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Taxation is the process or means by which the The three principles that characterize a sound tax
sovereign, through its lawmaking body, raises income to system are the principles of fiscal adequacy, theoretical
defray the necessary expenses of the government. justice and administrative feasibility.
The primary purpose is to generate funds for the The principle of fiscal adequacy simply means that
State to finance the needs of the citizenry and to advance sources of revenues must be adequate to meet
the common weal.1 government expenditures. The principle of equality or
theoretical justice means that the tax imposed must be
Taxation is both an inherent power and a legislative proportionate to taxpayers ability to pay. The principle of
power. The power of taxation is an essential and administrative feasibility requires that the tax system
inherent2 attribute of sovereignty, belonging as a matter should be capable of being effectively administered and
of right to every independent government without being enforced with the least inconvenience to the taxpayer.
expressly granted by the people.3
Does non-observance of administrative feasibility, as a
Explain briefly the theory and basis of taxation. principle of sound tax system, invalidate a tax
imposition?
The power to tax is an attribute of sovereignty
emanating from necessity.4 Taxation is described as a No, it will not render a tax imposition invalid except
symbiotic relationship whereby in exchange of the to the extent that specific constitutional (or statutory
benefits and protection that the citizens get from the limitations in the case of local taxation) are impaired.9
government, taxes are paid.5
Distinguish tax from license fee.
How are statutory provisions granting tax exemptions
or deductions construed? State the basis for the rule. Tax may be distinguished from license fee as follows:
1Napocor
No. A tax is imposed under the taxing power of the
vs. Province of Albay, G.R. No. 87479, 4 June 1990.
2MCQ No. 4, 2012 Bar. government principally for the purpose of raising
3Pepsi Cola Bottling Co. of the Philippines, Inc. vs. Municipality of revenues to fund public expenditures. Toll fees, on the
Tanauan, Leyte, G.R. No. L-31156, 27 Feb 1976. other hand, are collected by private tollway operators as
4Phil. Guaranty Co. Inc. vs. Commissioner of Internal Revenue, G.R. No. L-
reimbursement for the costs and expenses incurred in
22074, 30 April 1965); MCQ No. 3, 2012 Bar.
5CIR vs. Algue, Inc., G.R. No. L-28896, 17 Feb 1988.
6Radio Communications of the Philippines, Inc. (RCPI), vs. Provincial 8LaSuerteCigar& Cigarette Factory vs. CA, G.R. No. 125346, November
Assessor of South Cotabato, 456 SCRA 1. 11, 2014, EN BANC) citing Maceda v. Macaraig, Jr., 274 Phil. 1060 (1991).
7Quezon City vs. ABS-CBN Broadcasting Corporation, 567 SCRA 496. 9Diaz vs. Secretary.G.R. No. 193007, 19 July 2011.
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the construction, maintenance and operation of the true to government officials with respect to matters not
tollways, as well as to assure them a reasonable margin of their own personal concern.15
of income. Although toll fees are charged for the use of
public facilities, therefore, they are not government The cigarette manufacturers contend that for a long
exactions that can be properly treated as a tax.10 time prior to the transactions herein involved, the
Collector of Internal Revenue had never subjected
Give the sources of tax law. their purchases and importations of stemmed leaf
tobacco to excise taxes. This prolonged practice
The sources of tax laws are: (a) Constitution; (b) allegedly represents the official and authoritative
statutes or laws; (c) presidential decrees; (d) revenue interpretation of the law by the Bureau of Internal
regulation; (e) administrative rulings and opinions; (f) Revenue which must be respected.
judicial decisions; (g) provincial, city, municipal and
barangay ordinances; and (h) treaties or international HELD: In Philippine Long Distance Telephone Co. v.
agreements. Collector of Internal Revenue, the[Supreme Court] has
held that this principle is not absolute, and an erroneous
What is meant by progressive taxation and what is its implementation by an officer based on a
basis? misapprehension of law may be corrected when the true
construction is ascertained. x x xProlonged practice of
Taxation is progressive when its rate goes up the Bureau of Internal Revenue in not collecting the
depending on the resources of the person affected. It is specific tax on stemmed leaf tobacco cannot validate
built on the principle of the taxpayers ability to pay. what is otherwise an erroneous application and
enforcement of the law. The government is never
What is double taxation? Is it unconstitutional? estopped from collecting legitimate taxes because of the
error committed by its agents.16
Double taxation11 means taxing the same property
twice when it should be taxed only once, that is, taxing B. INCOME TAXATION
the same person twice by the same jurisdiction for the
same thing.12
B.1. Basic Concepts
Double taxation is not expressly forbidden in our
Constitution, but the Court has recognized it as
obnoxious where the taxpayer is taxed twice for the What is income?
benefit of the same governmental entity or by the same
jurisdiction for the same purpose.13 Income means all the wealth which flows into the
taxpayer other than a mere return on capital. It is gain
How is the plaintiff in a taxpayers suit differentiated derived and severed from capital.
from the plaintiff in a citizens suit?
What are the requisites in order that income may be
The plaintiff in a taxpayers suit is in a different taxable?
category from the plaintiff in a citizen's suit in the
former, the plaintiff is affected by the expenditure of For income to be taxable, the following requisites
public funds, while in the latter, he is but the mere must exist:
instrument of the public concern.14
(a) there must be gain;
It has been said that the State can never be in estoppel, (b) the gain must be realized or received and
and this is particularly true in matters involving (c) the gain must not be excluded by law or treaty
taxation. Explain the philosophy behind the fromtaxation. (Commissioner of Internal Revenue v.
government's exception, as a general rule, from the Court of Appeals, G.R. No. 108576, 20 January
operation of the principle of estoppel. 1999, 301 SCRA 152, 181; BIR vs. CA, G.R. No.
160756, 9 March 2010)
The underlying basis is the lifeblood theory.
When is income considered realized?
Upon taxation depends the Governments ability to
serve the people for whose benefit taxes are collected. To For income tax purposes, income is realized when
safeguard such interest, neglect or omission of the earning process is complete or virtually complete
government officials entrusted with the collection of and an exchange has taken place. (Question No. 32, 2011
taxes should not be allowed to bring harm or detriment Bar)
to the people, in the same manner as private persons
may be made to suffer individually on account of his What are the sources of income?
own negligence, the presumption being that they take
good care of their personal affair. This should not hold
15Misael P. Vera, et al. vs. Jose F. Fernandez, et al., G.R. No. L-31364,
10Ibid. March 30, 1979; Atlas Consolidated Mining & Development Corp. vs.
11MCQ No. 1, 2012 Bar; MCQ No. 3, 2013 Bar; MCQ No. 22, 2014 Bar. Commissioner of Internal Revenue, G.R. No. L-26911, January 27, 1981; La
12Commissioner of Internal Revenue vs. Bank of Commerce, 459 SCRA 638. Suerte Sugar & Cigarette Factory vs. CA, G.R. No. 125346, 11 November
13AbakadaGuro Party List vs. Ermita, supra. 2014, EN BANC.
14David vs. Macapagal-Arroyo, 489 SCRA 160. 16La Suerte Cigar, supra.
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What are incomes considered derived from sources Is the compensation for the services of Single Star
within the Philippines? taxable as income from sources within the Philippines?
Explain.
Sec. 42(A) of the Tax Code enumerates the items of
gross income from sources within the Philippines, Suggested Answer:
namely:
The compensation income received by Single Star
(a) Interests17paid by residents of the Philippines, came from sources outside the Philippines because the
corporate or otherwise; services were performed outside the Philippines.
(b) Dividendspaid by domestic Consequently, it is not taxable in the Philippines because
corporations;orforeign corporations18,at least 50% a foreign corporation, like Single Star, is taxable only on
of theirgross income in the last three taxable incomes derived from sources within the Philippines.
years coming from sources within the (Sections 23 and 42C3, NIRC)
Philippines.
(c) Compensation19for services performed in the Who are the income taxpayers?
Philippines;
(d) Rentals and royalties20 from properties located in In general, the income taxpayers are classified into
the Philippines; individual, estate, trust and corporation. (Sec. 22A,
(e) Gains from sale of real properties21 located in the NIRC)
Philippines; and
(f) Gains from sale of personal properties 22, the sale Differentiate global system of taxation from schedular
taking place in the Philippines. 23 system of taxation.
What determines the source of the incomes enumerated Under the global tax system, the tax treatment is
in Sec. 42 of the NIRC? common to all categories of income. Thus, there is no
need to classify income. The rate applied is unitary but
may be progressive as in individuals or flat as in
17 Questions 31, 48, 2011 Bar.
18 Questions 21, 31, 48, 2011 Bar. corporate taxpayers. Under this system, all incomes are
19 Questions 6 and 7, 2012 Bar; Question XI, 2014 Bar. reported in one income tax return.
20 Question 31, 2011 Bar.
21 Question 31, 2011 Bar.
22 Questions 21, 48, 2011 Bar.
23But when the seller is also the manufacturer, the gain is treated as
partly from within and partly from without where place of 24Subject
to the qualification in case the seller is at the same time the
manufacture is different from place of sale. manufacturer. See Note 21.
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Whereas, under the schedular tax system, the tax (b) In the former, deductions and personal or
treatment varies according to the kind or category of the additional exemptions are allowed; in the latter,
income. There is therefore a need to classify the incomes. no such deductions and personal or additional
Different rates are applied to the different kinds of exemptions are allowed;
income. Consequently, a different return is filed for each (c) The tax base of the former is computed on the
kind of income subject to the tax. basis of one taxable year; the tax base of the
latter is usually computed on a per transaction
What system of taxation was adopted under the NIRC basis;
on income taxation? (d) The former is usually paid at the end of the
taxable year; the latter is paid at source (through
Under the Philippine tax system, the global system withholding);
is adopted in ordinary taxation whereas the schedular (e) In the former, liability for payment rests on the
system is usually found in the application of final taxes. payee; in the latter, liability for payment rests on
the payor;
The NIRC adopted a semi-global and semi- (f) In the former, the payee is required to file an
schedular tax system. (MCQ No. 5, 2012 Bar) income tax return; in the latter, the payee is no
longer required to file the return since it is to be
made by the payor;
B.2 Individual Income Taxation (g) Creditable withholding tax is, in certain cases,
imposed on incomes subject to ordinary tax;
final withholding tax is usually imposed on
Who are the individual income taxpayers? incomes subject to final tax.
