PM Reyes Bar Reviewer On Taxation Ii: Q: What Are Transfer Taxes?

PM REYES BAR REVIEWER ON TAXATION II
(Based on the 2013 Bar Syllabus and Updated with the Recent BIR Issuances and the
Latest Supreme Court and CTA Jurisprudence as of January 31, 2013)
This is the second installment of my two-part reviewer
on taxation. It covers 8 topics, namely: (1) Estate Tax
(2) Donors Tax (3) Tax Remedies (4) Organization and
Functions of the BIR (5) Local Government Taxation
(6) Real Property Taxation (7) Tariff and Customs
Code; (8) Judicial Remedies (CTA). It is a consolidated
and updated version of my reviewers in Tax 2 and
Taxation Law Review. This reviewer is based on notes
from Atty. Montero and Assoc. Dean Gruba and the
books and reviewers of Atty. Mamalateo and Atty.
Domondon. I also added some stuff from Atty. Mickey
Ingles reviewer and Justice Dimaampao. For the
transfer taxes, I added stuff from Starr Weigands
notes. References have also been made to the 2013
Bedan Red Book and the 2012 UP Tax Reviewer.
Further, I added the recent and relevant revenue
regulations and other BIR issuances (especially those
issued in 2012) and the latest SC and CTA
jurisprudence (as of January 31, 2013). Most of the
digests were sourced from Du Baladad and
Associates (BDB Law) and from Baniqued &
Baniqued. The reviewer will make reference to codal
provisions. Thus, I recommend that you read this with
a copy of the NIRC and other Laws Codal (2012
edition) by Atty. Sacadalan-Casasola
Possessors may reproduce and distribute my
reviewer provided my name remains clearly
associated with my work and no alterations in the
form and content of my reviewer are made. No
stamping please.
May this reviewer prove useful to you. If it does,
please share it to others. Happy studying!
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TABLE OF CONTENTS
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II. NIRC
B. Estate Tax ................................................. 2
C. Donors Tax ............................................. 18
D. Value-Added Tax .................................... 25
E. Tax Remedies ......................................... 59
F. Organization and Function of the Bureau
of Internal Revenue................................... 100
III. Local Government Code
A. Local Government Taxation ................ 104
B. Real Property Taxation ........................ 120
IV. Tariff and Customs Code ......................... 137
V. Judicial Remedies (CTA) ......................... 152
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PIERRE MARTIN DE LEON REYES

Ateneo Law Batch 2013
Note: Before we discuss Estate Tax, let us discuss the

concept of Transfer Taxes.
Q: What are transfer taxes?

Transfer taxes are those taxes imposed upon the
privilege granted by the state to the taxpayer so that
he may transfer properties, real or personal, without
consideration.
Q: What is the nature of transfer taxes?

Transfer taxes are excise or privilege taxes that are
imposed on the act of passing ownership of property
and not taxes on the property transferred.
Q: What are the kinds of transfer taxes and

define each?
At present, the kinds of transfer taxes are:
1. Estate tax a tax that is levied, assessed,
collected and paid upon the transfer of the net
estate of a decedent to his or her heirs.
2. Donors tax - is an excise tax levied, collected,
and paid upon the privilege of transferring
property gratuitously by way of gift inter vivos by
any person, resident or non-resident
Note: In 1973, aside from estate and donors tax,
inheritance and donees tax were imposed. Inheritance
taxes are imposed on the right of the heirs to receive
property upon death of the decedent. Donees taxes are
imposed on the right given to the done to receive property
from a donor during his lifetime. PD No. 69 abolished
these two transfer taxes. Today, the recipient of property
by inheritance or donation is no longer liable for transfer
taxes.
Q: Differentiate estate tax from donors tax.

Estate Tax
Donors Tax
Tax on the privilege to

transfer property upon
ones
death
(mortis
causa)
Tax on the privilege to

transfer property during
ones life time (inter
vivos)
Maximum tax rate of

estate tax is 20% on net
estates exceeding Php
10 million and the first
Php 200,000 is exempt
Maximum tax rate is

15% on the net gifts
exceeding Php 10 million
and
the
first
Php
100,000 is tax exempt
Page 1 of 164
Last Updated: 30 July 2013 (v3)

Estate tax is computed

on the basis of the net
estate transferred at the
time of the death of the
decedent
Donors tax is computed

on the basis of net gifts
given during a calendar
year
Q: Compare and contrast donation mortis

causa and donation inter vivos.
Mortis Causa
Inter Vivos
Both are transfers without onerous consideration

takes effect upon the
death of the transferor
takes effect during the

lifetime of the transferor
Ownership will pass only

upon death
Ownership will pass

during the donors life
time
subject to estate tax
Q: What is the basis of the imposition of

estate tax?
Estate tax is imposed upon the basis of the net
estate of the decedent, considered as a unit,
regardless of the number of shares into which it may
be divided or the relationship of the beneficiaries.
Q: What law shall govern the imposition of

estate tax?
RR 02-2003 [December 16, 2002] reiterates the
well-settled rule that estate taxation is governed by
the statute in force at the time of the death of the
decedent.
Q: When does the estate tax accrue?

It accrues upon the death of the decedent. (Section
3, RR 22003 [December 16, 2002]
subject to donors tax
Q: What is the law that governs the

imposition of transfer taxes?
Transfer taxes are governed by the laws existing at
the time the transfer takes place. In particular
a. Donations inter vivos are governed by the
law existing at the time of the effectivity of
the donation since the transfer takes place
at that time
b. Donations mortis causa are governed by the
law at the time of death because it is at that
time that the property is transferred.
---------------------------------------------------------B. ESTATE TAX

-----------------------------------------------------------------------------------------------------------------------1. Basic Principles
--------------------------------------------------------------Q: What transfer is subject to estate tax?
The transfer of the net estate of every decedent,
whether resident or non-resident is subject to estate
tax.

Q: Is the accrual of the estate tax distinct

from the obligation to pay the same?
Yes. The accrual of the tax is distinct from the
obligation to pay the same. Upon the death of the
decedent, succession takes place and the right of
the State to tax the privilege to transmit the estate
vests instantly upon death (see RR 02-2003
[December 16, 2002].
Generally, the estate tax is paid at the time the
estate tax return is filed by the executor,
administrator or the heirs. The period to file an
estate tax return within six months from the death of
the decedent except in meritorious cases where an
extension not exceeding 30 days is granted. (see
Section 90, Tax Code)
Q: A died. He left a will which provided that

all real estate shall not be sold or disposed
of 10 years after his death and when such
period lapses, the property shall be given to
B. (1) When does the estate tax accrue?
The estate tax accrues as of the death of the
decedent.
Q: Based on the same facts as stated above,

B contended that the inheritance tax should
be based on the value of the estate at the
lapse of the 10-year period. Is Bs
contention correct?
Page 2 of 164

No, the tax accrues at the time of death

notwithstanding the condition. Since death is the
generating source from which the power of the State
to impose estate taxes takes its being and if upon
the death of the decedent, succession takes place
and the right of the state to tax vests instantly, the
tax is to be measured by the value of the estate as it
stood at the time of the decedents death, regardless
of any postponement of actual possession or any
subsequent increase or decrease in value.
(LORENZO V. POSADAS [JUNE 18, 1937])
--------------------------------------------------------------2. Definition
---------------------------------------------------------------
3. Provide for an equal distribution of wealth

4. It is the most appropriate and effective
method for taxing the privilege which the
decedent
enjoys
of
controlling
the
dispositions
5. It is the only method of collecting the share
which is properly due to the State as a
partner in the accumulation of property
which was made possible on account of the
protection given by the State
Q: Discuss the different theories regarding

the purposes of estate tax.
Benefit-received
theory
An estate tax is a graduated tax imposed on the

privilege of the decedent to transmit property at
death and is based on the entire net estate,
regardless of the number of heirs and relations to
the decedent.
The tax is in return for the

services rendered by the state
in the distribution of the estate
of the decedent and for the
benefits that accrue to the
estate and the heirs
Statepartnership
theory
The tax is in the share of the

state as a passive and silent
partner in the accumulation of
property
It is a tax levied, assessed, collected and paid upon

the privilege of gratuitously transferring the net
estate of a decedent to his heirs.
Ability to
Theory
Q: Define estate tax?
--------------------------------------------------------------3. Nature
--------------------------------------------------------------Q: What is the nature of the estate tax?
The Estate Tax is
a. It is not a tax on property
b. It is a tax imposed on the privilege to
transmit property a death and is measured
by the value of the property.
Pay
The tax is based on the act that

the receipt of inheritance
creates the ability to pay and
thus contribute to governmental
income
Redistribution
of wealth theory
The tax is imposed to help

reduce undue concentration of
wealth in society to which the
receipt of inheritance is a
contributing factor
--------------------------------------------------------------5. Time and transfer of properties

---------------------------------------------------------------
--------------------------------------------------------------4. Purpose or object

---------------------------------------------------------------
Q: When are properties

transferred to successors?
Q: What are the purposes for imposing the

estate tax?
The properties and rights are transferred to the

successors at the time of death of the decedent (Art.
777, NCC).
The generally accepted purposes for imposing the

estate tax are as follows:
However, despite the transfer of properties and

rights at the time of death, the executor or
administrator shall not deliver a distributive share to
any party interested in the estate unless there is a
1. To generate additional revenue for the

government
2. To reduce the concentration of wealth
and
rights
Page 3 of 164

certification from the CIR that estate tax has been

paid. (see Section 94, Tax Code)
Note: In the determination of the estate tax, you should
note 4 things: (1) The classification of the decedent based
on nationality and/or domicile (2) The nature and the
location of the assets (3) The computation and valuation of
the assets (which includes deductions) and (4) Rates.
--------------------------------------------------------------6. Classification of decedent

--------------------------------------------------------------Q: Who are the taxpayers liable to pay
estate tax?
1.
2.
3.
4.
Resident citizens
Non-resident citizens
Resident alien
Non-resident alien
Note: Only natural persons can be held liable for estate

tax. A corporation cannot be liable for the obvious reason
that they cannot die (naturally speaking).
--------------------------------------------------------------7. Gross estate vis--vis net estate

---------------------------------------------------------------
8. Determination of gross estate and net

estate
--------------------------------------------------------------Read Section 85, 1
Q: How is gross estate determined?
Decedent
Determination
estate
of
gross
Resident
Citizen,
Non-resident
Citizen,
Resident
Alien
All
properties,
real
or
personal,
tangible
or
intangible,
wherever
situated,
plus
items
includible in gross estate
Non-Resident Alien
Only
those
properties
situated in the Philippines
provided that with respect to
intangible personal property,
its inclusion in the gross
estate is subject to the rule
of reciprocity under Section
104 of the Tax Code
(See Section 4, RR No. 2-2003 [December 16,

2002])
Q: Distinguish Gross Estate from Net Estate

Read Section 104, Tax Code
Gross Estate
Net Estate
The value of all the

property,
real
or
personal, tangible or
intangible,
of
the
decedent
wherever
situated to the extent of
his interest at the time of
his death as well as
other items includible in
the gross estate (See
Section 85, Tax Code)
The value of the gross

estate less the ordinary
and special deductions
(see Section 86, Tax
Code)
Note: In the case of a nonresident alien decedent,

only that part of the entire
gross estate which is
shall form part of his gross
estate.
---------------------------------------------------------------

Q: What is the rule in determining the situs

of intangible personal property for estate tax
purposes?
As a general rule, we apply the principle of res
mobilia sequuntur personam (chattels follow the
person). In other words, the intangible property is
taxed based on the domicile of the owner.
However, SECTION 104 provides that certain
intangibles be deemed located in the Philippines,
namely:
1. Franchises
being
exercised
in
the
Philippines
2. Shares, obligations, or bonds issued by
domestic corporations, or partnerships,
business or industry located in the
Philippines
3. Shares, obligations or bonds issued by
foreign corporations
Page 4 of 164

a. at least 85% of the business of

which is located in the Philippines;
or
b. which have acquired situs in the
Philippines
4. All intangibles owned by residents
Q: What is meant by reciprocity as applied

to intangibles of a non-resident alien for
estate tax purposes?
As provided in Section 104, there is reciprocity if the
foreign country of which the decedent was a citizen
or resident at the time of his death:
1. Did not impose an estate tax; or
2. Allowed a similar exemption from estate tax
with respect to intangible personal property
owned by Filipino citizens not residing in that
foreign country.
Non-Resident Alien
Note: Non-resident alien

decedent cannot avail of
special deductions.
--------------------------------------------------------------9. Composition of gross estate

--------------------------------------------------------------Read Section 85, 1 and Section 104, Tax
Code
Q: What does the gross estate of a decedent
consist of?
Decedent
Composition
estate
Resident
Citizen,
Non-resident
Citizen,
Resident
Alien
1. Real property within and

without the Philippines
2. Tangible
personal
property
within
and
3. Intangible
personal
property
within
and
Non-Resident Alien
1. Real property within the

Philippines
2. Tangible
personal
property
within
the
Philippines
3. Intangible
personal
property
within
the
Philippines unless there
is reciprocity in which
case it is not taxable
Q: Must there be total reciprocity?

Yes. In COLLECTOR OF INTERNAL REVENUE V. FISHER
[JANUARY 28, 1961], at issue is whether the shares
of stock of a nonresident alien in a domestic mining
company can be exempted from estate tax pursuant
to the reciprocity proviso in the Philippine Tax Code.
The Supreme Court held in the negative. Reciprocity
must be total. If any of the two states collects or
imposes or does not exempt any transfer, death,
legacy, or succession tax of any character, the
reciprocity does not work. In this case, the
Philippines imposed an estate and an inheritance
tax at the time while California imposed only
inheritance tax.
Q: How is net estate determined?

Decedent
Determination of net estate
Resident
Citizen,
Non-resident
Citizen,
Resident
Alien
Net estate is equal to gross

estate less ordinary and
special
deductions
and
exclusions allowed by law
Note:
The
special
deductions (FSMA) are: (1)
Family Home; (2) Standard
deduction
(3)
Medical
expenses and (4) Amount
received by heir under RA
4917.

Net estate is equal to gross

estate
less
ordinary
deductions and exclusions
allowed by law
of
gross
Note: In sum, all assets, real or personal, tangible or

intangible wherever located of a citizen and resident
alien is subject to estate tax while for nonresident aliens,
estate tax is imposed only on properties within the
Philippines provided in the case of intangible personal
property, it is subject to the rule of reciprocity under
Section 104 of the Tax Code.
Page 5 of 164

Q: How do you value the estate for estate

tax purposes?
The properties comprising the gross estate shall be
valued based on their fair market value as of the
time of death.
Q: For purposes of estate taxation, how is

the fair market value of the following
properties determined?
Real Property
Shares
Stock
of
Fair market value determined by:

1. the CIR (zonal value) or
2. that shown in the schedule of
values fixed by Provincial and
City Assessors, whichever is
higher
If unlisted:
1. Unlisted common shares are
valued based on their book
value
2. Unlisted preferred shares are
valued at par value.
If listed:
Usufructuary,
use
or
habitation,
annuity
Improvement
The fair market value shall be the

arithmetic mean between the
highest and lowest quotation at a
date nearest the date of death, if
none is available on the date of
death itself.
The
probable life of the
beneficiary in accordance with the
latest basic standard mortality
table shall be taken into account
1. The construction cost per
building permit or
2. FMV per latest tax declaration
(See SECTION 88, TAX CODE AND SECTION 5, RR 022003]
--------------------------------------------------------------10. Items to be included in gross estate

--------------------------------------------------------------Q: What items/transfers should be included
in the gross estate?
a. Decedents interest at the time of death
b. Transfers in contemplation of death

c. Revocable transfers
d. Property
under
general
power
of
appointment
e. Proceeds of a life insurance taken out by the
decedent upon his own life where the
beneficiary is the estate, his executor or
administrator irrespective of whether or not
insured retained power of revocation or any
beneficiary designated as recovable
f. Transfers for insufficient consideration
Note: These are considered substitutes for testamentary
dispositions. Although inter vivos in form, they are mortis
causa in substance. Note that in all these transfers, if they
were made for a bona fide consideration, they shall not
form part of the gross estate.
Decedents Interest
Read Section 85(A)
Q: What
include?
does the decedents interest
It includes any interest having value or capable of

being valued, transferred by the decedent at his
death
Transfer in contemplation of death

Read Section 85(B)
Q: When is a transfer considered one made
in contemplation of death?
A transfer is considered made in contemplation of
death when the impelling motive or reason for the
transfer is the thought of death, regardless of
whether the transferor is near the possibility of death
or not.
Note: The presumption that transfers made within three
years before death are made in contemplation of death as
provided under PD 1705 is no longer applicable.
Q: What factors should be considered in

determining whether a transfer was made in
contemplation of death?
One should consider the following:
1. The type of heir (whether compulsory or
voluntary)
2. The timing of the transfer
3. Other special factors
Page 6 of 164

Q: What is the relevance of the type of heir

in determining if the transfer was made in
contemplation of death?
When there is a donation inter vivos is made to a
person who is not a forced heir, the presumption is
that such transfer is a donation inter vivos.
However, if the recipient of the property is a forced
heir, the presumption is that such transfer was made
to accelerate inheritance and hence, such transfer is
mortis causa. This presumption may be rebutted by
evidence to the contrary. (see VIDAL DE ROCES V.
POSADAS [M ARCH 13, 1933])
Q: Name some instances/factors which

would disprove the claim that the transfer
was made in contemplation of death.
When the reason for the transfer was the desire of
the decedent to:
1. see his children enjoy the property while the
donor is still alive
2. save income of property taxes
3. settle family disputes
4. relieve donor from administrative burden
5. to reward services rendered
6. to provide independent income for
dependents
In GESTOPA V. CA [OCTOBER 5, 2000], the Supreme
Court enumerated some indications that the transfer
was a donation inter vivos, to wit:
1. Property was donated out of love and
affection
2. When a reservation on the donation is made
only with respect to the right of usufruct
which denotes naked ownership was
already transferred
3. When the transferors retained sufficient
property only for the purpose of maintaining
their status in life, thereby implying that it
was alright to part with the property even
during the transferors lifetime
4. Donee accepted the donation since in a
donation mortis causa acceptance is not
required.
Q: A donated parcels of land to X, Y, and Z.

A died without any forced heir. In her well,
she bequeathed personal property to X, Y,
and Z. The CIR contends that such transfers

should form part of the gross estate for
purposes of estate taxation. Is the CIR
correct?
No. The donation inter vivos was made to a legatee
who is not a forced heir. Thus, absent any evidence
to the contrary, the presumption holds that such
transfer is a donation inter vivos. Such being the
case, the transfer shall not form part of the gross
estate (see TUASON V. POSADAS [JANUARY 23,
1930]).
Q: Using the same facts above, it was

determined that the transfer was made three
months before his death. Will the transfer
form part of the gross estate?
Yes. In VIDAL DE ROCES V. POSADAS [M ARCH 13,
1933], the decedent died without forced heirs but
instituted a certain person as a legatee in his will.
The presumption that such transfer was a donation
inter vivos did not hold because of the timing of the
transfer, which was a short period before death.
Q: Prior to his death, A gave his son B a

parcel of land through a deed of donation.
Upon As death, the CIR contends that the
transfer should form part of the gross estate
for purposes of estate taxation. Is the CIR
correct?
Yes. Since the recipient of the property, the son, is a
forced heir, the presumption is that such transfer
was made in contemplation of death. Thus, the
transfer should form part of the gross estate. (see
DIZON V POSADAS [NOVEMBER 4, 1933])
Q: During his lifetime, Father Z donated

some of his property to A, B, C on the
condition that they provide him rice and
money every year. Father Z died. The CIR
contends that the transfers should form part
of the gross estate of Father Z. Is the CIR
correct?
No. In donations inter vivos, as in the present case,
the donees acquired the right to the property while
the donor was still alive, subject only to their
acceptance and the condition that they pay the
donor rice and/or money. (see ZAPANTA V. POSADAS
[DECEMBER 29, 1928])
Page 7 of 164

Recovable Transfers
Proceeds of Life Insurance
Read Section 85(C)
Read Section 85(E)
Q: What is a revocable transfer?
Q: When shall proceeds of the life insurance

of the decedent form part of his gross
estate?
A revocable transfer is a transfer where the

transferor has reserved his right to alter, amend or
revoke such transfer, regardless of whether the
power is actually exercised or not during his lifetime
and whether the power should be exercised by him
alone or in conjunction with someone else. To the
extent of any interest therein, it forms part of the
gross estate of the decedent.
Property
under
Appointment
General
Power
of
Read Section 85(D)

Q: Differentiate the estate tax treatment of
property passing under a general power of
appointment and one under a special power
of appointment.
Kind
of
appointment
Nature
Tax Treatment
General
Donor gives the

donee the power
to appoint any
person
as
successor
to
enjoy
the
property.
Shall form part

of the gross
estate
Donor gives the

donee the power
to
appoint
a
person within a
limited group to
succeed in the
enjoyment of the
property
Shall not form

part
of
the
gross estate
Special
They shall form part of the gross estate if the

beneficiary is:
1. The estate of the deceased, his executor or
administrator, irrespective of whether the
insured retained the power of revocation
2. Any beneficiary (third person) designated in
the policy as revocable
Note: (1) If the policy expressly stipulates that the
designation of the beneficiary is irrevocable, then the
amount of the proceeds shall not be included in the gross
estate.
(2) It is revocable when the beneficiary may still be
changed and the decedent has still retained interest in the
policy. It is irrevocable when the beneficiary may no longer
be changed as they have acquired a vested interest. For
third persons whose designations are irrevocable, the
proceeds of life insurance shall not form part of the gross
estate. If it is revocable, it shall form part of the gross
estate.
Transfers for Insufficient Consideration

Read Section 85(G)
Q: What are
consideration?
transfers
for
insufficient
Transfers for insufficient consideration are those

transfers that are not bona fide sales of property for
an adequate and full consideration in money or
moneys worth.
The excess of the fair market value at the time of the
death over the value of the consideration received
by the decedent shall form part of his gross estate.
Note:
(1) The rule on transfer for insufficient

consideration applies to (a) Transfers in contemplation of
death (b) Revocable transfers and (c) Transfers under
general power of appointment.
(2) As a numerical example

Page 8 of 164

FMV at time of transfer

FMV at time of death
Consideration received
at time of transfer
Amount included in
estate
Example 1
100
200
70
Example 2
100
200
100
30
In determining whether there was sufficient consideration,

compare the FMV of the property at the time of the
transfer with the amount of consideration received at the
time of the transfer. However, the amount to be included in
the estate is computed by taking the difference between
the FMV of the property at the time of death and the
amount of consideration received at the time of transfer.
Example 1: Since the property was sold for 30 less than its
FMV at the time of the transfer, there is insufficient
consideration. Hence, the difference between the
consideration received and the FMV at time of death shall
form part of the gross estate.
Example 2: This is not a transfer for insufficient
consideration, hence, it shall not form part of the gross
estate. This is a bona fide sale for an adequate and full
consideration in moneys worth.
--------------------------------------------------------------11. Deductions from estate

--------------------------------------------------------------Q: Enumerate the deductions from the gross
estate.
Note: Nonresident aliens cannot avail of the special

deductions.
Expenses, losses, indebtedness, taxes, etc

(ELIT)
Read Section 86(A)(1)
Funeral expenses
Q: What the conditions for the deductibility
of funeral expenses?
1. Whether paid or unpaid
2. Up to the time of interment
3. The actual amount or in an amount equal to
5% of the gross estate, whichever is lower,
but in no case to exceed P200,000
Note: (1) Actual funeral expenses shall mean those which
are actually incurred in connection with the interment or
burial of the deceased. The expenses must be duly
supported by receipts or invoices or other evidence to
show that they were actually incurred.
(2) The amount in excess of the P200,000 threshold shall
not be allowed as a deduction nor will it be allowed to be
claimed as a deduction under claims against the estate.
Q: A died leaving an estate valued at

P20,000,000. His heirs spent P500,000 for all
the funeral services. How much should be
allowed as a deduction?
The deductions from the gross estate are:

1. Ordinary deductions
a. Expenses, losses, indebtedness, taxes,
etc (ELIT)
i. Funeral expenses
ii. Judicial expenses
iii. Claims against the estate
iv. Claims against insolvent persons
v. Unpaid mortgage or indebtedness
on property
vi. Taxes
vii. Losses
b. Vanishing Deduction
c. Transfer for public use
2. Special deductions (FSMA)
a. Family home
b. Standard deduction
c. Medical expenses
d. Amount received by heir under RA 4917

The amount deductible is only P200,000. To

determine amount deductible, compare P500,000
and P1,000,000 (5% of P20 million). The lower
amount is P500,000. However, it is beyond the
P200,000 threshold. Thus, only P200,000 will be
allowed as a deduction.
Q: Give some examples of funeral expenses

that are deductible
1. The mourning apparel of the surviving
spouse and unmarried minor children of the
deceased, bought and used on the occasion
of the burial
2. Expenses for the deceaseds wake,
including food and drinks
3. Publication charges for death notices;
4. Telecommunication expenses incurred in
informing relatives of the deceased;
Page 9 of 164

5. Cost of burial plot, tombstones, monument

or mausoleum but not their upkeep. In case
the deceased owns a family estate or
several burial lots, only the value
corresponding to the plot where he is buried
is deductible;
6. interment and/or cremation fees and
charges; and
7. All other expenses incurred for the
performance of the rites and ceremonies
incident to interment. (See RR 2-2003
[December 16, 2002])
Q: Give some examples of funeral expenses

that are not deductible
1. Expenses incurred after the interment, such
as for prayers, masses, entertainment, or
the like.
2. Any portion of the funeral and burial
expenses borne or defrayed by relatives and
friends of the deceased.
3. Medical expenses as of the last illness (See
RR 2-2003 [December 16, 2002])
Q: Give some examples of judicial expenses

Judicial expenses may include:
1.
2.
3.
4.
5.
6.
7.
Fees of executor or administrator;

Attorneys fees;
Court fees;
Accountants fees;
Appraisers fees;
Clerk hire;
Costs of preserving and distributing the
estate;
8. Costs of storing or maintaining property of
the estate; and
9. Brokerage fees for selling property of the
estate. (RR 2-2003)
the
In CIR V. CA AND PAJONAR [M ARCH 22, 2000], the

Supreme Court held that expenses incurred in the
extrajudicial settlement of the estate should be
allowed as a deduction from the gross estate. It is
sufficient that the expense be a necessary
contribution toward the settlement of the estate. The
notarial fee paid for the extrajudicial settlement is
deductible since such settlement effected a
distribution of the decedents estate to his lawful
heirs. The attorneys fees in the guardianship
proceedings of the insane deceased is also
deductible as it essential to the proper settlement of
the estate, to preserve the properties of the
deceased.
1. Must be incurred during the settlement of

the estate but not beyond the last day
prescribed by law (within 6 months from the
date of death of the decedent) or the
extension thereof (in meritorious cases, the
CIR may grant reasonable extension not
exceeding 30 days) for the filing of the
estate tax return.
In Lorenzo v. Posadas [June 18, 1937], the

Supreme Court held that compensation of the
trustee earned, not in the administration of the
estate, but in the management thereof for the benefit
of the legatees or devisees, does not come within
the class or reason for exempting administration
expenses. Service rendered in behalf that behalf has
no reference to closing the estate for the purpose of
a distribution thereof to those entitled to it, and is not
required or essential to the perfection of the rights of
the heirs or legatees.
Note: As to (3) This should instead be claimed as part of

the deduction for medical expenses.
Judicial expenses
Q: What are the requisites for
deductibility of judicial expenses?
Judicial expenses to be deductible
2. The judicial expenses are incurred in:

a. Inventory-taking of assets comprising
the gross estate
b. Administration
c. Payment of debts of the estate
d. The distribution of the estate among the
heirs (RR 2-2003)

In De Guzman v. De Guzman-Carillo [May 18,

1978], the Court allowed the following expenses as
proper expenses for administration of the estate of
the deceased: expenses for the renovation and
improvement of the family home, expenses for the
lawyers subsistence and physician of the deceased
during his last illness, and irrigation fees. However,
expenses which inured to the benefit of only one heir
were not allowed. Further, the expenses for
stenographic notes, and celebration of the one year
Page 10 of 164

death anniversary were not allowed as they had

nothing to do with the administration of the estate.
Claims against the estate

Q: What are claims against the estate?
These are debts or demands of pecuniary nature
which could have been enforced against the
deceased in his lifetime and could have been
reduced to simple money judgments. It may arise
out of:
1. Contract
2. Tort
3. Operation of law
any legislative intent in our tax laws, which

disregards the date-of-death valuation principle
which is the US rule on deductions. The amount
deductible is the debt which could have been
enforced against the deceased in his lifetime,
nothing more and nothing less (DIZON V. CIR [APRIL
30, 2008])
Note: In sum, post-death developments should not be
considered in determining the net value of the estate
Q: What are the requirements to substantial

the claims?
In case of
simple loan
a. Instrument must be duly

notarized
b. Duly notarized Certification
from the creditor
c. Proof of financial capacity of the
creditor to lend;
d. Statement under oath executed
by the executor/administrator of
the
estate
reflecting
the
disposition of the proceeds of
the loan (if the loan was
contracted within 3 years prior
to the death of the decedent)
In
unpaid
obligation
arose
from
purchase of
goods
or
services
a. Pertinent
documents
evidencing the purchase of
goods or service
b. Duly notarized Certification
from the creditor as to the
unpaid balance of the debt,
including interest as of the time
of death;
c. Certified true copy of the latest
audited balance sheet of the
creditor
Q: What are the requisites for deductibility

of claims against the estate?
1. Must be a personal obligation of the
deceased existing at the time of his death
except those incurred incident to his death
or those medical expenses
2. Liability must have been contracted in good
faith
3. The claim must be a debt or claim which is
valid in law and enforceable in court
4. Indebtedness not condoned by the creditor
or the action to collect from the decedent
must not have prescribed
Q: There were claims against the estate of

the deceased which allegedly exceed the
gross estate which resulted in the
administrator reporting no estate tax
liability. The BIR contested the amounts of
the claims against the estate deductions
stating that lower amounts were paid as
compromise
payments
during
the
settlement of the estate and these amounts
should be what will be considered in
arriving at the net estate. Will the
compromise amounts be the amounts
considered as deductions to the gross
estate?
No, the deduction allowable is that amount
determined at the time of death. Post-death
developments are not material in determining the
amount of deduction, especially for the claims
against the estate deduction. There is no law, nor

Claims against insolvent persons

Q: What are the requisites for claims against
insolvent persons to be deductible?
1. The amount has been initially included as
part of the gross estate; and
2. The incapacity of the debtors to pay their
obligations is proven, not merely alleged.
Page 11 of 164

Unpaid mortgage
property
or
indebtedness
on
Q: What are the requisites for unpaid

mortgages to be allowed as a deduction?
1. The FMV of the property mortgaged without
deducting the indebtedness has been
initially included as part of the gross estate;
and
2. The mortgage indebtedness was contracted
in good faith and for an adequate and full
consideration in money/moneys worth.
Taxes
Losses
Q: What are the requisites for losses to be
deductible from the gross estate?
Losses are deductible:
1.
2.
3.
4.
5.
were incurred during the settlement of the estate

arose from fires, storms, shipwreck or other
casualties
or
from
robbery,
theft
or
embezzlement
are not compensable
are not claimed as deduction for income tax
purposes
were incurred not later than the last day for
payment of the estate tax
Vanishing Deduction
Q: What are the requisites for unpaid taxes
to be deductible?
1. Taxes which have accrued as of or before
the death of the decedent; and
2. Unpaid as of the time of his death,
regardless of whether or not it was incurred
in connection with trade or business
Note: This deduction will not include: (1) income tax upon
income received after death, or (2) property taxes not
accrued before his death, or (3) the estate tax due from
the transmission of his/her estate. These shall be
chargeable against the income of the estate because it
accrued after the death of the decedent.
Q: Are claims for taxes against the estate

not filed in time barred forever?
No. As a general rule, all claims for money against
the decedent, arising from contracts, express or
implied, whether the same be due, not due, or
contingent, all claims for funeral expenses and
expenses for the last sickness of the decedent, and
judgment for money against the decedent, must be
filed within the time limited in they notice; otherwise
they are barred forever.
However, as an exception, taxes assessed against
the estate of a deceased person need not be
submitted to the committee on claims in the ordinary
course of administration. They may be collected
even after the distribution of the decedents estate
among his heirs who shall be liable therefore in
proportion of their share in the inheritance. (Vera v.
Fernandez [March 30, 1979])

Read Section 86(A)(2), Tax Code

Q: What is a vanishing deduction?
A vanishing deduction is a deduction allowed on the
property left behind by the decedent which he had
acquired previously by inheritance or donation
Note: The rationale is to minimize the effects of double
taxation on the same property within a short period of
time; the law allows a deduction to be claimed on the said
property.
Q: What are the conditions for the

deductibility of property previously taxed or
vanishing deduction?
1. Death
2. Identity of property (the property with
respect to which deduction is sought can be
identified as the one received from the prior
decedent)
3. Inclusion of the property (the property must
form part of the gross estate situated in the
Philippines of the prior decedent or was a
taxable gift of the donor)
4. Previous taxation of property (Estate tax or
donors tax due thereon must have been
paid)
5. No vanishing deduction on the property was
allowed to the estate of the prior decedent
Page 12 of 164

Q: What are the conditions for the

deductibility of property previously taxed or
vanishing deduction?
1. Determine the FMV of the PPT at the time of
the prior decedents death and the FMV at
the time of the present decedents death
then get the lower of these two amounts
2. Prorate:
2.
3.
4.
The total value of the family home must be

included as part of the gross estate
Allowable deduction must be in an amount
equivalent to:
a. the current FMV of the family home as
declared or included in the gross estate or
b. the extent of the decedents interest
(whether conjugal/community or exclusive
property), whichever is lower
The deduction not exceed Php 1,000,000.
Standard deduction
Note: Total deductions do not include the special
deductions (FSMA)
3. Subtract 2 from 1
4. Apply the rate of vanishing deduction to 3
above.
Note: Let us have a numerical example. In 2000, A
inherits a land valued at P500,000. In 2003, A died with
the said land having a value of P600,000. His gross estate
amounted to P2 million. His allowable deductions
amounted to P400,000
500,000 (
Q: What is the standard deduction?

The standard deduction shall be Php 1,000,000
without need of substantiation.
Medical expenses
of medical expenses?
= 400,000
= 400,000 x 60% = P240,000
1.
2.
Transfer for public use

3.

Q: What are allowed
Transfers for Public Use?
deductions
as
The deduction on transfers for public purpose refers

to the amount of all bequests, legacies, devises, or
transfers to or for the use of the Government or any
political subdivision thereof, for exclusively public
purposes,
The expenses were incurred by the decedent

within 1 year prior to his death
The expenses are duly substantiated with
receipts
The deductible expense shall not exceed Php
500,000
Note: The amounts of medical expenses incurred in

excess of P500,000 shall no longer be allowed as a
deduction for medical expenses. Neither can any unpaid
amount thereof in excess of the P500,000 threshold nor
any unpaid amount for medical expenses incurred prior to
the one-year period from date of death be allowed to be
deducted from the gross estate as claim against the estate
(see Section 6, RR 2-2003)
Amount received by heir under RA 4917
Family home
Q: Discuss the deductibility of amounts

received by heirs under RA 4917.

of a family home?
1.
The family home must be the actual residential

home of the decedent and his family at the time
of his death as certified by the barangay captain

Amounts received from the decedents employer as

a consequence of the death of the decedentemployee as retirements benefits under RA 4917
(An Act Providing that Retirement Benefits of
Employees of Private Firms shall not be subject to
Page 13 of 164

any Tax whatsoever) is allowed as a deduction

provided that the amount of benefit is included in the
gross estate.
Read Section 86(B) to (D), Tax Code
2. Special deductions
(FSMA)
a. Family home
b. Standard
deduction
c. Medical
expenses
d. Amount
received by heir
under RA 4917
3. Share in conjugal
property
Q: What may be deducted from the gross

estate of non-resident aliens?
--------------------------------------------------------------12. Exclusions from estate

---------------------------------------------------------------
Net share of the Surviving Spouse

Read Section 86(C), Tax Code
Deductions allowed to Non-Resident Estate
Citizen or Resident
Alien Decedents
Non-resident
decedents
alien
Gross Estate - all

property at the time of
death,
wherever
situated.
Gross Estate includes

only that part of the gross
estate located in the
Philippines
Deductions:
a. Expenses,
losses,
indebtedness,
taxes,
etc
(ELIT)
i. Funeral
expenses
ii. Judicial
expenses
iii. Claims
against
the
estate
iv. Claims
against
insolvent
persons
v. Unpaid
mortgage or
indebtedness
on property
vi. Taxes
vii. Losses
b. Vanishing
Deduction
c. Transfer
for
public use
Deductions:
2. Share in conjugal
property
Note: (1) Non-resident alien
decedent cannot avail of
special deductions.
(2) No deduction shall be
allowed unless the executor,
administrator, or anyone of
the heirs as the case may be
includes in the estate tax
return of the decedent, the
value at the time of his death
that part of the gross estate
of the non-resident not
(Section 86(D), Tax Code)

Q: What are the exclusion from the gross

estate?
1. The capital (exclusive property) of he
surviving spouse is considered as an
exclusion in the gross estate under Section
85(H) of the Tax Code
Note: Under Section 86(C), the share of the
surviving
spouse
n
the
absolute
community/conjugal partnership is considered as
a deduction
2. Other items which are excluded:

a. GSIS proceeds/benefits
b. Accruals from SSS
c. Proceeds of life insurance where the
beneficiary is irrevocably appointed
d. Proceeds of life insurance under a
group insurance taken by employer (not
taken out upon his life)
e. War damage payments
f. Transfer by way of bona fide sales
g. Transfer of property to the government
or to any of its political subdivisions
h. Merger or usufruct in the owner of the
naked title
i. Properties held in trust by the decedent
j. Acquisition and/or transfer expressly
declared as not taxable
--------------------------------------------------------------13. Tax credit for estate taxes paid in a

foreign country
---------------------------------------------------------------
Page 14 of 164

Read Section 86(E), Tax Code

Note: It is a remedy against international double taxation.
to minimize the onerous effect of taxing the same property
twice, tax credit against Philippine estate tax is allowed for
estate taxes paid to foreign countries.
Q: Who may avail of tax credit?

1. Citizen
2. Resident alien
Q: What is the amount allowable as a Tax

Credit?
The estate tax imposed by the Philippines shall be
credited with the amounts of an estate tax imposed
by the authority of a foreign country.
However, the amount of tax credit is subject to the
following limitations:
1. Per country basis: The amount of the credit
in respect to the tax paid to any country shall
not exceed the same proportion of the tax
against which such credit is taken which the
decedents net estate situated within such
country taxable under the NIRC bears to his
entire net estate.
Note: To best illustrate:
2. Overall basis: The total amount of the credit

shall not exceed the same proportion of the
tax against which such credit is taken, which
the decedents net estate situated outside
the Philippines taxable under the NIRC
bears to his entire net estate.
Note: To best illustrate:
--------------------------------------------------------------14. Exemption of certain acquisitions and

transmissions
---------------------------------------------------------------
Q: What are the acquisitions and transfers

expressly declared as exempt?
1. Merger of the usufruct in the owner of the
naked property
2. Transmission or delivery of the inheritance
or legacy by the fiduciary heirs or legatee to
the fideicomissary
3. Transmission from the first heirs, legatees or
donees in favor of another beneficiary in
accordance with the desire of the testator
4. All bequests, devises, legacies or transfers
to social welfare, cultural and charitable
institutions, no part of the income of which
inures to the benefit of any individual,
provided that not more than 30% of the said
bequests, devises, legacies or transfers
shall be used for administrative purposes
Note: The bequest, devises, legacies, or transfers does
not include those made to educational institutions.
Now, I want to show how we compute estate tax due and
payable.
Q: How is estate tax computed?

1. List down all the common (conjugal or
community) property
2. List down all the separate or exclusive
property of the decedent (exclude the
separate or exclusive property of the
surviving spouse)
3. Include the family home either in (a) or (b),
depending on the status of the house and lot
4. The resulting total is the gross estate
5. Deduct the appropriate deductions
6. The resulting balance is the net estate
7. Deduct the special deductions: (1) share of
the surviving spouse (1/2) of the net
common properties and (2) family home
8. The resulting balance is the taxable net
estate
9. Compute the estate tax using the graduated
estate tax rates
10. Deduct any tax credits
11. The resulting balance is the estate tax due
and payable

Page 15 of 164

Note: To best illustrate
Conjugal community property
+ Separate property of decedent
= Gross Estate
Less:
Allowable
deductions,
conjugal/community
deductions, separate/exclusive deductions
= Net Estate
Less: Special deductions
= Taxable Net Estate
Multiplied by estate tax (per graduated rates)
or registerable property
such as real
property, motor vehicle, shares of stock or
other similar property for which a clearance
from the BIR is required as a condition
precedent for the transfer of ownership
thereof in the name of the transferee.
Q: When should the estate tax return be

filed?
General Rule: Within 6 months from the death of
decedent
Exceptions: The CIR, in meritorious cases, grant an
extension not exceeding 30 days for filing the return.
Less: Tax Credits

= Estate Tax due and payable
Other Administrative Requirements
--------------------------------------------------------------15. Filing of notice of death

---------------------------------------------------------------
Read Section 91-97, Tax Code
General Rule: At the time the return is filed by the

executor, administrator or the heirs
Q: When is notice of death required to be

given to the BIR?
Exception: The CIR, if he finds that the payment on

the due date would impose undue hardship, may
grant an extension of:
1. Not to exceed 5 years in case the estate is
settled judicially
2. Not to exceed 2 years in case the estate is
settled extrajudicially
1. In all cases of transfers subject to tax; or

2. Where, though exempt from tax, the gross
value of the estate exceeds P20,000
Q: If required, when shall the notice of death

be given?
1. Within 2 months after the death of the
decedent; or
2. Within a like period after the executor or
administrator or executor qualifies as such.
--------------------------------------------------------------16. Estate Tax Return

-------------------------------------------------------------Read Section 90, Tax Code
Q: When is an estate tax return required?
1. When the estate is subject to estate tax
2. When, though exempt from tax, the gross
value of the estate exceeds Php 200,000
3. Regardless of the gross value of the estate
when the said estate consists of registered
Q: When should the estate tax be paid?
Q: Who is liable for the payment of the

estate tax?
The estate tax imposed under the Tax Code shall be
paid by the executor or administrator before the
delivery of the distributive share in the inheritance to
any heir or beneficiary.
In CIR V. GONZALES [NOVEMBER 24, 1966], the
Supreme Court held that estate taxes are satisfied
from the estate and are to be paid by the executor or
administrator. Where there are 2 or more executors,
all of them are severally liable for the payment of the
estate tax. Failure to pay the estate taxes before
distribution of the estate would subject the executor
or administrator to criminal liability. It is immaterial
that an heir administers only 1/3 of the estate and
will receive as her share only said portion, for her
right to the estate comes after taxes. As an
administratrix, she is liable for the entire estate tax.
As an heir, she is liable for the entire inheritance tax
Page 16 of 164

although her liability would not exceed the amount of

her share in the estate.
Q: May estate tax be collected even after the

distribution to the heirs?
Yes. As held in GOVERNMENT V. PAMINTUAN
[OCTOBER 11, 1930], a claim for taxes and
assessments whether assessed before or after the
death of the decedent, is not required to be
presented to the committee on claims and
appraisals. The Heirs are liable for the deficiency
income taxes, in proportion to their share in the
inheritance.
As held in CIR V. PINEDA [SEPTEMBER 15, 1967], an
heir is individually answerable for the part of the tax
proportionate to the share he received from the
inheritance. His liability, however, cannot exceed the
amount of his share. On the other hand, a holder of
property belonging to the estate is liable for the tax
up to the amount of the property in his possession.
Q: How can the BIR recover such unpaid tax

liabilities?
The BIR can recover in 2 ways:
1. It may recover said liability from all the heirs
who shall share proportionately; or
2. It may go against the property held by an
heir if the same is sufficient to cover the
whole tax liability (in which case, the heir
who paid can seek reimbursement from
his/her co-heirs) CIR V. PINEDA [SEPTEMBER
15, 1967]
Note: In both instances, the respective heirs may not be
held accountable for more than the share he/she inherited.
Q: Is the approval of the probate court or the

court settling the estate of the decedent a
mandatory requirement in the collection of
the estate tax?
No. As held in M ARCOS II V. CA [JUNE 5, 1997], it is
discernible that the approval of the court, sitting in
probate, or as a settlement tribunal over the
deceased is not a mandatory requirement in the
collection of estate taxes. It cannot therefore be
argued that the Tax Bureau erred in proceeding with
the levying and sale of the properties allegedly
owned by the late President, on the ground that it
was required to seek first the probate court's
sanction. There is nothing in the Tax Code, and in
the pertinent remedial laws that implies the

necessity of the probate or estate settlement court's
approval of the state's claim for estate taxes, before
the same can be enforced and collected.
Q: What is the duty of a bank in case of the

death of a decedent-depositor?
General Rule: If a bank has knowledge of the death of a
person, who maintained a bank deposit account alone, or
jointly with another, it shall not allow any withdrawal from
the said deposit account, unless the Commissioner has
certified that the estate taxes imposed thereon have been
paid.
Exception: The administrator of the estate or any one (1)
of the heirs of the decedent may, upon authorization by
the Commissioner, withdraw an amount not exceeding
Twenty thousand pesos (P20,000) without the said
certification.
Q: A died and B (wife) tried to withdraw the

joint savings deposit they maintained at the
PNB Tarlac but failed because C, who
claimed to be the couples adopted child,
objected thereto. C claims that B cannot
withdraw any amount from the bank account
because she should follow legal procedures
governing settlement of the estate of a
deceased, unless a competent court issues
an order allowing her to withdraw invoking
Section 97 of the Tax Code. Can the money
be released to B?
No. Section 97 of the National Internal Revenue
Code states: If a bank has knowledge of the
death of a person, who maintained a bank deposit
account alone, or jointly with another, it shall not
allow any withdrawal from the said deposit account
unless the Commissioner had certified that the taxes
imposed thereon by this Title have been
paid; Provided, however, That the administrator of
the estate or any one (1) of the heirs of the decedent
may, upon authorization by the Commissioner,
withdraw an amount not exceeding Twenty thousand
pesos (P20,000) without the said certification. For
this purpose, all withdrawal slips shall contain a
statement to the effect that all of the joint depositors
are still living at the time of withdrawal by any one of
the joint depositors and such statement shall be
under oath by the said depositors. (POLIDO V. CA
[JULY 10, 2007])
Page 17 of 164

---------------------------------------------------------C. DONORS TAX

-----------------------------------------------------------------------------------------------------------------------1. Basic Principles
---------------------------------------------------------------
Note: Its purpose is to complement estate taxation by

preventing tax-free depletion of the transferors estate
during his lifetime.
--------------------------------------------------------------3. Nature
--------------------------------------------------------------Q: What is the nature of a donors tax?
Read Section 98
Q: What donations are covered by the
donors tax?
The donors tax is imposed only on donaitons inter
vivos. Donations mortis causa partake of the nature
of testamentary dispositions are subject to estate tax
In the case of Gestopa v CA [October 5, 2000], the
Supreme Court held that the donation of the
deceased spouses to their illegitimate daughter was
a donation inter vivos. The spouses executed the
deed out of love and affection for the donee, which
is a mark of a donation inter vivos. The donor
reserved sufficient properties for their maintenance
in accord with their standing in society, indicating the
donor intended to part with the property donated.
And, the donee accepted the donation, which is only
required in donations inter vivos.
Q: When is donors tax imposed?

Donors tax is imposed upon the transfer by any
person, resident or non-resident, of any property by
gift.
Q: What law governs the imposition of

donors tax?
The donors tax is governed by the statute in force at
the time of the transfer.
--------------------------------------------------------------2. Definition
--------------------------------------------------------------Q: What is a donors tax?
A donors tax is an excise tax imposed on the
privilege to transfer property by way of gift inter vivos
based on pure act of liberality without any or less
than adequate consideration and without any legal
compulsion to give.

It is an excise tax on the privilege of the donor to

give or on the transfer of property by way of gift inter
vivos. It is not a property tax (Lladoc v. CIR [14
SCRA 292])
--------------------------------------------------------------4. Purpose or object

--------------------------------------------------------------Q: What are the purposes for the imposition
of donors tax?
1. To raise revenues
2. To tax the wealthy and reduce certain other
excise taxes
3. To discourage inter vivos transfers of
property which could reduce the mortis
causa transfers on which a higher tax, the
estate tax would be collected
4. It will tend to reduce the incentive to make
gifts in order that distribution of future
income from the donated property may be to
a number of persons with the result that the
taxes imposed by the higher brackets of the
income tax are avoided.
--------------------------------------------------------------5. Requisites of valid donation

--------------------------------------------------------------Q: What are the requisites of a valid
donation?
1. Capacity of donor
2. Donative intent (intention to donate)
3. Delivery, whether actual or constructive, of
the subject gift
4. Acceptance by the done
5. Form prescribed by law
Note: (1) As to (1) All persons who may contract or
dispose of their property may make a donation (Art. 735,
NCC). The donors capacity shall be determined as of the
time of the making of the donation (Art. 737, NCC).
Page 18 of 164

(2) As to (2) Donative intent is necessary only in case of
a direct gift. If the gift is indirectly taking place by way of
sale, exchange or other transfer of property as
contemplated in cases of transfers for less than adequate
and full consideration (see Section 100, Tax Code),
donative intent is not always essential to constitute a gift.
1. It must be in public document

2. The property donated and the value of the
charges which the done must satisfy must
be specified
3. The donee must accept through a deed or
similar instrument. (Art. 749, NCC)
(3) As to (3) There is delivery if the subject matter is

within the dominion and control of the done
Q: What are the requirements for a donation

to be subject to donors tax?
(4) As to (4) Acceptance is necessary because nobody

is obliged to receive a gift against his will (OSORIO V.
OSORIO [41 PHIL. 531])
Q: ABC Steamship insured the life of A who

was then its President and General
Manager. He was responsible for the
success of the company for which he was
compensated for. The company initially
designated itself as the beneficiary of the
policies but, after As death, it renounced all
its rights, title and interest therein in favor of
As heirs. The CIR subjected the donation to
donors tax. The heirs contend that it was a
remuneratory donation on full and adequate
compensation for the valuable services of A
and as such is not subject to donors tax. Is
the contention of the heirs correct?
No. The donation is not remuneratory as A has been
fully compensated for his services. A donation made
by the corporation to the heirs of a deceased officer
out of gratitude for the officer's past services is
considered a donation and is subject to donee's gift
tax. The fact that his services contributed in a large
measure to the success of the company did not give
rise to a recoverable debt, and the conveyances
made by the company to his heirs remain a gift or
donation. (Pirovano v. CIR [July 31, 1965])
Q: What are the requisites for a donation of

a movable to be valid?
1. Donation may be oral or in writing
2. If oral, the donation must be accompanied
with delivery
3. If value is more than Php 5,000, the
donation must be in writing and accepted in
writing. (Art. 748, NCC)
Q: What are the requisites for a donation of

an immovable to be valid?

1. Property donated is not real property that is

a capital asset
2. The transfer is for less than adequate
consideration
3. The transfer is inter vivos
--------------------------------------------------------------6. Transfers which may be constituted as

donation
a) Sale/exchange/transfer of property for
insufficient consideration
b) Condonation/remission of debt
--------------------------------------------------------------Q: What are considered donations for tax
purposes?
1. Sales, exchanges and other transfers of
property for less than an adequate and full
consideration in money or moneys worth
Except:
Transfers
of
real
property
considered as capital assets which is
subject to CGT.
2. Condonation or remission of debt where
the debtor did not render service in favor of
the creditor
Note: Condonation or remission of a debt would
constitute a donation to the extent of the fair
value of the debt condoned or remitted.
Therefore, the creditor would be considered a
donor for donors tax purposes and would be
liable for the tax thereon.
Q: A sold his lot not used for business tto

his brother B for P500,000 when at that time
the lot was valued in the market at P1
million. A bought it for P100,000. In addition,
A sold some of the shares of his company
ABC Corp to his senior executives. He sold
the ABC Corp shares for P300,000 when the
Page 19 of 164

market value was at P500,000. His original

cost in the shares is P100,000. Are the sales
subject to donors tax?
The sale of the lot is not subject to donors tax as it
is a real property classified as a capital asset and
such is subject to the 6% CGT. The sale of the
shares, however, are subject to the donors tax of
30% based on the difference between the selling
price and the market value.
Q: Creditors A, B and C condoned the debt

of XYZ Corp pursuant to a court approved
restructuring. Are the creditors liable for
donors tax?
No. The transaction is not subject to donors tax
since the condonation was not implemented with a
donative intent but only for business consideration.
The restructuring was not a result of the mutual
agreement of the debtors and creditors. It was
through court action that the debt rehabilitation plan
was approved and implemented. [BIR Ruling DA
028-2005 [January 24, 2005])
Q: Whether the transfer of property from the

distressed Asset Asia Pacific, Inc. pursuant
to the Special Purpose Vehicle (SPV) Act of
2002 subject to donors tax?
No. The transaction above is not a donation. Hence,
it is not subject to donors tax. [BIR Ruling No. 1092011]
Note: Thus, if the transfer was made pursuant to law, it is
not subject to donors tax.
Q: A died leaving as his only heirs, his

surviving spouse B, and three minor
children, X, Y and Z. Since B does not want
to participate in the distribution of the
estate, she renounced her hereditary share
in the estate. Is the renunciation subject to
donors tax?
No. The general renunciation by an heir, including
the surviving spouse, as in the case of B, of her
share in the hereditary estate left by the decedent is
not subject to donors tax. This is so because the
general renunciation by B was not specifically and
categorically done in favor of identified heir/s to the
exclusion or disadvantage of the other co-heirs in
the hereditary estate (Section 11, RR No. 2-2003).
Q: Supposing that instead of a general

renunciation, B renounced her hereditary
share in As estate to X who is a special
child, would the renunciation be subject to
donors tax?
Yes, the renunciation in favor of X would be subject
to donors tax. This is so because the renunciation
was specifically and categorically done in favor of X
and identified heir to the exclusion or disadvantage
of Y and Z, the other co-heirs in the hereditary
estate. (Section 11, RR No. 2-2003)
Note: Without a source of income or acceptable form of
acquisition of substantial amount to purchase properties,
the inclusion of the names of minor children in the
certificates of title of properties shall be deemed an
implied donation, which is subject to donors tax. SPS.
HORDON H. EVONO AND MARIBEL C. EVONO VS. CIR, ET. AL.,
CTA EB NO. 705 (CTA CASE NO. 7573), JUNE 4, 2012
--------------------------------------------------------------7. Transfer for less than adequate and full

consideration
--------------------------------------------------------------Read Section 100
Q: When is there a transfer for less than an
adequate and full consideration in money or
moneys worth?
Where property, other than real property classified
as capital asset subject to final capital gains tax, is
transferred for less than an adequate and full
consideration in money or moneys worth, the
amount by which the fair market value of the
property exceeded the value of the consideration
shall, for purposes of donors tax, be deemed a gift.
Note: (1) The element of donative intent is conclusively
presumed in transfers of property for less than an
adequate or full consideration in money or moneys worth.
(2) Why is real property, classified as capital asset, that is
transferred for less than an adequate and full
consideration in money or moneys worth not deemed a
gift subject to donors tax? Well, it is already subject to
final capital gains tax, which is 6% of the gross selling
price of fair market value of the property, whichever is
higher. So what the seller avoids in the payment of the
donors tax, it pays for in CGT.
Q: As a condition for approving the

manufacture by BF Goodrich of tires and
Page 20 of 164

rubber products, the Central Bank required

it to develop a rubber plantation. BF
Goodrich purchased land under the Parity
Amendment. Thereafter, the DOJ rendered
an opinion stating that upon expiration of
the Parity Amendment, ownership rights
over such lands, including right to dispose
or sell them, would be lost. Hence, BF
Goodrich sold the rubber plantation to
Siltown Realty for a price less than its
declared fair market value. The BIR
assessed BF Goodrich for deficiency
donors tax representing the difference
between the fair market value and the actual
purchase price of the property.
BIR
contended that BF Goodrich filed a false
income return. Did BF Goodrich commit
falsity in its income return?
No. 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 this case,
Goodrich 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. In other words, it
was attempting to minimize its losses. At the same
time, it was able to lease the property for 25 years,
renewable for another 25. This can be regarded as
another consideration on the price.
The fact that Goodrich sold its real property for a
price less than its declared fair market value did not
by itself justify a finding of false return. Even though
a donor's tax, which is defined as "a tax on the
privilege of transmitting one's property or property
rights to another or others without adequate and full
valuable consideration," is different from capital
gains tax, a tax on the gain from the sale of the
taxpayer's property forming part of capital
assets, the tax return filed by Goodrich to report its
income was sufficient compliance with the legal
requirement to file a return. In other words, the fact
that the sale transaction may have partly resulted in
a donation does not change the fact that Goodrich
already reported its income by filing an income tax
return. [CIR v. B.F. Goodrich Phils [February 24,
1999]

--------------------------------------------------------------8. Classification of donor

--------------------------------------------------------------Q: Who are liable to pay donors tax?
1.
2.
3.
4.
5.
6.
Resident citizen
Non-Resident Citizen
Resident Alien
Non-Resident Alien
Domestic Corporation
Foreign Corporation
Note: In contrast to estate taxes, a corporation can be

subject to donors tax because it is capable of entering into
a contract of donation through the appropriate Board
Resolution.
--------------------------------------------------------------9. Determination of gross gift

--------------------------------------------------------------Q: Distinguish Gross Gift from Net Gift
Gross Estate
Net Estate
Refers to all property,

real or personal, tangible
or intangible, that is
given by the donor to the
done by way of gift,
without the benefit of any
deduction.
Means the net economic

benefit from the transfer
that accrues to the done.
Q: How is gross estate determined?

Donor
Determination of gross gift
Citizens
and
Resident Aliens
Gross gift includes all real

properties,
tangible
and
intangible
personal
properties wherever located
Non-Resident
Aliens
Gross gift includes all real

properties, tangible, and
intangible properties located
in the Philippines unless the
reciprocity rule applies.
Note: In sum, all assets, real or personal, tangible or

intangible given by way of gift wherever located of a
citizen and resident alien is subject to donors tax while
for nonresident aliens, donors tax is imposed only on
properties located in the Philippines provided in the case
Page 21 of 164

of intangible personal property, it is subject to the rule of
reciprocity under Section 104 of the Tax Code.
schedule of values fixed by the

provincial and city assessors
(zonal value), whichever is higher.
If there is no zonal value, taxable
base is FMV that appears in the
latest tax declaration.
Same rules as in Estate Taxation. See previous

discussion on intangible properties considered situated in
the Philippines and rule on reciprocity.
Q: ABC a multinational corporation doing

business in the Philippines donated 100
shares of stock of said corporation to Mr. Z,
its resident manager in the Philippines.
What is the tax liability, if any, of ABC
corporation?
Foreign corporations effecting a donation are subject to
donors tax only if the property donated is located in the
Philippines. Accordingly, donation of a foreign corporation
of its own shares of stock in favor of resident employees
is not subject to donors tax.
However, if 85% of the business of the foreign corporation
is located in the Philippines or the shares donated have
acquired business situs in the Philippines, the donation
may be taxed in the Philippines subject to the rule of
reciprocity.
--------------------------------------------------------------10. Composition of gross gift

--------------------------------------------------------------Read Section 104, Tax Code
Q: What is included as part of gross gift?
As a general rule, gross gifts include real and personal
property, whether tangible or intangible or mixed,
wherever situated
Note: If the donor was a non-resident alien at the time of
the donation, his real and personal property so transferred
but which are situated outside the Philippines shall not be
included as part of gross gift.
--------------------------------------------------------------11. Valuation of gifts made in property

---------------------------------------------------------------
For
improvements
The value of the improvement is

the construction cost per building
permit and/or occupancy permit
plus 10% per year after year of
construction or the FMV per latest
tax declaration
For all other

properties
The fair market value at that time

will be considered the amount of
gift
In GIBBS V. CIR [APRIL 28, 1962], the parents made it

appear that they transferred shares of stock in favor
of their children for consideration, but it was found
out that such was insufficient, and such agreements
were made to evade taxes. The Supreme Court
allowed the CIR to impose taxes for the full value of
the shares of stock, not just the excess of the FMV
over the consideration/price.
--------------------------------------------------------------12. Tax Credit for donors taxes paid in a

foreign country
--------------------------------------------------------------Read Section 101(C), Tax Code
Note: See discussion of tax credit under Estate Tax.
Computation of the donors tax credit is the same as the
computation for estate tax credit. Just change net estate to
net gifts.
--------------------------------------------------------------13. Exemptions of gifts from donors tax

--------------------------------------------------------------Read Section 101(A) to (B), Tax Code
Note: There are really no deductions from gross gift.

There are only exemptions.
Q: How do we value the gifts subject to

donors tax?
Q: Enumerate the exemptions from gross

gifts (exempt from donors tax)
For
Real
Property
The value shall be based on either

(1) the fair market value as
determined by the CIR or (2) the
fair market value as shown in the

1. Dowries or donations made:

a. on account of marriage
b. before its celebration or within one year
thereafter
Page 22 of 164

c.
by parents to each of their legitimate,

recognized natural or adopted children
d. to the extent of the first php10,000
institution, accredited NGO, trust or

philanthropic organization or research
institution or organization to be exempted?
2. Gifts made to or for the use of the national

government or any entity created by any of
its agencies which is not conducted for
profit, or to any political subdivision of the
said government
Non-resident aliens are exempt from donors tax with

respect to (2) and (3) as enumerated above.
1. Not more than 30% of the said gift should be

used for administrative purposes
2. The donee must be a non-stock, non-profit
organization or institution
3. The donee organization or institution should
be governed by trustees who do not receive
any compensation
4. Said donee devotes all of its income to the
accomplishment and promotion of its
purposes
5. The NGO must be accredited by the
Philippine Council for NGO Certification
6. The donor engaged in business shall give
notice of donation on every donation worth
at least P500,000 to the RDO which has
jurisdiction over his place of business within
30 days after receipt of the qualified donees
institutions duly issued Certificate of
Donation (RR 2-2003)
Q: In addition to exemptions provided under

Section 101 of the Tax Code, are there any
other exemptions allowed on gross gift?
Q: What are the requisites for a donation

given to athletes as prize or award to be
exempted?
1. Encumbrances on the property donated if

assumed by the donee
2. Donations made to entities exempted under
special laws (e.g. IBP, IRRI, National
Museum, National Library)
3. Amount specifically provided by the donor
as a diminution of the property donated.
4. Athletes Prizes and Awards (see RA 7549)
The donation must be prize or award given to

athletes:
1. In local and international sports tournaments
and competitions
2. Held in the Philippines or abroad;
3. Sanctioned by their respective national
sports associations (RA 7549)
3. Gifts in favor of an education and/or

charitable, religious, cultural or social
welfare corporation, institution, accredited
NGO, trust or philanthropic organization or
research institution or organization provided
not more than 30% of said gifts will be used
by such done for administrative purposes.
Q: What exemptions are allowed to nonresident aliens?
Q: What are the requisites for dowries or

gifts made on account of marriage to be
exempted?
1. The gift was made on account of marriage
2. It was made before or within one year after
the celebration of marriage
3. Donor is a parent
4. Donee is a legitimate, recognized natural or
adopted child of the donor
5. The amount of the gift exempted is only to
the extent of the first P10,000 (per parent, if
made out of conjugal or community funds)
Q: What are the requisites for gifts in favor

of an education and/or charitable, religious,
cultural or social welfare corporation,
Note: Remember Section 32(B)(7)(d), Tax Code which

provides that all prizes and awards granted to athletes in
local and international competitions and tournaments,
whether held in the Philippines or abroad, and sanctioned
by their national sports associations are excluded from
gross income.
Read Section 99(C), Tax Code

Q: Are political contributions considered
gifts and therefore liable for donors tax?
Under Section 13 of RA 7166, such contributions,
be duly reported to the COMELEC, shall no be
subject to the payment of any gift tax.
Note: In Abello v. CIR [February 23, 2005], the Supreme
Court ruled that the contributions made by certain partners
of the ACCRA law firm to the campaign of Senator
Page 23 of 164

Edgardo Angara constitute as a donation subject to
donors tax. However, this was decided before RA 7166.
The Court noted that subsequent to the donations involved
in the case, Congress approved RA 7166 on November
25, 1991, providing in Section 13 thereof that
political/electoral contributions, duly reported to the
Commission on Elections, are not subject to the payment
of donors tax. RA 7166 provides no retroactive effect.
Note: Lets now discuss how to compute donors tax due

and payable.
--------------------------------------------------------------14. Person liable

---------------------------------------------------------------
The tax shall be computed on the basis of the total

net gifts made during the calendar year in
accordance with the graduated donors tax rates.
Read Section 99(A) to (B), Tax Code

Q: What is the basis in computing donors
tax?
Note: To best illustrate

In general --
Q: Who are liable for donors tax?

