TAX REMEDIES

1. Letter of Authority (LOA) versus Letter Notice (LN)

First, an LOA addressed to a revenue officer is specifically required under the

NIRC before an examination of a taxpayer may be had while an LN is not found in
the NIRC and is only for the purpose of notifying the taxpayer that a discrepancy
is found based on the BIR's RELIEF System.

Second, an LOA is valid only for 30 days from date of issue while an LN has no
such limitation.

Warriors’ Notes Third, an LOA gives the revenue officer only a period of 120 days from receipt of
LOA to conduct his examination of the taxpayer whereas an LN does not contain
2018 such a limitation.

Simply put, LN is entirely different and serves a different purpose than an LOA.
Due process demands, as recognized under RMO No. 32- 2005, that after an LN
has serve its purpose, the revenue officer should have properly secured an LOA
before proceeding with the further examination and assessment of the
petitioner. Unfortunately, this was not done in this case. (Medicard Philippines, Inc.
v. CIR, G.R. No. 222743. April 5, 2017)

2. LOA covers one taxable year and it must specify each taxable year
or taxable period on separate LOAs.

It was observed that the Letter of Authority authorized the BIR officers to examine
the books of account of Lancaster for the taxable year 1998 only or, since
Lancaster adopted a fiscal year (FY), for the period 1 April 1997 to 31 March
1998. However, the deficiency income tax assessment which the BIR eventually
issued against Lancaster was based on the disallowance of expenses reported in
FY 1999, or for the period 1 April 1998 to 31 March 1999.

Even though the date after the words "taxable year 1998 to" is unstated, it is not
at all difficult to discern that the period of examination is the whole taxable year
1998. This means that the examination of Lancaster must cover the FY period from
1 April 1997 to 31 March 1998. It could not have contemplated a longer period.
The examination for the full taxable year 1998 only is consistent with the guideline
in Revenue Memorandum Order (RMO) No. 43-90, dated 20 September 1990, that input tax subject matter of the claim. (Aichi Forging Asia v. CTA, G.R. No. 193625.
the LOA shall cover a taxable period not exceeding one taxable year. August 30, 2017)

