice expresses uncertainty or lack of and requested for waiver of the surcharge,
preference and hence shows simple negligence interest and penalty. The protest was denied by
or plain oversight. the CIR with finality on Sept. 13, 1997.
Consequently, the Executor was made to pay the
Note: A return filed showing an overpayment deficiency assessment on Oct. 10, 1997. The
shall be considered as a written claim for credit or following day, the Executor filed a Petition with
refund. (Sec. 204, NIRC) the CTA praying for the refund of the surcharge,
interest and compromise penalty. The CTA took
2. No, failure to formally offer the 1998 ITR is cognizance of the case and ordered the CIR to
not fatal to a claim for refund where the said make a refund. The CIR filed a Petition for Review
document is attached to a subsequent motion with the CA assailing the jurisdiction of the CTA
for reconsideration and has become part of and the Order to make refund to the Estate on the
the records of the case. (CIR v. PERF Realty ground that no claim for refund was filed with the
Corp., GR 163345, July 4, 2008) BIR.
Q: Fortune Tobacco Corp. was granted a tax refund 1. Is the stand of the CIR correct?
representing excise taxes erroneously collected 2. Why is the filing of an administrative claim
from its tobacco products. The tax refund is being with the BIR necessary?
re-claimed by the BIR in a petition before the SC.
The BIR argued that tax refund partakes of the A:
nature of a tax exemption and should be 1. Yes, for there was no claim for refund or
construed against the claimant. Is the BIR correct? credit that has been duly filed with the
CIR which is required before a suit or
A: No, not all claims for tax refunds are in the proceeding can be filed in any court.
nature of tax exemptions. A tax refund may only be (Sec. 229, NIRC) The denial of the claim
considered as a tax exemption when it is based by the CIR is the one which will vest the
either on a tax-exemption statute or a tax-refund CTA jurisdiction over the refund case
statute. The companys claim for tax refund is not should the taxpayer decide to appeal on
based on either a tax-exemption statute or a tax- time.
refund statute, but is premised on either an
erroneous payment of tax or the governments 2. The filing of an administrative claim for
exaction in the absence of a law. Thus, what is refund with the BIR is necessary in order:
controlling in this case is the well-settled doctrine a. To afford the CIR an opportunity to
of strict interpretation in the imposition of taxes, consider the claim and to have a
and not the doctrine as applied to tax exemptions. chance to correct the errors of
As burdens, taxes should not be unduly exacted nor subordinate officers (Gonzales v.
assumed beyond the plain meaning of the tax laws. CTA, GR 14532, May 26, 1965); and
(CIR v. Fortune Tobacco Corp., GR 167274-75 July b. To notify the Government that such
21, 2008.) taxes have been questioned and the
notice should be borne in mind in
Q: When is there waiver of prescription in an estimating the revenue available for
action for refund? expenditures. (Bermejo v. Collector,
GR L-3028, July 29, 1950) (2000 Bar
A: Question)
GR: If the government failed to plead
prescription in a motion to dismiss or as a
SANTO TOMAS
Q: Congress enacts a law granting grade school 2. Tax Credit Yes, a Tax Credit Certificate
and high school students a 10% discount on all which remains unutilized after 5 years
school-prescribed textbooks purchased from any from date of issue, shall be invalid. Unless
bookstore. The law allows bookstores to claim the revalidated (Sec. 230, NIRC)
discount in full as a tax credit.
1. If in a taxable year a bookstore has no tax due Government Remedies

on which to apply the tax credits, can the
bookstore claim from the BIR a tax refund in Q: What are the administrative remedies of the
lieu of tax credit? government for collection of delinquent taxes
2. Can the BIR require the bookstores to deduct under the NIRC?
the amount of the discount from their gross
income? A: CELCED
3. If a bookstore closes its business due to losses 1. Distraint of personal property
without being able to recoup the discount, 2. Levy of real property
can it claim reimbursement of the discount 3. Enforcement of forfeiture
from the government on the ground that 4. Enforcement of tax lien
without such reimbursement, the law 5. Compromise and Abatement
constitutes taking of private property for 6. Civil penalties
public use without just compensation?
A: Q: What are the guidelines that must be observed
1. No, there is nothing in the law that grants with respect to administrative remedies?
a refund when the bookstore has no tax
liability against which the tax credit can
be used. A tax credit is in the nature of a A:
tax exemption and in case of doubt, the GOVERNMENT TAXPAYER
doubt should be resolved in strictissimi If Express
juris against the claimant. (CIR v. Central Must observe the legal Must observe the
Luzon Drug, GR 159647, Apr. 15, 2005) parameters set forth in doctrine of exhaustion of
the law (e.g. procedure administrative remedies.
for distraint of personal Thus, before the
2. No, tax credit which reduces the tax property (Sec. 207 [A], taxpayer may question
liability is different from a tax deduction NIRC), for levy on real an assessment before the
which merely reduces the tax base. Since property (Sec. 207 B) and CTA, he must first file an
the law allowed the bookstores to claim enforcement of tax lien administrative protest
the discount in full as a tax credit, the BIR (Sec. 219) before the BIR. (Same is
is not allowed to expand or contract the true with claims for
legislative mandate (CIR v. Bicolandia refunds)
Drug Corporation, GR 148083, July 21, If Implied
Both may avail of the usual remedies for convenience
2006)
and expediency.
3. No, if the business continues to operate

Q: Taxpayer duly protested a PAN it received from
at a loss and no other taxes are due, thus
the BIR. Subsequently, the BIR issued a FAN to the
compelling it to close shop, the credit can
taxpayer. The demand letter states: This is our
never be applied and will be lost
final decision based on investigation. If you
altogether. (CIR v. Central Luzon Drug, GR
disagree, you may appeal the final decision within
159647, Apr. 15, 2005) The grant of the
30 days from receipt hereof, otherwise said
discount to the taxpayer is a mere
deficiency tax assessment shall become final,
privilege and can be revoked anytime.
executory and demandable. Instead of filing a
(2006 Bar Question)
protest on the assessment, the taxpayer filed a
petition for review with the CTA. The BIR filed a
Q: Can Tax Refunds / Tax Credit be Forfeited to the
motion to dismiss on the ground that the taxpayer
Government?
failed to exhaust administrative remedies by filing
a protest on the assessment. Should the motion be
A:
granted?
1. Tax Refund Yes, when a refund check or
warrant remains unclaimed or uncashed
A: No, this case is an exception to the rule on
within 5 years from date of mailing or
exhaustion of administrative remedies on the
delivery.
ground that the BIR is in estoppel. The taxpayer
TAXATION LAW TEAM:
cannot be blamed for not filing a protest against the A: Upon failure to pay the delinquent tax at the
FAN since the language used and the tenor of the time required, the proper officer shall seize and
demand letter indicate that it is the final decision of distraint any goods, chattels, or effects, and the
the CIR on the matter. The court reminded the CIR personal property, including stocks and other
to indicate, in a clear and unequivocal language, securities, debts, credits, bank accounts and
whether its action on a disputed assessment interests in and rights to personal property of the
constitutes its final determination thereon in order taxpayer in sufficient quantity to satisfy the tax,
for the taxpayer concerned to determine when his expenses of distraint and the cost of the
or her right to appeal to the tax court accrues. Thus, subsequent sale.
the CIR is now estopped from claiming that t did
not intend the FAN to be a final decision. (Allied
Banking Corp. v. CIR, GR 175097, Feb. 5, 2010) Q: Who is authorized to issue the warrant of
distraint?
Administrative Remedies A:
Distraint 1. CIR or his duly authorized
representative if the amount
Q: Define distraint. involved is in excess of P1 million; or
2. Revenue District Officer if the
A: It is a summary remedy whereby the collection amount involved is P1 million or less.
of tax is enforced on the goods, chattels or effects (Sec. 207 [A], NIRC)
of the taxpayer (including other personal property
of whatever character as well as stocks and other Q: What is the procedure that must be observed in
securities, debts, credits, bank accounts and effecting actual distraint?
interest in or rights to personal property.) The
property may be offered in a public sale, if taxes are A:
not voluntarily paid. 1. Commencement of distraint proceedings
by the CIR or his duly authorized
Q: What are the requisites for the exercise of representatives or by the revenue district
distraint (and levy)? officer as the case may be
2. Service of warrant of distraint upon
A: DeFDeP taxpayer or upon any person in
1. Taxpayer is Delinquent in payment of tax; possession of the property
2. There must be subsequent Demand to 3. Posting of notice in not less than 2 public
pay; places in the municipality or city and
3. Taxpayer Failed to pay delinquent tax on notice to taxpayer specifying the time and
time; and place of sale and the articles distrained
4. Period within which to assess and collect 4. Sale at public auction to be held not less
the tax due has not yet prescribed. than 20 days after notice to the owner or
possessor of the property and publication
Q: What are the kinds of distraint? or posting of such notice
5. Disposition of proceeds of the sale
A: 6. Residue over and above what is required
1. Actual resorted to when there is actual to pay the entire claim, including
delinquency in tax payment. expenses, shall be returned to the owner
of the property sold
2. Constructive a preventive remedy which
aims at forestalling a possible dissipation Q: To whom is the warrant of distraint served?
of the taxpayers assets when
delinquency sets in. Hence, no actual A:
delinquency in payment is necessary. 1. As to tangible goods:
a. The owner or person in possession;
or
Actual Distraint b. Someone of suitable age and
discretion at the dwelling or place of
Q: How is actual distraint of personal property business of such person.
effected?
2. As to stocks and/or securities:

SANTO TOMAS
a. Upon the taxpayer; and pending the sale and does not include
b. President, manager, treasurer or services of the Revenue Officer.
other responsible officer of the
corporation. 7. The officer making the sale shall make a
written report of the proceedings to the
3. As to debts/credits: CIR within 2 days after the sale (Sec. 211,
a. Upon the person owing the debt; or NIRC)
b. The person having control over the
credit or his agent. Q: May the government purchase the property
under distraint?
4. As to bank accounts:
a. Upon the taxpayer and A: Yes, the CIR or his deputies may purchase the
b. The president, manager, treasurer or property in behalf of the National Government for
other responsible officer of the bank. the amount of taxes, penalties and cost due
thereon when the bid amount for the property
Note: Distraint of bank accounts is called under distraint is:
garnishment. 1. Not equal to the amount of tax; or
2. Very much less than the actual market
Q: What are the rules governing the sale? value of the property offered for sale
(Sec. 212, NIRC)
A:
1. The sale must be held at the time and Note: Property so purchased may be resold by the CIR
place stated in the notice. or his deputy. The net proceeds shall be remitted to
the National Treasury and accounted as internal
2. It may be conducted by the Revenue revenue.
Officer or through a licensed commodity Q: What is the remedy of the taxpayer once the
or stock exchange. CIR or other proper officer issues the warrant of
distraint?
3. If the sale is conducted by the Revenue
Officer, it must be a public auction and A: The taxpayer may request that the warrant be
the property shall be sold to the highest lifted. The CIR may, in his discretion, allow the
bidder for cash. lifting of the order of distraint. He may ask for a
bond as a condition for the cancellation of the
4. If the sale is through a licensed warrant. (Sec. 207, NIRC)
commodity or stock exchange, it must be
with the approval of the CIR. Q: May the taxpayer recover his property prior to
consummation of the sale?
5. In case of stocks and other securities, the
officer making the sale shall execute a bill A: Yes, if at any time prior to the consummation of
of sale, which shall be delivered to the the sale all proper charges are paid to the officer
buyer and to the corporation, company or conducting the sale, the goods or effects distrained
association which issued the stocks or shall be restored to the owner. (Sec. 210, NIRC)
other securities.
Upon receipt of the copy of the bill of Constructive Distraint

sale, an entry of transfer should be made
in the company or associations book and Q: How is constructive distraint effected?
a corresponding certificate of stock shall
be issued if required. A: It is effected by requiring the taxpayer or any
person having possession of the property:
6. Any residue over and above what is 1. To sign a receipt covering the property
required to pay the entire claim including distrained;
expenses shall be returned to the owner 2. To obligate himself to preserve it intact
of the property sold. and unaltered; and
3. Not to dispose of it without the express
Note: Expenses chargeable upon seizure authority of the CIR.
shall include only those actual expenses of
seizure and preservation of the property Q: What if a taxpayer or person having possession
of property refuses or fails to sign?
TAXATION LAW TEAM:
Leaving a list of property Requiring taxpayer to sign

A: The officer shall: distrained or service of a receipt or leaving a list
1. Prepare a list of such property; and warrant of such property
2. Leave a copy of such list in the premises Effect on collection
Merely to prevent the
where the property is located, in the
Immediate step to collect taxpayer from disposing his
presence of 2 witnesses. property
Q: When may property of the taxpayer be placed Q: Can property levied upon by the order of a
under constructive distraint? competent court be subsequently distrained?
A: LRT-ABUC A: Yes, such property may, with the consent of such
1. Taxpayer has a record of Leaving the court, be subsequently distrained, subject to the
Philippines at least twice a year, unless prior lien of the attachment creditor. (CIR v. Floresl,
such business is justified and/or GR L- 9675, Sept. 28, 1957)
connected with his trade, business or
profession; Q: What is Garnishment?
2. Taxpayer applying for Retirement from
business has a huge amount of A: It is the taking of personal properties, cash or
assessment pending with the BIR; sums of money owned by a delinquent taxpayer
3. Taxpayer has record of Transferring his which is in the possession of a third party (i.e. bank
bank deposits and other personal accounts.) Bank accounts are garnished by serving a
properties in the Phil. to any foreign warrant upon the taxpayer and upon the president,
country except if taxpayer is a banking manager, treasurer, or other responsible officer of
institution; the bank.
4. Taxpayer uses Aliases in bank accounts Levy
other than the name for which he is
legally and/or popularly known; Q: Define levy.
5. Taxpayer keeps Bank deposits and other
properties under the name of other A: It is the seizure of real property and interest in or
persons, whether or not related to him, rights to such properties for the satisfaction of
and the same are not under any lawful taxes due from the delinquent taxpayer.
fiduciary or trust capacity;
6. There is big amount of Undeclared Q: When may levy on real property be made?
income known to the public and to the
BIR and there is a strong reason to believe A: It may be made before, simultaneously or after
that the taxpayer will hide or conceal his the distraint of personal property of the same
property; taxpayer.
7. BIR receives Complaint or information
pertaining to undeclared income (of big Q: How is levy on real property effected?
amount) and such is supported by
substantial and credible evidence. A: It may be effected by serving upon the taxpayer
a written notice of levy in the form of a duly
Q: Distinguish actual from constructive distraint. authenticated certificate prepared by Revenue
District Officer containing: [DNA]
A: 1. Description of the property upon which
ACTUAL CONSTRUCTIVE
levy is made;
Nature
2. Name of the taxpayer;
Summary remedy
Subject matter 3. Amount of tax and penalty due.
Personal property
Availability Q: What is the procedure that must be observed in
Cannot be availed of if tax is not more than P100. levy of real property?
To whom made
Delinquent taxpayer Any taxpayer A:
(delinquent or not) 1. Preparation of a duly authenticated
How made certificate which shall operate with force
Taking of possession Mere prohibition from of a legal execution throughout the
or transfer of control disposing the property Philippines.
How effected
2. Service of the written notice to the:

SANTO TOMAS
a. Delinquent taxpayer, or A: Yes, at any time before the day fixed for the sale,
b. If he is absent from the Philippines, the taxpayer may discontinue all proceeding by
to his agent or the manager of the paying the taxes, penalties and interest. (Sec. 213,
business in respect to which the NIRC)
liability arose, or
c. If there be none, the occupant of the Q: May the taxpayer redeem his property after the
property. consummation of the sale?
d. The Registry of Deeds of the place
where the property is located shall A: Yes, within 1 year from the date of sale, the
also be notified; taxpayer or anyone for him, may pay to the
3. Advertisement of the time and place of Revenue District Officer the total amount of the
sale within 20 days after the levy by following:
posting of notice and by publication for 1. Public taxes;
three consecutive weeks. 2. Penalties;
4. Sale at a public auction. 3. Interest from the date of delinquency to
5. Disposition of proceeds of sale. the date of sale; and
6. Residue to be returned to the owner. 4. Interest on said purchase price at the rate
of 15% per annum from the date of sale
to the date of redemption.
Q: What is the effect of service of warrant of
distraint or levy? Note: If the property was forfeited in favor of the
government, the redemption price shall include only
A: Its timely service suspends the running of the the taxes, penalties and interest plus costs of sale no
prescriptive period to collect the tax deficiency in interest on purchase price since the Government did
the sense that the disposition of the attached not purchase the property, for it was forfeited. (Sec.
properties might well take time to accomplish, 214, NIRC)
extending even after the lapse of the statutory
period for collections. In those cases, the BIR did Q: Who is entitled to the possession of the
not file any collection case but merely relied on the property levied?
summary remedy of distraint and levy to collect the
tax deficiency. Thus, the enforcement of tax A: The owner shall not be deprived of the property
collection through summary proceedings may still until the expiration of the redemption period and
be carried out as the service of warrant of distraint shall be entitled to rents and other income until the
or levy suspends the prescriptive period for expiration of the period for redemption. (Sec. 214,
collection. (RP v. Hizon, GR 130430, Dec. 13, 1999) NIRC)
Q: Suppose an auction sale of land for the Q: What is the effect of the redemption to the
collection of delinquent taxes was held, is notice property sold?
by publication enough or must there be personal
service of notice? A: It shall entitle the taxpayer, the delivery of the
certificate issued to the purchaser and a certificate
A: Notice by publication is not enough there must from the Revenue District Officer that he has
be a personal notice to the registered owner of the redeemed the property. The Revenue District
property for cases involving an auction sale of land Officer shall pay the purchaser the amount by
for the collection of delinquent taxes are in which such property has been redeemed and said
personam. (Talusan v. Tayag, GR 133698, Apr. 4, property shall be free from lien of such taxes and
2001) penalties. (Sec. 214, NIRC)
Q: May the BIR forfeit the property subject to Q: What are the similarities between distraint and
levy? levy?
A: Yes, forfeiture is allowed if: A:

1. there is no bidder; or 1. Summary in nature
2. bid amount is insufficient. 2. Requires notice of sale
3. May not be resorted to if the amount
Q: May the taxpayer recover his property prior to involved is less than P100
consummation of the sale?
Q: What are the distinctions among warrants of
distraint, levy and garnishment?
TAXATION LAW TEAM:
A: A: Property forfeited is transferred to another

DISTRAINT LEVY GARNISHMENT without consent of the defaulting taxpayer or
Subject matter wrongdoer.
Personal Personal property
Real property
property owned owned by the Q: How is forfeiture enforced?
owned and in
by and in taxpayer but in
the possession
possession of the possession of A:
of the taxpayer
the taxpayer the third party
1. In case of personal property By seizure
Acquisition by the Government
and sale or destruction of property (Secs.
Personal Real property
property subject to levy is
Personal property 224 and 225, NIRC)
garnished are 2. In case of real property By judgment of
distrained are forfeited to the
purchased by the condemnation and sale in a legal action or
purchased by Government
Government and
the Government then sold to proceeding (Sec. 224, NIRC)
resold to meet
and resold to meet the
deficiency
meet deficiency deficiency. Q: What is the effect of forfeiture?
Advertisement of Sale
The sale of A: Forfeiture transfers the title to the specific thing
realty subject to from the owner to the government. Also there
levy is required
would no longer be any further levy for such would
to be published
once a week for be for the total satisfaction of the tax due. (Sec 215,
3 consecutive NIRC)
No newspaper No newspaper
weeks in a
publication publication
newspaper of Q: What is the difference between forfeiture and
required required
general seizure to enforce a tax lien?
circulation in
the municipality
A:
or city where
FORFEITURE SEIZURE
the property is
located. Ownership
Ownership is transferred Taxpayer retains
Q: Is the BIR authorized to issue a warrant of to the Government ownership of property
garnishment against the bank account of a seized
taxpayer despite the pendency of taxpayers Disposition of the proceeds of sale
protest against the assessment with the BIR or Excess not returned to Excess returned to
appeal with the CTA? the taxpayer taxpayer
A: Yes, the BIR is authorized to issue a warrant of Q: What are the rules governing forfeiture?
garnishment against the bank account of a taxpayer
despite the pendency of protest. (Yabes v. Flojo, GR A:
L-46954 July 20, 1982) Nowhere in the Tax Code is 1. If there is no bidder in the public sale or if
the CIR required to first, rule on the protest before the amount of the highest bid is
he can institute collection proceedings on the tax insufficient to pay the taxes, penalties and
assessed. The legislative policy is to give the CIR costs, the real property shall be forfeited
much latitude in the speedy and prompt collection to the government.
of taxes because it is in taxation that the 2. The Register of Deeds shall transfer the
Government depends to obtain the means to carry title of forfeited property to the
on its operations. (1998 Bar Question) Government without necessity of a court
order.
3. Within 1 year from the date of sale, the
Forfeiture property may be redeemed by the
delinquent taxpayer or any one for him,
Q: Define forfeiture. upon payment of taxes, penalties and
interest thereon and cost of sale; if not
A: It is the divestiture of property without redeemed within said period, the
compensation, in consequence of a default or forfeiture shall become absolute. (Sec.
offense. 215, NIRC)
Q: What is done with the forfeited property?

SANTO TOMAS
Further Distraint and Levy A: It goes back to the taxpayer or owner of the
property.
Q: Can there be further distraint?
Q: When is the tax lien extinguished?
A: The remedy of distraint and levy may be
repeated if necessary until the full amount of the A:
tax delinquency due including all expenses is 1. By payment orremission of the tax
collected from the taxpayer. (Sec. 217, NIRC) 2. By prescription of the right of government
Otherwise, a clever taxpayer who is able to conceal to assess or collect
most of the valuable part of his property would 3. By failure to file notice of such tax lien in
escape payment of his tax liability by sacrificing an the office of Register of Deeds
insignificant portion of his holdings. 4. By destruction of property subject to tax
lien
Note: Further distraint and levy does not apply when 5. By replacing it with a bond
the real property was forfeited to the government for
it is in satisfaction of the claim in question. (Sec 215, Note: A buyer in an execution sale acquires only the
NIRC) rights of the judgment creditor.
Q: Distinguish lien from distraint.

Enforcement of Tax Lien
A:
Q: What is meant by tax lien? LIEN DISTRAINT
Directed against what?
A: It is a legal claim or charge on property, personal Need not be directed
The property subject to
or real, established by law as a sort of security for against the property
the tax
the payment of tax obligations. subject to tax
To whom directed?
Q: Is tax itself a lien? The property itself The property should be
regardless of the present presently owned by the
A: Tax is not a lien even upon the property against owner of the property taxpayer
which it is assessed, unless expressly made so by
statute.
Compromise and Abatement
Q:What is the nature of tax lien?
Q: What is meant by compromise?
A: It is enforced as payment of tax, interest,
penalties, costs upon the entire property and rights
A: It is an agreement between two or more persons
to property of the taxpayer. However, to be valid
who, amicably settle their differences on such
against any mortgagee, purchaser or judgment
terms and conditions as they may agree on to avoid
creditor, notice of such lien has to be filed by CIR
any lawsuit between them. It implies the mutual
with the Registry of Deeds. (Sec. 219, NIRC)
agreement by the parties in regard to the thing or
subject matter which is to be compromised.
Note: A valid assessment is reuired to be issued before
a tax lien shall be annotated at the proper registry of
property. It is a contract whereby the parties, by reciprocal
concessions avoid litigation or put an end to one
Q: When is tax lien applied? already commenced.
A: Q: When must compromise be made?

1. With respect to personal property Tax
lien attaches when the taxpayer neglects A:
or refuses to pay tax after demand and 1. Criminal cases Compromise must be
not from the time the warrant is served made prior to the filing of the information
(Sec. 219, NIRC) in court.
2. With respect to real property from time 2. Civil cases Before litigation or at any
of registration with the register of deeds. stage of the litigation, even during appeal,
although legal propriety demands that
Q: What happens to the residue? prior leave of court should be obtained.
TAXATION LAW TEAM:
Q: What are the requisites for Compromise: law that cast doubt on the taxpayers
obligation to withhold.
A: 6. Criminal violations already filed in courts.
1. Tax liability of the taxpayer; 7. Delinquent accounts with duly approved
2. An offer of the taxpayer of an amount to schedule of installment payments.
be paid by him; and
3. The acceptance (the CIR or the taxpayer) Note: The CTA may issue an injunction to prevent
of the offer in the settlement of the claim the government from collecting taxes under a
compromise agreement when such would be
Note: If the offer to compromise was rejected by the prejudicial to the government.
taxpayer, the compromise penalty cannot be enforced
thru an action in court, or by distraint or levy. If the CIR Q: What are the grounds for a compromise?
wants to enforce a penalty he must file a criminal
action in the courts. (CIR v. Abad GR L-19627, June 27, A:
1968) 1. Doubtful validity of assessment; or
2. Financial incapacity
Q: What are the cases which may be
compromised? Q: What are the requisites in order that
compromise settlement on the ground of financial
incapacity may be allowed?
3
A: DAC
1. Delinquent accounts A:
2. Cases under Administrative protest after 1. Clear inability to pay the tax; and
issuance of the Final Assessment Notice 2. The taxpayer must waive in writing his
to the taxpayer which are still pending in privilege of the secrecy of bank deposit
the RO, RDO, Legal Service, Large under RA 1405 or other general or special
Taxpayer Service, Collection Service, laws, which shall constitute as the CIRs
Enforcement Service, and other offices in authority to inquire into said bank
the National Office deposits (Sec. 6 [F], NIRC)
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts Q: When may an offer to compromise a delinquent
5. Criminal violations except: account or disputed assessment on the ground of
a. Those already filed in courts; and reasonable doubt as to the validity of the
b. Those involving criminal tax fraud. assessment be accepted?
(Sec.3, RR 30-2002)
A: When:
Q: What are the cases which cannot be 1. The delinquent account or disputed
compromised? assessment is one resulting from a
jeopardy assessment.
3
A: F EW-CD 2. The assessment seems to be arbitrary in
1. Criminal tax Fraud cases, confirmed as nature, appearing to be based on
such by the CIR or his duly authorized presumptions and there is reason to
representative. believe that it is lacking in legal and/or
2. Cases where Final reports of factual basis.
reinvestigation or reconsideration have 3. The taxpayer failed to file an
been issued resulting to reduction in the administrative protest on account of the
original assessment and the taxpayer is alleged failure to receive notice of
agreeable to such decision by signing the assessment and there is reason to believe
required agreement form for the purpose. that the assessment is lacking in legal
3. Cases which become Final and executory and/or factual basis.
after final judgment of a court, where 4. The taxpayer failed to file a request for
compromise is requested on the ground reinvestigation/reconsideration within 30
of doubtful validity of the assessment. days from receipt of final assessment
4. Estate tax cases where compromise is notice and there is reason to believe that
requested on the ground of financial the assessment is lacking in legal and/or
incapacity of the taxpayer. factual basis.
5. Withholding tax cases, unless the 5. The taxpayer failed to elevate to the CTA
applicant taxpayer invokes provisions of an adverse decision of the CIR, or his
authorized representative, in some cases,
SANTO TOMAS
within 30 days from receipt thereof and the assessed tax provided that the
there is reason to believe that the minimum compromise entered into
assessment is lacking in legal and/or is equivalent to 10% of the basic
factual basis. assessed tax.
6. Assessments made based on the Best
Evidence Obtainable Rule and there is Note: In these instances, the CIR is allowed
reason to believe that the same can be to enter into a compromise only if the basic
disputed by sufficient and competent tax involved does not exceed P1M and the
evidence. settlement offered is not less than the
7. Assessment was issued within the prescribed percentages. (Sec. 204 [A], NIRC)
prescriptive period for assessment as If the basic tax involves exceeds P1 million
extended by the taxpayers execution of or when the settlement offered is less than
the prescribed minimum rates the approval
waiver of the Statute of Limitations the
of the Evaluation Board is needed.
validity or authenticity of which is being
questioned or at issue and there is strong A preliminary compromise may be entered
reason to believe and evidence to prove into by subordinate officials subject to
that it is not authentic. (Sec. 3.1, RR 30- review by the CIR.
2002)
2. The Regional Evaluation Board (REB) may
Q: Define compromise penalty. compromise:
a. Tax assessments by revenue officers
A: It is a certain amount of money paid in lieu of involving basic deficiency taxes of
criminal prosecution and cannot be imposed in the P500,000 or less; and
absence of a showing that the taxpayer consented b. For minor criminal violations (RR 7-
thereto. 2001)
Q: When must compromise be entered into? Note: The REB shall becomposed of:
a. The Regional Director as Chairman;
A: It must be entered into prior to the institution of b. The Assistant Regional Director;
the corresponding criminal action arising out of a c. Chief, Legal Division;
violation of the provisions of the Tax Code. A d. Chief, Assessment Division;
compromise can never be entered into after final e. Chief, Collection Division; and
judgment because by virtue of such final judgment f. Revenue District Officer having
the Government had already acquired a vested jurisdiction over the taxpayer-applicant
right. (Roviro v. Amparo, G.R. L- 5482, May 5, 1982)
Q: What is the extent of Commissioners power to
Note: A compromise validly entered into between the compromise criminal violations?
CIR and the taxpayer prior to the institution of the
corresponding criminal action arising out of a violation A:
of the provisions of the Tax Code becomes a bar to 1. Before the complaint is filed with the
such criminal action. (People v. Magdaluyo, GR L- Prosecutors Office full discretion to
16235, Apr. 20,1965) compromise except those involving fraud;
Q: Who may compromise tax cases? 2. After the complaint is filed with the
Prosecutors Office but before the
A: information is filed with the court can
1. The CIR may compromise with respect to still compromise provided that the
criminal and civil cases arising from prosecutor gives his consent;
violations of the NIRC as well as the
payment of any internal revenue tax 3. After the information is filed with the
when: court no longer permitted to
compromise with or without the consent
a. A reasonable doubt as to the validity of the Prosecutor. (People v. Magdaluyo,
of the claim against the taxpayer GR L-1595, Apr. 20, 1961)
exists provided that the minimum
compromise entered into is Q: Can the court compel the CIR to compromise in
equivalent to 40% of the basic tax; or cases when such is allowed?
b. The financial position of the taxpayer
demonstrates a clear inability to pay
TAXATION LAW TEAM:
A: No, to assure that no improper compromise is

made to the prejudice of the Government. Q: What is meant by abatement of tax liability?
Q: What are the limitations on the power to A: It is the cancellation of a tax liability.
compromise a tax liability?
Q: Differentiate compromise from abatement.
A:
1. Minimum compromise rate: A: Compromise involves a reduction of the
a. In case of financial incapacity, 10% of taxpayers liability, while abatement means that the
basic assessed tax entire tax liability of the taxpayer is cancelled.
b. In other cases, 40% of basic assessed
tax Q: When is the CIR authorized to abate or cancel a
tax liability?
2. Subject to approval of Evaluation Board:
a. When basic tax involved exceeds A:
P1,000,000 1. The tax or any portion thereof appears to
b. Where the settlement offered is less be unjustly or excessively assessed; or
than the prescribed minimum rates. 2. The administration and collection costs
(Sec. 204, NIRC) involved do not justify the collection of
c. When the CIR is not authorized to the amount due. (Sec. 204[B], NIRC)
compromise
Q: What are the instances when the tax liabilities,
Note: The minimum compromise rate may be less than penalties and/or interest imposed on the taxpayer
the prescribed rates, as the case may be, provided it is may be abated on the ground that the imposition
approved by the Evaluation Board. thereof is unjust or excessive?
Q: What are the remedies in case the taxpayer A: When: [W-SLICE]

refuses or fails to follow the tax compromise? 1. The filing of the return/payment is made
at the Wrong venue.
A:
1. Enforce the compromise 2. The taxpayer fails to file the return and
a. If it is a judicial compromise, it can pay the tax on time due to:
be enforced by mere execution. A a. Substantial losses from prolonged
judicial compromise is one where a labor dispute;
decision based on the compromise b. Force majeure;
agreement is rendered by the court c. Legitimate business reverses.
on request of the parties.
b. Any other compromise is Note: The abatement shall only cover the
extrajudicial and like any other surcharge and the compromise penalty and
contract can only be enforced by not the interest imposed under Sec. 249,
court action. NIRC (also applicable in number 5)
2. Regard it as rescinded and insist upon 3. There is Late payment of the tax under
original demand (Art. 2041, Civil Code) meritorious circumstances (i.e. Failure to
beat bank cut-off time, surcharge
Q: What is the prescriptive period to enforce erroneously imposed.)
compromises?
4. The assessment is brought about or
A: As a rule, the obligation to pay tax is based on resulted from taxpayers non-compliance
law. But when, for instance, a taxpayer enters into a with the law due to a difficult
compromise with the BIR, the obligation of the Interpretation of said law.
taxpayer becomes one based on contract.
Compromise is a contract whereby the parties, by 5. The taxpayer fails to file the return and
reciprocal concessions, avoid litigation or put an pay the correct tax on time due to
end to one already commenced. (Art. 2028 NCC) Circumstances beyond his control.
Since it is a contract, the prescriptive period to
enforce the same is 10 years based on Art. 1144 6. The taxpayers mistake in payment of his
NCC reckoned from the time the cause of action tax is due to Erroneous written official
accrued.
SANTO TOMAS
advice of a revenue officer (Sec. 2, RR 13- when: (1) the tax or any portion thereof appears to
2001) have been unjustly or excessively assessed; or (2)
the administrative and collection costs involved do
7. Other similar or analogous cases. not justify collection of the amount due. (Sec. 204,
NIRC) (1996 Bar Question)
Q: What are the instances when the tax liabilities,
penalties and/or interest imposed on the taxpayer Q: May the CIR compromise the payment of
may be abated on the ground that tax withholding tax where the financial position of the
administration and collection costs are more than taxpayer demonstrates a clear inability to pay the
the amount sought to be collected? assessed tax?
A: A-WORD A: No, a taxpayer who is constituted as withholding

1. Abatement of penalties on assessment agent who has deducted and withheld at source the
confirmed by the lower court but tax on the income payment made by him holds the
Appealed by the taxpayer to a higher taxes in trust for the government (Sec. 58 [D], NIRC)
court. and is obligated to remit them to the BIR. The
2. Abatement of penalties on Withholding subsequent inability of the withholding agent to
tax assessment under meritorious pay/remit the taxes withheld is not a ground for
circumstances. compromise because the withholding tax is not a
3. Abatement of penalties on assessment tax upon the withholding agent but it is only a
reduced after Reinvestigation but procedure for the collection of a tax. (1998 Bar
taxpayer is still contesting reduced Question)
assessment.
4. Abatement of penalties on Delayed Q: May the tax liability of a taxpayer be
installment payment under meritorious compromised during the pendency of an appeal?
circumstances.
5. Such Other circumstances which the CIR A: Yes, as long as any of the grounds for a
may deem analogous to the enumeration compromise i.e.; doubtful validity of assessment
above (Sec. 3, RR 13-2001) and financial incapacity of taxpayer is present. A
compromise of a tax liability is possible at any stage
Q: Explain the extent of the authority of the CIR to of litigation, even during appeal, although legal
compromise and abate taxes? propriety demands that prior leave of court should
be obtained. (Pasudeco v. CIR, GR L-39387, June 29,
A: The authority of the CIR to compromise 1982) (1996 Bar Question)
encompasses both civil and criminal liabilities of the
taxpayer. The civil compromise is allowed only in Q: After the tax assessment had become final and
cases: (1) where the tax assessment is of doubtful unappealable, the CIR initiated the filing of a civil
validity, or (2) when the financial position of the action to collect the tax due from NX. After several
taxpayer demonstrates a clear inability to pay the years, a decision was rendered by the court
tax. ordering NX to pay the tax due plus penalties and
surcharges. The judgment became final and
The compromise settlement of any tax liability shall executory, but attempts to execute the judgment
be subject to the following minimum amounts: (1) award were futile.
ten percent (10%) of the basic assessed tax in case
of financial capacity; and (2) forty percent (40%) of Subsequently, NX offered the CIR a compromise
the basic assessed tax in other cases. settlement of 50% of the judgment award,
Where the basic tax involved exceeds P1 million or representing that this amount is all he could really
where the settlement offered is less than the afford. Does the CIR have the power to accept the
prescribed minimum rates, the compromise shall be compromise offer? Is it legal and ethical?
subject to the approval of the Evaluation Board
which shall be composed of the CIR and the four (4) A: Yes, the CIR has the power to accept the offer of
Deputy Commissioners. compromise if the financial position of the taxpayer
clearly demonstrates a clear inability to pay the tax.
All criminal violations may be compromised except: (Sec. 204, NIRC)
(1) those already filed in court, or (2) those
involving fraud. As represented by NX in his offer, only 50% of the
judgment award is all he could really afford. This is
The CIR may also abate or cancel a tax liability an offer for compromise based on financial
TAXATION LAW TEAM:
incapacity which the CIR shall not accept unless 1. Must follow and
accompanied by a waiver of the secrecy of bank observe the legal
deposits. (Sec. 6 [F], NIRC) The waiver will enable parameters set forth
in the law. (e.g. An
the CIR to ascertain the financial position of the
action for collection
taxpayer, although the inquiry need not be limited by the BIR (Sec. 205,
only to the bank deposits of the taxpayer but also NIRC) must be filed
as to his financial position as reflected in his within the
financial statements or other records upon which prescriptive period Judicial remedies are
his property holdings can be ascertained. (Sec. 222, NIRC); exclusive. Thus, the CIR
decision must be
If indeed, the financial position of NX as determined 2. Must be approved by appealed to the CTA and
the CIR (Sec. 220, the CTA en banc decision
by the CIR demonstrates a clear inability to pay the
NIRC) must be appealed to the
tax, the acceptance of the offer is legal and ethical SC.
for the ground upon which the compromise was
anchored is within the context of the law and the
rate of compromise is well within and far exceeds
the minimum prescribed by law which is only 10%
of the basic tax assessed. (2004 Bar Question)
Q: Distinguish Compromise from Abatement.
A: If implied
Compromise Abatement
Involves a reduction of Involves the cancellation of May resort to the laws of
the taxpayers liability. the entire tax liability of a May avail of the usual general application. Thus,
taxpayer. judicial remedies for a declaratory relief may
Officers authorized to Officer authorized to abate convenience and be availed of if the law
compromise: CIR and or cancel tax, penalties expediency. does not provide for
Regional Evaluation and/or interest: CIR judicial remedies.
Board
Grounds: Grounds:
2. Reasonable doubt 1. The tax or any portion
Q: Whose approval is needed for the filing of the
as to the validity of thereof appears to be
assessment; unjustly or excessively judicial remedies in court?
3. Financial assessed; or
incapacity of the 2. The administration and A: No civil or criminal action for the recovery of
taxpayer collection costs taxes or the enforcement of any fine, penalty or
involved do not justify forfeiture under the NIRC shall be filed in court
the collection of the without the approval of the CIR. (Sec. 220 NIRC)
amount due. Regional Directors may approve the filing of such if
this power is expressly delegated to him by the CIR.
(Sec. 7, NIRC)
JUDICIAL REMEDIES
Civil Action.
Q: What are the judicial remedies available to the
government? Q: Define civil action.
A: A: For tax remedy purposes, these are actions

1. Ordinary civil action instituted by the government to collect internal
2. Criminal action revenue taxes in the regular courts after
assessment by CIR has become final and executory.
Q: What are the guidelines that must be observed
with respect to judicial remedies? It includes, however, the filing by the government
of claims against the deceased taxpayer with the
A: probate court.
GOVERNMENT TAXPAYER
If express
Q: What are the two ways to enforce civil liability
through civil actions?