Every person, whether natural or juridical, resident or nonresident, who transfers or causes to transfer property by
gift, whether in trust or otherwise, whether the gift is direct
or indirect and whether the property is real or personal,
tangible or intangible. In other words, the donor is always
liable to pay the donors tax.
Q: What is the rule for donations made by

husband and wife?
Husband and wife are considered as separate and
distinct taxpayer's for purposes of the donor's tax.
However, if what was donated is a conjugal or
community property and only the husband signed
the deed of donation, there is only one donor for
donor's tax purposes, without prejudice to the right
of the wife to question the validity of the donation
without her consent pursuant to the pertinent
provisions of the Civil Code of the Philippines and
the Family Code of the Philippines. (see RR 2-2003)
In Tang Ho v. Board of Tax Appeals [November
19, 1955], the Supreme Court held that a donation
of property belonging to the conjugal partnership,
made during its existence, by the husband alone in
favor of the common children, is taxable to him
exclusively as sole donor. To be a donation by both
spouses, taxable to both, the wife must expressly
join the husband in making the gift. Her participation
cannot be implied. In case a donation was made by
the parents in favor of their children, consisting of
cash form the CPG, then only one parent may claim
the exemption granted by the law.
--------------------------------------------------------------15. Tax Basis

---------------------------------------------------------------

Gross gifts made

Less: Deductions from the gross gifts
= Net gifts made
Multiplied by applicable rate
= Donors tax on the net gifts
If several gifts were made during the year -Gross gifts made
Less: Deductions from the gross gifts
= Net gifts made on this date
Add: all prior net gifts during the year
= Aggregate net gifts
Multiplied by applicable rate
= Donors tax on aggregate net gifts
Less: donors tax paid on prior net gifts
= Donors tax payable on the net gifts to date
In other words, if the donor makes several gifts during the
same calendar year, the gifts shall be added on a
cumulative basis.
Q: What are the rates of tax payable by

donors?
The applicable donors tax rate shall depend upon
the relationship between the donor and the donee.
If the donee is a
stranger to the
donor
The tax rate is 30% of the

net gifts.
If the donee is not

a stranger to the
donor
The tax for each calendar

year shall be computed on
the basis of the total net gifts
made during the calendar
year in accordance with the
schedule provided in Section
99(A).
Page 24 of 164

---------------------------------------------------------D. VALUE-ADDED TAX

-----------------------------------------------------------------------------------------------------------------------1. Concept
--------------------------------------------------------------Q: Define Value-Added Tax (VAT).
A Value-Added Tax is a tax assessed, levied, and
collected on every importation of goods, whether or
not in the course of trade or business, or imposed on
each sale, barter, exchange or lease of goods or
properties or on each rendition of services in the
course of trade or business as they pass along the
production and distribution chain, the tax being
limited only to the value added to such goods,
properties or services by the seller, transferor or
lessor.
Q: What is the current VAT rate?

The current VAT rate is 12%.
--------------------------------------------------------------2. Characteristics/Elements of a VATTaxable Transaction

--------------------------------------------------------------Q: What are the characteristics of the VAT?
1. It is a percentage tax imposed at every stage of
the distribution process on the sale, barter, or
exchange or lease of goods or properties and on
the performance of service in the course of trade
or business or on the importation of goods,
whether for business or non-business.
2. It is a business tax levied on certain transactions
involving a wide range of goods, properties and
services, such tax being payable by the seller,
lessor or transferor.
3. It is an excise tax or a tax on the privilege of
engaging in the business of selling goods or
services or in the importation of goods
4. It is an indirect tax, the amount of which may be
shifted to or passed on the buyer, transferee or
lessee of the goods, properties or services.
5. It is an ad valorem tax as its amount or rate is
based on gross selling price or gross value in
money or gross receipts derived from the
transaction
Note: This early on I want to make the distinction between

an exempt entity (a taxpayer exempt from VAT) and an
exempt transaction (a transaction exempt from VAT). The
distinction proceeds from the nature of VAT as an indirect
tax. If the law exempts the statutory taxpayer (aka the
seller), this does not mean that the buyer is also exempt.
The VAT can be shifted to the buyer. Also, if the law
exempts the buyer from VAT meaning the seller cannot
pass/shift the VAT to the buyer, this does not mean the
seller is exempt. He must pay the tax. In both cases, the
transaction is not exempt from VAT because someone will
pay. But if the law says the transaction is exempt from
VAT then neither the buyer nor the seller will have to pay
VAT. That is the distinction. Remember that especially
when we discussed zero-rated, effectively zero-rated and
exempt transactions.
Q: What are VAT-taxable transactions?

VAT-taxable transactions are those transactions
which are subject to VAT either at the rate of 12% or
0% and the seller shall be entitled to tax credit for
the VAT paid on purchases and leases of goods,
properties, and services. (CIR V. CEBU TOYO
[FEBRUARY 16, 2005])
Q: What are the elements of a VAT-taxable

transaction?
1. There must be a sale, barter, exchange or
lease in the Philippines
2. The sale, barter, exchange or lease must be
of taxable goods, properties or services
3. The sale must be made by a taxable person
in the course of trade or furtherance of
his/its profession
Note: (1) An importation is VAT-taxable whether made in
the course of trade or business or not.
Q: What is meant by in the course of trade

or business
In the course of trade or business means the
regular conduct or pursuit of a commercial or an
economic activity including transactions incidental
thereto, by any person regardless of whether or not
the person engaged therein is a non-stock, nonprofit private organization or a government entity.
Note: Services rendered by non-resident foreign persons
shall be considered as being rendered in the course of
trade or business, even if the performance of services is
not regular (Section 4.105-3, RR No. 16-2005)
Page 25 of 164

(2) Any business where the gross sales or receipts do not
exceed P100,000 during any 12-month period shall be
considered principally for subsistence or livelihood and not
in the course of trade or business.
reimbursement-of-cost-only basis and, as

such, the services are not VAT-taxable. Is
COMASERCO correct?
(3) Again, an importation is VAT-taxable regardless of

whether made in the course of trade or business or not.
No. In CIR V. CA AND COMASERCO [M ARCH 30,

2000] , the Supreme Court opined that 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 definition of the term in the course of
trade or business applies to all transactions. Even a
non-stock, non-profit corporation or government
entity is liable to pay VAT for the sale of goods and
services. In this case, even if the services rendered
for a fee were on a reimbursement-on-cost
arrangement and without realizing profit, the
payments are still subject to VAT.
Q:
Pursuant
to
the
governments
privatization program, NDC decided its
shares in the National Marine Corp. and 5
vessels. Magsaysay Lines bought the
shares and vessels. The CIR contends that
the sale of the 5 vessels is incidental to its
NDCs VAT registered activity of leasing out
personal property and thus VAT-taxable. Is
the CIR correct?
No. In CIR V. M AGSAYSAY LINES [JULY 28, 2006], the
Supreme Court found that any sale, barter or
exchange of goods or services not in the course of
trade or business is not subject to VAT. In this case,
the sale of the vessels was an isolated transaction,
not done in the ordinary course of NDCs business
and is thus not subject to VAT.
Note: In THOMAS C. ONGTENCO VS. CIR, CTA CASE NO.
8190, DECEMBER 12, 2012, the CTA held that the
taxpayers act of lending money to a corporation, where he
is a director and stockholder cannot be considered as an
act of lending in the course of his trade or business. His
act of lending was not done in the ordinary course of his
business or trade but merely an isolated transaction in
order to help the company in its provincial expansion
considering that, at that time, it was just starting and was
having difficulties in getting and applying for loans from
banks. The act of lending was a one-time assistance in his
capacity as stockholder..
Q: Is the profit element required for VAT to

be imposed?
No. 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. (see CIR
V. CA AND COMASERCO [M ARCH 30, 2000])
Q: COMASERCO is a non-stock, non-profit

organization, affiliated with Philamlife and
organized
to
perform
collection,
consultative or technical services. The BIR
assessed COMASERCO for deficiency VAT.
COMASERCO argues that the services
rendered to Philamlife were on a no-profit,
Q: Sony Philippines engaged the services of

several advertising companies. Due to dire
economic conditions, Sony International
Singapore (SIS) gave Sony Philippines a
dole-out to pay for said advertising
expenses. Sony Philippines claimed as
input VAT credits that VAT paid for the
advertising expenses. The CIR disallowed
this and assessed Sony Philippines
deficiency VAT on the reimbursable
received by it from SIS. The CIR contends
that the reimbursable was a fee for a VATtaxable activity. Is the CIR correct?
No. The Supreme Court held in CIR v. SONY
PHILIPPINES [NOVEMBER 17, 2010] that Sony
Philippines cannot be deemed to have received the
reimbursable as a fee for a VAT-taxable activity. The
absence of a sale, barter or exchange of goods or
properties supports the non-VAT nature of the
reimbursable. The Supreme Court distinguished this
case from CIR V. CA AND COMASERCO [M ARCH 30,
2000] where even if there was similarly a
reimbursement on cost arrangement between
affiliates, there was in fact an underlying service.
Here, the advertising services were rendered in
favor of Sony Philippines, not SIS.
--------------------------------------------------------------3. Impact of Tax

4. Incidence of Tax
---------------------------------------------------------------
Page 26 of 164

Note: We discussed this already in General Principles but
let us review. The impact of taxation is the point on which
a tax is originally imposed. The impact of taxation is on
the seller. The incidence of tax is that point on which the
tax burden finally rests or settles down and in most cases,
the incidence is on the final consumer. Because VAT is an
indirect tax, the impact or the tax liability for the payment
of the tax falls on one person but the incidence or burden
thereof can be shifted or passed to another.
sales or outputs the VAT paid on its purchases,

inputs and imports.
--------------------------------------------------------------5. Tax Credit Method

---------------------------------------------------------------
Under the VAT method of taxation, which is invoicebased, an entity can subtract from the VAT charged
on its sales or outputs the VAT it paid on its
purchases, inputs and imports. (CIR V. SEAGATE
TECHNOLOGY [FEBRUARY 11, 2005]).
Note: We wont understand Tax Credit Method if we do

not define output tax and input tax.
Q: Differentiate output tax from input

tax
As differentiated by the Supreme Court in CIR V.
BENGUET CORPORATION [JULY 14, 2006]:
Input VAT or input tax represents the actual
payments, costs and expenses incurred by a VATregistered taxpayer in connection with his purchase
of goods and services. Thus, "input tax" means the
value-added tax paid by a VAT-registered
person/entity in the course of his/its trade or
business on the importation of goods or local
purchases of goods or services from a VATregistered person.
On the other hand, when that person or entity sells
his/its products or services, the VAT-registered
taxpayer generally becomes liable for 10% (now
12%) of the selling price as output VAT or output
tax. Hence, "output tax" is the value-added tax on
the sale of taxable goods or services by any person
registered or required to register under the Tax
Code.
Otherwise stated, output tax is the VAT due on the
sale or lease or taxable goods, properties or
services by an VAT-registered person. On the other
hand, input tax is the VAT due on or paid by a VATregistered person on importation of good or local
purchases of goods or services, including lease or
use of properties, in the course of his trade or
business.
The legal basis can be found in Section 110(A) of

the Tax Code which provides that any input tax
evidenced by a VAT invoice or official receipt on
purchase or importation of goods or for purchase of
services shall be creditable against output tax.
Note: (1) The Tax Credit method is the method used para
malaman mo how much ang babayaran mo na VAT. We
will talk about this in greater detail sa Determination of
output/input vat. For now, Ill give you the basics which will
suffice for understanding the succeeding topics.
As discussed above, the taxpayer determines his tax
liability by computing the tax on the gross selling price or
gross receipt (output tax) and subtracting or crediting the
earlier VAT on the purchase or importation of goods or on
the purchase of service (input tax) against the tax due on
his own sale. Gawin nating formula:
Okay example. Lets say seller ka ng wooden furniture.

Anong kailangan mo para makagawa ka ng produkto mo?
Eh di kahoy. Wooden furniture nga diba. So bumili ka ng
kahoy. Yung nagbenta sa iyo binigyan ka ng invoice.
Pagtingin mo sa invoice mo naka-indicate yung 12% VAT
na binayaran mo sa pagbili mo ng kahoy. Yan ang input
tax mo! So using the kahoy, you made lets say tables and
chairs. Eh since ibebenta mo ito, subject ka sa VAT.
Tawag mo dyan output tax. Under the Tax Credit Method,
puwede mo ibawas ang 12% na binayaran mo sa pagbili
ng kahoy doon sa babayaran mo na 12%VAT sa pagbenta
mo ng final product mo, yung tables and chairs. Because
of that nabawasan mo ang VAT liability mo.
(2) As explained in ABAKADA GURO PARTY LIST V. ERMITA
[SEPTEMBER 1, 2005], the VAT system was previously a
single stage system under a cost deduction method and
was payable only by the original sellers. Now, the VAT
system is a multi-stage system a mixture of the cost
deduction method and the tax credit method.
Q: What is the tax credit method?

Under the tax credit method, an entity can credit
against or subtract from the VAT charged on its
Page 27 of 164

--------------------------------------------------------------6. Destination Principle

--------------------------------------------------------------Q: What is the destination principle (crossborder doctrine)?
As a general rule, the value-added tax (VAT) system
uses the destination principle. It means that the
destination of the goods determines the taxation or
exemption from VAT. Goods and services are taxed
only in the country where they are consumed.
Note: (1) This is the reason why export sales of goods are
subject 0% while importations of goods are subject to
12%. Exported goods will be consumed in wherever
country it is exported so it is zero-rated. On the other
hand, we consume imported goods here in the Philippines
that is why it is subject to 12% VAT.
(2) In the case of services, consumption takes place
where the service is performed. Note, however, na may
exception to the destination principle when it comes to
sale of services. Although the services are performed in
the Philippines, there are certain sales of services that are
zero-rated. We will discuss this later when we get to
Section 108(B) or zero-rated sales of services.
--------------------------------------------------------------7. Persons liable

Q: In general, who are liable to pay the VAT?
1. Any person who, in the course of trade or
business, sells, barters, exchanges or leases
goods or properties, or renders services
Except: A person, whether or not VATregistered, whose annual gross sales or receipts
1
does not exceed P1,919,500.
2. Any person who imports goods, whether in the
course of trade or business or not.
(see SECTION 105, TAX CODE, SECTION 4.105-1, RR
16-2005)
If the annual gross sales or receipts does not exceed

P1,919,500, he shall be liable instead for the 3% percentage tax
on small business enterprises (see Section 116, Tax Code).

Note: RR 16-2011 [October 27, 2011] increased the

threshold amounts for sale of residential lot, sale of house
and lot, lease of residential unit and sale or lease of goods
or properties or performance of services covered by
Section 109(P), (Q) and (V) of the Tax Code. These are
the changes:
Section
Amount
in
Pesos (2005)
Adjusted
amounts
Section 109(P)
Section 109(P)
Section 109(Q)
Section 109(V)
1,500,000
2,500,000
10,000
1,500,000
1,919,500
3,199,200
12,800
1,919,500
I suggest you update your codal with these adjusted

amounts. Importante yan lalo na when we talk about
exempt transactions.
--------------------------------------------------------------8. VAT on sale of goods or properties

a) Requisites of taxability of sale of goods
or properties
--------------------------------------------------------------Read Section 106(A)(1), Tax Code
Q: What are considered as goods or
properties for VAT purposes?
All tangible and intangible objects which are capable
of pecuniary estimation, including:
1. Real properties held primarily for sale to
customers or held for lease in the ordinary
course of business
2. The right or privilege to use patent, copyright,
design or model, plan, secret formula or
process, good will, trademark, trade brand, or
other like property or right
3. The right or privilege to use in the Philippines of
any industrial, commercial or scientific
equipment
4. The right or the privilege to use motion picture
files, films tapes and discs
5. Radio, television, satellite transmission and
cable television line (see SECTION 106(A)(1), TAX
CODE)
Q: What is the tax base of VAT on sale of

goods or properties?
The 12% VAT is based on the gross selling price
(GSP) or gross value in money of the taxable goods
or properties sold, bartered or exchanged.
Page 28 of 164

For
goods
and
properties other than
real properties
The total amount of

money or its equivalent
which the purchaser
pays or is obligated to
pay to the seller in
consideration of the sale,
barter or exchange of
the goods or properties
excluding the VAT. Any
excise tax, if any, on
such goods or properties
shall form part of the
GSP
Note: If the consideration of
a sale is not wholly in
money as in a partexchange
or
barter
transaction, the base is the
price that would have been
charged in an open market
sale for purely monetary
consideration.
In case of real property
The gross selling price

shall
mean
the
consideration stated in
the sales document or
2
the fair market value,
whichever is higher.
(see SECTION 4.106-4, RR 16-2005 [SEPTEMBER 1,

2005])
Note: If the VAT is not billed separately, the selling price
stated in the sales document shall be deemed to be
inclusive of VAT (RR 16-2005)
Q: What are the requisites of a VAT-taxable

sale?
For
goods
or
properties other than
real property
For real property
1. There is an actual or
deemed sale, barter,
1. The seller executes

a deed of sale,
The fair market value shall mean whichever is the higher of (1)
the fair market value as determined by the CIR (zonal value) or
(2) the air market value as shown in the schedule of values of the
provincial and city assessors (real property tax declaration). In the
absence of a zonal value, gross selling price shall refer to the
market value shown in the latest real property tax declaration or
the consideration, whichever is higher.

exchange of goods or
properties
for
a
valuable
consideration
2. The
sale
is
undertaken in the
course of trade or
business or exercise
of profession in the
Philippines
3. The
goods
or
properties are located
within the Philippines
and are for use or
consumption therein
4. The sale is not
exempt from VAT
under Section 109 of
the Tax Code, special
law or international
agreement
binding
upon the government
of the Philippines.
Note: (1) The absence of
any of the above requisites
exempts the transaction
from
VAT.
However,
percentage
taxes
may
apply. Actually, the annual
gross sales or receipts
must exceed P1,199,500.
Otherwise, it is subject to
the 3% percentage tax on
small business enterprises.
(2) We can combine (3) and
(4) by stating that the
transaction should not be a
VAT zero-rated or a VATexempt transaction.
2.
3.
4.
5.
6.
including dacion en
pago,
barter
or
exchange,
assignment, transfer
or conveyance, or
merely contract to
sell involving real
property
The real property is
located
in
the
Philippines
The
seller
or
transferor
is
engaged in real
estate
business
either as a real
estate
dealer,
developer or lessor
The real property is
held primarily for
sale or for lease in
the ordinary course
of his trade or
business
The sale is not
exempt from VAT
under Section 109,
special
law
or
international
agreement binding
upon
the
government of the
Philippines.
The
threshold
amount set by the
law should be met
Note: (1) The absence of

any of the above requisites
exempts the transaction
from
VAT.
However,
percentage
taxes
may
apply.
(2) As to (4) Remember
that real properties held
primarily
for
sale
to
customers are ordinary
assets. Hence, the income
from the sale thereof shall
form part of ordinary
income
subject
to
graduated income tax rates.
If its a capital asset, the
income would be subject to
capital gains tax
Page 29 of 164

(3) As to (6), the threshold

amounts are: (1) The sale
of a residential lot with a
GSP
must
exceed
P1,919,500 and (2) the sale
of a residential house and
lot or other residential
dwelling with GSP must
exceed
P3,199,200.
Otherwise, they are not
exempt from VAT
Installment sale of a
residential house and lot or
other residential dwellings
3
exceeding P1 million shall
be subject to VAT.
(See SECTION 4.106-4, RR
16-2005 [SEPTEMBER 1,
2005], AS AMENDED BY RR
04-07 [FEBRUARY 7, 2007],
RR 16-2011 [OCTOBER 27,
2011],
RR
3-2013
[FEBRUARY 20, 2012] AND
RR 13-2012 [OCTOBER 12,
2012].)
Q: How is VAT imposed on real property

transactions?
1. If cash or deferred payment, then the VAT on
the whole amount is already imposed
2. If installment, then the VAT is imposed on each
payment
3. There is no VAT imposed on Section 40(C)(2)
exchanges.
Note: (1) In an installment plan, the initial payments do
not exceed 25% of the GSP. If the initial payments exceed
25%, the sale is on a deferred payment basis.
(2) In case of installment, the buyer can claim the input tax
in the same period as the seller recognized the output tax.
In deferred-payment basis, the output tax shall be
recognized by the seller and the input tax shall accrue to
the buyer at the time of the execution of the instrument of
sale.
Q: Assuming a VAT-taxable transaction, is

the advance payment in a real estate
transaction subject to VAT?
This value has not been changed by the amendments.

Of the amounts typically covering an advance

payment, only the pre-paid rent is subject to VAT.
Other forms of advance payment such as option
money, security deposit, etc. are not subject to VAT.
Q: A bought two adjacent condominium

units which he intended to combine so as to
fit his family. Each unit has a GSP of 2
million. The two units were separately
documented. After 2 years, A decided to sell
the two units. A contends that the units are
exempt from VAT as the GSP did not
exceeding 2.5 million. Is A correct?
No. By virtue of the amendment introduced by RR
13-2012 [OCTOBER 12, 2012], the sale of real
properties subject to VAT shall include the sale,
transfer, or disposal within a 12-month period of two
or more adjacent residential lots, house and lots, or
other residential dwellings in favor of a buyer. Such
adjacent real properties although covered by
separate titles and/or separate tax declarations,
when sold to one and the same buyer, whether
covered by one or separate deeds of conveyance,
shall be presumed as a sale of one residential lot,
house and lot or residential dwelling.
Q: Is the sale of the parking lot included in

the sale of a condominium unit?
No. The sale of parking lots is a separate and
distinct transaction and is not covered by the rules
on the threshold amount not being a residential lot,
house and lot, or a residential dwelling and thus
should be subject to VAT regardless of the amount
of selling price. (see RR 13-2012 [OCTOBER 12,
2012])
--------------------------------------------------------------9. Zero-rated sales of goods or properties

and effectively zero-rated sales of goods or
properties
--------------------------------------------------------------Read Section 106(A)(2), Tax Code
Q: What are zero-rated transactions?
A VAT zero-rated transaction are sales by VATregistered persons which are subject to 0% rate,
meaning the tax burden is not passed on to the
purchaser. A zero-rated sale by a VAT-registered
person, which is a taxable transaction for VAT
Page 30 of 164

purposes, shall not result in any output tax.

However, the input tax on his purchases of goods,
properties or services related to such zero-rated sale
shall be available as tax credit or refund.
Q: Distinguish VAT rating (VAT-taxable

transactions) from zero rating (Zero-rated
transactions).
As explained by the Supreme Court in CIR V.
BENGUET CORPORATION [JULY 14, 2006]:
In transactions taxed at a 10% rate (now 12%),
when at the end of any given taxable quarter the
output VAT exceeds the input VAT, the excess shall
be paid to the government; when the input VAT
exceeds the output VAT, the excess would be
carried over to VAT liabilities for the succeeding
quarter or quarters.
On the other hand, transactions which are taxed at
zero-rate do not result in any output tax. Input VAT
attributable to zero-rated sales could be refunded or
credited against other internal revenue taxes at the
option of the taxpayer
Note: As an example, assume that VAT-registered person
purchases materials from his supplier at P100, P9.6 of
which was passed on to him by his supplier as the latters
12% output VAT. In a zero-rated transaction, the taxpayer
can recover the P9.6 from the BIR either through a refund
or a tax credit. When the taxpayer sells his finished
product for lets say P120, he is not required to pay the
output VAT of P2.4 (12% of the P20 value he has added
to the P100 material).
In a transaction subject to VAT, however, he may recover
both the input VAT of P9.6 which he paid to the supplier
and his output VAT of P2.4 by passing both these costs to
the buyer. The buyer then pays P12, the total 12% VAT.
Q: Distinguish
exemption.
zero
rating
from
VAT-
As differentiated by the Supreme Court in CIR v.

CEBU TOYO CORPORATION [FEBRUARY 16, 2005]:
Zero-rated
It is a taxable transaction
but does not result in an
output tax
VAT-Exempt
Not subject
output tax

to
the
The input VAT on the

purchases of a VATregistered person with
zero-rated sales may be
allowed as tax credits or
refunded
The seller in an exempt

transaction
is
not
entitled to any input tax
on
his
purchases
despite the issuance of
a VAT invoice or
receipt;
Persons engaged in
transactions which are
zero-rated, being subject
to VAT, are required to
register
Registration is optional
for
VAT-exempt
persons.
Q: What are the two types of zero-rated

transactions?
1. Automatically zero-rated which refers to
export sale of goods, properties, and supply
of services by a VAT-registered person
2. Effectively zero-rated which refers to the
local sale of goods and properties by a VATregistered person o a person or entity who
was granted direct and indirect tax
exemption under special lws or international
agreements (RMC No. 50-2007)
Q: Distinguish zero-rated (automatically

zero-rated) from effectively zero-rated
transactions.
As distinguished by the Supreme Court in CIR V.
SEAGATE TECHNOLOGY [FEBRUARY 11, 2006]:
Zero-rated
generally refers to the

export sale of goods
and supply of services
Effectively zero-rated
refers 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.
Page 31 of 164

The tax rate is set at

zero. When applied to
the tax base, such rate
obviously results in no
tax chargeable against
the purchaser
As applied to the tax

base, such rate does
not yield any 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
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
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.
intended to benefit the

purchaser who, not
being
directly
and
legally liable for the
payment of the VAT,
will ultimately bear the
burden of the tax shifted
by the suppliers.
The taxpayer need not

file an application form
and to secure BIR
approval before sale
The rules are:

1. Prior to RA 9337
(before November
1,
2005)
application
is
needed except in
sales to PEZA,
sales
to
BOIregistered
100%
manufacturerexporter
2. RA 9337 up to
before RR 4-2007
(November 1, 2005
to April 5, 2007)
application
is
needed;
no
exceptions
3. RR 4-2007 (April 6,
2007 onwards)
need for application
not
expressly
provided.

Q: Enumerate the requisites that must be

complied with in order to be entitled to a
refund or issuance of a TCC for input VAT
due or paid attributable to zero-rated or
effectively zero-rated sales.
1. There must be zerorated or effectively zero
rated sales;
2. Input taxes were incurred or paid;
3. Such input taxes are directly attributable to zero
rated or effectively zerorated sales;
4. Input taxes were not applied against any output
VAT liability; and
5. The claim for refund was filed within the two
year prescriptive period. (see SITEL PHILIPPINES
CORPORATION V. CIR [CTA CASE NO. 7623,
M ARCH 3, 2010])
Note: No more VAT TCCs shall be issued. In connection
with this, Executive Order 68 [March 27, 2012] provides
for the monetization of outstanding VAT TCCs. EO 68
allows qualified VAT-registered taxpayers to receive the
cash equivalent of their outstanding TCCs either: (1)
Collecting in advance from a trustee bank a discounted
cash value of their TCCs or (2) Collect full cash value of
their TCC upon a certain maturity date to be determined
by the BIR and BOC. DOF Joint Circular 2-2012 provides
that the monetization will start in 2012 for TCCs issued
prior to 2004 while those issued in 2011 and 2012 will be
monetized in 2016. RMO 21-2012 [August 9, 2012]
provides the guidelines, policies and procedures for the
implementation of the VAT TCC Monetization Program.
Q: Enumerate the zero-rated sales of goods.

1. Export Sales (IF GONE)
a) Sale and actual shipment of goods from the
Philippines to a Foreign country
b) Sale of raw materials or packaging materials
to a Non-resident buyer for delivery to a
resident local export-oriented enterprise
c) Sale of raw materials or packaging materials
to Export-oriented enterprise whose export
sales exceed 70% of total annual production
d) Sale of Gold to the BSP
e) Those that are not considered export sales
under the Omnibus Investment Code and
other special laws
f) Sale of goods, supplies, and equipment and
fuel to persons engaged in International
shipping or international air transport
operations.
Page 32 of 164

2. Foreign currency denominated sale the sale to

a non-resident of goods assembled or
manufactured in the Philippines for delivery to a
resident in the Philippines paid in acceptable
foreign currency and accounted for in
accordance with BSP rules and regulations
3. Sales to persons or entities whose exemption
under special laws and international agreements
to which the Philippines is a signatory subjects
such sales to 0% rate (effectively zero-rated
transactions)
Note: As to 1(e), considered export sales under E.O. 226
includes the sale of goods and services by a VATregistered person in the customs territory to ecozone and
Freeport enterprises so as to make them automatically
zero-rated (Section 4.106-5, RR No. 4-2007)
As to 1(f), the goods subject to zero-rating are limited to
goods and passengers transported from a port in the
Philippines directly to a foreign port, or vice versa, without
docking or stopping at any other port in the Philippines.
(Ibid)
Now, I want to discuss the VAT treatment of PEZAregistered enterprises. This has been the subject of much
confusion. The cases added more to the confusion. What
you have to note in reading the cases is whether it was
decided before or after the effectivity of RMC 74-99.
Before RMC 74-99, whether a PEZA-registered enterprise
was exempt or subject to VAT depended on the type of
fiscal incentives availed of by the said enterprise. PEZA
entities can avail of two alternative or subsequent
incentives of income tax holiday (ITH) or 5% preferential
tax rate on gross income. If the entity avails of the 5%
preferential tax rate, it is exempt from all taxes including
VAT but if it avails of the ITH, it shall be exempt from
income taxes for a number of years but not VAT (see CIR
v. SEKISUI JUSHI PHILIPPINES [JULY 21, 2006]).
This explains the decisions in CIR V. TOSHIBA INFORMATION
EQUIPMENT [AUGUST 9, 2005] and CIR v. CEBU TOYO
CORPORATION [FEBRUARY 16, 2005] where in both cases
the Supreme Court held that the PEZA-registered
enterprise is entitled to a VAT refund/credit because it
opted to avail itself of the income tax holiday. Having
availed of the income tax holiday and its export sales
being a zero-rated transaction, the PEZA-registered
enterprise was entitled to refund or credit for its unutilized
input taxes. In both cases, the transactions were made
prior to the effectivity of RMC 74-99.
Now, after the effectivity of RMC 74-99, the tax treatment
of sales of goods and services of PEZA-registered
enterprises is now based on the principles of separate
custom territory and cross border doctrine.

As explained by the Court in the cases of CIR V. SEAGATE

TECHNOLOGY [FEBRUARY 11, 2005], CIR v. SEKISUI JUSHI
PHILIPPINES [JULY 21, 2006], CIR V. TOSHIBA INFORMATION
EQUIPMENT [AUGUST 9, 2005], CIR V. CONTEX [JULY 2,
2004]:
PEZA-registered enterprises, which would necessarily be
located within ecozones, are VAT-exempt entities not
because of Section 24 of RA 7926 (which imposes the 5%
preferential tax rate on gross income of PEZA-registered
enterprises in lieu of all taxes) but rather because of
Section 8 of the same which establishes the fiction that
ecozones are foreign territory. As a result, sales made by
a supplier in the Customs Territory (national territory of the
Philippines outside the borders of the ecozone) to a
purchaser in the ecozone shall be considered as
exportation from the Customs Territory. Conversely, sales
made by a supplier from the ecozone to a purchaser in the
Customs Territory shall be considered as an importation
into the Customs Territory.
The Philippine VAT system adheres to the cross-border
doctrine which means that 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.
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 ten percent (10%) (now
12% VAT). Sales made by an enterprise within a nonecozone territory, i.e., Customs Territory, to an enterprise
within an ecozone territory shall be free of VAT.
This has been further clarified in RMC 50-2007 [July 302007].
Q: Summarize the current tax treatment of

PEZA-registered enterprises as provided in
RMC 74-99 and as further clarified in RMC
50-2007.
1. Any sale of goods, property or services by a
VAT-registered supplier from the customsterritory to any Ecozone-registered enterprise
regardless of incentive availed is zero-rated on
the part of the VAT-registered seller because
ecozones are foreign soil by fiction and thus the
sale is considered an export sale.
2. Sales to an ecozone enterprise made by a nonVAT or unregistered supplier would only be
exempt from VAT and the supplier shall not be
able to claim credit/refund for its input VAT
because, under Section 109(O) of the Tax Code,
export sales by persons who are not VATregistered are exempt transactions.
Page 33 of 164

enterprise seller
if the service is
performed
outside or the
property leased
is located outside
the ecozone,
3. If the ecozone-enteprise is an exporter, its input

VAT are subject to refund not because of the
incentives it availed but because of the nature of
its transactions (export sales).
4. Any sale of goods or property by an ecozoneregistered enterprise to a buyer in the customs
territory shall be subject to 12% VAT because it
shall be considered an importation. The tax is
imposed on the buyer/importer.
5. The sale of service or lease of properties by
PEZA-registered enterprises to a customer or
lessee from the customs territory shall be
exempt from VAT if the service is performed
within the ecozone. The lease of properties will
be exempt if the property is located within the
ecozone. However, if the properties are located
outside of the ecozone, payments to such
enterprise shall be considered as royalties and
subject to final withholding VAT of 12%
Sale of Goods
VAT
registered
supplier from
customs
territory
to
PEZA
registered
enterprise
0% VAT
Sale of Services
0% VAT
--------------------------------------------------------------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
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
--------------------------------------------------------------Read Section 106(B), Tax Code
Q: What is meant by transactions deemed
sale?
There is no actual sale. However, the law deems
that there is a taxable sale.
Q: Enumerate the deemed sale transactions

VAT-exempt
supplier from
customs
territory
to
PEZAregistered
enterprise
VAT exempt
VAT exempt
PEZAregistered
enterprise to
buyer
from
customs
territory
(local/domestic
sales)
12% VAT imposed

on
buyer
in
addition to the
import tax and
customs duties
VAT-exempt
if
the service is
performed
or
rendered within
the
ecozone.
Same
rule
applies to lease
of properties if
located in the
ecozone.
12%
VAT
imposed on the
PEZA-registered

1. Transfer of goods or properties not in the course

of business (originally intended for sale or for
use in the course of business)
2. Property dividends (transfer to shareholders as
share in the profits of VAT-registered persons or
to creditors in payment of debt)
3. Consignment of goods without the sale being
made within 60 days
4. Retirement from or cessation of business with
respect to inventories of taxable goods existing
(see SECTION 106(B), TAX CODE)
Note: (1) Before considering whether the transaction is
deemed sale, it must first be determined whether the sale
was in the ordinary course of trade or business. Even if
the transaction was deemed sale, if it was note done in
the ordinary course of trade or business, still the
transaction is not subject to VAT (CIR v. MAGSAYSAY LINES
[JULY 28, 2006]).
Page 34 of 164

(2) As to (1), the transaction is deemed sale when the
taxpayer-seller withdraws goods from his inventory of
goods held primarily for sale for his own personal or nonbusiness use. The withdrawal or transfer of goods results
in the use or consumption of such goods by a person (the
seller himself) who is effectively the final consumer, such
withdrawal or transfer is deemed a sale subject to output
tax.
(3) As to (2), the requisites to constitute the distribution or
transfer to a shareholder or creditor a transaction deemed
sale are: (a) the VAT-registered person distributing or
paying is a domestic corporation; (b) what is being
declared or paid is either real property owned by the
company or shares of stocks owned in another company;
and (c) the domestic corporation is either a real estate
dealer (in case of real property) or dealer in securities (in
case of shares of stock)
(4) As to (3), as a general rule, a consignment of goods by
the consignment-owner to the consignee is not a taxable
transaction. However, it is subject to VAT when the
consigned goods are: (a) not sold by the consignee; and
(b) not returned by him to the consignor-owner within 60
days from date of consignment.
(5) As to (4), the VAT-registered taxpayer who ceases or
retires from business, including an unregistered joint
venture undertaking construction activity, must pay output
tax on the gross value of his inventory of materials, goods
and supplies existing at the time of cessation or retirement
of business.
Q: San Roque Power entered into a

purchase power agreement with NAPOCOR
to develop the hydroelectric potential of the
Lower Agno River. During the testing
period, electricity was transferred by San
Roque to NAPOCOR. Can the transfer be
considered a sale of electricity?
Yes. In SAN ROQUE POWER CORP. V. CIR [NOVEMBER
25, 2009], the Supreme Court held that although the
transfer was not a commercial sale, the NIRC does
not limit the definition of sale to commercial
transactions in the normal course of business.
Conspicuously, Section 106(B) of the NIRC, which
deals with the imposition of VAT, does not limit the
term sale to commercial sales, rather it extends the
term to transactions that are deemed sale. In the
said case, it was undisputed that San Roque
transferred to NPC all the electricity that was
produced during the trial period. The fact that it was
not transferred through a commercial sale or in the
normal course of business does not deflect from the
fact that such transaction is deemed as a sale.

--------------------------------------------------------------11. Change or cessation of status as VATregistered 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
registration due to reversion to exempt
status
(iii) Approval of request for cancellation
of a 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
Q: When is a change in or cessation of
status of a VAT registered person subject to
VAT?
1. Change of business
activity from VATtaxable status to
VAT-exempt status
When a VAT-registered
person engaged in a
VAT-taxable
activity
decides to discontinue
such activity and engage
in a non-VAT-taxable
activity.
2. Approval of a
request for
cancellation of a
registration due to
reversion to exempt
status
When
a
person
commenced a business
with the expectation that
is gross sales or receipts
will exceed P1,919,500
but failed to exceed this
amount during the first
12 months of operation.
3. Approval of request
for cancellation of a
registration due to
desire to revert to
exempt status after
lapse of 3
consecutive years
When a person who is

VAT-exempt and not
required to register for
VAT opted to register as
a VAT taxpayer and after
the lapse of 3 years
desire to revert to
exempt status
Page 35 of 164

Q: Does VAT apply to every importation?

Q: When is a change in or cessation of
status of a VAT registered person NOT
subject to VAT?
1. Change or control
of a corporation by
acquisition of the
controlling interest
of such corporation
by another
stockholder or
group of
stockholders
The goods or properties

used in the business or
those comprising the
stock-in-trade will not be
considered
sold,
bartered or exchanged
because the corporation
still owns them.
Yes. The VAT shall be imposed on every importation

of goods, whether or not in the course of trade or
business. This is unlike VAT on sale of goods or
properties which must be in the course of trade or
business. Otherwise, the person/transaction shall
not be liable to pay VAT. (see CIR V. SEAGATE
TECHNOLOGY [FEBRUARY 11, 2005]).
Q: What is the tax base of VAT on

importation of goods?
The tax base is the total value used by the BOC in
determining tariff and customs duties plus customs
duties, excise taxes, if any, and other charges.
Subject to VAT:
a. Exchange
of
property
by
corporation
acquiring control for
the shares of stocks
of
the
target
corporation
b. Exchange
of
properties
by
a
person who wants to
join the corporation
of his properties
held for sale or for
lease for shares of
stock
whether
resulting
to
corporate control or
not
2. Change in trade or
corporate name
3. Merger or
consolidation
The unused input tax of

the dissolved corporation
as of the date of merger
or consolidation shall be
absorbed
by
the
surviving corporation.
--------------------------------------------------------------12. VAT on importation of goods

a) Transfer of goods by tax exempt persons
--------------------------------------------------------------Read Section 107(A), Tax Code

Where the customs duties are determined on the

basis of the quantity or volume of the goods, the
VAT shall be based on the landed cost plus excise
taxes, if any.
Read Section 107(B), Tax Code

Q: What is technical importation?
Technical importation is the subsequent sale,
transfer or exchange of imported goods by VATexempt persons to non-exempt persons or entities.
Q: What is the legal consequence of

technical importation?
The non-exempt buyers, transferees, or recipients
shall be deemed the importers of the taxable goods
and shall be liable for the VAT due on such
importation. (see SECTION 107(B), TAX CODE)
Q: Anshari, an alien employee of ADB, who

is retiring soon has offered to sell you his
car, which he imported tax-free for his
personal use. The privilege of tax exemption
is recognized by tax authorities. If you
decide to purchase the car, is the sale
subject to tax?
Yes. Section 107(B) provides that in case of tax-free
importation of goods into the Philippines by persons,
entities or agencies exempt from tax, where the
goods are subsequently sold, transferred, or
exchanged in the Philippines to non-exempt persons
or entities, the purchasers, transferees, or recipients
shall be considered as the importer thereof, who
Page 36 of 164

shall be liable for any internal revenue tax on such

importation.
--------------------------------------------------------------13. Tax on sale of service and use or lease

of properties
a) Requisites of taxability
Q: What is a sale or exchange of services?
A sale of exchange of services means the
performance of all kinds of services in the
Philippines for others for a fee, remuneration or
consideration.
(See SECTION 108(A), TAX CODE for an extensive
enumeration of the type of services including in said
definition)
Q: Are toll fees collected

operators subject to VAT?
by
tollway
Yes. The Supreme Court in DIAZ V. SECRETARY OF

FINANCE [JULY 10, 2011] answered this issue in the
affirmative. The court held that VAT is imposed on
all kinds of services and tollway operations who are
engaged in construction, maintaining, and operating
expressways are no different from lessors of
property, transportation contractors, etc. Further,
they also come under those described as all other
franchise grantees which is not confined only to
legislative franchise grantees since the law does not
distinguish. They are also not a franchise grantee
under Section 119 of the Tax Code which would
have made them subject to percentage tax instead.
Neither are the services part of the enumeration
under Section 109 on VAT-exempt transactions.
Note: RMC 63-2010 [JULY 19, 2010] was issued to
implement Section 108 and impose VAT on the gross
receipts of tollway operators from all types of vehicles
starting August 16, 2010.
Q: Are the gross receipts derived by

operators or proprietors of cinema/theater
houses from admission tickets subject to
VAT?
Section 108 of the 1997 Tax Code is not exhaustive.

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.
Hence, since the showing or exhibition of motion
pictures or films Is not in the enumeration, such is
not a VAT-taxable transaction.
Q: Are association dues, membership fees,

and other assessment and charges
collected by a condominium corporation/
homeowners association subject to VAT?
Yes because they constitute as income payment or
compensation for the beneficial services the
condominium corporation/ homeowners association
provides for its tenants and members (RMC 652012).
Note:
(1)
The
fact
that
a
condominium
corporation/homeowners association is a non-stock, nonprofit organization is immaterial. As held in CIR V. CA &
COMASERCO [MARCH 30, 2000], even a non-stock, nonprofit organization or government entity is liable to pay
VAT on sale of goods and services.
(2) Pursuant to Section 18 of RA 9904 (Magna Carta for
Homeowners and Homeowners Association), the
association dues and income derived from rentals of the
homeowners associations may be exempted from tax
subject to the following conditions: (a) The homeowners
association must be a duly constituted Association as
defined under Section 3(b) of RA 9904; (b) The LGU
having jurisdiction over the homeowners association must
issue a certification identifying the basic services being
rendered by the association and its lack of resources to
render such services; and (c) the association must present
proof that the income and dues are used for the
cleanliness, security and other basic services need by
members, including maintenance of the facilities in their
respective subdivisions and villages. (RMC 9-2013
[January 29, 2013]
Q: When is the lease of properties subject to

VAT?
The use or lease of properties shall be subject to
VAT irrespective of the place where the contract of
lease or licensing agreement was executed if the
property is leased or used in the Philippines.
No. The Supreme Court in CIR v. SM PRIME

HOLDINGS [FEBRUARY 26, 2010] held that although
the enumeration of services subject to VAT under
Page 37 of 164

Q: Is the lease of residential units subject to

VAT?
5. The service is not exempt under the Tax

Code, special law or internal agreement
Yes as to the lease of residential units with a

monthly rental per unit exceeding P12,800,
regardless of the amount of aggregate rentals
received by the lessor during the year
Note: Absence of any of the requirements renders the

transaction exempt from VAT but may be subject to other
percentage tax.
Q: What is the tax treatment of the lease of

residential units, where some are leased out
for exceeding P12,800 while others are
leased out for more than P12,800?
The tax treatment shall be as follows:
1. The gross receipts from rentals not exceeding
P12,800 per month per unit shall be exempt
from VAT regardless of aggregate gross receipts
2. The gross receipts from rentals exceeding
P12,800 shall be subject to VAT if the aggregate
annual gross receipts from said units exceeds
4
P1,919,500,000.
Q: Give the basis of VAT on sale of services

and use or lease of properties?
The basis shall be the gross receipts derived from
the sale or exchange of services including the use or
lease of properties. (see Section 108(A), Tax Code)
Note: Gross receipts means the total amount of money
or its equivalent representing the contract price,
compensation, service fee, rental or royalty actually or
constructively received during the taxable quarter for the
services performed or to be performed for another person.
Q: What are the requisites for the taxability

of the sale of services and use or lease of
properties?
1. There is a sale or exchange of service or
lease or use of property enumerated in the
law or other similar services
2. The service is performed or to be performed
in the Philippines
3. The service is in the course of the taxpayers
trade or business or profession
4. The service is for a valuable consideration
actually or constructively received and
Otherwise, the gross receipts will be subject to the 3% tax

imposed under Section 116 of the Tax Code.

--------------------------------------------------------------14. Zero-rated sale of services

Q: Enumerate
services.
the
zero-rated
sales
of
SECTION 108(B) provides for the following:

1. Processing, Manufacturing, or Repacking Goods
for Other Persons Doing Business outside the
Philippines, which goods are subsequently
exported, where the services are paid for in
acceptable foreign currency and accounted for
in accordance with the rules and regulations of
the BSP
2. Services Other than those mentioned in the
preceding paragraph rendered to a person
engaged in business conducted outside the
Philippines or a nonresident person not engaged
in business who is outside the Philippines when
the services were performed, the consideration
for which is paid for in acceptable foreign
currency and accounted for in accordance with
the rules and regulations of the BSP.
3. Services rendered to person or entities whose
exemption under Special Laws or International
Agreements effectively subjects the supply of
such services to a 0% rate. (effectively zerorated transaction)
4. Sale of Services to Persons Engaged in
International Shipping or Air Transport
Operations
5. Sale of Services for Export-Oriented Enterprise
whose export sales exceed 70% of total annual
production
6. Transport of Passengers and Cargo by Air or
Seal Vessels from the Philippines to a Foreign
Country
7. Sale of Power Generated through Renewable
Sources of Energy
Q: Acesite is the operator of Holiday Inn

Hotel. It leases part of its premises to
PAGCOR and caters food and beverages to
Page 38 of 164

its patrons. Acesite contends that the sale

of food and beverages to PAGCOR is zerorated and thus entitling them to claim a tax
refund/credit. Is Acesite correct?
Yes. In CIR v. ACESITE PHILIPPINES [FEBRUARY 16,
2007], the Supreme Court stated that services
rendered to persons or entities whose exemption
under special laws or international agreements to
which the Philippines is a signatory effectively
subjects the supply of such services to zero (0%)
rate shall be subject to 0%. Since the law clearly
provides for PAGCORs exemption, the sale of
services of Acesite to PAGCOR is effectively zerorated. Hence, Acesite may refund the VAT it paid on
its sale of food and beverages to PAGCOR.
Note: Lets now discuss the most important zero-rated
sale in the enumeration Section 108(B)(2). This is an
exception to the destination principle. Remember that
under the destination principle, goods and services are
taxed only in the country where they are consumed.
Section 108(B)(2) is an exception because although the
services are performed in the Philippines, the sales of
such services are zero-rated.
Q: What are the requisites for the zero-rating

of the sale of service under Section
108(B)(2)?
1. The service is performed in the Philippines
2. The service falls under any of the categories
provided in Section 108(B)
3. It is paid for in acceptable foreign currency that
is accounted for in accordance with the
regulations of the Bangko Sentral ng Pilipinas
4. The recipient of such services is doing business
outside the Philippines.
Q: American Express Philippines (AMEX-P)

is
a
Philippine
Branch
of
AMEX
International. AMEX-P is a servicing unit of
AMEX Hong Kong (AMEX-HK) and facilitates
the collections of AMEX-HK receivables
from card members in the Philippines.
AMEX-P claimed a refund for its input taxes
arising from zero-rated sales of services to
AMEX-HK. CIR argues that AMEX-Ps
services must be consumed abroad in order
to be zero-rated. Is the CIR correct?
No. In AMERICAN EXPRESS INTERNATIONAL V. CIR
[JUNE 29, 2005], the Supreme Court opined that
while as a general rule, the VAT system uses the

destination principle as a basis for the jurisdictional
reach of the tax such that goods and services are
taxed only in the country where they are consumed,
exceptions to the destination principle are found in
Section 108(B) of the 1997 Tax Code. In this case,
Amex Phils. facilitated in the Philippines the
collection and payment of receivables belonging to
its Hong Kong-based foreign client, Amex HK, and
getting paid for it in acceptable foreign currency and
accounted for in accordance with the rules and
regulations of the BSP. As such, they are deemed
exceptions because although the services are
performed in the Philippines, the sales of such
services are considered zero-rated.
Q: Placer Dome Inc (PDI) owns 39.9% of

Marcopper. It undertook to clean-up and
rehabilitate the Makalupnit and Boac Rivers
in Marinduque which was affected by its
mining operations. PDI engaged the
services of Placer Dome Technical Services
Limited (PD Canada), a non-resident foreign
corporation in Canada which, in turn,
engaged the services of Placer Dom
Technical
Services
Philippines
(PD
Philippines). PD Philippines filed for a claim
for tax credit/refund and contends that its
sale of services to Placer Dome Canada was
zero-rated. The CIR invokes the destination
principle, contending that Placer Dome
Philippines services, while rendered to a
non-resident foreign corporation, are not
destined to be consumed abroad. Is the CIR
correct?
No. In CIR V. PLACER DOME [JUNE 8, 2007], the
Supreme Court reiterated its ruling in AMERICAN
EXPRESS INTERNATIONAL V. CIR [JUNE 29, 2005] to
the effect that the services enumerated in Section
108B constitute as exceptions to the destination
principle and are zero-rated. Since Placer Dome
Philippines services meet the requirements of
Section 108(B)(2), it is zero-rated.
Q: A foreign consortium composed of

Burmeister Denmark and Mitsui Engineering
entered into a contract with NAPOCOR for
the operation and maintenance of two
barges..
The
Consortium
appointed
Burmeister
Denmark as
coordination
manager. Burmeister Denmark established
Page 39 of 164

Burmeister Mindanao which subcontracted

the operation and maintenance of the two
barges. NAPOCOR paid the foreign
consortium while the consortium, in turn,
paid
Burmeister
Philippines
foreign
currency inwardly remitted into the
Philippines. The BIR refused to grant a
refund since the services were not destined
for consumption abroad. Are the services of
Burmeister Philippines entitled to zero-rated
status?
Yes. In CIR V. BURMEISTER AND W AIN SCANDINAVIAN
CONTRACTOR MINDANAO, INC. [JANUARY 22, 2007],
they are entitled to zero-rated status and to the
refund but only for the period covered prior to the
filing of the CIRs answer in the CTA. This is so
because prior, Burmeister was able to secure a
ruling from the BIR allowing zero-rating of its sales.
However, such ruling is valid only until the time that
the CIR filed its answer in the CTA which amounted
to a revocation of the said ruling. The revocation
cannot be made retroactive.
No. The services performed by AB ROHQ to X Corp

do not qualify for zero-rating because X Corp cannot
be considered doing business outside the
Philippines. The phrase other persons doing
business outside the Philippines under Section
108(B)(2) shall be deemed to pertain exclusively to
affiliates, subsidiaries, or branches of ROHQs. X
Corp, as the mother company of AB ROHQ, cannot
be considered an affiliate, subsidiary or branch for
the simple reason that X Corp and AB ROHWQ
must be considered as one and the same entity for
purposes of taxation. Further, X Corp is considered
doing business in the Philippines through AB ROHQ.
Q: ABC is a business process outsourcing
company and is engaged in the business of
providing call center services from the
Philippines
to
domestic
and
offshore
businesses. Can ABC claim for a refund or
issuance of a TCC for its excess input tax paid
on domestic purchases of goods and services
which were allegedly attributable to ABCs zerorated sales of services?
Yes provided it meets the following requisites:
It must be noted, however, that without this special

circumstance, Burmeister would not have been
entitled to a zero-rated status. This is because the
Consortium which was the recipient of the services
rendered by Burmeister was deemed doing business
within the Philippines. While the Consortiums
principal members are non-resident foreign
corporations, the Consortium itself is doing business
in the Philippines. Hence, the transactions of BWSC
Mindanao are not subject to VAT at zero percent.
Q: AB ROHQ is an ROHQ of X Corp, a

foreign corporation organized under the
laws of New York, USA. AB ROHQ is a VATregistered taxpayer engaged in providing
services including logistics, research and
development, product development, data
processing
and
communication,
and
business development. It provides services
solely and exclusively for its head office. AB
ROHQ filed a claim for refund or issuance of
TCC for input VAT paid on purchases
arising from its alleged zero-rated sale of
services to X Corp. Are the services
rendered by AB ROHQ to its head office
deemed VAT zero-rated?

1. the services must be other than processing,

manufacturing or repacking of goods;
2. payment for such services must be in
acceptable foreign currency accounted for in
accordance with the BSP rules and regulations;
and
3. the recipient of such services is doing business
outside the Philippines.
Note: In SITEL PHILIPPINES CORPORATION V. CIR [CTA CASE
NO. 7623, MARCH 3, 2010], ACCENTURE VS. COMMISSIONER
OF INTERNAL REVENUE [C.T.A. CASE NO. 7046, SEP. 22,
2009], PARLANCE SYSTEMS VS. COMMISSIONER OF INTERNAL
REVENUE [C.T.A. CASE NO. 7459, JUL. 9, 2009], business
process outsourcing companies were refused a refund of
their excess input VAT because their sale of services were
not zero-rated because they failed to prove that their
clients were non-resident foreign corporations doing
business outside the Philippines.
ACCENTURE V. CIR, G.R. NO. 190102, JULY

11, 2012
DOCTRINE: For VAT zero-rating of services rendered
to non-resident foreign corporation under Section
108(B)((2) of the NIRC, it is not enough that the
recipient of services be proven to be a foreign
corporation, it must be proven to be a non-resident
foreign corporation.
Page 40 of 164

Q: Enumerate the exempt transactions5

FACTS: Taxpayer filed an application for refund of
unutilized input taxes allocated to its zero-rated sale of
services to foreign clients. In order to prove that its sales
are VAT zero-rated, taxpayer presented as evidence the
Official Receipts, Billing Statements, Memo InvoicesReceivable,
Memo
Invoices-Payable
and
Bank
Statements. Taxpayer argued that these documents show
that the zero-rated sales were paid in foreign currency and
duly accounted for in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas (BSP).
HELD: The Court ruled that for sale of services to be VAT
zero-rated under Section 108(B) of the NIRC, the recipient
of service must be doing business outside the Philippines.
According to the Court, the documents presented by
taxpayer merely substantiated the existence of sales,
receipt of foreign currency payments and inward
remittance of the proceeds of such sales. There is no
evidence that the clients were doing business outside the
Philippines. Accordingly, the Court denied the claim on the
ground that no evidence was presented to prove the fact
that the foreign clients to whom the taxpayer rendered
services are clients doing business outside the
Philippines.
In MINDANAO GEOTHERMAL PARTNERSHIP VS.

COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO.
7801, JULY 10, 2012, the CTA held that in order to
qualify for VAT zero-rating under Section 108(B)(7)
of the NIRC, as amended, the taxpayer must be able
to prove that it is a generation company and that it is
engaged in the sale of power or fuel generated
through renewable source of energy.
--------------------------------------------------------------15. VAT exempt transactions

a) VAT exempt transactions, in general
b) Exempt transactions, enumerated
---------------------------------------------------------------
SECTION 109(A) TO (V) provides for the following:

a) Sale or importation of agricultural and marine
6
food products in their original state.
b) Sale or importation of fertilizers; seeds,
seedlings and fingerlings; fish, prawn, livestock
7
and poultry feeds
c) Importation of personal and household effects
belonging to the residents of the Philippines
returning from abroad
d) Importation of professional instruments and
implements, wearing apparel, domestic animals
and personal household effects belonging to
persons coming to settle for the first time in the
Philippines
e) Services subject to percentage tax
f)
Services by agricultural contract growers and

milling for others of palay into rice, corn into grits
and sugarcane into raw sugar
g) Medical, dental, hospital and veterinary services

8
except those rendered by professionals
h) Educational services rendered by private
educational institutions duly accredited by
DEPED, CHED, and TESDA and those by
governmental educational institutions
i)
Services rendered pursuant to an employeeemployer relationship
j)
Services rendered by regional or area

headquarters established in the Philippines

Q: What are VAT-exempt transactions?
VAT-exempt transactions refer to the sale of goods
or properties and/or services and the use or lease of
properties that is not subject to VAT (output tax) and
the seller is not allowed any tax credit of VAT (input
tax) on purchases.
The person making the exempt sale of goods,
properties, or services shall not bill any output tax to
his customers because the said transaction is not
subject to VAT.

Those underlined are the notable VAT-exempt transactions.

These enumeration is exclusive.
6
Such products are still considered in their original state even if
they have undergone simple processes of preparation or
preservation for the market, such as freezing, drying, salting,
broiling, roasting, smoking, or stripping. Polished and/or husked
rice, corn grits, raw cane sugar and molasses, ordinary salt and
copra shall be considered in their original state.
7
Does not include specialty feeds for race hourses, fighting
cocks, aquarium fish, zoo animals, and other animals generally
considered as pets.
8
But see discussion on VAT exemption of doctors registered with
the PRC and lawyers registered with the IBP.
Page 41 of 164

k) Transactions
which
are
exempt
under
international
agreements
to
which
the
Philippines is a signatory or under special laws
l)
Sales by agricultural cooperatives duly

registered with the Cooperative Development
Authority
m) Gross receipts from lending activities by credit or

multi-purpose cooperatives duly registered with
the Cooperative Development Authority whose
lending is limited to members
n) Sales by non-agricultural, non-electric and noncredit cooperatives duly registered with the
9
Cooperative Development Authority
o) Export sales by persons who are not VATregistered

p) Sales of real properties not primarily held for
sale to customers or held for lease in the
ordinary course of trade or business or sales
10
within the low-cost cap of below 1,919,500 for
11
a residential lot and P3,199,200 for a house
and lot and other residential dwelling
q) Lease of a residential unit with a monthly rental
12
not exceeding P12,800
r)
Sale, importation, printing or publication of

books and any newspaper, magazine, review or
bulletin which appears at regular intervals with
fixed prices for subscription and sale and is not
devoted principally to publication of paid
advertisements
s) Sale, importation, or lease of passenger or

13
cargo vessels and aircraft
t)
Importation of fuels, goods and supplies by

persons engaged in international shipping or air
transport operations
Provided that the share capital contribution of each member

does not exceed P15,000
10
Previously 1.5 million. Amended by RR 16-2011 [OCTOBER 27,
2011].
11
2011].
12
Previously P10,000. Amended by RR 16-2011 [OCTOBER 27,
2011].
13
Includes engine, equipment, and spare parts thereof for
domestic or international transport operations.

u) Services
of
banks,
non-bank
financial
intermediaries
performing
quasi-banking
functions and other non-bank financial
intermediaries
v) Sale or lease of goods or properties or
performance of services other than the
transactions mentioned in the preceding
paragraphs, the gross annual sales and/or
receipts do not exceed the amount of
14
P1,919,500. .
Q: Are senior citizens exempt from the 12%

VAT?
Yes. RA No. 9994 [February 15, 2010], otherwise
known as the Expanded Senior Citizens Act of 2010
exempts senior citizens from paying 12-percent VAT
on goods and services.
Q: Are medical services rendered b doctors

registered with the PRC and legal services
rendered by lawyers registered with the IBP
subject to VAT?
No. RR 7-2004 [M AY 7, 2004] excludes services by
doctors registered with the PRC and services by
lawyers registered with the IBP as well as GPPs for
the sole and exclusive purport of practising law or
medicine from the coverage of VAT on services
Q: Are pawnshops liable to pay VAT?

No. As explained by the Supreme Court in
TAMBUNTING PAWNSHOP V. CIR [JANUARY 21, 2010]:
Prior to the passage of the EVAT Law in 1994,
pawnshops were treated as lending investors
15
subject to lending investors tax. Subsequently,
pawnshops were treated jurisprudentially as VATable enterprises under the general classification of
sale or exchange of services. RA No. 9238 which
passed in 2004 finally classified pawnshops as
other non-bank financial intermediaries.
14

2011].
15
Note that in FIRST PLANTERS PAWNSHOP VS. CIR [JULY 30,
2008], the Supreme Court held that First Planters Pawnshop was
subject to VAT as it was a lending investor. It must be noted that
the factual circumstances of the said case pertained to a taxable
period prior to RA No. 9238. What is important to note in this case
is that the Supreme Court stated that pawnshops should now be
treated as non-bank financial intermediaries and, as such, not
subject to VAT.
Page 42 of 164

Q: Is a health maintenance organization

liable to pay VAT?
Yes. In CIR V. PHILIPPINE HEALTH CARE PROVIDERS,
INC. [APRIL 24, 2007], PHCPI claimed that its
services were exempt from VAT and sought a BIR
ruling in this regard. The BIR ruled that PHCPI was
exempt. The CIR, however, later assessed PHCPI
for deficiency VAT taxes. The CIR contended that
PHCPI does not actually render medical service but
merely acts as a conduit between the members and
PHCPIs accredited and recognized hospitals and
clinics. The Supreme Court opined that the services
of an entity which does not actually provide medical
and/or hospital services but merely arranges for the
same are subject to VAT. The Court, however, ruled
PHCPI cannot be faulted for its reliance on the BIR
ruling as such was issued when the term health
maintenance organization had no significance for
taxation purposes at the time. The failure of PHCPI
to describe itself as a health maintenance
organization subject to VAT does not amount to bad
faith.
Q: Is the sale of copra subject to VAT?

No. RA 9337 amended Section 109(A) to include
copra as those that should be considered in their
original state. Previously in MISAMIS ORIENTAL V.
DOF [NOVEMBER 10, 1994], the Supreme Court
opined that copra is not food and is not intended for
human consumption. Thus, it is not exempt from
VAT. The rule now is the sale of copra is VATexempt.
Q: Is the sale of e-books and e-journals

appearing at regular intervals with fixed
prices for subscription and sale and not
devoted principally to publication of paid
advertisements subject to VAT?
No. The terms book, newspaper, magazine,
review and bulletin shall refer to printed materials
in hard copies and do not include those in digital or
electronic format or computerized versions (RMC
No. 75-2012 dated November 22, 2012)
Q: Is PAGCORs sale of services subject to

VAT?
No. In PAGCOR V. CIR [M ARCH 15, 2011], the
Supreme Court held that RA 9337 only withdrew
PAGCORs exemption from corporate income taxes
but does not contain any provision that subjects the
same to VAT. PAGCOR is exempt from the payment
of VAT, because PAGCOR's charter, P.D. No. 1869,
is a special law that grants it exemption from taxes.
Moreover, the exemption of PAGCOR from VAT is
supported by Section 6 of R.A. No. 9337, which
retained Section 108 (B) (3) of R.A. No. 8424, thus:
Services rendered to persons or entities whose
exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such services to
zero percent (0%) rate
Q: Is the sale of Andoks chicken subject to

VAT?
Q: S and ABS-CBN entered into an

agreement where S will provide his services
exclusively to ABS-CBN as a talent for the
latters TV and radio shows. Is he liable to
pay VAT?
No. The sale of Andoks chicken is exempt from

VAT. However, should Andoks maintain a facility by
which the roasted chicken will be offered as a menu
to customers who would dine-in, then it will be
subject to VAT on sale of service which is similarly
imposed on restaurants and other eateries (VAT
Ruling No. 009-07 dated June 21, 2007)
No provided that there exists no employer-employee

relationship between S and ABS-CBN. In SONZA V.
ABS-CBN [JUNE 10, 2004], the Supreme Court held
that an independent contractor is liable to pay VAT.
Section 109 only exempts from VAT services
rendered pursuant to an employer-employee
relationship.
Note: Ano lessons sa ruling na ito sa mga gusto

magnegosyo diyan para ma-exempt sa VAT? Una, stall
lang itatayo mo na pang-take out. If may dine-in, sale of
service yun! That is subject to VAT. Pangalawa, ito lang
puwede mo gawin sa manok mo o baboy or isda:
freezing, drying, salting, broiling, roasting, smoking, or
stripping. Kapag nagbenta ka ng adobong manok,
nilagang baboy or sinigang na isda, hindi na original state
yan!

