CEU SCHOOL OF LAW AND JURISPRUDENCE

COURSE OUTLINE1
Taxation II
1st Semester School year 2017-2018

Week 1
ESTATE TAX
I. THE GROSS ESTATE
Rev. Regs. No. 02-2003, Dec. 16, 2002

It is a well-settled rule that estate taxation is governed by the statute in force at the time of death of the
decedent. The estate tax accrues as of the death of the decedent and the accrual of the tax is distinct from
the obligation to pay the same. Upon the death of the decedent, succession takes place and the right of the
State to tax the privilege to transmit the estate vests instantly upon death. (Sec. 3, Rev. Regs. No. 02-2003,
Dec. 16, 2002)

The gross estate of a decedent shall be comprised of the following properties and interest therein at the time
of his death, including revocable transfers and transfers for insufficient consideration, etc.:

A) Residents and citizens – all properties, real or personal, tangible or intangible, wherever situated.

B) Non-resident aliens – only properties situated in the Philippines provided, that, with respect to intangible
personal property, its inclusion in the gross estate is subject to the rule of reciprocity provided for under
Section 104 of the Code. (Sec. 4, Rev. Regs. No. 02-2003, Dec. 16, 2002)

The properties comprising the gross estate shall be valued based on their fair market value as of the time of
death.

If the property is a real property, the fair market value shall be the fair market value as determined by the
Commissioner or the fair market value as shown in the schedule of values fixed by the provincial and city
assessors, whichever is higher. For purposes of prescribing real property values, the Commissioner is
authorized to divide the Philippines into different zones or areas and shall, upon consultation with competent
appraisers, both from the private and public sectors, determine the fair market value of real properties
located in each zone or area.

In the case of shares of stocks, the fair market value shall depend on whether the shares are listed or
unlisted in the stock exchanges. Unlisted common shares are valued based on their book value while
unlisted preferred shares are valued at par value. In determining the book value of common shares,
appraisal surplus shall not be considered as well as the value assigned to preferred shares, if there are any.
For shares which are listed in the stock exchanges, the fair market value shall be the arithmetic mean
between the highest and lowest quotation at a date nearest the date of death, if none is available on the date
of death itself.

To determine the value of the right to usufruct, use or habitation, as well as that of annuity, there shall be
taken into account the probable life of the beneficiary in accordance with the latest basic standard mortality
table, to be approved by the Secretary of Finance, upon recommendation of the Insurance Commissioner.
(Sec. 5, Rev. Regs. No. 02-2003, Dec. 16, 2002)

A. Introduction

Lorenzo v. Posadas, 64 Phil. 353 (1937)

The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance,
devise, bequest, gift mortis causa, or advance in anticipation of inheritance, devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by
his death.

If death is the generating source from which the power of the state to impose inheritance taxes takes its
being and if, upon the death of the decedent, succession takes place and the right of the state to tax vests
instantly, the tax should be measured by the value of decedent's death, regardless of any subsequent
contingency affecting value or any subsequent increase or decrease in value.the estate as it stood at the
time of the

1
Based on the course outline of Atty. Carlos G. Baniqued in Tax II, Ateneo de Manila University School of Law, as revised and updated by Atty. Terence Conrad H. Bello.
 "The right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily
measured as to any beneficiary by the value at that time of such property as passes to him. Subsequent
appreciation or depreciation is immaterial.

Whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable at the
time of the predecessor's death, notwithstanding the postponement of the actual possession or enjoyment
of the estate by the beneficiary, and the tax measured by the value of the property transmitted at that time
regardless of its appreciation or depreciation.

Beam v. Yatco, 82 Phil. 30 (1948)

The properties in question which have been acquired by A.W. B. and wife during their marriage, should
be considered as community property and upon the death of the wife, the one that belonged to her
passed by succession to her heirs, in accordance with the provisions of articles 1401, 1407 and 1426 of
the Civil Code, and therefore is subject to the inheritance tax.

The question raised by appellants regarding the situs of the properties in question, has no merit in view of
the express provisions of section 1536 of the Revised Administrative Code, specifying shares issued by
any corporation or sociedad anónima organized in the Philippines among properties subject to
inheritance tax. The pronouncement of the lower court that the actual situs of the shares in question is in
the Philippines is fully supported by the evidence.

B. General Definition of Gross Estate

Secs. 85 and 104, NIRC

CIR v. Campos Rueda, 42 SCRA 23 (1971)

The fact that the laws of Tangier, Morocco, do not impose transfer or death taxes upon intangible
personal properties of our citizens not residing therein, entitles to a reciprocal exemption similar
properties belonging to the decedent who at the time of his death resides in Tangiers, no matter that the
latter country does not possess international personality in the traditional sense

C. Constitution
1. Property in Which Decedent Had an Interest
Sec. 85(A), NIRC

(A) Decedent's Interest. - To the extent of the interest therein of the decedent at the time of his death;

2. Transfers in Contemplation of Death

Sec. 85(B), NIRC

(B) Transfer in Contemplation of Death. - To the extent of any interest therein of which the decedent
has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in
possession or enjoyment at or after death, or of which he has at any time made a transfer, by trust or
otherwise, under which he has retained for his life or for any period which does not in fact end before
his death

(1) the possession or enjoyment of, or the right to the income from the property, or

(2) the right, either alone or in conjunction with any person, to designate the person who shall
possess or enjoy the property or the income therefrom;

(3) except in case of a bona fide sale for an adequate and full consideration in money or money's
worth.

3. Transfers Taking Effect at Death

Sec. 85(B), NIRC

BIR Ruling No. 81-98, May 28, 1998

DONORS TAX; Donation Mortis Causa - Donations/gifts made which are intended to take effect upon
the death of the donor partake the nature of testamentary provision and the same shall remain part of
the donor-decedent's gross estate at the time of his/her death even if the same have been donated in
favor of the donee. Hence, the provision relative to the imposition of estate tax on transfers in
contemplation of death shall apply but the donation/gifts are exempt from donor's tax.

However, since a donation mortis causa takes effect only upon the death of the donor, the real
properties subject to the donation cannot be transferred in the name of the donee and shall thereby
 remain the properties of the donor. Meanwhile, the Donation Mortis Causa can be properly annotated
at the back of the TCT by the concerned Register of Deeds to protect the right of any person who
may be affected by the said donation. (BIR Ruling No. 081-98 dated May 28, 1998)

BIR Ruling No. 10-03, Sept. 8, 2003

PEREZ, PRINCESS CHARISMA V. 27. BIR Ruling No. 10-03, Sept. 8, 2003

FACTS: This is a ruling in reply to a letter requesting on behalf of Banco de Oro Universal Bank, for a
confirmation whether a Survivorship Agreement executed by the joint depositors under a joint deposit
account expressly stipulating that upon death of any one of the joint depositors, the entire remaining
balance of the deposit shall belong to the surviving depositor/s and, in effect, may be forthwith
withdrawn by the latter notwithstanding the provisions of Section 97 of the 1997 Tax Code.

RULING: NO. In the Survivorship Agreement, the joint depositors cannot withdraw any portion of the
said deposit account without the consent of the other. However, upon death of any of them, the whole
amount of the funds shall belong to the surviving co-depositor/s, and may forthwith be withdrawn by
the latter. The said provision contained in the agreement is valid and binding between the joint
depositors but it has an effect of a gift or donation mortis causa made by the deceased co-depositor
during his lifetime but effective upon death because the acquisition by the survivor of the share of the
decedent in the joint account is considered to be acquired by bequest and hence subject to estate tax
under Section 84 of the 1997 Tax Code. Considering that the joint account is co-owned by the
depositors, there is a presumption that they owned it equally or in 50/50 shares, in which case, the
transfer of the remaining balance of the whole deposit to the surviving co-depositor/s upon death of
the other co-depositor pursuant to their Survivorship Agreement is a transfer made by the said
depositor in contemplation of death, as provided under Section 85(B) of the 1997 Tax Code. Thus,
upon the death of the co-depositors, the 50% share of the deceased co-depositor in the deposit shall
be included in computing the value of his gross estate. Hence, the funds in the joint deposit account
cannot be withdrawn by the surviving co-depositor/s unless the Commissioner has certified that the
taxes imposed thereon by Title III of the 1997 Tax Code have been paid; Provided, however, That the
administrator of the estate or any one (1) of the heirs of the deceased co-depositor may, upon the
authorization by the Commissioner, withdraw an amount not exceeding Twenty thousand pesos
(P20,000.00) without the said certification.

4. Transfers with Retained Interest

Sec. 85(B), NIRC
a. Period for Which Interest is Retained
i. For life
ii. For any period which does not in fact end before death
b. Nature of Interest Retained
i. Possession or enjoyment
ii. Right to income
iii. Right to designate person who shall have possession or
enjoyment
iv. Right to designate person who shall receive income
5. Revocable Transfers
Sec. 85(C), NIRC

(C) Revocable Transfer. -

(1) To the extent of any interest therein, of which the decedent has at any time made a transfer
(except in case of a bona fide sale for an adequate and full consideration in money or money's worth)
by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change
through the exercise of a power (in whatever capacity exercisable) by the decedent alone or by the
decedent in conjunction with any other person (without regard to when or from what source the
decedent acquired such power), to alter, amend, revoke, or terminate, or where any such power is
relinquished in contemplation of the decedent's death.

(2) For the purpose of this Subsection, the power to alter, amend or revoke shall be considered to
exist on the date of the decedent's death even though the exercise of the power is subject to a
precedent giving of notice or even though the alteration, amendment or revocation takes effect only
on the expiration of a stated period after the exercise of the power, whether or not on or before the
date of the decedent's death notice has been given or the power has been exercised. In such cases,
proper adjustment shall be made representing the interests which would have been excluded from
the power if the decedent had lived, and for such purpose if the notice has not been given or the
power has not been exercised on or before the date of his death, such notice shall be considered to
have been given, or the power exercised, on the date of death.
 BIR Ruling No. 013-2005, Aug. 16, 2005

BIR Ruling No. DA-279-2006, April 25, 2006

a. Nature of Power
i. Power to alter or amend
ii. Power to revoke
iii. Power to terminate
b. Meaning of Power in “Whatever Capacity”
c. Meaning of Power Exercisable in “Conjunction with any Other
Person”
d. Meaning of “Relinquishment of Power in Contemplation of Death”
6. Power of Appointment
Sec. 85(D), NIRC

(D) Property Passing Under General Power of Appointment. - To the extent of any property
passing under a general power of appointment exercised by the decedent: (1) by will, or (2) by deed
executed in contemplation of, or intended to take effect in possession or enjoyment at, or after his
death, or (3) by deed under which he has retained for his life or any period not ascertainable without
reference to his death or for any period which does not in fact end before his death (a) the possession
or enjoyment of, or the right to the income from, the property, or (b) the right, either alone or in
conjunction with any person, to designate the persons who shall possess or enjoy the property or the
income therefrom; except in case of a bona fide sale for an adequate and full consideration in money
or money's worth.

a. Meaning of “Power of Appointment”

b. Applicability in the Philippines
7. Proceeds of Life Insurance
Sec. 85(E), NIRC

(E) Proceeds of Life Insurance. - To the extent of the amount receivable by the estate of the
deceased, his executor, or administrator, as insurance under policies taken out by the decedent upon
his own life, irrespective of whether or not the insured retained the power of revocation, or to the
extent of the amount receivable by any beneficiary designated in the policy of insurance, except when
it is expressly stipulated that the designation of the beneficiary is irrevocable.

a. Estate as Beneficiary
b. Third Person as Beneficiary

II. VALUATION OF ESTATE AND AMOUNT TO BE INCLUDED IN

CASES COVERED BY SECS. 85(B), (C) AND (D) OF THE NIRC
Secs. 85(G) and 88, NIRC

(G) Transfers for Insufficient Consideration. - If any one of the transfers, trusts, interests, rights or
powers enumerated and described in Subsections (B), (C) and (D) of this Section is made, created,
exercised or relinquished for a consideration in money or money's worth, but is not a bona fide sale for
an adequate and full consideration in money or money's worth, there shall be included in the gross
estate only the excess of the fair market value, at the time of death, of the property otherwise to be
included on account of such transaction, over the value of the consideration received therefor by the
decedent.

SEC. 88. Determination of the Value of the Estate. -

(A) Usufruct. - To determine the value of the right of usufruct, use or habitation, as well as that of
annuity, there shall be taken into account the probable life of the beneficiary in accordance with the
latest Basic Standard Mortality Table, to be approved by the Secretary of Finance, upon
recommendation of the Insurance Commissioner.

(B) Properties. - The estate shall be appraised at its fair market value as of the time of death. However,
the appraised value of real property as of the time of death shall be, whichever is higher of -
(1) The fair market value as determined by the Commissioner; or
(2) The fair market value as shown in the schedule of values fixed by the Provincial and City
Assessors.

III. EXEMPT TRANSFERS

 Sec. 87, NIRC

SEC. 87 Exemption of Certain Acquisitions and Transmissions. - The following shall not be taxed:

(A) The merger of usufruct in the owner of the naked title;

(B) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
fideicommissary;
(C) The transmission from the first heir, legatee or donee in favor of another beneficiary, in accordance
with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social welfare, cultural and charitable institutions, no
part of the net income of which inures to the benefit of any individual: Provided, however, That not
more than thirty percent (30%) of the said bequests, devises, legacies or transfers shall be used by
such institutions for administration purposes.

IV. EXCLUSION OF CONJUGAL SHARE OF SURVIVING SPOUSE

Sec. 85(H), NIRC

(H) Capital of the Surviving Spouse. - The capital of the surviving spouse of a decedent shall not, for the
purpose of this Chapter, be deemed a part of his or her gross estate.

Week 2
V. DEDUCTIONS FROM GROSS ESTATE
Sec. 86, NIRC
A. Expenses, Losses, Indebtedness, Taxes, Etc. (ELITE)
1. Funeral Expenses

Actual funeral expenses or in an amount equal to five percent (5%) of the gross estate, whichever is
lower, but in no case to exceed Two hundred thousand pesos (P200,000)

2. Expenses for Testamentary of Intestate Proceedings

3. Claims Against the Estate

The indebtedness was incurred the debt instrument was duly notarized and, if the loan was
contracted within three (3) years before the death of the decedent, the administrator or executor shall
submit a statement showing the disposition of the proceeds of the loan;

Dizon v. Court of Tax Appeals, G.R. No. 140944, May 6, 2008

We express our agreement with the dateofdeath valuation rule, made pursuant to the ruling of the U.S.
Supreme Court in Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S. Ct. 291, 73 L.Ed. 647 (1929).
First. There is no law, nor do we discern any legislative intent in our tax laws, which disregards the
dateofdeath valuation principle and particularly provides that postdeath developments must be
considered in determining the net value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly and clearly imports, tax
statutes being construed strictissimi juris against the government. Any doubt on whether a person,
article or activity is taxable is generally resolved against taxation. Second. Such construction finds
relevance and consistency in our Rules on Special Proceedings wherein the term “claims” required to
be presented against a decedent’s estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in his lifetime, or liability
contracted by the deceased before his death. Therefore, the claims existing at the time of death are
significant to, and should be made the basis of, the determination of allowable deductions.

4. Claims Against Insolvent Persons

The value of decedent's interest therein is included in the value of the gross estate;

5. Unpaid Debts/Mortgages

For unpaid mortgages upon, or any indebtedness in respect to, property where the value of decedent's
interest therein, undiminished by such mortgage or indebtedness, is included in the value of the gross
estate, but not including any income tax upon income received after the death of the decedent, or
property taxes not accrued before his death, or any estate tax. The deduction herein allowed in the
case of claims against the estate, unpaid mortgages or any indebtedness shall, when founded upon a
promise or agreement, be limited to the extent that they were contracted bona fide and for an
adequate and full consideration in money or money's worth. There shall also be deducted losses
incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualties,
or from robbery, theft or embezzlement, when such losses are not compensated for by insurance or
 otherwise, and if at the time of the filing of the return such losses have not been claimed as a
deduction for the income tax purposes in an income tax return, and provided that such losses were
incurred not later than the last day for the payment of the estate tax as prescribed in Subsection (A) of
Section 91.

6. Losses

B. Vanishing Deduction
C. Transfers for Public Use
The amount of all the bequests, legacies, devises or transfers to or for the use of the Government of
the Republic of the Philippines, or any political subdivision thereof, for exclusively public purposes.

D. Family Home
E. Standard Deduction
BIR Ruling 009-99, Jan. 22, 1999

All items enumerated in Sec. 86(A) of the Tax Code are allowable deductions from the value of the gross
estate of a resident decedent in computing the net estate. The enumerated items are authorized by law
to be deducted as independent, separate and distinct items of deduction which may properly be
deducted from the gross estate of a resident subject to limitations provided under each item.

F. Medical Expenses
G. Retirement Benefits and Separation Pay under NIRC Sec. 32(B)(6)(a) and
VI. FOREIGN TAX CREDITS
Sec. 86(E), NIRC
A. Per Country Limitation
B. Global Limitation
VII. SPECIAL RULES FOR NON-RESIDENT ALIENS
A. Meaning of Resident or Non-Resident
B. Inclusions in Gross Estate
Secs. 85 and 104, NIRC
C. Deductions from Gross Estate
Sec. 86(B) and (D), NIRC
D. Foreign Tax Credits
Sec. 86(E), NIRC
VIII. ADMINISTRATIVE PROVISIONS
A. Tax Rates
Sec. 84, NIRC
B. Notice of Death
Sec. 89, NIRC
C. Estate Tax Return
Sec. 90, NIRC
D. Payment of Estate Tax
Sec. 91, NIRC
E. Consequences of Non-Payment of Estate Tax
Secs. 248, 249, 94 to 97, NIRC

DONOR’S TAX
I. MEANING OF “GIFT”
Sec. 104, NIRC

Pirovano v. CIR, 14 SCRA 832 (1965)

A donation made by a corporation to the heirs of a deceased officer out of gratitude for his past services is
subject to the donees’ gift tax. A donation made-out of gratitude for past services is not subject to deduction
for the value of said services which do not constitute a recoverable debt.

Gratitude has no economic value and is not “consideration” in the sense that the word is used under
Section 311 of the Tax Code. Section 119, paragraph (b)(1) and (c) of the Tax Code does not confer on the
Commissioner of Internal Revenue or on the courts any power and discretion not to impose the 1% interest
monthly and the 5% surcharge for delay in payment of the gift tax already assessed.

II. VALUATION OF GIFTS

Sec. 102, NIRC
III. TRANSFER FOR LESS THAN ADEQUATE CONSIDERATION
Sec. 100, NIRC
IV. EXEMPT GIFTS
Sec. 101, NIRC
V. FOREIGN TAX CREDIT
Sec. 101(C), NIRC
A. Per Country Limitation
B. Global Limitation
VI.ON WHOM IMPOSED
Sec. 98(A), NIRC
VII.ADMINISTRATIVE
A. Tax Rates
Sec. 99, NIRC
B. Donor’s Tax Return
Sec. 103(A), NIRC
C. Payment of Donor’s Tax
Sec. 103(B), NIRC
D. Consequences of Non-Payment of Donor’s Tax
Secs. 248- Sec. 249, NIRC Sec. 95, NIRC Sec. 97, NIRC

Week 3
VALUE-ADDED TAX
I. TAXABLE TRANSACTIONS
A. In General
Sec. 105, NIRC

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

The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services. This rule shall likewise apply to existing
contracts of sale or lease of goods, properties or services at the time of the effectivity of Republic Act No.
7716.

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

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

BIR Ruling 098-97, Aug. 28, 1997

Facts: Read Rite is a domestic corporation engaged in the manufacturing and export business; that it has
existing long term Lease Contracts with Option to Purchase over two contiguous parcels of land with
Philamlife and with PERF; that Philamlife and PERF have a prospective buyer who is willing to buy the
Leased Properties free for all liens and encumbrances including Read Rite's existing leasehold rights and
option to purchase, Philamlife and PERF, on the one hand, and Read Rite, on the other, are prepared to
enter into an agreement wherein Read Rite will consent and agree to the pre-termination of the Lease
Contracts and cancel the options to purchase stipulated therein for a certain consideration; that the
amount of the consideration to be mutually agreed upon by Read Rite and Philamlife and PERF
represents the pre-termination penalty, price for the cancellation of the options to purchase and indemnity
for the resulting disturbance or damage arising from the lease pre-termination;

Issue: Whether or not the consideration is subject to the 10% value added tax (VAT).

Ruling: No. BIR Ruling No. 31-83 dated March 1, 198, this Office has ruled that an option to buy, in the
hands of a taxpayer who does not deal in options, is a capital asset and the sale thereof gives rise to a
capital gain.

Since Read Rite does not deal in leasehold rights and options in its ordinary course of trade or business,
the pre-termination of the leases and cancellation of the options to purchase will not be made in the
ordinary course of trade or business of Read Rite. Hence, your opinion that the pre-termination of the
lease and the cancellation of the options to purchase is not subject to VAT is hereby confirmed.

BIR Ruling No. 018-05, Sept. 16, 2005

Facts: This refers to letter from various Corporations requesting for a clarication on the validity of
Regional Revenue Memorandum Circular No. 2-2002 issued on June 19, 2002 by Regional Director
Antonio I. Ortega of Revenue Region 8, Makati City.

RRMC-2-2002 covers the taxability of condominium corporations, particularly their liability for payment of
income tax and value-added tax (VAT for brevity) on the sale of service

Issue: Whether or not condominium dues, fees and assessments are subject to VAT.

Ruling: No. Collection of dues, fees, and assessments do constitute the payment of fees for services
rendered. Condominium corporations clearly collect funds in trust for unit owners, members, and
occupants, to be disbursed maintenance and utilities expenses.

Condominium Corporations are registered with the SEC, they are governed primarily by the
Condominium Act, particularly on the matter relating to its organization, formation, management,
dissolution and denial of appraisal rights from its stockholders. These statutory limitations are important
factors in determining whether or not Condominium Corporations, "in the course of trade or business",
render services to their unit members, which they manage and act as trustee for.

VAT Ruling No. 444-88

Facts: Philippine Shipyard and Engineering Corporation is planning to establish a company consumer
store where basic commodities shall be sold at cost and that projected sales per year shall be
approximately P2.5 million.

Issue: Whether or not the sales can be classified as zero-rated.

Ruling: The proposed sale transactions cannot qualify for zero rating since they do not meet the
conditions set under Section 100(a) of the Tax Code as amended by E.O. 273. Instead, the activity, in
spite of the absence of profit and value added to the goods, can be classified as one to be undertaken by
persons liable to VAT under Section 99 of the Tax Code as amended, to wit:

"Any person, who in the course of trade or business sells, barters or exchanges goods,
renders services or engaged in similar transactions and any person who imports good
shall be subject to value-added tax"

Moreover, the projected sales of P2.5 million is a strong basis for subjecting the sales transactions to
VAT.

VAT Ruling No. 207-90, Nov. 8, 1990

BIR Ruling No. 10-98, Feb. 5, 1998

CIR v. Commonwealth Mgt. & Services Corp., G.R. 125355, March 30, 2000

Contrary to COMASERCO’s contention the above provision clarifies that even a nonstock, nonprofit,
organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on
transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods
or property, and on the performance of services, even in the absence of profit attributable thereto. The
term “in the course of trade or business” requires the regular conduct or pursuit of a commercial or an
economic activity, regardless of whether or not the entity is profitoriented.

The definition of the term “in the course of trade or business” incorporated in the present law applies to
all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any
person who, in the course of trade or business, sells, barters or exchanges goods and services, was
already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit
organization or government entity is liable to pay VAT for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997 defines the phrase “sale of services” as
the “performance of all kinds of services for others for a fee, remuneration or consideration.” It includes
“the supply of technical advice, assistance or services rendered in connection with technical
management or administration of any scientific, industrial or commercial undertaking or project.”

On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 01098
emphasizing that a domestic corporation that provided technical, research, management and technical
assistance to its affiliated companies and received payments on a reimbursementofcost basis, without
any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such
 corporation was organized without any intention of realizing profit, any income or profit generated by
the entity in the conduct of its activities was subject to income tax.

It is immaterial whether the primary purpose of a corporation indicates that it receives payments for
services rendered to its affiliates on a reimbursementoncost basis only, without realizing profit, for
purposes of determining liability for VAT on services rendered. As long as the entity provides service
for a fee, remuneration or consideration, then the service rendered is subject to VAT.

It is a rule that because taxes are the lifeblood of the nation, statutes that allow exemptions are
construed strictly against the grantee and liberally in favor of the government. Otherwise stated, any
exemption from the payment of a tax must be clearly stated in the language of the law; it cannot be
merely implied therefrom. In the case of VAT, Section 109, Republic Act 8424 clearly enumerates the
transactions exempted from VAT. The services rendered by COMASERCO do not fall within the
exemptions.

Both the Commissioner of Internal Revenue and the Court of Tax Appeals correctly ruled that the
services rendered by COMASERCO to Philamlife and its affiliates are subject to VAT. As pointed out
by the Commissioner, the performance of all kinds of services for others for a fee, remuneration or
consideration is considered as sale of services subject to VAT. As the government agency charged
with the enforcement of the law, the opinion of the Commissioner of Internal Revenue, in the absence
of any showing that it is plainly wrong, is entitled to great weight.

VAT Ruling No. 26-97, April 1, 1997

Tourist Trade and Travel Corp. v. CIR, CTA Case No. 4806, Jan. 19, 1996

BIR Ruling No. 113-98, July 23, 1998

Magsaysay Lines, Inc. v. CIR, CTA Case No. 4353, April 27, 1992, aff. In G.R No. 146984, 28 Jul
2006

A brief reiteration of the basic principles governing VAT is in order. VAT is ultimately a tax on
consumption, even though it is assessed on many levels of transactions on the basis of a fixed
percentage. It is the end user of consumer goods or services which ultimately shoulders the tax, as the
liability therefrom is passed on to the end users by the providers of these goods or services who in turn
may credit their own VAT liability (or input VAT) from the VAT payments they receive from the final
consumer (or output VAT).

