ATENEO

* CENTRAL
BAR O P E R A T IO N S 2 0 1 9

JORGE ALFONSO C. MELO

Bar Review Coordinator

LEILA S. LIM
Bar Review Secretariat

ATENEO CENTRAL BAR OPERATIONS

PATRICK EDWARD BALISONG

Chairman

KATRINA Y. COSCOLLUELA JONATHAN VICTOR NOEL CZARINA CHER CUERPO

GENICA THERESE ENDALUZ JOHN STEPHEN PANGILINAN BENIGNO ENCISO
Administration Committee Heads Academics Committee Heads Hotel Operations Committee Heads

ATTY. MICHAEL DANA MONTERO

ATTY. IGNATIUS MICHAEL INGLES
TAXATION LAW Faculty Advisers

RITZ ANGELICA ALEJANDRO

DECE CHRISTINE FULACHE
JOHN JEFFRICK FRANCISCO RIO
MEI UY
STEPHEN DANIEL JAVIER
JOSHUA MANUEL MAGISTRADO
TAXATION LAW Subject Heads

EUNICE A. MALAYO
FRANCES CHRISTINE F. SAYSON
Central Bar Operations
Academics Understudies

KEVIN LUMBRE
TAXATION LAW Understudies

GIA MORDENO
JOHAN FABRIEL FABIA CASSANDRA POLINAR
TIFFANY SO
KJ ESGUERRA TOPHER TAYLO
ZYRA KEE
TAXATION LAW Volunteers
ATENEO CENTRAL
BAR OPERATIONS 2019, TAXATION LAW

G E N E R A L P R INCIPLES correct?
A: No. It is not exempt from the building permit
fees and locational clearance fees as these
Q: What are the three elements of taxation?
charges are in the nature of regulatory fees and
A: (CIS)
not taxes. A building permit fee is a regulatory
1. It is an enforced proportional Contribution
imposition highlighted by the .fact that in
from persons and properties.
processing an application fora building permit, the
2. It is Imposed by the State by virtue of its
Building Official shall see to it that the applicant
sovereignty.
satisfies and conforms with the approved standard
3. It is levied for the Support of the government
requirements on zoning and land use, lines and
(PCGG v. Cojuangco, G.R. No. 147062, 2001)
grades, structural design, sanitary and sewerage,
environmental health, electrical and mechanical
Q: Can the Congress validly grant a discount
safety as well as with other rules and regulations
to senior citizens from certain establishments
implementing the National Building Code. Since
and only allow such establishments to claim
building permit fees are not charges on property,
the discounts granted as a tax deduction and
they are not impositions from which ABC is
not as a tax credit?
exempt. The fact that the revenue is incidentally
A: Yes. The tax deduction scheme is a valid
raised does not make the imposition a tax.
exercise of the State’s police power and not an
(Angeles University v. City of Angeles, G.R. No.
exercise of the power of eminent domain. As such,
189999, 2012)
no just compensation is warranted in favor of the
establishment. Therefore, the fact that the
Q: Can a Revenue Memorandum Order impose
establishments are not able to get a peso for peso
additional conditions or limitations on the tax
reimbursement of the 20% discount given to senior
exemption of nonstock, nonprofit educational
citizens does not make the scheme
institutions?
unconstitutional. (Manila Memorial Park v.
A: No. This constitutional exemption gives the
Secretary of Department of Social Welfare and
nonstock, nonprofit educational institutions a
wDevelopment, G.R. No. 175356. December 3,
distinct character. And for the constitutional
2013)
exemption to be enjoyed, jurisprudence and tax
rulings affirm the doctrinal rule that there are only
Q: Will an erroneous interpretation of a BIR
two requisites: (1) The school must be nonstock
officer based on misapprehension of law put
and nonprofit; and (2) The income is actually,
the government in estoppel?
directly and exclusively used for educational
A: No. Prolonged practice of the BIR in not
purposes. There are no other conditions and
collecting specific tax cannot validate what is an
limitations. (Hon. Kim Jacinto-Henares v. St Paul
otherwise erroneous application and enforcement
College of Makati G.R. No. 215383, March 8,
of the law. The government is never estopped from
2017)
collecting legitimate taxes because of the error
committed by its agents. The BIR is not precluded
Q : When are proprietary non-profit educational
from making a new interpretation of the law
institutions and proprietary non-profit
specifically when the old interpretation was flawed.
hospitals exempt from income tax? If they
(La Suerte Cigar & Cigarette Factory v. CIR, G.R.
engage in for-profit activities, what is the tax
No. 125346, 2014)
implication?
A: For an institution to be completely exempt from
Q: ABC, a non-stock, non-profit educational
income tax, Sec. 30(E)&(G) of the 1997 NIRC
institution, filed an application for a building
requires said institution to operate exclusively for
permit to construct its medical center building
charitable or social welfare purpose. But in case
in its campus. A Building Permit Fee and a
an exempt institution under Sec. 30(E) or (G) of
Locational Clearance Fee was assessed by the
the 1997 NIRC earns income from its for-profit
local government unit. ABC argues that it is
activities, it will not lose its tax exemption.
exempt from payment of the building permit
However, its income from for-profit activities will be
fee and locational clearance fee. Is ABC
subject to income tax at the preferential 10% rate
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pursuant to Sec. 27(B). (CIR v. St. Luke’s Medical 5. Encourage economic growth by granting
Center, G.R. No. 203514, February 13, 2017) incentives and exemptions;
6. Protectionism - to protect local industries from
Q: Clark Special Economic Zone (CSEZ) foreign competition. (REVIEWER ON
imposes payments on the movement of TAXATION, VICTORINO C. MAMALATEO,
petroleum fuel to and from the economic zone 2014, at 11-13)
(eco-zone). Specifically, CSEZ provides for the
payment of accreditation fees, annual Q: Differentiate license fee from tax.
inspection fees, royalty fees and gate pass A:
fees. CSEZ billed Chevron, a domestic License Fee
company located within the eco-zone, for Purpose Imposed for Imposed for
royalty fees at Php 0.50/liter. Chevron protests revenue regulatory
the payment of royalty fees stating that CSEZ purposes purposes
levies the same purely for revenue generation, Basis Imposed Imposed under
which amounts to a tax. Chevron also argues under the the police power
that even if it were levied for regulatory power of of the State
purposes, the royalty fees are unduly taxation
excessive and beyond the costs of regulation Amount No limit as to Limited to the
within the eco-zone. Are the royalty fees the amount of cost of the
imposed a regulatory fee or a tax? tax license and the
A: Royalty fees are regulatory fees. There can be expenses of
no doubt that the oil industry is greatly imbued with police
public interest as it vitally affects the general surveillance and
welfare. Fuel is a highly combustible product regulation
which, if left unchecked, poses a serious threat to Time of Normally paid Normally paid
life and property. The reasonable relation between Payment after the start before the
the royalty fees imposed on a per liter basis and of a business commencement
the regulation sought to be attained is that the of the business
higher the volume of fuel entering CSEZ, the Effect of Does not Makes the
greater the extent and frequency of supervision Non- make the business illegal
and inspection required to ensure the safety, Payment business
security, and order within the eco-zone. (Chevron illegal
Philippinesv. BCD A, G.R. No. 173863, 2010) Surrender Being the May be with or
lifeblood of the without
Q: What are the purposes/objectives of State, cannot consideration
taxation? be
A: (Rev-Reg-PREP) surrendered
1. Revenue - to raise revenue to promote the except for
general welfare and protection of its citizens; lawful
2. Regulatory - may be levied with a regulatory consideration
purpose to provide means for the rehabilitation (MAMALATEO, supra at 17)
and stabilization of a threatened industry which
is affected with public interest as to be within Q. Can an injunction be issued to restrain the
the police power of the State; collection of any national internal revenue tax,
3. Promotion of general welfare - may be used as fee or charge?
an implement of the police power to promote A: As a general rule, no court shall have the
the general welfare of the people; authority to grant an injunction to restrain the
4. Reduction of social inequality - progressive m llo r tin n /-vf o n v / r > < i t in n n l I n + A r w n l
w i i v o i i w i i v /i C4i i y n u u c/ i iu i iiil o m ic ii

system of taxation prevents the undue or charge. (Sec. 218 , NihC)

concentration of wealth in the hands of a few
individuals; As an exception, an injunction may be issued by
the CTA to restrain the collection of taxes when, in
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the opinion of the Court, the collection may 5. During the

jeopardize the interest of the Government same taxing
and/or the taxpayer. The Court at any stage of period; and
the proceeding may suspend the said collection 6. The taxes
and require the taxpayer either must be of
1. To deposit the amount claimed; or the same
2. To file a surety bond for not more than double kind or
the amount with the Court. (Sec. 9, RA 9282 character.
amending Sec. 11, RA 1125) (City of Manila v.
Coca-Cola
Further, the prohibition on the issuance of a writ of Bottlers, G.R. No.
injunction to enjoin the collection of taxes is 181845, 2009)
applied only to national internal revenue taxes, Allowed No Yes
not to local taxes. However, the Supreme Court under the
noted that such injunctions enjoining the collection law?
of local taxes are frowned upon. (Angeles City v.
Angeles Electric Corporation, G.R. No. 166134, Q: What are the usual methods of avoiding
2010) double taxation?
A: (TVC-CRIED)
Q: Differentiate the two types of double 1. Entering into Tax Treaties with other
taxation. countries where certain tax relief or schemes
A: are adopted providing for reciprocal
DIRECT INDIRECT concessions between the contracting States;
DOUBLE DOUBLE 2. Estate taxes provide for a Vanishing
TAXATION TAXATION deduction to mitigate the effects of double
Definition Taxing the same One where taxation on the same property that is subject
property twice some of the to 2 or more transfers pertaining to 2 or more
when it should be elements of decedents;
taxed only once; direct 3. Allowing tax Credit for foreign taxes paid;
that is, taxing the double 4. Allowing Tax Credit of Foreign Taxes Paid;
same person taxation 5. Application of Reciprocity Rule;
twice by the same are absent. 6. For VAT purposes, the Input tax on items that
jurisdiction for the go into the manufacture of finished products
same thing. which are eventually sold may be credited
against or deducted from the output tax;
There is double 7. Providing Tax Exemptions; or
taxation if the two 8. Allowing Deduction for foreign taxes paid.
taxes are (MAMALATEO, supra at 25; GRUBA, supra at
imposed: 147-148)
1. On the same
subject Q: Are petroleum companies that sell
matter; petroleum products to international carriers
2. For the same exempt from paying excise taxes? If paid by
purpose; the said companies, are they entitled to
3. By the same refund?
taxing A: Yes. To exempt aviation fuel from excise tax
authority; and other impositions prohibits the passing of the
4. Within the excise tax to international carriers who buy
same petroleum products from local
jurisdiction; manufacturers/sellers.

As the statutory taxpayer who is directly liable to

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pay the excise tax, the company is entitled to a transactions and remits
refund or credit of the excise taxes it paid for the same to the
petroleum products sold to international carriers, government
the latter having been granted exemption from the (Asia International Auctioneers v. CtR, G.R. No.
payment of said excise tax under Sec. 135 (a) of 179115, 2012)
the NIRC. (Commissioner of Internal Revenue v.
Pilipinas Shell Petroleum Corporation G.R. No. Q: Is an offline carrier (an international air
180402, 2016) carrier with no flight operations to and from the
Philippines) considered a special corporation
Q: Are PAL’s alcohol and tobacco and therefore taxable based on its Gross
importations for its commissary supplies Philippine Billings?
subject to excise tax? A: No, the tax attaches only when the carriage of
A: No. The tax privileges granted in Section 13 of persons, excess baggage, cargo, and mail
PD 1590 (PAL’s franchise) has not been revoked originated from the Philippines in a continuous and
by Section 131 of the NIRC of 1997, as amended uninterrupted flight, regardless of where the
by Section 6 of RA 9334. The franchise of PAL passage documents were sold. Not having flights
remains the governing law on its exemption from to and from the Philippines, an offline carrier is
taxes. Its payment of either basic corporate clearly not liable for the Gross Philippine Billings
income tax or franchise tax — whichever is lower tax. (Air Canada v. CIR, G.R. No. 169507, 2016)
— shall be in lieu of all other taxes, duties,
royalties, registrations, licenses, and other fees Q: What are the requisites of a taxpayer’s suit?
and charges, except only real property tax. The A: To constitute a taxpayer's suit, two requisites
phrase "in lieu of all other taxes" includes but is not must be met, namely, that:
limited to taxes, duties, charges, royalties, or fees • Public funds are disbursed by a political
due on all importations by the grantee of the subdivision or instrumentality and in doing so,
commissary and catering supplies, provided that a law is violated or some irregularity is
such articles or supplies or materials are imported committed, and
for the use of the grantee in its transport and non • Petitioner is directly affected by the alleged
transport operations and other activities incidental ultra vires act. (Anti-Graft League v. San Juan,
thereto and are not locally available in reasonable G.R. No. 97787, 1996)
quantity, quality, or price. (Commissioner of
Internal Revenue and Commissioner of Customs Q: Will a petition qualify as a taxpayer’s suit
v. Philippine Airlines, Inc., GR No. 215705-07, when there has been neither an appropriation
February 22, 2017) nor an authorization of disbursement of
funds?
Q: Distinguish indirect taxes from withholding A: No. A taxpayer’s suit contemplates a situation
taxes. in which there is already an appropriation or a
A: disbursement of public funds. Therefore, until and
INDIRECT TAX • the incidence of taxation unless the Legislature appropriates funds for a
falls on one person but particular project, or unless petitioners can
the burden thereof can pinpoint a specific item in the current budget that
be shifted or passed on allows expenditure under the agreement, the
to another person Court cannot rule that there is in fact an
WITHHOLDING • the incidence and appropriation or a disbursement of funds that
TAX burden of taxation fall on would justify the filing of a taxpayer's suit.
the same entity, the (Saguisag v. Ochoa Jr., G.R. Nos. 212426 &
statutory taxpayer; 212444, 2016)
• withholding agent merely
collects, by withholding, Q: The Enhanced Defense Cooperation
the tax due from income Agreement, an executive agreement between
payments to entities the Philippines and the United States, states
arising from certain that the taxes on the use of water, electricity,
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and public utilities of the other party are for the People vs. Judy Anne Santos v.
account of the Philippine Government. Does Kintanar People
this create a tax exemption, which under the Tax evasion connotes the integration of three
law should originate from the Congress? factors:
A: No. This provision in the executive agreement 1. The end to be achieved, i.e., the payment
creates a situation in which a contracting party of less than that known by the taxpayer to
assumes the tax liability of the other and not a tax be legally due, or the non-payment of tax
exemption. Since the Philippine Government when it is shown that a tax is due;
stands to benefit from the agreement not only from 2. An accompanying state of mind which is
the structures to be built or improved, but also from described as being "evil," in "bad faith,"
the joint training with U.S. forces, disaster "willful," or "deliberate and not accidental";
preparation and the preferential use of Philippine and
suppliers, the provision on the assumption of tax 3. A course of action or failure of action which
liability does not constitute a tax exemption. is unlawful.
(Saguisag v. Ochoa Jr., G.R. Nos. 212426 & All the elements are Lacks the element of
212444, 2016) present wilfullness
“Willful" in tax The element of willful
Q: What are the three factors to be considered crimes means failure to supply correct
u in determining if a scheme is designed to voluntary, and accurate information
evade taxes? intentional violation must be fully established
A: The three (3) factors to be considered are: (E- of a known legal as a positive act or state
M-U) duty, and bad faith of mind. It can neither be
1. The End to be achieved (which is payment of or bad purpose presumed nor attributed
less taxes than that known by the taxpayer to need not be shown to mere inadvertent or
be legally due or non-payment of a tax when it negligent acts.
is shown that a tax is due);
2 An evil or deliberate state of Mind; and
3. A course of action which is Unlawful. (CIR v.
The Estate of Benigno Toda, G.R. No.
147188, 2004)

Q. Distinguish tax avoidance from tax evasion.

A:
TAX EVASION TAX
AVOIDANCE
Other Tax Dodging Tax
Name Minimization
Means Use illegal Use legal
means means
Penalty Punishable by Not punishable
law by law
Object To entirely To merely
escape minimize
payment of payment of
taxes taxes
(GRUBA, supra at 124-125)

Q: Distinguish the cases of People v. Kintanar

and People v. Judy Ann Santos.
A:
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Involves non-filing Involves failure to supply Q: Explain the rule on non-retroactivity of

