2017 Beda Taxation Law Pre Week Clearer

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TAXAT ION I.AW

TAXATION
GENERAL PRINCIPLES
Scope and Limitations of Taxation
1. Differentiate the tax exemption of non-stock, non-profit educational institutions from that of
propriety educational Institutions.
The privilege granted to non -stock, non-profit educational institutions is conditioned only on the actual,
direct and exclusive use of their revenues and assets for educational purposes. In clear contrast,
proprietary educational institutions, including those cooperatively owned, may likewise be entitled to such
exemptions subject to the limitations provided by law including restri ctions on dividends and provisions for
reinvestment (CONST, Art. XN, Sec. 4(3)). · ·
2.
3. ABC is the owner and operator of the only canteen in DEF College, where the latter charges the
former P100,000.00 monthly rental fee. The income derived from said .agreement is used by the
latter In Its school operations, including but not limited to staff and faculty development,
scholarships, and purchase of library equipment. However, the BIR assessed DEF College for
deficiency income tax from its rental income in 2009. The ·school protested on the ground that
'under the Constitution, all revenues and assets of non-stock, non-profit educational institutions
used actually, directly, and exclusively for educational purposes shall be exempt from taxes and
duties. Is the school's contention correct?
Yes. To come w ithin the ambit of constitutional exemption, the income must be used actually, directly , and
exclusively for educational purposes by an educational institution which is non-stock and non-profit
although a concessionaire operates the ca nteen . Where the same income from cafeteria concession fees
is commingled with the other funds that make up the school's "other educational income" and the income
is made available for school operations (e.g., salaries, utilities, scholarship, etc.), the lease income is
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20 17 C ENTRALIZED BAR O PERATI ONS 1
TAXATION LAW
exempt from income tax (Commissioner of Internal Revenue v. Ateneo de Manila University, Inc., CTA
Case Nos. 7246 & 7293, March 11, 2010).
4. 'NPC is of the insistence that it is not subject to the payment of franchises taxes imposed by the
Province of lsabela because all of its shares are owned by the Republic of the Philippines. It is
thus, an instrumentality of the National Government which is exempt from local taxation. As such
it is not a private corporation engaged in "business enjoying franchise". Is such conte{ltion
meritorious?
No. The Local Government Code has withdrawn all tax exemptions previously· enjoyed by all pe.rsons and
authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding
the granf of tax exemption to them. Thus, a local gove rnment unit has the authority to impose and collect
a local franchise tax (Philippine Long Distance Telephone Company Inc., v. City of Davao, et al. G.R. No.
143867, August 22, 200 1). ·
Kinds of Taxes
5. ·
6.
7. NOC, a domestic and resident corp~fa n. eate~ into a contract with several Japanese
shipbuilding companies for the constty,etfo n ofves ~s· The purchase price was to come from the
proceeds of bonds issued by the Central Bank. The ti.JDC remitttad to the shipbuilding companies
the total interest on the balance of the purchase price. However', no tax was withheld by NOC.
Hence, the CIR held the NOC liable on such tax. NOC argues that the Japanese shipbuilders were
not liable to tax on the interest remitted to them because all the related activities - the signing of
the contract, the construction of the vessels, the payment of the stipulated price, and their
delivery to the NOC - were done in Tokyo. Is NDC's contention tenable? .
No. 1he Government's right to levy and collect income tax on interest received by foreign corporations not
engaged in trade or business within the Philippines is not planted upon the condition that 'the activity or
labor - and the sale from which the (interest) income flowed had its ·situs' in the Philippines: The
residence of the obligor who pays ·the interest rather than the physical location of the securities, bonds, or
notes or the . place of payment, is the determining factor of the source of interest income. The interest
remitted on the unpaid balance of the purchase price of the vessels is interest derived from sources within
the Philippines (National Development Corporation v. Commissioner of Internal Revenue, G.R. No. L-
53961, June 30, 1987) .
SAN BEDA COLLEGE OF LAW

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TAXATION LAW
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8. The Municipal Board of the City of Manila enacted a n Ordinance imposing business taxes on
manufacturers, importers or 'producers, doing business in t he City of Manila. The Mayor approved
the said Ordinance. Allied Thread Co., Inc. claims exclusion from said Ordinance on the ground
that it does not maintain an offi ce or bra nch office in the City of Manila, where the subject
Ordinance only applies ~ However, it admits that it does business in t he ·c ity of Manila t hrough a
broker or agent, Ker & Company, Ltd. doing business in the City of Manila. Is Allied Thread Co.,
Inc. exempt from the coverage of the·e nacted Ordinance?
No. The power to levy an excise upon the performance of an act or the engaging in an occupation does
·not depend upon t he domicile of the person subject to the excise nor upon the physical location of the
property a nd in connection with the act or occupation taxed, but depends upon the place in which the act
is performed or occupation engaged in. T hus, the gauge for taxability under said Ordinance does not
depe nd on the location of the> office, but attaches upon the place where t he respective sale transaction(s)
is perfected and consummated. Since A llied Thread sells its products in the City of Manila t hro ugh its
bro ker, Ker & Company, Ltd., it c;:innot escape th e tax liability imposed by t he Ordinance (Allied Thread
Co., Inc. v. City Mayor of Manila, G.R. No. L-40296, November 21, 1984). ·
.11. RA 9504 was approved and signed into law. It granted MWEs exempti on from payment of income
tax on their minimum wage, holiday pay, overtime pay, night shift differential pay and hazard pay.
BIR ·issued revenue regulation to implement RA 9504. It provided that MWEs receiving other
income, such as income f rom the conduct of trade, business, or practice of profession, except
income subject to final tax, in addition to compensation income are not exempted from ·income tax
Qn their entire income earned during t he taxable year. This rule, notwithstanding, the SMW,
holiday pay, overtime pay, night shift differential pay and hazard pay shall still be exempt from
withholding tax. Mr. X assails such provision of the RR and argues that the prorated application of
the personal and additional . exemptions under. RR is not "the legislative intendment in this
jurisdiction". Is the contention correct? .
Yes. RA 9504 must be liberally construed. W e are mindful of the strict construction rule w hen it comes to
tile interpretation of tax exemption laws. The canon, however, is tempered by several exceptions, one of
which is when the taxpayer falls within the purview of the exemption by clear legislat ive inte nt. In this
situatio n, the rul e of liberal interpretation applies in .favor of the grantee and against the government.
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201 7 C ENTRALIZED BAR O PERATIONS 3
TAXATION ·LAW
There is a clear legislative intent to exempt the minimum wage received by an MWE who earns additional
income on top of the minimum wage. As previously discussed, this intent can be seen from both the law
and the deliberations. Accordingly, we see no reason why we should not liberally interpret R.A .. 9504 in
favor of the taxpayers (Soriano v. Secretary of Finance, G.R. No. 184450, January 24, 2017).
Doctrines in Taxation
Double Taxation
Compensation and Set-Off
14. TPC, a VAT entity engaged in the business of power generation and sale of electricity, filed a claim j
for the refund of its unutllized input VAT under Section 112 of the NIRC. The CTA rendered a
decision partially granting TPC's claim. On its Petition for Review with the SC, TPC claims that it is
entitled to the full amount of tax refund or credit. On the other hand, the CIR contends that TPC's
claim for refuncl should fail since it is still liable for deficiency VAT for its sales of electricity to
some companies which were denied VAT zero-rating. Can the tax refund claimed by TPC be offset
with its liability for deficiency VAT?

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No. While as a rule, taxes cannot be subject' to compensation because the government and the taxpayer
are not creditors and debtors of each other, the Court have allowed the offsetting of taxes where the
determination of the taxpayer's liability is intertwined with the resolution of the claim for tax refund of
erroneously or illegally collected taxes under Sec. 229 of the NIRC. Here, TPC filed a claim for tax refund
or credit under Section 112 of the NIRC, where the issue to be resolved is whether TPC is entitled to a
refund or credit. And since it is not a claim for refund under Section 229 of the NIRC, the correctness of
TPC s VAT returns is not an issue. Thus, offsetting of taxes cannot be allowed in the instant case
(Commissioner of Internal Revenue v. Toledo Power Company, G.R. No. 196415; December 2, 2015).
Note: Sec: 112 of the Tax Code which refers to refund of input tax attributable to zero rated sales is not
considered refund of an erroneous tax since refund of the same is a matter of right. Refund of erroneously
paid taxes falls under Sec. 204 and Sec. 229 of the NIRC.

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Note: What constitutes as an impairment of obligations of contracts is the revocation of ari ·. exemption,
which is founded on a valuable consideration; because it takes the form and essence of a contract (Manila
Railroad·Company v. Insular Collector of Customs, 12 PHIL 146, 1915). ·
Non-retroactive Application of Tax Laws
18. X Corporation relied on the. implementing general circular issued by ttJe CIR in withholding ·30% of
one-half of the rentals it paid for use of films. After 3 years of relying on said circular,. the CIR
revoked the same for being "erroneous for lack of legal basis" by Issuing a new circular which
based the tax prescribed on the gross Income instead of on half of the Income. X was Issued an
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assessment for the deficiency. Ali> coum~el for X, what legal action would you take? · · .
I would contest the validity of retroactive application of the new circular. The Tax Code provides that any
revocation, modification or reversal of any of the rule and regulations or any rulings or circulars
promulgated by the CIR shall not be given retroactive application if it will be .prejudicial to the taxpayers. In
the Interest of justice and fair play, rulings a11d circulars promulgated by the CIR have no retroactive I
application where to so apply thell_lJ'Jo~"'f.a~ ~P.S~Judisial o taxpayers, who relied in good faith and
religiously complied with no lesS"tnaru:S cltjQla} l~~@d· b¥ i#. ig mst.official of the BIR and approved by
~h;8 ~~creta~ce (AB, C!W=®~7~o:,: " ~· 1 CTA -G.R.~~~6, October 12,

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19. X . Corporation isl " eCi<W's.~.u;aD · Glies O .a
policy holders. Th:~I impos!!J~')l,s!i!jp.W!Wi~r.F~ntage tax~on the sai
f.Jts . talitle ~ng money to its
.vitY because the former
believes "X" Is alsN ~!'\ding ·nvesto ~~s the t~1t~lcfal correct?
No. When a compahv S'ja~d Ol'.J its Tr.in busi ~ss, i( is no longe tax ~e fgl'ther for engaging in an
activity or work whic · 1 !f.l~rely ~ P~ftxQ!do.o~·ant to ~md is rrecessaw tot i taj;l business. To require X
to pay additional per~e~~gp ta~~np1 fix<l!d ta agcw Jor;an eqtiwi!Y whJch ~ - ~...lil~eessarily a part of the same
business, the CIR m~"~~ve tfuaf;Jher.~ is lai&~xJ~ress:lY: te(iuirlrig X s ' ~dditional payment of tax
because uni.a ss a stat'il~poses a tax . !early, e.kp.1:-e$sfy fllltj unamlbiguOt.,L!i !y~~hat applies is the equally
well-settled rule that{ ©~t-tion '?/. a ta~ cannot"~ pres.u rned (CIR v. ~pine American Accident
Insurance Company, 1 , <ilf al., co:;-R. NQ:""/4_1fm8,· Maro1:i..f.8 20013) . ~ . .
Note:. A statute will . o ~con~fr4ea ·i~po~~~~ t4llJ~less itt'd~bS7so

as
unambiguously. As a ®n~'='~uence ln..qas~~owo , ""e ~fa ,ute. to~
clearly, expressly and
· cb sJrued most strongly against
the governm.e nt and in~
115349, Aprtl 18, 1997).
a\ler f the t~i:>aY.e (.~~ .
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Ata 18 . Manila University, G.R. No.
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20. The Roman Catholic C ~ ~ns a ~-he~tar lot in a town "1_· aFl~ c- rovince. The southern side
and middle part are occu.pie !>~he ch~h a . d ~nven}l t hi a ern side by the school run by
the church itself. The south~~dti'1\ide by som~ comm,e cja -estab ishments, while the rest of the
property, in particular, the nortii~es n side, is id e o un~pied . May the church claim tax
exemption on the entire land? ....:__ _J,~~~>
No. The portion of the land occupie -aria~ctbYJittl~ l FCA, convent and school n,m by the church are
exei:npt from real property taxes wl;lile th~'R0ffion of tn"0.~f\\d occupied by .c ommercial establishments and
the portion, which is idle, are subject to-'real property tax~s. The "usage" of the property and not the
"ownership" is the determining factor whether or ncit the property. is taxable (Lung Center of the
Philippines v. Quezon City, G.R. No. 144104, June 29; 20~4).
21 . The Mactan-Cebu lnternatlona.1 ls a government owned and controlled corporation which operates
the· Mactan International Airport and Lahug Air Port. Under its charter, RA 6958, It was exempted
from .real property taxes. The City of Cebu however, assessed it for real property tax on the theory
.t hat the tax exemption of the MCIAA was deemed withdrawn by the Local Governm~nt Code.
Should the MCIAA pay the real property tax? . .
Yes. The last paragraph of Section 234 of the LGC unequivocally withdrew, upon its effectivity,
exemptiol")s from payment of real ·property taxes granted to natural · or juridical persons, includiflg
government-owned or controlled corporation, except as provided in the said section . Since .the petitioner
is undoubtedly a government-owned corporation, it necessarily .follows that its, exemption from such tax
granted it in Section 14 of its Charter, RA 6958, has been withdrawn. As a GOCC, it does not enjoy