VAT is not a singular-minded tax on every transactional level. Its assessment bears direct relevance to
the taxpayer’s role or link in the production chain. Hence, as affirmed by Section 99 of the Tax Code and
its subsequent incarnations, the tax is levied only on the sale, barter or exchange of goods or services by
persons who engage in such activities, in the course of trade or business. These transactions outside the
course of trade or business may invariably contribute to the production chain, but they do so only as a
matter of accident or incident. As the sales of goods or services do not occur within the course of trade or
business, the providers of such goods or services would hardly, if at all, have the opportunity to
appropriately credit any VAT liability as against their own accumulated VAT collections since the
accumulation of output VAT arises in the first place only through the ordinary course of trade or business.

The conclusion that the sale was not in the course of trade or business, which the CIR does not dispute
before this Court, should have definitively settled the matter. Any sale, barter or exchange of goods or
services not in the course of trade or business is not subject to VAT.

Lapanday Foods Corp. v. CIR, CTA Case No. 7097, Oct. 18, 2007
CS Garments, Inc. vs. CIR, CTA Case No. 6520 dated January 4, 2007
Kepco Ilijan Corporation v CIR, CTA Case No. 8091, October 23, 2012

B. Sale of Goods or Properties

1. Transactions Covered
a. Actual Sale
Sec. 106(A)(1), NIRC, as amended by Rep. Act. No. 9337

(A) Rate and Base of Tax. - There shall be levied, assessed and collected on every sale, barter or
exchange of goods or properties, value-added tax equivalent to ten percent (10%) [44] of the gross
selling price or gross value in money of the goods or properties sold, bartered or exchanged, such
tax to be paid by the seller or transferor: Provided, That the President, upon the recommendation
of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to
twelve percent(12%), after any of the following conditions has been satisfied:
 (i) Value-added tax collection as a percentage of Gross Domestic Product (GDP) of the
previous year exceeds two and four-fifth percent (2 4/5%); or

(ii) National Government deficit as a percentage of GDP of the previous year exceeds one and
one-half percent (1 1/2%).

(1) "Goods or Properties." The term "goods" or "properties" shall mean all tangible and intangible
objects which are capable of pecuniary estimation and shall include:

a) Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
b) The right or the privilege to use patent, copyright, design or model, plan, secret formula
or process, goodwill, trademark, trade brand or other like property or right;

c) The right or the privilege to use in the Philippines of any industrial, commercial or
scientific equipment;

d) The right or the privilege to use motion picture films, tapes and discs; and

e) Radio, television, satellite transmission and cable television time.

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

BIR Ruling 424-2014

b. Transactions Deemed Sale

Sec. 106(B), NIRC, as amended by Rep. Act No. 9337

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

1. Transfer, use or consumption not in the course of business of goods or properties

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

Sec. 4.106-7, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by

Rev. Regs. No. 4-2007, Feb. 7, 2007

The Commissioner of Internal Revenue shall determine the appropriate tax base in cases where
a transaction is deemed a sale, barter or exchange of goods or properties under Sec. 4.106-7
paragraph (a) hereof, or where the gross selling price is unreasonably lower than the actual
market value. The gross selling price is unreasonably lower than the actual market value if it is
lower by more than 30% of the actual market value of the same goods of the same quantity and
quality sold in the immediate locality on or nearest the date of sale. Nonetheless, if one of the
parties in the transaction is the government as defined and contemplated under the
Administrative Code, the output VAT on the transaction shall be based on the actual selling price.

c. Changes in or Cessation of Status of a VAT-Registered Person

Sec. 106(C), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.106-8, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by
Rev. Regs. No. 4-2007, Feb. 7, 2007

BIR Ruling No. 24-2005, Dec. 23, 2005

2. Taxable Base
a. Gross Selling Price
Sec. 106(A)(1), 2nd par., NIRC, as amended by Rep. Act No. 9337
Sec. 4.106-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by
Rev. Regs. No. 4-2007, Feb. 7, 2007
 b. Sales Discounts, Returns and Allowances
Sec. 106(D), NIRC, as amended by Rep. Act No. 9337
Sec. 4.106-9, Rev. Regs. No. 16-2005, Sept. 1, 2005
VAT Ruling No. 204-90, Oct. 16, 1990

c. Taxable Base for Transactions Deemed Sale and Below Market Gross
Selling Price
Sec. 4.106-7(b), Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by
Rev. Regs. No. 4-2007, Feb. 7, 2007
C. Importation of Goods
Sec. 107, NIRC, as amended by Rep. Act. No. 9337
D. Sale of Services
1. Meaning of “Sale or Exchange of Service”
Sec. 108(A), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.108-2, Rev. Regs. No. 16-2005, Sept. 1, 2005
Lhuillier v. CIR, CTA Case No. 6533, May 16, 2003
Revenue Memorandum Circular 42-2003
BIR Ruling DA 320-07
2. Taxable Base: Gross Receipts Actually and Constructively Received
Sec. 108(A), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.108-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev.
Regs. No. 4-2007, Feb. 7, 2007
BIR Ruling No. 195-89, Sept. 8, 1989
VAT Ruling No. 111-88, April 25, 1989
VAT Ruling No. 205-90, Oct. 16, 1990
a. Amounts Earmarked for Payment to Third Parties
Sec. 4.108-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev.
Regs. No. 4-2007, Feb. 7, 2007

CIR v. Tours Specialists, Inc., G.R. 66416, March 21, 1990

The wellsettled doctrine is that the findings of facts of the Court of Tax Appeals are binding on
this Court and absent strong reasons for this Court to delve into facts, only questions of law are
open for determination. (Nilsen v. Commissioner of Customs, 89 SCRA 43 [1979]; Balbas v.
Domingo, 21 SCRA 444 [1967]; Raymundo v. De Joya, 101 SCRA 495 [1980]). In the recent
case of Sy Po v. Court of Appeals, (164 SCRA 524 [1988]), we ruled that the factual findings of
the Court of Tax Appeals are binding upon this court and can only be disturbed on appeal if not
supported by substantial evidence.

As demonstrated in the abovementioned case, gross receipts subject to tax under the Tax Code
do not include monies or receipts entrusted to the taxpayer which do not belong to them and do
not redound to the taxpayer’s benefit; and it is not necessary that there must be a law or
regulation which would exempt such monies or receipts within the meaning of gross receipts
under the Tax Code. Parenthetically, the room charges entrusted by the foreign travel agencies
to the private respondent do not form part of its gross receipts within the definition of the Tax
Code. The said receipts never belonged to the private respondent. The private respondent never
benefited from their payment to the local hotels. As stated earlier, this arrangement was only to
accommodate the foreign travel agencies.

Accordingly, the significance of P.D. 31 is clearly established in determining whether or not hotel
room charges of foreign tourists in local hotels are subject to the 3% contractor’s tax. As the
respondent court aptly stated: “x x x If the hotel room charges entrusted to petitioner will be
subjected to 3% contractor’s tax as what respondent would want to do in this case, that would in
effect do indirectly what P.D. 31 would not like hotel room charges of foreign tourists to be
subjected to hotel room tax. Although, respondent may claim that the 3% contractor’s tax is
imposed upon a different incidence, i.e. the gross receipts of petitioner tourist agency which he
asserts includes the hotel room charges entrusted to it, the effect would be to impose a tax, and
though different, it nonetheless imposes a tax actually on room charges. One way or the other, it
would not have the effect of promoting tourism in the Philippines as that would increase the costs
or expenses by the addition of a hotel room tax in the overall expenses of said tourists.”

BIR Ruling No. DA-069-2006, March 1, 2006

b. Reimbursement of Expenses
Sec. 4.108-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev.
Regs. No. 4-2007, Feb. 7, 2007
VAT Ruling No. 283-88, July 4, 1988
VAT Ruling No. 87-88, April 14, 1988
 VAT Ruling No. 97-88, April 15, 1988
Revenue Memorandum Circular 65-2012
Officemetro Philippines, Inc. (formerly Regus Centres, Inc.) vs.
Commissioner of Internal Revenue, CTA Case No. 8382, June 3,
2014, the Court of Tax Appeals – Third Division (CTA)

II. RELIEF FROM VAT: ZERO-RATING AND EXEMPTIONS

A. Difference Between Zero-Rating and Exemption
Secs. 4.106-5, 1st par., and 4.108-5(a), Rev. Regs. No. 16-2005, Sept. 1, 2005
Cf. Sec. 4.109-1(A), Rev. Regs. No. 16-2005, Sept. 1, 2005

CIR v. Seagate Tech. (Phil.), G.R. 153866, Feb. 11, 2005

From the abovecited laws, it is immediately clear that petitioner enjoys preferential tax treatment. It is
not subject to internal revenue laws and regulations and is even entitled to tax credits. The VAT on
capital goods is an internal revenue tax from which petitioner as an entity is exempt. Although the
transactions involving such tax are not exempt, petitioner as a VATregistered person, however, is
entitled to their credits.

Viewed broadly, the VAT is a uniform tax ranging, at present, from 0 percent to 10 percent levied on
every importation of goods, whether or not in the course of trade or business, or imposed on each
sale, barter, exchange or lease of goods or properties or on each rendition of services in the course of
trade or business as they pass along the production and distribution chain, the tax being limited only
to the value added to such goods, properties or services by the seller, transferor or lessor. It is an
indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the goods,
properties or services. As such, it should be understood not in the context of the person or entity that
is primarily, directly and legally liable for its payment, but in terms of its nature as a tax on
consumption. In either case, though, the same conclusion is arrived at.

Zerorated transactions generally refer to the export sale of goods and supply of services. The tax rate
is set at zero. When applied to the tax base, such rate obviously results in no tax chargeable against
the purchaser. The seller of such transactions charges no output tax, but can claim a refund of or a
tax credit certificate for the VAT previously charged by suppliers.

Applying the special laws we have earlier discussed, respondent as an entity is exempt from internal
revenue laws and regulations. This exemption covers both direct and indirect taxes, stemming from
the very nature of the VAT as a tax on consumption, for which the direct liability is imposed on one
person but the indirect burden is passed on to another. Respondent, as an exempt entity, can neither
be directly charged for the VAT on its sales nor indirectly made to bear, as added cost to such sales,
the equivalent VAT on its purchases. Ubi lex non distinguit, nec nos distinguere debemus. Where the
law does not distinguish, we ought not to distinguish.

Tax refunds are in the nature of such exemptions. Accordingly, the claimants of those refunds bear
the burden of proving the factual basis of their claims; and of showing, by words too plain to be
mistaken, that the legislature intended to exempt them. In the present case, all the cited legal
provisions are teeming with life with respect to the grant of tax exemptions too vivid to pass
unnoticed. In addition, respondent easily meets the challenge.

Contex Corp. v. CIR, G.R. No. 151135, July 2, 2004

At this juncture, it must be stressed that the VAT is an indirect tax. As such, the amount of tax paid on
the goods, properties or services bought, transferred, or leased may be shifted or passed on by the
seller, transferor, or lessor to the buyer, transferee or lessee. Unlike a direct tax, such as the income
tax, which primarily taxes an individual’s ability to pay based on his income or net wealth, an indirect
tax, such as the VAT, is a tax on consumption of goods, services, or certain transactions involving the
same. The VAT, thus, forms a substantial portion of consumer expenditures.

The amount of tax paid may be shifted or passed on by the seller to the buyer. What is transferred in
such instances is not the liability for the tax, but the tax burden. In adding or including the VAT due to
the selling price, the seller remains the person primarily and legally liable for the payment of the tax.
What is shifted only to the intermediate buyer and ultimately to the final purchaser is the burden of the
tax. Stated differently, a seller who is directly and legally liable for payment of an indirect tax, such as
the VAT on goods or services is not necessarily the person who ultimately bears the burden of the
same tax. It is the final purchaser or consumer of such goods or services who, although not directly
and legally liable for the payment thereof, ultimately bears the burden of the tax.

Petitioner rightly claims that it is indeed VATExempt and this fact is not controverted by the
respondent. In fact, petitioner is registered as a NONVAT taxpayer per Certificate of Registration
 issued by the BIR. As such, it is exempt from VAT on all its sales and import tions of goods and
services. Petitioner’s claim, however, for exemption from VAT for its purchases of supplies and raw
materials is incongruous with its claim that it is VATExempt, for only VATRegistered entities can claim
Input VAT Credit/Refund.

The point of contention here is whether or not the petitioner may claim a refund on the Input VAT
erroneously passed on to it by its suppliers. While it is true that the petitioner should not have been
liable for the VAT inadvertently passed on to it by its supplier since such is a zerorated sale on the
part of the supplier, the petitioner is not the proper party to claim such VAT refund.

B. Automatically Zero-Rated Transactions

1. Sale of Goods and Properties
Sec. 106(A)(2)(a)(1), (2), (4) and (b), NIRC, as amended by Rep. Act. No. 9337

Toshiba Information Equipment (Phils) Inc. v CIR GR No. 157594, March 9, 2010

WON Toshiba can claim the refund of unutilized input VAT payments on its local purchases of
goods and services attributable to its export sales for the first and second quarters of 1997.

The Court, nevertheless, noted in the Toshiba case that the rule which considers any sale by a
supplier from the Customs Territory to a PEZAregistered enterprise as export sale, which should
not be burdened by output VAT, was only clearly established on October 15, 1999, upon the
issuance by the BIR of RMC No. 7499. Prior to October 15, 1999, whether a PEZAregistered
enterprise was exempt or subject to VAT depended on the type of fiscal incentives availed of by
the said enterprise.59 The old rule, then followed by the BIR, and recognized and affirmed by the
CTA, the Court of Appeals, and this Court, was described as follows

“According to the old rule, Section 23 of Rep. Act No. 7916, as amended, gives
the PEZAregistered enterprise the option to choose between two sets of fiscal
incentives: (a) The five percent (5%) preferential tax rate on its gross income
under Rep. Act No. 7916, as amended; and (b) the income tax holiday provided
under Executive Order No. 226, otherwise known as the Omnibus Investment
Code of 1987, as amended.

The five percent (5%) preferential tax rate on gross income under Rep. Act No.
7916, as amended, is in lieu of all taxes. Except for real property taxes, no other
national or local tax may be imposed on a PEZAregistered enterprise availing of
this particular fiscal incentive, not even an indirect tax like VAT. Alternatively, Book
VI of Exec. Order No. 226, as amended, grants income tax holiday to registered
pioneer and nonpioneer enterprises for sixyear and fouryear periods, respectively.
Those availing of this incentive are exempt only from income tax, but shall
be subject to all other taxes, including the ten percent (10%) VAT.

Such export sales took place before October 15, 1999, when the old rule on the VAT
treatment of PEZAregistered enterprises still applied. Under this old rule, it was not only
possible, but even acceptable, for Toshiba, availing itself of the income tax holiday option
under Section 23 of Republic Act No. 7916, in relation to Section 39 of the Omnibus
Investments Code of 1987, to be subject to VAT, both indirectly (as purchaser to whom the
seller shifts the VAT burden) and directly (as seller whose sales were subject to VAT, either
at ten percent [10%] or zero percent [0%]).

Revenue Regulations No 2-2012, February 17, 2012

BIR Ruling DA 30-07, January 19, 2007

WON the sale made by Negros Navigation Company, Inc. (Nenaco) of four (4) passenger and cargo
vessels to foreign buyers not engaged in trade or business in the Philippines, shall be an export
sale and thus subject to value-added tax at zero percent (0%) rate.

In reply, please be informed that Section 106 (A) (2) (a) (1) of the 1997 Tax Code, as amended,
provides: "SEC. 106. Value-added Tax on Sale of Goods or Properties. — (A) Rate and Base of
Tax. — There shall be levied, assessed and collected on every sale, barter or exchange of goods or
properties, a value-added tax equivalent to ten percent (10%) of the gross selling price or gross
value in money of the goods or properties or gross value in money of the goods or properties sold,
bartered or exchanged, such tax to be paid by the seller or transferor. xxx xxx xxx (2) The following
sales by VAT-registered persons shall be subject to zero percent (0%) rate: (a) Export Sales. — The
term 'export sales' means: The sale and actual shipment of goods from the Philippines to a foreign
country, irrespective of any shipping arrangement that may be agreed upon which may influence or
determine the transfer of ownership of the goods so exported and paid for in acceptable foreign
 currency or its equivalent in goods or services, and accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP);"

Considering that (i) Nenaco shall sell the Vessels to various foreign companies not engaged in
trade or business in the Philippines, (ii) respective foreign buyers shall bring the Vessels outside of
the Philippines, and (iii) the respective foreign buyers shall pay Nenaco in United States Dollars by
way of swift and/or telegraphic transfer to the bank account of Nenaco in the Philippines, which
shall be accounted for in accordance with the rules and regulations of the BSP , the said sale of
Vessels to the foreign buyers shall be considered export sale and shall be subject to VAT at a zero
percent (0%) rate under Section 106 (A) (2) (a) (1) of the 1997 Tax Code, as amended. (BIR Ruling
No. 076-98 dated May 27, 1998)

BIR Ruling 031-07 January 19, 2007

WON the local purchase of a motor vehicle for the personal use of Ms. Panalee Choosri, Second
Secretary of the Royal Thai Embassy is exempt from payment of taxes.

In reply, please be informed that Article 34 of the Vienna Convention on Diplomatic Relations reads:
"ARTICLE 34 "A diplomatic agent shall be exempt from all dues and taxes, personal or real,
national, regional or municipal, except: "(a) indirect taxes of a kind which are normally incorporated
in the price of the goods and services; "xxx xxx xxx"

Thus, the tax exemption privilege of an Embassy and its diplomatic agents does not include
exemption from value-added tax (VAT) on its local purchases of goods and services. In other words,
purchases by that Embassy of goods and/or services shall, in general, be subject to the value-
added tax prescribed under Sections 106 and 108 of the National Internal Revenue Code of 1997.
However, applying the principle of reciprocity, this Office may confirm exemption to the Royal Thai
Embassy and/or its personnel on their purchase of locally-assembled motor vehicles it appearing
from the list submitted by the Department of Foreign Affairs as of October 18, 2005 that your
Government allows similar exemption to the Philippine Embassy on their purchase of locally-
assembled motor vehicles in your country.

Hence, the local purchase of one (1) unit of 2007 Honda Civic 1.8S A/T, for the personal use of Ms.
Panalee Choosri of the Royal Thai Embassy is exempt from VAT and advalorem tax. (BIR Ruling
No. DA-ITAD-035-05 dated April 20, 2005)

2. Sale of Services
Sec. 108(B)(1), (2), (6) and (7), NIRC, as amended by Rep. Act. No. 9337

CIR v. American Express Int’l, Inc. (Phil.), G.R. 152609, June 29, 2005

WON the respondent is entitled to the refund of the amount of P3,352,406.59 representing
excess input VAT for the year 1997.

Under the last paragraph quoted above, services performed by VATregistered persons in the
Philippines (other than the processing, manufacturing or repacking of goods for persons doing
business outside the Philippines), when paid in acceptable foreign currency and accounted for in
accordance with the rules and regulations of the BSP, are zerorated.

Respondent is a VATregistered person that facilitates the collection and payment of receivables
belonging to its nonresident foreign client, for which it gets paid in acceptable foreign currency
inwardly remitted and accounted for in conformity with BSP rules and regulations. Certainly, the
service it renders in the Philippines is not in the same category as “processing, manufacturing or
repacking of goods” and should, therefore, be zerorated. In reply to a query of respondent, the
BIR opined in VAT Ruling No. 08089 that the income respondent earned from its parent
company’s regional operating centers (ROCs) was automatically zerorated effective January 1,
1988.

The VAT is a tax on consumption “expressed as a percentage of the value added to goods or
services” purchased by the producer or taxpayer. As an indirect tax on services, its main object is
the transaction itself or, more concretely, the performance of all kinds of services conducted in
the course of trade or business in the Philippines. These services must be regularly conducted in
this country; undertaken in “pursuit of a commercial or an economic activity;” for a valuable
consideration; and not exempt under the Tax Code, other special laws, or any international
agreement.
 As a general rule, the VAT system uses the destination principle as a basis for the jurisdictional
reach of the tax. Goods and services are taxed only in the country where they are consumed.
Thus, exports are zerorated, while imports are taxed.

The law clearly provides for an exception to the destination principle; that is, for a zero percent
VAT rate for services that are performed in the Philippines, “paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the [BSP].” Thus, for
the supply of service to be zerorated as an exception, the law merely requires that first, the
service be performed in the Philippines; second, the service fall under any of the categories in
Section 102(b) of the Tax Code; and, third, it be paid in acceptable foreign currency accounted
for in accordance with BSP rules and regulations.

The law neither makes a qualification nor adds a condition in determining the tax situs of a zero-
rated service. Under this criterion, the place where the service is rendered determines the
jurisdiction to impose the VAT. Performed in the Philippines, such service is necessarily subject
to its jurisdiction, for the State necessarily has to have “a substantial connection” to it, in order to
enforce a zero rate. The place of payment is immaterial; much less is the place where the output
of the service will be further or ultimately used.

CIR v. Burmeister & Wain Scandinavian Contractor Mindanao, Inc., G.R. 153205, 22 Jan 2007

WON respondent is entitled to the refund of P6,994,659.67 as erroneously paid output VAT for
the year 1996.

The Tax Code not only requires that the services be other than “processing, manufacturing or
repacking of goods” and that payment for such services be in acceptable foreign currency
accounted for in accordance with BSP rules. Another essential condition for qualification to zero-
rating under Section 102(b)(2) is that the recipient of such services is doing business outside the
Philippines. While this requirement is not expressly stated in the second paragraph of Section
102(b), this is clearly provided in the first paragraph of Section 102(b) where the listed services
must be “for other persons doing business outside the Philippines.” The phrase “for other
persons doing business outside the Philippines” not only refers to the services enumerated in the
first paragraph of Section 102(b), but also pertains to the general term “services” appearing in
the second paragraph of Section 102(b). In short, services other than processing, manufacturing,
or repacking of goods must likewise be performed for persons doing business outside the
Philippines.

When Section 102(b)(2) stipulates payment in “acceptable foreign currency” under BSP rules,
the law clearly envisions the payerrecipient of services to be doing business outside the
Philippines. Only those not doing business in the Philippines can be required under BSP rules to
pay in acceptable foreign currency for their purchase of goods or services from the Philippines.
In a domestic transaction, where the provider and recipient of services are both doing business
in the Philippines, the BSP cannot require any party to make payment in foreign currency.
Services covered by Section 102(b) (1) and (2) are in the nature of export sales since the payer-
recipient of services is doing business outside the Philippines. Under BSP rules, the proceeds of
export sales must be reported to the Bangko Sentral ng Pilipinas. Thus, there is reason to require
the provider of services under Section 102(b) (1) and (2) to account for the foreign currency
proceeds to the BSP. The same rationale does not apply if the provider and recipient of the
services are both doing business in the Philippines since their transaction is not in the nature of
an export sale even if payment is denominated in foreign currency.

Respondent, as subcontractor of the Consortium, operates and maintains NAPOCOR’s po er

barges in the Philippines. NAPOCOR pays the Consortium, through its nonresident partners,
partly in foreign currency outwardly remitted. In turn, the Consortium pays respondent also in
foreign currency inwardly remitted and accounted for in accordance with BSP rules. This
payment scheme does not entitle respondent to 0% VAT. As the Court held in Commissioner of
Internal Revenue v. American Express International, Inc. (Philippine Branch), 462 SCRA 197
(2005), the place of payment is immaterial, much less is the place where the output of the
service is ultimately used. An essential condition for entitlement to 0% VAT under Section 102(b)
(1) and (2) is that the recipient of the services is a person doing business outside the Philippines.
In this case, the recipient of the services is the Consortium, which is doing business not outside,
but within the Philippines because it has a 15year contract to operate and maintain NAPOCOR’s
two 100megawatt power barges in Mindanao.

The Court recognizes the rule that the VAT system generally follows the “destination principle”
(exports are zerorated whereas imports are taxed). However, as the Court stated in American
Express, there is an exception to this rule. This exception refers to the 0% VAT on services
enumerated in Section 102 and performed in the Philippines. For services covered by Section
 102(b)(1) and (2), the recipient of the services must be a person doing business outside the
Philippines. Thus, to be exempt from the destination principle under Section 102(b)(1) and (2),
the services must be (a) performed in the Philippines; (b) for a person doing business outside the
Philippines; and (c) paid in acceptable foreign currency accounted for in accordance with BSP
rules.

In seeking a refund of its excess output tax, respondent relied on VAT Ruling No. 00399, which
reconfirmed BIR Ruling No. 02395 “insofar as it held that the services being rendered by
BWSCMI is subject to VAT at zero percent (0%).” Respondent’s reliance on these BIR rulings
binds petitioner. Petitioner’s filing of his Answer before the CTA challenging respondent’s claim
for refund effectively serves as a revocation of VAT Ruling No. 00399 and BIR Ruling No. 02395.
However, such revocation cannot be given retroactive effect since it will prejudice respondent.
Changing respondent’s status will deprive respondent of a refund of a substantial amount
representing excess output tax. Section 246 of the Tax Code provides that any revocation of a
ruling by the Commissioner of Internal Revenue shall not be given retroactive application if the
revocation will prejudice the taxpayer. Further, there is no showing of the existence of any of the
exceptions enumerated in Section 246 of the Tax Code for the retroactive application of such
revocation.

3. Meaning of “Accounted for in Accordance with the Rules and Regulations of the BSP”
BIR Ruling No. 176-94

WON export sales, paid for in acceptable foreign currency and accounted for in accordance with the
Rules and Regulations of the Bangko Sentral Ng Pilipinas (BSP) will qualify as zero-rated sales
even if the proceeds thereof are not converted into Philippine currency.

The exporters are given the option to sell their foreign currency earnings to the Authorized Agent
Banks (AABs) or to deposit the same in foreign currency accounts in banks located within or
outside the Philippines. Accordingly, your opinion that export sales paid for in acceptable foreign
currency and accounted for in accordance with the rules and regulations of the BSP qualify as zero-
rated sales even if the proceeds thereof are not converted to Philippine pesos, is hereby confirmed.

VAT Ruling No. 47-00, Oct. 26, 2000

WON the exporter needs to prove the inward remittance and conversion to Philippine pesos of its
export sales in applying for refund of input taxes attributable to export sales.