SANTO TOMAS
A: A:
1. By filing a civil case for collection of a sum 1. CTA - where the principal amount of taxes
of money with the proper regular court; or and fees, exclusive of charges and
2. By filing an answer to the petition for penalties claimed is P1 million and above;
review filed by taxpayer with CTA
2. RTC, MTC, MeTC - where the principal
Q: When is civil action resorted to? amount of taxes and fees, exclusive of
charges and penalties claimed is less than
A: It is resorted to when a tax liability becomes P1 million. (Sec. 7, R.A. 9282)
collectible. It is collectible:
1. When tax is assessed and the assessment AMOUNT OF TAXES
COURTS
became final and executory because the INVOLVED
taxpayer fails to file a protest with the CIR Municipal Trial Courts Amount does not exceed
within 30 days from receipt. outside Metro Manila 300,000
2. When a protest against assessment is Municipal Trial Courts Amount does not exceed
filed and a decision of the CIR was within Metro Manila 400,000
rendered but the said decision became Regional Trial Courts
300,001 to 999,999
outside Metro Manila
final, executory and demandable for
Regional Trial Courts
failure of the tax payer to appeal the 400,001 to 999,999
within Metro Manila
decision to the CTA within 30 days from
the receipt of the decision.
Q: What is the effect of filing a civil action?
3. When the protest is not acted upon by
the CIR within 180 days from the
A: Once an action is filed with the regular courts,
submission of the documents and the
the taxpayer can no longer assail the validity or
taxpayer failed to appeal with the CTA
legality of assessment.
within 30 days from the lapse of the 180
days period. (Sec. 228, NIRC)
Q: On Mar. 15, 2000, the BIR issued a deficiency
income tax assessment for the taxable year 1997
Note: In the case of a false or fraudulent return
with intent to evade tax or of failure to file a
against the Valera in the amount of P10 million.
return, a proceeding in court for the collection of Counsel for Valera protested the assessment and
such tax may be filed without assessment, at any requested a reinvestigation of the case. During the
time within 10 years after the discovery of the investigation, it was shown that Valera had been
falsity, fraud or omission. (Sec. 222 [a], NIRC) transferring its properties to other persons. As no
additional evidence to dispute the assessment had
Q: What is the form and mode of proceeding? been presented, the BIR issued on June 16, 2000
warrants of distraint and levy on the properties
A: and ordered the filing of an action in the RTC for
1. Civil actions shall be brought in the name the collection of the tax. Counsel for Valera filed
of the Government of the Philippines. an injunctive suit in the RTC to compel the BIR to
2. It shall be conducted by legal officers of hold the collection of the tax in abeyance until the
the BIR. decision on the protest was rendered.
3. The approval by the Solicitor General 1. Can the BIR file the civil action for collection,
together with the approval of the CIR for pending decision on the administrative
civil actions for collection of delinquent protest?
taxes is required before they are filed. 2. As counsel for Valera, what action would you
(Sec. 220 NIRC) take in order to protect the interest of your
client?
Note: BIR legal officers deputized as Special
Attorneys who are stationed outside Metro A:
Manila may file verified complaints with the 1. Yes, because there is no prohibition for
approval of the Solicitor General. Provided that a this procedure considering that the filing
copy of the complaint is furnished to the Solicitor of a civil action for collection during the
General. The Solicitor General must file a notice pendency of an administrative protest
of appearance in the court where it was filed. constitutes the final decision of the CIR on
the protest in denying the same. (CIR v.
Q: Where to file civil actions? Union Shipping Corp., GR 66160, May 21,
1990)
TAXATION LAW TEAM:
2. I will wait for the filing of the civil action Tariff and Customs Code and other laws
for collection and consider the same as an administered by the BIR and the BOC
appealable decision. Injunctive suit is not where the principal amount of taxes and
an available remedy. I would then appeal fees, exclusive of charges and penalties
the case to the CTA and move for the claimed is less than P1 million. (Sec. 7, RA
dismissal of the collection case with the 9282)
RTC. Once the appeal to the CTA is filed
on time, the CTA has exclusive jurisdiction Q: Does acquittal in the criminal action on tax
over the case. Hence, the collection case liability exonerate the taxpayer from payment of
in the RTC should be dismissed. (Yabes v. civil liability to pay tax?
Flojo, GR L-46954, July 20, 1982)
A: No. Generally it is the criminal liability that would
give rise to the civil liability, but in tax cases the
Criminal Action criminal liability arises from the act of not paying
the tax due which occurred first. The basis of the
Q: What is the purpose for filing a criminal civil liability is not from the criminal liability but
complaint? from the act of not paying the tax. Thus, the
exoneration from criminal action will not exonerate
A: Criminal complaint is instituted not to demand the taxpayer from its civil liability. (Republic v.
payment but to penalize taxpayer for the violation Patanao, GR L-22356, July 21, 1967)
of the NIRC.
Q: What is the effect of the subsequent
Q: What is the nature of this remedy? satisfaction of civil liability?
A: Criminal action is resorted to not only for A: The subsequent satisfaction of civil liability by
collection of taxes but also for enforcement of payment or prescription does not extinguish the
statutory penalties of all sorts. taxpayers criminal liability.
Q: What are the two common crimes punishable Q: Can there be subsidiary imprisonment in case
under the NIRC? the taxpayer is insolvent?
A: A: In case of insolvency on the part of the taxpayer,

1. Willful attempt to evade or defeat tax subsidiary imprisonment cannot be imposed as
(Sec. 254, NIRC) regards the tax which he is sentenced to pay.
2. Failure to file return, supply correct and However, it may be imposed in cases of failure to
accurate information, pay tax, withhold pay the fine imposed. (Sec. 280, NIRC)
and remit tax and refund excess taxes
withheld on compensation (Sec. 255, Q: May a criminal action be filed despite the lapse
NIRC) of the period to file a civil action for collection of
taxes?
Q: Where is it filed?
A: Yes, provided that the criminal action is
A: The criminal charge is filed directly with the instituted within 5 years from the commission of
Department of Justice with the approval of the CIR. the violation or from the discovery thereof,
whichever is later. Also the two have different
Q: Where should the information be filed? prescriptive periods and such period would run
independently from each other.
A:
1. CTA - on criminal offenses arising from Q: Is assessment necessary before a taxpayer may
violations of the NIRC or Tariff and be prosecuted for willfully attempting in any
Customs Code and other laws manner to evade or defeat any tax imposed by the
administered by the BIR and the BOC NIRC?
where the principal amount of taxes and
fees, exclusive of charges and penalties A: No, provided there is a prima facie showing of a
claimed is P1 million and above. willful attempt to evade taxes as in the taxpayers
failure to declare a specific item of taxable income
2. RTC, MTC, MeTC - on criminal offenses in his income tax returns. A crime is complete when
arising from violations of the NIRC or the violator has knowingly and willfully filed a

SANTO TOMAS
fraudulent return with intent to evade and defeat special law. After investigation of its withholding
the tax. (Ungab v. Cusi, GR L-41919-24, May 30, tax returns for the taxable year 1997, the BIR
1980) (1998 Bar Question) issued a deficiency withholding tax assessment in
the amount of P150.000. On May 15, 1999,
Q: Mr. Chan, a manufacturer of garments, was because of financial difficulty, the deficiency tax
investigated for failure to file tax returns and to remained unpaid, as a result of which the
pay taxes. Despite the subpoena duces tecum assessment became final and executory. The BIR
issued to him, he refused to submit his books of also found that, in violation of the provisions of
accounts and allied records. Investigators, raided the NIRC, Minolta did not file its final corporate
his factory and seized several bundles of income tax return for the taxable year 1998,
manufactured garments, supplies and unpaid because it allegedly incurred net loss from its
imported textile materials. After his apprehension operations. On May 17, 2002, the BIR filed with
and based on the testimony of a former employee, the RTC an action for collection of the deficiency
deficiency income and business taxes were withholding tax for 1997.
assessed against Mr. Chan. It was then that he
paid the taxes. Action was instituted against him 1. Will the BIR's action for collection prosper? As
in the RTC for violation of the NIRC. Mr. Chan counsel of Minolta, what action will you take?
demanded the return of the garments and 2. May criminal violations of the NIRC be
materials seized from his factory on the ground compromised? If Minolta makes a voluntary offer
that he had already paid the taxes assessed to compromise the criminal violations for non-
against him. How will you resolve Mr. Chan's filing and non-payment of taxes for the year 1998,
motion? may the CIR accept the offer?
A: The garments and materials seized from the A:

factory should be ordered returned because the 1. Yes. BIR's action for collection will prosper
payment of the tax had released them from any lien because the assessment is already final
that the Government has over them. (2002 Bar and executory, it can already be enforced
Question) through judicial action.
Q: The BIR filed before the DOJ a criminal As counsel of Minolta, I will introduce
complaint against a corporation and its officers for evidence that the income payment was
alleged evasion of taxes. The complaint was reported by the payee and the income tax
supported by a sworn statement of the BIR was paid thereon in 1997 so that my
examiners showing the computation of the tax client may only be allowed to pay the civil
liabilities of the erring taxpayer. The corporation penalties for non-withholding pursuant to
filed a motion to dismiss the criminal complaint on RMO 38-83.
the ground that no assessment of its tax liability
has been done. The DOJ denied the motion on the 2. All criminal violations of the NIRC may be
ground that the joint affidavit of the BIR compromised except those already filed
examiners may be considered as an assessment of in court or those involving fraud. (Sec.
the tax liability of the corporation. Is the ruling of 204, NIRC) Accordingly, if Minolta makes a
the DOJ correct? voluntary offer to compromise the
criminal violations for non-filing and non-
A: No, the DOJ is incorrect when it ruled that the payment of taxes for the year 1998, the
joint affidavit of the BIR examiners may be CIR may accept the offer which is allowed
considered as an assessment of the tax liability of by law. However, if it can be established
the corporation. The joint affidavit showing the that a tax has not been paid as a
computation of the tax liabilities of the erring consequence of non-filing of the return,
taxpayer is not a tax assessment for it was not sent the civil liability for taxes may be dealt
to the taxpayer and does not demand payment of with independently of the criminal
the tax within a certain period of time. An violations. The compromise settlement of
assessment is deemed made only when the BIR the criminal violations will not relieve the
releases, mails or sends such notice to the taxpayer. taxpayer from its civil liability. But the civil
(CIR v. Pascor Realty and Development Corp., GR liability for taxes may also be
128315, June 29, 1999) (2005 Bar Question) compromised if the financial position of
the taxpayer demonstrates a clear
Q: Minolta is an EPZA-registered enterprise inability to pay the tax. (2002 Bar
enjoying preferential tax treatment under a Question)
TAXATION LAW TEAM:
Prescriptive Period for the assessment which is enforceable by the BIR. It is the
Filing of Criminal Action issuance of the final notice and demand letter
dated Apr. 15, 1997 and the failure of the taxpayer
Q: What is the prescriptive period for filing of a to protest within 30 days from receipt thereof that
criminal action? made the assessment final and unappealable. The
earliest date that the assessment has become final
A: The period is 5 years from commission or is May 16, 1997 and since the criminal charge was
discovery of the violation, whichever is later. (Sec. instituted on Jan. 10, 2002, the same was timely
281, NIRC) filed. (2002 Bar Question)
The cause of action for willful failure to pay Q: Gerry was being prosecuted by the BIR for
deficiency tax occurs when the final notice and failure to pay his income tax liability for calendar
demand for the payment thereof is served upon the year 1999 despite several demands by the BIR in
taxpayer. 2002. The Information was filed with the RTC only
last June 2006. Gerry filed a motion to quash the
The 5-year prescriptive period commences to run Information on the ground of prescription, the
only after receipt of the final notice and demand Information having been filed beyond the 5-year
and the taxpayer refuses to pay. reglementary period. If you were the judge, will
you dismiss the Information?
Note: In addition to the fact of discovery of the filing of
a fraudulent return, there must be a judicial A: No, the trial court can exercise jurisdiction.
proceeding for the investigation and punishment of Prescription of a criminal action begins to run from
the tax offense before the 5-year limiting period to the day of the violation of the law. The crime was
institute a criminal action for filing a fraudulent return committed when Gerry willfully refused to pay
begins to run. The crime of filing false returns can be despite repeated demands in 2002. Since the
considered "discovered" only after the manner of information was filed in June 2006, the criminal
commission, and the nature and extent of the fraud
case was instituted within the five-year period
have been definitely ascertained. Note the conjunctive
required by law. (Tupaz v. Ulep, GR 127777, Oct. 1,
word and between the phrases the discovery
thereof and the institution of judicial proceedings for
1999; Sec. 281, NIRC) (2006 Bar Question)
its investigation and proceedings. (Lim, Sr. v. CA, GR
48134-37, Oct. 18, 1990)
Statutory Offenses and Penalties
Q: TY Corp. filed its final adjusted income tax
return for 1993 on Apr. 12, 1994 showing a net Civil Penalties
loss. After investigation, the BIR issued a pre-
assessment notice on Mar. 30, 1996. A final notice Q: What is the nature of civil penalties?
and demand letter dated Apr. 15, 1997 was issued,
personally delivered to and received by the A: They are imposed in addition to the tax required
company's chief accountant. For willful refusal and to be paid.
failure of TY Corp. to pay the tax, warrants of
distraint and levy on its properties were issued
and served upon it. On Jan. 10, 2002, a criminal Surcharge
charge for violation of the NIRC was instituted in
the RTC with the approval of the CIR. Q: What is a surcharge or surtax?
The company moved to dismiss the criminal A: It is a civil penalty imposed by law as an addition
complaint on the ground that an act for violation to the main tax required to be paid. It is a civil
of any provision of the NIRC prescribes after 5 administrative sanction provided as a safeguard for
years and, in this case, the period commenced to the protection of the State revenue and to
run on Mar. 30, 1996 when the pre-assessment reimburse the government for the expenses of
was issued. How will you resolve the motion? investigation and the loss resulting from the
taxpayers fraud. A surcharge added to the main tax
A: The motion to dismiss should not be granted. It is is subject to interest.
only when the assessment has become final and
unappealable that the 5-year period to file a Q: What are the corresponding rates of
criminal action commences to run. (Tupaz v. Ulep, surcharges?
GR 127777, Oct. 1, 1999) The pre-assessment
notice issued on Mar. 30, 1996 is not a final

SANTO TOMAS
A:
1. Twenty-five percent (25%) of the amount Q: Businessman Lincoln filed an income tax return
due, in the following cases: F-TOP for 1993 showing business net income of P350,000
on which he paid an income tax of P61,000. After
a. Failure to File any return and pay the filing the return he realized that he forgot to
tax due thereon as required under include an item of business income in 1993 for
the provisions of the NIRC or rules P50.000. Being an honest taxpayer, he included
and regulations on the date this income in his return for 1994 and paid the
prescribed corresponding income tax thereon. In the
b. Failure to pay the deficiency tax examination of his 1993 return the BIR examiner
within the Time prescribed for its found that Lincoln failed to report this item of
payment in the notice of assessment P50.000 and assessed him a deficiency income tax
c. Unless otherwise authorized by the on this item, plus a 50% fraud surcharge.
CIR, filing a return with an internal
revenue officer Other than those 1. Is the examiner correct?
with whom the return is required to 2. If you were the lawyer of Lincoln, what would
be filed you have advised your client before he
d. Failure to Pay the full or part of the included in his 1994 return the amount of
amount of tax shown on any return P50.000 as 1993 income to avoid the fraud
required to be filed under the surcharge?
provisions of the NIRC or rules and 3. Considering that Lincoln had already been
regulations, or the full amount of tax assessed a deficiency income tax for 1993 for
due for which no return is required his failure to report the P50.000 income, what
to be filed, on or before the date would you advise him to do to avoid the
prescribed for its payment (Sec 248 penalties for tax delinquency?
[A], NIRC) 4. What would you advise Lincoln to do with
regard to the income tax he paid for the
2. The penalty shall be fifty percent (50%) of P50.000 in his 1994 return? In case your
the tax or of the deficiency tax, in the remedy fails, what is your other recourse?
following cases:
a. Willful neglect to file the return A:
within the period prescribed; or 1. The examiner is correct in assessing a
b. False or fraudulent return is willfully deficiency income tax for taxable year
made (Sec. 248 [B], NIRC) 1993 but not in imposing the 50% fraud
surcharge. The amount of all items of
Q: When is a return deemed false or fraudulent? gross income must be included in gross
income during the year in which received
A: A prima facie evidence of false or fraudulent or realized. (Sec. 38, NIRC) The 50% fraud
return arises when there is: under-over surcharge attaches only if a false or
1. A substantial under declaration of taxable fraudulent return is willfully made by
sales, receipts or income; or Lincoln. (Sec.248, NIRC) The fact that
2. A substantial overstatement of Lincoln included it in his 1994 return
deductions (Sec. 248, NIRC) belies any claim of willfulness but is
rather indicative of an honest mistake
Q: When is there a substantial underdeclaration of which was sought to be rectified by a
taxable sales, receipts or income? subsequent act that is the filing of the
1994 return.
A: When there is failure to report sales, receipts or
income in an amount exceeding 30% of that 2. Lincoln should have amended his 1993
declared per return. income tax return to allow for the
inclusion of the P50,000 income during
the taxable period it was realized.
Q: When is there a substantial overstatement of
deductions? 3. Lincoln should file a protest questioning
the 50% surcharge and ask for the
A: There is a substantial overstatement of abatement thereof.
deductions where a claim of deduction exceeds 30%
of actual deductions. 4. Lincoln should file a written claim for
TAXATION LAW TEAM:
refund with the CIR of the taxes paid on

the P50.000 income included in 1994 A: If any person required to pay the tax is qualified
within 2 years from payment pursuant to and elects to pay the tax on installment under the
Sec. 204 [3] of the NIRC. Should this provisions of the NIRC, but fails to pay the tax or
remedy fail in the administrative level, a any installment hereof, or any part of such amount
judicial claim for refund can be instituted or installment on or before the date prescribed for
before the expiration of the 2 year period. its payment, or where the CIR has authorized an
(1995 Bar Question) extension of time within which to pay a tax or a
deficiency tax or any part thereof, there shall be
assessed and collected interest at the rate
Interest hereinabove prescribed on the tax or deficiency tax
or any part thereof unpaid from the date of notice
Q: Are there interests to be paid in addition to the and demand until it is paid.
tax?
*See discussion on Compromise and Abatement
A: Yes, there shall be assessed and collected on any
unpaid amount of tax, interest at the rate of 20%
per annum, or such higher rate as may be Organization and Function of the BIR
prescribed by rules and regulations, from the date
prescribed for payment until the amount is fully Tax Administration
paid. (Sec. 249, NIRC)
Q: What is tax administration?
Deficiency Interest A: It refers to the manner and procedure of

assessing and collecting or enforcing tax liabilities.
Q: What is Deficiency Interest?
Q: What are the powers and duties of the BIR?
A: Any deficiency in the tax due, as the term is
defined in the NIRC, shall be subject to the interest A:
prescribed in subsec. A hereof, which interest shall 1. Assessment and collection of all national
be assessed and collected from the date prescribed internal revenue taxes, fees and charges;
for payment until the amount is fully paid (Sec. 249, 2. Enforcement of all forfeitures, penalties
NIRC) and fines;
3. Execution of judgments in all cases
decided in its favor (by the CTA and
Delinquency Interest regular courts);
4. Give effect and administer the
Q: What is Delinquency Interest? supervisory and police powers conferred
to it by the NIRC and other laws.
A: In case of failure to pay: 5. Recommend to the Secretary of Finance
1. The amount of the tax due on any return all needful rules and regulations for the
required to be filed; or effective enforcement of the provision of
2. The amount of the tax due for which no the NIRC.
return is required; or
3. A deficiency tax, or any surcharge or Q: Is the BIR authorized to collect estate tax
interest thereon on the due date deficiencies by the summary remedy of levy upon
appearing in the notice and demand of and sale of real properties of the decedent
the CIR, without first securing the authority of the court
sitting in probate over the supposed will of the
There shall be assessed and collected on the unpaid decedent?
amount, interest at the rate prescribed in subsec. A
hereof until the amount is fully paid, which interest A:Yes, the BIR is authorized to collect estate tax
shall form part of the tax. (Sec. 249, NIRC) deficiency through the summary remedy of levying
upon and sale of real properties of a decedent
without the cognition and authority of the court
Interest on Extended Payment sitting in probate over the supposed will of the
deceased because of the collection of estate tax is
Q: What is interest on extended payment? executive in character. As such the estate tax is

SANTO TOMAS
exempted from the application of the statute of 9. To Inquire into bank deposits of
non-claims, and this is justified by the necessity of a. Decedent to determine his gross
government funding, immortalized in the maxim income;
that taxes are the lifeblood of the government. b. A taxpayer who filed application to
(Marcos v. CIR, GR 120880, June 5, 1997) (1998 Bar compromise payment of tax liability
Question) by reason of financial incapacity;
c. A specific taxpayer or taxpayers
Q: Who are the Chief Officials of the BIR? subject of a request for the supply of
tax information from a foreign tax
A: The BIR is headed by the CIR and 6 Deputy authority pursuant to an
Commissioners, who lead the following divisions: international convention or
1. Operations group agreement on tax matters to which
2. Legal Inspection Group the Philippines is a signatory or a
3. Resource and Management Group party of. Provided, That the
4. Information Systems Group information obtained from the
5. Prosecution Group banks and other financial
6. Special Concerns Group institutions may be used by the BIR
for tax assessment, verification,
Q: What are the powers of the Commissioner? audit and enforcement purposes;
A: DO TIRE, RAID PIA 10. To Delegate powers vested upon him to

subordinate officials with rank equivalent
1. Decide disputed assessments, refunds of to Division Chief or higher, subject to
internal revenue taxes, fees, charges and limitations and restrictions imposed
penalties in relation thereto or other under the rules and regulations.
matters related to it subject to the
exclusive appellate jurisdiction of the 11. To Prescribe real property values;
CTA;
12. To take Inventory of goods of any
Note: RR 12-99 - Power to decide disputed taxpayer, and place any business under
assessments may also be exercised by observation or surveillance IF there is
Regional Directors. reason to believe that such is not
declaring his correct income, sales or
2. To Obtain information, summon, receipts for tax purposes;
examine and take testimony of persons.
13. To register tax Agents;
3. To Terminate taxable period for reasons
provided in the NIRC; Q: What are the purposes of these powers?
4. To Interpret provisions of the NIRC and A:

other tax laws subject to review by the 1. To ascertain correctness of the return;
Secretary of Finance; 2. To make a return when none has been
made;
5. To make or amend Return in case 3. To determine liability of any person for
taxpayer fails to file a return or files a any internal revenue tax;
false or fraudulent return; 4. To collect such liability;
5. To evaluate tax compliance.
6. To Examine returns and determine tax
due; Q: What is the scope of such powers?
7. To prescribe any additional Requirements A:

for the submission or preparation of 1. To examine any book, paper, record or
financial statements accompanying tax other data which may be relevant or
returns; material to such inquiry;
2. To obtain any information (costs, volume
8. To make Assessments, prescribe of production, receipts, sales, gross
additional requirements for tax income) on a regular basis, from any
administration and purposes; person other than the person under
TAXATION LAW TEAM:
investigation and any office or officer of exceptions to the law on prescription should
the national/local government; perforce be strictly construed. (CIR v. Goodrich
3. To summon the following to produce Philippines Inc., GR 104171, Feb. 24, 1999)
records and to give testimony:
a. The person liable for tax or required Note: In the Citytrust case, which involves a claim for
to file a return; refund, the error or neglect was the failure of the
b. Any officer or employee of such Solicitor General to present its evidence, as counsel for
person; the CIR, due to the unavailability of the necessary
c. Any person having in his possession, records from BIR, prompting the Solicitor to submit the
custody and care the books of case for decision without presenting any evidence.
accounts, accounting records of While in Goodrich, the error committed refers to the
neglect of the BIR to make assessment within the 3-
entries related to the business of
year period as required in Sec. 203, NIRC.
such taxpayer.
Q: What are the powers of the BIR which cannot Rule-making Authority of the Secretary of Finance
be delegated?
Authority of Secretary of Finance to
A: RICA Promulgate Rules and Regulations
1. To Recommend promulgation of rules
and regulations by the Secretary of Q: What law provides for the authority of the
Finance; Secretary of Finance to promulgate rules and
2. To Issue rulings of first impression or to regulations?
reverse, revoke or modify any existing
rule of the BIR; A: Sec. 244 of the NIRC provides the authority for
3. To Compromise or abate any tax liability; the Secretary of Finance. It states, upon
recommendation of the CIR, the Secretary of
XPN: The Regional Evaluation Board may Finance shall promulgate all needful rules and
compromise assessments involving regulations for the effective enforcement of the
deficiency taxes of P500,000 or less and provisions of the NIRC.
minor crime violations.
4. To Assign or reassign internal revenue Specific Provisions to be Contained in

officers to establishments where articles Rules and Regulations
subject to excise tax are kept.
Q: What are the Provisions that need to be in the
Rules and Regulations?
Q: Will errors or mistakes of administrative
officials bind the government as to the collection A: It must contain provisions specifying, prescribing,
of taxes? or defining: (Sec. 245, NIRC)
1. The time and manner in which Revenue
A: Regional Director shall canvass their
GR: Errors or mistakes of administrative officials respective Revenue Regions to discover
(including the BIR) should never be allowed to persons and property liable to national
jeopardize the financial position of the internal revenue taxes, and the manner
government since taxes are the lifeblood of the their lists and records of taxable persons
nation through which the government agencies and taxable objects shall be made and
continue to operate and with which the State kept.
effects its functions for the welfare of its 2. The forms of labels, brands or marks to be
constituents. (CIR v. Citytrust and CTA, required on goods subject to excise tax,
GR106611, July 21 ,1994) and the manner how the labelling,
branding or marking shall be effected.
XPN: For the purpose of safeguarding taxpayers 3. The condition and manner for goods
from any unreasonable examination, intended for export, which if not exported
investigation or assessment, our tax law provides would be subject to an excise tax, shall be
a statute of limitations in the collection of taxes. labelled, branded or marked.
Thus, the law on prescription, being a remedial 4. The conditions to be observed by revenue
measure, should be liberally construed in order officers respecting the institutions and
to afford such protection. As a corollary, the conduct of legal actions and proceedings;

SANTO TOMAS
5. The conditions under which goods taxes and the returns, papers and
intended for storage in bonded statements that may be filed by the
warehouses shall be conveyed thither, taxpayers in connection with the payment
their manner of storage and method of of the tax:
keeping entries and records, also the Provided, however, that notwithstanding
books to be kept by Revenue Inspectors the other provisions of the NIRC
and the reports to be made by them in prescribing the place of filing of returns
connection with their supervision of such and payment of taxes, the CIR may, by
houses. rules and regulations require that the tax
6. The conditions under which denatured returns, papers and statements and taxes
alcohol may be removed and dealt in, the of large taxpayers be filed and paid,
character and quantity of the denaturing respectively, through collection officers or
material to be used, the manner in which through duly authorized agent banks:
the process of denaturing shall be Provided, further, That the CIR can
effected, so as to render the alcohol exercise this power within 6 years from
suitably denatured and unfit for oral the approval of RA 7646 or the
intake, the bonds to be given, the books completion of its comprehensive
and records to be kept, the entries to be computerization program, whichever
made therein, the reports to be made to comes earlier: Provided, finally, That
the CIR, and the signs to be displayed in separate venues for the Luzon, Visayas
the business ort by the person for whom and Mindanao areas may be designated
such denaturing is done or by whom, such for the filing of tax returns and payment
alcohol is dealt in. of taxes by said large taxpayers.
7. The manner in which revenue shall be
collected and paid, the instrument,
document or object to which revenue Q: What is a large taxpayer?
stamps shall be affixed, the mode of
cancellation, the manner in which the A: A taxpayer who satisfies any of the following
proper books, records, invoices and other criteria:
papers shall be kept and entries therein 1. For VAT - Business establishment with
made by the person subject to the tax, as VAT paid or payable of at least P100,000
well as the manner in which licenses and for any quarter of the preceding taxable
stamps shall be gathered up and returned year;
after serving their purposes.
8. The conditions to be observed by revenue 2. For Excise Tax - Business establishment
officers respecting the enforcement of with excise tax paid or payable of at least
Title III imposing a tax on estate of a P1 million for the preceding taxable year;
decedent, and other transfers mortis
causa, as well as on gifts and such other 3. For Corporate Income Tax - Business
rules and regulations which the CIR may establishment with annual income tax
consider suitable for the enforcement of paid or payable of at least P1 million for
the said Title III. the preceding taxable year; and
9. The manner tax returns, information and
reports shall be prepared and reported 4. For Withholding Tax - Business
and the tax collected and paid, as well as establishment with withholding tax
the conditions under which evidence of payment or remittance of at least P1
payment shall be furnished the taxpayer, million for the preceding taxable year.
and the preparation and publication of
tax statistics. Provided, however, That the Secretary of Finance,
10. The manner in which internal revenue upon recommendation of the CIR, may modify or
taxes, such as income tax, including add to the above criteria for determining a large
withholding tax, estate and donor's taxes, taxpayer after considering such factors as inflation,
value-added tax, other percentage taxes, volume of business, wage and employment levels,
excise taxes and documentary stamp and similar economic factors.
taxes shall be paid through the collection
officers of the BIR or through duly The penalties prescribed under Sec. 248 of the NIRC
authorized agent banks which are hereby shall be imposed on any violation of the rules and
deputized to receive payments of such regulations issued by the Secretary of Finance,
TAXATION LAW TEAM:
upon recommendation of the CIR, prescribing the

place of filing of returns and payments of taxes by
large taxpayers. (Sec. 245, NIRC)
Non-Retroactivity of Rulings
Q: How are the rulings of the BIR applied?
A: The rulings of the BIR are not retroactive. Any

revocation, modification or reversal of any of the
rules and regulations promulgated or any of the
rulings or circulars promulgated by the CIR shall not
be given retroactive application if it will be
prejudicial to the taxpayers, except in the following
cases:
1. Where the taxpayer deliberately misstates
or omits material facts from his return or
any document required of him by the BIR;
2. Where the facts subsequently gathered by
the BIR are materially different from the
facts on which the ruling is based; or
3. Where the taxpayer acted in bad faith. (Sec.
246, NIRC)
Suspension of Business Operation
Q: When can the CIR suspend the business

operation of a taxpayer?
A:
1. In the case of VAT-registered person:
a. Failure to issue receipts or invoices;
b. Failure to file a VAT return as
required under Sec. 114; or
c. Understatement of taxable sales or
receipts by 30% or more of his
correct taxable sales or receipts for
the taxable quarter.
2. Failure of any person to Register as

required under Sec. 236:
The temporary closure of the
establishment shall be for the duration of
not less than 5 days and shall be lifted
only upon compliance with whatever
requirements prescribed by the CIR in the
closure order. (Sec. 115 NIRC)

SANTO TOMAS
LOCAL GOVERNMENT CODE OF 1991, A: The ordinance is in violation of the Rule of

as amended Uniformity and Equality, which requires that all
subjects or objects of taxation, similarly situated
LOCAL TAXATION must be treated in equal footing and must not
classify the subjects in an arbitrary manner. In
Q: What are local taxes? the case at bar, the ordinance exempts cars
carrying more than two occupants from coverage
A: Taxes that are imposed and collected by the of the ordinance. Furthermore, the ordinance
local government units in order to raise revenues only imposes the tax on private cars and exempts
to enable them to perform the functions for public vehicles from the imposition of the tax,
which they have been organized. although both contribute to the traffic problem.
There exists no substantial standard used in the
Q: What are the fundamental principles of local classification by the City of Makati.
taxation?
Another issue is the fact that the tax is imposed
A: The following fundamental principles shall on the driver of the vehicle and not on the
govern the exercise of the taxing and other registered owner. The tax does not only violate
revenue-raising powers of local government the requirement of uniformity, but the same is
units: UE-LIP also unjust because it places the burden on
1. Taxation shall be Uniform in each local someone who has no control over the route of
government unit; the vehicle. The ordinance is, therefore, invalid
2. Taxes, fees, charges and other for violating the rule of uniformity and equality
impositions shall: EPUC as well as for being unjust. (2003 Bar Question)
a. be equitable and based as far as
practicable on the taxpayer's A city can validly tax the sales to customers
ability to pay; outside the city as long as the orders were
b. be levied and collected only for booked and paid for in the companys branch
public purposes; office in the city. A different interpretation would
c. not be unjust, excessive, defeat the tax ordinance in question or
oppressive, or confiscatory; encourage tax evasion by simply arranging for
d. not be contrary to law, public the delivery at the outskirts of the city.
policy, national economic policy, or (Philippine Match Company vs. City of Cebu, G.R.
in the restraint of trade; No. L-30745, January 18, 1978)
3. The collection of local taxes, fees,
charges and other impositions shall in
no case be Let to any private person; NATURE OF LOCAL TAXING POWER
4. The revenue collected pursuant to the
provisions of the LGC shall Inure solely Grant of Local Taxing Power Under the Local
to the benefit of, and be subject to the Government Code
disposition by, the local government
unit levying the tax, fee, charge or other Q: What are the sources of local taxing power?
imposition unless otherwise specifically
provided herein; and A:
5. Each local government unit shall, as far 1. Art. X, Sec 5 of the 1987 Constitution -
as practicable, evolve a Progressive Each local government unit shall have
system of taxation. (Sec. 130, LGC) the power to create their own sources
of revenue and to levy taxes, fees and
Note: The fundamental principles of taxation are charges subject to such guidelines and
also known as the requisites of municipal taxation. limitations as the Congress may provide
consistent with the basic policy of local
Q: The City of Makati, in order to solve the autonomy. Such taxes, fees and
traffic problem in its business districts, decided charges shall accrue exclusively to the
to impose a tax, to be paid by the driver, on all local government.
private cars entering the city during peak hours
from 8:00 a.m. to 9:00 a.m. from Mondays to 2. Sec. 129 of the Local Government Code
Fridays, but exempts those cars carrying more (LGC) - Each local government unit
than two occupants, excluding the driver. Is the shall exercise its power to create its own
ordinance valid? sources of revenue and to levy taxes,
TAXATION LAW TEAM:
Local Government Code of 1991
fees and charges subject to the direct authority conferred by the Constitution.
provisions herein, consistent with the (2007 Bar Question)
basic policy of local autonomy. Such
taxes, fees and charges shall accrue Q: May Congress, under the 1987 Constitution,
exclusively to the local government abolish the power to tax of local governments?
units.
A: No. Congress cannot abolish what is expressly
Q: Does the ARMM have the same source of granted by the fundamental law. The only
power as the LGUs? authority conferred to Congress is to provide the
guidelines and limitations on the local
A: No. The LGUs derive their power to tax from government's exercise of the power to tax (Sec. 5,
Sec. 5, Article X of the 1987 Constitution. The Art. X, 1987 Constitution) (2003 Bar Question)
constitutional provision is self-executing. This is
applicable only to LGUs outside the Autonomous Note: The authority to tax of LGUs within the
Region namely the Muslim Mindanao and the Autonomous Regions (Muslim Mindanao and the
Cordilleras since the authority to tax the LGUs Cordilleras) is not delegated by the Constitution, but
within their region is delegated by the Organic Act by the Organic Act creating them.
creating them.
Q: What are the characteristics of the taxing
Sec. 20, Article X of the 1987 Constitution power of LGUs?
authorizes the Congress to pass the Organic Act 2
which shall provide for legislative powers over A: DON G
creation of sources of revenues. This provision is 1. Not inherent May only be exercised if
not self-executing unlike Sec. 5, Article X of the delegated to them by national
Constitution. legislature or conferred by the
Constitution itself.
Note: The LGUs power to tax is subject to such 2. Direct grant from the Constitution
guidelines and limitations as Congress may proved While a direct grant, the same is subject
while the Autonomous Regions power to tax is to limitations as may be set by
based on the Organic Act which the Constitution Congress.
authorizes Congress to pass. 3. Not absolute Subject to limitations and
guidelines as may be provided by law
Q: What is the paradigm shift in local such as progressivity etc.
government taxation? 4. Exercised by the sanggunian of the LGU
concerned through an appropriate
A: The power to tax is no longer vested Ordinance.
exclusively on Congress. Local legislative bodies 5. Its application is bounded by the
are now given direct authority to levy taxes, fees Geographical limits of the LGU that
and other charges pursuant to Art. X, Sec. 5 of the imposes the tax.
Constitution. (NaPoCor v. City of Cabanatuan,
G.R. No. 149110, Apr. 9, 2003) Q: What are the aspects of local taxation?
Q: What is the reason for the paradigm shift? A:

1. Local Government Taxation (Sections
A: The paradigm shift results from the realization 128-196, LGC)
that genuine development can be achieved only
by strengthening local autonomy and promoting 2. Real Property Taxation (Sections 197-
decentralization of governance. (Ibid.) 283, LGC)
Q: What is the nature of the taxing power of the Local Government Real Property Taxation
provinces, municipalities and cities? Taxation
System of levy on real
A: The taxing power of the provinces, property imposed on a
municipalities and cities is directly conferred by Imposition of license, country-wide basis but
taxes, fees and other authorizing, to a limited
the Constitution by giving them the authority to
impositions, including extent and within certain
create their own sources of revenue. The local community tax. parameters, local
government units do not exercise the power to governments to vary the
tax as an inherent power or by a valid delegation rates of taxation
of the power by Congress, but pursuant to a

SANTO TOMAS
Authority to Prescribe Penalties for exceeding 12 months as may be

Tax Violations provided in the ordinance; and
e. In case of shared revenues, the
Q: What are the powers to prescribe penalties relief or exemption shall only
for tax violations of the LGU? extend to the LGU granting such.
2. Tax incentives:
A: a. Shall be granted only to new
1. Limited as to the amount of imposable investments in the locality and the
fine as well as the length or period of ordinance shall prescribe the terms
imprisonment; and conditions therefore;
2. The Sanggunian is authorized to b. The grant shall be for a definite
prescribe fines or other penalties for period not exceeding 1 calendar
violations of tax ordinances, but in no year;
case shall fines be less than P1,000 nor c. The grant shall be through an
st
more than P5,000 nor shall the ordinance passed prior to the 1
imprisonment be less than one (1) day of January of any year; and
month nor more than six (6) months; d. Tax incentive granted to a type or
3. Such fine or other penalty shall be kind of business shall apply to all
imposed at the discretion of the court; businesses similarly situated.
4. The Sangguniang Barangay may
prescribe a fine of not less than P100 Q: When is tax exemption conferred?
nor more than P1,000. (Sec. 516, LGC)
A: Tax exemptions shall be conferred through the
Authority to Grant Local Tax Exemptions issuance of a non-transferable tax exemption
certificate. (Article 283, IRR of LGC)
Q: May LGUs grant exemptions?
Q: The Local Government Code took effect on
A: Yes. Local government units may, through January 1, 1992. PLDTs legislative franchise was
ordinances duly approved, grant tax exemptions, granted sometime before 1992. Its franchise
incentives or reliefs under such terms and provides that PLDT will pay only 3% franchise tax
conditions as they may deem necessary. (Sec. in lieu of all taxes.
192, LGC)
The legislative franchise of Smart and Globe
The power to grant tax exemptions, tax incentives Telecoms were granted in 1998. Their legislative
and tax reliefs shall not apply to regulatory fees franchises state that they will pay only 5%
which are levied under the police power of the franchise tax in lieu of all taxes.
LGU.
The Province of Zamboanga del Norte passed an
Q: What are the guidelines for granting tax ordinance in 1997 that imposes a local franchise
exemptions, incentives and reliefs? (Rules and tax on all telecommunications companies
Regulations Implementing the LGC, Sec. 282[b]) operating within the province. The tax is 50% of
1% of the gross annual receipts of the preceding
A: calendar year based on the incoming receipts, or
1. Tax Exemptions and Reliefs receipts realized, within its territorial
a. May be granted in cases of natural jurisdiction.
calamities, civil disturbance,
general failure of crops or adverse Is the ordinance valid? Are PLDT, Smart and
economic conditions such as Globe liable to pay franchise taxes? Reason
substantial decrease in prices of briefly.
agricultural or agri-based products;
b. The grant shall be through an A: The ordinance is valid. The Local Government
ordinance; Code explicitly authorizes provincial
c. Any exemption or relief granted to governments, notwithstanding any law or other
a type or kind of business shall special law, to impose a tax on business enjoying
apply to all business similarly a franchise at the rate of 50% of 1% based on the
situated; gross annual receipts during the preceding year
d. The same may take effect only within the province. (Section 137, LGC)
during the calendar year not
TAXATION LAW TEAM:
PLDT is liable to the franchise tax levied by the

province of Zamboanga del Norte. The tax The in lieu of all taxes clause in a legislative
exemption privileges on franchises granted franchise should categorically state that the
before the passage of the Local Government Code exemption applies to both local and national
are effectively repealed by the latter law. taxes; otherwise, the exemption claimed should
Congress, in approving Section 23 of R.A. No. be strictly construed against the taxpayer and
7925 (Public Telecommunications Act), did not liberally in favor of the taxing authority. (Smart
intend it to operate as a blanket exemption to all Communications, Inc., v. The City of Davao, G.R.
telecommunications entities. The said provision No. 155491, Jul. 21, 2009)
thus cannot be considered as having amended
petitioners franchise so as to entitle it to
exemption from the imposition of local franchise Withdrawal of Exemptions
taxes. (PLDT v. City of Davao, G.R. No. 143867,
Aug. 22, 2002) Q. What privileges were withdrawn upon the
effectivity of the LGC?
Smart and Globe, however, are not liable to the
franchise tax imposed on the provincial A:
ordinance. The legislative franchises of Smart and GR: Tax exemptions or incentives granted to
Globe were granted in 1998, long after the Local or enjoyed by all persons, whether natural or
Government Code took effect. Congress is juridical, including government-owned or
deemed to have been aware of the provisions of controlled corporations are hereby withdrawn
the earlier law when it granted the exemption. upon the effectivity of the Local Government
Accordingly, the latest will of the legislature to Code.
grant tax exemption must be respected. (2007
Bar Question) XPNS: Those exemptions or incentives
conferred to:
Q: Is Smart Communications, Inc. (SMART) 1. Local water districts
exempt from local taxation? 2. Cooperatives duly registered under R.A.
6938;
A: Under its franchise, SMART is not exempt from 3. Non-stock and non-profit hospitals and
local business and franchise taxes. Moreover, educational institutions. (Sec. 193, LGC)
Section 23 of the Public Telecommunications Act
does not provide legal basis for Smarts Note: However, withdrawal of tax exemption is not
exemption from local business and franchises to be construed as prohibiting future grants of tax
taxes. The term exemption in Section 23 of the exemptions. The grant of taxing powers to LGUs
Public Telecommunications Act does not mean under the LGC does not affect the power of Congress
tax exemption; rather, it refers to exemption to grant exemptions to certain persons, pursuant to
from certain regulatory or reporting requirements a declared national policy.
imposed by government agencies such as the
Necessity of Reenactment: The person claiming the
National Telecommunications Commission. The
exemption has the burden of proving its claim by
thrust of the Public Telecommunications Act is to
clear grant of exemption after the enactment of the
promote the gradual deregulation of entry, LGC (NAPOCOR v. City of Cabanatuan, G.R. No.
pricing, and operations of all public 149110, April 9, 2003)
telecommunications entities, and thus to level the
playing field in the telecommunications industry. The rule that special law must prevail over the
The language of Section 23 and the proceedings provisions of a later general law does not apply as
of both Houses of Congress are bereft of anything the legislative purpose to withdraw tax privileges
that would signify the grant of tax exemptions to enjoyed under existing laws or charters is apparent
all telecommunications entities. Intent to grant from the express provisions of the LGC (City of San
tax exemption cannot therefore be discerned Pablo, Laguna v. Reyes, G.R. No. 127780, March 25,
from the law; the term exemption is too 1999)
general to include tax exemption and runs
counter to the requirement that the grant of tax Q: What is the rationale for the withdrawal of
exemption should be stated in clear and tax exemptions?
unequivocal language too plain to be beyond
doubt or mistake. (The City of Iloilo v. Smart A: The intention of the law in withdrawing the tax
Communications Inc., G.R. No. 167260, Feb. 27, exemptions is to broaden the tax base of local
2009) government units to assure them of substantial
sources of revenue. (Philippine Rural Electric
SANTO TOMAS
Cooperatives Association v. The Secretary of DILG, confiscatory, or contrary to declared

G.R. No. 143076. June 10, 2003) national policy (Sec. 186, LGC)
4. The requirement prescribed in Section
186 of the LGC, which directs that the
Authority to Adjust Local Tax Rates ordinance levying such residual taxes
shall not be enacted without any prior
Q: Does the LGU have power to adjust local tax public hearing conducted for the
rates? purpose
5. Principle of Pre-emption
A: Yes, provided that the adjustment of the tax
rates as prescribed herein should not be oftener Note: See discussion under Common
than once every five (5) years, and in no case shall Limitations of the Taxing Powers of LGUs.
such adjustment exceed ten percent (10%) of the
rates fixed under the LGC. (Sec. 191, LGC) Q: Can LGUs tax the National Government?
A:
Residual taxing power of local governments GR: LGUs cannot impose taxes, fees or
charges of any kind on the National
Q: What is the so-called Residual Taxing Power Government, its agencies and
of the LGU? instrumentalities.
A: LGUs may exercise the power to levy taxes, XPN: When specific provisions of the LGC
fees or charges on any base or subject NOT authorize the LGUs to impose taxes, fees or
otherwise specifically enumerated herein or charges on the aforementioned entities (City
taxed under the Government of San Pablo, Laguna v. Reyes,
1. Local Government Code; G.R. No. 127708, Mar. 25, 1999)
2. National Internal Revenue Code; or
3. Other applicable laws. (Sec. 186, LGC)
Authority to Issue Local Tax Ordinances
Q: What are the conditions in the exercise of the
residual power of taxation? Q: What are the kinds of Local Tax Ordinances?
A: A:
1. That the taxes, fees, or charges shall not 1. Those imposing a fee or tax specifically
be unjust, excessive, oppressive, authorized by the Local Government
confiscatory or contrary to declared Code for the local government units to
national policy; and impose.
2. That the ordinance levying such taxes, 2. Those imposing a fee or tax not
fees or charges shall not be enacted specifically enumerated under the LGC
without any prior hearing conducted for or taxed under the provisions of the
the purpose. (Ibid.) NIRC or other applicable laws (Sec. 186,
LGC)
Q: What are the limitations of the residual
power? Q: How shall the sanggunian levy local taxes?
A: A: It shall be exercised through an appropriate

1. Constitutional limitations on taxing ordinance. However, the local chief executive
power (except the punong barangay) possesses veto
2. Common limitations on the taxing powers as laid down in Sec. 55 of LGC.
power of local government units as
prescribed in Section 133 of the Local
Government Code LOCAL TAXING AUTHORITY
3. Fundamental principles governing the
exercise of the taxing power by local Power to Create Revenues Exercised thru LGUs
governments as prescribed under
Section 130 of the LGC, particularly the Q: What is the taxing power of the LGU?
requirement that they must not be
unjust, excessive, oppressive, A: Each local government unit has the power to:
TAXATION LAW TEAM:
1. Create its own sources of revenue; and 2. Public hearings are required before any
2. Levy taxes, fees, and charges subject to local tax ordinance is enacted (Sec. 187,
the provisions herein, consistent with LGC)
the basic policy of local autonomy.(Sec. 3. Within 10 days after their approval,
129, LGC) publication in full for 3 consecutive days
in a newspaper of general circulation. In
Note: Such taxes, fees, and charges shall accrue the absence of such newspaper in the
exclusively to the local government units. (Ibid.) province, city or municipality, then the
ordinance may be posted in at least two
Q: Who shall exercise local taxing authority? conspicuous and publicly accessible
places (Sec. 188 & 189, LGC)
A: The power to impose a tax, fee, or charge or to
generate revenue under the LGC shall be Note: The requirement of publication in full for 3
exercised by the sanggunian of the local consecutive days is mandatory for a tax ordinance to
government unit concerned through an be valid. The tax ordinance will be null and void if it
appropriate ordinance. (Sec. 132, LGC) fails to comply with such publication requirement.
(Coca-Cola v. City of Manila, G.R. No. 161893 June
Q: What are the powers incidental to local 27, 2006)
taxation?
A: Scope of Taxing Power

1. Power to prescribe penalties for tax
violations and limitations thereon. Q: What is the scope of the taxing power of
2. Power to adjust local tax rate LGUs are LGUs?
authorized to adjust the tax rates as
prescribed under the LGC not oftener A:
than once every 5 years, and in no case 1. Each local government unit shall
shall such adjustment exceed 10% of exercise its power to create its own
the rates fixed under the LGC. (Sec. 191, sources of revenue and to levy taxes,
LGC) fees, and charges, consistent with the
3. Power to grant local exemptions LGUs basic policy of local autonomy. Such
may through ordinances duly approved, taxes, fees, and charges shall exclusively
grant tax exemptions, incentives or accrue to it. (Sec. 129, LGC)
reliefs under such terms and conditions, 2. All local government units are granted
as they may deem necessary. (Sec. 192, general powers to levy taxes, fees or
LGC) charges on any base or subject not
otherwise specifically enumerated
herein or taxed under the provisions of
Procedure for Approval and Effectivity of the NIRC, as amended, or other
Tax Ordinances applicable laws. The levy must not be
unjust, excessive, oppressive,
Q: What are the requisites of a valid tax confiscatory or contrary to a declared
ordinance? national economic policy. (Sec. 186,
LGC)
A: 3. No such taxes, fees or charges shall be
1. The procedure applicable to local imposed without a public hearing
government ordinances in general having been held prior to the
should be observed. (Sec. 187, LGC) The enactment of the ordinance. (Sec. 187,
following procedural details must be LGC)
complied with: 4. Copies of the provincial, city, and
a. Necessity of quorum municipal tax ordinances or revenue
b. Submission for approval by the measures shall be published in full for
local chief executive three consecutive days in a newspaper
c. The matter of veto and overriding of local circulation or posted in at least
the same two conspicuous and publicly accessible
d. Publication and effectivity (Secs. places. (Sec. 188, LGC)
54, 55, and 59, LGC)

SANTO TOMAS
Specific Taxing Power of Local Government Unit

(LGUs) Taxing power of provinces
Q: What are the taxes, fees and charges which a

province or a city may levy?
A:
1. Tax on transfer of real property
ownership (Sec. 135, LGC)
2. Tax on business of printing and
publication (Sec. 136, LGC)
3. Franchise Tax (Sec. 137, LGC)
4. Tax on sand, gravel and other quarry
resources (Sec. 138, LGC)
5. Professional tax (Sec. 139, LGC)
6. Amusement tax (Sec. 140, LGC)
7. Annual fixed tax for every delivery truck
or van of manufacturer or producers,
wholesalers of, dealers, or retailer in
certain products (Sec. 141, LGC)
TAXATION LAW TEAM:
SUMMARY RULES ON THE TAXING POWER OF A PROVINCE
TRANSACTION SUBJECT TO TAX TAX BASE TAX RATE EXCEPTION

