LEX BAR REVIEWS

“BAR STAR NOTES”

The BAR STAR NOTES in TAXATION is the 4th in the series of Bar Star Notes the author has prepared for all the eight Bar subjects. Please call Baby, Tel. No. 816-07-68 or 817-84-49; Leon, Mobile No. 0917-793-6169; Atty. Celia, Mobile No. 0917-790-8406, or Venny, Mobile No. 0917-337-6479.

TAXATION
VER. 2010.05.17 copyrighted 2010

WARNING:
These materials are copyrighted and/or based on the writer’s books on Taxation and future revisions. It is prohibited to reproduce any part of these Notes in any form or any means, electronic or mechanical, including photocopying without the written permission of the author. Unauthorized users shall not be prosecuted but SHALL BE SUBJECT TO THE LAW OF KARMA SUCH THAT THEY WILL NEVER PASS THE BAR OR WOULD BE UNHAPPY IN LIFE for stealing the intellectual property of the author.

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

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

THE BEST OF LUCK AND ADVANCE CONGRATULATIONS

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

  What is the nature of the State’s power to tax ? 2. Explain briefly.
SUGGESTED ANSWER: The nature of the state’s power to tax is two-fold. It is both an inherent power and a legislative power. It is inherent in nature being an attribute of sovereignty. This is so, because without the taxes, the state’s existence would be imperiled. There is thus, no need for a constitutional grant for the state to exercise

this power. It is a legislative power because it involves the promulgation of rules. Taxation is a set of rules, how much is the tax to be paid, who pays the tax, to whom it should be paid, and when the tax should be paid.

2

 3.
briefly.

What is the underlying theory of taxation ? Explain

SUGGESTED ANSWER: Taxes are the lifeblood of the nation. Without revenue raised from taxation, the government will not survive, resulting in detriment to society. Without taxes, the government would be paralyzed for lack of motive power to activate and operate it.
(Commissioner of Internal Revenue v. Algue, Inc. et al., 158 SCRA 8, 16-17)

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

SUGGESTED ANSWER: The following are the distinctions: a. Purpose: Tax imposed for revenue while license fee for regulation. Tax for general public purposes while license fee for regulatory purposes only. b. Basis: Tax imposed under power of taxation while license fee under police power. c. Amount: In taxation, no limit as to amount while license fee limited to cost of the license and the expenses of police surveillance and regulation. d. Time of payment: Taxes normally paid after commencement of business while license fee before. e. Effect of payment: Failure to pay a tax does not make the business illegal while failure to pay license fee makes business illegal. f. Surrender: Taxes, being the lifeblood of the state, cannot be surrendered except for lawful consideration while a license fee may be surrendered with or without consideration. (Cooley on Taxation, pp.
1137-1138; Pacific Commercial Company v. Romualdez, et al., 49 Phil. 924)

 Distinguish a tax from a license fee. 7.

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

 Discuss briefly the basis/bases, or rationale of 5.
taxation.
SUGGESTED ANSWER: a. Reciprocal duties of protection and support between the state and its citizens and residents. Also called “symbiotic relation” between the state and its citizens. b. Jurisdiction by the state over persons and property within its territory.

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

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

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

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

3

c.

Theoretical justice.

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

SUGGESTED ANSWER: a. Enforced contribution. b. Generally payable in money. c. Proportionate in character. d. Levied on persons, property or exercise of a right or privilege. e. Levied by the state having jurisdiction. f. Levied by the legislature. g. Levied for a public purpose. h. Paid at regular periods or intervals.

13. What are the elements or characteristics of a tax ?

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

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

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

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

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

16. What are the kinds of taxes classified as to who  bears the burden ? Explain each briefly.
SUGGESTED ANSWER: Based on the possibility of shifting the incidence of taxation, or as to who shall bear the burden of taxation, taxes may be classified into:

Example – income tax.R. an indirect tax is the statutory taxpayer.. Inc.R. 2005). regular equipment and aircraft stores introduced into. v. Silkair could not seek refuge under Maceda v. 2005. It invokes Maceda v. 1991. July 29. 127 Phil. [Philippine Acetylene Co. a designated airline of the other Contracting Party and intended solely for use in the operation of the agreed services shall. both direct and indirect taxes on all petroleum products used in its operation. No. or taken on board aircraft in the territory of one Contracting party by. Macaraig. (Commissioner. Philippine Long Distance Telephone Company. v. not Silkair. it is intended or desired. That the country of said foreign international carrier or exempt entities or agencies exempts from similar taxes petroleum products sold to Philippine carriers. In Commissioner of Internal Revenue v. Jr. The materials referred to above may be required to be kept under customs supervision and control. inspection fees and other duties or taxes imposed in the territories of the first Contracting Party . G. December 15. however. among others. 938 [NPC’s amended charter] amended the tax exemption by simplifying the same law in general terms. No. lubricants. Even if Petron Corporation passed on to Silkair the burden of the tax.. Macaraig. May 31. excise tax.R. The amendment under Republic Act No. 317-318) The NIRC provides that the excise tax 17. 197 SCRA 771. made even more specific the details of the exemption of NPC to cover. Presidential Decree No. Thus.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. 140230. Commissioner of Internal Revenue. 197 SCRA 771. American Express International. purchased aviation gas from Petron Corporation. estate tax. they are impositions for which a taxpayer is directly liable on the transaction or business he is engaged in. b. supra) 4 which liability cannot be shifted or transferred to another. (Philippine Branch). the Court held that an exemption from “all taxes” granted to the National Power Corporation (NPC) under its charter includes both direct and indirect taxes. No. R. SUGGESTED ANSWER: Silkair is not entitled to tax refund or credit for the following reasons: a.R. be exempt from the same customs duties. 465 SCRA 308. etc. or on behalf of. Petron Corporation. spare parts. percentage tax. Indirect taxes are those that are demanded in the first instance.. Jr. Inc. June 29. 152609. It succinctly exempts NPC from “all forms of taxes.” Silkair likewise argues that it is exempt from indirect taxes because the Air Transport Agreement between RP and Singapore grants exemption “from the same customs duties. conventions. 2005 citing various cases and authorities) Example – value added tax (VAT). Philippine Long Distance Telephone Company. like NPC’s charter. fees…” The use of the phrase “all forms” of taxes demonstrates . P. Macaraig. the person on whom the tax is imposed by law and who paid the same even if he shifts the burden thereof to another. duties. R. G. is the statutory taxpayer which is entitled to claim a refund based on Section 135 of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore. (Philippine Geothermal. It now claims for refund or tax credit for the excise taxes it paid claiming that it is exempt from the payment of excise taxes under the provisions of Sec. G. No. the additional amount billed to Silkair for jet fuel is not a tax but part of the price which Silkair had to pay as a purchaser. or seek a refund of. supra) to someone else not as a tax but as part of the purchase price. No. which it uses for its operations. December 15. inspection fees and other duties or taxes imposed in the territory of the first Contracting Party. G. (Commissioner of Internal Revenue v. 88291. 140230. Macaraig. The proper party to question. Jr. Those that are extracted from the very person who. or are paid by. of Internal Revenue v. Philippine Long Distance Telephone Company. 380. Inc.. 470 (1967)] Silkair further anchors its claim on Article 4(2) of the Air Transport Agreement between the Government of the Republic of the Philippines and the Government of the Republic of Singapore (Air Transport Agreement between RP and Singapore) which reads: “Fuel. Silkair (Singapore) PTE. Ltd. etc. G. 6395 enumerated the details covered by NPC’s exemption. donor’s tax. one person in the expectation and intention that he can shift the burden to (Commissioner of Internal Revenue v.a. Is Silkair entitled to the tax refund or credit it seeks ? Reason out your answer. should pay them (Commissioner of Internal Revenue v. Philippine Long Distance Telephone Company.which upheld the claim for tax credit or refund by the National Power Corporation (NPC) on the ground that the NPC is exempt even from the payment of indirect taxes. 154028. Subsequently. b. 1991.. viz: It may be so that in Maceda vs.D. 2005. documentary stamp tax. The excise tax on aviation fuel is an indirect tax. with the exception of charges corresponding to the service performed. unless the exempting statute. May 31. an international  carrier. entities or agencies” should be paid by the manufacturer or producer before removal of domestic products from place of production. even when these supplies are to be used on the parts of the journey performed over the territory of the Contracting Party in which they are introduced into or taken on board. 135 of the NIRC of 1997 which provides that petroleum products are exempt from excise taxes when sold to “Exempt entities or agencies covered by tax treaties. Jr. No. 478 SCRA 61 the Supreme Court clarified the ruling in Maceda v. G. Direct taxes. An exemption from “all taxes” excludes indirect taxes. Commissioner of Internal Revenue. 461. is so couched as to include indirect tax from the exemption. and other international agreements for their use and consumption: Provided. 88291. from..

No improper delegation of legislative authority to tax. the proceeds of which are to be used exclusively for the protection and promotion of the coconut industry. An alternative meaning is that tax proceeds should be utilized only to attain the objectives of government. Public use is no longer confined to the traditional notion of use by the public but held synonymous with public interest. without a clear showing of legislative intent. public benefit. (Silkair (Singapore) PTE. Observance of the principle of comity. fiscal or revenue – imposed for the purpose of raising public funds for the service of the government. BASIS: The lifeblood theory.  taxation ? What are the inherent limitations on the power of SUGGESTED ANSWERS: a. et al. it must not be enlarged by construction. not so much for revenue purposes.the intention of the law to give NPC all the tax exemptions it has been enjoying before. 1047)  18. Public purpose continually expanding. No. What are the different kinds of taxes classified as to purpose ? SUGGESTED ANSWER: a. April 16. and public convenience. REASON: The paramount consideration is the welfare of the greater portion of the population. Statutes granting tax exemptions must be construed in strictissimi juris against the taxpayer and liberally in favor of the taxing authority. G. d. INHERENT LIMITATIONS  1. Areas formerly left to private initiative now lose their boundaries and may be undertaken by the government if it is to meet the increasing social challenges of the times. The limitations also serve as a standard to measure the validity of a tax law or the act of a taxing authority. 2008) 5 hand taxation is an act of sovereign. g.  2. c. A law was enacted imposing a tax on manufacturers  of coconut oil. Special or regulatory – imposed primarily for the regulation of useful or non-useful occupation or enterprises and secondarily only for the raising of public funds. (Santos & Co. v. but under police power for the general welfare of the community. Private persons may be benefited but such benefit should be merely incidental as its main object is the benefit of the community in general. February 6. Ltd. A violation of the limitations serves to invalidate a tax law or act in the exercise of the power to tax. The revenues collected from taxation should be devoted to a public purpose. b. Central Luzon Drug Corporation. Recognition of government exemptions. An individual taxpayer need not derive direct benefits from the tax. On the other j. G. public welfare. LIMITATIONS OR RESTRICTIONS ON THE POWER 1. Only the legislature can exercise the power of taxes unless the same is delegated to some other governmental body by the constitution or through a law which does not violate any provision of the constitution. namely.R. b.R. Tax revenue must not be used for purely private purposes or for the exclusive benefit of private persons.. A tax may be imposed. What are the principles to consider in the  determination of whether tax revenues are devoted for a public purpose ? SUGGESTED ANSWER: a. There is a presumption of public purpose even if the tax law does not specifically provide for its purpose. Commissioner of Internal Revenue. 159647. be construed as including indirect taxes. h. c.. Territoriality. The exemption granted under Section 135 (b) of the NIRC of 1997 and Article 4(2) of the Air Transport Agreement between RP and Singapore cannot. Municipality of Meycauayan. d. The tax revenues are for a public purpose if utilized for the benefit of the community in general. The inherent and constitutional limitations to the power of taxation are safeguards which would prevent abuse in the exercise of this otherwise unlimited and plenary power. f. This would still be for a public purpose. Determined at the time of enactment of tax law and not at the time of implementation. REASON: It is inherent in the power to tax that the legislature is free to select the subjects of taxation. b. Purpose for the limitations on the power of taxation.. i. 173594. Public purpose. No. 94 Phil. Inequalities resulting from the singling out of one particular class for taxation or exemption infringe no constitutional limitation. to improve the working conditions in coconut mills and to conduct research on the use of coconut . the power should be imposed upon equals out of respect. The taxing power should be exercised only within territorial boundaries of the taxing authority. and if an exemption is found to exist. Thus. and e. Comity is the respect accorded by nations to each other because they are equals. General. 2005)  3. e. (Commissioner of Internal Revenue v. Some authorities include no double taxation. v.

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

March 6. who must do it. Reconciliation of the local government’s authority to tax and the Congressional general taxing power. doubts will be resolved in favor of municipal corporations. The delegation to the President of the Philippines to enter into executive agreements. in interpreting statutory provisions on municipal fiscal powers.. “is not regarded as a transfer of general legislative power. no longer merely by virtue of a valid delegation as before. 56) 10. 2004 citing National Power Corporation v. according to immemorial practice. e. the power of local government units to tax is still limited. Bayan Telecommunications. April 28.. No. No.R. Bayan Telecommunications. Ermita.. Henceforth. and must be within the jurisdiction of the local unit to pass. “the power to tax is [still] primarily vested in the Congress. etc. G. While the system of local government taxation has changed with the onset of the 1987 Constitution. R.. Delegation of emergency powers to the President under Section 23 (2) of Article VI of the Constitution. Batangas City. Ermita. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. No. . 261 SCRA 667. et al. to determine and declare the even upon which its expressed will takes place. Vera. [Abakada Guro Party List (etc. 484 SCRA 169 in turn referring to Mactan Cebu International Airport Authority. City of Cabanatuan. et al. ABS-CBN Broadcasting Corporation. 65 Phil. No. and what is the scope of his authority. 2006. section 5 of the 1987 Constitution. the basic doctrine on local taxation remains essentially the same. September 11. The power to tax is no longer vested exclusively on Congress. that taxes imposed by local government must be for a public purpose. these limitations must be “consistent with the basic policy of local autonomy. but rather as the grant of authority to prescribe local regulations. September 1. et al. Congress does not abdicate its functions or unduly delegate power when it describes what job must be done. 2008 citing City Government of Quezon City.” The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations. R. et al. Delegation to the people at large. Delegation to administrative bodies [Abakada Guro Party List (Formerly AASJS). v. (Batangas Power Corporation v. “What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. R. 8. 149110. et al.7 two and four-fifth percent (2 4/5%) or (ii) national government deficit as a percentage of GDP of the previous year exceeds one and one-half percent (1 ½%). v. ABS-CBN Broadcasting Corporation. which is referred to as subordinate legislation. uniform within a locality. October 6. 2003) 12. No. fees and other charges pursuant to Article X. and companion case. G. 152675. of course. 162015. Congress . etc. and to ratify treaties which may contain tax exemption provisions subject to the concurrence by the Senate in the ratification made by the President. 2006. subject. but pursuant to direct authority conferred by Section 5. there is a requirement that the law is complete in all aspects so what is delegated is merely the implementation of the law or there exists sufficiently determinate standards to guide the delegate and prevent a total transference of the taxing power. b. G. Taxing power of the local government is limited. In the above case the Secretary of Finance becomes merely the agent of the legislative department.R. et al. Inc. R. who is not under the conditions acting as the execute alter ego or subordinate. R.) v. to the interposition of the superior in cases of necessity. “Paradigm shift” from exclusive Congressional power to direct grant of taxing power to local legislative bodies. Further amplification by Bernas of the local government’s power to tax. 1996. Section 28 (2). In this instance. 680) 11. The taxing power of local governments is limited in the sense that Congress can enact legislation granting tax exemptions. No. The President cannot set aside the findings of the Secretary of Finance. 2008 citing City Government of Quezon City. 484 SCRA 169) 9. v. G. Moreover. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue. 2005 and companion cases citing various cases]] Local government legislation. R.. G. No. 2005]..” (Quezon City. September 1. No. d.” Was there an invalid delegation of legislative power ? SUGGESTED ANSWER: No.R. Delegation of tariff powers by Congress to the President under the flexible tariff clause.. Marcos. March 6. They no longer have to wait for a statutory grant of these powers. There is no undue delegation of legislative power but only of the discretion as to the execution of the law. 120082. While the power to tax by local governments may be exercised by local legislative bodies. 166408. Inc. local legislative bodies are now given direct authority to levy taxes.” (Quezon City. Article VI of the Constitution. however. This is constitutionally permissible. 168056. G. v. c. et al. G. April 9.. Article X of the Constitution.” (People v. G. must not be confiscatory. No. It is understood. Instances of proper delegation: When taxing power could be delegated: Exceptions to the rule on nondelegation: a. 166408. 162015. G.168056. v. v. October 6.

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

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

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

b. 429 U. 457 U. one class may be treated and regulated differently from another. donations or contributions used actually. Doe. that it must be germane to the purpose of the law. G. et al. o. but not widowers. a state law granting a property tax exemption to widows. (Lindsley v. Intentional discriminations against members of a quasi-suspect class violate equal protection unless they are substantially related to important government objectives. The traditional (or rational basis) test. Requisites for valid classification.. directly and exclusively for educational purposes. both as to the privileges conferred and liabilities enforced. Natural Carboinic Gas Co. Purisima.” otherwise the classification is presumed to be valid.e. 202) of a valid classification is that it be reasonable.S..S. 2008) 11. If the groupings are characterized by substantial distinctions that make real differences. No. [ABAKADA Guro Party List. It merely requires that all persons shall be treated alike. the classification should be based on substantial distinctions which make for real differences. directly and exclusively for educational purposes subject to conditions prescribed by law. Classification based on gender or legitimacy are not “suspect. 11 the validity of a classification and compliance with the equal protection clause. Thus.” but neither are they judged by the traditional or rational basis test. The traditional (or rational basis) test used in order to determine the validity of classification. A classification is necessary when it is narrowly drawn so that no alternative. Tax exemption of all revenues and assets of non-stock. that it must apply equally to each member of the class. 190) Thus. Government regulation that intentionally discriminates against a “suspect class” such as racial or ethnic minorities. 416 U. under like circumstances and conditions.n. G. that they committed identical acts for which they were charged with the violation of the same provisions of the NIRC.. (Santos. etc. The standard is satisfied if the classification or distinction is based on a reasonable foundation or rational basis and is not palpably arbitrary. The strict scrutiny (or compelling interest) test used in order to determine the validity of the classification. August 14. v. (Craig v. nonprofit educational institutions used actually. 1999) 10. The United States Supreme Court has established different tests to determine . 173176. et al. 449 U. 220 U. Shevin. Tax exemption of grants. supra) 8. i. (Tiu. August 26. No. c. is subject to strict scrutiny and considered to violate the equal protection clause unless found necessary to promote a compelling state interest. 9. b.S. v. (Kahn v. G. 2008]  6.S. and that they presented similar arguments and evidence in their defense yet. All that is required  7.” “wholly arbitrary.S. less burdensome means is available to accomplish the state interest. has been held valid for it furthers the state policy of cushioning the financial impact of spousal loss upon the sex for whom that loss usually imposes a heavier burden. endowments. United States Railroad Retirement Board v.. (Santos v. Fritz. Tax exemption of all revenues and assets of proprietary or cooperative educational institutions subject to limitations provided by law including restrictions on dividends and provisions for reinvestment of profits.. c. The classification must also be germane to the purpose of the law and must apply to all those belonging to the same class. that it must not be limited to existing conditions only. which means that a. 351) It is imperative to duly establish that the one invoking equal protection and the person to which she is being compared were indeed similarly situated. et al. Equal protection does not demand absolute equality. R. McGowan v. (Plyler v. The recognized tests are: a. Maryland.. 61. 166) 5. and d. 366 U.. they were treated differently. January 20. Court of Appeals. it was held that denial of free public education to the children of illegal aliens imposes an enormous and lasting burden based on a status over which the children have no control is violative of equal protection because there is no showing that such denial furthers a “substantial” state goal. No. The classification is valid if it is rationally related to a constitutionally permissible state interest. Equal protection of the law clause is subject to reasonable classification. The intermediate level of scrutiny (or quasi-suspect class) test used in order to determine the validity of he classification. The complainant must prove that the classification is “invidous. etc. Boren.R. Tests to determine validity of classification. 127410. p. R. The intermediate level of scrutiny (or quasi-suspect class) test. 166715. People. The strict scrutiny (or compelling interest) test.S. 420.” or ”capricious. et al.

2008)  9. (Santos v. Santos. resulting in its unequal application to those who are entitled to be treated alike. 277 SCRA 617) and the BOC because they have the common distinct primary function of generating revenues for the national government through the collection of taxes. such substantial distinction is germane and intimately related to the purpose of the law. In such a case. R. It would be unconscionable. 7794. Indubitably. the incentives and/or sanctions provided in the law should logically pertain to the said agencies. infringe no constitutional limitation. for instance. however. et al. G. et al. although a violation of the statute. This may appear on the face of the action taken with respect to a particular class or person. Equality and uniformity of taxation may mean the same as equal protection. Benjie files suit to declare the ordinance void on the ground that it is a class legislation." (Commissioner of Internal Revenue. There is a valid classification between those who already paid their taxes and those who have not. 12. is not without more a denial of the equal protection of the laws. Purisima. and the condonation of all penalties on fines resulting from late payment. Hence. 2008) 10. there 13. since these are being imposed: (1) on the same subject matter – the privilege of doing business in the City of Manila.. that is. the law concerns only the BIR  Illustration of double taxation in local taxation. is not a denial of equal protection unless there is shown to be present in it an element of intentional or purposeful discrimination. v. a classification that has a reasonable foundation or rational basis and not arbitrary. Will his suit prosper ? Explain your answer briefly. the terms would mean that all subjects and objects of taxation which are similarly situated shall be subject to the same burdens and granted the same privileges without any discrimination whatsoever. No.generation capability and collection of the BIR and the BOC. is indeed double taxation if Coca-Cola is subjected to the taxes under both Sections 14 and 21 of Tax Ordinance No. No. Due to a series of typhoons and adverse economic conditions.. While all persons accused of crime are to be treated on a basis of equality before the law. R. The prosecution of one guilty person while others equally guilty are not prosecuted. v. Moreover. SUGGESTED ANSWER: No. et al. etc. The municipal attorney rendered an opinion that Benjie cannot be reimbursed because the ordinance did not provide for such reimbursement. (Santos v. et al. No. et al. Likewise. People. to excuse a defendant guilty of murder because others have murdered with impunity. or it may only be shown by extrinsic evidence showing a discriminatory design over another not to be inferred from the action itself. August 14. August 26. August 26. G. customs duties. Benjie is a law-abiding citizen who pays his real  estate taxes promptly. an erroneous or mistaken performance of the statutory duty. fees and charges. the classification and treatment accorded to the BIR and the BOC under RA 9335 fully satisfy the demands of equal protection. it does not follow that they are to be protected in the commission of crime. Arguing that the ordinance rewards delinquent tax payers and discriminates against prompt ones. The unlawful administration by officers of a statute fair on its face. The equal protection clause recognizes a valid classification. the result would be that the trial of the district attorney for nonfeasance would become an issue in the trial of many persons charged with heinous crimes and the enforcement of law would suffer a complete breakdown. 2008) 11. People. 173176. 13. R. including granting a 50% discount in the payment of unpaid real estate taxes. a denial of the equal protection of the laws. 166715.. Equal protection should not be used to protect commission of crime. Benjie demands that he be refunded an amount equivalent to onehalf of the real property taxes he paid.12 12. The rewards law to tax collectors does not violate equal protection. etc. There is no class legislation because there is no violation of the equal protection suit. an ordinance is passed by Soliman City granting a 50% discount for payment of unpaid real estate taxes for the preceding year and the condonation of all penalties on fines resulting from the late payment. Since the subject of the law is the revenue. "inequalities which result from a singling out of one particular class of taxation. or exemption. Where the official action purports to be in conformity to the statutory classification. (ABAKADA Guro Party List. It is inherent in the power to tax that the State be free to select the subjects of taxation.. if the failure of prosecutors to enforce the criminal laws as to some persons should be converted into a defense for others charged with crime. G. (2) for the same purpose – to make persons conducting business within the City of Manila contribute to city . the taxing authority has the prerogative to select the subjects and objects of taxation. it’s expressed public policy is the optimization of the revenue-generation capability and collection of the BIR and the BOC.. and it has been repeatedly held that. Furthermore. by itself. With respect to RA 9335. 173176. is not.

(1987 Constitution.. R. R. does not interfere with a contract or impairs its obligation. The Contract Clause has never been thought as a limitation on the exercise of the State’s power of taxation save only where a tax exemption has been granted for a valid consideration. and national tax. hence resulting in the need for these entities to share in the requirements of development. The right to exemption from local franchise tax must be clearly established and cannot be made out of inference or implications but must be laid beyond reasonable doubt.. G.. G. alteration. September 16. The City of Davao.. 2008) NOTES AND COMMENTS: Philippine Long Distance Telephone Company. 143867. G. For not only are existing laws read into contracts in order to fix obligations as between parties. 2008 is explicit in its holding that Smart is not entitled to a tax exemption.. 2008) NOTES AND COMMENTS: This is practically the same holding in an earlier case involving another telecommunications company Smart  When withdrawal of a tax exemption impairs the 17.. 181845. 155491. As such it is not a private corporation engaged in “business enjoying franchise” Is such contention meritorious ? SUGGESTED ANSWER: No. or an increased tax on an old one. et al. R. R. v. City of Davao. or repeal. Art. R. Inc. Sec. No. City of Davao. v. et al. etc. ABS-CBN has the burden to prove that it is in fact covered by the exemption so claimed but has failed to do so. 2001 made the observation that since Smart’s franchise was granted after the effectivity of the Local Government Code that its tax exemption privilege was reinstated. v. etc.. G. (5) for the same taxing periods – per calendar year. It is thus. A legislative franchise is granted with the express condition that it is subject to amendment. (Smart Communications. 20.. It does not expressly provide what kind of taxes ABS-CBN is exempted from. However. Smart Communications. G.. No. (Philippine Ports Authority v. (3) by the same taxing authority – City of Manila. October 6. 143867. The primary reason for the withdrawal of tax exemption privileges granted to government owned and controlled corporations and all other units of government was that such privilege resulted to serious tax base erosion and distortions in the tax treatment of similarly situated enterprises. August 22. 11) 19. etc.revenues. September 16. G. Secretary of Finance. Inc. Inc. No. No. Verily. 115455. “In lieu of all taxes” in the franchise of ABS-CBN does not exempt it from local franchise taxes. 2009) 13 companies are similarly worded that the above doctrine finds application to the others) 18. (Smart Communications. The withdrawal of a tax exemption should not be construed as prohibiting future grants of exemption from all taxes. an instrumentality of the National Government which is exempt from local taxation. It is not clear whether the exemption would include both local. National Power Corporation (NPC) is of the insistence that it is not subject to the payment of franchises taxes imposed by the Province of Isabela because all of its shares are owned by the Republic of the Philippines. obligation of contracts. Coca-Cola Bottlers Philippines. Inc. August 4. (Tolentino v. ABS-CBN Broadcasting Corporation. et al. 685) The author opines that since practically all franchises granted to telecommunications . v. the uncertainty in the “in lieu of all taxes” provision should be construed against ABS-CBN. et al. R. Whether the “in lieu of all taxes provision” would include exemption from local tax is not unequivocal. 2003) 14. No. (Quezon City. Philippine Long Distance Telephone Company. Tax exemptions in franchises are always subject to withdrawal. 109791. city or provincial. 143867. No. etc. v. G.. No. et al. August 22.. 235 SCRA 630.. v. 2008) citing Tolentino v. Inc. through the exercise of prophetic discernment. The City of Davao. 2001. (The City of Manila. Secretary of Finance. July 14. (Philippine Long Distance Telephone Company. No. The policy of protecting contracts against impairment presupposes the maintenance of a government which retains adequate authority to secure the peace and good order of society. It is enough to say that the parties to a contract cannot. 1994. 166408. a local government unit. (4) within the same taxing jurisdiction – within the territorial jurisdiction of the City of Manila. Inc. but the reservation of essential attributes of sovereign power is also read into contracts as a basic postulate of the legal order. et al. 2001) 16. G. etc. to impose and collect a local franchise tax because the Local Government Code has withdrawn all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them. August 22. v. The City of Davao. G.. R... Inc. XII. upheld the authority of the City of Davao. within the meaning of the constitution. September 16. et al. 155491. City of Iloilo. et al. City of Davao.. fiscal or otherwise. by paying the taxes and other charges due them. and companion cases.. 155491. whether municipal. No. et al.. R. and (6) of the same kind or character – a local business tax imposed on gross sales or receipts of the business. A lawful tax on a new subject. fetter the exercise of the taxing power of the State. 235 SCRA 630) 15. R. No. August 25. R.. v. G. etc.

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

Thus. Tax treaties which exempts foreign nationals from local taxation and local nationals from foreign taxation under the principle of reciprocity. No. 127105. 2005 and companion cases]  27. 168056.) v. Sales taxes are also regressive. R. G. other the exemptions granted to cooperatives. etc. Central Luzon Drug Corporation. Do you agree ? The mandate to Congress is not to prescribe but to evolve a progressive system of taxation. Ermita. Johnson and Son. etc.. 1950 regarding other kinds of taxes in addition to the value-added tax.C. 33. G. 26. 115455. There is no law at the present which grants exemptions. September 1. [Abakada Guro Party List (etc. No. inserting the provision imposing a 70% limit on the amount of input tax to be credited against the output tax.  The petitioners allege that the R-VAT law is 30. The VAT while regressive is NOT violative of the mandate to evolve a progressive system of taxation. Are the contentions of such weight as to constitute grave abuse of discretion which may invalidate the law ? Explain briefly. 2005) 31. SUGGESTED ANSWER: No. and including OTHER CONCEPTS 1. (Commissioner of Internal Revenue v. No. a.. Tax credit generally refers to an amount that is subtracted directly from one’s total tax liability. When an item of income is taxed in the Philippines and the same income is taxed in another country. G. The Bicameral Conference Committee merely exercised the judicially recognized long-standing legislative practice of giving said conference committee ample latitude for compromising differences between the Senate and the House..) v. et al. there was a violation of the constitutional mandate that revenue bills shall originate exclusively from the House of Representatives. A tax deduction is defined as a subtraction fro income for tax purposes. 235 SCRA 630] 29. sales taxes which perhaps are the oldest form of indirect taxes. April 15. an allowance against the tax itself. et al. including those which are cooperatively owned.. No. 1999) the amendments introduced only by Senate Bill No. et al. [Abakada Guro Party List (etc. Central Luzon Drug Corporation. Allowing foreign taxes as a deduction from gross income. this would be known as international juridical double taxation which is the imposition of comparable taxes in two or more states on the same taxpayer in respect of the same subject matter and for identical grounds. or an amount that is allowed by law to reduce income prior to the application of the tax rate to compute the amount of tax which is due. September 1. may be entitled to exemptions subject to limitations provided by law including restrictions on dividends and provisions for reinvestments. R... or a deduction from what is owned. Distinguish tax from debt. 2005) 32. A tax credit reduces the tax due. R. Ermita. Otherwise. April 15. No.  . There was no grave abuse of discretion because all the changes and modifications made by the Bicameral Conference Committee were germane to subjects of the provisions referred to it for reconciliation. would have been prohibited with the proclamation of the constitutional provision. Tax credits where foreign taxes are allowed as deductions from local taxes that are due to be paid. G. . Inc. (Commissioner of Internal Revenue v. June 25.R. All revenues and assets of non-stock. including –whenever applicable – the income tax that is determined after applying the corresponding tax rates to taxable income. 159647. G. (Commissioner of Internal Revenue v. Double taxation a valid defense against the legality of a tax measure if the double taxation is direct duplicate taxation. non-profit educational institutions that are actually. R. S. deleting entirely the no pass-on provisions found in both the House and Senate Bills.. c. constitutional because the Bicameral Conference Committed has exceeded its authority in including provisions which were never included in the versions of both the House and Senate such as inserting the stand-by authority to the President to increase the VAT from 10% to 12%. Revenues and assets of proprietary educational institutions. Secretary of Finance. A tax deduction reduces the income that is subject to tax in order to arrive at taxable income. G. b. Methods for avoiding double taxation (indirect  duplicate taxation). because it would violate the equal protection clause of the constitution. 2005 and companion cases citing Tolentino v. August 25. et al. directly and exclusively used for educational purposes shall be exempt from taxation. 28.15 25. R. No. 1994. 159647. 168056.

1279 and 1290 all of the Civil Code. Garlitos. . (Commissioner of Internal Revenue v. Garlitos. 1200 in relation to Arts. G. 2010 reiterating Caltex Philippines. Compensation takes place by operation of law. (South African Airways v. Upon receiving an assessment for municipal sales taxes from the Municipal Treasurer. The parties in this case are mutually debtors and creditors of each other. February 16. Exceptions: When set-off or compensation allowed  for local taxes. (Commissioner of Internal Revenue v. Inc 172 SCRA 364)  3. Taxes cannot be the subject of compensation because the government and taxpayer are not mutually creditors and debtors of each  5. 8 SCRA 443) b. Compensation takes place by operation of law under Art. Gilbert obtained a judgment for a sum of money  against the municipality of Camiling. In both cases. 172 SCRA 364) Interest Authority Prescription draws interest if stipulated or delayed can be imposed by private individuals debt under the Civil Code WARNING: Do not use the above arrangement in answering Bar questions. No. 180356.The Supreme Court upheld the validity of a set-off between the taxpayer and the government. SUGGESTED ANSWER: As a general rule. the claims of the taxpayers therein were certain and liquidated. This is in consequence of Article 1278 and 1279 of the Civil Code. contract or judgment as is allowed to be set-off. compensation takes . b. Where both claims already become overdue and demandable as well as fully liquidated.16 TAX Basis Failure to Pay Mode of Payment Assignability Payment based on law may result in imprisonment generally payable in money not assignable unless it becomes a debt is not subject to compensation or setoff does not draw interest unless delinquent imposed by public authority Prescriptive periods for tax under NIRC DEBT based on contract or judgment no imprisonment payable in money. Esso Standard Eastern.. Thus. While judgment should be rendered in favor of Republic for unpaid taxes. and that the debts are both due and demandable. Taxes are not contractual obligations but arise out of a duty to. in consequence of Articles 1278 and 1279 of the Civil Code. to the making and enforcing of which the personal consent of the individual taxpayer is not required. where the local government and the taxpayer are in their own right reciprocally debtors and creditors of each other. 172 SCRA 623) c. where the government and the taxpayer are in their own right reciprocally debtors and creditors of each other. and are the positive acts of government. 4 SCRA 622) e. Commissioner of Internal Revenue. 8 SCRA 443) d. Commission on Audit. judgment ought at the same time to issue for Sampaguita Pictures commanding payment to the latter by the Republic of the value of the backpay certificates which the Republic received. 2. the government admitted the fact of over-payment. Mambulao Lumber Co. which applied Francia v. 8 SCRA 443) c. it is correct to say that the offsetting of a taxpayer’s tax refund with its alleged tax deficiency is unavailing under Art. (Republic v. 1279 of the Civil Code. (Domingo v. The judgment has become final although execution has not issued. Gilbert executed a partial assignment of his judgment sufficient to cover the assessment in favor of the Municipality. (Domingo v. In case of a tax overpayment.R. v. and since both of the claims became overdue. Compensation takes place by operation of law. demandable and fully liquidated. (Domingo v. Lifeblood theory. (Republic v. The claims were certain since there were no doubts or disputes as to their refundability. Inc. Inc. a. property or service assignable may be a subject other and a claim for taxes is not such a debt. Esso Standard Eastern. May the Municipal Treasurer validly accept the assignment? Why? SUGGESTED ANSWER: Yes. and that the debts are both due and demandable. Intermediate Appellate Court) 4. the BIR’s obligation to refund or off-set arises from the moment the tax was paid. demand.. May there be compensation or set-off between a  national tax and a debt ? Reason out your answer. REASON: Solutio indebeti. Ericta. In fact. there could be no compensation or set-off between a tax and a debt for the following reasons: a. Garlitos.

