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I.

GENERAL PRINCIPLES OF TAXATION


A. Definition and concept of taxation
Taxation is the inherent power of the sovereign, exercised through the legislature, to impose
burdens upon the subjects and objects within its jurisdiction, for the purpose of raising
revenues to carry out the legitimate objects of the government.
It is the power of the sovereign to impose burdens or charges upon persons, property or
property rights for the use and support of the government to be able to discharge its
functions.
It is one of the inherent powers of the state.
B. Nature of taxation
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Inherent in sovereignty - There is no need to enact a law to exercise that power as


this power springs from the moment a state comes into existence.

Legislative in character - Even in the absence of any constitutional provision, the


power falls to the legislature as part of the more general power of law-making.

It is subject to constitutional and inherent limitations To a certain extent, Congress


will abuse that power. To a certain extent, you have that principle also that the power
to tax involves the power to destroy. Congress may abuse that power given to it by
the people through the electoral process.

C. Characteristics of taxation
1) An enforced contribution, for its imposition is in no way dependent upon the will or
assent of the person taxed;
2) It is generally payable in the form of money, although the law may provide
payment in kind;
3) Proportional in character, which, in case of income taxes, is usually based on
ability to pay;
4) Levied upon persons, property or business, acts, transactions, right or privileges,
In each case, however it is only a person who pays the tax;
5) It is levied by the State which has jurisdiction over the object taxed. It is necessary
that the State has jurisdiction or control over the objects to be taxed in order that
the tax can be enforced;
6) Levied by the lawmaking body of the State. The power to tax is a legislative power
that only the legislature can exercise. Except:
a) Delegated power of the LGUs pursuant to Art. X, Sec. 5 of the Consitution;
b) The President pursuant to Art. VI Section 28 (2) on tariff rates, import an
export quotas, tonnage and wharfage dues, and other duties and imposts;
c) c)Delegation to administrative agencies of the executive branch such as the
BIR, Bureau of Customs and the Department of Finance; and
d) Peoples initiative and referendum under RA 6735 where the people is
granted power to take back the legislatives authority in enacting tax laws.
7) Levied for public purpose. A tax levied for private purpose is unconstitutional and,
therefore, void; it constitutes taking of property without due process of law.
D. Power of taxation compared with other powers
A. TAXATION vs. POLICE POWER vs. EMINENT DOMAIN
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As to purpose:
Taxation for the support of the government
Eminent Domain_- for public use
Police Power to promote general welfare, public health, public morals, and public
safety.

As to compensation:
Taxation Protection and benefits received from the government.
Eminent Domain just compensation, not to exceed the market value declared by the
owner or administrator or anyone having legal interest in the property, or as
determined by the assessor, whichever is lower.
Police Power The maintenance of a healthy economic standard of society.

As to persons affected:
Taxation and Police Power operate upon a community or a class of individuals
Eminent Domain operates on the individual property owner.

As to authority which exercises the power:


Taxation and Police Power Exercised only by the government or its political
subdivisions.
Eminent Domain may be exercised by public services corporation or public utilities if
granted by law.

As to amount of imposition:
Taxation Generally no limit to the amount of tax that may be imposed.
Police Power Limited to the cost of regulation
Eminent Domain There is no imposition; rather, it is the owner of the property taken
who is just paid compensation.

As to the relationship to the Constitution:


Taxation and Eminent Domain Subject to certain constitutional limitations, including
the prohibition against impairment of the obligation of contracts.
Police Power Relatively free from constitutional limitations and superior to the nonimpairment provisions thereof.

B. TAX vs. LICENSE FEE:


1) As to purpose: Tax imposed for revenue WHILE license fee for regulation. Tax for
general purposes WHILE license fee for regulatory purposes only.
2) As to basis: Tax imposed under power of taxation WHILE license fee under police
power.

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3) As to amount: In taxation, no limit as to amount WHILE license fee limited to cost of


the license and expenses of police surveillance and regulation.
4) As to the time of payment: Taxes normally paid after commencement of business
WHILE license fee before.
5) As to the effect of payment: Failure to pay a tax does not make the business illegal
WHILE failure to pay license fee makes business illegal.
6) as to surrender: Taxes, being lifeblood of the state, cannot be surrendered except for
lawful consideration WHILE a license fee may be surrendered with or without
consideration.
C. IMPORTANCE OF DISTINCTION BETWEEN TAXES AND LICENSE FEES.
It is necessary to determine whether a particular imposition is a tax or a license fee,
because some limitations apply only to one and not to the other.
Furthermore, exemption from taxes does not include exemption from license fees

D. TAXES DISTINGUISHED FROM OTHER IMPOSITIONS:


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toll amount charged for the cost and maintenance of property used;

compromise penalty amount collected in lieu of criminal prosecution in cases of tax


violations;

special assessment levied only on land based wholly on the benefit accruing
thereon as a result of improvements of public works undertaken by government
within the vicinity.

license fee regulatory imposition in the exercise of the police power of the State;

margin fee exaction designed to stabilize the currency

custom duties and fees duties charged upon commodities on their being imported
into or exported from a country;

debt a tax is not a debt but is an obligation imposed by law.

E. SPECIAL ASSESSMENT vs. TAX


1

A special assessment tax is an enforced proportional contribution from owners of


lands especially benefited by public improvements.

A special assessment is levied only on land.

A special assessment is not a personal liability of the person assessed; it is limited


to the land.

A special assessment is based wholly on benefits, not necessity.

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A special assessment is exceptional both as to time and place; a tax has general
application.

Republic v. Bacolod, 17 SCRA 632

A special assessment is a levy on property which derives some special benefit from
the improvement. Its purpose is to finance such improvement. It is not a tax measure
intended to raise revenues for the government. The proceeds thereof may be devoted
to the specific purpose for which the assessment was authorized, thus accruing only
to the owners thereof who, after all, pay the assessment.

Some Rules:

An exemption from taxation does not include exemption from a special treatment.

The power to tax carries with it a power to levy a special assessment.

F. TOLL vs. TAX


1

Toll is a sum of money for the use of something. It is the consideration which is paid
for the use of a road, bridge, or the like, of a public nature. Taxes, on the other hand,
are enforced proportional contributions from persons and property levied by the State
by virtue of its sovereignty for the support of the government and all public needs.

Toll is a demand of proprietorship; tax is a demand of sovereignty.

Toll is paid for the used of anothers property; tax is paid for the support of
government.

The amount paid as toll depends upon the cost of construction or maintenance of the
public improvements used; while there is no limit on the amount collected as tax as
long as it is not excessive, unreasonable, or confiscatory.

Toll may be imposed by the government or by private individuals or entities; tax may
be imposed only by the government.

G. TAX vs. PENALTY


1

Penalty is any sanction imposed as a punishment for violation of law or for acts
deemed injurious; taxes are enforced proportional contributions from persons
and property levied by the State by virtue of its sovereignty for the support of
the government and all public needs.

Penalty is designed to regulate conduct; taxes are generally intended to


generate revenue.

Penalty may be imposed by the government or by private individuals or entities;


taxes only by the government.

H. OBLIGATION TO PAY DEBT vs. OBLIGATION TO PAY TAX


1

A debt is generally based on contract, express or implied, while a tax is based on


laws.

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A debt is assignable, while a tax cannot generally be assigned.

A debt may be paid in kind, while a tax is generally paid in money.

A debt may be the subject of set off or compensation, a tax cannot.

A person cannot be imprisoned for non-payment of tax, except poll tax.

A debt is governed by the ordinary periods of prescription, while a tax is governed by


the special prescriptive periods provided for in the NIRC.

A debt draws interest when it is so stipulated or where there is default, while a tax
does not draw interest except only when delinquent.

Rules re: set off or compensation of debts

General rule: A tax delinquency cannot be extinguished by legal compensation. This


is so because the government and the tax delinquent are not mutually creditors and
debtors. Neither is a tax obligation an ordinary act. Moreover, the collection of a tax
cannot await the results of a lawsuit against the government. Finally, taxes are not in
the nature of contracts but grow out of the duty to, and are the positive acts of the
government to the making and enforcing of which the personal consent of the
taxpayer is not required. (Francia v. IAC, 162 SCRA 754 and Republic v. Mambulao
Lumber, 4 SCRA 622)

Exception: SC allowed set off in the case of Domingo v. Garlitos [8 SCRA 443] re:
claim for payment of unpaid services of a government employee vis--vis the estate
taxes due from his estate. The fact that the court having jurisdiction of the estate had
found that the claim of the estate against the government has been appropriated for
the purpose by a corresponding law shows that both the claim of the government for
inheritance taxes and the claim of the intestate for services rendered have already
become overdue and demandable as well as fully liquidated. Compensation therefore
takes place by operation of law.
Philex Mining Corporation v. Commissioner, 294 SCRA 687 (1998)
Philex Mining Corporation was to set off its claims for VAT input credit/refund for the
excise taxes due from it. The Supreme Court disallowed such set off or compensation.
E. Purpose of taxation
PRIMARY
To raise revenue in order to support the government
SECONDARY
1
2
3
4

Used to reduce social inequality


Utilized to implement the police power of the State
Used to protect our local industries against unfair competition
Utilized by the government to encourage the growth of local industries

PAL vs. EDU


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It is possible for an exaction to be both a tax and a regulation. License fees and
charges, looked to as a source of revenue as well as a means regulation. The fees
may properly regarded as taxes even though they also serve as an instrument of
regulation. If the purpose is primarily revenue, or if revenue is at least one of the real
and substantial purposes, then the exaction is properly called a tax.

CALTEX vs. CIR

Taxation is no longer a measure merely to raise revenue to support the existence of


the government. Taxes may be levied with a regulatory purpose to provide means for
rehabilitation and stabilization of a threatened industry which is affected with public
interest as to be within the police power of the State.

F. Principles of sound tax system


1) FISCAL ADEQUACY

VIOLATION VALID
Sources of revenue should be sufficient to meet the demands of public expenditure
Revenues should be elastic or capable of expanding or contracting annually in
response to variations in public expenditure
Elasticity may be obtained without creating annually any new taxes or any new tax
machinery but merely by changes in the rates applicable to existing taxes
Even if a tax law violates the principle of Fiscal Adequacy , in other words, the
proceeds may not be sufficient to satisfy the needs of the government, still the tax
law is valid

2) ADMINISTRATIVE FEASIBILITY

VIOLATION VALID
The tax law must be capable of effective or efficient enforcement
Tax laws should be capable of convenient, just and effective administration
Tax laws should close-up the loopholes for tax evasion and deter unscrupulous
officials from committing fraud
There is no law that requires compliance with this principle, so even if the tax law
violates this principle; such tax law is valid.

3) THEORETICAL JUSTICE

VIOLATION INVALID
This principle mandates that taxes must be just, reasonable and fair
Taxation shall be uniform and equitable
Equitable taxation has been mandated by our constitution, as if taxes are unjust and
unreasonable then they are not equitable, thus invalid.
The tax burden should be in proportion to the taxpayers ability to pay (ABILITY TO
PAY PRINCIPLE)

G. Theory and basis of taxation


1. Lifeblood theory
Taxes are the lifeblood of the nation.
Without revenue raised from taxation, the government will not survive, resulting in
detriment to society. Without taxes, the government would be paralyzed for lack of
motive power to activate and operate it. (CIR vs. ALGUE)
Taxes are the lifeblood of the government and there prompt and certain availability is
an imperious need.
Taxes are the lifeblood of the nation through which the agencies of the government
continue to operate and with which the state effects its functions for the benefit of its
constituents
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Illustrations of the lifeblood theory

Collection of the taxes may not be enjoined by injunction


Taxes could not be the subject of compensation or set off
A valid tax may result in destruction of the taxpayers property
Taxation is an unlimited and plenary power

2. Necessity theory

Existence of a government is a necessity and cannot continue without any means to


pay for expenses

3. Benefits-protection theory (Symbiotic relationship)

Reciprocal duties of protection and support between State and inhabitants.


Inhabitants pay taxes and in return receive benefits and protection from the State

H. Doctrines in taxation
Imprescriptibility of taxes
GENERAL RULE: Taxes are imprescriptible
EXCEPTION: They are prescriptible if the tax laws provide for statute of limitations
PRESCRIPTIVE PERIODS:
1) Prescriptive periods for the assessment and collection of taxes

10 years if return is tainted with falsity or fraud


3 years if there is no fraud

2) TARIFF AND CUSTOMS CODE

After the expiration of 1 year from the payment of final duties.


You should impose those custom duties that are supposed to be imposed on the
imported articles within the 1 year period, except if it is in the nature of partial
liquidation, if there is fraud or protest

3) LOCAL GOVERNMENT CODE

Prescriptive periods for local taxes and real property tax


5 years
10 years if fraud has been employed

Progressive system of taxation vs. regressive system of taxation

A progressive system of taxation means that tax laws shall place emphasis on direct
taxes rather than on indirect taxes, with ability to pay as the principal criterion.

A regressive system of taxation exists when there are more indirect taxes imposed
than direct taxes.

No regressive taxes in the Philippine jurisdiction

I.

Classification of Taxes

As to subject matter or object

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Personal, poll or capitation tax


o Tax of a fixed amount imposed on persons residing within a specified territory,
whether citizens or not, without regard to their property or the occupation or
business in which they may be engaged, i.e. community tax.
Property tax
o Tax imposed on property, real or personal, in proportion to its value or in
accordance with some other reasonable method of apportionment.
Excise tax
o A charge imposes upon the performance of an act, the enjoyment of privilege,
or the engaging in an occupation.

As to purpose
General/fiscal revenue tax is that imposed for the purpose of raising public funds for the
service of the government.
A special or regulatory tax is imposed primarily for the regulation of useful or non-useful
occupation or enterprises and secondarily only for the purpose of raising public funds.
As to who bears the burden
1

Direct tax

A direct tax is demanded from the person who also shoul,ders the burden of the tax. It is
a tax which the taxpayer is directly or primarily liable and which he or she cannot shift to
another.
2

Indirect tax

An indirect tax is demanded from a person in the expectation and intention that he or
she shall indemnify himself or herself at the expense of another, falling finally upon the
ultimate purchaser or consumer. A tax which the taxpayer can shift to another.
As to the scope of the tax

National tax
o A national tax is imposed by the national government.
Local tax
o A local tax is imposed by the municipal corporations or local government units
(LGUs).

As to the determination of amount


1

Specific tax

A specific tax is a tax of a fixed amount imposed by the head or number or by some
other standard of weight or measurement. It requires no assessment other than the
listing or classification of the objects to be taxed.
2

Ad valorem tax

An ad valorem tax is a fixed proportion of the value of the property with respect to
which the tax is assessed. It requires the intervention of assessors or appraisers to
estimate the value of such property before due from each taxpayer can be determined.
As to graduation or rate

Proportional tax
o Tax based on a fixed percentage of the amount of the property receipts or
other basis to be taxed. Example: real estate tax.

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J.

Progressive or graduated tax


o Tax the rate of which increases as the tax base or bracket increases.
Digressive tax rate: progressive rate stops at a certain point. Progression halts at a
particular stage.
Regressive tax
o Tax the rate of which decreases as the tax base or bracket increases. There is
no such tax in the Philippines.
Tax systems

Constitutional mandate

The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation. [Section 28 (1), Article VI, Constitution]

Regressivity is not a negative standard for courts to enforce. What Congress is


required by the Constitution to do is to evolve a progressive system of taxation.
This is a directive to Congress, just like the directive to it to give priority of the
enactment of law for the enhancement of human dignity. The provisions are put in the
Constitution as moral incentives to legislation, not as judicially enforceable rights.
(Tolentino v. Secretary of Finance.)

