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ASSESSMENT

Bar Question in 1997-2008 (2 questions)-2013

Mr. Santos died intestate in 1989 leaving his spouse and five
children as the only heirs. The estate consisted of a family home
and a four-door apartment which was being rented to tenants.
Within the year, an extrajudicial settlement of the estate was
executed from the heirs, each of them receiving his/her due
share. The surviving spouse assumed administration of the
property. Each year, the net income from the rental property was
distributed to all, proportionately, on which they paid
respectively, the corresponding income tax.
In 1994, the income tax returns of the heirs were examined and
deficiency income tax assessments were issued against each of
them for the years 1989 to 1993, inclusive, as having entered into
an unregistered partnership. Were the assessments justified?
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

After examining the books and records of EDS


Corporation, the 2004 final assessment notice,
showing basic tax of P1,000,000, deficiency
interest of P400,000, and due date for payment of
April 30, 2007, but without the demand letter, was
mailed and released by the BIR on April 15, 2007.
The registered letter, containing the tax
assessment, was received by the EDS Corporation
on April 25, 2007.
(A) What is an assessment notice? What are
the requisites of a valid assessment? Explain.
(3%)
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

A written notice and demand made by


the BIR on the taxpayer for the settlement
of a due tax liability that is set and fixed.

Presumed to be correct and made in


good faith
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

REQUISITES OF A VALID ASSESSMENT


(Final Assessment Notice)
1. Computation of tax liabilities
2. Statement of factual and legal basis for
assessment
3. Demand for payment on the taxpayer
4. Made within prescriptive period
5. Signed by the CIR or his authorized
representative
6. Served by personal delivery or through
registered mail
7. Issued on account of a valid letter of
authority
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

(B) As tax lawyer of EDS Corporation, what legal


defense(s) would you raise against the
assessment? Explain. (3%)

There is no valid assessment because


EDS Corporation did not receive a
demand letter from the BIR.
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013
In 2010, pursuant to a Letter of Authority (LA)
issued by the Regional Director, Mr. Abcede was
assessed deficiency income taxes by the BIR for
the year 2009. He paid the deficiency. In 2011, Mr.
Abcede received another LA for the same year
2009, this time from the National Investigation
Division, on the ground that Mr. Abcede's 2009
return was fraudulent. Mr. Abcede contested the
LA on the ground that he can only be investigated
once in a taxable year. Decide. (7%)
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

While the general rule is to the effect that for


income tax purposes, a taxpayer must be subject
to examination and inspection by the internal
revenue officers only once in a taxable year,
this will not apply if there is fraud,
irregularity or mistakes as
determined by the Commissioner.
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

Pedro Manalo, a Filipino citizen residing in Makati


City, owns a vacation house and lot in San Francisco,
California, U.S.A. which he acquired in 2000 for P15
million. On January 10, 2006, he sold said real
property to Juan Mayaman, another Filipino citizen
residing in Quezon City, for P20 million. On February
9, 2006, Manalo filed the capital gains tax return and
paid P1.2 million representing 6% capital gains tax.
Since Manalo did not derive any ordinary income, no
income tax return was filed by him for 2006.
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013
After the tax audit conducted in 2007, the BIR officer
assessed Manalo for deficiency income tax
computed as follows: P5 million (P20 million less
P15 million) x 35% = P1.75 million, without the
capital gains tax paid being allowed as tax credit.
Manalo consulted a real estate broker who said that
the P1.2 million capital gains tax should be credited
from the P1.75 million deficiency income tax.

(A) Is the BIR officers tax assessment correct?


Explain.
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

(A) Is the BIR officers tax assessment correct?


Explain.

The BIR officer correctly disallowed the


credit of the final tax of P1.2 million
against the net income tax, which is
subject to deductions. However, the
assessment of 35% is incorrectly imposed.
The correct rate is based on the 5-32% tax
scale which is applicable to individuals.
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

(B) If you were hired by Manalo as his tax


consultant, what advice would you give him to
protect his interest? Explain. (3%)

To demand the application of the 5-32%


tax scale instead of the fixed rate of 35%
which applies only to domestic
corporations
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

RR disputed a deficiency tax assessment and upon


receipt of an adverse decision by the Commissioner
of Internal Revenue, filed an appeal with the Court
of Tax Appeals. While the appeal is pending, the
BIR served a warrant of levy on the real properties
of RR to enforce the collection of the disputed tax.
Granting arguendo that the BIR can legally levy on
the properties, what could RR do to stop the
process? Explain briefly. (5%)
ASSESSMENT
Bar Question in 1997-2008 (2 questions)-2013

Motion for injunction with the Court of Tax


Appeals to stop the administrative collection
process. An appeal to the CTA shall not
suspend the enforcement of the tax liability,
unless a motion to that effect shall have been
presented in court and granted by it on the
basis that such collection will jeopardize the
interest of the taxpayer or the Government.
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

On March 10, 2010, Continental, Inc. received a


preliminary assessment notice (PAN) dated March 1,
2010 issued by the Commissioner of Internal Revenue
(CIR) for deficiency income tax for its taxable year 2008.
It failed to protest the PAN. The CIR thereupon issued a
final assessment notice (FAN) with letter of demand on
April 30, 2010. The FAN was received by the corporation
on May 10, 2010, following which or on May 25, 2010, it
filed its protest against it. The CIR denied the protest on
the ground that the assessment had already become
final and executory, the corporation having failed to
protest the PAN. Is the CIR correct? Explain. (5%)
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

The issuance of preliminary assessment notice


(PAN) does not give rise to the right of the
taxpayer to protest. What can be protested by
the taxpayer is the final assessment notice
(FAN) or that assessment issued following the
PAN. Since the FAN was timely protested
(within 30 days from receipt thereof, the
assessment did not become final and
executory.
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