"Accordingly, your opinion that export sales paid for in acceptable foreign currency and accounted
for in accordance with the rules and regulations of the BSP qualify as zero-rated sales even if the
proceeds thereof are not converted to Philippine pesos, is hereby confirmed." (BIR Ruling No. 176-
94 vis-a-vis query of San Miguel Corporation)

C. Effectively Zero-Rated Transactions

1. Sale of Goods and Properties
Sec. 106(A)(2)(3), (5), (6) and (c), NIRC, as amended by Rep. Act No.
9337
Sec. 4.106-6, Rev. Regs. No. 16-2005, Sept. 1, 2005
2. Sale of Services
Sec. 106(B)(3), (4) and (5), NIRC, as amended by Rep. Act No. 9337
Sec. 4.108-6, Rev. Regs. No. 16-2005, Sept. 1, 2005

D. Exempt Transactions
Sec. 109(1), NIRC, as amended by Rep. Act. No. 9337
1. Coverage of Exemption
a. General Rule

Philippine Acetylene Co., Inc. v. CIR, 20 SCRA 1056 (1967)

The percentage tax on sales of merchandise, imposed in section 186 of the Tax Code, is due
from the manufacturer and not from the buyer. Thus, the manufacturer or producer of oxygen
and acetylene gases sold to the National Power Corporation cannot claim exemption from the
payment of sales tax simply because its buyer, the National Power Corporation, is exempt from
taxation.

Under the Bases Agreement sales made for exclusive use in the construction, maintenance,
operation or defense of the bases, or sales to the quartermaster, are exempt from taxation.
Sales of goods to any other party, even if it be an agency of the United States, such as the
Voice of America, or even to the quartermaster but for a different purpose, are not exempt from
taxation. Sales made within the base by commissaries and the like are exempt from sales tax in
accordance with the rule that a sales tax is a tax on the seller and not on the purchaser.

A tax exemption must be strictly construed. An exemption will not be considered conferred
unless the terms under which it is granted clearly and distinctly show that such was the intention
of the parties.
Phil. National Police Multi-Purpose Coop, Inc. v. CIR, CTA Case No. 4845, March 10, 1994

WON petitioner is entitled to the refund of VAT in the amount of P75,110.88 representing input
taxes for purchases it had for the months of October, November and December of the taxable
year 1991

The tax exemption from "any government taxes or fees imposed under the internal revenue
laws and other laws" does not include indirect taxes such as VAT and sales tax passed on by
the seller to the buyer. For a taxpayer to be exempt from indirect taxes, there should be a clear
intention on the part of the Legislature to grant such exemption. The exempting law should
categorically or specifically provide for exemption from indirect taxes. (Maceda vs. Macaraig, Jr.
197 SCRA 771; Commissioner of Internal Revenue vs . John Gotamco and Sons, Inc. 148
SCRA 36; Philippine Acetylene Co., Inc. vs. Commis sioner of Internal Revenue 20 SCRA 1056)

Tax refund partakes of the nature of a tax exemption and therefore cannot be allowed unless
granted in the most explicit and categorical language. The grant of refund privileges must be
strictly construed against the taxpayer. (Insular Lumber Co. vs. Court of Tax Appeals, 104 SCRA
710; Commissioner of Internal Revenue vs. Rio Tuba Nickel Mining Corporation, 207 SCRA
549)

BIR Ruling No. 155-98, Oct. 21, 1998

WON the sale or exchange of services by Pilipinas Shell Petroleum Corporation's Refinery Plant
shall be subject to value-added tax.

On the other hand, the sale or exchange of services by Pilipinas Shell Petroleum Corporation's
Refinery Plant shall be subject to value-added tax equivalent to ten percent (10%) of gross
receipts pursuant to Section 108 of the Tax Code of 1997. The phrase "sale or exchange of
services" means the performance of all kinds of services in the Philippines for others for a fee,
remuneration or consideration. The value-added tax is payable by the seller and not by the
purchaser of goods or services. However, the value-added tax which is by nature an indirect tax,
the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the
goods, properties or services. (Section 105, Tax Code of 1997) Once shifted, it is no longer a
tax but an additional cost which the purchaser has to pay to obtain the goods or services.
(Philippine Acetylene Co. vs. Commissioner of Internal Revenue, G.R. No. L-19707, August 17,
1967) Hence, you cannot invoke your exemption privileges as an inventor to avoid the passing
on or shifting of the value-added tax billed by Pilipinas Shell Petroleum Corporation's Refinery
Plant for their services rendered.

BIR Ruling No. 47-99, April 13, 1999

WON the sale of car to International Center for Living Aquatic Resources Management
(ICLARM) be exempt from VAT pursuant to Section C (1), Article IV of Resolution No. 62 of the
Headquarters Agreement between the Government of the Republic of the Philippines and
ICLARM the which provides, viz: "Taxation and Customs"1. The provisions of existing laws or
ordinances to the contrary notwithstanding, ICLARM, or its successors, shall be exempt from all
taxes. This exemption shall extend to goods imported by ICLARM intended for its official used.

Tax exemption of ICLARM under the aforequoted provision covers only taxes for which it is
directly liable and does not extend to indirect taxes, like VAT. Pursuant to Section 99 of the Tax
Code, as amended by R.A. No. 7716 and as further amended by R.A. No. 8241 (now Section
105 of the Tax Code of 1997), VAT is an indirect tax and the amount of tax may be shifted or
passed on to the buyer, transferee of goods, properties or services.

The VAT on your sale of car is your direct tax liability. However, when passed on to ICLARM, it
is no longer a tax but an additional cost which becomes a part of the amount of the contract
price to be paid by ICLARM. (Philippine Acetylene Co. vs. CIR, G.R. No. L19707, August 17,
1967).

VAT Ruling No. 009-07, June 21, 2007

 WON the sale of roasted chicken is exempt from VAT following the provisions of Section 109 (c)
of the Tax Code of 1997.

The exemption applies only if the roasted chicken is purchased on take out basis. Accordingly,
should Andok’s maintain a facility by which the roasted chicken will be offered as a menu to
customers who would dine-in, then it will be subject to the VAT on sale of service which is
similarly imposed on restaurants and other eateries.

BIR Revenue Regulation No 16-2011, effective January 1, 2012

b. Exception

CIR v. John Gotamco & Sons, Inc., 148 SCRA 36 (1987)

WON respondent John Gotamco & Sons, Inc. should pay the 3% contractor's tax under Section
191 of the National Internal Revenue Code on the gross receipts it realized from the
construction of the World Health Organization office building in Manila.

The 3% contractor's tax which is payable by the contractor but in the last analysis, it is the
owner of the building that shoulders the burden of the tax, constitutes an indirect tax to which
the World Health Organization is exempt under the Host Agreement entered into between the
Republic of the Philippines and the said Organization on July 22, 1951—"In context, direct taxes
are those that are demanded from the very person who, it is intended or desired, should pay
them; while indirect taxes are those that are demanded in the first instance from one person in
the expectation and intention that he can shift the burden to someone else. (Pollock vs.
Farmers, L & T Co., 1957 US 429,15 S. Ct. 673, 39 Law. Ed. 759.) The contractor's tax is of
course payable by the contractor but in the last analysis it is the owner of the building that
shoulders the burden of the tax because the same is shifted by the contractor to the owner as a
matter of self-preservation. Thus, it is an indirect tax. And it is an indirect tax on the WHO
because, although it is payable by the petitioner, the latter can shift its burden on the WHO. In
the last analysis it is the WHO that will pay the tax indirectly through the contractor and it
certainly cannot be said that 'this tax has no bearing upon the World Health Organization.' "

Maceda v. Macaraig, Jr., 223 SCRA 217 (1993)

WON NPC is entitled to a tax refund for the tax component of the price of the bunker fuel oil purchased from
Caltex (Phils.) Inc. and whether the Bureau of Internal Revenue properly refunded the amount to NPC.

One common theme in all these laws is that the NPC must be enabled to pay its indebtedness which, as of
P.D. No. 938, was P12 Billion in total domestic indebtedness, at any one time, and US$4 Billion in total foreign
loans at any one time. The NPC must be and has to be exempt from all forms of taxes if this goal is to be
achieved. By virtue of P.D. No. 938, NPC’s capital stock was raised to P8 Billion. It must be remembered that
to pay for the government share in its capital stock P.D. No. 758 was issued mandating that P200 Million would
be appropriated annually to cover the said unpaid subscription of the Government in NPC’s authorized capital
stock. And significantly one of the sources of this annual appropriation of P200 million is TAX MONEY accruing
to the General Fund of the Government. It does not stand to reason then that former President Marcos would
order P200 Million to be taken partially or totally from tax money to be used to pay the Government
subscription in the NPC, on one hand, and then order the NPC to pay all its indirect taxes, on the other.

P.D. No. 938 did not amend the same and so the tax exemption provision in Section 8 (b), R.A. No. 6395, as
amended by P.D. No. 380, still stands. Since the subject matter of this particular Section 8 (b) had to do only
with loans and machinery imported, paid for from the proceeds of these foreign loans, THERE WAS NO
OTHER SUBJECT MATTER TO LUMP IT UP WITH, and so, the tax exemption stood as is—with the express
mention of “direct and indirect” tax exemptions. And this “direct and indirect” tax exemption privilege extended
to “taxes, fees, imposts, other charges x x x to be imposed” in the future— surely, an indication that the
lawmakers wanted the NPC to be exempt from ALL FORMS of taxes—direct and indirect.

In view of all the foregoing, the Court rules and declares that the oil companies which supply bunker fuel oil to
NPC have to pay the taxes imposed upon said bunker fuel oil sold to NPC. By the very nature of indirect
taxation, the economic burden of such taxation is expected to be passed on through the channels of commerce
to the user or consumer of the goods sold. Because, however, the NPC has been exempted from both direct
and indirect taxation, the NPC must be held exempted from absorbing the economic burden of indirect
taxation. This means, on the one hand, that the oil companies which wish to sell to NPC must absorb all or part
of the economic burden of the taxes previously paid to BIR, which they could shift to NPC if NPC did not enjoy
exemption from indirect taxes. This means also, on the other hand, that the NPC may refuse to pay that part of
the “normal” purchase price of bunker fuel oil which represents all or part of the taxes previously paid by the oil
companies to BIR. If NPC nonetheless purchases such oil from the oil companies—because to do so may be
more convenient and ultimately less costly for NPC than NPC itself importing and hauling and storing the oil
from overseas—NPC is entitled to be reimbursed by the BIR for that part of the buying price of NPC which
verifiably represents the tax already paid by the oil company-vendor to the BIR.

It should be noted that NPC was not asking to be granted tax exemption privileges for the first time. It was just
asking that its tax exemption privileges be restored. It is for these reasons that, at least in NPC’s case, the
recommendation and approval of NPC’s tax exemption privileges under FIRB Resolution Nos. 10-85 and 1-86,
done by the same person acting in his dual capacities as Chairman of the Fiscal Incentives Review Board and
Minister of Finance, respectively, do not violate procedural due process. While as above-mentioned, FIRB
Resolution No. 17-87 was approved by President Aquino on October 5, 1987, the view has been expressed
that President Aquino, at least with regard to E.O. 93 (S’86), had no authority to sub-delegate to the FIRB,
which was allegedly not a delegate of the legislature, the power delegated to her thereunder.

2. Waiver of VAT Exemption/Election to be Subject to VAT

Sec. 109(2), NIRC, as amended by Rep. Act No. 9337

III. RATES OF VAT

A. For Output Tax
B. For Input Tax
C. Transitional Input Tax
D. Presumptive Input Tax
E. Final Withholding VAT on Government or GOCCs

Week 4
IV. TAX CREDITS & REFUNDS
A. Input Tax Credit
Sec. 110, NIRC, as amended by Rep. Act. No. 9337, as further amended by
Rep. Act. No. 9361
Sec. 4.110-1, Rev. Regs. No. 16-2005, Sept. 1, 2005
1. Persons Who Can Avail of the Input Tax Credit
Sec. 110(A)(1)(b) and (A)(2), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.110-2, Rev. Regs. No. 16-2005, Sept. 1, 2005
2. Special Rules on Amortization of Input Tax on Depreciable Goods
Sec. 110(A), proviso, NIRC, as amended by Rep. Act. No. 9337
Sec. 4.110-3, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev.
Regs. No. 4-2007, Feb. 7, 2007
3. Special Rules on Apportionment of Input Tax on Mixed Transactions
Sec. 110(A)(3), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.110-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev.
Regs. No. 4-2007, Feb. 7, 2007
4. Substantiation of Input Tax Credits
Sec. 4.110-8, Rev. Regs. No. 16-2005, Sept. 1, 2005
BIR Ruling No. 61-00, Nov. 8, 2000
B. Transitional Input Tax
Sec. 111(A), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.111-1(a), Rev. Regs. No. 16-2005, Sept. 1, 2005
C. Presumptive Input Tax
Sec. 111(B), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.111-1(b), Rev. Regs. No. 16-2005, Sept. 1, 2005
D. Final Withholding VAT
Sec. 114(C), NIRC, as amended by Rep. Act. No. 9337
Sec. 4.114-2(a), Rev. Regs. No. 16-2005, Sept. 1, 2005, as amended by Rev.
Regs. No. 4-2007, Feb. 7, 2007
See Illustration in Sec. 4.110-4, Rev. Regs. No. 16-2005, Sept. 1, 2005, as
amended by Rev. Regs.
No. 4-2007, Feb. 7, 2007
E. Claims for Refund or Issuance of Tax Credit Certificates
Sec. 112, NIRC, as amended by Rep. Act. No. 9337
1. Zero-Rated or Effectively Zero-Rated Transactions
Sec. 112(A), NIRC, as amended by Rep. Act. No. 9337
2. Cancellation of VAT Registration
Sec. 112(B), NIRC, as amended by Rep. Act. No. 9337
3. Period within which Refund or Tax Credit of Input Tax shall be made
Sec. 112(C), NIRC, as amended by Rep. Act. No. 9337 correlate with
Sec. 229, NIRC
CIR vs. Mindanao II Geothermal Partnership G.R. No. 191498 January 15, 2014

Rohm Apollo Semiconductor Phil. v CIR SC First Division GR No. 168950 January 14, 2015
V. COMPLIANCE REQUIREMENTS
A. Registration with the BIR
Sec. 236, NIRC, as amended by Rep. Act No. 9337
1. Mandatory VAT Registration
Sec. 236(G), NIRC, as amended by Rep. Act No. 9337
Sec. 9.236-1(b), Rev. Regs. No. 16-2005, Sept. 1, 2005
2. Optional VAT Registration
Sec. 236(H), NIRC, as amended by Rep. Act No. 9337
Sec. 9.236-1(c), Rev. Regs. No. 16-2005, Sept. 1, 2005
3. Consequence of Failure to Register as a VAT Person
Sec. 236(G)(2), NIRC, as amended by Rep. Act No. 9337
4. Cancellation of VAT Registration
Sec. 236(F), NIRC, as amended by Rep. Act No. 9337
Sec. 9.236-6, Rev. Regs. No. 16-2005, Sept. 1, 2005
B. Record Keeping Requirements
Sec. 113(C), NIRC, as amended by Rep. Act No. 9337
Sec. 4.113-3, Rev. Regs. No. 16-2005, Sept. 1, 2005
C. Invoices and Receipts
Sec. 113, NIRC, as amended by Rep. Act No. 9337
1. General Requirements
Sec. 113(A) and (B), NIRC, as amended by Rep. Act No. 9337
Sec. 4.113-1(A) and (B), Rev. Regs. No. 16-2005, Sept. 1, 2005
2. Invoicing and Recording of Deemed Sale Transactions
Sec. 4.113-2, Rev. Regs. No. 16-2005, Sept. 1, 2005
3. Consequences of Erroneous Issuance of VAT Invoice or O/R
Sec. 113(D), NIRC, as amended by Rep. Act No. 9337
Sec. 4.113-4, Rev. Regs. No. 16-2005, Sept. 1, 2005
D. Creditable Withholding Tax
Sec. 4.114-2(b), Rev. Regs. No. 16-2005, Sept. 1, 2005
VI. FILING OF RETURN AND PAYMENT OF TAX Sec. 114, NIRC, as amended by Rep. Act No. 9337
Sec. 4.114-1(A), Rev. Regs. No. 16-2005, Sept. 1, 2005

Week 5
OTHER PERCENTAGE TAXES
I. PERSONS/TRANSACTIONS SUBJECT TO PERCENTAGE TAXES
A. Persons Exempt from VAT
Sec. 116, NIRC, as amended by Rep. Act No. 9337
B. Domestic Carriers and Keepers of Garages
Sec. 117, NIRC, as amended by Rep. Act No. 9337
C. International Carriers
Sec. 118, NIRC
D. Franchises
Sec. 119, NIRC, as amended by Rep. Act No. 9337
E. Overseas Dispatch, Message or Conversation
Sec. 120, NIRC
F. Banks and Non-Bank Financial Intermediaries
Sec. 121, NIRC, as amended by Rep. Act No. 9337
CIR v. Solidbank Corp., G.R. No. 148191, Nov. 5, 2003
G. Finance Companies
Sec. 122, NIRC
H. Life Insurance Premiums
Sec. 123, NIRC
I. Agents of Foreign Insurance Companies
Sec. 124, NIRC
J. Amusement
Sec. 125, NIRC
K. Winnings
Sec. 126, NIRC
L. Stock Transactions in Philippine Stock Exchange
Sec. 127, NIRC
II. RETURNS AND PAYMENT OF PERCENTAGE TAX
Sec. 128, NIRC
EXCISE TAX
I. GOODS SUBJECT TO EXCISE TAX
A. In General
Sec. 129, NIRC
B. Alcohol Products
Secs. 141 – 143, NIRC, as amended by Rep. Act No. 9334
 C. Tobacco Products
Secs. 144 – 145, NIRC, as amended by Rep. Act No. 9334
Secs. 146 – 147, NIRC H. Petroleum Products
Sec. 148, NIRC, as amended by Rep. Act No. 9337
D. Miscellaneous Articles
1. Automobiles
Sec. 149, as amended by Rep. Act No. 9224
2. Non-Essential Goods
Sec. 150, NIRC
E. Mineral Products
Sec. 151, NIRC, as amended by Rep. Act No. 9337
F. Petroleum Products
CIR v Pilipinas Shell Petroleum Corporation SC First Division G.R. No. 188497 February 19, 2014
II. PAYMENT OF EXCISE TAXES
Sec. 130, NIRC
Sec. 131, NIRC, as amended by Rep. Act No. 9334
Secs. 132 – 140, NIRC
III. ADMINISTRATIVE REQUIREMENTS
Sec. 130(C), NIRC
Secs. 152 – 172, NIRC

DOCUMENTARY STAMP TAX

I. IN GENERAL, Sec. 173, NIRC

CIR v. Heald Lumber, 10 SCRA 372

WON the transfer of P300,000.00 from surplus account to its capital account is subject to DST?

A mere transfer of surplus to capital and an increase in the stated value of the outstanding no par value shares
of a corporation does not constitute an issuance of shares and consequently no additional stamp tax is due on
such increase.

Under Section 212 in relation to Section 210 of the Tax Code, the. basis for the documentary stamp tax on
certificates of shares without par value shall be only the actual consideration received by the corporation at the
time of the original issuance of the certificates, and any additional consideration which may be received
therefor in the future are of no consequence.

A documentary stamp tax is in the nature of an excise tax imposed not on the business transacted but upon
the privilege, opportunity or facility offered at exchanges for the transaction of the business. Consequently,
such tax on certificates of stock may be collected only once, when the certificates are first or originally issued.

Michel J. Lhuillier Pawnshop, Inc. v. CIR, G.R. No. 166786, May 3, 2006

WON pawnshop transactions (pawn ticket) are subject to DST?

It is clear from the foregoing provisions that the subject of a DST is not limited to the document embodying the
enumerated transactions. A DST is an excise tax on the exercise of a right or privilege to transfer obligations,
rights or properties incident thereto. In Philippine Home Assurance Corporation v. Court of Appeals, 301 SCRA
443, 447 (1999), it was held that: In general, documentary stamp taxes are levied on the exercise by persons
of certain privileges conferred by law for the creation, revision, or termination of specific legal relationships
through the execution of specific instruments. Examples of such privileges, the exercise of which, as effected
through the issuance of particular documents, are subject to the payment of documentary stamp taxes are
leases of lands, mortgages, pledges and trusts, and conveyances of real property.

Pledge is among the privileges, the exercise of which is subject to DST. A pledge may be defined as an
accessory, real and unilateral contract by virtue of which the debtor or a third person delivers to the creditor or
to a third person movable property as security for the performance of the principal obligation, upon the
fulfilment of which the thing pledged, with all its accessions and accessories, shall be returned to the debtor or
to the third person. This is essentially the business of pawnshops which are defined under Section 3 of
Presidential Decree No. 114, or the Pawnshop Regulation Act, as persons or entities engaged in lending
money on personal property delivered as security for loans.

True, the law does not consider said ticket as an evidence of security or indebtedness. However, for purposes
of taxation, the same pawn ticket is proof of an exercise of a taxable privilege of concluding a contract of
pledge. At any rate, it is not said ticket that creates the pawnshop’s obligation to pay DST but the exercise of
the privilege to enter into a contract of pledge. There is therefore no basis in petitioner’s assertion that a DST is
literally a tax on a document and that no tax may be imposed on a pawn ticket.

The settled rule is that tax laws must be construed in favor of the taxpayer and strictly against the government;
and that a tax cannot be imposed without clear and express words for that purpose. Taking our bearing from
the foregoing doctrines, we scrutinized Section 195 of the NIRC, but there is no way that said provision may be
interpreted in favor of petitioner. Section 195 unqualifiedly subjects all pledges to DST. It states that “[o]n every
x x x pledge x x x there shall be collected a documentary stamp tax x x x.” It is clear, categorical, and needs no
further interpretation or construction. The explicit tenor thereof requires hardly anything than a simple
application.

The onus of proving that pawnshops are not subject to DST is thus shifted to petitioner. In establishing tax
exemptions, it should be borne in mind that taxation is the rule, exemption is the exception. Accordingly,
statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in
favor of the taxing authority. One who claims an exemption from tax payments rests the burden of justifying the
exemption by words too plain to be mistaken and too categorical to be misinterpreted.

II. TRANSACTIONS/DOCUMENTS SUBJECT TO DST

A. Original Issuance of Shares, Sec. 174, NIRC, as amended by Rep. Act No. 9243

B. Transfer of Shares, Sec. 175, NIRC, as amended by Rep. Act No. 9243

Compagnie Financiere Sucres et Deneres v. CIR, G.R. No. 133834, Aug. 28, 2006

WON the assignment of deposits on stock subscriptions is subject to documentary stamps tax?

Along with police power and eminent domain, taxation is one of the three basic and necessary attributes of
sovereignty. Thus, the State cannot be deprived of this most essential power and attribute of sovereignty by
vague implications of law. Rather, being derogatory of sovereignty, the governing principle is that tax
exemptions are to be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing
authority; and he who claims an exemption must be able to justify his claim by the clearest grant of statute.

In the instant case, petitioner seeks a refund. Tax refunds are a derogation of the State’s taxing power. Hence,
like tax exemptions, they are construed strictly against the taxpayer and liberally in favor of the State.
Consequently, he who claims a refund or exemption from taxes has the burden of justifying the exemption by
words too plain to be mistaken and too categorical to be misinterpreted. Significantly, petitioner cannot point to
any specific provision of the National Internal Revenue Code authorizing its claim for an exemption or refund.
Rather, Section 176 of the National Internal Revenue Code applicable to the issue provides that the future
transfer of shares of stocks is subject to documentary stamp tax.

Clearly, under the above provision, sales to secure “the future transfer of due-bills, certificates of obligation or
certificates of stock” are liable for documentary stamp tax. No exemption from such payment of documentary
stamp tax is specified therein.

Petitioner contends that the assignment of its “deposits on stock subscription” is not subject to capital gains tax
because there is no gain to speak of. In the Capital Gains Tax Return on Stock Transaction, which petitioner
filed with the Bureau of Internal Revenue, the acquisition cost of the shares it sold, including the stock
subscription is P69,143,630.28. The transfer price to Kerry Holdings, Ltd. is P70,332,869.92. Obviously,
petitioner has a net gain in the amount of P1,189,239.64. As the CTA aptly ruled, “a tax on the profit of sale on
net capital gain is the very essence of the net capital gains tax law. To hold otherwise will ineluctably deprive
the government of its due and unduly set free from tax liability persons who profited from said transactions.”

C. Foreign-Issued Bonds, Debentures, Shares/Certificates of Indebtedness, and Other Int, Sec. 176, NIRC
D. Issue and Transfer of Certificate of Interest in Property or Accumulations, Sec. 177, NIRC
E. Bank Checks, Drafts, Certificates of Deposit not Bearing Interest, Sec. 178, NIRC
F. Debt Instruments, Sec. 179, NIRC, as amended by Rep. Act No. 9243

Banco de Oro Universal Bank v. CIR, CTA Case No. 6588, Aug. 5, 2005

WON Investment Savings Account corresponds to a time deposit subject to documentary stamp tax (DST)?

deposit substitute debt instruments, certificates of deposits drawing interest, orders for the payment of any sum
of money otherwise than at sight or on demand, on all promissory notes, whether negotiable or non-
negotiable . . ., there shall be collected a documentary stamp tax.
A certificate of deposit is without question one of those enumerated under Section 180 as subject to
documentary stamp tax, it being a written acknowledgment by a bank of the receipt of money on deposit which
the bank promises to pay to the depositor, bearer or to some other person on order.

Petitioner's Investment Savings Account falls within the ambit of the aforesaid definition. The "ordinary savings
account passbook" and the terms written on the Investment Savings Account Confirmation of petitioner's
product cannot be taken independent of each other. Petitioner even said: "The Confirmation is not a stand-
alone document and works together with the Passbook". The mere fact that the product's documentation
consists principally in an "ordinary savings account passbook" does not change its essential feature, as
admitted by petitioner, that "the rate of interest [of the deposit] shall be substituted by the then applicable
regular savings account interest rate, if any part of the deposit is withdrawn prior to the date specified on the
confirmation."

It is to be noted that the same holds true in case of a time deposit. A depositor is still allowed to withdraw his
time deposit even before its maturity subject to pretermination charges and the depositor loses his entitlement
to earn the interest corresponding to the time deposit. Instead, he earns interest likewise pertaining to a regular
savings deposit. Clearly, petitioner's argument that one is withdrawable anytime and the other is not has no leg
to stand on. The fact is: in both cases, the deposit may be withdrawn anytime but the depositor gets to earn a
lower rate of interest. The difference lies on the evidence of deposit.