Progressive system of taxation vs. regressive system of taxation

A progressive system of taxation means that tax laws shall place emphasis on direct
taxes rather than on indirect taxes, with ability to pay as the principal criterion.

A regressive system of taxation exists when there are more indirect taxes imposed
than direct taxes.

No regressive taxes in the Philippine jurisdiction

Summary of classification of taxes:

personal tax also known as capitalization or poll tax;


property tax assessed on property of a certain class;
direct tax incidence and impact of taxation falls on one person and cannot be
shifted to another;
indirect tax incidence and liability for the tax falls on one person but the burden
thereof can be passed on to another;
excise tax imposed on the exercise of a privilege;
general taxes taxes levied for ordinary or general purpose of the government;
special tax levied for a special purpose;
specific taxes imposed on a specific sum by the head or number or by some
standards of weight or measurement;
ad valorem tax tax imposed upon the value of the article;
local taxes taxes levied by local government units pursuant to validly delegated
power to tax;
progressive taxes rate increases as the tax base increases; and
regressive taxes rate increases as tax base decreases.

GENERAL RULE:
-

Taxes are personal to the taxpayer. Corporations tax delinquency cannot be enforced
on the stockholder or transfer taxes on the estate be assessed on the heirs.

EXCEPTIONS:

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stockholders may be held liable for unpaid taxes of a dissolved corporation if the
corporate assets have passed into their hands; and
heirs may be held liable for the transfer taxes on the estate, if prior to the
payment of the same, the properties of the decedent have been distributed to the
heirs.

K. Limitations on the power of taxation


Inherent limitations
It must be imposed for a public purpose.
If delegated either to the President or to a L.G.U., it should be validly delegated.
It is limited to the territorial jurisdiction of the taxing authority.
Government entities are exempted.
International comity is recognized i.e. property of foreign sovereigns are not subject
to tax.
Constitutional limitations
Indirect
a) Due process clause
b) Equal protection clause
c) Freedom of the press
d) Religious freedom
e) Non-impairment clause
f) Law-making process

One-subject One-title Rule


3 readings on 3 separate days Rule except when there is a Certificate of Emergency
Distribution of copies 3 days before the 3rd reading.

g) Presidential power to grant reprieves, commutations and pardons, and remit fines and
forfeitures after conviction by final judgment.
Direct
a) Revenue bill must originate exclusively in H.R. but the Senate may propose with
amendments.
b) Non-imprisonment for non-payment of poll tax.
c) Taxation shall be uniform and equitable.
d) Congress shall evolve a progressive system of taxation.
e) Tax exemption of charitable institutions, churches and personages or convents
appurtenant thereto, mosques, non-profit cemeteries, and all lands, buildings and
improvements ADE (actually, directly , exclusively) used for charitable, religious, and
educational purposes.
f) Tax exemption of all revenues and assets used actually directly and exclusively for
educational purposes of:

Non-profit non-stock educational institutions.

Proprietary or cooperative educational institutions subject to limitations provided by


law including:
o restriction on dividends
o provisions for re-investments.

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g) Tax exemption of grants, endowments, donations or contributions ADE for educational


purposes, subject to conditions prescribed by law.
h) No tax exemption without the concurrence of a majority of all members of Congress.
i) SC power to review judgments or orders of lower courts in all cases involving Legality of
any tax. Impost or toll, Legality of any penalty imposed in relation thereto.
L. SITUS OF TAXATION

Place of taxation
The State where the subject to be taxed has a situs may rightfully levy and collect the
tax
In determining the situs of taxation, you have to consider the nature of the taxes

Example:
1

Poll tax, capitation tax, community tax

Residence of the taxpayer


2

Real property tax or property tax

Location of the property

We can only impose property tax on the properties of a person whose residence is in
the Philippines.

EXCEPTIONS TO THE TERRITORIALITY RULE


A

Where the tax laws operate outside territorial jurisdiction


1) TAXATION of resident citizens on their incomes derived from abroad

B) Where tax laws do not operate within the territorial jurisdiction of the State
1
2

When exempted by treaty obligations


When exempted by international comity

Situs of tax on real property

LEX REI SITUS or where the property is located

REASON:
The place where the real property is located gives protection to the real property,
hence the property or its owner should support the government of that place
Situs of property tax on personal property

MOBILIA SEQUNTUR PERSONAM


movables follow the owner
movables follow the domicile of the owner
RULES:
1

TANGIBLE PERSONAL PROPERTY


Where located, usually the owners domicile

INTANGIBLLE PERSONAL PROPERTY

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G. R. Domicile of the owner


EXCEPTION: The situs location not domicile: Where the intangible personal
property has acquired a business situs in another jurisdiction

The principle of MobiliaSequnturPersonam is only for purposes of convenience. It


must yield to the actual situs of such property.
Personal intangible properties which acquires business situs here in the Philippines:
1) Franchise which is exercised within the Philippines
2) Shares, obligations, bonds issued by a domestic corporation
3) Shares, obligations, bonds issued by a foreign corporation, 85% of its
business is conducted in the Philippines
4) Shares, obligations, bonds issued by a foreign corporation which shares of
stock or bonds acquire situs here
5) Rights, interest in a partnership, business or industry established in the
Philippines

These intangible properties acquire business situs here in the Philippines, you cannot
apply the principle of MobiliaSequnturPersonam because the properties have
acquired situs here.

Situs of income tax


1. Domicillary theory
The location where the income earner resides in the situs of taxation
NATIONALITY THEORY
The country where the income earner is a citizen is the situs of taxation
i SOURCE RULE
The country which is the source of the income or where the activity that
produced the income took place is the situs of taxation.
Situs of sale of personal property
The place where the sale is consummated and perfected
Situs of tax on interest income
The residence of the borrower who pays the interest irrespective of the place where
the obligation was contracted
CIR vs. BOAC

Revenue derived by an of-line international carrier without any flight from the
Philippines, from ticket sales through its local agent are subject to tax on gross
Philippine billings

Situs of excise tax


Where the transaction performed

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HOPEWELL vs. COM. OF CUSTOMS

The power to levy an excise upon the performance of an act or the engaging in an
occupation does not depend upon the domicile of the person subject to the exercise,
nor upon the physical location of the property or in connection with the act or
occupation taxed, but depends upon the place on which the act is performed or
occupation engaged in.
Thus, the gauge of taxability does not depend on the location of the office, but
attaches upon the place where the respective transaction is perfected and
consummated

M. Double taxation

Taxing same property twice when it should be taxed but once. Taxing the same
person twice by the same jurisdiction over the same thing.

Also known as duplicate taxation

PEPSI COLA vs. CITY OF BUTUAN

There is no constitutional prohibition against double taxation in the Philippines. It is


something not favored but is permissible, provided that the other constitutional
requirements is not thereby violated

KINDS OF DOUBLE TAXATION


1) DIRECT DOUBLE TAXATION

Double taxation in the objectionable or prohibited sense


Same property is taxed twice

REQUISITES:
A) The same property is taxed twice when it should only be taxed once;
B) Both taxes are imposed on the same property or subject matter for the same
purpose;
C) Imposed by the same taxing authority;
D) Within the same jurisdiction;
E) During the same period; and
F) Covering the same kind or character of tax
2) INDIRECT DOUBLE TAXATION

Not legally objectionable


If taxes are not of the same kind, or the imposition are imposed for different taxing
authority and this may involve the same subject matter

EXAMPLES:
A) The taxpayers warehousing business although carried on in relation to the
operation of its sugar central is a distinct and separate taxable business
B) A license tax may be levied upon a business or occupation although the land or
property used in connection therewith is subject to property tax
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C) Both a license fee and a tax may be imposed on the same business or occupation
for selling the same article and this is not in violation of the rules against double
taxation
D) When every bottle or container of intoxicating beverages is subject to local tax and
at the same time the business of selling such product is also subject to liquors license
E) A tax imposed on both on the occupation of fishing and of the fishpond itself
F) A local ordinance imposes a tax on the storage of copra where it appears that the
finished products manufactured out of the copra are subject to VAT
Means employed to avoid double taxation
1) Tax deductions
2) Tax credits
o

An amount allowed as a deduction of the Philippine Income tax on account of


income taxes paid or incurred to foreign countries. It is given to a taxpayer in
order to provide a relief from too onerous a burden of taxation in case where
the same income is subject to a foreign income tax and the Philippine Income
tax.
WHO CAN CLAIM TAX CREDIT
1) Citizens of the Philippines
2) Domestic corporations

CITY OF BAGUIO vs. DE LEON

The argument against double taxation may not be invoked where one tax is imposed
by the state and the other imposed by the city, it being widely recognized that there
is nothing inherently obnoxious in the requirement that license fees or taxes be
exacted with respect to the same occupation, calling or activity by both the state and
a political subdivision thereof. And where the statute or ordinance in question applies
equally to all persons, firms and corporations placed in a similar situation, there is no
infringement of the rule on equality.

VILLANUEVA vs. CITY OF ILOILO

An ordinance imposing a municipal tax on tenement houses was challenged because


the owners already pay real estate taxes and also income taxes under the NIRC. The
Supreme Court held that there was no double taxation. The same tax may be
imposed by the National Government as well as the local government. There is
nothing inherently obnoxious in the exaction of license fees or taxes with respect to
the same occupation, calling or activity by both the state and a political subdivision
thereof. Further, a license tax may be levied upon a business or occupation although
the land used in connection therewith is subject to property tax.
3) Provide for exemption
4) Enter into treatise with other states
5) Allowance on the principle of reciprocity

DOCTRINES ON DOUBLE TAXATION


1) Direct Double Taxation (DDT) is not allowed because it amounts to confiscation of
property without due process of law
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2) You can question the validity of double taxation if there is a violation of the Equal
protection clause or Equality or Uniformity of Taxation
3) All doubts as to whether double taxation has been imposed should be resolved in favor of
the taxpayer
Escape from taxation
I. SHIFTING

Shifting is the transfer of the burden of a tax by the original payer or the one on
whom the tax was assessed or imposed to someone else

Process by which such tax burden is transferred from statutory taxpayer to another
without violating the law

It should be borne in mind that what is transferred is not the payment of the tax, but
the burden of the tax

Only indirect taxes may be shifted; direct taxes cannot be shifted

Ways of shifting the tax burden


1) FORWARD SHIFTING
When the burden of the tax is transferred from a factor of production through the factors
of distribution until it finally settles on the ultimate purchaser or consumer.
Example:
-

Manufacturer or producer may shift tax assessed to wholesaler, who in turn shifts it to
the retailer, who also shifts it to the final purchaser or consumer

2) BACKWARD SHIFTING
When the burden of the tax is transferred from the consumer or purchaser through the
factors of distribution to the factors of production
Example:
-

Consumer or purchaser may shift tax imposed on him to retailer by purchasing only
after the price is reduced, and from the latter to the wholesaler, or finally to the
manufacturer or producer

2) ONWARD SHIFTING
When the tax is shifted two or more times either forward or backward
Example:
-

Thus, a transfer from the seller to the purchaser involves one shift; from the producer
to the wholesaler, then to retailer, we have two shifts; and if the tax is transferred
again to the purchaser by the retailer, we have three shifts in all.

Impact and Incidence of Taxation

Impact of taxation is the point on which a tax is originally imposed. In so far as the
law is concerned, the taxpayer is the person who must pay the tax to the
government. He is also termed as the statutory taxpayer-the one on whom the tax is
formally assessed. He is the subject of the tax

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Incidence of taxation is that point on which the tax burden finally rests or settle down.
It takes place when shifting has been effected from the statutory taxpayer to another.

Statutory Taxpayer

The Statutory taxpayer is the person required by law to pay the tax or the one on
whom the tax is formally assessed. In short, he or she is the subject of the tax.

In direct taxes, the statutory taxpayer is the one who shoulders the burden of the tax
while in indirect taxes, the statutory taxpayer is the one who pay the tax to the
government but the burden can be passed to another person or entity.

Relationship between impact, shifting, and incidence of a tax

The impact is the initial phenomenon, the shifting is the intermediate process, and
the incidence is the result. Thus, the impact in a sales tax (i.e. VAT) is on the seller
(manufacturer) who shifts the burden to the customer who finally bears the incidence
of the tax.

Impact is the imposition of the tax; shifting is the transfer of the tax; while incidence
is the setting or coming to rest of the tax.

II. CAPITALIZATION

Reduction is the price of the taxed object equal to the capitalized value of future
taxes on the property sold

This is a special form of backward shifting, where the burden of future taxes which
the buyer may have to pay is shifted back to the seller in the form of reduction in
the selling price

III. TRANSFORMATION
The manufacturer in an effort to avoid losing his customers, maintains the same
selling price and margin of profit, not by shifting the tax burden to his customers, but
by improving his method of production and cutting down or other production cost,
thereby transforming the tax into or earn through the medium of production.
IV. TAX AVOIDANCE

Also known as tax minimization


not punished by law
Tax avoidance is the exploitation of the taxpayer of legally permissible alternative
tax rates or methods of assessing taxable property or income in order to avoid or
reduce tax liability

DELPHERS TRADERS CORP vs. IAC (157 SCRA 349)

The Supreme Court upheld the estate planning scheme resorted to by the Pacheco
family in converting their property to shares of stock in a corporation which they
themselves owned and controlled. By virtue of the deed of exchange, the Pacheco coowners saved on inheritance taxes. The Supreme Court said the records do not point
anything wrong and objectionable about this estate planning scheme resorted to. The
legal right of the taxpayer to decrease the amount of what otherwise could be his
taxes or altogether avoid them by means which the law permits cannot be doubted.
Example:
Following the holding period rule in capital gains transaction, by postponing the
sale of the capital asset until after twelve months from date of acquisition you can
reduce the tax on the capital gains by 50%

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V. TAX EXEMPTION

It is the grant of immunity to particular persons or corporations or to persons or


corporations of a particular class from a tax which persons and corporations generally
within the same state or taxing district are obliged to pay. It is an immunity or
privilege; it is freedom from a financial charge or burden to which others are
subjected.

Exemption is allowed only if there is a clear provision there for.

It is not necessarily discriminatory as long as there is a reasonable foundation or


rational basis.

Exemptions are not presumed, but when public property is involved, exemption is the
rule and taxation is the exemption.

Rationale for granting tax exemptions

Its avowed purpose is some public benefit or interests which the lawmaking body
considers sufficient to offset the monetary loss entailed in the grant of the exemption.

The theory behind the grant of tax exemptions is that such act will benefit the body of
the people. It is not based on the idea of lessening the burden of the individual
owners of property.

Grounds for granting tax exemptions

May be based on contract. In such a case, the public, which is represented by the
government is supposed to receive a full equivalent therefor, i.e. charter of a
corporation.
May be based on some ground of public policy, i.e., to encourage new industries or to
foster charitable institutions. Here, the government need not receive any
consideration in return for the tax exemption.
May be based on grounds of reciprocity or to lessen the rigors of international double
or multiple taxation

Note: Equity is not a ground for tax exemption. Exemption is allowed only if there is a clear
provision therefor.
Nature of tax exemption

It is a mere personal privilege of the grantee.