A claim of tax exemption must be clearly shown and based on language in law too plain to be mistaken.. March 18. nor are they presumed. ABS-CBN Broadcasting Corporation. G. where the BIR’s obligation to refund or set-off arises from the moment the tax was paid under the principle of solutio indebeti.R. A tax cannot be imposed without clear and express words for that purpose. (Commissioner of Internal Revenue v. October 6. since taxation is the rule and exemption the exception. 141658. Inc. Interpretation in the imposition of taxes.R. July 6. as burdens which must be endured by the taxpayer. a case decided by the Supreme Court whose factual antecedents are similar to the problem. 2008) He who claims an exemption from his share of common burden must justify his claim that the legislature intended to exempt him by unmistakable terms. Accordingly.. Why are tax exemptions are strictly construed against the taxpayer and liberally in favor of the State ? SUGGESTED ANSWER: Taxes are necessary for the continued existence of the State. 120082. No. Thus.. 330-331 (1997)] As burdens. (Commissioner of Internal Revenue v. citing CIR v.. No. are not founded principally on legislative grace but on the legal principle which underlies . (Quezon City. 8 SCRA 443.. et al. 167274-75. R. Court of Appeals. July 21. is not the similar doctrine as that applied to tax exemptions. 680) The burden of proof rests upon the party indebeti to apply it is an essential condition that the petitioner must first show that its payment of the customs duties was in excess of what was required by the law at the time the subject 16 importations of milk and milk products were made. It has been held that “exemptions are never presumed the burden is on the claimant to establish clearly his right to exemption and cannot be made out of inference or implications but must be laid beyond reasonable doubt. The rule in the interpretation of tax laws is that a statute will not be construed as imposing a tax unless it does so clearly. statutes granting tax exemptions are construed stricissimi juris against the taxpayer and liberally in favor of the taxing authority.. Garlitos. it is basic that in case of doubt. 2008 citing Mactan Cebu International Airport Authority v. should not be presumed to go beyond what the law expressly and clearly declares. Such was the holding in Domingo v. p. (Quezon City. No. Strict interpretation of a tax refund that partakes of the nature of a tax does not apply to tax refund based on erroneous payment or where there is no law that authorizes collection of the tax.. Philippine American Accident Insurance Company. such statutes are to be construed most strongly against the government and in favor of the subjects or citizens because burdens are not to be imposed nor presumed to be imposed beyond what statutes expressly and clearly import. G. G. ABS-CBN Broadcasting Corporation. 2003 ed.. expressly. (Quezon City. 338 Phil. R. 2008 citing CIR v. Esso Standard Eastern. October 6. Rationale for strict interpretation of tax exemption laws. (Lincoln Philippine Life Insurance Company. fairness and equality of treatment among taxpayers. Taxes are what civilized people pay for civilized society. et al.R. In case of doubt. and unambiguously. 166408. 2001 which held that in order for the rule on solutio 8. R. Fortune Tobacco Corporation. 172 SRCA 364) 12. R. In answering the question of who is subject to tax statutes. G.E. p.. taxation is the rule. They must be expressed in the clearest and most unambiguous language and not left to mere implications. supra citing Agpalo. In case of a tax overpayment. Nos. (Quezon City. September 11. et al. Strict interpretation of tax exemption laws. Otherwise stated. 134114. 322. G. 166408. G. taxes should not be 10. There is parity between tax refund and tax exemption only when the former is based either on a tax exemption statute or a tax refund statute.E. 1996. Court of Appeals. The basis for the rule on strict construction to statutory provisions granting tax exemptions or deductions is to minimize differential treatment and foster impartiality. (Ibid. 2008) claiming the exemption to prove that it is in fact covered by the exemption so claimed. 293 SCRA 92. 453 SCRA 668) 11. 13. et al... supra citing Agpalo. They are the lifeblood of the nation. Marcos. Nos. 99) 7. Fortune Tobacco Corporation. 301) Tax refunds (or tax credits). exemption is the exception. But note Nestle Phil. the general rule of requiring adherence to the letter in construing statutes applies with peculiar strictness to tax laws and the provisions of a taxing act are not to be extended by implication. No. etc. v. Inc. tax laws must be construed strictly against the State and liberally in favor of the taxpayer because taxes. the intention to make an exemption ought to be expressed in clear and unambiguous terms. Court of Appeals. In other words. G. unduly exacted nor assumed beyond the plain meaning of the tax laws. For exemptions from taxation are not favored in law. v. v.place by operation of law. 17 9. v. the disputable presumption of regularity of performance of duty lies in favor of the Collector of Customs. Statutory Construction. R. Unless shown otherwise. 2005. 302) 6. [Commissioner of Internal Revenue v. 261 SCRA 667. Statutory Construction. on the other hand. R. No. 2003 ed. 167274-75. Inc. July 21..

v. [Commissioner. is never favored nor presumed in law. Philex Mining Corp. 22 October 1975. much like a tax exemption. (Commissioner. 37 (1963)] The purpose of tax amnesty is to a. 985 (1963)] 18 tax by words too plain to be mistaken. L-30644. 891892 (1998). (Commissioner. 178 Phil. a legislative grace. Tax exemption is a result of legislative grace. Sr. the rule of strict interpretation against the taxpayer is applicable as the claim for refund partakes of the nature of an exemption. In such case. 482 (1979). et al. supra citing Ramie Textiles. supra citing CIVIL CODE. No. 127 Phil. February 10. supra at 338) If the State expects its taxpayers to observe fairness and honesty in paying their taxes. 330 SCRA 507. Nos. 579 (1999).. G. v.. v. No. 1988) WHILE a tax exemption is an immunity from civil liability only. Inc. v. [Commissioner. (Lincoln Philippine Life Insurance Company. A tax amnesty. City of Manila. 36 NE 365) b. Fireman’s Fund Insurance Co. 102967. v. 99) Indeed. The grant of a tax amnesty. supra citing Commissioner of Internal Revenue v. Commission of Internal Revenue. supra citing AB Leasing and Finance Corporation v. 2142. Tokyo Shipping Co. 117 Phil. supra) 16. The taxpayer must show that the legislature intended to exempt him from the a. et al. R.. Inc. v. 167274-75. G. Ramie Textiles. Tax refunds premised upon a tax exemption strictly construed. supra. et al. et al. Commissioner of Internal Revenue and Court of Tax Appeals. 314 Phil. and the latter has the duty to refund without any unreasonable delay what it has erroneously collected.all quasi-contracts abhorring a person’s unjust enrichment at the expense of another. 472 (1967). [Commissioner. [Commissioner of Internal Revenue v. (Philippine Banking Corporation. 148 SCRA 315. Tax amnesty is an immunity from all criminal. A reversal of a BIR ruling favorable to a taxpayer would not necessarily create a perpetual exemption in his favor. G. Inc. Court of Appeals. 220. supra) WHILE tax exemption has prospective application. 357-358. No. And he who claims an exemption from the burden of taxation must justify his claim by showing that the legislature intended to exempt him by words too plain to be mistaken. Jr. Acetylene Co. 461.. 2000) 17. It partakes of an absolute waiver by the government of its right to collect what is due it and to give tax evaders who wish to relent a chance to start with a clean slate. a freedom from a charge or burden to which others are subjected. G. Commissioner of Internal Revenue v. January 30. Commissioner of Internal Revenue. given its essence. Vera. Commissioner of Internal Revenue. supra citing Phil. 518 (2000)] And so. supra with a note to see Surigao Consolidated Mining Co. Commissioner of Internal Revenue. Tokyo Shipping Co. 137 Ind. A claim for tax refund may be based on statutes granting tax exemption or tax refund. give the government a chance to collect uncollected tax from tax evaders without having to go through the tedious process of a tax case. 119 Phil. Castaneda. Inc. Tax amnesty distinguished from tax exemption. Gonzales Puyat & Sons v. must be construed strictly against the taxpayer and liberally in favor of the taxing authority. supra at 732-733. R.. supra citing Commissioner of Internal Revenue v. July 21.. v. 9 March 1987. . for after all the government is never estopped from collecting taxes because of mistakes or errors on the part of its agents. 2008 citing Surigao Consolidated Mining Co. 572. etc. Mathay.R. Tax amnesty applies only to past tax periods.. Mathay. v. No. 354 Phil. Ltd.. Inc. v. 293 SCRA 92. Hon. 365 Phil. Manila Electric Company v. [Commissioner. supra) 15. Fortune Tobacco Corporation. City of Manila. 2154 and 2155) The Government is not exempt from the application of solutio indebiti. It should not unjustly enrich itself at the expense of taxpayers. Surigao Consolidated Mining Co. 28. . G.. 2009) 14. Puyat & Sons v. 510. Court of Appeals. Davao Gulf Lumber Corp. 67 SCRA 351. Commissioner of Internal Revenue. Effect of a BIR reversal of a previous ruling interpreting a law as exempting a taxpayer. 324-325.R.R. which cannot be allowed unless granted in the most explicit and categorical language. hence of retroactive application (Castaneda. it must hold itself against the same standard in refunding excess (or erroneous) payments of such taxes. (Commissioner. and to b. (Commissioner. (Banas.R. September 15. Sheridan. Commissioner of Internal Revenue. 33. L-29987. Inc.. Arts. 297 in turn citing BPI-Family Savings Bank. No. 228 (1995)] The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract. 170574. L-46881. etc. The rule is that tax exemptions must be strictly construed such that the exemption will not be held to be conferred unless the terms under which it is granted clearly and distinctly show that such was the intention. Inc. solutio indebiti. a claim for tax refund necessitates only preponderance of evidence for its approbation like in any other ordinary civil case. give tax evaders who wish to relent a chance to start a clean slate. G. v. It is an immunity or privilege. similar to a tax exemption. CIR. the taxpayer expects fair dealing from the Government. v.. v. supra] 18.. which covers not only mistake in fact but also mistake in law. 453 Phil. (Florer v. A tax amnesty is a general pardon or intentional overlooking by the State of its authority to impose penalties on persons otherwise guilty of evasion or violation of a revenue or a tax law. Court of Appeals. civil and administrative liabilities arising from nonpayment of taxes (People v.

as if no reduction has been made.e. The shift from the ad valorem system to the specific tax system is likewise meant to promote fair competition among the players in the industries concerned. NIRC of 1997] c. A taxpayer who authorizes the Commissioner to inquire into his bank deposits.. the need for the tax sparing provision. b. 2002. or the non-payment of tax when it is shown that a tax is due. such incentives are siphoned off since. . p. Klaus on Double Taxation Conventions. when the tax method credit method is applied to these items of income. There may be instances where a particular income is exempt from taxation in order to encourage foreign investments which may lead to economic development. September 14. the Bank Deposits Secrecy Law prohibits inquiry into bank deposits. [Sec.1255 cited in Segarra. Fortune Tobacco Corporation. (Commissioner of Internal Revenue v. joint accounts (cuentas en participacion). R. Tax avoidance is the use of legally permissible means to reduce the tax while tax evasion is the use of illegal means to escape the payment of taxes. C5) TAX ON INCOME 1. p. Fortune Tobacco Corporation. July 21. The end to be achieved. 167274-75.” or ”deliberate and not accidental”. the Supreme Court held citing Mertens that the term partnership includes a syndicate. 3. the tax benefits are cancelled out. or venture is carried on. The objective of tax avoidance in most instances is merely to reduce the tax that is due while is tax evasion the object is to entirely escape the payment of taxes. pool. no matter how created or organized. As exceptions to Rep. 24 now Sec. G. among others. 140. NATIONAL INTERNAL REVENUE CODE ORGANIZATION AND FUNCTIONS OF THE BUREAU OF INTERNAL REVENUE 3. 20. a decedent to determine his gross estate. 2008) 22.” “willful. R. 167274-75. . R. an accompanying state of mind which is described as being “evil” on “bad faith. 5 (F). Purpose of the NIRC of 1997.    1. Philippine Daily Inquirer. to ensure an equitable distribution of the tax burden and to simplify tax administration by classifying cigarettes. (Ibid. and therefore not subject to tax as corporations. joint-stock companies. group. etc. or insurance companies. December 6. Tax sparing is a provision in some tax treaties which provides that the state of residence allows as credit the amount that would have been paid. administrative and criminal penalties while tax avoidance does not. 2 Tax avoidance distinguished from tax evasion. (Commissioner of Internal Revenue v. Consequently. a course of action or failure of action which is unlawful.) Thus. In Evangelista v. there would be no more tax to credit since there is no more tax to credit as a result of the tax exemption. (Commissioner of Internal Revenue v. joint venture or other unincorporated organization. b. Toda. the Commissioner of Internal Revenue is only authorized to inquire into the bank deposits of: a. [Sec. Certain business organizations do not fall under the category of “corporations” under the Tax Code . Nos. Rep. and c. factors: a. Collector. 1405. Tax avoidance is legal while tax evasion is illegal. No. Nos. G. July 21.19 19. G. into high. If the tax credit method is used. and b. include: a.. i. The Tax Code has included under the term “corporation” partnerships. 102 Phil. 24 (B) of the NIRC of 1997] 2. 147188. Act No. Tax evasion connotes the integration of three 1. c. the payment of less than that known by the taxpayer to be legally due. Tax Treaties: Trick or treat ?. through or by means of which any business. Tax evasion warrants the imposition of civil. Jr. The Estate of Benigno P. Third Edition. associations. General professional partnerships. Purpose of shift from ad valorem system to specific tax system in taxation of cigarettes. medium and low-priced based on their net retail price and accordingly graduating tax rates. Act No. financial operation. Revenue generation has undoubtedly been a major consideration in the passage of the Tax Code. any taxpayer who has filed an application for compromise of his tax liability by reason of financial incapacity to pay his tax liability.. 1405. Venice H. 2008) a. (Vogel. 2004) 2. in effect.

160 No. it is income to the extent of the amount realized by the debtor as compensation for his services. 142 S. Court of Appeals. shall be treated as the income of an unregistered partnership to be taxable as a corporation because of the clear intention of the brothers to join together in a venture for making money out of rentals. Simmons Gin Co. Commissioner of Internal Revenue. if any. BIRC of 1997] 20 tax a capital increase rather than the income. (Lakeland Grocery Co. Sec. 139 SCRA 436) b. G. (Obillos. and they may. The insolvent debtor realizes income resulting from the cancellation or forgiveness of indebtedness when he becomes solvent. If a creditor merely desires to benefit a debtor and without any consideration therefor cancels the amount of the debt it is a gift from the creditor to the debtor and need not be included in the latter’s income. The term taxable income means the pertinent items of gross income specified in the Tax Code. without becoming partners. 22 (B). No. There must be an unmistakable intention to form a partnership or joint venture. 108576. are not thereby rendered partners. NIRC of 1997) 9. p. though they may use it for purpose of making gains. 14. At the same time. The income from the rental of the house. in consideration thereof. less the deductions and/or personal and additional exemptions. to tax a stock dividend would be to . [1st sentence. whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived.. 31. 1999)  4. (Ibid. (Commissioner of Internal Revenue v. No.W. coal. pursuant to an operation or consortium agreement under a service contract with the Government. Section 15. 83. cancels the debt. 2 nd Ed. 10. Commissioner 36 BTA (F) 289) 5. 50.) c. An insolvent debtor does not realize taxable income from the cancellation or forgiveness. 166 SCRA 560) 8. If an individual performs services for a creditor who. In relation thereto.. Jr. If a corporation to which a stockholder is indebted forgives the debt. The sharing of gross returns does not of itself establish a partnership.R..  Co-heirs who own inherited properties which produce income should not automatically be considered as partners of an unregistered corporation subject to income tax for the following reasons: a. Wilson. Income is gain derived and severed from capital. merely continuing the dedication of the property to the use to which it had been put by their forebears. Mechem. (Elements of the Law of Partnership by Floyd R. The cancellation and forgiveness of indebtedness or to a (c) capital may amount to (a) payment of income. 2) 15. Commissioner of Internal Revenue. 74 cited in Pascual v. No less than our Constitution guarantees the protection of cooperatives. cited in Pascual v. (b) gift. v. bought from the earnings of co-owned properties. Regs. Members of cooperatives not subject to tax on the interest earned from their deposits with the cooperative. authorized for such types of income by the Tax Code or other special laws. Rev.. Section 2 of Article XIII of the Constitution states that the promotion of social justice shall include the commitment to create economic opportunities based on freedom of initiative 6. are among themselves as to the management and use of such property and the application of the proceeds therefrom. 14. but who severally retain the title to their respective contribution. 363. and no community of interest as principal proprietors in the business itself from which the proceeds were derived. Persons who contribute property or funds to a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution. (Commissioner v. The common ownership of property does not itself create a partnership between the owners. (Sec. (Sec. App. Sec. et al. 7. and other energy operations. For example.. (Spurlock v. 43 Fd 327 CCA 10th) 12. Section 10 of Article II of the Constitution declares that it is a policy of the State to promote social justice in all phases of national development. 166 SCRA 560) 13. from labor or from both combined.b. Article XII of the Constitution considers cooperatives as instruments for social justice and economic development. transaction depending upon the circumstances.. January 20. 11. They have no common stock capital. geothermal. Commissioner of Internal Revenue. There is no contribution or investment of additional capital to increase or expand the inherited properties. the transaction has the effect of payment of a dividend. v. Joint venture or consortium formed for the purpose of undertaking construction projects engaging in petroleum.

8-2000] In closing. del Rosario. and j. Flowers. that any amount given by the employer as benefits to its employees. on account of illness.000. while indispensable. No. e..000 per employee per annum.00 ceiling.00 or one (1) sack of 50-kg. including their members. Compensation income is considered as having been earned in the place where the service was rendered and not considered as sourced from the place of origin of the money. rice per month amounting to not more than P1. further. Daily meal allowance for overtime work not exceeding twenty five percent (25%) of the basic minimum wage. whether classified as de minimis benefits or fringe benefits. 500 Phil.. .  What are considered as de minimis benefits not subject to withholding tax on compensation income of both managerial and rank and file employees ? SUGGESTED ANSWER: a. Under the National Internal Revenue Code the global system is applicable to taxable corporations and the schedular to individuals. cooperatives. e. the State’s power to tax must give way to foster the creation and growth of cooperatives. Gifts given during Christmas and major anniversary celebrations not exceeding P5.000 ceiling of “other benefits” provided under Section 32 (B)(7)(e) of the Code. 20. 23.000. Commissioner of Internal Revenue. Rev. Actual yearly medical benefits not exceeding P10.00.000. Consequently. Monetized unused vacation leave credits of employees not exceeding ten (10) days during the year. No. Payment for services. The recipient is no longer required to include the income subjected to a final tax as part of his gross income in his income tax return. 16. etc. other than compensation income. fruits. Jr. g. American Express International. To borrow the words of Justice Isagani A. or similar items given to employees under special circumstances. (Tan v.g.. (Tan v. R. shall constitute as deductible expense upon such employer. 25 (A) (1). January 22.. Jr. 331) 17. shall be considered as a nonresident alien doing business in the Philippines. 237 SCRA 324. we find that an interpretation exempting the members of cooperatives from the imposition of the final tax under Section 24(B)(1) of the NIRC (tax on interest earned by deposits) is more in keeping with the letter and spirit of our Constitution. The amount of de minimis benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30. if the employer pays more than the ceiling prescribed by these regulations. c. is not absolute and may be subordinated to the demands of social justice.00 received by an employee under an established written plan which does not discriminate in favor of highly paid employees. d. NIRC] He is allowed to avail of the itemized deductions including the personal and additional exemptions subject to the rule on reciprocity. 19. Inc. b.g. 21. for length of service or safety achievement. G. [Sec. (Dumaguete Cathedral Credit Coopertive [DCCC)] etc.1 (A) (3). 586 (2005). f. The payor of the income withholds the tax and remits it to the government as a final settlement of the income tax as a final settlement of the income tax due on said income. with an annual monetary value not exceeding P10.000. 331) 18. who has stayed in the Philippines for an aggregate period of more than 180 days during any calendar year. is considered as having been earned at the place where the activity or service was performed.000.and self-reliance. Bearing in mind the foregoing provisions.00 per employee per semester or P125 per month.” (Ibid. deserve a preferential tax treatment because of the vital role they play in the attainment of economic development and social justice. A non-resident alien. birth of a baby.000. [Sec. The Global system of income taxation is a system employed where the tax system views indifferently the tax base and generally treats in common all categories of taxable income of the individual.00 per annum.00 per annum.. Thus. he shall be subject to income tax on his income derived from sources from within the Philippines. books. which must be in the form of a tangible persona property other than cash or gift certificate. 2-98 as amended by Rev. 182722. marriage. e. provided. Cruz: “The power of taxation. citing Commissioner of Internal Revenue v. However. 2010) 21  22. 2. v. The Schedular system of income taxation is a system employed where the income tax treatment varies and is made to depend on the kind or category of taxable income of the taxpayer. Employees achievement awards. del Rosario. Income subject to “final tax” refers to an income collected through the withholding tax system. Medical cash allowance to dependents of employees not exceeding P750. Rice subsidy of P1. Uniforms and clothing allowance not exceeding P3. i. the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30. (Philippine Branch). Regs.78. h. 237 SCRA 324. Regs. although taxes are the lifeblood of the government. Laundry allowance not exceeding P300 per month.

Proceeds of life insurance policies paid to the heirs or beneficiaries upon the death of the insured whether in a single sum or otherwise. 7641 and those received by officials and employees of private firms. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. An example of an exclusion from gross income are life insurance proceeds. SUGGESTED ANSWER: a. f. NIRC of 1997]. Amounts received for beyond control separation. or 2) For any cause beyond the control of said official or employee [Sec. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. in accordance with the employer’s reasonable private benefit plan approved by the BIR. c. redundancy and cessation of business. [Sec.. Sec. Exclusions pertain to the computation of gross income WHILE deductions pertain to the computation of net income. Income of any kind to the extent required by any treaty obligation binding upon the Government of the Philippines. sickness or other physical disability. b. NIRC of 1997] The retiring official or employee should not have previously availed of the privilege under the retirement plan of the same or another employer. or at maturity of the term mentioned in the contract. Regs. 2-98]  27. What are the Itemized deductions from gross income and who may avail of them ? a. hence tax-exempt ? SUGGESTED ANSWER: a. employee or by his heirs. 32 (B) (6) (a). individual or corporate. Exclusions are something received or earned by the taxpayer which do not form part of gross income WHILE deductions are something spent or paid in earning gross income.  22 Distinguish exclusions from deductions. Amounts received by the insured as a return of premiums paid by him under life insurance. From the employer c. [1st par. (2) It is exempted by statute. through accident or health insurance or Workmen’s Compensation Acts as compensation for personal injuries or sickness. Retirement benefits received under Republic Act No. Resident citizens. Exclusions from gross income refer to a flow of wealth to the taxpayer which are not treated as part of gross income for purposes of computing the taxpayer’s taxable income. 24. due to the following reasons: (1) It is exempted by the fundamental law. No. d. resident alien individuals and nonresident alien individuals who are engaged in trade and business. on their gross incomes other from compensation income are allowed to deduct these expenses. Retiring official or employee 1) In the service of the same employer for at least ten (10) years. No. 2.  What are excluded from gross income ? 28. plus the amounts of any damages received on whether by suit or agreement on account of such injuries or sickness. resident alien individuals and nonresident alien individuals who are engaged in trade and business. such as retrenchment. hence tax-exempt ? SUGGESTED ANSWER: a. trade or business. 61. etc.78 (B). e. b. Taxes paid or incurred within the taxable year in connection with the taxpayer’s profession. Any amount received by an official. Rev. [1 st par. Rev. whether . Value of property acquired by gift. Foreign social security. Sec. 32 (B) (6) (b). As a consequence of separation of such official or employee from the service of the employer because of 1) Death. and an example of a deduction are losses. No. b. and (3) It does not come within the definition of income (Sec. Rev. pensions. estates and trusts may also deduct this expense. 7641. on their gross incomes other from compensation income are allowed to deduct these expenses. b. What are the conditions for excluding retirement benefits from gross income. Domestic corporations.78 (B) (1). Regs. SUGGESTED ANSWER: a. c. 3) Availed of the benefit of exclusion only once. or upon surrender of the contract. 2. (1) (b).    26. c. Resident citizens. Amounts received. SSS benefits and GSIS benefits. 2) WHILE deductions are the amounts which the law allows to be subtracted from gross income in order to arrive at net income. USVA benefits. 2-98]  25. bequest. Ordinary and necessary trade.. devise. or descent. Retirement received from reasonable private benefit plan after compliance with certain conditions. 2) Not less than fifty (50) years of age at time of retirement. retirement gratuities.  What kind of separation (retirement) pay is excluded from gross income. business or professional expenses. Regs. b. The amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession. endowment or annuity contracts either during the term. Retirement benefits received under Republic Act No.

f. and net operating losses. Resident citizens. estates and trusts may also deduct this expense. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Resident citizens. losses from casualty. wear and tear (including reasonable allowance for obsolescence) of property used in trade or business. estates and trusts may also deduct this expense. resident alien individuals and nonresident alien individuals who are engaged in trade and business. resident alien individuals and nonresident alien individuals who are engaged in trade and business.  h. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. i. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Nonresident alien . Insurance premiums for health and hospitalization. Bad debts due to the taxpayer. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Contributions to pension trusts. Resident citizens. Personal and additional exemptions. actually ascertained to be worthless and charged off within the taxable year. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Research and development expenditures treated as deferred expenses paid or incurred by the taxpayer in connection with his trade. Domestic corporations. resident alien individuals and nonresident alien individuals who are engaged in trade and business. estates and trusts may also deduct this expense. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. estates and trusts may also deduct this expense. Domestic corporations. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. estates and trusts may also deduct this expense. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Resident citizens. Resident citizens. Nonresident citizens on their gross incomes from within may also deduct this expense. Resident citizens. Nonresident citizens and nonresident alien individual engaged in trade or business in the Philippine on their gross incomes from within may also deduct these premiums. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct these premiums. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. g. trade or business. Domestic corporations. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Resident citizens. Resident citizens. Domestic corporations. Depreciation or a reasonable allowance for the exhaustion. resident alien individuals and nonresident alien individuals who are engaged in trade and business. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. connected with profession. j. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Resident citizens. Domestic corporations. resident alien individuals and nonresident alien individuals who are engaged in trade and business. business or profession. on their gross incomes other from compensation income are allowed to deduct these expenses. l. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. estates and trusts may also deduct this expense. on their gross incomes other from compensation income are allowed to deduct these expenses. not deducted as expenses and chargeable to capital account but not chargeable to property of a character which is subject to depreciation or depletion. Domestic corporations. theft or  embezzlement. on their gross incomes other from compensation income are allowed to deduct these expenses. k. on their gross incomes other from compensation income are allowed to deduct these expenses. Depletion or deduction arising from the exhaustion of a nonreplaceable asset. estates and trusts may also deduct this expense. Domestic corporations. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.  d. usually a natural resource. Ordinary losses. not sustained between related parties. Nonresident citizens and foreign corporations on their gross incomes from within may also deduct this expense. on their gross incomes other from compensation income are allowed to deduct these expenses.Domestic corporations. and resident alien on their gross incomes and from compensation income are allowed to deduct these premiums. on their gross incomes other from compensation income are allowed to deduct these expenses. on their gross incomes other from compensation income are allowed to deduct these expenses.   Charitable and other contributions. on their gross incomes other from compensation income are allowed to deduct these expenses. estates and trusts may also deduct this expense. 23 Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense.   e.

The propriety of an accrual must be judged by the fact that a taxpayer knew. (Commissioner of Internal Revenue v. the test is satisfied where a computation may be unknown. 172231. b. but is not as much as unknowable. No. it must have been paid or incurred during the taxable year dependent upon the method of accounting upon the basis of which the net income is computed.  What are the requisites for the deductibility of business expenses ? SUGGESTED ANSWER: The following are the requisites for deductibility of business expenses: a. Proof by evidence or records of the deductions allowed by law including compliance with the business test. Ordinary expenses are usually incurred during a taxable year and benefits such taxable year. TMG Corporation is issuing the accrual method of accounting. within the taxable year. G. R. it must be supported by receipts. SUGGESTED ANSWER: The BIR is correct.  expenditures. and the (b) cash method. TMG deducted the same from its 2006 gross income. 172231. R. February 12. 2007)    32. Isabela cultural Corporation. 2007)  29. The amount of liability does not have to be determined exactly. February 12. (Commissioner of Internal Revenue v. No. 172231. Since the bills . February 12. No.individuals engaged in trade or business in the Philippines are allowed to deduct these exemptions under reciprocity. Nonresident alien individuals not engaged in trade or business in the Philippines are not allowed to deduct this expense. This test requires: 1) fixing of a right to income or liability to pay. b. 172231. only that a taxpayer has at his disposal the information necessary to compute the amount with reasonable accuracy. No. Isabela cultural Corporation. February 12. there was already an obligation to pay them. (Commissioner of Internal Revenue v.. Accounting methods for tax purposes comprise a set of rules for determining when and how to report income and deductions. 4) Must not be bribes. Necessary expenses are those which are appropriate or helpful to the business. In 2005 XYZ Law Firm and ABC Auditing Firm rendered various services which were billed by these firms only during the following year 2006. at the closing of its books for the taxable year. (Ibid. No. TMG should have deducted the professional and legal fees in the year they were incurred in 2005 and not in 2006 because at the time the services were rendered in 2005. R. G. the expense must be ordinary and necessary. Distinguish ordinary expenses from capital SUGGESTED ANSWER: Ordinary expenses are those which are common to incur in the trade or business of the taxpayer WHILE capital expenditures are those incurred to improve assets and benefits for more than one taxable year. TMG or BIR ? Explain. (Commissioner of Internal Revenue v. Accrual method of accounting presents largely a question of fact. 3) Must be paid or incurred in carrying on a trade or business. February 12. and 2) the availability of the reasonable accurate determination of such income or liability. The all-events test is satisfied where computation remains uncertain. R. All-events test. (Commissioner of Internal Revenue v. Isabela cultural Corporation. Compliance with the business test: 1) Must be ordinary and necessary. 2007) The two (2) principal accounting methods for recognition of income are the (a) accrual method.. c. Liabilities. if its basis is unchangeable. Isabela cultural Corporation. Amounts of income accrue where the right to receive them becomes fixed. such that the taxpayer bears the burden of proof of establishing the accrual of an item of income or deduction. G. or could reasonably be expected to have known. G. G.  30. are incurred when fixed and determinable in nature without regard to indeterminacy merely of time of payment. Compliance with the substantiation test. 2007) The accrual of income and expense is permitted when the all-events test has been met. Recognition of income and expenses under the accrual method of accounting. like expenses paid for legal and auditing services ? SUGGESTED ANSWER: a. R. The test does not demand that the amount of such income or liability be known absolutely. 172231. The BIR disallowed the deduction ? Who is correct.  What are the requisites for the deductibility of ordinary and necessary trade. 2007) NOTES AND COMMENTS: a.  31.) c. records or other pertinent papers. or professional expenses. business. it must be determined with “reasonable accuracy” implies something less than an exact or completely accurate amount. Isabela Cultural Corporation. where there is created an enforceable liability. 24 for legal and auditing services were received only in 2006 and paid in the same year. kickbacks or other illegal expenditures b. 2) Must be paid or incurred within the taxable year.

33 (B). 1st par. business or profession of the employer. Regs. Life or health insurance and other non-life insurance premiums or similar amounts in excess of what the law allows. Rev. b. by or for such individual. Fringe benefits which are authorized and exempted from income tax under the Tax Code or under any special law. What is meant by “fringe benefit” for purposes of  taxation ? SUGGESTED ANSWER: For purposes of taxation. No. or f. Under the cash method income is to be construed as income for tax purposes only upon actual receipt of the cash payment. 2. except rank and file employees. A grantor and a fiduciary of any trust. 3-98]  34. Sec. 2. c. granted or paid by the employer to the employee. Sec. Thus. such as maid. 5-99) SUGGESTED ANSWER: The following are related parties: a. 25 d. 3-98] 33. by or for the same individual. Rev. [1st par. Regs. They are not considered as compensation subject to income tax and consequently to withholding tax. Household personnel. . NIRC of 1997. f. The family of an individual shall include only his brothers and sisters (whether by the whole or halfblood). 8-2000] 36. Expenses for foreign travel.  Who are related parties ? 35. and f. medical services. No. 3-98] c. Regs. 17-71)   Bad debts are those which result from the worthlessness  38. The fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust. directly or indirectly. (Sec. Contributions of the employer for the benefit of the employee to retirement. g. or efficiency of his employees. Fringe benefits that are not subject to the fringe benefits tax: a. 36 (B). It is also referred to as the “cash receipts and disbursements method” because both the receipt and disbursements are considered. No. c. 2. 3-98] (such as entertainment.. Rev. Rev. No.78. goodwill.. and lineal descendants. Members of the same family. Educational assistance to the employee or his dependents. When the fringe benefit is required by the nature of. [Sec. e. Benefits given to the rank and file employees. 32(A). Sec.33 (A). No. Regs. e. contentment. arising from money lent or from uncollectible amounts of income from goods sold or services rendered. 33 (B). dues and other expenses borne by the employer for the employee in social and athletic clubs or other similar organizations. such as but not limited to: a. whether granted under a collective bargaining agreement or not. Regs. [Sec. An individual and a corporation more than fifty percent (50%) in value of the outstanding stock of which is owned.33 (A). [1st par. NIRC of 1997.d. service. or b. driver and others. 2-98 as amended by Rev. or so-called “courtesy discounts” on purchases). Interest on loan at less than market rate to the extent of the difference between the market rate and actual rate granted. if such facilities are offered or furnished by the employer merely as a means of promoting the health. Housing. 2. d. The fringe benefits tax is a final withholding tax imposed on the grossed-up monetary value of fringe benefits furnished.. A fiduciary of a trust and a beneficiary of such. [Sec. or other benefit furnished or granted in cash or in kind by an employer to an individual employee (except rank and file employees). 32 (C). h. De minimis benefits as defined in the rules and regulations to be promulgated by the Secretary of Finance upon recommendation of the Commissioner of Internal Revenue. Regs. NIRC of 1997]  39. Regs. Two corporations more than fifty percent (50%) in value of the outstanding stock of which is owned. 2. 1st par. Sec. directly or indirectly. Preferred shares are considered capital regardless of the conditions under which such shares are issued and dividends or “interests” paid thereon are not allowed as deductions from the gross income of corporations. insurance and hospitalization benefit plans. and j. furnished or offered by an employer to his employees. spouse. 2. of amounts due the taxpayer by others. Rev.. or necessary to the trade. or e. Membership fees. Expense account. Holiday and vacation expenses. [Sec. d. i. Sec. ancestors. De minimis benefits are facilities and privileges  37.a. income is recognized only upon actual receipt of the cash payment but no deductions are allowed from the cash income unless actually disbursed through an actual payment in cash. in whole or in part. fringe benefit means any good. Rev. b. or uncollectibility. Vehicle of any kind. When the fringe benefit is for the convenience or advantage of the employer.1 (A) (3). (Revenue Memorandum Circular No. NIRC of 1997.33 (C).

