PART I.

GENERAL PRINCIPLES OF TAXATION

1. What are the requisites of direct double taxation?

There is direct double taxation when the same taxpayer is taxed twice:

a. On the same subject matter;

b. For the same purpose;
c. Imposed by the same taxing authority;
d. Within the same taxing jurisdiction;
e. During the same taxing period;
f. Covering the same kind or character of tax (Nursery Care Corp. vs. Anthony Acevedo &
the City of Manila, G.R. No. 180651, July 30, 2014 J. BERSAMIN)

2. Distinguish direct taxes from indirect taxes

In context, direct taxes are those that are exacted from the very person who, it is intended or
desired, should pay them; they are impositions for which a taxpayer is directly liable on the
transaction or business he is engaged in.

On the other hand, indirect taxes are those that are demanded, in the first instance, from, or are
paid by, one person in the expectation and intention that he can shift the burden to someone
else. Stated elsewise, indirect taxes are taxes wherein the liability for the payment of the tax falls
on one person but the burden thereof can be shifted or passed on to another person, such as
when the tax is imposed upon goods before reaching the consumer who ultimately pays for it.
When the seller passes on the tax to his buyer, he, in effect, shifts the tax burden, not the
liability to pay it, to the purchaser as part of the price of goods sold or services rendered.
(Commissioner of Internal Revenue vs. Philippine Long Distance Telephone Company, G.R. No.
140230, December 15, 2005)

3. Revenue Memorandum Order (RMO) No. 1-2000 requires a previously approved Tax
Treaty Relief Application (TTRA)before a taxpayer, who is a resident of another state
with which the Philippines has a tax treaty, may avail of the provisions of said tax
treaty. Does failure to comply with the requirements of the RMO deprive the taxpayer
of the benefit under the treaty?

No. The obligation to comply with a tax treaty must take precedence over the objective of RMO
No. 1-2000. While the consequences sought to be prevented by RMO No. 1-2000 involve an
administrative procedure, these may be remedied through other system management processes,
e.g., the imposition of a fine or penalty. But the BIR cannot totally deprive those who are entitled
to the benefit of a treaty for failure to strictly comply with an administrative issuance requiring
prior application for tax treaty relief (Deutsche Bank AG Manila Branch vs. CIR, G.R. No. 188550,
August 19, 2013).

4. May a taxpayer who has pending claims for VAT input credit or refund, set-off said
claims against his other tax liabilities? Explain.

No. Taxes cannot be subject to compensation for the simple reason that the government and the
taxpayer are not creditors and debtors of each other. There is a material distinction between a
tax and debt. Debts are due to the Government in its corporate capacity, while taxes are due to
the Government in its sovereign capacity. For legal compensation to take place, both obligations
 must be liquidated and demandable. Liquidated debts are those where the exact amount has
already been determined. In the instant case, the claims of the taxpayer for VAT refund is still
pending litigation, and still has to be determined. A fortiori, the liquidated debt of the taxpayer to
the government cannot, therefore, be set-off against the unliquidated claim which taxpayer
conceived to exist in its favor. (Philex Mining v. CIR G.R. No. 125704. August 28, 1998)

5. What is the doctrine of operative fact and how does it relate to the rules on taxation?

The general rule is that a void law or administrative act cannot be the source of legal rights or
duties. Article 7 of the Civil Code enunciates this general rule, as well as its exception: "Laws are
repealed only by subsequent ones, and their violation or non-observance shall not be excused by
disuse, or custom or practice to the contrary. When the courts declared a law to be inconsistent
with the Constitution, the former shall be void and the latter shall govern. Administrative or
executive acts, orders and regulations shall be valid only when they are not contrary to the laws
or the Constitution."

The doctrine of operative fact is an exception to the general rule, such that a judicial declaration
of invalidity may not necessarily obliterate all the effects and consequences of a void act prior to
such declaration.

The doctrine of operative fact is in fact incorporated in Section 246 of the Tax Code, which
provides:

SEC. 246. Non-Retroactivity of Rulings. - Any revocation, modification or reversal of any of the
rules and regulations promulgated in accordance with the preceding Sections or any of the
rulings or circulars promulgated by the Commissioner shall not be given retroactive application if
the revocation, modification or reversal will be prejudicial to the taxpayers, except in the
following cases:

(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;

(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or

(c) Where the taxpayer acted in bad faith.

Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from
the time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The
reversal is not given retroactive effect. This, in essence, is the doctrine of operative fact.
(Commissioner of Internal Revenue vs. San Roque Power Corporation G.R. No. 187485 October
8, 2013)

6. Differentiate tax credit and tax refund

Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing
authority.
 Tax credit, on the other hand, is an amount subtracted directly from one's total tax liability. It is
any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment." (Fort Bonifacio Devt Corp vs. CIR, G.R. No. 175707, November 19, 2014)

7. Distinguish tax avoidance vis-a-vis tax evasion

Tax avoidance and tax evasion are the two most common ways used by taxpayers in escaping
from taxation. Tax avoidance is the tax saving device within the means sanctioned by law. This
method should be used by the taxpayer in good faith and at arms length. Tax evasion, on the
other hand, is a scheme used outside of those lawful means and when availed of, it usually
subjects the taxpayer to further or additional civil or criminal liabilities. (Commissioner of Internal
Revenue v. Toda Jr. G.R. No. 147188 September 14, 2004)

8. Define Tax pyramiding

There is tax pyramiding if a tax is imposed upon another tax. It has no basis either in fact or in
law. (People of the Philippines vs. Sandiganbayan and Bienvenido Tan, G.R. No. 152532, August
16, 2005).

9. Is double taxation prohibited?

There is no constitutional prohibition against double taxation in the Philippines. It is something

not favored, but permissible, provided some other constitutional requirement is not thereby
violated, such as the requirement that taxes must be uniform. (Villanueva vs. City of lloilo, G.R.
No. L-262521, Dec. 28, 1968.)

10. When is double taxation objectionable and obnoxious?

In order to constitute double taxation in the objectionable sense, the same property must be
taxed twice when it should be taxed but once; both taxes must be imposed on the same property
or subject-matter, for the same purpose, by the same State, Government, or taxing authority,
within the same taxing period, and they must be the same kind or character of tax. (Villanueva
vs. City of lloilo, G.R. No. L-262521, Dec. 28, 1968.)

Moreover, double taxation becomes obnoxious only where the taxpayer is taxed twice for the
benefit of the same governmental entity or by the same jurisdiction for the same purpose, but
not in a case where one tax is imposed by the State and the other by the City or
Municipality. (Pepsi-Cola Bottling Co. of the Phil., Inc. vs. Mun. of Tanauan, Leyte, G.R. No. L-
31156, Feb.27, 1976; Commissioner of Internal Revenue vs. Hawaiian-Philippine Co., G.R. No. L-
16315, Oct. 10, 1967; Punzalan vs. Mun. Board of Manila, 95 Phil. 46 [1954]).

11. What is "all events test"? Explain briefly.

The “all events test” is a test applied in the realization of income and expense by an accrual
basis taxpayer. This test requires (1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such income or liability. The accrual
method presents largely a question of fact and that the taxpayer bears the burden of establishing
the accrual of an expense or income. The term “reasonable accuracy” implies something less
than an exact or completely accurate amount. The propriety of accrual is judged not only by the
facts that a taxpayer knew, but also by those facts the taxpayer could reasonably be expected to
have known. (CIR vs. Isabela Cultural Corporation, G.R. No. 172231, February 12, 2007)

PART II. NATIONAL TAXATION

Income Taxation

12. Differentiate the power of the CIR to interpret tax laws and the power to decide tax
cases.

The power to interpret tax laws is under the exclusive and original jurisdiction of the CIR, subject
to the review by the Secretary of Finance. This is the so-called exercise of the Quasi-Legislative
or Rule-Making Power. On the other hand, the power to decide tax cases, while vested also in
the CIR, is subject to the exclusive appellate jurisdiction of the CTA. This is the so-called Quasi-
judicial or Administrative Adjudicatory Power. (Section 4, NIRC)

13. Give examples of administrative rulings and regulations issued by the BIR.

Revenue Regulations (RR) are issuances signed by the Secretary of Finance, upon
recommendation of the Commissioner of Internal Revenue, that specify, prescribe or define rules
and regulations for the effective enforcement of the provisions of the National Internal Revenue
Code (NIRC) and related statutes.

Revenue Memorandum Circular (RMCs) are issuances that publish pertinent and applicable
portions, as well as amplifications, of laws, rules, regulations and precedents issued by the BIR
and other agencies/offices.

Revenue Memorandum Orders (RMOs) are issuances that provide directives or instructions;
prescribe guidelines; and outline processes, operations, activities, workflows, methods and
procedures necessary in the implementation of stated policies, goals, objectives, plans and
programs of the Bureau in all areas of operations, except auditing.

14. What are rulings of first impression?

Rulings of first impression. - These refer to the rulings, opinions and interpretations of the
Commissioner of Internal Revenue with respect to the provisions of the Tax Code and other tax
laws without established precedent, and which are issued in response to the specific request for
ruling filed by a taxpayer with the Bureau of Internal Revenue. Provided, however, that the term
shall include reversal, modification or revocation of any existing ruling. (RAO No. 01-03)

15. What are the general principles of income taxation in the Philippines?

(A) A citizen of the Philippines residing therein is taxable on all income derived from sources
within and without the Philippines;

(B) A nonresident citizen is taxable only on income derived from sources within the Philippines;

(C) An individual citizen of the Philippines who is working and deriving income from abroad as an
overseas contract worker is taxable only on income derived from sources within the Philippines:
Provided, That a seaman who is a citizen of the Philippines and who receives compensation for
services rendered abroad as a member of the complement of a vessel engaged exclusively in
 international trade shall be treated as an overseas contract worker;

(D) An alien individual, whether a resident or not of the Philippines, is taxable only on income
derived from sources within the Philippines;

(E) A domestic corporation is taxable on all income derived from sources within and without the
Philippines; and

(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is
taxable only on income derived from sources within the Philippines. (Sec. 23 NIRC)

16. JD is a Filipino employed by Fil Corporation, a domestic corporation. Fil Corporation

has a subsidiary in Indonesia, known as Indo Corporation. Fil Corporation sent JD to
Indo Corporation during the latter’s startup phase, to help the subsidiary during its
takeoff operations. For the year 2012, JD stayed in Indonesia for a period of 8
months. Thereafter, he returned to Fil Corporation. While in Indo Corporation, he
regularly received the amount equivalent to his salaries in Fil Corporation, and an
additional amount equivalent to his salary in Indo Corporation; but both payments
were made by Fil Corporation. Are the said amounts subject to income tax?

The salaries received by JD are not subject to Philippine income tax. JD is considered as a non-
resident citizen because he is a Filipino whose work required him to be physically present abroad
most of the time during the taxable year (Sec. 22E, NIRC). As such nonresident citizen, he is
taxable only on income derived from Philippine sources (Sec. 23, NIRC). His salaries from being
employed abroad are incomes from without because these are compensation for services
rendered outside the Philippines (Sec. 42, NIRC). In determining whether compensation for
service rendered is from within our without, the only question to address is where was the
service rendered. Here, the service was rendered in Indonesia. Thus, regardless of the fact that
the payments were made by a domestic corporation, this will not, in itself result to the income
being sourced from within the Philippines.

17. Anchor Banking Corporation, which was organized in 2000, existing under the laws of
the Philippines, and owned by the Sy Family of Makati City, set up in 2010 a branch
office in Shanghai City, China. This is to take advantage of the presence of many
Filipino workers in that area and its booming economy. During the year, the bank
management decided not to include the P20 Million net income of the Shanghai
Branch in the annual Philippine income tax return filed with the BIR, which showed a
net taxable income of P30 Million, because the Shanghai Branch is treated as a
foreign corporation and is taxed only on income from sources within the Philippines,
and since the loan and other business transactions were done in Shanghai, these
incomes are not taxable in the Philippines.

a. Is the bank correct in excluding the net income of its Shanghai Branch in the
computation of its annual corporate income tax for 2010? Explain your answer.

No. A Domestic Corporation is taxable on all income derived from sources within and without
the Philippines (Section 23, Tax Code). The income of the foreign branch and that of the
Home Office will be summed up for income tax purposes following the “single entity” concept
 and will all be included in the gross income of the domestic corporation in the annual
Philippine income tax return.

b. Should the Shanghai Branch of Anchor bank remit profit to its Head Office in the
Philippines in 2011, will the branch be liable for the 15% branch profit remittance
tax imposed under Section 28 (A(5) of the Tax Code? Explain.

No. The branch profit remittance tax under Sec. 28(A)(5) of the NIRC is imposed only on
remittances by branches of Resident Foreign Corporation in the Philippines to their Home
Office abroad. It is the outbound branch profits that is subject to the tax not the inbound
profits (Section 28(A)(5) NIRC).

18. What are the requisites for deductibility of expenses for income tax purposes?

a. It must be ordinary and necessary;

b. It must be paid or incurred during the taxable year;
c. It must be paid in connection with the conduct of trade and business or exercise of
profession by the taxpayer, or attributable to the development, management, or operation of
the trade, business, or profession;
d. It must be substantiated with receipts, records or other pertinent papers; (CIR vs. Isabela
Cultural Corporation, G.R. No. 172231, February 12, 2007)
e. If subject to withholding taxes, it must have been properly withheld and remitted on time to
the BIR (Sec. 34K, NIRC) ; and
f. It must legitimately paid or not in the form of bribe, kickback and other similar payments
(Sec. 34(A)(1)(c), NIRC)

19. Silverio is a travelling salesman working full time for Suesop Skin Products. He
receives a monthly salary plus 3% commission on his sales in a Southern province
where he is based. He regularly uses his own car to maximize his visits even to far
flung areas. One fine day a group of militants seized his car. He was notified the
following day by the police that the marines and the militants had a bloody encounter
and his car was completely destroyed after a grenade hit it. Silverio wants to file a
claim for casualty loss. Explain the legal basis of your tax advice.

Silverio is not entitled to claim a casualty loss because all of his income partake the nature of
compensation income. Taxpayers earning compensation income arising from personal services
under an employer-employee relationship are not allowed to claim deduction except those
allowed under Section 34(M) of the Tax Code referring only to Php2,400 health and
hospitalization insurance premiums. Therefore, the claim of casualty loss has no legal basis.

20. In 2013, spouses Mario and Juanita Reyes opened peso and dollar deposits at the
Philippine branch of a Malaysian bank in Manila. Mario is an overseas worker in
Malaysia while Judy lives and works in Manila. During the year, the bank paid interest
income of P 20,000 on the peso deposit and US$1,000 on the dollar deposit. The bank
withheld final income tax equivalent to 20% of the entire interest income and
remitted the same to the BIR.

Are the interest income on the bank deposits of spouses Mario and Juanita Reyes
subject to income tax? Explain.
 The interest income of Mario, who is a non-resident, is exempt from income tax under Section
27(D3)(2) of the Tax Code. Any interest income received by non-resident individual from a
depositary bank under the expanded foreign currency deposit system is exempt from income tax
(Section 24[B1] of the Tax Code). A depository bank under the expanded foreign currency
deposit refers to any bank authorized by the Central Bank to transact business in local and
acceptable foreign currencies.

Juanita Reyes, who is a resident of the Philippines, is liable for 7.5% final income tax on interest
income (Section 24[B1] of the Tax Code).

21. Fly Away Travel Corporation gives all its employees (rank and file, supervisors and
managers) one sack of rice every month valued at P1,000.00 per sack. During an
audit investigation made by the BIR, the latter assessed the company for failure to
withhold the corresponding withholding tax on the amount equivalent to the one
sack of rice received by all the employees, contending that the sack of rice is
considered as additional compensation for the rank and file employees and additional
fringe benefit for the supervisors and managers. Therefore, the value of the one sack
of rice every month should be considered as part of the compensation of the rank and
file subject to tax. For the supervisors and managers, the employer should be the one
assessed pursuant to Section 33 (a) of the NIRC. Is there a legal basis for the
assessment made by the BIR? Explain your answer.

