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Tax Notes 2010 - Atty. Domondon

Tax Notes 2010 - Atty. Domondon

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By Atty. Domondon
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“BAR STAR NOTES”

TAXATION
VER. 2010.06.12 copyrighted 2010

part of these Notes in any form or any means, electronic or mechanical, including photocopying without the written permission of the author. Unauthorized users shall not be prosecuted but SHALL BE SUBJECT TO THE LAW OF KARMA SUCH THAT THEY WILL NEVER PASS THE BAR OR WOULD BE UNHAPPY IN LIFE for stealing the intellectual property of the author.

Prepared by Prof. Abelardo T. Domondon
(AB (Econ), BSC (Acctg), LLB, MA (Econ), LLM, DCL (Cand.). Lawyer-CPA-Customs Broker, Management Consultant, Professor of Law and Pre-Bar Reviewer)

THE BEST OF LUCK AND ADVANCE CONGRATULATIONS

TAXATION
GENERAL PRINCIPLES OF TAXATION
TAXATION, IN GENERAL  1. State briefly and concisely the nature of taxation. Alternatively, define taxation.
SUGGESTED ANSWER: The inherent power of the sovereign exercised through the legislature to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government.

How to use the “BAR STAR NOTES.” The “BAR STAR NOTES” in the form of questions and answers as well as textual discussion were specially prepared by Prof. Domondon for the exclusive use of Bar Reviewees who attended his 2010 Lectures on TAXATION held at the University of the Philippines. Included in the presentation are doctrines contained in Supreme Court decisions up to April 2010.
The purpose of the ‘BAR STAR NOTES” is to provide the Bar Reviewee with a handy review material which serves as “memoryjoggers” for the September 12, 2010 Bar Examinations in Taxation. The author tries to second guess what would be included in the Bar Exams using statistical analysis. The actual Bar questions may not be formulated in the same manner as the “BAR STAR NOTES”. However, the doctrines tested in the Bar would in all probability be included in these Notes. If pressed for time, the author suggests that the reader should focus his attention on the following:  Nice to know  Should know  Must know and master It is further suggested that the reader should merely browse those without stars.

 2. What is the nature of the State’s power to tax ? Explain briefly.
SUGGESTED ANSWER: The nature of the state’s power to tax is two-fold. It is both an inherent power and a legislative power. It is inherent in nature being an attribute of sovereignty. This is so, because without the taxes, the state’s existence would be imperiled. There is thus, no need for a constitutional grant for the state to exercise this power. It is a legislative power because it involves the promulgation of rules. Taxation is a set of rules, how much is the tax to be paid, who pays the tax, to whom it should be paid, and when the tax should be paid.

WARNING:
These materials are copyrighted and/or based on the writer’s books on Taxation and future revisions. It is prohibited to reproduce any

 3. briefly.

What is the underlying theory of taxation ? Explain

SUGGESTED ANSWER: Taxes are the lifeblood of the nation. Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government

would be paralyzed for lack of motive power to activate and operate it.
(Commissioner of Internal Revenue v. Algue, Inc. et al., 158 SCRA 8, 16-17)

2

 4. Marshall said that, “the power to tax involves the power to destroy.” On the other hand, Holmes stated that “the power to tax is not the power to destroy while the court sits.” Reconcile the statements. In the alternative, what are the implications that flow from the above statements ?
SUGGESTED ANSWERS: Marshall’s view refers to a valid tax while the Holmes’ view refers to an invalid tax. a. The imposition of a valid tax could not be judicially restrained merely because it would prejudice taxpayer’s property. b. An illegal tax could be judicially declared invalid and should not work to prejudice a taxpayer’s property.

d. Time of payment: Taxes normally paid after commencement of business while license fee before. e. Effect of payment: Failure to pay a tax does not make the business illegal while failure to pay license fee makes business illegal. f. Surrender: Taxes, being the lifeblood of the state, cannot be surrendered except for lawful consideration while a license fee may be surrendered with or without consideration. (Cooley on Taxation, pp. 11371138; Pacific Commercial Company v. Romualdez, et al., 49 Phil. 924)

 8. How may the power to tax be utilized to carry out the social justice program of our government ?
SUGGESTED ANSWER: The compensatory purpose of taxation is to implement the social justice provisions of the constitution through the progressive system of taxation, which would result to equal distribution of wealth, etc. Progressive income taxes alleviate the margin between rich and poor. (Southern Cross Cement Corporation v. Cement Manufacturers Association
of the Philippines, et al., G. R. No. 158540, August 3, 2005)

 5. taxation.

Discuss briefly the basis/bases, or rationale of

SUGGESTED ANSWER: a. Reciprocal duties of protection and support between the state and its citizens and residents. Also called “symbiotic relation” between the state and its citizens. b. Jurisdiction by the state over persons and property within its territory.

In recent years, the increasing social challenges of the times expanded the scope of the state activity, and taxation has become a tool to realize social justice and the equitable distribution of wealth, economic progress and the protection of local industries as well as public welfare and similar objectives. (Batangas Power Corporation v. Batangas City, et
al., G. R. No. 152675, and companion case, April 28, 2004 citing National Power Corporation v. City of Cabanatuan, G. R. No. 149110, April 9, 2003)

 6. Discuss briefly but comprehensively the objectives or purposes of taxation.
SUGGESTED ANSWER: The purposes or objectives of taxation are the following: a. The primary purpose: 1) Revenue purpose. b. The secondary purposes 1) Sumptuary or regulatory purpose. 2) Compensatory purpose. 3) To implement the power of eminent domain.

9. Explain the sumptuary purpose of taxation. SUGGESTED ANSWER: The sumptuary purpose of taxation is to promote the general welfare and to protect the health, safety or morals of the inhabitants. It is in the joint exercise of the power of taxation and police power where regulatory taxes are collected. Taxation may be made the implement of the state’s police power. The motivation behind many taxation measures is the implementation of police power goals. [Southern Cross Cement Corporation v. Cement
Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005) The reader should note that the August 3, 2005 Southern Cross case

 7. Distinguish a tax from a license fee.
SUGGESTED ANSWER: The following are the distinctions: a. Purpose: Tax imposed for revenue while license fee for regulation. Tax for general public purposes while license fee for regulatory purposes only. b. Basis: Tax imposed under power of taxation while license fee under police power. c. Amount: In taxation, no limit as to amount while license fee limited to cost of the license and the expenses of police surveillance and regulation.

is the decision on the motion for reconsideration of the July 8, 2004 Southern Cross decision. The so-called “sin taxes” on alcohol and tobacco manufacturers help dissuade the consumers from excessive intake of these potentially harmful products. (Southern Cross Cement Corporation v. Cement Manufacturers
Association of the Philippines, et al., G. R. No. 158540, August 3, 2005)

10. Taxation distinguished from police power. Taxation is distinguishable from police power as to the means employed to implement these public goals. Those doctrines that are unique to taxation

arose from peculiar considerations such as those especially punitive effects (Southern Cross Cement Corporation v. Cement Manufacturers Association of the Philippines, et al., G. R. No. 158540, August 3, 2005) as the power to tax involves the power to destroy and the belief that taxes are lifeblood of the state. (Ibid.) taxes being the lifeblood of the government, their prompt and certain availability is of the essence.” These considerations necessitated the evolution of taxation as a distinct legal concept from police power. (Ibid.)

3

e. f. g. h.

Levied by the state having jurisdiction. Levied by the legislature. Levied for a public purpose. Paid at regular periods or intervals.

14. State the requisites of a valid tax.
SUGGESTED ANSWER: a. A valid tax should be within the jurisdiction of the taxing authority. b. That the assessment and collection of certain kinds (The same as the inherent limitations of the power of taxation) should be for a public purpose. c. The rule of taxation should be uniform. d. That either the person or property of taxes guarantees against injustice to individuals, especially by way or notice and opportunity for hearing be provided. e. The tax must not impinge on the inherent and Constitutional limitations on the power of taxation.

11. How the power of taxation may be used to implement power of eminent domain. Tax measures are but
”enforced contributions exacted on pain of penal sanctions” and “clearly imposed for public purpose.” In most recent years, the power to tax has indeed become a most effective tool to realize social justice, public welfare, and the equitable distribution of wealth. (Commissioner of Internal
Revenue v. Central Luzon Drug Corporation, G.R. No. 159647, April 16, 2005)

Establishments granting the 20% senior citizens discount may claim the discounts granted to senior citizens as tax deduction based on the net cost of the goods sold or services rendered: Provided, That the cost of the discount shall be allowed as deduction from gross income for the same taxable year that the discount is granted. Provided, further, That the total amount of the claimed tax deduction net of value added tax if applicable, shall be included in their gross sales receipts for tax purposes and shall be subject to proper documentation and to the provisions of the National Internal Revenue Code, as amended. [M.E.
Holding Corporation v. Court of Appeals, et al., G.R. No. 160193, March 3, 2008 citing Expanded Senior Citizens Act of 2003, Sec. 4 (a)]

15. What are the classes or kinds of taxes according to the subject matter or object ?
SUGGESTED ANSWER: a. Personal, poll or capitalization – imposed on all residents, whether citizen or not. Example – Community Tax. b. Property Imposed on property. Example – Real property tax. c. Excise – imposed upon the performance of an act, the enjoyment of a privilege or the engaging in an occupation. Example – income tax, estate tax.

 12. What are the three basic principles of a sound tax system? Explain each briefly.
SUGGESTED ANSWER: The canons of a sound tax system, also known as the characteristics or, principles of a sound tax system, are used as a criteria in order to determine whether a tax system is able to meet the purposes or objectives of taxation. They are: a. Fiscal adequacy. b. Administrative feasibility. c. Theoretical justice.

16. What are the kinds of taxes classified as to who bears the burden ? Explain each briefly.
SUGGESTED ANSWER: Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of taxation, taxes may be classified into: a. Direct taxes. Those that are extracted from the very person who, it is intended or desired, should pay them (Commissioner of Internal
Revenue v. Philippine Long Distance Telephone Company, G. R. No. 140230, December 15, 2005); they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in, (Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company, supra )

 13. What are the elements or characteristics of a tax ?
SUGGESTED ANSWER: a. Enforced contribution. b. Generally payable in money. c. Proportionate in character. d. Levied on persons, property or exercise of a right or privilege.

which liability cannot be shifted or transferred to another. Example – income tax, estate tax, donor’s tax, etc.

the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. 197 SCRA 771. Philippine Long Distance Telephone Company. The amendment under Republic Act No. made even more specific the details of the exemption of NPC to cover. Inc. supra ) to someone else not as a tax but as part of the purchase price. like NPC’s charter. a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall.. Ltd. December 15. 127 Phil. [Philippine Acetylene Co. May 31. without a clear showing of legislative intent. an international carrier. An exemption from “all taxes” excludes indirect taxes. Inc. percentage tax. It invokes Maceda v. 478 SCRA 61 the Supreme Court clarified the ruling in Maceda v. 135 of the NIRC of 1997 which provides that petroleum products are exempt from excise taxes when sold to “Exempt entities or agencies covered by tax treaties. Macaraig. however.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. Even if Petron Corporation passed on to Silkair the burden of the tax. Thus. Macaraig. No. No. of Internal Revenue v. The excise tax on aviation fuel is an indirect tax.b.. or are paid by.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. 1991. regular equipment and aircraft stores introduced into. G. 465 SCRA 308. Jr. with the exception of charges corresponding to the service performed. or taken on board aircraft in the territory of one Contracting party by. is so couched as to include indirect tax from the exemption. 88291. conventions. 88291. 2005. June 29. 938 [NPC’s amended charter] amended the tax exemption by simplifying the same law in general terms. Indirect taxes are those that are demanded in the first instance..” Silkair likewise argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption “from the same customs duties. be exempt from the same customs duties. Commissioner of Internal Revenue. 197 SCRA 771. spare parts. Commissioner of Internal Revenue. 1991. Silkair (Singapore) PTE. G. Subsequently. both direct and indirect taxes on all petroleum products used in its operation. purchased aviation gas from Petron Corporation. etc. That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers. v. be construed as including indirect taxes. 152609. Silkair could not seek refuge under Maceda v. American Express International. inspection fees and other duties or taxes imposed in the territory of the first Contracting Party. (Philippine Geothermal. G. which it uses for its operations. inspection fees and other duties or taxes imposed in the territories of the first Contracting Party . viz: It may be so that in Maceda vs.. even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. 2005 citing various cases and authorities) Example – value added tax (VAT). from. Jr. among others. not Silkair. 470 (1967)] Silkair further anchors its claim on Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads: “Fuel. 140230.. July 29. G. Jr. documentary stamp tax. 6395 enumerated the details covered by NPC’s exemption. (Philippine Branch). an indirect tax is the statutory taxpayer. In Commissioner of Internal Revenue v. Statutes granting tax exemptions . entities or agencies” paid by the manufacturer or producer before removal of domestic products from place of production. 4 Is Silkair entitled to the tax refund or credit it seeks ? Reason out your answer. or on behalf of. Petron Corporation. The materials referred to above may be required to be kept under customs supervision and control. is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. fees…” The use of the phrase “all forms” of taxes demonstrates the intention of the law to give NPC all the tax exemptions it has been enjoying before. Presidential Decree No. May 31. unless the exempting statute.R. duties. 2005. No. It succinctly exempts NPC from “all forms of taxes. excise tax. G. No.R. 317-318) The NIRC provides that the excise tax should be 17. v. Macaraig. R.. Philippine Long Distance Telephone Company. Jr. Macaraig. lubricants. SUGGESTED ANSWER: Silkair is not entitled to tax refund or credit for the following reasons: a. or seek a refund of.D. No.R.R. P. It now claims for refund or tax credit for the excise taxes it paid claiming that it is exempt from the payment of excise taxes under the provisions of Sec. 461. The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot. (Commissioner. the Court held that an exemption from “all taxes” granted to the National Power Corporation (NPC) under its charter includes both direct and indirect taxes. Inc. The proper party to question. 380. b. one person in the expectation and intention that he can shift the burden to (Commissioner of Internal Revenue v. 154028. and other international agreements for their use and consumption: Provided. the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser.

LIMITATIONS OR RESTRICTIONS ON THE POWER 1. it must not be enlarged by construction. d.must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. Public purpose. Recognition of government exemptions. 159647. G. Comity is the respect accorded by nations to each other because they are equals. Special or regulatory – imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the raising of public funds. No. c. and if an exemption is found to exist. Some of the manufacturers of coconut oil challenge the validity of the law. There is a presumption of public purpose even if the tax law does not specifically provide for its purpose. What are the principles to consider in the determination of whether tax revenues are devoted for a public purpose ? SUGGESTED ANSWER: a. What are the different kinds of taxes classified as to purpose ? SUGGESTED ANSWER: a. v. e. and e. Central Luzon Drug Corporation. public benefit. This would still be for a public purpose. and public convenience . Inequalities resulting from the singling out of one particular class for taxation or exemption infringe no constitutional limitation. On the other hand taxation is an act of sovereign. i. Private persons may be benefited but such benefit should be merely incidental as its main object is the benefit of the community in general. February 6. c. April 16. contending that the tax is to . 94 Phil. public welfare. ( Santos & Co. Purpose for the limitations on the power of taxation. BASIS: The lifeblood theory. the power should be imposed upon equals out of respect. to improve the working conditions in coconut mills and to conduct research on the use of coconut oil for motor fuel. A tax may be imposed. et al. An alternative meaning is that tax proceeds should be utilized only to attain the objectives of government. Areas formerly left to private initiative now lose their boundaries and may be undertaken by the government if it is to meet the increasing social challenges of the times. not so much for revenue purposes. Municipality of Meycauayan. Observance of the principle of comity. 2008) 5  2. REASON: The paramount consideration is the welfare of the greater portion of the population. b. Only the legislature can exercise the power of taxes unless the same is delegated to some other governmental body by the constitution or through a law which does not violate any provision of the constitution. Ltd.R. d. The inherent and constitutional limitations to the power of taxation are safeguards which would prevent abuse in the exercise of this otherwise unlimited and plenary power. Some authorities include no double taxation. An individual taxpayer need not derive direct benefits from the tax. b.. but under police power for the general welfare of the community. the proceeds of which are to be used exclusively for the protection and promotion of the coconut industry. taxation ? What are the inherent limitations on the power of SUGGESTED ANSWERS: a. Public use is no longer confined to the traditional notion of use by the public but held synonymous with public interest. namely. REASON: It is inherent in the power to tax that the legislature is free to select the subjects of taxation. Commissioner of Internal Revenue. 173594. (Commissioner of Internal Revenue v. f. Tax revenue must not be used for purely private purposes or for the exclusive benefit of private persons. A law was enacted imposing a tax on manufacturers of coconut oil. 1047)  18. Territoriality. Public purpose continually expanding. b. No improper delegation of legislative authority to tax. fiscal or revenue – imposed for the purpose of raising public funds for the service of the government. INHERENT LIMITATIONS  1. Determined at the time of enactment of tax law and not at the time of implementation. The limitations also serve as a standard to measure the validity of a tax law or the act of a taxing authority. General. G. The taxing power should be exercised only within territorial boundaries of the taxing authority. v. g. (Silkair (Singapore) PTE.. A violation of the limitations serves to invalidate a tax law or act in the exercise of the power to tax. The tax revenues are for a public purpose if utilized for the benefit of the community in general. The revenues collected from taxation should be devoted to a public purpose. h.R. 2005)  3. No. j. Thus..

. 2006.R. e. No. 1993. et al. only Congress.S. Jr. (David. January 18. Narvasa. Only those who shall be directly affected by such executive encroachment. et  7. shall.etc. citing Gonzales v. A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed. Ebdane. 741) 6.. “(i) value-added tax collection as a percentage of Gross Domestic Product (GDP) of the previous year exceeds two and four-fifth percent (2 4/5%) or (ii) national government . Decide with reason . taxpayers or voters who actually sue in the public interest: a. R.etc. G. G.2000. the President. 2000. v. supra. R. G. No. G. 2007) c. can claim any injury from the alleged executive encroachment of the legislative function to amend. modify and/or repeal laws. there must be a claim that the official action complained of infringes upon their prerogatives as legislators. 741)  4. No. No. May 3. there must be a showing of obvious interest in the validity of the election law in question. It cannot be denied that the coconut industry is one of the major industries supporting the national economy. or that public money is being deflected to any improper purpose. 2006) For taxpayers. 171396. President Gloria Macapagal-Arroyo. Ebdane. ( Abaya v. 2005) or employees who are going to be demoted. No. Romulo. 157509. No. . 33) or a claim of illegal disbursement of public funds or that the tax measure is unconstitutional. the case should involve constitutional issues. v. February 14. the law violates the rule that public revenues shall not be appropriated for anything but a public purpose. Locus standi being merely a matter of procedure.6 be used for a private purpose. transferred or otherwise affected by any personnel action subject o the rule on exhaustion of administrative remedies. (Cocofed v. The VAT law provides that.. Moreover. Taxpayer’s suits to question contracts entered into by the national government or government-owned or controlled corporations allegedly in contravention of the law. upon the recommendation of the Secretary of Finance. (David. et al. It is. (Abaya v. ( David. a. etc. et al. 167919. February 14. concerned voters or legislators to have locus standi to sue. Only those directly affected have locus standi to impugn the alleged encroachment by the executive department into the legislative domain of Congress. 167919.. No. . G. Secretary of Public Works . January 18. or that public money is being deflected to any improper purpose.. Minute Resolution) A taxpayer’s suit is properly brought only when there is an exercise of the spending or taxing power of Congress.” (Flast v. R.etc.. In general. a. For concerned citizens. raise the rate of value-added tax to twelve percent (12%) after any of the following conditions have been satisfied. 252) al... or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law.. R. there must be a showing that the issues raised are of transcendental importance which must be settled early. G. R. Inc. b.. 157509. therefore. supra) 3) A taxpayer is allowed to sue where there is a claim that public funds are illegally disbursed. b.. such as for example employees who would find themselves subject to disciplinary powers that may be imposed under the questioned Executive Order as they have a direct and specific interest in raising the substantive issue therein (Automotive Industry Workers Alliance (AIWA). The following are examples of instances where suits have been brought by parties who have not have been personally injured by the operation of a law or any other government act but by concerned citizens.. No. d.et al. August 14. v. 2005 citing Gonzales v. et al. No. have been waived in certain instances where a party who is not personally injured may be allowed to bring suit. ( Automotive Industry Workers Alliance (AIWA). b.. there must be a showing: 1) That tax money is “being extracted and spent in violation of specific constitutional protections against abuses of legislative power. Narvasa. 2007. etc. 178 SCRA 236. August 14. v. and therefore. etc. but also of export earnings.. et al. G. 337 SCRA 733. President Gloria Macapagal-Arroyo. May 3. R. 83) 2) That public money is being deflected to any improper purpose (Pascual v. Garcia v. etc. For legislators. 110 Phil. the sustained growth of which is one of the imperatives of economic growth. 112655 December 9. Enriquez. Requisites for taxpayers. Presidential Commission on Good Government. For voters. effective January 1. the state’s concern to make it a strong and secure source not only of the livelihood of the significant segment of the population.et al. 140835. 171396. 140835. et al. R. or that there is a wastage of public funds through the enforcement of an invalid or unconstitutional law. (Automotive Industry Workers Alliance (AIWA). and if at all. citizens. 392 U. (Philippine Coconut Producers Federation. 337 SCRA 733. Cohen. G. 2006) 5. SUGGESTED ANSWER: The levy is for a public purpose. R. G. Romulo.

R.R...” (Quezon City. v. 166408. Bayan Telecommunications. et al. which is referred to as subordinate legislation. The delegation to the President of the Philippines to enter into executive agreements. 162015. In the above case the Secretary of Finance becomes merely the agent of the legislative department. R. et al. there is a requirement that the law is complete in all aspects so what is delegated is merely the implementation of the law or there exists sufficiently determinate standards to guide the delegate and prevent a total transference of the taxing power. and to ratify treaties which may contain tax exemption provisions subject to the concurrence by the Senate in the ratification made by the President. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. “What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. They no longer have to wait for a statutory grant of these powers. no longer merely by virtue of a valid delegation as before. Article VI of the Constitution . et al. Delegation to the people at large. who must do it. v. October 6. March 6.. 162015. local legislative bodies are now given direct authority to levy taxes. must not be confiscatory. uniform within a locality. No. to determine and declare the even upon which its expressed will takes place. however. “the power to tax is [still] primarily vested in the Congress. While the power to tax by local governments may be exercised by local legislative bodies. Inc. City of Cabanatuan. R.” (Quezon City. Article X of the Constitution. No. March 6. and what is the scope of his authority. 680 ) 11. 2006. In this instance. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. 2005 and companion cases citing various cases]] Local government legislation. the basic doctrine on local taxation remains essentially the same. No. 1996. that taxes imposed by local government must be for a public purpose. “is not regarded as a transfer of general legislative power.” (People v. Instances of proper delegation: When taxing power could be delegated: Exceptions to the rule on nondelegation: a. Taxing power of the local government is limited. No. fees and other charges pursuant to Article X. G. September 1. October 6. but pursuant to direct authority conferred by Section 5. Batangas City. d. according to immemorial practice. who is not under the conditions acting as the execute alter ego or subordinate. 166408. these limitations must be “consistent with the basic policy of local autonomy. doubts will be resolved in favor of municipal corporations. No.. v. 120082. but rather as the grant of authority to prescribe local regulations. ABS-CBN Broadcasting Corporation . No. c. and companion case. b. No. Inc. ABS-CBN Broadcasting Corporation .. subject. v. etc. section 5 of the 1987 Constitution. Delegation of tariff powers by Congress to the President under the flexible tariff clause. R. v. September 1. [ Abakada Guro Party List (etc. Further amplification by Bernas of the local government’s power to tax. 2004 citing National Power Corporation v. e. et al. 484 SCRA 169 in turn referring to Mactan Cebu International Airport Authority. R. Marcos. No. Henceforth. G. of course. 152675. April 28. 168056.” The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations.. the power of local government units to tax is still limited. 56) 10. 149110.168056. 8.) v. It is understood. Vera. 2008 citing City Government of Quezon City. 2006. 2003) . April 9.R. R. G. The power to tax is no longer vested exclusively on Congress. 2008 citing City Government of Quezon City. 65 Phil. This is constitutionally permissible. Section 28 (2).7 deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%). G. v. to the interposition of the superior in cases of necessity. G. There is no undue delegation of legislative power but only of the discretion as to the execution of the law. No. etc. September 11. Delegation to administrative bodies [ Abakada Guro Party List (Formerly AASJS). Moreover. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done. 2005]. While the system of local government taxation has changed with the onset of the 1987 Constitution. G. 484 SCRA 169) 9. “Paradigm shift” from exclusive Congressional power to direct grant of taxing power to local legislative bodies. Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution. . R. Bayan Telecommunications. in interpreting statutory provisions on municipal fiscal powers. et al. G. G.” Was there an invalid delegation of legislative power ? SUGGESTED ANSWER: No. Ermita. et al. G. Ermita. et al. 261 SCRA 667. The taxing power of local governments is limited in the sense that Congress can enact legislation granting tax exemptions.. (Batangas Power Corporation v. and must be within the jurisdiction of the local unit to pass. The President cannot set aside the findings of the Secretary of Finance..

Ltd. doubts must be resolved in favor of municipal corporations. R. shall be transferred to General Co. A foreign corporation . is taxable only on income derived from sources within the Philippines. 166408. R. Due to worldwide restructuring of the Ensite Ltd.. No.. That a seaman who is a citizen of the Philippines and who receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade shall be treated as an overseas contract worker.. e. An individual citizen of the Philippines who is working and deriving income abroad as an overseas contract worker is taxable only on income from sources within the Philippines: Provided. Inc. the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons.. is a Canadian corporation not doing business in the Philippines. is taxable only on income derived from sources within the Philippines. General Co.000 from her sales commission and remitted the same to the BIR. Baier-Nickel. decided to sell all its shares in Philippine Stamping Plant. A nonresident citizen is taxable only on income derived from sources within the Philippines... or the place where the contract for service is entered into. (Commissioner of Internal Revenue v. emphasis supplied) “Indeed.. Ensite. and that title to the Philippine Stamping Plant. such as provinces and cities for example Quezon City.. The negotiations for the buy-out and the signing of the Agreement of Sale were all done in the Philippines. City of Davao] 14. (PLDT) vs. The Agreement provides that the purchase price will be paid to Ensite Ltd’s bank account in the U.” [Ibid. then the income did not originate from sources from within the Philippines. The important factor which determines the source of income of personal services is not the residence of the payor. G. et al. The local company withheld the amount of P107. group. (Sec.. NIRC of 1997. 2008 citing City Government of Quezon City.. in Toronto Canada where stock certificates will be delivered. 162015. but the place where the services were actually performed. October 6. It must be noted that Section 137 of the LGC does not prohibit grant of future exemptions. A domestic corporation is taxable on all income derived from sources within and without the Philippines. No. referring to Philippine Long Distance Telephone Company. It holds 40% of the shares of Philippine Stamping Plant. pursuant to a declared national policy. a Philippine company while the 60% is owned by Fred Corporation. which includes the power to grant tax exemptions. Ensite Ltd. Reconciliation of the local government’s authority to tax and the Congressional general taxing power. et al. A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines. (Quezon City. Inc. and  15. and Susanto Co. Is her contention correct ? SUGGESTED ANSWER: Yes. August 29. G. 2006)  13. whether engaged or not in trade or business in the Philippines. Congress has the inherent power to tax. Since the activity of securing the sales were in Germany. The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers. She filed a claim for refund alleging that her sales commission is not taxable because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines. an Indonesian company which has a duly licensed Philippine branch. 23. seeks your advice . the City or a province may impose a franchise tax. v. to tax is prescribed by Section 151 in relation to Section 137 of the LGC which expressly provides that notwithstanding any exemption granted by any law or other special law. Inc. or the place of payment. Ensite Co.8 12.R. d. v. whether a resident or not of the Philippines. G. 2006. Inc. also owns 100% of the shares of Susanto Co. March 6. a. 484 SCRA 16) f. and Susanto Co. b. Inc. The Supreme Court in a series of cases has sustained the power of Congress to grant tax exemptions over and above the power of the local government’s delegated power to tax. Juliane a non-resident alien appointed as a commission agent by a domestic corporation with a sales commission of 10% all sales actually concluded and collected through her efforts.S. ABSCBN Broadcasting Corporation.. 153793. On the other hand.. c. An alien individual. General principles of income taxation in the Philippines or the source rule of income taxation as provided in the NIRC of 1997.. a Filipino-owned Philippine corporation. Bayan Telecommunications. the power of local governments. No.

Inc. Explain your advice.. should be subject to tax on its income from within. while the other 50% plus housing. No. Inc. Larry will bring his family to reside in Malaysia and will lease out his residence in the Philippines. The tickets exchanged hands here and payments for fares were also made here in Philippine currency. relating to the carriage of passengers and cargo between two points. the off-line air carrier liable for the 32% (now 30%) tax on its taxable income. has an executive Larry who is a Filipino citizen. In consideration of such protection. also invested directly in 40% of the shares of stock of Philippine Stamping Plant.. Focus your discussion on what is the issue.. Co. Inc. 149 SCRA 395] Off-line air carriers having general sales agents in the Philippines are engaged in or doing business in the Philippines and their income from sales of passage documents here is income from within the Philippines.. . residence. SUGGESTED ANSWER: The payments of the purchase price will be subject to withholding tax. There is no need to discuss WT rates.  16. and not on his income from without. is a Canadian corporation. cost of living and educational allowances of Larry’s dependents will be shouldered by Kuala Lumpur Manufacturing. being a foreign corporation. Since Larry is an OCW. Ensite. April 30. SUGGESTED ANSWER: The salaries and allowances of Larry. Ensite. The ”sale of tickets” in the Philippines is the activity that determines whether such income is taxable in the Philippines.. seeks your advice as to whether it will subject the remittance to withholding tax. Philippine Stamping Plant. It is not subject to any income tax because the activity which generated the income (the sale of the tickets) was performed outside of the Philippines. enjoying the protection accorded by the Philippine Government. South Africa to the Philippines but returns to South Africa without any cargo or passengers. subject to Philippine income taxation. British Overseas Airways Corporation (British Overseas Airways ).. Inc. Obama Airlines. SUGGESTED ANSWER: Philippine Stamping Plant.. L-65773-74.) and will assign Larry for an indefinite period to work full time for Kuala Lumpur Manufacturing. if applicable. These shares are booked in the Head Office of Ensite. being a foreign corporation is to be taxed on its income derived from sources within the Philippines.9 as to whether or not it will subject the payments of the purchase price to withholding tax. should subject the remittance to withholding tax. The situs of the source of payments is the Philippines. Is Obama. a Philippine corporation. G. Inc. Before remitting the dividends to Ensite Ltd.. Ltd. Philippine Stamping Plant. a foreign airline company which does not maintain any flight to and from the Philippines sold air tickets in the Philippines. Ltd. 149 SCRA 395]  17. Ltd. February 16. British Overseas Airways Corporation (BOAC). Considering that all the activities (sales) occurred within the Philippines. [South African Airways v. then he is to be taxed only on his income derived from within the Philippines such as the rentals on his Philippine residence. the flow of wealth proceeded from and occurred.. Ltd. 1987. a. Inc. Philippine Stamping Plant. the income is considered as income from within. Are these salaries. Inc.. Inc. No. a Philippine corporation. Commissioner of Internal Revenue. The salary of Larry will be shouldered 50% by Philippine Stamping Plant. Philippine Stamping Plant. 18. both outside the Philippines.. Supposing that Obama... and are not reflected as assets of the Philippine branch. allowances and rentals subject to Philippine income tax? Explain briefly. its shares of stock have obtained a business situs in the Philippines. He will also be receiving rental income for the lease of his Philippine b. Inc. Larry will sign the contract of employment in the Philippines.R. Would it then be subject to any Philippine tax on such sales ? SUGGESTED ANSWER: It would not be subject to any tax. within the Philippine territory. Inc. 180356... Philippine Stamping Plant. declared dividends to its stockholders. 2010 citing Commissioner of Internal Revenue v. Thus. The source of income which is taxable is that “activity” which produced the income. Ensite. being derived from labor or personal services rendered outside of the Philippines is considered as income from without.. hence the dividends are considered as income from within. Ensite. In 2009. will credit the 50% of Larry’s salary to his Philippine bank account. has a subsidiary in Malaysia (Kuala Lumpur Manufacturing. Inc.. is a Philippine corporation. Ltd.. the flow of wealth should share the burden of supporting the government. subject to income taxes on the sale of the tickets ? SUGGESTED ANSWER: Yes. Inc. Since Philippine Stamping Plant. which has a duly licensed Philippine branch engage in trading activities in the Philippines. through a general sales agent.. sells tickets outside of the Philippines for passengers it carry from Gold City. [ Commissioner of Internal Revenue v. Inc. Inc..

based on the principle that taxes are a grant of the people who are taxed. Inc. but the Senate may propose and concur with amendments. Commissioner of Internal Revenue. Tax exemption of charitable institutions. commutations and pardons and remittal of fines and forfeiture after conviction by final judgment. tonnage and wharfage dues: 1) Delegation by Congress 2) through a law 3) subject to Congressional limits and restrictions 4) within the framework of national development program. 2) Three (3) readings on three separate days. Pampanga. February 16. Airport at Clark. a. No improper delegation of legislative authority to The power to tax is inherent in the State. “Gross Philippine Billings” refers to the amount of gross revenue derived from carriage of persons. directly and exclusively used for religious. fees and other charges subject to . income is included in GPB. assessment or toll or the legality of any penalty imposed in relation to the above. h. to general funds. Freedom of the press. The general or indirect constitutional limitations on the power of taxation are: a. e. Equal protection clause. Sec. G. buildings and improvements of all kinds actually.R. f. July 21. sold tickets outside of the Philippines for travelers who are going to picked up by Obama. balance if any. 2. charitable or educational purposes. as long as the uplifts of passengers and cargo occur from the Philippines. Would your answer be the same if Obama. Kenya ? Reason out your answer. churches. planes from the Diosdado Macapagal Intl. import and export quotas. but the veto shall not affect the item or items to which he does not object.. there it must remain and be exercised. irrespective of the place of sale or issue and the place of payment of the ticket or passage document. to levy taxes. The President shall have the power to veto any particular item or items in an appropriation. j. SUGGESTED ANSWER: No more. e. 28(A)(3)(a)] The place of sale is irrelevant. b. 3. Money collected on tax levied for a special purpose to be used only for such purpose. and the grant must be made by the immediate representatives of the people. Law-making process: 1) Bill should embrace only one subject expressed in the title thereof. The general or indirect constitutional limitations as well as the specific or direct constitutional limitations. Delegated power of the President to impose tariff rates. revenue or tariff bills shall originate exclusively in the House of Representatives.” [NIRC of 1997.. tax. impose. Fortune Tobacco Corporation. c.It is not subject to the carrier’s tax based on gross Philippine billings because there were no lifts that originated from the Philippines. f. or tariff bill. No imprisonment for non-payment of a poll tax. “Gross Philippine Billings” refers to the amount of gross revenue derived from carriage of persons. Inc. such power being inherently legislative. k. i. g. No tax exemption without the concurrence of majority vote of all members of Congress. penal institutions. 2008) CONSTITUTIONAL LIMITATIONS 1. excess baggage. cargo and mail originating from the Philippines in a continuous and uninterrupted flight. R. Religious freedom. 2010) No taking of private property without just compensation. Presidential power to grant reprieves. The Supreme Court's power to review judgments or orders of lower courts in all cases involving the legality of any tax. Congress shall evolve a progressive system of taxation. excess baggage. and where the people have laid the power. Taxation shall be uniform and equitable.” [NIRC of 1997. Constitutional limitations on the power of taxation . Nos. No. 167274-75. parsonages and convents appurtenant thereto. Inc. 28(A)(3)(a)] 10 c. G. and all lands. 3) Printed copies in final form distributed three (3) days before passage. c. cargo and mail originating from the Philippines in a continuous and uninterrupted flight. (GPB). 19. (South African Airways v. d. d. All appropriation. bound for Nairobi. government orphanage or leprosarium. (Commissioner of Internal Revenue v. l. Sec. g. Authority of local government units to create their own sources of revenue. The specific or direct constitutional limitation. Due process clause. b. h. Non-impairment clause. revenue. would be subject to the carrier’s tax based on Gross Philippine Billings. mosques. No use of public money or property for religious purposes except if priest is assigned to the armed forces. This time Obama. irrespective of the place of sale or issue and the place of payment of the ticket or passage document. Angeles. 180356.