Tax on transfer of real property ownership
Whichever is higher between:
1. total consideration involved in
Sale , donation, barter, or on any the acquisition of the property; Not more than fifty Transfer under the
other mode of transferring or percent (50%) of Comprehensive
ownership or title of real 2. the fair market value in case the one percent Agrarian Reform
property the monetary consideration (1%) Program
involved in the transfer is not
substantial
Person Liable to Pay: Seller, donor, transferor, executor, or administrator
Time of Payment: within 60 days from the date of the execution of the deed or from the date of the decedents death
Tax on the business of printing and publication
Not exceeding fifty
Gross annual receipts for the
percent (50%) of
preceding calendar year.
one percent (1%)
Business of printing and School texts or
publication of books, cards, In the case of a references,
poster, leaflets, handbills, newly started prescribed by the
certificates, receipts, pamphlets, business, the tax DepEd shall be
and others of similar nature Capital Investment shall not exceed exempt from tax.
one-twentieth
(1/20) of one
percent (1%)
Franchise tax
Gross annual receipts for the Not exceeding fifty
preceding calendar year based on percent (50%) of
the incoming receipt, or realized, one percent (1%)
within its territorial jurisdiction.
Businesses enjoying a franchise In the case of a

newly started
business, the tax
Capital investment.
shall not exceed
one-twentieth
(1/20) of one
percent (1%)
Tax on sand, gravel and other quarry resources
Sand, gravel and other resources
extracted from public lands or Fair market value in the locality per
from the beds of seas, lakes, cubic meter of ordinary stones, Not more than ten
rivers, streams, creeks, and other sand, gravel, earth, and other percent (10%)
public waters within its territorial quarry resources
jurisdiction
Who issues permit: issued exclusively by the provincial governor pursuant to the ordinance of the Sangguniang
Panlalawigan
Distribution of Tax Proceeds:

a. Province 30%
b. Component city or municipality 30%
c. Barangay where resources were extracted 40%
Note: the authority to impose taxes and fees for extraction of sand and gravel belongs to the province, and not to the
municipality where they are found. (Municipality of San Fernando La Union vs. Sta. Romana, G.R. No. L-30159, March 31,
1998)
Regalian Doctrine is not applicable. Province may not invoke the doctrine to extend the coverage of its ordinance to
quarry resources extracted from private lands.
Rationale: tax statutes are construed strictissimi juris against the government. (Province of Bulacan vs. CA, G.R. No.
126232)

SANTO TOMAS
Professional tax
Professionals
exclusively employed
Exercise or practice of profession At such amount and reasonable
in the government
requiring government licensure classification as the sanggunian Not to exceed P300
shall be exempt from
examination panlalawigan may impose
the payment of this
tax
Date of Payment: payable annually on or before January 31 or before beginning the practice of the profession
Place of Payment: Province where he practices his profession or where the principal office is located
Note: TAX TO BE PAID ONLY ONCE. Person who has paid the corresponding professional tax shall be entitled to practice
his profession in any part of the Philippines without being subjected to any other national or local tax, license, or fee for
the practice of such profession
Amusement tax
Gross receipts from admission GR: The holding of
fees. operas, concerts,
dramas, recitals,
In case of theaters or cinemas, the painting and art
tax shall first be deducted and exhibitions, flower
withheld by their proprietors, shows, musical
lessees, or operators and paid to Not more than 10% programs, literary
Ownership, lease or operation of the provincial treasurer before the of gross receipts and oratorical
theaters, cinemas, concert halls, gross receipts are divided between from admission presentation shall be
circuses, boxing stadium and said proprietors, lessees, or fees (as amended exempt from the
other places of amusement operators and the distributors of by R.A. No. 9640, payment of
the cinematographic films. May 21, 2009) amusement tax.
XPN:
Holding of pop, rock,
or similar concerts
shall be subject to
amusement tax.
Note: The Supreme Court held that it is the intent of the Legislature not to impose VAT on persons already covered by
the amusement tax. Thus, the gross receipts derived by respondents from admission tickets in showing motion pictures,
films or movies are subjected to the Amusement Tax and not to value-added tax under the NIRC. (CIR v SM Prime
Holdings Inc., G.R. No. 183505, Feb 26, 2010)
Distribution of Proceeds: Tax shall be shared equally by the province and municipality where such amusement places are
located.
Annual fixed tax for every delivery truck or van of manufacturer or producers, wholesalers of, dealers, or retailer in
certain products
Use by manufacturers,
producers, wholesalers, dealers
or retailers of truck, van or any
vehicle in the delivery or
distribution of distilled spirits,
Exempt from tax on
fermented liquors, soft drinks,
Every truck, van or vehicle Not exceeding P500 peddlers imposed by
cigars and cigarettes, and other
municipalities
products as may be determined
by the sangguniang
panlalawigan, to sales outlets, or
consumers, whether directly or
indirectly.
TAXATION LAW TEAM:
Q: To whom is the tax on transfer of real where he practices law or in Makati City
property ownership due? where he maintains his principal office.
(Sec. 139[b], LGC)
A: It is due from the seller of the property.
However, if the buyer is a foreign government, no 2. No, the situs of the professional tax is
such tax is due. the city where the professional
practices his profession or where he
Q: What is meant by franchise in the phrase maintains his principal office in case he
tax on business enjoying a franchise under Sec. practices his profession in several
137 of the Local Government Code? places. The local government of Quezon
City has no right to collect the
A: The Congress defined it in the sense of a professional tax from Mr. Fermin as the
secondary or special franchise. It is not levied on place of residence of the taxpayer is not
the corporation simply for existing as a the proper situs in the collection of the
corporation, upon its property or income, but on professional tax. (2005 Bar Question)
its exercise of the rights or privileges granted to it
by the government. Q: Has the province authority to impose taxes on
sand, gravel and other quarry resources
Q: Who are the professionals subject to extracted on private lands?
professional tax?
A: No, A province is not expressly authorized to
A: They are those who have passed the bar do so. Such tax is a tax upon the performance,
examinations, or any board or examinations carrying on, or exercise of an activity, hence an
conducted by the Professional Regulation excise tax upon an activity already being taxed
Commission (PRC). under the NIRC. (Province of Bulacan, et. al., v. CA
G.R.No. 126232, Nov. 27, 1998)
e.g. A lawyer who is also a Certified Public
Accountant (CPA) must pay the professional tax Q: What is amusement and amusement places
imposed on lawyer and that fixed for CPAs, if he is as defined under the LGC?
to practice both professions.
A:
Note: Municipalities cannot impose professional tax 1. Amusement is a pleasurable diversion
since such power is reserved only to provinces and and entertainment. It is synonymous to
cities. relaxation, avocation, pastime, or fun;
2. Amusement places include theaters,
Q: Mr. Fermin, a resident of Quezon City, is a cinemas, concert halls, circuses and
Certified Public Accountant-Lawyer engaged in other places of amusement where one
the practice of his two professions. He has his seeks admission to entertain oneself by
main office in Makati City and maintains a seeing or viewing the show or
branch office in Pasig City. Mr. Fermin pays his performances. Sec. 131[b] and [c], LGC)
professional tax as a CPA in Makati City and his
professional tax as a lawyer in Pasig City. Q: What are the amusement places upon which
1. May Makati City, where he has his main provinces or cities cannot impose amusement
office, require him to pay his professional taxes?
tax as a lawyer? Explain.
A:
2. May Quezon City, where he has his 1. Cockpits
residence and where he also practices his 2. Cabarets
two professions, go after him for the 3. Night or day clubs
payment of his professional tax as a CPA 4. Boxing exhibitions
and a lawyer? Explain. 5. Professional basketball games
6. Jai-Alai
A: 7. Racetracks
1. No. Makati City where Mr. Fermin has
his main office may not require him to Note: There can be no imposition of amusement
pay his professional tax as a lawyer. Mr. taxes on the above amusement places since the
Fermin has the option of paying his NIRC already imposes amusement taxes on them
professional tax as a lawyer in Pasig City under Section 125 thereof.

SANTO TOMAS
Q: May LGUs collect amusement taxes on Q: What are the taxes that a municipality may
admission tickets to the Philippine Basketball impose under the LGC?
Association (PBA) games?
A:
A: No. Professional basketball games are within 1. Tax on business (Sec. 143, LGC)
the ambit of national taxation as it is presently 2. Fees and charges on business and
being taxed under the provisions of the NIRC. occupation (Sec. 147, LGC)
Furthermore, the income from cession of 3. Fees for sealing and licensing of weights
streamers and advertising spaces is subject to and measures (Sec. 148, LGC)
amusement taxes under the NIRC because the 4. Fishery rentals, fees and charges (Sec.
definition under the Tax Code is broad enough to 149, LGC)
include the cession of streamers and advertising
spaces as the same includes all the receipts of the Q: What are the businesses under Section 143 of
proprietor, lessee or operator of the amusement the Local Government Code upon which
place. (Philippine Basketball Association v. CA, municipalities may impose business taxes?
G.R. No. 119122, Aug. 8, 2000)
A: ManWhoRE-COP-B
1. On Manufacturers, assemblers,
Taxing Powers of Cities repackers, processors, brewers,
distillers, rectifiers, and compounders of
Q: What is the scope of the taxing power of a liquors, distilled spirits, and wines or
city? manufacturers of any article of
commerce of whatever kind or nature;
A: The city, may levy the taxes, fees, and charges 2. On Wholesalers, distributors, or dealers
which the province or municipality may impose, in any article of commerce of whatever
except as otherwise provided in the LGC. Those kind or nature;
levied and collected by highly urbanized and 3. On exporters, and on manufacturers,
independent component cities shall accrue to millers, producers, wholesalers,
them and distributed in accordance with the distributors, dealers or retailers of
provisions of LGC. (Sec. 151, LGC) Essential commodities;
4. On Retailers;
Note: The rates of taxes that the city may levy may 5. On Contractors;
exceed the maximum rates allowed for the province 6. Banks and other financial institutions;
or municipality by not more than fifty percent (50%) 7. Peddlers;
except the rates of professional and amusement 8. Other business not specified which the
taxes. (Ibid.) sanggunian concerned my deem proper
to tax.
Cities have the broadest taxing powers, embracing
both specific and general powers as provinces and
Q: What is Wholesale?
municipalities may impose.
Under the LGC, there are three types of cities,

A: A sale where the purchaser buys or imports the
Component Cities, Independent Component Cities commodities for resale to persons other than the
and Highly Urbanized Cities. ICCs and HUCs are end user regardless of the quantity of the
independent of the province (Sec. 451-452, LGC). transaction.
This means that taxes, fees and charges levied and
collected by ICCs and HUCs accrue solely to them. Q: Who are Dealers?
(Sec. 151, LGC)
A: One whose business is to buy and sell
merchandise, goods, and chattels as a merchant.
Taxing Powers of Municipalities He stands immediately between the producer or
manufacturer and the consumer and depends for
Q: What is the scope of the taxing power of a his profit not upon the labor he bestows upon his
municipality? commodities but upon the skill and foresight with
A: Municipalities may levy taxes, fees, and

charges not otherwise levied by provinces, except
as otherwise provided in the LGC. (Sec. 142, LGC)
TAXATION LAW TEAM:
Q: What is Retail? businesses that are subject to excise tax, VAT, or

percentage tax under the NIRC, and that are not
A: A sale where the purchaser buys the otherwise specified in preceding paragraphs.
commodity for his own consumption, irrespective (Coca-Cola Bottlers Phils. Inc., G.R. No. 181845,
of the quantity of the commodity sold August 4, 2009)
Q: Who is a Contractor? Q: Who is a peddler?
A: Includes persons, natural or juridical, not A: Peddler means any person who, either for
subject to professional tax under Section 139 of himself or on commission, travels from place to
the Code, whose activity consists essentially of place and sells his goods or offers to sell and
the sale of all kinds of services for a fee, deliver the same. (Sec. 131[t], LGC).
regardless of whether or not the performance of
the service calls for the exercise of the use of the Q: What are considered Essential Commodities?
physical or mental faculties of such contractor or
his employees. A:
1. Rice and corn
Q: What are the conditions to which other 2. Wheat or cassava flour, meat, dairy
businesses not specified may the sanggunian products, locally manufactured,
concerned deem proper to tax? processed or preserved food, sugar, salt
A: and other agricultural, marine and fresh
1. Business not subject to Vat or water products, whether in their
percentage tax under the NIRC; and original state or not
2. Tax rate not to exceed 2% of the gross 3. Cooking oil and cooking gas
sales/receipts of the preceding calendar 4. Laundry soap, detergents, and medicine
year. 5. Agricultural implements, equipment
and post-harvest facilities, fertilizers,
Note: When a municipality or city has already pesticides, insecticides, herbicides, and
imposed a business tax on manufacturers, etc. of other farm inputs
liquors, distilled spirits, wines, and any other 6. Poultry, feeds and other animal feeds
article of commerce pursuant to Section 143(a) of 7. School supplies
the LGC, said municipality or city may no longer 8. Cement
subject the same manufacturers, etc. to a
business tax under section 143(h) of the same
Code. Section 143(h) may be imposed only on

SANTO TOMAS
Tax on Various Types of Businesses
PERSON/ENTITIES
TAX BASE TAX RATE EXCEPTION
SUBJECT TO TAX
Tax on Business
Manufacturers, assemblers, GRADUATED ANNUAL FIXED
Based on the taxpayers gross
repackers, processors, brewers, TAX
sales or receipts for the preceding
distillers, rectifiers, and calendar year.
compounders of liquors, distilled
spirits and wines or manufacturers
of any article of commerce of Gross sales or receipts amount to Ceases to be a fixed tax,
whatever kind or nature. (Sec. P6,500,000 or more for the instead a PERCENTAGE TAX
143[a]) preceding calendar year of 37.5% of 1% is imposed.
Based on the gross sales or

GRADUATED ANNUAL FIXED
Wholesalers, distributors or dealers receipts for the preceding
TAX
in any article of commerce of calendar year
whatever kind or nature. (Sec.
Gross sales or receipts amounting Tax becomes a PERCENTAGE
143[b], LGC)
to P2,000,000 or more TAX at the rate of 50% of 1%
Exporters and manufacturers,
Not exceeding one-half (1/2)
millers, producers wholesalers,
of the rates prescribed under
distributors, dealers or retailers of
subsections (a), (b) and (d) of
the following essential
this Section
commodities. (Sec. 143[c], LGC)
Gross sales or receipts for the a. Gross sales or
ANNUAL PERCENTAGE TAX of
preceding calendar year P400,000 receipts in cities
2%
or less P50,000 or less
b. Gross sales or
receipts in
Retailers (Sec. 143[d], LGC)
municipalities
Sales or receipts exceeding ANNUAL PERCENTAGE TAX of
P30,000 or less
P400,000 1%
Note:
taxed by barangays
Gross receipts for the preceding GRADUATED ANNUAL FIXED
Contractors and other independent calendar year TAX
contractors (Sec. 143[e], LGC) Gross receipts amounting to PERCENTAGE TAX of
P2,000,000 or more 50% of 1%
Gross receipts of the preceding
calendar year derived from
interests, commission and
Banks and other financial discounts from lending activities,
50% of 1%
institutions (Sec. 143[f], LGC) income from financial leasing,
dividends, rentals on property
and profit from exchange or sale
of property insurance premium
Peddlers engaged in the sale of any
merchandise or article of Per peddler Not exceeding P50
commerce. (Sec. 143[g], LGC)
Graduated schedule imposed
by the Sanggunian
On any business not otherwise
concerned, but in no case to
specified above (Sec. 143[h], LGC)
exceed the rates prescribed
in Sec. 143, LGC.
Municipal Non-Revenue Fees & Charges
Municipalities may impose & collect reasonable fees & charges on business & occupation and, except in case of professional tax, (w/c
only provinces & cities may levy) on the practice of any profession or calling commensurate w/ the cost of regulation, inspection &
licensing before any person may engage in such business/occupation/practice of such profession or calling. (Sec. 147, LGC)
TAXATION LAW TEAM:
Ceiling on business tax imposable on b. Different rates of tax the gross

municipalities within Metro Manila sales or receipts of each business
shall be separately reported for the
Q: What are the rates of business within the purpose of computing the tax due
Metropolitan Manila Area? from each business.
A: The municipalities in Metro Manila may levy

taxes at rates which shall not exceed by 50% the Fees and Charges for Regulation and Licensing
maximum rates prescribed in Section 143, LGC.
(Sec. 144, LGC) Q: What are the fees and charges that a
municipality may impose?
Tax on Retirement of Business A: The municipality may impose and collect such
reasonable fees and charges on business and
Q: When is a business considered officially occupation except professional taxes reserved for
retired? provinces (Sec. 147, LGC)
1. Fees for Sealing and Licensing of
A: Weights and Measures (Sec. 148, LGC)
1. A business subject to tax shall, upon 2. Fishery Rentals, Fees and Charges,
termination thereof, submit a sworn including the authority to grant fishery
statement of its gross sales or receipts privileges within municipal waters, as
for the current year. well as issue licenses for the operation
2. If the tax paid during the year be less of fishing vessels of three tons or less.
than the tax due on said gross sales of 3. The sanggunian may penalize the use of
receipts of the current year, the explosives, noxious or poisonous
difference shall be paid before the substances, electricity, muro ami, and
business is considered officially other deleterious methods of fishing
retired.(Sec. 145, LGC) and prescribe a criminal penalty
therefore. (Sec. 149, LGC)
Rules on Payment of Business Tax Note: Principal is the head or main office of the
business appearing in the pertinent documents
Q: How is Payment of Business Taxes submitted to the SEC, or DTI, or other appropriate
conducted? agencies, as the case may be.
A:
1. Taxes shall be payable for every
separate or distinct establishment or
place where business subject to the tax
is conducted and one line of business
does not become exempt by being
conducted with some other business for
which such tax has been paid.
2. The tax on a business must be paid by
the person conducting the same.
3. In cases where a person conducts or
operates 2 or more of the businesses
mentioned in Section 143 of LGC which
are subject to:
a. Same rate of tax the tax shall be
computed on the combined total
gross sales or receipts of the said 2
or more related business.

SANTO TOMAS
Situs of Tax Collected
Q: What is the situs of business tax?
A:
SITUATION RECOGNITION OF SALE PAYMENT OF TAX
All sales made in the locality
With branch or sales office or The tax shall be payable to the city or
where the branch or office or
warehouse municipality where the same is located.
warehouse is located
The municipality where the sale
or transaction is made.
The tax shall accrue to the city or
Where there is no branch or sales The sale shall be recorded in
municipality where said principal office is
office or warehouse the principal office along with
located.
the sales made by said principal
office
Branch office a fixed place in a locality which conducts operations of the business as an extension of the principal office.
Principal office head or main office of the business appearing in pertinent documents submitted to the SEC and
specifically mentioned in the Articles of Incorporation.
Where there is a factory, project Of all sales recorded in the principal office:
All sales shall be recorded in the
office, plant or plantation in pursuit of 1. 30% taxable to the city or municipality
principal office.
business where the principal office is located.
If plantation is at a place other than All sales shall be recorded in the 2. 70% taxable to the city or municipality
where the factory is located principal office. where the factory, plant, etc. is located.
The 70% (above) shall be divided as follows:

1. 60% to the city or municipality where the
factory is.
If manufacturer, contractor, etc. has 2. 40% to the city or municipality where the
two or more factories, project offices, All sales shall be recorded in the plantation is located.
plants or plantations located in principal office.
different localities. The 70% shall be prorated among the
localities where such factories, project
offices, plants and plantations are located
based on their respective volumes of
production.
Note: in case of manufacturers or producers which engage the services of an independent contractor to produce or
manufacture some of their products, these rules shall apply except that the factory or plant and warehouse of the
contractor utilized for the production and storage of the manufacturers products shall be considered as the factory
or plant and warehouse of the manufacturer. (IRR)
The city or municipality where the port of loading is located shall not levy and collect reasonable fees unless the
exporter maintains in said city or municipality its principal office, a branch, sales office, or warehouse, factory, plant
or plantation in which case, the rule on the matter shall apply accordingly. (IRR)
Situs according to Jurisprudence:

Excise tax Tax is imposed on the performance of an act or occupation, enjoyment of a privilege.
The power to levy such tax depends on the place in which the act is performed or the occupation is
engaged in; not upon the location of the office. (Allied Thread Co., Inc. v. City Mayor of Manila, L-40296, November
21, 1984)
Sales Tax With respect to sale, it is the place of the consummation of the sale, associated with the delivery of the
things which are the subject matter of the contract that determines the situs of the contract for purposes of
taxation, and not merely the place of the perfection of the contract. (Shell Co., Inc. v. Municipality of Sipocot,
Camarines Sur, 105 Phil 1263)
TAXATION LAW TEAM:
Taxing Powers of Barangays
Q: What is the scope of the taxing power of a barangay?
A:
FEES AND
SOURCES OF REVENUE TAX BASE TAX RATE
CHARGES
Gross sales receipts for
preceding calendar year of
BARANGAY TAXES On stores or P50,000 or less (for barangay Not exceeding 1% of
retailers with fixed business in the cities); and such gross sales or
establishments receipts.
P30,000 or less (for barangay
and municipalities
SERVICE FEES OR CHARGES Services rendered in Reasonable Fees or
connection with the regulation charges
or the use of barangay-owned
properties; or
Service facilities such as palay,
copra, or tobacco dryers
BARANGAY CLEARNCE Reasonable fee
as the
Sanggunian
Barangay may
impose
OTHER FEES AND CHARGES Reasonable fees
a. Commercial breeding of and charges as
fighting cocks, cockfights and the barangay
cockpits may levy.
b. Places of recreation which
charge admission fees
c. Billboards, signboards, neon
signs and outdoor
advertisements
Note: The enumeration shall accrue EXCLUSIVELY to them.
Common Revenue Raising Powers use of any public road, pier, or wharf,
waterway, bridge, ferry or
telecommunication system funded and
Service Fees and Charges, Public Utility Charges, constructed by the local government
Toll Fees or Charges unit concerned. (Sec. 155, LGC)
Q: What are the common revenue raising Q: Who are exempted from payment of tolls,
powers of LGUs? fees or other charges?
A: A: HOP
1. Fees, service or user charges LGUs 1. Officers and enlisted men of the Armed
may impose and collect such reasonable Forces of the Philippines and members
fees and charges for services rendered. of PNP on mission
(Sec. 153, LGC) 2. Post office personnel delivering mail
2. Public utility charges may fix the rates 3. Physically Handicapped and disabled
for the operation of public utilities citizens, 65 years or older. (Ibid.)
owned, operated and maintained by
them within their jurisdiction. (Sec. 154, Q: May LGUs discontinue the collection of tolls?
LGC)
3. Toll fees or charges The sanggunian A: The sanggunian concerned may discontinue
concerned may prescribe the terms and the collection of the tolls when public safety and
conditions and fix the rates for the welfare so requires. Thereafter, the said facility
imposition of toll fees or charges for the

SANTO TOMAS
shall be free and open for public use. (Sec. 155,

LGC) 2. Juridical persons additional tax, which,
in no case, shall exceed Ten thousand
Community Tax pesos (P10,000.00) in accordance with
the following schedule:
Q: What is the nature of community tax? a. For every Five thousand pesos
(P5,000.00) worth of real property
A: The community is a poll or capitation tax in the Philippines owned by it
imposed upon residents of a city or municipality. during the preceding year based
It replaced the former residence tax. on the valuation used for the
payment of real property tax under
Q: Who levies community tax? existing laws, found in the
assessment rolls of the city or
A: It may be levied by a city or municipality but municipality where the real
not a province. property is situated - Two pesos
(P2.00); and
Q: Who are liable to pay community tax? b. For every Five thousand pesos
(P5,000.00) of gross receipts or
A: earnings derived by it from its
1. Individuals Every inhabitant of the business in the Philippines during
Philippines eighteen (18) years of age or the preceding year - Two pesos
over: (P2.00). (Sec. 157 & 158, LGC)
a. who has been regularly employed
on a wage or salary basis for at Q: Where is community tax paid?
least thirty (30) consecutive
working days during any calendar A: Residence of the individual, or in the place
year; or where the principal office of the juridical entity is
b. who is engaged in business or located. (Sec. 160, LGC)
occupation;
c. or who owns real property with an Q: When is the payment of community tax
aggregate assessed value of required?
P1,000.00 or more; or
st
d. who is required by law to file an A: Accrues on the 1 day of January of each year
income tax return. (Sec. 157, LGC) which shall be paid not later than the last day of
February of each year. (Sec. 161, LGC)
2. Juridical Persons Every corporation no
matter how created or organized, Q: What is the penalty for delinquency?
whether domestic or resident foreign,
engaged in or doing business in the A: An interest of 24% per annum from the due
Philippines. (Sec. 158, LGC) date until it is paid shall be added to the amount
due (Sec. 161, LGC)
Q: How much are they liable to pay?
Q: Who are exempted from paying community
A: tax?
1. Individuals
a. Basic: Five pesos (P5.00) A:
b. Additional: Additional tax of One 1. Diplomatic and consular representatives
peso (P1.00) for every One 2. Transient visitors when their stay in the
thousand pesos (P1,000.00) of Philippines does not exceed three (3)
income regardless of whether from months. (Sec. 159, LGC)
business, exercise of profession or
from property which in no case Q: What is a Community Tax Certificate?
shall exceed Five thousand pesos
(P5,000.00). A: It is issued to every person or corporation upon
payment of the community tax. It may also be
Note: In case of husband and wife, issued to any person or corporation NOT subject
the additional tax shall be based on to the community tax upon payment of P1.00
the total property, gross receipts or (Sec. 162, LGC)
earnings owned or derived by them.
TAXATION LAW TEAM:
customs fees, charges and dues except

The city or municipal treasurer deputizes the wharfage on wharves constructed and
barangay treasurer to collect the community tax maintained by the local government
in their respective jurisdictions and shall accrue unit concerned;
entirely to the general fund of the city or 5. Taxes, fees, and charges and other
municipality concerned. impositions upon goods carried into or
out of, or passing through, the
Conditions: bonded in accordance with law (Sec. territorial jurisdictions of local
164, LGC) government units in the guise of
charges for wharfage, tolls for bridges
Proceeds of the community tax collected through or otherwise, or other taxes, fees, or
the barangay treasurers shall be apportioned as charges in any form whatsoever upon
follows: such goods or merchandise;
1. 50% accrues to the general fund of the 6. Taxes, fees or charges on agricultural
city or municipality concerned; and and aquatic products when sold by
2. 50% accrues to the barangay where the marginal farmers or fishermen;
tax is collected 7. Taxes on business enterprises certified
to by the Board of Investments as
Q: When is the presentation of community tax pioneer or non-pioneer for a period of
certificate required? six (6) and four (4) years, respectively
from the date of registration;
A:
1. Acknowledgment of any document Note: However, the grant of the Income
before a notary public; Tax Holiday for registered enterprises
2. Taking an oath of office upon election under EO 226 is subject to the following
or appointment to any position in the rules:
government service; a. For six (6) years from COMMERCIAL
3. Receiving any license, certificate. or OPERATION for pioneer firms and for
permit from any public authority; four (4) years for non-pioneer firms
fully exempt; and
4. Paying any tax or fee;
b. For a period of three (3) years from
5. Receiving any money from any public
COMMERCIAL OPERATION,
fund; registered expanding firms shall be
6. Transacting other official business; or entitled to exemption from income
7. Receiving any salary or wage from any tax levied by the National
person or corporation. (Sec. 163, LGC) Government proportionate to their
expansion under such terms and
conditions as the Board may
COMMON LIMITATIONS ON THE determine. (EO 226, Title III, Article
TAXING POWERS OF LGUS 39)
8. Excise taxes on articles enumerated
Q: Give the common limitations on the taxing under the NIRC, as amended, and taxes,
powers of the LGUs. fees or charges on petroleum products;
A: The exercise of the taxing powers of provinces, Note: LGUs may impose tax on a
cities, municipalities, and barangays shall not petroleum business. A tax on business is
extend to the levy of the following: IDE-C3AP3- distinct from a tax on the article itself
MENT (Phil. Petroleum Corporation vs
1. Income tax, except when levied on Municipality of Pililia Rizal, G.R. No.
banks and other financial institutions; 90776, June 3, 1991)
2. Documentary stamp tax;
3. Taxes on estates, inheritance, gifts, 9. Percentage or value-added tax (VAT) on
legacies and other acquisitions mortis sales, barters or exchanges or similar
causa, except as otherwise provided transactions on goods or services
under the LGC; exception: tax on except as otherwise provided herein;
transfer of real property (Sec. 135, LGC) 10. Taxes on the gross receipts of
4. Customs duties, registration fees of transportation contractors and persons
vessel and wharfage on wharves, engaged in the transportation of
tonnage dues, and all other kinds of passengers or freight by hire and

SANTO TOMAS
common carriers by air, land or water,

except as provided in this Code; Q: How do you classify these common
11. Taxes on premiums paid by way or limitations / excluded impositions?
reinsurance or retrocession;
12. Taxes, fees or charges for the A:
registration of motor vehicles and for 1. Taxes which are levied under the NIRC
the issuance of all kinds of licenses or unless otherwise provided by the LGC -
permits for the driving thereof, except Items 1,2,3,8,9 and 10.
tricycles; 2. Taxes, fees, and charges which are
13. Taxes, fees, or other charges on imposed under the Tariffs and Customs
Philippine products actually exported, Code - Item 4
except as otherwise provided in the 3. Taxes, fees and charges where the
LGC;(i.e. Sec. 143(c), LGC- municipalities imposition of which contravenes
may impose taxes on exporters) existing governmental policies or which
14. Taxes, fees, or charges, on Countryside are violative of the fundamental
and Barangay Business Enterprises and principles of taxation - Items 5, 6, 7, 11,
cooperatives duly registered under R.A. 13, 14 and 15
No. 6810 and Republic Act Numbered 4. Taxes, fees and charges imposed under
Sixty-nine hundred thirty-eight (R.A. No. special laws - Item 12
6938) otherwise known as the
"Cooperative Code of the Philippines" Q: Can LGUs levy income taxes?
respectively; and
15. Taxes, fees or charges of any kind on A:
the National Government, its agencies GR: The exercise of the taxing authority of
and instrumentalities, and local LGUs shall not extend to the levy of income tax.
government units. (Sec. 133, LGC)
XPN: However, income tax may be levied on
Note: An examination of the above enumeration banks and other financial institutions. (Sec.
reveals that those taxes, charges and fees already 133(a), LGC)
imposed and collected by the National Government
such as income taxes, estate taxes, donors taxes, Q: What is wharfage?
documentary stamps taxes. Simply stated, the LGUs
cannot exercise taxing powers reserved to the A: It is a fee assessed against the cargo of a vessel
National Government. Thus, it is also called the engaged in foreign or domestic trade based on
reservation rule or the exclusionary rule
quantity, weight, or measure received and/ or
discharged by the vessel.
Q: What is the Principle of Pre-emption or
Exclusionary Doctrine?
Q: What is the Authorization Limitation?
A: Where the National Government elects to tax a
A: With the exception of cities, each local
particular area, it impliedly withholds form the
government unit could not exercise the taxing
local government the delegated power to tax the
powers granted to others. Hence, a province
same field. This doctrine principally rests on the
could not exercise the powers granted to
intention of the congress.
municipality and vice-versa. However, a city could
exercise the taxing powers of both a province and
Conversely, should the Congress allow municipal
a municipality.
corporations to cover fields of taxation it already
occupies then the doctrine of pre-emption will
NOT apply (Victorias Milling Co., Inc. vs.
Municipality of Victorias Negros Occidental, G.R.
Collection of Business Tax
No. L-21183, Sept. 27, 1968)
Q: Distinguish business tax from income tax.
Q: When does the principle apply?
A:
A: The principle applies to the following: BUSINESS TAX INCOME TAX
1. Taxes levied under the NIRC As to nature
2. Taxes imposed under the Tariff and Imposed in the exercise of A tax on all yearly profits
Customs Code police power for arising from property,
3. Taxes under special laws. regulatory purposes and professions, trades or
TAXATION LAW TEAM:
paid for the privilege of offices, or as a tax on a Accrual of Tax

carrying on a business in persons income,
the year the tax was paid. emoluments, profits and Q: When does business tax accrue?
the like.
As to date of payment
th A: It accrues on the 1st day of January of each
Paid at the beginning of Due on or before the 15
the year as a fee to allow day of the 4 month
th year.
the business to operate following the close of the
for the rest of the year. taxpayers taxable year. XPN: New taxes, fees or charges, or changes in
As a prerequisite to the conduct of business the rates thereof which shall accrue on the 1st day
It is a prerequisite to the Not a prerequisite of the quarter next following the effectivity of the
conduct of business ordinance imposing such new levies or rates. (Sec.
166, LGC)
Q: What should be the basis of business tax -
gross receipts or gross revenue?
Time of Payment
A: It must be based on gross receipts as the law is
clear. Gross receipts include money or its Q: When should the tax be paid?
equivalent actually or constructively received in
consideration of services rendered or articles, A: Within 20 days of January or of each
sold, exchanged or leased, whether actual or subsequent quarter (i.e. Jan. 20,, April 20, July 20,
constructive. To tax on gross revenue rather than and Oct. 20). It may be extended by the
gross receipts will amount to double taxation sanggunian for justifiable reasons, without
inasmuch as the revenue or income for a taxable surcharges or penalties. Extension cannot exceed
year includes gross receipts already reported 6 months (Sec. 167, LGC)
during the previous year for which local business
taxes had already been paid. (Ericsson
Telecommunications, Inc. v. City of Pasig, etc., et. Penalties on Unpaid Taxes, Fees or Charges
al., G.R. No. 176667, Nov. 22, 2007)
Q: What are the penalties for unpaid taxes, fees
Q: Are condominium corporations liable to pay or charges?
business taxes under the Local Government
Code? A:
1. Surcharge of 25% on taxes, fees or
A: As a rule, a city or municipality is authorized to charges not paid on time; and
impose a tax on business, which is defined under 2. Interest not exceeding 2% per month of
the LGC as trade or commercial activity regularly the unpaid taxes, fees or charges
engaged as a means of livelihood or with view of including surcharges, until the amount
profit. By its very nature, a condominium is fully paid. In no case shall the total
corporation is not engaged in business, and any interest exceed 36 months. (Sec. 168,
profit it derives is merely incidental, hence it may LGC)
not be the subject of business taxes. (Yamane,
etc. v. BA Lepanto Condominium Corporation, G.R.
No.154993, Oct. 25, 2005) Authority of Treasurer in Collection and
Inspection of Books
Tax Period and Manner of Payment Q: Who has the authority to collect such taxes,
fees and charges?
Q: What is tax period for the collection of taxes?
A: Provincial, city, municipal, or barangay
A: It is based on calendar year, unless otherwise treasurer, or their duly authorized deputies. (Sec.
provided (Sec. 165 LGC) 170, LGC)
Q: What is the manner of payment of the taxes? Q: Who has the authority to inspect the books of
persons or association?
A: It may be paid in quarterly instalments. (Sec.
165, LGC) A: The local treasurer or his deputy duly
authorized in writing, may examine the books,
accounts and other pertinent records of any

SANTO TOMAS
person, or association to ascertain and collect the local treasurer contesting the
correct amount of tax. Examination shall be made assessment; otherwise the
during the regular business hours, only once for assessment shall become final and
every tax period, and shall be certified to by the executory.
examining official. (Sec. 171, LGC) iii. The local treasurer shall decide the
protest within sixty (60) days from
the time of its filing. If the local
Taxpayers Remedies treasurer finds the assessment to
be wholly or partly correct, he shall
Q: What are the remedies available to the deny the protest wholly or partly
taxpayer under local government taxation? with notice to the taxpayer.
iv. The taxpayer shall have thirty (30)
A: days from the receipt of the denial
1. Protest assessment of the protest or from the lapse of
2. Claim for refund or tax credit the sixty (60) day period prescribed
3. Judicial action herein within which to appeal with
the court of competent jurisdiction
A. Prior to assessment otherwise the assessment
becomes conclusive and
1. Administrative appeal to the Secretary unappealable. (Sec. 195, LGC)
of Justice v. The competent court referred to is
i. Administrative appeal to the the Regional Trial Court (RTC)
Secretary of Justice questioning which acts in the exercise of its
the constitutionality or legality original jurisdiction.
within 30 days from the effectivity
of the tax ordinance or revenue 2. Action for refund
measure; i. A written claim for refund or credit
ii. Secretary of Justice shall render a is filed with the local treasurer.
decision within sixty (60) days from ii. A claim or proceeding is then filed
date of receipt of the appeal with the court of competent
iii. Within thirty (30) days after receipt jurisdiction (depending upon the
of the decision or the lapse of sixty jurisdictional amount) within two
day period without action from the (2) years from the date of the
Secretary of Justice, aggrieved payment of such tax, fee, or
party may file appropriate charge, or from the date the
proceedings with a court of taxpayer is entitled to a refund or
competent jurisdiction. credit. (Sec. 196, LGC)
Note: such appeal shall not have the Note: The filing of a written claim for refund
effect of suspending the effectivity of with the local treasurer is a condition
the ordinance and the accrual of the precedent for maintaining a court action.
payment of the tax, fee, or charge
levied therein (Sec. 187, LGC) C. Judicial Remedies
1. Court Action
2. Action for declaratory relief i. Within 30 days after receipt of
decision or lapse of 60 days in case
of Secretary of Justices inaction
B. After an assessment (Sec. 187, LGC)
1. Protest of the assessment ii. Within 300 days from receipt when
i. When the correct tax, fee or protest of assessment is denied or
charge is not paid, the Local lapse of 60 days in case of local
Treasurer shall issue a notice of treasurers inaction (Sec. 195, LGC)
assessment within the applicable iii. If no action is taken by the
prescriptive period. (Sec. 184, LGC) treasurer in refund cases and the
stating the nature of the levy, the two year period is about to lapse
amount of deficiency, the (Sec. 195, LGC)
surcharges, interests and penalties.
ii. The taxpayer may file a written
protest of the assessment with the
TAXATION LAW TEAM:
iv. If remedies available does not Q: When is the running of the prescriptive period
provide plain, speedy and suspended?
adequate remedy.
2. Action for declaratory relief A: The running of the periods of prescription
provided in the preceding paragraphs shall be
suspended for the time during which: Pre-Req-OC
Periods of Assessment and Collection of
Local Taxes, Fees or Charges 1. The treasurer is legally Prevented from
making the assessment of collection;
Q: What is the period of assessment of local 2. The taxpayer Requests for a
taxes? reinvestigation and executes a waiver in
writing before expiration of the period
A: within which to assess or collect; and
GR: Local taxes, fees, or charges shall be 3. The taxpayer is Out of the Country or
assessed within five (5) years from the date otherwise cannot be located. (Sec.
they became due. No action for the collection 195[d], LGC)
of such taxes, fees, or charges, whether
administrative or judicial, shall be instituted
after the expiration of such period.
XPN: In case of fraud or intent to evade the

payment of taxes, fees, or charges, the same
may be assessed within ten (10) years from
discovery of the fraud or intent to evade
payment. (Sec. 184 [a] and [b], LGC)
Q: What is the period of collection of local taxes?
A: Local taxes, fees, or charges may be collected

within five (5) years from the date of assessment
by administrative or judicial action. (Sec. 194(c),
LGC)

SANTO TOMAS
Protest of Assessment
Q: Discuss the procedure for the protest of assessment?
A:
Assessment is made by local treasurer
Assessment is final Receipt by the Taxpayer Taxpayer has 60 days to file a

and executory written protest with treasurer
Local Treasurer finds protest The Local Treasurer shall

wholly or partly meritorious decide the protest within 60
days from the time of its filing
Local Treasurer issues a

notice cancelling wholly or Local Treasurer finds the
partially the assessment assessment wholly or partly
correct
Taxpayer does not appeal Local Treasurer denies the

protest wholly or partly
with notice to the taxpayer
Assessment becomes
conclusive and unappealable
(Sec. 195, LGC) Taxpayer has 30 days from
receipt of the denial of the
protest or from lapse of the
60 day period prescribed to
appeal with a court of
competent jurisdiction
Note: The competent court referred to is the Regional Trial Court (RTC) which acts in the exercise of its original
jurisdiction.
TAXATION LAW TEAM:
Claim for Refund of Tax Credit for Erroneously or Local Governments Lien for
Illegally Collected Tax, Fee or Charge Delinquent Taxes, Fees or Charges
Q: What is the nature of the local governments

Q: What are the grounds for the refund of local lien?
government taxes, fees or charges?
A: Local taxes, fees, charges and other revenues
A: constitute a lien, superior to all liens, charges or
1. Erroneously collected encumbrances in favor of any person, enforceable
2. Illegally collected (Sec. 196, LGC.) by appropriate administrative or judicial action,
not only upon any property or rights therein
Q: What is the procedure for the refund of local which may be subject to the lien but also upon
government taxes, fees or charges? property used in business, occupation, practice of
profession or calling, or exercise of privilege with
A: respect to which the lien is imposed. (Sec. 173,
1. A written claim for refund or credit is LGC)
filed with the local treasurer.
2. A claim or proceeding is then filed with Q: How are they extinguished?
the court of competent jurisdiction
(depending upon the jurisdictional A: The lien may only be extinguished upon full
amount) within two (2) years from the payment of the delinquent local taxes fees and
date of the payment of such tax, fee, or charges including related surcharges and interest.
charge, or from the date the taxpayer is (Ibid.)
entitled to a refund or credit. (Ibid.)
Q: What are the remedies available to the local

government units in collecting revenues?
A:
1. Local government lien
2. Civil remedies
a. Distraint of personal property
b. Levy of real property
c. Judicial action (Secs. 173 & 174,
LGC)

SANTO TOMAS
Civil Remedies, in General
Administrative Action
SUMMARY FOR PROCEDURE FOR DISTRAINT
Failure of the person owing any local tax, Local treasurer or his deputy issues written notice
fee, or charge to pay the same at the time to the taxpayer concerned informing to seize or
required (Sec. 175[a], LGC) confiscate any personal property belonging to
that person or any personal property subject to
the lien in sufficient quantity to satisfy the tax,
fee, or charge in question, together with any
The officer executing the distraint shall
increment thereto incident to delinquency and
make or cause to be made an account of
the expenses of seizure (Sec. 175[a], LGC)
the goods, chattels or effects distrained, a
copy of which signed by himself shall be left
either with the owner or person from
whose possession the goods, chattels or
effects are taken, or at the dwelling or place The local treasurer or his deputy shall issue a duly
of business of that person and with authenticated certificate based upon the records
someone of suitable age and discretion, to of his office showing the fact of delinquency and
which list shall be added a statement of the the amounts of the tax, fee, or charge and
sum demanded and a note of the time and penalty due. Such certificate shall serve as
place of sale (Sec. 175[b], LGC) sufficient warrant for the distraint of personal
property aforementioned, subject to the
taxpayers right to claim exemption under the
The officer shall forthwith cause a provisions of existing laws (Sec. 175[a], LGC)
notification to be exhibited in not less than
three (3) public and conspicuous places in
the territory of the local government unit Should the property distrained be not disposed of
where the distraint is made, specifying the within one hundred and twenty (120) days from
time and place of sale, and the articles the date of distraint, the same shall be considered
distrained.(Sec. 175[c], LGC) as sold to the local government unit concerned
for the amount of the assessment made thereon
Note: The time of sale shall not be less than by the Committee on Appraisal and to the extent
twenty (20) days after the notice to the owner of the same amount, the tax delinquencies shall
or possessor of the property as above be cancelled. (Sec. 175 [e], LGC)
specified and the publication or posting of the
notice. One place for the posting of the notice
shall be at the office of the chief executive of
the local government unit in which the
The proceeds of the sale shall be applied to
property is distrained. (Sec. 175[c], LGC)
satisfy the tax, including the surcharges, interest,
and other penalties incident to delinquency, and
the expenses of the distraint and sale.
At the time and place fixed in the notice,
the officer conducting the sale shall sell the Note: The expenses chargeable upon the seizure and
goods or effects so distrained: sale shall embrace only the actual expenses of the
a. At a public auction; seizure and preservation of the property pending the
b. To the highest bidder for cash sale, and no charge shall be imposed for the services
of the local officer or his deputy. (Sec. 175[f], LGC)
Note: Within five (5) days after the sale, the
local treasurer shall make a report of the
proceedings in writing to the local chief
executive concerned (Sec. 175 [e], LGC) Where the proceeds of the sale are insufficient to
satisfy the claim, other property may, in like
Note: If at any time prior to the consummation manner, be distrained until the full amount due,
of the sale, all the proper charges are paid to including all expenses, is collected (Sec. 175 [f],
the officer conducting the sale, the goods or LGC)
effects distrained shall be restored to the
owner (Sec. 175[d], LGC) Note: The balance over and above what is required
to pay the entire claim shall be returned to the
owner of the property sold. (Sec. 175 [f], LGC)
TAXATION LAW TEAM:
SUMMARY FOR PROCEDURE FOR LEVY
Failure of the person owing any local tax, Levy of real property before,
fee, or charge to pay the same at the simultaneously or after distraint of
time required. (Sec. 176, LGC) personal property belonging to the
delinquent taxpayer.
Written notice of the levy shall be mailed The provincial city or municipal treasurer
to or served upon the: shall:
a. assessor and a. prepare a duly authenticated
b. Register of Deeds of the certificate
province or city where the b. showing the name of the
property is located who shall taxpayer and the amount of
annotate the levy on the tax the tax, fee, or charge, and
declaration and certificate of penalty due from him. (Sec.
title of the property, 176, LGC)
respectively, and
c. delinquent taxpayer or,
d. if he be absent from the Report on levy within ten (10) days from
Philippines, to his agent or the levy by the levying officer. (Sec. 176, LGC)
manager of the business in
respect to which the liability
arose, or Advertisement of the sale of the property
through sale or auction within 30 days
Sale of levied property (Sec. 178, LGC) after levy. The advertisement shall be
effected by:
a. Posting notice in the main
entrance of the municipal
Within thirty (30) days after the sale, the building or city hall and
local treasurer or his deputy shall make a conspicuous place in the
report of the sale to the sanggunian barangay where the real
concerned, and which shall form part of property is located
his records. (Sec. 178, LGC) b. Publication once a week for 3
consecutive weeks in a
The local treasurer shall
purchase the property on
behalf of the LGU if:
Issuance of the certificate of sale to the purchaser. (Sec. 178, LGC)
a. There is no bidder
b. The highest bid is
insufficient to pay
the deficiency tax
(Sec. 181, LGC) The delinquent taxpayer has one If property is not
(1) year from the date of sale to redeemed, a final
redeem the property. If property is deed of sale shall be
redeemed, a certificate of issued to the
If not redeemed, ownership shall
redemption will be issued (Sec. purchaser. (Sec. 180,
be fully vested on the LGU
179, LGC) LGC)
concerned. (Sec 181, LGC)

SANTO TOMAS
Q: May the levy of real property be 2. One (1) horse, cow, carabao, or other
simultaneously issued with the warrant of Beast of burden, such as the delinquent
distraint? taxpayer may select, and necessarilly
used by him in his ordinary occupation;
3. His necessary Clothing, and that of all
A: Yes. The levy of a real property may be made his family;
before or simultaneous with distraint. In case the 4. Household furniture and utensils
levy on real property is not issued before or necessary for housekeeping and used
simultaneously with the warrant of distraint on for that purpose by the delinquent
personal property, and the personal property of taxpayer, such as he may select, of a
the taxpayer is not sufficient to satisfy his value not exceeding Ten thousand
delinquency, the provincial, city or municipal pesos (P10,000.00)
treasurer, as the case may be, shall within thirty 5. Provisions, including crops, actually
(30) days after execution of the distraint, proceed provided for individual or family use
with the levy on taxpayers real property. (Sec. sufficient for four (4) months;
176, LGC) 6. The professional Libraries of doctors,
engineers, lawyers and judges;
Q: When may LGU purchase real property 7. One fishing Boat and net, not exceeding
advertised for sale? the total value of Ten thousand pesos
(P10,000.00), by the lawful use of which
A: a fisherman earns his livelihood; and
1. No bidder for the real property 8. Any Material or article forming part of a
2. If the highest bid is for an amount house or improvement of any real
insufficient to pay the taxes, fees, or property. (Sec. 185, LGC)
charges, related surcharges, interests,
penalties and costs
Penalty on Local Treasurer for Failure to Issue
and Execute Warrant of Distraint or Levy
Further Distraint or Levy
Q: What is the penalty on the local treasurer for
Q: May the local government repeat the failure to issue and execute the warrant?
remedies of distraint and levy?
A: Automatically dismissed from service after
A: The remedies by distraint and levy may be notice and hearing, if found guilty of abusing the
repeated if necessary until the full amount due, exercise thereof by competent authority, without
including all expenses, is collected. (Sec. 184, LGC) prejudice to criminal prosecution under the RPC
and other applicable laws. (Sec. 177, LGC)
Exemption of Personal Property from

Distraint or Levy Procedure for Judicial Action
Q: What are the properties exempt from Q: How does the LGU concerned enforce the
distraint or levy? judicial remedy in collection of taxes?
A: The following property shall be exempt from A: The LGU concerned may enforce the collection
distraint and the levy, attachment or execution of delinquent taxes, fees, charges and other
thereof for delinquency in the payment of any revenues by civil action in any court of competent
local tax, fee or charge, including the related jurisdiction. The civil action shall be filed by the
surcharge and interest: ToBe-ChoP-LBM local treasurer within five (5) years from
1. Tools and implements necessarily used delinquent taxes, fees or charges become due.
by the delinquent taxpayer in his trade
Note: The local government files an ordinary suit for
or employment;
the collection of sum of money before the MTC, RTC
or CTA depending upon the jurisdictional amount.
TAXATION LAW TEAM:
COURT JURISDICTIONAL AMOUNT
MTC
If principal amount of taxes, fees, exclusive of charges and penalties does not
Original exceed P300,000 or P400,000 in Metro Manila
RTC
If principal amount of taxes, fees exclusive of charges and penalties exceeds
P300,000 or P400,000 in Metro Manila
Original
Provided, the amount is less than 1 million
The RTC shall exercise appellate jurisdiction over all cases decided by the MeTC,
Appellate MTC, and MCTC in their respective territorial jurisdiction
CTA DIVISION
If principal amount of taxes, fees exclusive of charges and penalties is P 1 million or
Original above
Over appeals from the judgments, resolutions or orders of the RTC in tax collection
Appellate cases originally decided by them in their respective jurisdiction.
CTA EN BANC
1. Decisions or resolutions over petitions for review of the Court in Divisions in
the exercise of its exclusive appellate jurisdiction over local taxes decided by
the RTC in the exercise of their original jurisdiction;
2. Over Petitions for review of the judgments, resolutions or orders of the RTC in
the exercise of their appellate jurisdiction over tax collection cases originally
decided by the MeTC, MTC and MCTC in their respective territorial
Appellate jurisdiction.
Note:
JURISDICTION OF COURTS OVER LOCAL TAXATION CASES
1. With the amendment brought by R.A. No. 9282, the CTA now has appellate jurisdiction over local taxation
cases decided by the RTC in the exercise of its appellate or original jurisdiction.
2. Regular judicial courts are not prohibited from enjoining the collection of local taxes, subject to Rule 58
(preliminary injunction) of the Rules of Court.