They are the resident citizen, nonresident citizen, Distinguish final withholding tax from creditable
OCW and seamen, resident alien (Sec. 24A) and non- withholding tax.
resident alien engaged in trade/business or exercise of
profession25 in the Philippines (Sec. 25A). The two may be distinguished as follows:
tax, and (3) to improve the governments Income payment to realtors for the sale of realty. (Sec. 79,
cashflow.(CREBA vs. Romulo, 9 March 2010) NIRC and Sec. 2.57.2 of RR No 2-98, as amended)
In case of failure by the withholding agent to perform What is the proper tax treatment of interest incomes
his duty to withhold and remit tax, is the taxpayer earned by individuals?
absolved of liability?
As a rule, the interests earned by individuals shall
[T]he liability of the withholding agent is be included in gross income and, thus, subject to regular
independent from that of the taxpayer. The former income tax. This includes interest earned by a resident
cannot be made liable for the tax due because it is the citizen from sources abroad.
latter who earned the income subject to withholding tax.
The withholding agent is liable only insofar as he failed By way of exception, interest on bank deposit (or
to perform his duty to withhold the tax and remit the monetary benefit from deposit and from trust funds
same to the government. The liability for the tax, substitutes or similar arrangements) DERIVED FROM
however, remains with the taxpayer because the gain SOURCES WITHIN shall be subject to final tax and,
was realized and received by him. x xx [The taxpayer] correspondingly, final withholding tax. The rate of tax is
remains liable for the payment of tax as [he] shares the 20% for Peso currency deposit account and 7.5% for any
responsibility of making certain that the tax is properly foreign currency deposit account. (Sec. 24B1, NIRC)
withheld by the withholding agent, so as to avoid any
penalty that may arise from the non-payment of the What is meant by 'deposit substitutes'?
withholding tax due.27
The term means an alternative form of obtaining
What is passive income?28 funds from the public (the term 'public' means
borrowing from twenty (20) or more individual or
It is income generated by the taxpayers assets. The corporate lenders at any one time) other than deposits.
BIR defines passive income by stating what it is not: if (Sec. 22Y, NIRC)
the income is generated in the active pursuit and
performance of the corporations primary purposes, the What determines whether a debt instrument is subject to
same is not passive income.29 final tax at 20%?
Are all passive incomes subject to withholding tax? The number of lenders is determinative of whether
a debt instrument, such as bonds, should be considered
No. There are only certain kinds of passive income a deposit substitute and consequently subject to the 20%
that are subject to final tax and, consequently, to final final withholding tax.
withholding tax. These are specifically enumerated in
various provisions of the NIRC (see Sec. 57A, NIRC). All Thus, when funds are simultaneously obtained from
others are generally considered part of gross income 20 or more lenders/investors, there is deemed to be a
and, consequently, subject to ordinary tax wherein public borrowing and the bonds at that point in time are
creditable withholding tax is, in particular cases, deemed deposit substitutes. Consequently, the seller is
applicable. Under present regulations, creditable required to withhold the 20% final withholding tax on
withholding tax is usually applied to income payments the imputed interest income from the bonds. (See BDO v.
not involving passive income. Republic, G.R. No. 198756, 13 January 2015)
NOTE: From the above, it is clear that not only passive 20 or more lender rule and meaning of the phrase "at any
incomes may be subject to withholding tax. Section one time"
57(A) of the NIRC expressly states that final tax can be
imposed on certain kinds of income and enumerates The reckoning of 20 or more lenders/investors is
these as passive income. On the other hand, Section made at any transaction in connection with the purchase
57(B) provides that the Secretary (of Finance) can require or sale of financial assets, such as subsequent sale or
a CWT on income payable to natural or juridical trading by a bondholder to another lender/investor in
persons, residing in the Philippines. There is no the secondary market usually through a broker or
requirement that this income be passive income. If that dealer.31
were the intent of Congress, it could have easily said
so.30 What is the tax treatment of debt instruments that do
not qualify as deposit substitutes under the 1997
Give some examples of ordinary incomes subject to National Internal Revenue Code?
CWT.
They are subject to the regular income tax.
Some notable income payments that are subject to
CWT are (1) wages; (2) professional fees, (3) rentals of Instances when the tax on interests from bank deposits
realty, (4) Income payments to partners of GPPs and (5) is not applicable
(b) when earned by non-residents from foreign EXCLUSION and, hence, exempt from tax (Sec.
currency deposit accounts; and 32B7c, NIRC)
(c) when earned from long-term deposit or (d) when the prize or award is won by an athlete in
investment certificate (with a maturity period of a local or international sports competition (i.e.,
not less than five (5) years) the OLYMPICS) sanctioned by a recognized
national sports association; This is considered an
The Bureau of Treasury (BOT) issued P35 billion worth EXCLUSION and, hence, exempt from tax. (Sec.
of 10-year zero-coupon treasury bonds denominated as 32B7d, NIRC)
the Poverty Eradication and Alleviation Certificates or
the PEACe Bonds. The transactions executed for the sale What is capital asset? What is capital gain?
of the PEACe Bonds are:
The law defines capital asset in the negative, such
1. The issuance of the P35 billion Bonds by the BOT to that, any property not falling under the following
RCBC/CODE-NGO at P10.2 billion; and enumeration (referred to as ordinary assets) is capital
2. The sale and distribution by RCBC Capital asset:
(underwriter) on behalf of CODE-NGO of the PEACe
Bonds to undisclosed investors at P11.996 billion. (a) stock in trade or inventoriable asset;
(b) property primarily held for sale to customers in
Under the underwriting agreement, the settlement dates the ordinary course of trade or business;
for the sale and distribution by RCBC Capital of the (c) depreciable asset; and
PEACe Bonds to various undisclosed investors fell on (d) real property used in trade or business (Sec. 39A,
the same day, October 18, 2001, when the PEACe Bonds NIRC)
were supposedly issued to CODE-NGO/RCBC.
On the other hand, a capital gain is the gain, profit
Describe the proper tax treatment of the discount or or income realized from a sale or disposition of capital
interest income arising from the treasury bonds.
asset.
Should there have been a simultaneous sale to 20 or
What is the proper tax treatment on capital gain derived
more lenders/investors, the PEACe Bonds are deemed from dealings in property?
deposit substitutes within the meaning of Section 22 (Y)
of the 1997 National Internal Revenue Code and RCBC Generally, a capital gain is included in gross income
Capital/CODE-NGO would have been obliged to pay subject of ordinary income taxation (Sec. 32A, NIRC). By
the 20% final withholding tax on the interest or discount way of exceptions, the capital gains derived from the
from the PEACe Bonds. Further, the obligation to sale of shares of stock issued by a domestic corporation
withhold the 20% final tax on the corresponding interest and sale of real property located in the Philippines are
from the PEACe Bonds would likewise be required of subject to final tax. (Sec. 24C, 24D1, 25A3, NIRC)
any lender/investor had the latter turned around and
sold said PEACe Bonds, whether in whole or part, In dealings involving capital assets, are gains to be
simultaneously to 20 or more lenders or investors.32 presumed?
However, the interest income that may be received No. Gains are not to be presumed from sale or
by individuals from long-term deposits or investments disposition of capital assets. However, in the case of sale
with a holding period of not less than five (5) years is or other disposition of real property located in the
exempt from the final tax. Philippines and held as capital asset, the gain is
presumed and such gain is equivalent to the amount of
Instances when the final tax on prize is not applicable the zonal value or gross selling price, whichever is
higher. (Sec. 24D1, Sec. 25A3, NIRC)
(a) when earned from sources abroad, that is, when
the competition or contest was held abroad; What are the tax base and the tax rate of the applicable
however, the prize or award received by a tax imposable on capital gains?
resident citizen from sources abroad is still
included in gross income subject of ordinary In general, the tax base of the income tax on capital
income taxation; gain is the net capital gain or net income, whereas, the
(b) when the amount does not exceed Php10,000.00, tax rate is the graduated rate of 5%-32%.
in which case, the amount is included in gross
income and thus, subject to ordinary tax (Sec. For capital gain derived from the sale of share of
24B1, Sec. 32A, NIRC) stock in a domestic corporation not traded through the
(c) when the prize or award is received primarily in local stock exchange, the tax base is NET CAPITAL
recognition of religious, charitable, educational, GAIN and the tax rate is 5% for the first Php100,000.00
artistic, literary, or civic achievement and 10% on any amount in excess thereof. (NOTE: If sale
PROVIDED (1) the recipient was selected is through the local stock exchange, the applicable tax is the
without any action on his part to enter the percentage tax, also referred to as the stock transaction tax,
contest; and (2) he is not required to render under Sec. 127 of the NIRC. The basis is the GSP and the rate
substantial future services; This is considered an is of 1%.33 The payment of this tax is in lieu of income tax.)