There is no legal basis for the assessment. The one sack of rice given to the supervisors and
managers are considered de minimis benefits considering that the value per sack does not
exceed P1,500 per month, hence, exempt from fringe benefits tax. (Section 33 of the Tax Code,
as implemented by RR No. 10- 2000).

The one sack of rice per month given to the rank and file employees is, likewise, not subject to
compensation tax. This is a benefit of relatively small value intended to promote the health,
goodwill, contentment and efficiency of the employee which will not constitute taxable income of
the recipient. (Section 2.78.1 (A)(3) of RR No. 2-98).

22. St. Luke’s is a hospital organized as a non-stock and non-profit corporation. In 2002,
the BIR assessed St. Luke’s for deficiency taxes covering 1998. The BIR argued
before the CTA that Section 27(B) of the NIRC, which imposes a 10% preferential tax
rate on the income of proprietary non-profit hospitals, should apply. BIR claimed that
ST. Luke’s was actually operating for profit in 1998 because only 13% of its revenues
came from charitable purposes. Moreover, the hospital’s board of trustees, officers
and employees directly benefit from its profits and assets. Is the contention of the
BIR correct?

Yes, the contention of the BIR is correct. Section 27(B) of the Tax Code imposes a 10%
preferential tax rate on the income of (1) proprietary non-profit educational institutions; and (2)
proprietary non-profit hospitals. The only qualifications for hospitals are that they must be
proprietary and non-profit.

On the other hand, Section 30(E), states that both the organization and operations of the
charitable institution must be devoted “exclusively” for charitable purposes to be exempt. Since
St. Luke’s is not exclusively devoted for charitable purposes, a 10% preferential tax must be
imposed. (CIR v. ST. Luke’s Medical Center, G.R. No. 195909, September 26, 2012)
23. Michael Perez, a board placer Engineer was hired by a prestigious construction firm.
To entice him to accept the offer of employment, he was offered the arrangement
that part of his compensation would be an insurance policy with a face value of P20
Million. The parents of Michael are made the beneficiaries of the insurance policy.

a) In case of Michael’s death, will the proceeds of the insurance form part of the
income of the parents of Michael and be subject to income tax? Reason briefly.

No. The proceeds of life insurance policies paid to the heirs of beneficiaries upon the death of
the insured are not included as part of the gross income of the recipient. (Section 32 (B)(1)
of the Tax Code). There is no income realized because nothing flows to Michael’s parents
other than a mere return of capital, the capital being the life of the insured.

b) Can the company deduct from its gross income the amount of the premium?
Reason briefly.

Yes. The premiums paid are ordinary and necessary business expenses of the company. They
are allowed as deduction from gross income so long as the employer is not a direct or
indirect beneficiary under the policy of insurance. (Section 36 (A)(4) of the Tax Code). Since
the parents of the employee were made the beneficiaries, the prohibition for their deduction
does not exist.

24. Luis, Luisa and Lenny Ona, inherited from their mother several parcels of land with
building and improvements. They used said properties in business by leasing or
selling them and investing the income derived therefrom and the proceeds from the
sales thereof in real properties and securities. The BIR found them liable for
corporate income tax. Is the BIR correct?

Yes. This is a case of an unregistered co-partnership for tax purposes. The co-ownership of
inherited properties is automatically converted into an unregistered partnership the moment the
said common properties and/or the incomes derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an extrajudicial settlement or approved
by the court in the corresponding testate or intestate proceeding. The reason for this is simple.
From the moment of such partition, the heirs are entitled already to their respective definite
shares of the estate and the incomes thereof, for each of them to manage and dispose of as
exclusively his own without the intervention of the other heirs, and, accordingly he becomes
liable individually for all taxes in connection therewith. If after such partition, he allows his share
to be held in common with his co-heirs under a single management to be used with the intent of
making profit thereby in proportion to his share, there can be no doubt that, even if no document
or instrument were executed for the purpose, for tax purposes, at least, an unregistered
partnership is formed. (OÑA v. CIR, G.R. No. L-19342, May 25, 1972)

25. Discuss the concept of Improperly Accumulated Earnings Tax (IAET).

Pursuant to Section 29 of the Code, there is imposed for each taxable year, in addition to other
taxes imposed under Title II of the Tax Code of 1997, a tax equal to 10% of the improperly
accumulated taxable income of corporations formed or availed of for the purpose of avoiding the
income tax with respect to its shareholders or the shareholders of any other corporation, by
 permitting the earnings and profits of the corporation to accumulate instead of dividing them
among or distributing them to the shareholders. The rationale is that if the earnings and profits
were distributed, the shareholders would then be liable to income tax thereon, whereas if the
distribution were not made to them, they would incur no tax in respect to the undistributed
earnings and profits of the corporation. Thus, a tax is being imposed in the nature of a penalty to
the corporation for the improper accumulation of its earnings, and as a form of deterrent to the
avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings
distributed to them by the corporation. (RR 2-2001 dated March 9, 2001)

26. ABC Company, a domestic corporation, engaged in the business of manufacturing

semiconductors registered its business with the SEC on April 26, 2005. The Company
registered its business with the BIR on June 26, 2006 but started its actual
commercial operations only on February 18, 2007. For the taxable year ended
December 31, 2010, the Company incurred net losses. Hence, it applied the 2% MCIT
based on its gross income. Is the application of the MCIT proper?

Yes. The application of the 2% MCIT is proper. The reckoning period for the application of the
2% MCIT, when it is greater than the regular corporate income tax, is the fourth year
immediately following the year in which such corporation commenced its business operations.
(Section 27 (E)(1) and 28 (A)(2), NIRC)

For purposes of MCIT, the taxable year in which business operations commenced shall be the
year in which the domestic corporation registered with the BIR. (RR 9-98) In the given case the
Company will be liable for MCIT beginning 2010, the fourth year immediately following 2006, the
year of registration with the BIR.

27. What are the new rules under Revenue Regulation 3-2015 dated March 9, 2015?

The amount of P30,000, specifically referring to the total amount of 13th month pay and other
benefits as one of the exclusions from gross compensation income received by an employee
prescribed under the pertinent provisions of RR 2-98, as amended, is hereby increased to "Eighty
Two Thousand Pesos (P82,000.00)", pursuant to the provisions of RA No. 10653.

Accordingly, the amount of P82,000 shall ONLY apply to the 13th month pay and other benefits
paid or accrued beginning January 1, 2015 and shall in no case apply to other compensation
received by an employee under an employer-employee relationship, such as basic salary and
other allowances. Further, it must be emphasized that this exclusion from gross income is not
applicable to self-employed individuals and income generated from business.

28. What are the requisites for non-taxability of retirement benefits?

a. In the case of retirement benefits received by officials and employees of private firms,
whether individual or corporate, under RA 4917 the employee has to prove the concurrence
of the following in order to be exempt from income tax:

1. a reasonable private benefit plan (i.e., a plan which is approved by the BIR) is
maintained by the employer;
 2. the retiring official or employee has been in the service of the same employer for at least
10 years;
3. the retiring official or employee is not less than 50 years of age at the time of his
retirement; and
4. the benefit had been availed of only once. (10-50-1 rule). (Sec. 32(B)(6)(a), NIRC)

b. In the case of retirement benefits received from private employers without any retirement
plan under Republic Act No. 7641 (Art. 287 of the Labor Code), the following conditions must
be met:

1. Retired upon reaching the retirement age established in the collective bargaining
agreement or other applicable employment contract;

2. In the absence thereof, an employee upon reaching the age of sixty (60) years or more,
but not beyond sixty-five (65) years which is hereby declared the compulsory retirement age,
who has served at least five (5) years in the said establishment may retire (60-65-5 rule)

29. What are Capital Assets?

"Capital assets" refers to taxpayer’s property that is NOT any of the following:

1. Stock in trade;

2. Property that should be included in the taxpayer’s inventory at the close of the taxable year;

3. Property held for sale in the ordinary course of the taxpayer’s business;

4. Depreciable property used in the trade or business; and

5. Real property used in the trade or business.

(Sec. 39(A)(1) NIRC, SMI-ED Philippine Technology, Inc. vs. Commissioner of Internal Revenue
G.R. No. 175410 November 12, 2014)

30. PUTOTOT, a Filipino, is the sales and marketing assistant of MALAKITLOG

CORPORATION. As such, he receives the following: P20,000 monthly as
compensation, 80% of which is in cash and 20% of which is in gift certificate; 13 th
month pay of P20,000;clothing and uniform allowance of P5,000 for the whole year;
gifts during Christmas amounting to P5,000.

PUTOTOT, during his past time, writes short stories. He submitted his manuscript to a
local publisher who was so delighted in his work and published his manuscript.
Because of his book, he receives royalties. He invested part of his savings in SAN MIG
CORPORATION, a domestic corporation. By virtue of which, he is now receiving cash
dividends from it. He also caused the building of a 3-door-apartment from which he
receives P10,000 monthly from each.

PUTOTOT was able to send his only child to study in the United States of America.
During the graduation of his son, he bought a ticket in the lottery station located
beside his son’s dormitory. That night, he became the grand winner of the draw.
PUTOTOT is now a millionaire.
 Give the income tax implications.

PUTOTOT is a resident Filipino citizen. As such, all his income derived from whatever source,
whether within or without the Philippines, are taxable.

The P20,000 monthly compensation received by PUTOTOT from his employer corporation shall
be included in his gross income (Sec. 32(A)(1)),subject to Net Income Tax of 5-32%, as the case
may be(Sec. 24(A));

The royalties he received from the book he published is subject to a Final Withholding tax of
10%(Sec. 32(A)(6) in re Sec. 24(B)(1));

The cash dividends he received from his investment in SAN MIG Corporation, a domestic
corporation (Sec. 32(A)(7)) is subject to a Final Withholding tax of 10% (Sec. 24(B)(2));

The rents received from his 3 door apartment valued at P10,000 each, monthly, shall form part
of his gross income subject to income tax of 5-32%, as the case may be (Sec. 24(A));

The winnings in the US lottery (Sec. 32(A)(9)) is still subject to income tax of 5-32%, as the
case may be, not being exempted because the winnings were received from the US Lottery (Sec.
24(A)).

The 13th month pay shall be excluded in PUTOTOT’s gross income under Sec. 32(B)(7)(e), NIRC.

The clothing and uniform allowance of P5,000 as well as the gifts received by PUTOTOT during
Christmas amounting to P5,000 are De minimis benefits. They are not to be reported in the
income tax return because they are excluded from gross income. They are also exempt from the
imposition of the Fringe Benefits Tax. PUTOTOT is only a sales and marketing assistant,
presumably, he is a rank and file employee. (Sec. 33(C), NIRC).

31. Distinguish fringe benefits from de minimis benefits, and give examples for each.

Fringe benefits refer to goods, services or other benefits furnished or granted by an employer,
in cash or in kind, in addition to basic salaries, to managerial or supervisory employees whereas
De minimis benefits refer to facilities or privileges furnished or offered by an employer to his
employees that are of relatively small value and are offered or furnished by the employer merely
as means of promoting health, goodwill, contentment or efficiency of his employees.

Fringe benefits include, but are not limited to, the following:
a. Housing;
b. Expense account;
c. Vehicle of any kind;
d. Household personnel, such as maid, driver, and others;
e. Interest on loan at less than market rate (benchmark rate of 12%) to the extent of the
difference between the market rate and the actual rate granted;
f. Membership fees, dues and other expenses borne by the employer for the employee in social
and athletic clubs or other similar organizations;
g. Expenses for foreign travel;
h. Holiday and vacation expenses;
i. Educational assistance to the employee or his dependents; and
j. Life or health insurance and other non-life insurance premiums or similar amounts in excess
of what the law allows.
 De minimis benefits include the following:
a. Monetized unused vacation leave credits of employees not exceeding ten days during the
year;
b. Monetized value of leave credits paid to government officials and employees;
c. Medical cash allowance to dependents of employees not exceeding P750 per employee per
semester or P125 per month;
d. Rice Subsidy of P1,500 or one sack of 50-kg rice per month amounting to not more than
P1,500(RR 5-2008);
e. Uniform and clothing allowance not exceeding P5,000 per annum(RR 8-2012);
f. Actual medical assistance, e.g. medical allowance to cover medical and health care needs,
annual medical/executive checkup, maternity assistance, and routine consultations, not
exceeding P10,000 per annum;
g. Laundry allowance not exceeding P300 per month;
h. Employee achievement awards which must be in the form of tangible personal property other
than cash or gift certificate, with an annual monetary value not exceeding P10,000 received
by the employee under an established written plan which does not discriminate in favour of
h8ighly paid employees;
i. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000 per
employee per annum;
j. Daily meal allowance for overtime and night/graveyard shift work not exceeding 25% of the
basic minimum wage; and
k. Collective bargaining agreement benefits and benefits derived from productivity incentive
schemes not exceeding P10,000 (RR 1-2015).

32. After passing the bar, ATTY. KAPAPASA immediately engaged in the practice of law.
In preparing his income tax return, he listed the following as deductible items:

a. Fees paid to the Supreme Court to be able to take the bar examinations;
b. Fees paid to a bar review center to enroll in its pre-bar review classes;
c. Malpractice insurance; and
d. Amount spent to entertain a judge who decided his first case.

Which deductions are allowable? Reasons.

Only the malpractice insurance is allowable as a deduction.

Under the National Internal Revenue Code, ordinary and necessary expenses paid or incurred in
carrying on any trade or business may be deducted as business or professional expenses.

Here items (a) and (b) are not deductible as they were not paid or incurred during the taxable
year. Item (d) is not deductible as it is covered by “other similar payments” under Sec.
34(A)(1)(c) of the Tax Code. The malpractice insurance may be deemed necessary in carrying on
the practice of law as the risk of incurring a huge liability while practicing law has to be guarded
against. (Sec. 34 (A)(1)), NIRC)

33. SIGURISTA, Filipino and a resident of Manila, came to your office and asked for the
tax treatment of the following in the preparation of his annual income tax return:

a. Proceeds of a life insurance policy he took on his own life, in the amount of
P1,000,000 in which he designated his wife, SUGALERA, as irrevocable beneficiary to
P1,000,000.00 and his son, TANGGERO, to the balance of P1,000,000.00 but, in the
latter designation, reserving his right to substitute him for another. If he dies, his
wife and son would collect the proceeds of his life insurance policy. Are the proceeds
 of the insurance subject to income tax on the part of SUGALERA and TANGGERO for
their respective shares? Explain.

a. No. Proceeds of life insurance policies paid to the heirs or beneficiaries, whether revocable or
irrevocable, upon the death of the insured are excluded from gross income of the beneficiaries
and consequently, exempt from income taxation. The proceeds of life insurance received upon
the death of the insured constitute a compensation for the loss of life, hence a return of capital,
which is beyond the scope of income taxation (Sec. 32(B)(1), NIRC).

b. If, upon the maturity of his insurance policy, SIGURISTA still lives and the
insurance company returns the premiums he paid, will the premiums returned to him
be subject to income tax?

b. No. Amounts received by the insured, herein SIGURISTA, as a return of premiums paid by him
under life insurance at the maturity of the term mentioned in the insurance contract will not be
included in his gross income, the same being an exclusion from gross income under the Tax
Code (Sec. 32(B)(2), NIRC).

c. If SIGURISTA was given a brand new Ferrari car by his good friend MANNY
PACQUIAO valued at P5,000,000, will it form part of his gross income and be subject
to income tax?

c. No. The value of the property acquired by gift such as the value of the car SUGIRISTA
received from his friend MANNY will not be included in his gross income being excluded under
the Tax Code (Sec. 32(B)(3), NIRC).

d. If SIGURISTA asked MANNY to sign the wheels of the car upon receiving it and
decides to sell the Ferrari car in the amount of P8,000,000, will the proceeds of the
sale form part of his gross income and be subject to income tax?

d. Yes. Income from property acquired by gift shall be included in gross income, hence, will be
subject to income tax. Thus, the income from the sale of the car shall form part of SIGURISTA’s
gross income and be subject to income tax (Sec. 32(B)(3), NIRC).