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automatic exemption from taxation. Thus, w hen the LGC withdrew its tax exemption and requ ired it to pay
. real property tax, it should undoubtedly pay the tax (Manila International Airport Authority v. City of
Paraflaque, G.R. No. 155650, July 20, 2006).
Note: The decision rendered in 1996 by the Supreme Court considering Mactan Cebu International Airport
Authority as GOCC was al ready reversed in 2015 by the Supreme Court in the case of MCIAA vs. Lapu -
Lapu City and just like MIAA, they are not both government instrumentalities exempted from real property
tax under Sec. 234 of RA 7160.
Tax Evasion
22. XYZ entered into an alleged simulated sale of a 16 story commercial building. XYZ authorized A,
its President to sell the building and the two parcels of land on which the building stands. A
purportedly sold the property for P100 Million to B, who, in turn, sold the same property on the
same day to QRS for P200 Million evidenced by Deeds of Absolute Sale notarized on the same day
by the same notary public. For the ~a e of the property, to QRS, B paid capital gains tax in the
amount of P10 Million. The BIR sent ~n ass'4 -sed defi'Pienc ll)_Come tax arising from the sale
xxz
alleging th~..... evaded the, paymen1 6f hlg!!er or o ra e 'incorfl~ tax of 35% with regard to the
resulting ga•h~I~ ,t)le scheme_e ewe_tualed by A~ ease of ewsi0n or tax av0l d..apce?
It is a tax evas·on s'cp eme. The scheme resorted to by XYZ in making it appear th&t ti!e~ were two sales
of the subject p(,,_O~~les, i.e., from X Z ~i. d ~6[6) !J ~ QRS cannot'be \::Q; tdered a legitimate .
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tax planning (on0'\Va~to"l tax,avojdance). Such ~ctlem~s tainted jVith fra1;1d. In this e se, it is obvious that"
the objective of tl1e:Saµ:l to B was..to re£1u ba tlte arno intlof"fax mb'S. p.~1d es~ci~lly hat the transfer from
him to QRS wou l~ e!J) subjec tbe incom_e to only 5'%..iadividual 9apita gatfls tax and not the 35%
corporate income t~~missloner v. Benigno Tbda Jr., GR No. 147j188, S~ 0~. 2004). .
(J Tax nesty
23. Discuss the nature of ~ amne~. ~n 1th1Jolding agents with r~pect,; o their w ithholding tax
liabilities avail of ta'X:"amhesty?j 0
A tax amnesty is a g~~~l}pardbn or tf.,e intenti nal overlookfng by thK: [)8te of its authority to impose
penalties on p~rso.ns'QJ.1ie11Wise duilty of 'ilielation of~ tax law t part~ esk.°.9.n absolute waiver by the
government of 1.ts ngh 0 k 01rect what Is due it an ~~~~ x evadgrs · o to relent a chance to start
with a clean slate. ~ ~J
No. Under RA 9480, th areT pecifioally ex~luct d!fr0fn llJ.e c/~rage gt e tax a mnesty program. The
withholding agent is liable 61y insofar as he 'failed to pW-0 m his d ~i9·~thhold the tax and remit t he
same to the government_...: .~J~bility )~ the tax r1 mains with the t1x~)l,e~l5ecause the gain was realized
and received by him. Sirr1e::.._~(elli ability for the tax belOl)9S to thNax~r and not to the withholding
agent, only the former ma~ v:a ail)of the tax am11Ejsty ( - ~ Eect on) sYPhilippines, Inc., v. CIR, G.R. NO.
165451, December 3, 2014). t c_/' .
. ~axpaver'ij~ut).. ·
24. The City of Ma~ila entered with LBP ill((>": 2) loans a~reements to finan.c e the redevelopment of a
public plaza. However, a group of reSfdents led by c1 invoking their right as a taxpayer, filed a
·complaint against LBP and various officers of the City, assailing the validity of the subject loans
and praying that the commercialization of the public plaza be enjoined. Does C have the right to
Institute a taxpayer's suit?
Yes. A taxpayer is allowed to sue if: (1) public fun ds derived from taxation are disbursed by a political
subdivision or instrumentality and in doing so, a law is violated or some irregularity is committed; and (2)
'the petitioner is directly affected by the alleged act. In this case, t he proceeds from the subject loans had
al ready bee n converted into public funds by the City's receipt thereof. Funds coming f rom private sources
become impressed with the characteristics of public funds when they are under official custody. Since
public plazas are ·of public dominion, C need not be privy to the loans. As long as taxes are _involved,
people have a right to question the contracts entered into by the government (Land Bank of the
Philippines v. Cacayuran, G.R. No. 191667, April 17, 2013) .
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2017 C ENTRALIZED B AR OPERATIONS 7
INCOME TAX
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28. Dr. N p~~~ased a parcel of land in 1997 for. P10,0DO,OOO. Having no productive use for it, he sold it
for P8,QQ2,000 in 2017. The BIR sent him an a~sessment for capital gains tax arising from the sale r
of the .s i!}5'Jproperty, which he contested for the reason that no gain had bee.n ~erived, and there !
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was instead a loss. Is Dr. N correct? .
No. Sec~(D) of the NIRC, the Capital Gains Tax is imposed on the "gains presumed to have been
realized~;~1 his is known as Gain by Legal Fiction and is recognized by our jurisdiction, even though no
gain may actually have been realized. Even though Dr. N indeed incurred a loss from the sale of his real .
property,.i:.u nder the law he is still presumed to have derived some gain from the sa.le thereof. Hence, the
6% ~apit~t~ains Tax is still demandable from him. ·
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Income Tax on Individuals
Non Resident Alien Engaged in Trade or Business
Special Class of Individual Employees
32. A tax assessment was sent to Mr. A, an employee of XYZ Company earning minimum w_ a ge. In
addition, XYZ granted Mr. A an apartment unit, amounting to P90,000, near the premise of the
former for its convenience. The BIR in interpreting RA 9504 (exempting MWE to income tax)
· issued a ruling providing that when a MWE receives income from whatever source other than his
wages· in excess of the 82,000 threshold for other benefits, such person would transcend as a
rank-and-file, thus, subject to compensation income tax. The BIR officer contends that Mr. A is
not exempted to pay income tax since he falls squarely on the said BIR ruling.
a . Is the BIR ruling valid?
b. Is Mr. A liable to pay income tax?
c. Assuming that in the middle of 2015, Mr. A was granted increase in wages higher than the
minimum wage. Is he still exempt from payment of income tax for the taxable year 2015?
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201 7 C ENTRALIZED BAR OPERATIONS 9
TAXATION :L AW
a. No. In Soriano v. Sec. of Finance (2017) , the Court ruled that the proper interpretation of RA 9504 is
that it imposes taxes only on the taxable income received in excess of the minimum wage, but MW Es will
not lose their exemption as such. They remain MWEs-. entitled to exemption as such, but the taxable
income they receive other than as MWEs may be subjected to appropriate taxes. In this case, there is a
clear legislative intent to exempt MWE who earns additional income on top of the minimum wage. Liberal
interpretation applies in favor of the grantee and against the government. (Soriano v. Sec. of Finance,
G.R. No.184450, January 24, 2017)
b. No. If the benefits furn ished by the employer are for its convenience, or is ne·cessary for its trade or
·business, these benefits are not income on the part of the employee. The lodging, being a supplement,
provided by XYZ to Mr. A inures for the convenience of XYZ. The 90k worth of lodging does not form part
of income of Mr. A. Thus, Mr. A is exempted.to pay income tax since he is a Minimum Wage Earner.
Note: Corporations that were registered in 1994 and earlier years are covered by MCIT beginning
Jan .1, 1998; Corporations which were registered with the BIR in 1998 and the succeeding years will be
covered by the MCIT after the lapse of 3 calendar years (i.e. 2002). ·
35. ABC, Inc., a domestic corporation, reported net loss in its 2010 income tax return. It paid MCIT
amoun'ting to P100,000. ABC, Inc. reported ·a net loss in its 2011 income tax return. The MCIT for
2011 amounted to P150,000. May ABC, Inc. deduct the amount paid as MCIT for 2010 so that it
would only pay PS0,000 for 2011?
No. Under Sec. 27(E)(2) of the Tax Code, any excess of the minimum corporate income tax over the
normal income tax shall be carried forward and credited against the normal income tax. Thus, the excess
MCIT carried from the previous taxable year cannot be credited against the current taxable year's income
tax if the corporation is only liable for MCIT.
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TAXATION,LAW
. Special Non Resident Foreign Corporation
36. Z Fiims Denmark, a corporation based In the Denmark, leased its film Bjorn Legacy to SC
Corporation· In the Philippines for showing. The BIR sought to collect the 25% tax imposed by the
NIRC but Z Fiims sought to reduce its tax liability by invoking the deductions in the NIRC. May Z
Fiims. claim deductions?
No. The NIRC provides for special rates for Special Non-Resident Foreign Corporations such as Z Films.
In its case as a Cinematographic Lessor, Sec. 28(8)(2) of the NIRC provides a tax of 25% of its gross
income from all sources within the Philippines. Given that the tax is imposed on the corporation's Gross
Income, Z Films cannot claim deduction since gross income taxation deals with the whole income of the
tax payer without·considering the deductions. Thus, the 25% is to be imposed on the total gains of Z Films
from Philippine Sources.
Charitable Institution
39. Air Canada is a foreign corporation and an offline international air carrier engaged in selling airline
tickets in the Phil. through Aerotel Ltd., Corp. as its general sales agent. On the assessment made
by the BIR, Air Canada claims that the regular corporate income tax does not apply to
"international carriers" because the income it derived from the sale of airline tickets was income
from services and not income from sales of personal property. Is Air Canada subject to income
tax?
Yes. An offline international air carrier (IAC) selling passage tickets in the Philippines through a local
. general sales agent is considered a resident foreign corporation.
A resident foreign corporation refers to a foreign corporation engaged in trade or business in the
Philippines. Applying the doctrine in Commissioner of Internal Revenue v. British Overseas Airways
Corporation, an international air carrier with no landing rights in the Philippines is a resident foreign
corporation if its local sales agent sells ("agent") and issues tickets in its behalf. In the IRR of Republic Act

2017 CENTRALIZED BAR OPERATIONS 11
No. 7042, doing business includes appointing representatives or distributors, operating under full control
of the foreign c1::>rporation. (Air Canada vs. Commissioner of Internal Revenue G.R. No. 169507; January
1 !· 2016)
Note: If the IAC maintains flights to and from the Philippines, it shall be taxed at 2 Yz of Gross Phil.
Billings, while IAC that do not have flights to and from the Philippines but earns income from other
activities in the Philippines will be taxed at the rate of 30%.
Tax on Joint Venture
42. JM ~ndustries Inc., a car manufa ~·,e~e a~ . an~ a factory building owned by LF Realty
Inc. JM Industries claimed its rental ayments to ealty as deductible expenses in its 2012
income tax return. T.he BIR disallowe the rental pay nts as d.eductible expenses and assessed
JM Industries for deficiency Income tax on the ground of failure jo withhold the required amount
from the lessor. JM Industries made a request for reconsideration. Pending Its request for r
reconsideration, JM Industries paid BIR the amount of withholding t._x corresponding to the rental
payments. May JM Industries claim the rentals as -deductible expense? _ I
No. Any amount paid or payable which is otherwise ";deductible from, or taken into account in computing
gross income shall be allowed as deduction only if it is shown that the tax required ·to be deducted and f
withheld therefrom has been paid to the BIR (N/RC, Sec. 34(K)). No deduction will .be allowed
notwithstanding payments of withholding tax at the time of the audit · investigation or
reinvestigation/reconsideration. Since no withholding of tax was made, JM Industries cannot claim the I!
rentals as deductible expense (R.R. No. 12-201~, Sec. 2, RMC No. 63-2013). ·

43. J Corporation filed its income tax return wherein it claimed as advertising expense the amount of
P10 Million, 50% of which was used for the protection of J 's brand franchise for its juice product.
The Commissioner disallowed said 50% and assessed the corporation for deficiency income
taxes. The Commissioner mainta ins that the subject advertising expense was not ordinary and
thus, not deductible. Decide. .
The Commissioner was correct. To be deductible, a n advertising expense should not onl y be necessary
but also ordinary. The deductibl e expense must meet two conditions: first, reasonableness of the amount
incurred and second , the amount incurred must not be a capital outlay to create "goodwill" for the product
and/or business. Otherwise, the expense n:iust be considered a capital expenditure to be spread out over
a reasonable time. The subject expense for the advertisement of a single product is inordinately large and
is a capital expenditure since it was intended for the maintenance of its goodwill. Thus, it cannot be'
considered an ordinary expeflse deductible .under the Tax Code. (CIR v. General Foods Inc., G.R. No.
143672 April 24, 2003).
'api al Loss Carry-Over (NELCO).
45. Mr. D, a businessman aJld "g octo witp his own er ic, eifiifl aggregate capital loss of
P400,000 for the taxable ea 0'1A. In 2 :17, he sough o d aid loss from his entire gross
income of P1 ,200,000. Can e cf. t~ i ame?
No. Sec. 39(C) of the NIRC ~~;J fh)osses from s~1e
.
only to the extent of the gains ~ · ~s O[ exchaf>ll~""""'~ eeping with the Principle of Matching
Costs Against Revenues, capital losses ca..r,i--oJJIY be"'QeCluGte · from capital gains. Given that rule, Mr. D
cannot apply the Net Capital Loss Carry~et"'as los'Se~is business gains.
46. MLB Corporation owns 100% of JKB Corporation. JKB Corporation owns 100% of DOB
Corporation. DOB Corporation has NOLCO. DOB Corporation is merged into JKB Corporation. Will
the NOLco ·of DOB Corporation be transferred to JKB Corporation?
Yes. NOLCO shall be allowed only if there has been no substantial · change in the ownership of the
f
.I
business in that not less than seventy-five percent (75%) of the paid-up capital of t he corporatio n is held
by or on behalf of the same persons. The term "By or on behalf of the Same Persons shall refer to the
maintenance of ownership despite change as when no actual change in ownership is involved as in the
case of merger of the subsidiary into the parent company. -Prior to the merger, JKB Corporation already
indirectly owned DDB Corporation, i.e., DOB Corporation's shares were held by JKB Corporation "on
behalf' of MLB Corporation . After the merger, JKB Corporation already directly owns DDB Corporation ,
the absorbed corporation , which continues to exist in JKB Corporation: Hence, the NOLCQ of DOB
· Corporation should be retained and transferred to JKB Corporation (R.R. No. 14-2001).
SAN B EDA COLLEGE OF L AW

2017 CENTRALIZED B AR OPERATIONS 13
Exclusions from Gross Income
47. X took out.a life Insurance policy on his own life In the amount of P2 Million. He desig'n ated his
wife, Y, as irrevocable beneficiary to P1 Million and his son, Z, to the balance of P1 Million but, in
the latter designation, reserving his right to substitute him for another. X died and his wife and
son went to collect the proceeds of the· life insurance policy. Are the proceeds of the insurance
subject to income tax? - ·
Nci. The law explicitly provides that the proceeds of life insurance policies paid to the hefrs and
beneficiaries upon the death of the insured are excluded from gross income and is 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 .(TAX CODE,
Sec. 32(8)(1)) .
48. L is a known advocate for cultural preservation in the Philippines. Without action on his part, he
·
[
was selected as a recipient of a cash award in recognition of his cultural achievement. Is the cash
award excluded from L's gross Income?
No. The exclusions from gross · · r:
awards ma~ primarily in reco liii ·Qjji' igrt
'civic achieve L's award i 1· r~~°9!~~~~ 11..W&"'!Jl.(l~.i.t!
award shall i -r: ,rt of his taxcibfe-lncome. ·
~inJs1 ~
C Ob.JmE $ i Aa' 1 f is JetA \JV
A.s d~ductibiHty of ordinpry loses
Ordinary losses may be deducted from Only ordinal')' losses may be deducted
certain types of capital gains. from ordinary gains. ·
51 . Cite the rules on capital gains and losses from disposition of property.
Holding period - the percentages of gain or loss to be taken into account shall be the following:
1j00% - if the capital asset has been held·for 12 months or less (short-term assets); and
50% - if the capital asset has been held for more than twelve (12) month_s· (long-term assets).
The holding period applies only to individuals (NIRC, Sec. 39(8)).
I
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SAN B EDA C O LLEGE OF LAW
14 2017 C ENTRALIZE D BAR OPERATIONS
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TAXATION LAW . 1
Non-Deductibility of Net Capital Loss (Loss Limitation Rule) - capital losses are allowed only to the extent
of capital gains. Hence, the net capital loss is not deductible (NIRC, Sec. 39(C)). This is to ensure the
matching of costs against revenues consistent with the. rule that only business expenses are deductible
from gro.ss income. Capital loss is not a business expense.
52. A owns several real properties for rent. Subsequently, he inherited from his mother parcels of land
divided into 29 lots which are subject to lease contracts. In addition to his other real properties
under lease, the rent from inherited lots was the substantial · source of A's income. Three years
after the expiration of the existing lease contracts, he sold the lots to the respective occupants on
installment basis. In his tax return, A treated his income from sale of the 29 lots as capital gains
and paid the corresponding capital gains tax. Is the tax paid by A correct?
No. The income from the sale of the lots should be considered as ordinary income. T he transaction
involves transfer of ordinary asset since the lots sold formed part of A's rental business. Thus, it is not
subject to capital gains tax (Tuason, Jr. v. Lingad, GR. No. L-24248, July 31, 1974).
Taxpayer
a. Citizen (Resident or Non-reside
Section 24 (D)(1), NIRC
b. Resident Alien
Section 24 (D)(1) , NIRC
c. NRAETB or not within the Capital Gains realized from the sale, exchange or other disposition of
Phili ines Section 25 A 3, NIRC real ro e
d. NRANETB within the Capital Gains realized from the sale, exchange or other disposition of
Phili ines Section 25 B , NIRC real ro e
Domestic Corporation Gain presumed to have been realized on the sale, exchange or other
Section 27 (D)(5), NIRC disposition of lands and/or buildings which are not actually used in
the business of a corporation and are treated as capital assets.
The NIRC does not impose the 6% capital gains tax on the gains ·
realized from the s<:ile of machineries and equipment (SMl-Ed
Philippines Technology, Inc. v. CIR, G.R. No.175410, November 12,
201 4).
SAN BEDA C OLLEGE OF LAW

