PRiMUS CUT AND PASTE: The BAR STAR NOTES

in

areas from !here (ar "uestions may be sourced$ The "uestions sho!n in these Notes may or may not be exactly !orded in the actual (ar "uestions$ The reader is ad ised to ta&e note of the areas mar&ed !ith stars5 1f pressed for time, the reader should read only the items mar&ed and $ These areas represent +06 to 906 of the sources of "uestions that !ould probably be 3i en in the 2009 (ar exams$ The reader should merely bro!se the areas mar&ed and the unmar&ed areas because they represent only 106 to 206 of the areas from !here "uestions may probably be sourced this year$ 0ARN1N2: These materials are copyri3hted and7or based on the !riter%s boo&s on Taxation and future re isions$ 1t is prohibited to reproduce any part of these Notes in any form or any means, electronic or mechanical, includin3 photocopyin3 !ithout the !ritten permission of the author$ These materials are authori#ed for the use only of (ar re ie!ees the author has personally authori#ed$ 8nauthori#ed users shall not be prosecuted but SHALL BE SUB3ECT TO THE LA0 O4 KARMA SUCH THAT THE5 01LL NEVER PASS THE BAR OR 0OULD BE UNHAPP5 1N L14E for stealin3 the intellectual property of the author$ /nly copies !ith the si3nature of 9rof$ .omondon, or his authori#ed representati e and the correspondin3 number on this pa3e are considered authori#ed copies$ :olders of authori#ed copies are re"uested not to lend their copies for reproduction throu3h ;erox or other!ise$

With selected Supreme Court decisions up to May 10, 2009 VER: 09.05.12

TAXATI0N
by

ABELARDO T. DOMONDON
How to !e the Note!: These Notes in the form of textual materials and representati e re ie! "uestions !ere !"e#$%&&' "(e"%(e) *' P(o+. Do,o-)o- +o( the e.#& !$/e !e o+ B%( C%-)$)%te! who %tte-)e) h$! 2009 &e#t (e! oT%.%t$o-, and others he has personally authori#ed$ The purpose of these Notes is to test the candidate%s ability to ans!er probable "uestions that may be as&ed in the September '', 2009 (ar )xaminations in Taxation$ The last ersion to be released is *er$ 09$0+$1, !hich may substantially alter the contents of this *er$ 09$0-$12 (e sure to secure the last ersion to replace this ersion$ ./ N/T M)M/012) the su33ested ans!ers$ Some of the ans!ers !ere purposely made to be len3thy in order to ser e as explanatory de ices$ This is so because you do not ha e time anymore to refer bac& to your re ie! materials$ The materials are arran3ed in accordance !ith the bar examination co era3e$ The actual bar "uestions may not be so arran3ed$ 4i&e!ise, these Notes are only indicati e of the

2ENERAL PR1NC1PLES O4 TA6AT1ON

TA6AT1ON7 1N 2ENERAL

1. 0h' %(e t%. &%w! #o-!t( e) !t($#t&' %8%$-!t the St%te %-) &$*e(%&&' $- +%/o( o+ the St%te 9
S8<<)ST). =NSW)05 1n case of doubt, tax la!s must be construed strictly a3ainst the State and liberally in fa or of the taxpayer because taxes, as burdens !hich must be endured by the taxpayer, should not be presumed to 3o beyond !hat the la! expressly and clearly declares$ (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 29' SC0= 92, 99>

ma&e an exemption ou3ht to be expressed in clear and unambi3uous terms$ ?Quezon City, supra citin3 =3palo, 0$)$, Statutory
Construction, 200' ed$, p$ '02>

5. 0h%t $! the e++e#t o+ % B1R (e/e(!%& o+ % "(e/$o ! ( &$-8 $-te("(et$-8 % &%w %! e.e,"t$-8 % t%."%'e( 9
S8<<)ST). =NSW)05 = re ersal of a (10 rulin3 fa orable to a taxpayer !ould not necessarily create a perpetual exemption in his fa or, for after all the 3o ernment is ne er estopped from collectin3 taxes because of mista&es or errors on the part of its a3ents$ (Lincoln Philippine Life Insurance Company, Inc., etc., v. Court of Appeals, et al., 29' SC0= 92, 99>

2. 0h' %(e t%. e.e,"t$o-! %(e !t($#t&' #o-!t( e) %8%$-!t the t%."%'e( %-) &$*e(%&&' $- +%/o( o+ the St%te 9
S8<<)ST). =NSW)05 continued existence of the State$ Taxes are necessary for the

:.

St($#t $-te("(et%t$o- o+ t%. e.e,"t$o- &%w!.

<. 0h' $,"(e!#($"t$*&e 9

$!

the

($8ht

to

#o&&e#t

t%.e!

Taxes are !hat ci ili#ed people pay for ci ili#ed society$ They are the lifeblood of the nation$ Thus, statutes 3rantin3 tax exemptions are construed stricissimi juris a3ainst the taxpayer and liberally in fa or of the taxin3 authority$ = claim of tax exemption must be clearly sho!n and based on lan3ua3e in la! too plain to be mista&en$ /ther!ise stated, taxation is the rule, exemption is the exception$ ?Quezon City, et al., v. ABS CB! Broa"castin# Corporation , <$
0$ No$ 1@@A0+, /ctober @, 200+ citin3 $actan Ce%u International Airport Authority v. $arcos, <$0$ No$ 1200+2, September 11, 199@, 2@1 SC0= @@,, @+0> The burden of proof rests upon the party claimin3 the

S8<<)ST). =NSW)05 a$ =s a 3eneral rule, re enue la!s are not intended to be

exemption to pro e that it is in fact co ered by the exemption so claimed$ ?Quezon City, supra citin3 =3palo, 0$)$, Statutory Construction,
200' ed$, p$ '01>

liberally construed, and exemptions are not 3i en retroacti e application, considerin3 that taxes are the lifeblood of the 3o ernment and in :olmes% memorable metaphor, the price !e pay for ci ili#ation, tax la!s must be faithfully and strictly implemented$ ?Commissioner of Internal &evenue v. Acosta, etc., <$ 0$ No$ 1-A0@+, =u3ust ', 200,> :o!e er, statutes may pro ide for prescripti e periods for the collection of particular &inds of taxes$ b$ Tax la!s, unli&e remedial la!s, are not to be applied retroacti ely$ 0e enue la!s are substanti e la!s and their application must not be e"uated !ith remedial la!s$ ?Acosta, supra'

;. R%t$o-%&e +o( !t($#t $-te("(et%t$o- o+ t%. e.e,"t$o- &%w!. The basis for the rule on strict construction to
statutory pro isions 3rantin3 tax exemptions or deductions is to minimi#e differential treatment and foster impartiality, fairness and e"uality of treatment amon3 taxpayers$ ?Quezon City, et al., v. ABS CB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+> :e !ho claims an exemption from his share of common burden must Bustify his claim that the le3islature intended to exempt him by unmista&able terms$ Cor exemptions from taxation are not fa ored in la!, nor are they presumed$ They must be expressed in the clearest and most unambi3uous lan3ua3e and not left to mere implications$ 1t has been held that Dexemptions are ne er presumed the burden is on the claimant to establish clearly his ri3ht to exemption and cannot be made out of inference or implications but must be laid beyond reasonable doubt$ 1n other !ords, since taxation is the rule and exemption the exception, the intention to

=. 1t $! !%$) th%t t%.e! %(e the &$+e*&oo) o+ the 8o/e(-,e-t %-) %-' )e&%' $- $t! #o&&e#t$o- wo &) $,"%$( the (e-)$t$o- o+ 8o/e(-,e-t !e(/$#e!. M%' the #o&&e#t$o- o+ t%.e! *e (e!t(%$-e) *' % #o (t 9
S8<<)ST). =NSW)05 =s a 3eneral rule, DNo court shall ha e the authority to 3rant an inBunction to restrain the collection of any national internal re enue tax, fee or char3e$E ?Sec$ 21+, N10C> :o!e er, the Court of Tax =ppeals is empo!ered to enBoin the collection of taxes throu3h administrati e remedies !hen collection could Beopardi#e the interest of the 3o ernment or taxpayer$ ?Sec$ 11, 0ep$ =ct No$ 112->

>. 0h%t %(e the 8(o -)! %-) "(o#e) (e +o( ! !"e-!$o- o+ #o&&e#t$o- o+ t%.e! 9
S8<<)ST). =NSW)05 Where the collection of the amount of the taxpayer%s liability, sou3ht by means of a demand for payment, by le y, distraint or sale of property of the taxpayer, or by !hate er

means, as pro ided under existin3 la!s, may Beopardi#e the interest of the 3o ernment or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability ?Sec$ 1, 0ule 10, 00CT= effecti e .ecember 1-, 200-> !ith the Court of Tax =ppeals$ The motion for suspension of the collection of the tax may be filed to3ether !ith the petition for re ie! or !ith the ans!er, or in a separate motion filed by the interested party at any sta3e of the proceedin3s$ ?Sec$ ', 0ule 10, 00CT= effecti e .ecember 1-, 200-> 9. E."&%$- the ! ,"t %(' " ("o!e o+ t%.%t$o-. S8<<)ST). =NSW)05 The sumptuary purpose of taxation is to promote the 3eneral !elfare and to protect the health, safety or morals of the inhabitants$ 1t is in the Boint exercise of the po!er of taxation and police po!er !here re3ulatory taxes are collected$ Taxation may be made the implement of the state%s police po!er$ The moti ation behind many taxation measures is the implementation of police po!er 3oals$ F Southern Cross Cement Corporation v. Cement $anufacturers Association of the Philippines, et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200- citin3 Lutz v. Araneta, 9+ 9hil$ 1A+, 1-2 ?19-->G in turn citin3 (reat Atl. ) Pac. *ea Co. v. (rosjean, '02 8$S$ A12G +.S. v. Biutler, 29, 8$S$ 1G $cCulloch v. $arylan", A Wheaton '1@H The reader should note that the =u3ust ', 200- Southern Cross case is the decision on the motion for reconsideration of the Iuly +, 200A Southern Cross decision$ The soJcalled Dsin taxesE on alcohol and tobacco manufacturers help dissuade the consumers from excessi e inta&e of these potentially harmful products$ ?Southern Cross Cement Corporation v. Cement $anufacturers Association of the Philippines, et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200-> 10. E."&%$- the #o,"e-!%to(' " ("o!e o+ t%.%t$o-. S8<<)ST). =NSW)05 The compensatory purpose of taxation is to implement the social Bustice pro isions of the constitution throu3h the pro3ressi e system of taxation, !hich !ould result to e"ual distribution of !ealth, etc$ 9ro3ressi e income taxes alle iate the mar3in bet!een rich and poor$ ?Southern Cross Cement Corporation v. Cement $anufacturers Association of the Philippines, et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200->

a$ 9809/S)5 = tax is imposed for re enue purposes W:14) a license fee is imposed for re3ulatory purposes$ ?8nless it is a Boint exercise of both the police po!er and the po!er of taxation> b$ (=S1S5 = tax is imposed under the po!er of taxation W:14) a license fee is imposed under police po!er$ c$ =M/8NT5 There is no limit as to the amount of a tax W:14) the amount of license fee that could be collected is limited to the cost of the license and the expenses of police sur eillance and re3ulation$ d$ T1M) /C 9=KM)NT5 Taxes are normally paid after the start of a business W:14) a license fee before the commencement of business$ e$ )CC)CT /C N/NJ9=KM)NT5 Cailure to pay a tax does not ma&e the business ille3al W:14) failure to pay a license fee ma&es the business ille3al$ f$ S800)N.)05 Taxes bein3 the lifeblood of the state, cannot be surrendered except for la!ful consideration W:14) a license fee may be surrendered !ith or !ithout consideration$ 12. D$!t$-8 $!h t%.%t$o- +(o, "o&$#e "owe(. S8<<)ST). =NSSW)05 Taxation is distin3uishable from police po!er as to the means employed to implement these public 3oals$ Those doctrines that are uni"ue to taxation arose from peculiar considerations such as those especially puniti e effects ? Southern Cross Cement Corporation v. Cement $anufacturers Association of the Philippines, et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200- citin3 8$ S$ Chief Marshall !ho once said, the po!er to tax in ol es the po!er to destroy, $cCulloch v. $arylan", A Wheaton '1@, cited in Sison v. Ancheta, <$ 0$ No$ 4 L -9A'1, Iuly 2-, 1'0 SC0= @-A> and the belief that taxes are lifeblood of the state$ ?Southern Cross Cement Corporation v. Cement $anufacturers Association of the Philippines, et al., <$ 0$ No$ 1-+-A0, =u3ust ', 200- citin3 DFTHaxes bein3 the lifeblood of the 3o ernment, their prompt and certain a ailability is of the essence$E Sison v. Ancheta, i"., citin3 ,era v. -ernan"ez, <$ 0$ No$ 4J'1'@A, March '0, 19,9, +9 SC0= 199H These considerations necessitated the e olution of taxation as a distinct le3al concept from police po!er$ ?Southern Cross Cement Corporation, supra> 1f the "uestion as&s for an enumeration of the distinctions bet!een the po!er of taxation and police po!er, the candidate should reformulate no$ 1, abo e$

11. 0h%t %(e the )$!t$-#t$o-! *etwee- % t%. %-) % &$#e-!e +ee 9
S8<<)ST). =NSW)05 bet!een a tax and a license fee5 The follo!in3 are the distinctions

1:.
A#t 9

0h%t $! the " ("o!e o+ the S 8%( A)? !t,e-t

S8<<)ST). =NSW)05 The Su3ar =dBustment =ct !hich increased existin3 taxes on su3ar !as enacted to stabili#e the su3ar industry to prepare it for the loss of its "uota in the 8$S$ mar&et !as le ied for a re3ulatory purpose to protect and promote the su3ar industry !hich is also for a public purpose$ ?4utz v. Araneta, 9+ 9hil$ 1A+> The 9hilsu3in fund, an imposition on su3ar, to raise funds to conduct research for the impro ement of the su3ar industry, is for the purpose of stabili#in3 the su3ar industry !hich one of the pillars of the 9hilippine economy !hich affects the !elfare of the State$ The le y is not so much an exercise of the po!er of taxation, nor the imposition of a special le y, but the exercise of police po!er !hich is for the 3eneral !elfare of the entire country, therefore for a public purpose$ (&epu%lic v. Bacolo" $urcia Co., et al$, <$0$ No$ 4J19+2A, Iuly 9, 19@@>

?Commissioner of Internal &evenue v. Central Luzon .ru# Corporation, <$0$ No$ 1-9@A,, =pril 1@, 200-> )stablishments 3rantin3 the 206 senior citi#ens discount may claim the discounts 3ranted to senior citi#ens %! t%. )e) #t$obased on the net cost of the 3oods sold or ser ices rendered5 Provi"e", That the cost of the discount shall be allo!ed as deduction from 3ross income for the same taxable year that the discount is 3ranted$ Provi"e", further, That the total amount of the claimed tax deduction net of alue added tax if applicable, shall be included in their 3ross sales receipts for tax purposes and shall be subBect to proper documentation and to the pro isions of the National 1nternal 0e enue Code, as amended$ F$./. 0ol"in# Corporation v. Court of Appeals, et al., <$0$ No$ 1@019', March ', 200+ citin3 )xpanded Senior Citi#ens =ct of 200', Sec$ A ?a>H

1;. Se#t$o- ;0 @8A o+ the P *&$# Se(/$#e A#t % tho($Be! the #o&&e#t$o- o+ . . . +ee! %! (e$,* (!e,e-t o+ $t! e."e-!e! $- the % tho($B%t$o-7 ! "e(/$!$o- %-)Co( (e8 &%t$o- o+ the " *&$# !e(/$#e!: . . . 8A 4o( e%#h "e(,$t7 % tho($B$-8 the $-#(e%!e $- eD $",e-t7 the $-!t%&&%t$o- o+ -ew -$t! o( % tho($B$-8 the $-#(e%!e o+ #%"%#$t'7 o( the e.te-!$o- o+ ,e%-! o( 8e-e(%& e.te-!$o-! $- the !e(/$#e!7 twe-t' #e-t%/o! +o( e%#h o-e h -)(e) "e!o! o( +(%#t$o- o+ the %))$t$o-%& #%"$t%& -e#e!!%(' to #%((' o t the "e(,$t. @"%(%"h(%!$-8 ! ""&$e)A 1! the $,"o!$t$o- % t%. ,e%! (e 9 E."&%$-.
S8<<)ST). =NSW)05 No$ 1t is not a tax measure but a simple re3ulatory pro ision for the collection of fees imposed pursuant to the exercise of the State%s police po!er$ = tax is imposed under the taxin3 po!er of 3o ernment principally for the purpose of raisin3 re enues$ The la! in "uestion, ho!e er, merely authori#es and re"uires the collection of fees for the reimbursement of the Commission%s expenses in the authori#ation, super ision and7or re3ulation of public ser ices$ ?&epu%lic, etc., v. International Communications Corporation (ICC', <$ 0$ No$ 1A1@@,, Iuly 1,, 200@>

1<. 0h%t $! " ("o!e +o( the &$,$t%t$o-! o- the "owe( o+ t%.%t$o- 9
S8<<)ST). =NSW)05 The inherent and constitutional limitations to the "owe( o+ t%.%t$o- %(e !%+e8 %()! !hich !ould pre ent abuse in the exercise of this other!ise unlimited and plenary po!er$ The limitations also ser e as a standard to measure the alidity of a tax la! or the act of a taxin3 authority$ = iolation of the limitations ser es to in alidate a tax la! or act in the exercise of the po!er to tax$ 1NHERENT L1M1TAT1ONS

1. 0h%t %(e the $-he(e-t &$,$t%t$o-! o- the "owe( o+ t%.%t$o- 9

S8<<)ST). =NSW)05 The inherent limitations are a$ 9ublic purpose$ The re enues collected from taxation should be de oted to a public purpose$ b$ No improper dele3ation of le3islati e authority to tax$ /nly the le3islature can exercise the po!er of taxes unless the same is dele3ated to some other 3o ernmental body by the constitution or throu3h a la! !hich does not iolate any pro ision of the constitution$ c$ Territoriality$ The taxin3 po!er should be exercised only !ithin territorial boundaries of the taxin3 authority$ d$ 0eco3nition of 3o ernment exemptionsG and e$ /bser ance of the principle of comity$ Comity is the respect accorded by nations to each other because they are e"uals$ /n the other hand taxation is an act of so erei3n$ Thus, the po!er should be imposed upon e"uals out of respect$ Some authorities include no double taxation$

15. How ,%' the "owe( o+ t%.%t$o- %&!o *e !e) to $,"&e,e-t "owe( o+ e,$-e-t )o,%$- 9
S8<<)ST). =NSW)05 Tax measures are but Eenforced contributions exacted on pain of penal sanctionsE and Dclearly imposed for public purpose$E 1n most recent years, the po!er to tax has indeed become a most effecti e tool to reali#e social Bustice, public !elfare, and the e"uitable distribution of !ealth$

2.
" ("o!e 9

0he- %(e t%.e! #o-!$)e(e) %! *e$-8 +o( % " *&$#

=.

0he- ,%' locus standi *e *( !he) %!$)e 9

S8<<)ST). =NSW)05 The tax re enues are for a public purpose if utili#ed for the benefit of the community in 3eneral$ =n alternati e meanin3 is that tax proceeds should be utili#ed only to attain the obBecti es of 3o ernment$ 9ublic use is no lon3er confined to the traditional notion of use by the public but held synonymous !ith public interest, public benefit, public !elfare, and public con enience$ ? Commissioner of Internal &evenue v. Central Luzon .ru# Corporation, <$0$ No$ 1-9@A,, =pril 1@, 200->

S8<<)ST). =NSW)05 1n cases of paramount importance !here serious constitutional "uestions are in ol ed, the standin3 re"uirements may be relaxed and a suit may be allo!ed to prosper e en !here there is no direct inBury to the party claimin3 the ri3ht of Budicial re ie!$ F Coconut 3il &efiners Association, Inc., etc., et al., vs. *orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200- citin3 Bayan (Ba#on# Alyansan# $a4a%ayan' v. 5amora, <$ 0$ No$ 1'+-,0, /ctober 10, 2000, 'A2 SC0= AA9, in turn citin3 1ilos%ayan, Inc. v. (uin#ona, 2r$, <$ 0$ No$ 11'',-, May -, 199A, 2'2 SC0= 110H

:.

De+$-e % t%."%'e(E! ! $t.

S8<<)ST). =NSW)05 Taxpayers% suit is a case !here the act complained of directly in ol es the ille3al disbursement of public funds deri ed from taxation$ ?Iustice Melo, dissentin3 in 1ilos%ayan, Inc. v. (uin#ona, 2r$, 2'2 SC0= 110>

0h%t %(e the (eD $(e,e-t! th%t , !t *e ,et *e+o(e t%."%'e(!7 #o-#e(-e) #$t$Be-! %-) &e8$!&%to(! ,%' *e %##o()e) !t%-)$-8 to ! e 9
S8<<)ST). =NSW)05 a$ The case should in ol e constitutional issuesG b$ Cor taxpayers, there must be a claim of ille3al disbursement of public funds or that the tax measure is unconstitutional$ c$ Cor oters, there must be a sho!in3 of ob ious interest in the alidity of the election la! in "uestion$ d$ Cor concerned citi#ens, there must be a sho!in3 that the issues raised are of transcendental importance !hich must be settled early$ e$ Cor le3islators, there must be a claim that the official action complained of infrin3es upon their prero3ati es as le3islators$ ?.avi", et al., v. Presi"ent (loria $acapa#al Arroyo, etc., et al., <$ 0$ No$ 1,1'9@, May ', 200@>

>.

;.

0h%t $! locus standi ?

S8<<)ST). =NSW)05 Locus stan"i is Da ri3ht of appearance in a court of Bustice on a 3i en "uestion$ ? A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,> 1t is a party%s personal and substantial interest in the case, such that the party has sustained or !ill sustain ? I%i".>direct inBury as a result of the 3o ernment act bein3 challen3ed$ 1t calls for more than Bust a 3enerali#ed 3rie ance$ = party need not be a party to the contract to challen3e its alidity$ ?I%i".>

5.

0h%t $! ,e%-t *' the te(, ,%te($%& $-te(e!t 9

S8<<)ST). =NSW)05 The term DinterestE means a material interest, an interest in issue affected by the decree, as distin3uished from mere interest in the "uestion in ol ed, or a mere incidental interest$ ?A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>

9. 0h%t %(e the (eD $!$te! +o( #h%&&e-8$-8 #o-!t$t t$o-%&$t' o+ &%w $-#& )$-8 % t%. &%w 9
S8<<)ST). =NSW)05 The party brin3in3 suit must sho! Dnot only that the la! or act is in alid, but also that he has sustained or is in immediate, or imminent dan3er of sustainin3 some direct inBury as a result of its enforcement and not merely that he suffers thereby in some indefinite !ay$E ?Soriano III v. Lista, et al., <$ 0$ No$ 1-'++1, March 2A, 200'>

<.

0h%t $! the (%t$o-%&e +o( locus standi 9

S8<<)ST). =NSW)05 The rationale for re"uirin3 a party !ho challen3es the constitutionality of a statute to alle3e such a personal sta&e in the outcome of the contro ersy is Dto ensure that a concrete ad erseness !hich sharpens the presentation of issues upon !hich the court so lar3ely depends for illumination of different constitutional "uestions$E ?A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>

10. Lo# ! !t%-)$ *e$-8 ,e(e&' % ,%tte( o+ "(o#e) (e7 h%/e *ee- w%$/e) $- #e(t%$- $-!t%-#e! whe(e % "%(t' who $! -ot "e(!o-%&&' $-? (e) ,%' *e %&&owe) to *($-8 ! $t. 2$/e !o,e e.%,"&e!.
S8<<)ST). =NSW)05 The follo!in3 are examples of instances !here suits ha e been brou3ht by parties !ho ha e not

ha e been personally inBured by the operation of a la! or any other 3o ernment act but by concerned citi#ens, taxpayers or oters !ho actually sue in the public interest5 a$ Taxpayer%s suits to "uestion contracts entered into by the national 3o ernment or 3o ernmentJo!ned or controlled corporations alle3edly in contra ention of the la!$ b$ = taxpayer is allo!ed to sue !here there is a claim that public funds are ille3ally disbursed, or that public money is bein3 deflected to any improper purpose, or that there is a !asta3e of public funds throu3h the enforcement of an in alid or unconstitutional la!$ ?A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>

!ith 9hilippine la!$ ?Coconut 3il &efiners Association, Inc., etc., et al., v. *orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200->

0o &) 'o ( %-!we( *e the !%,e $+ % P(e!$)e-t$%& P(o#&%,%t$o- %&&owe) +o( the &$,$te) w$th)(%w%& +(o, the C&%(H S"e#$%& E#o-o,$# Go-e o( the 3oh- H%' E#o-o,$# Go-e o+ #o-! ,e( 8oo)! t%. %-) ) t'F+(ee 9
M S8<<)ST). =NSW)05 The ans!er !ould not be the same$ This time the 9residential 9roclamation !ould be in alid as the statutory tax exempt pri ile3e !as 3ranted only to the Subic Special )conomic 2one and not to Iohn :ay or Clar&$ This is so because the Constitution mandates that no la! 3rantin3 tax exemption shall be passed !ithout the concurrence of a maBority of all the members of Con3ress$ ?Coconut 3il &efiners Association, Inc., etc., et al., v. *orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200- citin3 2ohn 0ay People7s Alternative Coalition, et al., v. Lim, etc., et al., <$0$ No$ 119,,-, /ctober 2A, 200', A1A SC0= '-@> Curthermore, the la! is ery clear that the Dexportation or remo al of 3oods from the territory of the Subic Special )conomic 2one to other parts of the 9hilippine territory shall be subBect to customs duties and taxes under the Customs and Tariff Code and other rele ant tax la!s of the 9hilippines$E ?I%i".>

11. The "et$t$o-e(! $," 8- the /%&$)$t' o+ the e!t%*&$!h,e-t o+ t%. %-) ) t'F+(ee !ho"! w$th$- the S *$# S"e#$%& E#o-o,$# Go-e @SSEGA %-) the (e,o/%& o+ #o-! ,e( 8oo)! %-) $te,! +(o, the Bo-e! w$tho t "%',e-t o+ #o((e!"o-)$-8 ) t$e! %-) t%.e! +o( the (e%!oth%t th$! #o-!t$t te e.e# t$/e &e8$!&%t$o- $- /$o&%t$o- o+ the ( &e o- !e"%(%t$o- o+ "owe(!7 th%t o-&' (%w ,%te($%&7 #%"$t%& %-) eD $",e-t !ho &) *e %&&owe) the "($/$&e8e. R &e o- the o*?e#t$o-! %-) (e%!o- o t 'o ( %-!we( *($e+&'.
S8<<)ST). =NSW)05 The obBections should not be 3i en credence$ 1t is le3al to setup duly authori#ed dutyJfree shops in the SS)2 to sell tax and dutyJfree consumer items in the Secured =rea$ This is in line !ith the policy enunciated in the la! that Dthe Subic Special )conomic 2one shall be de eloped into a selfJsustainin3, industrial, commercial, financial and in estment center to 3enerate employment opportunities in and around the #one and to attract and promote producti e forei3n in estments$E While it is true that Section 12 ?b> of 0ep$ =ct No$ ,22, mentions only ra! materials, capital and e"uipment, this does not necessarily mean that the tax and duty free buyin3 pri ile3e is limited to these types of articles to the exclusion of consumer 3oods$ 1t must be remembered that in construin3 statutes, the proper course is to start out and follo! the true intent of the 4e3islature and to adopt that sense !hich harmoni#es best !ith the context and promotes to the fullest manner the policy and obBects of the 4e3islature$ The concept of inclusio unius est e6clusio alterius does not find application because the phrase Dtax and dutyJfree importations of ra! materials, capital and e"uipmentE !as merely cited as an example of incenti es that the SS)2 is authori#ed to 3rant, in line !ith its bein3 a free port #one$ Thus, the le3islati e intent is that consumer 3oods enterin3 the SS)2 !hich satisfy the needs of the #one and are consumed there are not subBect to duties and taxes in accordance

11FA. N%t (e o+ %#t %& #%!e o( #o-t(o/e(!'. =n actual case or contro ersy in ol es a conflict of le3al ri3hts, an assertion of opposite le3al claims susceptible of Budicial adBudication$ ?ABA1A.A (uro Party List, etc., v. Purisima, etc., et a l$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 Cru#, 1sa3ani, 9:141991N) C/NST1T8T1/N=4 4=W, 199- edition, p$ 2'> 11FB. C($te($% o+ *e$-8 ($"e +o( ? )$#$%& )ete(,$-%t$o-.
= closely related re"uirement is ripeness, that is, the "uestion must be ripe for adBudication$ =nd a constitutional "uestion is ripe for adBudication !hen the 3o ernmental act bein3 challen3ed has a direct ad erse effect on the indi idual challen3in3 it $ ?ABA1A.A
(uro Party List, etc., v. Purisima, etc., et a l$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 (ernas, Ioa"uin, T:) 19+, C/NST1T8T1/N /C T:) 0)98(41C /C T:) 9:141991N)S5 = C/MM)NT=0K, 199@ edition, pp$ +A+J+A9> Thus, to be ripe for Budicial adBudication, the petitioner must

sho! a personal sta&e in the outcome of the case or an inBury to himself that can be redressed by a fa orable decision of the Court $
FABA1A.A (uro Party List, etc., supra, v. Purisima, etc., citin3 Cruz v. Secretary of /nvironment an" !atural &esources , A00 9hil$ 90A ?2000>, *itu3, I$, separate opinionH

11FC. Pe(!o-%& $-? (' , !t *e !how- +o( ? )$#$%& #o-t(o/e(!' to *e ($"e +o( ? )$#$%& )ete(,$-%t$o-. 1n this
case, aside from the 3eneral claim that the dispute has ripened into a Budicial contro ersy by the mere enactment of the la! e en !ithout any further o ert act$ ?ABA1A.A (uro Party List, etc., v.
Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 La Bu#al B7Laan *ri%al Association, Inc. v. &amos , <$0$ No$ 12,++2, 01 .ecember 200A, AA- SC0= 1>

determine and declare the e en upon !hich its expressed !ill ta&es place$ The 9resident cannot set aside the findin3s of the Secretary of Cinance, !ho is not under the conditions actin3 as the execute alter e3o or subordinate$ $ F A%a4a"a (uro Party List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200- and companion cases citin3 arious casesHH 1:. The "owe( to t%. !ho &) *e e.e(#$!e) o-&' w$th$the te(($to($%& *o -)%($e! o+ the t%.$-8 % tho($t'. 1n theory, it is only !ithin a state%s territorial boundaries that a state could 3i e protection, hence it is only !ithin that territory that it could demand support in the form of taxes$ 1;. S$t ! o+ t%.%t$o- $! the "&%#e o( the % tho($t' th%t h%! the "owe( to #o&&e#t t%.e!$ 1t is premised upon the symbiotic relation bet!een the taxpayer and the State$ 15. The "&%#e th%t 8$/e! "(ote#t$o- $! the "&%#e th%t h%! the ($8ht to )e,%-) th%t $t *e ! ""o(te) $- the +o(, o+ t%.e! !o $t #o &) #o-t$- %&&' 8$/e "(ote#t$o-. 1<. The !$t ! o+ (e%& "(o"e(t' t%.e! $! the "&%#e whe(e the "(o"e(t' $! &o#%te) *e#% !e $t $! th%t "&%#e th%t 8$/e! "(ote#t$o-. The %""&$#%*&e #o-#e"t $! lex situs o( lex rei sitae. 1=. The !$t ! o+ t%.%t$o- o+ t%-8$*&e "e(!o-%& "(o"e(t' $! the "&%#e whe(e the ow-e( $! &o#%te) because it is that place that 3i es protection to the o!ner !hich protection extends to the tan3ible personal property$ The applicable concept is mo%ilia se9uuntur personam. 1>. 1-t%-8$*&e "e(!o-%& "(o"e(t' ,%' h%/e o*t%$-e) % * !$-e!! !$t ! $- % "%(t$# &%( "&%#e e/e- $+ &o#%te) e&!ewhe(e. Thus, the di idends earned from domestic corporations are considered as income from !ithin, irrespecti e !here the shares of stoc& of such domestic corporation is located$ 19. The !$t ! o+ $-#o,e t%.%t$o- $! )ete(,$-e) *' the -%t$o-%&$t'7 (e!$)e-#e o+ the t%."%'e( %-) !o (#e o+ $-#o,e. 9lease refer to 3eneral principles of income taxation under income taxation$ 20$ The !$t ! o+ e.#$!e t%.e! $! the "&%#e whe(e the "($/$&e8e $! e.e(#$!e) *e#% !e $t $! th%t "&%#e th%t 8$/e! "(ote#t$o-.

Thus, !here petitioners fail either to assert any specific and concrete le3al claim or to demonstrate any direct ad erse effect of the la! on them or are unable to sho! a personal sta&e in the outcome of this case or an inBury to themsel es their petition is procedurally infirm$ ?ABA1A.A (uro Party List, etc., supra >

11FD. Co-!t$t t$o-%&$t' o+ &%w $! e.#e"t$o- to the )o#t($-e o+ ($"e +o( ? )$#$%& )ete(,$-%t$o-. This
not!ithstandin3, public interest re"uires the resolution of the constitutional issues raised by petitioners$ The 3ra e nature of their alle3ations tends to cast a cloud on the presumption of constitutionality in fa or of the la!$ =nd !here an action of the le3islati e branch is alle3ed to ha e infrin3ed the Constitution, it becomes not only the ri3ht but in fact the duty of the Budiciary to settle the dispute$ FABA1A.A (uro Party List, etc., v. Purisima, etc., et
al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 *a8a"a v. An#ara, ''+ 9hil$ -A@ ?199,>H

The VAT &%w "(o/$)e! th%t7 the P(e!$)e-t7 "othe (e#o,,e-)%t$o- o+ the Se#(et%(' o+ 4$-%-#e7 !h%&&7 e++e#t$/e 3%- %(' 17 200<7 (%$!e the (%te o+ /%& eF%))e) t%. to twe&/e "e(#e-t @12IA %+te( %-' o+ the +o&&ow$-8 #o-)$t$o-! h%/e *ee- !%t$!+$e). @$A /%& eF%))e) t%. #o&&e#t$o- %! % "e(#e-t%8e o+ 2(o!! Do,e!t$# P(o) #t @2DPA o+ the "(e/$o ! 'e%( e.#ee)! two %-) +o (F+$+th "e(#e-t @2 ;C5IA o( @$$A -%t$o-%& 8o/e(-,e-t )e+$#$t %! % "e(#e-t%8e o+ 2DP o+ the "(e/$o ! 'e%( e.#ee)! o-e %-) o-eFh%&+ "e(#e-t @1 JIA. 0%! the(e %- $-/%&$) )e&e8%t$o- o+ &e8$!&%t$/e "owe( 9
S8<<)ST). =NSW)05 No$ There is no undue dele3ation of le3islati e po!er but only of the discretion as to the execution of the la!$ This is constitutionally permissible$ Con3ress does not abdicate its functions or unduly dele3ate po!er !hen it describes !hat Bob must be done, !ho must do it, and !hat is the scope of his authority$ 1n the abo e case the Secretary of Cinance becomes merely the a3ent of the le3islati e department, to

12.

21. The !$t ! o+ t(%-!+e( t%.e!7 ! #h %! e!t%te %-) )o-o(E! t%.e!7 $! )ete(,$-e) *' the -%t$o-%&$t' %-) (e!$)e-#e o+ the t%."%'e( %-) the "&%#e whe(e the "(o"e(t' $! &o#%te). 9lease refer to estate and donor%s taxes$

22. 3 &$%-e % -o-F(e!$)e-t %&$e- %""o$-te) %! % #o,,$!!$o- %8e-t *' % )o,e!t$# #o("o(%t$o- w$th % !%&e! #o,,$!!$o- o+ 10I %&& !%&e! %#t %&&' #o-#& )e) %-) #o&&e#te) th(o 8h he( e++o(t!. The &o#%& #o,"%-' w$thhe&) the %,o -t o+ P10=7000 +(o, he( !%&e! #o,,$!!$o- %-) (e,$tte) the !%,e to the B1R. She +$&e) % #&%$, +o( (e+ -) %&&e8$-8 th%t he( !%&e! #o,,$!!$o- $! -ot t%.%*&e *e#% !e the !%,e w%! % #o,"e-!%t$o- +o( he( !e(/$#e! (e-)e(e) $- 2e(,%-' %-) the(e+o(e #o-!$)e(e) %! $-#o,e +(o, !o (#e! o t!$)e the Ph$&$""$-e!. 1! he( #o-te-t$o- #o((e#t 9
S8<<)ST). =NSW)05 Kes$ The important factor !hich determines the source of income of personal ser ices is not the residence of the payor, or the place !here the contract for ser ice is entered into, or the place of payment, but the place !here the ser ices !ere actually performed$ Since the acti ity of securin3 the sales !ere in <ermany, then the income did not ori3inate from sources from !ithin the 9hilippines$ ?Commissioner of Internal &evenue v. Baier !ic4el, <$ 0$ No$ 1-',9', =u3ust 29, 200@> N/T) =N. C/MM)NTS5 1n the abo e case, the Supreme Court reiterated the rule that D!o (#e o+ $-#o,e relates to the property, acti ity or ser ice that produced the income$ With respect to rendition of labor or personal ser ice, it is the place !here the labor or ser ice !as performed that determines the source of the income$ The abo e Baier !ic4el case discussed the import of the landmar& cases ?0o:"en and B3AC' in ol in3 sources of income for tax purposes both of !hich may be dan3erous for (ar purposes5

The reinsurance premiums remitted to the forei3n reinsurer had for their source the underta&in3 to indemnify the local insurer a3ainst liability$ Said underta&in3 is the acti ity that produced there insurance premiums, and the same too& place in the 9hilippines$ The reinsured, the liabilities insured and the ris& ori3inally underta&en by the local insurance company, upon !hich the reinsurance premiums and indemnity !ere based, !ere all situated in the 9hilippines$ ? Ale6an"er 0o:"en ) Co., Lt". v. Collector of Internal &evenue, 121 9hil$ -,9G 1' SC0= @01 ?19@-> cited in Baier !ic4el'

BOAC7 % +o(e$8- %$(&$-e #o,"%-' wh$#h )oe! -ot ,%$-t%$- %-' +&$8ht to %-) +(o, the Ph$&$""$-e! !o&) %$( t$#Het! $- the Ph$&$""$-e!7 th(o 8h % 8e-e(%& !%&e! %8e-t7 (e&%t$-8 to the #%(($%8e o+ "%!!e-8e(! %-) #%(8o *etwee- two "o$-t!7 *oth o t!$)e the Ph$&$""$-e!. 1! BOAC ! *?e#t to $-#o,e t%.e! o- the !%&e o+ the t$#Het! 9
S8<<)ST). =NSW)05 Kes$ The source of income !hich is taxable is that Dacti ityE !hich produced the income$ The Esale of tic&etsE in the 9hilippines is the acti ity that determines !hether such income is taxable in the 9hilippines$ The tic&ets exchan3ed hands here and payments for fares !ere also made here in 9hilippine currency$ The situs of the source of payments is the 9hilippines$ the flo! of !ealth proceeded from and occurred, !ithin the 9hilippine territory, enBoyin3 the protection accorded by the 9hilippine <o ernment$ 1n consideration of such protection, the flo! of !ealth should share the burden of supportin3 the 3o ernment$ ?Commissioner of Internal &evenue v. British 3verseas Air:ays Corporation (B3AC', 1A9 SC0= '9- cited in Bauer !ic4el' N/T)S =N. C/MM)NTS5 The concept of imposition of the 3ross 9hilippine billin3s that taxes only fli3hts that ori3inate from the 9hilippines apply only to resident forei3n corporations doin3 business in the 9hilippines FSec$ 2+ ?=> ?'> ?a>, N10C of 199,H =N. N/T T/ incomes of nonJresident forei3n corporations that are taxed on the 3ross income$ FSec$ 2+ ?(> ?1>H

2;.

2:. A )o,e!t$# $-! (%-#e #o,"%-' )e#$)e) to (e$-! (e w$th % +o(e$8- (e$-! (e( the ($!H! $t h%! -)e(t%Hew$th $t! &o#%& #&$e-t!. The +o(e$8- (e$-! (e( )oe! -ot h%/e %- o++$#e7 -e$the( )oe! $t )o * !$-e!! $- the Ph$&$""$-e!. A(e the (e$-! (%-#e "(e,$ ,! ! *?e#t to Ph$&$""$-e $-#o,e t%.%t$o- 9
S8<<)ST). =NSW)05 Kes because the underta&in3 of the forei3n insurance company to indemnify the local insurance company is the acti ity that produced the income$

25. No $,"(o"e( )e&e8%t$o- o+ &e8$!&%t$/e % tho($t' to t%.. The po!er to tax is inherent in the State, such po!er bein3
inherently le3islati e, based on the principle that taxes are a 3rant of the people !ho are taxed, and the 3rant must be made by the immediate representati es of the peopleG and !here the people ha e laid the po!er, there it must remain and be exercised$
?Commissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$

Nos$ 1@,2,AJ,-, Iuly 21, 200+ citin3 C//4)K T=;=T1/N, 'rd )d$, p$ A' cited in .1M==M9=/, T=; 901NC194) =N. 0)M).1)S, p$ 1'>

2<. 1-!t%-#e! whe(e the -%t$o-%& (e/e- e o++$#e(! h%) /e-t (e) $- the %(e% o+ -% tho($Be) %),$-$!t(%t$/e &e8$!&%t$o-.
a$ (y addin3 the "ualification that the tax due after the 126 increase becomes effecti e shall not be lo!er than the tax actually paid prior to 1 Ianuary 2000, 0e enue 0e3ulation No$ 1,J 99 effecti ely imposes a tax !hich is the hi3her amount bet!een the a" valorem tax bein3 paid at the end of the three ?'>Jyear transition period and the specific tax under para3raph C, subJpara3raph ?1>J ?A>, as increased by 126Na situation not supported by the plain !ordin3 of Section 1A- of the Tax Code$ ?Commissioner of Internal
&evenue v. -ortune *o%acco Corporation, <$ 0$ Nos$ 1@,2,AJ,-, Iuly 21, 200+>

)xecuti e /rder ?)$/$> No$ 2,', on pa!nshops$ The Commissioner anchored the imposition on the definition of lendin3 in estors pro ided in the 19,, Tax Code !hich, accordin3 to him, !as broad enou3h to include pa!nshop operators$ :o!e er, the Court noted that pa!nshops and lendin3 in estors !ere subBected to different tax treatments under the Tax Code prior to its amendment by the executi e orderG that Con3ress ne er intended to treat pa!nshops in the same !ay as lendin3 in estorsG and that the particularly in ol ed section of the Tax Code explicitly subBected lendin3 in estors and dealers in securities only to percenta3e tax$ =nd so the Court affirmed the in alidity of the challen3ed circulars, stressin3 that Dadministrati e issuances must not o erride, supplant or modify the la!, but must remain consistent !ith the la! they intend to carry out$E ?I%i"., citin3 Commissioner of Internal &evenue v. $ichel 2. Lhuillier
Pa:nshop, Inc., A-' 9hil$ 10A' ?200'>, at 10-2 in turn citin3 Commissioner of Internal &evenue v. Court of Appeals , <$0$ No$ 10+'-+, 20 Ianuary 199-, 2A0 SC0= '@+, ',2G &omulo, $a%anta, Buenaventura, Sayoc ) .e los An#eles v. 0ome .evelopment $utual -un" , <$0$ No$ 1'10+2, 19 Iune 2000G ''' SC0= ,,,, ,+@>

b$ 0espondent !as not informed in !ritin3 of the la! and the facts on !hich the assessment of estate taxes !as made pursuant to Section 22+ of the 199, Tax Code, as amended by 0epublic =ct ?0$=$> No$ +A2A$ She !as merely notified of the findin3s by the Commissioner, !ho had simply relied upon the old pro isions of the la! and 0e enue 0e3ulation No$ 12J+- !hich !as based on the old pro ision of the la!$ The Court held that in case of discrepancy bet!een the la! as amended and the implementin3 re3ulation based on the old la!, the former necessarily pre ails$ The la! must still be follo!ed, e en thou3h the existin3 tax re3ulation at that time pro ided for a different procedure$ ?I%i"., Commissioner of
Internal &evenue v. &eyes, <$0$ No$ 1-9@9A, 2, Ianuary 200@, A+0 SC0= '+2 in turn citin3 Philippine Petroleum Corp. v. $unicipality of Pililla, &izal, 19+ SC0= +2, ++, ' Iune 1991, li&e!ise citin3 Shell Philippines, Inc. v. Central Ban4 of the Philippines, 1@2 SC0= @2+, @'A, 2, Iune 19++>

e$ The then actin3 Commissioner issued 0MC ,J+-, chan3in3 the prescripti e period of t!o years to ten years for claims of excess "uarterly income tax payments, thereby creatin3 a clear inconsistency !ith the pro ision of Section 2'0 of the 19,, Tax Code$ The Court nullified the circular, rulin3 that the (10 did not simply interpret the la!G rather it le3islated 3uidelines contrary to the statute passed by Con3ress$ FI%i"., Philippine Ban4 of Communications v.
Commissioner of Internal &evenue, '@1 9hil$ 91@ ?1999>H

c$ The tax authorities 3a e the term Dtax creditE in Sections 2?i> and A of 0e enue 0e3ulation 2J9A a meanin3 utterly disparate from !hat 0$=$ No$ ,A'2 pro ides$ Their interpretation muddled up the intent of Con3ress to 3rant a mere discount pri ile3e and not a sales discount$ The Court, stri&in3 do!n the re enue re3ulation, held that an administrati e a3ency issuin3 re3ulations may not enlar3e, alter or restrict the pro isions of the la! it administers, and it cannot en3raft additional re"uirements not contemplated by the le3islature$ ?I%i"., Commissioner of Internal
&evenue v. Central Luzon .ru# Corporation , <$0$ No$ 1-9@A,, 1- =pril 200-, A-@ SC0= A1A>

f$ The Supreme Court ruled as in alid 0M/ AJ+, !hich had construed the amnesty co era3e under )$/$ No$ A1 ?19+@> to include only assessments issued by the (10 after the promul3ation of the executi e order on 22 =u3ust 19+@ and not assessments made to that date$ The Supreme Court resol ed in the ne3ati e$
FI%i"., Commissioner of Internal &evenue v. CA, et al., '10 9hil$ '92 ?199->H

2=. The ( &eF,%H$-8 "owe( , !t *e #o-+$-e) to )et%$&! +o( (e8 &%t$-8 the ,o)e o( "(o#ee)$-8! $- o()e( to #%((' $-to e++e#t the &%w %! $t h%! *ee- e-%#te). a$ 1t cannot be extended to amend or expand the statutory re"uirements or to embrace matters not co ered by the statute$
FCommissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$ Nos$ 1@,2,AJ,-, Iuly 21, 200+ citin3 Lan"%an4 of the Philippines v. Court of Appeals, '2, 9hil$ 10A,, 10-2 ?199@>H =n administrati e a3ency

d$ Commissioner Iose /n3 issued 0e enue Memorandum /rder ?0M/> No$ 1-J91, as !ell as the clarificatory 0e enue Memorandum Circular ?0MC> A'J91, imposin3 a -6 lendin3 in estor%s tax under the 19,, Tax Code, as amended by

issuin3 re3ulations may not enlar3e, alter or restrict the pro isions of the la! it administers, and it cannot en3raft additional re"uirements not contemplated by the le3islature$ ? I%i"., Commissioner of Internal &evenue v. Central Luzon .ru# Corporation, <$0$ No$ 1-9@A,, 1=pril 200-, A-@ SC0= A1A>

The Dplain meanin3 ruleE or ver%a le#is in statutory construction should be applied such that !here the !ords of a statute are clear, plain and free from ambi3uity, it must be 3i en its literal meanin3 and applied !ithout attempted interpretation$ ? I%i".> b$ =dministrati e re3ulations must al!ays be in harmony !ith the pro isions of the la! because any resultin3 discrepancy bet!een the t!o !ill al!ays be resol ed in fa or of the basic la!$
FCommissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$ Nos$ 1@,2,AJ,-, Iuly 21, 200+ citin3 Lan"%an4 of the Philippines v. Court of Appeals, '2, 9hil$ 10A,, 10-2 ?199@>H

10

CONST1TUT1ONAL L1M1TAT1ONS 1. 0h%t %(e the #o-!t$t t$o-%& &$,$t%t$o-! o- the "owe( o+ t%.%t$o- 9 S8<<)ST). =NSW)05 The 3eneral or indirect constitutional limitations as !ell as the specific or direct constitutional limitations$

2. 0h%t %(e the 8e-e(%& o( $-)$(e#t #o-!t$t t$o-%& &$,$t%t$o-! o- the "owe( o+ t%.%t$o- 9
S8<<)ST). =NSW)05 The 3eneral or indirect constitutional limitations are the follo!in35 a$ .ue process clauseG b$ )"ual protection clauseG c$ Creedom of the pressG d$ 0eli3ious freedomG e$ No ta&in3 of pri ate property !ithout Bust compensationG f$ NonJimpairment clauseG 3$ 4a!Jma&in3 process5 1> (ill should embrace only one subBect expressed in the title thereofG 2> Three ?'> readin3s on three separate daysG '> 9rinted copies in final form distributed three ?'> days before passa3e$ h$ 9residential po!er to 3rant reprie es, commutations and pardons and remittal of fines and forfeiture after con iction by final Bud3ment$

:.
&$,$t%t$o- 9

0h%t %(e the !"e#$+$# o( )$(e#t #o-!t$t t$o-%&

S8<<)ST). =NSW)05 a$ No imprisonment for nonJpayment of a poll taxG b$ Taxation shall be uniform and e"uitableG c$ Con3ress shall e ol e a pro3ressi e system of taxationG

d$ =ll appropriation, re enue or tariff bills shall ori3inate exclusi ely in the :ouse of 0epresentati es, but the Senate may propose and concur !ith amendmentsG e$ The 9resident shall ha e the po!er to eto any particular item or items in an appropriation, re enue, or tariff bill, but the eto shall not affect the item or items to !hich he does not obBectG f$ .ele3ated po!er of the 9resident to impose tariff rates, import and export "uotas, tonna3e and !harfa3e dues5 1> .ele3ation by Con3ress 2> throu3h a la! '> subBect to Con3ressional limits and restrictions A> !ithin the frame!or& of national de elopment pro3ram$ 3$ Tax exemption of charitable institutions, churches, parsona3es and con ents appurtenant thereto, mos"ues, and all lands, buildin3s and impro ements of all &inds actually, directly and exclusi ely used for reli3ious, charitable or educational purposesG h$ No tax exemption !ithout the concurrence of maBority ote of all members of Con3ressG i$ No use of public money or property for reli3ious purposes except if priest is assi3ned to the armed forces, penal institutions, 3o ernment orphana3e or leprosariumG B$ Money collected on tax le ied for a special purpose to be used only for such purpose, balance if any, to 3eneral fundsG &$ The Supreme CourtOs po!er to re ie! Bud3ments or orders of lo!er courts in all cases in ol in3 the le3ality of any tax, impose, assessment or toll or the le3ality of any penalty imposed in relation to the abo eG l$ =uthority of local 3o ernment units to create their o!n sources of re enue, to le y taxes, fees and other char3es subBect to 3uidelines and limitations imposed by Con3ress consistent !ith the basic policy of local autonomyG m$ =utomatic release of local 3o ernmentOs Bust share in national taxesG n$ Tax exemption of all re enues and assets of nonJstoc&, nonJprofit educational institutions used actually, directly and exclusi ely for educational purposesG o$ Tax exemption of all re enues and assets of proprietary or cooperati e educational institutions subBect to limitations pro ided by la! includin3 restrictions on di idends and pro isions for rein estment of profitsG p$ Tax exemption of 3rants, endo!ments, donations or contributions used actually, directly and exclusi ely for educational purposes subBect to conditions prescribed by la!$

11

:FA. No )e-$%& o+ ) e "(o#e!! whe- the (e!"o-)e-t $! 8$/e- the o""o(t -$t' to +$&e %++$)%/$t! %-) othe( "&e%)$-8! ) ($-8 the "(e&$,$-%(' $-/e!t$8%t$o-. A
(e!"o-)e-t #%--ot claim denial of due process !hen she !as 3i en the opportunity to file her affida its and other pleadin3s and submit e idence before the ./I durin3 the preliminary in esti3ation of her case and before the 1nformation !as filed a3ainst her$ .ue process is merely an opportunity to be heard$ 1n addition, preliminary in esti3ation conducted by the ./I is merely in"uisitorial$ 1t is not a trial of the case on the merits$ 1ts sole purpose is to determine !hether a crime has been committed and !hether the respondent therein is probably 3uilty of the crime$ 1t is not the occasion for the full and exhausti e display of the parties% e idence$ :ence, if the in esti3atin3 prosecutor is already satisfied that he can reasonably determine the existence of probable cause based on the parties% e idence thus presented, he may terminate the proceedin3s and resol e the case$ ?Santos v. People, et al, <$ 0$ No$
1,'1,@, =u3ust 2@, 200+ citin3 .e 3campo v. Secretary of 2ustice, <$0$ No$ <$0$ No$ 1A,9'2, 2- Ianuary 200@, A+0 SC0= ,1, +1J+2>

;FB. St%te h%! )$!#(et$o- to ,%He the #&%!!$+$#%t$o-.