A taxpayer received an assessment notice from the


BIR on February 3, 2009. The following day, he
filed a protest, in the form of a request for
reinvestigation, against the assessment and
submitted all relevant documents in support of the
protest. On September 11, 2009, the taxpayer,
apprehensive because he had not yet received
notice of a decision by the Commissioner on his
protest, sought your advice. What remedy or
remedies are available to the taxpayer? Explain.
(4%)
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

The remedy of a taxpayer is to avail of either of two


options:
1. File a petition for review with the CTA within 30
days after the expiration of the 180-day period
from submission of all relevant documents; or
2. Await the final decision of the Commissioner on
the disputed assessment and appeal such final
decision to the CTA within 30 days after receipt
of a copy of such decision.
These options are mutually exclusive such that
resort to one bars the application of the other
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

The BIR issued in 2010 a final assessment notice and


demand letter against X Corporation covering deficiency
income tax for the year 2008 in the amount of P10
Million. X Corporation earlier requested the advice of a
lawyer on whether or not it should file a request for
reconsideration or a request for reinvestigation. The
lawyer said it does not matter whether the protest filed
against the assessment is a request for reconsideration
or a request for reinvestigation, because it has the
same consequences or implications.
(A) What are the differences between a request for
reconsideration and a request for reinvestigation? (5%)
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

Request for Reconsideration


plea for evaluation of assessment on the basis of
existing records without need of presentation of
additional evidence. It does not suspend the
period to collect the deficiency tax.

Request for Reinvestigation


plea for reevaluation on the basis of newly
discovered evidence which are to be introduced for
examination for the first time. It suspends the
prescriptive period to collect.
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

(B) Do you agree with the advice of the


lawyer? Explain your answer. (5%)

No, in view of the difference between


Request for Reconsideration & Request for
Reinvestigation.
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009
A Co., a Philippine corporation, received an income tax
deficiency assessment from the BIR on May 5, 1995. On
May 31, 1995, A Co. filed its protest with the BIR. On July
30, 1995, A Co. submitted to the BIR all relevant supporting
documents. The CIR did not formally rule on the protest but
on January 25, 1996, A Co. was served a summons and
a copy of the complaint for collection of the tax
deficiency filed by the BIR with the Regional Trial Court
(RTC). On February 20, 1996, A Co. brought a Petition for
Review before the CTA. The BIR contended that the
Petition is premature since there was no formal denial of
the protest of A Co. and should therefore be dismissed. 1.
Has the CTA jurisdiction over the case?
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

The CTA has jurisdiction over the case because this


qualifies as an appeal from the Commissioner's
decision on disputed assessment. When the
Commissioner decided to collect the tax assessed
without first deciding on the taxpayer's protest, the
effect of the Commissioners action of filing a
judicial action for collection is a decision of
denial of the protest, in which event the taxpayer
may file an appeal with the CTA.
PROTEST AGAINST ASSESSMENT
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009
Has the RTC jurisdiction over the collection case filed by the
BIR? Explain.

The RTC has no jurisdiction over the collection case filed by


the BIR. The filing of an appeal with the CTA has the effect
of divesting the RTC of jurisdiction over the collection
case. At the moment the taxpayer appeals the case to the
Court of Tax Appeals in view of the Commissioner's filing of
the collection case with the RTC which was considered as a
decision of denial, it gives a justifiable basis for the taxpayer to
move for dismissal in the RTC of the Government's action to
collect the tax liability under dispute.
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

(B) True or False. Explain your answer in not more


than two (2) sentences. (5%)

When the financial position of the taxpayer


demonstrates a clear inability to pay the tax, the
Commissioner of Internal Revenue may validly
compromise the tax liability.

True. Financial incapacity is a ground allowed by


law in order that the Commissioner of Internal
Revenue may validly compromise a tax liability.
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

Under what conditions may the


Commissioner of Internal Revenue be
authorized to:

A. Compromise the payment of any internal


revenue tax? (2%)

B. Abate or cancel a tax liability? (3%)


COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009
Explain the extent of the authority of the
Commissioner of Internal Revenue to compromise
and abate taxes?
CIVIL COMPROMISE (GROUNDS)

The compromise of the tax liability is possible at any


stage of litigation and the amount of compromise is left to
the discretion of the Commissioner except with respect
to final assessments issued against large taxpayers
wherein the Commissioner cannot compromise for less
than fifty percent (50%). Any compromise involving large
taxpayers lower than fifty percent (50%) shall be subject
to the approval of the Secretary of Finance.
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009
Explain the extent of the authority of the
Commissioner of Internal Revenue to compromise
and abate taxes?

All criminal violations except those involving


fraud, can be compromised by the
Commissioner but only prior to the filing of
the information with the Court.
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

Explain the extent of the authority of the


Commissioner of Internal Revenue to compromise
and abate taxes?

The Commissioner may also abate or cancel


a tax liability when the tax or any portion
thereof appears to have been unjustly or
excessively assessed; or the administrative
and collection costs involved do not Justify
collection of the amount due.
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

May the Commissioner of the Internal


Revenue compromise the payment of
withholding tax (tax deducted and withheld at
source) where the financial position of the
taxpayer demonstrates a clear inability to pay
the assessed tax? 5%
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

After the tax assessment had become final and


unappealable, the Commissioner of Internal Revenue
initiated the filing of a civil action to collect the tax due from
NX. After several years, a decision was rendered by the
court ordering NX to pay the tax due plus penalties and
surcharges. The judgment became final and executory, but
attempts to execute the judgment award were futile.
Subsequently, NX offered the Commissioner a compromise
settlement of 50% of the judgment award, representing that
this amount is all he could really afford.
Does the Commissioner have the power to accept the
compromise offer?
Is it legal and ethical? Explain briefly. (5%)
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009

State and discuss briefly whether the following cases may


be compromised or may not be compromised:
a) Delinquent accounts;
b) Cases under administrative protest, after issuance of
the final assessment notice to the taxpayer, which
are still pending;
c) Criminal tax fraud cases;
d) Criminal violations already filed in court;
e) Cases where final reports of reinvestigation or
reconsideration have been issued resulting in the
reduction of the original assessment agreed to by
the taxpayer when he signed the required
agreement form. (5%)
COMPROMISE
Bar Question in 1996-1998(2 questions) 2000-2004-2005-2009
CRIMINAL PROSECUTION
Bar Question in 1998-2012-2013

Explain the following statements:

The acquittal of the taxpayer in a criminal


action under the Tax Code does not
necessarily result in exoneration of said
taxpayer from his civil liability to pay
taxes. (3%)
CRIMINAL PROSECUTION
Bar Question in 1998-2012-2013
In taxation, the taxpayer becomes criminally liable
because of a civil liability. While he may be acquitted
on the criminal case, his acquittal could not operate to
discharge him from the duty to pay tax, since that duty
is imposed by statute prior to and independent of any
attempt on the taxpayer to evade payment.