Automatic release of local government's just share in national taxes. January 20. G. (Santos. All that is required of a valid classification is that it be reasonable. If the groupings are characterized by substantial distinctions that make real differences. supra) 8. etc. The traditional (or rational basis) test. et al. etc. 9.e. Maryland. The intermediate level of scrutiny (or quasi-suspect class) test. that they committed identical acts for which they were charged with the violation of the same provisions of the NIRC. p.S. No. and . G.” or ”capricious. both as to the privileges conferred and liabilities enforced. under like circumstances and conditions. R. the classification should be based on substantial distinctions which make for real differences. Tests to determine validity of classification. 220 U. The strict scrutiny (or compelling interest) test used in order to determine the validity of the classification. et al. 61. (Lindsley v. August 14. endowments. (Tiu. The recognized tests are: a. Tax exemption of grants. 420. Equal protection does not demand absolute equality. m. Tax exemption of all revenues and assets of proprietary or cooperative educational institutions subject to limitations provided by law including restrictions on dividends and provisions for reinvestment of profits. Doe.guidelines and limitations imposed by Congress consistent with the basic policy of local autonomy. R. that it must not be limited to existing conditions only. 127410. nonprofit educational institutions used actually. o. Natural Carboinic Gas Co.. Boren. directly and exclusively for educational purposes. et a l. The classification is valid if it is rationally related to a constitutionally permissible state interest. c. 449 U.. it was held that denial of free public education to the children of illegal aliens imposes an enormous and lasting burden based on a status over which the children have no control is violative of equal protection because there is no showing that such denial furthers a “substantial” state goal.S. August 26. The standard is satisfied if the classification or distinction is based on a reasonable foundation or rational basis and is not palpably arbitrary.. [ABAKADA Guro Party List. n..” but neither are they judged by the traditional or rational basis test. one class may be treated and regulated differently from another. v. (Plyler v. v. People. Fritz. McGowan v. 2008] 10. No. b.S. Requisites for valid classification. The intermediate level of scrutiny (or quasi-suspect class) test used in order to determine the validity of he classification. directly and exclusively for educational purposes subject to conditions prescribed by law. 190) It is imperative to duly establish that the one invoking equal protection and the person to which she is being compared were indeed similarly situated. donations or contributions used actually. 429 U. Court of Appeals. 11 that they presented similar arguments and evidence in their defense yet. b.R.S. (Santos v. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class. Purisima. they were treated differently. The United States Supreme Court has established different tests to determine the validity of a classification and compliance with the equal protection clause. Tax exemption of all revenues and assets of non-stock. A classification is necessary when it is narrowly drawn so that no alternative. 457 U. The traditional (or rational basis) test used in order to determine the validity of classification. The complainant must prove that the classification is “invidous. 1999)  6. (Craig v.” “wholly arbitrary. Classification based on gender or legitimacy are not “suspect. et al. 173176. that it must apply equally to each member of the class. G. 366 U.. 166715. It merely requires that all persons shall be treated alike.” otherwise the classification is presumed to be valid. is subject to strict scrutiny and considered to violate the equal protection clause unless found necessary to promote a compelling state interest. 202) 7. Government regulation that intentionally discriminates against a “suspect class” such as racial or ethnic minorities. The strict scrutiny (or compelling interest) test.. Thus.S. Equal protection of the law clause is subject to reasonable classification. that it must be germane to the purpose of the law. c. less burdensome means is available to accomplish the state interest. 2008) 11.. 166) 5. Intentional discriminations against members of a quasi-suspect class violate equal protection unless they are substantially related to important government objectives. and d. United States Railroad Retirement Board v. No. which means that a. i.

(Kahn v. 416 U.Thus. including granting a 50% discount in the payment of unpaid real estate taxes. It would be unconscionable. the law concerns only the BIR and the BOC because they have the common distinct primary function of generating revenues for the national government through the collection of taxes.. is not.. the taxing authority has the prerogative to select the subjects and objects of taxation. such substantial distinction is germane and intimately related to the purpose of the law. People. G. The prosecution of one guilty person while others equally guilty are not prosecuted. Arguing that the ordinance rewards delinquent tax payers and discriminates against prompt ones. however. With respect to RA 9335. Benjie demands that he be refunded an amount equivalent to onehalf of the real property taxes he paid.. infringe no constitutional limitation. G. Since the subject of the law is the revenue. has been held valid for it furthers the state policy of cushioning the financial impact of spousal loss upon the sex for whom that loss usually imposes a heavier burden. Purisima. for instance. Will his suit prosper ? Explain your answer briefly. August 14. an erroneous or mistaken performance of the statutory duty. Likewise. No. and the condonation of all penalties on fines resulting from late payment. resulting in its unequal application to those who are entitled to be treated alike. In such a case. The unlawful administration by officers of a statute fair on its face. the result would be that the trial of the district attorney for nonfeasance would become an issue in the trial of many persons charged with heinous crimes and the enforcement of law would 10. The municipal attorney rendered an opinion that Benjie cannot be reimbursed because the ordinance did not provide for such reimbursement. Hence. 351) 12 12. R. is not without more a denial of the equal protection of the laws. it does not follow that they are to be protected in the commission of crime. et al. although a violation of the statute. or it may only be shown by extrinsic evidence showing a discriminatory design over another not to be inferred from the action itself. the terms would mean that all subjects and objects of taxation which are similarly situated shall be subject to the same burdens and granted the same privileges without any discrimination whatsoever. an ordinance is passed by Soliman City granting a 50% discount for payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on fines resulting from the late payment. is not a denial of equal protection unless there is shown to be present in it an element of intentional or purposeful discrimination. 11. No. v. by itself. or exemption. Equal protection should not be used to protect commission of crime. The rewards law to tax collectors does not violate equal protection. to excuse a defendant guilty of murder because others have murdered with impunity. but not widowers. There is a valid classification between those who already paid their taxes and those who have not..generation capability and collection of the BIR and the BOC. et al. fees and charges. 2008) 12. that is. This may appear on the face of the action taken with respect to a particular class or person. Benjie files suit to declare the ordinance void on the ground that it is a class legislation. et al. Equality and uniformity of taxation may mean the same as equal protection. Where the official action purports to be in conformity to the statutory classification. the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection. While all persons accused of crime are to be treated on a basis of equality before the law. (Santos v. 13. 166715. It is inherent in the power to tax that the State be free to select the subjects of taxation . (ABAKADA Guro Party List. v." (Commissioner of Internal Revenue. Indubitably. 277 SCRA 617) classification. it’s expressed public policy is the optimization of the revenue-generation capability and collection of the BIR and the BOC. customs duties.S. a denial of the equal protection of the laws. There is no class legislation because there is no violation of the equal protection suit. Moreover. a classification that has a reasonable foundation or rational basis and not arbitrary. and it has been repeatedly held that. if the failure of prosecutors to enforce the criminal laws as to some persons should be converted into a defense for others charged with crime. Shevin. etc. Santos. 173176. etc. et al. SUGGESTED ANSWER: No. "inequalities which result from a singling out of one particular class of taxation. R. Due to a series of typhoons and adverse economic conditions. a state law granting a property tax exemption to widows. the incentives and/or sanctions provided in the law should logically pertain to the said agencies. August 26. Benjie is a law-abiding citizen who pays his real estate taxes promptly. Furthermore. The equal protection clause recognizes a valid .. 2008)  9.

(Smart Communications. v. Sec. R. alteration. Inc. September 16. G. et al. Inc. 155491. through the exercise of prophetic discernment. A legislative franchise is granted with the express condition that it is subject to amendment. R. Inc. XII.. G. R. et al. It is thus. September 16.. fiscal or otherwise. 235 SCRA 630) 18. 2001 made the observation that since Smart’s franchise was granted after the effectivity of the Local Government Code that its tax exemption privilege was reinstated. v. 2008) citing Tolentino v. August 25. G. The City of Davao. v. within the meaning of the constitution. The primary reason for the withdrawal of tax exemption privileges granted to government owned and controlled corporations and all other units of government was that such privilege resulted to serious tax base erosion and distortions in the tax treatment of similarly situated enterprises.. City of Iloilo.. No... The Contract Clause has never been thought as a limitation on the exercise of the State’s power of taxation save only where a tax exemption has been granted for a valid consideration. Inc. G. No.suffer a complete breakdown. hence resulting in the need for these entities to share in the requirements of development. Inc.. No. 2009)  17. July 14. Coca-Cola Bottlers Philippines. to impose and collect a local franchise tax because the Local Government Code has withdrawn all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them. The City of Davao. (Santos v. 2008) 13 155491. 11) It is enough to say that the parties to a contract cannot. 7794. 19. etc. It is not clear whether the exemption would include both local. 143867. Inc. but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. R.. (1987 Constitution. v. 20. 109791. (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila. G. upheld the authority of the City of Davao. whether . National Power Corporation (NPC) is of the insistence that it is not subject to the payment of franchises taxes imposed by the Province of Isabela because all of its shares are owned by the Republic of the Philippines. fetter the exercise of the taxing power of the State. August 4. “In lieu of all taxes” in the franchise of ABS-CBN does not exempt it from local franchise taxes. since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila. 173176. When withdrawal of a tax exemption impairs the obligation of contracts. Tax exemptions in franchises are always subject to withdrawal. et al. The withdrawal of a tax exemption should not be construed as prohibiting future grants of exemption from all taxes. 2008) NOTES AND COMMENTS: Philippine Long Distance Telephone Company. G. by paying the taxes and other charges due them. 155491. R... (3) by the same taxing authority – City of Manila. A lawful tax on a new subject. v. City of Davao. People. August 26... Smart Communications. Inc. (Smart Communications. (The City of Manila. August 22. No. etc. there is indeed double taxation if Coca-Cola is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. (5) for the same taxing periods – per calendar year. does not interfere with a contract or impairs its obligation. or repeal. Secretary of Finance. No. However. August 22. R. v. 181845. et al. It does not expressly provide what kind of taxes ABS-CBN is exempted from. Philippine Long Distance Telephone Company. etc. For not only are existing laws read into contracts in order to fix obligations as between parties. or an increased tax on an old one. 143867. As such it is not a private corporation engaged in “business enjoying franchise” Is such contention meritorious ? SUGGESTED ANSWER: No. 115455. City of Davao. 235 SCRA 630. and companion cases. v. R. 2001. G. et al. (Philippine Long Distance Telephone Company. 143867. (Philippine Ports Authority v. 685) The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others) 14. et al. Art. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. G.. et al. a local government unit. Illustration of double taxation in local taxation.. 2003) 15. No. R. 2001) 16... August 22. No. et al. Secretary of Finance. etc.  13. City of Davao. (Tolentino v.. and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business. 1994. (2) for the same purpose – to make persons conducting business within the City of Manila contribute to city revenues. etc. G. etc. No. No. an instrumentality of the National Government which is exempt from local taxation. G.. No. 2008 is explicit in its holding that Smart is not entitled to a tax exemption. et al. R. The City of Davao. R. September 16.

2008) NOTES AND COMMENTS: This is practically the same holding in an earlier case involving another telecommunications company Smart Communications. Taxing all of the subjects or objects for the first time without taxing all of them for the second time. G. City of Davao. the same paragraph declares that the tax returns "shall be subject to audit by the Bureau of Internal Revenue. No. v. Congress did not expressly exempt Smart from local taxes. ABSCBN Broadcasting Corporation.. Indirect duplicate taxation is not anathematized by the above constitutional limitations. Inc. Double taxation in its generic sense.municipal. as follows: x x x in lieu of any and all taxes of any kind. No. et al . R. The proviso in the first paragraph of Section 9 of Smart's franchise states that the grantee shall "continue to be liable for income taxes payable under Title II of the National Internal Revenue Code. The "in lieu of all taxes" clause does not apply to local taxes. September 16. October 6. Inc. Elements of direct duplicate taxation: Same 1) Subject or object is taxed twice 2) by the same taxing authority 3) for the same taxing purpose 4) during the same taxable period b. Verily. No. Congress used the "in lieu of all taxes" clause only in reference to national internal revenue taxes. is that the "in lieu of all taxes" clause in Smart's franchise refers only to national and not to local taxes.  21. It cannot apply when what is paid is a tax other than a franchise tax. 166408. other than income tax. R. city or provincial. uniformity and equitableness of taxation. et al. Inc. 571. it may mean direct duplicate taxation. No. municipal." Also.. 155491.)  23. Congress could have used the language in Section 9(b) of Clavecilla's old franchise. The right to exemption from local franchise tax must be clearly established and cannot be made out of inference or implications but must be laid beyond reasonable doubt. The only interpretation. 22. Inc. v." Nothing is mentioned in Section 9 about local taxes.) 14 provincial or national. 2008. R.  24. G. No. The City of Davao. However. nature or description levied. imposed under the National Internal Revenue Code. G. from which the grantee is hereby expressly exempted.. R. etc. Smart Communications." Moreover. ABS-CBN has the burden to prove that it is in fact covered by the exemption so claimed but has failed to do so. If Congress intended the "in lieu of all taxes" clause in Smart's franchise to also apply to local taxes. etc. (Quezon City. The “in lieu of all taxes” clause applies only to national internal revenue taxes and not to local taxes. under the rule on strict construction of tax exemptions. established or collected by any authority whatsoever. ABS-CBN Broadcasting Corporation. The City of Davao. and national tax. As appropriately pointed out in the separate opinion of Justice Antonio T. G. 166408. . 2008) NOTES AND COMMENTS: This is practically the same holding in an earlier case involving another telecommunications company. R. et al. (Quezon City. this means taxing the same subject or object twice during the same taxable period. Whether the “in lieu of all taxes provision” would include exemption from local tax is not unequivocal.. the uncertainty in the “in lieu of all taxes” provision should be construed against ABS-CBN. Even with respect to national internal revenue taxes. The clause “in lieu of all taxes” does not pertain to VAT or any other tax. v. 447 Phil. [Smart Communications. The City of Davao. et al. a. 594 (2003)] NOTES AND COMMENTS: The author opines that the above finds application to all telecommunications companies. 155491. the “in lieu of all taxes” clause has now become functus officio.. etc. Congress would have expressly mentioned the exemption from municipal and provincial taxes. September 16. the second paragraph of Section 9 speaks of tax returns filed and taxes paid to the "Commissioner of Internal Revenue or his duly authorized representative in accordance with the National Internal Revenue Code. The clear intent is for the "in lieu of all taxes" clause to apply only to taxes under the National Internal Revenue Code and not to local taxes. which is prohibited under the constitution because it violates the concept of equal protection. Carpio in a similar case involving a demand for exemption from local franchise taxes: [T]he "in lieu of all taxes" clause in Smart's franchise refers only to taxes. 2008. 2008 citing Philippine Long Distance Telephone Company. et al. G. October 6. the "in lieu of all taxes" clause does not apply to income tax. v. v. (Emphasis supplied). 155491. In its particular sense... rendered inoperative. x x x. Since the franchise tax on the broadcasting companies with yearly gross receipts exceeding ten million pesos has been abolished. The “in lieu of all taxes” clause in the franchise of ABS-CBN has become functus officio with the abolition of the franchise tax on broadcasting companies with yearly gross receipts exceeding Ten Million Pesos.. v. “In lieu of all taxes” refers to national internal revenue taxes and not to local taxes. The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others. The author opines that since practically all franchises granted to telecommunications companies are similarly worded that the above doctrine finds application to the others. September 16.

NOTES AND COMMENTS: a.. (Commissioner of Internal Revenue v. et al. taxing the same subject or object twice. 127105. If only the 1 st element is present.. etc. R. Central Luzon Drug Corporation. [Abakada Guro Party List (etc. 168056. 2005) 31.) v.C. September 1..If any of the elements are absent then there is indirect duplicate taxation which is not prohibited by the constitution. etc. G. inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax. Presence of the 2nd element violates the equal protection clause. Are the contentions of such weight as to constitute grave abuse of discretion which may invalidate the law ? Explain briefly. et al.. G. No. 159647. A tax deduction is defined as a subtraction fro income for tax purposes.) v. 1994. including –whenever applicable – the income tax that is determined after applying the corresponding tax rates to taxable income. sales taxes which perhaps are the oldest form of indirect taxes. Johnson and Son.. 2005 and companion cases]   27. The VAT while regressive is NOT violative of the mandate to evolve a progressive system of taxation. 159647. 1999)  30. 168056. (Commissioner of Internal Revenue v. Tax credits where foreign taxes are allowed as deductions from local taxes that are due to be paid. 28. The petitioners allege that the R-VAT law is constitutional because the Bicameral Conference Committed has exceeded its authority in including provisions which were never included in the versions of both the House and Senate such as inserting the stand-by authority to the President to increase the VAT from 10% to 12%. 32. etc. April 15. Ermita. Sales taxes are also regressive. Secretary of Finance. or a deduction from what is owned. (Commissioner of Internal Revenue v. taxing all of the subjects and objects for the first time. Tax treaties which exempts foreign nationals from local taxation and local nationals from foreign taxation under the principle of reciprocity. 1950 regarding other kinds of taxes in addition to the value-added tax. hence violative of the equal protection clause. R. this would be known as international juridical double taxation which is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical grounds. results to discrimination among subjects and objects that are similarly situated. directly and . a. G. A tax credit reduces the tax due. Double taxation a valid defense against the legality of a tax measure if the double taxation is direct duplicate taxation. and including the amendments introduced only by Senate Bill No. 2005) 25.. June 25. The presence of the 2 nd element. . c. Ermita. No. No. 235 SCRA 630] 29. [Abakada Guro Party List (etc. When an item of income is taxed in the Philippines and the same income is taxed in another country. without taxing all for the second time. No. No. because it would violate the equal protection clause of the constitution. b. would have been prohibited with the proclamation of the constitutional provision. non-profit educational institutions that are actually. Thus. there was a violation of the constitutional mandate that revenue bills shall originate exclusively from the House of Representatives. deleting entirely the no pass-on provisions found in both the House and Senate Bills. R. or an amount that is allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due. Methods for avoiding double taxation (indirect duplicate taxation). Tax credit generally refers to an amount that is subtracted directly from one’s total tax liability.. S. R. September 1. G. R. Otherwise. G. there is no violation of the equal protection clause because all subjects and objects that are similarly situated are subject to the same burdens and granted the same privileges without any discrimination whatsoever. by the same taxing authority. Allowing foreign taxes as a deduction from gross income. et al. Central Luzon Drug Corporation. 15 A tax deduction reduces the income that is subject to tax in order to arrive at taxable income. The Bicameral Conference Committee merely exercised the judicially recognized long-standing legislative practice of giving said conference committee ample latitude for compromising differences between the Senate and the House. Inc. All revenues and assets of non-stock. SUGGESTED ANSWER: No. April 15. August 25. et al. There was no grave abuse of discretion because all the changes and modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation. No. G. an allowance against the tax itself. Do you agree ? The mandate to Congress is not to prescribe but to evolve a progressive system of taxation. 26. 2005 and companion cases citing Tolentino v. 115455.R..

16 exclusively used for educational purposes shall be exempt from taxation. (Domingo v. Commission on Audit. it is correct to say that the offsetting of a taxpayer’s tax refund with its alleged tax deficiency is unavailing under Art.. and that the debts are both due and d. The claims were certain since there were no doubts or disputes as to their refundability. Compensation takes place by operation of law. other the exemptions granted to cooperatives. . Inc. Compensation takes place by operation of law under Art. in consequence of Articles 1278 and 1279 of the Civil Code. property or service assignable may be a subject c. and that the debts are both due and demandable. demandable. In fact. 1279 and 1290 all of the Civil Code. Inc 172 SCRA 364) e. Exceptions: When set-off or compensation allowed for local taxes. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each other and a claim for taxes is not such a debt. a. the claims of the taxpayers therein were certain and liquidated. Taxes are not contractual obligations but arise out of a duty to. (Domingo v. the government admitted the fact of over-payment. may be entitled to exemptions subject to limitations provided by law including restrictions on dividends and provisions for reinvestments. 1279 of the Civil Code. SUGGESTED ANSWER: As a general rule. May there be compensation or set-off between a national tax and a debt ? Reason out your answer. where the local government and the taxpayer are in their own right reciprocally debtors and creditors of each other. Mambulao Lumber Co. TAX Basis Failure to Pay Mode of Payment Assignability Payment based on law may result in imprisonment generally payable in money not assignable unless it becomes a debt is not subject to compensation or setoff does not draw interest unless delinquent imposed by public authority Prescriptive periods for tax under NIRC DEBT based on contract or judgment no imprisonment payable in money. the BIR’s obligation to refund or off-set arises from the moment the tax was paid. While judgment should be rendered in favor of . 2010 reiterating Caltex Philippines. Esso Standard Eastern. contract or judgment as is allowed to be set-off. Distinguish tax from debt. v. 1200 in relation to Arts. to the making and enforcing of which the personal consent of the individual taxpayer is not required. Where both claims already become overdue and demandable as well as fully liquidated. Revenues and assets of proprietary educational institutions. G. (Commissioner of Internal Revenue v. February 16. (Domingo v.. Garlitos. 8 SCRA 443) b. Garlitos. including those which are cooperatively owned. which applied Francia v. Inc. (Commissioner of Internal Revenue v. Esso Standard Eastern. In case of a tax overpayment.R. Intermediate Appellate Court ) 4. Thus. This is in consequence of Article 1278 and 1279 of the Civil Code. Lifeblood theory. demand. 4 SCRA 622) OTHER CONCEPTS 1. Compensation takes place by operation of law. 33. In both cases. 180356. 172 SCRA 364) Interest Authority Prescription draws interest if stipulated or delayed can be imposed by private individuals debt under the Civil Code WARNING: Do not use the above arrangement in answering Bar questions. and are the positive acts of government. there could be no compensation or set-off between a tax and a debt for the following reasons: a. Commissioner of Internal Revenue. b. (Republic v. There is no law at the present which grants exemptions. 2. Garlitos. 8 SCRA 443)  3. where the government and the taxpayer are in their own right reciprocally debtors and creditors of each other. No. 8 SCRA 443) c. REASON: Solutio indebeti.The Supreme Court upheld the validity of a set-off between the taxpayer and the government. (South African Airways v.

In case of doubt. In answering the question of who is subject to tax statutes. A tax cannot be imposed without clear and express words for that purpose. In case of a tax overpayment. Inc. since taxation is the rule and exemption the exception. 302) 6. (Commissioner of Internal Revenue v. judgment ought at the same time to issue for Sampaguita Pictures commanding payment to the latter by the Republic of the value of the backpay certificates which the Republic received... Court of Appeals. Taxes are what civilized people pay for civilized society. R. The judgment has become final although execution has not issued. Accordingly. For exemptions from taxation are not favored in law. demandable and fully liquidated. the intention to make an exemption ought to be expressed in clear and unambiguous terms. Such was the holding in Domingo v.. supra citing Agpalo. Upon receiving an assessment for municipal sales taxes from the Municipal Treasurer. March 18. 2008 citing CIR v. Ericta. 11. is not the similar doctrine as that applied to tax exemptions.. R. 2001 which held that in order for the rule on solutio indebeti to apply it is an essential condition that the petitioner must first . nor are they presumed. Gilbert executed a partial assignment of his judgment sufficient to cover the assessment in favor of the Municipality. Thus. No. R..E. (Ibid. 338 Phil. and unambiguously. G. Fortune Tobacco Corporation.Republic for unpaid taxes. 293 SCRA 92. 167274-75. October 6. Otherwise stated. 330-331 (1997)] As burdens. Esso Standard Eastern. 8. ABS-CBN Broadcasting Corporation .. (Lincoln Philippine Life Insurance Company. [Commissioner of Internal Revenue v. v. Court of Appeals. etc. Statutory Construction. G. 2003 ed. et al. 166408. v. July 6. R. Nos. Why are tax exemptions are strictly construed against the taxpayer and liberally in favor of the State ? SUGGESTED ANSWER: Taxes are necessary for the continued existence of the State. et al. No.E. It has been held that “exemptions are never presumed the burden is on the claimant to establish clearly his right to exemption and cannot be made out of inference or implications but must be laid beyond reasonable doubt. No. 261 SCRA 667. (Quezon City. 172 SCRA 623) 17  5. supra citing Agpalo. May the Municipal Treasurer validly accept the assignment? Why? SUGGESTED ANSWER: Yes. 141658.. 680) The burden of proof rests upon the party claiming the exemption to prove that it is in fact covered by the exemption so claimed.R. G. tax laws must be construed strictly against the State and liberally in favor of the taxpayer because taxes. v. 8 SCRA 443. 120082. Inc. taxation is the rule. the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. R. (Quezon City. They must be expressed in the clearest and most unambiguous language and not left to mere implications. No. 322. it is basic that in case of doubt. July 21. September 11. 99) 7. 172 SRCA 364) unduly exacted nor assumed beyond the plain meaning of the tax laws. (Republic v. as burdens which must be endured by the taxpayer. Strict interpretation of tax exemption laws. Rationale for strict interpretation of tax exemption laws. p. where the BIR’s obligation to refund or set-off arises from the moment the tax was paid under the principle of solutio indebeti. 2005. The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does so clearly. G. 453 SCRA 668) 12. should not be presumed to go beyond what the law expressly and clearly declares. G.R. 1996. such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. exemption is the exception. 301) 9. 2008) He who claims an exemption from his share of common burden must justify his claim that the legislature intended to exempt him by unmistakable terms. A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken. Court of Appeals. a case decided by the Supreme Court whose factual antecedents are similar to the problem. G. The parties in this case are mutually debtors and creditors of each other.R. compensation takes place by operation of law. 166408. Interpretation in the imposition of taxes. 2008 citing Mactan Cebu International Airport Authority v. et al. citing CIR v. October 6. taxes should not be 10. p. et al. (Quezon City. v. No.. 134114. Marcos. fairness and equality of treatment among taxpayers. They are the lifeblood of the nation. expressly.. But note Nestle Phil. and since both of the claims became overdue. Inc. The basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions is to minimize differential treatment and foster impartiality. 2003 ed.. ABS-CBN Broadcasting Corporation. (Quezon City. Statutory Construction.. statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority.. Philippine American Accident Insurance Company. In other words. Gilbert obtained a judgment for a sum of money against the municipality of Camiling. Garlitos.

which covers not only mistake in fact but also mistake in law. and to 17. Philex Mining Corp. is never favored nor presumed in law. 293 SCRA 92. Inc. Inc. (Commissioner.. supra) 16. 472 (1967). Tax exemption is a result of legislative grace. supra) 15. 2008 citing Surigao Consolidated Mining Co... Fortune Tobacco Corporation. Commissioner of Internal Revenue . similar to a tax exemption. v. v. Vera. 9 March 1987. Fireman’s Fund Insurance Co. [Commissioner. 453 Phil. The taxpayer must show that the legislature intended to exempt him from the tax by words too plain to be mistaken. which cannot be allowed unless granted in the most explicit and categorical language. Tax refunds premised upon a tax exemption strictly construed. 33. much like a tax exemption. [Commissioner. L-30644. A tax amnesty. Commissioner of Internal Revenue and Court of Tax Appeals. Strict interpretation of a tax refund that partakes of the nature of a tax does not apply to tax refund based on erroneous payment or where there is no law that authorizes collection of the tax. No. Gonzales Puyat & Sons v. and the latter has the duty to refund without any unreasonable delay what it has erroneously collected. a clean . Ramie Textiles. 37 (1963)] 13. It should not unjustly enrich itself at the expense of taxpayers. (Commissioner. 220.. Manila Electric Company v. G. Tokyo Shipping Co. [Commissioner of Internal Revenue v. 314 Phil. Inc. 891892 (1998). 99) Indeed. supra citing Commissioner of Internal Revenue v. (Commissioner. Commissioner of Internal Revenue . R. supra at 732-733. 127 Phil.. And he who claims an exemption from the burden of taxation must justify his claim by showing that the legislature intended to exempt him by words too plain to be mistaken. Inc. Nos. The grant of a tax amnesty. City of Manila. supra citing Commissioner of Internal Revenue v. No. Court of Appeals.. July 21. 354 Phil. (Commissioner of Internal Revenue v. 22 October 1975. etc. [Commissioner. supra at 338) If the State expects its taxpayers to observe fairness and honesty in paying their taxes. supra . 297 in turn citing BPI-Family Savings Bank. 510. Arts. Inc. supra citing Phil. 324-325. Commission of Internal Revenue. [Commissioner. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or a tax law.R. A reversal of a BIR ruling favorable to a taxpayer would not necessarily create a perpetual exemption in his favor. CIR. . v. v. 572. supra citing CIVIL CODE. 119 Phil. 167274-75. Unless shown otherwise. supra] Tax refunds (or tax credits). July 21. 357-358. for after all the government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. January 30.. v. City of Manila. Tokyo Shipping Co. Fortune The purpose of tax amnesty is to a. G. (Commissioner. 67 SCRA 351. v. It partakes of an absolute waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. Puyat & Sons v. Commissioner of Internal Revenue v. supra citing AB Leasing and Finance Corporation v. R. 518 (2000)] And so. 2008) The rule is that tax exemptions must be strictly construed such that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention. 2154 and 2155) The Government is not exempt from the application of solutio indebiti. v. the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption. on the other hand. 330 SCRA 507. supra citing Ramie Textiles. the taxpayer expects fair dealing from the Government.. supra with a note to see Surigao Consolidated Mining Co. 148 SCRA 315. v.. 2009) 14. Commissioner of Internal Revenue. G. Commissioner of Internal Revenue . Hon. et al. it must hold itself against the same standard in refunding excess (or erroneous) payments of such taxes. Davao Gulf Lumber Corp. 2142. are not founded principally on legislative grace but on the legal principle which underlies all quasi-contracts abhorring a person’s unjust enrichment at the expense of another. No. Acetylene Co. 461. the disputable presumption of regularity of performance of duty lies in favor of the Collector of Customs. v. Commissioner of Internal Revenue . v. v. Effect of a BIR reversal of a previous ruling interpreting a law as exempting a taxpayer. Nos. Mathay . et al. et al. 482 (1979). 117 Phil. give tax evaders who wish to relent a chance to start slate. Surigao Consolidated Mining Co. etc. must be construed strictly against the taxpayer and liberally in favor of the taxing authority. (Philippine Banking Corporation. 18 Tobacco Corporation. Mathay. Inc. 579 (1999). 178 Phil. given its essence.R. 985 (1963)] A claim for tax refund may be based on statutes granting tax exemption or tax refund. 170574. (Lincoln Philippine Life Insurance Company. L-29987. 167274-75. Court of Appeals . Inc. 228 (1995)] The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract.show that its payment of the customs duties was in excess of what was required by the law at the time the subject 16 importations of milk and milk products were made. Ltd . R.. a legislative grace. solutio indebiti.. G. G. Sr. In such case. There is parity between tax refund and tax exemption only when the former is based either on a tax exemption statute or a tax refund statute. a claim for tax refund necessitates only preponderance of evidence for its approbation like in any other ordinary civil case. 365 Phil.