CIR v. PILIPINAS SHELL [G.R. 188497, APRIL

25, 2012]
DOCTRINE: Oil companies are not exempt from the
payment of excise tax on petroleum products
manufactured and sold by them to international carriers.
Page 43 of 164

FACTS: The taxpayer filed with the Large Taxpayers Audit
& Investigation Division II of the (BIR) the several formal
claims for refund or tax credit for various years. It filed
petitions for review since no action was taken by the BIR
on its claims. The CTAs First Division ruled that the
taxpayer is entitled to the refund of excise taxes in the
reduced amount. It relied on a previous ruling rendered by
the CTA En Banc in a previous case involving the same
taxpayer, where the CTA also granted the taxpayers claim
for refund on the basis of excise tax exemption for
petroleum products sold to international carriers of foreign
registry for their use or consumption outside the
Philippines. On appeal, the CTA En Banc upheld the ruling
of the First Division.
HELD: The Supreme Court held that both the earlier
amendment in the 1977 Tax Code and the present Sec.
135 of the 1997 NIRC did not exempt the oil companies
from the payment of excise tax on petroleum products
manufactured and sold by them to international carriers.
Because an excise tax is a tax on the manufacturer and
not on the purchaser, and there being no express grant
under the NIRC of exemption from payment of excise tax
to local manufacturers of petroleum products sold to
international carriers, and absent any provision in the
Code authorizing the refund or crediting of such excise
taxes paid, the Court holds that Sec. 135 (a) should be
construed as prohibiting the shifting of the burden of the
excise tax to the international carriers who buys petroleum
products from the local manufacturers. Said provision thus
merely allows the international carriers to purchase
petroleum products without the excise tax component as
an added cost in the price fixed by the manufacturers or
distributors/sellers. Consequently, the oil companies which
sold such petroleum products to international carriers are
not entitled to a refund of excise taxes previously paid on
the goods.
The Supreme Court pointed out that the taxpayers failure
to make a distinction on the exemption under Sections 134
and 135 of the Tax Code, apparently led it to mistakenly
assume that the tax exemption under Sec. 135 (a)
attaches to the goods themselves such that the excise
tax should not have been paid in the first place. The
exemption found in Sec. 134 makes reference to the
nature and quality of the goods manufactured (domestic
denatured alcohol) without regard to the tax status of the
buyer of the said goods while Sec. 135 deals with the tax
treatment of a specified article (petroleum products) in
relation to its buyer or consumer.
Further, it held that Sec. 135 (a) in relation to the other
provisions on excise tax and from the nature of indirect
taxation, may only be construed as prohibiting the
manufacturers-sellers of petroleum products from passing
on the tax to international carriers by incorporating
previously paid excise taxes into the selling price. In other
words, the taxpayer cannot shift the tax burden to
international carriers who are allowed to purchase its
petroleum products without having to pay the added cost

of the excise tax.

Furthermore, considering that the excise taxes attaches to
petroleum products as soon as they are in existence as
such, there can be no outright exemption from the
payment of excise tax on petroleum products sold to
international carriers. The sole basis then of the taxpayers
claim for refund is the express grant of excise tax
exemption in favor of international carriers under Sec.
135(a) for their purchases of locally manufactured
petroleum products.
Citing its ruling in Philippine Acetylene, it held that 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 Sec. 148 is the direct liability of the manufacturer
who cannot thus invoke the excise tax exemption granted
to its buyers who are international carriers.
Note: Although hindi kasama sa coverage, note na rin that

by virtue of RA No. 10378 approved March 7, 2013,
transport of passengers by international carriers is a VATexempt transaction.
In COMMISSIONER OF INTERNAL REVENUE VS.

SEMIRARA MINING CORPORATION [CTA EB NO. 752,
M ARCH 22, 2012], the CTA held that a coal operator
with coal operating contract with the government is
exempt from value-added tax. In order to encourage
and promote said policy, Section 16 of PD 972
expressly grants tax incentive to operators of a
contract under the said Decree which exempts them
from all taxes except income tax.
--------------------------------------------------------------16. Input tax and output tax, defined

--------------------------------------------------------------Note: I already discussed this.
--------------------------------------------------------------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
---------------------------------------------------------------
Page 44 of 164

Read Section 110(A), Tax Code
Q: What is the rule on transitional input

credits?
Q: What are the sources of input tax?

1. Purchase or importation of goods
a. For sale; or
b. For conversion into or intended to form
part of a finished product for sale
including packaging materials; or
c. For use as supplies in the course of
business;
d. For use as materials supplied in the sale
of service;
e. For use in trade or business for which
deduction for depreciation or
amortization is allowed under the Tax
Code except automobiles, aircraft and
yachts.
2. Purchase of real properties for which ha
VAT has actually been paid
3. Purchase of services in which VAT has
actually been paid
4. Transactions deemed sale
5. Presumptive input tax
6. Transitional input tax (see Section 4.110-1,
RR 16-2005)
--------------------------------------------------------------e) Presumptive input

Q: What is the rule on presumptive input tax
credits?
Persons or firms engaged in the processing of
sardines, mackerel and milk, and in the
manufacturing or refined sugar, cooking oil and
packed noodle-based instant meals, shall be
allowed a presumptive input tax, creditable against
the output tax, equivalent to 4% of the gross value in
money of their purchases of primary agricultural
products which are used as inputs to their
production.
--------------------------------------------------------------f) Transitional input


A person who becomes liable to VAT or any person

who elects to be VAT-registered shall, subject to the
filing of an inventory, be allowed input tax on his
beginning inventory of goods, materials and supplies
equivalent to 2% of the value of such inventory or
the actual VAT paid on such goods, materials and
supplies, whichever is higher, which shall be
creditable against the output tax.
FORT BONIFACIO DEVELOPMEN CORPORATION V.

CIR, G.R. NO. 173425, SEPTEMBER 4, 2012
DOCTRINE: Prior payment of taxes is not required for
a taxpayer to avail of the 8% transitional input tax
credit.
FACTS: Fort Bonifacio Development Corporation (FBDC)
purchased from the government in 1995 portion of the Fort
Bonifacio reservation, now known as the Fort Bonifacio
Global City. No VAT on the sale of the land was passed
on by the government to FBDC. On January 1, 1996,
Republic Act 7716 took effect, amending certain
provisions of the NIRC. One of the amendments is the
extension of the coverage of the VAT to sale of real
properties held primarily for sale to customers or held for
lease in the ordinary course of business. In September
1996, FBDC submitted to the BIR an inventory of all its
real properties, claiming that it is entitled to the transitional
input tax credit on said inventories. FBDC started selling
Global City lots in October 2006. For the 1st quarter of
1997, FBDC paid output taxes on the sale of lots after
deducting input taxes. Realizing that the transitional input
taxes were not applied against the output VAT, which
would have resulted to no net output VAT liability (the
transitional input taxes being higher), FBDC filed a claim
for refund for the VAT payment. The Court of Tax Appeals
(CTA) denied the claim on the ground that the benefits of
the transitional input tax credit comes with the condition
that business taxes should have been paid. Since FBDC
acquired the property from the government free of VAT, it
cannot avail of the transitional input tax credit. The Court
of Appeals (CA) affirmed the decision of the CTA, saying
that FBDC is not entitled to the transitional input tax credit
since it did not pay any VAT when it purchased the Global
City property.
HELD: The Supreme Court (SC) reversed the decision of
the CA and granted the refund. According to the SC, there
is nothing in Section 105 of the old NIRC that indicate that
prior payment of taxes is necessary for the availment of
the transitional input tax credit. All that is required is for the
taxpayer to file a beginning inventory with the BIR.
Page 45 of 164

Note: There are 3 issues in this case: (1) Is the FBDC
entitled to claim transitional input vat (2) If yes, is the
transitional input vat applicable only to improvements and
(3) should there be a previous payment for the transitional
input VAT to be creditable.
The issues were first resolved in the case of FORT
BONIFACIO DEVELOPMENT CORP. V. CIR [APRIL 2, 2009] and
was affirmed in a motion for reconsideration in FORT
BONIFACIO DEVELOPMENT CORP. V. CIR [OCTOBER 2, 2009].
The recent case of FORT BONIFACIO DEVELOPMENT CORP. V.
CIR [SEPTEMBER 4, 2012] simply reaffirmed the doctrines
laid down in the previous cases, which are as follows:
As to (1): Yes, FBDC is entitled to claim transitional input
VAT by virtue of Section 111(A) (previously Section 105)
As to (2): No, RR 7-95 cannot limit the application and
coverage of Section 105 (now Section 111(A) by stating
that in the case of real estate dealers, the basis of the
presumptive input tax shall be the improvements. This is a
legislative act beyond authority of the CIR and the
Secretary of Finance. The term goods and properties
includes real properties held primarily for sale to
customers or held for lease in the ordinary course of
business. Thus, FBDC is entitled to claim transitional input
VAT based not only the improvements but also on the
value of the entire real property and regardless of whether
or not there was actual payment on the purchase price of
the real property or not.
As to (3): No, the transitional input tax operates to the
benefit of newly VAT-registered persons, whether or not
they previously paid taxes in the acquisition of their
beginning inventory of goods, materials and supplies.
--------------------------------------------------------------18. Persons who can avail of input tax credit

--------------------------------------------------------------Q: Who may avail of input tax credit?
1. The importer upon payment of VAT prior to
the release of goods from customs custody
2. The purchaser of the domestic goods or
properties upon consummation of he sale
3. The purchaser of services of the lessee or
licensee upon payment of compensation,
rental, royalty or fee
4. Purchaser
of
real
property
under
cash/deferred
payment
basis
upon
consummation of the sale or if upon
instalment basis upon every instalment
payment (Section 4.110-2, RR 16-2005)

--------------------------------------------------------------19. Determination for 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
transaction
d) Determination of the output tax and VAT
payable and computation of VAT payable or
excess tax credits
--------------------------------------------------------------Note: Remember the formula!
--------------------------------------------------------------a) Determination of output tax

--------------------------------------------------------------Q: How is output tax determined?
The output tax is computed by:
1. Multiplying the GSP (for sellers of goods or
properties) or the gross receipts (for sellers
of services) by 12% or
2. Where the amount of VAT is erroneously
billed in the invoice or receipt, by dividing
the total invoice amount by a fraction using
the rate of VAT as numerator and 100% plus
the rate of VAT as the denominator (Section
4.110-6, RR 16-2005)
--------------------------------------------------------------b) Determination of input tax creditable

Q: How is
determined?
the
creditable
input
tax
The amount of input taxes creditable during a month

or quarter shall be determined by:
1. Adding all the creditable input taxes arising
from the transactions during the month or
quarter plus any amount of input tax carried
over from the preceding month or quarter
2. Reduced by the amount of claim for VAT
refund or TCC and other adjustments such
as purchase returns or allowances, input tax
Page 46 of 164

attributable or allocated to exempt sales,

and input tax attributable to sales to
government subject to final withholding VAT
(Section 4.110-5, RR 16-2005)
--------------------------------------------------------------c) Allocation of input tax on mixed

transaction
--------------------------------------------------------------Q: Explain the rule on the apportionment of
input VAT on mixed transactions.
SECTION 4.110-4 OF RR16-2005 [SEPTEMBER 1,
2005] provides that a VAT-registered taxpayer who
is also engaged in transactions not subject to VAT
shall be allowed to recognize input tax credit on
transactions subject to VAT as follows:
1. All the input taxes that can be directly attributed
to transactions subject to VAT may be
recognized for input tax credit
Exception: Input taxes that can be directly
attributable to VAT taxable sales to the
Government or any of its political subdivisions,
instrumentalities or agencies shall not be
credited against output taxes arising from sales
to non-Government entities.
The following input taxes were passed on by its VAT

suppliers:
Input tax on taxable goods at 12%
Input tax on zero-rated sales
Input tax on sale of exempt goods
Input tax on sale to government
Input tax on depreciable capital
Not attributable to any specific activity
(monthly amortization for 60 months)
- P5,000
- P3,000
- P2,000
- P4,000
- P20,000
The creditable input VAT available for each of the

respective type of transactions entered into by ABC Corp
are as follows:
1.
2.
3.
4.
For the sales subject to 12% VAT (i) actual input of

P5,000 and (ii) ratable portion of P5,000
For the sales subject to 0% VAT (i) actual input VAT
of 3,000 and (ii) ratable portion of P5,000
For sale of exempt goods no input VAT is creditable
as the transactions are VAT-exempt
For the sales to government no input VAT is
creditable as the law imposes a 5% FWT obligation
on the government agency-payor.
How was the ratable portion of creditable input VAT for

VAT-taxable and zero-rated sales computed?
For input VAT creditable on VAT-taxable sales:
2. The input tax attributable to VAT-exempt sales

shall not be allowed as credit against output tax,
but should be treated as part of cost of asset or
operating expense
3. If any input tax cannot be directly attributed to
either a VAT-taxable or VAT-exempt transaction,
the input tax shall be pro-rated to the VAT
taxable and VAT-exempt transactions and only
the ratable portion pertaining to transactions
subject to VAT may be recognized for input tax
credit.
For input VAT creditable on VAT zero-rated sales
Note: To illustrate by way of computation.

ABC Corporation had the following sales during the
month:
Sale to private entities subject to 12%
Sale to private entities subject to 0% Sale of exempt goods
Sale to govt subject to 5% FWT
Total Sales for the month

- P100,000
P100,000
- P100,000
- P100,000
- P400,000
--------------------------------------------------------------d) Determination of the output tax and VAT

payable and computation of VAT payable or
excess tax credits
Page 47 of 164

Q: Give the three possible scenarios that

may arise in computing the VAT payable.
If at the end of any taxable month or quarter:
Output tax = input tax
No VAT payable
Output tax > input tax
The excess shall be paid by

the VAT-registered person
The excess shall be carried
over to the succeeding
quarter or quarters
Output tax < input tax
Note: If input vat results from zero-rated or effectively

zero-rated transactions, any excess over the output taxes
shall be refunded to the taxpayer or credited against other
internal revenue taxes, at the taxpayers option.
--------------------------------------------------------------20. Substantiation of input tax credits

--------------------------------------------------------------Q: What are the substantiation requirements
of input tax credits?
Input taxes must be substantiated and supported by
the following documents, and must be reported in
the information returns required to be submitted to
the Bureau:
1. For
importation
goods
the
of
Import entry or other equivalent

document
showing
actual
payment of VAT on the
imported goods
2. For the domestic

purchase
of
goods
and
properties
3. For the purchase
of real property
Invoice showing the information

required under Section 113 and
237 of the Tax Code
4. For the purchase

of services
Official receipt showing the

information
required
under
Section 113 and 237 of the Tax
Code.
5. Transitional input
tax
Inventory of goods as shown in

a detailed list to be submitted to
the BIR
6. Input
tax
Deemed
Invoice required
on
sale
Public instrument i.e., deed of

absolute
sale,
deed
of
conditional
sale,
contract/agreement to sell, etc.,
together with VAT invoice
issued by the seller.

transactions
Note: We will discuss what the

required invoices are later.
7. Input tax from

payments made to
non-residents
Copy of the Monthly Remittance

Return of Value Added Tax
Withheld (BIR Form 1600) filed
by the resident payor in behalf
of the non-resident evidencing
remittance of VAT due which
was withheld by the payor
8. Advance VAT on
sugar
Payment
Order
showing
payment of the advance VAT.
(Section 4.110-8, RR 16-2005)
--------------------------------------------------------------21. Refund or tax credit of excess input tax

a) Who may claim for refund/apply for
issuance of tax credit certificate
b) Period to file claim/apply for issuance of
TCC
c) Manner of giving refund
d) Destination principle or cross-border
doctrine
--------------------------------------------------------------Read Section 112(c), Tax Code
Q: Who may claim for refund/apply for
issuance of tax credit certificate?
A VAT-registered person whose sales of goods,
properties or services are zero-rated or effectively
zero-rated may apply for the issuance of a TCC or
refund of input tax attributable to such sales
(Section 4.112-1, RR No. 16-2005).
Note: The refund or application for issuance of TCC must
be filed with the appropriate BIR Office-Large Taxpayers
Service (LTS) or RDO having jurisdiction over the principal
place of business of the taxpayer. Direct exporters may file
their claim for TCC with the One Stop Shop Center of the
DOF. (see Section 4.112-1, RR No. 16-2005). The filing
of the claim with one office shall preclude the filing of the
same claim with another office.
The proper party to seek refund of an indirect tax is

the statutory taxpayer, not the person on whom it is
shifted to. (EXXON MOBIL PHILIPPINES V. CIR
[JANUARY 26, 2011]; SILKAIR V. CIR [FEBRUARY 25,
2010]
Page 48 of 164

SILKAIR V. CIR [G.R. NO. 166482, JANUARY 25,

2012]
DOCTRINE: 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.
FACTS: Petitioner filed an administrative claim for refund

on the excise taxes paid on the purchase of jet fuel from
its supplier oil company for the period of July 1, 1998 to
December 31, 1998, which it alleged to have been
erroneously paid based on Section 135(a) and (b) of the
Tax Code of 1997. Due to inaction by respondent
Commissioner, petitioner filed a Petition for Review with
the Court of Tax Appeals. The CTA denied the petition
and ruled that while petitioners country indeed exempts
from excise taxes petroleum products sold to international
carriers, petitioner nevertheless failed to comply with the
second requirement under Section 135 (a) of the 1997 Tax
Code as it failed to prove that the jet fuel delivered by
Petron came from the latters bonded storage tank. Upon
the denial of the motion of reconsideration, petitioner
elevated the case to the CA. The CA affirmed the denial
and ruled that petitioner is not the proper party to seek for
the refund of the excise taxes paid.
HELD: The Supreme Court held that excise taxes, which
apply to articles manufactured or produced in the
Philippines for domestic sale or consumption or for any
other disposition and to things imported into the
Philippines, is basically an indirect tax. While the tax is
directly levied upon the manufacturer/importer upon
removal of the taxable goods from its place of production
or from the customs custody, the tax, in reality, is actually
passed on to the end consumer as part of the transfer
value or selling price of the goods, sold, bartered or
exchanged. 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. Petitioner,
as the purchaser and end-consumer, ultimately bears the
tax burden, but this does not transform its status into a
statutory taxpayer.
DIAGEO PHILIPPINES V. CIR [G.R. NO. 183553,

NOVEMBER 12, 2012]
DOCTRINE: The claimant for the refund of excise taxes
related to exported products shall be the same person
who paid the taxes.
FACTS: Diageo Philippines, Inc. purchased raw alcohol
from its supplier for use in the manufacture of its beverage
and liquor products. The supplier imported the raw alcohol

and paid the related excise taxes thereon before the same
were sold to the petitioner. The purchase price for the raw
alcohol included, among others, the excise taxes paid by
the supplier. Subsequently, petitioner exported its locally
manufactured liquor products and received the
corresponding foreign currency proceeds of such export
sales. Petitioner then filed applications for tax refund/
issuance of tax credit certificates corresponding to the
excise taxes which its supplier paid but passed on to it as
part of the purchase price of the subject raw alcohol
invoking Section130(D) of the Tax Code.
HELD: The Court ruled that the right to claim a refund or
be credited with the excise taxes belongs to its supplier.
Any excise tax paid thereon shall be credited or refunded
requires that the claimant be the same person who paid
the excise tax.
Q: What are the requirements for a claim for

VAT refund/credit?
1. The taxpayer is engaged in sales which are
zero-rated or effectively zero-rated
2. The taxpayer is VAT-registered
3. The claim must be filed within two years after
the close of the taxable quarter when such sales
were made
4. The input taxes are due or paid;
5. The input taxes are not transitional input taxes
6. The input taxes have not been applied against
output taxes during and in the succeeding
quarters
7. The input taxes claimed are attributable to zerorated or effectively zero-rated sales
8. In certain types of zero-rated sales, the
acceptable foreign currency exchange proceeds
thereof had been duly accounted for in
accordance with BSP rules and regulations
[Sections 106(A)(2)(a)(1) and (2); Section
106(B); Sections 108(B)(1) and (2)]
9. Where there are both zero-rated or effectively
zero-rated sales and taxable or exempt sales,
and the input taxes cannot be directly and
entirely attributable to any of these sales, the
input taxes shall be proportionately allocated on
the basis of sales volume. (See INTEL
TECHNOLOGY PHILIPPINES V. CIR [APRIL 27,
2007])
Note: In JP MORGAN CHASE BANK, N.A. PHILIPPINE
CUSTOMER CARE CENTER VS. COMMISSIONER OF INTERNAL
REVENUE [CTA CASE NOS. 7650, 7681 AND 7782, MARCH
13, 2012], the CTA held that Input taxes incurred prior to
registration as VAT taxpayer with the BIR cannot be the
subject of a refund.
Page 49 of 164

An application for refund/tax credit certificate on the basis
of the cancellation of VAT registration filed before the
effectivity of the cancellation is premature. MINDANAO I
GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL
REVENUE, CTA CASE NO. 8247, AUGUST 10, 2012
Amounts reflected in the supporting documents must the
same with the amount reported as zero-rated sales in its
VAT Return for the period subject for refund. (HARTEHANKS PHILIPPINES, INC. VS. COMMISSIONER OF INTERNAL
REVENUE, CTA CASE NO. 7975 & 7998, JULY 2, 2012)
A VAT-registered person claiming VAT zero rated direct
export sales must present at least three (3) types of
documents, to wit: (a) the sales invoice as proof of sale of
goods; (b) the export declaration and bill of lading or
airway bill as proof of actual shipment of goods from the
Philippines to a foreign country; and (c) bank credit advice,
certificate of bank remittance or any other document
proving payment for the goods in acceptable foreign
currency or its equivalent in goods and services. PHILEX
MINING CORPORATION INC. VS. COMMISSIONER OF INTERNAL
REVENUE, CTA CASE NO. 8284, JULY 30, 2012
--------------------------------------------------------------b) Period to file claim/apply for issuance of

TCC
--------------------------------------------------------------Q: What is the prescriptive period to file the
claim for refund or application for issuance
of TCC?
The written application for the issuance of a TCC or
refund must be filed with the BIR within 2 years after
the close of the taxable quarter when the relevant
sales were made.
Q: In claims for VAT refund/credit, what is

the reckoning point for the two-year
prescriptive period?
The reckoning period is from the close of the taxable
when the relevant sales were made.
Note: For this matter, It is important to discuss the leading
case of CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12,
2008].
In CIR V. MIRANT PAGBILAO CORP. [SEPTEMBER 12,

2008], Mirant generated power which it sells to
NAPOCOR in which connection it secured the
services of Mitsubishi Corporation of Japan. In the
belief that its sale of power generation services to
the NPC was VAT zero-rated because of
NAPOCORs tax exempt status, Mirant filed an
application for effective zero-rating. The BIR issued

a ruling stating that the supply of electricity by Mirant
to NAPOCOR shall be subject to 0% VAT. On April
14, 1998, Mirant paid Mitsubishi the VAT component
billed by the latter for services rendered. Mirant files
nd
its quarterly VAT return for the 2 quarter of 1998,
where it reflected the input VAT paid to Mitsubishi.
Subsequently, on December 20, 1999, Mirant filed
an administrative claim for refund of unutilized input
VAT arising from purchase of capital goods from
Mitsubishi and its domestic purchase of goods and
services attributable to its zero-rated sales of powergeneration services to NAPOCOR. The claim was
denied for being filed beyond the prescriptive period
of two years.
The Supreme Court held that Mirants claim has
prescribed. Unutilized input VAT payments 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 even if the
payment for the VAT was made some quarters after
16
that. The fact that there was a pending request for
zero-rating cannot be a basis for the late filing of
return and payment of taxes. Further, Mirant cannot
avail itself of the provisions of either Section 204(C)
or 229 of the NIRC which, for the purpose of refund,
prescribes the payment of the tax as the starting
point for the two-year prescriptive limit for the filing of
a claim. These provisions apply only to instances of
erroneous payment or illegal collection of internal
revenue taxes.
Note: In the case of claims for refund of unutilized VAT on
account of cessation of business, the 2-year period shall
commence from the date of cancellation of registration of
the taxpayer and not from the close of the taxable quarter
when the sales were made (Associated Swedish Steels
v. CIR [CTA Case No. 7850, August 23, 2012).
The cancellation of VAT registration commences from the
first day of the month following the application, under
Section 236 of the Tax Code. (Ibid)
Q: What is the period within which tax

refund/credit of input taxes shall be made?
The CIR shall grant a tax credit certificate/refund for
creditable input taxes within 120 days from the date
16
Note that previously in ATLAS CONSOLIDATED MINING V. CIR

[JUNE 8, 2007], the rule was that the two-year prescriptive period
for filing a claim for refund/credit of input VAT on zero-rated sales
was counted from the date of filing of the return
Page 50 of 164

of submission of complete documents in support of

the application. (see Section 112(C), Tax Code)
Note: The 120-day period is counted from the submission
of the complete documents with the BIR. (PILIPINAS TOTAL
GAS, INC. VS. COMMISSIONER OF INTERNAL REVENUE [CTA,
JANUARY 05, 2012])
Non-submission of complete documents at the
administrative level is not fatal to a judicial claim (PHILEX
MINING CORPORATION VS. COMMISSIONER OF INTERNAL
REVENUE [CTA CASE NO. 8228, MAY 31, 2012])
What is fatal to the taxpayer's cause is its failure to submit
sufficient evidence such as invoices and receipts in
support of its claim before the CTA and not its failure of to
submit complete documents before the BIR and not before
the CTA. COMMISSIONER OF INTERNAL REVENUE VS.
PHILIPPINE AIRLINES, INC., CTA EB CASE NO. 775, JULY 24,
2012
Q: What is the remedy in case of denial of

the CTA of the claim for refund or if the CIR
failed to act on the claim within the 120-day
period?
In case of full or partial denial of the claim for tax
credit certificate/refund:
a) The taxpayer may appeal to the CTA within
30 days from the receipt of said denial,
otherwise the decision shall be come final
b) If no action on the claim for tax credit
certificate/refund has been taken by the CIR
after the 120 day period in which he must
decide, the taxpayer may appeal to the CTA
within 30 days from the lapse of the 120 day
period.
Note: Judicial claim for refund should be filed within thirty
(30) days from the receipt of the decision of the
Commissioner of Internal Revenue (CIR) or upon the
expiration of the one hundred twenty (120) days in case of
inaction of the CIR. KEPCO PHILIPPINES CORPORATION VS.
COMMISSIONER OF INTERNAL REVENUE, [CTA EB NO. 736
695, JANUARY 10, 2012]; DIAGEO PHILIPPINES, INC. VS.
COMMISSIONER OF INTERNAL REVENUE, [CTA CASE NOS.
7846 AND 7865, JANUARY 16, 2012]; PHILEX MINING
CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,
C.T.A. EB NO. 728, AUGUST 31, 2012; PILIPINAS TOTAL GAS,
INC. VS. CIR, C.T.A. EB NO. 776, OCTOBER 11, 2012;
NORTHWIND DEVELOPMENT CORPORATION VS. CIR, CTA
CASE NO. 7918, OCTOBER 03, 2012
In case of inaction by the BIR, judicial claim for refund filed
beyond thirty (30) days from the expiration of the one
hundred twenty (120) days is filed out of time and deprives

the Court the authority to entertain the same.

COMMISSIONER OF INTERNAL REVENUE, VS. TEAM SUAL
CORPORATION [C.T.A. EB NO. 686, MAY 22, 2012]; CE
CASECNAN WATER AND ENERGY COMPANY, INC. VS. CIR, CTA
EB NO. 726 [CTA CASE NO. 7739, June 26, 2012]; PHILEX
MINING CORPORATION VS. CIR [CTA EB NO. 778 CTA CASE
NO. 7720, JUNE 26, 2012]
As the provision is phrased, the word "may" relates to the
taxpayer's option to appeal or not to appeal, upon the
denial of its claim for refund or after the expiration of the
120-day period. However, if the tax payer opts to appeal,
such claim must be filed within the 30-day period given
from receipt of the denial or the expiration of the 120-day
period. Thus, it is the option to appeal which is permissive,
however, the period to appeal must be mandatorily
complied with. (MINDANAO II GEOTHERMAL PARTNERSHIP VS.
COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO.
750, JULY 5, 2012)
Q: Can the taxpayer appeal to the CTA

without waiting for the lapse of the 120 day
period?
No. Where the taxpayer did not wait for the decision
of the CIR or the lapse of the 120-day period, the
filing of the said judicial claim with the CTA is
premature. The non-observance of the 120-day
period is fatal to the filing of a judicial claim.
Note: In this regard, let us discuss the leading case of CIR
V. AICHI FORGING COMPANY OF ASIA [ OCTOBER 6, 2010].
In CIR V. AICHI FORGING COMPANY OF ASIA [

OCTOBER 6, 2010], Aichi Forging is a VAT-registered
corporation engaged in manufacturing and
processing of steel. Aichi filed a tax credit/refund for
its unutilized input tax from purchases and
importation attributed to its zero-rated sales. The
CIR and CTA ruled that the administrative and
judicial claims were filed beyond the period allowed
by law. Moreover, the CIR puts in issue the fact that
the administrative claim and the judicial claim were
filed on the same day. The CIR opines that
simultaneous filing of the claims contravenes the
NIRC which requires the prior filing of an
administrative claim.
The Supreme Court first reiterated that the unutilized
input VAT must be claimed within two years after the
close of the taxable quarter when the sales were
made as laid down in CIR V. MIRANT PAGBILAO
CORP. [SEPTEMBER 12, 2008]. Going to the
administrative and judicial claims, the Court ruled
that the administrative claim was timely filed while
the judicial claim was premature. In this case,
Page 51 of 164

applying the Administrative Code which states that a

year is composed of 12 calendar months instead of
the Civil Code (a year is equivalent to 365 days), it is
clear that Aichi timely filed its administrative claim
within the two-year prescriptive period. On the other
hand, the claim of Aichi must be denied for nonobservance of the 120-day period Where the
taxpayer did not wait for the decision of the CIR or
the lapse of the 120-day period, it having
simultaneously filed the administrative and the
judicial claims, the filing of the said judicial claim with
the CTA is premature. The non-observance of the
120-day period is fatal to the filing of a judicial claim.
The claim of Aichi that such non-observance is not
fatal as long as both the administrative and judicial
claim is filed within the 2-year prescriptive period is
without legal basis. The 2 year prescriptive period
refers to applications for refund/credit filed with the
CIR and not to appeals made to the CTA. Applying
the two-year period to judicial claims would render
nugatory Section 112(D) of the NIRC, which already
provides for a specific period within which a taxpayer
should appeal the decision or inaction of the CIR.
The 120-day period is crucial in filing an appeal with
the CTA.
Note: In other words, the 2-year prescriptive period
applies only to the filing of the administrative claim
meaning the filing of the claim for refund or application for
TCC with the CIR. If you want to file a suit with the CTA,
you wait for the 120-day period to lapse. Dahil dun, you
cannot simultaneously file a claim with the CIR and file a
suit with the CTA. This early on I will tell you that the rule
is different pagdating sa refund or credit of an erroneously
or illegally collected tax under Section 229. Doon, both the
administrative and judicial claim must be filed within the 2
year prescriptive period. Further, you need not wait for the
BIR to act. You can simultaneously file your claim for
refund or credit and the suit with the CTA. We will discuss
that later in Tax Remedies.
Q: How do we reconcile CIR V. MIRANT

PAGBILAO CORP. [SEPTEMBER 12, 2008] and
CIR V. AICHI FORGING COMPANY OF ASIA [
OCTOBER 6, 2010]?
In both Mirant
and Aichi
In Mirant
In Aichi
The 2-year prescriptive period is

counted from the end of the taxable
quarter when the sales were made.
The 2-year prescriptive period applies
to both the administrative and judicial
claim. Thus, both claims must be filed
within 2 years from the end of the
taxable quarter when the sales were
made
The 2-year prescriptive period only
applies to the administrative claim.

Thus:
1. For the administrative claim, file
within 2 years from end of the taxable
quarter when sales were made.
2. For judicial claim, BIR has 120 days
to decide. If adverse decision within
the 120 day period, 30 days from
receipt of decision to appeal to CTA. If
no BIR decision within 120 days, 30
th
days from the 120 day to appeal to
the CTA.
Note: (1) Thus, Aichi affirmed the Courts ruling in Mirant
in that the 2-year prescriptive period shall be reckoned
from the end of the taxable quarter when the relevant
sales were made but clarified that such prescriptive period
applies only to the filing of the administrative claim.
See THIRD MILLENNIUM OIL MILLS, INC. VS. CIR [CTA EB
NO. 729 (CTA CASE NO. 7583), JUNE 7, 2012]; CIR VS.
PENN PHILIPPINES, INC., CTA EB NO. 693 [CTA CASE NO.
7457), JUNE 27, 2012]
The taxpayers compliance with the 120-day period under
Section 112(C) is both mandatory and jurisdictional.
See PROCTER & GAMBLE ASIA, PTE. LTD. VS. CIR [CTA EB
CASE NO. 740 (CTA CASE NO. 7683), JUNE 18, 2012];
CARGILL PHILIPPINES, INC. VS. CIR, [CTA EB CASE NO. 779
(CTA CASE NOS. 6714 & 7262), JUNE 18, 2012]; PHILEX
MINING CORPORATION VS. CIR, [CTA EB NO. 817 (CTA
CASE NO. 7798), JUNE 13, 2012]; DIAGEO PHILIPPINES, INC.
VS. CIR, [CTA EB NO. 806 (CTA CASE NO. 7778), JUNE 21,
2012]; PHILEX MINING CORPORATION VS. CIR, CTA EB NO.
808 (CTA CASE NOS. 7859 & 7886), JUNE 6, 2012; CE
CASECNAN WATER AND ENERGY COMPANY, INC. VS. CIR, CTA
EB NO. 726 (CTA CASE NO. 7739), JUNE 26, 2012;
(2) Citing Aichi, the CTA in numerous cases have held that
filing the judicial claim without waiting for the lapse of the
120-day period is fatal. The premature filing of the judicial
claim warrants dismissal.
SEE DEUTSCHE KNOWLEDGE SERVICES, PTE. LTD. VS.
COMMISSIONER OF INTERNAL REVENUE [CTA CASE NO. 8165,
JANUARY 08, 2013]; CASECNAN WATER AND COMPANY, INC.
VS.COMMISSIONER OF INTERNAL REVENUE [CTA EB NO. 836,
JANUARY 28, 2013]; HEDCOR SIBULAN, INC. VS.
COMMISSIONER OF INTERNAL REVENUE [C.T.A. CASE NO.
8051, JANUARY 05, 2012]; SITEL PHILIPPINES CORPORATION
VS. COMMISSIONER OF INTERNAL REVENUE, [C.T.A. EB NO.
668, JANUARY 06, 2012]; CE CEBU GEOTHERMAL POWER
COMPANY, INC. VS. COMMISSIONER OF INTERNAL REVENUE
[CTA EB NO. 741, JANUARY 12, 2012]; CBK POWER
COMPANY LIMITED VS. COMMISSIONER OF INTERNAL REVENUE
[CTA EB NO. 760, FEB 1, 2012]; SAN ROQUE POWER
CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE
[CTA CASE NO, 7937, FEBRUARY 8, 2012]; AIR LIQUIDE
Page 52 of 164

PHILIPPINES INC., VS. COMMISSIONER OF INTERNAL REVENUE
[CTA EB NO. 704, FEBRUARY 27, 2012]; PANAY POWER
[CTA EB NO. 709, MAY 17, 2012]; ENERGY DEVELOPMENT
[CTA EB NO. 809, MAY 31, 2012]; CHEVRON HOLDINGS, INC.
VS. CIR, [CTA CASE NOS. 7776 & 7813, JUNE 6, 2012]; CIR
VS. PENN PHILIPPINES, INC., CTA EB NO. 693 [CTA CASE
NO. 7457), JUNE 27, 2012]; AIR LIQUIDE PHILIPPINES, INC. VS.
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NO. 8017,
JULY 03, 2012; MINDANAO II GEOTHERMAL PARTNERSHIP VS.
COMMISSIONER OF INTERNAL REVENUE, CTA CASE NOS. 7899
AND 7942, AUGUST 1, 2012; CBK POWER COMPANY LIMITED
VS. CIR, CTA EB NO. 758, OCTOBER 04, 2012; VISAYAS
GEOTHERMAL POWER COMPANY VS. CIR, CTA EB CASE NO.
864, OCTOBER 08, 2012; PROCTER & GAMBLE ASIA PTE. LTD.
VS. CIR, CTA EB NO. 765, OCTOBER 11, 2012; HEDCOR
SIBULAN, INC. VS. COMMISSIONER OF INTERNAL REVENUE,
CTA EB CASE NO. 890, DECEMBER 06, 2012
Now, let us outline the process.
Q: Outline the process for the refund or

credit of excess or unutilized input taxes
under Section 112(c).
1. Filing and Payment
2. Administrative
claim within 2 years counted from the close
of the taxable quarter when the relevant sales
were made
3. Submission of additional and relevant
support documents within 60 days from filing
of claim
4. Appeal to CTA Division within 30 days from
receipt of notice of denial or from lapse of 120
days of inaction counted from submission of
documents. The appeal should not be made
within the 2-year prescriptive period. Otherwise,
the judicial claim is premature. The Motion for
Reconsideration or New Trial to CTA Division
within 15 days from receipt of decision.
5. Appeal to CTA En Banc within 15 days from
receipt of resolution. Motion for Reconsideration
to the CTA En Banc within 15 days from receipt
of decision
6. Appeal to the SC within 15 days from receipt
of resolution under Rule 45

--------------------------------------------------------------c) Manner of giving refund

--------------------------------------------------------------Q: What is the manner of giving refund?
Refunds shall be made upon warrants drawn by the
Commissioner or by his duly authorized
representative without the necessity of being
countersigned by the Chairman, Commission on
Audit, the provisions of the Administrative Code of
1987 notwithstanding: That refunds shall be subject
to post audit by the Commission on Audit. (See
Section 112(D), Tax Code)
Note: If you ask for a tax credit, you get what you call a
Tax Credit Certificate (TCC). However, note Executive
Order 68 [March 27, 2012]. No more issuance of VAT
TCCs and the EO provides for the monetization of
outstanding VAT TCCs. EO 68 allows qualified VATregistered taxpayers to receive the cash equivalent of their
outstanding TCCs either: (1) Collecting in advance from a
trustee bank a discounted cash value of their TCCs or (2)
Collect full cash value of their TCC upon a certain maturity
date to be determined by the BIR and BOC. DOF Joint
Circular 2-2012 provides that the monetization will start in
2012 for TCCs issued prior to 2004 while those issued in
2011 and 2012 will be monetized in 2016.
.
--------------------------------------------------------------d) Destination principle or cross-border

doctrine
--------------------------------------------------------------22. Invoicing Requirements

a) Invoicing requirements in general
b) Invoicing and recording deemed sale
transactions
c) Consequences of issuing erroneous VAT
invoice or VAT official receipt
----------------------------------------------------------------------------------------------------------------------------a) Invoicing requirements in general
Page 53 of 164

Q: What are required to be issued by a VATregistered person?

1. VAT invoice for every sale, barter or
exchange of goods or properties
2. VAT official receipt for every lease of
goods or properties and for every sale,
barter or exchange of services.
Note: Only VAT-registered persons are required to print
their Tax Identification Number (TIN) followed by the word
VAT in their invoice or official receipt, which shall be
considered the VAT invoice or VAT official receipt. All
purchases not covered by invoices/receipts other than the
VAT invoice or VAT official receipt shall not give rise to
any input tax (see Section 4.113-1(A), RR 16-2005]
Q: Is there a difference between an invoice

and official receipt for purposes of
substantiation?
In KEPCO PHILIPPINES V. CIR [NOVEMBER 24, 2010],
in ruling on Kepcos contention that an invoice and
an official receipt are interchangeable, the Supreme
Court stated that only a VAT invoice might be
presented to substantiate a sale of goods or
properties, while only a VAT receipt could
substantiate a sale of services. The VAT invoice is
the sellers best proof of the sale of the goods or
services to the buyer while the VAT receipt is the
buyers best evidence of the payment of goods or
services received from the seller. Even though VAT
invoices and receipts are normally issued by the
supplier/seller alone, the said invoices and receipts,
taken collectively, are necessary to substantiate the
actual amount or quantity of goods sold and their
selling price (proof of transaction), and the best
means to prove the input VAT payments (proof of
payment). Hence, VAT invoice and VAT receipt
should not be confused as referring to one and the
same thing. Certainly, neither does the law intend
the two to be used alternatively
Note: The unamended Section 113 did not
distinguish between an invoice and a receipt when
used as evidence of a zero-rated transaction. Thus,
in the case of transactions which took place during
the period of the unamended law, the Court could
accept either or both of the documents as evidence
of zero-rated transactions (SOUTHERN PHILIPPINES V.
CIR [OCTOBER 19, 2011]; AT&T COMMUNICATIONS
SERVICES PHILIPPINES V. CIR [AUGUST 3, 2010]

Read Section 113(B), Tax Code

Q: What information should be contained in
the VAT invoice or VAT official receipt?
1. A statement that the seller is a VAT-registered
person, followed by his taxpayer's identification
number (TIN);
2. The total amount which the purchaser pays or is
obligated to pay to the seller with the indication
that such amount includes the value-added tax
provided, that:
a) The amount of the tax shall be shown as a
separate item in the invoice or receipt;
b) If the sale is exempt from value-added tax,
the term "VAT-exempt sale" shall be written
or printed prominently on the invoice or
receipt;
c) If the sale is subject to zero percent (0%)
value-added tax, the term "zero-rated sale"
shall be written or printed prominently on the
invoice or receipt;
d) If the sale involves goods, properties or
services some of which are subject to and
some of which are VAT zero-rated or VATexempt, the invoice or receipt shall clearly
indicate the breakdown of the sale price
between its taxable, exempt and zero-rated
components, and the calculation of the
value-added tax on each portion of the sale
shall be shown on the invoice or receipt:
Provided, That the seller may issue separate
invoices or receipts for the taxable, exempt,
and zero-rated components of the sale.
3. The date of transaction, quantity, unit cost and
description of the goods or properties or nature
of the service; and
4. In the case of sales in the amount of one
thousand pesos (P1,000) or more where the
sale or transfer is made to a VAT-registered
person, the name, business style, if any,
address and taxpayer identification number
(TIN) of the purchaser, customer or client. (see
Section 4.113-1(B), RR 16-2005)
--------------------------------------------------------------b) Invoicing and recording deemed sale

transactions
---------------------------------------------------------------
Page 54 of 164

disposed
of
it
VATregistered
buyers,
an
invoice or instrument of sale
or
transfer
shall
be
prepared, citing the invoice
number wherein the tax was
imposed on the deemed
sale. At the same time, the
tax paid corresponding to
the goods sold should be
separately indicated in the
instrument of sale
Q: What are the invoicing and recording

requirements for deemed sale transactions?
Deemed
transaction
sale
Invoicing
and
requirements
recording
1. Transfer, use
or
consumption not in
the
course
of
business of goods
or
properties
originally intended
for sale or use in
the
course
of
business
A memorandum entry in the

subsidiary sales journal to
record withdrawal of goods for
personal use
2. Distribution
or
transfer
to
shareholders/invest
ors or creditors
Invoice, at the time of the

transaction,
which
should
include all the info prescribed in
Sec. 113(B)
3. Consignment
of
goods if actual sale
is not made within
60 days
Invoice, at the time of the

transaction,
which
should
include all the info prescribed in
Sec. 113(B)
Q: What are the consequences of issuing

erroneous VAT invoices or VAT official
receipts?
4. Retirement from or
cessation
of
business
with
respect to all goods
on hand
An inventory shall be prepared

and submitted to the RDO who
has
jurisdiction
over
the
taxpayers principal place of
business not later than 30 days
after retirement or cessation
from the business. An invoice
shall be prepared for the entire
inventory, which shall be the
basis of the entry into the
subsidiary sales journal. The
invoice need not enumerate the
specific items appearing in the
inventory
regarding
the
description of the goods.
However, the sales invoice
number should be indicated in
the inventory filed and a copy
thereof shall form part of this
invoice.
1. If a person who is not VAT-registered issues an

invoice or receipt showing his TIN, followed by
the word VAT, the erroneous issuance shall
result to the following:
(Section 4.113-2, RR 16-2005)
i. If the business is to be
continued by the new
owners or successors, the
entire amount of output tax
on the amount deemed sold
shall be allowed as input
taxes.
ii. If the business is to be
liquidated and the goods in
the inventory are sold or

--------------------------------------------------------------c) Consequences of issuing erroneous VAT

invoice or VAT official receipt
--------------------------------------------------------------Read Section 113(D), Tax Code
a) The Non-VAT person shall be liable to the:

i.
ii.
iii.
percentage taxes applicable

VAT due on the transactions without
the benefit of any input tax credit
50% surcharge as penalty
b) The VAT shall, if the other requisite

information required is shown on the invoice
or receipt, be recognized as an input tax
credit to the purchaser.
2. If a VAT-registered person issues a VAT invoice
or VAT official receipt for a VAT-exempt
transaction, but fails to display prominently on
the invoice or receipt the term VAT-exempt
Sale, the issuer shall be liable to account for the
VAT imposed. The purchaser shall be entitled to
claim an input tax credit on said purchase. (see
Section 4.113-4, RR 16-2005)
Note: Failure or refusal to comply with the requirement
that the amount of tax shall be shown as a separate item
Page 55 of 164

in the invoice or receipt shall, upon conviction, for each act
or omission, be punished by a fine of not less than P1,000
but not more than P50,000 and suffer imprisonment of not
less than 2 years but not more than 4 years (RR 18-2011
[November 21, 2011])
Q: What is the effect of the failure to comply

with the invoicing requirements on the claim
for refund or credit of input VAT on zerorated sales?
The claim for refund of unutilized or excess input
taxes on the alleged zero-rated sales will be denied.
The invoicing requirements are mandatory and the
failure to comply is fatal in claims for a refund or
credit of input VAT on zero-rated sales. (SILICON
PHILIPPINES V. CIR [JANUARY 21, 2011].
See also MICROSOFT PHILIPPINES V. CIR [APRIL 6,
2011]; PANASONIC COMMUNICATION IMAGING CORP V.
CIR [FEBRUARY 8, 2010]; JRA PHILIPPINES V. CIR
[OCTOBER 11, 2010]; HITACHI GLOBAL STORAGE
TECHNOLOGIES PHILIPPINES CORP V. CIR [OCTOBER
20, 2010]; KEPCO PHILIPPINES CORP V. CIR
[NOVEMBER 24, 2010].
WESTERN MINDANAO POWER CORPORATION V.

CIR, G.R. NO. 181136, JUNE 13, 2012
DOCTRINE: Failure to print the word zero-rated on
the VAT invoices or official receipts is fatal in claims
for a refund or credit of input VAT on zero-rated sales,
even if the claims were made prior to the effectivity of
R.A. 9337.
FACTS: Taxpayer contends that RR 7-95 constitutes
undue expansion of the scope of the legislation it seeks to
implement on the ground that the statutory requirement for
imprinting the phrase zero-rated on VAT official receipts
appears only in Republic Act No. 9337. This law took
effect on 1 July 2005, or long after petitioner had filed its
claim for a refund.
HELD: the Supreme Court held that in a claim for tax
refund or tax credit, the applicant must prove not only
entitlement to the grant ofnthe claim under substantive
law. It must also show satisfaction of all the documentary
and evidentiary requirements for an administrative claim
for a refund or tax credit. Hence, the mere fact that
taxpayers application for zero-rating has been approved
by the CIR does not, by itself, justify the grant of a refund
or tax credit. The taxpayer claiming the refund must further
comply with the invoicing and accounting requirements
mandated by the NIRC, as well as by revenue regulations
implementing them. It further held that RR 7-95 proceeds
from the rule-making authority granted to the Secretary of
Finance by the NIRC for the efficient enforcement of the

same Tax Code and its amendments. It cited the cases of

Panasonic Communications Imaging Corporation of the
Philippines v. Commissioner of Internal Revenue, G.R.
No. 178090, 8 February 2010, were it was ruled that this
provision is reasonable and is in accord with the efficient
collection of VAT from the covered sales of goods and
services and Kepco Philippines Corporation v.
Commissioner of Internal Revenue, G.R. No. 179961, 31
January 2011 where it was ruled that the subsequent
incorporation of Section 4.108-1 of RR 7-95 in Section 113
(B) (2) (c) of R.A. 9337 actually confirmed the validity of
the imprinting requirement on VAT invoices or official
receipts a case falling under the principle of legislative
approval of administrative interpretation by reenactment.
EASTERN TELECOMMUNICATIONS V. CIR, G.R.

NO. 168856, AUGUST 29, 2012
DOCTRINE: Failure of a taxpayer to print the word
zero-rated on its invoices or receipts is fatal to its
claim for tax refund.
FACTS: Taxpayer rendered incoming telecommunication
services for non-resident foreign telecommunication
companies. For these services to non-resident foreign
telecommunication companies, taxpayer generated foreign
currency revenues which were inwardly remitted in
accordance with the rules and regulations of the BSP.
Believing that these are zero-rated sales, taxpayer filed an
application for refund for the unutilized input taxes
allocated to such sales, for the period January 1 to
December 31, 1999.
HELD: The Court denied the claim on the ground that the
taxpayer failed to imprint the word zero-rated on the face
of its VAT invoices or receipts, in violation of Revenue
Regulations No. 7-95. The absence of the word zerorated on the invoices and receipts of a taxpayer will result
in the denial of the claim for tax refund.
The claim was also denied on the ground that the taxpayer
failed to substantiate its taxable
and exempt sales, the verification of which was not
included in the examination of the commissioned
independent certified public accountant.
Q: Kepco filed a claim for refund of

unutilized input VAT based on its zero-rated
sale of power to NAPOCOR. A substantial
portion of the claim was denied for having
been supported by VAT invoices which only
had the TIN-VAT stamped and not printed. Is
Kepco entitled to the claim for refund?
No. In KEPCO PHILIPPINES V. CIR [NOVEMBER 24,
2010], the Supreme Court ruled that the requirement
that the TIN be imprinted and not merely stamped is
Page 56 of 164

a reasonable requirement imposed by the BIR.. The

failure to adhere to this rule will not only expose the
taxpayer to penalties but should also serve to
disallow the claim.
3. Any person who imports goods

4. Professional practitioners whose gross
professional fees exceed P1,919,500 for any
12-month period.
Q: Is the printing of the Authority to Print

(ATP) required in the invoices or receipts?
Q: What are the rules regarding the time for

filing the return and payment of the tax?
No. The ATP need not be reflected in the invoices or

receipts because there is no law or regulation
requiring it. Failure to print the ATP on the invoices
or receipts should not result in the outright denial of
a claim or the invalidation of the invoices or receipts
for purposes of claiming a refund.
Every person liable to pay VAT shall file a:
But, while there is no such law, the Tax Code

requires persons engaged in business to secure
ATP from the BIR prior to printing invoices or
receipts. Since the ATP is not indicated in the
receipts or invoices, the only way to verify whether
the invoices or receipts are duly registered is by
requiring the claimant to present its ATP from the
BIR. Without which, the invoices or receipts would
not have probative value for the purpose of refund.
(SILICON PHILIPPINES V. CIR [JANUARY 21, 2011]).
Note: A taxpayer exempt from VAT but opting to be
registered as VAT taxpayer may be held liable for VAT
deficiency for failure to print the words VAT-exempt sale
on the official receipts issued to its PEZA-registered
lessee First Sumiden Realty, Inc. vs. CIR, CTA Case
No. 8151, September 27, 2012
Refund claim under Section 229 of the Tax Code does not
require proof of compliance with the invoicing
requirements. ERICSSON TELECOMMUNICATIONS, INC. VS.
AUGUST 2, 2012
--------------------------------------------------------------23. Filing of return and payment

--------------------------------------------------------------Read Section 114(A) and (B), Tax Code
Q: Who are required to file a VAT return?
1. Every person or entity who in the course of
his trade or business, sells or leases goods,
properties and services subject to VAT if the
aggregate amount of actual gross sales or
receipts exceed P1,919,500 for any 12month period
2. A person required to register as a VAT
taxpayer but failed to register
a. The monthly VAT Declarations of taxpayers

whether large or not shall be filed and the
taxes paid not later than the 20th day
following the end of each month
b. A quarterly VAT return of the amount of his
gross sales or receipts within 25 days after
the close of each taxable quarter prescribed
for each taxpayer.
Note: (1) A VAT-registered person shall pay VAT on a
monthly basis. Amounts reflected in the monthly VAT
return for the first 2 months of the quarter shall be included
in the quarterly VAT return which reflects the cumulative
figures for the taxable quarter. Payments in the monthly
returns shall be credited in the quarterly return to arrive at
the net VAT payable or excess input tax as of the end of
the quarter
(2) Taxable quarter shall mean the quarter that is
synchronized to the income tax quarter of the taxpayer.
--------------------------------------------------------------24. Withholding of final VAT on sales to

government
Q: What is the rule on withholding of VAT by
government agencies?
The government or any of its political subdivisions,
instrumentalities or agencies, including GOCCs,
shall, before making payment on account of each
purchase of goods or services subject to VAT,
deduct and withhold a final VAT equivalent to 5% of
the gross payment thereof provided that the
payment for lease or use of properties or property
rights to non-resident owners shall be subject to
10% withholding tax at the time of payment.
(Section 4.114-2, RR 16-2005)
Note: The 5% final VAT shall represent the net VAT
payable of the seller or, otherwise stated, the presumed
input VAT cost of the entity dealing with the government
Page 57 of 164

agency. The remaining 7% effectively accounts for the
standard input VAT, in lieu of the actual input VAT directly
attributable or ratably apportioned to such sales. (Ibid)
Okay, I sense confusion.
Let me explain. Remember na in order for the taxpayer to
determine yung tax liability niya, yan ang formula!
Remember also na if input tax > output tax, pwde mo icarry over ito to the succeeding quarters or kapag yung
input vat results from a zero-rated or effectively zero-rated
transaction, puwede humingi ng refund or credit. Ang
implication in case of 5% final VAT ay hindi magaaply
yang formula na output tax minus input tax. So automatic
kapag withholding by the government, do not use that
formula!
Tanong: Is the taxpayer still entitled to the excess input
VAT if meron? It depends. Ito ang rules. If the actual input
VAT is above 7% of gross payments, then the difference
between the actual input VAT and the 7% or the excess
may form part of sellers expense or cost. On the other
hand, if the actual input VAT is below 7% of gross
payments, the different must be closed or deducted to
expense or cost. Hence, the taxpayer will realize
additional income.
No. In LVM CONSTRUCTION CORPORATION V.

SANCHEZ [DECEMBER 5, 2011], the Supreme Court
held that as an entity which dealt directly with the
government insofar as the main contract was
concerned, LVM was itself required by law to pay
the 8.5% (now 5%) VAT which was withheld by
DPWH. Given that the JV complied with their own
obligation when they paid their VAT from their gross
receipts and the fact that the contract between LVM
and the JV did not stipulate any obligation on LVM
assuming the VAT, LVM has no basis to withhold
payments. Although the burden to pay an indirect
tax like the VAT can be passed on, the liability to
pay the same remains with the seller. IN this case,
both LVM and the JV are liable for their respective
VAT obligations as respective sellers.
Q: In what instances shall the 12% final VAT

be withheld?
1.
2.
3.
Lease or use of properties or property rights

owned by non-residents;
Services rendered to local insurance companies,
with respect to reinsurance premiums payable to
non-residents; and;
Other services rendered in the Philippines by
non-residents
Q: LVM Construction Corp. was engaged by

the DPWH for the construction of roads and
bridges. LVM subcontracted one of the
projects to a Joint Venture. After
completion, the JV demanded full payment
to which LVM responded that they
discovered that no deductions for VAT were
made on previous payments and as such
they were going to deduct 8.5% (now 5%)
from the payments still due. The JV
disputed this and argued that all the
receipts issued to LVM would have made
JV subject to VAT and, hence, LVM could
claim such as input tax. Can LVM rightfully
deduct the amount representing the
withholding VAT due on its transaction with
DPWH?

Page 58 of 164

---------------------------------------------------------E. TAX REMEDIES

---------------------------------------------------------Note: I want to start by saying that the bar syllabus
creates an impression that the remedies of the
taxpayer are assessment, collection and refund.
That is wrong. Assessment and collection are the
powers of the taxing authority/government. Under
the power of collection, different remedies are
available to the government namely: (1) tax lien, (2)
compromise, (2) distraint of personal property or levy
of real property or garnishment of bank deposits (3)
sale of property, (4) forfeiture, (5) compromise and
abatement, (6) penalties and fines, (7) suspension of
business operations, (8) civil action and (9) criminal
action. (1) to (7) are the administrative remedies
while (8) to (9) are the judicial remedies. Taxpayers
have two remedies: (1) administrative protest (you
protest the assessment) and (2) claim for refund.
In this chapter, I wont discuss the topics under the
Syllabus in the order provided because if I do, I dont
think we will have a good understanding of tax
remedies. Heres what Ill do. Ill follow the outline up
to Protest. And then Ill rearrange the topics under b)
Collection and 2. Government Remedies and
integrate the discussion. After that, Ill discuss
Refunds.
--------------------------------------------------------------a) Assessment
(i) Concept of assessment
(a) Requisites for valid assessment
(b) Constructive method for income
determination
(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
(iii) When assessment is made
(a) Prescriptive period for assessment
(1) False, fraudulent, and non-filing
of returns
(b) Suspension of running of statute of

limitations
(iv) General provisions on additions to
the tax
(a) Civil penalties or Surcharges
(b) Interest
(c) Compromise penalties
(v) Assessment process
(a) Tax audit
(b) Notice of informal conference
(c) Issuance
of
preliminary
assessment notice
(d) Exceptions
to
issuance
of
preliminary assessment notice
(e) Reply to preliminary assessment
notice
(f) Issuance of formal letter of demand
and
assessment
notice/final
assessment notice
(g) Disputed assessment
(h) Administrative decision on a
disputed assessment
----------------------------------------------------------------------------------------------------------------------------a) Assessment
(i) Concept of assessment
(a) Requisites for valid assessment
(b) Constructive method for income
determination
determination
(d) Jeopardy assessment
(e) Tax delinquency and tax deficiency
--------------------------------------------------------------Read Sections 56 and 71, Tax Code
Q: Define assessment
The term assessment may refer to:
1. The official action of an administrative officer
in determining the amount of tax due from a
taxpayer
2. A notice to the effect that the amount therein
stated is due from the taxpayer as a tax with
a demand for payment of the tax or
deficiency stated therein.
Page 59 of 164

Q: May the CIR be compelled by mandamus

to make an assessment?
No. In MERALCO SECURITIES CORP V. SAVELLANO [
OCTOBER 23, 1982], the Supreme Court held that
mandamus cannot lie to compel the CIR to impose a
deficiency tax assessment. The CIRs power to
assess is a discretionary one.
Q: How are taxes assessed?

1. Self-assessment Taxpayers are required
to file tax returns for various kinds of income
earned which may be subject to tax. When a
taxpayer files the tax return, he is actually
making a self-assessment.
2. Deficiency assessment is an assessment
made by the BIR after the conduct of an
investigation or audit when it finds that the
tax return filed by the taxpayer contains an
under-declaration of income or when the
taxpayer does not at all file a tax return
3. Jeopardy assessment a tax assessment
which was assessed without the benefit of a
complete or partial audit by an authorized
revenue officer who has reason to believe
that the assessment and collection of a
deficiency tax will be jeopardized by delay
because of the taxpayers failure to comply
with audit and investigation requirements to
present his books of accounts and/or
pertinent records or substantiate all or any of
the deductions, exemptions, or credits
claimed in his return. (see Section 3(1)(a),
RR No. 30-2002)
Note: (1) Section 56, Tax Code provides that, as a
general rule, the total amount of the tax shall be paid at
the time the return is filed. This is otherwise known as the
pay-as-you-file system. The pay-as-you-file system is a
self-assessing tax return. Note that internal revenue taxes
are self-assessing. The tax becomes due and payable
without need of any prior assessment by the BIR. The
taxpayer himself computes and pays without intervention
from the BIR. Thus, the term self-assessment. However,
if the taxing authority is first required to investigate or audit
and after such investigation or audit to issue the
assessment that creates the tax liability, then the tax is not
self-assessed and is most likely a deficiency
assessment. If despite not having done a complete or
partial audit, the BIR issues an assessment believing that
the assessment and collection of the deficiency tax will be
jeopardized by delay, the assessment is called a jeopardy
assessment.

(2) A jeopardy assessment is an indication of the doubtful

validity of the assessment, hence it may be subject to a
compromise.
--------------------------------------------------------------(a) Requisites for valid assessment

--------------------------------------------------------------Q: What are the requisites of a valid
assessment?
1. A formal letter of demand and assessment notice
shall be issued by the CIR or his duly authorized
representative
2. The letter of demand calling for payment of the
taxpayers deficiency tax or taxes shall state the
facts, the law, rules and regulations or
jurisprudence on which the assessment is based.
Otherwise, the formal letter of demand and
assessment notice shall be void
3. The same shall be sent to the taxpayer only be
registered mail or by personal delivery
4. If sent by personal delivery, the taxpayer or his
duly authorized representative shall acknowledge
receipt thereof in duplicate copy of the letter of
demand, showing the following:
i. His name
ii. Signature
iii. Designation and authority to act for and in
behalf of the taxpayer, if acknowledge
received by a person other than the taxpayer
himself; and
iv. Date of receipt thereof (see Section 3.1.4, RR
No. 12-99)
Note: (1) Previously, it is sufficient that the taxpayer be
notified of the findings of the CIR. The rule now is that
the taxpayer must be informed of not only the law but
also of the facts on which an assessment would be made.
(see CIR V. REYES [JANUARY 27, 2006].
(2) An assessment must be based on actual facts and not
on mere presumptions (see CIR V. BENIPAYO [JANUARY 31,
1962])
(3) In CIR V. PASCOR REALTY [JUNE 29, 1999], the Supreme
court held that an assessment must not only contain a
computation of tax liabilities but also a demand for
payment within the prescribed period.
(4) An assessment is deemed made only when he BIR
releases, mails or sends such notice to the taxpayer. (Ibid)
(5) In ADAMSON V. CA [MAY 21, 2009], at issue was
whether the CIRs recommendation letter for the filing of a
Page 60 of 164

criminal complaint against the taxpayer for fraudulent
returns and tax evasion can be considered a formal
assessment. The Supreme Court held that such was not
equivalent to a formal assessment. An assessment is a
written notice and demand may by the BIR on the
taxpayer for the settlement of a due tax liability that is
there definitely set and fixed. A written communication
containing a computation and giving him an opportunity to
contest or disprove the findings is not an assessment
since it is yet indefinite.
(6) As held in CIR V. GONZALEZ [OCTOBER 12, 2010], the
formality of a control number in the assessment notice is
not a requirement for its validity but rather the contents
thereof which should inform the taxpayer of the declaration
of deficiency tax against the said taxpayer.
(7) In BONIFACIO SY PO V. CTA [AUGUST 18, 1988], the
Supreme Court held that tax assessments by tax
examiners are presumed correct and made in good faith.
The taxpayer has the duty to provide otherwise.
(8) Reasons for presumption of correctness of
assessments: (a) lifeblood theory (b) presumption of
regularity in the performance of public functions (c)
likelihood that the taxpayer will have access to relevant
information (d) the desirability of bolstering the recordkeeping requirements of the Tax Code
--------------------------------------------------------------(b) Constructive method for income

determination
determination
--------------------------------------------------------------Q: What are the constructive methods of
income determination?
The following are the general methods developed by
the BIR for reconstructing a taxpayers income
where the records do not show the true income or
where no return was filed or what was filed was a
false or fraudulent return.
a.
b.
c.
d.
e.
f.
Percentage method
Net worth method
Bank deposit method
Cash expenditure method
Unit and value method
Third party information or access to records
method
g. Surveillance and assessment method
(9) When prima facie correctness of a tax assessment

does not apply In CIR V. HANTEX TRADING [MARCH 31,
2005], the Supreme Court held that the rule does not
apply when the CIR comes out with a naked assessment
(an assessment that is without any foundation and hence,
arbitrary and capricious).
Note: As to the third party information or access to records

method, see Section 5(b) of the Tax Code. If the revenue
officers were not given the opportunity to examine the
taxpayers documents, they are authorized under Section
5 of the Tax Code to gather information from third parties
(CIR V. HON. RAUL M. GONZALES [OCTOBER 15, 2010])
In UNITED DISTRIBUTION MANAGEMENT, INC. VS. CIR, CTA

CASE NO. 7885, SEPTEMBER 24, 2012, the CTA held that
the BIR has neither legal nor factual basis to presume that
payments made to the stockholder and the interest paid
are dividends. It is true that as a general rule, tax
assessments by tax examiners are presumed correct and
made in good faith. However, the prima facie correctness
of a tax assessment does not apply upon proof that an
assessment is utterly without foundation, meaning it is
arbitrary and capricious. Where the BIR has come out with
a naked assessment i.e., without any foundation
character, the determination of the tax due is without
rational basis.
Q: What is the inventory method for income

determination? (Net worth method)
An assessment that does not state the factual and legal

bases is void and cannot give rise to an obligation to pay
deficiency taxes. LIQUIGAZ PHILIPPINES CORPORATION VS.
NOVEMBER 22, 2012; COMMISSIONER OF INTERNAL REVENUE
VS. TOLEDO POWER COMPANY, CTA EB NO. 833, OCTOBER
1, 2012
Q: What are the conditions for the use of the

net worth method?