32 See BDO v. Republic (2015), supra. 33 Question 4, 2011 Bar; Question 10, 2012 Bar.
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Likewise, the percentage tax, otherwise known as Illustration of (a) above, i.e., when the real property is
the stock transaction tax, is not applicable because the ordinary asset. (Question 11, 2012 Bar)
seller is a dealer in securities. In addition, the shares sold
are unlisted shares. The percentage tax applies on sale, An individual, who is a real estate dealer, sold a
barter or exchange of shares of stock LISTED and residential lot in Quezon City at a gain of P100,000.00
TRADED through the local stock exchange OTHER (selling price of P900,000.00 and cost is P800,000.00). The
THAN by a dealer in securities. (Sec. 127, NIRC, emphasis sale is subject to income tax as follows:
supplied.)
a) 6% capital gains tax on the gain;
A resident Filipino citizen (not a dealer in securities) b) 6% capital gains tax on the gross selling price of
sold shares of stocks of a domestic corporation that are fair market value, whichever is higher;
listed and traded in the Philippine Stock Exchange. c) Ordinary income tax at the graduated rates of
(Question 13, 2012 Bar) 5% to 32% of net taxable income;
d) 30% income tax on net taxable income.
a) The sale is exempt from income tax but subject
to the of 1% stock transaction tax; Explanation:
b) The sale is subject to income tax computed at the
graduated income tax rates of 5% to 32% on net It is safe to assume that the property is being held by
taxable income; the seller, a real estate dealer, primarily for sale to
c) The sale is subject to the stock transaction tax customers in the ordinary course of real estate business
and income tax; and, as such, it is ordinary asset. Consequently, the
d) The sale is both exempt from the stock capital gains tax finds no application. Choice (d) is
transaction tax and income tax. incorrect because the flat rate of 30% applies not to an
individual but to a corporate taxpayer. Choice (c) is
Explanation: correct as to the kind of tax (ordinary income tax), rate of
tax (graduated rate of 5% to 32% for individuals) and tax
Under Section 127 (D) of the NIRC, any gain derived base (net taxable income).
from the sale, barter, exchange or other disposition of
shares of stock subject to the percentage tax of of 1% The source of confusion is the description of the
shall be exempt from the final tax and from the regular property as RESIDENTIAL and lack of any specification
individual or corporate income tax. that it is part of the sellers inventory of saleable goods.
If this means that the lot is being used by the seller for
May the liability for the 6% capital gains tax be legally residential purposes and NOT being held for sale to
avoided? If in the affirmative, what are the customers in the ordinary course of trade or business,
requirements? then it is properly classified as capital asset. Under such
interpretation, the correct answer is choice (b).
Yes. The 6% capital gains tax may be legally avoided
if the subject matter of the sale is the PRINCIPAL It is often contracted by parties that the capital gains
residence and the proceeds are to be used in acquiring or tax of 6% is to be paid by the buyer. Whose liability is
establishing a new principal residence within eighteen the tax?
(18) calendar months from the date of sale. The seller
must inform the Commissioner of his intention to avail As far as the government is concerned, the capital
of the exemption within 30 days from the date of sale. gains tax remains a liability of the seller since it is a tax
(Sec. 24D2, NIRC) on the sellers gain from the sale of the real estate.(see
Republic vs. Soriano, G.R. No. 211666, 25 February 2015)
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subject to ordinary taxation. (Sec. 32A, Sec. 24A, Sec. A, B, and C, all lawyers, formed a partnership called
25A1, NIRC) ABC Law Firm so that they can practice their profession
as lawyers. For the year 2012, ABC Law Firm received
The tax on is collected at source via creditable earnings and paid expenses, among which are as
withholding tax (CWT) pursuant to Sec. 79 of the NIRC. follows:
Consequently, it is the employer who is obliged to
return the income and pay the tax. If the employee earns Earnings:
purely compensation income and has only one
employer, he is qualified for exemption from the (1) Professional/legal fees from various clients
requirement of filing the annual income tax returnunder (2) Cash prize received from a religious society in
the substituted filing system provided in Sec. 51(A)(2)(b) recognition of the exemplary service of ABC
of the NIRC. Law Firm
(3) Gains derived from sale of excess computers and
Fringe benefits (compensation apart from the basic laptops
salary and other allowances) are included in this kind of
Payments:
treatment, EXCEPT those that are paid to or received by
non-rank and file employees. Under Sec. 33, a special
(1) Salaries of office staff
treatment is accorded to fringe benefits paid to
(2) Rentals for office space
managerial and supervisory employees. The income is
(3) Representation expenses incurred in meetings
subject to FINAL tax and, consequently, to final
with clients
withholding tax (FWT) under Sec. 57(A). The fringe
benefits paid to rank-and-file employees remain taxable (A) What are the items in the above mentioned
compensation income covered by ordinary taxation and earnings which should be included in the computation of
CWT. ABC Law Firms gross income? Explain.
However, the tax on fringe benefits under Sec. 33 (B) What are the items in the above-mentioned
does not apply if the fringe benefit is payments which may be considered as deductions from
the gross income of ABC Law Firm? Explain.
(1) required by the nature of, or necessary to the
trade, business or profession of the employer; or (C) If ABC Law Firm earns net income in 2012,
(2) for the convenience or advantage of the what, if any, is the tax consequence on the part of ABC
employer.34 Law Firm insofar as the payment of income tax is
concerned? What, if any, is the tax consequence on the
The tax on fringe benefits, whether received by rank- part of A, B, and C as individual partners, insofar as the
and-file employees or not, does not apply where the payment of income tax is concerned?
benefit qualifies as a de minimisbenefit as defined by the
implementing rules. (RR 3-98, as amended; see also RR 5- Suggested Answer:
2011)
(C) The net income of ABC Law Firm will not be
Whenever de minimisbenefit paid to an employee taxable since the law firm is a general professional
exceeds the ceiling provided by the rules, the excess is partnership which is exempt from taxes on corporations.
generally taxable as part of gross compensation income. Instead, each partner, A, B and C, shall declare as gross
But such excess may be treated as Other benefits under income the distributive share, actually or constructively
Sec. 32(B)(7)(e)(iv) which is excludible from gross received,in the partnerships net income.
income for as long as the total amount, together with the
13th month pay, does not exceed the ceiling of BAR 2013
Php30,000.00 (now Php82,000.00 beginning January 1,
2015). (see RA 10653; RR 3-2015) Atty. Gambino is a partner in a general professional
partnership. The partnership computes its gross
In any event, the income tax, as well as the revenues, claims deductions allowed under the Tax
withholding tax, cannot apply where the salary or wage Code, and distributes the net income to the partners,
is below the statutory minimum wage. (see RA 9504; Sec, including Atty. Gambino, in accordance with its articles
79, NIRC) of partnership.
What is the tax treatment of the distributable net In filing his own income tax return, Atty. Gambino
income of a general professional partnership (GPP)? claimed deductions that the partnership did not claim,
such as purchase of law books, entertainment expenses,
It is ultimately taxed to the partners comprising it. car insurance and car depreciation. The BIR disallowed
Each partner shall report as gross income his distributive the deductions.
share, actually or constructively received, in the net
income of the partnership. (Sec. 26, NIRC; RR 2-2010) Was the BIR correct?
Under the NIRC, the term corporation35 shall Give the tax bases and tax rates of the taxes applicable
include partnerships, no matter how created or to corporations (exclude NRFC).
organized, joint stock companies, joint accounts,
association, or insurance companies, but does not Type of Income Tax Tax Base Tax
include: Rate(s)
(a) Taxable 30%
(a) general professional partnership36 partnership Normal/RegularCorporate Income
formed by persons for the sole purpose of Income Tax (DC and RFC)
exercising their common profession, no part of (b) MCIT (DC and RFC) Gross 2%
the income of which is derived from engaging in Income
any trade or business; (c) Final Tax (DC and RFC) Gross Various
(b) joint venture formed for the purpose of income
undertaking construction projects; and (d) Improperly Improperly 10%
(c) joint venture formed for the purpose of Accumulated Earnings Tax accumulated
engaging in petroleum, coal, geothermal and (IAET) (DC only) taxable
other energy operations pursuant to an income
operating consortium agreement under a service
contract with the Government. (Sec. 22B, NIRC) Are GOCCs, agencies and instrumentalities of the
government exempt from income tax?
Who are the corporate taxpayers?
Generally, no.However, under Sec. 27(C) of the
They are classified into domestic corporation (DC), NIRC, the following are absolutely exempted from
resident foreign corporation (RFC) and non-resident income tax:
foreign corporation (NRFC).
(a) SSS
What is a resident foreign corporation? Give an (b) GSIS
example. (c) PHIC
(d) PCSO
It is a foreign corporation engaged in trade or (e) Local water districts (R.A. No. 10026)
business in the Philippines (sec. 22H, NIRC). An example
is one organized under the laws of a foreign country that Aside from the GOCCs, agencies and instrumentalities
engages in business in Makati City, Philippines. of the government expressly mentioned in Sec. 27(C),
(Question 9, 2012 Bar) who are the other corporations exempt from income tax?
How are the corporations taxed? Under Sec. 30 of the NIRC, certain kinds of non-
stock and non-profit organizations/institutions are
In general, domestic corporations and resident exempt from income tax in respect to income derived by
foreign corporations are taxed on their taxable income, them as such organizations/institutions. However, their
i.e. gross income less deductions; or in lieu thereof, the income from:
Minimum Corporate Income Tax (MCIT).
(1) property, real or personal, or
By way of exceptions, final tax shall be imposed on (2) any of their activities conducted for profit
certain kinds of passive income such as interest on bank
deposits, royalties, capital gains from sale of shares of regardless of the disposition made of such income, are
stock and, for domestic corporations, capital gains from still taxable.
sale or disposition of land or building located in the
Philippines. (Section 27D1, 27D2, 27D5; Section 28A7a, But a non-stock and non-profit educational
28A7c) institution may be exempt from tax provided that its
income, regardless of source, is used actually, directly
35Question 35, 2011 Bar. and exclusively for educational purposes. (see par. 3, Sec.
36Question 15, 2012 Bar; Question IV, 2013 Bar; Question No. XXIV,
2014 Bar.
4, Art. XIV, 1987 Constitution)
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(f) Non- taxable joint ventures; and (g) depletion of oil and gas wells and mines;
(g) Enterprises duly registered with the Philippine (h) charitable contribution41;
Economic Zone Authority (PEZA) under R.A. (i) research and development; and
7916, and enterprises registered pursuant to the (j) pension trust
Bases Conversion and Development Act of 1992
under R.A. 7227, as well as other enterprises Some income payments, which correspond to expenses of
duly registered under special economic zones payors, are subject to creditable withholding tax under
declared by law which enjoy payment of special RR 2-98, as amended. On the part of the payor, what is
tax rate on their registered operations or the effect of the non-withholding or under-withholding
activities in lieu of other taxes, national or local. of the income payment?