Tax avoidance is the use of legally permissible means to reduce the tax while tax evasion is the use of illegal means to escape the payment of taxes. (Ibid. 102967. Third Edition. 167274-75. 167274-75.. 147188. et al. No. Toda. b. (Vogel. as if no reduction has been made. to ensure an equitable distribution of the tax burden and to simplify tax administration by classifying cigarettes. December 6. . any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability.e. 5 (F). Tax evasion warrants the imposition of civil. a freedom from a charge or burden to which others are subjected. among others. Venice H. G. Tax avoidance distinguished from tax evasion. A taxpayer who authorizes the Commissioner to inquire into his bank deposits. 19. b. (Commissioner of Internal Revenue v. Castaneda. medium and low-priced based on their net retail price and accordingly graduating tax rates. and c. 1405. 2004) 2. an accompanying state of mind which is described as being “evil” on “bad faith. Act No. the tax benefits are cancelled out. 20. Nos. No. supra) WHILE tax exemption has prospective application. Rep. the Commissioner of Internal Revenue is only authorized to inquire into the bank deposits of: a. G. February 10. There may be instances where a particular income is exempt from taxation in order to encourage foreign investments which may lead to economic development. G. v. G. p. July 21. No. Fortune Tobacco Corporation. such incentives are siphoned off since. and b. or the non-payment of tax when it is shown that a tax is due. Klaus on Double Taxation Conventions. Tax avoidance is legal while tax evasion is illegal. R. The shift from the ad valorem system to the specific tax system is likewise meant to promote fair competition among the players in the industries concerned. 1405. September 14. (Florer v. [Sec.. c. there would be no more tax to credit since there is no more tax to credit as a result of the tax exemption. NIRC of 1997] c. Tax amnesty is an immunity from all criminal. Purpose of shift from ad valorem system to specific tax system in taxation of cigarettes. The Tax Code has included under the term “corporation” partnerships. September 15. Fortune Tobacco Corporation. civil and administrative liabilities arising from nonpayment of taxes ( People v. (Commissioner of Internal Revenue v.) Thus. the Bank Deposits Secrecy Law prohibits inquiry into bank deposits. It is an immunity or privilege. L-46881.1255 cited in Segarra.. 2008) 22.b. (Commissioner of Internal Revenue v. into high. Nos. p.. R. Consequently. Sheridan. 2000) 19 18. a. a decedent to determine his gross estate. Purpose of the NIRC of 1997. in effect. The objective of tax avoidance in most instances is merely to reduce the tax that is due while is tax evasion the object is to entirely escape the payment of taxes. 28. Tax amnesty applies only to past tax periods. G. Jr. give the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. a course of action or failure of action which is unlawful.” “willful. As exceptions to Rep. when the tax method credit method is applied to these items of income. the need for the tax sparing provision. Tax Treaties: Trick or treat ?. .R. no matter how created or organized. Tax evasion connotes the integration of three The end to be achieved. i. Tax sparing is a provision in some tax treaties which provides that the state of residence allows as credit the amount that would have been paid. Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code. Philippine Daily Inquirer. C5) TAX ON INCOME 1. If the tax credit method is used. The Estate of Benigno P. hence of retroactive application (Castaneda. 36 NE 365) b.” or ”deliberate and not accidental”. (Banas. 137 Ind.R. Act No. July 21. Jr. a. 2002. factors: a. administrative and criminal penalties while tax avoidance does not. R. 3. etc. 1988) WHILE a tax exemption is an immunity from civil liability only. 2008) 21. NATIONAL INTERNAL REVENUE CODE ORGANIZATION AND FUNCTIONS OF THE BUREAU OF INTERNAL REVENUE 1. Tax amnesty distinguished from tax exemption. Court of Appeals. the payment of less than that known by the taxpayer to be legally due.

are 13. but who severally retain the title to their respective contribution. The cancellation and forgiveness of indebtedness or to a (c) capital may amount to (a) payment of income. 1999) 8. without becoming partners. (Commissioner of Internal Revenue v. 166 SCRA 560) 10. 2 nd Ed. pool. bought from the earnings of co-owned properties.) c. 139 SCRA 436) b. v. (Obillos. The term taxable income means the pertinent items of gross income specified in the Tax Code. App.  4. Persons who contribute property or funds to a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution. The common ownership of property does not itself create a partnership between the owners .. The sharing of gross returns does not of itself establish a partnership. 160 No. Joint venture or consortium formed for the purpose of undertaking construction projects engaging in petroleum. (Sec. January 20. 24 now Sec. General professional partnerships. it is income to the extent of the amount realized by the debtor as compensation for his services. (Spurlock v. p. . (Lakeland Grocery Co. less the deductions and/or personal and additional exemptions. (Ibid.. though they may use it for purpose of making gains. G. cited in Pascual v.W. geothermal. [1 st sentence. shall be treated as the income of an unregistered partnership to be taxable as a corporation because of the clear intention of the brothers to join together in a venture for making money out of rentals. 20 among themselves as to the management and use of such property and the application of the proceeds therefrom. 11. Collector. b. (b) gift. Income is gain derived and severed from capital. (Elements of the Law of Partnership by Floyd R. For example.. and no community of interest as principal proprietors in the business itself from which the proceeds were derived. Sec. 83.. 31. v. in consideration thereof. Mechem. BIRC of 1997] 7. Co-heirs who own inherited properties which produce income should not automatically be considered as partners of an unregistered corporation subject to income tax for the following reasons: a. Jr. coal. authorized for such types of income by the Tax Code or other special laws. 108576. include: a. NIRC of 1997) 9. 102 Phil. There is no contribution or investment of additional capital to increase or expand the inherited properties. 142 S. and therefore not subject to tax as corporations. from labor or from both combined. In Evangelista v. are not thereby rendered partners. transaction depending upon the circumstances. 74 cited in Pascual v. The insolvent debtor realizes income resulting from the cancellation or forgiveness of indebtedness when he becomes solvent. 3. Court of Appeals.joint-stock companies. Wilson. Certain business organizations do not fall under the category of “corporations” under the Tax Code . group. 140. (Commissioner v.R. There must be an unmistakable intention to form a partnership or joint venture. et al. Commissioner of Internal Revenue. If a creditor merely desires to benefit a debtor and without any consideration therefor cancels the amount of the debt it is a gift from the creditor to the debtor and need not be included in the latter’s income.. or venture is carried on. 24 (B) of the NIRC of 1997] 2. 22 (B). to tax a stock dividend would be to tax a capital increase rather than the income. and other energy operations. 363. joint venture or other unincorporated organization. merely continuing the dedication of the property to the use to which it had been put by their forebears.. 166 SCRA 560) 6. Commissioner of Internal Revenue. pursuant to an operation or consortium agreement under a service contract with the Government. the Supreme Court held citing Mertens that the term partnership includes a syndicate. joint accounts (cuentas en participacion). and they may. An insolvent debtor does not realize taxable income from the cancellation or forgiveness. Commissioner 36 BTA (F) 289) 5. [Sec. They have no common stock capital. cancels the debt. 43 Fd 327 CCA 10th) 12. Sec. The income from the rental of the house. If an individual performs services for a creditor who. financial operation. whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived. No. associations. if any. through or by means of which any business. Simmons Gin Co. Commissioner of Internal Revenue. or insurance companies. 14.

No less than our Constitution guarantees the protection of cooperatives. he shall be subject to income tax on his income derived from sources from within the Philippines.00 or one (1) sack of 50-kg. Thus.. Members of cooperatives not subject to tax on the interest earned from their deposits with the cooperative . fruits. which must be in the form of a tangible persona property other than cash or gift certificate. who has stayed in the Philippines for an aggregate period of more than 180 days during any calendar year. del Rosario. Uniforms and clothing allowance not exceeding P3. Article XII of the Constitution considers cooperatives as instruments for social justice and economic development. No. Laundry allowance not exceeding P300 per month. del Rosario. Regs. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year. A non-resident alien. Section 10 of Article II of the Constitution declares that it is a policy of the State to promote social justice in all phases of national development. Jr.00 received by an employee under an established written plan which does not discriminate in favor of highly paid employees.. In closing. c.. 20. 500 Phil.. Cruz: “The power of taxation. What are considered as de minimis benefits not subject to withholding tax on compensation income of both managerial and rank and file employees ? SUGGESTED ANSWER: a. for length of service or safety achievement. rice per month amounting to not more than P1. Section 2 of Article XIII of the Constitution states that the promotion of social justice shall include the commitment to create economic opportunities based on freedom of initiative and self-reliance. with an annual monetary value not exceeding P10. birth of a baby. 182722. Bearing in mind the foregoing provisions. (Tan v. Rev. (Philippine Branch) . Gifts given during Christmas and major anniversary celebrations not exceeding P5.g. Consequently.21 14. 2010) 19. [Sec. Jr. Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage.000. h.000. f. is considered as having been earned at the place where the activity or service was performed. other than compensation income.00 per annum. (Tan v. . R.000.g. the transaction has the effect of payment of a dividend. Payment for services. The Schedular system of income taxation is a system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer. 25 (A) (1). Compensation income is considered as having been earned in the place where the service was rendered and not considered as sourced from the place of origin of the money. 331) 17. shall be considered as a nonresident alien doing business in the Philippines. No. 50. Commissioner of Internal Revenue. G. b. Rice subsidy of P1. g. To borrow the words of Justice Isagani A.00 per employee per semester or P125 per month. Employees achievement awards. Medical cash allowance to dependents of employees not exceeding P750. Section 15. NIRC] He is allowed to avail of the itemized deductions including the personal and additional exemptions subject to the rule on reciprocity. Flowers.00 per annum. cooperatives. If a corporation to which a stockholder is indebted forgives the debt. Actual yearly medical benefits not exceeding P10. 237 SCRA 324.00. we find that an interpretation exempting the members of cooperatives from the imposition of the final tax under Section 24(B)(1) of the NIRC (tax on interest earned by deposits) is more in keeping with the letter and spirit of our Constitution. citing Commissioner of Internal Revenue v. including their members. d. Under the National Internal Revenue Code the global system is applicable to taxable corporations and the schedular to individuals. although taxes are the lifeblood of the government. At the same time. (Dumaguete Cathedral Credit Coopertive [DCCC)] etc..000 per employee per annum. 16. 331) 18. January 22.000. marriage. 237 SCRA 324. 586 (2005). and j. deserve a preferential tax treatment because of the vital role they play in the attainment of economic development and social justice. while indispensable. In relation thereto. The Global system of income taxation is a system employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of the individual. is not absolute and may be subordinated to the demands of social justice. e. Inc. 21. v. the State’s power to tax must give way to foster the creation and growth of cooperatives. e. i.” (Ibid.000. or similar items given to employees under special circumstances.  22. 2) 15. books. e. American Express International. (Sec. etc. on account of illness.

Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured whether in a single sum or otherwise. endowment or annuity contracts either during the term. 2. The payor of the income withholds the tax and remits it to the government as a final settlement of the income tax as a final settlement of the income tax due on said income. and an example of a deduction are losses. if the employer pays more than the ceiling prescribed by these regulations. the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30. Rev. or 2) For any cause beyond the control of said official or employee [Sec. f. 2-98]  24. Regs. [1 st par. c. Retirement benefits received under Republic Act No. employee or by his heirs. Amounts received for beyond control separation. SUGGESTED ANSWER: a. in accordance with the employer’s reasonable private benefit plan approved by the BIR. No. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines.78 (B) (1). 2-98 as amended by Rev. 2. such as retrenchment.000 ceiling of “other benefits” provided under Section 32 (B)(7)(e) of the Code. through accident or health insurance or Workmen’s Compensation Acts as compensation for personal injuries or sickness. . No. Regs. b.1 (A) (3). Amounts received. 2) WHILE deductions are the amounts which the law allows to be subtracted from gross income in order to arrive at net income. b. USVA benefits. plus the amounts of any damages received on whether by suit or agreement on account of such injuries or sickness. Regs. Income subject to “final tax” refers to an income collected through the withholding tax system. retirement gratuities. From the employer c. Distinguish exclusions from deductions. As a consequence of separation of such official or employee from the service of the employer because of 1) Death. 2. An example of an exclusion from gross income are life insurance proceeds. However. sickness or other physical disability. Retirement benefits received under Republic Act No. Exclusions from gross income refer to a flow of wealth to the taxpayer which are not treated as part of gross income for purposes of computing the taxpayer’s taxable income. b. that any amount given by the employer as benefits to its employees. What are the conditions for excluding retirement benefits from gross income. Sec. 2-98]  25. Exclusions are something received or earned by the taxpayer which do not form part of gross income WHILE deductions are something spent or paid in earning gross income. SSS benefits and GSIS benefits. [1 st par.  26. etc. Foreign social security. Regs. No. and (3) It does not come within the definition of income (Sec.78.78 (B). or upon surrender of the contract. e. c. 7641. or descent. Value of property acquired by gift. shall constitute as deductible expense upon such employer. 32 (B) (6) (b). Exclusions pertain to the computation of gross income WHILE deductions pertain to the computation of net income. d. b. What are excluded from gross income ? SUGGESTED ANSWER: a. What kind of separation (retirement) pay is excluded from gross income. NIRC of 1997] The retiring official or employee should not have previously availed of the privilege under the retirement plan of the same or another employer. (2) It is exempted by statute. Rev.The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30.000. 32 (B) (6) (a). Rev. Sec. bequest. hence tax-exempt ? SUGGESTED ANSWER: a. provided.00 ceiling. due to the following reasons: (1) It is exempted by the fundamental law. redundancy and cessation of business.  27. [Sec. (1) (b). Retiring official or employee 1) In the service of the same employer for at least ten (10) years. The recipient is no longer required to include the income subjected to a final tax as part of his gross income in his income tax return. 61. [Sec. further. Any amount received by an official.. whether individual or corporate. NIRC of 1997]. Rev. 2) Not less than fifty (50) years of age at time of retirement. hence tax-exempt ? SUGGESTED ANSWER: a. 7641 and those received by officials and employees of private firms. Retirement received from reasonable private benefit plan after compliance with certain conditions. or at maturity of the term mentioned in the contract. No. 8-2000] 22 23.. 3) Availed of the benefit of exclusion only once. whether classified as de minimis benefits or fringe benefits. devise. Amounts received by the insured as a return of premiums paid by him under life insurance. pensions. Regs.

estates and trusts may also deduct this expense. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Domestic corporations. resident alien individuals and nonresident alien individuals who are engaged in trade and business. trade or business. estates and trusts may also deduct this expense. Ordinary and necessary trade. on their gross incomes other from compensation income are allowed to deduct these expenses. wear and tear (including reasonable allowance for obsolescence) of property used in trade or business. Resident citizens. losses from casualty. Bad debts due to the taxpayer. Research and development expenditures treated as deferred expenses paid or incurred by the taxpayer in connection with his trade. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Domestic corporations. estates and trusts may also deduct this expense. and net operating losses. Resident citizens. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.  h. not deducted as expenses and chargeable to capital account but not chargeable to property of a character which is subject to depreciation or depletion. Domestic corporations. Domestic corporations. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. connected with profession.23 28. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. usually a natural resource. The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession. resident alien individuals and nonresident alien individuals who are engaged in trade and business. b. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Charitable and other contributions. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. on their gross incomes other from compensation income are allowed to deduct these expenses. theft or embezzlement. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. estates and trusts may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. on their gross incomes other from compensation income are allowed to deduct these expenses. i. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. resident alien individuals and nonresident alien individuals who are engaged in trade and business. estates and trusts may also deduct this expense. Resident citizens. estates and trusts may also deduct this expense. trade or business. c. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Depreciation or a reasonable allowance for the exhaustion. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Resident citizens. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. . Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. on their gross incomes other from compensation income are allowed to deduct these expenses. f. actually ascertained to be worthless and charged off within the taxable year. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. business or profession. What are the Itemized deductions from gross income and who may avail of them ? a. Resident citizens. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Domestic corporations. Ordinary losses. on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations. g. estates and trusts may also deduct this expense. Depletion or deduction arising from the exhaustion of a nonreplaceable asset. Resident citizens. Resident citizens. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. on their gross incomes other from compensation income are allowed to deduct these expenses.  d. on their gross incomes other from compensation income are allowed to deduct these expenses. Domestic corporations. not sustained between related parties. resident alien individuals and nonresident alien individuals who are engaged in trade and business. on their gross incomes other from compensation income are allowed to deduct these expenses. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Resident citizens. estates and trusts may also deduct this expense. business or professional expenses. Domestic corporations. Taxes paid or incurred within the taxable year in connection with the taxpayer’s profession.  e.

Ordinary expenses are usually incurred during a taxable year and benefits such taxable year. 172231. and resident alien on their gross incomes and from compensation income are allowed to deduct these premiums. Isabela Cultural Corporation. Isabela cultural Corporation. February 12. 172231. R. ( Commissioner of Internal Revenue v. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Compliance with the business test: 1) Must be ordinary and necessary. No. Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions. SUGGESTED ANSWER: Ordinary expenses are those which are common to incur in the trade or business of the taxpayer WHILE capital expenditures are those incurred to improve assets and benefits for more than one taxable year. G. the expense must be ordinary and necessary.  31.  30. b. Since the bills for legal and auditing services were received only in 2006 and paid in the same year. b. 2) Must be paid or incurred within the taxable year. Compliance with the substantiation test. 172231. Nonresident citizens and nonresident alien individual engaged in trade or business in the Philippine on their gross incomes from within may also deduct these premiums. Liabilities. c. or professional expenses. on their gross incomes other from compensation income are allowed to deduct these expenses. R. G.. Isabela cultural Corporation. In 2005 XYZ Law Firm and ABC Auditing Firm rendered various services which were billed by these firms only during the following year 2006. Nonresident citizens on their gross incomes from within may also deduct this expense. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. TMG or BIR ? Explain. Domestic corporations. and the (b) cash method. like expenses paid for legal and auditing services ? SUGGESTED ANSWER: a. Resident citizens. records or other pertinent papers. where there is created an enforceable liability. TMG deducted the same from its 2006 gross income. are incurred when fixed and determinable in nature without regard to indeterminacy merely of time of payment. 2007)  29. Amounts of income accrue where the right to receive them becomes fixed. kickbacks or other illegal expenditures b. there was already an obligation to pay them. No. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. 3) Must be paid or incurred in carrying on a trade or business. Resident citizens. What are the requisites for the deductibility of business expenses ? SUGGESTED ANSWER: The following are the requisites for deductibility of business expenses: a. G. Nonresident alien individuals engaged in trade or business in the Philippines are allowed to deduct these exemptions under reciprocity. TMG Corporation is issuing the accrual method of accounting. Personal and additional exemptions . SUGGESTED ANSWER: The BIR is correct. it must be supported by receipts. February 12.j. Recognition of income and expenses under the accrual method of accounting. 24 4) Must not be bribes. (Commissioner of Internal Revenue v. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct these premiums. expenditures. February 12. Distinguish ordinary expenses from capital  32. Proof by evidence or records of the deductions allowed by law including compliance with the business test. it must have been paid or incurred during the taxable year dependent upon the method of accounting upon the basis of which the net income is computed. 2007) NOTES AND COMMENTS: a. TMG should have deducted the professional and legal fees in the year they were incurred in 2005 and not in 2006 because at the time the services were rendered in 2005. resident alien individuals and nonresident alien individuals who are engaged in trade and business. on their gross incomes other from compensation income are allowed to deduct these expenses. k. business. Contributions to pension trusts. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Insurance premiums for health and hospitalization. 2007) The two (2) principal accounting methods for recognition of income are the (a) accrual method. (Commissioner of Internal Revenue v. What are the requisites for the deductibility of ordinary and necessary trade. . R. The BIR disallowed the deduction ? Who is correct. estates and trusts may also deduct this expense. l. Resident citizens. Necessary expenses are those which are appropriate or helpful to the business. No.

33 (A). The test does not demand that the amount of such income or liability be known absolutely. No. and f. 32(A). 2. except rank and file employees . Housing. Sec. [Sec. b. Rev.33 (B). 25 c. such as but not limited to: a. G. Rev. or efficiency of his employees. G. it must be determined with “reasonable accuracy” implies something less than an exact or completely accurate amount. February 12. No. Membership fees. 2-98 as amended by Rev. Regs. 2. The all-events test is satisfied where computation remains uncertain. or so-called “courtesy discounts” on purchases). e. dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations. Contributions of the employer for the benefit of the employee to retirement. contentment. Regs. Sec. business or profession of the employer. granted or paid by the employer to the employee. 2007) The accrual of income and expense is permitted when the all-events test has been met. such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction. [1st par.. e. NIRC of 1997. Regs. February 12. furnished or offered by an employer to his employees. 2. All-events test. 8-2000]  34. Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. goodwill.1 (A) (3). Rev.) c. Household personnel. 3-98] 33.. No. Expense account. or b. medical services. d.. Thus. They are not considered as compensation subject to income tax and consequently to withholding tax. i.33 (A). Holiday and vacation expenses. Fringe benefits which are authorized and exempted from income tax under the Tax Code or under any special law. Sec. 32 (C). The amount of liability does not have to be determined exactly. 172231. NIRC of 1997.(Commissioner of Internal Revenue v. When the fringe benefit is for the convenience or advantage of the employer. Regs. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue. if such facilities are offered or furnished by the employer merely as a means of promoting the health. Under the cash method income is to be construed as income for tax purposes only upon actual receipt of the cash payment. insurance and hospitalization benefit plans. 3-98] c. Expenses for foreign travel. No. such as maid. g. at the closing of its books for the taxable year. the test is satisfied where a computation may be unknown. No. (Ibid. Rev. Sec.  37. No. Sec. or necessary to the trade. Benefits given to the rank and file employees. 172231. It is also referred to as the “cash receipts and disbursements method” because both the receipt and disbursements are considered.78. d. if its basis is unchangeable. 2. The propriety of an accrual must be judged by the fact that a taxpayer knew. fringe benefit means any good. Regs. [Sec. or could reasonably be expected to have known. 1st par. and j. Accrual method of accounting presents largely a question of fact. 2007) d. within the taxable year. Isabela cultural Corporation. 1 st par. 2. NIRC of 1997... 3-98] 35. only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. De minimis benefits are facilities and privileges (such as entertainment. Rev. Preferred shares are considered capital regardless of the conditions under which such shares are issued and dividends or “interests” paid thereon are not allowed as . No. whether granted under a collective bargaining agreement or not. R.33 (C). Regs. 33 (B). When the fringe benefit is required by the nature of. Vehicle of any kind. What is meant by “fringe benefit” for purposes of taxation ? SUGGESTED ANSWER: For purposes of taxation. and 2) the availability of the reasonable accurate determination of such income or liability. This test requires: 1) fixing of a right to income or liability to pay. R. but is not as much as unknowable. [1st par. Isabela cultural Corporation. h. driver and others. Educational assistance to the employee or his dependents. (Commissioner of Internal Revenue v. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. [Sec. f. or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). 3-98] 36. service. income is recognized only upon actual receipt of the cash payment but no deductions are allowed from the cash income unless actually disbursed through an actual payment in cash. Fringe benefits that are not subject to the fringe benefits tax: a. The fringe benefits tax is a final withholding tax imposed on the grossed-up monetary value of fringe benefits furnished.

Bad debts are those which result from the worthlessness or uncollectibility.26 deductions from the gross income of corporations. Regs. Memorandum Circular No. 2. not treated as receipt of realized taxable income. 3. spouse. arising from money lent or from uncollectible amounts of income from goods sold or services rendered. or f. What is the “tax benefit” rule ? SUGGESTED ANSWER: The “tax benefit rule” posits that the recovery of bad debts previously allowed as deduction in the preceding year or years shall be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction. c. The debt must be actually ascertained to be worthless and uncollectible during the taxable year. No. and e. his subsequent recovery thereof from his debtor shall be treated as a receipt of realized taxable income. If the said taxpayer did not benefit from the deduction of the said bad debt written-off because it did not result to any reduction of his income tax in the year of such deduction (i. Court of Appeals. 103. living and family expenses of an individual allowed to be deducted from the gross or net income of an individual taxpayer. et al. 43. Sec. Two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned. by or for such individual. 25-2002. 17-71) (Revenue  41. of amounts due the taxpayer by others. Rev. (Sec. No. 4.e.  40. ancestors.. Philippine Refining Corporation v. c. Regs. What are personal and additional exemptions ? SUGGESTED ANSWER: These are the theoretical persona. The term is also applied to amortization of the value of intangible assets the use of which in the trade or business is definitely limited in duration. (Sec. These are arbitrary amounts which have been calculated by our lawmakers to be roughly equivalent to the minimum of subsistence. (Sec. business or practice of profession. 256 SCRA 667] g. NIRC of 1997. d. The family of an individual shall include only his brothers and sisters (whether by the whole or halfblood). 2) Hours of productive use. The debts are uncollectible despite diligent effort exerted by the taxpayer. Straight line method. Rev. he realized a reduction of the income tax due from him on account of the said deduction. Regs. f. (Sec. 5-99)  39. or e. 5-99) 42. Rev. [Sec. Regs. directly or indirectly. If in the year the taxpayer claimed deduction of bad debts written-off. The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year. The same must not be sustained in a transaction entered into between related parties. An individual and a corporation more than fifty percent (50%) in value of the outstanding stock of which is owned. The same must be connected with the taxpayer’s trade. [Sec. 34 (E) (1). They are fixed amounts in the sense that the amounts have . and lineal descendants. A fiduciary of a trust and a beneficiary of such. taking into account the personal status and additional qualified dependents of the taxpayer. Rev. by or for the same individual. and 4) Sinking fund method. Members of the same family. Rev. in whole or in part. Who are related parties ? SUGGESTED ANSWER: The following are related parties: a.a. then his subsequent recovery thereof shall be treated as a mere recovery or a return of capital. hence. The fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust. 3) Revaluation method. Depreciation is the gradual diminution in the useful value of tangible property resulting from ordinary wear and tear and from normal obsolescence. Declining balance method. 2) : 44. b. Regs. No. There must be an existing indebtedness due to the taxpayer which must be valid and legally demandable. A grantor and a fiduciary of any trust. The methods of depreciation are the following: a. Sum of years digits method. b. 5-99)  38. 36 (B). where the result of his business operation was a net loss even without deduction of the bad debts written-off). NOTES AND COMMENTS: a. Regs. b. NIRC of 1997] b. What are the requisites for valid deduction of bad debts from gross income ? SUGGESTED ANSWER: a. 4. 5-99 reiterated in Rev. Any other method prescribed by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue: 1) Apportionment to units of production. Must have been reported as receivables in the income tax return of the current or prior years. directly or indirectly. d. and d. c.

35 (A). [Pansacola v. d. 102008] 2. It is clear that under the amendment. 102008. if such dependent is 1) not more than twenty-one (21) years of age. or d. as amended. Sec. 45. 7-2003] 48. However. Examples of capital assets: Stock and securities held by taxpayers other than dealers in Jewelry not used for trade and business.000) for each individual taxpayer. be they relatives or not shall be accorded the privileges granted by the Code insofar as having dependents are concerned. . 2.a. 2. b. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. or c. No. BUT DOES NOT INCLUDE: a. Sec. Rev.000.. NIRC of 1997. Regs. Regs. married and head of the family for purpose of availing of the basic personal exemption has already been eliminated by Rep. “The Expanded Senior Citizens Act of 2003”] 45. Rev. Act 9257.been predetermined by our lawmakers and until our lawmakers make new adjustments on these personal exemptions.” [1st par. Act No. No.79 (I) (1) (b). In the case of married individuals where only one of the spouse is deriving gross income.000. No.00) c. and as such. 2-98 as amended by Rev. “A dependent means a. Act No. 9504. 39 (A) (1). a legitimate. securities. 9504] NOTES AND COMMENTS: a. 5 (a). Regs. What is the amount allowed as basic personal exemption ? SUGGESTED ANSWER: There shall be allowed a basic personal exemption amounting to Fifty thousand pesos (P50. illegitimate or legally adopted child b. and which are not included among the real properties considered as ordinary assets. NIRC of 1997. Act No. Automobiles not used in trade and business. Act No. 7-2003) The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business). provided that the total number of dependents for which additional exemptions may be claimed 1) shall not exceed four (4) dependents. whether single or married. No. numbering and arrangement supplied. shall be allowed an additional exemption of Twenty-Five Thousand Pesos (P25. November 16. Sec.a. as amended by Rep. the concept of head of a family does not find application anymore. Thus. Act No. Other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year. 2-98 as amended by Rev. 3) not gainfully employed or if such dependent. R. Rev. single individuals may now claim for the additional exemptions. Grandparents. [Sec. arrangement and numbering supplied. 9504. 9504. 2006 citing Madrigal and Paterno v. 1) regardless of age 2) is incapable of self-support 3) because of mental or physical defect . Furthermore. Rep. 102008. 9504] NOTES AND COMMENTS: It is clear from Rep.79 (I) (1) (b). Sec. Stock in trade of the taxpayer.000. Rev. chiefly dependent upon and living with the taxpayer c. 414. It is to be noted that under the NIRC of 1997. b. Furthermore. as amended by Rep. Sec. No. 2. individual taxpayers caring for them. the distinctions between the concepts of single. Regs. Regs. 38 Phil.. as amended by Rep. or real property used in the trade or business of the taxpayer. Regs. or b. d. 2-98 as amended by Rev. Commissioner of Internal Revenue. 2. Senior citizen shall be treated as dependents provided for in the National Internal Revenue Code. Capital assets shall refer to all real properties held by a taxpayer. the total familial basic personal exemption for spouses is P100. 35 (b). Sec. Sec. a. and other collateral relatives are not qualified dependents to be claimed as additional exemptions. NIRC of 1997 as amended by Rep. NIRC of 1997 as amended by Rep. Property used in the trade or business. arrangement and numbering supplied. [last par. Regs. 159991. No. (Sec. What are the amounts of additional exemptions ? SUGGESTED ANSWER: “An individual. G. of a character which is subject to the allowance for depreciation. only such spouse shall be allowed the personal exemption. a. 418 (1918)] 27 d. b. Act No. as well. 2) unmarried and 47. Rev. 35 (B). No. No. No. Act No. only qualified dependent children are considered for additional exemptions. 9504. the amounts allowed to be deducted by a taxpayer are fixed as predetermined by Congress. Rafferty and Concepcion. as amended by Rep. Act No.00. Regs. whether or not connected with his trade or business.” [2nd par. 9504 that each of the spouses may claim the P50. for each qualified dependent child. capitalized words. 7432. [Sec.00. parents. if they are senior citizens they may qualify as additional exemptions under the “Senior Citizens Law” but not under the NIRC of 1997. c.79 (I) (1) (a). c. as brothers or sisters. Residential houses and lands owned and used as such.

Sec. “Real property. owned by an individual engaged in business. the employment of an attorney-in-fact for the purpose of developing. 7-2003 has defined real property as having “the same meaning attributed to that term under Article 415 of Republic Act No. Regs. otherwise known as the ‘Civil Code of the Philippines. Ordinary assets shall refer to all real properties specifically excluded from the definition of capital asset s. Jr. 2. and who does not subsequently use such property in trade or business. and therefore considered as capital asset. 2.b. drainage and lighting systems converts the property to an ordinary asset.. hence an ordinary asset. Stock in trade of a taxpayer or other real property of a kind which would properly be included in the inventory of a taxpayer if on hand at the close of the taxable year. nails. concrete gutters. or condominium unit. namely: a. Real properties classified as capital or ordinary asset in the hands of the seller/transferor may change their character in the hands of the buyer/transferee. Sec. 72003) . No. etc. 386. Real property used in trade or business (i. (Sec. Real property received as dividend by stockholders who are not engaged in the real estate business and who not subsequently use such real property in trade or business shall be treated as capital assets in the hands of the recipient even if the corporation which declared the real property dividend is engaged in real estate business. 3. f. c..b. and as validated from the existing available records of the Bureau of Internal Revenue. Inherited large tracts of agricultural land which were subdivided pursuant to the government mandate under land reform. No. or other disposition of real property located in the Philippines. Real property used in trade or business of the taxpayer. annual sales income from the sales was considerable. This is so. Rev. c. which were subdivided into smaller lots then sold on installment basis after introducing comparatively valuable improvements  52. NIRC of 1997] Revenue Regulations No. Commissioner of Internal Revenue. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business.e. 7-2003 ) 28 not for the purpose of simply liquidating the estate but to make them more saleable . and the heir was not a stranger to the real estate business. or to a taxpayer who. paint. L-25043. Paintings. in case of condominium unit. classified as capital assets. whether single detached. Inherited parcels of land of substantial areas located in the heart of Metro Manila. 7-2003) 49. (Tuazon.. Court of Tax Appeals.” (last par. Rev.. No. The machinery and equipment of a manufacturing concern subject to depreciation. Real property transferred through succession or donation to the heir or donee who is not engaged in the real estate business with respect to the real property inherited or donated.c. 1968) g. such as a corporation included in the enumeration of Section 30 of the Code. as the owner is now engaged in the business of subdividing real estate. or b. glue. Regs. No. v. Inherited agricultural property improved by introduction of good roads. b. Regs. Tax treatment of real properties that have been transferred. etc. shall be considered as a capital asset in the hands of the heir or donee. The classification of such property in the hands of the buyer/transferee shall be determined in accordance with the following rules: a. b. 3. townhouse or apartment. shall be treated as capital asset. e. stamp collections.” (last sentence. “Real property used by an exempt corporation in its exempt operations. sales made with frequency and continuity. The condominium building owned by a realty company the units of which are for rent or for sale. or d. will use in business the property received in the exchange. sculptures. Rev.e.” [Sec. not used in trade or business as evidenced by a certification from the Barangay Chairman or from the head of administration. (Roxas v. Lingad.. The real property received in an exchange shall be treated as ordinary asset in the hands of the transferee in the case of a tax-free exchange by taxpayer not engaged in real estate business to a taxpayer who is engaged in real estate business. The tractors. buildings and/or improvements). 144 SCRA at p. exchange. townhouse. Regs. managing. 3. Regs. 7-2003)  50. 3 rd par. trailers and trucks of a hauling company. Rev. 24 (D) (1`).f. The tax is “imposed upon capital gains presumed to have been realized from the sale. (Sec. Rev. 672) 51. administering and selling the lots. or c. then sold to tenants. Examples of ordinary assets hence not capital assets: a. varnish. objects of arts which are not used in trade or business. 58 SCRA 170) f. The wood. (Calasanz v. of a character which is subject to the allowance for depreciation. which are the raw materials of a furniture factory. The property forms part of the stock in trade of the owner.’ (Sec. b. shall not be considered used for business purposes. d. No. 7-2003) h. April 26. even if not engaged in real estate business.

57. 27 (D) (5). a domestic corporation. [Sec. b. 713. (Gutierrez v. In case the mortgagor exercises his right of redemption within one (1) year from the issuance of the certificate of sale. 24 (D) (1). c. the current fair market value as determined below: 1) the fair market value or real properties located in each zone or area as determined by the Commissioner of Internal Revenue after consultation with competent appraisers both from the private and public sectors. within eighteen (18) calendar months from the date of sale or disposition c. and shall be paid within thirty (30) days from the expiration of the said one-year redemption period. including pacto de retro sales and other forms of conditional sales.. 4-99]  56. [Sec. based on the bid price of the highest bidder but only upon the expiration of the one year period of redemption provided for under Sec. and d. The seller of the real property. MBC was incorporated in 1961 and engaged in commercial banking operations since 1987. or b. by including the proceeds as part of gross income to be subjected to the allowable deductions and/or personal and additional exemptions. 2) Resident alien [Ibid. et al. b.29 Transactions covered by the presumed capital gains tax on real property: a. on gains from sales or other dispositions of real property. 24 (D) (2). both of the NIRC of 1997]. whether resident or not [Ibid. 24 (D) (1). it ceased operations that year by reason of insolvency and its assets and liabilities were placed under the charge of a . 24 (D) (1). the BIR Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption. 24 (D) (1). sale. 4) Nonresident alien not engaged in trade or business in the Philippines [Sec. Holding period not applied to the taxation of the presumed capital gains derived from the sale of real property considered as capital assets. Court of Tax Appeals. the proceeds of which is fully utilized in acquiring or constructing a new principal residence. an estate or trust (Ibid. classified as a capital asset. the presumed capital gains tax shall be imposed. [Sec. [Sec. NIRC of 1997] It does not matter whether there was an actual gain or loss because the tax is a “presumed” capital gains tax. then to the schedular tax [Sec. NIRC of 1997] 55. [Sec.  58. 24 (A) (1). 24 (D) (1) in relation to Sec. 6 of Act No. as amended by Act No. gross selling price. 3) Nonresident alien engaged in trade or business in the Philippines [Sec. in a foreclosure of mortgage sale of real property. 61.. no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. Gonzales v. In case of non-redemption of the property sold upon a foreclosure of mortgage sale.]. Excepted from the payment of the presumed capital gains tax are those presumed to have been realized from the disposition by natural persons of their principal place of residence a.].). The tax liability. [Sec. NIRC of 1997. classified as capital assets. if any. 6 (E). 861)  53. both of the NIRC of 1997] 54. at the option of the taxpayer. to the governm ent or any of its political subdivisions or agencies or to government owned or controlled corporations shall be determined. It is the transaction that is taxed not the gain. both of the NIRC of 1997]. 1) Citizen. NIRC of 1997]. Regs. 25 (A) (3) in relation to Sec. 4-99] 59. 1987. 101 Phil. or 2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. No. Regs. Court of Tax Appeals. 4118. pays the presumed capital gains tax whether: a. 3 (1). b. 25 (B) in relation to Sec. an individual [Sec. in relation to Sec. On May 22. both of the NIRC of 1997] or the final presumed capital gains tax of six percent (6%). Rev. 24 (D) (1) in relation to Sec. or other disposition. [Sec. 3 (2). the said tax exemption can only be availed of once every ten (10) years. of individual taxpayers (not corporate). exchange. The basis for the final presumed capital gains tax of six per cent (6%) is whichever is the higher of the a. No. 6 (E). numbering and arrangement supplied] d. Rev. 121 Phil. or other disposition” includes taking by the government through condemnation proceedings. c. 3135. et al. 24 (D) (1). exchange. “ Sale. both of the NIRC of 1997]  60.