The same must not be sustained in a transaction entered into between related parties. They are fixed amounts in the sense that the amounts have been predetermined by our lawmakers and until our lawmakers make new adjustments on these personal exemptions. Rafferty and Concepcion. 159991. then his subsequent recovery thereof shall be treated as a mere recovery or a return of capital. 38 Phil. 256 SCRA 667] g. These are arbitrary amounts which have been calculated by our lawmakers to be roughly equivalent to the minimum of subsistence. he realized a reduction of the income tax due from him on account of the said deduction. The debt must be actually ascertained to be worthless and uncollectible during the taxable year. 9504. NOTES AND COMMENTS: a. 2006 citing Madrigal and Paterno v. No. 3. Regs. 2) Hours of productive use. Regs. 34 (E) (1). 418 (1918)] 45.000) for each individual taxpayer. whether single or married. 44. Rev. and d. Philippine Refining Corporation v. No. Rev. the amounts allowed to be deducted by a taxpayer are fixed as predetermined by Congress. Commissioner of Internal Revenue. Regs. 5-99) 42. 9504 that each of the spouses may claim the P50. 2. Regs.e. The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year. taking into account the personal status and additional qualified dependents of the taxpayer. NOTES AND COMMENTS: It is clear from Rep. 5-99 reiterated in Rev. the total familial basic personal exemption for spouses is P100. 5-99) 26 43. Regs.000. Thus. 2) : SUGGESTED ANSWER: The “tax benefit rule” posits that the recovery of bad debts previously allowed as deduction in the preceding year or years shall be included as part of the taxpayer’s gross income in the year of such recovery to the extent of the income tax benefit of said deduction.. [Sec.000. married and head of the family for purpose of availing of the basic personal exemption has already been eliminated by Rep. 4. 2-98 as amended by Rev. (Sec. The term is also applied to amortization of the value of intangible assets the use of which in the trade or business is definitely limited in duration. Court of Appeals. 35 (A). What is the “tax benefit” rule ?  SUGGESTED ANSWER: These are the theoretical persona. There must be an existing indebtedness due to the taxpayer which must be valid and legally demandable. Furthermore. d. 3) Revaluation method. b. No. Rev. a. Sec. Declining balance method. et al. What are personal and additional exemptions ?  41. where the result of his business operation was a net loss even without deduction of the bad debts written-off). Act No. What are the requisites for valid deduction of bad  debts from gross income ? SUGGESTED ANSWER: a. . The same must be connected with the taxpayer’s trade. 102008] b. living and family expenses of an individual allowed to be deducted from the gross or net income of an individual taxpayer. In the case of married individuals where only one of the spouse is deriving gross income. 40. Rev. Act No. Rev. Depreciation is the gradual diminution in the useful value of tangible property resulting from ordinary wear and tear and from normal obsolescence. his subsequent recovery thereof from his debtor shall be treated as a receipt of realized taxable income.00. and e. c. What is the amount allowed as basic personal  exemption ? SUGGESTED ANSWER: There shall be allowed a basic personal exemption amounting to Fifty thousand pesos (P50. No. Sum of years digits method. Straight line method. 414. G. b. NIRC of 1997. 25-2002. No. (Sec. business or practice of profession. Must have been reported as receivables in the income tax return of the current or prior years. Regs. The methods of depreciation are the following: a. No. NIRC of 1997 as amended by Rep. only such spouse shall be allowed the personal exemption. The debts are uncollectible despite diligent effort exerted by the taxpayer.79 (I) (1) (a). Any other method prescribed by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue: 1) Apportionment to units of production. November 16. 4. [Sec. c. 45. If the said taxpayer did not benefit from the deduction of the said bad debt written-off because it did not result to any reduction of his income tax in the year of such deduction (i. (Sec. not treated as receipt of realized taxable income. and 4) Sinking fund method. If in the year the taxpayer claimed deduction of bad debts written-off. 103. What are the amounts of additional exemptions ?  SUGGESTED ANSWER: “An individual.00. the distinctions between the concepts of single. R. [Pansacola v. Sec. hence. 9504. f. Act No. Regs.

in case of condominium unit. Regs. e. Real property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. 39 (A) (1). 2) unmarried and 3) not gainfully employed or d. Act No. No. April 26. Act No. Property used in the trade or business. Stock in trade of the taxpayer. if they are senior citizens they may qualify as additional exemptions under the “Senior Citizens Law” but not under the NIRC of 1997. d. [Sec. be they relatives or not shall be accorded the privileges granted by the Code insofar as having dependents are concerned. townhouse or apartment. L-25043. f. and other collateral relatives are not qualified dependents to be claimed as additional exemptions.. single individuals may now claim for the additional exemptions. if such dependent is 1) not more than twenty-one (21) years of age. NIRC of 1997. 9504] The term “capital assets” means property held by the taxpayer (whether or not connected with his trade or business).a. It is clear that under the amendment. Act No. of a character which is subject to the allowance for depreciation. It is to be noted that under the NIRC of 1997. Sec. Other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year. No. No. 7-2003) 48. or b. as amended. a legitimate. Court of Tax Appeals. as amended by Rep. namely: a. as amended by Rep. Capital assets shall refer to all real properties held by a  . Rev. shall be allowed an additional exemption of Twenty-Five Thousand Pesos (P25. Property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. Sec. Act 9257. 1) regardless of age 2) is incapable of self-support 3) because of mental or physical defect . Regs.  49. or taxpayer. or real property used in the trade or business of the taxpayer.. No. Sec. 3. individual taxpayers caring for them.a. Act No. 35 (B). 3rd par. “A dependent means a. 7-2003] c. shall be treated as capital asset. Stock and securities held by taxpayers other than dealers in securities. 9504. Rev. the concept of head of a family does not find application anymore. Ordinary assets shall refer to all real properties  specifically excluded from the definition of capital assets. not used in trade or business as evidenced by a certification from the Barangay Chairman or from the head of administration.000. c. or condominium unit. 2. No. 102008. 9504] 27 NOTES AND COMMENTS: a.b. Rev. 9504. Regs. Regs. [last par. as amended by Rep. provided that the total number of dependents for which additional exemptions may be claimed 1) shall not exceed four (4) dependents. “The Expanded Senior Citizens Act of 2003”] Examples of capital assets: a. Stock in trade of a taxpayer or other real property of a kind which would properly be included in the inventory of a taxpayer if on hand at the close of the taxable year. d. owned by an individual engaged in business. and therefore considered as capital asset. etc. as well. However. Sec.. 1968) g. Senior citizen shall be treated as dependents provided for in the National Internal Revenue Code. Paintings.79 (I) (1) (b).79 (I) (1) (b). Regs. 7-2003) 47. if such dependent. BUT DOES NOT INCLUDE: a. objects of arts which are not used in trade or business. illegitimate or legally adopted child b. 2-98 as amended by Rev. NIRC of 1997. townhouse. Rev. b. 2. 3. and which are not included among the real properties considered as ordinary assets. No. Rev. b. No. 2-98 as amended by Rev. or d. arrangement and numbering supplied.b. or b.00) c. “Real property used by an exempt corporation in its exempt operations. chiefly dependent upon and living with the taxpayer c. Furthermore. Regs. Regs. Sec. sculptures. Rev. 5 (a). whether or not connected with his trade or business.b. as amended by Rep. numbering and arrangement supplied. 2. 7-2003) h. such as a corporation included in the enumeration of Section 30 of the Code. Sec. Grandparents. “Real property. Inherited large tracts of agricultural land which were subdivided pursuant to the government mandate under land reform..” [2nd par. parents. Residential houses and lands owned and used as such. NIRC of 1997 as amended by Rep. (Roxas v. as brothers or sisters. whether single detached. arrangement and numbering supplied. (Sec. stamp collections. 7432. Regs. 35 (b). and as such. for each qualified dependent child.” (last par.” [1st par. Rep. or c. No. Act No. only qualified dependent children are considered for additional exemptions. Automobiles not used in trade and business. and as validated from the existing available records of the Bureau of Internal Revenue. 102008. 2.. Jewelry not used for trade and business. then sold to tenants. shall not be considered used for business purposes. Sec.” (last sentence. capitalized words. Sec.

(Sec. sale. Real property used in trade or business (i. d. Jr. Regs. or d. 386. 7-2003) 28  50. classified as capital assets. The machinery and equipment of a manufacturing concern subject to depreciation. b. Real property used in trade or business of the taxpayer. 3 (2). No. The tractors. 121 Phil.e. exchange. 2. exchange. 861) 51. Regs. as the owner is now engaged in the business of subdividing real estate. b. b. 3135. NIRC of 1997. and shall be paid within thirty (30) days from the expiration of the said one-year redemption period.” [Sec. the employment of an attorney-in-fact for the purpose of developing. (Calasanz v. [Sec. Lingad. Regs. Regs. administering and selling the lots. Inherited parcels of land of substantial areas located in the heart of Metro Manila. drainage and lighting systems converts the property to an ordinary asset. 4-99] . No. 24 (D) (1). will use in business the property received in the exchange. 24 (D) (1`).c. Inherited agricultural property improved by introduction of good roads. In case of non-redemption of the property sold upon a foreclosure of mortgage sale. annual sales income from the sales was considerable. (Gutierrez v. including pacto de retro sales and other forms of conditional sales. Real properties classified as capital or ordinary asset in the hands of the seller/transferor may change their character in the hands of the buyer/transferee. Real property received as dividend by stockholders who are not engaged in the real estate business and who not subsequently use such real property in trade or business shall be treated as capital assets in the 54. The wood. No. The condominium building owned by a realty company the units of which are for rent or for sale. which are the raw materials of a furniture factory. 4-99] 55. b. et al. No.. paint.. or to a taxpayer who. and who does not subsequently use such property in trade or business. Examples of ordinary assets hence not capital  assets: a. concrete gutters. or other disposition of real property located in the Philippines.’ (Sec. which were subdivided into smaller lots then sold on installment basis after introducing comparatively valuable improvements not for the purpose of simply liquidating the estate but to make them more saleable . NIRC of 1997] Revenue Regulations No. Rev.f. 3 (1). the presumed capital gains tax shall be imposed. shall be considered as a capital asset in the hands of the heir or donee. 2. hence an ordinary asset. The classification of such property in the hands of the buyer/transferee shall be determined in accordance with the following rules: a. The tax is “imposed upon capital gains presumed  to have been realized from the sale. numbering and arrangement supplied] d. as amended by Act No. Real property transferred through succession or donation to the heir or donee who is not engaged in the real estate business with respect to the real property inherited or donated. Rev. or other disposition” includes taking by the government through condemnation proceedings. This is so.. managing. 713. Court of Tax Appeals. 6 of Act No. 144 SCRA at p.c. e. otherwise known as the ‘Civil Code of the Philippines. Rev. Transactions covered by the presumed capital  gains tax on real property: a. 58 SCRA 170) f. based on the bid price of the highest bidder but only upon the expiration of the one year period of redemption provided for under Sec.. No. Rev. 672) hands of the recipient even if the corporation which declared the real property dividend is engaged in real estate business. [Sec. 3. The property forms part of the stock in trade of the owner. c. 4118. in a foreclosure of mortgage sale of real property. In case the mortgagor exercises his right of redemption within one (1) year from the issuance of the certificate of sale. even if not engaged in real estate business. etc. Regs. exchange. et al. glue. “ Sale. 7-2003)  52. or other disposition. Rev. 72003)  53. v. no capital gains tax shall be imposed because no capital gains has been derived by the mortgagor and no sale or transfer of real property was realized. Court of Tax Appeals. c. [Sec. Tax treatment of real properties that have been  transferred. varnish. of a character which is subject to the allowance for depreciation. Gonzales v. (Sec. sales made with frequency and continuity. trailers and trucks of a hauling company. buildings and/or improvements). Commissioner of Internal Revenue. (Tuazon. and the heir was not a stranger to the real estate business. c. 7-2003 has defined real property as having “the same meaning attributed to that term under Article 415 of Republic Act No. The real property received in an exchange shall be treated as ordinary asset in the hands of the transferee in the case of a tax-free exchange by taxpayer not engaged in real estate business to a taxpayer who is engaged in real estate business. nails. 101 Phil.

the said tax exemption can only be availed of once every ten (10) years. 24 (D) (1). [Sec. As a result of the ruling MBC filed an application for refund of the P33 million. [Sec. classified as capital assets. Due to the BIR’s inaction. [Sec. 24 (A) (1).  58. MBC was incorporated in 1961 and engaged in commercial banking operations since 1987. pays the presumed capital gains tax whether: a. NIRC of 1997]. 24 (D) (1). 6 (E). It filed its tax return for the year 1999 paying the amount of P33 million computed in accordance with the minimum corporate income tax (MCIT). In a volte facie the BIR now maintains that MBC should pay the MCIT beginning January 1. 24 (D) (1). b. 1) Citizen. 2) Resident alien [Ibid. BIR then ruled that cessation of business activities as a result of being placed under involuntary receivership may be an economic reason for suspending the imposition of the MCIT. On May 22. 3) Nonresident alien engaged in trade or business in the Philippines [Sec. 24 (D) (1). The seller of the real property. of individual taxpayers (not  corporate). 56. both of the NIRC of 1997] 29  60. 24 (D) (2). 24 (D) (1) in relation to Sec. 1999. 25 (B) in relation to Sec. On June 23. c. it ceased operations that year by reason of insolvency and its assets and liabilities were placed under the charge of a government-appointed receiver. the current fair market value as determined below: 1) the fair market value or real properties located in each zone or area as determined by the Commissioner of Internal Revenue after consultation with competent appraisers both from the private and public sectors. The CTA denied the petition on the ground that MBC is not a newly organized corporation. [Sec. Excepted from the payment of the presumed  capital gains tax are those presumed to have been realized from the disposition by natural persons of their principal place of residence a. if any. the corporate existence was never affected.). classified as a capital asset. an estate or trust (Ibid. 24 (D) (1) in relation to Sec. The basis for the final presumed capital gains tax  of six per cent (6%) is whichever is the higher of the a. NIRC of 1997] It does not matter whether there was an actual gain or loss because the tax is a “presumed” capital gains tax. It sought the BIR’s ruling on whether it is entitled to the four (4) year grace period for paying on the basis of MCIT reckoned from 1999. both of the NIRC of 1997] or the final presumed capital gains tax of six percent (6%). In 2000. both of the NIRC of 1997]. Should the refund be granted ? SUGGESTED ANSWER: Yes. gross selling price. Even if placed under receivership. an individual [Sec. 6 (E). 25 (A) (3) in relation to Sec. by including the proceeds as part of gross income to be subjected to the allowable deductions and/or personal and additional exemptions. It is the transaction that is taxed not the gain. 57. a domestic corporation.]. to the governm ent or any of its political subdivisions or agencies or to government owned or controlled corporations shall be determined. 27 (D) (5).]. at the option of the taxpayer. on gains from sales or other dispositions of real property. MBC filed a petition for review with the CTA. within eighteen (18) calendar months from the date of sale or disposition c. it falls under the category of an existing corporation recommencing its banking operations. 1987. then to the schedular tax [Sec. 4) Nonresident alien not engaged in trade or business in the Philippines [Sec. the BSP authorized MBC to operate as a thrift bank. the proceeds of which is fully utilized in acquiring or constructing a new principal residence. 1998 as it did not close its business operations in 1987 but merely suspended the same. whether resident or not [Ibid. The MCIT shall be imposed beginning in the fourth taxable year immediately following the year in . the BIR Commissioner shall have been duly notified by the taxpayer within thirty (30) days from the date of sale or disposition through a prescribed return of his intention to avail of the tax exemption. The tax liability. both of the NIRC of 1997] 59. NIRC of 1997] 61. or 2) the fair market value as shown in the schedule of values of the Provincial and City Assessors. b. Thus. in relation to Sec. Holding period not applied to the taxation of the presumed capital gains derived from the sale of real property considered as capital assets. and d. or b. both of the NIRC of 1997].

Smith. The gross estate of a Filipino citizen or a resident alien comprises all his real property. He died in San Francisco. Regs. Corporations still starting their business operations have to stabilize their venture in order to obtain a stronghold in the industry. R. August 26. 1999 when it was authorized by the BSP to operate as a thrift bank before the MCIT should be applied to it. No. if the decedent is a Filipino citizen or a resident alien. what constitutes gross estate ? SUGGESTED ANSWER: Yes. Rev. all his personal property. The decedent takes the insurance policy on his own life 1) The amounts are receivable by a) the decedent’s estate. an American citizen. “A minimum corporate income tax of two percent (2%) of the gross income as of the end of the taxable year. MBC is entitled to the grace period of four years from June 23. whichever comes later. NIRC of 1997] b. Regs. G. the assets to be included in the Estate Tax Return to be filed with the BIR should be all property. 1998. OR 2) The amounts are receivable by any beneficiary designated in the policy of insurance as revocable beneficiary. No. “(5) Specific rules for determining the period when a corporation becomes subject to the MCIT (minimum corporate income tax) For purposes of the MCIT. Commissioner of Internal Revenue. for Philippine estate tax purposes.  3. G. 4-95) Clearly then. was a  permanent resident of the Philippines. situated in the Philippines. situated in the Philippines. William Smith. Purpose of the four (4) year grace period. the taxable year in which business operations commenced shall be the year in which the domestic corporation registered with the Bureau of Internal Revenue (BIR). tangible.  are his properties abroad to be included. in order to allow new corporations to grow and develop at the initial stages of their operations. He left 10. R. real or personal. No. a. to the extent of his interest existing therein at the time of his death. wherever situated. Metro Manila and a house and lot in Miami. wherever situated. is hereby imposed on a corporation taxable under this Title.” [Sec. NIRC of 1997] The date of commencement of operations of a thrift bank is the date it was registered with the SEC or the date when the Certificate of Authority to Operate was issued to it by the Monetary Board. No. No. to the extent of his interest existing therein at the time of his death.000 shares of San Miguel Corporation. 2006) NOTES AND COMMENTS: a. all of the properties enumerated in the problem irrespective of where they are situated are includible in the gross estate of Smith. as defined herein. G. 9-98 because Rev. all his personal property. Firms which were registered with BIR in 1994 and earlier years shall be covered by the MCIT beginning January 1. August 26. 4-95 specifically refers to thrift banks. 168118. California. NIRC of 1997] ESTATE TAXES . 168118. Thus. or c) administrator irrespective of whether or not the insured retained the power of revocation. [Sec. 2006 did not apply Rev. Thus. a resident alien. Regs. The intent of Congress relative to the MCIT is to grant a four (43) – year suspension of tax payment to newly organized corporations. a condominium unit at the Twin Towers Building at Pasig. The MCIT and when should be imposed and the four (4) year grace period.  2. intangible or mixed. beginning on the fourth taxable year immediately following the year in which such corporation commenced its business operations. tangible. 9-98) Manila Banking Corporation v. Period when a corporation becomes subject to the MCIT. R. Commissioner of Internal Revenue. intangible or mixed. 85 (E). b) his executor. What assets shall be included in the Estate Tax Return to be filed with the BIR ? SUGGESTED ANSWER: All of the assets should be included in the Estate Tax Return to be filed with the BIR. intangible or mixed. 27 (E) (1).which the corporation commenced its business operations. It does not come as a surprise then when many companies reported losses in their initial years of operations. August 26. 168118. and more particularly. The gross estate of a non-resident alien comprises all his real property. when the minimum corporate income tax is greater than the tax computed under Subsection (A) of this section for the taxable year. Proceeds of life insurance includible in a  decedent’s gross estate. 6. No. the lawmaking body saw the need to provide a grace period of four years from their registration before they pay their minimum corporate income tax. 2006) 30 1. Florida. wherever situated. [Sec. (Manila Banking Corporation v. an American citizen and a permanent resident of the Philippines is considered. Commissioner of Internal Revenue. Consequently. (Sec. Regs. x x x” (Rev. tangible. 27 (E) (1). In determining the gross estate of a decedent. (Manila Banking Corporation v. No.) c. to the extent of the interest that Smith has at the time of his death.

Vanishing deduction (property previously taxed)  allowed as a deduction from the gross estate of a Filipino citizen. or if the property was transferred to him by gift within the same period prior to his death. Expenses. d. Where the insurance was NOT taken by the decedent upon his own life and the beneficiary is not the decedent’s estate. because the proceeds are includible as part of gross estate whether or not the decedent retained the power of revocation.   8. resident aliens and nonresident estates for properties which were previously subject to donor’s or estate taxes. or transferred to the decedent by gift within five years prior to his death. c. g. or a claim against the estate as such. b) his executor. of a resident alien decedent. to designate the person who shall possess or enjoy the property or the income therefrom. 5. 31 is called a vanishing deduction because the deduction allowed diminishes over a period of five (5) years. Act Mo. NIRC of 1997) NOTES AND COMMENTS: The beneficiary must not be the decedent’s estate. and b. executor or administrator. d.” [Sec. or (2) the right. or from such prior decedent by gift. Property previously taxed. indebtedness and taxes. or the right to the income from the property. or if the property was transferred to him by gift within the same period prior to his death. other than the decedent takes the insurance policy on the life of the decedent 1) The amounts are receivable by a) the decedent’s estate. NIRC of 1997] Vanishing deduction (deduction for property previously taxed). It is also known as a deduction for property previously taxed. but is against the . [Sec. a.  7. or inheritance. There is no transfer in contemplation of death if there is no showing that the transferor “retained for his life or for any period which does not in fact end before his death: (1) the possession or enjoyment of.) c. e. h. 4917. Medical expenses not exceeding P500. defined. or c) administrator 2) irrespective of whether or not the insured retained the power of revocation. f. whether resident or not. The decedent takes the insurance policy on his own life. The approval of the court sitting in probate. or if the property was transferred to him by gift within the same period prior to his death. The deduction  6. Any property forming a part of the gross estate situated in the Philippines c Of any person who died within five years prior to the death of the decedent. claims. The probate court is determining issues which are not against the property of the decedent. 60% of the value if the prior decedent died more than two years but not more than three years prior to the death of the decedent. The deduction allowed from the gross estates of citizens. Items deductible from the gross estate of a resident or nonresident Filipino decedent or resident alien decedent: a. numbering. Amount of exempt retirement received by the heirs under Rep. 80% of the value if the prior decedent died more than one year but not more than two years prior to the death of the decedent.b. the proceeds are receivable by a beneficiary designated as irrevocable. b. Transfers for public use. bequest. The Family Home up to a value not exceeding P1 million. 85 (B). Proceeds of life insurance NOT included in a  decedent’s gross estate. NIRC of 1997. or as a  settlement tribunal over the estate of the deceased is not a mandatory requirement for the collection of the estate. [Sec.000. Standard deduction of P1 million. and 20% of the value if the prior decedent died more than four years but not more than five years prior to the death of the decedent. or if the property was transferred to him by gift within the same period prior to his death. losses. arrangement and underlining supplied]  4. 85 (E). 40% of the value if the prior decedent died more than three years but not more than four years prior to the death of the decedent. 86 (A) (2) and (B) (2). (Ibid. An amount equal to the value specified below of b. his executor or administrator. either alone or in conjunction with any person. 4. One. devise.00. Which can be identified as having been acquired in exchange for property so received: 100% of the value if the prior decedent died within one year prior to the death of the decedent. Net share of the surviving spouse in the conjugal partnership. Where such property can be identified as having been received by the decedent from the donor by gift. or e. or of a nonresident alien decedent. a. or if the property was transferred to him by gift within the same period prior to his death.

etc. Rev. The general renunciation by an heir. What is the donor’s tax rate if the donee is a  stranger ? SUGGESTED ANSWER: When the donee or beneficiary is a stranger.2-2003)   8. and three minor children. The first P100. NIRC of 1997) SUGGESTED ANSWER: a. 273 SCRA 47) 32 6. Is the renunciation subject to donor’s tax ? Explain. No. This is so because the renunciation was specifically and categorically done in favor of X and identified heir to the exclusion or disadvantage of Y and Z.No. B renounced her hereditary share in A’s estate to X who is a special child. the appraised value of the real property at the time of the gift shall be whichever is the higher of: a. 11. 2-2003) This is so because the general renunciation by B was not specifically and categorically done in favor of identified heir/s to the exclusion or disadvantage of the other co-heirs in the hereditary estate. (4th par. No. Supposing that instead of a general renunciation. 3.. (Marcos. Rep. donor’s tax. 102.000. However. then the net gift is measured by deducting from the fair market value of the property the amount of the mortgage assumed. 99 (A). Relative by consanguinity in the collateral line within the fourth degree of relationship. she renounced her hereditary share in the estate. has in the property formerly held by the decedent. executory and enforceable. et al. his surviving 7.00 net donation during a calendar year is exempt from donor’s tax [Sec.interest or property right which the heir. 11. the fair market value as shown in the schedule of values fixed by the Provincial and City Assessors. NIRC of 1997] made by a resident or non resident.” [Sec. ancestor and lineal descendant. [Sec. the tax payable by the donor shall be 30% of the net gifts. [Sec. Y and Z. 7549) . Regs. Sec. SUGGESTED ANSWER: My answer would be different.. Sec. 99 (A). How are gifts of personal property to be valued for donor’s tax purposes ? SUGGESTED ANSWER: The market value of the personal property at the time of the gift shall be considered the amount of the gift. or b.  A died leaving as his only heirs. 11. the same can no longer be contested by means of a disguised protest. Act No. devisee. The renunciation in favor of X would be subject to donor’s tax. in relation to Sec. NIRC of 1997] NOTES AND COMMENTS: All relatives by affinity. sister (whether by whole or half-blood). For purposes of the donor’s tax. Sec. Since B does not want to participate in the distribution of the estate. legatee. What is the tax base for donations ? SUGGESTED ANSWER: The net gifts made during the calendar year. The donation by a resident or non-resident of a prize to an athlete in an international sports tournament held abroad and sanctioned by the national sports association is exempt from donor’s tax (Sec. (last par. Accordingly. spouse B. NIRC of 1997] b. would your answer be the same ? Explain. X.  stranger ? For purposes of the donor’s tax who is a SUGGESTED ANSWER: A stranger is a is person who is not a: a. b. what is meant by “net gifts ?” SUGGESTED ANSWER: The net economic benefit from the transfer that accrues to the donee. Brother. if a mortgaged property is transferred as a gift. as in the case B. (4th par. the fair market value as determined by the Commissioner of Internal Revenue (zonal valuation) or b. the other co-heirs in the hereditary estate.  2. II v. The tax assessment having become final. (Sec. Regs. irrespective of the degree. of her share in the hereditary estate left by the decedent is not subject to donor’s tax. Court of Appeals.. but imposing upon the donee the obligation to pay the mortgage liability. Rev. a. SUGGESTED ANSWER: No. Regs. 2-2003) 4. The notices of levy were regularly issued within the prescriptive period. Give some donations that are exempt from 5. including the surviving spouse. 88 (B) both of the NIRC of 1997] DONOR’S TAXES  1. 102.. are considered as strangers. 1. Rev. 99 (B). spouse. What is the valuation of donated real property for donor’s tax purposes ? SUGGESTED ANSWER: The real property shall be appraised at its fair market value as of the time of the gift.

who in the course of trade or business.00 is the totality of the net gifts for 2008. sells. is transferred for less than an adequate and full consideration in money or money’s worth.000. R. 166408. directly liable for its payment. [Commissioner of Internal Revenue v. then the amount by which the fair market value of the property at the time of the execution of the Contract to Sell or execution of the Deed of Sale which is not preceded by a Contract to Sell exceeded the value of the agreed or actual consideration or selling price shall be deemed a gift. barters. or services by the seller.000. The transaction.00 net gifts for each calendar year. e. foundation. If he donated the P200. However. 36. 153866. Gifts made by non-resident aliens outside of the Philippines to Philippine residents are exempt from donor’s taxes because taxation is basically territorial.   . 101 (A). exchanges. properties or services. The author has retained the “Stars System” for VAT.00 in 2008 the first P100. or to any political subdivisions of the said Government.000. SUGGESTED ANSWER: Donation or gift splitting is spreading the gift over numerous calendar years in order to avail of lower donor’s taxes. the reader is advised to focus on areas marked with stars and just browse the unmarked areas.000.  A. 33 assigned to review the sale. the VAT is an indirect tax and can be passed on to the buyer. the Corporation Code prohibits corporations from making political contributions.. 11.000 would be exempt and the remaining P50. (Corp.  9. (Quezon City. This area is probably the most difficult area to forecast because there are no statistically perceived patterns. properties. ABS-CBN Broadcasting Corporation. institution.000. but in terms of its nature as a tax on consumption. Regs. Further. [Sec.00 to Miklos.c. The P200. G. merit or importance of goods. Where property. 2 Nature of VAT. et al. religious. f. which should have been subject to tax was made by non-resident aliens and took place outside of the Philippines. Sec. In 2008 Leon was thinking of donating a P200. No. renders services. however. his first cousin. It is also levied on every importation of goods whether or not in the course of trade or business. 2008 and the remaining P100.00 on December 30. who is engaged in the car “buy and sell” business sold to B P7 million Jaguar for only P4 million. cultural or social welfare corporation. 2005 citing various authorities} 10. Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by residents who are parents to each of their legitimate.00 would be subject to donor’s tax If Leon spreads the P200. Gifts made by residents or non residents in favor of an educational and/or charitable. Rev. would you issue a tax assessment on the transaction ? Explain your answer briefly. What is the concept of donation or gift splitting ?  Illustrate. Political contributions made by a resident or non-resident individual if registered with the COMELEC irrespective of whether donated to a political party or individual. That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. properties or services. Sec. No. SUGGESTED ANSWER: Donor’s taxes would be due on the insufficiency of consideration. 2-2003) VALUE-ADDED TAXES (VAT) WARNING !!! Approximately 10% of the total questions asked in the Bar Examination are sourced from VAT and its concepts. NIRC of 1997. The proper VAT on the sale was paid. Seagate Technology (Philippines). Leon would be enjoying the exemption for the first P100. The tax base of the VAT is limited only to the value added to such goods. and not on the total value of the goods or services being sold or rendered.000. Title IV. v. 1 Value-added tax (VAT) is a tax which is imposed only on the increase in the worth.   . Considering the limited period of time. As such.000. 2008) . February 11. leases. numbering and arrangement supplied] g. it should be understood not in the context of the person or entity that is primarily. 2009 the transaction would be exempt from donor’s tax. October 6. or adopted children to the extent of the first ten thousand pesos (P10.000 donation over two (2) calendar years. recognized natural. donating P100. VAT is an indirect tax that may be shifted or passed on to the buyer.000. goods or properties. trust or philanthropic organization or research institution or organization: Provided. If you are the BIR examiner VAT is a percentage tax imposed on any person whether or not a franchise grantee. This is so even if the donation is separated only by two days because the basis is the calendar year. transferor or lessor.00).00 on January 1. Gifts made by residents or non-residents to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit. No.. R. transferee or lessee of the goods. and shall be included in computing the amount of gifts made during the calendar year. G.9) d. Code. other than real property that has been subjected to the final capital gains tax. (5th par.