The general theory underlying this method is that the

taxpayers money and other assets in excess of the
liabilities after accurate and proper adjustment of
non-deductible and non-taxable items not accounted
for in his tax return is deemed to be unreported
income. In other words, the theory is that the
unexplained increase in net worth of the taxpayer is
presumed to be derived from taxable sources.
1. That the taxpayers books of accounts do not

reflect his income or the taxpayer has no books
or if he has books, he refuses to produce them,
or that the few records that he had were
destroyed
Page 61 of 164

2. That there is evidence of possible source or

sources of income to account for the increases of
net worth or expenditures
3. That here is a fixed starting point or opening net
worth
4. That the circumstances are such that the method
does reflect the taxpayers income with
reasonable accuracy and certainty, and proper
and just additions of personal expenses and
other non-deductible expenditures were made,
and correct, fair, and equitable credit adjustments
were given by way of eliminating non-taxable
items (see RMC No. 43-74)
--------------------------------------------------------------(d) Jeopardy assessment

--------------------------------------------------------------(e) Tax delinquency and tax deficiency

--------------------------------------------------------------Q: When is
delinquent?
the
taxpayer
considered
1. Self-assessed tax per return filed by the

taxpayer on the prescribed date was not
paid at all or only partially paid or
2. Deficiency tax assessed by the BIR became
final and executory
Q: What is a tax deficiency?

The term deficiency means:
1. The amount by which the tax imposed
exceeds the amount shown as the tax by the
taxpayer upon his return
2. If no amount is shown as the tax by the
taxpayer upon his return, then the amount
by which the tax exceeds the amount
previously assessed (or collected without
assessment)
Note: If the taxpayer is considered delinquent or there is a
tax deficiency, he taxpayer is subjected to a civil penalty or
surcharge and, if applicable, interests. We will discuss this
later.
--------------------------------------------------------------(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
Q: Enumerate the powers of the CIR in the
assessment of taxes.
1. Examination of returns and determination of tax
due
2. Use of the best evidence obtainable
3. Authority
to
conduct
inventory-taking,
surveillance, and to prescribe presumptive gross
sales and receipts
4. Authority to terminate the taxable period
5. Authority to prescribe real estate values
6. Authority to inquire into bank deposits
7. Authority to accredit and register tax agents
8. Authority to prescribe additional procedural or
documentary requirements
Examination of returns and determination of

tax due
Q: When a taxpayer files his return, can he
still (1) withdraw it; or (2) amend it?
Once filed, the taxpayer may no longer withdraw it
but he may amend it subject to the following
requirements:
1. It is made within 3 years from filing
2. No notice for audit or investigation has been
actually served to him (see Section 6, Tax
Code)
Use of the best evidence obtainable

Q: Explain the best obtainable evidence
rule.
The rule is that an assessment must made based on
the best evidence obtainable. In CIR V. HANTEX
TRADING [M ARCH 31, 2005], the Supreme Court
opined that assessments must be based on actual

Page 62 of 164

facts. It ruled that best evidence includes the

corporate and accounting records of the taxpayer
who is subject of the assessment process while the
best evidence obtainable does not include mere
photocopies of records and documents. Such
photocopies have no probative value and cannot be
used as basis for any deficiency taxes against the
taxpayer.
Note: (1) The BIR is allowed to make or amend a tax
return from his own knowledge or obtained through
testimony or otherwise. (see CIR v. Hantex Trading Co.
[March 31, 2005])
(2) The rule is that in the absence of accounting records of
a taxpayer, his tax liability may be determined by
estimation. The CIR is not required to compute such tax
liabilities with mathematical exactness (Ibid)
Authority to conduct inventory-taking,

surveillance, and to prescribe presumptive
gross sales and receipts
Q: In what instance will the CIR exercise
such authority?
It will exercise such authority if there is reason to
believe that the taxpayer is not declaring his correct
income, sales or receipts for internal revenue
purposes
Authority to terminate the taxable period

Q: In what instances can the CIR terminate
the taxable period of a taxpayer?
When the taxpayer is:
a. Retiring from business
b. Intending to leave the country
c. Removing his property
d. Obstructing tax collection
consultation with competent appraisers both from

the public and private sectors.
Authority to inquire into bank deposits

Q: Does the CIRs power to obtain
information include the power to inquire into
bank deposits?
No as a general rule. However, the CIR is
authorized to inquire into the bank deposits of:
1. A decedent to determine his gross estate
2. Any taxpayer who has filed an application
for compromise of his tax liability under
Section 204(A)(2) of the Tax Code by
reason of financial incapacity to pay his tax
liability.
3. Specific taxpayers subject of a request for
exchange of information by a foreign tax
authority pursuant to an international
convention or agreement on tax matters to
which the Philippines is a signatory or a
party of provided that the requesting foreign
tax authority is able to demonstrate the
foreseeable relevance of certain information
required to be given to the request (see RA
10021 (Exchange of Information on Tax
Matters Act of 2009) and RR 10-2010
[OCTOBER 6, 2010])
4. Where the taxpayer has signed a waiver
authorizing the CIR or his duly authorized
representatives to inquire into the bank
deposits
Authority to accredit and register tax agents

Q: Who are tax practitioners/tax agents?
RR 11-2006 [JUNE 15, 2006] defines a tax
practitioner/agent as those who are:
Authority to prescribe real estate values

Q: Does the CIRs power to prescribe real
estate values include the power to
unilaterally reclassify the zonal valuation of
properties?
As held in CIR V. AQUAFRESH SEAFOODS [OCTOBER
20, 2010], the Supreme Court ruled that although the
CIR has the authority to prescribe real property
values and divide the Philippines into zones, the law
is clear that the same should be done upon
1. engaged in the regular preparation,

certification, audit and filing of tax returns,
information returns or other statements or
reports
2. engaged in the regular preparation of
requests
for
ruling,
petitions
for
reinvestigation, protests, requests for refund
or tax credit certificates, compromise
settlement and/or abatement of tax liabilities
and
other
official
papers
and
correspondence
Page 63 of 164

3. regularly appear in meetings, conferences,

and hearings before any office of the BIR
officially on behalf of a taxpayer or client in
all matters relating to a client's rights,
privileges, or liabilities
Note: Tax practitioners and agents are required to apply
for accreditation. RR 11-2006 [JUNE 15, 2006], as
amended by RR 4-2010 [FEBRUARY 24, 2010] and RR 142010 [NOVEMBER 25, 2010] provide for the guidelines on
accreditation of tax practitioners/agents as a pre-requisite
for their practice and representation before the BIR.

Note: As ruled in FITNESS BY DESIGN V. CIR [OCTOBER 17,
2008], the BIR can obtain all relevant records and data in
the person of the taxpayer without his consent.
--------------------------------------------------------------(iii) When assessment is made

(c) Prescriptive period for assessment
of returns
(d) Suspension of running of statute of
limitations
--------------------------------------------------------------Note: Whats the importance of determining when the
assessment is made or deemed made? Ill give you two
reasons. First, it is important in order to know if the right to
assess has already prescribed. The assessment must be
made within the 3-year prescriptive period. Any
assessment made thereafter shall be barred. Second, the
date in which the assessment was made is the reckoning
point of the prescription of the power to collect.
Q: When is an assessment deemed made?

The assessment is deemed to have been made on
the date when the demand letter or notice of
assessment is released, mailed or sent, even though
the same is actually received by the taxpayer after
the expiration of the prescriptive period (see
BASILAN ESTATES V. CIR [SEPTEMBER 5, 1967]).
Note: RR 12-99 [SEPTEMBER 6, 1999] provides that if the
notice to the taxpayer is served by registered mail and no
response is received from the taxpayer within the
prescribed period from date of the posting thereof in the
mail, the same shall be considered actually or
constructively received by the taxpayer. Further, if the
same is personally served and the taxpayer refuses to
acknowledge receipt thereof, the same shall be
constructively received by the taxpayer.

Q: A was assessed for deficiency taxes on

his Feb 1, 2010 income tax returns by the
BIR. The formal demand letter and
assessment was stamped Jan 31, 2013,
denoting the date of its release in the mail.
In Feb 2, 2013, A has not yet received the
formal demand letter and assessment. He
contends that the assessment is already
barred by prescription. Is A correct?
No. The assessment is not barred by prescription.
The BIR has 3 years to assess from the date of last
filing. As long as the release of the
assessment/demand is effected within the
prescriptive period, the assessment is deemed
made on time even though the taxpayer actually
received the assessment/demand after the
expiration of the prescriptive period (see BASILAN
ESTATES V. CIR [SEPTEMBER 5, 1967]).
Q: What is the exception to the above rule

that assessment is deemed made when BIR
releases, mails, or sends such notice to
taxpayer?
If the receipt is disputed and for this presumption of
receipt of mail to apply, the CIR must prove that:
1. The letter was properly addressed
2. The
letter
was
mailed;
otherwise,
presumption of receipt cant apply. (see
NAVA V. CIR [JANUARY 30, 1965])
In REPUBLIC V. CA [APRIL 30, 1987], the Supreme
Court held that a direct denial of receipt of a mailed
demand letter by the addressee shifts the burden
upon the party favored by the presumption of receipt
of letter to prove that the mailed letter was indeed
17
received.
In COMMISSIONER OF INTERNAL REVENUE VS. GJM
PHILIPPINES M ANUFACTURING, INC. [CTA EB CASE
NO. 637, M ARCH 6, 2012], the CTA held that if the
taxpayer denies receiving the final assessment
notice, it is incumbent upon the BIR to prove that the
assessment was indeed received by the taxpayer.
17
Also important to note in this case is the ruling that a follow-up

letter which reiterates demand for payment of taxes is considered
a notice of assessment.
Page 64 of 164

Note: (1) When an estate is under administration, the
notice of assessment must be sent to the administrator
(see Republic v. Leonor dela Rama [Nov. 29, 1956])
(2) Service of an assessment notice made to the agent of
the decedent after the decedents death is not effective.
As held in ESTATE OF LATE JULIAN DIEZ V. CIR [JANUARY 27,
2004], service of assessment notice on the trust
officer/agent of the decedent made after the death is
invalid since at that time the legal relationship between the
principal and his agent had been automatically severed by
the death of the principal even if the agent continued to act
as such by filing the decedents ITR. The fact of failure to
file a notice of death will not later this effect but will only
expose the estate to penalties and will not continue the
relationship with the agent.
Q: What is the significance of the taxpayers

indicating in the previous years ITR its new
address?
As held in CIR V. BPI AS LIQUIDATOR OF PARAMOUNT
ACCEPTANCE CORP [SEPTEMBER 23, 2003], any
service of assessment notice on the old address
subsequent to such previous year invalidates the
assessment.
--------------------------------------------------------------(a) Prescriptive period for assessment

of returns
--------------------------------------------------------------Note: As a preliminary matters, lets talk about how to
compute the legal period. If we will follow the old
Administrative Code and the Civil Code, the BIR may
assess the deficiency tax only within 1,095 days because
they both state that a year is 365 days. 365 times 3 equals
1095. So, kapag nag-assess ang CIR sa dulo ng 3 year
period na may leap year, prescribed na! Bakit? A leap
year has 366 days. So 365 + 365 + 366 equals 1096 days!
Kapag may libro or notes ka na ganyan pa rin sinasabi,
patay tayo diyan! The doctrine to that effect as laid down
in NAMARCO v. Tecson [29 SCRA 70] has been
abandoned!
Pursuant to Section 229 of the Tax Code, he had two

years from the filing of its final adjusted return to file a
claim for tax refund or credit. The CIR argued that the
taxpayer had 730 days to file its claim given that Article 13
of the Civil Code states that a year is understood to mean
365 days. The taxpayer contended that under the 1987
Administrative Code, a year consists of 12 calendar
months and having filed the claim on the last day of the
th
24 calendar month, the claim was filed within the
prescriptive period. The Supreme Court ruled in favor of
the taxpayer. There exists a manifest incompatibility
between the manner of computing legal periods under the
Civil Code and the Administrative Code. Given that the
Administrative Code is the more recent law, its treatment
of a year governs the computation of legal periods.
Ano kapag the date of which the assessment is due to
prescribe falls on a Saturday? As held in CIR V. WESTERN
PACIFIC CORPORATION [MAY 27, 1965], where the last day
for issuing a tax assessment falls on a Saturday, it may be
validly issued the following business day. And anong araw
yun? Eh di Monday! What if itll prescribe on Sunday? You
can still assess on Monday. What if prescription falls due
on a legal holiday? You can still assess on the next day
which is neither a Saturday, Sunday or a legal holiday.
Read Section 203 and 222, ax Code

Q: When does the governments right to
assess prescribe?
General Rule: The governments right to assess
prescribes in 3 years from the date of the last day of
filing.
However:
1. If the return is filed after such date, the 3
year period is reckoned from date of actual
filing
2. If the return is filed before the last day, then
considered as filed on last day.
Exceptions: Section 222, Tax Code provides for
the following instances
1. False return
2. Fraudulent return
3. Failure to file a return
The rule now is very simple. Susundin natin ang

Administrative Code of 1987. A year is 12 calendar
months. Wag mo na bilangin ang total number of days. So
if the CIR assesses in the last day of the last month of the
3-year period, hindi pa prescribed yun. Ano kapag may
leap year yung isang taon sa 3-year period. It aint gonna
matter.
In such cases, the tax may be assessed or a

proceeding in court for collection may be filed
without assessment at any time within 10 years from
discovery of the falsity, fraud, or omission.
On a serious note, the relevant case is CIR V. PRIMETOWN

PROPERTY [AUGUST 28, 2007]. In that case, the taxpayer
filed a claim for tax refund of income tax paid in 1997.
Note: (1) In contrast, the right to collect the tax prescribes

in 5 years and the period is reckoned from the date the
assessment is made.

Page 65 of 164

(2) May there be a proceeding in court when no

assessment is made within the 3 year period? Yes in the
case of false return, fraudulent return, or failure to file
return. You can file within 10 years from discovery.
Q: What is the effect if the assessment is

made beyond the prescribed period?
Assessments made beyond the prescribed period
would not be binding on the taxpayer. (see TUPAZ V.
ULEP [OCTOBER 1, 1999]; CIR v. AYALA SECURITIES
CORPORATION [M ARCH 31, 1976]
Q: What if the return is incomplete, will the

prescriptive period to assess run?
No. As held in REPUBLIC V. M ARSMAN DEVELOPMENT
COMPANY [APRIL 27, 1972], in order that the filing of
a return may serve as a starting point of the period
for making an assessment, the return must be as
substantially complete as to include the needed
details on which the full assessment may be made.
Q: What is the reckoning point with respect

to amended returns?
From the filing of the amended return if the
amendment is substantial. In CIR V. PHOENIX [MAY
20, 1965], the taxpayer filed its ITR for 1952 on 1
April 1953. It amended the said return on 30 August
1955. Thereafter, on 24 July 1958, the CIR
assessed deficiency income tax on the basis of the
amended return contending that his right to assess
has not yet prescribed inasmuch as the same was
18
availed of within 5 years from the filing of the
amended return. The Supreme Court ruled that
where the deficiency assessment is based on the
amended return, which 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 return. In this case, the changes
and alterations embodied in the amended return
constituted substantial ones and thus the CIRs
deficiency assessment was not barred by
prescription.
Q: Is there a difference between a false

return and a fraudulent return?
18
Yes. A false return merely implies deviation from the

truth, whether intentional or not, while a fraudulent
return refers to an intentional evasion of tax. (see
AZNAR V. CTA [AUGUST 23, 1974])
Q: A filed his tax return in 2000. The CIR

assessed A for deficiency taxes in 2004
alleging fraud in its complaint. Has the right
to assess prescribed?
Yes. As held in REPUBLIC V. LIM DE YU [APRIL 30,
1964], it is not enough the fraud is alleged in the
complaint, it must be proven and established.
Q: The CIR contends that seven lots were

deliberately omitted by A in his return filed
as the representative of the heirs. A
contends that the lots were excluded
because one belonged to one of the heirs,
three were already declared in the return of
the surviving spouse, and three were
actually included. Is there a deliberate intent
to evade taxes on the part of A?
No. As held in REPUBLIC V. HEIRS OF CESAR
JALANDONI [SEPTEMBER 20, 1965], the omission as
described above was not deliberate and did not
amount to fraud indicative of an intention to evade
payment of the proper tax due the government.
Q: May the period of assessment be

extended?
Yes. Before the expiration of the 3-year prescriptive
period, both the CIR and the taxpayer may agree in
writing to extend the period of assessment. The
period so agreed upon may be further extended by
subsequent written agreement made before the
expiratiton of the period previously agreed upon (see
Section 222(b), Tax Code)
Q: What are the requirements of a valid

waiver of the statute of limitations?
As provided in RMO No. 20-90:
1. The waiver must be in the proper form
2. The waiver shall be signed by the taxpayer
himself
or
his
duly
authorized
representative.
3. Signature of the proper authority (For tax
cases involving Php 1 million or above, the
Note that the case was governed under the old law which
provides for 6 tears to assess and another 5 years to collect.

Page 66 of 164

CIR must sign) indicating that the BIR has

accepted and agreed to the waiver
4. The date of the acceptance by the BIR
should be indicated. Both the dae of
execution by the taxpayer and the date of
the acceptance by the BIR should be before
the expiration of the period of prescription or
before the lapse of the period agreed upon
in case a subsequent agreement is
executed.
5. The waiver must be executed in 3 copies,
the original to be attached to the docket, the
second copy for the taxpayer and the third
copy for the Office accepting the waiver.
Taxpayer must be furnished a copy of the
waiver in order to perfect the agreement
since the waiver is not a mere unilateral act
Note: (1) The signatures of both the CIR 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 (CIR v. CA [February 25,
1999])
Q: What is the effect of failure to conform to

the requirements of a waiver of the statute
of limitations?
A waiver of the statute of limitations under the Tax
Code must conform strictly with the provisions of
Revenue Memorandum Order No. 20-90 in order to
be valid and binding. (See RMC 06-05 [February 2,
2005]; PHILIPPINE JOURNALISTS INC. V. CIR
[DECEMBER 16, 2004]).
The period to assess and collect taxes may only be
extended upon a written agreement between the
CIR and the taxpayer executed before the expiration
of the 3-year period. RMO 20-90 and RDAO 05-01
lay down the procedure for the proper execution of
the waiver. If not followed, any assessment issued
by the BIR beyond the 3-year period is void. (CIR V.
KUDOS METAL CORP [M AY 5, 2010]; see also AVON
PRODUCTS V. CIR [MAY 13, 2010])
Note: RMC No. 29-2012 [June 29, 2012] clarifies the form
to be used for Waiver of the Statute of Limitations. In RMO
20-90, there is a particular waiver form attached as an
Annex. Revenue Delegation Authority Order (RDAO) No.
05-01 was issued in August 2, 2001 prescribing a new
waiver form to be used. With the decision of the SC in
PHILIPPINE JOURNALISTS INC. V. CIR [DECEMBER 16, 2004],
RMC No. 06-05 was issued on February 2, 2005 citing the
said decision that "a waiver of the statute of limitations
under the Tax Code must conform strictly with the
provisions of Revenue Memorandum Order No. 20-90.

This led some to believe that the Waiver form prescribed

under RMO No. 20-90 should be used instead of the
waiver form mandated under RDAO No. 05-01. RMC No.
29-2012 clarifies that while the provisions of RMO No. 2090 should be strictly complied with in order for a Waiver to
be valid, the Waiver form prescribed in RMO No. 20-90
should no longer be used as the same has been revised
per RDAO No. 05-01.
In SMC STOCK TRANSFER SERVICE CORPORATION VS.
JANUARY 10, 2012], the CTA held that the waiver of the
Statute of Limitations executed by the taxpayer is
defective if: (a) It fails to indicate the fact of receipt by the
taxpayer of his file copy of the waiver The Court noted
that the fact of receipt by the taxpayer must be indicated in
the original copy, which is to be attached to the docket of
the case; (b) It fails to indicate the specific kind of tax and
the amount of tax due if the amount of tax were not
indicated in the said waiver, there is no agreement to
speak of; (c) It was not duly notarized; (d) Both the
acceptance by the BIR and the execution by the taxpayer
of the subsequent waiver was made at a time when the
period previously agreed upon had already lapsed. See
also UNION CEMENT CORPORATION VS. COMMISSIONER OF
INTERNAL REVENUE [CTA CASE NO. 6842, JANUARY 18,
2012]; EAST ASIA POWER RESOURCES CORPORATION V. CIR
[CTA CASE NO. 7936, FEBRUARY 6, 2012]; NEXT MOBILE,
INC. VS. COMMISSIONER OF INTERNAL REVENUE, CTA CASE
NO. 7965, DECEMBER 11, 2012
A waiver of the defense of prescription which does not
indicate the date of acceptance by the BIR does not toll
the running of the three-year prescriptive period. FIRST
GAS POWER CORPORATION VS. CIR, CTA CASE NO. 7281,
SEPTEMBER 24, 2012
Q: ABC Bank executed two Waivers of the

Defense of Prescription covering internal
revenue taxes due for the years 1994 and 1995,
extending the period of the BIR to assess up to
December 31, 2000. A Formal Letter of Demand
was issued by the BIR which was protested by
ABC Bank. Another Formal Letter of Demand
was received by ABC with a reduced assessment
which was paid by ABC on the same day except
for two other taxes. ABC argues that the waivers
it executed were not valid because it was not
signed or conformed to by the CIR. Are the
waivers valid?
Yes. Partial payment of the assessment issued
within the extended period to assess as provided in
the Waiver of Defense of Prescription is an implied
admission of the validity of the waiver. (RCBC v.
CIR [September 7, 2011])
Page 67 of 164

Q: Can the waiver cover taxes already

prescribed?
No. As held in REPUBLIC V. LIM DE YU [APRIL 30,
1964], the waiver of the statute of limitations
executed by the taxpayer cannot be deemed to
include taxes already prescribed.
Q: Can the doctrine of estoppel be applied

as an exception to the statute of limitations?
No. In CIR V. KUDOS METAL CORPORATION [M AY 5,
2010], the Supreme Court held that the doctrine of
estoppels cannot be applied as an exception to the
statute of limitations on the assessment of taxes
considering that there is a detailed procedure for the
proper execution of the waiver.
--------------------------------------------------------------(a) Suspension of running of statute of

limitations
Q: When is the running of the period of
prescription suspended?
It is suspended when:
1. The CIR was prohibited from making the
assessment or beginning distraint/levy and
19
for 60 days thereafter
2. Taxpayer requests reinvestigation which is
granted by the CIR
3. Taxpayer cannot be located in address
4. A warrant of distraint and levy is served (not
only issued) and no property could be found
5. Taxpayer is out of the Philippines
--------------------------------------------------------------(iv) General provisions on additions to

the tax
(a) Civil penalties or Surcharges
(b) Interest
(1) In general
(2) Deficiency interest
(3) Delinquency interest
(4) Interest on extended payment
19
(c) Compromise penalties

----------------------------------------------------------------------------------------------------------------------------(a) Civil penalties or Surcharges
--------------------------------------------------------------Read Section 247-248, Tax Code
Q: What are the civil penalties (surcharges)
under the Tax Code and in what instances
are they imposable?
1. 25% surcharge, which is imposable in case
of:
a. Failure to file a return and pay tax
due thereon
b. Filing with unauthorized revenue
office
c. Failure to pay deficiency tax within
time prescribed in assessment
notice
d. Failure to pay full or part of the
amount shown in ITR required to be
filed or the full amount of tax due
for which no return is required to be
filed on or before the date
prescribed for its payment
2. 50% surcharge, which is imposable in case
of:
a. Willful neglect to file the return
within the period prescribed
b. False or fraudulent return is willfully
made (see Section 248, Tax
Code).
Note: (1) Surcharges are imposed in addition to the tax
required. They are in the nature of penalties and shall be
collected at the same, in the same manner, and as part of
the tax (see Section 248(A), Tax Code)
(2) There is a prima facie evidence of false or fraudulent
return when there is a substantial under-declaration of
taxable sales, receipts or income in an amount exceeding
30% of that declared per returm.
(3) As held in PHILIPPINE REFINING COMPANY V. CA [MAY 8,
1996], it is mandatory to collect penalty and interest at the
stated rate in case of delinquency. The intention of the
law is to discourage the delay in the payment of taxes due
the Government, and, in this sense, the penalty and
interest is 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.
An example would be when an injunction is allowed under the

CTA law is availed of.

Page 68 of 164

Q: ABC is a cement company. Initially, the

BIR ruled that cement is a mineral product
rather than a manufactured product and is
therefore subject to ad valorem tax, not
sales tax. Subsequently, the CIR ruled that
cement is a manufactured product and
therefore subject to sales tax. The BIR then
assessed ABC for deficiency sales tax and
imposed the 25% surcharge. Is the 25%
surcharge imposable?
No. In CIR V. REPUBLIC CEMENT CORP [AUGUST 10,
1983], the Supreme Court noted that the 25%
penalty contemplates a case where the liability for
the tax is undisputed or indisputable. In this case,
the assessments are disputed. The dispute as to the
tax liability of Republic Cement for sales tax arose
not simply because of ordinary divergence of views
in good faith vis--vis the interpretation of the law,
the position of Republic Cement was founded upon
the original stand of the BIR itself that cement is a
mineral product. Under such circumstances, the
25% surcharge imposition must be deleted.
Q: What is the nature of the fraud

contemplated in the act of making a
fraudulent return which would subject the
taxpayer to a 50% surcharge?
In CIR V. AIR INDIA [JANUARY 29, 1988], the Supreme
Court explained the fraud contemplated by the law in
this way: It must be intentional fraud, consisting of
deception willfully and deliberately done or resorted
to in order to induce another to give up some legal
right. Negligence, whether slight or gross, is not
equivalent to the fraud with intent 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. It must amount to
intentional wrongdoing with the sole object of
avoiding the tax.
Q: As a result of divergent rulings on

whether he is subject to tax or not, the
taxpayer failed to pay taxes on time. The CIR
imposed surcharges and interests for such
delay. The taxpayer invokes good faith. Is
good faith a defense?
Yes. The settled rule is that good faith and honest
belief that one is not subject to tax on the basis of
previous interpretation of government agencies
tasked to implement the tax are sufficient

justification to delete the imposition of surcharges
(MICHEL J. LHUILLIER PAWNSHOP V. CIR [SEPTEMBER
11, 2006])
Some Problems on Civil Penalty Impositions

Q: If a taxpayer who files a return
subsequently realizes that the return filed
was insufficient, will his amended return be
subject to the 25% surcharge?
No. As long as the taxpayer files the amended return
before the lapse of any demand by the BIR to pay
his deficiency assessment, the taxpayer is not liable
for any surcharge.
Q: Taxpayer A filed and paid taxes on April

15, 2009 worth 5 million. On May 15, 2009,
he realized he should have paid 6 million
and thus pays the additional 1 million. Is A
subject to the 25% surcharge?
No. None of the violations mentioned was committed
by the taxpayer.
Q: Taxpayer B filed and paid taxes on April

the BIR issued an assessment and required
B to pay an additional 1 million on or before
June 15, 2009. If B pays before June 15,
2009, is he subject to the 25% surcharge?
No. None of the violations mentioned was committed
by the taxpayer.
Q: Taxpayer C did not file any return nor pay

any taxes on April 15, 2009. On May 15,
2009, he realized he should have paid 6
million and thus pays the whole 6 million. Is
he subject to the 25% surcharge?
Yes. Taxpayer C failed to file a return and pay the
tax due thereon which is the first type of act which
requires a 25% surcharge imposition.
Q: Taxpayer D filed and paid taxes on April

the BIR issued an assessment and required
D to pay an additional 5 million on or before
Page 69 of 164

June 15, 2009. If D pays after June 15, 2009,

is he subject to any surcharge?
from the date of notice and demand until it is

paid (see Section 249, Tax Code)
Yes. Taxpayer D will be subject to the 50%

surcharge since (a) he failed to pay within the time
prescribed in the notice of assessment; and (b) the
under declaration is 50% or in excess of the 30%
threshold which raises the prima facie presumption
of a false or fraudulent return. As such allegation is
only prima facie, it may be rebutted.
Note: (1) For delinquency interest, it is important to note

that the instances in which it is applied is the same as
those enumerated under 25% surcharge except (b) filing
with unauthorized officer.
--------------------------------------------------------------(d) Interest
(1) In general
(2) Deficiency interest
(3) Delinquency interest
(4) Interest on extended payment
Q: What are the types of interests collected
under the Tax Code
1. In general there shall be assessed and
collected any unpaid amount of tax, interest
at the rate of 20% per annum or such higher
rate as may be prescribed from the date
prescribed for payment until fully paid
2. Deficiency interest any deficiency in the
tax due shall be subject to 20% per annum
3. Delinquency interest the unpaid amount
shall be subject to 20% per annum in case
of:
a. Failure to pay the amount of tax due
on any return required to be filed
b. Failure to pay the amount of tax due
for which no return is required
c. Failure to pay a deficiency tax or
surcharge or interest thereon on the
due date appearing on the notice
and demand of the CIR
4. Interest on Extended Payments if any
person is qualified and elects to pay
installments but fails to pay the tax or any
installment on or before the date prescribed,
there shall be assessed and collected
interest at the rate of 20% per annum on the
tax or deficiency tax or part thereof unpaid
(2) Note that in deficiency interest, it is imposed on the

deficiency not the amount of tax due. On the other hand,
in delinquency interest, it is imposed on the tax due. Thus,
it is an interest earning interest.
(3) Interest on deficiency tax may be waived when the
assessment is highly controversial as in the case of
CAGAYAN ELECTRIC POWER & LIGHT CO. V. CIR [SEPTEMBER
25, 1985], where there was a withdrawal of its exemption
from income tax and a subsequent reinstatement of such
exemption. Thus, non-payment during the short time when
the taxpayer was exempt was not subjected to interest
payment.
The deficiency interest should be computed from the date
prescribed for the payment of the deficiency tax until full
payment thereof. On the other hand, delinquency interest
should be computed from the due date prescribed under
the Assessment Notice until the full payment thereof.
REPUBLIC
CEMENT
CORPORATION
(AS
SURVIVING
CORPORATION IN A MERGER INVOLVING FR CEMENT
CORPORATION VS. COMMISSIONER OF INTERNAL REVENUE,
CTA EB CASE NO. 821, JULY 18, 2012)
Deficiency interest and delinquency interest, having
different nature for their existence, cannot be assailed as
double imposition of interests as the law itself allows the
simultaneous imposition of these two kinds of interests.
Deficiency interest on any deficiency tax shall be
assessed from the date prescribed for its payment until
the full payment thereof; while the assessment of
delinquency interest that is imposed upon failure to pay a
deficiency tax, or any surcharge or interest thereon, shall
be reckoned from the due date appearing in the notice
and demand of the Commissioner until the amount is fully
paid.TAKENAKA CORPORATION PHILIPPINE BRANCH, CTA EB
CASE NO. 745 (CTA CASE NO. 7701), SEPTEMBER 4, 2012
--------------------------------------------------------------(e) Compromise penalties

--------------------------------------------------------------Note: I will discuss this fully later under Compromise and
Abatement but note that in the two instances where the
CIR may compromise payment of internal revenue taxes
(doubtful validity of the assessment and financial
incapacity), there is what you call a compromise penalty. A
compromise penalty is the amount agreed upon between
the taxpayer and the CIR to be paid as a penalty in cases
of a compromise. For doubtful validity of the assessment,
the minimum compromise rate is 40%. For other cases
Page 70 of 164

(including financial incapacity), the minimum compromise
rate is 10%.
--------------------------------------------------------------(v) Assessment process

(i) Tax audit
(j) Notice of informal conference
(k) Issuance
of
preliminary
assessment notice
(l) Exceptions
to
issuance
of
preliminary assessment notice
(m) Reply to preliminary assessment
notice
(n) Issuance of formal letter of demand
and
assessment
notice/final
assessment notice
(o) Disputed assessment
(p) Administrative decision on a
disputed assessment
--------------------------------------------------------------Note: Lets simplify the discussion. Ill give you two
versions of the assessment process: a simplified and an
expanded version. I want you first to get an overview of
the whole process first and then in the expanded version,
we will discuss what happens in each step and other
details.
Q: Enumerate the steps in the assessment

process (simplified)
1. The CIR or Revenue Regional Director (RD)
issues a Letter of Authority (LA) to the Revenue
Officer (RO)
2. The RO conducts an Audit within 120 days from
date of issuance and service of the LOA
3. RO sends Notice of Informal Conference (NIC)
4. Taxpayer responds within 15 days from receipt of
NIC
5. The Assessment Division of the Revenue
Regional Office or CIR or his duly authorized
representative issues a Preliminary Assessment
Notice
6. Taxpayer responds within 15 days from receipt of
PAN via a Reply
7. The CIR or his duly authorized representative
issues a Formal Letter of Demand and
Assessment Notice (FAN) which may be objected
to via Protest within 30 days from receipt of the
FAN
Q: Enumerate the steps in the assessment

process (expanded)
See RR 12-99 [SEPTEMBER 6, 1999])
1. The CIR or Revenue Regional Director (RD)

issues a Letter of Authority (LA) to the
Revenue Officer (RO)
a. The LA must be served within 30 days from
date of issuance. Otherwise, it shall become
null and void.
b. The LA is issued to the RO by the:
i. CIR or his duly authorized representatives
after a return has been filed or
ii. Revenue Regional Director for all audit
cases within his regional jurisdiction except
in:
(1) Cases involving civil or criminal tax
fraud falling under the jurisdiction of
the Tax Fraud Division of the
Enforcement Service
(2) Policy cases under audit by Special
Teams in the National Office (RMO
No. 36-99)
Note: (1) The Letter of Authority is the authority given to
the revenue officer to perform assessment functions.
There must be a grant of authority before any revenue
officer can conduct an examination or assessment and the
revenue officer must not go beyond the authority given
[CIR v. SONY PHILIPPINES [NOVEMBER 17, 2010].
(2) A LA that was issued to cover an audit of unverified
prior years is invalid. A LA should cover a taxable period
not exceeding one taxable year. The practice of issuing
LOAs covering audit of unverified prior years is
prohibited. If the audit of a taxpayer shall include more
than one taxable period, the other periods shall be
specifically indicated. (see RMO 43-90 [SEPTEMBER 20,
1990]. In CIR V. SONY PHILIPPINES [NOVEMBER 17, 2010], a
Letter of Authority was issued covering the period 1997
and unverified prior years. The deficiency VAT
assessment was based on records from January to March
1998. The Supreme Court held that the CIR went beyond
the scope of their authority as indicated in the LOA.
Further, the fact that the LOA covers unverified prior years
invalidates it and a VAT deficiency assessment made on
the basis thereof must be disallowed.
(3) Eh ano itong tinatawag na Letter Notice? A Letter
Notice (LN) is a discrepancy notice issued by the CIR
after conducting data matching processes, informing the
taxpayer of findings of discrepancy. A LN covers only a tax
indicated therein on a given particular period or quarter
rd
(e.g. VAT liabilities for 2002 3 quarter). It must be noted,
however, that under RMC 40-2003 [JULY 7, 2003] and
Page 71 of 164

RMO 55-2010 [JUNE 15, 2010], a LN shall be treated as a
notice of audit or investigation in the absence of evident
error or clear abuse of discretion. In order to expedite the
processing of LN cases, the issuance of NICs may
immediately commence, even without prior issuance of
LOAs. Ano daw? Ito ibig sabihin: a LN is effectively
equated to a LA.
2. The RO conducts an Audit within 120 days

from date of issuance and service of the LOA
a. If the audit is not completed within the 120
day period, the LA is revalidated.
b. If the RO finds:
i. No deficiency, the audit ends
ii. Any deficiency, the RO will inform the
taxpayer and write in his report whether
the taxpayer agrees with his findings:
(1) If the taxpayer is amenable, the
taxpayer pays the tax
(2) If the taxpayer is not amendable, the
RO shall state such fact in his report of
investigation and submit the same to
the RDO or by the Special
Investigation Division (in case of the
Revenue Regional Office) or by the
Chief of Division (in the case of the
BIR National Office).
3. RO sends Notice of Informal Conference (NIC)
a. The taxpayer shall be informed, in writing, by
the RDO or by the Special Investigation
Division (in case of the Revenue Regional
Office) or by the Chief of Division (in the case
of the BIR National Office) of the discrepancy
or discrepancies in the taxpayers payment of
his internal revenue taxes for the purpose of
Informal Conference
4. Taxpayer responds within 15 days from
receipt of NIC
a. If the taxpayer responds within 15 days, there
will be an Informal Conference
b. If the taxpayer fails to reply, he shall be
considered in default. The Revenue District
Officer or the Chief of the Special
Investigation Division of the Revenue
Regional Office, or the Chief of Division in the
National Office, as the case may be, shall
endorse the case with the least possible delay
to the Assessment Division of the Revenue
Regional Office or to the Commissioner or his

duly authorized representative, as the case
may be, for appropriate review and issuance
of a deficiency tax assessment, if warranted.
Note: Ano ba ang nangyayari sa Informal Conference?
This is where youre given the chance to present your
side. And of course, sasabihin mo ay tama ang binayad
mo!
5. The Assessment Division of the Revenue

Regional Office or CIR or his duly authorized
representative
issues
a
Preliminary
Assessment Notice
a. If there is no sufficient basis to assess,
dismissed.
b. If there is sufficient basis to assess, a
Preliminary Assessment Notice (PAN) shall be
issued for the proposed assessment, showing
in detail, the facts and the law, rules and
regulations, or jurisprudence on which the
proposed assessment is based
c. A PAN is not required in the following
instances
i. Assessment is purely mathematical error
ii. Excise tax on excisable article not paid
iii. Discrepancy between tax withheld and
remitted
iv. Goods imported by tax-exempt entity are
sold to a taxable entity
v. Claim for refund is filed when it was
previously carried over
Note: The PAN must be issued by the BIR before issuing
the FAN and letter of demand. In CIR V. METRO STAR
SUPERAMA [DECEMBER 8, 2010], where the taxpayer
received only a FAN, the Supreme Court ruled that such
amounted to a denial of due process. The taxpayer must
be informed of the facts and law upon which the
assessment is made. The law imposes a substantive, not
merely a formal requirement. However, if you fall under
the 5 exceptions, then you can go straight to the FAN.
The issuance of Preliminary Assessment Notice is
mandatory in tax assessments except in a few instances,
specifically enumerated by law, where it is not required.
COMMISSIONER OF INTERNAL REVENUE VS. UNIOIL
CORPORATION, CTA EB CASE NO. 857, NOVEMBER 13, 2012
See LAURENCE LEE V. LUANG V. HON. SIXTO S. ESQUIVIAS IV
[CTA CASE NO. 7967, JANUARY 5, 2102] where the CTA
held that in the absence of proof that taxpayer received
preliminary assessment notice, the assessment is void.
Page 72 of 164

6. Taxpayer responds within 15 days from

receipt of PAN via a Reply
a. If the taxpayer fails to respond within 15 days,
he shall be considered in default, in which
case, a formal letter of demand and
assessment notice shall be caused to be
issued calling for payment of the taxpayer's
deficiency tax liability, inclusive of the
applicable penalties.
Note: (1) Failure to file a reply to the PAN will not bar the
taxpayer from protesting the FAN. Why? The PAN is not
the final assessment contemplated by the NIRC which can
be protested. The only consequence of failure to file a
reply to the PAN is that the taxpayer shall be considered in
default and the BIR can now make a final assessment.
7. The CIR or his duly authorized representative

issues a Formal Letter of Demand and
Assessment Notice (FAN) which may be
objected to via Protest within 30 days from
receipt of the FAN
a. The formal letter of demand and assessment
notice shall be issued by the Commissioner or
his duly authorized representative.
b. The letter of demand calling for payment of
the taxpayer's deficiency tax or taxes shall
state the facts, the law, rules and regulations,
or jurisprudence on which the assessment is
based, otherwise, the formal letter of demand
and assessment notice shall be void
c. The same shall be sent to the taxpayer only
by registered mail or by personal delivery. If
sent by personal delivery, the taxpayer or his
duly
authorized
representative
shall
acknowledge receipt thereof in the duplicate
copy of the letter of demand.
Note: (1) The requirement that the assessment must first
sate the facts and the law on which the assessment is
based is not merely a procedural requirement but a
substantive requirement which determines the taxpayers
ability to protest. Thus, the same must be complied with
otherwise the assessment is void. Thus, assessment
notices which only have computations are invalid. This is
the reason why the new Tax Code provides that the
taxpayer be informed and not merely notified. Given that
this new rule benefits the taxpayer, the same may be
applied retroactively (CIR V. AZUCENA REYES [JANUARY 27,
20
2006]. In CIR V. GONZALEZ [OCTOBER 13, 2010], the
20
Further, the formality of a control number in the assessment

notice is not a requirement for its validity but rather the contents

Supreme Court reiterated that the assessment must state

the fact, the law, the rules and regulations or jurisprudence
on which the assessment is based, otherwise the
assessment shall be void (see also CIR V. METRO STAR
SUPERAMA [DECEMBER 8, 2010] and CIR v. ENRON SUBIC
POWER CORPORATION [JANUARY 19, 2009]; FLUOR DANIEL
PHILIPPINES V. CIR [CTA CASE NO. 7793, APRIL 17, 2012])
(2) Remember the requisites of a valid assessment we
discussed earlier. If the assessment does not have these
requisites or, in other words, if the assessment is not valid,
the implication is that the 30-day period allowed to the
taxpayer in which to appeal to the CTA shall not begin to
run.
(3) The taxpayer or his duly authorized representative may
protest administratively against the FAN within thirty (30)
days from date of receipt thereof. Otherwise, the FAN will
become final and executory. You can no longer appeal to
the CTA.
Lets now discuss the remedy of the taxpayer if youre
given a FAN.
--------------------------------------------------------------a) Protest
(i) Protesting assessment
(a) Protest of assessment by taxpayer
(1) Protested assessment
(2) When to file a protest
(3) Forms of protest
(4) Content and validity of protest
(b) Submission of documents within 60
days from filing of protest
(c) Effect of failure to protest
(d) Period provided for the protest to
be acted upon
(ii)
Rendition
of
decision
by
Commissioner
(a) Denial of protest
(1) Commissioners
actions
equivalent to denial of protest
(a) Filing of criminal action
against taxpayer
(b) Issuing a warrant of distraint
and levy
(2) Inaction by Commissioner
(iii) Remedies of taxpayer to action by
Commissioner
(a) In case of denial of protest
thereof which should inform the taxpayer of the declaration of

deficiency tax.
Page 73 of 164

(b) In
case
of
inaction
by
Commissioner within 180 days
from submission of documents
(c) Effect of failure to appeal
Note: First, Ill give you the overview of the steps in an
administrative protest and then well go to the topics in the
outline.
Q: Outline the steps in disputing an

assessment starting from the filing of the
return until the appeal to the Supreme
Court.
1.
Filing of the Return - period begins on date of

filing or last day required by law, whichever is
later)
2. Issuance of LA served to the taxpayer within
30 days from issuance
3. Audit within 120 days from date of receipt of
LA by taxpayer
4. Notice of Informal Conference taxpayer
submits explanation within 15 days from receipt
of notice
21
5. Preliminary Assessment Notice (PAN)
taxpayer submits reply within 15 days from

receipt of notice
6. Final Assessment Notice
7. Taxpayer files protest within 30 days from
receipt of FAN and Formal Notice of Demand
8. Relevant supporting documents submitted
within 60 days from filing of letter of protest
9. CIRs denial of protest or inaction for 180
days
10. Appeal to CTA Division within 30 days from
date of receipt of CIRs denial or from the lapse
of 180 days of inaction counted from
submission of documents to CIR. CTA Division
has to decide the case within 30 days after
submission
for
decision.
Motion
for
Reconsideration or New Trial to CTA Division
within 15 days from receipt of decision.
11. Appeal to CTA En Banc within 15 days from
receipt of resolution.
of resolution under Rule 45
21
When PAN is not required, from filing of return, a final

assessment notice will be issued.

--------------------------------------------------------------(i) Protesting assessment

(a) Protest of assessment by taxpayer
(1) Protested assessment
(2) When to file a protest
(3) Forms of protest
(4) Content and validity of protest
(b) Submission of documents within 60
(c) Effect of failure to protest
(d) Period provided for the protest to
be acted upon
----------------------------------------------------------------------------------------------------------------------------(1) Protested assessment
--------------------------------------------------------------Q: What is a protested assessment?
A protested assessment or a disputed assessment
is where the taxpayer questions an assessment and
asks the BIR to reconsider or cancel the same
because he believes he is not liable therefor
--------------------------------------------------------------(2) When to file a protest

--------------------------------------------------------------Q: When should a taxpayer file a protest
with the CIR?
The taxpayer or his duly authorized representative
may protest administratively against the formal letter
of demand and assessment notice within thirty (30)
days from date of receipt thereof. (see RR No. 1299)
Q: Is payment prior to protest required?

General Rule: no prior payment of assessed
internal revenue tax is required when protested or
disputed.
Exception: If there are several issues involved in
the formal letter of demand and assessment notice
but the taxpayer only disputes or protests against
the validity of some of the issues raised, the
taxpayer shall be required to pay the deficiency tax
or taxes attributable to the undisputed issues, in
which case, a collection letter shall be issued to the
taxpayer calling for payment of the said deficiency
Page 74 of 164

tax, inclusive of the applicable surcharge and/or

interest. No action shall be taken on the taxpayer's
disputed issues until the taxpayer has paid the
deficiency tax or taxes attributable to the said
undisputed issues. (see RR No. 12-99)
Note: In contrast, payment prior to protest is required in
real property taxes and customs duties.
--------------------------------------------------------------(3) Forms of protest

--------------------------------------------------------------Q: What are the two ways of protesting an
assessment notice for an internal revenue
tax? (Two forms of protest)
1. Request for Reconsideration refers to a plea for
reevaluation of an assessment on the basis of
existing records without need of additional
evidence. It may involve both a question of fact or
of law or both
2. Request for Reinvestigation refers to a plea for
reevaluation of an assessment on the basis of
newly discovered evidence or additional evidence
that a intends to present in the investigation. It
may also involve a question of fact or law or both
(see RR No. 12-85)
Q: What is the difference between a request

for reinvestigation and a request for
reconsideration for purposes of tolling the
running of the prescriptive period?
It is the request for reinvestigation acted upon which
suspends the prescriptive period to collect. A
request for reconsideration does not toll the
prescriptive period (see BPI V. CIR [OCTOBER 17,
2005]; CIR V. PHILIPPINE GLOBAL COMMUNICATIONS
[OCTOBER 31, 2006])
Note: (1) The ruling in CIR V. CAPITOL SUBDIVISION [APRIL
30, 1964] to the effect that the prescriptive period to collect
a deficiency tax is interrupted when there is a request for
review or reconsideration is no longer controlling.
(2) Why does a request for reinvestigation toll the running
of the prescriptive period? Well, a reinvestigation will take
more time because you need to receive and evaluate
additional evidence.

(3) The period utilized for reinvestigation is deducted from

the period within which to collect. (see REPUBLIC V. LOPEZ
22
[MARCH 30, 1963])
The running of the statute of limitations shall not be
suspended or interrupted unless the taxpayers request for
reinvestigation is acted upon by the Commissioner. BRAVO
ALABANG, INC. VS. COMMISSIONER OF INTERNAL REVENUE,
CTA CASE NO. 8199, NOVEMBER 29, 2012
Q: What happens if the CIR does not

consider or act upon the request for
reinvestigation?
As there was no evidence that the request was
considered or acted upon, it did not suspend the
running of the period for filing an action for collection
(see REPUBLIC V. ABECEDO [M ARCH 29, 1968])
In BPI v. CA [OCTOBER 17, 2005] as reiterated in
BPI V. CA [M ARCH 17, 2008], the Supreme Court
emphasized that the BIR must first grant the request
for reinvestigation as a requirement for the
suspension of the statute of limitations.
Q: Can a taxpayer invoke the defense of

prescription when he made repeated
requests for reinvestigation and repeated
requests for extension of time to pay?
No. As held explained by the Supreme Court in
REPUBLIC V. ARCACHE [FEBRUARY 29, 1964]: While
we may argue with the Court of Tax Appeals that a
mere request for re-examination or re-investigation
may not have the effect of suspending the running of
the period of limitation for in such a 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 no 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.
22
Example: If the assessment was made on 1/1/2000 and the

collection was made on 1/1/2006 but it was shown that from
1/1/2000 to 1/1/2003 or a period of 2 years that the assessment
was being reinvestigated, the action to collect has not yet
prescribed since deducting the 2 year period when reinvestigation
was made will only amount to 4 years and is thus still within the 5
year period to collect.
Page 75 of 164

--------------------------------------------------------------(4) Content and validity of protest

--------------------------------------------------------------Q: What are the requirements for the validity
of a taxpayers protest?
1. Must be in writing and addressed to the CIR
2. Must contain the information required, namely:
a. Name of the taxpayer and address for the
immediate past 3 taxable years
b. Nature of the request, specifying the newly
discovered evidence he intends to present
c. Taxable periods covered by the assessment
d. Amount and kind of tax involved and the
assessment notice and number
e. Date of receipt of assessment notice or letter
of demand
f. Itemized statement of the finding to which the
taxpayer agrees (if any) as basis for the
computation of the tax due, which must be
paid immediately upon filing of protest
g. Itemized schedule of the adjustments to which
the taxpayer does not agree
3. The taxpayer must not only show the errors of
the BIR but also the correct computation through:
a. A statement of the facts, the applicable law,
rules and regulations, or jurisprudence on
which the taxpayers protest is based.
Otherwise, his protest shall be considered
void and without force and effect.
b. If there are several issues involved in the
disputed assessment and the taxpayer fails to
state the facts, the applicable law, rules and
regulations, or jurisprudence in support of his
protest against some of the several issues on
which assessment is based, the same shall
be considered undisputed issue or issues, in
which case, the taxpayer shall be required to
pay the corresponding deficiency tax or taxes
attributable
4. It must be filed within the reglementary period of
30 days from receipt of the notice of assessment
--------------------------------------------------------------(a) Submission of documents within 60

---------------------------------------------------------------

Q: When must the taxpayer submit all

relevant supporting documents?
Within 60 days from filing of protest, the taxpayer
shall submit all relevant supporting documents.
Note: 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, the taxpayer will be at the mercy of the BIR,
which may require the production of documents that a
taxpayer cannot submit (CIR V. FIRST EXPRESS PAWNSHOP
[JUNE 16, 2009]; CIR VS. LA SUERTE CIGAR AND CIGARETTE
FACTORY, TELENGTAN BROTHERS AND SONS, INC., CTA EB
CASE NO. 820 (CTA CASE NO. 7390) JUNE 11, 2012.
--------------------------------------------------------------(b) Effect of failure to protest

--------------------------------------------------------------Q: What is the effect of failure to protest the
FAN?
If the taxpayer fails to file a valid protest against the
formal letter of demand and assessment notice
within thirty (30) days from date of receipt thereof,
the assessment shall become final, executory and
demandable.
--------------------------------------------------------------(c) Period provided for the protest to

be acted upon
--------------------------------------------------------------Q: What is the period for the CIR to act upon
a valid protest against the FAN?
The CIR or his duly authorized representative may
act on the taxpayers protest within 180 days from
the date of submission by the taxpayer of the
required documents in support of his protest
Note: The 30-day period to appeal set by Section 228 of
the NIRC, as amended, should be reckoned from the
lapse of the 180-day period for the BIR to act on the
protest without any decision having been rendered and not
from the date the taxpayer received the Final Demand and
Assessment Notice (LA FLOR DELA ISABELA, INC. V. CIR
[C.T.A. EB NO. 672, FEBRUARY 02, 2012])
Page 76 of 164

--------------------------------------------------------------(iii) Remedies of taxpayer to action by

Commissioner
(a) In case of denial of protest
(b) In
case
of
inaction
by
(c) Effect of failure to appeal
----------------------------------------------------------------------------------------------------------------------------(a) In case of denial of protest
--------------------------------------------------------------Q: What are the remedies of the taxpayer if
the protest is denied?
1. Appeal to the CTA within 30 days from date
of receipt of the said decision. Otherwise,
the assessment becomes final, executory
and demandable.
2. Instead of appealing to the CTA at once, the
taxpayer may first opt to file a MR of the
denial of the administrative protest with the
CIR. If the MR is denied, the taxpayer may
then appeal o the CTA, but only within the
remaining period of the original 30-day
period to appeal (if any) (see FISHWEALTH
CANNING CORPORATION VS. COMMISSIONER
OF INTERNAL REVENUE [JANUARY 21, 2010])
Q: Will a Motion for Reconsideration toll the

30 day period to appeal the denial of the
protest of the FAN?
No. A motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period
to appeal to the CTA. (see FISHWEALTH CANNING
CORPORATION VS. COMMISSIONER OF INTERNAL
REVENUE [JANUARY 21, 2010])
Q: What is the remedy of the taxpayer if it is

the duly authorized representative of the
CIR who denied the protest?
The taxpayer may elevate his protest to the CIR
within 30 days from date of receipt of the final
decision of the Commissioner's duly authorized
representative since the latters decision is not be
considered final, executory and demandable.

Note: This is not an the MR being contemplated in

FISHWEALTH CANNING CORPORATION VS. COMMISSIONER OF
INTERNAL REVENUE [JANUARY 21, 2010] which tolls the
running of the period to appeal to the CTA.
Q: Enumerate some acts of the CIR that may

be considered as denial of the taxpayers
protest?
1. An indication to the taxpayer by the CIR in
clear and unequivocal language of his final
denial not the issuance of the warrant of
distraint and levy. What is the subject of the
appeal is the final decision not the warrant of
distraint. (CIR v. Union Shopping [May 21,
1990])
2. Filing by the BIR of a civil suit for collection
of the deficiency tax is considered a denial
of the request for reconsideration (CIR v.
Union Shopping [May 21, 1990])
3. Filing of criminal action against the taxpayer
(Ibid)
4. A BIR demand letter sent to the taxpayer
after his protest of the assessment notice is
considered as the final decision of the CIR
on the protest (Surigao Electric v. CTA [57
SCRA 523])
5. A letter of the CIR 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 CTA (CIR v. Ayala Securities [70
SCRA 204])
6. Final notice before seizure considered as
CIRs decision of taxpayers request for
reconsideration who received no other
response. (CIR v. Isabela Cultural Corp
[July 11, 2001])
Q: The BIR issued a Formal Letter of

Demand which stated The opinions
promulgated by the Secretary of Justice are
advisory in natureand any aggrieved party
has the court for recourse. The taxpayer
did not protest the assessment and instead
filed a Petitioner for Review with the CTA. Is
the taxpayer correct?
Yes. Estoppel is an exception to the doctrine of
exhaustion of administrative remedies as when the
wording of the Formal Letter of Demand with
Assessment Notices led the taxpayer to believe that
it was in fact a final decision of the CIR. The
statement of the BIR led the taxpayer to believe that
Page 77 of 164

only a final judicial ruling in its favor would be

accepted by the CIR (ALLIED BANK V. CIR
[FEBRUARY 5, 2010].
--------------------------------------------------------------(b) In
case
of
inaction
by
--------------------------------------------------------------Q: What happens if the protest is not acted
upon within 180 days by the CIR?
1. File a petition for review with the CTA within
30 days after the expiration of the 180 day
period
2. Await the final decision of the CIR on the
disputed assessment and appeal such final
decision to the CTA within 30 days after
receipt of a copy of such decision (see CIR
V. FIRST EXPRESS PAWNSHOP COMPANY, INC
[JUNE 16, 2009]; RCBC V. CA [APRIL 24,
2007])
Q: If a taxpayer files out of time his petition

for review with the CTA, can he wait for the
final decision of the CIR and then appeal the
same to the CTA?
No. After availing of the first option (filing of the
petition for review) which was however filed out of
time, a taxpayer cannot successfully resort to the
second option (await final decision and appeal the
same to the CTA) on the pretext that there is yet no
final decision on the disputed assessment because
of the CIRs inaction. (see also LASCONA LAND V.
CIR [M ARCH 5, 2012])
LASCONA LAND CO. V. CIR, G.R. NO. 171251,

MARCH 5, 2012
DOCTRINE: Under Section 228, in case of the inaction of
the CIR on the protested assessment, the taxpayer
has two options, either: (1) file a petition for review
with the CTA within 30 days after the expiration of the
180-day period; or (2) await the final decision of the
Commissioner on the disputed assessment and
appeal such final decision to the CTA within 30 days
from the receipt of a copy of such decision.
FACTS: Taxpayer filed a letter protest against the
Assessment Notice issued alleging deficiency income tax
for the year 1993. The protest was denied by the Regional

Director of the BIR for the reason that the case was not
elevated to the Court of Tax Appeals as mandated by the
provisions of the last paragraph of Section 228 of the Tax
Code. By virtue thereof, the said assessment notice has
become final, executor and demandable.
HELD: The Supreme Court held that it is not correct to say
that the assessment became final and executory by the
sole reason that the taxpayer failed to appeal the inaction
of the Commissioner within 30 days after the 180-day
reglementary period because in effect, it limited the
remedy of the taxpayer under Section 228 of the NIRC to
just one, that is - to appeal the inaction of the
Commissioner on its protested assessment after the lapse
of the 180-day period.
--------------------------------------------------------------(a) Effect of failure to appeal

--------------------------------------------------------------Q: What is the effect of the failure of the
taxpayer to appeal the denial of the protest
by the CIR to the CTA in due time?
Failure of the taxpayers to appeal to the CTA in due
time make the assessments in question, final,
executory and demandable. (see DAYRIT V. CRUZ
23
[SEPTEMBER 26, 1988]).
Taxpayers failure to file a petition for review with the
CTA within the statutory period renders the disputed
assessment final, executory and demandable.
PHILIPPINE DREAM COMPANY, INC. VS. BUREAU OF
INTERNAL REVENUE, CTA CASE NO. 7700, DECEMBER
06, 2012
Q: Will the failure of the taxpayer to appeal

the inaction result in the finality of the FAN?
No. The failure of the taxpayer to appeal the inaction
on the disputed assessment by the CIR or his
representative within 30 days after the lapse of 30
days from the submission of supporting documents
will not result in the finality of the FAN (see RCBC V.
CA [APRIL 24, 2007])
Q: Is the requirement that the appeal of the

decision of the CIR to the CTA be brought
within 30 days jurisdictional?
23
The Court also stated that a suit for collection of internal

revenue taxes where the assessment has already become final
and executory is akin to an action to enforce judgment.
Page 78 of 164

In RCBC V. CIR [JUNE 16, 2006], the Supreme Court

held that while the right to appeal a decision of the
CIR to the CTA is merely a statutory remedy,
nevertheless the requirement that it must be brought
within 30 days is jurisdictional. If a statutory remedy
provides as a condition precedent that the action to
enforce it must be commenced within a prescribed
time, such requirement is jurisdictional and failure to
comply may be raised in a motion to dismiss.
Note: From here on, you will notice that I have already
deviated from the order in the bar syllabus. Ill integrate
the discussion of Collection and Government Remedies as
they are closely related. In fact, the government remedies
are meant to ensure collection, But before that, I want to
dispose of the topic of injunctions. This is just a review.
We already discussed this in General Principles.
b) Collection
(i) Requisites
(ii) Prescriptive periods
--------------------------------------------------------------Read Section 203, 222-223, Tax Code
Q: What are the requisites for the collection
of taxes?
We must make a distinction between delinquency
tax and deficiency tax.
1. Delinquency tax can be immediately
collected administratively through issuance
of a warrant of distraint or levy and/or
through judicial action (see Section 205,
Tax Code)
2. Deficiency tax can be collected also
through administrative and/or judicial
remedies but has to go through the process
of filing the protest by the taxpayer against
the assessment and the denial of such
protest by the CIR.
--------------------------------------------------------------(v) Non-availability of injunction to

restraint collection of tax
Q: Can an injunction be issued to restrain
the collection of any internal revenue tax,
fee or charge?
General Rule: No court can issued an injunction, as
provided under Section 218, Tax Code.
Exception: Section 11, RA 9282 provides that an
injunction may be issued by the CTA to restrain the
collection of taxes when in the opinion of the Court
the collection may jeopardize the interest of the
Government and/or the taxpayer, the Court at any
stage of the proceeding may suspend the said
collection and require the taxpayer either to deposit
the amount claimed or to file a surety bond for not
more than double the amount with the Court.
Note: (1) TROs and injunctions issued by courts other
than the CTA against the BIR should be annulled and
cancelled for lack of jurisdiction [see RMO 042-10 [MAY 4,
2010].)
(2) As held in ANGELES CITY V. ANGELES ELECTRIC
CORPORATION [JUNE 29, 2010], the prohibition on the
issuance of a writ of injunction to enjoin the collection of
taxes is applied only to national internal revenue taxes, not
to local taxes. However, the Supreme Court noted that
such injunctions enjoining the collection of local taxes are
frowned upon.
--------------------------------------------------------------PIERRE MARTIN DE LEON REYES

Q: When may collection of taxes be made?