(Sec. 29, NIRC and Sec. 4, RR No. 2-2001)
The expense, which is recognized as deduction for
For covered corporations, how can liability for IAET be tax purposes, may be disallowed if such was not
avoided? subjected to withholding tax. However, a deduction may
still be allowed despite non-withholding or under-
It may be avoided if the corporation has withholding if at the time of the audit or investigation,
accumulated income for the reasonable needs of the the withholding tax is paid.
business. By reasonable needs of the business, it
means the immediate needs of the business40, including During the audit conducted by the BIR official, it was
reasonably anticipated needs. (Sec. 3, RR No. 2-2001) found that the rental income claimed by the corporation
was not subjected to expanded withholding tax. May
the claimed rental expense be allowed as deduction from
B.4 Deductions the gross income of the corporation?
determination of such income or liability. The all-events Under Sec. 36(A)(1) of the NIRC, personal, living
test requires the right to income or liability be fixed, and and family expenses are non-deductible expenses.
the amount of such income or liability be determined Exemptions under Sec. 35 are intended as substitutes for
with reasonable accuracy.43 personal and living expenses. They are roughly
equivalent to the minimum of subsistence (Madrigal vs.
The "all events test" refers to: Rafferty, 7 August 1918). Under prevailing law, the
amount fixed for personal exemption is Php50,000.00,
a) A person who uses the cash method where all regardless of the status of the taxpayer (whether single,
sales have been fully paid by the buyers thereof; head of the family or married), and additional
b) A person who uses the installment sales method, exemption in the amount of Php25,000.00 for each
where the full amount of consideration is paid in qualified dependent up to a maximum of four.
full by the buyer thereof within the year of sale;
c) A person who uses the accrual method, whereby Who is a qualified dependent?
an expense is deductible for the taxable year in
which all the events had occurred which A dependent means a legitimate, illegitimate or
determined the fact of the liability and the legally adopted child chiefly dependent upon and living
amount thereof could be determined with with45 the taxpayer if such dependent is not more than
reasonable accuracy; twenty-one (21) years of age, unmarried and not
d) A person who uses the completed method, gainfully employed or if such dependent, regardless of
whereby the construction project has been age, is incapable of self-support because of mental or
completed during the year the contract was physical defect.
signed.
(Question 17, 2012 Bar)
B.5 Exclusions
What is the optional standard deduction (OSD) and
what are its advantages?
What is meant by the term exclusions and what is its
The Optional Standard Deduction44 is a privilege legal effect?
available to a citizen, resident alien or corporation
subject to the normal income tax to deduct, in lieu of The term exclusions refers to items that are not
itemized deduction, forty percent (40%) of taxpayers included in the determination of gross income because
gross sales or receipts (in the case of individual) or gross (a) they represent return of capital, or are not income,
income (in the case of corporation) in the computation of gain or profit; or (b) they are income, gain or profit that
taxable income. are expressly exempt from income tax under the
constitution, tax treaty, Tax Code, or general or special
The OSD has its advantages. As an alternative to law.46 An item of exclusion reduces the gross income
itemized deduction, it provides taxpayers with low (not net income).
itemizable expenses a higher amount of deduction and,
thus, more tax savings. Also, its computation is What are the requirements in order that retirement
relatively simple and, unlike itemized deduction, the benefits received by an employee in the private sector
OSD dispenses with the substantiation requirement. may be exempted from the tax?
This relieves taxpayers of the difficulty of computation
usually attendant to itemized deduction as well as the The answer needs qualification, depending upon
added burden of record-keeping. whether retirement benefits are received under a BIR-
approved retirement plan (R.A. No. 4917) or not (R.A.
Important concepts relating to the OSD No. 7641).
(a) The OSD is available only to citizens, resident For retirement benefits received under R.A. No. 7641
aliens, and corporations subject to the regular to be exempted, the law requires that the retiring official
income tax (DC and RFC). Before the or employee must have rendered services to his
amendment in RA 9504, corporations were not employer for at least five (5) years and that he be not less
entitled to OSD. than 60 but not more than 65 years of age at the time of
(b) The standard deduction is optional. If the retirement.(Sec. 32B6a, NIRC)
taxpayer does not elect OSD, he is considered as
having availed of the itemized deduction. On the other hand, retirement benefits received in
(c) The election for OSD shall be irrevocable for the accordance with a reasonable private benefit plan
year in which it is made. maintained by the employer (under R.A. No. 4917) are
(d) Proof is not required. exempted provided that the retiring official or employee
(e) The rate has been increased from 10% to 40% has been in the service of the same employer for at least
under the amendment in RA 9504. ten (10) years and is not less than 50 years of age at the
time of his retirement. This benefit shall be availed of
Personal and Additional Exemptions only once.(Sec. 32B6a, NIRC)
43 CIR vs. Isabela Cultural Corp., G.R. No. 172231, February 12, 2007. 45 Question 42, 2011 Bar.
44Sec. 34 (L), NIRC. 46Mamalateo, Philippine Income Tax, 2010 Edition, p. 150.
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(a) The contribution made to the pension trust by The corporation may (1) carry-over the excess credit,
the employer may be allowed as a deduction against his or (2) be credited or refunded with the excess amount
gross income.(Sec. 34J, NIRC) paid. (Sec. 76, NIRC)
(d) The amount actually distributed to the Will the claim for refund prosper?
employee shall be taxable to him in the year in which so
distributed to the extent that it exceeds the amount Suggested Answer:
contributed by such employee. (Sec. 60B, NIRC)
No. After opting to carry over its excess tax credits,
ABC Corp. became barred from recovering such excess
B.7 Compliance Requirements income tax through cash refund or tax credit certificate.
Under the law, once the option to carry-over has been
made, such option shall be considered irrevocable for
Who among the following is/are taxable? Who among that taxable period and no application for cash refund or
them is/are required to file an income tax return? issuance of a tax credit certificate shall be allowed. (Sec.
76, NIRC)
(a) minimum wage earner
(b) pure compensation income earner whose Is there a prescriptive period for the carry-over of excess
compensation income exceeds Php60,000.00 creditable income tax?
(c) general professional partnership
No. Unlike Section 69 of the old NIRC, the carry-
Suggested Answer: over of excess income tax payments is no longer limited
to the succeeding taxable year. Unutilized excess income
A minimum wage earner shall be exempt from the tax payments may now be carried over to the succeeding
payment of the tax on taxable income. Such exemption taxable years until fully utilized.49
includes holiday pay, overtime pay, night shift
differential pay and hazard pay. Consequently, a May a corporation who exercised the irrevocable option
minimum wage earner is not required to file an income of carry-over still recover the excess creditable tax in the
tax return. (Sec. 24A and 51A2, NIRC as amended by R.A. event of cessation of business operations?
No. 9504)
Yes. Where the corporation permanently ceases its
A pure compensation income earner shall be liable operations before full utilization of the tax credits it
on his taxable compensation income. He is not required opted to carry over, it may then be allowed to claim the
to file an income tax return even though his refund of the remaining tax credits. In such a case, the
compensation income exceeds Php60,000.00, provided remaining tax credits can no longer be carried over and
that he is not deriving his compensation income the irrevocability rule ceases to apply. Cessante ratione
concurrently from two or more employers at any time legis, cessat ipse lex.50
during the taxable year. (Sec. 24A and 51A2, NIRC as
amended by R.A. No. 9504)
C. TRANSFER TAXATION
A general professional partnership is not considered
a corporation liable for tax on its net income (Sec. 22B,
NIRC). The partners themselves, not the partnership, are C.1 Estate Tax
liable for the payment of income tax in their individual
capacity (Sec. 26, NIRC) computed on their respective
distributive shares of the partnership profits (Sec. 32A11,
Belle Corp. vs. CIR, G.R. No. 181298, 10 January 2011.
49
NIRC). However, a general professional partnership is Systra Philippines, Inc. vs. CIR, G.R. No. 176290, 21 September 2007;
50
required to return its income. (Sec. 55, NIRC) Mindanao 1 Geothermal Partnership vs. CIR, CTA Case No. 8093, 26
March 2013.
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What is meant by transfer in contemplation of death? Judicial expenses52 are expenses of administration.
Administration expenses, as an allowable deduction
It refers to the transfer or disposition of property from the gross estate of the decedent for purposes of
executed during the lifetime of the transferor but whose arriving at the value of the net estate, have been
main consideration is the transferors death. A transfer is construed by the federal and state courts of the United
in contemplation of death where the full or naked States to include all expenses essential to the collection
ownership of the property is to pass only because of the of the assets, payment of debts or the distribution of the
transferors death.51 property to the persons entitled to it. In other words,
the expenses must be essential to the proper settlement
Under Section 85B of the NIRC, the transfer under of the estate.53
the following circumstances is considered a transfer in
contemplation of death:The decedent has retained for his Expenditures which are not allowed to be deducted
life or for any period which does not in fact end before
his death Expenditures incurred for the individual benefit of
the heirs, devisees or legatees are not deductible.54
(1) the possession or enjoyment of, or the right to
the income from the property, or Tax is based on the value of property transmitted at the
(2) the right, either alone or in conjunction with any time of predecessor's death.
person, to designate the person who shall
possess or enjoy the property or the income A transmission by inheritance is taxable at the time
therefrom. of the predecessor's death, notwithstanding the
postponement of the actual possession or enjoyment of
BAR 2013 the estate by the beneficiary, and the tax measured by
the value of the property transmitted at that time
Mr. Agustin, 75 years old and suffering from an regardless of its appreciation or depreciation.55
incurable disease, decided to sell for valuable and
sufficient consideration a house and lot to his son. He Against whom should the notice of collection be issued
died one year later. to satisfy the delinquent estate tax?
In the settlement of Mr. Agustin's estate, the BIR In the case of notices of levy issued to satisfy the
argued that the house and lot were transferred in delinquent estate tax, the delinquent taxpayer is the
contemplation of death and should therefore form part Estate of the decedent, and not necessarily and
of the gross estate for estate tax purposes. exclusively, the petitioner as heir of the deceased. 56
No. The totality of the circumstances do not The gift tax applies to indirect gifts. Illustrate.
sufficiently show any transfer in contemplation of death.