of Income Tax correct and accurate rulings.
Return. information. Mere A: As a general rule, any revocation, modification
understatement of a tax or reversal of any of the rules and regulations
is not itself proof of fraud promulgated or any of the rulings or circulars
for the purpose of tax promulgated by the Commissioner shall not be
evasion. given retroactive application if the revocation,
modification or reversal will be prejudicial to the
The elements of a The elements of a taxpayers.
violation of Section violation of Section 255
255 of the NIRC for of for failure to supply Exception: Even if prejudicial to the taxpayer,
failure to make or correct and accurate they shall have retroactive effect in the following
file a return are: information are: cases:
1. That a person is 1. The taxpayer deliberately misstates or
1. The accused is required to supply omits material facts from his return or any
a person correct and accurate document required from him by the Bureau of
required to information; Internal Revenue;
make or file a 2. That there is failure 2. The facts subsequently gathered by the
return; to supply correct and Bureau of Internal Revenue are materially
2. The accused accurate information different from the facts on which the ruling
failed to make or at the time or times was based; or
file the return at required by law or 3. The iaxpayer acted in bad faith. (Sec. 246,
the time rules and NIRC
required by law; regulations; and
3. The failure to 3. That such failure to Note: RR 5-2012 provides that all rulings issued
make or file the supply correct and prior to January 1, 1998 will no longer have any
return was accurate information binding effect. They can no longer be invoked as
willful. is done willfully. basis for any current business transaction/s or as
(GRUBA, supra at 128-129) a basis for securing legal tax opinions and rulings.
Q: What is a tax amnesty?
A: A tax amnesty refers to the articulation of the Note, however, that RMC 22-2012 clarified that
absolute waiver by a sovereign of its right to collect BIR Rulings prior to January 1, 1998 remains valid
taxes and power to impose penalties on persons to the taxpayer who was issued the ruling and
or entities guilty of violating a tax law. Tax amnesty covering the specific transaction which is subject
aims to grant a general reprieve to tax evaders of the ruling.
who wish to come clean by giving them an
opportunity to straighten out their records. Note further that RMC 69-2016 suspended until
Amnesty taxpayers may immediately enjoy the further notice all revenue issuances issued within
privileges and immunities under a Tax Amnesty period covering June 1-30, 2016.
Law, provided they fulfill the suspensive conditions
imposed therein. (CS Garments, Inc. v. Q: May a BIR ruling be invoked by a taxpayer
Commissioner of Internal Revenue, G.R. No. other than the one who requested the same?
182399, 2014) A: No. The Supreme Court ruled that in keeping
with the caveat attendant in every BIR ruling to the
Q: Can tax amnesty be presumed? effect that it is valid only if the facts claimed by the
A: A tax amnesty, much like a tax exemption, is taxpayer are correct, a BIR ruling could be invoked
never favored or presumed in law. The grant of a only by the taxpayer who sought the same. If the
tax amnesty, similar to a tax exemption, must be taxpayer is not the one who, in the first instance,
construed strictly against the taxpayer and liberally sought the ruling from the BIR, he cannot invoke
in favor of the taxing authority. (Asia International the principle of non-retroactivity of BIR rulings.
Auctioneers v. CIR, G.R. No. 179115, 2012) (CIR v. Filinvest Development Corporation, G.R.
Nos. 163653 & 167689, 2011)
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Q: What are the inherent limitations on the
power to tax?
A: The inherent limitations are those limitations
that exist despite the absence of an express
constitutional provision thereon. (P-l-N-E-T)
1. Public purpose - power of taxation is
exercised for a public purpose and for the
general welfare of the State’s jurisdiction.
(Planters Products, Inc. v. Fertiphil
Corporation, G.R. No. 166006, 2008)
2. Principle of International comity - Comity is
respect accorded by nations to each other as
co-equals. As taxation is an act of sovereignty,
such power should not be imposed upon
equals out of respect. The property of a
foreign state or government may not be taxed
by another foreign state or government.
(Tanada v. Angara, G.R. No. 118295, 1997)
3. Inherently legislative or Non-delegability of
the taxing power - Only the legislature can
exercise the power of taxes unless the same
is delegated by the constitution or through a
law which does not violate the constitution.
(Manila Electric Company v. Province of
Laguna, G.R. No. 131359, 1999)
4. Tax Exemption of the State - entities
=; exercising sovereign functions are tax-
exempt, unless expressly taxed. However,
government agencies performing proprietary
functions remain subject to tax. (Maceda v.
Macaraig, Jr., G.R. No. 88291, 1991)
5. Territoriality or situs of taxation - power to
tax is limited to the territorial jurisdiction of the
taxing State. It is the place or authority that has
the right to impose and collect taxes. (CIR v.
Marubeni Corporation, G.R. No. 137377,
2001) (GRUBA, supra at 76-97)
Q : What are the constitutional provisions
directly affecting taxation?
A: The direct constitutional provisions on taxation
are:
1. Non-imprisonment for non-payment of poll tax
(PHIL. CONST., Art. Ill, Sec. 20)
2. Uniformity, equitability and progressivity of
taxation (PHIL. CONST., Art. VI, Sec. 28, par.
V-
3. Grant by Congress of authority to the
President to fix tariff rates, import and export
quotas, etc. (PHIL. CONST., Art. VI, Sec. 28,
par. 2)
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TAXATION LAW
4. Tax exemption of properties actually, directly,
and exclusively used for religious, charitable
and educational purposes (PHIL. CONST.,
Art. VI, Sec. 28, par. 3)
5. Exemption from taxes of the revenues and
assets of educational institutions including
grants, endowments, donations or
contributions. (PHIL. CONST., Art. XIV, Sec.
4, par. 3)
6. President’s veto power on appropriation,
revenue, tariff bills (PHIL. CONST., Art. VI,
Sec. 27, par. 2)
7. Non-impairment of the Supreme Court’s
jurisdiction in tax cases (PHIL. CONST., Art.
VIII, Sec. 5, par. 2(b))
8. Power of local governments to create its own
sources of revenue and to levy taxes subject
to Congressional limitations (PHIL. CONST.,
Art. X, Sec. 6)
9. Voting requirement in connection with the
legislative grant of tax exemption (PHIL.
CONST., Art. VI, Sec. 28, par. 4)
10. The provision which mandates that money
collected on a tax levied for a public purpose
shall be paid out for such purpose only (PHIL.
CONST., Art. VI, Sec. 29, par. 3)
Q: What are the constitutional provisions
indirectly affecting taxation?
A: The indirect constitutional provisions on
taxation are:
1. Due Process (PHIL. CONST., Art. Ill, Sec. 1)
2. Equal Protection (PHIL. CONST, Art. Ill,
Sec. 1)
3. Religious Freedom (PHIL. CONST., Art III,
Sec 5)
4. Non-impairment of Obligations of Contracts
(PHIL. CONST., Art. Ill, Sec. 10)
Q: Believing that it overpaid its branch profit
remittance tax (BPRT), Deutsche Bank filed its
administrative claim for refund with the BIR.
On the same date it filed its administrative
claim with the BIR, it also filed its Tax Treaty
Relief Application (TTRA) with the BIR-
International Tax Affairs Division (BIR-ITAD)
for the confirmation on its entitlement to the
preferential tax rate of 10% under the RP-
Germany Tax Treaty. Due to the inaction of the
BIR on its administrative claim, Deutsche Bank
filed its judicial claim with the CTA. CTA denied
the claim on the ground that the TTRA was not
ATENEO CENTRAL
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filed at least 15 days prior to the availment of 2. Revenue Memorandum Orders (RMOs) -
the preferential rate, as required under RMO 1- issuances that provide directives or
2000. Is the CTA correct in ruling that BLR instructions; prescribe guidelines; and outline
rightfully denied the claim on the ground that processes, operations, activities, workflows,
the TTRA was not filed at least 15 days prior to methods and procedures necessary in the
the availment of the preferential rate, as implementation of stated policies, goals,
required under RMO 1-2000? objectives, plans and programs of the Bureau
A: No, the CTA is incorrect. Taxpayers cannot be in all areas of operations, except auditing.
deprived of their entitlement to the benefit of a (GRUBA, supra at 211)
treaty for failure to strictly comply with an 3. Revenue Memorandum Rulings (RMRs) -
administrative issuance requiring the prior rulings, opinions and interpretations of the
application for tax treaty relief. At most, the Commissioner of Internal Revenue with
application for a tax treaty relief from the BIR respect to the provisions of the Tax Code and
should merely operate to confirm the entitlement other laws, as applied to a specific set of facts,
of the taxpayer to the relief. with or without established precedents, and
which the Commissioner may issue from time
To divest entitlement to the relief, would constitute to time for the purpose of providing taxpayers
a violation of the doctrine of pacta sunt servanda guidance on the tax consequences in specific
that requires that parties should comply with their situations. BIR Rulings, therefore, cannot
treaty obligations in good faith. The obligation to contravene duly issued RMRs; otherwise, the
comply with a tax treaty must take precedence Rulings are null and void ab initio. (GRUBA,
over RMO No. 1-2000. (Deutsche Bank AG Manila supra at 212-213)
v. CIR, G.R. No. 188550, 2013; CBK Power 4. Revenue Memorandum Circular (RMCs) -
Company Limited v. CIR, G.R. No. 193383-84 and issuances that publish pertinent and
193407-08, 2015) applicable portions, as well as amplifications,
of laws, rules, regulations and precedents
Notwithstanding, the BiR still requires the filing of issued by the BIR and other agendes/offices.
TTRA although they are no longer strict as to the (GRUBA, supra at 211)
period of filing (i.e., before the first taxable event).
(RMO No. 72-2010; amended RMO No. 1-2000) 5. Revenue Bulletins (RBs) - refer to periodic
issuances, notices and official
PO W ERS O F THE BIR *1 announcements of the CIR that consolidate
the BIR’s position on certain specific issues of
law or administration in relation to the
Q: What is the Commissioner of Internal
provisions of the 1997 Tax Code, relevant tax
Revenue’s power to interpret tax laws?
laws and other issuances for the guidance of
A: The power to interpret the provisions of the
the public. (GRUBA, supra at 213
NIRC and other tax laws shall be under the
6. BIR Rulings - the official position of the
exclusive and original jurisdiction of the
Bureau of Internal Revenue to queries raised
Commissioner, subject to review by the Secretary
by taxpayers and other stakeholders relative
of Finance. (NIRC, Sec. 4)
to clarification and interpretation of tax laws.
(GRUBA, supra at 212
Q: What are the different tax issuances?
7. Revenue Administrative Orders (RAOs) -
A:
issuances that cover subject matters dealing
1. Revenue Regulations (RRs) - issuances
strictly with the permanent administrative set­
signed by the Secretary of Finance, upon
up of the Bureau, more specifically, the
recommendation of the Commissioner of
organizational structure, statements of
Internal Revenue, that specify, prescribe or
r-1 in . U o n . , . 1 ^ 4 . ; ______ 4-1---------------------- ------- IS -------4.:. .~ functions and/or responsibilities of BIR offices,
v j o iiiic ; i u i c o cm i u i c y u i a u u i to i u i lire; c i i c o u v e
definitions and delegations of authority,
enforcement of the provisions of the NIRC and
staffing and personnel requirements and
related issuances. (GRUBA, supra at 211)
standards of performance. (GRUBA, supra at
211)
PAGE 8 OF 58
ATENEO CENTRAL
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8. Revenue Delegation of Authority Orders
(RDAOs) - to functions delegated by the
Commissioner to revenue officials in
accordance with law. (GRUBA, supra at 212)
9. Revenue Special Orders (RSOs) - 3.
administrative orders issued by the CIR
assigning revenue officers and employees of
the BIR to special duties which shall not
exceed 1 year. (GRUBA, supra at 212)
10. Revenue Audit Memorandum Orders
(RAMOs) - declarations of audit programs of
the BIR for a specific taxable year signed by
the CIR. (GRUBA, supra at 212)
11. Revenue Travel Assignment Orders
(RTAOs) - issued by the CIR transferring,
assigning or reassigning revenue officers or
employees to other or special duties
connected with the enforcement or
„ administration of revenue laws as the
exigencies of the service may require:
Provided, however, that revenue officers
assigned to perform assessment or collection
functions shall not remain in the same
assignment for more than 3 years. (GRUBA,
supra at 213)
Q: What is the value of Revenue Regulations?
A: General rule: The Supreme Court said that a
void law or administrative act cannot be the source
of legal rights or duties. Article 7 of the New Civil
Code provides that “... administrative or executive
acts, orders and regulations shall be valid only
when they are not contrary to the laws or the
Constitution.” (CIR v. San Roque Corporation,
G.R. No. 187485, 2013)
Exception: In the same case, citing Section 246
of the NIRC, the Court said that taxpayers may rely
upon a rule or ruling issued by the Commissioner
from the time the rule or ruling is issued up to its
reversal by the Commissioner or this Court. The
reversal is not given retroactive effect. This, in
essence, is the doctrine of operative fact.
Q: When is the CIR authorized to inquire into
bank deposits as an exception to the Bank
Secrecy Law?
A: The CIR is authorized to inquire into bank
deposits on the following instances: (D-C-A-T)
1. A Decedent to determine his gross estate;
[NIRC, Sec. 6(F)]
PAGE 9 OF 58
TAXATION LAW
2. Any taxpayer who has filed an application for
Compromise of his tax liability by reason
of financial incapacity to pay his tax liability;
[NIRC, Sec. 6(F)]
A taxpayer who Authorizes the CIR to
inquire into his bank deposits;
4. If the Philippines is under a Treaty obligation
and a specific taxpayer is subject of a request
for the supply of tax information from a foreign
tax authority. [RA 10021, Sec. 3 amending
Sec. 6(F) of the NIRC]
Q: In 2011, the Commissioner of the U.S.
Internal Revenue Service (IRS) requested in
writing the Commissioner of Internal Revenue
to get the information from a bank in the
Philippines, regarding the deposits of a U.S.
citizen residing in the Philippines, who is
under examination by the officials of the US
IRS, pursuant to the US-Philippine Tax Treaty
and other existing laws. Should the BIR
Commissioner agree to obtain such
information from the bank and provide the
same to the IRS? Explain your answer.
A: Yes, provided that the Philippines is under a
treaty obligation. Pursuant to Section 6 of the
NIRC, the Commissioner shall provide the tax
information obtained from banks and financial
institutions pursuant to a convention or agreement
upon request of the foreign tax authority when
such requesting foreign tax authority has provided
the following information to demonstrate the
foreseeable relevance of the information to the
request: (l2-C-E-G)
1. The Identity of the person under
examination or investigation, and the name
and address of any person believed to be in
possession of the requested information, if
known;
2. A statement of the Information being sought
and its tax purpose;
3. Grounds for believing that the information
requested is held in the Philippines;
4. A statement that the request is in
Conformity with the law and administrative
practices of the said foreign tax authority; and
5. A statement that the requesting foreign tax
authority has Exhausted all means available
in its own territory. [RA 10021, Sec. 3
amending Sec. 6(F) o f the NIRC]
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Q: What is the CIR’s authority to prescribe real categories of taxable income of the individual.
properties? (Tan v. Del Rosario, Jr., G.R. Nos. 109289 &
A: The CIR is authorized to divide the Philippines 109446, 1994)--------------—----------------------- -------------
into different zones upon mandatory consultation
with competent appraisers both from public and The Schedular system of taxation is a system
private sectors, and with prior notice to affected employed where the income tax treatment varies
taxpayers to determine the FMV of real properties. and is made to depend on the kind or category of
This is subject to automatic adjustment once taxable income of the taxpayer. (Tan v. Del
every three (3) years. Any adjustment in zonal Rosario, Jr., G.R. Nos. 109289 & 109446, 1994)
valuation shall be valid provided it is (a) published
in a newspaper of general circulation, in the Q : What system of income taxation prevails
province, city or municipality concerned, or (b) in here in the Philippines?
the absence thereof, shall be posted in the A: Our income tax system adopts a semi-
provincial capital, city or municipal hall and in two schedular or semi-global tax system. Passive
(2) other conspicuous public places. ( NIRC, Sec. investment income subject to final withholding tax
6(e), as amended by RA No. 10963) and capital gains from sale or transfer of certain
shares of stock and real properties classified as
Q: In computing the internal revenue tax what capital assets are subject to different sets of tax
will be the value of the property? rates. Meanwhile, income items that are not
A: it will be the higher of: subjected to final withholding tax under Sec. 57(A)
a. FMV as determined by the Commissioner; of the Tax Code are added together in the
or determination of the taxable income that is
b. FMV as shown in the schedule of values of subjected to one set of graduated tax rates for
the provincial and city assessors, (NIRC, individuals or regular corporate income tax for
Sec. 6(e), as amended by RA No. 10963) corporations, as the case may be. ( MAMALATEO,
supra at 85-86)
Q: is there a presumption of regularity of an
official act in a tax delinquency sale through an Q: Discuss the source rule of income taxation
auction by the local government upon the as provided in the NIRC.
delinquency of a taxpayer in the payment of A:
real property taxes? TAX TAXABLE ON
TAXPAYER
A: No. There is no presumption of the regularity of BASE INCOME
any administrative action which resulted in Resident Taxable Within and without
depriving a taxpayer of his property through a tax Citizen Income the Philippines
sale. This is an exception to the rule that Nonresident Taxable Within the
administrative proceedings are presumed to be Citizen Income Philippines
regular. It is incumbent upon the buyer at an Resident Taxable Within the
[
auction sale to prove the regularity of all Alien Income Philippines
proceedings leading to the sale for the buyer could Nonresident
not rely on the presumption of regularity accorded Alien
to ordinary administrative proceedings. (Corporate engaged in
Strategies Development Corp. and Prieto v. Agojo, Taxable Within the
trade or
G.R. No. 208740, 2014) Income Philippines
business
(more than
INCO M E TAX 180 days)
Nonresident
Q: Define global and schedular systems of Alien not
income taxation. engaged in
Gross Within the
A: The Global system of taxation is a system trade or
Income Philippines
employed where the tax system views indifferently
business
the tax base and generally treats in common all
(180 days or
less)
PAGE 10 OF 58
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TAX TAXABLE ON Not over P250.000 0%

TAXPAYER
BASE INCOME Over P250,000 but not 15% of the excess
GPP itself is not over P400.000 over P250.000
taxable, however, Over P400,000 but not P22,500+ 20% of the
General
Taxable individual partners over P800,000 excess over P400.000
Professional
Income will be taxed Over P800,000 but not P102,500 + 25% of
Partnership
depending on over P2,000,000 the excess over
classification P800.000
Same w/ Over P2,000,000 but P402,500 + 30% of
individual (dep. on not over P8,000,000 the excess over
Estate and Taxable classification of P2,000,000
Trust Income decedent, if Over P8,000,000 P2,202,500 + 35% of
estate; trustor, if the excess over
trust) P8,000,000
Within and
Domestic Taxable (b) Self-employed individuals and/or professionals
Without the
Corporation Income shall have the option to avail of an eight
Philippines
Resident percent (8%) tax on gross sales or gross
Taxable Within the receipts and other non-operating income in
Foreign
Income Philippines excess of Two hundred fifty thousand pesos
Corporation
Non-resident (P250,000) in lieu of the graduated income tax
Gross Within the rates and percentage tax provided that their
Foreign
Income Philippines gross sales or gross receipts and non­
corporation
. (NIRC. Secs. 23, 24, 25, 26, 27, 28 & 61) operating income does not exceed the VAT
threshold (P3,000,000).
Q: Discuss the tax rates of tax on taxable (c) Rate of Tax for Mixed Income Earners.
income of individual citizen and individual 1. All income from compensation - graduated
resident aliens.1 rates
A: The tax shall be computed in accordance with 2. Ail income from business or practice or
the rates below: profession
(a) Tax Schedule effective January 1, 2018 until a. If total gross sales and/or gross receipts
December 31,202 2 and other non-operating income do not
exceed the VAT threshold - 8% income
Not over P250,000 0% tax based on gross sales or gross
Over P250,000 but not 20% of the excess receipts; OR the graduated rates
over P400,000 over P250,000 b. If total income exceeds the VAT
Over P400.000 but not P30,000+ 25% of the threshold-graduated rates. (NIRC, Sec.
over P800,000 excess over P400,000 24, as amended by RA No. 10963)
Over P800.000 but not P130,000 + 30% of
over P2,000,000 the excess over Q: What are the withholding tax rates available
P800,000 to individuals and corporations?
Over P2,000,000 but P490,000 + 32% of A:
not over P8,000,000 the excess over CITIZENS and RESIDENT RATE
P2,000,000 ALIENS
Over P8,000,000 P2,410,000 + 35% of 1. Interest under the expanded 15%
the excess over foreign currency deposit system
P8,000,000 2. Royalty from books, literary 10%
works, and musical compositions
Tax Schedule Effective January 1,2023 and 3. Royalty other than above 20%
onwards:

1 This has been amended by Sec. 5 of RA No. 10963.

PAGE 11 OF 58
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CITIZENS and RESIDENT RATE NON-RESIDENT ALIEN RATE

ALIENS ENG AGED IN TR ADE OR
4. Interest on any current bank 20% BUSINESS
deposit, yield or other monetary 4. Interest on any current bank 20%
benefits from deposit substitute, deposit, yield or other monetary
trust fund and similar benefits from deposit substitute,
arrangement trust fund and similar
5, Prizes (except if P10,000 or 20% arrangement
less, which shall be subjected to 5. Prizes (except if P10,000 or 20%
graduated income tax rates) less, which shall be subjected to
6. Winnings (except Philippine 20% graduated income tax rates)
Charity Sweepstakes and Lotto 6. Winnings (except Philippine 20%
winnings amounting to P10,000 Charity Sweepstakes and Lotto
or less, which shall be exempt) winnings amounting to P I 0,000
7. Dividend from a domestic 10% or less, which shall be exempt)
corporation, or from a joint stock 7. Dividend from a domestic 20%
company, insurance or mutual corporation, or from a joint stock
fund company, and regional company, insurance or mutual
operating headquarters of fund company, and regional
multinational company or share in operating headquarters of
the distributive net income after multinational company or share in
| tax of a partnership (except GPP), the distributive net income after
I joint stock or joint venture or tax of a partnership (except GPP),
consortium taxable as a joint stock or joint venture or
corporation consortium taxable as a
Note: Dividends from foreign corporation
corporation Note: Dividends from foreign
• Citizens - computed under corporation
Sec. 24(a) tax table • Citizens - computed under
Resident aliens - not taxable Sec. 24(a) tax table
(income derived from abroad) Resident aliens - not taxable
8. Interest on long-term deposit or. Exempt (income derived from abroad)
investment in banks (with maturity 9. Capital gains from REAL 6%
of 5 years or more) PROPERTY located here
9. Capital gains from REAL 6% classified as CAPITAL assets
PROPERTY located here 10. Capital gains from sale of 15%
classified as CAPITAL assets shares of stock of a domestic
10, Capital gains from sale of 15% corporation, not traded thru a
shares of stock of a domestic local stock exchange
corporation, not traded thru a
local stock exchange NON-RESIDENT ALIEN NOT RATE
ENGAGED IN TRADE OR
NON-RESIDENT ALIEN RATE BUSINESS
ENGAGED IN TRADE OR On income from ALL sources 25%
BUSINESS within the Philippines
1. Interest under the expanded Exempt Capital gains from REAL 6%
foreign currency deposit system PROPERTY located here
2. Royalty from books, literary 10% classified as CAPiTAL assets
works, and musical compositions Capital gains from sale of shares 15%
3. Royalty other than above 20% of stock of a domestic

PAGE 12 OF 58
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NON-RESIDENT ALIEN NOT RATE 2. If deposited by an OCW or Exempt

ENGAGED IN TRADE OR seaman or nonresident
BUSINESS citizen
corporation, not traded thru a
local stock exchange 3. If in a bank account in the 50% exempt
joint names of an OCW and
DOMESTIC CORPORATIONS RATE spouse (resident) 50% FWT of
1. Interest under the expanded 15% 15%
foreign currency deposit system
4. Interest income actually 15%
2. Royalty of all types within the 20%
received by a domestic
Philippines
corporation or resident
- Royalty from abroad, enters the
foreign corporation from FCD
taxable income tax table
3. Interest on any current bank 20%
deposit, yield or other monetary
Q: How are employees of the regional or area
benefits from deposit substitute,
headquarters or regional operating
trust fund and similar
headquarters of multinational companies,
arrangement
offshore banking units and petroleum service
4. Income BY A DEPOSITORY 10%
contractor or subcontractor taxed?
BANK under the FCDU
A: Special aliens are now subject to the regular
5. Capital gains from REAL 6%
income tax rate as the preferential income tax rate
PROPERTY located here
is no longer applicable, without prejudice to
classified as CAPITAL assets
preferential rates under existing tax treaties. (RR-
6. Capital gains from sale of 15% 8-2018 in accordance with the veto message of
shares of stock of a domestic the President)
corporation, not traded thru a
local stock exchange Q: Discuss the source rules to determine
whether income is derived within or without
OTHERS RATE the Philippines
Fringe Benefit 35% on grossed up A:
Taxes monetary value INCOME TEST OF SOURCE OF
INCOME
25% on grossed-up Interests Residence of debtor
monetary value (for Dividends • From domestic corp -
non-resident aliens
income within the
not engaged in trade
Philippines
or business
Informer’s reward 10%
• If received from a
(Tax Made Less Taxing: The Train Supplement,
foreign corporation:
Ingles)
Income within if more
TAX RATE ON INTEREST FINAL TAX than 50% of the gross
INCOME FROM FOREIGN income of such
CURRENCY DEPOSIT [RR foreign corp. for the 3-
NO. 10-98] yr. period ending with
the close of the
1. Interest income actually 15% taxable year prior to
received by a resident citizen
the declaration of
or resident alien from FCD
dividends (or for such
part of such period as
the corporation has
PAGE 13 OF 58
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INCOME TEST OF SOURCE OF INCOME TEST OF SOURCE OF

INCOME INCOME
been in existence) and sold in
was derived from another
sources w/in the Gain on sale of Philippines regardless of
Philippines shares of stock place where sold (NIRC,
in a domestic Sec. 42)
Extent: corp.
Phil Gl x Dividend =
Income within Note: CIR v. British Overseas Airways Corporation
Total Gl provides a special source rule for airline
companies. BOAC was taxed on income even if it
Income without, if less did not perform any of its services in the
than 50% of the gross Philippines. The case pronounced that the source
income of such of an income is the property, activity or service that
foreign corp. for the 3- produced the income. For the source of income to
yr. period ending with be considered as coming from the Philippines, it is
the close of the sufficient that the income is derived from activity
taxable year prior to within the Philippines. In BOAC’s case, the sale of
the declaration of tickets in the Philippines is the activity that
dividends was derived produces the income. (CIR v. British Overseas
from sources w/in the Airways Corporation, G.R. No. L-65773-74, 1987)
Philippines.
Therefore, nothing of A ir Canada v. CIR provides the same ruling
such dividends forms holding that Air Canada is a resident foreign
part of income within corporation and realizes income within the
Services Place of performance of Philippines from its sale of airline tickets through
(compensation service local agent, Aerotel Ltd., Corp. (Air Canada v. CIR,
for G.R. No. 169507, 2016)
labor/personal
services) Q: After the PCGG filed cases to recover the ill-
Rentals Location of the gotten wealth of Benedicto’s late husband, a
! property/interest in such compromise agreement was reached wherein
property the parties agreed that the Swiss cases
Royalties Place of use or location involving Benedicto’s husband’s bank
of intangibles (such as deposits would be terminated in exchange for
patents, trademarks, the PCGG unfreezing all of the deposits so that
etc.) giving rise to Benedicto could get his 49% share from the
royalties deposits. The CIR assessed the amount of the
Gain on sale of Location of property unfrozen accounts claiming that the same was
Real property income subject to tax. is the CiR correct?
Gain on sale of Place of sale A: No. The 49% was not income because
personal Benedicto's husband did not gain any wealth nor
property other did he become any richer than he was before as in
than shares of fact his wealth diminished to the extent of 51%
stock in a which he ceded to the PCGG. The 49% was a
domestic mere return of capital not subject to income tax, it
corporation is only the interest income arising from the
purchased In deposits which may be subjected to income tax as
one country the same is the only gain. (CIR v. Benedicto, G.R.
No. 191999, 2014)