It may be made within 5 years from assessment
Q: Summarize the prescriptive periods for
the collection of taxes.
Regular ITR
No ITR, False ITR,

Fraudulent ITR
Collection w/ prior assessment
Assess within 3 years Assess within 10 years
from actual filing or last from discovery of fraud,
day to file, whichever is falsity or omission
later
Collect within 5 years Collection within 5 years
from date of assessment from date of assessment
24
by summary or judicial
by summary or judicial
Collection w/o prior assessment
This cannot be done Collection
within
10
anymore because there years from date of
must be an assessment discovery of the falsity,
before collection in the fraud,
omission
by
24
The rule is to the effect that once there is already an

assessment, the period to collect is always 5 years even if the
return is fraudulent, false, or was not filed.
Page 79 of 164

case of a regular ITR
judicial
only.
proceedings
Note: Apparently, there is a conflict as to the proper

prescriptive period for collecting taxes when a return was
filed by the taxpayer and such return is not false or
fraudulent. Domondon says it is 3 years. Sababan,
Mamalateo, and Dimaampao says that it is 5 years. Gruba
and Montero adhere to this view. 5 years, it is then!
Majority wins.
Q: What are the alternatives of the CIR in

cases of a false, fraudulent return or the
failure to file a return in terms of collection?
As held in REPUBLIC V. RET [M ARCH 31, 1962],
CIR has two alternatives:
25
the
1. Assess the tax within 10 years from the

discovery of the falsity, fraud or failure and
then collect within 5 years by judicial or
summary proceedings
2. Do not assess and instead collect the tax
without assessment within 10 years from the
discovery of the falsity, fraud or failure by
judicial proceedings only.
Note: We already discussed this in assessment.
Q: A tax was assessed in September 27,

1999.
The CIR filed a suit to collect
deficiency taxes in December 27, 2009. The
CIR claims that there was a waiver of the 5year prescriptive period and presented a
waiver dated December 17, 2005. Is the
waiver valid?
No. As held in REPUBLIC V. ABECEDO [M ARCH 29,
1968], the waiver must be executed within the 5 year
period. A waiver executed beyond the five-year
limitation is in effective and, as such, the CIR can no
longer revive the right of action.
Q: What is effect of the failure of the waiver

to bear the written consent of the CIR?
In CIR V. CA [FEBRUARY 25, 1999], the Supreme
Court reiterated that waiver of the five-year
prescriptive period must be in writing and signed by
both the BIR Commissioner and the taxpayer.
Hence, a waiver which does not have the consent of
the CIR is invalid and without any binding effect.
Thus, when there is an assessment, the 10 year

period to collect from discovery of falsity, fraud, and
failure is not applicable.
Q: How should the waiver be construed

when the specified period in the waiver
refers to both assessment and collection?
Q: The CIR maintains that the prescription

of his right to collect the amount of
deficiency taxes is governed by Article 1145
of the Civil Code, which gives him 6 years.
Is the CIR correct?
If the waiver refers to both assessment and

collection and interpreting such will in effect shorten
the collection period, then such waiver is deemed to
refer to assessment only and not collection (see
REPUBLIC V. LIM DE YU APRIL 30, 1964])
No. As held in GUAGUA ELECTRIC LIGHT COMPANY V.

CIR [APRIL 24, 1967], the right to assess and collect
is governed by the Tax Code and not by Article 1145
of the Civil Code. A special law (Tax Code) shall
prevail over a general law (Civil Code).
Q: Can a letter of demand be deemed an

assessment such that the 5-year period
for collection shall commence from the
time such letter was sent?
Q: Can the prescriptive period to collect be

waived?
Yes. In REPUBLIC V. LIMACO & DE GUZMAN [AUGUST

31, 1962], the Supreme Court held that a letter of
demand should be deemed an assessment if it
declares and fizes th tax to be payable against the
party liable thereto and demands the settlement
thereof. Hence, the 5-year period for collection of the
tax due should commence anew from time said letter
of demand was sent to the taxpayer.
Yes, provided the requirements of a valid waiver as

provided for in RMO No. 20-90 are present.
25
In the said case, the Supreme Court noted that Section 332 (no
w Section 222) does not apply in the collection of income taxes by
summary proceedings. But when the collection of income taxes is
to be effected by court action, the provision is controlling.

Page 80 of 164

Q: What is the effect of pendency of

appeal on the running of the prescriptive
period?
Under SECTION 223 OF THE TAX CODE, the running of
the prescriptive period to collect deficiency taxes
shall be suspended for the period during which the
CIR is prohibited from beginning a distraint or levy or
instituting a proceeding in court and for 60 days
thereafter.
In REPUBLIC V. KER & CO. [SEPTEMBER 29, 1966], the
Supreme Court held that the pendency of a
taxpayers appeal has the effect of temporarily
staying the hands of the CIR. The running of the
prescriptive period is suspended.
In PROTECTORS SERVICES V. CA [APRIL 12, 2000],
the Supreme Court held that the act of a taxpayer in
filing a petition before the CTA to prevent the
collection of the assessed deficiency tax and in
elevating the case to the Supreme Court for review
after the CTA dismissed the petition suspended the
running of the statute of limitations.
Q: An informer filed a case with the CTA

against the taxpayer and BIR. The informer
was seeking to (1) declare the taxpayer as
having an assessment; and (2) as a
consequence, to collect his informers
reward. This case was filed by the informer
within 3 years from the time that the
taxpayer filed his return. However, apart
from this action initiated by the informer, no
other action was filed by the government
seeking to collect against the taxpayer. Has
the right to collect already prescribed?
No. In PNOC V. CA [APRIL 26, 2005], the Supreme
Court held that the BIR is deemed to be compliant
with the requirement that collection be made within
the 5 years from time of assessment since if the
informant won, the CTA would have ordered the
erring parties to pay the tax. At the very least, the
filing by the informer of the case would have
suspended the running of the period because the
BIR is prohibited from making collection because
there was a pending case.
Q: Is the government barred by

prescription from claiming deficiency
taxes against an estate?
No. In VERA V. FERNANDEZ [M ARCH 30, 1979], the

Supreme Court held that claims for taxes are
collectible even after distribution of decedents
estate among his heirs who are liable in proportion
of their share in the inheritance to the payment of
taxes. Claims for taxes against the estate are
excepted from the statute of non-claims and are not
barred forever.
--------------------------------------------------------------2. Government Remedies

a) Administrative Remedies
(i) Tax lien
(ii) Compromise and Abatement
(a) Authority of the Commissioner
to compromise and abate taxes
(b) Compromise
(c) Abatement
(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 BIR
(3) Constructive
distraint
to
protect the interest of the
government
(iv) Summary remedy of levy on real
property
(1) Advertisement and sale
(2) Redemption of property sold
(3) 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
(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) Suspension of business operation
(viii) Statutory offenses and penalties
Page 81 of 164

b) Judicial Remedies
(i) Civil and criminal actions
(a) Suit to recover tax based on
false and fraudulent returns
Q: What are the remedies of the government
for the collection of taxes?
1. Administrative Remedies
a. Tax lien
b. Distraint of personal property, or levy of real
property or garnishment of bank deposits
c. Sale of property
d. Forfeiture
e. Compromise and abatement
f. Penalties and fines;
g. Suspension of business operations
2. Judicial Remedies
a. Civil action
b. Criminal action
--------------------------------------------------------------(i) Tax lien

Q: What is a tax lien?
It is a legal claim or charge on property, real or
personal, established by law as security in default of
the payment of tax (HSBC v. Rafferty [39 Phil.
105])
Q: The CIR served a warrant of distraint over

four barges owned by ABC Company to
satisfy various deficiency taxes. Later, the
same four barges were levied upon
execution to satisfy a judgment for unpaid
wages and other benefits of the employees
of ABC Company. Which claim is superior?
The claim of the government is superior. As held in
CIR v. NLRC [November 9, 1994] reiterating the
doctrine laid down in REPUBLIC V. ENRIQUEZ
[OCTOBER 21, 1988], the claim of the government
predicated on a tax lien is superior to the claim of a

private litigant predicted 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 had become due and payable. In both cases, the
distraint was made long before the writ of execution
was issued to implement the levy on execution.
--------------------------------------------------------------(ii) Compromise and Abatement

(a) Authority of the Commissioner
to compromise and abate taxes
(b) Compromise
(c) Abatement
--------------------------------------------------------------(b) Compromise
--------------------------------------------------------------Q: What is a compromise?
A compromise is an agreement whereby the parties,
by making reciprocal concessions, avoid litigation or
put an end to one already commenced (see ART.
2208, CIVIL CODE)
Q: Who may compromise tax liability?

The CIR is the only official vested with the power
and discretion to compromise civil and criminal
cases arising from violations of the Tax Code. He
cannot be compelled to exercise such discretion.
However, the Regional Evaluation Board may enter
into a compromise on:
a. Assessment issued by the Regional Officers
involving basic deficiency taxes of P500,000
or less; and
b. Minor criminal violations, discovered by
regional and district (See Section 7(c), Tax
Code)
Q: Can a compromise be made after final

judgment?
No. In Rovero v. Amparo [May 5, 1952], the
Supreme Court stressed that a compromise is
resorted to, to avoid litigation or to end a suit already
instituted. There can no longer be a compromise at
Page 82 of 164

a stage of judicial proceedings where a final

judgment has already been rendered because there
is nothing to compromise as the Government has
definitely and finally won the litigation.
Q: What are the grounds for the compromise

of payment of internal revenue taxes?
1. Doubtful validity of the assessment
2. Financial incapacity
Note: Refer to RR 30-2002 [December 16, 2002] for the
instances where the tax can be compromised under these
two grounds.
be handled by the
Regional Evaluation
Board or the National
Evaluation Board on a
case-to-case basis
5. Cases which become
final and executory
after final judgment of
a
court
where
compromise
is
requested on the
ground of financial
incapacity
of
the
taxpayer
(See Section 2, RR No. 30-2002)
Q: What tax cases may or may not be the

subject of a compromise?
Subject to compromise
1. Delinquent accounts
2. Cases
under
administrative protest
after issuance of the
FAN to the taxpayer
which
are
still
pending in the RO,
RDO, Legal Service,
Large
Taxpayer
Service,
Collection
Service, Enforcement
Service and other
officers
of
the
National Office
3. Civil tax cases being
disputed before the
courts
4. Collection cases filed
in courts
5. Criminal
violations
other
than
those
already filed in court
or those involving
criminal tax fraud
Not
subject
compromise
to
1. Withholding tax cases

unless the applicanttaxpayer
invokes
provisions of law that
cast doubt on the
taxpayers obligation
to withhold
2. Criminal tax fraud
cases confirmed as
such by the CIR or his
duly-authorized
representative
3. Delinquent accounts
with duly approved
schedule
of
installment payments
4. Cases where the final
reports
of
reinvestigation
or
reconsideration have
been issued resulting
to reduction in the
original assessment
and the taxpayer is
agreeable to such
decision by signing
the
required
agreement form for
the purpose. On the
other hand, other
protested cases shall

Q: What are the minimum amounts for

compromise settlements?
1. For cases of financial incapacity, the
minimum compromise rate is 10% of the
basis assessed tax.
2. For other cases (including doubtful validity),
the minimum compromise rate is 40% of the
basic assessed tax.
Q: Can the compromise offer of a taxpayer

be lower than the prescribed rates?
Yes, but the approval by the Evaluation Board which
is composed of the CIR and the 4 Deputy
Commissioners is required.
Note: The Evaluation Board must also approve the
compromise if the basic tax involved exceeds P1 million.
Q: Can a void assessment serve as basis for

a compromise?
No. As held in CIR V. REYES [JANUARY 27, 2006], the
Supreme Court reiterated that an assessment that
fails to inform the taxpayer of the law and the facts
on which it is made is void. As a corollary, a void
assessment cannot in turn be used as basis for
perfection of a tax compromise.
Q: Can criminal violations of the Tax Code

be compromised?
Yes, except:
a. those already filed in court and
b. those involving fraud.
Page 83 of 164

--------------------------------------------------------------(a) Abatement
--------------------------------------------------------------Q: What is abatement?
An abatement is a diminution or decrease in the
amount of tax imposed such that to abate is to nullify
or reduce in value or amount.
Q: How is it different from a compromise?

A compromise is marked by mutual concessions,
whereas in abatement or cancellation, no mutual
concessions between the taxpayer and the CIR are
made (see PEOPLE V. SANDIGANBAYAN [AUGUST 16,
2005].
(a) Remedy
of
enforcement
of
forfeitures
(2) Action to contest forfeiture of
chattel
(b) Resale of real estate taken for
taxes
(c) When property to be sold or
destroyed
(d) Disposition of funds recovered in
legal proceedings or obtained
from forfeiture
(xi) Further distraint or levy
--------------------------------------------------------------Q: What are the requisites for a valid
distraint and levy?
1. The taxpayer must be delinquent
2. There must be a subsequent demand
for its payment
3. The taxpayer must fail to pay the
delinquent tax at the time required
4. The period within which to collect the tax
has not yet prescribed
Q: What are the grounds for abatement?

1. If the assessment is excessive or erroneous
2. If the administration costs involved do not
justify the collection of the amount due
Note: Refer to RR 13-2001 [September 27, 2001] for the
instances where the tax can be compromised under these
two grounds. Note that RR 13-2001 was amended by RR
4-2012 [March 28, 2012]. Previously, one of the instances
is when there is late payment of the tax under meritorious
circumstances. One day late filing and remittance due to
failure to beat bank cut-off time fall under this instance in
RR 13-2001. RR 4-2012 deleted the same.
--------------------------------------------------------------(iii) Distraint of personal property

including garnishment
(b)Summary remedy of distraint of
personal property
(1) Purchase by the government at
sale upon distraint
(2) Report of sale to the BIR
(3) Constructive
distraint
to
protect the interest of the
government
(ix) Summary remedy of levy on real
property
(1) Advertisement and sale
(2) Redemption of property sold
(3) Final deed of purchaser
(x) Forfeiture to government for want
of bidder


Q: In what instances can the CIR place
under constructive distraint26 the property of
a taxpayer?
1. Delinquent taxpayer
2. Taxpayer is retiring from any business
subject to tax
3. Taxpayer is intending to leave the
Philippines
4. Taxpayer is intending to remove his property
therefrom
5. Taxpayer is intending to hide or conceal his
property
6. Taxpayer is intending to perform any act
tending to obstruct the proceedings for
collecting the tax due or which may be due
from him
26
In a constructive distraint, the taxpayer or any person having

possession or control of the property will sign a receipt covering
the property distrained and obligate himself to preserve the same
intact and unaltered and not to dispute the same without authority
from the CIR.
Page 84 of 164

Note: The next steps will depend if the Bid is less than
amount of tax/ FMV of goods distrained.
Read 207 to 217, Tax Code

Note: After reading the codal (that is, if you read it), I am
sure youre thinking: WTF is this shit? Do not worry. Let us
simplify the discussion of Distraint and Levy. First, let us
go through some definitions. Distraint is the seizure by
the government of personal property, tangible, or
intangible, to enforce the payment of taxes, to be followed
by its public sale, if the taxes are not voluntary paid.
Garnishment is the taking of personal properties usually
cash or sums of money owned by the delinquent taxpayer
which is in the possession of a third party. A levy refers to
the seizure of real properties and interest in or rights to
such properties for the satisfaction of taxes due from the
delinquent taxpayer. Magagamit niyo yang definitions na
yan later sa local taxes and sa RPT (Oo, may distraint and
levy rin dun). Now, lets discuss the whole procedure from
Section 207 to Section 217 of the Tax Code.
Q: Outline the procedure for distraint of

personal property
Note: Take note of the following - RCO - Revenue
Collection Officer, RDO - Revenue District officer, RRD Revenue Regional Director, and LGU- Local Government
Unit
1.
Person owing any delinquent tax to fails to pay

w/in the time required
Note: The authority who will do the distraint of personal

property will depend on whether the delinquent tax is more
than Php 1 million.
More than
million
Php
Php 1 million or less
2.
Commissioner
seizes
sufficient
personal property to
satisfy
the
tax,
charge & expenses
of seizure (Section
207 (A), Tax Code)
3.
Distraining Officer accounts for the goods

distrained (Section 208, Tax Code)
RDO posts notice in at least 2 public places in
the municipality/city where the distraint is made.
One place of posting must be at the mayors
office. Time of sale shall not be less than 20
days after the notice (Section 209, Tax Code)
Goods shall be restored to owner, if charges
are paid (Section 210, Tax Code)
Officer conducts public auction
4.
5.
6.
2.
RDO
seizes
sufficient personal
property to satisfy
the tax, charges &
expenses of seizure
(Sec. 207 (A), Tax
Code)

Bid less than amount

of tax/FMV of goods
distrained
Bid equal or more than

amount of tax/FMV of
goods distrained
7. Commissioner may
purchase property for
the
National
Government (Section
212, Tax Code)
8. Property may be
resold and the net
proceeds shall be
remitted
to
the
National Treasury as
internal
revenue.
(Section 212, Tax
Code)
7. Officer sells the

goods to the highest
bidder for cash or
with
the
Commissioners
approval,
through
commodity/
stock
exchanges. (Section
209, Tax Code)
8. Excess of proceeds
over
the
entire
claim,
shall
be
returned
to
the
owner. No charge
shall be imposed for
the services of the
officer (Section 209,
Tax Code)
9. Within 2 days after
the sale, officer shall
report
to
the
Commissioner.
(Section 211, Tax
Code)
sale,
distraining
officer shall enter
return
of
proceedings in the
records of RCO,
RDO
and
RRD
(Section 213, Tax
Code)
Note: If the personal property of the taxpayer is

sufficient to satisfy his tax delinquency, the CIR or
authorized representative shall, within 30 days after
execution of the distraint, proceed with the levy
taxpayers real property. (Section 209(B), Tax Code)
not
his
the
on
Page 85 of 164

Q: Outline the procedure for levy on real

property.
1. Real property may be levied on before,
simultaneously, or after the distraint of personal
property (Section 207 (B), Tax Code)
2. Internal revenue officer, designated by the
Commissioner, shall prepare a certificate with the
force of a nationwide legal execution (Section
207 B, Tax Code)
3. Levy shall be affected by writing upon said
certificate a description of the property. Notice of
the levy shall be served upon the Register of
Deeds of LGU where the property is located and
upon the owner (Section 207 B, Tax Code)
4. Within 10 days after receipt of the warrant,
levying officer shall report to the Commissioner
who shall have the authority to lift the warrant of
levy (Section 207 B, Tax Code)
5. Within 20 days after levy, officer shall post notice
at the main entrance of the municipal/city hall &
in public place in the barrio/district where the real
estate lies for at least 30 days by and publish it
once a week for 3 weeks. Owner may prevent
sale by paying all charges (Section 213, Tax
Code)
6. Sale shall be held at the main entrance of the
municipal/city hall, or on the premises of the
levied property. (Section 213, Tax Code)
Note: The next steps will depend if there is a bidder or not
OR the highest bid is sufficient or not.
No bidder or highest There is a bidder or

bid insufficient
highest bid sufficient
7. Officer conducting the
sale shall forfeit the
property
to
the
Government (Section
215, Tax Code)
8. Within 2 days, he
shall make a return of
the
forfeiture.
Register of Deeds,
upon registration of
forfeiture
shall
transfer title to the
Government without
court order. (Section
215, Tax Code)
9. Within 1 year from
forfeiture,
the
taxpayer,
may
of the sale over
claim and cost of
sale shall be turned
over to the owner
(Section 213, Tax
Code)
the sale, levying
officer shall enter
return
of
the
proceedings
upon
the records of the
RCO, RDO and
RRD (Section 213,
Tax Code)
redeem said property

by paying full amount
of the taxes and
charges (Section 215,
Tax Code)
10. The
Commissioner
may, after 20 days
notice, sell property
at public auction or at
private
sale
with
approval
of
the
Secretary of Finance.
Proceeds shall be
deposited with the
National
Treasury
(Section 216, Tax
Code)
the foreclosed asset of

natural persons and the
period within which to pay
CGT or CWT and DST on
the foreclosure of Real
Estate Mortgage shall be
reckoned from the date of
registration of the sale in
the Office of the Register of
Deeds
For juridical persons in an
extrajudicial
foreclosure,
Section 47 of the General
Banking Law provides that
its right of redemption shall
be until, but not after the
registration of the certificate
of sale with the Register of
Deeds, which in no case
shall be more than 3
months after foreclosure,
whichever is earlier. (RMC
No. 55-2011 [November
10, 2011])
The right of redemption
shall be reckoned from the
approval of the executive
judge [CIR v. UPCB
[October 23, 2009])

sale, the owner may
redeem, by paying
to the RDO the
amount of the taxes,
penalties,
and
interest
thereon
from the date of
delinquency to the
date of sale, and
15% per annum
interest on purchase
price from the date
of purchase to the
date of redemption.
(Section 214, Tax
Code)
10. Owner shall not be
deprived
of
the
possession
and
shall be entitled to
the fruits until 1 year
expires
(Section
214, Tax Code)
Note: The 1-year period on

Page 86 of 164

Note: Levy and distraint may be repeated until the full
amount due, and all expenses are collected. (Section 217,
Tax Code)
--------------------------------------------------------------(xii) Suspension of business operation

Q: When may the CIR suspend the business
operation of a VAT-registered person?
The CIR or his authorized representative may
suspend the business operation and temporarily
close the business of a VAT-registered person for
understatement of taxable sales or receipts by 30%
or more of his correct taxable sales or receipts for
the taxable quarter
Note: The duration of the suspension of business
operation is for a period of not less than 5 days and shall
be lifted only upon compliance of whatever requirements
imposed by the CIR in the collection order.
--------------------------------------------------------------(iv)
Statutory offenses and penalties
--------------------------------------------------------------Note: I already discussed civil penalties or surcharges and
interests in Assessment. As to statutory offenses, I will
include them in the discussion of criminal action.
--------------------------------------------------------------b) Judicial Remedies

(i) Civil and criminal actions
(b) Suit to recover tax based on
false and fraudulent returns
--------------------------------------------------------------Read Section 220-221, Tax Code
Civil Actions
Q: What are the two ways by which the civil
tax liability of a taxpayer is enforced by the
government through civil actions?
1. By filing a civil case for the collection of
a sum of money with the proper regular
court

2. By filing an answer to the petition for

review filed by the taxpayer with the
CTA
Q: Which court has exclusive original
jurisdiction in tax collection cases involving
final and executory assessments for taxes,
fees, charges and penalties?
1. The CTA if the principal amount of taxes and
fees, exclusive of charge and penalties is
Php 1 million and above.
2. The proper MTC or RTC if the principal
amount of taxes and fees, exclusive of
charge and penalties, is less than Php 1
million.
Q: Assuming that the principal amount of

taxes and fees is less than Php 1 million,
can the lower court acquire jurisdiction over
a a tax collection case while there is a
pending case in the CTA disputing the
assessment?
No. As held in YABES V. FLOJO [JULY 20, 1982], the
Supreme Court held that the lower court can acquire
jurisdiction over a claim for collection of deficiency
taxes only after the assessment made by the CIR
has become final and unappealable, not where there
is still a pending CTA case.
Q: When an assessment has become final

for failure to protest, can the taxpayer still
raise the issue of prescription?
Yes. As held in CIR V. HAMBRECHT & QUIST
PHILIPPINES [NOVEMBER 17, 2010], the Supreme
Court held that the fact that an assessment has
become final for failure of the taxpayer to file a
protest within the time allowed only means that the
validity or the correctness of the assessment may no
longer be questioned on appeal. However, the
validity of the assessment itself is a separate and
distinct issue from the issue of whether the right of
the CIR to collect the validly assessed tax has
prescribed.
Q: Is a decision on a request for

reinvestigation a condition precedent to the
filing of an action of taxes already
assessed?
Page 87 of 164

No. In REPUBLIC V. LIM TIAN TENG SONGS & CO

[M ARCH 31, 1966], the Supreme Court ruled that a
decision on a request for reinvestigation is not a
condition precedent to the filing of an action of taxes
already assessed. Nowhere in the Tax Code is the
CIR required to rule first on a taxpayers request for
reconsideration before he can go to court for the
purpose of collecting the tax assessed.
Q: Define willful in the context of the third

element of a violation of the Tax Code for
failure to make or file the return?
crimes
In PEOPLE V. KINTANAR [CTA CRIM. CASE NO. 006,

DECEMBER 3, 2010, affirmed by the Supreme Court
in a minute resolution [G.R. 196340] dated
February 2012], the Supreme Court defined willful
in this light: willful in the tax crimes statutes means
voluntary, intentional violation of a known legal duty,
and bad faith or bad purpose need not be shown.
Further, the Supreme Court stated that an act or
omission is "willfully" done if done voluntarily and
intentionally and with specific intent to do something
the law forbids, or with specific intent to fail to do
something the law requires to be done; that is, with
bad purpose to either disobey or disregard the law.
A willful act may be described as one done
intentionally, knowingly and purposely, without
justifiable excuse.
1. Attempt to evade or defeat tax (Section

254)
2. Failure to File return, supply correct and
accurate information, pay tax, withhold
and remit tax, and refund excess taxes
withheld on consumption (Section 255)
As held in PEOPLE OF THE PHILIPPINES VS. JUDY ANNE

SANTOS Y LUMAGUI [CTA CRIM. CASE NO. O-012,
JANUARY 16, 2012], the element of wilful failure to
supply correct and accurate information must be fully
established as a positive act or stale of mind. It
cannot be presumed nor attributed to mere
inadvertent or negligent acts. Negligence, whether
slight or gross, is not equivalent to the fraud with
intent to evade the tax contemplated by the law.
Fraud must amount to intentional wrongdoing with
the sole object of avoiding the tax.
The requirement to rule on disputed assessments

before bringing action for collection is applicable
only on where the assessment was actually
disputed, adducing reasons in support thereto. In
this case, the taxpayer did not actually contest the
assessment by stating the basis thereof. (see
DAYRIT V. CRUZ [SEPTEMBER 26, 1988])
Criminal Actions
Q: Name the most common
punishable under the Tax Code?
Read Section 254-255, Tax Code
Note: As to other statutory offenses, refer to Sections 253

to 282.
Q: What are the elements of a violation of

Section 255 of the Tax Code for failure to
make or file a return?
1. The accused is a person required to make
or file a return
2. The accused failed to make or file the return
at the time required by law
3. The failure to make or file the return was
willful
(see PEOPLE V. KINTANAR [CTA CRIM. CASE NO. 006,
DECEMBER 3, 2010]; PEOPLE OF THE PHILIPPINES VS. JUDY
ANNE SANTOS Y LUMAGUI [CTA CRIM. CASE NO. O-012,
JANUARY 16, 2012])

Q: What are the elements of a violation of

Section 255 in relation to Sections 253(d)
and 256 of the Tax Code for failure of a
corporation to make or file a return (holding
the corporate officers criminally liable)?
1. The corporate taxpayer is required to pay
tax and it failed to pay such tax at the time
required by law;
2. The accused is the president, general
manager, branch manager, treasurer,
officer-in-charge, or employee responsible
for the violation of the corporate taxpayer;
and
3. The accused willfully fails to pay the
corporate taxes. (PEOPLE OF THE PHILIPPINES
VS.JOSEPH TYPINGCO [CTA CRIM. CASE NO.
0-114, M AY 16, 2012]
Page 88 of 164

Q: Which court has exclusive original

jurisdiction in criminal tax cases?
1. The CTA if the principal amount of taxes and
fees, exclusive of charge and penalties is
Php 1 million and above.
2. The proper MTC or RTC if the principal
amount of taxes and fees, exclusive of
charge and penalties, is less than Php 1
million.
Q: Does the acquittal of the taxpayer from

the criminal action affect his liability to pay
the tax?
No. In REPUBLIC V. PATANAO [JULY 21, 1967], the
Supreme Court held that since the taxpayers civil
liability is not included in the criminal action, his
acquittal in the criminal proceeding does not
necessarily entail exoneration from his liability to pay
taxes. His legal duty to pay taxes cannot be affected
by his attempt to evade taxes. Said obligation is not
a consequence of the criminal act charged nor is it a
mere civil liability arising from a crime that could be
wiped out by judicial declaration of non-existence of
the criminal acts charged.
assessment is not necessary before a criminal

charge can be filed and such criminal charge need
only be supported by a prima facie showing of failure
27
to file a required return.
This was likewise reiterated in Adamson v. CA
[May 21, 2009] where the Court held that there is no
need for precise computation and formal
assessment in order for criminal complaints can be
filed against the taxpayer. An assessment is not
necessary for a criminal prosecution for willful
attempt to defeat and evade the income tax.
Note: However, for criminal prosecution to proceed before
assessment, there must be a prima facie showing of a
willfull attempt to evade taxes (CIR v. Fortune Tobacco
[June 4, 1996])
Q: Is the filing of the criminal action an

implied assessment?
Q: Should the filing of a criminal complaint

be preceded by assessment?
No. The filing of a criminal action is not an implied

assessment. An assessment contains not only a
computation of tax liabilities but also a demand for
payment within the prescribed period. An affidavit,
which was executed by revenue officers stating the
tax liabilities of a taxpayer and attached to the
criminal complaint for tax evasion cannot be deemed
an assessment that can be questioned before the
CTA (CIR v. Pascor Realty [June 29, 1999])
No. In case of a false or fraudulent return,

proceedings in court may be commenced without an
assessment since under the Tax Code, civil and
criminal aspects may be pursued
Q: What is the effect of satisfaction of the

civil liability to the criminal liability in tax
cases?
In UNGAB V. CUSI [M AY 30, 1980]the Supreme Court

held that while there can be no civil action to enforce
collection before the assessment procedures
provided in the Tax 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 Tax Code.
The subsequent satisfaction of civil liability by

payment or prescription does not extinguish the
taxpayers criminal liability.
This was clarified further in CIR V. PASCOR REALTY

AND DEVELOPMENT CORP. [JUNE 29, 1999], the
taxpayer argued that a tax assessment should
precede a criminal indictment. The Supreme Court
disagreed. The Court noted that Section 222 of the
Tax Code specifically states that in cases where a
false or fraudulent return is submitted or in cases of
failure to file return, proceedings in court may be
commenced without an assessment. Further,
Section 205 provides that the civil and criminal
aspects may be pursued simultaneously. An
Q: Can subsidiary imprisonment be

imposed on the tax which the taxpayer is
sentences to pay?
It depends. Subsidiary imprisonment cannot be
imposed in case of insolvency on the part of the
taxpayer but it may be imposed in the case of failure
to pay the fine imposed (see Section 280, Tax
Code)
27
The Court also stressed that a criminal complaint is instituted

not to demand payment, but to penalize the taxpayer for violation
of the Tax Code.
Page 89 of 164

already pending or previously
investigated

Q: What is the prescriptive period for
violations of the Tax Code?
All violations of any provision of the Tax Code shall
prescribe after 5 years.
Q: When does the prescriptive period

begin?
Prescription shall begin to run from:
1. The day of the commission of the violation
2. If the same is not known, from the discovery
and the institution of judicial proceedings for
its investigation and punishment.
Note: In LIM, SR. V. CA [OCTOBER 18, 1990], the Supreme
Court adopted the view of the Solicitor General to the
effect that, in addition to the fact of discovery, there must
be a judicial proceeding for the investigation and
punishment of the tax offense before the five-year limiting
period begins. Also,
Q: In what instances is the prescriptive

period interrupted?
1. When proceedings are instituted against
guilty persons (and shall run again if
proceedings are dismissed for reasons
constituting jeopardy)
2. When the offender is absent from
Philippines
the
the
not
the

Q: What is the reward given to persons
instrumental to the discovery of violations
of the Tax Code?
A sum equivalent to 10% of the revenues,
surcharges, or fees recovered and/or fine or penalty
imposed and collected or P1 million, whichever is
lower.
The
offender
offered
to
compromise
No revenue, surcharges or fees
were actually recovered
The information refers to case
Entitlement
to
Informers Reward
Yes
No
No

Q: Who are disqualified from availing of the

informers reward?
1. A BIR official or employee or any other
incumbent public official or employee;
2. Relative within the sixth (6th) civil degree of
consanguinity of a BIR official or employee,
or other public official or employee; and
3. Though already retired or otherwise
separated from service, BIR officials or
employees or other public officials who
acquired the information in the course of the
performance of their duties during their
incumbency. (see RR 16-2010 [NOVEMBER
25, 2010])
Note: Now, lets discuss another remedy of the taxpayer
Refunds.
--------------------------------------------------------------b) Refund
(i) Grounds and Requisites for refund
(ii) Requirements for refund as laid down
by cases
(a) Necessity of written claim for
refund
(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
(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) Nature of erroneously paid
tax/illegally assessed collected
(d) Tax refund vis--vis Tax Credit
(e) Essential requisites for claim of
refund
(v) Who may claim/apply for tax
refund/tax credit
(a) Taxpayer/withholding agents of
non-resident foreign corporations
Page 90 of 164

(vi) Prescriptive period for recovery of tax

erroneously or illegally collected
(vii) Other consideration affecting tax
refunds
Note: Before we even begin, note that the rules in Section
229 both statutory and jurisprudential does NOT apply to
the refund or tax credit of excess and unutilized input tax
(VAT). Section 229 applies to the recovery of erroneously
or illegally collected internal revenue taxes. On the other
hand, the refund or tax credit of excess and unutilized
input tax is governed by Section 112(C). So kung sinabi
recovery of input tax (sa VAT), apply Section 112(C).
Kung recovery of erroneous or illegally internal revenue
tax (mostly in income taxes), apply Section
229.Remember that. Keep this mind in our discussion of
Refund here. Ill first discuss Refund in Section 229 by
following the order in the syllabus and then later we will
discuss the procedure for claim of refund in Section 229
and Ill compare it with Section 112(C). Hanggang ngayon
kung titingnan niyo ang mga kaso involving refunds,
marami pa rin nagkakamali diyan. Who is to blame? Well,
ang kaso ng Aichi na we discussed under VAT.
Malalaman natin mamaya bakit.
--------------------------------------------------------------(i) Grounds and Requisites for refund

--------------------------------------------------------------Q: What are the grounds for refund or credit
of internal revenue taxes?
1. The tax was illegally collected There is no law
that authorizes the collection of the tax)
2. The tax was excessively collected There is a
law that authorizes the collection but the tax
collected was more than what the law allows
3. The tax was paid through a mistaken belief that
the taxpayer should pay the tax This is a case
of solutio indebiti
--------------------------------------------------------------(ii) Requirements for refund as laid down

by cases
(a) Necessity of written claim for
refund
(b) Claim containing a categorical
demand for reimbursement
(c) Filing of administrative claim for


--------------------------------------------------------------Q: What are the requirements for a claim of
a tax refund or a tax credit?
1. There is a tax collected erroneously or illegally,
or a penalty collected without authority, or a sum
excessively or wrongfully collected (see Section
229, Tax Code)
2. There must be a written claim for refund filed by
the taxpayer to the CIR (see Vda. De Aguinaldo
v. CIR [February 26, 1965])
Exceptions (no written claim required)
a. When on the face of the return upon which
payment was made, such payment appears
clearly to have been erroneously paid, the
CIR may refund or credit the tax even
without a written claim (Section 229, Tax
Code)
b. A return filed showing an overpayment shall
be considered as a written claim for credit or
refund. (Sec. 204(C), Tax Code)
3. The claim must be a categorical demand for
reimbursement (see Bernejo v. CIR [July 25,
1950])
4. The claim for refund must be filed within 2 years
from the date of the payment of the tax
regardless of any supervening cause (Section
229, Tax Code)
5. The taxpayer must show proof of payment of the
tax (See CIR v. Li Yao [December 27, 1963])
Note: Payment under protest is not required in order to
obtain a refund of erroneously or illegally collected internal
revenue taxes. (Section 229, Tax Code)
As to (3): The idea is 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 notice should then be borne in mind in
estimating the revenue available for expenditure (see
Bermejo v. CIR [July 25, 1950])
As to (5), before recovery is allowed, it must be
established that there was actual collection and receipt by
the government of the tax sought to be recovered and this
Page 91 of 164

required factual proof (CIR v. Li Yao [December 27,
1963])
See
PHILAM
Properties
Corporation
vs.
Commissioner of Internal Revenue [CTA Case No.
7912, January 12, 2012] where the CTA held that failure
to prove that the income, related to the excess creditable
withholding being claimed as refund, was reported in the
income tax return would result in the denial of the claim.
(4) For actions for refund of corporate income tax, the twoyear prescriptive period is counted from the time of actual
filing of the Final Adjustment Return or Annual Income Tax
Return not on the date when the taxes were paid on
quarterly basis. (see CIR V. CA [JANUARY 21, 1999]). It is at
this point that it can already be determined whether there
has been an overpayment of the taxpayer. (see CIR V.
PHILAMLIFE [MAY 29, 1995]).
SEE ALSO PHILIPPINE BANK OF COMMUNICATIONS VS.

JANUARY 20, 2012]; PHILAM INSURANCE AGENCY AND CALL
CENTER SERVICES, INC. VS. COMMISSIONER OF INTERNAL
REVENUE [CTA EB NO. 792, JANUARY 20, 2012]; HAVI FOOD
SERVICES PHILS., INC. VS. CIR, CTA EB NO. 800 (CTA CASE
NO. 7735), JUNE 28, 2012
See PRHC Property Managers. Inc. vs. Commissioner

of Internal Revenue [CTA Case No. 8071, January 6,
2012] where the CTA held that the reckoning of the 2-year
prescriptive period for the filing of a claim for refund of
excess creditable withholding tax or quarterly income tax
starts from the date of filing of the annual income tax
return
In a claim for refund of excess income tax, failure to

present the original annual income tax return is fatal to the
claim. Maunsell Philippines, Inc. vs. CIR, C.T.A. EB No.
860, October 23, 2012
See also MCKINSEY & CO., (PHILS.) VS. COMMISSIONER

INTERNAL REVENUE, CTA CASE NO. 8078, JULY 30, 2012
--------------------------------------------------------------(c) Filing of administrative claim for

--------------------------------------------------------------Q: What is the prescriptive period for
recovery of erroneously or illegally collected
internal revenue taxes?
The claim for refund must be filed within 2 years
from the date of payment of the tax regardless of
any supervening cause (Section 229, Tax Code)
Note: (1) Note Section 56 of the Tax Code which provides
that payment is made at the time the return is filed. But
when the final adjusted return was filed earlier than the
time the return could still be filed, the 2-year period is
counted from the date the return was filed (CIR v. CA
[January 21, 1999])
(2) In case of payments through the withholding tax
system, the tax liability is deemed paid when he same falls
due at the end of the tax year (Gibbs v. CIR [November
29, 1965])
(3) If the tax is paid in installments, the two year
prescriptive period is counted from the time of the
payment of the last installment. As held in CIR v. PALANCA
[OCTOBER 29, 1966], where the tax account was paid by
installment, then the computation of the 2 year prescriptive
period should be from the date of last installment.

OF
The period to file a claim for refund of excess creditable

withholding taxes by a tax-exempt entity is not reckoned
from the filing of the final adjustment return, but from the
time the taxes were erroneously withheld LISP-1
LOCATORS ASSOCIATION INCORPORATED VS. COMMISSIONER
OF INTERNAL REVENUE, CTA CASE NO. 7905, NOVEMBER 29,
2012
(5) In case the taxpayer merely made a deposit, the 2-year
period is counted from the conversion of the deposit to
payment (Union Garment v. Collector [CTA Case No.
416, November 17, 1965]).
(6) For VAT, the two year prescriptive period is counted
from the time of filing of the quarterly VAT return, i.e.
within 25 days after the close of each taxable quarter (CIR
v. Mirant [September 12, 2008]
(7) In case of dissolution of a corporation, the 2-year
prescriptive period for refund begins thirty (30) days after
the approval by SEC of its plan for dissolution MINDANAO I
GEOTHERMAL PARTNERSHIP VS. COMMISSIONER OF INTERNAL
REVENUE, CTA CASE NO. 8250, NOVEMBER 9, 2012
Q: Is a RMC which extends the 2 year period

to file a claim for refund to 10 years valid?
No, the RMC cannot go beyond what is provided in
the law and the State cannot be put into estoppel
(see PBCOM V. CIR [JANUARY 28, 1999])
Q: What is the judicial remedy with respect

to a refund or recovery of tax erroneously or
illegally collected?
The remedy is the filing of a suit or proceeding with
the CTA:
Page 92 of 164

1. Within 30 days from receipt of the denial by

the CIR of the application for refund
2. Before the expiration of the 2 years
prescriptive period.
Note: The 30-day period to appeal to the CTA should be
within the 2-year prescriptive period
Q: What must the taxpayer do in case of a

situation where the CIR is taking time to
decide the claim and the period of 2 years is
about to end?
If the the 2 year period is about to lapse, the
taxpayer may already appeal to the CTA even if the
CIR has not yet made any decision on the claim for
refund. In GIBBS V. COLLECTOR OF INTERNAL
REVENUE [FEBRUARY 29, 1960], the Supreme Court
noted that if the CIR takes time in deciding the claim
and the period of two years is about to end, the suit
or proceeding must be started in the CTA before the
end of the 2 year period without awaiting the
decision of the CIR.
In CIR V. SWEENEY [AUGUST 21, 1959], the Supreme
Court stated that taxpayers need not wait for the
action of the CIR on the request for refund before
taking the matter to Court.
Note: (1) The implication of this is that a simultaneous
filing of the application with the BIR for refund/credit and
the institution of the suit with the CTA is allowed.
(2) The rule is different in the refund or tax credit of excess
or unutilized input taxes for VAT. Sa recovery of excess or
unutilized input taxes, premature if you file the judicial
claim within the 2 year prescriptive period. Dito sa refund
of erroneously or illegally collected tax, hindi premature
un! In fact, kapag hindi ka nagfile within, fatal un sa claim
mo. We will discuss this later.
Q: Will the filing of a supplemental petition

be sufficient to toll the prescriptive period
for the claim for refund?
It depends. If it was granted, it would toll the
prescriptive period. Otherwise, it would not have the
effect of tolling the prescriptive period.
In FAR EAST BANK AND TRUST COMPANY V. CIR [M AY
2, 2006], the Supreme Court held that the claim for
refund has been barred by prescription since the
supplemental petition was not admitted. While
retirement funds/employment trusts are still
absolutely exempt from income tax regardless of the

nature of tax, the taxpayers claim was barred by
prescription since the filing of the supplemental
petition (and not an original action) was not granted
and therefore it did not have any judicial effect to
toll the running of the 2 year period. It was only
when a subsequent petition for review was filed did
the prescriptive period toll. Further, this is not a case
where the 2-year period can be considered nonjurisdictional since there are no exceptional or
supervening circumstances to speak of.
Q: May the 2-year prescriptive period be

suspended?
Even if the 2 year prescriptive period, if applicable,
had already lapsed, the same may be suspended for
reasons of equity and other special circumstances.
(see CIR V. PHILAMLIFE [MAY 29, 1995]; CIR v. PNB
[OCTOBER 25, 2005])
The two-year prescriptive period under Section 229
of the NIRC may be suspended for reasons of equity
and other special circumstances. COMMISSIONER OF
INTERNAL REVENUE VS. M ANILA ELECTRIC COMPANY,
INC., CTA EB NO. 773, NOVEMBER 13, 2012
Q: Name some reasons of equity and other

special circumstances that jurisprudence
has considered to extend the 2 year
prescriptive period.
1. When the taxpayer made advance income
tax payment heeding former President
Corazon Aquinos call and was made to
believe that its request for tax credit will be
acted upon and favourably considering that
its carry over was unutilized since the
company suffered losses for the next 4
years (see PNB V. CA [OCTOBER 25, 2005])
2. When the taxpayer and the CIR agreed to
wait for the result of another case having the
same issue (see PANAY ELECTRIC CO. V. CIR
[M AY 28, 1958])
3. When the CIR initially agreed to grant the
refund and later denied the same
Q: If the availment of the tax credit/refund is

due for reasons other than the erroneous or
wrongful
collection
of
taxes,
what
prescriptive period shall apply?
Page 93 of 164

As held in CIR v. PNB [OCTOBER 25, 2005] citing

CIR V. PHILAMLIFE [MAY 29, 1995], availment of a tax
credit due for reasons other than the erroneous or
wrongful collection of taxes may have a different
prescriptive period. Absent any specific provision in
the Tax Code or special laws, the period would be
10 years under Article 1144 of the Civil Code.
--------------------------------------------------------------(iii) Legal basis of tax refunds

--------------------------------------------------------------Q: What is the legal basis of tax refunds?
Tax refunds are founded on the legal principle which
underlies quasi-contracts abhorring a persons
unjust enrichment at the expense of another. The
pertinent laws governing this principle are found in
Art. 2142 and Art. 2154 of the NCC, to wit:
1. Certain lawful, voluntary and unilateral acts
give rise to the juridical relation of quasicontract to the end that no one shall be
unjustly enriched or benefited at the
expense of another (Art. 2142)
2. If something is received when there is no
right to demand it, and it was unduly
delivered through mistake, the obligation to
return it arises. (Art. 2154)
--------------------------------------------------------------(iv) Statutory basis for tax refund under

the Tax Code
(a) Scope of claims for refund
refund
(c) Nature of erroneously paid
(d) Tax refund vis--vis Tax Credit
(e) Essential requisites for claim of
refund
--------------------------------------------------------------Q: What is the statutory basis for a tax
refund under the Tax Code?
See Section 204(c) and Section 229.
Read Section 204(c) and 229, Tax Code

--------------------------------------------------------------(a) Scope of claims for refund

refund
--------------------------------------------------------------Note: For scope of claims for refund, refer to the grounds
as discussed earlier. Also make reference to Section
204(c) as to internal revenue stamps.As to necessity of
proof, refer to the discussion on requirements for refund.
--------------------------------------------------------------(c) Nature of erroneously paid

--------------------------------------------------------------Q: What is the nature of a claim for tax
refund?
A claim for tax refund is in the nature of a claim for
exemption and should be construed strictissimi juris
against the taxpayer. (see CIR V. TOKYO SHIPPING
[M AY 26, 1995])
Q: Is a tax refund automatically granted?

No. As held in UNITED AIRLINES V. CIR [SEPTEMBER
29, 2010], the grant of a refund is founded on the
assumption that the tax return is valid, that is, the
facts stated therein are true and correct. Before
granting the refund, the CIR must determine the
proper assessment and the tax due. In this case, the
CIR found that the tax return was not valid and, thus,
it was justified in denying the claim after determining
the proper assessment and the tax due.
Q: Who has the burden of proof for a claim

of refunds?
Burden of proof for claim of refund rests upon the
claimant since it is strictly construed against him and
the failure to discharge said burden is fatal to his
claim (CIR v. S.C. Johnson and Son [June 25,
1999])
Q: ABC Corp filed its annual income tax

return for 2001 showing net loss. Hence, it
argues that the tax withheld on its income
was
not
utilized
against
income.
Accordingly, ABC Corp filed a claim for
refund and presented its income tax return
showing the incurred losses. The CIR
Page 94 of 164

argued that ABC must prove its reported

losses to be entitled to the refund. Is the CIR
correct?
No. In CIR V. ASIAN TRANSMISSION
CORPORATION [JANUARY 26, 2011], the
Supreme Court ruled that while it is indeed true
that the taxpayer bears the burden to establish
the losses, the taxpayer has fulfilled this duty
when it presented its income tax return showing
he incurred losses.
--------------------------------------------------------------(d) Tax refund vis--vis Tax Credit
--------------------------------------------------------------Note: We already discussed this in Income Taxes but
nonetheless let us review.
Q: Discuss the difference between tax

refund and tax credit?
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.
Note: Ano ba ang practical implications ng difference ng
tax refund and tax credit? Isipin niyo na lang bumili ka ng
damit sa department store tapos may sira pala. Kapag yun
talaga yung gusto mong shirt, you ask for a refund.
Babalik sa iyo yung pera tapos puwede mo itong gamitin
para bumili ng libro or whatever. Pero may isa ka pang
gustong shirt dun sa store na un pero mas mahal ng konti,
ipa-credit mo. Bayaran mo nalang yung kulang. Thats
how simple it is.
Q: May a taxpayer ask for both a tax refund

and a tax credit?
No. As held in PHILAM ASSET M ANAGEMENT V. CIR
[DECEMBER 14, 2005], a taxpayer may apply for
either a tax refund or tax credit, but not both. The
choice of one precludes the other.
Note: If you avail of the tax credit, you get what is
called a Tax Credit Certificate (TCC). There is no
suspensive condition for its validity. Remember that.
Q: PSPC acquired some TCCs (tax Credit

Certificates) through the One Stop Shop
Inter-Agency Tax Credit and Duty Drawback
Center from other BOI-registered entities.
PSPC then utilized the said TCCs for its

excise taxes and were then issued TDM (Tax
Debit Memo) and ATAPs (Authority to
Accept Payment) by the BIR. However, the
BIR assessed PSPC for delinquent excise
taxes alleging that PSPC is not a qualified
transferee of the TCCs. CA ruled that the
PSPC was not entitled to the benefit of the
TCCs and thus upheld the assessment. Was
the use of PSPC of the TCCs valid?
Yes. As held in PILIPINAS SHELL V. CIR [DECEMBER
21, 2007], there is no suspensive condition for the
validity of TCCs as they are effective immediately
and only computational errors are allowed as basis
to invalidate TCCs. Also, even if the source is
defective, it does not affect PSPCs right as it acted
in good faith and the agencies approved of the use
of TCCs.
In CIR V. PETRON [M ARCH 21, 2012], the Supreme
Court had occasion to reiterate that TCCs are valid
and effective from their issuance and are not subject
to post-audit as a suspensive condition for their
validity.
Note: However, by virtue of RR 14-2011 [JULY 29, 2011],
all Tax Credit Certificates (TCCs) issued by the BIR are no
longer transferable or assignable to any person.
--------------------------------------------------------------(e) Essential requisites for claim of

refund
--------------------------------------------------------------Note: I already discussed this under the requirements for
a claim for refund or tax credit.
--------------------------------------------------------------(v) Who may claim/apply for tax

refund/tax credit
(a) Taxpayer/withholding agents of
non-resident foreign corporations
--------------------------------------------------------------Q: Who is the proper party to claim a tax
credit/refund?
The proper party to seek a refund is the statutory
taxpayer, who is the person on whom the tax is
imposed by law and who paid the same, even if that
Page 95 of 164

person shifted the tax to another (see SILKAIR

SINGAPORE V. CIR [NOVEMBER 14, 2008])
Q: May a withholding agent file a claim for

tax refund?
Generally, the person entitled to claim a tax refund is
the taxpayer. However, if the taxpayer does not file
the claim, the withholding agent may file the same.
In CIR V. SMART COMMUNICATIONS [AUGUST 25,
2010], it was submitted that rule allowing the
withholding agent to file the claim is applicable only
when the withholding agent and the taxpayer are
related parties. The Supreme Court disagreed and
stated that such relationship is not required. A
withholding agent has a legal right to file a claim for
refund. First, he is considered a taxpayer under the
Tax Code as he is personally liable for the
withholding tax as well as for deficiency
assessments, surcharges, and penalties, should the
amount withheld be finally found to be less than the
amount that should have been withheld. Second, as
an agent of the taxpayer, his authority to file the
income tax return and remit the tax withheld to the
government includes the authority to file a claim for
refund and to bring an action for recovery of such
claim.
Q: Is the withholding agent who filed the

claim for tax refund obliged to remit the
same to the taxpayer?
Yes. In CIR V. SMART COMMUNICATIONS [AUGUST 25,
2010], the Supreme Court ruled that while the
withholding agent has the right to recover the taxes
erroneously or illegally collected, he nevertheless
has the obligation to remit the same to the principal
taxpayer under the principle of unjust enrichment.
Q: What are the requisites for claim for tax

credit or refund of a creditable withholding
tax?
1. Claim must be filed within the two-year
prescriptive period from date of payment of
the tax
2. It must be shown on the return that the
income received was declared as part of
gross income
3. The fact of withholding must be established
by a copy of a statement duly issued by the
payor to the payee showing the amount paid

and the amount of tax withheld.

FILIPINO V. CA [M ARCH 27, 2007]
(BANCO
See also ORIX AUTO LEASING PHILIPPINES CORPORATION VS.

NOVEMBER 28, 2012; PHILIPPINE BANK OF COMMUNICATIONS
VS. CIR, CTA CASE NO. 7915, JUNE 6, 2012; MANILA NORTH
TOLLWAYS CORPORATION VS. CIR, C.T.A. EB NO. 812,
OCTOBER 11, 2012) WINEBRENNER & IIGO INSURANCE
BROKERS, INC. VS. COMMISSIONER OF INTERNAL REVENUE,
CTA CASE NO. 8277, DECEMBER 19, 2012
Note: In the third requisite, the taxpayer need not prove
the fact of remittance to the BIR of the taxes withheld by
the various payors (withholding agents). CIR V. MIRANT
[JUNE 15, 2011]
In a claim for refund of its excess income tax payment or
creditable withholding taxes paid, claimant has the burden
of proof to establish the factual basis of his or her claim for
tax credit or refund. Presentation of forgotten evidence is
disallowed. MIRANT NAVOTAS II CORPORATION VS. CIR, CTA
EB NO. 754 (CTA CASE NO. 7618), JUNE 5, 2012
UNITED INTERNAL PICTURES V. CIR, G.R.

168331, OCTOBER 11, 2012
DOCTRINE:
Failed to reconcile the discrepancy
between income payments per income tax return and
the certificate of creditable tax withheld will result in
the denial of a claim for refund.
FACTS: For the same case mentioned in the preceding
number, the Court also denied the claim pertaining to the
year 1999. As found by the Court, the certificate of tax
withheld would reveal that the taxpayer earned
P146,355,699.80. On the contrary, its annual income tax
return reflects a gross income from film rentals in the
amount of P145,381,568.00. However, despite the
P974,131.80 difference, both the certificate of taxes
withheld and income tax return filed by the taxpayer for
taxable year 1999 indicate the same amount of
P7,317,785.00 as creditable tax withheld. Also, taxpayer
failed to present sufficient proof to allow the Court to trace
the discrepancy between the certificate or taxes withheld
and the income tax return.
HELD: The Court agreed with the position of the Office of
the Solicitor General that the amount of income payments
in the income tax return must correspond and tally to the
amount indicated in the certificate of withholding, since
there is no possible and efficacious way by which the BIR
can verify the precise identity of the income payments as
reflected in the income tax return. Therefore, taxpayers
claim for tax refund for taxable year 1999 must be denied,
since it failed to prove that the income payments subjected
to withholding tax were declared as part of the gross
income of the taxpayer.
Page 96 of 164

--------------------------------------------------------------(vi) Prescriptive period for recovery of tax

erroneously or illegally collected
--------------------------------------------------------------Note: I have already discussed the 2-year prescriptive
period as well.
Now, lets compare the procedure for claiming a tax refund
under Section 229 and that of the refund of excess or
unutilized input taxes under Section 112(c).
Q: Outline the steps for tax refund/credit of

erroneously or illegally collected internal
revenue tax under Section 229 and compare
it with the recovery of excess or unutilized
input tax under Section 112(C)
Section 229
Recovery of erroneously
or
illegally
collected
internal revenue tax
Section 112(c)
Recovery of excess or
unutilized input tax
1. Payment period
begins on the date of
payment of tax or
penalties regardless
of any supervening
cause
7. Filing and Payment
2. Administrative
claim within 2 years
from payment filed
with the CIR
3. Submission
of
additional
and
relevant
support
documents within
60 days from filing of
claim
4. Appeal
to
CTA
Division within 30
days from receipt of
notice of denial or
from inaction of the
CIR counted from
submission
of
documents. Appeal
should
be
made
within the 2 years
prescriptive
period.
8. Administrative
claim
within
2
years counted
from the close of the
taxable quarter when
the relevant sales
were made
9. Submission
of
additional
and
relevant
support
documents within
60 days from filing of
claim
10. Appeal
to
CTA
Division within 30
notice of denial or
from lapse of 120
days
of
inaction
counted
from
submission
of
documents.
The
appeal should NOT
be made within the
2-year prescriptive
period.
Otherwise,

Motion
for
Reconsideration
or
New Trial to CTA
Division within 15
decision.
5. Appeal to CTA En
Banc within 15
resolution.
6. Appeal to the SC
within 15 days from
receipt of resolution
under Rule 45
the judicial claim is

premature.
The
Motion
for
Reconsideration or
New Trial to CTA
Division within 15
decision.
11. Appeal to CTA En
Banc within 15
resolution. Motion for
Reconsideration to
the CTA En Banc
within 15 days from
receipt of decision
12. Appeal to the SC
within 15 days from
receipt of resolution
under Rule 45
Note: (1) Majority of authorities including Atty. Montero is

of the view that with regard to refund of erroneously or
illegally collected tax, the CIR must act within a period of
120 days. That period, however, is found in Section
112(A) which applies to refunds of erroneously or illegally
collected tax. Further, the 180 day period provided in
Section 228 applies to a protest. What should we follow?
120 or 180? Well, it doesnt matter. In the refund of
erroneously or illegally collected tax, as long as you file
your claim for refund within the 2-year period, youre fine.
In fact, you may simultaneously file a claim for refund and
a file a suit with the CTA. This brings me to my second
point.
(2) As held in the case of CIR V. AICHI FORGING COMPANY OF ASIA
[OCTOBER 6, 2010], non-observance of the 120-day period is fatal
to the judicial claim. Thus, you cannot simultaneously file your
claim for refund of excess or unutilized input tax and file a suit
with the CTA. The 2 year prescriptive period applies only to the
administrative claim meaning that you should file your claim with
the CIR within 2 years. As to the judicial claim, you wait for the
120 days to lapse.
--------------------------------------------------------------(vii) Other consideration affecting tax

refunds
--------------------------------------------------------------Note: Lets discuss here the Irrevocability Rule under
Section 76. That is found in Title II (Income Tax). Its not
included in the portion of the syllabus on Income Tax. I will
discuss it here because it relates to tax credit or tax
refund.
Page 97 of 164


Q: What are the options available to the
corporation when the sum of the quarterly
tax payments made during the taxable year
is more than the total tax due on the entire
taxable income of that year?
The corporation shall either:
1. Pay the balance of tax still due
2. Carry-over the excess credit
3. Be credited or refunded with the excess
amount paid
Q: What is the irrevocability rule?

Once the option to carry-over the excess and apply
the excess quarterly income tax against income tax
due for the taxable quarters of the succeeding
taxable years has been made, such option shall be
considered irrevocable for that taxable period and no
application for cash refund or issuance of a tax
credit certificate shall be allowed. (see Section 76,
Tax Code and SYSTRA PHILIPPINES V. CIR
[SEPTEMBER 21, 2007])
In ASIAWORLD PROPERTIES V. CIR [JULY 29, 2010],
the Supreme Court opined that once the taxpayer
opts to carry-over the excess income tax against the
taxes due for the succeeding taxable years (tax
credit), such option is irrevocable for the whole
amount of the excess income tax, thus, prohibiting
the taxpayer from applying for a refund. The
unutilized tax credits will remain in the taxpayers
account and will be carried over and applied against
the taxpayers income tax liabilities in the
succeeding taxable years until fully utilized.
See also BELLE CORPORATION V. CIR [JANUARY 14, 2011];
CIR V. PL MANAGEMENT PHIL. [APRIL 4, 2011]; CIR V.
PHILAMGEN [SEPTEMBER 29, 2010]; CIR V. MCGEORGE FOOD
[OCTOBER 20, 2010]; CIR VS. RHOMBUS ENERGY,
INCORPORATED, C.T.A. EB NO. 803, OCTOBER 11, 2012
UNITED INTERNATIONAL PICTURES AB V. CIR

[OCTOBER 11, 2012]
DOCTRINE: Carry-over of excess income tax payments
will result in the denial of a claim for refund of excess
income tax payment.
FACTS: The taxpayer filed its annual income tax return for
the taxable year 1998 showing an excess income tax

payment. It opted to carry-over this excess as tax credit to

the succeeding taxable year. This was applied to the 1999
taxable year leaving again an excess income tax payment.
The taxpayer then applied for a refund for this amount.
HELD: The Supreme Court cited Section 76 of the Tax
Code, which provides that once the option to carry-over
and apply the excess quarterly income tax against income
tax due for the taxable quarters of the succeeding taxable
years has been made, such option shall be considered
irrevocable for that taxable period and no application for
cash refund or issuance of a TCC shall be allowed
therefore. Having chosen to carry-over the excess
quarterly income tax, the taxpayer here cannot thereafter
choose to apply for a cash refund or for the issuance of a
TCC for the amount representing such overpayment. The
taxpayers claim for refund should be denied as is option
to carry over has precluded it from claiming the refund of
the excess income tax payment.
Q: Does the irrevocability rule apply to the

claim of refund or issuance of TCC?
No. The irrevocability rule in Section 76 of the Tax
Code applies only to the option to carry-over the
excess income tax payment, and not to the claim for
refund or issuance of a TCC. Nowhere in Section 76
was it stated that the option to claim refund or TCC,
once chosen, is irrevocable. UNITED COCONUT
PLANTERS BANK VS. COMMISSIONER OF INTERNAL
REVENUE, CTA EB CASE NO. 725, AUGUST 23, 2012;
STABLEWOOD PHILIPPINES, INC. VS. CIR, CTA EB 751
(CTA 7705)
Q: If the corporate taxpayer fails to signify

his intention in the Final Adjustment Return,
is it barred from making a valid request for
refund should it choose this option later on?
No. As held in PHILAM ASSET M ANAGEMENT V. CIR
[DECEMBER 14, 2005], failure to indicate a choice will
not bar a valid request for a refund, should this
option be chosen by the taxpayer later on.
Q: What is the implication when a

corporation fills out the portion Prior
Years Excess Credits in the Final
Adjustment Return?
As held in PHILAM ASSET M ANAGEMENT V. CIR
[DECEMBER 14, 2005], the fact that the corporation
filled out the portion prior years excess credits in
the Final Adjustment Return means that it
categorically availed itself of the carry-over option. If
Page 98 of 164

an application for tax refund has been or will be filed,

that portion should necessarily be blank.
Q: Is there an exception to the irrevocability

rule?
Yes. In STABLEWOOD PHILIPPINES, INC. VS. CIR, CTA
EB NO. 794, OCTOBER 08, 2012, the CTA held that If
the corporation permanently ceases its operations
before full utilization of the tax credits it opted to
carryover, it may be allowed to claim the refund of
the remaining tax credits as an exception to the
irrevocability rule under Section 76 of the NIRC of
1997, as amended. However, the dissolving
corporation must prove that the termination of its
operations is permanent in nature and that it is
cleared from any tax or other government liabilities
before a tax refund may be granted. Therefore, a
corporation contemplating dissolution must first
secure a tax clearance certificate from the
Commissioner of Internal Revenue (CIR), which
certificate shall be submitted to the Securities and
Exchange Commission (SEC) for the issuance of the
Certificate of Dissolution.

Page 99 of 164

---------------------------------------------------------------
F. ORGANIZATION AND FUNCTIONS OF

THE BUREAU OF INTERNAL REVENUE
--------------------------------------------------------------Q: What are the powers and duties of the
BIR?
The powers and duties of the BIR shall comprehend:
1. The assessment and collection of all
national internal revenue taxes, fees and
charges
2. The enforcement of all forfeitures, penalties
and fines connected therewith
3. Including the execution of judgments in all
cases decided in its favor by the CTA and
the ordinary courts
4. The Bureau shall give effect to and
administer the supervisory and police
powers conferred to it by this Code or other
laws (see Section 2, Tax Code)
Q: Describe briefly the structure of the BIR?

The BIR is under the supervision and control of the
Department of Finance (DOF). It is headed by the
Commissioner of Internal Revenue and assisted by
6 Deputy Commissioners. Each region of the country
has a Revenue Regional Director. The country is
also divided into Internal Revenue districts headed
by Revenue District Officers.
Q: What are the powers of the CIR?