The fact that at the time of the sale Mr. Agustin was In a sale of property for less than an adequate
already old, suffering from incurable disease and that consideration, the difference between the market value
the sale was so close to his death are not conclusive of and the consideration is deemed a gift made and, thus,
the sale being made in consideration of death. Besides, taxable. The exception is in the case of sale of real
the sale was for valuable and sufficient consideration, in property subject to the capital gains tax of 6%. (see Sec.
which case, there is no more gratuitous transfer that may 100, NIRC)
be subject to estate tax. (Sec. 85B, NIRC)
Similarly, a deemed gift made is also recognized in
How is the Standard Deduction for estate tax purposes case of renunciation by an heir of his/her share in the
differentiated from the Optional Standard Deduction for inheritance, UNLESS the renunciation is general in
income tax purposes? character, that is, no one is excluded or less benefitted
than the others by such renunciation (see RR 2-2003).57 In
(1) The former is automatic whereas the latter is case of general renunciation, the portion renounced is
optional on the part of the taxpayer. (2) The former is a transferred automatically to the other co-heirs by virtue
fixed amount of Php1 million whereas the latter is fixed of accretion, and the inheritance is not deemed accepted
at 40% of the taxpayers gross sales or gross receipts (Article 1050, par. 3, Civil Code). But in case of
(individual) or gross income (corporation). (3) The renunciation by the surviving spouse of the share in the
former is a deduction available to estates of citizens or conjugal or absolute community property, there always
residents of the Philippines whereas the latter is a
deduction available to income taxpayers who are
engaged in trade or business or exercise of profession.
52Question XIV, 2014 Bar.
Requirements for expenses to be deductible against gross
53 CIR vs. CA, et al., G.R. No. 123206, March 22, 2000.
54 CIR vs. CA, et al. (2000), supra.
estate 55 Lorenzo vs. Posadas, Jr., G.R. No. 43082, June 18, 1937.
56 Ferdinand R. Marcos II vs. CA, et al., G.R. No. 120880, June 5, 1997.
51 See Ganuelas vs. Cawed, G.R. No. 123968, 24 April 2003. 57Question XV, 2010 Bar.
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differently, a seller who is directly and legally liable for thereto. In the course of its business, MKI bought and
payment of an indirect tax, such as the VAT on goods or eventually sold the delivery van. Prior to the sale, the
services is not necessarily the person who ultimately motor vehicle was used as part of MKIs property, plant,
bears the burden of the same tax. It is the final purchaser and equipment. Therefore, the sale of the delivery van is
or consumer of such goods or services who, although an incidental transaction made in the course of MKIs
not directly and legally liable for the payment thereof, business which should be liable for VAT regardless of
ultimately bears the burden of the tax.60 the fact that there was no profit realized from the sale
(Sec. 105, NIRC).62
What is meant by in the course of trade or business?
Explain the concept of destination principle. How is it
The phrase in the course of trade or business relevant to the VAT system?
means the regular conduct or pursuit of a commercial or
an economic activity, including transactions incidental As a general rule, the VAT system uses the
thereto, by any person regardless of whether or not the destination principle as a basis for the jurisdictional
person engaged therein is a nonstock, nonprofit private reach of the tax. Under this principle, goods and services
organization (irrespective of the disposition of its net are taxed only in the country where they are consumed.
income and whether or not it sells exclusively to members Thus, exports are zero-rated, while imports are taxed.63
or their guests), or government entity. (Sec. 105, NIRC;
Underscoring supplied.) Is the destination principle, as adopted under the VAT
system, absolute?
Commonwealth Management and Services Corporation
(COMASERCO) is an affiliate of Philippine American No. The law clearly provides for an exception to the
Life Insurance Co. (Philamlife), organized by the latter destination principle; that is, for a zero percent VAT rate
to perform collection, consultative and other technical for services that are performed in the Philippines, paid for
services, including functioning as an internal auditor of in acceptable foreign currency and accounted for in
Philamlife and its other affiliates. COMASERCO accordance with the rules and regulations of the [BSP].
rendered service to its affiliates and, in turn, the (Sec. 108B2, NIRC)
affiliates paid the former reimbursement-on-cost which
means that it was paid the cost or expense that it BAR 2013
incurred although without profit. Is COMASERCO
liable to pay VAT? XYZ Law Offices, a law partnership in the
Philippines and a VAT-registered taxpayer, received a
Yes, services rendered for a fee even on query by e-mail from Gainsburg Corporation, a
reimbursement-on-cost basis only and without realizing corporation organized under the laws of Delaware, but
profit are also subject to VAT. the e-mail came from California where Gainsburg has
an office. Gainsburg has no office in the Philippines and
It is immaterial whether the primary purpose of a does no business in the Philippines.
corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursement-on- XYZ Law Offices rendered its opinion on the query
cost basis only, without realizing profit, for purposes of and billed Gainsburg US$1,000 for the opinion.
determining liability for VAT on services rendered. As Gainsburg remitted its payment through Citibank which
long as the entity provides service for a fee, converted the remitted US$1 ,000 to pesos and deposited
remuneration or consideration, then the service the converted amount in the XYZ Law Offices account.
rendered is subject to VAT.61
What are the tax implications of the payment to
BAR 2014 XYZ Law Offices in terms of VAT [and income taxes]?
Requisites for the claim for refund or tax credit of input of two years from the close of the said quarter, the
tax judicial claim was timely filed within 30 days from the
inaction. (See CIR vs. Mindanao II Geothermal Partnership,
To claim refund or tax credit under Section 112 (A), G.R. No. 191498, 15 January 2014)
petitioner must comply with the following criteria: (1)
the taxpayer is VAT registered; (2) the taxpayer is (B) No. This time the CTA would be correct in
engaged in zero-rated or effectively zero-rated sales; (3) denying the claim. However, the denial is not premised
the input taxes are due or paid; (4) the input taxes are upon the filing of the judicial claim beyond the two-year
not transitional input taxes; (5) the input taxes have not prescriptive period but on the ground that it was
been applied against output taxes during and in the prematurely filed, which means non-exhaustion of the
succeeding quarters; (6) the input taxes claimed are 120-day period for the Commissioner to act on an
attributable to zero-rated or effectively zero-rated sales; administrative claim. As a rule, the 120-day waiting
(7) for zero-rated sales under Section 106 (A) (2) (1) and period is both mandatory and jurisdictional. (see CIR v.
(2); 106 (B); and 108 (B) (1) and (2), the acceptable foreign San Roque Power Corporation, G.R. No. 187485, 12
currency exchange proceeds have been duly accounted February 2013)
for in accordance with BSP rules and regulations; (8)
where there are both zero-rated or effectively zero-rated The withholding of tax under Sec. 114 is now final, no
sales and taxable or exempt sales, and the input taxes longer creditable.
cannot be directly and entirely attributable to any of
these sales, the input taxes shall be proportionately After its amendment by R.A. 9337, the amount
allocated on the basis of sales volume; and (9) the claim withheld under Section 114 is now treated as a final
is filed within two years after the close of the taxable VAT, no longer under the creditable withholding tax
quarter when such sales were made. (San Roque Power system.64
Corp. vs. CIR, G.R. No. 180345, November 25, 2009)
arbitrariness or grave abuse so as to go beyond the the government's claim, there can be no deprivation of
statutory authority, is not subject to the contrary property, because no effective protest can be made. 70
judgment or control of others.65
Attached to the PAN is the detailed explanation of the
When is an assessment deemed made? Is it void when particular provision of law and revenue regulation
received by the taxpayer outside of the prescriptive violated. However, the FAN and demand letter issued to
period? the taxpayer were not accompanied by a written
explanation of the legal and factual bases of the
The assessment is deemed made when notice to this deficiency taxes. Is the assessment valid?
effect is released, mailed or sent by the Commissioner of
Internal Revenue to the taxpayer, and it is not required Yes, there was substantial compliance of the
that the notice be received by the taxpayer within the requirement of Section 228 of the NIRC. The PAN with
prescriptive period (3 years).66 the attached detailed explanation enabled the latter to
file an effective protest. (see Samar-I Electric
On April 15, 2011, the Commissioner of Internal Cooperative v. CIR, G.R. No. 193100, 10 December 2014.)
Revenue mailed by registered mail the final assessment
notice and the demand letter covering the calendar year The 30-day period for filing an appeal with the Court of
2007 with the QC Post Office. Which statement is Tax Appeals is jurisdictional.
correct?
The jurisdiction of the Court of Tax Appeals has
a) The assessment notice is void because it was been expanded to include not only decisions or rulings
mailed beyond the prescriptive period; but inaction as well of the Commissioner of Internal
b) The assessment notice is void because it was not Revenue. The decisions, rulings or inaction of the
received by the taxpayer within the three-year Commissioner are necessary in order to vest the Court of
period from the date of filing of the tax return; Tax Appeals with jurisdiction to entertain the appeal,
c) The assessment notice is void if the taxpayer can provided it is filed within 30 days after the receipt of
show that the same was received only after one such decision or ruling, or within 30 days after the
(1) month from date of mailing; expiration of the 180-day period fixed by law for the
d) The assessment notice is valid even if the Commissioner to act on the disputed assessments. This
taxpayer received the same after the three-year 30-day period within which to file an appeal is
period from the date of filing of the tax return. jurisdictional and failure to comply therewith would bar
(Question 46, 2012 Bar) the appeal and deprive the Court of Tax Appeals of its
jurisdiction to entertain and determine the correctness of
Is an assessment based on estimates valid? the assessments. Such period is not merely directory but
mandatory and it is beyond the power of the courts to
In the absence of proof of any irregularities in the extend the same.71
performance of official duties, an assessment will not be
disturbed. Even an assessment based on estimates is Alternative remedies of a taxpayer in case the
prima facie valid and lawful where it does not appear to Commissioner fails to act on a disputed assessment
have been arrived at arbitrarily or capriciously.67
In case the Commissioner failed to act on the
What must be contained in a notice of assessment?68 disputed assessment within the 180-day period from
date of submission of documents, a taxpayer can either:
The law requires that the legal and factual bases of 1) file a petition for review with the Court of Tax
the assessment be stated in the formal letter of demand Appeals within 30 days after the expiration of the 180-
and assessment notice. Thus, such cannot be presumed. day period; or 2) await the final decision of the
Otherwise, the express provisions of Section 228 of the Commissioner on the disputed assessments and appeal
NIRC and RR No. 12-99 would be rendered nugatory.69 such final decision to the Court of Tax Appeals within 30
days after receipt of a copy of such decision. However,
What is the effect of a notice of assessment that fails to these options are mutually exclusive, and resort to one
state the factual and legal bases of the assessment? bars the application of the other.72
State the rationale of the law.