The obligation to pay the tax is not a mere


consequence of the felonious acts charged in the
information, nor is a mere civil liability derived
from crime that would be wiped out by the
declaration that the criminal acts charged did not
exist
CRIMINAL PROSECUTION
Bar Question in 1998-2012-2013
You are the retained tax counsel of ABC Corp. Your
client informed you that they have been directly
approached with a proposal by a BIR insider (i.e., a
middle rank BIR official) on the tax matter they have
referred to you for handling. The BIR insider's
proposal is to settle the matter by significantly
reducing the assessment, but he will get 50% of
the savings arising from the reduced
assessment.
What tax, criminal and ethical considerations will
you take into account in giving your advice? Explain
the relevance of each of these considerations. (9%)
CRIMINAL PROSECUTION
Bar Question in 1998-2012-2013
I will advise my client not to accept the settlement
proposal but instead pay the entire amount of tax
that is legally due to the government.
On the tax aspect, I will tell my client that a
proposed assessment covering deficiency taxes
which are legally due must be fully paid to exonerate
the taxpayer from further liabilities. The unwarranted
reduction of the proposed assessment into half and
the payment thereof will not close the case but
can be re-opened anytime within ten years from
discovery so as to collect the correct amount of
taxes from ABC Corp.
CRIMINAL PROSECUTION
Bar Question in 1998-2012-2013
The act of deliberately paying an amount of tax that
is less than what is known by my client to be legally
due through a cause of action that is unlawful is
considered as tax evasion.

Likewise, the payment to be made to the BIR official


of 50% of the savings constitutes direct bribery
punishable under the Revised Penal Code. Insofar
as the BIR officer is concerned he will also be a
principal to direct bribery and to the criminal
violation penalized under Section 269 of the Tax
Code.
CRIMINAL PROSECUTION
Bar Question in 1998-2012-2013

On ethical grounds, agreeing to the


settlement scheme being proposed by the BIR
insider is agreeing to the perpetration of a
dishonest act. Since taxation is symbiotic
relationship, fair dealing on both sides is of
paramount importance. I will remind my
client that taxpayers owe honesty to
government just as government owes
fairness to taxpayers.
CRIMINAL PROSECUTION
Bar Question in 1998-2012-2013
Is assessment necessary before a taxpayer may be
prosecuted for willfully attempting in any manner to evade or
defeat any tax imposed by the Internal Revenue Code? (5%)

Assessment is not necessary before a taxpayer maybe prosecuted if


there is a prima facie showing of a willful attempt to evade taxes as in
the taxpayer's failure to declare a specific item of taxable income in his
income tax returns.

On the contrary, if the taxes alleged to have been evaded is computed


based on reports approved by the BIR there is a presumption of regularity
of the previous payment of taxes, so that unless and until the BIR has
made a final determination of what is supposed to be the correct taxes, the
taxpayer should not be placed in the crucible criminal prosecution.
Failure To File Return
Bar Question in 201-2012

Should the accused be found guilty beyond


reasonable doubt for violation of Section 255
of the Tax Code (for failure for file tax return
or to supply correct information), the
imposition of the civil liability by the CTA
should be automatic and no assessment
notice from the BIR is necessary? (2%)
Failure To File Return
Bar Question in 201-2012

Yes. If the failure to file tax return or to supply correct


information resulted to unpaid taxes the amount of
which is proven during trial, the CTA shall not only
impose the criminal penalty but must likewise order
the payment of the civil liability.

As a matter of fact, it is well-recognized that in the


case of failure to file a return, a proceeding in
court for the collection of the tax may be filed
without the need of an assessment, which
recognizes that the civil liability of a taxpayer maybe
established without the need of an assessment.
Failure To File Return
Bar Question in 201-2012

Based on the Affidavit of the Commissioner of Internal


Revenue (CIR), an Information for failure to file income tax
return under Section 255 of the National Internal Revenue
Code (NIRC) was filed by the Department of Justice (DOJ)
with the Manila Regional Trial Court (RTC) against XX, a
Manila resident. XX moved to quash the Information on the
ground that the RTC has no jurisdiction in view of the
absence of a formal deficiency tax assessment issued by
the CIR.

Is a prior assessment necessary before an Information


for violation of Section 255 of the NIRC could be filed in
court? Explain. (4%)
Failure To File Return
Bar Question in 201-2012

No. In the case of failure to file a return, a proceeding


in court for the collection of the tax may be filed without
an assessment The tax can be collected by filing a
criminal action with the RTC because a criminal action
is a mode of collecting the tax liability.