2017 CENTRALIZED B AR OPERATIONS
15
Sale or Disposition of Shares of Stock
56. X Co., a Philippine corporation, sold through the local stock exchange 10,000 PLOT shares that it
bought 2 years ago. It sold the shares for P2 Million and realized a net gain of P200,000. Determine ·
the tax liability of the X Co.
X Co. is liable for stock transaction tax amounting to P10,000 which is 1/2 of 1% or .005 of the gross
selling price or gross value in money (P2 Million) of the shares sold (TAX CODE, Sec. 127(A)).
Note: If shares are not traded through the local stock exchange, 5% of the net capital gains (not over
P100,000) and 10% of the net capital gains (in exces·s of P100,000) shall be imposed.
Filing of Tax Return
2. Creditable Withholding
income tax and therefor--~.J\t'll
profession).
59. G, a domestic corporation, inc s ' ' thqfized p iQ'l..s k. R Company, a foreign company,
solely subscribed all the preferre shjtF o ~ti~oard of Directors of G authorized the
withholdin~x ~puted
redemption of the said preferred sW-ates. R w1 e d and remitted to the BIR the amount
representing 15% Final (FWT) c based on the difference of the
redemption price and aggregate par value of the shares. Claiming exemption from the payment of
the 15% FWT based on the US-RP Tax Treaty, R filed a claim for refund with the BIR. However, the
same was denied. Was the gain derived by R subject to 15% FWT on dividends?
No~ The FWT of 15% is imposed on dividends received from a -domestic corporation by a nonresident
foreign corporation (Sec. 28(8)(5).(b)). The term dividends mean ·any distribution made by a corporation to
its shareholders out of its earnings or profits. The· amounts paid to Rwas not in the nature of a i:ecurring
return of stock, but rather a payment for the redemption of the preferred shares (CIR vs. Goodyear Phil.
Inc, G.R. No. 216130, August 3, 2016).

TAXATION LAW
Sale or Disposition of Shares o f Stock
56. X Co., a Philippine corporation, sold through the local stock exchange 10,000 PLOT shares that it
bought 2 years ago. It sold the shares for P2 Million and realized a net gain of P200,000. Determine ·
the tax liability of the X Co.
X Co. is liable for stock transaction tax amounting to P10,000 which is 1/2 of 1 % or .005 of the gross
selling price or gross value in money (P2 Million) of the shares sold (TAX CODE, Sec. 12 7(A) ).
Note: If shares are not traded through the local stock exchange, 5% of the net capital gains (not over
P100,000) and 10% of the net capital gains (in excess of P1 00,000) s hall be imposed. .,__
Filing of T ax Return
57 . Six foreigners were employed in the US Naval Base in the PH. They refused to file their income tax
returns claiming that they cannot be considered resident aliens required to file income tax returns.
On the other hand, BIR contended tha~even if e-xempt from paying income tax, said aliens were
not excused from filing incom x ret u !Jl • A"}J hey re<\ui r to-file Income tax returns?
Yes. W hat t e....lrr requires is merel¥ phyp Cal or.t)'odil pr~se ce in a given place for a period of time, not
the intention~ · · ke it a perma e pJae&el'-abode. Afl aher:i ao~ pry sent in the f~~ .· pines who is not
a mere trans1 · t..: ~ourner is a resident of the Phili~ nes for purposes of incom~ Whether he is a
transient or not{_S> etermined by his a e.... tl'Q witB~~ 0 he length and Mltlj.~f his stay. A mere
fl oating intention~nd.ef!]1te ~q,..t.[T;\e , Rto ~e~r.Q ~ ai;io!,h_e..i; c9un!IV' -ds11119 t sufffc1en o constitute him as
transient. (Garriso~ C1J.p,, 'f:io"sr L.44511:.tGS) lJlJJy ~11} 1.g90)-A. VV
~ Withholding of Taxes
58 . Discuss the kinds oJY~old/f1.g aJs.

1. Withholding of finaJ::·~f*jn ce~al'\ in ,. e - .klm;I of withl\lold~n~ ta ~
1c is prescribed on certain
income payments ana'i not cre~i~le ai the lnoome tax cfu e of th · Q on oth er income subject
to regular rates of ta~ r tn taxa le ye (e.g. , fl al ta~ of 20% on royaltie . · .
Note: Under the fin al w P'

lding tax S!;'stem the mourn ot income tax ~t~~ by the withholding agent
is constituted as a futl· a 91inal 'f>ayment of the t~~o~e eue trow th~~~_. on the said income. T he
liability for payment otlhe ta"x. rates prl~rily rests ~ t e . ~~srthe Wit ~aing agent. Thus, in ca.s e of
his failure to withhold t . r in case of under-~it di p he deficie-RpY shall be collected from the
payor/ withholding agent:-1' paye~ is not requir atd~J~~ in.come ~ t.tirn for that partic ular income
(RR. No. 2-98, Sec. 2. ~ , ar. (1)) . ~ / . . .
2. Cred itable W ithholding 'ta ithho ding taxe on ord~ary b~slA_e S.:J,P·ome which is still subjected to
income tax and th erefore, i · eductibl s ta ere ·it (~g~perived from the exerc ise of a
profession). ~ __
59. G, a domestic corporation, increased authorized~(']pi~stock.

R Company, a foreign compar:iy,
solely subscribed all the preferre shj!F of~ Tlie Board of Directors of G authorized the
redemption of the said preferred s t\iF s . R w1tb el d and remitted to the BIR the amount
representing 15% Final withholdin9-"'t ax (FWT) ~mputed based on the difference of the
redemption price and aggregate par value of the shares. Claiming exemption from the payment of
the 15% FWT based on the US-RP Tax Treaty, R filed a claim for refund with the BIR. However, the
same was denied. Was the gain derived by .R subject .to 15% FWT on dividends?
No. The FWT of 15% is imposed on dividends received from a domestic corporation by a nonresident
foreign corporation (Sec. 28(8)(5)(b)). T he term dividends mean·any distri bution made by a corporation to
[
its shareholders out of its earnings or profits. The· amounts paid to R was not in the nature of a recurri ng
return of stock, but rather a payment for the redemption of the preferred shares (CIR vs. Goodyear Phil.
Inc, G.R. No. 2 16 130, August 3, 201 6).
SAN B EDA C O L LEGE O F LAw

16 2017 C ENTRALIZED B A R O PERATIONS
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TAXATION LAW'
60. ING Bank· was assessed by the BIR for deficiency withholding tax on compensation for the year
1996 and 1997. ING Bank insists that the bonus accruals in 1996 and 1997 were not yet subject to
withholding tax because these bonuses were actually distributed only in the succeeding years of
their accrual (i.e., in 1997 and 1998) when the amounts were finally determined.
a. Discuss the nature of withholding tax on compensation
b. Is the contention of the Bank correct?
a. Under the creditable withholding tax system, the tax on compensation income is withheld at source.
The tax withheld is intended to equal or at least approximate the tax due of the payee on the said income.
The employer is required to collect the tax by deducting and withholding the amount thereof from the
employee's compensation as when paid, either actually or constructively.
.I
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J:>. Only the ·proceeds of 1M given to the son, Z, shall form part of the Gross Estate of X. Under the Tax
Code, proceeds of life insurance shall form part of the gross estate of the decedent to the extent of the
amount receivable by the beneficiary designated in the policy of the insurance except when it is expressly
stipulated that the designation of the beneficiary is irrevocable. ·As stated in the· problem, . only the
designation of Y is irrevocable while the insured/decedent reserved the right to substitute Z as beneficiary
for another person. Accordingly, the proceeds received by Y shall be excluded while the proceeds
received by Z shall be included in the gross estate of X. (Sec. 85(E), NIRC).

63. Is a donation mortis causa to non-stock, non-profit educational institutions exempt from estate
tax?
No. Although Art. XIV, Section 4(4) of the Constitution provides that all grants, endowments-, don~tions, or
contributions used actually, directly, and exclusively for educational purposes shall be exempt from tax,
the foregoing Constitutional provision is not self-executing as it r~quires legislative enactment providing
certain conditions for exemption . Since Sec. 87 of NIRC does not .include non-stock, non-profit
educational institutions in the list of exempt institutions, donation to them is thus NOT EXEMPJ ,f rom
estate tax.
Note: Sec. 101(a)(3) of the NIRC declared that these donations are EXEMPT from donor's tax:
64. X, single but head of the family, Filipino, and resident of Pasig City, died intestate on November
15, 2009•. He left the following properties and interests ·
u-.a"""'"1·dded in the gross estate of the

l'a.\Ailf.Jl:~if·,es
that the composition in the
sJ~~-eier situated and to the eXtent of the
. .
~9ich
b. The net taxable estate of the Cle F he gross estate of P7 .OM, the following
deductions are allowed: (1) Funeral exp · is the maximum allowed by law, (2) legal
fees amounting to P500K; (3) medical e penses not to exceed P500K incurred one year prior to death
and substantiated with receipts; (4) claims against the estate of P300K; (5) family home equivalent to its
FMV (not to exceed P1 .OM) of P800K and (6) standard deduction of P1 .OM or a total allowable deduction
of P3.3M. The claim against the cousin amounting to P 1OOK although includible in the gross estate
. cannot be claimed as a deduction because the debtor is not yet declared insolvent. Likewise, the inherited
property cannot give rise to a vanishing deduction for want of sufficient factual basis.
66. Mr. Z inherited ·a n apartment situated in California, USA from his father. He died within'S years
from the death of his father. The gross estate of his father included S<;lid apartment. Despite having
shown proof that the estate tax thereon was paid, the BIR disallowed the claim for vanishing
deduction by the estate of Mr. Z. Is the disallowance in accord with the Tax Code? ·
Yes. Under . Section 86 of the NIRC, the vanishing deduction may be- claimed only if the property is _
situated in· the Philippines. Since the apartment in this case is situated in California, USA, the property
cannot be the subject of a vanishing deduction. The disallowance was thus proper. •
18
SAN B EDA COLLEGE OF L AW .l
2017 CENTRALIZED BAR OPERATIONS . !
TAXAT,I ON LAW
Donor's Tax
67. Miguel, a citizen and resident of Mexico, donated US$1,000.00 worth of stocks in Barack Motors
Corporation, a Mexica,n company, to his legitimate ·s on, Miguelita, who is residing in the
Philippines and about to be married to a Filipino girlfriend. Mexico does not impose any transfer
tax of whatever nature on all gratuitous transfers of property.
a. Is Miguel entitled to claim a dowry exclusion? Why or why not?
b. Is Miguel entitled to the rule of reciprocity in order to be exempt from the Philippine donor's
tax? Why or why not? ·
[
a. No. Under Section 101 (A)(1) of the NIRC, dowries or gifts made by a citizen or resident of the
Philippines to the extent of P}0,000 is exempt from donor's tax. Since Miguel is a non-resident alien, he is
not entitled to claim a dowry exclusion.
Note: In case of dowries made by spouses w ho are citizens or residents of the Philippines, each spouse
can claim a separate exemption in case of their child's marriage (BIR Ruling No. 67-0039; Tang Ho v.
Board of Ta x Appeals, G.R. No. L-5949., Nov.ember 19, 1-955)
b. No. As p oviped under Sectjon 104 1f the N.l:~c, ~le

the of recjprocity applies only if the property
transferred bi;;{ A<l>r-resident alien t a n intoogit:>le (:>ersoAa ~tope~ sit ated in the f.t!iii.P'Pines. Here, the
rule will not api)f}be}l?use the donation is not subject to the Philippine donor's tax 1$ 1~he donor is non -
resident alien a~h~/property donates IS a pr ~eiSet 1tuajetl in the Philippi . es.
68. Spouses Jose Pedro- a . Clara r-1:-nrl:).olh "lipinD l itize s e the owners of a
residential house ~c 1·o t in Quezon Cit . A er the recent wedding oft e~ son, Mario, to Maria, the
spouses donated .s1ita;r~al p f operty t~ them. t the time 'Of donation, eJeal property has a fair
market value of P2 mill~n. (B Are J&'e and Clara subjeet to donor's ~x~lf so, how much is the
taxable g ift of eac ~~e a ~d what } atjt-shall be applied to the gift?f'Ej(Q ain. (2008 Bar Question)
Yes, because the Vf;!IL(e~f th~ gift\exc;:eed P10,000 (Sec. 101 [A l NIR' . _ owever, they are each
entitled to a deductio~of~100,006.for i~e -et v~lue of -the giff' (Sec.99( IR'C). Each spouse s hall be
liable for a taxable ii~. H:h P89b,Oo©r each a~ the progr.essive r;:ite f Q-:15:>/o, since the donee is a
relative. ~~ ·
69. A Corporation, in ~competitive bidding, ac'}.iaired "e Class A ~ rl!s of B in C Health Care
Systems and subsequently, applied for an ap~l)~at19 or:~certifi ate~ai thorizing registration/tax
clearance with the Bl to'f cilitate transfer of tne sflaie.l frhereafteJ;, it w.as informed that it needed
to secure a BIR Rulina:·n c91Jnection with sajd ap 1!'.,c_ 2'1!_op dae td pote'fu1al donor's tax liability and
in compliance theret 'A Corporafion requested a l.flng t at th s r yas not subject to donor's
tax since there was no..<:la · ative intent. The SIR ctenled -he rei s t-on ground that the sale was
subject to donor's tax u d1! e"rf. 100-t>f the N C. Did t e BIR lso · ~ ioner rule correctly?
Yes. The price difference OOt"Wefunftle selling price o~ shar~Bj dt eir book value as contained in the
financial statements is subjeCI1'o~d'.gA~~· tax. The+absenc~ pf\ nat1ve4h"tent, if that is the case, does not
exempt the sales of stock tr~~i'l. rO donor's tax r~~ ~100 of the NIRC categorically states
that the amount b~ which the faiNnpke valt1e of the · p~eede_d the val~e o!th~ consi~eration
shall be deemed gift. Therefore, ever11f'th~~o c wal aonat1on, the d1fferenc~ in price 1s considered a
donation by fiction of law (The Philippinetlfmtt'r ican Lffe-.a nd General Insurance Company v. The Secretary
of Finance and the Commissioner of Internal Revenue, GR. No. 210987, November 24, 2014). .
70. A , a Filipino and resident of the Philippines, wants to give his sister a gift of P200,000. He seeks
your advice, for purposes of reducing if not eliminating the donor's tax on the gift, on whether it is
better for him to give all of the P200,000.00 on Christmas 2001 or to give P100,000.00 on Christmas
. 2001 and the other P100,000.00 on January 1, 2002. Please explain your advice.
· I would advise him to split the donation. Giving the P200 ,000 as a one-time donation would mean that it
will be subject to a higher tax bracket under the graduated tax structure' thereby necessitating the
payment of donor's tax. On the other hand, splitting the donation into tWo equal amounts of P100,000
given on two different years will totally relieve the donor from the donor's tax because the first P100,000
donation in the graduated brackets is exempt (Sec. 99, NIRC). While the donor's tax is computed on the
cumulative donations, the aggregation of all donations made by a donor is allowed only over one calendar
year.
SAN B EDA COLLEGE OF LAW