34. SUNNY, BRONDY and URY who are siblings and are all working in three different
companies. They all came to your office seeking for help how to go about their
retirement:

a. SUNNY worked in SUNLIGHT CORP for 15 years. At the time of his retirement, he
was 55 years old and so he received his retirement benefits under SUNLIGHT CORP’s
reasonable private benefit plan. Can he exclude the retirement benefits he received
from SUNLIGHT in his gross income?

a. Yes, SUNNY can exclude the retirement benefits he received from SUNLIGHT CORP provided
he proves that (1) a reasonable private benefit plan is maintained by SUNLIGHT CORP, (2) he
has been in the service of SUNLIGHT CORP for at least 10 years, (3) he is not less than 50 years
of age at the time of his retirement, and (4) he has availed the benefit only once. (Sec.
32(B)(6)(a), NIRC)

b. BRONDY worked in BROWNIE CORP for 10 years. However, due to the decreasing
demand for brownies, BROWNIE CORP had to stop its operations to prevent the huge
impact of losses it already caused to the company. BRONDY was given P1,000,000 as
 separation pay. Can he exclude the separation benefits he received from BROWNIE
CORP in his gross income?

b. Yes, BRONDY can exclude the separation pay he received from BROWNIE CORP due to
cessation of the business of his employer provided he proves that the amount he received from
BROWNIE CORP is as a consequence of his separation from the service of the employer due to
causes beyond his control. The separation of BRONDY was due to the cessation of BROWNIE
CORP’s business, which is a cause beyond his control. Thus, BRONDY can exclude the separation
pay in his gross income (Sec. 32(B)(6)(b), NIRC).

c. URY worked in UNIVERSE CORP where he met his “soulmate” CHRISTY. Because
the couple wanted to migrate to KOREA, URY asked for an “early retirement”. He was
paid P2,000,000 as separation pay in recognition of his valuable services to the
corporation. Can he exclude the separation benefits he received from UNIVERSE
CORP in his gross income?

c. No, URY cannot exclude the separation pay he received from UNIVERSE CORP because his
separation from his employer was voluntary due to his plan to migrate to KOREA with CHRISTY
and not because of death, sickness, or other physical disability nor because of a cause beyond
his control as employee. Thus, the separation pay he received should be included in his gross
income (Sec. 32(B)(6)(b), NIRC).

35. MARIANE AND MANNY are good friends who are fond of joining competitions in and
outside the Philippines. They all came to your office seeking for help on how to go
about their prizes:

a. MARIANE joined MRS. INTERNATIONAL in USA and won the title. She received
$1,000,000 as cash prize. Can she exclude the cash prize she received from MRS.
INTERNATIONAL in her gross income?

a. No, the cash prize received by MARIANE would not be excluded in her gross income. Prizes
and winnings from international beauty pageants are not excluded by the Tax Code, thus, these
shall be included in MARIANE’s gross income and must be subject to tax (Sec. 32(B)(7), NIRC).

b. MANNY, a young artist and designer, received a prize of P500,000 for winning in
the on-the-spot peace poster contest sponsored by a local Lions Club. Can he exclude
the cash prize he received in her gross income?

b. Yes, MANNY can exclude the P500,000 cash prize he received in his gross income. However, it
is still subject to a final tax of 20%, the amount thereof being in excess of P10,000 (Sec.
24(B)(1), NIRC). The prize constitutes as a taxable income because it was made primarily in
recognition of artist achievement which he won due to an action on his part to enter the contest
(Sec. 32(B)(7), NIRC). Because it is an on-the-spot contest, it is evident that MANNY was
selected with action on his part to enter the contest.

36. The BIR issued assessment notices and demand letters assessing Tambunting for
deficiency percentage tax, income tax and compromise penalties for taxable year
1997. Tambunting instituted an administrative protest against the assessment
notices and demand letters with the CIR. It argued that its deductions should be
allowed because it had proved its entitlement to the deductions through all the
documentary and testimonial evidence presented in court. It also claims that the
court had allowed deductions for ordinary and necessary expenses on the basis of
cash vouchers issued by the taxpayer or certifications issued by the payees
 evidencing receipt of interest on loans as well as agreements relating to the
imposition of interest thus shown beyond doubt that it had incurred the losses in its
auction sales by showing the subasta books as well as its rematado books he showed.
Can Tambunting validly claim the deductions?

No. The law requires Tambunting to support its claim for deduction with the corresponding
official receipts issued by the service providers concerned. Deductions for income tax
purposes partake of the nature of tax exemptions and are strictly construed against the
taxpayer, who must prove by convincing evidence that he is entitled to the deduction
claimed. Tambunting did not discharge its burden of substantiating its claim for
deductions due to the inadequacy of its documentary support of its claim. Its reliance
on withholding tax returns, cash vouchers, lessor’s certifications, and the contracts of
lease was futile because such documents had scant probative value. An item of
expenditure, therefore, must fall squarely within the language of the law in order to be
deductible. A mere averment that the taxpayer has incurred a loss does not automatically
warrant a deduction from its gross income(H. TAMBUNTING PAWNSHOP, INC., VS
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173373, FIRST DIVISION, July 29,
2013, BERSAMIN, J.)

37. In the same case, Tambunting's claimed for deductions due to losses from fire and
theft. It had submitted documents to support its claim, namely: (a) the certification
from the Bureau of Fire Protection in Malolos; (b) the certification from the Police
Station in Malolos; (c) the accounting entry for the losses; and (d) the list of
properties lost, were not enough. Can Tambunting claim such deductions?

No. Tambunting is required to submit the sworn declaration of loss filed within 45 days with the
BIR from the date of discovery of the casualty mandated by Revenue Regulations 12-77, as
amended by RMO 31-2009. The sworn declaration of loss was necessary to forewarn the BIR that
it had suffered a loss whose extent it would be claiming as a deduction of its tax liability, and
thus enable the BIR to conduct its own investigation of the incident leading to the loss. Indeed,
the documents Tambunting submitted to the BIR could not serve the purpose of their submission
without the sworn declaration of loss (H. TAMBUNTING PAWNSHOP, INC., VS
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 173373, FIRST DIVISION, July 29,
2013, BERSAMIN, J.)

38. Can Tambunting claim as deduction its security and janitorial expenses paid to Pathfinder
Investigation on the basis of a certification?

No. The security/janitorial expenses paid by Tambunting to Pathfinder Investigation were not
duly substantiated. The requisites for the deductibility of ordinary and necessary trade or
business expenses, like those paid for security and janitorial services, management and
professional fees, and rental expenses, are that (a) the expenses must be ordinary and
necessary; (b) they must have been paid or incurred during the taxable year; (c) they
must have been paid or incurred in carrying on the trade or business of the taxpayer;
and (d) they must be supported by receipts, records or other pertinent papers. The
certification issued was not the proper document required by law to substantiate its expenses.
Tambunting should have presented the official receipts or invoices to prove its claim as provided
for under Section 238 of the National Internal Revenue Code of 1977.

39. WOW SARAP Corporation (WSC) incurred substantial advertising expenses in order to
protect its brand franchise for WOW SARAP Hotdog, one of its main products. In its
income tax return, WSC included the advertising expenses as deduction from gross
income, claiming it as an ordinary business expense. Is WSC correct?
 No. WSC’s claim that the advertising expense is an ordinary business expense is not correct.
Advertising expenses the purpose of which is the protection of the taxpayer’s brand franchise is
analogous to the maintenance of goodwill or title to one’s property which is in the nature of a
capital expenditure. An advertising expense, of such nature does not qualify as an ordinary
business expense, because the benefit to be enjoyed by the taxpayer goes beyond one taxable
year. (CIR v. General Foods Inc., 401 SCRA 545, 2003) . Here the purpose of the advertising
expenses incurred by WSC is the protection of its brand franchise for WOW SARAP Hotdog.
Hence WSC’s claim is not correct.

40. AAA Corporation, a domestic corporation duly licensed and authorized to engage in
the pawnshop business appeals the adverse decision promulgated on April 24, 2006,
whereby the Court of Tax Appeals En Bane (CTA En Banc) affirmed the decision of the
CTA First Division ordering it to pay deficiency income taxes in the amount of
P5,536,687.15 for taxable year 1996, plus 20% delinquency interest computed from
August 29, 2000 until full payment, but cancelling the compromise penalties for lack
of basis. Bureau of Internal Revenue (BIR), issued assessment notices and demand
letters, all numbered 32-1-97, assessing AAA Corporation for deficiency percentage
tax, income tax and compromise penalties for taxable year 1997. In the said
assessment, the BIR contends that the losses from auction deducted from its income
should be disallowed. To prove the loss on auction sale, AAA submitted in evidence
its "Rematado" and "Subasta" books and the "Schedule of Losses on Auction Sale".
The "Rematado" book contained a record of items foreclosed by the pawnshop while
the "Subasta" book contained a record of the auction sale of pawned items
foreclosed. However, the gain or loss on auction sale represents the difference
between the capital (the amount loaned to the pawnee, the unpaid interest and
other expenses incurred in connection with such loan) and the price for which the
pawned articles were sold, as reflected in the "Subasta" Book. Furthermore, it
explained that the amounts appearing in the "Rematado" book do not reflect the
total capital of petitioner as it merely reflected the amounts loaned to the pawnee.
Likewise, the amounts appearing in the "Subasta" book, are not representative of the
amount of sale made during the "subastas" since not all articles are eventually sold
and disposed of by petitioner. Thus, the BIR disallowed the same.AAA Corporation
instituted an administrative protest against the assessment notices and demand
letters with the Commissioner of Internal Revenue. AAA Corporation brought a
petition for review in the CTA, pursuant to Section 228 of the National Internal
Revenue Code of 1997, citing the inaction of the Commissioner of Internal Revenue
on its protest within the 180-day period prescribed by law. Is petitioner entitled to
tax deductions?

Answer: No. A mere averment that the taxpayer has incurred a loss does not automatically
warrant a deduction from its gross income.

The requisites for the deductibility of ordinary and necessary trade or business expenses are: (a)
the expenses must be ordinary and necessary; (b) they must have been paid or incurred during
the taxable year; (c) they must have been paid or incurred in carrying on the trade or business
of the taxpayer; and (d) they must be supported by receipts, records or other pertinent papers.
 Here, AAA Corporation did not properly prove that it had incurred losses. The books it presented
were not the proper evidence of such losses from the auctions because they did not reflect the
true amounts of the proceeds of the auctions due to certain items having been left unsold after
the auctions. The rematado books did not also prove the amounts of capital because the figures
reflected therein were only the amounts given to the pawnees. For failure to prove that it
incurred losses AAA Corporation is not entitled to deduct its losses. (H. Tambunting Pawnshop
Inc. vs. Commissioner of Internal Revenue G.R. No . 173373, July 29, 2013, J.
BERSAMIN)

41. What is Net Operating Loss Carry-over (NOLCO)?

It is the net operating loss of the business or enterprise for any taxable year immediately
preceding the current taxable year, which had not been previously offset as deduction from gross
income. It shall be carried over as a deduction from gross income for the next three (3)
consecutive taxable years immediately following the year of such loss: Provided, however, that
any net loss incurred in a taxable year during which the taxpayer was exempt from income tax
shall not be allowed as a deduction. (Section 34(D)(3), Tax Code)

42. Are interest income on bonds similar to gains from the sale or exchange of bonds

No, the interest income earned from bonds which represents forbearance for the use of money is
not synonymous with the "gains" contemplated under Section 32(B)(7)(g)of the NIRC which
exempts gains derived from trading, redemption, or retirement of long term securities from
ordinary income tax. (BDO vs. Republic of the Philippines, G.R. No. 198756, January 13, 2015)

43. X Corporation had excess tax payments during 2013 amounting to P4M and opted to
carry-over the same as tax credit to the succeeding taxable year by putting an "x"
mark on the corresponding box in its final adjustment return. During 2014, it had an
excess tax payments totaling P9M, petitioner indicated in its tax return that the same
is to be refunded.

a. Can X Corporation opt to file in 2014 for a refund of the excess tax credits
pertaining to 2013 amounting to P4M?

No. It is clear that once a corporation exercises the option to carry-over, such option is
irrevocable "for that taxable period." Having chosen to carry-over the excess quarterly
income tax, the corporation cannot thereafter choose to apply for a cash refund or for the
issuance of a tax credit certificate for the amount representing such overpayment.(United
International Pictures AB vs. CIR, G.R. No. 168331, October 11, 2012)

b. If in case the refund is denied, can X Corporation still carry-over the excess tax
credits in succeeding years?

Yes. Such option to carry-over is not limited to the following taxable year 2014, but should
apply to the succeeding taxable years until the whole amount of the 2013 excess tax credits
would be fully utilized. Nonetheless, the amount will not be forfeited in the government’s
favor, because it may be claimed by petitioner as tax credits in the succeeding taxable years.
 (Philam Asset Management Inc. vs. Commissioner of Internal Revenue, G.R. No. 156637,
December 14, 2005)

Transfer Tax

1. What is the meaning of “date-of-death valuation” principle?

“Date-of-death valuation” principle provides that tax burdens are not to be imposed nor
presumed to be imposed beyond what the statute expressly clearly imports, tax statutes being
construed in strictissimi juris against the government. The actual claims of the creditors at the
time of death is the amount deductible for estate tax purposes regardless of the fact that the said
claims were reduced or condoned through compromise agreements entered into by the estate
with the creditors. Post-death developments are not material in determining the amount of the
deduction. (Dizon vs. CTA, et al., G.R. No. 140944, April 30, 2008)

2. What are considered intangible assets located in the Philippines for purposes of
estate and donor’s tax?

1. Franchise which must be exercised in the Philippines;

2. Shares, obligations or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its laws;
3. Shares, obligations or bonds issued by any foreign corporation eighty-five percent (85%) of
the business of which is located in the Philippines;
4. Shares, obligations or bonds issued by any foreign corporation, if such shares, obligations or
bonds have acquired a business situs in the Philippines; and
5. Shares or rights in any partnership, business, or industry. (Section 104, NIRC)

3. What are the requisites for the claim of vanishing deductions?

a) The property involved must have been transferred by a prior decedent to a present decedent
either thru inheritance or donation;
b) Present decedent must have died or the donation must have been made within five (5) years
before the decedent’s death;
c) The property with respect to which deduction is claimed must have formed part of the gross
estate situated in the Philippines of the prior decedent or taxable gift of the donor;
d) The property must be the same property received from the prior decedent or donor or the one
received in exchange therefor;
e) Estate tax and Donor’s tax on the previous transfer must have been paid;
f) No vanishing deduction on the property was allowed to the prior estate;
g) The amount of the deduction is the full value of the property previously taxed if the present
decedent died within 1 year from the death of the prior decedent and that the amount deductible
diminishes yearly is finally lost after the 5th year from the death of the prior decedent. (Section
86(A)(2) of the Tax Code)

4. Does the absence of donative intent exempt a transaction from payment of donor’s
tax?

No. The absence of donative intent, if that be the case, does not exempt the sales of shares of
stock not listed and traded in the local stock exchange transaction from donor's tax since Section
100 of the Tax Code categorically states that the amount by which the fair market value of the
property exceeded the value of the consideration shall be deemed a gift. Thus, even if there is no
 actual donation, the difference in price is considered a donation by fiction of law. (Philam Life vs.
Secretary of Finance, G.R. No. 210987, November 24, 2014)

5. Are donations made to a political party exempt from Donor’s Tax and Income Tax?

Yes, provided the same is duly reported to the COMELEC. Based on RR No. 7-2011,
unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s
campaign expenditures, shall be considered as subject to income tax. If the political contributions
are not reported to the COMELEC, the same will be subject to donor’s tax and income tax. It is
subject to income tax because the candidate will be precluded from claiming expenditures as
deductions from his campaign contributions. (Sections 13 and 14, RA No. 7166)

As a general rule, campaign contributions are not included in the taxable income of the candidate
to whom they were given, the reason being that such contributions were given not for the
personal expenditure/enrichment of the concerned candidate, but for the purpose of utilizing
such contributions for his/her campaign. Thus, to be considered as exempt from income tax,
these campaign contributions must have been utilized to cover a candidate's expenditures for
his/her electoral campaign. Unutilized/excess campaign funds, that is, campaign contributions net
of the candidate's campaign expenditures, shall be considered as subject to income tax, and as
such, must be included in the candidate's taxable income as stated in his/her Income Tax Return
(ITR) filed for the subject taxable year.