Besides, the Commissioner is empowered to prepare a


return on the basis if his own knowledge, and upon such
information as he can obtain from testimony or otherwise,
which shall be prima facie correct and sufficient for legal
purposes; the issuance of a formal deficiency tax
assessment, therefore, is not required.
FALSE RETURN
Bar Question in 1996-1998-2002-2009

What constitutes prima facie evidence of a false or


fraudulent return? [2%]

There is prima facie evidence of a false or fraudulent


return when the taxpayer has willfully and knowingly
filed it with the intent to evade a part or all of the tax
legally due from him .There must appear a design to
mislead or deceive on the part of the taxpayer, or at
least culpable negligence. A mistake not culpable
in respect of its value would not constitute a
false return.
FALSE RETURN
Bar Question in 1996-1998-2002-2009

What constitutes prima facie evidence of a


false or fraudulent return to justify the
imposition of a 50% surcharge on the
deficiency tax due from a taxpayer? Explain.
(5%)
FALSE RETURN
Bar Question in 1996-1998-2002-2009
There is a prima facie evidence of false or fraudulent
return when the taxpayer SUBSTANTIALLY
UNDERDECLARED his taxable sales, receipts or
income, or SUBSTANTIALLY OVERSTATED his
deductions, the taxpayer's failure to report sales,
receipts or income in an amount exceeding 30% of
that declared per return, and a claim of deduction
in an amount exceeding 30% of actual deduction
shall render the taxpayer liable for substantial
underdeclaration and overdeclaration, respectively,
and will justify the imposition of the 50% surcharge on
the deficiency tax due from the taxpayer.
FALSE RETURN
Bar Question in 1998-2002-2009

True or False. Explain your answer in not more


than two (2) sentences. A false return and a
fraudulent return are one and the same. (5%)

False. There is a different between a false return


and a fraudulent return. The first merely implies
a deviation from the truth or fact whether
intentional or not, whereas the second is
intentional and deceitful with the aim of evading
the correct tax due.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

True or False. In civil cases involving the


collection of internal revenue taxes, prescription is
construed strictly against the government and
liberally in favor of the taxpayer. (1%)

True.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

A final assessment notice was issued by the BIR on June 13,


2000, and received by the taxpayer on June 15, 2000. The
taxpayer protested the assessment on July 31, 2000. The
protest was initially given due course, but was eventually
denied by the Commissioner of Internal Revenue in a
decision dated June 15, 2005. The taxpayer then filed a
petition for review with the Court of Tax Appeals (CTA), but the
CTA dismissed the same.

a. Is the CTA correct in dismissing the petition for review?


Explain your answer. (4%)
Yes. The protest was filed out of time, hence the CTA
does not acquire jurisdiction over the matter (CIR v. Atlas
Mining and Development Corp.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

b. Assume that the CTA's decision dismissing the


petition for review has become final. May the
Commissioner legally enforce collection of the
delinquent tax? Explain. (4%)

No. The protest was filed out of time and,


therefore, did not suspend the running of the
prescriptive period for the collection of the tax.
Once the right to collect has prescribed, the
Commissioner can no longer enforce collection of
the tax liability against the taxpayer.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

What is the effect of the execution by a taxpayer of a "waiver


of the statute of limitations" on his defense of prescription?
(2%)

The waiver of the statute of limitation executed by a taxpayer


is not a waiver of the right to invoke the defense of
prescription. The waiver of the statute of limitation is merely
an agreement in writing between the taxpayer and the BIR
that the period to assess and collect taxes due is
extended to a date certain.

If prescription has already set in at the time of execution of the


waiver or if the said waiver is invalid, the taxpayer can still
raise prescription as defense
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

True or False. In criminal cases involving


tax offenses punishable under the National
Internal Revenue Code (NIRC), prescription
is construed strictly against the government.
(1%)

False.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

On October 15, 2005, ABC Corp. imported


1,000 kilos of steel ingots and paid customs
duties and VAT to the Bureau of Customs on
the importation. On February 17, 2009, the
Bureau of Customs, citing provisions of the
Tariff and Customs Code on post-audit,
investigated and assessed ABC Corp. for
deficiency customs duties and VAT.

Is the Bureau of Customs correct? (7%)


PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

No. The Bureau of Customs (BOC) has lost


its right to assess deficiency customs duties
and VAT. The imported steel ingots in 2005
have been entered and the customs
duties thereon had been paid by thereby
making the liquidation of the importation final
and conclusive upon all parties after the
expiration of three (3) years from the date of
final payment of duties and taxes.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

A Co., a Philippine Corporation, filed its 1995


Income Tax Return (ITR) on April 15, 1996 showing
a net loss. On November 10, 1996, it amended its
1995 ITR to show more losses. After a tax
investigation, the BIR disallowed certain deductions
claimed by A Co., putting A Co. in a net income
position. As a result, on August 5, 1999, the BIR
issued a deficiency income assessment against A
Co. A Co. protested the assessment on the ground
that it has prescribed: Decide. (5%)
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

The right of the BIR to assess the tax has not prescribed.
The rule is that internal revenue taxes shall be
assessed within three years after the last day
prescribed by law for the filing of the return. However, if
the return originally filed is amended substantially,
the counting of the three-year period starts from the
date the amended return was filed.

There is a substantial amendment in this case because a


new return was filed declaring more losses, which can
only be done either (1) in reducing gross income or (2)
in increasing the items of deductions, claimed.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

TY Corporation filed its final adjusted income tax return for 1993 on April
12, 1994 showing a net loss from operations. After investigation, the BIR
issued a pre-assessment notice on March 30, 1996. A final notice and
demand letter dated April 15, 1997 was issued, personally delivered to and
received by the company's chief accountant. For willful refusal and failure
of TY Corporation to pay the tax, warrants of distraint and levy on its
properties were issued and served upon it. On January 10, 2002, a
criminal charge for violation of the Tax Code was instituted in the
Regional Trial Court with the approval of the Commissioner.

The company moved to dismiss the criminal complaint on the ground that
an act for violation of any provision of the Tax Code prescribes after five (5)
years and, in this case, the period commenced to run on March 30, 1996
when the pre-assessment was issued. How will you resolve the motion?
Explain your answer. (5%)
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013
The motion to dismiss should not be granted. It is only
when the assessment has become final and
unappealable that the 5-year period to file a criminal
action commences to run.