TAXATION LAW
71. A is a candidate in the upcoming Senatorial elections. B, believing in the sincerity and ability of A
to introduce much needed reforms in the country, contributed P500,000.00 in cash to the
campaign chest of A. In addition, B - purchased tarpaulins, t-shirts, · umbrellas, caps and other
campaign materials that he also donated to A for use in his campaign. Is the contribution of cash
and campaign materials subject to donor's tax?·
The answer must be qualified. Section 99(C) of the NIRC explicitly provides that any contribution in cash
or in kind to any candidate, political party or coalition of parties for campaign purposes shall be governed
by the Election Code, as amended . On the other hand, Section 13 of Republic Act No. 7166 specifically
states that any provision of law to the contrary notwithstanding, any contribution in cash or kind to any
candidate or political party or coalition of parties for campaign purposes, duly reported to the Commission
on Elections (COMELEC) shall not be subject to the payment of any gift tax. Thus, if B reported his
campaign contributions of Php 500,000.00 in cash, tarpaulins, t -shirts, umbrellas, caps, and other
campaign materials to the COMELEC, then the BIR cannot impose donor's tax on such contributions.
Conversely, if B failed to report these campaign contributions to the COMELEC, such contributions would
be subject to donor's tax.
I
VALUE ADDED TAX
·r
Persons Liable for Vat
l
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74. X Company is engaged in the maintenance and operation of a geothermal power plant. I
Subsequently, X Company sold a fully-depreciated Nissan patrol car which was previously used in
its operations. The CTA found that X Company was entitled to a refund of its accumulated Input
tax credits but deducted therefrom the output tax from the sale of Nissan patrol car. X Company
asserts that the sale of said car is an isolated transaction, not made in the course of its business,
hence should not be subjected to the 12% VAT. Is the sale of the car subject to VAT? (2014 Bar
Question)
SAN BEDA C O LLEGE OF LAW

20 2017 CENTRALIZED B AR O PERATIONS
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Yes. Under Section 105, the phrase "in th e course of trade or business" means the regular conduct or .
pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-stock, nonprofit private organization
(irrespective of the disposition of its net income and whether or not it sells exclusively to members or their
guests), or government entity. Here, the Nissan patrol car was used qS part. of X Company's property,
plant and equipment. Hence, its sale is considered as an incidental transaction which is subject to VAT
(Mindanao II Geothermal Partnership vs. CIR, G.R. No. 193301, March 11, 2013).
Imposition of Vat
On importation of goods
78. DBP Inc. is a tax-exempt entity which imported high-end computers and office equipment into the
Philippines. After 1 year of use, DBP Inc. sold some of the said computers to APA Institute of
Technologies, a non-exempt entity. Who shall be liable to pay for the VAT? Who shall be entitled
to claim the creditable input tax?
APA would be liable for the VAT. Section 107(8) states that in case of tax-free importatio n of goods into
the Philippines by persons, entities o r agencies exempt from tax where such goods are subsequently
sold , transferred or exchanged in the Philippines to non-exempt persons or entities , the latter shall be

• 20 l 7 r.1:"""'D" .. - -- ~
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!·
considered the importer who shall be liable for any internal revenue tax on the importation. When a
person who was exempt from the VAT on his importation subsequently sells in the Philippines such
imported article to a nonexempt person or entity, the purchaser will be required to pay the VAT. Here,
APA is the purchaser of the items DBP imported. Therefore, APA would be liable for the VAT (INGLES,
Tax Made Less Taxing {2015}, p. 302).
Note: The transfer of goods imported by tax-exempt persons or entity is called technical importation.
On services
f
l
The second requisite differentiates cooperatives according to· its customers. If the cooperative transacts
only with members, all its sares are VAT-exempt, regardless of what it sells. On the other hand, if it
transacts with both members and no.n-members, the product sold must be the cooperative's own produce
in order to be VAT-exempt. The cooperative satisfies these requisites in the present case. (CIR vs. United
Cadiz Sugar G.R. 209776, December 7, 2016).

TA'XATIONI LAW
Zero Rated and Effectively Zero-Rated Sales
82. ABC Construction Co. constructs concrete barriers for ttie Asian Development Bank in Ortigas
Center to prevent car bombs from ramming the ADB gates along ADB Avenue in Mandaluyong
City. What kind of VAT is it subjectto?
Under Section 108 (8)(3) of the NIRC, the transaction is subject to zero percent VAT. Asian Development
Bank is exempt from direct and indirect taxes under a special law, thereby making the sale of services to it
by a VAT-registered construction company effectively zero-rated.
83. A Call Center operated by a domestic enterprise in Makati handles exclusively the reservations of
a hotel chain which are all located in North America. The services are paid for in US dollars and
-duly accounted for with the Banko Sentral ng Pilipinas. Discuss the VAT implications.
Under Section 108 (8)(3) of the National Internal Revenue Code, the transaction is subject to zero percent
VAT. Zero-rated sales of services includes services rendered to a person engaged in business outside the
Philippines and the consideration is paid .in acceptable foreign currency duly accounted for by the Bangko
Sentral ng Pilipinas. -~·-----==------ --',._~
86. S Corp., a VAT registered entity, was granted a preferred pioneer status by the BOI. NPC and S
Corp. agreed that all electricity generated by S Corp. will be purchased by the NPC. When S Corp.
f filed a claim for tax refund or credit representing its unutilized excess VAT, the same was
. disallowed. The tax court based this conclusion on the ground that no commercial sale of
\ electricity had been made In favor of NPC since the project was still under construction at that
time and the amount which was paid to S Corp. was equal to the costs for producing the
'electricity. Is the sale of electricity a transaction deemed sale?
Yes. In granting the tax .benefit to VAT-registered zero-rated or effectively zero-rated taxpayers , Section
112(A) of the NIRC does not limit the definition of "sale" to commercial transactions in the normal course
of business. Conspicuously, Section 106(8) of the NIRC, which deals with the imposition of the VAT, does
not limit the term "sale" to commercial sales, rather it extends the term to transactions that are "deemed".
sale. Hence, although all the electricity generated by S Corp. was not transferred through a commercial
S(lle or in the normal course of business, such transaction is deemed as a sale under the law (San Roque
Power Corp. v. Commissioner of Internal Revenue, G.R. No. 180345, November 25, 2009).

TAXATIO·:N LAW_.:
._,..iii
Sources of Input Tax
Transitional Input Tax.
86. XYZ company purchased from the national government a portion of the Fort Bonifacio Global City.
It, then, submitted to the BIR an inventory of all its real properties located therein and claimed that
it is entitled to a transitional input tax credit. BIR argued that XYZ company is not entitled to a
transitional input tax credit because no taxes were paid in th~ acquisition of the subject Fort
Bonifacio Global City property.
a. ts prior payment of taxes required to be entitled for a transitional input tax credit?
b. Assuming that A company is entitled to a transitional input tax credit, is it only limited to the
value of the improvement of the re·a1 properties therein?
~1
.I
Refund or Tax Credit of Excess Input Vat
89. Discuss the prescriptive period for filing of refund or tax credit for unutilized input tax.
a. For Zero-Rated and Effectively Zero-Rated Sales of Goods, Properties or Services:
· The administrative claim with the CIR must be filed within 2 years after the close of the taxable quarter
when the zero-rated or effectively zero-rated sales were made. 1he CIR has 120 days from the
complete submission of supporting docum.e nts within which to decide whether to· grant or deny the claim
(NIRC, Sec. 112). A judicial claim must be filed w ith the CTA within 30 days from the receipt of the
CIR's decision denying the administrative claim OR from the expiration of the 120-day period without
any action from the CIR.
SAN BEDA CoLLEGE OF LAw .

•"/ .
,
,.,....,
b. Cessation of business or VAT status

The two-year period shall commence from the date of cancellation of registration of the taxpayer
(Associated Swedish Steels Phils., Inc. v. Commiss{oner of Internal Revenue, CTA Case No. 7850,
August 23, 2012). ·
90. ABC Corporation, a VAT registered entity, is primarily engaged in the generation and distribution
of electricity to the NAPOCOR. After BIR's approval of ABC Corporation's Effective Zero-Rating
application, ABC Corporation filed before the BIR an administrative clalm for refund of Its excess
input VAT payments. 15 days after and without waiting for the action of the CIR, ABC Corporation
filed a judicial claim with the CTA. If you are the CTA judge, how will you rule on the claim of ABC
Corporation? ·
I will dismiss the judicial claim of ABC Corporation for lack of jurisdiction. in case of denial of the claim for
tax refund or tax credit, or the failure on the part of the Cl R to act on the application within 120 days from
the date of submission of complete documents in support of the application, the taxpayer has 30 days
from the receipt of the decision denying the claim or after the expiration of the 120-day period, to appeal .
the decision or the · unacted claim with' the G:YA. :Sefllplia1:1ce With the 120+30 day is mandatory and
jurisdictional. ABC Corporation ftle its" c:iim wit cJ_ e CTJ.\.~f.!er 5 days of filing its claim with the BIR.
Therefore, fa~~iiure to observe the m QClatory enod.-tn e CTA did not have jurisdiction over ABC
Corporation's jcioi c;tpl claim (Co[!!.mis;;ioner-of. lntemal Reven v. Mirant Pagbilao <Sot:poration, G.R. No.
180434, Janu~ (i), 016).
91. CE Corp., a
-AN BEDA .
me tic c9qJ r~tion engaged. in l\e~ b sine s of po e g~neration , had an
·
overpayment ot'l~ ~AT'!.DRJiovamlier®,J2l>o~CE file.el aJ M nis\ ti e claim for the refund
of unutilized input;:V.AT for the taxable ear: of 2005,.before the BIR. Therea ;?,on January 3, 2007,
a judicial claim w a&'li ~ before the f1T A. Th tax court denied he ~~ o the ground that the
claim was filed pr~ t:I ely since it ~f'S filed ()nly after the lapse of ~ da s from the time 9f the
filing of the admims ra lj,v e claim wi~the BIR. Was CE Corp's clai f .-tax refund prematurely
filed? ~ i,..--1 /\ rr fl
No. An exception to ttl'e1 rn~datc>.ry~d N r! s@tional nature of the 120-d~~d provided under Section
11 2 of the NIRC is th~~~ayer's relianae to BIR Ruling No. DA-48g..:03 l'NQ!c~pressly declared that the
"taxpayer-claimant need no{) wait for the apse of ttte 120- day period,befo~t4lo'uld seek judicial relief with
the CTA by way of P€tltion for eview." As sac , from December 10! 2093-;fo October 6 . 2010 which
refers to the interregtruQ."lt,N)ien 13-IR Rulirig No. ~A-t:S9~3 wa isstlle"ii rs(~payer-claimants need not
observe the stringent "12Q t(~ per iod. CE Carp's ~~1 IJPi~~~i~a,nd it.hi~ vf
aims were filed during the
period of effectivity of~~ ~ling o . DA-489-03. Th i'rai ~ ~ ts laiml'ft;i{f;i~efund was not prematurely
rfli "!UG, e of llilt"Grnai,Revenue, G.R. No. 200841 ,
D~n th~ ~d
filed (CE Luzon Geothe al · ower Co. , Inc. v.
August 26, 2015). ~,
Note' BIR Rul;ng No. be,epplled even tho h not specmcally lnvOke the
same. It is a general interpyeta 1ve ule because it was
1
resr:>.ons~ ,. ~uery made, not by a particular
taxpayer, Qut by a governmeu.fag c~ asked Wft!Ypr ce;rlA~ a tJf'ias and credits . Thus, it applies to
all taxpayers alike, and not olilY, f;)particular taxq~m1ssioner of Internal Revenue v. Air
Liquide Philippines, Inc., G.R. N0':---2"J!~ 'r&'Nuly 2-9.,,.,2..()1.5,~--
92. On May 15, 2015, P Corp. filed an ad~trative la1 for r~fund
of unutilized input VAT for the
first two quarters of 2007 with the necessary documents. On August 28, 2008, additional
documents were submitted. Thereafter, on January 23, 2016, a judicial claim was filed before the
./ CTA due to the inaction of the CIR. When should the submission of documents be deemed
"completed" for purposes of determining the running of the 120-day period?
I The 120-day period stars to run from May 15, 2015. RMC 54-2014 dated June 11, 2014 requires the
taxpayer to file his claim with complete supporting documents and to attest that he will no longer submit
any other document to prove his claim. Further, the taxpayer is b;:irred from submitting additional
documents after he has filed his administrative claim (Pilipinas Total Gas Inc. v. Commissioner of Internal
Revenue G.R. .No. 207112; December08, 2015)
SAN B EDA COLLEG E O F LAw

20 17 C ENTRALIZED BAR OPERATIONS 25
TAXATaON LAW'
Substantiation of Input Tax Credits
93. A, a non-VAT registered person, is engaged in the business of nail spa servicing clients in the city
of Manila. In 2016, A erroneously issued receipts to her client~ showing his Taxpayer Identification
Number (TIN), followed with the word "VAT". Upon assessment by the BIR, A was ordered to pay
on the top of percentage taxes, an amount equivalent to 25% surcharge. Is the llabllity imposed by
the BIR correct? ·
No. Under Sec. 113(0) the 1997 NIRC, the issuer of the receipt or invoice who is not a VAT registered
person w ho has· e·r roneously issued a VAT receipt or invoice shall, in addition to any liability to other
percentage tax~s. be liable to: a) the tax imposed in Sec. 106 or 108 without t he benefit of any input tax
credit; and b) a fifty percent (50%) surcharge under Sec 248(8 ) of the same code. In this case, it was
incorrect for the BIR to impose ol"\Jy a 25% surcharge as the law expressly provides a higher surcharge of
50% as penalty for erroneous issuance of VAT receipts. ·
96. Discuss the two types of withhold n ax s n WS.T. ·

1. Payments made to a non-resident' w ose servic~z.~considered as VAT -taxable in which case the
" 12% VAT will be withheld by the payo{ T his is a final Withholding VAT (R.R. No. 04-2007, Sec. 4.114-
2) .
2. Payments made by government agencies, in which case, the gove rnment entity will withho ld 5% from
its payment. This is a creditable withholding VAT.
Note : The 5% final VAT withholding rate. shall represent the net VAT payable of the seller. The remaining
7 % effectively accounts for the standard input VAT for sales of goods or services to governme nt or any of
its political subdivisions , instrumentalities or agencies including GOCCs in lieu of .the actual input VAT
directly attributable or ratably apportioned to s uch sales. Should actual input VAT attributable to sale to
government exceeds 7% of gross payments, the excess may form part of the sellers' expense or cost. On
the other hand, if actual input VAT attributable to sale to government is less than 7% of gross payment,
the difference must be closed to expense or cost (R.R. No. 04-2007, Sec. 4. 114-2).
SAN BEDA COLLEGE OF L AW

26 2017 C ENTRALIZED BAR OPERATIONS
'TAXATION .LAW.
Excise Taxes
97. L Corp. imports leaf tobacco from foreign sources a,nd purcha_ses locally produced tobacco to be
used in its production of cigars and cigarettes. It claimed that the imposition of excise taxes o'n
stemmed leaf tobacco ·and ·a specific tax on ·the finished products would result in the prohibited
form of double taxation.
a . Discuss the nature of excise taxes and its different k inds.
b. Is there double taxation?
I. a. Excise tax is a tax on t he production, sale, or consumption of a specific commodity in a country. Excise
I taxes are essentially taxes on property because they are levied o n certain specified goods or· articles
manufactured or produced in the Philippines for domestic sale or consumption or for any other disposition,
_and on goods imported . The .excise tax based on weight, volume capacity or any other physical unit of
measurement is referred to as "specific t ax." If based on selling price o r other specified value, it is referred
to as "ad valorem" tax.
100. F Pawnshop, Inc. contests the deficiency assessments for value-added and documentary stamp
taxes imposed upon it by the BIR for the year 2004. The core of petitioner's argument Is that it is
not a lending investor within the purview of Section 108(A) of the. NIRC, as amended, and therefore
I · not subject to VAT. Is F Pawnshop Inc. liable to pay VAT?