Any candidate — winning or losing — who fails to file with the COMELEC the appropriate
Statement of Expenditures required under the Omnibus Election Code, shall be automatically
precluded from claiming such expenditures as deductions from his/her campaign contributions.
As such, the entire amount of such campaign contributions shall be considered as directly subject
to income tax. (RR No. 7-11)

6. X, candidate in the presidential election, received P1M total political contributions,

which was duly reported with the COMELEC. After elections, X has excess
P300,000.00 unutilized contributions. What will be X’s tax implications?

Since the P1M political contributions were duly reported, they are not subject to donors tax.
However, the excess P300,000.00 if not returned by X, he will be liable for income tax and as
such, must be included in the candidate's taxable income as stated in his/her Income Tax Return
(ITR) filed for the subject taxable year (RR No. 7-2011).

7. Spouses H and W have a child named Chi. Chi will get married to Groom. To help the
would-be spouses in their new life as married individuals, H and W decided to donate
to Chi and Groom an amount of Php1M. Are H and W liable for donor’s tax? Explain.

Yes. Since Chi is a relative of H and W, the latter shall be liable for donor’s tax, using the
schedular rates based on their respective donation made in favor of Chi equivalent to Php
250,000, less Php10,000 deduction for each of them due to dowries or gifts on account of
marriage.

However, with respect to the donation made in favor of Groom, as the latter is considered as a
stranger, H and W shall be liable for donor’s tax using a 30% tax rate based on their respective
donations of Php 250,000, without any deduction allowed.
Value-Added Tax

1. Differentiate the following:

Transactions not subject to VAT; VAT-exempt transactions; and Zero-rated sales
transactions.

Transactions not subject to VAT include those transactions entered into by non-VAT taxpayers
whose gross sales or receipts from their business do not exceed the VAT threshold and who are
registered as non-VAT taxpayers. (Sec. 116, NIRC)

The VAT-exempt transactions refer to those transactions, sale of goods or properties and/or
services and the use or lease of properties, enumerated under Sec. 109 of the NIRC, while zero-
rated transactions include those listed under Sec. 106(A)(2) and Sec. 108 (B) of the NIRC.

The input tax on the purchases of a VAT-registered person with zero-rated sales may be allowed
as tax credits or refund while in an exempt transaction, the seller is not allowed to pass on the
VAT to the buyer and the VAT invoice or receipt should state that the sale is exempt from VAT.

2. Abel Corporation is a merchandising concern and has an inventory of goods for sale
amounting to Php1 million. Nel Corporation, a real estate developer, exchanged its
real estate properties for the shares of stocks of Abel Corporation resulting to the
acquisition of corporate control.

a. Does the change in corporate control subject the inventory of goods to output
VAT?

No. The inventory of goods owned by Abel Corporation (Php1 million worth) is not subject to
output tax despite the change in corporate control because the Abel Corporation still owns them.
This is in recognition of the separate and distinct personality of the corporation from its
stockholders. (Sec. 4-106-0, RR 16-2005)

b. Is the exchange of real properties subject to output VAT?

The exchange of real properties held for sale or for lease, for shares of stocks, whether resulting
to corporate control or not, is subject to VAT. This is an actual exchange of properties which
makes the transaction taxable. (Sec. 4-106-0, RR 16-2005)

3. What are the requisites for claim for refund or tax credit for unutilized input VAT?

A claim for refund or tax credit for unutilized input VAT may be allowed only if the following
requisites concur, namely:
(a) the taxpayer is VAT-registered;
(b) the taxpayer is engaged in zero-rated or effectively zero-rated sales;
(c) the input taxes are due or paid;
(d) the input taxes are not transitional input taxes;
(e) the input taxes have not been applied against output taxes during and in the succeeding
quarters;
(f) the input taxes claimed are attributable to zero-rated or effectively zero-rated sales;
(g) for zero-rated sales under Section 106(A)(2)(1) and (2); 106(B); and 108(B)(1) and (2), the
acceptable foreign currency exchange proceeds have been duly accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas;
 (h) where there are both zero-rated or effectively zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and entirely attributable to any of these sales, the input
taxes shall be proportionately allocated on the basis of sales volume; and
(i) the claim is filed within two years after the close of the taxable quarter when such sales were
made. (Luzon Hydro Corporation vs. Commissioner of Internal Revenue G.R. No.
188260, November 13, 2013, J. BERSAMIN)

4. State the rules on prescriptive periods for claiming refund or credit of input VAT.

A. Two-Year Prescriptive Period

1. It is only the administrative claim that must be filed within the two-year prescriptive
period. (Aichi)

2. The proper reckoning date for the two-year prescriptive period is the close of the
taxable quarter when the relevant sales were made. ( San Roque)

3. The only other rule is the Atlas ruling, which applied only from 8 June 2007 to 12
September 2008. Atlas states that the two-year prescriptive period for filing a claim for
tax refund or credit of unutilized input VAT payments should be counted from the date
of filing of the VAT return and payment of the tax. (San Roque)

B.120+30 Day Period

1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim within
thirty days after the Commissioner denies the claim within the 120-day period, or (2) file
the judicial claim within thirty days from the expiration of the 120-day period if the
Commissioner does not act within the 120-day period.

2. The 30-day period always applies, whether there is a denial or inaction on the part of
the CIR.

3. As a general rule, the 30-day period to appeal is both mandatory and jurisdictional.
(Aichi and San Roque)

4. As an exception to the general rule, premature filing is allowed only if filed between 10
December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03 was still in force.
(San Roque)

5. Late filing is absolutely prohibited, even during the time when BIR Ruling No. DA-489-
03 was in force. (San Roque)
(Silicon Philippines, Inc. (Formerly Intel Philippines Manufacturing, Inc.) vs.
Commissioner of Internal Revenue G.R. No. 173241 March 25, 2015)

5. X Company, a foreign corporation registered and established in Hong Kong, sold

goods to Y Corp., a domestic corporation. The freight term agreed by the parties is
FOB Shipping Point. When the goods arrived in the Philippines, the Bureau of
Customs asked Y Corp. for the payment of the VAT on the goods as a condition to
release the goods. Y Corp. refused to pay alleging that the Corp. is not liable to pay
the VAT since the primary duty to pay such rests with the seller and that the transfer
of the title of the goods happened outside the Philippines. Are the contentions of Y
 Corp. tenable?

No, the contentions of the Y Corp. are not tenable. As provided for under Sec. 107 (A) of the Tax
Code, there shall be levied, assessed and collected 12% VAT on every importation of goods prior
to the release of such goods from the customs custody. Such VAT on importation is to be paid by
the importer on record and not by the seller of the goods, regardless of where the transfer of
ownership occurs. In the case at bar, Y Corp., as the importer on record, shall be liable for the
payment of the VAT on importation and not X Company.

6. Z Company, a domestic corporation, rendered services on a no mark-up and

reimbursement of cost basis to A Company, also a domestic corporation. Alleging that
since there is no profit element in its transaction, Z Company did not pay and remit
the applicable VAT. Is the assertion of Z Company correct?

No, the assertion of Z Company is not correct.

Based on jurisprudence, the sale of services on a reimbursement-on/of-cost basis is subject to

VAT. 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 profit-oriented. 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. Hence, it is immaterial whether the primary purpose of a corporation
indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-
cost 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. (CIR vs. CA and COMASERCO, G.R. No. 125355, March
30, 2000)

Thus, Z Company is liable to the payment of the 12% VAT.

7. Enumerate the requisites for VAT zero rating for other services to attach.

Under Section 108(B)(2) of the Tax Code for VAT zero rating and as reiterated by the Supreme
Court in the case of CIR vs. Burmeister and Wain Scandinavian Contractor Mindanao, Inc. (G.R.
No. 153205, January 22, 2007)

a. services must be other than processing, manufacturing or repacking of goods;

b. payment for such services must be in acceptable foreign currency accounted for in accordance
with the BSP rules and regulations; and
c. recipient of such services must be doing business outside the Philippines.

8. ABC Law Office, a general professional partnership in the Philippines, received a

query through electronic mail from DEF Corporation, a corporation organized under
the laws of Delaware. DEF Corporation has no office in the Philippines and is not
engaged to do business in the Philippines. Upon ABC Law Office’s reply to the query,
it billed DEF Corporation US$1,500. Within 15 days, the latter remitted its payment
through Citibank which converted the amount to peso and deposited the converted
amount in the account of ABC Law Offices. What is the VAT implication of the
payment to ABC Law Office by DEF Corporation?

Payment to ABC Law Office is subject to 0% VAT. As provided for under the law, services other
 than processing, manufacturing or repacking rendered in the Philippines to a person engaged in
business conducted outside the Philippines or to a non-resident person not engaged in business
who is outside the Philippines when the services are performed, the consideration for which is
paid for in acceptable foreign currency and accounted for in accordance with the rules and
regulations of the BSP shall be subject to 0% VAT. (Section 108(B)(2) of the Tax Code)

9. What are the Destination Principle and the Cross Border Doctrine in relation to the
VAT?

Sales to export processing zones are subjected to special tax treatment. The Omnibus
Investments Code of 1987 establishes such tax treatment of goods or merchandise, brought into
the export processing zones, to be only consistent with the Destination Principle and Cross
Border Doctrine to which the Philippine VAT system adheres. According to the Destination
Principle, goods and services are taxed only in the country where these are consumed. In
connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be
imposed to form part of the cost of the goods destined for consumption outside the territorial
border of the taxing authority. Hence, actual export of goods and services from the Philippines to
a foreign country must be free of VAT, while those destined for use or consumption within the
Philippines shall be imposed with 10% (now 12%) VAT. Export processing zones are to be
managed as a separate customs territory from the rest of the Philippines and, thus, for tax
purposes, are effectively considered as foreign territory. For this reason, sales by persons from
the Philippine customs territory to those inside the export processing zones are already taxed as
exports. (Atlas Consolidated Mining and Development Corp. vs. CIR, G.R. Nos. 141104 & 148763,
June 8, 2007)

10. Does failure to comply with VAT invoicing requirements result in the disallowance of
the claim for VAT refund?

Yes. The applicant for claim for tax refund/credit must not only prove entitlement to the claim
but also compliance with all the documentary and evidentiary requirements. Claim for refund of
creditable input taxes must be evidenced by a VAT invoice or official receipts in accordance with
the Tax Code and RR 7-95. The failure to indicate the words “zero-rated” on the invoices and
receipts issued by a taxpayer would result in the denial of the claim for refund or tax credit.
(Eastern Telecommunications Phil vs. CIR, GR 183531, March 25, 2015)

11. A Company is a wholly-owned subsidiary of B Company, a corporation registered and

incorporated in Japan. During its 5th year of operations, A Company incurred
advertising and marketing expenses for the promotion of the new product line of B
Company. The latter then reimbursed A Company for the expenses incurred. Are the
reimbursed advertising and marketing expenses subject to VAT?
No. A Company did not render any service to B Company at all. B Company just gave assistance
to A Company in the amount equivalent to the latter’s advertising expense but never received
any goods, properties or service from Sony. There was no sale, barter, or exchange transaction.
Therefore, there is no VAT due on the transaction. (CIR v. Sony Phil, G.R. No. 178697,
November 17, 2010)

12. Who are required to be VAT-registered?

A person who, in the course of trade or business, sells, barters or exchange goods or properties,
or engages in the sale or exchange of services, shall be liable to register for VAT if:

a. His gross sales or receipts for the past 12 months, other than those that are exempt under
 Section 109 A to V, have exceeded P 1,919,500; or
b. There are reasonable grounds to believe that his gross sales or receipts for the next 12
months, other than those that are exempt under Section 109 A to V, will exceed P 1,919,500.
c. Radio and/or television franchisees whose annual gross receipts of the preceding year exceeds
Ten million pesos. (Sec. 119, NIRC)

13. X Corporation is primarily engaged in the business of conversion of steam to

electricity. Its property, plant and equipment account includes a fully depreciated
patrol cars used by the Corporation. To get rid of the fully depreciated car, the
Corporation decided to sell them to a related party. Is the sale of the car subject to
VAT?

Yes, the sale is subject to 12% VAT.

Based on jurisprudence, a reading of Section 105 of the Tax Code would show that a transaction
“in the course of trade or business” includes “transactions incidental thereto”.

In this case, since the patrol cars are part of the Corporation’s property, plant and equipment,
the sale of the patrol car is an incidental transaction made in the course of trade or business.
Thus, the transaction should be subject to VAT. (Mindanao Geothermal v. CIR, G.R. No. 193301,
March 11, 2013)

14. Distinguish effectively zero-rated VAT from automatic zero-rated VAT.

Applying the destination principle to the exportation of goods, automatic zero rating is primarily
intended to be enjoyed by the seller who is directly and legally liable for the VAT, making such
seller internationally competitive by allowing the refund or credit of input taxes that are
attributable to export sales. Effective zero rating, on the contrary, is intended to benefit the
purchaser who, not being directly and legally liable for the payment of the VAT, will ultimately
bear the burden of the tax shifted by the suppliers.
In both instances of zero rating, there is total relief for the purchaser from the burden of the
tax. But in an exemption there is only partial relief, because the purchaser is not allowed any tax
refund of or credit for input taxes paid. (Commissioner of Internal Revenue vs. Seagate
Technology (Philippines), G.R. No. 153866. February 11, 2005)
15. CBNC is a PEZA-registered corporation. It is located in the Rio Tuba Export Processing
Zone. As a domestic corporation, CBNC is engaged in the manufacture of nickel
and/or cobalt mixed sulfide. It is a VAT entity registered with the BIR. On August 5,
2003, CNBC filed its Amended VAT Return declaring unutilized input tax from its
domestic purchases of capital goods, other than capital goods and services, for its
third and fourth quarters of 2002 totalling ₱50,124,086.75. On June 14, 2004, it filed
with Revenue District Office No. 36 in Palawan its Application for Tax Credits/Refund
together with supporting documents.

Due to the alleged inaction of the respondent, the petitioner elevated its claim to the
CTA on July 8, 2004 by petition for review, praying for the refund of the aforesaid
input VAT.

a. Would you give due course to the petition despite the premature filing of its
judicial claim in the CTA?
 Yes. As pronounced in Silicon Philippines Inc. vs. Commissioner of Internal Revenue, the
exception to the mandatory and jurisdictional compliance with the 120+30 day-period is when
the judicial claim for the tax refund or credit was filed in the period between December 10, 2003
and October 5, 2010 during which BIR Ruling No. DA-489-03 was still in effect. Accordingly, the
premature filing of the judicial claim was allowed, giving to the CTA jurisdiction over the appeal.

b. Is CBNC entitled to refund?