1n the exercise of its po!er to ma&e classifications for the purpose of enactin3 la!s o er matters !ithin its Burisdiction, the state is reco3ni#ed as enBoyin3 a !ide ran3e of discretion$ 1t is not necessary that the classification be based on scientific or mar&ed differences of thin3s or in their relation$ Neither is it necessary that the classification be made !ith mathematical nicety$ :ence, le3islati e classification may in many cases properly rest on narro! distinctions, for the e"ual protection 3uaranty does not preclude the le3islature from reco3ni#in3 de3rees of e il or harm, and le3islation is addressed to e ils as they may appear$ FABA1A.A (uro Party List,
etc., v. Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+H

;FC. ED %& "(ote#t$o- )oe! -ot )e,%-) %*!o& te eD %&$t'. The e"ual protection clause exists to pre ent undue
fa or or pri ile3e$ 1t is intended to eliminate discrimination and oppression based on ine"uality$ 0eco3ni#in3 the existence of real differences amon3 men, the e"ual protection clause does not demand absolute e"uality$ 1t merely re"uires that all persons shall be treated ali&e, under li&e circumstances and conditions, both as to the pri ile3es conferred and liabilities enforced$ ?Santos v. People, et
al, <$ 0$ No$ 1,'1,@, =u3ust 2@, 200+ citin3 0ima#an v. People, <$0$ No$ 11'+11, , /ctober 199A, 2', SC0= -'+, --1$

;. ED %& "(ote#t$o- o+ the &%w #&% !e $! ! *?e#t to (e%!o-%*&e #&%!!$+$#%t$o-. 1f the 3roupin3s are characteri#ed by substantial distinctions that ma&e real differences, one class may be treated and re3ulated differently from another$ The classification must also be 3ermane to the purpose of the la! and must apply to all those belon3in3 to the same class$ (*iu, et al., v. Court of Appeals, et al., <$0$ No$ 12,A10, Ianuary 20, 1999>

;FA. The eD %& "(ote#t$o- o+ the &%w! #&% !e o+ the Co-!t$t t$o- %&&ow! #&%!!$+$#%t$o-. Classification in la!, as in
the other departments of &no!led3e or practice, is the 3roupin3 of thin3s in speculation or practice because they a3ree !ith one another in certain particulars$ = la! is not in alid because of simple ine"uality$ The ery idea of classification is that of ine"uality, so that it 3oes !ithout sayin3 that the mere fact of ine"uality in no manner determines the matter of constitutionality$ =ll that is re"uired of a alid classification is that it be reasonable, !hich means that the classification should be based on substantial distinctions !hich ma&e for real differences, that it must be 3ermane to the purpose of the la!G that it must not be limited to existin3 conditions onlyG and that it must apply e"ually to each member of the class$ This Court has held that the standard is satisfied if the classification or distinction is based on a reasonable foundation or rational basis and is not palpably arbitrary$ FABA1A.A
(uro Party List, etc., v. Purisima, etc., et a l$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+H

1t is imperati e to duly establish that the one in o&in3 e"ual protection and the person to !hich she is bein3 compared !ere indeed similarly situated, i.e., that they committed identical acts for !hich they !ere char3ed !ith the iolation of the same pro isions of the N10CG and that they presented similar ar3uments and e idence in their defense J yet, they !ere treated differently$ (Santos, supra'

5. 0h%t %(e the (eD $!$te! +o( the /%&$)$t' o+ % #&%!!$+$#%t$o- 9

S8<<)ST). =NSW)05 Classification, to be alid 7 must ?a> rest on substantial distinctions, ?b> be 3ermane to the purpose of the la!, ?c> not be limited to existin3 conditions only, and ?d> apply e"ually to all members of the same class$ (*iu, et al., v. Court of Appeals, et al., <$0$ No$ 12,A10, Ianuary 20, 1999>

<. The &%w 8(%-t o+ t%. %-) ) t'F+(ee !t%t ! -)e( Re". A#t No. =22=7 to (et%$&e(! $-!$)e the SSEG w$tho t 8(%-t$-8 the !%,e to tho!e o t!$)e the SSEG. 1! the(e % /$o&%t$o- o+ the eD %& "(ote#t$o- #&% !e 9

S8<<)ST). =NSW)05 There is no iolation of e"ual protection because there exists a alid classification as sho!n belo!5 a$ Si3nificant distinctions exist bet!een the t!o 3roups$ Those outside of the SS)2 maintain their business !ithin 9hilippine customs territory !hile those !ithin the SS)2 operate !ithin the soJ called Dseparate customs territory$E To 3rant the same pri ile3es !ould clearly defeat the statue%s intent to car e a territory out of the military reser ations in Subic (ay !here free flo! of 3oods and capital is maintained$ b$ The classification is 3ermane to the purpose of 0ep$ =ct No$ ,22,$ =s held in *iu, the real concern of the la! is to con ert the lands formerly occupied by the 8S military bases into economic or industrial areas$ 1n furtherance of such obBecti e, Con3ress deemed it necessary to extend economic incenti es, in terms of a complete pac&a3e of tax incenti es and other benefits, to the establishments !ithin the #one to attract and encoura3e forei3n and local in estors$ c$ The classification is not limited to the existin3 conditions !hen the la! !as promul3ated but to future conditions as !ell, inasmuch as the la! en isioned the former military reser ation to ultimately de elop into a selfJsustainin3 in estment center$ d$ The classification applies e"ually to all retailers found !ithin the Dsecured area$E =s ruled in *iu, the indi iduals and businesses !ithin the Dsecured area,E bein3 in li&e circumstances or contributin3 directly to the achie ement of the end purposes of the la!, are not cate3ori#ed further$ They are all similarly treated, both in pri ile3es 3ranted and in obli3ations re"uired$ ? Coconut 3il &efiners Association, Inc., etc., et al., v. *orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200- citin3 *iu, et al., v. Court of Appeals, et al., (.&. !o. ;<=>;?, Ianuary 20, 1999, '01 SC0= 2,+>

12

>$ ED %&$t' %-) -$+o(,$t' o+ t%.%t$o- ,%' ,e%- the !%,e %! eD %& "(ote#t$o- $ 1n such a case, the terms !ould mean that all subBects and obBects of taxation !hich are similarly situated shall be subBect to the same burdens and 3ranted the same pri ile3es !ithout any discrimination !hatsoe er$ 9. U-$+o(,$t' ,%' h%/e % (e!t($#t$/e ,e%-$-8 )$++e(e-t +(o, eD %&$t' %-) eD %& "(ote#t$o-. 1t !ould mean then that the same rate shall be imposed for the same subBects and obBects !ithin the territorial boundaries of a taxin3 authority$ 10. 1t $! $-he(e-t $- the "owe( to t%. th%t the St%te *e +(ee to !e&e#t the ! *?e#t! o+ t%.%t$o-7 and it has been repeatedly held that, Pine"ualities !hich result from a sin3lin3 out of one particular class of taxation, or exemption, infrin3e no constitutional limitation$P (Commissioner of Internal &evenue, et al., v. Santos, et al., 2,, SC0= @1,>

10FA. The &%w "(o/$)$-8 +$-%-#$%& (ew%()! to t%. #o&&e#to(! $! #o-!t$t t$o-%&. 9ublic ser ice is its o!n re!ard$
Ne ertheless, public officers may by la! be re!arded for exemplary and exceptional performance$ = system of incenti es for exceedin3 the set expectations of a public office is not anathema to the concept of public accountability$ 1n fact, it reco3ni#es and reinforces dedication to duty, industry, efficiency and loyalty to public ser ice of deser in3 3o ernment personnel$ The 8$S$ Supreme Court alidated a la! !hich a!ards to officers of the customs as !ell as other parties an amount not exceedin3 oneJhalf of the net proceeds of forfeitures in iolation of the la!s a3ainst smu33lin3$ FABA1A.A (uro Party List, etc., v.
Purisima, etc., et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+ citin3 +nite" States v. $atthe:s , 1,' 8$S$ '+1 ?1+99>H

=.1! the !t%t to(' 8(%-t o+ t%. %-) ) t'F+(ee $,"o(t%t$o- $-to the S *$# S"e#$%& E#o-o,$# Go-e /$o&%t$/e the "(e+e(e-t$%& !e #o-#e"t o+ the Co-!t$t t$o- 9
S8<<)ST). =NSW)05 No$ The mere fact that the la! authori#es the importation and trade of forei3n 3oods does not suffice to declare it unconstitutional on this 3round$ While the Constitution does not encoura3e the unlimited entry of forei3n 3oods, ser ices and in estments into the country, it does not prohibit them either$ 1n fact, it allo!s an exchan3e on the basis of e"uality and reciprocity, fro!nin3 only in forei3n competition that is unfair$ ?Coconut 3il &efiners Association, Inc., etc., et al., v. *orres, etc., et al., <$ 0$ No$ 1'2-2,, Iuly 29, 200- citin3 *ana"a v. An#ara, <$ 0$ No$ 11+29-, May 2, 199,, 2,2 SC0= 1+>

The offer of a portion of such penalties to the collectors is to stimulate and re!ard their #eal and industry in detectin3 fraudulent attempts to e ade payment of duties and taxes$ FABA1A.A (uro
Party List, etc., supra citin3 .orsheimer v. +nite" States , ,A 8$S$ 1@@ ?1+@+>H

1n the same ein, employees of the (10 and the (/C may by la! be entitled to a re!ard !hen, as a conse"uence of their #eal in the enforcement of tax and customs la!s, they exceed their re enue tar3ets$ 9ublic ser ice is its o!n re!ard$ Ne ertheless, public officers may by la! be re!arded for exemplary and exceptional performance$ = system of incenti es for exceedin3 the set expectations of a public office is not anathema to the concept of public accountability$ 1n fact, it reco3ni#es and reinforces dedication

to duty, industry, efficiency and loyalty to public ser ice of deser in3 3o ernment personnel$ ?ABA1A.A (uro Party List, etc., supra >

13

10FB. Rew%()! &%w e!t%*&$!he! !%+e8 %()! to e-! (e th%t the (ew%() !'!te, w$&& -ot #(e%te *o -t' h -te(!.
The =ttrition =ct of 2005 0= 9''- establishes safe3uards to ensure that the re!ard !ill not be claimed if it !ill be either the fruit of Dbounty huntin3 or mercenary acti ityE or the product of the irre3ular performance of official duties$ /ne of these precautionary measures is embodied in Section + of the la!5 S)C$ +$ Lia%ility of 3fficials, /6aminers an" /mployees of the BI& an" the B3C. @ The officials, examiners, and employees of the F(10H and the F(/CH !ho iolate this =ct or !ho are 3uilty of ne3li3ence, abuses or acts of malfeasance or misfeasance or fail to exercise extraordinary dili3ence in the performance of their duties shall be held liable for any loss or inBury suffered by any business establishment or taxpayer as a result of such iolation, ne3li3ence, abuse, malfeasance, misfeasance or failure to exercise extraordinary dili3ence$ ?ABA1A.A (uro Party List, etc., v. Purisima, etc., et a l$,
<$ 0$ No$ 1@@,1-, =u3ust 1A, 200+>

The e"ual protection clause reco3ni#es a alid classification, that is, a classification that has a reasonable foundation or rational basis and not arbitrary$ 1F22H With respect to 0= 9''-, its expressed public policy is the optimi#ation of the re enueJ3eneration capability and collection of the (10 and the (/C$ Since the subBect of the la! is the re enueJ 3eneration capability and collection of the (10 and the (/C, the incenti es and7or sanctions pro ided in the la! should lo3ically pertain to the said a3encies$ Moreo er, the la! concerns only the (10 and the (/C because they ha e the common distinct primary function of 3eneratin3 re enues for the national 3o ernment throu3h the collection of taxes, customs duties, fees and char3es$ (oth the (10 and the (/C are bureaus under the ./C$ They principally perform the special function of bein3 the instrumentalities throu3h !hich the State exercises one of its 3reat inherent functions L taxation$ 1ndubitably, such substantial distinction is 3ermane and intimately related to the purpose of the la!$ :ence, the classification and treatment accorded to the (10 and the (/C under 0= 9''fully satisfy the demands of e"ual protection$ FABA1A.A (uro Party
List, etc. supra >H

10FC. The (ew%()! &%w to t%. #o&&e#to(! )oe! -ot /$o&%te eD %& "(ote#t$o-. )"uality 3uaranteed under the e"ual
protection clause is e"uality under the same conditions and amon3 persons similarly situatedG it is e"uality amon3 e"uals, not similarity of treatment of persons !ho are classified based on substantial differences in relation to the obBect to be accomplished$ When thin3s or persons are different in fact or circumstance, they may be treated in la! differently$ The 3uaranty of e"ual protection of the la!s is not a 3uaranty of e"uality in the application of the la!s upon all citi#ens of the FSHtate$ 1t is not, therefore, a re"uirement, in order to a oid the constitutional prohibition a3ainst ine"uality, that e ery man, !oman and child should be affected ali&e by a statute$ )"uality of operation of statutes does not mean indiscriminate operation on persons merely as such, but on persons accordin3 to the circumstances surroundin3 them$ 1t 3uarantees e"uality, not identity of ri3hts$ The Constitution does not re"uire that thin3s !hich are different in fact be treated in la! as thou3h they !ere the same$ The e"ual protection clause does not forbid discrimination as to thin3s that are different$ 1t does not prohibit le3islation !hich is limited either in the obBect to !hich it is directed or by the territory !ithin !hich it is to operate$ FABA1A.A (uro Party List, etc., v. Purisima, etc.,
et al$, <$ 0$ No$ 1@@,1-, =u3ust 1A, 200+H

10FD. The "(o!e# t$o- o+ o-e 8 $&t' "e(!o- wh$&e othe(! eD %&&' 8 $&t' %(e -ot "(o!e# te)7 howe/e(7 $! -ot7 *' $t!e&+7 % )e-$%& o+ the eD %& "(ote#t$o- o+ the &%w!. Where
the official action purports to be in conformity to the statutory classification, an erroneous or mista&en performance of the statutory duty, althou3h a iolation of the statute, is not !ithout more a denial of the e"ual protection of the la!s$ The unla!ful administration by officers of a statute fair on its face, resultin3 in its une"ual application to those !ho are entitled to be treated ali&e, is not a denial of e"ual protection unless there is sho!n to be present in it an element of intentional or purposeful discrimination$ This may appear on the face of the action ta&en !ith respect to a particular class or person, or it may only be sho!n by extrinsic e idence sho!in3 a discriminatory desi3n o er another not to be inferred from the action itself$ (ut a discriminatory purpose is not presumed, there must be a sho!in3 of Dclear and intentional discrimination$ FSantos v. People,
et al, <$ 0$ No$ 1,'1,@, =u3ust 2@, 200+ citin3 People v. .ela Pie"ra, A0' 9hil$ '1, -AJ-@ ?2001>H

10FE. The(e $! -o )e-$%& o+ eD %& "(ote#t$o- whe(e the "(o!e# t$o- e.e(#$!e! $t! )$!#(et$o- $- )ete(,$-$-8 "(o*%*&e #% !e. The discretion of !ho to prosecute depends on
the prosecution%s sound assessment !hether the e idence before it
1

can Bustify a reasonable belief that a person has committed an offense$ The presumption is that the prosecutin3 officers re3ularly performed their duties, and this presumption can be o ercome only by proof to the contrary, not by mere speculation$ There must be e idence to o ercome this presumption$ The mere alle3ation a Cebuana, !as char3ed !ith the commission of a crime, !hile a 2amboan3ueQa, !as not, is insufficient to support a conclusion that the prosecution officers acted in denial of the e"ual protection of the la!s$ ?Santos v. People, et al, <$ 0$ No$ 1,'1,@, =u3ust 2@, 200+>

14

additional burdens upon one class and release the burdens of another, still the tax must be paid unless prohibited by the constitution, nor can it be said that it impairs the obli3ations of any existin3 contract in its true and le3al sense$ (*olentino v. Secretary of -inance, et al., an" companion cases, 2'- SC0= @'0> 1:. U-)e( the -ow "(e/%$&$-8 Co-!t$t t$o-7 whe(e the(e $! -e$the( % 8(%-t -o( "(oh$*$t$o- *' !t%t te7 the t%.$-8 "owe( o+ &o#%& 8o/e(-,e-t! , !t *e )ee,e) to e.$!t %&tho 8h Co-8(e!! ,%' "(o/$)e !t%t to(' &$,$t%t$o-! %-) 8 $)e&$-e! in order to safe3uard the iability and selfJsufficiency of local 3o ernment units by directly 3rantin3 them 3eneral and broad tax po!ers$ ? City (overnment of San Pa%lo, La#una, et al., v. &eyes, et al., <$0$ No$ 12,,0+, March 2-, 1999>

10F4. ED %& "(ote#t$o- !ho &) -ot *e !e) to "(ote#t #o,,$!!$o- o+ #($,e$ While all persons accused of crime are to
be treated on a basis of e"uality before the la!, it does not follo! that they are to be protected in the commission of crime$ 1t !ould be unconscionable, for instance, to excuse a defendant 3uilty of murder because others ha e murdered !ith impunity$ The remedy for une"ual enforcement of the la! in such instances does not lie in the exoneration of the 3uilty at the expense of society x x x$ 9rotection of the la! !ill be extended to all persons e"ually in the pursuit of their la!ful occupations, but no person has the ri3ht to demand protection of the la! in the commission of a crime$ 4i&e!ise, FiHf the failure of prosecutors to enforce the criminal la!s as to some persons should be con erted into a defense for others char3ed !ith crime, the result !ould be that the trial of the district attorney for nonfeasance !ould become an issue in the trial of many persons char3ed !ith heinous crimes and the enforcement of la! !ould suffer a complete brea&do!n$ ?Santos v. People, et al, <$
0$ No$ 1,'1,@, =u3ust 2@, 200+>

1:FA. 4(%-#h$!e t%. $! % )$(e#t t%.. The franchise tax is a percenta3e tax imposed only on franchise holders$ 1t is imposed under Section 119 of the Tax Code and is a direct liability of the franchise 3rantee$ ?Quezon City, et al., v. ABS CB! Broa"castin# Corporation , <$ 0$ No$ 1@@A0+, /ctober @, 200+$ The author opines that since practically all franchises 3ranted to telecommunications companies are similarly !orded that the abo e doctrine finds application to the others$>
1;. The Lo#%& 2o/e(-,e-t Co)e e."&$#$t&' % tho($Be! "(o/$-#e! %-) #$t$e!7 -otw$th!t%-)$-8 %-' e.e,"t$o- 8(%-te) *' %-' &%w o( othe( !"e#$%& &%w to $,"o!e % t%. o- * !$-e!!e! e-?o'$-8 % +(%-#h$!e. 1ndicati e of the le3islati e intent to carry out the constitutional mandate of estin3 broad tax po!ers to local 3o ernment units, the 4ocal <o ernment Code has !ithdra!n tax exemptions or incenti es theretofore enBoyed by certain entities$ (City (overnment of San Pa%lo, La#una, et al., v. &eyes, et al., <$0$ No$ 12,,0+, March 2-, 1999> 15. Philippine Lon# .istance *elephone Company, Inc., v. City of .avao, et al., etc., (. &. !o. ;>ABC=, Au#ust <<, <??;, upheld the authority of the City of .a ao, a local 3o ernment unit, to impose and collect a local franchise tax because the 4ocal <o ernment has !ithdra!n all tax exemptions pre iously enBoyed by all persons and authori#ed local 3o ernment units to impose a tax on business enBoyin3 a franchise tax not!ithstandin3 the 3rant of tax exemption to them$

11. A +$.e) %-- %& &$#e-!e +ee o- tho!e e-8%8e) $- the * !$-e!! o+ 8e-e(%& e-te("($!e w%! %&!o $,"o!e) o- the !%&e o+ *$*&e! *' % (e&$8$o ! !e#t. 1! th$! /%&$) o( /$o&%t$/e o+ the #o-!t$t t$o-%&&' 8 %(%-tee) +(ee)o, o+ (e&$8$o- 9 S8<<)ST). =NSW)05 1t is not alid because it iolates the constitutionally 3uaranteed freedom of reli3ion$ =s a license fee is fixed in amount and unrelated to the receipts of the taxpayer, such a license fee, !hen applied to a reli3ious sect is actually imposed as a condition for the free exercise of reli3ion$ = license fee Drestrains in ad ance those constitutional liberties of press and reli3ion and ine itably tends to suppress their exercise$E 12. A &%w+ & t%. o- % -ew ! *?e#t7 o( %- $-#(e%!e) t%. o%- o&) o-e7 )oe! -ot $-te(+e(e w$th % #o-t(%#t o( $,"%$(! $t! o*&$8%t$o- , !ithin the meanin3 of the constitution$ ) en thou3h such taxation may affect particular contracts, as it may increase the debt of one person and lessen the security of another, or may impose

E."&%$- the #o-#e"t o+ the "%(%)$8, !h$+t $- &o#%& 8o/e(-,e-t t%.%t$o-.

S8<<)ST). =NSW)05 D9aradi3m shiftE from exclusi e Con3ressional po!er to direct 3rant of taxin3 po!er to local le3islati e bodies$ The po!er to tax is no lon3er ested exclusi ely on Con3ressG local le3islati e bodies are no! 3i en direct authority to le y taxes, fees and other char3es pursuant to =rticle ;, section - of the 19+, Constitution$ ?Batan#as Po:er Corporation v. Batan#as City, et al. <$ 0$ No$ 1-2@,-, and companion case, =pril 2+, 200A citin3 !ational Po:er Corporation v. City of Ca%anatuan, <$ 0$ No$ 1A9110, =pril 9, 200'> 1=. The + -)%,e-t%& &%w )$) -ot $-te-) the )$(e#t 8(%-t to &o#%& 8o/e(-,e-t -$t! to *e %*!o& te %-) -#o-)$t$o-%& , the constitutional obBecti e ob iously is to ensure that, !hile local 3o ernment units are bein3 stren3thened and made more autonomous, the le3islature must still see to it that5 a$ the taxpayer !ill not be o erJburdened or saddled !ith multiple and unreasonable impositionsG b$ each local 3o ernment unit !ill ha e its fair share of a ailable resourcesG c$ the resources of the national 3o ernment !ill be unduly disturbedG and d$ local taxation !ill be fair, uniform and Bust$ ? $anila /lectric Company v. Province of La#una, et al., <$0$ No$ 1'1'-9, May -, 1999>

1<.

15

1=FB. 4 (the( %,"&$+$#%t$o- *' Be(-%! o+ the &o#%& 8o/e(-,e-tE! "owe( to t%.. DWhat is the effect of Section - on
the fiscal position of municipal corporationsR Section - does not chan3e the doctrine that municipal corporations do not possess inherent po!ers of taxation$ What it does is to confer municipal corporations a 3eneral po!er to le y taxes and other!ise create sources of re enue$ They no lon3er ha e to !ait for a statutory 3rant of these po!ers$ The po!er of the le3islati e authority relati e to the fiscal po!ers of local 3o ernments has been reduced to the authority to impose limitations on municipal po!ers$ Moreo er, these limitations must be Dconsistent !ith the basic policy of local autonomy$E The important le3al effect of Section - is thus to re erse the principle that doubts are resol ed a3ainst municipal corporations$ :enceforth, in interpretin3 statutory pro isions on municipal fiscal po!ers, doubts !ill be resol ed in fa or of municipal corporations$ 1t is understood, ho!e er, that taxes imposed by local 3o ernment must be for a public purpose, uniform !ithin a locality, must not be confiscatory, and must be !ithin the Burisdiction of the local unit to pass$E ?Quezon City, et al., v. ABS CB! Broa"castin#
Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+ citin3 City (overnment of Quezon City, et al. v. Bayan *elecommunications, Inc., <$0$ No$ 1@201-, March @, 200@, A+A SC0= 1@9>

1=FC. Re#o-#$&$%t$o- o+ the &o#%& 8o/e(-,e-tE! % tho($t' to t%. %-) the Co-8(e!!$o-%& 8e-e(%& t%.$-8 "owe(. Con3ress has the inherent po!er to tax, !hich includes the
po!er to 3rant tax exemptions$ /n the other hand, the po!er of local 3o ernments, such as pro inces and cities for example Sue#on City, to tax is prescribed by Section 1-1 in relation to Section 1', of the 4<C !hich expressly pro ides that not!ithstandin3 any exemption 3ranted by any la! or other special la!, the City or a pro ince may impose a franchise tax$ 1t must be noted that Section 1', of the 4<C does not prohibit 3rant of future exemptions$

1=FA. T%.$-8 "owe( o+ the &o#%& 8o/e(-,e-t $! &$,$te). The taxin3 po!er of local 3o ernments is limited in the
sense that Con3ress can enact le3islation 3rantin3 tax exemptions$ While the system of local 3o ernment taxation has chan3ed !ith the onset of the 19+, Constitution, the po!er of local 3o ernment units to tax is still limited$ While the po!er to tax by local 3o ernments may be exercised by local le3islati e bodies, no lon3er merely be irtue of a alid dele3ation as before, but pursuant to direct authority conferred by Section -, =rticle ; of the Constitution, the basic doctrine on local taxation remains essentially the same, Dthe po:er to ta6 is EstillF primarily veste" in the Con#ress.G ?Quezon City, et al., v. ABS CB!
Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+ citin3 City (overnment of Quezon City, et al. v. Bayan *elecommunications, Inc., <$0$ No$ 1@201-, March @, 200@, A+A SC0= 1@9 in turn referrin3 to $actan Ce%u International Airport Authority, v. $arcos, <$0$ No$ 1200+2, September 11, 199@, 2@1 SC0= @@,, @+0'

The Supreme Court in a series of cases has sustained the po!er of Con3ress to 3rant tax exemptions o er and abo e the po!er of the local 3o ernment%s dele3ated po!er to tax$ ?Quezon
City, et al., v. ABS CB! Broa"castin# Corporation , <$ 0$ No$ 1@@A0+, /ctober @, 200+ citin3 City (overnment of Quezon City, et al. v. Bayan *elecommunications, Inc., <$0$ No$ 1@201-, March @, 200@, A+A SC0= 1@>

D1ndeed, the 3rant of taxin3 po!ers to local 3o ernment units under the Constitution and the 4<C does not affect the po!er of Con3ress to 3rant exemptions to certain persons, pursuant to a declared national policy$ The le3al effect of the constitutional 3rant to local 3o ernments simply means that in interpretin3 statutory pro isions on municipal taxin3 po!ers, doubts must be resol ed in

fa or of municipal corporations$E F I%i"., referrin3 to Philippine Lon# .istance *elephone Company, Inc. (PL.*' vs. City of .avaoF 1>. The w$th)(%w%& o+ % t%. e.e,"t$o- !ho &) -ot *e #o-!t( e) %! "(oh$*$t$-8 + t (e 8(%-t! o+ e.e,"t$o- +(o, %&& t%.e!. 1ndeed, the 3rant of taxin3 po!ers to local 3o ernment units under the 4ocal <o ernment Code does not affect the po!er of Con3ress to 3rant exemptions to certain persons, pursuant to a declared national policy$ The le3al effect of the constitutional 3rant to local 3o ernments simply means that in interpretin3 statutory pro isions on municipal taxin3 po!ers, doubts must be resol ed in fa or of municipal corporations$ (Philippine Lon# .istance *elephone Company, Inc., v. City of .avao, et al., etc., <$ 0$ No$ 1A'+@,, =u3ust 22, 2001>

16

franchises concernin3 territory co ered by the franchise, the life span of the franchise, or the type of ser ice authori#ed by the franchise$E ?8nderscorin3 supplied> the(e w%! -o $-te-t$o- +o( $t to o"e(%te %! % *&%-Het t%. e.e,"t$o- to %&& te&e#o,, -$#%t$o-! e-t$t$e!. =pplyin3 the rule of strict construction of la!s 3rantin3 tax exemptions and the rule that doubts should be resol ed in fa or of municipal corporations in interpretin3 statutory pro isions on municipal taxation, it !as held that said pro isions cannot be considered as extendin3 its application to franchises such as that of 94.T$ (Philippine Lon# .istance *elephone Company, Inc., v. City of .avao, et al., etc$, <$ 0$ No$ 1A'+@,, =u3ust 22, 2001'

19FA. 1- &$e o+ %&& t%.e! $- the +(%-#h$!e o+ ABSFCBN )oe! -ot e.e,"t $t +(o, &o#%& +(%-#h$!e t%.e!. The Din lieu
of all taxesE pro ision in the franchise of =(SJC(N does not expressly pro ide !hat &ind of taxes =(SJC(N is exempted from$ 1t is not clear !hether the exemption !ould include both local, !hether municipal, city or pro incial, and national tax$ Whether the Din lieu of all taxes pro isionE !ould include exemption from local tax is not une"ui ocal$ The ri3ht 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$ *erily, the uncertainty in the Din lieu of all taxesE pro ision should be construed a3ainst =(SJC(N$ =(SJC(N has the burden to pro e that it is in fact co ered by the exemption so claimed but has failed to do so $
?Quezon City, et al., v. ABS CB! Broa"castin# Corporation , <$ 0$ No$ 1@@A0+, /ctober @, 200+$ This is practically the same holdin3 in an earlier case in ol in3 another telecommunications company$ Smart Communications, 1nc$ $ The City of .a ao, etc$, et al$, <$ 0$ No$ 1--A91, September 1@, 200+$ The author opines that since practically all franchises 3ranted to telecommunications companies are similarly !orded that the abo e doctrine finds application to the others$>

1>FA. T%. e.e,"t$o-! $- +(%-#h$!e! %(e %&w%'! ! *?e#t to w$th)(%w%&. Moreo er, Smart%s franchise !as 3ranted
!ith the express condition that it is subBect to amendment, alteration, or repeal$ ?19+, C/NST1T8T1/N, =rt$ ;11, Sec$ 11> 1t is enou3h to say that the parties to a contract cannot, throu3h the exercise of prophetic discernment, fetter the exercise of the taxin3 po!er of the State$ Cor not only are existin3 la!s read into contracts in order to fix obli3ations as bet!een parties, but the reser ation of essential attributes of so erei3n po!er is also read into contracts as a basic postulate of the le3al order$ The policy of protectin3 contracts a3ainst impairment presupposes the maintenance of a 3o ernment !hich retains ade"uate authority to secure the peace and 3ood order of society$ 1n truth, the Contract Clause has ne er been thou3ht as a limitation on the exercise of the State%s po!er of taxation sa e only !here a tax exemption has been 3ranted for a alid consideration$ Smart Communications, 1nc$ $ The City of .a ao, etc$, et al$, <$ 0$ No$ 1--A91, September 1@, 200+ citin3 *olentino v. Secretary of -inance, <$ 0$ No$ 11-A--, =u3ust 2-, 199A, 2'- SC0= @'0, @+-$ The author opines that since practically all franchises 3ranted to telecommunications companies are similarly !orded that the abo e doctrine finds application to the others> 19. 0he- Co-8(e!! %""(o/e) % "(o/$!$o- that, D=ny ad anta3e, fa or, pri ile3e, exemption, or immunity 3ranted under existin3 franchises, or may hereafter be 3ranted, shall ipso facto become part of pre iously 3ranted telecommunications franchises and shall be accorded immediately and unconditionally to the 3rantees of such franchises5 9ro ided, ho!e er, That the fore3oin3 shall neither apply to nor affect pro isions of telecommunications

19FB. 1- &$e o+ %&& t%.e! (e+e(! to -%t$o-%& $-te(-%& (e/e- e t%.e! %-) -ot to &o#%& t%.e!. The Din lieu of all taxesE
clause applies only to national internal re enue taxes and not to local taxes$ =s appropriately pointed out in the separate opinion of Iustice =ntonio T$ Carpio in a similar case in ol in3 a demand for exemption from local franchise taxes5 FTHhe Pin lieu of all taxesP clause in SmartOs franchise refers only to taxes, other than income tax, imposed under the National 1nternal 0e enue Code$ The Pin lieu of all taxesP clause does not apply to local taxes$ The pro iso in the first para3raph of Section 9 of SmartOs franchise states that the 3rantee shall Pcontinue to be liable for income taxes payable under Title 11 of the National 1nternal

0e enue Code$P =lso, the second para3raph of Section 9 spea&s of tax returns filed and taxes paid to the PCommissioner of 1nternal 0e enue or his duly authori#ed representati e in accordance !ith the National 1nternal 0e enue Code$P Moreo er, the same para3raph declares that the tax returns Pshall be subBect to audit by the (ureau of 1nternal 0e enue$P Nothin3 is mentioned in Section 9 about local taxes$ The clear intent is for the Pin lieu of all taxesP clause to apply only to taxes under the National 1nternal 0e enue Code and not to local taxes$ ) en !ith respect to national internal re enue taxes, the Pin lieu of all taxesP clause does not apply to income tax$ 1f Con3ress intended the Pin lieu of all taxesP clause in SmartOs franchise to also apply to local taxes, Con3ress !ould ha e expressly mentioned the exemption from municipal and pro incial taxes$ Con3ress could ha e used the lan3ua3e in Section 9?b> of Cla ecillaOs old franchise, as follo!s5 x x x in lieu of any and all taxes of any &ind, nature or description le ied, established or collected by any authority !hatsoe er, municipal, provincial or national, from !hich the 3rantee is hereby expressly exempted, x x x$ ?)mphasis supplied>$ :o!e er, Con3ress did not expressly exempt Smart from local taxes$ Con3ress used the Pin lieu of all taxesP clause only in reference to national internal re enue taxes$ The only interpretation, under the rule on strict construction of tax exemptions, is that the Pin lieu of all taxesP clause in SmartOs franchise refers only to national and not to local taxes$ FSmart Communications, 1nc$ $ The City of
.a ao, etc$, et al$, <$ 0$ No$ 1--A91, September 1@, 200+ citin3 Philippine Lon# .istance *elephone Company, Inc. v. City of .avao , AA, 9hil$ -,1, -9A ?200'>H

17

19FD. H$!to($#%& *%#H8(o -) o- wh' ABSFCBN $! ! *?e#t to VAT %-) -ot to the +(%-#h$!e t%.. =t the time of
the enactment of its franchise on May ', 199-, =(SJC(N !as subBect to '6 franchise tax under Section 11,?b> of the 19,, National 1nternal 0e enue Code ?N10C>, as amended$ /n Ianuary 1, 199@, 0$=$ No$ ,,1@, other!ise &no!n as the )xpanded *alue =dded Tax 4a!, too& effect and subBected to *=T those ser ices rendered by radio and7or broadcastin3 stations$ Notably, under the same la!, Dtelephone and7or tele3raph systems, broadcastin3 stations and other franchise 3ranteesE !ere omitted from the list of entities subBect to franchise tax$ The impression !as that these entities !ere subBect to 106 *=T but not to franchise tax$ Subse"uently, 0$=$ No$ +2A1 too& effect on Ianuary 1, 199, containin3 more amendments to the N10C$ 0adio and7or tele ision companies !hose annual 3ross receipts )o -ot e.#ee) 910,000,000$00 !ere 3ranted the option to choose bet!een payin3 '6 national franchise tax or 106 *=T /n the other hand, radio and7or tele ision companies !ith yearly 3ross receipts e.#ee)$-8 910,000,000$00 !ere subBect to 106 *=T, pursuant to Section 102 of the N10C$ /n Ianuary 1, 199+, 0$=$ No$ +A2A !as passed confirmin3 the 106 *=T liability of radio and7or tele ision companies !ith yearly 3ross receipts exceedin3 910,000,000$00$ 0$=$ No$ 9'', !as subse"uently enacted and became effecti e on Iuly 1, 200-$ The said la! further amended the N10C by increasin3 the rate of *=T to 126$ The effecti ity of the imposition of the 126 *=T !as later mo ed from Ianuary 1, 200@ to Cebruary 1, 200@$ 1n consonance !ith the abo e sur ey of pertinent la!s on the matter, =(SJC(N is subBect to the payment of *=T$ 1t does not ha e the option to choose bet!een the payment of franchise tax or *=T since it is a broadcastin3 company !ith yearly 3ross receipts exceedin3 Ten Million 9esos ?910,000,000$00>$ ?Quezon City, et
al., v. ABS CB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+$ The author opines that since practically all franchises 3ranted to telecommunications companies are similarly !orded that the abo e doctrine finds application to the others$>

19FC. The $- &$e o+ %&& t%.e! #&% !e $- the +(%-#h$!e o+ ABSFCBN h%! *e#o,e + -#t ! o++$#$o w$th the %*o&$t$oo+ the +(%-#h$!e t%. o- *(o%)#%!t$-8 #o,"%-$e! w$th 'e%(&' 8(o!! (e#e$"t! e.#ee)$-8 Te- M$&&$o- Pe!o!. The
clause Din lieu of all taxesE does not pertain to *=T or any other tax$ 1t cannot apply !hen !hat is paid is a tax other than a franchise tax$ Since the franchise tax on the broadcastin3 companies !ith yearly 3ross receipts exceedin3 ten million pesos has been abolished, the Din lieu of all taxesE clause has no! become functus officio, rendered inoperati e$ ?Quezon City, et al., v. ABS CB! Broa"castin# Corporation ,
<$ 0$ No$ 1@@A0+, /ctober @, 200+$ This is practically the same holdin3 in an earlier case in ol in3 another telecommunications company$ Smart Communications, 1nc$ $ The City of .a ao, etc$, et al$, <$ 0$ No$ 1--A91, September 1@, 200+$ The author opines that since practically all franchises 3ranted to telecommunications companies are similarly !orded that the abo e doctrine finds application to the others$>

20. Do *&e t%.%t$o- $- $t! 8e-e($# !e-!e7 th$! ,e%-! t%.$-8 the !%,e ! *?e#t o( o*?e#t tw$#e ) ($-8 the !%,e t%.%*&e "e($o). 1n its particular sense, it may mean direct duplicate taxation, !hich is prohibited under the constitution because it iolates the concept of e"ual protection, uniformity and e"uitableness of taxation$ 1ndirect duplicate taxation is not anathemati#ed by the abo e constitutional limitations$

 21.
t%.%t$o- 9

18

0h%t %(e the e&e,e-t! o+ )$(e#t ) "&$#%te

S8<<)ST). =NSW)05 a$ Same 1> SubBect or obBect is taxed t!ice 2> by the same taxin3 authority '> for the same taxin3 purpose A> durin3 the same taxable period b$ Taxin3 all of the subBects or obBects for the first time !ithout taxin3 all of them for the second time$ 1f any of the elements are absent then there is indirect duplicate taxation !hich is not prohibited by the constitution$ N/T)S =N. C/MM)NTS5 a$ P(e!e-#e o+ the 2-) e&e,e-t /$o&%te! the eD %& "(ote#t$o- #&% !e. 1f only the 1st element is present, taxin3 the same subBect or obBect t!ice, by the same taxin3 authority, etc$, there is no iolation of the e"ual protection clause because all subBects and obBects that are similarly situated are subBect to the same burdens and 3ranted the same pri ile3es !ithout any discrimination !hatsoe er, The presence of the 2nd element, taxin3 all of the subBects and obBects for the first time, !ithout taxin3 all for the second time, results to discrimination amon3 subBects and obBects that are similarly situated, hence iolati e of the e"ual protection clause$ 22. Do *&e t%.%t$o- % /%&$) )e+e-!e %8%$-!t the &e8%&$t' o+ % t%. ,e%! (e $+ the )o *&e t%.%t$o- $! )$(e#t ) "&$#%te t%.%t$o- , because it !ould iolate the e"ual protection clause of the constitution$ 2:. 0he- %- $te, o+ $-#o,e $! t%.e) $- the Ph$&$""$-e! %-) the !%,e $-#o,e $! t%.e) $- %-othe( #o -t('7 th$! wo &) *e H-ow- %! $-te(-%t$o-%& ? ($)$#%& )o *&e t%.%t$o- !hich is the imposition of comparable taxes in t!o or more states on the same taxpayer in respect of the same subBect matter and for identical 3rounds$ (Commissioner of Internal &evenue v. S.C. 2ohnson an" Son, Inc., et al., <$0$ No$ 12,10-, Iune 2-, 1999>

b$ Tax credits !here forei3n taxes are allo!ed as deductions from local taxes that are due to be paid$ c$ =llo!in3 forei3n taxes as a deduction from 3ross income$ 25. T%. #(e)$t 3enerally refers to an amount that is subtracted directly from one%s total tax liability, an allo!ance a3ainst the tax itself, or a deduction from !hat is o!ned$ = tax credit reduces the tax due, includin3 L!hene er applicable L the income tax that is determined after applyin3 the correspondin3 tax rates to taxable income$ ?Commissioner of Internal &evenue v. Central Luzon .ru# Corporation, <$ 0$ No$ 1-9@A,, =pril 1-, 200-> 2<. A t%. )e) #t$o- is defined as a subtraction fro income for tax purposes, or an amount that is allo!ed by la! to reduce income prior to the application of the tax rate to compute the amount of tax !hich is due$ = tax deduction reduces the income that is subBect to tax in order to arri e at taxable income$ ? Commissioner of Internal &evenue v. Central Luzon .ru# Corporation, <$ 0$ No$ 1-9@A,, =pril 1-, 200->

2;. 0h%t %(e the ,etho)! +o( %/o$)$-8 )o *&e t%.%t$o- @$-)$(e#t ) "&$#%te t%.%t$o-A 9
S8<<)ST). =NSW)05 The follo!in3 are the methods of a oidin3 double taxation5 a$ Tax treaties !hich exempts forei3n nationals from local taxation and local nationals from forei3n taxation under the principle of reciprocity$

2=. The "et$t$o-e(! %&&e8e th%t the RFVAT &%w $! #o-!t$t t$o-%& *e#% !e the B$#%,e(%& Co-+e(e-#e Co,,$tte) h%! e.#ee)e) $t! % tho($t' $- $-#& )$-8 "(o/$!$o-! wh$#h we(e -e/e( $-#& )e) $- the /e(!$o-! o+ *oth the Ho !e %-) Se-%te ! #h %! $-!e(t$-8 the !t%-)F*' % tho($t' to the P(e!$)e-t to $-#(e%!e the VAT +(o, 10I to 12IK )e&et$-8 e-t$(e&' the -o "%!!Fo- "(o/$!$o-! +o -) $*oth the Ho !e %-) Se-%te B$&&!K $-!e(t$-8 the "(o/$!$o$,"o!$-8 % =0I &$,$t o- the %,o -t o+ $-" t t%. to *e #(e)$te) %8%$-!t the o t" t t%.K %-) $-#& )$-8 the %,e-),e-t! $-t(o) #e) o-&' *' Se-%te B$&& No. 1950 (e8%()$-8 othe( H$-)! o+ t%.e! $- %))$t$o- to the /%& eF %))e) t%.. Th !7 the(e w%! % /$o&%t$o- o+ the #o-!t$t t$o-%& ,%-)%te th%t (e/e- e *$&&! !h%&& o($8$-%te e.#& !$/e&' +(o, the Ho !e o+ Re"(e!e-t%t$/e!. A(e the #o-te-t$o-! o+ ! #h we$8ht %! to #o-!t$t te 8(%/e %* !e o+ )$!#(et$o- wh$#h ,%' $-/%&$)%te the &%w 9 E."&%$- *($e+&'.
S8<<)ST). =NSW)05 No$ There !as no 3ra e abuse of discretion because all the chan3es and modifications made by the (icameral Conference Committee !ere 3ermane to subBects of the pro isions referred to it for reconciliation$

The (icameral Conference Committee merely exercised the Budicially reco3ni#ed lon3Jstandin3 le3islati e practice of 3i in3 said conference committee ample latitude for compromisin3 differences bet!een the Senate and the :ouse$ F A%a4a"a (uro Party List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200- and companion cases citin3 Philippine 2u"#es Association v. Par"o, <$ 0$ No$ 10-',1, No ember 11, 199', 22, SC0= ,0'G *olentino v. Secretary of -inance, et al., <$ 0$ No$ 11-A--, =u3ust 2-, 199A, 2'-SC0= @'0H

19

a tax amnesty, similar to a tax exemption, must be construed strictly a3ainst the taxpayer and liberally in fa or of the taxin3 authority$ ?Philippine Ban4in# Corporation, etc., v. Commissioner of Internal &evenue, (. &. !o. ;=?H=>, 2anuary A?, <??I citin3 Commissioner of Internal &evenue v. $aru%eni Corp., A2' 9hil$ +@2, +,A ?2001>$ 1FA. The " ("o!e o+ t%. %,-e!t' is to a$ 3i e tax e aders !ho !ish to relent a chance to start a clean slate, and to b$ 3i e the 3o ernment a chance to collect uncollected tax from tax e aders !ithout ha in3 to 3o throu3h the tedious process of a tax case$ (Banas, 2r. v. Court of Appeals, et al., <$0$ No$ 1029@,, Cebruary 10, 2000' 2. D$!t$-8 $!h t%. %,-e!t' +(o, t%. e.e,"t$o-. S8<<)ST). =NSW)05 a$ Tax amnesty is an immunity from all criminal, ci il and administrati e liabilities arisin3 from nonpayment of taxes ? People v. Castane"a, <$0$ No$ 4JA@++1, September 1-, 19++> W:14) a tax exemption is an immunity from ci il liability only$ 1t is an immunity or pri ile3e, a freedom from a char3e or burden to !hich others are subBected$ (-lorer v. Sheri"an, ;A= In". <B, AC !/ ACH' b$ Tax amnesty applies only to past tax periods, hence of retroacti e application (Castane"a, supra> W:14) tax exemption has prospecti e application$ :. De+$-e t%. %/o$)%-#e %-) t%. e/%!$o- . S8<<)ST). =NSW)05 Tax a oidance is the use of le3ally permissible means to reduce the tax !hile tax e asion is the use of ille3al means to escape the payment of taxes$ N/T)S =N. C/MM)NTS5 a$ T%. e/%!$o- #o--ote! the $-te8(%t$o- o+ th(ee +%#to(!: 1> the end to be achie ed, i$e$, the payment of less than that &no!n by the taxpayer to be le3ally due, or the nonJ payment of tax !hen it is sho!n that a tax is dueG 2> an accompanyin3 state of mind !hich is described as bein3 De ilE on Dbad faith,E D!illful,E or Edeliberate and not accidentalEG and '> a course of action or failure of action !hich is unla!ful$ ?Commissioner of Internal &evenue v. *he /state of Beni#no P. *o"a, 2r., , etc., <$ 0$ No$ 1A,1++, September 1A, 200A>

2>. The VAT $! %!!%$&e) %! *e$-8 (e8(e!!$/e %-) the(e+o(e /$o&%t$/e o+ the ,%-)%te to e/o&/e % "(o8(e!!$/e !'!te, o+ t%.%t$o-. Do 'o %8(ee 9 E."&%$- 'o ( %-!we(.
S8<<)ST). =NSW)05 No$ The *=T does not iolate the pro3ressi e system of taxation$ The mandate to Con3ress is not to prescribe but to e ol e a pro3ressi e system of taxation$ /ther!ise, sales taxes !hich perhaps are the oldest form of indirect taxes, !ould ha e been prohibited !ith the proclamation of the constitutional pro ision$ Sales taxes are also re3ressi e$ $ F A%a4a"a (uro Party List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200and companion cases citin3 *olentino v. Secretary of -inance, et al., <$ 0$ No$ 11-A--, =u3ust 2-, 199A, 2'- SC0= @'0H 29. A&& (e/e- e! %-) %!!et! o+ -o-F!to#H7 -o-F"(o+$t e) #%t$o-%& $-!t$t t$o-! th%t %(e %#t %&&'7 )$(e#t&' %-) e.#& !$/e&' !e) +o( e) #%t$o-%& " ("o!e! !h%&& *e e.e,"t +(o, t%.%t$o-. :0$ Re/e- e! %-) %!!et! o+ "(o"($et%(' e) #%t$o-%& $-!t$t t$o-!7 $-#& )$-8 tho!e wh$#h %(e #oo"e(%t$/e&' ow-e)7 ,%' *e e-t$t&e) to e.e,"t$o-! ! *?e#t to &$,$t%t$o-! "(o/$)e) *' &%w $-#& )$-8 (e!t($#t$o-! o- )$/$)e-)! %-) "(o/$!$o-! +o( (e$-/e!t,e-t!. There is no la! at the present !hich 3rants exemptions, other the exemptions 3ranted to cooperati es$ OTHER CONCEPTS 1. 0h%t $! % t%. %,-e!t' 9 S8<<)ST). =NSW)05 = tax amnesty is a 3eneral pardon or intentional o erloo&in3 by the State of its authority to impose penalties on persons other!ise 3uilty of e asion or iolation of a re enue or a tax la!$ 1t parta&es of an absolute !ai er by the 3o ernment of its ri3ht to collect !hat is due it and to 3i e tax e aders !ho !ish to relent a chance to start !ith a clean slate$ = tax amnesty, much li&e a tax exemption, is ne er fa ored nor presumed in la!$ The 3rant of

 ;.
%-) t%. e/%!$o-.

20

D$!t$-8 $!h *etwee- the t%. %/o$)%-#e

S8<<)ST). =NSW)05 a$ Tax a oidance is le3al !hile tax e asion is ille3al$ b$ The obBecti e of tax a oidance in most instances is merely to reduce the tax that is due !hile is tax e asion the obBect is to entirely escape the payment of taxes$ c$ Tax e asion !arrants the imposition of ci il, administrati e and criminal penalties !hile tax a oidance does not$ 5. 0h%t %(e the (e%!o-! wh' -%t$o-%& t%.e! #%--ot *e the ! *?e#t o+ #o,"e-!%t$o- %-) !etFo++ w$th )e*t! 9 S8<<)ST). =NSW)05 a$ The lifeblood theoryG b$ Taxes are not contractual obli3ations but arise out of a duty to, and are the positi e acts of 3o ernment, to the ma&in3 and enforcin3 of !hich the personal consent of the indi idual taxpayer is not re"uired$ (&epu%lic v. $am%ulao Lum%er Co., A SC0= @22> c$ The 3o ernment and the taxpayer are not mutually creditors and debtors of each other and a claim for taxes is no such debt, demand, contract or Bud3ment as is allo!ed to be setJoff$ (Calte6 Philippines, Inc. v. Commission on Au"it, 20+ SC0= ,2@, ,-@> <. Co,"e-!%t$o- ta&es place by operation of la!, !here the local 3o ernment and the taxpayer are in their o!n ri3ht reciprocally debtors and creditors of each other, and that the debts are both due and demandable, in conse"uence of =rticles 12,+ and 12,9 of the Ci il Code$ (.omin#o v. (arlitos, + SC0= AA'> =. 1- #%!e o+ % t%. o/e("%',e-t7 whe(e the B1RE! o*&$8%t$o- to (e+ -) o( !etFo++ %($!e! +(o, the ,o,e-t the t%. w%! "%$) -)e( the "($-#$"&e o+ solutio indebeti. (Commissioner of Internal &evenue v. /sso Stan"ar" /astern, Inc, 1,2 S0C= '@A>

t(%-!+e(($-8 the * ()e- to !o,eo-e e&!e. )xamples are indi idual and corporate income taxes, transfer taxes, and residence taxes$ ?A%a4a"a (uro Party List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200- and companion cases, citin3 $ace"a v. $acarai#, 2r., <$0$ No$ ++291, Iune +, 199', 22' SC0= 21,> 10. The ,%$- )$++e(e-#e *etwee- )$(e#t t%.e! %-) $-)$(e#t t%.e! is that the burden of direct taxes could not be shifted by the taxpayer to another !hile the burden of indirect taxes could be shifted to another person, such the burden alueJadded taxes bein3 shifted or transferred by the taxpayer, the seller, to the buyer$ 11. A#e!$te $! the ow-e( %-) o"e(%to( o+ (e!t% (%-t wh$#h #%te(! to the "%t(o-! o+ % #%!$-o o"e(%te) *' PA2COR w$th$- $t! "(e,$!e!. $t *$&&e) PA2COR +o( the #o!t o+ the +oo) %-) *e/e(%8e! #o-! ,e) *' the PA2CORE! "%t(o-! %! we&& %! the &e%!e o+ the "(e,$!e! "& ! the VAT o- the!e $te,!. PA2COR "%$) A#e!$te ,$- ! the VAT #&%$,$-8 e.e,"t$o- wh$&e A#e!$te7 $o()e( to %/o$) &e8%& $,"&$#%t$o-!7 "%$) the P:0 ,$&&$o- t%. %-) %""&$e) +o( % (e+ -) o- the 8(o -) o+ !o& t$o $-)e*et$. A#e!$te #$te! the t%. e.e,"t$o- 8(%-t $- PA2CORE! +(%-#h$!e %! +o&&ow!: D*he e6emptions herein #rante" for earnin#s "erive" from the operations con"ucte" un"er the franchise specifically from the payment of any ta6, income, or other:ise, as :ell as any form of char#es, fees or levies, shall inure to the benefit of and extend to corporation(s), association (s), a enc! (cies), or individual(s) "ith "ho# the Corporation or operator has an! contractual relationship in connection "ith the operations of the casino (s) authori$ed to be conducted under this %ranchise an" to those receivin# compensation or other remuneration from the Corporation or operator as a result of essential facilities furnishe" an"Jor technical services ren"ere" to the Corporation or operator.G (emphasis supplie"' The B1R )e-$e) the #&%$, o- the 8(o -) th%t PA2COR $! e.e,"t o-&' +(o, )$(e#t t%.e! %-) -ot +(o, $-)$(e#t t%.e! !o A#e!$te ,%' -ot %/%$& o+ the e.e,"t$o-. 1! th$! #o((e#t 9 S8<<)ST). =NSW)05 No$ =s the la! is !orded the exemption flo!s to =cesite$ The la! is clear that the exemption extends the exemption to entities or indi iduals dealin3 !ith 9=<C/0$ ?Commissioner of Internal &evenue v. Acesite (Philippines' 0otel Corporation, <$ 0$ No$ 1A,29-, Cebruary 1@, 200,> N/T)S =N. C/MM)NTS5 a$ The abo e holdin3 should be differentiated from Philippine Acetylene Co. v. Commissioner of Internal &evenue, 20 SC0= 10-@, !here the tax exemption did not flo! to pri ate entities$ ?cited in A%aya v. /%"ane, <$ 0$ No$ 1@,919, Cebruary 1A, 200,>, and

>. B t -ote Nestle Phil. v. Court of Appeals, et al., 2.R. No. 1:;11;7 3 &' <7 2001 !hich held that in order for the rule on solutio in"e%eti to apply it is an essential condition that the petitioner must first sho! that its payment of the customs duties !as in excess of !hat !as re"uired by the la! at the time the subBect 1@ importations of mil& and mil& products !ere made$ 8nless sho!n other!ise, the disputable presumption of re3ularity of performance of duty lies in fa or of the Collector of Customs$
9. A )$(e#t t%. $! % t%. +o( wh$#h % t%."%'e( $! )$(e#t&' &$%*&e o- the t(%-!%#t$o- o( * !$-e!! $t e-8%8e! $-7 w$tho t

in the follo!in3 case of Sil4air (Sin#apore' P*/, Lt"., v. Commissioner of Internal &evenue, <$0$ No$ 1,'-9A, Cebruary @, 200+$ b$ So also, the tax exemption of 9=<C/0 has already been !ithdra!n by 0ep$ =ct No$ 9'',$

21

12. S$&H%$( @S$-8%"o(eA PTE7 Lt).7 %$-te(-%t$o-%& #%(($e(7 " (#h%!e) %/$%t$o- 8%! +(o, Pet(oCo("o(%t$o-7 wh$#h $t !e! +o( $t! o"e(%t$o-!. 1t -ow #&%$,! +o( (e+ -) o( t%. #(e)$t +o( the e.#$!e t%.e! $t "%$) #&%$,$-8 th%t $t $! e.e,"t +(o, the "%',e-t o+ e.#$!e t%.e! -)e( the "(o/$!$o-! o+ Se#. 1:5 o+ the N1RC o+ 199=. S$&H%$( + (the( %-#ho(! $t! #&%$, o- A(t$#&e ;@2A o+ the A$( T(%-!"o(t A8(ee,e-t *etwee- the 2o/e(-,e-t o+ the Re" *&$# o+ the Ph$&$""$-e! %-) the 2o/e(-,e-t o+ the Re" *&$# o+ S$-8%"o(e @A$( T(%-!"o(t A8(ee,e-t *etweeRP %-) S$-8%"o(eA. S$&H%$( &$Hew$!e %(8 e! th%t $t $! e.e,"t +(o, $-)$(e#t t%.e! *e#% !e the A$( T(%-!"o(t A8(ee,e-t *etwee- RP %-) S$-8%"o(e 8(%-t! e.e,"t$o- +(o, the !%,e # !to,! ) t$e!7 $-!"e#t$o- +ee! %-) othe( ) t$e! o( t%.e! $,"o!e) $- the te(($to(' o+ the +$(!t Co-t(%#t$-8 P%(t'. 1t $-/oHe! Maceda v. Macarai , &r., 2.R. No. >>2917 M%' :17 19917 19= SCRA ==1.wh$#h "he&) the #&%$, +o( t%. #(e)$t o( (e+ -) *' the N%t$o-%& Powe( Co("o(%t$o- @NPCA o- the 8(o -) th%t the NPC $! e.e,"t e/e- +(o, the "%',e-t o+ $-)$(e#t t%.e!. 1! S$&H%$( e-t$t&e) to the t%. (e+ -) o( #(e)$t $t !eeH! 9 Re%!o- o t 'o ( %-!we(.
S8<<)ST). =NSW)05 Sil&air is not entitled to tax refund or credit for the follo!in3 reasons5 a$ The excise tax on a iation fuel is an indirect tax$ The proper party to "uestion, or see& a refund of, an indirect tax is the statutory taxpayer, the person on !hom the tax is imposed by la! and !ho paid the same e en if he shifts the burden thereof to another$ ?Philippine (eothermal, Inc. v. Commissioner of Internal &evenue, <$0$ No$ 1-A02+, Iuly 29, 200-, A@- SC0= '0+, '1,J'1+> The N10C pro ides that the excise tax should be paid by the manufacturer or producer before remo al of domestic products from place of production$ Thus, 9etron Corporation, not Sil&air, is the statutory taxpayer !hich is entitled to claim a refund based on Section 1'- of the N10C of 199, and =rticle A?2> of the =ir Transport =3reement bet!een 09 and Sin3apore$

) en if 9etron Corporation passed on to Sil&air the burden of the tax, the additional amount billed to Sil&air for Bet fuel is not a tax but part of the price !hich Sil&air had to pay as a purchaser$ FPhilippine Acetylene Co., Inc. v. Commissioner of Internal &evenue, 12, 9hil$ A@1, A,0 ?19@,>H b$ Sil&air could not see& refu3e under $ace"a v. $acarai#, 2r., <$0$ No$ ++291, May '1, 1991, 19, SC0= ,,1$!hich upheld the claim for tax credit or refund by the National 9o!er Corporation ?N9C> on the 3round that the N9C is exempt e en from the payment of indirect taxes$ 1n Commissioner of Internal &evenue v. Philippine Lon# .istance *elephone Company, <$0$ No$ 1A02'0, .ecember 1-, 200-, A,+ SC0= @1 the Supreme Court clarified the rulin3 in $ace"a v. $acarai#, 2r., viz5 1t may be so that in $ace"a vs. $acarai#, 2r., the Court held that an exemption from D all taxesE 3ranted to the National 9o!er Corporation ?N9C> under its charter includes both direct and indirect taxes$ =n exemption from Dall taxesE excludes indirect taxes, unless the exemptin3 statute, li&e N9C%s charter, is so couched as to include indirect tax from the exemption$ The amendment under 0epublic =ct No$ @'9- enumerated the details co ered by N9C%s exemption$ Subse"uently, 9$.$ '+0, made e en more specific the details of the exemption of N9C to co er, amon3 others, %oth "irect an" in"irect ta6es on all petroleum products used in its operation$ 9residential .ecree No$ 9'+ FN9C%s amended charterH amended the tax exemption by simplifyin3 the same la! in 3eneral terms$ 1t succinctly exempts N9C from Dall forms of taxes, dutiesF,H feesTE The use of the phrase Dall formsE of taxes demonstrates the intention of the la! to 3i e N9C all the tax exemptions it has been enBoyin3 before$ The exemption 3ranted under Section 1'- ?b> of the N10C of 199, and =rticle A?2> of the =ir Transport =3reement bet!een 09 and Sin3apore cannot, !ithout a clear sho!in3 of le3islati e intent, be construed as includin3 indirect taxes$ Statutes 3rantin3 tax exemptions must be construed in strictissimi juris a3ainst the taxpayer and liberally in fa or of the taxin3 authority, and if an exemption is found to exist, it must not be enlar3ed by construction$ ?Sil4air (Sin#apore' P*/, Lt"., v. Commissioner of Internal &evenue, <$0$ No$ 1,'-9A, Cebruary @, 200+>

NAT1ONAL 1NTERNAL REVENUE CODE

OR2AN1GAT1ON AND 4UNCT1ONS 1NTERNAL REVENUE O4 THE BUREAU O4

Re". A#t No. 1;057 the B%-H De"o!$t! Se#(e#' L%w "(oh$*$t! $-D $(' $-to *%-H )e"o!$t!. A! e.#e"t$o-! to Re". A#t No. 1;057 the Co,,$!!$o-e( o+ 1-te(-%& Re/e- e $! o-&' % tho($Be) to $-D $(e $-to the *%-H )e"o!$t! o+: a$ a decedent to determine his 3ross estateG and b$ any taxpayer !ho has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability$ FSec$ - ?C>, N10C of 199,H c$ = taxpayer !ho authori#es the Commissioner to in"uire into his ban& deposits$ 2. P ("o!e o+ the N1RC o+ 199=. Re/e- e 8e-e(%t$oh%! -)o *te)&' *ee- % ,%?o( #o-!$)e(%t$o- $- the "%!!%8e o+ the T%. Co)e. ?Commissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$ Nos$ 1@,2,AJ,-, Iuly 21, 200+> :. P ("o!e o+ !h$+t +(o, %) /%&o(e, !'!te, to !"e#$+$# t%. !'!te, $- t%.%t$o- o+ #$8%(ette!. The shift from the a" valorem system to the specific tax system is li&e!ise meant to promote fair competition amon3 the players in the industries concerned, to ensure an e"uitable distribution of the tax burden and to simplify tax administration by classifyin3 ci3arettes, amon3 others, into hi3h, medium and lo!Jpriced based on their net retail price and accordin3ly 3raduatin3 tax rates$ ? Commissioner of Internal &evenue v. -ortune *o%acco Corporation, <$ 0$ Nos$ 1@,2,AJ,-, Iuly 21, 200+ citin3 0ecord of the Senate, pp$ 22AJ22-> TA6 ON 1NCOME 1. The T%. Co)e h%! $-#& )e) -)e( the te(, #o("o(%t$o- "%(t-e(!h$"!7 -o ,%tte( how #(e%te) or or3ani#ed, BointJstoc& companies, Boint accounts ?cuentas en participacion>, associations, or insurance companies$ FSec$ 2A no! Sec$ 2A ?(> of the N10C of 199,H 2. 1n /van#elista v. Collector, ;?< Phil. ;>?, the Supreme Court held citin3 Mertens that the te(, "%(t-e(!h$" $-#& )e! a syndicate, 3roup, pool, Boint enture or other unincorporated or3ani#ation, throu3h or by means of !hich any business, financial operation, or enture is carried on$ :$ Ce(t%$- * !$-e!! o(8%-$B%t$o-! )o -ot +%&& -)e( the #%te8o(' o+ #o("o(%t$o-! -)e( the T%. Co)e, and therefore not subBect to tax as corporations, include5 a$ <eneral professional partnershipsG

1.

