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COVERAGE

LAW ON TAXATION
2014 BAR EXAMINATIONS
I. General Principles of Taxation
A. Definition and concept of taxation
Taxation is the power by which the sovereign raises revenue to defray the
necessary expenses of the government. It is merely a way of apportioning
the cost of government among those who in some measure are privileged
to enjoy its benefits and must bear its burdens. It includes, in its broadest
and most general sense, every charge or burden imposed by the sovereign
power upon persons, property, or property rights for the use and support of
the government and to enable it to discharge its appropriate functions, and
in that broad definition there is included a proportionate levy upon persons
or property and all the various other methods and devices by which
revenue is exacted from persons and property for public purposes. (51 Am.
Jur 34-35)
Taxation is described as a destructive power which interferes with the
personal and property rights of the people and takes from them a portion of
their property for the support of the government. (Paseo Realty &
Development Corporation v. Court of Appeals, GR No. 119286, October 13,
2004)
B. Nature of taxation
Taxation is inherent in nature, being an attribute of sovereignty. (Chamber
of Real Estate and Builders Association, Inc. v. Romulo, 614 SCRA 605
(2010))
As an incident of sovereignty, the power to tax has been described as
unlimited in its range, acknowledging in its very nature no limits, so that
security against its abuse is to be found only in the responsibility of the
legislature which imposes the tax on the constituency who are to pay it.
(Mactan Cebu International Airport Authority v. Marcos, 261 SCRA 667
(1996))
The power of taxation is an essential and inherent attribute of sovereignty,
belonging as a matter of right to every independent government, without
being expressly conferred by the people. (Pepsi-Cola Bottling Company of
the Phil. V. Mun. of Tanauan, Leyte, 69 SCRA 460)
The power to tax is inherent in the State, such power being inherently
legislative, based on the principle that taxes are a grant of the people who
are taxed, and the grant must be made by the immediate representative of
the people, and where the people have laid the power, there it must remain
and be exercised. (Commissioner of Internal Revenue v. Fortune Tobacco
Corporation, 559 SCRA 160 (2008))
The power of taxation is essentially a legislative function. The power to tax
includes the authority to:
(1) determine the
(a) nature (kind);
(b) object (purpose);
(c) extent (amount of rate);
(d) coverage (subjects and objects);
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(e) apportionment of the tax (general or limited application); (f) situs (place)
of the imposition; and
(g) method of collection;
(2) grant tax exemptions or condonations; and
(3) specify or provide for the administrative as well as judicial remedies that
either the government or the taxpayer may avail themselves in the proper
implementation of the tax measure. (Petron v. Pililla, GR No. 158881, April
16, 2008)
In other words, the legislature wields the power to define what tax shall be
imposed, why it should be imposed, how much tax shall be imposed,
against whom (or what) it shall be imposed and where it shall be imposed.

(Chamber of Real Estate and Builders Association, Inc. v. Romulo, 614


SCRA 605 (2010))
C. Characteristics of taxation
As a principal attribute of sovereignty, the exercise of taxing power derives
its source from the very existence of the state whose social contract with its
citizens obliges it to promote public interest and common good. (National
Power Corporation v. City of Cabanatuan, GR No. 149110, April 9, 2003)
The power to tax is so unlimited in force and so searching in extent, that
courts scarcely venture to declare that it is subject to any restrictions
whatever, except such as rest in the discretion of the authority which
exercises it. (Tio v. Videogram Regulatory Board et al., 151 SCRA 213)
Taxes being the lifeblood of the government that should be collected
without unnecessary hindrance, every precaution must be taken not to
unduly suppress it. (Republic v. Caguioa, 536 SCRA 193 (2007))
The power to tax is sometimes called the power to destroy. Therefore, it
should be exercised with caution to minimize injury to the proprietary rights
of the taxpayer. It must be exercised fairly, equally and uniformly, lest the
tax collector kills the hen that lays the golden egg. (Commissioner of
Internal Revenue v. SM Prime Holdings, Inc., 613 SCRA 774 (2010))
In order to maintain the general publics trust and confidence in the
government, this power must be used justly and not treacherously. (Roxas
y Cia v. Court of Tax Appeals, 23 SCRA 276)
Tax laws are prospective in operation, unless the language of the statute
clearly provides otherwise. (Commissioner of Internal Revenue v. Acosta,
529 SCRA 177 (2007))
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It is a settled principle that the power of taxation by the state is plenary.
Comprehensive and supreme, the principal check upon its abuse resting in
the responsibility of the members of the legislature to their constituents.
(PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION,
G.R. No. 166006, March 14, 2008)
D. Power of taxation compared with other powers
1. Police power
Police Power is the power to make, ordain and establish all manner of
wholesome and reasonable laws, statutes and ordinances whether with
penalties or without, not repugnant to the Constitution, the good and
welfare of the commonwealth, and for the subjects of the same.
(Metropolitan Manila Development Authority v. Garin, GR No. 130230, April
15, 2005)
The motivation behind many taxation measures is the implementation of
police power goals. Progressive income taxes alleviate the margin between
rich and poor; 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, G.R. No. 158540, August 3, 2005)
Taxation is distinguishable from police power as to the means employed to
implement these public good goals. Those doctrines that are unique to
taxation arose from peculiar considerations such as those especially
punitive effects of taxation, and the belief that taxes are the lifeblood of the
state yet at the same time, it has been recognized that taxation may be
made the implement of the states police power. (SOUTHERN CROSS
CEMENT
CORPORATION
v.
CEMENT
MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)
Unlike ordinary revenue laws, R.A. 6260 and P.D. 276 did not raise money
to boost the governments general funds but to provide means for the
rehabilitation and stabilization of a threatened industry, the coconut
industry, which is so affected with public interest as to be within the police
power of the State. The subject laws are akin to the sugar liens imposed by
Sec. 7(b) of P.D. 388, and the oil price stabilization funds under P.D. 1956,
as amended by E.O. 137. (PAMBANSANG KOALISYON NG MGA

SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.


EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
If generation of revenue is the primary purpose and regulation is merely
incidental, the imposition is a tax; but if regulation is the primary purpose,
the fact that revenue is incidentally raised does not make the imposition a
tax. (GEROCHI v. DEPARTMENT OF ENERGY, 527 SCRA 696 (2007))
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The main purpose of police power is the regulation of a behavior or
conduct, while taxation is revenue generation. The "lawful subjects" and
"lawful means" tests are used to determine the validity of a law enacted
under the police power. The power of taxation, on the other hand, is
circumscribed by inherent and constitutional limitations. (PLANTERS
PRODUCTS, INC. v.
FERTIPHIL CORPORATION, G.R. No. 166006, March 14, 2008)
While it is true that the power of taxation can be used as an implement
of police power, the primary purpose of the levy is revenue generation. If
the purpose is primarily revenue, or if revenue is, at least, one of the real
and substantial purposes, then the exaction is properly called a tax.
(PLANTERS PRODUCTS, INC. v. FERTIPHIL CORPORATION, G.R. No.
166006,
March 14, 2008)

It has been the settled law that municipal license fees could be classified
into those imposed for regulating occupations or regular enterprises, for the
regulation or restriction of non-useful occupations or enterprises and for
revenue purposes only. Licenses for non-useful occupations are also
incidental to the police power and the right to exact a fee may be implied
from the power to license and regulate, but in fixing the amount of the
license fees the municipal corporations are allowed a much wider discretion
in this class of cases. (ERMITA-MALATE HOTEL AND MOTEL
OPERATORS ASSOCIATION, INC., HOTEL DEL MAR INC. and GO CHIU
v. THE HONORABLE CITY MAYOR OF MANILA, G.R. No. L-24693, July
31, 1967)
2. Power of eminent domain
Be it stressed that the privilege enjoyed by senior citizens does not come
directly from the State, but rather from the private establishments
concerned. Accordingly, the tax credit benefit granted to these
establishments can be deemed as their just compensation for private
property taken by the State for public use. (COMMISSIONER OF
INTERNAL REVENUE v. CENTRAL LUZON DRUG CORPORATION G.R.
No. 159647 April 15, 2005)
Besides, the taxation power can also be used as an implement for the
exercise of the power of eminent domain. Tax measures are but "enforced
contributions exacted on pain of penal sanctions" and "clearly imposed for
a public purpose." In 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 15,
2005)
E. Purpose of taxation
1. Revenue-raising
2. Non-revenue/special or regulatory
The Court was satisfied that the coco-levy funds were raised pursuant to
law to support a proper governmental purpose. They were raised with the
use of the police and taxing powers of the State for the benefit of the
coconut industry and its farmers in general. (PAMBANSANG KOALISYON
NG MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.
EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
In relation to the regulatory purpose of the imposed fees, the imposition
questioned must relate to an occupation or activity that so engages the
public interest, morals, safety and development as to require regulation for
the protection and promotion of such public interest; the imposition must

also bear a reasonable relation to the probable expenses of regulation,


taking into account not only the costs of direct regulation, but also its
incidental consequences as well. (CHEVRON PHILIPPINES, INC. v.
BASES CONVERSION DEVELOPMENT AUTHORITY, 630 SCRA 519
(2010))
As an elementary principle of law, license taxation must not be so onerous
to show a purpose to prohibit a business which is not injurious to health or
morals. (TERMINAL FACILITIES AND SERVICES CORPORATION v.
PHILIPPINE PORTS AUTHORITY, 378 SCRA 82 (2002))
It is a police power measure. The objectives behind its enactment are: "(1)
To be able to impose payment of the license fee for engaging in the
business of massage clinic (2) in order to forestall possible immorality
which might grow out of the construction of separate rooms for
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massage of customers." (TOMAS VELASCO v. HON. ANTONIO J.
VILLEGAS, G.R. No. L-24153, February 14, 1983)
F. Principles of sound tax system 1. Fiscal adequacy
2. Administrative feasibility
3. Theoretical justice
G. Theory and basis of taxation 1. Lifeblood theory
As well said in a prior case, revenue laws are not intended to be liberally
construed. Considering that taxes are the lifeblood of the government and
in Holmess memorable metaphor, the price we pay for civilization, tax laws
must be faithfully and strictly implemented. (COMMISSIONER OF
INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068 August
3, 2007)
Taxes being the lifeblood of the government should be collected promptly.
No court shall have the authority to grant an injunction to restrain the
collection of any internal revenue tax, fee or charge imposed by the
National Internal Revenue Code. (ANGELES CITY v. ANGELES
ELECTRIC COOPERATION, 622 SCRA 43 (2010))
We are not unaware of the doctrine that taxes are the lifeblood of the
government, without which it can not properly perform its functions; and
that appeal shall not suspend the collection of realty taxes. However, there
is an exception to the foregoing rule, i.e., where the taxpayer has shown a
clear and unmistakable right to refuse or to hold in abeyance the payment
of taxes. (EMERLINDA S. TALENTO vs. HON. REMIGIO M. ESCALADA,
JR., G.R. No. 180884, June 27, 2008)
2. Necessity theory
The theory behind the exercise of the power to tax emanates from
necessity, without taxes, government cannot fulfill its mandate of promoting
the general welfare and well being of the people. (GEROCHI v.
DEPARTMENT OF ENERGY, 527 SCRA 696 (2007))
3. Benefits-protection theory (Symbiotic relationship)
Despite the natural reluctance to surrender part of one's hard earned
income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for
its part is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their
moral and material values. This symbiotic relationship is the rationale of
taxation and should dispel the
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Certainly, to continue collecting real property taxes based on valuations
arrived at several years ago, in disregard of the increases in the value of
real properties that have occurred since then, is not in consonance with a
sound tax system. Fiscal adequacy, which is one of the characteristics of a
sound tax system, requires that sources of revenues must be adequate to
meet government expenditures and their variations. (FRANCISCO I.
CHAVEZ v. JAIME B.
ONGPIN, G.R. No. 76778, June 6, 1990)

erroneous notion that it is an arbitrary method of exaction by those in the


seat of power. (COMMISSIONER OF INTERNAL REVENUE v. ALGUE,
INC., and THE COURT OF TAX APPEALS, G.R. No. L-28896, February
17, 1988)
4. Jurisdiction over subject and objects
H. Doctrines in taxation
1. Prospectivity of tax laws
Note that the issue on the retroactivity of Section 204(c) of the 1997 NIRC
arose because the last paragraph of Section 204(c) was not found in
Section 230 of the old Code. After a thorough consideration of this matter,
we find that we cannot give retroactive application to Section 204(c)
abovecited. We have to stress that tax laws are prospective in operation,
unless the language of the statute clearly provides otherwise.
(COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA
G.R. No. 154068 August 3, 2007)
2. Imprescriptibility 3. Double taxation a) Strict sense
Double taxation means taxing the same property twice when it should be
taxed only once; that is, "taxing the same person twice by the same
jurisdiction for the same thing." It is obnoxious when the taxpayer is taxed
twice, when it should be but once. Otherwise described as "direct duplicate
taxation," the two taxes must be imposed on the same subject matter, for
the same purpose, by the same taxing authority, within the same
jurisdiction, during the same taxing period; and they must be of the same
kind or character. (COMMISSIONER OF INTERNAL REVENUE v.
SOLIDBANK CORPORATION G.R. No. 148191 November 25, 2003)
b) Broad sense
Subjecting interest income to a 20% FWT and including it in the
computation of the 5% GRT is clearly not double taxation: First, the taxes
herein are imposed on two different subject matters; Second, although both
taxes are national in scope because they are imposed by the same taxing
authority -- the national government under the Tax Code -- and operate
within the same Philippine jurisdiction for the same purpose of raising
revenues, the taxing periods they affect are different; Third, these two taxes
are of different kinds or characters. (COMMISSIONER OF INTERNAL
REVENUE v. SOLIDBANK CORPORATION G.R. No. 148191 November
25, 2003)
Regulation and taxation are two different things, the first being an exercise
of police power, whereas the latter involves the exercise of the power of
taxation. While R.A. 2264 provides that no city may impose taxes on forest
products and although lumber is a forest product, the tax in
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The expenses of government, having for their object the interest of all,
should be borne by everyone, and the more man enjoys the advantages of
society, the more he ought to hold himself honored in contributing to those
expenses. (ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS
SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v. THE
HONORABLE
EXECUTIVE SECRETARY EDUARDO ERMITA, G.R. No. 168056,
September 1, 2005)
question is imposed not on the lumber but upon its sale; thus, there is no
double taxation and even if there was, it is not prohibited. (SERAFICA v.
CITY TREASURER OF ORMOC, G.R. No. L- 24813, April 28, 1968)
Both a license fee and a tax may be imposed on the same business or
occupation, or for selling the same article. This is not being in violation of
the rule against double taxation. (COMPANIA GENERAL DE TABACOS DE
FILIPINAS v. CITY OF MANILA, 8 SCRA 367)
c) Constitutionality of double taxation
Unlike the United States Constitution, double taxation is not specially
prohibited in the Philippine Constitution. (Manufacturers Life v. Meer, 89
Phil 210)

d) Modes of eliminating double taxation


Double taxation usually takes place when a person is resident of a
contracting state and derives income from, or owns capital in the other
contracting state and both states impose tax on that income or capital. In
order to eliminate double taxation, a tax treaty resorts to several methods.
First, it sets out the respective rights to tax of the state of source or situs
and of the state of residence with regard to certain classes of income or
capital. In some cases, an exclusive right to tax is conferred on one of the
contracting states; however, for other items of income or capital, both
states are given the right to tax, although the amount of tax that may be
imposed by the state of source is limited.
The second method for the elimination of double taxation applies whenever
the state of source is given a full or limited right to tax together with the
state of residence. In this case, the treaties make it incumbent upon the
state of residence to allow relief in order to avoid double taxation. There are
two methods of relief- the exemption method and the credit method. In the
exemption method, the income or capital which is taxable in the state of
source or situs is exempted in the state of residence, although in some
instances it may be taken into account in determining the rate of tax
applicable to the taxpayers remaining income or capital. On the other
hand, in the credit method, although the income or capital which is taxed in
the state of source is still taxable in the state of residence, the tax paid in
the former is credited against the tax levied in the latter. The basic
difference between the two methods is that in the exemption method, the
focus is on the income or capital itself, whereas the credit method focuses
upon the tax. (COMMISSIONER OF INTERNAL REVENUE v. S.C.
JOHNSON AND SON, INC. G.R. No. 127105 June 25, 1999)
In negotiating tax treaties, the underlying rationale for reducing the tax rate
is that the Philippines will give up a part of the tax in the expectation that
the tax given up for this particular investment is not taxed by the other
country. Thus, if the rates of tax are lowered by the state of source, in this
case, by the Philippines, there should be a concomitant commitment on the
part of the state of residence to grant some form of tax relief, whether this
be in the form of a tax credit or exemption. (COMMISSIONER OF
INTERNAL REVENUE v. S.C. JOHNSON AND SON, INC. G.R. No.
127105 June 25, 1999)
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4. Escape from taxation a) Shifting of tax burden
Section 135(a) should be construed as prohibiting the shifting of the burden
of the excise tax to the international carriers who buy petroleum products
from the local manufacturers. Said international carriers are thus allowed to
purchase the petroleum products without the excise tax component which
otherwise would have been added to the cost or price fixed by the local
manufacturers or distributors/sellers. (COMMISSIONER OF INTERNAL
REVENUE v. PILIPINAS SHELL PETROLEUM CORPORATION, G.R. No.
188497, February 19, 2014)
(i) Ways of shifting the tax burden
8
It may indeed be that the economic burden of the tax finally falls on the
purchaser; when it
does the tax becomes a part of the price which the purchaser must pay.
It does not matter that an additional amount is billed as tax to the
purchaser. The method of listing the price and the tax separately and
defining taxable gross receipts as the amount received less the amount of
the tax added, merely avoids payment by the seller of a tax on the amount
of the tax. (PHILIPPINE ACETYLENE CO., INC. v. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. L- 19707, August 17, 1967)
(ii) Taxes that can be shifted
(iii) Meaning of impact and incidence of taxation
In indirect taxation, a distinction is made between the liability for the tax and
burden of the tax: The seller who is liable for the VAT may shift or pass on

the amount of VAT it paid on goods, properties or services to the buyer. In


such a case, what is transferred is not the seller's liability but merely the
burden of the VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
b) Tax avoidance
Tax avoidance is the tax saving device within the means sanctioned by law.
This method should be used by the taxpayer in good faith and at arms
length. (COMMISSIONER OF INTERNAL REVENUE v. THE ESTATE OF
BENIGNO P. TODA, JR. G.R. No. 147188 September 14, 2004)
c) Tax evasion
Tax evasion, on the other hand, is a scheme used outside of those lawful
means and when availed of, it usually subjects the taxpayer to further or
additional civil or criminal liabilities. (COMMISSIONER OF INTERNAL
REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188
September 14, 2004)
Tax evasion connotes the integration of three factors: (1) the end to be
achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;
(2) an accompanying state of mind which is described as being "evil," in
"bad faith," "willfull," or "deliberate and not accidental"; and (3) a course of
action or failure of action which is unlawful. (COMMISSIONER OF
INTERNAL REVENUE v. THE ESTATE OF BENIGNO P. TODA, JR. G.R.
No. 147188 September 14, 2004)
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Here, it is obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to RMI
would then subject the income to only 5% individual capital gains tax, and
not the 35% corporate income tax. Altonagas sole purpose of acquiring
and transferring title of the subject properties on the same day was to
create a tax shelter. (COMMISSIONER OF INTERNAL REVENUE v. THE
ESTATE OF BENIGNO P. TODA, JR. G.R. No. 147188 September 14,
2004)
5. Exemption from taxation
a) Meaning of exemption from taxation
It is the legislature, unless limited by a provision of the state constitution,
that has full power to exempt any person or corporation or class of property
from taxation, its power to exempt being as broad as its power to tax. Other
than Congress, the Constitution may itself provide for specific tax
exemptions, or local governments may pass ordinances on exemption only
from local taxes. (JOHN HAY PEOPLES ALTERNATIVE COALITION, et al.
v. VICTOR LIM, et al., G. R. No. 119775, October 24, 2003)
b) Nature of tax exemption
v.
COMMISSIONER OF INTERNAL REVENUE v. PILIPINAS SHELL
PETROLEUM CORPORATION, G.R. No. 188497,
Taxation is the rule and exemption is the exception. (FELS ENERGY, INC.
v. PROVINCE OF
9
BATANGAS, 516 SCRA 186 (2007))
Since the power to tax includes the power to exempt thereof which is
essentially a legislative prerogative, it follows that a municipal mayor who is
an executive officer may not unilaterally withdraw such an expression of a
policy thru the enactment of a tax. (PHILIPPINE PETROLEUM
CORPORATION
MUNICIPALITY OF PILILLA, G.R. No. 90776, June 3, 1991)
A tax exemption being enjoyed by the buyer cannot be the basis of a
claim for tax exemption by the manufacturer or seller of the goods for any
tax due to it as the manufacturer or seller. The excise tax imposed on
petroleum products under Section 148 is the direct liability of the
manufacturer who cannot thus invoke the excise tax exemption granted to
its buyers who are international carriers; nevertheless, the manufacturer, as

the statutory taxpayer who is directly liable to pay the excise tax on its
petroleum products, is entitled to a refund or credit of the
excise taxes it paid for petroleum products sold to international
carriers (
February 19, 2014)
c) Kinds of tax exemption (i) Express
(ii) Implied
It bears repeating that the law looks with disfavor on tax exemptions and
he who would seek to be thus privileged must justify it by words too plain to
be mistaken and too categorical to be
misinterpreted. (WESTERN MINOLCO CORPORATION
COMMISSIONER OF INTERNAL
REVENUE, G.R. No. L-61632, August 16, 1983)
v.
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(iii) Contractual
Nevertheless, since taxation is the rule and exemption therefrom the
exception, the exemption may thus be withdrawn at the pleasure of the
taxing authority. The only exception to this rule is where the exemption was
granted to private parties based on material consideration of a mutual
nature, which then becomes contractual and is thus covered by the nonimpairment clause of the Constitution. (MCIAA v. Marcos, G.R. No. 120082
September 11, 1996)
d) Rationale/grounds for exemption
v.
The PPI says that the discriminatory treatment of the press is highlighted
by the fact that transactions, which are profit oriented, continue to enjoy
exemption under R.A. No. 7716 but an enumeration of some of these
transactions will suffice to show that by and large this is not so and that the
exemptions are granted for a purpose. As the Solicitor General says, such
exemptions are granted, in some cases, to encourage agricultural
production and, in other cases, for the personal benefit of the end-user
rather than for profit.
v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
e) Revocation of tax exemption
v.
(ARTURO M. TOLENTINO
10
In recent years, the increasing social challenges of the times expanded
the scope of 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. Taxation assumes even greater significance with the ratification
of the 1987
Constitution. (BATANGAS POWER CORPORATION
BATANGAS CITY and NATIONAL POWER
CORPORATION, G.R. No. 152675, April 28, 2004)
Since the law granted the press a privilege, the law could take back
the privilege anytime without offense to the Constitution. The reason is
simple: by granting exemptions, the State does not forever waive the
exercise of its sovereign prerogative; indeed, in withdrawing the exemption,
the law merely subjects the press to the same tax burden to which other
businesses have long ago been subject. (ARTURO M. TOLENTINO v. THE
SECRETARY OF FINANCE and
THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 115455,
October 30, 1995)
The rule is that a special and local statute applicable to a particular
case is not repealed by a later statute which is general in its terms,
provisions and application even if the terms of the general act are broad
enough to include the cases in the special law unless there is manifest

intent to repeal or alter the special law. (THE PROVINCE OF MISAMIS


ORIENTAL, represented
by its PROVINCIAL TREASURER
v.
CAGAYAN ELECTRIC POWER AND LIGHT COMPANY, INC.,
G.R. No. L-45355, January 12, 1990)
This Court recognized the removal of the blanket exclusion of
government instrumentalities from local taxation as one of the most
significant provisions of the 1991 LGC. Specifically, we stressed that
Section 193 of the LGC, an express and general repeal of all statutes
granting exemptions from local taxes, withdrew the sweeping tax privileges
previously enjoyed by the
NPC under its Charter. (BATANGAS POWER CORPORATION
BATANGAS CITY and NATIONAL
POWER CORPORATION, G.R. No. 152675, April 28, 2004)
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Erroneous application and enforcement of the law by public officers do
not preclude subsequent correct application of the statute, and the
government is never estopped by the mistake or error on the part of its
agents. (PHILIPPINE BASKETBALL ASSOCIATION v. COURT OF
APPEALS, 337 SCRA 358)
6. Compensation and set-off
Taxes cannot be the subject of set-off or compensation for the following
reasons: (1) taxes are of distinct kind, essence and nature, and these
impositions cannot be classed in the same category as ordinary
obligations; (2) the applicable laws and principles governing each are
peculiar, not necessarily common to each; and (3) public policy is better
subscribed if the integrity and independence of taxes are maintained.
(REPUBLIC v. MAMBULAO LUMBER COMPANY, 4 SCRA 622 (1962))
Taxes cannot be subject to compensation for the simple reason that the
Government and the taxpayers are not creditors and debtors of each other,
debts are due to the Government in its corporate capacity, while taxes are
due to the Government in its sovereign capacity. (SOUTH AFRICAN
AIRWAYS v. COMMISSIONER OF INTERNAL REVENUE, 612 SCRA 665
(2010))
However, if the obligation to pay taxes and the taxpayers claim against the
government are both overdue, demandable, as well as fully liquidated,
compensation takes place by operation of law and both obligations are
extinguished to their concurrent amounts. (DOMINGO v. GARLITOS, 8
SCRA 443 (1963))
7. Compromise 8. Tax amnesty a) Definition
A tax amnesty is a general pardon or the intentional overlooking by the
State of its authority to impose penalties on persons otherwise guilty of
violating a tax law. 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. (ASIA INTERNATIONAL
AUCTIONEERS, INC. v. COMMISSIONER OF INTERNAL REVENUE G.R.
No. 179115 September 26, 2012)
A tax amnesty, much like a tax exemption, is never favored or presumed in
law. The grant of a tax amnesty, similar to a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing
authority. (ASIA INTERNATIONAL AUCTIONEERS, INC. v.
COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115 September
26, 2012)
b) Distinguished from tax exemption
9. Construction and interpretation of: a) Tax laws
(i) General rule
Verily, taxation is a destructive power which interferes with the personal
and property for the support of the government. Accordingly, tax statutes
must be construed strictly against the
Bar Ops Pilipinas 2015 Philippine Association of Law Schools

government and liberally in favor of the taxpayer. (MCIAA v. Marcos, G.R.