PAGE 14 OF 58
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Q: What are the requirements in order for a
joint venture formed for construction
purposes be not liable for income tax?
A: A joint venture or consortium formed for the
purpose of undertaking construction projects
which is not considered as a taxable corporation
should be:
a. For the undertaking of a construction project;
b. Should involve joining or pooling of resources
by licensed local contractors, licensed by the
Philippine Contractors Accreditation Board
(PCAB) of the DTI;
c. The local contractors are engaged in
construction business; and
d. The joint venture itself must likewise be duly
licensed as such by the PCAB.
Absent one of the requirements, the joint venture
formed for construction purposes shall be
considered a taxable corporation. (RR 10-2012)
Note: A joint venture between a landowner and a
developer to construct a particular project is NOT
exempt under this provision.
Q: What items are included in the gross
income?
A: Except when otherwise provided, all income
derived from whatever source, including, but not
limited to. the following items:
(1) Compensation for services in whatever form
paid, including, but not limited to fees,
salaries, wages, commissions and similar
items;
(2) Gross income derived from the conduct of
trade or business or the exercise of a
profession;
(3) Gains derived from dealings in property
(4) Interests
(5) Rents
(6) Royalties
(7) Dividends
(8) Annuities
(9) Prizes and winnings
(10) Pensions; and
(11) Partner’s distributive share from the net
income of the GPP [NIRC, Sec. 32 (A)]
Q: In a damage suit, the court awarded the
following in favor of X:
X’s hospitalization P 100,000
Moral damages P 200,000
PAGE 15 OF 58
TAXATION LAW
3 months unearned salary P 150,000
Lost profits P 300,000
Replacement cost for X’s P 600,000
car (originally valued at P
500,000)
Which of these receipts is part of taxable
income?
A: Only the lost profits (P300.000) are taxable,
since such profits would have been taxable as
income had the injury of X did not occur.
a. For hospital and medication, they are not
taxable because they are actual damages,
being in the nature of compensation from
personal injuries or sickness. [NIRC, Sec.
32(B)(4)]
b. The payments of moral damages, as well as
the 3 months unearned salary, are excluded
as they are considered compensation from
personal injuries or sickness. [NIRC, Sec.
32(B)(4)]
c. The P100,000 representing the difference
between the current replacement cost of the
car (P600.000) and its original value
(P500.000) will be considered as capital gain,
since such gain was considered to have been
derived from a dealing with a capital property
- the personal car of X. (TAX LAW AND
JURISPRUDENCE, VITUG & ACOSTA)
Q: To entice Mr. Noel Santos to accept an offer
of employment with Hewlett Packard, the latter
offered that part of his compensation will be an
insurance policy with a face value of
P20,000,000. Assume that Mr. Santos accepted
the offer of employment. If the beneficiaries are
the parents of Noel, will the proceeds of the
insurance* form part of the income of the
parents of Noel? Will it be subject to income
tax?
A: The proceeds of the life insurance received by
a beneficiary upon the death of the insured is a
mere return of capital. Hence, if in any case Mr.
Noel Santos dies and the parents receive the
proceeds of the life insurance as beneficiaries, the
proceeds are excluded from the parents’ gross
income and is therefore not subject to income tax.
[NIRC, Sec. 32(B)(1)]
Q: Can Hewlett Packard deduct from its gross
income the amount of the premium?
A: The cost of life insurance premium borne by the
employer for his employee shall be treated as a
ATENEO CENTRAL
BAR OPERATIONS 2019,
taxable fringe benefit. For as long as the premiums
paid by the employer are ordinary and necessary
business expenses of the company, the company
can deduct the amount of the premium to its gross
income, as long as the employer is not a direct or
indirect beneficiary thereof. If the employee is a
manager or supervisor, the premium paid by the
employer shall be treated as a fringe benefit
expense of the employer, provided that the
premium payment is subjected to a final
withholding tax on the fringe benefit. [NIRC, Sec.
34(A)(1)]
Q: If the beneficiary is Hewlett Packard, can it
deduct the insurance premiums from its gross
income?
A: No. The iaw provides that in computing the
taxable income, no deduction is allowed in respect
to premiums paid on life insurance policy covering
the life of an employee of the taxpayer, when the
taxpayer is directly or indirectly a beneficiary under
such policy. In this case, Hewlett Packard is both
the taxpayer/insurer and the beneficiary of the
policy. Hence, it cannot deduct the premiums from
its taxable income. [NIRC, Sec. 36(A)(4)]
Q: Will the proceeds of the insurance policy
form part of the gross income of Hewlett
Packard? _________
“ft: Life insurance proceeds are considered a mere
return of capital; hence, it shall be excluded from
gross income of Hewlett Packard. (MAMALATEO,
supra at 212)
Q: State the elements of a taxable partnership.
A:
(a) Agreement to contribute money, property
or industry to a common fund; and
(b) Intention to divide profits among
themselves.
Note: The sharing of returns does not in itself
establish a partnership whether or not the persons
sharing therein have a joint or common right of
interest in the property. There must be clear intent
to form a partnership, the existence of a juridical
personality different from the individual partners,
and the freedom of each party to transfer or assign
the whole property. (Pascua! v. C!R, G.R. No. L
78133, 1988)
PAGE 16 OF 58
TAXATION LAW
However, from the moment co-owners allowed not
only the incomes from their respective shares of
the inheritance but even the Inherited properties
themselves to be used as a common fund in
undertaking several transactions or in business,
with the intention of deriving profit to be shared by
them proportionally, such act was tantamount to
actually contributing such incomes to a common
fund and, in effect, forming an unregistered
partnership. (Ona v. CIR, G.R. No. L-19342, 1972)
Q: State with reasons the tax treatment of the
following in the preparation of annual income
tax returns:
a. Proceeds of life insurance received by a
child as irrevocable beneficiary;
b. 13th month pay and de minimis benefits;
c. Dividends received by a domestic
corporation from:
i. Another domestic corporation
ii. A foreign corporation
d. Interest on deposits with
i. BPI Family Bank
ii. Local offshore banking unit of a
foreign bank
e. Income realized from sale of :
i. Capital assets
ii. Ordinary assets.
A:
___ __- ___ _ __ ^
(a) The pToceeds c,f life insurance received by a
child as irrevocable are not to be reported in
the annual income tax return, because they
are excluded form gross income. This kind of
receipt does not fall within the definition of
income - “any wealth which flows into the
taxpayer other than a mere return of capital.”
Since insurance is compensatory in nature,
the receipt is merely considered a return of
capital. [NIRC, Sec. 32(B)(1)]
(b) 13th month pay is excluded from the gross
income for income tax purposes to the extent
of P90,000. Any excess will be taxable. [NIRC,
Sec. 32(B)(7)(e) as amended by RA No.
10963 increasing the threshold from P30,000
to P82,000]
De minimis benefits are non-taxable fringe
benefits. They are not to he reported in the
income tax return because they are exempt.
They are also exempt from the imposition of
fringe benefit tax. [NIRC, Sec. 33(C)]
ATENEO CENTRAL
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(c) Dividends received by a domestic corporation property (for individuals), 6% CGT on

from another domestic corporation are not land/buildings (for corporations) and 15%
subject to income tax. [NIRC, Sec. 27(D)(4)] CGT on shares o f stocks not sold in the stock
exchange]. What are to be reported in the
Dividends received by a domestic corporation annual income tax return are the capital gains
from a foreign corporation are subject to derived from the disposition of capital assets
income tax and shall form part of the gross other than real property or shares of stocks in
income since a domestic corporation is domestic corporations which are not subject to
taxable for its income from all sources within final taxes.
and without the Philippines. There is no law
exempting this type of dividend from income Income realized from the sale of ordinary
tax. [NIRC, Sec. 27(A)] assets is taxable and the said income shall be
declared in the annual income tax return. The
N.B.: Dividends received by an individual income constitutes either income derived from
(citizen and resident alien) from a domestic the conduct of trade or business or a gain
corporation is subject to a final withholding tax derived from dealings in property subject to
(FWT) rate o f 10%. Cash and property 30% for corporations and to 20-35% for
dividends paid by a domestic corporation to individuals, as the case may be. [NIRC, Secs.
w . non-resident alien individuals are subject to 32(3) and 39(A), as amended by RA No.
20% FW T if engaged in trade or business in 10963]
- the Philippines and to 25% FW T if not
otherwise engaged. (NIRC, Secs. 24(B)(2), Q: Differentiate capital assets from ordinary
25(A)(2) & 25(B)] assets.
(d) Interest on deposit with BPI Family Bank A:
earned by a citizen/resident alien is a passive Capital Asset (CA) Ordinary Asset ( 0 A)
income subject to 20% FWT. [NIRC, Sec. Definition |
24(B)(1)] Properties of a Assets that are used
taxpayer other than primarily in the
If, however, a non-resident alien earns such ordinary assets, such ordinary course of
interest income, then it is subject to 20% FWT as: trade or business,
if the alien is engaged in trade or business in • Stock and such as:
the Philippines or 25% FWT if, otherwise, not securities held by • Stock in trade of
engaged. (NIRC, Secs. 25(A)(2) & 25(B)] taxpayers other taxpayer
than dealers in • Property which
The interest on deposit with a local offshore securities would properly be
banking unit of a foreign bank under the • Interest in included in an
foreign currency deposit system is passive partnership and inventory of the
income subject to 15% FWT if it is earned by joint venture taxpayer, if on hand
a resident citizen/alien. [NIRC, Sec. 24(B)(1) • Goodwill • Merchandise
as amended by RA No. 10963]] • Real property not inventory
used in trade or • Depreciable assets
However, if the interest is earned by a non­ business like used in the
resident citizen/alien, then it is not subject to residential house trade/business
income tax. [NIRC, Sec. 24(B)(1)] and lot • Real property used
• Investment in trade/business
Both interest income items are not to be
property [NIRC, [NIRC, Sec. 39
declared as part of gross income in the income
Sec. 39 (A)(1)] (A)(1)]
tax return.
(e) Generally, income realized from the sale of
capital assets are not to be reported in the
income tax return as they are already subject
to final taxes [i.e., 6% capital gains tax on real
PAGE 17 OF 58
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Tax Implications d. The tax exemption may be availed of only

Percentage of included in gross once every 10 years.
gains/losses taken income - subject to e. The historical cost or adjusted basis of his
into account (applies income tax. old principal residence sold, exchanged
only to a taxpayer disposed shall be carried over to the cost
other than a basis of his new principal residence.
corporation):
• CA held for not Note: If there is no full utilization of the proceeds
more than 12 of sale, exchange or disposition of his old principal
months - 1 0 0 % residence, he shall be liable for deficiency capital
• CA held for more gains tax of the utilized portion. (RR 13-1999 as
than 12 months - amended by RR 14-2000)
50% [NIRC, Sec.
39(B)] Q: What is the rule on capital gains from sales
of shares of stock not traded in the stock
Q: What is the basis of the capital gains tax exchange?2
(CGT) on sale of real property classified as A: Capital gains tax of 15% shall be imposed upon
capital assets? the net capital gains realized during the taxable
A: A final tax of 6% based on the gross selling year from the sale, barter, exchange or other
price or the current fair market value (FMV) or the disposition of shares of stock in a domestic
zonal value, whichever is the highest, is corporation EXCEPT shares sold or disposed
imposed upon capital gains presumed to have through the stock exchange (which shall be taxed
been realized from the sale, exchange, or other at 6/10 of 1% of gross selling price as stock
disposition of real property located in the transaction tax). [NIRC, Sec. 24(C), as amended
Philippines, classified as capital assets, The by RA No. 10963]
taxpayer is liable for capital gains tax even if he
incurred a loss from the sale. [NIRC, Sec. Q: Differentiate CGT on the sale of real
24(D)(1)] property and CGT on gains derived from the
sale of shares of stock.
Q: What are the conditions for the exemption A:
of capital gains tax on the sale by a natural SALE OF SALE OF
person of his principal residence? REAL SHARES OF
A: PROPERTY STOCKS
a. The 6% capital gains tax due shall be
deposited in an account with an authorized Subject Real property Shares of stock
agent bank under an Escrow Agreement, it located in the in a domestic
can only be released upon showing that the Philippines corporation
proceeds have been fully utilized within 18 classified as other than
months. capital assets shares listed
b. The proceeds from the sale, exchange or and sold at the
disposition must be fully utilized in acquiring stock exchange
or constructing his new principal residence
within 18 calendar months from date of its Basis Selling Price, Net Capital
sale. Proof must be submitted. Fair Market Gains realized
c. The Commissioner has been duly notified, Value or Zonal during the
through a prescribed return, within thirty (301 Value taxable year
days from the date of sale or disposition of whichever is
the person’s Intontlon to aval! of tho tax hinhpfU
O -------

exem ption.

2This has been modified by SEC. 5 of the TRAIN Law.

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Rate 6% 15%3 last preceding owner by

whom it was not acquired by
Tax Final Tax Final Tax gift, EXCEPT that if such
Treatment basis is greater than the fair
market value of the property
Q: In expropriation cases, is CGT considered at the time of the gift, for the
as consequential damage for purposes of purpose of determining
computing just compensation? loss, the basis shall be such
A: No. Capital gains tax cannot be considered as fair market value
consequential damages for purposes of Acquired for Amount paid by the
computing the just compensation because it does less than transferee for the property
not in any way impair or decrease the value of the adequate
property subject as a result of the expropriation. consideration
Further, the liability for the payment of such CGT Acquired in a Basis as defined in
remains with the seller. (Republic o f the transaction paragraph (C)(5) of this
Philippines v. Sps. Salvador, G.R. No. 205428, where gain/loss Section 40, if the property
June 7, 2017) is not was acquired in a
recognized transaction where gain or
Q: Discuss the rules regarding basis of loss is not recognized under
property for purpose of computing gains in paragraph (C)(2) of this
dealings with property. Section (NIRC, Sec. 40)4
A:
MODE OF BASIS Q: What constitutes the “improperly
ACQUISITION accumulated taxable income” (IAET)?
Purchase Cost of acquisition A: The term means taxable income adjusted by:
Inheritance Fair market value at the (1) Income exempt from tax;
time of inheritance (2) Income excluded from gross income;
Gift Same as if it would be in the (3) Income subject to final tax; and
hands of the donor or the

3 As amended by RA No. 10963.

4 C5 (5) Basis - (a) The basis of the stock or securities
received by the transferor upon the exchange specified
in the above exception shall be the same as the basis of
the property, stock or securities exchanged, decreased
by (1) the money received, and (2) the fair market value
of the other property received, and increased by (a) the
amount treated as dividend of the shareholder and (b)
the amount of any gain that was recognized on the
exchange: Provided, That the property received as
"boof shall have as basis its fair market value:
Provided, further, That if as part of the consideration to
the transferor, the transferee of property assumes a
liability of the transferor or acquires form the latter
property subject to a liability, such assumption or
acquisition (in the amount of the liability) shall, for
purposes of this paragraph, be treated as money
received by the transferor on the exchange: Provided , corporation, a party to the merger or consolidation.
finally , That if the transferor receives several kinds of
stock or securities, the Commissioner is hereby
authorized to allocate the basis among the several
classes of stocks or securities.
(b) The basis of the property transferred in the hands of
the transferee shall be the same as it would be in the
hands of the transferor increased by the amount of the
gain recognized to the transferor on the transfer.
PAGE 19 OF 58
(C) Exchange o f Property. - (1) General Rule. - Except
as herein provided, upon the sale or exchange or
property, the entire amount of the gain or loss, as the
case may be, shall be recognized.
(2) Exception. - No gain or loss shall be recognized if in
pursuance of a plan of merger or consolidation - (a) A
corporation, which is a party to a merger or
consolidation, exchanges property solely for stock in a
corporation, which is a party to the merger or
consolidation; or (b) A shareholder exchanges stock in
a corporation, which is a party to the merger or
consolidation, solely for the stock of another corporation
also a party to the merger or consolidation; or (c) A
security holder of a corporation, which is a party to the
merger or consolidation, exchanges his securities in
such corporation, solely for stock or securities in such
No gain or loss shall also be recognized if property is
transferred to a corporation by a person in exchange for
stock or unit of participation in such a corporation of
which as a result of such exchange said person, alone
or together with others, not exceeding four (4) persons,
gains control of said corporation: Provided, That stocks
issued for services shall not be considered as issued in
return for property.
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(4) The amount of net operating loss carry­ 5. Income of any kind to the extent required by
over (NOLCO) deducted; any treaty obligation binding upon the
Government of the Philippines.
And reduced by the sum of: 6. Retirement benefits received under Republic
(a) Dividends, actually or constructively paid; Act No. 7641.
and 7. Miscellaneous Items
(b) Income tax paid for the taxable year. a. Income from investments in the
[NIRC, Sec. 29(D)] Philippines by foreign government.
b. Income derived by Government or its
Q: What is the “Immediacy Test” in the context Political Subdivisions. -
of determining improperly accumulated c. Prizes and awards made primarily in
earnings of a corporation? recognition of religious, charitable,
A: The Immediacy Test is used to determine the scientific, educational, artistic, literary, or
"reasonable needs of business” in order to justify civic achievement but only if:
an accumulation of earnings. i. Recipient was selected without any
action on his part to enter the contest
Under this test, the term "reasonable needs of the or proceeding; and
business" are hereby construed to mean the ii. Recipient is not required to render
immediate needs of the business, including substantial future services as a
reasonably anticipated needs. The corporation condition to receive the prize or
should be able to prove an immediate need for the award.
accumulation of the earnings and profits, or the d. All prizes to athletes in sports
direct correlation of anticipated needs to such competitions whether held in the
accumulation of profits. Otherwise, such Philippines or abroad and sanctioned by
accumulation would be deemed to be not for the their national sports associations, duly
reasonable needs of the business, and the penalty accredited by the Philippine Olympic
tax would apply. (Cyanamid Philippines v. CA, Committee (POCL
G.R. No. 108067, 2000) e. 13th month pay and benefits, not
exceeding P90.000:
Note: Accumulating profits in excess of 100% of f. GS1S, SSS, Medicare and Pag-ibig
paid up capital (i.e. EXCLUDING additional paid in contributions, and union dues of
capital) is orima facie evidence of unreasonable individuals.
accumulation. (RR 2-2001) g. Gains realized from the same or exchange
or retirement of bonds, debentures or
Q: What are excluded from gross income? other certificate of indebtedness with
A: maturity of more than 5 years.
1. Proceeds of life insurance policies paid to the h. Gains realized by the investor upon
heirs or beneficiaries upon the death of the redemption of shares in a mutual fund
insured. company. [NIRC, Sec. 32(B), as amended
2. Amounts received by the insured as a return by RA No. 10963]
of premiums paid by him under life insurance,
endowment or annuity contracts. Q: Enumerate the De Minimis Benefits that are
3. Value of property acquired by gift, bequest, provided to qualified employees without any
devise or descent. income tax implication to the latter. Is the
4. Amounts received, through accident or health enumeration exclusive?
insurance or Workmen’s Compensation Act as A:
compensation for personal injuries or 1. Monetized unused vacation leave credits of
sickness, plus the amounts of any damages private employees not exceeding 10 days;
received on whether by suit or agreement on 2. Monetized value of vacation and sick leave
account of such injuries or sickness. credits paid to government employees;