SANTO TOMAS
TABLE FOR TAXPAYERS REMEDIES FROM ASSESSMENT OF LOCAL TAXES OTHER THAN REAL PROPERTY
TAXES LOCAL GOVERNMENT CODE
Start Local Treasurer (LT) assess local LT issues notice of

taxes within 5 years from date they assessment (Sec. 195, LGC)
become due or 10 years from
discovery of fraud (Sec. 195)
Taxpayer files written

protest within 60 days from
receipt of notice of
assessment (Sec. 195, LGC)
yes Is protest made no

LT decides on protest Assessment
within 60 days from filing within prescribed becomes final
of protest (Sec. 195, LGC) period? (Sec. 195,
LGC)
yes no
Taxpayer appeals to Appeal to CTA division

LT grants
court of competent but if the decision is
protest?
jurisdiction (regular from an RTC exercising
courts) within 30 appellate jurisdiction,
days from receipt of appeal should be made
notice or from lapse directly not to CTA en
yes no of 60 days (Sec. 195, banc under Rule 43 of
LGC) ROC.
LT issues notice
cancelling
If Division
partially/wholly
decides against
the assessment
taxpayer, file
(Sec. 195, LGC)
MR within 15
days with the
same division
MR is denied, file
end Appeal to SC petition for review
with CTA en banc
TAXATION LAW TEAM:
REAL PROPERTY TAXATION (4)Statues, reliefs, paintings or other objects

for use or ornamentation, placed in buildings
Q: Define real property tax (RPT). or on lands by the owner of the immovable in
such a manner that it reveals the intention to
A: Real property tax is a direct tax on the attach them permanently to the tenements;
ownership of lands and buildings or other (5) Machinery, receptacles, instruments or
improvements thereon not specially exempted, implements intended by the owner of the
and is payable regardless of whether the property tenement for an industry or works which may
is used or not, although the value may vary in be carried on in a building or on a piece of
accordance with such factor. land, and which tend directly to meet the
needs of the said industry or works;
Note: Real property tax is a fixed proportion of (6) Animal houses, pigeon-houses, beehives,
the assessed value of the property being taxed fish ponds or breeding places of similar
and requires, therefore, the intervention of nature, in case their owner has placed them
assessors. or preserves them with the intention to have
them permanently attached to the land, and
It was held in the case of Province of Nueva Ecija forming a permanent part of it; the animals in
vs. Imperial Mining Co., Inc. G.R. No. 59463, these places are included;
November 19, 1982 that PD No. 464, the Real (7) Fertilizer actually used on a piece of land;
Property Tax Code, changed the basis of real (8) Mines, quarries, and slag dumps, while the
property taxation adopting the policy of taxing matter thereof forms part of the bed, and
real property on the basis of actual use, even if waters either running or stagnant;
the user is not the owner. (9) Docks and structures which, though
floating, are intended by their nature and
The present law on real property taxation (R.A. 7160, object to remain at a fixed place on a river,
Local Government Code) adopts actual use of real lake, or coast;
property as basis of assessment. (Sec. 199[b], LGC) (10) Contracts for public works, and
servitudes and other real rights over
immovable property. (334a)
ADMINISTRATION OF REAL PROPERTY TAX
Note: An object used indirectly for the general
Q: What are the local government units purpose of the business shall not be treated as real
responsible for the administration of real property.
property tax?
In Mindanao Bus Co. v. City Assessor of Cagayan de
A: LGUs Responsible Oro (1997), Board of Assessment Appeals v. Meralco,
1. Provinces Meralco v Board of Assessment Appeals. The SC has
2. Cities generally held in these cases that Art 415 CC
3. Municipalities in Metro Manila Area provides an exclusive enumeration of what
constitutes real property, For tax purposes,
however, it is common for otherwise personal
Q: What is real property?
properties under the CC to be classified as real
property.
A: Subject to the definition given by Article 415 of
the Civil Code: Note: the NIRC and the LGC code prevail in
classifying property for tax purposes.
Art. 415. The following are immovable
property: Q: What is an Improvement?
(1) Land, buildings, roads and constructions of
all kinds adhered to the soil; A: It is a valuable addition made to a property or
(2) Trees, plants, and growing fruits, while an amelioration in its condition, amounting to
they are attached to the land or form an more than a mere repair or replacement of parts
integral part of an immovable; involving capital expenditures and labor, which is
(3) Everything attached to an immovable in a intended to enhance its value, beauty or utility or
fixed manner, in such a way that it cannot be to adapt it for new or further purposes. (Sec. 199
separated therefrom without breaking the [m], LGC)
material or deterioration of the object;

SANTO TOMAS
Q: What are the requisites for taxability of an Corporation v. CBAA, G.R. No. L-46245 May 31,
improvement? 1982)
A: Q: What are the kinds of real property tax and

1. Must enhance the value of the property special levies?
2. Must be separately assessable
3. Can be treated independently from the A: REAS
main property
1. Basic Real property tax
2. Additional levy on real property for the
Note: Whenever real property has been divided into
condominium, each condominium owned shall be
Special Education Fund(Sec. 235, LGC;
separately assessed, for purposes of real property 3. Additional Ad valorem tax on idle lands
taxation and other tax purposes to the owner (Sec 236, LGC)
thereof and tax on each such condominium shall 4. Special levy by local government units
constitute a lien solely thereof. (Sec. 25, R.A. No. (Sec 240, LGC)
776, Condominium Act)
Imposed by other laws
Q: May personal properties as defined under the 1. Socialized Housing Tax (RA 7279, March
Civil Code be considered as real property for 24, 1992)
purposes of RPT? 2. LGUs are authorized to impose an
additional one-half percent (0.5%) on
A: Yes. Properties considered as personal under the assessed value of all lands in urban
the Civil Code may nonetheless be considered as areas in excess of Fifty Thousand Pesos,
real property for tax purposes where said except those from lands which are
property is essential to the conduct of business. exempted from the coverage of RA
The property to be considered as immobilized for 7279.
RPT must be essential and a principal element
of an industry without which such industry would
be unable to carry on the principal industrial Fundamental Principles
purpose for which it was established. (DOCTRINE
OF ESSENTIALITY) Q: What are the fundamental principles
governing real property taxation?
E.g.
1. Gasoline station equipment and A:
machineries like above ground and 1. Real property shall be appraised at its
underground tanks, elevated water current and fair market value.
tanks, water tanks, gasoline pumps, 2. Real property shall be classified for
computing pumps water pumps, car assessment purposes on the basis of its
washers, car lifts, air compressors, tire actual use.
inflators and the like attached to the 3. Real property shall be assessed on the
pavement and to the shed (Caltex basis of a Uniform classification within
Phils. v. CBAA, GR No. 50466, May 31, each local government unit.
1982) 4. The appraisal, assessment, levy and
2. A mining Companys siltation dam and collection of real property tax shall not
decant system are not machineries but be let to any private person.
improvements subject to real property 5. The appraisal and assessment of real
tax. (The Provincial Assessor of property shall be Equitable. (Sec. 197,
Marinduque v. CA, G.R. No. 170532, LGC)
Apr. 30, 2009)
Note: Real Property shall be classified, valued and
Q: Is the MERALCO pipeline considered real assessed on the basis of its actual use regardless of
property? where located, whoever owns it and whoever uses
it. (Sec. 217, LGC)
A: Yes. It is embedded and attached to the land
and cannot be removed therefrom without
dismantling the steel pipes which were welded to
form the pipeline. (Meralco Securities Industrial
TAXATION LAW TEAM:
1. Direct tax burden could not be shifted

Nature of Real Property Tax by the one who pays to another person
2. Ad valorem based on the assessed
Q: What are the characteristics of RPT? value of the property
3. Local tax
A:
1. Imposed on use and not ownership 3. In the case of a city or a municipality
2. Progressive in character pending to a within the Metro Manila area- at the
certain extent on the use and value of rate not exceeding 2% of the assessed
the property value of real property. (Sec. 233, LGC)
3. Indivisible single obligation
Q: What must an ordinance imposing special
levy for public works contain?
IMPOSITION OF REAL PROPERTY TAX
A:
Power to Levy Real Property Tax 1. The ordinance shall
a. Describe the nature, extent,
Q: What is the nature and scope of power to and location of the project;
impose realty tax? b. State estimated cost;
c. Specify metes and bounds by
A: The taxing power of local governments in real monuments and lines
property taxation is a delegated power. (Sec. 232, 2. It must state the number of annual
LGC) installments, not less than 5 years nor
more than 10 years.
Q: What is the extent of the local taxing power
in real property taxation? Note: In the apportionment of special
levy, Sanggunian may fix different rates
A: Provinces, cities and municipalities do not only depending whether such land is more or
have the power to levy real estate taxes, but they less benefited by the proposed work
may also fix real estate tax rates. Sec. 233 of the
LGC provides that they shall fix a uniform rate of 3. Notice to the owners and public hearing
basic real property tax applicable to their (Sec. 242, LGC)
respective localities. 4. Owner can appeal to the LBAA and
CBAA
Note: No public hearing shall be required before the
enactment of a local tax ordinance levying the basic Q: What is the special levy or special assessment
real property tax. by LGUs?
Q: What real properties are subject to tax? A:

GR: A province, city or municipality may
1. For Basic Real Property Tax and Special impose a special levy on the lands within its
Levy on Education Fund: territorial jurisdiction specially benefited by
a. Real Property such as: public works projects or improvements by the
b. Land LGU concerned.
c. Building
d. Machinery Note: Special levy shall not exceed 60% of the
e. Other improvements (Sec. 232, GC) actual cost of such projects and improvements,
including the costs of acquiring land and such
2. For Special Levy on Idle Lands and other real property in connection therewith.
Special Levy on Public Works (Special
Assessments): XPN: It shall not apply to lands exempt from
a. Land only basic real property tax and the remainder of
the land, portions of which have been
Q: What are the rates of levy? donated to the LGU concerned for the
construction of such projects or
A: improvements. (Sec. 240, LGC)
1. In the case of a province- at the rate not
exceeding 1% of the assessed value of Note: The special levy shall not exceed 60% of
2. real property; and the actual cost of such projects and

SANTO TOMAS
improvements, including the costs of acquiring ownership of which has been

land and such other real property in connection transferred to individual owners,
therewith. who shall be liable for the
additional tax: Provided, however,
Q: What is the additional levy on real property That individual lots of such
for the Special Education Fund? subdivisions, ownership of which
has not been transferred to the
A: A province, city or a municipality within the buyer shall be considered as part
Metro Manila area may levy and collect an annual of the subdivision, and shall be
tax of one percent (1%) on the assessed value of subject to the additional tax
real property which shall be in addition to the payable by subdivision owner or
basic real property tax. The proceeds thereof shall operator. (Sec. 237, LGC)
exclusively accrue to the Special Education Fund
created under R.A. 5447. (Sec. 235, LGC) Q: What causes exemption from idle lands tax?
Q: What is the additional ad valorem tax on idle A:

lands? 1. Force majeure
2. Civil disturbance
A: A province or city or a municipality within the 3. Natural calamity
Metro Manila area may levy an annual tax on idle 4. Any cause or circumstance which
lands at the rate not exceeding five percent (5%) physically or legally prevents the owner
of the assessed value of the property which shall or person having legal interest from
be in addition to the basic real property tax. (Sec. improving, utilizing or cultivating the
236, LGC) same. (Ibid.)
Q: What can be considered as idle lands? Q: What is the purpose of imposing ad valorem
taxes on idle land?
A:
1. Agricultural lands: A: To penalize property owners who do not use
a. more than one (1) hectare in area their property productively. It is also designed to
b. suitable for cultivation, dairying, encourage utilization of land resources in order to
inland fishery, and other contribute to national development.
agricultural uses
c. one-half (1/2) of which remain Q: A city outside of Metro Manila plans to enact
uncultivated or unimproved by the an ordinance that will impose a special levy on
owner or person having legal idle lands located in residential subdivisions
interest. within its territorial jurisdiction in addition to
the basic real property tax. If the lot owners of a
Note: Agricultural lands planted to subdivision located in the said city seeks your
permanent or perennial crops with at legal advice on the matter, what would your
least fifty (50) trees to a hectare shall advice be? Discuss.
not be considered idle lands. Lands
actually used for grazing purposes
A: I would advise the lot owners that a city, even
shall likewise not be considered idle
if it is outside Metro Manila, may levy an annual
lands.
tax on idle lands at the rate not exceeding five
percent (5%) of the assessed value of the
2. Lands other than agricultural:
property which shall be in addition to the basic
a. Located in a city or municipality
real property tax. (Sec. 236, LGC) I would likewise
b. More than one thousand (1,000)
advise them that the levy may apply to residential
square meters in area
lots, regardless of land area, in subdivisions duly
c. One-half (1/2) of which remain
approved by proper authorities, the ownership of
unutilized or unimproved by the
which has been transferred to individual owners
owner or person having legal
who shall be liable for the additional tax. (Last
interest.
par., Sec. 237, LGC)
Regardless of land area, this
Finally, I would advise them to construct or place
Section shall apply to residential
improvements on their idle lands by making
lots in subdivisions duly approved
valuable additions to the property or
by proper authorities, the
TAXATION LAW TEAM:
ameliorations in the land's conditions so the lands filtering, conveying and cleansing mine
would not be considered as idle. (Sec. 199[m], industrial waste and tailings as well as
LGC) In this manner their properties would not be eliminating or reducing hazardous effects
subject to the ad valorem tax on idle lands. (2005 of solid particles, chemicals, liquids or
Bar Question) other harmful by products and gases
emitted from any facility utilized in mining
operations for their disposal (R.A.No.
7942, Sec. 3,am)
Exemption from Real Property Tax
Except as herein provided, any
Q: Under the Local Government Code, what
exemption from payment of real
properties are exempt from real property taxes?
property tax previously granted to, or
presently enjoyed by all persons,
A: RP-PWC
whether natural or juridical, including
1. Real property owned by the Republic of
all government-owned or controlled
the Philippines or any of its political
corporations, are hereby withdrawn
subdivisions except when the
upon the effectivity of the LGC.
beneficial use thereof has been granted
for consideration or otherwise to a
Note: A taxpayer claiming exemption must submit
taxable person.
sufficient documentary evidence to the local
assessor within thirty (30) days from the date of the
2. Charitable institutions, churches, declaration of real property; otherwise, it shall be
parsonages, or convents appurtenant listed as taxable in the Assessment Roll. (Sec. 206,
thereto, mosques, non-profit or LGC)
religious cemeteries, and all lands,
buildings, and improvements actually, Q: The Light Rail Transit Authority (LRTA)
directly and exclusively used for resolutely argues that the improvements such
religious, charitable, or educational as, carriageways, passenger terminal stations
purposes. and similar structures, not of its properties, but
of the government-owned national roads to
Note: the tax exemption herein rest on which they are immovably attached. They are
the premise that they are actually, directly thus not taxable as improvements under the
and exclusively used by said entities or Real Property Tax Code. It contends that to
institution s for their stated purposes and
impose a tax on the carriageways and terminal
not necessarily because they are owned
stations would be to impose taxes on public
by religious, charitable or educational
institutions.
roads.
3. All machineries and equipment that are Are the LRT improvements subject to real
actually, directly and exclusively used by property tax?
local Water utilities and government-
owned or controlled corporations A: Yes. While it is true that carriageways and
engaged in the supply and distribution terminal stations are anchored, at certain points,
of water and/or generation and on public roads, said improvements do not form
transmission of electric power. part of the public roads since the former are
constructed over the latter in such a way that the
4. All real property owned by duly flow of vehicular traffic would not be impaired.
registered Cooperatives as provided for The carriageways and terminals serve a function
under RA 6938. different from the public roads. The former are
part and parcel of the light rail transit (LRT)
5. Machinery and equipment used for system which, unlike the latter, are not open to
Pollution control and environmental use by the general public. The carriageways are
protection. (Sec. 234, LGC) (2002 Bar accessible only to the LRT trains, while the
Question) terminal stations have been built for the
convenience of LRTA itself and its customers who
Note: Pollution control and infrastructure pay the required fare. Even granting that the
devices refers to infrastructure, national government owns the carriageways and
machinery, equipment and/or terminal stations, the property is not exempt
improvements used for impounding, because their beneficial use has been granted to
treating or neutralizing, precipitating,

SANTO TOMAS
LRTA which is a taxable entity. (LRTA v. CBAA,

G.R. No. 127316, Oct. 12, 2000) Q: In 1957, R.A. 2036 granted RCPI a 50 year
franchise and Sec. 14 thereof mandates it to pay
Q: Are the airport lands and buildings of Manila the taxes required by law on real estate,
International Airport Authority (MIAA) exempt buildings and other personal property except
from real estate tax under existing laws? radio equipment, machinery and spare parts
needed in connection with its business. In
A: Yes. First, MIAA is not a government-owned or consideration of the franchise, a tax equal to one
controlled corporation but an instrumentality of and one-half per centum of all gross receipts
the National Government and thus exempt from from the business transacted under this
local taxation. MIAA is a government franchise by the grantee shall be paid and such
instrumentality vested with corporate powers to shall be in lieu of any tax collected by any
perform efficiently its governmental functions. authority. The municipal treasurer of Tupi, South
MIAA is like any other government Cotabato subsequently assessed RCPI real
instrumentality; the only difference is that MIAA property tax on its radio station building,
is vested with corporate powers. Second, the real machinery shed, radio station tower and its
properties of MIAA are owned by the Republic of accessories and generating sheds. RCPI
the Philippines and thus exempt from real estate protested such assessment. Is RCPI liable to pay
tax. Airport lands and buildings are outside the real property tax on the said properties?
commerce of man. The airport lands and
buildings of MIAA are devoted to public use and A: Yes. RCPIs radio relay station tower, radio
thus are properties of public dominion. (MIAA v. station building, and machinery shed are real
CA, City of Paranaque, et al., G.R. No. 155650, July properties and are thus subject to real property
20, 2006) tax. The in lieu of all taxes clause in Section 14
of R.A. 2036, as amended by R.A. 4054, cannot
MCIAA Case as Opposed to MIAA Case exempt RCPI from the real estate tax because the
Since the last paragraph MIAA is NOT a same Section 14 expressly states that RCPI shall
of Section 234 government-owned or pay the same taxes on real estate, buildings.
unequivocally withdrew controlled corporation Subsequent legislations have radically amended
upon the effectivity of the but an instrumentality of
the in lieu of all taxes clause in franchises of
LGC, exemption from the National Governemnt.
payment of real property The exception to the
public utilities. The Local Government Code of
tax granted to natural or exemtpion in Sec. 234(a) 1991 withdrew all the tax exemptions existing at
juridical persons including does not apply to MIAA the time of its passage including that of RCPIs
government-owned or because it is not a taxable with respect to local taxes like the real property
controlled corporations, entity under the LGC. tax. Also, R.A. 7716 abolished the franchise tax
except as provided in the Such exception applies on telecommunications companies effective 1
said section, and the only if the beneficial use January 1996. To replace the franchise tax, R.A.
petitioner is, undoubtedly of real property owned by
7716 imposed a 10 percent value-added-tax on
a government-owned the Republic is given to a
corporation it necessarily taxable entity. (Manila
telecommunications companies under Sec.102,
follows that its exemption International Airport NIRC. Lastly, it is an elementary rule in taxation
from such tax granted it in Authortiy v CA, supra.) that exemptions are strictly construed against the
Section 14 of its Charter, taxpayer and liberally in favor of the taxing
RA No. 6958, has been authority. It is the taxpayers duty to justify the
withdrawn. Furthermore, exemption by words too plain to be mistaken and
note that Section 40(a) of too categorical to be misinterpreted.(Radio
PD 464 as reproduced in
Communications of the Philippines, Inc. v.
Section 234(a), the phrase
and any government-
Provincial Assessor of South Cotabato, A.C. No.
owned or controlled 5637,April 13, 2005)
corporation so exempt by
its charter was excluded Q: Napocor entered into a build-operate-transfer
in the enumeration of (BOT) agreement with First Private Power
exemption from real Corporation (FPPC) for the construction of a
property tax. (Mactan power plant in Bauang, La Union and the
Cebu International Airport
creation of Bauang Private Power Corporation
Authority v. Marcos, G.R.
No. 120082, September
(BPPC), a corporation that will own, manage and
11, 1996) operate the power plant. When BPPC was
assessed for real property taxes on the
machineries and equipment, Napocor sought the
TAXATION LAW TEAM:
exemption of the machineries and equipment Q: Distinguish fair market value from
from RPT on the ground of its exemption from assessed value.
taxes and the provision under the BOT
Agreement whereby Napocor assumes A:
responsibility for all real estate taxes. Is Napocor FAIR MARKET VALUE ASSESSED VALUE
liable to pay tax? As to determination
Determined by the
Declared by the owner
A: Under Sec. 234(c) of the LGC of 1991, application of the
subject to final
assessment level to the
machineries and equipment actually, directly and determination by the
FMV. It is synonymous to
exclusively used by a government-owned or assessor.
the taxable value.
controlled corporation are exempt from real As to basis
property tax. BPPC, not being a GOCC, is not Merely a percentage of
entitled to the Sec. 234(c) exemption. Napocor, Supposed to be the actual
the FMV depending on
value of the real property
not being the actual, direct and exclusive user of the assessment level of
in the open market.
the machineries and equipment, cannot invoke the property in question.
the Sec. 234(c) exemption either. (National Power
Corp. v. CBAA, G.R. No. 171470, January 30, 2009) Q: What are the approaches in estimating the
fair market value of real property for RPT
Q: Is GSIS exempt from real property taxes? purposes?
A: Pursuant to Sec. 33 of P.D. 1146, GSIS enjoyed A:

tax exemption from real estate taxes, among 1. Sales analysis approach The sales price
other tax burdens, until January 1, 1992 when the paid in actual market transactions is
LGC took effect and withdrew exemptions from considered by taking into account valid
payment of real estate taxes privileges granted sales data accumulated from among the
under PD 1146. R.A. 8291 restored in 1997 the Register of Deeds, notaries public,
tax exempt status of GSIS by reenacting under its appraisers, brokers, dealers, bank
Sec. 39 what was once Sec. 33 of P.D. 1146. If any officials, and various sources stated
real estate tax is due, it is only for the interim under the Local Government Code;
period, or from 1992 to 1996, to be precise. (GSIS 2. Income capitalization approach The
v. City Treasurer and City Assessor of the City of value of an income-producing property
Manila, G.R. No. 186242, Dec. 23, 2009) is no more than the income derived
from it. An analysis of the income
produced is necessary in order to
Appraisal and Assessment of Real Property Tax estimate the sum which might be
invested in the purchase of the
Q: How is a real property appraised? property.
3. Reproduction cost approach a formal
A: All real property, whether taxable or exempt, approach used exclusively in appraising
appraised at the current and fair market value manmade improvements such as
prevailing in the locality where the property is buildings and other structures, based on
situated.(Sec. 201, LGC) such data as materials and labor costs
to reproduce a new replica of the
Q: What is the fair market value of properties? improvement. (Allied Banking
Corporation, et. al., v. Quezon City
A: Fair market value (FMV) is the price at which a Government, G.R. No. 154126, Oct. 11,
property may be sold by a seller who is not 2005)
compelled to sell and bought by a buyer who is
not compelled to buy. (Sec. 199(I), LGC) Q: How is the fair market value (FMV)
determined?
A:
a. Assessor of the province/city or
municipality may summon the
owners of the properties to be
affected and may take depositions
concerning the property, its
ownership, amount, nature and value
(Sec. 213, LGC)
SANTO TOMAS
b. Assessor prepares a schedule of FMV 1. Real property shall be appraised at its

for different classes of properties. Current and fair market value;
c. The schedule of FMV is published in a 2. Real property shall be classified for
newspaper of general circulation in assessment purposes on the basis of its
the province, city or municipality Actual use;
concerned or in the absence thereof, 3. Real property shall be assessed on the
shall be posted in the provincial basis of a Uniform classification within
Capitol, city or municipal hall and in each local government unit;
two other conspicuous public places 4. The appraisal, assessment, levy and
therein (Sec. 212, LGC) collection of real property tax shall not
d. General revision of property be Let to any private person; and
assessment is made (Sec. 219, LGC) 5. The appraisal and assessment of real
e. Sanggunian enacts a real property tax property shall be Equitable. (Sec. 198,
ordinance. LGC)
Q: Quezon City passed an ordinance which Q: What are the limitations of local government
contains a proviso, to wit: to administer, appraise, levy and collect real
property taxes?
The parcels of land sold, ceded, transferred and
conveyed for remuneratory consideration after A:
the effectivity of this revision shall be subject to 1. Authorization Limitation the Local
real estate tax based on the actual amount Government Code authorizes only
reflected in the deed of conveyance or the certain LGUs to administer real property
current approved zonal valuation of the Bureau taxation. (Sec. 200, LGC)
of Internal Revenue prevailing at the time of the 2. Fundamental principles of appraisal,
sale, cession, transfer and conveyance, whoever assessment, levy and collection of real
is higher, as evidenced by the certificate of property taxes. (Sec. 198, LGC)
payment of the capital gains tax issued 3. The real property taxes collected shall
therefore. accrue solely to the benefit of the local
government unit concerned. (Sec. 5,
Is the said proviso valid? Art. X, 1987 Constitution)
A: No. The said proviso mandates an exclusive Q: May local governments impose an annual
rule in determining the fair market value and realty tax in addition to the basic real property
departs from the established procedures such as tax on idle or vacant lots located in residential
sales analysis approach, the income capitalization subdivisions within their respective territorial
approach and reproduction cost approach under jurisdictions?
the rules implementing the statute. (Local
Assessment Regulation No. 1-92) It unduly A: Not all local government units may do so. Only
interferes with the duties statutorily placed upon provinces, cities, and municipalities within the
the local assessor by completely dispensing with Metro Manila area (Sec. 232, Local Government
his analysis and discretion which the LGC ad the Code) may impose an ad valorem tax not
regulations require to be exercised. (Allied exceeding five percent (5%) of the assessed value
Banking Corporation, v. Quezon City Government, (Sec. 236, Ibid.) of idle or vacant residential lots in
G. R. No. 154126, Oct. 11, 2005) a subdivision, duly approved by proper
authorities regardless of area. (Sec.237, Ibid.)
(2000 Bar Question)
Rule on Appraisal of Real Property
at Fair Market Value Q: The real property of Mr. and Mrs. Angeles,
situated in a commercial area in front of the
Q: Give the fundamental principles of appraisal, public market, was declared in their Tax
assessment, levy and collection of real property Declaration as residential because it had been
taxes. used by them as their family residence from the
time of its construction in 1990. However, since
A: The appraisal, assessment, levy and collection January 1997, when the spouses left for the
of real property tax shall be guided by the United States to stay there permanently with
following fundamental principles: CAULE their children, the property has been rented to a
single proprietor engaged in the sale of
TAXATION LAW TEAM:
appliances and agri-products. The Provincial c. The schedule of fair market values
Assessor reclassified the property as commercial shall be published in a newspaper
for tax purposes starting January 1998. Mr. and of general circulation in the
Mrs. Angeles appealed to the Local Board of province, city or municipality
Assessment Appeals, contending that the Tax concerned or in the absence
Declaration previously classifying their property thereof, shall be posted in the
as residential is binding. How should the appeal provincial capitol, city or municipal
be decided? hall and in two other conspicuous
public places therein. (Sec. 212,
A: The appeal should be decided against Mr. and LGC)
Mrs. Angeles. The law focuses on the actual use
of the property for classification, valuation and 2. Determining the assessed value - To
assessment purposes regardless of ownership. determine the assessed value, the fair
Section 217 of the Local Government Code market value of the property is
provides that "real property shall be classified, multiplied by the assessed level as
valued, and assessed on the basis of its actual use determined from an ordinance
regardless of where located, whoever owns it, promulgated by the sanggunian
and whoever uses it". (2002 Bar Question) concerned.
Q: Give the steps in the assessment and 3. Determining the real property tax -
collection of real property tax? Real property tax is computed by
multiplying the with the applicable RPT
A: rate.
1. Declaration of real property.
2. Listing of real property in the
assessment rolls. Declaration of Real Property
3. Appraisal and valuation of real
property. Q: Who shall declare the real property?
4. Determination of assessed value and
RPT. A: It shall be the duty of all persons, natural or
5. Payment and collection of tax. juridical, owning or administering real property,
including the improvements therein, within a city
Q: Define assessed value. or municipality, or their duly authorized
representative, to prepare, or cause to be
A: Assessed value is the fair market value of the prepared, and file with the provincial, city or
real property multiplied by the assessment level. municipal assessor, a sworn statement declaring
It is synonymous to taxable value. (Sec.199(h), the true value of their property, whether
LGC) previously declared or undeclared, taxable or
exempt, which shall be the current and fair
Q: Discuss the procedure in: market value of the property, as determined by
1. Preparation of Schedule of Fair Market the declarant. (Sec. 202, LGC)
Values;
2. Determining the assessed value; Q: When is real property declared?
3. Determining the real property tax.
A: Once every 3 years during the period from
A: January 1 to June 30 commencing with the
1. Preparation of Schedule of Fair Market calendar year 1992. (Sec. 202, LGC)
Values
a. A schedule of fair market values
(SMV) is prepared by the
provincial, city and municipal
assessor of the municipalities
within the Metropolitan Manila
Area for the different classes of
real property situated in their
respective local government units.
b. Respective sanggunians enact
ordinance adopting the SMV.

SANTO TOMAS
Q: Give the rules on the declaration of real Listing of Real Property in Assessment Rolls
property by the owner or administrator.
Q: What is an assessment roll?
A:
For newly acquired For improvement on A: It is a listing of all real property, whether
property property taxable or exempt, located within the territorial
What to file jurisdiction of the local government unit
Sworn statement containing the fair market value and concerned prepared and maintained by the
description of the property
provincial, city or municipal assessor.
When to file
File with the assessor File within 60 days upon
Note: Real property shall be listed, valued and
within 60 days from date completion or occupation
of transfer (whichever comes earlier) assessed in the name of the owner or administrator,
or anyone having legal interest in the property.
Q: When is the assessor required to make a
The undivided real property may be listed, valued
declaration of real property? and assessed in the name of the estate or of the
heirs and devisees without designating them
A: When any person, by whom real property is individually; and undivided real property other than
required to be declared under Sec. 202 of the LGC that owned by a deceased may be listed, valued and
refuses or fails for any reason to make such assessed in the name of one or more co-owners
declaration within the time prescribed the
assessor shall himself declare the property in the Corporation, partnership, or association shall be
name of the defaulting owner, if known, or listed, valued and assessed in the same manner as
against an unknown owner, as the case may be, that of an individual
and shall assess the property for taxation. (Sec. Real property owned by the Republic of the
204, LGC) Philippines, its instrumentalities and political
subdivisions, the beneficial use of which has been
Note: No oath by the assessor is required. granted, for consideration or otherwise, to a taxable
person,, shall be listed, valued and assessed in the
Q: What is the duty of any person transferring name of the possessor, grantee or of the public
ownership of real property? entity if such property has been acquired or held for
resale or lease.(Sec. 205, LGC)
A: Any person who shall transfer real property
Q: Give the procedure on listing of real property
ownership to another shall notify the assessor
in the assessment roll.
concerned within sixty (60) days from the date of
such transfer. The notification shall include the
A:
mode of transfer, the description of the property
1. Listing of all real property whether
alienated, the name and address of the
taxable or exempt within the
transferee. (Sec. 208, LGC)
jurisdiction of LGU
2. All declarations shall be kept and filed
Q: What is the duty of the Registrar of Deeds
under a uniform classification system to
before entering the real property in the registry?
be established by the provincial, city or
municipal assessor.
A: It is to require every person who shall present
for registration a document of transfer,
alienation, or encumbrance of real property to
Preparation of Schedules of Fair Market Value
accompany the same with a certificate to the
effect that the real property subject has been
Q: When shall the shedule of fair market value
fully paid of all real property taxes due. Failure to
be made?
provide such certificate shall be a valid cause for
the refusal of the registration of the document.
A: Before any general revision of property
(Sec. 209[B], LGC)
assessment is made pursuant to the provisions of
this Title, there shall be prepared a schedule of
fair market values by the provincial, city and
municipal assessors of the municipalities within
the Metropolitan Manila Area for the different
classes of real property situated in their
respective local government units for enactment
by ordinance of the sanggunian concerned.
TAXATION LAW TEAM:
Q: What are the special classes of real property?

Q: Where shall it be published or posted?
A: Lands, buildings, and other improvements
A: The schedule of fair market values shall be thereon which are:
published in a newspaper of general circulation in 1. Actually, directly and exclusively used
the province, city or municipality concerned or in for hospitals, cultural, or scientific
the absence thereof, shall be posted in the purposes;
provincial capitol, city or municipal hall and in two 2. Owned and used by local water
other conspicuous public places therein. (Sec. districts;
212, LGC) 3. Owned and used by Government-
owned or controlled corporations
Authority of Assessor to Take Evidence rendering essential public services in
the supply and distribution of water
Q: Can the assessor issue summons, administer and/or generation and transmission of
oaths or take depositions? electric power. (Sec. 216, LGC)
A: Yes. For the purpose of obtaining information Note: Special classes of real property have
on which to base the market value of any real lower assessment level compared with other
property, the assessor of the province, city or classes of real property.
municipality or his deputy may summon the
owners of the properties to be affected or Actual Use of Property as Basis of Assessment
persons having legal interest therein and
witnesses, administer oaths, and take deposition Q: Define actual use.
concerning the property, its ownership amount,
nature, and value. (Sec. 213, LGC) A: Actual use refers to the purpose for which the
property is principally or predominantly utilized
by the person in possession thereof. (Sec. 199[b],
Amendment of Schedule of Fair Market Value LGC)
Q: When can there be amendment of the Note: Unpaid realty taxes attach to the property and
schedule of the fair market value of the are chargeable against the person who had actual or
properties? beneficial use and possession of it regardless of
whether or not he is the owner. To impose the real
property tax on the subsequent owner which was
A: The provincial, city or municipal assessor may
neither the owner nor the beneficial user of the
recommend to the sanggunian concerned
property during the designated periods would not
amendments to correct errors in valuation in the only be contrary to law but also unjust (Estate of Lim
schedule of fair market values. The sanggunian vs. City of Manila, G.R. No. 90639, February 21,
concerned shall, by ordinance, act upon the 1990)
recommendation within ninety (90) days from
receipt thereof. (Sec. 214, LGC) Q: What is the basis of real property taxation?
A: The basis of taxing real property is actual use,

Classes of Real Property even if the user is not the owner. Real property
shall be classified, valued and assessed on the
Q: What are the classes of real property for basis of its actual use regardless of where located,
assessment purposes? whoever owns it, and whoever uses it. (Sec. 217,
LGC)
A:
1. Residential Q: What is the basis for assessment of real
2. Agricultural property?
3. Commercial
4. Industrial A: Real property shall be classified, valued and
5. Mineral assessed on the basis of its actual use regardless
6. Timberland of location, owner and use. (Sec.217, LGC)
7. Special
Q: What are the instances when the provincial,
city or municipal assessor or his duly authorized
deputy shall make classification, appraisal and

SANTO TOMAS
assessment of real property irrespective of any A: An assessment fixes and determines the tax
previous assessment or taxpayers valuation liability of the taxpayer. It is a notice to the effect
thereon? that the amount therein stated is due as tax and a
demand for payment thereof.
A:1st GR
1. Real property is declared and listed for
st
taxation purposes for the 1 time; General Revisions of Assessments and
2. There is an ongoing General revision of Property Classification
property classification and assessment;
3. A Request is made by the person in Q: When shall general revisions of assessment
whose name the property is declared and classification take place?
assessor shall make a classification,
appraisal and assessment or taxpayer's A: The provincial, city or municipal assessor shall
valuation. (Sec. 220, LGC) undertake a general revision of real property
assessments within two (2) years after the
Note: Provided, however, that the assessment of effectivity of this Code and every three (3) years
real property shall not be increased oftener than thereafter. (Sec. 219, LGC)
once every three (3) years except in case of new
improvements substantially increasing the value of
said property or of any change in its actual use. Date of Effectivity of Assessments or
Reassessment
Assessment of Real Property Q: When shall assessments and reassessments

take effect?
Q: Define assessment.
A: All assessments or reassessments made after
A: Assessment is the act or process of st
the first (1 ) day of January of any year shall take
determining the value of a property, or effect on the first (1st) day of January of the
proportion thereof subject to tax, including the succeeding year: Provided, however, That the
discovery, listing, classification, and appraisal of reassessment of real property due to its partial or
properties. (Sec. 199[f], LGC) total destruction, or to a major change in its
actual use, or to any great and sudden inflation or
deflation of real property values, or to the gross
Q: What is reassessment? illegality of the assessment when made or to any
other abnormal cause, shall be made within
A: Reassessment is the assigning of new assessed ninety (90) days from the date of any such cause
values to property, particularly real estate, as the or causes occurred, and shall take effect at the
result of a general, partial, or individual beginning of the quarter next following the
reappraisal of the property. reassessment. (Sec. 221, LGC)
Q: Define assessment level.