Any person who. (Abakada Guro Party List (etc. the input taxes exceed the output taxes. it was only then that the crediting of the input tax paid on purchase or importation of goods and services by VAT-registered persons against the output tax was established. (Ibid. any person who imports goods xxx ." Applied to services. [Commissioner of Internal Revenue v. in the course of his trade or business. The VAT is a tax on consumption. in the case of importation of taxable goods. but does not relieve the same party as a purchaser from its indirect burden of the VAT shifted to it by its VAT-registered suppliers. 8 Various VAT methods and systems. This method relies on invoices. REASON: The VAT is a tax on consumption.Sec." [Commissioner of Internal Revenue v. usually resulting in the performer's release from any past or future liability x x x" Unlike goods. 2005] If at the end of a taxable period. G. and b.). 3 34 Effect of exemptions from VAT which is an indirect tax. barters. 273 imposing a 10% multi-stage tax on all sales. 2005) However. a. February 11. Inc. [Commissioner of Internal Revenue v.. (Ibid.) 6. whether an individual or corporation and whether or not made in the course of his trade or business. paraphrasing supplied)   .). and therefore upon consumption. A VAT exempt seller sells to a non-VAT exempt purchaser. Tax credit method. Seagate Technology (Philippines). 153866. the sales taxes paid at every level of distribution are not recoverable from the taxes payable. Such facilitation service has no physical existence. It is when the output taxes exceed the input taxes that the excess has to be paid. Illustration of the meaning of consumption as used under the VAT system. If however. 7 a. in the Philippines. September 1.) b. an entity can credit against or subtract from the VAT charged on its sales or outputs the VAT paid on its purchases. R. services cannot be physically used in or bound for a specific place when their destination is determined. 4. a privilege that also the law can limit. It should be stressed that a person has no vested right in statutory privileges.105-1. 2007] 9. Its services. No. merit or improvement f the goods or services. G. the purchase transaction is not exempt. Who are liable for the value-added tax. 7716). Inc. Instead. No. June 8. the importer. The right to credit input tax as against the output tax is clearly a privilege created by law. 153866. etc. exchanges or leases goods or properties. et al. Consumption is "the use of a thing in a way that thereby exhausts it. How the VAT is imposed on the increase in worth. merit or improvement of the goods or services. The right to credit the input tax be limited by legislation because it is a mere creation of law. G. no payment is required. [Commissioner of Internal Revenue v. the term means the performance or "successful completion of a contractual duty. 10. Ermita. are therefore also consumed in the Philippines. inputs and imports. properties or services. there can only be a "predetermined end of a course" when determining the service "location or position x x x for legal purposes. 1) Sells. 8424). Cost deduction method. Meaning of consumption as used under the VAT system. No. Illustration of effects of exemptions from VAT which is an indirect tax. No. Regs.  . Should the input taxes result from zero-rated or effectively zero-rated transactions or from acquisition of capital goods. the amount of which may be shifted or passed on by the seller to the purchaser of the goods. (Rev. R. 2007] This was subsequently modified and a mixture of “cost deduction method” and “tax credit method” was used to determine the value-added tax payable. any excess over the output taxes shall instead be refunded to the taxpayer or credited against other internal revenue taxes. Seagate Technology (Philippines). R. For example the services rendered by a local firm to its foreign client are performed or successfully completed upon its sending to a foreign client the drafts and bills it has gathered from service establishments here. R. or 2) renders services.) v. G. Prior to the enactment of multi-stage sales taxation.A. No. The VAT utilizes the concept of the output and input taxes. No. Placer Dome Technical Services (Phils.. The purchaser is subject to VAT because the VAT is merely added as part of the purchase price and not as a tax because the burden is merely shifted. Output VAT less Input VAT = VAT due on the increase in worth. No. 164365. yet takes place upon rendition. No. the excess shall be carried over to the succeeding quarter or quarters. June 8. shall be liable to VAT xxx . 2005 and companion cases) 4. The seller is still exempt because it could pass on the burden of paying the tax to the purchaser. 5.A. 16-2005. This is a single-stage tax which is payable only by the original sellers. R. 164365. February 11. With the advent of Executive Order No. If a special law merely exempts a party as a seller from its direct liability for payment of the VAT. 168056. the output taxes charged by a seller are equal to the input taxes passed on by the suppliers.   . Placer Dome Technical Services (Phils. This continued with the Expanded VAT Law (R. and The Tax Reform Act of 1997 (R. having been performed in the Philippines. G.

offered to buy the shares and the vessels for P168. c.000. and milk. 16-2005. including lease or use of properties. paraphrasing.500. Sec. shall be allowed a presumptive input tax. No. The bid was approved by the    8." Magsaysay Lines.111-1. The NMC shares and the vessels were offered for public bidding. a VAT-registered entity created for the purpose of selling real property.000.00 in any 12-month period. (a).00 (except franchise grantees of radio and television broadcasting whose threshold is P10.111-1. creditable against the output tax.4. the transitional input tax and b. Persons or firms engaged in the processing of sardines. The registration fee is thus more of an administrative fee.000. [Rev. and in manufacturing refined sugar. The vessels were constructed for the NDC between 1981 and 1984.000. canning and activities which through physical or chemical process alter the exterior texture or form or inner substance of a product in such a manner as to prepare it for special use to which it could not have been put in its original form or condition. Concept of transitional input tax credits on beginning inventories. the presumptive input tax xxx. Regs. or e. 1 Output tax is the value-added tax due on the sale or lease or taxable goods. goods purchased for resale in their present condition. July 28.500. etc. 168207. 1st par. Included in the input tax. but all the time. No. 16-2005. goods and supplies for use in the course of the taxpayer’s trade or business as a VAT-registered person.00.R. (Commissioner of Internal Revenue v.000. 146984. properties or services by any VAT-registered person. Inc.(ABAKADA Guro Party List. on the following: a. No. input taxes which can be directly attributed to transactions subject to the VAT plus a ratable portion of any input tax which cannot be directly attributed to either the taxable or exempt activity. It does not include isolated transactions. which are 3. on a bareboat basis..110-1.. d. G.110-1.. The bid was made by Magsaysay Lines. and FIM Limited of the Marden Group based in Hongkong .. Concept of presumptive input tax credits. mackerel. Taxpayers who become VAT-registered persons upon exceeding the minimum turnover of P1. on the motion for reconsideration) 35    1. The term "doing business" or “course of business” conveys the idea of business being done. Regs. cooking oil and packed noodle-based instant meals. And 2nd par. arrangement and numbering supplied ) As used in this paragraph. materials purchased for further processing.) 13. vs. Regs. 4. 1 Input tax is the value-added tax due on or paid by a VAT-registered person on importation of good or local purchases of goods or services. to the NMC. the term processing shall mean pasteurization. Inc. goods which have been manufactured by the taxpayer. and companion cases. not from time to time. Magsaysay Lines. Regs.00) shall be entitled to a transitional input tax on the inventory on hand as of the effectivity of their VAT registration. October 15. Inc. No. Subsequently. or who voluntarily register even if their turnover does not exceed P1. also its wholly-owned subsidiary. 1st par. (Rev. et al. 235 SCRA 630) 17. one not imposed on the exercise of a privilege. in the course of his trade or business. goods in process for sale. a. decided to sell to private enterprise all of its shares in its wholly-owned subsidiary the National Marine Corporation (NMC). et al. The VAT registration fee imposed on non-VAT enterprises which includes among others. 4. NDC. The NDC decided to sell in one lot its NMC shares and five (5) of its ships. (b)] 16. much less a constitutional right.4. Among the stipulated terms and conditions for the public auction was that the winning bidder was to pay "a value added tax of 10% on the value of the vessels. No.    2. the vessels were transferred and leased..000. "Kloeckner" type vessels. although a fixed amount is not imposed for the exercise of a privilege but only for the purpose of defraying part of the cost of registration. (Tolentino v. (Rev. et al.. then initially leased to Luzon Stevedoring Company. No. b. The VAT registration fee does NOT violate religious freedom. arrangement and numbering supplied] 15. 2005.. Secretary of Finance. Ermita. 1 . Pursuant to a government program of privatization. equivalent to four percent (4%) of the gross value in money of their purchases of primary agricultural products which are used as inputs to their production. and companion cases. It includes c. but which have not yet undergone processing. Baliwag Navigation. 2006) 14. religious sects which sells and distributes religious literature is not violative of religious freedom.. Sec.700 DWT Tween-Decker.. [Rev. 2nd sentence. purportedly for a new company still to be formed composed of itself. G. R. 1st par. Interpretation of the term “In the Course of Trade or Business” as used in the VAT system.

SUGGESTED ANSWER: Yes. No.00) and below where the instrument of sale/transfer/disposition was executed on or after November 1. (4) paraphrasing. or cessation. the amounts stated herein shall be adjusted to its present    3. use or consumption not in the course of business or properties originally intended for sale or for use in the course of business. or exchange or goods and services. or 1) the proprietor of a single proprietorship sells his entire business. (Commissioner of Internal Revenue v.000.106-7 (a). (Rev. otherwise known as the “Urban and Development Housing Act of 1992” and other related laws. Dissolution of a partnership and creation of a new partnership which takes over the business. Inc. G.000. The term "carrying on business" does not mean the performance of a single disconnected act. Transactions considered retirement or cessation of business “deemed sale” subject to VAT. or house & lot and other residential dwellings valued at Two Million Give Hundred Thousand Pesos (P2. Is the sale subject to VAT ? SUGGESTED ANSWER: No. 2009. 2006) a.) Thus.106-7.00) and below. barter. 7835 and RA No. prosecuting and continuing business by performing progressively all the acts normally incident thereof. 4.36 Committee on Privatization. 16-2005. 12% on the gross selling price because the sale was made in the ordinary course of trade of business of X. 2) whether or not the business is continued by the new owner or successor. the sale was an isolated transaction. capital transactions of individuals are not subject to VAT.000. This finding is confirmed by the Revised Charter of the NDC which bears no indication that the NDC was created for the primary purpose of selling real property. Retirement from or cessation of business. Consignment of goods if actual sale is not made within sixty (60) days following the date such goods were consigned. 146984. but means conducting. No. xxx or 2) Creditors in payment of debt or obligation c. 2005.registered person. paraphrasing. Sale of real properties utilized for low-cost housing as defined by RA No. XYZ. not from time to time. sold a building for P10. The following sales of real properties are exempt from VAT. Consigned goods returned by the consignee within the 60-day period are not deemed sold. Sec. Regs. how much? Explain.000. while "doing business" conveys the idea of business being done. . Sale of or lease of real properties subject to VAT. It should be emphasized that the normal VAT-registered activity of NDC is leasing personal property. 4. b. 7279. 7279.000. xxx [Rev. 4. 1 Under the Value Added Tax (VAT). The sale which was involuntary and made pursuant to the declared policy of Government for privatization could no longer be repeated or carried on with regularity. et al. and a Notice of Award was issued to Magsaysay Lines. arrangement and numbering supplied] 22. 16-2005.00.    9. Magsaysay Lines. Sale of residential lot valued at One Million Five Hundred Thousand Pesos (P1. stock-in-trade. Regs. 16-2005. provided. There is change in the ownership of the business where a single proprietorship incorporates.00 or as may from time to time be determined by the HUDCC and the NEDA and other related laws. a domestic corporation engaged in the real estate business. the tax is imposed on sales. such as RA No. 20. No. Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business. supplies or materials as of the date of such retirement. Regs. xxx xxx xxx d. Inc. 1) whether capital goods. xxx Distribution or transfer to: 1) Shareholders or investors as share in the profits of the VAT. [Rev. On September 4. with respect to all goods on hand. xxx xxx xxx c. 2 b. "Course of business" is what is usually done in the management of trade or business. Sec. Transfer. Sec. No. July 28. 8763. b.500.. arrangement and numbering supplied] 21. d. Only real estate dealers are subject to VAT. R. Change of ownership of the business.106-3. 2009 and every three (3) years thereafter. 1st par. Sale of real properties utilized for socialized housing as defined under RA No. Is the sale subject to the valueadded tax (VAT)? If so.500. and other related laws wherein the price ceiling per unit is P225. a domestic corporation engaged in the real estate business. Sale of real properties primarily for sale to customers or held for lease in the ordinary course of trade or business of the seller shall be subject to VAT. That not later than January 31. The VAT is also imposed on certain transactions “deemed sales” which include: a.. namely: a. In the instant case. "Course of business" or "doing business" connotes regularity of activity.. but all the time.

or right as is mentioned in subparagraph (2) hereof or any such knowledge or information as is mentioned in subparagraph (3) hereof. Sec. transmission. a value-added tax equivalent to twelve percent (12%) of gross receipts c. persons engaged in milling. radio and television broadcasting and all other franchise grantees except franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10. Adjacent residential lots. VAT on services and lease of properties. lessors or distributors of cinematographic films. b. operators or keepers of hotels. n. telephone and telegraph. further. 16-2005. lessors of property. Sec. refreshment parlors. c.000. b..000. j. Rev. The lease or the use of or the right or privilege to use any copyright. secret formula or process.00). goodwill. indemnity and bonding companies. h. paraphrasing and numbering supplied] 37 24. whether in kind or in cash. 25. The lease or the use of. defined. 16-2005. o. If two or more adjacent residential lots are sold or disposed in favor of one buyer. 9337. stock. i. There shall be levied. proprietors. non-life insurance companies (except their crop insurances). motels. commercial or scientific equipment. m. transportation contractors on their transport of goods or cargoes. when sold or disposed of to one and the same buyer. assistance or services rendered in connection with technical management or administration of any scientific. The supply of any assistance that is ancillary and subsidiary to and is furnished as a means of enabling the application or enjoyment of any such property. provided. including clubs and caterers. d. (p). k. Regs. c. “Sale or exchange of services”. Regs. as amended by R. dealers in securities. the sale shall be exempt from VAT only if the aggregate value of the lots do not exceed P1. industrial or commercial knowledge or information. and collected. [Rev. common carriers by air and sea relative to their transport of passengers.A. The lease or the use of or the right to use radio.108-2. for the purpose of utilizing the lots as one residential lot. sales of electricity by generation companies. or e. including those performed or rendered by the following: a. trademark.A. construction and service contractors. Regs.value using the Consumer Price Index. [NIRC of 1997. No.108-2. assessed. 1) including the use or lease of properties. industrial or commercial undertaking. whether covered by one or separate Deed of Conveyance. as amended by R. franchise grantees of electric utilities. a. whether personal or real. b. The supply of services by a non-resident person or his employee in connection with the use of property or rights belonging to. film tapes and discs. . similar services regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. 4. including surety. television. h. shall be presumed as a sale of one residential lot. No.109-1 (B). 1st par. although covered by separate titles and/or separate tax declarations. as published by the National Statistics Office (NSO). design or model. Also included in the phrase “sale or exchange of services. No. customs and immigration brokers. proprietors or operators of restaurants. fidelity. lending investors. Sec. or the right to use any industrial.000. or the installation or operation of any brand. and franchise grantees of gas and water utilities. real estate. The lease of motion picture films. resorts. machinery or other apparatus purchased from such non-resident person. project of scheme. venture. arrangement and numbering supplied] 26. technical. [NIRC of 1997. cafes and other eating places. No. and/or distribution companies. patent. pension houses. trade brand or other like property or right. plan. g. and p. remuneration or consideration. and movie houses. inns. 4. including persons who transport goods or cargoes for hire and other domestic common carriers by land relative to their transport of goods or cargoes.00. The supply of scientific. rest-houses. persons engaged in warehousing services e. g. 4. satellite transmission and cable television time. 2nd par.) The term “sale or exchange of services” means the performance of all kinds of services in the Philippines for others for a fee. The supply of technical advice. No. f. manufacturing or repacking goods for others. theaters. 108 (A). 9337. Sec. commercial. 108 (A). d. processing. arrangement and numbering supplied] l. a. goods or cargoes from one place in the Philippines to another place in the Philippines. (Rev. derived from the sale or exchange of services. f. that such adjustment shall be published through revenue regulations to be issued not later than March 31 of each year.500.

"paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the [BSP]. June 29. 2 Zero-rated Sales of Goods or Properties. 3 Rationale for zero-rating of exports. c. The tax paid or withheld is not deducted from the tax base. Sec. American Express International. A zero-rated sale is a taxable transaction but does not result in an output tax WHILE an exempt transaction is not subject to the output tax. No. Regulations No. while. [Commissioner of Internal Revenue v.38    7. No. Thus. [Commissioner of Internal Revenue v.)   Exception to the destination principle. the service is necessarily subject to its jurisdiction for the State necessarily has to have a “substantial connection” to it in order to enforce a zero rate. hence. R.. for a zero percent VAT rate for services that are performed in the Philippines. The input tax on the purchases of a VAT registered person who has zero-rated sales may be allowed as tax credits or refunded WHILE the seller in an exempt transaction is not entitled to any input tax on his purchases despite the issuance of a VAT invoice or receipt.).    0. 3 law clearly provides for an exception to the destination principle. of Internal Revenue v. 3 Destination principle under the VAT System. Zero rating is . The place where the service is rendered determines the jurisdiction to impose the VAT Performed in the Philippines. according to which. paraphrasing supplied) As a general rule. Considered export sales under Executive Order No. 16-2005. Sales to persons or entities deemed tax-exempt under special law or international agreement. The following sales by VAT-registered persons shall be subject to zero percent (0%) rate: a. The  1. 150154. 2 Concept of VAT zero-rating. Goods and services are taxed only in the country where they are consumed. no VAT shall be imposed to form part of the cost of goods destined for consumption outside of the territorial border of the taxing authority.    3. A zero-rated sale of goods or properties by a sale by a VAT-registered person is a taxable transaction for VAT purposes but the sale does not result in any output tax. Sale of gold to the Central Bank considered as export sales. actual or constructive export of goods and services from the Philippines to a foreign country must be zero-rated for VAT. The seller of such transactions charges no output tax. 3 Zero-rated sales by VAT-registered persons. Inc. b. 16-2005. No. (Rev. (Philippine Branch). and d. 2005] The “Cross Border Doctrine” is also known as the destination principle. Seagate Technology (Philippines). R. 224. 4. c. because the seller is entitled to recover. the sale of gold to the Central Bank is zero-rated. Inc. Regs. The tax rate is set at zero. 3 transactions: Zero-rated sale distinguished from exempt    8.” 35. Toshiba Information Equipment (Phils. 152609. properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev. Persons engaged in transactions which are zero rated being subject to VAT are required to register WHILE registration is optional for VAT-exempt persons. 153866. No. No. while imports are taxed. (Rev. that is. American Express International. When applied to the tax base. those destined for use or consumption within the Philippines shall be imposed the twelve percent (12%) VAT."    2. Regs. Hence. exports are zero-rated. (Philipppine Branch). Situs of taxation of zero-rated VAT services such as facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines. the tax that is included in the cost of purchases attributable to the sale or exchange. such rate obviously results in no tax chargeable against the purchaser. 2nd par.. G. This is so because the law neither makes a qualification nor adds a condition in determining the tax situs of a zero-rated service. June 29. This is also known as the “Cross Border Doctrine. 2005 citing various cases) 29. February 11. R. the input tax on the purchases of goods. Export sales. The Philippine VAT system adheres to the Cross Border Doctrine. the VAT system uses the destination principle as a basis for the jurisdictional reach of the tax. G.    4. no tax is chargeable to it as purchaser. No. (Commissioner. by way of a refund or as an input tax credit. August 9. G. but can claim a refund or a tax credit certificate for the VAT previously charged by suppliers. Inc. the sale or exchange of a particular service is completely freed from the VAT. (Commissioner of Internal Revenue v. However.. 152609. 1st par. b. Foreign currency denominated sale. 2005] Under a zero-rating scheme. G. 16-2005. The place of payment is immaterial much less is the place where the output of the service will be further or ultimately used. 2005) a. R. As export sales.106-5.

2005) 39 36. This is so because it meets all the requirements for VAT imposition. industrial. 153204.108-5 (a). No.. while an ecozone is geographically within the Philippines. Sec. June 29. as follows: a. Regs. 2005] 37. free trade zones and tourist/recreational centers. It regularly renders in the Philippines the service of facilitating the collection and payment of receivables belonging to a foreign company that is a clearly separate and distinct entity. [Commissioner. defined. Ltd. The service is performed in the Philippines. The services are within the categories provided for under the Tax Code. Such service is commercial in nature. Mitsui Engineering and Shipbuilding Ltd. Regs.). (Commissioner. The Consortium paid BWSCMI in acceptable foreign exchange and accounted for in accordance with the rules and regulations of the BSP. Inc. Sales by suppliers from outside the borders of the ecozone to this separate customs territory are deemed as exports and treated as export sales. its services are exempt from the destination principle and are zero-rated. 2005] An ECOZONE or a Special Economic Zone has been described as – [S]elected areas with highly developed or which have the potential to be developed into agroindustrial. it is deemed a separate customs territory and is regarded in law as foreign soil. (Philippine Branch). it definitely receives consideration in foreign currency that is accounted for in conformity with law. defined. BWSCMI was established as the subcontractor to perform the actual work in the Philippines. Toshiba Information Equipment (Phils. d. Notably. American Express International. July 21. c. However. fortuitous. properties or services related to such zero-rated sale shall be available as tax credit or refund in accordance with Rev.. 16-2005. G. 4 . R.primarily intended to be enjoyed by the seller.    8. Inc. export processing zones (EPZs). such as PEZA. Thus. It is paid for in acceptable foreign currency of the Bangko Sentral ng Pilipinas. 149671. August 9. No. 3 A foreign Consortium composed of BWSCDenmark. Sales to ecozone. or attenuated. 3 Zero-rated sale of service. 1995 ruling the BIR declared that BWSCMI may choose to register as a VAT persons subject to    1. [Commissioner of Internal Revenue v. American Express renders assistance to its foreign clients by receiving the bills of service establishments located in the country and forwarding them to their clients abroad. R. 16-2005. which entered into a contract with NAPOCOR for the operation and maintenance of two power barges appointed BWSC-Denmark as its coordination manager. Inc.. of Internal Revenue v. considered export-sale. tourist. and BIR Revenue Regulations that alter the legal requirements for zero-rating are ultra vires and invalid. It is not an entity exempt under any of our laws or international agreements. the law itself provides for clear exceptions under which the supply of services shall be zero-rated. The BIR could not change the law.. recreational. American Express International. 150154. The VAT system uses the destination principle which posits that the goods and services are taxed only in the country where they are consumed.    9. (Commissioner of Internal Revenue v. G. While the service performed by American Express is subject to VAT it is zero-rated. However. among which are the following: a. Sekisui Jushi Philippines. on a significant scale with a reasonable degree of frequency. banking. No. G. 152609. The services are performed or successfully completed upon send to its foreign clients the drafts and bills it has gathered from service establishments here. Manila Mining Corporation. 2006 citing various authorities) b. of Internal Revenue v. b. words in italics supplied) Service performed by American Express in facilitating the collection of receivables from credit card members situated in the Philippines and payment to service establishments in the Philippines in behalf of its Hong-Kong based client is subject to VAT but zero-rated.. and c. having been performed in the Philippines are therefore also consumed in the Philippines. Sec. 2005) 40. [Rev. No. R. (Philippine Branch). the input tax on purchases of goods. Through a February 14.R. and Mitsui and Co. R. Inc. 152609. August 31. No. “Ecozone”. (Commissioner of Internal Revenue v. No. These sales are zero-rated or subject to a tax rate of zero percent. Its services. A zerorated sale of service (by a VAT-registered person) is a taxable transaction for VAT purposes. which charges no output VAT but can claim a refund of or a tax credit certificate for the input VAT previously charged to it by suppliers. No. For this service.. carried on over a sustained period of time. 4. The national territory of the Philippines outside of the proclaimed borders of the ECOZONE shall be referred to as the Customs Territory. commercial. G. investment and financial centers whose metes and bounds are fixed or delimited by Presidential Proclamations. An ECOZONE may contain any or all of the following: industrial estates (IEs). G. but shall not result in any output tax. and not at random. June 29.

An exempt party.. An exempt transaction shall not be the subject of any billing for output VAT but it shall not also be allowed any input tax credits WHILE an exempt party being zero-rated is allowed to claim input tax credits. for which it gets paid in acceptable foreign currency inwardly remitted and accounted for in accordance with BSP rules and regulations.. BWSCMI applied for a refund of the output VAT it paid. through the Voluntary Assessment Program (VAP). vacuum packing. August 9. and by virtue of which its taxable transactions become exempt from VAT. R. on the one hand. (Commissioner of Internal Revenue v. Transactions are exempt from VAT. believing that it is covered by Rev. Marine food products shall include fish and crustaceans. Zero-rating finds application only where the recipient of the services are other persons doing business outside of the Philippines. 5-96.. Could it obtain a refund of the VAT it paid through the VAP ? Explain. fish. are specifically listed in and expressly exempted from the VAT under the Tax Code.not subject to VAT (output tax) and c. G. including those using advanced technological means of packaging. Burmeister and Wain Scandinavian Contractor Mindanao. An exempt transaction. a. tetra-pack. Regs. and breeding stock and genetic materials therefor. zoo animals and other animals generally considered as pets. 44. BWSCMI paid 10% output VAT for the period April-December 1996. or yielding or producing foods for human consumption. supra) NOTES AND COMMENTS: a. No. 4 What are VAT-Exempt transactions ? SUGGESTED ANSWER: The sale of goods or properties and/or services and the use or lease of properties that is b. No. such as. No. BWSCMI provides services to the Consortium which by virtue of its contract with NAPOCOR is doing business within the Philippines. trout. G. pigs. On December 29. vegetables and other agricultural and marine food Products classified under this paragraph shall be considered in their original state even if they have undergone the simple processes of preparation or preservation for the market. (Hongkong Branch)]. prawns. Regs. bulls and calves. 2007) The person making the exempt sale of goods. Burmeister and Wain Scandinavian Contractor Mindanao. (Commissioner of Internal Revenue v. BWSCMI is entitled to refund of the 10% output VAT it paid the based on the non-retroactivity of the prejudicial revocation of the BIR Rulings which held that it’s services are subject to 0% VAT and which BWSCMI invoked in applying for refund of the output VAT. G. January 22. by their nature. livestock and poultry of a kind generally used as. BWSCMI was able to obtain a Ruling from the BIR reconfirming that it is subject to VAT at zerorating. oysters. Livestock or poultry does not include fighting cocks. On January 7. sheep. such as freezing. broiling. 2005] b. goats and rabbits.109-1 (A). smoking or stripping. race horses. Inc. On this basis. shrimps. (Philippine Branch)] is a VAT-registered person that facilitates the collection and payment of receivables belonging to its non-resident foreign client [American Express International. fruit. R. Is BWSCMI subject to the 10% VAT or is it zero rated ? SUGGESTED ANSWER: Yes. without regard to the tax status – VAT-exempt or not – of the party to the transaction. corn grits. 1997. the following shall be exempt from VAT: (A) Sale or importation of agricultural and marine food products in their original state. [Rev. BWSCMI is not zero rated and is subject to the 10% VAT. arrangement and numbering supplied]    3. but not limited to. (Subject to the election by a VAT-registered person not to be subject to the value-added tax). Inc. 4 VAT-exempt transactions distinguished from VAT-exempt entities.40 VAT at zero rate. and other similar packaging methods. Inc. Meat. R. a. 16-2005. salting. ordinary salt. involves goods or services which. Inc. is a person or entity granted VAT exemption under the Tax Code. drying. Do not confuse the BWSCMI case with the American Express case. Sec. roasting. raw cane sugar and molasses. Burmeister and Wain Scandinavian Contractor Mindanao. (Commissioner of Internal Revenue v. lobster. Livestock shall include cows. a special law or an international agreement to which the Philippines is a signatory. 2007)    2. it filed the proper VAT returns showing zero rating. properties or services shall not bill any output tax to his customers because the said transaction is not subject to VAT. No.. on the other hand. b. Inc. dated February 20. 150154. Inc. . the seller is not allowed any tax credit on VAT (input tax) purchases. ducks. 1996.). 153205. American Express International. 1999. SUGGESTED ANSWER: Yes. such as shrink wrapping in plastics. mussels and clams. 4. geese and turkey. It is rendering service for the Consortium which is not doing business in the Philippines. 153205. Polished and/or husked rice. and copra shall be considered in their original state. Poultry shall include fowls. Toshiba Information Equipment (Phils. For 1996. [Commissioner of Internal Revenue v. January 22. eels.

Sugar whose content of sucrose by weight, in the dry state, has a polarimeter reading of 99.5o and above are presumed to be refined sugar. Cane sugar produced from the following shall be presumed, for internal revenue purposes, to be refined sugar: (1) product of a refining process, (2) products of a sugar refinery, or (3) product of a production line of a sugar mill accredited by the BIR to be producing sugar with polarimeter reading of 99.5o and above, and for which the quedanissued therefor, and verified by the Sugar Regulatory Administration, identifies the same to be of a polarimeter reading of 99.5o and above. Bagasse is not included in the exemption provided for under this section. (B) Sale or importation of fertilizers; seeds, seedlings and fingerlings; fish, prawn, livestock and poultry feeds, including ingredients, whether locally produced or imported, used in the manufacture of finished feeds (except specialty feeds for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets); “Specialty feeds” refers to non-agricultural feeds or food for race horses, fighting cocks, aquarium fish, zoo animals and other animals generally considered as pets. (C) Importation of personal and household effects belonging to the residents of the Philippines returning from abroad and nonresident citizens coming to resettle in the Philippines: Provided, That such goods are exempt from customs duties under the Tariff and Customs Code of the Philippines; (D) Importation of professional instruments and implements, wearing apparel, domestic animals, and personal household effects (except any vehicle, vessel, aircraft, machinery, other goods for use in the manufacture and merchandise of any kind in commercial quantity) belonging to persons coming to settle in the Philippines, for their own use and not for sale, barter or exchange, accompanying such persons, or arriving within ninety (90) days before or after their arrival, upon the production of evidence satisfactory to the Commissioner of Internal Revenue, that such persons are actually coming to settle in the Philippines and that the change of residence is bona fide; (E) Services subject to percentage tax under Title V of the Tax Code, as enumerated below: (1) Sale or lease of goods or properties or the performance of services of non-VAT-registered persons, other than the transactions mentioned in paragraphs (A) to (U) of Sec. 109 (1) of the Tax Code, the annual sales and/or receipts of which does not exceed the amount of One Million Five Hundred thousand Pesos (P1,500,000.00), Provided, That not later than

41

January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index, as published by the National Statistics Office (NSO). (Sec. 116, Tax Code) (2) Services rendered by domestic common carriers by land for the transport of passengers and keepers of garages. (Sec. 117) (3) Services rendered by international air/shipping carriers. (Sec. 118) (4) Service rendered by franchise grantees of radio and/or television broadcasting whose annual gross receipts of the preceding year do not exceed Ten Million Pesos (P10,000,000.00) and by franchises of gas and water utilities. (Sec. 119) (5) Service rendered for overseas dispatch message or conversation originating from the Philippines. (Sc. 120) (6) Services rendered by any person, company or corporation (except purely cooperative companies or associations ) doing life insurance business of any sort in the Philippines. (Sec. 123) (7) Services rendered by fire, marine or miscellaneous insurance agents of foreign insurance companies. (Sec. 124) (8) Services of proprietors, lessees or operators of cockpits, cabarets, night or day clubs, boxing exhibitions professional basketball games, jai-Alai and race tracks. (Sec. 125). and (9) Receipts on sale, barter or exchange of shares of stock listed and traded through the local stock exchange or through initial public offering. (Sec. 127) (F) Services by agricultural contract growers and milling for others of palay into rice, corn into grits and sugar cane into raw sugar; “Agricultural contract growers” refers to those persons producing for others poultry, livestock or other agricultural and marine food products in their original state. (G) Medical, dental, hospital and veterinary services except those rendered by professionals; Laboratory services are exempted. If the hospital or clinic operates a pharmacy or drug store, the sale of drugs and medicine is subject to VAT. (H) Educational services rendered by private educational institutions, duly accredited by the Department of Education (DEPED), the Commission on Higher Education (CHED), the Technical Education And Skills Development Authority (TESDA) and those rendered by government educational institutions; “Educational services” shall refer to academic, technical or vocational education provided by private educational institutions duly

accredited by the DepED, the CHED and TESDA and those rendered by government educational institutions and it does not include seminars, inservice training, review classes and other similar services rendered by persons who are not accredited by the DepED, the CHED and/or the TESDA. (I) Services rendered by individuals pursuant to an employeremployee relationship; (J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines; (K) Transactions which are exempt under international agreements to which the Philippines is a signatory or under special laws, except those under Presidential Decree No. 529 – Petroleum Exploration Concessionaires under the Petroleum Act of 1949; and; (L) Sales by agricultural cooperatives duly registered with the Cooperative Development Authority (CDA) to their members as well as sale of their produce, whether in its original state or processed form, to non-members; their importation of direct farm inputs, machineries and equipment, including spare parts thereof, to be used directly and exclusively in the production and/or processing of their produce; (M) Gross receipts from lending activities by credit or multipurpose cooperatives duly registered and in good standing with the Cooperative Development Authority; (N) Sales by non-agricultural, non-electric and non-credit cooperatives duly registered with the Cooperative Development Authority: Provided, That the share capital contribution of each member does not exceed Fifteen thousand pesos (P15,000) and regardless of the aggregate capital and net surplus ratably distributed among the members; Importation by non-agricultural, non-electric and non-credit cooperatives of machineries and equipment, including spare parts thereof, to be used by them are subject to VAT. (O) Export sales by persons who are not VAT-registered; (P) Sale of real properties not primarily held for sale to customers or held for lease in the ordinary course of trade or business, or real property utilized for low-cost and socialized housing as defined by Republic Act No. 7279, otherwise known as the Urban Development and Housing Act of 1992, and other related laws, such as RA No. 7835 and RA No. 8765, residential lot valued at One million five hundred thousand pesos (P 1,500,000) and below, house and lot, and other residential dwellings valued at Two million five hundred thousand pesos (P 2,500,000) and below: Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amounts herein stated shall be

42

adjusted to their present values using the Consumer Price Index, as published by the National Statistics Office (NSO); (Q) Lease of a residential unit with a monthly rental not exceeding Ten thousand pesos (P 10,000) Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO); (R) Sale, importation, printing or publication of books and any newspaper, magazine, review or bulletin which appears at regular intervals with fixed prices for subscription and sale and which is not devoted principally to the publication of paid advertisements; (S) Sale, importation or lease of passenger or cargo vessels and aircraft, including engine, equipment and spare parts thereof for domestic or international transport operations; Provided, that the exemption from VAT on the importation and local purchase of passenger and/or cargo vessels shall be limited to those of one hundred fifty (150) tons and above, including engine and spare parts of said vessels; Provided, further, that the vessels be imported shall comply with the age limit requirement, at the time of acquisition counted from the date of the vessel’s original commissioning, as follows: (i) for passenger and/or cargo vessels, the age limit is fifteen years (15) years old, (ii) for tankers, the age limit is ten (10) years old, and (iii) For high-speed passenger cars, the age limit is five (5) years old, Provided, finally, that exemption shall be subject to the provisions of section 4 of Republic Act No. 9295, otherwise known as “The Domestic Shipping Development Act of 2004.” (T) Importation of fuel, goods and supplies by persons engaged in international shipping or air transport operations; Provided, that the said fuel, goods and supplies shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port without stopping at any other port in the Philippines; provided, further, that if any portion of such fuel, goods or supplies is used for purposes other than that mentioned in this paragraph, such portion of fuel, goods and supplies shall be subject to 10% VAT (now 12%); (U) Services of banks, non-bank financial intermediaries performing quasi-banking functions, and other non-bank financial intermediaries; and    (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO).