No. 120082 September 11, 1996)
The rule that tax exemptions should be construed strictly against the
taxpayer presupposes that the taxpayer is clearly subject to the tax being
levied against him. Unless a statute imposes a tax clearly, expressly and
unambiguously, what applies is the equally well-settled rule that the
imposition of a tax cannot be presumed. This is because taxes are burdens
on the taxpayer, and should not be unduly imposed or presumed beyond
what the statutes expressly and clearly import. (COMMISSIONER OF
INTERNAL REVENUE v. THE PHILIPPINE AMERICAN ACCIDENT
INSURANCE COMPANY, INC. G.R. No. 141658 March 18, 2005)
(ii) Exception
b) Tax exemption and exclusion (i) General rule
But since taxes are what we pay for civilized society, or are the lifeblood of
the nation, the law frowns against exemptions from taxation and statutes
granting tax exemptions are thus construedin strictissimi jurisagainst the
taxpayers and liberally in favor of the taxing authority. (MCIAA v. Marcos,
G.R. No. 120082 September 11, 1996)
Entrenched in our jurisprudence is the principle that tax refunds are in the
nature of tax exemptions which are construed in strictissimi juris against the
taxpayer and liberally in favor of the government. As tax refunds involve a
return of revenue from the government, the claimant must show indubitably
the specific provision of law from which her right arises; it cannot be
allowed to exist upon a mere vague implication or inference nor can it be
extended beyond the ordinary and reasonable intendment of the language
actually used by the legislature in granting the refund. (COMMISSIONER
OF INTERNAL REVENUE v. ROSEMARIE ACOSTA G.R. No. 154068
August 3, 2007)
Well-settled in this jurisdiction is the fact that actions for tax refund, as in
this case, are in the nature of a claim for exemption and the law is
construed in strictissimi juris against the taxpayer. The pieces of evidence
presented entitling a taxpayer to an exemption are also strictissimi
scrutinized and must be duly proven. (KEPCO PHILIPPINES
CORPORATION v. COMMISSIONER OF INTERNAL REVENUE G.R. No.
179961 January 31, 2011)
The legislative intent, as shown by the discussions in the Bicameral
Conference Meeting, is to require PAGCOR to pay corporate income tax;
hence, the omission or removal of PAGCOR from exemption from the
payment of corporate income tax. It is a basic precept of statutory
construction that the express mention of one person, thing, act, or
consequence excludes all others as expressed in the familiar maxim
expressio unius est exclusio alterius. (PHILIPPINE AMUSEMENT AND
GAMING CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL
REVENUE G.R. No. 172087 March 15, 2011)
It is a basic precept of statutory construction that the express mention of
one person, thing, act, or consequence excludes all others as expressed in
the familiar maxim expressio unius est exclusio alterius. Not being a local
water district, a cooperative registered under R.A. No. 6938, or a non-stock
and non-profit hospital or educational institution, petitioner clearly does not
belong to the exception and it is therefore incumbent upon it to point to
some provisions of the
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
12
LGC that expressly grant its exemption from local taxes. (NATIONAL
POWER CORPORATION v. CITY OF CABANATUAN G.R. No. 149110
April 9, 2003)
Definitely, the taxability of a party cannot be blandly glossed over on the
basis of a supposed "broad, pragmatic analysis" alone without substantial
supportive evidence, lest governmental operations suffer due to diminution
of much needed funds. While international comity is invoked in this case on
the nebulous representation that the funds involved in the loans are those

of a foreign government, scrupulous care must be taken to avoid opening


the floodgates to the violation of our tax laws. (COMMISSIONER OF
INTERNAL REVENUE v. MITSUBISHI METAL CORPORATION G.R. No.
L-54908 January 22, 1990)
13
The claimed statutory exemption of the John Hay SEZ from taxation should
be manifest and unmistakable from the language of the law on which it is
based; it must be expressly granted in
a statute stated in a language too clear to be mistaken. If it were the
intent of the legislature to grant to the John Hay SEZ the same tax
exemption and incentives given to the Subic SEZ, it would have so
expressly provided in the R.A. No. 7227. (JOHN HAY PEOPLES
ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R. No. 119775,
October 24, 2003)
The Court in PLDT v. City of Davao, held that in approving Section 23 of
RA No. 7925, Congress did not intend it to operate as a blanket tax
exemption to all telecommunications entities. The Court also clarified the
meaning of the word "exemption" in Section 23 of RA 7925: that the word
"exemption" as used in the statute refers or pertains merely to an
exemption from regulatory or reporting requirements of the Department of
Transportation and Communication or the National Transmission
Corporation and not to an exemption from the grantees tax liability.
(SMART COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No.
155491, July 21, 2009)
In Philippine Long Distance Telephone Company (PLDT) v. Province of
Laguna, the issue that the Court had to resolve was whether PLDT was
liable to pay franchise tax to the Province of Laguna in view of the "in lieu
of all taxes" clause in its franchise and Section 23 of RA 7925. Applying the
rule of strict construction of laws granting tax exemptions and the rule that
doubts are resolved in favor of municipal corporations in interpreting
statutory provisions on municipal taxing powers, the Court held that Section
23 of RA 7925 could not be considered as having amended petitioner's
franchise so as to entitle it to exemption from the imposition of local
franchise taxes. (SMART COMMUNICATIONS, INC. v.THE CITY OF
DAVAO, G.R. No. 155491, July 21, 2009)
The "in lieu of all taxes" clause in a legislative franchise should
categorically state that the
exemption applies to both local and national taxes; otherwise, the
exemption claimed should be strictly construed against the taxpayer and
liberally in favor of the taxing authority. (SMART COMMUNICATIONS, INC.
v.THE CITY OF DAVAO, G.R. No. 155491, July 21, 2009)
PLDTs contention that the in-lieu-of-all-taxes clause does not refer to
tax exemption but to tax exclusion and hence, the strictissimi juris rule
does not apply. The Supreme Court explains that these two terms actually
mean the same thing, such that the rule that tax exemption should be
applied in strictissimi juris against the taxpayer and liberally in favor of the
government applies equally to tax exclusions (PHILIPPINE LONG
DISTANCE TELEPHONE COMPANY vs PROVINCE OF LAGUNA G.R.
No. 151899, August 16, 2005)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(ii) Exception
However, if the grantee of the exemption is a political subdivision or
instrumentality, the rigid rule of construction does not apply because the
practical effect of the exemption is merely to reduce the amount of money
that has to be handled by the government in the course of its operations.
(MCIAA v. Marcos, G.R. No. 120082, September 11, 1996)
(COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO
CORPORATION, G.R. Nos. 167274-75, July 21, 2008)
A claim for tax refund may be based on statutes granting tax exemption or
tax refund and in such case, the rule of strict interpretation against the
taxpayer is applicable as the claim for refund partakes of the nature of an
exemption, a legislative grace, which cannot be allowed unless granted in

the most explicit and categorical language. Tax refunds (or tax credits), on
the other hand, are not founded principally on legislative grace but on the
legal principle which underlies all quasi-contracts abhorring a persons
unjust enrichment at the expense of another. (COMMISSIONER OF
INTERNAL REVENUE v. FORTUNE TOBACCO CORPORATION, G.R.
Nos. 167274-75, July 21, 2008)
(COMMISSIONER OF INTERNAL REVENUE v. FORTUNE TOBACCO
CORPORATION, G.R. Nos. 167274-75, September 11, 2013)
c) Tax rules and regulations (i) General rule only
14
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.
Obviously, that is not the situation here since Fortune Tobaccos claim for
refund is premised on its erroneous payment of the tax, or better
still, the governments exaction in the absence of a law.
As a necessary corollary, when the taxpayers entitlement to a refund
stands undisputed, the State should not misuse technicalities and
legalisms, however exalted, to keep money not belonging to it. The
government is not exempt from the application of solutio indebiti, a basic
postulate proscribing one, including the State, from enriching himself or
herself at the expense
of another.
While administrative agencies, such as the Bureau of Internal
Revenue, may issue regulations to implement statutes, they are without
authority to limit the scope of the statute to less than what it provides, or
extend or expand the statute beyond its terms, or in any way modify explicit
provisions of the law. Hence, in case of discrepancy between the basic law
and an interpretative or administrative ruling, the basic law prevails. (FORT
BONIFACIO DEVELOPMENT
CORPORATION v. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 173425, September 4,
2012)
Revenue Memorandum Circulars (RMCs) must not override, supplant, or
modify the law, but must remain consistent and in harmony with the law
they seek to apply and implement.
(COMMISSIONER OF INTERNAL REVENUE v. SM PRIME
HOLDINGS, INC. 613 SCRA 774 (2010))
Admittedly the government is not estopped from collecting taxes legally due
because of mistakes or errors of its agents. But like other principles of law,
this admits of exceptions in the
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
interest of justice and fair play, as where injustice will result to the
taxpayer. (COMMISSIONER
OF INTERNAL REVENUE v.
COURT OF APPEALS, G.R. No. 117982, February 6, 1997)
"When a statute is susceptible of the meaning placed upon it by a ruling of
the government agency charged with its enforcement and the [l]egislature
thereafter [reenacts] the provisions [without] substantial change, such
action is to some extent confirmatory that the ruling carries out the
legislative purpose." (COMMISSIONER OF INTERNAL REVENUE v.
AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH),
G.R. No. 152609, June 29, 2005)
d) Penal provisions of tax laws
In criminal cases, statutes of limitations are acts of grace, a surrendering by
the sovereign of its right to prosecute. They receive strict construction in
favour of the Government and limitations in such cases will not be
presumed in the absence of clear legislation. (LIM, et al. v. COURT OF
APPEALS, G.R. No. 48134-37, October 18, 1990)
e) Non-retroactive application to taxpayers
Revenue statutes are substantive laws and in no sense must their
application be equated with that of remedial laws. As well said in a prior
case, revenue laws are not intended to be liberally construed.

(COMMISSIONER OF INTERNAL REVENUE v. ROSEMARIE ACOSTA,


G.R. No. 154068, August 3, 2007)
(i) Exceptions
15
BIR Ruling No. DA-489-03 is a general interpretative rule because it is a
response to a query
made, not by a particular taxpayer, but by a government agency tasked
with processing tax refunds and credits. Thus, all taxpayers can rely on BIR
Ruling No. DA-489-03 from the time of its issuance on 10 December 2003
up to its reversal by this Court in Aichi on 6 October 2010,
where this Court held that the 120+30 day periods are mandatory and
jurisdictional. (
TEAM ENERGY CORPORATION (Formerly MIRANT PAGBILAO
CORPORATION) v. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 197760, January 13, 2014)
While it is a settled principle that rulings, circulars, rules and
regulations promulgated by the
BIR have no retroactive application if to so apply them would be prejudicial
to the taxpayers, this rule does not apply: (a) where the taxpayer
deliberately misstates or omits material facts from his return or in any
document required of him by the Bureau of Internal Revenue; (b) where the
facts subsequently gathered by the Bureau of Internal Revenue are
materially
different from the facts on which the ruling is based; or (c) where the
taxpayer acted in bad
faith. Not being the taxpayer who, in the first instance, sought a ruling from
the CIR, however, FDC cannot invoke the foregoing principle on nonretroactivity of BIR rulings. (COMMISSIONER OF INTERNAL REVENUE v.
FILINVEST DEVELOPMENT CORPORATION, G.R. No. 163653, July 19,
2011)
I. Scope and limitation of taxation 1. Inherent limitations
a) Public purpose
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
Section 2 of P.D. 755, Article III, Section 5 of P.D. 961, and Article III,
Section 5 of P.D. 1468 completely ignore the fact that coco-levy funds are
public funds raised through taxation. And since taxes could be exacted only
for a public purpose, they cannot be declared private properties of
individuals although such individuals fall within a distinct group of persons.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT
MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos.
147036-37 April 10, 2012)
The Court of course grants that there is no hard-and-fast rule for
determining what constitutes public purpose. But the assailed provisions,
which removed the coco-levy funds from the general funds of the
government and declared them private properties of coconut farmers, do
not appear to have a color of social justice for their purpose.
(PAMBANSANG KOALISYON NG MGA SAMAHANG MAGSASAKA AT
MANGGAGAWA SA NIYUGAN v. EXECUTIVE SECRETARY G.R. Nos.
147036-37 April 10, 2012)
16
It would be a robbery for the State to tax its citizens and use the funds
generated for a private purpose. When a tax law is only a mask to exact
funds from the public when its true intent is to give undue benefit and
advantage to a private enterprise, that law will not satisfy the requirement
of "public purpose." (PLANTERS PRODUCTS, INC. v. FERTIPHIL
CORPORATION,
G.R. No. 166006, March 14, 2008)
Jurisprudence states that "public purpose" should be given a broad
interpretation. It does not only pertain to those purposes which are
traditionally viewed as essentially government functions, such as building
roads and delivery of basic services, but also includes those purposes

designed to promote social justice. (PLANTERS PRODUCTS, INC. v.


FERTIPHIL
CORPORATION, G.R. No. 166006, March 14, 2008)
b) Inherently legislative (i) General rule
The power to tax is purely legislative, and which the central legislative body
cannot delegate either to the executive or judicial department of the
government without infringing upon the theory of separation of powers.
((Pepsi-Cola Bottling Company of the Phil. V. Mun. of Tanauan, Leyte, 69
SCRA 460)
The powers which Congress is prohibited from delegating are those which
are strictly, or inherently and exclusively, legislative. Purely legislative
power, which can never be delegated, has been described as the authority
to make a complete law complete as to the time when it shall take effect
and as to whom it shall be applicable and to determine the expediency of
its enactment. (ABAKADA GURO PARTY LIST (Formerly AASJAS)
OFFICERS SAMSON S. ALCANTARA and ED VINCENT S. ALBANO v.
THE HONORABLE EXECUTIVE SECRETARY G.R. No. 168056
September 1, 2005)
(ii) Exceptions
(a) Delegation to local governments
The power to tax is primarily vested in the Congress; however, in our
jurisdiction, it may be exercised by local legislative bodies, no longer
merely by virtue of a valid delegation as before,
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
but pursuant to direct authority conferred by Section 5, Article X of the
Constitution. (MCIAA v. Marcos, G.R. No. 120082 September 11, 1996)
The power to tax is the most effective instrument to raise needed revenues
to finance and support myriad activities of local government units. It may
also be relevant to recall that the original reasons for the withdrawal of tax
exemption privileges granted to government-owned and controlled
corporations and all other units of government were that such privilege
resulted in serious tax base erosion and distortions in the tax treatment of
similarly situated enterprises. (MCIAA v. Marcos, G.R. No. 120082
September 11, 1996)
Taxation assumes even greater significance with the ratification of the 1987
Constitution. Thenceforth, the power to tax is no longer vested exclusively
on Congress; local legislative bodies are now given direct authority to levy
taxes, fees and other charges pursuant to Article X, section 5 of the 1987
Constitution. (NATIONAL POWER CORPORATION v. CITY OF
CABANATUAN G.R. No. 149110 April 9, 2003)
(QUEZON CITY, et al. v. ABS-CBN BROADCASTING CORPORATION,
G.R. No. 162015, March 6, 2006)
17
Clearly then, while a new slant on the subject of local taxation now
prevails in the sense that the former doctrine of local government units
delegated power to tax had been effectively modified with Article X, Section
5 of the 1987 Constitution now in place, the basic doctrine on local taxation
remains essentially the same. For as the Court stressed in Mactan, "the
power to
tax is [still] primarily vested in the Congress."
Section 5, Article X of the Constitution does not change the doctrine
that municipal corporations do not possess inherent powers of taxation;
what it does is to confer municipal corporations a general power to levy
taxes and otherwise create sources of revenue and they no longer have to
wait for a statutory grant of these powers and 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. The
important legal effect of Section 5 is thus to reverse the principle that
doubts are resolved against municipal corporations; henceforth, in
interpreting statutory provisions on municipal fiscal powers, doubts will be
resolved in favor of municipal
corporations.

(QUEZON CITY, et al. v. ABS-CBN BROADCASTING CORPORATION,


G.R. No. 162015, March 6, 2006)
(b) Delegation to the President
Assuming that Section 28(2) Article VI did not exist, the enactment of the
SMA [Safeguard Measure Act] by Congress would be voided on the ground
that it would constitute an undue delegation of the legislative power to tax.
The constitutional provision shields such delegation from constitutional
infirmity, and should be recognized as an exceptional grant of legislative
power to the President, rather than the affirmation of an inherent executive
power. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)
When Congress tasks the President or his/her alter egos to impose
safeguard measures under the delineated conditions, the President or the
alter egos may be properly deemed as agents of Congress to perform an
act that inherently belongs as a matter of right to the legislature. It is basic
agency law that the agent may not act beyond the specifically delegated
powers or
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
disregard the restrictions imposed by the principal. (SOUTHERN CROSS
CEMENT
CORPORATION
v.
CEMENT
MANUFACTURERS
ASSOCIATION OF THE PHILIPPINES, G.R. No. 158540, August 3, 2005)
Delegation of legislative powers to the President is permitted in Sections 23
(2) and 28 (2) of Article VI of the Constitution. By virtue of a valid delegation
of legislative power, it may also be exercised by the President and
administrative boards, as well as the lawmaking bodies of all municipal
levels, including the barangay. (Camarines North Electric Cooperative v.
Torres, GR No. 127249, February 27, 1998)
(c) Delegation to administrative agencies
Clearly, the legislature may delegate to executive officers or bodies the
power to determine certain facts or conditions, or the happening of
contingencies, on which the operation of a statute is, by its terms, made to
depend, but the legislature must prescribe sufficient standards, policies or
limitations on their authority. While the power to tax cannot be delegated to
executive agencies, details as to the enforcement and administration of an
exercise of such power may be left to them, including the power to
determine the existence of facts on which its operation depends.
(ABAKADA GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON
S. ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY G.R. No. 168056 September 1, 2005)
18
In the present case, in making his recommendation to the President on the
existence of either of the two conditions, the Secretary of Finance is not
acting as the alter ego of the President or even her subordinate; he is
acting as the agent of the legislative department, to determine and declare
the event upon which its expressed will is to take effect. Thus, being the
agent of Congress and not of the President, the President cannot alter or
modify or nullify, or set aside the findings of the Secretary of Finance and to
substitute the judgment of the former for that of the latter. (ABAKADA
GURO PARTY LIST (Formerly AASJAS) OFFICERS SAMSON S.
ALCANTARA and ED VINCENT S. ALBANO v. THE HONORABLE
EXECUTIVE SECRETARY G.R. No. 168056 September 1, 2005)
c) Territorial
(i) Situs of taxation (a) Meaning
(b) Situs of income tax
The important factor therefore which determines the source of income of
personal services is not the residence of the payor, or the place where the
contract for service is entered into, or the place of payment, but the place
where the services were actually rendered. (COMMISSIONER OF
INTERNAL REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793,
August 29, 2006)
(1) From sources within the Philippines

The reinsurance premiums remitted to appellants by virtue of the


reinsurance contracts, accordingly, had for their source the undertaking to
indemnify Commonwealth Insurance Co. against liability. Said undertaking
is the activity that produced the reinsurance premiums, and
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
the same took place in the Philippines. (Alexander Howden & Co., Ltd. v.
Collector of Internal Revenue as cited in COMMISSIONER OF INTERNAL
REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793, August 29,
2006)
The "sale of tickets" in the Philippines is the "activity" that produced the
income and therefore BOAC should pay income tax in the Philippines
because it undertook an income producing activity in the country. The
tickets exchanged hands here and payments for fares were also made here
in Philippine currency; thus, the situs of the source of payments is the
Philippines. (Commissioner of Internal Revenue v. British Overseas
Airways Corporation (BOAC) as cited in COMMISSIONER OF INTERNAL
REVENUE v. JULIANE BAIER-NICKEL, G.R. No. 153793, August 29,
2006)
For the source of income to be considered as coming from the Philippines,
it is sufficient that the income is derived from activities within this country
regardless of the absence of flight operations within Philippine territory.
Indeed, the sale of tickets is the very lifeblood of the airline business, the
generation of sales being the paramount objective. (COMMISSIONER OF
INTERNAL REVENUE v. JAPAN AIR LINES, INC., G.R. No. 60714, March
6, 1991)
19
(2) From sources without the Philippines
(3) Income partly within and partly without the Philippines (c) Situs of
property taxes
(1) Taxes on real property
(2) Taxes on personal property
(d) Situs of excise tax
(1) Estate tax
(2) Donors tax
(e) Situs of business tax
(1) Sale of real property
(2) Sale of personal property
Since it partakes of the nature of an excise tax, the situs of taxation is
the place where the
privilege is exercised, in this case in the City of Iriga, where CASURECO III
has its principal office and from where it operates, regardless of the place
where its services or products are delivered. (CITY OF IRIGA v.
CAMARINES SUR III ELECTRIC COOPERATIVE, INC., G.R. No. 192945,
September 5, 2012)
It is not the place where the contract was perfected, but the place of
delivery which determines
the taxable situs of the property sought to be taxed. In the cases of
Soriano y Cia. v. Collector of Internal Revenue, 51 O.G. 4548; Vegetable
Oil Corporation v. Trinidad, 45 Phil. 822; and Earnshaw Docks and
Honolulu Iron Works vs. Collector of Internal Revenue, 54 Phil. 696, it has
been ruled that for a sale to be taxed in the Philippines it must be
consummated there; thus indicating that the place of consummation
(associated with the delivery of the things subject matter of the contract) is
the accepted criterion in determining the situs of the contract for purposes
of taxation, and not merely the place of the perfection of the contract.
(THE MUNICIPALITY OF JOSE PANGANIBAN, PROVINCE OF
CAMARINES NORTE, ETC. v. THE SHELL COMPANY OF THE
PHILIPPINES, LTD., G.R. No. L-18349, July 30, 1966)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(3) Value-Added Tax (VAT)
d) International comity

e) Exemption of government entities, agencies, and instrumentalities


The Court rules that the Authority [PFDA] is not a GOCC but an
instrumentality of the national government which is generally exempt from
payment of real property tax. However, said exemption does not apply to
the portions of the IFPC which the Authority leased to private entities.
(Philippine Fisheries Development Authority v. Court of Appeals, G.R. No.
169836, 31 July 2007)
2. Constitutional limitations
a) Provisions directly affecting taxation
(i) Prohibition against imprisonment for non-payment of poll tax (ii)
Uniformity and equality of taxation
Equality and uniformity in taxation means that all taxable articles or kinds of
property of the same class shall be taxed at the same rate. The taxing
power has the authority to make reasonable and natural classifications for
purposes of taxation; inequalities which result from a singling out of one
particular class for taxation or exemption infringe no constitutional
limitation.
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
20
As a general rule, the VAT system uses the destination principle as a basis
for the jurisdictional reach of the tax. Goods and services are taxed only in
the country where they are consumed; thus, exports are zero-rated, while
imports are taxed. (COMMISSIONER OF INTERNAL REVENUE
v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE BRANCH),
G.R. No. 152609, June 29, 2005)
Consumption is "the use of a thing in a way that thereby exhausts it, and
applied to services, the term means the performance or "successful
completion of a contractual duty, usually resulting in the performers release
from any past or future liability." The services rendered by respondent are
performed or successfully completed upon its sending to its foreign client
the drafts and bills it has gathered from service establishments here; thus,
its services, having been
performed in the Philippines, are also consumed in the Philippines.
(COMMISSIONER OF INTERNAL REVENUE v.AMERICAN EXPRESS
INTERNATIONAL, INC. (PHILIPPINE BRANCH), G.R. No. 152609, June
29, 2005)
Unlike goods, services cannot be physically used in or bound for a specific
place where their destination is determined but instead, there can only be a
"predetermined end of a course" when determining the service "location or
position for legal purposes." Respondents facilitation service has no
physical existence, yet takes place upon rendition, and therefore upon
consumption, in the Philippines. (COMMISSIONER OF INTERNAL
REVENUE v.AMERICAN EXPRESS INTERNATIONAL, INC. (PHILIPPINE
BRANCH), G.R. No. 152609, June 29, 2005)
As property of public dominion, the Lucena Fishing Port Complex
is owned by the Republic of
the Philippines and thus exempt from real estate tax.
(
PHILIPPINE FISHERIES DEVELOPMENT
AUTHORITY (PFDA) v. CENTRAL BOARD OF ASSESSMENT
APPEALS, G.R. No. 178030,
December 15, 2010)
(
(iii) Grant by Congress of authority to the president to impose tariff rates
It is Congress which authorizes the President to impose tariff rates, import
and export quotas, tonnage and wharfage dues, and other duties or
imposts. Thus, the authority cannot come from the Finance Department,
the National Economic Development Authority, or the World Trade
Organization, no matter how insistent or persistent these bodies may be.
(SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)

The authorization granted to the President must be embodied in a law.


Hence, the justification cannot be supplied simply by inherent executive
powers. (SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)
The authorization to the President can be exercised only within the
specified limits set in the law and is further subject to limitations and
restrictions which Congress may impose. Consequently, if Congress
specifies that the tariff rates should not exceed a given amount, the
President cannot impose a tariff rate that exceeds such amount.
(SOUTHERN CROSS CEMENT CORPORATION v. CEMENT
MANUFACTURERS ASSOCIATION OF THE PHILIPPINES, G.R. No.
158540, August 3, 2005)
Assuming there is a conflict between the specific limitation in Section 28
(2), Article VI of the Constitution and the general executive power of control
and supervision, the former prevails in the specific instance of safeguard
measures such as tariffs and imposts, and would thus serve to qualify the
general grant to the President of the power to exercise control and
supervision over his/her subalterns. (SOUTHERN CROSS CEMENT
CORPORATION v. CEMENT MANUFACTURERS ASSOCIATION OF THE
PHILIPPINES, G.R. No. 158540, August 3, 2005)
(iv) Prohibition against taxation of religious, charitable entities, and
educational entities
KAPATIRAN NG MGA NAGLILINGKOD SA PAMAHALAAN NG PILIPINAS,
INC. v. HON.
21
BIENVENIDO TAN, G.R. No. 81311, June 30, 1988)
The word "charitable" is not restricted to relief of the poor or sick. The test
whether an enterprise is charitable or not is whether it exists to carry out a
purpose recoganized in law as charitable or whether it is maintained for
gain, profit, or private advantage. (LUNG CENTER OF THE PHILIPPINES
v.QUEZON CITY, G.R. No. 144104, June 29, 2004)
Even as we find that the petitioner is a charitable institution, we hold
that those portions of its real property that are leased to private entities are
not exempt from real property taxes as these are not actually, directly and
exclusively used for charitable purposes. On the other hand, the portions of
the land occupied by the hospital and portions of the hospital used for its
patients, whether paying or non-paying, are exempt from real property
taxes. (LUNG CENTER OF THE PHILIPPINES v.QUEZON CITY, G.R. No.
144104, June 29, 2004)
To be a charitable institution, however, an organization must meet the
substantive test of charity in Lung Center. Charity is essentially a gift to an
indefinite number of persons which
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
lessens the burden of government. In other words, charitable institutions
provide for free goods and services to the public which would otherwise fall
on the shoulders of government. (COMMISSIONER OF INTERNAL
REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No. 195909
September 26, 2012)
In Lung Center, this Court declared: "exclusive" is defined as possessed
and enjoyed to the exclusion of others; debarred from participation or
enjoyment; and "exclusively" is defined, "in a manner to exclude; as
enjoying a privilege exclusively." The words "dominant use" or "principal
use" cannot be substituted for the words "used exclusively" without doing
violence to the Constitution and the law. Solely is synonymous with
exclusively. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S
MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)
Services to paying patients are activities conducted for profit. There is a
"purpose to make profit over and above the cost" of services.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL
CENTER, INC. G.R. No. 195909 September 26, 2012)

Section 30(E) and (G) of the NIRC requires that an institution be "operated
exclusively" for charitable or social welfare purposes to be completely
exempt from income tax. An institution under Section 30(E) or (G) does not
lose its tax exemption if it earns income from its for-profit activities. Such
income from for-profit activities, under the last paragraph of Section 30, is
merely subject to income tax, previously at the ordinary corporate rate but
now at the preferential 10% rate pursuant to Section 27(B).
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL
CENTER, INC. G.R. No. 195909 September 26, 2012)
A gift tax is not a property tax, but an excise tax imposed on the transfer of
property by way of gift inter vivos, the imposition of which on property used
exclusively for religious purposes, does not constitute an impairment of the
Constitution. The phrase "exempt from taxation," as employed in the
Constitution should not be interpreted to mean exemption from all kinds of
taxes. (REV. FR. CASIMIRO LLADOC v. The COMMISSIONER OF
INTERNAL REVENUE, G.R. No. L-19201, June 16, 1965)
(v) Prohibition against taxation of non-stock, non-profit institutions
An organization may be considered as non-profit if it does not distribute any
part of its income to stockholders or members. However, despite its being a
tax exempt institution, any income such institution earns from activities
conducted for profit is taxable, as expressly provided in the last paragraph
of Section 30. (COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S
MEDICAL CENTER, INC. G.R. No. 195909 September 26, 2012)
(vi) Majority vote of Congress for grant of tax exemption
The incentives under R.A. No. 7227 are exclusive only to the Subic SEZ,
hence, the extension of the same to the John Hay SEZ finds no support
therein. The challenged grant of tax exemption would circumvent the
Constitution's imposition that a law granting any tax exemption must have
the concurrence of a majority of all the members of Congress. (JOHN HAY
PEOPLES ALTERNATIVE COALITION, et al. v. VICTOR LIM, et al., G. R.
No. 119775, October 24, 2003)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
22
(vii) Prohibition on use of tax levied for special purpose
The coco-levy funds, on the other hand, belong to the government and are
subject to its administration and disposition. Thus, these funds, including its
incomes, interests, proceeds, or profits, as well as all its assets, properties,
and shares of stocks procured with such funds must be treated, used,
administered, and managed as public funds; the coco-levy funds are
evidently special funds. (PAMBANSANG KOALISYON NG MGA
SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.
EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
(viii) Presidents veto power on appropriation, revenue, tariff bills
(ix) Non-impairment of jurisdiction of the Supreme Court
(x) Grant of power to the local government units to create its own sources
of revenue
For a long time, the country's highly centralized government structure has
bred a culture of dependence among local government leaders upon the
national leadership. The only way to shatter this culture of dependence is to
give the LGUs a wider role in the delivery of basic services, and confer
them sufficient powers to generate their own sources for the purpose.
(NATIONAL POWER CORPORATION v. CITY OF CABANATUAN G.R. No.
149110 April 9, 2003)
23
An "item" in a revenue bill does not refer to an entire section imposing a
particular kind of tax, but rather to the subject of the tax and the tax rate;
thus, in the portion of a revenue bill which actually imposes a tax, a section
identifies the tax and enumerates the persons liable therefor with the
corresponding tax rate. To construe the word "item" as referring to the
whole section would tie the President's hand in choosing either to approve
the whole section at the expense of also approving a provision therein

which he deems unacceptable or veto the entire section at the expense of


foregoing the collection of the kind of tax altogether. (COMMISSIONER OF
INTERNAL REVENUE v. HON. COURT OF TAX APPEALS, G.R. No. L47421, May 14, 1990)
Republic Act No. 7716, otherwise known as the "Expanded VAT Law,"
did not remove or abolish the payment of local franchise tax; it merely
replaced the national franchise tax that was previously paid by
telecommunications franchise holders and in its stead VAT. The imposition
of local franchise tax is not inconsistent with the advent of the VAT, which
renders functus officio the franchise tax paid to the national government for
VAT inures to the benefit of the national government, while a local franchise
tax is a revenue of the local government unit. (SMART
COMMUNICATIONS, INC. v.THE CITY OF DAVAO, G.R. No. 155491, July
21, 2009)
(xi) Flexible tariff clause
(xii) Exemption from real property taxes
For real property taxes, the incidental generation of income is permissible
because the test of exemption is the use of the property and this test
requires that the institution use the property in a certain way, i.e. for a
charitable purpose. Thus, the Court held that the Lung Center of the
Philippines did not lose its charitable character when it used a portion of its
lot for commercial purposes since the effect of failing to meet the use
requirement is simply to remove from the tax exemption that portion of the
property not devoted to charity. (COMMISSIONER OF
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)
The Constitution exempts charitable institutions only from real property
taxes while the NIRC extends the exemption to income taxes. However, the
way Congress crafted Section 30(E) of the NIRC is materially different from
Section 28(3), Article VI of the Constitution: Section 30(E) of the NIRC
defines the corporation or association that is exempt from income tax while
Section 28(3), Article VI of the Constitution does not define a charitable
institution, but requires that the institution "actually, directly and exclusively"
use the property for a charitable purpose. (COMMISSIONER OF
INTERNAL REVENUE v. ST. LUKE'S MEDICAL CENTER, INC. G.R. No.
195909 September 26, 2012)
To be exempt from real property taxes, Section 28(3), Article VI of the
Constitution requires that a charitable institution use the property "actually,
directly and exclusively" for charitable purposes. To be exempt from income
taxes, Section 30(E) of the NIRC requires that a charitable institution must
be "organized and operated exclusively" for charitable purposes.
(COMMISSIONER OF INTERNAL REVENUE v. ST. LUKE'S MEDICAL
CENTER, INC. G.R. No. 195909 September 26, 2012)
(xiii) No appropriation or use of public money for religious purposes b)
Provisions indirectly affecting taxation
(i) Due process
In Sison, Jr. v. Ancheta, et al., we held that the due process clause may
properly be invoked to invalidate, in appropriate cases, a revenue measure
when it amounts to a confiscation of property. But in the same case, we
also explained that we will not strike down a revenue measure as
unconstitutional (for being violative of the due process clause) on the mere
allegation of arbitrariness by the taxpayer. (Chamber of Real Estate and
Builders Association, Inc. v. Romulo, 614 SCRA 605 (2010))
The support for the poor is generally recognized as a public duty and has
long been an accepted exercise of police power in the promotion of the
common good but, in the instant case, the declarations do not distinguish
between wealthy coconut farmers and the impoverished ones.
Consequently, such declarations are void since they appropriate public
funds for private purpose and, therefore, violate the citizens right to
substantive due process. (PAMBANSANG KOALISYON NG MGA

SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.


EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
(ii) Equal protection
The real estate industry is, by itself, a class and can be validly treated
differently from other business enterprises. What distinguishes the real
estate business from other manufacturing enterprises, for purposes of the
imposition of the CWT, is not their production processes but the prices of
their goods sold and the number of transactions involved. (Chamber of
Real Estate and Builders Association, Inc. v. Romulo, 614 SCRA 605
(2010))
PAGCOR cannot find support in the equal protection clause of the
Constitution, as the legislative records of the Bicameral Conference
Meeting dated October 27, 1997, of the Committee on
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
24
Ways and Means, show that PAGCORs exemption from payment of
corporate income tax, as provided in Section 27 (c) of R.A. No. 8424, or the
National Internal Revenue Code of 1997, was not made pursuant to a valid
classification based on substantial distinctions. The legislative records
show that the basis of the grant of exemption to PAGCOR from corporate
income tax was PAGCORs own request to be exempted. (PHILIPPINE
AMUSEMENT AND GAMING CORPORATION (PAGCOR) v. THE
BUREAU OF INTERNAL REVENUE G.R. No. 172087 March 15, 2011)
(iii) Religious freedom
The constitutional guaranty of the free exercise and enjoyment of religious
profession and worship carries with it the right to disseminate religious
information. Any restraints of such right can only be justified like other
restraints of freedom of expression on the grounds that there is a clear and
present danger of any substantive evil which the State has the right to
prevent. (AMERICAN BIBLE SOCIETY v. CITY OF MANILA, G.R. No. L9637, April 30, 1957)
It may be true that in the case at bar the price asked for the bibles and
other religious pamphlets was in some instances a little bit higher than the
actual cost of the same but this cannot mean that appellant was engaged in
the business or occupation of selling said "merchandise" for profit. For this
reason We believe that the City of Manila Ordinance No. 2529 requiring the
payment of license fee cannot be applied to appellant, for in doing so it
would impair its free exercise and enjoyment of its religious profession and
worship as well as its rights of dissemination of religious beliefs.
(AMERICAN BIBLE SOCIETY v. CITY OF MANILA, G.R. No. L-9637, April
30, 1957)
With respect to Ordinance No. 3000 which requires the obtention of the
Mayor's permit before any person can engage in any of the businesses,
trades or occupations enumerated therein, We do not find that it imposes
any charge upon the enjoyment of a right granted by the Constitution, nor
tax the exercise of religious practices. But as the City of Manila is
powerless to license or tax the business of plaintiff Society, We find that
Ordinance No. 3000 is also inapplicable to said business, trade or
occupation of the plaintiff. (AMERICAN BIBLE SOCIETY v. CITY OF
MANILA, G.R. No. L-9637, April 30, 1957)
25
The Philippine Bible Society, Inc. claims that although it sells bibles, the
proceeds derived from the sales are used to subsidize the cost of printing
copies which are given free to those who cannot afford to pay so that to tax
the sales would be to increase the price, while reducing the volume of sale.
Granting that to be the case, the resulting burden on the exercise of
religious freedom is so incidental as to make it difficult to differentiate it
from any other economic imposition that might make the right to
disseminate religious doctrines costly. (ARTURO M. TOLENTINO v. THE
SECRETARY OF FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)

On the other hand the registration fee of P1,000.00 imposed by Sec. 107
of the NIRC, as amended by Sec. 7 of R.A. No. 7716, although fixed in
amount, is really just to pay for the expenses of registration and
enforcement of provisions such as those relating to accounting in Sec. 108
of the NIRC. That the PBS distributes free bibles and therefore is not liable
to pay the VAT does not excuse it from the payment of this fee because it
also sells some copies.
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
The withdrawal of the exemption did not also violate freedom of religion as
regards the activities of PBS on religious articles, as the Free Exercise of
Religious clause does not prohibit imposing a generally applicable sale and
use tax on the sale of religious materials by a religious organization as held
by the US Supreme Court in Jimmy Swaggart Ministries v. Board of
Equalization (1990).
The VAT registration fee does not constitute censorship of such freedom as
held in the American Bible Society case. The fee is a mere administrative
fee and not imposed on the exercise of a privilege, much less a
constitutional right. But for the purpose of defraying cost of registration
which is a requirement and a central feature in the VAT system so as to
provide record of tax credits of the taxpayer.
(iv) Non-impairment of obligations of contracts
Contractual tax exemptions, in the real sense of the term and where the
non-impairment clause of the Constitution can rightly be invoked, are those
agreed to by the taxing authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by them under
enabling laws in which the government, acting in its private capacity, sheds
its cloak of authority and waives its governmental immunity. Truly, tax
exemptions of this kind may not be revoked without impairing the
obligations of contracts. but these contractual tax exemptions are not to be
confused with tax exemptions granted under franchisesthe latter
partakes the nature of a grant which is beyond the purview of the nonimpairment clause of the Constitution. (PHILIPPINE AMUSEMENT AND
GAMING CORPORATION (PAGCOR) v. THE BUREAU OF INTERNAL
REVENUE G.R. No. 172087 March 15, 2011)
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE
and THE COMMISSIONER OF INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
J. Stages of taxation 1. Levy
Levy is an exercise of the power to tax, which is exclusively legislative in
nature and character. Clearly, taxes are not levied by the executive branch
of government. (NPC v. Albay, 186 SCRA 198 (1990))
2. Assessment and collection 3. Payment
4. Refund
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
26
Even though such taxation may affect particular contracts, as it may
increase the debt of one person and lessen the security of another, or may
impose additional burdens upon one class and release the burdens of
another, still the tax must be paid unless prohibited by the Constitution, nor
can it be said that it impairs the obligation of any existing contract in its true
legal sense." Indeed not only existing laws but also "the reservation of the
essential attributes of sovereignty, is read into contracts as a postulate of
the legal order." (ARTURO M. TOLENTINO v. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)
K. Definition, nature, and characteristics of taxes
Taxes are enforced proportional contributions from persons and property,
levied by the State by virtue of its sovereignty for the support of the

government and for all its public needs. (PAMBANSANG KOALISYON NG


MGA SAMAHANG MAGSASAKA AT MANGGAGAWA SA NIYUGAN v.
EXECUTIVE SECRETARY G.R. Nos. 147036-37 April 10, 2012)
L. Requisites of a valid tax
M. Tax as distinguished from other forms of exactions 1. Tariff
2. Toll
A tax is imposed under the taxing power of the government principally for
the purpose of raising revenues to fund public expenditures; toll fees, on
the other hand, are collected by private tollway operators as reimbursement
for the costs and expenses incurred in the construction, maintenance and
operation of the tollways. Taxes may be imposed only by the government
under its sovereign authority, toll fees may be demanded by either the
government or private individuals or entities, as an attribute of ownership.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF
FINANCE, G.R. No. 193007, July 19, 2011)
Fees paid by the public to tollway operators for use of the tollways, are not
taxes in any sense. Parenthetically, VAT on tollway operations cannot be
deemed a tax on tax due to the nature of VAT as an indirect tax. (RENATO
V. DIAZ and AURORA MA. F. TIMBOL v. THE SECRETARY OF FINANCE,
G.R. No. 193007, July 19, 2011)
3. License fee
To be considered a license fee, the imposition must relate to an occupation
or activity that so engages the public interest in health, morals, safety and
development as to require regulation for the protection and promotion of
such public interest; the imposition must also bear a reasonable relation to
the probable expenses of regulation, taking into account not only the costs
of direct regulation but also its incidental consequences as well.
Accordingly, a charge of a fixed sum which bears no relation at all to the
cost of inspection and regulation may be held to be a tax rather than an
exercise of police power. (PROGRESSIVE DEVELOPMENT CORP. v.
QUEZON CITY, G.R. No. L-36081, April 24, 1989)
If the purpose is primarily revenue, or if revenue is at least, one of the real
and substantial purposes, then the exaction is properly called a tax. (LAND
TRANSPORTATION OFFICE v. CITY OF BUTUAN, G.R. No. 131512,
January 20, 2000)
4. Special assessment 5. Debt
Taxes cannot be the subject of compensation because the government and
taxpayer are not mutually creditors and debtors of each other and a claim
for taxes is not such a debt, demand, contract or judgment as is allowed to
be set-off.
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(CALTEX PHILIPPINES, INC. v. THE
27
HONORABLE COMMISSION ON AUDIT, G.R. No. 92585, May 8, 1992)

N. Kinds of taxes
1. As to object
a) Personal, capitation, or poll tax b) Property tax
c) Privilege tax
28
A contractor's tax is generally in the nature of an excise tax on the
exercise of a privilege of selling services or labor rather than a sale on
products; and is directly collectible from the person exercising the privilege.
Being an excise tax, it can be levied by the taxing authority only when the
acts, privileges or business are done or performed within the jurisdiction of
said authority. (COMMISSIONER OF INTERNAL REVENUE v. MARUBENI
CORPORATION, G.R. No.
137377, December 18, 2001)
A franchise tax is a tax on the privilege of transacting business in the
state and exercising corporate franchises granted by the state. It is not
levied on the corporation simply for existing as a corporation, upon its
property or its income, but on its exercise of the rights or privileges
granted to it by the government.

(CITY OF IRIGA v. CAMARINES SUR III ELECTRIC COOPERATIVE, INC.,


G.R. No. 192945, September 5, 2012)
2. As to burden or incidence a) Direct
b) Indirect
In context, direct taxes are those that are exacted from the very person
who, it is intended or desired, should pay them; they are impositions for
which a taxpayer is directly liable on the transaction or business he is
engaged in. On the other hand, indirect taxes are those that are demanded,
in the first instance, from, or are paid by, one person in the expectation and
intention that he can shift the burden to someone else. (COMMISSIONER
OF INTERNAL REVENUE VS PHILIPPINE LONG DISTANCE
TELEPHONE COMPANY, G.R. No. 140230, December 15, 2005)
Indirect taxes, like VAT and excise tax, are different from withholding taxes:
To distinguish, in indirect taxes, the incidence of taxation falls on one
person but the burden thereof can be shifted or passed on to another
person, such as when the tax is imposed upon goods before reaching the
consumer who ultimately pays for it. On the other hand, in case of
withholding taxes, the incidence and burden of taxation fall on the same
entity, the statutory taxpayer. The burden of taxation is not shifted to the
withholding agent who merely collects, by withholding, the tax due from
income payments to entities arising from certain transactions and remits
the same to the government. (ASIA INTERNATIONAL AUCTIONEERS,
INC. v. COMMISSIONER OF INTERNAL REVENUE G.R. No. 179115
September 26, 2012)
The Constitution does not really prohibit the imposition of indirect taxes
which, like the VAT, are regressive since what it simply provides is that
Congress shall "evolve a progressive system of taxation." The
constitutional provision has been interpreted to mean simply that "direct
taxes are to be preferred [and] as much as possible, indirect taxes should
be minimized." (ARTURO M. TOLENTINO v. THE SECRETARY OF
FINANCE and THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 115455, October 30, 1995)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
The seller remains directly and legally liable for payment of the VAT, but the
buyer bears its burden since the amount of VAT paid by the former is added
to the selling price. Once shifted, the VAT ceases to be a tax and simply
becomes part of the cost that the buyer must pay in order to purchase the
good, property or service. (RENATO V. DIAZ and AURORA MA. F. TIMBOL
v. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
3. As to tax rates a) Specific
b) Ad valorem
c) Mixed
4. As to purposes
a) General or fiscal
b) Special, regulatory, or sumptuary
5. As to scope or authority to impose
a) National internal revenue taxes
b) Local real property tax, municipal tax 6. As to graduation
a) Progressive
b) Regressive
c) Proportionate
29
A. Income taxation
1. Income tax systems
INCOME TAXATION
a) Global tax system
Global treatment is a system where the tax treatment views indifferently the
tax base and generally treats in common all categories of taxable income of
the taxpayer. (TAN v. DEL ROSARIO, JR. 237 SCRA 324)
b) Schedular tax system

Schedular approach is a system employed where the income tax treatment


varies and made to depend on the kind or category of taxable income of
the taxpayer. (TAN v. DEL ROSARIO, JR. 237 SCRA 324)
c) Semi-schedular or semi-global tax system
2. Features of the Philippine income tax law a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system
3. Criteria in imposing Philippine income tax a) Citizenship principle
b) Residence principle
c) Source principle
A non-resident German citizen, president of a domestic corporation, filed a
claim for refund with the BIR, contending that her sales commission income
is not taxable in the Philippines because the same was a compensation for
her services rendered in Germany and therefore considered as income
from sources outside
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
the Philippines. While it is the rule that source of income relates to the
property, activity or service that produced the income, the documents
presented by respondent did not constitute substantial evidence that it was
in Germany where she performed the income-producing service and thus
the tax refund should be denied. (Commissioner of Internal Revenue vs.
Juliane Baier-Nickel, G.R. No. 153793, August 29, 2006)
4. Types of Philippine income tax 5. Taxable period
a) Calendar period b) Fiscal period
c) Short period
6. Kinds of taxpayers
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
(b) Non-resident citizens (ii) Aliens
(a) Resident aliens
(b) Non-resident aliens
(1) Engaged in trade or business
(2) Not engaged in trade or business (iii) Special class of individual
employees
(a) Minimum wage earner (b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
Marubeni Japan claimed a refund for excess taxes it had paid, contending
that since it had a Philippine branch, it is a resident foreign corporation
liable to pay only
Marubeni Corp. vs. Commissioner of Internal Revenue, et al., G.R. No.
76573,
September 14, 1989)
30
on dividends received from a domestic corporation (and not to the
10% intercorporate final tax
branch profit remittance tax) following the principal-agent theory.
Marubeni Japan is considered a non-resident foreign corporation
as to the dividends because when the foreign corporation
transacts business in the Philippines independently of its branch,
the principal-agent relationship is set aside. (
BOAC is a resident foreign corporation because it maintained a general
sales agent in the Philippines. There is no specific criterion as to what
constitutes doing or engaging in or "transacting business. The term
implies a continuity of commercial dealings and arrangements, and
contemplates, to that extent, the performance of acts or works or the
exercise of some of the functions normally incident to, and in progressive
prosecution of
Bar Ops Pilipinas 2015 Philippine Association of Law Schools

(a) Resident foreign corporations


(b) Non-resident foreign corporations (iii) Joint venture and consortium
c) Partnerships
Pursuant to reinsurance treaties, a number of local insurance firms
formed themselves into a pool in order to facilitate the handling of
business contracted with a nonresident foreign reinsurance company. The
insurance pool is deemed a partnership or association taxable as a
corporation under the NIRC because Section 24 (on tax on corporations)
[now Sec. 27 of the 1997 NIRC] covered these unregistered partnerships
and even associations or joint accounts, which had no legal personalities
apart from their individual members; moreover, the insurance pool, though
unregistered, satisfies the requisites of a partnership: (1) mutual
contribution to a common stock, and (2) joint interest in the profits. (Afisco
Insurance Corp., et al. vs. Court of Appeals, et al., G.R. No. 112675,
January 25, 1999)
31
commercial gain or for the purpose and object of the business
organization. In order that a foreign corporation may be regarded as doing
business within a State, there must be continuity of conduct and intention to
establish a continuous business, such as the appointment of a local agent,
and not one of a temporary
character. (CIR vs BOAC, G.R. No. L-65773-74 April 30, 1987)
The original purpose of the co-owners of the two lots was to divide the
lots for residential purposes. If later on they found it not feasible to build
their residences on the lots because of the high cost of construction, then
they had no choice but to resell the same to dissolve the co-ownership. The
division of the profit was merely incidental to the dissolution of the coownership which was in the nature of things a temporary state. The sharing
of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any
property (Obillos Jr. vs CIR, G.R. No. L68118, October 29, 1985)
d) General professional partnerships e) Estates and trusts
f) Co-ownerships
7. Income taxation a) Definition
b) Nature
c) General principles 8. Income
a) Definition
b) Nature
c) When income is taxable
(i) Existence of income (ii) Realization of income
(a) Tests of realization
(b) Actual vis-a-vis constructive receipt (iii) Recognition of income
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(iv) Methods of accounting
(a) Cash method vis-a-vis accrual method
The accrual method relies upon the taxpayers right to receive amounts or
its obligation to pay them, in opposition to actual receipt or payment, which
characterizes the cash method of accounting. Amounts of income accrue
where the right to receive them become fixed, where there is created an
enforceable liability. Similarly, liabilities are accrued when fixed and
determinable in amount, without regard to indeterminacy merely of time of
payment. For a taxpayer using the accrual method, the determinative
question is, when do the facts present themselves in such a manner that
the taxpayer must recognize income or expense? The accrual of income
and expense is permitted when the all-events test has been met. This test
requires: (1) fixing of a right to income or liability to pay; and (2) the
availability of the reasonable accurate determination of such income or
liability. (CIR vs Isabela Cultural Corp., GR 172231, February 12, 2007)
(b) Installment payment vis-a-vis deferred payment vis-avis percentage completion (in long-term contracts) d) Tests in determining
whether income is earned for tax purposes

(i) Realization test


(ii) Claim of right doctrine or doctrine of ownership, command, or control
(iii) Economic benefit test, doctrine of proprietary interest
(iv) Severance test
(v) All events test
9. Gross income
a) Definition
b) Concept of income from whatever source derived
c) Gross income vis-a-vis net income vis-a-vis taxable income d)
Classification of income as to source
(i) Gross income and taxable income from sources within the Philippines
(ii) Gross income and taxable income from sources without the Philippines
(iii) Income partly within or partly without the Philippines e) Sources of
income subject to tax
(i) Compensation income (ii) Fringe benefits
(a) Special treatment of fringe benefits
(b) Definition
(c) Taxable and non-taxable fringe benefits
(iii) Professional income
(iv) Income from business
(v) Income from dealings in property
(a) Types of properties (1) Ordinary assets
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
32
(2) Capital assets
The proceeds from the inherited land of petitioners, which they subdivided
into small lots and in the process converted into a residential subdivision
and given the name Don Mariano Subdivision, is taxable as ordinary
income. Property initially classified as a capital asset may thereafter be
treated as an ordinary asset if a combination of the factors indubitably tend
to show that the activity was in furtherance of or in the course of the
taxpayer's trade or business; thus, a sale of inherited real property usually
gives capital gain or loss even though the property has to be subdivided or
improved or both to make it salable--however, if the inherited property is
substantially improved or very actively sold or both it may be treated as
held primarily for sale to customers in the ordinary course of the heir's
business. (Tomas Calasanz, et al. vs. Commissioner of Internal Revenue,
et al., G.R. No. L- 26284, October 9, 1986)
(b) Types of gains from dealings in property
(1) Ordinary income vis-a-vis capital gain
(2) Actual gain vis-a-vis presumed gain
(3) Long term capital gain vis-a-vis short-term capital gain
(4) Net capital gain, net capital loss
(5) Computation of the amount of gain or loss
(6) Income tax treatment of capital loss
(a) Capital loss limitation rule (applicable to both corporations and
individuals)
(b) Net loss carry-over rule (applicable only to individuals)
(7) Dealings in real property situated in the Philippines
(8) Dealings in shares of stock of Philippine corporations
(a) Shares listed and traded in the stock exchange
(b) Shares not listed and traded in the stock exchange
(9) Sale of principal residence (vi) Passive investment income
(a) Interest income (b) Dividend income
(1) Cash dividend (2) Stock dividend
Stock dividends, strictly speaking, represent capital and do not constitute
income to its recipient. So that the mere issuance thereof is not yet subject
to
33
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
34

income tax as they are nothing but an enrichment through increase in


value of capital investment.However, the redemption or cancellation of
stock dividends, depending on the time and manner it was made, is
essentially equivalent to a distribution of taxable dividends, making the
proceeds thereof taxable income to the extent it represents profits. The
exception was designed to prevent the issuance and cancellation or
redemption of stock dividends, which is fundamentally not taxable, from
being made use of as a device for the actual distribution of cash dividends,
which is taxable. (CIR
vs CA, G.R. No. 108576 January 20, 1999)
(3) Property dividend
(4) Liquidating dividend (c) Royalty income
(d) Rental income
(1) Lease of personal property (2) Lease of real property
(3) Tax treatment of
(a) Leasehold improvements by lessee
(b) VAT added to rental/paid by the lessee (c) Advance rental/long term
lease
(vii) Annuities, proceeds from life insurance or other types of insurance (viii)
Prizes and awards
(ix) Pensions, retirement benefit, or separation pay
(x) Income from any source whatever
(a) Forgiveness of indebtedness
(b) Recovery of accounts previously written-off when taxable/when not
taxable
(c) Receipt of tax refunds or credit
(d) Income from any source whatever
(e) Source rules in determining income from within and without
(1) Interests
(2) Dividends
(3) Services
(4) Rentals
(5) Royalties
(6) Sale of real property
(7) Sale of personal property
(8) Shares of stock of domestic corporation
(f) Situs of income taxation (see page 2 under inherent limitations,
territorial)
(g) Exclusions from gross income
(1) Rationale for the exclusions
(2) Taxpayers who may avail of the exclusions
(3) Exclusions distinguished from deductions and tax credit
(4) Under the Constitution
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(a) Income derived by the government or its political subdivisions from the
exercise of any essential governmental function
(5) Under the Tax Code
(a) Proceeds of life insurance policies
(b) Return of premium paid
(c) Amounts received under life insurance, endowment or annuity contracts
(d) Value of property acquired by gift, bequest, devise or descent
(e) Amount received through accident or health insurance
(f) Income exempt under tax treaty
(g) Retirement benefits, pensions, gratuities, etc.
(1) a reasonable private benefit plan is maintained by the employer; (2) the
retiring official or employee has been in the service of the same employer
for at least ten (10) years; (3) the retiring official or employee is not less
than fifty (50) years of age at the time of his retirement; and (4) the benefit
had been availed of only once. (Ma. Isabel T. Santos vs. Servier
Phil., Inc., et al., G.R. No. 166377, November 28, 2008)
35
Respondent terminated petitioners services due to her illness,

rendering her incapable of continuing to work, and gave her


retirement benefits but withheld the tax due thereon. The
retirements benefits are taxable because the petitioner was only
41 yrs old at the time of retirement
and had rendered only 8 years
of service; for these benefits to be exempt from tax, the
following
requisites must concur:
Respondents contend that petitioner did not withhold the taxes
due on their retirement benefits because it had obliged itself to
pay the taxes due thereon. This was done to induce respondents
to agree to avail of the optional retirement scheme.
when respondents demanded the payment of their salary
It was only
differentials that petitioner alleged, for the first time, that it had
failed to present the 1993 CBA to the BIR for approval, rendering
such retirement benefits not exempt from taxes; consequently,
they were obliged to refund to it the amounts it had remitted to
the BIR in payment of their taxes. Petitioner used this failure as
an afterthought, as an excuse for its refusal to remit to the
respondents their salary differentials. Patently, petitioner is
estopped from doing so. It cannot renege on its commitment to
pay the taxes on respondents retirement benefits on the pretext
that the new management had found the policy
disadvantageous.
(Intercontinental Broadcasting Corp. vs. Noemi B. Amarilla, et al., G.R. No.
162775, October 27, 2006)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
Severance of employment is a condition sine qua non for the release of
retirement benefits. Retirement benefits are not meant to recompense
employees who are still in the employ of the government. (Devt. Bank of
the Phil. vs. Commission on Audit, G.R. No. 144516, February 11, 2004)
(h) Winnings, prizes, and awards, including those in
sports competition (6) Under special laws
(a) Personal Equity and Retirement Account (h) Deductions from gross
income
(1) General rules
(a) Deductions must be paid or incurred in connection with the taxpayers
trade, business or profession
(b) Deductions must be supported by adequate receipts or invoices (except
standard deduction)
(c) Additional requirement relating to withholding
(2) Return of capital (cost of sales or services)
(a) Sale of inventory of goods by manufacturers and dealers of properties
(b) Sale of stock in trade by a real estate dealer and dealer in securities
(c) Sale of services
(3) Itemized deductions (a) Expenses
(1) Requisites for deductibility
(a) Nature: ordinary and necessary
The expenses paid by Atlas for the services rendered by a public relations
firm, aimed at creating a favorable image for Atlas, is not an allowable
deduction as business expense under the NIRC. Efforts to establish
reputation are akin to acquisition of capital assets and, therefore, expenses
related thereto are not business expense but capital expenditures. (Atlas
Consolidated Mining & Devt. Corp. vs. Commissioner of Internal Revenue,
G.R. No. L-26911, January 27, 1981)
A stock listing fee paid annually to a stock exchange for the privilege of
having a corporations stock listed is an ordinary and business expense.
This is distinguished from a single payment made to the stock
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
36

exchange, which is considered a capital expenditure. (Atlas Consolidated


Mining & Devt. Corp. vs. Commissioner of Internal Revenue, G.R. No. L26911, January 27, 1981)
The subject media advertising expense for Tang incurred by respondent
corporation was not an ordinary and necessary expense, but rather a
capital expenditure because it failed the two conditions set by U.S.
jurisprudence in determining whether or not it is an ordinary expense:
first, reasonableness of the amount incurred and second, the amount
incurred must not be a capital outlay to create goodwill for the product
and/or private respondents business. The subject expense for the
advertisement of a single product is inordinately large; furthermore, the
corporations venture to protect its brand franchise was tantamount to
efforts to establish a reputation and was akin to the acquisition of capital
assets. (Commissioner of Internal Revenue vs. General Foods, Inc., G.R.
No. 143672, April 24, 2003)
(b) Paid and incurred during taxable year
(2) Salaries, wages and other forms of compensation for personal services
actually rendered, including the grossed-up monetary value of the fringe
benefit subjected to fringe benefit tax which tax should have been paid
Payment by the taxpayer-corporation to its controlling stockholder
(Hoskins) of 50% of its supervision fees (paid by a client of the corporation
for the latter's services as managing agent of a subdivision project) or the
amount of P99,977.91 is not a deductible ordinary and necessary expense
because it does not pass the test of reasonable compensation. If
independently, a one-time P100,000.00-fee to plan and lay down the rules
for supervision of a subdivision project were to be paid to an experienced
realtor such as Hoskins, its fairness and deductibility by the taxpayer could
be
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
37
conceded; however, the fee paid to Hoskins continued every year since
1955 up to 1963 and for as long as its contract with the subdivision owner
subsisted, regardless of whether services were actually rendered by
Hoskins. (C. M. Hoskins & Co., Inc. vs. Commissioner of Internal Revenue,
G.R. No. L-24059, November 28, 1969)
(3) Travelling/transportation expenses
(4) Cost of materials
(5) Rentals and/or other payments for use or possession of property
(6) Repairs and maintenance
(7) Expenses under lease agreements
(8) Expenses for professionals
(9) Entertainment/Representation expenses (10) Political campaign
expenses
(11) Training expenses
(b) Interest
(1) Requisites for deductibility
(2) Non-deductible interest expense (3) Interest subject to special rules
(c) Taxes
(a) Interest paid in advance
(b) Interest periodically amortized
(c) Interest expense incurred to acquire property for use in
trade/business/profession
(d) Reduction of interest expense/interest arbitrage
Margin fees paid by the petitioner to the Central Bank on its profit
remittances to its New York head office are not allowable deductions as
taxes because it is not a tax but an exaction designed to curb the excessive
demands upon our international reserve. Margin fees are also not ordinary
and necessary business expenses because they are not expenses in
connection with the production or earning of petitioner's incomes in the
Philippines; they were expenses incurred in the disposition of said incomes.
(Esso Standard Eastern, Inc. vs. Commissioner of Internal Revenue, G.R.
Nos. 28508-9, July 7, 1989)