Therefore, the revenue examiners had exceeded their authority when they issued 5. A final assessment notice which provides, to wit—
the assessment against Lancaster. Consequently, such assessment is without force
and effect. (CIR v. Lancaster Philippines, Inc., G.R. No. 183408, July 12, 2017) “The complete details covering the aforementioned discrepancies
established during the investigation of this case are shown in the
3. The 120-day waiting period does not apply to claims for
accompanying Annex 1 of this Notice. The 50% surcharge and 20%
refund that were prematurely filed during the period from the issuance
interest have been imposed pursuant to Sections 248 and 249 (B)
of BIR Ruling No. DA-489-03 on December 10, 2003, until October 6,
of the [National Internal Revenue Code], as amended. Please
2010, when the Aichi was promulgated; but before and after said period,
note, however, that the interest and the total amount due
the observance of the 120-day period is mandatory and jurisdictional.
will have to be adjusted if prior or beyond April 15, 2004.”
Again, it has already been settled in San Roque that BIR Ruling No. DA-489-03 is
is invalid for it does not provide for a definite amount of tax liability for which the
a general interpretative rule which all taxpayers may rely upon from the time of its
taxpayer is accountable and there are no due dates in the FAN. April 15, 2004 was
issuance on December 10, 2003 until its effective reversal by the Court in Aichi.
the reckoning date of accrual of penalties and surcharges and not the due date for
While RR 16-2005 may have re-established the necessity of the 120-day period,
payment of tax liabilities. The total amount depended upon when respondent
taxpayers cannot be faulted for still relying on BIR Ruling DA-489-03 even after the
decides to pay. The notice, therefore, did not contain a definite and actual demand
issuance of RR 16-2005 because the issue on the mandatory compliance of the
to pay. (CIR v. Fitness by Design, Inc., G.R. No. 215957. November 9, 2016)
120- day period was only brought before the Court and resolved with finality in
Aichi. (Sitel Philippines Corporation v. CIR, G.R. No. 201326, 8 February 2017; Visayas
Geothermal Company v. CIR, G.R. No. 205279, 26 April 2017; CE Luzon Geothermal 6. An application for tax abatement is deemed approved only
Power Company, Inc. v. CIR, G.R. No. 197526, 26 July 2017; Procter & Gamble Asia upon the issuance of a termination letter by the BIR.
PTE LTD. v. CIR, G.R. No. 205652, 6 September 2017) Asiatrust failed to present a termination letter from the BIR. Instead, it presented a
Certification issued by the BIR to prove that it availed of the Tax Abatement
4. For the input tax paid on capital goods, the counting of the Program and paid the basic tax. It also attached copies of its BIR Tax Payment
two-year period starts from the close of the taxable quarter when the Deposit Slips and a letter issued by RDO Nacar. These documents, however, do not
purchase was made; whereas, for input tax attributable to zero-rated prove that Asiatrust's application for tax abatement has been approved. If at all,
sale, from the close of the taxable quarter when such zero-rated sale was these documents only prove Asiatrust's payment of basic taxes, which is not a
made (not when the purchase was made). ground to consider its deficiency tax assessment closed and terminated.
The law contemplates two kinds of refundable amounts: (1) unutilized input tax paid
Asiatrust's application for tax abatement will be deemed approved only upon the
on capital goods purchased, and (2) unutilized input tax attributable to zero-rated
issuance of a termination letter, and only then will the deficiency tax assessment
sales. The claim for tax refund or credit is initially led before the CIR who is vested
be considered closed and terminated. However, in case Asiatrust's application for
with the power and primary with jurisdiction to decide on refunds of taxes, fees or
tax abatement is denied, any payment made by it would be applied to its
other charges, and penalties imposed in relation thereto. In every case, the filing
outstanding tax liability. For this reason, Asiatrust's allegation of double taxation
of the administrative claim should be done within two years. However, the
must also fail. (Asiatrust Development Bank, Inc. v. CIR, G.R. No. 201530. April 19, 2017)
reckoning point of counting such two-year period varies according to the kind of
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7. A waiver of the statute of limitations that does not comply
with the requisites for its validity specified under RMO No. 20-90 and
RDAO 01-05 is generally invalid, but may still be valid due to peculiar
circumstances.
The general rule is that a waiver of the statute of limitations that does not comply
with the requisites for its validity specified under RMO No. 20-90 and RDAO 01-05
is generally invalid and ineffective to extend the prescriptive period to assess taxes.
However, due to peculiar circumstances and as exception to the general rule, the
supposedly invalid waivers may be considered valid for the following reasons:
a. The parties in the case are in pari delicto or “in equal fault”. In pari
delicto connotes that the two parties to a controversy are equally
guilty and they shall have no action against each other.
b. Parties must come to Court with clean hands. Parties who do not
come to Court with clean hand cannot be allowed to benefit from
their own wrongdoing. Taxpayer should not be allowed to benefit
from the flaws in its own waivers and successfully insist on their
invalidity in order to evade its responsibility to pay taxes.
c. Taxpayer is estopped from questioning the validity of its waivers.
While it is true that the Court had repeatedly held that the doctrine
of estoppel must be sparingly applied as an exception to the statute
of limitations for assessment of taxes, the Court finds that the
application of the doctrine in this case is justified. Verily, the
application of estoppel in this case would promote the
administration of the law, prevent injustice and avert the
accomplishment of a wrong. The taxpayer executed 5 waivers and
delivered them to the BIR and did not raise any objection against
their validity until the BIR assessed taxes against it. Moreover, the
application of the estoppel is necessary to prevent the undue injury
that the government would suffer because of the cancellation of
the BIR’s assessment of taxpayer’s tax liabilities.
d. The Court cannot tolerate a highly suspicious situation. In this case,
after the taxpayer voluntarily executing the waivers, insisted on
their invalidity by raising the very same defects it caused. On the
other hand, the BIR miserably failed to exact from the taxpayer
compliance with its rules. The BIR’s negligence in the compliance of
its duties was so gross such that it seemed that it consented to the
mistakes in the waivers. Such a situation is dangerous and open to
abuse by unscrupulous taxpayers who intend to escape their
responsibility to pay taxes by mere expedient of hiding behind
technicalities.
The BIR’s right to assess and collect taxes should not be jeopardized merely
because of the mistakes and lapses of its officers, especially in cases like this
where the taxpayer is obviously in bad faith. (CIR vs. Next Mobile, Inc. G.R. No.
212825, December 7, 2015)
8. Simplified requisites for valid waiver
Revenue Memorandum Order (RMO) No. 14-2016, Effective April 4, 2016.
The waiver may be, but not necessarily, in the form prescribed by RMO No. 20-90
or RDAO 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:
a. The Waiver of the Statute of Limitations under Section 222 (b) and (d) shall
be executed before the expiration of the period to assess or to collect taxes.
b. The date of execution shall be specifically indicated in the waiver.
c. The waiver shall be signed by the taxpayer himself or his duly authorized
representative. ln the case of a corporation, the waiver must be signed by
any of its responsible officials; and
d. The expiry date of the period agreed upon to assess/collect the tax after
the regular three- year period of prescription should be indicated.
(Note: Section 203 of the NIRC limits the CIR's period to assess and collect internal
revenue taxes to 3 years counted from the last day prescribed by law for the filing of
the return or from the day the return was filed, whichever comes later. Assessments
issued after the expiration of such period are no longer valid and effective.)
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 9. Prior to effectivity of RMO 14-2016, requirements for proper
execution of a valid waiver provided under RMO 20-90 and RDAO 05-01
are mandatory and must strictly be followed.
Tested against the requirements of RMO 20-90 and relevant jurisprudence, CTA
found that the waivers suffer from the following defects: (1) At the time the first
waiver took effect on June 2, 2006, the period for CIR to assess for FY 2003 had
already prescribed. The CIR only had until April 17, 2006 (for EWT) and May 25,
2006 (for VAT), to issue the subject assessments; (2) taxpayer's signatory to the
3 waivers had no notarized written authority from the corporation's board of
directors; and (3) the waivers did not specify the kind of tax and the amount of
tax due. (CIR v. Systems Technology Institute, Inc., G.R. No. 220835, 26 July
2017)
10. The assessment required to be issued within the 3-year
period or extended period in Sections 203 and 222 of the NIRC refers to
FAN and not to PAN.
Considering the functions and effects of a PAN vis à vis a FAN, it is clear that the
assessment contemplated in Sections 203 and 222 of the National Internal Revenue
Code refers to the service of the FAN upon the taxpayer. A PAN merely informs the
taxpayer of the initial findings of the BIR. It contains the proposed assessment,
and the facts, law, rules, and regulations or jurisprudence on which the proposed
assessment is based. It does not contain a demand for payment but usually
requires the taxpayer to reply within 15 days from receipt. Otherwise, the
Commissioner of Internal Revenue will finalize an assessment and issue a FAN. The
PAN is a part of due process. It gives both the taxpayer and the Commissioner of
Internal Revenue the opportunity to settle the case at the earliest possible time
without the need for the issuance of a FAN.
On the other hand, a FAN contains not only a computation of tax liabilities but also
a demand for payment within a prescribed period. (CIR v. Transitions Optical
Philippines, Inc., G.R. No. 227544, November 22, 2017)
11. The doctrine of estoppel cannot be applied as an exception
to the statute of limitations on the assessment of taxes, considering that
there is a detailed procedure on the execution of waiver, which the BIR
must strictly follow. BIR cannot hide behind the doctrine of estoppel to
cover its failure to comply with RMO 20-90 and RDAO 05-01, which the
BIR itself issued. (CIR v. Systems Technology Institute, Inc., G.R. No. 220835, 26
July 2017)
12. Estoppel applies against a taxpayer who did not only raise at
the earliest opportunity its representative's lack of authority to execute
two (2) waivers of defense of prescription, but was also accorded, through
these waivers, more time to comply with the audit requirements of the
Bureau of Internal Revenue. Nonetheless, a tax assessment served beyond
the extended period is void. (CIR v. Transitions Optical Philippines, Inc., G.R. No.
227544, 22 November 2017)
13. Immediate Issuance of FLD/FAN
Exceptions to Prior Notice of the Assessment. — Pursuant to Section 228 of
the Tax Code, as amended, a PAN shall not be required in any of the following
cases:
1) When the finding for any deficiency tax is the result of mathematical
error in the computation of the tax appearing on the face of the tax return
filed by the taxpayer; or
2) When a discrepancy has been determined between the tax withheld and
the amount actually remitted by the withholding agent; or
3) When a taxpayer who opted to claim a refund or tax credit of excess
creditable withholding tax for a taxable period was determined to have
carried over and automatically applied the same amount claimed
against the estimated tax liabilities for the taxable quarter or quarters
of the succeeding taxable year; or
4) When the excise tax due on excisable articles has not been paid; or
5) When an article locally purchased or imported by an exempt person, such
as, but not limited to, vehicles, capital equipment, machineries and spare
parts, has been sold, traded or transferred to non-exempt persons.
In the above-cited cases, a FLD/FAN shall be issued outright.
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Formal Letter of Demand and Final Assessment Notice (FLD/FAN). — The
FLD/FAN shall be issued by the Commissioner or his duly authorized representative.
The FLD/FAN calling for payment of the taxpayer's deficiency tax or taxes shall
state the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based; otherwise, the assessment shall be void
14. Remedy of the Taxpayer upon receipt of FAN
Disputed Assessment. — The taxpayer or its authorized representative or tax
agent may protest administratively against the aforesaid FLD/FAN within thirty (30)
days from date of receipt thereof. Otherwise, the FLD/FAN becomes final and
executory. No request for reconsideration or reinvestigation shall be granted on tax
assessments that have already become final, executory and demandable.
The taxpayer protesting an assessment may file a written request for reconsideration
or reinvestigation defined as follows:
i. Request for reconsideration—refers to a plea of re-evaluation of an
assessment on the basis of existing records without need of additional
evidence. It may involve both a question of fact or of law or both.
ii. Request for reinvestigation— refers to a plea of re-evaluation of an
assessment on the basis of newly discovered or additional evidence that a
taxpayer intends to present in the reinvestigation. It may also involve a
question of fact or of law or both.
The taxpayer shall state in his protest (i) the nature of protest whether
reconsideration or reinvestigation, specifying newly discovered or additional
evidence he intends to present if it is a request for reinvestigation, (ii) date of the
assessment notice, and (iii) the applicable law, rules and regulations, or
jurisprudence on which his protest is based, otherwise, his protest shall be
considered void and without force and effect.
Undisputed issue or issues shall become final, executory and demandable; and the
taxpayer shall be required to pay the deficiency tax or taxes attributable thereto.
For requests for reinvestigation, the taxpayer shall submit all relevant
supporting documents in support of his protest within sixty (60) days from
date of filing of his letter of protest, otherwise, the assessment shall become
final. The term “relevant supporting documents” refer to those documents necessary
to support the legal and factual bases in disputing a tax assessment as determined
by the taxpayer. The sixty (60)-day period for the submission of all relevant
supporting documents shall not apply to requests for reconsideration. Furthermore,
the term “the assessment shall become final” shall mean the taxpayer is barred
from disputing the correctness of the issued assessment by introduction of newly
discovered or additional evidence, and the FDDA shall consequently be denied
If the protest is denied, in whole or in part, by the Commissioner’s duly
authorized representative, the taxpayer may either:
(i) appeal to the Court of Tax Appeals(CTA) within thirty (30) days from date
of receipt of the said decision; or
(ii) elevate his protest through request for reconsideration to the Commissioner
within thirty (30) days from date of receipt of the said decision. No request
for reinvestigation shall be allowed in administrative appeal and only
issues raised in the decision of the Commissioner’s duly authorized
representative shall be entertained by the Commissioner.
If the protest is not acted upon by the Commissioner’s duly authorized
representative within one hundred eighty (180) days counted from the date of filing
of the protest in case of a request reconsideration; or from date of submission by
the taxpayer of the required documents within sixty (60) days from the date of
filing of the protest in case of a request for reinvestigation, the taxpayer may
either:
(i) appeal to the CTA within thirty (30) days after the expiration of the one
hundred eighty (180)- day period; or
(ii) await the final decision of the Commissioner’s duly authorized
representative on the disputed assessment.
Foregoing remedies are mutually exclusive and the resort to one bars the
application of the other.
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If the protest or administrative appeal, as the case may be, is denied, in whole or in
part, by the Commissioner, the taxpayer may appeal to the CTA within thirty (30)
days from date of receipt of the said decision. Otherwise, the assessment shall
become final, executory and demandable. A motion for reconsideration of the
Commissioner’s denial of the protest or administrative appeal, as the case may be,
shall not toll the thirty (30)-day period to appeal to the CTA.
Final Decision on a Disputed Assessment (FDDA. — The decision of the
Commissioner or his duly authorized representative shall state the facts, the
applicable law, rules and regulations, or jurisprudence on which such decision is
based, otherwise, the decision shall be void and that the same is his final decision.
Modes of Service. — The notice (PAN/FLD/FAN/FDDA) to the taxpayer herein
required may be served by the Commissioner or his duly authorized representative
through the following modes:
i. The notice shall be served through personal service by delivering personally
a copy thereof to the party at his registered or known address or wherever
he may be found. A known address shall mean a place other than the
registered address where business activities of the party are conducted or
his place of residence.
In case personal service is not practicable, the notice shall be served by
substituted service or by mail.
ii. Substituted service can be resorted to when the party is not present at the
registered or known address under the following circumstances:
The notice may be left at the party’s registered address, with his clerk or
with a person having charge thereof.
If the known address is a place where business activities of the party
are conducted, the notice may be left with his clerk or with a person
having charge thereof.
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“Disinterested witnesses” refers to persons of legal age other than employees of the Bureau of
Internal Revenue.
If the known address is the place of residence, substituted service can
be made by leaving the copy with a person of legal age residing
therein.
If no person is found in the party’s registered or known address, the
revenue officers concerned shall bring a barangay official and two (2)
disinterested witnesses1 to the address so that they may personally observe
and attest to such absence. The notice shall then be given to said barangay
official. Such facts shall be contained in the bottom portion of the notice,
as well as the names, official position and signatures of the witnesses.
Should the party be found at his registered or known address or any other
place but refuse to receive the notice, the revenue officers concerned shall
bring a barangay official and two (2) disinterested witnesses in the
presence of the party so that they may personally observe and attest to
such act of refusal. The notice shall then be given to said barangay official.
Such facts shall be contained in the bottom portion of the notice, as well
as the names, official position and signatures of the witnesses.
iii. Service by mail is done by sending a copy of the notice by registered mail
to the registered or known address of the party with instruction to the
Postmaster to return the mail to the sender after ten (10) days, if
undelivered. A copy of the notice may also be sent through reputable
professional courier service. If no registry or reputable professional courier
service is available in the locality of the addressee, service may be done by
ordinary mail.
Note: Service to the tax agent/practitioner, who is appointed by the taxpayer
under circumstances prescribed in the pertinent regulations on accreditation of tax
agents, shall be deemed service to the taxpayer.
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 15. The term relevant supporting documents refers to the
documents necessary to support the legal basis in disputing a tax
assessment as determined by the taxpayer.
PAN was issued against taxpayer for deficiency income tax and value-added tax.
Taxpayer filed a protest against the PAN and attached supporting documents. FAN
was issued. Taxpayer likewise filed a protest against the FAN and did not anymore
attach supporting documents, considering that such documents had earlier been
submitted. Subsequently, taxpayer filed a petition for review in the CTA praying for
the cancellation of the assessments. The CIR questioned the jurisdiction of the CTA,
arguing that the assessments against taxpayer had become final, executory and
demandable because of the failure of the taxpayer to submit the required returns,
statements, reports and other documents.
The Supreme Court ruled that taxpayer had timely submitted the relevant
supporting documents substantiating its protest against the assessments. Although
the taxpayer did not anymore attach to its protest against the FAN the relevant
supporting documents earlier submitted to support its protest against the PAN, such
submission of the documents constituted a sufficient compliance with Section 228
of the National Internal Revenue Code. After all, the submitted documents still
formed part of the records of the taxpayer’s administrative protest and were thus
readily accessible to the CIR. (CIR v. Oakwood Overseas Limited, G.R. No. 227083, 5
April 2017)
16. It is incumbent upon the taxpayer to prove before the CTA
that the deficiency tax assessment issued by the CIR had no legal or
factual basis or that it had already paid or remitted the deficiency tax
assessment. (Edison (Bataan) Cogeneration Corporation v. CIR, G.R. No. 210665, 30
August 2017)
17. While it is true that an assessment is made when the notice
is sent within the prescribed period, the release, mailing, or sending of
the same must still be clearly and satisfactorily proved.
The CIR has three (3) years from the date of the actual filing of the return or from
the last day prescribed by law for the filing of the return, whichever is later, to assess
internal revenue taxes. Here, GJM filed its Annual Income Tax Return for the taxable
year 1999 on April 12, 2000. The three (3)- year prescriptive period, therefore, was
only until April 15, 2003. The records reveal that the BIR sent the FAN through
registered mail on April 14, 2003, well-within the required period. The Court has held
that when an assessment is made within the prescriptive period, as in the case at
bar, receipt by the taxpayer may or may not be within said period. But it must be
clarified that the rule does not dispense with the requirement that the taxpayer
should actually receive the assessment notice, even beyond the prescriptive period.
GJM, however, denies ever having received any FAN.
If the taxpayer denies having received an assessment from the BIR, it then becomes
incumbent upon the latter to prove by competent evidence that such notice was
indeed received by the addressee. Here, the onus probandi has shifted to the BIR
to show by contrary evidence that GJM indeed received the assessment in the clue
course of mail. It has been settled that while a mailed letter is deemed received by
the addressee in the course of mail, this is merely a disputable presumption subject
to controversion, the direct denial of which shifts the burden to the sender to prove
that the mailed letter was, in fact, received by the addressee.
To prove the fact of mailing, it is essential to present the registry receipt issued by
the Bureau of Posts or the Registry return card which would have been signed by
the taxpayer or its authorized representative. *** While it is true that an
assessment is made when the notice is sent within the prescribed period, the
release, mailing, or sending of the same must still be clearly and satisfactorily
proved. Mere notations made without the taxpayer's intervention, notice or control,
and without adequate supporting evidence cannot suffice. Otherwise, the
defenseless taxpayer would be unreasonably placed at the mercy of the revenue
offices.
The BIR's failure to prove GJM's receipt of the assessment leads to no other
conclusion but that no assessment was issued. (CIR v. GJM Philippines Manufacturing,
Inc., G.R. No. 202695, February 29, 2016)
18. The running of the statute of limitations is not suspended by
a mere request for reinvestigation.
The provision is clear. A request for reinvestigation alone will not
suspend the statute of limitations. Two things must concur: there must
be a request for reinvestigation and the CIR must have granted it. The
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Court went on to declare that the burden of proof that the request for
reinvestigation had been actually granted shall be on the CIR. Such grant may be
expressed in its communications with the taxpayer or implied from the action of
the CIR or his authorized representative in response to the request for
reinvestigation. More importantly, the defense of prescription at any stage of the
proceedings. (China Banking Corporation v. CIR, G.R. No. 172509, February 4, 2015)
19. The no-estoppel rule is not absolute
Failure on the part of the government to timely object on defenses of prescription
when raised coupled with delay in the assessment and collection causing injustice
to the taxpayer is an exception. The procedural matter consists in the failure to
raise the issue of prescription at the trial court/administrative level, and injustice in
the fact that the BIR has unduly delayed the assessment and collection of the DST
in this case. The fact is that it took more than 12 years for it to take steps to collect
the assessed tax. The BIR definitely caused untold prejudice to petitioner, keeping
the latter in the dark for so long, as to whether it is liable for DST and, if so, for
how much. (China Banking Corporation v. CIR, G.R. No. 172509, February 4,
2015)
20. Exceptions to the rule on exhaustion of administrative
remedies prior to judicial recourse
The doctrine of exhaustion of administrative remedies is a relative one and its
flexibility is called upon by the peculiarity and uniqueness of the factual and
circumstantial settings of a case. Hence, it is disregarded (1) when there is a
violation of due process, (2) when the issue involved is purely a legal question, (3)
when the administrative action is patently illegal amounting to lack or excess of
jurisdiction,(4) when there is estoppel on the part of the administrative agency
concerned,(5) when there is irreparable injury, (6) when the respondent is a
department secretary whose acts as an alter ego of the President bears the implied
and assumed approval of the latter, (7) when to require exhaustion of
administrative remedies would be unreasonable, (8) when it would amount to a
nullification of a claim, (9) when the subject matter is a private land in land case
proceedings, (10) when the rule does not provide a plain, speedy and adequate
remedy, (11) when there are circumstances indicating the urgency of judicial
intervention. (Banco De Oro et. al. v. CIR, G.R. No. 198756, January 13, 2015)
21. Proving that no carry-over has been made does not
absolutely require the presentation of the quarterly ITRs.
The logic in not requiring quarterly ITRs of the succeeding taxable years to be
presented remains true to this day. What Section 76 requires, just like in all civil
cases, is to prove the prima facie entitlement to a claim, including the fact of not
having carried over the excess credits to the subsequent quarters or taxable year.
It does not say that to prove such a fact, succeeding quarterly ITRs are absolutely
needed.
This simply underscores the rule that any document, other than quarterly ITRs may
be used to establish that indeed the non-carry over clause has been complied with,
provided that such is competent, relevant and part of the records.
It goes without saying that the annual ITR (including any other proof that may be
sufficient to the Court) can sufficiently reveal whether carry over has been made
in subsequent quarters even if the petitioner has chosen the option of tax credit or
refund in the immediately 2003 annual ITR.
It must be emphasized that once the requirements laid down by the NIRC have
been met, a claimant should be considered successful in discharging its burden of
proving its right to refund. Thereafter, the burden of going forward with the
evidence, as distinct from the general burden of proof, shifts to the opposing party
that is, the CIR. It is then the turn of the CIR to disprove the claim by presenting
contrary evidence which could include the pertinent ITRs easily obtainable from its
own files. (Winebrenner & Iñigo Insurance Brokers, Inc. v. CIR (G.R. No. 206526,
January 28, 2015)
22. Once the option to carry over and apply the excess
quarterly income tax against income tax due for the taxable years of the
succeeding taxable years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash refund or
issuance of a tax credit certificate shall be allowed therefor.
These two options under Section 76 are alternative in nature. The choice of one
precludes the other. The requirements for entitlement of a corporate taxpayer for
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 a refund or the issuance of tax credit certificate involving excess withholding taxes
are as follows:
1) That the claim for refund was filed within the two-year reglementary period
pursuant to Section 229 of the NIRC;
2) When it is shown on the ITR that the income payment received is being
declared part of the taxpayer’s gross income; and
3) When the fact of withholding is established by a copy of the withholding
tax statement, duly issued by the payor to the payee, showing the amount
paid and income tax withheld from that amount. (CIR v. Team (Phils.) Energy
Corporation, G.R. No. 188016, January 14, 2015)
23. The irrevocability rule applies exclusively to the carry-over
option, hence does not apply to the cash refund or tax credit certificate
remedies.
SECTION 76. Final Adjustment Return. — x x x
In case the corporation is entitled to a tax credit or refund of the
excess estimated quarterly income taxes paid, the excess amount
shown on its final adjustment return may be carried over and
credited against the estimated quarterly income tax liabilities for the
taxable quarters of the succeeding taxable years. Once the option
to carry-over and apply the excess quarterly income tax against
income tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered
irrevocable for that taxable period and no application for cash
refund or issuance of a tax credit certificate shall be allowed
therefor. (emphasis supplied)
The irrevocability rule is provided in the last sentence of Section 76. A perfunctory
reading of the law unmistakably discloses that the irrevocable option referred to is
the carry-over option only. There appears nothing therein from which to infer
that the other choice, i.e., cash refund or tax credit certificate, is also irrevocable. If
the intention of the lawmakers was to make such option of cash refund or tax credit
certificate also irrevocable, then they would have clearly provided so.
In other words, the law does not prevent a taxpayer who originally opted for a
refund or tax credit certificate from shifting to the carry-over of the excess creditable
taxes to the taxable quarters of the succeeding taxable years. However, in case the
taxpayer decides to shift its option to carry-over, it may no longer revert to its
original choice due to the irrevocability rule. As Section 76 unequivocally provides,
once the option to carry over has been made, it shall be irrevocable. Furthermore,
the provision seems to suggest that there are no qualifications or conditions attached
to the rule on irrevocability. (University Physicians Services, Inc. v. Commissioner of
Internal Revenue, G.R. No. 205955, March 7, 2018)
24. In claims for refund of erroneously or illegally collected
taxes under Section 229, NIRC, the two (2) year period covers both the
administrative and judicial claim. Pending consideration by the CIR, the
2-year prescriptive period continues to run.
To this end, and bearing in mind that the Legislature is presumed to have
understood the language it used and to have acted with full idea of what it wanted
to accomplish, it is fair and reasonable to say without doing violence to the context
or either of the two provisions, that by the first is meant simply that the Collector
of Internal Revenue shall be given an opportunity to consider his mistake, if mistake
has been committed, before he is sued, but not, as the appellant contends that
pending consideration of the claim, the period of two years provided in
the last clause shall be deemed interrupted. Nowhere and in no wise does
the law imply that the Collector of Internal Revenue must act upon the claim, or
that the taxpayer shall not go to court before he is notified of the Collector’s action.
We understand the filing of the claim with the Collector of Internal Revenue to be
intended primarily as a notice of warning that unless the tax or penalty alleged
to have been collected erroneously or illegally is refunded, court action will follow.
(CIR v. CBK Power Company Limited, G.R. Nos. 193383-84, January 14, 2015)
25. As a rule, a claimant for refund of erroneously or illegally
collected taxes under Section 229, NIRC, must first file an administrative
claim for refund before the CIR, prior to filing a judicial claim before the
CTA. Both the administrative and judicial claims for refund should be
filed within the 2-year prescriptive period. Further, the claimant is
allowed to file the judicial claim even without waiting for the resolution
of the administrative claim in order to prevent the forfeiture of its claim
through prescription.
9
Since taxpayer’s final withholding taxes are considered as full and final payment
of the income tax due, the 2-year prescriptive period commenced to run from the
time the refund was ascertained – that is, the date such tax was paid, and not
upon taxpayer’s discovery of the erroneous or excessive payment of taxes.
(Metrobank v. CIR, G.R. No. 182582. April 17, 2017)
26. Under Section 229 of P.D. No. 1158, the taxpayer has the
right to administratively protest the assessment and collection of taxes
before the Commissioner. Such remedy is a prerequisite before any
resort to the courts could be made to recover the erroneously or illegally
paid taxes. (Alcantara v. Republic of the Philippines, G.R. No. 192536. March 15,
2017)
27. Input VAT is not "excessively" collected as understood
under Section 229 because at the time the input VAT is collected, the
amount paid is correct and proper. If said input VAT is in fact
"excessively" collected as understood under Section 229, then it is the
person legally liable to pay the input VAT, and not the person to whom
the tax is passed on and who is applying the input VAT as credit for his
own output VAT, who can file the judicial claim for refund or credit
outside the VAT system.
Taxpayer filed a claim for refund or tax credit under Section 229 of the NIRC of its
alleged over/erroneous payment of VAT, asserting that due to its employee’s
inadvertence, the input tax was not credited against the corresponding output tax.
The Supreme Court had consistently ruled on the inapplicability of Section 229 to
claims for the recovery of unutilized input VAT. From the plain text of Section 229,
it is clear that what can be refunded or credited is a tax that is "erroneously,
illegally, excessively or in any manner wrongfully collected." In short, there must
be a wrongful payment because what is paid, or part of it, is not legally due.
Neither can taxpayer advance its claim for refund or tax credit under Sections 110
(B) and 112 (A) of the 1997 NIRC. A plain and simple reading of the afore-quoted
provisions reveals that if and when the input tax exceeds the output tax,
the excess shall be carried over to the succeeding quarter or quarters. It
is only when the sales of a VAT-registered person are zero-rated or effectively
zero-rated that he may have the option of applying for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales.
(Coca-cola Bottlers Philippines, Inc. v. CIR, G.R. No. 222428, 19 February 2018)
28. Presentation of withholding tax certificates at the
administrative level is not required in a claim for refund.
Taxpayer earned income subjected to withholding taxes for the year 2000. In April
18, 2001, it filed tentative income tax return which it subsequently amended on
July 25, 2001. A second amendment was filed on June 20, 2002, declaring that it
has no income tax liability as it incurred loss. The second amended return showed
an income tax overpayment. On November 11, 2002, it filed an administrative claim
for the refund with the BIR for the excess amount. On April 11, 2003, it filed a petition
for review with the CTA due to inaction of the BIR. The CTA granted the petition.
The BIR alleged that the taxpayer presented the withholding tax certificates only
before the CTA and not at the first instance when it filed for claim for refund
administratively with the BIR. The Supreme Court held that proof of actual
remittance by the respondent is not needed in order to prove the withholding and
remittance to the BIR. Section 2.58.3(B) of RR No. 2-98 clearly provides that proof
of remittance is the responsibility of the withholding agent and not of the taxpayer-
refund claimant. Also, the BIR is in no position to assail the authenticity of the CWT
due to the taxpayer’s alleged failure to submit the same before the administrative
level since he could have easily directed the claimant to furnish copies of these
documents, if the refund applied for casts him any doubt. The CTA is not precluded
from accepting the evidence assuming these were not presented at the
administrative level. Cases filed in the CTA are litigated de novo. (CIR vs. PNB, G.R.
No. 180920, September 29, 2014, as reiterated in PAL v. CIR, G.R. Nos. 206079-80, 17
January 2018)
29. To be entitled to refund of final withholding tax, remittance
need not be proven. The taxpayer needs only to prove that taxes were
withheld.
Taxpayer filed a claim for refund with the BIR for final taxes withheld on its interest
income from its peso and dollar deposits. The CTA denied the claim on the ground
that taxpayer failed to substantiate its claim because it did not prove that the Agent
Banks remitted the withheld taxes to the BIR.
10
The Supreme Court held that remittance need not be proven. Taxpayer is not
responsible for the remittance of tax to the BIR. The taxes on interest income from
bank deposits are in the nature of a withholding tax. Thus, the party liable for
remitting the amounts withheld is the withholding agent of the BIR. To claim a
refund, the taxpayer needs only to prove that taxes were withheld. Taxes withheld
by the withholding agent are deemed to be the full and final payment of the income
tax due from the income earner or payee. Thus, the Certificates of Final Tax Withheld
at Source from the Agent Banks are sufficient evidence to establish the withholding
of the taxes. (PAL v. CIR, G.R. Nos. 206079-80, January 17, 2018)
30. Considering that the obligation of the payor to deduct and
withhold tax on interest payments on loan agreements only accrues when
the loan is paid or becomes payable or when it becomes due, demandable
or legally enforceable, whichever comes first, assessments for deficiency
FWT on interest payments on loan agreements should accrue from the
date the obligation becomes due, demandable or legally enforceable.
(Edison (Bataan) Cogeneration Corporation v. Commission of Internal Revenue, G.R. No.
201665 & 201668, 30 August 2017)
31. Substantial under-declaration of withholding taxes renders the tax
return false, resulting in the application of the 10-year prescriptive
period.
Taxpayer was issued a letter or authority by the BIR for the examination of its
books of account and other accounting records for income and withholding taxes
for the period of 1997 to 1999. On December 13, 2001, taxpayer executed a Waiver
of the Defense of Prescription. Under the Statutes of Limitation, good until March
29, 2002. On September 15, 2002, a FAN was received by taxpayer for the 1997,
1998 and 1999, alleging, among others, deficiency withholding tax on
compensation. Taxpayer contends that the subject 1997 and 1998 withholding tax
assessments on compensation were issued beyond the prescriptive period of three
years under Section 203 of the NIRC of 1997.
The Supreme Court ruled that there are exceptions to the 3-year prescriptive period,
such as, but not limited to a case of a false or fraudulent return with intent to evade
tax or of failure to file a return, in which the tax may be assessed, or a proceeding
in court for the collection of such tax may be filed without assessment, at any time
within ten (10) years after the discovery of the falsity, fraud or omission. In this
case, the taxpayer’s substantial under-declaration of withholding taxes which
constituted the “falsity” in the subject returns – giving the BIR the benefit of the
period under Section 222 of the NIRC of 1997 to assess the correct amount of tax
“at any time within ten (10) years after the discovery of the falsity, fraud or
omission.”
In the three different cases of (1) false return, (2) fraudulent return with intent to
evade tax, (3) failure to file a return, the tax may be assessed, or a proceeding in
court for the collection of such tax may be begun without assessment, at any time
within ten years after the discovery of the (1) falsity, (2) fraud, (3) omission. That
there is a difference between "false return" and "fraudulent return" cannot be
denied. While the first implies deviation from the truth, whether intentional or not,
the second implies intentional or deceitful entry with intent to evade the taxes due.
(Samar-I Electric Cooperative vs. Commissioner of Internal Revenue, G.R. No. 193100.
December 10, 2014)
32. There is a prima facie evidence of a false return if there is a
substantial under-declaration of sales, receipts or income in an amount
exceeding 30% of what is declared in the returns.
Generally, internal revenue taxes shall be assessed within three (3) years after the
last day prescribed by law for the filing of the return, or where the return is filed
beyond the period, from the day the return was actually filed. However, in the case
of a false or fraudulent return with intent to evade tax or of failure to file a return,
the assessment may be made within ten (10) years from the discovery of the falsity,
fraud or omission. (CIR v. Asalus Corporation, G.R. No. 221590. February 22, 2017)
33. While the filing of a fraudulent return necessarily implies
that the act of the taxpayer was intentional and done with intent to evade
the taxes due, the filing of a false return can be intentional or due to
honest mistake.
The entry of wrong information due to mistake, carelessness, or ignorance, without
intent to evade tax, does not constitute a false return. (CIR v. Philippine Daily
Inquirer, Inc., G.R. No. 213943. March 22, 2017.)
11
 34. Deficiency assessment based on under-declaration of
purchases amounts to a presumptuous “naked” assessment.
The prima facie correctness of a tax assessment does not apply upon proof that
an assessment is utterly without foundation; i.e., it is arbitrary and capricious.
Where the BIR has come out with a “naked assessment,” the determination of the
tax is without rational basis; hence, the determination by this Court must rest on all
the evidence introduced and its ultimate determination must find support in credible
evidence.
In the imposition of income tax, it must be clear that there was an income, and
such income was received by the taxpayer, not when there is an under‐declaration
of purchases. Here, the BIR presumed that the alleged undeclared purchase is an
unaccounted expense, which supposed translated into income. A taxpayer is free
to deduct from its gross income a lesser amount, or not to claim any deduction at
all. What is prohibited by the income tax law is to claim a deduction beyond the
amount authorized therein.
With respect to VAT, VAT can be imposed only when it is shown that the taxpayer
received an amount of money or its equivalent from a taxable sale of goods or
services, and not when there are under- declared purchases.
An assessment must be based on actual fact. The presumption of correctness of
assessment, being a mere presumption, cannot be made to rest on another
presumption (i.e., the under‐declared purchases would automatically result in
undeclared income or additional taxable sales, which would in turn increase
petitioner’s income tax and VAT liabilities. (Agrinurture, Inc. v. CIR, CTA Case 8345,
May 29, 2013)
35. Whenever it is determined by the courts that the method
employed by the CIR in the collection of tax is not sanctioned by law, the
bond requirement under Section 11 of R.A. No. 1125 should be dispensed
with. The purpose of the rule is not only to prevent jeopardizing the interest of the
taxpayer, but more importantly, to prevent the absurd situation wherein the court
would declare “that the collection by the summary methods of distraint and levy
was violative of law, and then, in the same breath require the petitioner to deposit
or file a bond as a prerequisite for the issuance of a writ of injunction.” (Spouses
Pacquiao v. CTA, G.R. No. 213394, [April 6, 2016])
36. A petition for certiorari under Rule 65 of the 1997 Rules of
Civil Procedure may be invoked only against a tribunal, board of officer
exercising judicial of quasi- judicial functions.
A petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure is a
special civil action that may be invoked only against a tribunal, board or officer
exercising judicial or quasi-judicial functions. Respondents (Secretary of Finance)
do not fall within the ambit of a tribunal, board, or officer exercising judicial or
quasi-judicial functions. They issued RR 2-2012 (imposing VAT and excise tax on
the importation of petroleum and petroleum products from abroad and into the
Freeport and Economic Zones) in the exercise of their quasi-legislative or rule-
making powers, and not judicial or quasi-judicial functions. Respondents did not
adjudicate the rights of the parties. RR 2-2012 was issued by the Secretary of
Finance based on Section 244 of the NIRC. The application of Section 244 of the
NIRC is an exercise of quasi-legislative or rule- making powers of the Secretary of
Finance. And since RR 2-2012 was issued by the Secretary of Finance based on
Section 244 of the NIRC, such administrative issuance is therefore quasi- legislative
in nature which is outside the scope of petition for certiorari. (Clark Investors and
Locators Association, Inc. vs. Secretary of Finance and Commissioner of Internal
Revenue, G.R. No. 200670, July 6, 2015)
INCOME TAXATION
37. Government to Government Exchange of Note is an
executive agreement, which is binding even without Senate
concurrence.
The Exchange of Notes is considered an executive agreement, which is binding on
the state even without Senate concurrence. The assumption provision in the Exchange
of Notes is a clear concession to the Japanese contractors working on the Project.
The tax assumption provision differs from a tax exemption provision in that, in the
former, there is still a tax liability but it is merely assumed by another entity, in this
case, the Philippine government. Thus, the constitutional requirement on tax
exemption would not apply. Because the Japanese contractor paid the income taxes
not required, this is a case of an erroneous tax payment which is refundable.
12
(Mitsubishi Corporation-Manila Branch vs CIR GR 175772 dated 5 June 2017)
38. The last paragraph of Section 30 of the Tax Code is: (1)
without force and effect with respect to nonstock, non-profit educational
institutions, provided, that the non-stock, non-profit educational
institutions prove that its assets and revenues are used actually, directly
and exclusively for educational purposes and (2) the tax-exemption
constitutionally-granted to non-stock, non-profit educational
institutions, is not subject to limitations imposed by law.
The tax exemption granted by the Constitution to non-stock, non-profit educational
institutions, unlike the exemption that may be availed of by proprietary educational
institutions, is not subject to limitations imposed by law.
By the Tax Code's clear terms, a proprietary educational institution is entitled only
to the reduced rate of 10% corporate income tax. The reduced rate is applicable
only if: (1) the proprietary educational institution is non-profit and (2) its gross
income from unrelated trade, business or activity does not exceed 50% of its total
gross income.
Consistent with Article XIV, Section 4 (3) of the Constitution, these limitations do
not apply to non- stock, non-profit educational institutions.
The last paragraph of Section 30 of the Tax Code is without force and effect for
being contrary to the Constitution insofar as it subjects to tax the income and
revenues of non-stock, non-profit educational institutions used actually, directly and
exclusively for educational purpose. (CIR v. De La Salle University, G.R. Nos. 196596,
198841, 198941, November 9, 2016)
39. Non-stock, Non-profit Educational Institutions are excluded
from RMO No. 20-2013.
RMO No. 20-2013 was issued by the CIR, making the failure to file an annual
information return a ground for a non-stock, non-profit educational institution to
automatically lose its income tax-exempt status.
The SC held that non-stock, non-profit educational institutions are constitutionally
exempt from tax on all revenues derived in pursuance of its purpose as an
educational institution and used actually, directly and exclusively for educational
purposes. This constitutional exemption gives the non-stock, non-profit educational
institutions a distinct character. And for the constitutional exemption to be enjoyed,
jurisprudence and tax rulings affirm the doctrinal rule that there are only two
requisites: (1) The school must be non-stock and non-profit; and (2) The income is
actually, directly and exclusively used for educational purposes. There are no other
conditions and limitations.
However, the SC also took judicial notice that on July 25, 2016, CIR Caesar R. Dulay
issued RMO No. 44-2016 which amended RMO No. 20-2013. RMO No. 44-2016
clarified that non-stock, non-profit educational institutions are excluded from the
coverage of RMO No. 20-2013. (Jacinto-Henares v. St. Paul College of Makati, G.R. No.
215383 (Resolution), March 8, 2017)
40. The test is whether the new set of personal and additional
exemptions was available at the time of the filing of the income tax return.
In other words, while the status of the individual taxpayers is determined
at the close of the taxable year, their personal and additional exemptions
— and consequently the computation of their taxable income — are
reckoned when the tax becomes due, and not while the income is being
earned or received.
The increased exemptions were already available much earlier than the required
time of filing of the return on 15 April 2009. R.A. 9504 came into law on 6 July
2008, more than nine months before the deadline for the filing of the income tax
return for taxable year 2008. Hence, individual taxpayers were entitled to claim the
increased amounts for the entire year 2008.
Sections 1 and 3 of RR 10-2008 add a requirement not found in the law
by effectively declaring that an MWE who receives other benefits in
excess of the statutory limit of P30,000 is no longer entitled to the
exemption provided by R.A. 9504. Hence, it is invalid.
The proper interpretation of R.A. 9504 (being a social legislation) is that it imposes
taxes only on the taxable income received in excess of the minimum wage, but the
MWEs will not lose their exemption as such. Workers who receive the statutory
minimum wage their basic pay remain MWEs. The receipt of any other income
13
during the year does not disqualify them as MWEs. They remain MWEs, entitled to
exemption as such, but the taxable income they receive other than as MWEs may
be subjected to appropriate taxes.
The following provisions of Revenue Regulations No. 10-2008 were
declared NULL and VOID: (i) Sections 1 and 3, insofar as they disqualify MWEs
who earn purely compensation income from the privilege of the MWE exemption in
case they receive bonuses and other compensation-related benefits exceeding the
statutory ceiling of P30,000; (ii) Section 3 insofar as it provides for the prorated
application of the personal and additional exemptions under R.A. 9504 for taxable
year 2008, and for the period of applicability of the MWE exemption to begin only
on 6 July 2008. [Soriano v. Secretary of Finance, G.R. No. 184450. January 24, 2017
(En Banc)]
41. An offline international air carrier selling passage tickets in
the Philippines, through a general sales agent, is a resident foreign
corporation doing business in the Philippines. As such, it is taxable but
subject to any applicable tax treaty to which the Philippines is a
signatory. Pursuant to Article 8 of the Republic of the Philippines-
Canada Tax Treaty, Air Canada may only be imposed a maximum tax of
1 ½% of its gross revenues earned from the sale of its tickets in the
Philippines.
Petitioner is undoubtedly "doing business" or "engaged in trade or business" in the
Philippines.
Aerotel performs acts or works or exercises functions that are incidental and
beneficial to the purpose of petitioner’s business. The activities of Aerotel bring
direct receipts or profits to petitioner. There is nothing on record to show that
Aerotel solicited orders alone and for its own account and without interference
from, let alone direction of, petitioner. On the contrary, Aerotel cannot "enter into
any contract on behalf of [petitioner Air Canada] without the express written
consent of [the latter,]" and it must perform its functions according to the standards
required by petitioner. Through Aerotel, petitioner is able to engage in an economic
activity in the Philippines.
Petitioner is, therefore, a resident foreign corporation that is taxable on its income
derived from sources within the Philippines. Petitioner’s income from sale of airline
tickets, through Aerotel, is income realized from the pursuit of its business activities
in the Philippines.
In this case however, there is a tax treaty that must be taken into consideration to
determine the proper tax rate. A tax treaty is an agreement entered into between
sovereign states "for purposes of eliminating double taxation on income and
capital, preventing fiscal evasion, promoting mutual trade and investment, and
according fair and equitable tax treatment to foreign residents or nationals."
Through the appointment of Aerotel as its local sales agent, petitioner is deemed
to have created a "permanent establishment" in the Philippines as defined under
the Republic of the Philippines-Canada Tax Treaty. (Air Canada v. CIR, January 11,
2016, G.R. No. 169507, January 11, 2016)
42. Saint Luke’s Medical Center (SLMC) is liable for income tax
under Section 27(b) of the NIRC insofar as its revenues from paying
patients are concerned.
The Constitution exempts charitable institutions only from real property taxes. In
the NIRC, Congress decided to extend the exemption to income taxes. However,
the way Congress crafted Section 30(E) of the NIRC is materially different from
Section 28(3), Article VI of the Constitution.
Section 30(E) of the NIRC defines the corporation or association that is exempt
from income tax. On the other hand, Section 28(3), Article VI of the Constitution
does not define a charitable institution, but requires that the institution 'actually,
directly and exclusively' use the property for a charitable purpose. Section 30(E) of
the NIRC provides that a charitable institution must be:
(1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes;
(3) Operated exclusively for charitable purposes; and
(4) No part of its net income or asset shall belong to or inure to the benefit
of any member, organizer, officer or any specific person.
The Court finds that St. Luke's is a corporation that is not “operated exclusively”
for charitable or social welfare purposes insofar as its revenues from paying
14
patients are concerned. This ruling is based not only on a strict interpretation of
a provision granting tax exemption, but also on the clear and plain text of Section
30(E) and (G). Section 30(E) and (G) of the NIRC requires that an institution be
'operated exclusively' for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30(E) or (G) does not lose
its tax exemption if it earns income from its for-profit activities. Such income
from for-profit activities, under the last paragraph of Section 30, is merely
subject to income tax, previously at the ordinary corporate rate but now at the
preferential 10% rate pursuant to Section 27(B). (CIR v. St. Luke’s Medical Center
(SLMC), G.R. No. 203514. February 13, 2017)
43. PAGCOR’s income from gaming operations is exempt from
corporate income tax; income from other related activities is subject to
corporate income tax. It however remains NOT subject to VAT.
PAGCOR’s income from gaming operations is subject only to 5% franchise tax
under PD 1869; while its income from other related services is subject to corporate
income tax pursuant to the 1997 NIRC, as amended.
In addition, PD 1869 clearly gives PAGCOR a blanket exemption to taxes with no
distinction on whether the taxes are direct or indirect, such as VAT. Further, such
exemption was retained in the amendment to the 1997 NIRC.
However, PAGCOR's liability as a withholding agent is not covered by the tax
exemptions under PD 1869. FBT is treated as a final income tax on the employee
that shall be withheld and paid by the employer on a calendar quarterly basis. As
such, PAGCOR is a mere withholding agent inasmuch as the FBT is imposed on
PAGCOR's employees who receive the fringe benefit. (PAGCOR v. CIR, G.R. 210689-
90, 22 November 2017; CIR v. PAGCOR, G.R. 210704-210725, 22 November 2017)
44. The duty to withhold tax on compensation arises upon its
accrual.
Taxpayer accrued bonuses in the taxable years 1996 and 1997, although no
withholding taxes were withheld in the year of accrual. The taxpayer was then
assessed for deficiency withholding taxes in the year of accrual. Taxpayer
The 20-lender rule may apply to the PEACe Bonds, depending on the number of
maintained that the liability of the employer to withhold the tax does not arise
lenders “at any one time.” The definition of deposit substitutes in Section 22 (Y)
until such bonus is actually distributed, citing Section 72 of the 1977 NIRC which
states that every employer making payment of wages shall deduct and withhold
upon such wages. Since the supposed bonuses were not distributed to the
officers and employees in 1996 and 1997 but were distributed in the succeeding
year when the amounts of bonuses were finally determined, taxpayer asserts
that its duty to withhold tax during those years did not arise.
The Court ruled that the taxpayer is liable for the withholding tax on the bonuses
since it claimed the same as expense in the year they were accrued. (ING Bank
N.V. vs. Commissioner of Internal Revenue, G.R. No. 167679, July 22, 2015)
45. “At any one time”, for purposes of determining the “20 or
more lenders” would mean every transaction executed in the primary or
secondary market in connection with the purchase or sale of securities.
The 1997 NIRC defines “public” to mean “twenty (20) or more individual or
corporate lenders at any one time.” Hence, as decided by the Supreme Court, the
number of lenders is determinative of whether a debt instrument should be
considered a deposit substitute and consequently subject to the 20% final
withholding tax. From the point of view of the financial market, the phrase “at any
one time” for purposes of determining the “20 or more lenders” would mean every
transaction executed in the primary or secondary market in connection with the
purchase or sale of securities. Where the financial assets involved are government
securities like bonds, the reckoning of the “20 or more lenders/investors” is made
at any transaction in connection with the purchase or sale of the government
bonds, such as: Issuance by the Bureau of Treasury of the bonds to the
Government Securities Eligible Dealers (GSEDs) in the primary market. (Banco De
Oro, et. al. vs. Republic of the Philippines, et. al., G.R. Nos. 198756, January 13, 2015)
46. A debt instrument is considered a deposit substitute, the
interest of which shall be subject to 20% FWT, if the borrowing is made
from 20 or more lenders at any one time. Depending on the number of
lenders “at any one time,” the 20-lender rule may apply to the PEACe
Bonds.
15
specifically defined “public” to mean “twenty or more individual or corporate lenders
at any one time.” Hence, if there are 20 or more lenders, the debt instrument is
considered a deposit substitute which is subject to the 20% FWT.
The existence of 20 or more lenders should be reckoned at the time when the
successful Government Securities Eligible Dealer (GSED)- bidder distributes (by itself
or through an underwriter) the government securities to final holders. When the GSED
sells the government securities to 20 or more investors, the government securities
are deemed to be in the nature of a deposit substitute.
In this case, the PEACe Bonds were awarded to RCBC/CODE-NGO as the winning
bidder in the primary auction. At the same time, CODE-NGO got RCBC-Capital as
underwriter to distribute and sell the bonds to the public. The Underwriting
Agreement and RCBC term Sheet for the sale of the PEACe Bonds show that the
settlement dates for the issuance by the BTr of the bonds to RCBC CODE-NGO and
the distribution by RCBC Capital of the PEACe Bonds to various investors fall on the
same day, October 18, 2001. Hence, the reckoning of the phrase “20 or more
lenders” should be at the time when RCBC Capital sold the PEACe Bonds to
investors.
However, the phrase “at any one time” cannot be applied to the PEACe
Bonds and should instead be given prospective application
The Supreme Court interpretation in its January 2015 decision of the phrase “at any
one time” cannot be applied to the PEACe Bonds and should instead be given
prospective application. RCBC and the rest of the investors relied on the opinions of
the BIR in its Ruling Nos. 020-2011, 035-2001 and DA 175-01 which provide that the
“20 or more lenders” is to be determined at the time of the original issuance. Under
the said rulings, the PEACe Bonds were not to be treated as deposit substitutes.
The Bureau of Treasury (BTr) is liable to pay legal interest for refusal to
release withheld tax pursuant to an Order of the Supreme Court.
The BTr made no effort to release the amount corresponding to the 20% FWT which
it had not shown to have already been remitted to the BIR. It remained obstinate in
its refusal to release the monies and exhibited utter disregard and defiance of the
SC’s order.
The BTr is ordered to immediately release and pay the bondholders the 20% FWT on
the PEACe Bonds, with legal interest of 6% per annum from October 19, 2011, the
day the BTr received the TRO, until full payment. (Banco De Oro, et al vs. Republic of
the Philippines et. al. (En Banc), G.R. No. 198756, August 16, 2016)
47. Capital gains tax in expropriation proceedings remains a
liability of the seller as it is a tax on the seller's gain from the sale of real
property.
The Republic filed a verified Complaint before the RTC for the expropriation of a
property owned by respondents. While the RTC ruled in favor of the Republic for
the condemnation of the property, it likewise ordered the latter to pay consequential
damages in favor of respondents which is equivalent to the capital gains tax for the
transfer of the property.
It is settled that the transfer of property through expropriation proceedings is a sale
or exchange within the meaning of Sections 24(D) and 56(A)(3) of the NIRC, and
profit from the transaction constitutes capital gain. Since capital gains tax is a tax
on passive income, it is the seller, or respondents in this case, who are liable to
shoulder the tax. In fact, the BIR, in BIR Ruling No. 476-2013, has constituted the
DPWH as a withholding agent tasked to withhold the 6% withholding tax in the
expropriation of real property.
Besides, consequential damages are only awarded if as a result of the expropriation,
the remaining property of the owner suffers from an impairment/decrease in value.
In this case, no evidence was submitted to prove any impairment or decrease value
of the subject property as a result of the expropriation. (Republic v. Spouses
Salvador, G.R. No. 205428, June 7, 2017)
48. PAL is not subject to the 2% MCIT
By way of, reiteration, although it appears that respondent is not completely
exempt from all forms of taxes under PD 1590 considering that Section 13 thereof
requires it to pay, either the lower amount of the basic corporate income tax or
franchise tax (which are both direct taxes), at its option, mere exercise of such
option already relieves respondent of liability for all other taxes and/or duties,
whether direct or indirect taxes. This is an expression of the same thought in Our
16
 ruling that, to repeat, it is not the fact of tax payment that exempts it, but the
exercise of its option. Section 13(a) of [PD] 1590 refers to "basic corporate income
tax, as stipulated in Section 27(A) of the NIRC of 1997. There is nothing in Section
13(a) of [PD] 1590 to support the contention of the CIR that PAL is subject to the
entire Title II of the NIRC of 1997, entitled "Tax on Income." (CIR v. Philippine
Airlines (PAL) G.R. 179259, September 25, 2013)
49. Prior application for tax treaty relief is not required for the
availment of tax treaty provisions.
Our Constitution provides for adherence to the general principles of international
law as part of the law of the land. The time-honored international principle of pacta
sunt servanda demands performance in good faith of treaty obligation on the part
of the states that enter into the agreement. Every treaty in force is binding upon
the parties and obligations under the treaty must be performed by them in good
faith.
Treaties have the force and effect of law in this jurisdiction. Tax treaties are entered
into “to reconcile the national fiscal legislations of the contracting parties and in
turn, help the taxpayer avoid simultaneous taxations in two different jurisdictions.
It must be stressed that there is nothing in RMO 1-2000 which would indicate a
deprivation of entitlement to a tax treaty relief for failure to comply with the 15-
day period. The period of application for the availment of tax treaty relief as
required by RMO 1-2000 should not operate to divest entitlement to the relief as it
would constitute a violation of the duty required by good faith in complying with a
tax treaty. (Deutsche Bank AG Manila Branch vs. CIR, G.R. No. 188550, August 19,
2014)
50. The NIRC of 1997, as amended, is clear that all forms of
compensation income received by the employee from his employer are
presumed taxable and subject to withholding taxes. The Government of the
Philippines, its agencies, instrumentalities, and political subdivisions, as an
employer, is required by law to withhold and remit to the BIR the appropriate
taxes due thereon. Any claims of exemption from withholding taxes by an employee,
as in the case of petitioners, must be brought and resolved in the appropriate
administrative and judicial proceeding, with the employee having the burden to prove the
factual and legal bases thereof.
The following allowances, bonuses or benefits, excluded by the NIRC of 1997, as
amended, from the employee's compensation income, are exempt from withholding
tax on compensation:
1) Retirement benefits received under RA No. 7641 and those received by officials
and employees of private firms, whether individual or corporate, under a
reasonable private benefit plan maintained by the employer subject to the
requirements provided by the Code;
2) Any amount received by an official or employee or by his heirs from the employer
due to death, sickness or other physical disability or for any cause beyond the
control of the said official or employee, such as retrenchment, redundancy, or
cessation of business;
3) Social security benefits, retirement gratuities, pensions and other similar benefits
received by residents or non-resident citizens of the Philippines or aliens who
come to reside permanently in the Philippines from foreign government agencies
and other institutions private or public;
4) Payments of benefits due or to become due to any person residing in the
Philippines under the law of the United States administered by the United States
Veterans Administration;
5) Payments of benefits made under the Social Security System Act of 1954 as
amended;
6) Benefits received from the GSIS Act of 1937, as amended, and the retirement
gratuity received by government officials and employees;
7) Thirteenth (13th) month pay and other benefits received by officials and
employees of public and private entities not exceeding: P82,000.00;
8) GSIS, SSS, Medicare and Pag-Ibig contributions, and union dues of individual
employees;
9) Remuneration paid for agricultural labor;
10) Remuneration for domestic services;
11) Remuneration for casual labor not in the course of an employer's trade or
business;
12) Remuneration not more than the statutory minimum wage and the holiday pay,
overtime pay, night shift differential pay and hazard pay received by Minimum
Wage Earners;
13) Compensation for services by a citizen or resident of the Philippines for a foreign
government or an international organization;
14) Actual, moral, exemplary and nominal damages received by an employee or his
heirs pursuant to a final judgment or compromise agreement arising out of or
related to an employer-employee relationship;
17
 15) The proceeds of life insurance policies paid to the heirs or beneficiaries upon the
death of the insured, whether in a single sum or otherwise, provided however,
that interest payments agreed under the policy for the amounts which are held
by the insured under such an agreement shall be included in the gross income;
16) The amount received by the insured, as a return of premium/s paid by him under
life insurance, endowment, or annuity contracts either during the term or at the
maturity of the term mentioned in the contract or upon surrender of the contract;
17) Amounts received through Accident or Health Insurance or under Workmen's
Compensation Acts, as compensation for personal injuries or sickness, plus the
amount of any damages received whether by suit or agreement on account of
such injuries or sickness;
18) Income of any kind to the extent required by any treaty obligation binding upon
the Government of the Philippines;
19) Fringe and De minimis Benefits; and
20) Other income received by employees which are exempt under special laws (RATA
granted to public officers and employees under the General Appropriations Act
and Personnel Economic Relief Allowance granted to government personnel).
The CIR gravely abused its discretion in issuing Section VI of RMO No. 23-2014
insofar as it includes the Governor, City Mayor, Municipal Mayor, Barangay
Captain, and Heads of Office in agencies, GOCCs, and other government offices,
as persons required to withhold and remit withholding taxes, as they are not
among those officials designated by the 1997 NIRC, as amended, and its
implementing rules.
Nowhere in the NIRC of 1997, as amended, or in RR No. 2-98, as amended, would one
find the Provincial Governor, Mayor, Barangay Captain and the Head of Government Office
or the "Official holding the highest position (such as the President, Chief Executive Officer,
Governor, General Manager)" in an Agency or GOCC as one of the officials required to
deduct, withhold and remit the correct amount of withholding taxes.
The CIR, in imposing upon these officials the obligation not found in law nor in the
implementing rules, did not merely issue an interpretative rule designed to provide
guidelines to the law which it is in charge of enforcing; but instead, supplanted details
thereon - a power duly vested by law only to respondent Secretary of Finance under
Section 244 of the NIRC of 1997, as amended. (Confederation for Unity, Recognition and
Advancement of Government Employees (COURAGE) et. al. v. CIR, G.R. Nos. 213446 &
213658, (En Banc) July 3, 2018)
51. The government is allowed to resort to all evidence or
resources available to determine a taxpayer’s income and to use methods
to reconstruct one’s income, such as the expenditure method.
The BIR issued a LOA authorizing its revenue officers to investigate Spouses
Antonio Villan Manly (Antonio) and Ruby Ong Manly for their internal revenue tax
liabilities for the taxable year 2003 and prior years. Antonio is a stockholder and
the Executive Vice-President of Standard Realty Corporation, a family-owned
corporation. He is also engaged in rental business. His spouse is a housewife. The
BIR later issued the Spouses a letter requiring them to submit documentary evidence
to substantiate the source of their cash purchase of a 256-square meter log cabin in
Tagaytay City worth P17,511,010.00. The Spouses, however, failed to comply with
the letter. The revenue examiners then executed affidavit showing the declared
income of the Spouses for the covered years, and despite such modest income, they
were able to buy in cash luxurious vacation house in Tagaytay and motor vehicles.
Since the Spouses failed to show the source of their cash purchases, the revenue
officers concluded that the income declared in Antonio’s income tax returns were
under-declared. And since the under-declaration exceeded 30% of the reported or
declared income, it was considered a prima facie evidence of fraud with intent to
evade the payment of proper taxes due to the government. The revenue officers,
thus, recommended the filing of criminal cases against the Spouses for failing to
supply correct and accurate information in their income tax returns, punishable
under Sections 254 and 255 in relation to Section 248(B) of the 1997 Tax Code.
A method commonly used by the government is the expenditure method, which is
a method of reconstructing a taxpayer’s income by deducting the aggregate yearly
expenditures from the declared yearly income. The theory of this method is that
when the amount of the money that a taxpayer spends during a given year exceeds
his reported or declared income and the source of such money is unexplained, it
may be inferred that such expenditures represent unreported or undeclared
income. (BIR vs. CA, Sps. Antonio Villan Manly and Ruby Ong Manly, G.R. No. 197590,
November 24, 2014)
18