It is generally revocable by the government unless the exemption is founded on a
contract which is contract which is protected from impairment.
It implies a waiver on the part of the government of its right to collect what otherwise
would be due to it, and so is prejudicial thereto.
It is not necessarily discriminatory so long as the exemption has a reasonable
foundation or rational basis.
It is not transferable except if the law expressly provides so.

Kinds of tax exemption according to manner of creation


1) Express or affirmative exemption
When certain persons, property or transactions are, by express provision, exempted
from all certain taxes, either entirely or in part.
2) Implied exemption or exemption by omission
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When a tax is levied on certain classes of persons, properties, or transactions without


mentioning the other classes.
TN: Every tax statute makes exemptions because of omissions.

No tax exemption by implication


It must be expressed in clear and unmistakable language

CALTEX vs. COA

In claiming tax exemption, the burden of proof lies upon the claimant
It cannot be created by mere implication
It cannot be presumed that you are entitled to tax exemption
You must prove it

RULE:
Taxation is the rule and exemption is the exception
PROPERTY TAX GOVERNMENT PROPERTY

Properties owned by the government whether in their proprietary or governmental


capacity are exempt from real estate tax

TEST:
- OWNERSHIP

Once established that it belongs to the government, the nature of the use of the
property whether proprietary or sovereign becomes immaterial.

Exemption of public property from taxation does not extend to improvements therein
made by occupants or claimants at their own expense.

Kinds of tax exemptions according to scope or extent


1) TOTAL
When certain persons, property or transactions are exempted, expressly or impliedly
from all taxes
2) PARTIAL
When certain persons, property or transactions are exempted, expressly or impliedly
from certain taxes, either entirely or in part.
3) There can be no simultaneous exemptions under two laws, when one grants partial
exemption while other grants total exemption.
Does provision in a statute granting exemption from all taxes include indirect taxes?

NO. As a general rule, indirect taxes are not included in the grant of such exemption
unless it is expressly stated.

VI. TAX REMISSION OR TAX CONDONATION

The word remit means to desist or refrain from exacting, inflicting or enforcing
something as well as to restore what has already been taken. The remission of taxes
due and payable to the exclusion of taxes already collected does not constitute unfair
discrimination. Such a set of taxes is a class by itself and the law would be open to

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attack as class legislation only if all taxpayers belonging to one class were not treated
alike. [Juan Luna Subd. V. Sarmiento, 91 Phil 370]

The condition of a tax liability is equivalent to and is in the nature of a tax exemption.
Thus, it should be sustained only when expressly provided in the law. [Surigao
Consolidated Mining v. Commissioner of Internal Revenue, 9 SCRA 728]

VII. TAX AMNESTY

Tax amnesty, being a general pardon or intentional overlooking by the State of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue to collect what otherwise would be due it and, in this sense, prejudicial
thereto. It is granted particularly to tax evaders who wish to relent and are willing to
reform, thus giving them a chance to do so and thereby become a part of the new
society with a clean slate. [Republic v. Intermediate Appellate Court, 196 SCRA 335]

Like tax exemption, tax amnesty is never favored nor presumed in law. It is granted
by statute. The terms of the amnesty must also be construed against the taxpayer
and liberally in favor of the government.

Tax amnesty v. tax condonation v. tax exemption

A tax amnesty, being a general pardon or intentional overlooking by the Statute of its
authority to impose penalties on persons otherwise guilty of evasion or violation of a
revenue or tax law, partakes of an absolute forgiveness or waiver by the Government
of its right to collect what otherwise would be due it and, in this sense, prejudicial
thereto, particularly to tax evaders who wish to relent and are willing to reform are
given a chance to do so and therefore become a part of the society with a clean slate.

Like a tax exemption, a tax amnesty is never favorednor presumed in law, and is
granted by statute. The terms of the amnesty must be strictly construed against the
taxpayer and literally in favor of the government. Unlike a tax exemption, however, a
tax amnesty has limited applicability as to cover a particular taxing period or
transaction only.

There is a tax condonation or remission when the State desists or refrains from
exacting, inflicting or enforcing something as well as to reduce what has already been
taken. The condonation of a tax liability is equivalent to and is in the nature of a tax
exemption. Thus, it should be sustained only when expressed in the law.

Tax exemption, on the other hand, is the grant of immunity to particular persons or
corporations of a particular class from a tax of which persons and corporations
generally within the same state or taxing district are obliged to pay. Tax exemptions
are not favored and are construed strictissimijurisagainst the taxpayer.

CIR vs. RIO TUBA

> Law granting partial refund partakes the nature of a tax exemption and therefore
must be strictly construed against the taxpayer

CIR vs. TOUR SPECIALIST

> Gross receipts subject to tax under the tax code do not include monies or receipts
entrusted to the taxpayer which do not belong to it and does not redound to the
taxpayers benefit, and it is not necessary that there must be a law or regulation
which would exempt such monies and receipts within the meaning of gross receipts.

VIII. TAX EVASION

It is also known as tax dodging


It is punishable by law

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Tax evasion is the use by the taxpayer of illegal or fraudulent means to defeat or
lessen the payment of tax.

YUTIVO vs. CTA


Tax evasion is a term that connotes fraud through the use of pretenses or forbidden
devices to lessen or defeat taxes
ELEMENTS OF TAX EVASION
Tax evasion connotes the integration of three (3) factors:
1) The end to be achieved, i.e. payment of less than that known by the taxpayer to be
legally due, or paying no tax when it is shown that tax is due
2) An accompanying state of mind which is described as being evil, in bad faith,
willful, or deliberate and not accidental
3) A course of action (or failure of action) which is unlawful
INDICIA of FRAUD IN TAX EVASION
1) Failure to declare for taxation purposes true and actual income derived from business for
two (2) consecutive years; or
2) Substantial underdeclaration of income tax returns of the taxpayer for four (4)
consecutive years coupled with unintentional overstatement of deductions
EVIDENCE TO PROVE TAX EVASION
Since fraud is a state of mind, it need not be proved by direct evidence but may be
proved from the circumstances of the case.
REPUBLIC vs. GONZALES (13 SCRA 638)
Failure of the taxpayer to declare for taxation purposes his true and actual income
derived from his business for two (2) consecutive years is an indication of his
fraudulent intent to cheat the government of its due taxes.
N. Construction and interpretation
a) Tax laws
1. Legislative intent Tax statutes are to receive reasonably construction with the view
to carry out their purpose and intent. If there is some issue on construction and
interpretation, we determine what was the intent of the legislators. We go back to
the deliberations, debates, arguments.
2. When there is doubt In case of doubt, they are construed strictly against the
government and liberally in favor of the taxpayer. Tax laws are, therefore, given
liberal construction for the reason that taxes are burdens.
3. Where the language is plain - But when the language of the tax law is plain and clear,
which does not require independent interpretation or construction, the rule of strict
construction against the government is not applicable where the language of the tax
statute is plain and there is not doubt as to its legislative intent.
b) Tax exemption and exclusion

General rule:

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In the construction of tax statutes, exemptions are not favored and are
construed strictissimijurisagainst the taxpayer. The fundamental theory is that
all taxable property should bear its share in the cost and expense of the
government.

Taxation is the rule and exemption is the exemption.

He who claims exemption must be able to justify his claim or right thereto by a
grant express in terms too plain to be mistaken and too categorical to be
misinterpreted. If not expressly mentioned in the law, it must be at least
within its purview by clear legislative intent.

Exceptions

1) When the law itself expressly provides for a liberal construction thereof.
2) In cases of exemptions granted to religious, charitable and educational institutions or to
the government or its agencies or to public property because the general rule is that they
are exempt from tax.
Strict interpretation does not apply to the government and its agencies

Petitioner cannot invoke the rule on stritissimijuris with respect to the interpretation
of statutes granting tax exemptions to the NPC. The rule on strict interpretation does
not apply in the case of exemptions in favor of a political subdivision or
instrumentality of the government. [Maceda v. Macaraig]

Davao Gulf v. Commissioner, 293 SCRA 76 (1998)

A tax cannot be imposed unless it is supported by the clear and express language of
a statute; on the other hand, once the tax is unquestionably imposed, a claim of
exemption from tax payers must be clearly shown and based on language in the law
too plain to be mistaken. Since the partial refund authorized under Section 5, RA
1435, is in the nature of a tax exemption, it must be construedstrictissimijurisagainst
the grantee. Hence, petitioners claim of refund on the basis of the specific taxes it
actually paid must expressly be granted in a statute stated in a language too clear to
be mistaken.

Exemption of the buyer does not extend to the seller

Exemption of the principal does not extend to the accessory

SURIGAO vs. COLLECTOR of CUSTOMS

Tax refunds, condonations and amnesties, they being in the nature of tax exemptions
must be strictly construed against the taxpayer and liberally in favor of the
government.

II. National Internal Revenue Code of 1997, as amended (NIRC)


A. Income taxation
Income is the flow of wealth which goes into the hands of the taxpayer other than the
return of capital.
1. Income tax systems
a) Global tax system

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This is also known as the totality or the aggregate approach.The Global System of
Taxation of Income follows the principle that all income are one and the same. There
is no variance as to the type, the purpose, the character and the kind of income.
b) Schedular tax system
This is also known as differentiated or segregated approach. The Schedular System of
Taxation recognizes that income are different from each other. There is a distinction
and differentiation on tax treatment and character. A type of income is to be
differentiated from another type of income. All income are not one and the same.Also
includes the system of pay-as-you-go
c) Semi-schedular or semi-global tax system
2. Features of the Philippine income tax law
a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system
3. Criteria in imposing Philippine income tax
a) Citizenship principle
b) Residence principle
c) Source principle
4. Types of Philippine income tax
a) Compensation income
b) Business/Trade/Professional Income
c) Passive Income
One which the taxpayer merely waits for the amount/income to come in.
Examples: Royalties, Interests, Prizes.
d) Capital Gains
Derived from sale of capital assets (Sec. 22, NIRC) or properties
5. Taxable period
a) Calendar period
b) Fiscal period
c) Short period
6. Kinds of taxpayers and taxes imposed (Sec. 23, NIRC)
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
Taxable on all income derived from sources within and without the
Philippines.
(b) Non-resident citizens
Taxable only on income derived from sources within the Philippines. But
if working abroad, taxable only on income derived from sources within.
TN: Seamen who receives compensation for services rendered abroad as
a member of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract worker.
(ii) Aliens
(a) Resident aliens
One who permanently stays in the Philippines or goes out less than
183 days.
(b) Non-resident aliens
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(1) Engaged in trade or business


One who stays in the Philippines for more than 180 days.
(2) Not engaged in trade or business
TN: These persons are taxable only on income derived from sources
within.
(iii) Special class of individual employees
(a) Minimum wage earner
The statutory minimum wage earners are no longer taxable. They
are exempted from payment of income tax. The determination of
statutory wages is determined on a regular basis by the RTWPB.
(R.A. 9504, July 2008)
b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
(a) Resident foreign corporations
(b) Non-resident foreign corporations
(iii) Joint Venture and Consortium
c) Partnerships
In the case of business partnerships, they are taxed like corporations.
d) General professional partnerships
e) Estates and trusts
In the case of estates and trusts, they are taxable like individuals.
f) Co-ownerships
7. GROSS INCOME
A. (Sec. 32, NIRC) Sources of income but not limited to the following:
(1) Compensation for services in whatever form paid, including, but not limited to fees,
salaries, wages,
commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise of a
profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of
partnership.

the

general

professional

B) Exclusions from Gross Income (Exempt from Tax):


(1) Life Insurance.- When you are indemnified for such loss or insurance proceeds are
paid for such loss, what you have is a return of capital. That is excluded and not subject
to income tax.
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But if such amounts are held by the insurer under an agreement to pay interest, then,
income is earned by way of the interest but not on the principal amount covering the
proceeds of the policy.
(2) Amount Received by Insured as Return of Premium. - These are return of
premiums. They represent return of capital. They are not income.
(3) Gifts, Bequests, and Devises. - The value of property acquired by gift, bequest,
devise, or descent: Provided, however, That income from such property, as well as gift,
bequest, devise or descent of income from any property, in cases of transfers of divided
interest, shall be included in gross income.
(4) Compensation for Injuries or Sickness. - These are forms of indemnity. These are
return of capital. Actual damages in payment for hospitalization and other medical
expenses are not income. Moral damages are not income. But if they are damages for
payment of loss of income or loss of earning capacity, then, they are taxable income.
(5) Income Exempt under Treaty. - Income of any kind, to the extent required by any
treaty obligation binding upon the Government of the Philippines.
(6) Retirement Benefits, Pensions, Gratuities, etc.

Retirement benefits received under Republic Act No. 7641 (Labor Code) and those
received by officials and employees of private firms, whether individual or corporate,
in accordance with a reasonable private benefit plan maintained by the employer

REQUIREMENTS FOR EXCLUSION:


(1) The private benefit plan must be registered by the employer of with the BIR.
(2)
Length of service the retiring official or employee has
same employer for at least
ten (10) years

been in the service of the

(3)
Age the retiring official or employee is not less than
the time of his retirement

fifty (50) years of age at

(4)

employee only once.

That the benefits shall be availed of by an official or

Absence of one, the said retirement benefits are taxable.


Suppose there is a higher standard of retirement, which will prevail? If the employer sets up
a higher standard than the one set up by your tax code, it will be standards of the employer
that will be prevail. If you retire lower than the standards set up required by the tax code,
your retirement it will be taxable.

Any amount received by an official or employee or by his heirs from the employer as
a consequence of separation of such official or employee from the service of the
employer because of death, sickness or other physical disability or for any cause
beyond the control of the said official or employee.

This refers to separation pay.As a rule, separation pay is taxable. It becomes excluded
when it is payment by reason of death, sickness or other physical disability or for any cause
beyond the control of the said official or employee.
If you resign and you are given a separation pay, that is taxable because that is a cause
within the control of the employee.
There are resignations which are beyond the control of the employee such as in the case
of mergers or consolidations. The separation pay given in such circumstances is excluded
because despite the resignation, it is a cause beyond the control of the employee.
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The provisions of any existing law to the contrary notwithstanding, social security
benefits, retirement gratuities, pensions and other similar benefits received by
resident or nonresident citizens of the Philippines or aliens who come to reside
permanently in the Philippines from foreign government agencies and other
institutions, private or public.
Payments of benefits due or to become due to any person residing in the Philippines
under the laws of the United States administered by the United States Veterans
Administration.
Benefits received from or enjoyed under the Social Security System in accordance
with the provisions of Republic Act No. 8282.
Benefits received from the GSIS under Republic Act No. 8291, including retirement
gratuity received by government officials and employees.

As a rule, prizes and awards are taxable. They are excluded in the instances provided.
(7) Prizes and Awards in Sports Competition. - All prizes and awards granted to athletes
in local and international sports competitions and tournaments whether held in the
Philippines or abroad and sanctioned by their national sports associations.As a rule, prizes
and awards in sports competition are taxable. They are excluded under the conditions
aforementioned.
(8) 13th Month Pay and Other Benefits. - Gross benefits received by officials and
employees of public and private entities: Provided, however, That the total exclusion under
this subparagraph shall not exceed Thirty thousand pesos (P30,000) which shall cover:
(i) Benefits received by officials and employees of the national
government pursuant to Republic Act No. 6686;

and

(ii) Benefits received by employees pursuant to Presidential Decree


amended by Memorandum Order No. 28,
dated August 13, 1986;

local
No.