For purposes of the threshold of P1,500,000.00, the husband and wife shall be cnsidered separate taxpayers. However, the aggregation rule for each taxpayer shall apply. For instance, if a profesional, aside from the practice ofhis profession, also derives revenue from other lines of business which are otherwise subject to VAT, the same shall be combined for purposes of determining whether the threshold has been exceeded. Thus, the VAT-exempt sales shall to be icluded in determining the threshold. [NIRC of 1997, Sec. 109 (1), as amended by R. A.
No. 9337; words in italics from Rev. Regs. No. 16-2005, Sec. 4.109-1 (B), words in parentheses supplied]

43

3. Married individuals who are earning compensation income allowed to file separate returns.

purely

4. Married individuals, whether citizens, resident or non-resident aliens, who do not derive income purely from compensation shall file a consolidated return for the taxable year to include the income of both spouses, but where it is
impracticable for the spouses to file one return, each spouse may file a separate return of income but the returns so filed shall be consolidated by the Bureau for purposes of verification.” [Section 51 (D) of the NIRC of 1997]

   5. 4

Tax to be paid by persons exempt from VAT.

a. Any person, whose sales or receipts are exempt under Sec. 109 (1) (V) of the Tax Code, (V) Sale or lease of goods or properties or the performance of services other than the transactions mentioned in the preceding paragraphs, the gross annual sales and/or receipts do not exceed the amount of One million five hundred thousand pesos (P1,500,000): Provided, That not later than January 31, 2009 and every three (3) years thereafter, the amount herein stated shall be adjusted to its present value using the Consumer Price Index as published by the National Statistics Office (NSO), from the payment of VAT and b. who is not a VAT-registered person c. shall pay a tax equivalent to three percent (3%) of his gross monthly sales or receipts; Provided, that cooperatives shall be exempt from the three (3%) gross receipts tax herein imposed. (Rev. Regs. No. 16-2005, Sec. 4.116-1,
arrangement, numbering and words in italics supplied)

5. Computation of income tax for married individuals whether citizens, resident or non-resident aliens, who do not derive income purely from compensation required file a consolidated return for the taxable year but could not do so.
For married individuals, the husband and wife, subject to no. 2, supra,, shall compute separately their individual income tax based on their respective total taxable income: Provided, that if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. [2nd to the last par., Sec. 24 (A) (2), NIRC of 1997 as
amended by Rep. Act No. 9504]

6. Individuals who are not required to file an income tax return.
a. An individual whose gross income does not exceed his total personal and additional exemptions for dependents, Provided, That a citizen of the Philippines and any alien individual engaged in business or practice of profession within the Philippines shall file an income tax return regardless of the amount of gross income [Sec. 51 (A) (2), NIRC of 1997] b. An individual with respect to pure compensation income, derived from such sources within the Philippines, the income tax on which has been correctly withheld: Provided, That an individual deriving compensation concurrently from two or more employers at any time during the taxable year shall file an income tax return [Sec. 51 (A) (2),
NIRC of 1997, as amended by Rep. Act No. 9504, paraphrasing supplied]

RETURNS AND

WITHHOLDING

1. Income tax returns being public documents, until controverted by competent evidence, are competent evidence, are prima facie correct with respect to the entries therein. (Ropali Trading v. NLRC, et
al., 296 SCRA 309, 317)

2.

Individuals required to file an income tax return.

a. Every Filipino citizen residing in the Philippines; b. Every Filipino citizen residing outside the Philippines on his income from sources within the Philippines; c. Every alien residing in the Philippines on income derived from sources within the Philippines; and d. Every nonresident alien engaged in trade or business or in the exercise of profession in the Philippines. [Sec. 51 (A) (1), NIRC of 1997]

c. An individual whose sole income has been subject to final withholding tax; d. A minimum wage earner (is a worker in the private sector paid the statutory minimum wage, or is an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned), an individual who is exempt from income tax pursuant to the provisions of the Tax

further. or is an employee in the public sector with compensation income of not more than the statutory minimum wage in the non-agricultural sector where he/she is assigned) shall be exempt from the payment of income tax on their taxable income: Provided. That the holiday pay. An individual earning from the practice of his profession or who engages in trade or business files his income tax return and pays his income tax four (4) times during a single taxable year. overtime pay. It also eases hardships on the part of individuals who are required to make this four time return. Act. A withholding agent is explicitly made personally liable under the Tax Code for the payment of the tax required to be withheld. both as amended by Rep. the deficiency tax shall be collected from the payor withholding agent. The two kinds of creditable withholding taxes are (a) taxes withheld on income payments covered by the expanded withholding tax. 51 (A) (2). [Sec. in case of his failure to withhold the tax or in case of under withholding. [Sec. The income recipient is still required to file an income tax return and/or pay the difference between the tax withheld and the tax due on the income. 51 (A) (3). Rev. 2-98] The liability for payment of the tax rests primarily on the payor or the withholding agent. such as but not limited to the following: 12.Code and other laws. 17. [1st and 2nd sentences. 7. city. 257(B). Thus. In effect. 9504] 44 former to pay directly to the Bureau of Internal Revenue. Nos. and (b) taxes withheld on compensation income. 22 (HH). taxes imposed or prescribed by the NIRC of 1997 are to be deducted and withheld by the payors from payments made to payees for the . or municipal governments.. the responsibility for the collection of the tax as well as the payment thereof is concentrated upon the person over whom the Government has jurisdiction. [1st sentence. An individual who is not required to file an income tax return may nevertheless be required to file an information return. 51 (A) (2). Regs. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law. Quarterly returns are required to be filed for the first three quarters.57 (A). then a final adjustment return is filed covering the total taxable income for the whole taxable year. et al. b. then an annual income tax return is filed covering the total taxable income for the whole of the previous calendar year. An individual earning purely compensation income files only one annual income tax return covering the total taxable compensation income for the whole of the previous calendar year. The payee is not required to file an income tax return for the particular income. night shift differential pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax. NIRC of 1997 in relation to Sec. [Sec. The two (2) types of withholding at source are the 1) final withholding tax. It is also known as collection of the tax at source. 8.. A corporation files its income tax return and pays its income tax four (4) times during a single taxable year. No. (Filipinas Synthetic Fiber Corporation v.. Under the creditable withholding tax system. 19. in order to compel the withholding agent to withhold the tax under any and all circumstances. That minimum wage earners (is a worker in the private sector paid the statutory minimum wage. 1999) The system facilitates tax collection and reduces tax evasion. NIRC of 1997] 9. 10. 18. Regs. 118498 & 124377. 15. Payments to the following are exempt from the requirement of withholding or when no withholding taxes required: a. Sec. Thus. 13. Act. 22 (HH).R. both as amended by Rep. 2. No. Minimum wage earners are exempt from income taxation. Under the withholding tax system. be it calendar or fiscal. 2-98] 11. Under the final withholding tax system the amount of income tax withheld by the withholding agent is constituted as a full and final payment of the income due from the payee on the said income. taxes withheld on certain income payments are intended to equal or at least approximate the tax due from the payee on the said income. G. Court of Appeals. National Government and its instrumentalities including provincial. general or special. general or special. and 2) creditable withholding tax. 16. October 12. Sec. Rev. 9504] 14. Quarterly returns are required to be filed for the first three quarters. NIRC of 1997 in relation to Sec. the taxpayer does not have to raise large sums of money in order to pay the tax. 1st par. on a quarterly basis thereby increasing government liquidity. The purpose of the above four (4) times a year requirement is to make available sufficient funds to meet the budgetary requirements.

defined. 249 (A) (B). Furthermore. or any surcharge or interest thereon. the withholding agent is not a taxpayer. After resolving the issues the BIR Commissioner reduced the assessment. Define deficiency income tax. The settled rule is that good faith and honest belief that one is not subject to tax on the basis of previous interpretation of government agencies tasked to implement the tax. the 25% surcharge for late filing or late payment [Sec.248 (A). [Sec. Compromise penalty is the amount agreed upon between the taxpayer and the Government to be paid as a penalty in cases of a compromise. are the amounts imposed in addition to the tax required.] 7. the Anscor case) PENALTIES. NIRC of 1997] (also known as the delinquency surcharge). and b. of the Tax Code. Delinquency interest. Ibid. are sufficient justification to delete the imposition of surcharges. No. 137002. As a result of divergent rulings on whether it is subject to tax or not. in the same manner. R. NIRC of 1997] 4. NIRC of 1997] 6. income payments arising from any activity which is conducted for profit or income derived from real or personal property shall be subject to a withholding tax. Commissioner of Internal Revenue. Lhuillier Pawnshop. January 20. Inc. 56 (B) (1). What are the two (2) kinds of civil penalties ? SUGGESTED ANSWER: a. 57. the taxpayer was not able to pay his taxes on time. on the date appearing in the notice and demand by the Commissioner of Internal Revenue. 248 (B). The intention of the law is to discourage delay in the payment of taxes due to the State and in this sense the surcharge and interest charged are not penal but compensatory in nature – they are compensation to the State for the delay in payment. the BIR further raises the defense that the government is not bound by the errors of its agents. 2006) 3.000. G. The interest assessed and collected on the unpaid amount until fully paid where there is failure on the part of the taxpayer to pay the amount die on any return required to be filed.R. Was it proper to impose delinquency interest despite the reduction of the assessment ? Why ? SUGGESTED ANSWER: Yes. defined.249 (c). 2) Corporations registered with the Board of Investments and enjoying exemptions from income under the Omnibus Investment Code of 1997.000. etc. For tax amnesty purposes. 2006) 20. Court of Appeals. 166786. They are in the nature of penalties and shall be collected at the same time. or for the concomitant tuse of the funds by the taxpayer beyond the date he is supposed to have paid them to the State. or the amount of the tax due for which no return is required. July 27. the taxpayer not invokes good faith with the BIR countering by saying that good faith is not a valid defense for violation of a special law. and as part of the tax. [Sec. 248 (A). 8. No. 30. He is made to pay the tax where he fails to withhold as a penalty and not because the tax is due from him. G. (Michel J. GSIS. the 50% willful neglect or fraud surcharge. Deficiency interest. No. G. SUGGESTED ANSWER: Deficiency income tax is the amount by which the tax imposed under the NIRC of 1997 exceeds the amount shown as the tax due by the taxpayer upon his return. (Commissioner of Internal Revenue v. Surtaxes or surcharges.00 in Metro Manila and other highly urbanized areas and P150. also known as the civil penalties. from the date REPUBLIC ACT NO.5. Imposed surcharges and interests for such delay. However.00 in other areas or such adjusted amount of selling price for socialized housing as may later be determined and adopted by the HLURB.1) Sales of real property by a corporation which is registered with and certified by the HLURB or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180. Rev. R. 1125. No. Regs. NIRC of 1997] 2. v. Who is correct ? SUGGESTED ANSWER: The taxpayer is correct. [Sec. NIRC of 1997] 5. Commissioner of Internal Revenue. the PCSO. 108576. 3) Corporations exempt from income tax under Sec. et al. INTERESTS AND SURCHARGES 1. 1999. (Bank of the Philippine Islands v. [Sec. The interest assessed and collected on any unpaid amount of tax at the rate of 20% per annum or such higher rate as may be prescribed by regulations. CREATING THE COURT OF TAX APPEALS INCLUDING JURISDICTION OF THE CTA. [Sec. 2-98) 45 prescribed for payment until the amount is fully paid.. like the SSS. September 11. or a deficiency tax. (Sec. AS AMENDED .

000. of the Tariff and Customs Code. Jurisdiction over cases involving criminal offenses as herein provided: 1. 1125. IN GENERAL SUGGESTED ANSWER: The role of the judiciary is to be the sympathetic or vigilant court which would check injustices or abuses of the legislative and administrative agents of the State in their exercise of the power of taxation. thus providing for an adequate remedy for a speedy determination of tax cases. penalties. (DIVISION) b. Decisions of the Commissioner of Customs in cases involving liability for customs duties. involving dumping and countervailing duties under Section 301 and 302.  Discuss the role of the judiciary in taxation. and cadastral cases accumulating in the dockets of such courts. fees or other money charges. Inaction by the Commissioner of Internal Revenue in cases involving disputed assessments. in case of nonagricultural product. commodity or article. That offenses or felonies mentioned in this paragraph where the principal amount of taxes and fees. 2.46 COURT OF TAX APPEALS. To prevent delay in the disposition of tax cases by the then Courts of First Instance (now RTCs). 209) “a. as amended. commodity or article.. or other matters arising under the Customs Law or other laws administered by the Bureau of Customs. (The inaction on refunds in two years from the time tax was paid. refunds or internal revenue taxes. Exclusive original jurisdiction over all criminal cases arising from violations of the National Internal Revenue Code or Tariff and Customs Code and other laws administered by the Bureau of Internal Revenue or the Bureau of Customs: Provided. or other matters arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue’.   4. is less than One million pesos (P1. 101 Phil. exclusive of charges and penalties claimed. in which case the inaction shall be deemed a denial. (Ursal v.  3. and is composed of a Presiding Justice and eight (8) Associate Justices. (DIVISION) 5. Decisions. Exclusive appellate jurisdiction to review by appeal. fees or other charges. Decisions of the Commissioner of Internal Revenue in cases involving disputed assessments. (This has reference to forfeiture cases where the decision is to release the seized articles – DIVISION) 7. forfeitures or other penalties in relation thereto. Decisions of the Secretary of Trade and Industry. 8800. and the Secretary of Agriculture in the case of agricultural product. 1. fees or other charges. if appellate EN BANC) 4. What is the nature and composition of the Court of Tax Appeals ? SUGGESTED ANSWER: The Court of Tax Appeals is the special tax court created under Republic Act No. are not likely to possess.000. Any provision of law or the Rules of Court to the contrary notwithstanding. (If original DIVISION.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. Decisions of the Central Board of Assessment Appeals in the exercise of its appellate jurisdiction over cases involving the assessment and taxation of real property originally decided by the provincial or city board of assessment appeals. 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. organized into three (3) divisions. (EN BANC) 6. and no right to reserve the filing of such civil action separately from the civil action will be recognized. criminal. penalties in relation thereto. detention or release of property affected. fines. 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. refunds of internal revenue taxes. where either party may appeal the decision to impose or not to impose said duties. the taxpayer should interpose a petition for review with the CTA – DIVISION) 3. where the National Internal Revenue Code provides a specific period of action. (DIVISION) 2. seizure. respectively. . the filing of the criminal action being deemed to necessarily carry with it the filing of the civil action. or other matter arising under the National Internal Revenue Code or other laws administered by the Bureau of Internal Revenue. in view of the backlog of civil. and safeguard measures under Republic Act No. To have a body with special knowledge which ordinary Judges of the then Courts of First Instance (now RTCs). as herein provided: 1. however. Court of Tax Appeals. if the prescriptive period of two years is about to expire. Thus. 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. and b. and jointly determined in the same proceeding by the CTA. What are the purposes for the creation of the Court of Tax Appeals ? SUGGESTED ANSWER: a. et al. Jurisdiction of the Court of Tax Appeals. in relation thereto.

is not a totally new remedy. Exclusive original jurisdiction in tax collection cases involving final and executory assessments for taxes. presidential decree. 173176. principles. et al. 1125. exclusive of charges and penalties. Judicial power includes the duty of the courts of justice to settle actual controversies involving rights which are legally demandable and enforceable. Decisions of the Secretary of Trade and Industry or the Secretary of Agriculture in anti-dumping and countervailing duty cases are appealable to the Court of Tax Appeals within thirty (30) days from receipt of such decisions. Instances where the Court of Tax Appeals would have jurisdiction even if there is no decision of the Commissioner of Customs: a. in their respective territorial jurisdiction. Parayno. and precedents laid down in jurisprudence by this Court as regards petitions for review and appeals in courts of general jurisdiction should likewise bind the CTA. No. In case of automatic review by the Secretary of Finance of a decision of a Collector of Customs acting favorably upon a customs protest. unique to the CTA. August 26. b. It is the Regional Trial Court that has jurisdiction to  rule upon the constitutionality of a tax law or a regulation issued by the taxing authorities. or orders of the Regional Trial Courts in tax collection cases originally decided by them. The determination of whether a specific rule or set of rules issued by an ASSESSMENT OF INTERNAL REVENUE TAXES . Metropolitan Trial Court and Regional Trial Court.” The petition for review to be filed with the CTA en banc as the mode for appealing a decision. etc et al. December 18. (British American Tobacco v. including the regional trial courts.. 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. A. No. Municipal Trial Courts and Municipal Circuit Trial Courts in their respective jurisdiction. 103445. People. 2007 which ruled that it is the Court of Tax Appeals that has jurisdiction relative to matters involving the constitutionality of regulations issued by the BIR. Jr. which includes the authority of the courts to determine in an appropriate action the validity of the acts of the political departments. Inc. emphasis and words in parentheses supplied) 2. 7. fees. No.. No. c. Camacho et al. instruction. The reason was that this falls under the concept of decisions of the BIR Commissioner on “other matter” arising under the provisions of laws administered by the Commission. etc. doctrines. resolutions. c. British American Tobacco reversed Asia International Auctioneers upon the concept of the judiciary’s “expanded power. however. as amended by R. Exclusive appellate jurisdiction in tax collection cases: a) Over appeals from judgments. Where what is assailed is the validity or constitutionality of a law. R. the CTA merely adopts the procedure for petitions for review and appeals long established and practiced in other Philippine courts. 2. 2008 with an intervenor) NOTES AND COMMENTS: The above doctrine supersedes Asia International Auctioneers. under Section 18 of Republic Act No. G. R. Jurisdiction over tax collection cases: 1. 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. international or executive agreement. G.000) shall be tried by the proper Municipal Trial Court. G. resolution. . order. treaty. claimed is less than One million pesos (P1. rules. with a special application or use therein. 47 administrative agency contravenes the law or the constitution is within the jurisdiction of the regular courts. 1125. the regular courts have jurisdiction to pass upon the same. as amended. and to determine whether or not there has been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or instrumentality of the Government. or regulation in the courts. or a rule or regulation issued by the administrative agency in the performance of its quasi-legislative function. R. or order of the CTA Division.” (Sec. 163583. and it cannot depart therefrom.. No. in their respective territorial jurisdiction. (Santos v. b) Over petitions for review of the judgments. et al. A.. R. 9282. Issuance of revenue regulations are authorized under the NIRC.. charges and penalties: Provided. b) Over petitions for review of the judgments.Exclusive appellate jurisdiction in criminal offenses: a) Over appeals from the judgments. in their respective jurisdiction. In case of automatic review by the Secretary of Finance in seizure or forfeiture cases where the value of the importation exceeds P5 million or where the decision of the Collector of Customs which fully or partially releases the shipment seized is affirmed by the Commissioner of Customs. Accordingly. Municipal Trial Courts and Municipal Circuit Trial Courts.. This is within the scope of judicial power. Indeed. the Constitution vests the power of judicial review or the power to declare a law.  5. That collection cases where the principal amount of taxes and fees. 2008) 6. ordinance.v.000.. To the contrary. resolutions or orders of the Regional Trial Courts in tax cases originally decided by them. August 20.

has a period of twelve (12) months from submission of the case for decision within which to decide. d. all relevant supporting documents shall be submitted. However.Outline of tax remedies of a taxpayer and the government relative to ASSESSMENT of internal revenue taxes. b. Otherwise it would not be valid. If the taxpayer fails to so appeal. If the decision of the Court of Tax Appeals en banc affirms the denial of the protest by the Commissioner or the assessment in case of failure by the Commissioner to decide the taxpayer must file a petition for review on certiorari with the Supreme Court within fifteen (15) days from notice of the judgment on questions of law. or is not acted upon within one hundred eighty (180) days from the submission of documents. a denial of which is appealable to the Court of Tax Appeals en banc by means of a petition for review. the taxpayer could not pay the tax. An extension of thirty (30) days may for justifiable reasons be granted. must show the error of the Bureau of Internal Revenue and the correct computations supported by a statement of facts. i. if the examiner is not satisfied that the tax return is truly reflective of the taxable transaction and that the taxes have not been fully paid. otherwise the assessment shall become final and collectible and the BIR could use its administrative and judicial remedies to collect the tax. and he believes that proper taxes should be assessed. the decision of the Court of Tax Appeals would become final and this has the effect of making the assessment also final and collectible. If the protest is denied in whole or in part. If the taxpayer ignores the invitation to the informal conference. or if the examiner is not satisfied with taxpayer’s explanation. not even the BIR Commissioner could change the same. . c. The notice of assessment must be issued within the prescriptive period and must contain the facts. f. If the examiner is satisfied that the tax return is truly reflective of the taxable transaction and all taxes have been paid. the taxpayer adversely affected by the decision or inaction may appeal to the Court of Tax Appeals within thirty (30) days from receipt of the adverse decision. and if denied appeal the same to the Court of Tax Appeals. then the Commissioner has a period of ten (10) years from discovery of the failure to file a tax return or from discovery of the fraud within which to issue an assessment notice. the process ends. A Letter of Authority is issued authorizing BIR examiner to audit or examine the tax return and determines whether the full and complete taxes have been paid. The taxpayer should then file an administrative protest by filing a request for reconsideration or reinvestigation within thirty (30) days from receipt of the assessment notice. If the Commissioner is satisfied with the explanation of the taxpayer. the denial of the Commissioner or the inaction of the Commissioner would result to the notice of assessment becoming final and collectible and the BIR could then utilize its administrative and judicial remedies to collect the tax. or from the lapse of the one hundred eighty (180-) day period. If the taxpayer does not so appeal. h. e. g. If the taxpayer ignores the pre-assessment notice by not responding or his explanations are not accepted by the Commissioner. then apply for a refund. Where the taxpayer did not file a tax return or where the tax return filed is false or fraudulent. The taxpayer files his tax return. The running of the above prescriptive periods may however be suspended under certain instances. The Court of Tax Appeals. The preassessment notice requires the taxpayer to explain within fifteen (15) days from receipt why no notice of assessment and letter of demand for additional taxes should be directed to him. the process is again ended. Thus. a. then a notice of assessment and a letter of demand is issued. the Commissioner of Internal Revenue or his duly authorized representative shall then notify the taxpayer of the findings in the form of a pre-assessment notice. There is no need to pay under protest.  1. a Notice of Informal Conference is issued inviting the taxpayer to explain why he should not be subject to additional taxes. The BIR could then use its administrative and judicial remedies to collect the tax. j. The notice of assessment must be issued by the Commissioner to the taxpayer within a period of three (3) years from the time the tax return was filed or should have been filed whichever is the later of the two events. with an application for the issuance of a writ of preliminary injunction to enjoin the BIR from collecting the tax subject of the appeal. To be valid the administrative protest must be filed within the prescriptive period. If the taxpayer attends the informal conference and the examiner is satisfied with the explanation of the taxpayer. law and jurisprudence relied upon by the Commissioner. Within sixty (60) days from filing of the protest. and the law and jurisprudence relied upon by the taxpayer. If the protest was not seasonably filed the assessment becomes final and collectible and the Bureau of Internal Revenue could use its administrative and judicial remedies in collecting the tax. A decision of a division of the Court of Tax Appeals adverse to the taxpayer or the government may be the subject of a motion for reconsideration or new trial..  48 The taxpayer could not immediately interpose an appeal to the Court of Tax Appeals because there is no decision yet of the Commissioner that could be the subject of a review. then the process is again ended. Once an assessment has become final and collectible.

(Commissioner of Internal Revenue v. if the taxing authority is first required to investigate. G. CA G.49 2. June 29. (Commissioner of Internal Revenue v. However. which the taxpayer himself computes and pays without the intervention of any assessment by the BIR.. (Hantex Trading Co. (Ibid. Hantex Trading Co. R. Inc. Commissioner of Internal Revenue. and after such investigation to issue the tax assessment that creates the tax liability. 128315. (b) Net worth method. No. Pascor Realty and Development Corporation. The existence of unreported income may be shown by any particular proof that is available in the circumstances of the particular situation. The Commissioner is not bound to follow any set of patterns. Carpio in Philippine National Oil Company v. Third party information or access to records  method. 47172. Approximation in the calculation of taxes due is justified. 6 (B) of the NIRC of 1997 allows the BIR to  make or amend a tax return from his own knowledge or obtained through testimony or otherwise. More commonly the word “assessment” means the official valuation of a taxpayer’s property for purpose of taxation. his tax liability may be determined by estimation. Necessarily. Meaning of "best evidence obtainable" under Sec. public or private to supply . (e) Unit and value method.R. G. (Commissioner of Internal Revenue v. This means that the original documents must be produced. 1999) A tax that the taxpayer himself assesses or computes and pays to the taxing authority. The BIR may require third parties. Self-assessed tax. et al. Handbook on Audit Procedures and Techniques – Volume I. (Ibid. No. June 29. The ultimate purpose of an assessment to such a connection is to ascertain the amount that each taxpayer is to pay. G. mails or sends such notice to the taxpayer . if necessary. Thus. For real property taxation. may have more than one meaning. It is sometimes called a special assessment or a special levy. R. The annual income tax becomes due and payable without need of any prior assessment by the BIR.. pp. Sec. The petitioner (Commissioner of Internal Revenue) is not required to compute such tax liabilities with mathematical exactness.” (Commissioner of Internal Revenue v.R. v. 109976. 1999) of Internal Revenue investigates ”any circumstance which led him to believe that the taxpayer had taxable income larger than that reported. 128315. (d) Cash expenditure method. General rule: When the Commissioner of Internal Revenue may rely on estimates. Indirect Approach to Investigation. The taxpayer’s liability for the income tax does not depend on whether or not the BIR conducts such subsequent investigation or audit. et al. et al. and pays the tax as he files the return. Internal revenue taxes are self-assessing. March 31.. (Chapter XIII. 2005 and companion case) 4. The following are the general methods developed by the Bureau of Internal Revenue for reconstructing a taxpayer’s income where the records do not show the true income or where no return was filed or what was filed was a false and fraudulent return (a) Percentage method. then the tax is no longer self-assessed. (c) Bank deposit method.” (Ibid.) 7. 6 (B). 68-74)  5. R. the rule does not apply where the estimation is arrived at arbitrarily and capriciously. An assessment is a notice duly sent to the taxpayer which is deemed made only when the BIR releases. 2005) 3. traders’ and brokers’ accounts and books and the taxpayer’s books of accounts. G. 1998) A clear example of a self-assessed tax is the annual income tax.. It is a tax that self-assessed by the taxpayer without the intervention of an assessment by the tax authority to create the tax liability. The above definition of assessment finds application under tariff and customs taxation as well as local government taxation. (g) Surveillance and assessment method. SP No. (Dissent of J..) 8. No. September 30. He may take the sworn testimony of the taxpayer.) 6. (f) Third party information or access to records method. The pay-as-you-file system is a selfassessing tax return. To hold otherwise would be tantamount to holding that skillful concealment is an invincible barrier to proof. he may examine and subpoena. 136975. April 26. prepares the return. he may take the testimony of third parties. March 31. “However. 136975. No. Court of Appeals.. the Commissioner  9..R. The Tax Code follows the pay-as-you-file system of taxation under which the taxpayer computes his own tax liability. G. Inc. No. The BIR may or may not investigate or audit the annual income tax return filed by the taxpayer. NIRC of 1997. 2005) For internal revenue taxation assessment as laying a tax. If it could not be produced. this inquiry would have to be outside of the books because they supported the return as filed. Hantex Trading Co. The word assessment when used in connection with taxation. secondary evidence must be adduced. defined. there may be a special meaning to the burdens that are imposed upon real properties that have been benefited by a public works expenditure of a local government. Pascor Realty and Development Corporation. Inc. “The rule is that in the absence of accounting records of a taxpayer.

v. As a general rule. Inc. joint ventures or consortia and registered partnerships. within the period agreed upon between the government and the taxpayer where there is a waiver of the prescriptive period for assessment (Sec. When the finding for any deficiency tax is the result of mathematical error in the computation of the tax as appearing on the face of the return. such as. and the names . Commissioner of Internal Revenue. 2008]    12. G. but not limited to. March 7. and thus. 2008] b. NIRC of This mandate governs the question of prescription of the government’s right to assess internal revenue taxes primarily to safeguard the interests of taxpayers from unreasonable investigation. When an article locally purchased or imported by an exempt person. No. and their members.R. B. It is part of the due process rights of a taxpayer. and for him to explain why he should not be the subject of an assessment notice. Accordingly. Instances where a pre-assessment notice is not  required before a notice of assessment is sent to the taxpayer. Prescriptive periods for making assessments of internal revenue taxes. but to take advantage of every opportunity to molest peaceful. xxx ” [Sec. March 7. NIRC of 1997). our tax law provides a statute of limitations in the collection of taxes. but not limited to vehicles. or b. 162852. or from any office or officer of the national and local governments. 174942.. G.. or e. the government must assess internal revenue taxes on time so as not to extend indefinitely the period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to further investigation for taxes after the expiration of reasonable period of time. investigation or assessment. and financial statements of corporations. (now Sime Darby International Tire Co. 174942. G. Inc. When the excess tax due on excisable articles has not been paid. NIRC of 1997[ . associations. Commissioner of Internal Revenue. NIRC of 1997) assessments. (Sec. or c. Purpose of period of limitations in taxation. trade or transferred to nonexempt persons. R. regional operating headquarters or multinational companies. February 24. G. the BIR could not issue an assessment notice without first issuing a pre-assessment notice because it is part of the due process rights of a taxpayer to be given notice in the form of a preassessment notice. No. Commissioner of Internal Revenue. government agencies and instrumentalities including the Bangko Sentral ng Pilipinas and government-owned or –controlled corporations. 104171. 2004].. or d. whichever is later (Sec. 162852. No. ten years from discovery of the failure to file the tax return or discovery of falsity or fraud in the return [Sec. 2008 citing Philippine Journalists. costs and volume of production. receipts or sales and gross incomes of taxpayers. 13. to the Government because tax officers would be obliged to act promptly in the making of assessment. 303 SCRA 546. 203. Philippine Journalists. R. insurance companies. 447 SCRA 214. Inc. The CIR has three (3) years from the date of actual filing of the tax return to assess a national internal revenue tax or to commence court proceedings for the collection thereof without an assessment. mutual fund companies. 222 (a). December 16. When a taxpayer opted to claim a refund or tax credit of excess creditable withholding tax for a taxable period was determined to have carried over and automatically applied the same amount claimed against the estimated tax liabilities for the taxable quarter or quarters of the succeeding table year. G. 167765. No. No. Goodrich Phils. machineries and spare parts. not to determine the latter’s real liability. 2004. joint accounts. addresses. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. a. The law on prescription being a remedial measure should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommend the approval of the law. v. 10. The law prescribing a limitation of actions for the collection of the income tax is beneficial both to the Government and to its citizens.R. 1999. and to citizens because after the lapse of the period of prescription citizens would have a feeling of security against unscrupulous tax agents who will always find an excuse to inspect the books of taxpayers. a. [Commissioner of Internal Revenue v. capital equipment. (Commissioner of Internal Revenue v. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. R. “obtain on a regular basis from any person other than the person whose internal revenue tax liability is subject to audit or investigation.F. A pre-assessment notice is a letter sent by the Bureau of Internal Revenue to a taxpayer asking him to explain within a period of fifteen (15) days from receipt why he should not be the subject of an assessment notice. NIRC of 1997) 50 1997).). Inc. 222 (b). Without such a legal defense taxpayers would furthermore be under obligation to always keep their books and keep them open for inspection subject to harassment by unscrupulous tax agents. R. 225) . Commissioner of Internal Revenue G. December 16. has been sold. For the purpose of safeguarding taxpayers from any unreasonable examination. Three (3) years from the last day within which to file a return or when the return was actually filed. No. When a discrepancy has been determined between the tax withheld and the amount actually remitted by the withholding agent. FMF Development Corporation. law-abiding citizens. 5 (B). June 30. et al. or c. 228.information to the BIR. any information such as. as well as their  11.

Unreasonable investigation contemplates cases where the period for assessment extends indefinitely because this deprives the taxpayer of the assurance that it will not longer be subjected to further investigation for taxes after the expiration of a reasonable period of time. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts.” [Commissioner of Internal Revenue v. Inc. 2d 698 (1959)] “Hence. SUGGESTED ANSWER: The “prima facie correctness of a tax assessment does not apply upon proof that an assessment is utterly without foundation. G. The likelihood that the taxpayer will have access to the relevant information [Commissioner of Internal Revenue.51 14. Regs. 2004 with note to see Republic v.R. 6-2000] Requisites for Formal Letter of Demand and Assessment Notice. R. et al. rules and regulations.. Court of Appeals ruling... Thus. “the determination of the Commissioner contained in a deficiency notice disappears. supra citing United States v. A “jeopardy assessment” is a delinquency tax assessment which was assessed without the benefit of complete or partial audit by an authorized revenue officer. No. hence it may be subject to a compromise.. the 16. G. 49 L. 1999. who has reason to believe that the assessment and collection of a deficiency tax will be jeopardized by delay because of the taxpayer’s failure to comply with the audit and investigation requirements to present his books of accounts and/or pertinent records. No. Inc. investigation or assessment. 3. Hantex Trading Co. b. What are the requirements for the validity of a  formal letter of demand and assessment notice ?  20. B. 1108) Laws on prescription should be liberally construed in favor of the taxpayer. B.. exemptions. rules and regulations.F. No. R. Goodrich Phils. being a remedial measure. Rev. The desirability of bolstering the record-keeping requirements of the NIRC. 3. Tuazon. 6-2000) Jeopardy assessment is an indication of the doubtful validity of the assessment. Inc.F. or credits claimed in his return. G. the law. (Commissioner of Internal Revenue v. v.1 (a). March 31. without any foundation character. 136975. 104171.. December 16. 428 US 433 (1976)] In such a situation. Goodrich Phils. Hantex Trading Co... Give instances where prima facie correctness of a tax assessment does not apply.. No. Rev.  What are the instances that suspends the running of the prescriptive periods (Statute of Limitations) within which to make an assessment and the beginning of . or jurisprudence on which the assessment is based.  determination by the CTA must rest on all the evidence introduced and its ultimate determination must find support in credible evidence. 482 F. or to substantiate all or any of the deductions. 266 F. There must have been previously issued a pre-assessment notice until excepted.e. (Ibid. the law. February 24. Rexach. It must have been issued prior to the prescriptive period.. the exceptions to the law on prescription should perforce be strictly construed. 1999) c. G. Inc (now Sime Darby International Tire Co. et al. Reason: for the purpose of safeguarding taxpayers from an unreasonable examination.2d 10 (1973). 12-99) 18. the law on prescription.1. Commissioner of Internal Revenue. in Clark and Clark v. 162852. (Philippine Journalists.4. 2004 citing Commissioner of Internal Revenue v. 1973] 15. Inc. 2005 citing United States v. March 31. No.. The letter of demand calling for payment of the taxpayer’s deficiency tax or taxes shall state the facts. Inc. [Sec. d. Where the BIR has come out with a “naked assessment” i. (Sec. December 16. Janis.R. otherwise. Ed. and c. 173 SCRA 397) The prescriptive period was precisely intended to give the taxpayers peace of mind. R. 108 Phil.. Regs. The same shall be sent to the taxpayer only by registered mail or by personal delivery. No.1 (a). R. [Sec. No. or jurisprudence on which the assessment is based. No. G. the determination of the tax due is without rational basis. should be liberally construed in order to afford such protection. February 24. Ablaza. supra citing a U. 162852.) 19. Commissioner of Internal Revenue. otherwise. (Commissioner of Internal Revenue v. Rev. Inc. our tax laws provide a statute of limitation on the collection of taxes. meaning it is arbitrary and capricious. Commissioner of Internal Revenue.” [Commissioner of Internal Revenue. 2d 1046 (1976). The certiorari was denied by the United States Supreme Court on November 19. the formal letter of demand and assessment notice shall be void. the formal letter of demand and assessment notice shall be void. No.). As a corollary. Regs. 104171. 3. What are the reasons correctness of assessments ? for presumption of SUGGESTED ANSWER: a. Inc. 2005) in the performance of public functions. 136975. The formal letter of demand and assessment notice shall be issued by the Commissioner or his duly authorized representative. supra]  17. v.. G. Lifeblood theory b. [Philippine Journalists. 303 SCRA 546] SUGGESTED ANSWER: a.” [Commissioner of Internal Revenue. Presumption of regularity (Commissioner of Internal Revenue v. 1105.S.