22

b$ Ioint enture or consortium formed for the purpose of underta&in3 construction proBects en3a3in3 in petroleum, coal, 3eothermal, and other ener3y operations, pursuant to an operation or consortium a3reement under a ser ice contract !ith the <o ernment$ F1st sentence, Sec$ 22 ?(>, (10C of 199,H

;. CoFhe$(! who ow- $-he($te) "(o"e(t$e! wh$#h "(o) #e $-#o,e !ho &) -ot % to,%t$#%&&' *e #o-!$)e(e) %! "%(t-e(! o+ %- -(e8$!te(e) #o("o(%t$o- ! *?e#t to $-#o,e t%. +o( the +o&&ow$-8 (e%!o-!: a$ The sharin3 of 3ross returns does not of itself establish a partnership, !hether or not the persons sharin3 them ha e a Boint or common ri3ht or interest in any property from !hich the returns are deri ed$ There must be an unmista&able intention to form a partnership or Boint enture . (3%illos, 2r. v. Commissioner of Internal &evenue, 1'9 SC0= A'@> b$ There is no contribution or in estment of additional capital to increase or expand the inherited properties, merely continuin3 the dedication of the property to the use to !hich it had been put by their forebears$ ?I%i".> c$ 9ersons !ho contribute property or funds to a common enterprise and a3ree to share the 3ross returns of that enterprise in proportion to their contribution, but !ho se erally retain the title to their respecti e contribution, are not thereby rendered partners$ They ha e no common stoc& capital, and no community of interest as principal proprietors in the business itself from !hich the proceeds !ere deri ed$ ?)lements of the 4a! of 9artnership by Cloyd 0$ Mechem, 2nd )d$, Sec$ +', p$ ,A cited in Pascual v. Commissioner of Internal &evenue, 1@@ SC0= -@0>
5. The #o,,o- ow-e(!h$" o+ "(o"e(t' )oe! -ot $t!e&+ #(e%te % "%(t-e(!h$" *etwee- the ow-e(!, thou3h they may use it for purpose of ma&in3 3ains, and they may, !ithout becomin3 partners, are amon3 themsel es as to the mana3ement and use of such property and the application of the proceeds therefrom$$ ?Spurloc4 v,. Kilson, 1A2 S$W$ '@', 1@0 !o. App. ;>, cited in Pascual v. Commissioner of Internal &evenue, 1@@ SC0= -@0> <. The $-#o,e +(o, the (e-t%& o+ the ho !e7 *o 8ht +(o, the e%(-$-8! o+ #oFow-e) "(o"e(t$e!7 !h%&& *e t(e%te) %! the $-#o,e o+ %- -(e8$!te(e) "%(t-e(!h$" to be taxable as a corporation because of the clear intention of the brothers to Boin to3ether in a enture for ma&in3 money out of rentals$

=. 1-#o,e is 3ain deri ed and se ered from capital, from labor or from both combined$ Cor example, to tax a stoc& di idend !ould be to tax a capital increase rather than the income$ (Commissioner of Internal &evenue v. Court of Appeals, et al., (.&. !o. ;?BH=C, 2anuary <?, ;III' >. The term t%.%*&e $-#o,e means the pertinent items of 3ross income specified in the Tax Code, less the deductions and7or personal and additional exemptions, if any, authori#ed for such types of income by the Tax Code or other special la!s$ ?Sec$ '1, N10C of 199,> 9. The #%-#e&&%t$o- %-) +o(8$/e-e!! o+ $-)e*te)-e!! may amount to ?a> payment of incomeG ?b> 3iftG or to a ?c> capital transaction dependin3 upon the circumstances$ 10. 1f an indi idual performs ser ices for a creditor !ho, in consideration thereof, cancels the debt, it is income to the extent of the amount reali#ed by the debtor as compensation for his ser ices$ 11. =n insol ent debtor does not reali#e taxable income from the cancellation or for3i eness$ (Commissioner v. Simmons (in Co., A' Cd '2, CC= 10th> 12. The insol ent debtor reali#es income resultin3 from the cancellation or for3i eness of indebtedness !hen he becomes sol ent$ (La4elan" (rocery Co., v. Commissioner '@ (T= ?C> 2+9> 1:. 1f a creditor merely desires to benefit a debtor and !ithout any consideration therefor cancels the amount of the debt it is a 3ift from the creditor to the debtor and need not be included in the latter%s income$ 1;. 1f a corporation to !hich a stoc&holder is indebted for3i es the debt, the transaction has the effect of payment of a di idend$ ?Sec$ -0, 0e $ 0e3s$ No$ 2> 15. The 2&o*%& !'!te, o+ $-#o,e t%.%t$o- is a system employed !here the tax system ie!s indifferently the tax base and 3enerally treats in common all cate3ories of taxable income of the indi idual$ (*an v. "el &osario, 2r., 2', SC0= '2A, ''1> 1<. The S#he) &%( !'!te, o+ $-#o,e t%.%t$o- is a system employed !here the income tax treatment aries and is made to depend on the &ind or cate3ory of taxable income of the taxpayer$ (*an v. "el &osario, 2r., <A= SC&A A<>, AA;'

23 1=. 8nder the National 1nternal 0e enue Code the 3lobal system is applicable to taxable corporations and the schedular to indi iduals$

1>. 0h%t %(e 8e-e(%& "($-#$"&e! o+ $-#o,e t%.%t$o- $- the Ph$&$""$-e! OR the !$t ! o+ $-#o,e t%.%t$o$- the Ph$&$""$-e! OR the !o (#e ( &e o+ $-#o,e t%.%t$o- %! %""&$e) $- the Ph$&$""$-e! 9
S8<<)ST). =NSW)05 a$ = citi#en of the 9hilippines residin3 therein is taxable on all income deri ed from sources !ithin and !ithout the 9hilippines$ b$ = nonresident citi#en is taxable only on income deri ed from sources !ithin the 9hilippines$ c$ =n indi idual citi#en of the 9hilippines !ho is !or&in3 and deri in3 income from abroad as an o erseas contract !or&er is taxable only on income from sources !ithin the 9hilippines5 9ro ided, That a seaman !ho is a citi#en of the 9hilippines and !ho recei es compensation for ser ices rendered abroad as a member of the complement of a essel en3a3ed exclusi ely in international trade shall be treated as an o erseas contract !or&er$ d$ =n alien indi idual, !hether resident or not of the 9hilippines, is taxable only on income deri ed from sources !ithin the 9hilippines$ e$ = domestic corporation is taxable on all income deri ed from sources !ithin and !ithout the 9hilippines$ f$ = forei3n corporation, !hether en3a3ed or not in trade or business in the 9hilippines, is taxable only on income deri ed from sources !ithin the 9hilippines$ ?Sec$ 2', N10C of 199,> 19. Co,"e-!%t$o- $-#o,e $! #o-!$)e(e) %! h%/$-8 *eee%(-e) $- the "&%#e whe(e the !e(/$#e w%! (e-)e(e) and not considered as sourced from the place of ori3in of the money$ 20. P%',e-t +o( !e(/$#e!7 othe( th%- #o,"e-!%t$o$-#o,e7 $! #o-!$)e(e) %! h%/$-8 *ee- e%(-e) %t the "&%#e whe(e the %#t$/$t' o( !e(/$#e w%! "e(+o(,e). 21. = nonJresident alien, !ho has stayed in the 9hilippines for an a33re3ate period of more than 1+0 days durin3 any calendar year, shall be considered as a nonJresident alien doin3 business in the 9hilippines$ Conse"uently, he shall be subBect to income tax on his income deri ed from sources from !ithin the 9hilippines$ FSec$ 2?=> ?1>, N10CH

:e is allo!ed to a ail of the itemi#ed deductions includin3 the personal and additional exemptions subBect to the rule on reciprocity$

24

22. 0h%t %(e #o-!$)e(e) %! de #ini#is *e-e+$t! -ot ! *?e#t to w$thho&)$-8 t%. o- #o,"e-!%t$o$-#o,e o+ *oth ,%-%8e($%& %-) (%-H %-) +$&e e,"&o'ee! 9
S8<<)ST). =NSW)05 a$ Moneti#ed unused acation lea e credits of employees not exceedin3 ten ?10> days durin3 the yearG b$ Medical cash allo!ance to dependents of employees not exceedin3 9,-0$00 per employee per semester or 912- per monthG c$ 0ice subsidy of 91,000$00 or one ?1> sac& of -0J&3$ rice per month amountin3 to not more than 91,000$00G d$ 8niforms and clothin3 allo!ance not exceedin3 9',000$00 per annumG e$ =ctual yearly medical benefits not exceedin3 910,000$00 per annumG f$ 4aundry allo!ance not exceedin3 9'00 per monthG 3$ )mployees achie ement a!ards, e$3$ for len3th of ser ice or safety achie ement, !hich must be in the form of a tan3ible persona property other than cash or 3ift certificate, !ith an annual monetary alue not exceedin3 910,000$00 recei ed by an employee under an established !ritten plan !hich does not discriminate in fa or of hi3hly paid employeesG h$ <ifts 3i en durin3 Christmas and maBor anni ersary celebrations not exceedin3 9-,000 per employee per annumG i$ Clo!ers, fruits, boo&s, or similar items 3i en to employees under special circumstances, e$3$ on account of illness, marria3e, birth of a baby, etc$G and B$ .aily meal allo!ance for o ertime !or& not exceedin3 t!enty fi e percent ?2-6> of the basic minimum !a3e$ The amount of "e minimis benefits conformin3 to the ceilin3 herein prescribed shall not be considered in determinin3 the 9'0,000 ceilin3 of Dother benefitsE pro ided under Section '2 ?(>?,>?e> of the Code$ :o!e er, if the employer pays more than the ceilin3 prescribed by these re3ulations, the excess shall be taxable to the employee recei in3 the benefits only if such excess is beyond the 9'0,000$00 ceilin3, pro ided, further, that any amount 3i en by the employer as benefits to its employees, !hether classified as "e minimis benefits or frin3e benefits, shall constitute as deductible expense upon such employer$ FSec$ 2$,+$1 ?=> ?'>, 0e $ 0e3s$ 2J9+ as amended by 0e $ 0e3s$ No$ +J2000H 2:. 1-#o,e ! *?e#t to +$-%& t%. (e+e(! to %- $-#o,e #o&&e#te) th(o 8h the w$thho&)$-8 t%. !'!te,. The payor of the

income !ithholds the tax and remits it to the 3o ernment as a final settlement of the income tax as a final settlement of the income tax due on said income$ The recipient is no lon3er re"uired to include the income subBected to a final tax as part of his 3ross income in his income tax return$

2;.

D$!t$-8 $!h e.#& !$o-! +(o, )e) #t$o-!.

S8<<)ST). =NSW)05 a$ )xclusions from 3ross income refer to a flo! of !ealth to the taxpayer !hich are not treated as part of 3ross income for purposes of computin3 the taxpayer%s taxable income, due to the follo!in3 reasons5 ?1> 1t is exempted by the fundamental la!G ?2> 1t is exempted by statuteG and ?'> 1t does not come !ithin the definition of income ?Sec$ @1, 0e $ 0e3s$ No$ 2> W:14) deductions are the amounts !hich the la! allo!s to be subtracted from 3ross income in order to arri e at net income$ b$ )xclusions pertain to the computation of 3ross income W:14) deductions pertain to the computation of net income$ c$ )xclusions are somethin3 recei ed or earned by the taxpayer !hich do not form part of 3ross income W:14) deductions are somethin3 spent or paid in earnin3 3ross income$ =n example of an exclusion from 3ross income are life insurance proceeds, and an example of a deduction are losses$

25.

0h%t %(e e.#& )e) +(o, 8(o!! $-#o,e 9

S8<<)ST). =NSW)05 a$ 9roceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured !hether in a sin3le sum or other!ise$ b$ =mounts recei ed by the insured as a return of premiums paid by him under life insurance, endo!ment or annuity contracts either durin3 the term, or at maturity of the term mentioned in the contract, or upon surrender of the contract$ c$ *alue of property ac"uired by 3ift, be"uest, de ise, or descent$ d$ =mounts recei ed, throu3h accident or health insurance or Wor&men%s Compensation =cts as compensation for personal inBuries or sic&ness, plus the amounts of any dama3es recei ed on !hether by suit or a3reement on account of such inBuries or sic&ness$ e$ 1ncome of any &ind to the extent re"uired by any treaty obli3ation bindin3 upon the <o ernment of the 9hilippines$ f$ 0etirement benefits recei ed under 0epublic =ct No$ ,@A1$ 0etirement recei ed from reasonable pri ate benefit plan after compliance !ith certain conditions$ =mounts recei ed for beyond

control separation$ Corei3n social security, retirement 3ratuities, pensions, etc$ 8S*= benefits, SSS benefits and <S1S benefits$

25

2<. 0h%t %(e the #o-)$t$o-! +o( e.#& )$-8 (et$(e,e-t *e-e+$t! +(o, 8(o!! $-#o,e7 he-#e t%.Fe.e,"t 9
S8<<)ST). =NSW)05 a$ 0etirement benefits recei ed under 0epublic =ct No$ ,@A1 and those recei ed by officials and employees of pri ate firms, !hether indi idual or corporate, in accordance !ith the employer%s reasonable pri ate benefit plan appro ed by the (10$ b$ 0etirin3 official or employee 1> 1n the ser ice of the same employer for at least ten ?10> yearsG 2> Not less than fifty ?-0> years of a3e at time of retirementG '> = ailed of the benefit of exclusion only once$ FSec$ '2 ?(> ?@> ?a>, N10C of 199,H The retirin3 official or employee should not ha e pre iously a ailed of the pri ile3e under the retirement plan of the same or another employer$ F1 st par$, Sec$ 2$,+ ?(> ?1>, 0e $ 0e3s$ No$ 2J9+H

0h%t H$-) o+ !e"%(%t$o- @(et$(e,e-tA "%' $! e.#& )e) +(o, 8(o!! $-#o,e7 he-#e t%.Fe.e,"t 9
S8<<)ST). =NSW)05 a$ =ny amount recei ed by an official, employee or by his heirs, b$ Crom the employer c$ =s a conse"uence of separation of such official or employee from the ser ice of the employer because of 1> .eath, sic&ness or other physical disabilityG or 2> Cor any cause beyond the control of said official or employee FSec$ '2 ?(> ?@> ?b>, N10C of 199,H, such as retrenchment, redundancy and cessation of business$ F1 st par$, Sec$ 2$,+ ?(>, ?1> ?b>, 0e $ 0e3s$ No$ 2J9+H

2=.

2>. 0h%t %(e the 1te,$Be) )e) #t$o-! +(o, 8(o!! $-#o,e %-) who ,%' %/%$& o+ the, 9
a$ O()$-%(' %-) -e#e!!%(' trade, business or professional e."e-!e!$ b$ The amount of $-te(e!t paid or incurred !ithin a taxable year on indebtedness in connection !ith the taxpayer%s profession, trade or business$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct

these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ c$ T%.e! paid or incurred !ithin the taxable year in connection !ith the taxpayer%s profession$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ d$ /rdinary &o!!e!, losses from casualty, theft or embe##lementG and net operatin3 losses$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ e$ B%) )e*t! due to the taxpayer, actually ascertained to be !orthless and char3ed off !ithin the taxable year, connected !ith profession, trade or business, not sustained bet!een related parties$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ f$ De"(e#$%t$o- or a reasonable allo!ance for the exhaustion, !ear and tear ?includin3 reasonable allo!ance for obsolescence> of property used in trade or business$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also

deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ 3$ De"&et$o- or deduction arisin3 from the exhaustion of a nonJreplaceable asset, usually a natural resource$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ h$ Ch%($t%*&e and other #o-t($* t$o-!$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ i$ Re!e%(#h %-) )e/e&o",e-t expenditures treated as deferred expenses paid or incurred by the taxpayer in connection !ith his trade, business or profession, not deducted as expenses and char3eable to capital account but not char3eable to property of a character !hich is subBect to depreciation or depletion$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$ B$ Co-t($* t$o-! to "e-!$o- t( !t! $ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ .omestic corporations, estates and trusts may also deduct this expense$ Nonresident citi#ens and forei3n corporations on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$

26

&$ 1-! (%-#e "(e,$ ,! for health and hospitali#ation$ 0esident citi#ens, resident alien indi iduals and nonresident alien indi iduals !ho are en3a3ed in trade and business, on their 3ross incomes other from compensation income are allo!ed to deduct these expenses$ Nonresident citi#ens and nonresident alien indi idual en3a3ed in trade or business in the 9hilippine on their 3ross incomes from !ithin may also deduct these premiums$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct these premiums$ l$ Pe(!o-%& %-) %))$t$o-%& e.e,"t$o-! $ 0esident citi#ens, and resident alien on their 3ross incomes and from compensation income are allo!ed to deduct these premiums$ Nonresident citi#ens on their 3ross incomes from !ithin may also deduct this expense$ Nonresident alien indi iduals en3a3ed in trade or business in the 9hilippines are allo!ed to deduct these exemptions under reciprocity$ Nonresident alien indi iduals not en3a3ed in trade or business in the 9hilippines are not allo!ed to deduct this expense$

29. D$!t$-8 $!h o()$-%(' e."e-!e! +(o, #%"$t%& e."e-)$t (e!.

S8<<)ST). =NSW)05 /rdinary expenses are those !hich are common to incur in the trade or business of the taxpayer W:14) capital expenditures are those incurred to impro e assets and benefits for more than one taxable year$ /rdinary expenses are usually incurred durin3 a taxable year and benefits such taxable year$ Necessary expenses are those !hich are appropriate or helpful to the business$

:0. 0h%t %(e the (eD $!$te! )e) #t$*$&$t' o+ * !$-e!! e."e-!e! 9

+o(

the

S8<<)ST). =NSW)05 The follo!in3 are the re"uisites for deductibility of business expenses5 a$ Compliance !ith the business test5 1> Must be ordinary and necessaryG 2> Must be paid or incurred !ithin the taxable yearG '> Must be paid or incurred in carryin3 on a trade or business$ A> Must not be bribes, &ic&bac&s or other ille3al expenditures b$ Compliance !ith the substantiation test$ 9roof by e idence or records of the deductions allo!ed by la! includin3 compliance !ith the business test$

0h%t %(e the (eD $!$te! +o( the )e) #t$*$&$t' o+ o()$-%(' %-) -e#e!!%(' t(%)e7 * !$-e!!7 o( "(o+e!!$o-%& e."e-!e!7 &$He e."e-!e! "%$) +o( &e8%& %-) % )$t$-8 !e(/$#e! 9
S8<<)ST). =NSW)05 a$ the expense must be ordinary and necessaryG b$ it must ha e been paid or incurred durin3 the taxable year dependent upon the method of accountin3 upon the basis of !hich the net income is computed$ c$ it must be supported by receipts, records or other pertinent papers$ ?Commissioner of Internal &evenue v, Isa%ela cultural Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,>

:1.

27

TM2 Co("o(%t$o- $! $!! $-8 the %##( %& ,etho) o+ %##o -t$-8. 1- 2005 65G L%w 4$(, %-) ABC A )$t$-8 4$(, (e-)e(e) /%($o ! !e(/$#e! wh$#h we(e *$&&e) *' the!e +$(,! o-&' ) ($-8 the +o&&ow$-8 'e%( 200<. S$-#e the *$&&! +o( &e8%& %-) % )$t$-8 !e(/$#e! we(e (e#e$/e) o-&' $- 200< %-) "%$) $- the !%,e 'e%(7 TM2 )e) #te) the !%,e +(o, $t! 200< 8(o!! $-#o,e. The B1R )$!%&&owe) the )e) #t$o- 9 0ho $! #o((e#t7 TM2 o( B1R 9 E."&%$-.
S8<<)ST). =NSW)05 The (10 is correct$ TM< should ha e deducted the professional and le3al fees in the year they !ere incurred in 200- and not in 200@ because at the time the ser ices !ere rendered in 200-, there !as already an obli3ation to pay them$ ?Commissioner of Internal &evenue v, Isa%ela Cultural Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,> N/T)S =N. C/MM)NTS5 a$ A##o -t$-8 ,etho)! for tax purposes comprise a set of rules for determinin3 !hen and ho! to report income and deductions$ ?Commissioner of Internal &evenue v, Isa%ela cultural Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,> The t!o ?2> principal accountin3 methods for reco3nition of income are the ?a> accrual methodG and the ?b> cash method$ b$ Re#o8-$t$o- o+ $-#o,e %-) e."e-!e! -)e( the %##( %& ,etho) o+ %##o -t$-8. =mounts of income accrue !here the ri3ht to recei e them becomes fixed, !here there is created an enforceable liability$ 4iabilities, are incurred !hen fixed and determinable in nature !ithout re3ard to indeterminacy merely of time of payment$$ ?Commissioner of Internal &evenue v, Isa%ela cultural Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,> The accrual of income and expense is permitted !hen the allJ e ents test has been met$ ?I%i".>

:2.

A&&Fe/e-t! te!t. This test re"uires5 1> fixin3 of a ri3ht to income or liability to payG and 2> the a ailability of the reasonable accurate determination of such income or liability$ The test does not demand that the amount of such income or liability be &no!n absolutely, only that a taxpayer has at his disposal the information necessary to compute the amount !ith reasonable accuracy$ The allJe ents test is satisfied !here computation remains uncertainG if its basis is unchan3eable, the test is satisfied !here a computation may be un&no!n, but is not as much as un&no!able, !ithin the taxable year$ The amount of liability does not ha e to be determined exactly,G it must be determined !ith Dreasonable accuracyE implies somethin3 less than an exact or completely accurate amount$ The propriety of an accrual must be Bud3ed by the fact that a taxpayer &ne!, or could reasonably be expected to ha e &no!n, at the closin3 of its boo&s for the taxable year$ =ccrual method of accountin3 presents lar3ely a "uestion of factG such that the taxpayer bears the burden of proof of establishin3 the accrual of an item of income or deduction$ ?Commissioner of Internal &evenue v, Isa%ela cultural Corporation, <$ 0$ No$ 1,22'1, Cebruary 12, 200,> d$ 8nder the #%!h ,etho) income is to be construed as income for tax purposes only upon actual receipt of the cash payment$ 1t is also referred to as the Dcash receipts and disbursements methodE because both the receipt and disbursements are considered$ Thus, income is reco3ni#ed only upon actual receipt of the cash payment but no deductions are allo!ed from the cash income unless actually disbursed throu3h an actual payment in cash$

c$

::. The +($-8e *e-e+$t! t%. is a final !ithholdin3 tax imposed on the 3rossedJup monetary alue of frin3e benefits furnished, 3ranted or paid by the employer to the employee, except ran& and file employees$ F1st par$, Sec$ 2$'' ?=>, 0e $ 0e3s$ No$ 'J9+H

:;. 0h%t $! ,e%-t *' +($-8e *e-e+$t +o( " ("o!e! o+ t%.%t$o- 9
S8<<)ST). =NSW)05 Cor purposes of taxation, frin3e benefit means any 3ood, ser ice, or other benefit furnished or 3ranted in cash or in &ind by an employer to an indi idual employee ?except ran& and file employees>, such as but not limited to5 a$ :ousin3G b$ )xpense accountG c$ *ehicle of any &indG d$ :ousehold personnel, such as maid, dri er and othersG

e$ 1nterest on loan at less than mar&et rate to the extent of the difference bet!een the mar&et rate and actual rate 3rantedG f$ Membership fees, dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar or3ani#ationsG 3$ )xpenses for forei3n tra elG h$ :oliday and acation expensesG i$ )ducational assistance to the employee or his dependentsG and B$ 4ife or health insurance and other nonJlife insurance premiums or similar amounts in excess of !hat the la! allo!s$ FSec$ '' ?(>, N10C of 199,G 1st par$, Sec$ 2$'' ?(>, 0e $ 0e3s$ No$ 'J9+H :5. 4($-8e *e-e+$t! th%t %(e -ot ! *?e#t to the +($-8e *e-e+$t! t%.: a$ When the frin3e benefit is re"uired by the nature of, or necessary to the trade, business or profession of the employerG or b$ When the frin3e benefit is for the con enience or ad anta3e of the employer$ FSec$ '2?=>, N10C of 199,G 1 st par$, Sec$ 2$'' ?=>, 0e $ 0e3s$ No$ 'J9+H c$ Crin3e benefits !hich are authori#ed and exempted from income tax under the Tax Code or under any special la!G d$ Contributions of the employer for the benefit of the employee to retirement, insurance and hospitali#ation benefit plansG e$ (enefits 3i en to the ran& and file employees, !hether 3ranted under a collecti e bar3ainin3 a3reement or notG and f$ .e minimis benefits as defined in the rules and re3ulations to be promul3ated by the Secretary of Cinance upon recommendation of the Commissioner of 1nternal 0e enue$ F1 st par$, Sec$ '2 ?C>, N10C of 199,G Sec$ 2$'' ?C>, 0e $ 0e3s$ No$ 'J9+H

28 :>. B%) )e*t! are those !hich result from the !orthlessness or uncollectibility, in !hole or in part, of amounts due the taxpayer by others, arisin3 from money lent or from uncollectible amounts of income from 3oods sold or ser ices rendered$ ?Sec$ 2$a, 0e $ 0e3s$ -J99>

:9.

0ho %(e (e&%te) "%(t$e! 9

S8<<)ST). =NSW)05 The follo!in3 are related parties: a$ Members of the same family$ The family of an indi idual shall include only his brothers and sisters ?!hether by the !hole or halfJblood>, spouse, ancestors, and lineal descendantsG b$ =n indi idual and a corporation more than fifty percent ?-06> in alue of the outstandin3 stoc& of !hich is o!ned, directly or indirectly, by or for such indi idualG c$ T!o corporations more than fifty percent ?-06> in alue of the outstandin3 stoc& of !hich is o!ned, directly or indirectly, by or for the same indi idualG d$ = 3rantor and a fiduciary of any trustG or e$ The fiduciary of a trust and the fiduciary of another trust if the same person is a 3rantor !ith respect to each trustG or f$ = fiduciary of a trust and a beneficiary of such$ FSec$ '@ ?(>, N10C of 199,H

;0$ 0h%t %(e the (eD $!$te! +o( /%&$) )e) #t$o- o+ *%) )e*t! +(o, 8(o!! $-#o,e 9
S8<<)ST). =NSW)05 a$ There must be an existin3 indebtedness due to the taxpayer !hich must be alid and le3ally demandableG b$ The same must be connected !ith the taxpayer%s trade, business or practice of professionG c$ The same must not be sustained in a transaction entered into bet!een related partiesG d$ The same must be actually char3ed off the boo&s of accounts of the taxpayer as of the end of the taxable yearG and e$ The debt must be actually ascertained to be !orthless and uncollectible durin3 the taxable yearG f$ The debts are uncollectible despite dili3ent effort exerted by the taxpayer$ FSec$ 'A ?)> ?1>, N10C of 199,G Sec$ ', 0e $ 0e3s$ No$ -J99 reiterated in 0e $ 0e3s$ No$ 2-J2002G Philippine &efinin# Corporation v. Court of Appeals, et al., <HC SC&A CC=H 3$ Must ha e been reported as recei ables in the income tax return of the current or prior years$ ?Sec$ 10', 0e $ 0e3s$ No$ 2> 5

:<. 'e #ini#is *e-e+$t! %(e +%#$&$t$e! %-) "($/$&e8e! ?such as entertainment, medical ser ices, or soJcalled
Dcourtesy discountsE on purchases>, furnished or offered by an employer to his employees$ They are not considered as compensation subBect to income tax and conse"uently to !ithholdin3 tax, if such facilities are offered or furnished by the employer merely as a means of promotin3 the health, 3ood!ill, contentment, or efficiency of his employees$ FSec$ 2$,+,1 ?=> ?'>, 0e $ 0e3s$ 2J9+ as amended by 0e $ 0e3s$ No$ +J2000H

:=. P(e+e((e) !h%(e! %(e #o-!$)e(e) #%"$t%& (e8%()&e!! o+ the #o-)$t$o-! -)e( wh$#h ! #h !h%(e! %(e $!! e) %-) )$/$)e-)! o( $-te(e!t! "%$) the(eo- %(e -ot %&&owe) %! )e) #t$o-! +(o, the 8(o!! $-#o,e o+ #o("o(%t$o-! $ ?0e enue Memorandum Circular No$ 1,J,1>

;1.

0h%t $! the t%. *e-e+$t ( &e 9

S8<<)ST). =NSW)05 The Dtax benefit ruleE posits that the reco ery of bad debts pre iously allo!ed as deduction in the precedin3 year or years shall be included as part of the taxpayer%s 3ross income in the year of such reco ery to the extent of the income tax benefit of said deduction$ ;2. 1f in the year the taxpayer claimed deduction of bad debts !rittenJoff, he reali#ed a reduction of the income tax due from him on account of the said deduction, his subse"uent reco ery thereof from his debtor shall be treated as a receipt of reali#ed taxable income$ ?Sec$ A, 0e $ 0e3s$ -J99> ;:. 1f the said taxpayer did not benefit from the deduction of the said bad debt !rittenJoff because it did not result to any reduction of his income tax in the year of such deduction ?i$e$ !here the result of his business operation !as a net loss e en !ithout deduction of the bad debts !rittenJoff>, then his subse"uent reco ery thereof shall be treated as a mere reco ery or a return of capital, hence, not treated as receipt of reali#ed taxable income$ ?Sec$ A, 0e $ 0e3s$ -J99> ;;. De"(e#$%t$o- is the 3radual diminution in the useful alue of tan3ible property resultin3 from ordinary !ear and tear and from normal obsolescence$ The term is also applied to amorti#ation of the alue of intan3ible assets the use of !hich in the trade or business is definitely limited in duration$ ;5. The ,etho)! o+ )e"(e#$%t$o- %(e the +o&&ow$-8: a$ Strai3ht line methodG b$ .eclinin3 balance methodG c$ Sum of years di3its methodG and d$ =ny other method prescribed by the Secretary of Cinance upon the recommendation of the Commissioner of 1nternal 0e enue5 1> =pportionment to units of productionG 2> :ours of producti e useG '> 0e aluation methodG and A> Sin&in3 fund method$ ;<. 0h%t %(e "e(!o-%& %-) %))$t$o-%& e.e,"t$o-! 9 S8<<)ST). =NSW)05 These are the theoretical persona, li in3 and family expenses of an indi idual allo!ed to be deducted from the 3ross or net income of an indi idual taxpayer$ These are arbitrary amounts !hich ha e been calculated by our la!ma&ers to be rou3hly e"ui alent to the minimum of subsistence, ta&in3 into account the personal status and additional "ualified dependents of the taxpayer$ They are fixed amounts in the sense that

29

the amounts ha e been predetermined by our la!ma&ers and until our la!ma&ers ma&e ne! adBustments on these personal exemptions, the amounts allo!ed to be deducted by a taxpayer are fixed as predetermined by Con3ress$ F Pansacola v. Commissioner of Internal &evenue, <$ 0$ No$ 1-9991, No ember 1@, 200@ citin3 $a"ri#al an" Paterno v. &afferty an" Concepcion, '+ 9hil$ A1A, A1+ ?191+>H

;=. C%"$t%& %!!et! shall refer to all real properties held by a taxpayer, !hether or not connected !ith his trade or business, and !hich are not included amon3 the real properties considered as ordinary assets$ ?Sec$ 2$a, 0e $ 0e3s$ No$ ,J200'> The term Dcapital assetsE means property held by the taxpayer ?!hether or not connected !ith his trade or business>, (8T ./)S N/T 1NC48.)5 a$ Stoc& in trade of the taxpayer, or b$ /ther property of a &ind !hich !ould properly be included in the in entory of the taxpayer if on hand at the close of the taxable year, or c$ 9roperty held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business, or d$ 9roperty used in the trade or business, of a character !hich is subBect to the allo!ance for depreciationG or real property used in the trade or business of the taxpayer$ FSec$ '9 ?=> ?1>, N10C of 199,, capitali#ed !ords, numberin3 and arran3ement suppliedG Sec$ 2$a, 0e $ 0e3s$ No$ ,J200'H
E.%,"&e! o+ #%"$t%& %!!et!: a$ Stoc& and securities held by taxpayers other than dealers in securitiesG b$ Ie!elry not used for trade and businessG c$ 0esidential houses and lands o!ned and used as suchG d$ =utomobiles not used in trade and businessG e$ 9aintin3s, sculptures, stamp collections, obBects of arts !hich are not used in trade or businessG f$ 1nherited lar3e tracts of a3ricultural land !hich !ere subdi ided pursuant to the 3o ernment mandate under land reform, then sold to tenants$ (&o6as v. Court of *a6 Appeals, etc. L <H?>A, April <C, ;ICB' 3$ D0eal property used by an exempt corporation in its exempt operations, such as a corporation included in the enumeration of Section '0 of the Code, shall not be considered used for business purposes, and therefore considered as capital asset$E ?last sentence, 'rd par$, Sec$ '$b, 0e $ 0e3s$ No$ ,J200'> h$ D0eal property, !hether sin3le detached, to!nhouse, or condominium unit, not used in trade or business as e idenced by a

;=FA.

certification from the (aran3ay Chairman or from the head of administration, in case of condominium unit, to!nhouse or apartment, and as alidated from the existin3 a ailable records of the (ureau of 1nternal 0e enue, o!ned by an indi idual en3a3ed in business, shall be treated as capital asset$E ?last par$, Sec$ '$b$, 0e $ 0e3s$ No$ ,J 200'>

30

?Calasanz v. Commissioner of Internal &evenue, 1AA SC0= at p$ @,2>

50. T%. t(e%t,e-t o+ (e%& "(o"e(t$e! th%t h%/e *eet(%-!+e((e). 0eal properties classified as capital or ordinary asset
in the hands of the seller7transferor may chan3e their character in the hands of the buyer7transferee$ The classification of such property in the hands of the buyer7transferee shall be determined in accordance !ith the follo!in3 rules5 a$ 0eal property transferred throu3h succession or donation to the heir or donee !ho is not en3a3ed in the real estate business !ith respect to the real property inherited or donated, and !ho does not subse"uently use such property in trade or business, shall be considered as a capital asset in the hands of the heir or donee$ b$ 0eal property recei ed as di idend by stoc&holders !ho are not en3a3ed in the real estate business and !ho not subse"uently use such real property in trade or business shall be treated as capital assets in the hands of the recipient e en if the corporation !hich declared the real property di idend is en3a3ed in real estate business$ c$ The real property recei ed in an exchan3e shall be treated as ordinary asset in the hands of the transferee in the case of a taxJ free exchan3e by taxpayer not en3a3ed in real estate business to a taxpayer !ho is en3a3ed in real estate business, or to a taxpayer !ho, e en if not en3a3ed in real estate business, !ill use in business the property recei ed in the exchan3e$ ?Sec$ '$f$, 0e $ 0e3s$ No$ ,J200'>

;>. O()$-%(' %!!et! !h%&& (e+e( to %&& (e%& "(o"e(t$e! !"e#$+$#%&&' e.#& )e) +(o, the )e+$-$t$o- o+ #%"$t%& %!!et !7
namely5 a$ Stoc& in trade of a taxpayer or other real property of a &ind !hich !ould properly be included in the in entory of a taxpayer if on hand at the close of the taxable yearG or b$ 0eal property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or businessG or c$ 0eal property used in trade or business ?i$e$ buildin3s and7or impro ements>, of a character !hich is subBect to the allo!ance for depreciationG or d$ 0eal property used in trade or business of the taxpayer$ ?Sec$ 2$ b, 0e $ 0e3s$ No$ ,J200'>

;9.$
%!!et!:

E.%,"&e! o+ o()$-%(' %!!et! he-#e -ot #%"$t%&

a$ The machinery and e"uipment of a manufacturin3 concern subBect to depreciationG b$ The tractors, trailers and truc&s of a haulin3 companyG c$ The condominium buildin3 o!ned by a realty company the units of !hich are for rent or for saleG d$ The !ood, paint, arnish, nails, 3lue, etc$ !hich are the ra! materials of a furniture factoryG e$ 1nherited parcels of land of substantial areas located in the heart of Metro Manila, !hich !ere subdi ided into smaller lots then sold on installment basis after introducin3 comparati ely aluable impro ements not for the purpose of simply li"uidatin3 the estate but to ma&e them more saleable G the employment of an attorneyJinJfact for the purpose of de elopin3, mana3in3, administerin3 and sellin3 the lotsG sales made !ith fre"uency and continuityG annual sales income from the sales !as considerableG and the heir !as not a stran3er to the real estate business$ (*uazon, 2r. v. Lin#a", HB SC&A ;=?' f$ 1nherited a3ricultural property impro ed by introduction of 3ood roads, concrete 3utters, draina3e and li3htin3 systems con erts the property to an ordinary asset$ The property forms part of the stoc& in trade of the o!ner, hence an ordinary asset$ This is so, as the o!ner is no! en3a3ed in the business of subdi idin3 real estate$

51. The t%. $! $,"o!e) "o- #%"$t%& 8%$-! "(e! ,e) to h%/e *ee- (e%&$Be) +(o, the !%&e7 e.#h%-8e7 o( othe( )$!"o!$t$o- o+ (e%& "(o"e(t' &o#%te) $- the Ph$&$""$-e!7 #&%!!$+$e) %! #%"$t%& %!!et!. FSec$ 2A ?.> ?1M>,
N10C of 199,H 0e enue 0e3ulations No$ ,J200' has defined real property as ha in3 Dthe same meanin3 attributed to that term under =rticle A1- of 0epublic =ct No$ '+@, other!ise &no!n as the U Civil Co"e of the Philippines.7 ?Sec$ 2$c, 0e $ 0e3s$ No$ ,J200'>

T(%-!%#t$o-! #o/e(e) *' the "(e! ,e) #%"$t%& 8%$-! t%. o- (e%& "(o"e(t':
a$ sale, b$ exchan3e, c$ or other disposition, includin3 pacto "e retro sales and other forms of conditional sales$ FSec$ 2A ?.> ?1>, N10C of 199,, numberin3 and arran3ement suppliedH d$ DSale, exchan3e, or other dispositionE includes ta&in3 by the 3o ernment throu3h condemnation proceedin3s$ ((utierrez v. Court

52.

of *a6 Appeals, et al., 101 9hil$ ,1'L (onzales v. Court of *a6 Appeals, et al., 121 9hil$ +@1> 5:. 1- #%!e the ,o(t8%8o( e.e(#$!e! h$! ($8ht o+ (e)e,"t$o- !ithin one ?1> year from the issuance of the certificate of sale, in a foreclosure of mort3a3e sale of real property, no capital 3ains tax shall be imposed because no capital 3ains has been deri ed by the mort3a3or and no sale or transfer of real property !as reali#ed$ FSec$ ' ?1>, 0e $ 0e3s$ No$ AJ99H 5;. 1- #%!e o+ -o-F(e)e,"t$o- o+ the "(o"e(t' !o&) upon a foreclosure of mort3a3e sale, the presumed capital 3ains tax shall be imposed, based on the bid price of the hi3hest bidder but only upon the expiration of the one year period of redemption pro ided for under Sec$ @ of =ct No$ '1'-, as amended by =ct No$ A11+, and shall be paid !ithin thirty ?'0> days from the expiration of the said oneJyear redemption period$ FSec$ ' ?2>, 0e $ 0e3s$ No$ AJ99H

31

in relation to Sec$ 2A ?=> ?1>, both of the N10C of 199,H or the final presumed capital 3ains tax of six percent ?@6>$ FSec$ 2A ?.> ?1> in relation to Sec$ @ ?)>, both of the N10C of 199,H 5>. The !e&&e( o+ the (e%& "(o"e(t'7 #&%!!$+$e) %! % #%"$t%& %!!et7 "%'! the "(e! ,e) #%"$t%& 8%$-! t%. !hether5 a$ an indi idual FSec$ 2A ?.> ?1>, N10C of 199,HG 1> Citi#en, !hether resident or not FI%i".HG 2> 0esident alien FI%i".HG '> Nonresident alien en3a3ed in trade or business in the 9hilippines FSec$ 2- ?=> ?'> in relation to Sec$ 2A ?.> ?1>, both of the N10C of 199,HG A> Nonresident alien not en3a3ed in trade or business in the 9hilippines FSec$ 2- ?(> in relation to Sec$ 2A ?.> ?1>, both of the N10C of 199,HG b$ an estate or trust ?I%i".>G c$ a domestic corporation$ FSec$ 2, ?.> ?->, N10C of 199,H

55. The *%!$! +o( the +$-%& "(e! ,e) #%"$t%& 8%$-! t%. o+ !$. "e( #e-t @<IA is !hiche er is the hi3her of the
a$ 3ross sellin3 price, or b$ the current fair mar&et alue as determined belo!5 1> the fair mar&et alue or real properties located in each #one or area as determined by the Commissioner of 1nternal 0e enue after consultation !ith competent appraisers both from the pri ate and public sectorsG or 2> the fair mar&et alue as sho!n in the schedule of alues of the 9ro incial and City =ssessors$ FSec$ 2A ?.> ?1> in relation to Sec$ @ ?)>, both of the N10C of 199,H 1t does not matter !hether there !as an actual 3ain or loss because the tax is a DpresumedE capital 3ains tax$ 1t is the transaction that is taxed not the 3ain$ 5<. Ho&)$-8 "e($o) -ot %""&$e) to the taxation of the presumed capital 3ains deri ed from the sale of real property considered as capital assets$

59. E.#e"te) +(o, the "%',e-t o+ the "(e! ,e) #%"$t%& 8%$-! t%. %(e tho!e "(e! ,e) to h%/e *ee- (e%&$Be) +(o, the )$!"o!$t$o- *' -%t (%& "e(!o-! o+ the$( "($-#$"%& "&%#e o+ (e!$)e-#e
a$ the proceeds of !hich is fully utili#ed in ac"uirin3 or constructin3 a ne! principal residenceG b$ !ithin ei3hteen ?1+> calendar months from the date of sale or disposition c$ the (10 Commissioner shall ha e been duly notified by the taxpayer !ithin thirty ?'0> days from the date of sale or disposition throu3h a prescribed return of his intention to a ail of the tax exemptionG and d$ the said tax exemption can only be a ailed of once e ery ten ?10> years$ FSec$ 2A ?.> ?2>, N10C of 199,H <0. A +$-%& w$thho&)$-8 t%. @40TA o+ 20I o- "%!!$/e $-#o,e $! #o&&e#te) +(o, the $-te(e!t $-#o,e o+ *%-H!. 1t &$Hew$!e h%! to "%' % 5I 8(o!! (e#e$"t! t%. @2RTA o- 8(o!! (e#e$"t! wh$#h $-#& )e! the$( "%!!$/e $-#o,e. 65G B%-H -ow #&%$,! th%t the 2RT !ho &) *e #o," te) %+te( )e) #t$-8 the 20I "%!!$/e $-#o,e t%. o- the 8(o -) th%t the ,o-$e! o( (e#e$"t! th%t )o -ot (e)o -) to the *e-e+$t o+ the t%."%'e( %(e -ot "%(t o+ $t! 8(o!! (e#e$"t!. To $,"o!e the 2RT w$tho t )e) #t$-8 the 20I wo &) *e )o *&e t%.%t$o-. 1t %&!o #o-te-)! th%t !$-#e the 20I w%! w$thhe&) %t !o (#e %-) $! "%$) )$(e#t&' to the 8o/e(-,e-t7 the- the *%-H h%! -ot (e#e$/e) the !%,e. Th !7 $t !ho &) -ot *e $-#& )e) $- the 8(o!! (e#e$"t! ! *?e#t to t%..

5=. The t%. &$%*$&$t'7 o+ $-)$/$) %& t%."%'e(! @-ot #o("o(%teA7 $+ %-'7 o- 8%$-! +(o, !%&e! o( othe( )$!"o!$t$o-! o+ (e%& "(o"e(t'7 #&%!!$+$e) %! #%"$t%& %!!et!7 to the 8o/e(-,e-t or any of its political subdi isions or a3encies or to
3o ernment o!ned or controlled corporations shall be determined, at the option of the taxpayer, by includin3 the proceeds as part of 3ross income to be subBected to the allo!able deductions and7or personal and additional exemptions, then to the schedular tax FSec$ 2A ?.> ?1>,

Re!o&/e the $!! e o+ whethe( the 20I 40T o- the *%-HE! "%!!$/e $-#o,e +o(, "%(t o+ the t%.%*&e 8(o!! (e#e$"t! +o( the " ("o!e o+ #o," t$-8 the 5I 2RT. S8<<)ST). =NSW)05 No$ The !ord D3rossE must be used in its plain and ordinary meanin3$ 1t is defined as D!hole, entire, total, !ithout deduction$E Thus, the 206 should not be deducted for purposes of computin3 the -6 3ross receipts tax$ 0eceipt may either be actual or constructi e$ There is prior to the !ithholdin3 a constructi e receipt of the interest, other!ise there !ould be no interest from !here the 206 tax may be !ithheld from$ There is no double taxation because there are t!o &inds of taxes, the 206 CWT !hich is an income tax and the -6 <0T !hich is a percenta3e tax$ ?Commissioner of Internal &evenue v. Citytrust Investment Phils., Inc., <$ 0$ No$ 1'9,+@, September 2,, 200@ and companion case> N/T)S =N. C/MM)NTS5 a$ Co##issioner of (nternal Revenue v. Manila &oc)e! Club, 10> Ph$&. >21 @19<0A $! )$++e(e-t +(o, Co##issioner of (nternal Revenue v. Cit!trust (nvest#ent Phils., (nc., 2. R. No. 1:9=><7 Se"te,*e( 2=7 200< %-) #o,"%-$o- #%!e. Manila Ioc&ey Club paid amusement taxes on its commission in the total amount of bets called !a3er funds and did not include the -V6 of the fund !hich !ent to the (oard on 0aces and to the o!ners of horses and Boc&eys$ The Supreme Court rules that the 3ross receipts of Manila Ioc&ey Club should not include the -V6 because althou3h deli ered to the Club, such money has been especially earmar&ed by la! or re3ulation for other persons$ Manila Ioc&ey does not apply because !hat happened there !as earmar&in3 and not !ithholdin3$ )armar&in3 is not the same as !ithholdin3$ =mounts earmar&ed do not form part of 3ross receipts because these are by la! or re3ulation reser ed for some person other than the taxpayer, althou3h deli ered or recei ed$ /n the contrary, amounts !ithheld form part of 3ross receipts because there are in constructi e possession and not subBect to any reser ation, the !ithholdin3 a3ent bein3 merely a conduit in the collection process$ ?Commissioner of Internal &evenue v. Citytrust Investment Phils., Inc., <$ 0$ No$ 1'9,+@, September 2,, 200@ and companion case> b$ The(e %(e )$!t$-#t$o-! *etwee- the 20I 40T o$-te(e!t $-#o,e %-) the 5I 2RT o- *%-H!. S$-#e the two %(e )$++e(e-t the(e $! -o )o *&e t%.%t$o-. 1> CWT is an income tax under Title 11 of the Code ?Tax on 1ncome> !hile <0T is a percenta3e tax under Title * of the Tax Code$ 2> 9ercenta3e tax is a national tax measured by a certain percenta3e of the 3ross sellin3 price or 3ross alue in money of 3oods sold, bartered or importedG or of the 3ross

32

receipts or earnin3s deri ed by any person en3a3ed in the sale of ser ices !hile an income tax is a national tax imposed on the net or 3ross income reali#ed in a taxable year$ '> 1ncome tax is subBect to !ithholdin3 !hile percenta3e is not$ ?Commissioner of Internal &evenue v. Citytrust Investment Phils., Inc., <$ 0$ No$ 1'9,+@, September 2,, 200@ and companion case> <1. MBC w%! $-#o("o(%te) $- 19<1 %-) e-8%8e) $#o,,e(#$%& *%-H$-8 o"e(%t$o-! !$-#e 19>=. O- M%' 227 19>=7 $t #e%!e) o"e(%t$o-! th%t 'e%( *' (e%!o- o+ $-!o&/e-#' %-) $t! %!!et! %-) &$%*$&$t$e! we(e "&%#e) -)e( the #h%(8e o+ % 8o/e(-,e-tF%""o$-te) (e#e$/e(. O- 3 -e 2:7 19997 the BSP % tho($Be) MBC to o"e(%te %! % th($+t *%-H. 1- 20007 1t +$&e) $t! t%. (et (- +o( the 'e%( 1999 "%'$-8 the %,o -t o+ P:: ,$&&$o- #o," te) $- %##o()%-#e w$th the ,$-$, , #o("o(%te $-#o,e t%. @MC1TA. 1t !o 8ht the B1RE! ( &$-8 o- whethe( $t $! e-t$t&e) to the +o ( @;A 'e%( 8(%#e "e($o) +o( "%'$-8 o- the *%!$! o+ MC1T (e#Ho-e) +(o, 1999. B1R the( &e) th%t #e!!%t$o- o+ * !$-e!! %#t$/$t$e! %! % (e! &t o+ *e$-8 "&%#e) -)e( $-/o& -t%(' (e#e$/e(!h$" ,%' *e %- e#o-o,$# (e%!o- +o( ! !"e-)$-8 the $,"o!$t$o- o+ the MC1T. A! % (e! &t o+ the ( &$-8 MBC +$&e) %- %""&$#%t$o- +o( (e+ -) o+ the P:: ,$&&$o-. D e to the B1RE! $-%#t$o-7 MBC +$&e) % "et$t$o- +o( (e/$ew w$th the CTA. The CTA )e-$e) the "et$t$o- o- the 8(o -) th%t MBC $! -ot % -ew&' o(8%-$Be) #o("o(%t$o-. 1- % /o&te +%#$e the B1R -ow ,%$-t%$-! th%t MBC !ho &) "%' the MC1T *e8$--$-8 3%- %(' 17 199> %! $t )$) -ot #&o!e $t! * !$-e!! o"e(%t$o-! $- 19>= * t ,e(e&' ! !"e-)e) the !%,e. E/e- $+ "&%#e) -)e( (e#e$/e(!h$"7 the #o("o(%te e.$!te-#e w%! -e/e( %++e#te). Th !7 $t +%&&! -)e( the #%te8o(' o+ %- e.$!t$-8 #o("o(%t$o- (e#o,,e-#$-8 $t! *%-H$-8 o"e(%t$o-!. Sho &) the (e+ -) *e 8(%-te) 9 S8<<)ST). =NSW)05 Kes$ The MC1T shall be imposed be3innin3 in the fourth taxable year immediately follo!in3 the year in !hich the corporation commenced its business operations$ FSec$ 2, ?)> ?1>, N10C of 199,H The date of commencement of operations of a thrift ban& is the date it !as re3istered !ith the S)C or the date !hen the Certificate of =uthority to /perate !as issued to it by the Monetary (oard, !hiche er comes later$ ?Sec$ @, 0e $ 0e3s$ No$ AJ9-> Clearly then$ M(C is entitled to the 3race period of four years from Iune 2', 1999 !hen it !as authori#ed by the (S9 to operate as a thrift ban& before the MC1T should be applied to it$ ? $anila Ban4in#

Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1@+11+, =u3ust 2@, 200@> N/T)S =N. C/MM)NTS5 a$ The MC1T %-) whe- !ho &) *e $,"o!e) %-) the +o ( @;A 'e%( 8(%#e "e($o). D= minimum corporate income tax of t!o percent ?26> of the 3ross income as of the end of the taxable year, as defined herein, is hereby imposed on a corporation taxable under this Title, be3innin3 on the fourth taxable year immediately follo!in3 the year in !hich such corporation commenced its business operations, !hen the minimum corporate income tax is 3reater than the tax computed under Subsection ?=> of this section for the taxable year$E FSec$ 2, ?)> ?1>, N10C of 199,H b$ Pe($o) whe- % #o("o(%t$o- *e#o,e! ! *?e#t to the MC1T. D?-> Specific rules for determinin3 the period !hen a corporation becomes subBect to the MC1T ?minimum corporate income tax> J Cor purposes of the MC1T, the taxable year in !hich business operations commenced shall be the year in !hich the domestic corporation re3istered !ith the (ureau of 1nternal 0e enue ?(10>$ Cirms !hich !ere re3istered !ith (10 in 199A and earlier years shall be co ered by the MC1T be3innin3 Ianuary 1, 199+$ x x xE ?0e $ 0e3s$ No$ 9J9+> $anila Ban4in# Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1@+11+, =u3ust 2@, 200@ did not apply 0e $ 0e3s$ No$ 9J9+ because 0e $ 0e3s$ No$ AJ9- specifically refers to thrift ban&s$> c$ P ("o!e o+ the +o ( @;A 'e%( 8(%#e "e($o). The intent of Con3ress relati e to the MC1T is to 3rant a four ?A'> L year suspension of tax payment to ne!ly or3ani#ed corporations$ Corporations still startin3 their business operations ha e to stabili#e their enture in order to obtain a stron3hold in the industry$ 1t does not come as a surprise then !hen many companies reported losses in their initial years of operations$ Thus, in order to allo! ne! corporations to 3ro! and de elop at the initial sta3es of their operations, the la!ma&in3 body sa! the need to pro ide a 3race period of four years from their re3istration before they pay their minimum corporate income tax$ ? $anila Ban4in# Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1@+11+, =u3ust 2@, 200@>

33

his death of all his real property, !here er situated, personal property, !hether tan3ible, intan3ible or mixed, !here er situated, to the extent of the interest existin3 therein of the decedent at the time of his death$

The 8(o!! e!t%te +o( " ("o!e! o+ e!t%te t%.%t$o- o+ -o-F(e!$)e-t %&$e-! includes the alue at the time of
his death of all the real property situated in the 9hilippines, personal property !hether tan3ible, intan3ible or mixed, situated in the 9hilippines, to the extent of the interest therein of the decedent at the time of his death$ :$ 1te,! )e) #t$*&e +(o, the 8(o!! e!t%te o+ % (e!$)e-t o( -o-(e!$)e-t 4$&$"$-o )e#e)e-t o( (e!$)e-t %&$e- )e#e)e-t: a$ )xpenses, losses, claims, indebtedness and taxesG b$ 9roperty pre iously taxedG c$ Transfers for public useG d$ The Camily :ome up to a alue not exceedin3 91 millionG e$ Standard deduction of 91 millionG f$ Medical expenses not exceedin3 9-00,000$00G 3$ =mount of exempt retirement recei ed by the heirs under 0ep$ =ct Mo$ A91,G h$ Net share of the sur i in3 spouse in the conBu3al partnership$ ;. Not e ery interJ i os transfer in anticipation of death is considered Dtransfer in contemplation of deathE for purposes of determinin3 the property to be included in the 3ross estate of a decedent$ 5. To be considered a t(%-!+e( $- #o-te,"&%t$o- o+ )e%thE Dthe decedent has at any time made a transfer, by trust or other!ise, in contemplation of or intended to ta&e effect in possession or enBoyment at or after deathE FSec$ +- ?(>, N10C of 199,H$ 1t is clear that the properties are not transferred in contemplation of or intended to ta&e effect in possession or enBoyment at or after death$ <. There is no transfer in contemplation of death if there is no sho!in3 the transferor Dretained for his life or for any period !hich does not in fact end before his death5 ?1> the possession or enBoyment of, or the ri3ht to the income from the property, or ?2> the ri3ht, either alone or in conBunction !ith any person, to desi3nate the person !ho shall possess or enBoy the property or the income therefrom$E FSec$ +- ?(>, N10C of 199,H

2.