But in determining whether a certain instrument is subject to documentary stamp tax, substance would control
over the form and labels . . . (Knudsa Creamery Co. of California vs. US, 121 F. Suppl. 860, 26 U.S. C.A. 1800,
1801). The court agrees with the findings of the respondent that the nature of Special Savings Deposit and
Time Deposits are akin to each other in such a way that the bank acknowledges the receipt of a sum of money
on deposit and which the bank promises to pay to the depositor, bearer or to the order of a bearer on a
specified period of time. The difference lies on the document issued to evidence the transaction. In Special
Savings Account, the transaction is covered by a passbook, while in time deposit, it is through a certificate of
deposit.

Considering that the transaction evidenced by the different documents are similar and that documentary stamp
tax is an excise tax on the privilege to enter into a transaction, we find both the certificate of time deposit as
well as the passbook clear evidence of such transaction in favor of the person whose name appears therein,
subject to documentary stamp tax.

Belle Corp. v. CIR, CTA Case No. 6156, June 17, 2005

WON the inter-company advances made to subsidiaries and affiliates partake the nature of a promissory note
subject to Section 180 of the Tax Code?

Documentary stamp tax is an excise tax upon documents, instruments, loan agreements and papers, and upon
acceptances, assignments, sales, and transfers of the obligation, right or property incident thereto.

It must be stressed that documentary stamp taxes are levied on the exercise by persons of certain privileges
conferred by law for the creation, revision, or termination of specific legal relationship through the execution of
specific instruments (Philippine Home Assurance Corporation, et al. vs. Court of Appeals, 301 SCRA 447). It is
a tax on documents, and papers evidencing the acceptance, assignment, sale or transfer of an obligation,
right, or property incident thereto. Since, board resolutions and cash vouchers do not partake the nature, the
elements and the form of any of the specific instruments mentioned in the law, they are not therefore subject to
documentary stamp tax.

Promissory note is defined as an unconditional promise in writing by one person to another signed by the
maker engaging to pay on demand or at a fixed or determinable future time, a sum certain in money to such
other person or to order or to bearer, free from restrictions as to registration or transfer and usually without
coupons.

Similarly, a promissory note refers to an instrument, whether negotiable or nonnegotiable, whereby the maker
agrees to pay a sum certain in money or its equivalent at a definite time. Thus, from the foregoing, We do not
agree with the respondent that the intercompany advances evidenced by inter-office memorandum, vouchers,
or board resolutions are in the nature of a promissory note. The definition is clear, and when the law speaks in
clear and categorical language, there is no room for interpretation, but only application. There is nothing in
Section 180 that clearly and expressly declares inter-office memoranda covering inter-company advances
made by petitioner as subject to the documentary stamp tax therein. Pursuant to the aforecited Section 180 , it
is clear that what the law seeks to tax are merely loan agreements, promissory notes, bills of exchange, drafts,
instruments and securities issued by the government or any of its instrumentalities or certificates of deposits
drawing interest and others not payable on sight or demand. Clearly, interoffice memoranda, board resolutions
and cash vouchers were not included in the list.
Filinvest Development Corp v CIR 16353 167687

G. Bills of Exchange or Drafts, Sec. 180, NIRC, as amended by Rep. Act No. 9243
H. Acceptance of Foreign-Drawn Bills of Exchange, Sec. 181, NIRC
I. Foreign Bills of Exchange and LCs, Sec. 182, NIRC
J. Life Insurance Policies, Sec. 183, NIRC, as amended by Rep. Act No. 9243

BIR Ruling No. DA-182-2005, April 20, 2005

WON Section 183 of the Tax Code of 1997, as amended by Republic Act (RA) No. 9243 and as implemented
by Revenue Regulations (Rev. Regs.) No. 13-2004 regarding the collection of DST on life insurance policy
based on the amount of premium collected which, consequently, is being done every time the premium is paid
by the insured?

In short, the law requires payment of DST not on the full amount of the premium price contracted to be paid
during the paying period subject to the happening of the risk insured on the actual amount paid as premium
price. Otherwise stated, the "amount of premium collected" is in fact the actual price/consideration paid for the
insurance coverage upon which the DST should be based.

It is further noted that the term "premium" does not have a plural form such that the whole amount paid
corresponding to the insurance policy, whether paid in one sum or in instalments, is simply called "premium."
Conversely, for purposes of insurance, the collection of premium in instalments is merely a mode of collecting
the price agreed to be paid by the policyholder. In short, the initial amount paid when the insurance policy is
issued is merely a portion of the whole consideration (premium).

WON DST should be based on the amount of only one premium at the time when an insurance is made or
renewed upon any life or lives?

The law does not specify that the DST shall be imposed on one premium payment only; it simply says " DST of
. . . , of the amount of premium collected." As earlier discussed, in the previous provision of Sec. 183, the DST
is imposed on the amount assured which is disclosed in the insurance policy. Under RA 9243, the tax base
which is the premium collected will depend on the amount actually collected during the paying period.

Since a "premium" is allowed to be paid in installments, whether annually, semiannually, quarterly, or monthly,
and since the uniform pre-determined installments are merely portions of the entire premium price, the last
payment of which stops and is deemed completed only upon the happening of the risk insured upon, there is
more reason to collect the DST each time a portion/installment of the premium price is collected (in short,
premium collected). Thus, the imposition of DST each time the installment amount is collected is called for
considering that the actual premium price (full amount of consideration) is not certain at the time the policy is
issued. Should the insured die early, the full amount of premium will no longer be paid. The imposition of DST
is proper only on the portion of the total premium price collected i.e. , installment premium, either on a monthly,
quarterly, semi-annual or annual basis, or we would violate the principle underlying the DST law which is to
impose the DST on the transaction, that is underwriting the risk.

In ne, the collection of DST on the each portion of the premium collected does not violate the rule that the DST
is a tax on the transaction. The modality of collecting DST every time a portion of the p r e miu m is c olle c t e
d is in effect imposing DST on the actual amount of the premium collected. Moreover, the foregoing
deliberation implies that the law contemplates that payment of premium may be made in installments, as when
then Sec. Camacho used the phrase "premium paying period." Therefore, if the amount collected corresponds
only to one or more installments without full payment of the agreed premium price, such amount collected is
merely a portion of the entire premium price. Yet it cannot be considered the tax base for DST purposes
because, as explained earlier, the "amount of premium collected" refers to the actual consideration/price paid.
The imposition of DST on each amount/portion of the premium collected does not mean that the tax shall be
imposed more than once.

K. Non-Life Insurance Policies, Sec. 184, NIRC

BIR Ruling No. DA-288-2005, June 27, 2005

WON non-life insurance policies issued abroad by foreign Branch Office is subject to DST?

The general rule is still that DST is in the nature of an excise tax. It is not imposed upon the business
transacted, but upon the privilege, opportunity or facility offered at exchanges for the transaction of the
business. Thus, DST is imposed on the privilege of conducting a particular transaction or executing a particular
document within the Philippines, since the parties to the said transaction or document exercise the privilege,
opportunity or facility offered at exchanges for the transaction of the business in the Philippines.
The amendment is meant to plug the loophole in the law which enabled the parties to a contract to simply go
outside the Philippines to sign the document and lawfully avoid payment of DST. With the amendment, DST
will be payable regardless of where the document is signed, issued, accepted, or transferred, for as long as the
said document pertains to (a) obligations or rights arising from sources within the Philippines or (b) property
situated in the Philippines. Thus, deeds of conveyance covering real property situated in the Philippines will be
liable to DST regardless of where the deed is executed.

Applying the afore-quoted Section 184 in relation to Section 173 of the Tax Code to the case of Pioneer's Hong
Kong Branch, the property insurance policies issued by the said Hong Kong branch will be subject to DST
imposed under Section 184 of the Tax Code, even if such policies are signed or issued abroad, for as long as
the properties which are the object of insurance are situated in the Philippines. Conversely, where the property
insured is situated outside the Philippines, the DST imposed on property insurance under Section 184 will not
apply.

L. Fidelity Bonds and Other Insurance Policies, Sec. 185, NIRC

M. Annuities and Pre-Need Plans, Sec. 186, NIRC, as amended by Rep. Act No. 9243
N. Indemnity Bonds, Sec. 187, NIRC
O. Certificates, Sec. 188, NIRC
P. Warehouse Receipts, Sec. 189, NIRC
Q. Jai-Alai, Horse Race, Lotto, etc., Sec. 190, NIRC
R. Bills of Lading or Receipts, Sec. 191, NIRC
S. Proxies, Sec. 192, NIRC
T. Powers of Attorney, Sec. 193, NIRC
U. Leases of Real Property, Sec. 194, NIRC
V. Mortgages, Pledges and Deeds of Trust, Sec. 195, NIRC
W. Deed of Sale of Real Property, Sec. 196, NIRC

BIR Ruling No. DA-076-2005

WON the transfer by PCIP to PCP of its machinery and equipment placed on leased real properties, including
other personal properties subject to DST?

The machinery and equipment placed and/or installed by PCIP on its leased parcels of land and buildings are
considered personal properties. In as much as only the consideration attributed to the sale of real properties
are subject to documentary stamp tax under Sec. 196 of the 1997 Tax Code, the transfer by PCIP to PCP of its
machinery and equipment on its leased real properties shall not be subject to documentary stamp tax.

BIR Ruling No. DA-084-2005, March 14, 2005

BIR Ruling No. DA-065-2005, Feb. 23, 2005

WON the transfer of real properties to Corp. representing additional infusion of capital in the nature of paid-in
surplus is subject to DST?

"Sec. 185. Conveyances without consideration . — Conveyances of realty not in connection with a
sale, to trustees or other persons without consideration are not taxable."

Considering that Condrado and Sergia Estrella transferred the above-listed real properties without the
corresponding issuance of additional shares of stock in their favor, the foregoing will be considered as
contribution of additional paid-in capital, not subject to documentary stamp tax as the above conveyances of
realties are without any consideration and are not made in connection with a sale. (DA-139-2004 dated March
26, 2004 citing DA-150-03 dated May 7, 2003)

BIR Ruling No. DA-640-2004, Dec. 17, 2004

WON the termination of co-ownership/partition of properties is exempt from documentary stamp tax?

Moreover, the partition of the said properties among the co-owners is not subject to documentary stamp tax
under Section 196 of the Tax Code of 1997, but only to the documentary stamp tax of P15.00 prescribed under
Section 188 of the same Tax Code. (BIR Ruling No. DA-127-2002 dated July 25, 2002)

BIR Ruling No. DA-648-2004, Dec. 21, 2004

WON the transfer of property without consideration and was executed only as a requirement for the granting of
the SSS loan is subject to DST?

Considering that the transfer of the subject property is without consideration and was executed only as a
requirement for the granting of the SSS loan, this Office is of the opinion that the reconveyance of the same in
your favor is exempt from the payment of the capital gains tax imposed under Section 24(D) of the Tax Code of
1997 and documentary stamp tax prescribed under Section 196 of the same Code. However, the same is
subject to the documentary stamp of P15.00 as imposed by Section 188 of the Tax Code of 1997 on
acknowledgements. (BIR Ruling No. 042-97 dated April 8, 1997)

BIR Ruling 079-2014

WON the payment of the DST on the sale and the conveyance of real property after the execution of the Deed
of Absolute Sale with the selling price on the Agreement To Purchase and Sell as basis is correct and proper?

Considering that the terms of payment on the sale transaction between HOUSEHOLD DEVELOPMENT
CORPORATION and TWENTY TWO REALTY AND DEVELOPMENT CORPORATION is on instalment basis
as stipulated in the ATPS and that the CWT due thereon has been paid, accordingly, the DST on the sale and
the conveyance of real property as prescribed in Section 196 of the NIRC, is payable only upon the execution
of the Deed of Absolute Sale (BIR Ruling No. 027 - 10 dated August 10, 2010) and the basis for the imposition
thereof shall be the gross selling price or fair market value of the property, whichever is higher, as of the time of
the execution of the ATPS pursuant to Revenue Regulations No. 17-2003.

However, it should be noted that the ATPS is subject to the DST of P15.00 pursuant to Section 188 of the Tax
Code of 1997. (BIR Ruling No. 027 - 10 dated August 10, 2010)

CIR v Shell GR 192398 September 29, 2014

X. Charter Party and Similar Instruments, Sec. 197, NIRC

Y. Assignment, Transfer, and Renewal of Certain Instruments, Sec. 198, NIRC

III. TRANSACTIONS/DOCUMENTS NOT SUBJECT TO DST

Sec. 199, NIRC, as amended by Rep. Act No. 9243

BIR Ruling No. DA-244-2005, June 7, 2005

Belle Corp. v. CIR, CTA Case No. 6156, supra

IV. PAYMENT OF DST,

Sec. 200, NIRC

V. EFFECT OF NON-PAYMENT OF DST Sec. 201, NIRC

Week 6
RIGHTS AND REMEDIES OF THE GOVERNMENT UNDER THE NATIONAL INTERNAL REVENUE CODE

I. EXAMINATION AND AUDIT OF RETURNS

A. Statutory Basis
Secs. 5 and 6, NIRC

II. BIR’S INVESTIGATIVE AUTHORITY

A. Statutory Basis
1. Administrative Summons to Taxpayer
Sec. 5(C), (D), NIRC
Sec. 6(C), NIRC
2. Third-Party Summons
Sec. 5(B), (C), NIRC
B. Informer’s Reward
SEC. 282. Informer's Reward to Persons Instrumental in the Discovery of Violations of the National
Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods. -

(A) For Violations of the National Internal Revenue Code.- Any person, except an internal revenue official or
employee, or other public official or employee, or his relative within the sixth degree of consanguinity, who
voluntarily gives definite and sworn information, not yet in the possession of the Bureau of Internal Revenue,
leading to the discovery of frauds upon the internal revenue laws or violations of any of the provisions thereof,
thereby resulting in the recovery of revenues, surcharges and fees and/or the conviction of the guilty party
and/or the imposition of any of the fine or penalty, shall be rewarded in a sum equivalent to ten percent (10%)
of the revenues, surcharges or fees recovered and/or fine or penalty imposed and collected or One Million
Pesos (P1,000,000) per case, whichever is lower. The same amount of reward shall also be given to an
informer where the offender has offered to compromise the violation of law committed by him and his offer has
been accepted by the Commissioner and collected from the offender: Provided, That should no revenue,
surcharges or fees be actually recovered or collected, such person shall not be entitled to a reward: Provided,
further, That the information mentioned herein shall not refer to a case already pending or previously
investigated or examined by the Commissioner or any of his deputies, agents or examiners, or the Secretary of
Finance or any of his deputies or agents: Provided, finally, That the reward provided herein shall be paid under
rules and regulations issued by the Secretary of Finance, upon recommendation of the Commissioner.

(B) For Discovery and Seizure of Smuggled Goods. To encourage the public to extend full cooperation in
eradicating smuggling, a cash reward equivalent to ten percent (10%) of the fair market value of the smuggled
and confiscated goods or One Million Pesos (P1,000,000) per case, whichever is lower, shall be given to
persons instrumental in the discovery and seizure of such smuggled goods.

The cash rewards of informers shall be subject to income tax, collected as a final withholding tax, at a rate of
ten percent (10%).

The Provisions of the foregoing Subsections notwithstanding, all public officials, whether incumbent or retired,
who acquired the information in the course of the performance of their duties during their incumbency, are
prohibited from claiming informer's reward.

BIR Rul. No. 071-00, Dec. 18, 2000

Facts: CEAP is a non-stock, non-profit educational institutions exempt from taxes. Nonetheless still need to
comply with the bookkeeping regulations as they are directly liable to withhold and remit the withholding taxes
on their income payments; that if they have not complied with such registration requirements, it is but proper
for the BIR to collect fines from them; and that for the alleged fines to be collected, you are of the opinion that
you are entitled to a ten percent (10%) professional fee (or reward) being given to the informer under Section
282 of the Tax Code of 1997.

Issue: WON De Vera is entitled to 10% professional fee?

Ruling: For De Vera to claim a reward, she should have been able to furnish this Office a definite and sworn
information of any fraud or violation committed under the provisions of the Tax Code. Your implied presumption
that since these non-stock, nonprofit educational institutions are deemed to be the duly constituted withholding
agents of the government, the BIR, in its aforesaid BIR Ruling No. 159-98 exempting them from registration
requirements, had also failed to constitute them as withholding agents, is without legal basis in law and in fact.

Accordingly, since a BIR ruling can never be a basis of granting an informer's reward, your collection of your
supposed professional fee of 10% (reward) of the supposed fine for the alleged violations of the withholding tax
regulations, is hereby denied for lack of legal basis.

Meralco Securities Corp. v. Savellano, 117 SCRA 804 (1982)

Facts: The late Juan G. Maniago submitted to Commissioner of Internal Revenue confidential denunciation
against the Meralco Securities Corporation for tax evasion for having paid income tax only on 25% of the
dividends it received from the Manila Electric Co. for the years 1962-1966, thereby allegedly shortchanging the
government of income tax due from 75 % of the said dividends.

Petitioner caused the investigation of the denunciation after which he found and held that no deficiency
corporate income tax was due from the Meralco Securities Corporation on the dividends it received from the
Manila Electric Co. The Commissioner accordingly rejected Maniago's contention that the Meralco from whom
the dividends were received is "not a domestic corporation liable to tax under this Chapter. Consequently, the
Commissioner informed Maniago of his findings and ruling and therefore denied Maniago's claim for informer's
reward on a non-existent deficiency. This action of the Commissioner was sustained by the Secretary of
Finance in a 4th Indorsement dated May 11, 1971.

On August 28, 1970, Maniago filed a petition for mandamus, and subsequently an amended petition for
mandamus, in the Court of First Instance of Manila, docketed therein as Civil Case No. 80830, against the CIR
and the Meralco Securities Corporation to compel the Commissioner to impose the alleged deficiency tax
assessment on the Meralco Securities Corporation and to award to him the corresponding informer's reward
under the provisions of R.A. 2338.

On January 10, 1973, the respondent judge rendered a decision granting the writ prayed for and ordering the
Commissioner of Internal Revenue to assess and collect from the Meralco Securities Corporation the sum of
P51,840,612.00 as deficiency corporate income tax for the period 1962 to 1969 plus interests and surcharges
due thereon and to pay 25% thereof to Maniago as informer's reward. Hence, this petition.

Issues: WON Savellano is entitled to the reward?

Ruling: Considering then that respondent judge may not order by mandamus the Commissioner to issue the
assessment against Meralco Securities Corporation when no such assessment has been found to be due, no
deficiency taxes may therefore be assessed and collected against the said corporation. Since no taxes are to
be collected, no informer's reward is due to private respondents as the informer's heirs. Informer's reward is
contingent upon the payment and collection of unpaid or deficiency taxes. An informer is entitled by way of
reward only to a percentage of the taxes assessed and collected. Since no assessment, much less any
collection, has been made in the instant case, respondent judge's writ for the Commissioner to pay
respondents 25% informer's reward is gross error and without factual nor legal basis.

Fitness by Design, Inc. v. CIR, G.R. No. 177982, Oct. 17, 2008

Facts: On March 17, 2004, the CIR assessed petitioner for deficiency income taxes for the tax year 1995 in
the total amount of P10,647,529.69. Petitioner protested the assessment on the ground that it was issued
beyond the three-year prescriptive period. Petitioner claimed that since it was incorporated only on May 30,
1995, there was no basis to assume that it had already earned income for the tax year 1995.

On February 1, 2005, CIR issued a warrant of distraint and/or levy against petitioner, drawing petitioner to file
on March 1, 2005 a Petition for Review before the Court of Tax Appeals (CTA) before which it reiterated its
defense of prescription.

The BIR filed on March 10, 2005 a criminal complaint before the Department of Justice against the officers and
accountant of petitioner for violation of the provisions of “The National Internal Revenue Code of 1977, as
amended, covering the taxable year 1995.” A preliminary hearing on the issue of prescription was conducted
during which petitioner’s former bookkeeper attested that a former colleague—CPA Leonardo Sablan—illegally
took custody of petitioner’s accounting records, invoices, and official receipts and turned them over to the BIR.

On petitioner’s request, a subpoena ad testificandum was issued to Sablan for the hearing before the CTA
scheduled on September 4, 2006 but he failed to appear. Petitioner thus requested for the issuance of another
subpoena ad testificandum to Sablan for the hearing scheduled on October 23, 2006,13 and of subpoena
duces tecum to the chief of the National Investigation Division of the BIR for the production of the Affidavit of
the Informer bearing on the assessment in question. Petitioner’s requests were granted.

In a related move, petitioner submitted written interrogatories addressed to Sablan and to Henry Sarmiento
and Marinella German, revenue officers of the National Investigation Division of the BIR.

By Resolution19 of January 15, 2007, the CTA denied petitioner’s Motion for Issuance of Subpoenas and
disallowed the submission by petitioner of written interrogatories to Sablan, who is not a party to the case, and
the revenue officers, it finding that the testimony, documents, and admissions sought are not relevant. Besides,
the CTA found that to require Sablan to testify would violate Section 2 of Republic Act No. 2338, as
implemented by Section 12 of Finance Department Order No. 46-66, proscribing the revelation of identities of
informers of violations of internal revenue laws, except when the information is proven to be malicious or false.

In any event, the CTA held that there was no need to issue a subpoena duces tecum to obtain the Affidavit of
the Informer as the same formed part of the BIR records of the case, the production of which had been ordered
by it.

Petitioner’s Motion for Reconsideration of the CTA Resolution of January 15, 2007 was denied, hence, the
present Petition for Certiorari which imputes grave abuse of discretion to the CTA.

Issues: WON the CTA erred in denying the issuance of subpoena decus tecum?

Ruling: Petitioner impugns the manner in which the documents in question reached the BIR, Sablan having
allegedly submitted them to the BIR without its (petitioner’s) consent. Petitioner’s lack of consent does not,
however, imply that the BIR obtained them illegally or that the information received is false or malicious. Nor
does the lack of consent preclude the BIR from assessing deficiency taxes on petitioner based on the
documents. Thus Section 5 of the Tax Code provides: In ascertaining the correctness of any return, or in
making a return when none has been made, or in determining the liability of any person for any internal
revenue tax, or in collecting any such liability, or in evaluating tax compliance, the Commissioner is authorized.

The law thus allows the BIR access to all relevant or material records and data in the person of the taxpayer,32
and the BIR can accept documents which cannot be admitted in a judicial proceeding where the Rules of Court
are strictly observed.33 To require the consent of the taxpayer would defeat the intent of the law to help the
BIR assess and collect the correct amount of taxes.

III. BIR’S POWER TO MAKE ASSESSMENTS

A. Upon Examination of Returns Filed
Sec. 6(A), NIRC
B. In Case of Failure to Submit Required Reports
Sec. 6(B), NIRC
 C. After Inventory Taking or Surveillance
Sec. 6(C), NIRC
D. Where CIR Terminates Taxpayer’s Taxable Period
Sec. 6(D), NIRC
E. Prescribe Zonal Value
Sec. 6(E), NIRC

CIR v. Aquafresh Seafoods, Inc., G.R. No. 170389, Oct. 20, 2010

Facts: Aquafresh Seafoods Inc. sold to Philips Seafoods, Inc. two parcels of land, including improvements
thereon, located at Barrio Banica, Roxas City, for the consideration of Three Million One Hundred Thousand
Pesos (Php 3,100,000.00).

The Bureau of Internal Revenue (BIR), however, received a report that the lots sold were undervalued for
taxation purposes. This prompted the Special Investigation Division (SID) of the BIR to conduct an ocular
inspection over the properties. After the investigation, the SID concluded that the subject properties were
commercial with a zonal value of Php2,000.00 per square meter.

On September 15, 2000, Director Sacamos sent two Assessment Notices apprising respondent of CGT and
DST defencies in the sum of Php1,372,171.46 and Php356,267.62, respectively. Director Sacamos relied on
the findings of the SID that the subject properties were commercial with a zonal valuation of Php2,000.00 per
square meter.

On October 1, 2000, respondent sent a letter protesting the assessments made by Director Sacamos. On
December 1, 2000, Director Sacamos denied respondent’s protest for lack of legal basis. Respondent
appealed, but the same was denied with finality on February 13, 2002.

On March 19, 2002, respondent filed a petition for review before the CTA seeking the reversal of the denial of
its protest. The main thrust of respondent’s petition was that the subject properties were located in Barrio
Banica, Roxas, where the pre-defined zonal value was Php650.00 per square meter based on the “Revised
Zonal Values of Real Properties in the City of Roxas under Revenue District Office No. 72 – Roxas City”.
Respondent asserted that the subject properties were classified as “RR” or residential and not commercial.
Respondent argued that since there was already a pre-defined zonal value for properties located in Barrio
Banica, the BIR officials had no business reclassifying the subject properties to commercial.

On December 22, 2004, the CTA promulgated a Decision ruling in favor of respondent. CIR filed a Motion for
Reconsideration, which was, however, denied by the CTA in a Resolution dated April 4, 2005. CIR then
appealed to the CTA En Banc. On November 9, 2005, the CTA En Banc dismissed petitioner’s appeal.

Issue: WON the requirement of consultation with competent appraisers both from the private and public
sectors in determining the fair market value of the subject lots is applicable in the case at bar.

Ruling: While the CIR has the authority to prescribe real property values and divide the Philippines into zones,
the law is clear that the same has to be done upon consultation with competent appraisers both from the public
and private sectors. It is undisputed that at the time of the sale of the subject properties found in Barrio Banica,
Roxas City, the same were classified as “RR,” or residential, based on the 1995 Revised Zonal Value of Real
Properties. Petitioner, thus, cannot unilaterally change the zonal valuation of such properties to “commercial”
without first conducting a re-evaluation of the zonal values as mandated under Section 6(E) of the NIRC.

To this Court’s mind, petitioner’s act of re-classifying the subject properties from residential to commercial
cannot be done without first complying with the procedures prescribed by law. It bears to stress that ALL the
properties in Barrio Banica were classified as residential, under the 1995 Revised Zonal Values of Real
Properties. Thus, petitioner’s act of classifying the subject properties involves a re-classification and revision of
the prescribed zonal values.