No. For purposes of determining their tax liability, pawns hops are treated as non-bank financial
intermediaries (H: Tambunting Pawnshop, Inc. v. Commissioner of Internal Revenue G.R. No. 172394,
October 13, 2010) Under RA. No. 9238, the services of non-bank financial intermediaries are specifically
exempted from VAT. However, it re-imposed the 0% to 5% percentage tax on g ross receipts o n other
non-bank financial intermed iaries under Section 122 of the Tax Code of 1997. Hence, P pawnshop is
r subject to percentage tax on its gross receipts (First Planters Pawnshop Inc. vs CIR G.R. No. 174134,
July 30, 2008).
SAN B EoA C O LLEGE OF LAw

2 01 7 CEN TRALIZ ED B AR O PERATIONS
27
Documentary Stamp Tax (OST)
1 o'1. LT Distillers, Inc. (LTD) entered into a plan of merger with several corp~rations. As a result of the
merger, the assets and liabilities of the absorbed corporations were transferred to LTD, the ·
surviving corporation. The BIR claimed that LTD is liable for DST with respect to the transfer of
real properties since a DST is levied on the exercise of the privilege to convey real property
regardless of the manner of conveyance. Decide with reasons.
Properties transferred by means of merger are not subject to documentary stamp tax. Under Section 196
of the NIRC, a documentary stamp tax shall be collected on conveyances, deeds, instruments, or writings
whereby any land, tenement, or other realty sold shall be conveyed to the purchaser or purchasers.
Considering that properties· subject of the merger were not sold but merely absorbed by the surviving
corporation by operation of law, the transfer does not fall under Section 196 and· is not subject to DST
(Commissioner of Internal Revenue v. La Tondefia Distillers, Inc. (LTQI) G.R. No. 175188, July 15, 2015).
enefit of full audit ;;1nd only for the
104. Z Corp. filed its VAT Returns througH lectronic Fili and Payment System (EFPS). Upon finding
some discrepancies between Z Corp.'s Income Tax Returns and .VAT Returns, the CIR informed Z
Corp. and Issued a Letter Notice (LN). Subsequently, the CIR also issued a PAN and FAN for
deficiency VAT. Is the failure to Issue an LOA fatal? .
Yes. The absence of an' LOA violated Z Corp.'s right to due process. An 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. As provided in the case of CIR v. Sony Philippines, Inc.,
there must be a grant of authority before any revenue officer can conduct c:tn examination or assessment.
Equally important is that the revenue officer so authorized must not go beyond the authority given. In the
absence of such an authority, the assessment or examination is a nullity (Medicard Philippines, Inc. v.
Commissioner of Internal Revenue, G.R. No. 222743, April 5, 2017). .

1
.1
·l Preliminary Assessment Notice (PAN)
I
1·
105. The BIR issued a Preliminary 15-day letter to Mr. S !?tating the deficiency taxes due from the latter
for taxable year 1999. Five months later, S received a Formal Letter of demand from the BIR for the
same deficiency taxes; After being served with a Warrant of Distraint and/or levy to enforce the
collection of taxes, ·S appealed to the BIR but was denied. Claiming that it did not receive a PAN
and was, therefore, not accorded due process, S appealed to CTA. Was the Formal Letter of
Demand valid even if S did not receive the PAN?
No. Section 228 of the Tax Code clearly requires that the taxpayer must first be informed that he is liable
for dsficiency taxes through the sending of a PAN. He must be informed of the facts and the Jaw upon
which the assessment is made. Under RR 12-99, ·the sending of a PAN to the taxpayer to inform him of
the assessment made is but part of the due process requirement in the issuance of a deficiency tax
assessment, the absence or which renders nugatory any assessment made by the tax authorities.
(Commissioner of Internal Revenue v. Metro Star Superama, Inc. , G.R. No. 185371, December 8, 2010).
Note: The law should be interpreted to e n a separa i~1'f>f the three different situations of false return,
fraudulent return with intent to evade tax, and failure to filefa return is strengthened immeasurably by the
last portion of the provision which segregates the situations into three different classes, namely "falsity,"
"fraud" and "o"mission." That there is a difference between "false return" and "fraudulent return" cannot be
denied. While the first merely implies deviation from the truth, whether intentional or not, the second
implies intentional or deceitful entry with intent to evade the taxes due (Ibid).
108'. Mr. B was assessed for deficiency taxes on his 2009 annual ITR filed on February 1, 201 O with the
BIR. The formal demand letter and assessment was stamped January 31, 2013, denoting the date
of its release in the mail. On February 10, 2013, Mr. B received the formal demand letter · and
assessment. He thereafter filed a protest contending that the assessment is already barred by
prescription. Is Mr. B correct?
No. Under the law, the BIR has three (3) years to assess from the date of last filing. The assessment is
deemed to have been made on the date when the· demand letter or notice of assessment is released,
mailed_ or sent, even though the same is actually received by the taxpayer after the expiration of the
SAN B EDA C OLLEGE OF L AW

201 7 CENTRALIZED BAR OPERATIONS 29
prescriptive period. In this case, the assessment was released on January·31, 2013 which· is within the 3-
year period to assess from the date of filing on February 1, 2010. Considering that the assessment was
duly mailed to Mr. B, it is presumed that the assessment was m9de within the prescribed period (Basilan
Estates, Inc. v. Commissioner of Internal Revenue, G.R. No. L-22492, September 5, 1967).
Prescriptive Period of Collection

'I
112. The BIR issued an assessment finding XYZ Bank liable for deficiency Documentary Stamp Tax
(DST) on its sales of foreign bills of exchange to the Central Bank. In 1989, it received the
assessment notice and demand letter from the BIR. XYZ Bank filed a protest letter requesting for
the reinvestigation and/or reconsideration of the assessment for lack of legal and factual bases.
Will the filing of the protest letter suspend the running of the prescriptive period to collect the
deficiency DST by the BIR? · . ·
It depends. There is a. distinction between a request for reconsideration and a request for reinvestigation.
A reinvestigation which entails the reception and evaluation of additional evidence will take more time
than a reconsideration of a tax assessment, which will be limited to the evidence already at hand; this
j1-1stifies why ttie reinvestigation can suspend the running of the statute of limitations. on collection of the
assessed tax, while the reconsideration cannot. Hence, the period for BIR to collect the defiqiency DST

· - - - ·--- -~~~~----------ll!IWmmll:ll'J:amE!flmnllEft
·TAXATION LAW
· already prescribed 'as the protest letter of XYZ Bank was a request for reconsideration, which did not
suspend the running of the prescriptive period to collect (Bank of the Philippine Islands v. Commissioner
of Internal Revenue, G.R. No. 181836, July 9, 2014). ·
Waiver of Statue of Limitations
113. What does the new rule on waiver provide?

The waiver may be, but not necessarily, in the form prescribed by Revenue· Memorandum Order No. 20-
90 or Revenue Delegation Authority Order No. 05-01. The taxpayer's failure to follow the aforesaid forms
does not invalidate the executed waiver for as long as the following are complied with:
· 1. The Waiver of the Statute of Limitations under Section· 222 (b) and (d) shall be executed before the
expiration of the period ·tp assess or to collect taxes. The date of execution shall be specifically
indicated in the waiver;
2. The waiver shall be signed by the taxpayer himself or his duly authorized representative. In the case of
a corporation, the waiver must be signed by any of its responsible officials;
3. The expiry date of the period agreed. upoR to assess/collect the tax after the regular three-year period
of prescription should be indieeited. I ~
11.4. What are th ~ . (2) materials da @$ needed 6n·th&-wa1:vei? ~

1 . The dat . f. e9ution of tti.e waiver bY. the tax~yer or its authorlz~ .re~resertfa~ . .
2. The exp1ry,.OataL bf the period thfl'ctlP"~)i'e w~~®s.Jatute of hm1tatton· 13p f'ore the expiration of
the period S et o/1t
the p[eViOUSIY, exe9LJ.ted..waiYir~th¥ periq_dAeg rlier S~ m.ay be extended by
subsequent wrJ erl waiver made.in..a:c'Corda~e witli .th1s CD..rderi VV
. t.:
115. The CIR assessed eprp. f or alleged deficiency taxes for taxable ~apcro1. M Corp. filed its
protest and argued'that ~e BtR's righ~ to assess aefici~ncy taxes fo 200? ad already prescribed
since the 5 Waive~of J he Statute of Limitations signed by M Coq:f·s Finance Director were null
and void and did not ex.tend the f\IR's 3-y,ear period to assess ffie co~pany. The Waivers had the
following flaws: (a) the.>.' were exec, ted~ by t he Finance Director Jt out a notarized board
authority; (b) the dci'ijls of acceptance by t he BIR were not indicatectiQ the/ Waivers; (c) The fact of
receipt by M Corp. o it~eopy of the .Second ~aiver was not indicateECon the fact of the Waiver.
Was the prescriptive ~r:)od d eemed extended'b.y :virtlie of ha-exec 'tton,of'defective waivers?
Yes. The general rul t:tis, ttYci~ when a waiver does~ot cpm~y wit~ ther~qu1sftes for its validity specified
under RMO No. 20-90'81110 DAO 01-05 It is 1nV8fut jI'q:iD~~c ve td ~x.~d the prescriptive period to
assess taxes. Howevet';'dul o_. its peculiar circums~ce~f!W> c;ase isl"~ e~ception to this rule since the
parties are in pari delici'eY o 1~r.qual fault." As be~a"'ert he ~~rtjgs . it~
· 7'ot;1La .J:>e more equitable if the Bl R's
lapses were allowed to~ss,.,M Corp. should not be ll~Wecf 10" ben !ftiM:
an~ q~~if}valid.ity J~ £~de ~esp~ns -~t(f.o. th~
he flaws in its own Waivers
successfully insist In .0 rder its pay taxe.s. The.refore, .
waivers are valtd and the....tax~i?er 1s estopped trom impugning, the~ s validity after benefittmg from 1t
(Commissioner.of Internal /Zeveml e . Next Mobile, Inc , G.R. No.'-21~ 25,.-December 7, 2015).
Note: Under RMO 14-201 6, tli ~ ~ay

be, but no ne~s
afi , 1h the form prescribed .by Revenue
Memorandum Order No. 20-90 orR ~elegatioR A · Kdt:ity.Grder N~. 05-01. .
116. Through a FLO dated October 16, 2009 and assessment notices dated on the same date, the BIR
assessed L Corp for deficiency Income tax, VAT,expanded withholding tax (EWT), and withholding
tax on compensation (WTC) for taxable year 2006, and demanded. that the deficiency taxes be paid
on or before October 31, 2009. L Corp. protested such assessment on November 1, 2009. Since the
BIR failed to act on Its protest, It filed a Petition for Review with the CTA. CT A affirmed the
• assessment and ordered L Corp. to pay deficiency interest. on the deficiency on all items of
assessment computed from the time of filing of return until full payment, as well. as delinquency
interest computed from October 31, 2009 until full payment. Is L. Corp liable for deficiency and
· delinquency interests on the foregoing assessments?
Yes. The deficiency interest shall be applicable only to the assessment for deficiency income tax. The
deficiency interest under Section 249(8) should only. be applied whenever there is a ·deficiency income
tax, deficiency estate tax, and deficiency donor's tax. In this cas~. with the exception of the deficiency
income tax, no deficiency interest should be imposed on deficiency VAT, EWT and WTC ·
SAN B EDA C O LLEGE O F LAW

2017 CENTRALIZ ED BAR OPERATIO N S 31
4 1 i"ft'!;;;W" '&:H m;:it!Wr· i 0 ; ,
,.,.·
In this case, the imposition of the 20% deficiency interest on the deficiency income tax including the 25%
surcharge, shall accrue from April 15, 2007 through October 31 , 2009 or the date stated in the FANN
when the deficiency taxes should be paid, until full payment. The delinquency interest shall be applied to
the following : (i) to the total deficiency income tax plus deficiency interest computed beginning November
1, 2009 until full payment; (Ii) and to the assessed deficiency amounts for VAT, EWT, and WTC,
commencing November 1, 2009 until the same are fully paid (Liquigaz Philippines Corporation v.
· Commissioner of Internal Revenue v. Liquigaz Philippines Corporation, CTA EB Case Nos. 1117 & 1119,
September 21, 2015).
Note: Based on the provisions of RR No. 12-99, the imposition of deficiency interest under Section 249(8)
extends only up to the time when the taxpayer is required to pay the assessed tax after being informed
thereof and the imposition of delinquency interest under Section 249(C) shall commence from the time
when the concerned taxpayer failed to pay the assessed tax within the time allowed as stated in the FLO.
ued a demand
levied, so he
ndr'hJ!&Ul·::as
operty. The RTC
.hat the Tax Code
!
l
\
I
f·
i
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32 2017 C E NTRALI ZED B AR OPERATI ONS
• ' ,~•,,..I
~ '
.., ~--- -- - -- - - -- - - - - - - --- -
'T AXATION LAW