ESTATE TA6ES

1. The 8(o!! e!t%te +o( " ("o!e! o+ e!t%te t%.%t$o- o+ 4$&$"$-o #$t$Be-!7 whethe( (e!$)e-t! o( -o-(e!$)e-t! %-) (e!$)e-t %&$e- includes the alue at the time of

The %""(o/%& o+ the #o (t !$tt$-8 $- "(o*%te7 o( %! % !ett&e,e-t t($* -%& o/e( the e!t%te o+ the )e#e%!e) $! -ot % ,%-)%to(' (eD $(e,e-t +o( the #o&&e#t$o- o+ the e!t%te. The probate court is determinin3 issues !hich are not
a3ainst the property of the decedent, or a claim a3ainst the estate as such, but is a3ainst the interest or property ri3ht !hich the heir, le3atee, de isee, etc$ has in the property formerly held by the decedent$ The notices of le y !ere re3ularly issued !ithin the prescripti e period$ The tax assessment ha in3 become final, executory and enforceable, the same can no lon3er be contested by means of a dis3uised protest$ ($arcos, II v. Court of Appeals, et al $, 2,' SC0= A,>

=.

34

net 3ift is measured by deductin3 from the fair mar&et alue of the property the amount of the mort3a3e assumed$ ?last
par$, Sec$ 11, 0e $ 0e3s$No$2J200'>

5. How %(e 8$+t! o+ "e(!o-%& "(o"e(t' to *e /%& e) +o( )o-o(E! t%. " ("o!e! 9
S8<<)ST). =NSW)05 The mar&et alue of the personal property at the time of the 3ift shall be considered the amount of the 3ift$ ?Sec$ 102, N10C of 199,>

<. 0h%t $! the /%& %t$o- o+ )o-%te) (e%& "(o"e(t' +o( )o-o(E! t%. " ("o!e! 9
S8<<)ST). =NSW)05 The real property shall be appraised at its fair mar&et alue as of the time of the 3ift$ :o!e er, the appraised alue of the real property at the time of the 3ift shall be !hiche er is the hi3her of5 a$ the fair mar&et alue as determined by the Commissioner of 1nternal 0e enue ?#onal aluation> or b$ the fair mar&et alue as sho!n in the schedule of alues fixed by the 9ro incial and City =ssessors$ FSec$ 102, in relation to Sec$ ++ ?(> both of the N10C of 199,H

DONORES TA6ES

1. 0h%t $! the )o-o(E! t%. (%te $+ the )o-ee $! % !t(%-8e( 9

S8<<)ST). =NSW)05 When the donee or beneficiary is a stran3er, the tax payable by the donor shall be '06 of the net 3ifts$

2. 4o( " ("o!e! o+ the )o-o(E! t%. who $! % !t(%-8e( 9

S8<<)ST). =NSW)05 = stran3er is a is person !ho is not a5 a$ (rother, sister ?!hether by !hole or halfJblood>, spouse, ancestor and lineal descendantG or b$ 0elati e by consan3uinity in the collateral line !ithin the fourth de3ree of relationship$E FSec$ 99 ?(>, N10C of 199,H N/T)S =N. C/MM)NTS5 =ll relati es by affinity, irrespecti e of the de3ree, are considered as stran3ers$

=. A )$e) &e%/$-8 %! h$! o-&' he$(!7 h$! ! (/$/$-8 !"o !e B7 %-) th(ee ,$-o( #h$&)(e-7 67 5 %-) G. S$-#e B )oe! -ot w%-t to "%(t$#$"%te $- the )$!t($* t$o- o+ the e!t%te7 !he (e-o -#e) he( he(e)$t%(' !h%(e $- the e!t%te. %. 1! the (e- -#$%t$o- ! *?e#t to )o-o(E! t%. 9 E."&%$-.
S8<<)ST). =NSW)05 No$ The 3eneral renunciation by an heir, includin3 the sur i in3 spouse, as in the case (, of her share in the hereditary estate left by the decedent is not subBect to donor%s tax$ ?Ath par$, Sec$ 11, 0e $ 0e3s$ No$ 2J200'> This is so because the 3eneral renunciation by ( !as not specifically and cate3orically done in fa or of identified heir7s to the exclusion or disad anta3e of the other coJheirs in the hereditary estate$

:.

0h%t $! the t%. *%!e +o( )o-%t$o-! 9

S8<<)ST). =NSW)05 The net 3ifts made durin3 the calendar year$ FSec$ 99 ?=>, N10C of 199,H

;. 4o( " ("o!e! o+ the )o-o(E! t%.7 wh%t $! ,e%-t *' -et 8$+t! 9 S8<<)ST). =NSW)05 The net economic benefit from the transfer that accrues to the donee$ =ccordin3ly, if a mort3a3ed property is transferred as a 3ift, but imposin3 upon the donee the obli3ation to pay the mort3a3e liability, then the

*. S ""o!$-8 th%t $-!te%) o+ % 8e-e(%& (e- -#$%t$o-7 B (e-o -#e) he( he(e)$t%(' !h%(e $- AE! e!t%te to 6 who $! % !"e#$%& #h$&)7 wo &) 'o ( %-!we( *e the !%,e 9 E."&%$-.
S8<<)ST). =NSW)05 My ans!er !ould be different$ The renunciation in fa or of ; !ould be subBect to donor%s tax$ This is so because the renunciation !as specifically and cate3orically done in fa or of ; and identified heir to the exclusion

or disad anta3e of K and 2, the other coJheirs in the hereditary estate$ ?Ath par$, Sec$ 11, 0e $ 0e3s$ No$ 2J200'>

35

>. 2$/e !o,e )o-%t$o-! th%t %(e e.e,"t +(o, )o-o(E! t%..
S8<<)ST). =NSW)05 a. The first 9100,000$00 net donation durin3 a calendar year is exempt from donor%s tax FSec$ 99 ?=>, N10C of 199,H made by a resident or non residentG b$ The donation by a resident or nonJresident of a pri#e to an athlete in an international sports tournament held abroad and sanctioned by the national sports association is exempt from donor%s tax ?Sec$ 1, 0ep$ =ct No$ ,-A9> c. 9olitical contributions made by a resident or nonJresident indi idual if re3istered !ith the C/M)4)C irrespecti e of !hether donated to a political party or indi idual$ :o!e er, the Corporation Code prohibits corporations from ma&in3 political contributions$ ?Corp$ Code, Title 1*, Sec$ '@$9> d$ .o!ries or 3ifts made on account of marria3e and before its celebration or !ithin one year thereafter by residents !ho are parents to each of their le3itimate, reco3ni#ed natural, or adopted children to the extent of the first ten thousand pesos ?910,000$00>G e$ <ifts made by residents or nonJresidents to or for the use of the National <o ernment or any entity created by any of its a3encies !hich is not conducted for profit, or to any political subdi isions of the said <o ernmentG f$ <ifts made by residents or non residents in fa or of an educational and7or charitable, reli3ious, cultural or social !elfare corporation, institution, foundation, trust or philanthropic or3ani#ation or research institution or or3ani#ation5 9ro ided, ho!e er, That not more than thirty percent ?'06> of said 3ifts shall be used by such donee for administration purposes$ FSec$ 101 ?=>, N10C of 199,, numberin3 and arran3ement suppliedH 3$ <ifts made by nonJresident aliens outside of the 9hilippines to 9hilippine residents are exempt from donor%s taxes because taxation is basically territorial$ The transaction, !hich should ha e been subBect to tax !as made by nonJresident aliens and too& place outside of the 9hilippines$

1n 200+ 4eon !as thin&in3 of donatin3 a 9200,000$00 to Mi&los, his first cousin$ The 9200,000$00 is the totality of the net 3ifts for 200+$ 1f he donated the 9200,000$00 in 200+ the first 9100,000 !ould be exempt and the remainin3 9-0,000$00 !ould be subBect to donor%s tax 1f 4eon spreads the 9200,000 donation o er t!o ?2> calendar years, donatin3 9100,000$00 on .ecember '0, 200+ and the remainin3 9100,000$00 on Ianuary 1, 2009 the transaction !ould be exempt from donor%s tax$ This is so e en if the donation is separated only by t!o days because the basis is the calendar year$ 4eon !ould be enBoyin3 the exemption for the first 9100,000$00 net 3ifts for each calendar year$

10. A !o&) to B %-) P= ,$&&$o- 3%8 %( +o( o-&' P; ,$&&$o-. The "(o"e( VAT o- the !%&e w%! "%$). 1+ 'o %(e the B1R e.%,$-e( %!!$8-e) to (e/$ew the !%&e7 wo &) 'o $!! e % t%. %!!e!!,e-t o- the t(%-!%#t$o- 9 E."&%$- 'o ( %-!we( *($e+&'.
S8<<)ST). =NSW)05 .onor%s taxes !ould be due on the insufficiency of consideration$ Where property, other than real property that has been subBected to the final capital 3ains tax, is transferred for less than an ade"uate and full consideration in money or money%s !orth, then the amount by !hich the fair mar&et alue of the property at the time of the execution of the Contract to Sell or execution of the .eed of Sale !hich is not preceded by a Contract to Sell exceeded the alue of the a3reed or actual consideration or sellin3 price shall be deemed a 3ift, and shall be included in computin3 the amount of 3ifts made durin3 the calendar year$ ?- th par$, Sec$ 11, 0e $ 0e3s$ No$ 2J200'>

VALUEFADDED TA6ES @VATA

1.

De+$-e /%& eF%))e) t%. @VATA.

S8<<)ST). =NSW)05 = tax !hich is imposed only on the increase in the !orth, merit or importance of 3oods, properties or ser ices, and not on the total alue of the 3oods or ser ices bein3 sold or rendered$

9. 0h%t $! the #o-#e"t o+ )o-%t$o- o( 8$+t !"&$tt$-8 9 1&& !t(%te.

SU22ESTED ANS0ER: .onation or 3ift splittin3 is spreadin3 the 3ift o er numerous calendar years in order to a ail of lo!er donor%s taxes$

2.

0h%t $! the -%t (e o+ VAT 9

S8<<)ST). =NSWS)05 *=T is an indirect tax that may be shifted or passed on to the buyer, transferee or lessee of the 3oods, properties or ser ices$ =s such, it should be understood not in the context of the person or entity that is primarily, directly liable for its payment, but in terms of its nature as a tax on consumption$

FCommissioner of Internal &evenue v. Sea#ate *echnolo#y (Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200- citin3 arious authoritiesW =s an indirect tax on ser ices, its main obBect is the transaction itself or, more concretely, the performance of all &inds of ser ices conducted in the course of trade or business in the 9hilippines$ These ser ices must be re3ularly conducted in this country, underta&en in Dpursuit of a commercial or an economic acti ity,E for a aluable consideration, and not exempt under the Tax Code, other special la!s, or any international a3reement$ ?Commissioner, of Internal &evenue v. American /6press International, Inc. (Philipppine Branch', <$ 0$ No$ 1-2@09, Iune 29, 200- citin3 arious cases and authorities> *=T is a percenta3e tax imposed on any person !hether or not a franchise 3rantee, !ho in the course of trade or business, sells, barters, exchan3es, leases, 3oods or properties, renders ser ices$ 1t is also le ied on e ery importation of 3oods !hether or not in the course of trade or business$ The tax base of the *=T is limited only to the alue added to such 3oods, properties, or ser ices by the seller, transferor or lessor$ Curther, the *=T is an indirect tax and can be passed on to the buyer$ ? Quezon City, et al., v. ABS CB! Broa"castin# Corporation, <$ 0$ No$ 1@@A0+, /ctober @, 200+>

36

S8<<)ST). =NSW)05 Consumption is Pthe use of a thin3 in a !ay that thereby exhausts it$P =pplied to ser ices, the term means the performance or Psuccessful completion of a contractual duty, usually resultin3 in the performerOs release from any past or future liability x x xP 8nli&e 3oods, ser ices cannot be physically used in or bound for a specific place !hen their destination is determined$ 1nstead, there can only be a Ppredetermined end of a courseP !hen determinin3 the ser ice Plocation or position x x x for le3al purposes$P Cor example the ser ices rendered by a local firm to its forei3n client are performed or successfully completed upon its sendin3 to a forei3n client the drafts and bills it has 3athered from ser ice establishments here$ 1ts ser ices, ha in3 been performed in the 9hilippines, are therefore also consumed in the 9hilippines$ Such facilitation ser ice has no physical existence, yet ta&es place upon rendition, and therefore upon consumption, in the 9hilippines$ FCommissioner of Internal &evenue v. American /6press <$0$ No$ 1-2@09, 29 Iune 200-, A@2 SC0= 19, cited in Commissioner of Internal &evenue v. Placer .ome *echnical Services (Phils.', Inc. <$ 0$ No$ 1@A'@-, Iune +, 200,H

5.

0ho %(e &$%*&e +o( the /%& eF%))e) t%. 9

:. 0h%t $! the e++e#t o- e.e,"t$o-! o+ VAT *e$-8 %- $-)$(e#t t%. 9 Re%!o- o t %-) $&& !t(%te 'o ( %-!we(.
S8<<)ST). =NSW)05 1f a special la! merely exempts a party as a seller from its direct liability for payment of the *=T, but does not relie e the same party as a purchaser from its indirect burden of the *=T shifted to it by its *=TJre3istered suppliers, the purchase transaction is not exempt$ 0)=S/N5 The *=T is a tax on consumption, the amount of !hich may be shifted or passed on by the seller to the purchaser of the 3oods, properties or ser ices$ F Commissioner of Internal &evenue v. Sea#ate *echnolo#y (Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200-> 1llustration5 = *=T exempt seller sells to a nonJ*=T exempt purchaser$ The purchaser is subBect to *=T because the *=T is merely added as part of the purchase price and not as a tax because the burden is merely shifted$ The seller is still exempt because it could pass on the burden of payin3 the tax to the purchaser $

S8<<)ST). =NSW)05 a$ =ny person !ho, in the course of his trade or business, 1> Sells, barters, exchan3es or leases 3oods or properties, or 2> renders ser ices, and b$ any person !ho imports 3oods xxx :o!e er, in the case of importation of taxable 3oods, the importer, !hether an indi idual or corporation and !hether or not made in the course of his trade or business, shall be liable to *=T xxx$ ?0e $ 0e3s$ No$ 1@J200-,Sec$ A$10-J1, paraphrasin3 supplied>

<. 0h%t %(e the /%($o ! VAT ,etho)! %-) !'!te,! 9

S8<<)ST). =NSW)05 a$ Co!t )e) #t$o- ,etho). This is a sin3leJsta3e tax !hich is payable only by the ori3inal sellers$ FA%a4a"a (uro Party List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200- and companion cases citin3 .eoferio, Ir$ *$ =$ and Mamalateo, *$C$, *he ,alue A""e" *a6 in the Philippines ?Cirst )dition 2000>H This !as subse"uently modified and a mixture of Dcost deduction methodE and Dtax credit methodE !as used to determine the alueJadded tax payable$ ? I%i".>

;. The VAT $! % t%. o- #o-! ,"t$o-. E."&%$- the ,e%-$-8 o+ #o-! ,"t$o- %! !e) -)e( the VAT !'!te,. 2$/e %- e.%,"&e.

b$ T%. #(e)$t ,etho). This method relies on in oices, an entity can credit a3ainst or subtract from the *=T char3ed on its sales or outputs the *=T paid on its purchases, inputs and imports$ FCommissioner of Internal &evenue v. Sea#ate *echnolo#y (Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200- citin3 arious cases and authoritiesG A%a4a"a (uro Party List (etc.' v. /rmita, etc., et al., <$ 0$ No$ 1@+0-@, September 1, 200- and companion cases> 1f at the end of a taxable period, the output taxes char3ed by a seller are e"ual to the input taxes passed on by the suppliers, no payment is re"uired$ 1t is !hen the output taxes exceed the input taxes that the excess has to be paid$ 1f ho!e er, the input taxes exceed the output taxes, the excess shall be carried o er to the succeedin3 "uarter or "uarters$ Should the input taxes result from #eroJrated or effecti ely #eroJrated transactions or from ac"uisition of capital 3oods, any excess o er the output taxes shall instead be refunded to the taxpayer or credited a3ainst other internal re enue taxes$ FCommissioner of Internal &evenue v. Sea#ate *echnolo#y (Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200- citin3 arious cases and authoritiesH

37

exempt acti ity$ ?0e $ 0e3s$ No$ A$110J1, 1 st par$, 2nd sentence,$ =nd 2nd par$, paraphrasin3, arran3ement and numberin3 supplied >

11. M%' the ($8ht to #(e)$t the $-" t t%. *e &$,$te) *' &e8$!&%t$o- 9
S8<<)ST). =NSW)05 Kes because it $! % ,e(e #(e%t$oo+ &%w. 9rior to the enactment of multiJsta3e sales taxation, the sales taxes paid at e ery le el of distribution are not reco erable from the taxes payable$ With the ad ent of )xecuti e /rder No$ 2,' imposin3 a 106 multiJsta3e tax on all sales, it !as only then that the creditin3 of the input tax paid on purchase or importation of 3oods and ser ices by *=TJre3istered persons a3ainst the output tax !as established$ This continued !ith the )xpanded *=T 4a! ?0$=$ No$ ,,1@>, and The Tax 0eform =ct of 199, ?0$=$ No$ +A2A>$ The ri3ht to credit input tax as a3ainst the output tax is clearly a pri ile3e created by la!, a pri ile3e that also the la! can limit$ 1t should be stressed that a person has no ested ri3ht in statutory pri ile3es$ (ABA1A.A (uro Party List, etc. et al. vs. /rmita, <$0$ No$ 1@+20,, /ctober 1-, 200-, and companion cases, on the motion for reconsideration>

=. The VAT *e$-8 $,"o!e) o- the $-#(e%!e $wo(th ,e($t o( $,"(o/e,e-t o+ the 8oo)! o( !e(/$#e!. How $! th$! )o-e 9
S8<<)ST). =NSW)05 The *=T utili#es the concept of the output and input taxes$

12. 0h%t $! the #o-#e"t o+ t(%-!$t$o-%& $-" t t%. #(e)$t! o- *e8$--$-8 $-/e-to($e! 9
S8<<)ST). =NSW)05 Taxpayers !ho become *=TJ re3istered persons upon exceedin3 the minimum turno er of 91,-00,000$00 in any 12Jmonth period, or !ho oluntarily re3ister e en if their turno er does not exceed 91,-00,000$00 ?except franchise 3rantees of radio and tele ision broadcastin3 !hose threshold is 910,000,000$00> shall be entitled to a transitional input tax on the in entory on hand as of the effecti ity of their *=T re3istration, on the follo!in35 a$ 3oods purchased for resale in their present conditionG b$ materials purchased for further processin3, but !hich ha e not yet under3one processin3G c$ 3oods !hich ha e been manufactured by the taxpayerG d$ 3oods in process for saleG or e$ 3oods and supplies for use in the course of the taxpayer%s trade or business as a *=TJre3istered person$ F0e $ 0e3s$ No$ 1@J200-, Sec$A$111J1, ?a>, 1st par$, arran3ement and numberin3 suppliedH

>.

De+$-e o t" t t%..

S8<<)ST). =NSW)05 The alueJadded tax due on the sale or lease or taxable 3oods, properties or ser ices by any *=TJ re3istered person$

9.

De+$-e $-" t t%..

S8<<)ST). =NSW)05 The *=T due on or paid by a *=TJ re3istered person on importation of 3ood or local purchases of 3oods or ser ices, includin3 lease or use of properties, in the course of his trade or business$ ?0e $ 0e3s$ No$ A$110J1, 1st par$>

10.

0h%t %(e $-#& )e) $- the $-" t t%..

S8<<)ST). =NSW)05 1t shall also include 5 a$ the transitional input tax and b$ the presumpti e input tax xxx$ 1t includes c$ input taxes !hich can be directly attributed to transactions subBect to the *=T plus a ratable portion of any input tax !hich cannot be directly attributed to either the taxable or

1;. #(e)$t! 9

0h%t $! the #o-#e"t o+ "(e! ,"t$/e $-" t t%.

S8<<)ST). =NSW)05 9ersons or firms en3a3ed in the processin3 of sardines, mac&erel, and mil&, and in manufacturin3

refined su3ar, coo&in3 oil and pac&ed noodleJbased instant meals, shall be allo!ed a presumpti e input tax, creditable a3ainst the output tax, e"ui alent to four percent ?A6> of the 3ross alue in money of their purchases of primary a3ricultural products !hich are used as inputs to their production$ =s used in this para3raph, the term processin3 shall mean pasteuri#ation, cannin3 and acti ities !hich throu3h 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 !hich it could not ha e been put in its ori3inal form or condition$ F0e $ 0e3s$ No$ 1@J200-, Sec$A$111J1, ?b>H

38

15. Doe! the VAT (e8$!t(%t$o- +ee /$o&%te (e&$8$o ! +(ee)o, 9

S8<<)ST). =NSWS)05 The *=T re3istration fee imposed on nonJ*=T enterprises !hich includes amon3 others, reli3ious sects !hich sells and distributes reli3ious literature is not iolati e of reli3ious freedom, althou3h a fixed amount is not imposed for the exercise of a pri ile3e but only for the purpose of defrayin3 part of the cost of re3istration$ The re3istration fee is thus more of an administrati e fee, one not imposed on the exercise of a pri ile3e, much less a constitutional ri3ht$ (*olentino v. Secretary of -inance, et al., an" companion cases, 2'- SC0= @'0>

1<. E."&%$- the "(o"e( $-te("(et%t$o- o+ the te(, 1- the Co (!e o+ T(%)e o( B !$-e!!. S8<<)ST). =NSWS)05 *=T is not a sin3ularJ
minded tax on e ery transactional le el$ 1ts assessment bears direct rele ance to the taxpayer%s role or lin& in the production chain$ :ence, as affirmed by Section 99 of the Tax Code and its subse"uent incarnations, the tax is le ied only on the sale, barter or exchan3e of 3oods or ser ices by persons !ho en3a3e in such acti ities, $- the #o (!e o+ t(%)e o( * !$-e!! $ These transactions outside the course of trade or business may in ariably contribute to the production chain, but they do so only as a matter of accident or incident$ =s the sales of 3oods or ser ices do not occur !ithin the course of trade or business, the pro iders of such 3oods or ser ices !ould hardly, if at all, ha e the opportunity to appropriately credit any *=T liability as a3ainst their o!n accumulated *=T collections since the accumulation of output *=T arises in the first place only throu3h the ordinary course of trade or business$ ? Commissioner of Internal &evenue v. $a#saysay Lines, Inc., et al., <$ 0$ No$ 1A@9+A, Iuly 2+, 200@>

1<FA. P (! %-t to % 8o/e(-,e-t "(o8(%, o+ "($/%t$B%t$o-7 NDC7 % VATF(e8$!te(e) e-t$t' #(e%te) +o( the " ("o!e o+ !e&&$-8 (e%& "(o"e(t'7 )e#$)e) to !e&& to "($/%te e-te("($!e %&& o+ $t! !h%(e! $- $t! who&&'Fow-e) ! *!$)$%(' the N%t$o-%& M%($-e Co("o(%t$o- @NMCA. The NDC )e#$)e) to !e&& $- o-e &ot $t! NMC !h%(e! %-) +$/e @5A o+ $t! !h$"!7 wh$#h %(e :7=00 D0T Twee-FDe#He(7 LM&oe#H-e(L t'"e /e!!e&!. The /e!!e&! we(e #o-!t( #te) +o( the NDC *etwee- 19>1 %-) 19>;7 the- $-$t$%&&' &e%!e) to L BoSte/e)o($-8 Co,"%-'7 %&!o $t! who&&'Fow-e) ! *!$)$%('. S *!eD e-t&'7 the /e!!e&! we(e t(%-!+e((e) %-) &e%!e)7 o- % *%(e*o%t *%!$!7 to the NMC. The NMC !h%(e! %-) the /e!!e&! we(e o++e(e) +o( " *&$# *$))$-8. A,o-8 the !t$" &%te) te(,! %-) #o-)$t$o-! +o( the " *&$# % #t$ow%! th%t the w$--$-8 *$))e( w%! to "%' L% /%& e %))e) t%. o+ 10I o- the /%& e o+ the /e!!e&!.L M%8!%'!%' L$-e!7 1-#.7 o++e(e) to * ' the !h%(e! %-) the /e!!e&! +o( P1<>70007000.00. The *$) w%! ,%)e *' M%8!%'!%' L$-e!7 " ("o(te)&' +o( % -ew #o,"%-' !t$&& to *e +o(,e) #o,"o!e) o+ $t!e&+7 B%&$w%8 N%/$8%t$o-7 1-#.7 %-) 41M L$,$te) o+ the M%()e- 2(o " *%!e) $- Ho-8Ho-8 . The *$) w%! %""(o/e) *' the Co,,$ttee o- P($/%t$B%t$o-7 %-) % Not$#e o+ Aw%() w%! $!! e) to M%8!%'!%' L$-e!. 1! the !%&e ! *?e#t to VAT 9
S8<<)ST). =NSW)05 No$ The sale is not subBect to *=T$ 1n 1mperial $ Collector of 1nternal 0e enue, <$0$ No$ 4J ,92A, September '0, 19-- ?9, 9hil$ 992>, the term Pcarryin3 on businessP does not mean the performance of a sin3le disconnected act, but means conductin3, prosecutin3 and continuin3 business by performin3 pro3ressi ely all the acts normally incident thereofG !hile P)o$-8 * !$-e!!P con eys the idea of business bein3 done, not from time to time, but all the time$ FI$ =ranas, 89.=T). N=T1/N=4 1NT)0N=4 0)*)N8) C/.) ?W1T: =NN/T=T1/NS>, p$ @0+J9 ?19++>H$ PCo (!e o+ * !$-e!!P is !hat is usually done in the mana3ement of trade or business$ F 1),$ /. 0eeH! N R !!e&, 99 So$ ,@1, ,@A, 1'- Miss$ @-, cited in Words X 9hrases, *ol$ 10, ?19+A>H$ What is clear therefore, based on the aforecited Burisprudence, is that Pcourse of businessP or Pdoin3 businessP connotes re3ularity of acti ity$ 1n the instant case, the sale !as an isolated transaction$ The sale !hich !as in oluntary and made pursuant to the declared policy of <o ernment for pri ati#ation could no lon3er be repeated or carried on !ith re3ularity$ 1t should be emphasi#ed that the normal *=TJre3istered acti ity of N.C is

leasin3 personal property$ This findin3 is confirmed by the 0e ised Charter of the N.C !hich bears no indication that the N.C !as created for the primary purpose of sellin3 real property$ ?Commissioner of Internal &evenue v. $a#saysay Lines, Inc., et al., <$ 0$ No$ 1A@9+A, Iuly 2+, 200@>

39

19. to VAT 9

0h%t !%&e o+ o( &e%!e o+ (e%& "(o"e(t$e! ! *?e#t

1=. U-)e( the V%& e A))e) T%. @VATA7 the t%. $! $,"o!e) o- !%&e!7 *%(te(7 o( e.#h%-8e o( 8oo)! %-) !e(/$#e!. The VAT $! %&!o $,"o!e) o- #e(t%$t(%-!%#t$o-! )ee,e) !%&e!. 0h%t %(e the!e !oF#%&&e) t(%-!%#t$o-! )ee,e) !%&e! 9
S8<<)ST). =NSW)05 a$ Transfer, use or consumption not in the course of business or properties ori3inally intended for sale or for use in the course of business$ xxx .istribution or transfer to5 1> Shareholders or in estors as share in the profits of the *=TJ re3istered personG xxx or 2> Creditors in payment of debt or obli3ation c$ Consi3nment of 3oods if actual sale is not made !ithin sixty ?@0> days follo!in3 the date such 3oods !ere consi3ned$ Consi3ned 3oods returned by the consi3nee !ithin the @0Jday period are not deemed sold$ d$ 0etirement from or cessation of business, !ith respect to all 3oods on hand, 1> !hether capital 3oods, stoc&JinJtrade, supplies or materials as of the date of such retirement, or cessation, 2> !hether or not the business is continued by the ne! o!ner or successor$ xxx F0e $ 0e3s$ No$ 1@J200-, Sec$ A$10@J,, paraphrasin3, arran3ement and numberin3 suppliedH b$

S8<<)ST). =NSW)05 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 subBect to *=T$ ?0e $ 0e3s$ No$ 1@J 200-, Sec$ A$10@J', 1st par$> Thus, capital transactions of indi iduals are not subBect to *=T$ /nly real estate dealers are subBect to *=T$

20. O- 3%-. 107 200>7 67 % )o,e!t$# #o("o(%t$oe-8%8e) $- the (e%& e!t%te * !$-e!!7 !o&) % * $&)$-8 +o( P1070007000.00. 1! the !%&e ! *?e#t to the /%& eF%))e) t%. @VATA9 1+ !o7 how , #h9 E."&%$-$
S8<<)ST). =NSW)05 Kes$ 126 on the 3ross sellin3 price because the sale !as made in the ordinary course of trade of business of ;, a domestic corporation en3a3ed in the real estate business$

21. VAT 9

0h%t !%&e o+ (e%& "(o"e(t' e.e,"t +(o,

1>. 0h%t t(%-!%#t$o-! #o-!$)e(e) (et$(e,e-t o( #e!!%t$o- o+ * !$-e!! )ee,e) !%&e ! *?e#t to VAT 9
S8<<)ST). =NSW)05 a$ Chan3e of o!nership of the business$ There is chan3e in the o!nership of the business !here a sin3le proprietorship incorporatesG or 1> the proprietor of a sin3le proprietorship sells his entire business$ b$ .issolution of a partnership and creation of a ne! partnership !hich ta&es o er the business$ F0e $ 0e3s$ No$ 1@J 200-, Sec$ A$10@J, ?a>, ?A> paraphrasin3, arran3ement and numberin3 suppliedH

S8<<)ST). =NSW)05 The follo!in3 sales of real properties are exempt from *=T, namely5 a$ Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or businessG b$ Sale of real properties utili#ed for lo!Jcost housin3 as defined by 0= No$ ,2,9, other!ise &no!n as the D8rban and .e elopment :ousin3 =ct of 1992E and other related la!s, such as 0= No$ ,+'- and 0= No$ +,@'$ xxx xxx xxx c$ Sale of real properties utili#ed for sociali#ed housin3 as defined under 0= No$ ,2,9, and other related la!s !herein the price ceilin3 per unit is 922-,000$00 or as may from time to time be determined by the :8.CC and the N).= and other related la!s$ xxx xxx xxx d$ Sale of residential lot alued at /ne Million Ci e :undred Thousand 9esos ?91,-00,000$00> and belo!, or house X lot and other residential d!ellin3s alued at T!o Million <i e :undred Thousand 9esos ?92,-00,000$00> and belo! !here the instrument of sale7transfer7disposition !as executed on or after No ember 1, 200-, pro ided, That not later than Ianuary '1, 2009 and e ery three ?'> years thereafter, the amounts stated herein shall be adBusted to its present alue usin3 the Consumer 9rice 1ndex, as published by the National Statistics /ffice ?NS/>G pro ided, further,

that such adBustment shall be published throu3h re enue re3ulations to be issued not later than March '1 of each year$ 1f t!o or more adBacent residential lots are sold or disposed in fa or of one buyer, for the purpose of utili#in3 the lots as one residential lot, the sale shall be exempt from *=T only if the a33re3ate alue of the lots do not exceed 91,-00,000$00$ =dBacent residential lots, althou3h co ered by separate titles and7or separate tax declarations, !hen sold or disposed of to one and the same buyer, !hether co ered by one or separate .eed of Con eyance, shall be presumed as a sale of one residential lot$ F0e $ 0e3s$ No$ A$109J1 ?(>, ?p>, paraphrasin3 and numberin3 suppliedH

40

22. 0h%t $! the VAT o- !e(/$#e! %-) &e%!e o+ "(o"e(t$e! 9

S8<<)ST). =NSW)05 a$ There shall be le ied, assessed, and collected, b$ a alueJadded tax e"ui alent to ten percent ?106> of 3ross receipts c$ deri ed from the sale or exchan3e of ser ices, 1> includin3 the use or lease of properties$ d$ 9ro ided, That the 9resident, upon the recommendation of the Secretary of Cinance, shall, effecti e Ianuary 1, 200@, raise the rate of alueJadded tax to t!el e percent ?126>, after any of the follo!in3 conditions has been satisfied5 1> *alueJadded tax collection as a percenta3e of <ross .omestic product ?<.9> of the pre ious year exceeds t!o and fourJfifth percent ?2 A7-6>G or 2> National 3o ernment deficit as a percenta3e of <.9 of the pre ious year exceeds one and oneJhalf percent ?1 1726>$ FN10C of 199,, Sec$ 10+ ?=>, as amended by 0$=$ No$ 9'',, arran3ement and numberin3 suppliedH

3$ proprietors, operators or &eepers of hotels, motels, restJhouses, pension houses, inns, resortsG theaters, and mo ie housesG h$ proprietors or operators of restaurants, refreshment parlors, cafes and other eatin3 places, includin3 clubs and caterersG i$ dealers in securitiesG B$ lendin3 in estorsG &$ transportation contractors on their transport of 3oods or car3oes, includin3 persons !ho transport 3oods or car3oes for hire and other domestic common carriers by land relati e to their transport of 3oods or car3oesG l$ common carriers by air and sea relati e to their transport of passen3ers, 3oods or car3oes from one place in the 9hilippines to another place in the 9hilippinesG m$ sales of electricity by 3eneration companies, transmission, and7or distribution companiesG n$ franchise 3rantees of electric utilities, telephone and tele3raph, radio and tele ision broadcastin3 and all other franchise 3rantees except franchise 3rantees of radio and7or tele ision broadcastin3 !hose annual 3ross receipts of the precedin3 year do not exceed Ten Million 9esos ?910,000,000$00>, and franchise 3rantees of 3as and !ater utilitiesG o$ nonJlife insurance companies ?except their crop insurances>, includin3 surety, fidelity, indemnity and bondin3 companiesG and p$ similar ser ices re3ardless of !hether or not the performance thereof calls for the exercise or use of the physical or mental faculties. FN10C of 199,, Sec$ 10+ ?=>, as amended by 0$=$ No$ 9'',G 0e $ 0e3s$ No$ 1@J200-, Sec$ A,10+J2, 1st par$, arran3ement and numberin3 suppliedH

2:.

S%&e o( e.#h%-8e o+ !e(/$#e!7 )e+$-e).

The term Dsale or exchan3e of ser icesE means the performance of all &inds of ser ices in the 9hilippines for others for a fee, remuneration or consideration, !hether in &ind or in cash, includin3 those performed or rendered by the follo!in35 a$ construction and ser ice contractorsG b$ stoc&, real estate, commercial, customs and immi3ration bro&ersG c$ lessors of property, !hether personal or realG d$ persons en3a3ed in !arehousin3 ser ices e$ lessors or distributors of cinemato3raphic filmsG f$ persons en3a3ed in millin3, processin3, manufacturin3 or repac&in3 3oods for othersG

2;. 6 Co("o(%t$o(e-)e(e) te#h-$#%& !e(/$#e! th(o 8h $t! wo(H e-8$-ee(! to PNB %-) SSS $the #o-!t( #t$o- o+ the$( * $&)$-8!. The wo(H e-8$-ee(! %#te) %! o/e(!ee(! o+ 6 Co("o(%t$o-7 (e-)e($-8 the$( "(o+e!!$o-%& !e(/$#e! %! e,"&o'ee! o+ 6 #o("o(%t$o-. Sho &) 6 Co("o(%t$o- *e ! *?e#te) to VAT o( !ho &) $t *e ! *?e#te) to t%. o- the "(o+e!!$o-%& !e(/$#e! o+ tho!e e,"&o'ee! the,!e&/e!9 De#$)e the #%!e w$th (e%!o-.
S8<<)ST). =NSW)05 ; Corporation is subBect to *=T$

25. A&!o $-#& )e) $- the "h(%!e !%&e o( e.#h%-8e o+ !e(/$#e!.

a$ The lease or the use of or the ri3ht or pri ile3e to use any copyri3ht, patent, desi3n or model, plan, secret formula or

process, 3ood!ill, trademar&, trade brand or other li&e property or ri3htG b$ The lease or the use of, or the ri3ht to use any industrial, commercial or scientific e"uipmentG c$ The supply of scientific, technical, industrial or commercial &no!led3e or informationG d$ The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enablin3 the application or enBoyment of any such property, or ri3ht as is mentioned in subpara3raph ?2> hereof or any such &no!led3e or information as is mentioned in subpara3raph ?'> hereofG or e$ The supply of ser ices by a nonJresident person or his employee in connection !ith the use of property or ri3hts belon3in3 to, or the installation or operation of any brand, machinery or other apparatus purchased from such nonJresident personG f$ The supply of technical ad ice, assistance or ser ices rendered in connection !ith technical mana3ement or administration of any scientific, industrial or commercial underta&in3, enture, proBect of schemeG 3$ The lease of motion picture films, film tapes and discsG h$ The lease or the use of or the ri3ht to use radio, tele ision, satellite transmission and cable tele ision time$ ?0e $ 0e3s$ No$ 1@J200-, Sec$ A$10+J2, 2nd par$>

41

the sale or exchan3e$ The tax paid or !ithheld is not deducted from the tax base$ ?Commissioner, of Internal &evenue v. American /6press International, Inc. (Philippine Branch', <$ 0$ No$ 1-2@09, Iune 29, 200- citin3 arious cases>

2>. S$t ! o+ t%.%t$o- o+ Be(oF(%te) VAT !e(/$#e! ! #h %! +%#$&$t%t$-8 the #o&&e#t$o- o+ (e#e$/%*&e! +(o, #(e)$t #%() ,e,*e(! !$t %te) $- the Ph$&$""$-e! %-) "%',e-t to !e(/$#e e!t%*&$!h,e-t! $- the Ph$&$""$-e!. The
place !here the ser ice is rendered determines the Burisdiction ?Commissioner of Internal &evenue v. American /6press International, Inc. (Philipppine Branch', <$ 0$ No$ 1-2@09, Iune 29, 200- citin3 DFNHo state may tax anythin3 not !ithin its Burisdiction !ithout iolatin3 the due process clause of the FCHconstitution$E $anila (as Corp. v. Collector of Internal &evenue, @2 9hil$ +9-, 900, Ianuary 1,, 19'@, per Malcolm, I$> to impose the *=T FCommissioner, supra citin3 .eoferio, Ir$ and Mamalateo, *he ,alue A""e" *a6 in the Philippines ?2000>, p$ 9'H 9erformed in the 9hilippines, the ser ice is necessarily subBect to its Burisdiction FCommissioner, supra citin3 =leBandro, *he La: on *a6ation ?19@@ re $ ed$> p$ ''H, for the State necessarily has to ha e a Dsubstantial connectionE F Commissioner, supra citin3 <arner ?ed$ in chief>, Blac47s La: .ictionary ?+th ed$, 1999>, p$ 1-0'H to it in order to enforce a #ero rate$ F Commissioner, supra citin3 .e 4eon, *he -un"amentals of *a6ation ?12th ed$, 199+>, p$ 'H The place of payment is immaterial F Commissioner, supra citin3 .eoferio, Ir$ and Mamalateo, *he ,alue A""e" *a6 in the Philippines ?2000>, p$ 9'H, much less is the place !here the output of the ser ice !ill be further or ultimately used$ This is so because the la! neither ma&es a "ualification nor adds a condition in determinin3 the tax situs of a #eroJrated ser ice$ ?Commissioner, supra>

2<. Ge(oF(%te) S%&e! o+ 2oo)! o( P(o"e(t$e!. = #eroJrated sale of 3oods or properties by a sale by a *=TJre3istered person is a taxable transaction for *=T purposes but the sale does not result in any output tax$ :o!e er, the input tax on the purchases of 3oods, properties or ser ices related to such #eroJrated sale shall be a ailable as tax credit or refund in accordance !ith 0e $ 0e3ulations No$ 1@J200-$ ?0e $ 0e3s$ No$ 1@J200-, 1st par$>
The tax rate is set at #ero$ When applied to the tax base, such rate ob iously results in no tax char3eable a3ainst the purchaser$ The seller of such transactions char3es no output tax, but can claim a refund or a tax credit certificate for the *=T pre iously char3ed by suppliers$ FCommissioner of Internal &evenue v. Sea#ate *echnolo#y (Philippines', <$ 0$ No$ 1-'+@@, Cebruary 11, 200-H 8nder a #eroJratin3 scheme, the sale or exchan3e of a particular ser ice is completely freed from the *=T, because the seller is entitled to reco er, by !ay of a refund or as an input tax credit, the tax that is included in the cost of purchases attributable to

2=. Co-#e"t o+ VAT Be(oF(%t$-8.

29.
VAT 9

0h%t $! the )e!t$-%t$o- "($-#$"&e the

S8<<)ST). =NSW)05 =s a 3eneral rule, the *=T system uses the destination principle as a basis for the Burisdictional reach of the tax$ <oods and ser ices are taxed only in the country !here they are consumed$ Thus, exports are #eroJrated, !hile imports are taxed$

:0. "($-#$"&e 9

1! the(e %-' e.#e"t$o- to the )e!t$-%t$o-

S8<<)ST). =NSW)05 Kes$ The la! clearly pro ides for an exception to the destination principleG that is, for a #ero percent *=T rate for ser ices that are performed in the 9hilippines, Ppaid for in acceptable forei3n currency and accounted for in accordance !ith the rules and re3ulations of the F(S9H$P

42

:;. S%&e o+ 8o&) to the Ce-t(%& B%-H #o-!$)e(e) %! e."o(t !%&e!. =s export sales, the sale of 3old to the Central
(an& is #eroJrated, hence, no tax is char3eable to it as purchaser$ 2ero ratin3 is primarily intended to be enBoyed by the seller, !hich char3es no output *=T but can claim a refund of or a tax credit certificate for the input *=T pre iously char3ed to it by suppliers$ ?Commissioner of Internal &evenue v. $anila $inin# Corporation, <$0$ No$ 1-'20A, =u3ust '1, 200->

:1. R%t$o-%&e +o( Be(oF(%t$-8 o+ e."o(t! . The 9hilippine *=T system adheres to the Cross (order .octrine, accordin3 to !hich, no *=T shall be imposed to form part of the cost of 3oods destined for consumption outside of the territorial border of the taxin3 authority$ FCommissioner of Internal &evenue v. *oshi%a Information /9uipment (Phils.', Inc., <$ 0$$ No$ 1-01-A, =u3ust 9, 200-H The DCross (order .octrineE is also &no!n as the destination principle$ :ence, actual or constructi e export of 3oods and ser ices from the 9hilippines to a forei3n country must be #eroJrated for *=TG !hile, those destined for use or consumption !ithin the 9hilippines shall be imposed the t!el e percent ?126> *=T$

:5. S%&e! to e#oBo-e7 ! #h %! PEGA7 #o-!$)e(e) e."o(tF!%&e. Notably, !hile an eco#one is 3eo3raphically !ithin
the 9hilippines, it is deemed a separate customs territory and is re3arded in la! as forei3n soil$ Sales by suppliers from outside the borders of the eco#one to this separate customs territory are deemed as exports and treated as export sales$ These sales are #eroJrated or subBect to a tax rate of #ero percent$ ? Commissioner of Internal &evenue v. Se4isui 2ushi Philippines, Inc., <$ 0$ No$ 1A9@,1, Iuly 21, 200@ citin3 arious authorities>

:2. Ge(oF(%te) !%&e )$!t$-8 $!he) +(o, e.e,"t t(%-!%#t$o-!:

a$ = #eroJrated sale is a taxable transaction but does not result in an output tax W:14) an exempt transaction is not subBect to the output tax$ b$ The input tax on the purchases of a *=T re3istered person !ho has #eroJrated sales may be allo!ed as tax credits or refunded W:14) the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a *=T in oice or receipt$ c$ 9ersons en3a3ed in transactions !hich are #ero rated bein3 subBect to *=T are re"uired to re3ister W:14) re3istration is optional for *=TJexempt persons$

:<. E#oBo-e7 )e+$-e). =n )C/2/N) or a Special )conomic 2one has been described as L FSHelected areas !ith hi3hly de eloped or !hich ha e the potential to be de eloped into a3roJindustrial, industrial, tourist, recreational, commercial, ban&in3, in estment and financial centers !hose metes and bounds are fixed or delimited by 9residential 9roclamations$ =n )C/2/N) may contain any or all of the follo!in35 industrial estates ?1)s>, export processin3 #ones ?)92s>, free trade #ones and tourist7recreational centers$ The national territory of the 9hilippines outside of the proclaimed borders of the )C/2/N) shall be referred to as the Customs Territory$ FCommissioner of Internal &evenue v. *oshi%a Information /9uipment (Phils.', Inc., <$ 0$$ No$ 1-01-A, =u3ust 9, 200-H :=. Ge(oF(%te) !%&e o+ !e(/$#e7 )e+$-e). = #eroJrated sale of ser ice ?by a *=TJre3istered person> is a taxable transaction for *=T purposes, but shall not result in any output tax$ :o!e er, the input tax on purchases of 3oods, properties or ser ices related to such #eroJrated sale shall be a ailable as tax credit or refund in accordance !ith &ev. &e#s. !o. ;C <??H. F0e $ 0e3s$ No$ 1@J200-, Sec$ Sec$ A$10+J- ?a>, !ords in italics supplied> "e(+o(,e) *' A,e($#%- E."(e!! $+%#$&$t%t$-8 the #o&&e#t$o- o+ (e#e$/%*&e! +(o, #(e)$t #%() ,e,*e(! !$t %te) $- the Ph$&$""$-e! %-) "%',e-t to !e(/$#e e!t%*&$!h,e-t! $- the Ph$&$""$-e! $- *eh%&+ o+ $t!

::.

Ge(oF(%te) !%&e! *' VATF(e8$!te(e) "e(!o-!.

The follo!in3 sales by *=TJre3istered persons shall be subBect to #ero percent ?06> rate5 a$ )xport salesG b$ Considered export sales under )xecuti e /rder No$ 22AG c$ Corei3n currency denominated saleG and d$ Sales to persons or entities demed taxJexempt under special la! or international a3reement$ ?0e $ 0e3s$ No$ 1@J200-, Sec$ A$10@J-, 2nd par$, paraphrasin3 supplied>

:>. Se(/$#e

43

Ho-8FMo-8 *%!e) #&$e-t $! ! *?e#t to VAT * t Be(oF(%te).

This is so because it meets all the re"uirements for *=T imposition, as follo!s5 a$ 1t re3ularly renders in the 9hilippines the ser ice of facilitatin3 the collection and payment of recei ables belon3in3 to a forei3n company that is a clearly separate and distinct entity$ b$ Such ser ice is commercial in natureG carried on o er a sustained period of timeG on a si3nificant scale !ith a reasonable de3ree of fre"uencyG and not at random, fortuitous, or attenuated$ c$ Cor this ser ice, it definitely recei es consideration in forei3n currency that is accounted for in conformity !ith la!$ d$ 1t is not an entity exempt under any of our la!s or international a3reements$ ? Commissioner, of Internal &evenue v. American /6press International, Inc. (Philipppine Branch', <$ 0$ No$ 1-2@09, Iune 29, 200->

:9. 0h$&e the !e(/$#e "e(+o(,e) *' A,e($#%E."(e!! $! ! *?e#t to VAT $t $! Be(oF(%te)7 %-) B1R Re/e- e Re8 &%t$o-! th%t %&te( the &e8%& (eD $(e,e-t! +o( Be(oF(%t$-8 %(e ultra vires %-) $-/%&$). The *=T system uses
the destination principle !hich posits that the 3oods and ser ices are taxed only in the country !here they are consumed, :o!e er, the la! itself pro ides for clear exceptions under !hich the supply of ser ices shall be #eroJrated, amon3 !hich are the follo!in35 a$ The ser ice is performed in the 9hilippinesG b$ The ser ices are !ithin the cate3ories pro ided for under the Tax CodeG and c$ 1t is paid for in acceptable forei3n currency of the (an3&o Sentral n3 9ilipinas$ =merican )xpress renders assistance to its forei3n clients by recei in3 the bills of ser ice establishments located in the country and for!ardin3 them to their clients abroad$ The ser ices are performed or successfully completed upon send to its forei3n clients the drafts and bills it has 3athered from ser ice establishments here, 1ts ser ices, ha in3 been performed in the 9hilippines are therefore also consumed in the 9hilippines$ Thus, its ser ices are exempt from the destination principle and are #eroJrated$ The (10 could not chan3e the la!$ ? Commissioner, of Internal &evenue v. American /6press International, Inc. (Philipppine Branch', <$ 0$ No$ 1-2@09, Iune 29, 200->

NAPOCOR +o( the o"e(%t$o- %-) ,%$-te-%-#e o+ two "owe( *%(8e! %""o$-te) B0SCFDe-,%(H %! $t! #oo()$-%t$o- ,%-%8e(. B0SCM1 w%! e!t%*&$!he) %! the ! *#o-t(%#to( to "e(+o(, the %#t %& wo(H $- the Ph$&$""$-e!. The Co-!o(t$ , "%$) B0SCM1 $- %##e"t%*&e +o(e$8- e.#h%-8e %-) %##o -te) +o( $- %##o()%-#e w$th the ( &e! %-) (e8 &%t$o-! o+ the BSP. Th(o 8h % 4e*( %(' 1;7 1995 ( &$-8 the B1R )e#&%(e) th%t B0SCM1 ,%' #hoo!e to (e8$!te( %! % VAT "e(!o-! ! *?e#t to VAT %t Be(o (%te. 4o( 199<7 $t +$&e) the "(o"e( VAT (et (-! !how$-8 Be(o (%t$-8. O- De#e,*e( 297 199=7 *e&$e/$-8 th%t $t $! #o/e(e) *' Re/. Re8!. 5F9<7 )%te) 4e*( %(' 207 199<7 B0SCM1 "%$) 10I o t" t VAT +o( the "e($o) A"($&FDe#e,*e( 199<7 th(o 8h the Vo& -t%(' A!!e!!,e-t P(o8(%, @VAPA. O- 3%- %(' =7 19997 B0SCM1 w%! %*&e to o*t%$- % R &$-8 +(o, the B1R (e#o-+$(,$-8 th%t $t $! ! *?e#t to VAT %t Be(oF(%t$-8. O- th$! *%!$!7 B0SCM1 %""&$e) +o( % (e+ -) o+ the o t" t VAT $t "%$). %. 1! B0SCM1 ! *?e#t to the 10I VAT o( $! $t Be(o (%te) 9
S8<<)ST). =NSW)05 Kes$ (WSCM1 is not #ero rated and is subBect to the 106 *=T$ 1t is renderin3 ser ice for the Consortium !hich is not doin3 business in the 9hilippines$ 2eroJ ratin3 finds application only !here the recipient of the ser ices are other persons doin3 business outside of the 9hilippines$ (WSCM1 pro ides ser ices to the Consortium !hich by irtue of its contract !ith N=9/C/0 is doin3 business !ithin the 9hilippines$ ?Commissioner of Internal &evenue v. Burmeister an" Kain Scan"inavian Contractor $in"anao, Inc., <$ 0$ No$ 1-'20-, Ianuary 22, 200,>

*. Co &) $t o*t%$- % (e+ -) o+ the VAT $t "%$) th(o 8h the VAP 9 E."&%$-.
S8<<)ST). =NSW)05 Kes$ (WSCM1 is entitled to refund of the 106 output *=T it paid the based on the nonJretroacti ity of the preBudicial re ocation of the (10 0ulin3s !hich held that it%s ser ices are subBect to 06 *=T and !hich (WSCM1 in o&ed in applyin3 for refund of the output *=T$ ?Commissioner of Internal &evenue v. Burmeister an" Kain Scan"inavian Contractor $in"anao, Inc., supra>

;0. A +o(e$8- Co-!o(t$ , #o,"o!e) o+ B0SCF De-,%(H7 M$t! $ E-8$-ee($-8 %-) Sh$"* $&)$-8 Lt).7 %-) M$! $ %-) Co.7 Lt).7 wh$#h e-te(e) $-to % #o-t(%#t w$th

N/T)S =N. C/MM)NTS5 a$ Do -ot #o-+ !e the B0SCM1 #%!e w$th the A,e($#%- E."(e!! #%!e. =merican )xpress 1nternational, 1nc$

?9hilippine (ranch>H is a *=TJre3istered person that facilitates the collection and payment of recei ables belon3in3 to its -o-F(e!$)e-t +o(e$8- #&$e-t F=merican )xpress 1nternational, 1nc$ ?:on3&on3 (ranch>H, for !hich it 3ets paid in acceptable forei3n currency in!ardly remitted and accounted for in accordance !ith (S9 rules and re3ulations$ ?Commissioner of Internal &evenue v. Burmeister an" Kain Scan"inavian Contractor $in"anao, Inc., <$ 0$ No$ 1-'20-, Ianuary 22, 200,>

44

;1.