He died in San Francisco. No. MBC is entitled to the grace period of four years from June 23. August 26. 1998. Thus. It filed its tax return for the year 1999 paying the amount of P33 million computed in accordance with the minimum corporate income tax (MCIT). when the minimum corporate income tax is greater than the tax computed under Subsection (A) of this section for the taxable year. Regs. 6. “A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year. to the extent of his interest existing therein at the time of his death. R. are his properties abroad to be included. Even if placed under receivership. No. 4-95) Clearly then. intangible or mixed. The MCIT shall be imposed beginning in the fourth taxable year immediately following the year in which the corporation commenced its business operations. Thus. is hereby imposed on a corporation taxable under this Title. 4-95 specifically refers to thrift banks. No. intangible or mixed. (Manila Banking Corporation v. NIRC of 1997] The date of commencement of operations of a thrift bank is the date it was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board. As a result of the ruling MBC filed an application for refund of the P33 million. The gross estate of a Filipino citizen or a resident alien comprises all his real property. situated in the Philippines. 1998 as it did not close its business operations in 1987 but merely suspended the same. R. 27 (E) (1). situated in the Philippines. Corporations still starting their business operations have to stabilize their venture in order to obtain a stronghold in the industry. Should the refund be granted ? SUGGESTED ANSWER: Yes. tangible. The gross estate of a non-resident alien comprises all his real property. No.  2. what constitutes gross estate ? SUGGESTED ANSWER: Yes. August 26. whichever comes later. Purpose of the four (4) year grace period. 9-98) Manila Banking Corporation v. Commissioner of Internal Revenue. MBC filed a petition for review with the CTA. [Sec. all his personal property. The MCIT and when should be imposed and the four (4) year grace period. California. On June 23. all his personal property. 2006) NOTES AND COMMENTS: a. Regs.” [Sec. Regs. as defined herein. Period when a corporation becomes subject to the MCIT. 2006) ESTATE TAXES 1. Commissioner of Internal Revenue. an American citizen. The intent of Congress relative to the MCIT is to grant a four (43) – year suspension of tax payment to newly organized corporations. 27 (E) (1). It sought the BIR’s ruling on whether it is entitled to the four (4) year grace period for paying on the basis of MCIT reckoned from 1999. In a volte facie the BIR now maintains that MBC should pay the MCIT beginning January 1. “(5) Specific rules for determining the period when a corporation becomes subject to the MCIT (minimum corporate income tax) For purposes of the MCIT. In determining the gross estate of a decedent. wherever situated.) c.000 shares of San Miguel Corporation.30 government-appointed receiver. G. No. 1999 when it was authorized by the BSP to operate as a thrift bank before the MCIT should be applied to it. No. to the extent of his interest existing therein at the time of his death. BIR then ruled that cessation of business activities as a result of being placed under involuntary receivership may be an economic reason for suspending the imposition of the MCIT. wherever situated. The CTA denied the petition on the ground that MBC is not a newly organized corporation. and more particularly. beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations. the BSP authorized MBC to operate as a thrift bank. G. tangible. G. Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning January 1. Rev. NIRC of 1997] b. 9-98 because Rev. He left 10. x x x” (Rev. if the decedent is a Filipino citizen or a resident alien. August 26. In 2000. the corporate existence was never affected. the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR). in order to allow new corporations to grow and develop at the initial stages of their operations. William Smith. It does not come as a surprise then when many companies reported losses in their initial years of operations. No. R. (Sec. 168118. the lawmaking body saw the need to provide a grace period of four years from their registration before they pay their minimum corporate income tax. it falls under the category of an existing corporation recommencing its banking operations. Commissioner of Internal Revenue. 168118. a condominium unit at the Twin Towers . 168118. Regs. 1999. Due to the BIR’s inaction. (Manila Banking Corporation v. was a permanent resident of the Philippines. 2006 did not apply Rev.

What assets shall be included in the Estate Tax Return to be filed with the BIR ? SUGGESTED ANSWER: All of the assets should be included in the Estate Tax Return to be filed with the BIR. his executor or administrator. other than the decedent takes the insurance policy on the life of the decedent 1) The amounts are receivable by a) the decedent’s estate. Any property forming a part of the gross estate situated in the Philippines c Of any person who died within five years prior to the death of the decedent. . 85 (E). Expenses. to designate the person who shall possess or enjoy the property or the income therefrom. 85 (B). Consequently. Proceeds of life insurance NOT included in a decedent’s gross estate. resident aliens and nonresident estates for properties which were previously subject to donor’s or estate taxes. for Philippine estate tax purposes. wherever situated.” [Sec. or (2) the right. either alone or in conjunction with any person. [Sec. whether resident or not. ( Ibid. executor or administrator. claims. g. intangible or mixed. Vanishing deduction (deduction for property previously taxed). the proceeds are receivable by a beneficiary designated as irrevocable. real or personal. indebtedness and taxes. to the extent of the interest that Smith has at the time of his death. It is also known as a deduction for property previously taxed. a resident alien. Medical expenses not exceeding P500. Transfers for public use. Metro Manila and a house and lot in Miami. The deduction allowed from the gross estates of citizens. Items deductible from the gross estate of a resident or nonresident Filipino decedent or resident alien decedent: a. tangible. NIRC of 1997) NOTES AND COMMENTS: The beneficiary must not be the decedent’s estate.  6. 4. h. There is no transfer in contemplation of death if there is no showing that the transferor “retained for his life or for any period which does not in fact end before his death: (1) the possession or enjoyment of. the assets to be included in the Estate Tax Return to be filed with the BIR should be all property. 4917. Property previously taxed. Proceeds of life insurance includible in a decedent’s gross estate. a. The deduction is called a vanishing deduction because the deduction allowed diminishes over a period of five (5) years. or c) administrator 2) irrespective of whether or not the insured retained the power of revocation.31 Building at Pasig. NIRC of 1997] 5. Where the insurance was NOT taken by the decedent upon his own life and the beneficiary is not the decedent’s estate. Amount of exempt retirement received by the heirs under Rep. Act Mo. a. The decedent takes the insurance policy on his own life 1) The amounts are receivable by a) the decedent’s estate. b) his executor. defined. or the right to the income from the property. f. An amount equal to the value specified below of b. The Family Home up to a value not exceeding P1 million. NIRC of 1997] b.)  7.000. b. [Sec. The decedent takes the insurance policy on his own life. losses. of a resident alien decedent. or c) administrator irrespective of whether or not the insured retained the power of revocation. c. a. Thus. or transferred to the decedent by gift within five years prior to his death. Vanishing deduction (property previously taxed) allowed as a deduction from the gross estate of a Filipino citizen. e. Standard deduction of P1 million. all of the properties enumerated in the problem irrespective of where they are situated are includible in the gross estate of Smith. an American citizen and a permanent resident of the Philippines is considered.  3. Net share of the surviving spouse in the conjugal partnership. Florida.00. OR 2) The amounts are receivable by any beneficiary designated in the policy of insurance as revocable beneficiary. d. and b. or of a nonresident alien decedent. 85 (E). b) his executor. because the proceeds are includible as part of gross estate whether or not the decedent retained the power of revocation. Smith. One.  4. c.

or as a settlement tribunal over the estate of the deceased is not a mandatory requirement for the collection of the estate. NIRC of 1997] 4. . executory and enforceable. the tax payable by the donor shall be 30% of the net gifts. Y and Z. NIRC of 1997)  8. [Sec. are considered as strangers. and 20% of the value if the prior decedent died more than four years but not more than five years prior to the death of the decedent. et al. or b. then the net gift is measured by deducting from the fair market value of the property the amount of the mortgage assumed.” [Sec. (Sec. the appraised value of the real property at the time of the gift shall be whichever is the higher of: a. Sec. 11. devisee. in relation to Sec. the fair market value as determined by the Commissioner of Internal Revenue (zonal valuation) or b. 102. Which can be identified as having been acquired in exchange for property so received: 100% of the value if the prior decedent died within one year prior to the death of the decedent. [Sec. 60% of the value if the prior decedent died more than two years but not more than three years prior to the death of the decedent. bequest. legatee. How are gifts of personal property to be valued for donor’s tax purposes ? SUGGESTED ANSWER: The market value of the personal property at the time of the gift shall be considered the amount of the gift. The tax assessment having become final. II v. but imposing upon the donee the obligation to pay the mortgage liability. Regs. 273 SCRA 47) 6. Court of Appeals. The approval of the court sitting in probate. and three minor children. or a claim against the estate as such. NIRC of 1997. his surviving spouse B. the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. NIRC of 1997] NOTES AND COMMENTS: All relatives by affinity. sister (whether by whole or half-blood). the same can no longer be contested by means of a disguised protest. or if the property was transferred to him by gift within the same period prior to his death. [Sec. or from such prior decedent by gift. For purposes of the donor’s tax. numbering. devise. irrespective of the degree. or if the property was transferred to him by gift within the same period prior to his death. Brother. etc.No. or inheritance.. The notices of levy were regularly issued within the prescriptive period.2-2003) 5. or e. What is the valuation of donated real property for donor’s tax purposes ? SUGGESTED ANSWER: The real property shall be appraised at its fair market value as of the time of the gift. but is against the interest or property right which the heir. 102. Accordingly. What is the tax base for donations ? SUGGESTED ANSWER: The net gifts made during the calendar year. arrangement and underlining supplied] 32  2. 80% of the value if the prior decedent died more than one year but not more than two years prior to the death of the decedent. what is meant by “net gifts ?” SUGGESTED ANSWER: The net economic benefit from the transfer that accrues to the donee. 86 (A) (2) and (B) (2). or if the property was transferred to him by gift within the same period prior to his death. has in the property formerly held by the decedent. The probate court is determining issues which are not against the property of the decedent. 99 (B). X. However. Since B does  7. What is the donor’s tax rate if the donee is a stranger ? SUGGESTED ANSWER: When the donee or beneficiary is a stranger. if a mortgaged property is transferred as a gift. Relative by consanguinity in the collateral line within the fourth degree of relationship.. or if the property was transferred to him by gift within the same period prior to his death. (last par. Rev. For purposes of the donor’s tax who is a stranger ? SUGGESTED ANSWER: A stranger is a is person who is not a: a. 40% of the value if the prior decedent died more than three years but not more than four years prior to the death of the decedent. A died leaving as his only heirs. 99 (A). spouse. (Marcos. 88 (B) both of the NIRC of 1997] DONOR’S TAXES  1. ancestor and lineal descendant. 3.d. Where such property can be identified as having been received by the decedent from the donor by gift. or if the property was transferred to him by gift within the same period prior to his death.

11. would you issue a tax assessment on the transaction ? Explain your answer briefly. SUGGESTED ANSWER: My answer would be different. Gifts made by residents or non-residents to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit. Leon would be enjoying the exemption for the first P100.00 on January 1. 2009 the transaction would be exempt from donor’s tax.000.00 in 2008 the first P100. Sec. religious. (4th par.000. Political contributions made by a resident or non-resident individual if registered with the COMELEC irrespective of whether donated to a political party or individual.00 net gifts for each calendar year.00 is the totality of the net gifts for 2008. would your answer be the same ? Explain. which should have been subject to tax was made by non-resident aliens and took place outside of the Philippines. Rev. (4 th par. No. B renounced her hereditary share in A’s estate to X who is a special child. The renunciation in favor of X would be subject to donor’s tax..33 not want to participate in the distribution of the estate. NIRC of 1997. 2008 and the remaining P100.000 donation over two (2) calendar years.000 would be exempt and the remaining P50. Regs. If you are the BIR examiner assigned to review the sale. cultural or social welfare corporation.00 net donation during a calendar year is exempt from donor’s tax [Sec. What is the concept of donation or gift splitting ? Illustrate. she renounced her hereditary share in the estate. and shall be included in computing the amount of gifts made during the calendar year. b. The donation by a resident or non-resident of a prize to an athlete in an international sports tournament held abroad and sanctioned by the national sports association is exempt from donor’s tax (Sec. 10. however. Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by residents who are parents to each of their legitimate.000. Sec. Gifts made by non-resident aliens outside of the Philippines to Philippine residents are exempt from donor’s taxes because taxation is basically territorial. No. Act No. A. The proper VAT on the sale was paid. (Corp. Sec. is transferred for less than an adequate and full consideration in money or money’s worth.000. SUGGESTED ANSWER: Donor’s taxes would be due on the insufficiency of consideration. Give some donations that are exempt from donor’s tax. 11. SUGGESTED ANSWER: No. NIRC of 1997] made by a resident or non resident. Regs. e. That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. Where property. Is the renunciation subject to donor’s tax ? Explain.  8. recognized natural. This is so even if the donation is separated only by two days because the basis is the calendar year. Code. a. This is so because the renunciation was specifically and categorically done in favor of X and identified heir to the exclusion or disadvantage of Y and Z.00 would be subject to donor’s tax If Leon spreads the P200. SUGGESTED ANSWER: Donation or gift splitting is spreading the gift over numerous calendar years in order to avail of lower donor’s taxes.00 on December 30.9) d.. who is engaged in the car “buy and sell” business sold to B P7 million Jaguar for only P4 million.  9.000.000. donating P100. 99 (A). foundation. Regs. including the surviving spouse. or to any political subdivisions of the said Government. the Corporation Code prohibits corporations from making political contributions. 36. 7549) c.000.00). numbering and arrangement supplied] g. No. 2-2003) 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. In 2008 Leon was thinking of donating a P200. The general renunciation by an heir. SUGGESTED ANSWER: a. b. 2-2003) f. Sec. (5th par. 11. Supposing that instead of a general renunciation.000. 1. The P200. The first P100. institution. Gifts made by residents or non residents in favor of an educational and/or charitable. trust or philanthropic organization or research institution or organization: Provided. The transaction. then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift. Rev. or adopted children to the extent of the first ten thousand pesos (P10. 101 (A). Title IV. Rev. [Sec. the other co-heirs in the hereditary estate.000. of her share in the hereditary estate left by the decedent is not subject to donor’s tax..00 to Miklos. his first cousin. other than real property that has been subjected to the final capital gains tax. as in the case B. However. Rep. If he donated the P200. 2-2003) .

34 merely added as part of the purchase price and not as a tax because the burden is merely shifted. (Rev.. Inc. The purchaser is subject to VAT because the VAT is This was subsequently modified and a mixture of “cost deduction method” and “tax credit method” was used to determine the value-added tax payable. Who are liable for the value-added tax. it should be understood not in the context of the person or entity that is primarily. merit or importance of goods. in the course of his trade or business. [Commissioner of Internal Revenue v. October 6.). G. Placer Dome Technical Services (Phils. Seagate Technology (Philippines). or 2) renders services.Sec. As such. the importer. R. September 1. Placer Dome Technical Services (Phils. G. No. 2007] 1. Meaning of consumption as used under the VAT system. 2007] VAT is a percentage tax imposed on any person whether or not a franchise grantee. R. June 8. a. February 11. 168056. This area is probably the most difficult area to forecast because there are no statistically perceived patterns. No. the term means the performance or "successful completion of a contractual duty. exchanges or leases goods or properties. transferor or lessor. renders services. goods or properties. No. the purchase transaction is not exempt. 164365. properties or services. R." Applied to services." [Commissioner of Internal Revenue v. Consumption is "the use of a thing in a way that thereby exhausts it. paraphrasing supplied) 8. 3. If a special law merely exempts a party as a seller from its direct liability for payment of the VAT. transferee or lessee of the goods.105-1. the amount of which may be shifted or passed on by the seller to the purchaser of the goods. yet takes place upon rendition. No. Illustration of the meaning of consumption as used under the VAT system. The seller is still exempt because it could pass on the burden of paying the tax to the purchaser. February 11. but in terms of its nature as a tax on consumption . 16-2005. directly liable for its payment. It is also levied on every importation of goods whether or not in the course of trade or business. 2005) Any person who. ABS-CBN Broadcasting Corporation . the reader is advised to focus on areas marked with stars and just browse the unmarked areas. No. are therefore also consumed in the Philippines. REASON: The VAT is a tax on consumption. and b. services cannot be physically used in or bound for a specific place when their destination is determined. Value-added tax (VAT) is a tax which is imposed only on the increase in the worth. [Commissioner of Internal Revenue v. The author has retained the “Stars System” for VAT. Seagate Technology (Philippines). usually resulting in the performer's release from any past or future liability x x x" Unlike goods. barters. 2008) 7. Nature of VAT. [Commissioner of Internal Revenue v. VAT is an indirect tax that may be shifted or passed on to the buyer. Cost deduction method. sells. and not on the total value of the goods or services being sold or rendered. in the case of importation of taxable goods. properties or services. a. v. having been performed in the Philippines. any person who imports goods xxx However. 2005 citing various authorities} 6. Illustration of effects of exemptions from VAT which is an indirect tax. Effect of exemptions from VAT which is an indirect tax. and therefore upon consumption. 4. Regs. properties. the VAT is an indirect tax and can be passed on to the buyer. Ermita. 153866. or services by the seller. G. R. Further. Inc. et al. G.) v. Its services. A VAT exempt seller sells to a non-VAT exempt purchaser. R. Various VAT methods and systems. June 8. No.. leases. shall be liable to VAT xxx . (Ibid. Considering the limited period of time. (Quezon City. properties or services. etc. in the Philippines. Such facilitation service has no physical existence. The tax base of the VAT is limited only to the value added to such goods. For example the services rendered by a local firm to its foreign client are performed or successfully completed upon its sending to a foreign client the drafts and bills it has gathered from service establishments here. but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VATregistered suppliers. barters. (Abakada Guro Party List (etc. 166408. 2. who in the course of trade or business.).VALUE-ADDED TAXES (VAT) WARNING !!! Approximately 10% of the total questions asked in the Bar Examination are sourced from VAT and its concepts. 164365. 2005 and companion cases) 4.) . G. Instead. whether an individual or corporation and whether or not made in the course of his trade or business.. 153866. 1) Sells. there can only be a "predetermined end of a course" when determining the service "location or position x x x for legal purposes. exchanges. et al. The VAT is a tax on consumption. This is a single-stage tax which is payable only by the original sellers. R. G. 5. No.

) 35 13. 8424). and The Tax Reform Act of 1997 (R. [Rev.. input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. Output VAT less Input VAT = VAT due on the increase in worth.) 15. 16-2005. Regs. on the motion for reconsideration) 11. No. a privilege that also the law can limit.R. Regs.000. 12. the output taxes charged by a seller are equal to the input taxes passed on by the suppliers. G. Ermita. et al. b. No. If however. 4. 2005. 153866. G. (a). the presumptive input tax xxx. (Rev.111-1. a. Sec.. Should the input taxes result from zero-rated or effectively zero-rated transactions or from acquisition of capital goods.A.500. goods which have been manufactured by the taxpayer. canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. mackerel. Regs. no payment is required. 1st par. (b)] 16. October 15. The VAT utilizes the concept of the output and input taxes. 4. paraphrasing. in the course of his trade or business. but which have not yet undergone processing. 168207.110-1. Regs. This continued with the Expanded VAT Law (R. Tax credit method. the term processing shall mean pasteurization. it was only then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was established. or e. 10. goods in process for sale. and in manufacturing refined sugar. arrangement and numbering supplied ) 14.111-1. February 11. The right to credit input tax as against the output tax is clearly a privilege created by law.000. No. d. religious sects which sells and distributes religious literature is not violative of religious freedom. Seagate Technology (Philippines). (Rev. Concept of presumptive input tax credits. Prior to the enactment of multi-stage sales taxation. properties or services by any VAT-registered person. 1st par. Output tax is the value-added tax due on the sale or lease or taxable goods. It should be stressed that a person has no vested right in statutory privileges. No. R. The VAT registration fee imposed on non-VAT enterprises which includes among others. 273 imposing a 10% multi-stage tax on all sales.4. (Ibid. Concept of transitional input tax credits on beginning inventories.00) shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration. although a fixed . No. (ABAKADA Guro Party List.500. vs. or who voluntarily register even if their turnover does not exceed P1. [Commissioner of Internal Revenue v. cooking oil and packed noodle-based instant meals. How the VAT is imposed on the increase in worth. goods purchased for resale in their present condition. 7716). the input taxes exceed the output taxes. It includes c.b. the transitional input tax and b. goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person. shall be allowed a presumptive input tax. Taxpayers who become VAT-registered persons upon exceeding the minimum turnover of P1. the excess shall be carried over to the succeeding quarter or quarters.000. 1st par. This method relies on invoices. materials purchased for further processing. No.000. including lease or use of properties. 2005] If at the end of a taxable period. The right to credit the input tax be limited by legislation because it is a mere creation of law. on the following: a. The VAT registration fee does NOT violate religious freedom. equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. Included in the input tax. It is when the output taxes exceed the input taxes that the excess has to be paid.00 (except franchise grantees of radio and television broadcasting whose threshold is P10. No. creditable against the output tax.. As used in this paragraph. And 2nd par. [Rev. Sec. merit or improvement of the goods or services. arrangement and numbering supplied] 9.A. the sales taxes paid at every level of distribution are not recoverable from the taxes payable. 2nd sentence. any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes.4. an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases.00 in any 12-month period. Persons or firms engaged in the processing of sardines. inputs and imports. merit or improvement f the goods or services. and milk.110-1. No. and companion cases.. 16-2005. etc. Input tax is the value-added tax due on or paid by a VAT-registered person on importation of good or local purchases of goods or services. c. With the advent of Executive Order No.

(Commissioner of Internal Revenue v. 16-2005. 146984. but means conducting. not from time to time." Magsaysay Lines. also its wholly-owned subsidiary. the sale was an isolated transaction.00. to the NMC. supplies or materials as of the date of such retirement. barter. The sale which was involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. Transfer. Baliwag Navigation. Subsequently. 4. and a Notice of Award was issued to Magsaysay Lines. 146984. or 1) the proprietor of a single proprietorship sells his entire business.Pursuant to a government program of privatization.106-7 (a). The bid was approved by the Committee on Privatization. R. Secretary of Finance. The term "carrying on business" does not mean the performance of a single disconnected act. Inc. one not imposed on the exercise of a privilege. The registration fee is thus more of an administrative fee. G. on a bareboat basis. There is change in the ownership of the business where a single proprietorship incorporates. Inc. a. a VAT-registered entity created for the purpose of selling real property. purportedly for a new company still to be formed composed of itself. Magsaysay Lines.000. et al. G.000. Magsaysay Lines. offered to buy the shares and the vessels for P168. 235 SCRA 630) 36 17.. xxx or 2) Creditors in payment of debt or obligation c. The NMC shares and the vessels were offered for public bidding. " Course of business" is what is usually done in the management of trade or business. (Commissioner of Internal Revenue v. No. not from time to time. b. while "doing business" conveys the idea of business being done. arrangement and numbering supplied] 19.. prosecuting and continuing business by performing progressively all the acts normally incident thereof. with respect to all goods on hand. the tax is imposed on sales. use or consumption not in the course of business or properties originally intended for sale or for use in the course of business. 16-2005. "Course Under the Value Added Tax (VAT). or cessation.amount is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. xxx Distribution or transfer to: 1) Shareholders or investors as share in the profits of the VAT. then initially leased to Luzon Stevedoring Company.. much less a constitutional right. Interpretation of the term “In the Course of Trade or Business” as used in the VAT system. decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). Regs. b. Inc. (4) paraphrasing. In the instant case. and FIM Limited of the Marden Group based in Hongkong . Dissolution of a partnership and creation of a new partnership which takes over the business. Consigned goods returned by the consignee within the 60-day period are not deemed sold.. but all the time.. Transactions considered retirement or cessation of business “deemed sale” subject to VAT. R. It does not include isolated transactions. (Tolentino v. which are 3. xxx [Rev. 4. No. et al. arrangement and numbering supplied] . 1) whether capital goods.. et al. 2) whether or not the business is continued by the new owner or successor. the vessels were transferred and leased. Is the sale subject to VAT ? SUGGESTED ANSWER: No. stock-in-trade. Sec. 2006) of business" or "doing business" connotes regularity of activity. paraphrasing. "Kloeckner" type vessels. No. Inc. NDC.700 DWT Tween-Decker. 2006)    18. Regs. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned. The vessels were constructed for the NDC between 1981 and 1984. The VAT is also imposed on certain transactions “deemed sales” which include: a. July 28.. [Rev. and companion cases. Sec. Change of ownership of the business. July 28. 20. The bid was made by Magsaysay Lines.registered person. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels. or exchange or goods and services. Retirement from or cessation of business. d. No. The term "doing business" or “course of business” conveys the idea of business being done. The NDC decided to sell in one lot its NMC shares and five (5) of its ships. but all the time.106-7. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property.

The term “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee. and collected. as published by the National Statistics Office (NSO). 2009 and every three (3) years thereafter. common carriers by air and sea relative to their transport of passengers. theaters. h. construction and service contractors. arrangement and numbering supplied] The following sales of real properties are exempt from VAT. further. customs and immigration brokers. the amounts stated herein shall be adjusted to its present value using the Consumer Price Index. proprietors. No. That not later than January 31.000. that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year. or house & lot and other residential dwellings valued at Two Million Give Hundred Thousand Pesos (P2. persons engaged in milling.106-3. Regs. cafes and other eating places. processing. 9337. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1. If two or more adjacent residential lots are sold or disposed in favor of one buyer. and movie houses. motels.500. whether covered by one or separate Deed of Conveyance. derived from the sale or exchange of services.00. 8763. the sale shall be exempt from VAT only if the aggregate value of the   23. resorts. l. f. provided. b.) Thus. 1st par. how much? Explain. rest-houses. d. dealers in securities. XYZ.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. such as RA No. 108 (A).A. 4. and/or distribution companies. i. b. shall be presumed as a sale of one residential lot. including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes. Sale of real properties utilized for low-cost housing as defined by RA No. a domestic corporation engaged in the real estate business. j. 16-2005. lessors or distributors of cinematographic films. remuneration or consideration. persons engaged in warehousing services e. Regs.000. otherwise known as the “Urban and Development Housing Act of 1992” and other related laws.00) and below. a.500. 25. provided. although covered by separate titles and/or separate tax declarations. lending investors. xxx xxx xxx d. whether in kind or in cash. sold a building for P10. refreshment parlors. b. 1) including the use or lease of properties. Adjacent residential lots. commercial. 7279. Sec. Sale of or lease of real properties subject to VAT. lessors of property. paraphrasing and numbering supplied] 24. including clubs and caterers. [NIRC of 1997. 7279.37 21. 12% on the gross selling price because the sale was made in the ordinary course of trade of business of X.00) and below where the instrument of sale/transfer/disposition was executed on or after November 1. including those performed or rendered by the following: a. m. “Sale or exchange of services”. when sold or disposed of to one and the same buyer.000. assessed. namely: a. No. (Rev. sales of electricity by generation companies.000. whether personal or real. xxx xxx xxx c. 2005. a value-added tax equivalent to twelve percent (12%) of gross receipts c. 4.000. operators or keepers of hotels. proprietors or operators of restaurants. lots do not exceed P1. a domestic corporation engaged in the real estate business. Sale of real properties utilized for socialized housing as defined under RA No. Is the sale subject to the valueadded tax (VAT)? If so. 7835 and RA No. k. VAT on services and lease of properties.000. n. (p). Only real estate dealers are subject to VAT. SUGGESTED ANSWER: Yes. as amended by R.00. Sale of real properties primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT. There shall be levied. pension houses. franchise grantees of . real estate. stock. On September 4. goods or cargoes from one place in the Philippines to another place in the Philippines. inns. transmission. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. Inc. and other related laws wherein the price ceiling per unit is P225. g.. 22.109-1 (B). defined. No. 2009. [Rev. manufacturing or repacking goods for others. transportation contractors on their transport of goods or cargoes. c. capital transactions of individuals are not subject to VAT.500. Sec. for the purpose of utilizing the lots as one residential lot.

film tapes and discs. This is so because the law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. The tax paid or withheld is not deducted from the tax base.) 28.” 31. that is. or right as is mentioned in subparagraph (2) hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof. the service is necessarily subject to its jurisdiction for the State necessarily has to have a “substantial connection” to it in order to enforce a zero rate. [NIRC of 1997. indemnity and bonding companies. arrangement and numbering supplied] 38 However. Rev.electric utilities.108-2. 1st par. 4. No. (Rev. 27. Regulations No. technical. No. industrial or commercial knowledge or information. 1st par.) 26. 2nd par.. plan. Exception to the destination principle. The place of payment is immaterial much less is the place where the output of the service will be further or ultimately used.108-2. Sec. including surety. The seller of such transactions charges no output tax. satellite transmission and cable television time. venture. 152609.000. This is also known as the “Cross Border Doctrine. 2005 citing various cases) 29. American Express International. Sec. Concept of VAT zero-rating. Inc. goodwill. d. R. o. project of scheme.000. 4. trademark. The tax rate is set at zero. The lease of motion picture films. of Internal Revenue v. Sec. 16-2005. as amended by R. The law clearly provides for an exception to the destination principle. R. radio and television broadcasting and all other franchise grantees except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10. No. the input tax on the purchases of goods. trade brand or other like property or right. 2005] Under a zero-rating scheme. Inc. while imports are taxed. h. similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties . June 29. R. but can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. Regs. the sale or exchange of a particular service is completely freed from the VAT. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property. c. because the seller is entitled to recover. Zero-rated Sales of Goods or Properties. such rate obviously results in no tax chargeable against the purchaser. exports are zero-rated. or the installation or operation of any brand. No. No. Regs. (Commissioner of Internal Revenue v. The lease or the use of. No. 16-2005. by way of a refund or as an input tax credit. No. (Rev. A zero-rated sale of goods or properties by a sale by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax. G. Regs. and p. television. The supply of technical advice. The lease or the use of or the right to use radio. b. 152609. properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev. machinery or other apparatus purchased from such non-resident person. Also included in the phrase “sale or exchange of services. G. Thus. non-life insurance companies (except their crop insurances). 153866. 16-2005. or the right to use any industrial. (Philippine Branch). June 29. patent. 16-2005. fidelity. f. Destination principle under the VAT System.A. and franchise grantees of gas and water utilities. g. Goods and services are taxed only in the country where they are consumed. design or model. the tax that is included in the cost of purchases attributable to the sale or exchange. Seagate Technology (Philippines). telephone and telegraph. February 11. commercial or scientific equipment. or e. secret formula or process. When applied to the tax base. The supply of scientific. Situs of taxation of zero-rated VAT services such as facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines. American Express International. 9337. The place where the service is rendered determines the jurisdiction to impose the VAT Performed in the Philippines. As a general rule. a. industrial or commercial undertaking. 2005) 30. the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. 108 (A). (Philipppine Branch). The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to. [ Commissioner of Internal Revenue v. G. (Commissioner.00). The lease or the use of or the right or privilege to use any copyright. for a zero percent VAT rate for services that are performed in the . assistance or services rendered in connection with technical management or administration of any scientific.