VALUE ADDED TAXATION
52. Excess input tax or creditable input tax is not an
excessively, erroneously, or illegally collected tax because the taxpayer
pays the proper amount of input tax at the time it is collected.
That a VAT-registered taxpayer incurs excess input tax does not mean that it was
wrongfully or erroneously paid. It simply means that the input tax is greater than
the output tax, entitling the taxpayer to carry over the excess input tax to the
succeeding taxable quarters. If the excess input tax is derived from zero-rated or
effectively zero-rated transactions, the taxpayer may either seek a refund of the
excess or apply the excess against its other internal revenue tax. (CE Luzon
Geothermal Power Company, Inc. v. CIR, G.R. No. 197526. July 26, 2017)
53. Although the sale of refined sugar is generally subject to
VAT, such transaction may nevertheless qualify as a VAT-exempt
transaction if the sale is made by a cooperative. A qualified cooperative
also enjoys exemption from the requirement of advance payment of VAT
upon withdrawal from the refinery/mill.
Under Section 109 (1) of the NIRC, sales by agricultural cooperatives are exempt
from VAT provided the following conditions concur, viz:
First, the seller must be an agricultural cooperative duly registered with the CDA.
An agricultural cooperative is "duly registered" when it has been issued a certificate
of registration by the CDA. This certificate is conclusive evidence of its registration.
Second, the cooperative must sell either: 1) exclusively to its members; or 2) to
both members and non-members, its produce, whether in its original state or
processed form.
The second requisite differentiates cooperatives according to its customers. If the
cooperative transacts only with members, all its sales are VAT-exempt, regardless
of what it sells. On the other hand, if it transacts with both members and non-
members, the product sold must be the cooperative's own produce in order to be
VAT-exempt. Stated differently, if the cooperative only sells its produce or goods
that it manufactures on its own, its entire sales is VAT-exempt.
A cooperative is the producer of the sugar if it owns or leases the land
tilled, incurs the cost of agricultural production of the sugar, and
produces the sugar cane to be refined. It should not have merely
purchased the sugar cane from its planters-members. (CIR v. United Cadiz
Sugar Farmers Association Multi-Purpose Cooperative, G.R. No. 209776. December
7, 2016)
54. The tax exemption provided under Section 16 of PD No.
972 (Coal Development Act of 1976) was not revoked, withdrawn or
repealed, expressly or impliedly, by Congress with the enactment of RA
No. 9337.
Section 16 of PD No. 972 provides various incentives to Coal Operating Contract
(COC) operators, including tax exemptions.
A special law cannot be repealed or modified by a subsequently enacted general
law in the absence of any express provision in the latter law to that effect. The
repealing clause of RA 9337, a general law, did not provide for the express repeal
of PD 972, a special law. Further, Sec. 109 (K) of the NIRC, as amended by RA
9337, still provides that transactions which are exempt under special laws are VAT-
exempt. (Commissioner of Internal Revenue v. Semirara Mining Corp., G.R. No. 202922,
June 19, 2017)
55. RR 2-2012 which requires the payment of value-added tax
(VAT) and excise tax on the importation of all petroleum and petroleum
products coming directly from abroad and brought into the Philippines,
including Freeport and Economic Zones (FEZs) is invalid and
unconstitutional.
The tax exemption enjoyed by FEZ enterprises covers internal revenue taxes
imposed on goods brought into the FEZ, including Clark FEZ, such as VAT and
excise tax. It follows that the taxes imposed by Section 3 of RR 2-2012 directly
contravene these exemptions. First, the regulation erroneously considers
petroleum and petroleum products brought into a FEZ as taxable importations.
Second, it unreasonably burdens FEZ enterprises by making them pay the
19
corresponding taxes — an obligation from which the law specifically exempts them
— even if there is a subsequent opportunity to refund the payments made.
Therefore, the act of bringing the goods into an FEZ is not a taxable importation. As
long as the goods remain (e.g., sale and/or consumption of the article within the
FEZ) in the FEZ or re-exported to another foreign jurisdiction, they shall continue
to be tax-free. However, once the goods are introduced into the Philippine customs
territory, it ceases to enjoy the tax privileges accorded to FEZs. It shall then be
considered as an importation subject to all applicable national internal revenue
taxes and customs duties. [Secretary of Finance v. Lazatin, G.R. No. 210588. November
29, 2016 (En Banc)]
56. The “no contact- audit approach” includes the process of
computerized matching of sales and purchases data contained in the
Schedules of Sales and Domestic Purchases, and Schedule of
Importation submitted by VAT taxpayers under the RELIEF System
pursuant to BIR regulations.
This may also include the matching of data from other information or returns led
by the taxpayers with the BIR such as Alphalist of Payees subject to Final or
Creditable Withholding Taxes. (Medicard Philippines, Inc. v. CIR, G.R. No. 222743.
April 5, 2017)
57. The amounts earmarked and eventually paid by Medicard
to the medical service providers do not form part of gross receipts for
VAT purposes.
The main difference between an HMO and an insurance company is that HMOs
undertake to provide or arrange for the provision of medical services through
participating physicians while insurance companies simply undertake to indemnify
the insured for medical expenses incurred up to a pre- agreed limit. In the present
case, the VAT is a tax on the value added by the performance of the service by the
taxpayer. It is, thus, this service and the value charged thereof by the taxpayer
that is taxable under the NIRC. (Medicard Philippines, Inc. v. CIR, G.R. No. 222743.
April 5, 2017)
58. Summary of Rules on Prescriptive Periods for Claiming
Refund or Credit of Input VAT (Section 112, NIRC)
A. Two-Year Prescriptive Period
1. It is only the administrative claim that must be filed within the two-year
prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the close
of the taxable quarter when the relevant sales were made. (San Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June
2007 to 12 September 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of unutilized input VAT
payments should be counted from the date of filing of the VAT return
and payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial claim
within thirty days after the Commissioner denies the claim within the 120-
day period, or (2) file the judicial claim within thirty days from the
expiration of the 120-day period if the Commissioner does not act within
the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction on
the part of the CIR.
3. As a general rule, the 30-day period to appeal is both mandatory and
jurisdictional. (Aichi and
San Roque)
4. As an exception to the general rule, premature filing is allowed only if filed
between 10 December 2003 and 5 October 2010, when BIR Ruling No. DA-
489-03 was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489-03 was in force. (San Roque)
(Silicon Philippines v. CIR, G.R. No. 173241, March 25, 2015)
20
 59. A VAT invoice is the seller's best proof of the sale of goods
or services to the buyer, while a VAT receipt is the buyer's best evidence
of the payment of goods or services received from the seller.
Section 113 of the NIRC of 1997 provides that a VAT invoice is necessary for every
sale, barter or exchange of goods or properties, while a VAT official receipt properly
pertains to every lease of goods or properties; as well as to every sale, barter or
exchange of services.
The Court has in fact distinguished an invoice from a receipt in CIR v. Manila Mining
Corporation:
A "sales or commercial invoice" is a written account of goods
sold or services rendered indicating the prices charged therefor or
a list by whatever name it is known which is used in the ordinary
course of business evidencing sale and transfer or agreement to
sell or transfer goods and services.
A "receipt" on the other hand is a written acknowledgment of the
fact of payment in money or other settlement between seller and
buyer of goods, debtor or creditor, or person rendering services
and client or customer.
A VAT invoice and a VAT receipt should not be confused and made to refer to one
and the same thing. Certainly, neither does the law intend the two to be used
alternatively. (Northern Mindanao Power Corporation v. CIR, G.R. No. 185115,
February 18, 2015)
60. To claim a refund of unutilized or excess input VAT,
purchase of goods or properties must be supported by VAT invoices,
while purchase of services must be supported by VAT official receipts.
(Team Energy Corp. v. Commissioner of Internal Revenue, G.R. Nos. 197663 &
197770, March 14, 2018)
61. Compliance with all the VAT invoicing requirements is
required for taxpayer to be entitled to a claim for input taxes attributable
to zero-rated sales.
Taxpayer is a VAT and PEZA registered corporation engaged in the manufacture
and export of ready- to-wear items. It claimed to have paid excess input VAT for
the year 1999 attributable to its zero- rated export sales. It then filed 4 separate
applications for tax refund with the One-Stop-Shop Inter- Agency Tax credit and
Duty Drawback Center of the DOF. Thereafter, taxpayer filed a petition for review
before the CTA. The CTA Division denied the petition on the ground that all of its
export sales invoices failed to comply with the invoicing requirements: have no BIR
Permit to Print; did not contain its TIN-VAT or TIN-V and the word zero-rated was
not imprinted thereon in violation of Section 113(A) in relation to Section 238 of the
Tax Code. Upholding the decision of CTA Division and CTA En Banc, the Supreme
Court held that the invoicing requirements for a VAT-registered taxpayer as
provided in the NIRC and revenue regulations are clear – a VAT registered taxpayer
is required to comply with all the VAT invoicing requirements to be able to file for
a claim for input taxes on domestic purchases of goods or services attributable to
zero-rated sales. A VAT invoice is an invoice that meets the requirements of Section
4.108-4 of RR 7-95. (J.R.A. Philippines Inc. vs. CIR, G.R. No. 171307, August 28,
2014)
62. Only the administrative claim for input VAT (Section 112)
must be filed within the 2-year prescriptive period.
Under Section 112 of the National Internal Revenue Code (NIRC), it is only the
administrative claim for refund of input value-added tax (VAT) must be filed within
the two-year prescriptive period; the judicial claim need not fall within the two-year
prescriptive period. Subsection (A) of the said provision states that “any VAT-
registered person whose sales are zero-rated may, within two years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax
credit certificate or refund of creditable input tax due or paid attributable to such
sales.”
The phrase “within two (2) years *** apply for the issuance of a tax credit certificate
or refund” refers to applications for refund/credit filed with the Commissioner of
Internal Revenue (CIR) and not to appeals made to the Court of Tax Appeals (CTA).
This is apparent in the first paragraph of subsection (D) of the same provision
which states that the CIR has “120 days from the submission of complete
documents in support of the application filed in accordance with Subsections (A)
and (B)” within which to decide on the claim. (CIR vs. Mindanao II Geothermal
Partnership, G.R. No. 191498, January 15, 2014.)
21