(1) Requisites for deductibility


(2) Non-deductible taxes
(3) Treatments of surcharges/interests/fines for delinquency
(4) Treatment of special assessment
(5) Tax credit vis-a-vis deduction
(d) Losses
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
38
(1) Requisites for deductibility (2) Other types of losses
(a) Capital losses
(b) Securities becoming worthless Securities becoming worthless
resulting from China Banks equity investment in the First CBC Capital
(Asia) Ltd., a Hongkong subsidiary, is capital loss and not an ordinary loss.
An equity investment is a capital, not ordinary, asset of the investor the sale
or exchange of which results in either a capital gain or a capital loss;
shares of stock would be ordinary assets only to a dealer in securities or a
person engaged in the purchase and sale of, or an active trader (for his
own account) in, securities. (China Banking Corp. vs. Court of Appeals, et
al., G.R. No. 125508, July 19, 2000)
(c) Losses on wash sales of stocks or securities
(d) Wagering losses
(e) Net Operating Loss Carry-Over (NOLCO)
(e) Bad debts
In claiming deductions for bad debts, the only evidentiary support given by
PRC was the explanation posited by its accountant, whose allegations
were not supported by any documentary evidence. One of the requisites to
qualify as bad debt is that the debt must be actually ascertained to be
worthless and uncollectible during the taxable year, and the taxpayer must
prove that he exerted diligent efforts to collect the debts by (1) sending of
statement of accounts; (2) sending of collection letters; (3) giving the
account to a lawyer for collection; and (4) filing a collection case in court.
(Philippine Refining Company vs. Court of Appeals, et al., G.R. No. 118794,
May 8, 1996)
(1) Requisites for deductibility
(2) Effect of recovery of bad debts
(f) Depreciation
Depreciation is the gradual diminution in the useful value of tangible
property resulting from wear and tear and normal obsolescense. 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. Depreciation
commences with the acquisition of the property and its owner is not bound
to see his property
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
39
gradually waste, without making provision out of earnings for its
replacement. (Basilan Estates, Inc. vs. Commissioner of Internal Revenue,
et al., G.R. No. L- 22492, September 5, 1967)
Consolidated Mines, Inc. vs. Court of Tax Appeals, et al., G.R. Nos. L18843 & 18844, August 29, 1974)
(1) Requisites for deductibility
(2) Methods of computing depreciation allowance
(a) Straight-line method
(b) Declining-balance method
(c) Sum-of-the-years-digit method
(g) Charitable and other contributions (1) Requisites for deductibility (2)
Amount that may be deducted
(h) Contributions to pension trusts (1) Requisites for deductibility
(i) Deductions under special laws (4) Optional standard deduction
(a) Individuals, except non-resident aliens
(b) Corporations, except non-resident corporations
(c) Partnerships

foreign
(5) Personal and additional exemption (R.A. No. 9504, Minimum Wage
Earner Law)
The increased personal and additional exemptions under the NIRC cannot
be availed of by the petitioner for purposes of computing his income tax
liability for the taxable year 1997. Since the NIRC took effect on January 1,
1998, the increased amounts of personal and additional exemptions under
Section 35, can only be allowed as deductions from the individual
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
40
Both depletion and depreciation are predicated on the same basic
promise of avoiding a tax on capital. The allowance for depletion is based
on the theory that the extraction of minerals gradually exhausts the capital
investment in the mineral deposit. The purpose of the depiction deduction
is to permit the owner of a capital interest in mineral in place to make a taxfree recovery of that depleting capital asset. A depletion is based upon the
concept of the exhaustion of a natural resource whereas depreciation is
based upon the concept of the exhaustion of the property, not otherwise a
natural resource, used in a trade or business or held for the production of
income. Thus, depletion and depreciation are made applicable to different
types of assets. And a taxpayer may not deduct
that which the Code allows as of another. (

taxpayers gross or net income, as the case maybe, for the taxable year
1998 to be filed in 1999; the NIRC made no reference that the personal and
additional exemptions shall apply on income earned before January 1,
1998, and it is a rule that tax laws are to be applied prospectively unless its
retroactive application is expressly provided. (Carmelino F. Pansacola vs.
CIR, G.R. No. 159991, November 16, 2006)
(a) Basic personal exemptions
(b) Additional exemptions for taxpayer with dependents (c) Status-at-theend-of-the-year rule
(d) Exemptions claimed by non-resident aliens
(6) Items not deductible (a) General rules
(b) Personal, living or family expenses
(c) Amount paid for new buildings or for permanent improvements (capital
expenditures)
(d) Amount expended in restoring property (major
repairs)
(e) Premiums paid on life insurance policy covering life or any other officer
or employee financially interested
(f) Interest expense, bad debts, and losses from sales of property between
related parties
(g) Losses from sales or exchange or property
(h) Non-deductible interest
(i) Nondeductible taxes
(j) Non-deductible losses
(k) Losses from wash sales of stock or securities
(7) Exempt corporations
(a) Propriety educational institutions and hospitals (b) Government-owned
or controlled corporations (c) Others
10. Taxation of resident citizens, non-resident citizens, and resident aliens
a) General rule that resident citizens are taxable on income from all
sources within and without the Philippines
(i) Non-resident citizens
b) Taxation on compensation income
(i) Inclusions
(a) Monetary compensation
(1) Regular salary/wage
(2) Separation pay/retirement benefit not otherwise exempt
(3) Bonuses, 13th month pay, and other benefits not exempt
(4) Directors fees
(b) Non-monetary compensation

(1) Fringe benefit not subject to tax


(ii) Exclusions
(a) Fringe benefit subject to tax
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
41
(b) De minimis benefits
(c) 13th month pay and other benefits, and payments specifically
excluded from taxable compensation income
(iii) Deductions
(a) Personal exemptions and additional exemptions
(b) Health and hospitalization insurance
(c) Taxation of compensation income of a minimum wage earner
(1) Definition of statutory minimum wage
(2) Definition of minimum wage earner
(3) Income also subject to tax exemption: holiday pay, overtime pay, nightshift differential, and hazard pay
c) Taxation of business income/income from practice of profession d)
Taxation of passive income
(i) Passive income subject to final tax (a) Interest income
(i) Treatment of income from long-term deposits (b) Royalties
(c) Dividends from domestic corporations
(d) Prizes and other winnings
(ii) Passive income not subject to final tax
e) Taxation of capital gains
(i) Income from sale of shares of stock of a Philippine corporation
(a) Shares traded and listed in the stock exchange
(b) Shares not listed and traded in the stock exchange
(ii) Income from the sale of real property situated in the Philippines
(iii) Income from the sale, exchange, or other disposition of other capital
assets
11. Taxation of non-resident aliens engaged in trade or business a) General
rules
b) Cash and/or property dividends
c) Capital gains
Exclude: non-resident aliens not engaged in trade or business 12.
Individual taxpayers exempt from income tax
42
The acquisition by the Government of private properties through the
exercise of the power of eminent domain, said properties being justly
compensated, is embraced within the meaning of the term sale or
disposition of property and the definition of gross income. Profit from the
transaction constitutes capital gain. (Gonzales vs CTA, GR
L-14532, May 26, 1965)
a) Senior citizens
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
b) Minimum wage earners
c) Exemptions granted under international agreements 13. Taxation of
domestic corporations
a) Tax payable
(i) Regular tax
(ii) Minimum Corporate Income Tax (MCIT)
For its fiscal year ending 31 March 2001 (FY 2000-2001), PAL incurred
zero taxable income and did not pay MCIT, for which BIR assessed PAL for
deficiency MCIT. PAL is not liable to pay MCIT because under its franchise,
PAL has the option to pay basic corporate income tax or franchise tax,
whichever is lower; and the tax so paid shall be in lieu of all other taxes,
except real property tax. MCIT falls within the category of all other taxes
from which PAL is exempted because although both are income taxes, the
MCIT is different from the basic corporate income tax, not just in the rates,
but also in the bases for their computation. (Commissioner of Internal
Revenue vs. PAL, Inc., G.R. No. 180066, July 7, 2009)

(a) Imposition of MCIT


MBC being a new thrift bank is not yet liable to the MCIT since it will apply
only beginning on the 4th years from commencement of its operations. The
date of commencement of operations of a thrift bank is the date it was
registered with the SEC or the date it was granted authority by BSP to
operate as such, whichever comes later. As newly operated thrift bank it is
entitled to a grace period of 4 years counted from the date when it was
authorized by BSP to operate as thrift bank. MBC is entitled to the refund of
the taxes paid under the MCIT.
The intent of Congress relative to the MCIT is to grant a 4 year suspension
of tax payment to newly formed corporations. Corporations still starting
have to stabilize their venture in order to obtain stronghold in the industry. It
is not a surprise when many corporations reported losses in their initial
years of operations. (Manila Banking Corp. v. CIR, 499 SCRA 782)
(b) Carry forward of excess minimum tax
(c) Relief from the MCIT under certain conditions
(d) Corporations exempt from the MCIT
(e) Applicability of the MCIT where a corporation is governed both under
the regular tax system and a special income tax system
b) Allowable deductions
(i) Itemized deductions
(ii) Optional standard deduction c) Taxation of passive income
(i) Passive income subject to tax
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
43
(a) Interest from deposits and yield, or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements and
royalties
(b) Capital gains from the sale of shares of stock not traded in the stock
exchange
(c) Income derived under the expanded foreign currency deposit system
(d) Inter-corporate dividends
(e) Capital gains realized from the sale, exchange, or disposition of lands
and/or buildings
(ii) Passive income not subject to tax d) Taxation of capital gains
(i) Income from sale of shares of stock
(ii) Income from the sale of real property situated in the Philippines
(iii) Income from the sale, exchange, or other disposition of other capital
assets
e) Tax on proprietary educational institutions and hospitals
CIR vs. St. Luke's Medical Center, Inc., G.R. Nos. 195909 & 195960,
September 26, 2012)
f) Tax on government-owned or controlled corporations, agencies or
instrumentalities
14. Taxation of resident foreign corporations
a) General rule
b) With respect to their income from sources within the Philippines c)
Minimum Corporate Income Tax
d) Tax on certain income
(i) Interest from deposits and yield, or any other monetary benefit from
deposit substitutes, trust funds and similar arrangements and royalties
(ii) Income derived under the expanded foreign currency deposit system
(iii) Capital gains from sale of shares of stock not traded in the stock
exchange
(iv) Inter-corporate dividends
Exclude:
(i) International carrier
(ii) Offshore banking units
(iii) Branch profits remittances
(iv) Regional or area headquarters and regional operating headquarters of
multinational companies
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44
St. Lukes is a proprietary non-stock and non-profit
paying patients but also derives profit from paying patients. It is subject to
the
hospital
catering to nonpreferential tax rate of 10% for its profit-generating activities under
sec. 27(B) of
NIRC; it cannot be exempt from income tax under sec. 30(E) and (G)
because it
is not organized and operated exclusively for charitable purposes,
which is a
requirement under the aforementioned provision. (

15. Taxation of non-resident foreign corporations a) General rule


b) Tax on certain income
(i) Interest on foreign loans
(ii) Inter-corporate dividends
(iii) Capital gains from sale of shares of stock not traded in the stock
exchange
Exclude:
(i) Non-resident cinematographic film-owner, lessor or distributor
(ii) Non-resident owner or lessor of vessels chartered by Philippine
nationals
(iii) Non-resident owner or lessor of aircraft machineries and other
equipment
16. Improperly accumulated earnings of corporations
Petitioner cannot avoid paying surtax on improperly accumulated earnings
because t
(Manila Wine Merchants, Inc. vs. Commissioner of Internal Revenue, G.R.
No. L-26145, February 20, 1984)
BIR assessed petitioner for surtax on
Cyanamid Philippines, Inc. vs. Court of Appeals, et al., G.R. No. 108067,
January 20, 2000)
Previous accumulations should be considered in determining unreasonable
accumulations for the year concerned. In determining whether
accumulations of earnings or profits in a particular year are within the
reasonable needs of a corporation, it is necessary to take into account prior
accumulations, since accumulations prior to the year involved may have
been sufficient to cover the business needs and additional accumulations
during the year involved would not reasonably be necessary. (Basilan
Estates, Inc. vs. Commissioner of Internal Revenue, et al., G.R. No. L22492, September 5, 1967)
45
he
purchase of the U.S.A. Treasury bonds were in no way related to
petitioners business of
importing and selling wines liquors. The immediacy test determines the
reasonable
needs of the business in order to justify an accumulation of earnings
that is, if the
corporation did not prove an immediate need for the accumulation of the
earnings and
profits, the accumulation was not for the reasonable needs of the
business, and the
penalty tax would apply;
investment of the earnings and profits of the corporation in
stock or securities of an unrelated business usually indicates an
accumulation beyond
the reasonable needs of the business
improperly accumulated profits, which petitioner
contested. In order to determine whether profits are accumulated for the
reasonable

needs of the business, it must be shown that: (1) the controlling intention
of the
taxpayer is manifest at the time of accumulation, not intentions declared
subsequently,
which are mere afterthoughts; and (2) the accumulated profits must
be used within a
reasonable time after the close of the taxable year. (
17. Exemption from tax on corporations
YMCA, a non-stock non-profit corporation with charitable objectives,
claimed
exemption from payment of income tax by invoking the NIRC and the
Constitution.
While the income received by the organizations enumerated in Section
26 of the NIRC
is, as a rule, exempted from the payment of tax in respect to income
received by
them as such, the exemption does not apply to income derived from
any of their
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(Commissioner of Internal Revenue vs. Court of Appeals, et al., G.R. No.
124043, October 14, 1998)
Lung Center, charitable institution, does not lose its character as such and
its exemption from taxes simply because it derives income from paying
patients, whether out-patient, or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted
or used altogether to the charitable object which it is intended to achieve;
and no money inures to the private benefit of the persons managing or
operating the institution. However, it is not exempt from real property tax as
to the portions of the land leased to private entities as well as those parts of
the hospital leased to private individuals because under the Constitution, it
is only exempt when its real properties are actually, directly, and exclusively
used for charitable purposes. (Lung Center of the Phil. vs. Quezon City, et
al., G.R. No. 144104, June 29, 2004)
18. Taxation of partnerships
19. Taxation of general professional partnerships 20. Withholding tax
a) Concept b) Kinds
(i) Withholding of final tax on certain incomes
(ii) Withholding of creditable tax at source c) Withholding of VAT
d) Filing of return and payment of taxes withheld
(i) Return and payment in case of government employees (ii) Statements
and returns
e) Final withholding tax at source
Citytrust and Asianbank are domestic corporations which paid gross
receipts tax and claimed a refund on the basis of a CTA ruling that the 20%
FWT on a banks passive income does not form part of the taxable gross
receipts. The 20% FWT on a banks interest income forms part of the
taxable gross receipts because gross receipts means the entire receipts
without any deduction; moreover, the imposition of the 20% FWT and 5%
GRT does not constitute double taxation because GRT is a percentage tax
while FWT is an income tax, and the two concepts are different from each
other. (Commissioner of Internal Revenue vs. Citytrust Investment Phils.,
Inc., G.R. Nos. 139786 & 140857, September 27, 2006)
f) Creditable withholding tax
(i) Expanded withholding tax
(ii) Withholding tax on compensation
g) Timing of withholding
B. Estate tax
1. Basic principles
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
46
properties, real or personal, or from any of their activities conducted for
profit,

regardless of the disposition made of such income; Moreover, charitable


institutions
under Art. VI, sec. 28 of the Constitution are only exempted from
property taxes, and
YMCA is not an educational institution under Article XIV, Section 4 of the
Constitution.

2. Definition
3. Nature
4. Purpose or object
5. Time and transfer of properties
Post-mortem dispositions typically
(1) Convey no title or ownership to the transferee before the death of the
transferor; or, what amounts to the same thing, that the transferor should
retain the ownership (full or naked) and control of the property while alive;
(2) That before the [donors] death, the transfer should be revocable by the
transferor at will, ad nutum; but revocability may be provided for indirectly
by means of a reserved power in the donor to dispose of the properties
conveyed;
(3) That the transfer should be void if the transferor should survive the
transferee;
[4] [T]he specification in a deed of the causes whereby the act may be
revoked by the donor indicates that the donation is inter vivos, rather than a
disposition mortis causa;
[5] That the designation of the donation as mortis causa, or a provision in
the deed to the effect that the donation is to take effect at the death of the
donor are not controlling criteria; such statements are to be construed
together with the rest of the instrument, in order to give effect to the real
intent of the transferor; and
(6) That in case of doubt, the conveyance should be deemed donation inter
vivos rather than mortis causa, in order to avoid uncertainty as to the
ownership of the property subject of the deed. (GONZALO VILLANUEVA
vs. SPOUSES FROILAN, G.R. No. 172804, January 24, 2011)
The conveyance in question is not, first of all, one of mortis causa, which
should be embodied in a will. In this case, the monies subject of savings
account were in the nature of conjugal funds. In the case relied on, Rivera
v. People's Bank and Trust Co., we rejected claims that a survivorship
agreement purports to deliver one party's separate properties in favor of
the other, but simply, their joint holdings. (ROMARICO G. VITUG vs. THE
HONORABLE COURT OF APPEALS and ROWENA FAUSTINOCORONA, G.R. No. 82027, March 29, 1990)
But although the survivorship agreement is per se not contrary to law its
operation or effect may be violative of the law. For instance, if it be shown
in a given case that such agreement is a mere cloak to hide an inofficious
donation, to transfer property in fraud of creditors, or to defeat the legitime
of a forced heir, it may be assailed and annulled upon such grounds.
(ROMARICO G. VITUG vs. THE HONORABLE COURT OF APPEALS and
ROWENA FAUSTINO- CORONA, G.R. No. 82027, March 29, 1990)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
47
6. Classification of decedent
7. Gross estate vis-a-vis net estate
8. Determination of gross estate and net estate 9. Composition of gross
estate
10. Items to be included in gross estate
11. Deductions from estate
As held in Propstra v. U.S., where a lien claimed against the estate was
certain and enforceable on the date of the decedent's death, the fact that
the claimant subsequently settled for lesser amount did not preclude the
estate from deducting the entire amount of the claim for estate tax
purposes. These pronouncements essentially confirm the general principle
that post-death developments are not material in determining the amount of

the deduction. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX


APPEALS, G.R. No. 140944, April 30, 2008)
We express our agreement with the date-of-death valuation rule. There is
no law, nor do we discern any legislative intent in our tax laws, which
disregards the date-of-death valuation principle and particularly provides
that post-death developments must be considered in determining the net
value of the estate. It bears emphasis that tax burdens are not to be
imposed, nor presumed to be imposed, beyond what the statute expressly
and clearly imports, tax statutes being construed strictissimi juris against
the government. (RAFAEL ARSENIO S. DIZON vs. COURT OF TAX
APPEALS, G.R. No. 140944, April 30, 2008)
Such construction finds relevance and consistency in our Rules on Special
Proceedings wherein the term "claims" required to be presented against a
decedent's estate is generally construed to mean debts or demands of a
pecuniary nature which could have been enforced against the deceased in
his lifetime, or liability contracted by the deceased before his death.
Therefore, the claims existing at the time of death are significant to, and
should be made the basis of, the determination of allowable deductions.
(RAFAEL ARSENIO S. DIZON vs. COURT OF TAX APPEALS, G.R. No.
140944, April 30, 2008)
Administration expenses, as an allowable deduction from the gross estate
of the decedent for purposes of arriving at the value of the net estate, have
been construed by the federal and state courts of the United States to
include all expenses "essential to the collection of the assets, payment of
debts or the distribution of the property to the persons entitled to it." In
other words, the expenses must be essential to the proper settlement of the
estate and expenditures incurred for the individual benefit of the heirs,
devisees or legatees are not deductible. (COMMISSIONER OF INTERNAL
REVENUE vs. COURT OF APPEALS, G.R. No. 123206, March 22, 2000)
Thus, in Lorenzo v. Posadas, the Court construed the phrase "judicial
expenses of the testamentary or intestate proceedings" as not including the
compensation paid to a trustee of the decedent's estate when it appeared
that such trustee was appointed for the purpose of managing the
decedent's real estate for the benefit of the testamentary heir. In another
case, the Court disallowed the premiums paid on the bond filed by the
administrator as an expense of administration since the giving of a bond is
in the nature of a qualification for the office, and not necessary in the
settlement of the estate. Neither may attorney's fees incident to litigation
incurred by the heirs in asserting their respective rights be claimed as a
deduction from the
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
48
gross estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS, G.R. No. 123206, March 22, 2000)
The notarial fee paid for the extrajudicial settlement is clearly a deductible
expense since such settlement effected a distribution of Pedro Pajonar's
estate to his lawful heirs. Similarly, the attorney's fees paid to PNB for
acting as the guardian of Pedro Pajonar's property should also be
considered as a deductible administration expense as PNB provided a
detailed accounting of decedent's property and gave advice as to the
proper settlement of the latter's estate, acts which contributed towards the
collection of decedent's assets and the subsequent settlement of the
estate. (COMMISSIONER OF INTERNAL REVENUE vs. COURT OF
APPEALS, G.R. No. 123206, March 22, 2000)
12. Exclusions from estate
13. Tax credit for estate taxes paid in a foreign country 14. Exemption of
certain acquisitions and transmissions 15. Filing of notice of death
16. Estate tax return
C. Donors tax
1. Basic principles
2. Definition
3. Nature

4. Purpose or object
5. Requisites of valid donation
Neither is the survivorship agreement a donation inter vivos, for obvious
reasons, because it was to take effect after the death of one party.
Secondly, it is not a donation between the spouses because it involved no
conveyance of a spouse's own properties to the other. (ROMARICO G.
VITUG vs. THE HONORABLE COURT OF APPEALS and ROWENA
FAUSTINO- CORONA, G.R. No. 82027, March 29, 1990)
In the case at bar, when the spouses Vitug opened savings account, they
merely put what rightfully belonged to them in a money-making venture.
They did not dispose of it in favor of the other, which would have arguably
been sanctionable as a prohibited donation. (ROMARICO G. VITUG vs.
THE HONORABLE COURT OF APPEALS and ROWENA FAUSTINOCORONA, G.R. No. 82027, March 29, 1990)
The granting clause shows that Diego donated the properties out of love
and affection for the donee which is a mark of a donation inter vivos;
second, the reservation of lifetime usufruct indicates that the donor
intended to transfer the naked ownership over the properties; third, the
donor reserved sufficient properties for his maintenance in accordance with
his standing in society, indicating that the donor intended to part with the six
parcels of land; lastly, the donee accepted the donation. (SPS. AGRIPINO
GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF APPEALS,
G.R. No. 111904, October 5, 2000)
In the case of Alejandro vs. Geraldez, 78 SCRA 245 (1977), we said that an
acceptance clause is a mark that the donation is inter vivos. Acceptance is
a requirement for donations inter vivos.
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
49
Donations mortis causa, being in the form of a will, are not required to be
accepted by the donees during the donors' lifetime. (SPS. AGRIPINO
GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF APPEALS,
G.R. No. 111904, October 5, 2000)
Crucial in resolving whether the donation was inter vivos or mortis causa is
the determination of whether the donor intended to transfer the ownership
over the properties upon the execution of the deed. (SPS. AGRIPINO
GESTOPA and ISABEL SILARIO GESTOPA vs. COURT OF APPEALS,
G.R. No. 111904, October 5, 2000)
A remuneratory donation is one where the donee gives something to
reward past or future services or because of future charges or burdens,
when the value of said services, burdens or charges is less than the value
of the donation. (De Luna v. Abrigo, G.R. No. L-57455, January 18, 1990)
6. Transfers which may be constituted as donation
a) Sale/exchange/transfer of property for insufficient consideration b)
Condonation/remission of debt
7. Transfer for less than adequate and full consideration
8. Classification of donor
9. Determination of gross gift
10. Composition of gross gift
11. Valuation of gifts made in property
12. Tax credit for donors taxes paid in a foreign country
13. Exemptions of gifts from donors tax
14. Person liable
15. Tax basis
D. Value-Added Tax (VAT) 1. Concept
As its name implies, the Value-Added Tax system is a tax on the value
added by the taxpayer in the chain of transactions. For simplicity and
efficiency in tax collection, the VAT is imposed not just on the value added
by the taxpayer, but on the entire selling price of his goods, properties or
services. (COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE
POWER CORPORATION, G.R. No. 187485, February 12, 2013)
However, the taxpayer is allowed a refund or credit on the VAT previously
paid by those who sold him the inputs for his goods, properties, or services.

The net effect is that the taxpayer pays the VAT only on the value that he
adds to the goods, properties, or services that he actually sells.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
50
VAT is a tax on transactions, imposed at every stage of the distribution
process on the sale, barter, exchange of goods or property, and on the
performance of services, even in the absence of profit attributable thereto.
The term "in the course of trade or business" requires the regular conduct
or pursuit of a commercial or an economic activity, regardless of whether or
not the entity is profit-oriented. (COMMISSIONER OF INTERNAL
REVENUE vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)

The VAT is not a license tax; it is not a tax on the exercise of a privilege,
much less a constitutional right. It is imposed on the sale, barter, lease or
exchange of goods or properties or the sale or exchange of services and
the lease of properties purely for revenue purposes.
2. Characteristics/Elements of a VAT-Taxable transaction
VAT is not a singular-minded tax on every transactional level; its
assessment bears direct relevance to the taxpayer's role or link in the
production chain. Hence, as affirmed by Section 99 [now Sec. 105] of the
Tax Code and its subsequent incarnations, the tax is levied only on the
sale, barter or exchange of goods or services by persons who engage in
such activities, in the course of trade or business. (COMMISSIONER OF
INTERNAL REVENUE vs. MAGSAYSAY LINES, INC., G.R. No. 146984.
July 28, 2006)
The Court rules that given the undisputed finding that the transaction in
question was not made in the course of trade or business of the seller,
NDC that is, the sale is not subject to VAT pursuant to Section 99 [now Sec.
105] of the Tax Code, no matter how the said sale may hew to those
transactions deemed sale as defined under Section 100 [now Sec. 106].
(COMMISSIONER OF INTERNAL REVENUE vs. MAGSAYSAY LINES,
INC., G.R. No. 146984. July 28, 2006)
Goods or properties must be used directly or indirectly in the production or
sale of taxable goods and services. (Kepco Philipppines Corp. v. CIR, G.R.
No. 179356, December 14, 2009)
it is immaterial whether the primary purpose of a corporation indicates that
it receives payments for services rendered to its affiliates on a
reimbursement-on-cost basis only, without realizing profit, for purposes of
determining liability for VAT on services rendered. As long as the entity
provides service for a fee, remuneration or consideration, then the service
rendered is subject to VAT. (COMMISSIONER OF INTERNAL REVENUE
vs. COURT OF APPEALS, G.R. No. 125355, March 30, 2000)
51
(ARTURO M. TOLENTINO v. THE SECRETARY OF FINANCE and THE
COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 115455, October 30, 1995)
Thus, there must be a sale, barter or exchange of goods or properties
before any VAT may be levied. Certainly, there was no such sale, barter or
exchange in the subsidy given by SIS to Sony; it was but a dole out by SIS
and not in payment for goods or properties sold, bartered or exchanged by
Sony. (COMMISSIONER OF INTERNAL REVENUE vs. SONY
PHILIPPINES, INC., G.R. No. 178697, November 17, 2010)
3. Impact of tax
4. Incidence of tax
Under Section 105 of the Tax Code, VAT is imposed on any person who, in
the course of trade or business, sells or renders services for a fee. In other
words, the seller of services, who in this case is the tollway operator, is the
person liable for VAT. The latter merely shifts the burden of VAT to the
tollway user as part of the toll fees. (RENATO V. DIAZ and AURORA MA. F.
TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007, July 19,
2011)

Bar Ops Pilipinas 2015 Philippine Association of Law Schools


52
The seller who is liable for the VAT may shift or pass on the amount of VAT
it paid on goods, properties or services to the buyer. In such a case, what is
transferred is not the seller's liability but merely the burden of the VAT.
(RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE SECRETARY OF
FINANCE, G.R. No. 193007, July 19, 2011)
Thus, the seller remains directly and legally liable for payment of the
VAT, but the buyer bears its burden since the amount of VAT paid by the
former is added to the selling price. Once shifted, the VAT ceases to be a
tax and simply becomes part of the cost that the buyer must pay in order to
purchase the good, property or service. (RENATO V. DIAZ and AURORA
MA. F. TIMBOL vs. THE SECRETARY OF FINANCE, G.R. No. 193007,
July 19, 2011)
A seller who is directly and legally liable for the payment of an indirect
tax, such as the VAT on goods or services is not necessarily the person
who ultimately bears the burden of the same tax. It is the final purchaser of
consumer of such goods or services who, although not directly and legally
liable for the payment thereof, ultimately bears the burden of the tax.
(Contex v. CIR, G.R. No. 151135, July 2, 2004)
In the case of the VAT, the law minimizes the regressive effects of indirect
taxation by providing for zero rating of certain transactions, while granting
exemptions to other transactions. On the other hand, the transactions
which are subject to the VAT are those which involve goods and services
which are used or availed of mainly by higher income groups.
5. Tax credit method
6. Destination principle
According to the Destination Principle, goods and services are taxed only in
the country where these are consumed. In connection with the said
principle, the Cross Border Doctrine mandates that no VAT shall be
imposed to form part of the cost of the goods destined for consumption
outside the territorial border of the taxing authority. Hence, actual export of
goods and services from the Philippines to a foreign country must be free
of VAT, while those destined for use or consumption within the Philippines
shall be imposed with 10% VAT. (ATLAS CONSOLIDATED MINING AND
DEVELOPMENT CORPORATION vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)
Applying the destination principle to the exportation of goods, automatic
zero rating is primarily intended to be enjoyed by the seller who is directly
and legally liable for the VAT, making such seller internationally competitive
by allowing the refund or credit of input taxes that are attributable to export
sales.(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
v. THE SECRETARY OF FINANCE and THE COMMISSIONER OF
INTERNAL REVENUE, G.R. No.
115455, October 30, 1995)
(ARTURO M. TOLENTINO
Under the cross-border principle of the VAT system being enforced by
the Bureau of Internal Revenue (BIR), 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. If exports of goods and services from the
Philippines to a foreign country are free of the VAT, then the same rule
holds for such exports from the national territory except specifically
declared areas to an

ecozone. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE


TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
While an ecozone is geographically within the Philippines, it is deemed a
separate customs territory and is regulated in laws as foreign soul. Sales
by supplies outside the borders of ecozone to this separate customs

territory are deemed exports and treated as export sales. (CIR v. Seksui
Jushi Phils, Inc. G.R. No. 149671, July 21, 2006)
For as long as the goods remain within the zone, whether we call it an
economic zone or a freeport zone, for as long as we say in this law that all
goods entering this particular territory will be duty-free and tax-free, for as
long as they remain there, consumed there or re-exported or destroyed in
that place, then they are not subject to duties and taxes in accordance with
the laws of the Philippines. (Coconut Oil Refiners Association v. Executive
Secretary, G.R. No. 132527, July 29, 2005)
7. Persons liable
8. VAT on sale of goods or properties
Goods, as commonly understood in the business sense, refer to the
product which the VAT- registered person offers for sale to the public. With
respect to real estate dealers, it is the real properties themselves which
constitute their goods. Such real properties are the operating assets of the
real estate dealer. (Fort Bonifacio Development Corporation vs. CIR, G.R.
Nos. 158885 and 170630, April 2, 2009)
a) Requisites of taxability of sale of goods or properties
9. Zero-rated sales of goods or properties, and effectively zero-rated sales
of goods or properties
Zero-rated transactions generally refer to the export sale of goods and
supply of services. The tax rate is set at zero and when applied to the tax
base, such rate obviously results in no tax chargeable against the
purchaser. The seller of such transactions charges no output tax, but can
claim a refund of or a tax credit certificate for the VAT previously charged
by suppliers. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
53
Mindanao IIs sale of the Nissan Patrol is said to be an isolated transaction.
However, it does not follow that an isolated transaction cannot be an
incidental transaction for purposes of VAT liability. Indeed, a reading of
Section 105 of the 1997 Tax Code would show that a transaction "in the
course of trade or business" includes "transactions incidental thereto."
(MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
Prior to the sale, the Nissan Patrol was part of Mindanao IIs property,
plant, and equipment. Therefore, the sale of the Nissan Patrol is an
incidental transaction made in the course of Mindanao IIs business which
should be liable for VAT. (MINDANAO II GEOTHERMAL PARTNERSHIP
vs. COMMISSIONER OF INTERNAL REVENUE, G.R. No. 193301, March
11, 2013)