1. To interpret tax laws and to decide cases
(Section 4, Tax Code)
2. To obtain information and to summon,
examine and take testimony of persons
3. To make assessment and prescribe
additional
requirements
for
tax
administration and enforcement (Section 6,
Tax Code)
4. To delegate power (Section 7, Tax Code)
5. To ensure the provision and distribution of
forms, receipts, certificates, and appliances
and acknowledgment of payment of taxes
To interpret tax laws and decide cases
Q: Differentiate the power of the CIR to

interpret tax laws and the power to decide
tax cases.
The power to interpret tax laws is under the
exclusive and original jurisdiction of the CIR, subject
to the review by the Secretary of Finance
On the other hand, the power to decide tax cases,
while vested also in the CIR, is subject to the
exclusive appellate jurisdiction of the CTA.
Q: Can the Secretary of Finance motu

proprio review a ruling of the CIR?
Yes. DOF ORDER NO. 007-02 [M AY 7, 2002] provides
that the Secretary of Finance may, of his own
accord, review a ruling issued by the CIR.
Note: The power to obtain information and to summon,
examine and take testimony of persons AND the power to
make assessment and prescribe additional requirements
for tax administration and enforcement have already been
discussed this under Tax Remedies
To delegate power
Q: What powers of the CIR are nondelegable?
1. To recommend the promulgation of rules
and regulations
2. Issuance of first impression rulings
3. Compromise or abatement if the amount is
over P500,000
4. Assign officers in charge of excisable
articles
Q: A is the assistant commissioner of the

BIR. Upon inquiry by ABC and XYZ
company on the applicable excise tax rates,
A signed a letter informing ABC and XYZ of
the conduct of the survey, the results
thereof and the applicable excise tax rates.
ABC and XYZ contend that that A acted
without authority and that it should be the
CIR who signed such issuance. Are ABC
and XYZ correct?

Page 100 of 164


No. Under Section 7 of the NIRC, the CIR is

authorized to delegate to his subordinates the
powers vested in him except, among others, the
power to issue rulings of first impression. Here, the
subject matter of the letter does not involve the
exercise of the power to rule on novel issues. It
merely implemented the revenue regulations then in
force (see PARAYNO VS. LA SUERTE CIGAR AND
CIGARETTE FACTORY [JUNE 11, 2009])
Q: May the CIR delegate the power to

approve the filing of tax collection cases?
Yes. The CIR may validly delegate to subordinates
the power to approve the filing of tax collection
cases in court. In REPUBLIC VS. HIZON [DECEMBER 13,
1999], the Supreme Court upheld the delegation of
that power to the Chief of Legal Division of Region
IV, the act having been likewise verified by the
Regional Director.
To ensure the provision and distribution of

forms, receipts, certificates, and appliances
and acknowledgment of payment of taxes
Q: Give some notable powers and duties of
a Revenue Regional Director?
1. Implement tax laws in the regional area
2. Administer and enforce tax laws including
assessment and collection of all internal
revenue taxes
3. Issue Letters of Authority (LOA) for the
examination of taxpayers in the region (see
SECTION 11, TAX CODE)
b) Specific provisions to be contained in

rules and regulations
c) Non-retroactivity of rulings
----------------------------------------------------------------------------------------------------------------------------a) Authority of Secretary of Finance to
promulgate rules and regulations
Q: Who promulgates revenue rules and
regulations?
The Secretary of Finance, upon recommendation of
the CIR, shall promulgate all needful rules and
regulations for the enforcement of tax laws.
--------------------------------------------------------------b) Specific provisions to be contained in

rules and regulations
Q: Enumerate and define the tax-related
administrative issuances
Revenue
Regulations (RRs)
Q: What is the authority given to a Revenue

Officer?
The Revenue Officer, pursuant to a LOA, may
examine taxpayers within the jurisdiction of the
district to collect the correct amount of tax or to
recommend the assessment of any deficiency tax.
(see SECTION 13, TAX CODE)
--------------------------------------------------------------1. Rule-making authority of the Secretary of

Finance
a) Authority of Secretary of Finance to
promulgate rules and regulations
Revenue
Memorandum
Orders (RMOs)
Revenue
are issuances signed by the

Secretary of Finance, upon
recommendation
of
the
Commissioner of
Internal
Revenue,
the
specify,
prescribe or define rules and
regulations for the effective
enforcement of the provisions
of the National Internal
Revenue Code (NIRC) and
related statutes.
are issuances that provide
directives
or
instructions;
prescribe
guideline;
and
outline processes, operations,
activites, workflows, methods
and procedures necessary in
the implementation of stated
policies, goals, objectives,
plans and programs of the
Bureau in all areas of
operations, except auditing.
are rulings, opinions and
Page 101 of 164


Memorandum
Rulings (RMRs)
Revenue
Memorandum
Circular (RMCs)
Revenue Bulletins
(RB)
BIR Rulings
BIR ITAD Rulings
interpretations
of
the
Commissioner of
Internal
Revenue with respect to the
provisions of the Tax Code
and other tax laws, as applied
to a specific set of facts, with
or
without
established
precedents, and which the
Commissioner may issue from
time to time for the purpose of
providing taxpayers guidance
on the tax consequences in
specific
situations.
BIR
Rulings, therefore, cannot
contravene
duly
issued
RMRs; otherwise, the Rulings
are null and void ab initio.
are issuances that publish
pertinent
and
applicable
portions,
as
well
as
amplifications, of laws, rules,
regulations and precedents
issued by the BIR and other
agencies/offices.
refer to periodic issuances,
notices
and
official
announcements
of
the
Commissioner of
Internal
Revenue that consolidate the
Bureau of Internal Revenues
positions of the Tax Code,
relevant tax laws and other
issuances for the guidance of
the public.
are official position of the
Bureau to Queries raised by
taxpayers
and
other
stakeholders
relative
to
clarification and interpretation
of tax laws.
are issued by the BIR
International
Tax
Affairs
Division to rule on certain
issues
relating
to
interpretations of international
tax treaty provision under
which certain taxpayers or
transactions can avail of tax
exemptions or preferential tax
rates.
--------------------------------------------------------------c) Non-retroactivity of rulings

Q: Explain the rule on non-retroactivity of

rulings
General Rule: Revenue Regulations, Rulings,
Circulars and other administrative issuances have
no retroactive application
Exception: If prejudicial to the taxpayer, they shall
have retroactive application
Exception to the Exception: Even if prejudicial to
the taxpayer, they shall have retroactive effect in the
following cases
1. The taxpayer deliberately misstates or omits
material facts
2. The facts subsequently gathered are
different from the facts on which the ruling
was based
3. The taxpayer acted in bad faith
Q: If a ruling was subsequently found by the

CIR to be null and void, does the nonretroactivity principle still apply?
No. The non-retroactivity principle does not apply
when the ruling involved is null and void for being
contrary to law.
In BIR RULING NO. 370-2011 [OCTOBER 7, 2011], the
CIR affirmed its position that the Poverty Alleviation
and Eradication Certificates (PEAce) Bonds are not
tax-exempt and subject to a 20% FWT. Previously,
2001 BIR Rulings have considered such instruments
as tax-exempt. The CIR concluded that no right has
been vested by virtue of the 2001 Rulings as they
were null and void for being contrary to law.
Q: What is the effect of RR 5-2012 [April 5,

2012] on rulings issued prior to January 1,
1998?
RR 5-2012 [APRIL 5, 2012] provides that all rulings
issued prior to January 1, 1998 will no longer have
any binding effect. They can no longer be invoked
as basis for any current business transaction/s or as
a basis for securing legal tax opinions and rulings.
RMC 22-2012 [M AY 7, 2012] clarified that BIR
Rulings prior to January 1, 1998 remains valid:
Page 102 of 164

1. To the taxpayer who was issued the ruling

2. Covering the specific transaction which is
subject of the ruling
Q: May a BIR ruling be invoked by a

taxpayer other than the one who requested
the same?
No. In CIR v. Filinvest Development Corp [July
19, 2011], the Supreme Court ruled that in keeping
with the caveat attendant in every BIR ruling to the
effect that it is valid only if the facts claimed by the
taxpayer are correct, a BIR ruling could be invoked
only by the taxpayer who sought the same. If the
taxpayer is not the one who, in the first instance,
sought the ruling from the BIR, he cannot invoke the
principle of non-retroactivity of BIR rulings.
--------------------------------------------------------------2. Power of the Commissioner to suspend

the business operation of a taxpayer
--------------------------------------------------------------Note: I already discussed this under Tax Remedies.

Page 103 of 164


---------------------------------------------------------III. LOCAL GOVERNMENT CODE

------------------------------------------------------------------------------------------------------------------A. LOCAL GOVERNMENT TAXATION
-----------------------------------------------------------------------------------------------------------------------1. Fundamental Principles
--------------------------------------------------------------Read Section 130, LGC
Q: What are the fundamental principles of
local government taxation?
a. Uniformity
b. Taxes, fees, charges and other impositions
shall be equitable and based on ability to
pay for public purposes not unjust,
excessive oppressive or confiscatory, no
contrary to law, public policy, national
economic policy, or in restraint of trade
c. The levy and collection shall not be left to
any private person
d. Inures solely to the local government unit
levying the tax
e. The progressivity principle must be
observed.
--------------------------------------------------------------2. Nature and Source of taxing power

a) Grant of local taxing power under the
local government code
b) Authority to prescribe penalties for tax
violations
c) Authority to grant 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
--------------------------------------------------------------Q: What is the nature of the local taxing
power?
granted by a direct mandate of the

Constitution
b. Limited although directly expressed by the
Constitution, the power is subject to
limitations and guidelines as the legislature
may deem necessary to impose
c. Legislative in nature the power to impose
taxes is vested solely in he legislative body
of each respective LGU
d. Territorial the same can only be exercised
within the territorial jurisdiction of a LGU
Q: What is the source of the local taxing

power of the government?
Article X.
Section 5. Each local government unit shall have the
power to create its own sources of revenues and to levy
taxes, fees and charges subject to such guidelines and
limitations as the Congress may provide, consistent with
the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
It is granted by the Constitution under Section 5,

Article X of the 1987 Constitution. It is not inherent in
the Local Government.
In MERALCO V. PROVINCE OF LAGUNA [M AY 5,
1999], the Supreme Court explained that prior to the
1987 Constitution; the taxing power of LGUs was
exercised under limited statutory authority. Under
the present Constitution, the taxing power of LGUs
is deemed to exist, subject only to specific
exceptions that the law may prescribe. Otherwise
stated, the taxing power of LGUs is a direct grant of
the Constitution, and is not a delegated power of
Congress.
Note: A law which deprives LGUs of their power to tax
would be unconstitutional.
Q: What is the legal basis of the grant of

local taxing power under the LGC?
The legal basis is found in Section 129 of the LGC,
to wit:
Read Section 129, LGC
a. Direct the power of the LGU to impose

taxes although not an inherent power is

Page 104 of 164


Q: Who has the authority to prescribe

penalties for local tax violations?
The Sanggunian of a LGU is authorized to prescribe
fines or other penalties for violation of tax
ordinances. (see Section 516, LGC)
Note: The fines or other penalties shall in no case shall be
less than P1,000 or more than P5,000 nor shall the
imprisonment be less than 1 month nor more than 6
months. The Sangguniang Barangay may prescribe a fine
of not less than P100 nor more than P1,000
Q: Who may grant local tax exemptions?

The LGU may, through ordinance duly approved,
grant tax exemptions, incentives or reliefs under
such terms and conditions, as they may deem
necessary.

Q: What is the effect of Section 193
(Withdrawal of Tax Exemption Privileges) of
the LGC?
Under Section 193, all existing tax exemption
privileges granted to or presently enjoyed by all
persons whether natural or juridical including
GOCCs (except local water districts, cooperatives
registered under RA 6938, non-stock and non-profit
hospitals and educational institutions) were
withdrawn upon effectivity of the LGC.
In MERALCO V. PROVINCE OF LAGUNA [M AY 5, 1999],
the Supreme Court noted that indicative of the
legislative intent to carry out the Constitutional
mandate of vesting broad tax powers to LGUs, the
LGC has effectively withdrawn tax exemptions and
incentives theretofore enjoyed by certain entities.
(see also NAPOCOR V. CITY OF CABANATUAN [APRIL
9, 2003].
Q: What entities are still exempt from local

taxes?
a.
b.
c.
d.
Local Water Districts

Cooperatives duly registered under RA 6938
Non-stock and non-profit hospitals
Educational institutions

Q: May the government grant tax exemption

to taxpayers whose previous exemption has
been withdrawn?
Yes. Withdrawal of a tax exemption does not prohibit
future grants of tax exemption (PLDT v. City of
Davao [August 22, 2001])
Q: Who has the authority to adjust local tax

rates?
The Local Government Units have the authority to
adjust local tax rates. However, it should not be
more than once every 5 years and in no case shall
such adjustment exceed 10% of the rates fixed
under the Code.

Q: What is the residual taxing power of
LGUs?
LGUs may exercise the power to levy taxes, fees or
charges on any base or subject, provided that the
taxes, fees, and charges are
a. Not specifically enumerated in the LGC

b. Not taxed under the provisions of the NIRC
c. Not taxes under other applicable laws
Q: Who has the authority to issue local tax
ordinances?
The power to impose a tax, fee, or charge or to
generate revenue shall be exercised by the
Sanggunian of the LGU concerned through an
appropriate ordinance (see Section 132, LGC)

--------------------------------------------------------------3. Local taxing authority
a) Power to create revenues exercised
through Local Government Units
b) Procedure for approval and effectivity of
tax ordinances
--------------------------------------------------------------Note: As discussed above, each LGU has the power to
create its own source of revenue (see Section 129, LGC)
Page 105 of 164


Q: What is the significance of a local tax

ordinance?
What determines tax liability is the tax ordinance.
The LGC is simply the enabling law for the local
legislative body. In YAMANE V. BA LEPANTO
CONDOMINIUM CORP [OCTOBER 25, 2005], at issue
was whether the City Government of Makati can
hold condominium corporations liable to pay
business taxes. The Supreme Court noted that the
City Treasurer did not make any reference to any
provision of the Makati City Revenue Code which
would serve as legal authority for the collection of
business taxes from condominiums in the city. The
Supreme Court pointed out that in issuing a notice of
assessment, reference to the local tax ordinance is
vital because the power of LGUs to impose local
taxes is exercised through the appropriate ordinance
enacted by the Sanggunian and not by the LGC.
Q: What are the requisites of a valid local

tax ordinance?
1. It must not contravene the Constitution or
any statute
2. It must not be unfair or oppressive
3. It must not be partial or discriminatory
4. It must not prohibit but may regulate trade
5. It must be general and consistent with public
policy
6. It must not be unreasonable (Magtajas v.
Pryce Properties [234 SCRA 225])
Q: What must be complied with under the

provisions of the LGC for a valid local tax
ordinance?
1. Public hearing is required with quorum,
voting
and
approval
and/or
veto
requirements complied with
2. Publication of ordinance within 10 days from
approval for 3 consecutive days in an
newspaper of general circulation and/or
posting in at least 2 conspicuous and
publicly accessible places
Q: What is the nature of the public hearings

under Section 187 of the LGC?
In HAGONOY M ARKET VENDOR ASSOCIATION V.
MUNICIPALITY OF HAGONOY, BULACAN [FEBRUARY 2,
2002], the discussed the nature of the public
hearings on proposed tax ordinances in this light:
To be sure, public hearings are conducted by local

legislative bodies to allow interested parties to
ventilate their views on a proposed law or ordinance.
These views, however, are not binding on the
legislative body and it is not compelled by law to
adopt the same.
Q: Can a public hearing conducted after the

passage of a tax ordinance cure the defect
in its enactment (for failure to hold one prior
to the enactment)?
No. As held in ONGSUCO V. M ALONES [OCTOBER 27,
2009], the Supreme Court held that a public hearing
conducted after the passage of a tax ordinance does
not cure the defect in its enactment. The LGC
requires that public hearings be held prior to the
enactment by the LGU of the ordinance levying
taxes, fees, and charges.
Q: What is the effect of non-compliance with

the publication/posting requirements of tax
ordinances laid down in Section 188 of the
LGC?
Failure to follow the procedure in enactment of tax
ordinances renders the same null and void. The
publication requirement is mandatory.
Q: Can an ordinance with has been declared

void for failure to publish for 3 weeks be
remedied by passing another ordinance with
purports to amend the ordinance that has
been declared null and void?
No. The new ordinance is still void since it cannot
cure something which had never existed in the first
place as the same was void ab initio (see COCACOLA BOTTLERS V. CITY OF M ANILA [JUNE 27, 2006]).
Q: Is publication/posting of an ordinance
fixing the assessment levels for different
classes of real property in an LGU
necessary?
Yes. In FIGUERRES V. CA [M ARCH 25, 1999], the
Supreme Court held that the publication/posting
requirement under Section 188 of the LGC must be
complied with in case of an ordinance imposing real
property taxes, as well as an ordinance fixing the
assessment levels for different classes of real
Page 106 of 164


property. The latter is in the nature of a tax

ordinance.
Note: I will discuss the procedure in questioning the
constitutionality or legality of a tax ordinance under
remedies.
--------------------------------------------------------------4. Scope of taxing power

--------------------------------------------------------------Q: What is the scope of the taxing power of
LGUs?
The taxing power of LGU is limited only through the
guidelines expressly provided for by the legislature.
Beyond these limitations, the LGU is given a wide
array or latitude to impose taxes not pre-empted by
the NIRC?
Q: What is the Principle of Pre-emption or

Exclusionary Doctrine?
When the national government elects to tax a
particular area, it is impliedly withholding from the
LGU the delegated power to tax the same field.
--------------------------------------------------------------5. Specific taxing power of LGUs

a) Taxing powers of provinces
(i) Tax on transfer of real property
ownership
(ii) Tax on business of printing and
publication
(iii) Franchise tax
(iv) Tax on sand, gravel and other quarry
services
(v) Professional ax
(vi) Amusement tax
(vii) Tax on delivery truck/van
b) Taxing power of cities
c) Taxing power of municipalities
(i) Tax on various types of businesses
(ii) Ceiling on business tax impossible on
municipalities within Metro Manila
(iii) Tax on retirement of business
(iv) Rules on payment of business tax
(v) Fees and charges for regulation and
licensing
(vi) Situs of tax collected
d) Taxing powers of barangays
e) Common revenue raising powers

(i) Service fee charges
(ii) Public utility charges
(iii) Toll fees or charges
f) Community Tax
--------------------------------------------------------------Read Sections 134-144, 146-149 and 151164, LGC.
Q: What is the taxing power of the following
LGUs: (a) province; (b) Municipalities; (c)
Cities; and (d) Barangays?
Province
Expressly provided in the Code:
1. Local Transfer Tax (Section 135, LGC)
2. Business Tax on Printing and Publication
(Section 136 LGC)
3. Local Franchise Tax (Section 137, LGC)
4. Tax on Sand, Gravel and Other Quarry
Resources (Section 138, LGC)
5. Professional Tax (Section 139, LGC)
6. Amusement Tax (Section 140, LGC)
7. Tax on Route Delivery Truck or Vans
(Section 141, LGC)
Municipalities
A municipality may levy on those taxes, fees and
charges not otherwise levied by provinces (see
Section 142, LGC)
Expressly provided in the Code:
1. Local Business Tax (Section 143, LGC)
2. Fees on business and occupation (Section
146, LGC)
3. Fees on sealing and licensing of weights
and measures (Section 148, LGC)
4. Fishery Rentals, Fees and charges (Section
149, LGC)
Cities
They may levy taxes which the province and
municipality may impose. The tax rates, fees, and
charges which the city may levy may exceed the
maximum rates allowed for the province or
municipality by not more than 50% except the rates
Page 107 of 164


of professional and amusement taxes (see Section

151, LGC)
Q: May the tax be imposed on extractions

from private lands?
Barangays
No. The tax may be imposed only to those extracted

from public lands or public waters within its territorial
jurisdiction. Private lands are excluded. (Province of
Bulacan v. CA [November 27, 1998])
1. Taxes on stores with fixed business

establishments (gross receipts of P50,000 or
less for cities, P30,000 for municipalities)
2. Service fees for use of barangay-owned
properties and services rendered
3. Barangay clearance
4. Other fees and charges for (a) commercial
breeding of fighting cocks, cockpits and
cockfighting; (b) on places of recreation with
admission fees; and (c) billboards,
signboards and outdoor advertisements
Common only to Cities and Municipalities
1. Community tax
Common to all LGUs
1. Service fees and charges for services
rendered
2. Public utility charges
3. Toll fees or charges
Note: Take note of the following.
Local Transfer Tax

Q: What are not covered by the local
transfer tax of real property?
The sale, transfer or other disposition of real
property pursuant to the Agrarian Reform Program
shall be exempt from local transfer tax.
Business Tax on Printing and Publication

Q: What is not covered by the business tax
on printing and publication?
The receipts from the printing and/or publishing of
books or other reading materials prescribed by the
DepEd as school texts or references shall be
exempt from the business tax.
Q: ABC Mining was issued a mining lease

contract which granted it the right to extract
and use for its purposes all mineral deposits
within the boundary lines of its mining claim
in Benguet. Later, the Provincial Treasurer
demanded payment of sand and gravel tax
for the quarry materials that ABC extracted.
ABC countered that the sand and gravel tax
applied only to commercial extractions. Is
ABC correct?
No. In LEPANTO CONSOLIDATED MINING COMPANY V.
AMBANLOC [JUNE 29, 2010], the Supreme Court
found that under the Revised Benguet Revenue
Code, only gratuitous permits were exempt from the
sand and gravel tax, and Lepantos permit was not a
gratuitous permit. Hence, Lepanto was liable to pay
the provincial sand and gravel tax.
Professional Tax
Q: What is the situs of professional tax?
Professional tax is payable in the province where the
taxpayer practices his profession or where the
principal office is located in case he practices his
profession in several places.
Note: (1) The taxpayer has the option. Such person who
has paid the corresponding professional tax shall be
entitled to practice his profession in any part of the
Philippines without being subjected to any national or local
tax, license or fee for the practice of such profession (see
Section 139, LGC)
(2) Professional tax may be imposed by a province or city
but not by a municipality or barangay
(3) Professionals exclusively employed in government
shall be exempt from payment
Tax on Sand, Gravel and Other Quarry

Resources

Page 108 of 164


Amusement Tax
Q: Is the amusement tax on admission
tickets to PBA games a national or local
tax?
It is a national tax. In PBA v CA [AUGUST 8, 2000],
the Supreme Court held that it was the National
Government which could collect amusement taxes
from the PBA. While Section 13 of the Local Tax
Code mentions other places of amusement,
professional basketball games are definitely not
within its scope under the principle of ejusdem
generis.
Q: Are gross receipts derived from

admission tickets in showing motion
pictures, films or movies also subject to
VAT?
No. The Supreme Court in CIR v. SM PRIME
HOLDINGS [FEBRUARY 26, 2010] held that although
the enumeration of services subject to VAT under
Section 108 of the 1997 Tax Code is not exhaustive.
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.
Hence, since the showing or exhibition of motion
pictures or films is not in the enumeration, such is
not a VAT-taxable transaction. The intent of the
legislature is not to impose VAT on persons already
covered by the amusement tax.
Tax on Route Delivery Truck or Vans

Note: See discussion on situs of local business tax.
customers outside the city. Id the imposition

valid?
Yes. As held in PHILIPPINE M ATCH CO. V. CITY OF
CEBU [JANUARY 18, 1978], the city can validly tax the
sales of matches to customers outside of the city as
long as the orders were booked and paid for in the
companys branch office in the city. Those matches
can be regarded as sold in the city because the
matches were delivered to the carrier in Cebu City.
Generally, delivery to the carrier is delivery to the
buyer. A different interpretation would defeat the tax
ordinance and encourage tax evasion.
Q: ABC Bottlers Inc. maintained a bottling

plant in Pavia, Iloilo but sold softdrinks in
Iloilo City by means of a fleet of delivery
trucks called rolling stores which went
directly to customers. Iloilo City passed an
ordinance imposing a municipal license tax
on distributors/sellers in the area. Is ABC
liable under the tax ordinance?
Yes. In ILOILO BOTTLERS INC. V. CITY OF ILOILO
[AUGUST 19, 1988], the Supreme Court found that
the bottling company was engaged in the business
of selling/distributing softdrinks in Iloilo City through
its rolling stores where sales transactions with
customers were entered into and sales were
perfected and consummated by route salesmen,
Hence, the company was subject to municipal
license tax.
Local Business Tax

Q: Who are covered by the local business
tax?
Q: How are the sales of route trucks and

vans taxed?
1. Manufacturers, assemblers and producers

2. Wholesalers, dealers and distributors
3. Exporters, manufacturers of essential
commodities
4. Retailers (if both wholesale and retail, then
pay both taxes)
5. Contractors
28
6. Banks and other financial institutions
If the sale is made in a place with a branch office:

the sale is reported in the LGU where the branch
office is located.
If the sale is made in a place without a branch office:
the sale is reported in the LGU where the sales are
withdrawn.
Q: The City of Cebu imposed a gross sales

tax on sales of matches stored by Philippine
Match Co. in Cebu City but delivered to

28
DOF LOCAL FINANCE CIRCULAR 01-93 provides for the

guidelines governing the power of municipalities and provinces to
impose a business tax on banks and other banking institutions.
DOF LOCAL FINANCE CIRCULAR 2-93 provides for the guidelines
for insurance companies. DOF LOCAL FINANCE CIRCULAR 3-93
provides for guidelines for financing companies.
Page 109 of 164


7. Peddlers
8. Other business not specified
Note: Those already subject to tax under (1) to (7) can no
longer be subject to tax under (8) otherwise it will be
deemed as double taxation. (see City of Manila v. CocoCola Bottlers [August 4, 2009])
A corporation with no business operation, and is merely an
investor in another corporation, is not liable for local
business tax. ORLEYTE COMPANY (PHILIPPINE BRANCH) VS.
CITY OF MAKATI AND DULCE P. CRUZ, IN HER CAPACITY AS
TREASURER OF MAKATI, CTA AC NO. 80, NOVEMBER 14,
2012
The operator of the North Expressway falls within the
classification of a contractor subject to local business tax
based on its gross receipts. MANILA NORTH TOLLWAYS
CORPORATION VS. THE MUNICIPALITY OF GUIGUINTO BULACAN,
CTA AC NO. 82, DECEMBER 03, 2012
the said case, the Supreme Court differentiated

gross receipts and gross revenue. Gross receipts
include money or its equivalent actually or
constructively received in consideration of services
rendered or articles sold, exchanged, or leased,
whether actual or constructive whereas gross
revenue covers money or its equivalent actually or
constructively received, including the value of
services rendered or articles sold, exchanged or
leased, the payment of which is yet to be received.
Q: What is the ceiling on business tax

imposed on municipalities within Metro
Manila?
The municipalities in Metro Manila may levy taxes at
rates which shall not exceed by 50% the maximum
rate prescribed in Section 143, LGC (see Section
144, LGC)
Q: What are the conditions before a

business may be subject to local business
tax?
Q: What are the conditions before business

may be considered officially retired?
Before a business may be subject to local business

tax, the business must not be subject to VAT or
percentage tax under the NIRC or if the business is
subject to excise, VAT or percentage tax under the
NIRC, the tax rate shall not exceed 2% of gross
sales/ receipts of the preceding calendar year.
A business subject to tax shall, upon termination

thereof, submit a sworn statement of its gross sales
or receipts for the current year. If he ax paid during
the year be less than the tax due on said gross sales
or receipts of the current year, the difference shall
be paid before the business is considered officially
retired (see Section 145, LGC)
Q: Can an
corporation?
Q: Are the local tax payments paid for the

privilege of carrying on business in the year
paid or for having engaged in business the
previous year?
LGU
tax
condominium
No. As held by the Supreme Court in Y AMANE V. BA

LEPANTO CONDOMINIUM CORP [OCTOBER 25, 2005],
condominium corporations are not businesses as
the same is defined under the LGC which is a
commercial activity regularly engaged with a view to
profit. Even if a condominium corporation can levy
fees, these are used merely to finance the expenses
of the condominium and nothing more.
Q: What is the tax base of the local business

tax?
The local business tax is imposed on gross receipts.
In ERICSSON TELECOMMUNICATIONS V. CITY OF PASIG
[NOVEMBER 22, 2007], Ericsson was assessed for
deficiency local business tax but countered that the
assessment was erroneous for having been based
on is gross revenue rather than just its gross
receipts. The Supreme Court ruled that the local
business tax must be imposed on gross receipts. In
It is paid for the privilege of carrying on business in

the year paid. In MOBIL PHILIPPINES V. THE CITY
TREASURER OF M AKATI [JULY 14, 2005], for the year
1998, Mobil paid a total of P2,262,122.48 to the City
Treasurer of Makati as business taxes for the year
1998. The amount of tax as computed based on
Mobils gross sales for 1998 is only P1,331,638.84.
Since the amount paid is more than the amount
computed based on Mobils actual gross sales for
1998, Mobile upon its retirement is not liable for
additional taxes to the City of Makati. The Supreme
Court found that the City Treasurer erroneously
reated the assessment and collection of tax as if it
were an income tax by rendering an additional
Page 110 of 164


assessment of P1,331,638.84 for the revenue

29
generated for the year 1998.
Q: What are the rules on payment of

business tax?
a.
b.
The business taxes shall be payable for every

separate and distinct establishment or place
where business subject to tax is conducted and
one line of business does not become exempt
by being conducted with some other business
for which such tax has been paid
In cases where a person conducts or operates
2 or more of the businesses subject to local
business tax:
i.
ii.
If both businesses are subject to the same

rate the tax shall be computed on the
combined total gross sales or receipts
If both businesses are subject to different
rates the gross sales or receipts of each
business shall be separately reported for
the purpose of computing the tax due from
each business. (see Section 146, LGC)
Fees on business and occupation

Q: May a municipality impose a professional
tax?
No. The municipality may impose and collect such
reasonable fees and charges on business and
occupation and on the practice of any profession or
calling except professional tax which is reserved to
the province. (see Section 147, LGC)
Q: What is the situs of local business taxes

as stated in Section 150 of the LGC?
Section 150(a)
29
Another example: A corporation whose gross sales was 10

million in 2008 and 20 million in 2009, the local business tax
payable in January 2009 is based on 10 million (gross receipts for
2008) but the same is payment for the right to do business in
2009. Thus, on the year of retirement, the company will only be
liable if the actual local business tax on the basis of current year
sales is more than the local business tax paid based on previous
years sales. To continue the example, if the sales of the company
are also P10 million as of the date of retirement in 2010, this
means that the payment made in January 2010 based on the
2009 gross receipts is sufficient to cover the local business tax
due upon retirement.

If there is branch/sales office in the municipality or

city where the sale or transaction is made, the tax
shall accrue and shall be paid where such branch or
sales outlet is located.
If there is no branch/sales office in the city or
municipality where the sale or transaction is made,
the sale shall be recorded in the principal office and
the taxes shall accrue and shall be paid to such city
or municipality (where the principal office is located)
With
branch/sales
office
Yes
No
Recorded at
Allocation
Branch/sales
office
Principal office
None
None
Note: An office may be considered a sales office (1) if the

office only accepts orders but does not issue sales
invoice; (2) if the office does not accept orders but issues
sales invoices or (3) if the office accepts orders and issues
sales invoices (see BLGF Opinion dated January 15,
2007)
Section 150(b)
The following sales allocation shall apply to
manufacturers with factories, plants and plantations,
etc.:
If the plantation and factory are located in the same
place
1. 30% of all sales recorded in the principal
office shall be taxable by the city or
municipality where principal office is located
2. 70%
shall be taxable by the city or
municipality where
If the plantation and factory are not located in the
same place, the 70% above shall be divided as
follows
1. 60% to the city or municipality where the
factory is located
2. 40% to the city or municipality where the
plantation is located
Plantation
&
factory in same
location
Yes
No
Allocation
principal
30%
30%
to
Allocation
factory, etc
to
70%
The 70% above
shall be divided:
Page 111 of 164


1. Factory 60%
2. Plantation
40%
located but where no transactions are made, may

only collect Mayors permit fee and other regulatory
fees.
If two or more
factories, etc =
70% is prorated
Q: Taxpayer has its principal office and also

a branch in the City of Makati. At the same
time, it has branches in the cities of
Paranaque and Cebu. The City Treasurer of
Makati assessed the taxpayer for deficiency
local business tax for sales of the
Paranaque branch allegedly not declared in
the City of Paranaque. The City of Makati
maintained that it had the authority to
assess business taxes on revenues not
properly taxed in Paranaque City and Cebu
City. Is the City Treasurer of Makati correct?
Note: Section 150(b) is only resorted to if there is no

branch or sales office. In addition, the allocation shall be
applied irrespective of whether or not the sales are made
in the locality where the factory, plant or plantation is
located.
Q: ABC is engaged in manufacturing

household products. It secured the services
of an independent contractor XYZ to provide
local physical distribution facilities within
the specified places in the Philippines. XYZ
has a warehouse in Tacloban City and
makes deliveries to ABCs customers
outside the city. Under the contract, ABC
can also make deliveries of its products in
other places of the country from its own
warehouse in Makati. What is the situs of
taxation of the sales made by ABC and
XYZ?
As held in BUREAU OF LOCAL GOVERNMENT OPINION
DATED M ARCH 7, 1994, the products taken from the
warehouse of PBE in Tacloban City and delivered to
CPI's customers outside the city should be recorded
and the tax thereon paid in Tacloban City where said
warehouse is situated. As to the deliveries or sales
made by CPI of products taken from its warehouse
in Makati to places where it does not have any
branch, sales office, or another warehouse, the
same should be recorded in Makati where its
principal office is located and the taxes due thereon
should likewise be paid to said municipality.
Q: MI is a corporation engaged in trading

books. It holds an office in Pasig where all
transactions are made. However, MI also
maintains a warehouse in Mandaluying
which serves as its storage area and no
transactions are made therein. What is the
situs of taxation of the sale of MIs books?
As held in BUREAU OF LOCAL GOVERNMENT OPINION
29, 1993, Mi should be liable for gross
sales tax to the then Municipality of Pasig. On the
other hand, Mandaluyong, where the warehouse is
No. For purposes of collection of local taxes,
businesses maintaining or operating branch or

sales outlet elsewhere shall record the sale in
the branch or sales outlet making the sale or
transaction, and the tax thereon shall accrue
and shall be paid to the municipality where such
branch or sales outlet is located. Thus, the
revenues of the branches outside Makati should
not be part of the tax base for the determination
of the local business tax to be paid in the City of
Makati. In other words, Revenues of branches or
sales outlet elsewhere should not be part of the tax
base for the determination of the local business tax
to be paid in the City where the principal office is
located. (CITY OF M AKATI AND THE OFFICE OF THE
CITY TREASURER OF MAKATI CITY VS. NIPPON
EXPRESS PHILIPPINES CORPORATION [CTA AC CASE
NO. 76 DATED FEBRUARY 17, 2012])
--------------------------------------------------------------6. Common limitations on the taxing power

of LGUs
--------------------------------------------------------------Read Section 133, LGC
Q: What are the limitations on the taxing
power of LGUs?
As provided in SECTION 133, LGUs cannot impose
the following:
DATED M ARCH

a. Income tax (except on bank and financial

entities)
Page 112 of 164

b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
DST
Estate and Donors taxes
Customs Duties
Taxes on goods passing through the LGU
Taxes on agricultural and aquatic products
sold by marginal farmers and fisherman
Taxes on BOI-registered enterprises
Excise taxes on articles under the Tax Code
and taxes on petroleum products
Percentage tax and VAT
Taxes on gross receipts of transportation
contractors
Taxes on premium paid by way of
reinsurance
Taxes on registration of motor vehicles
Taxes on Philippine products actually
exported
Taxes on Countryside and Barangay
Business Enterprises and cooperatives
Taxes and fees on the National Government
As provided in SECTION 186, LGUs cannot impose

taxes that are specifically enumerated or taxed
under the provisions of the Tax Code.
Section 133(e)
Q: Is a municipal ordinance imposing fees
on goods (corn) that pass through a
municipalitys territory valid?
No. As held in PALMA DEVELOPMENT CORP V.
ZAMBOANGA DEL SUR [OCTOBER 16, 2003], LGUs,
through their Sanggunian, may impose taxes for the
use of any public road such as a service fee
imposed on vehicles using municipal roads to a
wharf. However, Section 133(e) prohibits the
imposition in the guise of wharfage, of fees as well
as other taxes or charges in any form whatsoever on
goods or merchandise. In this case, the LGU cannot
tax the goods even in the guise of police
surveillance fees.
No. As held in PROVINCE OF BULACAN V. CA

[NOVEMBER 27, 1998], generally, the LGU can
impose such tax even if not in LGC since Section
186 of the Code is sweeping. However, the province
cannot levy on minerals from private lands because
it is an excise tax on an article already covered by
30
the Tax Code.
Q: Petron maintains a depot or bulk plant at

the Navotas Fishport Complex where it
engages in the selling of diesel fuels to
vessels used in commercial fishing. Navotas
City levied business taxes on its sale of
petroleum products. Can the LGU levy the
business tax on the sale of petroleum?
No, the LGU cannot impose any local tax on
petroleum products. As held in PETRON CORP. V.
TIANGCO [APRIL 16, 2008], the prohibition with
respect to petroleum products extends not only to
excise taxes but all taxes, fees, and charges.
Section 133(h) provides for two possible bases for
exemption: (1) excise tax on articles enumerated
under the Tax Code; and (2) taxes, fees, and
charges on petroleum products. In the latter, the
exemption refers not only to direct or excise taxes to
be levied by the LGUs on petroleum products but on
all types of taxes on petroleum products including
business taxes.
Section 133(j)
Q: What is the rationale for the exemption of
common carriers from local taxes?
As held in FIRST PHILIPPINE INDUSTRIAL CORP V. CA
[DECEMBER 29, 1998], the legislative intent in
excluding from the taxing power of the LGU the
imposition of business tax against common carriers
is to prevent a duplication of the so-called common
carriers tax.
Section 133(h)
Q: The Province of Bulacan passed an
ordinance imposing tax on minerals
extracted from public lands but went on to
collect tax on minerals extracted from
private lands. Since the LGC only provides
for tax on public lands, is the action of the
Province of Bulacan valid?

30
This applies the Preemption or Exclusionary Rule wherein the

national government elects to tax a particular area, impliedly
withholding from the LGU the delegated power to tax the same
field.
Page 113 of 164


General Rule: Within the first 20 days of January or

of each subsequent quarter, as the case may be
Section 186
Q: Are broadcasting and telecommunication
companies liable to pay local transfer
taxes?
No. As held in both SMART COMMUNICATIONS V. THE
CITY OF DAVAO [SEPTEMBER 16, 2008] and QUEZON
CITY V. ABS-CBN BROADCASTING CORPORATION
[OCTOBER 6, 2008], these franchise holders are now
31
subject to VAT.
--------------------------------------------------------------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
--------------------------------------------------------------Read Section 165 to 171, LGC
Exception: For justifiable reason or cause, the

Sanggunian may extend the time for payment
without surcharge or penalties but only for a period
not exceeding 6 months. (See Section 167, LGC)
Q: What penalties are imposable on failure

to pay local taxes?
The penalty of 25% surcharge and 2% interest per
month not to exceed 36 months (or a maximum of
72%) may be imposed. (see Section 168, LGC)
Q: What are the requisites for a valid

examination of books?
a. In order to ascertain, assess, and collect the
correct amount of the tax, fee, or charge
b. During regular business hours
c. Only once every tax period
d. Shall be certified to by the examining official
e. Such certificate shall be made of record in
the books of accounts of the taxpayer
examined.
Q: What is the tax period for local taxes

The tax period of all local taxes, fees and charges
shall be the calendar year. Such taxes, fees, and
charges may be paid in quarterly instalments (see
Section 165, LGC)
Note: Local taxes may be paid on an annual basis at the
option of the taxpayer. In contrast, real property taxes
must be paid annually.
--------------------------------------------------------------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
---------------------------------------------------------------
Q: When do local taxes accrue?

General Rule: On January 1
st
Exception: New taxes which will accrue on the 1

day of the next quarter following effectivity of the
ordinance.
Q: When are local taxes paid?
31
The Supreme Court ruled in both cases that the in lieu of all
taxes clause in their franchises applies only to national internal
revenue taxes and not to local taxes. As such, they would have
been liable to pay local transfer taxes. However, with the advent
of the VAT law, such franchise holders are instead liable to pay
VAT.

Note: The bar syllabus covers only tax remedies available

to the taxpayer when the assessment has been made.
Allow me to discuss the remedies available prior to the
assessment which is provided for in the LGC and the
Rules of Court.
Q: What are the remedies available to the

taxpayer prior to assessment?
a. To question the constitutionality or legality of
tax ordinances or revenue measures on
appeal
(see
Section
187,
LGC)
(Administrative)
b. Petition for declaratory relief as and when
applicable (Judicial)
Page 114 of 164


Q: Outline the process on how an appeal

involving questions of constitutionality or
legality of tax ordinances.
1. Appeal to the Secretary of Justice within 30
days from effectivity
2. The Secretary of Justice has 60 days to
decide but an appeal does not suspend the
effectivity of the ordinance
3. Within 30 days from the Secretary of
Justices decision or after 60 days inaction,
an appeal may be filed with the RTC.
Q: Is compliance with the 30-60-30 day

period rule mandatory?
Yes. In REYES V. CA [DECEMBER 10, 1999], the
Secretary of Justice dismissed an appeal assailing
the constitutionality of the tax ordinances of the
Municipality of San Juan on the ground that it was
filed out of time. The Supreme Court ruled that
compliance with the three separated periods is
mandatory. The failure of the petitioners in the case
to appeal to the Secretary within 30 days from the
date of effectivity is fatal to their cause.
Cagayan Electric Power and Light Co. v.

City of Cagayan de Oro, G.R. 191761,
November 14, 2012
DOCTRINE: Failure to appeal to the Secretary of Justice
within the statutory period of 30 days from the effectivity of
the ordinance is fatal to ones cause.
FACTS: On January 10, 2005, the Sangguniang
Panlungsod of Cagayan de Oro (City Council) passed
Ordinance No. 9503-2005 imposing a tax on the lease
orrental of electric and/ortelecommunication posts, poles
or towers by pole owners to other pole users at ten
percent(10%) of the annual rental income derived from
such lease or rental. The City Council, in aletter dated 15
March 2005, informed Cagayan Electric Power and Light
Company, Inc. (CEPALCO), through its President and
Chief Operation Manager, Ms. Consuelo G. Tion, of the
passage of the subject ordinance. On September 30,
2005, appellant CEPALCO, purportedly on pure question
of law, filed a petition for declaratory relief assailing the
validity of Ordinance No. 9503-2005 before the Regional
Trial Court.
HELD: The Court ruled that CEPALCO failed to exhaust
administrative remedies. Section 5 of said ordinance
provided that the Ordinance shall take effect after 15 days
following its publication in a local newspaper of general
circulation for at least three (3) consecutive issues. Gold

Star Daily published Ordinance No. 9503-2005 on 1 to 3

February 2005. Ordinance No. 9503-2005 thus took effect
on 19 February 2005. CEPALCO filed its petition for
declaratory relief before the Regional Trial Court on 30
September 2005, clearly beyond the 30-day period
provided in Section 187. CEPALCO did not file anything
before the Secretary of Justice. Thus, the Court found that
CEPALCO ignored the mandatory nature of the statutory
periods.
Q: Is payment under protest required before

a party may appeal to the Secretary of
Justice?
No. As held in JARDINE DAVIS INSURANCE V. ALIPOSA
[FEBRUARY 27, 2003], prior payment under protest is
not required when the taxpayer is questioning the
very authority and power of the assessor to impose
the assessment and of the treasurer to collect the
tax (as opposed to questioning the increase or
decrease in the tax to be paid).
Q: What authority is given to the Secretary

of Justice with respect to review of tax
ordinances?
The Secretary of Justice can declare an ordinance
void for not having followed the requirements of the
law but he cannot replace it with his own law or he
cannot say that is is unwise. In DRILON V. LIM
[AUGUST 4, 1994], then Secretary of Justice Drilon
set aside the Manila Revenue Code on two grounds,
namely the inclusion of certain ultra vires provisions
and its non-compliance with the prescribed
procedure in its enactment. In ruling that the act of
then Secretary Drilon was proper, the Supreme
Court noted that when the Secretary alters or
modifies or sets aside a tax ordinance, he is not
allowed to substitute his own judgment for the
judgment of the LGU that enacted the measure. In
the said case, Secretary Drilon only exercised
supervision and not control.
Q: X, a taxpayer who believes that an

ordinance passed by the City Council of
Pasay is unconstitutional for being
discriminatory against him wants to know
from you, his tax lawyer, whether or not he
could file an appeal. In the affirmative, he
asks you where such appeal should be
made: The Secretary of Finance, the
Secretary of Justice or the CTA or the
Page 115 of 164


regular courts. What would your advice be

to your client?
within 10 years from discovery of fraud or intent to

evade
The appeal should be made with the Secretary of

Justice. Any question on the constitutionality or
legality of a tax ordinance may be raised on appeal
with the Secretary of Justice within 30 days from the
effectivity thereof (Hagonoy Market Vendor Assoc.
v. Municipality of Hagonoy [376 SCRA 376])
Q: What is the rule on collection?
Q: Olongapo City enacted an ordinance

fixing monthly rental fees for the different
stalls in the new public market. A
questioned the validity of the said ordinance
by filing an appeal with the Secretary of
Justice. The Secretary deferred rendering a
decision on the appeal and advised A to file
his appeal with the RTC. Is the act of the
Secretary proper?
Yes. In ANGELES CITY V. ANGELES ELECTRIC

CORPORATION [JUNE 29, 2010], the Supreme Court
held that the LGC does not specifically prohibit an
injunction enjoining the collection of local taxes (as
compared to the Tax Code which has an express
prohibition). Nevertheless, the Court noted that
injunctions enjoining the collection of local taxes are
frowned upon and should therefore be exercised
with extreme caution.
No. As held in CITY OF OLONGAPO V. STALLHOLDERS

OF EAST B AJAC-B AJAC PUBLIC M ARKET [OCTOBER
19, 2000], the act of the Secretary of Justice was
tantamount to an abdication of his jurisdiction over
the appeal of the ordinance. The Secretary may not
abdicate his authority to review tax ordinances.
Q: When may an action for declaratory relief

be filed?
Collection must be within 5 years from assessment.
Q: May regular court issue an injunction to

restrain LGUs from collecting taxes?
Q: What are the grounds for the suspension

of the running of the prescriptive?
a. The treasurer is legally prevented from the
assessment or collection of the tax
b. The taxpayer requests for reinvestigation
and executes a waiver in writing before the
expiration of the period within which to
assess or collect; and
c. The taxpayer is out of the country or
otherwise cannot be located
When there is such an obscurity, declaratory relief

would be applicable. This remedy is open to
determine any question of construction or validity of
a tax law and/or the declaration of taxpayers
liabilities thereunder (Valley Trading v. CFI [March
4, 1989])

taxpayer after assessment?
--------------------------------------------------------------a) Periods of assessment and collection of

local taxes, fees or charges
---------------------------------------------------------------
--------------------------------------------------------------b) Protest of assessment

---------------------------------------------------------------
Read 194, LGC
Q: What are the rules on assessments?
Q: Outline the procedure in contesting a

local tax assessment.
General Rule: An assessment must be made within

5 years from the date they become due.
Exception: If there is fraud or intent to evade
payment of the tax, the assessment may be made

a. Protest of assessment (Section 195, LGC)

b. Claim for refund (Section 196, LGC)
1. Assessment notice issued by local treasurer

2. File written protest with the local treasurer
within 30 days from date of payment
3. The Treasurer has to decide within 60 days
Page 116 of 164


4. An appeal to the RTC is then available upon

denial or 60-day inaction by the treasurer
5. The RTC decision is appealable to the CTA
En Banc
of resolution.
Note: (1) Unlike in RPT, no protest under payment is
required.
(2) Review by RTC over denial of protest by the local
treasurer falls within the courts original jurisdiction.
NATIONAL TRANSMISSION CORPORATION VS. MUNICIPAL
TREASURER OF LABRADOR, PANGASINAN, REPRESENTED BY
EDUALINO CASIPIT IN HIS CAPACITY AS MUNICIPAL TREASURER,
CTA AC NO. 67, JUNE 25, 2012
In local tax assessments, the CTA En Banc does not have
jurisdiction over cases decided by the Regional Trial Court
in the exercise of its original jurisdiction. NATIONAL POWER
CORPORATION VS. THE CITY GOVERNMENT OF TUGUEGARAO,
CTA EB CASE NO. 696 (RTC CIVIL CASE NO. 7240), JUNE 5,
2012
(3) What is the venue of your appeal of the denial of the
protest by the local treasurer? In NATIONAL TRANSMISSION
CORPORATION VS. THE MUNICIPALITY OF MAGALLANES,
AGUSAN DEL NORTE [C.T.A. AC NO. 68, JANUARY 5, 2012],
the CTA held that the local Governments assessment for
business taxes and other regulatory fees is civil in nature
and basically a personal action. For purposes of instituting
personal actions in court, the place where the taxpayers
principal office is located may also be considered as the
proper venue.
(4) The failure of the taxpayer to file and perfect its appeal
with the regional trial court within the prescribed period
deprives the Court of the jurisdiction to entertain and
determine the correctness of the assessment made by the
city treasurer. ACESITE (PHILIPPINES) HOTEL CORPORATION
VS. LIBERTY TOLEDO, IN HER CAPACITY AS CITY TREASURER OF
THE CITY OF MANILA AND THE CITY OF MANILA [CTA, MAY 24,
2012].
Taxpayer has 60 days from the date of receipt of the
assessment to file a protest; failing which, the assessment
shall become final and executor SPC REALTY
CORPORATION VS. MUNICIPAL TREASURER OF CAINTA, CTA
AC NO. 77, NOVEMBER 15, 2012
--------------------------------------------------------------c) Claim for refund of tax credit for

erroneously or illegally collected tax, fee or
charge
--------------------------------------------------------------Read Section 196, LGC
Q: What is the rule on refunds?

The taxpayer must file a written claim within 2 years
from the date of payment of tax or from the date
when the taxpayer is entitled to refund.
--------------------------------------------------------------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
(i) Administrative action
(ii) Judicial action
--------------------------------------------------------------Read Section 172-185, LGC
Q: What is the
governments lien?
nature
of
local
Local taxes, fees, charges and other revenues

constitute a lien, superior to all liens, charges, or
encumbrances in favour of any person, enforceable
by any appropriate administrative or judicial action
(see Section 173, LGC)
Note: The lien may only be extinguished upon full
payment of the delinquent local taxes, fees, and charges,
including related surcharges and interest (see Section
173, LGC)
Q: What are the civil remedies available to

the LGU for collection of revenues?
a. Administrative action
i. Distraint of personal property
ii. Levy upon real property
iii. Compromise
b. Judicial action
Note: Either of these remedies or both may be pursued
concurrently or simultaneously at the discretion of the LGU
concerned (see Section 174, LGC)
Q: How is the administrative remedy of

distraint or levy exercised?
By administrative action thru distraint of goods,
chattels, or effects, and other personal property or
whatever character, including stocks and other
securities, debts, credits, bank accounts and interest
Page 117 of 164


in and rights to personal property, and by levy upon

real property and interest in or rights to real property.
Note: (1) The remedies of distraint and levy may be
repeated if necessary until the full amount due including all
expenses is collected (see Section 184, LGC)
(2) For properties exempt from distraint or levy, see
Section 185, LGC
Q: Outline the procedure for distraint of

personal property
1. Tax constitutes a lien superior to all liens and
2.
3.
4.
5.
6.
7.
may only be extinguished upon payment of the

tax and the related charges. (Section 173, LGC)
Time for payment of Local taxes expires
Local Treasurer (LT), upon written notice, seizes
sufficient personal property to satisfy the tax, and
other charges (Section 175, LGC)
LT issues a certificate which serves as warrant
for the distraint of personal property, (Section
175, LGC)
Officer executing the distraint accounts for the
goods, distrained (Section 175, LGC)
Officer posts notice in office of the chief executive
of the LGU where the property is distrained and
in at least 2 other public places specifying the
time & place of sale, and distrained goods. The
time of sale shall not be less than twenty (20)
days after the notice. (Section 175, LGC)
Before the sale, the goods or effects distrained
shall be restored to the owner if all charges are
paid (Section 175, LGC)
Note: The next steps in the procedure will vary depending

on whether the property distrained is disposed of within
120 days from distraint.
If disposed
If not disposed
8. Officer
sells
the
goods
at
public
auction to the highest
bidder for cash. w/in
5 days, the local
treasurer shall report
sale to the local chief
executive concerned
(Section 175, LGC)
over charges shall be
returned to the owner
of the property sold.
8. It
shall
be
considered as sold
to the LGU for the
amount
of
the
assessment made
by the Committee
on Appraisal and to
the extent of the
same amount, the
tax
delinquencies
shall be cancelled.
(Section 175, LGC)

(Section 175, LGC)

Note: If the proceeds of the sale are insufficient other
property may be distrained until the full amount due,
including all expenses, is collected. (Section 175, LGC)
Q: Outline the procedure for distraint of real

property
1. Warrant of Levy issued by the Local Treasurer
(LT), which has the force of legal execution in the
LGU concerned. (Section 176, LGC)
2. Warrant is mailed to or served upon the
delinquent owner (Section 176, LGC)
3. Written notice of the levy and the warrant is
mailed/served upon the assessor and the
Registrar of Deeds of the LGU (Section 176,
LGC)
4. 30 days from service of warrant, LT shall
advertise sale of the property by:
a. posting notice at main entrance of LGU
hall/building and in a conspicuous place in the
barangay where property is located and
b. by publication once a week for 3 weeks
(Section 178, LGC)
Note: In cases of levy for unpaid local taxes publication is
once a week for 3 weeks
5. Before the date of sale, the owner may stay the

proceedings by paying the delinquent tax,
interest and the expenses of sale. (Section 178,
LGC)
6. Sale is held:
a. at the main entrance of the LGU building, or
b. on the property to be sold, or
c. at any other place specified in the notice
(Section 178, LGC)
on whether, on one hand, there is a bidder and on the
other, there is no bidder or the highest bid is insufficient to
cover the taxes and other charges.
If there is a bidder
If there is no bidder OR
the highest bid is
insufficient to cover
the taxes and other
charges
7. Bidder pays and 30

days after the sale,
the LT shall report the
sale
to
the
7. LT shall purchase
the
property
in
behalf of the LGU
(Section 181, LGC)
Page 118 of 164


sanggunian (Section
178, LGC)
8. LT shall deliver to
purchaser certificate
of sale
9. Proceeds of sale in
excess of delinquent
tax,
interest
&
expenses of sale
remitted to the owner
(Section 178, LGC)
sale,
owner
may
redeem
upon
payment of the 1.
delinquent tax, 2.
interest
due,
3.
expenses of sale
(from
date
of
delinquency to date
of sale) and 4. addl
interest of 2% per
month
on
the
purchase price from
date of sale to date of
redemption.
Delinquent
owner
retains
possession
and right to the fruits
(Section 179, LGC)
11. LT returns to the
purchaser/bidder the
price
paid
plus
interest of 2% per
month (Section 179,
LGC)
12. If property is not
redeemed, the local
treasurer
shall
execute a deed of
conveyance to the
purchaser
(Section
180, LGC)
Note: in cases of levy for

unpaid local taxes, LT may
purchase if there is no
bidder or if the highest bid
is insufficient (Section 181,
LGC)
8. Registrar of Deeds
shall transfer the
title of the forfeited
property to the LGU
without need of a
court order (Section
181, LGC)
forfeiture, the owner,
may redeem the
property by paying
to the local treasurer
the full amount of
the tax and the
related interest and
the costs of sale
otherwise
the
ownership shall be
vested on the local
government
unit
concerned. (Section
181, LGC)
10. Sanggunian
concerned may, by
ordinance sell and
dispose of the real
property
acquired
under the preceding
section at public
auction.
(Section
182, LGC)
and other charges but for RPT, the LGU may purchase
for only one reason there is no bidder! Its that simple.
So memorize the procedure and just take note of these
two distinctions between levying for local taxes and
levying for RPT.
Q: How is the remedy of judicial action

exercised?
The LGU concerned may institute an ordinary civil
action with the regular courts for the collection of
delinquent taxes within 5 years from the date the
taxes, fees or charges become due (see Section
138 in relation to Section 194, LGC)
Note: (1) In both cases, levy may be repeated until the full
amount due, including all expenses, is collected.
(2) This is important! To make our lives easier, I want you
to note that the procedure for levying real properties to
satisfy local taxes is.wait for it.the SAME as the levy
procedure for satisfying RPT. Wait hindi pa tapos! Its the
same EXCEPT for two things: (1) Publication is once a
week for 3 weeks for local taxes while it is once a week for
2 weeks for RPT and (2) for local taxes, the LGU may
purchase levied property for two reasons there is no
bidder OR the highest bid is insufficient to cover the taxes

Page 119 of 164


---------------------------------------------------------B. REAL PROPERTY TAXATION

---------------------------------------------------------Q: What are real property taxes?
These are direct taxes imposed on the privilege to
use real property such as land, building, machinery
and other improvements unless specifically
exempted.
Note: Before we can even talk about real property
taxation, I would have to state the obvious that this tax
only applies to, well, real property. In any problem
involving real property taxation, you must first determine if
its real property or not. If its not real property, then its not
subject to real property taxation. Thus, Ill discuss what are
considered real properties for purposes of RPT.
Q: What are considered real properties?

There is no definition provided for in the LGC.
Reference must be made to Article 415 of the Civil
Code, to wit.
Article 415. The following are immovable property:

(1) Land, buildings, roads and constructions of all
kinds adhered to the soil;
(2) Trees, plants, and growing fruits, while they are
attached to the land or form an integral part of an
immovable;
(3) Everything attached to an immovable in a fixed
manner, in such a way that it cannot be separated
therefrom without breaking the material or
deterioration of the object;
(4) Statues, reliefs, paintings or other objects for use
or ornamentation, placed in buildings or on lands by
the owner of the immovable in such a manner that it
reveals the intention to attach them permanently to
the tenements;
(5) Machinery, receptacles, instruments or
implements intended by the owner of the tenement
for an industry or works which may be carried on in
a building or on a piece of land, and which tend
directly to meet the needs of the said industry or
works;
(6) Animal houses, pigeon-houses, beehives, fish
ponds or breeding places of similar nature, in case
their owner has placed them or preserves them with
the intention to have them permanently attached to
the land, and forming a permanent part of it; the
animals in these places are included;
(7) Fertilizer actually used on a piece of land;

(8) Mines, quarries, and slag dumps, while the
matter thereof forms part of the bed, and waters
either running or stagnant;
(9) Docks and structures which, though floating, are
intended by their nature and object to remain at a
fixed place on a river, lake, or coast;
(10) Contracts for public works, and servitudes and
other real rights over immovable property.
Note: Personal property may be classified as real property
for purposes of taxation.
Q: Are the steel towers of an electric

company real property for the purpose of
RPT?
No. In BOARD OF ASSESSMENT APPEALS V.
MERALCO [JAN. 31 1964], the Supreme Court held
that the steel towers of MERALCO do not constitute
real property or the purpose of the real property tax.
The steel towers were regarded as poles and under
its franchise Meralco's poles are exempt from
taxation. Moreover, the steel towers were not
attached to any land or building. They were
removable from their metal frames.
Q: Define machinery.
Machinery
embraces
machines,
equipment,
mechanical contrivances, instruments, appliances or
apparatus which may or may not be attached,
permanently or temporarily, to the real property. It
includes the physical facilities for production, the
installations and appurtenant service facilities, those
which are mobile, self-powered or self-propelled,
and those not permanently attached to the real
property which are actually, directly, and exclusively
used to meet the needs of the particular industry,
business or activity and which by their very nature
and purpose are designed for, or necessary to its
manufacturing,
mining,
logging,
commercial,
industrial or agricultural purposes (see Section
199(o), LGC)
Q: What types of machinery are subject and

not subject to RPT?
1. Machinery that is permanently attached to
land and buildings is subject to the real
property tax, even though this is actually,
directly, and exclusively used for religious,
charitable or educational purposes.
Page 120 of 164


2. Machinery that is not permanently attached

to real estate is:
a. Subject to the real property tax if it is
an essential and principal element
of an industry, work or activity
without which such industry, work or
activity, cannot function;
b. Not subject to the real property tax if
it is not an essential and principal
element of an industry, work or
activity.
3. Notwithstanding rules 1 and 2, machinery of
non-stock, non-profit educational institutions
used actually, directly, and exclusively for
educational purposes is not subject to real
property tax. (see DOF LOCAL FINANCE
CIRCULAR 001-2002 [APRIL 25, 2002])
Q: Define improvement.
Improvement is a valuable addition to the property or
an amelioration in its condition amounting to more
than a repair or replacement of parts. (see Section
199(m), LGC)
Q: What are the requisites for taxability of

an improvement?
1. It must enhance the value of the property
2. It must be separately assessable
3. It can be treated independently from the
main property.
Q: The City Assessor of CDO assessed as

taxable the machinery of Asian College of
Science and Technology (ACSAT), a nonstock, non-profit educational institution.
Upon the issuance of DOF LOCAL FINANCE
CIRCULAR 001-2002 [APRIL 25, 2002], the City
Assessor declared the machinery as tax
exempt effective the 2nd quarter of 2002.
ACSAT argues that the exemption should
retroact to the year 1998. Is ACSAT correct?
finished products for sale nor to repair

machineries offered to the general public for
business
or
commercial
purposes
considered as realty subject to RPT?
No. In MINDANAO BUS CO. V. CITY ASSESSOR &
TREASURER [SEPT. 29, 1962], the Supreme Court
held that for equipment to be real property, they
must be essential and principal elements. In
addition, the machinery should be essential to carry
on business in a building or piece of land and this is
not the case here since it was proven that the
equipment was not essential because it is used only
for repairs which could actually be done elsewhere.
Q: Are the gas station equipment and

machinery (tanks, pumps, etc) permanently
affixed by Caltex to its gas station and
pavement, albeit on leased land, considered
real property subject to real property taxes
even if lessor does not become the owner of
the said assets?
Yes, because they are essential to the business of
the taxpayer. In CALTEX V. CBAA [M AY 31, 1982],
the Supreme Court ruled that he said equipment and
machinery, as appurtenances to the gas station
building or shed owned by Caltex and which fixtures
are necessary to the operation of the gas station for
without them the gas station would be useless and
which have been attached or affixed permanently to
the gas station site are taxable improvements and
machinery. The case of DAVAO SAWMILL CO. V.
CASTILLO [AUGUST 7, 1935] where at issue was
whether the property was installed by the owner
does not apply since in that case the issue was on
execution of judgment against the lessee.
Q: Are generator sets real property for

purposes of RPT?
No. [see BLGF OPINION DATED NOVEMBER 28, 2011]
Yes. In BLGF OPINION DATED DECEMBER 15, 2006],

it was held that the request for retroactive effectivity
in 1998 of exemption of the subject machinery
owned by ACSAT should be given due course
Q: Are equipment/machineries in cement or

wooden platform and which were never
used as industrial equipments to produce
Page 121 of 164


Q: What is the taxability of the following

properties of a bank: (1) vault doors; (2)
safety deposit boxes; (3) surveillance
cameras; (4) generator sets; (5) water
pumps; (6) uninterrupted power supply
equipment; (8) exhaust fans; and (9) ceiling
fans?
(1) Vault doors, (2) safety deposit box; and (3)
surveillance cameras should be assessed as
improvements for enhancing the utility of the bank.
(4) to (9) do not fall within the definition of machinery
subject to RPT. (see BLGF OPINION DATED M ARCH
22, 2005]

properties of a bank: (1) ATM Machine
procash; (2) Cash vault door protect; (3)
Security cash locker fortress; (4) Protect
safe deposit boxes; (5) Security Devices; (6)
Magitek UPS; (7) Airconditioning units; (8)
Computers (CPU, printer, deskset, monitors,
scanner/HP Flatbed, PC Server, modem,
etc.); (9) Phone Panasonic Wireless; (10)
Phone SNI Digital; and (11) Exhaust fans?
Items Nos. 2-5 should have been classified as
improvement subject to real property tax as
discussed above; while item Nos. 6-11 should be
classified as machinery of general purpose use thus
exempt from payment of real property tax. ATMs,
however, are correctly classified as machinery
subject to real property tax. (see BLGF OPINION
DATED FEBRUARY 17, 2005]

properties: (1) printing and developing
machine owned by a photo center and (2)
equipment being utilized by water refilling
stations in purification process?
The printing and developing machine owned by the
photo center is a taxable real property considering
that the same falls within the definition of
"Machinery" without which, the work or activity of the
said photo center cannot function, and therefore, an
essential and principal element of the business of
photography. On the other hand, the equipment
being utilized by the water refilling stations thereat in
purification process also fall within the definition of
machinery and considered real property subject to

real property tax.