63. The 2-year prescriptive period for an administrative claim
for refund or credit of VAT input is reckoned the close of the taxable
quarter when the relevant sales were made. This reckoning period is
effective before June 8, 2007 and after September 12, 2008.
The doctrine in the case of Atlas Consolidated Mining and Development Corporation
vs. CIR, which held that claims for refund or credit of input VAT must comply with
the two-year prescriptive period under Section 229, should be effective only from its
promulgation on June 8, 2007 until its abandonment on September 12, 2008 in the
case of CIR vs. Mirant Pagbilao Corporation. The Atlas doctrine was limited to the
reckoning of the two-year prescriptive period from the date of payment of the
output VAT. Prior to the Atlas doctrine, the two- year prescriptive period for
claiming refund or credit of input VAT should be governed by Section 112(A)
following the verba legis rule. The Mirant ruling, which abandoned the Atlas
doctrine, adopted the verba legis rule, thus applying Section 112(A) in computing
the two-year prescriptive period in claiming refund or credit of input VAT. In this
case, the claim for refund was filed on October 6, 2005. Thus, it is covered by the
rule prior to the advent of either Atlas or Mirant. Therefore, the proper reckoning
date as provided in Section 112(A) of the NIRC is the close of the taxable quarter
when the relevant sales were made. (CIR vs. Mindanao II Geothermal Partnership,
G.R. No. 191498, January 15, 2014; CBK Power Company Limited vs. CIR, G.R. No.
198729-30, January 15, 2014; also cited in Philex Mining Corporation v. CIR, G.R. No.
195120, April 19, 2017.)
64. Stamping of the words zero-rated is sufficient compliance
of the requirement that the words “zero-rated sale” must appear in the
invoice.
The words “zero-rated” must appear in the invoice covering zero-rated sales.
Although the same was merely stamped and not pre-printed in the present case,
the same is sufficient compliance with the law, since the imprinting of the word
“zero-rated” was required merely to distinguish sales subject to 10% VAT, those
that are subject to 0% VAT (zero-rated) and exempt sales, to enable the Bureau
of Internal Revenue to properly implement and enforce the other VAT provisions
of the Tax Code. (CIR v. Toledo, Power, Inc., G.R. No. 183880, January 20, 2014.)
65. Prior payment of taxes is not necessary before a taxpayer
could avail of the 2% transitional input VAT.
Sec 105 of old Tax Code clearly provides that all that is required from a taxpayer is
to file a beginning inventory with the BIR. Since the law does not provide for prior
payment of taxes, to require it now (by regulation) would be tantamount to judicial
legislation. A TIT is not a tax refund per se but a tax credit. Logically, prior payment
of taxes is not required before a taxpayer could avail of TIT. Tax refund is not
synonymous to tax credit. (Fort Bonifacio Development Corporation v. CIR, G.R. No.
173425, January 22, 2013)
COURT OF TAX APPEALS
66. An appeal via a petition for review to the CTA en banc
must be preceded by the filing of a timely motion for reconsideration or
new trial with the CTA Division as it is mandatory and not merely
directory under the Revised Rules of the CTA. (Asiatrust Development Bank,
Inc. v. CIR, G.R. No. 201530. April 19, 2017)
67. Section 7 of Republic Act No. 1125, as amended, is explicit
that, except for local taxes, appeals from the decisions of quasi-judicial
agencies (Commissioner of Internal Revenue, Commissioner of Customs,
Secretary of Finance, Central Board of Assessment Appeals, Secretary of
Trade and Industry) on tax-related problems must be brought exclusively
to the Court of Tax Appeals.
In other words, within the judicial system, the law intends the CTA to have exclusive
jurisdiction to resolve all tax problems. Petitions for writs of certiorari against the acts
and omissions of the said quasi-judicial agencies should thus be filed before the Court
of Tax Appeals.
Republic Act No. 9282, a special and later law than Batas Pambansa Blg. 129 provides
an exception to the original jurisdiction of the Regional Trial Courts over actions
questioning the constitutionality or validity of tax laws or regulations. Except for local
tax cases, actions directly challenging the constitutionality or validity of a tax law or
regulation or administrative issuance may be filed directly before the Court of Tax
Appeals.
22