No. Following the Cross-Border Doctrine and Destination Principle, purchases of goods and
services that were destined for consumption within the ECOZONE (as a separate customs
territory) should be free of VAT; hence, no input VAT should then be paid on such purchases. If
input VAT was actually paid on such purchases, the purchaser’s proper recourse was not against
the Government but against the seller who had shifted to it the output VAT (Coral Bay Nickel
Corporation vs. Commissioner of Internal Revenue, G.R. No. 190506. June 13, 2016
BERSAMIN, J.)

16. MP Corporation filed a judicial claim with the Court of Tax Appeals 15-days after it
filed an administrative claim for refund with the Bureau of Internal Revenue. The CTA
partially granted the claim. Without invoking the issue on jurisdiction, the CIR
elevated the case to the Supreme Court.

a. Is the judicial claim for VAT refund proper?

No, the judicial claim for VAT refund was premature. Under the present rule, the taxpayer has to
wait for the lapse of 120-day period within which the CIR shall grant or deny the claim for
refund. Only after the lapse of 120-day period (or after the CIR’s denial) may the taxpayer file its
judicial claim with the CTA within 30 days. Here, MP Corporation’s failure to observe the
mandatory 120-day period under the law was fatal to its claim. It rendered the filing of the CTA
petition premature, and barred the tax court from acquiring jurisdiction over the same.

b. May the claim for refund be denied by the Supreme Court motu proprio?

The 120-day period, being a jurisdictional issue, may be invoked by the Supreme Court motu
proprio. While the matter was not raised by the CIR in its petition, it is settled that a jurisdictional
issue may be invoked by either party or even the Court motu proprio, and may be raised at any
stage of the proceedings, even on appeal. (Commissioner of Internal Revenue vs. Mirant Pagbilao
Corporation, G.R. No. 180434. January 20, 2016)

Excise Taxes

1. Pilipinas Shell Petroleum Corporation (PSPC) sold petroleum products to various

international carriers of the Philippines or foreign registry for their use outside the
Philippines for the period of November 2000 to March 2001. A portion of these sales
and deliveries was sourced by PSPC from Petron Corporation by virtue of a "loan or
borrow agreement" between them. The excise taxes paid by Petron were passed on
to PSPC and the latter, in turn, sold these to international carriers net of excise taxes.
The other portion was sourced by PSPC from its tax-paid inventories. PSPC
subsequently filed two separate claims for the refund or credit of the excise taxes.

Are domestic manufacturers/sellers of petroleum products entitled to a refund or

credit of the excise taxes it paid for petroleum products sold to international carriers?
 Yes. As statutory taxpayers who are directly liable to pay the excise tax on its petroleum
products, domestic manufacturers/sellers of petroleum products are entitled to a refund or credit
of the excise taxes it paid for petroleum products sold to international carriers, the latter having
been granted exemption from the payment of said excise tax under Sec.135(a) of the Tax Code
(Commissioner of Internal Revenue vs. Pilipinas Shell Petroleum Corporation, G.R. No. 180402.
February 10, 2016).

Documentary Stamp Taxes

1. On March 23, 2000, BIR issued a Letter of Authority, which PNB received on 28 March
2000. On 12 May 2003, PNB received the preliminary assessment notice with details
of discrepancies which indicated that PNB had deficiency payments of documentary
stamp taxes (DST) for taxable year 1997. On 26 May 2003, BIR issued a FAN,
together with a formal letter of demand.

PNB immediately paid the assessment but filed a protest against such assessment.
The BIR denied PNB’s tax protest through the FDDA dated 10 December 2003. On 16
January 2004, PNB filed its petition for review in the CTA. On 3 March 2009, the CTA
1st Division rendered judgment cancelling the assessment for deficiency DST on
PNB’s Interbank call loans.

Are interbank call loans subject to DST under Section 180 of the NIRC?

No. An interbank call loan is considered as a deposit substitute transaction by a bank performing
quasi-banking functions to cover reserve deficiencies. It does not fall under the definition of a
loan agreement. Even if it does, the DST liability under Section 180, will only attach if the loan
agreement was signed abroad but the object of the contract is located or used in the Philippines,
which was not the case in regard to PNB's interbank call loans. We note, however, that for
taxation purposes interbank call loans are not considered as deposit substitutes by express
provision of Section 20(y) of the 1997 NIRC, as amended by P.D. No. 1959. (Commissioner of
Internal Revenue vs. Philippine National Bank, G.R. No. 195147. June 11, 2016 J.
BERSAMIN)

2. Where a Documentary Stamp Metering Machine (DS metering machine) is used, when
should the date of payment of DST be reckoned for purposes of the two-year
prescriptive period for the filing of refund?

The date of payment of DST should be reckoned on the date of imprinting the documentary
stamp on the taxable document. The payment of DST through the DS metering machine system
allows advanced payment of the DST for future applications. The DST was paid and DST
declaration return was filed in advance upon loading/reloading of the DS metering machine.
However, such advanced payment should not be considered as the "date of payment" when the
prescriptive period to file a claim for a refund/credit must commence. It must be noted that the
liability for the payment of the DST falls due only upon the occurrence of a taxable transaction--
the date of imprinting the documentary stamp on the taxable document. Therefore, it is only
then that payment may be considered for the purpose of filing a claim for a refund or tax credit.
(Philippine Bank Communications v. Commissioner of Internal Revenue, G.R. No. 194065. June
20, 2016)

Tax Remedies under the NIRC

1. What are the circumstances when the prescriptive period for assessing and collecting
taxes could be suspended or interrupted?
 a. For the period during which the Commissioner is prohibited from making the assessment or
beginning distraint or levy or a proceeding in court and for sixty (60) days thereafter;

b. When the taxpayer requests for a reinvestigation which is granted by the Commissioner;

c. When the taxpayer cannot be located in the address given by him in the return filed upon
which a tax is being assessed or collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of the Statute of Limitations will not be
suspended;

d. When the warrant of distraint or levy is duly served upon the taxpayer, his authorized
representative, or a member of his household with sufficient discretion, and no property could be
located; and

e. When the taxpayer is out of the Philippines. (Sec. 223, NIRC)

f. When the Commissioner finds that the payment on the due date of the estate tax or of any
part thereof would impose undue hardship upon the estate or any of the heirs, he may extend
the time for payment of such tax or any part thereof not to exceed five (5) years, in case the
estate is settled through the courts, or two (2) years in case the estate is settled extrajudicially.

In such case, the amount in respect of which the extension is granted shall be paid on or before
the date of the expiration of the period of the extension, and the running of the Statute of
Limitations for assessment as provided in Section 203 of this Code shall be suspended for the
period of any such extension. (Sec. 91(B), NIRC)

2. Differentiate tax credit from a tax refund.

TAX CREDIT TAX REFUND

Works by applying the refundable amount, as
shown on the final adjustment return (FAR) of a
given taxable year, against the estimated quarterly
income tax liabilities of the succeeding taxable
year.
There is no prescriptive period for the carrying over
of the same (CIR vs. BPI, G.R. No. 178490, July 7,
2009); It may be repeatedly carried over to
succeeding taxable years until fully utilized.
Any tax on income that is paid in excess of the
amount due the government may be refunded,
provided that a taxpayer properly applies for the
refund (Philam Asset Management, Inc. vs. CIR,
G.R. Nos. 156637/162004, December 14, 2005).
Prescribes after two years from the filing of the
final adjustment return (FAR) (Sec. 229, NIRC).

3. What are the exceptions to issuance of Preliminary Assessment Notice (PAN)?

Exceptions to Issuance of PAN:

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
ACTUALLY 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 an 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 a non-exempt person.(Sec. 228, NIRC)

NOTE: In the above-cited cases, a FLD/FAN shall be issued outright. (RR No. 18-13)

4. A Letter of Authority (LOA) was issued to a team of BIR examiners to audit the
taxpayer Sony Philippines for “the period 1997 and unverified prior years.” It
appears, however, that Sony was using the fiscal year, in that it reported its tax
liabilities for the period “April 1, 1997 to March 31, 1998.” Deficiency taxes were
discovered by the team of examiners covering the period 01 January 1998 to 31
March 1998. This was contested by Sony as the same was not covered by the LOA.
The CIR insists that the LOA, although it states the period 1997 and unverified prior
years, should be understood to mean the fiscal year ending in March 31, 1998.

a. What is the concept of a Letter of Authority (LOA)?

A Letter of Authority or LOA is the authority given to the appropriate revenue officer assigned to
perform assessment functions. It empowers or enables said revenue officer to examine the books
of account and other accounting records of a taxpayer for the purpose of collecting the correct
amount of tax.

b. Did the CIR act properly in assessing Sony for taxes covering the period 01 January
1998 to 31 March 1998?

No. The CIR acting through its revenue officers went beyond the scope of their authority because
the assessment they arrived at was based on records from January to March 1998 or using the
fiscal year which ended in March 31, 1998.The CIR knew which period should be covered by the
investigation. if CIR wanted or intended the investigation to include the year 1998, it should have
done so by including it in the LOA or issuing another LOA.

Section C of Revenue Memorandum Order No. 43-90 dated September 20, 1990, the pertinent
portion of which reads:

3. A Letter of Authority should cover a taxable period not exceeding one taxable year. The
practice of issuing L/As covering audit of unverified prior years is hereby prohibited. If the audit
of a taxpayer shall include more than one taxable period, the other periods or years shall be
specifically indicated in the L/A. (Commissioner of Internal Revenue vs. Sony Philippines, Inc.,
G.R. No. 178697, November 17, 2010)

5. When may a Final Decision on Disputed Assessment (FDDA) be declared void, and in
the event that the FDDA is found void, what would be its effect on tax assessment?

An FDDA that does not inform the taxpayer in writing of the facts and law on which it is based
renders the decision void. Therefore, it is as if there was no decision rendered by the CIR. It is
tantamount to a denial by inaction by the CIR, which may still be appealed before the CTA and
the assessment evaluated on the basis of the available evidence and documents.

The assessment remains valid notwithstanding the nullity of the FDDA because the assessment
itself differs from a decision on the disputed assessment. (Commissioner of Internal Revenue vs.
Liquigaz Philippines Corporation, G.R. No. 215534/G.R. No. 215557. April 18, 2016)
6. PAGCOR purchased vehicles under its Employee’s Car Plan. The Car Plan provides that
60% will be absorbed by PAGCOR and 40% of the purchase price will be for the
account of the employees. The Regional Director (RD) assessed for tax deficiency on
the transaction. PAGCOR protested the assessment. Without waiting for the RD or the
CIR's decision on its protest. PAGCOR made separate and successive filings before
the RD and the CIR before it filed its petition with the CTA. May the Court of Tax
Appeals take cognizance of the action instituted by PAGCOR?

No. A textual reading of Section 3.1.5 gives a protesting taxpayer like PAGCOR only three
options:

(a) A whole or partial denial by the CIR's authorized representative may be appealed to the CIR
or the CTA.
(b) A whole or partial denial by the CIR may be appealed to the CTA.
(c) The CIR or the CIR's authorized representative's failure to act may be appealed to the CTA.

There is no mention of an appeal to the CIR from the failure to act by the CIR's authorized
representative. (Philippine Amusement and Gaming Corporation vs. Bureau of Internal Revenue,
G.R. No. 208731 January 27, 2016)

7. The Bureau of Internal Revenue, through a preliminary five-day letter, informed A

Corporation, a domestic corporation, of a proposed assessment of an alleged
P2,880,817.25 deficiency income tax. A Corporation disputed the proposed deficiency
assessment in its first protest letter. Thereafter, A Corporation received from the CIR
a formal assessment notice requiring it to pay the alleged deficiency income tax. A
Corporation protested this deficiency tax assessment and argued that the deficiency
tax assessment failed to provide the legal and factual bases of the assessment. CIR
insists that A Corporation was properly apprised of its tax deficiency. During the pre-
assessment stage, the CIR advised A Corporation’s representative of the tax
deficiency, informed it of the proposed tax deficiency assessment through a
preliminary five-day letter and furnished A Corporation a copy of the audit working
paper showing in detail the legal and factual bases of the assessment. The CIR
argues that these steps sufficed to inform A Corporation of the laws and facts on
which the deficiency tax assessment was based. Is the CIR correct?

No. The advice of tax deficiency, given by the CIR to an employee of A Corporation, as well as
the preliminary five-day letter, were not valid substitutes for the mandatory notice in writing of
the legal and factual bases of the assessment. These steps were mere perfunctory discharges of
the CIR’s duties in correctly assessing a taxpayer. The requirement for issuing a preliminary or
final notice, as the case may be, informing a taxpayer of the existence of a deficiency tax
assessment is markedly different from the requirement of what such notice must contain. Just
because the CIR issued an advice, a preliminary letter during the pre- assessment stage and a
final notice, in the order required by law, does not necessarily mean that A Corporation was
informed of the law and facts on which the deficiency tax assessment was made. The law
requires that the legal and factual bases of the assessment be stated in the formal letter of
demand and assessment notice. Thus, such cannot be presumed. (CIR vs. Enron Subic Power
Corporation, GR No. 166387, January 19, 2009)

8. G Company changed its address but failed to notify the BIR. It continued filing its
returns with the BIR with the new address despite lack of notice. The BIR issued an
assessment against G Company beyond the prescriptive period claiming that the
 period of assessment has been suspended for failure of G Company to inform the BIR
of its new address. Is the BIR correct?

No. The suspension of the three-year period to assess applies only if the BIR Commissioner is not
aware of the whereabouts of the taxpayer.

Hence, despite the absence of a formal written notice of respondent's change of address, the fact
remains that petitioner became aware of respondent's new address as shown by documents
replete in its records. As a consequence, the running of the three-year period to assess
respondent was not suspended and has already prescribed. (CIR vs. BASF Coating + Inks Phils.,
GR No. 198677, November 26, 2014).

9. After an assessment, the taxpayer requested for reinvestigation and submitted

documents within the 60-day period. During the re-investigation, the BIR required
certain documents to be submitted. However, the taxpayer failed to comply. The BIR
then declared the assessment final and executory for failure of the taxpayer to
submit the additional documents required by it. Is the BIR correct?

No. The term "relevant supporting documents" should be understood as those documents
necessary to support the legal basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot
demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be
at the mercy of the BIR, which may require the production of documents that a taxpayer cannot
submit. (CIR vs. First Express Pawnshop, GR Nos. 172045-46, June 16, 2009)

10. When may the Commissioner compromise the payment of any internal revenue tax?

Under two instances:

(1) when a reasonable doubt as to the validity of the claim against the taxpayer exist;

(2) when the financial position of the taxpayer demonstrates a clear inability to pay the assessed
tax. (Section 204[a] of the Tax Code)

11. What are the requisites of a valid waiver of statute of limitations/prescriptive period
to assess or collect taxes?

a. The waiver shall be executed and accepted before the expiration of the period to assess or
collect taxes (or before the lapse of the period agreed upon in case a subsequent agreement is
executed);

b. The waiver shall be signed by the taxpayer himself or his duly authorized representative.
For corporations, any responsible official may sign the waiver;

c. The Expiry date of the agreed period to assess/collect the tax after the regular three-year
period of prescription should be indicated.

d. Except for waiver of collection of taxes which shall indicate the particular taxes assessed, the
waiver need not specify the particular taxes to be assessed nor the amount thereof, and it may
simply state "all internal revenue taxes";

e. Two material dates must appear on the waiver:

 i. the date of execution
ii. the expiry date of the period of the taxpayer waivers the statute of limitations. (RMO
14-2016)

12. On March 27, 2014, the Bureau of Internal Revenue (BIR) issued a Formal
Assessment Notice (FAN) against AAA Corporation, informing the latter of its
alleged deficiency corporate income tax for the year 2012. On April 17, 2014,
AAA filed a letter protest before the BIR contesting said assessment and
demanding that the same be cancelled or set aside. On June 5, 2014, AAA filed a
supplemental letter for the supporting documents pursuant to its protest letter.
However, on July 19, 2015, that is, after more than a year from the filing of the letter
protest, the BIR informed AAA Corporation that the latter’s letter protest was denied
on the ground that the assessment had already become final, executory and
demandable. The BIR reasoned that its failure to decide the case within 180 days
from filing of the supplemental letter or supporting documents should have prompted
AAA to seek recourse before the Court of Tax Appeals (CTA) by filing a petition for
review within thirty (30) days after the expiration of the 180day period as mandated
by theprovisions of the last paragraph of Section 228 of the National Internal
Revenue Code (NIRC). Accordingly, AAA’s failure to file a petition for review before
the CTA rendered the assessment final, executory and demandable. Is the contention
of the BIR correct? Explain.