This Court agrees with the observation of the CTA that “zonal valuation was established with the objective of
having an ‘efficient tax administration by minimizing the use of discretion in the determination of the tax based
on the part of the administrator on one hand and the taxpayer on the other hand.’” Zonal value is determined
for the purpose of establishing a more realistic basis for real property valuation. Since internal revenue taxes,
such as CGT and DST, are assessed on the basis of valuation, the zonal valuation existing at the time of the
sale should be taken into account.

This Court takes note of the wording of Section 2 (b) of the Zonal Valuation Guidelines, to wit: 2. Predominant
Use of Property. b) The predominant use of other classification of properties located in a street/barangay
zone, regardless of actual use shall be considered for purposes of zonal valuation. Based thereon, this Court
rules that even assuming arguendo that the subject properties were used for commercial purposes, the same
remains to be residential for zonal value purposes. It appears that actual use is not considered for zonal
valuation, but the predominant use of other classification of properties located in the zone. Again, it is
undisputed that the entire Barrio Banica has been classified as residential.

F. Issuance of Pre-Assessment Notice

Sec. 228, NIRC
Sec. 3, Rev. Regs. No. 12-99, Sept. 6, 1999
G. Issuance of Final Assessment Notice

SEC. 228. Protesting of Assessment. - When the Commissioner or his duly

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

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

Within a period to be prescribed by implementing rules and regulations, the

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

Such assessment may be protested administratively by filing a request for

reconsideration or reinvestigation within thirty (30) days from receipt of the
assessment in such form and manner as may be prescribed by implementing rules
and regulations. Within sixty (60) days from filing of the protest, all relevant
supporting documents shall have been submitted; otherwise, the assessment
shall become final.

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

Sec. 3, Rev. Regs. No. 12-99, Sept. 6, 1999

1. What Constitutes an Assessment

CIR v. Pascor Realty and Dev. Corp., 309 SCRA 402 (1999)

Facts: BIR Commissioner Jose U. Ong authorized Revenue Officers Que, Estorco and Savellano to examine
the books of accounts and other accounting records of Pascor Realty and Development Corporation. (PRDC)
for the years ending 1986-1988. The said examination resulted in a recommendation for the issuance of an
assessment in the amounts of P7,498,434.65 and P3,015,236.35 for the years 1986 and 1987, respectively.
On March 1, 1995, the Commissioner of Internal Revenue filed a criminal complaint before the Department of
Justice against the PRDC alleging evasion of taxes in the total amount of P10,513,671.00. PRDC filed an
Urgent Request for Reconsideration/Reinvestigation disputing the tax assessment and tax liability.On May 17,
1995, the CIR denied the urgent request for reconsideration/reinvestigation of the private respondents on the
ground that no formal assessment has as yet been issued by the Commissioner.

PRDC then elevated the Decision of the CIR to the Court of Tax Appeals. On September 6, 1995, the CIR filed
a Motion to Dismiss the petition on the ground that the CTA has no jurisdiction over the subject matter of the
petition, as there was no formal assessment issued against the petitioners. The CTA denied the said motion to
dismiss and ordered the CIR to file an answer within thirty (30) days from receipt of said resolution. The CIR
received the resolution on January 31, 1996 but did not file an answer nor did she move to reconsider the
resolution.

CIR filed a petition for grave abuse of discretion conducted by the CTA. The Court of Appeals sustained the
CTA and dismissed the petition

Issues:

1. WON the criminal complaint for tax evasion can be construed as an “assessment”.
2. WON an assessment is necessary before criminal charges for tax evasion may be instituted.

Rulings:

1. No. The fact that the Complaint itself was specifically directed and sent to the Department of Justice
and not to private respondents shows that the intent of the commissioner was to file a criminal
complaint for tax evasion, not to issue an assessment. Although the revenue officers recommended the
issuance of an assessment, the commissioner opted instead to file a criminal case for tax evasion.
What private respondents received was a notice from the DOJ that a criminal case for tax evasion had
been filed against them, not a notice that the Bureau of Internal Revenue had made an assessment.

2. No. Section 222 of the NIRC specifically states that in cases where a false or fraudulent return is
submitted or in cases of failure to file a return such as this case, proceedings in court may be
commenced without an assessment. Furthermore, Section 205 of the same Code clearly mandates that
the civil and criminal aspects of the case may be pursued simultaneously. In Ungab v. Cusi, petitioner
therein sought the dismissal of the criminal Complaints for being premature, since his protest to the
CTA had not yet been resolved. The Court held that such protests could not stop or suspend the
criminal action which was independent of the resolution of the protest in the CTA. This was because the
commissioner of internal revenue had, in such tax evasion cases, discretion on whether to issue an
assessment or to file a criminal case against the taxpayer or to do both.

The issuance of an assessment must be distinguished from the filing of a complaint. Before an
assessment is issued, there is, by practice, a pre-assessment notice sent to the taxpayer. The taxpayer
is then given a chance to submit position papers and documents to prove that the assessment is
unwarranted. If the commissioner is unsatisfied, an assessment signed by him or her is then sent to the
taxpayer informing the latter specifically and clearly that an assessment has been made against him or
her. In contrast, the criminal charge need not go through all these. The criminal charge is filed directly
with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed against him, not
that the commissioner has issued an assessment. It must be stressed that a criminal complaint is
instituted not to demand payment, but to penalize the taxpayer for violation of the Tax Code.

Fort Bonifacio Dev. Corp. v. CIR, CTA Case No. 5665, Aug. 11, 2000

FBDC is engaged in the development and sale of real property. It is the owner of, and is developing and
selling, parcels of land within a new town development area known as the Fort Bonifacio Global City. FBDC is
a duly registered VAT taxpayer. To be able to avail of the input tax credit of 8% under Sec. 105, FBDC
submitted an inventory listing real properties owned by it with a total book value of P71,227,503,200.00.

For the fourth quarter of 1996, FBDC derived the total amount of P3,498,888,713.60 from its sales of lots, on
which the output VAT payable to the BIR was P318,080,792.14.

To pay said amount of P318,080,792.14 due to the BIR, FBDC made cash payments totaling P269,340,469.45
and utilized (a) part of its total transitional/presumptive input tax credit of P5,698,200,256.00 to the extent of
P28,413,783.00, which is the portion of its total transitional/presumptive input tax credit allocated by petitioner
to the two (2) lots sold to Metro Pacific; and (b) its regular input tax credit of P20,326,539.69 on purchases of
goods and services.
After investigation by the BIR of petitioner's value added tax return for the 4th quarter of 1996, it was
recommended that the claimed presumptive input tax on land inventory be disallowed and assessment be
issued for deciency VAT equivalent to the disallowed amount.

On March 5, 1998, FBDC received an undated letter from the former CIR wherein the latter disallowed the
presumptive input tax claimed by petitioner on the ground that the basis of the 8% presumptive input tax of real
estate dealers is limited to the "book value of the improvement. The letter further directed FBDC "to pay VAT
equivalent to the disallowed presumptive input tax on land inventory in the amount of P28,413,783.00 . . . ,
including surcharges, interest and penalties by the Chief, Assessment Division, Revenue Region No. 8, Makati
City, subject to audit verification".

Pascual M. De Leon, Acting Assistant Chief, Assessment Division, Revenue Region No. 8, Makati City, sent a
letter dated May 4, 1998 to petitioner, whereby the former informed the latter that upon computation, there has
been found due from petitioner the total amount of P45,188,708.08, representing deficiency VAT for the 4th
quarter of 1996, including surcharge, interest and penalty. The aforesaid letter was received by petitioner on
June 4, 1998. Attached to the said letter is an Assessment Notice.

On July 2, 1998, petitioner led with respondent Commissioner, through the Acting Assistant Chief of the
Assessment Division, Revenue Region No. 8, a request for reconsideration/protest, pursuant to the provisions
of Sec. 228 of the National Internal Revenue Code of 1997, of the letter/assessment notice dated May 4, 1998.

In a letter to petitioner dated July 15, 1998, which was received by petitioner on August 10, 1998, respondent
Regional Director ruled that the request for reconsideration/protest led by petitioner was barred by the statute
of limitations because it was led more than thirty (30) days from March 5, 1998, when petitioner received the
undated letter of the former Commissioner of Internal Revenue wherein the latter disallowed the presumptive
input tax claimed by.

In ruling that petitioner's request for reconsideration/protest was barred by the statute of limitations, respondent
Regional Director computed the thirty-day period provided for by Sec. 228 of the NIRC from March 5, 1998, the
date petitioner received the undated letter from the former Commissioner of Internal Revenue wherein the
latter disallowed the presumptive input tax claimed by petitioner.

FBDC expounds that the disallowance of the input tax credit as well as the assessment notice sent to FBDC by
the Assessment Division of Revenue Region No. 8, are in violation of the provision of Section 105, in relation to
Section 100, of the NIRC. Petitioner further avers that the ruling of respondent Regional Director that
Petitioner's request for reconsideration/protest was barred by the statute of limitations, and runs counter to
Section 228 of the National Internal Revenue Code of 1997, and should therefore be reversed and set aside.
Hence, an appeal to this Court was filed on August 11, 1998.

Issues:

1. Whether the undated letter of the former CIR may be treated as an assessment that may be protested
administratively under Sec. 228 of the NIRC of 1997.

2. Whether petitioner's request for reconsideration/protest of the assessment sent by the Assessment
Division of BIR Revenue Region No. 8 was barred by the statute of limitations and deficiency VAT for
the fourth quarter of 1996 in the total amount of P45,188,708.08, including surcharge, interest and
penalty, has become final.

Ruling:

1. An assessment is a written notice and demand made by the Bureau of Internal Revenue on the
taxpayer for the settlement of a due tax liability that is there definitely set and fixed. Ironically, he
contradicts himself when he says that the undated letter is already an assessment against Petitioner.
Such letter will unerringly reveal that Petitioner's tax liability was not yet definite and final considering
that the same was still subject to audit verification. Nor was a payment demanded from Petitioner within
a prescribed period.

There was also the glaring fact that the Commissioner gave due course to Petitioner's request for
issuance of an assessment through an assessment subsequently issued by the Assessment Division.
This is but an indubitable manifestation that the Commissioner did not really consider the undated letter
as an assessment and an assessment notice a mere formal document.

That the assessment notice which the Commissioner usually sends to taxpayers is in a particular form
is a matter administratively facilitated for expediency and convenience. But this does not mean that said
assessment notice is a mere formal paper. Note that Section 228 of the NIRC requires that such
assessment may be protested administratively within thirty days from receipt thereof
 2. No. It is the letter dated May 4, 1998, with concomitant assessment notice, which constitutes the
assessment contemplated in Section 228. This letter was received by herein Petitioner on June 4,
1998. Hence, it is only from this date that the thirty-day period shall commence to run. In other words,
the filing by Petitioner of a request for reconsideration/protest on July 2, 1998 with the Commissioner of
Internal Revenue was timely. This goes without saying therefore that the assessment against Petitioner
for deficiency VAT covering the fourth quarter of 1996 in the total amount of P45,188,708.08, inclusive
of surcharges, interest and penalties, has not become final.

Republic v. Court of Appeals, 149 SCRA 351 (1987)

Facts: In a demand letter, dated 16 July 1955 (Exhibit A), the Commissioner of Internal Revenue assessed
private respondent deficiency taxes for the years 1949 to 1952, totaling P14,449.00.

Petitioner reiterated its demand upon private respondent for payment of said amount, per letters dated 24 April
1956, 19 September 1956 and 9 February 1960. Private respondent did not contest the assessment in the
Court of Tax Appeals. On the theory that the assessment had become final and executory, petitioner filed a
complaint for collection of the said amount against private respondent with the Court of First Instance of
Manila.

As herein earlier stated, the Court a quo rendered a decision against the private respondent. On appeal to the
respondent Court of Appeals, the decision was reversed. Petitioner filed a motion for reconsideration which
was likewise denied by said Court in a resolution dated 31 May 1974. Hence, this petition.

Issue: WON private respondent is now barred from disputing the correctness of the assessment.

Ruling: Yes. It is correct that a mailed letter is deemed received by the addressee in the ordinary course of
mail, still, this is merely a disputable presumption, subject to controversion, and a direct denial of the receipt
thereof shifts the burden upon the party favored by the presumption to prove that the mailed letter was indeed
received by the addressee.

Since petitioner has not adduced proof that private respondent had in fact received the demand letter of 16
July 1955, it cannot be assumed that private respondent received said letter. Records, however, show that
petitioner wrote private respondent a follow-up letter dated 19 September 1956, reiterating its demand for the
payment of taxes as originally demanded in petitioner's letter dated 16 July 1955. This follow-up letter is
considered a notice of assessment in itself which was duly received by private respondent in accordance with
its own admission.

Under Section 7 of Republic Act No. 1125, the assessment is appealable to the Court of Tax Appeals within
thirty (30) days from receipt of the letter. The taxpayer's failure to appeal in due time makes the assessment in
question final, executory and demandable. Thus, private respondent is now barred from disputing the
correctness of the assessment or from invoking any defense that would reopen the question of its liability on
the merits.
2. Presumption of Correctness of Assessment

Sy Po v. CTA, 164 SCRA 524 (1988)

Facts: Petitioner is the widow of the late Mr. Po Bien Sing. In the taxable years 1964 to 1972, the deceased Po
Bien Sing was the sole proprietor of Silver Cup. He was engaged in the business of manufacture and sale of
compounded liquors, using alcohol and other ingredients as raw materials.

On the basis of a denunciation against Silver Cup allegedly “for tax evasion amounting to millions of pesos” the
then Secretary of Finance Cesar Virata directed the Finance-BIR-NBI team to conduct the corresponding
investigation in a memorandum dated April 2, 1971. Accordingly, a letter and a subpoena duces tecum dated
April 13, 1971 and May 3, 1971, respectively, were issued against Silver Cup requesting production of the
accounting records and other related documents for the examination of the team. Mr. Po Bien Sing did not
produce his books of accounts as requested. This prompted the team with the assistance of the PC Company,
Cebu City, to enter the factory bodega of Silver Cup and seized different brands, consisting of 1,555 cases of
alcohol products. The inventory lists of the seized alcohol products are contained in Volumes I, II, III, IV and V.
On the basis of the team’s report of investigation, the respondent Commissioner of Internal Revenue assessed
Mr. Po Bien Sing deficiency income tax for 1966 to 1970 in the amount of P7,154,685 and for deficiency
specific tax for January 2, 1964 to January 19, 1972 in the amount of P5,595,003.68.

Petitioner protested the deficiency assessments through letters dated October 9 and October 30, 1972, which
protests were referred for reinvestigation. The corresponding report dated August 13, 1981 recommended the
reiteration of the assessments in view of the taxpayer’s persistent failure to present the books of accounts for
examination, compelling respondent to issue warrants of distraint and levy on September 10, 1981.
The warrants were admittedly received by petitioner on October 14, 1981 which petitioner deemed
respondent’s decision denying her protest on the subject assessments. Hence, petitioner’s appeal on October
29, 1981.

Issue: WON the assessments have valid and legal bases.

Ruling: Settled is the rule that the factual findings of the Court of Tax Appeals are binding upon this Honorable
Court and can only be disturbed on appeal if not supported by substantial evidence.

The law is specific and clear. The rule on the “best evidence obtainable” applies when a tax report required by
law for the purpose of assessment is not available or when the tax report is incomplete or fraudulent.

In the instant case, the persistent failure of the late Po Bien Sing and the herein petitioner to present their
books of accounts for examination for the taxable years involved left the Commissioner of Internal Revenue no
other legal option except to resort to the power conferred upon him under Section 16 of the Tax Code.

Tax assessments by tax examiners are presumed correct and made in good faith. The taxpayer has the duty to
prove otherwise. In the absence of proof of any irregularities in the performance of duties, an assessment duly
made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. All
presumptions are in favor of the correctness of tax assessments.

On the whole, we find that the fraudulent acts detailed in the decision under review had not been satisfactorily
rebutted by the petitioner. There are indeed clear indications on the part of the taxpayer to deprive the
Government of the taxes due.

The existence of fraud as found by the respondents can not be lightly set aside absent substantial evidence
presented by the petitioner to counteract such finding. The findings of fact of the respondent Court of Tax
Appeals are entitled to the highest respect. We do not find anything in the questioned decision that should
disturb this long-established doctrine.

3. Assessment Must be Based on Actual Facts

CIR v. Benipayo, 4 SCRA 182 (1962)

Facts: Respondent is the owner and operator of the Lucena. On October 3, 1953 Internal Revenue Agent
Romeo de Guia investigated respondent's amusement tax liability of said theater during the period from August
1952 to September 1953. On 15 October 1953, De Guia submitted his report to the Provincial Revenue Agent
to the effect that respondent had disproportionately issued tax-free 20-centavo children's tickets. His finding
was that during the years 1949 to 1951 the average ratio of adults and children patronizing the Lucena Theater
was 3 to 1, i.e., for every three adults entering the theater, one child was also admitted, while during the period
in question. the proportion was reversed —three children to one adult. From this he concluded that respondent
must have fraudulently sold two tax-free 20centavo tickets, in order to avoid payment of the amusement.
Based on the average ratio between adult and children attendance in the past years, Examiner de Guia
recommended a deficiency amusement tax assessment against respondent in the sum of P11, 193.45
inclusive of 25% surchage, plus a suggested compromise penalty of P900.00 or a total sum of P12,093.45
covering the period from August 1952 to September 1953 inclusive.

On July 14, 1954. petitioner issued a deficiency amusement tax assessment against respondent, demanding
from the latter the payment of the total sum of P12,152.93 within thirty days from receipt thereof. On August 16,
1954, respondent filed the corresponding protest with the Conference Staff of the Bureau of Internal Revenue.
After due hearing, the Conference Staff submitted to petitioner Collector of Internal Revenue its finding to the
effect that the "meager reports of these fieldmen are mere presumptions and conclusions, devoid of findings of
fact of the alleged fraudulent practices of the herein taxpayer". In view thereof, and as recommended by the
Conference Staff, petitioner referred the case back to the Provincial Revenue Agent of Quezon for further
investigation.

After considering said report, the Conference Staff of the Bureau of Internal Revenue recommended to the
Collector of Internal Revenue the issuance of the deficiency amusement tax assessment in question. Hence
this petition.

Issue: WON there is sufficient evidence in the record showing that respondent cheated or defrauded the
Government.

Ruling: No. To sustain the deficiency tax assessed against respondent would amount to a finding that he had,
for a considerable period of time, cheated and defrauded the government by selling to each adult patron two
children's tax-free tickets instead of one ticket subject to the amusement tax provided for in Section 260 of the
National Internal Revenue Code. Fraud is a serious charge and, to be sustained, must be supported by clear
and convincing proof which, in this case, is lacking.
Chemical Industries of the Phil., Inc. v. CIR, CTA Case No. 5257, Oct. 29,1998

Facts: Petitioner is a corporation duly organized and existing under Philippine laws. On 12 April 1983, its
Annual Income Tax Return for the calendar year ended 31 December 1982 reflecting a net income of
P15,574.00.

On October 5, 1987, petitioner received from CIR Assessment Notice No. 32-06-4b-000512-82 issued by the
latter on September 15, 1987. Said assessment was the disallowance of interest expense and bank charges in
the amount of P7,822,898.00 which petitioner claimed as deduction from its income. According to CIR, these
interest and bank charges should be disallowed because the applicable proceeds of the "loans were applied
to" the acquisition of "Investments in Stocks of Affiliated Companies."

Through a letter, dated November 2, 1987, petitioner protested the aforesaid assessment. Petitioner explained
that the increase in "Investments in Stocks of Affiliated Companies" were the result of stock swapping, spin-off,
offset of investment losses and unpaid subscriptions.

On 5 June 1989, petitioner again received a letter from CIR demanding payment of the P4,364,539.00.
Petitioner responded on June 8, 1989, informing respondent that they have already presented their
explanations through their letter of November 2, 1987 and asking for an early resolution on the matter.

On October 1, 1991, petitioner received another letter from CIR requesting it to submit documentary evidences
showing that the proceeds of the loans which it obtained were not fully applied to the acquisition of the
investments in stocks of affiliated companies. Petitioner obliged on October 10, 1991.

Through a letter, dated April 26, 1993, petitioner explained again its side on the findings of herein respondent.
This was followed by a conference hearing on April 28, 1993 held at the Appellate Division of the Bureau of
Internal Revenue.

On May 6, 1995, petitioner received from CIR a letter denying its protest and requesting it to pay the amount of
P4,364,539.00 within 15 days. CIR stated in this letter that the same constitute her final decision on the matter.

Petitioner again requested for a reconsideration of the subject assessment on May 16, 1995 but later on
withdrew the same due to the ling of a Petition for Review before us on June 2, 1995.

In its Petition, petitioner argued primarily that respondent cannot collect anymore the disputed assessment on
the ground of prescription, taking into consideration the Waiver executed by it on March 2, 1992, hereinbefore
cited. And even assuming that the period to assess and collect has not prescribed, still, according to petitioner,
the loans obtained by it were not applied to investments in stocks of affiliated companies and, therefore, may
properly be deducted as expenses.

Issue: WON the BIR erred in excluding the interest and bank charges on the loan proceeds.

Ruling: Respondent, on her part, failed to le her formal offer of evidence although she requested for the
marking of her documentary evidence found in the BIR records. She also failed to file her memorandum within
the period given by the Court.

An analysis of the audited financial statements of the petitioner would reveal that the increase in investment
account was basically due to the effected spin-off of the manufacturing operations, whereby shares in the new
manufacturing company were traded for the manufacturing assets, machineries and accounts of the petitioner.
We noticed that with the increase in investments, there was a corresponding decrease in property, plant and
equipment of the petitioner.

Likewise, in the Statement of Changes in Financial Position for the years 1982 and 1981, proceeds of the
loans in 1982 were mostly used to pay currently maturing obligations and in 1981, increase in investments
account was associated with the disposal of property and equipment due to the above-mentioned spin-off.

Loans obtained by petitioner were primarily applied to investments in affiliated companies was based on mere
presumptions. It is well-settled that " assessments should not be based on presumptions no matter how logical
the presumptions might be. In order to stand the test of judicial scrutiny the assessment must be based on
actual facts."

The same holds true with regard to respondent's allegation that the loans do not have any economic substance
except to evade the payment of the tax due. Respondent's finding is bereft of any basis that will lead Us to
believe that the purpose of petitioner's loans was merely for tax evasion

As to respondent's third ground, that the loans in which petitioner offered as collaterals the properties of its
affiliates should in reality be the loans of the affiliates, We rule otherwise. Under Article 2085 of the Civil Code,
while it required that the mortgagor be the absolute owner of the thing mortgaged, the second paragraph
provides that:

It follows then that petitioner may validly offer as collateral the property of its affiliates and claim the interest
paid for that loans as its own expense. Finally, respondent avers that loans from affiliates like Polyphosphates,
Inc. is considered as a sham transaction and therefore, the same should be treated as advance capitalization,
and interest payments as dividend payments. Petitioner, however, explained that "(t)he outstanding liability to
Polyphosphates, Inc., which was then wholly owned by the petitioner, arose from the earlier years when
petitioner was engaged in the marketing and selling of the chemical produce of the former, and invoicing and
collecting payments from the customers. Since there was a need to extend credit to customers,
Polyphosphates had to grant a credit line to the petitioner." It further argued that by 1982, Polyphosphates was
no longer wholly-owned by the petitioner and that forty percent (40%) in equity was transferred to Albright &
Wilson of the United Kingdom. On arms length basis, the petitioner claims that it had to pay interests of long
outstanding payables to Polyphosphates. Polyphosphates, on its part, declared and paid tax on the interest
income in its income tax return for 1982 — for the interest that the petitioner had paid and deducted as
expense from its taxable income. (p. 481, CTA records)

4. Assessment Issued Outside Scope of Letter of Authority

Sony Philippines, Inc. v. CIR, CTA Case No. 6185, Oct. 26, 2004

Week 7 MIDTERMS

WEEK 8
IV. COLLECTION OF UNPAID TAXES
A. Distraint, Garnishment, Levy and Seizure
Secs. 205-217, 224-225 NIRC
Sec. 202, NIRC
B. Civil Action
Sec. 205, NIRC
Sec. 220, NIRC
Sec. 7(b)(2)(c), Rep. Act. No. 1125, as amended by Rep. Act. No. 9282
Sec. 11, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282
Republic v. Lim Tian Teng Sons & Co., 16 SCRA 584 (1966)
San Juan v. Vasquez, 3 SCRA 92 (1961)
Yabes v. Flojo, L-46954, July 20, 1982
C. Criminal Action
Sec. 220, NIRC
CIR v. Pascor Realty and Dev. Corp., supra
Republic v. Patanao, 20 SCRA 712 (1967)
Ungab v. Cusi, G.R. No. L-41919-24, May 30, 1980
D. Anti-Injunction Rule
1. General Rule
Sec. 218, NIRC
Churchill v. Rafferty, 32 Phil. 580 (1915)
CIR v. Cebu Portland Cement Co., 156 SCRA 535, 541 (1987)
2. Exception
Sec. 11, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282
Rule 10, Revised Rules of the CTA (S.C. A.M. No. 05-11-07-CTA, Nov. 2005)
E. Nature and Extent of Tax Lien
Sec. 219, NIRC
F. Compromise and Abatement
Sec. 204(A) and (B), NIRC
BIR Ruling No. 111-99, July 22, 1999
BIR Ruling No. 059-01, Dec. 20, 2001
V. IMPOSITION OF SURCHARGE, INTEREST, AND COMPROMISE PENALTY
A. Civil Penalties
Sec. 248, NIRC
Secs. 250-252, NIRC
Secs. 4 & 5, Rev. Regs. No. 12-99, Sept. 6, 1999

CIR v. Javier, Jr., 199 SCRA 824, 831 (1991)

FACTS: Victoria Javier received $999k from Prudential Bank remitted by her sister Dolores through Mellon Bank in
US. Around 3 weeks after, Mellon Bank filed a complaint with CFI Rizal against Javier claiming that its remittance of
$1M was a clerical error and should have been $1k only and praying that the excess be returned by Javier.