The pre-assessment notice issued on March 30, 1996


is not a final assessment which is enforceable by the
BIR. It is the issuance of the final notice and demand
letter dated April 15, 1997 and the failure of the taxpayer
to protest within 30 days from receipt thereof that made
the assessment final and unappealable. The earliest date
that the assessment has become final is May 16, 1997
and since the criminal charge was instituted on January
10, 2002, the same was timely filed.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013
Mr. Castro inherited from his father, who died on June 10,
1994, several pieces of real property in Metro Manila. The
estate tax return was filed and the estate tax due in the
amount of P250.000.00 was paid on December 06, 1994.

The Tax Fraud Division of the BIR investigated the case on


the basis of confidential information given by Mr. Santos
on January 06, 1998 that the return filed by Mr. Castro was
fraudulent and that he failed to declare all properties left by
his father with intent to evade payment of the correct tax. As a
result, a deficiency estate tax assessment for
P1,250,000.00, inclusive of 50% surcharge for fraud, interest
and penalty, was issued against him on January 10, 2001. Mr.
Castro protested the assessment on the ground of
prescription.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

A. Decide Mr. Castro's protest. (2%)

The protest should be resolved against Mr. Castro.


What was filed is a fraudulent return making the
prescriptive period for assessment ten (10) years
from discovery of the fraud.

Accordingly, the assessment was issued within that


prescriptive period to make an assessment based
on a fraudulent return.
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013
What legal requirement/s must Mr. Santos comply with so
that he can claim his reward? Explain. (3%)

The legal requirements that must be complied by Mr. Santos to entitle him
to reward are as follows:

1) He should voluntarily file a confidential information under oath


with the Law Division of the Bureau of Internal Revenue alleging
therein the specific violations constituting fraud;
2) The information must not yet be in the possession of the Bureau
of Internal Revenue, or refer to a case already pending or
previously investigated by the Bureau of Internal Revenue;
3) Mr. Santos should not be a government employee or a relative of
a government employee within the sixth degree of
consanguinity; and
4) The information must result to collections of revenues and/or
fines and penalties. (Sec. 282, NIRC)
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

Gerry was being prosecuted by the BIR for failure to


pay his income tax liability for Calendar Year 1999
despite several demands by the BIR in 2002. The
Information was filed with the RTC only last June
2006. Gerry filed a motion to quash the Information
on the ground of prescription, the Information
having been filed beyond the 5-year reglementary
period. If you were the judge, will you dismiss the
Information? Why? (5%)
PRESCRIPTION/PRESCRIPTIVE PERIOD
Bar Question in 1994-1997-1999-2000-2002-2004-2009-2010-2013

No. The trial court can exercise jurisdiction.


Prescription of a criminal action begins to run from
the day of the violation of the law. The crime was
committed when Gerry willfully refused to pay
despite repeated demands in 2002.

Since the information was filed in June 2006, the


criminal case was instituted within the five-year
period required by law.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

Mr. Abraham Eugenio, a pawnshop operator,


after having been required by the
Revenue District Officer to pay value
added tax pursuant to a Revenue
Memorandum Order (RMO) of the
Commissioner of Internal Revenue, filed with
the Regional Trial Court an action
questioning the validity of the RMO. If you
were the judge, will you dismiss the case?
(5%)
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

Yes. The RMO is in reality a ruling of the


Commissioner in implementing the provisions of the
Tax Code on the taxability of pawnshops.

Jurisdiction to review rulings of the


Commissioner is lodged with the Court of Tax
Appeals and not with the Regional Trial Court.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

In criminal cases where the Court of Tax


Appeals (CTA) has exclusive original
jurisdiction, the right to file a separate civil
action for the recovery of taxes may be
reserved. (1%)

False.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

Judgments, resolutions or orders of the


Regional Trial Court in the exercise of its
original jurisdiction involving criminal offenses
arising from violations of the NIRC are
appealable to the CTA, which shall hear the
cases en banc. (1%)

False.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

What is the rule on appeal from decisions of the


Collector of Customs in protest and seizure
cases?

When is the decision of the Collector of Customs


appealable to the Court of Tax Appeals? Explain.
(5%)
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

Decisions of the Collector of Customs in protest and seizure


cases are appealable to the Commissioner of Customs
within 15 days from receipt of notice of the written
decision.

As a rule, decisions of the Collector of Customs are not


appealable to the Court of Tax Appeals. If the Collector of
Customs, however, does not decide a protest for a long
period of time, the inaction may be considered as an adverse
decision by the Collector of Customs and the aggrieved
taxpayer may appeal to the CTA even without the Collectors
and Commissioners actual decision. (Commissioner of
Customs v. Planters Products, Inc. G.R. No. 82018, March 16,
1989).
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

Does the Court of Appeals have the


power to review compromise agreements
forged by the Commissioner of Internal
Revenue and a taxpayer? Explain. (5%)
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

No, for either of two reasons:

(1) In instances in which the Commissioner of


Internal Revenue is vested with authority to
compromise, such authority should be
exercised in accordance with the
Commissioners discretion, and courts have
no power, as a general rule, to compel him to
exercise such discretion one way or another.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

No, for either of two reasons:

(2) If the Commissioner abuses his discretion by not


following the parameters set by law, the CTA, not the
Court of Appeals, may correct such abuse if the matter is
appealed to it. It must be noted however, that a
compromise is considered as other matters arising
under the NIRC which vests the CTA with
jurisdiction, and since the decision of the CTA is
appealable to the Supreme Court, the Court of
Appeals is devoid of any power of review a compromise
settlement forged by the Commissioner
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

Proceedings before the CTA in the exercise


of its exclusive original jurisdiction are in
the nature of trial de novo. (1%)

True.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

What are the conditions that must be


complied with before the Court of Tax Appeals
may suspend the collection of national internal
revenue taxes? (3%)
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

The CTA may suspend the collection of internal


revenue taxes if the following conditions are met:

1. The case is pending appeal with the CTA;

2. In the opinion of the Court the collection will


jeopardize the interest of the Government
and/or the taxpayer; and

1. The taxpayer is willing to deposit in Court the


amount being collected or to file a surety bond for
not more than double the amount of the tax.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

a) On the basis of a warrant of seizure and detention


issued by the Collector of Customs for the purpose
of enforcing the Tariff and Customs Laws, assorted
brands of cigarettes said to have been illegally
imported into the Philippines were seized from a
store where they were openly offered for sale.
Dissatisfied with the decision rendered after
hearing by the Collector of Customs on the
confiscation of the articles, the importer filed a
petition for review with the Court of Tax Appeals.
The Collector moved to dismiss the petition for lack
of jurisdiction. Rule on the motion. (2%)
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015
Motion granted. The Court of Tax Appeals has jurisdiction
only over decisions of the Commissioner of Customs in
cases involving seizures, detention or release of property
affected. (Sec. 7, R.A. No. 1125).