Effectively zero-rated transactions, however, refer to the sale of goods or


supply of services to persons or entities whose exemption under special
laws or international agreements to which the Philippines is a signatory
effectively subjects such transactions to a zero rate. Again, as applied to
the tax base, such rate does not yield any tax chargeable against the
purchaser. The seller who charges zero output tax on such transactions
can also claim a refund of or a tax credit certificate for the VAT previously
charged by suppliers. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11,
2005)
If respondent is located in an export processing zone within that ecozone,
sales to the export processing zone, even without being actually exported,
shall in fact be viewed as constructively exported under EO 226.
Considered as export sales, such purchase transactions by respondent
would indeed be subject to a zero rate. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
PAGCOR's exemption from VAT under Section 108 (B) (3) of R.A. No. 8424
has been thoroughly and extensively discussed in Commissioner of Internal
Revenue v. Acesite (Philippines) Hotel Corporation. Acesite sought the

refund of the amount it paid as VAT on the ground that its transaction with
PAGCOR was subject to zero rate as it was rendered to a tax-exempt
entity. The Court ruled that PAGCOR and Acesite were both exempt from
paying VAT. (PHILIPPINE AMUSEMENT AND GAMING CORPORATION
(PAGCOR) vs. THE BUREAU OF INTERNAL REVENUE, G.R. No.
172087, March 15, 2011)
No prior application for the effective zero rating of its transactions is
necessary. The BIR regulations additionally requiring an approved prior
application for effective zero rating cannot prevail over the clear VAT nature
of respondent's transactions. Other than the general registration of a
taxpayer the VAT status of which is aptly determined, no provision under
our VAT law requires an additional application to be made for such
taxpayer's transactions to be considered effectively zero-rated.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
54
The Omnibus Investments Code of 1987 recognizes as export sales the
sales of export products to another producer or to an export trader,
provided that the export products are actually exported. For purposes of
VAT zero-rating, such producer or export trader must be registered with the
BOI and is required to actually export more than 70% of its annual
production. (ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
Nos. 141104 & 148763, June 8, 2007)
In terms of the VAT computation, zero rating and exemption are the same,
but the extent of
relief that results from either one of them is not. In both instances of zero
rating, there is total relief for the purchaser from the burden of the tax but in
an exemption there is only partial relief, because the purchaser is not
allowed any tax refund of or credit for input taxes paid. (COMMISSIONER
OF INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
10. Transactions deemed sale
a) Transfer, use or consumption not in the course of business of
goods/properties originally intended for sale or use in the course of
business
b) Distribution or transfer to shareholders, investors or creditors
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
c) Consignment of goods if actual sale not made within 60 days from date
of consignment
d) Retirement from or cessation of business with respect to inventories on
hand
11. Change or cessation of status as VAT-registered person
a) Subject to VAT
(i) Change of business activity from VAT taxable status to VAT-exempt
status
(ii) Approval of request for cancellation of a registration due to reversion to
exempt status
(iii) Approval of request for cancellation of registration due to desire to
revert to exempt status after lapse of 3 consecutive years
b) Not subject to VAT
(i) Change of control of a corporation
(ii) Change in the trade or corporate name
(iii) Merger or consolidation of corporations
12. VAT on importation of goods
a) Transfer of goods by tax exempt persons
13. VAT on sale of service and use or lease of properties
55
Service has been defined as the art of doing something useful for a person
or company for a fee or useful labor or work rendered or to be rendered
another for a fee. (CIR v. American Express International, Inc., G.R. No.
152609, June 29, 2005)

By qualifying "services" with the words "all kinds," Congress has given the
term "services" an all-encompassing meaning. The listing of specific
services are intended to illustrate how pervasive and broad is the VAT's
reach rather than establish concrete limits to its application; thus, every
activity that can be imagined as a form of "service" rendered for a fee
should be deemed included unless some provision of law especially
excludes it. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
Tollway operators not only come under the broad term "all kinds of
services," they also come under the specific class described in Section 108
as "all other franchise grantees" who are subject to VAT, "except those
under Section 119 of this Code." Tollway operators are franchise grantees
and they do not belong to exceptions (the low-income radio and/or
television broadcasting companies with gross annual incomes of less than
P10 million and gas and water utilities) that Section 119 spares from the
payment of VAT. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
In specifically including by way of example electric utilities, telephone,
telegraph, and broadcasting companies in its list of VAT-covered
businesses, Section 108 opens other companies rendering public service
for a fee to the imposition of VAT. Businesses of a public nature such as
public utilities and the collection of tolls or charges for its use or service is a
franchise. (RENATO V. DIAZ and AURORA MA. F. TIMBOL vs. THE
SECRETARY OF FINANCE, G.R. No. 193007, July 19, 2011)
In the case of CIR v. Court of Appeals (CA), the Court had the occasion to
rule that services rendered for a fee even on reimbursement-on-cost basis
only and without realizing profit are also subject to VAT. In that case,
COMASERCO rendered service to its affiliates and, in turn, the affiliates
paid the former reimbursement-on-cost which means that it was paid the
cost or
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
a) Requisites for taxability 14. Zero-rated sale of services 15. VAT exempt
transactions
56
expense that it incurred although without profit. (COMMISSIONER OF
INTERNAL REVENUE vs. SONY PHILIPPINES, INC., G.R. No. 178697,
November 17, 2010)
Among those included in the enumeration is the lease of motion picture
films, films, tapes and discs. This, however, is not the same as the
showing or exhibition of motion pictures or films. The legislative intent is not
to impose VAT on persons already covered by the amusement tax and this
holds true even in the case of cinema/theater operators taxed under the
LGC of 1991 precisely because the VAT law was intended to replace the
percentage tax on certain services. (CIR v. SM Prime Holdings, Inc. and
First Asia Realty Development Corp., G.R. No. 183505, February 26, 2010)
An exempt transaction involves goods or services which, by their nature,
are specifically listed in and expressly exempted from the VAT under the
Tax Code, without regard to the tax status VAT-exempt or not of the
party to the transaction. Indeed, such transaction is not subject to the VAT,
but the seller is not allowed any tax refund of or credit for any input taxes
paid. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
An exempt party, on the other hand, is a person or entity granted VAT
exemption under the Tax Code, a special law or an international agreement
to which the Philippines is a signatory, and by virtue of which its taxable
transactions become exempt from the VAT. Such party is also not subject to
the VAT, but may be allowed a tax refund of or credit for input taxes paid,
depending on its registration as a VAT or non-VAT taxpayer.
(COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
a) VAT exempt transactions, in general

By extending the exemption to entities or individuals dealing with PAGCOR,


the legislature clearly granted exemption also from indirect taxes. It must
be noted that the indirect tax of VAT, as in the instant case, can be shifted
or passed to the buyer, transferee, or lessee of the goods, properties, or
services subject to VAT. Thus, by extending the tax exemption to entities or
individuals dealing with PAGCOR in casino operations, it is exempting
PAGCOR from being liable to indirect taxes. (PHILIPPINE AMUSEMENT
AND GAMING CORPORATION (PAGCOR) vs. THE BUREAU OF
INTERNAL REVENUE, G.R. No. 172087, March 15, 2011)
The rationale for the exemption from indirect taxes provided for in P.D.
1869 and the extension of such exemption to entities or individuals dealing
with PAGCOR in casino operations are best elucidated from the 1987 case
of Commissioner of Internal Revenue v. John Gotamco & Sons, Inc., where
the absolute tax exemption of the World Health Organization (WHO) upon
an international agreement was upheld. We held in said case that the
exemption of contractee WHO should be implemented to mean that the
entity or person exempt is the contractor itself who constructed the building
owned by contractee WHO, and such does not violate the rule that tax
exemptions are personal because the manifest intention of the agreement
is to exempt the contractor so that no contractor's tax may be shifted to the
contractee WHO. (PHILIPPINE
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
AMUSEMENT AND GAMING CORPORATION (PAGCOR) vs. THE
BUREAU OF INTERNAL REVENUE, G.R. No. 172087, March 15, 2011)
b) Exempt transaction, enumerated 16. Input tax and output tax, defined
Under the present method that relies on invoices, an entity can credit
against or subtract from the VAT charged on its sales or outputs the VAT
paid on its purchases, inputs and imports. (COMMISSIONER OF
INTERNAL REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES),
G.R. No. 153866, February 11, 2005)
If at the end of a taxable quarter the output taxes charged by a seller are
equal to the input taxes passed on by the suppliers, no payment is
required. It is when the output taxes exceed the input taxes that the excess
has to be paid. (COMMISSIONER OF INTERNAL REVENUE vs.
SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11,
2005)
17. Sources of input tax
a) Purchase or importation of goods
b) Purchase of real properties for which a VAT has actually been paid c)
Purchase of services in which VAT has actually been paid
d) Transactions deemed sale
e) Presumptive input
f) Transitional input
Pawnshops- considered as non-bank financial intermediary is exempted
from VAT but liable to percentage tax. (Tambunting Pawnshop, Inc. v. CIR,
G.R. No. 179085, January 21, 2010)
57
Prior payment of taxes is not necessary before a taxpayer could avail of
the 8% transitional input tax credit: first, it was never mentioned in Section
105 of the old NIRC [now Sec. 111] that prior payment of taxes is a
requirement; second, since the law (Section 105 of the NIRC) does not
provide for prior payment of taxes, to require it now would be tantamount to
judicial legislation which, to state the obvious, is not allowed; third, a
transitional input tax credit is not a tax refund per se but a tax credit; fourth,
if the intent of the law were to limit the input tax to cases where actual VAT
was paid, it could have simply said that the tax base shall be the actual
value-added tax paid; and fifth, this Court had already declared that prior
payment of taxes is not required in order to avail of a tax credit. (FORT
BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 173425, January 22, 2013)
Section 112 of the Tax Code does not prohibit cash refund or tax credit
of transitional input tax in the case of zero-rated or effectively zero-rated

VAT registered taxpayers, who do not have any output VAT. The phrase
"except transitional input tax" in Section 112 of the Tax Code was inserted
to distinguish creditable input tax from transitional input tax credit. (FORT
BONIFACIO DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 173425, January 22, 2013)
It is apparent that the transitional input tax credit operates to benefit
newly VAT-registered persons, whether or not they previously paid taxes in
the acquisition of their beginning inventory of goods, materials and
supplies. During that period of transition from non-VAT to VAT
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
status, the transitional input tax credit serves to alleviate the impact of the
VAT on the taxpayer. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs.COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)
18. Persons who can avail of input tax credit
In a VAT-exempt transaction, the seller is not allowed to charge VAT to his
customer. Since no output tax is shifted by the seller, there is no output tax
against which the related input taxes may be credited. Neither can he credit
this input tax against the VAT due on other sales. In this case, he is treated
as the end user who will shoulder the cost of the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
Unlike the input taxes related to exempt sales, input taxes related to zerorated sales may be credited against output taxes on other sales and in
case it is not fully utilized, the excess may be carried over to the
succeeding quarter or quarters and there is no prescription period for the
carry-over. The law gives the taxpayer another option for the recovery of
used input taxes: application for refund or tax credit certificate.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
19. Determination of output/input tax; VAT payable; excess input tax credits
a) Determination of output tax
b) Determination of input tax creditable
c) Allocation of input tax on mixed transactions
d) Determination of the output tax and VAT payable and computation of
VAT payable or excess tax credits
20. Substantiation of input tax credits
21. Refund or tax credit of excess input tax
If, however, the input taxes exceed the output taxes, the excess shall be
carried over to the succeeding quarter or quarters. Should the input taxes
result from zero-rated or effectively zero-rated transactions or from the
acquisition of capital goods, any excess over the output taxes shall instead
be refunded to the taxpayer or credited against other internal revenue
taxes. (COMMISSIONER OF INTERNAL REVENUE vs. SEAGATE
TECHNOLOGY (PHILIPPINES), G.R. No. 153866, February 11, 2005)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
58
While a tax liability is essential to the availment or use of any tax credit,
prior tax payments are not. On the contrary, for the existence or grant
solely of such credit, neither a tax liability nor a
prior tax payment is needed. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs. COMMISSIONER OF INTERNAL REVENUE, G.R.
No. 173425, January 22, 2013)
As regards Section 110, while the law only provides for a tax credit, a
taxpayer who erroneously or excessively pays his output tax is still entitled
to recover the payments he made either as a tax credit or a tax refund. In
this case, since petitioner still has available transitional input tax credit, it
filed a claim for refund to recover the output VAT it erroneously or
excessively paid for the 1st quarter of 1997. Thus, there is no reason for
denying its claim for tax refund/credit. (FORT BONIFACIO DEVELOPMENT
CORPORATION vs.COMMISSIONER OF INTERNAL REVENUE, G.R. No.
173425, January 22, 2013)


The input VAT is not "excessively" collected as understood under Section
229 because at the time the input VAT is collected the amount paid is
correct and proper. The person legally liable for the input VAT cannot claim
that he overpaid the input VAT by the mere existence of an "excess" input
VAT. The term "excess" input VAT simply means that the input VAT
available as credit exceeds the output VAT, not that the input VAT is
excessively collected because it is more than what is legally due. Thus, the
taxpayer who legally paid the input VAT cannot claim for refund or credit of
the input VAT as "excessively" collected under Section 229.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
If such "excess" input VAT is an "excessively" collected tax, the taxpayer
should be able to seek a refund or credit for such "excess" input VAT
whether or not he has output VAT. The VAT System does not allow such
refund or credit and such "excess" input VAT is not an "excessively"
collected tax under Section 229. (COMMISSIONER OF INTERNAL
REVENUE vs. SAN ROQUE POWER CORPORATION, G.R. No. 187485,
February 12, 2013)
a) Who may claim for refund/apply for issuance of tax credit certificate
Having determined that respondent's purchase transactions are subject to
a zero VAT rate, the tax refund or credit is in order. To repeat, the VAT is a
tax imposed on consumption, not on business. Although respondent as an
entity is exempt, the transactions it enters into are not necessarily so. The
VAT payments made in excess of the zero rate that is imposable may
certainly be refunded or credited. (COMMISSIONER OF INTERNAL
REVENUE vs. SEAGATE TECHNOLOGY (PHILIPPINES), G.R. No.
153866, February 11, 2005)
b) Period to file claim/apply for issuance of tax credit certificate
The Court, in San Roque, ruled that equitable estoppel had set in when
respondent issued BIR Ruling No. DA-489-03 which was a general
interpretative rule, which effectively misled all taxpayers into filing
premature judicial claims with the CTA. Thus, taxpayers could rely on the
ruling from its issuance on 10 December 2003 up to its reversal on 6
October 2010, when CIR v. Aichi Forging Company of Asia, lnc. was
promulgated. (PROCTER & GAMBLE ASIA PTE LTD. vs.COMMISSIONER
OF INTERNAL REVENUE, G.R. No. 202071, February 19, 2014)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
59
Even if the law does not expressly state that the Ironcons excess
creditable VAT withheld is refundable, it may be the subject-of a claim for
refund as an erroneously collected tax under Sec. 204 (C) and 229 of the
NIRC. It should be clarified that this ruling only refers to creditable VAT
withheld pursuant to Sec. 114 of the NIRC prior to its amendment. After its
amendment by R.A. 9337, the amount withheld under Sec. 114 of the NIRC
is now treated as final VAT, no longer under the creditable withholding tax
system (CIR v. Ironcon Builders and Development Corp., G.R. No. 180042,
February 8, 2010)
In a nutshell, the rules on the determination of the prescriptive period for
filing a tax refund or credit of unutilized input VAT, as provided in Section
112 of the Tax Code, are as follows:
(1) An administrative claim must be filed with the CIR within two years
after the close of the taxable quarter when the zero-rated or effectively
zero-rated sales were made.

60
(2) The CIR has 120 days from the date of submission of complete
documents in support of the administrative claim within which to decide
whether to grant a refund or issue a tax credit certificate. The 120-day
period may extend beyond the two-year period from the filing of the
administrative claim if the claim is filed in the later part of the two-year
period. If the 120-day period expires without any decision from the CIR,
then the administrative claim may be considered to be denied by inaction.

(3) A judicial claim must be filed with the CTA within 30 days from the
receipt of the CIRs decision denying the administrative claim or from the
expiration of the 120-day period without any action from the CIR.
(4) All taxpayers, however, can rely on BIR Ruling No. DA-489-03 from the
time of its issuance on 10 December 2003 up to its reversal by this Court in
Aichi on 6 October
2010, as an exception to the mandatory and jurisdictional 120+30 day
periods. (COMMISSIONER OF INTERNAL REVENUE vs.TOLEDO
POWER, INC., G.R. No. 183880, January 20, 2014)
The lessons of this case may be summed up as follows: A. Two-Year
Prescriptive Period
1. It is only the administrative claim that must be filed within the twoyear prescriptive period. (Aichi)
2. The proper reckoning date for the two-year prescriptive period is the
close of the taxable quarter when the relevant sales were made. (San
Roque)
3. The only other rule is the Atlas ruling, which applied only from 8 June
2007 to 12 September 2008. Atlas states that the two-year prescriptive
period for filing a claim for tax refund or credit of unutilized input VAT
payments should be counted from the date of filing of the VAT return and
payment of the tax. (San Roque)
B. 120+30 Day Period
1. The taxpayer can file an appeal in one of two ways: (1) file the judicial
claim within thirty days after the Commissioner denies the claim within the
120-day period, or (2) file
the judicial claim within thirty days from the expiration of the 120-day period
if the Commissioner does not act within the 120-day period.
2. The 30-day period always applies, whether there is a denial or inaction
on the part of the CIR.
3. As a general rule, the 3 0-day period to appeal is both mandatory and
jurisdictional. (Aichi and San Roque)
4. As an exception to the general rule, premature filing is allowed only if
filed between
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
61
10 December 2003 and 5 October 2010, when BIR Ruling No. DA-489-03
was still in force. (San Roque)
5. Late filing is absolutely prohibited, even during the time when BIR Ruling
No. DA-489- 03 was in force. (San Roque) (COMMISSIONER OF
INTERNAL REVENUE vs. MINDANAO II GEOTHERMAL PARTNERSHIP,
G.R. No. 191498, January 15, 2014)
It is indisputable that compliance with the 120-day waiting period is
mandatory and jurisdictional. Failure to comply with the 120-day waiting
period violates a mandatory provision of law. It violates the doctrine of
exhaustion of administrative remedies and renders the petition premature
and thus without a cause of action, with the effect that the CTA does not
acquire jurisdiction over the taxpayers petition. (MINDANAO II
GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 193301, March 11, 2013)
Stated otherwise, the two-year prescriptive period does not refer to the
filing of the judicial claim with the CTA but to the filing of the administrative
claim with the Commissioner. As held in Aichi, the "phrase within two years
x x x apply for the issuance of a tax credit or refund refers to applications
for refund/credit with the CIR and not to appeals made to the CTA."
(MINDANAO II GEOTHERMAL PARTNERSHIP vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. No. 193301, March 11, 2013)
San Roque's failure to comply with the 120-day mandatory period
renders its petition for review with the CTA void as Article 5 of the Civil
Code provides, "Acts executed against provisions of mandatory or
prohibitory laws shall be void, except when the law itself authorizes their
validity." San Roque's void petition for review cannot be legitimized by the
CTA or this Court because Article 5 of the Civil Code states that such void

petition cannot be legitimized "except when the law itself authorizes [its]
validity," and there is no law authorizing the petition's validity.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
Sec. 112(A) clearly provides in no uncertain terms that unutilized input VAT
payments not otherwise used for any internal revenue tax due the taxpayer
must be claimed within two years reckoned from the close of the taxable
quarter when the relevant sales were made pertaining to the input VAT
regardless of whether said tax was paid or not. The reckoning frame would
always be the end of the quarter when the pertinent sales or transaction
was made, regardless when the input VAT was paid.(COMMISSIONER OF
INTERNAL REVENUE vs. MIRANT PAGBILAO CORPORATION, G.R. No.
172129. September 12, 2008)
This prescriptive period has no relation to the date of payment of the
"excess" input VAT since the "excess" input VAT may have been paid for
more than two years but this does not bar the filing of a judicial claim for
"excess" VAT under Section 112 (A), which has a different reckoning period
from Section 229. Moreover, the person claiming the refund or credit of the
input VAT is not the person who legally paid the input VAT.
(COMMISSIONER OF INTERNAL REVENUE vs. SAN ROQUE POWER
CORPORATION, G.R. No. 187485, February 12, 2013)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
The mere filing by a taxpayer of a judicial claim with the CTA before the
expiration of the 120- day period cannot operate to divest the
Commissioner of his jurisdiction to decide an administrative claim within the
120-day mandatory period, unless the Commissioner has clearly given
cause for equitable estoppel to apply as expressly recognized in Section
246 of the Tax Code. (COMMISSIONER OF INTERNAL REVENUE vs.
SAN ROQUE POWER CORPORATION, G.R. No. 187485, February 12,
2013)
Because the 120+30 day period is jurisdictional, the issue of whether
petitioner complied with the said time frame may be broached at any stage,
even on appeal. (NIPPON EXPRESS (PHILIPPINES) CORPORATION vs.
COMMISSIONER OF INTERNAL REVENUE, G.R. No. 196907, March 13,
2013)
c) Manner of giving refund
d) Destination principle or cross-border doctrine 22. Invoicing requirements
62
For a judicial claim for refund to prosper, however, respondent must not
only prove that it is a VAT registered entity and that it filed its claims within
the prescriptive period.It must substantiate the input VAT paid by purchase
invoices or official receipts: 1) A "sales or commercial invoice" is a written
account of goods sold or services rendered indicating the prices charged
therefor or a list by whatever name it is known which is used in the ordinary
course of business evidencing sale and transfer or agreement to sell or
transfer goods and services; and 2) A "receipt" on the other hand is a
written acknowledgment of the fact of payment in money or other
settlement between seller and buyer of goods, debtor or creditor, or person
rendering services and client or customer. (ATLAS CONSOLIDATED
MINING AND DEVELOPMENT CORPORATION vs. COMMISSIONER OF
INTERNAL REVENUE, G.R. Nos. 141104 & 148763, June 8, 2007)
a) Invoicing requirements in general
The requisite that the receipt be issued showing the name, business style,
if any, and address of the purchaser, customer or client is precise so that
when the books of accounts are subjected to a tax audit examination, all
entries therein could be shown as adequately supported and proven as
legitimate business transactions. The absence of official receipts issued in
the taxpayer's name is tantamount to non-compliance with the
substantiation requirements provided by law. (BONIFACIO WATER
CORPORATION (formerly BONIFACIO VIVENDI WATER CORPORATION)
vs. THE COMMISSIONER OF INTERNAL REVENUE, G.R. No. 175142,
July 22, 2013)

Taxpayers claiming for a refund or tax credit certificate must comply with
the strict and mandatory invoicing and accounting requirements provided
under the 1997 NIRC, as amended, and its implementing rules and
regulations. Thus, the change of petitioner's name to "Bonifacio GDE Water
Corporation," being unauthorized and without approval of the SEC, and the
issuance of official receipts under that name which were presented to
support petitioner's claim for tax refund, cannot be used to allow the grant
of tax refund or issuance of a tax credit certificate in petitioner's favor.
(BONIFACIO WATER CORPORATION (formerly BONIFACIO VIVENDI
WATER CORPORATION) vs. THE COMMISSIONER OF INTERNAL
REVENUE, G.R. No. 175142, July 22, 2013)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
Failure to print the word zero-rated on the invoices or receipts is fatal to a
claim for credit of refund of input VAT on zero-rated sales (J.R.A.
Philippines, Inc. v. CIR, G.R. No. 177127, October 11, 2010)
If the claim for refund/ tax credit certificate is based on the existence of
zero-rated sales by the taxpayer but it fails to comply with the invoicing
requirements in the issuance of sales invoices (e.g. failure to indicate the
TIN), its claim for tax credit/refund of VAT on its purchases shall be denied
considering that the invoice it is issuing to its customers does not depict its
being a VAT- registered taxpayer whose sales are classified as zero-rated
sales. Nonetheless, this treatment is without prejudice to the right of the
taxpayer to charge the input taxes to the appropriate expense account or
asset account subject to depreciation, whichever is applicable (Panasonic
Comm. Imaging Corp. of the Phil. v. CIR, G.R. No. 178090, February 8,
2010)
b) Invoicing and recording deemed sale transactions
c) Consequences of issuing erroneous VAT invoice or VAT official receipt
23. Filing of return and payment
24. Withholding of final VAT on sales to government
TAX REMEDIES UNDER THE NIRC a) Assessment
(i) Concept of assessment
(a) Requisites for valid assessment
(b) Constructive methods of income determination
63
An assessment contains not only a computation of tax liabilities, but also
a demand for payment within a prescribed period. It also signals the time
when penalties and protests begin to accrue against the taxpayer. To
enable the taxpayer to determine his remedies thereon, due process
requires that it must be served on and received by the taxpayer.
Accordingly, an affidavit, which was executed by revenue officers stating
the tax liabilities of a taxpayer and attached to a criminal complaint for tax
evasion, cannot be deemed an assessment that can be questioned before
the Court of Tax Appeals. (CIR vs
Pascor Realty and Development Corp., GR no. 128315, June 29, 1999)
The rule is that in the absence of the accounting records of a
taxpayer, his tax liability may be determined by estimation. The petitioner is
not required to compute such tax liabilities with mathematical exactness.
Approximation in the calculation of the taxes due is justified. To hold
otherwise would be tantamount to holding that skillful concealment is an
invincible barrier to proof. However, the rule does not apply where the
estimation is arrived at arbitrarily and capriciously. In fine, then, the
petitioner acted arbitrarily and capriciously in relying on and giving weight
to the machine copies of the Consumption Entries in fixing the tax
deficiency assessments against the respondent. (CIR vs Hantex Trading
Co., GR no. 136975, March 31, 2005)
The "best evidence" envisaged in Section 16 of the 1977 NIRC [now
Sec. 6, 1997 NIRC], as amended, includes the corporate and accounting
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
64

records of the taxpayer who is the subject of the assessment process, the
accounting records of other taxpayers engaged in the same line of
business, including their gross profit and net profit sales. The law allows the
BIR access to all relevant or material records and data in the person of the
taxpayer. It places no limit or condition on the type or form of the medium
by which the record subject to the order of the BIR is kept. The purpose of
the law is to enable the BIR to get at the taxpayers records in whatever
form they may be kept. Such records include computer tapes of the said
records prepared by the taxpayer in the course of business.68 In this era of
developing information-storage technology, there is no valid reason to
immunize companies with computer-based, record-keeping capabilities
from BIR scrutiny. The standard is not the form of the record but where it
might shed light on the accuracy of the taxpayers return.
However, the best evidence obtainable under Section 16 of the
1977
NIRC [now Sec. 6, 1997 NIRC], as amended, does not include mere
photocopies of records/documents. The petitioner, in making a preliminary
and final tax deficiency assessment against a taxpayer, cannot anchor the
said assessment on mere machine copies of records/documents. Mere
photocopies of the Consumption Entries have no probative weight if offered
as proof of the contents thereof. (CIR vs Hantex Trading Co., GR no.
136975, March 31, 2005)
(c) Inventory method for income determination (d) Jeopardy assessment
(e) Tax delinquency and tax deficiency
(ii) Power of the Commissioner to make assessments and prescribe
additional requirements for tax administration and enforcement
(a)Power of the Commissioner to obtain information, and to
summon/examine, and take testimony of persons
For the purpose of safeguarding taxpayers from any unreasonable
examination, investigation or assessment, our tax law provides a statute of
limitations in the collection of taxes. Thus, the law on prescription, being a
remedial measure, should be liberally construed in order to afford such
protection. As a corollary, the exceptions to the law on prescription should
perforce be strictly construed. Sec. 15 of the NIRC, on the other hand,
provides that "[w]hen a report required by law as a basis for the
assessment of any national internal revenue tax shall not be forthcoming
within the time fixed by law or regulation, or when there is reason to believe
that any such
report is false, incomplete, or erroneous, the Commissioner of Internal
Revenue shall assess the proper tax on the best evidence obtainable."
Clearly, Section 15 does not provide an exception to the statute of
limitations on the issuance of an assessment, by allowing the initial
assessment to be made on the basis of the best evidence available. Having
made its initial assessment in the manner prescribed, the commissioner
could not have been authorized to issue, beyond the five-year prescriptive
period, the second and the third assessments under consideration before
us. (CIR vs BF Goodrich Phils., Inc., GR no. 104171, February 24, 1999)
(iii) When assessment is made
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
An assessment is deemed made only when the collector of internal
revenue releases, mails or sends such notice to the taxpayer. (CIR vs
Pascor Realty and
Development Corp., GR no. 128315, June 29, 1999)
(a)Prescriptive period for assessment
The statute of limitations on assessment and collection of taxes is for the
protection of the taxpayer and, thus, shall be construed liberally in his favor.
Though the statute of limitations on assessment and collection of national
internal revenue taxes benefits both the Government and the taxpayer, it
principally intends to afford protection to the taxpayer against unreasonable
investigation. The indefinite extension of the period for assessment is
unreasonable because it deprives the said taxpayer of the assurance that
he will no longer be subjected to further investigation for taxes after the