Furthermore, with respect to administrative issuances (revenue orders, revenue
memorandum circulars, or rulings), these are issued by the Commissioner under its
power to make rulings or opinions in connection with the implementation of the
provisions of internal revenue laws. Tax rulings, on the other hand, are official
positions of the Bureau on inquiries of taxpayers who request clarification on certain
provisions of the National Internal Revenue Code, other tax laws, or their
implementing regulations. Hence, the determination of the validity of these issuances
clearly falls within the exclusive appellate jurisdiction of the Court of Tax Appeals
under Section 7(l) of Republic Act No. 1125, as amended, subject to prior review
by the Secretary of Finance, as required under Republic Act No. 8424. (CIR vs.
CTA and Petron Corporation, G.R. No. 207843, February 14, 2018 citing Banco de Oro vs.
Republic of the Philippines, G.R. No. 198756, August 16,2016)
68. The CTA En Banc has exclusive jurisdiction over appeals
from the decisions of its divisions.
Taxpayer was issued by the BIR several assessment notices for deficiency income
tax and VAT covering the taxable year 1999 to 2002. Taxpayer filed its protest
letters, but were eventually denied by the BIR. Taxpayer then filed a petition for
review with the CTA, questioning the assessments. The CTA First Division denied
the petition. The CTA Division likewise denied the motion for reconsideration.
Taxpayer then appealed directly to the Supreme Court under Rule 45 of the 1997
Rules of Civil Procedure, assailing the decision and resolution of the CTA Division.
The Supreme Court ruled that it is without jurisdiction to review decisions rendered
by a division of the CTA, exclusive appellate jurisdiction of which is vested in the
CTA en banc. (Duty Free Philippines vs. BIR, G.R. No 197228, October 8, 2014)
LOCAL TAXATION
69. Power of taxation is not inherent in municipal corporations
The power to tax "is an attribute of sovereignty," and as such, inheres in the State.
Such, however, is not true for provinces, cities, municipalities and barangays as
they are not the sovereign; rather, they are mere "territorial and political
subdivisions of the Republic of the Philippines". A municipal corporation unlike a
sovereign state is clothed with no inherent power of taxation. The charter or statute
must plainly show an intent to confer that power or the municipality, cannot assume
it. And the power when granted is to be construed in strictissimi juris. Any doubt
or ambiguity arising out of the term used in granting that power must be resolved
against the municipality. Inferences, implications, deductions – all these – have no
place in the interpretation of the taxing power of a municipal corporation.
Therefore, the power of a province to tax is limited to the extent that such power
is delegated to it either by the Constitution or by statute. (Pelizloy Realty Corporation
vs Province of Benguet, GR No. 183137, April 10, 2013)
70. Resorts, swimming pools, bath houses, hot springs and
tourist spots may not be subjected to amusement tax by a province
Section 131 (c) of the LGC already provides a clear definition of ‘amusement places’.
Indeed, theaters, cinemas, concert halls, circuses, and boxing stadia are bound by
a common typifying characteristic in that they are all venues primarily for the
staging of spectacles or the holding of public shows, exhibitions, performances,
and other events meant to be viewed by an audience. Accordingly, “other places
of amusement” must be interpreted in light of the typifying characteristic of being
venues "where one seeks admission to entertain oneself by seeing or viewing the
show or performances" or being venues primarily used to stage spectacles or hold
public shows, exhibitions, performances, and other events meant to be viewed by
an audience.
It is clear that resorts, swimming pools, bath houses, hot springs and tourist spots
cannot be considered venues primarily "where one seeks admission to entertain
oneself by seeing or viewing the show or performances". While it is true that they
may be venues where people are visually engaged, they are not primarily venues
for their proprietors or operators to actively display, stage or present shows and/or
performances.
Thus, resorts, swimming pools, bath houses, hot springs and tourist spots do not
belong to the same category or class as theaters, cinemas, concert halls, circuses,
and boxing stadia. It follows that they cannot be considered as among the “other
places of amusement” contemplated by Section 140 of the LGC and which may
properly be subject to amusement taxes. (Pelizloy Realty Corporation vs Province of
Benguet, GR No. 183137, April 10, 2013)
23