August 31. the input tax on purchases of goods." The Philippine VAT system adheres to the Cross Border Doctrine. (Commissioner of Internal Revenue v. defined. but shall not result in any output tax. 150154.. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales.. c. those destined for use or consumption within the Philippines shall be imposed the twelve percent (12%) VAT. paraphrasing supplied) 39. and not at random. Zero-rated sales by VAT-registered persons. (Commissioner of Internal Revenue v. "paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP]. It regularly renders in the Philippines the service of facilitating the collection and payment of receivables belonging to a foreign company that is a clearly separate and distinct entity. Such service is commercial in nature. actual or constructive export of goods and services from the Philippines to a foreign country must be zero-rated for VAT. G. 153204. Considered export sales under Executive Order No. such as PEZA. [Rev. An ECOZONE or a Special Economic Zone has been described as – [S]elected areas with highly developed or which have the potential to be developed into agroindustrial.). 16-2005. while an ecozone is geographically within the Philippines. Export sales. No. Manila Mining Corporation. Sekisui Jushi Philippines. hence. August 9. 224. Sec. (Rev. A zero-rated sale is a taxable transaction but does not result in an output tax WHILE an exempt transaction is not subject to the output tax. tourist. industrial. b. This is so because it meets all the requirements for VAT imposition. while. investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. R. b. recreational. 4. G. Sales to ecozone. 150154. commercial. properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev. it definitely receives consideration in foreign currency that is accounted for in conformity with law. A zerorated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes. 16-2005. carried on over a sustained period of time. or attenuated. 39 36. No. An ECOZONE may contain any or all of the following: industrial estates (IEs). However. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory. it is deemed a separate customs territory and is regarded in law as foreign soil. export processing zones (EPZs). Foreign currency denominated sale. c. 37. [Commissioner of Internal Revenue v. Inc.Philippines. Regs. August 9. no tax is chargeable to it as purchaser. Sec. For this service. 2005] The “Cross Border Doctrine” is also known as the destination principle. G. transactions: Zero-rated sale distinguished from exempt a. 2nd par. considered export-sale. “Ecozone”. 2005) . no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority. Persons engaged in transactions which are zero rated being subject to VAT are required to register WHILE registration is optional for VAT-exempt persons. Service performed by American Express in facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines in behalf of its Hong-Kong based client is subject to VAT but zero-rated. As export sales. c. Inc. Toshiba Information Equipment (Phils. banking. Notably.. G. R. Inc. b. These sales are zero-rated or subject to a tax rate of zero percent.). defined. No. No. as follows: a... which charges no output VAT but can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers. Regs. Hence. Zero rating is primarily intended to be enjoyed by the seller.108-5 (a). The input tax on the purchases of a VAT registered person who has zero-rated sales may be allowed as tax credits or refunded WHILE the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt. [Commissioner of Internal Revenue v. free trade zones and tourist/recreational centers. Rationale for zero-rating of exports . 2005] 38. 4. 33. 149671. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: a. No. Regs. on a significant scale with a reasonable degree of frequency. R. 2006 citing various authorities) 32.R. Sales to persons or entities deemed tax-exempt under special law or international agreement. No. July 21. 35. Toshiba Information Equipment (Phils. and d. Sale of gold to the Central Bank considered as export sales. Sec. Zero-rated sale of service. words in italics supplied) 34. according to which.106-5. the sale of gold to the Central Bank is zero-rated.. fortuitous. No. 16-2005.

the law itself provides for clear exceptions under which the supply of services shall be zero-rated. (Philippine Branch). BWSCMI was able to obtain a Ruling from the BIR reconfirming that it is subject to VAT at zerorating. No. 2005) 40 40. Burmeister and Wain Scandinavian Contractor Mindanao. believing that it is covered by Rev. Its services. properties or services shall not bill any output tax to his customers because the said . G. (Commissioner of Internal Revenue v. The BIR could not change the law. June 29. Mitsui Engineering and Shipbuilding Ltd. 1995 ruling the BIR declared that BWSCMI may choose to register as a VAT persons subject to VAT at zero rate. No. G. On December 29. dated February 20. Do not confuse the BWSCMI case with the American Express case. (Commissioner. 153205. b. it filed the proper VAT returns showing zero rating. For 1996. No. June 29. for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in accordance with BSP rules and regulations. R. Inc. American Express International. Burmeister and Wain Scandinavian Contractor Mindanao. The person making the exempt sale of goods. the seller is not allowed any tax credit on VAT (input tax) purchases. BWSCMI was established as the subcontractor to perform the actual work in the Philippines. (Philippine Branch)] is a VAT-registered person that facilitates the collection and payment of receivables belonging to its non-resident foreign client [American Express International. Zero-rating finds application only where the recipient of the services are other persons doing business outside of the Philippines. 152609. supra) A foreign Consortium composed of BWSCDenmark. The Consortium paid BWSCMI in acceptable foreign exchange and accounted for in accordance with the rules and regulations of the BSP. Inc. (Commissioner of Internal Revenue v. and Mitsui and Co. 1997. Burmeister and Wain Scandinavian Contractor Mindanao. BWSCMI applied for a refund of the output VAT it paid. Regs. a. American Express International. G. NOTES AND COMMENTS: a. 5-96. Inc. While the service performed by American Express is subject to VAT it is zero-rated. Ltd. (Philippine Branch).. Is BWSCMI subject to the 10% VAT or is it zero rated ? SUGGESTED ANSWER: Yes. Inc. which entered into a contract with NAPOCOR for the operation and maintenance of two power barges appointed BWSC-Denmark as its coordination manager. its services are exempt from the destination principle and are zero-rated. R.. SUGGESTED ANSWER: Yes. On January 7. January 22...not subject to VAT (output tax) and c. No.. The services are performed or successfully completed upon send to its foreign clients the drafts and bills it has gathered from service establishments here. of Internal Revenue v. It is paid for in acceptable foreign currency of the Bangko Sentral ng Pilipinas. BWSCMI provides services to the Consortium which by virtue of its contract with NAPOCOR is doing business within the Philippines. of Internal Revenue v. 1996. The VAT system uses the destination principle which posits that the goods and services are taxed only in the country where they are consumed. 153205. R. and BIR Revenue Regulations that alter the legal requirements for zero-rating are ultra vires and invalid. Could it obtain a refund of the VAT it paid through the VAP ? Explain. Inc. The services are within the categories provided for under the Tax Code. among which are the following: a. (Commissioner of Internal Revenue v. BWSCMI is not zero rated and is subject to the 10% VAT. What are VAT-Exempt transactions ? SUGGESTED ANSWER: The sale of goods or properties and/or services and the use or lease of properties that is b.. Thus. having been performed in the Philippines are therefore also consumed in the Philippines. 2007) b. Inc. (Hongkong Branch)]. G. It is rendering service for the Consortium which is not doing business in the Philippines. American Express International. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the non-retroactivity of the prejudicial revocation of the BIR Rulings which held that it’s services are subject to 0% VAT and which BWSCMI invoked in applying for refund of the output VAT. It is not an entity exempt under any of our laws or international agreements. 152609. 2005] BWSCMI paid 10% output VAT for the period April-December 1996. R. January 22. The service is performed in the Philippines. 1999. through the Voluntary Assessment Program (VAP). On this basis. However. 2007) 42. Inc. Through a February 14. [Commissioner. and c.d. American Express renders assistance to its foreign clients by receiving the bills of service establishments located in the country and forwarding them to their clients abroad. 41.

pigs. other than the transactions mentioned in paragraphs (A) to (U) of Sec. An exempt transaction. to be refined sugar: (1) product of a refining process. fruit. shrimps. Transactions are exempt from VAT. accompanying such persons. lobster. and verified by the Sugar Regulatory Administration. 109 (1) of the Tax Code. Inc. prawn. the following shall be exempt from VAT: (A) Sale or importation of agricultural and marine food products in their original state. zoo animals and other animals generally considered as pets.5o and above are presumed to be refined sugar. 44. seeds. aircraft. R. ordinary salt. raw cane sugar and molasses. a. corn grits. vegetables and other agricultural and marine food Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market. has a polarimeter reading of 99. Sec. ducks. prawns. wearing apparel. such as freezing. smoking or stripping. such as. are specifically listed in and expressly exempted from the VAT under the Tax Code. sheep. zoo animals and other animals generally considered as pets). Cane sugar produced from the following shall be presumed. for their own use and not for sale. barter or exchange. (D) Importation of professional instruments and implements. bulls and calves. salting. such as shrink wrapping in plastics. aquarium fish. Livestock shall include cows. but not limited to.5o and above. Poultry shall include fowls. identifies the same to be of a polarimeter reading of 99. (2) products of a sugar refinery. August 9. Polished and/or husked rice. goats and rabbits. domestic animals. other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines. geese and turkey. trout. Sugar whose content of sucrose by weight. vacuum packing. G. That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines. An exempt transaction shall not be the subject of any billing for output VAT but it shall not also be allowed any input tax credits WHILE an exempt party being zero-rated is allowed to claim input tax credits.). [Commissioner of Internal Revenue v.109-1 (A). Bagasse is not included in the exemption provided for under this section. fish. eels. including ingredients. “Specialty feeds” refers to non-agricultural feeds or food for race horses. No. drying. that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide. race horses. tetra-pack. on the one hand. aquarium fish.5o and above. and personal household effects (except any vehicle. arrangement and numbering supplied] 41    43. or arriving within ninety (90) days before or after their arrival. the annual sales and/or receipts of which does not exceed the amount of One Million Five Hundred . vessel. and by virtue of which its taxable transactions become exempt from VAT. fish. 150154. 4. seedlings and fingerlings. (B) Sale or importation of fertilizers. upon the production of evidence satisfactory to the Commissioner of Internal Revenue. or (3) product of a production line of a sugar mill accredited by the BIR to be producing sugar with polarimeter reading of 99..transaction is not subject to VAT . including those using advanced technological means of packaging. a special law or an international agreement to which the Philippines is a signatory. VAT-exempt transactions distinguished from VAT-exempt entities. by their nature. zoo animals and other animals generally considered as pets. No. Marine food products shall include fish and crustaceans. oysters. (C) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided. 2005] b. whether locally produced or imported. is a person or entity granted VAT exemption under the Tax Code. (E) Services subject to percentage tax under Title V of the Tax Code. broiling. in the dry state. and breeding stock and genetic materials therefor. on the other hand. and for which the quedanissued therefor. fighting cocks. and copra shall be considered in their original state. Regs. [Rev. as enumerated below: (1) Sale or lease of goods or properties or the performance of services of non-VAT-registered persons. and other similar packaging methods. machinery. livestock and poultry of a kind generally used as. Meat. (Subject to the election by a VAT-registered person not to be subject to the value-added tax). An exempt party. livestock and poultry feeds. 16-2005. fighting cocks. mussels and clams. involves goods or services which. Toshiba Information Equipment (Phils. for internal revenue purposes. roasting. Livestock or poultry does not include fighting cocks. without regard to the tax status – VAT-exempt or not – of the party to the transaction. used in the manufacture of finished feeds (except specialty feeds for race horses. or yielding or producing foods for human consumption.

116. 118) (4) Service rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10. 529 – Petroleum Exploration Concessionaires under the Petroleum Act of 1949. the CHED and TESDA and those rendered by government educational institutions and it does not include seminars. Laboratory services are exempted. (Sec.00). non-electric and non-credit cooperatives of machineries and equipment. communications and coordinating centers for their affiliates. (L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members as well as sale of their produce. 124) (8) Services of proprietors.000. (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws. 7279. otherwise known as the Urban Development and Housing Act of 1992. (Sec. 125). That not later than January 31. 117) (3) Services rendered by international air/shipping carriers. and. boxing exhibitions professional basketball games. corn into grits and sugar cane into raw sugar. marine or miscellaneous insurance agents of foreign insurance companies. cabarets. house and lot. the CHED and/or the TESDA. such as RA No. company or corporation (except purely cooperative companies or associations ) doing life insurance business of any sort in the Philippines. and (9) Receipts on sale.500. to non-members. (G) Medical. 7835 and RA No. the amount herein stated shall be adjusted to its present value using the Consumer Price Index. whether in its original state or processed form. duly accredited by the Department of Education (DEPED). hospital and veterinary services except those rendered by professionals.000. Tax Code) (2) Services rendered by domestic common carriers by land for the transport of passengers and keepers of garages. as published by the National Statistics Office (NSO). (Sec. (Sec.thousand Pesos (P1. residential lot valued at One million five hundred thousand pesos (P 1. machineries and equipment. technical or vocational education provided by private educational institutions duly accredited by the DepED. “Agricultural contract growers” refers to those persons producing for others poultry. subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines. to be used directly and exclusively in the production and/or processing of their produce. (M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the Cooperative Development Authority. night or day clubs. the Commission on Higher Education (CHED). dental. including spare parts thereof. 8765. and other related laws. (O) Export sales by persons who are not VAT-registered. (Sc. 120) (6) Services rendered by any person. review classes and other similar services rendered by persons who are not accredited by the DepED. Provided. (Sec. Importation by non-agricultural. (Sec. non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided. or real property utilized for low-cost and socialized housing as defined by Republic Act No.500. the sale of drugs and medicine is subject to VAT. (H) Educational services rendered by private educational institutions. inservice training. 127) (F) Services by agricultural contract growers and milling for others of palay into rice. (Sec. (I) Services rendered by individuals pursuant to an employeremployee relationship. 119) (5) Service rendered for overseas dispatch message or conversation originating from the Philippines. That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15. 123) (7) Services rendered by fire. including spare parts thereof. (Sec. the Technical Education And Skills Development Authority (TESDA) and those rendered by government educational institutions.000) and below. their importation of direct farm inputs. 42 “Educational services” shall refer to academic.000. except those under Presidential Decree No. barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering.000) and regardless of the aggregate capital and net surplus ratably distributed among the members. jai-Alai and race tracks. to be used by them are subject to VAT. (N) Sales by non-agricultural.00) and by franchises of gas and water utilities. (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. If the hospital or clinic operates a pharmacy or drug store. and other residential dwellings valued at Two million five hundred thousand pesos (P . livestock or other agricultural and marine food products in their original state. lessees or operators of cockpits. 2009 and every three (3) years thereafter. (J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory.

from the payment of VAT and b. Any person. That not later than January 31. words in italics from Rev. numbering and words in italics supplied) RETURNS AND WITHHOLDING 1.000) and below: Provided. that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of one hundred fifty (150) tons and above. Individuals required to file an income tax return.. that the said fuel.000): Provided. and  (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs. 317) 2. importation. Regs. No. Tax to be paid by persons exempt from VAT. that exemption shall be subject to the provisions of section 4 of Republic Act No. 109 (1) (V) of the Tax Code. Thus. the aggregation rule for each taxpayer shall apply. are competent evidence. the same shall be combined for purposes of determining whether the threshold has been exceeded. the age limit is ten (10) years old. No. 9295. For instance. For purposes of the threshold of P1. 2009 and every three (3) years thereafter. [NIRC of 1997. that the vessels be imported shall comply with the age limit requirement. the amounts herein stated shall be adjusted to their present values using the Consumer Price Index.500. whose sales or receipts are exempt under Sec. 9337. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO). shall pay a tax equivalent to three percent (3%) of his gross monthly sales or receipts. 296 SCRA 309. words in parentheses supplied] 45.500. That not later than January 31. Provided. Provided. at the time of acquisition counted from the date of the vessel’s original commissioning. Provided. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO). a.00. otherwise known as “The Domestic Shipping Development Act of 2004.000. goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines. as amended by R. that cooperatives shall be exempt from the three (3%) gross receipts tax herein imposed. A. Provided. Every Filipino citizen residing in the Philippines. Sec. 2009 and every 43 three (3) years thereafter. However.500. No. equipment and spare parts thereof for domestic or international transport operations. as published by the National Statistics Office (NSO). also derives revenue from other lines of business which are otherwise subject to VAT. goods and supplies by persons engaged in international shipping or air transport operations. 16-2005. finally. 16-2005.000) Provided. 2009 and every three (3) years thereafter. Provided. and other non-bank financial intermediaries.109-1 (B). including engine. the age limit is five (5) years old. importation or lease of passenger or cargo vessels and aircraft. including engine and spare parts of said vessels. the VAT-exempt sales shall to be icluded in determining the threshold. as follows: (i) for passenger and/or cargo vessels. that if any portion of such fuel. arrangement. Regs. are prima facie correct with respect to the entries therein. aside from the practice ofhis profession. That not later than January 31. 2009 and every three (3) years thereafter. goods and supplies shall be subject to 10% VAT (now 12%). the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1. if a profesional. Sec.500. (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs. goods or supplies is used for purposes other than that mentioned in this paragraph. (Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P 10. (Ropali Trading v. and (iii) For high-speed passenger cars. Sec. (R) Sale. such portion of fuel. (U) Services of banks. b. That not later than January 31.000): Provided. (S) Sale. .” (T) Importation of fuel. further. the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO). who is not a VAT-registered person c. provided.116-1. non-bank financial intermediaries performing quasi-banking functions. further. 109 (1). (Rev. until controverted by competent evidence. et al. NLRC. the age limit is fifteen years (15) years old. Income tax returns being public documents . review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements. Every Filipino citizen residing outside the Philippines on his income from sources within the Philippines. a. magazine. the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1. the husband and wife shall be cnsidered separate taxpayers. printing or publication of books and any newspaper. 4. 4. (ii) for tankers.2.

24 (A) (2).c. NIRC of 1997] 9. then an annual income tax return is filed covering the total taxable income for the whole of the previous calendar year. Provided. An individual whose gross income does not exceed his total personal and additional exemptions for dependents. Act No. [Sec. supra.. Quarterly returns are required to be filed for the first three quarters. NIRC of 1997 as amended by Rep. [Sec. overtime pay. [Sec. each spouse may file a separate return of income but the returns so filed shall be consolidated by the Bureau for purposes of verification. 51 (A) (2). Quarterly returns are required to be filed for the first three quarters. resident or non-resident aliens. an individual who is exempt from income tax pursuant to the provisions of the Tax Code and other laws. . For married individuals. The purpose of the above four (4) times a year requirement is to make available sufficient funds to meet the budgetary requirements. Act. That minimum wage earners (is a worker in the private sector paid the statutory minimum wage. Act No. 9504. NIRC of 1997] b. 22 (HH). or is an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned). An individual with respect to pure compensation income. 9504] 8. Act. A minimum wage earner (is a worker in the private sector paid the statutory minimum wage. a. d. the husband and wife. and d. on a quarterly basis thereby increasing government liquidity. or is an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned) shall be exempt from the payment of income tax on their taxable income: Provided. the taxpayer does not have to raise large sums of money in order to pay the tax. 9504] 5. Thus. as amended by Rep. 51 (A) (2). Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines. 51 (A) (2). 6. NIRC of 1997] 44 3. 51 (A) (3). who do not derive income purely from compensation shall file a consolidated return for the taxable year to include the income of both spouses. shall compute separately their individual income tax based on their respective total taxable income: Provided. resident or non-resident aliens. Married individuals who are earning compensation income allowed to file separate returns. 22 (HH).. NIRC of 1997 in relation to Sec. that if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses. NIRC of 1997. then a final adjustment return is filed covering the total taxable income for the whole taxable year. 11. 51 (A) (1). the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. 2. A corporation files its income tax return and pays its income tax four (4) times during a single taxable year. An individual earning from the practice of his profession or who engages in trade or business files his income tax return and pays his income tax four (4) times during a single taxable year. [Sec. Married individuals. who do not derive income purely from compensation required file a consolidated return for the taxable year but could not do so. NIRC of 1997 in relation to Sec. That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return [Sec.” [Section 51 (D) of the NIRC of 1997] 7. both as amended by Rep. An individual who is not required to file an income tax return may nevertheless be required to file an information return. That a citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippines shall file an income tax return regardless of the amount of gross income [Sec. Computation of income tax for married individuals whether citizens. but where it is impracticable for the spouses to file one return. night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax. derived from such sources within the Philippines. Individuals who are not required to file an income tax return. whether citizens. be it calendar or fiscal. purely c. both as amended by Rep. 51 (A) (2). It also eases hardships on the part of individuals who are required to make this four time return. Sec. the income tax on which has been correctly withheld: Provided. 9504] 4. [2nd to the last par. Every alien residing in the Philippines on income derived from sources within the Philippines. subject to no. Minimum wage earners are exempt from income taxation. further. That the holiday pay. An individual whose sole income has been subject to final withholding tax. paraphrasing supplied] 10. general or special.

118498 & 124377.. Rev. Under the creditable withholding tax system. G. Sec.R. etc. 30. city. 257(B). G. They are in the nature of penalties and shall be collected at the same time. the PCSO. and 2) creditable withholding tax. [1st and 2nd sentences. Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income due from the payee on the said income. 57. in order to compel the withholding agent to withhold the tax under any and all circumstances. 1999. Regs. 20. No. 15. NIRC of 1997] 2.00 in Metro Manila and other highly urbanized areas and P150. 108576. Sec. October 12. 14.000. in the same manner. and (b) taxes withheld on compensation income. (Filipinas Synthetic Fiber Corporation v. such as but not limited to the following: 1) Sales of real property by a corporation which is registered with and certified by the HLURB or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180. taxes imposed or prescribed by the NIRC of 1997 are to be deducted and withheld by the payors from payments made to payees for the former to pay directly to the Bureau of Internal Revenue . In effect.000. INTERESTS AND SURCHARGES 1. [Sec. 2) Corporations registered with the Board of Investments and enjoying exemptions from income under the Omnibus Investment Code of 1997.248 (A). The two kinds of creditable withholding taxes are (a) taxes withheld on income payments covered by the expanded withholding tax. January 20. 16. Thus. et al. are the amounts imposed in addition to the tax required. The payee is not required to file an income tax return for the particular income. of the Tax Code. 2-98] The liability for payment of the tax rests primarily on the payor or the withholding agent. income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subject to a withholding tax. It is also known as collection of the tax at source. [1st sentence. 2-98] 18. No. 2. the withholding agent is not a taxpayer. 3) Corporations exempt from income tax under Sec. 248 (B).5. Rev. What are the two (2) kinds of civil penalties ? SUGGESTED ANSWER: a. or municipal governments. The income recipient is still required to file an income tax return and/or pay the difference between the tax withheld and the tax due on the income. the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. .. Under the withholding tax system. Rev. Surtaxes or surcharges.. He is made to pay the tax where he fails to withhold as a penalty and not because the tax is due from him. GSIS. general or special. Court of Appeals.57 (A). Nos. taxes withheld on certain income payments are intended to equal or at least approximate the tax due from the payee on the said income. in case of his failure to withhold the tax or in case of under withholding. like the SSS. also known as the civil penalties. (Sec. 1999) The system facilitates tax collection and reduces tax evasion. 1st par. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law. the deficiency tax shall be collected from the payor withholding agent. et al . Regs. the 25% surcharge for late filing or late payment [Sec.00 in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB. National Government and its instrumentalities including provincial. Payments to the following are exempt from the requirement of withholding or when no withholding taxes required: a. Regs. An individual earning purely compensation income files only one annual income tax return covering the total taxable compensation income for the whole of the previous calendar year.45 12.. Court of Appeals. 19. NIRC of 1997] (also known as the delinquency surcharge). 248 (A).R. However. the Anscor case) PENALTIES. No. the 50% willful neglect or fraud surcharge. No. [Sec.] 17. A withholding agent is explicitly made personally liable under the Tax Code for the payment of the tax required to be withheld. 2-98) 13. (Commissioner of Internal Revenue v. For tax amnesty purposes. Ibid. b. and b. The two (2) types of withholding at source are the 1) final withholding tax. and as part of the tax.

or any surcharge or interest thereon. [Sec. CREATING THE COURT OF TAX APPEALS INCLUDING JURISDICTION OF THE CTA. AS AMENDED COURT OF TAX APPEALS. 166786. penalties. July 27. R. 6. fees or other charges. refunds of internal revenue taxes. SUGGESTED ANSWER: The role of the judiciary is to be the sympathetic or vigilant court which would check injustices or abuses of the legislative and administrative agents of the State in their exercise of the power of taxation. v. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments. from the date prescribed for payment until the amount is fully paid. Exclusive appellate jurisdiction to review by appeal. No. the taxpayer not invokes good faith with the BIR countering by saying that good faith is not a valid defense for violation of a special law. 8. Delinquency interest. the BIR further raises the defense that the government is not bound by the errors of its agents. are not likely to possess. the taxpayer was not able to pay his taxes on time. 56 (B) (1). After resolving the issues the BIR Commissioner reduced the assessment. IN GENERAL  1. or a deficiency tax. and b. September 11. What are the purposes for the creation of the Court of Tax Appeals ? SUGGESTED ANSWER: a. What is the nature and composition of the Court of Tax Appeals ? SUGGESTED ANSWER: The Court of Tax Appeals is the special tax court created under Republic Act No. 209) 7. [Sec. criminal. Imposed surcharges and interests for such delay. 1125. (Michel J. in view of the backlog of civil. or the amount of the tax due for which no return is required. SUGGESTED ANSWER: Deficiency income tax is the amount by which the tax imposed under the NIRC of 1997 exceeds the amount shown as the tax due by the taxpayer upon his return. as herein provided: 1. G. Lhuillier Pawnshop. and cadastral cases accumulating in the dockets of such courts. Furthermore. Was it proper to impose delinquency interest despite the reduction of the assessment ? Why ? SUGGESTED ANSWER: Yes. G. 101 Phil. in relation thereto. “a. Deficiency interest. 2006) 4. NIRC of 1997] REPUBLIC ACT NO. No. Commissioner of Internal Revenue. To prevent delay in the disposition of tax cases by the then Courts of First Instance (now RTCs). NIRC of 1997] SUGGESTED ANSWER: The taxpayer is correct.  3. The intention of the law is to discourage delay in the payment of taxes due to the State and in this sense the surcharge and interest charged are not penal but compensatory in nature – they are compensation to the State for the delay in payment. (Ursal v. 249 (A) (B). Define deficiency income tax.46 3. defined. thus providing for an adequate remedy for a speedy determination of tax cases.249 (c). Jurisdiction of the Court of Tax Appeals. Court of Tax Appeals. R. Compromise penalty is the amount agreed upon between the taxpayer and the Government to be paid as a penalty in cases of a compromise.. defined. 1125. 5. The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax. Discuss the role of the judiciary in taxation. As a result of divergent rulings on whether it is subject to tax or not. NIRC of 1997] The interest assessed and collected on the unpaid amount until fully paid where there is failure on the part of the taxpayer to pay the amount die on any return required to be filed. as amended. or other matters arising under . (Bank of the Philippine Islands v. on the date appearing in the notice and demand by the Commissioner of Internal Revenue. Inc. 137002. To have a body with special knowledge which ordinary Judges of the then Courts of First Instance (now RTCs). [Sec. et al. are sufficient justification to delete the imposition of surcharges. Who is correct ?  4. organized into three (3) divisions. and is composed of a Presiding Justice and eight (8) Associate Justices. or for the concomitant tuse of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. 2006)  2. Commissioner of Internal Revenue. The interest assessed and collected on any unpaid amount of tax at the rate of 20% per annum or such higher rate as may be prescribed by regulations.

if appellate EN BANC) 4. 1125. b) Over petitions for review of the judgments. 8800. orders or resolutions of the Regional Trial Courts in local tax cases originally decided or resolved by them in the exercise of their original or appellate jurisdiction. A. if the prescriptive period of two years is about to expire. with a special application or use therein. fees or other charges. the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action. and safeguard measures under Republic Act No. or orders of the Regional Trial Courts in tax collection cases originally decided by them.000. Exclusive appellate jurisdiction in criminal offenses: a) Over appeals from the judgments. involving dumping and countervailing duties under Section 301 and 302. 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. (The inaction on refunds in two years from the time tax was paid. commodity or article. charges and penalties: Provided.00) or where there is no specified amount claimed shall be tried by the regular Courts and the jurisdiction of the CTA shall be appellate. penalties in relation thereto. (DIVISION) 2. R. c. refunds or internal revenue taxes. That offenses or felonies mentioned in this paragraph where the principal amount of taxes 47 and fees.000) shall be tried by the proper Municipal Trial Court. . in their respective territorial jurisdiction. resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax collection cases originally decided by the Metropolitan Trial Courts. No. No. claimed is less than One million pesos (P1. however. exclusive of charges and penalties. is not a totally new remedy. Thus. fees. unique to the CTA. or other matter arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. Decisions of the Secretary of Trade and Industry. A. and no right to reserve the filing of such civil action separately from the civil action will be recognized. in their respective jurisdiction. (This has reference to forfeiture cases where the decision is to release the seized articles – DIVISION) 7. and jointly determined in the same proceeding by the CTA. (DIVISION) 5. Decisions of the Commissioner of Customs in cases involving liability for customs duties. 7. 2. 2. the criminal action and the corresponding civil action for the recovery of civil liability for taxes and penalties shall at all times be simultaneously instituted with. resolutions or orders of the Regional Trial Courts in tax cases originally decided by them. detention or release of property affected. under Section 18 of Republic Act No. forfeitures or other penalties in relation thereto. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes. Any provision of law or the Rules of Court to the contrary notwithstanding. and the Secretary of Agriculture in the case of agricultural product. is less than One million pesos (P1.000. seizure. resolution. fines. To the contrary. the CTA merely adopts the procedure for petitions for review and appeals long established and practiced in other Philippine courts. resolutions. in their respective territorial jurisdiction. Exclusive original jurisdiction over all criminal cases arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided. where either party may appeal the decision to impose or not to impose said duties. 1125. of the Tariff and Customs Code. Jurisdiction over cases involving criminal offenses as herein provided: 1. where the National Internal Revenue Code provides a specific period of action. or other matters arising under the Customs Law or other laws administered by the Bureau of Customs. Exclusive appellate jurisdiction in tax collection cases: a) Over appeals from judgments.” (Sec. (If original DIVISION. fees or other money charges. emphasis and words in parentheses supplied) The petition for review to be filed with the CTA en banc as the mode for appealing a decision. That collection cases where the principal amount of taxes and fees. or order of the CTA Division.000. Jurisdiction over tax collection cases: 1. commodity or article. exclusive of charges and penalties claimed. Accordingly. resolutions or orders of the Regional Trial Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the Metropolitan Trial Courts. b) Over petitions for review of the judgments. Metropolitan Trial Court and Regional Trial Court. Municipal Trial Courts and Municipal Circuit Trial Courts. in case of nonagricultural product.the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue’. Decisions of the Secretary of Finance on customs cases elevated to him 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. as amended. Decisions. Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. as amended by R. (DIVISION) b. in which case the inaction shall be deemed a denial. however. 9282. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments. (EN BANC) 6. respectively. the taxpayer should interpose a petition for review with the CTA – DIVISION) 3.

2007 which ruled that it is the Court of Tax Appeals that has jurisdiction relative to matters involving the constitutionality of regulations issued by the BIR.. 2008) 48  5. The determination of whether a specific rule or set of rules issued by an administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. NOTES AND COMMENTS: The above doctrine supersedes Asia International Auctioneers. R. It is the Regional Trial Court that has jurisdiction to rule upon the constitutionality of a tax law or a regulation issued by the taxing authorities. If the taxpayer ignores the pre-assessment notice by not responding or his explanations are not accepted by the Commissioner. Inc. No. b. G. c. etc et al.. The taxpayer files his tax return. ASSESSMENT OF INTERNAL REVENUE TAXES  1.. However. including the regional trial courts. the regular courts have jurisdiction to pass upon the same. treaty. This is within the scope of judicial power. R. Issuance of revenue regulations are authorized under the NIRC. rules.” 6. If the examiner is satisfied that the tax return is truly reflective of the taxable transaction and all taxes have been paid. In case of automatic review by the Secretary of Finance of a decision of a Collector of Customs acting favorably upon a customs protest. If the taxpayer attends the informal conference and the examiner is satisfied with the explanation of the taxpayer. the process ends. R. 163583. If the taxpayer ignores the invitation to the informal conference. In case of automatic review by the Secretary of Finance in seizure or forfeiture cases where the value of the importation exceeds P5 million or where the decision of the Collector of Customs which fully or partially releases the shipment seized is affirmed by the Commissioner of Customs. No. or if the examiner is not satisfied with taxpayer’s explanation. 173176.doctrines. British American Tobacco reversed Asia International Auctioneers upon the concept of the judiciary’s “expanded power. August 20. (British American Tobacco v. ordinance. a Notice of Informal Conference is issued inviting the taxpayer to explain why he should not be subject to additional taxes. Decisions of the Secretary of Trade and Industry or the Secretary of Agriculture in anti-dumping and countervailing duty cases are . a. 2008 with an intervenor) appealable to the Court of Tax Appeals within thirty (30) days from receipt of such decisions. then the process is again ended. December 18.. 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. the Constitution vests the power of judicial review or the power to declare a law. G. instruction. d.. et al. if the examiner is not satisfied that the tax return is truly reflective of the taxable transaction and that the taxes have not been fully paid. the process is again ended. and he believes that proper taxes should be assessed. A Letter of Authority is issued authorizing BIR examiner to audit or examine the tax return and determines whether the full and complete taxes have been paid.. People. Camacho et al. the Commissioner of Internal Revenue or his duly authorized representative shall then notify the taxpayer of the findings in the form of a pre-assessment notice. principles. Jr. etc. August 26. and precedents laid down in jurisprudence by this Court as regards petitions for review and appeals in courts of general jurisdiction should likewise bind the CTA. If the Commissioner is satisfied with the explanation of the taxpayer. The preassessment notice requires the taxpayer to explain within fifteen (15) days from receipt why no notice of assessment and letter of demand for additional taxes should be directed to him. or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function. presidential decree. The notice of assessment must be issued by the Commissioner to the taxpayer within a period of three (3) years from the time the tax return was filed or should have been filed whichever is the later of the two events. which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments. Indeed. No. 103445. Instances where the Court of Tax Appeals would have jurisdiction even if there is no decision of the Commissioner of Customs: a. c. (Santos v. then a notice of assessment and a letter of demand is issued. or regulation in the courts.. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable. G. Parayno. and it cannot depart therefrom. international or executive agreement. Where what is assailed is the validity or constitutionality of a law.v. . et al. The reason was that this falls under the concept of decisions of the BIR Commissioner on “other matter” arising under the provisions of laws administered by the Commission. e. b. Outline of tax remedies of a taxpayer and the government relative to ASSESSMENT of internal revenue taxes. order..

may have more than one meaning. 1999) For internal revenue taxation assessment as laying a tax. 49 The Court of Tax Appeals. i. Otherwise it would not be valid. If the protest is denied in whole or in part. More commonly the word “assessment” means the official valuation of a taxpayer’s property for purpose of taxation. 1999) 4. For real property taxation. et al.Where the taxpayer did not file a tax return or where the tax return filed is false or fraudulent. (Dissent of J. (Commissioner of Internal Revenue v. G. Self-assessed tax. G.R. Pascor Realty and Development Corporation. Within sixty (60) days from filing of the protest. a denial of which is appealable to the Court of Tax Appeals en banc by means of a petition for review. otherwise the assessment shall become final and collectible and the BIR could use its administrative and judicial remedies to collect the tax. with an application for the issuance of a writ of preliminary injunction to enjoin the BIR from collecting the tax subject of the appeal. Once an assessment has become final and collectible. g. defined. the denial of the Commissioner or the inaction of the Commissioner would result to the notice of assessment becoming final and collectible and the BIR could then utilize its administrative and judicial remedies to collect the tax. The running of the above prescriptive periods may however be suspended under certain instances. An assessment is a notice duly sent to the taxpayer which is deemed made only when the BIR releases. Pascor Realty and Development Corporation. all relevant supporting documents shall be submitted. has a period of twelve (12) months from submission of the case for decision within which to decide. No. An extension of thirty (30) days may for justifiable reasons be granted. and if denied appeal the same to the Court of Tax Appeals. then the Commissioner has a period of ten (10) years from discovery of the failure to file a tax return or from discovery of the fraud within which to issue an assessment notice. It is a tax that self-assessed by the taxpayer without the intervention of an assessment by the tax authority to create the tax liability. No. 128315. If the taxpayer fails to so appeal. A decision of a division of the Court of Tax Appeals adverse to the taxpayer or the government may be the subject of a motion for reconsideration or new trial.. Court of Appeals. The notice of assessment must be issued within the prescriptive period and must contain the facts. there may be a special meaning to the burdens that are imposed upon real properties that have been benefited by a public works expenditure of a local government. j. It is sometimes called a special assessment or a special levy. et al. If the decision of the Court of Tax Appeals en banc affirms the denial of the protest by the Commissioner or the assessment in case of failure by the Commissioner to decide the taxpayer must file a petition for review on certiorari with the Supreme Court within fifteen (15) days from notice of the judgment on questions of law. June 29. law and jurisprudence relied upon by the Commissioner.R. The above definition of assessment finds application under tariff and customs taxation as well as local government taxation.) 3. must show the error of the Bureau of Internal Revenue and the correct computations supported by a statement of facts. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay. 128315. 2005 and companion case) . Thus. Carpio in Philippine National Oil Company v. April 26. No. the decision of the Court of Tax Appeals would become final and this has the effect of making the assessment also final and collectible. or is not acted upon within one hundred eighty (180) days from the submission of documents. (Commissioner of Internal Revenue v. A tax that the taxpayer himself assesses or computes and pays to the taxing authority. R. The pay-as-you-file system is a selfassessing tax return. The word assessment when used in connection with taxation. G.. If the protest was not seasonably filed the assessment becomes final and collectible and the Bureau of Internal Revenue could use its administrative and judicial remedies in collecting the tax. The Tax Code follows the pay-as-you-file system of taxation under which the taxpayer computes his own tax liability.. or from the lapse of the one hundred eighty (180-) day period. (Ibid. the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the adverse decision. h. f. The BIR could then use its administrative and judicial remedies to collect the tax. and pays the tax as he files the return. mails or sends such notice to the taxpayer . prepares the return. the taxpayer could not pay the tax. then apply for a refund. The taxpayer should then file an administrative protest by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment notice. There is no need to pay under protest. The taxpayer could not immediately interpose an appeal to the Court of Tax Appeals because there is no decision yet of the Commissioner that could be the subject of a review. June 29. et al. and the law and jurisprudence relied upon by the taxpayer. If the taxpayer does not so appeal. Internal revenue taxes are self-assessing. 109976. 2. not even the BIR Commissioner could change the same. To be valid the administrative protest must be filed within the prescriptive period.