expiration of a reasonable period of time. (BPI vs CIR, GR 139736, October


17, 2005)
Both Article 13 of the Civil Code and Section 31, Chapter VIII, Book I of the
Administrative Code of 1987 deal with the same subject matter the
computation of legal periods. Under the Civil Code, a year is equivalent to
365 days whether it be a regular year or a leap year. Under the
Administrative Code of 1987, however, a year is composed of 12 calendar
months. Needless to state, under the Administrative Code of 1987, the
number of days is irrelevant. There obviously exists a manifest
incompatibility in the manner of computing legal periods under the Civil
Code and the Administrative Code of 1987. For this reason, we hold that
Section 31, Chapter VIII, Book I of the Administrative Code of 1987, being
the more recent law, governs the computation of legal periods. (CIR vs
Primetown Property Group Inc., GR 162155, August 28, 2007)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
65
Considering that the deficiency assessment was based on the amended
return which, as aforestated, is substantially different from the original
return, the period of limitation of the right to issue the same should be
counted from the filing of the amended income tax return. We believe that
to hold otherwise, we would be paving the way for taxpayers to evade the
payment of taxes by simply reporting in their original return heavy losses
and amending the same more than five years later when the Commissioner
of Internal Revenue has lost his authority to assess the proper tax
thereunder. The object of the Tax Code is to impose taxes for the needs of
the Government, not to enhance tax avoidance to its prejudice. (CIR vs
Phoenix
Assurance Co., L-19127, May 20, 1965)
A waiver of the statute of limitations under the NIRC, to a certain extent,
is a derogation of the taxpayers right to security against prolonged and
unscrupulous investigations and must therefore be carefully and strictly
construed. The waiver of the statute of limitations is not a waiver of the right
to invoke the defense of prescription as erroneously held by the Court of
Appeals. It is an agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is extended to a
date certain. The waiver does not mean that the taxpayer relinquishes the
right to
A waiver of the statute of limitations being a derogation of the taxpayers
right to security against prolonged and unscrupulous investigations must be
66
invoke prescription unequivocally particularly where the language of the
document is equivocal. The Waiver of Statute of Limitations, signed by
petitioners comptroller on September 22, 1997 is not valid and binding
because it does not conform with the provisions of RMO No. 20-90. It did
not specify a definite agreed date between the BIR and petitioner, within
which the former may assess and collect revenue taxes. Thus, petitioners
waiver became unlimited in time, violating Section 222(b) of the NIRC.
(Philippine
Journalists, Inc vs CIR, GR 162852, December 16, 2004)
The waiver required under the Tax Code is one which is not unilateral
nor can it be said that concurrence to such agreement is a mere formality
because it is the very signatures of both the Commissioner and the
taxpayer which give birth to such valid agreement. (CIR v. CA, G.R.
115712, Feb. 25,
1999)
carefully and strictly construed. (CIR v. FMF Devt Corp., 556 SCRA
698)
The requirement to furnish the taxpayer a copy of the waiver of the Statute
of Limitations is not only to give notice of the existence of the document but
of the acceptance by the BIR and the perfection of the agreement. (Phil.
Journalists, Inc. v. CIR, GR 162852, Dec. 16, 2004)
(1)False, fraudulent, and non-filing of returns

Petitioner insists that private respondent committed "falsity" when it sold


the property for a price lesser than its declared fair market value. This fact
alone did not constitute a false return which contains wrong information due
to mistake, carelessness or ignorance.13 It is possible that real property
may be sold for less than adequate consideration for a bona fide business
purpose; in such event, the sale remains an "arm's length" transaction. In
the present case, the private respondent was compelled to sell the property
even at a price less than its market value, because it would have lost all
ownership rights over it upon the expiration of the parity amendment. (CIR
vs BF Goodrich Phils., Inc., GR no.
104171, February 24, 1999)
Fraud cannot be presumed but must be proven. As a corollary thereto,
we can also state that fraudulent intent could not be deduced from
mistakes however frequent they may be, especially if such mistakes
emanate from erroneous entries or erroneous classification of items in
accounting methods utilized for determination of tax liabilities. The lower
court's conclusion regarding the existence of fraudulent intent to evade
payment of taxes was based merely on a presumption and not on evidence
establishing a willful filing of false and fraudulent returns so as to warrant
the imposition of the fraud penalty. The fraud contemplated by law is actual
and not constructive. It must be intentional fraud, consisting of deception
willfully and deliberately done or resorted to in order to
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
induce another to give up some legal right. Negligence, whether slight or
gross, is not equivalent to the fraud with intent to evade the tax
contemplated by the law. (Aznar vs CTA, GR L-20569, August 23, 1974)
(b)Suspension of running of statute of limitations
67
Petitioners also argue that the governments right to assess and collect
the subject tax had prescribed. Petitioners admitted in their Motion for
Reconsideration before the Court of Appeals that the pool changed its
address, for they stated that the pools information return filed in 1980
indicated therein its present address. The Court finds that this falls short
of the requirement of Section 333 [now section 223] of the NIRC for the
suspension of the prescriptive period. The law clearly states that the said
period will be suspended only if the taxpayer informs the Commissioner
of Internal Revenue of any change in the address. (Afisco Insurance vs
CA, GR 112675, January 25, 1999)
Sec. 271 [1977 NIRC] (now Sec. 223 of 1997 NIRC) limits the suspension
of the running of prescription to instances when reinvestigation is requested
by a taxpayer and is granted by the CIR. Only a request for reinvestigation
can toll the running of the period of the statute of limitations because it
would entail reception and evaluation of additional evidence and will take
more time than a request for reconsideration where the evaluation of the
evidence is limited only to the evidence already at hand. (CIR v. Phil.
Global Communications, 506 SCRA 427)
(iv) General provisions on additions to the tax (a) Civil penalties
(b) Interest
(c) Compromise penalties
(v) Assessment process (a) Tax audit
(b) Notice of informal conference
(c) Issuance of preliminary assessment notice
Sec. 228 of the Tax Code clearly requires that the taxpayer must be
informed that he is liable for deficiency taxes through the sending of a
Preliminary
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It does not appear that petitioner accepted the imposition of the
compromise amounts. It is now a well settled doctrine that compromise
penalty cannot be imposed or collected without the agreement or
conformity of the taxpayer. (Wonder Mechanical Engineering vs CTA, GR
L-22805 & L-27858, June 30,
1975)

Under Rev. Reg. 12-99, a notice of informal conference is sent to the


taxpayer informing him of the findings of the audit conducted on his books
and records indicating that there is a discrepancy in his tax payments which
has to be paid. However under Rev. Reg. 18-2013 dated Nov. 28, 2013 the
requirement for the issuance of a letter of informal conference has been
removed.

Assessment Notice. The sending of a PAN to the taxpayer is to inform him


of the assessment made is but part of due process requirement in the
issuance of a deficiency tax assessment, the absence of which renders
nugatory any assessment made by the tax authorities. (CIR v. Metro Star
Superama, Inc. 637 SCRA 633)
(d) Notice of informal conference [ is this same as (b) above?]
(e) Issuance of preliminary assessment notice [ is this same as (c)?]
(f) Exceptions to issuance of preliminary assessment notice
(g) Reply to preliminary assessment notice
(h) Issuance of formal letter of demand and assessment notice/final
assessment notice
68
Tax assessments by tax examiners are presumed correct and made in
good faith. The taxpayer has the duty to prove otherwise. In the absence of
proof of any irregularities in the performance of duties, an assessment duly
made by a Bureau of Internal Revenue examiner and approved by his
superior officers will not be disturbed. All presumptions are in favor of the
correctness of tax assessments.
(Sy Po vs CTA, GR 81446, August 18, 1988)
An assessment fixes and determines the tax liability of a taxpayer. As soon
as it is served, an obligation arises on the part of the taxpayer concerned to
pay the amount assessed and demanded. Hence, assessments should not
be based on mere presumptions no matter how reasonable or logical said
presumptions may be. In order to stand the test of judicial scrutiny, the
assessment must be based on actual facts. (CIR vs Island Garment
Manufacturing Co., GR L-46644, September 11, 1987)
Taxpayers shall be informed in writing of the law and the facts on which the
assessment is made, otherwise, the assessment shall be void. The old
requirement of merely notifying the taxpayer of the CIRs findings was
changed in 1998 to inform the taxpayer of not only the law but also the
facts on which an assessment would be made. Failure to comply with Sec.
228 of the Tax Code does not only render the assessment void, but also
finds no validation in any provision in the Tax Code. (CIR vs. Reyes, 480
SCRA 382)
A taxpayer must be informed in writing of the legal and factual bases of
the tax assessment made against him. This is a mandatory requirement.
The advice of a tax deficiency given by the CIR to an employee of Enron as
well as the preliminary 5-day letter notice, were not valid substitutes for the
mandatory notice in writing of the legal and factual bases of the
assessment. Sec. 228 of the NIRC requires that the legal and factual bases
be stated in the formal letter of demand and assessment notice. Otherwise
the law and RR 12-99 would be rendered nugatory. In view of the absence
of a fair opportunity for Enron to be informed of the bases of the
assessment, the assessment was void. This is a requirement of due
process. (CIR v. Enron Subic Power Corp. 575 SCRA 212)
(i) Disputed assessment
(j) Administrative decision on a disputed assessment
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
69
The authority to make tax assessments may be delegated to subordinate
officers. Said assessment has the same force and effect as that issued by
the Commissioner himself, if not reviewed or revised by the latter. (Oceanic
Network Wireless Inc., GR 148380, December 9, 2005)
(vi) Protesting assessment
(a) Protest of assessment by taxpayer

(1) Protested assessment


(2) When to file a protest
(3) Forms of protest
This Court had consistently ruled in a number of cases that a request for
reconsideration or reinvestigation by the taxpayer, without a valid waiver of
the prescriptive periods for the assessment and collection of tax, as
required by the Tax Code and implementing rules, will not suspend the
running thereof. (BPI vs CIR, GR 139736, October 17, 2005)
It bears to emphasize that under Section 224 of the Tax Code of 1977, as
amended, the running of the prescriptive period for collection of taxes can
only be suspended by a request for reinvestigation, not a request for
reconsideration. Undoubtedly, a reinvestigation, which entails the reception
and evaluation of additional evidence, will take more time than a
reconsideration of a tax assessment, which will be limited to the evidence
already at hand; this justifies why the former can suspend the running of
the statute of limitations on collection of the assessed tax, while the latter
can not. (BPI vs CIR, GR 139736, October 17, 2005)
(4) Content and validity of protest
(b) Submission of documents within 60 days from filing of protest
Petitioner cannot insist on the submission of proof of DST payment
because such document does not exist as respondent claims that it is not
liable to pay, and has not paid, the DST on the deposit on subscription. 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 BIR can only inform the
taxpayer to submit additional documents. The BIR cannot demand what
type of supporting documents should be submitted. Otherwise, a taxpayer
will be at the mercy of the BIR, which may require the production of
documents that a taxpayer cannot submit. (CIR vs First Express Pawnshop
Company, GR 172045-46, June 16, 2009)
(c) Effect of failure to protest
The rule is that for the Court of Tax Appeals to acquire jurisdiction, an
assessment must first be disputed by the taxpayer and ruled upon by the
Commissioner of Internal Revenue to warrant a decision from which a
petition for review may be taken to the Court of Tax Appeals. Where an
adverse ruling has been rendered by the Commissioner of Internal
Revenue with reference to a disputed assessment or a claim for refund or
credit, the taxpayer may appeal the same within thirty (30) days after
receipt thereof. A request for reconsideration
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(d) Period provided for the protest to be acted upon (vii) Rendition of
decision by Commissioner
(a) Denial of protest
Records show that petitioner disputed the PAN but not the Formal Letter of
Demand with Assessment Notices. Nevertheless, we cannot blame
petitioner for not filing a protest against the Formal Letter of Demand with
Assessment Notices since the language used and the tenor of the demand
letter indicate that it is the final decision of the respondent on the matter.
We have time and again reminded the CIR to indicate, in a clear and
unequivocal language, whether his action on a disputed assessment
constitutes his final determination thereon in order for the taxpayer
concerned to determine when his or her right to appeal to the tax court
accrues. Viewed in the light of the foregoing, respondent is now estopped
from claiming that he did not intend the Formal Letter of Demand with
Assessment Notices to be a final decision. (Allied Banking Corporation vs
CIR, G.R. No. 175097, February 5, 2010)
(1) Commissioners actions equivalent to denial of protest
70
must be made within thirty (30) days from the taxpayers receipt of the
tax deficiency assessment, otherwise, the decision becomes final,
unappealable and therefore, demandable. A tax assessment that has

become final, executory and enforceable for failure of the taxpayer to assail
the same as provided in Section
228 can no longer be contested. (
148380, December 9, 2005)
Oceanic Network Wireless Inc., GR
The request for reinvestigation and reconsideration was in effect
considered denied by petitioner when the latter filed a civil suit for collection
of deficiency income. Under the circumstances, the Commissioner of
Internal Revenue, not having clearly signified his final action on the
disputed assessment, legally the period to appeal has not commenced to
run. Thus, it was only when private respondent received the summons on
the civil suit for collection of deficiency income on December 28, 1978 that
the period to appeal commenced to run. (CIR vs Union Shipping
Corporation,
GR L-66160, May 21, 1990)
The letter of February 18, 1963, in the view of the Court, is
tantamount to a denial of the reconsideration or protest of the respondent
corporation on the assessment made by the petitioner, considering that the
said letter is in itself a reiteration of the demand by the Bureau of Internal
Revenue for the settlement of the assessment already made, and for the
immediate payment of the sum of P758, 687.04 in spite of the vehement
protest of the respondent corporation on April 21, 1961. This certainly is a
clear indication of the firm stand of petitioner against the reconsideration of
the disputed assessment in view of the continued refusal of the respondent
corporation to execute the waiver of the period of limitation upon the
assessment in question. (CIR vs Ayala Securities Corp., GR L29485, March 31, 1976)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(a) Filing of criminal action against taxpayer
(b) Issuing a warrant of distraint and levy (2) Inaction by Commissioner
(viii) Remedies of taxpayer to action by Commissioner
(a) In case of denial of protest
(b) In case of inaction by Commissioner within 180 days from
submission of documents
In case the Commissioner failed to act on the disputed assessment within
the 180-day period from date of submission of documents, a taxpayer can
either: (1) file a petition for review with the Court of Tax Appeals within 30
days after the expiration of the 180-day period; or (2) await the final
decision of the Commissioner on the disputed assessments and appeal
such final decision to the Court of Tax Appeals within 30 days after receipt
of a copy of such decision. (RCBC vs CIR, G.R. No. 168498, April 24,
2007)
(c) Effect of failure to appeal b) Collection
(i) Requisites
(ii) Prescriptive periods
The BIR has three years, counted from the date of actual filing of the return
or from the last date prescribed by law for the filing of such return,
whichever comes later, to assess a national internal revenue tax or to begin
a court proceeding for the collection thereof without an assessment. In
case of a false or fraudulent return with intent to evade tax or the failure to
file any return at all, the prescriptive period for assessment of the tax due
shall be 10 years from discovery by the BIR of the falsity, fraud, or
omission. When the BIR validly issues an assessment, within either the
three-year or ten-year period, whichever is appropriate, then the BIR has
another three years [now 5 years under Sec. 222, 1997 NIRC] after the
assessment within which to collect the national internal revenue tax due
thereon by distraint, levy, and/or court proceeding. (BPI vs CIR, GR
139736, October 17, 2005)
Under Section 223(c) of the Tax Code of 1977, as amended, it is not
essential that the Warrant of Distraint and/or Levy be fully executed so that
it can suspend the running of the statute of limitations on the collection of
the tax. It is enough that the proceedings have validly began or

commenced and that their execution has not been suspended by reason of
the voluntary desistance of the respondent BIR Commissioner. Existing
jurisprudence establishes that distraint and levy proceedings are validly
begun or commenced by the issuance of the Warrant and service thereof
on the taxpayer. It is only logical to require that the Warrant of Distraint
and/or Levy be, at the very least, served upon the taxpayer in order to
suspend the running of the prescriptive period for collection of an assessed
tax, because it may only be upon the service of the Warrant that the
taxpayer is informed of the denial by the BIR of any pending protest of the
said taxpayer, and the resolute intention of the BIR to collect the tax
assessed. (BPI vs CIR, GR 139736, October 17, 2005)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
71
While we may agree with the Court of Tax Appeals that a mere request for
reexamination or reinvestigation may not have the effect of suspending the
running of the period of limitation for in such case there is need of a written
agreement to extend the period between the Collector and the taxpayer,
there are cases however where a taxpayer may be prevented from setting
up the defense of prescription even if he has not previously waived it in
writing as when by his repeated requests or positive acts the Government
has been, for good reasons, persuaded to postpone collection to make him
feel that the demand was not unreasonable or that no harassment or
injustice is meant by the Government. (CIR vs Kudos Metal Corp., GR
178087, May 5, 2010)
The running of the prescription period where the acts of the taxpayer did
not prevent the government from collecting the tax. Partial payment would
not prevent the government from suing the taxpayer. Because, by such act
of payment, the government is not thereby persuaded to postpone
collection to make him feel that the demand was not unreasonable or that
no harassment or injustice is meant. (CIR vs Philippine Global
Communication, GR 167146, October 31, 2006)
The act of requesting a reinvestigation alone does not suspend the period.
The request should first be granted, in order to effect suspension. The
burden of proof that the taxpayers request for reinvestigation had been
actually granted shall be on respondent BIR Commissioner. The grant may
be expressed in communications with the taxpayer or implied from the
actions of the respondent BIR Commissioner or his authorized BIR
representatives in response to the request for reinvestigation. (BPI vs CIR,
GR 139736, October 17, 2005)
(iii) Distraint of personal property including garnishment
(a) Summary remedy of distraint of personal property
(1) Purchase by the government at sale upon distraint
(2) Report of sale to the Bureau of Internal Revenue (BIR) (3) Constructive
distraint to protect the interest of the government
(iv) Summary remedy of levy on real property (a) Advertisement and sale
(b) Redemption of property sold
(c) Final deed of purchaser
(v) Forfeiture to government for want of bidder (a) Remedy of enforcement
of forfeitures
(1) Action to contest forfeiture of chattel (b) Resale of real estate taken for
taxes
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72
The prohibition against examination of or inquiry into a bank deposit
under Republic Act 1405 does not preclude its being garnished to insure
satisfaction of a judgment. Indeed there is no real inquiry in such a case,
and if existence of the deposit is disclosed the disclosure is purely
incidental to the execution process. It is hard to conceive that it was ever
within the intention of Congress to enable debtors to evade payment of
their just debts, even if ordered by the Court, through the expedient of
converting their assets into cash and depositing the
same in a bank. (PCIB vs CA, GR 84526, January 28, 1991)

(c) When property to be sold or destroyed


(d) Disposition of funds recovered in legal proceedings or obtained from
forfeiture
(vi) Further distraint or levy (vii) Tax lien
(viii) Compromise
(a) Authority of the Commissioner to compromise and abate taxes
(ix) Civil and criminal actions
(a) Suit to recover tax based on false or fraudulent returns
73
It is settled that the claim of the government predicated on a tax lien is
superior to the claim of a private litigant predicated on a judgment. The tax
lien attaches not only from the service of the warrant of distraint of personal
property but from the time the tax became due and payable. Besides, the
distraint on the subject properties of Maritime Company of the Philippines
as well as the notice of their seizure were made by petitioner, through the
Commissioner of Internal Revenue, long before the writ of execution was
issued by the Regional Trial
Court. (Republic vs Enriquez, GR 78391, October 21, 1988)
The contention is made, and is here rejected, that an assessment of the
deficiency tax due is necessary before the taxpayer can be prosecuted
criminally for the charges preferred. The crime is complete when the
violator has, as in this case, knowingly and willfully filed fraudulent returns
with intent to evade and defeat a part or all of the tax. While there can be
no civil action to enforce collection before the assessment procedures
provided in the Code have been followed, there is no requirement for the
precise computation and assessment of the tax before there can be a
criminal prosecution under the Code. (Ungab vs
Cusi Jr., GR L-41919-24, May 30, 1980)
Sec. 269 [now Sec. 222 of the 1997 NIRC] provides that when fraudulent
tax returns are involved, a proceeding in court after the collection of such
tax may be begun without assessment. The gross disparity in the taxes due
and the amounts actually declared constitutes badges of fraud. Applying
Ungab v. Cusi, 97 SCRA 877 [1980], assessment is not necessary in filing
criminal complaints for tax violations. Assessment of a deficiency is not
necessary to a criminal prosecution for tax evasion. The crime is complete
when the violator knowingly and willfully filed fraudulent return with
intention to evade the tax. (Adamson v. Court of Appeals, 588 SCRA 27)
c) Refund
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. If the option to carry over the excess credit is exercised, the
same shall be irrevocable for that taxable period. This is known as the
irrevocability rule and is embodied in the last sentence of Section 76 of the
Tax Code. (Systra Philippines vs CIR, GR 176290, September 21, 2007)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
(a) Necessity of written claim for refund
74
No refund for documentary stamp taxes: documentary stamp taxes are
levied on the exercise by persons of certain privileges conferred by law for
the creation, revision, or termination of specific legal relationships through
the execution of specific instruments. Documentary stamp taxes are thus
levied on the exercise of these privileges through the execution of specific
instruments, independently of the legal status of the transactions giving rise
thereto. The documentary stamp taxes must be paid upon the issuance of
the said instruments, without regard to whether the contracts which gave
rise to them are rescissible, void, voidable, or unenforceable. (Philippine
Home Assurance Corp. vs CA,
GR 119446, January 21, 1999)
Sec. 79 of the 1997 NIRC laid down the irrevocability rule. The taxpayer
with excess income tax credits is given the option to either (1) to credit the

same to its tax liability for the succeeding taxable periods; or (2) refund the
amount or issue tax credit certificate. Once the carry-over option is taken,
actually or constructively, it becomes irrevocable. It can never be refunded.
The controlling factor for the operation of the irrevocability rule is that the
taxpayer chose an option; and once it had already done so, it could no
longer make another one. No application for refund or tax credit certificate
shall be allowed. The option of the BPI to carry-over the 1998 excess
credits is irrevocable. BPI cannot anymore apply for the refund in the event
it is unable to credit the said excess. The crediting of the excess credits in
the succeeding taxable periods has no prescription unlike the claim for
refund which prescribes after two years from the filing of the ITR. In the
event the taxpayer fails to make an appropriate marking of its option in the
ITR, does not mean that the taxpayer is barred from choosing his option
later on. The reason for requiring that a choice be made upon the filing of
the ITR is to ease tax administration. Failure to make a choice means that
the taxpayer is still uncertain and would show simple negligence or plain
oversight. The taxpayer may still make his choice later but once the choice
is made, irrevocability of the said choice sets in. (CIR vs. BPI, 592 SCRA
219)
(i) Grounds and requisites for refund
(ii) Requirements for refund as laid down by cases
In cases before tax courts, Rules of Court applies only by analogy or in a
suppletory character and whenever practicable and convenient shall be
liberally construed in order to promote its objective of securing a just,
speedy and inexpensive disposition of every action and proceeding. Since
it is not disputed that petitioner is entitled to tax exemption, it should not be
precluded from presenting evidence to substantiate the amount of refund it
is claiming on mere technicality especially in this case, where the failure to
present invoices at the first instance was adequately explained by
petitioner. (Philippine Phosphate Fertilizer Corp. vs CIR, GR 141973, June
28, 2005)
A claimant must first file a written claim for refund, categorically
demanding recovery of overpaid taxes with the CIR, before resorting to an
action in court. This obviously is intended, first, to afford the CIR an
opportunity to correct the action of subordinate officers; and second, to
notify the government that such taxes have been questioned, and the
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
notice should then be borne in mind in estimating the revenue available
for expenditure. (CIR vs Acosta, GR 154068, August 3, 2007)
(b) Claim containing a categorical demand for reimbursement (c) Filing of
administrative claim for refund and the suit/proceeding before the CTA
within 2 years from date of payment regardless of any supervening cause
Section 230 [now Sec. 229, 1997 NIRC] of the Tax Code, as couched,
particularly its statute of limitations component, is, in context, intended to
apply to suits for the recovery of internal revenue taxes or sums
erroneously, excessively, illegally or wrongfully collected. Black defines the
term erroneous or illegal tax as one levied without statutory authority. In the
strict legal viewpoint, therefore, PNBs claim for tax credit did not proceed
from, or is a consequence of overpayment of tax erroneously or illegally
collected. It is beyond cavil that respondent PNB issued to the BIR the
check for P180 Million in the concept of tax payment in advance, thus
eschewing the notion that there was error or illegality in the payment. (CIR
vs PNB, GR 161997, October 25, 2005)
75
This two-year prescriptive period is intended to apply to suits or
proceedings for the recovery of taxes, penalties or sums erroneously,
excessively, illegally or wrongfully collected. Accordingly, an availment of a
tax credit granted by law may have a different prescriptive period. Absent
any specific provision in the Tax Code or special laws, that period would be
ten years under Article 1144 of the Civil Code. (Concurring opinion of
Justice Vitug in CIR vs The Philippine American Life Insurance
Co., G.R. No. 105208, May 29, 1995)

Whenever applicable, the two-year prescriptive period starts from the full
and final payment of the tax sought to be recovered. (Concurring opinion of
Justice Vitug in CIR vs The Philippine American Life Insurance
Co., G.R. No. 105208, May 29, 1995)
For corporations, the two-year prescriptive period within which to
claim a refund commences to run, at the earliest, on the date of the filing of
the adjusted final tax return. The rationale in computing the two-year
prescriptive period with respect to the petitioner corporation's claim for
refund from the time it filed its final adjustment return is the fact that it was
only then that ACCRAIN could ascertain whether it made profits or incurred
losses in its business operations. (ACCRA Investments vs CA,
G.R. No. 96322, December 20, 1991)
Even if the two (2)-year prescriptive period, if applicable, had already
lapsed, the same is not jurisdictional and may be suspended for reasons of
equity and other special circumstances. Records show that the BIRs very
own conduct led PNB to believe all along that its original intention to apply
the advance payment to its future income tax obligations will be respected
by the BIR. (CIR vs PNB, GR 161997, October 25, 2005)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
The claim for refund with the Commissioner of Internal Revenue and the
subsequent action before the Court of Tax Appeals regarding the refund
should all be done within the said period of two years. (CIR vs NPC, G.R.
No. L-18874 January 30, 1970)
(iii) Legal basis of tax refunds
(iv) Statutory basis for tax refund under the tax code
(a) Scope of claims for refund
(b) Necessity of proof for claim or refund
(c) Burden of proof for claim of refund
Tax refunds, like tax exemptions, are construed strictly against the
taxpayer. The claimants have the burden of proof to establish the factual
basis of their claim for refund or tax credit. (Hitachi Global vs CIR, G.R. No.
174212, October 20, 2010)
The Commissioners contention that a tax refund partakes the nature of a
tax exemption does not apply to the tax refund to which Fortune Tobacco is
entitled. 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. Obviously, that is not the situation here. Quite the contrary, Fortune
Tobaccos claim for refund is premised on its erroneous payment of the tax,
or better still the governments exaction in the absence of a law. (CIR vs
Fortune Tobacco Corp., GR 167274-75, July 21, 2008)
(d) Nature of erroneously-paid tax/illegally assessed collected (e) Tax
refund vis-a-vis tax credit
(f) Essential requisites for claim of refund (v) Who may claim/apply for tax
refund/tax credit
(a) Taxpayer/withholding agents of non-resident foreign corporation
A withholding agent is a proper party to claim tax refund. He is liable to pay
the tax and subject to tax. The withholding agent is constituted
76
Formally, 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. On the practical side, the taxpayer to whom the tax is
refunded would have the option, among others, to invest for profit the
returned sum, an option not proximately available if the taxpayer chooses
instead to receive a tax credit. (CIR vs Philippine Phosphate Fertilizer
Corporation, G.R. No. 144440, September 1, 2004)
The proper party to question, or seek a refund of an indirect tax is the
statutory taxpayer, the person on whom the tax is imposed by law and who
paid the same even if he shifts the burden thereof to another. Even if
Petron Corporation passed on to Silkair the burden of the tax, 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. (Silkair vs CIR, G.R. Nos.