VATFE.e,"t t(%-!%#t$o-!7 )e+$-e).

a$ The sale of 3oods or properties and7or ser ices and the use or lease of properties that is b$not subBect to *=T ?output tax> and c$ the seller is not allo!ed any tax credit on *=T ?input tax> purchases$ The person ma&in3 the exempt sale of 3oods, properties or ser ices shall not bill any output tax to his customers because the said transaction is not subBect to *=T$ F0e $ 0e3s$ No$ 1@J200-, Sec$ A$109J1 ?=>, arran3ement and numberin3 suppliedH

;2. VATFe.e,"t t(%-!%#t$o-! )$!t$-8 $!he) +(o, VATFe.e,"t e-t$t$e!. a$

=n exempt transaction, on the one hand, in ol es 3oods or ser ices !hich, by their nature, are specifically listed in and expressly exempted from the *=T under the Tax Code, !ithout re3ard to the tax status L *=TJexempt or not L of the party to the transaction$ =n exempt party, on the other hand, is a person or entity 3ranted *=T exemption under the Tax Code, a special la! or an international a3reement to !hich the 9hilippines is a si3natory, and by irtue of !hich its taxable transactions become exempt from *=T$ FCommissioner of 1nternal 0e enue $ Toshiba 1nformation )"uipment ?9hils$>, 1nc$, <$ 0$ No$ 1-01-A, =u3ust 9, 200-H b$ =n exempt transaction shall not be the subBect of any billin3 for output *=T but it shall not also be allo!ed any input tax credits W:14) an exempt party bein3 #eroJrated is allo!ed to claim input tax credits$

;:. 0h%t t(%-!%#t$o-! %(e +(o, VAT 9

S8<<)ST). =NSW)05 ?SubBect to the election by a *=TJ re3istered person not to be subBect to the alueJadded ta 6', the follo!in3 shall be exempt from *=T5 ?=> Sale or importation of a3ricultural and marine food products in their ori3inal state, li estoc& and poultry of a &ind

3enerally used as, or yieldin3 or producin3 foods for human consumptionG and breedin3 stoc& and 3enetic materials therefor$ 4i estoc& shall include co!s, bulls and cal es, pi3s, sheep, 3oats and rabbits$ 9oultry shall include fo!ls, duc&s, 3eese and tur&ey, 4i estoc& or poultry does not include fi3htin3 coc&s, race horses, #oo animals and other animals 3enerally considered as pets$ Marine food products shall include fish and crustaceans, such as, but not limited to, eels, trout, lobster, shrimps, pra!ns, oysters, mussels and clams$ Meat, fruit, fish, e3etables and other a3ricultural and marine food 9roducts classified under this para3raph shall be considered in their ori3inal state e en if they ha e under3one the simple processes of preparation or preser ation for the mar&et, such as free#in3, dryin3, saltin3, broilin3, roastin3, smo&in3 or strippin3, includin3 those usin3 ad anced technolo3ical means of pac&a3in3, such as shrin& !rappin3 in plastics, acuum pac&in3, tetraJpac&, and other similar pac&a3in3 methods$ 9olished and7or hus&ed rice, corn 3rits, ra! cane su3ar and molasses, ordinary salt, and copra shall be considered in their ori3inal state$ Su3ar !hose content of sucrose by !ei3ht, in the dry state, has a polarimeter readin3 of 99$-o and abo e are presumed to be refined su3ar$ Cane su3ar produced from the follo!in3 shall be presumed, for internal re enue purposes, to be refined su3ar5 ?1> product of a refinin3 process, ?2> products of a su3ar refinery, or ?'> product of a production line of a su3ar mill accredited by the (10 to be producin3 su3ar !ith polarimeter readin3 of 99$-o and abo e, and for !hich the "uedanissued therefor, and erified by the Su3ar 0e3ulatory =dministration, identifies the same to be of a polarimeter readin3 of 99$-o and abo e$ (a3asse is not included in the exemption pro ided for under this section$ ?(> Sale or importation of fertili#ersG seeds, seedlin3s and fin3erlin3sG fish, pra!n, li estoc& and poultry feeds, includin3 in3redients, !hether locally produced or imported, used in the manufacture of finished feeds ?except specialty feeds for race horses, fi3htin3 coc&s, a"uarium fish, #oo animals and other animals 3enerally considered as pets>G DSpecialty feedsE refers to nonJa3ricultural feeds or food for race horses, fi3htin3 coc&s, a"uarium fish, #oo animals and other animals 3enerally considered as pets$ ?C> 1mportation of personal and household effects belon3in3 to the residents of the 9hilippines returnin3 from abroad and nonresident citi#ens comin3 to resettle in the 9hilippines5

9ro ided, That such 3oods are exempt from customs duties under the Tariff and Customs Code of the 9hilippinesG ?.> 1mportation of professional instruments and implements, !earin3 apparel, domestic animals, and personal household effects ?except any ehicle, essel, aircraft, machinery, other 3oods for use in the manufacture and merchandise of any &ind in commercial "uantity> belon3in3 to persons comin3 to settle in the 9hilippines, for their o!n use and not for sale, barter or exchan3e, accompanyin3 such persons, or arri in3 !ithin ninety ?90> days before or after their arri al, upon the production of e idence satisfactory to the Commissioner of 1nternal 0e enue, that such persons are actually comin3 to settle in the 9hilippines and that the chan3e of residence is bona fideG ?)> Ser ices subBect to percenta3e tax under Title * of the Tax Code, as enumerated belo!5 ?1> Sale or lease of 3oods or properties or the performance of ser ices of nonJ*=TJre3istered persons, other than the transactions mentioned in para3raphs ?=> to ?8> of Sec$ 109 ?1> of the Tax Code, the annual sales and7or receipts of !hich does not exceed the amount of /ne Million Ci e :undred thousand 9esos ?91,-00,000$00>, 9ro ided, That not later than Ianuary '1, 2009 and e ery three ?'> years thereafter, the amount herein stated shall be adBusted to its present alue usin3 the Consumer 9rice 1ndex, as published by the National Statistics /ffice ?NS/>$ ?Sec$ 11@, Tax Code> ?2> Ser ices rendered by domestic common carriers by land for the transport of passen3ers and &eepers of 3ara3es$ ?Sec$ 11,> ?'> Ser ices rendered by international air7shippin3 carriers$ ?Sec$ 11+> ?A> Ser ice rendered by franchise 3rantees of radio and7or tele ision broadcastin3 !hose annual 3ross receipts of the precedin3 year do not exceed Ten Million 9esos ?910,000,000$00> and by franchises of 3as and !ater utilities$ ?Sec$ 119> ?-> Ser ice rendered for o erseas dispatch messa3e or con ersation ori3inatin3 from the 9hilippines$ ?Sc$ 120> ?@> Ser ices rendered by any person, company or corporation ?except purely cooperati e companies or associations > doin3 life insurance business of any sort in the 9hilippines$ ?Sec$ 12'> ?,> Ser ices rendered by fire, marine or miscellaneous insurance a3ents of forei3n insurance companies$ ?Sec$ 12A>

45

?+> Ser ices of proprietors, lessees or operators of coc&pits, cabarets, ni3ht or day clubs, boxin3 exhibitions professional bas&etball 3ames, BaiJ=lai and race trac&s$ ?Sec$ 12->$ and ?9> 0eceipts on sale, barter or exchan3e of shares of stoc& listed and traded throu3h the local stoc& exchan3e or throu3h initial public offerin3$ ?Sec$ 12,> ?C> Ser ices by a3ricultural contract 3ro!ers and millin3 for others of palay into rice, corn into 3rits and su3ar cane into ra! su3arG D=3ricultural contract 3ro!ersE refers to those persons producin3 for others poultry, li estoc& or other a3ricultural and marine food products in their ori3inal state$ ?<> Medical, dental, hospital and eterinary ser ices except those rendered by professionalsG 4aboratory ser ices are exempted$ 1f the hospital or clinic operates a pharmacy or dru3 store, the sale of dru3s and medicine is subBect to *=T$ ?:> )ducational ser ices rendered by pri ate educational institutions, duly accredited by the .epartment of )ducation ?.)9).>, the Commission on :i3her )ducation ?C:).>, the Technical )ducation =nd S&ills .e elopment =uthority ?T)S.=> and those rendered by 3o ernment educational institutionsG D)ducational ser icesE shall refer to academic, technical or ocational education pro ided by pri ate educational institutions duly accredited by the .ep)., the C:). and T)S.= and those rendered by 3o ernment educational institutions and it does not include seminars, inJser ice trainin3, re ie! classes and other similar ser ices rendered by persons !ho are not accredited by the .ep)., the C:). and7or the T)S.=$ ?1> Ser ices rendered by indi iduals pursuant to an employerJemployee relationshipG ?I> Ser ices rendered by re3ional or area head"uarters established in the 9hilippines by multinational corporations !hich act as super isory, communications and coordinatin3 centers for their affiliates, subsidiaries or branches in the =siaJ9acific 0e3ion and do not earn or deri e income from the 9hilippinesG ?Y> Transactions !hich are exempt under international a3reements to !hich the 9hilippines is a si3natory or under special la!s, except those under 9residential .ecree No$ -29 L 9etroleum )xploration Concessionaires under the 9etroleum =ct of 19A9G andG ?4> Sales by a3ricultural cooperati es duly re3istered !ith the Cooperati e .e elopment =uthority ?C.=> to their members as !ell as sale of their produce, !hether in its ori3inal state or processed form, to nonJmembersG their importation of direct farm inputs, machineries and e"uipment, includin3 spare parts thereof, to

be used directly and exclusi ely in the production and7or processin3 of their produceG ?M> <ross receipts from lendin3 acti ities by credit or multiJ purpose cooperati es duly re3istered and in 3ood standin3 !ith the Cooperati e .e elopment =uthorityG ?N> Sales by nonJa3ricultural, nonJelectric and nonJcredit cooperati es duly re3istered !ith the Cooperati e .e elopment =uthority5 9ro ided, That the share capital contribution of each member does not exceed Cifteen thousand pesos ?91-,000> and re3ardless of the a33re3ate capital and net surplus ratably distributed amon3 the membersG 1mportation by nonJa3ricultural, nonJelectric and nonJcredit cooperati es of machineries and e"uipment, includin3 spare parts thereof, to be used by them are subBect to *=T$ ?/> )xport sales by persons !ho are not *=TJre3isteredG ?9> Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utili#ed for lo!Jcost and sociali#ed housin3 as defined by 0epublic =ct No$ ,2,9, other!ise &no!n as the 8rban .e elopment and :ousin3 =ct of 1992, and other related la!s, such as 0= No$ ,+'- and 0= No$ +,@-, residential lot alued at /ne million fi e hundred thousand pesos ?9 1,-00,000> and belo!, house and lot, and other residential d!ellin3s alued at T!o million fi e hundred thousand pesos ?9 2,-00,000> and belo!5 9ro ided, That not later than Ianuary '1, 2009 and e ery three ?'> years thereafter, the amounts herein stated shall be adBusted to their present alues usin3 the Consumer 9rice 1ndex, as published by the National Statistics /ffice ?NS/>G ?S> 4ease of a residential unit !ith a monthly rental not exceedin3 Ten thousand pesos ?9 10,000> 9ro ided, That not later than Ianuary '1, 2009 and e ery three ?'> years thereafter, the amount herein stated shall be adBusted to its present alue usin3 the Consumer 9rice 1ndex as published by the National Statistics /ffice ?NS/>G ?0> Sale, importation, printin3 or publication of boo&s and any ne!spaper, ma3a#ine, re ie! or bulletin !hich appears at re3ular inter als !ith fixed prices for subscription and sale and !hich is not de oted principally to the publication of paid ad ertisementsG ?S> Sale, importation or lease of passen3er or car3o essels and aircraft, includin3 en3ine, e"uipment and spare parts thereof for domestic or international transport operationsG 9ro ided, that the exemption from *=T on the importation and local purchase of passen3er and7or car3o essels shall be limited to those of one hundred fifty ?1-0> tons and abo e, includin3 en3ine and spare parts of said esselsG 9ro ided, further, that the essels be imported shall

46

comply !ith the a3e limit re"uirement, at the time of ac"uisition counted from the date of the essel%s ori3inal commissionin3, as follo!s5 ?i> for passen3er and7or car3o essels, the a3e limit is fifteen years ?1-> years old, ?ii> for tan&ers, the a3e limit is ten ?10> years old, and ?iii> Cor hi3hJspeed passen3er cars, the a3e limit is fi e ?-> years old, 9ro ided, finally, that exemption shall be subBect to the pro isions of section A of 0epublic =ct No$ 929-, other!ise &no!n as DThe .omestic Shippin3 .e elopment =ct of 200A$E ?T> 1mportation of fuel, 3oods and supplies by persons en3a3ed in international shippin3 or air transport operationsG 9ro ided, that the said fuel, 3oods and supplies shall be used exclusi ely or shall pertain to the transport of 3oods and7or passen3er from a port in the 9hilippines directly to a forei3n port !ithout stoppin3 at any other port in the 9hilippinesG pro ided, further, that if any portion of such fuel, 3oods or supplies is used for purposes other than that mentioned in this para3raph, such portion of fuel, 3oods and supplies shall be subBect to 106 *=T ?no! 126>G ?8> Ser ices of ban&s, nonJban& financial intermediaries performin3 "uasiJban&in3 functions, and other nonJban& financial intermediariesG and ?*> Sale or lease of 3oods or properties or the performance of ser ices other than the transactions mentioned in the precedin3 para3raphs, the 3ross annual sales and7or receipts do not exceed the amount of /ne million fi e hundred thousand pesos ?91,-00,000>5 9ro ided, That not later than Ianuary '1, 2009 and e ery three ?'> years thereafter, the amount herein stated shall be adBusted to its present alue usin3 the Consumer 9rice 1ndex as published by the National Statistics /ffice ?NS/>$ Cor purposes of the threshold of 91,-00,000$00, the husband and !ife shall be cnsidered separate taxpayers$ :o!e er, the a33re3ation rule for each taxpayer shall apply$ Cor instance, if a profesional, aside from the practice ofhis profession, also deri es re enue from other lines of business !hich are other!ise subBect to *=T, the same shall be combined for purposes of determinin3 !hether the threshold has been exceeded$ Thus, the *=TJexempt sales shall to be icluded in determinin3 the threshold$ FN10C of 199,, Sec$ 109 ?1>, as amended by 0$ =$ No$ 9'',G !ords in italics from 0e $ 0e3s$ No$ 1@J200-, Sec$ A$109J1 ?(>, !ords in parentheses suppliedH

;;. 6 $! e-8%8e) $- the $,"o(t%t$o- %-) !%&e o+ *ooH! %-) ,%8%B$-e!. 1! the $,"o(t%t$o- o+ *ooH! %-) ,%8%B$-e! ! *?e#t to the 10I VAT9 E."&%$-.
S8<<)ST). =NSW)05 No$ Sale, importation, printin3 or publication of boo&s and any ne!spaper, ma3a#ine, re ie! or

bulletin !hich appears at re3ular inter als !ith fixed prices for subscription and sale and !hich is not de oted principally to the publication of paid ad ertisementsG

47

;5. 1! the(e %-' t%. to *e "%$) *' "e(!o-! e.e,"t +(o, VAT 9
S8<<)ST). =NSW)05 Kes$ a$ =ny person, !hose sales or receipts are exempt under Sec$ 109 ?1> ?*> of the Tax Code, ?*> Sale or lease of 3oods or properties or the performance of ser ices other than the transactions mentioned in the precedin3 para3raphs, the 3ross annual sales and7or receipts do not exceed the amount of /ne million fi e hundred thousand pesos ?91,-00,000>5 9ro ided, That not later than Ianuary '1, 2009 and e ery three ?'> years thereafter, the amount herein stated shall be adBusted to its present alue usin3 the Consumer 9rice 1ndex as published by the National Statistics /ffice ?NS/>, from the payment of *=T and b$ !ho is not a *=TJre3istered person c$ shall pay a tax e"ui alent to three percent ?'6> of his 3ross monthly sales or receiptsG 9ro ided, that cooperati es shall be exempt from the three ?'6> 3ross receipts tax herein imposed$ ?0e $ 0e3s$ No$ 1@J200-, Sec$ A$11@J1, arran3ement, numberin3 and !ords in italics supplied>

c$ ) ery alien residin3 in the 9hilippines on income deri ed from sources !ithin the 9hilippinesG and d$ ) ery nonresident alien en3a3ed in trade or business or in the exercise of profession in the 9hilippines$ FSec$ -1 ?=> ?1>, N10C of 199,H ;. 1-)$/$) %&! who %(e -ot (eD $(e) to +$&e %- $-#o,e t%. (et (-$ a$ =n indi idual !hose 3ross income does not exceed his total personal and additional exemptions for dependents, Provi"e", That a citi#en of the 9hilippines and any alien indi idual en3a3ed in business or practice of profession !ithin the 9hilippines shall file an income tax return re3ardless of the amount of 3ross incomeG b$ =n indi idual !ith respect to pure compensation income for ser ices in !hate er form paid, includin3, but not limited to fees, salaries, !a3es, commissions, and similar items, deri ed from sources !ithin the 9hilippines, the income tax on !hich has been correctly !ithheld, Provi"e", That an indi idual deri in3 compensation concurrently from t!o or more employers at any time durin3 the taxable year shall file an income tax return5 Provi"e", further, That an indi idual !hose pure compensation income deri ed from sources !ithin the 9hilippines exceeds Sixty thousand pesos ?9@0,000$00>, shall also file an income tax returnG c$ =n indi idual !hose sole income has been subBect to final !ithholdin3 taxG d$ =n indi idual !ho is exempt from income tax pursuant to the pro isions of the N10C of 199,, and other la!s, 3eneral or special$ FSec$ -1 ?=> ?2>, N10C of 199,H N/T)S =N. C/MM)NTS5 =mendments under 0ep$ =ct No$ 9-0A are not incouded$ 5. A- $-)$/$) %& who $! -ot (eD $(e) to +$&e %- $-#o,e t%. (et (- ,%' -e/e(the&e!! *e (eD $(e) to +$&e %- $-+o(,%t$o(et (-. FSec$ -1 ?=> ?'>, N10C of 199,H <. A #o("o(%t$o- +$&e! $t! $-#o,e t%. (et (- %-) "%'! $t! $-#o,e t%. +o ( @;A t$,e! ) ($-8 % !$-8&e t%.%*&e 'e%(. Suarterly returns are re"uired to be filed for the first three "uarters, then a final adBustment return is filed co erin3 the total taxable income for the !hole taxable year, be it calendar or fiscal$ =. A- $-)$/$) %& e%(-$-8 +(o, the "(%#t$#e o+ h$! "(o+e!!$o- o( who e-8%8e! $- t(%)e o( * !$-e!! +$&e! h$! $-#o,e t%. (et (- %-) "%'! h$! $-#o,e t%. +o ( @;A t$,e! ) ($-8 % !$-8&e t%.%*&e 'e%(. Suarterly returns are re"uired to be filed for the first

RETURNS AND

01THHOLD1N2

1. 1-#o,e t%. (et (-! bein3 " *&$# )o# ,e-t!, until contro erted by competent e idence, are competent e idence, are prima facie correct !ith respect to the entries therein$ (&opali *ra"in# v. !L&C, et al., 29@ SC0= '09, '1,> 2. DM%(($e) $-)$/$) %&!7 whethe( #$t$Be-!7 (e!$)e-t o( -o-F(e!$)e-t %&$e-!7 who )o -ot )e($/e $-#o,e " (e&' +(o, #o,"e-!%t$o- !h%&& +$&e % (et (- +o( the t%.%*&e 'e%( to $-#& )e the $-#o,e o+ *oth !"o !e!7 but !here it is impracticable for the spouses to file one return, each spouse may file a separate return of income but the returns so filed shall be consolidated by the (ureau for purposes of erification$E FSection -1 ?.> of the N10C of 199,H :$ 1-)$/$) %&! (eD $(e) to +$&e %- $-#o,e t%. (et (-. a$ ) ery Cilipino citi#en residin3 in the 9hilippinesG b$ ) ery Cilipino citi#en residin3 outside the 9hilippines on his income from sources !ithin the 9hilippinesG

three "uarters, then an annual income tax return is filed co erin3 the total taxable income for the !hole of the pre ious calendar year$ >. The " ("o!e o+ the %*o/e +o ( @;A t$,e! % 'e%( (eD $(e,e-t $! to ,%He %/%$&%*&e ! ++$#$e-t + -)! to ,eet the * )8et%(' (eD $(e,e-t!7 on a "uarterly basis thereby increasin3 3o ernment li"uidity$ 1t also eases hardships on the part of indi iduals !ho are re"uired to ma&e this four time return$ Thus, the taxpayer does not ha e to raise lar3e sums of money in order to pay the tax$ 9. A- $-)$/$) %& e%(-$-8 " (e&' #o,"e-!%t$o- $-#o,e +$&e! o-&' o-e %-- %& $-#o,e t%. (et (- co erin3 the total taxable compensation income for the !hole of the pre ious calendar year$ 10. U-)e( the w$thho&)$-8 t%. !'!te,7 t%.e! $,"o!e) o( "(e!#($*e) *' the N1RC o+ 199= %(e to *e )e) #te) %-) w$thhe&) *' the "%'o(! +(o, "%',e-t! ,%)e to "%'ee! +o( the +o(,e( to "%' )$(e#t&' to the B (e% o+ 1-te(-%& Re/e- e $ 1t is also &no!n as collection of the tax at source$ 11. A w$thho&)$-8 %8e-t $! e."&$#$t&' ,%)e "e(!o-%&&' &$%*&e -)e( the T%. Co)e +o( the "%',e-t o+ the t%. (eD $(e) to *e w$thhe&)7 in order to compel the !ithholdin3 a3ent to !ithhold the tax under any and all circumstances$ 1n effect, the responsibility for the collection of the tax as !ell as the payment thereof is concentrated upon the person o er !hom the <o ernment has Burisdiction$ ?Cilipinas Synthetic Ciber Corporation $ Court of =ppeals, et al$, <$0$ Nos$ 11+A9+ X 12A',,, /ctober 12, 1999> The system facilitates tax collection$ 12. The t!o ?2> types of !ithholdin3 at source are the 1> final !ithholdin3 taxG and 2> creditable !ithholdin3 tax$ 1:. U-)e( the +$-%& w$thho&)$-8 t%. !'!te, the %,o -t o+ $-#o,e t%. w$thhe&) *' the w$thho&)$-8 %8e-t $! #o-!t$t te) %! % + && %-) +$-%& "%',e-t o+ the $-#o,e ) e +(o, the "%'ee o- the !%$) $-#o,e$ F1st sentence, 1st par$, Sec$ 2$-, ?=>, 0e $ 0e3s$ No$ 2J 9+H The liability for payment of the tax rests primarily on the payor or the !ithholdin3 a3ent$$ Thus, in case of his failure to !ithhold the tax or in case of under !ithholdin3, the deficiency tax shall be collected from the payor !ithholdin3 a3ent$ The payee is not re"uired to file an income tax return for the particular income$

48

1;. U-)e( the #(e)$t%*&e w$thho&)$-8 t%. !'!te,7 t%.e! w$thhe&) o- #e(t%$- $-#o,e "%',e-t! %(e $-te-)e) to eD %& o( %t &e%!t %""(o.$,%te the t%. ) e +(o, the "%'ee o- the !%$) $-#o,e. The income recipient is still re"uired to file an income tax return and7or pay the difference bet!een the tax !ithheld and the tax due on the income$ F1st and 2nd sentences, Sec$ 2-,?(>, 0e $ 0e3s$ No$ 2J9+H 15. The two H$-)! o+ #(e)$t%*&e w$thho&)$-8 t%.e! are ?a> taxes !ithheld on income payments co ered by the expanded !ithholdin3 taxG and ?b> taxes !ithheld on compensation income$ 1<. P%',e-t! to the +o&&ow$-8 %(e e.e,"t +(o, the (eD $(e,e-t o+ w$thho&)$-8 o( whe- -o w$thho&)$-8 t%.e! (eD $(e): a$ National <o ernment and its instrumentalities includin3 pro incial, city, or municipal 3o ernmentsG b$ 9ersons enBoyin3 exemption from payment of income taxes pursuant to the pro isions of any la!, 3eneral or special, such as but not limited to the follo!in35 1> Sales of real property by a corporation !hich is re3istered !ith and certified by the :480( or :8.CC as en3a3ed in sociali#ed housin3 proBect !here the sellin3 price of the house and lot or only the lot does not exceed 91+0,000$00 in Metro Manila and other hi3hly urbani#ed areas and 91-0,000$00 in other areas or such adBusted amount of sellin3 price for sociali#ed housin3 as may later be determined and adopted by the :480(G 2> Corporations re3istered !ith the (oard of 1n estments and enBoyin3 exemptions from income under the /mnibus 1n estment Code of 199,G '> Corporations exempt from income tax under Sec$ '0, of the Tax Code, li&e the SSS, <S1S, the 9CS/, etc$ :o!e er, income payments arisin3 from any acti ity !hich is conducted for profit or income deri ed from real or personal property shall be subBect to a !ithholdin3 tax$ ?Sec$ -,$-, 0e $ 0e3s$ No$ 2J9+> 1=. AE e((o-eo !&' w$thhe&) the %,o -t o+ 15I +(o, the !e&&$-8 "($#e o+ *ooH! % tho(e) *' 0 whe- the #o((e#t (%te !ho &) h%/e *ee- 10I o-&'. S$-#e 0 $! o t o+ the #o -t('7 A %""&$e) +o( % (e+ -) o+ the e.#e!! w$thho&)$-8 o+ 5I. M%' A "(o"e(&' %""&' +o( the (e+ -) 9 E."&%$-. S8<<)ST). =NSW)05 Kes$ 1n applications for refund, the !ithholdin3 a3ent is a taxpayer because if he does not pay the tax shall be collected from him$ (Commissioner of Internal &evenue v.

Procter ) (am%le Philippine $anufacturin# Corporation, 20A SC0= ',,, '+'J'+@>, N/T)S =N. C/MM)NTS5 a$ 4o( t%. %,-e!t' " ("o!e!7 the w$thho&)$-8 %8e-t $! -ot % t%."%'e( because he is made to pay the tax !here he fails to !ithhold as a penalty and not that the tax is due from him$ ?Commissioner of Internal &evenue v. Court of Appeals, et al$, <$0$ No$ 10+-,@, Ianuary 20, 1999, the Anscor case'

49 <. A+te( (e!o&/$-8 the $!! e! the B1R Co,,$!!$o-e( (e) #e) the %!!e!!,e-t. 0%! $t "(o"e( to $,"o!e )e&$-D e-#' $-te(e!t )e!"$te the (e) #t$o- o+ the %!!e!!,e-t 9 0h' 9 S8<<)ST). =NSW)05 Kes$ The intention of the la! is to discoura3e delay in the payment of taxes due to the State and in this sense the surchar3e and interest char3ed are not penal but compensatory in nature L they are compensation to the State for the delay in payment, or for the concomitant tuse of the funds by the taxpayer beyond the date he is supposed to ha e paid them to the State$ ?Ban4 of the Philippine Islan"s v. Commissioner of Internal &evenue, <$ 0$ No$ 1',002, Iuly 2,, 200@> =. Co,"(o,$!e "e-%&t'7 )e+$-e). The amount a3reed upon bet!een the taxpayer and the <o ernment to be paid as a penalty in cases of a compromise$ >. A! % (e! &t o+ )$/e(8e-t ( &$-8! o- whethe( $t $! ! *?e#t to t%. o( -ot7 the t%."%'e( w%! -ot %*&e to "%' h$! t%.e! o- t$,e. 1,"o!e) ! (#h%(8e! %-) $-te(e!t! +o( ! #h )e&%'7 the t%."%'e( -ot $-/oHe! 8oo) +%$th w$th the B1R #o -te($-8 *' !%'$-8 th%t 8oo) +%$th $! -ot % /%&$) )e+e-!e +o( /$o&%t$o- o+ % !"e#$%& &%w. 4 (the(,o(e7 the B1R + (the( (%$!e! the )e+e-!e th%t the 8o/e(-,e-t $! -ot *o -) *' the e((o(! o+ $t! %8e-t!. 0ho $! #o((e#t 9 =NSW)05 The taxpayer is correct$ The settled rule is that 3ood faith and honest belief that one is not subBect to tax on the basis of pre ious interpretation of 3o ernment a3encies tas&ed to implement the tax, are sufficient Bustification to delete the imposition of surchar3es$ ?$ichel 2. Lhuillier Pa:nshop, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1@@,+@, September 11, 200@>

PENALT1ES7 1NTERESTS AND SURCHAR2ES

1. *hat are surtaxes or surchar es ? S8<<)ST). =NSW)05 Surtaxes or surchar3es, also &no!n as the ci il penalties, are the amounts imposed in addition to the tax re"uired$ They are in the nature of penalties and shall be collected at the same time, in the same manner, and as part of the tax$ FSec$2A+ ?=>, N10C of 199,H 2. *hat are the t"o (+) )inds of civil penalties ? S8<<)ST). =NSW)05 a$ the 2-6 surchar3e for late filin3 or late payment FSec$ 2A+ ?=>, N10C of 199,H ?also &no!n as the delin"uency surchar3e>, and b$ the -06 !illful ne3lect or fraud surchar3e$ FSec$ 2A+ ?(>, I%i".H :. 'efine deficienc! inco#e tax. S8<<)ST). =NSW)05 .eficiency income tax is the amount by !hich the tax imposed under the N10C of 199, exceeds the amount sho!n as the tax due by the taxpayer upon his return$ FSec$ -@ ?(> ?1>, N10C of 199,H ;. De+$#$e-#' $-te(e!t7 )e+$-e). The interest assessed and collected on any unpaid amount of tax at the rate of 206 per annum or such hi3her rate as may be prescribed by re3ulations, from the date prescribed for payment until the amount is fully paid$ FSec$ 2A9 ?=> ?(>, N10C of 199,H 5. De&$-D e-#' $-te(e!t7 )e+$-e). The interest assessed and collected on the unpaid amount until fully paid !here there is failure on the part of the taxpayer to pay the amount die on any return re"uired to be filedG or the amount of the tax due for !hich no return is re"uiredG or a deficiency tax, or any surchar3e or interest thereon, on the date appearin3 in the notice and demand by the Commissioner of 1nternal 0e enue$ FSec$2A9 ?c>, N10C of 199,H

REPUBL1C ACT NO. 11257 CREAT1N2 THE COURT O4 TA6 APPEALS 1NCLUD1N2 3UR1SD1CT1ON O4 THE CTA7 AS AMENDED
1. The Co (t o+ T%. A""e%&! $! the !"e#$%& t%. #o (t #(e%te) -)e( Re" *&$# A#t No. 1125, as amended, and is composed of a 9residin3 Iustice and ei3ht ?+> =ssociate Iustices, or3ani#ed into three ?'> di isions$ 2. *h! "as the Court of ,ax Appeals created ? S8<<)ST). =NSW)05 a$ To pre ent delay in the disposition of tax cases by the then Courts of Cirst 1nstance ?no! 0TCs>, in ie! of the bac&lo3 of

ci il, criminal, and cadastral cases accumulatin3 in the doc&ets of such courtsG and b$ To ha e a body !ith special &no!led3e !hich ordinary Iud3es of the then Courts of Cirst 1nstance ?no! 0TCs>, are not li&ely to possess, thus pro idin3 for an ade"uate remedy for a speedy determination of tax cases$ ? +rsal v. Court of *a6 Appeals, et al., 101 9hil$ 209G Lacsamana, et al., etc., v. C*A, et al., 102 9hil$ 9'1> :. The &e8%& (e,e)$e! -)e( the N1RC o+ 199= %-) othe( &%w! a ailable to an a33rie ed taxpayer may be classified into the tax remedies !ith respect to5 a$ assessmentG b$ collection, and c$ refund of internal re enue taxes$ The remedies may also be classified into the administrati e or the Budicial remedies$

50

d$ /n appeal, the taxpayer should apply for the issuance of a !rit of preliminary inBunction to enBoin the (10 from collectin3 the tax subBect of the appeal$ e$ = decision of a di ision of the Court of Tax =ppeals ad erse to the taxpayer or the 3o ernment may be the subBect of a motion for reconsideration or ne! trial, a denial of !hich is appealable to the Court of Tax =ppeals en %anc by means of a petition for re ie!$ f$ = decision of the Court of Tax =ppeals en %anc ad erse to the taxpayer or the 3o ernment may be appealed to the Supreme Court throu3h a petition for re ie! on certiorari filed !ith fifteen ?1-> days from notice, and extendible for Bustifiable reasons for thirty ?'0> days only$ <. The &e8%& (e,e)' -)e( the N1RC o+ 199= %/%$&%*&e to %%88($e/e) t%."%'e( %t the %),$-$!t(%t$/e &e/e& !ith respect to refund or reco ery of tax erroneously or ille3ally collected, is to file a claim for refund or credit !ith the Commissioner of 1nternal 0e enue$ ?1st par$, Sec$ 229, N10C of 199,>

;. The &e8%& (e,e)$e! -)e( the N1RC o+ 199= %/%$&%*&e to %- %88($e/e) t%."%'e( %t the %),$-$!t(%t$/e &e/e& !ith respect to assessment of internal re enue taxes are the follo!in35 a$ 8pon receipt of a preJassessment notice, the taxpayer shall respond to the same !ithin fifteen ?1-> days from receipt !hich is the period pro ided for by implementin3 rules and re3ulations$ F' rd par$, Sec$ 22+ ?e>, N10C of 199,H b$ 8pon the issuance of an assessment notice, the taxpayer shall protest administrati ely by filin3 a re"uest for reconsideration or rein esti3ation !ithin thirty ?'0> days from receipt of the assessment in such form and manner as may be prescribed by implementin3 rules and re3ulations$ c$ Within sixty ?@0> days from the filin3 of the protest, all rele ant supportin3 documents shall be submittedG other!ise the assessment shall become final$ ?Ath par$, I%i".> 5. The &e8%& (e,e)$e! -)e( the N1RC o+ 199= %/%$&%*&e to %- %88($e/e) t%."%'e( %t the ? )$#$%& &e/e& !ith respect to assessment of internal re enue taxes5 a$ 1f the protest is denied in !hole or in part, or b$ is not acted upon !ithin one hundred ei3hty ?1+0> days from submission of documents, c$ the taxpayer ad ersely affected by the decision or inaction may appeal to the Court of Tax =ppeals !ithin thirty ?'0> days from receipt of the said decision, or from the lapse of the one hundred ei3hty ?1+0> L day periodG other!ise, the decision shall become final, executory and demandable$ Flast par$, Sec$ 22+ ?e>, N10C of 199,H

=. 0h%t $! the &e8%& (e,e)' -)e( the N1RC o+ 199= %t the ? )$#$%& &e/e& w$th (e!"e#t to (e+ -) o( (e#o/e(' o+ t%. e((o-eo !&' o( $&&e8%&&' #o&&e#te) 9 S8<<)ST). =NSW)0$ The le3al remedy under the N10C of 199, at the Budicial le el !ith respect to refund or reco ery of tax erroneously or ille3ally collected, is the filin3 of a suit or proceedin3 !ith the Court of Tax =ppeals a$ before the expiration of t!o ?2> years from the date of payment of the tax re3ardless of any super enin3 cause that may arise after payment ?2nd par$, Sec$ 229, N10C of 199,>, or b$ !ithin thirty ?'0> days from receipt of the denial by the Commissioner of the application for refund or credit$ ?Sec$ 11, 0$=$ No$ 112-> >. The t!o ?2> year period and the thirty ?'0> day period should be applied on a !hiche er comes first basis$ Thus, if the '0 days is !ithin the 2 years, the '0 days applies, if the 2 year period is about to lapse but there is no decision yet by the Commissioner !hich !ould tri33er the '0Jday period, the taxpayer should file an appeal, despite the absence of a decision$ (Commissioners, etc. v. Court of *a6 Appeals, et al., (. &. !o. B<C;B, $arch ;C, ;IBI, unrep.' 9. Where the taxpayer is a corporation the t!o year prescripti e period from Ddate of paymentE for refund of income taxes should be the date !hen the corporation filed its final adBustment

return not on the date !hen the taxes !ere paid on a "uarterly basis$ (Philippine Ban4 of Communications v. Commissioner of Internal &evenue, et al., (.&. !o. ;;<?<>, 2anuary <B, ;III' <enerally spea&in3 it is the Cinal =dBustment 0eturn, in !hich amounts of the 3ross receipts and deductions ha e been audited and adBusted, !hich is reflecti e of the results of the operations of a business enterprise$ 1t is only !hen the return, co erin3 the !hole year, is filed that the taxpayer !ill be able to ascertain !hether a tax is still due or refund can be claimed based on the adBusted and audited fi3ures$ (Ban4 of the Philippine Islan"s v. Commissioner of Internal &evenue, (.&. !o. ;>>CHA, Au#ust <B, <??;>

51

10. /utline of tax remedies of a taxpayer and the 3o ernment relati e to =SS)SSM)NT of internal re enue taxes. a$ The taxpayer files his tax return$ b$ = 4etter of =uthority is issued authori#in3 (10 examiner to audit or examine the tax return and determines !hether the full and complete taxes ha e been paid$ c$ 1f the examiner is satisfied that the tax return is truly reflecti e of the taxable transaction and all taxes ha e been paid, the process ends$ :o!e er, if the examiner is not satisfied that the tax return is truly reflecti e of the taxable transaction and that the taxes ha e not been fully paid, a Notice of 1nformal Conference is issued in itin3 the taxpayer to explain !hy he should not be subBect to additional taxes$ d$ 1f the taxpayer attends the informal conference and the examiner is satisfied !ith the explanation of the taxpayer, the process is a3ain ended$ 1f the taxpayer i3nores the in itation to the informal conference, or if the examiner is not satisfied !ith taxpayer%s explanation,, and he belie es that proper taxes should be assessed, the Commissioner of 1nternal 0e enue or his duly authori#ed representati e shall then notify the taxpayer of the findin3s in the form of a preJassessment notice$ The preJassessment notice re"uires the taxpayer to explain !ithin fifteen ?1-> days from receipt !hy no notice of assessment and letter of demand for additional taxes should be directed to him$ e$ 1f the Commissioner is satisfied !ith the explanation of the taxpayer, then the process is a3ain ended$ 1f the taxpayer i3nores the preJassessment notice by not respondin3 or his explanations are not accepted by the Commissioner, then a notice of assessment and a letter of demand is issued$ The notice of assessment must be issued by the Commissioner to the taxpayer !ithin a period of three ?'> years from

the time the tax return !as filed or should ha e been filed !hiche er is the later of the t!o e ents$ Where the taxpayer did not file a tax return or !here the tax return filed is false or fraudulent, then the Commissioner has a period of ten ?10> years from disco ery of the failure to file a tax return or from disco ery of the fraud !ithin !hich to issue an assessment notice$ The runnin3 of the abo e prescripti e periods may ho!e er be suspended under certain instances$ The notice of assessment must be issued !ithin the prescripti e period and must contain the facts, la! and Burisprudence relied upon by the Commissioner$ /ther!ise it !ould not be alid$ f$ The taxpayer should then file an administrati e protest by filin3 a re"uest for reconsideration or rein esti3ation !ithin thirty ?'0> days from receipt of the assessment notice$ The taxpayer could not immediately interpose an appeal to the Court of Tax =ppeals because there is no decision yet of the Commissioner that could be the subBect of a re ie!$ To be alid the administrati e protest must be filed !ithin the prescripti e period, must sho! the error of the (ureau of 1nternal 0e enue and the correct computations supported by a statement of facts, and the la! and Burisprudence relied upon by the taxpayer$ There is no need to pay under protest$ 1f the protest !as not seasonably filed the assessment becomes final and collectible and the (ureau of 1nternal 0e enue could use its administrati e and Budicial remedies in collectin3 the tax$ 3$ Within sixty ?@0> days from filin3 of the protest, all rele ant supportin3 documents shall be submitted, other!ise the assessment shall become final and collectible and the (10 could use its administrati e and Budicial remedies to collect the tax$ /nce an assessment has become final and collectible, not e en the (10 Commissioner could chan3e the same$ Thus, the taxpayer could not pay the tax, then apply for a refund, and if denied appeal the same to the Court of Tax =ppeals$ h$ 1f the protest is denied in !hole or in part, or is not acted upon !ithin one hundred ei3hty ?1+0> days from the submission of documents, the taxpayer ad ersely affected by the decision or inaction may appeal to the Court of Tax =ppeals !ithin thirty ?'0> days from receipt of the ad erse decision, or from the lapse of the one hundred ei3hty ?1+0J> day period, !ith an application for the issuance of a !rit of preliminary inBunction to enBoin the (10 from collectin3 the tax subBect of the appeal$ 1f the taxpayer fails to so appeal, the denial of the Commissioner or the inaction of the Commissioner !ould result to the notice of assessment becomin3 final and collectible and the (10 could then utili#e its administrati e and Budicial remedies to collect the tax$ i$ = decision of a di ision of the Court of Tax =ppeals ad erse to the taxpayer or the 3o ernment may be the subBect of a

motion for reconsideration or ne! trial, a denial of !hich is appealable to the Court of Tax =ppeals en %anc by means of a petition for re ie!$ $ The Court of Tax =ppeals, has a period of t!el e ?12> months from submission of the case for decision !ithin !hich to decide$ B$ 1f the decision of the Court of Tax =ppeals en %anc 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 re ie! on certiorari !ith the Supreme Court !ithin fifteen ?1-> days from notice of the Bud3ment on "uestions of la!$ =n extension of thirty ?'0> days may for Bustifiable reasons be 3ranted$ 1f the taxpayer does not so appeal, the decision of the Court of Tax =ppeals !ould become final and this has the effect of ma&in3 the assessment also final and collectible$ The (10 could then use its administrati e and Budicial remedies to collect the tax$

52

Second, cases filed in the CT= are liti3ated "e novo$ Thus, a petitioner should pro e e ery minute aspect of its case by presentin3, formally offerin3 and submittin3 its e idence to the CT=$ Since it is crucial for a petitioner in a Budicial claim for refund or tax credit to sho! that its administrati e claim should ha e been 3ranted in the first place, part of the e idence to be submitted to the CT= must necessarily include !hate er is re"uired for the successful prosecution of an administrati e claim$ ? Atlas Consoli"ate" $inin# an" .evelopment Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1A--2@, March 11@, 200,>

11. ReD $!$te! +o( 4o(,%& Lette( o+ De,%-) %-) A!!e!!,e-t Not$#e$ The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authori#ed representati e$ The letter of demand callin3 for payment of the taxpayer%s deficiency tax or taxes shall state the facts, the la!, rules and re3ulations, or Burisprudence on !hich the assessment is based, other!ise, the formal letter of demand and assessment notice shall be oid$ The same shall be sent to the taxpayer only by re3istered mail or by personal deli ery$
11FA.. 0h%t $! the * ()e- o+ t%."%'e(! !eeH$-8 t%. (e+ -)! o( #(e)$t! 9 S8<<)ST). =NSW)05 1t has al!ays been the rule that those see&in3 tax refunds or credits bear the burden of pro in3 the factual basis of their claims and of sho!in3, by !ords too plain to be mista&en, that the le3islature intended to entitle them to such claims$ ?Atlas Consoli"ate" $inin# an" .evelopment Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1A--2@, March 1@, 200,, See Commissioner of Internal &evenue v. Sea#ate *echnolo#y (Philippines' <$ 0$ No$ 1-'+@@, 11 Cebruary 200-, A-1 SC0= 1'2> 12. 0h%t $! the -%t (e o+ "(o#ee)$-8! *e+o(e the Co (t o+ T%. A""e%&! 9 S8<<)ST). =NSW)05 Cirst, a Budicial claim for refund or tax credit in the CT= is by no means an ori3inal action, but rather an appeal by !ay of petition for re ie! of a pre ious, unsuccessful administrati e claim$ Therefore, as in e ery appeal or petition for re ie!, a petitioner has to con ince the appellate court that the "uasiJBudicial a3ency a 9uo did not ha e any reason to deny its claims$

1:. 0h%t $! the ? ($!)$#t$o- o+ the Co (t o+ T%. A""e%&! 9 S8<<)ST). =NSW)05 Da$ E.#& !$/e %""e&&%te ? ($!)$#t$o- to (e/$ew *' %""e%&7 %! he(e$- "(o/$)e): 1$ .ecisions of the Commissioner of 1nternal 0e enue in cases in ol in3 disputed assessments, refunds of internal re enue taxes, fees or other char3es, penalties, in relation thereto, or other matters arisin3 under the National 1nternal 0e enue Code or other la!s administered by the (ureau of 1nternal 0e enue%G ?.1*1S1/N> 2$ 1naction by the Commissioner of 1nternal 0e enue in cases in ol in3 disputed assessments, refunds or internal re enue taxes, fees or other char3es, penalties in relation thereto, or other matter arisin3 under the National 1nternal 0e enue Code or other la!s administered by the (ureau of 1nternal 0e enue, !here the National 1nternal 0e enue Code pro ides a specific period of action, in !hich case the inaction shall be deemed a denialG ?The inaction on refunds in t!o years from the time tax !as paid$ Thus, if the prescripti e period of t!o years is about to expire, the taxpayer should interpose a petition for re ie! !ith the CT= L .1*1S1/N> '$ .ecisions, orders or resolutions of the 0e3ional Trial Courts in local tax cases ori3inally decided or resol ed by them in the exercise of their ori3inal or appellate BurisdictionG ?1f ori3inal .1*1S1/NG if appellate /! BA!C> A$ .ecisions of the Commissioner of Customs in cases in ol in3 liability for customs duties, fees or other money char3es, sei#ure, detention or release of property affected, fines, forfeitures or other penalties in relation thereto, or other matters arisin3 under the Customs 4a! or other la!s administered by the (ureau of CustomsG ?.1*1S1/N> -$ .ecisions of the Central (oard of =ssessment =ppeals in the exercise of its appellate Burisdiction o er cases

in ol in3 the assessment and taxation of real property ori3inally decided by the pro incial or city board of assessment appealsG ?/! BA!C> @$ .ecisions of the Secretary of Cinance on customs cases ele ated to him automatically for re ie! from decisions of the Commissioner of Customs !hich are ad erse to the <o ernment under Section 2'1- of the Tariff and Customs CodeG ?This has reference to forfeiture cases !here the decision is to release the sei#ed articles L .1*1S1/N> ,$ .ecisions of the Secretary of Trade and 1ndustry, in case of nona3ricultural product, commodity or article, and the Secretary of =3riculture in the case of a3ricultural product, commodity or article, in ol in3 dumpin3 and counter ailin3 duties under Section '01 and '02, respecti ely, of the Tariff and Customs Code, and safe3uard measures under 0epublic =ct No$ ++00, !here either party may appeal the decision to impose or not to impose said duties$ ?.1*1S1/N> b$ 3 ($!)$#t$o- o/e( #%!e! $-/o&/$-8 #($,$-%& o++e-!e! %! he(e$- "(o/$)e): 1$ E.#& !$/e o($8$-%& ? ($!)$#t$o- o/e( %&& #($,$-%& #%!e! arisin3 from iolations of the National 1nternal 0e enue Code or Tariff and Customs Code and other la!s administered by the (ureau of 1nternal 0e enue or the (ureau of Customs5 Provi"e", ho:ever, That offenses or felonies mentioned in this para3raph !here the principal amount of taxes and fees, exclusi e of char3es and penalties claimed, is less than /ne million pesos ?91,000,000$00> or !here there is no specified amount claimed shall be tried by the re3ular Courts and the Burisdiction of the CT= shall be appellate$ =ny pro ision of la! or the 0ules of Court to the contrary not!ithstandin3, the criminal action and the correspondin3 ci il action for the reco ery of ci il liability for taxes and penalties shall at all times be simultaneously instituted !ith, and Bointly determined in the same proceedin3 by the CT=, the filin3 of the criminal action bein3 deemed to necessarily carry !ith it the filin3 of the ci il action, and no ri3ht to reser e the filin3 of such ci il action separately from the ci il action !ill be reco3ni#ed$ 2$ E.#& !$/e %""e&&%te ? ($!)$#t$o- $- #($,$-%& o++e-!e!: a> / er appeals from the Bud3ments, resolutions or orders of the 0e3ional Trial Courts in tax cases ori3inally decided by them, in their respecti e territorial Burisdiction$ b> / er petitions for re ie! of the Bud3ments, resolutions or orders of the 0e3ional Trial Courts in the exercise of their appellate Burisdiction o er tax cases

53

ori3inally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their respecti e Burisdiction$ c$ 3 ($!)$#t$o- o/e( t%. #o&&e#t$o- #%!e!: 1$ )xclusi e ori3inal Burisdiction in tax collection cases in ol in3 final and executory assessments for taxes, fees, char3es and penalties5 Provi"e", ho:ever, That collection cases !here the principal amount of taxes and fees, exclusi e of char3es and penalties, claimed is less than /ne million pesos ?91,000,000> shall be tried by the proper Municipal Trial Court, Metropolitan Trial Court and 0e3ional Trial Court$ 2$ )xclusi e appellate Burisdiction in tax collection cases5 a$ / er appeals from Bud3ments, resolutions, or orders of the 0e3ional Trial Courts in tax collection cases ori3inally decided by them, in their respecti e territorial Burisdiction$ b$ / er petitions for re ie! of the Bud3ments, resolutions or orders of the 0e3ional Trial Courts in the exercise of their appellate Burisdiction o er tax collection cases ori3inally decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts, in their respecti e Burisdiction$E ?Sec$ ,, 0$ =$ No$ 112-, as amended by 0$ =$ No$ 92+2, emphasis and !ords in parentheses supplied>

The "et$t$o- +o( (e/$ew to *e +$&e) w$th the CTA en banc %! the ,o)e +o( %""e%&$-8 % )e#$!$o-7 (e!o& t$o-7 o( o()e( o+ the CTA D$/$!$o-7 -)e( Se#t$o- 1> o+ Re" *&$# A#t No. 11257 %! %,e-)e)7 $! -ot % tot%&&' -ew (e,e)'7 -$D e to the CTA7 w$th % !"e#$%& %""&$#%t$o- o( !e the(e$-. To the contrary, the CT= merely adopts
the procedure for petitions for re ie! and appeals lon3 established and practiced in other 9hilippine courts$ =ccordin3ly, doctrines, principles, rules, and precedents laid do!n in Burisprudence by this Court as re3ards petitions for re ie! and appeals in courts of 3eneral Burisdiction should li&e!ise bind the CT=, and it cannot depart therefrom$ ?Santos v. People, et al, <$ 0$
No$ 1,'1,@, =u3ust 2@, 200+>

1:FA. 2e-e(%& ( &e: The )e-$%& o+ % ,ot$o- to D %!h $! %- $-te(&o# to(' o()e( wh$#h $! -ot the "(o"e( ! *?e#t o+ %- %""e%& o( % "et$t$o- +o( #e(t$o(%($.
=ccordin3 to Section 1, 0ule A1 of the 0e ised 0ules of Court,

3o ernin3 appeals from the 0e3ional Trial Courts ?0TCs> to the Court of =ppeals, an appeal may be ta&en only from a Bud3ment or final order that completely disposes of the case or of a matter therein !hen declared by the 0ules to be appealable$ Said pro ision, thus, explicitly states that no appeal may be ta&en from an interlocutory order$ ?Santos v. People, et al, <$ 0$ No$
1,'1,@, =u3ust 2@, 200+>

54

1;. A""&$#%*$&$t' o+ Proton Pilipinas Corporation vs. Republic, etc., 2. R. No. 1<502=7 O#to*e( 1<7 200<. The case !as decided on factual antecedents before 0$ =$ No$ 92+2 !hich 3rants criminal Burisdiction to the Court of Tax =ppeals if the alue of the tax is 91 million or more$ 1nterpretin3 the pro isions of 0epublic =ct No$ +2A9, !hich pro ides that the ci il action for reco ery of ci il liability should be Bointly determined in the criminal proceedin3 by the Sandi3anbayan or appropriate courts, the prohibition of reser ation of the criminal aspect, the Supreme Court said that tax collection cases may be tried separately, and not before the Sandi3anbayan in 0ep$ =ct No$ '019 cases$ This is so because, 0ep$ =ct No$ '019 is silent on the definition of ci il liability and the application of =rt$ 10A of the 0e ised 9enal Code does not co er taxes$ Conse"uently, the Supreme Court ruled that on the tax collection case the 0TC !ould ha e Burisdiction$ 1-te("(et%t$o- *' the % tho( $- the &$8ht o+ Re". A#t. 92>2. 1f it is a criminal case co3ni#able by the Sandi3anbayan, then this court retains Burisdiction, !ith the ci il Burisdiction bein3 co3ni#able by the CT= or the lo!er courts dependin3 on the amount$ 1f the issue is a purely tax case, e en if it in ol es cases co3ni#able by the Sandi3anbayan, then Burisdiction ests upon the CT= or the lo!er courts dependin3 on the amount of the tax$

15. O- 3%- %(' 2;7 19957 the the- Se#(et%(' o+ 4$-%-#e7 th(o 8h the (e#o,,e-)%t$o- o+ the theCo,,$!!$o-e( o+ 1-te(-%& Re/e- e $!! e) Re/e- e Re8 &%t$o-! ORe/. Re8.P No. 1F957 "(o/$)$-8 the R &e! %-) Re8 &%t$o-! to 1,"&e,e-t the T%. 1-#e-t$/e! P(o/$!$o-! U-)e( P%(%8(%"h! @*A %-) @#A o+ Se#t$o- 127 OR.A.P No. =22=7 OoPthe(w$!e H-ow- %! the B%!e! Co-/e(!$o- %-) De/e&o",e-t A#t o+ 1992. S *!eD e-t&'7 Re/. Re8. No. 12F9= w%! $!! e) "(o/$)$-8 +o( the Re8 &%t$o-! 1,"&e,e-t$-8 Se#t$o-! 12@#A %-) 15 o+ OR.A.P No. =22= %-) Se#t$o-! 2;@*A %-) @#A o+ OR.A.P No. =91< A&&o#%t$-8 Two Pe(#e-t @2IA o+ the 2(o!! 1-#o,e E%(-e) *' A&& B !$-e!!e! %-) E-te("($!e! 0$th$- the S *$#7 C&%(H7 3oh- H%'7 Po(o Po$-t S"e#$%& E#o-o,$# Go-e! %-) othe( S"e#$%& E#o-o,$# Go-e! -)e( PEGA. O n Se"te,*e( 2=7 19997 Re/. Re8. No. 1<F99 w%! $!! e) A,e-)$-8 ORRP No. 1F957 %!