71. Franchise tax can only be imposed on businesses enjoying
a franchise.
National Power Corporation (Napocor) was served a notice of franchise tax
delinquency on its sale of electricity. It denied liability for franchise tax, arguing that
it had ceased to be liable for the payment of tax after Congress enacted the Electronic
Power Industry Reform Act (EPIRA), relieving it of the function of transmitting
electricity beginning 2001. Is Napocor liable to pay franchise tax?
Franchise tax can only be imposed on businesses enjoying a franchise. Without a
franchise, a local government unit cannot impose franchise tax. In this case, EPIRA
effectively removed power generation from the ambit of local franchise taxes. As
expressly provided under Section 6 of EPIRA, power generation is no longer
considered a public utility operation, and companies which shall engage in power
generation and supply of electricity are no longer required to secure a national
franchise. (National Power Corporation v. Provincial Government of Bataan, G.R. No.
180654, March 6, 2017)
72. There is no need for a writ of execution to enforce a
decision granting a refund or credit of excessively paid local business tax,
provided that the taxpayer complies with the requirements set by law for
a tax refund or tax credit, whichever is applicable.
Taxpayer was granted a favorable decision by the Court for its claim for tax refund
or credit after finding that there was double taxation in the imposition of the local
business tax. An entry of judgment was later issued declaring the same final and
executory. The taxpayer then filed a motion for execution with the RTC for the
enforcement of the decision. The clerk of court of the RTC issued a writ of execution
directing the sheriff to cause the execution of the decision. The City of Manila filed
a motion to quash the writ of execution. The motion was granted by the RTC.
On appeal to the Supreme Court (‘SC’), the SC ruled that the issuance of a writ of
execution is superfluous. Instead of moving for a writ of execution, the taxpayer
should have merely requested for the approval of the City of Manila in implementing
the tax refund or tax credit, whichever is appropriate. In other words, no writ is
necessary for the execution thereof since the implementation of the tax refund will
effectively be a return of funds by the City of Manila in favor of the taxpayer while
a tax credit will merely serve as a deduction of taxpayer’s tax liability in the future.
The issuance of a writ of execution is superfluous because the judgment can neither
be considered a judgment for a specific sum of money susceptible of execution by
levy or garnishment under Section 9, Rule 39 of the Rules of Court nor a specific
judgment under Section 11, Rule 39 thereof. (Coca-Cola Bottlers Philippines, Inc. vs.
City of Manila et. al., G.R. No. 197561, April 7, 2014)
73. For purposes of determining the situs of local taxation,
there is basis to presume correct the location stated in the Certificate of
Title and to rely thereon, until it is cancelled or amended.
Uniwide conducted business in lands covered by transfer certificates of title, which
indicated that these are located in Pasig. In 1997, instead of paying local taxes to
Pasig, Uniwide paid to Cainta after the latter gave notice that the properties were
within Cainta’s territorial jurisdiction. Pasig then filed a tax collection case against
Uniwide, which, in turn, filed a third-party complaint against Cainta for
reimbursement of taxes it paid to the latter. The RTC, in ruling for Pasig, upheld
the indefeasibility of the Torrens title and ruled that the location indicated in the
TCTs is conclusive for purposes of the action for tax collection.
The Supreme Court enunciated that the location stated in the certificate of title
should be followed until amended through proper judicial proceedings. The land
registration court necessarily passes upon the technical description of the land and
consequently its location. There is thus basis to presume correct the location stated
in the Certificate of Title and to rely thereon for purposes of determining the situs
of local taxation, until it is cancelled or amended. Odsigue v. Court of Appeals held
that a certificate of title is conclusive not only of ownership of the land but also its
location. (Municipality Of Cainta v. City Of Pasig, G.R. No. 176703; Uniwide Sales V.
City Of Pasig G.R. No. 176721 28 June 2017)
24
 DOCUMENTARY STAMP TAX certificates of deposit for failure of TRB to present a copy of the TIA. As
such, it was subjected to Documentary Stamp Tax (DST)
74. Transfer of real property is subject to documentary stamp
taxes only in cases of sale. In the interpretation of contracts, the ascertainment of the intention of the
contracting parties is to be discharged by looking to the words they used to project
Respondent La Tondena Distillers, Inc. entered into a Plan of Merger with
that intention in their contract, all the words, not just a particular word or two, and
Sugarland Beverage Corporation and Metro Bottled Water Corporation, with the
words in context, not words standing alone.
respondent as the surviving corporation. The respondent requested from the BIR
for a confirmation of the tax-free nature of the merger. On September 26, 2001, The burden fell upon TRB to produce the Trust Indenture Agreements, not only
the BIR issued a ruling stating that pursuant to Section 40(C)(2) and (6)(b) of the because the said Agreements were in its possession, but more importantly, because
1997 NIRC, no gain or loss shall be recognized by the absorbed corporations. its protest against the DST assessments was entirely grounded on the allegation
that said Agreements were trusts.
Section 196 of the NIRC pertains only to transactions where real property is
conveyed to a purchaser for a consideration. The phrase “granted, assigned, Records show that the BIR examiners conducted a thorough audit and investigation
transferred or otherwise conveyed” is qualified by the word “sold” which means of the books of account of TRB. Given the failure of TRB to present proof of error
that documentary stamp tax under Section 196 is imposed on the transfer of real in the tax assessments of the BIR, the Court affirms the same.
property by way of sale and does not apply to all conveyances of real property.
Thus, respondent is not liable to DST as the transfer of real properties from the Note: Special Savings Deposit involving the use of passbook and Time Deposit
absorbed corporations to respondent was pursuant to a merger. (CIR vs. La involving the use of certificate of time deposits are both subject to the DST. Both
Tondena Distillers, Inc., G.R. Nos. 175188, July 05, 2015)
the passbook and certificate of time deposits are evidence of transactions, hence,
subject to DST (CIR v. Traders Royal Bank, G.R. No. 167134, March 18, 2015)
75. Registration with the Cooperative Development Authority
is NOT necessary for the enjoyment of exemption from percentage tax
77. Pawn Tickets are subject to DST
and DST of mutual life insurance company under Section 199(a) of the
The pawn ticket is neither a security nor a printed evidence of indebtedness. But,
Tax Code.
precisely being a receipt for a pawn, it documents the pledge. A pledge is a real
contract, hence, it is necessary in order to constitute the contract of pledge, that the
Taxpayer is a registered non-stock mutual life insurer. It was assessed by the BIR
thing pledged be placed in the possession of the creditor, or of a third person by
for deficiency DST on direct business/sums assured for the year 2002. It is the
common agreement.
BIR’s contention that since taxpayer is not registered with the Cooperative
Development Authority (‘CDA’), it should not be considered a cooperative company
Consequently, the issuance of the pawn ticket by the pawnshop means that the
that is entitled to the exemption provided under Section 199(a) of the NIRC.
thing pledged has already been placed in its possession and that the pledge has
According to the Court, although the taxpayer is a cooperative, it is not necessary
been constituted. (H. Tambunting Pawnshop, Inc. v. CIR, G.R. No. 173373, July 29,
in order for it to be exempt from the payment of both the percentage taxes on
2013)
insurance premiums under Section 121 and documentary stamp taxes on policies
of insurance or annuities on its grants under Section 199 of the NIRC. (CIR vs. The
78. Documentary stamp tax applies only to the sale of real
Insular Life Assurance Co. Ltd., G.R. No. 197192, June 4, 2014)
property, not to all other kinds of transfers or conveyances of real
properties.
76. Trust Indenture Agreements (TIA) were treated as
25