851,

as

(iii) Benefits received by officials and employees not covered by


Presidential decree
No. 851, as amended by Memorandum Order
No. 28, dated August 13, 1986; and
(iv) Other benefits such as productivity incentives and Christmas
bonus:
Provided,
further, That the ceiling of Thirty thousand
pesos (P30,000) may be increased through
rules and regulations
issued by the Secretary of Finance, upon recommendation of the
Commissioner, after considering among others, the effect on the
same of the inflation
rate at the end of the taxable year.
(9) GSIS, SSS, Medicare and Other Contributions. - GSIS, SSS, Medicare and Pag-ibig
contributions, and union dues of individuals.
(10) Gains from the Sale of Bonds, Debentures or other Certificate of Indebtedness. Gains realized from the same or exchange or retirement of bonds, debentures or other
certificate of indebtedness with a maturity of more than five (5) years.
(11) Gains from Redemption of Shares in Mutual Fund. - Gains realized by the investor
upon redemption of shares of stock in a mutual fund company as defined in Section 22 (BB)
of this Code.
8. Optional Standard Deduction:
Before, only individuals engaged in business or practice their profession, who are citizens
and resident aliens (excluding non-resident aliens) can avail of OSD. The availment of the
OSD is also now allowed to corporations.
It used to be 10% of the gross income. It is now 40% of the gross income.

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9. Personal Exemptions:
Before, we used to have the scaling of the status of the individual single, head of the
family or married. Now, regardless of your status, you have a personal exemption of P
50,000.

Additional Exemptions:

It used to be P 8,000, maximum of 4. It is now increased to P 25,000, maximum of 4.


10. Resident Citizens income from outside the Philippines:
The foreign income of the resident citizen is not anymore treated as schedular. It will be
treated as global. All income from foreign source is taxed at 5% to 32%. There is no
distinction as to the kind of income, as long as they are from a foreign source.
11. Corporate income tax
Income in general the rate is 35%. Beginning January 1, 2009), the corporate income
tax will be reduced to 30%.
The rate of 30% of non-resident foreign corporations is at gross (without the benefit of
deductions). For the domestic and resident foreign corporations, the 30% tax is based on
taxable income, with the benefit of deductions.
The treatment of the foreign source income of a domestic corporation, regardless of the
nature of that income, is at a global rate of 30%.
In the case of GOCCs, the rule is that they are taxable. Those which are not taxable are
GSIS, SSS, PhilHealth and PCSO. PAGCOR has been removed under RA 9337 as being
exempted. So, PAGCOR is already taxable.
In the case of proprietary educational institutions and hospitals, they are subject, as a
rule, to the regular corporate income tax. Unless, under the predominance test, where
they are entitled to a 10% tax on their taxable income provided that the predominant
income is the educational or hospital income. If the predominant income (more than 50%)
of the proprietary educational or hospital is from unrelated income or unrelated business,
then, it will be subject to regular rates.
12. MINIMUM CORPORATE INCOME TAX or MCIT
Minimum Corporate Income Tax on Domestic Corporations. (Sec. 27, NIRC)
A minimum corporate income tax of two percent (2%) of the gross income as of the end of
the taxable year, as defined herein, is hereby imposed on a corporation taxable under this
Title, beginning on the fourth taxable year immediately following the year in which such
corporation commenced its business operations, when the minimum income tax is greater
than the tax computed under Subsection (A) of this Section for the taxable year.
Minimum Corporate Income Tax on Resident Foreign Corporations. (Sec. 28, NIRC)
A minimum corporate income tax of two percent (2%) of gross income, as prescribed under
Section 27(E) of this Code, shall be imposed, under the same conditions, on a resident
foreign corporation taxable under paragraph (1) of this Subsection.

The MCIT applies to both domestic corporations and to the resident foreign
corporations.
In its application, the tax due computed during the tax year at 35% is compared to
the 2% of gross income. The tax due payable is whichever is higher.

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When we say that the MCIT applies beginning on the 4 th taxable year immediately
following the year in which the corporation commenced business, it means that newly
established corporations will not yet be subject to the MCIT. When the corporation
has been in the business and operating for 4 years or more at the time this tax
became effective, then, that provision is covered.
Prior to RA 9337, the MCIT was annualized you determine the tax to be paid,
whether MCIT or 35%, at the end of the year. When RA 9337 took effect in 2005, the
application of the MCIT is now on a quarterly basis.
Corporations are required to file quarterly returns. In the case of corporations subject
to MCIT, they have to determine at the end of the quarter the taxable income
computed under the MCIT and under the 35% rate.
There is no 4th quarter return for you will have the annual return.

13. Imposition of Improperly Accumulated Earnings Tax. (Sec. 29, NIRC)


The improperly accumulated earnings tax is in addition to your income tax. This actually
operates more as a penalty tax or a surtax. It is imposed on the improperly accumulated
taxable income of the corporation. For improperly accumulating earnings beyond the
reasonable needs of the business, the corporation will be subject to 10% on the improperly
accumulated taxable income.
When corporations are set up and it continues to accumulate profits beyond the
reasonable means of the business, the tax code penalizes these corporations because
corporations should not accumulate beyond its business needs. It should distribute their
earnings to the stockholders, to the owners of the corporations, whether individuals or
corporations. Otherwise, if they would accumulate earnings beyond the reasonable means
of the business, then, it would be penalized and subject at 10% improper accumulated
earnings tax on the basis of improperly accumulated taxable income. This is in addition to
the regular corporate income tax that it will pay.
The improperly accumulated earnings tax shall apply to every corporation formed or
availed for the purpose of avoiding the income tax with respect to its shareholders or the
shareholders of any other corporation by permitting earnings and profits to accumulate
instead of being divided or distributed.
So as not to be penalized, the corporation has to declare dividends. If the corporation
accumulates earnings, there must be a business purpose for it not to be penalized.
This penalty tax will not apply to:
1
2
3

Publicly-held corporations; (corporations which are traded in the stock exchange)


Banks and other non-bank financial intermediaries
Insurance companies

Remember that the distribution of dividends to the individual taxholders is a taxable


distribution, except when the distribution is made to another corporation where it is tax-free
distribution of dividends.

14. DEDUCTIONS (See Sec. 34, 35, 37, and 61)

Prior to RA 9504, corporate taxpayers were only entitled to avail of the itemized
deductions. Now, under RA 9504, both the individual and corporate taxpayers may
avail the itemized or the optional standard deduction (OSD).

15. ESTATE TAX

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1. Basic principles
Transfer taxes - imposed upon the privilege of disposing gratuitously private properties.
These are levied on the transmission of properties from a decedent to his heirs or from a
donor to a donee.
2. Definition
It is an excise tax imposed upon the privilege of transmitting property at the time of death
and on the privilege that a person is given in controlling to a certain extent the disposition
of his property to take effect upon death.
The tax should not be construed as a direct tax on the property of the decedent although
the tax is based thereon.
Estate Tax vs. Inheritance Tax
Inheritance tax - It is the tax on the privilege to receive property from a deceased person.
This has been abolished by P.D. 69 passed on November 24, 1972, effective January 1, 1973
due to administrative difficulty in its collection.
Note: Presently, there is no inheritance tax imposed by law. Only estate taxes are imposed.
3. Nature
They are excise taxes; not property taxes.
Note: They are not property taxes because their imposition does not rest upon general
ownershipbut rather they are privilege tax since they are i
4. Purpose or object
1. Generate additional revenue for the government
2. Reduce the concentration of wealth
3. Provide for an equal distribution of wealth
4. Compensate the government for the protection given to the decedent that enabled him to
prosper and accumulate wealth
Note: Generally, the purpose of the estate tax is to tax the shifting of economic benefits
and enjoyment of property from the dead to the living
5. Time and transfer of properties
Q: When are the properties and rights transferred to successors?
A: The properties and rights are transferred to the successors at the time of death. (Art.
777, Civil Code)
Q: What law governs the imposition of the estate tax?
A: The statute in force at the time of death of the decedent.
Q: When does estate tax accrue?
A: The estate tax accrues as of the death of the decedent. The accrual of the tax is distinct
from the obligation to pay the same which is 6 months after the death of the decedent.
6. Classification of decedent
Q: Who are the taxpayers liable to pay estate tax?
A: Only individuals 1. Resident citizen
2. Non-resident citizen
3. Resident alien
4. Non-resident alien
Note: Domestic and foreign corporations are subject only to donors tax and not to estate
tax because it is not capable of death but may enter into a contract of donation.
7. Gross estate vis--vis net estate
Q: What is the estate tax formula?
Gross estate(Sec. 85)
Less: (1) Deductions (Sec 86)
(2) Net share of the surviving spouse___
Net Estate
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x Tax rate(Sec. 84)


Estate tax due
Less: Tax credit (if any) (Sec. 86(E) or 110(B))
Estate Tax Due, if any
8. Determination of gross estate and net estate
Q: How is the gross estate determined?
1. If the decedent is a resident or non-resident citizen, or a resident alien All properties,
real or personal, tangible or intangible, wherever situated.
2. If the decedent is a non-resident alien Only properties situated in the Philippines
provided that, intangible personal property is subject to the rule of reciprocity provided for
under Section 104 of the NIRC. (Section 85, NIRC)
9. Composition of gross estate
1. Decedent's interest
2. Transfer in contemplation of death
3. Revocable transfer
4. Property passing under general power of appointment
5. Proceeds of life insurance
6. Prior interests
7. Transfers of insufficient consideration
Note: Nos. 2, 3, 4 and 7- properties not physically in the estate (these have already been
transferred during the lifetime of the decedent but are still subject to payment of estate tax)
- are transfers inter-vivoswhich are considered part of gross estate.
A: If the decedent is a resident
citizen, non-resident citizen, or
resident alien
Value at the time of death of all:
1. Real property wherever situated
2. Personal property, tangible or
intangible, wherever situated
3. To the extent of the interest therein
of the decedent at the time of his
death.

If the decedent is a non-resident alien


Value at the time of death of all:
1. Tangible personal property situated in the
Philippines
2. Intangible personal property with situs in
the Philippines unless exempted on the basis
of reciprocity

10. Items to be included in gross estate


F. Tax remedies under the NIRC
What are the remedies available to the taxpayer?
1. Administrative
Before payment of taxes:
a. Dispute Assessment (Protest)
i. Request for reconsideration
ii. Request for reinvestigation
b. Entering a compromise agreement
After payment of taxes:
a. Claim for Tax Refund
2. Judicial
a. Civil
b. Criminal
3. Substantive
a. Question validity of tax statute/ regulation
b. Non-retroactivity of rulings
c. Must be informed of the legal and factual bases of assessment
d. Preservation of books of accounts and examination once a year
Importance of tax remedies:

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1. To the government - For the regular collection of revenue necessary for the existence of
the government.
2. To the taxpayer - They are safeguards of the taxpayers rights against arbitrary action.
Subjects of tax remedies in internal revenue taxation
They include the action of the BIR where there may be controversy between the taxpayer
and the State such as:
1. Assessment of internal revenue taxes
2. Collection of internal revenue taxes
3. Refund of internal revenue taxes
4. Imposition of administrative or civil fines, penalties, interests or surcharges; promulgation
and/or enforcement of administrative rules and regulations for the effective and efficient
enforcement of internal revenue laws
5. Prosecution of criminal violations of internal revenue laws.
Q: State the No injunction to restrain tax collection rule.
A: GR: Under this rule, No court shall have the authority to grant an injunction to restrain
the collection of any national internal revenue, tax, fee or charge. (Sec. 219, R.A. 8424)
XPN: The CTA can issue injunction in aid of its appellate jurisdiction if in its opinion the same
may jeopardize the interest of the government and/or the taxpayer. In this instance, the
court may require the taxpayer either to deposit the amount claimed or file a surety bond
for not more than double the amount with the court. (RA 1125 as amended by RA 9282)
Note: The Lifeblood doctrine requires that the collection of taxes cannot be enjoined,
without taxation, a government can neither exist nor endure.
Assessment
It is a written notice to a taxpayer to the effect that the amount stated therein is due
as tax and containing a demand for the payment. It is a finding by the taxing agency that
the taxpayer has not paid his correct taxes.
Note: A notice of assessment contains not only a computation of tax liabilities but also a
demand for the payment within a prescribed period. It also signals the time when penalties
and interests begin to accrue.
Importance of a tax assessment
AS TO THE GOVERNMENT
1.
In the proper pursuit of judicial and extrajudicial remedies
2.
To enforce taxpayer liabilities and certain matters that relate to it,
such as the imposition of surcharges and interests;
3.
To inform the taxpayer of his liabilities;
4.
In the establishment of tax liens; and
5.
In estimating the revenues that may be collected by the
government.
AS TO THE TAXPAYER
1. In the proper pursuit of judicial and extrajudicial remedies
2. In the application of the Statute of Limitations;
3. To determine the period within which to protest.
4. To determine prescription of government claim.
Nature of an assessment
It is merely a notice to the effect that the amount stated therein is due as tax and
containing a demand for the payment. (Alhambra Cigar Mfg. Co. v. CIR, GR L-23226, Nov.
28, 1967)
Q: Who has the burden of proof in pre-assessment proceedings?

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A: The burden of proof is on the taxpayer for there is a presumption of correctness on the
part of the CIR. Otherwise, the finding of the CIR will be conclusive and the CIR will assess
the taxpayer. If the taxpayer does not controvert, such finding is conclusive, even if the CIR
is wrong.
Principles governing tax assessments (PAD3)
Assessments are:
a. Prima facie presumed correct and made in good faith;
b. Should be based on actual facts; (estimates can also be a basis given that it is not arrived
at arbitrarily or capriciously)
c. Discretionary on the part of the Commissioner;
d. Must be directed to the right party;
e. Authority to assess maybe delegated.
Q: Is the assessment made by the CIR subject to judicial review?
A: No, for such power is discretionary. What may be the subject of a judicial review is the
decision of the CIR on the protest against the assessment, not the assessment itself.
Q: Are taxes self-assessing?
A: GR: Taxes are generally self-assessing and do not require the issuance of an assessment
notice in order to establish the tax liability of a taxpayer.
XPNs:
1. Improperly Accumulated Earnings Tax (Sec. 29, NIRC)
2. When the taxable period of a taxpayer is terminated (Sec. 6 [D], NIRC)
3. In case of deficiency tax liability arising from a tax audit conducted by the BIR (Sec. 56
[B], NIRC)
4. Tax lien (Sec. 219, NIRC)
5. Dissolving corporation (Sec. 52 [c], NIRC)
Requisites for Valid Assessment
1. Be in writing and signed by the BIR;
2. Contain the law and the facts on which the assessment is made; and
3. Contain a demand for payment within the prescribed period. (Sec. 228, NIRC)
Different kinds of assessments
1. Pre-Assessment informs the taxpayer of the findings of the examiner who recommends
a deficiency assessment. The taxpayer is usually given 10 days from notice within which to
explain his side.
2. Self-Assessment one in which the tax is assessed by the taxpayer himself.
3. Official Assessment issued by the BIR in case the taxpayer fails to respond to the preassessment, or his explanation is not satisfactory to the CIR.
4. Illegal and Void Assessment tax assessor has no power to assess at all.
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5. Erroneous Assessment assessor has power to assess but errs in the exercise thereof.
6. Jeopardy Assessment a delinquency tax assessment made without the benefit of a
complete or partial investigation by a belief that the assessment and collection of a
deficiency tax will be jeopardized by delay caused by the taxpayers failure to:
a. Comply with audit and investigation requirements to present his books of accounts and/or
pertinent records, or
b. Substantiate all or any of the deductions, exemptions or credits claimed in his return.
Note: This is issued when the revenue officer finds himself without enough time to conduct
an appropriate or thorough examination in view of the impending expiration of the
prescriptive period for assessment. To prevent the issuance of a jeopardy assessment, the
taxpayer may be required to execute a waiver of the statute of limitations.
Powers of the Commissioner in the assessment of taxes
The CIR or his duly authorized representative is authorized to use the following powers:
(Sec. 6, NIRC)
1. Examination of return and determination of tax due
2. Use of the best evidence available
3. Authority to conduct inventory taking, surveillance and prescribe gross sales and receipts
if there is reason to believe that the taxpayer is not declaring his correct income, sales or
receipts for internal revenue purposes
4. Authority to terminate taxable period in the following instances:
a. Taxpayer is retiring from business subject to tax;
b. Taxpayer is intending to leave the Philippines or to remove his property therefrom
or to hide or conceal his property and
c. Taxpayer is performing any act tending to obstruct the proceedings for the
collection of taxes.
5. Authority to prescribe real property values
6. Authority to inquire into bank deposits accounts in the following instances:
a. A decedent to determine his gross estate;
b. Any taxpayter who has filed an application for compromise of his tax liability by
reason of financial incapability to pay;
c. A specific taxpayer/s is subject of a request for the supply of tax information a
foreign tax authority pursuant to an intentional convention or agreement on tax matters to
which the Philippines is a signatory or a party of. Provided that the requesting foreign tax
authority is able to demonstrate the foreseeable relevance of certain information required to
be given to the request. (Sec. 3 & 8, RA 10021)
d. Where the taxpayer has signed a waiver authorizing the Commissioner or his duly
authorized representative to inquire into the bank deposits.
7. Authority to accredit and register tax agents
8. Authority to prescribe additional procedural or documentary requirements.