BAR 2014
The notice is VOID. Without complying with the
unequivocal mandate of first informing the taxpayer of On March 27, 2012, the Bureau of Internal Revenue
(BIR) issued a notice of assessment against Blue Water
Industries Inc. (BWI), a domestic corporation, informing
65 Meralco Securities Corp. vs. Victorino Savellano, et al., G.R. No. L-36181, the latter of its alleged deficiency corporate income tax
October 23, 1982. for the year 2009. On April 20, 2012, BWI filed a letter
66 see Basilan Estates vs. CIR, G.R. No. L-22492, September 5, 1967.
67 Ferdinand R. Marcos II vs. CA, et al., G.R. No. 120880, June 5, 1997. protest before the BIR contesting said assessment and
68Question No. V, 2014 Bar. demanding that the same be cancelled or set aside.
69 CIR vs. Enron Subic Power Corp., G.R. No. 166387, January 19, 2009; In
this case, the Supreme Court considered the alleged factual bases in
the advice, preliminary letter and audit working papers as
insufficient. It explained that there was no going around the mandate 70 CIR v. Enron, supra.
of the law that the legal and factual bases of the assessment be stated in 71 RCBC vs. CIR, G.R. No. 168498, April 24, 2007.
writing in the formal letter of demand accompanying the assessment 72 RCBC vs. CIR (2007), supra; see also Lascona Land Co., Inc. vs. CIR, G.R.
However, on May 19, 2013, that is, after more than a b) September 30, 2011;
year from the filing of the letter protest, the BIR c) December 30, 2011;
informed BWI that the latters letter protest was denied d) January 30, 2012.
on the ground that the assessment had already become (Question 50, 2012 Bar)
final, executory and demandable. The BIR reasoned that
its failure to decide the case within 180 days from filing "Best evidence obtainable" rule, when applicable
of the letter protest should have prompted BWI to seek
recourse before the Court of Tax Appeals (CTA) by filing The law is specific and clear. The rule on the "best
a petition for review within thirty (30) days after the evidence obtainable" applies when a tax report required
expiration of the 180-day period as mandated by the by law for the purpose of assessment is not available or
provisions of the last paragraph of Section 228 of the when the tax report is incomplete or fraudulent. Thus,
National Internal Revenue Code (NIRC). Accordingly, the persistent failure of the decedent and the taxpayer to
BWIs failure to file a petition for review before the CTA present their books of accounts for examination for the
rendered the assessment final, executory and taxable years involved left the Commissioner of Internal
demandable. Is the contention of the BIR correct? Revenue no other legal option except to report to the
Explain.
power conferred upon him under Section 16 of the Tax
Code.74
Suggested answer:
What is the Expenditure Method as a method used in
In case of the inaction of the CIR on the protested
reconstructing income?
assessment, the taxpayer has two options, either: (1) file
a petition for review with the CTA within 30 days after
A method commonly used by the government is the
the expiration of the 180-day period; or (2) await the
expenditure method, which is a method of
final decision of the Commissioner on the disputed
reconstructing a taxpayer's income by deducting the
assessment and appeal such final decision to the CTA
aggregate yearly expenditures from the declared yearly
within 30 days after the receipt of a copy of such
income. The theory of this method is that when the
decision. In arguing that the assessment became final
amount of the money that a taxpayer spends during a
and executory by the sole reason that BWI failed to
given year exceeds his reported or declared income and
appeal the inaction of the Commissioner within 30 days
the source of such money is unexplained, it may be
after the 180-day reglementary period, the BIR, in effect,
inferred that such expenditures represent unreported or
limited the remedy of BWI, as a taxpayer, under Section
undeclared income.75
228 of the NIRC to just one, that is - to appeal the
inaction of the Commissioner on its protested
Purpose of zonal valuation made by the Commissioner
assessment after the lapse of the 180-day period. This is of Internal Revenue
incorrect.73
[T]the same is for the purpose of computing internal
The taxpayer received an assessment notice on April 15,
revenue taxes.76
2011 and filed its request for reinvestigation against the
assessment on April 30, 2011. Additional documentary
Authority of the Commissioner to delegate powers,
evidence in support of its protest was submitted by it on
exception
June 30, 2011. If no denial of the protest was received by
the taxpayer, when is the last day for the filing of its
Under Section 7 of the NIRC, the Commissioner is
appeal to the CTA?
authorized to delegate to his subordinates the powers
vested in him except, among others, the power to issue
a) November 30, 2011;
rulings of first impression.77
b) December 30, 2011;
c) January 30, 2012;
Taxes are personal to the corporate taxpayer. It cannot
d) February 28, 2012.
be enforced against its officers and stockholders.
(Question 49, 2012 Bar)
Taxes being personal to the taxpayer, it can only be
Explanation:
enforced against petitioner because the payment of
unpaid customs duties and taxes are the personal
From the submission of the supporting documents, a
obligation of the petitioner as a corporate taxpayer, thus,
period of 180-days runs within which the CIR may act
it cannot be imposed on its corporate officers, much so
on the protest. In this case, inaction arose on December
on its individual stockholders, for this will violate the
30, 2011. The appeal to the CTA may be made within 30
principle that a corporation has personality separate and
days thereafter, or until January 30, 2012.
distinct from the persons constituting it.78
Using the same facts in the immediately preceding
number, but assuming that the final decision on the
disputed assessment was received by the taxpayer on
74 Bonifacia Sy Po vs. CTA, et al., G.R. No. L-81446, August 18, 1988.
75BIR vs. CA, G.R. No. 197590, November 24, 2014 citing Collector v.
July 30, 2011, when is the last day for filing of the Jamir, 114 Phil. 650, 651-652 [1962]
appeal to the CTA? 76 Capitol Steel Corp. vs. Phividec Industrial Authority, G.R. No. 169453,
December 6, 2006.
77 Secretary of Finance, et al. vs. La Suerte Cigar and Cigarette Factory, et al.,
a) August 30, 2011;
G.R. No. 166498 , June 11, 2009.
78 Proton Pilipinas Corp. vs. Republic of the Phil., G.R. No. 165027, October
73 See Lascona Land Co., Inc. vs. CIR, G.R. No. 171251, March 5, 2012. 16, 2006.
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The Solicitor General, being the principal law officer Does the withholding agent have a legal right to file a
and legal defender of the state, its agencies and claim for refund?
instrumentalities, is aptly the office that can bring a case
on appeal to the Court of Appeals or the Supreme Court. A withholding agent has a legal right to file a claim
The institution or commencement before a proper court for refund for two reasons. First, he is considered a
of civil and criminal actions and proceedings arising taxpayer under the NIRC as he is personally liable for
under the Tax Reform Act which "shall be conducted by the withholding tax as well as for deficiency
legal officers of the Bureau of Internal Revenue" is not in assessments, surcharges, and penalties, should the
dispute. An appeal from such court, however, is not a amount of the tax withheld be finally found to be less
matter of right. Section 220 of the Tax Reform Act must than the amount that should have been withheld under
not be understood as overturning the long established law. Second, as an agent of the taxpayer, his authority to
procedure before this Court in requiring the Solicitor file the necessary income tax return and to remit the tax
General to represent the interest of the Republic. This withheld to the government impliedly includes the
pronouncement finds justification in the various laws authority to file a claim for refund and to bring an action
defining the Office of the Solicitor General, beginning for recovery of such claim.85
with Act No. 135, which took effect on 16 June 1901, up
to the present Administrative Code of 1987.82 Is the person upon whom the burden of an indirect tax is
shifted the proper party to seek a refund?
Rationale for requiring taxpayer to submit a claim for
refund before resorting to courts. No. The proper party to question, or seek a refund
of, an indirect tax is the statutory taxpayer, the person
79 Philippine Journalists, Inc. vs. CIR, G.R. No. 162852, December 16,
2004. 83 Bermejo vs. Collector, G.R. No. L-3029, July 25, 1950.
80 CIR vs. Rosemarie Acosta, G.R. No. 154068, August 3, 2007. 84 CIR vs. Primetown Property Group, Inc., G.R. No. 162155, August 28,
81 David vs. Ramos, et al., G.R. No. L-4300, October 31, 1951. 2007.
82 CIR vs. La Suerte Cigar and Cigarette Factory, G.R. No. 144942, June 28, 85 CIR vs. Smart Communication, Inc., G.R. Nos. 179045-46, August 25,
2001. 2010.
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on whom the tax is imposed by law and who paid the taxes fees and charges as provinces and municipalities.
same even if he shifts the burden thereof to another.86 In addition, the rate of taxes that they may levy may
exceed the maximum rates allowed for the province or
Instance when BIR rulings have no retroactive effect municipality by not more than fifty percent (50%) except
professional and amusement taxes.