%,e-)e)7 %-) othe( (e&%te) R &e! %-) Re8 &%t$o-! to 1,"&e,e-t the P(o/$!$o-! o+ "%(%8(%"h! @*A %-) @#A o+ Se#t$o12 o+ OR.A.P No. =22=7 othe(w$!e H-ow- %! the QB%!e! Co-/e(!$o- %-) De/e&o",e-t A#t o+ 1992E Re&%t$/e to the T%. 1-#e-t$/e! 2(%-te) to E-te("($!e! Re8$!te(e) $- the S *$# S"e#$%& E#o-o,$# %-) 4(ee"o(t Go-e. O- 3 -e :7 200:7 the Co,,$!!$o-e( o+ 1-te(-%& Re/e- e $!! e) Re/e- e Me,o(%-) , C$(# &%( @RMCA No. :1F200: !ett$-8 the U-$+o(, 2 $)e&$-e! o- the T%.%t$o- o+ 1,"o(te) Moto( Veh$#&e! th(o 8h the S *$# 4(ee Po(t Go-e %-) Othe( 4(ee"o(t Go-e! th%t %(e So&) %t P *&$# A #t$o-7 wh$#h "(o/$)e) +o( the t%. t(e%t,e-t! o- the t(%-!%#t$o-! $-/o&/e) $the $,"o(t%t$o- o+ ,oto( /eh$#&e! th(o 8h the SSE4G %-) othe( &e8$!&%te) 4(ee"o(t Bo-e! %-) ! *!eD e-t !%&e the(eo+ th(o 8h " *&$# % #t$o-. Th$! w%! &%te( %,e-)e) *' RMC No. :2F200:. A!$% 1-te(-%t$o-%& A #t$o-ee(! %-) othe(! +$&e) % #o,"&%$-t *e+o(e the RTC o+ O&o-8%"o C$t'7 to )e#&%(e Vo$)7 U&t(% V$(e!7 %-) U-#o-!t$t t$o-%& ORMCP No. :1F200: )%te) 3 -e :7 200: %-) ORMCP No. :2F200: )%te) 3 -e 57 200: , Re/. Re8. No!. 1F957 12F9= %-) 1<F99 )%te) 3%- %(' 2;7 19957 A 8 !t =7 199= %-) Se"te,*e( 2=7 19997 (e!"e#t$/e&', The' #o-te-)e) th%t ? ($!)$#t$o- o/e( the #%!e %t *%( "(o"e(&' "e(t%$-! to the (e8 &%( #o (t! %! th$! $! %- %#t$o- to )e#&%(e %! -#o-!t$t t$o-%&7 /o$) %-) %8%$-!t the "(o/$!$o-! o+ OR.A. No.P =22= the RMC! $!! e) *' the C1R. The' )o )o -ot #h%&&e-8e the (%te7 !t( #t (e o( +$8 (e! o+ the $,"o!e) t%.e!7 (%the( the' #h%&&e-8e the % tho($t' o+ the (e!"o-)e-t Co,,$!!$o-e( to $,"o!e %-) #o&&e#t the !%$) t%.e!. The' %&!o #&%$, th%t the #h%&&e-8e o- the % tho($t' o+ the C1R to $!! e the RMC! )oe! -ot +%&& w$th$- the ? ($!)$#t$o- o+ the Co (t o+ T%. A""e%&! @CTAA. Doe! the RTC h%/e ? ($!)$#t$o- 9 S8<<)ST). =NSW)05 No$ 1t is the Court of Tax =ppeals that has exclusi e Burisdiction$ 1n the case at bar, the assailed re enue re3ulations and re enue memorandum circulars are actually rulin3s or opinions of the C10 on the tax treatment of motor ehicles sold at public auction !ithin the SS)2 to implement Section 12 of 0$=$ No$ ,22, !hich pro ides that Dexportation or remo al of 3oods from the territory of the FSS)2H to the other parts of the 9hilippine territory shall be subBect to customs duties and taxes under the Customs and Tariff Code and other rele ant tax la!s of the 9hilippines$E They !ere issued pursuant to the po!er of the C10 under Section A of the National 1nternal 0e enue Code, viz5 Section A$ 9o!er of the Commissioner to 1nterpret Tax 4a!s and to .ecide Tax Cases$JJ The po!er to interpret the

pro isions of this Code and other tax la!s shall be under the exclusi e and ori3inal Burisdiction of the Commissioner, subBect to re ie! by the Secretary of Cinance$ The po!er to decide disputed assessments, refunds of internal re enue taxes, fees or other char3es, penalties imposed in relation thereto, or other matters arisin3 under this Code or other la!s or portions thereof administered by the (ureau of 1nternal 0e enue is ested in the Commissioner, subBect to the exclusi e appellate Burisdiction of the Court of Tax =ppeals$ ?as amended by the N10C of 199,, emphases supplie", Asia International Auctioneers, Inc., etc et al., .v. Parayno, 2r., etc.,, et al., <$ 0$ No$ 10'AA-, .ecember 1+, 200,> N/T)S =N. C/MM)NTS5 The author disputes this doctrine$ The decisions of the Commission under Dother matterE refers to the "uasiJBudicial decisions and not to the "uasiJle3islati e po!ers of the Commissioner$

55

1<. 0h%t $! the #h%(%#te($!t$# o+ % B1R )e-$%& o+ % "(ote!t ! #h %! wo &) e-%*&e the t%."%'e( to %""e%& the !%,e to the Co (t o+ T%. A""e%&! 9
S8<<)ST). =NSW)05 The Commissioner of 1nternal 0e enue should al!ays indicate to the taxpayer in clear and une"ui ocal lan3ua3e !hene er his action on an assessment "uestioned by a taxpayer constitutes his final determination on the disputed assessment$ /n the basis of his statement indubitably sho!in3 that the Commissioner%s communicated action is his final decision on the contested assessment, the a33rie ed taxpayer !ould then be able to ta&e recourse to the tax court at the opportune time$ Without needless difficulty, the taxpayer !ould be able to determine !hen his ri3ht to appeal to the tax court accrues$ ? Commissioner of Internal &evenue v. Ban4 of the Philippines Islan"s, <$ 0$ No$ 1'A0@2, =pril 1,, 200, citin3 3ceanic Kireless !et:or4, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1A+'+0, 9 .ecember 200-, A,, SC0= 20-, 211J212, citin3 Suri#ao /lectric Co., Inc. v. Court of *a6 Appeals, <$ 0$ No$ 4J2-A2+9, 2+ Iune 19,A, -, SC0= -2'> N/T)S =N. C/MM)NTS5 a$ Re%!o-! +o( the ( &e (eD $($-8 C1RE! -eD $/o#%& &%-8 %8e o- h$! %#t$o- o- the "(ote!t. 1> 1t !ould ob iate all desire and opportunity on the part of the taxpayer to continually delay the finality of the assessment L and, conse"uently, the collection of the amount demanded as taxes L by repeated re"uests for recomputation and reconsideration$

2> /n the part of the Commissioner of 1nternal 0e enue, this !ould encoura3e his office to conduct a careful and thorou3h study of e ery "uestioned assessment and render a correct and define decision thereon in the first instance$ '> This !ould also deter the Commissioner of 1nternal 0e enue from unfairly ma&in3 the taxpayer 3rope in the dar& and speculate as to !hich action constitutes the decision appealable to the tax court$ A> /f 3reater import, this rule of conduct !ould meet a pressin3 need for fair play, re3ularity, and orderliness in administrati e action$ $ ?Commissioner of Internal &evenue v. Ban4 of the Philippines Islan"s, <$ 0$ No$ 1'A0@2, =pril 1,, 200, citin3 3ceanic Kireless !et:or4, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1A+'+0, 9 .ecember 200-, A,, SC0= 20-, 211J212, citin3 Suri#ao /lectric Co., Inc. v. Court of *a6 Appeals, <$ 0$ No$ 4J2-A2+9, 2+ Iune 19,A, -, SC0= -2'>

1=. C$te %#t! o+ B1R Co,,$!!$o-e( th%t ,%' *e #o-!$)e(e) %! )e-$%& o+ % "(ote!t wh$#h !e(/e %! *%!$! +o( %""e%& to the Co (t o+ T%. A""e%&!.
S8<<)ST). =NSW)05 a$ Cilin3 by the (10 of a ci il suit for collection of the deficiency tax is considered a denial of the re"uest for reconsideration$ ?Commissioner of Internal &evenue v. +nion Shippin# Corporation, 1+- SC0= -A,> b$ =n indication to the taxpayer by the Commissioner Din clear and une"ui ocal lan3ua3eE of his final denial not the issuance of the !arrant of distraint and le y$ What is the subBect of the appeal is the final decision not the !arrant of distraint$ (Commissioner of Internal &evenue v. +nion Shippin# Corporation, 1+- SC0= -A,' c$ = (10 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$ (Suri#ao /lectric Co., Inc. v. Court of *a6 Appeals, et al., -, SC0= -2'> d$ = letter of the (10 Commissioner reiteratin3 to a taxpayer his pre ious demand to pay an assessment is considered a denial of the re"uest for reconsideration or protest and is appealable to the Court of Tax =ppeals$ (Commissioner v. Ayala Securities Corporation, ,0 SC0= 20A> e$ Cinal notice before sei#ure considered as commissioner%s decision of taxpayer%s re"uest for reconsideration !ho recei ed no other response$ Commissioner of Internal &evenue v. Isa%ela Cultural Corporation, <$0$ No$ 1'-210, Iuly 11, 2001 held that

not only is the Notice the only response recei ed5 its content and tenor supports the theory that it !as the C10%s final act re3ardin3 the re"uest for reconsideration$ The ery title expressly indicated that it !as a final notice prior to sei#ure of property$ The letter itself clearly stated that the taxpayer !as bein3 3i en Dthis 4=ST /99/0T8N1TKE to payG other!ise, its properties !ould be subBected to distraint and le y$

56

19. 1-!t%-#e! whe(e the Co (t o+ T%. A""e%&! wo &) h%/e ? ($!)$#t$o- e/e- $+ the(e $! -o )e#$!$o- 'et *' the Co,,$!!$o-e( o+ 1-te(-%& Re/e- e:
a$ Where the Commissioner has not acted on the disputed assessment after a period of 1+0 days from submission of complete supportin3 documents, the taxpayer has a period of '0 days from the expiration of the 1+0 day period !ithin !hich to appeal to the Court of Tax =ppeals$ ?last par$, Sec$ 22+ ?e>, N10C of 199,L Commissioner of Internal &evenue v. Isa%ela Cultural Corporation, (.&. !o. ;AH<;?, 2uly ;;, <??;' b$ Where the Commissioner has not acted on an application for refund or credit and the t!o year period from the time of payment is about to expire, the taxpayer has to file his appeal !ith the Court of Tax =ppeals before the expiration of t!o years from the time the tax !as paid$ 1t is disheartenin3 enou3h to a taxpayer to be &ept !aitin3 for an indefinite period for the rulin3,$ 1t !ould ma&e matters more exasperatin3 for the taxpayer if the doors of Bustice !ould be closed for such a relief until after the Commissioner, !ould ha e, at his personal con enience, 3i en his 3o si3nal$ (Commissioner of Customs, et al, v. Court of *a6 Appeals, et al., (.&. !o. B<C;B, $arch ;C, ;IBI, unrep.'

1>. The t%."%'e( !e%!o-%*&' "(ote!te) the %!!e!!,e-t $!! e) *' the Co,,$!!$o-e( o+ 1-te(-%& Re/e- e. D ($-8 the "e-)e-#' o+ the "(ote!t the C1R $!! e) % w%((%-t o+ )$!t(%$-t %-) &e/' to #o&&e#t the t%.e! ! *?e#t o+ the "(ote!t. A! #o -!e& wh%t %)/$#e !h%&& 'o 8$/e the t%."%'e(. E."&%$- *($e+&' 'o ( %-!we(.
S8<<)ST). =NSW)05 The taxpayer should appeal, by !ay of a petition for re ie!, to the Court of Tax =ppeals not on the 3round of the denial of the protest but on other matter arisin3 under the pro isions of the National 1nternal 0e enue Code$ The actual issuance of a !arrant of distraint and le y in certain cases cannot be considered a final decision on a disputed assessment$ To be a alid decision on a disputed assessment, the decision of the Commissioner or his duly authori#ed representati e shall ?a> state the facts, the applicable la!, rules and re3ulations, or Burisprudence on !hich such decision is based, other!ise, the decision shall be oid, in !hich case the same shall not be considered a decision on the disputed assessmentG and ?b> that the same is his final decision$ ?Sec$ '$1$@, 0e $ 0e3s$ 12J99> These conditions are not complied !ith by the mere issuance of a !arrant of distraint and le y$ (Commissioner of Internal &evenue v. +nion Shippin# Corp., 1+SC0= -A,' Curthermore, a motion for the suspension of the collection of the tax may be filed to3ether !ith the petition for re ie! ?Sec$ ', 0ule 10, 00CT= effecti e .ecember 1-, 200-> because the collection of the tax may Beopardi#e the interest of the taxpayer$ 1>FA. A! % 8e-e(%& ( &e7 the(e , !t %&w%'! *e % )e#$!$oo+ the Co,,$!!$o-e( o+ 1-te(-%& Re/e- e o( Co,,$!!$o-e( o+ C !to,! *e+o(e the Co (t o+ T%. A""e%&!7 wo &) h%/e ? ($!)$#t$o-. 1f there is no such decision, the petition !ould be dismissed for lac& of Burisdiction unless the case falls under any of the follo!in3 exceptions$

1-!t%-#e! whe(e the Co (t o+ T%. A""e%&! wo &) h%/e ? ($!)$#t$o- e/e- $+ the(e $! -o )e#$!$o- o+ the Co,,$!!$o-e( o+ C !to,!5
a$ .ecisions of the Secretary of Trade and 1ndustry or the Secretary of =3riculture in antiJdumpin3 and counter ailin3 duty cases are appealable to the Court of Tax =ppeals !ithin thirty ?'0> days from receipt of such decisions$ b$ 1n case of automatic re ie! by the Secretary of Cinance in sei#ure or forfeiture cases !here the alue of the importation exceeds 9- million or !here the decision of the Collector of Customs !hich fully or partially releases the shipment sei#ed is affirmed by the Commissioner of Customs$ c$ 1n case of automatic re ie! by the Secretary of Cinance of a decision of a Collector of Customs actin3 fa orably upon a customs protest$

20.

21. A! % 8e-e(%& ( &e7 No #o (t !h%&& h%/e the % tho($t' to 8(%-t %- $-? -#t$o- to (e!t(%$- the #o&&e#t$o- o+ %-' -%t$o-%& $-te(-%& (e/e- e t%.7 +ee o( #h%(8e $E ?Sec$ 21+,
N10C>

DNo appeal ta&en to the CT= from the decision of the Commissioner of 1nternal 0e enue or the Commissioner of Customs or the 0e3ional Trial Court, pro incial, city or municipal treasurer or the Secretary of Cinance, the Secretary of Trade and 1ndustry and Secretary of =3riculture, as the case may be shall suspend the payment, le y, distraint, and7or sale of any property of the taxpayer for the satisfaction of his tax liability as pro ided by existin3 la!5 9ro ided, ho!e er, That !hen in the opinion of the Court the collection by the aforementioned 3o ernment a3encies may Beopardi#e the interest of the <o ernment and7or the taxpayer the Court at any sta3e of the proceedin3 may suspend the said collection and re"uire the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount !ith the Court$E ?Sec$ 11, 0ep$ =ct No$ 112-, as amended by Sec$9, 0ep$ =ct No$ 92+2 > The Supreme Court may enBoin the collection of taxes under its 3eneral Budicial po!er but it should be apparent that the source of the po!er is not statutory but constitutional$ The Supreme Court did not 3rant the pro isional remedy prayed for in Southern Cross Cement Corporation v. *he Philippine Cement $anufacturers Corp., et al., <$ 0$ No$ 1-+-A0, Iuly +, 200A for it !ould be tantamount to enBoinin3 the collection of taxes, a peremptory Budicial act !hich is traditionally fro!ned upon unless there is a clear statutory basis for it$ ) ident is the clear le3islati e intent that the imposition of safe3uard measures, despite the a ailability of Budicial re ie!, should not be enBoined not!ithstandin3 any timely appeal of the imposition$ This so because the Safe3uard Measures =ct states that the filin3 of a petition for re ie! before the CT= does not stop, suspend, or other!ise toll the imposition or collection of the appropriate tariff duties or the adoption of other appropriate safe3uard measures$ 22. 2e-e(%& ( &e: DThe rule is that in the absence of accountin3 records of a taxpayer, his tax liability may be determined by estimation$ The petitioner ?Commissioner of 1nternal 0e enue> is not re"uired to compute such tax liabilities !ith mathematical exactness$ =pproximation in the calculation of taxes due is Bustified$ To hold other!ise !ould be tantamount to holdin3 that s&illful concealment is an in incible barrier to proof$E F Commissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc. <$ 0$ No$ 1'@9,-, March '1, 200- citin3 +nite" States v. 2ohnson, '19 8$S$ 12'' ?19A'>H D:o!e er, the rule does not apply !here the estimation is arri ed at arbitrarily and capriciously$E F Commissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc., citin3 +nite" States v. &in"s4opf, 10- 8$S$A1+ ?1++1>H

57

2:. Me%-$-8 o+ L*e!t e/$)e-#e o*t%$-%*&e P under Sec$ @ ?(>, N10C of 199,$ This means that the ori3inal documents must be produced$ 1f it could not be produced, secondary e idence must be adduced$ ?0ante6 *ra"in# Co., Inc. v. Commissioner of Internal &evenue, C= J <$0$ S9 No$ A,1,2, September '0, 199+> N/T)S =N. C/MM)NTS5 a$ The !e#o-)%(' e/$)e-#e referred to are those that may be adduced usin3 the 3eneral methods for reconstructin3 a taxpayer%s income or the indirect approach to tax in esti3ation$ The Dbest e idenceE en isa3ed in Section 1@ of the 19,, N10C Fno! Sec$ @ ?(>,N10C of 199,H Dincludes the corporate and accountin3 records of the taxpayer !ho is the subBect of the assessment process, the accountin3 records of other taxpayers en3a3ed in the same line of business, includin3 their 3ross profit and net profit sales$E ?Commissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc. <$ 0$ No$ 1'@9,-, March '1, 200- citin3 .e 4eon, *he !ational Internal &evenue Co"e Annotate", p$ ',> DSuch e idence also includes data, record, paper, document or any e idence 3athered by internal re enue officers from other taxpayers !ho had personal transactions or from !hom the subBect taxpayer recei ed any incomeG and record, data, document and information secured from 3o ernment offices or a3encies, such as the S)C, the Central (an& of the 9hilippines, the (ureau of Customs, and the DTariff and Customs Commission$E ? sic, Commissioner v. 0ante6 *ra"in# Co., Inc., supra> DThe la! allo!s the (10 access to all rele ant or material records or data in the person of the taxpayer$ 1t places no limit or condition on the type or form of the medium by !hich the record subBect of the order of the (10 is &ept$E ?I%i".> 9urpose of the Dbest e idence obtainableE rule under Sec, @ ?(>, N10C of 199,$ DThe purpose of the la! is to enable the (10 to 3et at the taxpayer%s records in !hate er form they may be &ept$E ?Commissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc. <$ 0$ No$ 1'@9,-, March '1, 200-> 2;. Se#. < @BA o+ the N1RC o+ 199= %&&ow! the B1R to ,%He o( %,e-) % t%. (et (- +(o, h$! ow- H-ow&e)8e o( o*t%$-e) th(o 8h te!t$,o-' o( othe(w$!e$ Thus, the Commissioner of 1nternal 0e enue in esti3ates Eany circumstance !hich led him to belie e that the taxpayer had taxable income lar3er than that reported$ Necessarily, this in"uiry !ould ha e to be outside of the boo&s because they supported the return as filed$ :e may ta&e the s!orn testimony of the taxpayer, he may ta&e the testimony of third partiesG he may examine and subpoena, if necessary, traders% and bro&ers% accounts and boo&s and the taxpayer%s boo&s of accounts$ The Commissioner is not bound to follo! any set of patterns$ The

existence of unreported income may be sho!n by any particular proof that is a ailable in the circumstances of the particular situation$ FCommissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc. citin3 Camp%ell, 2r., v. (uetersloh, 2+, C$2d +,+ ?19@1>H Citin3 its rulin3 in a pre ious case, a D8$S$ appellate court declared that !here the records of the taxpayer are manifestly inaccurate and incomplete, the Commissioner may loo& to other sources of information to establish income made by the taxpayer durin3 the years in "uestion$ ?I%i"., in turn citin3 1enney v. Commissioner, 111 C$2d ',A> 25. The follo!in3 are the 8e-e(%& ,etho)! )e/e&o"e) *' the B (e% o+ 1-te(-%& Re/e- e +o( (e#o-!t( #t$-8 % t%."%'e(E! $-#o,e !here the records do not sho! the true income or !here no return !as filed or !hat !as filed !as a false and fraudulent return ?a> 9ercenta3e methodG ?b> Net !orth method$G ?c> (an& deposit methodG ?d> Cash expenditure methodG ?e> 8nit and alue methodG ?f> Third party information or access to records methodG ?3> Sur eillance and assessment method$ ?Chapter ;111$ 1ndirect =pproach to 1n esti3ation, :andboo& on =udit 9rocedures and Techni"ues L *olume 1, pp$ @+J,A> 2<. Th$() "%(t' $-+o(,%t$o- o( %##e!! to (e#o()! ,etho). The (10 may re"uire third parties, public or pri ate to supply information to the (10, and thus, Dobtain on a re3ular basis from any person other than the person !hose internal re enue tax liability is subBect to audit or in esti3ation, or from any office or officer of the national and local 3o ernments, 3o ernment a3encies and instrumentalities includin3 the (an3&o Sentral n3 9ilipinas and 3o ernmentJo!ned or Lcontrolled corporations, any information such as, but not limited to, costs and olume of production, receipts or sales and 3ross incomes of taxpayers, and the names , addresses, and financial statements of corporations, mutual fund companies, insurance companies, re3ional operatin3 head"uarters or multinational companies, Boint accounts, associations, Boint entures or consortia and re3istered partnerships, and their membersG xxxE FSec$ - ?(>, N10C of 199,> 2=. A "(eF%!!e!!,e-t -ot$#e is a letter sent by the (ureau of 1nternal 0e enue to a taxpayer as&in3 him to explain !ithin a period of fifteen ?1-> days from receipt !hy he should not be the

58

subBect of an assessment notice$ 1t is part of the due process ri3hts of a taxpayer$ =s a 3eneral rule, the (10 could not issue an assessment notice !ithout first issuin3 a preJassessment notice because it is part of the due process ri3hts of a taxpayer to be 3i en notice in the form of a preJassessment notice, and for him to explain !hy he should not be the subBect of an assessment notice$

2>. 1-!t%-#e! whe(e % "(eF%!!e!!,e-t -ot$#e $! -ot (eD $(e) *e+o(e % -ot$#e o+ %!!e!!,e-t $! !e-t to the t%."%'e(.
a$ When the findin3 for any deficiency tax is the result of mathematical error in the computation of the tax as appearin3 on the face of the returnG or b$ When a discrepancy has been determined bet!een the tax !ithheld and the amount actually remitted by the !ithholdin3 a3entG or c$ When a taxpayer opted to claim a refund or tax credit of excess creditable !ithholdin3 tax for a taxable period !as determined to ha e carried o er and automatically applied the same amount claimed a3ainst the estimated tax liabilities for the taxable "uarter or "uarters of the succeedin3 table yearG or d$ When the excess tax due on excisable articles has not been paidG or e$ When an article locally purchased or imported by an exempt person, such as, but not limited to ehicles, capital e"uipment, machineries and spare parts, has been sold, trade or transferred to nonJexempt persons$ ?Sec$ 22+, N10C of 199,> 29. The !ord assessment !hen used in connection !ith taxation, may ha e more than one meanin3. Mo(e #o,,o-&' the wo() %!!e!!,e-t ,e%-! the o++$#$%& /%& %t$o- o+ % t%."%'e(E! "(o"e(t' +o( " ("o!e o+ t%.%t$o-. The %*o/e )e+$-$t$o- o+ %!!e!!,e-t +$-)! %""&$#%t$o- -)e( t%($++ %-) # !to,! t%.%t$o%! we&& %! &o#%& 8o/e(-,e-t t%.%t$o- $ Cor (e%& "(o"e(t' t%.%t$o-7 the(e ,%' *e % !"e#$%& ,e%-$-8 to the * ()e-! th%t %(e $,"o!e) "o- (e%& "(o"e(t$e! th%t h%/e *ee- *e-e+$te) *' % " *&$# wo(H! e."e-)$t (e o+ % &o#%& 8o/e(-,e-t. 1t is sometimes called a special assessment or a special le y$ (Commissioner of Internal &evenue v. Pascor &ealty an" .evelopment Corporation, et al., <$0$ No$ 12+'1-, Iune 29, 1999> 4o( $-te(-%& (e/e- e t%.%t$o- %!!e!!,e-t %! &%'$-8 % t%.. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay$ (Commissioner of Internal &evenue v. Pascor &ealty an" .evelopment Corporation, et al., <$0$ No$ 12+'1-, Iune 29, 1999>

59

:0. A- %!!e!!,e-t $! % -ot$#e ) &' !e-t to the t%."%'e( wh$#h $! )ee,e) ,%)e o-&' whe- the B1R (e&e%!e!7 ,%$&! o( !e-)! ! #h -ot$#e to the t%."%'e( .
(Commissioner of Internal &evenue v. Pascor &ealty an" .evelopment Corporation, et al., <$0$ No$ 12+'1-, Iune 29, 1999> :1. 0h%t $! % !e&+F%!!e!!e) t%. 9 S8<<)ST). =NSW)05 = tax that the taxpayer himself assesses or computes and pays to the taxin3 authority$ 1t is a tax that selfJassessed by the taxpayer !ithout the inter ention of an assessment by the tax authority to create the tax liability$ The Tax Code follo!s the payJasJyouJfile system of taxation under !hich the taxpayer computes his o!n tax liability, prepares the return, and pays the tax as he files the return$ The payJasJyouJfile system is a selfJassessin3 tax return$ 1nternal re enue taxes are selfJassessin3$ F.issent of I$ Carpio in Philippine !ational 3il Company v. Court of Appeals, et al., <$ 0$ No$ 1099,@, =pril 2@, 200- and companion case citin3 *upaz v. +lep, '1@ SC0= 11+ ?1999> in turn citin3 *itu3 and =costa, *a6 La: an" 2urispru"ence, 1st edition, 199,, p$ 2@,H = clear example of a selfJassessed tax is the annual income tax, !hich the taxpayer himself computes and pays !ithout the inter ention of any assessment by the (10$ The annual income tax becomes due and payable !ithout need of any prior assessment by the (10$ The (10 may or may not in esti3ate or audit the annual income tax return filed by the taxpayer$ The taxpayer%s liability for the income tax does not depend on !hether or not the (10 conducts such subse"uent in esti3ation or audit$ :o!e er, if the taxin3 authority is first re"uired to in esti3ate, and after such in esti3ation to issue the tax assessment that creates the tax liability, then the tax is no lon3er selfJassessed$ ?.issent of I$ Carpio in Philippine !ational 3il Company v. Court of Appeals, et al., <$ 0$ No$ 1099,@, =pril 2@, 200- and companion case> :2. O- O#to*e( 2>7 19>> t%."%'e( *%-H (e#e$/e) % -ot$#e o+ %!!e!!,e-t +(o, the B1R $-+o(,$-8 $t th%t )e+$#$e-#' t%.e! %(e ) e +(o, the !%$) t%."%'e( *%-H w$tho t %-' +$-)$-8! o+ &%w o( +%#t * t ! ""o(te) o-&' w$th % #o," t%t$o-. O- De#e,*e( 107 19>>7 the t%."%'e( *%-H #o -!e& +$&e) % &ette( th%t %! !oo- %! th$! $! e."&%$-e) %-) #&%($+$e) $- % "(o"e( -ot$#e o+ %!!e!!,e-t7 we !h%&& $-+o(, 'o o+ the t%."%'e(E! )e#$!$o- o- whethe( to "%' o( "(ote!t the %!!e!!,e-t. The t%."%'e( *%-H $-!$!t! th%t the %!!e!!,e-t w%! -ot /%&$). O+ #o (!e7 B1R tooH the o""o!$te

/$ew #o-te-)$-8 + (the( th%t the(e w%! -o !e%!o-%*&e "(ote!t7 he-#e the t%. $! ! e %-) #o&&e#t$*&e. 0ho $! #o((e#t 9 S8<<)ST). =NSW)05 The (10 is correct$ 8nder the old la! Sec$ 2,0, it is enou3h merely that the (10 Commissioner shall Dnotify the taxpayer of his findin3s The taxpayer ban& counsel%s .ecember 10, 19++ letter is not a seasonable protest because it !as filed thirty ?'0> days after receipt of the assessment on /ctober 2+, 19++$ ? Commissioner of Internal &evenue v. Ban4 of Philippine Islan"s, <$ 0$ No$ 1'A0@2, =pril 1,, 200,> N/T)S =N. C/MM)NTS5 The statement, DThe taxpayer shall be informed in !ritin3 of the la! and the facts on !hich the assessment is madeG other!ise the assessment shall be oidE is an amendment to Sec$ 2,0 ?no! renumbered to Sec$ 22+> !hich too& effect only on Ianuary 1, 199+ upon the effecti ity of the Tax 0eform =ct of 199,$ ::. 0h%t %(e the "(e!#($"t$/e "e($o)! +o( ,%H$-8 %!!e!!,e-t! o+ $-te(-%& (e/e- e t%.e! 9 S8<<)ST). =NSW)05 a$ Three ?'> years from the last day !ithin !hich to file a return or !hen the return !as actually filed, !hiche er is later ?Sec$ 20', N10C of 199,>$ The C10 has three ?'> years from the date of actual filin3 of the tax return to assess a national internal re enue tax or to commence court proceedin3s for the collection thereof !ithout an assessment$ F Ban4 of Philippine Islan"s (-ormerly -ar /ast Ban4 an" *rust Company' v. Commissioner of Internal &evenue, <$ 0$ No$ 1,A9A2, March ,, 200+H b$ ten years from disco ery of the failure to file the tax return or disco ery of falsity or fraud in the return FSec$ 222 ?a>, N10C of 199,> G or c$ !ithin the period a3reed upon bet!een the 3o ernment and the taxpayer !here there is a !ai er of the prescripti e period for assessment ?Sec$ 222 ?b>, N10C of 199,>$

:;.

P ("o!e o+ "e($o) o+ &$,$t%t$o-! $- t%.%t$o-.

Cor the purpose of safe3uardin3 taxpayers from any unreasonable examination, in esti3ation or assessment, our tax la! pro ides a statute of limitations in the collection of taxes$ FCommissioner of Internal &evenue v. B.-. (oo"rich Phils, Inc., ?no: Sime .ar%y International *ire Co., Inc.>, et al., <$0$ No$ 10A1,1, Cebruary 2A, 1999, '0' SC0= -A@G Philippine 2ournalists, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200AGH, as !ell as their assessments$

The la! prescribin3 a limitation of actions for the collection of the income tax is beneficial both to the <o ernment and to its citi#ensG to the <o ernment because tax officers !ould be obli3ed to act promptly in the ma&in3 of assessment, and to citi#ens because after the lapse of the period of prescription citi#ens !ould ha e a feelin3 of security a3ainst unscrupulous tax a3ents !ho !ill al!ays find an excuse to inspect the boo&s of taxpayers, not to determine the latter%s real liability, but to ta&e ad anta3e of e ery opportunity to molest peaceful, la!Jabidin3 citi#ens$ Without such a le3al defense taxpayers !ould furthermore be under obli3ation to al!ays &eep their boo&s and &eep them open for inspection subBect to harassment by unscrupulous tax a3ents$ The la! on prescription bein3 a remedial measure should be interpreted in a !ay conduci e to brin3in3 about the beneficent purpose of affordin3 protection to the taxpayer !ithin the contemplation of the Commission !hich recommend the appro al of the la!$ F &epu%lic of the Philippines v. A%laza, 10+ 9hil$ 110-, 110+, cited in Ban4 of Philippine Islan"s (-ormerly -ar /ast Ban4 an" *rust Company' v. Commissioner of Internal &evenue, <$ 0$ No$ 1,A9A2, March ,, 200+H :5. U-(e%!o-%*&e $-/e!t$8%t$o- #o-te,"&%te! #%!e! whe(e the "e($o) +o( %!!e!!,e-t e.te-)! $-)e+$-$te&' because this depri es the taxpayer of the assurance that it !ill not lon3er be subBected to further in esti3ation for taxes after the expiration of a reasonable period of time$ ?Philippine 2ournalists, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200A !ith note to see &epu%lic v. A%laza, 10+ 9hil$ 110-$ 110+> 4a!s on prescription should be liberally construed in fa or of the taxpayer$ 0eason5 for the purpose of safe3uardin3 taxpayers from an unreasonable examination, in esti3ation or assessment, our tax la!s pro ide a statute of limitation on the collection of taxes$ Thus, the la! on prescription, bein3 a remedial measure, should be liberally construed in order to afford such protection, =s a corollary, the exceptions to the la! on prescription should perforce be strictly construed. FPhilippine 2ournalists, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200A citin3 Commissioner of Internal &evenue v. B.-. (oo"rich Phils, Inc (no: Sime .ar%y International *ire Co., Inc.',., et al., <$0$ No$ 10A1,1, Cebruary 2A, 1999, '0' SC0= -A@H The prescripti e period !as precisely intended to 3i e the taxpayers peace of mind$ (Commissioner of Internal &evenue v. B.-. (oo"rich Phils., Inc., et al$, <$0$ No$ 10A1,1, Cebruary 2A, 1999> :<. A ?eo"%()' %!!e!!,e-t is a delin"uency tax assessment !hich !as assessed !ithout the benefit of complete or partial audit by an authori#ed re enue officer, !ho has reason to

60

belie e that the assessment and collection of a deficiency tax !ill be Beopardi#ed by delay because of the taxpayer%s failure to comply !ith the audit and in esti3ation re"uirements to present his boo&s of accounts and7or pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in his return$ FSec$ '$1 ?a>, 0e $ 0e3s$ No$ @J2000> Ieopardy assessment is an indication of the doubtful alidity of the assessment, hence it may be subBect to a compromise$ FSec$ '$1 ?a>, 0e $ 0e3s$ No$ @J2000H :=. D ($-8 3 &$%-%E! &$+et$,e7 he( * !$-e!! %++%$(! we(e ,%-%8e) *' the Ph$&$""$-e T( !t Co,"%-' @Ph$&t( !tA. She )$e) o- A"($& :7 2001.Two )%'! %+te( he( )e%th7 Ph$&t( !t7 th(o 8h $t! T( !t O++$#e(7 +$&e) he( 1-#o,e T%. Ret (- +o( 20007 w$tho t $-)$#%t$-8 th%t 3 &$%-% )$e). O- M%' 227 20017 Ph$&t( !t +$&e) % /e($+$e) "et$t$o- w$th the RTC +o( %""o$-t,e-t %! S"e#$%& A),$-$!t(%to(. Th$! w%! )e-$e) *' the #o (t who %""o$-te) o-e o+ the he$(! %! S"e#$%& A),$-$!t(%to(. Ph$&t( !tE! ,ot$o- +o( (e#o-!$)e(%t$o- w%! )e-$e). A+te( %- $-/e!t$8%t$o- *' the B1R o+ the )e#e)e-tE! $-#o,e t%. &$%*$&$t'7 $t !e-t7 o- No/e,*e( 1>7 200:7 % )e,%-) &ette( %-) % Not$#e o+ A!!e!!,e-t to 3 &$%-% #Co Ph$&t( !t %t the &%tte(E! %))(e!! wh$#h w%! !t%te) $- the 199> 1-#o,e T%. Ret (-. No (e!"o-!e w%! ,%)e -e$the( w%! the B1R %)/$!e) th%t 3 &$%-% %&(e%)' )$e). O- 3 -e 1>7 20057 the B1R Co,,$!!$o-e( $!! e) w%((%-t! o+ )$!t(%$-t %-) &e/' to e-+o(#e #o&&e#t$o- o+ the )e+$#$e-#' $-#o,e t%. &$%*$&$t' wh$#h w%! !e(/e) o- 3 &$%-%E! he$(. ONo/e,*e( 227 20057 the B1R +$&e) w$th the e!t%te #o (t % ,ot$o+o( %&&ow%-#e o+ #&%$,. The he$( #&%$,e) th%t the(e w%! -o "(o"e( !e(/$#e o+ the -ot$#e o+ %!!e!!,e-t %-) th%t the +$&$-8 o+ the ,ot$o- w%! t$,eF*%((e). O- the othe( h%-) the B1R ,%)e the ! *,$!!$o- th%t *oth the $!! %-#e o+ the %!!e!!,e-t -ot$#e %-) the ,ot$o- we(e %&& "(o"e(&' ,%)e o- Ph$&t( !t. 4 (the(,o(e the &%"!e o+ the :0F)%' "e($o) w$th$- wh$#h to "(ote!t ,%)e the %!!e!!,e-t +$-%&7 e.e# to(' %-) -#o-te!t%*&e %-) -ot t$,e *%((e). R &e o- the #o-+&$#t$-8 #&%$,! o+ the "%(t$e!. S8<<)ST). =NSW)05 1 !ould rule in fa or of the heir$ There !as no proper ser ice of the notice of assessment because the death of Iuliana automatically se ered the le3al relationship of principal and a3ent bet!een her and 9hiltrust$ The se ered relationship could not be re i ed on the mere fact that 9hiltrust filed her Tax 0eturn t!o days after her death$

9hiltrust%s failure to file a notice of death subBects it to penal sanctions !hich do not include the indefinite tollin3 of the prescripti e period for ma&in3 deficiency tax assessments, or the !ai er of the notice re"uirement for such assessments$ ? /state of the late 2uliana .iez ,"a. "e (a%riel v. Commissioner of Internal &evenue, <$0$ No$ 1---A1, Ianuary 2,, 200A>

61

d$ The desirability of re"uirements of the N10C$ ?I%i".>

bolsterin3

the

recordJ&eepin3

;1. 2$/e $-!t%-#e! whe(e "($,% +%#$e #o((e#t-e!! o+ % t%. %!!e!!,e-t )oe! -ot %""&'.
S8<<)ST). =NSW)05 The Dprima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly !ithout foundation, meanin3 it is arbitrary and capricious$ Where the (10 has come out !ith a Dna&ed assessmentE i$e$, !ithout any foundation character, the determination of the tax due is !ithout rational basis$E FCommissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc., <, 0$ No$ 1'@9,-, March '1, 200- citin3 +nite" States v. 2anis, A9 4$ )d$ 2d 10A@ ?19,@>G A2+ 8S A'' ?19,@>H 1n such a situation, Dthe determination of the Commissioner contained in a deficiency notice disappears$E FCommissioner of Internal &evenue, supra citin3 a 8$S$ Court of =ppeals rulin3, in Clar4 an" Clar4 v. Commissioner of Internal &evenue, 2@@ C$ 2d @9+ ?19-9>H D:ence, the determination by the CT= must rest on all the e idence introduced and its ultimate determination must find support in credible e idence$E FCommissioner of Internal &evenue, supraH

:>. 0h%t %(e the (eD $(e,e-t! +o( the /%&$)$t' o+ % +o(,%& &ette( o+ )e,%-) %-) %!!e!!,e-t -ot$#e 9
S8<<)ST). =NSW)05 a$ There must ha e been pre iously issued a preJ assessment notice until exceptedG b$ 1t must ha e been issued prior to the prescripti e periodG and c$ The letter of demand callin3 for payment of the taxpayer%s deficiency tax or taxes shall state the facts, the la!, rules and re3ulations, or Burisprudence on !hich the assessment is based, other!ise, the formal letter of demand and assessment notice shall be oid$ ?Sec$ '$1$A, 0e $ 0e3s$ No$ 12J99> :9. 0h%t $! the "(e! ,"t$o- th%t +&ow! +(o, % t%."%'e(E! +%$& (e to "(ote!t %- %!!e!!,e-t 9 S8<<)ST). =NSW)05 DTax assessments by tax examiners are presumed correct and made in 3ood faith$ The taxpayer has the duty to pro e other!ise$ 1n the absence of proof of any irre3ularities in the performance of duties, an assessment duly made by a (ureau of 1nternal 0e enue examiner and appro ed by his superior officers !ill not be disturbed$ =ll presumptions are in fa or of the correctness of tax assessments$E ?Commissioner of Internal &evenue v. Ban4 of Philippine Islan"s., <, 0$ No$ 1'A0@2, =pril 1,, 200, citin3 Sy Po v. Court of Appeals, <$ 0$ No$ 4J+1AA@, 1+ =u3ust 19++, 1@A SC0= -2A, -'0, citations omitted> ;0. 0h%t %(e the (e%!o-! +o( "(e! ,"t$o- o+ #o((e#t-e!! o+ %!!e!!,e-t! 9 S8<<)ST). =NSW)05 a$ 4ifeblood theory b$ 9resumption of re3ularity ?Commissioner of Internal &evenue v. 0ante6 *ra"in# Co., Inc., <, 0$ No$ 1'@9,-, March '1, 200-> in the performance of public functions$ ? Commissioner of Internal &evenue v. *uazon, Inc., 1,' SC0= '9,> c$ The li&elihood that the taxpayer !ill ha e access to the rele ant information FCommissioner of Internal &evenue, supra citin3 +nite" States v. &e6ach, A+2 C$2d 10 ?19,'>$ The certiorari !as denied by the 8nited States Supreme Court on No ember 19, 19,'>

0h%t %(e the $-!t%-#e! th%t ! !"e-)! the ( --$-8 o+ the "(e!#($"t$/e "e($o)! @St%t te o+ L$,$t%t$o-!A w$th$- wh$#h to ,%He %- %!!e!!,e-t %-) the *e8$--$-8 o+ )$!t(%$-t o( &e/' o( o+ % "(o#ee)$-8 $- #o (t +o( the #o&&e#t$o-7 $- (e!"e#t o+ %-' t%. )e+$#$e-#$e!9
S8<<)ST). =NSW)05 a$ When the Commissioner is prohibited from ma&in3 the assessment, or be3innin3 distraint, or le y or proceedin3 in court and for sixty ?@0> days thereafterG b$ When the taxpayer re"uests for and is 3ranted a rein esti3ation by the commissionerG c$ When the taxpayer could not be located in the address 3i en by him in the return filed upon !hich the tax is bein3 assessed or collectedG d$ When the !arrant of distraint and le y is duly ser ed upon the taxpayer, his authori#ed representati e, or a member of his household !ith sufficient discretion, and no property could be locatedG and e$ When the taxpayer is out of the 9hilippines$ N/T)S =N. C/MM)NTS5 The holdin3 in Commissioner of Internal &evenue v. Court of Appeals, et al., <$0$ No$ 11-,12, Cebruary 2-, 1999 ?Carnation case> that the !ai er of the period for assessment must be in !ritin3 and ha e the !ritten consent of the (10 Commissioner is still doctrinal

;2.

because of the pro isions of Sec$ 22', N10C of 199, !hich pro ides for the suspension of the prescripti e period5

62

;:. The !$8-%t (e! o+ *oth the Co,,$!!$o-e( %-) the t%."%'e(7 %(e (eD $(e) +o( % w%$/e( o+ the "(e!#($"t$/e "e($o), thus a unilateral !ai er on the part of the
taxpayer does not suspend the prescripti e period$ FCommissioner of Internal &evenue v. Court of Appeals, et al., <$0$ No$ 11-,12, Cebruary 2-, 1999 ?Carnation case>H ;;. The %#t o+ (eD e!t$-8 % (e$-/e!t$8%t$o- %&o-e )oe! -ot ! !"e-) the ( --$-8 o+ the "(e!#($"t$/e "e($o). The (eD e!t +o( (e$-/e!t$8%t$o- , !t *e 8(%-te) *' the C1R. The Supreme Court declared that the burden of proof that the re"uest for rein esti3ation had been actually 3ranted shall be on the Commissioner of 1nternal 0e enue$ Such 3rant may be expressed in its communications !ith the taxpayer or implied from the action of the Commissioner or his authori#ed representati e in response to the re"uest for rein esti3ation$ F Ban4 of Philippine Islan"s (-ormerly -ar /ast Ban4 an" *rust Company' v. Commissioner of Internal &evenue, <$ 0$ No$ 1,A9A2, March ,, 200+H ;5. Ph$&$""$-e 3o (-%&$!t!7 1-#. @P31A +$&e) $t! A-- %& 1-#o,e T%. Ret (- +o( the #%&e-)%( 'e%( e-)e) De#e,*e( :17 199; wh$#h !howe) % -et $-#o,e o+ P:0 ,$&&$o- %-) the t%. ) e %! P10 ,$&&$o-. A- e.%,$-%t$o- o+ P31E! *ooH! o+ %##o -t %-) othe( %##o -t$-8 (e#o()! +o( the "e($o) 3%- %(' 17 199; to De#e,*e( :17 199; !howe) )e+$#$e-#' VAT7 1-#o,e T%. %-) 0$thho&)$-8 T%. $- the tot%& %,o -t o+ P1R2= ,$&&$o-. D ($-8 the Se"te,*e( 227 199= $-+o(,%& #o-+e(e-#e w$th the Re/e- e D$!t($#t O++$#e(7 P31E! Co,"t(o&&e( e.e# te) % w%$/e( o+ !t%t te o+ &$,$t%t$o-! "(o/$)e) +o( -)e( !e#t$o-! 22: %-) 22; o+ the N1RC. O- O#to*e( 57 199>7 the B1R $!! e) % P(eFA!!e!!,e-t Not$#e wh$#h w%! +o&&owe) *' A!!e!!,e-tCDe,%-) No.::F1F000=5=F9; !t%t$-8 % tot%& )e+$#$e-#' t%.e! $- the %,o -t o+ P111 ,$&&$o- +o( $-#o,e t%.7 VAT %-) e."%-)e) w$thho&)$-8 t%.e!7 $-#& !$/e o+ $-te(e!t %-) #o,"(o,$!e "e-%&t'. O- M%(#h 1<7 19997 the B1R !e-t to P31 % P(e&$,$-%(' Co&&e#t$o- Lette( to "%' the %!!e!!,e-t w$th$- 10 )%'! +(o, (e#e$"t. O- No/e,*e( 10719997 % 4$-%& Not$#e Be+o(e Se$B (e w%! $!! e) 8$/$-8 P31 10 )%'! +(o, (e#e$"t w$th$- wh$#h to "%'. P31 (e#e$/e) the +$-%& -ot$#e o- No/e,*e( 2;7 1999 %-) oNo/e,*e( 2<7 1999 P31 %!He) th%t $t *e #&%($+$e) o- how the t%. &$%*$&$t' o+ P111 ,$&&$o- w%! %(($/e) %t %-) (eD e!te) +o( %e.te-!$o- o+ :0 )%'! +(o, (e#e$"t o+ the #&%($+$#%t$o- w$th$-

wh$#h to (e"&'. P317 th(o 8h % +o&&owF " &ette(7 %!!e(te) $t -e/e( (e#e$/e) A!!e!!,e-tCDe,%-) No. ::F1F000=5=F9;. O- M%(#h 2>7 2000 P31 (e#e$/e) % 0%((%-t o+ D$!t(%$-t %-)Co( Le/'. P31 the%""e%&e) to the CTA. The +o&&ow$-8 $!! e! %(e +o( (e!o& t$o- $- the %""e%&: %. Doe! the CTA h%/e ? ($!)$#t$o- o/e( the %""e%& 9 *. 0%! the 0%$/e( o+ the St%t te o+ L$,$t%t$o-! /%&$) 9 #. 0e(e the A!!e!!,e-tCDe,%-) %-) the 0%((%-t o+ D$!t(%$-t %-)Co( Le/' /%&$) 9 0$&& the %""e%& "(o!"e(9 E."&%$- *($e+&' 'o ( %-!we(. S8<<)ST). =NSW)05 Kes, it !ill prosper$ a$ The CT= has Burisdiction to determine if the !arrant of distraint and le y issued by the (10 is alid and to rule if the Wai er of the Statute of 4imitations !as alidly effected$ This is so because the CT= has exclusi e appellate Burisdiction to re ie! by appeal decisions of the Commissioner of 1nternal 0e enue in cases in ol in3 Dother matters arisin3 under the National 1nternal 0e enue Code or other la!s administered by the (ureau of 1nternal 0e enue$E FSec$ , ?a> ?1>$ 0$ =$ No$ 112-, as amended by 0$ =$ No$ 92+2> Thus it !as pre iously ruled that the CT= had Burisdiction to act on a petition to in alidate and annul the distraint orders of the Commissioner$ FKnaresJSantia3o, I$ Philippine 2ournalists, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200A citin3 Panrtoja v. .avi", 111 9hil$ 19,G 1 SC0= @0+ ?19@1>H 4i&e!ise upheld by the Supreme Court !as the decision of the CT= declarin3 se eral !ai ers executed by the taxpayer as null and oid, thus in alidatin3 the assessments issued by the (10$ ?I%i"., citin3 Commissioner of Internal &evenue v. Court of Appeals, <$ 0$ No$ 11-,12, 2- Cebruary 1999, '0' SC0= @1A> b$ The Wai er of the Statute of 4imitations is not alid because it did not specify a definite a3reed date bet!een the (10 and 9I1, !ithin !hich the former may assess and collect re enue taxes$ Curthermore, the !ai er is also defecti e from the 3o ernment side because it !as si3ned only by a re enue district officer, and not the Commissioner, as so re"uired$ Cinally, 9I1 !as not furnished a copy of the !ai er$ c$ The !ai er document is incomplete and defecti e and thus the threeJyear prescripti e period !ithin !hich to assess !as not tolled or extended and continued to run until =pril 1,, 199+$ Conse"uently, =ssessment7.emand No$ ''J1J000,-,J9A issued on .ecember 9, 199+ !as in alid because it !as issued beyond the three ?'> year period$ 1n the same manner, the Warrant of .istraint and7or 4e y !hich 9I1 recei ed on March 2+, 2000 is also null and oid for ha in3 been issued pursuant to an in alid assessment$ ?Philippine 2ournalists, Inc. v. Commissioner of Internal &evenue, <$ 0$ No$ 1@2+-2, .ecember 1@, 200A>

0h%t %(e the two w%'! o+ "(ote!t$-8 %%!!e!!,e-t -ot$#e +o( %- $-te(-%& (e/e- e t%. 9 A&te(-%t$/e&'7 wh%t %(e the two t'"e! o+ "(ote!t! 9 E."&%$*($e+&'.
S8<<)ST). =NSW)05 a$ 0e"uest for reconsideration !hich refers to a plea for reJ e aluation of an assessment on the basis of existin3 records !ithout need of additional e idence$ 1t may in ol e both a "uestion of fact or of la! or both$ b$ 0e"uest for rein esti3ation !hich refers to a plea for reJ e aluation of an assessment on the basis of ne!lyJdisco ered e idence or additional e idence that a taxpayer intends to present in the in esti3ation$ 1t may also in ol e a "uestion of fact or la! or both$ ?Commissioner of Internal &evenue v. Philippine (lo%al Communication, Inc., <$ 0$ No$ 1@,1A@, /ctober '1, 200@ citin3 0e $ 0e3s$ No$ 12J+->

;<.

63

;=. 0h%t $! th%t t'"e o+ "(ote!t th%t ! !"e-)! the ( --$-8 o+ the !t%t te o+ &$,$t%t$o-! +o( the *e8$--$-8 o+ )$!t(%$-t o( &e/' o( % "(o#ee)$-8 $- #o (t +o( #o&&e#t$o- 9 0h' 9
S8<<)ST). =NSW)05 1t is that type of protest D!hen the taxpayer re"uests for a rein esti3ation !hich is 3ranted by the CommissionerE ?Sec$ 22', N10C of 199,>, that suspends the runnin3 of the statute of limitations for collection of the tax$ ? Commissioner of Internal &evenue v. Philippine (lo%al Communication, Inc., <$ 0$ No$ 1@,1A@, /ctober '1, 200@ citin3 Sec$ 2,1, no! Sec$ 22', N10C of 199,> When a taxpayer demands a rein esti3ation, the time employed in rein esti3ation should be deducted from the total period of limitation$ FCommissioner of Internal &evenue, supra citin3 &epu%lic v. Lopez, 11, 9hil$ -,-, -,+G , SC0= -@@, -@+J-@9 ?19@'>H 8ndoubtedly, a rein esti3ation, !hich entails the reception and e aluation of additional e idence, !ill ta&e more time than a reconsideration of a tax assessment !hich !ill be limited to the e idence already at handG this Bustifies !hy the former can suspend the runnin3 of the statute of limitations on collection of the assessed tax, !hile the latter cannot$ ?Commissioner of Internal &evenue v. Philippine (lo%al Communication, Inc., <$ 0$ No$ 1@,1A@, /ctober '1, 200@ citin3 Ban4 of Philippine Islan"s v. Commissioner of Internal &evenue, <$ 0$ No$ 1'9,'@, 1, /ctober 200-, A,' SC0= 20-, 2'0J 2'1>

S8<<)ST). =NSW)05 a$ 1t must be filed !ithin the re3lementary period of thirty ?'0> days from receipt of the notice of assessment$ b$ The taxpayer must not only sho! the errors of the (ureau of 1nternal 0e enue but also the correct computation throu3h 1> = statement of the facts, the applicable la!, rules and re3ulations, or Burisprudence on !hich the taxpayer%s protest is based, 2> 1f there are se eral issues in ol ed in the disputed assessment and the taxpayer fails to state the facts, the applicable la!, rules and re3ulations, or Burisprudence in support of his protest a3ainst some of the se eral issues on !hich the assessment is based, the same shall be considered undisputed issue or issues, in !hich case, the taxpayer shall be re"uired to pay the correspondin3 deficiency tax or taxes attributable thereto$ ?Sec$ '$1$-, 0e $ 0e3s$ 12J99> c$ Within sixty ?@0> days from filin3 of the protest, the taxpayer shall submit all rele ant supportin3 documents$ FAth par$, Sec$ 22+ ?e>, N10C of 199,H ;9. 0h%t $! the "(o#e) (e +o( ! !"e-!$o- o+ #o&&e#t$oo+ t%.e! 9 S8<<)ST). =NSW)05 Where the collection of the amount of the taxpayer%s liability, sou3ht by means of a demand for payment, by le y, distraint or sale of property of the taxpayer, or by !hate er means, as pro ided under existin3 la!s, may Beopardi#e the interest of the 3o ernment or the taxpayer, an interested party may file a motion for the suspension of the collection of the tax liability ?Sec$ 1, 0ule 10, 00CT= effecti e .ecember 1-, 200-> !ith the Court of Tax =ppeals$ The motion for suspension of the collection of the tax may be filed to3ether !ith the petition for re ie! or !ith the ans!er, or in a separate motion filed by the interested party at any sta3e of the proceedin3s$ ?Sec$ ', 0ule 10, 00CT= effecti e .ecember 1-, 200->

;>. 0h%t %(e the (eD $(e,e-t! +o( the /%&$)$t' o+ % t%."%'e(E! "(ote!t 9

50. A #o,"(o,$!e $! % #o- t(%#t !hereby the parties, by ma&in3 reciprocal concessions, a oid a liti3ation or put an end to one already commenced$ ?=rt$ 202+, Ci il Code> = compromise penalty could not be imposed by the (10, if the taxpayer did not a3ree$ = compromise bein3, by its nature, mutual in essence re"uires a3reement$ The payment made under protest could only si3nify that there !as no a3reement that had effecti ely been reached bet!een the parties$ ?,"a. "e San A#ustin,

et al., v. Commissioner of Internal &evenue, (. &. !o. ;AB>BH, Septem%er ;?, <??;'

64

50FA. #o,"(o,$!e 9

0h%t t%. #%!e! ,%' *e the ! *?e#t o+ %

52. The Co,,$!!$o-e( ,%' #o,"(o,$!e the "%',e-t o+ %-' $-te(-%& (e/e- e t%. whe-:
a$ = reasonable doubt as to the alidity of the claim a3ainst the taxpayer exists pro ided that the minimum compromise entered into is e"ui alent to forty percent ?A06> of the basic taxG or b$ The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax pro ided that the minimum compromise entered into is e"ui alent to ten percent ?106> of the basic assessed tax 1n the abo e instances the Commissioner is allo!ed to enter into a compromise only if the basic tax in ol ed does not exceed /ne million pesos ?91,000,000$00>, and the settlement offered is not less than the prescribed percenta3es$ FSec$ 20A ?=>, N10C of 199,H 1n instances !here the Commissioner is not authori#ed, the compromise shall be subBect to the appro al of the ) aluation (oard composed of the Commissioner and the four ?A> .eputy Commissioners$

S8<<)ST). =NSW)05 The follo!in3 cases may, upon taxpayer%s compliance !ith the basis for compromise, be the subBect matter of compromise settlement5 a$ .elin"uent accountsG b$ Cases under administrati e protest after issuance of the Cinal =ssessment Notice to the taxpayer !hich are still pendin3 in the 0e3ional /ffices, 0e enue .istrict /ffices, 4e3al Ser ice, 4ar3e Taxpayer Ser ice ?4TS>, Collection Ser ice, )nforcement Ser ice and other offices in the National /fficeG c$ Ci il tax cases bein3 disputed before the courtsG d$ Collection cases filed in courtsG e$ Criminal iolations, other than those already filed in court, or those in ol in3 criminal tax fraud$ ?Sec$ 2, 0e $ 0e3s$ No$ '0J 2002>

51. 0h%t t%. #%!e! #o &) -ot *e the ! *?e#t o+ #o,"(o,$!e 9

S8<<)ST). =NSW)05 a$ Withholdin3 tax cases unless the applicantJtaxpayer in o&es pro isions of la! that cast doubt on the taxpayer%s obli3ation to !ithhold$G b$ Criminal tax fraud cases, confirmed as such by the Commissioner of 1nternal 0e enue or his duly authori#ed representati eG c$ Criminal iolations already filed in courtG d$ .elin"uent accounts !ith duly appro ed schedule of installment paymentsG e$ Cases !here final reports of rein esti3ation or reconsideration ha e been issued resultin3 to reduction in the ori3inal assessment and the taxpayer is a3reeable to such decision by si3nin3 the re"uired a3reement form for the purpose$ /n the other hand, other protested cases shall be handled by the 0e3ional ) aluation (oard ?0)(> or the National ) aluation (oard ?N)(> on a case to case basisG f$ Cases !hich become final and executory after final Bud3ment of a court !here compromise is re"uested on the 3round of doubtful alidity of the assessmentG and 3$ )state tax cases !here compromise is re"uested on the 3round of financial incapacity of the taxpayer$ ?Sec$ 2, 0e $ 0e3s$ No$ '0J2002>

5:. The Co,,$!!$o-e( o+ 1-te(-%& Re/e- e $! % tho($Be) to %*%te o( #%-#e& % t%. &$%*$&$t'7 whe-5
a$ The tax or any portion thereof appears to be unBustly or excessi ely assessedG or b$ The administration and collection costs in ol ed do not Bustify the collection of the amount due$ FSec$ 20A ?(>, N10C of 199,H 5;. 0h%t $! the "(e!#($"t$/e "e($o) +o( #o&&e#t$-8 $-te(-%& (e/e- e t%.e! 9 S8<<)ST). =NSW)05 There are four ?A> prescripti e periods for the collection of an internal re enue tax5 a$ Collection upon a false or fraudulent return or no return !ithout assessment$ 1n case of a false or fraudulent return !ith the intent to e ade tax or of failure to file a return, Da proceedin3 in court for the collection of such tax may be filed !ithout assessment, at any time !ithin ten ?10> years after the disco ery of the falsity, fraud or omission$E FSec$ 222 ?a>, N10C of 199,> b$ Collection upon a false or fraudulent return or no return !ith assessment$ =ny internal re enue tax !hich has been assessed ?because the return is false or fraudulent !ith intent to e ade tax or of failure to fail a return>, !ithin a period of ten ?10> years from disco ery of the falsity, fraud or omission D ,%' *e #o&&e#te) *' )$!t(%$-t o( &e/' o( *' % "(o#ee)$-8 $- #o (t w$th$- +$/e @5A 'e%(! +o&&ow$-8 the %!!e!!,e-t o+ the t%.$E FSec$ 222 ?c>, in relation to Sec$ 222 ?a> N10C of 199,, emphasis supplied>

c$ Collection upon an extended assessment$ Where a tax has been assessed !ith the period a3reed upon bet!een the Commissioner and the taxpayer in !ritin3 ?!hich should initially be !ithin three ?'> years from the time the return !as filed or should ha e been filed>, or any extensions before the expiration of the period a3reed upon, the t%. ,%' *e #o&&e#te) *' )$!t(%$-t o( &e/' o( *' % "(o#ee)$-8 $- #o (t w$th$- the "e($o) %8(ee) "o- $- w($t$-8 *e+o(e the e."$(%t$o- o+ the +$/e @5A 'e%( "e($o) $ The period so a3reed upon may be extended by subse"uent !ritten a3reements made before the expiration of the period pre iously a3reed upon$E FSec$ 222 ?d>, in relation to Secs$ 222 ?b> and 20', N10C of 199,, emphasis supplied> d$ Collection upon a return that is not false or fraudulent, or !here the assessment is not an extended assessment$ D)xcept as pro ided in Section 222, internal re enue taxes shall be assessed !ithin three ?'> years after the last day prescribed by la! for the filin3 of the return, and -o "(o#ee)$-8 $- #o (t w$tho t %!!e!!,e-t +o( the #o&&e#t$o- o+ ! #h t%.e! !h%&& *e *e8 - %+te( the e."$(%t$o- o+ ! #h "e($o)G 9ro ided, That in case !here a return is filed beyond the period prescribed by la!, the three ?'> year period shall be computed from the day the return !as filed$ Cor purposes of this Section, a return filed before the last day prescribed by la! for the filin3 thereof shall be considered filed on such last day$E ?Sec$ 20', N10C of 199,, emphasis supplied> When the (10 alidly issues an assessment !ithin the three ?'>Jyear period, it has another three ?'> years !ithin !hich to collect the tax due by distraint, le y, or court proceedin3$ The assessment of the tax is deemed made and the three ?'>Jyear period for collection of the assessed tax be3ins to run on the date the assessment notice had been released, mailed or sent to the taxpayer$ FBan4 of Philippine Islan"s (-ormerly -ar /ast Ban4 an" *rust Company' v. Commissioner of Internal &evenue, <$ 0$ No$ 1,A9A2, March ,, 200+ citin3 BPI v. Commissioner of Internal &evenue, <$0$ No$ 1'9,'@, 1, /ctober 200-, A,' SC0= 20-, 222J 22'> N/T)S =N. C/MM)NTS5 a$ Both the +o(,e( Se#. 2<97 N1RC o+ 19== %-) Se#.222 o+ N1RC o+ 199= )o -ot (e+e( to % (e8 &%( (et (-. 1t is clear that in enactin3 Sec$ 222, entitled D)xceptions as to the period of limitation of assessment and collection of taxes,E the N10C of 199, has eliminated subJpara3raph c of the former Sec$ 2@9 of the N10C, also entitled D)xceptions as to the period of limitation of assessment and collection of taxes$E Said Sec$ 2@9 ?c>, reads D=ny internal re enue tax !hich has been assessed !ithin the period of limitation abo eJ prescribed may be collected by distraint or le y or by a proceedin3 in court !ithin three years follo!in3 the assessment of the tax$E

65

= perusal of Sec$ 222 of the N10C is clear that it co ers only three scenarios only$ 1> No assessment !as made upon a false or fraudulent return or omission to file a returnG 2> an assessment !as made upon a false or fraudulent return or omission to file a returnG and '> an extended assessment issued !ithin a period a3reed upon by the Commissioner and the taxpayer$ The same scenarios are those referred to in the former Sec$ 2@9 !hich pro ided for a prescripti e period for collection of three ?'> years$ 1t is clear therefore that neither Sec$ 222 nor the former Sec$ 2@9 pro ide for an instance !here the assessment !as made upon a Dre3ular returnE or one that is not false or fraudulent, or that there !as an a3reement to extend the period for assessment$ 0esort should therefore be made to the three ?'> year period referred to in Sec$ 20' of the N10C of 199, !hich reads, D)xcept as pro ided in Section 222, internal re enue taxes shall be assessed !ithin three ?'> years after the last day prescribed by la! for the filin3 of the return, and -o "(o#ee)$-8 $- #o (t w$tho t %!!e!!,e-t +o( the #o&&e#t$o- o+ ! #h t%.e! x x x D ?paraphrasin3 and emphasis supplied> 55. 0h%t $! !o& t$o $-)e*et$ %! %""&$e) to t%. #%!e! 9 S8<<)ST). =NSW)05 This is erroneous payment of taxes and occurs !hen the taxpayer pays under a mista&e of fact, as for the instance in a case !here he is not a!are of an existin3 exemption in his fa or at the time the payment !as made$ Such payment is held to be not oluntary and therefore, can be reco ered or refunded$ ?Commissioner of Internal &evenue v. Acesite (Philippines' 0otel Corporation, <$ 0$ No$ 1A,29-, Cebruary 1@, 200,> N/T)S =N. C/MM)NTS5 Technicalities and le3alisms, ho!e er exalted, should not be misused by the 3o ernment to &eep money not belon3in3 to it, thereby enrichin3 itself at the expense of its la!Jabidin3 citi#ens$ State Lan" Investment Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1,19-@, Ianuary 1+, 200+ citin3 BPI -amily Savin#s Ban4, Inc. v. Court of Appeals , <$0$ No$ 122A+0, =pril 12, 2000, ''0 SC0= -0,$ 8nder the principle of solutio in"e%iti pro ided in =rt$ 21-A, Ci il Code, D1f somethin3 is recei ed !hen there is no ri3ht to demand it, and it !as unduly deli ered throu3h mista&e, the obli3ation to return it arises$E The (10 recei ed somethin3 D!hen there F!asH no ri3ht to demand it,E and thus, it has the obli3ation to return it$ State Lan" Investment Corporation v. Commissioner of Internal &evenue supra citin# Citi%an4, !. A. v. Court of Appeals an" Commissioner of Internal &evenue, <$0$ No$ 10,A'A, /ctober 10, 199,, 2+0 SC0= A-9, in turn citin3 &amie *e6tiles, Inc. v. $athay, Sr., +9 SC0= -+@ ?19,9>$ 1t is an ancient principle that no one, not e en the state, shall enrich oneself at the expense of another$

1ndeed, simple Bustice re"uires the speedy refund of the !ron3ly held taxes$ ?I%i".>

66

5<. 0h%t %(e the (e%!o-! +o( (eD $($-8 the +$&$-8 o+ %%),$-$!t(%t$/e %""&$#%t$o- +o( (e+ -) o( #(e)$t w$th the BS8<<)ST).