AUGUST 5, 2004]
(see BLGF OPINION DATED
Q: MERALCO installed two oil storage tanks

on a lot in Batangas which it leased from
Caltex. They are used for storing fuel oil for
MERALCOs power plants. Are the oil
storage tanks real property for purposes of
RPT?
Yes. In MERALCO V. CBAA [M AY 31, 1982], the
Supreme Court held that while the two storage tanks
are not embedded in the land, they are to be
considered improvements on the land enhancing its
utility and rendering it useful to the oil industry. The
two tanks have been installed with some degree of
permanence as receptacles for the considerable
quantities oil needed by MERALCO for its
operations.
--------------------------------------------------------------1. Fundamental Principles

--------------------------------------------------------------Read Section 198, LGC
Q: Enumerate the fundamental principles
that shall guide real property taxation.
1. Real property shall be appraised at its
current and fair market value
2. Real property shall be classified for
assessment purposes on the basis of its
actual use
3. Real property shall be assessed on the
basis of a uniform classification within each
LGU
4. The appraisal, assessment, levy and
collection of real property tax shall not be let
to any private person
5. The appraisal and assessment of real
property shall be equitable.
Page 122 of 164


--------------------------------------------------------------2. Nature of Real Property Tax

---------------------------------------------------------------
Q: What is the nature of a real property

tax?
a. It is a direct tax
b. Indivisible single obligation
c. Ad valorem tax based on the assessed
value of the property
d. Local tax
e. Imposed on the use and not on the
ownership of the property
f. Progressive in character depending to a
certain extent on the use and value of the
property
Note: The ruling made by the Supreme Court in MERALCO
SECURITIES INDUSTRIAL CORP. V. CBAA [MAY 31, 1982] to
the effect that RPT is a national tax was made long before
real property taxation was made part of the LGC.
--------------------------------------------------------------3. Imposition of real property tax

a) Power to levy real property tax
b) Exemption from real property tax
----------------------------------------------------------------------------------------------------------------------------a) Power to levy real property tax
Q: Do all types of LGUs have the power to
impose real property taxes?
No. Only provinces and cities as well as
municipalities within Metro Manila may impose
RPTs. (see SECTION 200 AND 232, LGC)
Municipalities outside Metro Manila and barangays
cannot impose RPT.
Q: What are the rates of levy for purposes of

RPT?
A province or city or municipality within Metro Manila
shall fix a uniform rate of basic property tax
applicable to their respective localities:

1. In the case of a province, at the rate not

exceeding 1% of the assessed value
2. In the case of a city or municipality within
Metro Manila, at the rate not exceeding 2%
of the assessed value
Note: The bar syllabus did not include special levies.
Nonetheless, lets discuss the pertinent matters. I will not
provide the codal anymore. Just refer to Section 235-245,
LGC.
Q: What are the special levies under the

LGC?
2. Additional Levy for the Special Education
Fund (SEF) 1% on the assessed value of
real property in addition to the basic RPT
3. Special Levy on Idle Lands idle lands
shall be taxed at a rate not exceeding 5% of
the assessed value in addition to the basic
RPT (see Section 236, LGC)
4. Special Levy by LGUs for lands benefited
by public works (special assessment)
the special levy shall not exceed 60% of the
actual
cost
of
such
project
and
improvements, including the costs of
acquiring land and other real property. (see
Section 240, LGC)
Q: When may idle lands be exempted from

tax?
a.
b.
c.
d.
Force majeure
Civil disturbance
Natural calamity
Any cause which physically or legally
prevents the owner of the property or person
having legal interest therein from improving,
utilizing, or cultivating the same (see
Section 238, LGC)
Q: What are the conditions for the validity of

a tax ordinance imposing special levy for
public works?
1. The ordinance shall describe the nature,
extent, and location of the project, state the
estimated cost, and specify the metes and
bounds by monuments and lines (see
Section 241, LGC)
Page 123 of 164


2. It must state the number of annual

installments, not less than 5 years nor more
than 10 years (see Section 241, LGC)
3. Notice to the owners and public hearing (see
Section 242, LGC)
Note: If you want to contest a special levy, the
interested person may appeal to the LBAA and then
to the CBAA following the same process as an
administrative protest (see Section 244, LGC). Ill
discuss the process later.
--------------------------------------------------------------b) Exemption from real property tax

--------------------------------------------------------------Read Section 234, LGC
Q: What are the properties exempt from
RPT?
a. Real property owned by the Republic or any
of its political subdivisions (except when
beneficial use has been granted to a taxable
person)
b. Charitable
institutions,
churches,
parsonages, or convents appurtenant
thereto, mosques, nonprofit or religious
cemeteries and all lands, buildings or
improvements
actually,
directly,
and
exclusively used for religious, charitable or
educational purposes
c. All machineries and equipment actually,
directly and exclusively used by local water
districts and GOCCs engaged in supply and
distribution of water and/or generation and
transmission of electric power
d. All real property owned by duly registered
cooperatives
e. Machinery and equipment used for pollution
control and environmental protection
32
(includes infrastructure)
Section 234(a)
Q: Is the Metro Manila International Airport
Authority (MMIA) a GOCC which will now be
considered liable for RPT under the LGC?
32
Note that under RA 7942 (Philippine Mining Act of 1995),

pollution control devices exempted from RPT include
infrastructure.

No. In METRO M ANILA M ANILA INTERNATIONAL

AIRPORT AUTHORITY v. CA [JULY 20, 2006], the
Supreme Court, in resolving the issue on whether
the lands and buildings owned by the Manila
International Airport Authority were subject to real
property tax, ruled in the negative. The Supreme
Court opined that since MIAA is not a GOCC but
instead as government instrumentality vested with
corporate powers or a government corporate entity.
As such, it is exempt from real property tax.
However, it must be noted that previously in M ACTAN
CEBU INTERNATIONAL AIRPORT AUTHORITY V. M ARCOS
[SEPTEMBER 11, 1996], the Supreme Court ruled that
MCIAA is a GOCC and since the last paragraph of
Section 234 of the LCG unequivocally withdrew the
exemptions from payment of RPT granted to natural
or juridical including GOCCs, MCIAA is now liable
for RPT.
Q: Is the Philippine Fisheries Development

Authority (PFDA) a GOCC and, hence, now
liable for RPT?
No. In
PHILIPPINE FISHERIES DEVELOPMENT
AUTHORITY V. CA [JULY 31, 2007], the Supreme
Court ruled that the PFDA is not a GOCC but an
instrumentality of the national government which is
generally exempt from payment of RPT. However,
said exemption does not apply to the portions of the
properties which the PFDA leased to private
33
entities.
Q: Is the GSIS liable for RPT?

No. As held in GSIS V. CITY TREASURER OF THE CITY
OF M ANILA [DECEMBER 23, 2009], the Supreme Court
stated that the ruling in METRO M ANILA M ANILA
INTERNATIONAL AIRPORT AUTHORITY v. CA [JULY 20,
2006] argues for the non-tax liability of the GSIS for
RPT. The Court ruled that GSIS is an instrumentality
of the government and, as such, is not a taxable
juridical person for purposes of RPT.
Q: Is the Philippine Reclamation Authority

(PRA) a GOCC and, as such, liable for RPT?
33
Note that under Section 234 the exemption to the government

and its political subdivisions does not apply to properties whose
beneficial use has been granted to a taxable person
Page 124 of 164


No. In PHILIPPINE RECLAMATION AUTHORITY V. CITY

OF PARANAQUE [JULY 18, 2012], the Supreme Court
ruled that PRA is not a GOCC. Much like the MIAA,
PPA, UP, PFDA, GSIS and BSP, it is considered a
government instrumentality exercising corporate
powers but which are not considered GOCCs as
they are neither a stock (for not having the authority
to distribute dividends), not a non-stock corporation
(for not having members) corporation. In addition,
the Constitution likewise provides that a GOCC is
created under two conditions: (a) established for a
common good and (b) meets the test of economic
viability. While test (a) is complied with, the PRA was
undoubtedly not created to engage in economic or
commercial activities as it is the only entity engaged
in reclamation which was described as essentially a
public service. Thus, PRA is not liable for RPT.
Q: Is the Light Rail Transit Authority (LRTA)

a GOCC, and, as such, liable for RPT?
Yes. Although not expressly stating that LRTA is a
GOCC, the Supreme Court in LIGHT RAIL TRANSIT
AUTHORITY V. CBAA [OCTOBER 12, 2000] stated that
the LRTA is clothed with corporate status and
corporate powers in the furtherance of its proprietary
objectives. It operates much like any private
corporation engaged in the mass transport industry.
As such, it is liable for RPT.
Q: ABC Company owned two parcels of land

in Pasig City. Portions of the properties are
leased to different business establishments.
Being part of ill-gotten wealth of the
Marcoses, the owner of ABC voluntarily
surrendered ABC Company to the Republic
through the PCGG. Now, Pasig City seeks to
impose RPT on the properties of ABC. Are
the properties of ABC liable for RPT?
It depends. In PASIG CITY V. REPUBLIC [AUGUST 24,
2011], the Supreme Court held that the portions of
the properties not leased to taxable entities are
exempt from RPT while the portions leased to
taxable entities are subject to RPT.
Section 234(b)
Note: Remember our discussions in General Principles of
Taxation
Q: The Philippine Lung Center leased

portions of its real property out for
commercial purposes. Are these exempt

from real property taxes?
No. In LUNG CENTER OF THE PHILIPPINES V. QUEZON
CITY [433 SCRA 119], the Supreme Court held that
the hospital was not exempt from real property tax
on the portions of its property not actually, directly,
and exclusively used for charitable purposes. Thus,
those leased out for commercial purposes are
subject to real property tax. Those used by the
hospital even if used for paying patients remain
exempt from real property taxes.
Q: ABC Association is a non-stock, nonprofit organization owned by XYZ Hospital

in Cebu City. XYZ likewise owns the XYZ
Medical Arts Center. The City Assessor
assessed the XYZ Medical Arts Center
Building with the assessment level of 35%
for commercial buildings (instead of the
10% special assessment imposed on XYZ
hospital and its buildings). Was the medical
arts center built to house its doctors a
separate commercial building?
No. The Supreme Court in CITY ASSESSOR OF CEBU
CITY V. ASSOCIATION OF BENEVOLA DE CEBU INC.
[JUNE 8, 2007] ruled that the fact alone that doctors
holding clinics in the separate medical center are
consultants of the hospital and the ones who treat
the patients takes way the medical center from being
categorized as commercial. The Supreme Court
classified the medical arts center building as
special for the following reasons: (1) the medical
arts center was an integral part of the hospital; (2)
the medical arts center facility was incidental to and
reasonably necessary for the operations of the
hospital; and (3)
charging rentals for the offices used by its accredited
physicians was a practical necessity and could not
be equated to a commercial venture.
Section 234(c)
Q: What are the requisites to claim
exemption from RPT for machineries and
equipment used by LWDs and GOCCs?
1. The machineries and equipment are
actually, directly, and exclusively used by
the LWDs and GOCCs
Page 125 of 164


2. The LWDs and GOCCs claiming exemption

must be engaged in the supply and
distribution of water and/or generation and
transmission of electric power.
and/or actually uses the machineries and

equipment for generation and transmission
of power. The CBAA affirmed. Are the
properties exempt from RPT?
Q: FELS entered into a lease contract with

NAPOCOR over two engine power barges at
Balayan Bay Batangas. The lease contract
stipulated
that
NAPOCOR
shall
be
responsible for all taxes (including RPT on
the barges), fees and charges that FELS
may be liable except income tax of FELS
and its employees and construction permit
and environmental fees. FELS was assessed
for RPT and the LBAA upheld the
assessment stating that while the barges
may be classified as personal property, they
are considered real property for RPT
purposes because they are installed at a
specific location with a character of
permanency. Are the power barges subject
to RPT?
No. NAPOCORs basis for exemption which is

Section 243(c) provides that the machinery and
equipment used for generation and transmission of
power must be actually, directly and exclusively
used by the GOCC. The machineries and equipment
here are owned by BPPC, subject only to the
transfer of these properties to NAPOCOR after the
lapse of the 15-year period agreed upon. BPPCs
use of the machineries and equipment are actual,
direct and immediate while NAPOCORs is
contingent and, at this stage of the BOT Agreement,
not sufficient to support its claim for exemption (see
NAPOCOR V. CBAA [JANUARY 30, 2009]).
Yes. First, Article 415(9) of the Civil Code provides

that docks and structures which, though floating,
are intended by their nature and object to remain at
a fixed place on a river, lake or coast. Barges fall
under this provision. Second, FELS cannot claim
exemption given that the requirement is that to be
exempt the machineries and equipment must be
actually, directly and exclusively used by GOCCs
engaged in the generation of power. Since the
agreement between FELS and NAPOCOR is that
FELS will own and operate the barges and not
NAPOCOR. (see FELS ENERGY . PROVINCE OF
BATANGAS [FEBRUARY 16, 2007]).
Q: FPPC entered into a BOT Agreement with

NAPOCOR for the construction of a
powerplant. Under the agreement BPPC was
created to own, manage and operate the
powerplant. The BOT Agreement provided
that after a period of time, the power plant
shall be transferred to NAPOCOR without
payment of any compensation and that
NAPOCOR shall be responsible for payment
of RPT. BPCC was assessed for RPT.
NAPOCOR filed a petition to declare the
properties exempt from RPT. The LBAA
ruled that the properties were not exempt as
this is only available to a GOCC which owns
Similarly, in NAPOCOR V. PROVINCE OF QUEZON

[JULY 15, 2009], at issue was whether NAPOCOR
as a GOCC can claim exemption under Section 234
of the LGC for the taxes due from the Mirant
Pagbilao Corporation whose tax liabilities the
NAPOCOR has contractually assumed under the
BOT Agreement where Mirant would build and
finance a power plant and transfer the same to
NAPOCOR after 25 years without compensation.
The Supreme Court ruled that NAPOCOR does not
have the legal interest that the law requires to give it
personality to protest the tax imposed by law on
Mirant. Further, the machinery and equipment must
actually, directly and exclusively be used by the
GOCC. Here, NAPOCORs use is merely contingent
Section 234(e)
Q: ABC Mining operates a Siltation Dam and
Decant System. The Provincial Assessor of
Marinduque assessed the same for RPT. Is
the subject property exempt from RPT?
The answer would be yes in light of SECTION 91 OF
RA 7942 IN RELATION TO SECTION 3(AM) which
includes infrastructure in the definition of pollution
control devices exempt from RPT.
Nonetheless, it must be noted that in PROVINCIAL
34
ASSESSOR OF M ARINDUQUE V. CA [APRIL 30, 2009],
34
The Supreme Court pointed out that the disputed assessment

notice took effect on 1 January 1995. The governing law was the
Page 126 of 164


the Supreme Court ruled that the tax exemption of

machineries and equipment used for pollution
control and environmental protection is based on
usage, i.e., direct, immediate and actual application
of the property itself to the exempting purpose. Here,
the Supreme Court found that the subject property
was not a machinery used for pollution control, but a
structure adhering to the soil and intended for
pollution control.
Q: Prior to the LGC, XYZ telecom was

exempted from paying RPT under its
original franchise. Years after the effectivity
of the LGC, Congress passed a law
amending XYZs franchise and contained a
reenactment of the tax provision in XYZs
original
franchise
granting
it
RPT
exemption. Is XYZ liable for RPT?
Note: It must be noted that, by virtue of Section 234 of

the LGC, any exemption from RPT previously granted or
presently enjoyed by all persons, whether natural or
juridical, including all GOCCs were withdrawn upon the
effectivity of the LGC. We have to note that Congress has
the power to exempt an entity again from RPT
notwithstanding the withdrawal made by the LGC.
No. As held in CITY GOVERNMENT OF QUEZON CITY V.

BAYAN TELECOMMUNICATIONS [M ARCH 6, 2006], the
Supreme Court held that the RPT exemption
enjoyed by Bayantel under its original franchise, but
subsequently withdrawn by force of Section 234 of
the LGC, has been restored by the new law which
amended its original franchise.
Q: ABC Telecom was granted a 25-year

franchise to install, operate and maintain
telecommunications system throughout the
Philippines under a law which states that
The grantee shall be liable to pay the same
taxes on its real estate, building, and
personal property exclusive of this
franchise. As they were not being issued a
Mayors permit, ABC Telecom paid RPT
under protest. ABC argued that the phrase
exclusive of this franchise means that
only the real properties not used in
furtherance of its franchise are subject to
RPT. Is ABCs contention correct?
No, the properties of ABC whether or not used in its
telecommunications business is subject to RPT. In
DIGITAL TELECOMMUNICATIONS PHILIPPINES INC. V.
CITY GOVERNMENT OF BATANGAS [DECEMBER 11,
2008], the Supreme Court held that the phrase
exclusive of this franchise qualifies the term
personal property. This means that the legislative
franchise, which is an intangible personal property,
shall not be subject to taxes. This is to put franchise
grantees in parity with non-franchisees as the latter
obviously do not have franchises which may
potentially be subject to RPT. There is nothing in the
law which expressly or even impliedly exempts the
company from RPTC. Finally, the company cannot
rely on the BGLF opinion as they have no authority
to rule on claims for RPT exemption.
--------------------------------------------------------------4. Appraisal and assessment of real

property tax
a) Rule on appraisal of real property at fair
market value
b) Declaration of real property
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
--------------------------------------------------------------Note: In most of these items, I will simply provide the
codal provisions as they are self-explanatory. I will focus
on the important matters.
1991 LGC. All references to RA No. 7942, which came into effect
only on 14 April 1995, were all out of place.

--------------------------------------------------------------Page 127 of 164


a) Rule on appraisal of real property at fair

market value
---------------------------------------------------------------
(i) Authority of assessor to take evidence

(ii) Amendment of schedule of fair market
value
---------------------------------------------------------------

Q: How is real property appraised?
All real property, whether taxable or exempt, shall be
appraised at the current and FMV prevailing in the
locality where the property is situated (see Section
201, LGC).
Note: FMV is the price at which a property may be sold by
a seller who is not compelled to sell and bought by a buyer
not compelled to buy.
--------------------------------------------------------------b) Declaration of real property

--------------------------------------------------------------Read 202-204, LGC
Q: What is the purpose of a tax declaration?
A tax declaration only enables the assessor to
identify the property for purposes of determining the
assessment levels. It does not bind the assessor
when he makes the assessment.
Q: Are tax declarations conclusive evidence

of ownership?
As a rule, tax declarations are not conclusive
evidence of ownership. However, as held in
TABUENA V. CA [M AY 6, 1991], the rule admits of an
exception: tax receipts and tax declarations become
strong evidence of ownership acquired by
prescription when accompanied by proof of actual
possession of the property.
--------------------------------------------------------------c) Listing of real property in assessment

rolls
--------------------------------------------------------------Read Section 205, LGC
--------------------------------------------------------------d) Preparation of schedules of fair market
value
Q: When is the schedule of FMVs prepared?

The schedule of FMVs shall be prepared before any
general revision of property assessment is made
Q: Who prepares the schedule of FMVs?

The provincial, city and the municipal assessors of
the municipalities within Metro Manila prepares the
schedule of FMV for the different classes of real
property situated in their respective LGUs for
enactment by ordinance of the Sanggunian
concerned.
Note: (1) The schedule of FMV shall be published in a
newspaper of general circulation in the province, city or
municipality concerned or the posting in the provincial
capitol or other places as required by the law.
(2) The proposed FMVs of real property in a LGU as well
as the ordinance containing the schedule must be
published in full for 3 consecutive days in a newspaper of
local circulation where available, within 10 days of its
approval and posted in at least 2 prominent places in the
provincial capitol, city, municipal, or barangay hall for a
minimum of 3 consecutive weeks (Figuerres v. CA
[March 25 ,1999])
Q: What are the different approaches in

estimating the FMV of real property for RPT
purposes?
1. Sales Analysis Approach the sales price paid in
actual market transactions is considered by
taking into account valid sales data accumulated
from among the Register of Deeds, notaries
public, appraisers, brokers, dealers, bank
officials, and various sources stated under the
LGC
2. Income Capitalization Approach the value of an
income-producing property is no more than the
return derived from it. An analysis of the income
produced is necessary in order to estimate the
sum which might be invested in the purchase of
the property
Page 128 of 164


3. Reproduction cost approach the formal

approach used exclusively in appraising manmade improvements such as buildings and other
structures, based on such data as materials and
labor costs to reproduce a new replica of the
improvement (Allied Banking Corp v. Quezon
City Government [October 11, 2005] citing
Local Assessment Regulations No. 1-92)
Note: An ordinance whereby the parcels of land sold,
ceded, transferred and conveyed for remuneratory
consideration after the effectivity of this revision shall be
subject to real estate tax based on the actual amount
reflected in the deed of conveyance or the current
approved zonal valuation of the BIR prevailing at the time
of sale, cession, transfer and conveyance, whichever is
higher, as evidenced by the certificate of payment of the
CGT issued therefore is invalid being contrary to public
policy and for restraining trade (see Allied Banking Corp
v. Quezon City Government [October 11, 2005])
--------------------------------------------------------------(i) Authority of assessor to take evidence

--------------------------------------------------------------Read Section 213, LGC
--------------------------------------------------------------(ii) Amendment of schedule of fair market
value
--------------------------------------------------------------Read Section 214, LGC
--------------------------------------------------------------e) Classes of real property
---------------------------------------------------------------
Agricultural
Land
Commercial
Land
Industrial Land
Mineral Lands
Is land devoted principally to the

planting of trees, raising of crops,
livestock and poultry, dairying, salt
making, inland fishing and similar
aquaculture activities and other
agricultural activities and is not
classified as mineral, timber,
residential, commercial or industrial
land
Is land devoted principally for the
object of profit and is not classified
as agricultural, industrial, mineral,
timber or residential land
Is land devoted principally to
industrial
activity
as
capital
investment and is not classified as
agricultural, commercial, timber,
mineral or residential land
Are lands in which minerals exist in
sufficient quantity or grade to justify
the necessary expenditures to
extract and utilize such minerals
Q: What are the special classes of real

property under the LGC?
All lands, buildings, and other
actually, directly and exclusively:
improvements
1. Used for hospitals, cultural or scientific

purposes
2. Owned and used by local water districts
3. Owned and used by GOCCs rendering
essential public services in
a. Supply and distribution of water;
b. Generation and transmission of
electric power
Read Section 215 to 216, LGC
--------------------------------------------------------------f) Actual use of property as basis of

assessment
---------------------------------------------------------------
Q: What are the classes of real property for

assessment purposes?
4.
5.
6.
7.
8.
9.
Residential
Agricultural
Commercial
Industrial
Mineral
Special
Residential
Land
Is land principally
habitation

devoted
to
Q: The real property of Mr. and Ms. X,

situated in a commercial area in front of the
public market, was declared in their tax
declaration as residential because it is used
as their family residence. However, when
the spouses left for the US to stay there
permanently with their children, the property
has been rented to a single proprietor
engaged in sale of appliances and
Page 129 of 164

agricultural
products.
The
Provincial
assessor reclassified the property as
commercial for tax purposes. Mr. and Ms. X
appealed to the LBAA and argued that the
tax declaration classifying their property as
residential is binding. Is the contention of
the spouses correct?
No. The law focuses on the actual use of the
property for classification, valuation and assessment
purposes regardless of ownership. Section 217 of
the LGC provides that real property shall be
classified, valued, and assessed on the basis of its
actual use regardless of where located, whoever
owns it, and whoever uses it.
--------------------------------------------------------------g) Assessment of real property

(i) Assessment levels
(ii) General Revisions of assessments
(iii) Date of effectivity of assessment or
reassessment
(iv) Assessment of property subject to
back taxes
(v) Notification of new or revised
assessment
--------------------------------------------------------------Q: Define assessment.
Assessment is the act or process of determining the
value of a property or proportion thereof subject to
tax, including the discovery, listing, classification,
and appraisal of properties.
Q: Define assessment level.

It is the percentage applied to the FMV of the real property
to determine the taxable value of the property .
Note: I will do away with the different values here. Ill
discuss instead how the assessed value is arrived at. So
for the different percentages, please refer to Section 218
of the LGC.
Q: What is the procedure in computing real

property tax?
1. Ascertain the assessment level of the
property
2. Multiply the market value by the applicable
assessment level of the property
3. Find the tax rate which corresponds to the
class (use) of the property and multiply the
assessed value by the applicable tax rates.
Otherwise stated:
--------------------------------------------------------------(ii) General Revisions of assessments

--------------------------------------------------------------Read Section 219, LFC
Q: What are the steps to be followed for the
mandatory conduct of general revision of
real property assessments under Section
219 of the LGC?
1. Preparation of the Schedule of FMVs
2. The enactment of Ordinances
a. Levying an annual ad valorem tax
on real property and an additional
tax accruing to the SEF
b. Fixing the assessment levels to be
applied to the market values of the
real properties
c. Providing necessary appropriation
to defray expenses incident to
general revision of real property
assessments
d. Adopting the Schedule of FMVs
prepared by the assessors (see
LOPEZ V. CA [FEBRUARY 19, 1999]
Q: Define assessed value

It is the FMV of the real property multiplied by the
assessment level. It is synonymous with taxable
value
Note: This is not included in the Syllabus but just note that
the following are the instances where he assessor shall
make a valuation of real property: (1) the real property is
declared and listed for taxation purposes for the first time;
(2) there is an ongoing general revision of property
Page 130 of 164


classification and assessment; or (3) a request is made by
the person in whose name the property is declared. (see
Section 220, LGC)
(i) Issuance of notice of delinquency for

real property tax assessment
(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
---------------------------------------------------------------
--------------------------------------------------------------(iv) Assessment of property subject to

back taxes
---------------------------------------------------------------
--------------------------------------------------------------a) Date of accrual of real property tax and

special levies
---------------------------------------------------------------
--------------------------------------------------------------(v) Notification of new or revised

assessment
---------------------------------------------------------------
--------------------------------------------------------------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
---------------------------------------------------------------
--------------------------------------------------------------(iii) Date of effectivity of assessment or

reassessment
---------------------------------------------------------------

--------------------------------------------------------------h) Appraisal and assessment of machinery
--------------------------------------------------------------Read Section 224-225, LGC
--------------------------------------------------------------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
Read 247 to 249, LGC

--------------------------------------------------------------c) Periods within which to collect real
property tax
--------------------------------------------------------------Read 270, LGC
Q: What is the rule on assessment of RPT?
General Rule: The assessment must be made
within 5 years from the date they become due
Exception: If there is fraud or intent to evade taxes,
assessment may be made within 10 years from
discovery of fraud or intent to evade.
Q: What is the rule on collection of RPT?

Collection of RPT must be made within 5 years from
assessment
Page 131 of 164


Q: In what instances is the running of the

prescriptive period be suspended?
1. Treasurer is legally prevented from
assessing/ collecting
2. Taxpayer requests for reinvestigation and
executes waiver
3. Taxpayer is out of the country or cannot be
located
--------------------------------------------------------------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
--------------------------------------------------------------Read Section 250, 255, 276-277 LGC
Q: In what instances can there be a condonation
or reduction of RPT?
1. General failure of crops
2. Substantial decrease in the price
agricultural or agri-based products
3. Calamity
4. When public interest so requires
of
Note: (1) In the case of (1) to (3), the condonation is done

by the Sanggunian concerned by ordinance and upon
recommendation of the Local Disaster Coordinating
Council. In the case of (4), only the President may
exercise this power.
(2) In EXECUTIVE ORDER 27 [FEBRUARY 28, 2011], the
President under the power given to him by Section 227 of
the LGC reduced the RPT payable in Quezon by
independent power producers under BOT contracts with
GOCCs and condoned the penalties and surcharges of
such RPT payables.
--------------------------------------------------------------e) Remedies of LGUs for collection of real

property tax
(i) Issuance of notice of delinquency for
(ii) Local governments lien
(iii) Remedies in general
fees, or charges
amount due
----------------------------------------------------------------------------------------------------------------------------(i) Issuance of notice of delinquency for

--------------------------------------------------------------Read Section 254, LGC
In real estate taxation, the unpaid tax attaches to the
property and is chargeable against the taxable
person who had actual or beneficial use and
possession of it regardless of whether or not he is
the owner. (NATIONAL GRID CORPORATION OF THE
PHILIPPINES VS. CENTRAL BOARD OF ASSESSMENT
APPEALS [CTA EB NO. 801, JANUARY 29, 2013])
--------------------------------------------------------------(ii) Local governments lien

--------------------------------------------------------------Read Section 257, LGC
Q: What is the Local Governments Lien?
The basic RPT constitutes as a lien on the property
subject to tax, superior to all liens, charges or
encumbrances in favor of any person, irrespective of
the owner or possessor thereof, enforceable by
administrative or judicial action and may only be
extinguished by payment of the tax and related
interests and expenses.
In TESTATE ESTATE OF CONCORDIA LIM V. CITY OF
M ANILA [FEBRUARY 21, 1990], the Supreme Court
held that unpaid real estate taxes attaches to the
property and is chargeable against the taxable
person who had actual or beneficial use and
possession of it, regardless of whether or not he is
the owner.
--------------------------------------------------------------(iii) Remedies in general

fees, or charges
amount due
Page 132 of 164



LGU for the collection of RPT?
d. by publication once a week for 2 weeks

(Section 260, LGC)
1. Administrative action thru levy of real

property
a. Distraint of personal property
b. Lien on property subject to tax
c. Levy on real property tax
2. Judicial action
Note: In cases of levy for unpaid local taxes publication is

once a week for 3 weeks
Note: The above

simultaneous
remedies
are
concurrent
and
7. Before the date of sale, the owner may stay the

proceedings by paying the delinquent tax,
interest and the expenses of sale.
8. Sale is held:
a. at the main entrance of the LGU building, or
b. on the property to be sold, or
c. at any other place specified in the notice
Q: When is there levy on real property?

After the expiration of the time required to pay the
tax levied, the real property subject to tax may be
levied upon.
Note: (1) The remedies of and levy may be repeated if
necessary until the full amount due including all expenses
is collected (see Section 265, LGC)
(2) Notice and publication for sale, as well as the legal
requirements for a tax delinquency sale are mandatory
and failure to comply can invalidate the sale. (De Knecht
v. CA; De Knecht v. Sayo [290 SCRA 223])
Q: Outline the procedure for levy on real

property
Note: Owner means owner or administrator of real
property or any person having legal interest thereto.
1. Tax constitutes a lien on the property superior to
2.
3.
4.
5.
6.
all liens and may only be extinguished upon

payment of the tax and charges. (Section 257,
LGC)
Time for payment of real property taxes expires
(Section 258, LGC)
Warrant of Levy issued by the Local Treasurer
(LT), which has the force of legal execution in the
LGU concerned. (Section 258, LGC)
Warrant is mailed to or served upon the
delinquent owner (Section 258, LGC)
Written notice of the levy and the warrant is
mailed/served upon the assessor and the
Registrar of Deeds of the LGU (Section 258,
LGC)
30 days from service of warrant, LT shall
advertise sale of the property by:
c. posting notice at main entrance of LGU
hall/building and in a conspicuous place in the
barangay where property is located and


on whether there is a bidder or not.
If there is a bidder
9. Bidder pays and
30 days after the
sale, the LT shall
report the sale to
the sanggunian
10. LT shall deliver
to
purchaser
certificate of sale
11. Proceeds of sale
in excess of
delinquent tax,
interest
&
expenses of sale
remitted to the
owner (Section
260, LGC)
12. Within 1 year
from sale, owner
may
redeem
upon payment of
the 1. delinquent
tax, 2. interest
due,
3.
expenses of sale
(from date of
delinquency to
date of sale) and
additional
interest of 2%
per month on
the
purchase
price from date
of sale to date of
redemption.
Delinquent
If there is no bidder
9. LT shall purchase
the
property
in
behalf of the LGU
(Section 263, LGC)
Note: in cases of levy for
unpaid local taxes, LT may
purchase if there is no
bidder or if the highest bid
is insufficient (Section 181,
LGC)
10. Registrar of Deeds

shall transfer the
title of the forfeited
property to the LGU
without need of a
court order (Section
263, LGC)
forfeiture, the owner,
may redeem the
property by paying
to the local treasurer
the full amount of
the tax and the
related interest and
the costs of sale
otherwise
the
ownership shall be
vested on the local
government
unit
concerned. (Section
263, LGC)
12. Sanggunian
concerned may, by
Page 133 of 164


owner
retains
possession and
right to the fruits
(Section
261,
LGC)
13. LT returns to the
purchaser/bidder
the price paid
plus interest of
2% per month
(Section
261,
LGC)
14. If property is not
redeemed, the
local
treasurer
shall execute a
deed
of
conveyance to
the
purchaser
(Section
262,
LGC)
ordinance sell and

dispose of the real
property
acquired
under the preceding
section at public
auction.
(Sectiton
264, LGC)
Note: (1) In both cases, levy may be repeated until the full
amount due, including all expenses, is collected. (Section
265, LGC)
(2) Again recall what I said in the levying procedure for
local taxes. The procedure for levying real properties to
satisfy local taxes is the SAME as the levy procedure for
satisfying RPT EXCEPT for two things: (1) Publication is
once a week for 3 weeks for local taxes while it is once a
week for 2 weeks for RPT and (2) for local taxes, the LGU
may purchase levied property for two reasons there is no
bidder OR the highest bid is insufficient to cover the taxes
and other charges but for RPT, the LGU may purchase
for only one reason there is no bidder! Its that simple.
So memorize the procedure and just take note of these
two distinctions between levying for local taxes and
levying for RPT.
Q: What is the redemption period for tax

delinquent properties sold at public
auction?
Under the LGC, the redemption period is within 1
year from the date of sale.
However, in CITY M AYOR OF QUEZON CITY V. RCBC
[AUGUST 3, 2010], the Supreme Court ruled that
while the LGC provides that the one year period
begins from the date of sale on which date the
delinquent tax is and other fees are paid, the local
tax ordinance of Quezon City provides that the
period is reckoned from the date of annotation of the
sale. To reconcile the two conflicting laws, the Court
applied the rule that a special law prevails over a
general law. Thus, the period shall be counted from

the date of annotation of the sale.
Q: Discuss the remedy of civil action for

collection of real property tax.
The civil action for the collection of real property tax
shall be filed by the local treasurer in any court of
competent jurisdiction within 5 or 10 years wherein
real property taxes may be collected. (see Section
266, LGC)
--------------------------------------------------------------6. Refund or credit of real property tax

a) Payment under protest
b) Repayment of excessive collections
--------------------------------------------------------------Note: I will discuss payment under protest and refund
under Taxpayers Remedies.
--------------------------------------------------------------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
(ii) Appeal to the Local Board of
Assessment Appeals
(iv) Appeal to the CTA
(v) Appeal to the Supreme Court
-------------------------------------------------------------Note: This outline creates the impression that contesting
an assessment and payment under protest are two
different remedies of the taxpayer. That is wrong! Theyre
part of the same process. The distinction should instead
be made on whether the taxpayer is questioning the
validity of the tax ordinance (in such case, the assessment
would be illegal or void) or is disputing the correctness,
reasonableness or excessiveness of the assessment.
If the taxpayer is questioning the validity of the tax
ordinance, the taxpayer may either question the legality of
a tax ordinance before the DOJ Secretary under Section
187 of the LGC or question the constitutionality of the
Page 134 of 164


ordinance before the Regular Courts. In this case,
payment under protest is not required.
If the taxpayer is questioning the correctness,
reasonableness or excessiveness of the assessment, the
taxpayer will resort to administrative remedies. In this
case, payment under protest is required.
Lets now discuss the administrative remedies.
Read Section 226 to 231, LGC

Q: Who may contest the assessment of real
property?
In order for a taxpayer to have legal standing to
contest an assessment to the LBAA, he must be a
person having legal interest in the property.
In NAPOCOR V. PROVINCE OF QUEZON [JULY 15,
2009], the Supreme Court stated that legal interest
is defined as interest in property or a claim
cognizable at law, equivalent to that of a legal owner
who has legal title to the property. A review of the
provisions of the 1991 LGC on real property taxation
shows that the phrase person having legal interest
in the property has been repeatedly adopted and
used to define an entity:
1. in whose name the real property shall be
listed, valued, and assessed;
2. who may be summoned by the local
assessor to gather information on which to
base the market value of the real property;
3. who may protest the tax assessment before
the LBAA and may appeal the latters
decision to the CBAA;
4. who may be liable for the idle land tax, as
well as who may be exempt from the same;
5. who shall be notified of any proposed
ordinance imposing a special levy, as well
as who may object the proposed ordinance;
6. who may pay the real property tax;
7. who is entitled to be notified of the warrant
of levy and against whom it may be
enforced;
8. who may stay the public auction upon
payment of the delinquent tax, penalties and
surcharge; and
9. who may redeem the property after it was
sold at the public auction for delinquent
taxes.
Q: Enumerate the process in contesting a

RPT assessment.
1. Pay the tax under protest and annotation of

paid under protest in receipt
2. File written protest with local treasurer within
30 days from payment of the tax
3. Treasurer to decide within 60 days from
receipt of the protest
4. From treasurers decision or inaction, appeal
to the LBAA within 60 days
5. LBAA to decide within 120 days
6. Appeal LBAA decision to CBAA within 30
days from receipt of adverse decision
7. CBAA appealable to CTA en banc within 30
days from receipt of the adverse decision of
the CBAA
8. Appeal to SC within 15 days from receipt of
adverse decision of CTA
Note: (1) In (4), if the treasurers decision is in favor of the
taxpayer, he may now apply for a tax refund or tax credit.
Q: What is the effect of an appeal on

assessments?
An appeal on assessments of real property shall, in
no case, suspend the collection of the corresponding
realty taxes on the property involved as assessed by
the provincial or city assessor, without prejudice to
subsequent adjustment depending upon the final
outcome of the appeal. (see Section 231, LGC)
Q: Can the RTC issue an injunction against

the collection of RPT if there is a pending
appeal with the LBAA?
Yes. In TALENTO V. ESCALADA, JR. [JUNE 27, 2008],
the Supreme Court held that as a general rule,
appeal shall not suspend the collection of RPT.
However, an exception to the rule is where the
taxpayer has shown a clear and unmistakable right
to refuse or hold in abeyance the payment of RPT.
In this case, the taxpayer showed that the
assessments covered more than 10 years, the
assessment included items which should properly be
excluded, and the subject assessment should take
effect on January 1 the following year. Further, the
filing of a bond was deemed to have been in
compliance with Section 11 of RA 9282.
Payment under Protest

Page 135 of 164


Q: Is payment a pre-requisite to protest an

assessment for RPT?
Yes. SECTION 252 OF THE LGC provides that no
protest shall be entertained unless the taxpayer first
pays the tax.
Q: When is payment under protest not

required?
Prior payment under protest is applicable only if the
issue
is
anchored
on
the
correctness,
reasonableness or excessiveness of assessment,
hence, considered a question of fact
Prior payment under protest is not required when the
taxpayer is questioning the very authority and power
of the assessor to impose the assessment and of
the treasurer to collect the tax as opposed to
questioning the increase/decrease in the tax to be
paid. (see JARDINE DAVIES INSURANCE BROKERS, INC.
V. ALIPOSA [FEBRUARY 27, 2003]).
Q: Can the taxpayer file a case directly to

the RTC if it claims that it was questioning
the authority of the treasurer to assess and
not only the amount of the assessment?
No. In OLIVARES V. JOEY M ARQUEZ [SEPTEMBER 22,
2004], it was found that the taxpayer raised issues
on prescription, double taxation, and tax exemption.
In such case, the correctness of the assessment
must be dealt with and the treasurer has initial
jurisdiction and his decision is appealable to the
35
LBAA. Payment under protest is required.
Yes. By claiming an exemption from realty taxation,

NAPOCOR is simply raising the question of the
correctness of the assessment. As such real
property taxes must be paid prior to the making of
the protest. On the other hand, if the taxpayer is
questioning the authority of the local assessor to
assess RPT, it is not necessary to pay the RPT prior
to the protest. A claim for tax exemption, whether full
or partial, does not question the authority of the local
assessor to assess RPT (NAPOCOR v. Province of
Quezon [January 25, 2010])
Refund or Credit of RPT

Q: What is the rule on refunds of RPT?
The taxpayer must file the written claim within 2
years from the date of payment of tax or from the
date when the taxpayer is entitled to reduction or
36
adjustment.
The provincial treasurer has 60 days to decide the
claim for tax refund or credit
Q: What is the remedy available if the claim

for tax refund or credit is denied?
Follow steps 4 to 8 in the procedure in contesting an
RPT assessment.
Q: The Province of Quezon assessed Mirant for

unpaid real property taxes. NAPOCOR, which
entered a BOT with Mirant, protested the
assessment before the LBAA, claiming the
entitlement to tax exemption under Sec. 234 of
the LGC. The RPT assessed were not paid prior
to the protest. LBAA dismissed NAPOCORs
petition for failure to make a payment under
protest. Is NAPOCOR required o make a payment
under protest?
35
Unlike in JARDINE DAVIES INSURANCE BROKERS, INC. V. ALIPOSA

[FEBRUARY 27, 2003], the taxpayer in this case should make a
payment under protest as the issues included correctness of the
assessment.

36
Supervening cause doctrine applies.
Page 136 of 164


---------------------------------------------------------IV. TARIFF AND CUSTOMS CODE

----------------------------------------------------------
--------------------------------------------------------------C. Purpose for imposition

---------------------------------------------------------------
--------------------------------------------------------------A. Tariff and duties, defined

---------------------------------------------------------------
Q: What is the purpose of imposing a tax on

imported articles?
Q: Define tariff.
Tariff is the list or schedule of articles on which a
duty is imposed upon the importation into the
country with the rates at which they are severally
taxed. Derivatively, it is the system of imposing
duties or taxes on the importation of foreign
merchandise.
They are imposed to:

1. Raise government revenues
2. Protect consumers and manufacturers, as well
as, Philippine products.
--------------------------------------------------------------D. Flexible tariff clause

--------------------------------------------------------------Read Section 401, TCC
Q: Define customs duties.

Q: What is the flexible tariff clause?
Customs duties is the name given to taxes on the
importation and exportation of commodities, the tariff
or tax assessed upon merchandise imported from or
exported to, a foreign country. (Nestle v. CA [July
6, 2001])
Note: Tariff and customs duties are used interchangeably.
--------------------------------------------------------------B. General Rule: all imported articles are

subject to duty
1. Importation by government taxable
--------------------------------------------------------------Read Section 100, TCC
Q: What is the rule on imported articles?
As a general rule, all imported articles shall be
subject to duty even though previously exported
from the Philippines.
Read Section 1205, TCC

Q: What is
importations?
the
rule
on
government
All importations of the government for is own use or

that of its subordinate branches or instrumentalities,
or corporations, agencies or instrumentalities owned
or controlled by the government shall be subject to
duties.

The flexible tariff clause is a provision in the TCC

which implements the constitutionally delegated
power to the Congress to further delegate to the
President of the Philippines, in the interest of
national economy, general welfare, and/or national
security upon recommendation of the NEDA:
a. Increase, reduce or remove existing
protective rates of import duty, provided that
the increase should not be higher than
100% ad valorem
b. Establish import quota or to ban imports of
any commodity
c. To impose additional duty on all imports not
exceeding 10% ad volorem, whenever
necessary
--------------------------------------------------------------E. Requirements of importation

1. Beginning and ending of importation
2. Obligations of importer
a) Cargo manifest
b) Import entry
c) Declaration of correct weight or value
d) Liability for payment of duties
e) Liquidation of duties
f) Keeping of records
----------------------------------------------------------------------------------------------------------------------------1. Beginning and ending of importation
--------------------------------------------------------------Page 137 of 164

Read Section 1201 to 1202, TCC

Q: When does importation begin and when
does it end?
Importation begins when the conveying vessel or
aircraft enters the jurisdiction of the Philippines with
intention to unlade therein.
Importation is deemed terminated upon payment of
the duties, taxes, and other charges due upon the
agencies or secured to be paid at the port of entry
and he legal permit for withdrawal shall have been
granted.
Note: Why is important to know when importation begins
and ends? The jurisdiction of the BoC to enforce the
provisions of the TCC including seizure and forfeiture also
begins from the beginning of imporation. Thus, the BoC
obtains jurisdiction over imported articles only after
importation has begun. On the other hand, the BoC loses
jurisdiction to enforce the TCC and to make seizures and
forfeitures after importation is deemed terminated.
Q: When does the BoC acquire exclusive

jurisdiction over imported goods for the
purpose of enforcing customs laws?
From the moment imported goods are actually in the
possession or control of the Customs authorities,
even if no warrant for seizure or detention had
previously been issued by the Collector of Customs
in connection with the seizure and forfeiture
proceedings. (see SUBIC BAY METROPOLITAN
AUTHORITY V. RODRIGUEZ [APRIL 23, 2010])

Q: When are imported articles deemed to
have entered the PH for consumption?
Imported articles shall be deemed "entered" in the
Philippines for consumption when the specified entry
form is properly filed and accepted, together with
any related documents required by the provisions of
this Code and/or regulations to be filed with such
form at the time of entry, at the port or station by the
customs official designated to receive such entry
papers and any duties, taxes, fees and/or other
lawful charges required to be paid at the time of
making such entry have been paid or secured to be
paid with the customs official designated to receive
such monies, provided that the article has previously
arrived within the limits of the port of entry. (see

SECTION 205, TCC)
Q: When are imported articles deemed have

been withdrawn from the warehouse in
the PH for consumption?
Imported articles shall be deemed "withdrawn" from
the warehouse in the Philippines for consumption
when the specified form is properly filed and
accepted, together with any related documents
required by any provisions of this Code and/or
regulations to be filed with such form at the time of
withdrawal, by the customs official designated to
receive the withdrawal entry and any duties, taxes,
fees and/or other lawful charges required to be paid
at the time of withdrawal have been deposited with
the customs official designated to receive such
payment. (see SECTION 205, TCC)
Q: What is meant by entry in relation to

the TCC?
Entry has a three-fold meaning:
a. The documents filed at the customs house
b. The submission and acceptance of the
documents; and
c. Customs declaration forms or customs entry
forms required to be accomplished by
passengers of incoming vessels or
passenger planes as envisaged under
Section 2505 of the TCC. (Failure to Declare
Baggage) (Jardeleza v. People [February
6, 2006])
Q: A flight attendant arrived from Singapore.

Upon her arrival she was asked whether she
has anything to declare. She answered
none, and she submitted her Customs
Baggage Declaration Form which she
accomplished and signed with nothing or
written on the space for items to be
declared. When her bag was examined some
pieces of jewelry were found concealed
within the lining of the bag. She was then
convicted of violating Section 3601 for
unlawful importation. She now appeals
claiming that the lower court erred in
convicting her under Section 3601 when the
facts alleged both in the information and
those shown by the prosecution constitute
the offense under Section 2505 Failure to
Page 138 of 164

Declare Baggage of which

acquitted. Is she correct?
she
was
No. Section 2505 does not define a crime. It merely

provides the administrative remedies which can be
resorted to by the BoC when seizing dutiable articles
found in the baggage of any person arriving in the
Philippines which is not included in the
accomplished baggage declaration submitted to the
customs authorities and he administrative penalties
that such person must pay for the release of such
goods if not imported contrary to law. Such
administrative penalties are independent of any
criminal liability for smuggling that may be imposed
under Section 3601. (Jardeleza v. People
[February 6, 2006])
--------------------------------------------------------------2. Obligations of importer

a) Cargo manifest
b) Import entry
c) Declaration of correct weight or value
d) Liability for payment of duties
e) Liquidation of duties
f) Keeping of records
--------------------------------------------------------------Q: What are the obligations of the importer?
a. Cargo Manifest
A cargo manifest is the document used in shipping,
containing the list of the contents, value, origin,
carrier and destination of the goods to be shipped.

b. Import Entry
An import entry is a declaration to the BoC showing
particulars of the imported articles that will enable
the customs authorities to determine the correct
duties and internal revenue taxes due on the
importation. It is also known as Marine Entry and
Internal Revenue Declaration

c.
Declaration of Correct Weight Value
Read Section 1402 and 2523, TCC

d. Liability for payment of duties

e. Liquidation of duties
f. Keeping of records
Liquidation means the final computation or
ascertainment of the duties to be imposed on the
imported articles. It is akin to an assessment of
internal revenye taxes under the NIRC where the tax
liability of the taxpayer is definitely determined.
(Pilipinas Shell v. CoC [June 18, 2009])

--------------------------------------------------------------F. Importation in violation of TCC
1. Smuggling
2. Other fraudulent practices
--------------------------------------------------------------Q: Define smuggling.
Smuggling is an act of any person who shall
fraudulently import or bring into the Philippines or
assist in so doing, any article, contrary to law or shall
receive, conceal, buy or sell or in any manner
facilitate the transportation, concealment or sale of
such article after importation knowing the same to
have been imported contrary to law. It includes the
exportation of articles in a manner contrary to law.
(see Section 3519, TCC)

Q: How is smuggling committed?
Smuggling is committed by any person who:
a. Fraudulently imports or brings into the
country any article contrary to law
b. Assists in so doing any article contrary to
law
c. Receives, conceals, buys, sells, or in any
manner facilitates the
transportation,
concealment, or sale of such goods after
importation knowing the same to have been
imported contrary to law (Rodriguez v. CA
[September 18, 1995])
The commission of smuggling through the first type
transpired when the shipments of 3x40 container
vans were declared to contain Used Truck
Page 139 of 164

Replacement Parts, when in truth and in fact, the

shipment contained fifteen units of Sportage and
Galloper. (PEOPLE OF THE PHILIPPINES VS. ROEL
PAQUIT SAYSON, CTA CRIM CASE NO. O-094,
DECEMBER 12, 2012)
Note: Mere possession of alleged smuggled goods is
prima facie evidence of guilt of the smuggling unless the
defendant could explain that his possession is lawful.
Q: Is payment a defense in smuggling?
3. Conditionally-free importation
--------------------------------------------------------------Q: What are the classes of importation
under the TCC?
1. Dutiable Importation (Section 100, TCC)
2. Prohibited Importations (Section 101 and
1207, TCC)
3. Conditionally-Free Importations (Section
105, TCC)
4. Drawbacks (Section 106, TCC)
No. The law expressly provides that payment of the

tax due after apprehension shall not constitute a
valid defense in any prosecution under this section.
Q: What are dutiable importations?
Q: What are the other fraudulent practices

against customs revenue aside from
unlawful importation?
They refer to those imported articles subject to duty

and not otherwise exempted by the TCC or other
special laws.
1. Entry of imported articles or exported article

by means of any false or fraudulent
practices, invoice, declaration, affidavit, or
other documents
2. Entry of goods at less than their true weights
or measures or upon a classification as to
quality or value
3. Payment of less than the amount due
4. Filing any false or fraudulent claim for the
payment of drawback or refund of duties
upon the exportation of merchandise
5. Filing any affidavit, certificate or other
document ot secure to him or to others the
payment of any drawback, allowance or
refund of duties on the exportation of
merchandise greater than that legally due
thereon
Note: In PEOPLE OF THE PHILIPPINES VS. MARIVIC BRIONES,
DAVID BANGA, BENJAMIN VALIC, CTA CRIM CASE NO. 0158, JULY 23, 2012, the CTA held that in the prosecution
for violation of Section 3602 of the Tariff and Customs of
the Philippines, in relation to Article 172 of the Revised
Penal Code, it must prove beyond reasonable doubt that
the accused in conspiracy with the other accused, made
or attempted to make an entry of the alleged imported
article through the filing of the said Import Entry at the
Bureau of Customs
--------------------------------------------------------------G. Classification of goods

1. Taxable importation
2. Prohibited importation
Q: What are prohibited importations?

They refer to those articles that are cannot be
imported into the PH because they are contrary to
policy, morals, laws, etc.
Examples include:
1. Dynamite, gunpowder, ammunition and
explosives, other weapons (except when
authorized by law)
2. Written or printed articles advocating or
inciting treason, rebellion, or insurrection
3. Written or printed articles, etc of an obscene
or immoral character
4. Articles, instruments, drugs and substances
designed for unlawful abortion
5. Devices used in gambling or the distribution
of money, cigarettes, or other articles when
such distribution is dependent on chance
6. Lottery and sweepstakes tickets (Except
those authorized)
7. Any article manufactured in gold, silver or
other precious metals when there is no
indication of the actual fineness of quality
8. Adulterated or misbranded articles of food
and drugs
9. Marijuana, opium and other narcotics
10. Opium pipes and parts thereof
11. All other articles and parts prohibited by law
or rules and regulations
Page 140 of 164



Q: What are conditionally-free importations?
They refer to those articles which are allowed to be
imported into the PH but subject to conditions.
Examples include:
1. Articles for repair, re-conditioning to be reexported within 6 months (requires a bond)
2. Personal effects for balikbayans excluding
cars, and must not be commercial quantity
and no exceeding P2,000 (can be brought in
90 days after arrival)
3. Articles to be donated to relief organizations
(must be certified by DSWD, DepEd)
4. Samples not for commercial sales, including
medicines (but must not be available in PH)
5. Economical, technical, vocational, scientific,
philosophical,
historical,
cultural
books/publications and bibles
Q: X and his wife Y, Filipino living in the

Philippines went on a 3-month pleasure trip
around the world during the months of
June, July, and August 2002. In the course
of their trip, they accumulated some
personal effects which were necessary,
appropriate and normally used in leisure
trips as well as souvenirs in noncommercial quantities. Are they returning
residents for purposes of Section 105 of
the TCC?
No. The term returning residents refers to nationals
who have stayed in a foreign country for a period of
at least 6 months (see Section 105(f), TCC). Due to
their limited duration of stay abroad, X and Y are not
considered as returning residents but they are
merely considered as travelers or tourists who
likewise enjoy the benefit of conditionally-free
importation (see Section 105(g), TCC)
Q: What are drawbacks?

Q: Jacob after serving a 5-year tour of duty
as military attach in Jakarta, Indonesia
returned to the Philippines bringing with
him his personal effects, including a
personal computer and a car. Would Jacob
be liable for taxes on these items?
They refer to refunds or tax credits of duties paid on

goods that are being exported or used in the
37
production of manufactured exports
Examples include:
1. Fuel used for propulsion of vessels engaged
in trade with foreign countries or coastwise
trade
2. Petroleum Oils or Oils obtained from
bituminous minerals, crude eventually used
for generation of electric power and
manufacture of city gas
3. On certain articles made from imported
articles subject to certain conditions.
No. Jacob will be exempted provided he complies

with the requirements under Section 105 of the TCC.
The requirements are:
a. The car must have been ordered or
purchased prior to the receipt by the
Philippine mission or consulate of the recall
order
b. The car is registered in his name
c. The exemption shall apply only to the value
of the car
d. The exemption shall apply to the aggregate
value of his personal and household effects
not exceeding 30% of the total amount
received by him as salary and allowances
during his assignment but not to exceed 4
years
e. He must not have availed of the exemption
more oftener than once every four years
(see last para. Section 105, TCC)

Q: What are freely importable commodities?

Under Section 7(1) of Central Bank Circular no.
1389, freely importable commodities are those
importations which are neither regulated nor
prohibited and may be effected without the prior
approval of or clearance from any government
agency. UNIMEX MICRO-ELECTRONICS GMBH VS.
37
Section 106(e), TCC provides that Claims for refund or tax

credit eligible for such benefits shall be paid or granted by the
Bureau of Customs to claimants within sixty (60) days.
Page 141 of 164


REPUBLIC OF THE PHILIPPINES, CTA CASE NO. 8412,

NOVEMBER 14, 2012
b. Specific customs duties
Q: What are ad valorem customs duties?

--------------------------------------------------------------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) Dumping duties
b) Countervailing duties
c) Marking duties
d) Retaliatory/discriminatory duties
e)Safeguard duties
---------------------------------------------------------------
These are customs duties that are computed on the

basis of value (see Section 201, TCC)
Q: What are the methods of determining

dutiable values?
Read Section 201-205, 1313 TCC
The methods of determining the dutiable value are
as follows (by order of preference):
1. Transaction value an ad valorem rate of
duty equivalent to the price actually paid or
payable for the goods when sold for export
to the Philippines, as adjusted;
2. Transaction value of identical goods
the transaction value of identical goods sold
for export to the Philippines and exported at
or about the same time as the goods being
valued; identical goods shall mean goods
which are the same in all respects, including
physical
characteristics,
quality
and
reputation, discounting minor differences in
appearances;
--------------------------------------------------------------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
---------------------------------------------------------------
3. Transaction value of similar goods the

transaction value of similar goods sold for
export to the Philippines and exported at or
about the same time as the goods being
valued; similar goods shall mean goods
which, although not alike in all respects,
have like characteristics and like component
materials which enable them to perform the
same functions and to be commercially
interchangeable;
Q: What are ordinary or regular duties?

These are axes that are imposed or assessed upon
merchandise from or exported to a foreign country
for the purpose of raising revenue. They may also
be imposed to serve as protective barriers which
would prevent the entry of merchandise that would
compete with locally manufactured items. They are
also referred to as tariff barriers
38
4. Deductive value an amount based on

the unit price at which the imported gods or
identical or similar imported goods are sold
in the Philippines, in the same condition as
when imported, in the greatest aggregate
quantity, at or about the time of importation
of the goods being valued, to persons not
related to the persons from whom they buy
such goods, as adjusted;
Q: What are the kinds of ordinary or regular

duties?
Ordinary or regular court duties may be:
a. Ad valorem customs duties or
38
Methods four and five may be reversed.
Page 142 of 164


5. Computed value the aggregate value of

the cost or value of materials and fabrication
or other processing employed in producing
the imported goods, amount for profit
andNgeneral expenses, freight, insurance
fees and other transportation expenses for
the importation of the goods, among others;
and
2. Special duties
a) Dumping duties
b) Countervailing duties
c) Marking duties
d) Retaliatory/discriminatory duties
e)Safeguard duties
---------------------------------------------------------------
6. Fallback value an amount determined by

using other reasonable means and on the
basis of data available in the Philippines.
Q: What are special duties?
Note: The transaction value is the primary method of

determining dutiable value. If the transaction value of the
imported article could not be determined using the above,
the alternative methods should be used one after the
other.
These are additional import duties imposed on

specific kinds of imported articles under certain
conditions. It cannot be applied without the regular
customs duties. It can only be applied in the
presence of a special order from government
officers.
Q: What are the kinds of special duties?

Q: Define transaction value
The following are special duties:
It is the price actually paid/payable when exported to
PH adjusted by adding the following:
1. Commissions, cost of containers, packing
cost, cost of tools, engineering, artwork if
supplied free of charge, royalties
2. Value of subsequent resale accruing to the
seller
3. Cost of transport & loading/unloading
charges from port of exportation to port of
entry in PH (costs within PH already
excluded)
4. Insurance.
Q: When is transaction value (method one)

not used?
1. Buyer imposes restrictions on sale or use of
goods (except if imposed by law,
geographical limits, not affect value of
goods)
2. Sale
is
subject
to
some
condition/consideration which cannot be
valued
3. Part of subsequent resale accrues to seller
and amount undeterminable
4. Buyer and seller are related
a. business partners
b. holds 5% equity
c. common control
th
d. relatives up to 4 degree

1.
2.
3.
4.
5.
Anti-Dumping (Section 301, TCC)

Countervailing (Section 302, TCC)
Marking (Section 303, TCC)
Discriminatory (section 304, TCC)
Safeguard Duties (RA 8800)

Q: What is an anti-dumping duty?
It is a special duty imposed on the importation of a
product, commodity or article of commerce into the
Philippines at less than its normal value when
destined for domestic consumption in the exporting
country which is the difference between the export
39
price and the normal value
of such product,
commodity or article. (see Section 301(s)(1), TCC)
Q: What are the requisites for the imposition

of anti-dumping duty?
The requisites are the following:
a. Where the product, commodity or article of
commerce
i. Is exported into the Philippines
39
Normal value for purposes of imposing the anti-dumping duty is

the comparable price at the date of sale of like product,
commodity or article in the ordinary course of trade when destined
for consumption in the country of export (see Section 301(s)(3),
TCC, as amended by RA 8752)
Page 143 of 164


ii.
iii.
At a price less than its normal value

When destined for domestic consumption
b. And such exportation

i. Is causing or
ii. Is threatening to cause material injury to a
domestic industry
iii. Materially retards the establishment of a
domestic industry producing like product
(see Section 301(a), TCC, as amended by
RA 8752)
Note: (1) The imposing authority for the anti-dumping duty
is the DTI Secretary in the case of non-agricultural
product, commodity, or article or the DA Secretary in the
case of agricultural product, commodity or article.
(2) Even when all the requirements for the imposition have
been fulfilled, the decision on whether or not to impose a
definitive anti-dumping duty remains the prerogative of the
Tariff Commission
(3) In the determination of whether to impose the antidumping duty, the Tariff Commission may consider among
others, the effect of imposing an anti-dumping duty on the
welfare of the consumers and/or the general public, and
other related local industries
(4) The amount of anti-dumping duty that may be imposed
is the difference between the export price and the normal
value of such product, commodity, or article.

Q: What is a countervailing duty?
It is a special duty imposed on the importation of a
product, commodity or article of commerce into the
Philippines when the same is granted directly or
indirectly by the government in the country of origin
or exportation any kind or form of specific subsidy
upon the production, manufacture or exportation of
such product, commodity or article, and the
importation of such subsidized product, commodity
or article has caused or threatens to cause material
injury to a domestic industry or has materially
retarded the growth or prevents the establishment of
a domestic industry as determined by the Tariff
Commission. (see Section 302, TCC, as amended
by RA 8751)
Note: (1) The countervailing duty shall be in addition to
any ordinary duties, taxes, and charges imposed by law
on such imported product or article
(2) The countervailing duty is equivalent to the bounty

(cash award paid to an exporter), subsidy (fiscal
incentives, not in the form of cash award, to encourage
manufacturers or exporters) or subvention (any assistance
other than bounty or subsidy).
(3) The imposing authority for the countervailing duties is
the DTI Secretary in the case of non-agricultural product,
commodity, or article or the DA Secretary in the case of
agricultural product, commodity or article.

Q: What is a marking duty?
A marking duty are the additional customs duties
imposed on foreign articles (or its containers if the
article itself cannot be marked) not marked in any
official language in the Philippines in a conspicuous
place as legibly, indelibly and permanently in such
manner as to indicate to an ultimate purchaser in the
Philippines the name of the country of origin. (See
Section 303, TCC)
Q: What are the exceptions to marking of

articles?
1. The article is incapable of being marked
2. The article cannot be marked prior to importation
to the Philippines without injury
3. The article cannot be marked prior to importation
to the Philippines except at an expense
economically prohibitive of its importation
4. The marking of the container of such article will
reasonably indicate the origin of such article
5. The article is of a crude substance
6. Such article is for the use of the importer and not
intended for sale in its imported or other form
7. Such article is to be processed in the Philippines
by the importer or for his own account and not for
the purpose of concealing the origin of such
article
8. The ultimate purchaser by the Character of the
article necessarily know the country of origin of
such article
9. Such article was produced more than 20 years
prior to its importation into the Philippines
10. Such article cannot be marked after importation
except at an expense economically prohibitive
and the failure to mark the article before
importation was not due to any purpose of the
importer, producer, seller or shipper to avoid
compliance.
Note: (1) Only the CoC may impose marking duties

Page 144 of 164


(2) The marking duty is equivalent to 5% ad valorem

Q: What is a discriminatory duty?
It is an additional customs duty imposed upon
articles wholly or in part, the growth or product of, or
imported in a vessel of any foreign country
whenever the President shall find as a fact that such
country:
a. Directly or indirectly upon any Philippine product
unreasonable charge, exaction, regulation or
limitation which is not equally enforced upon like
articles of other foreign countries
b. Discriminates in fact against the commerce of the
Philippines as o place the Philippines at a
disadvantage compared with the commerce of
any foreign country (See Section 304, TCC)
Note: It is the President who imposes the discriminatory
duties.
Q: What are safeguard measures?