No. Notwithstanding the lapse of the 180-day period, BWI had the option to await the BIR’S final
decision on its protest before filing a Petition for Review with the CTA. In case the Commissioner
fails to act on a taxpayer’s protest within the 180-day period, a taxpayer can either:
(i) file a petition for review with the Court of Tax Appeals within 30 days after the
expiration of the 180-day period; or
(ii) await the final decision of the Commissioner on the disputed assessments, and
thereafter appeal such final decision to the CTA within 30 days after the receipt of a copy of such
decision.

Here, AAA simply availed itself of the second option.(Lascona Land Co., Inc. v. Commissioner
of Internal Revenue G.R. No. 171251, March 5, 2012)

PART III. LOCAL GOVERNMENT CODE OF 1991, as amended

A. Local Government Taxation

1. What are the common limitations on the taxing powers of Local Government Units?

The exercise of the taxing powers of provinces, cities, municipalities, and barangays shall not
extend to the levy of the following:

(a) Income tax, except when levied on banks and other financial institutions;
(b) Documentary stamp tax;
(c) Taxes on estates, inheritance, gifts, legacies and other acquisitions mortis causa, except as
otherwise provided herein;
(d) Customs duties, registration fees of vessel and wharfage on wharves, tonnage dues, and all
other kinds of customs fees, charges and dues except wharfage on wharves constructed and
maintained by the local government unit concerned;
(e) Taxes, fees, and charges and other impositions upon goods carried into or out of, or passing
through, the territorial jurisdictions of local government units in the guise of charges for
 wharfage, tolls for bridges or otherwise, or other taxes, fees, or charges in any form whatsoever
upon such goods or merchandise;
(f) Taxes, fees or charges on agricultural and aquatic products when sold by marginal farmers or
fishermen;
(g) Taxes on business enterprises certified to by the Board of Investments as pioneer or non-
pioneer for a period of six (6) and four (4) years, respectively from the date of registration;
(h) Excise taxes on articles enumerated under the national Internal Revenue Code, as amended,
and taxes, fees or charges on petroleum products;
(i) Percentage or value-added tax (VAT) on sales, barters or exchanges or similar transactions on
goods or services except as otherwise provided herein;
(j) Taxes on the gross receipts of transportation contractors and persons engaged in the
transportation of passengers or freight by hire and common carriers by air, land or water, except
as provided in this Code;
(k) Taxes on premiums paid by way or reinsurance or retrocession;
(l) Taxes, fees or charges for the registration of motor vehicles and for the issuance of all kinds
of licenses or permits for the driving thereof, except tricycles;
(m) Taxes, fees, or other charges on Philippine products actually exported, except as otherwise
provided herein;
(n) Taxes, fees, or charges, on Countryside and Barangay Business Enterprises and cooperatives
duly registered under R.A. No. 6810 and Republic Act Numbered Sixty-nine hundred thirty-eight
(R.A. No. 6938) otherwise known as the "Cooperative Code of the Philippines" respectively; and
(o) Taxes, fees or charges of any kind on the National Government, its agencies and
instrumentalities, and local government units.

2. The Province of Benguet enacted an Ordinance levying amusement taxes equivalent

to 10% of the gross admission fees collected by resort operators. Is the Ordinance
valid?

No, it is not valid. The imposition is in the nature of a percentage tax, which, under Section 133
of the Local Government Code, cannot be levied by local governments (including Provinces). The
imposition cannot be justified under the guise of an amusement tax under Section 140 of the
Local Government Code. The said provision allows Provinces to levy an amusement tax on the
gross admission fees of theaters, cinemas, concert halls, circuses, boxing stadia and other places
of amusement. Resorts are not classified in the same category of those subject to amusement
tax, as it is clear that the subject of the tax is a place where one seeks to enjoy by watching or
viewing a show or performance. In a resort, while there may occasionally be visual engagement,
such is not the main purpose. (Pelizloy Realty Corporation v. Province of Benguet, G.R. No.
183137, 10 April 2013).

3. Can the City of Cebu or any local government validly impose amusement tax on golf
courses?

No. Imposing amusement tax on golf courses is null and void as it is beyond the authority of
respondent Cebu City to enact under the Local Government Code.

The Local Government Code authorizes the imposition by local government units of amusement
tax under Section 140, which provides:

Sec. 140. Amusement Tax. - (a) The province may levy an amusement tax to be collected from
the proprietors, lessees, or operators of theaters, cinemas, concert halls, circuses, boxing stadia,
and other places of amusement at a rate of not more than (now ten percent (10%)) of the gross
receipts from admission fees. xxx
 "Amusement places," as defined in Section 131(c) of the Local Government Code, "include
theaters, cinemas, concert halls, circuses and other places of amusement where one seeks
admission to entertain oneself by seeing or viewing the show or performance."

In light of Pelizloy Realty, a golf course cannot be considered a place of amusement. As

petitioner asserted, people do not enter a golf course to see or view a show or performance.
Petitioner also, as proprietor or operator of the golf course, does not actively display, stage, or
present a show or performance. People go to a golf course to engage themselves in a physical
sport activity, i.e., to play golf; the same reason why people go to a gym or court to play
badminton or tennis or to a shooting range for target practice, yet there is no showing herein
that such gym, court, or shooting range is similarly considered an amusement place subject to
amusement tax. There is no basis for singling out golf courses for amusement tax purposes from
other places where people go to play sports. This is in contravention of one of the fundamental
principles of local taxation: that the "[t]axation shall be uniform in each local government unit."
(Alta Vista Golf and Country Club, Petitioner, vs. The City of Cebu et al G.R. No. 180235 January
20, 2016)

B. Real Property Taxation

1. What are the Fundamental Principles in Real Property Taxation?

a. Real property shall be appraised at its current and fair market value;
b. Real property shall be classified for assessment purposes on the basis of its actual use;
c. Real property shall be assessed on the basis of a uniform classification within each local
government unit;
d. The appraisal, assessment, levy and collection of real property tax shall not be let to any private
person; and
e. The appraisal and assessment of real property shall be equitable.(Section 198 of the LGC)

2. What properties are exempted from Real property Tax?

The following are exempted from payment of real property tax:

a. Real property owned by the Republic of the Philippines or any of its political subdivision except
when the beneficial use thereof has been granted for consideration or otherwise to a taxable
person

b. Charitable institutions, churches, parsonages or convents appurtenant thereto, mosques,

nonprofit or religious cemeteries and all lands, buildings, and improvements actually, directly and
exclusively used for religious, charitable or educational purposes;

c. All machineries are equipment that are actually, directly and exclusively use by local water
districts and government owned or controlled corporations engaged in the supply and distribution
of water and/or generation and transmission of electric power;

d. All real property owned by duly registered cooperatives under RA 6938

e. Machinery and equipment used for pollution control and environment protection. (Section 234 of
the LGC)
3. Explain the withdrawal of tax exemption under the LGC of privileges previously given
to natural or juridical persons, and granted local government units the power to
impose franchise tax.

The Local Government Code has withdrawn tax exemption privileges previously given to natural
or juridical persons, and granted local government units the power to impose franchise tax,
under Section 137 thereof which provides that notwithstanding any exemption granted by any
law or other special law, the province may impose a tax on businesses enjoying a franchise, at a
rate not exceeding 50% of 1% of the gross annual receipts for the preceding calendar year
based on the incoming receipt, or realized, within its territorial jurisdiction.

Moreover, Section 193 of the same Code provides that tax exemptions or incentives granted to,
or presently enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under RA 6938,
non-stock and nonprofit hospitals and educational institutions, are hereby withdrawn upon the
effectivity of this Code. (CEPALCO vs. CDO, G.R. No. 191761, November 14, 2012)

4. Are the properties owned by the Republic of the Philippines subject to real property
tax (RPT)?

No. Section 234(a) of Republic Act No. 7160 states that properties owned by the Republic of the
Philippines are exempt from real property tax except when the beneficial use thereof has
been granted, for consideration or otherwise, to a taxable person. (City of Pasig vs. Republic,
G.R. No. 185023, August 24, 2011)

5. What is the beneficial use doctrine in real property tax cases?

The unpaid real property tax attaches to the property and is chargeable against the taxable
person who had actual or beneficial use and possession of it regardless of whether or not he is
the owner. (GSIS vs. City Treasurer and Assessor of Manila, G.R. No. 186242, December 23,
2009).

6. May an assessment of real property be subject to back taxes?

Yes. Real property declared for the first time shall be assessed for taxes for the period during
which it would have been liable but in no case for more than ten (10) years prior to the date of
initial assessment. Provided, however, that such taxes shall be computed on the basis of the
applicable schedule of values in force during the corresponding period. (Section 222, LGC)

7. Are Condominium Corporations subject to business tax?

No, they are not engaged in business. A condominium corporation is precluded by statute from
engaging in corporate activities other than the holding of the common areas, the administration
of the condominium project, and other acts necessary, incidental or convenient to the
accomplishment of such purposes. Neither the maintenance of livelihood, nor the procurement of
profit, fall within the scope of permissible corporate purposes of a condominium corporation
under the Condominium Act. (Yamane vs. BA Lepanto Condominium, G.R. No. 154993 October
25, 2005)
8. ABDC Corporation is a non-stock, non-profit corporation which owns a hospital. ABDC
Corporation constructed a medical arts center which is used to house its doctors in
exchange for a minimal fee. For real property tax purposes, the hospital was
classified as belonging to “special class” with an assessment level of 10%. On the
other hand, the medical arts center was classified by the assessor as “commercial”
with a higher assessment level. Was the classification of the medical arts center as
“commercial” proper?

No. The medical arts center should have been classified also as “special”. The fact that the
medical arts center is exclusively for the doctors of the hospital clearly removes it from being
classified as “commercial”. The operation of the medical arts center is incidental to the operation
of the hospital; thus, it is but proper that the activity which is incidental to the main function of
the hospital should be classified in the same manner as that of the hospital. (City Assessor of
Cebu v. Association of Benevola De Cebu, G.R. No. 152904 8 June 2007).

9. Capwire is a Philippine corporation in the business of providing international

telecommunications services. As such provider, Capwire has signed agreements with
other local and foreign telecommunications companies covering an international
network of submarine cable systems such as the Asia Pacific Cable Network System
(APCN) (which connects Australia, Thailand, Malaysia, Singapore, Hong Kong,
Taiwan, Korea, Japan, Indonesia and the Philippines); the Brunei Malaysia-
Philippines Cable Network System (BMP-CNS), the Philippines- Italy (SEA-ME-WE-3
CNS), and the Guam Philippines (GP-CNS) systems. The agreements provide for co-
ownership and other rights among the parties over the network. In the process of its
undertaking, CAPWIRE laid down submarine fiber optic lines. The local government
of Batangas imposed real property taxes on CAPWIRE’s submarine communications
cables.

May a local government unit levy real property tax on submarine or undersea
communications cables?

Yes. Submarine wires or cables used for communications may be taxed like other real estate.

Submarine or undersea communications cables are akin to electric transmission lines which this
Court has recently declared in Manila Electric Company v. City Assessor and City Treasurer of
Lucena City, as "no longer exempted from real property tax" and may qualify as "machinery"
subject to real property tax under the Local Government Code. To the extent that the
equipment's location is determinable to be within the taxing authority's jurisdiction, the Court
sees no reason to distinguish between submarine cables used for communications and aerial or
underground wires or lines used for electric transmission, so that both pieces of property do not
merit a different treatment in the aspect of real property taxation.

Both electric lines and communications cables, in the strictest sense, are not directly adhered to
the soil but pass through posts, relays or landing stations, but both may be classified under the
term "machinery" as real property under Article 415(5) of the Civil Code for the simple reason
that such pieces of equipment serve the owner's business or tend to meet the needs of his
industry or works that are on real estate. Even objects in or on a body of water may be classified
as such, as "waters" is classified as an immovable under Article 415(8) of the Code. Besides, the
Court has already held that "it is a familiar phenomenon to see things classed as real property for
purposes of taxation which on general principle might be considered personal property."
 Thus, absent any showing from Capwire of any express grant of an exemption for its lines and
cables from real property taxation, then this interpretation applies and Capwire's submarine cable
may be held subject to real property tax. (Capitol Wireless, Inc. vs. The Provincial Treasurer of
Batangas, G.R. No. 180110. May 30, 2016)

10. When an assessment has been issued against a taxpayer for deficiency real property
tax, what are the remedies available to the said taxpayer?

The remedy of a taxpayer depends on the stage in which the local government unit is enforcing
its authority to impose real property taxes.

Erroneous assessments

Exhaustion of administrative remedies under the Local Government Code is necessary in cases of
erroneous assessments where the correctness of the amount assessed is assailed. The taxpayer
must first pay the tax then file a protest with the Local Treasurer within 30 days from date of
payment of tax. If protest is denied or upon the lapse of the 60-day period to decide the protest,
the taxpayer may appeal to the Local Board of Assessment Appeals within 60 days from the
denial of the protest or the lapse of the 60-day period to decide the protest. The Local Board of
Assessment Appeals has 120 days to decide the appeal.

If the taxpayer is unsatisfied with the Local Board’s decision, the taxpayer may appeal before the
Central Board of Assessment Appeals within 30 days from receipt of the Local Board’s decision.

The decision of the Central Board of Assessment Appeals is appealable before the Court of Tax
Appeals En Banc. The appeal before the Court of Tax Appeals shall be filed following the
procedure under Rule 43 of the Rules of Court.

The Court of Tax Appeals’ decision may then be appealed before the Supreme Court through a
petition for review on certiorari under Rule 45 of the Rules of Court raising pure questions of law.

Illegal assessment

In case of an illegal assessment where the assessment was issued without authority, exhaustion
of administrative remedies is not necessary and the taxpayer may directly resort to judicial
action. The taxpayer shall file a complaint for injunction before the Regional Trial Court to enjoin
the local government unit from collecting real property taxes.

The party unsatisfied with the decision of the Regional Trial Court shall file an appeal, not a
petition for certiorari, before the Court of Tax Appeals, the complaint being a local tax case
decided by the Regional Trial Court. The appeal shall be filed within fifteen (15) days from notice
of the trial court’s decision.

The Court of Tax Appeals’ decision may then be appealed before the Supreme Court through a
petition for review on certiorari under Rule 45 of the Rules of Court raising pure questions of law.