Assessment of Property Subject to Back Taxes
A: Assessment level is the percentage applied to
the fair market value to determine the taxable Q: When is assessment of property subject to
value of the property. (Sec. 199[g], LGC) back taxes proper?
Q: Who sets the assessment levels? A: Real property declared for the first time shall
be assessed for taxes (back taxes) for the period
A: The assessment levels to be applied to the fair during which it would have been liable but in no
market value of real property to determine its case of more than ten (10) years prior to the date
assessed value shall be fixed by ordinances of the of initial assessment: Provided, however, that
sangguniang panlalawigan, sangguniang such taxes shall be computed on the basis of the
panlungsod or sangguniang bayan of a applicable schedule of values in force during the
municipality within the Metropolitan Manila Area, corresponding period.
at the rates not exceeding those enumerated
under Sec 218 of the LGC. If such taxes are paid on or before the end of the
quarter following the date the notice of
Q: What is the effect of assessment? assessment was received by the owner, no
TAXATION LAW TEAM:
interest for delinquency shall be imposed ESTIMATED ECONOMIC LIFE

thereon; otherwise, taxes shall be subject to
interest at the rate of two percent (2%) per c. Depreciation allowance:
month or a fraction thereof from the date of the i. Rate not exceeding 5% of original
receipt of the assessment until such taxes are cost OR replacement or
fully paid. (Sec. 222, LGC) reproduction cost for each year of
use;
ii. Remaining value shall be fixed at
Notification of New or Revised Assessment not less than 20% of the cost;
iii. Machinery remains useful and in
Q: When shall the assessor give a written notice operation
to the person whose property is assessed in case
of new or revised assessment?
COLLECTION OF REAL PROPERTY TAX
A: When real property is assessed for the first
time or when an existing assessment is increased Date of Accrual of Real Property Tax
or decreased, the provincial, city or municipal
assessor shall within thirty (30) days give written Q: When does real property tax accrue?
notice of such new or revised assessment to the
person in whose name the property is declared. A: Real property tax for any year shall accrue on
The notice may be delivered personally or by the first day of January. From that date it shall
registered mail or through the assistance of the constitute a lien on the property superior to any
punong barangay to the last known address of other lien, mortgage, or encumbrance of any kind
the person to be served. (Sec. 223, LGC) whatsoever extinguished only upon the payment
of the delinquent tax. (Sec. 246, LGC)
Appraisal and Assessment of Machinery

Collecting Authority
Q: How are Machineries classified? (Sec. 199[o],
LGC) Q: Who shall collect real property tax?
A: A:
A. Realty by Destination machinery GR: The collection of real property tax with
essential to the business interest thereon and related expenses, and the
enforcement of the remedies are the
Note: Movable equipments to be responsibility of the city or municipal treasurer.
immobilized in contemplation of the
law must first be essential and XPN: Treasurer may deputize the barangay
principal elements of an industry or treasurer to collect all taxes on real property
works without which such industry or located in the barangay, provided that:
works would be unable to function or 1. The barangay treasurer is properly
carry on the industrial purpose for bonded for the purpose: provided,
which it was established. (Mindanao further,
Bus Co. v. City Assessor, G.R. no. L- 2. The premium on the bond shall be paid
17870, September 29, 1962) by the city or municipal government
concerned. (Sec. 247, LGC)
B. Realty by Incorporation Machinery
permanently attached
Duty of Assessor to Furnish Local Treasurer with
Assessment Rolls
Appraisal and Assessment of Machinery
Q: What is the duty of the Assessor after
a. For brand new machinery, FMV is the assessment or reassessment?
acquisition cost
b. In all other cases: A: The provincial, city or municipal assessor shall
prepare and submit to the treasurer of the local
FMV= REMAINING OF ECONOMIC LIFE x government unit, on or before the thirty-first
st
REPLACEMENT COST (or reproduction cost) (31 ) day of December each year, an assessment

SANTO TOMAS
roll containing a list of all persons whose real Q: Is there any tax discount for
properties have been newly assessed or advanced/prompt payment?
reassessed and the values of such properties.
(Sec. 248, LGC) A: If the basic real property tax and the additional
tax accruing to the Special Education Fund (SEF)
are paid in advance the sanggunian may grant a
Notice of Time for Collection of Tax discount not exceeding twenty percent (20%) of
the annual tax due. (Sec. 251, LGC)
Q: When is the time for collection of tax?
Note: For prompt payment discount not exceeding
A: Treasurer shall post the notice of the dates 10% of annual tax due (Art. 342, IRR)
when the tax may be paid without interest in a
publicly accessible place at the city or municipal
hall. Notice shall likewise be published in a Payment of Real Property Tax in Instalments
newspaper of general circulation in the locality
once a week for two (2) consecutive weeks on or Q: May RPT be paid in installments?
before the thirty-first (31st) day of January each
year in the case of the basic real property tax and A: Yes. The owner or the person having legal
the additional tax for the Special Education Fund interest may pay the basic real property tax and
or any other date to be prescribed by the the additional tax for Special Education Fund
sanggunian concerned in the case of any other (SEF) due without interest in four (4) equal
tax levied under this title. (Sec. 249, LGC) installments(on or before March
31/June30/September 30/December 31). (Sec.
250, LGC)
Periods within which to
Collect Real Property Tax
Interests on Unpaid Real Property Tax
Q: What is the period of collection of real
property tax? Q: What is the rate of interest on unpaid real
property tax?
A:
GR: Within five (5) years from the date taxes A: The rate is (2%) per month on the unpaid
become due. amount until the delinquent tax shall have been
fully paid. Provided, in no case shall the total
XPN: In case of fraud or intent to evade interest on the unpaid tax or portion thereof
payment - within ten (10) years from exceed thirty-six (36) months. (Sec. 255, LGC)
discovery of fraud or intent. (Sec. 270, LGC)
Q: When is the prescriptive period to collect Condonation of Real Property Tax

suspended?
Q: What are the instances which the sanggunian
A: The period of prescription within which to may condone or reduce real property tax?
collect shall be suspended for the time during
which: PRO A: The sanggunian by ordinance passed prior to
1. The local treasurer is legally Prevented the first (1st) day of January of any year and upon
from collecting the tax; recommendation of the Local Disaster
2. The owner of the property or the Coordinating Council, may condone or reduce,
person having legal interest therein wholly or partially, the taxes and interest thereon
Requests for reinvestigation and for the succeeding year or years in the city or
executes a waiver in writing before the municipality affected by the calamity in cases of:
expiration of the period within which to P-Cal-Cro
collect; and
3. The owner of the property or the 1. General failure of Crops;
person having legal interest therein is 2. Substantial decrease in the Price of
Out of the country or otherwise cannot agricultural or agri-based products;
be located. (Ibid.) 3. Calamity in any province, city or
municipality.
TAXATION LAW TEAM:
Q: May the President condone or reduce real fund of the municipality where the
property tax? property is located;
c. Barangays Thirty percent (30%)
A: The president may, when public interest so shall be distributed among the
requires, condone or reduce the real property tax component barangays of the
and interest for any year in any province or city or municipality where the property is
a municipality within the Metro. (Sec. 277, LGC) located in the following manner:
i. Fifty percent (50%) shall
accrue to the barangay
DISPOSITION OF PROCEEDS where the property is
located;
Q: What is the division in the distribution of ii. Fifty percent (50%) shall
proceeds? accrue equally to all
component barangays of
A: Proceeds of real property tax, including the municipality. (Sec. 271,
interest thereon plus proceeds from the use, LGC)
lease or disposition, sale or redemption of
property acquired at a public auction shall be Note: The share of each barangay shall be released,
distributed as follows: without need of any further action, directly to the
barangay treasurer on a quarterly basis within five
1. In the case of provinces: (5) days after the end of each quarter and shall not
a. Province Thirty-five percent be subject to any lien or holdback for whatever
(35%) shall accrue to the general purpose.
fund;
b. Municipality Forty percent Q: How are the proceeds of the additional one
(40%) to the general fund of the percent SEF tax applied?
municipality where the property is
located; and A: The proceeds from the additional one percent
c. Barangay Twenty-five percent (1%) tax on real property accruing to the Special
(25%) shall accrue to the barangay Education Fund (SEF):
where the property is located. 1. Shall be automatically released to the
local school boards. Provided, in case of
2. In the case of cities: provinces, the proceeds shall be divided
a. City Seventy percent (70%) shall equally between the provincial and
accrue to the general fund of the municipal school boards
city; and 2. The proceeds shall be allocated for the:
b. Component barangays Thirty a. Operation and maintenance of
percent (30%) shall be distributed public schools;
among the component barangays b. Construction and repair of school
of the cities where the property is buildings, facilities and equipment;
located in the following manner: c. Educational research;
i. Fifty percent (50%) shall d. Purchase of books and periodicals;
accrue to the barangay e. Sports development as determined
where the property is and approved by the Local School
located; Board
ii. Fifty percent (50%) shall
accrue equally to all Q: What happens to proceeds of the tax on idle
component barangays of lands?
the city; and
A: It shall accrue to the:
3. In the case of a municipality within the 1. Respective general fund of the province
Metropolitan Manila Area: or city where the land is located
a. Metropolitan Manila Authority 2. In the case of a municipality within the
Thirty-five percent (35%) shall Metropolitan Manila Area, the proceeds
accrue to the general fund of the shall accrue equally to the Metropolitan
authority; Manila Authority and the municipality
b. Municipality Thirty-five percent where the land is located. (Sec. 273,
(35%) shall accrue to the general LGC)

SANTO TOMAS
Q: What happens to proceeds of the special Remedies in General

levy?
Q: What are the remedies of the local
A: The proceeds of the special levy on lands government units for the collection of real
benefited by public works, projects and other property tax?
improvements shall accrue to the general fund of
the local government unit which financed such A:
public works, projects or other improvements. 1. Administrative action
(Sec. 274, LGC) a. Exercise of lien on the property
subject to tax
i. Superior to all liens, charges
REMEDIES OF LGUs FOR COLLECTION OF or encumbrances and is
REAL PROPERTY TAX enforceable by
administrative or judicial
Issuance of Notice of Delinquency for Real action. It is extinguished only
Property Tax Payment upon payment of tax and
other expenses. (Sec. 257,
Q: What happens when the taxpayer fails to pay LGC)
tax on time? b. Levy on the real property subject
of the tax
A: When real property tax or other tax imposed c. Distraint of personal property
becomes delinquent, the local treasurer shall 2. Judicial action
immediately cause a notice of the delinquency to
be posted at the main hall and in a publicly Q: Discuss the procedure in the levy on real
accessible and conspicuous place in each property subject of RPT.
barangay of the local government unit
concerned. Notice of delinquency shall also be A: See chart for SUMMARY FOR PROCEDURE FOR
published once a week for two (2) consecutive LEVY
weeks, in a newspaper of general circulation in
the province, city, or municipality. Note: The proceeds of the sale in excess of the
delinquent tax, the interest due thereon and the
expenses of sale shall be remitted to the owner of
Local Governments Lien real property or person having legal interest
Q: What are the guidelines in the exercise of The owner shall not be deprived of possession and
local government lien? to rentals/income thereof until the expiration of the
time allowed for its redemption.
A:
Q: May the owner of the delinquent property
1. A legal claim on the property subject on
redeem the property?
the real property tax as security for the
payment of tax obligation.
A: Yes. Within one (1) year from the date of sale,
2. It is constituted on the property subject
the owner of the delinquent real property or
to the tax from the date the RPT
person having legal interest therein, or his
accrued, i.e., first day of January. (Sec.
representative, shall have the right to redeem the
246, LGC)
property upon payment to the local treasurer of
3. It is superior to any lien, mortgage, or
the
encumbrance of any kind whatsoever.
1. amount of the delinquent tax;
(Sec. 246, LGC) in favor of any person,
2. the interest due thereon
irrespective of the owner or possessor
3. the expenses of sale from the date of
thereof. (Sec. 257, LGC)
delinquency to the date of sale
4. It is enforceable by administrative or
4. plus interest of not more than two
judicial action. (Sec. 257, LGC)
percent (2%) per month on the
5. It may be extinguished only upon
purchase price from the date of sale to
payment of the tax and related
the date of redemption. (Sec.261, LGC)
interests and expenses. (Sec. 246 and
257, LGC)
Q: What is the effect of the redemption of the
delinquent property?
TAXATION LAW TEAM:
A: Such payment shall invalidate the certificate of A:

sale issued to the purchaser and the owner of the 1. I will resolve the issue in favor of
delinquent real property or person having legal Joachin. In auction sales of property for
interest therein shall be entitled to a certificate of tax delinquency, notice to delinquent
redemption which shall be issued by the local landowners and to the public in general
treasurer or his deputy. (Ibid.) is an essential and indispensable
requirement of law, the non-fulfillment
Note: From the date of sale until the expiration of of which vitiates the same (Tiongco v.
the period of redemption, the delinquent real Phil. Veterans Bank, G.R. No. 82782,
property shall remain in possession of the owner or Aug. 5, 1992). The failure to give notice
person having legal interest therein who shall be to the right person i.e., the real owner,
entitled to the income and other fruits thereof. will render an auction sale void (Tan v.
Bantegui, G.R. No, 154027, Oct. 24,
Q: What happens in case there is failure to 2005; City Treasurer of Q.C. v. CA, G.R.
redeem? No. 120974, Dec. 22, 1997).
A: In case the owner or person having legal 2. Yes. The law requires that a notice of
interest fails to redeem the delinquent property, the auction sale must be properly sent
the treasurer shall execute a deed conveying to to Joachin and not merely through
the purchaser said property, free from lien of the publication (Tan v. Bantegui, G.R. No,
delinquent tax, interest due thereon and 154027, October 24, 2005; Estate of
expenses of sale. Mercedes Jacob v. CA, G.R. No. 120435,
Dec. 22, 1997). (2006 Bar Question)
Q: How is distraint of personal property effected
under real property taxation? Q: When may LGU purchase real property
advertised for sale?
A: When notice of delinquency has been
accordingly posted and published, the local A:
treasurer shall proceed to sell the personal 1. There is no bidder; or
property of the delinquent taxpayer in order to 2. The highest bid is for an amount
satisfy his unpaid obligation. (Sec. 254, LGC) insufficient to pay the real property tax,
fees, charges, surcharges, interests or
Q: Quezon City published on January 30, 2006 a penalties. (Sec. 263, LGC)
list of delinquent real property taxpayers in 2
newspapers of general circulation and posted
this in the main lobby of the City Hall. The notice Resale of Real Estate Taken for Taxes, Fees or
requires all owners of real properties in the list Charges
to pay the real property tax due within 30 days
from the date of publication, otherwise the Q: May the sanggunian dispose of the real
properties listed shall be sold at public auction. property acquired?
Joachin is one of those named in the list. He A: Yes. The sanggunian concerned may, by
purchased a real property in 1996 but failed to ordinance duly approved an upon notice of not
register the document of sale with the register less than twenty (20) days, sell and dispose of the
of Deeds and secure a new real property tax real property acquired under the preceding
declaration in his name. He alleged that the Section at public auction. The proceeds of the
auction sale of his property is void for lack of sale shall accrue to the general fund of the local
due process considering that the City Treasurer government unit concerned. (Sec. 264, LGC)
did not send him personal notice. For his part,
the City Treasurer maintains that the publication
and posting of notice are sufficient compliance Further Levy Until Full Payment of Amount Due
with the requirements of the law.
Q: May a levy be repeated?
1. If you were the judge, how will you resolve
this issue? A: Levy may be repeated if necessary until the full
2. Assuming Joachin is a registered owner, will amount due, including all expenses, is collected.
your answer be the same? (Sec. 265, LGC)

SANTO TOMAS
A: The taxpayer may file a written claim for

Refund or Credit of Real Property Tax refund or credit for taxes and interests with the
local treasurer, in case an assessment of RPT or
Q: What is the remedy of a taxpayer in case of any other tax under Real Property Taxation (Title
excessive collections? II, Local Government Code) is found to be:
1. Illegal; or Payment Under Protest

2. Erroneous (Sec. 253, LGC)
Q: Within what period must the claim for refund Q: What are the guidelines in paying tax under
be made? protest?
A: The claim must be filed with the local treasurer A:

within two (2) years from the date the taxpayer is 1. No protest shall be entertained unless
entitled to such reduction or adjustment. (Ibid.) the taxpayer first pays the tax. There
shall be annotated on the tax receipts
Q: In view of the street widening and cementing the words "paid under protest" The
of roads and improvement of drainage and protest in writing must be filed within
sewers in the district of Ermita, the City Council thirty (30) days from payment of the tax
of the City of Manila passed an ordinance to treasurer who shall decide the
imposing and collecting a special levy on lands in protest within sixty (60) days from
the district. Jose filed a protest against the receipt.
special levy fifteen (15) days after the last 2. The tax or a portion paid under protest
publication of the ordinance alleging that the shall be held in trust by the treasurer
maximum rate of sixty percent (60%) of actual concerned.
cost of the project allowed under Sec. 240 of the 3. In the event that the protest is finally
Local Government Code was exceeded. decided in favor of the taxpayer, the
amount or portion of the tax protested
Assuming that Jose Reyes is able to prove that shall be refunded to the protestant, or
the rate of special levy is more than the applied as tax credit against his existing
aforesaid percentage limitation, will his protest or future tax liability.
prosper? 4. In the event that the protest is denied
or upon the lapse of the sixty day
A: No. His basis for the protest was the period, the taxpayer may avail appeal
unreasonably excessive payment. Payment under the assessment before the Local Board
protest is thus an administrative precondition for of Assessment Appeals. (Sec. 252, LGC)
the suit. (1991 Bar Question) 5. In case there is adverse decision by the
LBAA, the taxpayer may appeal with the
PROCEDURE FOR CLAIM FOR REFUND OR CREDIT CBAA within 30 from receipt of the
adverse decision by the LBAA.
Taxpayer files a written claim for refund
or credit with the treasurer within 2 years XPN: The protest contemplated in Section 252 of
from the date the taxpayer is entitled to the LGC is needed when there is a question as to
such reduction or adjustment the reasonableness of the amount assessed, not
where the question raised is on the very authority
and power of the assessor to impose the
assessment and of the treasurer to collect the tax.
Provincial or City Treasurer should (Ty v. Trampe, G. R. No. 117577, December 1,
decide the claim within 60 days from 1995)
receipt of the claim.
In case of denial, appeal to the LBAA

within 30 days as in protest case.
Appeal to CBAA within 30 days if LBAA

gives and adverse decision.
TAXATION LAW TEAM:
Repayment of Excessive Collections Contesting an Assessment of

Value of Real Property
Q: When may the taxpayer file a claim for refund
or credit? Q: What is the remedy of a taxpayer contesting
an assessment?
A: When an assessment of basic real property tax,
or any other tax levied under this Title, is found to A: Any owner or person having legal interest in
be illegal or erroneous and the tax is accordingly the property not satisfied with the action of the
reduced or adjusted, the taxpayer may file a assessor in the assessment of his property may
written claim for refund or credit for taxes and within sixty (60) days from the date of receipt of
interests with the provincial or city treasurer the written notice of assessment appeal to the
within two (2) years from the date the taxpayer is Board of Assessment Appeals of the provincial or
entitled to such reduction or adjustment. (Sec. city by filing a petition under oath in the form
253, LGC) prescribed for the purpose, together with copies
of the tax declarations and such affidavits or
documents submitted in support of the appeal.
Taxpayers Remedies (Sec. 226, LGC)
Q: What are the remedies available to the

taxpayer under real property taxation? Appeal to the Local Board of Assessment
Appeals (LBAA)
A:
1. Dispute assessment (Protest) Q: What is the composition of the LBAA?
a. Any owner or person having legal
interest in the property who is not A:
satisfied with the action of the 1. The Registrar of Deeds, as Chairman;
assessor in the assessment of his 2. The provincial or city prosecutor as
property; or member;
b. Any owner of real property 3. The provincial or city engineer as a
affected by a special levy or any member. (Sec. 227, LGC)
person having legal interest
therein may PROTEST the Q: What is the jurisdiction of the LBAA?
assessment by filing an appeal to
the LBAA within 60 days from A: Jurisdiction to hear appeals of owners or
receipt of notice of the persons having legal interest of owners having
assessment. legal interest in a property who are not satisfied
with the action of the assessor on an assessment.
2. Claim for refund or tax credit
Note: In the exercise of its appellate jurisdiction, the
3. Judicial LBAA shall have the power to summon witnesses,
A. Court Action administer oaths, conduct ocular inspection, take
i. Appeal to the CTA en banc depositions, and issue subpoena and subpoena
within 15 days from receipt in duces tecum. The proceedings of the Board shall be
case of adverse decision by the conducted solely for the purpose of ascertaining the
CBAA facts without necessarily adhering to technical rules
applicable in judicial proceedings. (Sec. 229[b], LGC)
ii. Appeal by certiorari with the SC
within 15 days from notice in
Q: Within what period should the appeal be
case of adverse decision by the
decided?
CTA.
B. Suit assailing the validity of the tax
A: The LBAA shall decide the appeal within one
sale (Sec. 267, LGC)
hundred twenty (120) days from the date of
a. Deposit of amount for which the
receipt of such appeal. The Board, after hearing,
real property was sold together
shall render its decision based on substantial
with interest of 2% per month
evidence or such relevant evidence on record as a
from date of sale to the time of
reasonable mind might accept as adequate to
institution of action.
support the conclusion. (Sec 229[a], LGC)

SANTO TOMAS
Appeal to the Central Board of decisions of Local Board of Assessment Appeals.

Assessment Appeals (CBAA) (Caltex Phils. v. CBAA, G.R. No. L50466, May 31,
1982).(1999 Bar Question)
Q: What is the composition of the CBAA?
A: It shall be composed of: Effect of Appeal on the

1. A Chairman; and Payment of Real Property Tax
2. Two (2) members. (Sec. 230, LGC)
Q: What is the effect of appeal on the payment
Q: What is the jurisdiction of the CBAA? of real property tax?
A: Jurisdiction to hear appeals from the decision A: Appeal on assessments of real property shall,
of Local Board of Assessment Appeals. (Sec. in no case, suspend the collection of the
229[c], LGC) corresponding realty taxes on the property
involved as assessed but without prejudice to
Note: The CBAA can be appointed by the Supreme subsequent adjustment depending upon the final
Court to act as a court-appointed fact finding outcome of the appeal. (Sec. 231, LGC)
commission to assist the Court in resolving the
factual issues raised in the cases before it. In that
regard, the CBAA is not acting in its appellate Payment of Real Property Under Protest
jurisdiction. (Mathay v. Undersecretary of Finance,
En banc Minute Resolution, Nov. 5, 1991) Q: Why is there a need of prior payment before
protest may be entertained by the courts?
The owner of the property or the person having legal
interest therein or the assessor who is not satisfied
A: The basis for requiring payment before protest
with the decision of the Board may, within thirty (30)
days after receipt of the decision of said Board,
can be entertained is that taxes are the lifeblood
appeal to the Central Board of Assessment Appeals, of the nation and as such collection cannot be
as herein provided. The decision of the Central restrained by injunction or any like action.
Board shall be final and executory. (Sec. 230, LGC) (Manila Electric Company v. Barlis, et. al., G.R. No.
114231, May 18, 2001)
Q: Does the CBAA have the authority to hear
purely legal issues? Q: Give the rules as to the necessity of paying
real property tax prior to protest.
A: No. Such authority is lodged with the regular
courts. Thus, the issue of whether R.A. 7160 A:
repealed P.D. 921, is an issue which does not find GR: The taxpayer must pay the real property
referral to the CBAA before resort is made to the tax assessed prior to protesting a real property
courts. (Ty, v. Trampe, G.R. No. 117577. tax assessment. (Sec. 252, LGC)
December 1, 1995)
XPN: The payment of the tax prior to protest is
Q: A Co., a Philippine corporation, is the owner not necessary where the taxpayer questions
of machinery, equipment and fixtures located at the authority and power of the assessor to
its plant in Muntinlupa City. The City Assessor impose the assessment and of the treasurer to
characterized all these properties as real collect the tax. (Ty, et. al., v. Trampe, G.R. No.
properties subject to the real property tax. A Co. 117577. December 1, 1995)
appealed the matter to the Muntinlupa Board of
Assessment Appeals. The Board ruled in favor of Note: The protest contemplated under Section 252
the City. A Co. brought a petition for review is required where there is a question as to the
before the CTA to appeal the decision of the City reasonableness or correctness of the amount
assessed. Hence, if a taxpayer disputes the
Board of Assessment Appeals. Is the Petition for
reasonableness of an increase in a real property tax
Review proper? Explain.
assessment, he is required to first pay the tax
under protest. Otherwise, the city or municipal
A: No. The CTAs devoid of jurisdiction to treasurer will not act on his protest. (Ibid.)
entertain appeals from the decision of the City
Board of Assessment Appeals. Said decision is Q: The Province of Quezon assessed Mirant
instead appealable to the Central Board of Pagbilao Corporation (Mirant) for unpaid real
Assessment Appeals, which under the Local property taxes. Napocor, which entered into a
Government Code, has appellate jurisdiction over Build-Operate-Transfer (BOT) Agreement with
TAXATION LAW TEAM:
Mirant, protested the assessment before the the property who is not satisfied with
Local Board of Assessment Appeals (LBAA), the action of the provincial, city, or
claiming entitlement to the tax exemptions municipal assessor in the assessment of
provided under Section 234 of the Local his property may appeal to the Board of
Government Code (LGC). The real property taxes Assessment Appeals, should be read in
assessed were not paid prior to the protest. The conjunction with Section 252 (d), which
LBAA dismissed Napocors petition for states that in the event that the protest
exemption for its failure to comply with Section is denied, the taxpayer may avail of the
252 of the LGC requiring payment of the assailed remedies as provided for in Chapter 3,
tax before any protest can be made. The Central Title II, Book II of the LGC [Chapter 3
Board of Assessment Appeals (CBAA) ultimately refers to Assessment Appeals, which
dismissed Napocors appeal for failure to meet includes Sections 226 to 231]. The
the requirements for tax exemption; however, action referred to in Section 226 (in
the CBAA agreed with Napocors position that relation to a protest of real property tax
the protest contemplated in Section 252 (a) is assessment) thus refers to the local
applicable only when the taxpayer is questioning assessors act of denying the protest
the reasonableness or excessiveness of an filed pursuant to Section 252. Without
assessment. The CBAA ruled that the the action of the local assessor, the
requirement of payment prior to protest does appellate authority of the LBAA cannot
not apply where the legality of the assessment is be invoked. Napocors action before the
put in issue on account of the taxpayers claim LBAA was thus prematurely filed.
that it is exempt from tax. The Court of Tax (NAPOCOR v. Province of Quezon and
Appeals (CTA) en banc agreed with the CBAAs Municipalilty of Pagbilao, G.R. No.
discussion. 171586, January 25, 2010)
1. If the taxpayer claims that the property is

exempt from real property tax, is the
taxpayer required to pay the tax pursuant
to Section 252?
2. Is Napocors action before the LBAA
prematurely filed?
A:
1. Yes. By claiming exemption from realty
taxation, Napocor is simply raising a
question of the correctness of the
assessment. As such, the real property
tax must be paid prior to the making of
a protest. On the other hand, if the
taxpayer is questioning the authority of
the local assessor to assess real
property taxes, it is not necessary to
pay the real property tax prior to the
protest. A claim for tax exemption,
whether full or partial, does not
question the authority of local assessor
to assess real property tax.
2. Yes. It was an ill-advised move for

Napocor to directly file an appeal with
the LBAA under Section 226 without
first paying the tax as required under
Section 252. Sections 252 and 226
provide successive administrative
remedies to a taxpayer who questions
the correctness of an assessment.
Section 226, in declaring that any
owner or person having legal interest in

SANTO TOMAS
Taxpayers Remedies Involving Collection of Real Property Tax Local Government Code
Assessor submits assessment roll

to Local Treasurer on or before
the 31st of December each year.
(Sec. 248, LGC)
Posting of notice of deadline for

payment at a conspicuous place
at the LGU once a week for two
consecutive weeks. (Sec. 249,
LGC)
Protest is denied or upon the

Protest decided in Taxpayer pays the tax then files a lapse of sixty (60) day period in
favour of the taxpayer, protest within thirty (30) days which the treasurer must decide,
the amount or portion of from payment of the tax with the taxpayer may appeal with the
the tax protested shall treasurer who shall decide within LBAA (Sec. 226, LGC) who shall
be refunded or applied sixty (60) days from receipt (Sec. decide the appeal within 120
as tax credit (Sec. 252 252[a], LGC) days from receipt (Sec. 229, LGC)
[c], LGC)
If the LBAA rejects the protest,

the owner may appeal to CBAA
within 30 days from receipt of
decision of the LBAA (Sec. 229
[c], LGC)
Appeal with the CTA if the

taxpayer is not satisfied with the
decision of the CBAA (R.A. 9282)
Appeal with the Supreme Court

within 15 days.
TAXATION LAW TEAM:
Procedure for Levy for Purposes of Satisfying Real Property Taxes Local Government Code
Tax constitutes a lien on the property superior to all liens and may only be extinguished upon payment of the tax
and charges (Sec. 257, LGC)
Time for payment of real property tax expires (Sec. 258, LGC)
Warrant of levy issued by LT, which has the force of legal execution in the LGU concerned. (Sec. 258, LGC)
Warrant mailed to or served upon the delinquent owner. Written notice of levy and warrant is mailed/served
upon the assessor and the Register of Deeds of the LGU (Sec. 258, LGC)
Before the date of sale the owner may stay

30 days from service of warrant, Sale is held
the proceedings by paying the delinquent
LT shall advertise sale of property (Sec. 260, LGC)
tax, interest and expenses of sale (Sec 260,
(Sec. 260, LGC)
LGC)
IF there is a bidder AND highest bid is sufficient to pay real IF there is no bidder OR highest bid is
property tax and related interests and costs, bidder pays insufficient to pay real property tax and
and treasurer reports sale to sanggunian 30 days after the related interest and costs, LT shall
sale. LT will deliver to purchaser the certificate of sale. purchase the prop in behalf of the LGU.
Proceeds of sale in excess of delinquent tax, interest,
expenses of sale remitted to owner. (Sec. 260, LGC) Registrar of Deeds shall transfer the title
of forfeited prop to LGU without need of
Within one year from sale, owner may redeem upon Court order.
payment of the delinquent tax, interest due, expenses of
sale (from date of delinquency to date of sale), and Within one year from forfeiture, owner
additional interest of 2% per month on the purchase price may redeem prop by paying to Treasurer
from date of sale to date of redemption. Delinquent owner full amount of tax, interest, costs of sale
retains possession and right to the fruits. Price paid plus (Sec. 263, LGC)
interest of 2% per month shall be returned to the buyer.
(Sec. 261, LGC) Sanggunian concerned may by ordinance,
sell/dispose by public auction of prop
IF not redeemed, deed of conveyance shall be issued to the acquired by forfeiture. (Sec. 264, LGC)
purchaser (Sec. 262, LGC)
Levy may be repeated until full amount due; including all expenses is collected (Sec. 265, LGC)

SANTO TOMAS
LOCAL TAXATION vs. REAL PROPERTY TAXATION
Comparison Local Taxation Real Property Taxation

LGUs authorized to Provinces, Cities, Municipalities and Provinces, Cities and Municipalities in Metro
levy the taxes Barangays manila Area
Power or Authority to Expressly provided (Sec. 192, LGC) No power to grant tax exemptions.
grant tax exemptions Exemptions from RPT granted under Section
234, LGC is granted by Congress.
Date of Accrual Unless otherwise provided in the LGC, all
local taxes, fees or charges shall accrue
on the 1st day of January of each year;
however, new taxes, fees or charges or
changes in the rates thereof, shall accrue
on the 1st day of the quarter next On the 1st day of January
following the effectivity of the ordinance
imposing such new levies or rates. (Sec.
166, LGC)
Manner of payment Maybe paid in quarterly installments Four equal installments
Time of payment Within first 20 days of January or of each 1st on or before 31st of March
subsequent quarter as the case may be 2nd - on or before the 20th of June
3rd - on or before the 30th of September
4th on or before 31st of December
Exception: Special Levy

Prescriptive period of Within 3 years from the date they No express provision on prescription of
assessment become due assessment
Prescriptive period of Within 5 years from the date of Within 5 years from the date they become
collection assessment by administrative or judicial due; within 10 years from the discovery of
action; within 10 years from the fraud or intent to evade payment
discovery of fraud or intent to evade
payment
Remedies Government Remedies: Government Remedies:
1. Governments Lien 1. Governments Lien
2. Civil Remedies 2. Civil Remedies
i) Administrative action a) Administrative action
(1) Distraint i) Levy
(2) Levy ii) Distraint
ii) Judicial action for tax b) Judicial action for tax collection
collection
Taxpayers Remedies:
Taxpayers Remedies: 1. Questioning the Constitutionality of
1. Questioning the Constitutionality the Local Tax Ordinance before the
of the ordinance before the Secretary of Justice
Secretary of Justice 2. Protest against the assessment with
2. Protest against the assessment a) LBAA then to
3. Claims for refund or tax credit b) CBAA
3. Claims for refund or tax credit
Note:
payment under protest is not Note:
necessary payment under protest is generally
necessary
TAXATION LAW TEAM:
Tariff and Customs Code of 1978
TARIFF AND CUSTOMS TAXATION Q: What are the other types of fees charged by
the Bureau of Customs?
Q: What comprises tariff and customs laws?
A:
A: 1. Arrastre charge
1. Provisions of the Tariff and Customs 2. Wharfage dues counterpart of license,
Code of the Philippines and regulations charged not for the use of any wharf
issued pursuant thereto; and but for a special fund known as the Port
Works Fund
2. Other laws and regulations subject to 3. Berthing fee
the enforcement by the Bureau of 4. Harbor fee
Customs of otherwise within its 5. Tonnage dues
jurisdiction
Q: What is tariff? FLEXIBLE TARIFF CLAUSE
A: It includes: Q: What do you understand by the term "flexible

1. Customs duties, toll or tribute payable tariff clause" as used in the Tariff and Customs
upon merchandise to the general Code?
government;
A: The term "flexible tariff clause" refers to the
2. Rate of customs; or authority given to the President to adjust tariff
rates under Section 401 of the Tariff and Customs
3. List of articles liable to duties. Code, which is the enabling law that made
effective the delegation of the taxing power to
Q: What are customs duties? the President under the Constitution. (2001 Bar
Question)
A: It is the name given to taxes on the
importation and exportation of commodities, the Q: What is provided for under Section 401 of the
tariff or tax assessed upon merchandise imported Tariff and Customs Code (TCC)?
from, or exported to, a foreign country. (Garcia v.
Executive Secretary, G.R. No. 101273, July 03, A: In the interest of national economy, general
1992) welfare and/or national security, and subject to
the limitations provided in the TCC, the President,
Note: Customs and tariffs are synonymous with one upon recommendation of the National Economic
another because they both refer to taxes imposed and Development Authority (NEDA), is
on imported and exported wares, articles or empowered to:
merchandise. 1. Increase, reduce or remove existing
protective rates of import duty
Q: What are the kinds of tariffs or customs (including any necessary change in
duties? classification). The existing rates may be
increased or decreased to any level, in
A: one or several stages but in no case
1. Regular tariff or customs duties - these shall the increased rate of import duty
are taxes imposed or assessed upon be higher than a maximum of one
merchandise from, or exported to, a hundred (100) per cent ad valorem;
foreign country for the purpose of 2. Establish import quota or to ban
raising revenues. imports of any commodity, as may be
necessary;
2. Special tariffs or custom duties - these 3. Impose an additional duty on all
are additional import duties imposed on imports not exceeding ten (10%) per
specific kinds of imported articles under cent ad valorem whenever necessary.
certain conditions. They are imposed
for the protection of consumers and
manufacturers, as well as Philippine
products from undue competition
posed by foreign made products.
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II

VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZAU N I V E R S I T Y O F
VICE CHAIR FOR MANAGEMENT AND FINANCE: JEANELLE C. LEE
Facultad
SANTO TOMAS
Q: What are the limitations imposed on the relating to the tariff and customs
flexible tariff clause? administration;
4. Supervision and control over the
A: entrance and clearance of vessels and
1. Conduct by the Tariff Commission of an aircraft engaged in foreign commerce;
investigation in a public hearing - The 5. Supervision and control over the
Commission shall also hear the views handling of foreign mails arriving in the
and recommendations of any Philippines (for the purpose of
government office, agency or collection of lawful duty on the dutiable
instrumentality concerned. The articles thus imported and the
Commission shall submit their findings prevention of smuggling through the
and recommendations to the NEDA medium of such mails);
within thirty (30) days after the 6. Supervision and control of import and
termination of the public hearings. The export cargoes landed or stored in
NEDA thereafter submits its piers, airports, terminal facilities
recommendation to the President (Sec. including container yards and freight
401 paragraph b, TCC). stations (for the protection of
2. The power of the President to increase government revenue);
or decrease the rates of import duty 7. Exercise exclusive original jurisdiction
within the abovementioned limits fixed over seizure and forfeiture cases under
in the Code shall include the the tariff and customs laws. (Sec. 602,
modification in the form of duty. In such TCC)
a case, the corresponding ad valorem or
specific equivalents of the duty with Q: What is the territorial jurisdiction of the
respect to the imports from the BOC?
principal competing foreign country for
the most recent representative period A:
shall be used as bases (Sec. 401 1. All seas within the jurisdiction of the
paragraph c, TCC). Philippines
2. Customs zone 12 nautical miles of
territorial sea from the baseline
GOVERNMENT AGENCIES CONCERNED 3. Exclusive economic zone 200 nautical
miles from the baseline
Q: What are the agencies of the Government 4. All coasts, ports, airports, harbors, bays,
tasked to enforce, implement and administer rivers and inland waters, whether
customs law? navigable or not from the sea (Sec. 603,
TCC)
A:
1. Bureau of Customs (BOC); and Q: What is an ecozone?
2. Tariff Commission (TC)
A: A place specifically designated for the location
of certain industries or business that enjoys tax
Bureau of Customs exemption privilege. It is also known as a Special
Economic Zone.
Q: What are the functions of the Bureau of
Customs? Note: An ecozone while geographically within the
Philippines is deemed a separate customs territory
A: APESSSE and is regarded in law as foreign soil.
1. Assessment and collection of the lawful
revenues from imported articles and all Q: How are transactions within the ecozone
other dues, fees, charges, fines and treated?
penalties accruing under the tariff and
customs laws; A:
2. Prevention and suppression of 1. Sales by suppliers from outside the
smuggling and other frauds upon the borders of the ecozone are deemed
customs; exports and are treated as export sales.
3. Enforcement of tariff and customs laws 2. Conversely, if the sales are made to
and all other laws, rules and regulations persons or entities outside the ecozone
but within the Philippines, such sales
TAXATION LAW TEAM:
are considered as importations by the 1. The administration of and the fiscal and
buyers and subject to import duties. industrial effects of the tariff and
customs laws of this country now in
Q: What are the duties of the Collector of forceor which may hereafter be
Customs over importation of articles within its enacted;
jurisdiction? 2. The relations between the rates of duty
on raw materials and the finished or
A: He shall: partly finished products;
1. Cause all articles entering the 3. The effects of ad valorem and specific
jurisdiction of his district and destined duties and of compound specific and ad
for importation through his port to be valorem duties;
entered into the customhouse; 4. All questions relative to the
2. Cause all such articles to be appraised arrangement of schedules and
and classified; classification of articles in the several
3. Assess and collect the duties, taxes, schedules of the tariff law;
fees and other charges thereon; 5. The tariff relations between the
4. Hold possession of all imported articles Philippines and foreign countries,
until the duties, taxes, fees and other commercial treaties, preferential
charges are paid. (Sec. 1206, TCC) provisions, economic alliances, the
effect of export bounties and pref-
Q: The Collector of Customs issued an erential transportation rates;
assessment for unpaid customs duties and taxes 6. The volume of importations, compared
on the importation of your client in the amount with domestic production and
of P980,000. Where will you file your case to consumption;
protect your client's right? Choose the correct 7. Conditions, causes, and effects relating
courts/agencies, observing their proper to competition of foreign industries
hierarchy. with those of the Philippines, including
dumping and cost of production;
1. Court of Tax Appeals 8. In general, to investigate the operation
2. Collector of Customs of customs and tariff laws, including
3. Commissioner of Customs their relation to the national revenues,
4. Regional Trial Court their effect upon the industries and
5. Metropolitan Trial Court labor of the country and to submit
6. Court of Appeals reports of its investigation as provided;
7. Supreme Court and
9. The nature and composition of, and the
A: classification of, articles according to
1. Protest with the Collector of Customs tariff commodity classification and
(Sec. 2308, TCC) heading number for customs revenue
2. Appeal to the Commissioner of Customs and other related purposes which shall
(Sec. 2313, TCC). be furnished to NEDA, Board of
3. Appeal to the CTA (RA 9282) Investments, Central Bank of the
4. Petition for Review on Certiorari to the Philippines, and Secretary of Finance.
Supreme Court (Rule 45 of the 1997 (Sec. 505, TCC)
Rules of Civil Procedure). (2006 Bar
Question) Q: What administrative assistance is required to
be rendered by the Tariff Commission to the
President and Congress?
Tariff Commission (TC).
A: In order that the President and the Congress
Q: What is the nature of the powers of the TC? may secure information and assistance, it shall be
the duty of the Commission to:
A: Investigative and administrative in nature. 1. Ascertain conversion costs and costs of
production in the principal growing,
Q: What matters may be investigated upon by producing or manufacturing centers of
the TC? the Philippines, whenever practicable;
2. Ascertain conversion costs and costs of
A: The Commission shall investigate: production in the principal growing,

Facultad
SANTO TOMAS
producing or manufacturing centers of 2. Importation is deemed terminated

foreign countries of articles imported upon payment of duties, taxes and
into the Philippines whenever such other charges due upon the articles, or
conversion costs or costs of production secured to be paid, at the port of entry;
are necessary for comparison with and upon grant of the legal permit for
those in the Philippines; withdrawal; In case the articles are free
3. Select and describe representative of duties, taxes and other charges, until
articles imported into the Philippines they have legally left the jurisdiction of
similar to, or comparable with, those the customs. (Sec. 1202, TCC)
locally produced; select and describe
articles of the Philippines similar to, or Note: Intention to unload is essential. Even if the
comparable with, such imported article; cargo is not yet unloaded and there is unmanifested
and obtain and file samples of articles cargo, forfeiture may take place because
so selected whenever advisable; importation has already begun.
4. Ascertain import costs of such
representative articles so selected; Q: Why is it important to know whether
5. Ascertain the grower's, producer's or importation has already begun or not?
manufacturers selling prices in the
principal growing, producing or A: It is because the jurisdiction of the BOC to
manufacturing centers of the enforce the provisions of the TCC, including
Philippines, of the articles of the seizure and forfeiture, begins from the
Philippines, so selected; commencement of importation. The BOC loses
6. Ascertain all other facts which will show jurisdiction to enforce the TCC after importation
the difference in, or which affect is deemed terminated.
competition between, articles of the
Philippines and those imported in the Q: What is meant by the term entry in
principal markets of the Philippines; Customs Law?
7. Ascertain conversion costs and costs of
production including effects of tariff A: It has a three-fold meaning:
modifications or import restrictions on 1. The documents filed at the Customs
prices in the principal growing, house;
producing or manufacturing centers of 2. The submission and acceptance of the
the Philippines, whenever practicable; documents; and
and 3. Customs declaration forms or customs
8. Submit annual reports of these to the entry forms required to be
President of the Philippines, copy of accomplished by passengers of
which shall be furnished to the NEDA, incoming vessels or passenger planes as
Central Bank of the Philippines, envisaged under Sec. 2505 of the TCCP
Department of Finance and the Board (Failure to declare baggage). (Jardeleza
of Investments. (Sec. 506, TCC) v. People, G.R. No. 165265, February 6,
2006)
APPLICATION OF TARIFF AND CUSTOMS LAW

CONCEPT OF ARTICLE FOR CUSTOMS DUTY
Q: When are tariff and customs law applicable? PURPOSES
A: After importation has begun but before All articles when imported from a foreign country
importation is terminated. into the Philippines shall be subject to duty upon
each importation even though previously
Q: When does importation begin and when does exported from the Philippines except as
it end? otherwise specifically provided for in the Code or
other laws (Sec. 100, TCCP)
A:
1. Importation begins when the
conveying vessel or aircraft enters the
jurisdiction of the Philippines with
intention to unload therein.
TAXATION LAW TEAM:
CLASSIFICATION OF ARTICLES SUBJECT TO representation of an obscene or

TARIFF AND CUSTOMS LAW immoral character.
Q: What is meant by articles under the Tariff 4. Articles, instruments, drugs and
and Customs Code? substances designed, intended or
adapted for producing unlawful
A: The term articles refer to goods, wares and abortion, or any printed matter which
merchandise and in general, anything that may be advertises or describes or gives directly
the subject of importation or exportation. (Sec. or indirectly information where, how or
3574, TCC) by whom unlawful abortion is
produced.
Note: The term merchandises may include checks
and money order, as well as dollar bills which are not 5. Roulette wheels, gambling outfits,
legal tender in the Philippines. (Batisda v. loaded dice, marked cards, machines,
Commsissioner of Customs, 35 SCRA 448) apparatus or mechanical devices used
in gambling or the distribution of
Q: What is the classification of articles subject to money, cigars, cigarettes, or other
tariff and customs laws? when such distribution is dependent on
chance, including jackpot and pinball
A: machines or similar contrivances, or
1. Articles subject to duty parts thereof.
2. Articles of prohibited importation
3. Articles free from duties subject to 6. Lottery and Sweepstakes tickets
conditions prescribed by law advertisements thereof and list of
(conditionally-free importation) drawings therein.
4. Duty free articles- Enterprises located in
special economic zones are allowed to XPN: Those tickets authorized by the
import capital equipment and raw Philippine Government
materials free from duties, taxes and
other import restrictions. (R.A. 7916) 7. Any article manufactured in whole or in
part of gold, silver or other precious
metals or alloys thereof, the stamps,
Prohibited Importations brands or marks or which do not
indicate the actual fineness of quality of
Q: What articles are prohibited from being said metals or alloys.
imported to the Philippines?
8. Any adulterated or misbranded articles
A: of food or any adulterated or
1. Dynamite, gunpowder, ammunitions misbranded drug in violation of the
and other explosives, firearms, and provisions of the Food and Drugs Act.
weapons of war, and parts thereof.
9. Marijuana, opium, poppies, coca leaves,
XPN: when authorized by law. heroin or any other narcotics or
synthetic drugs which are or may
2. Written or printed articles in any form hereafter be declared habit forming by
containing any matter advocating or the President of the Philippines, or any
inciting treason, or rebellion, compound, manufactured salt,
insurrection, sedition, or subversion derivative, or preparation thereof.
against the Government of the
Philippines, or forcible resistance to any XPN:
law of the Philippines, or containing any a. When imported by the Government
threat to take the life of, or inflict bodily of the Philippines
harm upon any person in the
Philippines. b. Any person duly authorized by the
Dangerous Drugs Board, for medical
3. Written or printed articles, negatives or purposes only
cinematographic film, photographs,
engravings, lithographs, objects,
paintings, drawings, or other

Facultad
SANTO TOMAS
10. Opium pipes and parts thereof, or A: Those:

whatever material. 1. Provided in Sec. 105, TCC;
2. Granted to government agencies,
11. All other articles and parts thereof, the instrumentalities and GOCCs in
importation of which is prohibited by agreements with foreign countries;
law or rules and regulations issued by 3. Given to international institutions
competent authority. (Sec 101, TCC) entitled to exemption by agreement or
special laws;
4. Granted by the President upon
Q: What is the duty of the Collector of Customs recommendation of NEDA;
over articles of prohibited importation? 5. Those provided in the Code in favor of
RETURNING RESIDENTS with respect to
A: Where articles are of prohibited importation or their personal and household effects:
subject to importation only upon conditions a. Personal and household effects
prescribed by law, it shall be the duty of the including luxury items brought out
Collector to exercise such jurisdiction in respect of the Philippines and returned;
thereto as will: b. Personal and household effects
1. Prevent importation; or except luxury items purchased
2. Otherwise secure compliance with all abroad and imported to the
legal requirements. (Sec. 1207, TCC) Philippines;
c. The purchase abroad of
consumables, livelihood tools,
Qualifiedly Prohibited Importation personal and household effects by
Overseas Filipino Workers (OCW)
Where such conditions as to warrant a lawful and Balikbayans;
importation do not exist, the legal effects of the d. The purchase abroad of
importation of the qualifiedly prohibited articles consumables, livelihood tools,
are the same as those absolutely prohibited personal and household effects by
articles (Auyong vs. CTA, G.R. No. L-28782, Overseas Filipino Workers (OCW)
September 12, 1974) and Balikbayans at Philippine
duty-free shops; and
e. Personal and household effects of
Conditionally-free Importation members of Philippine diplomatic
missions including civil or military
Q: What are conditionally-free importations? attaches.
A: These are imported articles that are allowed to Note: Returning residents for purposes of
enter the Philippines free of duties and taxes conditionally-free importation of personal and
after the compliance with certain conditions as household effect must be those:
imposed in the Tariff and Customs Code and a. Nationals (Filipino)
other Customs regulation. b. who have stayed in the foreign country
c. for a period of AT LEAST six (6) months
Q: What are the kinds of conditionally-free
importations?
TAXATION LAW TEAM:
Q: What are the conditionally-free importations under Sec. 105 of the TCC?
A:
Articles Requirements Exceptions
1. Aquatic products a. Caught or gathered by fishing vessels of Philippine

registry
b. Imported in such vessels or in crafts attached
thereto
c. Have not landed in any foreign territory; or
d. If so landed, solely for transshipment without
having been advanced in condition
2. Equipment for salvage of vessels and a. Payment of bond equal to 1 times the
aircrafts unavailable locally ascertained duties, taxes and other charges (DTO)
thereon
b. Conditioned on:
i. Exportation or
ii. Payment of DTO within 6 months from acceptance
of import entry
3. Cost of repairs made in foreign countries Satisfactory proof to the Collector of Customs of:
on Philippine-registered/licensed vessels or a. Adequate facilities for repairs not afforded in the
aircrafts Philippines
b. Vessel/aircraft was compelled by stress of weather
or other casualty to dock into a foreign port to
secure safety and sea/air-worthiness
c. Excluding the value of the article used
4. Articles brought for repairs, processing or Bond in amount equal to 1 times the ascertained DTO
reconditioning to be exported upon thereon, conditioned on:
completion of repairs a. exportation
b. payment of DTO within 6 months from acceptance
of import entry
5. Medals, badges, cups and other small Bestowed or received as honorary distinction
articles
6. a. Formally declared and listed before departure Vehicles, aircraft and
a. Personal and household effects of b. Identified under oath before Collector animals purchased in
residents of the Philippines c. Personal and household effects shall neither be in foreign countries
returning from abroad(include commercial quantities nor intended for barter, necessary, Appropriate,
jewelry, precious stone and other sale, hire normally used for comfort
articles of luxury) d. Dutiable value not exceeding P 2,000 and convenience in their
b. Personal and household effects e. Returning residents have not previously received stay abroad.
purchased in foreign countries by the benefit within 365 days prior to his arrival
residents of the Philippines which f. 50% ad valorem duty across the board shall be
were necessary, appropriate and levied in excess of the P 10,000
normally used for the convenience g. Personal and household effects of returning
in their journey and during their residents who have not stayed abroad for 6 months
stay abroad (include wearing shall be subject to 50% ad valorem duty across the
apparel, articles of personal board, the total dutiable value of which does not
adornment, toilet articles, portable exceed P 2,000
appliances and instruments)
7. Wearing apparel, articles of personal Written commitment or bond equal to 1 times the Not applicable to articles
adornment, theatrical costumes and similar ascertained DTO intended for other persons
effects accompanying travelers or tourists, or for barter, sale or hire.
in quantities and kind necessary and suitable
to the profession, rank or position of the
person importing them for their own use.
8. Personal and household effects and In quantities and of the kind necessary and suitable to the
vehicles belonging to foreign consultants profession, rank or position of the person importing them.