The CFI charged Javier with estafa alleging that they misappropriated and converted it to their own personal use. A
year after, Javier filed his Income Tax Return for 1977 and stating in the footnote that “the taxpayer was recipient of
some money received abroad which he presumed to be a gift but turned out to be an error and is now subject of
litigation”

The CIR wrote a letter to Javier demanding him to pay the tax deficiency due to the remittance. Javier replied that
he will pay the deficiency but denied that he had any undeclared income for 1977 and requested that the
assessment of 1977 be made to await final court decision on the case filed against him for filing an allegedly
fraudulent return. Commissioner replied that “the amount of Mellon Bank’s erroneous remittance which was dispose
is definitely taxable” and the Commissioner imposed a 50% fraud penalty on Javier.
ISSUE: Whether or not Javier is liable for the 50% penalty.
HELD: No. There is no actual and intentional fraud through willful and deliberate misleading of the BIR in the case.
Javier even noted that “the taxpayer was recipient of some money received abroad which he presumed to be a gift
but turned out to be an error and is now subject of litigation” In this case, the remittance was not a taxable gain,
since it is still under litigation and there is a chance that Javier might have the obligation to return it. It will only
become taxable once the case has been settled because by then whatever amount that will be rewarded, Javier has
a claim of right over it.

CIR v. Japan Air Lines, 202 SCRA 450, 458 (1991)

Facts: Japan Airlines is a foreign corporation engaged in the business of international air carriage. From 1959 to
1963, JAL had not been granted a certificate of public convenience and necessity to operate. However, since mid-
July 1957, JAL had maintained an office at the Filipinas Hotel, Roxas Boulevard, Manila. That there was no selling
of tickets in this office but was maintained merely for the promotion of the company as public relations and to hand
out brochures, literature and other information playing up to the attractions of Japan as a tourist spot and the
services enjoyed in JAL planes.

On July 17, 1957, JAL constituted PAL as its general sales agent in the Philippines. PAL sold for and in behalf of
JAL, plane tickets and reservations for cargo spaces which were used by passengers or customers on the facilities
of JAL On June 2, 1972, JAL received deficiency income tax assessment notices and a demand letter from CIR for a
total amount of P2,099,687.52 inclusive of 50% surcharge and interest for the years 1959 through 1963.

Issue: Whether or not JAL is liable for a 50% surcharge.

Ruling: Nowhere in the records of the case can be found that JAL deliberately failed to file its income tax returns for
the years covered by the assessment. There was not even an attempt by petitioner to prove the same or justify the
imposition of the 50% surcharge. The willful neglect to file the required tax return or the fraudulent intent to evade
the payment of taxes, considering that the same is accompanied by legal consequences, cannot be presumed. The
fraud contemplated by law is actual and constructive. It must be intentional fraud, consisting of deception willfully
and deliberately done or resorted to in order to induce another to give up some legal right. Negligence, whether
slight or gross, is not equivalent to the fraud with intent to evade the tax contemplated by the law. It must amount to
intentional wrongdoing with the sole object of evading the. This was not proven to be so in the case of JAL as it
believed in good faith that it need not file the tax return for it had no taxable income then. The element of fraud is
lacking. At most, only negligence may be imputed to JAL for not ascertaining the dispensability of filing the tax
returns.

PICOP v. CIR, CTA Case No. 3215, Feb. 15, 1987

CIR v. Pilipinas Shell Petroleum Corporation, CTA E.B. No. 64 (CTA Case No. 6003), April 28, 2006
BIR Ruling No. 002-95, Jan. 6, 1995
BIR Ruling No. 048-99, April 13, 1999
BIR Ruling No. 205-99, Dec. 28, 1999
BIR Ruling No. 078-98, May 28, 1998
B. Interest
Sec. 249, NIRC
Sec. 5, Rev. Regs. No. 12-99, Sept. 6, 1999
Cagayan Electric v. CIR, 138 SCRA 629 (1985)
Republic v. Heras, 32 SCRA 507, 513-514 (1970)
C. Compromise Penalty
Sec. 6, Rev. Regs. No. 12-99, Sept. 6, 1999
CIR v. Lianga Bay Logging Co., Inc., 193 SCRA 86, 92-93 (1991)
Atlas Consolidated Mining & Dev. Corp. v. CIR, CTA Case No. 5671, Aug.
29, 2002

Week 9
RIGHTS AND REMEDIES OF TAXPAYER UNDER THE NATIONAL INTERNAL REVENUE CODE
I. AMEND TAX RETURN
Sec. 6(A), NIRC, last paragraph
Rev. Mem. Cir. No. 40-2003, July 3, 2003
II. PROTEST ASSESSMENT
 A. Procedure
Rev. Regs. No. 12-85, Nov. 27, 1985
Sec. 3, Rev. Regs. No. 12-99, Sept. 6, 1999
B. Notice of Informal Conference
Revenue Regulations 18-2013
Revenue Memorandum Circular 11-2014
C. Preliminary Assessment Notice (PAN) Sec. 228, NIRC
Pier 8 Arrastre and Stevedoring Services v. CIR, CTA Case No. 3789, Aug. 1,1991
1. Exceptions
Sec. 228(a) to (e), NIRC
2. Effect of Failure to Receive PAN
CIR v. Menguito, G.R. No. 167560, Sept. 17, 2008
CIR v. Metro Star Superama, CTA EB Case No. 306, Sept. 16, 2008
D. Final Assessment Notice
Sec. 228, NIRC
CIR v Basf Coating +Inks Phils Inc. SC 3rd Division GR No. 198677 November 26 2014
E. Requirement to Inform Taxpayer of Factual and Legal Basis of Assessment
Sec. 228, NIRC
CIR v. Reyes, G.R. No. 159694, Jan. 27, 2006
CIR v. Enron Subic Power Corp., G.R. No. 166387, Jan. 19, 20
Australasia Cylinder Corp. v. CIR, CTA Case No. 6014, Aug. 14, 2002
Abbot Laboratories v. CIR, CTA Case No. 5718, Feb. 16, 2001
PNZ Marketing v. CIR, CTA Case No. 5726, Dec. 14, 2001
Sevilla v. CIR, CTA Case No. 6211, Oct. 4, 2004
FMF Development Corp. v. CIR, CTA Case No. 6153, March 20, 2003
Subic Power Corp. v. CIR, CTA Case No. 6059, May 8, 2003
Phil. Mining Service Corp. v. CIR, CTA Case No. 5725, July 25, 2002
Oceanic Wireless Network v. CIR, CTA Case No. 6111, Nov. 3, 2004
F. Submission of Supporting Documents
Sec. 228, NIRC
1. Effect of Non-Compliance
Sec. 228, NIRC, 4th par.
2. What Constitutes “Relevant Supporting Documents”
Tambunting Pawnshop, Inc. v. CIR, CTA Case No. 6238, Oct. 8, 2004
CIR v. First Express Pawnshop Co., Inc., G.R. No. 172045-46, June 16, 2009
G. Effect of Failure to File Protest
Sec. 228, NIRC
Dayrit v. Cruz, 165 SCRA 571 (1988)
Week 10
III. IN CASE OF DENIAL OF PROTEST OR INACTION, APPEAL TO CTA
A. Scope of Jurisdiction of CTA/What is Appealable to CTA
Sec. 4, 2nd par., NIRC Sec. 228, NIRC
Sec. 7, Rep. Act No. 1125, as amended by Rep. Act No. 9282

CIR v. Villa, 22 SCRA 4 (1968)

Facts: Villa and his wife filed joint income tax returns for the years 1951-1956. Subsequently, the BIR
determined the income of the spouses by the use of networth method and accordingly issued on 23 February
1961 assessments for deficiency income tax for the years 1951-1954 and 1956 and residence tax for 1951-
1957. Dr. Villa received the assessments on 7 April 1961. Without contesting the said assessments in the BIR,
he filed on 4 May 1961 a petition for review in the Court of Tax Appeals

The Court of Tax Appeals took cognizance of the appeal, tried the case on the merits and reversed the
decision of the BIR. From said judgment, the Commissioner of Internal Revenue appealed the decision, hence
the petition.

Issue: Whether or not the Court of Tax Appeals had jurisdiction to entertain the appeal of the taxpayer
Ruling: No. The law uses the word "decisions", not "assessments", thus further indicating the legislative
intention to subject to judicial review the decision of the Commissioner on the protest against an assessment
but not the assessment itself.

Since in the case at bar the taxpayer appealed from the assessment of the Commissioner of Internal Revenue
without previously contesting the same, the appeal was premature and the Court of Tax Appeals had no
jurisdiction to entertain said appeal. For, as stated, the jurisdiction of the Tax Court is to review by appeal
decisions of the Commissioner of Internal Revenue on disputed assessments.

B. Application of 180-day Rule

Sec. 3(a)(2), Rule 4 and Sec. 3(a), Rule 8, Revised Rules of the CTA (S.C.
A.M. No. 05-11-07-CTA, Nov. 22, 2005)

Lascona Land Co., Inc. v. CIR, CTA Case No. 5777, Jan. 4, 2000

Facts: On 27 March 1998, the CIR issued an assessment against LLC for alleged deficiency income tax,
surcharge, interest and compromise penalty for the year 1993, resulting from the disallowance of certain items
claimed by LLC as deductions from its gross income specially taxes and licenses and interest expense. LLC
received a copy of the said assessment on April 1, 1998 and protested the same on April 20, 1998.

Through a letter dated 3 March 1999 and received by LLC on 12 March 1999, CIR informed LLC that while
they agree with the arguments advanced in the latter's letter of protest, they cannot give due course to its
request to cancel or set aside the assessment notice since the case was not elevated to the Court of Tax
Appeals. This, according to CIR, rendered the assessment notice final, executory and demandable.

Issue: Whether or not the assessment has become final, executory and demandable.

Ruling: In cases of inaction the Tax Code gave the taxpayer an option: first, he may appeal to the Court of Tax
Appeals within thirty (30) days from the lapse of the one hundred eighty (180) day period provided for under
the said section, or second, he may wait until the Commissioner decides on his protest before he elevates his
case. This Court believes that the taxpayer was given this option so that in case his protest is not acted upon
within the 180-day period, he may be able to seek immediate relief and need not wait for an indefinite period of
time for the Commissioner to decide. But if he chooses to wait for a positive action on the part of the
Commissioner, then the same could not result in the assessment becoming final, executory and demandable.

We agree with LLC that to adopt the interpretation of CIR will not only sanction inefficiency, but will likewise
condone the Bureau's inaction. This is especially true in the instant case when despite the fact that CIR found
LLC's arguments to be in order, the assessment will become final, executory and demandable for LLC's failure
to appeal before the CTA within the thirty (30) day period.

Rizal Commercial Banking Corp. v. CIR, G.R. No. 168498, April 24, 2007

Facts: On 5 July 2001, RCBC received a Formal Letter of Demand dated 25 May 2001 from the respondent
CIR its tax liabilities particularly for Gross Onshore Tax and Documentary Stamp Tax for its Special Savings
Placements for the taxable year 1997. On 20 July 2001, RCBC filed a protest letter/request for
reconsideration/reinvestigation pursuant to Section 228 of the National Internal Revenue Code of 1997 (NIRC).

As the protest was not acted upon by the CIR, RCBC filed on April 30, 2002 a petition for review with the CTA
for the cancellation of the assessments.

On 15 July 2003, CIR filed a motion to resolve first the issue of CTA’s jurisdiction, which was granted by the
CTA in a Resolution dated 10 September 2003. The petition for review was dismissed because it was filed
beyond the 30-day period following the lapse of 180 days from petitioner’s submission of documents in support
of its protest, as provided under Section 228 of the NIRC and Section 11 of R.A. No. 1125, otherwise known as
the Law Creating the Court of Tax Appeals.

Issue: Whether or not the CTA has jurisdiction of the case.

Ruling: In the instant case, the Commissioner failed to act on the disputed assessment within 180 days from
date of submission of documents. Thus, petitioner opted to file a petition for review before the Court of Tax
Appeals. Unfortunately, the petition for review was filed out of time, i.e., it was filed more than 30 days after the
lapse of the 180-day period. Consequently, it was dismissed by the Court of Tax Appeals for late filing.
Petitioner did not file a motion for reconsideration or make an appeal; hence the disputed assessment became
final, demandable and executory.

Based on the foregoing, petitioner can not now claim that the disputed assessment is not yet final as it
remained unacted upon by the Commissioner; that it can still await the final decision of the Commissioner and
thereafter appeal the same to the Court of Tax Appeals. This legal maneuver cannot be countenanced. After
availing the first option, i.e., filing a petition for review which was however filed out of time, petitioner can not
successfully resort to the second option, i.e., awaiting the final decision of the Commissioner and appealing the
same to the Court of Tax Appeals, on the pretext that there is yet no final decision on the disputed assessment
because of the Commissioner’s inaction.

C. What Constitutes Denial of Protest/Decision on Disputed Assessment

1. General Rule
2. Issuance of Revised Assessment Upon Reinvestigation

Avon Products Mfg., Inc. v. CIR, CTA Case No. 5908, Jan. 20, 2005

Facts: On 28 January 1998, Avon received 2 separate demand letter. CIR concurrenty assessed Avon and
demanded for alleged deficiency on its expanded withholding tax (EWT) for the year 1994 (P97,681.60) and on
its final withholding tax (FWT) of P14,113,722.38.

Subsequently, Avon again received ANOTHER DEMAND letter and assessment notice on 11 February 1998,
demanding for payment alleged deficiency on it value added tax in the amount of P18,113,204.75 (VAT). Avon
filed its protest letter on February 18, 1998 with CIR protesting the EWT, FWT and VAT, which was granted.

As a result of the reinvestigation made by the concerned revenue examiners, commissioner cancelled the
deficiency final withholding tax assessment and revised the basic income tax deficiency assessment to
P7,244,939.16, the basic value-added tax deficiency assessment to P2,288,166.16 and the basic expanded
withholding tax deficiency assessment to P35,572.51. The foregoing cancellation of the deficiency final
withholding tax and revisions of the deficiency income, value-added tax, and expanded withholding tax were
contained in a letter dated June 3, 1999 which was received by the Avon on June 16, 1999. Commissioner
demanded the settlement of the deficiency tax assessments within fifteen (15) days from petitioner's receipt of
said letter.

On 15 July 1999, Avon filed petition for review before CTA.

Issue: Whether or not the letter of CIR based on the request of reinvestigation is the decision appealable to
CTA.

Ruling: The Court agrees with Avon that CIR’s letter dated June 3, 1999, which was received by former, is the
decision of the respondent referred to in the last paragraph of Section 228 that is appealable to CTA. The
letter particularly referred to Avon’s requests for reinvestigation dated January 9, 1998, January 13, 1998 and
February 16, 1998. It also made a demand for the settlement of the reduced deficiency tax liabilities of the
petitioner within fifteen (15) days from receipt thereof as well as its enforcement thru summary remedies
without any further notice. The tenor of the letter clearly conveys that it is the final decision of the respondent
concerning petitioner's protested assessments.

Section 228 of the National Internal Revenue Code ("NIRC") clearly provides that the taxpayers shall be
informed in writing of the law and the facts on which the assessment is made, otherwise, the
assessment shall be void. The requirement under Section 228 of the NIRC is a matter of due process.
As thus worded, the respondent has the bounden duty to inform the taxpayer not only of the law but
more importantly, the surrounding circumstances supporting the assessment, for it is only through a
detailed appraisal of its basis that the taxpayer may be able to dispute the imposition or agree with it.

The assailed assessment notices substantially complied with the requirement of Section 228,
hence, the same are valid and binding upon the petitioner.
3. Final Notice Before Seizure

CIR v. Isabela Cultural Corp., 361 SCRA 71 (2001)

Facts: In an investigation conducted on the 1986 books of account of ICC had the preliminary finding that ICC
incurred a total income tax deficiency of P9,985,392.15. Upon protest by ICC’s counsel, the said preliminary
assessment was reduced to the amount of P325,869.44.

On 23 February 1990, ICC received from CIR an assessment letter, dated 9 February 1990, demanding
payment of the amounts of P333,196.86 and P4,897.79 as deficiency income tax and expanded withholding
tax inclusive of surcharge and interest, respectively, for the taxable period from 1 January to 31 December
1986.

In a letter, dated March 22, 1990, filed with the CIR office on March 23, 1990, ICC requested x x x a
reconsideration of the subject assessment. Supplemental to its protest was a letter, dated April 2, 1990, filed
with the CIR’s office on 18 April 1990 to which x x x were attached certain documents supportive of its protest,
as well as a Waiver of Statute of Limitation, dated 17 April 1990, where it was indicated that CIR would only
have until 5 April 1991 within which to assess and collect the taxes that may be found due from ICC after the
re-investigation.

On 9 February 1995, ICC received from CIR a Final Notice Before Seizure, dated 22 December. In said letter,
CIR demanded payment of the subject assessment within ten (10) days from receipt thereof. Otherwise, failure
on its part would constrain CIR to collect the subject assessment through summary remedies. ICC considered
said final notice of seizure as CIR final decision. Hence, the instant petition for review.

Issue: Whether or not the Final Notice Before Seizure constitutes denial of protest.

Ruling: Yes. In the light of the above facts, the Final Notice Before Seizure cannot but be considered as the
commissioner’s decision disposing of the request for reconsideration filed by respondent, who received no
other response to its request. Not only was the Notice the only response received; its content and tenor
supported the theory that it was the CIR’s final act regarding the request for reconsideration. The very title
expressly indicated that it was a final notice prior to seizure of property. The letter itself clearly stated that
respondent was being given “this LAST OPPORTUNITY” to pay; otherwise, its properties would be subjected
to distraint and levy.

4. Final Demand Letter

CIR v. Ayala Securities Corp., 70 SCRA 204 (1976)

Facts: On 29 November 1955, Ayala Securities Corporation, filed its income tax returns for its fiscal year
which ended on 30 September 1955. Attached to its income tax return was the audited financial statements of
ASC as of 30 September 1955, showing a surplus of P2,758,442.37. The income tax due on the return of ASC
was duly paid for within the time prescribed by law.

In a letter dated 21 February 1961, CIR advised ASC of the assessment of P758,687.04 on its accumulated
surplus reflected on its income tax return for the fiscal year which ended 30 September 1955. ASC in a letter
dated 19 April 1961, protested against the assessment on its retained and accumulated surplus pertaining to
the taxable year 1955 and sought reconsideration thereof for the reasons (1) that the accumulation of the
surplus was for a bona fide business purpose and not to avoid the imposition of income tax on the individual
shareholders, and (2) that the said assessment was issued beyond the five-year prescriptive period.

On 30 May 1961, CIR wrote ASC’s auditing and accounting firm with the “advise that your request for
reconsideration will be the subject matter of further reinvestigation and a thorough analysis of the issues
involved conditioned, however, upon the execution of your client of the enclosed form for waiver of the defense
of prescription”. However, ASC did not execute the requested waiver of the statute of limitations, considering its
claim that the assessment in question had already prescribed.

On 21 February 1963, ASC received a letter dated 18 February 1963, from the Chief, Manila Examiners, of the
Office of the CIR, calling the attention of the ASC to its outstanding and unpaid tax in the amount of
P758,687.04 and thereby requesting for the payment of the said amount within five (5) days from receipt of the
said letter. Believing the aforesaid letter to be a denial of its protest, the herein respondent corporation filed
with the Court of Tax Appeals a Petition for Review of the assessment.

Issue: Whether or not the final demand letter constitutes denial of protest.

Ruling: Yes. The letter of 18 February 1963 is tantamount to a denial of the reconsideration or protect of the
respondent corporation on the assessment made by the petitioner, considering that the said letter is in itself a
reiteration of the demand by the Bureau of Internal Revenue for the settlement of the assessment already
made, and for the immediate payment of the sum of P758,687.04 in spite of the vehement protest of the
respondent corporation on 21 April 1961. This certainly is a clear indication of the firm stand of petitioner
against the reconsideration of the disputed assessment, in view of the continued refusal of the respondent
corporation to execute the waiver of the period of limitation upon the assessment in question. This being so,
the said letter amounts to a decision on a disputed or protested assessment.

However, the Court ruled in favour of ASC on the ground of prescription of the assessment made by the CIR.
The assessment prescribed on 15 January 1961.

Surigao Electric Co. Inc. v. CTA, 57 SCRA 523 (1974)

Facts: In November 1961, SURECO, grantee of a legislative electric franchise, received a warrant of distraint
and levy to enforce the collection from "Mainit Electric" of a deficiency franchise tax plus surcharge in the total
amount of P718.59. SURECO contested this warrant, stating that it did not have a franchise in Mainit, Surigao.

Thereafter the Commissioner, by letter dated 2 April 1961, advised the SURECO to take up the matter with the
General Auditing Office, enclosing a copy of the 4th Indorsement of the Auditor General dated 23 November
1960. Subsequently, in a letter to the Auditor General dated 2 August 1962, SURECO asked for
reconsideration of the assessment, admitting liability only for the 2% franchise tax in accordance with its
legislative franchise and not at the higher rate of 5%, which latter rate the Auditor General used as basis in
computing the SURECO's deficiency franchise tax.

The controversy culminated in a revised assessment dated 29 April 1963 (received by the SURECO on 8 May
1963) in the amount of P1 1,533.53, representing the SURECO's deficiency franchise tax and surcharges
thereon for the period from 1 April 1956 to 30 June 1959. SURECO then requested a recomputation of the
revised assessment in a letter to the Commissioner dated 6 June 1963 (sent by registered mail on 7 June
1963). The Commissioner, however, in a letter dated 28 June 1963 (received by SURECO on July 16, 1963),
denied the request for recomputation.

On 1 August 1963 the SURECO appealed to the Court of Tax Appeals. The tax court dismissed the appeal on
1 October 1965 on the ground that the appeal was filed beyond the thirty-day period of appeal provided by
section 11 of Republic Act 1125.

Issue: Whether or not the demand letter dated 29 April 1963 constitute denial of protest.

Ruling: Yes. The letter of demand dated April 29, 1963 unquestionably constitutes the final action taken by the
Commissioner on the petitioner's several requests for reconsideration and recomputation. In this letter, the
Commissioner not only in effect demanded that the petitioner pay the amount of P1 1,533.53 but also gave
warning that in the event it failed to pay, the said Commissioner would be constrained to enforce the collection
thereof by means of the remedies provided by law. The tenor of the letter, specifically the statement regarding
the resort to legal remedies, unmistakably indicates the final nature of the determination made by the
Commissioner of the petitioner's deficiency franchise tax liability.

Prescinding from all the foregoing, we deem it appropriate to state that the CIR always indicate to the taxpayer
in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer
constitutes his final determination on the disputed assessment. On the basis of this indicium indubitably
showing that the Commissioner's communicated action is his final decision on the contested assessment, the
aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. Without
needless difficulty, the taxpayer would be able to determine when his right to appeal to the tax court accrues.
This rule of conduct would also obviate all desire and opportunity on the part of the taxpayer to continually
delay the finality of the assessment—and, consequently, the collection of the amount demanded as taxes—by
repeated requests for recomputation and reconsideration. On the part of the Commissioner, this would
encourage his office to conduct a careful and thorough study of every questioned assessment and render a
correct and definite decision thereon in the first instance. This would also deter the Commissioner from unfairly
making the taxpayer grope in the dark and speculate as to which action constitutes the decision appealable to
the tax court. Of greater import, this rule of conduct would meet a pressing need for fair play, regularity, and
orderliness in administrative action.

5. Filing of Collection Suit

CIR v. Union Shipping Corp., 185 SCRA 547 (1990)

Facts: In a letter dated 27 December 1974, CIR assessed against Yee Fong Hong, Ltd. and/or herein Union
Shipping Corporation, the total sum of P583,155.22 as deficiency income taxes due for the years 1971 and
1972. Said letter was received on 4 January 1975, and in a letter dated 10 January 1975 USC protested the
assessment which was received by CIR on 13 January 1975.

CIR, without ruling on the protest, issued a Warrant of Distraint and Levy, which was served on USC’s counsel,
Clemente Celso, on 25 November 1976.

In a letter dated 27 November 1976, received by CIR on 29 November 1976, USC reiterated its request for
reinvestigation of the assessment and for the reconsideration of the summary collection thru the Warrant of
Distraint and Levy.

CIR, again, without acting on the request for reinvestigation and reconsideration of the Warrant of Distraint and
Levy, filed a collection suit before Branch XXI of the then CFI of Manila, against USC. Summons in the said
collection case was issued to private respondent on 28 December 1978.

On 10 January 1979, USC filed with respondent court its Petition for Review of CIR’s assessment of its
deficiency income taxes in a letter dated 27 December 1974 wherein it prays that after hearing, judgment be
rendered holding that it is not liable for the payment of the income tax herein involved, or which may be due
from foreign shipowner Yee Fong Hong, Ltd.; to which CIR filed his answer on 29 March 1979.

The Tax Court, in a decision dated 9 December 1983, ruled in favor of USC. Hence, the instant petition.

Issues: Whether or not the filing of collection suit constitute denial of protest.

Ruling: Yes. The request for reinvestigation and reconsideration was in effect considered denied by petitioner
when the latter filed a civil suit for collection of deficiency income. So that on January 10, 1979 when private
respondent filed the appeal with the Court of Tax Appeals, it consumed a total of only thirteen (13) days well
within the thirty day period to appeal pursuant to Section 11 of R.A. 1125.
If an individual or corporation like the petitioner in this case, is not in the actual possession, custody, or control
of the funds, it can neither be physically nor legally liable or obligated to pay the so-called withholding tax on
income claimed by Yee Fong Hong, Ltd.

6. Referral to Solicitor General for Collection

Republic v. Lim Tian Teng Sons & Co., supra

Facts: On March 30, 1953 Lim Tian Teng Sons & Co., Inc. filed its income tax return for 1952,
based on accrued income and expenses. Its return showed a loss of P55,109.98. CIR eliminated the amount of
P95,000 outturn from the beginning inventory for the year 1952 and considered it as accrued income for 1951.
This increased taxpayer's 1952 net income by P95,500.00 which, considering disallowances in the sum of
P9,980.85, raised the taxpayer's net taxable income for 1952 to P50,370.87.

Lim Tian Teng received a letter from CIR on January 30, 1957. CIR assessing for it deficiency on its income tax
of P10,074.00 and 50% surcharge thereon amounting to P5,037.00 and demanded payment thereof not later
than February 15, 1957.
On January 31, 1957 Lim Tian Teng Sons & Co., Inc. requested reinvestigation of its 1952 income tax liability.
The Collector of Internal Revenue did not reply; instead, he referred the case to the Solicitor General for
collection by judicial action. On September 20, 1957 the solicitor general demanded from Lim Tian the payment
of P15,111.50 within five days, stating that otherwise judicial action would be instituted without further notice.