The Court of Tax Appeals has no jurisdiction because


there is no decision rendered by the Commissioner of
Customs on the seizure and forfeiture case. The
taxpayer should have appealed the decision rendered by
the Collector within fifteen (15) days from receipt of the
decision to the Commissioner of Customs. The
Commissioners adverse decision would then be the
subject of an appeal to the Court of Tax Appeals.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

b) Under the same facts, could the importer


file an action in the Regional Trial Court for
replevin on the ground that the articles are
being wrongfully detained by the Collector of
Customs since the importation was not illegal
and therefore exempt from seizure? Explain.
(3%)
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015
No. The legislators intended to divest the Regional Trial
Courts of the jurisdiction to replevin a property which is a
subject of seizure and forfeiture proceedings for violation of
the Tariff and Customs Code. Otherwise, actions for forfeiture
of property for violation of the Customs laws could easily be
undermined by the simple device of replevin. (De la Fuente v. De
Veyra, et. al, 120 SCRA 455)

There should be no unnecessary hindrance on the


government's drive to prevent smuggling and other frauds
upon the Customs. Furthermore, the Regional Trial Court do
not have Jurisdiction in order to render effective and efficient
the collection of import and export duties due the State, which
enables the government to carry out the functions It has been
instituted to perform
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015
In the examination conducted by the revenue officials against the
corporate taxpayer in 2010, the BIR issued a final assessment
notice and demand letter which states: It is requested that the
above deficiency tax be paid immediately upon receipt
hereof, inclusive of penalties incident to delinquency. This is
our final decision based on investigation. If you disagree you
may appeal this time, decision within thirty (30) days from receipt
hereof, otherwise said deficiency tax assessment shall become
final, executory and demandable. The assessment was
immediately appealed by the taxpayer to the Court of Tax
Appeals, without filing its protest against the assessment and
without a denial thereof by the BIR. If you were the judge, would
you deny the petition for review filed by the taxpayer and consider
the case as prematurely filed? Explain your answer. (5%)
JURISDICTION/PROCEEDINGS OF CTA
ALLIED BANKING CORP. v. CIR

Allied Banking Corporation received a PAN from the


BIR which it timely disputed. In response, the BIR
issued a Formal Letter of Demand with Assessment
Notices. Which contained the word FINAL
DECISION and and made reference to APPEAL.
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 instead it should be the decision of the
CIR on the disputed assessment
JURISDICTION/PROCEEDINGS OF CTA

Can the Formal Letter of Demand be construed as


the final decision of the CIR appealable to the CTA
under Republic Act 9282?
YES. This is considered an exception to the general rule on
exhaustion of administrative remedies since the CIR is
considered estopped from claiming the same principle
applies in its case. The tenor of the demand letter is clear
that the CIR had already made a final decision and that the
remedy of the Petitioner was to appeal the same within 30
days of receipt. This can be gleaned from the use of the
terms final decision and appeal which were deemed
unequivocal language pointing to the finality of the
decision.
JURISDICTION/PROCEEDINGS OF CTA
Bar Question in 2000-2006-2010-2015

State at least five ( 5) cases under the exclusive


appellate jurisdiction of the Court of Tax Appeals
(CTA). (5%)
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

I. Exclusive Appellate Jurisdiction to Review by Appeal


1. DECISIONS of the Commissioner of Internal
Revenue in cases involving
a. disputed assessments,
b. refunds of internal revenue taxes,
c. fees or other charges,
d. penalties in relation thereto, or
e. other matters arising under the NIRC or
other laws administered by the BIR.
Petition for Review under Rule 42
atty. cleo d. sabado-andrada, cpa, mba
THE BUREAU OF INTERNAL REVENUE
POWERS of the Internal Revenue Commissioner
2. DECIDE TAX CASES (Sec. 4 par. 2 of NIRC
-Disputed assessments
-Refunds of internal revenue taxes, fees or other
charges
-Penalties imposed arising under the Tax Code or
other tax laws;
-Other matters arising under the NIRC.

Is the Decision of the Commissioner subject to APPEAL?


It is subject to the EXCLUSIVE APPELLATE
JURISDICTION of the COURT OF TAX APPEALS.
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

I. Exclusive Appellate Jurisdiction to Review by Appeal


2. INACTION by the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in realtion
thereto, or other matters arising under the NIRC
or other laws administered by the BIR, where
the NIRC provides a specific period of
action, in which case the inaction shall be
deemed a denial.
Petition for Review under Rule 42
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

I. Exclusive Appellate Jurisdiction to Review by Appeal

3. DECISIONS, ORDERS or RESOLUTIONS of


the RTC in local tax cases originally decided
or resolved by them in the exercise of their
original or appellate jurisdiction.

Petition for Review under Rule 43


atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

I. Exclusive Appellate Jurisdiction to Review by Appeal


4. DECISIONS of the Commissioner of Customs in
cases involving liability of custom duties, fees or
other money charges, seizure, detention or
release of property affected, fines, forfeitures or
other penalties in relation thereto or other
matters arising under the Customs Law or other
laws administered by the Bureau of Customs.
Petition for Review under Rule 42
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

I. Exclusive Appellate Jurisdiction to Review by Appeal


5. DECISIONS of the Central Board of Assessment
Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment
and taxation of real property originally decided
by the provincial or city board of assessment
appeals.