Facultad
SANTO TOMAS
and experts hired by and/or rendering

services to the Government and their staff
or personnel and families.
9. Articles used exclusively for public a. Identification, examination, appraisal
entertainment and display and devices for b. Payment of bond equal to 1 times the
projecting pictures; technical and scientific ascertained DTO conditioned on:
films when imported by the i. Exportation
ii. payment of DTO within 6 months from
acceptance of import entry
c. Underdeveloped and underexposed outside
the Philippines films require an affidavit by the
importer that such films were previously
exported from the Philippines
10. a. Foreign countries accord like privileges to
a. Importations for the official use of Philippines agencies
foreign embassies, legations and b.
other agencies i. Privilege granted upon instruction of the
Secretary of Finance upon request by
b. Articles for personal or family use of the DFA
members and attaches of foreign ii. Privileges must be contained in a special
embassies, legation, consular offices agreement between the Philippines and
and foreign representatives a foreign country
11. Imported articles donated to or for the Certified by DSWD and DECS
account of any duly registered relief
organization not operated for profit
12. Containers, holders and similar a. Identification, examination, appraisal Other containers made of
receptacles of any material for locally- b. Payment of bond equal to 1 times the paper, paperboard and
manufactured cement for export ascertained duties, taxes and other charges fabrics which are readily
(DTO) thereon identifiable and reusable
c. Conditioned on: for shipment
i. Exportation or
ii. Payment of DTO within 6 months from
acceptance of import entry
13. Necessary supplies for the reasonable a. Any surplus or excess of such vessel or aircraft
requirements of the vessel or aircraft in her supplies arriving from foreign ports shall be
voyage outside the Philippines dutiable
b. For use or consumption by passengers or its
crew on board
14. Articles and salvage from vessels Vessels have been wrecked or abandoned in Philippine
recovered after a period of 2 years from the waters (or elsewhere)
date of filing of the marine protest
15. Coffins or urns containing human Vehicles the value of
remains, bones or ashes, used personal and which does not exceed P
household effects of the deceased 10,000
16. Animals and plants for scientific, a. By order of the Government and other duly Race horses
experimental, propagation, botanical, authorized institutions
breeding, zoological and national defense b. Duly registered in the book of record
purposes established for that breed
c. Certificate of record and pedigree of such
animal duly authenticated by the proper
custodian
d. NEDA certification
17. Economic, technical, vocational,
scientific, philosophical, historical and
cultural books and/or publications; bibles,
missals, prayer books, Koran Ahadith, other
religious books of similar nature
18. Philippine articles previously exported If a drawback or bounty was allowed to any Philippine
from the Philippines and returned without article, upon re-importation, article shall be subject to
having advanced in value or improved in duty equal to the bounty or drawback
TAXATION LAW TEAM:
condition by any process of manufacture

19. Aircraft equipment, machinery, spare a. Such articles or supplies are not available
parts, commissary and catering supplies, locally (in reasonable quantity, quality and
aviation gas, fuel and oil and such other price)
articles or supplies imported by and for the b. Articles are necessary or incidental for the
use of scheduled airlines operating under proper operation of airline importing
congressional franchise
20. Machineries, equipment, tools for a. Certification of DAR and DENR Secretaries
production plants to convert to mineral ores upon recommendation of Director of Mines
into saleable form, spare parts, supplies, b. Articles are not locally available
materials and accessories, explosives,
chemicals and transportation and
communication facilities imported by and
for the use of mines
21. Spare parts of vessels or aircrafts of Satisfactory proof to the Collector of Customs that such
foreign registry engaged in foreign trade spare parts shall be utilized to secure the safety of the
brought into the Philippines exclusively as vessel or aircraft to enable it to continue its voyage or
replacements and emergency repairs flight
22. Articles of easy identification exported a. Not capable of being repaired locally
from the Philippines for repair b. Cost of repairs made to any such articles shall
pay a rate of duty of 30% ad valorem
23. Trailer chassis imported by shipping a. Posting of bond in amount equal to 1 times
companies for their exclusive use in the ascertained duties and other charges
handling containerized cargo b. Properly identified and registered with the
Land Transportation Commissioner
c. Subject to customs supervision fee fixed by the
Collector of Customs
d. Deposited in the Customs zone when not in
use
e. e. Duties and taxes paid upon the expiration of
the period prescribed UNLESS otherwise re-
exported

Facultad
SANTO TOMAS
Q: Jacob, after serving a 5-year tour of duty as provided for in the Tariff and Customs Code or in
military attach in Jakarta, returned to the other laws. (Sec. 101, TCC)
Philippines bringing with him his personal effects
including a personal computer and a car. Would Q: Dagat-dagatan Shipping Corp (DSC) brought
Jacob be liable for taxes on these items? Discuss into the country two non-propelled foreign barges
fully. which DSC chartered for use in the Philippines
coastwise trade under a temporary Certificate of
A: No. Jacob would not be liable for the payment of Philippine Registration to be returned to the
taxes on his personal effects including a personal foreign owner upon the termination of the charter
computer and a car provided he is able to prove his period but not beyond 2000, pursuant to P.D. No.
qualification for conditional free importation. 780 as amended. Upon arrival, the barges were
The requirements are: subjected to duty by the Bureau of Customs. DSC
1. The officer or employee is for refused to pay any customs duty contending that
reassignment to his home office, or dies, the chartered or leased barges, which will be
resigns or is retired from the service; returned to the foreign owner when the charter
2. The motor car must have been ordered expires, is not an importation and therefore
or purchased prior to the receipt by the cannot be subjected to any customs duty. Is DSCs
mission or consulate of the order of refusal with or without legal basis?
recall, must be registered in the
employees name; A: DSCs refusal is without legal basis. All imported
3. The personal effects should not exceed articles when imported in the Philippines from a
30% of the total amount received by such foreign country are subject to customs duty upon
employee or officer in salary and each importation. The tax exemption granted to
allowances during his latest assignment chartered vessels/leased ocean vessels does not
abroad but not to exceed four years; apply to the barges because they are non-propelled
4. The exemption shall not be availed of and are to be used for coastwise trade.
oftener than once every four years; (1991 Bar Question)
5. The officer or employee concerned must
have served abroad for not less than two Q: What is the concept of Preferential Tariffs?
years. (Sec. 105, TCC)
A: It is the imposition of high customs duties which
Q: Mr. Balikbayan has a used car among the items results to making the foreign goods more expensive
he brought home to the Philippines where he will compared with locally produced articles. This is to
resettle permanently after living forty years in protect Philippine manufacturers from competition
California, USA. He also brought along a VCD posed by foreign manufacturers.
machine and a stereo. Discuss whether or not he is
liable for payment of import duties for bringing to Q: Are there instances where there could be
the Philippines the above-mentioned items. exemptions from customs duties?
A: Mr. Balikbayan is considered as a returning A:

resident entitled to tax and duty free entry of his GR: There shall be no exemptions from the
VCD machine and stereo, the said articles being payment of customs duties.
considered as used personal and household effects.
He is, however, required to pay import duties for XPNS:
the used car which is not considered as part of his 1. Those provided under the Tariffs and
personal and household effects entitled to tax and Customs Code (e.g. conditionally-free
duty free entry. (1988 Bar Question) importations)
2. Those granted to government agencies,
instrumentalities or government-owned
CUSTOMS DUTIES or controlled corporation with existing
contracts, commitments, agreements, or
Q: What articles are subject to customs duty? obligations (requiring such exemptions)
with foreign countries;
A: All articles imported from any country into the 3. International institutions, associations or
Philippines, shall be subject to duty upon each organization entitled to exemption
importation, even though previously exported from pursuant to agreements or special laws;
the Philippines, except as otherwise specifically 4. Those that may be granted by the
President of the Philippines upon
TAXATION LAW TEAM:
recommendation of the National Q: What are the kinds of special customs duties?
Economic Development Authority in the
interest of national economic A:
development. (Sec. 105, TCC) 1. Under the Tariff and Customs Code
(Dump-DisCo-Mark)
Q: Is the Government exempt from customs a. Anti-Dumping duty;
duties, taxes, fees and other charges? b. Countervailing duty;
c. Marking duty; and
A: d. Discriminatory duty.
GR: All importations by the government for its 2. Additional tariff imposed as a safeguard
own use or that of its subordinate branches or measure under the Safeguard Measure
instrumentalities, or corporations, agencies or Act (R.A. 8800).
instrumentalities owned or controlled by the
government shall be subject to the duties, taxes,
fee and other charges provided for in the Tariff
and Customs Code. (Sec. 1205, TCC)
XPNs:
1. If expressly exempted under a special law;
2. If imported as conditionally-free
importations.
3. Those granted to government agencies,
instrumentalities or government-owned
or controlled corporations with existing
contracts, commitments, agreements or
obligations (requiring such exemptions)
with foreign countries.
Q: What are the kinds of tariffs or customs duties?
A:
1. Regular tariff or customs duties - these
are imposed and collected merely as a
source of revenue.
2. Special tariffs or custom duties - Those
imposed in addition to the ordinary
customs duties usually to protect local
industries against foreign competition.
Q: What are the kinds of regular customs duties?

Discuss each.
A:
1. Ad valorem duty Customs duties that
are computed on the basis of value of
imported article
2. Specific duty Customs duties that are
computed on the basis of dutiable weight
of goodi.e. a unit of measure such as per
kilogram, per liter, etc.
3. Compound duty Customs duties that
impose both ad valorem and specific
customs duties. E.g. 10% ad valorem plus
P100 per liter.
4. Alternating duty alternates between ad
valorem and specific

Facultad
SANTO TOMAS
COMPARISON OF SPECIAL DUTIES
SPECIAL DUTY NATURE PURPOSE AMOUNT/ IMPOSING JUDICIAL REVIEW

RATE AUTHORITY
Imposed on imported Any interested party

goods where it who is adversely
appears that a specific Difference between affected by a final
kind or class of foreign the export price and ruling imposing an
article is being the normal price anti-dumping duty
imported into or sold may file with the CTA
ANTI-DUMPING or is likely to be sold in (export price a petition for review
DUTY the Philippines at a - normal price within thirty (30) days
price less than its fair = anti-dumping duty) from his receipt of
value notice of the assailed
decision. But such
Non-agricultural appeals shall not stop
products: or suspend the
To Secretary of imposition of the duty
protect local Trade and
industries from Industry
undue
competition Agricultural
products:
Secretary of
Agriculture
Duty equal to the Any interested party

ascertained or who is adversely
estimated amount of affected by a final
the subsidy or bounty ruling imposing a
or subvention granted countervailing duty
COUNTER-VAILING by the foreign country may file with the CTA
DUTY on the production, Amount of subsidy a petition for review
manufacture, or within thirty (30) days
exportation into the from his receipt of
Philippines of any notice of the assailed
article likely to injure decision. But such
an industry in the appeals shall not stop
Philippines or suspend the
or retard or imposition of the duty
considerably retard
the establishment of
such industry
Duty imposed on an ad
MARKING DUTY valorem basis imposed To prevent 5% ad valorem of the Commissioner of
for improperly marked possible goods Customs
articles. deception
Duty imposed on
imported goods
whenever it is found as
a fact that the country
DISCRIMINATORY/ of origin discriminates
RETALIATORY against the commerce NONE
DUTY of the Philippines in
such a manner as to
place the commerce of To protect the Not exceeding 100% President of the
TAXATION LAW TEAM:
the Philippines at a national ad valorem Philippines

disadvantage interest
compared with the
commerce of any
foreign country.
a. GENERAL imposed
upon goods or To protect a. GENERAL tariff a. GENERAL Any interested party
products imported in domestic increase, either ad Secretary of who is adversely
SAFEGUARD increased quantities industries and valorem or specific Trade and affected by the ruling
producers from or both, to be paid Industry and of the Secretary in
b. SPECIAL volume of increased through a cash bond Secretary of connection with the
imports exceed a base imports set at a level Agriculture imposition of a
trigger level or price sufficient to redress safeguard measure
falls below a trigger or prevent injury to b. SPECIAL may file with the CTA
price level the domestic Secretary of a petition for review
industry Agriculture of such ruling within
thirty (30) days from
b. SPECIAL receipt thereof BUT
i. Volume Test the filing of such
ii. Price Test petition for review
shall not in any way
stop, suspend or
otherwise toll the
imposition or
collection of the
appropriate tariff
duties or the adoption
of other appropriate
safeguard measures,
as the case may be.

Facultad
SANTO TOMAS
Q: What is the amount generally imposed as an account otherwise than for the purpose
anti-dumping duty? of concealing the origin of such article
and in such manner that any mark
A: The amount imposed shall be equal to the contemplated by this section would
margin of dumping on such product, commodity or necessarily be obliterated, destroyed or
article and on like product, commodity or article permanently concealed
thereafter imported to the Philippines under similar 8. An ultimate purchaser, by reason of the
circumstances, in addition to ordinary duties, taxes character of such article or by reason of
and charges imposed by law on the imported the circumstances of its importation must
product, commodity or article. (Sec. 3(a), R.A. 8752) necessarily know the country of origin of
such article even though it is not marked
Q: What happens when products are not imported to indicate its origin
directly from the country of origin but exported to 9. Such article was produced more than
the Philippines from an intermediate country? twenty years prior to its importation into
A: The price at which the products are sold from the Philippines
the country of export to the Philippines shall 10. Such article cannot be marked after
normally be compared with the comparable price in importation except at an expense which is
the country of export. However, comparison may economically prohibitive, and the failure
be made with the price in the country of origin if, to mark the article before importation
for example, the products are merely transshipped was not due to any purpose of the
through the country of export, or such products are importer, producer, seller or shipper to
not produced in the country of export, or there is avoid compliance with this section. (Sec.
no comparable price for them in the country of 303, TCC)
export. (Ibid.)
Q: What are the kinds of specific subsidy? Safeguard Measures
A: Q: What are safeguard measures?

1. Bounty cash award paid to an exporter
or manufacturer A: Safeguard measures are defined as emergency"
2. Subsidy financial incentives not in the actions with respect to increased imports of
form of direct or cash award to encourage particular products, where such imports have
manufacturers or exporters caused or threaten to cause serious injury to the
3. Subvention any assistance other than a importing Member's domestic industry. (Article XIX
bounty or subsidy given by the of GATT 1994)
government for the manufacture and/or
exportation of an article. It is a measure provided by the State to protect
domestic industries and producers from increased
Q: When may the Customs Commissioner exempt imports which cause or threaten to cause serious
imported articles from the marking requirement? injury to those domestic industries and producers.
(Sec. 2, R.A. 8800)
A: If
1. Such article is incapable of being marked Q: Who has the authority to impose safeguard
2. Such article cannot be marked prior to measures?
shipment to the Philippines without injury
3. Such article cannot be marked prior to A: Upon, and only upon, positive final
shipment to the Philippines, except at an determination by the Tariff Commission, the
expense economically prohibitive of its following shall apply a general safeguard measure:
importation
4. The marking of a container of such article 1. Secretary of Agriculture If the article in
will reasonably indicate the origin of such question is an agricultural product;
article 2. Secretary of Trade and Industry If the
5. Such article is a crude substance article is non-agricultural product. (Sec. 5,
6. Such article is imported for use by the Ibid.)
importer and not intended for sale in its
imported or any other form Q: Are the factual findings of the Tariff
7. Such article is to be processed in the Commission on the existence or non-existence of
Philippines by the importer or for his conditions warranting the imposition of general
TAXATION LAW TEAM:
safeguard measures binding upon the DTI value of similar goods, computed value and fallback
Secretary? value. (2005 Bar Question)
A: Yes. The positive final determination by the Tariff Q: For customs valuation, when are goods
Commission operates as an indispensable requisite identical and when are they similar?
to the imposition of the safeguard measure.
Congress in enacting the SMA and prescribing the A:
roles to be played therein by the Tariff Commission 1. Identical goods goods which are the
and the DTI Secretary did not envision that the same in all respects, including physical
President, or his/her alter ego, could exercise characteristics, quality and reputation.
supervisory powers over the Tariff Commission- the Minor differences in appearances shall
Tariff Commission does not fall under the not preclude goods otherwise conforming
administrative supervision of the DTI. (Southern to the definition from being regarded as
Cross Cement Corp. v. Cement Manufacturers Assoc. identical.
of the Phils., G.R. No. 158540, Aug. 3, 2005) 2. Similar goods goods which although not
alike in all respects have like
characteristics and like component
CUSTOMS VALUATION materials which enable them to perform
the same functions and to be
Q: What is customs valuation? commercially interchangeable. The
quality of the goods, their reputation and
A: Customs valuation is a procedure for the existence of a trademark shall be
determining the customs value of imported goods. among the factors to be considered in
If the rate of duty is ad valorem, the customs value determining whether goods are similar.
is essential to determine the duty to be paid on an
imported good. Q: What are the methods in assessing the dutiable
value of an imported article subject to an ad
Q: How are customs duties computed? valorem rate of duty?
A: The importer/broker shall compute the duties A:

and taxes using the appropriate valuation method. 1. TRANSACTION VALUE the dutiable value
There are two processes involved in the of an imported article subject to an ad
computation of customs duties on imported valorem rate of duty shall be the transaction
articles: value, which shall be the PRICE ACTUALLY
1. Classification of the articles into their PAID OR PAYABLE FOR THE GOODS when
appropriate tariff heading; sold for export to the Philippines adjusted
2. Determination of the valuation if the rate by adding:
is ad valorem or mixed. a. The following to the extent incurred
by the buyer but not included in
Note: The basis of dutiable value is the transaction price actually paid:
value. Only when it cannot be determined that the i. Commission and brokerage
other methods may be used, in the following order. fees
ii. Cost of container
Q: State and explain the basis of dutiable value of iii. Cost of packing
an imported article subject to an ad valorem tax iv. Value of the goods, materials
under the TCC? and services used in the
production or in connection
A: The basis of dutiable value of an imported article with the production and sale
subject to an ad valorem tax under the TCC is its of the imported good
transaction value which shall be the price actually v. Amount of royalties and
paid or payable for the goods when sold for export license fees related to the
to the Philippines, adjusted by adding certain cost goods being valued that the
elements to the extent that they are incurred by buyer must pay
the buyer but are not included in the price actually b. Value of any of the proceeds of any
paid or payable for the imported goods. (Sec. 201, subsequent resale, disposal or use of
TCC). If such value could not be determined, then the imported goods that accrues
the following values are to be used respectively; directly or indirectly to the seller
transaction value of identical goods, transaction

Facultad
SANTO TOMAS
c. Transport cost of import goods from goods of the same class or kind as
port of exportation to port of entry the goods being valued which are
in the Philippines made by producers in the country
d. Unloading and handling charges of exportation for export to the
associated with transport of Philippines;
imported goods c. The FREIGHT, INSURANCE FEES
e. Cost of insurance AND OTHER TRANSPORTATION
EXPENSES for the importation of
2. TRANSACTION VALUE OF IDENTICAL the goods;
GOODS the dutiable value shall be the d. ANY ASSIST, if its value is not
transaction value of identical goods SOLD included under paragraph 1
FOR EXPORT TO THE PHILIPPINES AND hereof; and
EXPORTED AT OR ABOUT THE SAME TIME e. The COST OF CONTAINERS AND
AS THE GOODS BEING VALUED. PACKING, if their values are not
included under paragraph 1
3. TRANSACTION VALUE OF SIMILAR GOODS hereof.
where the dutiable value cannot be
determined under the preceding method, Note: At the request of the importer, the
the dutiable value shall be the transaction order of application of Deductive Value and
value of similar goods SOLD FOR EXPORT TO Computed Value may be reversed.
THE PHILIPPINES AND EXPORTED AT OR However, if the Commissioner of Customs
ABOUT THE SAME TIME AS THE GOODS deems that he will experience real
BEING VALUED. difficulties in determining the dutiable value
using Computed Value, he may refuse such
request
4. DEDUCTIVE VALUE the dutiable value of
the imported goods under this method shall
6. FALLBACK VALUE if the dutiable value
be the deductive value which shall be based
cannot be determined under the preceding
on the UNIT PRICE AT WHICH THE
methods described above, it shall be
IMPORTED GOODS OR IDENTICAL OR
determined by using REASONABLE MEANS
SIMILAR IMPORTED GOODS ARE SOLD IN
consistent with the principles and general
THE PHILIPPINES, in the same condition as
provisions of the Agreement on Tariffs and
when imported, in the greatest aggregate
Trade of 1994 and of Article VII of GATT of
quantity, at or about the time of the
1994 and on the basis of data available in
importation of the goods being valued, to
the country of importation.
persons not related to the persons from
whom they buy such goods, subject to
Note: If the importer so requests, he shall be informed
deductions:
in writing of the dutiable value determined under
a. Either the commissions usually Fallback Value and the method used to determine
paid or agreed to be paid or the such value.
additions usually made for profit
and general expenses in Q: What are the PROHIBITED METHODS OF
connection with sales. VALUATION?
b. The usual costs of transport and
insurance and associated costs; A: No customs value shall be determined under the
c. The costs and charges; provisions of this Article on the basis of:
d. Customs duties and other national 1. the selling price in the country of
taxes importation of goods produced in such
country;
5. COMPUTED VALUE the dutiable value of 2. a system which provides for the
this method shall be the computed value acceptance for customs purposes of the
which shall be the SUM of: higher of two alternative values;
a. The COST OR THE VALUE OF 3. the price of goods on the domestic
MATERIALS and fabrication of market of the country of exportation;
other processing employed in 4. the cost of production other than
producing the imported goods; computed values which have been
b. The AMOUNT FOR PROFIT AND determined for identical or similar goods
GENERAL EXPENSES equal to that in accordance with the provisions of
usually reflected in the sale of Article 6;
TAXATION LAW TEAM:
5. the price of the goods for export to a 2. A duty licensed customs broker acting
country other than the country of under authority from a holder of a bill;
importation; 3. A person duly empowered to act as agent
6. minimum customs values; or or attorney-in-fact for each holder of the
7. arbitrary or fictitious values bill of lading. (Sec. 1301, TCC as amended
by R.A. 9135)
Preparation of Import Entry Q: What is a consumption entry?
Q: What is import entry? A: It is a government form accomplished by an

importer or his representative, which is ultimately
A: It is a declaration to the Bureau of Customs submitted to the proper office of the Bureau of
showing the description, value, tariff classification Customs as a basis for inspection of the
and other particulars of the imported article to importations of an importer and for the
enable the customs authorities to determine the computation of the correct customs duties and
correct customs duties and internal revenue taxes internal revenue taxes due on importation.
due on the importation.
Q: When is the period for filing import entry?
Q: When is import entry required?
A: Imported articles must be entered in the
A: customhouse at the port of entry within 30 days,
GR: All imported articles shall be subject to which shall not be extendible, from the discharge of
formal or informal entry. the last package from the vessel or aircraft. (Sec.
1301, TCC as amended by R.A. 9135)
XPN: Except containers for re-export subject to
conditionally free-importation. (Sec. 1302, TCC Q: When is the discharge of the last package?
as amended by RA 9135)
A: It is when the unloading of the shipment from
Q: What are the kinds of import entry and what the carrier is completed. In case of transshipment,
articles do they cover? the discharge of the last package from the domestic
carrier at the port of final destination.
A:
1. Informal entry
a. Articles of a commercial nature Examination, Classification and
intended for sale, barter or hire, the Appraisal of Imported Articles
dutiable value of which is P2,000 or
less Q: What are the duties of the customs officer
b. Personal household effects or tasked to examine, classify, and appraise imported
articles, not in commercial quantity, articles?
imported in passengers baggage,
mail or otherwise, for personal use A:
1. Determine whether the packages
2. Formal entry The TCC does not provide designated for examination and their
for a listing of articles that are required contents are in accordance with the
to be cleared on a formal entry. The declaration in the entry, invoice and other
Customs Commissioner may, upon pertinent documents
instruction for the protection of the 2. Make a return in such a manner to
Finance Secretary, for the protection of indicate whether the articles have been
domestic industry, require articles truly and correctly declared in the entry
regardless of value to be cleared by a as regard their quantity, measurement,
formal entry. weight and tariff classification and not
imported contrary to law
Q: Who are the persons authorized to make 3. Submit sample to the laboratory for
import entry? analysis when feasible to do so and when
such analysis is necessary for the proper
A: classification, appraisal, and/or admission
1. The importer, being the holder of a bill of into the Philippines of imported articles
lading

Facultad
SANTO TOMAS
4. Determine the unit of quantity in which Preparation of Discrepancy Report

they are usually bought and sold and
appraise the imported articles in Q: When is a discrepancy report prepared?
accordance with Section 201 of the TCC.
(Sec. 1403, TCC) A: If the Collector of Customs believes that
additional customs duties, taxes, fees and other
Note: At present, X-ray scanning is used as an charges are due on the importation, a discrepancy
alternative to physical examination. However, physical report is prepared showing the amounts due from
examination shall be conducted to determine the the importer.
correct tariff heading. This is the present mode of
examination of imported articles. Q: What if the importer does not pay the
additional charges?
Q: Is the classification and appraisal by the
Collector of Customs final? A: The imported articles would not be released
from customs custody.
A:
GR: Appraisal, classification return as finally
passed upon and approved or modified by the Customs Protest
Collector shall not be altered or modified in any
manner. Q: In case there is a dispute between the importer
and the Collector as to the correct determination
XPNS: Readjustment may be made: of duties, taxes and other charges, what is
1. Within one year after payment of the required from the importer?
duties, upon statement of error in
conformity with Sec. 1707 of the TCC, A: The law requires the importer to file a protest at
approved by the Collector. Sec. 1707 the time when payment of the amount claimed to
provides for the correction of manifest be due the government is made or within 15 days
clerical errors made in an invoice or entry, thereafter.
errors in return of weight, measure and
gauge, when duly certified to, under Q: What is the effect of the failure of the importer
penalties of falsification or perjury, by the to file a written protest on the assessment of the
surveyor or examining official (when Collector?
there are such officials at the port), and
errors in the distribution of charges on A: If the importer fails to file a formal protest, he
invoices not involving any question of law could not obtain a refund of the duties and other
and certified to, under penalties of charges claimed to have been erroneously paid by
falsification or perjury, by the examining him.
official
2. Within fifteen days after such payment
upon request for reappraisal and/or Payment of Duties and Taxes
reclassification addressed to the
Commissioner by the Collector, if the Q: When are custom duties computed and paid?
appraisal and/or classification is deemed
to be low. A: The Philippines adopts the self-assessment
3. Upon request for reappraisal and/or system. Thus, it is the importer which initially
reclassification, in the form of a timely determines the customs duties and other charges
protest addressed to the Collector by the due from him and pays the same. However, his
interested party if the latter should be computation and payment is subject to the review
dissatisfied with the appraisal or return. of the taxing authorities.
4. Upon demand by the Commissioner of
Customs after the completion of
compliance audit pursuant to the
provisions of this Tariff and Customs
Code." (Sec. 1407, TCC as amended by
R.A. 9135)
TAXATION LAW TEAM:
Delivery of the Imported Article However, where the importer is the government,
the authority to hold the delivery or release of its
Q: To whom shall the imported articles be imported article does not find application. (Ibid.)
delivered?
Q: Is the Collector personally liable for misdelivery
A: of cargoes?
1. Delivery of articles to holder of bill of
lading A Collector shall make a delivery A: Yes. As a rule, a Collector is not personally liable
of a shipment, upon the surrender of the with respect to his ruling in custom cases.
bill of lading, to person who by the terms However, he may be held personally liable:
thereof appears to be the consignee or 1. In case of misdelivery of imported
lawful holder of the bill. He shall not be articles; or
liable on account of any defect in the bill 2. When he decided with grave abuse of
or irregularity in its negotiation, unless he authority. (Sec. 3511, TCC)
has notice of the same. (Sec. 1501, TCC)
Q: Is the Collector still liable for misdelivery even
2. Delivery of articles without production of if he has no knowledge of such?
bill of lading No Collector shall deliver
imported articles to any person without A: Yes. He is still liable even if the misdelivery was
the surrender by such person of the bill made by his subordinate and he had no knowledge
of lading covering said article, except on of such. This is to protect the shipper, consignee or
written order of the carrier or agent of the person interested in the cargo. (Collector of
the importing vessel or aircraft. However, Customs of Manila v. IAC, et. al., 137 SCRA 4)
the Collector for customs purposes may
require the production of an exact copy Q: What is the Compliance Audit under the Tariff
of the bill of lading where delivery of and Customs Code?
articles is made against such written
order of the carrier or agent of the A: The Bureau of Customs shall examine, inspect
importing vessel or aircraft. (Sec. 1502, and verify the books, records and documents
TCC) necessary or relevant for the purpose of collecting
the proper duties and taxes.
Q: When may the Collector withhold the delivery Q: What is required from the importer for
of an imported article? purposes of compliance audit?
A: When the Collector is duly notified in writing of A: All importers are required to keep at their
a lien for freight, lighterage or general average principal place of business, in the manner
upon any imported articles in his custody, he shall prescribed by regulations to be issued by the
withhold the delivery of the same until he is Commissioner of Customs and for a period of three
satisfied that the claim has been paid or secured. (3) years from the date of importation, all the
(Sec. 1505, TCC) records of their importations and/or books of
accounts, business and computer systems and all
Q: When is the Collector authorized to suspend customs commercial data including payment
the delivery or release of imported articles? records relevant for theverification of the accuracy
of the transaction value declared by the
A: Whenever any importer has an outstanding and importers/customs brokers on the import entry.
demandable account with the Bureau of Customs, (Sec. 3514, TCC; Sec. 8, R.A. 9135)
the Collector shall hold the delivery of any article
imported or consigned to such importer unless Q: What are the effects of denial by the importer
subsequently authorized by the Commissioner of of access to its records?
Customs, and upon notice as in seizure cases, he
may sell such importation or any portion thereof to A: The Bureau of Customs may, in case of
cover the outstanding account of such importer. At disobedience:
any time prior to the sale, the delinquent importer 1. Invoke the aid of the proper regional trial
may settle his obligations with the Bureau of court within whose jurisdiction the
Customs, in which case the aforesaid articles may matter falls. The court may punish
be delivered upon payment of the corresponding contumacy or refusal as contempt;
duties and taxes and compliance with all other 2. File a criminal case imposed by the TCC;
legal requirements. (Sec. 1508, TCC)

Facultad
SANTO TOMAS
3. Subject the importer/broker Liquidation

administrative sanctions that the Bureau
of Customs may impose against Q: What is meant by liquidation?
contumacious importers under existing
laws and regulations including the A: Liquidation is the final computation and
authority to hold delivery or release of ascertainment by the Collector of Customs of the
their imported articles. duties due on imported merchandise based on
official reports as to the quantity, character and
Note: The fact that the importer/broker denies the value thereof, and the Collector of Customs' own
authorized customs officer full and free access to finding as to the applicable rate of duty. It is akin to
importation records during the conduct of a post- an assessment of internal revenue taxes under the
entry audit shall create a presumption of inaccuracy in NIRC where the tax liability of the taxpayer is
the transaction value declared for their imported definitely determined.
goods and constitutes grounds for the Bureau of
Customs to conduct a re-assessment of such goods. A liquidation is considered to have been made
when the entry is officially stamped liquidated.
Q: What is the effect of the failure to pay correct (Pilipinas Shell Petroleum Corporation v. Republic of
duties and taxes after post-entry audit and the Philippines, etc., G. R. No. 161953, Mar. 6,
investigation? 2008)
A: Any person who, after being subjected to post- Q: When is liquidation deemed final?
entry audit and examination and is found to have
incurred deficiencies in duties and taxes paid for A: An assessment or liquidation by the Bureau of
imported goods, shall be penalized according to Customs attains finality and conclusiveness three
the three (3) degrees of culpability subject to any (3) years from the date of the final payment of
mitigating, aggravating or extraordinary factors duties except when:
that clearly established by the available evidence. 1. There was fraud;
(Sec. 3611, TCC as amended by R.A 9135) 2. There is a pending protest; or
3. The liquidation of import entry was
Q: What are the three degrees of culpability? merely tentative. (Sec. 1603 TCC, as
amended by R.A. 9135)
A:
1. Negligence When the deficiency results Q: When is there tentative liquidation?
from an offenders failure, through an act
or acts of omission or commission, to A: If to determine the exact amount due under the
exercise reasonable care and law in part some future action is required, the
competence to ensure that a statement liquidation shall be deemed to be tentative as to
made is correct. the item or items affected and shall to that extent
2. Gross Negligence When a deficiency be subject to future and final readjustment and
results from an act or acts of omission or settlement within a six (6) months from date of
commission done with actual knowledge tentative liquidation. (Sec. 1602, TCC)
or wanton disregard for the relevant facts
and with indifference to or disregard for
the offenders obligation under the PROCEEDINGS BEFORE THE BOC
statute.
3. Fraud When the material false Q: What are the proceedings before the Bureau of
statement or act in connection with the Customs?
transaction was committed or omitted
knowingly, voluntarily and intentionally, A:
as established by clear and convincing 1. Customs protest; and
evidence. (Ibid.) 2. Customs seizure and forfeiture.
TAXATION LAW TEAM:
Customs Protest liability to the Collector of Custom within

15 days after paying the liquidated
Q: What are customs protest cases? amount (payment under protest).
4. Collector shall conduct a hearing within
A: These are cases which deal solely with liability 15 days from receipt of the duly
for customs duties, taxes, fees and other charges. presented protest.
5. Decision shall be made by the Collector
Q: What does a customs protest involve? within 30 days upon termination of the
hearing. (Sec. 2312, TCC)
A: A customs protest, which is a tax protest case
under the TCC, involves a protest of the liquidation Q: What is the remedy if the decision is adverse to
of import entries. the protestant?
Q: When should protest be filed? A:

1. Appeal with the Commissioner of
A: Protest is required to be filed only in case the Customs within 15 days from notice;
liability of the taxpayer for duties, taxes, fees and 2. Then, appeal with CTA Division within 30
other charges is determined and the taxpayer days from receipt of ruling;
disputes said liability. 3. Then, file a motion for reconsideration or
new trial within 15 days from notice;
Q: When is protest not required to be filed? 4. If resolution is adverse to the taxpayer,
file a petition for review with the CTA en
A: When there is no dispute as to the correctness of banc;
the duties and taxes paid but the claim for the 5. Then, petition for review on certiorari
refund arises by reason of the happening of with the SC within 15 days from notice.
supervening events such as when the raw material
imported is utilized in the production of finished Q: What if the decision of the Collector or the
products subsequently reported and a duty Commissioner is adverse to the Government?
drawback is claimed.
A:
Q: What are the requirements for protest? 1. Automatic reviewby the Commissioner - If
the Collector renders a decision adverse
A: SamPoWL-15G to the Government (the importers
1. In Writing; protest is granted).
2. Points out the particular decision or ruling 2. Automatic review by the Secretary of
by the Collector of Customs to which Finance - If the decision of the
exception is taken or objection is made; Commissioner of Customs is adverse to
3. States the Grounds relied upon for relief; the Government.
4. Limited to the subject matter of a single
adjustment; Q: Whenever the decision of the Collector of
5. Filed when the amount claimed is paid or Customs is adverse to the government, it is
within 15 days after payment; automatically elevated to the Commissioner for
6. Sample of goods under protest must be review and, if it is affirmed by him, it is
furnished by the protestant, when automatically elevated to the Secretary of Finance
required. for review. What is the basis of the automatic
review procedure in the Bureau of Customs?
Q: What is the procedure on customs protest Explain your answer.
cases?
A: Automatic review is intended to protect the
A: interest of the Government in the collection of
1. Collector (within his jurisdiction) shall taxes and customs duties in seizure and protest
cause the imported goods to be entered cases. Without such automatic review, neither the
at the customhouse; Commissioner of Customs nor the Secretary of
2. Collector shall assess, liquidate and Finance would know about the decision laid down
collect the duties thereon or detain the by the Collector favoring the taxpayer. The power
said goods, in case of non-payment; to decide seizure and protest cases may be abused
3. The party adversely affected (protestant) if no checks are instituted. Automatic review is
may file a written protest on his assessed necessary because nobody is expected to appeal

Facultad
SANTO TOMAS
the decision of the Collector which is favorable to 2. That the defendant, if he is not the
the taxpayer and adverse to the Government. This importer himself, must have received,
is the reason why whenever the decision of the concealed, bought, sold or in any manner
Collector is adverse to the Government, the said facilitated the transportation,
decision is automatically elevated to the concealment or sale of the merchandise;
Commissioner for review; and if such decision is and
affirmed by the Commissioner, the same shall be 3. That the defendant must be shown to
automatically elevated to and be finally reviewed have knowledge that the merchandise has
by the Secretary of Finance. (Yaokasin v. been illegally imported.
Commissioner of Customs, G.R. No. 84111, Dec. 22,
1989)(2002 Bar Question) Q: An information was filed against Jardeleza in
violation of the TCC for bringing 20.1 kilograms of
assorted gold jewelry with an estimated value of
P7,562,231.50. Such was effected by hiding said
Customs Seizure and Forfeiture jewelry inside a hanger bag and, by not declaring it
in the Customs Declaration form and, by verbally
Q: What is the nature of customs seizure and denying that she is carrying said items by
forfeiture case? answering no when asked by Bureau of Customs
if she has anything to declare prior to the actual
A: They are administrative and civil in nature and inspection of her luggage. The accused denied the
are directed against the res or imported articles allegations against her.
and entail the determination of the legality of the
importation. These are actions in rem. Thus, it is of Is the accused guilty of smuggling the jewelries?
no defense that the owner of the vessel sought to
be forfeited had no actual knowledge that his A: Yes. A person arriving in the Philippines with
property was used illegally. The absence or lack of baggage containing dutiable articles is bound to
actual knowledge of such use is a defense personal declare the same in all respects. Adequate
to the owner himself, which cannot in any way reporting of dutiable merchandise being brought
absolve the vessel from the liability of forfeiture. into the country is absolutely necessary to the
(Commissioner of Customs v. Manila Star Ferry, enforcement of customs laws, and failure to comply
Inc., G.R. Nos. 31776-78, Oct. 21, 1993) with those requisites is as condemnable as failure
to pay customs fees. Any administrative penalty
imposed on the person arriving in the Philippines
SMUGGLING with undeclared dutiable articles is separate from
and independent of criminal liability for smuggling
Q: What is smuggling? under Sec. 3601 of the TCC and for violation of
other provisions in the TCC.
A: Any act of a person who shall:
1. fraudulently import or bring into the The phrase contrary to law in Sec. 3601 of the
Philippines, any article, contrary to law; or TCC qualifies the phrases imports or brings into
2. assist in so doing; or the Philippines and assists in so doing, and not
3. receive, conceal, buy, sell or in any the word article. The word law includes
manner facilitate the transportation, regulations having the force and effect of law,
concealment, or sale of such article after meaning substantive or legislative type rules as
importation, knowing the same to have opposed to general statements of policy or rules of
been imported contrary to law. (Sec. agency, organization, procedures or positions.
3601, TCC) (Jardeleza v. People of the Philippines,G.R. No.
165265, Feb. 06, 2006)
Note: The Philippines is divided into various ports of
entry. Entry in any place other than those ports will be Q: What needs to be proved before a person may
considered smuggling. be found guilty of smuggling?
Q: What are the elements of smuggling or illegal A:

importation? GR: Mere possession of the articles in question.
A: XPN: If defendant could explain that his