120. Pursuant to the finding of deficiency taxes due from ABC Corp., the BIR issued a Formal Demand
Letter. After being served with a Warrant of Distraint and/or Levy tb enforce the collection of taxes,
ABC Corp. appealed to the BIR. ABC Corp. opted tQ wait for the decision of the CIR, and hence,
failed to appeal to the CTA within 30 days from the lapse of the 180 day period. If the CIR fails to
act on the appeal by ABC Corp. within 180 days from appeal, will the assessment become final
and executory?
No. In case of the inaction of the CIR on the protested assessment, the taxpayer has two options, either:
(1) file a petition for review with the CTA within 30 days after the expiration of the 180-day period; or (2)
await the final decision of the Co mmissioner on the disputed assessment and appeal such final decision
to the CTA within 30 days after the receipt of a copy of such decision. These options are mutually
exclusive and resort to one bars the application of the other. Considering that ABC Corp. opted to await
the final decision of the Con:imissioner on the protested ·assessment, it then has the right to appeal such
final decisibn to the Court by' filing a petitiori for review within thirty days after receipt of a copy of such
· ~ .
.
decision or ruling, even after the expiration of the 180-day period fixed by law for the Commissioner of
Internal Revenue to act on the disputed assessments (Lascona Land, Co., Inc. v. Commissioner of
Internal Revenue, G.R. No. 171 251, Ma{ch..5, Q01 i .
:A
~
&al o \t e :r ·
121. On May 1, 2'0,!}0; ~CIR assessed Mr. X on his income tax liability for the previ us taxable year.
Consequently,Jvle,~ filed a protes 'Wit the CiR isputmg the assessme}'J. ~=tlune 1, 2000, the
CIR issued a warr"a t of distraint and levy io enforc--c ollection of he defiCie ey assessme.nt. After
the lapse of 180-daySlwitho.u the CJR render g bis decisiah . Mr. X '(i pro est, the latter filed a
Petition for Revie with the CTA Division he C.TA Divlsion dismissed the Petition for having
been filed out of tim • t j easoned that the issua.n ce of the. warrant of dist11ajnt and levy constitutes
denial by the CIR b f M~X's protest a d thus, Mr. X should have ap ale1t to the CTA within 30
days from June 1, 2 00. s the CTA~ivisio correct? Explain. ir7
Yes. The warrant of'l(ii~tJ.ai)l t antl levy i's / pro0f of the finality of the assess ent and renders hopeless a
request for reconsider atfol'n, b_e il}g (t~ntdToJ~ to an outright denial i her o r~ · makes the said request
deemed rejected (CfftV..\ ?!i.lgue Inc, G.R. No. L- ?.B.89(), February 17, 1988J i;.!1us, upon the issuance by
the CIR of the warra~ry>traint and 14vy, Mr. X should h ~'le app~ale~!Nhei:efrom to the CTA within 30
days from the date ofTEi.$t1ance.
Compromise and Abatement of Taxes
123. Mr. Z was assessed for deficiency income tax for the year 2005. The CIR initiated the filing of civil
action to collect the tax amounting to 100,000. After the judg'm ent of liability became final, Mr. Z
offered the CIR a compromise settlement of 50% of the judgment award, as this amount was all he
could afford. Can Mr. Z and the CIR enter into a compromise settlement as to the liability?
Yes. As· provided by Section 6 (F) of the NIRC, compromise settlement on the ground of financial
incapacity may be allowed proviaed that the following requisites are present: (1) clear inability to pay the
I .
SAN BEDA C O LLEGE O F LAW ~

tax; and (2) the taxpayer must yvaive in writing his privilege ofthe secrecy of bank deposit under RA 1405
or other general or special laws, which shall constitute as the CIR's authority to inquire into said bank
deposits. Assuming that Mr. Z complies with the said requisites, a compromise settlement between the
parties may be allowed. ·
Tax Refund/Tax Credit
Nature of Tax Ref und
124. F C6rp. was granted a tax refund representing excise taxes erroneously collected from its
tobacco products. The tax refund Is being reclaimed by the BIR in a petition before the SC. The
BIR argued that tax refund partakes of the nature of a tax exemption and should be construed
a9ainst the claimant. Is the BIR correct?
No. Not all claims tor tax refunds are in the nature of tax exemptions. A tax refund may only be considered
as a tax exemption w hen it is based either on a tax-exemption statute or a tax-refund statute. The
company's claim for tax refund is not ba · :llbeta,ta~~tion statute or a tax-refund statute, but
is premised on either an erronelo !.BS~· qrJhe g ~ov~(tnrfieJ:!' exaction in the .absence of a law. .
Thus, what\~9~trolling in this · ~ ~ ~·~ . iJ\;~~ interpretation i.n the imposition of
taxes, .and noh.~ftloctrine as a ~ X"e em'PtfOn~& ·-~~ . es shquld qi· ~y"'unduly exacted
nor assumed- eyh'1dtthe plain'"fiieaning of the tax laws ..C£.ommiss10P1er of lnte 1'1 ~enue v. Fortune
Tobacco Corp., f67274-75,July S~N · BEUA · ·
oi& Q !.bLtw'iMli c Q 1f intTAtlA!nd
st\.2~mF.~:nd 2003 showed that there

tl\i.fl((~ option to refund the tax
i . for refund or the issuance of
'!'..~....:::.,...,..-;;.
efore the CTA En ·Banc on the
1th the requirements of Sec. 76 of
,I

34 20 17 CENTRALIZED BAR OPERATIONS
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127. A Realty claimed for refund of its unutilized creditable withholding tax (CWT). The BIR argued for
the disallowance of the amount of P200,000, due to the fact that, while it was supported by CWT or
BIR Form No. 2307, th.e same does not bear A Realty's Taxpayer Identification Number (TIN). Is it
required that the CWT or BIR Form No. 2307 bear the TIN of the taxpayer?.
No. It is not necessary. As long as CWT clearly shows the information regarding the payor, the payee, the
amount paid and the income tax withheld from that amount, there is sufficient compliance with the
requirement of the law. Further, it is not necessary for the person who executed and prepared the
Certificates of Creditable T ax Withheld at Source to be presented and to testify personally as to the
authenticity of the certificates. Hence, it is not req uired that the CWT or BIR Form No. 2307 bear the TIN
of the taxpayer (RCD Realty Marketing Corporation v. Commissioner of Internal Revenue, CTA Case No.
8468, June· 22, 2016).
128. Mr. B filec;I a claim for refund w ith the CIR. The two-year prescriptive period is about to end, but
the CIR has yet to decide on the claim. What must Mr. B do to pursue her claim for refund?
...
A claim for refund must be filed with the BIR and the commencement of the proceedings in the CTA must
be done within the 2-year period from t he..date of full-pay ment of the tax or penalty regardless of any
supervening event. Thus, Mr. ~, must cofpience He proc~esirngs itb the CTA before the end of the 2-
year period 'Z.~o ut waiting for the deelsion of the e R (Nl ~ e11>. 229).
1
129. On March f2.lio .0 Bob paid tlis taxes. Five. months later, he isco.vered th~ ~ad overpaid and
immediately file~ dlaim for refund wi . h CIR. !Ef.e " a'"'ry 27, 2013, h') r;.e ceiyed the ~ecjsion of
the CIR denyinQ'--H1s elaim for efund. On. ¥ arcb, 2 013, e iled ap eall.with-the CTA. Was his
appeal filed on tf!Tij~
? ~ - ...=::
No. The 2-year pe 't> ~r filing a claim for ~funq is not only, a limitationr~F p.t1rsuing the claim at the
administrative level u_yalso for appe~ljng the case to the 8TA. The law~vides that "no suit or
proceeding shall be fHe~fter the ·expiration of 2 ears from the date of th~J?<iY-i!fent of the tax or penalty
regardless of any sOpe e~ing cau~e trtat may arise after payment. Since t ~ppeal was only made on
2003. Accordingly, R · k?
Mar. 24, 2003, more 1-hap two Y.ea~ h'.:\Bla1rp f1dY elapsed from the Uf.e !)-i91 t'a)(es were paid on Mar. 12,
losl his:Judfdal i~eoy bscause ef presoriptifi:irt:l .
130. A Corp. filed its q4{1-rte y ) inco\ne tax. return for the first qua rte of 20 d paid P500,000 on May
15, 2005. In the subse<I ~t quarters, A Corp. suffered losses.1 and n .Agfil 15, 2006, it declared a
net loss of P1 ,000,0Q.O..ln ·ti an11ual income ta "~t r.i:r:tAfter fallingrto ~ refund, A Corp. filed on
March 1, 2008 a case'wit he CTA to recover t\~ . 50'-hElO().in taxe5'pa1Q,on May 15, 2005. Was the
action filed on time? '(') J¥....8 ('....
Yes. In the case of over a d'Juarterly ~orporate incatQ_e;t~t~~.1+:.0-yJi'a{p'fuild for filing claims for refund
in the BIR as well as in ttie 1ostitution of an actio~ foC'fefCind !D
the GM;/t~ two-year prescriptive period
for tax refunds is counte~froQ)1ne filing of the finq!, ai':ljustm~nt retyf'n't(pder Sec. 67 of the NIRC, and not
from the filing of the qual'te~~~turn ani:I paymen~ of the quarterly\{a,x'!ji}e7cTA action on March 1, 2008
corporation on April 15, 2006""'('.0) ?f:tf5

was clearly within the reg'l~nta1Y. 2-year R~riQd !i:£01 the fili nft~~§,e final adjustment return of the
Sales, ~GR 88'7~§/.fffrraary 15, 1992) .
131 . For the taxable years of 1995- 8 ;yp Cor • ga1 "t ax liabilities with the Tax Credit
Certificates (TCC) it received tro1n- ifittereo B-OJ:-~~gi§teTed companies as consideration for the
delivery of petroleum products to the e/ompani~ ln\ a post-audit conducted by the DOF, it was
found out that the TCCs issued to the'rec transferors were fraudulently obtained and fraudulently
transferred to JYP Corp. Now, the CIR issued an assessment against JYP for deficiency excise
taxes for the taxable years 1995-1998, inclusive of surcharges and interests, on the ground that
·the TCCs which JYP Corp. used to pay its taxes were cancelled and therefote has the effect o f
nonpayment of taxes. Can JYP Corp. be legally required to pay again the tax covered by the TCC?
No. A transferee in good faith and for value of the TCC who has relied on the transferor's representation
•of the genuineness and validity of the TCC transferred to it may not be legally required to pay again the
tax covered by the TCC, which have been fully utilized through settlement of internal revenue tax liabilities
I· and later on were declared null and void. Conversely, when the transferee is party to the fraud as when it
did not obtain the TCC for value or was a party to or has knowledge of its fraudulent issuance, said
transferee is liable for the taxes and for the fraud committed as provided for by law (Commissioner of
Internal Revenue v. Petron Corporation, G.R., No. 185568, March 21, 2012).
SAN BEDA COLLEGE OF L AW

20 l 7 CENTRALIZED BAR O PERATIONS 35
132. DEF, Inc. won a·-tax refund case, and upon execution of the judgment and when trying to get the
Tax Credit Certificates (TCC) representing the refund, the BIR refused to issue the TCC on the
basis of the fact that the corporation is under audit by the BIR and it has a potential tax liability. Is
there a valid justification for the BIR to withhold the issuance of the TCC?
No. Offsetting the amount of TCC against a potential tax liability is not allowed, because both obligations
are no yet fully-liquidated. While the amount of the TCC has been determined; the amount of deficiency
tax is yet to be determined through the completion of the audit. Hence, the BIR has no valid justification to
':"ithhold the TCC (Phi/ex Mining Corporation v. CIR, G.R, No. 125704. August 28, 1·998).
1.
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136. YMC purchased aviation jet fuel from Caltron for use on its international flights. YMC, contending
that it is exempt from the payment of excise taxes, filed a formal claim for refund with the CIR. The
CIR denied the claim contending that ·since· the liability for the excise tax payment is imposed by
law on Caltron as the manufacturer of the petroleum products, any claim for refund should only be
made by Caltron as the statutory taxpayer. Is the CIR correct? ·
No. The proper party to question, or seek a refund of an indirect tax is the statutory taxpayer, the person
. , on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof tb another.
Excise tax on petroleum is an indirect tax. Although the burden to pay an indirect tax can be passed on to
the purchaser of the goods, the liability to pay the indirect tax remains with the petroleum manufacturer or
seller. When the manufacturer or seller decides to shift the burden of the excise tax to the tax-exempt
purchaser, the tax becomes a part of the price of the commodity. Thus, in this case, the petroleum
manufacturer who is the statutory taxpayer is the proper party to claim the refund (Silkair (Singapore) Pte.,
Ltd. v. Commissioneroflnternal Revenue, G.R. No. 166482, January 25, 2012). · •