In case the local government unit has issued a notice of delinquency

In case the local government unit has issued a notice of delinquency, the taxpayer may file a
complaint for injunction to enjoin the impending sale of the real property at public auction. In
case the local government unit has already sold the property at public auction, the taxpayer must
 first deposit with the court the amount for which the real property was sold, together with
interest of 2% per month from the date of sale to the time of the institution of action. The
taxpayer may then file a complaint to assail the validity of the public auction. The decisions of the
Regional Trial Court in these cases shall be appealable before the Court of Tax Appeals, and the
latter’s decisions appealable before this court through a petition for review on certiorari under
Rule 45 of the Rules of Court. (City of Lapu-Lapu vs. Philippine Economic Zone Authority G.R. No.
184203 November 26, 2014)

PART IV. TARIFF AND CUSTOMS CODE OF THE PHILIPPINES, as amended by the CUSTOMS
MODERNIZATION AND TARIFF ACT (Republic Act. No. 10863, which took effect on June 16,
2016)

1. When does importation begin and when does it end?

Importation begins when the carrying vessel or aircraft enters the jurisdiction of the Philippines
with intention to unload therein.

It is clear from the provision of the law that mere intent to unload is sufficient to commence an
importation. (Feeder International Line, Pte., Ltd. vs. CA, GR No. 94262 dated May 31, 1991)

Importation is deemed terminated when:

(a) The duties, taxes and other charges due upon the goods have been paid or secured to be
paid at the port of entry unless the goods are from duties, taxes and other charges and legal
permit for withdrawal has been granted; or

(b) In case the goods are deemed free of duties, taxes and other charges, the goods have legally
left the jurisdiction of the Bureau of Customs. (Sec. 103 of the CMTA)

As long as the importation has not been terminated, the imported goods remain under the
jurisdiction of the Bureau of Customs. Importation is deemed terminated only upon the payment
of the duties, taxes and other charges upon the articles, or secured to be paid, at the port of
entry and the legal permit for withdrawal shall have been granted. The payment of the duties,
taxes, fees and other charges must be in full. (Papa vs. Mago, GR No. L-27360 dated February
28, 1968)

2. Glory Shipping Lines (“GSL”) imported one (1) unit of shipping vessel which was
authorized by the Department of Finance subject to the posting of a re-export bond.
After expiration of the re-export bond, GSL, however, refused to pay the correct
amount of taxes after demand and thereafter sold the vessel to Oro Maura
ShippingLines (“OMSL”). OMSL separately filed for the importation of the same
vessel. Was the importation made by OMSL separate from that of GSL’s importation?

No, with the knowledge that the vessel was released under a re-export bond, OMSL should have
known that this original entry was subject to specific conditions, among them, the obligation to
guarantee the re-export of the vessel within a given period, or otherwise to pay the customs
duties on the vessel. It should have known, too, of the conditions of the vessel’s release under
the re-export bond and of the state of GSL’s status of compliance.

There was an original but incomplete importation by GSL that OMSL could not have simply
disregarded proceeds from knowledge of the vessel’s history and the application of the relevant
law. In this respect, Section 1202 of the TCCP (now Sec. 103 of the CMTA) provides:

“Importation begins when the carrying vessel or aircraft enters the jurisdiction of
the Philippines with intention to unlade therein. Importation is deemed
 terminated upon payment of the duties, taxes and other charges due
upon the articles, or secured to be paid, at a port of entry and the legal
permit for withdrawal shall have been granted, or in case said articles are
free of duties, taxes and other charges, until they have legally left the jurisdiction
of the customs.”

In order for an importation to be deemed terminated, the payment of the duties, taxes, fees and
other charges of the item brought into the country must be in full. For as long as the
importation has not been completed, the imported item remains under the jurisdiction of the
BOC. From the perspective of process, the importation that originally started with GSL
was therefore never completed and terminated, so that the OMSL’s present
importation is merely a continuation of that original process. (Secretary of Finance vs.
Oro Maura Shipping Lines, GR No. 156946, July 15, 2009).

3. What does the term “entry” mean under customs law?

It is relevant to clarify that the term “entry” as used in the TCCP is susceptible of any of the
following three (3) meanings, to wit:

a) The documents filed at the Customs house; or

b) The submission and acceptance of the documents; or

c) The procedure of passing goods through the Customs house. Customs

declaration forms or customs entry forms required to be accomplished by the
passengers of incoming vessels or passenger planes are embraced in the section.
(Mercado vs. People, GR No. 167510 dated July 8, 2015 J. Bersamin)

4. When is there “entry” under customs law?

Imported goods shall be deemed “entered” in the Philippines for consumption when the goods
declaration is electronically lodged together with any required supporting documents with the
pertinent customs office. (Sec. 115 of the CMTA)
5. Where must an “entry” of imported articles be made?

All goods imported into the Philippines shall be entered through a customs office at a port of
entry, or may be admitted to or removed from a free zone. (Sec. 400 of the CMTA)

6. When is a formal declaration required and when is an informal declaration required?

All goods declaration for consumption shall be cleared through a formal entry process except for
the following goods which shall be cleared thorough an informal entry process:

a) Goods of a commercial nature with Free on Board (“FOB”) or Free Carrier at

(“FCA”) value of less than fifty thousand pesos (P50,000.00).

b) Personal and household effects or goods, not in commercial quantity, imported in

a passenger’s baggage or mail. (Sec. 402 of the CMTA)

7. What is the period to file a goods declaration or entry declaration?

Goods declaration must be lodged within fifteen (15) days from the date of discharge of the last
package from the vessel or aircraft. The period to file the goods declaration may, upon request,
be extended on valid grounds for another fifteen (15) days. The Commissioner may adjust the
period of the lodgement of the goods declaration. (Sec. 407 of the CMTA)

8. Who is liable for the payment of import duties?

 Unless relieved by laws or regulations, the liability for duties, taxes, fess, and other charges
attached to importation constitutes a personal debt due and demandable against the importer in
favor of the government and shall be discharged only upon payment of duties, taxes, fees and
other charges. It also constitutes a lien on the imported goods which may be enforced while such
goods are under customs’ custody. (Sec. 405 of the CMTA)

9. What is the general rule on imported goods being subject to customs duties?

Except as otherwise provided for under the CMTA or in other laws, all goods, when imported into
the Philippines, shall be subject to duty upon importation, including goods previously exported
from the Philippines. (Sec. 104 of the CMTA)

10. Which goods are considered Prohibited Importations and Exportations?

The importation and exportation of the following goods are prohibited:

a) Written or printed goods in any form containing any matter advocating or inciting
treason, rebellion, insurrection, sedition against the government of the Philippines, or forcible
resistance to any law of the Philippines, or written or printed goods containing any threat to
take the life of, or inflict bodily harm upon any person in the Philippines;

b) Goods, instruments, drugs and substances designed, intended or adapted for producing
unlawful abortion, or any printed matter which advertises, describes or gives direct or
indirect information where, how or by whom unlawful abortion is committed;

c) Written or printed goods, negatives or cinematographic films, photographs, engravings,

lithographs, objects, paintings, drawings or other representation of an obscene or immoral
character;

d) Any goods manufactured in whole or in part of gold, silver or other precious metals or
alloys and the stamp, brand or mark does not indicate the actual fineness of quality of the
metals or alloys;

e) Any adulterated or misbranded food or goods for human consumption or any adulterated
or misbranded drug in violation of relevant laws and regulations;

f) Infringing goods as defined under the Intellectual Property Code and related laws; and,

g) All other goods or parts thereof, which importation and exportation are explicitly
prohibited by law or rules and regulations issued by the competent authority. (Sec. 118 of
the CMTA)

11. What is the rule with respect to de minimis importations?

No duties and taxes shall be collected on goods with an FOB or FCA value of ten thousand pesos
(P10,000.00) or below. (Sec. 423 of the CMTA)

12. What are the requirements or rules in order for importations made by returning
residents to be exempt from customs duties?

a) Returning Residents - shall refer to nationals who have stayed in a foreign country for a
period of at least six (6) months. It includes spouse and dependent children.

b) Exemption covers:
 1. Personal and household effects belonging to returning residents including household
appliances, jewelry, precious stones, and other goods of luxury previously exported from
the Philippines must be covered by a Certificate of

Identification (“CI”) issued by the District Collector or a Customs Officer. Upon

importation of the exported goods, the Customs Examiner shall verify the identity of the
goods brought in as against the CI; and,

2. Personal and household effects normally used for the comfort and convenience of
the Returning Residents during their stay abroad which must accompany them on their
return, or arrive within a reasonable time which, barring unforeseen and fortuitous
events, in no case shall exceed sixty (60) calendar days after the owner's return. It does
not cover luxury items, vehicles, watercrafts, aircrafts and animals purchased in foreign
countries.

c) The imported goods must: (1) not be in commercial quantities; and, (2) not intended for
barter, sale or for hire.

d) Exemption is limited to the following FOB and FCA values:

1. Three hundred fifty thousand pesos (P350,000.00) for those who have stayed in a
foreign country for at least ten (10) years and have not availed of this privilege within
ten (10) years prior to returning resident's arrival;

2. Two hundred fifty thousand pesos (P250,000.00) for those who have stayed in a
foreign country for a period of at least five (5) but not more than ten (10) years and
have not availed of this privilege within five (5) years prior to returning resident's arrival;
or

3. One hundred fifty thousand pesos (P150,000.00) for those who have stayed in a
foreign country for a period of less than five (5) years and have not availed of this
privilege within six (6) months prior to returning resident's arrival.(Sec.

800 of the CMTA and CAO 6-2016 dated December 2, 2016)

13. What are the tax exemption privileges of OFWs?

In addition to the tax-exempt privileges enjoyed by returning residents, OFWs shall have the
privilege to bring in tax and duty free home appliances and other durables limited to one (1) of
every kind once every calendar year accompanying them on their return or arriving within a
period not exceeding sixty (60) days after the OFW’s return with a value not exceeding One
hundred fifty thousand pesos (P150,000.00). Durables refer to goods, as household appliances,
machinery or sports equipment that may be used repeatedly or continuously over a period of a
year or more, assuming a normal or average rate of physical usage. (Sec. 800 of the CMTA and
CAO 6-2016 dated December 2, 2016)

14. What are the requirements or rules in order for “balikbayan boxes” to be exempt
from customs duties?

a) Who are entitled to the exemption? Non-resident Filipinos, OFWs and Returning
Residents (“Qualified Filipinos”);
 b) Qualified Filipinos while abroad are allowed to send to their families or relatives in the
Philippines Balikbayan Boxes which shall be exempt from the payment of duties and taxes, up to
three (3) times in a calendar year;

c) Balikbayan Boxes brought in by Qualified Filipinos from abroad as accompanied or

unaccompanied baggage as passengers shall be included in counting the availment;

d) De minimis importation shall not be included in the counting. A shipment that is above
Php10,000.00 shall be automatically considered as one availment; and,

e) Balikbayan boxes shall contain personal and household effects only and shall neither be
in commercial quantities nor intended for barter, sale or for hire, and that the total FCA value for
all Balikbayan Boxes per sender in any calendar year shall not exceed one hundred fifty thousand
pesos (P150,000.00). (Sec. 800 of the CMTA and CAO 5-2016 dated December 2, 2016)

15. When does an assessment become final for purposes of accrual of interest?

Assessment shall be deemed final fifteen (15) days after receipt of the notice of assessment by
the importer or consignee. (Sec. 429 of the CMTA)

Unpaid duties, taxes and other charges, shall incur legal interest of twenty percent (20%) per
annum computed from the date of final assessment, when payment becomes due and
demandable. The legal interest shall likewise accrue on any fine or penalty imposed. (Sec. 104 of
the CMTA)

16. When does an assessment become conclusive?

In the absence of fraud and when the goods have been finally assessed and released, the
assessment shall be conclusive upon all parties three (3) years from the date of final payment of
duties and taxes or upon completion of the post clearance audit. (Sec. 430 of the CMTA)

17. When may a Provisional Goods Declaration be allowed?

Where the declarant does not have all the information or supporting documents required to
complete the goods declaration, the lodging of a provisional goods declaration may be allowed.
Provided, that the goods declaration substantially contains the necessary information required by
the Bureau of Customs and the declarant undertakes to complete the information or submit the
supporting documents within forty-five (45) days, which period may be extended for another
forty-five (45) days for valid reasons.

Goods under a provisional goods declaration may be released upon posting of any required
security equivalent to the amount ascertained to be the applicable duties and taxes. (Sec. 403 of
the CMTA)

18. When is there Misdeclaration, Misclassification and Undervaluation in Goods

Declaration?

Misdeclaration – when there is a discrepancy in the quantity, quality, description, weight, or

measurement of the goods.

Misclassification – when there is insufficient or wrong description of the goods or use of wrong
tariff heading resulting in a discrepancy in duty and tax to be paid.

Undervaluation – when: (1) the declared value fails to disclose in full the price actually paid or
payable; or (2) when an incorrect valuation method is used or valuation rules are not properly
observed. (Sec. 1400 of the CMTA)
19. What is the effect if there is a Misdeclaration, Misclassification and Undervaluation in
the Goods Declaration?

There shall be imposed a surcharge equivalent to 250% of the duty and tax due. No surcharge
shall be imposed: (a) when the discrepancy in the duty is less than 10%; (b) when the declared
tariff heading is rejected in a formal customs dispute settlement process involving difficult or
highly technical question of tariff classification; (c) when the tariff classification declaration relied
on an official government ruling.

If the Misdeclaration, Misclassification and Undervaluation in the Goods Declaration is intentional

or fraudulent, a surcharge of 500% shall be imposed without prejudice to the application of fines
and penalties under Sec. 1401 of the CMTA. There is prima facie evidence of fraud if the
discrepancy in duty and tax to be paid between what is legally determined and what is declared
is more than 30% percent. (Sec. 1400 of the CMTA)

20. What is outright smuggling and technical smuggling?

a) Outright Smuggling – refers to an act of importing goods into the country without complete
customs prescribed importation documents, or without being cleared by customs or other
regulatory government agencies, for the purpose of evading payment of prescribed taxes,
duties and other government charges.

b) Technical Smuggling – refers to an act of importing goods into the country by means of
fraudulent, falsified or erroneous declaration of goods to it nature, kind, quality, quantity or
weight, for the purpose of reducing or avoiding payment of prescribed taxes, duties and
other charges. (Sec. 102 of the CMTA)

21. What is the legal effect of possession of smuggled goods?

When, upon trial for smuggling, the defendant is shown to have or to have had possession of the
goods in question, possession shall be deemed sufficient evidence to authorize conviction unless
the defendant shall explain the possession to the satisfaction of the court. (Sec. 1401 of the
CMTA)

22. What is the effect of payment of the tax due in smuggling cases?

Payment of the tax due after apprehension shall not constitute a valid defense. (Sec. 1401 of the
CMTA)

23. What are the other fraudulent practices under the CMTA?

a) Making or attempting to make any entry of imported or exported goods by means of any
false or fraudulent statement, document or practice; or

b) Knowingly and willfully filing of any false or fraudulent claim for payment of drawback or
refund of duties. (Sec. 1403 of the CMTA)

24. Mercado is the owner of Al-Mer Cargo Management. A shipment coming from
Bangkok, Thailand arrived at the Manila International Container Port with Al-Mer
Cargo Management as consignee. Al-Mer Cargo Management filed an Informal Import
Declaration and Entry (“IIDE”) and Permit to Deliver through its broker, Consular
Cargo Services, describing the items in the shipment as "personal effects, assorted
mens and ladies wearing apparels, (sic) textile and accessories.” Upon examination
of the shipment, the Bureau of Customs found the shipment to contain general
merchandise in commercial quantities instead of personal effects of no commercial
value.
 Eventually, Mercado was charged and convicted for violation of Sec. 3602 of the TCCP
(now Sec. 1403 of the CMTA), specifically for making an entry by means of false and
fraudulent invoice and declaration.

Was the conviction of Mercado correct?