Approximation in the calculation of taxes due is justified.. A pre-assessment notice is a letter sent by the Bureau of Internal Revenue to a taxpayer asking him to explain within a period of fifteen (15) days from receipt why he should not be the subject of an assessment notice. The petitioner (Commissioner of Internal Revenue) is not required to compute such tax liabilities with mathematical exactness. SP No. If it could not be produced. (g) Surveillance and assessment method. joint ventures or consortia and registered partnerships.. (Ibid. and thus.) 7.R. Thus. the BIR could not issue an assessment notice without first issuing a pre-assessment notice because it is part of the due process rights of a taxpayer to be given notice in the form of a preassessment notice. which the taxpayer himself computes and pays without the intervention of any assessment by the BIR. but not limited to. September 30. 68-74)  5.) 50  8. secondary evidence must be adduced. He may take the sworn testimony of the taxpayer. (f) Third party information or access to records method. Hantex Trading Co.A clear example of a self-assessed tax is the annual income tax.. or from any office or officer of the national and local governments. 6 (B) of the NIRC of 1997 allows the BIR to make or amend a tax return from his own knowledge or obtained through testimony or otherwise. It is part of the due process rights of a taxpayer. NIRC of 1997. March 31. NIRC of 1997) 6. 2005)  9. 1998) 10. 5 (B). v.. The existence of unreported income may be shown by any particular proof that is available in the circumstances of the particular situation. a. (Hantex Trading Co. 136975. (Commissioner of Internal Revenue v. This means that the original documents must be produced. costs and volume of production. G. Meaning of "best evidence obtainable" under Sec. Hantex Trading Co. or . (b) Net worth method. and the names . receipts or sales and gross incomes of taxpayers. Inc. R. The BIR may require third parties. To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. xxx ” [Sec. CA G. 2005) “However. March 31. and after such investigation to issue the tax assessment that creates the tax liability. traders’ and brokers’ accounts and books and the taxpayer’s books of accounts. The annual income tax becomes due and payable without need of any prior assessment by the BIR. “obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation. mutual fund companies. R. his tax liability may be determined by estimation. Sec. joint accounts. if necessary. Handbook on Audit Procedures and Techniques – Volume I. public or private to supply information to the BIR. However. and financial statements of corporations. if the taxing authority is first required to investigate. Third party information or access to records method. The following are the general methods developed by the Bureau of Internal Revenue for reconstructing a taxpayer’s income where the records do not show the true income or where no return was filed or what was filed was a false and fraudulent return (a) Percentage method. government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or –controlled corporations.” (Commissioner of Internal Revenue v. Instances where a pre-assessment notice is not required before a notice of assessment is sent to the taxpayer. Inc. As a general rule. General rule: When the Commissioner of Internal Revenue may rely on estimates. 47172. Indirect Approach to Investigation. he may take the testimony of third parties. “The rule is that in the absence of accounting records of a taxpayer. then the tax is no longer self-assessed. The BIR may or may not investigate or audit the annual income tax return filed by the taxpayer. insurance companies.” (Ibid. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. the rule does not apply where the estimation is arrived at arbitrarily and capriciously. this inquiry would have to be outside of the books because they supported the return as filed. (Chapter XIII. 6 (B). (c) Bank deposit method. 136975. (e) Unit and value method. G. Inc. and their members. The taxpayer’s liability for the income tax does not depend on whether or not the BIR conducts such subsequent investigation or audit. associations. Necessarily. Commissioner of Internal Revenue. The Commissioner is not bound to follow any set of patterns. regional operating headquarters or multinational companies. any information such as. pp. (d) Cash expenditure method. addresses. he may examine and subpoena. and for him to explain why he should not be the subject of an assessment notice.  11. No. No. the Commissioner of Internal Revenue investigates ”any circumstance which led him to believe that the taxpayer had taxable income larger than that reported.

Commissioner of Internal Revenue. our tax law provides a statute of limitations in the collection of taxes. 104171. Philippine Journalists. Three (3) years from the last day within which to file a return or when the return was actually filed. No. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law.. Inc. Prescriptive periods for making assessments of internal revenue taxes. to the Government because tax officers would be obliged to act promptly in the making of assessment.F. Commissioner of Internal Revenue. G. Inc. Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will not longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. et al. R. 303 SCRA 546. NIRC of 1997) 51 obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. Without such a legal defense taxpayers would furthermore be under The prescriptive period was precisely intended to give the taxpayers peace of mind. 167765. Inc.R. February 24. v. 1999) 15. 162852.F. A “jeopardy assessment” is a delinquency tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer. [ Commissioner of Internal Revenue v. et al. When an article locally purchased or imported by an exempt person.R. 2008 citing Philippine Journalists. February 24. [Philippine Journalists... The CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. NIRC of 1997). [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. Inc. Commissioner of Internal Revenue. R. Inc. 1999.. 174942. 162852. 228. v. investigation or assessment. As a corollary. R. No. or d. should be liberally construed in order to afford such protection. G. B. machineries and spare parts. December 16. within the period agreed upon between the government and the taxpayer where there is a waiver of the prescriptive period for assessment (Sec. Inc. the exceptions to the law on prescription should perforce be strictly construed. March 7. v. G. the law on prescription. 225) 14. February 24. 303 SCRA 546] The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens. No. 447 SCRA 214. R. our tax laws provide a statute of limitation on the collection of taxes. 2004 with note to see Republic v. 104171. March 7. or e. 222 (a). For the purpose of safeguarding taxpayers from any unreasonable examination. (Commissioner of Internal Revenue v. G. Inc. a. capital equipment. et al. No. 1999. 2008] This mandate governs the question of prescription of the government’s right to assess internal revenue taxes primarily to safeguard the interests of taxpayers from unreasonable investigation. Commissioner of Internal Revenue. Goodrich Phils. the government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time. who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer’s failure to comply with the audit and investigation . but not limited to vehicles.F. No. Purpose of period of limitations in taxation. not to determine the latter’s real liability. Accordingly. Commissioner of Internal Revenue G. 2004. G. NIRC of 1997[ . 13. but to take advantage of every opportunity to molest peaceful. or c. No. December 16. 222 (b). B. R. December 16. ten years from discovery of the failure to file the tax return or discovery of falsity or fraud in the return [Sec. (Sec. When a taxpayer opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding table year. 162852. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v.. 2004]. Goodrich Phils.. Reason: for the purpose of safeguarding taxpayers from an unreasonable examination. G. has been sold. 1108) b. 174942. B. December 16. 108 Phil. G. Laws on prescription should be liberally construed in favor of the taxpayer. Commissioner of Internal Revenue. When the excess tax due on excisable articles has not been paid. FMF Development Corporation. 2008]  12.R. law-abiding citizens. NIRC of 1997). 1105. whichever is later (Sec. R.). June 30. G. trade or transferred to non-exempt persons.R. 203.. and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers. No. Inc. such as. Ablaza. or c. v. 2004 citing Commissioner of Internal Revenue v. Thus. No. investigation or assessment. 162852. ). No. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. Goodrich Phils... being a remedial measure. (Commissioner of Internal Revenue v.. as well as their assessments. Inc (now Sime Darby International Tire Co. G. No. (Philippine Journalists.b. 104171. (now Sime Darby International Tire Co.

. No.requirements to present his books of accounts and/or pertinent records.. Court of Appeals.. Lifeblood theory b. in Clark and Clark v.1 (a). 223. When the warrant of distraint and levy is duly served upon the taxpayer. 1973] d. G. NOTES AND COMMENTS: The holding in Commissioner of Internal Revenue v. When the taxpayer is out of the Philippines. his authorized representative.S. et al. “the determination of the Commissioner contained in a deficiency notice disappears. SUGGESTED ANSWER: The “prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation. or a member of his household with sufficient discretion. When the taxpayer requests for and is granted a reinvestigation by the commissioner.4. 2d 1046 (1976).” [Commissioner of Internal Revenue v. 428 US 433 (1976)] In such a situation. and e.” [Commissioner of Internal Revenue.) . the determination of the tax due is without rational basis. February 25. Presumption of regularity (Commissioner of Internal Revenue v.. 3. Court of Appeals ruling. (Sec. Regs. the law. determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence. exemptions. When the taxpayer could not be located in the address given by him in the return filed upon which the tax is being assessed or collected. What are the requirements for the validity of a formal letter of demand and assessment notice ? SUGGESTED ANSWER: a. Commissioner of Internal Revenue. Requisites for Formal Letter of Demand and Assessment Notice. otherwise. Hantex Trading Co.. 266 F. March 31. in respect of any tax deficiencies? SUGGESTED ANSWER: a. No. No. Tuazon.” [Commissioner of Internal Revenue. and c. What are the reasons correctness of assessments ? for presumption of SUGGESTED ANSWER: a. b.1 (a). Rev. 173 SCRA 397) c. without any foundation character. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. What are the instances that suspends the running of the prescriptive periods (Statute of Limitations) within which to make an assessment and the beginning of distraint or levy or of a proceeding in court for the collection. Regs. hence it may be subject to a compromise.1. the formal letter of demand and assessment notice shall be void. Regs. d. b. The same shall be sent to the taxpayer only by registered mail or by personal delivery. Inc. (Commissioner of Internal Revenue v. 3. or to substantiate all or any of the deductions. Hantex Trading Co. 136975. No. 136975. 482 F. the law. c. 2005 citing United States v. NIRC of 1997 which provides for the suspension of the prescriptive period: 18.2d 10 (1973). or jurisprudence on which the assessment is based. 12-99)  20. Give instances where prima facie correctness of a tax assessment does not apply. There must have been previously issued a pre-assessment notice until excepted. Where the BIR has come out with a “naked assessment” i. or jurisprudence on which the assessment is based. the 16. 49 L. G. 115712. R. rules and regulations. The certiorari was denied by the United States Supreme Court on November 19. supra]  17. 1999 (Carnation case) that the waiver of the period for assessment must be in writing and have the written consent of the BIR Commissioner is still doctrinal because of the provisions of Sec. The likelihood that the taxpayer will have access to the relevant information [Commissioner of Internal Revenue. 2005) in the performance of public functions. Inc. 6-2000) Jeopardy assessment is an indication of the doubtful validity of the assessment.R. supra citing a U. R. the formal letter of demand and assessment notice shall be void. or credits claimed in his return. It must have been issued prior to the prescriptive period. and no property could be located. meaning it is arbitrary and capricious. Rev. When the Commissioner is prohibited from making the assessment. Janis.. The desirability of bolstering the record-keeping requirements of the NIRC. otherwise. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts. [Sec. 2d 698 (1959)] “Hence. 6-2000] 52  19. Rexach. No. Ed. rules and regulations. Rev. G. (Ibid..e. supra citing United States v. [Sec. No. or beginning distraint. 3. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts. Inc. or levy or proceeding in court and for sixty (60) days thereafter. March 31.

 23. which implements Sections 203 and 222 (b). v.) a. nor can it be contended that the concurrence to such waiver is a mere formality. (Commissioner of Internal Revenue v. b. G. G. The waiver of the statute of limitations does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally. No. FMF Development Corporation. Thus a waiver becomes unlimited in time. In the Regional Offices 1. its tax officers are obliged to act promptly in the making of assessment so that taxpayers. No. because it did not specify a definite date. 115712. the following procedures should be followed for a valid waiver of the prescriptive period for an assessment: The waiver must be in the proper form. FMF Development Corporation. c. 620622. Inc. The . taxpayers would be open season to harassment by unscrupulous tax agents. In the National Office xxxx 3. shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. 447 SCRA 214. The waiver shall be signed by the taxpayer himself or his duly authorized representative. [Commissioner of Internal Revenue v. The following revenue officials are authorized to sign the waiver. and invalid. (Renumbering and emphasis supplied. G. 20-90.. R. 115712. not to determine the latter’s real liability. June 30. citing Commissioner of Internal Revenue v. No. 167765. but to take advantage of a possible opportunity to harass even law-abiding businessmen. 1108 (1960)] The signatures of both the Commissioner and the taxpayer.R. et al. within which the former may assess and collect taxes. No. February 25.53 Under RMO No.R. The foregoing procedures shall be strictly followed. Court of Appeals. Commissioner of Internal Revenue G. 447 SCRA 214. 1105. To the Government. 108 Phil. the second copy for the taxpayer and the third copy for the Office accepting the waiver. [Commissioner of Internal Revenue v. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. G. Court of Appeals. 1999. The act of requesting a reinvestigation alone does not suspend the running of the prescriptive period. On this basis. Soon after the waiver is signed by the taxpayer. 20-90 because the law on prescription should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount. 2008 citing Republic of the Phils. d. RMO No. No. particularly where the language of the document is equivocal. 2008 citing Philippine Journalists. (Commissioner of Internal Revenue v. 167765. v. The procedures in RMO No.R. be strictly followed. 2008 citing Philippine Journalists. 1999 (Carnation case)]  24. xxxx d. It also would have no binding effect on the taxpayer if there was no consent by the Commissioner. 162852. 228-229)  21. thus a unilateral waiver on the part of the taxpayer does not suspend the prescriptive period. at 229. are required for a waiver of the prescriptive period. R. Commissioner of Internal Revenue G. 2004. BIR cannot rely on its invocation of the rule that the government cannot be estopped by the mistakes of its revenue officers in the enforcement of RMO No. to a certain extent being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations. no implied consent can be presumed. 229 in turn citing Id. G. would have a feeling of security against unscrupulous tax agents who will always try to find an excuse to inspect the books of taxpayers. must be carefully and strictly construed. No. A waiver of the statute of limitations under the NIRC. No. The waiver must be executed in three (3) copies . The date of such acceptance by the Bureau should be indicated. 2004. 167765. after the lapse of the period of prescription.  22. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy. 303 SCRA 614. 20-90 must 47. FMF Development Corporation. the waiver must be signed by any of its responsible officials.R. the Commissioner of Internal Revenue or the revenue official authorized by him. R. as hereinafter provided. In the case of a corporation. Without such legal defense. the original copy to be attached to the docket of the case.) If the above are not followed there is no valid waiver and prescription would run. 20-90 are NOT merely directory and that the execution of a waiver is a renunciation of a taxpayer’s right to invoke prescription. Ablaza. A. Inc. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed. v. December 16. 162852. agreed upon between the BIR and the taxpayer. Commissioner For tax cases involving more than P1M B. February 25. June 30. December 16. June 30.

The term “relevant supporting documents” should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. the applicable law. L81446. Request for reconsideration which refers to a plea for reevaluation of an assessment on the basis of existing records without need of additional evidence. Otherwise. SUGGESTED ANSWER: a. October 31. 578. the taxpayer shall submit all relevant supporting documents. rules and regulations. NIRC of 1997) When a taxpayer demands a reinvestigation. 117 Phil. 139736. in which case. R. No. 568-569 (1963)] PROTESTING INTERNAL REVENUE TAX ASSESSMENTS 1. March 7. It may involve both a question of fact or of law or both. 167146. Request for reinvestigation which refers to a plea for reevaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation. Inc. 2008] statute of limitations for collection of the tax. The Supreme Court declared that the burden of proof that the request for reinvestigation had been actually granted shall be on the Commissioner of Internal Revenue. 167146. The BIR cannot demand what type of supporting documents should be submitted. 473 SCRA 205.1. 17 October 2005. Philippine Global Communication. No. What is that type of protest that suspends the running of the statute of limitations for the beginning of distraint or levy or a proceeding in court for collection ? Why ? SUGGESTED ANSWER: It is that type of protest “when the taxpayer requests for a reinvestigation which is granted by the Commissioner” (Sec. R. Such grant may be expressed in its communications with the taxpayer or implied from the action of the Commissioner or his authorized representative in response to the request for reinvestigation. Inc. rules and regulations. It must be filed within the reglementary period of thirty (30) days from receipt of the notice of assessment. Rev. G. April 17. [4th par. or jurisprudence on which the taxpayer’s protest is based. 2006 citing Rev. citations omitted) Undoubtedly. The taxpayer has the duty to prove otherwise. an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. Commissioner of Internal Revenue. G. What are the two ways of protesting an assessment notice for an internal revenue tax ? Alternatively. Lopez. 18 August 1988. that suspends the running of the  5. 2007 citing Sy Po v.. (Commissioner of Internal Revenue v. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. what are the two types of protests ? Explain briefly. Regs. Bank of Philippine Islands. R. 7 SCRA 566. 12-99) c. NIRC of 1997). (Commissioner of Internal Revenue v. or jurisprudence in support of his protest against some of the several issues on which the assessment is based. R. The BIR can only inform the taxpayer to submit additional documents. No. R. which may require the production of documents that a taxpayer cannot .. 12-85)  3. Within sixty (60) days from filing of the protest. now Sec. the applicable law. b. while the latter cannot. NIRC of 1997]  2. No. G. 164 SCRA 524. Sec. the same shall be considered undisputed issue or issues. Inc. 2006 citing Sec. 271. The taxpayer must not only show the errors of the Bureau of Internal Revenue but also the correct computation through 1) A statement of the facts. G. No. All presumptions are in favor of the correctness of tax assessments. 3. 134062. October 31. G. What is the presumption that flows from a taxpayer’s failure to protest an assessment ? SUGGESTED ANSWER: “Tax assessments by tax examiners are presumed correct and made in good faith. (Sec. No. 2) If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts. No. R. a reinvestigation. 228 (e). the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto.. will take more time than a reconsideration of a tax assessment which will be limited to the evidence already at hand. supra citing Republic v. 174942. b. Court of Appeals.. (Commissioner of Internal Revenue v. a taxpayer will be at the mercy of the BIR. 575. which entails the reception and evaluation of additional evidence. In the absence of proof of any irregularities in the performance of duties. the time employed in reinvestigation should be deducted from the total period of limitation. No. Regs.” defined .” (Commissioner of Internal Revenue v. [Commissioner of Internal Revenue. G. 223. 230-231)  4. this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax. 530. 223. Philippine Global Communication. 2006 citing Bank of Philippine Islands v. Philippine Global Communication. What are the requirements for the validity of a taxpayer’s protest ? SUGGESTED ANSWER: a.. It may also involve a question of fact or law or both. “Relevant supporting documents. Commissioner of Internal Revenue.5. G. 167146. R. October 31.54 request for reinvestigation must be granted by the CIR.

) c. otherwise. 82618. G. (Commissioner of Customs.. The taxpayer seasonably protested the assessment issued by the Commissioner of Internal Revenue. No. 3. (Commissioner v. Sec. v.. the decision shall be void. and (b) that the same is his final decision. As counsel what advice shall you give the taxpayer. Court of Tax Appeals. As a general rule. It is disheartening enough to a taxpayer to be kept waiting for an indefinite period for the ruling. Commissioner of Internal Revenue v. Inc. June 16. 2001) 2. Explain briefly your answer. Rev. 2001 held that not only is the Notice the only response received: its content and tenor supports the theory that it was the CIR’s final act regarding the request for reconsideration. R. Rule 10.. (Commissioner of Internal Revenue v. Isabela Cultural Corporation. Where the Commissioner has not acted on the disputed assessment after a period of 180 days from submission of complete supporting documents.. would have.. No. or jurisprudence on which such decision is based. given his go signal. a. First Express Pawnshop Company.) . 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 Court of Tax Appeals. Commissioner of Internal Revenue v. During the pendency of the protest the CIR issued a warrant of distraint and levy to collect the taxes subject of the protest. NIRC of 1997 . An indication to the taxpayer by the Commissioner “in clear and unequivocal language” of his final denial not the issuance of the warrant of distraint and levy. there must always be a decision of the Commissioner of Internal Revenue or Commissioner of Customs before the Court of Tax Appeals. et al. 3. 135210. RRCTA effective December 15. It would make matters more exasperating for the taxpayer if the doors of justice would be closed for such a relief until after the Commissioner.6. Union Shipping Corporation. Filing by the BIR of a civil suit for collection of the deficiency tax is considered a denial of the request for reconsideration. 57 SCRA 523) Furthermore. unrep. 228 (e). The letter itself clearly stated that the taxpayer was being given “this LAST OPPORTUNITY” to pay... Ayala Securities Corporation. d. To be a valid decision on a disputed assessment. v. July 11. rules and regulations. March 16. by way of a petition for review. in which case the same shall not be considered a decision on the disputed assessment.R. Regs. If there is no such decision. Inc. No. et al. G.submit. 3. otherwise. to the Court of Tax Appeals not on the ground of the denial of the protest but on other matter arising under the provisions of the b. (Ibid. 2009) 55 JUDICIAL REMEDIES ASSESSMENTS INVOLVING PROTESTED  1. (last par. 70 SCRA 204) e. at his personal convenience. the decision of the Commissioner or his duly authorized representative shall (a) state the facts. What is the subject of the appeal is the final decision not the warrant of distraint. the taxpayer has to file his appeal with the Court of Tax Appeals before the expiration of two years from the time the tax was paid. 2005) because the collection of the tax may jeopardize the interest of the taxpayer. G. SUGGESTED ANSWER: The taxpayer should appeal.1. Instances where the Court of Tax Appeals would have jurisdiction even if there is no decision yet by the Commissioner of Internal Revenue: a. Where the Commissioner has not acted on an application for refund or credit and the two year period from the time of payment is about to expire. et al. the applicable law. its properties would be subjected to distraint and levy. July 11. 1989. the petition would be dismissed for lack of jurisdiction unless the case falls under any of the following exceptions. A BIR demand letter sent to the taxpayer after his protest of the assessment notice is considered as the final decision of the Commissioner on the protest. Isabela Cultural Corporation. 185 SCRA 547) National Internal Revenue Code. 185 SCRA 547) b. (Commissioner of Internal Revenue v. the taxpayer has a period of 30 days from the expiration of the 180 day period within which to appeal to the Court of Tax Appeals. (Surigao Electric Co. G. The very title expressly indicated that it was a final notice prior to seizure of property. Court of Tax Appeals. The actual issuance of a warrant of distraint and levy in certain cases cannot be considered a final decision on a disputed assessment. Union Shipping Corp. a motion for the suspension of the collection of the tax may be filed together with the petition for review (Sec. (Commissioner of Internal Revenue v. 172045-46. (Sec. Acts of BIR Commissioner that may be considered as denial of a protest which serve as basis for appeal to the Court of Tax Appeals. 12-99) These conditions are not complied with by the mere issuance of a warrant of distraint and levy. 135210. Final notice before seizure considered as commissioner’s decision of taxpayer’s request for reconsideration who received no other response. 4.R. would have jurisdiction.R.

Provided. “Except as provided in Section 222. 473 SCRA 205. emphasis supplied] c. 2007) However. 203.” Said Sec. or where the assessment is not an extended assessment. also entitled “Exceptions as to the period of limitation of assessment and collection of taxes. fraud or omission. R. No. mailed or sent to the taxpayer. reads “Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. The Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment. 222 (a) NIRC of 1997. in relation to Secs. or court proceeding. 222 (c). Collection upon a return that is not false or fraudulent. Where a tax has been assessed with the period agreed upon between the Commissioner and the taxpayer in writing (which should initially be within three (3) years from the time the return was filed or should have been filed). 269 (c). SUGGESTED ANSWER: a. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. 269. G. Without needless difficulty.56 5. entitled “Exceptions as to the period of limitation of assessment and collection of taxes. (Commissioner of Internal Revenue v.” . Collection upon an extended assessment. 222 (d). 2. considering that taxes are the lifeblood of the government and in Holmes’ memorable metaphor.” [Sec.” [Sec.R. 154068. No. What is the prescriptive period for collecting internal revenue taxes ? SUGGESTED ANSWER: There are four (4) prescriptive periods for the collection of an internal revenue tax: a. 2007) return). b. G. are not to be applied retroactively. (Commissioner of Internal Revenue v. in relation to Sec.” It is clear that in enacting Sec. G. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. G. internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return. statutes may provide for prescriptive periods for the collection of particular kinds of taxes. emphasis supplied] COLLECTION OF INTERNAL REVENUE TAXES 1. 222. NIRC of 1977 and Sec.. 269 of the NIRC. supra) d. Acosta.” [Sec. 2008 citing BPI v. As a general rule. the three (3) year period shall be computed from the day the return was filed. 174942. statutes may provide for periods of prescription. March 7. R. General rule: Collection of taxes is imprescriptible. In case of a false or fraudulent return with the intent to evade tax or of failure to file a return. August 3. 17 October 2005. “a proceeding in court for the collection of such tax may be filed without assessment. revenue laws are not intended to be liberally construed. fraud or omission “may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax . tax laws must be faithfully and strictly implemented. 222-223] 3. and exemptions are not given retroactive application. No. April 17. 222 (b) and 203. Revenue laws are substantive laws and their application must not be equated with remedial laws. Collection upon a false or fraudulent return or no return without assessment. No. Commissioner of Internal Revenue . (Acosta. the price we pay for civilization. or any extensions before the expiration of the period agreed upon. the tax “may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) year period . The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released. Why is the collection of taxes imprescriptible ? While this may be so. at any time within ten (10) years after the discovery of the falsity. the taxpayer would be able to determine when his right to appeal to the tax court accrues. For purposes of this Section.” (Sec. That in case where a return is filed beyond the period prescribed by law.222 of NIRC of 1997 do not refer to a “regular return. the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period . On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment.” the NIRC of 1997 has eliminated sub-paragraph c of the former Sec. 139736. Bank of the Philippines Islands. unlike remedial laws. 222 (a). NIRC of 1997] b. Any internal revenue tax which has been assessed (because the return is false or fraudulent with intent to evade tax or of failure to fail a NOTES AND COMMENTS: a. emphasis supplied) When the BIR validly issues an assessment within the three (3)year period. R. Both the former Sec. within a period of ten (10) years from discovery of the falsity. NIRC of 1997. etc. a return filed before the last day prescribed by law for the filing thereof shall be considered filed on such last day. 134062. levy. Collection upon a false or fraudulent return or no return with assessment. NIRC of 1997. The characteristic of a BIR denial of a protest such as would enable the taxpayer to appeal the same to the Court of Tax Appeals. it has another three (3) years within which to collect the tax due by distraint. Tax laws. Commissioner of Internal Revenue.

5. 30-2002) 8. 2001) 7. What tax cases may be the subject of a compromise ? SUGGESTED ANSWER: The following cases may. The same scenarios are those referred to in the former Sec. e. No. b. if the taxpayer did not agree. 222 of the NIRC is clear that it covers only three scenarios only. mutual in essence requires agreement. When is the Commissioner of Internal Revenue authorized to abate or cancel a tax liability ?: . 222 nor the former Sec.. other than those already filed in court. be the subject matter of compromise settlement: a. Collection cases filed in courts. Rev. A compromise being. Rev. Delinquent accounts. (Art. NIRC of 1997] In instances where the Commissioner is not authorized. and g. avoid a litigation or put an end to one already commenced. No. [Sec. It is clear therefore that neither Sec. f. Resort should therefore be made to the three (3) year period referred to in Sec. No. 203 of the NIRC of 1997 which reads. What tax cases could not be the subject of compromise ? SUGGESTED ANSWER: a. When may the Commissioner of Internal Revenue compromise the payment of any internal revenue tax ? Alternatively. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. b.. Cases where final reports of reinvestigation or reconsideration have been issued resulting to reduction in the original assessment and the taxpayer is agreeable to such decision by signing the required agreement form for the purpose. or that there was an agreement to extend the period for assessment. Large Taxpayer Service (LTS). 269 provide for an instance where the assessment was made upon a “regular return” or one that is not false or fraudulent. and no proceeding in court without assessment for the collection of such taxes x x x “ (paraphrasing and emphasis supplied) 57 6. c. What is a compromise ? SUGGESTED ANSWER: A compromise is a contract whereby the parties. et al. Cases which become final and executory after final judgment of a court where compromise is requested on the ground of doubtful validity of the assessment. v. A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is equivalent to forty percent (40%) of the basic tax. 2028. (Sec. other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis. and what are the amounts for which a compromise may be entered into ? SUGGESTED ANSWER: a. Civil Code) A compromise penalty could not be imposed by the BIR.00). Criminal violations. 204 (A). d. or those involving criminal tax fraud. 2. c. Regs.000. Criminal violations already filed in court.000. by its nature. On the other hand. or b. The payment made under protest could only signify that there was no agreement that had effectively been reached between the parties. Delinquent accounts with duly approved schedule of installment payments. by making reciprocal concessions. 138485. de San Agustin. R. 269 which provided for a prescriptive period for collection of three (3) years. Withholding tax cases unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold. and the settlement offered is not less than the prescribed percentages. (Vda. Collection Service. September 10. Civil tax cases being disputed before the courts. d. and 3) an extended assessment issued within a period agreed upon by the Commissioner and the taxpayer. (Sec. 2) an assessment was made upon a false or fraudulent return or omission to file a return. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax provided that the minimum compromise entered into is equivalent to ten percent (10%) of the basic assessed tax In the above instances the Commissioner is allowed to enter into a compromise only if the basic tax involved does not exceed One million pesos (P1. 2. G. 1) No assessment was made upon a false or fraudulent return or omission to file a return. Enforcement Service and other offices in the National Office. Legal Service. upon taxpayer’s compliance with the basis for compromise. “Except as provided in Section 222. confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative. what are the grounds for a compromise. Revenue District Offices. Criminal tax fraud cases. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices. Regs. internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return.A perusal of Sec. e. 302002)  4. the compromise shall be subject to the approval of the Evaluation Board composed of the Commissioner and the four (4) Deputy Commissioners. Commissioner of Internal Revenue.

It is shown on the return of the recipient that the income payment received was declared as part of the gross income. and must indicate the name of the payor. There is a law that authorizes the collection of a tax but the tax collected was more than what the law allows. as the case may be shall suspend the payment. The tax or any portion thereof appears to be unjustly or excessively assessed. provincial. G. the fact of withholding. and c. No. sought by means of a demand for payment. The tax was illegally collected. the Secretary of Trade and Industry and Secretary of Agriculture. (Banco Filipino Savings and Mortgage Bank v. and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided. The collection of a tax may not be suspended. – (a) Claims for Tax Credit or Refund of Income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom xxx” (Rev. Court of Appeals.” (Sec. What are the grounds for refund or credit of internal revenue taxes ? SUGGESTED ANSWER: The grounds for refund or credit or internal revenue taxes are the following: a. As a general rule. March 27. Rep. Rep. There is no law that authorizes the collection of the tax. or by whatever means. 1125. “Sec. c. et al. No. b. The fact of withholding is established by a copy of a statement duly issued by the payee showing the amount paid and the amount of tax withheld therefrom. “No court shall have the authority to grant an injunction to restrain the collection of any national internal revenue tax. REFUND OF INTERNAL REVENUE TAXES . city or municipal treasurer or the Secretary of Finance. Only the Court of Tax Appeals may issue an order suspending the collection of a tax. Proof of fact of withholding. 11. The tax was excessively collected. The tax was paid through a mistaken belief that the taxpayer should pay the tax (solution indebeti) 9. or in a separate motion filed by the interested party at any stage of the proceedings. et al. Court of Appeals. March 27. What is the procedure for suspension of collection of taxes ? SUGGESTED ANSWER: Where the collection of the amount of the taxpayer’s liability. (Banco Filipino Savings and Mortgage Bank v. may jeopardize the interest of the government or the taxpayer. but also the correct amount that should be refunded. Rule 10. G. 204 (B).. distraint or sale of property of the taxpayer. [Sec. and not merely from the payee. NIRC of 1997] 58  1. Act No. an interested party may file a motion for the suspension of the collection of the tax liability (Sec. That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court. RRCTA effective December 15. 218.SUGGESTED ANSWER: a. R. R. 2007) The Supreme Court may enjoin the collection of taxes under its general judicial power but it should be apparent that the source of the power is not statutory but constitutional. fee or charge . RRCTA effective December 15. Regs.. What should be established by a taxpayer for the grant of a tax refund ? Why ? SUGGESTED ANSWER: A taxpayer needs to establish not only that the refund is justified under the law. 10. b. No. 155682. 3. as amended) The document which may be accepted as evidence of the third condition. 10. 2005) NOTES AND COMMENTS: a. however. distraint. that is. 9. 2005) with the Court of Tax Appeals. 9282 )  2. the amount of the tax withheld and the nature of the tax paid. (Sec.  11. 1. Act No. The administration and collection costs involved do not justify the collection of the amount due. NIRC) “No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court. What are the three (3) conditions for the grant of a claim for refund of creditable withholding tax ? SUGGESTED ANSWER: a. as amended by Sec. 6-85.” (Sec. The claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of the payment of the tax. The motion for suspension of the collection of the tax may be filed together with the petition for review or with the answer. the income payment basis of the tax withheld. as provided under existing laws. Claim for tax credit or refund. levy. must emanate from the payor itself. Rule 10. 2007) 3. by levy. or b. 155682.