Thereupon, the Deputy Collector of Internal Revenue, by his letter dated October 15, 1957 informed the
taxpayer that its request for reinvestigation would be granted provided it executed within 10 days a waiver of
the statute of limitations. However, Tian failed to file a waiver of the statute of limitations. On September 2,
1958, CIR instituted an action before the CFI for the collection of deficiency income tax. The CFI rendered
decision ordering the defendant to pay the plaintiff as the assessment is valid and rendered its finality. Both
parties appealed, raising only question of law.

Issue: Whether or not CIR is required to rule first on taxpayer’s request for reinvestigation before enforcing an
action before a court to collect the tax assessed.

Thus, its referral to solicitor general on a request for reinvestigation is equivalent to a denial of the request for
reinvestigation.

Ruling:

No. CIR cannot validly rule first on taxpayer’s request for reinvestigation before he can go to court for collection
of taxes. There is no any provision in Tax Code that requires CIR to rule first on a taxpayer’s request for
reinvestigation before he can go to court for the purpose of collecting the tax assessed.

On the contrary, Section 305 of the same Code withholds from all courts, except the Court of Tax Appeals
under Section 11 of Republic Act 1125, the authority to restrain the collection of any national internal-revenue
tax, fee or charge, thereby indicating the legislative policy to allow the Collector of Internal Revenue much
latitude in the speedy and prompt collection of taxes. The reason is obvious. It is upon taxation that the
government chiefly relies to obtain the means to carry on its operations, and it is of the utmost importance that
the modes adopted to enforce collection of taxes levied should be summary and interfered with as little as
possible. No government could exist if all litigants were permitted to delay the collection of its taxes.

The court interpreted the action of the CIR in referring to solicitor general the request of Lim for reinvestigation
as a denial to the said request.

7. Issuance of Warrant of Distraint and Levy

Central Cement Corporation v. CIR, CTA Case No. 4312, Sept. 1, 1993

Facts: On March 9, 1988, Central Cement received a letter from the Bureau of Internal Revenue ("BIR")
informing it of a proposed (tentative) assessment for alleged deficiency income tax for fiscal year ended June
30, 1987 in the total amount of P4,202,118.00, inclusive of interest computed up to March 15, 1988. On March
18, 1988 , Central Cement responded on the said letter by disputing the proposed assessment.

BIR did not respond on the letter of Central, instead sent another letter to CIR informing him of its proposed
assessment amounted to P5,404,339.50, including a 25% surcharge and 20% per annum interest. Comprising
the aforesaid assessment are deficiency income tax of P5,400,847.99 and deficiency expanded withholding tax
of P3,491.62. Cement was granted 10 days to respond a dispute, otherwise assessment will become final and
executory. As such, Central Cement vehemently objected and disputed the proposed assessment. However,
instead of responding on the said protest of cement, BIR sent the latter a final assessment notice for the
alleged deficiency tax. Thus, Central Cement, again, filed a protest against FAN.

Furthermore, while awaiting for the resolution of the protest, Warrant of Levy on Real Property and
Warrant of Distraint of Personal Property were served to Central Cement. Notice of
Garnishments were also served to 2 of the Central Cement’s depository Bank. All of the
foregoing warrants were issued by BIR.

Issues: Whether or not issuances of the warrants, levy, distraints and garnishments were validly issued.

Ruling: No. the warrants of distraint, levy and garnishment were not validly issued by BIR. BIR knows it well
that the deficiency assessments were under protest by Central Cement. Even when the issuance of the
warrants was objected to by petitioner for being in violation of the Tax Code, respondent did not lift said
warrants. It is by respondent's own doing that administrative remedies available to petitioner were effectively
shut-off thereby, leaving petitioner with no recourse but to seek relief from this Court.

The Court found the issuance of warrants of distraint and levy and warrants of garnishment in violation of
Section 207 of the National Internal Revenue Code which only authorizes the issuance of warrants "not earlier
than three months nor later than six months from receipt of the demand".

CIR v. Algue, Inc., 158 SCRA 9 (1988)

Facts: On 14 January 1965, Algue engaged in engineering, construction and other allied
activities, received a letter from the CIR assessing it in the total amount of P83,183.85 as
delinquency income taxes for the years 1958 and 1959. On 18 January 1965, Algue filed a
letter of protest or request for reconsideration, which letter was stamp-received on the
same day in the office of the CIR. On 12 March 1965, a warrant of distraint and levy was
presented to the Algue, through its counsel, Atty. Alberto Guevara, Jr., who refused to
receive it on the ground of the pending protest. A search of the protest in the dockets of
the case proved fruitless. Atty. Guevara produced his file copy and gave a photostat to
BIR agent Ramon Reyes, who deferred service of the warrant. On 7 April 1965, Atty.
Guevara was finally informed that the BIR was not taking any action on the protest and it
was only then that he accepted the warrant of distraint and levy earlier sought to be
served. Sixteen days later, on 23 April 1965, Algue filed a petition for review of the
decision of the CIR with the Court of Tax Appeals.

Issues: Whether or not the issuance of Warrant of Distraint and Levy constitute denial of protest.

Ruling: No. It is true that as a rule the warrant of distraint and levy is "proof of the finality of the assessment"
and "renders hopeless a request for reconsideration," being "tantamount to an outright denial thereof and
makes the said request deemed rejected." But there is a special circumstance in the case at bar that prevents
application of this accepted doctrine. The proven fact is that four days after the private respondent received the
petitioner's notice of assessment, it filed its letter of protest. This was apparently not taken into account before
the warrant of distraint and levy was issued; indeed, such protest could not be located in the office of the
petitioner. It was only after Atty. Guevara gave the BIR a copy of the protest that it was, if at all, considered by
the tax authorities. During the intervening period, the warrant was premature and could therefore not be
served.

Advertising Associates, Inc. v. CA, 133 SCRA 765 (1984)

Facts: AAI alleged that it sold in 1949 its advertising agency business to Philippine Advertising Counsellors,
that its business is limited to the making, construction and installation of billboards and electric signs and
making and printing of posters, signs, handbills, etc.. It contends that it is a media company, not an advertising
company.

The Commissioner required Advertising Associates to pay P297,927.06 and P84,773.10 as contractor’s tax for
1967-1971 and 1972, respectively, including 25% surcharge on its income from billboards and neon signs. The
basis of the assessment is the fact that the taxpayer’s articles of incorporation provide that its primary purpose
is to engage in general advertising business. Its income tax returns indicate that its business was advertising.

AAI contested the assessments in its letters of 25 June 1973 (for the 1967-71 deficiency taxes) and March 7,
1974 (for the 1972 deficiency). The Commissioner reiterated the assessments in his letters of 12 July and 16
September 1974.

The taxpayer requested the cancellation of the assessments in its letters of 13 September and 21 November
1974. Inexplicably, for about four years there was no movement in the case. Then, on 31 March 1978, the
Commissioner resorted to the summary remedy of issuing two warrants of distraint, directing the collection
enforcement division to levy on the taxpayer’s personal properties as would be sufficient to satisfy the
deficiency taxes. The warrants were served upon the taxpayer on April 18 and May 25, 1978.

More than a year later, Acting Commissioner Plana wrote a letter dated May 23, 1979 in answer to the
requests of the taxpayer for the cancellation of the assessments and the withdrawal of the warrants of distraint.
He justified the assessments by stating that the rental income of AAI from billboards and neon signs
constituted fees or compensation for its advertising services. He requested the taxpayer to pay the deficiency
taxes within ten days from receipt of the demand; otherwise, the Bureau would enforce the warrants of
distraint.

AAI received that letter on 18 June 1979. Nineteen days later or on 7 July it filed its petition for review. The Tax
Court did not resolve the case on the merits. It ruled that the warrants of distraint were the Commissioner’s
appealable decisions. Since AAI appealed from the decision of May 23, 1979, the petition for review was filed
out of time. It was dismissed. Hence, the taxpayer appealed to this Court.

Issues: Whether or not the issuance of Warrant of Distraint is barred by prescription.

Ruling: No. The taxpayer received on 18 June 1973 and 5 March 1974 the deficiency assessments herein.
The warrants of distraint were served upon it on April 18 and May 25, 1978 or within five years after the
assessment of the tax. Obviously, the warrants were issued to interrupt the five-year prescriptive period. Its
enforcement was not implemented because of the pending protests of the taxpayer and its requests for
withdrawal of the warrants which were eventually resolved in Commissioner Plana’s letter of 23 May 1979.

D. Period to Appeal/Effect of Failure to Appeal

Sec. 228, last par., NIRC
Sec. 11, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282

St. Stephen’s Association v. Collector of Internal Revenue, 104 Phil. 314 (1958)

Facts: On 21 January 1950, St. Stephen’s Association (SSA) turned over, as a donation, a total amount of
P9,252.48 to St. Stephen’s Chinese Girls School (SSCG). Thus, upon inspection of an examiner of the BIR, it
reported right after to the commissioner the said donation. CIR sent an Assessment Notice dated October 15,
1954, demanding the payment of the amounts of P98.70 and P699.07 as donor's and donee's gift taxes on the
donation in question, including surcharges and interests.
On November 13, 1954, SSA wrote a letter to BIR, requesting for the withdrawal of the said assessment. It
alleged that it was erroneously entered to their books of accounts. It was in fact represents the small
contributions from the public and allocated to the School for its maintenance. Said request was denied by BIR.
Thereafter, BIR also denied the letter of SSA for reconsideration and issued the finality of its decision after 30
days from date receipt of its letter.

SSA, before the lapsed of 30 days, on or before 13 August 1955, filed a petition for review before CTA.

Issues: Whether or not the appeal filed by SSA was properly filed.

Ruling: Yes. The said appeal was filed properly. CTA erred in holding that the assessment in question is the
respondent Collector's decision or ruling appealable to it, and that consequently, the period of thirty days
prescribed by section 11 of Republic Act No. 1125 within which petitioner should have appealed to the
respondent court must be counted from its receipt of said assessment.

The SSA questions the assessment and asks the Collector to reconsider or cancel the same because he (the
taxpayer) believes he is not liable therefor, the assessment becomes a "disputed assessment" that the
Collector must decide. Thus, the taxpayer (SSA) can appeal to the Court of Tax Appeals only upon
receipt of the decision of the Collector on the disputed assessment, in accordance with paragraph (1) of
section 7, Republic Act No. 1125, conferring appellate jurisdiction upon the Court of Tax Appeals to review"
decisions of the Collector of Internal Revenue in cases involving disputed assessment . . ." (Emphasis
supplied).

The period for appeal to the respondent court in this case must, therefore, be computed from the time
petitioners received the decision of the respondent Collector of Internal Revenue on the disputed assessment,
and not from the time they received said assessment. Therefore, the letter of July 11, 1955, which evidently
considered by BIR as his final decision in the case, hence his warning that the same would become final in
thirty days unless petitioners appealed to the Court of Tax Appeals within the same period, shall be the basis
for the reckoning period to file an Appeal before CTA. Therefore, SSA filed an Appeal within 30 day prescriptive
period.

Roman Catholic Archbishop of Cebu v. Collector, 4 SCRA 279 (1962)

Facts: On Roman Catholic Archbishop filed an income tax return and claimed for a deduction for depreciation
of its several properties for the years 1955 and 1956. Wherein the CIR disallowed said claim and determined
against Roman Catholic on 15 July 1956 and 30 March 1957 for income tax liabilities for the said years.

On May 10 and 14, 1957, Roman Catholic sent a letter to CIR requesting for reconsideration of the said
determinations. On a letter dated 13 July 1957, CIR issued a letter denying the request of Roman Catholic.
Several requests for reconsideration and cancellation were sent by Roman Catholic to CIR, which were also
denied by the latter. Roman Catholic filed an Appeal before CTA after it received the response of BIR from his
3rd letter for reconsideration. Roman Catholic also filed after the lapsed of thirty days from the date receipt of
the second letter of denial from BIR, from which the reckoning period shall commence.

Issues: Whether or not the appeal filed Roman Catholic filed timely.

Ruling: Successive motions for reconsideration, the petitioner managed to delay the review of his case by the
Tax Court for nearly two years. Such delays are plainly inimical to the general interest, ascertainment and
collection of taxes being essential to the maintenance of the State. The decision by the Collector of Internal
Revenue dated November 5, 1957, denying the second request for reconsideration of the assessment, was
certainly reviewable by the Court of Tax
Appeals.Hence, the 30-day appeal period should be counted from November 21, 1957, when the taxpayer
received copy of the Collector's ruling. The running of the period was not interrupted by the filing of the
third request for reconsideration, because the latter did not advance new grounds not previously
alleged, and was, therefore, merely pro forma . Therefore, petitioner's petition for review should have
been lodged with the Tax Court not later than December 21, 1957, but it was actually filed only on
February 1, 1958.

Thirty (30) day period prescribed by section 11 of Republic Act No. 1125.

Pantranco v. Blaquera, 107 Phil. 975 (1960)

Facts: on February 12, 1954 originally assessed and demanded from Pantranco the amount of P73,791.66 as
documentary stamp from 1948 to 30 September 1953, plus P1,000.00 as compromise. On 4 March 1954,
Pantranco requested a reinvestigation of respondent's original assessment and demand, on the grounds that
the same was arbitrary and without legal basis, and assuming that the tax is due, that the collection of said tax
has already prescribed. Blaquera, on 16 September 1954 denied this request and urged Pantranco to pay the
amount of P66,959.32. In view of the change in the amount demanded petitioner, in a letter dated 4 October
1954, requested a clarification thereof. In reply to this letter, Blaquera on 15 November 1954 wrote a letter
enclosing therewith his letter dated 16 September 1954 which shows the result of the reinvestigation of the
case and the consequent modification of the assessment from the amount of P74,791.66 to P66,959.92. The
last mentioned letter of Blaquera with the enclosed reduced assessment was received by Pantranco on 20
November 1954. On December 2, 1954, Pantranco sought a reconsideration of the modified assessment. In
this letter of Pantranco, which Blaquera received on 3 December 1954, it also reiterated its request that the
case be held in abeyance pending the termination of the interprovincial Autobus Co. case.

In the meantime, the City Treasurer of Dagupan demanded from Pantranco, in a letter dated 3 January 1955,
the payment of the amount of P66,959.62. On 14 January 1955 Pantranco followed-up its request contained in
the letter dated 2 December 1954. Blaquea finding that Pantranco has not yet paid the assessment in question
again demanded payment of the same in a letter dated 21 January 1955 making no reference to Pantranco 's
two letters. Hence, in a letter dated 28 January 1955, Pantranco called the attention of Blaquera, to petitioner's
letters of December 2, 1954 and January 14, 1955 requesting that the assessment be reconsidered and that
the case be held in abeyance pending decision of the case of Interprovincial Autobus Co. In reply to petitioner's
letter, respondent in a letter dated May 28, 1955 which petitioner received on June 11, 1955 denied the
former's request. Thereafter, the present petition for review (before the Tax Court) was filed on July 2, 1955.
Considering that the ruling or decision of the Collector of 16 September 1954 had been received by Pantranco
on 20 November 1954, the Court held that the 30-day period began to run on 20 November 1954; that it was
interrupted by the petition for reconsideration filed 3 December 1954; and that such interruption ended on 11
June 1955, when denial of the reconsideration was received by Pantranco; and finding that the petition had
thus been presented on the 34th day after receipt of the Collector's definite assessment, (November 20 to
December 3-13 days; June 11 to July 2-21 days; total 34 days) the said Court resolved to dismiss the petition.

Issues: Whether or not the period to appeal has prescribed.

Ruling: Yes. The letter of September 16, 1954 is the decision of the Collector which the taxpayer had to
contest within thirty days; otherwise, it would have become final and unappealable to the Court of Tax Appeals,
or to any other court. It was a definite determination of Pantranco's tax accountability. Pantranco could ask for
reconsideration, of course; if successful, well and good. If unsuccessful, it must appeal within thirty days,
discounting the time within which its petition to reconsider had been pending. This computation is nothing
unusual: it is the ordinary way the timeliness of appeals is determined. The thirty-day period granted to the
taxpayer within which to contest assessments made by the Collector of Internal Revenue is jurisdictional and
non-extendible.

Basa v. Republic, 138 SCRA 34 (1985)

Facts: A demand letter, dated 31 August 1967 was sent by CIR against Augusto Basa (Basa) assessing his
deficiency income tax for the year 1957 to 1960 (P16,353.12). Basa did not contest or filed any protest on the
said demand. The CIR issued letter of decision on the case, dated 06 December 1974. On September 3, 1975,
CIR sued Basa for the collection of the said amount. Thereafter, the said court ordered Basa to pay assessed
tax deficiency with surcharge and interest.

Basa instead of filing of appeal on the decision filed an appeal to Court of Appeals, which was also dismissed.

Issues: Whether or not the appeal filed by Basa was proper and shall give merit.

Ruling: No. Basa should have appealed to this Court. His failure to do so rendered the decision final and
executory. He has no cause of action for certiorari. The decision of the trial court is correct. If he wanted to
contest the assessments, he should have appealed to the Tax Court. Not having done so, he could not contest
the same in the Court of First Instance.

The issue of prescription raised by him is baseless. The assessments were predicated on
the fact that his income tax returns, if not fraudulent, were false because he underdeclared
his income. In such a case, the deficiency assessments may be made within ten years after the discovery of
the falsity or omission. The court action should be instituted within five years after the assessment but this
period is suspended during the time that the Commission is prohibited from instituting a court action.

Mambulao Lumber Co. v. CIR, 132 SCRA 1 (1984)

Facts: On 31 July 1957, Agent of BIR submitted a report BIR based on his examination of the books of
accounts of Mambulao Lumber. Consequently, Acting BIR Commissioner sent a letter to Mambulao Lumber on
August 29, 1958. The demand letter is assessing its sales tax deficiency, forest charges for the year 1949 and
surcharges amounting to P33,595.26.

On October 18, 1958, Mambulao Lumber requested for reinvestigation of its tax liability. Subsequently, in a
letter dated July 8, 1959, Commissioner gave Mambulao a period of twenty (20) days from receipt thereof to
submit the results of its verification of payments and failure to comply would be construed as an abandonment
of the request for reinvestigation. Mambulao failed to comply with the said letter and to pay its tax liability after
several demands for payment. This gave rise to BIR to file a complaint against Mambulao on August 25, 1961.
Trial court rendered decision ordering Mambulao to pay BIR its tax liability with legal interest.

CA denied Mambulao’s appeal likewise its motion for recosideration on the said trial court’s decision.
Mambulao filed instant appeal before CTA. presenting the lone issue of whether or not the right of BIR to file a
judicial action for the collection of the amount of P15,443.55 as forest charges and surcharges due from the
petitioner Mambulao Lumber Company for the year 1949 has already prescribed.
Issues: Whether or not judicial action of BIR to collect forest charges and surcharges already prescribed.

Ruling: No. In the case at bar, the commencement of the five-year period should be counted from August 29,
1958, the date of the letter of demand of the Acting Commissioner BIR to Mambulao. It is this demand or
assessment that is appealable to the Court of Tax Appeals. The complaint for collection was filed in the Court
of First Instance of Manila on August 25, 1961, very much within the five-year period prescribed by
Section 332(c) of the Tax Code. Consequently, the right of the Commissioner of Internal Revenue to collect
the forest charges and surcharges in the amount of P15,443.55 has not prescribed.

E. Mode of Appeal and Effect of Appeal

1. Appeal to a Division of the CTA
Sec. 11, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282

2. Appeal to CTA En Banc

Sec. 18, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282
IV. APPEAL TO SUPREME COURT
Sec. 19, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282

Week 11
V. REFUND AND/OR TAX CREDIT OF ERRONEOUSLY PAID TAX

A claim for refund may be availed of in the following instance:

1. When it was erroneously or illegally assessed or collected internal revenue taxes;
2. Penalties are imposed without authority; and
3. Any sum was allegedly excessive or in any manner wrongfully collected.

TAX REFUND TAX CREDIT

1. There is an actual reimbursement.
1. A tax certificate or tax credit memo will be issued to
the taxpayer. It can be applied against any sum
that may be due and collectible from the taxpayer
(except withholding taxes.)
2. Tax credit certificates cannot be transferred or
assigned to another person (RR14-2011)

REQUIREMENTS FOR A TAX CREDIT OR TAX REFUND

1. Written claim fir credit or refund filed with the CIR.
2. It shall be filed within 2 years after the actual payment of the tax or penalty, regardless of the existence
of any supervening cause after payment.
Elements or requirements for refund cases
- A refund or credit shall be filed within the period
- Substantive basis in law
- Documents to support or substantiate your claim

A. What Constitutes Erroneous Payment

CIR v. Central Azucarera Don Pedro, 49 SCRA 474 (1973)

FACTS: On May 22, 1963, Central Azucarera filed an application with the Board of Industries for tax exemption
privileges under Rep. Act No. 3127 in connection with its importations of machineries, spare parts and other
equipment to be used in its central. However, on July 22, 1965, Central Azucarera’s advised Commissioner of
Internal Revenue that they will submit certificate of tax exemption as soon as their application was granted.

On Sep. 20, 1965, Central Azucarera’s application was granted. Their certificate of tax exemption was
issued on October 5. On November 3, 1965, Central Azucarera informed CIR of its tax exemption and claimed
for a tax credit for the amount of Php294,705.00 (for compensating tax). A sum of Php48,302.00 was included
on the said amount, which the CIR collected on May 29, 1963.

CIR disallowed the total sum of Php48,302.00. CIR alleged that the claim was filed out of time or more
than 2 years already for an illegal or erroneously collected tax.
ISSUE: Whether or not the claim for tax credit was based on collection which was erroneously or illegally
collected.

RULING: No. The tax subject of claim for tax credit was legally and validly collected. Central Azucarera’s claim
for credit or refund was based on the tax exemption granted by the Board of Industries. The 2 year prescriptive
period for filing such claim commences from the date of issuance of the said certificate of tax exemption, which
was on October 5, 1965. The date of occurrence of the supervening cause which gave rise to the right of
refund. The filing of the claim for refund with CIR on November 3, 1965 was within the said 2 year prescriptive
period.

B. Requirement of Filing Administrative Claim

Sec. 229, NIRC Sec. 204(C), NIRC
Bermejo v. Collector, 87 Phil. 96 (1950)

FACTS: On June 25, 1946, CIR informed Bermejo, that for sales of nipa shingles and charcoal made in the
third quarter of 1945 and from October to November of 1945, the latter owed the Government the sum of
P1,083.75.

Bermejo objected to the assessment, contending mainly that the products were agricultural, and as
such, free from taxation; but after the exchange of some correspondence he at last proposed to pay the tax by
installments, without prejudice to whatever action he may take on the matter. His request was granted. After
paying the First installment, he sued for recovery.

CIR contended that Bermejo did not file any claim for tax refund for the amount he had paid. Thus, the
CIR alleged the non-compliance of Bermejo to file a tax refund before it can file a suit for the said erroneously
or illegally collected tax by CIR.

ISSUE: Whether or not Bermejo still needs to file a claim for refund for the subject collected tax before he can
file a suit against CIR.

RULING: Yes. Under Section 306 (now, 229 of NIRC) of Internal Revenue Code, after payment of tax, the
taxpayer shall submit a claim before resorting to courts.

This is for the collector to afford an opportunity to correct the action of subordinate officers and to notify
the government that such taxes have been questioned and the notice should then, be borne in mind in
estimating the revenue available expenditure.

Andrea Vda. De Aguinaldo v. CIR, 13 SCRA 269 (1965)

FACTS: On August 1955, Agents of Internal Revenue examined the 1952 and 1953 joint income tax return of
Sps. Leopoldo Aguinaldo and Andrea Aguinaldo. The discovered a deficiency on income tax for the year 1952
and an overpayment of tax for the year 1953. CIR recommended that the overpayment for the year 1953 be
credited against tax deficiency for the year 1952.

However, CIR sent a letter to spouses for the assessment of their tax deficiency without crediting in
their overpayment. Hence, through their counsel, spouses requested for their overpayment be credited in favor
of the spouses against their tax deficiency. The request was denied by CIR on the ground that the tax claim for
the year 1952 was filed beyond the 2 year period provided under NIRC.

ISSUE: Whether or not the taxpayer is entitled to tax credit for the year 1953 pursuant to the provisions under
NIRC.

RULING: The third paragraph of Section 309, National Internal Revenue Code, afore- quoted, clearly requires
the filing by the taxpayer of a written claim for credit or refund within two years after payment of the tax, before
the Commissioner of Internal Revenue can exercise his authority to grant the credit or refund. Such
requirement is therefore a condition precedent and non-compliance therewith precludes the Commissioner of
Internal Revenue from exercising the authority thereunder given.
As noted, the Aguinaldos paid the income tax for 1953 on August 14, 1954 although the adjustment took place
on August 29, 1955. From both dates to January 13, 1958, when the claim for tax credit was filed, more than
two years have elapsed. Evidently, petitioner's claim for tax credit was filed beyond the prescriptive period.

Chemical Industries of the Phil., Inc. v. CIR, CTA Case No. 5887, Aug. 8, 2000

FACTS: Chemical Industries of the Philippines and Tanco Group entered into an Agreement. They agreed the
Chemical will sell in favor of Tanco Group shares of stocks owned and held by it in LMG Chemicals Corp.
Howver, cross sales have several resolutory conditions, and failure to comply will give rise to an option to
either of them to rescind or revoke the sale. After the signing of the said agreement, Chemical Industries paid
the transaction tax due thereon.

Chemical Industries asserts that some of the conditions above occurred prompting it to exercise its
option to rescind/revoke the Agreement. As a consequence thereof, the stocks subject of the cross sale were
indorsed back to Chemical Industries and the purchase price was allegedly returned to the Tanco Group.

On March 31, 1998, Chemical Industries requested a ruling from BIR for the refund of the transaction
tax it paid. On May 31, 1999, there is still no ruling on the instant petition. Chemical Industries claims that the
Agreement clearly involved an indivisible obligation and indivisible object. Considering that the purchase
closing cannot be effected, the cross sale was not consummated. Hence, there was no actual sale to speak of,
the transaction tax is no longer existing.

ISSUE: Whether or not Chemical Industries is entitled to the refund of the stock transaction tax it paid for the
sale between Tanco Group and Chemical Industries.