1. That the merchandise must have been possession is lawful.
fraudulently or knowingly imported
contrary to law;
TAXATION LAW TEAM:
Q: Is mere possession of the alleged smuggled Q: What properties are not subject to forfeiture in
goods enough evidence for the conviction of the absence of prima facie evidence?
smuggling?
A: The forfeiture of a vehicle, vessel or aircraft shall
A: Yes. After importation, the act of facilitating the not be effected if it is established that the owner
transportation, concealment or sale of the thereof or his agent in charge of the means of
unlawfully imported article must be with the conveyance used has no knowledge of or
knowledge that the article was smuggled. However, participation in an unlawful act.
if upon trial the defendant is found to have been in
possession of such article, this shall be sufficient to Q: When is there prima facie presumption of
authorize conviction unless the defendant explains knowledge of or participation in the unlawful act?
his possession to the satisfaction of the court.The
receipt, concealment, sale, purchase or the A:
facilitation thereof after the unlawful importation 1. If the conveyance has been used for
with the knowledge that the textile is smuggled smuggling at least twice before.
becomes punishable under Section 3601 of the 2. If the owner is not in the business for
Code. (Rodriguez v. CA, G.R. No. 115218, Sept. 18, which the conveyance is generally used.
1995) 3. If the owner is financially not in the
position to own such conveyance.
Q: What are contrabands?
Q: In smuggling a shipment of garlic, the smugglers
A: These are articles of prohibited importation or used an eight-wheeler truck which they hired for
exportation. (Sec. 3519, TCC) the purpose of taking out the shipment from the
customs zone. Danny, the truck owner, did not
Q: When are imported goods not considered as have a certificate of public convenience to operate
contrabands? his trucking business. Danny did not know that the
shipment of garlic was illegally imported. Can the
A: Imported goods must be entered into a Collector of Customs of the port seize and forfeit
customhouse at their port of entry, otherwise they the truck as an instrument in the smuggling?
shall be considered as contraband and the importer
is liable for smuggling. (Sec. 101, TCC) A: Yes, since the same was used unlawfully in the
importation of smuggled articles. The mere carrying
Q: What is port of entry? of such articles on board the truck (in commercial
quantities) shall subject the truck to forfeiture,
A: It is a domestic port open to both foreign and since it was not being used as a duly authorized
coastwise trade including airport of entry. (Sec. common carrier, which was chartered or leased as
3514, TCC). All articles imported into the Philippines such. (Sec. 2530 [a], TCC)
whether subject to duty or not shall be entered
through a customs house at a port of entry. Moreover, although forfeiture of the vehicle will
not be effected if it is established that the owner
Q: What are the things subject to confiscation in thereof had no knowledge of or participation in the
smuggling cases? unlawful act, there arises a prima facie presumption
or knowledge or participation if the owner is not in
A: the business for which the conveyance is generally
GR: Anything that was used for smuggling is used. Thus, not having a certificate of public
subject to confiscation, like the vessel, plane, convenience to operate a trucking business, he is
etc. (Llamado v. Commissioner of Customs, G.R. legally deemed not to have been engaged in the
No. L-28809, May 16, 1983). trucking business. (Sec. 2531, TCC) (1994 Bar
Question)
XPN: Common carriers which are not privately
chartered cannot be confiscated. Q: What are the requirements for customs
forfeiture of imported goods?
Note: Common carriers are generally not subject to
forfeiture except if the owner has knowledge of and A:
consented to its use in smuggling. Lack of personal 1. The wrongful making by the owner,
knowledge of the owner or carrier does not constitute importer, exporter or consignee of any
a valid defense in forfeiture cases. declaration or affidavit, or the wrongful
making or delivery by the same persons of

Facultad
SANTO TOMAS
any invoice, letter or paper - all touching 2. Overvaluation reporting values higher
on the importation or exportation of than the transaction value
merchandise.; 3. False invoice description through
2. That such declaration, affidavit, invoice, reporting lower qualities in the invoice not
letter or paper is false; and identifying branded items as such
3. An intention on the part of the 4. False country of origin
importer/consignee to evade the
payment of the duties due. (Republic, etc., Q: When can forfeiture be effected?
v. CTA, et al., G.R. No. 139050, Oct. 2,
2001) A:
1. Forfeiture shall be effected only when
Q: On January 30, 1972, the vessel S/S "Pacific and while the article is in the custody or
Hawk" arrived at the Port of Manila carrying, within the jurisdiction of the customs
among others, 80 bales of screen net consigned to authority;
Bagong Buhay Trading. Since the customs 2. In the hands or subject to the control of
examiner found the subject shipment reflective of importer/exporter, original owner,
the declaration, Bagong Buhay paid the duties and consignee, agent, or other person
taxes due in the amount of P11,350.00 which was effecting the importation entry or
paid through the Bank of Asia thereafter, the exportation;
customs appraiser made a return of duty. The 3. In the hands or subject to the control of
Collector of Customs determined the subject some person who shall receive, conceal,
shipment classifiable at 100% ad valorem. Thus, buy, sell or transport or aid in such acts
Bagong Buhay Trading was assessed P272, 600.00 with knowledge.
as duties and taxes due on the shipment in
question. Since the shipment was misdeclared as Q: May seizure be effected even outside the
to quantity and value, the Collector of Customs territorial limits of the Philippines (doctrine of hot
forfeited the subject shipment in favor of the pursuit)?
government.
A: Yes. A vessel loaded with contraband while in
Is the shipment in question subject to forfeiture? the high seas headed towards Tawi-tawi was
considered to have been lawfully seized. The
A: Although it cannot be denied that Bagong Buhay power of a nation to secure itself from injury may
caused to be prepared through its customs broker a be exercised beyond the territorial limits. (Asaali,
false import entry or declaration, it cannot be et al. v. Commissioner of Customs, G.R. No. L-
charged with the wrongful making thereof because 24170, Feb. 28, 1969)
such entry or declaration merely restated faithfully
the data found in the corresponding certificate of Q: What are the requisites of the Doctrine of Hot
origin,certificate of manager of the shipper, the Pursuit in TCC?
packing lists and the bill of ladingwhich were all
prepared by its suppliers abroad. If at all, the A:
wrongful making or falsity of the documents above- 1. Over vessels:
mentioned can only be attributed to Bagong a. Act is done in Philippines waters;
Buhay's foreign suppliers or shippers. With regard b. Act constitutes a violation of TCC;
to the second requirement on falsity, it bears c. Pursuit of such vessel began within
mentioning that the evidence on record, the jurisdictional waters:
specifically, the decisions of the Collector of i. Which may continue beyond
Customs and the Commissioner of Customs, do not the maritime zone;
reveal that the importer or consignee, Bagong ii. And the vessel may be seized
Buhay Trading had any knowledge of any falsity on on the high seas.
the subject importation. (Farolan, Jr. v. CTA, G.R.
No. 42204, Jan. 21, 1993) 2. Over imported articles:
a. There is violation of TCC;
Q: What are the types of valuation frauds? b. As a consequence, they may be
pursued in their transportation in
A: the Philippines by land, water or air;
1. Undervaluation reporting lower values c. Such jurisdiction over them at any
than the actual transaction value place therein as may be necessary
TAXATION LAW TEAM:
for the due enforcement of the law. same considering that the customs duties and the
(Sec 603, TCC) taxes had already been paid and the goods had
left the control and jurisdiction of the Bureau of
Q: State the Doctrine of Primary Jurisdiction of the Customs.
BOC (Doctrine of Exclusive Customs Jurisdiction
over customs cases.) 1. Did the Collector of Customs have jurisdiction
to issue the warrant of seizure and
A: The BOC has exclusive administrative jurisdiction detention?
to conduct searches, seizures and forfeitures of 2. Did the payment of customs duties, taxes,
contraband without the interference from the etc. render illegal and improper the issuance
courts. The BOC could conduct searches and of said warrant?
seizures without need of judicial warrant except if 3. Has the Regional Trial Court jurisdiction to
search is to be conducted in a dwelling place. hear and decide the civil case?
Q: What is the rationale behind the doctrine of A:

exclusive customs jurisdiction? 1. Yes because the importation has not yet
ended. This is so because the importation
A: The rule that the RTC has no power of review ends upon the issuance of a valid permit
over such proceedings is anchored upon: withdrawal. The fact that the goods were
1. The policy of placing no unnecessary not properly appraised negates the
hindrance on the governments drive, not issuance of a proper permit for
only to prevent smuggling and other withdrawal.
frauds upon Customs; but more 2. No. Until the correct duties and taxes
importantly, have been paid and the proper permits
2. To render effective and efficient the then customs authorities have the
collection of import and export duties authority to issue warrants for seizure
due the State, which enables the and detention.
government to carry out the functions it 3. No, for the following reasons:
has been instituted to perform. a. There should be no
unnecessary hindrance on the
Q: Sometime in September 1990, a shipment of governments drive to prevent
150 packages of imported goods and personal smuggling and other frauds
effects arrived and was unloaded at the Port of upon the Customs.
Manila. After the amount of P15,887.00 was paid b. To render effective and
by the consignee as custom duties, international efficient the collection of
revenue taxes, fees and other charges, the import and export duties due
packages were released from Manila Customs to the State which enables the
House. As the packages were being transported government to carry out the
from the customs area to their destination, the functions it has been instituted
truck carrying them was intercepted at TM Kalaw to perform.
St, Ermita, Manila by WPD-PNP personnel. In the c. The doctrine of primary
formal communication, WPD-PNP informed the jurisdiction. (1991 Bar
Collector of Customs that the packages were Question)
released from the customs zone without proper
appraisal to the damage of the government and Q: On January 7, 1989, the vessel M/V Star Ace
requested for the issuance of the necessary coming from Singapore loaded with cargo, entered
warrant of seizure. Seizure proceedings was then the Port of San Fernando, La Union for needed
instituted and the Collector of Customs issued a repairs. When the Bureau of Customs later
warrant of seizure and detention. During the became suspicious that the vessels real purpose in
process and while the goods were being removed docking was to smuggle cargo into the country,
by the customs agents from the bodega where seizure proceedings were instituted and
they were stored, the consignee filed a petition subsequently two Warrants of Seizure and
with the RTC of Manila asking that the Collector of Detention were issued for the vessel and its cargo.
Customs and all his agents be restrained from
enforcing the warrant aforesaid and from Mr. X does not own the vessel or any of its cargo
proceeding with the trial of seizure proceeding but claimed a preferred maritime lien. He then
and the said warrant be declared void since the brought several cases in the RTC to enforce his
Collector no longer has jurisdiction to issue the lien. Would these suits prosper ?

Facultad
SANTO TOMAS
A: No. The Bureau of Customs having first obtained A:

possession of the vessel and its goods has obtained 1. May seize any vessel, aircraft, cargo,
jurisdiction to the exclusion of the trial courts. article, animal or other movable property
when the same is subject to forfeiture or
When Mr. X has impleaded the vessel as a liable for any time as imposed under tariff
defendant to enforce his alleged maritime lien, in and customs laws, rules & regulations;
the RTC, he brought an action in rem under the 2. May exercise such powers only in
Code of Commerce under which the vessel may be conformity with the laws and provisions
attached and sold. of the TCC.
However, the basic operative fact is the actual or Q: On the basis of a warrant of seizure and
constructive possession of the res by the tribunal detention issued by the Collector of Customs for
empowered by law to conduct the proceedings. the purpose of enforcing the Tariff and Customs
This means that to acquire jurisdiction over the Laws, assorted brands of cigarettes said to have
vessel, the trial court must have obtained either been illegally imported into the Philippines were
actual or constructive possession over it. Neither seized from a store where they were openly
was accomplished by the RTC as the vessel was offered for sale. Dissatisfied with the decision
already in the possession of the Bureau of Customs. rendered after hearing by the Collector of
(Commissioner of Customs v. CA, et al., G. R. Nos. Customs on the confiscation of the articles, the
111202-05, Jan. 31, 2006) importer filed a petition for review with the CTA.
The Collector moved to dismiss the petition for
Q: Is a judicial search warrant necessary in case of lack of Jurisdiction.
customs search and seizures?
1. Rule on the motion.
A: No, it is one of the exceptions to the judicial 2. Under the same facts, could the importer file
warrant requirement under the Constitution. Under an action in the RTC for replevin on the
the Tariff and Customs Code, a search, seizure and ground that the articles are being wrongfully
arrest may be made even without a warrant for detained by the Collector of Customs since
purposes of enforcing customs and tariff laws. the importation was not illegal and therefore
(Rieta v. People, 436 SCRA 273, August 12, 2004) exempt from seizure?
Q: Who are the persons having police authority to A:

enforce tariff and customs laws? 1. Motion granted. The CTA has no jurisdiction
because there is no decision rendered by
A: the Commissioner of Customs on the
1. Officials of the Bureau, district collectors, seizure and forfeiture case. The taxpayer
police officers, agents, inspectors and should have appealed the decision
guests of the Bureau; rendered by the Collector within fifteen (15)
2. Officers of the Philippine Navy and other days from receipt of the decision to the
members of the AFP and national law Commissioner of Customs. The
enforcement agencies, when authorized Commissioners adverse decision would
by the Commissioner of Customs; then be the subject of an appeal to the CTA.
3. Officials of the BIR in cases falling within 2. No. The legislators intended to divest the
the regular performance of their duties, RTCs of the jurisdiction to replevin a
when payment of internal revenue taxes property which is a subject of seizure and
are involved; forfeiture proceedings for violation of the
4. Officers generally empowered by law to Tariff and Customs Code, otherwise, actions
effect arrests and execute processes of for forfeiture of property for violation of the
courts when acting under the direction of Customs laws could easily be undermined
the Collector. (Sec. 2203, TCC) by the simple device of replevin. (De la
Fuente v. De Veyra, et. al, 120 SCRA 455)
Note: All persons conferred with powers to enforce
tariff and customs laws may exercise the same at any There should be no unnecessary hindrance on
place within the jurisdiction of the Bureau of Customs. the government's drive to prevent smuggling
and other frauds upon the Customs.
Q: How may customs officers effect seizure and Furthermore, the Regional Trial Court do not
arrest? have jurisdiction in order to render effective
and efficient the collection of import and
TAXATION LAW TEAM:
export duties due the State, which enables the imported items displayed on the shop. Since MR
government to carry out the functions It has could not show any receipt, the custom agents
been Instituted to perform. (Jao v. CA, G.R. seized all the imported items displayed on the
No. 104604, October 6, 1995) (2000 Bar shop. Upon a tip by a disgruntled employee of the
Question) MR, the Customs agents preceded to the house of
MR at Sam Lorenzo Village in Makati. More
Q: What is required before a warrant of seizure untaxed imported electronics items were found
and detention may be issued? there. The customs agents also seized the same.
Discuss the legality of the seizure made by the
A: The Collector of Customs upon probable cause customs agents.
that the articles imported or exported, or are
attempted to be imported or exported are contrary A: The seizure conducted at MRs shop is valid
to the TCC. (Sec. 6, Title III, C.A.O. No. 9-93) because it is not a dwelling place. The Bureau of
Customs has jurisdiction to effect the seizure
Q: What may be the subject of customs search because importation has not yet ended, there being
and seizure? no showing that there was full payment of customs
duties. The seizure made at his house is invalid
A: because there was no warrant from a regular court.
1. Land or inclosure or any warehouse, (1990 Bar Question)
store or other building, not being a
dwelling house (Sec. 2208, TCC) Q: On January 1, 1996, armed with warrants of
2. Dwelling house (Sec. 2209, TCC) seizure and detention issued by the Bureau of
3. Vessels or aircrafts and persons or Customs, members of the customs enforcement
articles conveyed therein (Sec. 2210, TCC) and security services coordinated with the Quezon
4. Vehicles, beasts and persons (Sec. 2211, City police to search the premises owned by a
TCC) certain Mr. Ho along Kalayaan Avenue, Quezon
5. Persons arriving from foreign countries City, which allegedly contained untaxed vehicles
(Sec. 2212, TCC). and parts. While inside the premises, the member
of the customs enforcement and security services
Note: If the search and seizure is to be conducted in a noted articles which were not included in the list
dwelling place, then a search warrant should be issued contained in the warrant. Hence, on January 15,
by the regular courts not the Bureau of Customs. 1996, an amended warrant and seizure was issued.
On January 25, 1996, the customs personnel
No warrant is required to be issued by the Bureau of started hauling the articles pursuant to the
Customs or the regular courts in search and seizures of amended warrant. This prompted Mr. Ho to file a
motor vehicles and vessels since it is not practicable to case for injunction and damages with a prayer for
secure a warrant because vehicles can be quickly
a restraining order before the Regional Trial Court
moved out of the locality or jurisdiction in which the
of Quezon City against the Bureau of Customs on
warrabt must be sought.
January 27, 1996. On the same date, the trial court
Burden of proof in seizure or forfeiture is on the issued a temporary restraining order. A motion to
claimant. (Sec. 2535, TCC) dismiss was filed by the Bureau of Customs on the
ground that the RTC has no jurisdiction over the
Q: When can a dwelling house be searched? subject matter of the complaint claiming that it
was the Bureau of Customs that has exclusive
A: Only upon a warrant issued by a judge of the jurisdiction over it. Decide.
regular court and upon a sworn application showing
probable cause and particularly describing the A: The motion to dismiss should be granted. Seizure
places to be searched and person or thing to be and forfeiture proceedings are within the exclusive
seized. (Sec. 2209, TCCP) jurisdiction of the Collector of Customs to the
exclusion of regular Courts. RTCs are devoid of
Q: MR owns an electronic shop at Mile Long competence to pass upon the validity or regularity
Shopping Center in Makati. The shop sells various of seizure and forfeiture proceedings conducted by
imported items such as camera, television sets, the Bureau of Customs and to enjoin or otherwise
video cassette recorders, and similar items. In interfere with these proceedings (Republic v. CFI of
February 10, 1990, agents of the Commissioner of Manila, G.R. No. 43747, September 2, 1992; Jao v.
Customs visited the shop and asked that they be CA,G.R. No. 104604, October 6, 1995)
shown the official of Bureau of Customs receipts
evidencing payment of the duties and taxes on all

Facultad
SANTO TOMAS
Q: Can goods in the customs custody pending and taxes and compliance with all other legal
payment of customs duties be attached? requirements (Sec. 1508, TCC)
A: No. Goods in the customs custody pending Q: Discuss briefly the remedies of an importer
payment of customs duties are beyond the reach of during the pendency of seizure proceedings.
attachment. As long as the importation has not A: During the pendency of seizure proceedings the
been terminated, the imported goods remain importer may secure the release of the imported
under the jurisdiction of the Bureau of Customs. property for legitimate use by posting a bond in an
(Viduya v. Berdiago, G.R. No. L-29218, October 29, amount to be fixed by the Collector, conditioned
1976) for the payment of the appraised value of the
article and/or any fine, expenses and costs which
Q: What is a manifest? may be adjudged in the case; provided, that
articles the importation of which is prohibited by
A: It is a listing of the passengers or cargoes carried law shall not be released under bond.
by a vessel or aircraft, whether engaged in the
coastwise or foreign trade. The importer may also offer to pay to the collector
a fine imposed by him upon the property to secure
Q: When is a manifest required? its release or in case of forfeiture, the importer
shall offer to pay for the domestic market value of
A: A manifest in coastwise trade for cargo and the seized article, which offer subject to the
passengers transported from one place or port in approval of the Commissioner may be accepted by
the Philippines to another is required when one or the Collector in settlement of the seizure case,
both of such places is a port of entry (Sec. 906, TC). except when there is fraud. Upon payment of the
Manifests are also required of a vessel from a fine or domestic market value, the property shall
foreign port (Sec. 1005, TCC). be forthwith released and all liabilities which may
or might attach to the property by virtue of the
Q: Is manifest required only for imported goods? offense which was the occasion of the seizure and
all liability which might have been incurred under
A: No. Articles subject to seizure do not have to be any bond given by the importer in respect to such
imported goods. Manifests are also required for property shall thereupon be deemed to be
articles found on vessels or aircraft engaged in discharged. (1996 Bar Question)
coastwise trade. (Rigor v. Rosales, G.R. No. L-
33756, October 23, 1982)
Q: Is unmanifested cargo subject to forfeiture? FRAUDULENT PRACTICES
A: Yes. Unmanifested cargo is subject to forfeiture Q: What are the fraudulent practices considered as
whether the act of smuggling is established or not criminal offenses against Customs Revenue Laws?
under the principle of res ipsa loquitur. It is enough
that the cargo was unmanifested and that there A:
was no showing that payment of duties thereon 1. Unlawful importation;
had been made for it to be subject to forfeiture. 2. Entry of imported or exported article by
means of any false or fraudulent
Q: State the rule in settlement of forfeiture cases. practices, invoice, declaration, affidavit,
or other documents;
A: 3. Entry of goods at less than their true
GR: Settlement of cases by fine or redemption is weights or measures or upon a
generally allowed. classification as to quality or value;
4. Payment of less than the amount due;
XPNS: 5. Filing any false or fraudulent claim for the
1. The importation is absolutely prohibited; payment of drawback or refund of duties
2. The surrender of the property to the upon the exportation of merchandise; or
person offering to redeem would be 6. Filing any affidavit, certificate or other
contrary to law; or document to secure to himself or others
3. There is fraud. (Sec. 2307, TCC) the payment of any drawback, allowance
or refund of duties on the exportation of
Note: At any time prior to the sale, the delinquent merchandise greater than that legally due
importer may settle his obligations with the Bureau of thereon. (Sec. 3602, TCC)
Customs, in which case the aforesaid articles may be
delivered upon payment of the corresponding duties
TAXATION LAW TEAM:
Q: Does the acquittal in criminal charge in seizure

or forfeiture proceedings operate as res judicata?
Administrative Fines and Forfeitures
A: No, for the following reasons:
1. Criminal proceedings are actions in Q: When is administrative fine and forfeiture
personam while seizure or forfeiture availed of?
proceedings are actions in rem.
2. Customs compromise does not extinguish A: Only when the importation is unlawful and may
criminal liability. (People v. Desiderio, be exercised when the articles are no longer under
G.R. No. L-208005, Nov. 26, 1965) the custody of BOC unless the importation is
merely attempted in which case it may be effected
only while the goods are still within the jurisdiction
REMEDIES UNDER TCC of the BOC or in the hands of the person who is
aware thereof.
Remedies of the Government
Q: What are the remedies of the government? JUDICIAL
A: Q: When can judicial remedy of either civil or

1. Administrative criminal action be availed of?
a. Tax lien (Sec. 1204, TCC)
b. Compromise/reduction of customs A: It is availed of when the tax lien is lost by the
duties (Sec. 709, 2316, TCC) release of the goods. The government can seek
c. Seizure, search and arrest (Secs. payment of the tax liability through judicial action
2205, 2210, 2211, TCC) since the tax liability of the importer constitutes a
d. Administrative fines and forfeiture personal debt to the government
(Sec. 2530, TCC)
Q: The Collector of Customs of the Port of Cebu
2. Judicial issued warrants of seizure and detention against
a. Civil action (Sec 1204, TCC) the importation of machineries and equipment by
b. Criminal action LLD Import and Export Co. (LLD) for alleged
nonpayment of tax and customs duties in
violation of customs laws. LLD was notified of the
ADMINISTRATIVE. seizure, but, before it could be heard, the
Collector of Customs issued a notice of sale of the
Tax Lien articles. In order to restrain the Collector from
carrying out the order to sell, LLD filed with the
Q: When is tax lien availed of? CTA a petition for review with application for the
issuance of a writ of prohibition. It also filed with
A: Tax lien attaches on the goods regardless of the CTA an appeal for refund of overpaid taxes on
ownership while still in the custody of the its other importations of raw materials which has
Government and it is availed of when the been pending with the Collector of Customs. The
importation is neither prohibited nor improperly Bureau of Customs moved to dismiss the case for
made. lack of jurisdiction of the CTA:.
1. Does the CTA have jurisdiction over the

Reduction of Custom Duties petition for review and writ of prohibition?
Explain.
Q: When is reduction of customs duties availed 2. Will an appeal to the CTA for tax refund be
of? possible? Explain.
A: Subject to the approval of the Secretary of A:

Finance, the Commissioner of Customs may 1. No, because there is no decision as yet by the
compromise any case arising under this Code or Commissioner of Customs which can be
other laws or part of laws enforced by the Bureau appealed to the CTA. Neither the remedy of
of Customs involving the imposition of fines, prohibition would lie because the CTA has not
surcharges and forfeitures unless otherwise acquired any appellate jurisdiction over the
specified by law. (Sec. 2306, TCC) seizure case. The writ of prohibition being

Facultad
SANTO TOMAS
merely ancillary to the appellate jurisdiction, On the other hand, when the goods are
the CTA has no jurisdiction over it until it has properly released and thus beyond the reach
acquired jurisdiction on the petition for of tax lien, the government can seek payment
review. Since there is no appealable decision, of the tax liability through judicial action since
the CTA has no jurisdiction over the petition the tax liability of the importer constitutes a
for review and writ of prohibition. personal debt to the government, therefore,
(Commissioner of Customs v. Alikpala, G.R No. enforceable by action. In this case judicial
L-32542, 1970). remedy is normally availed of instead of the
administrative remedy. (1997 Bar Question)
2. No, because the Commissioner of Customs
has not yet rendered a decision on the claim
for refund. The jurisdiction of the REMEDIES OF THE TAXPAYER
Commissioner and the CTA are not concurrent
in so far as claims for refund are concerned. Q: What are the remedies of the taxpayer?
The only exception is when the Collector has
not acted on the protested payment for a long A:
time, the continued inaction of the Collector 1. Administrative
or Commissioner should not be allowed to a. Protest;
prejudice the taxpayer. (Nestle Philippines, b. Refund, drawback, abatement;
Inc. v. CA, G.R. No. 134114, July 6, 2001). c. Payment of fine or redemption;
(2002 Bar Question) d. Abandonment
e. Appeal to the Customs
Q: TCC allows the Bureau of Customs to resort to Commissioner
the administrative remedy of seizure, such as by
enforcing the tax lien on the imported article, and 2. Judicial
to the judicial remedy of filing an action in court. a. Appeal to the CTA;
b. Action to question the legality of
When does the Bureau of Customs normally avail seizure;
itself:
1. Of the administrative, instead of the judicial
remedy?
2. Of the latter, instead of the former remedy? ADMINISTRATIVE
A: Protest
1. The Bureau of Customs avails of the
administrative remedy of seizure if the Q: Who can make a protest and how is protest
imported article which is burdened by a lien made?
for the unpaid customs duties could still be
found. A:
1. Any importer or interested party - if
The Bureau of Customs normally avails itself dissatisfied with published value within
of the administrative remedy of seizure, such 15 days from date of publication or
as by enforcing the tax lien on the imported within 5 days from date the importer is
articles, instead of the judicial remedy when entitled to refund in case payment is
the goods to which the tax lien attaches, rendered erroneous or illegal by events
regardless of ownership, is still in the custody occurring after the payment.
or control of the Government. In the case,
however, of importations which are 2. Taxpayer - within 15 days from
prohibited or undeclared, the remedy of assessment. Payment under protest is
seizure and forfeiture may still be exercised by necessary.
the Bureau of Customs even if the goods are
no longer in its custody.
Q: Is protest an exclusive remedy?
2. If the imported article could no longer be
found, or if it has perished, then judicial action A: In all cases subject to protest, the interested
through an ordinary suit for the collection of party who desires to have the action of the
sum of money is then filed. Collector reviewed, shall make a protest, otherwise
TAXATION LAW TEAM:
the action of the collector shall be final and business within the zones; thus creating
conclusive against him. more employment opportunities and
infusing more dynamism to the vibrant
interplay of market forces. It is clear that
Refund, Drawback and Abatement Section 17(1) of EPZA Law considers such
supplies exempt even if they are used
Q: How is refund made? indirectly, as they had been in this case.
A: All claims for refund of duties shall be made in 2. No. The EPZA Law itself is silent on the
writing and forwarded to the Collector whom matter, and the prescriptive periods
duties are paid; and upon receipt of claim, the under the Tariff and Customs Code and
Collector shall verify the same through his records; other revenue laws are inapplicable, by
and shall certify to the Commission with his specific mandate of Section 17(1) of the
recommendations together with all necessary EPZA Law. Thus, the Civil Code provisions
papers and documents; and upon receipt by the on solutio indebiti may find application.
Commission, he shall cause the same to be paid if The Court has in the past sanctioned the
found correct. application of the provisions on solutio
indebiti in cases when taxes were
Q: Philippine Phosphate Fertilizer Corporation collected thru error or mistake. Thus, the
(Philphos), a domestic corporation engaged in the claim for refund must be commenced
manufacture and production of fertilizers for within six (6) years from date of payment
domestic and international distribution. It is pursuant to Article 1145(2) of the New
registered with the Philippine Export Zone Civil Code. (Commissioner of Customs v.
Authority (PEZA). The manufacture of fertilizers Philippine Phosphate Fertilizer
required Philphos to purchase fuel and petroleum Corporation, G.R. No. 144440, Sept. 1,
products for its machineries. These fuel supplies 2004)
are considered indispensable by Philphos, as they
are used to run the machines and equipment and Q: What is duty drawback?
in the transformation of raw materials into
fertilizer. Petron Corporation (Petron) was A: A device resorted to for enabling a commodity
Philphos supplier, which imports the same and affected by taxes to be exported and sold in foreign
pays the corresponding customs duties to the markets upon the same terms as if it had not been
Bureau of Customs; and, the ad valorem and taxed at all.
specific taxes to the BIR. When the fuel and
petroleum products are delivered at Philphos Q: What is abatement?
manufacturing plant, Philphos is billed by Petron
the corresponding customs duties imposed on A: It is the reduction or non-imposition of custom
these products. Effectively thus, Philphos duties on certain imported materials as a result of:
reimburses Petron for the customs duties on the 1. Damaged incurred during voyage;
purchased fuels and petroleum products which 2. Deficiency in contents of packages;
are passed on by the Petron as part of the selling 3. Loss or destruction of articles after arrival;
price. Philphos sought the refund of customs or
duties it had paid on the ground that Philphos is 4. Death or injury of animals.
entitled to tax incentives under Presidential
Decree No. 66 (EPZA Law). The Bureau of Customs
denied the claim for refund. Payment of Fine or Redemption
1. Is Philphos entitled to refund? Q: When is fine payable?

2. Has the claim for refund prescribed?
A:
A: GR: In case of settlement of any seizure.
1. Yes. The incentives offered to enterprises
duly registered with the PEZA consist, XPNs:
among others, of tax exemptions. The 1. When importation is absolutely
expectation is that the tax breaks prohibited;
ultimately redound to the benefit of the 2. If release would be contrary to law;
national economy, enticing as they do 3. When there is an actual and intentional
more enterprises to invest and do fraud.

Facultad
SANTO TOMAS
Abandonment
Q: What is abandonment? Administrative Appeal
A: Abandonment in customs is the renunciation by Q: To whom should appeal be filed and when?
an importer of all his interests and property rights
in the importer article. A: To the Commissioner, within 15 days after
notification by collector of his decision.
Q: How may abandonment be made?
A: Abandonment may be made expressly or JUDICIAL

impliedly.
Appeal
Q: When is abandonment express?
Q: To whom and when should appeal be filed?
A: When the owner, importer, consignee of the
imported article expressly signifies in writing and A: To the CTA, within 30 days from receipt of
under oath to the Collector of Customs his intention decision of the Commissioner of Customs or
to abandon his shipment in favor of the Secretary of Finance, as the case may be.
government. (Sec. 1801, TCC)
Q: Mr. X claiming to be the owner of a vessel
Q: When is abandonment implied? which is the subject of customs warrant of seizure
and detention sought the intercession of the RTC
A: to restrain the Bureau of Customs from interfering
1. By failure to file an import entry within 30 with his property rights over the vessel. Would the
days from the discharge of goods; or suit prosper?
2. Having filed an entry fails to claim within
15 days but it shall not be so effective A: No. The proper remedy is not with the RTC but
until so declared by the collector. (Sec. with the CTA. Issues of ownership of goods in the
1801, as amended by RA 7651) custody of customs officials are within the power of
the CTA to determine.
Q: What are the effects of abandonment?
The Collector of Customs has exclusive jurisdiction
A: over seizure and forfeiture proceedings and trial
1. Deemed to have renounced all interests courts are precluded from assuming cognizance
and property rights (Sec. 1801, TCC) over such matters even through petitions for
2. Ipso facto deemed the property of the certiorari, prohibition or mandamus. (Commissioner
government of Customs v. Court of Appeals, et al., G. R. Nos.
3. Disposed of in accordance with the TCC 111202-05, Jan. 31, 2006)
(Sec. 1802, TCC)
4. Shall not relieve the owner from criminal
liability which may arise in connection with
the importation (Sec. 1802, TCC)
Q: Does the trial court have jurisdiction to pass

upon and nullify the seizure of cargo and
declaration in abandonment proceedings?
A: No. The trial court is incompetent to pass upon

and nullity the seizure of cargo in the
abandonment proceedings and the declaration
made by the District Collector of Customs that the
cargo was abandoned and ipso facto owned by the
government. The trial court likewise has no
jurisdiction to resolve whether or not the importer
was the owner of the cargo before it was gutted by
fire. (RV Marzan Freight, Inc. v. CA, G.R. No.
128064, Mar. 04, 2004)
TAXATION LAW TEAM:
Q: Compare the taxpayer's remedies under the

National Internal Revenue Code and the Tariff and
Customs Code.
TAX REMEDIES
NIRC TCC
As to payment
Discrepancies in the form of
additional taxes are not Payment must first be
paid if contested effected
As to protest
There is no need for Payment under protest is
payment under protest required
As to who takes action in case of protest
Collector first takes action
Commissioner takes action before the Commissioner
Filing period in protest cases
Within 30 days from the At the time of payment or
receipt of assessment within 15 days thereafter
notice
Period within which to decide
Commissioner is given 180 No time period is allowed
days from receipt of within which the Collector
complete supporting must decide the case
documents.
As to automatic review
There is no automatic A decision of the Customs
review should the Commissioner against the
Commissioner decide Government is subject to an
against the Government automatic review by the
Secretary of Finance.

Facultad
SANTO TOMAS
TAXATION LAW TEAM:
Q: What are the importation procedures?
A:
Arrival at the Port of Entry
(Aircraft or Vessel of Foreign Trade)
Observance
of Entry to
Submission of Papers the Vessel
Passenger and Cargo Manifest, Cargo Storage Plan, Store List showing Store laden or Air Craft
Except those
entry by
necessity Unloading of Cargo
Within 30 days
from discharge
Entry into the Customs House of last package
(Filing of Import Entry)
Examination of Goods
Proper tariff Classification of goods
BOC Internal
Processes
Appraisal of Goods
Isssuance of Notice of Claim
Payment of Duties
Release of goods from the Bureau of Customs
Compliance Audit
Note:
Formal* and Informal Entry generally depending on the value (if the dutiable value is 2000 or less) or personal and
household effects, not in quantity for personal use
*under penalties of falsification or perjury
Submission of the bill of lading, commercial invoices and supporting documents to evidence quantity and dutiable value.
Liquidation of entries: may be tentative subject to future and final readjustment and settlement within a period of six
months from date of tentative liquidation or final.

Facultad
SANTO TOMAS
JUDICIAL REMEDIES Q: What constitutes a quorum in the CTA? How is

a decision reached?
COURT OF TAX APPEALS
A:
Q: What is the role of the judiciary in taxation? 1. For Sessions En Banc 4 justices shall
constitute a quorum. A decision is
A: The role of courts is limited to the application reached by the concurrence of 4
and interpretation of tax laws. The courts check members of the Court en banc.
abuses and injustices of the legislative and 2. For Sessions of a Division 2 justices shall
administrative agents of the State in the exercise of constitute a quorum and a decision is
the power of taxation. (1972 Bar Question) arrived at by the concurrence of 2
members of a division(Sec. 2, R.A. 9282).
Q: What is the rationale for the creation of the
CTA? Q: What if the required quorum in a division
cannot be constituted?
A: It was created to prevent delay in the disposition
of tax cases by the RTC, in view of the backlog of A: When the required quorum cannot be
civil, criminal and cadastral cases accumulating in constituted due to any vacancy, disqualification,
the dockets of such courts. In addition, it was inhibition, disability, or any other lawful cause, the
created to have a body with specialized knowledge presiding justice shall designate any justice of other
which ordinary judges of the RTC are not likely to divisions of the CTA to sit temporarily therein.
possess, thus providing for an adequate remedy for
a speedy determination of cases. Q: Enumerate the powers of the CTA:
Q: What is the nature and characteristics of the A: PCS2O2-RED

CTA? 1. To administer Oath ;
2. To receive Evidence;
A: 3. To summon witnesses by Subpoena;
1. It is a highly specialized body which 4. To require Production of papers or
reviews tax cases; documents by subpoena ducestecum;
2. Proceedings therein are judicial in nature; 5. To punish for Contempt for the same
3. Not bound by technical rules on evidence; causes under the same procedure and
4. Same level with that of the Court of with the same penalties provided for in
Appeals, possessing all the inherent the Rules of Court;
powers of a court of justice 6. To issue Order authorizing distraint of
personal property and levy of real
Q: What is the composition of the CTA? property;
7. To prescribe Rules and regulations for the
A: The CTA consists of a presiding justice and eight conduct of its business;
(8) associate justices appointed by the President 8. To assess Damages against the appellant
upon the nomination by the Judicial and Bar if the appeal to CTA is found to be
Council. (R.A. 9503) frivolous and dilatory;
9. To Suspend collection of tax pending
Q: How are proceedings before the CTA appeal;
conducted? 10. To render Decision on cases brought
before it.
A: The CTA may sit en banc or in three (3) Divisions,
each Division consisting of three (3) Justices. The Q: What are the significant changes under R.A.
presiding justice shall be the chairperson of the first 9503?
division and the 2 most senior associate justices
shall serve as chairpersons of the second and third A:
divisions, respectively. (Ibid.) 1. It enlarged the organizational structure of
the Court of Tax Appeals.
2. The number of justices was increased
from 6 to 9.
3. The divisions were also increased from 2
to 3.
TAXATION LAW TEAM:
Judicial Remedies
Q: State the expanded jurisdiction of the CTA. jurisdiction involving final and
executoryassessments for taxes, fees,
A: charges and penalties, where the
1. Exclusive original jurisdiction over criminal principal amount of taxes and penalties
cases arising from violations of the NIRC claimed is less than one million pesos;
or the Tariff and Customs Code and other
laws administered by the BIR and the BOC 2. criminal offenses arising from violations
where the principal amount of taxes and of the NIRC or the Tariff and Customs
penalties involved is P1 million or more Code and other laws administered by the
and appellate jurisdiction in lieu of the CA Bureau of Internal Revenue or Bureau of
over the Decisions of the RTC where the Customs
amount is less than P1 million;
2. Exclusive original jurisdiction over tax (b) Decisions, resolutions or orders on motions for
collection cases where the principal reconsideration or new trial of the Court in Division
amount of taxes and penalties involved if in the exercise of its exclusive original jurisdiction
P1 million or more and the appellate over :
jurisdiction over decisions of the RTC 1. tax collection cases
where the amount is less than P1 million; 2. involving criminal offenses arising from
3. Appellate jurisdiction over decisions of violations of the NIRC or the Tariff and
the RTC in local tax cases; and Customs Code and other laws
4. Appellate jurisdiction over decisions of administered by the Bureau of Internal
the Central Board of Assessment Appeals Revenue or Bureau of Customs;
over cases involving the assessment of
taxation of real property. (R.A. 9282) (c) Decisions, resolutions or orders of the RTC in
decided or resolved by them in the exercise of their
Q: What is the salient feature of R.A. 9282 appellate jurisdiction over:
regarding appeal? 1. local tax cases
2. tax collection cases
A: Decisions of the CTA are no longer appealable to 3. criminal offenses arising from violations
the CA. The decision of a division of the CTA may be of the NIRC or the Tariff and Customs
appealed to the CTA en banc, which in turn may be Code and other laws administered by the
appealed directly to the SC only on questions of Bureau of Internal Revenue or Bureau of
law. Customs
(d) Decisions of the Central Board of Assessment

JURISDICTION OF THE COURT OF TAX APPEALS Appeals (CBAA) in the exercise of its appellate
jurisdiction over cases involving the assessment and
Q: What are the cases within the jurisdiction of the taxation of real property originally decided by the
CTA en banc? provincial or city board of assessment appeals;(Sec.
2., Rule 4, A.M. No. 05-11-07-CTA).
A: The Court en banc shall exercise exclusive
appellate jurisdiction to review by appeal the A: The Court in Divisions shall exercise:
following: (a) Exclusive original or appellate jurisdiction to
review by appeal the following:
(a) Decisions or resolutions on motions for (1) Decisions of the Commissioner of
reconsideration or new trial of the Court in Internal Revenue
Divisions in the exercise of its exclusive appellate
jurisdiction over: (2) Inaction by the Commissioner of
1. (i) Cases arising from administrative Internal Revenue
agencies Bureau of Internal Revenue,
Bureau of Customs, Department of (3) Decisions, resolutions or orders of the
Finance, Department of Trade and RTC in local tax cases decided by them in
Industry, Department of Agriculture; the exercise of their original jurisdiction;
(ii) Local tax cases decided by the RTC in
the exercise of their original jurisdiction; (4) Decisions of the Commissioner of
and Customs in cases involving liability arising
(iii) Tax collection cases decided by the under the Customs Law or other laws
RTC in the exercise of their original administered by the Bureau of Customs;

Facultad
SANTO TOMAS
(5) Decisions of the Secretary of Finance 11-07-CTA).

on customs cases elevated to him
automatically for review from decisions of Q: Discuss the jurisdiction of the CTA as provided
the Commissioner of Customs adverse to for under R.A. 9282:
the Government under Section 2315 of 1. Exclusive appellate jurisdiction to review
the TCC; and by appeal
(6) Decisions of the Secretary of Trade 2. Jurisdiction over criminal offenses

and Industry, in the case of a. Exclusive original jurisdiction
nonagricultural product, commodity or b. Exclusive appellate jurisdiction
article, and the Secretary of Agriculture,
in the case of agricultural product, 3. Jurisdiction over tax collection cases
commodity or article, involving dumping a. Exclusive original jurisdiction
and countervailing duties under Section b. Exclusive appellate jurisdiction
301 and 302, respectively, of the TCC, and
safeguard measures under Republic Act A:
No. 8800, where either party may appeal 1. Exclusive appellate jurisdiction to review
the decision to impose or not to impose by appeal (DIRT- FC2)
said duties;
a. Decisions of the Commissioner on
(b) Exclusive jurisdiction over cases involving Internal Revenue in cases involving:
criminal offenses, to wit: DRO
(1) Original jurisdiction over all criminal i. Disputed assessments;
offenses arising from violations of the
NIRC or TCC and other laws administered Note: Ordinary courts have
by the BIR or the Bureau of Customs, jurisdiction over undisputed
where the principal amount of taxes and assessments.
fees, exclusive of charges and penalties,
claimed is 1 million pesos or more; and ii. Refunds of internal revenue
taxes, fees or other charges
(2) Appellate jurisdiction over appeals and penalties imposed
from the judgments, resolutions or orders thereto;
of the RTC in their original jurisdiction in iii. Other matters arising under
criminal offenses arising from violations NIRC or other laws
of the NIRC or TCC and other laws administered by the BIR.
administered by the BIR or Bureau of
Customs, where the principal amount of b. Inaction by the Commissioner of
taxes and fees, exclusive of charges and Internal Revenue in cases involving:
penalties, claimed is less than 1 million DRO
pesos or where there is no specified i. DIsputed assessments;
amount claimed; ii. Refunds of internal revenue
taxes, fees or other charges
(c) Exclusive jurisdiction over tax collections cases, and penalties imposed
to wit: thereto;
(1) Original jurisdiction in tax collection iii. Other matters arising under
cases involving final and executory NIRC or other laws
assessments for taxes, fees, charges and administered by the BIR,
penalties, where the principal amount of where the NIRC provides a
taxes and fees, exclusive of charges and specific period for action, in
penalties, claimed is 1 million pesos or which case the inaction shall
more; and be deemed a denial.
(2) Appellate jurisdiction over appeals c. Decisions, orders or resolutions of

from the judgments, resolutions or orders the Regional Trial Courtsin local tax
of the Regional Trial Courts in tax cases originally decided or resolved
collection cases originally decided by by them in the exercise of their
them within their respective territorial original or appellate jurisdiction.
jurisdiction. (Sec. 3., Rule 4, A.M. No. 05-
TAXATION LAW TEAM:
Judicial Remedies
d. Decisions of the Commissioner of than 1M or if there is no specified amount