Thus. N. 1989. October 10. What is solutio indebeti as applied to tax cases ? SUGGESTED ANSWER: Under the principle of solutio indebiti provided in Art. The two (2) year period and the thirty (30) day period should be applied on a whichever comes first basis. R. Mathay. 2008 citing Citibank. Commissioner of Internal Revenue . a.R. March 16. before filing a case with the Court of Tax Appeals ?  8. 1997. v. Sec. before the expiration of two (2) years from the date of payment of the tax regardless of any supervening cause that may arise after payment (2nd par. (Sec. etc. is filed that the taxpayer will be able to ascertain whether a tax is still due or refund can be claimed based on the adjusted and audited figures. No.R. Where the taxpayer is a corporation the two year prescriptive period from “date of payment” for refund of income taxes should be the date when the corporation filed its final adjustment return not on the date when the taxes were paid on a quarterly basis. or b. Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person claiming the exemption. Commissioner of Internal Revenue. Commissioner of Internal Revenue. 144653. 171956. 107434.. shall enrich oneself at the expense of another. et al. Civil Code.” The BIR received something “when there . [State Land Investment Corporation v. 89 SCRA 586 (1979)]. not even the state. R. if the 2 year period is about to lapse but there is no decision yet by the Commissioner which would trigger the 30-day period. the taxpayer should file an appeal. G. R. 138919. v. May 2. Court of Tax Appeals. (Commissioners. G. No.. it has the obligation to return it. (Philippine Bank of Communications v. No. 1125) [was] no right to demand it. or allow it only to the extent of the sum that is actually proven as due. covering the whole year. there is cause to deny the refund. January 28.. 14 SCRA79)  7. 280 SCRA 459. the obligation to return it arises. August 28. 229.” and thus. et al. etc. 2006) 59  4.If the latter requisite cannot be ascertained with particularity. G. et al.. despite the absence of a decision. It is an ancient principle that no one. The burden in proving the claim for refund necessarily falls on the taxpayer. 2154. No. (Far East Bank Trust and Company. Indeed.A. 1999) It is only when the return. v. simple justice requires the speedy refund of the wrongly held taxes.R. Commissioner of Internal Revenue. G. No.) 56. the 30 days applies. (Gonzales v. Court of Tax Appeals. A. NIRC of 1997) . unrep. 112024. if the 30 days is within the 2 years.. v. 11.) Why is it necessary to file an administrative claim for refund with the BIR. Inc. et al. 2001) a. G. (Bank of the Philippine Islands v.. No. What is The legal remedy under the NIRC of 1997 at the judicial level with respect to refund or recovery of tax erroneously or illegally collected ? SUGGESTED ANSWER: Filing of a suit or proceeding with the Court of Tax Appeals a. G. Court of Appeals and Commissioner of Internal Revenue . (Ibid.  6. Sr. within thirty (30) days from receipt of the denial by the Commissioner of the application for refund or credit. “If something is received when there is no right to demand it. in turn citing Ramie Textiles. No. 82618. To afford the Commissioner an opportunity to correct his errors or that of subordinate officers. January 18.. What are the reasons for requiring the filing of an administrative application for refund or credit with the B SUGGESTED   5. R. and it was unduly delivered through mistake.

4 SCRA 279) NOTE: Reconciliation between above two numbers (8 and 9). As a general rule the filing of an application for refund or credit with the Bureau of Internal Revenue is an administrative precondition before a suit may be filed with the Court of Tax Appeals ? SUGGESTED ANSWER: (vda. 2001 citing Roman Catholic Archbishop of Cebu v. To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment and require him to file a claim for a refund of the taxes paid as a condition precedent to his right to appeal. The failure to first file a written claim for refund or credit is not fatal to a petition for review involving a disputed assessment where an assessment was disputed but the protest was  10. 138485. No. In a sense. v. he is also a taxpayer because the tax may be collected from him if he does not withhold.. should not be interpreted as to result in absurdities. To notify the Government that such taxes have been questioned and the notice should be borne in mind in estimating the revenue available for expenditures. de San Agustin. September 10. The law. 229 of the NIRC of 1997 is required where the case filed before the CTA is a refund case. if the refund is merely a consequence of the resolution of the BIR’s denial of a protested assessment. would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case.60 b.  9. Commissioner of Internal Revenue. which is not premised upon a disputed assessment. for the Commissioner would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment.. A withholding tax agent may also apply for a refund. denied by the Bureau of Internal Revenue.R. G. An application for refund or credit under Sec. . Who could apply for a refund or credit ? SUGGESTED ANSWER: The person who paid the tax may apply for a refund or credit. etc. Collector of Internal Revenue. There is no need for a prior application for refund or credit. Who could apply for a tax refund or credit ? SUGGESTED ANSWER: Yes.

THE NATIONAL INTERNAL REVENUE CODE. Petitioner may claim and carry it over in the succeeding taxable years. Neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer. creditable against future income tax liabilities until fully utilized. The choice.R. ( Paseo Realty & Development Corporation v. 361 Phil. p. 430) 13. Commissioner of Internal Revenue. 176290. it may then be allowed to claim the refund of the remaining tax credits. Commissioner of Internal Revenue.. Inc. 23. et al. Hector. 2000.. Commissioner of Internal Revenue. To ease the administration of tax collection. No. R. No. the tax due for the next taxable year is lower than excess tax credits. September 21. May its refund be granted ? If the refund is denied. It does not confer an absolute right on the part of the taxpayer to avail of the tax credit scheme if it so chooses. No. the remaining tax credits can no longer be carried over and the irrevocability rule ceases to apply. shall either (a) be refunded to the corporation. what happens to the unapplied credits ? SUGGESTED ANSWER: Where. Court of Appeals. Commissioner of Internal Revenue . 2007 citing Philam Asset Management. Inc. What is the “irrevocability rule” in claims for refund and what is the rationale behind this ? SUGGESTED ANSWER: A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. does Systra lose the unapplied tax credits ? Explain briefly your answer. such election is not final. 176290. v. The excess credits will only be applied “against income tax due for the taxable quarters of the succeeding taxable years. supra citing De Leon. Cessante ratione legis. 69 of the 1977 NIRC (now Sec. actually or constructively. (Systra Philippines.” Despite the denial of its claim for refund. 76 or have its excess taxes applied as tax credit for the succeeding taxable year. G. Once the carry over option was made. The phrase “such option Supposing in the above problem that Systra permanent ceased operations. G. Since the Bank has chosen the tax credit approach it cannot anymore avail of the tax refund. it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized Under Section 76 of the Tax Code. the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund.. the corporation permanently ceases its operations before full utilization of the tax credits it opted to carry over. What is the nature of the taxpayer’s remedy of either to ask for a refund of excess tax payments or to apply the same in payment of succeeding taxable periods’ taxes ? SUGGESTED ANSWER: Sec.. 2004) shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. the same shall be irrevocable for that taxable period. 176290. Nos. Systra Philippines. In exercising its option. G. v. If the option to carry over the excess credit is exercised. No. 2007) NOTES AND COMMENTS: The holding in State Land Investment Corporation v. No. Commissioner of Internal Revenue. G. v. whether to claim for refund under Sec. 156637/162004. R. 2007 citing Philippine Bank of Communications v. Prior verification and approval by the Commissioner of Internal Revenue is required. (Systra Philippines. Commissioner of Internal Revenue. G. G. To facilitate tax collection. these remedies are in the alternative and the choice of one precludes the other. In such a case. September 21. January 28. The availment of the remedy of tax credit is not absolute and mandatory. September 21. It now applies for a refund of the unapplied tax credits. October 13. 1999) NOTES AND COMMENTS: a. G. Inc. The amount will not be forfeited in favor of the government but will remain in the taxpayer’s account. 916 (1999)] This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. [Systra Philippines.. Systra does not lose the unapplied tax credits. et al. cessat ipse lex. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund.R. these remedies are in the alternative and the choice of one precludes the other. (Philippine Bank of Communications v. 119286. is given to the taxpayer. 14 December 2005. 76 of the NIRC of 1997) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return. SUGGESTED ANSWER: Systra’s claim for refund should be denied. Seventh Edition. 477 SCRA 761) 12. v. a claim for refund of such excess credits can no longer be made. However. No. 112024. R. Inc. In the year 2000 Systra derived excess tax credits and exercised the option to carry them over as tax credits for the next taxable year. R. (Footnote no. R.61 11. . Commissioner of Internal Revenue. or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year.. Inc.

(Ibid. that the facts stated therein are true and correct. 3. A simultaneous filing of the application with the BIR for refund/credit and the institution of the court suit with the CTA is allowed. which did not provide for the “irrevocability rule” now contained in Sec. 232.)  16. are construed strictly against the taxpayer. 326 SCRA 641 (2000). SP No. R. despite the failure to present the tax return. which fixed the period (thirty days from receipt of decision) for appealing to the court. G. The law fixed the same period two years for filing a claim for refund with the Commissioner under Sec. 69 of the NIRC.. 386 Phil.R. NIRC of 1997). On the practical side. Court of Appeals. R. On the above basis will the application for refund prosper ? SUGGESTED ANSWER: No. 76 of the NIRC of 1997. 1994. The burden in proving the amount to be refunded necessarily falls on the bank-trustee. Instead of presenting separate accounts for interest incomes made of these investments. v. July 21. R. earned from those trusts from that earned by the other clients of the bank-trustee. September 1. (Commissioner of Customs v. (Commissioner of Customs v. c. October 13. A necessary consequence of the special exemption enjoyed alone by employees’ trusts would be a necessary segregation in the accounting of such income. (Commissioner of Internal Revenue v. et al. 119286. G. 2006) The amounts that are the exempt earnings of the employee’s trust has not been shown as they have been commingled with the interest income of the other clients of the bank-trustee. 34102. 18. NIRC of 1997). Court of Tax Appeals. etc.171956.. Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption. Tax refunds. i. (Paseo Realty & Development Corporation v.. The bank-trustee needs to establish not only that the refund is justified under the law (which is so because incomes of employees’ trusts are tax exempt). CA-G. May 2. September 9. etc. 2008 that the taxpayer is entitled to a refund because during the succeeding year there was no tax due against which the excess tax credits may be applied is not doctrinal. 138919. 15. SUGGESTED ANSWER: There are unmistakable formal and practical differences between the two modes. Philippine Phosphate Fertilizer Corporation. There is no need to wait for a BIR denial. Commissioner. among others. Discuss the difference between tax refund and tax credit. The grant of a refund is founded on the assumption that the tax return is valid. 2004) 14. 229 (now Sec. September 1. the banktrustee instead presented witness to establish that it would next to impossible to single out the specific transactions involving the employees’ trust funds from the totality of all interest income from its total investments. and there is an apparent failure to do so... This is so because it interpreted the provisions of then Sec. 106611. R. unlike in protests of assessments under Sec. No.. Bank of Philippine Islands. Philippine Phosphate Fertilizer Corporation. The doctrine that delay of the Commissioner in rendering decision does not extend the peremptory period fixed by the statute. b. refund was granted. Court of Appeals. No. v. 2004) However. 151) NOTES AND COMMENTS: It may be that there is no essential difference between a tax refund and a tax credit since both are moves of recovering taxes erroneously or illegally paid to the government. to invest for profit the returned sum. par. Collector of Internal Revenue. Johnston Lumber Co. G. NIRC of 1997). (Commissioner of Internal Revenue v. 719. 101 Phil. 204 [C]. After all. 234 SCRA 348) Without the tax return it would be virtually impossible to determine whether the proper taxes have been assessed and paid. 1-95 clearly requires that photocopies of the receipts or invoices must be pre-marked and submitted to the CTA to verify the correctness of the . interest or otherwise. 107 Phil. The application for refund will not prosper. an option not proximately available if the taxpayer chooses instead to receive a tax credit. a tax refund requires a physical return of the sum erroneously paid by the taxpayer. 144440. the taxpayer to whom the tax is refunded would have the option. et al. NIRC (now Sec. like tax exemptions. 204. NIRC (now Sec. A bank-trustee of employee trusts filed an application for the refund of taxes withheld on the interest incomes of the investments made of the funds of the employees’ trusts. NIRC of 1997). G. No. January 18. Gibbs v. 144440. et al. 229. 228.e. and for filing suit in court under Sec. in BPI-Family Savings Bank v. No. The positive requirement of Section 230 NIRC (now Sec. 1994. REASONS: a. 62 while a tax credit involves the application of the reimbursable amount against any sum that may be due and collectible from the taxpayer. thus clearly implying that the prior decision of the Commissioner is necessary to take cognizance of the case. because other evidence was presented to prove that the overpaid taxes were not applied. 2004) 17. ( Far East Bank and Trust Company. 229.. et al. CTA Circular No. 230. it is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. etc. but also the correct amount that should be refunded. Formally. G. CTA. No.R.

an investigation was conducted by Revenue Officer Frederick Capitan which showed that respondent was liable for “1. 1987. 76 provides. It protested the payment of the alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for refund or credit. 32-76 dated June 11. now Sec. 121666.741. Section 69 of the National Internal Revenue Code of 1986. the corporation has the option to either: (a) pay the excess tax still due.84. 1989.812 was applied as tax credit for the succeeding taxable year 1988. deficiency income tax in the amount of P2. 1987. invoices and other documents covering the said accounts or payments must be premarked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and verify the correctness of the summary and CPA certification. invoices or documents should be ready for verification and comparison in case doubt on the authenticity of the particular documents presented is raised during the hearing of the case. 4159 and Presidential Decree No.84. in lieu of all other taxes and assessments of whatever nature. the originals of the said receipts. The method of individual presentation of each and every receipt or invoice or other documents for marking. respondent filed on April 15. R.” (Emphasis supplied) taxable year 1987. Petitioner not having acted on its request.729 representing overpaid income taxes for the years 1987 and 1988. 1990 a letter-claim for refund or credit in the amount of P107. identification and comparison with the originals thereof need not be done before the Court or the Commissioner anymore after the introduction of the summary and CPA certification.” (Revenue Memorandum Order No. but only P77. directing the investigation of tax liabilities of respondent for 1 TARIFF AND CUSTOMS LAWS ORGANIZATION AND FUNCTIONS OF THE BUREAU OF INTERNAL REVENUE . if the sum of the quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable income of that year as shown in its final adjustment return. 1988 issued by petitioner. deficiency franchise tax in the amount of P2. or in the alternative for the BIR to issue a tax credit. The returns submitted are “merely pre-audited which consist mainly of checking mathematical accuracy of the figures in the return. and 2. or (b) be refunded the excess amount paid. as amended by Republic Act No. For the last quarter ending December 31.931. 1[3] had been paying a 2% franchise tax based on its gross receipts. however. Manila Electric Company a grantee of a legislative franchise under Act No. Upon the effectivity of Executive Order No.649.838. It is enough that the receipts.63 summary listing and the CPA certification. 1988 reflecting a refundable amount of P107. dates and amounts covered by the invoices or receipts. 1990 a judicial claim for refund or credit with the Court of Tax Appeals. Such summary and certification must properly be identified by a competent witness from the accounting firm. October 10.52.729.335. (Commissioner of Internal Revenue v.729 claim for refund. 2007) 19.649. 551. G. respondent filed an amended final corporate Income Tax Return ending December 31. 1-95. However.838.” After such checking. It is gathered that respondent paid the deficiency franchise tax in the amount of P2. and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices. the purpose of which being to “insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes. Respondent thus filed on March 30.335. Manila Electric Company. 1988 its tentative income tax reflecting a refundable amount of P101. reads: “1.649. 2. respondent filed on April 6.” On April 17. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers. Acting on a yearly routinary Letter of Authority No. No.897.340. issued on 25 January 1995. 1976) the refund or tax credit is granted. 72 on February 10. respondent became subject to the payment of regular corporate income tax. 0018064 NA dated June 27. CTA Circular No.902. 484. The Court of Tax Appeals granted the P107. Is the Court of Tax Appeals correct ? SUGGESTED ANSWER: Yes.

commodity or article. commodity or article (Sec. or secured to be paid. 8752. G. Dumping duty is an additional special duty amounting to the difference between the export price and the normal value of such product. at the port of entry and the legal permit for withdrawal shall have been granted. 301 (s) (5). TCC. until they have legally left the jurisdiction of the customs. commodity or article of commerce is exported into the Philippines at a price less than its normal value when destined for domestic consumption in the exporting country. the tariff or tax assessed upon merchandise imported from. July 6. taxes and other charges due upon the agencies. When is importation deemed terminated and why is it important to know whether importation has already ended? SUGGESTED ANSWER: Importation is deemed terminated upon payment of the duties. “Anti-Dumping Act of 1999”] 4. “Anti-Dumping Act of 1999. 8752.  7. provided that. or exported to. as amended by Rep. 134114. 6. 9. 2001) 10. The flexible tariff clause is a provision in the Tariff and Customs Code. Customs duties is the name given to taxes on the importation and exportation of commodities. the increase should not be higher than 100% ad valorem. and under the Safeguard Measures Act (SMA) additional tariffs as safeguard measures. commodity. 8752. the Bureau of Customs obtains jurisdiction over imported articles only after importation has begun. and (c) to impose additional duty on all imports not exceeding 10% ad valorem. (Nestle Phils. Act No. among others. the discriminatory duty. commodity. Act No. The imposing authority for the anti-dumping duty is the Secretary of Trade and Industry in the case of nonagricultural product. 1202. general welfare and/or national security upon recommendation of the NEDA (a) to increase. 8752. (Sec. [Sec. [Sec. or article in the ordinary course of trade when destined for consumption in the country of export.  2. The special customs duties under the Tariff and Customs Code (TCCP) are the anti-dumping duty. When is the anti-dumping duty imposed ? SUGGESTED ANSWER: The anti-dumping duty is imposed a. TCC. TCC.R. or article or the Secretary of Agriculture. as amended by Rep. taxes and other charges. [Sec. as well as Philippine products. in the interest of national economy. Special customs duties are additional import duties imposed on specific kinds of imported articles under certain conditions. TCCP) The Bureau of Customs loses jurisdiction to enforce the TCCP and to make seizures and forfeitures after importation is deemed terminated. and such exportation is causing or is threatening to cause material injury to a domestic industry. Court of Appeals. and the marking duty.64 TARIFF AND CUSTOMS CODE  1. and why is it important to know whether importation has already begun or not ? SUGGESTED ANSWER: Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein.. reduce or remove existing protective rates of import duty. or materially retarding the establishment of a domestic industry producing the like product. Act No. “AntiDumping Act of 1999”]  8. Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product. Act No. TCC. 301 (s) (3 ). (b) to establish import quota or to ban imports of any commodity. as amended by Rep. 5. No. b. 301 (s) (1). et al. Customs duties defined. Thus. v. In case the articles are free of duties. 1202. commodity or article of commerce into the Philippines at less than its normal value when destined for domestic consumption in the exporting country which is causing or is threatening to cause material injury to a domestic industry. the countervailing duty. Where a product. TCCP) The jurisdiction of the Bureau of Customs to enforce the provisions of the TCCP including seizure and forfeiture also begins from the beginning of importation. which implements the constitutionally delegated power to the Congress to further delegate to the President of the Philippines. or materially retards the establishment of a domestic industry producing the like product. When does importation begin. 301 (a). (Sec. as amended by Rep. after formal investigation and affirmative finding of the Tariff . The special customs duties are imposed for the protection of consumers and manufacturers.”) imposed on the importation of a product. in the case of agricultural product. a foreign country. “Anti-Dumping Act of 1999”]  3.

Commission. [Sec. 301 (a), TCC, as amended by Rep. Act No. 8752, “AntiDumping Act of 1999”]

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Agriculture, in the case of agricultural product, commodity or article, after formal investigation and affirmative finding of the Tariff
Commission. Even when all the requirements for the imposition have been fulfilled, the decision on whether or not to impose a definitive anti-dumping duty remains the prerogative of the Tariff Commission. ( Sec. 301 (a), TCC,
as amended by Rep. Act No. 8752, “Anti-Dumping Act of 1999”)

11. Even when all the requirements for the imposition have been fulfilled, the decision on whether or not to impose a definitive anti-dumping duty remains the prerogative of the Tariff Commission. [Sec. 301 (a), TCC, as amended by Rep. Act No. 8752,
Thus, the cabinet secretaries could not contravene the recommendation of the Tariff Commission. They could not impose the anti-dumping duty or any special customs duty without the favorable recommendation of the Tariff Commission.
“Anti-Dumping Act of 1999”]

16. The countervailing duty is equivalent to the value of the specific subsidy.

12. In the determination of whether to impose the antidumping duty, the Tariff Commission, may consider among others, the effect of imposing an anti-dumping duty on the welfare of the consumers and/or the general public, and other related local industries. (Sec. 301 (a), TCC, as amended by Rep. Act No.
8752, “Anti-Dumping Act of 1999”)

 17. Marking duties are the additional customs duties imposed on foreign articles (or its containers if the article itself cannot be marked), not marked in any official language in the Philippines, in a conspicuous place as legibly, indelibly and permanently in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin.
18. The Commissioner of Customs imposes the marking duty. 19. The marking duty is equivalent to five percent (5%) ad valorem.

13. The amount of anti-dumping duty that may be imposed is the difference between the export price and the normal value of such product, commodity or article. (Sec. 301 (s)
(1), TCC, as amended by Rep. Act No. 8752, “Anti-Dumping Act of 1999”)

The anti-dumping duty shall be equal to the margin of dumping on such product, commodity or article thereafter imported to the Philippines under similar circumstances, in addition to ordinary duties, taxes and charges imposed by law on the imported product, commodity or article.

14. What are countervailing duties and when are they imposed ?
SUGGESTED ANSWER: Countervailing duties are additional customs duties imposed on any product, commodity or article of commerce which is granted directly or indirectly by the government in the country of origin or exportation, any kind or form of specific subsidy upon the production, manufacture or exportation of such product commodity or article, and the importation of such subsidized product, commodity, or article has caused or threatens to cause material injury to a domestic industry or has materially retarded the growth or prevents the establishment of a domestic industry. (Sec. 302, TCCP as amended by Section 1, R.A. No. 8751)

 20. A discriminatory duty is a new and additional customs duty imposed upon articles wholly or in part the growth or product of, or imported in a vessel, of any foreign country which imposes, directly or indirectly, upon the disposition or transportation in transit through or reexportation from such country of any article wholly or in part the growth or product of the Philippines, any unreasonable charge, exaction, regulation or limitation which is not equally enforced upon like articles of every foreign country, or discriminates against the commerce of the Philippines, directly or indirectly, by law or administrative regulation or practice, by or in respect to any customs, tonnage, or port duty, fee, charge, exaction, classification, regulation, condition, restriction or prohibition, in such manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country.
21. The President of the Philippines imposes the discriminatory duties.

15. The imposing authority for the countervailing duties is the Secretary of Trade and Industry in the case of nonagricultural product, commodity, or article or the Secretary of

 22. Safeguard measures are emergency measures, including tariffs, to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them.

The CTA is vested with jurisdiction to review decisions of the Secretary of Trade and Industry imposing safeguard measures as provided under Rep. Act No. 8800 the Safeguard Measures Act (SMA ). (Southern
Cross Cement Corporation v. The Philippine Cement Manufacturers Corp., et al., G. R. No. 158540, July 8, 2004)

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The DTI Secretary cannot impose the safeguard measures if the Tariff Commission does not favorably recommend its imposition.

23. Imposing authority for safeguard measures. The imposing authority for the countervailing duties is the Secretary of Trade and Industry in the case of non-agricultural product, commodity, or article or the Secretary of Agriculture, in the case of agricultural product, commodity or article , after
formal investigation and affirmative finding of the Tariff Commission.

SUGGESTED ANSWER: All claims for refund of duties shall be made in writing and forwarded to the Collector of Customs to whom such duties are paid, who upon receipt of such claim, shall verify the same by the records of his Office, and if found to be correct and in accordance with law, shall certify the same to the Commissioner of Customs with his recommendation together with all necessary papers and documents. Upon receipt by the Commissioner of such certified claim he shall cause the same to be paid if found correct. (Sec. 1708, TCC)

28. Law ?

What is mean by the term “entry” in Customs

24.

Safeguards

measures

that

may

be

imposed.

Additional tariffs, import quotas or banning of imports.

SUGGESTED ANSWER: It has a triple meaning. a. the documents filed at the Customs house; b. the submission and acceptance of the documents; and c. Customs declaration forms or customs entry forms required to be accomplished by passengers of incoming vessels or passenger planes as envisaged under Sec. 2505 of the TCCP (Failure to declare baggage). (Jardeleza v. People, G.R. No. 165265, February 6, 2006)

 25. The basis of dutiable value of merchandise that is subject to ad valorem customs duties is the transaction value,
which shall be the price actually paid or payable for the goods when sold for export to the Philippines, adjusted by adding certain cost elements to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, and may include the following: a. Cost of containers and packing, b. Insurance, and c. Freight. (Sec. 201, TCC as amended by Sec. 1, Rep. Act No. 9135)

 26. The above transaction value is the primary method of determining dutiable value. If the transaction value of the imported article could not be determined using the above, the following alternative methods should be used one after the other:
a. b. c. d. e. Transaction value of identical goods Transaction value of similar goods Deductive method Computed method Fallback method

29. A flight stewardess arrived from Singapore. Upon her arrival she was asked whether she has anything to declare. She answered none, and she submitted her “Customs Baggage Declaration Form” which she accomplished and signed with nothing or written on the space for items to be declared. When her hanger bag was examined some pieces of jewelry were found concealed within the lining of said bag. She was then convicted of violating of Sec. 3601 of the Tariff and Customs Code for unlawful importation which penalizes any person who shall fraudulently import or bring into the Philippines any article contrary to law. She now appeals claiming that lower court erred n convicting her under Sec. 3601 when the facts alleged both in the information and those shown by the prosecution constitute the offense under Sec. 2505 “Failure to Declare Baggage,” of which she was acquitted. Is she correct ?
SUGGESTED ANSWER: No. Sec. 3601 does not define a crime. It merely provides, inter alia, the administrative remedies which can be resorted to by the Bureau of Customs when seizing dutiable articles found the baggage of any person arriving in the Philippines which is not included in the accomplished baggage declaration submitted to the customs authorities, and the administrative penalties that such person must pay for the release of such goods if not imported contrary to law.

27. How and to whom should claims for refund of customs duties be made ?

Such administrative penalties are independent of the criminal liability for smuggling that may be imposed under Sec. 3601, and other provisions of the TCC which can only be determined after the appropriate criminal proceedings, prescinding from the outcome in any administrative case that may have been filed and disposed of by the customs authorities. Indeed the second paragraph of Sec. 2505 provides that nothing shall prevent the bringing of a criminal action against the offender for smuggling under Section 3601. (Jardeleza v. People, G. R. No. 165265, February 6, 2006)

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cognizance over such matters even through petitions of certiorari, prohibition or mandamus. (The Bureau of Customs, et
al., v. Ogario, et al., G.R. No. 138081, March 20, 2000)

What is the rationale for this doctrine ?
SUGGESTED ANSWER: a. Regional Trial Courts have no jurisdiction to replevin a property which is subject to 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) b. The doctrine of exclusive customs jurisdiction over customs cases to the exclusion of the RTCs is anchored upon the policy of placing no unnecessary hindrance on the government’s drive, not only to prevent smuggling and other frauds upon Customs, c. but more importantly, 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. (Jao, et al., v. Court of Appeals, et al., and companion case, 249 SCRA 35, 43) d. The issuance by regular courts of writs of preliminary injunction in seizure and forfeiture proceedings before the Bureau of Customs may arouse suspicion that the issuance or grant was for consideration other than the strict merits of the case. (Zuno v. Cabredo, 402 SCRA 75 [2003]) e. Under the doctrine of primary jurisdiction, the Bureau of Customs has exclusive administrative jurisdiction to conduct searches, seizures and forfeitures of contraband without interference from the courts. It could conduct searches and seizures without need of a judicial warrant except if the search is to be conducted in a dwelling place. Where an administrative office has obtained a technical expertise in a specific subject, even the courts must defer to this expertise. NOTES AND COMMENTS: The Bureau of Customs could search and seize articles without need of a judicial warrant unless the place to be searched is a dwelling place. In such a case customs requires a judicial warrant.

30. Payment is not a defense in smuggling. “When upon trial for violation of this section, the defendant is shown to have possession of the article in question, possession shall be deemed sufficient evidence to authorize conviction, unless the defendant shall explain the possession to the satisfaction of the court: Provided, however, That payment of the tax due after apprehension shall not constitute a valid defense in any prosecution under this section.” (last par., Sec. 3601, TCC) 31.
who: a. fraudulently imports or brings into the country any article contrary to law; b. assists in so doing any article contrary to law; or c. receives, conceals, buys, sells or in any manner facilitates the transportation, concealment or sale of such goods after importation, knowing the same to have been imported contrary to law. ( Jardeleza v. People, G.R. No. 165265, February 6, 2006 citing Rodriguez v. Court of Appeals, G. R. No. 115218, September 18, 1995, 248 SCRA 288, 296) NOTES AND COMMENTS: a. Importation consists of bringing an article into the country from the outside. Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein. b. When unlawful importation is complete. In the absence of a bona fide intent to make entry and pay duties when the prohibited article enters the Philippine territory. Importation is complete when the taxable, dutiable commodity is brought within the limits of the port of entry. Entry through a custom house is not the essence of the act. (Jardeleza v. People, G.R. No. 165265, February 6, 2006)

How is smuggling committed ?

SUGGESTED ANSWER: Smuggling is committed by any person

 32. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. RTCs are precluded from assuming

33. “A” claiming to be the owner of a vessel which is the subject of customs warrant of seizure and detention sought the intercession of the RTC to restrain the Bureau of Customs from interfering with his property rights over the vessel. Would the suit prosper?
SUGGESTED ANSWER: No. His remedy was not with the RTC but with the CTA, as issues of ownership of goods in the custody of customs officials are within the power of the CTA to determine.

R. such as by enforcing the tax lien on the imported article when the imported articles could be found and be subject to seizure and forfeiture. Requisites for forfeiture of imported goods:  37. January 25. et al.The Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and trial courts are precluded from assuming cognizance over such matters even through petitions for certiorari. with the approval of the Commissioner of Customs. Cesar then brought several cases in the RTC to enforce his lien... Cesar does not own the vessel or any of its cargo but claimed a preferred maritime lien. 111202-05. c. G. R. Would these suits prosper ? SUGGESTED ANSWER: No. Ogario. – Upon making any seizure. The Tariff and Customs Code allows the Bureau of Customs to resort to the administrative remedy of seizure. . No. finally. Nos. Court of Tax appeals. willfully and deliberately done or resorted to in order to induce another to give up some right. Court of Tax Appeals. prohibition or mandamus. That articles the importation of which is prohibited by law shall not be released under any circumstances whatsoever : Provided. the vessel M/V ”Star Ace. or arrests provided by law and continue with the administrative hearings. That nothing in this section shall be construed as relieving the owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the article. It must be intentional. 1999) 35. surrender it upon the filing of a cash bond. ( Commissioner of Customs v.. affidavit. entered the Port of San Fernando. Section 2301 of the TCCP states that seized articles may not be released under bond if there is prima facie evidence of fraud in their importation. 58 SCRA 519.. conditioned upon the payment of the appraised value of the article and/or any fine. invoice.R.  40. 1989. 36. The importation is absolutely prohibited. et al. R. and if the owner or importer desires to secure the release of the property for legitimate use. exporter or consignee of any declaration or affidavit. letter or paper – all touching on the importation or exportation of merchandise. ”coming from Singapore laden with cargo. No. 2006) 68 38. The Bureau of Customs having first obtained possession of the vessel and its goods has obtained jurisdiction to the exclusion of the trial courts. et al. or The release of the property would be contrary to law. seizure proceedings were instituted and subsequently two Warrants of Seizure and Detention were issued for the vessel and its cargo. No. La Union for needed repairs. Court of Appeals. et al. Commissioner of Customs v. v. Wrongful making by the owner. October 2. Jr.R. expenses and costs which may be adjudged in the case: Provided. b.. 217 SCRA 298 . further. Inc. reiterated in Farolan. an intention on the part of the importer/consignee to evade the payment of the duties due. et al. importer. G. etc. Court of Tax Appeals. the falsity of such declaration. The customs authorities do not have to prove to the satisfaction of the court that the articles on board a vessel were imported from abroad or are intended to be shipped abroad before they may exercise the power to effect customs searches. Warrant for Detention of Property-Cash Bond. (The Bureau of Customs. letter or paper. et al. the Collector shall. or the wrongful making or delivery by the same person of any invoice. 2009 Section 2301. The Court of Appeals. There is fraud. 139050. That such importation shall not be released under any bond when there is prima facie evidence of fraud in the importation of the article : Provided. the Commissioner shall issue a warrant for the detention of the property.. v. In Aznar v. On January 7. January 31. Instances where there is no right of redemption of seized and forfeited articles: a. G. (emphasis supplied) a. b. 34.. the Supreme Court clarified that the fraud contemplated by law must be actual and not constructive. March 20. in an amount fixed by him. G. and c. 2001) 41. (Republic. G. Court of Appeals. February 13. 138081.. et al. When the Bureau of Customs later became suspicious that the vessel’s real purpose in docking was to smuggle cargo into the country. 171516-17. 39. The Tariff and Customs Code allows the Bureau of Customs to resort to the judicial remedy of filing an action in court when the imported articles could not anymore be found. v. 126634. 2000) (Transglobe International. No. v. consisting of deception. seizures.