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When is Assessment Made


When it is released, mailed or sent by the collector of internal revenueto the taxpayer within
the three-year or ten-year period, as the case may be. (CIR v. Pascor, GR 128315, June 29,
1999)
Q: A notice of assessment was mailed within the period prescribed by law but the same was
received by the taxpayer beyond the period. Was there a valid assessment?
A: Yes. There was an assessment made within the period. If the notice is sent through
registered mail, the running of the prescriptive period is stopped. What matters is the
sending of the notice is made within the period of prescription. It is the sending of the notice
and not the receipt that tolls the prescriptive period. (Basilan v. CIR, GR L-22492, Sept. 5,
1967)
Prescriptive Periods
Rationale
To secure the taxpayers against unreasonable investigation after the lapse of the period
prescribed. They are beneficial to the government because tax officers will be obliged to act
promptly in the assessment and collection of the taxes, for when such period have lapsed
their right to assess and collect would be barred by the statute of limitations.
Rules on prescription
1. When the tax law itself is silent on prescription, the tax is imprescriptible;
2. When no return is required, tax is imprescriptible and tax may be assessed at any time as
the prescriptive periods provided in Sec. 203 and 222, NIRC are not applicable. Remedy of
the taxpayer is to file a return for the prescriptive period to commence.
Note: Limitation on the right of the government to assess and collect taxes will
not be presumed in the absence of a clear legislation to the contrary.
3. Prescription is a matter of defense, and it must be proved or established by the party
(taxpayer) relying upon it.
4. Defense of prescription is waivable, such defense is not jurisdictional and must be raised
seasonably, otherwise it is deemed waived.
5. The law on prescription, being a remedial measure, should be interpreted liberally in
order to protect the taxpayer.
6. If the last day of the period falls on a Saturday, a Sunday or a legal holiday in the place
where the Court sits, the time shall not run until the next working day. (Sec. 1, Rule 22,
Rules of Court)
Note: Assessment and collection by the government of the tax due must be made within the
prescribed period as provided by the Tax Code; otherwise, the right of the government to
collect will be barred.
Computation of prescriptive period
It is computed based on the Administrative Code. Sec. 31 of the Administrative Code of
1987 provides that a year shall be understood to be 12 calendar months. Both Article 13
of the Civil Code and Sec. 31 of the Administrative Code of 1987 deal with the same subject
matter the computation of legal periods. Under the Civil Code, a year is equivalent to 365
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days whether it be a regular year or a leap year. Under the Administrative Code of 1987,
however, a year is composed of 12 calendar months and the number of days is irrelevant.
There obviously exists a manifest incompatibility in the manner of computing legal periods
under the Civil Code and the Administrative Code of 1987. For this reason, Sec. 31, Chapter
VIII, Book I of the Administrative Code of 1987, being the more recent law governs the
computation of legal periods. (CIR v. Primetown Property Group, Inc., GR 162155, Aug. 28,
2007)
Prescriptive Period for Assessment
1. Where a return was filed:
GR: The period for assessment is within 3 years after the date the return was due or if the
return is filed after the due date prescription will start on the date the return was filed.
XPNS:
a. If there is failure to file the required return, the period is within 10 years after the
date of discovery of the omission to file the return.
Note: Date of discovery must be made within the three-year period following the
general rule.
b. If the return is filed but it is false or fraudulent and made with intent to evade the
tax, the period is 10 years from the date of discovery of the falsity or fraud.
Note: Nothing in Sec. 222 (A) shall be construed to authorize the examination and
investigation or inquiry into any tax return filed in accordance with the provisions of
any tax amnesty law or decree.
c. Where the CIR and taxpayer, before the expiration of the 3-year period have
agreed in writing to the extension of the period, the period so agreed upon may
thereafter be extended by subsequent agreements in writing made before the
expiration of the period previously agreed upon.
d. Where there is a written waiver or renunciation of the original 3-year limitation
signed by the taxpayer.
Note: Requests for reconsideration of tax assessments, as required by the BIR, must
be accompanied by a waiver of statute of limitations accomplished by the taxpayer.
2. The return was amended substantially The prescriptive period shall be counted from the
filing of the amended return.
Q: What is the effect of filing a defective return?
A: If the return was defective, it is as if no return was filed. The corollary prescription will be
10 years from and after the discovery of the failure or omission and not the 3 year
prescriptive period. There is an omission when the taxpayer failed to file a return for the
particular tax required by law. (Butuan Sawmill v. CTA, GR L-20601, Feb. 28, 1966)
False, Fraudulent and Non-filing of Returns
Prescriptive period where the return was false, fraudulent or there was no return filed - The
prescription period is 10 years from the discovery of the falsity, fraud or from the omission
to file the return. (Sec. 222, NIRC)
Q: When is a return considered fraudulent?

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A: Fraud is never presumed and the circumstances constituting it must be alleged and
proved to exist by clear and convincing evidence. It may be established by the:
1. Intentional and substantial understatement of tax liability by the taxpayer;
2. Intentional and substantial overstatement of deductions of exemptions; and/or
3. Recurrence of the above circumstances
Q: When is a return considered false?
A: When there is a deviation from the truth due to mistake, carelessness or ignorance.
Q: Distinguish a false return from a fraudulent return.
A: False Return is a deviation from the truth or fact whether intentional or not; while
fraudulent return is intentional and deceitful with the sole aim of evading the correct tax
due
(Aznar v. CIR, GR L-20569, Aug. 23, 1974)
Substantial Amendments
1. There is under declaration (exceeding 30% of that declared) of taxable sales, receipts or
income;
2. There is overstatement (exceeding 30% of deductions) (Sec. 248, NIRC)
Q: Is it necessary that the notice of assessment be received by the taxpayer within the
prescriptive period?
A: No, notice of the assessment must be released, mailed or sent to the taxpayer within the
3 year period. It is not required that the notice be received by the taxpayer within the
prescribed period, but the sending of the notice must clearly be proven. (Basilan Estate, Inc.
v. CIR, GR L-22492, Sept. 5, 1967)
Suspension of Running of Statute of Limitations
Grounds
When taxpayer cannot be Located in the address given by him in the return, unless he
informs the CIR of any change in his address thru a written notice to the BIR;
2. When the taxpayer is Out of the Philippines (Sec. 223, NIRC)
3. When the Warrant of distraint and levy is duly served upon the taxpayer, his authorized
representative or a member of his household with sufficient discretion and no property is
located (proper only for suspension of the period to collect);
4. Where the CIR is prohibited from making the assessment or beginning distraint or levy or
a proceeding in court for 60 days thereafter, such as where there is a Pending petition for
review in the CTA from the decision on the protested assessment (Republic v. Ker & Co., GR
L-21609);
5. Where CIR and the taxpayer Agreed in writing for the extension of the assessment, the
tax may be assessed within the period so agreed upon (Sec. 222 [b], NIRC);
6. When the taxpayer Requests for reinvestigation which is granted by the Commissioner
(Collector v. Suyoc Consolidated Mining Co., GR L-11527, Nov. 25, 1958);
Note: A request for reconsideration alone does not suspend the period to assess/collect.

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7. When there is an Answer filed by the BIR to the petition for review in the CTA (Hermanos
v. CIR, GR. No. L-24972.Sept. 30, 1969) where the court justified this by saying that in the
answer filed by the BIR, it prayed for the collection of taxes.
Waiver of the Satute of Limitations
Requisites:
1. Entered before the expiration of the 3 year period for assessment of the tax;
2. In writing;
3. Signed by the taxpayer;
4. Must specify a definite date agreed upon between the parties within which to assess and
collect taxes;
5. Signed and accepted by the CIR or his duly authorized representative; and
6. Date of acceptance must be indicated. (RMC 06-05)
Pre-assessment Notice
It is a communication issued by the Regional Assessment Division, or any other concerned
BIR Office, informing a taxpayer who has been audited of the findings of the RO, following
the review of these findings.
If the taxpayer disagrees with the findings stated in the PAN, he have 15 days from receipt
of the PAN, to file a written reply contesting the proposed assessment. (Sec. 3.1.2, RR 1299)
Otherwise, the taxpayer shall be considered in default, in which case a formal letter of
demand and assessment notice shall be issued by the BIR. (Sec. 3.1.2, RR 12-99)
Requisites:
1. In writing; and
2. Should inform the taxpayer of the law and the facts on which the assessment is made
(Sec. 228, NIRC)
Note: This is to give the taxpayer the opportunity to refute the findings of the examiner and
give a more accurate and detailed explanation regarding the assessments. The absence of
any of the requirements shall render the assessment void.
Exceptions to Issuance of PAN
1. When the finding for any deficiency tax is the result of Mathematical error in the
computation of the tax appearing on the face of the tax return filed by the taxpayer; or
2. When the Excise tax due on excisable articles has not been paid; or
3. When a Discrepancy has been determined between the tax withheld and the amount
actually remitted by the withholding agent; or
4. When an article locally purchased or imported by an Exempt person, such as, but not
limited to, vehicles, capital equipment, machineries and spare parts, has been sold, traded
or transferred to non-exempt persons; or
5. When a taxpayer who opted to claim a refund or tax credit of excess creditable
withholding tax for a taxable period was determined to have Carried over and automatically

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applied the same amount claimed against the estimated tax liabilities for the taxable
quarter or quarters of the succeeding taxable year. (Sec 3.1.3, RR 12-99)
Notice of Assessment/Formal Letter of Demand (FAN)

It is a declaration of deficiency taxes issued to a taxpayer who fails to respond to a


PAN within the prescribed period of time, or whose reply to the PAN was found to be
without merit.
It shall be issued by the Commissioner or his duly authorized representative.
It must be:
1. In writing; and
2. Shall state the facts, the law, rules and regulations, or jurisprudence on
which the assessment is based, otherwise, the FANshall be void. (Sec. 228,
NIRC; Sec. 3.1.4 RR 12-99)

The taxpayer may protest the assessment within 30 days from receipt otherwise the
assessment becomes final, executory, demandable and not appealable to the CTA.

Protesting Assessment
It is the act by the taxpayer of questioning the validity of the imposition of the
corresponding delinquency increments for internal revenue taxes as shown in the notice of
assessment and letter of demand.
Prescriptive period provided by law to make collection by distraint or levy or by a
proceeding in court is interrupted once a taxpayer protests the assessment and requests for
its cancellation.
Kinds of protest to an assessment
1. Request for reconsideration - a claim for re-evaluation of the assessment based on
existing records without need of additional evidence. It may involve a question of fact or law
or both. It does not toll the statute of limitations.
2. Request for reinvestigation - a claim for re-evaluation of the assessment based on newlydiscovered or additional evidence. It may also involve a question of fact or law or both. It
tolls the the statute of limitations.
Note: Under Sec. 223, NIRC, the running of the prescriptive period can only be suspended by
a request for reinvestigation, not a request for reconsideration.
Requisites of a protest
1. In writing;
2. Addressed to the CIR;
3. Accompanied by a waiver of the Statute of Limitations in favor of the Government.
Without the waiver the prescriptive period will not be tolled; (BPI v. CIR, GR 139736, Oct. 17,
2005)
4. State the facts, applicable law, rules and regulations or jurisprudence on which the
protest is based otherwise the protest would be void; and
5. Must contain the following:
a. Name of the taxpayer and address for the immediate past 3 taxable years;

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b. Nature of the request, specifying the newly discovered evidence to be presented;


c. Taxable periods covered by the assessment;
d. Amount and kind of tax involved and the assessment notice number;
e. Date of receipt of the assessment notice or letter of demand;
f. Itemized statement of the finding to which the taxpayer agrees (if any) as basis for
the computation of the tax due, which must be paid upon filing of the protest;
g. Itemized schedule of the adjustments to which the taxpayer does not agree;
h. Statements of facts or law in support of the protest; and
i. Documentary evidence as it may deem necessary and relevant to support its
protest to be submitted 60 days from the filing thereof.
Procedure
1. BIR issues assessment notice.
2. The taxpayer files an administrative protest against the assessment. Such protest may
either be a request for reconsideration or for reinvestigation. The protest must be filed
within 30 days from receipt of assessment.
3. All relevant documents must be submitted within 60 days from filing of protest;
otherwise, the assessment shall become final and unappealable.
4. In case the CIR decides adversely or if no decision yet at the lapse of 180 days, the
taxpayer may appeal to the CTA Division, 30 days from the receipt of the decision or from
the lapse of the 180 days otherwise the decision shall become final, executory and
demandable. (RCBC v. CIR, GR 168498, Apr. 24, 2007)
5. If the decision is adverse to the taxpayer, he may file a motion for reconsideration or new
trial before the same Division of the CTA within 15 days from notice thereof.
6. In case the resolution of a Division of the CTA on a motion for reconsideration or new trial
is adverse to the taxpayer, he may file a petition for review with the CTA en banc.
7. The ruling or decision of the CTA en banc may be appealed with the Supreme Court
through a verified petition for review on certiorari pursuant to Rule 45 of the 1997 Rules of
Civil Procedure.
In Case of Inaction by Commissioner within 180 days from Submission of
Documents
The taxpayer has two alternative options:
1. File a petition for review with the CTA within 30 days after the expiration of the 180-day
period; or
2. Wait for the final decision of the CIR on the disputed assessment and appeal the final
decision to the CTA within 30 days from the receipt of the decision.
What are the administrative remedies of the government for collection of
delinquent taxes under the NIRC? (CELCED)
1.
2.
3.
4.