115712. The waiver of the statute of limitations does not mean that the taxpayer relinquishes the right to invoke prescription unequivocally. No. The foregoing procedures shall be strictly followed. It also would have no binding effect on the taxpayer if there was no consent by the Commissioner. Inc. G. must be carefully and strictly construed.R. In the case of a corporation. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be before the expiration of the period of prescription or before the lapse of the period agreed upon in case a subsequent agreement is executed.)  22. no implied consent can be presumed. shall sign the waiver indicating that the Bureau has accepted and agreed to the waiver. c. agreed upon between the BIR and the taxpayer. 1999. 223. and e. G. as hereinafter provided. Commissioner of Internal Revenue G. A waiver of the statute of limitations under the NIRC. Court of Appeals. Thus a waiver becomes unlimited in time. citing Commissioner of Internal Revenue v. b. December 16. The Revenue District Officer with respect to tax cases still pending investigation and the period to assess is about to prescribe regardless of amount. the waiver must be signed by any of its responsible officials. his authorized representative. 2004.52 distraint or levy or of a proceeding in court for the collection. the second copy for the taxpayer and the third copy for the Office accepting the waiver. c. the original copy to be attached to the docket of the case. 303 SCRA 614. 2008 citing Philippine Journalists. When the warrant of distraint and levy is duly served upon the taxpayer. RMO No. The date of such acceptance by the Bureau should be indicated. A. and no property could be located. 162852. The fact of receipt by the taxpayer of his/her file copy shall be indicated in the original copy. or beginning distraint. No. within which the former may assess and collect taxes. at 229. which implements Sections 203 and 222 (b). xxxx d. When the taxpayer could not be located in the address given by him in the return filed upon which the tax is being assessed or collected. No. The waiver must be executed in three (3) copies. The following revenue officials are authorized to sign the waiver. d. The waiver shall be signed by the taxpayer himself or his duly authorized representative. 20-90 because the law on . 2004. Commissioner of Internal Revenue G. v. February 25. On this basis. Commissioner For tax cases involving more than P1M a. No. 2008 citing Philippine Journalists. 20-90. December 16. 167765. G.  Under RMO No. When the taxpayer requests for and is granted a reinvestigation by the commissioner. In the National Office xxxx 3. February 25. 1999 (Carnation case) that the waiver of the period for assessment must be in writing and have the written consent of the BIR Commissioner is still doctrinal because of the provisions of Sec. (Commissioner of Internal Revenue v. Any revenue official found not to have complied with this Order resulting in prescription of the right to assess/collect shall be administratively dealt with. When the taxpayer is out of the Philippines. 115712. in respect of any tax deficiencies? SUGGESTED ANSWER: a. 167765. or levy or proceeding in court and for sixty (60) days thereafter. or a member of his household with sufficient discretion. 447 SCRA 214. NIRC of 1997 which provides for the suspension of the prescriptive period: In the Regional Offices 1. FMF Development Corporation. When the Commissioner is prohibited from making the assessment. No. particularly where the language of the document is equivocal. 20-90 must be strictly followed. The procedures in RMO No.. R. R. BIR cannot rely on its invocation of the rule that the  government cannot be estopped by the mistakes of its revenue officers in the enforcement of RMO No. 447 SCRA 214. NOTES AND COMMENTS: The holding in Commissioner of Internal Revenue v.) If the above are not followed there is no valid waiver and prescription would run. 162852. FMF Development Corporation. 229 in turn citing Id. d. 620622. the Commissioner of Internal Revenue or the revenue official authorized by him. et al.R. (Commissioner of Internal Revenue v. G. v. No. Soon after the waiver is signed by the taxpayer. Inc. the following procedures should be followed for a valid waiver of the prescriptive period for an assessment: The waiver must be in the proper form. because it did not specify a definite date. nor can it be contended that the concurrence to such waiver is a mere formality. Court of Appeals. June 30. b.R.  21.   23. and invalid. 20-90 are NOT merely directory and that the execution of a waiver is a renunciation of a taxpayer’s right to invoke prescription. to a certain extent being a derogation of the taxpayer’s right to security against prolonged and unscrupulous investigations. 228-229) B. June 30. (Renumbering and emphasis supplied.R.

108 Phil. would have a feeling of security against unscrupulous tax agents who will always try to find an excuse to inspect the books of taxpayers. Court of Appeals.. 115712. No. this justifies why the former can suspend the running of the statute of limitations on collection of the assessed tax. June 30. are required for a waiver of the prescriptive period. SUGGESTED ANSWER: a. 223. v. 12-85)  24. October 31. (Commissioner of Internal Revenue v. Request for reconsideration which refers to a plea for reevaluation of an assessment on the basis of existing records without need of additional evidence. Philippine Global Communication. April 17. G. It may also involve a question of fact or law or both. Court of Appeals. No. while the latter cannot. L81446. G. Bank of Philippine Islands. G. Ablaza. 2006 citing Bank of Philippine Islands v. What are the two ways of protesting an assessment  notice for an internal revenue tax ? Alternatively. R. 134062. G. G. an assessment duly made by a Bureau of Internal Revenue examiner and approved by his superior officers will not be disturbed. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. No. What is that type of protest that suspends the  running of the statute of limitations for the beginning of distraint or levy or a proceeding in court for collection ? Why ? SUGGESTED ANSWER: It is that type of protest “when the taxpayer requests for a reinvestigation which is granted by the Commissioner” (Sec. 117 Phil. taxpayers would be open season to harassment by unscrupulous tax agents. R. 575. 167146. R. b. (Commissioner of Internal Revenue v. 530. Commissioner of Internal Revenue. The taxpayer has the duty to prove otherwise. what are the two types of protests ? Explain briefly.. et al. Philippine Global Communication.prescription should be interpreted in a way conducive to bringing about the beneficent purpose of affording protection to the taxpayer within the contemplation of the Commission which recommended the approval of the law. G. Regs. October 31. supra citing Republic v. 2007 citing Sy Po v. No. What are the requirements for the validity of a  taxpayer’s protest ? SUGGESTED ANSWER: a..  The signatures of both the Commissioner and the taxpayer. R. a reinvestigation. R. [Commissioner of Internal Revenue v. not to determine the latter’s real liability.R. Such grant may be expressed in its communications with the taxpayer or implied from the action of the Commissioner or his authorized representative in response to the request for reinvestigation. R. b. Without such legal defense. March 7. No. 578. 2006 citing Rev. 174942. The taxpayer must not only show the errors of the Bureau of Internal Revenue but also the correct computation through . In the absence of proof of any irregularities in the performance of duties. which entails the reception and evaluation of additional evidence. Commissioner of Internal Revenue. that suspends the running of the statute of limitations for collection of the tax. 568-569 (1963)] PROTESTING INTERNAL REVENUE TAX ASSESSMENTS 1. It must be filed within the reglementary period of thirty (30) days from receipt of the notice of assessment. To the Government. R. 271. No. Inc. 17 October 2005. 167146. citations omitted) Undoubtedly. 7 SCRA 566. 1108 (1960)] 53  2. 139736. October 31. No. but to take advantage of a possible opportunity to harass even law-abiding businessmen. (Commissioner of Internal Revenue v. [Commissioner of Internal Revenue. No. Inc. The act of requesting a reinvestigation alone does not suspend the running of the prescriptive period. G. G. NIRC of 1997) When a taxpayer demands 47. after the lapse of the period of prescription. R. Inc. All presumptions are in favor of the correctness of tax assessments. 164 SCRA 524. 18 August 1988. 2006 citing Sec. its tax officers are obliged to act promptly in the making of assessment so that taxpayers. Request for reinvestigation which refers to a plea for reevaluation of an assessment on the basis of newly-discovered evidence or additional evidence that a taxpayer intends to present in the investigation..” (Commissioner of Internal Revenue v. 167146. G. NIRC of 1997). 473 SCRA 205. 230-231)  4. It may involve both a question of fact or of law or both. The request for reinvestigation must be granted by the CIR. thus a unilateral waiver on the part of the taxpayer does not suspend the prescriptive period. 1105. 223.. 2008 citing Republic of the Phils. Lopez. the time employed in reinvestigation should be deducted from the total period of limitation. No. What is the presumption that flows from a taxpayer’s failure to protest an assessment ? SUGGESTED ANSWER: “Tax assessments by tax examiners are presumed correct and made in good faith. FMF Development Corporation. will take more time than a reconsideration of a tax assessment which will be limited to the evidence already at hand. 167765. The Supreme Court declared that the burden of proof that the request for reinvestigation had been actually granted shall be on the Commissioner of Internal Revenue. 2008] a reinvestigation. now Sec. 1999 (Carnation case)]  3. February 25. No. Philippine Global Communication. [Commissioner of Internal Revenue v.

and (b) that the same is his final decision. Inc. 2005) because the collection of the tax may jeopardize the interest of the taxpayer. the applicable law. Isabela Cultural Corporation. First Express Pawnshop Company. otherwise. Ayala Securities Corporation.) c. Final notice before seizure considered as commissioner’s decision of taxpayer’s request for reconsideration who received no other response. the decision shall be void. The BIR can only inform the taxpayer to submit additional documents. v. a motion for the suspension of the collection of the tax may be filed together with the petition for review (Sec. The actual issuance of a warrant of distraint and levy in certain cases cannot be considered a final decision on a disputed assessment. Regs. the applicable law.6. Filing by the BIR of a civil suit for collection of the deficiency tax is considered a denial of the request for reconsideration. 3. (Commissioner of Internal Revenue v. 2001 held that not only is the Notice the only response received: its content and tenor supports the theory that it was the CIR’s final act regarding the request for reconsideration. (Commissioner of Internal Revenue v. As a general rule. (Surigao Electric Co. To be a valid decision on a disputed assessment. rules and regulations. Rev. et al. the taxpayer shall submit all relevant supporting documents. The very title expressly indicated that it was a final notice prior to seizure of property. NIRC of 1997] 54 request for reconsideration or protest and is appealable to the Court of Tax Appeals.1. Explain briefly your answer. by way of a petition for review. Inc. The  term “relevant supporting documents” should be understood as those documents necessary to support the legal basis in disputing a tax assessment as determined by the taxpayer. the petition would be dismissed for lack of jurisdiction unless the case falls under any of the following exceptions. 70 SCRA 204) e. in which case the same shall not be considered a decision on the disputed assessment. Union Shipping Corporation. June 16. the taxpayer shall be required to pay the corresponding deficiency tax or taxes attributable thereto. 185 SCRA 547) b. Within sixty (60) days from filing of the protest. Rev.” defined. or jurisprudence on which the taxpayer’s protest is based. to the Court of Tax Appeals not on the ground of the denial of the protest but on other matter arising under the provisions of the National Internal Revenue Code. 135210. What is the subject of the appeal is the final decision not the warrant of distraint. An indication to the taxpayer by the Commissioner “in clear and unequivocal language” of his final denial not the issuance of the warrant of distraint and levy. During the pendency of the protest the CIR issued a warrant of distraint and levy to collect the taxes subject of the protest. SUGGESTED ANSWER: The taxpayer should appeal. Court of Tax Appeals.. 185 SCRA 547) JUDICIAL REMEDIES ASSESSMENTS INVOLVING PROTESTED   Acts of BIR Commissioner that may be considered 1. would have jurisdiction. RRCTA effective December 15. 57 SCRA 523) Furthermore. No. [4th par. 172045-46. Sec. If there is no such decision. (Commissioner of Internal Revenue v. As counsel what advice shall you give the taxpayer. G. rules and regulations. 3. as denial of a protest which serve as basis for appeal to the Court of Tax Appeals. (Sec. 12-99) These conditions are not complied with by the mere issuance of a warrant of distraint and levy.R. “Relevant supporting documents. (Ibid. 3.. The letter itself clearly stated that the taxpayer was being given “this LAST OPPORTUNITY” to pay. Commissioner of Internal Revenue v. a. 2009) 2. G. the same shall be considered undisputed issue or issues. 2) If there are several issues involved in the disputed assessment and the taxpayer fails to state the facts. Rule 10.1) A statement of the facts. rules and regulations. 12-99) c. The BIR cannot demand what type of supporting documents should be submitted.. A BIR demand letter sent to the taxpayer after his protest of the assessment notice is considered as the final decision of the Commissioner on the protest. 228 (e). The taxpayer seasonably protested the assessment issued by the Commissioner of Internal Revenue. (Commissioner v. R. which may require the production of documents that a taxpayer cannot submit. (Sec. a taxpayer will be at the mercy of the BIR.  5.5. the applicable law. or jurisprudence in support of his protest against some of the several issues on which the assessment is based. in which case. Regs. or jurisprudence on which such decision is based. the decision of the Commissioner or his duly authorized representative shall (a) state the facts... . A letter of the BIR Commissioner reiterating to a taxpayer his previous demand to pay an assessment is considered a denial of the 3. Union Shipping Corp.1. there must always be a decision of the Commissioner of Internal Revenue or Commissioner of Customs before the Court of Tax Appeals. otherwise. d. its properties would be subjected to distraint and levy. Otherwise. July 11.

222 (d). G. NIRC of 1997. tax laws must be d. statutes may provide for periods of prescription. April 17. “a proceeding in court for the collection of such tax may be filed without assessment. For purposes of this Section. It is disheartening enough to a taxpayer to be kept waiting for an indefinite period for the ruling. in relation to Secs. (last par. 222 (c). et al. 82618.) 5. In case of a false or fraudulent return with the intent to evade tax or of failure to file a return. or any extensions before the expiration of the period agreed upon. et al. (Commissioner of Customs. fraud or omission. etc. Sec.” [Sec. No. in relation to Sec. NIRC of 1997. Where the Commissioner has not acted on an application for refund or credit and the two year period from the time of payment is about to expire. Provided. or where the assessment is not an extended assessment. v. Without needless difficulty. Isabela Cultural Corporation.G. emphasis supplied] c.” (Sec. internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return. 2. at his personal convenience. fraud or omission “may be collected by distraint or levy or by a proceeding in court within five (5) years following the assessment of the tax. the taxpayer has to file his appeal with the Court of Tax Appeals before the expiration of two years from the time the tax was paid. 222 (a). 135210. Instances where the Court of Tax Appeals would have jurisdiction even if there is no decision yet by the Commissioner of Internal Revenue: a. Collection upon a false or fraudulent return or no return with assessment. August 3. statutes may provide for prescriptive periods for the collection of particular kinds of taxes.R. Collection upon a false or fraudulent return or no return without assessment.. a return filed before the last day prescribed by law for the filing thereof shall be considered filed on such last day. emphasis supplied) . That in case where a return is filed beyond the period prescribed by law. The Commissioner of Internal Revenue should always indicate to the taxpayer in clear and unequivocal language whenever his action on an assessment questioned by a taxpayer constitutes his final determination on the disputed assessment. unlike remedial laws. and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. Commissioner of Internal Revenue v. and exemptions are not given retroactive application. Revenue laws are substantive laws and their application must not be equated with remedial laws. the taxpayer has a period of 30 days from the expiration of the 180 day period within which to appeal to the Court of Tax Appeals. General rule: Collection of taxes is imprescriptible. the price we pay for civilization.55 faithfully and strictly implemented. the aggrieved taxpayer would then be able to take recourse to the tax court at the opportune time. (Acosta. As a general rule. 2007) b. No. would have. On the basis of his statement indubitably showing that the Commissioner’s communicated action is his final decision on the contested assessment. are not to be applied retroactively. emphasis supplied] COLLECTION OF INTERNAL REVENUE TAXES 1. Where the Commissioner has not acted on the disputed assessment after a period of 180 days from submission of complete supporting documents. R. within a period of ten (10) years from discovery of the falsity. G. No. SUGGESTED ANSWER: a. 2001) (Commissioner of Internal Revenue v. It would make matters more exasperating for the taxpayer if the doors of justice would be closed for such a relief until after the Commissioner.. 228 (e). March 16. 154068. (Commissioner of Internal Revenue v. Acosta. the taxpayer would be able to determine when his right to appeal to the tax court accrues. 222 (b) and 203. Bank of the Philippines Islands.. What is the prescriptive period for collecting internal revenue taxes ? SUGGESTED ANSWER: There are four (4) prescriptive periods for the collection of an internal revenue tax: a. at any time within ten (10) years after the discovery of the falsity. “Except as provided in Section 222. July 11. No. supra) 3. NIRC of 1997] b. the tax “may be collected by distraint or levy or by a proceeding in court within the period agreed upon in writing before the expiration of the five (5) year period. 1989.” [Sec. The characteristic of a BIR denial of a protest such  as would enable the taxpayer to appeal the same to the Court of Tax Appeals. 134062. Court of Tax Appeals.R. b. considering that taxes are the lifeblood of the government and in Holmes’ memorable metaphor. given his go signal. 2007) However. Collection upon an extended assessment. NIRC of 1997. R. Collection upon a return that is not false or fraudulent. the three (3) year period shall be computed from the day the return was filed. The period so agreed upon may be extended by subsequent written agreements made before the expiration of the period previously agreed upon. Why is the collection of taxes imprescriptible ? While this may be so. Any internal revenue tax which has been assessed (because the return is false or fraudulent with intent to evade tax or of failure to fail a return). unrep.” [Sec. revenue laws are not intended to be liberally construed. 4. 222 (a) NIRC of 1997. Tax laws. 203.. Where a tax has been assessed with the period agreed upon between the Commissioner and the taxpayer in writing (which should initially be within three (3) years from the time the return was filed or should have been filed). G.

and 3) an extended assessment issued within a period agreed upon by the Commissioner and the taxpayer.” Said Sec. No. Commissioner of Internal Revenue. c. if the taxpayer did not agree. (Sec. 174942. G. 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.R. b. 2008 citing BPI v. upon taxpayer’s compliance with the basis for compromise. levy.When the BIR validly issues an assessment within the three (3)year period. b. No. f. or court proceeding. Rev. 269 provide for an instance where the assessment was made upon a “regular return” or one that is not false or fraudulent. it has another three (3) years within which to collect the tax due by distraint. March 7. et al. 269. 2001) 5. 139736. 222 of the NIRC is clear that it covers only three scenarios only. and no proceeding in court without assessment for the collection of such taxes x x x “ (paraphrasing and emphasis supplied) SUGGESTED ANSWER: A compromise is a contract whereby the parties. avoid a litigation or put an end to one already commenced. e.. Criminal tax fraud cases. Regs. Enforcement Service and other offices in the National Office. “Except as provided in Section 222. 17 October 2005. G. The same scenarios are those referred to in the former Sec. It is clear therefore that neither Sec. Rev. Cases under administrative protest after issuance of the Final Assessment Notice to the taxpayer which are still pending in the Regional Offices. be the subject matter of compromise settlement: a. Estate tax cases where compromise is requested on the ground of financial incapacity of the taxpayer. Resort should therefore be made to the three (3) year period referred to in Sec. (Art. 2. 2028. c. What tax cases could not be the subject of  compromise ? SUGGESTED ANSWER: a. by making reciprocal concessions. No. and g. Revenue District Offices. 30-2002) 6.222 of NIRC of 1997 do not refer to a “regular return. NIRC of 1977 and Sec. [Bank of Philippine Islands (Formerly Far East Bank and Trust Company) v. mailed or sent to the taxpayer. d. The payment made under protest could only signify that there was no agreement that had effectively been reached SUGGESTED ANSWER: The following cases may. other than those already filed in court. Civil Code) A compromise penalty could not be imposed by the BIR. and what are the amounts for which a compromise may be entered into ? . 2) an assessment was made upon a false or fraudulent return or omission to file a return. 2. entitled “Exceptions as to the period of limitation of assessment and collection of taxes. d. 269 which provided for a prescriptive period for collection of three (3) years. by its nature. internal revenue taxes shall be assessed within three (3) years after the last day prescribed by law for the filing of the return. 222 nor the former Sec. 203 of the NIRC of 1997 which reads. mutual in essence requires agreement. 269 (c). de San Agustin. e. No. confirmed as such by the Commissioner of Internal Revenue or his duly authorized representative. reads “Any internal revenue tax which has been assessed within the period of limitation above-prescribed may be collected by distraint or levy or by a proceeding in court within three years following the assessment of the tax. Commissioner of Internal Revenue. v. Collection cases filed in courts. The assessment of the tax is deemed made and the three (3)-year period for collection of the assessed tax begins to run on the date the assessment notice had been released.” It is clear that in enacting Sec. R.  What tax compromise ? cases may be the subject of a NOTES AND COMMENTS: a. September 10. Large Taxpayer Service (LTS). When may the Commissioner of Internal Revenue  compromise the payment of any internal revenue tax ? Alternatively. Collection Service. Delinquent accounts. (Sec. or those involving criminal tax fraud. A compromise being. 473 SCRA 205. 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. Regs. 1) No assessment was made upon a false or fraudulent return or omission to file a return. No. Delinquent accounts with duly approved schedule of installment payments. (Vda. Civil tax cases being disputed before the courts. On the other hand. Both the former Sec. Withholding tax cases unless the applicant-taxpayer invokes provisions of law that cast doubt on the taxpayer’s obligation to withhold.. Commissioner of Internal Revenue. 138485. Criminal violations already filed in court. Criminal violations. what are the grounds for a compromise. or that there was an agreement to extend the period for assessment. Legal Service. What is a compromise ?  7. R. G. 269 of the NIRC. other protested cases shall be handled by the Regional Evaluation Board (REB) or the National Evaluation Board (NEB) on a case to case basis. 222-223] 56 between the parties.” the NIRC of 1997 has eliminated sub-paragraph c of the former Sec.” A perusal of Sec. 222. 302002)  4. also entitled “Exceptions as to the period of limitation of assessment and collection of taxes.

and c. an interested party may file a motion for the suspension of the collection of the tax liability (Sec. 1. NIRC of 1997] 8. It is shown on the return of the recipient that the income payment received was declared as part of the gross income. c. March 27. Rep. sought by means of a demand for payment.000. The tax was paid through a mistaken belief that the taxpayer should pay the tax (solution indebeti) 9. Rep. What are the three (3) conditions for the grant of a  claim for refund of creditable withholding tax ? SUGGESTED ANSWER: a. RRCTA effective December 15. The tax was illegally collected. may jeopardize the interest of the government or the taxpayer. No. or b. – (a) Claims for Tax Credit or Refund of Income tax deducted and withheld on income payments shall be given due course only when it is shown on the return that the income payment received has been declared as part of the gross income and the fact of withholding is . [Sec. Act No. 3. 9. by levy. G.000. 11. Court of Appeals. 2007) The Supreme Court may enjoin the collection of taxes under its general judicial power but it should be apparent that the source of the power is not statutory but constitutional. 10. Only the Court of Tax Appeals may issue an order suspending the collection of a tax. There is a law that authorizes the collection of a tax but the tax collected was more than what the law allows. RRCTA effective December 15. 155682. The administration and collection costs involved do not justify the collection of the amount due. “No court shall have the  authority to grant an injunction to restrain the collection of any national internal revenue tax. Rule 10. [Sec. or by whatever means. 204 (B). as amended by Sec. and the settlement offered is not less than the prescribed percentages. Claim for tax credit or refund. The claim is filed with the Commissioner of Internal Revenue within the two-year period from the date of the payment of the tax. city or municipal treasurer or the Secretary of Finance.  REFUND OF INTERNAL REVENUE TAXES  1. 57  11. NOTES AND COMMENTS: a. however. b. The motion for suspension of the collection of the tax may be filed together with the petition for review or with the answer.. The fact of withholding is established by a copy of a statement duly issued by the payee showing the amount paid and the amount of tax withheld therefrom. The tax was excessively collected. A reasonable doubt as to the validity of the claim against the taxpayer exists provided that the minimum compromise entered into is equivalent to forty percent (40%) of the basic tax.SUGGESTED ANSWER: a. 9282 )  2. R. 218. as the case may be shall suspend the payment. b. et al. As a general rule. 204 (A). as provided under existing laws. (Banco Filipino Savings and Mortgage Bank v.  What is the procedure for suspension of collection of taxes ? SUGGESTED ANSWER: Where the collection of the amount of the taxpayer’s liability. The collection of a tax may not be suspended. (Sec. 2005) with the Court of Tax Appeals. Proof of fact of withholding. distraint. What are the grounds for refund or credit of internal  revenue taxes ? SUGGESTED ANSWER: The grounds for refund or credit or internal revenue taxes are the following: a. Rule 10. The tax or any portion thereof appears to be unjustly or excessively assessed. or b. the Secretary of Trade and Industry and Secretary of Agriculture. or in a separate motion filed by the interested party at any stage of the proceedings. “Sec. NIRC of 1997] In instances where the Commissioner is not authorized. The financial position of the taxpayer demonstrates a clear inability to pay the assessed tax provided that the minimum compromise entered into is equivalent to ten percent (10%) of the basic assessed tax In the above instances the Commissioner is allowed to enter into a compromise only if the basic tax involved does not exceed One million pesos (P1. 1125. 2005) When is the Commissioner of Internal Revenue authorized to abate or cancel a tax liability ?: SUGGESTED ANSWER: a.” (Sec.00). 10. and/or sale of any property of the taxpayer for the satisfaction of his tax liability as provided by existing law: Provided. the compromise shall be subject to the approval of the Evaluation Board composed of the Commissioner and the four (4) Deputy Commissioners. distraint or sale of property of the taxpayer. Act No. NIRC) “No appeal taken to the CTA from the decision of the Commissioner of Internal Revenue or the Commissioner of Customs or the Regional Trial Court. provincial. There is no law that authorizes the collection of the tax. fee or charge. levy.” (Sec. That when in the opinion of the Court the collection by the aforementioned government agencies may jeopardize the interest of the Government and/or the taxpayer the Court at any stage of the proceeding may suspend the said collection and require the taxpayer either to deposit the amount claimed or to file a surety bond for not more than double the amount with the Court.

. R. et al. as amended) The document which may be accepted as evidence of the third condition. 1997. the obligation to return it arises. No. 280 SCRA 459.” and thus. within thirty (30) days from receipt of the denial by the Commissioner of the application for refund or credit. No. the income payment basis of the tax withheld. if the 2 year period is about to lapse but there is no decision yet by the Commissioner which would trigger the 30-day period. August 28. there is cause to deny the refund. (Philippine Bank of Communications v. R. (Commissioners. G. or allow it only to the extent of the sum that is actually proven as due. N. v. March 27. G. Regs. 11. 155682. before filing a case with the Court of Tax Appeals ?  6.R. if the 30 days is within the 2 years.established by a copy of the Withholding Tax Statement duly issued by the payor to the payee showing the amount paid and the amount of the tax withheld therefrom xxx” (Rev. No. 82618. G. R. 107434. shall enrich oneself at the expense of another. 1989.R. What should be established by a taxpayer for the grant of a tax refund ? Why ? SUGGESTED ANSWER: A taxpayer needs to establish not only that the refund is justified under the law. 6-85. etc. the taxpayer should file an appeal. 1999) It is only when the return. Where the taxpayer is a corporation the two year  prescriptive period from “date of payment” for refund of .) 56. before the expiration of two (2) years from the date of payment of the tax regardless of any supervening cause that may arise after payment (2nd par. No. No. Civil Code.. No. 1125) SUGGESTED ANSWER: Under the principle of solutio indebiti provided in Art. Sec.. 144653. but also the correct amount that should be refunded. It is an ancient principle that no one. (Ibid. G. (Sec. Court of Tax Appeals. (Far East Bank Trust and Company.A. the amount of the tax withheld and the nature of the tax paid. Commissioner of Internal Revenue. it has the obligation to return it. If the latter requisite cannot be ascertained with particularity. A. covering the whole year. that is. et al. 2001) 3.. G.. Commissioner of Internal Revenue . must emanate from the payor itself. January 18.. 112024. NIRC of 1997). Sr. et al. 2006)  7. Court of Appeals and Commissioner of Internal Revenue. Court of Appeals. No. [State Land Investment Corporation v. No. Thus. (Bank of the Philippine Islands v. v. is filed that the taxpayer will be able to ascertain whether a tax is still due or refund can be claimed based on the adjusted and audited figures. in turn citing Ramie Textiles. v. What are the reasons for requiring the filing of an administrative application for refund or credit with the BSUGGESTED    8. Commissioner of Internal Revenue. October 10. May 2. 138919. (Banco Filipino Savings and Mortgage Bank v. or b. 2008citing Citibank.  Why is it necessary to file an administrative claim for refund with the BIR.” The BIR received something “when there [was] no right to demand it. January 28. G. et al. March 16. G. and it was unduly delivered through mistake. etc. The burden in proving the claim for refund necessarily falls on the taxpayer. v. simple justice requires the speedy refund of the wrongly held taxes. the fact of withholding. Commissioner of Internal Revenue. 171956. What is The legal remedy under the NIRC of 1997  at the judicial level with respect to refund or recovery of tax erroneously or illegally collected ? SUGGESTED ANSWER: Filing of a suit or proceeding with the Court of Tax Appeals a. 229.)  5.R. and not merely from the payee. “If something is received when there is no right to demand it.  cases ? What is solutio indebeti as applied to tax  4. Mathay. Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person claiming the exemption. and must indicate the name of the payor. unrep. 89 SCRA 586 (1979)].  The two (2) year period and the thirty (30) day period should be applied on a whichever comes first basis. R. the 30 days applies. 2154.. No. R. despite the absence of a decision. Inc. 2007) 58 income taxes should be the date when the corporation filed its final adjustment return not on the date when the taxes were paid on a quarterly basis. not even the state. Indeed.

.. To notify the Government that such taxes have been questioned and the notice should be borne in mind in estimating the revenue available for expenditures denied by the Bureau of Internal Revenue. September 10. Who could apply for a refund or credit ?  .59 SUGGESTED ANSWER: Yes. G. a.R. for the Commissioner would certainly disallow the claim for refund in the same way as he disallowed the protest against the assessment. Who could apply for a tax refund or credit ? SUGGESTED SUGGESTED ANSWER: The person who paid the tax may apply for a refund or credit. 2001 citing Roman Catholic Archbishop of Cebu v. Court of Tax Appeals. There is no need for a prior application for refund or credit. Collector of Internal Revenue. 229 of the NIRC of 1997 is required where the case filed before the CTA is a refund case. The law. v. 14 SCRA79) b. etc. 138485. Commissioner of Internal Revenue. (Gonzales v. 4 SCRA 279) NOTE: Reconciliation between As a general rule the filing of an application for refund or credit with the Bureau of Internal Revenue is an administrative precondition before a suit may be filed with the Court of Tax Appeals ? SUGGESTED ANSWER:  9. No. de San Agustin. To hold that the taxpayer has now lost the right to appeal from the ruling on the disputed assessment and require him to file a claim for a refund of the taxes paid as a condition precedent to his right to appeal. should not be interpreted as to result in absurdities . if the refund is merely a consequence of the resolution of the BIR’s denial of a protested assessment. which is not premised upon a disputed assessment. et al. (vda.  above two numbers (8 and 9). An application for refund or credit under Sec. The failure to first file a written claim for refund or credit is not fatal to a petition for review involving a disputed assessment where an assessment was disputed but the protest was a.. would in effect require of him to go through a useless and needless ceremony that would only delay the disposition of the case.  10. To afford the Commissioner an opportunity to correct his errors or that of subordinate officers.

Inc. 69 of the 1977 NIRC (now Sec. However. is given to the taxpayer. he is also a taxpayer because the tax may be collected from him if he does not withhold. Nos. such election is not final. Inc. 176290. it may then be allowed to claim the refund of the remaining tax credits. these remedies are in the alternative and the choice of one precludes the other. To facilitate tax collection. whether to claim for refund under Sec. January 28.. G. Commissioner of Internal Revenue. Court of Appeals. shall either (a) be refunded to the corporation. v. these remedies are in the alternative and the choice of one precludes the other. the same shall be irrevocable for that taxable period. G.A withholding tax agent may also apply for a refund. Inc. 916 (1999)] 11. cessat ipse lex. the tax due for the next taxable year is lower than excess tax credits.. No. G. What is the “irrevocability rule” in claims for refund  and what is the rationale behind this ? SUGGESTED ANSWER: A corporation entitled to a tax credit or refund of the excess estimated quarterly income taxes paid has two options: (1) to carry over the excess credit or (2) to apply for the issuance of a tax credit certificate or to claim a cash refund. Commissioner of Internal Revenue. The phrase “such option shall be considered irrevocable for that taxable period” means that the option to carry over the excess tax credits of a particular taxable year can no longer be revoked. . 76 of the NIRC of 1997) provides that any excess of the total quarterly payments over the actual income tax computed in the adjustment or final corporate income tax return. 2004) This is known as the irrevocability rule and is embodied in the last sentence of Section 76 of the Tax Code. October 13. R. No. Prior verification and approval by the Commissioner of Internal Revenue is required. creditable against future income tax liabilities until fully utilized. (Systra Philippines. R. 112024. (Philippine Bank of Communications v. Commissioner of Internal Revenue. It does not confer an absolute right on the part of the taxpayer to avail of the tax credit scheme if it so chooses. Once the carry over option was made. Petitioner may claim and carry it over in the succeeding taxable years. et al. The amount will not be forfeited in favor of the government but will remain in the taxpayer’s account. September 21. 60 citing Philippine Bank of Communications v. Inc. Commissioner of Internal Revenue. Seventh Edition. The availment of the remedy of tax credit is not absolute and mandatory. p. It now applies for a refund of the unapplied tax credits.R. What is the nature of the taxpayer’s remedy of either to ask for a refund of excess tax payments or to apply the same in payment of succeeding taxable periods’ taxes ? SUGGESTED ANSWER: Sec. actually or constructively. 2007 Supposing in the above problem that Systra permanent ceased operations. In such a case. No. The excess credits will only be applied “against income tax due for the taxable quarters of the succeeding taxable years. or (b) may be credited against the estimated quarterly income tax liabilities for the quarters of the succeeding taxable year. v. Systra Philippines.. the remaining tax credits can no longer be carried over and the irrevocability rule ceases to apply. Commissioner of Internal Revenue... 23. Neither does it impose a duty on the part of the government to sit back and allow an important facet of tax collection to be at the sole control and discretion of the taxpayer. Hector. does Systra lose the unapplied tax credits ? Explain briefly your answer. In the year 2000 Systra derived excess tax credits and exercised the option to carry them over as tax credits for the next taxable year. Inc. the corporation permanently ceases its operations before full utilization of the tax credits it opted to carry over. v. [Systra Philippines. v. 1999) NOTES AND COMMENTS: a. September 21. 2000. Cessante ratione legis.R. (Systra Philippines. what happens to the unapplied credits ? SUGGESTED ANSWER: Where. Systra does not lose the unapplied tax credits. 76 or have its excess taxes applied as tax credit for the succeeding taxable year. supra citing De Leon. the corporation must signify in its annual corporate adjustment return (by marking the option box provided in the BIR form) its intention either to carry over the excess credit or to claim a refund. (Paseo Realty & Development Corporation v. et al. May its refund be granted ? If the refund is denied. 477 SCRA 761) 12. R. (Footnote no. 176290. a claim for refund of such excess credits can no longer be made. G.” Despite the denial of its claim for refund.. 14 December 2005. it became forever irrevocable regardless of whether the excess tax credits were actually or fully utilized Under Section 76 of the Tax Code. 361 Phil. 119286. To ease the administration of tax collection. No. In exercising its option. 2007 citing Philam Asset Management. SUGGESTED ANSWER: Systra’s claim for refund should be denied. THE NATIONAL INTERNAL REVENUE CODE. 430) 13. The choice. In a sense. If the option to carry over the excess credit is exercised. Since the Bank has chosen the tax credit approach it cannot anymore avail of the tax refund. 156637/162004. The rule prevents a taxpayer from claiming twice the excess quarterly taxes paid: (1) as automatic credit against taxes for the taxable quarters of the succeeding years for which no tax credit certificate has been issued and (2) as a tax credit either for which a tax credit certificate will be issued or which will be claimed for cash refund. G.