Customs in cases involving: DSFO claimed, shall be tried by the regular courts the
i. Liability for customs Duties, CTAs jurisdiction shall be appellate.
fees or other money charges;
ii. Seizure, detention or release Despite any provision of law or of the Rules of
of property affected; Court, the criminal action and the corresponding
civil action for the recovery of the civil liability for
iii. Fines, forfeitures or other
taxes and penalties, shall at all times be
penalties in relation thereto;
simultaneously instituted with, and jointly
iv. Other matters arising under determined in the same proceeding by the CTA
Customs Law or other laws the filing of the criminal action is deemed to
administered by the Bureau necessarily carry with it the filing of civil action.
of Customs
Hence, no right to reserve the filing of such civil
e. Decisions of the Central Board of action separately from the criminal action will be
Assessment Appealsin the exercise of recognized.
its appellate jurisdiction over cases
involving the assessment and b. Exclusive appellate jurisdiction in
taxation of real property originally criminal offenses:
decided by the provincial or city
board of assessment appeals; i. Over appeals from the
judgments, resolutions or
f. Decisions of the Secretary of Finance orders of the RTC in tax cases
on custom cases elevated to him originally decide by them, in
automatically for review from their respective territorial
decisions of the Commissioner of jurisdiction.
Customs which are adverse to the
Government under Section 2315 of ii. Over petitions for review of the
the Tariff and Customs Code; judgments, resolutions or
orders of the RTC in the exercise
g. Decisions of the Secretary of Trade of their appellate jurisdiction
and Industry, in the case of non- over tax cases originally decided
agricultural product, commodity or by the Metropolitan Trial
article, and the Secretary of Courts, Municipal Trial Courts
Agriculture in the case of agricultural and Municipal Circuit Trial
product, commodity or article, Courts in their respective
involving dumping and jurisdiction.
countervailing duties under Sections
301 and 302, respectively of the 3. Jurisdiction over tax collection cases
Tariff and Customs Code, and
safeguard measures under RA 8800, a. Exclusive original jurisdiction in tax
where either party may appeal the collection cases involving final and
decision to impose or not to impose executory assessments for taxes,
said duties. fess, charges and penalties:
2. Jurisdiction over cases involving criminal Note: Collection cases where the principal
offenses amount of taxes and fees, exclusive of
a. Exclusive original jurisdiction over all charges, and penalties, claimed, is less than
criminal offenses arising from P1M shall be tried by the proper MTC,
i. Violations of the National Metropolitan Trial Court and RTC.
Internal Revenue Code(NIRC);
or b. Exclusive appellate jurisdiction in tax
ii. The Tariff and Customs collection cases:
Code(TCC) and
iii. Other laws administered by the i. Over appeals from the
Bureau of Internal Revenue(BIR) judgments, resolutions or
or the Bureau of Customs(BOC). orders of the RTC; in tax
collection cases originally
Note: If the principal amount of taxes and fees, decided by them, in their
exclusive of charges and penalties, claimed is less

Facultad
SANTO TOMAS
respective territorial b. The taxpayer requests for a

jurisdiction. reinvestigation and executes a waiver in
ii. Over petitions for review of the writing before the expiration of the
judgments, resolutions or period within which to assess or collect;
orders of the RTCs in the and
exercise of their appellate c. (c ) The taxpayer is out of the country or
jurisdiction over tax collection otherwise cannot be located (Sec. 194,
cases originally decided by the LGC)
Metropolitan Trial Courts,
Municipal Trial Courts and
Municipal Circuit Trial Courts, in CIVIL CASES
their respective jurisdiction.
Q: Who may appeal?
JUDICIAL PROCEDURES A: The party who may appeal are the following:
Judicial Action For Collection Of Taxes (a) A party adversely affected by a decision, ruling
or the inaction of the Commissioner of Internal
Local Taxes Revenue on disputed assessments or claims for
refund of internal revenue taxes, or by a decision or
Q: How does the LGU concerned enforce the ruling of the Commissioner of Customs, the
judicial remedy in collection of taxes? Secretary of Finance, the Secretary of Trade and
Industry, the Secretary of Agriculture, or a Regional
A: The LGU concerned may enforce the collection of Trial Court in the exercise of its original jurisdiction
delinquent taxes, fees, charges and other revenues may appeal to the Court by petition for review filed
by civil action in any court of competent within 30 days after receipt of a copy of such
jurisdiction. The civil action shall be filed by the decision or ruling, or expiration of the period fixed
local treasurer within five (5) years from delinquent by law for the Commissioner of Internal Revenue to
taxes, fees or charges become due. act on the disputed assessments. In case of inaction
of the Commissioner of Internal revenue on claims
Note: The local government files an ordinary suit for for refund of internal revenue taxes erroneously or
the collection of sum of money before the MTC, RTC or illegally collected, the taxpayer must file a petition
CTA depending upon the jurisdictional amount. for review within the two-year period prescribed by
law from payment or collection of the taxes.
Q: What are the prescriptive periods of
assessment and collection of local taxes? (b) A party adversely affected by a decision or
resolution of a Division of the Court on a motion for
Prescriptive Period for taxes, fees, or charges reconsideration or new trial may appeal to the
Assessment 5 years from date Court by filing before it a petition for review within
they became due fifteen days from receipt of a copy of the
Collection No action can be brought whether
questioned decision or resolution. Upon proper
administrative or judicial shall be
instituted after the expiration of the
motion and the payment of the full amount of the
period to access docket and other lawful fees and deposit for costs
before the expiration of the reglementary period
Note:In case of fraud or intent to evade the payment herein fixed, the Court may grant an additional
of taxes, fees, or charges, the same may be assessed period not exceeding fifteen days from the
within ten (10) years from discovery of the fraud or expiration of the original period within which to file
intent to evade payment (Sec. 194, LGC). the petition for review.
Q: What are the instances wherein the running of (c) A party adversely affected by a decision or ruling
the prescriptive period for assessment and of the Central Board of Assessment Appeals and the
collection of local taxes will be suspended? Regional Trial Court in the exercise of their
appellate jurisdiction may appeal to the Court by
A: The following are the instances that will suspend filing before it a petition for review within thirty
the running of the prescriptive period for days from receipt of a copy of the questioned
assessment and collection of local taxes: decision or ruling. (Sec. 3., Rule 8, A.M. No. 05-11-
a. The Treasurer is legally prevented from 07-CTA).
making the assessment or collection;
TAXATION LAW TEAM:
Judicial Remedies
Q: How is appeal made? A: Yes. Under Section 228 of the 1997 Tax Code, the
taxpayer had 30 days to appeal the denial of its
A: The venue and mode of appeal are the protest to the CTA. Since the denial of the
following: administrative protest on August 4, 2005, it had
until September 3, 2005 to file a petition for review
(a) An appeal from a decision or ruling or the before the CTA Division. It filed one, however, on
inaction of the Commissioner of Internal Revenue October 20, 2005, hence, it was filed out of time for
on disputed assessments or claim for refund of a motion for reconsideration of the denial of the
internal revenue taxes erroneously or illegally administrative protest does not toll the 30-day
collected, the decision or ruling of the period to appeal to the CTA. (Fishwealth Canning
Commissioner of Customs, the Secretary of Finance, Corporation v. CIR, G.R. 179343, Jan. 21, 2010)
the Secretary of Trade & Industry, the Secretary of
Agriculture, and the Regional Trial Court in the Q: What is the remedy of a party affected by a
exercise of their original jurisdiction, shall be taken ruling, decision, or ruling of a Division of the CTA?
to the Court by filing before it a petition for review
as provided in Rule 42 of the Rules of Court. The A: A party adversely affected by a ruling, order or
Court in Division shall act on the appeal. decision of a Division of the CTA may file a motion
for reconsideration or new trial before the same
(b) An appeal from a decision or resolution of the Division of the CTA within fifteen (15) days from
Court in Division on a motion for reconsideration or notice thereof.
new trial shall be taken to the Court by petition for
review as provided in Rule 43 of the Rules of Court. However in criminal cases, the general rule
The Court en banc shall act on the appeal. applicable in regular Courts on matters of
prosecution and appeal shall likewise apply.
(c) An appeal from a decision or ruling of the
Central Board of Assessment Appeals or the Q: What is the remedy of a party affected by a
Regional Trial Court in the exercise of their resolution of a Division of the CTA?
appellate jurisdiction shall be taken to the Court by
filing before it a petition for review as provided in A: A party adversely affected by a resolution of a
Rule 43 of the Rules of Court. The Court en banc Division of the CTA on a motion for reconsideration
shall act on the appeal. (Sec. 4., Rule 8, A.M. No. 05- or new trial, may file a petition for review with the
11-07-CTA). CTA en banc.
Note: The 30 day prescriptive period is jurisdictional. Q: How about the remedy of a party affected by a
decision or ruling of the CTA en banc?
Q: BIR issued a Final Assessment Notice of income
tax and VAT deficiencies to a taxpayer on August A: A party adversely affected by a decision or ruling
6, 2003 which the latter contested by letter of of the CTA en banc may file with the Supreme Court
September 23, 2003. The BIR thereafter issued a a verified petition for review on certiorari pursuant
Final Decision on Disputed Assessment (FDDA) to Rule 45 of the 1997 Rules of Civil Procedure.
dated August 2, 2005 which the taxpayer received
on August 4, 2005 denying the letter of protest Q: What is the effect of the perfection of an
and requesting the immediate payment thereof appeal?
inclusive of penalties incident to delinquency. It
added that if he disagrees, he may appeal to the A:
CTA within 30 days from date of its receipt GR: Appeal to the CTA shall not suspend
otherwise the deficiency income and value-added payment, levy, distraint and/or sale of any
taxes assessments shall become final, executory property of taxpayer for the satisfaction of his
and demandable. Instead of appealing to the CTA, liability.
the taxpayer filed a Letter of Reconsideration to
the BIR on September 1, 2005. By a Preliminary XPN: If in the opinion of the CTA, the collection
Collection Letter dated September 6, 2005, the BIR may jeopardize the interest of the government
demanded payment of the taxpayers liabilities and/or the taxpayer.
prompting him to file on October 20, 2005 a
Petition for Review before the CTA. In its Answer, In this case, collection may be suspended at any
BIR argued, among other things, that the petition stage of the proceeding but taxpayer shall be
was filed out of time. Is the argument of the BIR required either:
valid?

Facultad
SANTO TOMAS
1. To deposit (with the court) the amount In case of voluminous documents or long accounts
claimed; or the party who desires to introduce in such evidence
2. To file a surety bond (with the court) for must, upon motion and approval by the Court, refer
not more than double the amount of the the voluminous documents to an independent
tax due. Certified Public Accountant (CPA) for the purpose of
presenting: (1) a summary of the invoices or
Q: If there is a request or motion for receipts and the amount(s) of taxes paid and (2) a
reconsideration, what is the appealable decision? certification of the independent CPA attesting to
the correctness of the contents of the summary
A: It is the decision denying the request or motion. after making an examination, evaluation and audit
The filing of a civil action in court to collect a tax of voluminous receipts, invoices or long accounts
which was the subject of a pending protest in the (Sec. 5., Rule 12, A.M. No. 05-11-07-CTA).
BIR was a justifiable basis for the taxpayer to appeal
to the CTA and to move for the dismissal in the trial
court of the Governments action to collect the tax Motion for Reconsideration/ New Trial
under dispute. (Yabes v. Flojo, G.R. No. L-46954,
July 20, 1982) Q: Who and when to file a motion for
reconsideration or new trial?
Q: May the collection of taxes be enjoined?
A: Collection of taxes should not be enjoined except A: Any aggrieved party may seek a reconsideration
upon clear showing of a right to an exemption. or new trial of any decision, resolution or order of
Reason: Lifeblood theory. (Northern Lines Inc. v. CA, the Court. He shall file a motion for reconsideration
G.R. No. L-41376-77, June 29, 1988) or new trial within fifteen days from the date he
received notice of the decision, resolution or order
GR: Collection of internal revenue taxes and of the Court in question. (Sec. 1., Rule 15, A.M. No.
customs duties cannot be enjoined. 05-11-07-CTA).
XPN: CTA is empowered to suspend the collection Q: What are the grounds for filing a motion for
of internal revenue taxes and custom duties in new trial?
cases pending appeal only when:
A: A motion for new trial may be based on one or
(1) in the opinion of the court the collection by the more of the following causes materially affecting
BIR will jeopardize the interest of the government the substantial rights of the movant:
and/ or taxpayer; and
(2) the taxpayer is willing to deposit the amount (a) Fraud, accident, mistake or excusable negligence
being collected or to file a surety bond for more which ordinary prudence could not have guarded
than double the amount of the tax to be fixed by against and by reason of which such aggrieved
the court (Sec. 11, R.A. 1125). party has probably been impaired in his rights; or
(b) Newly discovered evidence, which he could not,

Taking of Evidence with reasonable diligence, have discovered and
produced at the trial and, which, if presented,
Q: How are evidence taken in the proceedings would probably alter the result.
before the CTA?
A motion for new trial shall include all grounds then
A: Evidence can be taken by a justice assigned to available and those not included shall be deemed
take evidence, the hearing before such justice shall waived (Sec. 5., Rule 15, A.M. No. 05-11-07-CTA).
proceed in all respects as though the same had
been made before the Courtor by a court official in Q: What is the effect of filing a motion for
default or ex parte hearings, or in any case where reconsideration or new trial?
the parties agree in writing, but the Court official
have no power to rule on objections to any A: The filing of a motion for reconsideration or new
question or to the admission of exhibits, which trial shall suspend the running of the period within
objections shall be resolved by the Court upon which an appeal may be perfected. (Sec. 4., Rule 15,
submission of his report and the transcripts within A.M. No. 05-11-07-CTA).
ten days from termination of the hearing (Sec. 3 &
4., Rule 12, A.M. No. 05-11-07-CTA). Note: No party shall be allowed to file a second motion
for reconsideration of a decision, final resolution or
order; or for new trial (Sec. 4., Rule 15, A.M. No. 05-11-
TAXATION LAW TEAM:
Judicial Remedies
07-CTA).
Q: Define undisputed assessments.
A pro forma request for reconsideration or one that
is directed to the Secretary of Finance, does not A: These are assessments that are already final and
suspend the period. collectible because the taxpayer failed to
seasonably protest the assessment within a period
of 30 days from receipt of the notice of assessment.
Appeal to CTA, en banc
Q: Will the CTA acquire jurisdiction even in the
Q: May a decision or resolution of the CTA in absence of a decision of the CIR or Commissioner
Division be appealable directly to the CTA En Banc of Customs?
in its exercise of its exclusive appellate
jurisdiction? A:
GR: CTA has jurisdiction only if there is a
A: No, the petition for review of a decision or decision of the Commissioner of Internal
resolution of the Court in Division must be Revenue or Commissioner of Customs.
preceded by the filing of a timely motion for
reconsideration or new trial with the Division. (Sec. XPNS:
1., Rule 8, A.M. No. 05-11-07-CTA). 1. If Commissioner of Customs has not
rendered a decision and the suit is about
to prescribe;
Petition for Review on Certiorari to the Reason: If the taxpayer waits, then his
Supreme Court right of action prescribes.
Q: Who may file an appeal to the Supreme Court 2. If the Commissioner of Internal Revenue
by petition for review on certiorari? has not acted in a refund case and the 2-
year prescriptive period is about to
A: A party adversely affected by a decision or ruling expire; or
of the Court en banc may appeal therefrom by filing Reason: The taxpayer would be left at
with the Supreme Court a verified petition for the mercy of the Commissioner, who
review on certiorari within 15 days from receipt of a by his delay leaves the taxpayer
copy of the decision or resolution, as provided in without any positive and expedient
Rule 45 of the Rules of Court. If such party has filed relief from the courts.
a motion for reconsideration or for new trial, the
period herein fixed shall run from the partys 3. Where the Commissioner of Internal
receipt of a copy of the resolution denying the Revenue has not acted upon a protested
motion for reconsideration or for new trial. (Sec. 1., assessment within 180 days from
Rule 16, A.M. No. 05-11-07-CTA). submission of all relevant documents
supporting the protest, the taxpayer
Q: What is the effect of the appeal? adversely affected by the inaction may
appeal to the CTA within 30 days from the
A: The motion for reconsideration or for new trial lapse of the 180 day period.
filed before the Court shall be deemed abandoned
if, during its pendency, the movant shall appeal to Q: Does the CTA have jurisdiction over dispute
the Supreme Court (Sec. 1., Rule 16, A.M. No. 05- between the Philippine National Bank (PNB) and
11-07-CTA). the BIR relative to deficiency withholding tax
assessment?
Q: Which court has jurisdiction over undisputed
assessments? A: Yes. Disputes, claims, and controversies falling
under section 7 of R.A. 1125, even though solely
A: Since it is an action for the collection of sum of among government offices, agencies, and
money, the CTA has exclusive original jurisdiction instrumentalities, including government owned or
over undisputed assessments when the amount controlled corporations, remain in the exclusive
involved is One Million (P1,000,00) or more. jurisdiction of the CTA. P.D. 242 which deals with
administrative settlement or adjudication of
However, where the amount is less then disputes, claims and controversies between or
P1,000,000, it is the RTC or the MTC that has among government offices, agencies and
jurisdiction, as the case may be ,depending on the instrumentalities, including government owned or
jurisdictional amount. controlled corporations, does not affect R.A. 1125,

Facultad
SANTO TOMAS
the law creating the CTA and defines its jurisdiction. not become final (Lascona Land Co. v. CIR, CTA Case
P.D. 242 is a general law while R.A. 1125 is a special No. 5777, January 4, 2000). (2006 Bar Question)
law therefore following the rule on the rule on
statutory construction, R.A. 1125 should prevail. It Q: In the investigation of the withholding tax
is the CTA and not the BIR which has jurisdiction to returns of AZ Medina Security Agency (AZ Medina)
settle or adjudicate BIRs assessment against PNB. for the taxable years 1997 and 1998, a discrepancy
(PNOC v. CA, G.R. no. 109976,April 26, 2005) between the taxes withheld from its employees
and the amounts actually remitted to the
Q: Is a simultaneous filing of the application with government was found. Accordingly, before the
the BIR for refund/credit and the institution of period of prescription commenced to run, the BIR
acourt suit for the same case with the CTA issued an assessment and a demand letter calling
allowed? for the immediate payment of the deficiency
withholding taxes in the total amount of P250,
A: Yes. There is no need to wait for a BIR denial. 000.00. Counsel for AZ Medina protested the
assessment for being null and void on the ground
Reasons: that no pre-assessment notice had been issued.
1. The positive requirement of Sec. 229, NIRC; However, the protest was denied. Counsel then
2. The doctrine that delay of the Commissioner filed a petition for prohibition with the Court of
in rendering decision does not extend the Tax Appeals to restrain the collection of the tax.
peremptory period fixed by the statute; Will the special civil action for prohibition brought
3. The law fixed the same period of 2 years for before the CTA under Sec. 11 of R.A, No. 1125
filing a claim for refund with the prosper? Discuss your answer.
Commissioner under Sec. 204 [C], NIRC of
1997, unlike in protests of assessments
A: The special civil action for prohibition will not
under Sec. 228, NIRC of 1997, which fixed
prosper, because the CTA has no jurisdiction to
the period (thirty days from receipt of
decision) for appealing to the Court, thus
entertain the same. The power to issue writ of
clearly implying that the prior decision of injunction provided for under Section 11 of RA 1125
the Commissioner is necessary to take is only ancillary to its appellate jurisdiction. The CTA
cognizance of the case. (CIR v. BPI, etc. et. is not vested with original jurisdiction to issue writs
al., CA G.R. SP No. 34102, Sept. 9, 1994) of prohibition or injunction independently of and
apart from an appealed case. The remedy is to
Q: On June 1, 2003, Global Bank received a final appeal the decision of the BIR. (Collector v. Yuseco,
notice of assessment from the BIR for deficiency L-12518, October 28, 1961). (2002 Bar Question)
documentary stamp tax in the amount of P5
Million. On June 30, 2003, Global Bank filed a Q: Mr. Abraham Eugenio, a pawnshop operator,
request for reconsideration with the after having been required by the Revenue District
Commissioner of Internal Revenue. The Officer to pay value added tax pursuant to a
Commissioner denied the request for Revenue Memorandum Order (RMO) of the
reconsideration only on May 30, 2006, at the same Commissioner of Internal Revenue, filed with the
time serving on Global Bank a warrant of distraint RTC an action questioning the validity of the RMO.
to collect the deficiency tax. If you were its If you were the judge, will you dismiss the case?
counsel, what will be your advice to the bank?
Explain. A: Yes. The RMO is in reality a ruling of the
Commissioner in implementing the provisions of
A: The denial for the request for reconsideration is the Tax Code on the taxability of pawnshops.
the final decision of the CIR. I would advise Global Jurisdiction to review rulings of the Commissioner is
Bank to appeal the denial to the CTA within 30 days lodged with the CTA and not with the RTC. (2006
from receipt. I will further advise the bank to file a Bar Question)
motion for injunction with the CTA to enjoin the
Commissioner from enforcing the assessment Q: The Collector of Customs of the Port of Cebu
pending resolution of the appeal. While an appeal issued warrants of seizure and detention against
to the CTA will not suspend the payment, levy, the importation of machineries and equipment by
distraint, and/or sale of any property of the LLD Import and Export Co. (LLD) for alleged
taxpayer for the satisfaction of its tax liability, the nonpayment of tax and customs duties in violation
CTA is authorized to give injunctive relief if the of customs laws. LLD was notified of the seizure,
enforcement would jeopardize the interest of the but, before it could be heard, the Collector of
taxpayer, as in this case, where the assessment has Customs issued a notice of sale of the articles. In
order to restrain the Collector from carrying out
TAXATION LAW TEAM:
Judicial Remedies
the order to sell, LLD filed with the Court of Tax granted by it on the basis that such collection will
Appeals a petition for review with application for jeopardize the interest of the taxpayer or the
the issuance of a writ of prohibition. It also filed Government (Pirovano v. CIR, 14 SCRA 832 [1965]).
with the CTA an appeal for refund of overpaid
taxes on its other importations of raw materials The CTA is empowered to suspend the collection of
which has been pending with the Collector of internal revenue taxes and customs duties in cases
Customs. The Bureau of Customs moved to dismiss pending appeal only when: (1) in the opinion of the
the case for lack of jurisdiction of the Court of Tax court the collection by the BIR will jeopardize the
Appeals. interest of the Government and/or the taxpayer;
and (2) the taxpayer is willing to deposit the
Does the Court of Tax Appeals have jurisdiction amount being collected or to file a surety bond for
over the petition for review and writ of not more than double the amount of the tax to be
prohibition? Explain. fixed by the court (Section 11, R.A. No. 1125). (2004
Bar Question)
A: No, because there is no decision as yet by the
Commissioner of Customs which can be appealed Q: A Co., a Philippine corporation, is the owner of
to the CTA. Neither the remedy of prohibition machinery, equipment and fixtures located at its
would lie because the CTA has not acquired any plant in Muntinlupa City. The City Assessor
appellate jurisdiction over the seizure case. The writ characterized all these properties as real
of prohibition being merely ancillary to the properties subject to the real property tax. A Co.
appellate jurisdiction, the CTA has no jurisdiction appealed the matter to the Muntinlupa Board of
over it until it has acquired jurisdiction on the Assessment Appeals. The Board ruled in favor of
petition for review. Since there is no appealable the City. In accordance with R.A: 1125 (An Act
decision, the CTA has no jurisdiction over the creating the CTA). A Co. brought a petition for
petition for review and writ of prohibition. review before the CTA to appeal the decision of
(Commissioner of Customs v. Alikpala, L-32542, 26 the City Board of Assessment Appeals. Is the
November 1970). Petition for Review proper? Explain.
Q: Will an appeal to the CTA for tax refund be A: No. The CTAs devoid of jurisdiction to entertain
possible? Explain appeals from the decision of the City Board of
Assessment Appeals. Said decision is instead
A: No, because the Commissioner of Customs has appealable to the CBAA, which under the Local
not yet rendered a decision on the claim for refund. Government Code, has appellate jurisdiction over
The jurisdiction of the Commissioner and the CTA decisions of Local Board of Assessment Appeals.
are not concurrent in so far as claims for refund are (Caltex Phil, Foe. v. Central Board of Assessment
concerned. The only exception is when the Appeals, L50466, May 31, 1982) (1999 Bar
Collector has not acted on the protested payment Question)
for a long time, the continued inaction of the
Collector or Commissioner should not be allowed to Q: A taxpayer received, on 15 January 1996 an as-
prejudice the taxpayer. (Nestle Philippines, Inc. v. sessment for an internal revenue tax deficiency.
CA, GR No. 134114, July 6, 2001). (2002 Bar On 10 February 1996, he forthwith filed a petition
Question) for review with the CTA could the Tax Court
entertain the petition?
Q: RR disputed a deficiency tax assessment and
upon receipt of an adverse decision by the A: No. Before a taxpayer can avail of judicial
Commissioner of Internal Revenue, filed an appeal remedy he must first exhaust administrative
with the CTA. While the appeal is pending, the BIR remedies by filing a protest within 30 days from
served a warrant of levy on the real properties of receipt of the assessment. It is the Commissioner's
RR to enforce the collection of the disputed tax. decision on the protest that gives the Tax Court
Granting arguendo that the BIR can legally levy on jurisdiction over the case provided that the appeal
the properties, what could RR do to stop the is filed within 30 days from receipt of the
process? Explain briefly. Commissioner's decision. An assessment by the BIR
is not the Commissioner's decision from which a
A: RR should file a motion for injunction with the petition for review may be filed with the CTA.
CTA to stop the administrative collection process. Rather, it is the action taken by the Commissioner
An appeal to the CTA shall not suspend the in response to the taxpayers protest on the
enforcement of the tax liability, unless a motion to assessment that would constitute the appealable
that effect shall have been presented in court and decision. (Sec. 7, RA 1125)

Facultad
SANTO TOMAS
move for dismissal in the RTC of the Government

Q: Under the above factual setting, the taxpayer, action to collect the tax liability under dispute.
instead of questioning the assessment he received (Yabes v. Flojo, 15 SCRA 278; San Juan v. Vasquez, 3
on 15 January 1996 paid, on 01 March 1996 the SCRA 92). There is no final, executory and
"deficiency tax" assessed. The taxpayer requested demandable assessment which can be enforced by
a refund from the Commissioner by submitting a the BIR, once a timely appeal is filed. (1999 Bar
written claim on 01 March 1997. It was denied. Question)
The taxpayer, on 15 March 1997, filed a petition
for review with the CA. Could the petition still be Q: A taxpayer received a tax deficiency assessment
entertained? of P1.2 Million from the BIR demanding payment
within 10 days; otherwise, it would collect through
A: No, the petition for review can not be summary remedies. The taxpayer requested for a
entertained by the CA, since decisions of the reconsideration stating the grounds therefor.
Commissioner on cases involving claim for tax Instead of resolving the request for
refunds are within the exclusive and primary reconsideration, the BIR sent a Final Notice before
jurisdiction of the CTA. (Sec. 7, RA1125) (1997 Bar Seizure to the taxpayer. May this action of the
Question) Commissioner of Internal Revenue be deemed a
denial of the request for reconsideration of the
Q: A Co., a Philippine corporation, received an taxpayer to entitle him to appeal to the CTA?
income tax deficiency assessment from the BIR on Decide with reasons.
May 5, 1995. On May 31, 1995, A Co. filed its
protest with the BIR. On July 30, 1995, A Co. A: Yes, the final notice before seizure was in effect
submitted to the BIR all relevant supporting a denial of the taxpayer's request for
documents. The CIR did not formally rule on the reconsideration, not only was the notice the only
protest but on January 25, 1996, A Co. was served response received, its nature, content and tenor
a summons and a copy of the complaint for supports the theory that it was the BIR's final act
collection of the tax deficiency filed by the BIR regarding the request for reconsideration. (CIR v.
with the RTC. On February 20, 1996, A Co. brought Isabela Cultural Corporation, G.R. No. 135210, July
a Petition for Review before the CTA: The BIR 11, 2001) (2005 Bar Question)
contended that the Petition is premature since
there was no formal denial of the protest of A Co. Q: Does the CTA have jurisdiction over an action to
and should therefore be dismissed. collect on a bond used to secure payment of
taxes?
Does the CTA have jurisdiction over the case?
A: An action filed by the Bureau of Customs against
A: Yes, the CTA has jurisdiction over the case a bonding company to collect on a bond used to
because this qualifies as an appeal from the secure payment of taxes is not a tax collection case
Commissioner's decision on disputed assessment. but rather a simple case for enforcement of a
When the Commissioner decided to collect the tax contractual liability. Hence, appellate jurisdiction
assessed without first deciding on the taxpayer's over the case properly lies with the Court of
protest, the effect of the Commissioners action of Appeals rather than the Court of Tax Appeals (Phil.
filing a judicial action for collection is a decision of British Assurance Co., Inc. v. Republic of the Phil.,
denial of the protest, in which event the taxpayer G.R. No. 185588 , Feb. 2, 2010).
may file an appeal with the CTA: (Republic v. Lim
TianTeng& Sons, Inc., 16 SCRA 584; Dayrit v. Cruz, L-
39910, Sept. 26, 1988). CRIMINAL CASES
Q: Has the RTC jurisdiction over the collection case Institution And Prosecution Of Criminal Actions
filed by the BIR? Explain.
Q: How are criminal actions instituted?
A: The RTC has no jurisdiction over the collection
case filed by the BIR. The filing of an appeal with A: All criminal actions before the Court in Division in
the CTA has the effect of divesting the RTC of the exercise of its original jurisdiction shall be
jurisdiction over the collection case. At the moment instituted by the filing of an information in the
the taxpayer appeals the case to the CTA in view of name of the People of the Philippines. In criminal
the Commissioner's filing of the collection case with actions involving violations of the National Internal
the RTC which was considered as a decision of Revenue Code and other laws enforced by the
denial, it gives a justifiable basis for the taxpayer to Bureau of Internal Revenue, the Commissioner of
TAXATION LAW TEAM:
Judicial Remedies
Internal Revenue must approve their filing. In the Rules of Court within fifteen days from receipt
criminal actions involving violations of the tariff and of a copy of the decision or resolution appealed
Customs Code and other laws enforced by the from. The Court may, for good cause, extend the
Bureau of Customs, the Commissioner of Customs time for filing of the petition for review for an
must approve their filing. (Sec. 2., Rule 9, A.M. No. additional period not exceeding fifteen days.
05-11-07-CTA). (c) An appeal to the Court in criminal cases decided
by the Regional Trial Courts in the exercise of their
Note: The institution of the criminal action shall appellate jurisdiction shall be taken by filing a
interrupt the running of the period of prescription. petition for review as provided in Rule 43 of the
(Ibid) Rules of Court within fifteen days from receipt of a
copy of the decision or final order appealed from.
Q: How are criminal actions prosecuted? The Court en banc shall act on the appeal (Sec. 9,
Rule 9, A.M. No. 05-11-07-CTA)
A: All criminal actions shall be conducted and
prosecuted under the direction and control of the Q: Who shall represent the People in the criminal
public prosecutor. In criminal actions involving action?
violation of the National Internal Revenue Code or
other laws enforced by the Bureau of Internal A: The Solicitor General shall represent the People
Revenue, and violations of the Tariff and Customs of the Philippines and government officials sued in
Code or other laws enforced by the Bureau of their official capacity in all cases brought to the
Customs, the prosecution may be conducted by Court in the exercise of its appellate jurisdiction. He
their respective duly deputized legal officers (Sec. may deputized the legal officers of the Bureau of
3., Rule 9, A.M. No. 05-11-07-CTA). Internal Revenue in cases brought under the
National Internal Revenue Code or other laws
Q: What is the rule on the Institution on civil enforced by the Bureau of Internal Revenue, or the
action in criminal action? legal officers of the Bureau of Customs in cases
brought under the Tariff and Customs Code of the
A: In cases within the jurisdiction of the Court, the Philippines or other laws enforced by the Bureau of
criminal action and the corresponding civil action Customs, to appear in behalf of the officials of said
for the recovery of civil liability for taxes and agencies sued in their official capacity: Provided,
penalties shall be deemed jointly instituted in the however, such duly deputized legal officers shall
same proceeding. The filing of the criminal action remain at all times under the direct control and
shall necessarily carry with it the filing of the civil supervision of the Solicitor General (Sec. 10, Rule 9,
action. No right to reserve the filing of such civil A.M. No. 05-11-07-CTA).
action separately from the criminal action shall be
allowed or recognized (Sec. 11, Rule 9, A.M. No. 05-
11-07-CTA) Petition for Review on Certiorari
to the Supreme Court
Appeal and Period to Appeal Q: Who may file an appeal to the Supreme Court
by petition for review on certiorari?
Q: How to appeal and what is the period to
appeal? A: A party adversely affected by a decision or ruling
of the Court en banc may appeal therefrom by filing
A: with the Supreme Court a verified petition for
(a) An appeal to the Court in criminal cases decided review on certiorari within 15 days from receipt of a
by a Regional Trial Court in the exercise of its copy of the decision or resolution, as provided in
original jurisdiction shall be taken by filing a notice Rule 45 of the Rules of Court. If such party has filed
of appeal pursuant to Sections 3(a) and 6, Rule 122 a motion for reconsideration or for new trial, the
of the Rules of Court within 15 days from receipt of period herein fixed shall run from the partys
a copy of the decision or final order with the court receipt of a copy of the resolution denying the
which rendered the final judgment or order motion for reconsideration or for new trial. (Sec. 1.,
appealed from and by serving a copy upon the Rule 16, A.M. No. 05-11-07-CTA).
adverse party. The Court in Division shall act on the
appeal.
(b) An appeal to the Court en banc in criminal cases

decided by the Court in Division shall be taken by
filing a petition for review as provided in Rule 43 of

Facultad
SANTO TOMAS
Q: What is the effect of the appeal? maintain an action in courts to restrain the unlawful
use of public funds to his injury cannot be denied."
A: The motion for reconsideration or for new trial (David vs. Macapagal-Arroyo, G.R. No. 171396, May
filed before the Court shall be deemed abandoned 3, 2006)
if, during its pendency, the movant shall appeal to
the supreme Court (Sec. 1., Rule 16, A.M. No. 05-11- Q: What are the requisites before a citizen may file
07-CTA). a taxpayers suit?
Q: What does other matters under the NIRC or A:

TCC Law mean? 1. That money is being extracted and spent
in violation of specific constitutional
A: The term other matters includes cases which protections against abuses of legislative
can be considered within the scope of the function power;
of the BIR and BOC by applying the ejusdem generis 2. That public money is being deflected to
rule (that is, such cases should be of the same any improper purpose; and
nature as those that have preceded them.) 3. That the petitioner seeks to restrain
respondents from wasting public funds
E.g.,Where a taxpayer has paid his taxes, but it through the enforcement of an invalid or
turns out that the payments were supported by unconstitutional law.
spurious or fake receipts and the BIR issued an
assessment notice to collect the amounts allegedly Note: However, the SC has discretion as to whether or
paid, the CTA would have jurisdiction. This is a not entertain a taxpayers suit and could brush aside
question that is related to a tax assessment. the lack of locus standi where the issues are of
(Benguet Corporation v. CIR, CTA Case No. 4795, transcendental importance in keeping with the courts
July 23, 1996). duty to determine that public offices have not abused
the discretion given to them. (Kilosbayan v. Guingona,
G.R. No. 113375, May 5, 1994)
TAXPAYERS SUIT IMPUGNING THE VALIDITY OF
TAX MEASURES OR ACTS OF TAXING AUTHORITIES Q: Through E.O. No. 30, the President created a
trust for the benefit of the Filipino People under
TAXPAYERS SUIT the name and style of the CCP. The trust was to
undertake the construction of a national theater
Q: What is a taxpayers suit? and music hall to awaken the nations
consciousness on cultural heritage and to
A: It is a case where the act complained of directly promote, preserve and enhance the same.
involves the illegal disbursement of public funds Pursuant thereto, CCPs Board of Trustees received
collected through taxation. foreign donations and financial commitments.
Petitioner, however, claims that in issuing E.O. No.
30, there was an encroachment by the President
Taxpayers Suit Distinguished From Citizens Suit on the legislatives prerogative to enact laws. The
trial court dismissed the petition on the ground
Q: How do you distinguish taxpayers suit from that Gonzales did not have the personality to
citizens suit? question the issuance of EO No. 30 since the funds
administered by the CCP came from donations,
A: In the former, the plaintiff is affected by the without a single centavo raised by taxation. Does
expenditure of public funds, while in the latter; he the petitioner have the personality to question the
is but the mere instrument of the public concern. validity of EO No. 30 based on a taxpayers suit?
Furthermore, as held by the New York Supreme A: No, Gonzales did not meet the requisite burden
Court in People ex rel Case v. Collins: "In matter of to warrant the reversal of the trial courts decision.
mere public right, howeverthe people are the real It was pointed out therein that one valid reason
partiesIt is at least the right, if not the duty, of why such an outcome was unavoidable was that
every citizen to interfere and see that a public the funds administered by the Center came from
offence be properly pursued and punished, and donations and contributions and not from taxation.
that a public grievance be remedied." Accordingly, there was the absence of the
pecuniary requisite or monetary interest. The stand
With respect to taxpayers suits, Terr v. Jordan held of the lower court finds support in judicial
that "the right of a citizen and a taxpayer to precedents. This is not to retreat from the liberal
approach followed in the earlier case of Pascual v.
TAXATION LAW TEAM:
Judicial Remedies
Secretary of Public Works, foreshadowed by People

v. Vera, where the doctrine was exhaustively
discussed. It is only to clarify that the Petitioner, Ripeness For Judicial Determination
judged by orthodox legal learning, has not satisfied
an element for a taxpayers suit. (Gonzales v. Q: What is the Doctrine of Ripeness for Review?
Marcos, G.R. No. L-31685, July 31, 1975)
A: This doctrine is the similar to that of exhaustion
of administrative remedies except that it applies to
Concept Of Locus Standi As Applied In Taxation the rule making and to administrative action which
is embodied neither in rules and regulations nor in
Q: When may a taxpayer's suit be allowed? adjudication or final order.
A: A taxpayer's suit may only be allowed when an Note: It is applicable when the Interest of the plaintiff
act complained of, which may include a legislative is subjected to or imminently threatened with
enactment, directly involves the illegal substantial injury; if the statute is Self-executing; when
disbursement of public funds derived from taxation a party is immediately confronted with the problem of
(Pascual v. Secretary of Public Works, 110 Phil. complying or violating a statute and there is a risk of
331).(1996 Bar Question) Criminal penalties; or when plaintiff is harmed by the
Vagueness of the statute.
Q: What is the Double Nexus Test?
A: It is a test utilized in determining whether a party

has standing as a taxpayer promulgated in the US
case of Flast v. Cohen. In order to be a proper party,
a person must:
1. Establish a logical link between his status

(as taxpayer) and the type of legislative
enactment concerned. He must sue on
the basis of an unconstitutional exercise
of congressional power under taxing and
spending clause in the articles of the
Constitution
2. Establish a nexus between his status (as
taxpayer) and the precise nature of the
constitutional infringement which he
alleges.
Doctrine Of Transcendental Importance
Q: What determines the principle of

Transcendental Importance?
A:The following determines the importance of

transcendental importance:
a. The character of the funds or other assets
involved in the case;
b. The presence of a clear case of disregard
of a constitutional or statutory prohibition
by the public respondent agency or
instrumentality of the government;
c. The lack of any other party with a more
direct and specific interest in raising the
questions being raised. (Francisco, Jr. v.
House of Representatives, G.R. No.
160261, Nov. 10, 2003)

Facultad
SANTO TOMAS
MATRIX OF CTA JURISDICTION
CTA: EXCLUSIVE APPELLATE JURISDICTION TO REVIEW BY APPEAL:

Decisions of the Commissioner on Internal Revenue in cases involving:
a. Disputed assessments;
b. Refunds of internal revenue taxes, fees or other charges and penalties imposed thereto;
c. Other matters arising under NIRC or other laws (under BIR).
Inaction by the Commissioner of Internal Revenue in cases involving:
a. Disputed assessments;
b. Refunds of internal revenue taxes, fees or other charges and penalties imposed thereto;
c. Other matters arising under NIRC or other laws (under BIR), where the NIRC provides a specific period for action, in
which case the inaction shall be deemed a denial.
Decisions, orders or resolutions of the Regional Trial Courtsin local tax cases originally decided or resolved by them in the
exercise of their original or appellate jurisdiction.
Decisions of the Commissioner of Customs in cases involving:
a. Liability for customs duties, fees or other money charges;
b. Seizure, detention or release of property affected;
c. Fines, forfeitures or other penalties in relation thereto;
d. Other matters arising under Customs Law or other laws (under BOC)
Decisions of the Central Board of Assessment Appealsin the exercise of its appellate jurisdiction over cases involving the
assessment and taxation of real property originally decided by the provincial or city board of assessment appeals;
Decisions of the Secretary of Finance on custom cases elevated to him automatically for review from decisions of the
Commissioner of Customs which are adverse to the Government under Section 2315 of the Tariff and Customs Code;
Decisions of the Secretary of Trade and Industry, in the case of non-agricultural product, commodity or article, and the Secretary
of Agriculture in the case of agricultural product, commodity or article, involving dumping and countervailing duties under
Sections 301 and 302, respectively of the Tariff and Customs Code, and safeguard measures under RA 8800, where either party
may appeal the decision to impose or not to impose said duties.
Decisions of the Secretary of Agriculture in the case of agricultural product, commodity or article, involving dumping and
countervailing duties under Secs. 301 and 302, respectively of the Tariff and Customs Code, and safeguard measures under RA
8800, where either party may appeal the decision to impose or not to impose said duties.
CTA: EXCLUSIVE ORIGINAL JURISDICTION:
Criminal Case/s: Civil Case/s:
1. Violations of: 1. Tax collection cases involving final and executory
a. NIRC, assessments for taxes, fees, charges and penalties
b. Tariff and Customs Code, where the principal amount of taxes and fees,
c. Other laws administered by BIR and BOC, exclusive of charges and penalties claimed is P1M and
where the principal amount of taxes and fees, exclusive above.
of charges and penalties claimed is P1M and above.
CTA: EXCLUSIVE APPELLATE JURISDICTION:
Criminal Case/s: Civil Case/s:
1. Violationsof : 1. Tax collection cases from judgments, resolutions or
a. NIRC orders of the RTC in tax cases originally decided by
b. Tariff and Customs Code, them.
c. Other laws administered by BIR and BOC
originally decided by the regular court where the
principal amount of the taxes is less than P1M or no
special amount claimed.
2. Judgments, resolutions or orders of the RTC in tax cases 2. Tax collection cases from judgments, resolutions or
originally decided by them. orders of the RTC in the exercise of its appellate
3. Judgments, resolutions or orders of the RTC in the exercise jurisdiction over tax cases originally decided by the
of its appellate jurisdiction over tax cases originally MeTC, MTC and MCTC.
decided by the MeTC, MTC and MCTC.
Q: What are the importation procedures?
TAXATION LAW TEAM:
Judicial Remedies
FLOWCHART MODE OF APPEAL
As to decision or ruling or inaction of the:

1. Commissioner of Internal Revenue; As to decision or ruling of the:
2. Commissioner of Customs; 1. Central Board of Assessment
3. Secretary of Finance; Appeals; and
4. Secretary of Trade and Industry; or 2. RTC in the exercise of its
5. Secretary of Agriculture appellate jurisdiction.
Appeal shall be made by filing a

PETITON FOR REVIEW under Rule 42 Appeal shall be made by filing a
of the Rules of Court with the CTA PETITON FOR REVIEW under Rule
within thirty (30) days after the receipt of 43 of the Rules of Court within thirty
such decision or ruling or after the (30) days after the receipt of such
expiration of the period fixed by law for decision or ruling or after the
action. A Division of the CTA shall hear expiration of the period fixed by law
the appeal. for action with the CTA, which shall
hear the case en banc
A party adversely affected by a ruling,

order or decision of a Division of the CTA
may file a MOTION FOR
RECONSIDERATION or NEW TRIAL
before the same Division of the CTA
within fifteen (15) days from notice
thereof
A party adversely affected by a resolution

of a Division of the CTA on a motion for
reconsideration or new trial, may file A
PETITION FOR REVIEW with the CTA
en banc.
A party adversely affected by a

decision or ruling of the CTA en
banc may file with the Supreme
Court a verified PETITION FOR
REVIEW ON CERTIORARI
pursuant to Rule 45 of the 1997
Rules of Civil Procedure.

Facultad
SANTO TOMAS

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NATIONAL INTERNAL REVENUE CODE OF 1997

10. Donation to the National Social Action VALUE-ADDED TAX

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

A: A: VAT is merely added as part of the purchase

Q: Define taxable transactions under the VAT law. A:

TAXATION LAW TEAM:

A: Under this doctrine, goods and services are taxed

Characteristics of VAT Q: Is there any exception to the destination

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

A: Q: Who is a VAT-exempt person?

TAXATION LAW TEAM:

regardless of their annual gross sales (but A:

He should register as a VAT-exempt person unless he

Q: What is gross selling price? A:

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

These sales are zero-rated or subject to a tax rate of

A: Note: Section 149 refers to excise tax on automobiles.

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

Transactions Deemed Sale A:

TAXATION LAW TEAM:

Q: What is the consequence if a tax exempt person

Q: What is meant by service?

Q: What does the phrase sale or exchange of A:

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

4. Services rendered to persons engaged in

ZERO-RATED Sale of Service VAT EXEMPT TRANSACTIONS

Q: What are the zero-rated services? Q: What are VAT-exempt transactions?

A: A: It involves goods or services which, by their

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

3. Importation a. Lease of a residential unit with a monthly

TAXATION LAW TEAM:

thereafter, the amount herein stated shall

Summary of rules: A: The input tax evidenced by a VAT invoice or

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

A: It operates to benefit newly VAT-registered

Q: What is presumptive input tax credit? Determination of Input Tax Creditable

a. Cash/deferred basis Public instrument (i.e.,

Public instrument and

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

TAXATION LAW TEAM:

COMPLIANCE REQUIREMENTS A: The following are exempted from payment of

A: Once. A: He shall register each type of internal revenue

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

as a VAT-registered person who shall be assigned Q: When is the cancellation effective?

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

TAXATION LAW TEAM:

income of which has XPNs:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

within 30 days after each transaction A:

A: This means that although Sec. 71 of the NIRC Corporate Returns

TAXATION LAW TEAM:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF

TAXATION LAW TEAM:

Note: Real property, motor vehicle, shares of stocks XPN:

ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II UNIVERSITY OF