Distraint of personal property


Levy of real property
Enforcement of forfeiture
Enforcement of tax lien

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5. Compromise and Abatement


6. Civil penalties
Distraint
It is a summary remedy whereby the collection of tax is enforced on the goods, chattels or
effects of the taxpayer (including other personal property of whatever character as well as
stocks and other securities, debts, credits, bank accounts and interest in or rights to
personal property.) The property may be offered in a public sale, if taxes are not voluntarily
paid.
Requisites (DeFDeP)
1.
2.
3.
4.

Taxpayer is Delinquent in payment of tax;


There must be subsequent Demand to pay;
Taxpayer Failed to pay delinquent tax on time; and
Period within which to assess and collect the tax due has not yet prescribed.

Kinds
1. Actual resorted to when there is actual delinquency in tax payment.
2. Constructive a preventive remedy which aims at forestalling a possible dissipation of
the taxpayers assets when delinquency sets in. Hence, no actual delinquency in payment is
necessary.
Procedure:
1. Commencement of distraint proceedings by the CIR or his duly authorized representatives
or by the revenue district officer as the case may be
2. Service of warrant of distraintupon taxpayer or upon any person in possession of the
property
3. Posting of notice in not less than 2 public places in the municipality or city and notice to
taxpayer specifying the time and place of sale and the articles distrained
4. Sale at public auction to be held not less than 20 days after notice to the owner or
possessor of the property and publication or posting of such notice
5. Disposition of proceeds of the sale
6. Residue over and above what is required to pay the entire claim, including expenses,
shall be returned to the owner of the property sold
Levy
It is the seizure of real property and interest in or rights to such properties for the
satisfaction of taxes due from the delinquent taxpayer.
How made:
It may be effected by serving upon the taxpayer a written notice of levy in the form of a
duly authenticated certificate prepared by Revenue District Officer containing: [DNA]
1. Description of the property upon which levy is made;
2. Name of the taxpayer;
3. Amount of tax and penalty due.
TN: Its timely service suspends the running of the prescriptive period to collect the tax
deficiency in the sense that the disposition of the attached properties might well take time
to accomplish, extending even after the lapse of the statutory period for collections. In those
cases, the BIR did not file any collection case but merely relied on the summary remedy of
distraint and levy to collect the tax deficiency. Thus, the enforcement of tax collection
through summary proceedings may still be carried out as the service of warrant of distraint
or levy suspends the prescriptive period for collection. (RP v. Hizon, GR 130430, Dec. 13,
1999)
Procedure:
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1. Preparation of a duly authenticated certificate which shall operate with force of a legal
execution throughout the Philippines.
2. Service of the written notice to the:
a. Delinquent taxpayer, or
b. If he is absent from the Philippines, to his agent or the manager of the business in
respect to which the liability arose, or
c. If there be none, the occupant of the property.
d. The Registry of Deeds of the place where the property is located shall also be
notified;
3. Advertisement of the time and place of sale within 20 days after the levy by posting of
notice and by publication for three consecutive weeks.
4. Sale at a public auction.
5. Disposition of proceeds of sale.
6. Residue to be returned to the owner.
Possession of the property levied
The owner shall not be deprived of the property until the expiration of the redemption
period and shall be entitled to rents and other income until the expiration of the period for
redemption. (Sec. 214, NIRC)
Redemption by the taxpayer
It shall entitle the taxpayer, the delivery of the certificate issued to the purchaser and a
certificate from the Revenue District Officer that he has redeemed the property. The
Revenue District Officer shall pay the purchaser the amount by which such property has
been redeemed and said property shall be free from lien of such taxes and penalties. (Sec.
214, NIRC)
Similarities of Distraint and Levy
1. Summary in nature
2. Requires notice of sale
3. May not be resorted to if the amount involved is less than P100
Distinctions among warrants of distraint, levy and garnishment
DISTRAINT
LEVY
Subject matter
Personal property owned Real property owned and
by and in possession of the in the possession of the
taxpayer
taxpayer
Acquisition by the Government
Personal
property Real property subject to
distrained are purchased levy is forfeited to the
by the Government and Government then sold to
resold to meet deficiency
meet the deficiency.
Advertisement of Sale
No newspaper publication The sale of realty subject
required
to levy is required to be
published once a week for
3 consecutive weeks in a
newspaper
of
general
circulation
in
the
municipality or city where
the property is located.

GARNISHMENT
Personal property owned by
the taxpayer but in the
possession of the third party
Personal property garnished
are
purchased
by
the
Government and resold to
meet deficiency
No newspaper
required

publication

Forfeiture

It is the divestiture of property without compensation, in consequence of a default or


offense.

By: Adelaine Faith Zerna LLB4

Page 40

Property forfeited is transferred to another without consent of the defaulting taxpayer


or wrongdoer.

Forfeiture transfers the title to the specific thing from the owner to the government.
Also there would no longer be any further levy for such would be for the total
satisfaction of the tax due. (Sec 215, NIRC)

Procedure
1. In case of personal property By seizure and sale or destruction of property (Secs. 224
and 225, NIRC)
2. In case of real property By judgment of condemnation and sale in a legal action or
proceeding (Sec. 224, NIRC)
Difference between forfeiture and seizure to enforce a tax lien
FORFEITURE
Ownership
Ownership is transferred to the
Government
Disposition of the proceeds of sale
Excess not returned to the taxpayer

SEIZURE
Taxpayer retains ownership of property
seized
Excess returned to taxpayer

Rules on forfeiture
1. If there is no bidder in the public sale or if the amount of the highest bid is insufficient to
pay the taxes, penalties and costs, the real property shall be forfeited to the government.
2. The Register of Deeds shall transfer the title of forfeited property to the Government
without necessity of a court order.
3. Within 1 year from the date of sale, the property may be redeemed by the delinquent
taxpayer or any one for him, upon payment of taxes, penalties and interest thereon and
cost of sale; if not redeemed within said period, the forfeiture shall become absolute. (Sec.
215, NIRC)
Enforcement of Tax Lien
Tax Lien

It is a legal claim or charge on property, personal or real, established by law as a sort


of security for the payment of tax obligations.

It is enforced as payment of tax, interest, penalties, costs upon the entire property
and rights to property of the taxpayer. However, to be valid against any mortgagee,
purchaser or judgment creditor, notice of such lien has to be filed by CIR with the
Registry of Deeds. (Sec. 219, NIRC)

It is applied when:

With respect to personal property Tax lien attaches when the


taxpayer neglects or refuses to pay tax after demand and not
from the time the warrant is served (Sec. 219, NIRC)
With respect to real property from time of registration with the
register of deeds.

Note: A valid assessment is required to be issued before a tax lien shall be annotated at the
proper registry of property.
Extinguishment
1. Bypayment orremissionof the tax
2. Byprescription of the right of government to assess or collect
3. Byfailure to file notice of such tax lien in the office of Register of Deeds
By: Adelaine Faith Zerna LLB4

Page 41

4. Bydestruction of property subject to tax lien


5. By replacing it with a bond
Note: A buyer in an execution sale acquires only the rights of the judgment creditor.
Lien vs. Distraint
LIEN
DISTRAINT
Directed against what?
The property subject to Need not be directed
the tax
against the property
subject to tax
To whom directed?
The
property
itself The property should be
regardless of the present presently owned by the
owner of the property
taxpayer
Compromise and Abatement
Compromise

It is an agreement between two or more persons who,amicably settle their


differences on such terms and conditions as they may agree on to avoid any lawsuit
between them. It implies the mutual agreement by the parties in regard to the thing
or subject matter which is to be compromised.
It is a contract whereby the parties, by reciprocal concessions avoid litigation or put
an end to one already commenced
Made when:
o Criminal cases Compromise must be made prior to the filing of the
information in court.
o Civil cases Before litigation or at any stage of the litigation, even during
appeal, although legal propriety demands that prior leave of court should be
obtained.

Requisites
1. Tax liability of the taxpayer;
2. An offer of the taxpayer of an amount to be paid by him; and
3. The acceptance (the CIR or the taxpayer) of the offer in the settlement of the claim
Note: If the offer to compromise was rejected by the taxpayer, the compromise penalty
cannot be enforced thru an action in court, or by distraint or levy. If the CIR wants to enforce
a penalty he must file a criminal action in the courts. (CIR v. Abad GR L-19627, June 27,
1968)
Cases which may be compromised
1. Delinquent accounts
2. Cases under Administrative protest after issuance of the Final Assessment Notice to the
taxpayer which are still pending in the RO, RDO, Legal Service, Large Taxpayer Service,
Collection Service, Enforcement Service, and other offices in the National Office
3. Civil tax cases disputed before the courts
4. Collection cases filed in courts
5. Criminal violations except:
a. Those already filed in courts; and
b. Those involving criminal tax fraud. (Sec.3, RR 30-2002)
Cases which cannot be compromised
1

Criminal tax Fraud cases, confirmed as such by the CIR or his duly authorized
representative.

By: Adelaine Faith Zerna LLB4

Page 42

2
3
4
5
6
7

Cases where Final reports of reinvestigation or reconsideration have been issued


resulting to reduction in the original assessment and the taxpayer is agreeable to
such decision by signing the required agreement form for the purpose.
Cases which become Final and executory after final judgment of a court, where
compromise is requested on the ground of doubtful validity of the assessment.
Estate tax cases where compromise is requested on the ground of financial
incapacity of the taxpayer.
Withholding tax cases, unless the applicant taxpayer invokes provisions of law
that cast doubt on the taxpayers obligation to withhold.
Criminal violations already filed in courts.
Delinquent accounts with duly approved schedule of instalment payments.

Note: The CTA may issue an injunction to prevent the government from collecting taxes
under a compromise agreement when such would be prejudicial to the government.
Grounds
1
2

Doubtful validity of assessment;


Financial incapacity

Requisites
1. Clear inability to pay the tax; and
2. The taxpayer must waive in writing his privilege of the secrecy of bank deposit under RA
1405 or other general or special laws, which shall constitute as the CIRs authority to inquire
into said bank deposits (Sec. 6 [F], NIRC)
Who may compromise

The CIR may compromise with respect to criminal and civil cases arising from
violations of the NIRC as well as the payment of any internal revenue tax when:
o A reasonable doubt as to the validity of the claim against the taxpayer exists
provided that the minimum compromise entered into is equivalent to 40% of
the basic tax; or
o The financial position of the taxpayer demonstrates a clear inability to pay the
assessed tax provided that the minimum compromise entered into is
equivalent to 10% of the basic assessed tax.

Note: In these instances, the CIR is allowed to enter into a compromise only if the basic tax
involved does not exceed P1M and the settlement offered is not less than the prescribed
percentages. (Sec. 204 [A], NIRC) If the basic tax involves exceeds P1 million or when the
settlement offered is less than the prescribed minimum rates the approval of the Evaluation
Board is needed.
A preliminary compromise may be entered into by subordinate officials subject to review by
the CIR.

The Regional Evaluation Board (REB) may compromise:


o Tax assessments by revenue officers involving basic deficiency taxes of
P500,000 or less; and
o For minor criminal violations (RR 7-2001)

Note: The REB shall becomposed of:


a. The Regional Director as Chairman;
b. The Assistant Regional Director;
c. Chief, Legal Division;
d. Chief, Assessment Division;
e. Chief, Collection Division; and
f. Revenue District Officer having jurisdiction over the taxpayer-applicant
Prescription

By: Adelaine Faith Zerna LLB4

Page 43

As a rule, the obligation to pay tax is based on law. But when, for instance, a taxpayer
enters into a compromise with the BIR, the obligation of the taxpayer becomes one based
on contract.
Compromise is a contract whereby the parties, by reciprocal concessions, avoid litigation or
put an end to one already commenced. (Art. 2028 NCC) Since it is a contract, the
prescriptive period to enforce the same is 10 years based on Art. 1144 NCC reckoned from
the time the cause of action accrued.
Abatement

Cancellation of a tax liability.

It is made when:
o
o

The tax or any portion thereof appears to be unjustly or excessively assessed;


or
The administration and collection costs involved do not justify the collection of
the amount due. (Sec. 204[B], NIRC)

Abatement vs. Compromise


Compromise
Involves
a
reduction
of
the
taxpayers liability.
Officers authorized to compromise:
CIR and Regional Evaluation Board
Grounds:
2. Reasonable doubt as to the
validity of assessment;
3. Financial incapacity of the
taxpayer

Abatement
Involves the cancellation of the entire
tax liability of a taxpayer.
Officer authorized to abate or cancel
tax, penalties and/or interest: CIR
Grounds:
1. The tax or any portion thereof
appears to be unjustly or excessively
assessed; or
2. The administration and collection
costs involved do not justify the
collection of the amount due

JUDICIAL REMEDIES
GOVERNMENT
If express

TAXPAYER

Judicial remedies are exclusive. Thus,


1. Must follow and observe the legal the CIR decision must be appealed to
parameters set forth in the law. (e.g. the CTA and the CTA en banc decision
An action for collection by the BIR must be appealed to the SC.
(Sec. 205, NIRC) must be filed within
the prescriptive period (Sec. 222,
NIRC);

By: Adelaine Faith Zerna LLB4

Page 44

2. Must be approved by the CIR (Sec.


220, NIRC)

If implied
May avail of the usual judicial remedies
for convenience and expediency.

May resort to the laws of general


application. Thus, a declaratory relief
may be availed of if the law does not
provide for judicial remedies.