On April 27, 1999, a merger took place between two corporations whereby all the
assets and liabilities of the absorbed corporation were transferred to the surviving
entity. Among the assets transferred were real properties. For the transfer of these
real properties, a documentary stamp tax was paid by the surviving corporation
under Section 196 of the 1997 Tax Code. Realizing that the documentary stamp
tax was erroneously paid on the transfer of the real property as a result of the
merger, the surviving corporation applied for the refund of the DST paid. The claim
was granted by the CTA. On appeal to the Supreme Court, the Supreme Court
held that the DST is only imposed on all conveyances, deeds, instruments or
writing where realty sold shall be conveyed to a purchaser or purchasers for a
consideration under Section 196 of Tax Code of 1997 Tax Code. Section 196 of
the 1997 Tax Code does not apply to all kinds of transfers and conveyances of real
property for valuable consideration. It is imposed on the transfer of realty by way
of sale and does not apply to all conveyances of real property. The fact that Section
196 refers to words “sold”, “purchaser” and “consideration” undoubtedly leads to
the conclusion that only sales of real property are contemplated therein. In a
merger, the real properties are not deemed “sold” to the surviving corporation and
the latter could not be considered as “purchaser” of realty since the real properties
subject of the merger were merely absorbed by the surviving corporation by
operation of law and these properties are deemed automatically transferred to and
vested in the surviving corporation without further act or deed. Therefore, this is
not subject to DST. (CIR vs. Pilipinas Shell Petroleum Corporation, G.R. No. 192398,
September 29, 2014)
79. The Special Patent and Deed of Absolute Sale covering
the conveyance of Fort Bonifacio Lands by the Republic of the Philippines
(Republic) to the Fort Bonifacio Development Corporation (FBDC) is not
subject to documentary stamp tax.
The two documents – Special Patent and Deed of Absolute Sale – covered the
Republic’s conveyance to FBDC of the same Fort Bonifacio land for the same price
that FBDC paid but once. It is one transaction, twice documented.
On Feb 7, 1995, the Republic, thru the President, issued Special Patent to FBDC
pursuant to RA 7227. That legislative act removed the public character of the Fort
Bonifacio land and allowed the President to cede ownership to FBDC, then a wholly‐
owned government corporation under BCDA. The Republic could not just spend or
use the money it received from the sale without authority from Congress. In this
case, the basis for appropriation is found also in RA 7227, which earmarked the
proceeds of sale of the land for use in capitalizing the BCDA.
The Republic sold the land to FBDC and the latter paid it with a promissory note.
When the Republic in turn assigned the note to BCDA, not only did it comply with
its obligation under the above provision to capitalize BCDA from the proceeds of sale
and also enabled the latter to fully pay for its subscription to FBDC’s capital stock.
Thus, to tax the proceeds of sale would be to tax an appropriation made by law, a
power that CIR does not have.
The Special Patent absolutely and irrevocably grant and convey legal title over the
land to FBDC. In effect, the Republic admitted that the Deed of Sale was only a
formality, not a vehicle for conveying ownership.
DST is by nature, an excise tax since it is levied on the exercise by persons of
privileges conferred by law. These privileges may cover the creation, modification
or termination of contractual relationships by executing specific documents. The
sale of Fort Bonifacio land was not a privilege but an obligation imposed by law
which was to sell lands in order to fulfill a public purpose. Sec 8 of RA 7227 exempted
the proceeds of sale of land from all forms of taxes, including DST. Moreover, the
payment of DST would have resulted in diminishing the proceeds of sale that the
Republic turned over to BCDA to capitalize it. Indeed, government warranted in the
Deed of Absolute Sale that “there are no taxes due and owing in respect of subject
property or transfer thereof in favor of the buyer.” (Fort Bonifacio Development
Corporation v. CIR, G.R. No. 173425, January 22, 2013)
80. Assignment of a loan (promissory note) is not a renewal
or continuance thereof, thus, it is not subject to DST.
Sec 173 names those who are primarily liable for DST and those who would be
secondarily liable. The persons primarily liable are the person (1) making, (2)
signing, (3) issuing, (4) accepting, or (5) transferring the taxable document. Should
these parties be exempted from paying tax, the other party who is not exempt would
then be liable.
Philacor did not make, sign, issue, accept or transfer the prom notes. The acts of
26
making, signing, issuing and transferring are unambiguous. The buyers of
appliances made, signed and issued the promissory notes, while the appliance
dealer transferred these notes to Philacor, which received or accepted them.
“Acceptance” is, however, an act that is not even applicable to promissory notes,
but only to bills of exchange. Its object to bind the drawee of a bill and make him
an actual and bound party to the instrument. As an assignee or transferee of the
prom notes, Philacor is not liable as this transaction is not taxed under the law.
Philacor correctly pointed out that there are provisions in the 1997 Tax Code that
specifically impose the DST on the transfer and/or assignment of documents
evidencing particular transactions (Secs. 175, 176, 178, 198, 183‐185, 194‐195).
We can safely conclude that where the law did not specify that such transfer and/or
assignment is to be taxed, there would be no basis to recognize an imposition. The
list does not include the assignment or transfer of evidence of indebtedness; rather,
it is the renewal of these that is taxable. (PHILACOR Credit Corporation v. CIR, G.R.
No. 169899, February 6, 2013)
DOCTRINES
1. It is in the exercise of its police power that the Congress
enacted R.A. Nos. 9257 and 9442, the laws mandating a 20% discount
on purchases of medicines made by senior citizens and PWDs. It is also
in further exercise of this power that the legislature opted that the said
discount be claimed as tax deduction, rather than tax credit, by covered
establishments.
Petitioner argues that the law is confiscatory in the sense that the State takes away
a portion of its supposed profits which could have gone into its coffers and utilizes it
for public purpose. The petitioner claims that the action of the State amounts to
taking for which it should be compensated. To reiterate, the subject provisions only
affect the petitioner's right to profit, and not earned profits. Unfortunately for the
petitioner, the right to profit is not a vested right or an entitlement that has accrued
on the person or entity such that its invasion or deprivation warrants compensation.
Vested rights are "fixed, unalterable, or irrevocable."
The subject laws do not violate the
equal protection clause
To recognize all senior citizens as a group, without distinction as to income, is a
valid classification. The Constitution itself considered the elderly as a class of their
own and deemed it a priority to address their needs. When the Constitution declared
its intention to prioritize the predicament of the underprivileged sick, elderly,
disabled, women, and children, it did not make any reservation as to income, race,
religion or any other personal circumstances. It was a blanket privilege afforded
the group of citizens in the enumeration in view of the vulnerability of their class.
The definitions of "disabilities" and "PWDs" are clear and unequivocal
under the law granting incentives to PWDs. (Southern Luzon Drug Corporation
v. DSWD, et. al., G.R. No. 199669, April 25, 2017)
2. Tax assumption is different from tax exemption. Thus, tax
assumption does not need the concurrence of the majority of the
members of Congress.
An Exchange of Notes was executed covering the grant by the Government of
Japan for the construction and implementation of a Coal-Fired Thermal Power
Plant Project. In the Exchange of Notes, the Philippine Government, through its
executing agency, undertook to assume all taxes imposed by the Philippines on
Japanese contractors engaged in the project. To implement the Project, the
Philippine Government entered into a contract with Mitsubishi Corporation for the
engineering, construction, and other associated civil works for the Project.
Upon completion and acceptance of the Project, Mitsubishi remitted taxes to the
BIR. Since all taxes are assumed by the Philippine government agency, Mitsubishi
Corporation filed an administrative claim for a refund with the BIR to recover the
erroneously paid amount. Subsequently, it filed a petition for review before the
CTA, which decided against Mitsubishi Corporation and ruled that the Exchange of
Notes cannot be read as a treaty validly granting tax exemption considering the
lack of Senate concurrence.
The Supreme court held that it is fairly apparent that the subject taxes were
erroneously collected from Mitsubishi Corporation, considering that the obligation
to pay had already been assumed by the Philippine government by virtue of the
Exchange of Notes with the Japanese government. An Exchange of Notes is
considered an executive agreement, which is binding on the State even without
27
the Senate’s concurrence. There is no tax exemption to speak of because the said
taxes shall be assumed by the Philippine Government; hence, the said provision is
not violative of the Constitutional prohibition against the grants of tax exemption
without the concurrence of the majority of the members of Congress.
To "assume" means "to take on, become bound as another is bound, or put oneself
in place of another as to an obligation or liability." This means that the obligation
or liability remains, although the same is merely passed on to a different person.
In this light, the concept of an assumption is therefore different from an
exemption, the latter being the "freedom from a duty, liability or other
requirement" or "[a] privilege given to a judgment debtor by law, allowing the
debtor to retain [a] certain property without liability." (Mitsubishi Corp. -Manila
Branch v. Commissioner of Internal Revenue, G.R. No. 175772, June 5, 2017)
3. Submission of the documentary requirements and payment
of amnesty tax is considered full compliance with R.A. No. 9480 (Tax
Amnesty Program) and the taxpayer can immediately enjoy the
immunities and privileges.
However, such immunities and privileges shall cease to apply if, in their SALN, it
was proven that the taxpayer has understated his net worth by 30% or more. The
SALN is presumed to be correct unless there is: (1) under-declaration of net worth
by 30%; (2) the under-declaration is established in proceedings initiated by parties
other than the BIR; and (3) the proceedings were initiated within one year from
filing of the tax amnesty. (CIR v. Apo Cement Corporation, G.R. No. 193381, February
8, 2017)
4. Section 8 (f) of RA 9480 is clear: only persons with "tax
cases subject of final and executory judgment by the courts" are
disqualified to avail of the Tax Amnesty Program under RA 9480. Thus,
the issuance by the BIR of a Final Decision on Disputed Assessment
(FDDA) to a taxpayer does not preclude the latter from availing the
benefits of the Tax Amnesty Program.
Section 8 of RA 9480 outlines the exceptions when the Tax Amnesty Program may
not be availed of. In particular, Section 8 (f) of RA 9480 provides that persons with
"tax cases subject of final and executory judgment by the courts" are disqualified
to avail of the Tax Amnesty Program under RA 9480. As such, there must be a
judgment promulgated by a court and the judgment must have become final and
executory. The Final Decision on Disputed Assessment (FDDA) issued by the BIR
is NOT a tax case "subject to a final and executory judgment by the courts" as
contemplated by Section 8 (f) of RA 9480. (CIR v. Philippine Aluminum Wheels, G.R.
No. 216161, August 9, 2017)
5. Section 6 of the DO 29-07 (implementing rules of RA 9480)
laid down the procedure for availing of the tax amnesty under RA 9480.
Upon the taxpayer's full compliance with such requirements, the
taxpayer is immediately entitled to the enjoyment of the immunities and
privileges of the tax amnesty program. But when: (a) the taxpayer fails
to file a SALN and the Tax Amnesty Return; or (b) the net worth of the
taxpayer in the SALN as of December 31, 2005 is proven to be
understated to the extent of 30% or more, the taxpayer shall cease to
enjoy these immunities and privileges. (CIR v. Covanta Energy Philippine
Holdings, Inc., G.R. No. 203160, January 24, 2018)
MISCELLANEOUS
1. “Classification Freeze Provision” – a provision in a law
which provides that once a sin product has been classified under low-
priced, medium-priced, high-priced, or premium priced tax bracket
based on its current net retail price, its classification is frozen unless
Congress reclassifies it. As such, the DOF or the BIR cannot change its
classification.
The questioned provision addressed Congress' administrative concerns regarding
delegating too much authority to the DOF and BIR as this will open the tax system
to potential areas of abuse and corruption. Congress may have reasonably
conceived that a tax system which would give the least amount of discretion to the
tax implementers would address the problems of tax avoidance and tax evasion.
1. As previously ruled, the classification freeze provision does not violate the
constitutional provisions on equal protection. (CIR v. San Miguel Corporation, G.R.
No. 205045. January 25, 2017)
2.
28
 3. PAGCOR is exempt from the payment of VAT, because its
charter, P.D. No. 1869, is a special law that grants PAGCOR exemption
from taxes. Hence, it is not liable for expended withholding VAT on
payments to its catering service contractors. (CIR v. PAGCOR, G.R. No.
177387. November 9, 2016)
Also, PAGCOR is not liable for deficiency expanded withholding tax on its payment
for: (1) audit services by COA as this is exempted under existing regulations, and
(2) prizes and other promo items which are already subjected to 20% final
withholding tax.
PAGCOR is liable for final withholding tax on fringe benefits of the car plan extended
by PAGCOR to its qualified officers. For failure to sufficiently establish that the
fringe benefit is required by the nature of, or is necessary to the trade, business or
profession of the employer, or when the fringe benefit is for the convenience or
advantage of the employer, PAGCOR should have withheld a tax on Fringe Benefits.
PAGCOR is also liable for the expanded withholding tax for: (1) its payments for
the services of its contractual, casual, clerical and messengerial employees; (2)
reimbursements for over-the- counter purchases; (3) security deposits; and (4)
importations for failure to show proof of its non- liability.
4. To warrant the forfeiture of the 15,000 bags of rice and its carrying
vessel, there must be a prior showing of probable cause that: (1) the importation
or exportation of the 15,000 bags of rice was effected or attempted contrary to
law, or that the shipment of the 15,000 bags of rice constituted prohibited
importation or exportation; and (2) the vessel was used unlawfully in the
importation or exportation of the rice, or in conveying or transporting the rice, if
considered as contraband or smuggled articles in commercial quantities, into or
from any Philippine port or place. (Commissioner of Customs v. Singson, G.R. No.
181007. November 21, 2016)
5. A revenue memorandum circular is an administrative ruling
issued by the CIR to interpret tax laws. It is widely accepted that an interpretation
by the executive officers, whose duty is to enforce the law, is entitled to great
respect from the courts. However, such interpretation is not conclusive and will be
disregarded if judicially found to be incorrect. Verily, courts will not tolerate
administrative issuances that override, instead of remaining consistent and in
harmony with, the law they seek to implement, as in this case. Thus, Item B(3) of
RMC No. 42-99, an administrative issuance directing petitioner to claim the refund
from NPC, cannot prevail over Sections 204 and 229 of the NIRC, which provide
that claims for refund of erroneously collected taxes must be filed with the CIR.
(Mitsubishi Corporation-Manila Branch v. CIR, G.R. No. 175772, June 5, 2017)
6. Other accounting methods approved by the CIR, even when not
expressly mentioned in the NIRC, may be adopted if such method would enable the
taxpayer to properly reflect its income. Section 43 of the NIRC authorizes the CIR
to allow the use of a method of accounting that in its opinion would clearly reflect
the income of the taxpayer. An example of such method not expressly mentioned
in the NIRC, but duly approved by the CIR, is the “crop method of accounting”.
(CIR v. Lancaster Philippines, Inc. G.R. No. 183408. July 12, 2017)
7. Excise tax on petroleum products is essentially a tax on
property, the direct liability for which pertains to the statutory taxpayer
(i.e., manufacturer, producer or importer). Any excise tax paid by the
statutory taxpayer on petroleum products sold to any of the entities or
agencies named in Section 135 of the NIRC exempt from excise tax is
deemed illegal or erroneous, and should be credited or refunded to the
payor.
Under Section 129 of the NIRC, as amended, excise taxes are imposed on two kinds
of goods, namely:
(a) goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition; and (b) things imported. Undoubtedly,
the excise tax imposed under Section 129 of the NIRC is a tax on property.
Pursuant to Section 135(c) of the NIRC petroleum products sold to entities that are
by law exempt from direct and indirect taxes are exempt from excise tax.
Clark Development Corporation (“CDC”) was created to be the implementing and
operating arm of the Bases Conversion and Development Authority to manage the
Clark Special Economic Zone (CSEZ). As a duly-registered enterprise in the CSEZ,
CDC has been exempt from paying direct and indirect taxes pursuant to Section 24
29
of Republic Act No. 7916 (The Special Economic Zone Act of 1995).
Inasmuch as its liability for the payment of the excise taxes accrued immediately
upon importation and prior to the removal of the petroleum products from the
customs house, Chevron was bound to pay, and actually paid such taxes. But the
status of the petroleum products as exempt from the excise taxes would be
confirmed only upon their sale to CDC in 2007 (or, for that matter, to any of the
other entities or agencies listed in Section 135 of the NIRC). Before then, Chevron
did not have any legal basis to claim the tax refund or the tax credit as to the
petroleum products.
Consequently, the payment of the excise taxes by Chevron upon its importation of
petroleum products was deemed illegal and erroneous upon the sale of the
petroleum products to CDC.
In cases 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 tax refund
or tax credit. Hence, Chevron is entitled to the refund. [Chevron Philippines, Inc. v.
CIR, G.R. No. 210836, September 1, 2015 (en banc)]
8. PAL’s franchise includes exemption from excise taxes.
PAL was assessed excise taxes on its February and March 2007 importation of
cigarettes and alcoholic drinks for its commissary supplies used in its international
flights. PAL paid the amounts under protest. Thereafter, it filed 3 separate
administrative claims for refund before the BIR for the alleged excise taxes
erroneously paid on 3 different dates. Subsequently, it filed Petition for review
before the CTA to forestall the running of the 2-year prescriptive period. The CTA
granted the petition. In the CTA En Banc, it held that the “in lieu of all taxes” clause
in PAL’s franchise exempts it from excise tax. Upholding the decision of CTA En
Banc, the Supreme Court held that in view of PAL’s payment of either the basic
corporate income tax or franchise tax, whichever is lower, PAL is exempt from
paying:
(a) taxes directly due from or imposable upon it as the purchaser of the subject
petroleum products; and (b) the cost of the taxes billed or passed on to it by the
seller, producer, manufacturer or importer of the said products either as part of the
purchase price or by mutual agreement or other arrangement. (CIR vs. PAL, Inc.,
G.R. No. 212536-37, August 27, 2014)
9. The tax privilege of PAL under its charter has not been
revoked by the amendment of the NIRC.
Upon the amendment of the 1997 NIRC, Section 22 of R.A. 9337 abolished the
franchise tax and subjected PAL and similar entities to corporate income tax and
VAT. PAL nevertheless remains exempt from taxes, duties, royalties, registrations,
licenses, and other fees and charges, provided it pays corporate income tax as
granted in its franchise agreement. Accordingly, PAL is left with no other option but
to pay its basic corporate income tax, the payment of which shall be in lieu of all
other taxes, except VAT, and subject to certain conditions provided in its charter.
Between the provisions under PD 1590 as against the provisions under the NIRC of
1997, as amended by RA 9334, which is a general law, the former necessary prevails.
A later law, general in terms and not expressly repealing or amending a prior special
law, will not ordinarily affect the special provisions of such earlier statute. While it is
true that Sec. 6 of RA 9334 states that "the provisions of any special or general law
to the contrary notwithstanding," such phrase left alone cannot be considered as an
express repeal of the exemptions granted under PAL's franchise because it fails to
specifically identify PD 1590 as one of the acts intended to be repealed. (CIR v.
Philippine Airlines, Inc., G.R. Nos. 215705-07, February 22, 2017)
10. Clear and convincing proof is necessary to overthrow
findings of fact by the Court of Tax Appeals
It is doctrinal that the Court will not lightly set aside the conclusions reached by
the CTA which, by the very nature of its function of being dedicated exclusively to
the resolution of tax problems, has developed an expertise on the subject, unless
there has been an abuse or improvident exercise of authority. We thus accord the
findings of fact by the CTA with the highest respect. These findings of facts can
only be disturbed on appeal if they are not supported by substantial evidence or
there is a showing of gross error or abuse on the part of the CTA. In the absence
of any clear and convincing proof to the contrary, this Court must presume that
the CTA rendered a decision which is valid in every respect. (CIR v. De La Salle
University, Inc., G.R. Nos. 196596, 198841 & 198941, November 9, 2016)
30