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137. H Corp. filed a claim for refund or tax credit for the excise taxes paid on Its Importation of
petroleum products that it had sold to the V Corp., an entity exempt from direct and indirect taxes.
The CTA Division and CT A En bane denied its claim ~or refund. Is Hedge entitled to the tax refund
or tax credit?
- Yes. In case~ involving excise tax exemptions on petroleum products under Section 135 of the NIRC, the
Court has consistently held that it is the statutory taxpayer, not the party who only bears the economic
burden, who is entitled to claim the ta x refund or tax credit. The general rule applies here because H
Corp. did not pass on to V Corp. the excise taxes paid on the importation of the petroleum products, the
. latter being exempt from indirect taxes. Hence, H Corp. is entitled to the tax refund or tax credit (Chevron
Phil. Inc. v. Commissioner oflnternal Revenue, G.R. No. 210836, September 1, 2015) .
.138. Respondent PG-Phil. decl~red dividends payable to Its parent company and sole stockholder,
PG-USA, amounting to P24,164,946.30, from which dividends the amount of PS,457,731.21
representing the thirty-five percent (35%) withholding tax at source was deducted. PG-Phil. filed
with the CIR a claim for refund or tax credit in the amount of P4,832,989.26. There being no
responsive action on the part of the Cojllmissionec, PG-Phil. filed a petition for review with the
CTA, which rendered a decis"on ra i g the CR to refu ct or 9rant the tax credit. Was the CTA
~~~ ~ ~
Yes. A withhbRJ !;1\agent shoulo be allow_ecWo c aim fo[ ta refund, be'f.luse under,th~ ~w said agent is
the one who is.c.t:i~ l~ble for any vi51ation ofthe withholding tax aWshoJ,,1ld such v~~a®- occur. Since the
withholding agen:t- M.ade personally 1~.b~t~ ~d 8aia:~,.ttlfu>ld any tax under :sa~ · 53(c) of the Tax
Code, it is imperatwe J;\at h~e~ ~s1cfered' ~ taxp~r r'airl~gC\,I ijJt~nts a ;lUg;iose~. Thus, by any
reasonable stand rd ch Qfils2!jl fil1oul ~rl'lgard~ ~S' ale_~[t'Y, 1Q" i94tere~! t lrffng suit for refund of
taxes (Commissio~ ot lpternal Revenue v. Procter and Gamble P ilippine~ at=tafacturing Corporation,
G.R. No. L-66838, Q i'fnl er 2 1991).
Gg vernment Remedies
139. Ms. S
140. Can the _CIR delegate to the hief · · e Accaunts-H · abl and Billing Division the issuance of
a demand letter for tax deficienc
reconsideration? (2017 Bar syllabus) ( /
•e_.7>?-"t *miil
~
c ·n ins denial of the taxpayer's request for
Yes. The general rule is that the Commissione r of lntern~~evenue may delegate any power vested upon
him by law to Division Chiefs or to offi~ials of higher rank. He cannot, however, delegate the four powers
granted to him under Sec. 7 of the NIRC. The act of issuance of the demand letter by the Chief of the
Accounts Receivable and Billing Division does not fall under any of the exceptions that have been
mentioned as non-delegable. Furthermore, Sec. 6 of the Code provides that the authority to make tax
assessments may · be delegated to subordinate officers (Oceanic Wireless Network v. Commissioner of
.<nternal Revenue, G.R. NO. 148380; December 9, 2005).
141 . May the bank deposits - peso and foreign currency- o f an individual taxpayer be disclosed by a
commercial bank to the CIR in connection with a tax investigation being conducted by revenue
officials,- without violating the relevant bank secrecy laws? Explain your answer. (2012 Bar
Question)
No. As a general rule, bank deposits of an individual taxpayer may not be disclosed by a commercial bank
to the Commissioner. As exceptions, Section 6 of the NIRC provides that the Commissioner is authorized
SAN B EDA C O LLEGE OF LAW

2017 CENTRALIZED BAR OPERAT ION S 37
to inquire into the bank deposits of: (1) a decedent to determine his gross estate; and (2) any taxpayer
who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his
tax liability. '
In case a taxpayer files an application to compromise the payment of his tax liabilities on his claim that his
financial position demonstrates a clear inability to pay the tax assessed, his application shall not be
considered unless and until he waives in writing his privilege under RA. No. 1405 (Bank Secrecy Law) or
under other general or special laws, and such waiver shall constitute the authority of the Commissioner to
inquire into the bank deposits of the taxpayer.
142. What are BIR rulings? What is required to make a BIR ruling or first impression a valid one?
BIR rulings are administrative opinions issued by the Commissioner of Internal Revenue interpretative of
a provision of a tax law. They are the best guess of the moment and incidentally often contain such well
considered and sound law, but the courts have held that they do not prevent an entire change of front at
any time and are merely advisory - sort of an ·information service to the taxpayer (Aban, Law of Basic
· Taxa~ion in the Philippines, p. 149 citing Quiazon a d Lukban). · ·
Business Tax
. '
145. JJ Condominium Corporation received a tax assessment from the City of Malabon for business
taxes. It protested the assessment as it averred that it is not organized for profit since it is merely
i created for the maintenance of the condominium. The City contends that JJ is liable for. bu.s lness
: !· tax because the maintenance of the conqominlum is an activity for profit since It would increase
the market value of the condominium which makes it easier to sell. Decide.
· JJ Corporation is not liable for business tax. In order that the Corporation may be subjected to business
taxes, its activities must fall within the definition of business as provided .i n the Se.ction131(d) of the LGG.
SAN BEDA C OLLEGE OF L AW

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TAXATION LAW
which is a ·trade or commercial activity regularly engaged in as a means of livelihood or with a view to
profit. By its very nature, a condominium corporation is not engaged in business. Neither the maintenance
of livelihood , nor the procurement of profit, fall within tt:ie scope of permissible corporate purposes of a
condominium corporation under the Condominium Act Any profit that would be derived would merely be
incidental (Yamane v. BA Lepanto Condominium Corporation, G.R. No. 154993, October 25, 2005).
Tax on Amusement Places
146. The Provincial Board of the Province of Benguet approved a Tax Ordinance which levied a 10%
amusement tax on gross receipts from admissions to "resorts; swimming pools, bath houses, hot
springs and tourist spots." B Realty Corporation, operator of a Resort, argues that the said
Ordinance is an ultra vires.act because it imposed a percentage tax in violation of the limitation on
the taxing powers of LG Us · under Section 133 (I) of the LGC. The Province of Benguet contends
that the phrase 'other places of amusement in Section 140 (a) of the. LGC encompasses resorts,
swimming pools, bath houses, hot springs, and tourist spots since "Section 131(b) of the LGC
defines "amusement" as "pleasurC!bl diversion nd entertainment x x x synonymous to
relaxation, avocation, pastime, o fu.n." Decide. ~ "'Y'
The Tax Oi'tliQ_~ce is null and void beoa se it as enac~ d~ ~y(!)("ld tbe taxing power of the Province.
Applying the~iwle of ejusde[ll ge_n_eris, ' t her ptaces-ef:a . semenf m ust be int i;ei:e~d in light of the
typifying chara~sti9· of being venues "where one seeks admission to entertain ntf elf by seeing or
viewing the show~{;,performances" or geinNen~(Pr maA used to stagelSp'ectpcles or hold public
shows, exhibitionS7"'"r:ierformar,i97S
/ ·and othe~~v~ntsfll~ant to bJt. vi~ed ~ an a ttdience. Considering
these, it is clear ~ rbsorts,.,!J.wjmmi g po&.l~. k6'atl~J:fobse bbl\~i.:>nngs ~ l\d rist spots cannot be
considered venue~~rily "~ere.one.seeks acimission...to...entertair on ;elli e · seeing or viewing the
show or performa~~~~1i thei l"jpropriet9~s or oper\at«S to actf\t:eJy display,~ . :a.or present shows and/or
perfmma nces (Peliz~t!Jlty Corpo,at,O• v. The Province of Efeng"91 G.,,,,. '1!783137, April 10, 2013).
~r:? !.\ F"Jnchlse Tax .

14.7 . NPC received a noJse"6f franchise {ax delinquency from the Pro'V"ncial Government of Bataan
covering the years .(!OO' fto 2003. HO\,vever, Nr c r~plied t hat It has eii's ed to .be liable for the
payment of said ta ftE:!r Congress enacte R.A. 9136 or the E ectrit Power Industry Reform
Act (EPIRA~. The Pr-ovin~ issu-:d a "yYa~n of L{)~" .on . real !>ro~el'ties that NPC owned -and
caused their sale at pub11c auct ion with itself s he w · nmg b1Hde . The NPC alleged that the
foreclosure had no ls-gal b~sis since the LGC ,H·e a · hd rized th~'<iolle.ction of local franchise tax
had been modified b Y.:::t he):plRA. The latter la "5ovid1:d that eow, generation i"s not a public
utility operation requl ri{td a..ffanchlse, hence_, not tax1rble~ s NP ' ft ble- o r the local franchise tax?
No. Section 137 of the ~G Is ~ategoneal In statht;franchlse t~'n only be Imposed on businesses
enjoying a franchise. This..g~~l.~ithou saying t at witho111 a franG~ J O local government unit cannot
impose franchise tax. EPIR;Al ffe ~ively ~ova po er ge7e~a..ID ...-fr m the ambit of local franchise
taxes. Hence, as regards B ~~liSiness of getl rating pte~{il e franchise taxes sought to be
collected by the Provincial G ~Jtler{pf Bataan are ~id7o:°f-~y statutory basis (National Power
Corporation v. Provincial Govern1rre~, taan, G.B 60", April 21, 2014).
148. Mr. · Fermin, a resident of Quezon City, is a Certified Pubtic Accountant-Lawyer engaged in the
practice of his two professions. He has his main office in Makati City and maintains a branch
office in Pasig City. Mr. Fermin pays his professional tax as a CPA in Makati City and his
professional tax as a lawyer in Pasig City.
a . May Makati City, where he has his main office, require him to" pay his professional tax as a
•lawyer? . · ·
b. May Quezon City, where he has his residence and where he also practices his two professions,
go after him for the payment.of his professional tax as a CPA and a lawyer?
a. No. Mr. Fermin is given the option to pay either in the city where he practices his profession or where
he maintains his principal office in case he practices his profession in several places. The professional tax
paid as a lawyer In Pasig City, a place a where he practices his profession , will entitle him to practice his
profession in any part of the Philippines without being subjected to any other national or local tax, license,
or fee for the practice of such profession (Sec. 139, in relation to Sec. 151, LGC)
SAN B EDA COLLEGE O F L AW

20 l 7 C ENTRALIZED BAR OPERATION S
39
b. No. the professional tax shall be paid only once for every taxable year and the payment shall be made
either in the city where he practices his profession or where he maintains his principal office. The city of
residence cannot require him to pay his professional taxes (Sec. 139, in relation to Sec. 15.1, LGC).
Remedies
151. C Corp. is engaged in the business of providing international telecommunications services. The
provincial Assessor determined that its sub.m arine cable systems are taxable real property. Are
submarine communications cables subject to real property tax?
Yes. Submarine or undersea communications cables are akin to electric transmission lines which may
qualify as "machinery" subject to real property tax under the LGC. 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 uncier 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 (Capitol
Wireless, Inc. v. The Provincial Treasurer of Batangas, G.R. No. 18011 O; May 30, 2016) •

40 2017 CENTRALIZED BAR 0PERATl~NS
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TAXATIO-N LAW
Exemption from Real Property Tax
152. The City of Lapu-Lapu demanded from PEZA real property taxes on PEZA's properties located in
the Mactan Economic Zone. It cited Sections 193 and 234 of the LGC that withdrew the real
property tax exemptions previously granted to or presently enjoyed · by all persons. The
PEZA however, argued that it is an agency · and Instrumentality of the National Government.
Thus, it is exempt from payment of real property taxes under Sections 133(0) and 234(a) of
the LGC. Is the PEZA exempt from payment of real property taxes as an agency and
instrumentality of the National Government?
Yes. Under Section 133(0), LGUs have no power to levy taxes of any kind on the national
government, its agencies and instrumentalities and local government units. The PEZA is an
instrumentality of the national government. Although the Special Economic Zone Act of 1995 does
not specifically exempt' the· PEZA from payment of real property taxes, PEZA is exempt from real
property taxes by virtue of its charter., The PEZA assumed the real property exemption of the
EPZA ~nder PD No. 66 (City of Lapu-Lapu v. Philippine Economic Zone Authority G.R. No. 184203,
November 26, 2014).
155. Wheo should the 1-year redemption period of forfeited tax delinquent real properties be
reckoned?
The 1-year redemption period of forfeited tax delinquent properties is reckoned from the date of the
auction. The absence of the public bid impels the City Treasurer to purchase the property in behalf of the
city. Reason would, therefore, dictate that this purchase by the City is the very forfeiture mandated by the
'law. The contemplated "forfeiture" in Section 263 of the LGC points to the situation where the local
government ipso facto "forfeits" the property for want of a bidder (The City of Davao v. The Intestate
Estate of Amado S. Dalisay, G.R. No. 207791, July 15, 2015; Section 263, LGC)

2o'l 7 C ENTRALIZED BAR O P ERATIO NS 41
•
. 156. G Corporation was assessed by the Municipal Treasurer of Navotas of real property tax
delinquencies. G Corporation questions the authority of the municipal treasurer in imposing the
assessment and in collecting the said taxes. What is G Corporation's proper remedy?
In the event that the taxpayer questions the authority and power of the assessor to impose the
assessment, and of the treasurer to collect the real property tax, resort to judicial action may prosper. If
the only issue is the legality or validity of the assessment (a question of law) direct recourse to the RTC is
warranted (National Power Corporation v. Municipal Government of Navotas, G.R. No: 192300;
November 24, 2014) •
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159. President DU issued an order which rovided for a · o al ban on importation of ukay-ukay items.
The Association of Ukay-ukay Collectors of the Philippines filed a petition questioning the legality
on the import ban, claiming that it was beyond his delegated powers under the Flexible Clause
because the order was issued while the congress Is in session. Is ~he association correct?
Yes. Under Section 28(2), Article VI of .the 1987 Constitution, the Congresl? may by l<;iW authorize the
President to fix. within specified limits, and subject to such limitations and restrictions as it may impose
tariff rates, import and export quotas, tonn.a ge and wharfage dues, and other. duties or impost within the
framework of the national development program of the Government. Also, Sectio.n 1608 of the CMTA Law
provides that the president has the power to establish import quotas or ban imports of any commodity, as
may be necessary. However, the power delegated to the President as i:i.rovjded for in this section shall be
exercised only when Congress is not in session. The power to fix tariff rates and other taxes clearly
belongs to Congress anci is exercised by the President only by delegation of that body (Akbayan ·Citizen's
Action Parly ("AKBAYAN'J vs. Aquino, G.R. 170516, July 16, 2008)
SAN B EDA COLLEGE OF L AW

42 2017 C ENTRALIZED BAR O PERATIONS
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TAXATION LAW
160. When does importation begin and when does it end?

Under Section 103 of the CMTA, importation begins when the carrying vessel or aircraft enters the
Philippine territory with the intention to unload therein. Importation is deemed terminated when the duties,
taxes and other charge due upon the goods have been paid 9r secured to be paid, at'the port of entry
unless the goods are free from duties, taxes a nd other charges and legal permit for w ithdrawal has been
g ranted, or in case the goods are deemed free of duties, taxes and other charges, the goods have legally
1
left the jurisdiction of the Bureau. ·
161 . MV Galaxy V , a Malaysian vessel, docked in the port of lloilo. The master of the vessel did not
notify the Port Authorities of its arrival nor did he file a marine protest. 12 days later, the port
authorities found that the vessel was bound for Zamboanga because of an order issued by the
port of Malaysia, without the corresponding documents required by the Ports in the Philippines.
Because of this, the vessel and its cargo were subjected to seizure. ·The crew" contends that they
were not in the process of importation.in the Phllippines~ ut MV Galaxy V was only set for repairs.
Was there illegal importation?
Yes. SectiohN._0~ of the CMTA ~rovides 1;1ilat lnipo(fat1 n btgin Whell th~ carrying vessel or aircraft enters
the Philippine~erfitory with tHe inten!lbn to unlCDad ttlereto Intent- ~eing a star~mind , is rarely
susceptible ofE!irefo\ ptoof, but ~ust be ordim!ril/ inferred from the Ta"cts.and theref0re;qn only be proved
by unguarded expt essions, conduc §'!hd ire~ arices Aenerally. lntert tb i;.rnload was clearly
demonstrated in l'le in,:;t ant case (Feeder t11tt. v C•.A. , G. R - No. 94262,, May 3 1, 1.9~~
'-........... , - -- O~li9ations
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of Jn;iporter
C7