G. No. the taxpayer to whom the tax is refunded would have the option. Gibbs v. (Paseo Realty & Development Corporation v. The law fixed the same period two years for filing a claim for refund with the Commissioner under Sec. Commissioner.. earned from those trusts from that earned by the other clients of the bank-trustee. 138919. 204 [C]. unlike in protests of assessments under Sec. the banktrustee instead presented witness to establish that it would next to impossible to single out the specific transactions involving the employees’ trust funds from the totality of all interest income from its total investments. No. 1994. etc. Tax refunds. The application for refund will not prosper. The doctrine that delay of the Commissioner in rendering decision does not extend the peremptory period fixed by the statute. 2008 that the taxpayer is entitled to a refund because during the succeeding year there was no tax due against which the excess tax credits may be applied is not doctrinal. The grant of a refund is founded on the assumption that the tax return is valid. 171956. After all.R. because other evidence was presented to prove that the overpaid taxes were not applied. 176290. 107 Phil. Collector of Internal Revenue. No. par. etc. a tax refund requires a physical return of the sum erroneously paid by the taxpayer. while a tax credit involves the application of the reimbursable amount against any sum that may be due and collectible from the taxpayer. (Commissioner of Customs v. G. Bank of Philippine Islands. 144440. The positive requirement of Section 230 NIRC (now Sec. 719. et al.. G. refund was granted. 151) NOTES AND COMMENTS: It may be that there is no essential difference between a tax refund and a tax credit since both are moves of recovering taxes erroneously or illegally paid to the government.R. R. but also the correct amount that should be refunded. Instead of presenting separate accounts for interest incomes made of these investments. v. and for filing suit in court under Sec. Commissioner of Internal Revenue. A bank-trustee of employee trusts filed an application for the refund of taxes withheld on the interest incomes of the investments made of the funds of the employees’ trusts.Commissioner of Internal Revenue. September 1. No. Court of Appeals. (Far East Bank and Trust Company.. (Commissioner of Internal Revenue v. No. 2007) NOTES AND COMMENTS: The holding in State Land Investment Corporation v. G. b. 2006) The amounts that are the exempt earnings of the employee’s trust has not been shown as they have been commingled with the interest income of the other clients of the bank-trustee. 2004) 17. 386 Phil. No. that the facts stated therein are true and correct. Discuss the difference between tax refund and tax  credit. thus clearly implying that the prior decision of the Commissioner is necessary to take cognizance of the case. 2004) 14. 230. are construed strictly against the taxpayer. SP No. Philippine Phosphate Fertilizer Corporation.e. NIRC of 1997). G. interest or otherwise.. May 2. it is axiomatic that a claimant has the burden of proof to establish the factual basis of his or her claim for tax credit or refund. like tax exemptions. which did not provide for the “irrevocability rule” now contained in Sec. c. Tax refunds partake of the nature of tax exemptions and are thus construed strictissimi juris against the person or entity claiming the exemption. The burden in proving the amount to be refunded necessarily falls on the bank-trustee. 1994. and there is an apparent failure to do so. to invest for profit the returned sum. 101 Phil. 229. despite the failure to present the tax return. 15. 69 of the NIRC. i. Philippine Phosphate Fertilizer Corporation. January 18. 61 SUGGESTED ANSWER: There are unmistakable formal and practical differences between the two modes. CA-G. October 13. A simultaneous filing of the application with the BIR for refund/credit and the institution of the court suit with the CTA is allowed. 3. There is no need to wait for a BIR denial. Court of Tax Appeals. (Commissioner of Internal Revenue v. et al. in BPI-Family Savings Bank v. G. A necessary consequence of the special exemption enjoyed alone by employees’ trusts would be a necessary segregation in the accounting of such income. (Commissioner of Customs v. 326 SCRA 641 (2000). Court of Appeals. 34102. REASONS: a.)  16. NIRC of 1997). among others. 76 of the NIRC of 1997. 229. September 1. 144440. R. . No. which fixed the period (thirty days from receipt of decision) for appealing to the court. NIRC (now Sec. etc. (Ibid.. 229 (now Sec. 228. R. 204. On the practical side.. NIRC (now Sec. 106611. September 9. On the above basis will the application for refund prosper ? SUGGESTED ANSWER: No. The bank-trustee needs to establish not only that the refund is justified under the law (which is so because incomes of employees’ trusts are tax exempt). et al. R.. Formally. R. NIRC of 1997). July 21. et al. CTA. 234 SCRA 348) Without the tax return it would be virtually impossible to determine whether the proper taxes have been assessed and paid. 232. 2004) However. G. September 21. v. an option not proximately available if the taxpayer chooses instead to receive a tax credit. R. 119286. NIRC of 1997). Johnston Lumber Co. This is so because it interpreted the provisions of then Sec.

2007) 19. 1 TARIFF AND CUSTOMS LAWS . Is the Court of Tax Appeals correct ? SUGGESTED ANSWER: Yes. The party who desires to introduce as evidence such voluminous documents must present: (a) Summary containing the total amount/s of the tax account or tax paid for the period involved and a chronological or numerical list of the numbers. It is gathered that respondent paid the deficiency franchise tax in the amount of P2. October 10. in lieu of all other taxes and assessments of whatever nature. but only P77.” (Emphasis supplied) Acting on a yearly routinary Letter of Authority No. and 2. Respondent thus filed on March 30. directing the investigation of tax liabilities of respondent for taxable year 1987. Such summary and certification must properly be identified by a competent witness from the accounting firm. For the last quarter ending December 31. and (b) a Certification of an independent Certified Public Accountant attesting to the correctness of the contents of the summary after making an examination and evaluation of the voluminous receipts and invoices.729 representing overpaid income taxes for the years 1987 and 1988. the purpose of which being to “insure prompt action on corporate annual income tax returns showing refundable amounts arising from overpaid quarterly income taxes. CTA Circular No. 1987. The returns submitted are “merely pre-audited which consist mainly of checking mathematical accuracy of the figures in the return.335. 121666. 1976) the refund or tax credit is granted. 1-95 clearly requires that photocopies of the receipts or invoices must be pre-marked and submitted to the CTA to verify the correctness of the summary listing and the CPA certification. 1990 a letter-claim for refund or credit in the amount of P107. 32-76 dated June 11. or (b) be refunded the excess amount paid. invoices and other documents covering the said accounts or payments must be premarked by the party concerned and submitted to the Court in order to be made accessible to the adverse party whenever he/she desires to check and verify the correctness of the summary and CPA certification. identification and comparison with the originals thereof need not be done before the Court or the Commissioner anymore after the introduction of the summary and CPA certification. as amended by Republic Act No.340. however. invoices or documents should be ready for verification and comparison in case doubt on the authenticity of the particular documents presented is raised during the hearing of the case.1[3] had been paying a 2% franchise tax based on its gross receipts.838. 484. 1988 issued by petitioner.729 claim for refund. The Court of Tax Appeals granted the P107.902. The method of individual presentation of each and every receipt or invoice or other documents for marking. or in the alternative for the BIR to issue a tax credit. reads: “1. 1989.” (Revenue Memorandum Order No.62 18. 1988 its tentative income tax reflecting a refundable amount of P101. No.812 was applied as tax credit for the succeeding taxable year 1988. 1987. Petitioner not having acted on its request.931. Upon the effectivity of Executive Order No.838. CTA Circular No. However. G.649.84.84. 0018064 NA dated June 27.897. the corporation has the option to either: (a) pay the excess tax still due. 1-95. now Sec. Manila Electric Company. Section 69 of the National Internal Revenue Code of 1986. 76 provides. respondent became subject to the payment of regular corporate income tax. 1988 reflecting a refundable amount of P107. 2. deficiency income tax in the amount of P2. issued on 25 January 1995. R. 551. an investigation was conducted by Revenue Officer Frederick Capitan which showed that respondent was liable for “1. 1990 a judicial claim for refund or credit with the Court of Tax Appeals. deficiency franchise tax in the amount of P2. the originals of the said receipts.649. Manila Electric Company a grantee of a legislative franchise under Act No. (Commissioner of Internal Revenue v.649. It is enough that the receipts. respondent filed on April 6. dates and amounts covered by the invoices or receipts.741.52. respondent filed an amended final corporate Income Tax Return ending December 31. 4159 and Presidential Decree No. respondent filed on April 15.” On April 17.729. It protested the payment of the alleged deficiency income tax and claimed as an alternative remedy the deduction thereof from its claim for refund or credit.335.” After such checking. if the sum of the quarterly tax payments made during a taxable year is not equal to the total tax due on the entire taxable income of that year as shown in its final adjustment return. 72 on February 10.

1202. commodity or article of commerce into the Philippines at less than its normal value when destined for domestic consumption in the exporting country which is causing or is threatening to cause material injury to a domestic industry. commodity or article of commerce is exported into the Philippines at a price less than its normal value when destined for domestic consumption in the exporting country. (Nestle Phils. 2001) 10. 134114. Customs duties is the name given to taxes on the importation and exportation of commodities. after formal investigation and affirmative finding of the Tariff . The special customs duties under the Tariff and Customs Code (TCCP) are the anti-dumping duty. TCC. as amended by Rep. TCCP) The jurisdiction of the Bureau of Customs to enforce the provisions of the TCCP including seizure and forfeiture also begins from the beginning of importation. July 6. Act No. The imposing authority for the anti-dumping duty is the Secretary of Trade and Industry in the case of nonagricultural product. and (c) to impose additional duty on all imports not exceeding 10% ad valorem. commodity or article (Sec. Special customs duties are additional import duties imposed on specific kinds of imported articles under certain conditions. which implements the constitutionally delegated power to the Congress to further delegate to the President of the Philippines. [Sec. Where a product. TCC. taxes and other charges due upon the agencies. “AntiDumping Act of 1999”]  3. until they have legally left the jurisdiction of the customs. and such exportation is causing or is threatening to cause material injury to a domestic industry. or materially retards the establishment of a domestic industry producing the like product.  7. or secured to be paid. (Sec. 1202. SUGGESTED ANSWER: The anti-dumping duty is imposed a. G. at the port of entry and the legal permit for withdrawal shall have been granted. Court of Appeals. and under the Safeguard Measures Act (SMA) additional tariffs as safeguard measures. reduce or remove existing protective rates of import duty. in the interest of national economy. No. et al. TCCP) The Bureau of Customs loses jurisdiction to enforce the TCCP and to make seizures and forfeitures after importation is deemed terminated. “Anti-Dumping Act of 1999”]  8. or article in the ordinary course of trade when destined for consumption in the country of export. the countervailing duty. or materially retarding the establishment of a domestic industry producing the like product. When is the anti-dumping duty imposed ?  9. v. or article or the Secretary of Agriculture. [Sec. The special customs duties are imposed for the protection of consumers and manufacturers. TCC. general welfare and/or national security upon recommendation of the NEDA (a) to increase. Act No. Act No. Thus. In case the articles are free of duties. the discriminatory duty. 301 (s) (5).”)  2. commodity. as amended by Rep.  When is importation deemed terminated and why is it important to know whether importation has already ended? SUGGESTED ANSWER: Importation is deemed terminated upon payment of the duties.ORGANIZATION AND FUNCTIONS OF THE BUREAU OF INTERNAL REVENUE TARIFF AND CUSTOMS CODE  1. b. 301 (s) (3 ). (Sec. 8752. 8752. and why is it important to know whether importation has already begun or not ? SUGGESTED ANSWER: Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines with intention to unlade therein. provided that. and the marking duty. “Anti-Dumping Act of 1999. Act No. 63 5.  Dumping duty is an additional special duty amounting to the difference between the export price and the normal value of such product. Normal value for purposes of imposing the antidumping duty is the comparable price at the date of sale of like product. commodity.R. 6. among others. 8752. “Anti-Dumping Act of 1999”] 4. [Sec. 301 (a). 301 (s) (1). or exported to. TCC. the increase should not be higher than 100% ad valorem. as well as Philippine products. as amended by Rep. (b) to establish import quota or to ban imports of any commodity. Customs duties defined. taxes and other charges.. a foreign country. the tariff or tax assessed upon merchandise imported from. commodity or article. imposed on the importation of a product.  When does importation begin. as amended by Rep. the Bureau of Customs obtains jurisdiction over imported articles only after importation has begun. The flexible tariff clause is a provision in the Tariff  and Customs Code. 8752. in the case of agricultural product.

The countervailing duty is equivalent to the value of the specific subsidy. of any foreign country which imposes. (Sec. regulation. directly or indirectly. or article or the Secretary of Agriculture. or port duty. the decision on whether or not to impose a definitive anti-dumping duty remains the prerogative of the Tariff Commission. What are countervailing duties and when are they  imposed ? SUGGESTED ANSWER: Countervailing duties are additional customs duties imposed on any product. (Sec. Act No. in a conspicuous place as legibly. The CTA is vested with jurisdiction to review decisions of the Secretary of Trade and Industry imposing safeguard measures as provided . “Anti-Dumping Act of 1999”)  17. Even when all the requirements for the imposition have been fulfilled. any kind or form of specific subsidy upon the production. The President of the Philippines imposes the discriminatory duties. or article has caused or threatens to cause material injury to a domestic industry or has materially retarded the growth or prevents the establishment of a domestic industry. 8752. fee. Even when all the requirements for the imposition have been fulfilled. The Commissioner of Customs imposes the marking duty. as amended by Rep. TCCP as amended by Section 1.Commission. 8752. 302. 19. Marking duties are the additional customs duties  imposed on foreign articles (or its containers if the article itself cannot be marked). restriction or prohibition. 8752. by or in respect to any customs. any unreasonable charge. or imported in a vessel. 301 (a). TCC. commodity or article. The imposing authority for the countervailing duties is the Secretary of Trade and Industry in the case of nonagricultural product. 8752. 18. Safeguard measures are emergency measures. upon the disposition or transportation in transit through or reexportation from such country of any article wholly or in part the growth or product of the Philippines. They could not impose the anti-dumping duty or any special customs duty without the favorable recommendation of the Tariff Commission. classification. “Anti-Dumping Act of 1999”] 16. 8751)  20. the decision on whether or not to impose a definitive anti-dumping duty remains the prerogative of the Tariff Commission. and the importation of such subsidized product. commodity or article of commerce which is granted directly or indirectly by the government in the country of origin or exportation. taxes and charges imposed by law on the imported product. commodity or article. 21. the Tariff Commission. indelibly and permanently in such manner as to indicate to an ultimate purchaser in the Philippines the name of the country of origin. 15. as amended by Rep. after formal investigation and affirmative finding of the Tariff Commission. 13. as amended by Rep. 12. regulation or limitation which is not equally enforced upon like articles of every foreign country. 301 (a). in addition to ordinary duties. Act No. commodity. to protect domestic industries and producers from increased imports which inflict or could inflict serious injury on them. tonnage. 8752. TCC. R. ( Sec. 301 (a). No. “Anti-Dumping Act of 1999”) The anti-dumping duty shall be equal to the margin of dumping on such product. may consider among others. the effect of imposing an anti-dumping duty on the welfare of the consumers and/or the general public. “Anti-Dumping Act of 1999”) 11.A. Act No. or discriminates against the commerce of the Philippines. The marking duty is equivalent to five percent (5%) ad valorem. commodity or  22. the cabinet secretaries could not contravene the recommendation of the Tariff Commission. not marked in any official language in the Philippines. (Sec. by law or administrative regulation or practice. directly or indirectly. A discriminatory duty is a new and additional customs  duty imposed upon articles wholly or in part the growth or product of. 14. The amount of anti-dumping duty that may be imposed is the difference between the export price and the normal value of such product. TCC. condition. commodity. as amended by Rep. 301 (a). TCC.  including tariffs. Act No. exaction. and other related local industries. in the case of agricultural product. “AntiDumping Act of 1999”] 64 article. commodity or article thereafter imported to the Philippines under similar circumstances. Thus. In the determination of whether to impose the antidumping duty. 301 (s) (1). TCC. [Sec. Act No. [Sec. as amended by Rep. charge. in such manner as to place the commerce of the Philippines at a disadvantage compared with the commerce of any foreign country. exaction. manufacture or exportation of such product commodity or article.

G. Imposing authority for safeguard measures.  25. (Sec. the following alternative methods should be used one after the other: a. 158540. Such administrative penalties are independent of the criminal liability for smuggling that may be imposed under Sec. import quotas or banning of imports. How and to whom should claims for refund of customs duties be made ? SUGGESTED ANSWER: All claims for refund of duties shall be made in writing and forwarded to the Collector of Customs to whom such duties are paid. or article or the Secretary of Agriculture.R. and c.. Is she correct ? SUGGESTED ANSWER: No. R. Upon her arrival she was asked whether she has anything to declare. 3601. A flight stewardess arrived from Singapore. which shall be the price actually paid or payable for the goods when sold for export to the Philippines. 201. in the case of agricultural product. If the transaction value of the imported article could not be determined using the above. The basis of dutiable value of merchandise that is  subject to ad valorem customs duties is the transaction value. and c. 1. e. (Sec. and other provisions of the TCC which can only be determined after the appropriate criminal proceedings. Rep. b. 9135)  26. No. 3601 of the Tariff and Customs Code for unlawful importation which penalizes any person who shall fraudulently import or bring into the Philippines any article contrary to law. (Southern Cross Cement Corporation v. the administrative remedies which can be resorted to by the Bureau of Customs when seizing dutiable articles found the baggage of any person arriving in the Philippines which is not included in the accomplished baggage declaration submitted to the customs authorities. 165265. and if found to be correct and in accordance with . and she submitted her “Customs Baggage Declaration Form” which she accomplished and signed with nothing or written on the space for items to be declared. No. February 6. It merely provides. The Philippine Cement Manufacturers Corp. G.. 1708. Sec. TCC as amended by Sec. TCC) 23. Law ? What is mean by the term “entry” in Customs 24. July 8. People. When her hanger bag was examined some pieces of jewelry were found concealed within the lining of said bag. 28. 2505 “Failure to Declare Baggage. Insurance. inter alia.” of which she was acquitted. shall certify the same to the Commissioner of Customs with his recommendation together with all necessary papers and documents. Customs declaration forms or customs entry forms required to be accomplished by passengers of incoming vessels or passenger planes as envisaged under Sec. 2505 of the TCCP (Failure to declare baggage). commodity. 3601 when the facts alleged both in the information and those shown by the prosecution constitute the offense under Sec. Freight. She now appeals claiming that lower court erred n convicting her under Sec. SUGGESTED ANSWER: It has a triple meaning. The above transaction value is the primary  method of determining dutiable value. c. Upon receipt by the Commissioner of such certified claim he shall cause the same to be paid if found correct. b. Transaction value of identical goods Transaction value of similar goods Deductive method Computed method Fallback method 29. and may include the following: a. shall verify the same by the records of his Office. prescinding from the outcome in any administrative case that may have been filed and disposed of by the customs authorities. who upon receipt of such claim. 2004) 65 The DTI Secretary cannot impose the safeguard measures if the Tariff Commission does not favorably recommend its imposition. She was then convicted of violating of Sec. 2006) Additional tariffs. d. and the administrative penalties that such person must pay for the release of such goods if not imported contrary to law. adjusted by adding certain cost elements to the extent that they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods. Cost of containers and packing. Act No. (Jardeleza v. the submission and acceptance of the documents. 8800 the Safeguard Measures Act (SMA ). et al. She answered none. 27.under Rep. after formal investigation and affirmative finding of the Tariff Commission. 3601 does not define a crime. The imposing authority for the countervailing duties is the Secretary of Trade and Industry in the case of non-agricultural product. commodity or article. a. b. Safeguards measures that may be imposed. the documents filed at the Customs house. law. Act No.

who: a. His remedy was not with the RTC but with the CTA. Court of Appeals. The Collector of Customs has exclusive jurisdiction over seizure and forfeiture proceedings and trial courts are precluded from assuming cognizance over such matters even through petitions for certiorari. Would the suit prosper? SUGGESTED ANSWER: No. De Veyra. conceals. or c. 138081. “A” claiming to be the owner of a vessel which is the subject of customs warrant of seizure and detention sought the intercession of the RTC to restrain the Bureau of Customs from interfering with his property rights over the vessel.R.. actions for forfeiture of property for violation of the Customs laws could easily be undermined by the simple device of replevin. as issues of ownership of goods in the custody of customs officials are within the power of the CTA to determine... 2006) How is smuggling committed ? SUGGESTED ANSWER: Smuggling is committed by any person a. G. but more importantly. Entry through a custom house is not the essence of the act. People. seizures and forfeitures of contraband without interference from the courts. 115218. That payment of the tax due after apprehension shall not constitute a valid defense in any prosecution under this section. Importation consists of bringing an article into the country from the outside. 2006) What is the rationale for this doctrine ? SUGGESTED ANSWER: . c. b. Sec. even the courts must defer to this expertise. Importation is complete when the taxable.. Payment is not a defense in smuggling. which enables the government to carry out the functions it has been instituted to perform. 165265. knowing the same to have been imported contrary to law. (Jardeleza v. March 20. 1995. NOTES AND COMMENTS: The Bureau of Customs could search and seize articles without need of a judicial warrant unless the place to be searched is a dwelling place. In the absence of a bona fide intent to make entry and pay duties when the prohibited article enters the Philippine territory. September 18. assists in so doing any article contrary to law. People. When unlawful importation is complete. buys. et al. 165265. Court of Appeals. 3601. 43) d. The Collector of Customs sitting in seizure and forfeiture proceedings has exclusive jurisdiction to hear and determine all questions touching on the seizure and forfeiture of dutiable goods. (Zuno v. Cabredo. No. 2505 provides that nothing shall prevent the bringing of a criminal action against the offender for smuggling under Section 3601. unless the defendant shall explain the possession to the satisfaction of the court: Provided. Nos. No. the Bureau of Customs has exclusive administrative jurisdiction to conduct searches. 2000) 33. “When upon trial for violation of this section. fraudulently imports or brings into the country any article contrary to law. 165265.R. (Jao. 296) NOTES AND COMMENTS: a.    32. b. however. receives. 120 SCRA 455) b. TCC) 31. sells or in any manner facilitates the transportation. February 6. February 6. and companion case. 249 SCRA 35. Court of Appeals. et al. February 6. No. R.Indeed the second paragraph of Sec. January 31. (The Bureau of Customs.R. et al. v. G. No. RTCs are precluded from assuming cognizance over such matters even through petitions of certiorari. It could conduct searches and seizures without need of a judicial warrant except if the search is to be conducted in a dwelling place. et al. et al. 111202-05. dutiable commodity is brought within the limits of the port of entry. R.. prohibition or mandamus. 248 SCRA 288. (Jardeleza v. In such a case customs requires a judicial warrant. (De la Fuente v. Importation begins when the conveying vessel or aircraft enters the jurisdiction of the Philippines with intention to unload therein. (Commissioner of Customs v. R. 2006) 66 30. The doctrine of exclusive customs jurisdiction over customs cases to the exclusion of the RTCs is anchored upon the policy of placing no unnecessary hindrance on the government’s drive. Regional Trial Courts have no jurisdiction to replevin a property which is subject to seizure and forfeiture proceedings for violation of the Tariff and Customs Code otherwise. Under the doctrine of primary jurisdiction. to render effective and efficient the collection of import and export duties due the State. G. v.” (last par. G... et al. concealment or sale of such goods after importation. People. Ogario. The issuance by regular courts of writs of preliminary injunction in seizure and forfeiture proceedings before the Bureau of Customs may arouse suspicion that the issuance or grant was for consideration other than the strict merits of the case. prohibition or mandamus. Where an administrative office has obtained a technical expertise in a specific subject. possession shall be deemed sufficient evidence to authorize conviction. G. G. the defendant is shown to have possession of the article in question. (Jardeleza v. No. not only to prevent smuggling and other frauds upon Customs. 402 SCRA 75 [2003]) e. 2006 citing Rodriguez v.

Commissioner of Customs v. the Collector shall. et al. The customs authorities do not have to prove to the satisfaction of the court that the articles on board a vessel were imported from abroad or are intended to be shipped abroad before they may exercise the power to effect customs searches. (The Bureau of Customs. Court of Appeals. the trial court must have obtained either actual or constructive possession over it. 171516-17. in the RTC. consisting of deception. et al. 138081. the vessel M/V ”Star Ace. The Bureau of Customs having first obtained possession of the vessel and its goods has obtained jurisdiction to the exclusion of the trial courts. in an amount fixed by him. the falsity of such declaration. G. such as by enforcing the tax lien on the imported article when the imported articles could be found and be subject to seizure and forfeiture. an intention on the part of the importer/consignee to evade the payment of the duties due. Instances where there is no right of redemption of seized and forfeited articles: a. et al. No. v. v.  Requisites for forfeiture of imported goods:  37. the Commissioner shall issue a warrant for the detention of the property.R. That articles the importation of which is prohibited by law shall not be released under any circumstances whatsoever: Provided. b. No. 2001)  40. further. Section 2301 of the TCCP states that seized  articles may not be released under bond if there is prima facie evidence of fraud in their importation. 139050. The importation is absolutely prohibited.. When the Bureau of Customs later became suspicious that the vessel’s real purpose in docking was to smuggle cargo into the country. Ogario. reiterated in Farolan. This means that to acquire jurisdiction over the vessel. a. surrender it upon the filing of a cash bond. Cesar then brought several cases in the RTC to enforce his lien. (Republic. However. G. Warrant for Detention of Property-Cash Bond. 126634.. expenses and costs which may be adjudged in the case: Provided. or . Court of Tax Appeals. 2000) c. The Tariff and Customs Code allows the Bureau of Customs to resort to the administrative remedy of seizure. – Upon making any seizure. finally. v. 2009 Section 2301. Neither was accomplished by the RTC as the vessel 38. ”coming from Singapore laden with cargo. 39. 217 SCRA 298.67 34. or arrests provided by law and continue with the administrative hearings. 1989. R. That such importation shall not be released under any bond when there is prima facie evidence of fraud in the importation of the article: Provided. G. 36. March 20. and c. Jr. seizure proceedings were instituted and subsequently two Warrants of Seizure and Detention were issued for the vessel and its cargo. February 13.R. Cesar does not own the vessel or any of its cargo but claimed a preferred maritime lien. b. importer. (emphasis supplied) 41. January 25. affidavit. October 2. the basic operative fact is the actual or constructive possession of the res by the tribunal empowered by law to conduct the proceedings. seizures. et al.. Wrongful making by the owner. willfully and deliberately done or resorted to in order to induce another to give up some right. 1999) 35.. When Cesar has impleaded the vessel as a defendant to enforce his alleged maritime lien.. he brought an action in rem under the Code of Commerce under which the vessel may be attached and sold.. No.R. In Aznar v. The Court of Appeals. On January 7. letter or paper – all touching on the importation or exportation of merchandise. exporter or consignee of any declaration or affidavit. La Union for needed repairs. with the approval of the Commissioner of Customs. 58 SCRA 519. It must be intentional. et al. Would these suits prosper ? SUGGESTED ANSWER: No. et al. There is fraud. The Tariff and Customs Code allows the Bureau of Customs to resort to the judicial remedy of filing an action in court when the imported articles could not anymore be found. or the wrongful making or delivery by the same person of any invoice. letter or paper. invoice. the Supreme Court clarified that the fraud contemplated by law must be actual and not constructive. The release of the property would be contrary to law. No. That nothing in this section shall be construed as relieving the owner or importer from any criminal liability which may arise from any violation of law committed in connection with the importation of the article. Court of Tax appeals. Court of Tax Appeals. as a defendant. and if the owner or importer desires to secure the release of the property for legitimate use. v. G. Inc.. etc. conditioned upon the payment of the appraised value of the article and/or any fine. entered the Port of San Fernando. (Transglobe International.