The rule is that the BIR rulings have no retroactive
effect where a grossly unfair deal would result to the Among the different LGUs, who is/are authorized to
prejudice of the taxpayer.87 levy and impose business tax?
prohibition imposed by the provision...The absence of except when the beneficial use thereof has been
such a qualification leads to the conclusion that all sorts granted, for consideration or otherwise, to a
of taxes on petroleum products, including business taxable person;
taxes, are prohibited by Section 133 (h). Where the law
does not distinguish, we should not distinguish.91 (b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, non-
Who may impose tax on admission fees of theaters and profit or religious cemeteries and all lands,
cinemas? buildings, and improvements actually, directly,
and exclusively used for religious, charitable or
The local government retained the power to impose educational purposes;
amusement tax on proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses, boxing stadia, (c) All machineries and equipment that are actually,
and other places of amusement at a rate of not more than directly and exclusively used by local water
thirty percent (30%)* of the gross receipts from districts and government-owned or controlled
admission fees under Section 140 thereof. In the case of corporations engaged in the supply and
theaters or cinemas, the tax shall first be deducted and distribution of water and/or generation and
withheld by their proprietors, lessees, or operators and transmission of electric power;
paid to the local government before the gross receipts
are divided between said proprietors, lessees, or (d) All real property owned by duly registered
operators and the distributors of the cinematographic cooperatives as provided under R.A. No. 6938;
films. However, the provision in the Local Tax Code and
expressly excluding the national government from
collecting tax from the proprietors, lessees, or operators (e) Machinery and equipment used for pollution
of theaters, cinematographs, concert halls, circuses and control and environmental protection. (Sec. 234,
other places of amusements was no longer included.92 LGC)
* Now 10% under the amendment in R.A. No. 9640. Beneficial use principle96
Procedure for approval and effectivity of tax ordinances It is true that said Sec. 234 (a) . . . exempts from real
and revenue measures; mandatory public hearings estate taxes real property owned by the Republic, unless
the beneficial use of the property is, for consideration,
It is categorical that a public hearing be held prior to transferred to a taxable person. . . . This exemption,
the enactment of an ordinance levying taxes, fees, or however, must be read in relation with Sec. 133 (o) of the
charges; and that such public hearing be conducted as LGC, which prohibits LGUs from imposing taxes or fees
provided under Section 277 of the Implementing Rules of any kind on the national government, its agencies,
and Regulations of the Local Government Code. 93 and instrumentalities . . . Thus read together, the
provisions allow the Republic to grant the beneficial use
May a writ of injunction (or TRO) 94 be issued to enjoin of its property to an agency or instrumentality of the
the collection of local taxes? national government. Such grant does not necessarily
result in the loss of the tax exemption. The tax
Yes. The prohibition on the issuance of a writ of exemption the property of the Republic or its
injunction to enjoin the collection of taxes applies only to instrumentality carries ceases only if, as stated in Sec.
national internal revenue taxes, and not to local taxes.95 234 (a) of the LGC of 1991, beneficial use thereof has
been granted, for a consideration or otherwise, to a
taxable person. GSIS, as a government instrumentality,
F.2 Real Property Tax (RPT) is not a taxable juridical person under Sec. 133 (o) of the
LGC.97
Is the real property tax (RPT) a national tax or a local MIAA not a GOCC but an instrumentality of the
tax? Who is the taxing authority? government and, hence, exempt from real property tax
The RPT is a local tax and the repository of taxing [M]IAA is not a government-owned or controlled
power is the province, city or municipality within Metro corporation but a government instrumentality which is
Manila. exempt from any kind of tax from the local
governments. Indeed, the exercise of the taxing power of
What are the real properties exempt from real estate local government units is subject to the limitations
tax? enumerated in Section 133 of the Local Government
Code. Under Section 133 (o) of the Local Government
(a) Real property owned by the Republic of the Code, local government units have no power to tax
Philippines or any of its political subdivisions instrumentalities of the national government like the
91 Petron Corporation vs. Tiangco, G.R. No. 158881, April 16, 2008.
92 CIR vs. SM Prime Holdings, Inc., et al., G.R. No. 183505, February 26,
2010.
93 Ongsuco, et al. vs. Malones, G.R. No. 182065, October 27, 2009.
94Question VII, 2014 Bar. 96Question VIII, 2013 Bar.
95 Angeles City vs. Angeles City Electric Corporation, G.R. No. 166134, 29 97GSIS vs. City Treasurer of Manila, et al., G.R. No. 186242, December 23,
June 2010. 2009.
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MIAA. Hence, MIAA is not liable to pay real property authority to assess the property for realty taxes, and any
tax for the NAIA Pasay properties.98 subsequent claim for exemption shall be allowed only
when sufficient proof has been adduced supporting the
BAR 2013 claim. Since Napocor was simply questioning the
correctness of the assessment, it should have first
Mr. Amado leased a piece of land owned by the complied with Section 252, particularly the requirement
Municipality of Pinagsabitan and built a warehouse on of payment under protest. Napocor's failure to prove
the property for his business operations. The Municipal that this requirement has been complied with thus
Assessor assessed Mr. Amado for real property taxes on renders its administrative protest under Section 226 of
the land and the warehouse. Mr. Amado objected to the the LGC without any effect. No protest shall be
assessment, contending that he should not be asked to entertained unless the taxpayer first pays the tax.101
pay realty taxes on the land since it is municipal
property. BAR 2014
Was the assessment proper? Madam X owns real property in Caloocan City. On
July 1, 2014, she received a notice of assessment from the
Suggested Answer: City Assessor, informing her of a deficiency tax on her
property. She wants to contest the assessment.
Yes. While the subject property is owned by a
political subdivision who is ordinarily not liable for local (A) What are the administrative remedies available
taxes such as real property tax, the beneficial use was to Madam X in order to contest the assessment and their
granted to a taxable person. Consequently, the property respective prescriptive periods?
is no longer exempt from real property tax. (Sec. 234a,
LGC) (B) May Madam X refuse to pay the deficiency tax
assessment during the pendency of her appeal?
Is Mactan Cebu International Airport Authority
(MCIAA) liable for real property taxes on its airport Suggested Answer:
terminal buildings, airfield, runways and taxiways?
(A) Madam X must first pay the real property tax
Suggested Answer: under protest. Within 30 days from payment of the tax,
she may file a protest against the assessment. Should the
No. In the recent case of MCIAA v. City of Lapu- Madam X find the action on the protest unsatisfactory,
Lapu, 15 June 2015, the Supreme Court held that MCIAA she may appeal with the Local Board of Assessment
is an instrumentality of the government; thus, its Appeals within 60 days from receipt of the decision on
properties actually, solely and exclusively used for the protest. If she is still unsatisfied after appealing with
public purposes, consisting of the airport terminal the Local Board of Assessment Appeals, she may appeal
building, airfield, runway, taxiway and the lots on with the Central Board of Assessment Appeals within 30
which they are situated, are not subject to real property days from receipt of the Local Boards decision (Sections
tax.99 252, 226 and 229, LGC).102
What is the tax base of the real property tax? (B) No. The law emphatically directs that the
taxpayer/real property owner questioning the
The tax base is assessed value. It is NOT the zonal assessment should first pay the tax due before his
value or the fair market value. protest can be entertained. As a matter of fact, the words
paid under protest shall be annotated on the tax
When is payment under protest required? receipts. Consequently, only after such payment has
been made by the taxpayer may he file a protest in
The protest contemplated under Section 252 is writing. In no case shall the protest be entertained unless
required where there is a question as to the the tax due has been paid.103
reasonableness or correctness of the amount assessed.
Hence, if a taxpayer disputes the reasonableness of an Is there a distinction between an erroneous
increase in a real property tax assessment, he is required assessment and an illegal assessment? If so, what
to first pay the tax under protest. Otherwise, the city may be the significance of such distinction?
or municipal treasurer will not act on his protest.100
Yes. An erroneous assessment presupposes that the
By providing that real property not declared and taxpayer is subject to the tax but is disputing the
proved as tax-exempt shall be included in the correctness of the amount assessed. On the other hand,
assessment roll, [Section 206 of the Local Government an assessment is illegal if it was made without authority
Code of 1991] implies that the local assessor has the under the law.
98 Manila International Airport Authority vs. City of Pasay, et al., G.R. No.
163072, April 2, 2009.
99In this case of MCIAA v. Lapu-Lapu, the Court stated that the 2006
case of MIAA v. Paranaque in effect reversed the 1996 case of MCIAA v. 101NAPOCOR vs. Province of Quezon, et al. (2010), supra.
Marcos which held that MCIAA is a GOCC, not an instrumentality of 102 See City of Lapu-Lapu vs. PEZA, G.R. No. 184203 and 187583, 26
the government. November 2014.
100 NAPOCOR vs. Province of Quezon, et al., G.R. No. 171586, January 25, 103 See Camp John Hay Development Corporation vs. CBAA, G.R. No.
The nature of the assessment, whether erroneous or intention to unlade therein. Importation is deemed
illegal, will determine the proper remedy of a taxpayer. terminated upon payment of the duties, taxes and other
Thus, in case of an erroneous assessment, the taxpayer charges due upon the articles, or secured to be paid, at a
must exhaust the administrative remedies provided port of entry and the legal permit for withdrawal shall
under the Local Government Code before resorting to have been granted, or in case said articles are free of
judicial action duties, taxes and other charges, until they have legally
left the jurisdiction of the customs. (Section 1202 of the
First, pay the real property tax under protest; TCCP)
Second, appeal with the LBAA within 60 days from Importation of goods is deemed terminated:
receipt of an adverse decision on the protest; and
a) When the customs duties are paid, even if the
Third, appeal with the CBAA within 30 days from goods remain within the customs premises;
receipt of the Local Boards decision. b) When the goods are released or withdrawn from
the customs house upon payment of the customs
In case of an illegal assessment, the taxpayer may duties or with legal permit to withdraw;
directly resort to judicial action without paying under c) When the goods enter Philippines territory and
protest the assessed tax and filing an appeal with the remain within the customs house within thirty
Local and Central Board of Assessment Appeals. (See (30) days from date of entry;
City of Lapu-Lapu v. PEZA, G.R. Nos. 184203 and G.R. d) When there is part payment of duties on the
No. 187583, 26 November 2014) imported goods located in the customs area.