RULING: No. The document Chemical Industries sent to BIR was not a letter-claim for refund but a letter
requesting for a ruling for the refund of tax allegedly paid by Chemical Industries. Moreover, the same was
addressed to the Deputy Commissioner contrary to the mandate of the law which led CTA to believe that
Chemical Industries really intended to request for a ruling from the Deputy Commissioner. In short, the letter
alluded to as the request claim for refund is not the written claim required by law before a judicial claim may be
had in the CTA.

Under Sec. 230 (now 229) of the Tax Code, Recovery of tax erroneously or illegally collected. — No
suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax
hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have
been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully
collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or
proceeding may be maintained, whether or not such tax, penalty or sum has been paid under protest or
duress.

Chemical Industries failed to comply with the requirements of the said law. The tax subject of the claim
must be alleged to have been erroneously or illegally assessed or collected. It was never alleged that at the
time of the transaction tax was paid by Chemical Industries, no such tax due was due and payable. In other
words, there was no allegation that payment therefor was erroneous. In fact, it was agreed by the parties that
"The stock transfer taxes and documentary stamp taxes due and payable on account of the Cross Sale and
sale and transfer of the Residual CIP shares contemplated under this Agreement shall be for the account of the
CIP and the Tanco Group, respectively"

Even if the Agreement was rescinded/revoked, the parties acknowledged that there may still be due
stock transfer taxes and documentary stamp taxes. And the same will be shouldered by the Petitioner.

C. Exception to Requirement of Filing Administrative Claim

Sec. 229, NIRC, proviso, last paragraph
Sec. 204(C), NIRC
D. Effect of Supervening Event
Sec. 229, NIRC

Manila Electric Co. v. CIR, CTA Case No. 7107, October 16, 2006
FACTS: On June 6, 1998, Manila Electric Co. (Manila Electric) obtained a loan from Norddeutsche
Landesbank Gironzentrale (Norddeutsche), Singapore Branch. and from ING Barings South East Asia Limited
(ING Barings) as Arranger. On April 7, 2000, the loan was restructured and ING Baring was still as the
Arranger. September 4, 2000, another loan was executed by the Manila Electric in favor of Norddeutsche, with
Citicorp International Limited as Agent.

On December 2001, Manila Electric Co. filed a request before BIR, asking for a BIR Ruling for the tax
exemption Norddeutsche. Thus, while waiting for the BIR Ruling, Manila Electric still remit and pay 10% final
withholding tax on its interest payments to Norddeutsche for the years 2002 and 2003.

On October 7, 2003, the BIR issued a ruling declaring therein that the interest payment to Norddeutsche is tax
exempt from 10% final withholding tax.

Consequently, on July 13, 2004, Manila Electric filed with BIR its claim for refund or issuance of a tax credit
certificate for a certain amount, representing erroneous payment or overpayment of final withholding tax on
interest payments made to Norddeutsche.

On November 4, 2004, Manila Electric received from BIR a letter denying its claim for a refund for the year
1999 to 2002. Manila Electric contest that the commencement of the reckoning period shall be from October 7,
2003, the actual date of declaration of tax exemption of Norddeutsche. Thus, the period from the date of actual
tax payment up to the date of actual declaration of exemption shall be suspended for reasons of equity and
other special circumstances.

ISSUE: Whether or not the 2 year prescriptive period to file administrative claim shall be exempted to
commence from date of actual payment.

RULING: No. The Court cannot disregard the provisions requiring the claim for refund or issuance of a tax
credit certificate within 2 years from date of payment. The two year period is not jurisdictional and may not be
suspended for reasons of equity and other special circumstances. There is no basis that the subject exemption
was provided and ascertained only through the said BIR Ruling. The BIR Ruling is not an operative act from
which an entitlement to refund is determined. There is no requirement in the law that the petitioner must
request first for a ruling from the BIR for exemption before it can file a claim

CIR v. Central Azucarera Don Pedro, supra

FACTS: On May 22, 1963, Central Azucarera filed an application with the Board of Industries for tax
exemption privileges under Rep. Act No. 3127 in connection with its importations of machineries, spare parts
and other equipment to be used in its central. However, on July 22, 1965, Central Azucarera’s advised
Commissioner of Internal Revenue that they will submit certificate of tax exemption as soon as their application
was granted.

On Sep. 20, 1965, Central Azucarera’s application was granted. Their certificate of tax exemption was
issued on October 5. On November 3, 1965, Central Azucarera informed CIR of its tax exemption and claimed
for a tax credit for the amount of Php294,705.00 (for compensating tax). A sum of Php48,302.00 was included
on the said amount, which the CIR collected on May 29, 1963.

CIR disallowed the total sum of Php48,302.00. CIR alleged that the claim was filed out of time or more
than 2 years already for an illegal or erroneously collected tax.

ISSUE: Whether or not the running of the prescriptive period of two years shall commence from the date of
occurrence of the supervening cause which gave rise to the right of refund.

RULING: Yes. The 2 year prescriptive period for filing such claim commences from the date of issuance of the
said certificate of tax exemption, which was on October 5, 1965. The date of occurrence of the supervening
cause which gave rise to the right of refund. The filing of the claim for refund with CIR on November 3, 1965
was within the said 2 year prescriptive period. Central filed its claim within the 2 year period, clearly the said
claim had not yet prescribe.

E. Offsetting Against Deficiency Tax Assessments

 CIR v. Cebu Portland Cement Co., 156 SCRA 535, 541 (1987)

FACTS: CIR was ordered to refund Cebu Portland Cement for its overpayments of ad valorem taxes on
cement produced and sold by it after October 1957. CIR contest that Cebu Port had an outstanding sales tax
liability to which the judgment debt had already been credited. CIR also stressed that Cebu still has a balance
and owes a sales taxes plus 28% surcharges. CTA holds that sales tax liability of Cebu Port is still being
questioned and cannot be set-off against the refund.

The Commissioner of Internal Revenue claims that the refund should be charged against the tax
deficiency of the Cebu Port on the sales of cement under Section 186 of the Tax Code. His position is that
cement is a manufactured and not a mineral product and therefore not exempt from sales taxes. He adds that
enforcement of the said tax deficiency was properly effected through his power of distraint of personal property
under Sections 316 and 318 of Tax Code.

ISSUE: Whether or not claims for refund of Cebu Port should be charged against its tax deficiency.

RULING: Yes. The sales tax was properly imposed upon the private respondent for the reason that cement
has always been considered a manufactured product and not a mineral product.

The argument that the assessment cannot as yet be enforced because it is still being contested loses
sight of the urgency of the need to collect taxes as "the lifeblood of the government." If the payment of taxes
could be postponed by simply questioning their validity, the machinery of the state would grind to a halt and all
government functions would be paralyzed.

Sec. 291. Injunction not available to restrain collection of tax . — No court shall have authority to grant
an injunction to restrain the collection of any national internal revenue tax, fee or charge imposed by this Code.

BPI Securities Corp. v. CIR, CTA Case No. 6089, Aug. 22, 2002

FACTS: BPI Securities overpaid its income tax returns for the year 1997. It opted to apply it as tax credit for
the year 1998. On April 15, 1999, BPI Securities filed its Annual Income Tax Return for the year 1998, declaring
a net loss (Php14,045,413.00) and nil tax liability. In this regard, BPI was unable to utilize its tax credit from the
prior year, indicated on its return of its intention to carry over the same for the next taxable year.

On April 13, 2000, BPI Securities filed a claim for a tax refund with BIR. On April 14, 2000, BPI filed its
Annual Income Tax Return for the year 1999, showing a net loss and nil tax liability. On the return, it states its
intention to refund its prior year’s excess credit (from 1997).

On even date, petitioner filed this petition for review in order to toll the running of the two- year
reglementary period provided under Section 230 of the Tax Code, as amended.

ISSUE: Whether or not the BPI Securities claim for refund was meritorious.

RULING: Yes. Section 69 of the National Internal Revenue Code clearly provides, thus:
Section 69. Final Adjustment Return. — Every corporation liable to tax under

Section 24 shall file a final adjustment return covering the total net income for the preceding calendar or fiscal
year. If the sum of the quarterly tax payments made during the said taxable year is not equal to the total tax
due on the entire taxable net income of that year the corporation shall either:
a. Pay the excess tax due; or
b. Be refunded the excess amount paid, as the case may be.

In case the corporation is entitled to a refund of the excess estimated quarterly income taxes paid, the
refundable amount shown on its final adjustment return may be credited against the estimated quarterly
income tax liabilities for the taxable quarters of the succeeding taxable year. Based on the foregoing provision,
it is clear that if the sum of the quarterly income tax payments made during the taxable year is not equal to the
total tax due on the entire net income of that year, the taxpayer is entitled to a refund of the excess amount
paid.

After a careful evaluation of the evidence presented, this court is convinced that petitioner is entitled to
the refund. Petitioner was able to present its Corporate Quarterly Income Tax Returns for the first and second
quarters of 1997 showing the machine validations that it had paid the amounts of P6,313,761.62 and
P235,166.59, respectively, to an authorized collecting bank of the BIR.
In addition, the above-cited law provides that the taxpayer may opt to credit the refundable amount against the
estimated quarterly income tax liabilities for the taxable quarter of the succeeding taxable year. Based on the
records, petitioner in its 1997 Annual Income Tax Return made the option to carry over its excess payment for
the next taxable year. However, as indicated both in its 1998 and 1999 Annual Income Tax Returns, petitioner
was not able to utilize the same due to a net loss position resulting to a nil tax liability for the said taxable
years. With regard to the compliance with the two-year reglementary period prescribed under

Section 230 of the Tax Code, we find that both the administrative and the judicial claims for refund were filed
within the allowable period.

FNCB Finance v. CIR, CTA Case No. 3717, May 10, 1993

FACTS: Inventors Finance Corporation (Former FNCB FInance), a domestic corporation engaged in the
financing business. For the taxable year ended December 31, 1981, FNCB’s annual corporate income tax
return which was filed on April 5, 1982 showed a refundable amount of P6,810,254.09. An amended return was
subsequently filed on November 12, 1982 to show its true income and deductions including creditable income
taxes for the taxable year in question. |

On April 8, 1983, FNCB filed a claim for tax credit with BIR. This claim for tax credit in the amount of
Php2,583,901.28 representing the excess creditable income taxes over the income tax due from FNCB for the
taxable year 1981 which were deducted and withheld by various payors from FNCB’s income.

When BIR failed to resolve its request for tax claim or credit, the instant petition for review was filed on January
5, 1984. However, BIR moved for its dismissal. It states that the claim for refund is pending investigtation.

On May 9, 1986, BIR examiner submitted a report showing the result of investigation. FNCB has incurred on
income tax deficiency for the year 1981. Of the alleged creditable income taxes withheld for 1981 amounting to
P2,583,901.28, the amount of P2,449,827.93 has been applied against the deficiency income tax due after
investigation.

ISSUE: Whether or not FNCB’s claim for excess creditable income taxes for taxable year 1981 may be
automatically offset against alleged deficiency tax income by BIR.

RULING: No. Without an assessment, there is no debt from taxpayer, and there is no obligation on his part
which can be enforced in an action. BIR cannot be allowed to apply tax credit claimed against the alleged
deficiency tax when no assessment has been made. The government cannot automatically set-off alleged tax
deficiency against claim for tax credit. The court cannot allow to arbitrarily set-off alleged deficiency tax against
FNCB’s claim for credit tax. Allowing the same is fraught with danger and place claimants of refund and/or tax
credit at the mercy of taxing authorities.

F. Whether Government is Liable for Interest, Attorney’s Fees, Etc.

Philex Mining Corp. v. CIR, et. al., 306 SCRA 126 (1999)

FACTS:

ISSUE:

RULING:

G. Taxes Not Subject of Set-Off

Francia v. IAC, 162 SCRA 753 (1988) BIR Ruling No. 415-93, Oct. 15, 1993

FACTS:

ISSUE:

RULING:

VI. APPEAL IN CASE OF DENIAL OF REFUND/TAX CREDIT CLAIM

 A. CTA (Division and En Banc)
Sec. 4, 2nd par., NIRC
Sec. 7(a)(1), (2), Rep. Act. No. 1125, as amended by Rep. Act. No. 9282
Sec. 11, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282
Sec. 18, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282
B. Supreme Court
Sec. 19, Rep. Act. No. 1125, as amended by Rep. Act. No. 9282

Week 12
VII. STATUTE OF LIMITATIONS
A. Period to Assess
Secs. 203, 222, 223 NIRC
1. When is an Assessment Deemed Made?
Basilan Estates, Inc. v. CIR, 21 SCRA 17 (1967)
2. Effect of Filing an Amended Return
CIR v. Phoenix Assurance Co., Ltd., L-19127, May 20, 1965
3. Effect of Filing a Wrong Return
Butuan Sawmill, Inc. v. CTA, L-20601, Feb. 28, 1966
4. How Prescriptive Period is Counted
CIR v. Primetown Prop. Group, Inc., G.R. No. 162155, August 28, 2007
5. Ordinary Prescription
Sec. 203, NIRC
6. Extraordinary Prescription
a. False/Fraudulent Return or No Return
Sec. 222(a), NIRC
Taligaman Lumber Co., Inc. v. CIR, 4 SCRA 842, 847 (1962)
Aznar v. CTA, 58 SCRA 519 (1974)
CIR v. BF Goodrich Phil., Inc., 303 SCRA 546 (1999)
CIR v. Ayala Hotels, CA-G.R. SP No. 70025, April 19, 2004
b. Waiver of Prescriptive Period
Sec. 222(b), NIRC
Republic v. Acebedo, 22 SCRA 1356 (1968) CIR v. CA, et. al., 303
SCRA 614 (1999)
Philippine Journalists, Inc. v. CIR, 447 SCRA 214 (2004)
Pfizer, Inc. v. CIR, CTA Case No. 6135, April 21, 2003
c. Suspension of Prescriptive Period
Sec. 223, NIRC
Continental Micronesia, Inc. - Phil. Branch v. CIR, CTA Case No. 6191, March 22, 2006
B. Period to Collect
Secs. 203, 222, 223, NIRC
Republic v. Ablaza, 108 Phil. 1105 (1960)
Palanca v. CIR, 4 SCRA 263 (1962)
Republic v. Ker & Co. Ltd., 18 SCRA 208 (1966)
Republic v. Hizon, 320 SCRA 574 (1999)
CIR v. Wyeth Suaco Laboratories, Inc. and CTA, 202 SCRA 125, 131 (1991)
Bank of the Phil. Islands v. CIR, G.R. No. 139736, Oct. 17, 2005
CIR v. Hambrecht & Quist Phil., Inc., CTA E.B. No. 73 (CTA Case
No. 6362), Aug. 12, 2005
C. Period to File Protest
Sec. 228, NIRC
D. Period to Appeal Decision on Disputed Assessment to CTA
See III(D) above
E. Period to File Refund or Tax Credit Claim
Sec. 204(C), NIRC Sec. 229, NIRC
Collector v. Sweeney, 109 Phil. 59 (1959)
Gibbs v. CIR, 107 Phil. 232 (1960)
CIR v. CA, et. al., 301 SCRA 435 (1999)
ACCRA Investments Corp. v. CA, G.R. No. 96322, Dec. 20, 1991
 CIR v. TMX Sales, Inc., G.R. No. 83736, Jan. 15, 1992
1. How Is Two-Year Prescriptive Period Counted
CIR v. Primetown Prop. Group, Inc., supra
F. Period to Prosecute Violations of any Provisions of NIRC Sec. 281, NIRC
Lim v. CA, 190 SCRA 616 (1990)
VIII. APPEAL OF RULINGS TO DOF, NON-RETROACTIVITY
A. Power of Review of DOF over Rulings
Sec. 4, 1st par., NIRC (distinguish from appeal of “other matters”
to CTA under the 2nd par. of Sec. 4)
CIR v. Leal, 392 SCRA 9 (2002)
B. Non-Retroactivity of Revocation of Rulings or Regulations Sec. 246, NIRC
CIR v. Burroughs Ltd., G.R. No. 66653, June 19, 1986
PBCom v. CIR, 302 SCRA 241 (1999) ABS-CBN v. CTA, 108 SCRA 142 (1981)

Week 13
LOCAL GOVERNMENT CODE
I. GENERAL PRINCIPLES
A. Local Autonomy
Sec. 129, Local Government Code of 1991 (“LGC”)
Mactan Cebu Int’l Airport Authority v. Marcos, G.R. No. 120082, Sept. 11,1996
Manila Electric Co. v. Prov. of Laguna, G.R. No. 131359, May 5, 1999
Smart Communications, Inc. vs. Municipality of Malvar, Batangas G.R. No.
204429. February 18, 2014.]
B. Fundamental Principles
Sec. 130, LGC
Pepsi Cola Bottling Co. of the Phils., Inc. v. Mun. of Tanauan, L-31156, Feb.
27, 1976
Ormoc Sugar Co., Inc. v. Mun. Board of Ormoc City, L-24322, July 21, 1967
Asiatic Integrated Corporation v. Alikpala, 72 SCRA 285
Matalin Coconut Co. v. Mun. Council of Malabang, 143 SCRA 404
C. Common Limitations on Taxing Powers of LGUs
Sec. 133, LGC
Prov. of Bulacan v. CA, G.R. No. 126232, Nov. 27, 1998
Phil. Petroleum Corp. v. Mun. of Pililla, G.R. No. 90776 June 3, 1991
San Miguel Corp. v. Mun. Council of Mandaue, L-30761, July 11, 1973
Cagayan Electric Power and Light Co., Inc. vs. City of Cagayan de Oro
G.R. No. 191761. November 14, 2012.
II. SCOPE OF TAXING POWERS OF LGUS
A. Province
Secs. 135-141, LGC
B. Municipality
Secs 142-143, LGC
C. City
Sec. 151, LGC
Art. 237, IRR
D. Barangay
Sec. 152, LGC
III. COMMUNITY TAX CERTIFICATE (CTC)
A. Who are liable
Secs. 157-159, LGC Art. 246, IRR
B. Exemptions
Sec. 159, LGC
C. Place and time of payment of tax
Secs. 160-161, LGC
IV. TIME, MANNER AND PLACE OF PAYMENT OF LOCAL BUSINESS TAX
A. Time of payment
1. General rule
Secs. 165-167, LGC
2. In case of new ordinance levying new tax or increasing rates
Sec. 166, LGC
3. In case of retirement of business
Sec. 145, LGC Art. 241, IRR
B. Manner of payment
Sec. 146, LGC Art. 242, IRR
Standard Vacuum Oil Co. v. Antigua, 96 Phil. 909
Ali Nam v. City of Manila, 109 Phil. 808
 C. Place of payment
1. Location of branch or sales outlet
Sec. 150(a), LGC Art. 243, IRR
2. Allocation to 2 or more LGUs
Sec. 150(b) to (e), LGC Art. 243, IRR
3. Sales by route trucks or vans
Art. 243(d), IRR
V. ENACTMENT OF TAX ORDINANCES AND OTHER REVENUE
MEASURES
A. Public hearing
Sec. 186, last proviso, LGC Sec. 187, LGC
Art. 275, IRR
Figueras v. CA, G.R. No. 119172, March 25, 1999
Tuzon v. CA, 212 SCRA 739, 745 (1992)
B. Publication
Sec. 188, LGC Art. 276, IRR
Figueras v. CA, et. al., supra
C. Appeal to Secretary of Justice
Sec. 187, LGC
Reyes, et. al. v. CA, G.R. No. 118233, Dec. 10, 1999
Drilon v. Lim, G.R. No. 112497, Aug. 4, 1994
Hagonoy Market Vendor Assoc. v. Mun. of Hagonoy, Bulacan, 376 SCRA 376
D. Appeal to court of competent jurisdiction Id.
E. Effect of appeal Id

VI. REMEDIES OF LOCAL GOVERNMENT AND TAXPAYER

A. Remedies of local government
1. Examination of taxpayer’s books of accounts
Sec. 171, LGC
2. Issuance of deficiency assessment
Sec. 195, LGC Sec. 194, LGC
3. Imposition of surcharge and interest
Secs. 168-169, LGC
4. Summary remedies
a. Distraint of personal property
Sec. 175, LGC
b. Levy on real property
Secs. 176, 178-182, LGC
c. Further distraint and levy
Sec. 184, LGC
5. Judicial remedy (Collection) Sec. 183, LGC
B. Remedies of taxpayer
1. Protest of assessment
Sec. 195, LGC Art. 285, IRR
California Mfg. Co., Inc. v. City of Las Piñas, CTA AC No. 4, Sept.
28, 2005
2. Claim for refund or tax credit
Sec. 196, LGC Art. 286, IRR
VII. AUTHORITY OF LGUS TO GRANT TAX EXEMPTION PRIVILEGES
Sec. 192, LGC and Art. 282, IRR
See also Sec. 193, LGC and Art. 283, IRR re. withdrawal of existing tax
exemption privileges

Week 14
REAL PROPERTY TAXATION
I. GENERAL PRINCIPLES AND DEFINITIONS
Sec. 198, LGC
Sec. 199, LGC
Reyes v. Almanzor, 196 SCRA 322 (1991)
Meralco v. Central Board of Assessment Appeals (CBAA), 114 SCRA 260
(1982)
Caltex Phils. Inc. v. CBAA, 114 SCRA 296
Benguet Corp. v. CBAA, 218 SCRA 271 (1993)
Prov. of Nueva Ecija v. Imperial Mining Co., Inc., 118 SCRA 632 (1982)
Ty v. Trampe, 250 SCRA 500 (1995)
Lopez v. City of Manila, 303 SCRA 448 (1999)
II. REAL PROPERTY TAX AND ADDITIONAL OR SPECIAL LEVIES
A. Basic real property tax
 Sec. 233, LGC
Lopez v. City of Manila, supra

B. Special Education Fund (SEF)

Sec. 235, LGC
C. Tax on idle lands
Secs. 236-237, LGC
D. Special levy due to improvements
Secs. 240-243, LGC
III. EXEMPTIONS FROM REAL PROPERTY TAX Sec. 234, LGC
Light Rail Transit Authority v. CBAA, 342 SCRA 692 (2000)
IV. PAYMENT OF REAL PROPERTY TAX AND SPECIAL LEVIES
A. Date of accrual
Sec. 246, LGC Sec. 245, LGC
B. Payment on installment
Sec. 250, LGC
C. Discount for Advance Payment
Sec. 251, LGC
VI. APPRAISAL AND ASSESSMENT OF REAL PROPERTY
A. Appraisal
Sec. 201, LGC (Real Property)
Secs. 224-225, LGC (Machineries)
1. Voluntary
Secs. 202-203, LGC
See also Sec. 208, LGC
2. Involuntary
Sec. 204, LGC
See also Sec. 213, LGC
Allied Banking Corp. v. QC Gov’t, 472 SCRA 303 (2005)
B. Assessment
1. Classifying real property
Sec. 217, LGC
Secs. 215-216, LGC
2. Assessment levels
Sec. 218, LGC
3. General revision
Sec. 219, LGC
Art. 310, IRR
Lopez v. City of Manila, supra
4. Reassessment
Sec. 220, LGC
Sec. 221, LGC
Callanta v. Office of the Ombudsman, 285 SCRA 648 (1998)
Meralco v. Barlis, 375 SCRA 570 (2002)
VI. REMEDIES OF LOCAL GOVERNMENT
A. Posting of notice of delinquency
Sec. 254, LGC
B. Imposition of interest
Sec. 255, LGC
C. Administrative remedies
Secs. 256-257, LGC
Secs. 258-265, LGC
D. Judicial action (collection)
Sec. 256, LGC
Sec. 266, LGC
Sec. 270, LGC
E. Unpaid tax constitutes a lien
Sec. 257, LGC
VII. REMEDIES OF TAXPAYER
A. Dispute assessment
1. Appeal to local Board of Assessment Appeals
Sec. 226, LGC
Callanta, et. al. v. Office of the Ombudsman, supra
2. If denied, appeal to Central Board of Assessment Appeals
Sec. 229(c), LGC
3. If denied, appeal to Court of Tax Appeals
Sec. 7, Rep. Act No. 1125, as amended by Rep. Act No. 9282
4. Effect of appeal
 Sec. 231, LGC
B. Payment under protest
Sec. 252, LGC Art. 343, IRR
Camp John Hay Dev’t Corp. v. CBAA, CTA E.B. No. 48 (CBAA Case No.
L-37; Tax Appeal Case No. 2002-2003 Board of Tax Assessment
Appeals, Baguio City), July 27, 2005
National Power Corp. v. Prov. of Quezon and Mun. of Pagbilao, CTA
E.B. No. 46 (CBAA Case No. L-29)
C. Claim for refund or credit
Sec. 253, LGC
China Banking Corp. v. City Treasurer of Kalookan, CTA Case AC No.
12, Aug. 31, 2005

Week 15
TARIFF AND CUSTOMS CODE
I. Introduction
II. Basis of Assessment of Duty
A. Basis of dutiable value
Sec. 201, TCCP
B. Basis of dutiable weight
Sec. 202, TCCP
III. Special Duties
A. Anti-Dumping Duty
Sec. 301, TCCP
B. Countervailing Duty
Sec. 302, TCCP
C. Marking Duty
Sec. 303, TCCP
D. Discriminating Duty
Sec. 304, TCCP
IV. Ascertainment and Collection of Import Duty
A. When importation begins and deemed terminated
Sec. 1202, TCCP
B. Who is deemed owner of imported articles
Sec. 1203, TCCP
C. Liability of importer for duties
Sec. 1204 ,TCCP
V. Remedies of Government
A. Search, seizure and arrest
Secs. 2202-2212, TCCP
Secs. 2301-2306, TCCP
B. Impose surcharges, fines and forfeitures
Sec. 2307, TCCP
Secs. 2501-2536, TCCP
C. File civil or criminal action
Sec. 2401, TCCP
D. Impose fine and imprisonment
Secs. 3601-3612, TCCP
E. Compulsory Acquisition
Sec. 2317, TCCP
F. Automatic review by Secretary of Finance of adverse ruling
Sec. 2313, TCCP
VI. Remedies of Importer
A. Payment under protest
Secs. 2308-2312, TCCP
B. Appeal to Commissioner of Customs
Sec. 2313, TCCP
C. Compromise
Sec. 2316, TCCP

Week 16 -Finals