171383 & 172379, November 14, 2008)


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(vi) Prescriptive period for recovery of tax erroneously or illegally collected
(vii) Other consideration affecting tax refunds
2. Government remedies
a) Administrative remedies
(i) Tax lien
(ii) Levy and sale of real property
(iii) Forfeiture of real property to the government for want of bidder (iv)
Further distraint and levy
(v) Suspension of business operation
(vi) Non-availability of injunction to restrain collection of tax
The National Internal Revenue Code of 1997 (NIRC) expressly provides
that no court shall have the authority to grant an injunction to restrain the
collection of any national internal revenue tax, fee or charge imposed by
the code. The situation, however, is different in the case of the collection of
local taxes as there is no express provision in the LGC prohibiting courts
from issuing an injunction to restrain local governments from collecting
taxes. Such statutory lapse or intent, however it may be viewed, may have
allowed preliminary injunction where local taxes are involved but cannot
negate the procedural rules and requirements under Rule 58. (Angeles City
vs. Angeles City Electric Corp., GR 166134, June 29, 2010)
b) Judicial remedies
3. Statutory offenses and penalties a) Civil penalties
77
the agent of both the Government and the taxpayer. With respect to the
collection and/or withholding of the tax, he is the Government's agent. In
regard to the filing of the necessary income tax return and the payment of
the tax to the Government, he is the agent of the taxpayer. (CIR vs
Procter & Gamble, GR L-66838, December 2, 1991)
It is mandatory to collect penalty and interest at the stated rate in case of
delinquency. The intention of the law is to discourage delay in the payment
of taxes due the Government and, in this sense, the penalty and interest
are not penal but compensatory for the concomitant use of the funds by the
taxpayer beyond the date when he is supposed to have paid them to the
Government. If penalties could be condoned for flimsy reasons, the law
imposing penalties for delinquencies would be rendered nugatory, and the
maintenance of the Government and its multifarious activities will be
adversely affected. (Philippine Refining Company vs. CA, GR 118794,
May 8, 1996)
The taxpayer should be liable only for tax proper and should not be held
liable for the surcharge and interest when it appears that the assessment is
highly controversial. The Commissioner at the outset was not certain as to
petitioner's income tax liability.
(Cagayan Electric Power Light vs CIR, G.R. No. L-60126, September
25, 1985)
(i) Surcharge (ii) Interest
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(a) In general
(b) Deficiency interest
(c) Delinquency interest
(d) Interest on extended payment
4. Compromise and abatement of taxes a) Compromise
78
Compromise may be the favored method to settle disputes, but when it
involves taxes, it may be subject to closer scrutiny by the courts. A
compromise agreement involving taxes would affect not just the taxpayer
and the BIR, but also the whole nation, the
ultimate beneficiary of the tax revenues collected.
G.R. No. 109976, April
26, 2005)

(PNOC vs CA,
(PNOC vs CA,
The discretionary authority to compromise granted to the BIR
Commissioner is never meant to be absolute, uncontrolled and
unrestrained. No such unlimited power may be validly granted to any officer
of the government, except perhaps in cases of national emergency. The
BIR Commissioner would have to exercise his discretion within the
parameters set by the law, and in case he abuses his discretion, the CTA
may correct
such abuse if the matter is appealed to them.
G.R. No. 109976, April 26,
2005)
RMO No. 39-86 expressly allows a withholding agent, who failed to
withhold the required tax because of neglect, ignorance of the law, or his
belief that he was not required by law to withhold tax, to apply for a
compromise settlement of his withholding tax liability under E.O. No. 44. A
withholding agent, in such a situation, may compromise the withholding tax
assessment against him precisely because he is being held directly
accountable for the tax. RMO No. 39-86 distinguishes between the
withholding agent in the foregoing situation from the withholding agent who
withheld the tax but failed to remit the amount to the Government. A
withholding agent in the latter situation is the one disqualified from applying
for a compromise settlement because he is being made accountable as an
agent, who held funds in trust for the Government. (PNOC vs CA, G.R. No.
109976, April 26, 2005)
b) Abatement
The BIR may therefore abate or cancel the whole or any unpaid portion of a
tax liability, inclusive of increments, if its assessment is excessive or
erroneous;or if the administration costs involved do not justify the collection
of the amount due. No mutual concessions need be made, because an
excessive or erroneous tax is not compromised; it is abated or canceled.
Only correct taxes should be paid. (People vs Sandiganbayan, GR 152532,
August 16, 2005)
F. Organization and Function of the Bureau of Internal Revenue 1. Rulemaking authority of the Secretary of Finance
The authority of the Minister of Finance (now the Secretary of Finance),
in conjunction with the Commissioner of Internal Revenue, to promulgate
all needful rules and regulations for the effective enforcement of internal
revenue laws cannot be controverted. Neither can it be disputed that such
rules and regulations, as well as administrative opinions and rulings,
ordinarily should deserve weight and respect by the courts. Much more
fundamental than either of the above, however, is that all such issuances
must not override, but must remain consistent and in harmony with, the law
they seek to apply and implement. Administrative rules and regulations are
intended to
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carry out, neither to supplant nor to modify, the law. (CIR vs CA, G.R.
No. 108358,
January 20, 1995)
a) Authority of Secretary of Finance to promulgate rules and regulations
b) Specific provisions to be contained in rules and regulations
c) Non-retroactivity of rulings
2. Power of the Commissioner to suspend the business operation of a
taxpayer
III. Local Government Code of 1991, as amended
A. Local government taxation 1. Fundamental principles
An ordinance carries with it the presumption of validity. The question of
reasonableness
79
The fundamental law did not intend the delegation to be absolute and
unconditional; the

constitutional objective obviously is to ensure that, while the local


government units are being strengthened and made more autonomous, the
legislature must still see to it that (a) the taxpayer will not be over-burdened
or saddled with multiple and unreasonable impositions; (b) each local
government unit will have its fair share of available resources, (c) the
resources of the national government will not be unduly disturbed; and (d)
local taxation will be fair,
uniform, and just.(Manila Electric Co. v. Province of Laguna, G.R. No.
131359, May 05, 1999)
2. Nature and source of taxing power
a) Grant of local taxing power under the local government code
Local governments do not have the inherent power to tax except to the
extent that such power might be delegated to them either by the basic law
or by statute. Presently, under Article X of the 1987 Constitution, a general
delegation of that power has been given in favor of local government units.
(Manila Electric Company vs Province of Laguna, G.R. No. 131359, May 5,
1999)
Under the now prevailing Constitution, where there is neither a grant nor
prohibition by
statute, 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. (City
Government of San Pablo, Laguna, et al., v. Reyes, et al., G.R. No.
127708, March 25, 1999)
b) Authority to prescribe penalties for tax violations
c) Authority to grant local tax exemptions
d) Withdrawal of exemptions
e) Authority to adjust local tax rates
f) Residual taxing power of local governments
g) Authority to issue local tax ordinances
though is open to judicial inquiry.(Victorias Milling Co., Inc. v. Municipality
of Victorias, G.R. No.
L-21183, September 27, 1968)
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3. Local taxing authority
a) Power to create revenues exercised through Local Government Units b)
Procedure for approval and effectivity of tax ordinances
4. Scope of taxing power
5. Specific taxing power of Local Government Units
a) Taxing powers of provinces
(i) Tax on transfer of real property ownership
(ii) Tax on business of printing and publication
(iii) Franchise tax
80
It is clear under Sec. 188 of R.A. No. 7160 and Art. 277 of its
implementing rules that
the requirement of publication is MANDATORY and leaves no choice.
The use of the word "shall" in both provisions is imperative, operating to
impose a duty that may be enforced (CocaCola Bottlers Phil., Inc. v. City of Manila, G.R. No. 156252, June 27,
2006)
It is categorical, therefore, that a public hearing be held prior to the
enactment of an
ordinance levying taxes, fees, or charges; and that such public hearing
be conducted as provided under Section 277 of the Implementing Rules
and Regulations of the Local
Government Code.(Ongsuco v. Malones, G.R. No. 182065, October 27,
2009)
The taxing power of cities, municipalities and municipal districts may be
used (1) upon

any person engaged in any occupation or business, or exercising any


privilege therein; (2) for services rendered by those political subdivisions or
rendered in connection with any business, profession or occupation being
conducted therein, and (3) to levy, for public purposes just and uniform
taxes, licenses or fees (Philippine Match Co., Ltd. v. City of Cebu, G.R. No.
L-30745,
January 18, 1978)
As commonly used, a franchise tax is "a tax on the privilege of transacting
business in
the state and exercising corporate franchises granted by the state." To
determine whether the petitioner is covered by franchise tax, the following
requisites should concur: (1) that petitioner has a "franchise" in the sense
of a secondary or special franchise; and (2) that it is exercising its rights or
privileges under this franchise within the territory of the respondent city
government. (National Power Corporation v. City of Cabanatuan, G.R. No.
149110, April 09,
2003)
Meralco is subject to the local franchise tax. Its exemption has been
withdrawn under Sec. 137 and Sec. 193 of RA 7160. The LGU (San Pablo
and Laguna) is correct on relying the provisions of Secs. 137 & 193 that
Meralcos tax exemption has been withdrawn. Sec. 137 authorizes the
province to impose franchise tax notwithstanding any exemption granted
by any law or other special law. The local franchise tax is imposable
despite any exemption enjoyed under special laws. Sec. 193 provides the
withdrawal of all tax exemptions or incentives granted to or presently
enjoyed by all persons whether natural or juridical including GOCCs. Thus,
any existing tax exemption or incentive enjoyed by Meralco under existing
law was clearly intended to be withdrawn. Further, the LGC contains a
general repealing clause in its Sec. 534 (f).
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
Accordingly, we held in Mactan Cebu Intl Airport Authority v. Marcos, 261
SCRA 667, that Sec. 193 of the LGC prescribes the general rule, viz., the
tax exemptions or incentives granted to persons are withdrawn upon
effectivity of RA 7160, except to those entities enumerated. Invoking the
non-impairment clause is non-availing because a franchise granted is
subject to amendment, or repeal by Congress when public interest so
requires, which restriction was not only present in 1935 Constitution (Art.
XIV, Sec. 8) but in the 1973 (Art. XIV, Sec. 5), as well as in the 1987
Constitution (Art. XII, Sec. 11). With or without reservation clause,
franchises are subject to alterations as an exercise of police power or the
power to tax. (City of San Pablo v. Judge Reyes, 305 SCRA 353; Meralco
v. Prov. Of Laguna, 306 SCRA 750)
(iv) Tax on sand, gravel and other quarry services
81
Under the Local Tax Code. there is no question that the authority to
impose the license
fees collected from the hauling of sand and gravel excavated properly
belongs to the province concerned and not to the municipality where they
are found which is specifically prohibited under Section 22 of the same
Code "from levying taxes, fees and charges that the province or city is
authorized to levy in this Code." (Municipality of San Fernando, La Union v.
Sta. Romana,
G.R. No. L-30159, March 31, 1987)
In order for an entity to legally undertake a quarrying business, he must first
comply
with all the requirements imposed not only by the national government,
but also by the local government unit where his business is situated.
Particularly, Section 138 (2) of RA 7160 requires that such entity must first
secure a governor's permit prior to the start of his
quarrying operations||| (Province of Cagayan v. Lara, G.R. No.
188500, July 24, 2013)

The principle that when a company is taxed on its main business, it is no


longer taxable
for engaging in an activity that is but a part of, incidental to, and
necessary to such main business, applies to business taxes and not to
taxes such as the sand and gravel tax imposed by the provincial
government, based on the reasoning that the incidental activity could not
be treated as a business separate and distinct from the main business of
the taxpayer as the sand and gravel tax is an excise tax imposed on the
privilege of extracting sand and gravel. It is settled that provincial
governments can levy excise taxes on quarry resources independently
from national government. (Lepanto Consolidated Mining Company v.
Ambanloc,
G.R. No. 180639, June 29, 2010)
(v) Professional tax
(vi) Amusement tax
Resorts, swimming pools, bath houses, hot springs, and tourist spots are
not among
those places expressly mentioned by Section 140 of the LGC as being
subject to amusement taxes. (Principle of Ejusdem Generis) (Pelizloy
Realty Corp. v. Province of Benguet, G.R. No.
183137, April 10, 2013)
In determining the meaning of the phrase "other places of amusement,"
under Sec. 13
of the Local Tax Code, one must refer to the prior enumeration of
theaters, cinematographs, concert halls and circuses with artistic
expression as their common characteristic. Professional basketball games
do not fall under the same category as theaters, cinematographs, concert
halls and circuses as the latter basically belong to artistic forms of
entertainment while the
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former caters to sports and gaming. (Philippine Basketball Assn. v. Court
of Appeals, G.R. No.
119122, August 08, 2000)
It is the intent of the legislature not to impose VAT on persons already
covered by the
amusement tax. (CIR v. SM Prime Holdings, Inc., G.R. No. 183505,
February 26, 2010)
(vii) Tax on delivery truck/van
powers of cities
powers of municipalities
(i) Tax on various types of businesses
b) Taxing
c) Taxing
82
Business taxes imposed in the exercise of police power for regulatory
purposes are paid
for the privilege of carrying on a business in the year the tax was paid. It
is paid at the beginning of the year as a fee to allow the business to
operate for the rest of the year. It is deemed a prerequisite to the conduct of
business.||| (Mobil Philippines Inc. v. City Treasurer of
Makati, G.R. No. 154092, July 14, 2005)
When a municipality or city has already imposed a business tax on
manufacturers, etc. of liquors, distilled spirits, wines, and any other article
of commerce, pursuant to Section 143 (a) of the LGC, said municipality or
city may no longer subject the same manufacturers, etc. to a business tax
under Section 143 (h) of the same Code. Section 143 (h) may be imposed
only on businesses that are subject to excise tax, VAT, or percentage tax
under the NIRC, and that are "not otherwise specified in preceding
paragraphs".
(City of Manila v. Coca-Cola Bottlers Philippines, Inc., G.R. No.
181845, August 04, 2009)

By its very nature a condominium corporation is not engaged in


business, and any profit
that it derives is merely incidental, hence it may not be subject to
business taxes. (Yamane , etc.
v. BA Lepanto Condominium Corporation, G. R. No. 154993, October
25, 2005)
(ii) Ceiling on business tax impossible on municipalities within Metro Manila
(iii) Tax on retirement on business
(iv) Rules on payment of business tax
Tax should be computed based on gross receipts; the right to receive
income, and not the actual receipt, determines when to include the amount
in gross income. The imposition of local business tax based on petitioners
gross revenue will inevitably result in the constitutionally proscribed double
taxation taxing of the same person twice by the same jurisdiction for the
same thing inasmuch as petitioners revenue or income for a taxable year
will definitely include its gross receipts already reported during the previous
year and for which local business tax has already been paid. (Ericsson
Telecoms vs. City of Pasig. G.R. NO. 176667, November 22, 2007)
(v) Fees and charges for regulation & licensing
A municipality is authorized to impose three kinds of licenses: 1) license
for regulation of
useful occupations or enterprises; 2) license for restriction or regulation of
non-useful occupations or enterprises; and 3) license for revenue. The first
two easily fall within the broad police power granted under the general
welfare clause; the third class, however, is for revenue
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
purposes. (Victorias Milling Co., Inc. v. Municipality of Victorias, G.R. No.
L-21183, September
27, 1968)
(vi) Situs of tax collected
Section 133(e) of RA No. 7160 prohibits the imposition, in the guise of
wharfage, of fees
83
The power to levy an excise upon the performance of an act or the
engaging in an
occupation does not depend upon the domicile of the person subject to
the excise, nor upon the physical location of the property and in connection
with the act or occupation taxed, but depends upon the place in which the
act is performed or occupation engaged in. (Allied Thread
Co., Inc. v. City Mayor of Manila, G.R. No. L-40296, November 21, 1984)
Under a city ordinance which imposes tax on sales of goods in the city,
the city can
validly tax sales to customers outside of the city as long as the orders
were booked and paid for, and the goods were delivered to the carrier, in
the city. The goods can be regarded as sold in the city because delivery to
the carrier is delivery to the buyer.||| (Philippine Match Co., Ltd.
v. City of Cebu, G.R. No. L-30745, January 18, 1978)
d) Taxing powers of barangays
e) Commonrevenueraisingpowers
(i) Service fees and charges (ii) Public utility charges
(iii) Toll fees or charges
f) Community tax
6. Common limitations on the taxing powers of LGUs
The fundamental law did not intend the delegation to be absolute and
unconditional; the constitutional objective obviously is to ensure that, while
the local government units are being strengthened and made more
autonomous, the legislature must still see to it that (a) the taxpayer will not
be over-burdened or saddled with multiple and unreasonable impositions;
(b) each local government unit will have its fair share of available
resources; (c) the resources of the national government will not be unduly
disturbed; and (d) local taxation will be fair, uniform, and just. (Manila
Electric Company vs Province of Laguna, G.R. No. 131359, May 5, 1999)

While the power to tax by local governments may be exercised by local


legislative
bodies, no longer merely be virtue of a valid delegation as before, but
pursuant to direct authority conferred by Section 5, Article X of the
Constitution, the basic doctrine on local taxation remains essentially the
same, the power to tax is [still] primarily vested in the Congress. (Quezon
City, et al., v. ABS-CBN Broadcasting Corporation, G. R. No. 166408,
October 6, 2008 citing City Government of Quezon City, et al. v. Bayan
Telecommunications, Inc., G.R. No. 162015, March 6, 2006, 484 SCRA 169
in turn referring to Mactan Cebu International Airport Authority, v. Marcos,
G.R. No. 120082, September 11, 1996, 261 SCRA
667, 680)
as well as all other taxes or charges in any form whatsoever on
goods or merchandise. It is therefore irrelevant if the fees imposed are
actually for police surveillance on the goods,
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
because any other form of imposition on goods passing through the
territorial jurisdiction of the municipality is clearly prohibited by Section
133(e). (Palma Development Corp. v. Municipality of
Malangas, G.R. No. 152492, October 16, 2003)
7. Collection of business tax
a) Tax period and manner of payment
b) Accrual of tax
c) Time of payment
d) Penalties on unpaid taxes, fees or charges
e) Authority of treasurer in collection and inspection of books
8. Taxpayers remedies
a) Periods of assessment and collection of local taxes, fees or charges
b) Protest of assessment
c) Claim for refund of tax credit for erroneously or illegally collected tax, fee
or
charge
9. Civil remedies by the LGU for collection of revenues
a) Local governments lien for delinquent taxes, fees or charges
b) Civil remedies, in general
84
The language of Section 133 (h) of RA No. 7160 makes plain that the
prohibition with
respect to petroleum products extends not only to excise taxes thereon,
but all "taxes, fees and charges." ||| While local government units are
authorized to burden all such other class of goods with "taxes, fees and
charges", excepting excise taxes, a specific prohibition is imposed barring
the levying of any other type of taxes with respect to petroleum products.
(Petron
Corporation v. Tiangco, G.R. No. 158881, April 16, 2008)
As a general precept, a taxpayer may file a complaint assailing the validity
of the
ordinance and praying for a refund of its perceived overpayments
without first filing a protest to the payment of taxes due under the
ordinance. (Jardine Davies Insurance Brokers Inc. v.
Aliposa, G.R. No. 118900, February 27, 2003)
(i) Administrative action (ii) Judicial action
B. Real property taxation
1. Fundamental principles
2. Nature of real property tax
Unlike the National Internal Revenue Code, the Local Tax Code does not
contain any
specific provision prohibiting courts from enjoining the collection of local
taxes. Such Statutory lapse or intent, however it may be viewed, may have
allowed preliminary injunction where local taxes are involved but cannot
negate the procedural rules and requirements under Rule

58. (Valley Trading Co., Inc. v. CFI of Isabela, Branch II, G.R. No. L49529, March 31, 1989)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
3. Imposition of real property tax
a) Power to levy real property tax
b) Exemption from real property tax
85
As a general principle, a charitable institution does not lose its character
as such and its
exemption from taxes simply because it derives income from paying
patients, whether out- patient, or confined in the hospital, or receives
subsidies from the government, so long as the money received is devoted
or used altogether to the charitable object which it is intended to achieve;
and no money inures to the private benefit of the persons managing or
operating the
institution. (Lung Center of the Phil. v. Quezon City, G.R. No. 144104,
June 29, 2004)
Under the 1973 and 1987 Constitutions and Rep. Act No. 7160 in order
to be entitled to
the exemption, the petitioner is burdened to prove, by clear and
unequivocal proof, that (a) it is a charitable institution; and (b) its real
properties are ACTUALLY, DIRECTLY and EXCLUSIVELY used for
charitable purposes. "Exclusive" is defined as possessed and enjoyed to
the exclusion of others; debarred from participation or enjoyment; and
"exclusively" is defined, "in a manner to exclude; as enjoying a privilege
exclusively." (Lung Center of the Phil. v. Quezon City, G.R.
No. 144104, June 29, 2004)
Under Section 234(a), real property owned by the Republic is exempt from
real estate tax except when the government gives the beneficial use of the
real property to a taxable entity. The justification for the exception to the
exemption is that the real property, although owned by the Republic, is not
devoted to public use or public service but devoted to the private gain of a
taxable person. (Manila International Airport Authority v. Court of Appeals,
G.R. No. 155650, July 20, 2006)
In MIAA v. Court of Appeals & Paranaque City, 495 SCRA 591 [2006], the
Supreme Court resolved this issue that MIAA is not a government owned or
controlled corporation but a government instrumentality vested with
corporate powers and performing essential public services. MIAA is not
subject to any local tax except when its properties are used by taxable
entity or if the beneficial use of real property owned by the Republic is
given to a taxable entity.
The airport lands and buildings of MIAA are properties devoted to public
use and thus are properties of public dominion. They are owned by the
State or the Republic under Art. 420 of the NCC. Hence, the properties of
MIAA are exempted from the real property tax under Sec. 234(a) LGC.
Only those portions of the NAIA Pasay properties which are leased to
taxable persons like private parties are the ones subject to the real property
tax by Pasay City. (MIAA v. City of Pasay, 583 SCRA 234)
4. Appraisal and assessment of real property tax
a) Rule on appraisal of real property at fair market value
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. (Allied Banking
Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,
October 11, 2005)
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In fixing the value of real property, assessors have to consider all the
circumstances and
elements of value and must exercise prudent discretion in reaching
conclusions. (Allied Banking

Corporation, etc., v. Quezon City Government, et al., G. R. No. 154126,


October 11, 2005)
b) Declaration of real property
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
86
A tax declaration does not prove ownership; it is merely an indicium of a
claim of
ownership. Neither tax receipts nor declaration of ownership for taxation
purposes are evidence of ownership or of the right to possess realty when
not supported by other effective proofs. (De
Vera-Cruz v. Miguel, G.R. No. 144103, August 31, 2005)
Although tax declarations or realty tax payment of property are not
conclusive
evidence of ownership, nevertheless, they are good indicia of
possession in the concept of owner, for no one in his right mind would be
paying taxes for a property that is not in his actual or constructive
possession. They constitute at least proof that the holder has a claim of title
over the property. (Heirs of Santiago v. Heirs of Santiago, G.R. No. 151440,
June
17, 2003)
It is `the duty of each person' acquiring real estate in the city to make a
new
declaration thereof, with the advertence that failure to do so shall make
the assessment in the name of the previous owner 'valid and binding on all
persons interested, and for all purposes, as though the same had been
assessed in the name of its actual owner.' (Heirs of Tajonera v.
Court of Appeals, G.R. No. L-26677, March 27, 1981)
c) Listing of real property in assessment rolls
d) Preparation of schedules of fair market value
(i) Authority of assessor to take evidence
(ii) Amendment of schedule of fair market value
e) Classes of real property
f) Actual use of property as basis of assessment
g) Assessment of real property
(i) Assessment levels
(ii) General revisions of assessments and property classification (iii) Date of
effectivity of assessment or reassessment
(iv) Assessment of property subject to back taxes
(v) Notification of new or revised assessment
h) Appraisal and assessment of machinery
5. Collection of real property tax
a) Date of accrual of real property tax and special levies b) Collection of tax
(i) Collecting authority
(ii) Duty of assessor to furnish local treasurer with assessment rolls (iii)
Notice of time for collection of tax
c) Periods within which to collect real property tax d) Special rules on
payment
(i) Payment of real property tax in installments (ii) Interests on unpaid real
property tax
(iii) Condonation of real property tax
e) Remedies of LGUs for collection of real property tax
(i) Issuance of notice of delinquency for real property tax payment
87
With regard to determining to whom the notice of sale should have been
sent, settled is
the rule that, for purposes of real property taxation, the registered owner
of the property is deemed the taxpayer. Thus, in identifying the real
delinquent taxpayer, a local treasurer cannot rely solely on the tax
declaration but must verify with the Register of Deeds who the registered
owner of the particular property is. (Spouses Hu v. Spouses Unico, G.R.
No. 146534, September
18, 2009)

It has been ruled that the notices and publication, as well as the legal
requirements for
a tax delinquency sale, are mandatory; and the failure to comply
therewith can invalidate the sale. The prescribed notices must be sent to
comply with the requirements of due process. (De
Knecht v. Court of Appeals, G.R. No. 108015, 109234, May 20, 1998)
The delinquent taxpayer referred to under Sec. 72 of PD No. 464 is the
actual owner of
the property at the time of the delinquency and mere compliance by the
provincial or city treasurer with Sec. 65 of the decree is no longer enough.
The notification to the right person, i.e., the real owner, is an essential and
indispensable requirement of the law, non-compliance with which renders
the auction sale void. (Estate of Jacob v. Court of Appeals, G.R. No.
120435,
120974, December 22, 1997)
(ii) Local governments lien
(iii) Remedies in general
(iv) Resale of real estate taken for taxes, fees or charges
(v) Further levy until full payment of amount due
6. Refund or credit of real property tax a) Paymentunderprotest
b) Repayment of excessive collections
7. Taxpayers remedies
a) Contesting an assessment of value of real property
(i) Appeal to the Local Board of Assessment Appeals (ii) Appeal to the
Central Board of Assessment Appeals (iii) Effect of payment of tax
b) Payment of real property tax under protest
(i) File protest with local treasurer
The protest contemplated under Sec. 252 of R.A. 7160 is needed where
there is a
question as to the reasonableness of the amount assessed. Hence, if a
taxpayer disputes the reasonableness of an increase in a real estate tax
assessment, he is required to "first pay the tax" under protest; otherwise,
the city or municipal treasurer will not act on his protest. (Ty v.
Trampe, G.R. No. 117577, December 01, 1995)
The trial court has no jurisdiction to entertain a Petition for Prohibition
absent
petitioner's payment, under protest, of the tax assessed as required by
Sec. 64 of the
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RPTC. Payment of the tax assessed under protest, is a condition sine
qua non before the trial court could assume jurisdiction over the petition
and failure to do so, the RTC has no
jurisdiction to entertain it. (Manila Electric Co. v. Barlis, G.R. No. 114231,
May 18, 2001)
Under then Sec. 30 of PD 464 [now under Sec. 226, LGC], having failed to
appeal the real property assessments to the LBAA, taxpayer now cannot
assail the validity of the tax assessment before the courts. For failure to
exhaust administrative remedies, the assessment became final. Under Sec.
64 of PD 464 [now under Sec. 252, LGC), the taxpayer must first pay under
protest and then assail the validity of the assessment. (Davao Oriental
Electric Coop vs. Prov. Dvo. of Oriental, 576 SCRA 645)
(ii) Appeal to the Local Board of Assessment Appeals
(iii) Appeal to the Central Board of Assessment Appeals
(iv) Appeal to the CTA
(v) Appeal to the Supreme Court
IV. Tariff and Customs Code of 1978, as amended
A. Tariff and duties, defined
B. General rule: all imported articles are subject to duty.
1. Importation by the government taxable
C. Purpose for imposition
D. Flexible tariff clause
E. Requirements of importation

1. Beginning and ending of importation


Section 1202 of the Tariff and Customs Code provides that importation
begins when the carrying vessel or aircraft enters the jurisdiction of the
Philippines with intention to unload therein. It is clear from the provision of
the law that mere intent to unload is sufficient to commence an importation
and "intent," being a state of mind, is rarely susceptible of direct proof, but
must ordinarily be inferred from the facts, and therefore can only be proved
by unguarded, expressions, conduct and circumstances generally. (Feeder
International Line, Pte., Ltd. v. Court of Appeals, G.R. No. 94262, May 31,
1991)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
88
Under Section 226 of R.A. No 7160, the last action of the local assessor
on a particular
assessment shall be the notice of assessment; it is this last action which
gives the owner of the property the right to appeal to the LBAA. The
procedure likewise does not permit the property owner the remedy of filing
a motion for reconsideration before the local assessor. (Fels Energy,
Inc. v. Province of Batangas, G.R. No. 168557, 170628, February 16,
2007)
"Customs duties" is "the name givento taxes on the importation and
exportation of commodities, the tariff or tax assessed upon merchandise
imported from, or exported to, a
foreign country. (Nestle Philippines, Inc. v. Court of Appeals, G.R. No.
134114, July 06, 2001)

Under Section 1202 of the TCCP, importation takes place when


merchandise is brought
into the customs territory of the Philippines with the intention of
unloading the same at port. An exception to this rule is transit cargo
entered for immediate exportation which may be
2. Obligations of importer
a) Cargo manifest
b) Importentry
c) Declaration of correct weight or value
d) Liabilityforpaymentofduties
e) Liquidation of duties
f) Keeping of records
F. Importation in violation of tax credit certificate 1. Smuggling
(Commissioner of Customs v. Court of Tax Appeals,
89
Importation is terminated only upon the payment of duties, taxes and
other charges
upon the articles, or secured to be paid, at the port of entry and the legal
permit for withdrawal shall have been granted. Payment of the duties,
taxes, fees and other charges must be in full.
(Papa v. Mago, G.R. No. L-27360, February 28, 1968)
allowed under Section 2103 of the TCCP when the following concur:
(a) there is a clear intent to export the article as shown in the bill of lading,
invoice, cargo manifest or other satisfactory evidence;
(b) the Collector must designate the vessel or aircraft wherein the articles
are laden as a constructive warehouse to facilitate the direct transfer of the
articles to the exporting vessel or aircraft;
(c) the imported articles are directly transferred from the vessel or aircraft
designated as a constructive warehouse to the exporting vessel or
aircraft and
(d) an irrevocable domestic letter of credit, bank guaranty or bond in an
amount equal to the ascertained duties, taxes and other charges is
submitted to the Collector (unless it appears in the bill of lading, invoice,
manifest or satisfactory evidence that the articles are destined for
transshipment).
G.R. Nos. 171516-17, February 13, 2009)