(Question 71, 2012 Bar)
In case of illegal assessment for RPT, may the
taxpayer file a petition for declaratory relief with the The Bureau of Customs has jurisdiction so long as
RTC? If not, what should be the proper remedy? importation has not ended.
No. A petition for declaratory relief is not the proper In order for an importation to be deemed
remedy once a notice of assessment was already issued. terminated, the payment of the duties, taxes, fees and
other charges of the item brought into the country must
Instead of a petition for declaratory relief, the be in full. For as long as the importation has not been
taxpayer should directly resort to a judicial action, like a completed, the imported item remains under the
complaint for injunction, the appropriate ordinary civil jurisdiction of the BOC.105
action to enjoin the Province or City from enforcing its
demand and collecting the assessed taxes. After all, a What is smuggling?106
declaratory judgment is useless unless the LGU is
enjoined from enforcing its demand. This is committed by a person who
Note: A complaint for injunction concerning local (1) fraudulently imports or brings into the
taxation is not violative of the so-called no-injuction Philippines, or assist in doing so, any article contrary to
rule. The rule applies only in respect to internal revenue law, or
taxes. (2) receives, buy, sell, or in any manner facilitate the
transportation, concealment, or sale of such article after
Who may appeal an assessment for real property taxes? importation, knowing the same to have been imported
contrary to law. (Sec. 3601, TCC)
Under Section 226 of the LGC, any owner or person
having legal interest in the property may appeal an BAR 2013
assessment for real property taxes to the LBAA. Since
Section 250 adopts the same language in enumerating Mr. Z made an importation which he declared at the
who may pay the tax, we equated those who are liable to Bureau of Customs (BOC) as "Used Truck Replacement
pay the tax to the same entities who may protest the tax Parts". Upon investigation, the container vans
assessment. A person legally burdened with the contained 15 units of Porsche and Ferrari cars.
obligation to pay for the tax imposed on the property
has the legal interest in the property and the personality Characterize Mr. Z's action. (1%)
to protest the tax assessment.104
(A) Mr. Z committed smuggling.
(B) Mr. Z did not commit smuggling because he
G. TARIFF AND CUSTOMS LAW submitted his shipment to BOC examination.
(C) Mr. Z only made a misdeclaration, but did not
commit smuggling.
When does importation begin and when is it (D) Mr. Z did not commit smuggling because the
terminated? shipment has not left the customs area.107
2010. 107 See Rieta v. People, G.R. No. 147817, 12 August 2004.
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Who acquires jurisdiction over imported goods when no Is the Bureau of Customs correct?
warrant of seizure or detention (WSD was previously
issued? Suggested Answer:
The rule is that from the moment imported goods No. More than 3 years had already elapsed from the
are actually in the possession or control of the Customs entry of and payment of the duties on the imported steel
authorities, even if no warrant for seizure or detention ingots. Since there is no showing that the liquidation of
had previously been issued by the Collector of Customs the import entry in 2005 was merely tentative, such
in connection with the seizure and forfeiture liquidation became final and conclusive as of 2008.
proceedings, the BOC acquires exclusive jurisdiction
over such imported goods for the purpose of enforcing
the customs laws, subject to appeal to the Court of Tax H. THE COURT OF TAX APPEALS
Appeals whose decisions are appealable to this Court. 109
What is the rationale of the law granting the Scope of the of the CTAs jurisdiction under Section 7 of
Commissioner of Customs the power of automatic Republic Act (R.A.) No. 9282
review over the decision of the Collector of Customs in
protest and seizure cases? Sec. 7. Jurisdiction. The CTA shall exercise:
The provision for automatic review by the (a) Exclusive appellate jurisdiction to review by appeal,
Commissioner of Customs and the Secretary of Finance as herein provided:
of unappealed seizure and protest cases was conceived
to protect the government against corrupt and conniving 1. Decisions of the Commissioner of Internal
customs collectors.110 Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
Without the automatic review by the Commissioner fees or other charges, penalties in relation
of Customs and the Secretary of Finance, a collector in thereto, or other matters arising under the
any of our country's far-flung ports, would have National Internal Revenue Code or other laws
absolute and unbridled discretion to determine whether administered by the Bureau of Internal Revenue;
goods seized by him are locally produced, hence, not
dutiable, or of foreign origin, and therefore subject to 2. Inaction by the Commissioner of Internal
payment of customs duties and taxes. His decision, Revenue in cases involving disputed
unless appealed by the aggrieved party (the owner of assessments, refunds of internal revenue taxes,
the goods), would become final with no one the wiser fees or other charges, penalties in relation
except himself and the owner of the goods. The owner of thereto, or other matters arising under the
the goods cannot be expected to appeal the collector's National Internal Revenue Code or other laws
decision when it is favorable to him. A decision that is administered by the Bureau of Internal Revenue,
favorable to the taxpayer would correspondingly be where the National Internal Revenue Code
unfavorable to the Government, but who will appeal the provides a specific period of action, in which
collector's decision in that case? Certainly not the case the inaction shall be deemed a denial;
collector. (Ibid.)
3. Decisions, orders or resolutions of the Regional
Finality of liquidation Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their
original or appellate jurisdiction;
108 Rieta v. People, supra.
109 Agriex Co., Ltd. vs. Villanueva, G.R. No. 158150, September 10, 2014
citing Subic Bay Metropolitan Authority v. Rodriguez, G.R. No. 160270,
4. Decisions of the Commissioner of Customs in
April 23, 2010, 619 SCRA 176. cases involving liability for customs duties, fees,
110 Yaokasin vs. Commissioner of Customs, et. al. G.R. No. 84111, or other monetary charges, seizure, detention or
December 22, 1989.
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release of property affected, fines, forfeitures or authority of the CTA to take cognizance of petitions for
other penalties in relation thereto, or other certiorari questioning interlocutory orders issued by the RTC
matters arising under the Customs Laws or in a local tax case is included in the powers granted by the
other laws administered by the Bureau of Constitution as well as inherent in the exercise of its appellate
Customs; jurisdiction. (City of Manila vs. Grecia-Cuerdo, G.R. No.
175723, 4 February 2014, EN BANC)
5. Decisions of the Central Board of Assessment
May the CTA pass on questions relating to the validity
Appeals in the exercise of its appellate
of rules and regulations issued by administrative
jurisdiction over cases involving the assessment
agencies?
and taxation of real property originally decided
by the provincial or city board assessment
Suggested Answer:
appeals;
Yes. The CTA can now rule not only on the
6. Decisions of the Secretary of Finance on customs propriety of an assessment or tax treatment of a certain
cases elevated to him automatically for review transaction, but also on the validity of the revenue
from decisions of the Commissioner of Customs regulation or revenue memorandum circular on which
which are adverse to the Government under the said assessment is based. (see Philam Life v. Secretary
Section 2315 of the Tariff and Customs Code; of Finance, November 24, 2014)
7. Decisions of the Secretary of Trade and Who has jurisdiction to review BIR Rulings?
Industry, in the case of nonagricultural product,
commodity or article, and the Secretary of Suggested Answer:
Agriculture in the case of agricultural product,
commodity or article, involving dumping and What is involved is the Commissioners power
countervailing duties under Section 301 and 302, under the first paragraph of Sec. 4 of the NIRC the
respectively, of the Tariff and Customs Code, power to interpret tax laws, and, thus, the ruling is
and safeguard measures under Republic Act No. subject to review by the Secretary of Finance. 112
8800, where either party may appeal the
decision to impose or not to impose said duties; Where does one seek immediate recourse from the
xxx adverse ruling of the Secretary of Finance in its exercise
of its power of review under Sec. 4?
What cases originating from the Commissioner of
Internal Revenue are within the jurisdiction of the CTA? Suggested Answer:
These are (1) cases involving disputed assessments, The CTA has jurisdiction over the petition as other
(2) refunds of internal revenue taxes, fees or other matters arising under the NIRC or other laws
charges, penalties in relation thereto, or (3) other matters administered by the BIR under Sec. 7(a)(1) of RA 1125.
arising under the NIRC111 or other laws administered by Even though the provision suggests that it only covers
the BIR. (Sec.7[a][1][2], RA 1125, as amended) rulings of the Commissioner, nonetheless, it is sufficient
enough to include appeals from the Secretarys review
BAR 2014 under Sec. 4 of the NIRC. 113
The City of Liwliwa assessed local business taxes A complaint for injunction was filed with the RTC
against Talin Company. Claiming that there is double praying that the trial court nullify the notice of
taxation, Talin Company filed a Complaint for Refund assessment of real property tax. A direct resort to the
or Recovery of Illegally and/or Erroneously-collected RTC was made as no questions of fact were involved.
Local Business Tax; Prohibition with Prayer to Issue
Temporary Restraining Order and Writ of Preliminary In case the RTC renders a decision, what remedy may
Injunction with the Regional Trial Court (RTC). The the affected party take and before what court?
RTC denied the application for a Writ of Preliminary
Injunction. Since its motion for reconsideration was Suggested Answer:
denied, Talin Company filed a special civil action for
certiorari with the Court of Appeals (CA). The The CTA. The party unsatisfied with the decision of
government lawyer representing the City of Liwliwa the Regional Trial Court shall file an appeal, not a
prayed for the dismissal of the petition on the ground petition for certiorari, before the Court of Tax Appeals,
that the same should have been filed with the Court of the complaint being a local tax case decided by the
Tax Appeals (CTA). Talin Company, through its lawyer, Regional Trial Court (see R.A. No. 1125, as amended by
Atty. Frank, countered that the CTA cannot entertain a
R.A. No. 9282, Sec. 7 [a] [3]).114
petition for certiorari since it is not one of its powers
and authorities under existing laws and rules.Decide.
To GOD be all the glory, honor and power!
Suggested Answer:
* * * GOOD LUCK! * * *
The petition before the CA should be dismissed as
jurisdiction belongs to the CTA. It is now settled that the 112 Philam Life v. Secretary of Finance (2014), supra.
113See Philam Life v. Secretary of Finance, supra.
111 Question 51, 2012 Bar. 114 See also City of Lapu-Lapu v. PEZA (2014), supra.