Safeguard measures are emergency measures
including tariffs to protect domestic industries and
producers from increased imports which inflict or
could inflict serious injury on them.
Note: (1) The CTA is vested with jurisdiction to review
decisions of the DTI Secretary imposing safeguard
measures as provided under RA 8800, the Safeguard
Measures Act (see Southern Cross Cement
Corporation v. Philippine Cement Manufacturers Corp
[July 8, 2004])
(2) The imposing authority for the safeguard measures is
the DTI Secretary in the case of non-agricultural product,
commodity, or article or the DA Secretary in the case of
agricultural product, commodity or article.
(3) The DTI Secretary cannot impose the safeguard
measures if the Tariff Commission does not favorably
recommend its imposition.
--------------------------------------------------------------I. Remedies
1. Government
a) Administrative/extrajudicial
(i) Search, seizure, forfeiture, arrest
b) Judicial
(i) Rules on appeal including jurisdiction
2. Taxpayer
a) Protest
b) Abandonment
c) Abatement and Refund
----------------------------------------------------------------------------------------------------------------------------1. Government
a) Administrative/extrajudicial
b) Judicial
--------------------------------------------------------------Q: What are
government?
the
remedies
of
the
a. Administrative/Extrajudicial Remedies
b. Judicial Remedies
Q: When does the BoC normally avail itself

of the administrative remedy instead of the
judicial remedy and vice versa?
a. Administrative Remedy when the goods to which
the tax lien attaches, regardless of ownership is
still in the custody or control of the government.
In the case, however, of importations which are
prohibited or undeclared, the remedy of seizure
and forfeiture may still be exercised even if the
goods are no longer in its custody
b. Judicial Remedy when the goods are properly
released and thus beyond the reach of a tax lien,
the government can seek payment of the tax
liability through judicial action since the tax
liability of the importer constitutes a personal debt
to the government, therefore, enforceable by
action.
--------------------------------------------------------------a) Administrative/extrajudicial
--------------------------------------------------------------Q:
What
are the extrajudicial
(or
administrative remedies) available to the
government?
1. Enforcement of tax lien (Section 1204 and
Section 1508, TCC)
2. Seizure and forfeiture (Section 2201-2212,
2301-2317, 2530-2536, TCC)
Page 145 of 164

Read Section 1024, 1058, NCC

Q: What is a tax lien in relation to the TCC?
The liability for duties, taxes, fees and other charges
of an importer constitutes a lien upon the articles
imported which may be enforced while such articles
are in custody or subject to the control of the
government.
The Collector shall hold the delivery of any article
imported or consigned to an importer whenever such
importer has an outstanding and demandable
account with the BoC. If subsequently authorized by
the Commissioner and upon notice, the Collector
may sell such importation or a portion thereof to
cover the outstanding account of the importer.
--------------------------------------------------------------(i) Search, seizure, forfeiture, arrest

--------------------------------------------------------------Note: This how seizure and forfeiture works. First, the
articles are seized by the customs authorities. A warrant of
seizure is used for said purpose. In the case of a search in
a dwelling, a search warrant from the regular courts would
have to be procured. Second, the Collector upon making
any seizure shall issue a Warrant of Detention. The
articles may be released if a bond is filed except if there is
prima facie evidence of fraud in their importation in which
case the seized articles may not be released by a bond.
Then the forfeiture proceedings take place. The only issue
is whether the seized goods should be forfeited. The case
can be compromised or be subject of a settlement. The
Collector may either issue a Declaration of Forfeiture or
rule that the seized articles are not subject to forfeiture.
Thus, either the importer or the government can be
aggrieved by said decision. If the importer is aggrieved, he
may file an administrative protest to the CoC and if denied,
he can proceed to the CTA and so on. If the government is
aggrieved, there is automatic review by the CoC and then
by the DOF Secretary. If said bodies decide in favor of the
government, the importer may proceed to the CTA and so
on. Tada! Its not that complicated.
This is how Ill organize the discussion below. First, Ill
discuss seizure and arrest and provide the related
provisions. Second, Ill discuss what properties are subject
to forfeiture. Third, Ill discuss the forfeiture proceeding
itself and which body has jurisdiction over the same.
Read Section 2201-2212, TCC

Q: What is the power of seizure and arrest?
Customs officers may seize any vessel, aircraft,

cargo, article, animal or other movable property
when the same is subject to forfeiture or liable for
any time as imposed under the TCC and related
rules and regulations. (see Section 2205, TCC)
Note: The BoC may conduct search and seizures even
without the benefit of a warrant issued by a judge upon
probable cause except if the search is to be conducted in
a dwelling.
Q: When is a warrant of seizure issued by

the CoC?
The CoC upon probable cause that the articles are
imported or exported or are attempted to be
imported or exported, in violation of the TCC shall
issue a warrant of seizure.
Note: (1) If the search and seizure is to be conducted in a
dwelling place, then a search warrant should be issued by
the regular courts and not the BoC.
(2) The rules on warrantless search and seizures also
apply such as in search and seizures of motor vehicles
and vessels. In such cases, no warrants issued by the
BoC or regulars is required.
(3) If the smuggled goods are seized by virtue of a court
warrant, they should be surrendered to the court that
issued the warrant not to the BoC because the goods are
in custodia legis.
(4) The payment of customs duties, taxes does not
necessarily render as irregular and improper the issuance
of a warrant of seizure

Q: What are the requisites for forfeiture of
imported goods?
a. 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
c. An intention on the part of the
importer/consignee to evade the payment of
the duties due (Republic v. CA [October 2,
2001])

Page 146 of 164


Q: What properties are subject to forfeiture

under the TCC?
See Section 2530, TCC.
Note: Under Section 2530(a), it is not necessary that the
vessel or aircraft must itself carry the contraband. The
complementary if collateral use of the vessel or aircraft for
the smuggling operation is sufficient for it to be deemed to
have been used in smuggling.
Q: What properties are not subject to

forfeiture?
See Section 2531, TCC.
Q: Are common
forfeiture?
carriers
subject
to
As a general rule, they are not subject to forfeiture.

However, if the owner has knowledge of its use in
smuggling and was a consenting party, it may be
forfeited.
Pursuant to Section 2530 of the Tariff and Customs
Code of the Philippines, the mere carrying or holding
on board of smuggled articles shall subject the
vessel to forfeiture. However, the vessel is not
subject to forfeiture if it is engaged as duly
authorized common carrier and as such carrier it is
not chartered or leased. THE COMMISSIONER OF
CUSTOMS AND THE UNDERSECRETARY OF FINANCE VS.
GOLD M ARK SEA CARRIERS, INC., CTA EB NO. 825,
DECEMBER 24, 2012
Q: When is there prima facie knowledge by

the owner of the common carrier?
There is prima facie knowledge by the owner of the
common carrier of its use in smuggling:
a. If the conveyance was used for smuggling at
least twice before
b. If the owner is not in the business for which
the conveyance is generally used
c. If the owner is not in a position to own such
conveyance
Q: In smuggling a shipment of garlic, the

smugglers used an eight-wheeler truck
which they hired for the purpose of taking
out the shipment from the customs zone.
Danny, the truck owner, did not have a

certificate of public convenience to operate
his trucking business. Danny did not know
that the shipment of garlic was illegally
imported. Can the CoC of the port seize and
forfeit the truck as an instrument in the
smuggling?
Yes, the CoC of the port can seize and forfeit the
truck as an instrument of the smuggling since the
same was used unlawfully in the importation of
smuggled articles. The mere carrying of such articles
on board the truck in commercial quantities shall
subject the truck to forfeiture, since it was no being
used as a duly authorized common carrier, which
was chartered or leased as such (see Section
2530(a), TCC)
Further, although forfeiture of the vehicle will not be
affected if it is established that the owner thereof
had no knowledge of or participation in the unlawful
act, there arises a prima facie presumption of
knowledge or participation if the owner is not in the
business for which the conveyance is generally
used. Thus, not having a certificate of public
convenience to operate a trucking business, he is
legally deemed no to have been engaged in the
trucking business (see Section 2531, TCC)

Note: I will reserve the discussion of the administrative
protest (in the case of an aggrieved importer) and
automatic review of the CoC (in the case of the aggrieved
government) when I discuss Protest under the Remedies
of the Taxpayer. For now, I will limit it to the administrative
proceeding.
Q: Discuss the administrative proceeding of

forfeiture from issuance of warrant of
detention to declaration of forfeiture.
1. Collector issues warrant for detention of
property (if owner or importer desires to
secure release of property for legitimate use,
Collector may surrender subject property
upon filing of sufficient bond)
2. Collector immediately reports seizure to
COC and Chairman of COA
3. Collector gives owner or importer or his
agent written notice of seizure and
opportunity to be heard
4. Collector causes preparation of list and
particular description of property seized, as
Page 147 of 164

well as appraisal and classification of the

same
5. Collector, after hearing and in writing, makes
a declaration of forfeiture or fixes amount of
fine or takes such action as may be proper
Note: As a result of (5), the aggrieved owner or imported
may file what is called an administrative protest. In said
protest, he is essentially questioning the decision of the
Collector before CoC. In some cases, instead of a
declaration of forfeiture, it is the government who is
aggrieved. In such case, automatic review shall apply. See
discussion under Administrative Protest.
Q: Who has jurisdiction to hear and

determine questions touching on the
seizure and forfeiture of dutiable goods?
The CoC sitting in seizure and forfeiture proceedings
has exclusive jurisdiction to hear and determine all
questions touching on the seizure and forfeiture of
dutiable goods.
As held in SUBIC BAY METROPOLITAN AUTHORITY V.
RODRIGUEZ [APRIL 23, 2010], the Collector of
Customs has exclusive jurisdiction over seizure and
forfeiture proceedings and the regular courts cannot
interfere with his exercise thereof or enjoin or
interfere with it. The regular courts are precluded
from assuming cognizance over such matters even
through petitions for certiorari, prohibition, or
mandamus.
The RTC must defer to the exclusive original
jurisdiction of the BOC in such proceedings. This is
known as the doctrine of primary jurisdiction.
Q: What is the rationale for the exclusive

customs jurisdiction doctrine?
a. RTCs have no jurisdiction to replevin a
property which is subject to seizure or
forfeiture proceedings for violation of the
TCC. Otherwise, actions for forfeiture of
property for violation of the Customs laws
could easily be undermined by the simple
device of replevin (see Dela Fuente v. De
Veyra [120 SCRA 455])
b. The doctrine of exclusive customs
jurisdiction over customs cases to the
exclusion of the RTC is anchored upon the
policy of placing no unnecessary hindrance
on the governments drive, not only to

prevent smuggling and other frauds upon

customs
c. To render effective and efficient the
collection of import and export duties due he
State which enables the government to carry
out its functions
d. The issuance by regular courts of
preliminary injunction in seizure and
forfeiture proceedings before the BoC may
arouse suspicion that the issuance or grant
was for consideration other than the strict
merits of the case (see Zuno v. Cabredo
[402 SCRA 75])
e. Under the doctrine of primary jurisdiction,
the BoC has exclusive administrative
jurisdiction to conduct searches and
seizures and forfeitures of contraband
without interference from the courts. It could
conduct search and seizures without need of
a judicial warrant except if the search is to
be conducted in a dwelling place.
Q: What is the nature of customs seizure

and forfeiture cases?
They are administrative and civil in nature and are
directed against the res or the imported articles and
entail the determination of the legality of the
importation. These are actions in rem. Thus, it is of
no defense that the owner of the vessel sought to be
forfeited had no actual knowledge that his property
is used illegally. The absence or lack of actual
knowledge of such use is a defense personal to the
owner himself, which cannot in any way absolve the
vessel from the liability of forfeiture (CoC v. Manila
Star Ferry [October 21, 1993])
In CORNELIO Q. CASIDO V. REPUBLIC OF THE
PHILIPPINES, AND HON. NAPOLEON L. MORALES
[C.T.A. CASE NO.8087, FEBRUARY 8, 2012], the CTA
held that forfeiture of seized goods by the BOC is an
action in rem against the goods and not against the
owner. Absence of knowledge or participation of the
owner in the unlawful act does not absolve the
vessel/goods from forfeiture
Note: (1) The issue is limited to whether the imported
goods should be forfeited and disposed of in accordance
with law for violation of the TCC (see Transglobe
International v. CA [January 25, 1999])
(2) Forfeiture of seized goods in the BoC is a proceeding
against the goods and not against the owner (Asian
Terminals v. Bautista-Ricafort [October 27, 2006])
Page 148 of 164


Q: May forfeiture cases be compromised?

Yes. Subject to the approval of the Secretary of
Finance, the CoC may compromise any case arising
under the TCC or other laws or part of laws enforced
by the BoC involving
the imposition of fines,
surcharges, and forfeitures (see Section 2306,
TCC)
Q: May forfeiture cases be settled?

Yes. Settlement of cases by payment of fine or
redemption of forfeited property is allowed. There
are, however, exceptions:
a. The importation is absolutely prohibited
b. The surrender of the property to the
person offering to redeem would be
contrary to law
c. When there is fraud
Note: The above enumeration are also the instances
where there is no right of redemption of seized and
forfeited articles (see Transglobe International v. CA
[January 25, 1999]).
--------------------------------------------------------------b) Judicial
--------------------------------------------------------------Read Section 2401, TCC
Q: What are the judicial remedies that may
be availed of by the Government?
a. Civil Action
b. Criminal Action
Note: Such actions shall be brought in the name of the
Government of the Philippines and shall be conducted by
customs officers but no action shall be filed in court
without the approval of the CoC.
--------------------------------------------------------------(i) Rules on appeal including jurisdiction

--------------------------------------------------------------Read Section 2042, TCC
Note: The Decision of the CoC in cases involving liability
for customs duties, fees, or other money charges, that
must be appealed to the CTA in Division within 30 days

from receipt refers to his decisions on administrative tax

protests.
Unless an appeal is made to the CTA in the manner and
within the period prescribed by law, the action or ruling of
the CoC shall be final and conclusive (Pilipinas Shell v.
CoC [June 18, 2009])
Note that the CTA has jurisdiction only over decisions of
the CoC in cases involving seizures, detention or release
of property affected, not the decision of the Collector.
I will discuss this more in relation to administrative

tax protests.
--------------------------------------------------------------2. Taxpayer
a) Protest
b) Abandonment
c) Abatement and Refund
----------------------------------------------------------------------------------------------------------------------------a) Protest
--------------------------------------------------------------Read Section 2308 to 2315, TCC
Q: What is an administrative tax protest?
A tax protest case, under the TCC, involves a
protest of the liquidation of import entries. In other
words, it is a protest which questions the legality or
correctness of assessed customs duties.
Q: Is payment prior to protest required?

Yes. No protest shall be considered unless payment
of the amount due has first been made and the
corresponding docket fee (see Section 2308, TCC).
Q21.1. Discuss
the
procedure
for
customs protest from issuance of
warrant of detention to appeal to
the Supreme Court.
1. Collector issues warrant for detention of
property (if owner or importer desires to
secure release of property for legitimate use,
Collector may surrender subject property
upon filing of sufficient bond)
2. Collector immediately reports seizure to
COC and Chairman of COA
Page 149 of 164


3. Collector gives owner or importer or his

agent written notice of seizure and
opportunity to be heard
4. Collector causes preparation of list and
particular description of property seized, as
well as appraisal and classification of the
same
5. The Collector, after hearing and in writing,
can either make a declaration of forfeiture
(owner or importer is aggrieved) or rule
otherwise (government is aggrieved).
If the owner or
importer is aggrieved
by the decision of the
Collector:
If the government is
aggrieved by the
decision of the
Collector:
1. Protest
to
the
Collector within 15
days
2. If aggrieved by the
decision or action of
the collector upon
protest, appeal to the
Commissioner within
15
days
after
notification in writing
by the Collector of his
action or decision
3. Appeal
to
CTA
Division within 30
days from notice
4. Appeal to CTA En
Banc
5. Appeal to SC by
certiorari within 15
days
1. Automatic review by
COC
2. Automatic review by
DOF Secretary
3. If owner or importer
is aggrieved by
decision of COC or
DOF Secretary
4. Appeal to CTA
Division within 30
days from notice
5. Appeal to CTA En
Banc
6. Appeal to SC by
certiorari within 15
days
NORTHERN ISLANDS COMPANY, INC., CTA CASE NO. 8068,

JUNE 6, 2012
--------------------------------------------------------------b) Abandonment
--------------------------------------------------------------Read Sections 1801-1802, TCC
Q: What is abandonment?
Abandonment is the renunciation by an importer of
all his interests and property rights in imported
articles (see Section 1801, TCC)
Q: When is an article deemed abandoned?

1. Importer expressly signifies in writing to the
Collector his intention to abandon (express
abandonment)
2. When the importer fails to file an entry within
30 days (not extendible) from the date of
discharge of the last package or having filed
such entry, fails to claim the imported
articles within 15 days (not extendible) from
the date of posting of the notice to claim
such importation (implied abandonment)
Note: Both the Import Entry Declaration (IED) and Import
Entry and Internal Revenue Declaration (IEIRD) should be
filed within 30- days from he date of discharge of the last
package from the vessel or aircraft. When the importer
fails to file the entry within the said period, he shall be
deemed to have renounced all his interest and property
rights to the importations and these should be considered
impliedly abandoned in favor of the government (Chevron
Philippines v. CoC [August 11, 2008])
Q: What are the effects of abandonment?

Note: Automatic review is intended to protect the interests
of the Government in the collection of taxes and customs
duties in seizure and protest cases. Without such
automatic review, nether the CoC or the DOF Secretary
would know about the decision of the Collector of Customs
favoring the taxpayer. The power to decide seizure and
protest cases may be abused if no checks are instituted.
Automatic review is necessary because nobody is
expected to appeal the decision of the Collector which is
favorable to the taxpayer and adverse to the government
(Yaokasin v. CoC [180 SCRA 591]). Remember the
lifeblood theory!
The CTA does not have jurisdiction on rulings of the
Secretary of Finance over seizure and forfeiture
proceedings which do not involve assessment of any
duties. 3-D INDUSTRIES, INC. VS. SECRETARY OF FINANCE AND

a. Any person who abandons an article shall

be deemed to have renounced all his
interests and property rights therein.
b. An abandoned article shall ipso facto be
deemed the property of the Government.
c. It does not relieve the owner from any
criminal liability
d. If the abandoned articles are transferred to a
customs bonded warehouse, he operator
shall be liable for the payment of duties and
taxes in the case of losses of the stored
abandoned imported articles (see R.V.
Marzan v. CA [March 4, 2004])
Page 150 of 164


--------------------------------------------------------------c) Abatement and Refund

--------------------------------------------------------------Read Sections 1701-1708, TCC
Q: What is abatement?
Abatement is the reduction or non-imposition of
customs duties on certain impored materials as a
result of damage incurred during voyage; deficiency
in contents of packages; loss or destruction of
articles after arrival; or death or injury of animals.
Note: The general rule is that no abatement of duties shall
be made on account of damage incurred or deterioration
suffered during voyage of importation and duties will be
assessed on the actual quantity imported (see Section
1701, TCC).
Q: What are the instances where the

Collector may abate or refund the amount of
duties accruing or paid by the importer?
(exceptions to the general rule)
1.
2.
3.
4.
5.
6.
Damage incurred during voyage

Missing package
Deficiency in contents of packages
Articles lost or destroyed after arrival
Dead or injured animals
Refund of Excess payments (made due to
manifest clerical errors)
Q: What is the procedure for claiming

refund?
1. The taxpayer shall make his claim for refund
of duties in writing and forward it to the
Collector for verification
2. If the Collector found the claim to be correct,
he shall certify it to the CoC with his
recommendation
3. If found correct by the CoC, he shall cause
the same to be paid. (see Section 1708,
TCC)

Page 151 of 164


---------------------------------------------------------V. JUDICIAL REMEDIES (CTA)

---------------------------------------------------------Note: The rules here are those found in R.A. 1125, as
amended by RA 9282. Some sources and answers to past
bar questions may still contain rules applicable to R.A.
1125 before its amendment. So make sure you have an
updated codal and reference material.
--------------------------------------------------------------A. Jurisdiction of the Court of Tax Appeals

1. Exclusive appellate jurisdiction
2. Criminal cases
--------------------------------------------------------------Note: The CTA is composed of a Presiding Justice and 8
associate justices organized into three divisions.
--------------------------------------------------------------1. Exclusive Appellate Jurisdiction

a.) Cases within the jurisdiction of the court
en banc
b) Cases within the jurisdiction of the court
in divisions
--------------------------------------------------------------Note: This refers to the exclusive jurisdiction to review by
appeal of the CTA en banc and CTA in division.
Read Section 2, Rule 4, RRCTA

Q: What are the cases within the exclusive
appellate jurisdiction to review by appeal of
the CTA en banc?
a. Decisions or resolutions on MRs or MNTs of the
Court in Division in the exercise of its exclusive
appellate jurisdiction over:
i.
ii.
iii.
iv.
Cases arising from administrative agencies

Local tax cases decided by the RTCs in the
exercise of their original jurisdiction
Tax collection cases decided by RTCs in
the exercise of their original jurisdiction
involving final and executory assessments
for taxes, fees, charges, and penalties,
where the principal amount of taxes and
penalties claimed is less than P1,000,000
Criminal offenses arising from violations of
the NIRC or TCC and other laws
administered by the BIR or BOC

b. Decisions, resolutions or orders on MRs or MNTs

of the Court in Division in the exercise of its
exclusive original jurisdiction over:
i.
ii.
Tax Collection cases

Cases involving criminal offenses arising
from violations of the NIRC or TCC and
other laws administered by the BIR or BOC
c. Decisions, resolutions or orders of the RTCs in

the exercise of its appellate jurisdiction over:
i.
ii.
iii.
Local tax cases

Tax Collection cases
Criminal offenses arising from violations of
the NIRC or TCC and other laws
administered by the BIR or BOC
d. Decisions of the CBAA in the exercise of its

appellate jurisdiction over cases involving
assessment and taxation of real property
originally decided by the provincial or city board
of assessment appeals.
(see Section 2, Rule 4, A.M. No. 05-11-07-CTA)
Read Section 3(a), Rule 4, RRCTA

Q: What are the cases within the exclusive
appellate jurisdiction to review by appeal of
the CTA in division?
a. Decisions of the CIR
i.
ii.
In cases involving disputed assessments,

refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto;
or
Other maters arising under the NIRC or
other laws administered by the BIR
b. Inaction by the CIR where the NIRC provides a

specific period of action
i.
ii.
In cases involving disputed assessments,

refunds of internal revenue taxes, fees or
other charges, penalties in relation thereto,
or
Other matters arising under the NIRC or
other laws administered by the BIR
c. Decisions, orders or resolutions of the RTCs in

local tax cases decided or resolved by them in
the exercise of their original jurisdiction
Page 152 of 164

d. Decisions of the Commissioner of Customs

i.
ii.
In cases involving liability for customs

duties, fees, or other money charges,
seizure, detention or release of property
affected, fines, forfeitures of other penalties
in relation thereto; or
Other matters arising under the Customs
Law or other laws administered by the
Bureau of Customs
e. Decisions of the Secretary of Finance on

customs cases elevated to him automatically for
review from decisions of the Commissioner of
Customs which are adverse to the Government
under Section 2315 of the TCC
f. Decisions of the DTI Secretary in the case of
non-agricultural product, commodity or article and
the DA Secretary in case of agricultural product,
commodity or article, involving dumping and
countervailing duties under Sections 301 and 302
of the TCC and safeguard measures under the
Safeguard Measures Act (RA 8800) where either
party may appeal the decision to impose or not to
impose said duties
(see Section 3(a), Rule 4, A.M. No. 05-11-07-CTA)
Note: Any dispute or controversy involving national
internal revenue taxes or customs duties not falling within
the purview of the exclusive appellate jurisdiction of the
CTA must fall within the jurisdiction of the regular courts. A
taxpayers suit impugning he constitutionality of a tax
statute, for example, even if involving the NIRC or TCC
would fall within the jurisdiction of the regular courts.
Q: When is a decision of the CIR appealable

to the CTA?
First view: The appealable decision is the one
which categorically stated that the CIRs action on
the disputed assessment is final. [COMMISSIONER OF
INTERNAL REVENUE VS. UNION SHIPPING CORPORATION
(M AY 21, 1990)]
statement that the action is final. The rationale is

that to let the taxpayer defer the period is to unduly
put in his hand the collection of taxes.
Q: A taxpayer received on 15 Jan 1996 an

assessment for internal revenue tax
deficiency. On 10 Feb 1996, the taxpayer
filed a petition for review with the CTA.
Should the CTA entertain the appeal?
No. Before the taxpayer can avail of a judicial
remedy, he must first exhaust administrative
remedies by filing a protest within 30 days from
receipt of the assessment. An assessment by the
BIR is not the CIRs decision from which a petition
for review may be filed with the CTA. Rather, it is the
action taken by the CIR in response to the
taxpayers protest on the assessment that would
constitute the appealable decision.
Q: ABC Corp. received an income tax

deficiency from the BIR. ABC filed a protest
and submitted to the BIR all relevant
supporting documents. The CIR did not
formally rule on the protest. Thereafter, ABC
was served summons and a copy of the
complaint for collection of the tax deficiency
filed by the BIR with the RTC. ABC filed a
petition for review before the CTA. The BIR
contends that the petition is premature
since there was no formal denial of the
protest of ABC. Is the BIRs contention
correct?
No. The CTA has jurisdiction because the action of
the CIR qualifies as an appeal from the CIRs
decision on the disputed assessment. When the CIR
decided to collect the tax assessed without first
deciding on he taxpayers protest, the effect of his
action of filing a judicial action for collection is a
decision of denial of the protest, in which event the
taxpayer may file an appeal with the CTA (Republic
v. Lim Tian Teng & Sons [16 SCRA 584])
Second view: There is no need for a categorical

statement. So long as the tenor of the decision is
that the dispute of the taxpayer is denied, it is
appealable. (see SURIGAO ELECTRIC V. CTA [JUNE
28, 1974])
A survey of cases would indicate that the second
view is followed. There is no need for a categorical
Page 153 of 164


Q: Name some communications sent by the

CIR to taxpayers that are deemed
appealable to the CTA.
As provided in Surigao ELECTRIC V. CTA [JUNE 28,
1974]:
1. a letter which stated the result of the
investigation requested by the taxpayer and
the consequent modification of the
assessment;
2. letter which denied the request of the
taxpayer
for
the
reconsideration
cancellation, or withdrawal of the original
assessment
3. a letter which contained a demand on the
taxpayer for the payment of the revised or
reduced assessment; and
4. a letter which notified the taxpayer of a
revision of previous assessments
Q: Is the final demand letter issued by the

BIR reiterating the demand for immediate
payment considered a final decision
appealable to the CTA?
Yes. As held in CIR v. ISABELA CULTURAL CORP
[JULY 11, 2001], the letter is deemed as the CIRs
final act since failure to comply therewith exposes
the property to distraint and levy. The Supreme
Court stated that a final demand letter from BIR,
reiterating to the taxpayer the immediate payment of
a tax deficiency assessment previously made, is
tantamount to a denial of the taxpayers request for
reconsideration. Such letter amounts to a final
decision on a disputed assessment and is thus
appealable to the CTA.
In OCEANIC WIRELESS NETWORK
VS. COMMISSIONER
INTERNAL REVENUE [DECEMBER 9, 2005], the
Supreme Court reiterated that a demand letter for
payment of delinquent taxes may be considered a
decision on a disputed or protested assessment.
The determination on whether or not a demand letter
is final is conditioned upon the language used or the
tenor of the letter being sent to the taxpayer. In this
case, the letter of demand dated January 24, 1991,
unquestionably constitutes the final action taken by
the BIR on petitioners request for reconsideration
when it reiterated the tax deficiency assessments
due
from
petitioner,
and
requested
its
payment. Failure to do so would result in the
issuance of a warrant of distraint and levy to
OF

enforce its collection without further notice. In

addition, the letter contained a notation indicating
that petitioners request for reconsideration had
been denied for lack of supporting documents.
Q: AA Corp received a FAN for contractors

tax.
It
protested
the
assessments.
Thereafter,
AA
requested
for
the
cancellation of the assessments. 4 years
passed and nothing happened. CIR then
issued 2 warrants of distraint to collect the
taxes. One year later, CIR answered and
denied AAs request for cancellation. The
CIR, in its answer to AAs request for the
cancellation of the assessments, requested
the taxpayer to pay the deficiency taxes
within ten days from receipt of the demand;
otherwise, the Bureau would enforce the
warrants of distraint. He closed his demand
letter with this paragraph: This constitutes
our final decision on the matter. If you are
not agreeable, you may appeal to the Court
of Tax Appeals within 30 days from receipt
of this letter. What is the reckoning point of
the appeal period to the CTA the issuance
of the warrant of distraint or the letter
embodying the final demand of payment??
The reviewable decision is the latter letter where the
CIR clearly directed the taxpayer to appeal to the
CTA and not the warrants of levy and distraint. No
amount of quibbling or sophistry can blink the fact
that said letter, as its tenor shows, embodies the
Commissioner's final decision. He even directed the
taxpayer to appeal it to the Tax Court. The directive
is in consonance with this Court's dictum that the
Commissioner should always indicate to the
taxpayer in clear and unequivocal language what
constitutes his final determination of the disputed
assessment. That procedure is demanded by the
pressing need for fair play, regularity and orderliness
in administrative action.
(see ADVERTISING
ASSOCIATES, INC. VS. COURT OF APPEALS [DECEMBER
26, 1984])
Q: U Corp was assessed deficiency income

taxes (FAN). U Corp protested the
assessment. BIR, without ruling on the
protest, issued a warrant of distraint and
levy. U Corp requested reinvestigation and
reconsideration of issuance of the warrant.
Page 154 of 164

Thereafter, BIR filed a collection suit to

collect the taxes. U Corp then filed a petition
for review with the CTA, on the theory that
its period to appeal only began to run from
its receipt of summons in the civil collection
case. BIR argued the appeal was filed out of
time, as the period began to run when the
warrant of distrant and levy was issued.
Who is correct?
U Corp is correct. Under the circumstances, the CIR
didnt clearly signify his final action on the disputed
assessment. Thus, it was only when U Corp
received the summons on the civil suit for collection
of deficiency income that the period to appeal
commenced to run. The request for reinvestigation
and reconsideration was in effect considered denied
by the CIR when the latter filed a civil suit for
collection of deficiency income. [COMMISSIONER OF
INTERNAL REVENUE VS. UNION SHIPPING CORPORATION
(M AY 21, 1990)]
Q: The City of Makati received assessment

notices imposing deficiency taxes. Makati
protested. The BIR stated that the
assessments were already final and
executory. Nonetheless, Makati requested
for another reinvestigation. The Revenue
officer and deputy Commissioner granted
this request. Did the reinvestigation of the
case
reversed
the
finality
of
the
assessments?
No. Only the Commissioner of Internal Revenue has
the power to reverse, revoke or modify any existing
ruling of the Bureau of Internal Revenue (BIR),
which power cannot be delegated. In assessment
cases, a reopening/reinvestigation after a final
decision on disputed assessment has been issued
must be initiated by the commissioner. Otherwise,
the reopening / reinvestigation is without authority
and failure to appeal the final decision on disputed
assessment to CTA would render the assessment
final and executory. Here, the reinvestigation was
merely granted by a revenue officer and a deputy
commissioner.
(see
CITY OF M AKATI VS.
COMMISSIONER OF INTERNAL REVENUE [CTA CASE
NO. 641, SEPTEMBER 16, 2011])
Q: The CIR filed a Motion to Dismiss the

Petition for Review commenced by Festo
Holdings on the ground of lack of
jurisdiction. The CIR argued that the

Revenue District Officer who signed the
letter which became the basis of the instant
petition, cannot be deemed an alter ego of
the CIR for purposes of issuing a final
decision on Festos protest under a
delegated authority. As such, the subject
letter is not the CIR's final decision on
Festos protest; thus, the 30 day period to
file an appeal was yet to commence,
rendering the instant petition premature. Is
the contention of the CIR correct?
Yes, the appeal to the CTA was premature. As held
in FESTO HOLDINGS, INC. VS. COMMISSIONER OF
INTERNAL REVENUE [CTA CASE NO. 8226,
SEPTEMBER 2, 2011], the Revenue District Officer
who issued the letter cannot be considered as the
CIR's decision appealable to this Court, in the
absence of any proof that the former was authorized
to decide and act in behalf of the latter on the protest
of a taxpayer. Nowhere is it provided that a Revenue
District Officer can issue decisions that are
appealable to this Court. Therefore, there being no
decision of the CIR in the present case, this Court
cannot take cognizance of the present case.
Q: Is the denial by the BIR of the protest on

the PAN (not the FAN) appealable to the
CTA?
No, the denial of the CIR must be on the protest of
the FAN. In ALLIED BANKING CORPORATION VS.
COMMISSIONER OF INTERNAL REVENUE [FEBRUARY 5,
2010], the Supreme Court ruled that it is the Formal
Letter of Demand and Assessment Notice (FAN) that
must be administratively protested or disputed within
30 days, and not the PAN.
Q: BIR issued a PAN to AB Corp for

deficiency DST. AB protested the PAN.
Thereafter, BIR sent a FAN to AB Corp. The
letter provided: It is requested that the
above deficiency tax be paid immediately
upon receipt hereof, inclusive of penalties
incident to delinquency. This is our final
decision based on investigation. If you
disagree, you may appeal the final decision
within thirty (30) days from receipt hereof,
otherwise said deficiency tax assessment
shall
become
final,
executory
and
Page 155 of 164

demandable. Thereafter, AB immediately

filed a petition for review with the CTA.
Should the petition be dismissed?
No. Ordinarily, the procedure is that its the FAN that
must be administratively protested, as a prerequisite
to subsequently filing a PFR with the CTA. However,
the SC ruled in this case that the CIR was estopped
from claiming the need for a protest. AB Corp cant
be blamed for not filing a protest against the FAN
since the language used and the tenor of the PAN
indicate that it is the final decision of the CIR on the
matter. The CIR is required 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. Thus, CIR is now
estopped from claiming that he did not intend the
PAN to be a final decision. Moreover in the Formal
Letter of Demand with Assessment Notices, CIR
used the word appeal instead of protest,
reinvestigation, or reconsideration. Although
there was no direct reference for petitioner to bring
the matter directly to the CTA, it cannot be denied
that the word appeal under prevailing tax laws
refers to the filing of a Petition for Review with the
CTA (see ALLIED BANKING CORPORATION VS.
COMMISSIONER OF INTERNAL REVENUE [FEBRUARY 5,
2010])
Q: What other matters are cognizable by

the CTA?
The other matters cognizable by the CTA should
be of the same nature, kind or class as the matters
specifically enumerated as within its jurisdiction.
Q: Sec 7(a)(1) of RA 1125 as amended by RA

9262 provides that the CTA has exclusive
appellate jurisdiction to review by appeal
the decisions of the Commissioner of
Internal Revenue in cases involving
disputed assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other
matters arising under the National Internal
Revenue or other laws administered by the
Bureau of Internal Revenue. Does the CTA
also have jurisdiction to determine the
validity of warrants of distraint/levy and the
waiver of statute of limitations?

Yes. The appellate jurisdiction of the CTA is not

limited to cases which involve decisions of the
Commissioner of Internal Revenue on matters
relating to assessments or refunds. The second part
of the provision covers other cases that arise out of
the NIRC or related laws administered by the
Bureau of Internal Revenue. The wording of the
provision is clear and simple. It gives the CTA the
jurisdiction to determine if the warrant of distraint
and levy issued by the BIR is valid and to rule if the
Waiver of Statute of Limitations was validly effected.
This is not the first case where the CTA validly ruled
on issues that did not relate directly to a disputed
assessment or a claim for refund. In Pantoja v.
David, we upheld the jurisdiction of the CTA to act
on a petition to invalidate and annul the distraint
orders of the Commissioner of Internal Revenue.
Also, in Commissioner of Internal Revenue v. Court
of Appeals, the decision of the CTA declaring
several waivers executed by the taxpayer as null
and void, thus invalidating the assessments issued
by the BIR, was upheld by this Court. (see
PHILIPPINE JOURNALISTS INC. VS. COMMISSIONER OF
INTERNAL REVENUE [DECEMBER 16, 2004])
Q: The CIR, pursuant to the NIRC, issued a

RMO imposing a 5% lending investors tax
on pawnshops. The RMO identified
pawnshops as a lending investor due to
the nature of its activities. Leal, a pawnshop
owner, filed with the RTC a petition for
prohibition that sought to stop the CIR from
implementing the RMO. CIR filed a motion to
dismiss. CIR alleged RTC had no
jurisdiction over the matter. Did the RTC
have jurisdiction over the action to nullify
the RMO?
No, the CTA had exclusive jurisdiction. The
questioned is actually a ruling or opinion of the CIR
in implementing the Tax Code with regard taxability
of pawnshops. The RMO was issued pursuant to
CIRs powers under Section 244 of the NIRC
(providing for the power of the Commissioner of
Internal Revenue to make rulings or opinions in
connection with the implementation of the provisions
of internal revenue laws, including ruling on the
classification of articles of sales and similar
purposes). Thus, the petition should have been filed
with the CTA. (see COMMISSIONER OF INTERNAL
REVENUE VS. LEAL [NOVEMBER 18, 2002])
Page 156 of 164


Similarly, in the case of ASIA INTERNATIONAL

AUCTIONEERS, INC. VS. PARAYNO (DECEMBER 18,
2007], several RRs and RMOs were also
considered as rulings/opinions of the CIR on the tax
treatment of motor vehicles sold at public auction
within the SSEZ. They were deemed issued
pursuant to the power of the CIR to interpret
provisions of the NIRC. Thus, when an action to
annul such RRs/RMOs was filed with the RTC, SC
held that such was improper, as it was the CTA that
had exclusive jurisdiction
Q: A was assessed for income tax

deficiency. The taxpayer failed to file a
protest and thus the said assessment has
become final and unappealable. Thereafter,
the taxpayer filed a petition for review to the
CTA arguing that the right of the CIR to
collect the assessed tax has prescribed. The
CIR contends that the CTA has no
jurisdiction because when the law says that
the CTA has jurisdiction over other
matters it presupposes that the tax
assessment has not become final and
unappealable. Is the CIRs contention
correct?
No. The fact that an assessment has become final
for failure of the taxpayer to file a protest within the
time allowed only means that the validity or
correctness of the assessment may no longer be
questioned on appeal. However, the validity of the
assessment itself is a separate and distinct issue
from the issue of whether the right of the CIR to
collect the validly assessed tax has prescribed. This
issue of prescription, being a matter provided for by
the NIRC, is well within the jurisdiction of the CTA to
decide. (Commissioner of Internal Revenue v.
Hambrecht & Quist Philippines, Inc., [November
17, 2010])
Q: Does the CTA have jurisdiction relative to

matters involving the constitutionality of
regulations issued by the BIR?
No. The doctrine in ASIA INTERNATIONAL
AUCTIONEERS V. PARAYNO [DECEMBER 18, 2007]
which ruled that the CTA has such jurisdiction has
been reversed in BRITISH AMERICAN TOBACCO V.
CAMACHO [AUGUST 20, 2008]. The regular courts
have jurisdiction to rule upon the constitutionality of
a tax law or a regulation issued by the BIR.

Note: See also EGIS PROJECTS S.A. VS. THE SECRETARY OF

FINANCE AND COMMISSIONER OF INTERNAL REVENUE [CTA
CASE NO. 8413, JANUARY 29, 2013] where the CTA held
that the issue on the constitutionality or validity of RMO
Nos. 72-2010 and 1-2000 or its relevant provisions is
beyond the jurisdiction of the CTA, but of the regular
courts.
SMART COMMUNICATIONS, INC. VS. MUNICIPALITY OF MALVAR,
BATANGAS, CTA EB NO. 767 (CTA AC NO. 58), JUNE 26,
2012, where the CTA held that the issue on the validity or
constitutionality of Ordinance is not within the jurisdiction
of the CTA, but with the regular courts.
However, in NEGROS CONSOLIDATED FARMERS ASSOCIATION
MULTI-PURPOSE COOPERATIVE VS. COMMISSIONER OF
INTERNAL REVENUE [CTA CASE NO. 7994; FEBRUARY 17,
2012], the CTA held that it has jurisdiction to rule on the
validity of a rule or regulation issued by the Bureau of
Internal Revenue. This case should not be controlling in
light of the SC ruling in British American Tobacco.
--------------------------------------------------------------2. Criminal Cases

a) Exclusive original jurisdiction
b) Exclusive appellate jurisdiction in
criminal cases
--------------------------------------------------------------Note: This applies to CTA in Divisions. Note that, with
regard to criminal cases, the CTA en banc has exclusive
appellate jurisdiction over the decisions or resolutions on
MRs or MNTs of the Court in Division in the exercise of its
exclusive appellate jurisdiction or in the exercise of its
exclusive original jurisdiction over criminal offenses arising
from violations of the NIRC or TCC and other Tax Laws.
Read Section 3(b) and 3(a), Rule 4, RRCTA

Q: What are the criminal cases within the
exclusive original jurisdiction of the CTA?
The CTA shall exercise exclusive original jurisdiction
over all criminal cases where the principal amount
involved of taxes and fees is P1,000,000 or more,
exclusive of charges and penalties, arising from
violations of the NIRC, TCC and other laws
administered by the BOC or the BIR.

exclusive original jurisdiction of the regular
courts?
The regular courts have original jurisdiction in
offenses and felonies where:
Page 157 of 164


a. The principal amount of taxes and fees, exclusive

of charges and penalties, claimed is less than
P1,000,000
b. There is no specified amount claimed
--------------------------------------------------------------a) Who may appeal, mode of appeal, effect

of appeal
---------------------------------------------------------------

exclusive appellate jurisdiction of the CTA?
Q: Who may appeal in the CTA?
a. Appeals from judgments, resolutions or orders of

the RTCs in tax cases originally decided by them
in their respective territorial jurisdiction; and
b. Petitions for review of the judgments, resolutions
or orders of the RTCs in the exercise of their
appellate jurisdiction over tax cases originally
decided by the MeTCs, MTCs or MCTCs.
Note: (1) The same rules apply with regard to the
exclusive jurisdiction of the CTA in division over tax
collection cases.
(2) As held in YABES V. FLOJO [JULY 20, 1982], the
Supreme Court held that the lower courts can acquire
jurisdiction over a claim for collection of deficiency taxes
only after the assessment made by the CIR has become
final and unappealable, not where there is still a pending
CTA case.
--------------------------------------------------------------B. Judicial Procedures

1. Judicial action for collection of taxes
a) Internal revenue taxes
b) Local taxes
i) Prescriptive period
--------------------------------------------------------------Note: This has been thoroughly discussed under Tax
Remedies and Local Government Taxation. I will not
discuss them anymore.
--------------------------------------------------------------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
b) Appeal to the CTA, en banc
c) Petition for review on certiorari to the
Supreme Court
---------------------------------------------------------------

Read Section 11, RA 1125 and Section 3,

Rule 8, RRCTA
a. A party adversely affected by a decision, ruling,
or the inaction of:
i.
CIR
ii.
CoC
iii.
DOF Secretary
iv.
DTI Secretary
v.
DA Secretary
vi.
RTC (in the exercise of its original
jurisdiction)
b. A party adversely affected by a decision or
resolution of a Division on a MR or MNT
c. A party adversely affected by a decision or ruling
of the CBAA and the RTC in the exercise of their
appellate jurisdiction.
Q: What are the different modes of appeal?

a. Petition for review under Rule 42 to be acted
upon the CTA in division with respect to a
decision, ruling or inaction of:
i.
CIR (on disputed assessments or claim for
refund of internal revenue taxes erroneously
or illegally collected)
ii.
CoC
iii.
DOF Secretary
iv.
DTI Secretary
v.
DA Secretary
vi.
RTC (in the exercise of their original
jurisdiction)
Period to file: 30 days
b. Petition for review under Rule 43 to be acted
upon the CTA en banc with respect to a decision
or resolution of the Court in Division on a MR or
40
MNT.
40
In cases falling under the exclusive appellate jurisdiction of the

CTA en banc, a petition for review of a decision or resolution of
Page 158 of 164


Period to file: 15 days. It may be extended to an

additional period not exceeding 15 days.
SM Land v. City of Manila, G.R. No.

197151, October 22, 2012
c. Petition for review under Rule 43 to be acted

upon by the CTA en banc with respect to the
decisions or rulings of:
DOCTRINE: The 30-day period to appeal decisions of the

RTC to the CTA is extendible
i.
ii.
CBAA
RTCs (in the exercise of their appellate
jurisdiction)
Period to file: 30 days
Q: CC Corp filed a petition in the RTC to

nullify an ordinance enacted by the City of
Manila. RTC dismissed the petition. CC Corp
filed a petition for review with CTA. It was
argued that the petition for review was filed
out of time. Can the 30 day period to file a
petition for review to the CTA of an adverse
decision or ruling of the RTC (in the
exercise of its original jurisdiction) be
extended?
Yes. As held in CITY OF M ANILA VS. COCA-COLA
BOTTLERS PHILIPPINES, INC. [AUGUST 4, 2009], it is
clear from the Section 3 of the Revised Rules of the
CTA that to appeal an adverse decision or ruling of
the RTC to the CTA, the taxpayer must file a Petition
for Review with the CTA within 30 days from receipt
of said adverse decision or ruling of the RTC. It must
be pointed out that the rule is silent as to whether
the 30 day period can be extended or not. However,
Section 11 of Republic Act No. 9282 does state that
the Petition for Review shall be filed with the
CTA following the procedure analogous to Rule 42
of the Revised Rules of Civil Procedure. Following
by analogy Section 1, Rule 42 of the Revised Rules
of Civil Procedure, the 30-day original period for
filing a Petition for Review with the CTA under
Section 11 of Republic Act No. 9282, as
implemented by Section 3(a), Rule 8 of the Revised
Rules of the CTA, may be extended for a period
of 15 days. No further extension shall be allowed
thereafter, except only for the most compelling
reasons, in which case the extended period shall not
exceed 15 days.
FACTS: On the strength of the provisions of Tax

Ordinance Nos. 7988 and 8011, whichamended
Ordinance No. 7794, also known as the Revenue Code of
Manila, the City of Manila assessed petitioners/taxpayers,
together with their other sister companies, increased rates
of business taxes for the year 2003 and the first to third
quarters of 2004. The companies filed under protest and
later filed an application for refund and later a complaint
for refund with the Regional Trial Court (RTC). The RTC
granted the claim for refund. Respondent City of Manila
filed a petition for review with the CTA, after the latter
granted its request for extension of time to file the petition
for review. One of the issues presented before the Court
was whether the 30-day period provided by law within
which to appeal decisions of the RTC to the CTA may be
extended.
HELD: According to the Court, Section 11 of Republic Act
No. 9282 does state that the Petition for Review shall be
filed with the CTA following the procedure analogous to
Rule 42 of the Revised Rules of Civil Procedure. Section
1, Rule 42 of the Revised Rules of Civil Procedure
provides that the Petition for Review of an adverse
judgment or final order of the RTC must be filed with the
Court of Appeals within: (1) the original 15-day period from
receipt of the judgment or final order to be appealed; (2)
an extended period of 15 days from the lapse of the
original period; and (3) only for the most compelling
reasons, another extended period not to exceed 15 days
from the lapse of the first extended period. Following by
analogy, Section 1, Rule 42 of the Revised Rules of Civil
Procedure, the 30-day original period for filing a Petition
for Review with the CTA under Section 11 of Republic Act
No. 9282, as implemented by Section 3 (a), Rule 8 of the
Revised Rules of the CTA, may be extended for a period
of 15 days. No further extension shall be allowed
thereafter, except only for the most compelling reasons, in
which case the extended period shall not exceed 15 days
In MUNICIPALITY OF CAINTA, RIZAL VS. BRILLANTE

REALTY CORPORATION [CTA AC NO. 88, JANUARY 02,
2013], the CTA held that the thirty-day period to
appeal an adverse decision of the Regional Trial
Court to the Court of Tax Appeals may be extended
for a period of 15 days, subject to filing of motion for
extension before the CTA and payment of
appropriate fees.
the Court in Division must be preceded by the filing of a timely MR

or MNT with the Division. (see Section 1, Rule 8, RRCTA)

Page 159 of 164


Q: Does a Motion for Reconsideration of the

decision of the CIR toll the 30 day period to
appeal the denial of the protest of the FAN
to the CTA?
No. A motion for reconsideration of the denial of the
administrative protest does not toll the 30-day period
to appeal to the CTA. (see FISHWEALTH CANNING
CORPORATION VS. COMMISSIONER OF INTERNAL
REVENUE [JANUARY 21, 2010])
--------------------------------------------------------------i) Suspension of collection of tax

a) Injunction not available to restrain
collection
--------------------------------------------------------------Q: Does the perfection of an appeal suspend
the collection of taxes? (effect of an appeal)
No appeal taken to the CTA shall suspend the
payment, levy, distraint and/or sale of any of the
taxpayers property for the satisfaction of his tax
liability. However, when in the opinion of the CTA
the collection of the tax may jeopardize the interest
of the Government and/or the taxpayer, the Court at
any stage of the proceedings may suspend or
restrain the collection of the tax and require the
taxpayer either to deposit the amount claimed or to
file a surety bond for no more than double the
amount with the Court.
Note: Nonetheless, during the pendency of the appeal, the
taxpayer may still enter into a compromise settlement of
his tax liability for as long as any of the grounds for a
compromise (doubtful validity of assessment and financial
incapacity) is present. A compromise of a tax liability is
possible at any stage of litigation even during appeal
(Pampanga Sugar Co. v. CIR [114 SCRA 496])
Q: May the CTA issue an injunction to enjoin

the collection of taxes by the BIR?
Yes. When a decision of the CIR on a tax protest is
appealed to the CTA, such appeal does not suspend
the payment, levy, distraint and/or sale of any of the
taxpayers property. However, when in the opinion of
the CTA the collection of the tax may jeopardize the
interest of the Government and/or the taxpayer, the
Court at any stage of the proceedings may suspend
or restrain the collection of the tax and require the
taxpayer either to deposit the amount claimed or to
file a surety bond for no more than double the
amount with the Court.
Note: (1) The CTA may issue injunction only in the

exercise of its appellate jurisdiction. CIR vs. J.C. Yuseco
[G.R. No. L-12518, October 28, 1961]
(2) The prohibition on the issuance of a writ of injunction to
enjoin the collection of taxes is applied only to national
internal revenue taxes, not to local taxes. ANGELES CITY V.
ANGELES ELECTRIC CORPORATION [JUNE 29, 2010]
(3) TROs and injunctions issued by courts other than the
CTA against the BIR should be annulled and cancelled for
lack of jurisdiction [see RMO 042-10 [MAY 4, 2010].)
--------------------------------------------------------------ii) Taking of evidence

--------------------------------------------------------------Q: When may the CTA receive evidence?
The Court may receive evidence in the following
cases:
a. In all cases falling within the original jurisdiction
of the CTA in division pursuant to Section 3, Rule
4 of the RRCTA
b. In appeals in both civil and criminal cases where
the Court grants a new trial pursuant to Section
2, Rule 53 and Section 12, Rule 124 of the Rules
of Court
Q: Who are authorized to take evidence?

Read Section 3-4, Rule 12, RRCTA
The following are authorized:
a. Any justice of the court when
i. The determination of a question of fact
arises at any stage of the proceedings or
ii. The taking of an account is necessary
iii. The determination of an issue of fact
requires the examination of a long account
b. Any court official for the sole purpose of marking
comparison with the original and identification by
witnesses of the received documentary evidence
Page 160 of 164


--------------------------------------------------------------iii) Motion for reconsideration or new trial

--------------------------------------------------------------Read Section 1, 4 and 5, Rule 15
Q: Who may file a MR or MNT?
Any aggrieved party may seek a reconsideration or
new trial of any decision, resolution or order of the
court
Note: (1) The period to file the MR or MNT is 15 days.
(2) No second MR or MNT is allowed (see Section 7,
Rule 15, RRCTA)
Note, however, that a Motion for Reconsideration filed on
the Amended Decision of the Court in Division is not a
second motion for reconsideration, which is a proscribed
under Section 7, Rule 15 of the CTA Rules, in relation to
Section 2, Rule 52 of the 1997 Rules of Civil Procedure,
as amended. MIRANT (NAVOTAS II) CORPORATION VS.
COMMISSIONER OF INTERNAL REVENUE, CTA EB CASE NO.
783, JULY 18, 2012
Q: What is the effect of the filing of the MR

or MNT?
The filing of the MR or MNT shall suspend the
running of the period within which an appeal may be
perfected
Q: What are the grounds for the filing of a

MR or MNT?
a. Fraud, accident, mistake or excusable negligence
(FAME) which ordinary prudence could not have
guarded against and by reason of which such
aggrieved party has probably been impaired in
his rights or
b. Newly discovered evidence which he could not,
with reasonable diligence, have discovered and
produced at the trial and which, if presented,
would probably alter the result
--------------------------------------------------------------b) Appeal to the CTA, en banc

--------------------------------------------------------------Read Section 18, RA 1125
Q: Who may file an appeal to the CTA en

banc?
a. A party adversely affected by a resolution of
a Division of the CTA on a MR or MNT may
file a petition for review with the CTA en
banc
b. A party adversely affected by a decision or
ruling of the CBAA or the RTC in the
exercise of their appellate jurisdiction
Note: You cannot directly appeal a decision or order of a
Division to the CTA en banc. You must first file a timely
MR or MNT. (see Section 1, Rule 8, RRCTA)
Q: Is a prior MR required before filing a

Petition for Review of a decision of a CTA
division?
Yes. The mandatory provisions of Rule 8, Section 1
of the Revised Rules of the Court of Tax
Appeals requiring that the petition for review of a
decision
or
resolution
of
the
Court
in
Division must be preceded by the filing of a timely
motion for reconsideration or new trial with the
Division. The word "must" clearly indicates the
mandatory -- not merely directory -- nature of a
requirement. The rules are clear. 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. (see
COMMISSIONER OF CUSTOMS VS. M ARINA SALES, INC.
[NOVEMBER 22, 2010])
Q: Juday was criminally charged in the CTA

for filing a fraudulent income tax return.
Thereafter, she filed a motion to quash in
the CTA 1st division. The MTQ was denied.
MR was also denied. She then filed a motion
for extension of time to file her petition for
review in CTA en banc. Thereafter, she filed
her petition for review with CTA en banc.
CTA en banc denied both the petition for
extension, and the petition for review, on the
theory that the denial of the motion to quash
was an interlocutory order, and therefore,
unappealable. Was the dismissal by CTA en
banc proper?
Yes. CTA en banc did not err in denying petitioners
Motion for Extension of Time to File Petition for

Page 161 of 164


Review. Petitioner cannot file a Petition for Review

with the CTA en banc to appeal the Resolution of
the CTA First Division denying her Motion to Quash.
The Resolution is interlocutory and, thus,
unappealable. Even if her Petition for Review is to
be treated as a petition for certiorari, it is dismissible
for lack of merit. (see JUDY ANNE L. SANTOS VS.
PEOPLE OF THE PHILIPPINES AND BUREAU OF INTERNAL
REVENUE [AUGUST 26, 2008])
--------------------------------------------------------------c) Petition for review on certiorari to the

Supreme Court
--------------------------------------------------------------Read Section 19, RA 1125 and Section 1,
Rule 16, RRCTA
Q: Who may file an appeal to the Supreme
Court?
Any party adversely affected by a decision or ruling
of the Court en banc may appeal to the Supreme
Court.
Q: What is the mode of appeal from the CTA

en banc to the Supreme Court?
The mode of appeal is a petition for review on
certiorari under Rule 45.
Q: ABC Corporation, engaged in the retail of
medicines and other pharmaceutical drugs filed a
claim for TCC pertaining to the 20% sales discounts
granted to senior citizens. The CTA denied the claim
for insufficiency of evidence. Thus, ABC filed its
petition for review before the SC. Instead of filing a
reply to the comments of respondent, ABC filed a
motion to withdraw praying that the case be
dismissed without prejudice. According to BAC, the
amount of tax credit being claimed would just be
included in its future claims for issuance of TCC. The
CIR argues that the decision of the CTA became
final and executory and thus the tax credit could no
longer be claimed in the future. Is the contention of
the CIR correct?
Yes. By withdrawing the appeal the taxpayer is
deemed to have accepted the decision of the CTA.
And since the CTA had already denied taxpayers
request for the issuance of TCC for insufficiency of
evidence, it may no longer be included in taxpayers
future claim. (Central Luzon Drug Corporation v.
CIR [March 2, 2011] ).
--------------------------------------------------------------C. Criminal Cases

a) Institution and prosecution of criminal
actions
i) Institution of civil action in criminal
action
b) Appeal and period to appeal
i) Solicitor General as counsel for the
people and government officials sued in
their official capacity
Supreme Court
----------------------------------------------------------------------------------------------------------------------------a) Institution and prosecution of criminal
actions
i) Institution of civil action in criminal
action
--------------------------------------------------------------Read Section 2, Rule 9, RRCTA
Q: How are criminal actions instituted?
All criminal actions before the CTA in Division in the
exercise of its original jurisdiction shall be instituted
by the filing of an information in the name of the
People of the Philippines.
Note: (1) The institution of the criminal action shall
interrupt the running of the period of prescription
(2) For violations of the NIRC and other laws enforced by
the BIR, the CIR must approve the filing
(3) For violations of the TCC and other laws enforced by
the BOC, the CoC must approve their filing

Q: Who shall prosecute the criminal action?
The criminal actions shall be conduced and
prosecuted under he direction and control of the
public prosecutor
Note: For violations of the NIRC and other laws enforced
by the BIR and violations of the TCC and other laws
enforced by the BoC, the prosecution may be conducted
by their respective duly deputized legal officers.
Page 162 of 164



Q: Is the civil action deemed instituted with
the criminal action?
Yes. The criminal action and corresponding civil
action for the recovery of civil liability for taxes and
penalties shall be deemed jointly instituted in the
same proceeding. The filing of the criminal action
shall necessarily carry with it the filing of the civil
action. No right to reserve the filing of such civil
action separately from the criminal action shall be
allowed.
--------------------------------------------------------------b) Appeal and period to appeal

i) Solicitor General as counsel for the
people and government officials sued in
their official capacity
--------------------------------------------------------------Read Section 9, Rule 9, RRCTA

Supreme Court
--------------------------------------------------------------Note: Same rule as in Civil Cases.
--------------------------------------------------------------C. Taxpayers suit impugning the validity of

tax measures or acts of taxing authorities
--------------------------------------------------------------Q: What is a taxpayers suit?
A taxpayers suit is a case where the act
complained of directly involves the illegal
disbursement of public funds derived from taxation.
Q: Distinguish a taxpayers suit from a

citizens suit?
Definition
Q: What are the modes of appeal with

respect to criminal cases?
a. Notice of Appeal pursuant to Sections 3(a) and 6,
Rule 122 of the Rules of Court to the CTA in
Division with respect to an appeal from criminal
cases decided by the RTC in the exercise of its
original jurisdiction
b. Petition for Review under Rule 43 to the CTA En
Banc with respect to criminal cases decided by
i)
CTA in Division in the exercise of its
appellate jurisdiction
ii)
RTC in the exercise of its appellate
jurisdiction
Note: In both cases, the period to file is 15 days.

Q: Who shall act as a representative of the
People and the Government?
The Solicitor General shall represent the People and
government officials sued in their official capacity in
all cases brought to the CTA in the exercise of its
appellate jurisdiction.
Plaintiff
Taxpayers
Suit
Citizens Suit
Case where the

act complained of
directly involves
the
illegal
disbursement of
public funds
Plaintiff
is
affected by the
expenditure
of
the public funds
Case in which is in the

nature of a public right,
if not the duty of every
citizen, to institute in
protection
of
the
general public
The plaintiff is but a
mere instrument of
public concern.
Q: How is the concept of locus stand

applied in a taxpayers suit?
Locus standi is a right of appearance in a court of
justice on a given question. It is the personal and
substantial interest in the case, such that the party
has sustained or will sustain direct injury as a result
of a challenged act. In order to challenge the
constitutionality of tax measures or illegal
expenditures of public money, the taxpayer must
have locus standi.
Q: What are the requisites of a taxpayers

suit? (for taxpayers to have locus standi to
sue)
As laid down in ANTI-GRAFT LEAGUE V. SAN JUAN
[260 SCRA 251], the requisites of a taxpayers suit
are:
---------------------------------------------------------------

Page 163 of 164


1. Public funds are disbursed by a political

subdivision or instrumentality and in doing so, a
law is violated or some irregularity is committed;
and;
2. Petitioner is directly affected by the alleged ultra
vires act
Hence, in LOZADA V. COMELEC [120 SCRA 337], it
was held that the petitioners action for mandamus
to compel the COMELEC to hold a special collection
is not considered a taxpayers suit because it does
not involve public expenditure. Further, there is no
allegation that tax money is spent illegally. Also, in
JOYA V. PCGG [225 SCRA 568], the Supreme Court
held that such was not a taxpayers suit because the
case did not involve a misapplication of public funds.
In fact, the paintings and antique silverware alleged
to have been public properties were acquire from
private sources and not with public money.
Q: Must a taxpayer be a party to a

government contract so that it can
challenge the validity of a disbursement of
public funds?
No. The prevailing doctrine in taxpayers suit is to
allow taxpayers to question contracts entered into by
the national government or GOCCs allegedly in
contravention of law. A taxpayer need not be a party
to the contract to challenge its validity (ABAYA V.
EBDANE [515 SCRA 720])
A constitutional question is ripe for adjudication

when the government act being challenged has a
direct adverse effect on the individual challenging it.
As a general rule, a taxpayer must show that he
would be prejudiced or benefited by the suit which
questions the validity of the collection of taxes or the
manner of expenditure of funds collected from
taxation. Personal injury or benefit must be shown
for judicial controversy to be ripe for judicial
determination
NOTE: However, it must be noted that where the public
interest requires the resolution of the constitutional issues
raised by the taxpayer, the doctrine of ripe for judicial
determination is within the Courts discretion to set aside
ABAKADA GURO PARTY-LIST V. PURISIMA [G.R. NO.
166715, AUGUST 14, 2008]
========== END OF REVIEWER ============

Thank you for using my reviewer. Again, if you
find it useful, please share it to others. Also, if
its not so much to ask, pray that my girlfriend
and I do well and pass the bar exams.
Ateneo Law Batch 2013 and all the other
barristers who will come to possess this
reviewer, good luck to us all. AMDG.
For comments, corrections, and suggestions,
please email me at pmreyestax@gmail.com.
Q: How is the doctrine of transcendental

importance applied to a taxpayers suit?
Prayer to St. Joseph of Cupertino for

success in Examinations
As a general rule, only those with locus standi may

impugn the tax measure or illegal imbursement of
public funds. However, the Supreme Court has
discretion to entertain a taxpayers suit and brush
aside lack of locus standi where the issues are of
such transcendental importance in keeping with the
courts duty to determine if public officers have not
abused the discretion given to them KILOSBAYAN V.
GUINGONA [G.R. 113375, MAY 5, 1994]
O Great St. Joseph of Cupertino who while

on earth did obtain from God the grace to be
asked at your examination only the
questions you knew, obtain for me a like
favour in the examinations for which I am
now preparing. In return I promise to make
you known and cause you to be invoked.
NOTE: However, while the taxpayer need not suffer

personal damage if matter is of transcental important, he
must prove damage to others. [JUMAMIL V. CAF [G.R. NO.
144570, SEPTEMBER 1, 2005]
Through Christ our Lord.

St. Joseph of Cupertino, Pray for us.
Amen.
Q:
How
is
ripeness
for
judicial
determination applied in a taxpayers suit?

Page 164 of 164


PM Reyes Bar Reviewer On Taxation Ii: Q: What Are Transfer Taxes?

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PM REYES BAR REVIEWER ON TAXATION II

PIERRE MARTIN DE LEON REYES

Note: Before we discuss Estate Tax, let us discuss the

Q: What are transfer taxes?

Q: What is the nature of transfer taxes?

Q: What are the kinds of transfer taxes and

Q: Differentiate estate tax from donors tax.

Tax on the privilege to

Tax on the privilege to

Maximum tax rate of

Maximum tax rate is