162. Mr. A brought in · h . coun try clot~ing apparel Which he rmportetl frOf];l-"Bangkok. In filing t he
import entry, he engfilJ~' the ervices of brok~r 0. However, afte paSt-11 ent:of the duties but before
the release of the ~®s2fro Custo~s custody, the District C~llector sefzed the goods because
he found out that th)r(goods wer:d misde~red and undervalued. M c aims that he should not
be liable because it s' b'is broker wlio filled-µp the import enti;y an . Has ·no knowledge of the
alleged misdeclaration and. undervaluation. Is flllr. A corr~ctf? ·
No. Section 106 of ttie._€f;Y1TA provides that a~de.clarant r.nay bet e im~ $r~or a customs broker.acting
under the authority G~Q~-'!91Port-er. The declara sha]lr!Je respg nsilDle '$J::1be accuracy of the goods .
declaration and for the i:i'aif'111ent of all ~lutles, taxe~ anCI .a-l:!j·Y.~harge~duu-fi the imported goods. T he
licensed customs bro~~~I li kewis~ be resp0nsib'iefi'o ~ lfd.J acc;uracf~of t be, goods declaration· but shall
not be responsible for t~ay.ment oJ duties, tA.xes ~~d1~ ch~rges cTM owthe imported goods (Section
107). Therefore, in thi~e/Mr. A being the 1:;f~ortei!~rad' _Enncipli\d~ro'k er D is the person directly
liable to pay the duties, taxes ~ othe~ charg8's _df e on t he imposed ~a~
163. K Store, an importer":;- ce'1~6nesand other ele~t~c,Qe e~rought to the Philippines 100
pieces of Apple MacBook A" ..w tfith"duties it pam on Ocle\tle\ 016. On September 30, 2019, the
1
Bureau of Customs acting o · 1\ t K Store sell ua_ale goods conducted a search of its
warehouse. During the said seal'Gfi . Store's embS.yeeS-..Y)'e re unable to provide the records of
payment of taxes, duties and chcfr9efs ma® dUtt[l9 ttte~mportation. K Store claims that ' it is not
bound by the Post-clearance audit mage"'by the eommlssioner because more than 2 years had
elapsed from the payment of duties a rlcf taxes. Is the contention correct?
No. Under Section 1003 of the CMTA, all importers are required to keep at their principal place of
business for a period of 3 years from the date of final payment of duties and taxes or customs clearance,
all records pertaining to the ordinary course of business and to any activity or information contained in the
records. Failure to keep the records required by the law shall constitute a waiver of the right to contest the
results of the audit based on records kept by the Bureau.
Taxable Importations
164. In smuggling a shipment of onion, the smugglers used an eight-wheeler truck which they hired
for the purpose of 1aking out the shipment from the customs zone. B, the truck owner, did not
have a certificate of public convenience to operate his trucking business. B did not know that the
shipment of onion was illegally imported. Can the Collector of Customs of the port seize and
forfeit the truck as an instrument in the smuggling?
SAN BEDA C O LLEGE OF L AW

f.
TAXATl:·O N LAW
Yes. Under Section 1113 of the CMTA, the mere carrying or holding on board of smuggled goods in
commercial quantities shall subject such vehicle to forfeiture provided that the vehicle is not used as a
common carrier which has been chartered or leased for purposes of conveying or transporting persons or
cargo. As in . this case, since the truck owner does not have a certificate of public convenience, it is
presumed that he has not legally engaged in the trucking business.
Conditionally-Free Importations
165. Ms. E is a Filipino who went in USA for wor k and lived there for 1 year. After she accomplished
her work, she returned to the Philippines. She brought home with her a pair of diamond earrings
which she bought at Hongkong. What is the tax implication?
The diamond earrings are subject to customs taxes and duties. Sec. 800 (f) of the CMTA provides that,
personal and household effects belonging to returning residents are free from customs duties and taxes
excluding lux.u ry items. In this case, the diamond earing is considered a luxurious item which w as bought
by Ms. E Hongkong. Hence, the importation of said diamond earing in the Philippines is subject to
customs taxes and duties. --~:::-·-"-~--~-·-
170. P/lnsp. G allegedly informed P/Supt. M that the Bureau of Customs released three container vans
with contrabands consig.ned to Taiwan Surplus. Upon the order of P/Supt. M, but without tl:le
authority from the BOC, P/lnsp. G flagged down the subject container vans. The Customs District
Collector prepared a letter of protest addressed to P/Supt. M but It was Ignored; hence, she filed
the Instant case. P/Supt. M and P/lnsp. G, both members of the PNP-CIDG, contend that the
police's authority to. conduct search, seizure and arrest, if necessary, Is no longer exclusively
vested on the Collector of Customs by virtue of RA 6975 or DILG Act of 1990. Is their contention
meritorious?

44 201 7 CENTRALIZED BAR OPERATIONS
No. Under Section 214 of the CMTA, upon authorization of the Commissioner, officers and members of
the Armed Forces of the Philippines and national law enforcement agencies are authorized to effect
warrantless search, seizure and arrest. In this case, the P/lnspecto rs have failed to secure the written
authority to conduct the search, seizure and arrest.
171 . On May 16, 2005, Y Corporation imported 1,000 kilos of steel ingots and paid customs duties to
the Bureau of Customs on the importation. On November 6 , 2009, the Bureau of Customs
investigated and assessed Y Corporation for deficiency duties. Is the Bureau of Customs correct?
No. Under Section 1000 of the CMTA law, the Bureau may only conduct an audit examination, inspection,
verification and investigation within three years from the date of final payment of duties and taxes or
customs clearance. In this case, the imported steel ingots had been paid in 2005, hence, the right of the
Bureau to assess deficiency duties in 2009 has prescribed .
175. Taxpayer Z Corp. requested a ruling from the BIR to confirm that the sale of its shareholdings in
Y Corp. to W . Corp. at a price lower than the book value of the shares was not subject to donor's
tax. The CIR, In accordance with his authority to interpret tax la.ws, issued BIR Ruling No. 015-12
holding that the said transaction is subject to 30% donor's tax. The Secretary of Finance affirmed
the said ruling. Where does one seek immediate recourse from the adverse ruling of the Secretary
of Finance In Its exercise of Its power of review under Sec.4 of the NIRC? (BAR 2006, 2015)
The CTA is the proper forum with which to institute the appeal. It is within the power of the CTA , through
its power of certiorari, to· rule on the validity of a particular administrative rule or regulation so· long as it is
within its appellate jurisdiction. The CTA can now rule not only on the propriety of an assessment or tax
·treatment of a certain transaction , but also on the validity of t he revenue regulation or revenue
memorandum circular on which the assessment is based (The Philippine American Life and General
lns.urance Company v. Sec. of Finance and CIR, GR No. 210987, November 24, 2014)
SAN B EDA C O LLE G E OF. L AW

201 7 C ENTRALIZED BAR O PERATIONS 45
· 176. The Collector of Customs imposed excise tax on the importation of alkylate of P Corp. The
assessment was based on a Letter i ssued by the CIR interpreting Section 148 (e) of the NIRC as to
. lnClude alkylate among the articles subject to customs duties. P Corporation filed a petition for
review with the CTA which assumed j urisdiction over the petition on the premise ·that the
controversy i nvolves a question on the propriety or soundness of the CIR's interpretat ion of
Section 148 (e) of the NIRC .which falls wittiin the exclusive jurisdiction of the CTA under Section 4
thereof, particularly ·under the phrase "other matters arising under [the NIRC]". Did the CTA
correctly assume jurisdiction? ·
No. The CTA has no juri~diction to determine the validity of a ruling issued by the CIR or the COC in the
exercise of their quasi-legislative powers to interpret tax laws. The phrase "other matters arising under
this Code," should be understood as pertaining to those matters directly related to the preceding phrase
"disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties imposed in
relation thereto". It cannot extenct to evaluating the soundness of the interpretation of tax laws by the CIR.
As the CIR's interpretation of a tax provision involves· an exercise of her quasi-legislative functions, the
proper recourse against the subject tax ruling expressed in CMC No. 164-2012 ·is a review by the
Secretary of Finance and ultimately t!)s.i-e ular'"'OOtJrt&::f~mmissioner of Internal Revenue v. Court of_Tax
Appeals, G.R. No. 207843, Ju/Yi 'tl'72111J t ~ ,
177. The City A or ·of Munti fu.e;:sss ssed flie m c - eguipment, and fi~ u ~ of B Corp. for
real property ai 9'1!:· appeal, 'ne Muntinl':!Jla C~ Board of Ass'essment Apr~ s;..;;;CBAA) ruled in
favor of the Ci~ B,v.Corp. brought t t81 f d"l:J vi Jl"e!ore the CTA ~ Pa Il!ea the decision of
o(jurfS:~eti/n.r£C~t~inC~Bia1s f-0m\'fi\J de~i0
the CBAA. Is the ti · n for..,Rei iew r e L}i filed 't he CT. xglain.
No. The CTA is= " ... f the City Board of
Assessment App~der the Loca Go\l.e r:imen Gode, tne CBAA h~~ llate jurisdiction over
· decisions of Local B~r~A!lf As rpssmen ppeals !fl tt;le' case ifjt bar, f.
Cr .ffi)p
' er remedy is to appeal
to the Central Boar~~ -' . ess ' ent Ap , als (Ca{tex fDNI..s. lf'lle. v. et;,ntral -~~.- f Assessment Appeals,
jurisdiction~ jPP~IJgfr.il risdiction

L-50466, May 31, 19 ~
Note: Decisions, reso btl ~ or r gi;s · th TGs decided .er iresol ed ~ 1:~ in the exercise of their
appellate local ax ca . s are wjlhirl the exclusive of the CTA en
bane. Real property ~~s-es dE;Jcided ~ the RTCs are not under the ~~;s...jt'.irisdiction. The jurisdiction
of the CTA involves 001}.lliJise r119l~propertJ( t~x-oas& odgmally...decidetl
~ ~ 'e CBAA in the exercise of
its appellate jurisdicti~.~~m
· Appeals, G.R. No.174 /'59,
dilr Sec. 7(_a). {5~ of R
tem er 1, 2(J);t~r
92 z ~.· d
1
under R ~1 (Habawel v. Court of Tax
178. XYZ Corp., a PEZA-r · · · ~ty

. ·r d e~terpr[se, faHe<t 1· e ce o ~p/,r;;;t's. It sold its buildings and
some of its machiner e ~Jlothe PEaA·reg)st n es:prise Due-:.m the BIR's inaction on its
administrative claim fo [WRp, it f ed a Peti~on r"R lew w~ h<'CT A. After finding that the
corporation sold capitat>..a~"'J~ the CUA su~'cted t sal~f · . id properties to 6% capital
gains tax. The corporati · ~tt thal'the CT~ has o jup . ·c i&ft'"to make .an assessment since
its jurisdiction with respec . ~df:~· sion oh.fie CIR isf\er ellate. Decide on the case.
The CTA may acquire jurisdic to ~ ses even if the ~ o 'nV'olve BIR assessments or decisions.
R.A. No. 1125 vests the CTA w1 't:r_psu~ ~~er...tha-.B · naetton on a taxpayer's refund claim. In the
instant case, the CTA did not acquii'"e""}O'"riss;li_).Grt as..,.8_'C~satt"'o'f a disputed assessment of a BIR decision
but on the basis of the appeal filed by X~corp . Furlh~~e CTA was not making an assessment since
the determination of the proper category of tax that XY~orp. should have paid is an incidental matter
necessary for the resolution of the principal issue, which is whether it was entitled to a refund (SMl-ED
Philippines Technology, Inc. v. CIR, G.R. No. 175410, November 12, 2014)
179. Takasago, a registered VAT taxpayer, filed a written application for refund or issuance of a tax
credit certificate for its excess and unutilized input VAT with the CIR. Before the lapse of the
reglementary period, Takasago filed a petition for review with the CTA Division, alleging inaction
of ttae CIR. The CTA in Division partially granted the same petition. The CIR filed a petition for
review with the CTA En Banc, alleging that Takasago filed the petition for review in CTA Division
prematurely. Is· the contention tenable?
Yes. Under Sec. 7, R.A. No. 9282, as amended, the CTA has exclusive appeilate jurisdiction to review by
appeal a decision or inaction by the .CIR on the claim for refund. It is clear that for the CTA to acquire
jurisdiction over refunds of internal revenue taxes, there must be a decision or inaction by the CIR.
SAN. BEDA COLLEGE OF LAw

'TAXATION .LAW
Otherwise, the CTA will not acquire jurisdiction over the cl.aim for refund or credit (Commissioner of
Internal Revenue v, Takasago Phils. Inc, CTA EB No. 835, October 15, 2012).
Power to Issue Injunction
180. During the pendency of hi~ case with the CTA, Mr. M sought t.h e suspension of the issuance of
warrants of distraint and/or levy and warrants of garnishment Issued by the CIR against his
assets. The ·CTA granted the motion but Mr. M was required to either deposit the· entire amount of
the deficiency taxes or post a bond. Can the CTA suspend the collection of taxes from Mr. M?
(Covered Case) ·
Yes. The CTA has authority to issue injunctive writs to restrain the collection of tax and to even dispense
with the deposit of the amount ~laimed or the filing of the required bond, whenever the method employed
by the CIR in the collection of tax jeopa rdizes the interests of a taxpayer for being patently in violation of
the law (Sps. Pacquiao v. Court of Tax Appeals and Commissioner of lnter.nal Revenue, G.R. No. 213394,
April 16, 2016) . . .
·184. Aggrieved by the decision of CTA Division, F Corp. filed a pe.tition for annulment of the decision
df the CTA Division before the CTA En Banc. Is the petition prop.e r?
No. The RRCTA and even the Rules of Court which apply suppletoril y thereto provide that for no instance
in which the CTA En Banc may reverse , annul or void a finar decision of a division. Verily, the RRCTA
provide for no instance of an annulment of judgment at all. The silence of the Rules may be attributed to
the need to preserve the principles th at there can be no hierarchy within a collegial court between its
divisions and the en bane, and that a court's judgment, once final, is immutable (Commissioner of Internal
Revenue v. Kepco l/ijan Corporation, G.R. No: 199422, June 21, 2'o16).
S AN BEDA C OLLEGE OF L AW
201 7 C ENTRALIZED B AR OPERATIONS 47
,.
185. Aggrieved by the decision of CTA Division, G Corp. filed a Petition for Review on Certiorari before
the SC. Is the petiti9n proper? - _
No. The SC is without jurisdiction to review decisions rendered by a division- of the C_TA,- exclusive
appellate jurisdiction over which is -vested in the CTA en bane. A party adversely affected by a resolution
of a Division of the CTA o_n a motion for reconsideration or new trial , may file a petition for review with the
CTA en bane (Duty Free Philippines v. Bureau of Internal Revenue, G.R. No. 163835, July 7, 2010).
186. In a case before the CTA Division; the CIR moved to declare Taxpayer-A in default. However, the
CTA Division issued an Order denying such motion. The CIR then appealed the said Order to the
CTA en bane. Is the appeal proper?
No. The CTA en bane has jurisdiction over final order or judgment but not over interlocutory orders issued
by the.CTA, such as an order denying a motion to declare.a taxpayer in default. The proper remedy is to
file a petition for certiorari before the SC assailing the interlocutory orders issued by the CTA since no
appeal can be taken from an interlocutory ·o rder (Commissioner of Internal Revenue v. Court of Tax
Appeals and CBK Power Comp13ny Limited, G.R. Nos. 203054-55, July 29, Z015).
SAN BEDA
COLLEGE OF LAVV
SAN B EDA C OLLEGE OF I.Aw

48 20 17 C ENTRALIZED B~ O PERATIONS

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TAXAT ION I.AW

Scope and Limitations of Taxation

SAN B EDA C OLLEGE OF L AW

SAN BEDA COLLEGE OF LAW

SAN B EDA COLLEGE OP L AW

Compensation and Set-Off

SAN BEDA COLLEGE OF LAW

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Non-retroactive Application of Tax Laws

~h;8 ~~creta~ce (AB, C!W=®~7~o:,: " ~· 1 CTA -G.R.~~~6, October 12,

Note:. A statute will . o ~con~fr4ea ·i~po~~~~ t4llJ~less itt'd~bS7so

SAN BEDA COLLEGE OF LAW

SAN BEDA C OLLEGE OF L AW

Income Tax on Individuals

Non Resident Alien Engaged in Trade or Business

Special Class of Individual Employees

SAN BEDA COLLEGE OF LAw

'"·~ - - - --- - --~-- - ·- ·- -- - - - - - - - - - --- - - - --

SAN BEDA COLLEGE OF LAW

Tax on Joint Venture

SAN BEDA COLLEGE OF LAW

'api al Loss Carry-Over (NELCO).

SAN B EDA COLLEGE OF L AW

A.s d~ductibiHty of ordinpry loses

The holding period applies only to individuals (NIRC, Sec. 39(8)).

SAN BEDA C OLLEGE OF LAW

Filing of Tax Return

SAN BEDA COLLEGE OF LAW

58 . Discuss the kinds oJY~old/f1.g aJs.

Note: Under the fin al w P'

59. G, a domestic corporation, increased authorized~(']pi~stock.

SAN B EDA C O L LEGE O F LAw

"' ----- . - ~ -- -- - ---- -~---

SAN BEDA COLLEGE OF LAW

u-.a"""'"1·dded in the gross estate of the

b. No. As p oviped under Sectjon 104 1f the N.l:~c, ~le

SAN B EDA COLLEGE OF LAW

SAN BEDA C O LLEGE OF LAW

~ ..... ,. .:.; ~ , , ··~r

SAN B EDA COLLEGE OF LAW

SAN BEDA COLLEGE OF LAw

SAN BEDA COLLEGE OF LAW

Transitional Input Tax.

Refund or Tax Credit of Excess Input Vat

SAN BEDA CoLLEGE OF LAw .

b. Cessation of business or VAT status

SAN B EDA COLLEG E O F LAw

96. Discuss the two types of withhold n ax s n WS.T. ·

SAN BEDA COLLEGE OF L AW

I · not subject to VAT. Is F Pawnshop Inc. liable to pay VAT?

SAN B EoA C O LLEGE OF LAw

enefit of full audit ;;1nd only for the

SAN BEDA COLLEGE OF LAw

SAN B EDA C OLLEGE OF L AW

Prescriptive Period of Collection

SAN BEDA COLLEGE OF LAw

Waiver of Statue of Limitations

113. What does the new rule on waiver provide?

11.4. What are th ~ . (2) materials da @$ needed 6n·th&-wa1:vei? ~

Note: Under RMO 14-201 6, tli ~ ~ay

SAN B EDA C O LLEGE O F LAW

SAN B E oA C OLLEGE oF LAw