Petition for Review under Rule 43


atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

I. Exclusive Appellate Jurisdiction to Review by Appeal


6. DECISIONS of the Secretary of Finance on
custom cases elevated to them automatically for
review from decisions of the Commissioner of
Customs which are adverse to the government
under Section 2315 of the Tariff and Customs
Code.

Petition for Review under Rule 42


atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

I. Exclusive Appellate Jurisdiction to Review by Appeal


7. DECISIONS of the Secretary Trade and Industry, in
cases of nonagricultural product, commodity or
article, and the Secretary of Agriculture in cases of
agricultural product, commodity or article involving
dumping and countervailing duties under Sections
301 and 302, respectively, of the Tariff and Customs
Code, and safeguard measures under R.A. No. 8808,
where either party may appeal the decision to impose
or not to impose said duties
Petition for Review under Rule 42
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

II. CIVIL and CRIMINAL CASES


Criminal action and the corresponding civil action
for the recovery of civil liability for taxes and
penalties
1.
shall at all time be simultaneously
instituted with and jointly determined in the
proceeding before the CTA.
There is no need to reserve the filing of
such civil action separately from the
criminal action.
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

II. CIVIL and CRIMINAL CASES


A. Exclusive ORIGINAL jurisdiction

1. VIOLATIONS of NIRC, Tariff and Customs


Code and other laws administered by the BIR
or the Bureau of Customs, where the
principal amount of taxes and fees, exclusive
of charges and penalties claimed is P1
million and above.
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

II. CIVIL and CRIMINAL CASES


B. Exclusive APPELLATE jurisdiction
1. VIOLATIONS of NIRC, Tariff and Customs
Code and other laws administered by the BIR
or the Bureau of Customs, ORIGINALLY
DECIDED BY THE REGULAR COURT where
the principal amount of taxes and fees, is less
than P1 million or no specified amount
claimed.
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

II. CIVIL and CRIMINAL CASES


B. Exclusive APPELLATE jurisdiction

2. JUDGMENTS,
J RESOLUTIONS or ORDERS of
the RTC in tax cases ORIGINALLY DECIDED
BY THEM.

atty. cleo d. sabado-andrada, cpa, mba


OUTLINE OF JURISDICTION
Section 7, R.A. 9282

II. CIVIL and CRIMINAL CASES


B. Exclusive APPELLATE jurisdiction

3. JUDGMENTS, RESOLUTIONS or ORDERS of


the RTC in the exercise of their APPELLATE
JURISDICTION over tax cases ORIGINALLY
DECIDED BY THE MeTC, MTC and MCTC
via petition for review.

atty. cleo d. sabado-andrada, cpa, mba


OUTLINE OF JURISDICTION
Section 7, R.A. 9282

II. CIVIL and CRIMINAL CASES


B. Exclusive APPELLATE jurisdiction

4. TAX COLLECTION CASES

a. FROM JUDGMENTS, RESOLUTIONS


or ORDERS of the RTC ORIGINALLY
DECIDED BY THEM via an
appeal.
atty. cleo d. sabado-andrada, cpa, mba
OUTLINE OF JURISDICTION
Section 7, R.A. 9282

II. CIVIL and CRIMINAL CASES


B. Exclusive APPELLATE jurisdiction
4. TAX COLLECTION CASES

b. FROM JUDGMENTS, RESOLUTIONS or


ORDERS of the RTC in the exercise
of their APPELLATE JURISDICTION
over tax cases ORIGINALLY
DECIDED BY THE MeTC, MTC
and MCTC via petition for review.
atty. cleo d. sabado-andrada, cpa, mba
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

In its final adjustment return for the 2010 taxable


year, ABC Corp. had excess tax credits arising
from its over-withholding of income payments. It
opted to carry over the excess tax credits to
the following year. Subsequently, ABC Corp.
changed its mind and applied for a refund of
the excess tax credits. Will the claim for refund
prosper? (6%)
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

No. The claim for refund will not prosper.


While the law gives the taxpayer an option
to whether carry-over or claim as refund
the excess tax credits shown on its final
adjustment return, 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.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

International Technologies, Inc. (ITI) filed a claim for


refund for unutilized input VAT with the Court of Tax
Appeals (CTA). In the course of the trial, ITI engaged
the services of an independent Certified Public
Accountant (CPA) who examined the voluminous
invoices and receipts of ITI. ITI offered in
evidence only the summary prepared by the CPA,
without the invoices and the receipts, and then
submitted the case for decision.
Can the CTA grant ITI's claim for refund based only
on the CPA's summary? Explain. (4%)
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

No. The summary prepared by the CPA


does not prove anything unless the
documents which were the basis of the
summary are submitted to the CTA and
adduced in evidence. The invoices and
receipts must be presented because they
are the only real and direct evidence that
would enable the Court to determine with
particular certainty the basis of the refund
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

(A) ABCD Corporation (ABCD) is a domestic corporation with individual


and corporate shareholders who are residents of the United States.
For the 2nd quarter of 1983, these U.S.-based individual and corporate
stockholders received cash dividends from the corporation. The
corresponding withholding tax on dividend income --- 30% for individual
and 35% for corporate non-resident stockholders --- was deducted at
source and remitted to the BIR.
On May 15, 1984, ABCD filed with the Commissioner of Internal Revenue a
formal claim for refund, alleging that under the RP-US Tax Treaty, the
deduction withheld at source as tax on dividends earned was fixed at
25% of said income. Thus, ABCD asserted that it overpaid the withholding
tax due on the cash dividends given to its non-resident stockholders in the
U.S. The Commissioner denied the claim.
On January 17, 1985, ABCD filed a petition with the Court of Tax Appeals
(CTA) reiterating its demand for refund.
Does ABCD Corporation have the legal personality to file the refund
on behalf of its non-resident stockholders? Why or why not? (3%)
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

Yes. A withholding agent is not only an agent of


the Government but is also an agent of the
taxpayer/income earner.