The term "entry" in Customs law has a triple meaning. It means (1) the
documents filed
at the Customs house; (2) the submission and acceptance of the
documents; and (3) the procedure of passing goods through the Customs
house. (Jardeleza v. People, G.R. No. 165265,
February 06, 2006)
Smuggling is committed by any person who: (1) fraudulently imports
or brings into the
Philippines any article contrary to law; (2) assists in so doing any article
contrary to law; or (3) receives, conceals, buys, sells or in any manner
facilitate the transportation, concealment or sale of such goods after
importation, knowing the same to have been imported contrary to
law. (Jardeleza v. People, G.R. No. 165265, February 06, 2006)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
In order to warrant forfeiture, it is not necessary that the vessel or aircraft
must itself
90
The Tariff and Customs law subjects to forfeiture any article which is
removed contrary
to law from any public or private warehouse under customs supervision,
or released irregularly from Customs custody. Before forfeiture proceedings
are instituted the law requires the presence of probable cause; once
established, the burden of proof is shifted to the claimant. (Carrara Marble
Phil., Inc. v. Commissioner of Customs, G.R. No. 129680, September
01, 1999)
carry the contraband. There is nothing in the law that so requires.
(Llamado v. Commissioner of
Customs, G.R. No. L-28809, May 16, 1983)
2. Other fraudulent practices
G. Classification of goods
1. Taxable importation 2. Prohibited importation
Prohibited importations are subject to forfeiture whether the importation is
direct or indirect such as when the shipper and the consignee are one and
the same person. (Paterok v. Bureau of Customs, G.R. Nos. 90660-61,
January 21, 1991)
Although the illegally imported articles may not be absolutely
prohibited, but only
qualifiedly prohibited under Sec. 102 (K) of the Tariff and Customs
Code, for it may be imported subject to certain conditions, it is nonetheless
prohibited and is a contraband (Comm. of Customs vs. CTA & Dichoco, L33471, Jan. 31, 1972), and the legal effects of the importation of qualifiedly
prohibited articles are the same as those of absolutely prohibited articles.
(Auyong
Hian v. CTA, G.R. No. L-28782, September 12, 1974)
3. Conditionally-free importation
H. Classification of duties
1. Ordinary/regular duties
a) Ad valorem; methods of valuation
(i) Transaction value
(ii) Transaction value of identical goods (iii) Transaction value of similar
goods (iv) Deductive value
(v) Computed value
(vi) Fallback value
b) Specific
2. Special duties
a) Dumpingduties
b) Countervailing duties
c) Marking duties
d) Retaliatory/discriminatory duties
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e) Safeguard

I. Remedies
1. Government
a) Administrative/extrajudicial
(i) Search, seizure, forfeiture, arrest
91
It is quite clear that seizure and forfeiture proceedings under the tariff and
customs laws
are not criminal in nature as they do not result in the conviction of the
offender nor in the imposition of the penalty provided for in section 3601 of
the Code. As can be gleaned from Section 2533 of the code, seizure
proceedings, such as those instituted in this case, are purely civil and
administrative in character, the main purpose of which is to enforce the
administrative fines or forfeiture incident to unlawful importation of goods or
their deliberate
possession. (People v. Court of First Instance of Rizal, G.R. No. L41686, November 17, 1980)
In administrative proceedings, such as those before the BOC, technical
rules of
procedure and evidence are not strictly applied and administrative due
process cannot be fully equated with due process in its strict judicial sense.
The essence of due process is simply an opportunity to be heard or, as
applied to administrative proceedings, an opportunity to explain one's side
or an opportunity to seek reconsideration of the action or ruling complained
of. (El Greco Ship Manning and Management Corporation v. Commissioner
of Customs, G.R. No.
177188, December 04, 2008)
It is settled that the Bureau of Customs acquires exclusive jurisdiction
over imported
goods for purposes of enforcing the Customs laws, from the moment the
goods are actually in possession and control of said Bureau even in the
absence of any warrant of seizure or
detention. (Papa v. Mago, G.R. No. L-27360, February 28, 1968)
Regional trial courts are devoid of any competence to pass upon the
validity or regularity
of seizure and forfeiture proceedings conducted by the BOC and to
enjoin or otherwise interfere with these proceedings. Regional trial courts
are precluded from assuming cognizance over such matters even through
petitions for certiorari, prohibition or mandamus. (Subic Bay Metropolitan
Authority v. Rodriguez, G.R. No. 160270, April 23, 2010)
Even if the seizure by the Collector of Customs were illegal, which
has yet to be proven,
we have said that such act does not deprive the Bureau of Customs of
jurisdiction thereon. The allegations of petitioners regarding the propriety of
the seizure should properly be ventilated before the Collector of Customs.
(Jao v. Court of Appeals, G.R. No. 104604, 111223, October
06, 1995)
A forfeiture proceeding is in the nature of a proceeding in rem, i.e.,
directed against
the res or imported articles and entails a determination of the legality of
their importation. In this proceeding, it is in legal contemplation the property
itself which commits the violation and is treated as the offender, without
reference whatsoever to the character or conduct of the
owner. (Transglobe International, Inc. v. Court of Appeals, G.R. No.
126634, January 25, 1999)
Settlement of the case by payment of the fine or redemption of the forfeited
property,
prior to the filing of the criminal action, does not extinguish the offender's
criminal liability
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under Section 3601 of the Tariff and Customs Code. (People v. Desiderio,
G.R. No. L-20805,
92

November 29, 1965)


The requisites for the forfeiture of goods under Section 2530(f), in
relation to (1) (3-5),
of the Tariff and Customs Code are: (a) the wrongful making by the
owner, importer, exporter or consignee of any declaration or affidavit, or the
wrongful making or delivery by the same person of any invoice, letter or
paper all touching on the importation or exportation of merchandise; (b)
the falsity of such declaration, affidavit, invoice, letter or paper; and (c) an
intention on the part of the importer/consignee to evade the payment of the
duties
due. (Republic v. CTA, G.R. No. 139050, October 02, 2001)
Once probable cause has been shown for the institution of forfeiture
proceedings, the
burden of proof is upon claimant to establish that he fell within the
purview of the exception. The legal presumption in Section 5(j), Rule 131 of
the Rules of Court and Article 541 of the Civil Code are of a general
character and cannot prevail over the specific provisions of the Tariff and
Customs Code. (Acting Commr. of Customs v. CTA, G.R. No. 62636,
April 27, 1984)
b) Judicial
(i) Rules on appeal including jurisdiction
2. Taxpayer a) Protest
b) Abandonment
c) Abatement and refund
V. Judicial Remedies (R.A. No. 1125, as amended, and the Revised Rules
of the Court of Tax Appeals)
Both the Import Entry Declaration (IED) and Import Entry and Internal
Revenue
Declaration (IEIRD) should be filed within 30 days from the date of
discharge of the last package from the vessel or aircraft. (Chevron
Philippines, Inc. v. Commr., G.R. No. 178759,
August 11, 2008)
A. Jurisdiction of the Court of Tax Appeals
1. Exclusive appellate jurisdiction over civil tax cases
a) Cases within the jurisdiction of the court en banc
The appellate jurisdiction of the CTA is not limited to cases which involve
decisions of
the CIR on matters relating to assessments or refunds. Section 7 of
Republic Act No. 1125||| covers other cases that arise out of the National
Internal Revenue Code (NIRC) or related laws administered by the Bureau
of Internal Revenue (BIR). (Commr. v. Hambretch &
Quist Philippines, Inc., G.R. No. 169225, November 17, 2010)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
93
In line with the lifeblood doctrine, the National Internal Revenue Code of
1997 (NIRC)
expressly provides that no court shall have the authority to grant an
injunction to restrain the collection of any national internal revenue tax, fee
or charge imposed by the code. An exception to this rule obtains only when
in the opinion of the Court of Tax Appeals (CTA) the collection thereof may
jeopardize the interest of the government and/or the taxpayer. (Angeles
City v.
Angeles Electric Corporation, G.R. No. 166134, June 29, 2010)
b) Cases within the jurisdiction of the court in divisions
Without the automatic review by the Commissioner of Customs and the
Secretary of
Finance, a collector in any of our country's far-flung ports, would have
absolute and unbridled discretion to determine whether goods seized by
him are locally produced, hence, not dutiable, or of foreign origin, and
therefore subject to payment of customs duties and taxes. His decision,
unless appealed by the aggrieved party (the owner of the goods), would

become final with no one the wiser except himself and the owner of the
goods. (Yaokasin v. Commissioner of
Customs, G.R. No. 84111, December 22, 1989)
Section 7 of Republic Act No. 1125, creating the Court of Tax Appeals, in
providing for
appeals from '(1) Decisions of the Collector of Internal Revenue in
cases involving disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties imposed in relation thereto, or other
matters arising under the National Internal Revenue Code or other law or
part of the law administered by the Bureau of Internal Revenue allows
an appeal from a decision of the Collector in cases involving 'disputed
assessments' as distinguished from cases involving 'refunds of internal
revenue taxes, fees or other charges, . . .'; To hold that the taxpayer has
now lost the right to appeal from the ruling on the disputed assessment but
must prosecute his appeal under Section 306 of the Tax Code, which
requires a taxpayer to file a claim for refund of the taxes paid as a condition
precedent to his right to appeal, would in effect require of him to go through
a useless and needless ceremony that would only delay the disposition of
the case, for the Collector (now Commissioner) would certainly disallow the
claim for refund in the same way as he disallowed the protest against the
assessment. (Vda. de San
Agustin v. Commr., G.R. No. 138485, September 10, 2001)
While the law confers on the CTA jurisdiction to resolve tax disputes in
general, this
does not include cases where the constitutionality of a law or rule is
challenged. Where what is assailed is the validity or constitutionality of a
law, or a rule or regulation issued by the administrative agency in the
performance of its quasi-legislative function, the regular courts have
jurisdiction to pass upon the same. (British American Tobacco v. Camacho,
G.R. No.
163583, August 20, 2008)
The reviewable decision of the Bureau of Internal Revenue is that
contained in the letter
of its Commissioner, that such constitutes the final decision on the
matter which may be appealed to the Court of Tax Appeals and not the
warrants of distraint. It was likewise stressed that the procedure enunciated
is demanded by the pressing need for fair play, regularity and orderliness in
administrative action. (Commr. v. Union Shipping Corp., G.R. No. 66160,
May 21,
1990)
A final demand letter from the Bureau of Internal Revenue, reiterating to the
taxpayer
the immediate payment of a tax deficiency assessment previously made,
is tantamount to a
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94
denial of the taxpayer's request for reconsideration. Such letter amounts
to a final decision on a disputed assessment and is thus appealable to the
Court of Tax Appeals (CTA). (Commr. v.
Isabela Cultural Corp., G.R. No. 135210, July 11, 2001)
If the protest is denied in whole or in part, or is not acted upon within one
hundred
eighty (180) days from submission of documents, the taxpayer adversely
affected by the decision or inaction may appeal to the Court of Tax Appeals
within (30) days from receipt of the said decision, or from the lapse of the
one hundred eighty (180)-day period; otherwise the decision shall become
final, executory and demandable.||| (Rizal Commercial Banking Corp. v.
Commr., G.R. No. 168498, June 16, 2006)
The period to appeal from a decision of the Commissioner of Internal
Revenue to the
Court of Tax Appeals under Republic Act No. 1125 is jurisdictional and
non-extendible and a taxpayer may not delay indefinitely a tax assessment

by reiterating his original defenses over and over again, without substantial
variation. (Filipinas Investment & Finance Corp. v. Commr.,
G.R. No. L-23501, May 16, 1967)
To allow a litigant to assume a different posture when he comes before
the court and
challenge the position he had accepted at the administrative level, would
be to sanction a procedure whereby the Court which is supposed to
review administrative determinations would not review, but determine
and decide for the first time, a question not raised at the administrative
forum. Thus, it is well settled that under the same underlying principle of
prior exhaustion of administrative remedies, on the judicial level, issues not
raised in the lower court cannot be raised for the first time on appeal.
(Commr. v. Wander Phils., Inc., G.R. No. 68375,
April 15, 1988)
By withdrawing the appeal, petitioner is deemed to have accepted the
decision of the
CTA. Petitioner cannot be allowed to circumvent the denial of its request
for a tax credit by abandoning its appeal and filing a new claim. (Central
Luzon Drug Corp. v. Commr., G.R. No.
181371, March 02, 2011)
Sec. 7 of RA 1125 provides that the CTA has exclusive appellate
jurisdiction to review by appeal decisions of the CIR in cases involving
disputed assessments. Likewise Sec. 4 of the 1997 NIRC [RA 8424]
provides that the CIR has the power to decide disputed assessments
subject to the exclusive appellate jurisdiction of the CTA. The latest law on
the jurisdiction of the CTA under Sec. 7 of RA 9282 provides that the CTA
exercises exclusive appellate jurisdiction to review by appeal decisions of
the CIR in cases involving disputed assessments. Thus the CTAs
jurisdiction is to entertain an appeal only from a final decision or
assessment of the CIR or in cases where the CIR has not acted within the
period prescribed by the NIRC. So when the CIR has not issued an
assessment, then there is nothing to protest or dispute. (Adamson vs.
Court of Appeals, 588 SCRA 27)
The period to appeal the decision or ruling of the RTC in local tax cases to
CTA via petition for review is governed by Sec. 11 of RA 9282 and Sec.
3(a), Rule 8 of the Revised Rules of CTA, which is 30 days from receipt of
decision or ruling. To appeal an adverse ruling of the RTC to the CTA the
taxpayer must file a petition for review with the CTA within 30 days from
receipt of the adverse decision or ruling. An extension may be granted for
15 days. With the several extensions asked the CTA can dismiss the
petition. Failure to comply with
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requirements would also be a ground to dismiss the petition. (City of Manila
vs. Coca Cola Bottlers Phils., 595 SCRA 299)
2. Criminal cases
a) Exclusive original jurisdiction
b) Exclusive appellate jurisdiction in criminal cases
B. Judicial procedures
1. Judicial action for collection of taxes
a) Internal revenue taxes
95
Nowhere in the Tax Code is the Collector of Internal Revenue required to
rule first on a
taxpayer's request for reinvestigation before he can go to court for the
purpose of collecting the tax assessed. On the contrary, Section 305 of the
same Code withholds from all courts, except the Court of Tax Appeals
under Section 11 of Republic Act 1125, the authority to restrain the
collection of any national internal-revenue tax, fee or charge, thereby
indicating the legislative policy to allow the Collector of Internal Revenue
much latitude in the speedy and prompt collection of taxes. (Republic v. Lim
Tian Teng Sons & Co., Inc., G.R. No. L-21731, March 31,
1966)

For the purpose of safeguarding taxpayers from any unreasonable


examination,
investigation or assessment, our tax law provides a statute of limitations
in the collection of taxes. (Commissioner of Internal Revenue v. B.F.
Goodrich Phils, Inc., (now Sime Darby International Tire Co., Inc.), et al.,
G.R. No. 104171, February 24, 1999, 303 SCRA 546; Philippine
Journalists, Inc. v. Commissioner of Internal Revenue, G. R. No. 162852,
December 16, 2004), as well as
their assessments.
The law prescribing a limitation of actions for the collection of the
income tax is
beneficial both to the Government and to its citizens; to the Government
because tax officers would be obliged to act promptly in the making of
assessment, 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, not to determine the latters real liability, but to take advantage
of every opportunity to molest peaceful, law- abiding citizens. 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. (Bank of Philippine Islands (Formerly Far East
Bank and Trust
Company) v. Commissioner of Internal Revenue, G. R. No. 174942,
March 7, 2008)
Unreasonable investigation contemplates cases where the period for
assessment extends
indefinitely because this deprives the taxpayer of the assurance that it
will no longer be subjected to further investigation for taxes after the
expiration of a reasonable period of time. (Philippine
Journalists, Inc. v. Commissioner of Internal Revenue, G. R. No.
162852, December 16, 2004)
For the purpose of safeguarding taxpayers from any unreasonable
examination,
investigation or assessment, our tax law provides a statute of limitations
in the collection of taxes. Thus, the law on prescription, being a remedial
measure, should be liberally construed in order to afford such protection
and the exceptions to the law on prescription should perforce be
strictly construed. (Philippine Journalists Inc. v. Commr., G.R. No. 162852,
December 16, 2004)
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b) Local taxes
(i) Prescriptive period
2. Civil cases
a) Who may appeal, mode of appeal, effect of appeal
(i) Suspension of collection of tax
a) Injunction not available to restrain collection
(ii) Taking of evidence
(iii) Motion for reconsideration or new trial
96
The signatures of both the Commissioner and the taxpayer, are required
for a waiver of
the prescriptive period, thus a unilateral waiver on the part of the
taxpayer does not suspend the prescriptive period. (Commissioner of
Internal Revenue v. Court of Appeals, et al.,G.R. No.
115712, February 25, 1999)
The act of requesting a reinvestigation alone does not suspend the
running of the
prescriptive period. The request for reinvestigation must be granted by the
CIR. (Bank of Philippine Islands (Formerly Far East Bank and Trust
Company) v. Commissioner of Internal
Revenue, G. R. No. 174942, March 7, 2008)

It is true that petitioner could not move for new trial on the basis of newly
discovered
evidence because in order to have a new trial on the basis of newly
discovered evidence, it must be proved that: (a) the evidence was
discovered after the trial; (b) such evidence could not have been
discovered and produced at the trial with reasonable diligence; (c) it is
material, not merely cumulative, corroborative or impeaching; and (d) it is of
such weight that, if admitted, will probably change the judgment. This does
not mean however, that petitioner is altogether barred from having a new
trial if the reasons put forth by petitioner could fall under mistake or
excusable negligence. (Philippine Phosphate Fertilizer Corp. v. Commr.,
G.R. No.
141973, June 28, 2005)
Before the CTA En Banc could take cognizance of the petition for review
concerning a
case falling under its exclusive appellate jurisdiction, the litigant must
sufficiently show that it sought prior reconsideration or moved for a new trial
with the concerned CTA division. Procedural rules are not to be trifled with
or be excused simply because their non-compliance may have resulted in
prejudicing a party's substantive rights. (Commisioner of Customs v.
Marina Sales, Inc., G.R. No. 183868, November 22, 2010)
The Commissioner of Internal Revenue, not having clearly signified his
final action on
the disputed assessment, legally the period to appeal has not
commenced to run. The request for reinvestigation and reconsideration
was in effect considered denied by CIR when the latter filed a civil suit for
collection of deficiency income. (Commissioner of Internal Revenue vs
Union
Shipping Corporation and the Court of Tax Appeals, G.R. No. L-66160,
May 21, 1990)
A letter of the BIR Commissioner reiterating to a taxpayer his previous
demand to pay an
assessment is considered a denial of the request for reconsideration or
protest and is appealable to the Court of Tax Appeals. (Commr. v. Ayala
Securities Corp., G.R. No. L-29485, March 31,
1976)
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b) Appeal to the CTA, en banc
3. Criminal cases
a) Institution and prosecution of criminal actions
(i) Institution of civil action in criminal action
97
The petition for review to be filed with the CTA en banc as the mode for
appealing a
decision, resolution, or order of the CTA Division, under Section 18 of
Republic Act No. 1125, as amended, is not a totally new remedy, unique to
the CTA, with a special application or use therein. Accordingly, doctrines,
principles, rules, 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, and it cannot depart therefrom. (Santos v.
People, et al, G. R. No.
173176, August 26, 2008)
c) Petition for review on certiorari to the Supreme Court
BOC committed procedural missteps and the decision of the CTA division
has become final. The Supreme Court is without jurisdiction to review
decisions rendered by a division of the CTA but the decision of the CTA en
banc. Under Sec. 9 of RA 9282, a party affected by the ruling or decision of
a division of the CTA may file an MR within 15 days. Sec. 11 of RA 9282
provides that if the MR is denied, a petition for review is filed with the CTA
en banc. From an adverse ruling or decision from the CTA en banc, the
appeal by way of petition for review on certiorari under Rule 45 is filed with
the Supreme Court. Thus the Supreme Court has no jurisdiction to review

the decision of a division of the CTA. (Com. of Customs v. Gelmart


Industries, 579 SCRA 272)
Any subsequent satisfaction of the tax liability, by payment or
prescription, will not
operate to extinguish criminal liability, since the duty to pay the tax is
imposed by statute independent of any attempt on the part of the taxpayer
to evade payment. The failure of the government, therefore, to enforce by
appropriate civil remedies the collection of the taxes, does not detract from
its right criminally to prosecute violations of the Code. (People v. Tierra,
G.R.
Nos. L-17177-80, December 28, 1964)
Section 222 of the NIRC specifically states that in cases where a false
or fraudulent
return is submitted or in cases of failure to file a return such as this case,
proceedings in court may be commenced without an assessment.
Furthermore, Section 205 of the same Code clearly mandates that the civil
and criminal aspects of the case may be pursued simultaneously. (Commr.
v. Pascor Realty & Development Corp., G.R. No. 128315, June 29,
1999)
Since the civil liability is not deemed included in the criminal action,
acquittal of the
taxpayer in the criminal proceeding does not necessarily entail
exoneration from his liability to pay the taxes. The acquittal in a criminal
case cannot operate to discharge defendant from the duty of paying the
taxes which the law requires to be paid, since that duty is imposed by
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
98
statute prior to and independently of any attempts by the taxpayer to
evade
payment. (Republic v. Patanao, G.R. No. L-22356, July 21, 1967)
With regard to the tax proper, the state correctly points out in its brief
that the acquittal
in the criminal case could not operate to discharge petitioner from the
duty to pay the tax, since that duty is imposed by statue prior to and
independently of any attempts on the part of the taxpayer to evade
payment. The obligation to pay the tax is not a mere consequence of the
felonious acts charged in the information, nor is it a mere civil liability
derived from crime that would be wiped out by the judicial declaration that
the criminal acts charged did not
exist. (Castro v. Collector of Internal Revenue, G.R. No. L-12174, April
26, 1962)
b) Appeal and period to appeal
(i) Solicitor General as counsel for the people and government officials
sued
in their official capacity
c) Petition for review on certiorari to the Supreme Court
C. Taxpayers suit impugning the validity of tax measures or acts of taxing
authorities 1. Taxpayers suit, defined
It is hornbook principle that a taxpayer is allowed to sue where there is a
claim that
public funds are illegally disbursed, or that public money is being
deflected to any improper purpose, or that there is wastage of public funds
through the enforcement of an invalid or unconstitutional law. For a
taxpayer's suit to prosper, two requisites must be met namely, (1) public
funds derived from taxation are disbursed by a political subdivision or
instrumentality and in doing so, a law is violated or some irregularity is
committed; and (2) the petitioner is directly
affected by the alleged act. (LBP v. Cacayuran, G.R. No. 191667, April
17, 2013)
What is a taxpayers suit? In the case of a taxpayer, he is allowed to sue
where there is a claim that public funds are illegally disbursed, or that
public money is being deflected to any improper purpose, or that there is a

wastage of public funds through the enforcement of an invalid or


unconstitutional law. Before he can invoke the power of judicial review,
however, he must specifically prove that he has sufficient interest in
preventing the illegal expenditure of money raised by taxation and that he
would sustain a direct injury as a result of the enforcement of the
questioned statute or contract. It is not sufficient that he has merely a
general interest common to all members of the public. At all events, courts
are vested with discretion as to whether or not a taxpayer's suit should be
entertained. This Court opts to grant standing to most of the petitioners,
given their allegation that any impending transmittal to the Senate of the
Articles of Impeachment and the ensuing trial of the Chief Justice will
necessarily involve the expenditure of public funds. (Francisco, Jr. vs.
Nagmamalasakit na mga Manananggol ng mga Manggagawang Pilipino,
415 SCRA 44)
2. Distinguished from citizens suit
Taxpayers have been allowed to sue where there is a claim that public
funds are illegally
disbursed or that public money is being deflected to any improper purpose,
or that public funds are wasted through the enforcement of an invalid or
unconstitutional law. On the other hand, as citizens, petitioners have must
fulfill the standing requirement given that the issues they
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
have raised may be classified as matters "of transcendental importance,
of overreaching significance to society, or of paramount public interest."
(Belgica v. Ochoa, G.R. No. 208566,
208493, 209251, L-20768, November 19, 2013)
What is a citizens suit? When suing as a citizen, the interest of the
petitioner assailing the constitutionality of a statute must be direct and
personal. He must be able to show, not only that the law or any government
act is invalid, but also that he sustained or is in imminent danger of
sustaining some direct injury as a result of its enforcement, and not merely
that he suffers thereby in some indefinite way. It must appear that the
person complaining has been or is about to be denied some right or
privilege to which he is lawfully entitled or that he is about to be subjected
to some burdens or penalties by reason of the statute or act complained of.
In fine, when the proceeding involves the assertion of a public right, the
mere fact that he is a citizen satisfies the requirement of personal interest.
(Francisco, Jr. vs. Nagmamalasakit na mga Manananggol ng mga
Manggagawang Pilipino, 415 SCRA 44)
3. Requisites for challenging the constitutionality of a tax measure or act of
taxing authority
a) Concept of locus standi as applied in taxation
Legal standing or locus standi has been defined as a personal and
substantial interest in the case such that the party has sustained or will
sustain direct injury as a result of the governmental as that is being
challenged. The gist of the question of standing is whether a party alleges
such personal stake in the outcome of the controversy as to assure the
concrete adverseness which sharpens the presentation of issues upon
which the court depends for illumination of difficult constitutional questions.
To invest him with locus standi, the plaintiff has to adequately show that he
is entitled to judicial protection and has a sufficient interest in the
vindication of the asserted public right. In case of taxpayers suits, the party
suing as a taxpayer must prove that he has sufficient interest in preventing
the illegal expenditure of money raised by taxation. (Public Interest Center
vs. Roxas, 513 SCRA 457)
Locus standi, however, is merely a matter of procedure and it has been
recognized that in some cases, suits are not brought by parties who have
been personally injured by the operation of a law or any other government
act but by concerned citizens, taxpayers or voters who actually sue in the
public interest. Consequently, the Court, in a catena of cases, has
invariably adopted a liberal stance on locus standi, including those cases
involving taxpayers. The prevailing doctrine in taxpayers suits is to allow

taxpayers to question contracts entered into by the national government or


government-owned or controlled corporations allegedly in contravention of
law. A taxpayer is allowed to sue where there is a claim that public funds
are illegally disbursed, or that money is being deflected to any improper
purpose, or that there is wastage of public funds through the enforcement
of an invalid or unconstitutional law. Significantly, a taxpayer need not be a
party to the contract to challenge its validity. (Abaya vs. Ebdane, Jr. 515
SCRA 720)
Bar Ops Pilipinas 2015 Philippine Association of Law Schools
99

b) Doctrine of transcendental importance


What is transcendental importance? There being no doctrinal definition of
transcendental importance, the following instructive determinants are
instructive: (1) the character of the funds or other assets involved in the
case, (2) the presence of a clear case of disregard of a constitutional or
statutory prohibition by the public respondent agency or instrumentality of
the government, and the (3) the lack of any other party with a more direct
and specific interest in raising the questions being raised. The Court has
adopted a liberal attitude on locus standi where the petitioner is able to
craft an issue of transcendental significance to the people, as when the
issues raised are of paramount importance to the public. (Francisco, Jr. vs.
Nagmamalasakit na mga Manananggol ng mga Manggagawang Pilipino,
415 SCRA 44)
Only a person who stands to be benefited or injured by the judgment in the
suit or entitled to the avails of the suit can file a complaint or petition.
Respondents claim that petitioner is not a proper party-in-interest as he
was unable to show that he has sustained or is in immediate or imminent

danger of sustaining some direct and personal injury as a result of the


execution and enforcement of the assailed contracts or agreements.
Moreover, they assert that not all government contracts can justify a
taxpayers suit especially when no public funds were utilized in
contravention of the Constitution or a law. We explicated in Chavez v.
PCGG, 299 SCRA 744 (1998), that in cases where issues of
transcendental public importance are presented, there is no necessity to
show that petitioner has experienced or is in actual danger of suffering
direct and personal injury as the requisite injury is assumed. We find our
ruling in Chavez v. PEA, 384 SCRA 152 (2002), as conclusive authority on
locus standi in the case at bar since the issues raised in this petition are
averred to be in breach of the fair diffusion of the countrys natural
resources and the constitutional right of a citizen to information which have
been declared to be matters of transcendental public importance.
Moreover, the pleadings especially those of respondents readily reveal that
public funds have been indirectly utilized in the Project by means of
Smokey Mountain Project Participation Certificates (SMPPCs) bought by
some government agencies. Hence, petitioner, as a taxpayer, is a proper
party to the instant petition before the court. (Chavez vs. NHA, 530 SCRA
235)
100
c) Ripeness for judicial determination
PREPARED BY:
UNIVERSITY OF SAN CARLOS
PLAZA, ATHENA PLAZA, LADY LOVE JACILDO, JECCA
Bar Ops Pilipinas 2015 Philippine Association of Law Schools