PAGE 20 OF 58
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3. Medical cash allowance to dependents of
employees, not exceeding P1,500 per
employee per semester or P250 per month;
4. Rice subsidy of P2,000 or one (1) sack of 50kg
of rice per moth amounting to not more than
P1.500;
5. Uniform and clothing allowance not exceeding
P6.000 per annum;
6. Actual medical expenses not exceeding
P10,000 per annum;
7. Laundry allowance not exceeding P300 per
month;
8. Annual achievement awards with an annual
monetary value not exceeding P10,000;
9. Gifts during Christmas and major
anniversaries not exceeding P5,000 per
annum;
10. Daily meal allowance for overtime work and
... night shift not exceeding 25% of the basis
minimum wage;
11. Benefits received by an employee by virtue of
a collective bargaining agreement and
productivity incentive schemes provided that
the total monetary value received from both
CBA and productivity incentive schemes
combined does not exceed P10.000 per
employee per taxable year. (RR 3-98, as last
r amended by RR 11-2018)
The enumeration is exclusive. All other benefits
given not included in the above enumeration shall
not be considered as “de minimis” benefits, and
hence, shall be subject to income tax as well as
withholding tax on compensation income.
Q: What is 2% Minimum Corporate Income Tax
(MCIT)?
A: 2% MCIT is imposed on the gross income of a
domestic corporation beginning on the 4th taxable
year immediately following the year in which such
corporation commenced its business operations,
when the 2% MCIT is greater than the tax
computed for the taxable year using the 30%
regular income tax rate. [NIRC, Sec. 27(E);
NATIONAL INTERNAL REVENUE CODE
(ANNOTATED), EUFROCINA SACDALAN-
CASASOLA, 2013 at 134]
The imposition of 2% MCIT is a means to ensure
that everyone will make some minimum
contribution to the support of the public sector.
Congress intended to put a stop on the practice of
PAGE 21 OF 58
TAXATION LAW
corporations which, while having large turnovers,
report minimal or negative net income resulting in
minimal or zero income taxes year in and year out,
through under-declaration of income or over­
deduction of expenses. (Chamber of Real Estate
and Builders Associations, Inc. v. Romulo, G.R.
No. 160756, 2010).
Q: Under what conditions may a corporation
be allowed to obtain relief from the 2% MCIT?
A: The Secretary of Finance is authorized to
suspend the imposition of MCIT on any
corporation which suffers losses on account of:
1. Prolonged labor dispute; or
2. Force majeure; or
3. Legitimate business reverses. [NIRC, Sec.
27(E)]
Q: Distinguish exclusions from deductions.
A: Exclusions pertain to the computation of gross
income while deductions pertain to the
computation of net income. (Secs. 32 & 34, NIRC)
Exclusions from gross income are actually
income received or earned by the taxpayer but is
not taxable as income because of the exemption
provided for by law or by tax treaties.
(SACDALAN-CASASOLA, supra at 241)
Deductions from gross income are the expenses
and other allowable deductions as provided for by
law which are incurred for engaging trade or
business or exercise of profession. (SACDALAN-
CASASOLA, supra at 241)
Q: B Company incurred an expense in the
conduct of its business. The expense meets all
the requisites provided for its deductibility,
specifically: (1) the expense is ordinary and
necessary; (2) it is paid or incurred within the
taxable year, and (3) it is paid or incurred in
carrying on a trade or business. The BIR
disallowed the expenses on the ground that it
was not subjected to the applicable
withholding tax. Is the BIR correct?
A: Yes. Section 34(K) of the NIRC provides that
any amount paid or payable which is otherwise
deductible from, or taken into account in
computing gross income shall be allowed as a
deduction only if it is shown that the tax required
to be deducted or withheld therefrom has been
paid to the BIR. [NIRC, Sec. 34(K)]
ATENEO CENTRAL
BAR OPERATIONS 2019,
Q: What is the “expenditure method” of
restructuring taxpayer’s income?
A: The expenditure method is done 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 spendberss 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. (Bureau of Internal Revenue
v. Court of Appeals, G.R. No. 197590. November
24, 2014)
Q: What is the “all events test” in the claim for
allowable deductions?
A: The “all events test” is used in order to
determine when an accrual of income or expense
is permitted. The accrual of income and expenses
is permitted when the “all-events test” has been
met. This test requires:
1. Fixing of a right to income or liability to pay;
and
2. The availability of the reasonable accurate
determination of such income or liability.
Under the “all events test” in claiming deductions,
the amount of deduction does not need to be
determined exactly for as long as the same may
be determined with reasonable accuracy, which
implies something less than an exact or
completely accurate amount. (CIR v. Isabela
Cultural Corporation, G.R. No. 172231, 2007)
Q: What is tax arbitrage as applied to interest
as an allowable deduction?
A: Tax arbitrage is a tax benefit on the part of the
taxpayer through a difference on the tax rate on
income and the corresponding rate of tax benefit
imposed on the taxpayer.
In tax cases, back-to-back loan is used to take
advantage of the lower tax rate on interest income
and a higher rate of tax on interest expense
deduction. (CASASOLA-SACDALAN, supra at
303)
Under Section 34(B) of the NIRC, the taxpayer’s
allowable deduction for interest shall be reduced
by thirty-three percent (33%) of the interest income
subjected to final tax.
PAGE 22 OF 58
TAXATION LAW
Q: What are the entitlements to deductions of
each taxpayer?
A:
Taxpayer Deductions Entitled to
Individuals with • Itemized Deductions OR
Gross Income • Optional Standard
from Business Deduction based on 40%
or Practice of of gross sales or receipts
Profession
Corporations • Itemized Deductions OR
• Optional Standard
Deduction based on 40%
of gross income
(NIRC, Sec. 34)
Sec. 35 has already been repealed by TRAIN law,
RA No 10963. Hence, there are no more
deductions for basic and additional personal
exemptions and premium payments on health and
hospitalization insurance.
Q: What is the Net Operating Loss Carry-over
(NOLCO)? When is it allowed?
A: The net operating loss of the business for any
taxable year immediately preceding the current
taxable year, which had not been previously offset
as deduction from gross income, shall be carried
over as a deduction from gross income for the next
three (3) consecutive taxable years immediately
following the year of such loss.
Any net loss incurred, however, in a taxable year
during which the taxpayer was exempt from
income tax shall not be allowed as a deduction.
Net operating loss shall mean the excess of
allowable deductions over gross income of the
business in a taxable year. [NIRC, Sec. 34(D)(3)]
Q: Who are the taxpayers that are entitled to
deduct the NOLCO from gross income?
A:
1. Any individual engaged in trade or business
or in the exercise of his profession; or
2. Domestic and resident foreign corporation
subject to normal income tax. [NIRC, Sec.
34(D)(3)]
Provided that NOLCO snaii be aiiowea oniy if there
has been no substantial change in the ownership
of the business or enterprise in that -
ATENEO CENTRAL
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1. Not less than 75% in nominal value of
outstanding issued shares, if the business is
in the name of a corporation, is held, by or on
behalf of the same persons; or
2. Not less than 75% of the paid-up capital of the
corporation, if the business, is in the name of
a corporation, is held by or on behalf of the
same person. [NIRC, Sec. 34(D)(3)]
Q: Discuss the requirements for the
deductibility of bad debts expense.
A: The taxpayer should show the following:
1. There is a valid and subsisting debt;
2. The debt must be actually ascertained to be
worthless and uncollectible during the taxable
year;
3. The debt must be charged off during the
taxable year;
4. The debt must arise from the business or trade
of the taxpayer; and
5. The debt is indeed uncollectible even in the
- future.
To prove its uncollectibility, the taxpayer must
show that he exerted diligent efforts to collect the
debts such as sending statement of accounts,
sending of collection letters, giving the account to
a lawyer for collection and filing a collection case
in court. (Philippine Refining Company v. Court of
Appeals, G.R.No. 118794, 1996).
Q: Discuss the availability of OSD as deduction
for general professional partnerships (GPPs).
A: A GPP or the partners comprising the
partnership may avail of the OSD only once, either
by the GPP or the partners comprising the
partnership. If the GPP avails of OSD, then the
partners may not. (NIRC, Sec. 34(L), as amended
by RA No. 10963)
Q: What is the “tax benefit” rule?
A: The “tax benefit rule” states that the taxpayer is
obliged to declare as taxable income the
subsequent recovery of bad debts in the year they
were collected to the extent of the tax benefit
enjoyed by the taxpayer when the bad debts were
written-off and claimed as deduction from gross
income.
It also applies to taxes previously deducted from
gross income but which were subsequently
refunded or credited. The taxpayer is also required
PAGE 23 OF 58
TAXATION LAW
to report as taxable income the subsequent tax
refund or tax credit granted to the extent of the tax
benefit of the taxpayer enjoyed when such taxes
were previously claimed as deductions from
income. NIRC, Secs. 34(C)(1) & 34(E)(1);
MAMALATEO, supra at 276)
Q: What are tax-free or tax-deferred
exchanges?
A: Tax-free exchanges refer to those instances
defined in the NIRC that are not subject to income
tax. In general, there are two (2) kinds:
1. Transfer to a controlled corporation; and,
2. Merger or consolidation.
In the first kind, no gain or loss shall be recognized
if the property is transferred to a corporation by a
person in exchange for stock or unit of
participation in such corporation of which as a
result of such exchange said person, alone or
together with others not exceeding four (4)
persons, gains control of said corporation. Hence,
not more than five (5) persons gain control in the
corporation as a result of the exchange, (estate
p la nn in g or transfer of a controlled
corporation)
In the second kind, no gain or loss shall be
recognized if in pursuance of a plan of merger or
consolidation:
(a) A corporation, which is a party to a merger or
consolidation, exchanges property solely for
stock in a corporation, which is a party to the
merger or consolidation; or, (property fo r
stock)
(b) A shareholder exchanges stock in a
corporation, which is a party to the merger or
consolidation, solely for the stock of another
corporation; or, (sto ck fo r stock)
(c) A security holder of a corporation, which is a
party to the merger or consolidation,
exchanges his securities in such corporation,
solely for stock or securities in another
corporation, a party to the merger or
consolidation, (security fo r stock) [NIRC,
Sec. 40(C)(2) to 40(C)(6)]
Note: The transaction is only exempt from income
tax, not from VAT. (RR 10-2011)
Q: P Co., a PEZA-registered entity subject to
the 5% Gross Income Tax (GIT) and N Co., a
ATENEO CENTRAL
BAR OPERATIONS 2019.
company subject to normal income tax, are
associated enterprises. Both incurred
common administrative expenses. N Co.
(normal income tax) took a bigger share of the
common administrative expenses. The BIR
disallowed the deduction and allocated the
appropriate share of N thereof. Both objected
on BIR’s authority to allocate the sharing of
expenses. Decide.
A: The BIR has the authority to review controlled
transactions among associated enterprises and to
allocate or distribute their income and deductions
in order to determine the appropriate revenues
and taxable income of the associated enterprises
involved in controlled transactions. This is a
transfer pricing issue where one associated
enterprise, entitled to income tax exemptions, is
being used to allocate income away from a
company subject to regular income taxes. The
arm’s length principle requires the transaction
with a related party to be made under comparable
conditions and circumstances as a transaction
with an independent party. (RR 2-2013)
Q: Discuss the irrevocability rule in relation to
the carry-over or refund of excess income tax.
Are there exceptions to this rule?
A: In case a 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 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. (NIRC,
Sec. 76)
Note, however, that the Supreme Court stated that
the when the taxpayer corporation permanently
ceases operations before full utilization of the tax
credits it opted to carry-over, it may be allowed to
claim refund of such taxes. In such a case, the
remaining tax credits can no longer be carried over
and the irrevocability rule ceases to apply. (Systra
Philippines, Inc. v. CIR, G.R. No. 176290, 2007;
See footnote 23 of the MR)
Q: Discuss the substituted filing of income tax
return.
PAGE 24 OF 58
TAXATION LAW
A: Individual taxpayers receiving purely
compensation income, regardless of amount, from
only one employer in the Philippines for the
calendar year, the income tax of which has been
properly withheld by the said employer shall not be
required to file an annual ITR. The certificate of
withholding filed by the respective employers, duly
stamped ‘received’ by the BIR shall be tantamount
to the substituted filing of income tax returns by
said employees. /Sec. 51-A, New provision in the
NIRC added by RA No. 10963)
Q: Discuss the contents of the income tax
return for both individuals and corporations,
except foreign corporations
A: The income tax return (ITR) shall consist of a
maximum of four (4) pages in paper form or
electronic form and shall contain the following
information:
a. Personal/corporate profile and information;
b. Gross sales, receipts or income from services
rendered, or conduct of trade or business,
except income subject to final tax as provided
under this Code;
c. Allowable deductions under this Code;
d. Taxable income as defined in Section 31 of
this Code; and
e. Income tax due and payable.
(NIRC, Sec. 52, as amended by RA No. 10963)
Q: Is payment in installment allowed?
A: Yes, when the tax due is in excess of Two
thousand pesos (P2,000), the taxpayer other than
a corporation, may elect to pay the tax in two
installments. The first installment shall be paid at
the time the return is filed and the second
installment on or before October 15 following the
close of the calendar year. (NIRC, Sec. 56, as
amended by RA No. 10963)
Q: Discuss when a declaration of income tax
must be made and filed and when such
estimated income must be paid.
A: Every individual subject to income tax under
Section 24 and 25(A) of this Title, who is receiving
self-employment income, whether it constitutes his
sole source of income or in combination with
salaries, wages and other fixed or determinable
Income, shell m eke end file e decleretion of his
estimated income for the current taxable year on
or before May 15 of the same taxable year. (NIRC,
Sec. 74 (A), as amended by RA No. 10963)
ATENEO CENTRAL
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The amount of estimated income as defined in
Subsection (C) with respect to which a declaration
is required under Subsection (A) shall be paid in
four (4) installments on the following dates:
1st installment - at the time of declaration
2nd installment - August 15
3rd installment - November 15
4th installment - May 15 of the following calendar
year when the final adjusted income tax return is
due to be filed (NIRC, Sec. 74 (B), as amended by
RA No. 10963)
Q: Who are not required to file income tax
returns?
A: The following individuals shall not be required
to file an income tax return:
a. Individuals whose taxable income does not
exceed P250,000 (except those engaged in
business or practice of profession)
» b. Purely compensation income earners
c. Individuals whose sole income has already
been subjected to final withholding tax
d. Minimum wage earners
~(NIRC, Sec. 74 (A), as amended by RA No. 10963)
ESTATE TA X
Q: What is the new estate tax rate?
A: The rate is a flat 6% of the net estate.
Q: When is an estate tax return required to be
filed?5
A:
1. In all cases of transfers subject to estate
tax; or
2. Where, regardless of the gross value, the
estate consists of registered or registrable
property such as real property, motor vehicle,
shares of stocks or other similar property for
which a clearance from the Bureau of Internal
Revenue (BIR) is required as a prerequisite for
the transfer of ownership thereof in the name
of the transferee. [NIRC, Sec. 90(A) as
clarified in RMC No. 34-2013)]
5 This has been modified by SEC. 25 of the TRAIN Law.
Notice of death is no longer required.
6 This has been modified by SEC. 25 of the TRAIN Law.
Time for filing is now 1 year from death.
PAGE 25 OF 58
TAXATION LAW
Q: Where is an estate tax return filed, and the
tax thereof paid?
A:
a. Authorized Agent Bank (AAB); or
b. Revenue Collection Officer (RCO); or
c. Duly authorized Treasurer of the city or
municipality in the Revenue District Office
having jurisdiction over the place of domicile
of the decedent at the time of his death.
Q: When should the estate tax return be filed?6
A: General Rule: Within one (1) year from the
death of decedent. [NIRC, Sec. 90(B)]
Exception: The CIR, in meritorious cases, grants
an extension not exceeding 30 days for filing the
return. [NIRC, Sec. 90(C)]
Q: When should the estate tax be paid?
A: General Rule: At the time the return is filed by
the executor, administrator or the heirs. [NIRC,
Sec. 91(A)]
Exception: The CIR, if he finds that the payment
on the due date would impose undue hardship,
may grant an extension:
1. Not to exceed 5 years in case the estate is
settled judicially;
2. Not to exceed 2 years in case the estate is
settled extrajudicially. [NIRC, Sec. 91(B)]
Note: Payment by installment is allowed if the
available cash of the state is insufficient, in which
case the total estate tax due may be paid within 2
years from the due date without penalty and
interest.
Q: Enumerate the deductions from the gross
estate.7
A: The deductions from the gross estate are:
1. Ordinary deductions
a. Expenses, Losses, indebtedness, Taxes,
etc. (E-L-l-T)
i. Claims against the estate
ii. Claims against insolvent persons
iii. Unpaid mortgage or indebtedness on
property
7 This has been modified by SEC. 23 of the TRAIN Law.
Funeral, judicial and medical expenses are no longer
allowed as deductions, while the amounts for the
standard deduction and family home has been
increased.
ATENEO CENTRAL
BAR OPERATIONS 201.9, TAXATION LAW

iv. Taxes 2. It must be shown that the

v. Losses debtors are incapable of
b. Vanishing Deduction/Property Previously paying their indebtedness.
T axed Unpaid 1. The value of the decedent's
c. Transfer for public use mortgage or interest on the property,
indebtedness undiminished by the unpaid
2. Special deductions (F-S-M-A) on property mortgage or indebtedness,
a. Family home of P I 0,000,000 should be included in the
b. Standard deduction of P5,000,000 gross estate.
c. Amount received by heir under RA 4917 2. Unpaid mortgage or
indebtedness was
3. Share of surviving spouse in the conjugal contracted bona fide and
partnership of property for an adequate and full
consideration in money or
Note: Nonresident aliens can avail of (1) standard money’s worth.
deduction of P500,000; (2) proportion of i. to v. 3. in case unpaid mortgage is
above (deductions allowed to residents or being claimed by the estate,
citizens); and (3) vanishing deductions. verification must be made
(NIRC, Sec. 86) as to who was the
beneficiary of the loan
Q: Discuss the conditions for the deductibility proceeds. If the loan is for
of the above items from gross estate. accommodation purpose
A: (RR No. 2-2003) only, the value of unpaid
Deduction Conditions for Deductibility ioan must be included as a
receivable of the estate. If
Claims 1. The liability represents a there is a legal impediment
against the personal obligation of the to recognize it as a
estate deceased existing at the receivable, said unpaid
time of his death except obligation/'mortgage
unpaid obligations incurred payable shall not be
incident to his death; allowed as a deduction.
2. The liability was contracted Taxes 1. Taxes must have accrued
in good faith and for as of the time of death of
adequate and full the decedent;
consideration in money or 2. Taxes were unpaid as of
money’s worth; the time of death; and
3. The claim must be a debt 3. Taxes will not include
or claim which is valid income tax upon income
and enforceable in courts; received after death,
and property taxes not
4. The indebtedness must not accrued before his death,
have been condoned by or estate tax due from the
the creditor or the action to transmission of the
collect must not have estate.
prescribed. Losses 1. Losses must be incurred
Claims I . T h e value of the claims during the settlement of
against against the insolvent the estate;
insolvent persons had been included 2. Losses arose from fires,
persons as part of the gross storms, shipwreck, or
estate; and other casualties, or from
robbery, theft or
embezzlement;
PAGE 26 OF 58
ATENEO CENTRAL
BAR OPERATIONS 2019,
3. Losses are not
compensated for by
insurance or otherwise;
4. Losses claimed must not
have been claimed as
deduction from gross
income for income tax
purposes; and
5. Losses were incurred not
later than the last day for
the payment of the estate
tax.
Family home 1. The family home must be
the actual residential
home of the decedent and
his family at the time of his
death as certified by the
barangay captain;
2. The total value of the family
home must be included as
part of the gross estate;
3. Allowable deduction must maintained alone, or jointly with another, by a
be in an amount equivalent
to:
a. Current FMV of the subject to a final withholding tax of six percent
family home as declared
or included in the gross
estate or
b. Extent of the decedent’s
interest (whether
conjugal/community or
exclusive property),
whichever is lower
4. The deduction does not
exceed P10,000,000.
Vanishing 1. Death
deductions 2. Identity of property (the
property with respect to
which deduction is sought
can be identified as the one
received from the prior
decedent)
3: Inclusion of the property
(the property must form
part of the gross estate
situated in the Philippines of
the prior decedent or was a
taxable gift of the donor)
4. Previous taxation of
property (Estate tax or
PAGE 27 OF 58
TAXATION LAW
donor’s tax due thereon
must have been paid)
5. No vanishing deduction
on the property was allowed
to the estate of the prior
decedent
Transfers for 1.The disposition is in the last
public use will and testament;
2. Disposition should take
effect after death;
3. In favor of the Government
of the Philippines or any
of its subdivisions;
4. Exclusively for public
purpose; and
5. The value of the property
given is included in the
gross estate.
Q: Can a bank allow withdrawal from a bank
deposit which is known to it as having been
deceased person?
A: Yes. The same withdrawal shall be allowed
( 6%).
| D O N O R ’S TA X |
Q: What is the new donor’s tax rate?
A: The rate is a flat 6% of the gifts in excess of
P250.000.
Q: A died leaving as his only heirs, his
surviving spouse B, and three minor children,
X, Y and Z. Since B does not want to participate
in the distribution of the estate, she renounced
her hereditary share in the estate. Is the
renunciation subject to donor’s tax?
A: No. The general renunciation by an heir,
including the surviving spouse, as in the case of B,
of her share in the hereditary estate left by the
decedent is not subject to donor’s tax. This is so
because the general renunciation by B was not
specifically and categorically done in favor of
identified heir/s to the exclusion or disadvantage
of the other co-heirs in the hereditary estate (Sec.
11, RR 2-2003)
Q: Supposing that instead of a general
renunciation, B renounced her hereditary
ATENEO CENTRAL
BAR OPERATIONS 2019, TAXATION LAW

share in A’s estate to X who is a special child, a. Filing Returns of contributions with the
would the renunciation be subject to donor’s COMELEC as required under the Omnibus
tax? Election Code and
A: Yes, the renunciation in favor of X would be b. Utilizing the entire contribution to cover the
subject to donor’s tax. This is so because the expenditure for electoral campaign. (RR No.
renunciation was specifically and categorically 7-2011)
done in favor of X and identified heir to the
exclusion or disadvantage of Y and Z, the other co­ Note: Any unutilized portion o f such contribution
heirs in the hereditary estate. (Sec. 11, RR 2- forms part of the gross income of the recipient.
2003)
VA LU E -A D D E D TAX
Q: Enumerate the exemptions from gross gifts
(exempt from donor’s tax).8
Q: Differentiate “Input Tax” from “Output Tax”
A:
A: (CIRv. Benguet Corporation, G.R. No. 145559,
1. Gifts made to or for the use of the national
July 14, 2006)
Government or any entity created by any of
Input VAT/ Input Tax Output VAT/ Output
its agencies which is not conducted for profit,
Tax
or to any political subdivision of the said
Represent the VAT When that person or
government
paid by a VAT- entity sells his/its
2 Gifts in favor of an Education and/or
registered products or services,
charitable, religious, cultural or social welfare
person/entity in the the VAT-registered
corporation, institution, accredited NGO, trust
course of his/its trade taxpayer generally
or philanthropic organization or research
or business on the becomes liable for
institution or organization provided not more
importation of goods or 12% of the selling
than 30% of said gifts will be used by such for
local purchases of price as output VAT or
administration purposes. [NIRC, Sec. 101(A)]
goods or services from output tsx.
a VAT-registered
Q: Are all transfers for less than adequate and
person.
full consideration subject to donor’s tax?
VAT in connection with VAT on the SALE of
A: No. The following are NOT subject to donor’s
PURCHASE of goods taxable goods or
tax despite the transfer being for less than
and services. services.
adequate and full consideration:
1. transfers involving real property classified as
Q: What is the destination principle?
capital asset;
2. sale, exchange, or other transfer of A: As a general rule, the value-added tax (VAT)
system uses the destination principle. It means
property made in the ordinary course of
that the destination of the goods determines the
business which is —
taxation or exemption from VAT. Goods and
1. a bona fide transaction
2. at arm’s length services are taxed only in the country where they
are consumed. (CIR v. American Express Inti.,
3. and free from donative intent
G.R. No. 152609, 29 June 2005). As such, exports
Q: Are election campaign contributions are typically VAT zero-rated while imports are
VAT-taxable.
subject to Donor’s tax?
A: Election campaign contributions to a candidate,
political party or coalition of parties for campaign
Q: What is the VAT treatment of the
transactions involving PEZA-registered
is not subject to donor's tax provided that the
following requirements are complied with: (R-U)
enterprises?9
A:

1This has been modified by SEC. 30 of the TRAIN Law. 9 This has been modified by SEC. 31 & 33 of the TRAIN
Law.
PAGE 28 OF 58
ATENEO CENTRAL
BAR OPERATIONS 2019, TAXATION LAW

SALE OF SALE OF 2. Property Dividends or Payment to creditors

GOODS SERVICES (transfer to shareholders as share in the
VAT 0% VAT 0% VAT profits of VAT-registered persons or to
registered creditors in payment of debt)
supplier from 3. Consignment of goods without the sale being
customs made within 60 days
territory to 4. Retirement from or Cessation of business
PEZA with respect to inventories of taxable goods
registered existing during such retirement or cessation
enterprise (Sec. 106(B), NIRC)
non-VAT- VAT exempt VAT exempt
registered Q: Are association dues, membership fees,
supplier from and other assessment and charges collected
customs by a condominium corporation/homeowners’
territory to association subject to VAT?
PEZA- A: No (Section 109(1)(Y), NIRC as amended by
registered TRAIN)
enterprise
Q: GHI Company filed an application for refund
PEZA- 12% VAT
of unutilized input taxes allocated to its zero­
VAT-exempt if
registered rated sale of services to its foreign clients. In
imposed on the service is
enterprise to buyer in
order to prove that its sales are VAT zero-rated,
performed or
buyer from addition to
GHI presented as evidence the Official
rendered
customs Receipts, Billing Statements, Memo Invoices-
the import within the
territory tax and
Receivable, Memo Invoices-Payable and Bank
ecozone.
(local/ Statements. GHI argued that these documents
customs Same rule
domestic duties applies to
show that the zero-rated sales were paid in
sales) foreign currency and duly accounted for in
lease of
properties if
accordance with the rules and regulations of
located in the
the Bangko Sentral ng Pilipinas (BSP). Is GHI
ecozone.
entitled to the VAT refund?
A: GHI’s claim should be denied on the ground
12% VAT
that no evidence was presented to prove the
fact that the foreign clients to whom GHI rendered
imposed on
services are clients doing business outside the
the PEZA-
registered
Philippines.
enterprise
seller if the For VAT zero-rating of services rendered to non­
resident foreign corporation under Section
service is
performed 108(B)((2) of the NIRC, it is not enough that the
outside or the recipient of services be proven to be a foreign
property corporation, it must be proven to be a non­
leased is
resident foreign corporation.
located
outside the For sale of services to be VAT zero-rated, the
ecozone recipient of service must be doing business
outside the Philippines. The documents
presented by GHI merely substantiated the
Q: W hat are “deemed sale” transactions?
existence of sales, receipt of foreign currency
A: (T-D-C2)
payments and inward remittance of the proceeds
1. Transfer of goods or properties not in the
of such sales. There is no evidence that the clients
course of business (originally intended for sale
were doing business outside the Philippines.
or for use in the course of business)
PAGE 29 OF 58
ATENEO CENTRAL
BAR OPERATIONS 2019. TAXATION LAW

(Accenture v. CIR, GR No. 190102, July 11, 2012) e) Sale of goods, f) Services by
As such, the requirement is to present both the supplies, and agricultural contract
Philippine SEC Certificate of Non-Registration as equipment and growers and milling
well as proof of the nonresident entity receiving the fuel to persons for others of palay
services fact of doing business in the foreign engaged in into rice, corn into
jurisdiction such as the Articles of Incorporation in International grits and sugarcane
such foreign country. shipping or into raw sugar
international air g) Medical, dental,
Q: Enumerate the VAT-exempt transactions transport hospital and
vis-a-vis the Zero-rated Transactions10 operations. veterinary services
A: except those
Zero-rated Tax Exemption 2. Sales to persons or rendered by
(Sec. 109, NIRC) entities whose professionals
For Sale: (Sec. 106 a) Sale or importation exemption under h) Educational
(A)(2), NIRC) of agricultural and special laws and services rendered
marine food international by private
1. Export Sales (IF products in their agreements to which educational
ONE) original state. the Philippines is a institutions duly
a) Sale and actual b) Sale or importation signatory subjects accredited by
shipment of goods of fertilizers; seeds, such sales to 0% rate DEPED, CHED,
from the seedlings and (effectively zero-rated and TESDA and
Philippines to a fingerlings; fish, transactions) those by
Foreign country prawn, livestock governmental
b) Saie of raw and poultry feeds For Services: (Sec. educational
materials or c) Importation of 108 (B), NIRC) institutions.
packaging personal and i) Services rendered
materials to a household effects 1. From processing, pursuant to an
Non-resident belonging to the manufacturing or employee-employer
buyer for delivery residents of the repacking of goods, relationship
to a resident iocal Philippines a) For other persons j) Services rendered
export-oriented returning from doing business by regional or area
enterprise abroad outside the headquarters
c) Sale of raw d) Importation of Philippines, established in the
materials or professional b) The goods are Philippines (ROFIQ,
packaging instruments, tools of subsequently RHQ)
materials to trade, occupation or exported, k) Transactions which
Export-oriented employment and c) The services are are exempt under
enterprise whose implements, paid for in international
export sales wearing apparel, acceptable foreign agreements to
exceed 70% of domestic animals currency and which the
total annual and personal accounted for in Philippines is a
production household effects accordance with signatory or under
d) Those that are belonging to the rules and special laws
considered export persons coming to regulations of the l) Sales by agricultural
sales under the settle for the first BSP cooperatives duly
Omnibus time in the registered with the
Investment Code Philippines 2. Services other than Cooperative
and other special e) Services subject to processing, Development
m o m i f o n t i iririrt /•a*- A i i+hrvri+\ /
laws percentage tax i i ic ii l u i a o i u i ii t y ui r v u u ik j I n y .