Civil Action
For tax remedy purposes, these are actions instituted by the government to collect internal
revenue taxes in the regular courts after assessment by CIR has become final and
executory.
It includes, however, the filing by the government of claims against the deceased taxpayer
with the probate court.
Once an action is filed with the regular courts, the taxpayer can no longer assail the validity
or legality of assessment.
Form and Procedure
1. Civil actions shall be brought in the name of the Government of the Philippines.
2. It shall be conducted by legal officers of the BIR.
3. The approval by the Solicitor General together with the approval of the CIR for civil
actions for collection of delinquent taxes is required before they are filed. (Sec. 220 NIRC)
Note: BIR legal officers deputized as Special Attorneys who are stationed outside Metro
Manila may file verified complaints with the approval of the Solicitor General. Provided that
a copy of the complaint is furnished to the Solicitor General. The Solicitor General must file a
notice of appearance in the court where it was filed.
Court Jursidiction
COURTS
Municipal Trial Courts outside Metro
Manila
Municipal Trial Courts within Metro Manila
Regional Trial Courts outside Metro Manila
Regional Trial Courts within Metro Manila

AMOUNT OF TAXES INVOLVED


Amount does not exceed 300,000
Amount does not exceed 400,000
300,001 to 999,999
400,001 to 999,999

Criminal Action
Criminal complaint is instituted not to demand payment but to penalize taxpayer for the
violation of the NIRC.
Criminal action is resorted to not only for collection of taxes but also for enforcement of
statutory penalties of all sorts.
Crimes Punishable
1. Willful attempt to evade or defeat tax (Sec. 254, NIRC)

By: Adelaine Faith Zerna LLB4

Page 45

2. Failure to file return, supply correct and accurate information, pay tax, withhold and remit
tax and refund excess taxes withheld on compensation (Sec. 255, NIRC)
Filing of the Information
1. CTA - on criminal offenses arising from violations of the NIRC or Tariff and Customs Code
and other laws administered by the BIR and the BOC where the principal amount of taxes
and fees, exclusive of charges and penalties claimed is P1 million and above.
2. RTC, MTC, MeTC- on criminal offenses arising from violations of the NIRC or
Tariff and Customs Code and other laws administered by the BIR and the BOC where the
principal amount of taxes and fees, exclusive of charges and penalties claimed is less than
P1 million. (Sec. 7, RA 9282)
Prescriptive Period
The period is 5 years from commission or discovery of the violation, whichever is later. (Sec.
281, NIRC)
The cause of action for willful failure to pay deficiency tax occurs when the final notice and
demand for the payment thereof is served upon the taxpayer.
The 5-year prescriptive period commences to run only after receipt of the final notice and
demand and the taxpayer refuses to pay.
Note: In addition to the fact of discovery of the filing of a fraudulent return, there must be a
judicial proceeding for the investigation and punishment of the tax offense before the 5-year
limiting period to institute a criminal action for filing a fraudulent return begins to run. The
crime of filing false returns can be considered "discovered" only after the manner of
commission, and the nature and extent of the fraud have been definitely ascertained. Note
the conjunctive word and between the phrases the discovery thereof and the
institution of judicial proceedings for its investigation and proceedings. (Lim, Sr. v. CA, GR
48134-37, Oct. 18, 1990)

IV. Jurisdiction of the Court of Tax Appeals


The CTA was originally created under RA 1125. The law creating the Court of Tax
Appeals was under RA 1125 way back in 1954. The objectives of the creation of the court
are:
1) to entrust tax cases to a specialize court composed of men technically qualified in the
field of taxation and to develop expertise on the subject;
2) to expedite the disposition of tax cases and collection of taxes and provide adequate and
speedy remedy to the taxpayers.
The objective was addressed to enforce collection of taxes and to provide protection also
and remedy to the taxpayers.
The Court under RA 1125 was sitting like the RTC. And the adjudicator sitting in the court
was called a judge. Since it was then like the RTC, the adjudicators then were called judges.
The RTC was then was only exercising what we call exclusive appellate jurisdiction. And the
cases that are decided by the CTA are decisions of the Commissioner of the Internal
Revenue and the decisions of the Commissioner of Customs.
While it used to include the Central Board of Assessment Appeals, but when the Real
Property Tax Code took effect, it changed the jurisdiction where the decisions of the Central
By: Adelaine Faith Zerna LLB4

Page 46

Board of Assessment Appeals were no longer brought to the CTA but to the Court of
Appeals.
The taxes then that were handled by the Court of Tax Appeals were the decisions of the
Commissioner of the Internal Revenue and of the Commissioner of Customs. Such that from
the CIR or the Commissioner of Customs, it is brought to the CTA, to the CA and then, the
Supreme Court. This was the flow of the remedies on the tax cases.
The local tax cases have their own separate remedies. The venue was not the CTA. It
had a separate venue. Likewise, on the decisions of the Central Board on the Real Property
Tax, also provided a different avenue where to pursue the cases, but not to the CTA under
RA 1125.
In March 2004, the entire picture of the CTA was completely changed. RA 9282
expanded the jurisdiction of the CTA. The CTA was treated as an equivalent of the CA. As
an effect, the tax cases will no longer pass through the CA because the CTA now was sitting
as an equivalent of the CA.
While you have here (RA 1125) the adjudicators called judges equivalent to the RTC, you
have now here (RA 9282) justices. And its jurisdiction, by reason of that expansion of its
jurisdiction, was now exclusive appellate and original jurisdiction. It has an exclusive
original jurisdiction as well as an exclusive appellate jurisdiction.
So, under the new law, the CTA now sits as an equivalent of the Court of Appeals. So,
you have justices there, no longer called judges. The jurisdiction has been expanded, not
only exclusive appellate jurisdiction but also exclusive original jurisdiction. Such that when
cases are brought to the CTA, it is CTA by division, then, CTA en banc then, you have the
Supreme Court. The mode of appeal, we will follow Rule 43 in the petition brought before
the CTA. And when it is brought to the Supreme Court, we follow Rule 45 a petition or
appeal by way of certiorari.
Rule 43
CTA (division)

Rule 45
CTA (en banc)

SC

Under RA 9282, the law here provides that:


SECTION 1.Court; Justices; Qualifications; Salary; Tenure. There is hereby created a
Court of Tax Appeals (CTA) which shall be of the same level as the Court of Appeals,
possessing all the inherent powers of a Court of Justice, and shall consist of a Presiding
Justice and five (5) Associate Justices. xxx
This court sits in 2 divisions. It sits en banc and in 2 divisions, consisting of 3 justices per
division.
For en banc purposes, 4 justices shall constitute a quorum and 2 justices for session by
division.
SECTION. 2. Sitting En Banc or Division; Quorum; Proceedings. The CTA may sit
en banc or in two (2) Divisions, each Division consisting of three (3) Justices.
Four (4) Justices shall constitute a quorum for sessions en banc and two (2) Justices for
sessions of a Division: Provided, That when the required quorum cannot be constituted due
to any vacancy, disqualification, inhibition, disability, or any other lawful cause, the
Presiding Justice shall designate any Justice of other Divisions of the Court to sit temporarily
therein.
The affirmative votes of four (4) members of the Court en banc or two (2) members of a
Division, as the case may be, shall be necessary for the rendition of a decision or resolution.
By: Adelaine Faith Zerna LLB4

Page 47

The place of office for the CTA will be based in Metro Manila.
SEC. 6.
Place of Office. The CTA shall have its principal office in Metro Manila and
shall hold hearings at such time and place as it may, by order in writing, designate
In cases brought to the CTA en banc:
SEC. 18.
Appeal to the Court of Tax Appeals En Banc. No civil proceeding
involving matters arising under the National Internal Revenue Code, the Tariff and Customs
Code or the Local Government Code shall be maintained, except as herein provided, until
and unless an appeal has been previously filed with the CTA and disposed of in accordance
with the provisions of this Act.
A party adversely affected by a resolution of a Division of the CTA on a motion for
reconsideration or new trial, may file a petition for review with the CTA en banc.
So, from the CTA by division, it is brought again to the CTA en banc. From the decision of
the CTA en banc, any adverse party, whether you are government or the taxpayer, your last
resort will be the Supreme Court and the mode is under Rule 45.
Under RA 9282:
SEC. 19.
Review by Certiorari. A party adversely affected by a decision or ruling of
the CTA en banc may file with the Supreme Court a verified petition for review on certiorari
pursuant to Rule 45 of the 1997 Rules of Civil Procedure.
Then, we have this jurisdiction of the Court of Tax Appeals. What are the cases brought
to the CTA?
One, you have the exclusive appellate jurisdiction of the CTA to review by appeal:
1. Decisions of the Commissioner of Internal Revenue involving disputed assessment,
refunds and all other matters arising under the NIRC or other laws administered by the BIR
Sec. 7.

Jurisdiction. The CTA shall exercise:

(a) Exclusive appellate jurisdiction to review by appeal, as herein provided:


(1) Decisions of the Commissioner of Internal Revenuein cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relation
thereto, or other matters arising under the National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;

Remember that in Section 228 (NIRC), when the taxpayer protests the assessment, it is
filed with the Commissioner of Internal Revenue. From the decision of the Commissioner of
Internal Revenue, you have 30 days to appeal to the CTA.
Protest
Assessment,

CIR

CTA

Refunds
You also have cases of refunds. It is as well filed with the Commissioner of Internal Revenue
and from the decision of the Commissioner, it is filed with the CTA. This includes all other
matters in the NIRC which are decided by the Commissioner. So, they are all appealed to
the CTA, including all other laws administered by the BIR. So, you have these controversies
to be resolved by the Commissioner. The decision of the Commissioner is appealed also to
the CTA.
By: Adelaine Faith Zerna LLB4

Page 48

2.
Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds, etc.
(2) Inaction by the Commissioner of Internal Revenue in cases involving disputed
assessments, refunds of internal revenue taxes, fees or other charges, penalties in relations
thereto, or other matters arising under the National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue, where the National Internal Revenue Code
provides a specific period of action, in which case the inaction shall be deemed a denial;
What are these? Inaction by the Commissioner of Internal Revenue.
Remember in the assessment cases, the protest is filed with the CIR and the CIR has 180
days to decide. In Section 228 (NIRC), the period within which the Commissioner has to
decide is 180 days. If there is no decision within 180 days, the taxpayer should appeal to
the CTA within 30 days from the lapse of the 180-day period to decide.
In case of inaction by the Commissioner, you are given 30 days from the lapse of the
180-day period to go now to the CTA.
Assessment

CIR (180 days to decide)

CTA (w/n 30 days from lapse)

In the case also of refunds in the NIRC, you have the date of payment where you file your
claim for refund with the CIR and finally to the CTA, it is required that from the date of
payment and up to the time the case will reach the CTA, it should be within the 2-year
period from payment.
Remember that in Section 229 (NIRC):
SECTION 229.
Recovery of Tax Erroneously or Illegally Collected. No suit or
proceeding shall be maintained in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without authority, or of any sum alleged to
have been excessively or in any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum has been paid under protest or duress.
In other words, the claim for refund is lodged, at the outset, administratively before the
Commissioner. And then, from that claim, it is converted into a judicial action when you
bring now the case to the CTA. And you bring the case to the CTA when it will be denied by
the Commissioner.
In the event that the denial is still forthcoming, your claim is pending with the
Commissioner and the 2-year period from payment is about to lapse, do not wait for the 2year period to expire. You must now bring the action within reasonable time to the CTA
because of the inaction of the Commissioner on your claim for refund.
So, the law provides a prescriptive period. You have now inaction by the Commissioner
on these refund cases, when the 2-year period is about to prescribe and the Commissioner
has not yet decided and you believe that his decision is that it will be denied. So, you can
appeal to the CTA.
Refunds

Date of Payment

CIR

CTA

Then, on other matters where the law provides that there is a period within which to
bring the action and to decide and when there is no decision, then, you now go and appeal
to the CTA from the lapse of the period.
In the claim for refund, do not wait for the lapse of the period, unlike in the other cases
meronkang waiting time for the decision. Kung walang decision, you are given generally 30
By: Adelaine Faith Zerna LLB4

Page 49

days to appeal to the CTA. In the claim for refund, do not wait for the 2-year period to
expire, otherwise, your petition to the CTA will be barred or dismissed.
You have that jurisdiction inaction by the CIR.
3. Decisions, orders, or resolutions of the RTC in local tax cases originally decided or
resolved in its appellate jurisdiction.
(3) Decisions, orders or resolutions of the Regional Trial Courts in local tax cases
originally decided or resolved by them in the exercise of their original or appellate
jurisdiction;
Take note, dati 2 langiyong jurisdiction. Now, it has expanded its jurisdiction. Now, it
includes local tax cases.
What are the local taxes where it will fall or pass through the RTC?
i. issue on the legality of the ordinance
When you have a case involving the legality of the ordinance, it is filed with the DOJ.
From the DOJ, the action is brought to the regular courts since this involves a case not
subject to pecuniary estimation, the jurisdiction is with the RTC. From the RTC, it is brought
to the CTA.
DOJ

RTC

CTA

So, you have local tax cases where the RTC decides in its original jurisdiction.
ii. protest local tax assessments.
You also have the protest. In protesting local tax assessments, the action is initiated with
the local treasurer. So, you file your protest with your local treasurer. From the local
treasurer, it is filed either to the RTC or to the MTC, depending on the jurisdictional amount.
If the assessment involves within such amount falling within the RTC, it is filed with the RTC.
If the amount is less, it is filed with the MTC.
From the RTC, in its original jurisdiction, it is filed with the CTA. From the MTC, it will not
go directly to the CTA but it will pass through the regular procedures. From MTC to RTC,
deciding now in its appellate jurisdiction.Then, to the CTA.
So, you have the case of protesting tax assessments. You file your protest with the local
treasurer. The local treasurer will decide or there is a lapse or inaction. But nevertheless,
the flow of the remedy is to bring it to the next level, whether to the RTC or MTC, depending
on the jurisdictional amount.
RTC
Protesting Local

Local

Tax Assessments

Treasurer

CTA

MTC

RTC

CTA

iii. local tax refunds


You also have the local tax refunds. With the local tax refunds, again, it is initiated with
the local treasurer, your claim for refund. When there is a denial or inaction, depending on
the jurisdictional amount, it shall be filed with the RTC then to the CTA; MTC to the RTC then
to the CTA.
RTC
Local Tax

CTA

Local

By: Adelaine Faith Zerna LLB4

Page 50

Refunds

Treasurer

MTC

RTC

CTA

You have this flow chart or flow of the remedies.


These are the local tax cases where the RTC will decide either in its original jurisdiction or
decide in its appellate jurisdiction. But nevertheless, the decision of the RTC is appealed to
the CTA, whether the RTC is deciding in its original or appellate jurisdiction.
4. Decisions of the Commissioner of Customs on protest cases, seizure and forfeiture, and
other matters arising under the Tariff and Customs Code and other laws administered by
the Bureau of Customs
(4) Decisions of the Commissioner of Customs in cases involving liability for customs
duties, fees or other money charges, seizure, detention or release of property affected,
fines, forfeitures or other penalties in relation thereto, or other matters arising under the
Customs Law or other laws administered by the Bureau of Customs;
So, you have the decisions of the Commissioner of Customs on protest cases involving
liability for customs duties, seizure and forfeiture cases or other matters under the Tariff and
Customs Code and all other laws administered by the Bureau of Customs.
Whether it involves seizure or protest cases, the action is originally initiated with the
collector. From the Collector of Customs, it is brought to the Commissioner of Customs.
From the Commissioner of Customs, to the CTA.
Collector of Customs

Commissioner of Customs

CTA

5. Decisions of the Central Board of Assessment Appeals (CBAA)


(5) Decisions of the Central Board of Assessment Appeals in the exercise of its
appellate jurisdiction over cases involving the assessment and taxation of real property
originally decided by the provincial or city board 1 of assessment appeals;
What are the decisions of the Central Board of Assessment Appeals?
i. You have the property assessments; issues involving property assessments
When the issue involves property assessment on the valuation of real properties, the
issue is lodged with the Local Board of Assessment Appeals. From the Local Board of
Assessment Appeals, you have the Central Board of Assessment Appeals, then, to the CTA.
ii. Issues involving special levy
In the case of a special levy ,it is also brought to the Local Board of Assessment Appeals,
to the Central Board and then, to the CTA.
Special levy

LBAA

CBAA

CTA

ii. Protesting payments of the real property tax


You have to pay under protest, indicating in your receipt that you are paying under
protest. Where do you lodge your protest? You lodge that with the local treasurer. From the
local treasurer, it is appealed to the Local Board of Assessment Appeals, to the Central
Board, and then, to the CTA.
Protesting
Payments of RPT

Local LBAA CBAA


Treasurer

1Or what we call the local board of assessment appeals


By: Adelaine Faith Zerna LLB4

Page 51

CTA

iii. Refunds on Real Property Tax


Again, claim for refunds is filed with the Local Treasurer. From the Local Treasurer, you
file with the Local Board of Assessment Appeals, to the Central Board and then, to the CTA.
Refunds
on RPT