N/T)5 Re#o-#$&$%t$o- *etwee- %*o/e two - ,*e(! @5< %-) 5=A$ =n application for refund or credit under Sec$ 229 of the N10C of 199, is re"uired !here the case filed before the CT= is a refund case, !hich is not premised upon a disputed assessment$ There is no need for a prior application for refund or credit, if the refund is merely a conse"uence of the resolution of the (10%s denial of a protested assessment$ 5>. 0h%t $! the -%t (e o+ the t%."%'e(E! (e,e)' o+ e$the( to %!H +o( % (e+ -) o+ e.#e!! t%. "%',e-t! o( to %""&' the !%,e $- "%',e-t o+ ! ##ee)$-8 t%.%*&e "e($o)!E t%.e! 9 S8<<)ST). =NSW)05 Sec$ @9 of the 19,, N10C ?no! Sec$ ,@ of the N10C of 199,> pro ides that any excess of the total "uarterly payments o er the actual income tax computed in the adBustment or final corporate income tax return, shall either ?a> be refunded to the corporation, or ?b> may be credited a3ainst the estimated "uarterly income tax liabilities for the "uarters of the succeedin3 taxable year$ To ease the administration of tax collection, these remedies are in the alternati e and the choice of one precludes the other$ Since the (an& has chosen the tax credit approach it cannot anymore a ail of the tax refund$ (Philippine Ban4 of Communications v. Commissioner of Internal &evenue, et al., <$0$ No$ 11202A, Ianuary 2+, 1999> N/T)S =N. C/MM)NTS5 a$ The #ho$#e7 $! 8$/e- to the t%."%'e(7 whethe( to #&%$, +o( (e+ -) -)e( Se#. =< o( h%/e $t! e.#e!! taxes applied as tax credit for the succeedin3 taxable year, such election is not final$ 9rior erification and appro al by the Commissioner of 1nternal 0e enue is re"uired$ The a ailment of the remedy of tax credit is not absolute and mandatory$ 1t does not confer an absolute ri3ht on the part of the taxpayer to a ail of the tax credit scheme if it so chooses$ Neither does it impose a duty on the part of the 3o ernment to sit bac& and allo! an important facet of tax collection to be at the sole control and discretion of the taxpayer$ ?Paseo &ealty ) .evelopment Corporation v. Court of Appeals, et al., <$ 0$ No$ 1192+@, /ctober 1', 200A>

5<. The +$&$-8 o+ %- %),$-$!t(%t$/e #&%$, +o( (e+ -) w$th the B1R7 *e+o(e +$&$-8 % #%!e w$th the Co (t o+ T%. A""e%&!7 $! -e#e!!%(' +o( the +o&&ow$-8 (e%!o-!5
a$ To afford the Commissioner an opportunity to correct his errors or that of subordinate officers$ ((onzales v. Court of *a6 Appeals, et al., 1A SC0= ,9> b$ To notify the <o ernment that such taxes ha e been "uestioned and the notice should be borne in mind in estimatin3 the re enue a ailable for expenditures$ (Bermejo v. Collector, <$0$ No$ 4J'02+, Iuly 2+, 19-0>

5=. A! % 8e-e(%& ( &e the +$&$-8 o+ %- %""&$#%t$o- +o( (e+ -) o( #(e)$t w$th the B (e% o+ 1-te(-%& Re/e- e $! %%),$-$!t(%t$/e "(e#o-)$t$o- *e+o(e % ! $t ,%' *e +$&e) w$th the Co (t o+ T%. A""e%&!. 1! the(e %-' e.#e"t$o- 9 S8<<)ST). =NSW)05 Kes$ The failure to first file a !ritten claim for refund or credit is not fatal to a petition for re ie! in ol in3 a disputed assessment !here an assessment !as disputed but the protest !as denied by the (ureau of 1nternal 0e enue$ To hold that the taxpayer has no! lost the ri3ht to appeal from the rulin3 on the disputed assessment and re"uire him to file a claim for a refund of the taxes paid as a condition precedent to his ri3ht to appeal, !ould in effect re"uire of him to 3o throu3h a useless and needless ceremony that !ould only delay the disposition of the case, for the Commissioner !ould certainly disallo! the claim for refund in the same !ay as he disallo!ed the protest a3ainst the assessment$ The la!, should not be interpreted as to result in absurdities. (v"a. "e San A#ustin., etc., v. Commissioner of Internal &evenue, (.&. !o. ;AB>BH, Septem%er ;?, <??; citin3 &oman Catholic Arch%ishop of Ce%u v. Collector of Internal &evenue, > SC&A <=I'

59. 0h%t $! the $((e/o#%*$&$t' ( &e $- #&%$,! +o( (e+ -) %-) wh%t $! the (%t$o-%&e *eh$-) th$! 9
S8<<)ST). =NSW)05 = corporation entitled to a tax credit or refund of the excess estimated "uarterly income taxes paid has t!o options5 ?1> to carry o er the excess credit or ?2> to apply for the issuance of a tax credit certificate or to claim a cash refund$ 1f the option to carry o er the excess credit is exercised, the same shall be irre ocable for that taxable period$

1n exercisin3 its option, the corporation must si3nify in its annual corporate adBustment return ?by mar&in3 the option box pro ided in the (10 form> its intention either to carry o er the excess credit or to claim a refund$ To facilitate tax collection, these remedies are in the alternati e and the choice of one precludes the other$ FSystra Philippines, Inc., v. Commissioner of Internal &evenue, <$ 0$ No$ 1,@290, September 21, 200, citin3 Philippine Ban4 of Communications v. Commissioner of Internal &evenue, '@1 9hil$ 91@ ?1999>H This is &no!n as the irre ocability rule and is embodied in the last sentence of Section ,@ of the Tax Code$ The phrase Dsuch option shall be considered irre ocable for that taxable periodE means that the option to carry o er the excess tax credits of a particular taxable year can no lon3er be re o&ed$ The rule pre ents a taxpayer from claimin3 t!ice the excess "uarterly taxes paid5 ?1> as automatic credit a3ainst taxes for the taxable "uarters of the succeedin3 years for !hich no tax credit certificate has been issued and ?2> as a tax credit either for !hich a tax credit certificate !ill be issued or !hich !ill be claimed for cash refund$ ?Systra Philippines, Inc., supra citin3 .e 4eon, :ector, T:) N=T1/N=4 1NT)0N=4 0)*)N8) C/.), Se enth )dition, 2000, p$ A'0> <0. 1- the 'e%( 2000 S'!t(% )e($/e) e.#e!! t%. #(e)$t! %-) e.e(#$!e) the o"t$o- to #%((' the, o/e( %! t%. #(e)$t! +o( the -e.t t%.%*&e 'e%(. Howe/e(7 the t%. ) e +o( the -e.t t%.%*&e 'e%( $! &owe( th%- e.#e!! t%. #(e)$t!. 1t -ow %""&$e! +o( % (e+ -) o+ the -%""&$e) t%. #(e)$t!. M%' $t! (e+ -) *e 8(%-te) 9 1+ the (e+ -) $! )e-$e)7 )oe! S'!t(% &o!e the -%""&$e) t%. #(e)$t! 9 E."&%$- *($e+&' 'o ( %-!we(. S8<<)ST). =NSW)05 Systra%s claim for refund should be denied$ /nce the carry o er option !as made, actually or constructi ely, it became fore er irre ocable re3ardless of !hether the excess tax credits !ere actually or fully utili#ed 8nder Section ,@ of the Tax Code, a claim for refund of such excess credits can no lon3er be made$ The excess credits !ill only be applied Da3ainst income tax due for the taxable "uarters of the succeedin3 taxable years$E .espite the denial of its claim for refund, Systra does not lose the unapplied tax credits$ The amount !ill not be forfeited in fa or of the 3o ernment but !ill remain in the taxpayer%s account$ 9etitioner may claim and carry it o er in the succeedin3 taxable years, creditable a3ainst future income tax liabilities until fully utili#ed$ ?Systra Philippines, Inc., v. Commissioner of Internal &evenue, <$ 0$ No$ 1,@290, September 21, 200, citin3 Philam

67

Asset $ana#ement, Inc. v. Commissioner of Internal &evenue, <$0$ Nos$ 1-@@',71@200A, 1A .ecember 200-, A,, SC0= ,@1> S ""o!$-8 $- the %*o/e "(o*&e, th%t S'!t(% "e(,%-e-t #e%!e) o"e(%t$o-!7 wh%t h%""e-! to the -%""&$e) #(e)$t! 9 S8<<)ST). =NSW)05 Where, the corporation permanently ceases its operations before full utili#ation of the tax credits it opted to carry o er, it may then be allo!ed to claim the refund of the remainin3 tax credits$ 1n such a case, the remainin3 tax credits can no lon3er be carried o er and the irre ocability rule ceases to apply$ Cessante ratione le#is, cessat ipse le6 $ ?Cootnote no$ 2', Systra Philippines, Inc., v. Commissioner of Internal &evenue, <$ 0$ No$ 1,@290, September 21, 200,> N/T)S =N. C/MM)NTS5 The holdin3 in State Lan" Investment Corporation v. Commissioner of Internal &evenue, <$ 0$ No$ 1,19-@, Ianuary 1+, 200+ that the taxpayer is entitled to a refund because durin3 the succeedin3 year there !as no tax due a3ainst !hich the excess tax credits may be applied is not doctrinal$ This is so because it interpreted the pro isions of then Sec$ @9 of the N10C, !hich did not pro ide for the Dirre ocability ruleE no! contained in Sec$ ,@ of the N10C of 199,$ <0FA. 1- e%(&' A"($& 1999 65G B%-H %)/%-#e) the %,o -t o+ P1>0 ,$&&$o- to the B1R $t! $-#o,e t%. "%',e-t +o( the *%-HE! 1999 o"e(%t$o-! $- (e!"o-!e +o( the 8o/e(-,e-tE! #%&& to 8e-e(%te ,o(e (e/e- e! +o( -%t$o-%& )e/e&o",e-t. 1- !e"%(%te &ette(! )%te) A"($& 19 %-) 297 1999 %-) M%' 1;7 1999 65G (eD e!te) +o( the $!! %-#e o+ % T%. C(e)$t Ce(t$+$#%te @TCCA to *e t$&$Be) %8%$-!t + t (e t%. o*&$8%t$o-! o+ the *%-H. B' the e-) o+ 19997 % #(e)$t *%&%-#e $- the %,o -t o+ P=: ,$&&$o- (e,%$- wh$#h w%! #%(($e) o/e( +o( the 'e%(! 2000 to 200; * t w%! -ot %/%$&e) o+ *e#% !e 65G $-# ((e) &o!!e! ) ($-8 the "e($o). O- 3 &' 2>7 2005 PNB (e$te(%te) $t! (eD e!t +o( the $!! %-#e o+ % TCC +o( the P=: ,$&&$o- *%&%-#e. The B1R (e?e#te) the (eD e!t o- the 8(o -) o+ %,o-8 othe(! "(e!#($"t$o- h%/$-8 *ee- %""&$e) +o( *e'o-) the twoF'e%( (e8&e,e-t%(' "e($o) +o( +$&$-8 #&%$,! +o( (e+ -) %! !et +o(th $- Se#. 229 o+ the N1RC o+ 199=. H%! the #&%$, "(e!#($*e) 9 E."&%$- *($e+&' 'o ( %-!we(. S8<<)ST). =NSW)05 The claim has not prescribed$ Sec$ 229 of the Tax Code, as couched, particularly its statute of limitations component, is in context intended to apply to suits for any national internal re enue tax Dalle3ed to ha e been erroneously or ille3ally assessed or collected, or of any penalty claimed to ha e been collected !ithout authority, or of any sum alle3ed to ha e excessi ely or in any manner !ron3fully collected$E

=naly#in3 the underlyin3 reason behind the ad ance payment ?to help the 3o ernment> made by ;K2 it !ould be improper to treat the same as erroneous, !ron3ful or ille3al payment of tax !ithin the meanin3 of Sec$ 229 of the N10C of 199,$ =n a ailment of tax credit due for reasons other than the erroneous or !ron3ful collection of taxes may ha e a different prescripti e period$ ?Commissioner of Internal &evenue v. Philippine !ational Ban4, <$0$ No$ 1@199,, /ctober 2-, 200- citin3 Commissioner of Internal &evenue v. *he Philippine Life Insurance Co., et al$ <$0$ No$ 10-20+, May 29, 199-> =bsent any specific pro ision in the Tax Code or special la!s, that period !ould be ten ?10> years under =rticle 11AA of the Ci il Code$ ? Commissioner of Internal &evenue v. Philippine !ational Ban4, supra> <1. ABC B%-H +$&e) w$th the B1R %- %""&$#%t$o- +o( % t%. #(e)$tC(e+ -) +o( %&&e8e) e.#e!! "%',e-t! o+ $t! 8(o!! (e#e$"t! t%. @2RTA +o( the :() %-) ;th D %(te(! o+ 200: %-) the e-t$(e 200; %,o -t$-8 to P1; ,$&&$o-. S$-#e -o %#t$o- w%! t%He- *' the Co,,$!!$o-e( o- $t! #&%$,7 ABC +$&e) % #%!e w$th the CTA oO#to*e( 1>7 2005 to #o,"&' w$th the twoF'e%( (e8&e,e-t%(' "e($o) %-) %/o$) the "(e!#($"t$o- o+ $t! %#t$o-. O-&' 3 &' :07 200=7 the CTA (e-)e(e) % )e#$!$o- )e-'$-8 the #&%$, +o( ABCE! +%$& (e to +$&e $t! +o(,%& o++e( o+ e/$)e-#e $- the CTA. ABC B%-H -ow !eeH! (e+ 8e $- O-%te /. Co (t o+ A""e%&!7 :20 Ph$&. :;;K 250 SCRA 2>: @1995A whe(e the S "(e,e Co (t %&&owe) e/$)e-#e7 -ot +o(,%&&' o++e(e)7 to *e #o-!$)e(e) o#o-)$t$o- th%t: @1A e/$)e-#e , !t h%/e *ee- $)e-t$+$e) *' te!t$,o-' ) &' (e#o()e) %-) @2A $t , !t h%/e *ee- $-#o("o(%te) $- the (e#o()! o+ the #%!e. 1! ABC #o((e#t 9 S8<<)ST). =NSW)05 No$ = tax refund s in the nature of a tax exemption !hich must be construed strictissimi juris a3ainst the taxpayer$ The taxpayer must present con incin3 e idence to substantiate a claim for refund$ Without any documentary e idenced on record, =(C failed to dischar3e the burden of pro in3 its ri3ht to a tax credit7tax refund$ ?-ar /ast Ban4 ) *rust Company v. Commissioner of Internal &evenue, <$ 0$ No$ 1A9-+9, September 1-, 200@> <2. A !$, &t%-eo ! +$&$-8 o+ the %""&$#%t$o- w$th the B1R +o( (e+ -)C#(e)$t %-) the $-!t$t t$o- o+ the #o (t ! $t w$th the CTA $! %&&owe)$ There is no need to !ait for a (10 denial$ 0)=S/NS5 a$ The positi e re"uirement of Section 2'0 N10C ?no! Sec$ 229, N10C of 199,>G

68

b$ The doctrine that delay of the Commissioner in renderin3 decision does not extend the peremptory period fixed by the statuteG c$ The la! fixed the same period t!o years for filin3 a claim for refund !ith the Commissioner under Sec$ 20A, par$ ', N10C ?no! Sec$ 20A FCH, N10C of 199,>, and for filin3 suit in court under Sec$ 2'0, N10C ?no! Sec$ 229, N10C of 199,>, unli&e in protests of assessments under Sec$ 229 ?no! Sec$ 22+, N10C of 199,>, !hich fixed the period ?thirty days from receipt of decision> for appealin3 to the court, thus clearly implyin3 that the prior decision of the Commissioner is necessary to ta&e co3ni#ance of the case$ (Commissioner of Internal &evenue v. Ban4 of Philippine Islan"s, etc. et al., CA (.&. SP !o. A>;?<, Septem%er I, ;II>L (i%%s v. Collector of Internal &evenue, et al., ;?= Phil, <A<L 2ohnston Lum%er Co. v. C*A, ;?; Phil. ;H;' <:. The 8(%-t o+ % (e+ -) $! +o -)e) o- the %!! ,"t$oth%t the t%. (et (- $! /%&$)7 i$e$ that the facts stated therein are true and correct$ ?Commissioner of Internal &evenue v. Court of *a6 Appeals, <$ 0$ No$ 10@@11, Iuly 21, 199A, 2'A SC0= 'A+> Without the tax return it !ould be irtually impossible to determine !hether the proper taxes ha e been assessed and paid$ =fter all, 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$ Tax refunds, li&e tax exemptions, are construed strictly a3ainst the taxpayer$ ?Paseo &ealty ) .evelopment Corporation v. Court of Appeals, et al., <$ 0$ No$ 1192+@, /ctober 1', 200A> :o!e er, in BPI -amily Savin#s Ban4 v. Court of Appeals, '+@ 9hil$ ,19G '2@ SC0= @A1 ?2000>, refund !as 3ranted, despite the failure to present the tax return, because other e idence !as presented to pro e that the o erpaid taxes !ere not applied$ ?I%i".>

<;. D$!# !! the )$++e(e-#e *etwee- t%. (e+ -) %-) t%. #(e)$t$ S8<<)ST). =NSW)05 There are unmista&able formal and practical differences bet!een the t!o modes$ Cormally, a tax refund re"uires a physical return of the sum erroneously paid by the taxpayer, !hile a tax credit in ol es the application of the reimbursable amount a3ainst any sum that may be due and collectible from the taxpayer$ /n the practical side, the taxpayer to !hom the tax is refunded !ould ha e the option, amon3 others, to in est for profit the returned sum, an option not proximately a ailable if the taxpayer chooses instead to recei e a tax credit$ ? Commissioner of Customs v. Philippine Phosphate -ertilizer Corporation, <$ 0$ No$ 1AAAA0, September 1, 200A>

N/T)S =N. C/MM)NTS5 1t may be that there is no essential difference bet!een a tax refund and a tax credit since both are mo es of reco erin3 taxes erroneously or ille3ally paid to the 3o ernment$ ?Commissioner of Customs v. Philippine Phosphate -ertilizer Corporation, <$ 0$ No$ 1AAAA0, September 1, 200A>

69

<5. 0h%t %(e the th(ee @:A #o-)$t$o-! +o( the 8(%-t o+ % #&%$, +o( (e+ -) o+ #(e)$t%*&e w$thho&)$-8 t%. 9
S8<<)ST). =NSW)05 a$ The claim is filed !ith the Commissioner of 1nternal 0e enue !ithin the t!oJyear period from the date of the payment of the tax$ b$ 1t is sho!n on the return of the recipient that the income payment recei ed !as declared as part of the 3ross incomeG and c$ The fact of !ithholdin3 is established by a copy of a statement duly issued by the payee sho!in3 the amount paid and the amount of tax !ithheld therefrom$ ?Banco -ilipino Savin#s an" $ort#a#e Ban4 v. Court of Appeals, et al., <$ 0$ No$ 1--@+2, March 2,, 200,> N/T)S =N. C/MM)NTS5 a$ P(oo+ o+ +%#t o+ w$thho&)$-8. DSec$ 10$ Claim for ta6 cre"it or refun". @ ?a> Claims for Tax Credit or 0efund of 1ncome tax deducted and !ithheld on income payments shall be 3i en due course only !hen it is sho!n on the return that the income payment recei ed has been declared as part of the 3ross income and the fact of !ithholdin3 is established by a copy of the Withholdin3 Tax Statement duly issued by the payor to the payee sho!in3 the amount paid and the amount of the tax !ithheld therefrom 666G ?0e $ 0e3s$ No$ @J+-, as amended> The document !hich may be accepted as e idence of the third condition, that is, the fact of !ithholdin3, must emanate from the payor itself, and not merely from the payee, and must indicate the name of the payor, the income payment basis of the tax !ithheld, the amount of the tax !ithheld and the nature of the tax paid$ $ ? Banco -ilipino Savin#s an" $ort#a#e Ban4 v. Court of Appeals, et al., <$ 0$ No$ 1--@+2, March 2,, 200,>

Tax refunds parta&e of the nature of tax exemptions and are thus construed strictissimi juris a3ainst the person claimin3 the exemption$ The burden in pro in3 the claim for refund necessarily falls on the taxpayer$ ? -ar /ast Ban4 *rust an" Company, etc., v. Commissioner of Internal &evenue, et al., <$ 0$ No$ 1'+919, May 2, 200@>

<<. 0h%t %(e the (eD $!$te! +o( the (e+ -) o+ $&&e8%&&' )e) #te) t%.e! +(o, the $-#o,e o+ %- e,"&o'ee!E t( !t + -) 9
S8<<)ST). =NSW)05 What has to be established, as a matter of e idence, is that the amount sou3ht to be refunded to the ban&Jtrustee corresponds to the tax !ithheld on the interest income earned from the exempt employees% trust$ The need to be determinate is important, specially if the ban& trustee, in the ordinary course of its ban&in3 business, earns interest income not only from its in estments of employees% trusts, but on a !hole ran3e of accounts !hich do not enBoy the same broad exemption as employees% trusts$ ?-ar /ast Ban4 *rust an" Company, etc., v. Commissioner of Internal &evenue, et al., <$ 0$ No$ 1'+919, May 2, 200@> N/T)S =N. C/MM)NTS5 a$ E,"&o'ee!E t( !t + -)7 )e+$-e). =n employees% trust fund is a trust established by an employer to pro ide retirement, pension, or other benefits to employees J it is a separate taxable entity established for the exclusi e benefit of the employees$ ?.evelopment Ban4 of the Philippines v. Commission on Au"it, A22 SC0= A-9> b$ 1-#o,e o+ e,"&o'ee!E t( !t $! t%. e.e,"t. D=ny pro ision of la! to the contrary not!ithstandin3, the retirement benefits recei ed by official and employees of pri ate firms, !hether indi idual or corporate, in accordance !ith a reasonable pri ate benefit plan maintained by the employer shall be exempt from all taxes and shall not be liable to amendment, le y or sei#ure by or under any le3al or e"uitable process !hatsoe er except to pay a debt of the official or employee concerned to the pri ate benefit plan or that arisin3 from liability imposed in a criminal action% x x x D ?Sec$ 1, 0ep$ =ct A91,> = taxJexempt employees% trust fund is referred to under the N10C of 199, as a Dreasonable pri ate retirement plan, !hich means Da pension, 3ratuity, stoc& bonus or profitJsharin3 plan maintained by an employer for the benefit of some or all of his officials or employees, !herein contributions are made by such employer for the officials or employees, or both, for the purpose of distributin3 to such officials and employees the earnin3s and principal of the fund thus accumulated, and !herein it is pro ided in said plan that at no time

<5FA. 0h%t !ho &) *e e!t%*&$!he) *' % t%."%'e( +o( the 8(%-t o+ % t%. (e+ -) 9 0h' 9
S8<<)ST). =NSW)05 = taxpayer needs to establish not only that the refund is Bustified under the la!, but also the correct amount that should be refunded$ 1f the latter re"uisite cannot be ascertained !ith particularity, there is cause to deny the refund, or allo! it only to the extent of the sum that is actually pro en as due$

shall any part of the corpus or income of the fund be used for, or be di erted to, any purpose other than for the exclusi e benefit of the said officials or employees$E FSec$ '2 ?(> ?@ > ?a>, N10C of 199,H c$ E.te-t o+ e.e,"t$o-. The tax exemption enBoyed by employees% trust is absolute irrespecti e of the nature of the tax$ 1t does not apply only to the tax on interest income from money mar&et placements, ban& deposits, other deposit substitute instruments and 3o ernment security, because the source of the interest income does not ha e any effect on the exemption enBoyed by employee%s trusts$ ?-ar /ast Ban4 *rust an" Company, etc., v. Commissioner of Internal &evenue, et al., <$ 0$ No$ 1'+919, May 2, 200@> <=. A *%-HFt( !tee o+ e,"&o'ee t( !t! +$&e) %%""&$#%t$o- +o( the (e+ -) o+ t%.e! w$thhe&) o- the $-te(e!t $-#o,e! o+ the $-/e!t,e-t! ,%)e o+ the + -)! o+ the e,"&o'ee!E t( !t!. 1-!te%) o+ "(e!e-t$-8 !e"%(%te %##o -t! +o( $-te(e!t $-#o,e! ,%)e o+ the!e $-/e!t,e-t!7 the *%-HFt( !tee $-!te%) "(e!e-te) w$t-e!! to e!t%*&$!h th%t $t wo &) -e.t to $,"o!!$*&e to !$-8&e o t the !"e#$+$# t(%-!%#t$o-! $-/o&/$-8 the e,"&o'ee!E t( !t + -)! +(o, the tot%&$t' o+ %&& $-te(e!t $-#o,e +(o, $t! tot%& $-/e!t,e-t!. O- the %*o/e *%!$! w$&& the %""&$#%t$o- +o( (e+ -) "(o!"e( 9 S8<<)ST). =NSW)05 No$ The application for refund !ill not prosper$ The ban&Jtrustee needs to establish not only that the refund is Bustified under the la! ?!hich is so because incomes of employees% trusts are tax exempt>, but also the correct amount that should be refunded$ Tax refunds parta&e of the nature of tax exemptions and are thus construed strictissimi juris a3ainst the person or entity claimin3 the exemption$ The burden in pro in3 the amount to be refunded necessarily falls on the ban&Jtrustee, and there is an apparent failure to do so$ = necessary conse"uence of the special exemption enBoyed alone by employees% trusts !ould be a necessary se3re3ation in the accountin3 of such income, interest or other!ise, earned from those trusts from that earned by the other clients of the ban&Jtrustee$ ?-ar /ast Ban4 an" *rust Company, etc., v. Commissioner, etc., et al., <$0$ No$ 1'+919, May 2, 200@> The amounts that are the exempt earnin3s of the employee%s trust has not been sho!n as they ha e been commin3led !ith the interest income of the other clients of the ban&Jtrustee$ <>. CTA C$(# &%( No. 1F95 #&e%(&' (eD $(e! th%t "hoto#o"$e! o+ the (e#e$"t! o( $-/o$#e! , !t *e "(eF,%(He) %-) ! *,$tte) to the CTA to /e($+' the #o((e#t-e!! o+ the

70

! ,,%(' &$!t$-8 %-) the CPA #e(t$+$#%t$o- $ CT= Circular No$ 1J 9-, issued on 2- Ianuary 199-, reads5 D1$ The party !ho desires to introduce as e idence such oluminous documents must present5 ?a> Summary containin3 the total amount7s of the tax account or tax paid for the period in ol ed and a chronolo3ical or numerical list of the numbers, dates and amounts co ered by the in oices or receiptsG and ?b> a Certification of an independent Certified 9ublic =ccountant attestin3 to the correctness of the contents of the summary after ma&in3 an examination and e aluation of the oluminous receipts and in oices$ Such summary and certification must properly be identified by a competent !itness from the accountin3 firm$ 2$ The method of indi idual presentation of each and e ery receipt or in oice or other documents for mar&in3, identification and comparison !ith the ori3inals thereof need not be done before the Court or the Commissioner anymore after the introduction of the summary and C9= certification$ 1t is enou3h that the (e#e$"t!7 $-/o$#e! %-) othe( )o# ,e-t! #o/e($-8 the !%$) %##o -t! o( "%',e-t! , !t *e "(eF,%(He) *' the "%(t' #o-#e(-e) %-) ! *,$tte) to the Co (t $- o()e( to *e ,%)e %##e!!$*&e to the %)/e(!e "%(t' whe-e/e( heC!he )e!$(e! to #he#H %-) /e($+' the #o((e#t-e!! o+ the ! ,,%(' %-) CPA #e(t$+$#%t$o-. :o!e er, the ori3inals of the said receipts, in oices or documents should be ready for erification and comparison in case doubt on the authenticity of the particular documents presented is raised durin3 the hearin3 of the case$E ?)mphasis supplied> <9. M%-$&% E&e#t($# Co,"%-' % 8(%-tee o+ % &e8$!&%t$/e +(%-#h$!e -)e( A#t No. ;>;7 %! %,e-)e) *' Re" *&$# A#t No. ;159 %-) P(e!$)e-t$%& De#(ee No. 55172O:P h%) *ee- "%'$-8 % 2I +(%-#h$!e t%. *%!e) o- $t! 8(o!! (e#e$"t!7 $- &$e o+ %&& othe( t%.e! %-) %!!e!!,e-t! o+ wh%te/e( -%t (e. U"o- the e++e#t$/$t' o+ E.e# t$/e O()e( No. =2 o- 4e*( %(' 107 19>=7 howe/e(7 (e!"o-)e-t *e#%,e ! *?e#t to the "%',e-t o+ (e8 &%( #o("o(%te $-#o,e t%.. 4o( the &%!t D %(te( e-)$-8 De#e,*e( :17 19>=7 (e!"o-)e-t +$&e) o- A"($& 157 19>> $t! te-t%t$/e $-#o,e t%. (e+&e#t$-8 % (e+ -)%*&e %,o -t o+ P1017>9=7=;17 * t o-&' P==79:17>12 w%! %""&$e) %! t%. #(e)$t +o( the ! ##ee)$-8 t%.%*&e 'e%( 19>>. A#t$-8 o- % 'e%(&' (o t$-%(' Lette( o+ A tho($t' No. 001>0<; NA )%te) 3 -e 2=7 19>> $!! e) *' "et$t$o-e(7 )$(e#t$-8 the $-/e!t$8%t$o- o+ t%. &$%*$&$t$e! o+ (e!"o-)e-t +o( t%.%*&e 'e%( 19>=7 %- $-/e!t$8%t$o- w%! #o-) #te) *' Re/e- e O++$#e(
2 [3]

Id. at 11.

4(e)e($#H C%"$t%- wh$#h !howe) th%t (e!"o-)e-t w%! &$%*&e +o( 1. )e+$#$e-#' $-#o,e t%. $- the %,o -t o+ P27:;07902.52K %-) 2. )e+$#$e-#' +(%-#h$!e t%. $- the %,o -t o+ P27>:>7::5.>;. O- A"($& 1=7 19>97 (e!"o-)e-t +$&e) %- %,e-)e) +$-%& #o("o(%te 1-#o,e T%. Ret (- e-)$-8 De#e,*e( :17 19>> (e+&e#t$-8 % (e+ -)%*&e %,o -t o+ P10=7<;97=29. Re!"o-)e-t th ! +$&e) o- M%(#h :07 1990 % &ette(F#&%$, +o( (e+ -) o( #(e)$t $- the %,o -t o+ P10=7<;97=29 (e"(e!e-t$-8 o/e("%$) $-#o,e t%.e! +o( the 'e%(! 19>= %-) 19>>. Pet$t$o-e( -ot h%/$-8 %#te) o- $t! (eD e!t7 (e!"o-)e-t +$&e) o- A"($& <7 1990 % ? )$#$%& #&%$, +o( (e+ -) o( #(e)$t w$th the Co (t o+ T%. A""e%&!. 1t $! 8%the(e) th%t (e!"o-)e-t "%$) the )e+$#$e-#' +(%-#h$!e t%. $- the %,o -t o+ P27>:>7::5.>;. 1t "(ote!te) the "%',e-t o+ the %&&e8e) )e+$#$e-#' $-#o,e t%. %-) #&%$,e) %! %- %&te(-%t$/e (e,e)' the )e) #t$o- the(eo+ +(o, $t! #&%$, +o( (e+ -) o( #(e)$t. The Co (t o+ T%. A""e%&! 8(%-te) the P10=7<;97=29 #&%$, +o( (e+ -)7 o( $- the %&te(-%t$/e +o( the B1R to $!! e % t%. #(e)$t. 1! the Co (t o+ T%. A""e%&! #o((e#t 9 S8<<)ST). =NSW)05 Kes$ Section @9 of the National 1nternal 0e enue Code of 19+@, no! Sec$ ,@ pro ides, if the sum of the "uarterly tax payments made durin3 a taxable year is not e"ual to the total tax due on the entire taxable income of that year as sho!n in its final adBustment return, the corporation has the option to either5 ?a> pay the excess tax still due, or ?b> be refunded the excess amount paid$ The returns submitted are Dmerely preJ audited !hich consist mainly of chec&in3 mathematical accuracy of the fi3ures in the return$E =fter such chec&in3, the purpose of !hich bein3 to Dinsure prompt action on corporate annual income tax returns sho!in3 refundable amounts arisin3 from o erpaid "uarterly income taxes,E ?0e enue Memorandum /rder No$ '2J,@ dated Iune 11, 19,@> the refund or tax credit is 3ranted$ ? Commissioner of Internal &evenue v. $anila /lectric Company, <$ 0$ No$ 121@@@, /ctober 10, 200,>

71

1. 0he- )oe! $,"o(t%t$o- *e8$-7 %-) wh' $! $t $,"o(t%-t to H-ow whethe( $,"o(t%t$o- h%! %&(e%)' *e8 o( -ot 9
S8<<)ST). =NSW)05 1mportation be3ins !hen the con eyin3 essel or aircraft enters the Burisdiction of the 9hilippines !ith intention to unlade therein$ ?Sec$ 1202, TCC9> The Burisdiction of the (ureau of Customs to enforce the pro isions of the TCC9 includin3 sei#ure and forfeiture also be3ins from the be3innin3 of importation$ Thus, the (ureau of Customs obtains Burisdiction o er imported articles only after importation has be3un$

2. 0he- $! $,"o(t%t$o- )ee,e) te(,$-%te) %-) wh' $! $t $,"o(t%-t to H-ow whethe( $,"o(t%t$o- h%! %&(e%)' e-)e)9
S8<<)ST). =NSW)05 1mportation is deemed terminated upon payment of the duties, taxes and other char3es due upon the a3encies, or secured to be paid, at the port of entry and the le3al permit for !ithdra!al shall ha e been 3ranted$ 1n case the articles are free of duties, taxes and other char3es, until they ha e le3ally left the Burisdiction of the customs$ ?Sec$ 1202, TCC9> The (ureau of Customs loses Burisdiction to enforce the TCC9 and to ma&e sei#ures and forfeitures after importation is deemed terminated$

:. The +&e.$*&e t%($++ #&% !e $! % "(o/$!$o- $- the T%($++ %-) C !to,! Co)e, !hich implements the constitutionally
dele3ated po!er to the Con3ress to further dele3ate to the 9resident of the 9hilippines, in the interest of national economy, 3eneral !elfare and7or national security upon recommendation of the N).= ?a> to increase, reduce or remo e existin3 protecti e rates of import duty, pro ided that, the increase should not be hi3her than 1006 ad aloremG ?b> to establish import "uota or to ban imports of any commodity, and ?c> to impose additional duty on all imports not exceedin3 106 ad alorem, amon3 others$ ;. C !to,! ) t$e! )e+$-e). Customs duties is the name 3i en to taxes on the importation and exportation of commodities, the tariff or tax assessed upon merchandise imported from, or exported to, a forei3n country$ ? !estle Phils. v. Court of Appeals, et al., <$0$ No$ 1'A11A, Iuly @, 2001> 5. S"e#$%& # !to,! ) t$e! %(e %))$t$o-%& $,"o(t ) t$e! $,"o!e) o- !"e#$+$# H$-)! o+ $,"o(te) %(t$#&e! -)e( #e(t%$-

TAR144 AND CUSTOMS LA0S

OR2AN1GAT1ON AND 4UNCT1ONS 1NTERNAL REVENUE O4 THE BUREAU O4

TAR144 AND CUSTOMS CODE

#o-)$t$o-! $ The special customs duties under the Tariff and Customs Code ?TCC9> are the antiJdumpin3 duty, the counter ailin3 duty, the discriminatory duty, and the mar&in3 duty, and under the Safe3uard Measures =ct ?SM=> additional tariffs as safe3uard measures$ <. The !"e#$%& # !to,! ) t$e! %(e $,"o!e) +o( the "(ote#t$o- o+ #o-! ,e(! %-) ,%- +%#t (e(!7 %! we&& %! Ph$&$""$-e "(o) #t!.

72

Commission$ FSec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999EH 11. E/e- whe- %&& the (eD $(e,e-t! +o( the $,"o!$t$oh%/e *ee- + &+$&&e)7 the )e#$!$o- o- whethe( o( -ot to $,"o!e % )e+$-$t$/e %-t$F) ,"$-8 ) t' (e,%$-! the "(e(o8%t$/e o+ the T%($++ Co,,$!!$o- $ FSec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999EH Thus, the cabinet secretaries could not contra ene the recommendation of the Tariff Commission$ They could not impose the antiJdumpin3 duty or any special customs duty !ithout the fa orable recommendation of the Tariff Commission$ 12. 1- the )ete(,$-%t$o- o+ whethe( to $,"o!e the %-t$F ) ,"$-8 ) t'7 the T%($++ Co,,$!!$o-7 ,%' #o-!$)e( %,o-8 othe(!7 the e++e#t o+ $,"o!$-8 %- %-t$F) ,"$-8 ) t' o- the we&+%(e o+ the #o-! ,e(! %-)Co( the 8e-e(%& " *&$#7 %-) othe( (e&%te) &o#%& $-) !t($e!. ?Sec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999E> 1:. The %,o -t o+ %-t$F) ,"$-8 ) t' th%t ,%' *e $,"o!e) $! the )$++e(e-#e *etwee- the e."o(t "($#e %-) the -o(,%& /%& e o+ ! #h "(o) #t7 #o,,o)$t' o( %(t$#&e. ?Sec$ '01 ?s> ?1>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999E> The antiJdumpin3 duty shall be e"ual to the mar3in of dumpin3 on such product, commodity or article thereafter imported to the 9hilippines under similar circumstances, in addition to ordinary duties, taxes and char3es imposed by la! on the imported product, commodity or article$

=. D ,"$-8 ) t' $! %- %))$t$o-%& !"e#$%& ) t' %,o -t$-8 to the )$++e(e-#e *etwee- the e."o(t "($#e %-) the -o(,%& /%& e o+ ! #h "(o) #t7 #o,,o)$t' o( %(t$#&e
?Sec$ '01 ?s> ?1>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ .umpin3 =ct of 1999$E> imposed on the importation of a product, commodity or article of commerce into the 9hilippines at less than its normal alue !hen destined for domestic consumption in the exportin3 country !hich is causin3 or is threatenin3 to cause material inBury to a domestic industry, or materially retardin3 the establishment of a domestic industry producin3 the li&e product$ FSec$ '01 ?s> ?->, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999EH

>.

0he- $! the %-t$F) ,"$-8 ) t' $,"o!e) 9

S8<<)ST). =NSW)05 The antiJdumpin3 duty is imposed a$ Where a product, commodity or article of commerce is exported into the 9hilippines at a price less than its normal alue !hen destined for domestic consumption in the exportin3 country, b$ and such exportation is causin3 or is threatenin3 to cause material inBury to a domestic industry, or materially retards the establishment of a domestic industry producin3 the li&e product$ FSec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999EH 9. No(,%& /%& e +o( " ("o!e! o+ $,"o!$-8 the %-t$F ) ,"$-8 ) t' is the comparable price at the date of sale of li&e product, commodity, or article in the ordinary course of trade !hen destined for consumption in the country of export$ FSec$ '01 ?s> ?' >, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ.umpin3 =ct of 1999EH 10. The $,"o!$-8 % tho($t' +o( the %-t$F) ,"$-8 ) t' $! the Se#(et%(' o+ T(%)e %-) 1-) !t(' $- the #%!e o+ -o-F %8($# &t (%& "(o) #t7 #o,,o)$t'7 o( %(t$#&e o( the Se#(et%(' o+ A8($# &t (e7 $- the #%!e o+ %8($# &t (%& "(o) #t7 #o,,o)$t' o( %(t$#&e7 after formal in esti3ation and affirmati e findin3 of the Tariff

1;. 0h%t %(e #o -te(/%$&$-8 ) t$e! %-) whe- %(e the' $,"o!e) 9
S8<<)ST). =NSW)05 Counter ailin3 duties are additional customs duties imposed on any product, commodity or article of commerce !hich is 3ranted directly or indirectly by the 3o ernment in the country of ori3in or exportation, any &ind or form of specific subsidy upon the production, manufacture or exportation of such product commodity or article, and the importation of such subsidi#ed product, commodity, or article has caused or threatens to cause material inBury to a domestic industry or has materially retarded the 3ro!th or pre ents the establishment of a domestic industry$ ?Sec$ '02, TCC9 as amended by Section 1, 0$=$ No$ +,-1> the 15. The $,"o!$-8 % tho($t' +o( the #o -te(/%$&$-8 ) t$e! $! Se#(et%(' o+ T(%)e %-) 1-) !t(' $- the #%!e o+ -o-F

%8($# &t (%& "(o) #t7 #o,,o)$t'7 o( %(t$#&e o( the Se#(et%(' o+ A8($# &t (e7 $- the #%!e o+ %8($# &t (%& "(o) #t7 #o,,o)$t' o( %(t$#&e7 after formal in esti3ation and affirmati e findin3 of the Tariff Commission$ ) en !hen all the re"uirements for the imposition ha e been fulfilled, the decision on !hether or not to impose a definiti e antiJ dumpin3 duty remains the prero3ati e of the Tariff Commission$ ?Sec$ '01 ?a>, TCC, as amended by 0ep$ =ct No$ +,-2, D=ntiJ .umpin3 =ct of 1999E> 1<. The #o -te(/%$&$-8 ) t' $! eD $/%&e-t to the /%& e o+ the !"e#$+$# ! *!$)'.

73

22. S%+e8 %() ,e%! (e! are emer3ency measures, includin3 tariffs, to protect domestic industries and producers from increased imports !hich inflict or could inflict serious inBury on them$ The CT= is ested !ith Burisdiction to re ie! decisions of the Secretary of Trade and 1ndustry imposin3 safe3uard measures as pro ided under 0ep$ =ct No$ ++00 the Safe3uard Measures =ct ?SM=>$ ?Southern Cross Cement Corporation v. *he Philippine Cement $anufacturers Corp., et al., <$ 0$ No$ 1-+-A0, Iuly +, 200A> The .T1 Secretary cannot impose the safe3uard measures if the Tariff Commission does not fa orably recommend its imposition$
2:. 1,"o!$-8 % tho($t' +o( !%+e8 %() ,e%! (e!. The $,"o!$-8 % tho($t' +o( the #o -te(/%$&$-8 ) t$e! $! the Se#(et%(' o+ T(%)e %-) 1-) !t(' $- the #%!e o+ -o-F%8($# &t (%& "(o) #t7 #o,,o)$t'7 o( %(t$#&e o( the Se#(et%(' o+ A8($# &t (e7 $- the #%!e o+ %8($# &t (%& "(o) #t7 #o,,o)$t' o( %(t$#&e7 after formal in esti3ation and affirmati e findin3 of the Tariff Commission$ 2;. S%+e8 %()! ,e%! (e! th%t ,%' *e =dditional tariffs, import "uotas or bannin3 of imports$ $,"o!e).

1=. M%(H$-8 ) t$e! are the additional customs duties imposed on forei3n articles ?or its containers if the article itself cannot be mar&ed>, not mar&ed in any official lan3ua3e in the 9hilippines, in a conspicuous place as le3ibly, indelibly and permanently in such manner as to indicate to an ultimate purchaser in the 9hilippines the name of the country of ori3in$
1>. The Co,,$!!$o-e( o+ C !to,! $,"o!e! the ,%(H$-8 ) t'. 19. The ,%(H$-8 ) t' $! eD $/%&e-t to +$/e "e(#e-t @5IA %) /%&o(e,.

20. A )$!#($,$-%to(' ) t' is a ne! and additional customs duty imposed upon articles !holly or in part the 3ro!th or product of, or imported in a essel, of any forei3n country !hich imposes, directly or indirectly, upon the disposition or transportation in transit throu3h or reJexportation from such country of any article !holly or in part the 3ro!th or product of the 9hilippines, any unreasonable char3e, exaction, re3ulation or limitation !hich is not e"ually enforced upon li&e articles of e ery forei3n country, or discriminates a3ainst the commerce of the 9hilippines, directly or indirectly, by la! or administrati e re3ulation or practice, by or in respect to any customs, tonna3e, or port duty, fee, char3e, exaction, classification, re3ulation, condition, restriction or prohibition, in such manner as to place the commerce of the 9hilippines at a disad anta3e compared !ith the commerce of any forei3n country$
21. The P(e!$)e-t o+ the Ph$&$""$-e! $,"o!e! the )$!#($,$-%to(' ) t$e!.

25$ The *%!$! o+ ) t$%*&e /%& e o+ ,e(#h%-)$!e th%t $! ! *?e#t to %) /%&o(e, # !to,! ) t$e! the t(%-!%#t$o- /%& e7 !hich shall be the price actually paid or payable for the 3oods !hen sold for export to the 9hilippines, adBusted by addin3 certain cost elements to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported 3oods, and may include the follo!in35 a$ Cost of containers and pac&in3, b$ 1nsurance, and c$ Crei3ht$ ?Sec$ 201, TCC as amended by Sec$ 1, 0ep$ =ct No$ 91'-> 2<. The %*o/e t(%-!%#t$o- /%& e $! the "($,%(' ,etho) o+ )ete(,$-$-8 ) t$%*&e /%& e. 1+ the t(%-!%#t$o- /%& e o+ the $,"o(te) %(t$#&e #o &) -ot *e )ete(,$-e) !$-8 the %*o/e7 the +o&&ow$-8 %&te(-%t$/e ,etho)! !ho &) *e !e) o-e %+te( the othe(: a$ Transaction alue of identical 3oods b$ Transaction alue of similar 3oods c$ .educti e method d$ Computed method e$ Callbac& method

2=. How %-) to who, !ho &) #&%$,! +o( (e+ -) o+ # !to,! ) t$e! *e ,%)e 9 S8<<)ST). =NSW)05 =ll claims for refund of duties shall be made in !ritin3 and for!arded to the Collector of Customs to !hom such duties are paid, !ho upon receipt of such claim, shall erify the same by the records of his /ffice, and if found to be correct and in accordance !ith la!, shall certify the same to the Commissioner of Customs !ith his recommendation to3ether !ith all necessary papers and documents$ 8pon receipt by the Commissioner of such certified claim he shall cause the same to be paid if found correct$ ?Sec$ 1,0+, TCC> 2>. L%w 9 S8<<)ST). =NSW)05 1t has a triple meanin3$ a$ the documents filed at the Customs houseG b$ the submission and acceptance of the documentsG and c$ Customs declaration forms or customs entry forms re"uired to be accomplished by passen3ers of incomin3 essels or passen3er planes as en isa3ed under Sec$ 2-0- of the TCC9 ?Cailure to declare ba33a3e>$ ? 2ar"eleza v. People, <$0$ No$ 1@-2@-, Cebruary @, 200@> 29. A +&$8ht !tew%()e!! %(($/e) +(o, S$-8%"o(e. U"o- he( %(($/%& !he w%! %!He) whethe( !he h%! %-'th$-8 to )e#&%(e. She %-!we(e) -o-e7 %-) !he ! *,$tte) he( C !to,! B%88%8e De#&%(%t$o- 4o(, wh$#h !he %##o,"&$!he) %-) !$8-e) w$th -oth$-8 o( w($tte- o- the !"%#e +o( $te,! to *e )e#&%(e). 0hehe( h%-8e( *%8 w%! e.%,$-e) !o,e "$e#e! o+ ?ewe&(' we(e +o -) #o-#e%&e) w$th$- the &$-$-8 o+ !%$) *%8. She w%! the- #o-/$#te) o+ /$o&%t$-8 o+ Se#. :<01 o+ the T%($++ %-) C !to,! Co)e +o( -&%w+ & $,"o(t%t$o- wh$#h "e-%&$Be! %-' "e(!o- who !h%&& +(% ) &e-t&' $,"o(t o( *($-8 $-to the Ph$&$""$-e! %-' %(t$#&e #o-t(%(' to &%w. She -ow %""e%&! #&%$,$-8 th%t &owe( #o (t e((e) #o-/$#t$-8 he( -)e( Se#. :<01 whe- the +%#t! %&&e8e) *oth $the $-+o(,%t$o- %-) tho!e !how- *' the "(o!e# t$o- #o-!t$t te the o++e-!e -)e( Se#. 2505 4%$& (e to De#&%(e B%88%8e7 o+ wh$#h !he w%! %#D $tte). 1! !he #o((e#t 9 S8<<)ST). =NSW)05 No$ Sec$ '@01 does not define a crime$ 1t merely pro ides, inter alia, the administrati e remedies !hich can be resorted to by the (ureau of Customs !hen sei#in3 dutiable articles found the ba33a3e of any person arri in3 in the 9hilippines !hich is not included in the accomplished ba33a3e declaration submitted to the customs authorities, and the 0h%t $! ,e%- *' the te(, e-t(' $- C !to,!

74

administrati e penalties that such person must pay for the release of such 3oods if not imported contrary to la!$ Such administrati e penalties are independent of the criminal liability for smu33lin3 that may be imposed under Sec$ '@01, and other pro isions of the TCC !hich can only be determined after the appropriate criminal proceedin3s, prescindin3 from the outcome in any administrati e case that may ha e been filed and disposed of by the customs authorities$ 1ndeed the second para3raph of Sec$ 2-0- pro ides that nothin3 shall pre ent the brin3in3 of a criminal action a3ainst the offender for smu33lin3 under Section '@01$ ?2ar"eleza v. People, <$ 0$ No$ 1@-2@-, Cebruary @, 200@> 29FA. P%',e-t $! -ot % )e+e-!e $- !, 88&$-8. DWhen upon trial for iolation of this section, the defendant is sho!n to ha e possession of the article in "uestion, possession shall be deemed sufficient e idence to authori#e con iction, unless the defendant shall explain the possession to the satisfaction of the court5 9ro ided, ho!e er, That payment of the tax due after apprehension shall not constitute a alid defense in any prosecution under this section$E ?last par$, Sec$ '@01, TCC> :0. -o" is s#u lin co##itted ? S8<<)ST). =NSW)05 Smu33lin3 is committed by any person !ho5 a$ fraudulently imports or brin3s into the country any article contrary to la!G b$ assists in so doin3 any article contrary to la!G or c$ recei es, conceals, buys, sells or in any manner facilitates the transportation, concealment or sale of such 3oods after importation, &no!in3 the same to ha e been imported contrary to la!$ ?2ar"eleza v. People, <$0$ No$ 1@-2@-, Cebruary @, 200@ citin3 &o"ri#uez v. Court of Appeals, <$ 0$ No$ 11-21+, September 1+, 199-, 2A+ SC0= 2++, 29@> N/T)S =N. C/MM)NTS5 a$ 1,"o(t%t$o- consists of brin3in3 an article into the country from the outside$ 1mportation be3ins !hen the con eyin3 essel or aircraft enters the Burisdiction of the 9hilippines !ith intention to unload therein$ b$ 0he- -&%w+ & $,"o(t%t$o- $! #o,"&ete. 1n the absence of a bona fide intent to ma&e entry and pay duties !hen the prohibited article enters the 9hilippine territory$ 1mportation is complete !hen the taxable, dutiable commodity is brou3ht !ithin the limits of the port of entry$ )ntry throu3h a custom house is not the essence of the act$ ? 2ar"eleza v. People, <$0$ No$ 1@-2@-, Cebruary @, 200@>

75

:1. The Co&&e#to( o+ C !to,! !$tt$-8 $- !e$B (e %-) +o(+e$t (e "(o#ee)$-8! h%! e.#& !$/e ? ($!)$#t$o- to he%( %-) )ete(,$-e %&& D e!t$o-! to #h$-8 o- the !e$B (e %-) +o(+e$t (e o+ ) t$%*&e 8oo)!. RTC! %(e "(e#& )e) +(o, %!! ,$-8 #o8-$B%-#e o/e( ! #h ,%tte(! e/e- th(o 8h "et$t$o-! o+ #e(t$o(%($7 "(oh$*$t$o- o( ,%-)%, !. (*he Bureau of Customs, et al., v. 3#ario, et al., <$0$ No$ 1'+0+1, March 20, 2000> 0h%t $! the (%t$o-%&e +o( th$! )o#t($-e 9
S8<<)ST). =NSW)05 a$ 0e3ional Trial Courts ha e no Burisdiction to reple in a property !hich is subBect to sei#ure and forfeiture proceedin3s for iolation of the Tariff and Customs Code other!ise, actions for forfeiture of property for iolation of the Customs la!s could easily be undermined by the simple de ice of reple in$ ? .e la -uente v. .e ,eyra, et al., 120 SC0= A--> b$ The doctrine of exclusi e customs Burisdiction o er customs cases to the exclusion of the 0TCs is anchored upon the policy of placin3 no unnecessary hindrance on the 3o ernment%s dri e, not only to pre ent smu33lin3 and other frauds upon Customs, c$ but more importantly, to render effecti e and efficient the collection of import and export duties due the State, !hich enables the 3o ernment to carry out the functions it has been instituted to perform$ (2ao, et al., v. Court of Appeals, et al., an" companion case, 2A9 SC0= '-, A'> d$ The issuance by re3ular courts of !rits of preliminary inBunction in sei#ure and forfeiture proceedin3s before the (ureau of Customs may arouse suspicion that the issuance or 3rant !as for consideration other than the strict merits of the case$ ?5uno v. Ca%re"o, A02 SC0= ,- F200'H> e$ 8nder the doctrine of primary Burisdiction, the (ureau of Customs has exclusi e administrati e Burisdiction to conduct searches, sei#ures and forfeitures of contraband !ithout interference from the courts$ 1t could conduct searches and sei#ures !ithout need of a Budicial !arrant except if the search is to be conducted in a d!ellin3 place$ Where an administrati e office has obtained a technical expertise in a specific subBect, e en the courts must defer to this expertise$ :2. A #&%$,$-8 to *e the ow-e( o+ % /e!!e& wh$#h $! the ! *?e#t o+ # !to,! w%((%-t o+ !e$B (e %-) )ete-t$o- !o 8ht the $-te(#e!!$o- o+ the RTC to (e!t(%$- the B (e% o+ C !to,!