10 This has been modified by the TRAIN Law.

PAGE 30 OF 58
ATENEO CENTRAL
BAR OPERATIONS 2019, TAXATION LAW

repacking of goods, m) Gross receipts from or air transport appears at regular

rendered to a: lending activities by operations; intervals with fixed
a. Person engaged credit or multi­ prices for
in business purpose 5. Services performed subscription and
conducted outside cooperatives duly by subcontractors sale and is not
the Philippines, or registered with the and/or contractors in devoted principally
b. Non-resident Cooperative processing, to publication of
person not Development converting, or paid advertisements
engaged in Authority whose manufacturing goods s) Sale, importation, or
business who is lending is limited to for an enterprise lease of passenger
outside the members. whose export sales or cargo vessels
Philippines when n) Sales by non- exceed 70% of total and aircraft
the services are agricultural, non­ annual production; t) Sale, importation or
performed electric and non­ lease of passenger
c. The consideration credit cooperatives 6. Transport of or cargo vessels
is paid in duly registered with passengers and and aircraft,
acceptable foreign the Cooperative cargo by domestic air including engine,
currency and Development and sea vessels from equipment and
accounted for in Authority the Philippines to a spare parts thereof
accordance with o) Export sales by foreign country, and for domestic or
• the rules and persons who are not international
regulations of the VAT registered. 7. Sale of power or transport
BSP p) Sales of real fuel generated operations;
properties not through renewable u) Importation of fuel,
3. Services rendered primarily held for sources of energy. goods and supplies
to persons or entities sale to customers or by persons
whose exemption held for lease in the engaged in
under special laws or ordinary course of international
international trade or business or shipping or air
agreements, to which sales within the low- transport operations
the Philippines is a cost cap of below for use in their
signatory, effectively 1,919,500 for a international
subjects such residential lot and shipping or air
services to zero rate; P 3,199,200 for a transport
house and lot and operations.
4. Services rendered other residential v) Services of bank,
to persons engaged in dwelling11 non-bank financial
international shipping q) Lease of a intermediaries
or international air residential unit with performing quasi­
transport operations, a monthly rental not banking functions
including leases of exceeding P15,000. w) Sale or lease of
property for use r) Sale, importation, goods and services
thereof as long as the printing or to senior citizens
services shall be publication of books and persons with
exclusively for and any newspaper, disability
international shipping magazine, review or x) Transfer of property
bulletin which pursuant to Section

11 Provided, That beginning January 1, 2021, the VAT property utilized for socialized housing as defined by
exemption shall only apply to sale of real properties not Republic Act No. 7279, sale of house and lot, and other
primarily held for sale to customers or held for lease in residential dwellings with selling price of not more than
the ordinary course of trade or business, sale of real Two million pesos (P2,000,000)
PAGE 31 OF 58
ateneo c e n t r a l
b a r OPERATIONS 2019, TAXATION LAW

40(C)(2) of the c. Those that are considered export sales

NIRC under the Omnibus investment Code and
y) Association dues, other special laws
membership fees, d. Processing, manufacturing or repacking of
and other goods,
assessments and i. For other persons doing business
charges collected outside the Philippines,
by homeowners ii. The goods are subsequently exported,
associations and iii. The services are paid for in acceptable
condominium foreign currency and
corporations; e. Services performed by subcontractors
z) Sale of gold to the and/or contractors in processing,
Bangko Sentral ng converting, or manufacturing goods for an
Pilipinas (BSP) enterprise whose export sales exceed 70%
aa) Sale of drugs and of total annual production;
medicines
prescribed for Q: Under what conditions will these sales be
diabetes, high subject to 12% VAT?
cholesterol, and A: The following are the conditions laid down by
hypertension law:
bb) Sale or lease of 1. Successful establishment and implementation
goods or of enhanced VAT refund system that grants tax
properties or the refunds within 90 days from filing;
performance of 2. All pending VAT refunds as of December 31,
services other 2017 shall be fully paid in cash by December
than the 31,2019; and
transactions 3. 5% of the total value of VAT collection of the
mentioned in the BIR and BOc shall be automatically
preceding appropriated for the purposes of funding VAT
paragraphs, the claims.
gross annual
sales and/or Q: Are gross receipts derived from admission
receipts do not tickets in showing motion pictures, films or
exceed the movies also subject to VAT?
amount of Three A: No. Although the enumeration of services
Million Pesos (P subject to VAT under Section 108 of the 1997 Tax
3,000,000)_____ Code is not exhaustive, those included in the
enumeration are the “lease of motion picture films,
Q: Which of the above zero-rated sales of films, tapes and discs.”
goods and services shall be subject to 12%
VAT and no longer considered as VAT zero- This, however, is not the same as the showing or
rated upon satisfaction of specified exhibition of motion pictures or films. Hence, since
conditions? the showing or exhibition of motion pictures or
A: The following shall become VAT-taxable: films is not in the enumeration, such is not a
a. Sale of raw materials or packaging VAT-taxable transaction. The intent of the
materials to a Non-resident buyer for legislature is not to impose VAT on persons
delivery to a resident local export-oriented already covered by the amusement tax. (CIR v,
enterprise SM Prime Holdings, GR No. 183505, February 26.
b. Sale of raw materials or packaging 2010)
materials to Export-oriented enterprise
whose export sales exceed Q: ABC Company is a health care provider with
the primary purpose of operating a health care
PAGE 32 OF 58
ATENEO CENTRAL
BAR OPERATIONS 2019,
delivery system or a health maintenance
organization to take care of the sick and
disabled persons enrolled in the health care
plan. It merely provides and arranges for the
provision of pre-need health care services to
its members for a fixed prepaid fee for a
specified period of time. Is ABC VAT-exempt
under Section 109 (I) of the NIRC?
A: No. Section 109 (I) of the NIRC contemplates
the exemption from VAT of taxpayers engaged in
the performance of medical, dental, hospital, and
veterinary services. As ABC Company does not
actually provide medical and/or hospital services,
but merely arranges for the same, its services are
NOT VAT-exempt. (CIR v. Philippine Health Care
Providers, Inc., G.R. No. 168129, April 24, 2007)
Q: Are pawnshop business operators subject
to VAT?
A: No. For purposes of determining tax liability,
pawnshops are treated as non-bank financial
intermediaries. Beginning 2004 up to the present,
by virtue of R.A. No. 9238, non-bank financial
intermediaries are no longer liable for VAT, but it
is subject to percentage tax on gross receipts from
0% to 5%, as the case may be. In First Planters
Pawnshop, the Court ruled on the VAT liability of
pawnshops, it held that petitioner, a pawnshop, is
a nonbank financial intermediary subject to 10%
VAT for the tax years 1996 to 2002. However, with
the levy, assessment and collection of VAT from
nonbank financial intermediaries being specifically
deferred by law, then petitioner is not liable for
VAT during these tax years. But with the full
implementation of the VAT system on nonbank
financial intermediaries starting January 1, 2003,
petitioner is liable for 10% VAT for said tax year.
But beginning 2004, it is no longer subject to VAT
but only to percentage tax. (TFS, Incorporated v.
Commissioner of Internal Revenue, G.R. No. 166829,
Apr. 19,2010)
Q: Is the sale of e-books and e-joumals
appearing at regular intervals with fixed prices
for subscription and sale and not devoted
principally to publication of paid
advertisements subject to VAT?
A: No. The terms “book,” “newspaper,”
“magazine,” “review” and “bulletin” shall refer to
printed materials in hard copies and do not
include those in digital or electronic format or
computerized versions (RMC No. 75-2012)
PAGE 33 OF 58
TAXATION LAW
Q: A bought two adjacent condominium units
which he intended to combine so as to fit his
family. Each unit has a gross selling price of 2
million. The two units were separately
documented. After 2 years, A decided to sell
the two units. A contends that the units are
exempt from VAT as the gross selling price did
not exceeding 2.5 million. Is A correct?
A: No. By virtue of the amendment introduced by
RR 13-2012 (October 12, 2012), the sale of real
properties subject to VAT shall include the sale,
transfer, or disposal within a 12-month period of
two or more adjacent residential lots, house
and lots, or other residential dwellings in favor
of a buyer. Such adjacent real properties although
covered by separate titles and/or separate tax
declarations, when sold to one and the same
buyer, whether covered by one or separate deeds
of conveyance, shall be presumed as a sale of
one residential lot, house and lot or residential
dwelling.
Q: Mr. H owns and leases several units in a
condominium near a University. State the VAT
implications of the following:
a. Mr. H imposes a uniform rate of P12,000
monthly rentals per unit for students;
b. For non-students, Mr. H leases out his units
for P16,000.
A:
a. VAT Exempt. The gross receipts from rentals
not exceeding P15,000 per month per unit
shall be exempt from VAT regardless of
aggregate gross receipts.
b. It depends. The gross receipts from rentals
exceeding 15,000 shall be subject to VAT if
the aggregate annual gross receipts from
said units exceed P3,00,000. Otherwise, it
shall be subject to other percentage tax.
Q: Is the sale of power plants pursuant to the
privatization of assets subject to VAT?
A: No. The sale of the power plants is not subject
to VAT if the sale was made pursuant to the
mandate to privatize assets, and was not
undertaken in the course of trade or business. In
selling the power plants, the company tasked to
sell was merely exercising a governmental
function for which it was created. The sale of the
power plants is not in pursuit of a commercial or
economic activity but a governmental function
ATENEO CENTRAL
BAR-OPERATIONS 2019,
mandated by law to privatize NPC generation
assets. It cannot also be considered as an
incidental transaction that is subject to VAT since
they were already owned by PSALM and not NPC.
(Power Sector Assets and Liabilities Management
Corporation vs. Commissioner of Internal
Revenue G. R. No. 198146, August 8, 2017)
Q: Should the amounts that an HMO earmarked
and eventually paid to the medical service
providers form part of its gross receipts for
VAT purposes?
A: No. As a presumption, an HMO is allowed to
establish that a portion of the membership fees
received does not actually compensate it but
rather, some other person instead, which in this
case are the medical service provides. 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 05, 2017)
Q: What are the requirements for a claim for
VAT refund?
A: A claim for refund or tax credit for unutilized
input VAT may be allowed only if the following
requisites concur, namely:
1. The taxpayer is VAT-registered;
2. The taxpayer is engaged in zero-rated or
effectively zero-rated sales;
3. The input taxes are due or paid;
4. The input taxes are not transitional input
taxes;
5. The input taxes have not been applied
against output taxes during and in the
succeeding quarters;
6. The input taxes claimed are attributable to
zero-rated or effectively zero-rated sales;
and
7. The claim is filed within two years after the
close of the taxable quarter when such sales
were made. (Luzon Hydro Corporation v. CIR,
GR No. 188260, November 13, 2013)
Q: Can a claim for refund of the full input VAT
relating to importation of dump trucks be made
when the taxpayer treated such as capital
goods?
A: No, the claim will not prosper. The law requires
12This has been modified by SEC. 36 of the TRAIN Law.
PAGE 34 OF 58
TAXATION LAW
that the related input VAT be properly
amortized over the estimated useful life of the
capital goods in the taxpayer’s subsidiary ledger.
Here, the claim for refund is for the full amount of
the input VAT on the importation, rather than for
an amortized amount, thus the claim must fail.
(Taganito Mining Corporation v. CIR, G.R. No.
201195, November 26, 2014). Claims for refund
on input VAT arising from purchase of capital
goods no longer has any legal basis in the Tax
Code.
Q: State the rules on prescriptive periods
involving the claim for refund of input VAT.12
A: The Supreme Court provided the following rules
on prescriptive periods involving VAT:
1. An administrative claim must be filed with
the CIR within two (2) years after the close
of the taxable quarter when the zero-rated or
effectively zero-rated sales were made.
2. The CIR has 90 days from the date of
submission of complete documents in support
of the administrative claim within which to
decide whether to grant a refund or issue a tax
credit certificate. The 90-day period may
extend beyond the two-year period from the
filing of the administrative claim if the claim is
filed in the iater part of the two-year period. If
the 90-day period expires without any decision
from the CIR, then the administrative claim
may be considered to be denied by inaction.
3. A judicial claim must be filed with the CTA
within 30 days from the receipt of the CIR’s
decision denying the administrative claim OR
from the expiration of the 90-day period
without any action from the CIR.
4. All taxpayers, however, can rely on BIR
Ruling No. DA-489- 03 from the time of its
issuance on 10 December 2003 up to its
reversal in Aichi on 6 October 2010, as an
exception to the mandatory and jurisdictional
90+30 day periods. ( CIR v. San Roque Power
Corporation, G.R. No. 187485, TRAIN
amended 120 days to 90 days)
Q: Do claimants of refund for input VAT need
to wait for the 90-day waiting period to lapse
before it may file an appeal to the CTA?
A: Yes. A taxpayer’s failure to comply with the
prescribed 90-day period would render the petition
ATENEO CENTRAL
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premature and is violative of the principle on
exhaustion of administrative remedies. Effectively,
there is no “decision” of the CIR to be reviewed by
the CTA. (Harte-Hanks Philippines v. CIR, G.R.
No. 205721, November 7, 2016, TRAIN am ended
120 days to 90 days). Note that the only
exception to this rule is if the claim falls within the
exception period as specified in BIR Ruling No.
DA-489-03.
Q: Is the date of issuance of BIR ruling
confirming tax exemption status of taxpayer a
proper reckoning point of prescriptive period?
A: No, the claim for refund must be filed within two
(2) years from the date of payment of the tax. A
BIR Ruling cannot be used as reckoning point for
prescriptive period because such ruling is not the
operative act from which an entitlement of
relund is determined. (CIR v. Meralco, G.R. No.
181459, June 9, 2014)
Q: When can a taxpayer file for a judicial claim
for refund of unutilized input VAT?
A? Judicial claim - Within 30 days from denial of
claim or from the lapse of the 90-day period
without any action from the BIR.
CL Can tax credits still be granted as a result of
a successful claim for VAT refund?
A: No. The law has deleted tax credits and now
only allows tax refunds.
Q: What information should be contained in
the VAT invoice or VAT official receipt?
A:
1. A statement that the seller is a VAT-
registered person, followed by his taxpayer’s
identification number (TIN);
2. The total amount which the purchaser pays
or is obligated to pay to the seller with the
indication that such amount includes the
value-added tax, provided that:
a. The amount of the tax shall be shown as
a separate item in the invoice or receipt;
b. If the sale is exempt from value-added tax,
the term "VAT-exempt sale" shall be
written or printed prominently on the
invoice or receipt;
c. If the sale is subject to zero percent (0%)
value-added tax, the term "zero-rated
sale" shall be written or printed
prominently on the invoice or receipt;
PAGE 35 OF 58
TAXATION LAW
d. If the sale involves goods, properties or
services some of which are subject to and
some of which are VAT zero-rated or VAT -
exempt, the invoice or receipt shall clearly
indicate the breakdown of the sale price
between its taxable, exempt and zero­
rated components, and the calculation of
the value-added tax on each portion of the
sale shall be shown on the invoice or
receipt.
3. The date of transaction, quantity, unit cost
and description of the goods or properties or
nature of the service; and
4. In the case of sales in the amount of one
thousand pesos (P I ,000) or more where the
sale or transfer is made to a VAT-registered
person, the name, business style, if any,
address and taxpayer identification
number (TIN) of the purchaser, customer or
client, (see Section 4.113-1(B), RR 16-2005)
Q: Is there a difference between an invoice and
official receipt for purposes of substantiation?
A: Yes. Only a VAT invoice might be presented
to substantiate a sale of goods or properties,
while only a VAT receipt could substantiate a sale
of services.
Hence, VAT invoice and VAT receipt should not be
confused as referring to one and the same thing.
Certainly, neither does the law intend the two to be
used alternatively ( Kepco Philippines v. CIR, G.R.
No. 181858, November 24, 2010; AT&T
Communications Services Phils., Inc. v. CIR, G.R.
No. 185969, November 19, 2014; Nippon Express
(Philippines) Corporation v. CIR, G.R. No. 185666,
February 4, 2015; Northern Mindanao Power
Corporation v. CIR, G.R. No. 185115, February
18, 2015)
Q: What are the consequences of issuing
erroneous VAT invoices or VAT official
receipts?
A:
1. If a person who is not VAT-registered issues
an invoice or receipt showing his TIN, followed
by the word “VAT”, the erroneous issuance
shall result to the following:
a. The Non-VAT person shall be liable to the:
i. Percentage taxes applicable
ii. VAT due on the transactions
without the benefit of any input
tax credit
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iii. 50% surcharge as penalty
b. The VAT shall, if the other requisite
information required is shown on the
invoice or receipt, be recognized as an
input tax credit to the purchaser.
2. If a VAT-registered person issues a VAT
invoice or VAT official receipt for a VAT-
exempt transaction, but fails to display
prominently on the invoice or receipt the term
''VAT-exempt Sale, "the issuer shall be liable
to account for the VAT imposed. The
purchaser shall be entitled to claim an input
tax credit on said purchase. (Sec. 113 (D),
NIRC)
Q: What is the effect of non-compliance with
the documentary and evidentiary requirements
for a VAT refund claim?
A: (PERLAS-BERNABE) In J.R.A Philippines v.
Commissioner of Internal Revenue (G.R. No.
177127, October 11, 2010), the Supreme Court
held that failure to comply with the invoicing
requirements provides sufficient ground to deny
a ciaim for tax refund or tax credit. For a claim
for tax refund or tax credit, the applicant must
prove not only entitlement to the claim but also
compliance with ail the documentary and
evidentiary requirements therefor.
Q: is the absence of the word “zero-rated” on
the invoices/receipts fatal to a claim for
credit/refund of input VAT?
A: (PERLAS-BERNABE) Yes. Failure to print the
word “zero-rated” in the invoices/receipts is fatal to
a claim for credit/refund of input VAT on zero-rated
sales. Section 4.108-1 of RR 7-95 requires the
printing of the word “zero-rated” on the invoices
covering zero-rated sales. In Panasonic v. CIR,
the SC ruled that RR 7-95 proceeds from the rule-
making authority granted to the Secretary of
Finance under Section 245 of the 1977 NIRC (PD
1158) for the efficient enforcement of the tax code
and of course its amendments. The requirement is
reasonable and is in accord with the efficient
collection of VAT from the covered sales of goods
and services. The appearance of the word "zero-
rated" on the face of invoices covering zero-rated
sales prevents buyers from falsely claiming input
VAT from their purchases when no VAT was
actually paid. If, absent such word, a successful
claim for input VAT is made, the government
would be refunding money it did not collect.
PAGE 36 OF 58
TAXATION LAW
Further, the printing of the word "zero-rated" on the
invoice helps segregate sales that are subject to
10% (now 12%) VAT from those sales that are
zero-rated. Unable to submit the proper invoices,
Panasonic has been unable to substantiate its
claim for refund, [note: RA 9337 amended the
1997 NIRC on Nov. 1, 2005. It made RR 7-95 a
part of the tax code] (J.R.A. Philippines, Inc. v.
CIR, GR No 177127, October 11, 2010).
Q: Taxpayer rendered incoming
telecommunication services for non-resident
foreign telecommunication companies. On
account of these zero-rated sales, taxpayer
filed an application for refund for the unutilized
input taxes allocated to such sales. However,
its VAT invoices and official receipts did not
contain the printed word “zero-rated.” Will its
claim prosper?
A: No. The Court will deny the claim on the ground
that the taxpayer failed to imprint the word
“zero-rated” on the face of its VAT invoices or
receipts, in violation of Revenue Regulations No.
7-95. The absence of the word “zero-rated” ori the
invoices and receipts of a taxpayer will result in the
denial of the claim for tax refund. (Eastern
Telecommunications v. CIR, GR No. 168856,
August 29, 2012; See also Eastern
Telecommunications Philippines, Inc. v. CIR, G.R.
No. 183531, March 25, 2015; Miramar Fish
Company Inc. v. CIR, G.R. No. 185432, June 4,
2014 )
Q: ABC Corporation filed a claim for refund of
unutilized input taxes. The BIR contends that
ABC failed to comply with the VAT invoicing
requirements as the words “zero-rated” was
merely stamped and not pre-printed. Is the
BIR’s contention correct?
A: No. In Commissioner of Internal Revenue v.
Toledo Power Company (GR No. 183880, January
20, 2014), the Supreme Court held that the words
“zero-rated” appeared on the VAT invoices/official
receipts presented by the Respondent in support
of its refund claim. Although the same was
merely stamped and not pre-printed, the same
is sufficient compliance with the law, since the
imprinting of the word “zero-rated” was required
merely to distinguish sales subject to 12% 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
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other VAT provisions of the Tax Code.
REMEDIES IN INTERNAL REVENUE
TAXES
Q: W hat are the powers of the Commissioner
of Internal Revenue?
A: The powers of the CIR are the following:
1. Interpret tax laws;
2. Decide (assessment/refund) cases;
3. Obtain information, summon or examine,
or take testimony;
4. Examine returns;
5. Make findings based on best evidence
obtainable if taxpayer fails to submit
required documents;
6. Conduct inventory-taking, surveillance,
prescribe presumptive gross sales and
receipts;
7. Terminate taxable period - when taxpayer
is:
1. Retiring from business
2. Intending to leave the country
3. Remove property
4. Doing acts to obstruct collection
8. Prescribe real property values;
, 9. Inquire into bank deposits;
10. Accredit and register tax agents; and
11. Prescribe additional documentary and
procedural requirements.
Q: Which of the powers of the Commissioner
of Internal Revenue CANNO T be delegated?
A:
1. Recommend rules and regulations to the
Department of Finance;
2. Issue rulings of first impressions and
revoke rulings;
3. Compromise or abate under Sec. 204;
a) NOTE: 500,000 or less may be made
by Regional Evaluation Board
4. Issue and reassign officers where articles
subject to excise taxes are produced or
kept.
Q: What are the prescriptive periods for
making assessm ents of internal revenue
taxes?
A:
a. Three (3) years from the last day within which
to file a return or from the time when the return
PAGE 37 OF 58
TAXATION LAW
was actually filed, whichever is later (Sec. 203,
NIRC);
b. Ten (10) years from discovery of failure to file
the tax return or discovery of falsity or fraud in
the return (Sec. 222(a), NIRC); or
c. Within the period agreed upon between the
government and the taxpayer where there is a
waiver of the prescriptive period of the
assessment. (Sec. 222(b), NIRC)
Note that a mere showing that the returns filed by
the taxpayer were false, notwithstanding the
absence of intent to defraud, is sufficient to
warrant the application of the ten (10) year
prescriptive period under Section 222 of the NIRC.
There is prima facie evidence of a false return if
there is a substantial underdeclaration of taxable
sales, receipt, or income. Failure to report sales,
receipts, or income in an amount exceeding 30%
of what is declared in the returns constitute
substantial underdeclaration. (CIR v. Asalus
Corporation, G.R. No. 221590, Feb. 22, 2017)
Q: May the period of assessment be extended?
A: Yes. Before the expiration of the 3-year
prescriptive period, both the CIR and the taxpayer
may agree in writing to extend the period of
assessment. The period so agreed upon may be
further extended by subsequent written agreement
made before the expiration of the period previously
agreed upon. (Section 222(b), NIRC)
Q: What are the requirements of a valid waiver
of the statute of limitations?
A: To be valid and binding, a waiver must comply
with the following requirements:
a. The waiver shall be executed before the
expiration of period to assess or collect
taxes. The date of execution shall be
specifically indicated in the waiver.
b. The waiver shall be signed by the
taxpayer himself or his duly authorized
representative. The taxpayer is charged with
the burden of ensuring that the waiver is
validly executed by its authorized
representative. The authority of the taxpayer's
representative who participated in the audit or
investigation shall not be thereafter contested
to invalidate the waiver.
c. The expiry date of the period agreed upon to
assess/collect the tax after the regular 3-year
period of prescription should be indicated.
(RMONo. 14-2016)
ATENEO CENTRAL
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The general rule is that a defective waiver cannot
extend the prescriptive period. However, take note
that when the taxpayer is also guilty of causing
defects in the waiver (i.e., in bad faith), the waiver
shall still be considered valid and shall thus serve
to extend the period to assess and/or collect. (CIR
v. Next Mobile, lnc„ G.R. No. 212825, 2015)
One of the requirements for a valid waiver is that it
be executed in three (3) copies. The original copy
to be attached to the docket of the case, the
second copy for the taxpayer and the third copy for
the office accepting the waiver. The failure of the
BIR to provide the office accepting the waiver with
the third copy will invalidate the waiver and thus,
will not extend the prescriptive period. (CIR v.
Philippine Daily Inquirer, G.R. No. 213493, Mar.
22,2017)
In CIR v. Transitions Optical Philippines, Inc., two
(2) waivers were supposedly executed by the
parties extending the prescriptive periods for
assessment. The CTA declared the waivers
defective for non-compliance with the
requirements for the proper execution of a waiver.
The Court ruled that whiie the BIR was at fauit
when it accepted respondent’s waiver despite their
non-compliance, respondent’s acts also show its
implied admission of the validity of the waivers.
Respondent never raised the invalidity at the
earliest opportunity and did not dispute the CIR’s
assertion that the former repeatedly failed to
comply with its notices. But, even as respondent is
estopped from questioning the validity of the
waivers, the assessment is nonetheless void
because it was served beyond the supposedly
extended period. (CIR v. Transitions Optical
Philippines, Inc., G.R. No. 227544, Nov. 22, 2017)
Q: ABC Bank executed two (2) Waivers of the
Defense of Prescription covering internal
revenue taxes due for the years 2012 and 2013,
extending the period of the BIR to assess up to
December 31,2017. A Formal Letter of Demand
was issued by the BIR which was protested by
ABC Bank. ABC received another Formal
Letter of Demand with a reduced assessment
which was paid by ABC on the same day
except for two other taxes. ABC argues that the
waivers it executed were not valid because it
PAGE 38 OF 58
TAXATION LAW
was not signed or conformed to by the CIR. Are
the waivers valid?
A: Yes. Partial payment of the assessment issued
within the extended period to assess as provided
in the Waiver of Defense of Prescription is an
implied admission of the validity of the waiver.
(RCBC v. CIR, GR No. 170257, September 7,
2011). Note though that in the case of CIR vs.
Standard Chartered Bank (July 29, 2015) the
Court ruled that although respondent paid the
deficiency WTC and FWT assessments, it did not
waive the defense o f prescription as regards the
remaining tax deficiencies, it being on record that
respondent continued to raise the issue of
prescription in its Pre-Trial Brief filed, Joint
Stipulations of Facts and Issues, direct
testimonies of its witness, and Memorandum filed.
The Court added that “Even the CIR did not
consider such payment of respondent as a waiver
of the defense of prescription, hut merely raised
the issue of estoppel in its Motion for
Reconsideration of the aforesaid decision. From
the conduct of both parties, there can be no
estoppel in this case.”
Q: When is the running of the period of
prescription suspended?
A: It is suspended when: (P-R-C, N-O)
1. The CIR was Prohibited from making the
assessment or beginning distraint/levy or a
proceeding in court for sixty (60) days
thereafter;
2. Taxpayer requests Reinvestigation which is
granted by the C\R,(China Bank Corporation v.
CIR, G.R. No. 172509, February 4,2015). Note
that the term “granted” has been
interpreted in several cases as “ acted
upon” .
3. Taxpayer Cannot be located in address;(CIR
v. BASF Coating, G.R. No. 198677, November
26, 2014)
4. A warrant of distraint and levy is served (not
only issued) and No property could be found;
5. Taxpayer is Out of the Philippines. (Sec. 223,
NIRC)
Q: Give the instances when the civil penalties
and interests are imposed.
.A: Civil Penalties
25% Surcharge 50% Surcharge
ATENEO CENTRAL
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1. Failure to file a return 1. Willful neglect to file Q: Can both the deficiency and delinquency
and pay tax due the return within the interests be imposed at the same time?
thereon period prescribed; A: No. The law provides that “in no case shall the
2. Filing with 2. False or fraudulent deficiency and delinquency interest prescribed x x
unauthorized return is willfully x be imposed simultaneously”.
revenue office; made (Sec. 248,
3. Failure to pay NIRC) Q: Is payment prior to protest required?
deficiency tax w/in A: General rule: No prior payment of assessed
time prescribed in internal revenue tax is required when protested or
assessment notice; disputed.
4. Failure to pay full or Exception: When there are several issues
part of the amount involved but the taxpayer only disputes or protests
shown in ITR against the validity of some of the issues raised,
required to be filed or the taxpayer shall be required to pay the deficiency
the full amount of tax tax or taxes attributable to the undisputed issues.
due for which no No action shall be taken on the taxpayer's
return is required to disputed issues until the taxpayer has paid the
be filed on or before deficiency tax or taxes attributable to the said
-• the date prescribed undisputed issues. (RR No. 12-99)
for its payment (Sec.
248, NIRC) Q: What is the difference between a request for
reinvestigation and a request ' for
Interest13 which is now at double the legal reconsideration?
interest rate A:
Deficiency Interest Delinquency Interest Forms of Protest
When there is any 1 Failure to pay the Request for Request for
deficiency in the tax amount of tax due on Reconsideration Reinvestigation
due! It shall be any return required to Plea for a re-evaluation Plea for reinvestigation of
assessed from the be filed of an assessment on the the assessment on the
date prescribed for its 2. Failure to pay the basis of existinq records basis of the newlv
payment until the amount of tax due for without need of discovered or additional
payment thereof. which no return is additional evidence. evidence that a taxpayer
(Section 249 (A) and required intends to present in the
(B), NIRC) 3. Failure to pay a reinvestigation.
deficiency tax or It may involve a question It may involve a question
surcharge or interest of fact or law or both. of fact or law or both.
thereon This does not toll the It tolls the running of
running of the Statute the Statute of
Note: It shall be assessed of Limitations for the Limitations for the BIR
from the due date BIR to exercise its to exercise its power to
appearing on the notice power to collect. (RR collect. (RR No. 18-
and demand of the CIR No. 18-2013) 2013)
until the payment thereof
or upon issuance of a Q: What are the remedies available to a
notice of demand. taxpayer in case of denial of protest or inaction
(Section 249 (C), NIRC) by either the CIR or his duly authorized
representative?
A:

13 This has been modified by SEC. 75 of the TRAIN Law.

Interest rate is now double the legal interest rate for
loans and forbearance which is 12%.
PAGE 39 OF 58
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1. If the protest is wholly or partially denied by the
CIR or his authorized representative, then the
taxpayer may appeal to the CTA within 30 days
from receipt of the whole or partial denial of the
protest.
2. If the protest is wholly or partially denied by the
CIR's authorized representative, then the
taxpayer may appeal to the CIR within 30 days
from receipt of the whole or partial denial of the
protest.
3. If the CIR or his authorized representative
failed to act upon the protest within 180 days
from submission of the required supporting
documents, then the taxpayer may appeal to
the CTA within 30 days from the lapse of the
180-day period.
To further clarify the three options: A whole or
partial denial by the CIR's authorized
representative may be appealed to the CIR or the
CTA. A whole or partial denial by the CIR may be
appealed to the CTA. The CIR or the CIR's
authorized representative's failure to act may be
appealed to the CTA.
Q: What are the remedies available to a
taxpayer in case of the inaction of the CIR on
the protested assessment?
A: The taxpayer has 2 options, either:
1. File a Petition for Review with the CTA within
30 days after the expiration of the 180-day
period; or
2. Await the final decision of the CIR in the
disputed assessment and appeal such final
decision to the CTA within 30 days after the
receipt of the copy of such decision.
Note: These options are mutually exclusive and
resort to one bars the application of the other.
(Lascona Land v. CIR, GR No. 171251, March 5,
2012)
Q: What is the difference between Preliminary
Assessment Notice, Final Assessment Notice
and Final Decision on Disputed Assessment?
A:
PAGE 40 OF 58
TAXATION LAW
It is a communication issued by the
Regional Assessment Division or by the
Commissioner or his duly authorized
representative informing the taxpayer who
has been audited of the findings of the
Revenue Officer following the review and
evaluation of these findings.
It shall be in writing and shall show in
detail the facts and the law, rules and
regulations or jurisprudence on which the
proposed assessment is based;
otherwise, the assessment is void. (Sec.
228, NIRC; RRNo.18-13)_________ _____
It is a declaration of deficiency taxes
issued to a taxpayer who fails to respond
to a PAN within the prescribed period, or
whose reply is found to be without merit.
Like the PAN, shall be in writing and shall
show in detail the facts and the law, rules
and regulations or jurisprudence on which
the proposed assessment is based;
otherwise, the assessment is void. (RMC
No. 18-13)___________ ________________
it indicates the decision of the
Commissioner of Internal Revenue or his
duly authorized representative and it shall
state the facts and the law, rules and
regulations or jurisprudence on which the
decision is based; otherwise, it is void.
(RMC No. 18-13)
Note that a void FDDA does not ipso facto
render the assessment void. An assessment
becomes a disputed assessment after a taxpayer
has filed its protest to the assessment in the
administrative level. Thereafter, the CIR either
issues a decision on the disputed assessment or
fails to act on it and is therefore considered deined.
The taxpayer may then appeal the decision on the
disputed assessment or the inaction of the CIR. As
such the FDDA is not the only means that the final
tax liability of a taxpayer is fixed, which may then
be appealed by the taxpayer. Inaction of the CIR
may likewise result in the finality of the tax liability
as it is deemed a denial of the protest. Clearly, a
decision of the C IR on a disputed assessment
differs from the assessment itself. Hence, the
invalidity of one does not necessarily result to the
invalidity of the other, unless the law or regulations
otherwise provide. Failure of the FDDA to reflect
ATENEO CENTRAL
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the facts and law on which it is based will make the
decision void. It, however, does not extend to the
nullification of the entire assessment. (CIR v.
Liquigaz Philippines Corporation, G.R. No.
215534, Apr. 18, 2016)
Q: A Final Assessment Notice was issued by
the BIR against taxpayer A. The assessment
only contained a tabulation of the deficiencies
and nothing more. Is the assessment valid?
A: No. Under Section 228 of the NIRC, the
taxpayer shall be informed in writing of the law
and facts on which the assessment was made
otherwise the assessment is void. (CIR v. United
Salvage and Towage (Phils.), Inc., G.R. 197515,
July 2, 2014). Note: However, there is substantial
compliance when factual and legal basis can be
found in a series of correspondence between the
taxpayer and the BIR, and not in the FAN/FLD
(Samar-! Electric Cooperative v. BIR, G.R. No.
193100, December 10, 2014).
Q: What is the effect if the PAN was not issued
prior to the FAN?
A: If the PAN is not issued before the FAN and the
taxpayer only received the latter, it is tantamount
to denial of due process. The taxpayer must be
informed of the facts and laws upon which the
assessment is made. It is not merely a formal
requirement but a substantive one. However, the
law recognizes several exceptions wherein the
PAN need not be issued. (CIR v. Metro Star, GR
No. 185371, Dec. 8, 2010)
Q: What are the exceptions to the issuance of
PAN?
A:
1. Mathematical error
2. Discrepancy between tax withheld and tax
actually remitted
3. When taxpayer opting for a refund or a TCC
carried over and automatically applied excess
credits against tax liabilities of the succeeding
taxable quarter/s or year/s
4. Non-payment of excise tax
5. Transfer by exempt person of tax-free articles
to non-exempt persons
Q: What acts of the BIR Commissioner are
considered denials of protest which may serve
as a basis for appeal to the Court of Tax
Appeals?
PAGE 41 OF 58
TAXATION LAW
A:
1. Filing by the BIR of a civil suit for collection
of the deficiency tax is considered a denial of
the request for reconsideration. (CIR v. Union
Shipping Corporation, GR No. L-66160, May
21, 1990)
2. An indication to the taxpayer by the
Commissioner “in clear and unequivocal
language” of his final denial on the issuance
of the warrant of distraint and levy. The
subject of appeal is the final decision, not the
warrant of distraint. (Advertising Associates
Inc. v. CA, G.R. No. L-59758, Dec. 26, 1984)
3. A BIR demand letter sent to the taxpayer after
his protest of assessment notice is considered
as the final decision of the Commissioner on
the protest. (CIR v. Ayala Securities, G.R. No.
L-24985, March 31, 1976)
4. A letter of the BIR Commissioner reiterating to
a taxpayer his previous demand to pay an
assessment is considered a denial of the
request for reconsideration or protest and is
appealable to the CTA. (CIR v. Isabela Cultural
Corp., G.R. No. 135210, July 11, 2001)
5. Final notice before seizure considered as
Commissioner’s decision on taxpayer’s
request for reconsideration, when the taxpayer
received no other response. (CIR v. Isabela
Cultural Corp., G.R. No. 135210, July 11,
2001)
Q: Allied Banking Corporation received from
the BIR a PAN, which it timely disputed. In
response, the BIR issued a Formal Letter of
Demand with Assessment Notices. Instead of
protesting the FAN, the petitioner filed a
Petition for Review with the CTA. The CTA
dismissed the Petition stating that it is neither
the assessment nor the formal demand letter
itself that is appealable before it, but the
decision of the CIR on the disputed
assessment. Can the Formal Letter of Demand
be construed as the final decision of the CIR
appealable to the CTA under RA No. 9282?
A: Yes, this is considered an exception to the
general rule on exhaustion of administrative
remedies. The CIR is considered estopped from
claiming the same principle. The tenor of the
demand letter is clear that that CIR had already
made a final decision and that the remedy of the
Petitioner was to appeal the same within thirty (30)
days of receipt. This can be gleaned from the use
ATENEO CENTRAL
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of the terms “final decision” and “appeal” which
were deemed unequivocal language pointing to
the finality of the decision. While the Court cited
the rules relative to (a) protesting the FAN and not
the PAN and (b) counting the 30-day period to
appeal to the CTA from receipt of the decision of
the CIR and not issuance of the assessment, this
particular case was deemed a clear exception in
view of the CIR’s own actions. (Allied Banking
Corporation v. CIR, GR No. 175097, February 5,
2010)
Q: Can a protest on pre-assessment notices be
filed directly to the CTA via petition for review?
A: Generally, no. The protest should be first done
by filing a request for reconsideration before the
CIR. if the request is denied, that’s the time when
the taxpayer may appeal the case before the CTA.
An exception to this rule is when the wording of the
notice makes it appear that the notice is the final
decision of the CIR, such as in the case of Allied
Banking v. CIR. (Allied Banking Corporation v.
CIR, G.R. No. 175097, February 5, 2010)
Q: A and B are engaged in importation of
textile. B is 100% owned by A. The District
Collector of the Port of Manila issued an
assessment against A. Collector of Customs
(COC) made a demand on A on November 25,
1998. On July 2, 1999, the COC made a final
demand upon both A and B. B filed a protest
arguing that it is not a party liable for the
assessed taxes. COC denied the protest on
July 12, 1999. On July 30,1999, B appealed to
CTA. COC responded that CTA has no
jurisdiction since the appeal was filed beyond
the 30-day reglementary period. Is the COC
correct?
A: No, the reglementary period should be counted
from July 12,1999 because it was on this date that
the COC has denied the protest of B. The final
demand made on November 25, 1998 did not
bind B as it was addressed only to A. (COC v.
Oilink International Corporation, G.R. No. 161759,
July 2, 2014).
Q: May a withholding agent file a claim for tax
refund?
A: Generally, the person entitled to claim a tax
refund is the taxpayer. However, if the taxpayer
does not file the claim, the withholding agent
may file the same.
PAGE 42 OF 58
TAXATION LAW
A withholding agent has a legal right to file a claim
for refund based on the following reasons:
(a) He is considered a taxpayer, as he is
personally liable for the withholding tax as well
as for deficiency assessments, surcharges,
and penalties, should the amount withheld be
finally found to be less than the amount that
should have been withheld.
(b) As an agent of the taxpayer, his authority to
file the income tax return and remit the tax
withheld to the government includes the
authority to file a claim for refund and to
bring an action for recovery of such claim.
Note: While the withholding agent has the right to
recover the taxes erroneously or illegally collected,
he nevertheless has the obligation to remit the
same to the principal taxpayer under the principle
of unjust enrichment. (CIR v. Smart
Communications, G.R. Nos. 179045-46, August
25,2010)
Q : What are the requisites for claim for tax
credit or refund of a creditable withholding
tax?
A:
1. Claim must be filed within the two-year
prescriptive period from date of payment of
the tax
2. it must be shown on the return that the
income received was declared as part of
gross income
3. The fact of withholding must be established
by a copy of a statement duly issued by the
payor to the payee showing the amount paid
and the amount of tax withheld. (Banco
Filipino v. CA, GR No. 155682, March 27,
2007; CIR v. Team (Philippines) Operations
Corporation, G.R. No. 179260, April 2, 2014;
See also CIR v. PNB, G.R. No. 180290,
September 29, 2014)
G: What are the prescriptive periods for filing
claims for refund (both under general claims
for refund and VAT refund)?
A: Internal Revenue Taxes Refund, in General
KIND OF FILE
PERIOD TO FILE
WITH
ATENEO CENTRAL
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Administrative
Within 2 years from
Claim (NIRC, BIR
payment of tax Within 30 days from
Sec. 204)
denial of claim or
If BIR decides on the from the lapse of the
Judicial Claim
claim for refund, TP 90-day period
must file an appeal without any action
with the CTA, from the BIR
whichever is earlier
between:

[1] within 30 days Q: Can deficiency VAT be offset against claims

from receipt of the for refunds or tax credits of input tax under
decision, or Sec. 112, of the NIRC?
[2] within the 2-year A: No, a claim for tax refund or credit under
period under Sec. Section 112 of the NIRC where the issue to be
Judicial Claim 229 of the NIRC resolved is whether a taxpayer is entitled to a
(NIRC, Sec. CTA refund or credit of its unutilized input VAT for the
229) If there is an inaction taxable year cannot be subject to compensation. It
on the BIR’s part re: would be unfair to allow the CIR to use a claim for
claim for refund, TP refund under Section 112 of the NIRC as a means
need not wait for a to assess a taxpayer for any deficiency VAT,
decision and must file especially if the period to assess had already
an appeal with the prescribed. The courts have no assessment
CTA when the 2-year powers, and therefore, cannot issue assessments
period is about to against taxpayers. Offsetting was allowed only in
lapse. Failure to cases of claim for tax refund of erroneously or
appeal bars recovery illegally collected taxes under Section 229
(Gibbs v. CIR, G.R. because the determination of the taxpayer's
No. L -13453, 1960) liability is intertwined with the resolution of the
claim for tax refund (Commissioner of Internal
VAT Refund Revenue, vs. Toledo Power Company, G.R. No.
196415, December 2, 2015).

KIND OF FILE
PERIOD TO FILE Q: May a criminal action proceed against the
CLAIM WITH
taxpayer without an assessment?
A: Yes. An assessment of a deficiency is not
Within 2 years from necessary to a criminal prosecution for willful
the close of the
attempt to defeat and evade taxes. A crime is
taxable quarter
Administrative complete when the violator has knowingly and
BIR when the sales were
Claim willfully filed a fraudulent return with intent to
made ( CIR v. Mirant
Pagbilao Corp., G.R. evade and defeat the tax. (Ungab vs. Cusi, 97
172129, 2008) SCRA 877 (1980), CIR vs. PASCOR Realty, 309
SCRA 402 (1999), Adamson vs. CA, 588 SCRA
27 (2009)).

Q: Is the presentation of a Certificate of

Creditable Tax Withheld at source (BIR Forms
No. 2307) necessary to prove the fact of
withholding, even if the tax returns and other
supporting evidence already tend to prove the
fact of withholding??

PAGE 43 OF 58
ATENEO CENTRAL
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A: No. While it may be necessary to prove that the
taxpayer did not use the claimed creditable
withholding tax to pay for his/its tax liabilities, there
is no basis in law or jurisprudence to say that
BIR Form No. 2307 is the only evidence that
may be adduced to prove such non-use. The
submission of BIR Form 2307 is to prove the fact
of withholding of the excess creditable withholding
tax being claimed for refund. The probative value
of BIR Form 2307, which is basically a statement
showing the amount paid for the subject
transaction and the amount of tax withheld
therefrom, is to establish only the fact of
withholding of the claimed creditable withholding
tax. There is nothing in BIR Form No. 2307, which
would establish either utilization or non-utilization,
as the case may be, of the creditable withholding
tax. (Philippine National Bank v. CIR, G.R. No.
206019, March 18, 2015)
Q: Is an assessment of tax deficiency required
in a criminal prosecution for tax evasion?
A: No. Tax evasion is deemed complete when the
violator has knowingly and willfully filed a
fraudulent return with intent to evade and defeat a
part or all of the tax. Corollarily, an assessment of
the tax deficiency is not required in a criminal
prosecution for tax evasion. However, although a
deficiency assessment is not necessary, the fact
that a tax is due must first be proved before one
can be prosecuted for tax evasion. (Bureau of
Internal Revenue v. Court of Appeals, G.R. No.
197590. November 24, 2014)
Q: What is the rule on best evidence obtainable
under Section 6 (B) of the Tax Code?
A: The CIR may use the best evidence obtainable
to issue an assessment under the following
circumstances:
• the records requested from the taxpayer are
not forthcoming either because the records
are lost or the taxpayer refuses to submit
such records; and
• the records submitted are false, incomplete or
erroneous (RMC 23-00).
Q: Who has the jurisdiction over a special civil
action for cortiorari assailing an interlocutory
order issued by the Regional Trial Court (RTC)
in a local tax case?
A: The Court of Tax Appeals has jurisdiction.
Section 1. Article VIII of the 1987 Constitution
PAGE 44 OF 58
TAXATION LAW
provides that judicial power shall be vested in one
Supreme Court and in such lower courts as may
be established by law and that judicial power
includes the duty of the courts of justice to settle
actual controversies involving rights which are
legally demandable and enforceable, and to
determine whether or not there has been a grave
abuse of discretion amounting to lack or excess of
jurisdiction on the part of any branch or
instrumentality of the Government.
On the strength of the above constitutional
provisions, it can be fairly interpreted that the
power of the CTA includes that of determining
whether or not there has been grave abuse of
discretion amounting to lack or excess of
jurisdiction on the part of the RTC in issuing an
interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court. It,
thus, follows that the CTA, by constitutional
mandate, is vested with jurisdiction to issue writs
of certiorari in these cases.City of Manila v.
Grecia-Cuerdo, G.R. No. 175723, Feb. 4, 2014)
An action directly brought in the RTC ostensibly to
demand reconveyance of property sold upon
forfeiture for nonpayment of a tax assessment is
to be dismissed for failure of the plaintiff to claim
for refund or credit with the CIR. The failure to
resort to administrative remedies rendered the
assessment final. Despite assailing the
supposedly illegal confiscation of his property to
satisfy his tax liabilities, Alcantara was really
challenging the assessment and collection of
taxes made against him for being in violation of his
right to due process. As such, the complaint
concerned the validity of the assessment and
eventual collection of taxes by the BIR. His judicial
recourse thus suffered from fatal prematurity
because doing so rendered the assessment final.
(Alcantara v. BIR, G.R. No. 192536, Mar. 15,
2017)
Q: Based on the Tax Amnesty Law of 2007 and
corresponding BIR implementing rules (RR
No. 15-06), when is an application for tax
abatement deemed approved?
A: An application for tax abatement is deemed
approved only upon the issuance of a termination
letter by the BIR. (Asiatrust Development Bank
Inc. v. CIR, G.R. No. 201530, April 19, 2017)
ATENEO CENTRAL
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Q: Is a letter of termination is necessary in including GOCCs, shall be administratively settled

abatement cases? or adjudicated by the Secretary of Justice, the
A: Yes. RR No. 15-06 prescribes the guidelines on Solicitor General, or the Government Corporate
the implementation of the one-time administrative Counsel, depending on the issues and
abatement of all penalties/surcharges and interest government agencies involved. (Power Sector
on delinquent accounts and assessments. Sec 4 Assets and Liabilities Management Corporation
provides that a taxpayer may avail of the program vs. Commissioner of Internal Revenue G.R. No.
by: 198146. August 8, 2017)
1. Paying 100% of the basic tax assessment with
an accredited agent bank or in its absence, the
revenue collection/ deputized treasurer of the
RDO.
2. Penalties / surcharge and interest shall be
cancelled by the concerned BIR Office
following existing rules and procedures.
3. The docket of the case shall be forwarded to
the Office of the Commissioner, thru the
Deputy Commissioner for Operations Group for
the issuance of a Termination letter.