111202-05. 2006 citing Transglobe) 68 seizure may appeal to the Court of Tax Appeals. Commissioner of Customs. under the TCCP. formally demanding the amount covered by the cancelled TCCs. informing it of the cancellation of the Tax Credit Certificates (TCCs). (Sec. (Asian Terminals. Commissioner of Customs. 2006) NOTES AND COMMENTS: a. as in search and seizures of motor vehicles and vessels. or are attempted to be imported or exported. R. Review by Court of Tax Appeals. Commissioner of Customs. G. Nos. 9-93) If the search and seizure is to be conducted in a dwelling place. The issue is limited to whether the imported goods should be forfeited and disposed of in accordance with law for violation of the Tariff and Customs Code. No. and the collector’s own finding as to the applicable rate of duty.R. 166901. v. et al. b. as stated in Section 2402 of the Tariff and Customs Code of the Philippines (TCCP): Section 2402. Smuggled goods seized by virtue of a court warrant should be surrendered to the court that issued the warrant and not to the Bureau of Customs because the goods are in custodia legis. 2009) 43. There may be instances where no warrants issued by the Bureau of Customs or the regular courts is required.R. October 27. In this proceeding. involves a protest of the liquidation of import entries. None of these letters. CAO No. v.was already in the possession of the Bureau of Customs. [Emphasis supplied. Title III. Valera. character. the Commissioner of Customs’ November 19 letter requiring Shell to replace the amount equivalent to the amount of the cancelled TCCs used by Shell. – The party aggrieved by a ruling of the Commissioner in any matter brought before him upon protest or by his action or ruling in any case of . R. then a search warrant should be issued by the regular courts not the Bureau of Customs. defined. it is akin to an assessment of internal revenue taxes under the National Internal Revenue Code where the tax liability of the taxpayer is definitely determined. G. No. The Collector of Customs upon probable cause that the articles are imported or exported. the Commissioner of Customs’ collection letters.  The following letters of demand can not be considered as a liquidation or an assessment of Shell’s import tax liabilities that can be the subject of an administrative tax protest proceeding before the Commissioner of Customs whose decision is appealable to the Court of Tax Appeals: a. and c. directed against the res or imported goods and entails a determination of the legality of their importation. in the manner and within the period prescribed by law and regulations.] (Pilipinas Shell Petroleum Corporation v. the One Stop Shop Inter-Agency Tax Credit and Duty Drawback Center (the Center) November 3 letter. January 25. R. No. G. 176380. Bautista-Ricafort. . June 18.  Decisions of the Commissioner of Customs “in cases involving liability for customs duties. 126634. Unless an appeal is made to the Court of Tax Appeals in the manner and within the period prescribed by laws and regulations. 176380.. 176380. Administrative tax protest under the Tariff and  Customs Code (TCCP). A liquidation is the final computation and ascertainment by the collector of the duties on imported merchandise. signed by the Secretary of Finance. issued through Deputy Commissioner Atty. January 31. Inc. based on official reports as to the quantity. G. Inc. No. R. Forfeiture of seized goods in the Bureau of Customs is in the nature of a proceeding in rem. G. (Pilipinas Shell Petroleum Corporation v. fees or other money charges” that must be appealed to the Court of Tax Appeals Division within thirty (30) days from receipt specifically refer to his decisions on administrative tax protest cases.e. (Commissioner of Customs v. the action or ruling of the Commissioner shall be final and conclusive. A tax protest case. 46. it is in legal contemplation the property itself which commits the violation and is treated as the offender.(Transglobe International. Shell’s import tax liabilities had long  44.  47. and value thereof. (Pilipinas Shell Petroleum Corporation v. 2009)  45. June 18. No. can be considered as a liquidation or an assessment of Shell’s import tax liabilities that can be the subject of an administrative tax protest proceeding before the respondent whose decision is appealable to the CTA. Court of Appeals. G . however. Court of Appeals.. 6. 1999) Forfeiture of seized goods in the Bureau of Customs is a proceeding against the goods and not against the owner. et al. June 18. in violation of the tariff and customs laws shall issue a warrant of seizure. Liquidation. i. 2009) 42. without reference whatsoever to the character or conduct of the owner.

the appropriate forum for Shell under the circumstances of this case should be at the collection cases before the RTC where Shell can put up the fact of its payment as a defense. G. Reyes. administrative or judicial. Commissioner of Customs. For this same reason. the facts surrounding the fraud in originally securing the TCCs. notwithstanding “any exemption granted by any law or other special law” to impose a tax on businesses enjoying a franchise. based on this case. and this recognition of finality removes all perceived hindrances. When Shell went to the CTA. their power to tax would be unconstitutional. the tax liabilities of Shell under the original assessments were considered unpaid. where there is neither a grant nor prohibition by statute. Republic of the Philippines. to rule upon. It is even an error to consider the letters as a “reassessment” because they refer to the same tax liabilities on the same importations covered by the original assessments. Inures solely to the local government unit levying the tax. 3. oppressive or confiscatory. G. Taxes. the injunction against Atty. No inquiry can be made therein as to the merits of the In light of the conclusion that the present case does not involve a decision of the Commissioner of Customs on a matter brought to him as a tax protest. specifically the genuineness of the TCCs. incontestable. 176380.. 2008. 2009) 69 is akin to an action to enforce the judgment. March 6. Records do not show that Shell ever availed of this remedy. national economic policy or in restraint of trade. (Pilipinas Shell Petroleum Corporation v. The fundamental principles of local taxation are:    A law which deprives local government units of  2. 547 SCRA 701. R. supra) LOCAL GOVERNMENT TAXATION a. 161953. the Local Government Code has withdrawn tax exemptions or . (Pilipinas Shell Petroleum Corporation v. and the application of estoppel. et al. A suit for the collection of internal revenue taxes. No.R. Valera cannot be invoked to enjoin the collection of unpaid taxes due from Shell. G. Atty. G. d. the action to collect 4. This constitutional delegation may only be removed by a constitutional amendment. on account of the cancellation of the TCCs. 176380. Republic of the Philippines. fees. the taxing power of local governments must be deemed to exist although Congress may provide statutory limitations and guidelines in order to safeguard the viability and self-sufficiency of local government units by directly granting them general and broad tax powers. and beyond any subsequent protest proceeding. March 25. v. 2009 citing Shell v. March 6. To be very precise. the absence of due process in the enforcement of the decision to cancel the TCCs. These are payment and collection issues. 127708. therefore. Laguna. the letters and the actions for collection. public policy. as held in Shell v. No. No.. to the continuation of the collection suits. Indicative of the legislative intent to carry out the constitutional mandate of vesting broad tax powers to local government units. R. Shell never protested the original assessments of its tax liabilities and in fact settled them using the TCCs. but by the Center. Uniformity. b. June 18. for public purposes. where the assessment has already become final and executory. excessive.  The assessment has long been final. Commissioner of Customs.R. The levy and collection shall not be let to any private person. not unjust. The progressivity principle must be observed. 547 SCRA 701)  48. These original assessments. The letters merely reissued the original assessments that were previously settled by Shell with the use of the TCCs. Commissioner of Customs. As the CTA has no jurisdiction over decisions of the Center.R. 1999) A case becomes ripe for filing with the Regional Trial Court (RTC). have become final. (City Government of San Pablo. Valera’s lack of authority to issue the collection letters and to institute the collection suits is irrelevant.been computed and ascertained in the original assessments. The Local Government Code explicitly authorizes provinces and cities. The constitution has delegated to local governments the power to levy taxes. e. and Shell paid these liabilities using the TCCs transferred to it as payment. Shell’s petition before the CTA principally questioned the validity of the cancellation of the TCCs – a decision that was made not by the Commissioner of Customs. 2008. No. c.  1. Under the now prevailing Constitution. June 18. not contrary to law. not a tax protest case before the CTA. hence. (Pilipinas Shell Petroleum Corporation v. as a collection matter after the finality of the Commissioner of Customs assessment. the issues it raised in its petition were all related to the fact and efficacy of the payments made. No. charges and other impositions shall be equitable and based on ability to pay. Alternatively. et al. fees and other charges. not tax protest issues within the CTA’s jurisdiction to rule upon. Shell’s remedy against the cancellation should have been a certiorari petition before the regular courts. G. 161953. However.

such as provinces and cities for example Quezon City. 1999) 70 essentially the same. in interpreting statutory provisions on municipal fiscal powers. Bayan Telecommunications. City of Cabanatuan. fees and other charges pursuant to Article X. 1996.R.R. Taxing power of the local government is limited. April 28. the legislature must still see to it that: a.. (Manila Electric Company v. City of Davao. Batangas City. 2003)  6. The legal effect of the constitutional grant to local . et al. G. the taxpayer will not be over-burdened or saddled with multiple and unreasonable impositions. Reconciliation of the local government’s authority to tax and the Congressional general taxing power. 484 SCRA 169 in turn referring to Mactan Cebu International Airport Authority. October 6. 2006.R. Marcos. v. these limitations must be “consistent with the basic policy of local autonomy. 484 SCRA 16) “Indeed.. (Quezon City. b. No. et al. 2008 citing City Government of Quezon City.. which includes the power to grant tax exemptions. G. Article X of the Constitution. G. 143867. No. “the power to tax is [still] primarily vested in the Congress. v. and d. and must be within the jurisdiction of the local unit to pass. May 5. Bayan Telecommunications. the resources of the national government will be unduly disturbed. 131359. v. While the system of local government taxation has changed with the onset of the 1987 Constitution. Inc. April 9.. (City Government of San Pablo. uniform and just. each local government unit will have its fair share of available resources.  7. R. March 25.R. No. v. 162015. v.R. 120082. v. No. 162015. No.. Inc. Laguna. Philippine Long Distance Telephone Company. the basic doctrine on local taxation remains The Supreme Court in a series of cases has sustained the power of Congress to grant tax exemptions over and above the power of the local government’s delegated power to tax. et al. but pursuant to direct authority conferred by Section 5. section 5 of the 1987 Constitution. Further amplification by Bernas of the local government’s power to tax. ABS-CBN Broadcasting Corporation. c. The taxing power of local governments is limited in the sense that Congress can enact legislation granting tax exemptions.. the constitutional objective obviously is to ensure that. G. R. Bayan Telecommunications. Province of Laguna. October 6. G. v. R. No. 8.incentives theretofore enjoyed by certain entities. no longer merely be virtue of a valid delegation as before. et al. uniform within a locality. 152675. 2008 citing City Government of Quezon City. March 6. March 6. 166408. No. August 22. 166408. Moreover. The power of the legislative authority relative to the fiscal powers of local governments has been reduced to the authority to impose limitations on municipal powers. local legislative bodies are now given direct authority to levy taxes. Henceforth. 166408. It must be noted that Section 137 of the LGC does not prohibit grant of future exemptions. No.. et al. v. doubts will be resolved in favor of municipal corporations. 680) 5. No. G. 149110. G. et al. Reyes. the grant of taxing powers to local government units under the Constitution and the LGC does not affect the power of Congress to grant exemptions to certain persons. What it does is to confer municipal corporations a general power to levy taxes and otherwise create sources of revenue.” (Quezon City. 9. While the power to tax by local governments may be exercised by local legislative bodies. a local government unit. They no longer have to wait for a statutory grant of these powers. and companion case.” (Quezon City. 484 SCRA 169) Explain the concept of the “paradigm shift” in local government taxation. It is understood. ABSCBN Broadcasting Corporation. G. et al.. SUGGESTED ANSWER: “Paradigm shift” from exclusive Congressional power to direct grant of taxing power to local legislative bodies. pursuant to a declared national policy. must not be confiscatory. (Batangas Power Corporation v. to tax is prescribed by Section 151 in relation to Section 137 of the LGC which expressly provides that notwithstanding any exemption granted by any law or other special law. 261 SCRA 667. that taxes imposed by local government must be for a public purpose. Inc. Congress has the inherent power to tax. October 6. G. however. 1999) 10. et al. Inc. No.. et al. upheld the authority of the City of Davao. 2006. 2006. 2008 citing City Government of Quezon City. the power of local governments. R. No. The fundamental law did not intend the direct grant to local government units to be absolute and unconditional. R. to impose and collect a local franchise tax because the Local Government has withdrawn all tax exemptions previously enjoyed by all persons and authorized local government units to impose a tax on business enjoying a franchise tax notwithstanding the grant of tax exemption to them. R. G. 162015. “What is the effect of Section 5 on the fiscal position of municipal corporations? Section 5 does not change the doctrine that municipal corporations do not possess inherent powers of taxation. G. ABS-CBN Broadcasting Corporation. et al. 2004 citing National Power Corporation v. 127708. while local government units are being strengthened and made more autonomous. March 6. local taxation will be fair.R. 2001. The power to tax is no longer vested exclusively on Congress. On the other hand. G. No. the City or a province may impose a franchise tax. et al...” The important legal effect of Section 5 is thus to reverse the principle that doubts are resolved against municipal corporations. v. the power of local government units to tax is still limited. etc. September 11..

. October 25..00. (last par. or any board or other examinations conducted by the Professional Regulation 14. 139. is authorized under the Local Government Code. [Sec. The Condominium Corporation is a duly constituted condominium corporation in accordance with the Condominium Act which owns and holds title to the common and limited common areas of the condominium. to a business tax under Section 143(h) of the same Code. Exception: Payment to one province or city no longer subject to any other national or local tax.” By its very nature a condominium corporation is not engaged in business. and any other article of commerce. and that . Authority of Local Government Units (LGUs) such as the City of Manila to impose business taxes. distilled spirits. Resolve the controversy. plans and designs. pursuant to Section 143(a) of the LGC. Condominium corporations are generally exempt from local business taxation under the Local Government Code. capital expenditures on the common areas and other special assessments as provided for in the Master Deed with ? Declaration of Restrictions of the Condominium. VAT. (PLDT) vs. if he is to practice both professions.governments simply means that in interpreting statutory provisions on municipal taxing powers. f. No. Any person subject to the professional tax shall write in deeds. reports. prescriptions. and to which any local business tax imposed by cities or municipalities such as the City of Manila must conform. (Yamane . It is apparent from a perusal thereof that when a municipality or city has already imposed a business tax on manufacturers. Place of payment: Province or city where the professional practices his profession or where he maintains his principal office in case he practices his profession in several places. City of Davao] 71  11. Inc. Art. Who are the professionals who. R. the provincial or city treasurer or his duly authorized representative shall require from such professionals their current annual registration cards issued by competent authority before accepting payment of their professional tax for the current year. v.  Professional tax may be imposed by a province or city but not by a municipality or barangay. 154993. Rules and Regulations Implementing the Local Government Code of 1991)  13. a lawyer who is also a Certified Public Accountant (CPA) must pay the professional tax imposed on lawyers and that fixed for CPAs. SUGGESTED ANSWER: ABC is correct. and any profit that it derives is merely incidental. ABC Condominium Corporation insists that the X City Revenue Code and the Local Government Code do not contain provisions upon which the assessment could be based. books of account. the number of the official receipt issued to him. Exemption: Professionals exclusively employed in the government shall be exempt from payment. LGC) NOTE: For the purpose of collecting the tax. a.” [Ibid. to impose a tax on business. G. Transaction taxed: Exercise or practice of profession requiring government licensure examination. said municipality or city may no longer subject the same manufacturers.  Requirements: Any individual or corporation employing a person subject to professional tax shall require payment by that person of the tax on his profession before employment and annually thereafter. receipts. Tax base: Reasonable classification by the sanggunian. Date of payment: or on before January 31 or engaging in the profession. etc. of liquors. X City issued a notice of assessment against ABC Condominium Corporation for unpaid business taxes. for example. wines. Section 143(h) may be imposed only on businesses that are subject to excise tax. Rules and Regulations Implementing the Local Government Code of 1991]  12. are subject to professional tax ? SUGGESTED ANSWER: The professionals subject to the professional tax are only those who have passed the bar examinations. b. The PRC shall likewise require the professionals presentation of proof of payment before registration of professionals or renewal of their licenses. etc. 228. Commission (PRC). is the very source of the power of municipalities and cities to impose a local business tax. 2005) 15. which is defined under the Code as ”trade or commercial activity regularly engaged in as a means of livelihood or with a view to profit. license or fee for the practice of such profession in any part of the Philippine professionals exclusively employed in the government. Its membership comprises the unit owners and is authorized under its By-Laws to collect regular assessments from its members for operating expenses. Tax rate: In Accordance with a taxing ordinance which should not exceed P300. referring to Philippine Long Distance Telephone Company. as the case may be. Rule XXX. X City. surveys and maps. c. d. etc. doubts must be resolved in favor of municipal corporations. hence it may not be subject to business taxes. if they are in  practice of their profession. (Sec. BA Lepanto Condominium Corporation. 238 (f). irrespective of any local ordinance that seeks to declare otherwise. e. or percentage tax under the NIRC. Section 143 of the LGC.

c. August 4. No. The schedule of fair market values shall be published in a newspaper of general circulation in the province. The assessor uses any or all of these approaches in analyzing the data gathered to arrive at the estimated fair market value to be included in the ordinance containing the schedule of fair market values. v. where available. The schedule is then enacted by the local sanggunian. Sales Analysis Approach. October 11. February 19. v. brokers. The reasonable market value is determined by the assessor in the form of a schedule of fair market values. transfer and conveyance.. No. October 11. Inc.. CocaCola Bottlers Philippines. G.. An analysis of the income produced is necessary in order to estimate the sum which might be invested in the purchase of the property.. Appraisal at current and fair market value.. No. municipal or barangay hall for a minimum of three (3) consecutive weeks. v. and various sources stated under the Local Government Code. Classification for assessment on the basis of actual use. and posted in at lease two (2) prominent places in the provincial capitol. No. etc.R. are: a. The sales price paid in actual market transactions is considered by taking into account valid sales data accumulated from among the Registrar of Deeds. (Allied Banking Corporation. 154126.  ceded. cession. (Allied Banking Corporation. (Figuerres v. et al. Appraisal. An ordinance whereby the “parcels of land sold. (The City of Manila. assessors have to consider all the circumstances and elements of value and must exercise prudent discretion in reaching conclusions. assessment. 1999) Proposed fair market values of real property in a local government unit as well as the ordinance containing the schedule must be published in full for three (3) consecutive days in a newspaper of local circulation. transferred and conveyed for remuneratory consideration after the effectivity of this revision shall be subject to real estate tax based on the actual amount reflected in the deed of conveyance or the current approved zonal valuation of the Bureau of Internal Revenue prevailing at the time of sale. R. G. Quezon City Government. et al.. Income Capitalization Approach.. can no longer be made liable for local business tax under Section 21 of the same Tax Ordinance [which is based on Section 143(h) of the LGC]. G. the buyers need not be actual and existing purchasers. October 11. October 11. et al. No. (Allied Banking Corporation. 154126. City of Manila. (Allied Banking Corporation. etc.. taking into consideration all uses to which the property is adopted and might in reason be applied. No. 2005) Preparation of fair market values: a. city or municipality concerned or the posting in the provincial capitol or other places as required by law.. NOTES AND COMMENTS: Real properties shall be appraised at the current and fair market value prevailing in the locality where the property is situated and classified for assessment purposes on the basis of its actual use. d. 127139. Quezon City Government. c. notaries public. 2005 ) NOTES AND COMMENTS: In fixing the value of real property. etc. bank officials. e. G. 2005) The fundamental principles of real property taxation respective Local Government Units for the enactment of an ordinance by the sanggunian concerned. Reproduction cost approach is a formal approach used exclusively n appraising man-made improvements such as buildings and other structures. within ten (10) days of its approval. The value of an incomeproducing property is no more than the return derived from it. et al. 2009) 72 REAL PROPERTY TAXATION 1. Approaches in estimating the fair market value of real property for real property tax purposes ? a.. R.R. as evidenced by the certificate of payment of the capital . et al. 1999) 4. b. Hence.. Appraisal and assessment shall be equitable. et al. R. The city or municipal assessor shall prepare a schedule of fair market values for the different classes of real property situated in their  5. et al. appraisers. R. businesses such as respondent’s.. G. Quezon City Government. city. 181845. Quezon City Government.are “not otherwise specified in preceding paragraphs. 1-92) 2. 7794 [which is based on Section 143(a) of the LGC]. levy and collection shall not be let to a private person. Court of Appeals. v.” In the same way. v. The criterion established by the statute contemplates a hypothetical sale. based on such data as materials and labor costs to reproduce a new replica of the improvement. R. b. dealers. and b. 2005 citing Local Assessment Regulations No. etc. No. March 25. (Lopez v. 119172. G. G. whichever is higher. already subject to a local business tax under Section 14 of Tax Ordinance No. 154126. 154126. 3. Fair market value is the price at which a property may be sold by a seller who is not compelled to sell and bought by a buyer who is not compelled to buy. Assessment on the basis of uniform classification.

G. 2000) c. October 11. 2007 and companion case) 7. the real property tax burden should not be interpreted to include those beyond what the Code or the regulations expressly clearly state. It unduly interferes with the duties statutorily placed upon the local assessor by completely dispensing with his analysis and discretion which the Local Government Code and the regulations require to be exercised. Province of Batangas.R. they are not open to use by the general public hence not exempt from real property taxes. Barges on which were mounted gas turbine power plants designated to generate electrical power. lake or coast” are considered immovable property by destination being intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. (Allied Banking Corporation. While the Local Government Code provides that the assessment of real property shall not be increased once every three (3) years. Personal property under the civil law may be considered as real property for purposes of taxes where the property is essential to the conduct of the business.73 gains tax issued therefore” is INVALID being contrary to public policy and for restraining trade for the following reasons: a. Central Board of Assessment Appeals. October 12. the income capitalization approach and the reproduction approach provided under the rules implementing the statute. Quezon City Government. it will also completely destroy the fundamental principle in real property taxation – that real property shall be classified.. (Caltex Phils.” d. Examples of personal property under the civil law  that may be considered as real property for purposes of taxes. levy and collection of real property tax shall not be let to any private person”. No. 127316. It mandates an exclusive rule in determining the fair market value and departs from the established procedures such as the sales analysis approach. Furthermore. MERALCO the former owner/user of the property was required to pay the tax instead of the new owner NAPOCOR. Even granting that the national government owns the carriageways and terminal stations. In the above two scenarios real property owners are effectively prevented from obtaining the best price possible for their properties and unduly hampers the equitable distribution of wealth.. Article 415(9) of the Civil Code provides that “[d]ocks and structures which. The “consideration approach” in the ordinance is illegal since “the appraisal. v. Consequently. Moreover. The invalidity is not cured by the prhase “whichever is higher” because an integral part of that system still permits valuing real property in disregard of its “actual use. To impose the real property tax on the subsequent owner which was neither the owner not the beneficial user of the property during the designated periods would not only be contrary to law but also unjust. 2001 decision is still valid. Central Board of Assessment Appeals. and similar structures do not form part of the public roads since the former are constructed over the latter in such a way that the flow of vehicular traffic would not be impaired. 2005)  6. The carriageways and terminals serve a function different from the public roads. Consequently. G. 168557.. not on the basis of the May 18. No. and whoever uses it. (Light Rail Transit Authority v. The ordinance would result to real property assessments more than once every three (3) years and that is not the congressional intent as shown in the provisions of the Local Government Code and the regulations. Allowing the parties to a private sale to dictate the fair market value of the property will dispense with the distinctions of actual use stated in the Local Government Code and in the regulations. valued and assessed on the basis of its actual use regardless of where located. v. R. 2001 decision but in the light of pronouncements of . et al. The proviso would provide a chilling effect on real property owners or administrators to enter freely into contracts reflecting the increasing value of real properties in accordance with prevailing market conditions. February 16. An ordinance that contravenes any statute is ultra vires and void. etc. the questioned proviso subjects the property to a higher assessment every time a sales transaction is made. v. The author submits that the above ruling in the May 18. R. a. (FELS Energy. 114 SCRA 296) b. 2004. carriageways. et al. 154126. Barlis. are intended by their nature and object to remain at a fixed place on a river. (Manila Electric Company v. the property is not exempt because their beneficial use has been granted to LRTA a taxable entity. the fuel oil barges which supplied fuel oil to the power plant barges. c. Light Rail Transit (LRT) improvements such as buildings. b. assessment. though floating. No. G. Inc. No. and the accessory equipment mounted on the barges were subject to real property taxes. G. Inc. et al. 114231. 2001 decision was set aside by the Supreme Court when it granted the petitioner’s second motion for reconsideration on June 29. or if they do so within the said period they shall be compelled to dispose of the property at a price not exceeding the last prior conveyance in order to avoid a higher tax assessment... e. Real property owners would therefore postpone sales until after the lapse of the three (3) year period. whoever owns it. passenger terminals stations. May 18. Unpaid realty taxes attach to the property and is chargeable against the person who had actual or beneficial use and possession of it regardless of whether or not he is the owner. R. Underground tanks are essential to the conduct of the business of a gasoline station without which it would not be operational.. 2001) NOTES AND COMMENTS: The above May 18.

are intended by their nature and object to remain at a fixed place on a river.. 80 Misc. Sale of delinquent real property. Thus. (Puzon v. 2001 decision...R. v. 169 SCRA 314) 8. v. 118233. do not cite the doctrine as emanating from the May 18. where it raised the following issues: 1) Since NPC is tax-exempt then FEL’s should also be tax-exempt because of its contract with NPC. within 30 days from effectivity thereof.. v. SUGGESTED ANSWER: a.. et al.the Supreme Court in other cases. (Reyes. 168557. Upon the other hand the Local Treasurer insists that the assessment has attained a state of finality hence the appeal to the LBAA should be dismissed. v.. Inc.. No. Distraint of personal property. If filed a motion for reconsideration with the Provincial Assessor. No. et al. March 25. b.R. a period also of 30 days is allowed for an aggrieved party to go to court. No. c. All the contentions of FELS are without merit: 1) NPC is not the owner of the power barges nor the operator of the power barges. De Knecht. Such statutory periods are set to prevent delays as well as enhance the orderly and speedy discharge of judicial functions. et al. No. (Figuerres v. The prescribed notices must be sent to comply with the requirements of due process. 1999) Public hearings are required to be conducted prior to the enactment of an ordinance imposing real property taxes. The City of New York.. I. 10. (De Knecht. Abellera. a. though floating. v. et al. et al.R. G. 1999) Taxpayer files appeal to the Secretary of Justice. G.  FELS Energy. 74 nature. 2) The Supreme Court of New York in Consolidated Edison Company of New York. These three separate periods are clearly given for compliance as a prerequisite before seeking redress in a competent court. (Figuerres v. De Asis v.. The tax exemption privilege granted to NPC cannot be extended to FELS. b. v.A. 118233. et al. Moreover.C. R. as well as the legal requirements for a tax delinquency sale. Province of Batangas. But if the Secretary does not act thereon. but this still requires the taxpayer to adduce evidence to show that no public hearings ever took place. Court of Appeals. In case the Secretary decides the appeal. the fuel oil barges which supplied fuel oil to the power plant barges. et al. Court of Appeals. 169 SCRA 789. Secretary of Justice can take cognizance of a case involving the constitutionality or legality of tax ordinances where there are factual issues involved. et al. The concurrent and simultaneous remedies afforded local government units in enforcing collection of real property taxes: a. G. held that barges on which were mounted gas turbine power plants designated to generate electrical power. Article 415(9) of the Civil Code provides that “[d]ocks and structures which. Inc. 290 SCRA 223. For this reason the courts construe these provisions of statutes as mandatory. 11.R. Inc. FELS elevated the matter to the Local Board of Assessment Appeals (LBAA). 1999)  13. are mandatory.. March 25.. The contract also stated that NPC shall be responsible for all real estate taxes and assessments. the covenant is between NPC and FELs and does not bind a third person not privy to the contract such as the Province of Batangas. G. (Reyes. Court of Appeals.236) 12. The reason behind the notice requirement is that tax sales are administrative proceedings which are in personam in . February 16. et al. Rule on the conflicting contentions. FELS then received an assessment of real property taxes on its power barges from the Provincial Assessor of Batangas. Court of Appeals. No. 119172. Upon denial. G. lake or coast” are considered immovable property by destination being intended by the owner for an industry or work which may be carried on in a building or on a piece of land and which tend directly to meet the needs of said industry or work. Notice and publication... 2) The power barges are not real property subject to real property taxes. 2007 and companion case. and the accessory equipment mounted on the barges were subject to real property taxes. et al. 795. and the failure to comply therewith can invalidate the sale. 2d 1065 (1975) cited in FELS Energy. Public hearings are mandatory prior to approval of tax ordinance. after the lapse of 60 days.. a party could already seek relief in court within 30 days from the lapse of the 60 day period. 1999) 9. had a contract to supply NPC with the electricity generated by FELS’ power barges. Honorable Sayo. 119172. December 10. Court of Appeals. December 10. and Collection of real property tax through ordinary court action.

R. 16. The procedure to be followed is that shown below. The entitlement to a tax refund does not necessarily call for the automatic payment of the sum claimed. allusions of possible cover. and the issue of legality may be raised to the proper courts on certiorari without need of exhausting administrative remedies. If the ground for the protest is unreasonableness of the amounts collected there is need to pay under protest and administrative remedies must be resorted to before recourse to the proper courts. The Local Board of Assessment Appeals has 120 days from receipt of the appeal within which to decide. No. G. R. The procedure do not allow a motion for reconsideration to be filed with the Provincial Assessor.. and then subsequently reduced upon the request of a property owner. and in fact can conveniently take place. it conveniently courts a graft-prone situation where values of real property ay be initially set unreasonably high. G. b. October 25. To allow the procedure would indeed invite corruption in the system of appraisal and assessment. If the ground for the protest is validity of the real property tax ordinance and not the unreasonableness of the amount collected the tax must be paid under protest. G. it must still be proven in the normal course and in accordance with the administrative procedure for obtaining a refund of real property taxes. 19. the Supreme Court provided for the starting date of computing the two-year prescriptive period within which to file the claim with the Treasurer. 2006) 15. a. Within thirty (30) days from receipt of treasurer’s decision or if the treasurer does not decide. (FELS Energy. The decision of the Regional Trial Court should be appealed by means of a petition for review directed to the Court of Tax Appeals (Division). The Treasurer is correct. BA Lepanto Condominium Corporation. a. city or in the case of a municipality within the Metro Manila Area the municipal treasurer. The denial by the local treasurer of the protest would fall within the Regional Trial Court’s original jurisdiction. Payment under protest at the time of payment or within thirty (30) days thereafter. 14. a municipality or a barangay upon real property specially benefited by a public works expenditure of the LGU to recover not more than 60% of such expenditure. The treasurer has a period of sixty (60) days from receipt of the protest within to decide. v. etc. the taxpayer should file an appeal with the Local Board of Assessment Appeals. d. (Yamane . 168557. within thirty (30) days from the expiration of the sixty (60) period for the treasurer to decide. v. a municipality within the Metropolitan Manila Area. 2007 and companion case) 75 f. but of a local government official. illicit trade-off cannot be avoided. Payment under protest not required. who must decide within sixty (60) days from receipt. NOTES AND COMMENTS: In the above Allied Banking case. September 15. R. claim must be directed to the local treasurer. The decision of the CTA may be the subject of a motion for reconsideration or new trial after which an appeal may be interposed by means of a petition for review on certiorari directed to the Supreme Court on pure questions of law within a period of fifteen (15) days from receipt extendible for a period of thirty (30) days. 18. . No. 154993. b. et al. The decision of the Court of Tax Appeals (Division) may be the subject of a review by the Court of Tax Appeals (en banc). a city. Province of Batangas. Inc. No. The adverse decision of the Central Board of Assessment Appeals shall be appealed to the Court of Tax Appeals (En Banc) by means of a petition for review within thirty (30) days from receipt of the adverse decision. Quezon City Government. e. Procedure for refund of real property taxes based on unreasonableness or excessiveness of amounts collected. (Allied Banking Corporation.b. which is from finality of the Decision. 2005) c. as provided under the Local Government Code. g. In the latter instance. within two (2) years from the date the taxpayer is entitled to such reduction or readjustment. A special levy or special assessment is an imposition by a province. The amount of the claim being a factual matter. 154126. protest being lodged to the provincial. d. the review being the initial judicial cognizance of the matter. v. Procedure for refund of real property taxes based on validity of the tax measure or solutio indebeti... Such occasion for mischief must be prevented and excised from our system. Despite the language of Section 195 of the Local Government Code which states that the remedy of the taxpayer whose protest is denied by the local treasurer is “to appeal with the court of competent jurisdiction.” labeling the said review as an exercise of appellate jurisdiction is inappropriate since the denial of the protest is not the judgment or order of a lower court. c. February 16. etc. 17. The adverse decision of the Local Board of Assessment Appeals should be appealed within thirty (30) days from receipt to the Central Board of Assessment Appeals.

Quezon City. Real property owned by duly registered cooperatives.. G. On the other hand. (Lung Center of the Philippines v. What is exempted is not the institution itself. nonprofit cemeteries. direct and exclusive use” of the property for charitable purposes is the direct and immediate and actual application of the property itself to the purposes for which the charitable institution is organized. et al. Quezon City. buildings. Portions of the land of a charitable institution. R. R. such as a hospital. directly and exclusively used. R. 2004) 25. June 29. neither is it a non-stock corporation because there are no . June 29. mosques. actually. directly and exclusively used for religious. The constitutional tax exemptions refer only to real property that are actually. b. etc. 144104. directly and exclusively used for religious. Reliance on past decisions would have sufficed were the words “actually” as well as :directly” are not added. The words “dominant use” or “principal use” cannot be substituted for the words “used exclusively” without doing violence to the Constitution and the   Manila International Airport Authority (MIAA) it is  7. There must be proof therefore of the actual and direct use to be exempt from taxation. June 29. and no money inures to the private benefit of the persons managing or operating the institution. No. d. 144104.. [Sec. (Commissioner of Internal Revenue v. 298 SCRA 83) The constitutional tax exemption covers property taxes only. (Lung Center of the Philippines v. churches. Machineries and equipment. churches and parsonages or convents appurtenant thereto. 144104. (Lung Center of the Philippines v. 144104. buildings and improvements actually. and government owned and controlled corporations engaged in the supply and distribution of water and generation and transmission of electric power. No.. Real property owned by the Republic of the Philippines or any of its political subdivisions except when the beneficial use thereof has been granted to a taxable person for a consideration or otherwise. The “actual. and improvements are “used exclusively” but the present Constitution requires that the lands. 2 not a government owned or controlled corporation but an instrumentality of the government that is exempt from taxation. non-stock educational institutions which are actually. G. etc. whether out-patient. 76 law. Solely is synonymous with exclusively.. directly and exclusively used for educational purposes. Charitable institutions. No. R. etc.. are exempt from real property taxes. It is not the use of the income from the real property that is determinative of whether the property is used for tax-exempt purposes. buildings and improvements actually. charitable or educational purposes. 22. (Lung Center of the Philippines v. Quezon City. 1987 Constitution]   20. Quezon City. June 29.. et al. It is not a stock corporation because its capital is not divided into shares. parsonages or convents appurtenant thereto. charitable or educational purposes. As a general principle.28 (3) Article VI. 2 Property that are exempt from the payment of real property tax under the Local Government Code. G. etc. directly and exclusively used for religious. The 1935 Constitution stated that the lands..e. those exempted from real estate taxes are lands. a. R. charitable or educational purposes are exempt from taxation. the portion of the land occupied by the hospital and portions of the hospital used for its patients.. 2004)    23. 2004)    6. it is not exclusively used for the exempted purpose but is subject to taxation. or receives subsidies from the government. directly and exclusively used by local water districts. e. Court of Appeals. and all lands. et al. 24. et al. et al. or confined in the hospital. 2004)   21. No. 2004) Charitable institutions. etc. June 29. a charitable institution does not lose its character as such and its exemption from taxes simply because it derives income from paying patients.” The change should not be ignored. Quezon City. et al. (Lung Center of the Philippines v. If real property is used for one or more commercial purposes. leased to private entities as well as those parts of the hospital leased to private individuals are not exempt from real property taxes.. buildings and improvements are “actually.. G. buildings and improvements that are actually. No. Machinery and equipment used for pollution control and environmental protection. whether paying or non-paying. non-profit or religious cemeteries. charitable and educational purposes.. c. G. The decision of the Court of Tax Appeals (en banc) may be the subject of a petition for review on certiorari on pure questions of law directed to the Supreme Court. 144104. directly and exclusively used for religious. and all lands.. mosques. and that the only constitutionally recognized exemption from taxation of revenues are those earned by nonprofit. So long as the money received is devoted or used altogether to the charitable object which it is intended to achieve.

the airport lands and buildings are property owned by the government that are devoted to public use and are properties of the public domain. 1992. The term “exclusive of this franchise” is interpreted to mean properties actually. 2 The owner operator of a BOT and not the ultimate owner is subject to real property taxes. and withdrawing all tax exemptions previously granted. The company’s properties are exempt from tax under its franchise. The properties are exempt from taxation. all of the company’s properties that are actually.. 171470. directly and exclusively used in the pursuit of its franchise. Inc. January 30. fees or other charges. A City then enacted an ordinance in 1993 imposing a real property on all real properties located within the city limits. It is instead an instrumentality of the government upon which the local governments are not allowed to levy taxes.. and immediate. et al. R. 162015. b. while NAPOCOR’s is contingent and. et al. There is no need to exhaust administrative remedies as the appeal to the LBAA is not a speedy and adequate remedy within the law. Introductory Provisions. There was no exhaustion of administrative remedies because the matter should have first been filed before the Local Board of Assessment Appeals. buildings and personal property. This term includes regulatory agencies chartered institutions and government-owned or controlled corporations. April 2. This is so because the properties are already scheduled for auction sale. Furthermore one of the recognized exceptions to the rule on exhaustion is that if the issue is purely legal in character which is so in this case. its successors or assigns shall be liable to pay the same taxes on their real estate..members. v. 2009) ADVANCE CONGRATULATIONS AND SEE YOU IN COURT . direct. (Manila International Airport Authority v. March 6. (National Power Corporation v. not integrated within the department framework vested with special functions or jurisdiction by law. The subsequent piece of legislation which reiterated the phrase “exclusive of this franchise” found in the previous tax exemption grant to the company is an express and real intention on the part of Congress to once against remove from the LGC’s delegated taxing power. as other persons or corporations are now or hereafter may be required by law to pay. usually through a charter. City of Pasay. Resolve the issues raised. and levying of fees and charges. Among properties covered are those owned by the company from which the City is now collecting P43 million. 1992. G. No.” [Sec. 2 (10). The City defended its position raising the following: a. “The grantee. 2009) 77 28. Central Board of Assessment Appeals. An instrumentality “refers to any agency of the National Government. endowed with some if not all corporate powers. The company then filed a petition for the issuance of a writ of prohibition claiming exemption under its legislative franchise. A telecommunications company was granted by Congress on July 20. It exercises governmental powers of eminent domain. not sufficient to support its claim for tax exemption. Administrative Code of 1987] It is an instrumentality exercising not only governmental but also corporate powers. police power authority. at this stage of the BOT Agreement. et al. R. and enjoying operational autonomy. The properties of the company were then scheduled by the City for sale at public auction. BPPC’s ownership and use of the machineries and equipment are actual.” This provision existed in the company’s franchise prior to the effectivity of the Local Government Code. SUGGESTED ANSWERS: a. a legislative franchise with tax exemption privileges which partly reads. b. G. (The City Government of Quezon City. directly and exclusively used in the radio or telecommunications business. G. No. 2006)    9. BPPC – the owner-manageroperator of the project – is the actual user of its machineries and equipment. R. The grant of taxing powers to local governments under the Constitution and the Local Government Code does not affect the power of Congress to grant tax exemptions. No. Bayan Telecommunications. after the effectivity of the Local Government Code on January 1. Consistent with the BOT concept and as implemented. administering special funds. Finally. exclusive of this franchise.. 163072.

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