Hence, ABCD is also an agent of the beneficial


owner of the dividends with respect to the actual
payment of the tax to the Government, such
authority may reasonably be held to include the
authority to file a claim for refund and to bring an
action for recovery of such claim.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

ABC Corporation won a tax refund case for P150


Million. Upon execution of the judgment and when
trying to get the Tax Credit Certificates (TCC)
representing the refund, the Bureau of Internal
Revenue (BIR) refused to issue the TCC on the
basis of the fact that the corporation is under audit
by the BIR and it has a potential tax liability. Is there
a valid justification for the BIR to withhold the
issuance of the TCC? Explain your answer briefly?
(5%)
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

The BIR has no valid justification to withhold the TCC. Offsetting


the amount of TCC against a potential tax liability is not allowed,
because both obligations are no yet fully-liquidated. While the
amount of the TCC has been determined; the amount of
deficiency tax is yet to be determined through the completion of
the audit.

There is no valid justification to withhold the TCC. The


requirement, that the claim for refund/TCC and liability for
deficiency taxes must be settled
under one proceeding to avoid multiplicity of suits, will not apply
since the determination of the entitlement to the refund was
already removed from the BIR. To reopen the claim for refund in
order to give way to the introduction of evidence of a deficiency
assessment will lead to an endless litigation, which is not allowed.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

DEF Corporation is a wholly owned subsidiary of DEF, Inc.,


California, USA. Starting December 15, 2004, DEF
Corporation paid annual royalties to DEF, Inc., for the use
the latters software, for which the former, as withholding
agent of the government, withheld and remitted to the BIR
the 15% final tax based on the gross royalty payments.
The withholding tax return was filed and the tax remitted to
the BIR on January 10 of the following year, On April 10,
2007, DEF Corporation filed a written claim for tax credit with
the BIR, arising from erroneously paid income taxes covering
the years 2004 and 2005. The following day, DEF
Corporation filed a petition for review with the Court of Tax
Appeals involving the tax credit claim for 2004 and 2005.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016
(A) As a BIR lawyer handling the case, would you raise
the defense of prescription in your answer to the claim for
tax credit? Explain. (4%)

Yes. The defense of prescription is available as against


the 2004 tax credit. Under Sec. 229 NIRC, the
prescriptive period is 2 years reckoned from the filing of
the annual return.
However, the 2005 claim has not yet prescribed since its
prescriptive period ends on January 11, 2008 while the
claim was filed on April 10, 2007. The filing of the Petition
for Review with the Tax Appeals on the 2005 Claim is
premature
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

(B) Can the BIR lawyer raise the defense that DEF
Corporation is not the proper party to file such claim
for tax credit? Explain. (3%)

No. the BIR cannot raise the defense that DEF


Corporation is not the proper party.

A final withholding agent is a proper party with


sufficient legal interest because it will be liable in
the event that the final income tax cannot be paid by
the taxpayer
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

What must a taxpayer do in order to claim a


refund of, or tax credit for, taxes and penalties
which he alleges to have been erroneously,
illegally or excessively assessed or collected?
(3%)
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016
The taxpayer must comply with the following
procedures in claiming a refund of, or tax credit for, taxes
and penalties which he alleges to have been erroneously,
illegally or excessively assessed or collected:

1. He should file a written claim for refund with the


Commissioner within two years after the date of
payment of the tax or penalty
2. The claim filed must state a categorical demand for
reimbursement
3. The suit or proceeding for recovery must be commenced
in court within two years from date of payment of the tax
or penalty regardless of any supervening event that will
arise after payment (Sec. 229, NIRC).
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

Congress enacts a law granting grade school


and high school students a 10% discount on
all school-prescribed textbooks purchased
from any bookstore. The law allows
bookstores to claim in full the discount as
a tax credit. If in a taxable year a bookstore
has no tax due on which to apply the tax
credits, can the bookstore claim from the BIR
a tax refund in lieu of tax credit? Explain.
(2.5%)
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

No, the bookstore cannot claim from the BIR a


tax refund in lieu of tax credit. There is nothing
in the law that grants a refund when the
bookstore has no tax liability against which the
tax credit can be used.

A tax credit is in the nature of a tax


exemption and in case of doubt, the doubt
should be resolved in strictissimi juris
against the claimant.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

Does a withholding agent have the right to file


an application for tax refund? Explain.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016

Yes. A taxpayer is "any person subject to tax."


Since, the withholding tax agent who is
"required to deduct and withheld any tax" is
made "personally liable for such tax" should
the amount of the tax withheld be finally found
to be less than that required to be withheld by
law, then he is a taxpayer. Thus, he has
sufficient legal interest to file an application
for refund, of the amount he believes was
illegally collected from him.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016
MMM, Inc. filed its Quarterly VAT Returns for 2000.
Subsequently, MMM, Inc. timely filed with the BIR
an administrative claim for the refund of the amount
of P6,321,486.50, representing excess input VAT
attributable to its effectively zero-rated sales in
2000. The BIR ruled to deny the claim for refund of
MMM, Inc. because the VAT official receipts
submitted by MMM, Inc. to substantiate said claim
did not bear the words "zero-rated" as required
under Section 4.108-1 of Revenue Regulations
(RR) No. 7-95. On appeal, the CTA division and the
CT A en banc affirmed the BIR ruling.
CLAIM FOR REFUND and TAX CREDIT
Bar Question in 2002-2005-2006-2007-2008-2009-2013-2014-2016
MMM, Inc. appealed to the Supreme Court arguing
that the NIRC itself did not provide for such a
requirement. RR No. 7-95 should not prevail over a
taxpayer's substantive right to claim tax refund or
credit.

a. Rule on the appeal of MMM, Inc. (3%)

b. Will your answer in (a) be any different if MMM,


Inc. was claiming refund of excess input VAT
attributable to its effectively zero-rated sales in
2012? (2%)