Without a termination letter, a tax assessment

cannot be considered closed and terminated.
Asiatrust failed to present such letter to the BIR.
(Asiatrust Development Bank v CIR, G.R. Nos.
201530 & 201680-81, April 19, 2017)

Q: Is a prior MR/ Motion for new trial necessary

for-the CTA En Banc to take cognizance of an
appeal?
A: Yes, Section 1, Rule 8 of the Revised Rules of
the CTA states: “the petition for review of a
decision or resolution of the Court in Division must
be preceded by the filing of a timely motion for
reconsideration or new trial with the Division.”
(Asiatrust Development Bank v CIR, G.R. Nos.
201530 & 201680-81, April 19, 2017)

Q : Under dispute is the VAT assessment made

by the BIR against the sale of properties made
by a GOCC. The latter paid the tax under
protest and subsequently filed with the
Department of Justice a petition for
adjudication of dispute. Are tax assessment
disputes solely between government agencies
and offices, including GOCCs, fall under the
jurisdiction of the Secretary of Justice?
A: Yes. Under PD 242, all disputes and claims
solely between government agencies and offices,

PAGE 45 OF 58
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COURT OF TAX APPEALS

o<

: What is the Jurisdiction of the Court of Tax Appeals?

Jurisdiction of CTA in Division Jurisdiction of CTA en Banc

Exclusive original or appellate jurisdiction to review
by appeal:
1. Decisions of the CIR in cases involving
disputed assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other matters
arising under the 1997 Tax Code or other laws
administered by the BIR.
2. Inaction by the CIR in cases involving:
a. Disputed assessments
b. Refunds of internal revenue taxes, fees
or other charges or penalties in relation
thereto,
c. Other matters arising under the Tax
Code
d. Other laws administered by the BIR
where the Tax Code or other applicable
law provides a specific period for-action.
Exclusive jurisdiction over cases involving criminal
offenses:
1. All criminal offenses arising from the Tax
Code or other laws administered by the BIR
where the principal amount of taxes and fees,
exclusive of charges and penalties claimed is
a. P1M or more Original Jurisdiction
b. P1M or less or where there is no
specified amount claimed - Appellate
__________ Jurisdiction_______________________ ___
Exclusive jurisdiction over tax collection cases:
1. Tax collection cases involving final and
executory assessments for taxes, fees,
charges and penalties, where the principal
amount of taxes and fees, exclusive of
charges and penalties claimed is
a. P1M or more - Original Jurisdiction
Exclusive appellate jurisdiction to review by
appeal:
Decisions or resolutions on motions for
reconsideration or new trial:
1. Of the CTA Division in the exercise of its
exclusive appellate jurisdiction
a. over tax collection cases decided by
the RTC in the exercise of their
original jurisdiction involving final and
executory assessments for taxes,
fees, charges and penalties, where
the principal amount of taxes and
penalties is less than P1M;
b. over cases involving criminal offenses
arising from violations of the Tax Code
and other laws administers by the BIR.
2. Of the CTA Division in the exercise of its
exclusive and original jurisdiction
a. over tax collection cases;
b. over cases inv' L f i V i i i Q L’ i i f T i l i i Q i U i i 6 i i 5 0 o
arising from violations of the Tax Code
and other laws administers by the BIR.
3. Of the RTC in the exercise of their appellate
jurisdiction
a. over tax collection cases
b. over criminal offenses.

2. Appellate jurisdiction over appeals from the

judgments, resolutions or orders of the RTC
in tax collection cases originally decides by
them within their respective territorial
jurisdiction
[Sec. 7. RA 9282, Rule 4. Sec. 1. A.M. No. 05-11-07-CTA. GUIDE NOTES AND CASES ON THE
GENERAL PRINCIPLES OF TAXATION AND THE ORGANIZATION OF THE B.I.R. LILY K. GRUBA,
(2016)]

PAGE 46 OF 58
ATENEO CENTRAL
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Q: When is there an automatic review by the
Secretary of Finance on customs cases?
A: Decisions of the Commissioner of Customs
which are adverse to the Government under
Section 1128 of the Customs Modernization and
Tariff Act shall be elevated to the Secretary of
Finance for automatic review. (See Sec. 1128,
CMTA and Sec. 7, RA 9282)
Q: AB was assessed for income tax deficiency.
AB failed to file a protest and thus the said
assessment has become final and
unappealable. Thereafter, AB filed a petition
for review to the CTA arguing that the right of
the CIR to collect the assessed tax has
prescribed. The CIR contends that the CTA has
no jurisdiction because when the law says that
the CTA has jurisdiction over “other matters”
it presupposes that the tax assessment has
not become final and unappealable. Is the
CIR’s contention correct?
A: No. The fact that an assessment has become
final for failure of the taxpayer to file a protest
within the time allowed only means that the validity
or correctness of the assessment may no longer
be questioned on appeal. The validity, however, of
the assessment itself is a separate and distinct
issue from the issue of whether the right of the CIR
to collect the validly assessed tax has prescribed.
This issue of prescription, being a matter
provided for by the NIRC, is well within the
jurisdiction of the CTA to decide.
(Commissioner o f Internal Revenue v. Hambrecht
& Quist Philippines, Inc., GR No. 169225,
November 17, 2010)
Q: Does the CTA have jurisdiction over matters
involving the constitutionality of regulations
issued by the BiR?
A: Yes. The CTA has exclusive jurisdiction to
determine the constitutionality or validity of tax
laws, rules and regulations, and other
administrative issuances of the Commissioner of
Internal Revenue. The CTA is of the same level as
the Court of Appeals and possesses "all the
inherent powers of a Court of Justice." (BDO v.
Republic, G.R. No. 198756, 2016)
NOTE: The BDO ruling overturned the SC’s
pronouncement in British American Tobacco (G.R.
No. 163583, 2008), stating that the regular courts
PAGE 47 OF 58
TAXATION LAW
have jurisdiction to rule upon the constitutionality
of a tax law or a regulation issued by the BIR.
Q: Is an adverse ruling of the Secretary of
Finance in the exercise of its power of review
appealable to the Court of Tax Appeals?
A: Yes. Review by the Secretary of Finance
pursuant to Section 4 of the NIRC, as amended, of
a BIR Ruling is appealable to the Court of Tax
Appeals. The Court opined the Court of Tax
Appeals, albeit impliedly, has jurisdiction over
the appeal from the Secretary of Finance’s
review of rulings of the CIR as “other matters”
arising under the NIRC or other laws administered
by the BIR. (Philippine American Life and General
Insurance Company v. The Secretary of Finance
and Commissioner of Internal Revenue, G.R. No.
210987, November 24, 2014; Banco de Oro v.
Republic, G.R. No. G.R. No. 198756, January 13,
2015)
Q: The CIR denied the protest made by a
domestic corporation regarding tax deficiency
assessment for taxable year 2010. The
corporation appealed said decision before the
CTA through a Petition for Review with Motion
to Suspend Collection of Tax. The CTA issued
a resolution requiring the corporation to issue
a bond amounting to P4.47 billion equivalent to
the deficiency assessment for income tax and
VAT. The corporation’s financial statements
and independent auditor’s report revealed that
its total equity for the years 2012 and 2013
amounted only to P955 million and P916
million, respectively. Did the CTA commit
grave abuse of discretion in requiring such
amount of bond despite the corporation’s net
worth but equivalent to the deficiency
assessment?
A: Yes. Generally, Section 11 of RA No. 1125, as
amended, provides that the CTA may order the
suspension of the collection of taxes provided that
the taxpayer either: (1) deposits the amount
claimed; or (2) files a surety bond for not more than
double the amount. However, although the
imposition of surety bond is within the authority of
the Courts, it behooved the authorities to consider
other factors recognized by the law itself towards
suspending the collection of the assessment, and
to ascertain whether there were grounds to
suspend the collection of the deficiency
assessment on the ground that such collection
ATENEO CENTRAL
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would jeopardize the interests of the taxpayer such
as when it would practically deny to the petitioner
the meaningful opportunity to contest the validity
of the assessments, and would likely even
impoverish it as to force it out of business. The
Court reiterated the established principle that the
power to tax is not the power to destroy.
(Tridharma Marketing Corporation v. CTA, G.R
No. 215950, June 20, 2016)
Q: The City of Manila assessed ABC Co. and
DEF Co., together with their other sister
companies, increased rates of business taxes
for the year 2003 and the 1st to 3rd quarters of
2004. The companies filed under protest and
later filed an application for refund with the
RTC, which it granted. City of Manila filed a
petition for review with the CTA, after the latter
granted its request for extension of time to file
the petition for review. May the 30-dav period
provided by law within which to appeal
decisions of the RTC to the CTA be extended?
A: Yes. RA 9282 states that the Petition for
Review shall be filed with the CTA following the
procedure analogous to Rule 42 of the Revised
Rules of Civil Procedure. Such rule provides that
the Petition for Review of an adverse judgment or
finai order of the RTC must be filed with the Court
of Appeals within:
(1) The original 15-day period from receipt of
the judgment or final order to be appealed;
(2) An extended period of 15 days from the
lapse of the original period; and
(3) Only for the most compelling reasons,
another extended period not to exceed 15
days from the lapse of the first extended
period. (Sec. 11, RA 9282)
Following by analogy, the 30-day original period
for filing a Petition for Review with the CTA may be
extended for a period of 15 days. No further
extension shall be allowed thereafter, except only
for the most compelling reasons, in which case the
extended period shall not exceed 15 days.
Q: Can a motion for reconsideration be filed on
the amended decision of the court in division?
A: Yes. A motion for reconsideration filed on the
amended decision of the Court in Division is not a
second motion for reconsideration, which is
proscribed under the CTA Rules, in relation to the
1997 Rules of Civil Procedure, as amended.
PAGE 48 OF 58
TAXATION LAW
(Mirant (Navotas II) Corporation v. CIR, CTA EB
Case No. 783, July 18, 2012)
Q: Is a prior motion for reconsideration
required before filing a Petition for Review of a
decision of a CTA division?
A: Yes. The mandatory provisions of the Revised
Rules of ihe CTA require that “the petition for
review of a decision or resolution of the Court in
Division must be preceded by the filing of
a timely motion for reconsideration or new trial
with the Division.”
“The word "must" clearly indicates the mandatory,
not merely directory, nature of a requirement.”
Before the CTA En Banc could take cognizance of
the petition for review concerning a case falling
under its exclusive a p e lla te jurisdiction, the
litigant must sufficiently show that it sought prior
reconsideration or moved for a new trial with the
concerned CTA division. (Commissioner of
Customs v. Marina Sales, Inc., G.R. No. 183868,
November 22, 2010)
Q: Can a taxpayer appeal a decision of the CTA
division to the Supreme Court?
A: No. The Supreme Court is without jurisdiction
to review decisions rendered by a division of the
CTA. The exclusive appellate jurisdiction over
the said case is vested in the CTA En Banc.
With the enactment of RA 9282, which took effect
on 23 April 2004, it elevated the rank of the CTA
to the level of a collegiate court, making it a co­
equal body of the Court of Appeals. (Duty Free
Philippines v. BIR, G.R. No. 197228, October 8,
2014)
Q: What is the status of the findings and
conclusions of the CTA?
A: The findings and conclusions of the CTA are
accorded the highest respect and will not be lightly
set aside because by its very nature, it is dedicated
exclusively to the resolution of tax problems and
has accordingly developed an expertise on the
subject. (Edison (Bataan) Cogeneration
Corporation vs. Commissioner of Internal
Revenue G.R. No. 201665. August 30, 2017)
Q: What court has jurisdiction to review
decisions or resolutions issued by the Division
of the Court of Tax Appeals?
ATENEO CENTRAL
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A: CTA En Banc. Jurisdiction to review decisions
or resolutions issued by the Divisions of the CTA
is no longer with the CA but with the CTA En Banc.
This rule is embodied in Section 11 of RA 9282,
which provides that: “A party adversely affected by
a resolution of a Division of the CTA on a motion
for reconsideration or new trial, may file a petition
for review with the CTA En banc.” (TFS,
Incorporated v. Commissioner of Internal
Revenue, G.R. No. 166829, Apr. 19, 2010)
| LOCAL GOVERNMENT TAXATION
Q: What are the fundamental principles of local
government taxation?
A: (U-E-P-S-P)
a. Uniformity
b. Taxes, fees, charges and other impositions
* shall be Equitable and based on ability to pay
for public purposes not unjust, excessive
oppressive or confiscatory, no contrary to law,
public policy, national economic policy, or in
restraint of trade
c. The levy and collection shall not be left to any
Private person
d. Inures Solely to the local government unit
levying the tax
e. The Progressivity principle must be observed.
Q: What are the requisites of a valid local tax
ordinance?
A: (C-U-P-P-U-G)
1. It must not contravene the Constitution or any
statute
2. It must not be Unfair or oppressive
3. It must not be Partial or discriminatory
4. It must not Prohibit but may regulate trade
5. It must not be Unreasonable
6. It must be General and consistent with public
policy (Magtajas v. Pryce Properties, GR No.
111097, July 20, 1994)
Q: What must be complied with under the
provisions of the LGC for a valid local tax
ordinance?
A: (H-P)
1. Public Hearing is required with quorum, voting
and approval and/or veto requirements
complied with (Sec. 188, LGC)
2. Publication of ordinance within 10 days from
approval for 3 consecutive days in an
PAGE 49 OF 58
TAXATION LAW
newspaper of general circulation and/or
posting in at least 2 conspicuous and publicly
accessible places (Sec. 188, LGC)
Q: What is the situs of local business taxes as
stated in Section 150 of the LGC?
A:
1. Section 1 5 0 (a )-
a. If there is branch/sales office in the
municipality or city where the sale or
transaction is made, the tax shall accrue and
| shall be paid where such branch or sales
outlet is located.
b. If there is no branch/sales office in the city or
municipality where the sale or transaction is
made, the sale shall be recorded in the
principal office and the taxes shall accrue and
shall be paid to such city or municipality
(where the principal office is located)
With branch/
Recorded at Allocation
sales office
Branch/
Yes None
sales office
Principal
No None
office
Note: An office may be considered a sales office
(1) if the office only accepts orders but does not
issue sales invoice; (2) if the office does not accept
orders but issues sales invoices or (3) if the office
accepts orders and issues sales invoices (BLGF
Opinion dated January 15, 2007)
2. Section 150(b) -T h e following sales allocation
shall apply to manufacturers with factories,
plants and plantations, etc.:
a. If the plantation and factory are located in
the same place
i. 30% of all sales recorded in the
principal office shall be taxable by the
city or municipality where principal
office is located
ii. 70% shall be taxable by the city or
municipality where the factory, project
office, plant or plantation is located.
b. If the plantation and factory are not
located in the same place, the 70% above
shall be divided as follows:
i. 60% to the city or municipality where
the factory is located
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ii. 40% to the city or municipality where As provided in Section 186, LGUs cannot impose
the plantation is located taxes that are specifically enumerated or taxed
under the provisions of the Tax Code.
Plantation & Allocation Allocation to
factory in to principal factory, etc. Q: What are the taxing powers of the following
same LGUs?
location (a) Provinces;
Yes 30% 70% (b) Municipalities;
No 30% The 70% above (c) Cities; and
shall be divided: (d) Barangays
1. Factory - 60% A:
2. Plantation - (a) Provinces _______
40% Expressly provided in the Code:
If two or more 1. Local Transfer Tax (Section 135, LGC)
factories, etc = 2. Business Tax on Printing and
70% is prorated Publication (Section 136 LGC)
3. Local Franchise Tax (Section 137,
Note: Section 150(b) is only resorted to if there is LGC)
no branch or sales office. In addition, the allocation 4. Tax on Sand, Gravel and Other Quarry
shall be applied irrespective of whether or not the Resources (Section 138, LGC)
sales are made in the locality where the factory, 5. Professional Tax (Section 139, LGC)
plant or plantation is located. 6. Amusement Tax (Section 140, LGC)
7. Tax on Route Delivery Truck or Vans
Q: What are the limitations on the taxing power (Section 141, LGC)
of LGUs? (b) Municipalities_________________________
A: As provided in Section 133, LGUs cannot A municipality may levy on those taxes, fees
impose the following: and charges not otherwise levied by provinces
a. Income tax (except on bank and financial (see Section 142, LGC)
entities)
b. DST Expressly provided in the Code:
c. Estate and Donor’s taxes 1. Local Business Tax (Section 143, LGC)
d. Customs Duties 2. Fees on business and occupation
e. Taxes on goods Passing through the LGU (Section 146, LGC)
f. Taxes on Agricultural and aquatic products 3. Fees on sealing and licensing of
sold by marginal farmers and fisherman weights and measures (Section 148,
g. Taxes on BOl-registered enterprises LGC)
h. Excise taxes on articles under the Tax Code 4. Fishery Rentals, Fees and charges
and taxes on petroleum products (Section 149, LGC)__________
i. VAT and Percentage tax (c) Cities _____ ____________; : :
j. Taxes on gross receipts of Transportation They may levy taxes which the province and
contractors municipality may impose. The tax rates, fees,
k. Taxes on premium paid by way of and charges which the city may levy may
Reinsurance exceed the maximum rates allowed for the
l. Taxes on Registration of motor vehicles province or municipality by not more than 50%
m. Taxes on Philippine products actually except the rates of professional and
Exported amusement taxes (see Section 151, LGC)
n. Taxes on Countryside and Barangay Business (d) Barangays_____________ ____________ _
Enterprises and cooperatives 1. Taxes on stores with fixed business
o. Taxes and fees on the National Government establishments (gross receipts of
P50,000 or less for cities, P30,000 for
municipalities)