11. Solutio indebiti is not a valid ground to claim for
refund/credit of excess input tax.
There is solutio indebiti when: (1) Payment is made when there exists no binding
relation between the payor, who has no duty to pay, and the person who received
the payment; and (2) Payment is made through mistake, and not through liberality
or some other cause. Solutio indebiti does not apply in this case because there exists
a binding relation between petitioner and the CIR, the former being a taxpayer
obligated to pay VAT and the payment of input tax was not made through mistake
since petitioner was legally obligated to pay for that liability. The entitlement to a
refund or credit of excess input tax is solely based on the distinctive nature of the
VAT system. At the time of payment of the input VAT, the amount paid was correct
and proper. (CBK Power Company Limited vs. CIR, G.R. No. 198729-30, January 15,
2014)
12. Petition for declaratory relief is the proper remedy to
question the validity and constitutionality of the revenue memorandum
circular.
CIR issued RMC 65‐2012 dated Oct 31, 2012 which imposes income tax and
VAT on association dues, membership fees and other charges of condominium
corporations, which are non‐stock, non‐ profit corporations. Hence, petitioner filed
petition for declaratory relief with RTC on Dec 26, 2013 and averred the operative
mandate of RMC is unjust, oppressive and confiscatory.
Petitioner has not committed any willful breach of the RMC. Petitioner is not
assailing any assessment, because there is yet no tax assessment made. In
previous years, petitioner has not been subjected to payment of the tax on the dues
and fees. Petitioner seeks relief from the court to determine whether the
RMC is validly issued or not.
The assailed RMC not merely interpreted or clarified the existing BIR ruling, but in
fact legislated or introduced new legislation under the mantle of its quasi-legislative
authority. The RMC failed to show what particular law it clarified; it shows it merely
departed from the several rulings of the BIR exempting from income such
assessments/charges because these amounts were held in trust to be used
solely for administrative purposes. The RMC changed and departed from the
long-standing ruling of the BIR and what is worse, it was made immediately
effective. In so doing, the passage contravenes the constitutional mandate of due
process of law. (First e‐Bank Tower Condominium Corporation v. BIR, SCA 12‐1236,
Sept 5, 2013)
13. In the absence of fraud, the prescriptive period for the
government to assess and collect duties is one (1) year from the date of
the final payment of duties. After such, the liquidation of the import entry
shall be final and conclusive upon all parties.
The failure to file the IEIRD within 30 days from entry is not the only
requirement for the doctrine of ipso facto abandonment to apply. The law
categorically requires that this be preceded by due notice demanding
compliance.
Taxpayer filed its Import Entry and Internal Revenue Declaration (IEIRD) and paid
the import duty of its shipments on 23 May 1996. A demand letter was sent by the
BOC on 27 July 2000, demanding for the deficiency of taxpayer’s import duties.
The Supreme Court held that in the absence of fraud, the prescriptive period for
liquidation has already elapsed and the assessment against taxpayer’s shipment has
already become final and conclusive.
As provided under Sec. 1603 of the Tariff and Customs Code (TCC), "When articles
have been entered and passed free of duty or final adjustments of duties made, with
subsequent delivery, such entry and passage free of duty or settlements of duties
will, after the expiration of one (1) year, from the date of the final
payment of duties, in the absence of fraud or protest or compliance audit
pursuant to the provisions of this Code, be final and conclusive upon all parties,
unless the liquidation of the import entry was merely tentative."
Pursuant to the above-quoted provision, the attendance of fraud would remove the
case from the ambit of the statute of limitations and would consequently allow the
government to exercise its power to assess and collect duties even beyond the one-
year prescriptive period, rendering it virtually imprescriptible.
However, in an attempt to remove the instant case from the purview of the provision,
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the Commissioner of Customs claims that the government is no longer collecting
tariff duties. Rather, it is exercising its ownership right over the shipments, which
were allegedly deemed abandoned by taxpayer because of the latter's failure to
timely file the IEIRD.
The Supreme Court disagreed. The absence of fraud not only allows the finality of
the liquidations; it also calls for the strict observance of the requirements for the
doctrine of ipso facto abandonment to apply. As expressly provided in Sec.
1801 (b) of the TCC, the failure to file the IEIRD within 30 days from entry
is not the only requirement for the doctrine of ipso facto abandonment to
apply. The law categorically requires that this be preceded by due notice
demanding compliance.
To recapitulate, the notice in this case was only served upon taxpayer four (4) years
after it has already filed its IEIRD. Under this circumstance, the Court cannot rule
that due notice was given, for when the Commissioner served the notice demanding
payment from taxpayer, it no longer had the right to do so. By that time, the
prescriptive period for liquidation had already elapsed, and the assessment against
taxpayer's shipment had already become final and conclusive. Consequently, Sec.
1801 (b) failed to operate in favor of the government for failure to demand payment
for the discrepancy prior to the finality of the liquidation. The government cannot
deem the imported articles as abandoned without due notice. (Pilipinas Shell
Petroleum Corp. v. Commissioner of Customs, G.R. No. 195876, 19 June 2017)
14. Under Presidential Decree No. 242 24 (PD 242), all disputes
and claims solely between government agencies and offices, including
government-owned or controlled corporations, shall be administratively
settled or adjudicated by the Secretary of Justice, the Solicitor General,
or the Government Corporate Counsel, depending on the issues and
government agencies involved. According to Sections 1, 2, and 3 of PD
242, in cases involving only questions of law, it is the Secretary of Justice
who has jurisdiction. (Power Sector Assets and Liabilities Management
Corporation v. CIR, G.R. No. 198146, 8 August 2017)
15. It is improper for the CIR to collect, or even attempt to
collect, deficiency taxes from a taxpayer outside of the rehabilitation
proceedings concerning the latter, and in the process, willfully disregard
the Commencement Order lawfully issued by the Rehabilitation Court.
Delinquent taxpayer was under corporate rehabilitation under RA 10142. The
Rehabilitation Court issued a Commencement Order which, among others,
suspended all actions or proceedings for the enforcement of claims against the
taxpayer, and directed the BIR to file and serve on the taxpayer its comment or
opposition to the petition or its claims against the taxpayer. Despite the
foregoing, the BIR still opted to send the delinquent taxpayer a notice of informal
conference informing the latter of its deficiency tax liabilities, and sent a formal
demand letter requiring it to pay deficiency taxes. According to the BIR, they only
performed such acts to toll the prescriptive period for the collection of deficiency
taxes.
The Supreme Court ruled that the BIR could have easily tolled the running of the
prescriptive period, and at the same time, perform their functions as officers of the
BIR, without defying the Commencement Order and without violating the laudable
purpose of RA 10142 by simply ventilating their claim before the Rehabilitation
Court. After all, they were adequately notified of the delinquent taxpayer's
corporate rehabilitation and the issuance of the corresponding Commencement
Order. (BIR v. Lepanto Ceramics, Inc., G.R. No. 224764, April 24, 2017)
-END-
Courage, above all things, is the first quality of a
warrior.
-Carl von Clausewitz
TAXATION LAW COMMITTEE:
Van Allen Ancero, CPA
Maria Rebecca Ozaraga, CPA
Constance Marie Lim, CPA
Adviser: Atty. Kim M. Aranas, CPA
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