Local LBAA CBAA CTA


Treasurer

These are the decisions in real property taxation made by the Central Board of
Assessment Appeals. From the decision of the Central Board, it is appealed to the Court of
Tax Appeals
6. Decisions of the Secretary of Finance on customs cases elevated by automatic review
from the decisions of the Commissioner of Customs adverse to the government.
(6) Decisions of the Secretary of Finance on customs cases elevated to him
automatically for review from decisions of the Commissioner of Customs which
are adverse to the Government under Section 2315 of the Tariff and Customs Code;
There are decisions rendered by the Collector of Customs which are adverse to the
government in customs cases. The decision of the Collector of Customs is elevated to
automatic review to the Commissioner of Customs. When the Commissioner of Customs
decides adverse to the government, it is elevated to the Secretary of Finance for automatic
review. The decision of the Secretary of Finance is appealed now to the CTA.
Here, at the outset, you have the collector, the Commissioner of Customs, the DOF and
the CTA. These are in cases where the decisions are adverse to the government.
In customs cases, when decisions are adverse to the government, it still passes through
the regular procedure. Sa next rank of the administrative officer who will decide.
Collector

CoC DoF

CTA

If it is not adverse to the government, etoang proceedings, from CoC, to the CTA, if it is
adverse to the taxpayer.
But since it is adverse to the government, it will pass first through the DOF. From the
DOF to the Court of Tax Appeals.
7. Decisions of the DTI or DA on cases involving dumping duty and countervailing or
safeguard measure
(7) Decisions of the Secretary of Trade and Industry, in the case of nonagricultural product, commodity or article, and the Secretary of Agriculture in the
case of agricultural product, commodity or article, involving dumping and
countervailing duties under Section 301 and 302, respectively, of the Tariff and Customs
Code, and safeguard measures under Republic Act No. 8800, where either party may
appeal the decision to impose or not to impose said duties.
The DTI or the DA on cases involving dumping duty, countervailing or safeguard measure
will come in depending on the product.
If it involves non-agri products, cases involving dumping duty, countervailing or
safeguard measure, the protest is filed with DTI.
Non-agri products

By: Adelaine Faith Zerna LLB4

DTI

CTA

Page 52

If it involves agri products, where the dumping duty, countervailing or safeguard


measure is imposed, the remedy or the protest is lodged with the Department of
Agriculture.
Agri products

DA

CTA

Such that the decision of the DTI or the DA is appealed to the CTA. Depending on what is
the product, whether agricultural or non-agricultural, you file that with the DA or DTI. When
government imposes a dumping duty and there is an importer who would protest that
imposition or the imposition of a countervailing or a safeguard measure, the importer may
bring that action to the proper office, whether DTI if non-agri and DA if it involves agri
products.
From that decision of the Secretary of the DTI or DA, it is appealed to the Court of Tax
Appeals.
The other one is the exclusive original jurisdiction.
The CTA has exclusive original jurisdiction on:
1. criminal offenses for violation of the NIRC or the Tariff and Customs Code and other laws
administered by the BIR/BoC where the principal amount of taxes and fees is more than P1
Million or more
Take note that the amount is insofar as the taxes and fees.
penalties, interests and other surcharges.

Therefore, it excludes

(b) Jurisdiction over cases involving criminal offenses as herein provided:


(1) Exclusive original jurisdiction over all criminal offenses arising from
violations of the National Internal Revenue Code or Tariff and Customs Code and
other laws administered by the Bureau of Internal Revenue or the Bureau of
Customs: Provided, however, That offenses or felonies mentioned in this paragraph where
the principal amount of taxes and fees, exclusive of charges and penalties,
claimed is less than One million pesos (P1,000,000.00) or where there is no
specified amount claimed shall be tried by the regular Courts and the jurisdiction of the
CTA shall be appellate. Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the corresponding civil action for the recovery of
civil liability for taxes and penalties shall at all times be simultaneously instituted with, and
jointly determined in the same proceeding by the CTA, the filing of the criminal action being
deemed to necessarily carry with it the filing of the civil action, and no right to reserve the
filling of such civil action separately from the criminal action will be recognized.
(2) Exclusive appellate jurisdiction in criminal offenses:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
cases originally decided by them, in their respected territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the exercise of their appellate jurisdiction over tax cases originally decided by the
Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in their
respective jurisdiction.
The criminal offense is filed directly with the Court of Tax Appeals in its exclusive original
jurisdiction.
2. Tax collection cases on final and executory assessments where the principal amount of
taxes and fees is P 1 Million or more.

By: Adelaine Faith Zerna LLB4

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This is a collection proceeding initiated when the assessment has become final and
executory.
So, the original jurisdiction is with the CTA.
(c) Jurisdiction over tax collection cases as herein provided:
(1) Exclusive original jurisdiction in tax collection cases involving final and executory
assessments for taxes, fees, charges and penalties: Provided, however, That
collection cases where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is less than One million pesos (P1,000,000.00) shall be
tried by the proper Municipal Trial Court, Metropolitan Trial Court and Regional
Trial Court.
(2) Exclusive appellate jurisdiction in tax collection cases:
(a) Over appeals from the judgments, resolutions or orders of the Regional Trial Courts in tax
collection cases originally decided by them, in their respective territorial jurisdiction.
(b) Over petitions for review of the judgments, resolutions or orders of the Regional Trial
Courts in the Exercise of their appellate jurisdiction over tax collection cases originally
decided by the Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts, in their respective jurisdiction."
Less than P 1 Million on the criminal offenses or tax collection cases
It is filed with the RTC or MTC, depending on the amount therein. From RTC, CTA. From
MTC, RTC, CTA in the exercise of its appellate jurisdiction. (gi-number 3 itosa original
jurisdiction sa board, pero appellate man siya)

RTC

CTA

Criminal Offenses/
Tax Collection Cases

MTC

RTC

CTA

So, you have that exclusive original jurisdiction of the Court of Tax Appeals.
Another matter is that there are cases where when it is processed with the CTA, it is filed
originally by division.
However, there are cases when it is brought to the CTA, en banc na. Hindi nadadaansa
division.

What are the cases when it will be directly brought to the CTA, en bancna and not
passing thru the division? We have only 2.
1. Decision of the Central Board of Assessment Appeals
In the case of the decision of the Central Board of Assessment Appeals, from the Central
Board of Assessment Appeals, it is now with the CTA en banc, not by division. And then, to
the Supreme Court.
2. RTC deciding in its appellate jurisdiction of the local tax cases

By: Adelaine Faith Zerna LLB4

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In the local tax cases, where it is brought to the MTC, then to the RTC and then, the CTA.
The CTA here is en banc. Then, to the Supreme Court.
In local tax cases where the decision of the RTC is in its appellate jurisdiction, the appeal
to the CTA is not by division. It is CTA by en banc na. But when it is in the RTC in its original
jurisdiction, dadaanmunasa division bago mag-en banc.
Only when the RTC decides in its appellate jurisdiction where the appeal to the CTA is
already en banc. As to the rest, except for the two, it will have to pass through the CTA by
division, and then, en banc and then, Supreme Court, including in the original action.
In the original action, ganun pa rin CTA by division, CTA by en banc and then, Supreme
Court.
Local Taxes

MTC

RTC

CTASCen banc

So, you have this exclusive appellate and original jurisdiction of the Court of Tax Appeals.
Appeal
The Commissioner of Customs or the Commissioner of Internal Revenue shall appeal to
the Court of Tax Appeals. The matter that is brought on appeal is the party adversely
affected by the decision or ruling.
This same provision is carried under the new law, under the amended provision of
Section 11 of RA 125, as amended by RA 8292. Under this provision:
SEC. 11.
Who May Appeal; Mode of Appeal; Effect of Appeal. Any party
adversely affected by a decision, ruling or inaction 2 of the Commissioner of Internal
Revenue, the Commissioner of Customs, the Secretary of Finance, the Secretary of Trade
and Industry or the Secretary of Agriculture or the Central Board of Assessment Appeals or
the Regional Trial Courts may file an appeal with the CTA within thirty (30) days after the
receipt of such decision or ruling or after the expiration of the period fixed by law for action
as referred to in Section 7(a)(2) herein.
Appeal shall be made by filing a petition for review under a procedure analogous to that
provided for under Rule 42 of the 1997 Rules of Civil Procedure with the CTA within thirty
(30) days from the receipt of the decision or ruling or in the case of inaction as herein
provided, from the expiration of the period fixed by law to act thereon. A Division of the CTA
shall hear the appeal: Provided, however, That with respect to decisions or rulings of the
Central Board of Assessment Appeals and the Regional Trial Court in the exercise of its
appellate jurisdiction, appeal shall be made by filing a petition for review under a procedure
analogous to that provided for under rule 43 of the 1997 Rules of Civil Procedure with the
CTA, which shall hear the case en banc.
All other cases involving rulings, orders or decisions filed with the CTA as provided for in
Section 7 shall be raffled to its Divisions. A party adversely affected by a ruling, order or
decision of a Division of the CTA may file a motion for reconsideration of new trial before the
same Division of the CTA within fifteen (15) days from notice thereof: Provide, however, That
in criminal cases, the general rule applicable in regular Courts on matters of prosecution
and appeal shall likewise apply.
No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or
the Commissioner of Customs or the Regional Trial Court, provincial, city or municipal
treasurer or the Secretary of Finance, the Secretary of Trade and Industry or the Secretary of
Agriculture, as the case may be, shall suspend the payment, levy, distraint, and/or sale of
any property of the taxpayer for the satisfaction of his tax liability as provided by existing
2Inaction is now a matter which upon the lapse of that period, it will now be brought on appeal before the Court of Tax Appeals
By: Adelaine Faith Zerna LLB4

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law: Provided, however, That when in the opinion of the Court the collection by the
aforementioned government agencies may jeopardize the interest of the Government
and/or the taxpayer the Court any stage of the proceeding may suspend the said collection
and require the taxpayer either to deposit the amount claimed or to file a surety bond for
not more than double the amount with the Court.
In criminal and collection cases covered respectively by Section 7(b) and (c) of this Act,
the Government may directly file the said cases with the CTA covering amounts within its
exclusive and original jurisdiction.
In other words, the CTA has this exclusive appellate jurisdiction and exclusive original
jurisdiction.
You have the criminal offenses involving taxes and fees involving the amount of P 1
Million or more or the tax collection cases or assessments which have become final and
executory in the amount of P 1 Million or more, the filing should be made directly to the CTA
in its exclusive original jurisdiction.
From the decision of the CTA by division, the next mode is to appeal that to the CTA en
banc.
A party adversely affected by the decision or the resolution of the division of the CTA on
a motion for reconsideration or new trial may file a petition for review with the CTA en banc.
What do we have in these provisions?
In other words, decisions, rulings and inactions of the Commissioner of Internal Revenue,
Commissioner of Customs, Department of Finance, DTI, DA and the RTC in its original
jurisdiction, the appeal is to the CTA by division. And the mode is Rule 42, file a petition for
review.

Decisions/
Rulings/
Inaction
w/ original
jurisdiction

CIR/COC
DOF/DTI
DA & RTC

Appeal
to CTA
division
Review

Rule 42
CTA
Petition
en
for
banc
Review

Rule 43
Petition
for

SC

But the decisions and rulings of the Central Board of Assessment Appeals and the RTC in
its appellate jurisdiction, the appeal is to the CTA en banc by way of petition for review
under Rule 43.

Decisions/Rulings
Appeal to
Rule 43
of CBAA & RTC in
CTA
Petition for Review
its appellate
en banc
jurisdiction
From the division, you are not precluded to file a motion for reconsideration. From the
denial of the motion for reconsideration, you can now go to the CTA en banc. Here, the
mode is Rule 43. From the en banc, to the Supreme Court under Rule 45.
Here, from the en banc to the Supreme Court, Rule 45 appeal by certiorari.
Now, take note that the appeal that is brought to the CTA are not only decisions but you
also have rulings.
You have cases like taxpayer confronted with a tax problem. So, he writes to the BIR for
a particular tax query and asks for a ruling. So, he writes to the Commissioner for a tax
By: Adelaine Faith Zerna LLB4

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query asking for a tax ruling in particular transaction, whether you will be taxable or not,
exempted or not. The ruling or the reply of the CIR may either be to grant the query or not.
The reply of the Commissioner may involve to have the transaction, either it will be taxable
or not exempted or it may be not taxable or exempted.
Taxable/
Adverse Ruling
CTA
Reply
Not Exempted
Appeal
of CIR
Non-Taxable/
Exempted
If it is not taxable or you are exempted, there is no problem. The taxpayer will not
pursue anymore kasi he will not be taxable. He will be declared exempted from the tax
transaction.
Tax
Query

writes CIR
for tax ruling

What if he receives an adverse ruling, wherein there will be a ruling from the
Commissioner that in that transaction he will be taxable or that he will not be exempted?
Can you appeal the ruling? If it is yes, where will you appeal the ruling? Remember that
this is (not ?) a tax case, which is not an ordinary tax case when you compare it to
assessments or refunds.
In this situation, when the taxpayer is confronted with a tax problem and lodged it with
the BIR regarding his query of his taxability or exemption in a transaction and he gets an
adverse ruling, the law allows the taxpayer to appeal the ruling.
Where will he appeal the ruling? The appeal is with the CTA, not with any other courts or
even the regional trial courts because the provision in the law is not only the decisions but
also rulings. So, the rulings therefore include tax queries asked by the taxpayer asking for a
ruling, kung taxable basiya or exempted basiya in a transaction.
In the event that he gets an adverse ruling, his remedy is to appeal that ruling to the
Court of Tax Appeals.
Again, the basis is found under the law. And this provision is found not only in the old
law but it is carried over in the amended law.
The decided case here is the LEAL vs. COMMISSIONER. (Not sure but I think it is the
Commissioner vs. Leal November 18, 2002 case, walakasingbinigaynacitation .. check
it out ) Josefina Leal was the operator of a pawnshop and wrote to the BIR with regard to
the business of her pawnshop, whether she would be subject to the VAT or the percentage
tax or to this type of business tax.
The BIR made a reply that the business is taxable and she should pay the percentage tax
or now, the VAT (not sure if tama pagdinigko)
With that adverse ruling, she went to the RTC to question the ruling of the Commissioner.
With the denial, she went to the Court of Appeals and then, finally to the Supreme Court.
Of course, the petition was dismissed because it was the wrong remedy.
While the taxpayer is allowed to question a tax ruling made by the Commissioner, the
mode of where to pursue the action is not with the regular courts. It should be, as in the
case of Leal, it should be brought to the CTA or the Court of Tax Appeals,
In the case of Leal, it cited the statutory provision. Even under the old law, under RA
1125, the matter that is brought on appeal to the CTA, any party adversely affected by a
decision or ruling. So, it includes therefore, the rulings of the Commissioner of Internal
Revenue or his administrative officers. So, you could appeal the ruling therefore to the CTA.

By: Adelaine Faith Zerna LLB4

Page 57

And under the jurisdiction of the Court of Tax Appeals, its exclusive appellate jurisdiction,
involves the decisions of the CIR in cases involving disputed assessments, refunds of
internal revenue taxes, fees or other charges, penalties imposed in relation thereto, then,
you have, or other matters arising under the National Internal Revenue Code or other law or
part of law administered by the Bureau of Internal Revenue.
That provision is allowing the taxpayer to appeal that to the CTA and not to any other
courts.
You have that legal basis to pursue your appeal for that ruling, not to the regular courts,
but to the CTA.

-0o0-

By: Adelaine Faith Zerna LLB4

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