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ATENEO CENTRAL
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2. Service fees for use of barangay-
owned properties and services
rendered
3. Barangay clearance
4. Other fees and charges for (a)
commercial breeding of fighting cocks,
cockpits and cockfighting; (b) on places
of recreation with admission fees; and
(c) billboards, signboards and outdoor
advertisements
Common only to Cities and Municipalities
1. Community tax
Common to all LGUs
1. Service fees and charges for services
rendered
2. Public utility charges
3. Toll fees or charges
Q: The National Power Corporation (NPC)
received a notice of franchise tax delinquency
for the years 2001 to 2003 from the Province of
Bataan. The Province based its assessment on
NPC’s sale of electricity that it generated from
the two power plants in Bataan. The NPC
denied its liability and alleged that it had
ceased to be liable for franchise tax after the
Congress enacted the Electric Power Industry
Act (EPIRA) that took effect on June 26, 2001.
The new law relieved NPC of the function of
generating and supplying electricity beginning
that year. The province, however, proceeded to
levy on the facilities for the satisfaction of the
assessment. Is NPC liable to pay the franchise
tax?
A: No. By the operation of EPIRA, NPC ceased to
own and operate the business in Bataan subject to
local franchise. Its electric transmission function
was transferred to the National Transmission
Corporation (TRANSCO). Also, the generation
assets, including the plants in Bataan, and all
liabilities were transferred to and assumed by, the
Power Sector Assets and Liabilities Management
Corporation (PSALM). Since the local franchise
tax is imposed on the privilege of operating a
franchise, such tax is not a liability of the NPC. The
province cannot likewise levy on the subject
facilities to satisfy the judgment as they are now
owned by TRANSCO and PSALM Corp. (National
Power Corporation v. Provincial Government of
Bataan, eta!., G.R. No. 180654, A p ril21, 2014)
PAGE 51 OF 58
TAXATION LAW
Q: What are the remedies available to the
taxpayer prior to assessment?
A: (C-D)
a. Administrative: To question the
Constitutionality or legality of tax ordinances
or revenue measures on appeal (Sec. 187,
LGC)
b. Judicial: Petition for Declaratory relief as and
when applicable (Rule 63, ROC)
Q: Outline the process on how an appeal
involving questions of constitutionality or
legality of tax ordinances.
A:
1. Appeal to Secretary of Justice within 30 days
from effectivity of tax ordinance or revenue
measure;
2. The Secretary of Justice has 60 days from
receipt of appeal to decide but an appeal does
not suspend the effectivity of the ordinance;
3. Within 30 days from the Secretary of Justice’s
decision or after 60 days of inaction, an appeal
may be filed with the RTC. (Sec 186, LGC)
Q: Is compliance with the 30-60-30 day period
rule mandatory?
A: Yes. In Reyes v. CA (December 10, 1999), the
Secretary of Justice dismissed an appeal assailing
the constitutionality of the tax ordinances of the
Municipality of San Juan on the ground that it was
filed out of time. The Supreme Court ruled that
compliance with the three separated periods is
mandatory. The failure of the petitioners in the
case to appeal to the Secretary within 30 days
from the date of effectivity is fatal to their cause.
Q: On January 10, 2005, the Sangguniang
Panlungsod of Cagayan de Oro (City Council)
passed Ordinance No. 9503-2005 imposing a
tax on the lease or rental of electric and/or
telecommunication posts, poles or towers by
pole owners to other pole users at ten percent
(10%) of the annual rental income derived from
such lease or rental. The City Council, in a
letter dated 15 March 2005, informed Cagayan
Electric Power and Light Company, Inc.
(CEPALCO), through its President and Chief
Operation Manager, Ms. Consuelo G. Tion, of
the passage of the subject ordinance. On
September 30, 2005, appellant CEPALCO,
purportedly on pure questions of law, filed a
petition for declaratory relief assailing the
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validity of Ordinance No. 9503-2005 before the
Regional Trial Court.
A: The Court ruled that CEPALCO failed to
exhaust administrative remedies. Section .5 of said
ordinance provided that the “Ordinance shall take
effect after 15 days following its publication in a
local newspaper of general circulation for at least
three (3) consecutive issues.” Gold Star Daily
published Ordinance No. 9503-2005 on 1 to 3
February 2005. Ordinance No. 9503-2005 thus
took effect on 19 February 2005. CEPALCO filed
its petition for declaratory relief before the
Regional Trial Court on 30 September 2005,
clearly beyond the 30-day period provided in
Section 187. CEPALCO did not file anything
before the Secretary of Justice. Thus, the Court
found that CEPALCO ignored the mandatory
nature of the statutory periods. Citing Reyes v.
Court of Appeals (G.R. 118233, December 10,
1999), the court stated that failure to appeal to the
Secretary of Justice within the statutory period of
30 days from the effectivitv of the ordinance is fatal
to one’s cause. However, in this case, the court
relaxed the application of the ruie in view of more
substantive matters. (Cagayan Electric Power and
Light Co. v. City of Cagayan de Gro, G.R. 191761,
November 14, 2012)
Q: Is payment under protest required before a
party may appeal to the Secretary of Justice?
A: No. As held in Jardine Davies Insurance v.
Aliposa (G.R. No. 118900, February 27, 2003),
prior payment under protest is not required when
the taxpayer is questioning the very authority and
power of the assessor to impose the assessment
and of the treasurer to collect the tax (as opposed
to questioning the increase or decrease in the tax
to be paid).
Q: May courts issue an injunction to restrain
LGUs from collecting local taxes?
A: YES. There is no express provision in the Local
Government Code that prohibits the courts from
issuing injunction to restrain the collection of local
taxes. Nevertheless, given that the collection of
taxes is the lifeblood of government, the courts
must exercise extreme caution before issuing
injunctions that will restrain the collection of taxes
(Angeles City v. Angeles City Electric Corporation,
G. R. No. 166134, June 29, 2010)
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TAXATION LAW
Q: Taxpayer ABC successfully obtained a final
and executory court judgment granting its
request for local tax refund or tax credit. Must
ABC file for a writ of execution before it can
avail the same tax refund or credit?
A: No. Seotion 252(c) of the Local Government
Code provides that “in the event that the protest is
finally decided in favor of the taxpayer, the tax
protested shall ibe refunded to the protestant, or
applied as tax credit against his existing or future
tax liability. Accordingly, the local government unit
has two ways of satisfying the judgment: (1) to pay
the taxpayer as tax refund; or (2) to issue a tax
credit certificate. The issuance of a writ of
execution is superfluous because the judgment is
not one for a specific sum of money susceptible of
execution. Instead, of moving for the issuance of a
writ of execution, the taxpayer should request for
the approval of the local government unit in
implementing the tax refund or tax credit,
whichever is appropriate. It could not have been
the intention of the law to burden the taxpayer with
going through the process of execution under the
Rules of Civii Procedure before it may be allowed
to avail its tax credit as affirmed by a court
judgment. If at all, the local government unit may
be allowed to verify documents and information
relative to the grant of the tax refund or tax credit.
(Coca-Cola Bottlers Philippines v. City o f Manila,
etal., G.R. No. 197561, April 7, 2014)
Q: X City enacted a new tax ordinance to
replace its old one which was enacted in 1990
(before the LGC was passed into law). In the
new tax ordinance, retailers are now taxed
differently from manufacturers. It likewise
provided for a new tax base and tax rate for
retailers which is in accordance with the LGC.
A group retailers filed a case saying that the
new tax ordinance is violative of Section 191 of
the LGC which provides for the authority of
LGUs to adjust rates of tax ordinances. They
claim that the new tax ordinance imposes an
increase in their tax rates for more than what
Section 191 allows. Will the case prosper?
A: No, Firstly, Section 191 of the LGC
presupposes that the following requirements are
present for it to apply, to wit: i.) there is a tax
ordinance that already imposes a tax in
accordance with the provisions of the LGC; and ii.)
there is a second tax ordinance that made
adjustment on the tax rate fixed by the first tax
ATENEO CENTRAL
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ordinance. These two requisites were not met in
this case.
The first requirement was not met since the old tax
ordinance of X City was enacted before the LGC
came into law. Thus, the assailed new ordinance
was actually the first to impose the tax on retailers
in accordance with the provisions of the LGC. As
to the second requirement, the new tax ordinance
(second ordinance) imposed the new tax base and
the new tax rate as provided by the LGC for
retailers. Section 191 contemplates a situation
where there is already an existing tax as
authorized under the LGC and only a change in
the tax rate would be effected.
noted that when the Secretary alters or modifies or
sets aside a tax ordinance, he is not allowed to
substitute his own judgment for the judgment of
the LGU that enacted the measure. In the said
case, Secretary Drilon only exercised supervision
and not control.
Q: Is a corporation with no business operation
in a city still liable for business tax?
A: No. A corporation with no business operation,
and is merely an investor in another corporation,
is not liable for local business tax. ( Orleyte
Company (Philippine Branch) vs. City of Makati
and Dulce P. Cruz, in her capacity as Treasurer of
Makati, CTA AC No. 80, November 14, 2012)

Secondly, Section 191 of the LGC will not apply Q: What are the penalties in case of
because with the assailed tax ordinance, there is Taxpayer’s failure to pay local government
no outright or unilateral increase of tax to speak of. taxes and real property taxes?
The resulting increase in the tax rate for retailers A:
was merely incidental. Surcharges and Penalties on Unpaid Taxes,
Fees, or Charges
Thirdly, it must be pointed out that the limitation Local Government Real Property Tax
under Section 191 of the LGC was provided to Tax (Sec. 168) (Sec. 255)
guard against possible abuse of the LGU's power Imposed by the
to tax. In this case, however, strictly speaking, the Sanggunian
new tax rate for petitioners as retailers under the 25% surcharae of the In case of failure to
assailed ordinance is not a case where there was amount of taxes, fees pay the basic real
an imposition of a new tax rate, rather there is or charges not paid on property tax or any
merely a rectification of an erroneous classification time AND other tax levied under
of taxpayers and tax rates, i.e., of grouping this Title, the
retailers and wholesalers in one category, and taxpayer shall be
their corresponding rates. subject to the
(Mindanao Shopping Destination Corporation et. payment of interest at
al. vs. Hon. Rodrigo Duterte, in his capacity as 2% per month on the
Mayor of Davao City, G.R. No. 211093. June 6, unpaid amount or a
2017) fraction thereof, until
the delinquent tax
Q: What authority is given to the Secretary of shall have been fully
Justice with respect to review of tax paid. But in no case
ordinances? shall the total interest
A: The Secretary of Justice can declare an on the unpaid
ordinance void for not having followed the amount or portion
requirements of the law but he cannot replace it thereof exceed 36
with his own law or he cannot say that is unwise. months.
In Drilon v. Lim (G.R. No. 112497, August 4, Interest not exceeding
1994), then Secretary of Justice Drilon set aside 2% oer month of the
the Manila Revenue Code on two grounds, namely unpaid taxes, fees, or
the inclusion of certain ultra vires provisions and charqes includinq
its non-compliance with the prescribed procedure surcharges until such
in its enactment. In ruling that the act of then amount is fully paid but
Secretary Drilon was proper, the Supreme Court in no case shall the
PAGE 53 OF 58
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total interest on the Q: What are the properties exempt from RPT?
unpaid amount or A: (C2-P-R-W)
portion thereof exceed a. All real property owned by duly registered
36 months. Cooperatives
b. Charitable institutions, churches, parsonages,
| REAL PROPERTY TAXATION | or convents qppurtenant thereto, mosques,
nonprofit or religious cemeteries and all lands,
buildings or improvements actually, directly,
Q: Who is liable to pay for real property taxes?
and exclusively used for religious, charitable
A: In real estate taxation, the unpaid tax attaches
or educational purposes
to the property and is chargeable against the
c. Machinery and equipment used for Pollution
taxable person who had actual or beneficial use
control and environmental protection (includes
and possession of it regardless of whether or not
infrastructure)
he is the owner. (National Grid Corporation of the
d. Real property owned by the Republic or any of
Philippines vs. Central Board of Assessment
its political subdivisions (except when
Appeals ( CTA EB No. 801, January 29, 2013))
beneficial use has been granted to a taxable
person)
Q: is there an additional levy on real property
e. All machineries and equipment actually,
besides real property taxes?
directly and exclusively used by local Water
A: Yes, on top of the real property tax rate, the
districts and GOCCs engaged in supply and
province, city or Metro Manila municipality, may
distribution of water and/or generation and
levy an annual tax of 1% of the assessed value for
transmission of electric power (Sec 234, LGC)
the Special Education Fund (SEF). (Sec. 235,
LGC)
Q: Is the Philippine Reclamation Authority
(PRA) a GOCC and, as such, liabie for RPT?
Q: May a province, city, or a municipality within
A: No. In Philippine Reclamation Authority v. City
the Metropolitan Manila Area impose an
of Paranaque (G.R. No. 191109, July 18, 2012),
additional levy on real property for the special
the Supreme Court ruled that PRA is not a GOCC.
education fund at the rate of less than 1%?
Much like the MIAA, PPA, UP, PFDA, GSIS and
A: Yes. Section 235 of the Local Government
BSP, it is considered a government instrumentality
Code provides that a province or city, or a
exercising corporate powers but which are not
municipality within the Metropolitan Manila Area,
considered GOCCs as they are neither a stock (for
may levy and collect an annual tax of one percent
not having the authority to distribute dividends),
(1%) on the assessed value of real property which
not a non-stock corporation (for not having
shall be in addition to the basic real property tax.
members) corporation. In addition, the
This section uses a permissive language, and is
Constitution likewise provides that a GOCC is
unqualified. There is likewise no limiting qualifier
created under two conditions: (a) established for a
to the articulated rate of 1% which unequivocally
common good and (b) meets the test of economic
indicates that any and all special education fund
viability. While the first test is complied with, the
collections must be at such rate. Also, upholding
PRA was undoubtedly not created to engage in
the lower rate imposed by the local government
economic or commercial activities as it is the only
unit is consistent with the purpose of fiscal
entity engaged in reclamation which was
autonomy and with the jurisprudentially
described as essentially a public service. Thus,
established preference for weighing the scales in
PRA is not liable for RPT.
favor of local autonomy. (Demaala v. Commission
on Audit, G.R. No. 199752, February 17, 2015)

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Q: ABC Company owned two parcels of land in
Pasig City. Portions of the properties are
leased to different business establishments.
Being part of ill-gotten wealth of the Marcoses,
the owner of ABC voluntarily surrendered ABC
Company to the Republic through the PCGG.
Now, Pasig City seeks to impose RPT on the
properties of ABC. Are the properties of ABC
liable for RPT?
A: It depends. In Pasig City v. Republic (G.R. No.
185023, August 24, 2011), the Supreme Court
held that the portions of the properties not leased
to taxable entities are exempt from RPT while the
portions leased to taxable entities are subject to
RPT.
Q: What are the remedies available to the LGU
for the collection of RPT?
1. Administrative action thru levy of real property
a. Distraint of personal property
b. Lien on property subject to tax
c. Levy on real property tax
2. Judicial action (Sec. 256, LGC)
Note: The foregoing remedies are concurrent and
simultaneous. (MERALCO v. Barlis, G.R. No.
114231, May 18, 2001)
Q: Enumerate the process in contesting a RPT
assessment.
A:
1. Pay the tax under protest and annotation of
“paid under protest” in receipt
2. File written protest with local treasurer within
30 days from payment of the tax
3. Treasurer to decide within 60 days from
receipt of the protest (Sec. 252, LGC)
4. From treasurer’s decision or inaction, appeal
to the LBAA within 60 days (Sec 226, LGC)
5. LBAA to decide within 120 days
6. Appeal LBAA decision to CBAA within 30 days
from receipt of adverse decision
7. CBAA appealable to CTA en banc within 30
days from receipt of the adverse decision of
the CBAA
8. Appeal to SC within 15 days from receipt of
adverse decision of CTA
Note: In (4), if the treasurer’s decision is in favor of
the taxpayer, he may now apply for a tax refund or
tax credit.
PAGE 55 OF 58
TAXATION LAW
Q : Is payment a pre-requisite to protest an
assessment for RPT?
A: General rule: Yes. Section 252 of the LGC
provides that no protest shall be entertained
unless the taxpayer first pays the tax.
Exception: Prior payment under protest is
applicable only if the issue is anchored on the
correctness, reasonableness or excessiveness of
assessment, all of which are considered questions
of fact.
Prior payment under protest is not required when
the taxpayer is questioning the very authority and
power of the assessor to impose the assessment
and of the treasurer to collect the tax as opposed
to questioning the increase/decrease in the tax to
be paid. (Jardine Davies Insurance Brokers, Inc. v.
Aliposa, GR No. 118900, February 27, 2003)
Q: X, a registered cooperative, owned and
leased agricultural land to Corp. Y, a
corporation engaged in palm oil plantation,
which also built roads on the same land. In
Addition, Corp. Y was also using road
equipment and mini haulers. Is RPT due on the
land, roads, and equipment?
A: RPT is not due on the land and roads but RPT
is due on the machineries.
The LGC is clear that all real property owned by
registered cooperatives are exempt from RPT
without distinction on its actual use. The roads built
are also exempt from RPT since the same became
permanent improvements on the exempt lands by
right of accession.
However, the equipment are deemed subject to
RPT given that as an entity engaged in palm oil
plantation and which harvests trees for oil
conversion through its milling plant, transportation
is an indispensable part of its operations. Thus, the
same is deemed to satisfy the requirement of
items that “are actually, directly, and exclusively
used to meet the needs of the particular industry,
business or activity” for the same to be covered by
RPT under the definition of “machinery” in the
LGC. (Provincial Assessor of Agusan del Sure v.
Filipinas Palm Oil Plantation, Inc., G.R. No.
183416, October 05, 2016)
ATENEO CENTRAL
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| TARIFF AND CUSTOMS CODE | 2) On the sales proceeds after the duty and tax,
and all other charges and expenses are
deducted (Sec. 1129 and Sec. 1130, CMTA).
Q: When does Importation begin and when
does it end?
Q: Where shall proceeds from public auction
A: Importation begins when the conveying vessel
sales be deposited?
or aircraft enters the jurisdiction of the Philippines
A: All proceeds from public auction sales after
with intention to unload therein.
deduction of the charges and expenses, and
subject to the claim of the owner or importer of an
Importation is deemed terminated when:
impliedly abandoned goods, shall be deposited in
(a) The duties, taxes and other charges due upon
an account to be known as Forfeiture Fund. (Sec
the goods have been paid or secured to be
1151, CMTA).
paid, at the port of entry unless the goods are
free from duties, taxes and other charges and
Q : Are De Minimis importations subject to
legal permit for withdrawal has been granted;
duties?
or
A: No duties and taxes shall be collected on goods
(b) In case the goods are deemed free of duties,
with an FOB or FCA value of ten thousand pesos
taxes and other charges, the goods have
(P10,000.00) or below. The Secretary of Finance
legally left the jurisdiction of the Bureau.
shall adjust the de minimis value as provided
(Sec. 103, CMTA)
herein, every three (3) years after the effectivity of
this Act. (Sec 423, CMTA)
Q: Who has jurisdiction to hear and determine
questions touching on the seizure and
De Minimis Value - The value of goods for which
forfeiture of dutiable goods?
no duty of tax is collected. Goods with De Minimis
A: The jCoC sitting in seizure and forfeiture
Value are considered importations of negligible
proceedings has exclusive jurisdiction to hear and
amount and entitled to immediate release. (Sec
determine all questions touching on the seizure
3.2 CAO 02-2016).
and forfeiture of dutiable goods.

Q: A shipment of raw cane sugar arrived at the

As held in Subic Bay Metropolitan Authority v.
Port of Iloilo. The Director of the Customs and
Rodriguez {G.R, No. 160270, April 23, 2010), the
Intelligence & Investigation Service (CHS)
Collector of Customs has exclusive jurisdiction
issued an Alert Order on the shipment for lack
over seizure and forfeiture proceedings and the
of Clean Report Findings (CRF). A Warrant of
regular courts cannot interfere with his exercise
Seizure and Detention (WSD) was
thereof or enjoin or interfere with it. The regular
recommended against the shipment for
courts are precluded from assuming cognizance
violation of Sec. 2530(f) of the Tariff and
over such matters even through petitions for
Customs Code [Sec. 1113(f) of the CMTA].
certiorari, prohibition, or mandamus.
Does the mere lack of CRF constitute a
violation of The Tariff and Customs Code?
The RTC must defer to the exclusive original
A: No. For there to be a violation of Sec. 2530(f)
jurisdiction of the BOC in such proceedings. This
of the Tariff and Customs Code [Sec. 1113(f) of
is known as the doctrine of primary jurisdiction.
the CMTA], it must be proven that fraud has been
committed or there was bad faith on the part of the
Q: Are abandoned goods, government
importer/consignee to evade payment of duties
property?
due and demandable. (Commissioner of v. New
A: No. As general rule, abandoned goods ARE
Frontier Sugar Corporation, G.R. No. 163055,
NOT GOVERNMENT PROPERTY and the
June 11, 2014)
importer has the right:
1) To reclaim the goods after payment of the duty
G: May the BGC subject any shipment to
and tax, and all other charges (and expenses)
automatic seizure without a warrant of seizure
and detention (WSD).

PAGE 56 OF 58
ATENEO CENTRAL
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A: No. A Warrant of Seizure and Detention (WSD)
is a condition precedent, before any seizure
proceeding can be formally initiated. (COC v. New
Frontier Sugar Corporation, G.R. No. 163055,
2014)
Q: May an importer whose goods are seized
file an action in the regular courts for
injunction and damages against the BOC to
have his goods released?
A: No. Primary jurisdiction is with the Collector of
Customs. From the moment imported goods are
actually in the possession or control of the
Customs authorities, even if no warrant for seizure
or detention had previously been issued by the
Collector of Customs in connection with the
seizure and forfeiture proceedings, the BOC
acquires exclusive jurisdiction over such imported
goods for the purpose of enforcing the customs
laws, subject to appeal to the Court of Tax Appeals
whose decisions are appealable to the Supreme
Court. (SBMA v. Rodriguez, G.R. No. 160270,
2010)
Q: After the lapse of 1-year from the date of
final payment of duties, as provided in the
Tariffs and Customs Code of the Philippines,
can the BOC still demand deficiency duties
from the taxpayer?
A: (DEL CASTILLO) NO, provided the taxpayer
did not commit fraud in its dealings. 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 1-year prescriptive period. (Pilipinas Shell
Petroleum Corporation v. Commissioner of
Customs, G.R. No. 195876, June 19, 2017)
Q: Within what period must the Bureau of
Customs claim deficiency customs duties?
A: In the absence of fraud, the entry and
corresponding payment of duties made by a
taxpayer becomes final and conclusive upon all
parties after one (1) year from the date of the
payment of duties in accordance with Sec. 1603 of
the TCCP. (Pilipinas Shell Petroleum Corporation
v. Commissioner of Customs, G.R. No. 195876,
December 05, 2016)
Special Discussion on the case of CIR v. San
Roque; Taganito Mining Corporation v. CIR;
PAGE 57 OF 58
TAXATION LAW
Philex Mining Corporation v. CIR
(G.R. Nos. 187485, 196113, 197156; February
12, 2013)
BACKGROUND
• Decided under the 1997 NIRC, as amended
o Applied Section 112(A) as the period to
file administrative claim
o Applied Section 112(C) as the period to
file judicial claim
SAN ROQUE DOCTRINES
1. The Atlas doctrine does not interpret,
expressly or impliedly, the 120+30 day
periods.
• In fact, Section 106(b) of the Tax Code of
1977, as amended, which was the law
cited by the Court as the applicable law
did not yet provide for the 30-day period
for the taxpayer to appeal to the CTA from
the decision or inaction of the CIR
•Thus, the Atlas doctrine cannot be
invoked by anyone to disregard
compliance with the 30-day mandatory
and jurisdictional period
2. Upheld the Mirant doctrine - verba legis
approach
• The two-year prescriptive period for filing
an administrative claim should be counted
from the “close of the taxable quarter
when the sales were made” as expressly
stated in the law, which means the last
day of the taxable quarter.
• The taxpayer may apply with the
Commissioner for a refund or credit “within
2 years”, which means at anytime within
two years.
• Upheld the Aichi doctrine
• Compliance with the 120+30 day period is
mandatory and jurisdictional
• Failure to comply with the 120-day waiting
period violates the doctrine of exhaustion
of administrative remedies and renders a
petition for review filed with the CTA
premature and without cause of action
with the effect that CTA does not acquire
jurisdiction over the taxpayer’s petition
3. The law does not make the 120+30 day
periods optional just because the law uses
the word “may”. The word “may” simply
ATENEO CENTRAL
BAR OPERATIONS 2019 TAXATION LAW

means that the taxpayer may or may not

appeal the decision of the CIR within 30 Period Applicable
daysJfrom receipt of The decision, or within Doctrine
30 days from the expiration of the 120-day Before June 8, 2007 Verba Legis
period. Rule: 2-year
4. BIR Ruling No. DA-489-03 (December 10, period should be
2003) counted from the
• “Taxpayer-claimant need not wait for the close of taxable
lapse of the 120-day period before it could quarter when the
seek judicial relief with the CTA by way of sales were made
Petition for Review.” From To Atlas Doctrine -
• Exception to the 120 days mandatory June 8, September 2-year period
waiting period 2007 11,2008 should be
• Only allowed premature filing of a counted from the
judicial claim (i.e. non-exhaustion of the date of filing of
120 day period for the CIR to act on the the return and
administrative claim) payment of the
• It does not allow late filing of a judicial output VAT
claim (i.e. filed after the lapse of the 30- After September 11, 2008 Mirant Doctrine -
day period following the expiration of the Verba Legis
120-day period) Rule: 2-year
5. All taxpayers can reiy on BIR Ruling No. period should be
DA-489-Q3 from the time of its issuance on counted from the
December TO, 2003 up to its reversal by the close of taxable
Supreme Court in Aichi on October 6,2010, quarter when the
where this Court held that the 120+30 day sales were made
periods are mandatory and jurisdictional.
6. On the period to file administrative claims Period Applicable
• Applied Mirant and Aichi doctrines Doctrine
prospectively Before December 10, 120+30-day period
7. On the period to file judicial claims 2003 is mandatory and
• Strict compliance with the 120+30 day jurisdictional
periods is necessary for such a claim to
prosper, whether before, during or after From To BIR Ruling No. DA-
the effectivity of the Atlas doctrine, except December October '489-03: 120+30-
for the period from the issuance of BIR 10,2003 6, 2010 day period merely
Ruling No. DA-489-03 on Dec. 10, 2003 to permissive not
Oct. 6, 2010 when the Aichi doctrine was jurisdictional
adopted which again reinstated the After October 6, 2010 Aichi Doctrine -
120+30 day periods as mandatory and 120+30Tday period
jurisdictional. is mandatory and
jurisdictional

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