2009) 42.When Cesar has impleaded the vessel as a defendant to enforce his alleged maritime lien. Bautista-Ricafort. Neither was accomplished by the RTC as the vessel was already in the possession of the Bureau of Customs. ( Asian Terminals. Court of Appeals. without reference whatsoever to the character or conduct of the owner. and value thereof. signed by the Secretary of Finance. Administrative tax protest under the Tariff and Customs Code (TCCP).  44. (Pilipinas Shell Petroleum Corporation v.e. et al. et al. in the manner and within the period prescribed by law and regulations. then a search warrant should be issued by the regular courts not the Bureau of Customs. v. Inc. 111202-05. There may be instances where no warrants issued by the Bureau of Customs or the regular courts is required. Smuggled goods seized by virtue of a court warrant should be surrendered to the court that issued the warrant and not to the Bureau of Customs because the goods are in custodia legis. R. Review by Court of Tax Appeals. or are attempted to be imported or exported. 6. Court of Appeals.R. G . as a defendant. 176380. 166901. 2009)  45. No. the trial court must have obtained either actual or constructive possession over it. he brought an action in rem under the Code of Commerce under which the vessel may be attached and sold. the action or ruling of the Commissioner shall be final and conclusive. it is akin to an assessment of internal revenue taxes under the National Internal Revenue Code where the tax liability of the taxpayer is definitely determined. January 25. under the TCCP. 2006) NOTES AND COMMENTS: a. v. January 31. No.  47.R. Liquidation. (Sec. [Emphasis supplied. 2009) 43. as stated in Section 2402 of the Tariff and Customs Code of the Philippines ( TCCP): Section 2402. G. No. G. 176380. 2006 citing Transglobe) 69 money charges” that must be appealed to the Court of Tax Appeals Division within thirty (30) days from receipt specifically refer to his decisions on administrative tax protest cases. and the collector’s own finding as to the applicable rate of duty. June 18. in violation of the tariff and customs laws shall issue a warrant of seizure. Forfeiture of seized goods in the Bureau of Customs is in the nature of a proceeding in rem. June 18. A tax protest case. 46. No. in the RTC. Decisions of the Commissioner of Customs “in cases involving liability for customs duties. 9-93) If the search and seizure is to be conducted in a dwelling place. Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribed by laws and regulations. The Collector of Customs upon probable cause that the articles are imported or exported. However. informing it of the cancellation of the Tax Credit Certificates (TCCs). No. (Pilipinas Shell Petroleum Corporation v. Title III. R.(Transglobe International. CAO No. i. 126634. Commissioner of Customs. G. October 27. Inc. directed against the res or imported goods and entails a determination of the legality of their importation. – The party aggrieved by a ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in any case of seizure may appeal to the Court of Tax Appeals . 176380.. This means that to acquire jurisdiction over the vessel. Commissioner of Customs.] (Pilipinas Shell Petroleum Corporation v. Commissioner of Customs. as in search and seizures of motor vehicles and vessels. A liquidation is the final computation and ascertainment by the collector of the duties on imported merchandise. defined. The issue is limited to whether the imported goods should be forfeited and disposed of in accordance with law for violation of the Tariff and Customs Code. In this proceeding. R.. 1999) Forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner. the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (the Center) November 3 letter. based on official reports as to the quantity. June 18. the basic operative fact is the actual or constructive possession of the res by the tribunal empowered by law to conduct the proceedings. R. . The following letters of demand can not be considered as a liquidation or an assessment of Shell’s import tax liabilities that can be the subject of an administrative tax protest proceeding before the Commissioner of Customs whose decision is appealable to the Court of Tax Appeals: a. G. fees or other . G. ( Commissioner of Customs v. Nos. it is in legal contemplation the property itself which commits the violation and is treated as the offender. character. involves a protest of the liquidation of import entries.

have become final. Republic of the Philippines. 176380. 2008. The levy and collection shall not be let to any private person. the absence of due process in the enforcement of the decision to cancel the TCCs. c. When Shell went to the CTA. The constitution has delegated to local governments the power to levy taxes. These are payment and collection issues. 2008. supra) LOCAL GOVERNMENT TAXATION  1. Shell’s petition before the CTA principally questioned the validity of the cancellation of the TCCs – a decision that was made not by the Commissioner of Customs. to the continuation of the collection suits. A law which deprives local government units of their power to tax would be unconstitutional. March 6. Commissioner of Customs. The letters merely reissued the original assessments that were previously settled by Shell with the use of the TCCs. incontestable. issued through Deputy Commissioner Atty. A suit for the collection of internal revenue taxes. (Pilipinas Shell Petroleum Corporation v. G.b. No inquiry can be made therein as to the merits of the In light of the conclusion that the present case does not involve a decision of the Commissioner of Customs on a matter brought to him as a tax protest. the Commissioner of Customs’ collection letters. not a tax protest case before the CTA. and Shell paid these liabilities using the TCCs transferred to it as payment. but by the Center. Shell’s remedy against the cancellation should have been a certiorari petition before the regular courts. administrative or judicial. and the application of estoppel. No. ( Pilipinas Shell Petroleum Corporation v. the taxing power of local governments must be deemed to exist although Congress may provide statutory limitations and guidelines in order to safeguard the viability and self-sufficiency of local government units by . based on this case. excessive. where there is neither a grant nor prohibition by statute. Under the now prevailing Constitution. June 18. June 18. Records do not show that Shell ever availed of this remedy. and c. Uniformity. specifically the genuineness of the TCCs. Valera. not contrary to law. fees. therefore. Atty. charges and other impositions shall be equitable and based on ability to pay. public policy. hence. formally demanding the amount covered by the cancelled TCCs. and this recognition of finality removes all perceived hindrances.  2. These original assessments. R. as held in Shell v. the letters and the actions for collection. the issues it raised in its petition were all related to the fact and efficacy of the payments made. No. A case becomes ripe for filing with the Regional Trial Court (RTC). Valera’s lack of authority to issue the collection letters and to institute the collection suits is irrelevant. the facts surrounding the fraud in originally securing the TCCs. Valera cannot be invoked to enjoin the collection of unpaid taxes due from Shell. Shell’s import tax liabilities had long been computed and ascertained in the original assessments. the tax liabilities of Shell under the original assessments were considered unpaid.R. G. 161953. oppressive or confiscatory. the injunction against Atty. on account of the cancellation of the TCCs. Commissioner of Customs. No. R. 3. It is even an error to consider the letters as a “reassessment” because they refer to the same tax liabilities on the same importations covered by the original assessments. The progressivity principle must be observed. Commissioner of Customs. national economic policy or in restraint of trade. where the assessment has already become final and executory. the action to collect is akin to an action to enforce the judgment. and beyond any subsequent protest proceeding. This constitutional delegation may only be removed by a constitutional amendment. 547 SCRA 701) The assessment has long been final. Alternatively. for public purposes. G. not tax protest issues within the CTA’s jurisdiction to rule upon. March 6. the Commissioner of Customs’ November 19 letter requiring Shell to replace the amount equivalent to the amount of the cancelled TCCs used by Shell. b. However. to rule upon. d. 161953.R. not unjust. G. 547 SCRA 701. Republic of the Philippines. To be very precise. Taxes. as a collection matter after the finality of the Commissioner of Customs assessment. (Pilipinas Shell Petroleum Corporation v. fees and other charges. None of these letters. can be considered as a liquidation or an assessment of Shell’s import tax liabilities that can be the subject of an administrative tax protest proceeding before the respondent whose decision is appealable to the CTA. e. however. As the CTA has no jurisdiction over decisions of the Center. No. The fundamental principles of local taxation are: a. 176380. 2009 citing Shell v. For this same reason. Shell never protested the original assessments of its tax liabilities and in fact settled them using the TCCs. the appropriate forum for Shell under the circumstances of this case should be at the collection cases before the RTC where Shell can put up the fact of its payment as a defense. Inures solely to the local government unit levying the tax. 2009) 70  48.

The fundamental law did not intend the direct grant to local government units to be absolute and unconditional. 166408. fees and other charges pursuant to Article X.” (Quezon City. et al.” The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations. 1996. and companion case. April 28. 484 SCRA 169 in turn referring to Mactan Cebu International Airport Authority. and must be within the jurisdiction of the local unit to pass. the basic doctrine on local taxation remains essentially the same. these limitations must be “consistent with the basic policy of local autonomy. SUGGESTED ANSWER: “Paradigm shift” from exclusive Congressional power to direct grant of taxing power to local legislative bodies. which includes the power to grant tax exemptions. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers.R. R. each local government unit will have its fair share of available resources.R. v. Philippine Long Distance Telephone Company. Laguna. to tax is prescribed by Section 151 in relation to . et al. however. 680 )  6. May 5.directly granting them general and broad tax powers. local legislative bodies are now given direct authority to levy taxes. G. (City Government of San Pablo. b. et al. 2004 citing National Power Corporation v.. Inc. 1999) 8. 2006. 143867.. 120082. the Local Government Code has withdrawn tax exemptions or incentives theretofore enjoyed by certain entities. no longer merely be virtue of a valid delegation as before. No. v. 2008 citing City Government of Quezon City. Bayan Telecommunications. section 5 of the 1987 Constitution. G. The Local Government Code explicitly authorizes provinces and cities. April 9. v. Indicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units.. et al. must not be confiscatory. G. “the power to tax is [still] primarily vested in the Congress. et al. v. ABS-CBN Broadcasting Corporation . while local government units are being strengthened and made more autonomous. local taxation will be fair. 131359. Moreover. No. 152675. March 6. G.” (Quezon City. 1999) 4. No. While the power to tax by local governments may be exercised by local legislative bodies. No... 162015. They no longer have to wait for a statutory grant of these powers. c. etc.. et al. 127708. Batangas City. City of Cabanatuan. 127708. Marcos.. The taxing power of local governments is limited in the sense that Congress can enact legislation granting tax exemptions. to impose and collect a local franchise tax because the Local Government has withdrawn all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them. No. R. Reconciliation of the local government’s authority to tax and the Congressional general taxing power. It is understood. doubts will be resolved in favor of municipal corporations. Reyes. G. the legislature must still see to it that: a.. v.R. G. et al. that taxes imposed by local government must be for a public purpose. 2003) 9. October 6. No.. March 25. City of Davao. (Manila Electric Company v. the resources of the national government will be unduly disturbed. et al. October 6. Explain the concept of the “paradigm shift” in local government taxation. While the system of local government taxation has changed with the onset of the 1987 Constitution. Congress has the inherent power to tax. R. G. 166408. v. 2001.. et al. Inc. R. uniform and just. the constitutional objective obviously is to ensure that. Bayan Telecommunications. uniform within a locality. ( City Government of San Pablo. et al. March 25. v. et al. 261 SCRA 667. Henceforth. Laguna.. August 22. the power of local government units to tax is still limited. a local government unit. Article X of the Constitution. notwithstanding “any exemption granted by any law or other special law” to impose a tax on businesses enjoying a franchise. 2006. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. Further amplification by Bernas of the local government’s power to tax. 2008 citing City Government of Quezon City. such as provinces and cities for example Quezon City. Inc. Province of Laguna. Taxing power of the local government is limited. No. No. No. the power of local governments. 149110. in interpreting statutory provisions on municipal fiscal powers. (Batangas Power Corporation v. 162015. and 10. G. ABS-CBN Broadcasting Corporation .R. 1999) 71 d. the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions. but pursuant to direct authority conferred by Section 5. 5. September 11. upheld the authority of the City of Davao. v. G. No. G. R.. 484 SCRA 169) 7. On the other hand. No. The power to tax is no longer vested exclusively on Congress.R. March 6. Reyes. “What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. G.R.

139. 228. 2006. It must be noted that Section 137 of the LGC does not prohibit grant of future exemptions. Any person subject to the professional tax shall write in deeds. Tax base: Reasonable classification by the sanggunian. The PRC shall likewise require the professionals presentation of proof of payment before registration of professionals or renewal of their licenses. ABC Condominium Corporation insists that the X City Revenue Code and the Local Government Code do not contain provisions upon which the assessment could be based. the City or a province may impose a franchise tax. [Sec. Inc. if they are in practice of their profession. is authorized under the Local Government Code. if he is to practice both professions. G. (last par.. Exemption: Professionals exclusively employed in the government shall be exempt from payment. The Condominium Corporation is a duly constituted condominium corporation in accordance with the Condominium Act which owns and holds title to the common and limited common areas of the condominium. Condominium corporations are generally exempt from local business taxation under the Local Government Code. prescriptions. (Quezon City. Resolve the controversy. b. Exception: Payment to one province or city no longer subject to any other national or local tax. 162015. R. (Sec. Place of payment: Province or city where the professional practices his profession or where he maintains his principal office in case he practices his profession in several places. surveys and maps. referring to Philippine Long Distance Telephone Company. City of Davao]  13. No. G. or any board or other examinations conducted by the Professional Regulation Commission (PRC). the provincial or city treasurer or his duly authorized representative shall require from such professionals their current annual registration cards issued by competent authority before accepting payment of their professional tax for the current year. Transaction taxed: Exercise or practice of profession requiring government licensure examination. Tax rate: In Accordance with a taxing ordinance which should not exceed P300. Professional tax may be imposed by a province or city but not by a municipality or barangay. v. d. No. f. Art. the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons. are subject to professional tax ? SUGGESTED ANSWER: The professionals subject to the professional tax are only those who have passed the bar examinations.  12. Inc. Bayan Telecommunications.” By its very nature a condominium corporation is not engaged in business. which is defined under the Code as ”trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. LGC)  14. X City.R. Rules and Regulations Implementing the Local Government Code of 1991) “Indeed. plans and designs.Section 137 of the LGC which expressly provides that notwithstanding any exemption granted by any law or other special law. and any profit that it derives is merely incidental. the number of the official receipt issued to him. (PLDT) vs. Date of payment: or on before January 31 or engaging in the profession. Rule XXX. pursuant to a declared national policy.. X City issued a notice of assessment against ABC Condominium Corporation for unpaid business taxes. receipts. for example. SUGGESTED ANSWER: ABC is correct. reports. 238 (f). Who are the professionals who. et al. hence it may . The legal effect of the constitutional grant to local governments simply means that in interpreting statutory provisions on municipal taxing powers. 166408.. October 6.” [Ibid. ABSCBN Broadcasting Corporation. Its membership comprises the unit owners and is authorized under its By-Laws to collect regular assessments from its members for operating expenses. to impose a tax on business. capital expenditures on the common areas and other special assessments as provided for in the Master Deed with ? Declaration of Restrictions of the Condominium. a. et al. as the case may be. v. e. books of account. 484 SCRA 16) NOTE: For the purpose of collecting the tax. license or fee for the practice of such profession in any part of the Philippine professionals exclusively employed in the government. c.. doubts must be resolved in favor of municipal corporations.00. a lawyer who is also a Certified Public Accountant (CPA) must pay the professional tax imposed on lawyers and that fixed for CPAs. Requirements: Any individual or corporation employing a person subject to professional tax shall require payment by that person of the tax on his profession before employment and annually thereafter. irrespective of any local ordinance that seeks to declare otherwise. Rules and Regulations Implementing the Local Government Code of 1991]  11. 2008 citing City Government of Quezon City. March 6. 72 The Supreme Court in a series of cases has sustained the power of Congress to grant tax exemptions over and above the power of the local government’s delegated power to tax.

Reproduction cost approach is a formal approach used exclusively n appraising man-made improvements such as buildings and 2.. can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC]. taking into consideration all uses to which the property is adopted and might in reason be applied. said municipality or city may no longer subject the same manufacturers. already subject to a local business tax under Section 14 of Tax Ordinance No. v. Hence. (Allied Banking Corporation. VAT. Inc. assessors have to consider all the circumstances and elements of value and must exercise prudent discretion in reaching conclusions.R. levy and collection shall not be let to a private person. Appraisal.. The schedule is then enacted by the local sanggunian. (Lopez v. to a business tax under Section 143(h) of the same Code. Quezon City Government. within ten (10) days of its approval. G. February 19. . R. notaries public. No. October 11. et al. d. October 11. and any other article of commerce. etc. 2009) 3. G. 2005) The fundamental principles of real property taxation 4. brokers. No. Section 143 of the LGC. where available. March 25. Court of Appeals. city or municipality concerned or the posting in the provincial capitol or other places as required by law. 2005 ) NOTES AND COMMENTS: In fixing the value of real property. (Figuerres v. et al. October 11. c. etc. R. v. 154126. The criterion established by the statute contemplates a hypothetical sale. NOTES AND COMMENTS: Real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated and classified for assessment purposes on the basis of its actual use. of liquors. dealers. No. v. et al. the buyers need not be actual and existing purchasers. No. and various sources stated under the Local Government Code. and posted in at lease two (2) prominent places in the provincial capitol. Quezon City Government. 127139. e. v. No.. City of Manila. G. et al. et al. city. or percentage tax under the NIRC. b. 2005) Preparation of fair market values: a. R. et al. 154993. Classification for assessment on the basis of actual use.. G. 181845. Authority of Local Government Units (LGUs) such as the City of Manila to impose business taxes. G. October 25. and b... are: a.. No. 154126. Approaches in estimating the fair market value of real property for real property tax purposes ? a. b.. CocaCola Bottlers Philippines. Appraisal at current and fair market value. R. businesses such as respondent’s. 7794 [which is based on Section 143(a) of the LGC].. The reasonable market value is determined by the assessor in the form of a schedule of fair market values. is the very source of the power of municipalities and cities to impose a local business tax. The value of an incomeproducing property is no more than the return derived from it. 154126. Fair market value is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy. The schedule of fair market values shall be published in a newspaper of general circulation in the province. No. appraisers. Income Capitalization Approach. (Yamane . c. 1999) REAL PROPERTY TAXATION 1. An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property. v. The sales price paid in actual market transactions is considered by taking into account valid sales data accumulated from among the Registrar of Deeds. Sales Analysis Approach. etc. bank officials. Appraisal and assessment shall be equitable. municipal or barangay hall for a minimum of three (3) consecutive weeks. G. etc.R. Quezon City Government.. G. Section 143(h) may be imposed only on businesses that are subject to excise tax. and that are “not otherwise specified in preceding paragraphs. etc. Assessment on the basis of uniform classification. pursuant to Section 143(a) of the LGC. (Allied Banking Corporation. 2005) 73  15. R. The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their respective Local Government Units for the enactment of an ordinance by the sanggunian concerned. 119172.” In the same way. 1999) Proposed fair market values of real property in a local government unit as well as the ordinance containing the schedule must be published in full for three (3) consecutive days in a newspaper of local circulation. (The City of Manila.not be subject to business taxes. etc. BA Lepanto Condominium Corporation. It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers. assessment. (Allied Banking Corporation. August 4. wines. distilled spirits. and to which any local business tax imposed by cities or municipalities such as the City of Manila must conform.

October 12. No. v. b. The proviso would provide a chilling effect on real property owners or administrators to enter freely into contracts reflecting the increasing value of real properties in accordance with prevailing market conditions. as evidenced by the certificate of payment of the capital gains tax issued therefore” is INVALID being contrary to public policy and for restraining trade for the following reasons: a. The ordinance would result to real property assessments more than once every three (3) years and that is not the congressional intent as shown in the provisions of the Local Government Code and the regulations. R. valued and assessed on the basis of its actual use regardless of where located. R. etc. and similar structures do not form part of the public roads since the former are constructed over the latter in such a way that the flow of vehicular traffic would not be impaired. the property is not exempt because their beneficial use has been granted to LRTA a taxable entity. c. levy and collection of real property tax shall not be let to any private person”. et al.” d. (Caltex Phils. Examples of personal property under the civil law that may be considered as real property for purposes of taxes . based on such data as materials and labor costs to reproduce a new replica of the improvement. Quezon City Government. No.. et al. the income capitalization approach and the reproduction approach provided under the rules implementing the statute. Underground tanks are essential to the conduct of the business of a gasoline station without which it would not be operational. In the above two scenarios real property owners are effectively prevented from obtaining the best price possible for their properties and unduly hampers the equitable distribution of wealth. transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale. lake or coast” are considered immovable property by destination being intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which .. G. Consequently. It unduly interferes with the duties statutorily placed upon the local assessor by completely dispensing with his analysis and discretion which the Local Government Code and the regulations require to be exercised. The carriageways and terminals serve a function different from the public roads. Furthermore. Light Rail Transit (LRT) improvements such as buildings. While the Local Government Code provides that the assessment of real property shall not be increased once every three (3) years. 2005)  6. The “consideration approach” in the ordinance is illegal since “the appraisal. are intended by their nature and object to remain at a fixed place on a river. An ordinance that contravenes any statute is ultra vires and void. though floating.. passenger terminals stations. transfer and conveyance.  5. Allowing the parties to a private sale to dictate the fair market value of the property will dispense with the distinctions of actual use stated in the Local Government Code and in the regulations. e. et al. Even granting that the national government owns the carriageways and terminal stations. The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the estimated fair market value to be included in the ordinance containing the schedule of fair market values. Real property owners would therefore postpone sales until after the lapse of the three (3) year period. (Light Rail Transit Authority v. et al. Central Board of Assessment Appeals. Moreover. Quezon City Government. The invalidity is not cured by the prhase “whichever is higher” because an integral part of that system still permits valuing real property in disregard of its “actual use. and whoever uses it. etc.. assessment. and the accessory equipment mounted on the barges were subject to real property taxes. v. ( Allied Banking Corporation. 2005 citing Local Assessment Regulations No. v. whoever owns it. 1-92) 74 An ordinance whereby the “parcels of land sold. they are not open to use by the general public hence not exempt from real property taxes. No. the fuel oil barges which supplied fuel oil to the power plant barges. October 11.. 154126. Central Board of Assessment Appeals. Barges on which were mounted gas turbine power plants designated to generate electrical power... ceded. G. the questioned proviso subjects the property to a higher assessment every time a sales transaction is made. or if they do so within the said period they shall be compelled to dispose of the property at a price not exceeding the last prior conveyance in order to avoid a higher tax assessment. cession. 154126. G. Article 415(9) of the Civil Code provides that “[d]ocks and structures which. It mandates an exclusive rule in determining the fair market value and departs from the established procedures such as the sales analysis approach. a. it will also completely destroy the fundamental principle in real property taxation – that real property shall be classified.other structures. 127316. whichever is higher. 114 SCRA 296) b. October 11. R. (Allied Banking Corporation. Personal property under the civil law may be considered as real property for purposes of taxes where the property is essential to the conduct of the business. 2000) c. the real property tax burden should not be interpreted to include those beyond what the Code or the regulations expressly clearly state. carriageways. Inc.

FELS Energy. (Figuerres v. et al. 290 SCRA 223. 119172. v. where it raised the following issues: 1) Since NPC is tax-exempt then FEL’s should also be tax-exempt because of its contract with NPC. All the contentions of FELS are without merit: 1) NPC is not the owner of the power barges nor the operator of the power barges. (Manila Electric Company v. Province of Batangas. De Knecht. De Asis v. (Puzon v. Court of Appeals. the covenant is between . v. 2001) 10.. are mandatory . et al. The tax exemption privilege granted to NPC cannot be extended to FELS.. et al. SUGGESTED ANSWER: a. No. 118233. But if the Secretary does not act thereon. The prescribed notices must be sent to comply with the requirements of due process. Honorable Sayo. FELS elevated the matter to the Local Board of Assessment Appeals (LBAA). Upon denial. Sale of delinquent real property.A. 169 SCRA 314) 8. February 16. Notice and publication. v. Abellera. Unpaid realty taxes attach to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. G. 168557. Thus. 2) The power barges are not real property subject to real property taxes. FELS then received an assessment of real property taxes on its power barges from the Provincial Assessor of Batangas.R. No.. 169 SCRA 789. a party could already seek relief in court within 30 days from the lapse of the 60 day period. Barlis. 2001 decision is still valid. 795 . Consequently. not on the basis of the May 18. et al. (De Knecht. 2007 and companion case) 75 7. et al. a period also of 30 days is allowed for an aggrieved party to go to court. No. Upon the other hand the Local Treasurer insists that the assessment has attained a state of finality hence the appeal to the LBAA should be dismissed. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. but this still requires the taxpayer to adduce evidence to show that no public hearings ever took place. and the failure to comply therewith can invalidate the sale. b. Court of Appeals. 114231. For this reason the courts construe these provisions of statutes as mandatory.. within 30 days from effectivity thereof. 118233. 12. December 10.R. MERALCO the former owner/user of the property was required to pay the tax instead of the new owner NAPOCOR . These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. No. 2004. a. If filed a motion for reconsideration with the Provincial Assessor.. May 18. 119172.R. 2001 decision. (Figuerres v. March 25. 2001 decision was set aside by the Supreme Court when it granted the petitioner’s second motion for reconsideration on June 29. (Reyes. had a contract to supply NPC with the electricity generated by FELS’ power barges. 1999) Taxpayer files appeal to the Secretary of Justice. The concurrent and simultaneous remedies afforded local government units in enforcing collection of real property taxes: a. (FELS Energy. G. Distraint of personal property. 1999) Public hearings are required to be conducted prior to the enactment of an ordinance imposing real property taxes.. do not cite the doctrine as emanating from the May 18.. Secretary of Justice can take cognizance of a case involving the constitutionality or legality of tax ordinances where there are factual issues involved. et al. I. et al. Court of Appeals. Public hearings are mandatory prior to approval of tax ordinance.R. Court of Appeals. To impose the real property tax on the subsequent owner which was neither the owner not the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. The author submits that the above ruling in the May 18. In case the Secretary decides the appeal. Rule on the conflicting contentions.. v.. G.C. and Collection of real property tax through ordinary court action. No. March 25. v. b. G. The contract also stated that NPC shall be responsible for all real estate taxes and assessments.. R. G. Inc. 1999) 9. (Reyes. c. No. Court of Appeals. et al. December 10. 1999)  13. 11.tend directly to meet the needs of said industry or work. G. The reason behind the notice requirement is that tax sales are administrative proceedings which are in personam in nature.236) NOTES AND COMMENTS: The above May 18. after the lapse of 60 days..R. Inc. as well as the legal requirements for a tax delinquency sale. 2001 decision but in the light of pronouncements of the Supreme Court in other cases.

as provided under the Local Government Code. The City of New York. a municipality or a barangay upon real property specially benefited by a public works expenditure of the LGU to recover not more than 60% of such expenditure. and then subsequently reduced upon the request of a property owner. (Allied Banking Corporation. The adverse decision of the Central Board of Assessment Appeals shall be appealed to the Court of Tax Appeals ( En Banc) by means of a petition for review within thirty (30) days from receipt of the adverse decision. 168557. R. The adverse decision of the Local Board of Assessment Appeals should be appealed within thirty (30) days from receipt to the Central Board of Assessment Appeals. To allow the procedure would indeed invite corruption in the system of appraisal and assessment.. are intended by their nature and object to remain at a fixed place on a river. etc. which is from finality of the Decision. Procedure for refund of real property taxes based on unreasonableness or excessiveness of amounts collected. v. v.. Such occasion for mischief must be prevented and excised from our system. R. e. NOTES AND COMMENTS: In the above Allied Banking case. illicit trade-off cannot be avoided. 16. it must still be proven in the normal course and in accordance with the administrative procedure for obtaining a refund of real property taxes. September 15. lake or coast” are considered immovable property by destination being intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. Quezon City Government. a municipality within the Metropolitan Manila Area. G.. 14. .. Inc. 168557. The Treasurer is correct. and in fact can conveniently take place. c. G. Inc. 154126. g. b.. city or in the case of a municipality within the Metro Manila Area the municipal treasurer. though floating. f. b. Payment under protest at the time of payment or within thirty (30) days thereafter. 17. and the issue of legality may be raised to the proper courts on certiorari without need of exhausting administrative remedies. within thirty (30) days from the expiration of the sixty (60) period for the treasurer to decide. The procedure to be followed is that shown below. v.NPC and FELs and does not bind a third person not privy to the contract such as the Province of Batangas. The decision of the CTA may be the subject of a motion for reconsideration or new trial after which an appeal may be interposed by means of a petition for review on certiorari directed to the Supreme Court on pure questions of law within a period of fifteen (15) days from receipt extendible for a period of thirty (30) days.. allusions of possible cover. The Local Board of Assessment Appeals has 120 days from receipt of the appeal within which to decide. The entitlement to a tax refund does not necessarily call for the automatic payment of the sum claimed. R. A special levy or special assessment is an imposition by a province. If the ground for the protest is unreasonableness of the amounts collected there is need to pay under protest and 19. Province of Batangas. the fuel oil barges which supplied fuel oil to the power plant barges. a. et al. the taxpayer should file an appeal with the Local Board of Assessment Appeals. Within thirty (30) days from receipt of treasurer’s decision or if the treasurer does not decide. In the latter instance. 18. 2006) 15. held that barges on which were mounted gas turbine power plants designated to generate electrical power. (FELS Energy. et al. The procedure do not allow a motion for reconsideration to be filed with the Provincial Assessor. v. d. the Supreme Court provided for the starting date of computing the two-year prescriptive period within which to file the claim with the Treasurer. 2007 and companion case) 76 administrative remedies must be resorted to before recourse to the proper courts. If the ground for the protest is validity of the real property tax ordinance and not the unreasonableness of the amount collected the tax must be paid under protest. 80 Misc. No. No. a city. 2007 and companion case. Inc. et al. and the accessory equipment mounted on the barges were subject to real property taxes. it conveniently courts a graft-prone situation where values of real property ay be initially set unreasonably high. February 16. Province of Batangas. The amount of the claim being a factual matter. The treasurer has a period of sixty (60) days from receipt of the protest within to decide. protest being lodged to the provincial. G. Procedure for refund of real property taxes based on validity of the tax measure or solutio indebeti. No. 2d 1065 (1975) cited in FELS Energy. Article 415(9) of the Civil Code provides that “[d]ocks and structures which. February 16. Moreover. 2) The Supreme Court of New York in Consolidated Edison Company of New York..

etc. 77 22. The decision of the Court of Tax Appeals ( en banc) may be the subject of a petition for review on certiorari on pure questions of law directed to the Supreme Court. R. non-stock educational institutions which are actually. the portion of the land occupied by the hospital and portions of the hospital used for its patients. are exempt from real property taxes. 1987 Constitution] 24. The constitutional tax exemptions refer only to real property that are actually.a. and that the only constitutionally recognized exemption from taxation of revenues are those earned by nonprofit. 144104.28 (3) Article VI. G. directly and exclusively used for religious. Quezon City. Solely is synonymous with exclusively. 144104.” The change should not be ignored. The decision of the Regional Trial Court should be appealed by means of a petition for review directed to the Court of Tax Appeals (Division). Quezon City. v. etc. G. The decision of the Court of Tax Appeals (Division) may be the subject of a review by the Court of Tax Appeals (en banc). but of a local government official. within two (2) years from the date the taxpayer is entitled to such reduction or readjustment. or confined in the hospital. directly and exclusively used for religious. charitable or educational purposes. R. those exempted from real estate taxes are lands. What is exempted is not the institution itself. nonprofit cemeteries.. Charitable institutions. No. leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from real property taxes. No. 2005) c. churches and parsonages or convents appurtenant thereto. mosques. buildings and improvements that are actually. et al. If real property is used for one or more commercial purposes. b. . No.. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. buildings and improvements are “actually. R. etc. a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients. No. June 29. charitable or educational purposes are exempt from taxation. (Commissioner of Internal Revenue v. et al.” labeling the said review as an exercise of appellate jurisdiction is inappropriate since the denial of the protest is not the judgment or order of a lower court. whether paying or non-paying. The “actual.. directly and exclusively used for religious. June 29. October 25. (Lung Center of the Philippines v. d. et al. the review being the initial judicial cognizance of the matter. [Sec. 2004) 25. 144104. Property that are exempt from the payment of real property tax under the Local Government Code. etc. buildings and improvements actually. Court of Appeals. The 1935 Constitution stated that the lands.. claim must be directed to the local treasurer. and no money inures to the private benefit of the persons managing or operating the institution. or receives subsidies from the government. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitution and the law. charitable or educational purposes.. BA Lepanto Condominium Corporation. 144104.. directly and exclusively used for educational purposes. G. whether out-patient. e. There must be proof therefore of the actual and direct use to be exempt from taxation. Reliance on past decisions would have sufficed were the words “actually” as well as :directly” are not added. As a general principle. Despite the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is “to appeal with the court of competent jurisdiction. etc. 2004)  20. G. it is not exclusively used for the exempted purpose but is subject to taxation. directly and exclusively used. No. direct and exclusive use” of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. On the other hand. (Lung Center of the Philippines v. 154993.. June 29. June 29. So long as the money received is devoted or used altogether to the charitable object which it is intended to achieve. R. et al.. June 29. etc. G. G. R. 2004) 26.. 2004)  23. Quezon City. ( Lung Center of the Philippines v. and all lands. (Yamane . Payment under protest not required. 298 SCRA 83) The constitutional tax exemption covers property taxes only. The denial by the local treasurer of the protest would fall within the Regional Trial Court’s original jurisdiction. (Lung Center of the Philippines v. such as a hospital.. 2004)  21. et al. et al. Quezon City. Portions of the land of a charitable institution. No. Quezon City. who must decide within sixty (60) days from receipt. 144104. and improvements are “used exclusively” but the present Constitution requires that the lands.. ( Lung Center of the Philippines v.. R. buildings.

1992. “The grantee. It exercises governmental powers of eminent domain. Resolve the issues raised. parsonages or convents appurtenant thereto. directly and exclusively used by local water districts. as other persons or corporations are now or hereafter may be required by law to pay.. and withdrawing all tax exemptions previously granted. usually through a charter. The term “exclusive of this franchise” is interpreted to mean properties actually. R.” This provision existed in the company’s franchise prior to the effectivity of the Local Government Code. Real property owned by duly registered cooperatives. a legislative franchise with tax exemption privileges which partly reads. A City then enacted an ordinance in 1993 imposing a real property on all real properties located within the city limits. There was no exhaustion of administrative remedies because the matter should have first been filed before the Local Board of Assessment Appeals. neither is it a non-stock corporation because there are no members.a. directly and exclusively used in the radio or telecommunications business. 2006) 28. its successors or assigns shall be liable to pay the . and enjoying operational autonomy. The subsequent piece of legislation which reiterated the phrase “exclusive of this franchise” found in the previous tax exemption grant to the company is an express and real intention on the part of Congress to once against remove from the LGC’s delegated taxing power. City of Pasay. This term includes regulatory agencies chartered institutions and government-owned or controlled corporations. It is instead an instrumentality of the government upon which the local governments are not allowed to levy taxes. 78 27. The City defended its position raising the following: a. v. (Manila International Airport Authority v. April 2. The properties are exempt from taxation. et al. R. A telecommunications company was granted by Congress on July 20. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted to a taxable person for a consideration or otherwise.. buildings and improvements actually. exclusive of this franchise. c. An instrumentality “refers to any agency of the National Government. The company’s properties are exempt from tax under its franchise. Inc. b. ( The City Government of Quezon City. charitable and educational purposes. The properties of the company were then scheduled by the City for sale at public auction. e. all of the company’s properties that are actually. endowed with some if not all corporate powers. and government owned and controlled corporations engaged in the supply and distribution of water and generation and transmission of electric power. It is not a stock corporation because its capital is not divided into shares. d. b. There is no need to exhaust administrative remedies as the appeal to the LBAA is not a speedy and adequate remedy within the law. 1992. the airport lands and buildings are property owned by the government that are devoted to public use and are properties of the public domain. SUGGESTED ANSWERS: a. Bayan Telecommunications. buildings and personal property. Machineries and equipment. 2 (10). No. police power authority. and levying of fees and charges. b. directly and exclusively used for religious. Among properties covered are those owned by the company from which the City is now collecting P43 million. non-profit or religious cemeteries. Introductory Provisions. Finally. and all lands. March 6. 2009) same taxes on their real estate. fees or other charges.. directly and exclusively used in the pursuit of its franchise. G. Administrative Code of 1987] It is an instrumentality exercising not only governmental but also corporate powers. Machinery and equipment used for pollution control and environmental protection. G. churches. Charitable institutions. after the effectivity of the Local Government Code on January 1. administering special funds. 162015. The grant of taxing powers to local governments under the Constitution and the Local Government Code does not affect the power of Congress to grant tax exemptions. Furthermore one of the recognized exceptions to the rule on exhaustion is that if the issue is purely legal in character which is so in this case. et al. The company then filed a petition for the issuance of a writ of prohibition claiming exemption under its legislative franchise. not integrated within the department framework vested with special functions or jurisdiction by law. Manila International Airport Authority (MIAA) it is not a government owned or controlled corporation but an instrumentality of the government that is exempt from taxation.” [Sec. No. actually. mosques. 163072. This is so because the properties are already scheduled for auction sale.

The owner operator of a BOT and not the ultimate owner is subject to real property taxes. at this stage of the BOT Agreement. while NAPOCOR’s is contingent and. January 30.. direct. et al. Consistent with the BOT concept and as implemented. 171470. 2009) ADVANCE CONGRATULATIONS AND SEE YOU IN COURT .79 29. and immediate. (National Power Corporation v. BPPC’s ownership and use of the machineries and equipment are actual. not sufficient to support its claim for tax exemption. No. G. BPPC – the owner-manager-operator of the project – is the actual user of its machineries and equipment. Central Board of Assessment Appeals. R.

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