+(o, $-te(+e($-8 w$th h$! "(o"e(t' ($8ht! o/e( the /e!!e&. 0o &) the ! $t "(o!"e(9 S8<<)ST). =NSW)05 No$ :is remedy !as not !ith the 0TC but !ith the CT=, as issues of o!nership of 3oods in the custody of customs officials are !ithin the po!er of the CT= to determine$ The Collector of Customs has exclusi e Burisdiction o er sei#ure and forfeiture proceedin3s and trial courts are precluded from assumin3 co3ni#ance o er such matters e en throu3h petitions for certiorari, prohibition or mandamus$ ? Commissioner of Customs v. Court of Appeals, et al., <$ 0$ Nos$ 111202J0-, Ianuary '1, 200@> ::. The # !to,! % tho($t$e! )o -ot h%/e to "(o/e to the !%t$!+%#t$o- o+ the #o (t th%t the %(t$#&e! o- *o%() % /e!!e& we(e $,"o(te) +(o, %*(o%) o( %(e $-te-)e) to *e !h$""e) %*(o%) *e+o(e the' ,%' e.e(#$!e the "owe( to e++e#t # !to,! !e%(#he!7 !e$B (e!7 o( %((e!t! "(o/$)e) *' &%w %-) #o-t$- e w$th the %),$-$!t(%t$/e he%($-8!$ (*he Bureau of Customs, et al., v. 3#ario, et al$, <$0$ No$ 1'+0+1, March 20, 2000> :;. The Tariff and Customs Code allo!s the (ureau of Customs to resort to the %),$-$!t(%t$/e (e,e)' o+ !e$B (e7 ! #h %! *' e-+o(#$-8 the t%. &$e- o- the $,"o(te) %(t$#&e whe- the $,"o(te) %(t$#&e! #o &) *e +o -) %-) *e ! *?e#t to !e$B (e %-) +o(+e$t (e. :5. The Tariff and Customs Code allo!s the (ureau of Customs to resort to the ? )$#$%& (e,e)' o+ +$&$-8 %- %#t$o- $- #o (t whe- the $,"o(te) %(t$#&e! #o &) -ot %-',o(e *e +o -). :<. 1-!t%-#e! whe(e the(e $! -o ($8ht o+ (e)e,"t$o- o+ !e$Be) %-) +o(+e$te) %(t$#&e!: a$ There is fraudG b$ The importation is absolutely prohibited, or c$ The release of the property !ould be contrary to la!$ (*rans#lo%e International, Inc. v. Court of Appeals, et al., <$0$ No$ 12@@'A, Ianuary 2-, 1999> :=. 1n Aznar v. Court of *a6 Appeals, HB SC&A H;I, reiterated in -arolan, 2r. v. Court of *a6 appeals, et al., <;= SC&A <IB, the Supreme Court clarified that the +(% ) #o-te,"&%te) *' &%w , !t *e %#t %& %-) -ot #o-!t( #t$/e. 1t must be intentional, consistin3 of deception, !illfully and deliberately done or resorted to in order to induce another to 3i e up some ri3ht$

 :>.
8oo)!:

76

ReD $!$te!

+o(

+o(+e$t (e

o+

$,"o(te)

a$ Wron3ful ma&in3 by the o!ner, importer, exporter or consi3nee of any declaration or affida it, or the !ron3ful ma&in3 or deli ery by the same person of any in oice, letter or paper L all touchin3 on the importation or exportation of merchandise$ b$ the falsity of such declaration, affida it, in oice, letter or paperG and c$ an intention on the part of the importer7consi3nee to e ade the payment of the duties due$ (&epu%lic, etc., v. *he Court of Appeals, et al$, <$0$ No$ 1'90-0, /ctober 2, 2001> :9. O- 3%- %(' =7 19>97 the /e!!e& MCV St%( A#e7 #o,$-8 +(o, S$-8%"o(e &%)e- w$th #%(8o7 e-te(e) the Po(t o+ S%- 4e(-%-)o7 L% U-$o- +o( -ee)e) (e"%$(!. 0he- the B (e% o+ C !to,! &%te( *e#%,e ! !"$#$o ! th%t the /e!!e&E! (e%& " ("o!e $- )o#H$-8 w%! to !, 88&e #%(8o $-to the #o -t('7 !e$B (e "(o#ee)$-8! we(e $-!t$t te) %-) ! *!eD e-t&' two 0%((%-t! o+ Se$B (e %-) Dete-t$o- we(e $!! e) +o( the /e!!e& %-) $t! #%(8o. Ce!%( )oe! -ot ow- the /e!!e& o( %-' o+ $t! #%(8o * t #&%$,e) % "(e+e((e) ,%($t$,e &$e-. Ce!%( the- *(o 8ht !e/e(%& #%!e! $- the RTC to e-+o(#e h$! &$e-. 0o &) the!e ! $t! "(o!"e( 9 S8<<)ST). =NSW)05 No$ The (ureau of Customs ha in3 first obtained possession of the essel and its 3oods has obtained Burisdiction to the exclusion of the trial courts$ When Cesar has impleaded the essel as a defendant to enforce his alle3ed maritime lien, in the 0TC, he brou3ht an action in rem under the Code of Commerce under !hich the essel may be attached and sold$ :o!e er, the basic operati e fact is the actual or constructi e possession of the res by the tribunal empo!ered by la! to conduct the proceedin3s$ This means that to ac"uire Burisdiction o er the essel, as a defendant, the trial court must ha e obtained either actual or constructi e possession o er it$ Neither !as accomplished by the 0TC as the essel !as already in the possession of the (ureau of Customs$ ?Commissioner of Customs v. Court of Appeals, et al., <$ 0$ Nos$ 111202J0-, Ianuary '1, 200@> N/T)S =N. C/MM)NTS5 a$ 4o(+e$t (e o+ !e$Be) 8oo)! $- the B (e% o+ C !to,! $! $- the -%t (e o+ % "(o#ee)$-8 in re#7 i$e$ directed a3ainst the res or imported 3oods and entails a determination of the le3ality of their importation$ 1n this proceedin3, it is in le3al contemplation the property itself !hich commits the iolation and is treated as the

offender, !ithout reference !hatsoe er to the character or conduct of the o!ner$ The issue is limited to !hether the imported 3oods should be forfeited and disposed of in accordance !ith la! for iolation of the Tariff and Customs Code$ .(*rans#lo%e International, Inc. v. Court of Appeals, et al$, <$0$ No$ 12@@'A, Ianuary 2-, 1999> Corfeiture of sei#ed 3oods in the (ureau of Customs is a proceedin3 a3ainst the 3oods and not a3ainst the o!ner$ ? Asian *erminals, Inc. v. Bautista &icafort, < $0$ No$ 1@@901, /ctober 2,, 200@ citin3 *rans#lo%e' ;0. The Co&&e#to( o+ C !to,! "o- "(o*%*&e #% !e th%t the %(t$#&e! %(e $,"o(te) o( e."o(te)7 o( %(e %tte,"te) to *e $,"o(te) o( e."o(te)7 $- /$o&%t$o- o+ the t%($++ %-) # !to,! &%w! !h%&& $!! e % w%((%-t o+ !e$B (e. ?Sec$ @, Title 111, C=/ No$ 9J9'> 1f the search and sei#ure is to be conducted in a d!ellin3 place, then a search !arrant should be issued by the re3ular courts not the (ureau of Customs$ There may be instances !here no !arrants issued by the (ureau of Customs or the re3ular courts is re"uired, as in search and sei#ures of motor ehicles and essels$ ;1. S, 88&e) 8oo)! !e$Be) *' /$(t e o+ % #o (t w%((%-t !ho &) *e ! ((e-)e(e) to the #o (t th%t $!! e) the w%((%-t %-) -ot to the B (e% o+ C !to,! because the 3oods are in custo"ia le#is.

LOCAL 2OVERNMENT TA6AT1ON

LOCAL 2OVERNMENT TA6AT1ON7 1N 2ENERAL The + -)%,e-t%& "($-#$"&e! o+ &o#%& t%.%t$o- are5 a$ 8niformityG b$ Taxes, fees, char3es and other impositions shall be e"uitable and based on ability to pay, for public purposes, not unBust, excessi e, oppressi e or confiscatory, not contrary to la!, public policy, national economic policy or in restraint of tradeG c$ The le y and collection shall not be let to any pri ate personG d$ 1nures solely to the local 3o ernment unit le yin3 the taxG e$ The pro3ressi ity principle must be obser ed$

1.

2. A &%w wh$#h )e"($/e! &o#%& 8o/e(-,e-t -$t! o+ the$( "owe( to t%. wo &) *e -#o-!t$t t$o-%&. The constitution has

dele3ated to local 3o ernments the po!er to le y taxes, fees and other char3es$ This constitutional dele3ation may only be remo ed by a constitutional amendment$

77

f$ 9lace of payment5 9ro ince or city !here the professional practices his profession or !here he maintains his principal office in case he practices his profession in se eral places$

:. The "($,%(' (e%!o- +o( the w$th)(%w%& o+ t%. e.e,"t$o- "($/$&e8e! 8(%-te) to 8o/e(-,e-t ow-e) %-) #o-t(o&&e) #o("o(%t$o-! and all other units of 3o ernment !as that such pri ile3e resulted to serious tax base erosion and distortions in the tax treatment of similarly situated enterprises, hence resultin3 in the need for these entities to share in the re"uirements of de elopment, fiscal or other!ise, by payin3 the taxes and other char3es due them$ ?Philippine Ports Authority v. City of Iloilo, <$ 0$ No$ 109,91, Iuly 1A, 200'> ;. N%t$o-%& Powe( Co("o(%t$o- @NPCA $! o+ the $-!$!te-#e th%t $t $! -ot ! *?e#t to the "%',e-t o+ +(%-#h$!e! t%.e! $,"o!e) *' the P(o/$-#e o+ 1!%*e&% *e#% !e %&& o+ $t! !h%(e! %(e ow-e) *' the Re" *&$# o+ the Ph$&$""$-e!. 1t $! th !7 %- $-!t( ,e-t%&$t' o+ the N%t$o-%& 2o/e(-,e-t wh$#h $! e.e,"t +(o, &o#%& t%.%t$o-. A! ! #h $t $! -ot % "($/%te #o("o(%t$oe-8%8e) $- * !$-e!! e-?o'$-8 +(%-#h$!e 1! ! #h #o-te-t$o- ,e($to($o ! 9 S8<<)ST). =NSW)05 No$ Philippine Lon# .istance *elephone Company, Inc., v. City of .avao, et al., etc$, <$ 0$ No$ 1A'+@,, =u3ust 22, 2001, upheld the authority of the City of .a ao, a local 3o ernment unit, to impose and collect a local franchise tax because the 4ocal <o ernment Code has !ithdra!n all tax exemptions pre iously enBoyed by all persons and authori#ed local 3o ernment units to impose a tax on business enBoyin3 a franchise tax not!ithstandin3 the 3rant of tax exemption to them$ 5. P(o+e!!$o-%& t%. ,%' *e $,"o!e) *' % "(o/$-#e o( #$t' * t -ot *' % , -$#$"%&$t' o( *%(%-8%'. a$ Transaction taxed5 )xercise or practice of profession re"uirin3 3o ernment licensure examination$ b$ Tax rate5 1n =ccordance !ith a taxin3 ordinance !hich should not exceed 9'00$00$ c$ Tax base5 0easonable classification by the san33unian$ d$ )xception5 9ayment to one pro ince or city no lon3er subBect to any other national or local tax, license or fee for the practice of such profession in any part of the 9hilippine professionals exclusi ely employed in the 3o ernment$ e$ .ate of payment5 or on before Ianuary '1 or en3a3in3 in the profession$

<. ReD $(e,e-t!: =ny indi idual or corporation employin3 a person subBect to professional tax shall re"uire payment by that person of the tax on his profession before employment and annually thereafter$ =ny person subBect to the professional tax shall !rite in deeds, receipts, prescriptions, reports, boo&s of account, plans and desi3ns, sur eys and maps, as the case may be, the number of the official receipt issued to him$ )xemption5 9rofessionals exclusi ely employed in the 3o ernment shall be exempt from payment$ ?Sec$ 1'9, 4<C> N/T)5 Cor the purpose of collectin3 the tax, the pro incial or city treasurer or his duly authori#ed representati e shall re"uire from such professionals their current annual re3istration cards issued by competent authority before acceptin3 payment of their professional tax for the current year$ The 90C shall li&e!ise re"uire the professionals presentation of proof of payment before re3istration of professionals or rene!al of their licenses$ ?last par$, =rt$ 22+, 0ules and 0e3ulations 1mplementin3 the 4ocal <o ernment Code of 1991> =. 0ho %(e the "(o+e!!$o-%&! who7 $+ the' %(e $- "(%#t$#e o+ the$( "(o+e!!$o-7 %(e ! *?e#t to "(o+e!!$o-%& t%. 9 S8<<)ST). =NSW)05 The professionals subBect to the professional tax are only those !ho ha e passed the bar examinations, or any board or other examinations conducted by the 9rofessional 0e3ulation Commission ?90C>$ for example, a la!yer !ho is also a Certified 9ublic =ccountant ?C9=> must pay the professional tax imposed on la!yers and that fixed for C9=s, if he is to practice both professions$ FSec$ 2'+ ?f>, 0ule ;;;, 0ules and 0e3ulations 1mplementin3 the 4ocal <o ernment Code of 1991H >. 6 C$t' $!! e) % -ot$#e o+ %!!e!!,e-t %8%$-!t ABC Co-)o,$-$ , Co("o(%t$o- +o( -"%$) * !$-e!! t%.e!. The Co-)o,$-$ , Co("o(%t$o- $! % ) &' #o-!t$t te) #o-)o,$-$ , #o("o(%t$o- $- %##o()%-#e w$th the Co-)o,$-$ , A#t wh$#h ow-! %-) ho&)! t$t&e to the #o,,o- %-) &$,$te) #o,,o- %(e%! o+ the #o-)o,$-$ ,. 1t! ,e,*e(!h$" #o,"($!e! the -$t ow-e(! %-) $! % tho($Be) -)e( $t! B'FL%w! to #o&&e#t (e8 &%( %!!e!!,e-t! +(o, $t! ,e,*e(! +o( o"e(%t$-8 e."e-!e!7 #%"$t%& e."e-)$t (e! o- the #o,,o- %(e%! %-) othe( !"e#$%& %!!e!!,e-t! %! "(o/$)e) +o( $- the M%!te( Dee) w$th 9 De#&%(%t$o- o+ Re!t($#t$o-! o+ the Co-)o,$-$ ,.

ABC Co-)o,$-$ , Co("o(%t$o- $-!$!t! th%t the 6 C$t' Re/e- e Co)e %-) the Lo#%& 2o/e(-,e-t Co)e )o -ot #o-t%$"(o/$!$o-! "o- wh$#h the %!!e!!,e-t #o &) *e *%!e). Re!o&/e the #o-t(o/e(!'. S8<<)ST). =NSW)05 =(C is correct$ Condominium corporations are 3enerally exempt from local business taxation under the 4ocal <o ernment Code, irrespecti e of any local ordinance that see&s to declare other!ise$ ; City, is authori#ed under the 4ocal <o ernment Code, to impose a tax on business, !hich is defined under the Code as Etrade or commercial acti ity re3ularly en3a3ed in as a means of li elihood or !ith a ie! to profit$E (y its ery nature a condominium corporation is not en3a3ed in business, and any profit that it deri es is merely incidental, hence it may not be subBect to business taxes$ ? Mamane , etc. v. BA Lepanto Con"ominium Corporation, <$ 0$ No$ 1-A99', /ctober 2-, 200->

78

REAL PROPERT5 TA6AT1ON

1. 0h%t %(e the + -)%,e-t%& "($-#$"&e! o+ (e%& "(o"e(t' t%.%t$o- 9

S8<<)ST). =NSW)05 The fundamental principles of real property taxation are5 a$ =ppraisal at current and fair mar&et alueG b$ Classification for assessment on the basis of actual useG c$ =ssessment on the basis of uniform classificationG d$ =ppraisal, assessment, le y and collection shall not be let to a pri ate personG e$ =ppraisal and assessment shall be e"uitable$
N/T)S =N. C/MM)NTS5 0eal properties shall be appraised at the current and fair mar&et alue pre ailin3 in the locality !here the property is situated and classified for assessment purposes on the basis of its actual use$ ?Allie" Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$ 1-A12@, /ctober 11, 200->

The criterion established by the statute contemplates a hypothetical sale$ :ence, the buyers need not be actual and existin3 purchasers$ ?Allie" Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$ 1-A12@, /ctober 11, 200- citin3 Army an" !avy Clu%, $anila v. *rini"a", AA 9hil$ '+' > N/T)5 1n fixin3 the alue of real property, assessors ha e to consider all the circumstances and elements of alue and must exercise prudent discretion in reachin3 conclusions$ F Allie" Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$ 1-A12@, /ctober 11, 200- citin3 &eyes v. Almanzor, 19@ SC0= '22, '2, ?1991>H> P(e"%(%t$o- o+ +%$( ,%(Het /%& e!: a$ The city or municipal assessor shall prepare a schedule of fair mar&et alues for the different classes of real property situated in their respecti e 4ocal <o ernment 8nits for the enactment of an ordinance by the san##unian concernedG and b$ The schedule of fair mar&et alues shall be published in a ne!spaper of 3eneral circulation in the pro ince, city or municipality concerned or the postin3 in the pro incial capitol or other places as re"uired by la!$ (Lopez v. City of $anila, et al., <$0$ No$ 12,1'9, Cebruary 19, 1999> P(o"o!e) +%$( ,%(Het /%& e! o+ (e%& "(o"e(t' $- % &o#%& 8o/e(-,e-t -$t %! we&& %! the o()$-%-#e #o-t%$-$-8 the !#he) &e , !t *e " *&$!he) $- + && for three ?'> consecuti e days in a ne!spaper of local circulation, !here a ailable, !ithin ten ?10> days of its appro al, and posted in at lease t!o ?2> prominent places in the pro incial capitol, city, municipal or %aran#ay hall for a minimum of three ?'> consecuti e !ee&s$ (-i#uerres v. Court of Appeals, et al,. <$0$ No$ 1191,2, March 2-, 1999>

0ho )ete(,$-e! the +%$( ,%(Het /%& e o+ "(o"e(t$e! 9 S8<<)ST). =NSW)05 The reasonable mar&et alue is determined by the assessor in the form of a schedule of fair mar&et alues$ The schedule is then enacted by the local san##unian. 0h%t $! the +%$( ,%(Het /%& e o+ "(o"e(t$e! 9 =NSW)05 Cair mar&et alue is the price at !hich a property may be sold by a seller !ho is not compelled to sell and bou3ht by a buyer !ho is not compelled to buy, ta&in3 into consideration all uses to !hich the property is adopted and mi3ht in reason be applied$

2.

:.

;. 0h%t %(e the %""(o%#he! $- e!t$,%t$-8 the +%$( ,%(Het /%& e o+ (e%& "(o"e(t' +o( (e%& "(o"e(t' t%. " ("o!e! 9 =NSW)05 a$ Sales =nalysis =pproach$ The sales price paid in actual mar&et transactions is considered by ta&in3 into account alid sales data accumulated from amon3 the 0e3istrar of .eeds, notaries public, appraisers, bro&ers, dealers, ban& officials, and arious sources stated under the 4ocal <o ernment Code$ b$ 1ncome Capitali#ation =pproach$ The alue of an incomeJproducin3 property is no more than the return deri ed from it$ =n analysis of the income produced is necessary in order to estimate the sum !hich mi3ht be in ested in the purchase of the property$ c$ 0eproduction cost approach is a formal approach used exclusi ely n appraisin3 manJmade impro ements such as buildin3s

and other structures, based on such data as materials and labor costs to reproduce a ne! replica of the impro ement$ The assessor uses any or all of these approaches in analy#in3 the data 3athered to arri e at the estimated fair mar&et alue to be included in the ordinance containin3 the schedule of fair mar&et alues$ ?Allie" Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$ 1-A12@, /ctober 11, 200- citin3 4ocal =ssessment 0e3ulations No$ 1J92>

79

5. S eBo- C$t' "%!!e) %- o()$-%-#e whe(e*' the "%(#e&! o+ &%-) !o&)7 #e)e). T(%-!+e((e) %-) #o-/e'e) +o( (e, -e(%to(' #o-!$)e(%t$o- %+te( the e++e#t$/$t' o+ th$! (e/$!$o!h%&& *e ! *?e#t to (e%& e!t%te t%. *%!e) o- the %#t %& %,o -t (e+&e#te) $- the )ee) o+ #o-/e'%-#e o( the # ((e-t %""(o/e) Bo-%& /%& %t$o- o+ the B (e% o+ 1-te(-%& Re/e- e "(e/%$&$-8 %t the t$,e o+ !%&e7 #e!!$o-7 t(%-!+e( %-) #o-/e'%-#e7 wh$#he/e( $! h$8he(7 %! e/$)e-#e) *' the #e(t$+$#%te o+ "%',e-t o+ the #%"$t%& 8%$-! t%. $!! e) the(e+o(e. 1! the "(o/$!o +o( the *%!$! $- )ete(,$-$-8 the /%& e +o( (e%& "(o"e(t' t%. " ("o!e! /%&$) 9 S8<<)ST). =NSW)05 No$ The pro iso bein3 contrary to public policy and for restrainin3 trade is not alid for the follo!in3 reasons5 a$ 1t mandates an exclusi e rule in determinin3 the fair mar&et alue and departs from the established procedures such as the sales analysis approach, the income capitali#ation approach and the reproduction approach pro ided under the rules implementin3 the statute$ 1t unduly interferes !ith the duties statutorily placed upon the local assessor by completely dispensin3 !ith his analysis and discretion !hich the 4ocal <o ernment Code and the re3ulations re"uire to be exercised$ =n ordinance that contra enes any statute is ultra vires and oid$ b$ The Dconsideration approachE in the ordinance is ille3al since Dthe appraisal, assessment, le y and collection of real property tax shall not be let to any pri ate personE, it !ill also completely destroy the fundamental principle in real property taxation L that real property shall be classified, alued and assessed on the basis of its actual use re3ardless of !here located, !hoe er o!ns it, and !hoe er uses it$ =llo!in3 the parties to a pri ate sale to dictate the fair mar&et alue of the property !ill dispense !ith the distinctions of actual use stated in the 4ocal <o ernment Code and in the re3ulations$ c$ The in alidity is not cured by the prhase D!hiche er is hi3herE because an inte3ral part of that system still permits aluin3 real property in disre3ard of its Dactual use$E

d$ The ordinance !ould result to real property assessments more than once e ery three ?'> years and that is not the con3ressional intent as sho!n in the pro isions of the 4ocal <o ernment Code and the re3ulations$ Conse"uently, the real property tax burden should not be interpreted to include those beyond !hat the Code or the re3ulations expressly clearly state$ e$ The pro iso !ould pro ide a chillin3 effect on real property o!ners or administrators to enter freely into contracts reflectin3 the increasin3 alue of real properties in accordance !ith pre ailin3 mar&et conditions$ While the 4ocal <o ernment Code pro ides that the assessment of real property shall not be increased once e ery three ?'> years, the "uestioned pro iso subBects the property to a hi3her assessment e ery time a sales transaction is made$ 0eal property o!ners !ould therefore postpone sales until after the lapse of the three ?'> year period, or if they do so !ithin the said period they shall be compelled to dispose of the property at a price not exceedin3 the last prior con eyance in order to a oid a hi3her tax assessment$ 1n the abo e t!o scenarios real property o!ners are effecti ely pre ented from obtainin3 the best price possible for their properties and unduly hampers the e"uitable distribution of !ealth$ ? Allie" Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$ 1-A12@, /ctober 11, 200-> <. 0h%t $! the -%t (e o+ % t%. )e#&%(%t$o- 9 S8<<)ST). =NSW)05 =s a rule, tax declarations or realty tax payments of property are not conclusi e e idence of o!nership, ne ertheless, they are 3ood in"icia of possession in the concept of o!ner, for no one in his ri3ht mind !ould be payin3 taxes for a property that is not in his actual or constructi e possession$ They constitute at least proof that the holder has a claim of title o er the property$ The oluntary declaration of a piece of property for taxation purposes manifests not only one%s sincere and honest desire to obtain title to the property and announces his ad erse claim a3ainst the State and all other interested parties, but also the intention to contribute needed re enues to the 3o ernment$ Such an act stren3thens one%s %ona fi"e claim of ac"uisition of o!nership$ ?Buenaventura, et al., v. &epu%lic, <$ 0$ No$ 1@@+@-, $arch 2, 200, citin3 0eirs of Simplicio Santia#o v. 0eirs of $ariano /. Santia#o, <$ 0$ No$ 1-1AA0, 1, Iune 200', A0A SC0= 19', 199 L 200>

2$/e e.%,"&e! o+ "e(!o-%& "(o"e(t' -)e( the #$/$& &%w th%t ,%' *e #o-!$)e(e) %! (e%& "(o"e(t' +o( " ("o!e! o+ t%.e!$ S8<<)ST). =NSW)05 9ersonal property under the ci il la! may be considered as real property for purposes of taxes !here the property is essential to the conduct of the business$ a$ 8nder3round tan&s are essential to the conduct of the business of a 3asoline station !ithout !hich it !ould not be operational$ ?Calte6 Phils., Inc. v. Central Boar" of Assessment Appeals, et al., 11A SC0= 29@> b$ 4i3ht 0ail Transit ?40T> impro ements such as buildin3s, carria3e!ays, passen3er terminals stations, and similar structures do not form part of the public roads since the former are constructed o er the latter in such a !ay that the flo! of ehicular traffic !ould not be impaired$ The carria3e!ays and terminals ser e a function different from the public roads$ Curthermore, they are not open to use by the 3eneral public hence not exempt from real property taxes$ ) en 3rantin3 that the national 3o ernment o!ns the carria3e!ays and terminal stations, the property is not exempt because their beneficial use has been 3ranted to 40T= a taxable entity$ (Li#ht &ail *ransit Authority v. Central Boar" of Assessment Appeals, et al., <$ 0$ No$ 12,'1@, /ctober 12, 2000> c$ The Supreme Court of Ne! Kor& in Consoli"ate" /"ison Company of !e: Mor4, Inc., et al., v. *he City of !e: Mor4, et al., +0 Misc$ 2d 10@- ?19,-> cited in -/LS /ner#y, Inc., v. Province of Batan#as, <$ 0$ No$ 1@+--,, Cebruary 1@, 200, and companion case, held that bar3es on !hich !ere mounted 3as turbine po!er plants desi3nated to 3enerate electrical po!er, the fuel oil bar3es !hich supplied fuel oil to the po!er plant bar3es, and the accessory e"uipment mounted on the bar3es !ere subBect to real property taxes$ Moreo er, =rticle A1-?9> of the Ci il Code pro ides that DFdHoc&s and structures !hich, thou3h floatin3, are intended by their nature and obBect to remain at a fixed place on a ri er, la&e or coastE are considered immo able property by destination bein3 intended by the o!ner for an industry or !or& !hich may be carried on in a buildin3 or on a piece of land and !hich tend directly to meet the needs of said industry or !or&$ >. The (e!t($#t$o- "o- the "owe( o+ #o (t! to $,"e%#h t%. %!!e!!,e-t w$tho t % "($o( "%',e-t7 -)e( "(ote!t7 o+ the t%.e! %!!e!!e) $! #o-!$!te-t w$th the )o#t($-e th%t t%.e! %(e the &$+e*&oo) o+ the -%t$o-7 and as such their collection cannot be curtailed by inBunction or any li&e actionG other!ise, the state or, in this case, the local 3o ernment unit, shall be crippled in dispensin3 the

=.

80

needed ser ices to the people, and its machinery 3ra ely disabled$ ($anila /lectric Company v. Barlis, <$0$ No$ 11A2'1, May 1+, 2001> Thus, the trial court has no Burisdiction to entertain a petition for prohibition absent payment under protest of the tax assessed$ ?I%i".' N/T)S =N. C/MM)NTS5 While the abo e May 1+, 2001 decision !as set aside by the Supreme Court !hen it 3ranted the petitioner%s second motion for reconsideration on Iune 29, 200A, the author submits that the abo e doctrine in the May 1+, 2001 decision is still alid, because !hat !as re ersed in the second motion for reconsideration !as the 3arnishment of Meralco%s assets$ The remand to the lo!er court !as for the resolution of !hether or not an assessment !as issued to Meralco$

9. U-"%$) (e%&t' t%.e! %tt%#h to the "(o"e(t' %-) $! #h%(8e%*&e %8%$-!t the "e(!o- who h%) %#t %& o( *e-e+$#$%& !e %-) "o!!e!!$o- o+ $t (e8%()&e!! o+ whethe( o( -ot he $! the ow-e(. To impose the real property tax on the subse"uent o!ner !hich !as neither the o!ner not the beneficial user of the property durin3 the desi3nated periods !ould not only be contrary to la! but also unBust$ Conse"uently, M)0=4C/ the former o!ner7user of the property !as re"uired to pay the tax instead of the ne! o!ner N=9/C/0. ($anila /lectric Company v. Barlis, (.&. !o. ;;><A;, $ay ;B, <??;' N/T)5 The abo e May 1+, 2001 decision !as set aside by the Supreme Court !hen it 3ranted the petitioner%s second motion for reconsideration on Iune 29, 200A$ The author submits that the abo e rulin3 in the May 1+, 2001 decision is still alid, not on the basis of the May 1+, 2001 decision but in the li3ht of pronouncements of the Supreme Court in other cases$ Thus, do not cite the doctrine as emanatin3 from the May 1+, 2001 decision$ 10. Se#(et%(' o+ 3 !t$#e #%- t%He #o8-$B%-#e o+ % #%!e $-/o&/$-8 the #o-!t$t t$o-%&$t' o( &e8%&$t' o+ t%. o()$-%-#e! whe(e the(e %(e +%#t %& $!! e! $-/o&/e). (-i#uerres v. Court of Appeals, et al., <$0$ No$ 1191,2, March 2-, 1999> T%."%'e( +$&e! %""e%& to the Se#(et%(' o+ 3 !t$#e7 w$th$- :0 )%'! +(o, e++e#t$/$t' the(eo+. 1n case the Secretary decides the appeal, a period also of '0 days is allo!ed for an a33rie ed party to 3o to court$ (ut if the Secretary does not act thereon, after the lapse of @0 days, a party could already see& relief in court !ithin '0 days from the lapse of the @0 day period$ These three separate periods are clearly 3i en for compliance as a prere"uisite before see&in3 redress in a competent court$ Such statutory periods are set to pre ent delays as !ell as enhance the

orderly and speedy dischar3e of Budicial functions$ Cor this reason the courts construe these pro isions of statutes as mandatory$ (&eyes, et al., v. Court of Appeals, et al$, <$0$ No$ 11+2'', .ecember 10, 1999> 11. P *&$# he%($-8! %(e ,%-)%to(' "($o( to %""(o/%& o+ t%. o()$-%-#e, but this still re"uires the taxpayer to adduce e idence to sho! that no public hearin3s e er too& place$ (&eyes, et al., v. Court of Appeals, et al., <$0$ No$ 11+2'', .ecember 10, 1999> 9ublic hearin3s are re"uired to be conducted prior to the enactment of an ordinance imposin3 real property taxes$ ?-i#uerres v. Court of Appeals, et al., <$0$ No$ 1191,2, March 2-, 1999> 12. The #o-# ((e-t %-) !$, &t%-eo ! (e,e)$e! %++o()e) &o#%& 8o/e(-,e-t -$t! $- e-+o(#$-8 #o&&e#t$o- o+ (e%& "(o"e(t' t%.e!: a$ .istraint of personal propertyG b$ Sale of delin"uent real property, and c$ Collection of real property tax throu3h ordinary court action$ 1:. The (e,e)' o+ &e/' #%- *e " (! e) *' " tt$-8 " +o( !%&e the (e%& "(o"e(t' ! *?e#t o+ t%., i$e$, the delin"uent property upon !hich the tax lien attaches, re3ardless of the present o!ner or possessor thereof$ :o!e er this remedy is only one of the other remedies$ ($anila /lectric Company v. Barlis, <$0$ No$ 11A2'1, May 1+, 2001> N/T)5 The abo e May 1+, 2001 decision !as set aside by the Supreme Court !hen it 3ranted the petitioner%s second motion for reconsideration on Iune 29, 200A$ The author submits that the abo e rulin3 in the May 1+, 2001 decision is still alid, not on the basis of the May 1+, 2001 decision, in the li3ht of pronouncements of the Supreme Court in other cases$ Thus, do not cite the doctrine as emanatin3 from the May 1+, 2001 decision$ 1;. The L2U #o &) %&!o %/%$& o+ the (e,e)' o+ )$!t(%$-t %-) &e/' o+ "e(!o-%& "(o"e(t' ! *?e#t$-8 %-' "e(!o-%& "(o"e(t' o+ the t%."%'e( to e.e# t$o-. thus, the issuance of the !arrants of 3arnishment o er M)0=4C/%s ban& deposits !as not improper or irre3ular$ ($anila /lectric Company v. Barlis, et al$, <$0$ No$ 11A2'1, May 1+, 2001> N/T)5 The abo e May 1+, 2001 decision !as set aside by the Supreme Court !hen it 3ranted the petitioner%s second motion for reconsideration on Iune 29, 200A$ The author submits that the abo e rulin3 in the May 1+, 2001 decision is still alid, not on the basis of the May 1+, 2001 decision, in the li3ht of pronouncements of the

81

Supreme Court in other cases$ Thus, do not cite the doctrine as emanatin3 from the May 1+, 2001 decision$

5>. Not$#e %-) " *&$#%t$o-7 %! we&& %! the &e8%& (eD $(e,e-t! +o( % t%. )e&$-D e-#' !%&e7 %(e ,%-)%to(' , and the failure to comply there!ith can in alidate the sale$ The prescribed notices must be sent to comply !ith the re"uirements of due process. (.e 1necht, et al,. v. Court of AppealsL .e 1necht, et al., v. 0onora%le Sayo, 290 SC0= 22',2'@>
1<. The (e%!o- *eh$-) the -ot$#e (eD $(e,e-t $! th%t t%. !%&e! %(e %),$-$!t(%t$/e "(o#ee)$-8! wh$#h %(e in persona# $-%t (e$ (Puzon v. A%ellera, 1@9 SC0= ,+9, ,9-L .e Asis v. I.A.C., 1@9 SC0= '1A>

1=. 4ELS E-e(8'7 1-#.7 h%) % #o-t(%#t to ! ""&' NPC w$th the e&e#t($#$t' 8e-e(%te) *' 4ELSE "owe( *%(8e!. The #o-t(%#t %&!o !t%te) th%t NPC !h%&& *e (e!"o-!$*&e +o( %&& (e%& e!t%te t%.e! %-) %!!e!!,e-t!. 4ELS the- (e#e$/e) %%!!e!!,e-t o+ (e%& "(o"e(t' t%.e! o- $t! "owe( *%(8e! +(o, the P(o/$-#$%& A!!e!!o( o+ B%t%-8%!. 1+ +$&e) % ,ot$o- +o( (e#o-!$)e(%t$o- w$th the P(o/$-#$%& A!!e!!o(. %. U"o- )e-$%&7 4ELS e&e/%te) the ,%tte( to the Lo#%& Bo%() o+ A!!e!!,e-t A""e%&! @LBAAA7 whe(e $t (%$!e) the +o&&ow$-8 $!! e!: 1A S$-#e NPC $! t%.Fe.e,"t the- 4ELE! !ho &) %&!o *e t%.Fe.e,"t *e#% !e o+ $t! #o-t(%#t w$th NPC. 2A The "owe( *%(8e! %(e -ot (e%& "(o"e(t' ! *?e#t to (e%& "(o"e(t' t%.e!. *. U"o- the othe( h%-) the Lo#%& T(e%! (e( $-!$!t! th%t the %!!e!!,e-t h%! %tt%$-e) % !t%te o+ +$-%&$t' he-#e the %""e%& to the LBAA !ho &) *e )$!,$!!e). R &e o- the #o-+&$#t$-8 #o-te-t$o-!. S8<<)ST). =NSW)05 a$ =ll the contentions of C)4S are !ithout merit5 1> N9C is not the o!ner of the po!er bar3es nor the operator of the po!er bar3es$ The tax exemption pri ile3e 3ranted to N9C cannot be extended to C)4S$ the co enant is bet!een N9C and C)4s and does not bind a third person not pri y to the contract such as the 9ro ince of (atan3as$ 2> The Supreme Court of Ne! Kor& in Consoli"ate" /"ison Company of !e: Mor4, Inc., et al., v. *he City of !e: Mor4, et al., +0 Misc$ 2d 10@- ?19,-> cited in -/LS /ner#y,

Inc., v. Province of Batan#as, <$ 0$ No$ 1@+--,, Cebruary 1@, 200, and companion case, held that bar3es on !hich !ere mounted 3as turbine po!er plants desi3nated to 3enerate electrical po!er, the fuel oil bar3es !hich supplied fuel oil to the po!er plant bar3es, and the accessory e"uipment mounted on the bar3es !ere subBect to real property taxes$ Moreo er, =rticle A1-?9> of the Ci il Code pro ides that DFdHoc&s and structures !hich, thou3h floatin3, are intended by their nature and obBect to remain at a fixed place on a ri er, la&e or coastE are considered immo able property by destination bein3 intended by the o!ner for an industry or !or& !hich may be carried on in a buildin3 or on a piece of land and !hich tend directly to meet the needs of said industry or !or&$ b$ The Treasurer is correct$ The procedure do not allo! a motion for reconsideration to be filed !ith the 9ro incial =ssessor$ To allo! the procedure !ould indeed in ite corruption in the system of appraisal and assessment$ it con eniently courts a 3raftJ prone situation !here alues of real property ay be initially set unreasonably hi3h, and then subse"uently reduced upon the re"uest of a property o!ner$ 1n the latter instance, allusions of possible co er, illicit tradeJoff cannot be a oided, and in fact can con eniently ta&e place$ Such occasion for mischief must be pre ented and excised from our system$ ?-/LS /ner#y, Inc., v. Province of Batan#as, <$ 0$ No$ 1@+--,, Cebruary 1@, 200, and companion case, citin3 Callanta v. 3ffice of the 3m%u"sman. <$ 0$ Nos$ 11-2-'J,A, Ianuary '0, 199+, 2+- SC0= @A+> 1>. = special le y or special assessment is an imposition by a pro ince, a city, a municipality !ithin the Metropolitan Manila =rea, a municipality or a baran3ay upon real property specially benefited by a public !or&s expenditure of the 4<8 to reco er not more than @06 of such expenditure$ 19. 1+ the 8(o -) +o( the "(ote!t $! /%&$)$t' o+ the (e%& "(o"e(t' t%. o()$-%-#e and not the unreasonableness of the amount collected the tax must be paid under protest, and the issue of le3ality may be raised to the proper courts on certiorari !ithout need of exhaustin3 administrati e remedies$ 20. 1+ the 8(o -) +o( the "(ote!t $! -(e%!o-%*&e-e!! o+ the %,o -t! #o&&e#te) the(e $! -ee) to "%' -)e( "(ote!t and administrati e remedies must be resorted to before recourse to the proper courts$ 21. P(o#e) (e +o( (e+ -) o+ (e%& "(o"e(t' t%.e! *%!e) o-(e%!o-%*&e-e!! o( e.#e!!$/e-e!! o+ %,o -t! #o&&e#te).

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a$ 9ayment under protest at the time of payment or !ithin thirty ?'0> days thereafter, protest bein3 lod3ed to the pro incial, city or in the case of a municipality !ithin the Metro Manila =rea the municipal treasurer$ b$ The treasurer has a period of sixty ?@0> days from receipt of the protest !ithin to decide$ c$ Within thirty ?'0> days from receipt of treasurer%s decision or if the treasurer does not decide, !ithin thirty ?'0> days from the expiration of the sixty ?@0> period for the treasurer to decide, the taxpayer should file an appeal !ith the 4ocal (oard of =ssessment =ppeals$ d$ The 4ocal (oard of =ssessment =ppeals has 120 days from receipt of the appeal !ithin !hich to decide$ e$ The ad erse decision of the 4ocal (oard of =ssessment =ppeals should be appealed !ithin thirty ?'0> days from receipt to the Central (oard of =ssessment =ppeals$ f$ The ad erse decision of the Central (oard of =ssessment =ppeals shall be appealed to the Court of Tax =ppeals ?/n Banc> by means of a petition for re ie! !ithin thirty ?'0> days from receipt of the ad erse decision$ 3$ The decision of the CT= may be the subBect of a motion for reconsideration or ne! trial after !hich an appeal may be interposed by means of a petition for re ie! on certiorari directed to the Supreme Court on pure "uestions of la! !ithin a period of fifteen ?1-> days from receipt extendible for a period of thirty ?'0> days$ 22. A Cit! .rdinance adoptin a #ethod of assess#ent "as nullified b! the /upre#e Court. A taxpa!er "ho has paid his real propert! taxes on the basis of the nullified ordinance no" posits that the return of the real propert! tax erroneousl! collected and paid is a necessar! conse0uence of the /upre#e Court1s nullification of the ordinance and there is no need to clai# for a refund. (s this correct ? S8<<)ST). =NSW)05 No$ The entitlement to a tax refund does not necessarily call for the automatic payment of the sum claimed$ The amount of the claim bein3 a factual matter, it must still be pro en in the normal course and in accordance !ith the administrati e procedure for obtainin3 a refund of real property taxes, as pro ided under the 4ocal <o ernment Code$ ? Allie" Ban4in# Corporation, etc., v. Quezon City (overnment, et al., <$ 0$ No$ 1-A12@, September 1-, 200@> N/T)5 1n the abo e Allie" Ban4in# case, the Supreme Court pro ided for the startin3 date of computin3 the t!oJyear prescripti e period !ithin !hich to file the claim !ith the Treasurer, !hich is from finality of the .ecision$ The procedure to be follo!ed is that sho!n belo!$

83 2:. P(o#e) (e +o( (e+ -) o+ (e%& "(o"e(t' t%.e! *%!e) o/%&$)$t' o+ the t%. ,e%! (e o( solutio indebeti. a$ 9ayment under protest not re"uired, claim must be directed to the local treasurer, !ithin t!o ?2> years from the date the taxpayer is entitled to such reduction or readBustment, !ho must decide !ithin sixty ?@0> days from receipt$ b$ The denial by the local treasurer of the protest !ould fall !ithin the 0e3ional Trial Court%s ori3inal Burisdiction, the re ie! bein3 the initial Budicial co3ni#ance of the matter$ .espite the lan3ua3e of Section 19- of the 4ocal <o ernment Code !hich states that the remedy of the taxpayer !hose protest is denied by the local treasurer is Dto appeal !ith the court of competent Burisdiction,E labelin3 the said re ie! as an exercise of appellate Burisdiction is inappropriate since the denial of the protest is not the Bud3ment or order of a lo!er court, but of a local 3o ernment official$ ? Mamane , etc. v. BA Lepanto Con"ominium Corporation, <$ 0$ No$ 1-A99', /ctober 2-, 200-> c$ The decision of the 0e3ional Trial Court should be appealed by means of a petition for re ie! directed to the Court of Tax =ppeals ?.i ision>$ d$ The decision of the Court of Tax =ppeals ?.i ision> may be the subBect of a re ie! by the Court of Tax =ppeals ?en %anc>$ e$ The decision of the Court of Tax =ppeals ?en %anc> may be the subBect of a petition for re ie! on certiorari on pure "uestions of la! directed to the Supreme Court$

directly and exclusi ely used for reli3ious, charitable or educational purposes$ ?Lun# Center of the Philippines v. Quezon City, et al., etc., <$ 0$ No$ 1AA10A, Iune 29, 200A citin3 Iustice .a ide>

:1. The 19:5 Co-!t$t t$o- !t%te) th%t the &%-)!7 * $&)$-8!7 %-) $,"(o/e,e-t! %(e !e) e.#& !$/e&' * t the "(e!e-t Co-!t$t t$o- (eD $(e! th%t the &%-)!7 * $&)$-8! %-) $,"(o/e,e-t! %(e %#t %&&'7 )$(e#t&' %-) e.#& !$/e&' !e). The chan3e should not be i3nored$ 0eliance on past decisions !ould ha e sufficed !ere the !ords DactuallyE as !ell as 5directlyE are not added$ There must be proof therefore of the actual and direct use to be exempt from taxation$ ?Lun# Center of the Philippines v. Quezon City, et al., etc., <$ 0$ No$ 1AA10A, Iune 29, 200A citin3 Province of A%ra v. 0ernan"o, 10, SC0= 10-> 2<. 0h%t $! ,e%-t *' %#t %&7 )$(e#t %-) e.#& !$/e !e o+ the "(o"e(t' +o( #h%($t%*&e " ("o!e! $! the )$(e#t %-) $,,e)$%te %-) %#t %& %""&$#%t$o- o+ the "(o"e(t' $t!e&+ to the purposes for !hich the charitable institution is or3ani#ed$ 1t is not the use of the income from the real property that is determinati e of !hether the property is used for taxJexempt purposes$ 1f real property is used for one or more commercial purposes, it is not exclusi ely used for the exempted purpose but is subBect to taxation,$ The !ords Ddominant useE or Dprincipal useE cannot be substituted for the !ords Dused exclusi elyE !ithout doin3 iolence to the Constitution and the la!$ Solely is synonymous !ith exclusi ely$ ?Lun# Center of the Philippines v. Quezon City, et al., etc., <$ 0$ No$ 1AA10A, Iune 29, 200A>
2=. Po(t$o-! o+ the &%-) o+ % #h%($t%*&e $-!t$t t$o-7 ! #h %! % ho!"$t%&7 &e%!e) to "($/%te e-t$t$e! %! we&& %! tho!e "%(t! o+ the ho!"$t%& &e%!e) to "($/%te $-)$/$) %&! %(e -ot e.e,"t +(o, (e%& "(o"e(t' t%.e!. /n the other hand, the portion of the land occupied by the hospital and portions of the hospital used for its patients, !hether payin3 or nonJpayin3, are exempt from real property taxes$ ?Lun# Center of the Philippines v. Quezon City, et al., etc., <$ 0$ No$ 1AA10A, Iune 29, 200A> 2>. A! % 8e-e(%& "($-#$"&e7 % #h%($t%*&e $-!t$t t$o- )oe! -ot &o!e $t! #h%(%#te( %! ! #h %-) $t! e.e,"t$o- +(o, t%.e! !$,"&' *e#% !e $t )e($/e! $-#o,e +(o, "%'$-8 "%t$e-t!7 whethe( o tF"%t$e-t7 o( #o-+$-e) $- the ho!"$t%&7 o( (e#e$/e! ! *!$)$e! +(o, the 8o/e(-,e-t. So lon3 as the money recei ed is de oted or used alto3ether to the charitable obBect !hich it is intended to achie eG and no money inures to the pri ate benefit of the persons mana3in3

2;. Ch%($t%*&e $-!t$t t$o-!7 #h (#he! %-) "%(!o-%8e! o( #o-/e-t! %"" (te-%-t the(eto7 ,o!D e!7 -o-F"(o+$t #e,ete($e!7 %-) %&& &%-)!7 * $&)$-8! %-) $,"(o/e,e-t! th%t %(e %#t %&&'7 )$(e#t&' %-) e.#& !$/e&' !e) +o( (e&$8$o !7 #h%($t%*&e o( e) #%t$o-%& " ("o!e! %(e e.e,"t +(o, t%.%t$o-. FSec$2+ ?'> =rticle *1, 19+, ConstitutionH 25. The #o-!t$t t$o-%& t%. e.e,"t$o-! (e+e( o-&' to (e%& "(o"e(t' that are actually, directly and exclusi ely used for reli3ious, charitable or educational purposes, and that the only constitutionally reco3ni#ed exemption from taxation of re enues are those earned by nonJprofit, nonJstoc& educational institutions !hich are actually, directly and exclusi ely used for educational purposes$ (Commissioner of Internal &evenue v. Court of Appeals, et al., 29+ SC0= +'> The constitutional tax exemption co ers property taxes only$ What is exempted is not the institution itself, those exempted from real estate taxes are lands, buildin3s and impro ements actually,

or operatin3 the institution$ ? Lun# Center of the Philippines v. Quezon City, et al., etc., <$ 0$ No$ 1AA10A, Iune 29, 200A>

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29. *hat propert! are exe#pt fro# the pa!#ent of real propert! tax under the 2ocal 3overn#ent Code ? S8<<)ST). =NSW)05 a$ 0eal property o!ned by the 0epublic of the 9hilippines or any of its political subdi isions except !hen the beneficial use thereof has been 3ranted to a taxable person for a consideration or other!iseG b$ Charitable institutions, churches, parsona3es or con ents appurtenant thereto, mos"ues, nonJprofit or reli3ious cemeteries, and all lands, buildin3s and impro ements actually, directly and exclusi ely used for reli3ious, charitable and educational purposesG c$ Machineries and e"uipment, actually, directly and exclusi ely used by local !ater districtsG and 3o ernment o!ned and controlled corporations en3a3ed in the supply and distribution of !ater and 3eneration and transmission of electric po!erG d$ 0eal property o!ned by duly re3istered cooperati esG e$ Machinery and e"uipment used for pollution control and en ironmental protection$ :0. ,he Manila (nternational Airport Authorit! (M(AA) "as sub4ect to real propert! taxes b! the #unicipalit! of Parana0ue on its airport lands, and buildin s on the round that the 2ocal 3overn#ent Code has "ithdra"n exe#ptions previousl! en4o!ed b! overn#ent5o"ned and controlled corporations. M(AA contends other"ise as it clai#s it is not a overn#ent o"ned or controlled corporation. *ho is correct. S8<<)ST). =NSW)05 M1== is correct because it is not a 3o ernment o!ned or controlled corporation but an instrumentality of the 3o ernment that is exempt from taxation$ 1t is not a stoc& corporation because its capital is not di ided into shares, neither is it a nonJstoc& corporation because there are no members$ 1t is instead an instrumentality of the 3o ernment upon !hich the local 3o ernments are not allo!ed to le y taxes, fees or other char3es$ =n instrumentality Drefers to any a3ency of the National <o ernment, not inte3rated !ithin the department frame!or& ested !ith special functions or Burisdiction by la!, endo!ed !ith some if not all corporate po!ers, administerin3 special funds, and enBoyin3 operational autonomy, usually throu3h a charter$ This term includes re3ulatory a3encies chartered institutions and 3o ernmentJo!ned or controlled corporations$E FSec$ 2 ?10>, 1ntroductory 9ro isions,

=dministrati e Code of 19+,H 1t is an instrumentality exercisin3 not only 3o ernmental but also corporate po!ers$ 1t exercises 3o ernmental po!ers of eminent domain, police po!er authority, and le yin3 of fees and char3es$ Cinally, the airport lands and buildin3s are property o!ned by the 3o ernment that are de oted to public use and are properties of the public domain$ ? $anila International Airport Authority v. City of Pasay, et al., <$ 0$ No$ 1@'0,2, =pril 2, 2009 citin3 $anila International Airport Authority v. Court of Appeals, et al., <$ 0$ No$ 1--@-0, Iuly 20, 200@>

:1. A teleco##unications co#pan! "as ranted b! Con ress on &ul! +6, 788+, after the effectivit! of the 2ocal 3overn#ent Code on &anuar! 7, 788+, a le islative franchise "ith tax exe#ption privile es "hich partl! reads, 9,he rantee, its successors or assi ns shall be liable to pa! the sa#e taxes on their real estate, buildin s and personal propert! , e6clusive of this franchise, as other persons or corporations are no" or hereafter #a! be re0uired b! la" to pa!.: ,his provision existed in the co#pan!1s franchise prior to the effectivit! of the 2ocal 3overn#ent Code. A Cit! then enacted an ordinance in 788; i#posin a real propert! on all real properties located "ithin the cit! li#its, and "ithdra"in all tax exe#ptions previousl! ranted. A#on properties covered are those o"ned b! the co#pan! fro# "hich the Cit! is no" collectin P<; #illion. ,he properties of the co#pan! "ere then scheduled b! the Cit! for sale at public auction. ,he co#pan! then filed a petition for the issuance of a "rit of prohibition clai#in exe#ption under its le islative franchise. ,he Cit! defended its position raisin the follo"in = a. ,here "as no exhaustion of ad#inistrative re#edies because the #atter should have first been filed before the 2ocal >oard of Assess#ent Appeals? b. ,he co#pan!1s properties are exe#pt fro# tax under its franchise. Resolve the issues raised. S8<<)ST). =NSW)0S5 a$ There is no need to exhaust administrati e remedies as the appeal to the 4(== is not a speedy and ade"uate remedy !ithin the la!$ This is so because the properties are already scheduled for auction sale$ Curthermore one of the reco3ni#ed exceptions to the rule on exhaustion is that if the issue is purely le3al in character !hich is so in this case$

b$ The properties are exempt from taxation$ The 3rant of taxin3 po!ers to local 3o ernments under the Constitution and the 4ocal <o ernment Code does not affect the po!er of Con3ress to 3rant tax exemptions$ The term Dexclusi e of this franchiseE is interpreted to mean properties actually, directly and exclusi ely used in the radio or telecommunications business$ The subse"uent piece of le3islation !hich reiterated the phrase Dexclusi e of this franchiseE found in the pre ious tax exemption 3rant to the company is an express and real intention on the part of Con3ress to once a3ainst remo e from the 4<C%s dele3ated taxin3 po!er, all of the company%s properties that are actually, directly and exclusi ely used in the pursuit of its franchise$ ?*he City (overnment of Quezon City, et al., v. Bayan *elecommunications, Inc., <$ 0$ No$ 1@201-, March @, 200@> N/T)S =N. C/MM)NTS5 a$ Note the #o-+ !$o- $- the )e#$!$o-. 1t cited Mactan Cebu !hich stated that the taxin3 po!er of local 3o ernment units is Dno lon3er merely by irtue of a alid dele3ation as before, but pursuant to direct authorityE but in the concludin3 portion referred to it as Dthe 4<C%s dele3ated taxin3 po!er$E Which is !hich, dele3ated or direct 3rant R The author submits that the !ei3ht of Burisprudence sho!s that it is a direct 3rant not a dele3ated po!er$ 1f a "uestion is as&ed then state it is a direct 3rant$ :2. The ow-e( o"e(%to( o+ % BOT %-) -ot the &t$,%te ow-e( $! ! *?e#t to (e%& "(o"e(t' t%.e!. Consistent !ith the (/T concept and as implemented, (99C L the o!nerJmana3erJoperator of the proBect L is the actual user of its machineries and e"uipment$ (99C%s o!nership and use of the machineries and e"uipment are actual, direct, and immediate, !hile N=9/C/0%s is contin3ent and, at this sta3e of the (/T =3reement, not sufficient to support its claim for tax exemption$ ?!ational Po:er Corporation v. Central Boar" of Assessment Appeals, et al., <, 0$ No$ 1,1A,0, Ianuary '0, 2009>

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ADVANCE CONGRATULATIONS AND SEE YOU IN COURT