No, the act thereby imputed against Mercado — making an entry by means of false and
fraudulent invoice and declaration — fell under the first form of fraudulent practice punished
under Section 3602 of the TCCP (now Sec. 1403 of the CMTA). The elements to be established in
order to convict him of the crime charged are, specifically: (1) there must be an entry of
imported or exported articles; (2) the entry was made by means of any false or fraudulent
invoice, declaration, affidavit, letter, or paper; and (3) there must be intent to avoid payment of
taxes.

It is undisputed that the customs documents (like the IIDE and Permit to Deliver) were filed with
and the imported goods passed through the customs authorities, thereby satisfying the first
element of entry of imported articles. However, the second and third elements were not
established beyond reasonable doubt. Although there was a discrepancy between the declaration
made and the actual contents of the shipment, the petitioner firmly disavowed his participation in
securing the clearance for the shipment as well as in preparing and filing the import documents.
He insisted that being only the consignee of the shipment, he did not file the IIDE in the Bureau
of Customs and he had no knowledge about the entry. It was the broker who prepared and
signed the IIDE. (Mercado vs. People, GR No. 167510 dated July 8, 2015 J. Bersamin)

25. What are the remedies available if the Collector of Customs (“Collector”) renders a
decision in a seizure or forfeiture case?

Decision of Collector Adverse to the Decision of Collector Adverse to the

Claimant Government

Claimant appeals to the Commissioner within 15 Automatic review by the Commissioner of

days from receipt of notice of decision or 5 days
in case of perishable goods; (Sec. 1126)
Appeal by filing a Written Notice of Appeal with
the Collector copy furnished to the Commissioner.
Collector shall transmit all records of the
proceedings to the Commissioner; (Sec. 1126)
Commissioner shall review and decide the
appeal within 30 days from receipt of records or
15 days in case of perishable goods.
Customs (“Commissioner”); (Sec. 1127)
Records of the case are elevated within five (5)
days from the promulgation of the decision of the
Collector; (Sec. 1127)
The Commissioner decides within 30 days or
within 10 days in the case of perishable goods,
from receipt of the records; (Sec. 1127)

If the Commissioner does not decide within 30

days, the decision of the Collector is deemed
affirmed; (Sec. 1126)

Claimant appeals to the Commissioner and the Commissioner decides:

Commissioner decides:
 Commissioner rules in favor of the
Claimant AND the imported goods have
a FOB or FCA value of P10M – Automatic
review by the Secretary; (Sec. 1127)
 Commissioner decides in favor of the
Government – Claimant must file a Petition
for Review within 30 days from receipt of the
Decision of the Commissioner with the Court
of Tax Appeals (“CTA”) Division; (Sec. 1104)

 Commissioner rules in favor of the  Commissioner rules in favor of the Claimant

 Claimant AND the imported goods have AND the imported goods have a FOB or FCA
a FOB or FCA value of less than P10M– value of P10M or more– Automatic review by
Decision of the Commissioner becomes final the Secretary; (Sec. 1127)
and executory; (impliedly – Sec. 1127)
 Commissioner rules in favor of the Claimant
 Commissioner decides in favor of the AND the imported goods have a FOB or FCA
Government - Claimant must file a Petition value of less than P10M– Decision of the
for Review within 30 days from receipt of the Commissioner becomes Final and Executory
Decision of the Commissioner with the CTA and is not subject to further appeal;
Division; (impliedly – Sec. 1127)
 Commissioner does not rule within 30 days
from receipt of the records of the case or 10
days in case of perishable goods – Automatic
review by the Secretary; (Sec. 1127)

Decision on the Automatic review by the In cases where the Secretary decides within 30
Secretary, See procedure → days or within 10 days in case of perishable
goods from receipt of the records:

Secretary rules in favor of the Government -

Claimant must file a Petition for Review within 30
days from receipt of the Decision of the Secretary
with the CTA Division. (Sec. 1104)
Secretary rules in favor of the Claimant –
decision becomes Final and Executory and is not
subject to further appeal. (Sec. 1127)

26. Palacio Shipping, Inc. (“Palacio”) is the owner of the M/V Don Martin, a vessel of
Philippine registry engaged in coastwise trade. The M/V Don Martin docked at the
port of Cagayan de Oro City with its cargo of 6,500 sacks of rice.The 6,500 sacks of
rice was purchased in Sablayan, Occidental Mindoro. The District Collector of Customs
concluded that in the absence of a showing of lawful entry into the country, the 6,500
sacks of rice were of foreign origin and thus subject to seizure and forfeiture.

Was the seizure and forfeiture of the rice cargo and its carrying vessel correct?

No, to warrant forfeiture, Section 2530(a) and (f) of the TCCP (now Sec. 1113 of the CMTA)
requires that the importation must have been unlawful or prohibited. To warrant the forfeiture of
the 6,500 sacks of rice and the carrying vessel, there must be a prior showing of probable cause
that the rice cargo was smuggled. Once probable cause has been shown, the burden of proof is
shifted to the claimant. The government should establish probable cause prior to forfeiture by
proving: (1) that the importation or exportation of the 6,500 sacks of rice was effected or
attempted contrary to law, or that the shipment of the 6,500 sacks of rice constituted prohibited
importation or exportation; and (2) that the vessel was used unlawfully in the importation or
exportation of the rice, or in conveying or transporting the rice, if considered as contraband or
smuggled articles in commercial quantities, into or from any Philippine port or place.

The Supreme Court, after a review of the records held that no probable cause existed to justify
the forfeiture of the rice cargo and the vessel. The court ruled that the rice cargo was purchased
locally and that the carrying vessel was licensed only for coastwise trade. In the absence of any
showing by the government that the vessel was licensed to engage in trade with foreign
countries and was not limited to coastwise trade, the inference that the shipment of the 6,500
sacks of rice was transported only between Philippine ports and not imported from a foreign
 country became fully warranted. With the petitioners having convincingly established that the
6,500 sacks of rice were of local origin, the shipment need not be accompanied by import
documents. (M/V Don Martin VOY 047 and its cargoes, Palacio Shipping vs. The
Secretary of Finance, GR No. 160206 dated July 15, 2015 J. Bersamin)
27. What is the nature of a tax protest case under the TCCP, now completion of an
assessment in relation to Sec. 426 of the CMTA?

A tax protest case, under the TCCP, involves a protest of the liquidation of import entries. A
liquidation is the final computation and ascertainment by the collector of the duties on imported
merchandise, based on official reports as to the quantity, character, and value thereof, and the
collector’s own finding as to the applicable rate of duty; it is akin to an assessment of internal
revenue taxes under the National Internal Revenue Code where the tax liability of the taxpayer is
definitely determined. (Pilipinas Shell Petroleum Corporation vs. Commissioner of Customs, G.R.
No. 176380 dated June 18, 2009)

28. What are the procedures involving protest cases under the CMTA?

1. The Collector or customs officer issues a ruling or decision involving goods with valuation,
rules of origin, and other customs issues is made.

2. File a Protest with the Commissioner within 15 days from payment or receipt of ruling or
decision. (Secs. 1106, 1107, 1126 and 114)

3. In relation to the need for payment under protest, Sec. 1106 of the CMTA provides that:
“Subject to the approval of the Secretary of Finance, the Commissioner shall provide such
rules and regulations as to the requirement for payment or nonpayment of the disputed
amount and in case of nonpayment, the release of the importation under protest upon
posting of sufficient security.”

4. The Commissioner a renders decision within 30 days of the protest hearing. (Sec. 1110)

5. If the ruling is favorable to the government, importer/owner appeals to the Court of Tax
Appeals Division within 30 days from receipt of notice of decision. (RA 9282)

6. If the ruling is favorable to the importer/owner (protest is sustained), the appropriate order
for reassessment shall be issued. (Sec. 1110)

29. What is the judicial procedure with respect to customs cases?

1. Appeal to the Court of Tax Appeals Division within 30 days from receipt of the decision
via Petition for Review under Rule 42 in the following cases:

a) Decisions of the Commissioner of Customs in cases involving liability for

customs duties, fees or other money charges, seizure, detention or release of
property affected, fines, forfeitures of other penalties in relation thereto, or other
matters arising under the Customs Law or other laws administered by the Bureau of
Customs;

b) Decisions of the Secretary of Finance on customs cases elevated to him

automatically for review from decisions of the Commissioner of Customs
adverse to the Government under Section 2315 of the Tariff and Customs Code
(now Sec. 1104 of the CMTA by analogy in relation to Secs. 1127 and 1128) ; and

c) Decisions of the Secretary of Trade and Industry, in the case of non-agricultural

product, commodity or article, and the Secretary of Agriculture, in the case of
 agricultural product, commodity or article, involving dumping and countervailing
duties under Section 301 and 302, respectively, of the Tariff and Customs
Code (now Secs. 711 and 713 of the CMTA), and safeguard measures
under Republic Act No. 8800 (now Sec. 712 of the CMTA), where either party
may appeal the decision to impose or not to impose said duties;

2. Party aggrieved by the decision of the Court of Tax Appeals Division should file a motion for
reconsideration or new trial (mandatory) with the Court of Tax Appeals Division within 15
days from receipt of the decision.

3. From a denial of the motion for reconsideration or new trial, the Party aggrieved may appeal
to the Court of Tax Appeals En Banc via Petition for review under Rule 43 within 15 days
from receipt of the said denial.

4. Party aggrieved by the decision of the Court of Tax Appeals En Banc may file a motion for
reconsideration or new trial (optional) within 15 days from receipt of the said decision.

5. Party aggrieved by the decision of the Court of Tax Appeals En Banc or denial of the motion
for reconsideration or new trial may file an appeal with the Supreme Court via Petition for
Review on Certiorari under Rule 45 within 15 days from receipt of said decision or denial.

30. What is the rationale for providing an automatic review involving the decision made
by the Collector which is adverse to the Government?

It is intended to protect the interest of the Government in the collection of taxes and customs
duties in those seizure and protest cases which, without the automatic review provided therein,
neither the Commissioner of Customs nor the Secretary of Finance would probably ever know
about. Without the automatic review by the Commissioner of Customs and the Secretary of
Finance, a collector in any of our country's far-flung ports, would have absolute and unbridled
discretion to determine whether goods seized by him are locally produced, hence, not dutiable or
of foreign origin, and therefore subject to payment of customs duties and taxes. His decision,
unless appealed by the aggrieved party (the owner of the goods), would become final with 'the
no one the wiser except himself and the owner of the goods. The owner of the goods cannot be
expected to appeal the collector's decision when it is favorable to him. A decision that is
favorable to the taxpayer would correspondingly be unfavorable to the Government, but who will
appeal the collector's decision in that case certainly not the collector.

Evidently, it was to cure this anomalous situation (which may have already defrauded our
government of huge amounts of uncollected taxes), that the provision for automatic review by
the Commissioner of Customs and the Secretary of Finance of unappealed seizure and protest
cases was conceived to protect the government against corrupt and conniving customs collectors.
(Yaokasin vs. Commissioner of Customs, GR No. 84111 dated December 22, 1989)

31. What are the kinds of abandonment?

a) Express abandonment – There is an express abandonment when the owner, importer or

consignee signifies with the Collector of Customs in writing his intention to abandon his
importation in favor of the government; and

b) Implied abandonment – There is an implied abandonment when:

i. The importer, owner, consignee or interested party after due notice, fails to file a
goods declaration for the importation within a period of fifteen (15) days from the date of
the discharge of the last package from the vessel or aircraft. The period to file the goods
declaration may, upon request, be extended on valid grounds for another fifteen (15)
days;
 ii. Having filed an entry for shipment, an interested party fails to pay the assessed
duties, taxes and other charges thereon, or if the regulated goods failed to comply with
Section 117 of the CMTA, within fifteen (15) days from the date of final assessment:
Provided, That if such regulated goods are subject of an alert order and the assessed
duties, taxes and other charges thereof are not paid within fifteen (15) days from
notification by the Bureau of Customs of the resolution of the alert order, the same shall
also be deemed abandoned claim his importation within a non-extendible period of fifteen
(15) days from the date of posting of the notice to claim such importation;

iii. Having paid the assessed duties, taxes and other charges, the owner, importer or
consignee or interested party after due notice, fails to claim the goods within thirty (30)
days from payment; and,

iv. When the owner or importer fails to claim goods in customs bonded warehouses
within the prescribed period. (Sec. 1129 of the CMTA)

32. What is procedure for claiming refund under the CMTA?

a) File a written claim for refund with the Bureau of Customs within twelve (12) months from
the date of payment of duties and taxes;

b) The importer may file an appeal of a denial of a claim for refund or abatement, whether it is
a full or partial denial, with the Commissioner within thirty (30) days from the date of the receipt
of the denial;

c) The Commissioner shall render a decision within thirty (30) days from the receipt of all the
necessary documents supporting the application;

d) Within thirty (30) days from receipt of the decision of the Commissioner, the case may also
be appealed to the CTA Division; and,
e) Same procedure under No. 53 above. (Sec. 913 of the CMTA)

33. Does the Bureau of Customs have jurisdiction over seizure cases within the Subic
Freeport?

Yes, under RA 7227, its implementing rules and CAO 4-93 (Rules and Regulations for Customs
Operations in the Subic Special Economic and Freeport Zone), both the SBMA and the Bureau of
Customs have the power to seize and forfeit goods or articles entering the Subic Bay Freeport,
except that SBMA’s authority to seize and forfeit goods or articles entering the Subic Bay Freeport
has been limited only to cases involving violations of RA No. 7227 or its IRR. There is no question
therefore, that the authority of the Bureau of Customs is larger in scope because it covers cases
concerning violations of the customs laws.

The authority of the Bureau of Customs to seize and forfeit goods and articles entering the Subic
Bay Freeport does not contravene the nature of the Subic Bay Freeport as a separate customs
authority. Indeed, the investors can generally and freely engage in any kind of business as well
as import into and export out goods with minimum interference from the Government. (Agriex
Co., Ltd., vs. Villanueva, GR No. 158150 dated September 10, 2014 J. Bersamin)

PART V. JUDICIAL REMEDIES (R.A 1125, as amended, and the Revised Rules of the Court of
Tax Appeals)

1. What are the cases that may be directly filed with the CTA En Banc?
a. Decisions of the Central Board of Assessment Appeals (CBAA) in real property tax cases;
 b. Decisions of the Regional Trial Courts in local tax cases in the exercise of their appellate
jurisdiction;
c. Decisions of the Regional Trial Courts in tax collection cases in the exercise of their appellate
jurisdiction;
d. Decisions, resolutions or orders of the Regional Trial Courts in the exercise of their appellate
jurisdiction over criminal offenses.

2. Will an appeal to the CTA suspend the collection of internal revenue taxes?

As a rule, an appeal to the CTA from the decision of the CIR will not suspend the payment, levy,
distraint, and/or sale of any property of the taxpayer for the satisfaction of his tax liability as
provided by existing law.

By way of exception however, when, in the view of the CTA, the collection may jeopardize the
interest of the Government and/or the taxpayer, it may suspend the said collection and require
the taxpayer either to deposit the amount claimed or to file a surety bond.

3. May the CTA suspend the collection of internal revenue taxes and, at the same time,
dispensed with the bond requirement?

Yes. The requirement of the bond as a condition precedent to the issuance of a writ of injunction
applies only in cases where the collection was made in consonance with the law, and not when
said collection are obviously in violation of the law to the extreme that they have to be
suspended for jeopardizing the interests of the taxpayer. Whenever it is determined by the courts
that the method employed by the CIR in the collection of tax is not sanctioned by law, the bond
requirement under Section 11 of R.A. No. 1125 should be dispensed with. (Sps. Pacquiao v. Court
of Tax Appeals, G.R. No. 213394 April 6, 2016)