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When is the 2% minimum corporate income tax (MCIT) imposed?

Beginning on the 4th taxable year immediately following the year in which such corporation
commenced its business operations, when the minimum corporate income tax is greater than the
regular corporate income tax. (Section 27 (E) (1) and 28 (A) (2) of the Tax Code)
What is the “19-lender rule"?
In order for an instrument to qualify as a “deposit substitute” pursuant to Sec. 22(Y) of the NIRC,
the borrowing must be made from 20 or more individual or corporate lenders at any one time.
Corollary, the mere flotation of a debt instrument is not considered to be a “public” borrowing and
is not deemed a “deposit substitute” if there are only nineteen (19) or less individual or corporate
lenders at any one time. (Sec. 8, RR No. 14-2012)
What is Net Operating Loss Carry-over (NOLCO)?
It is the net operating loss of the business or enterprise for any taxable year immediately
preceding the current taxable year, which had not been previously offset as deduction from gross
income. It shall be carried over as a deduction from gross income for the next three (3)
consecutive taxable years immediately following the year of such loss: Provided, however, that
any net loss incurred in a taxable year during which the taxpayer was exempt from income tax
shall not be allowed as a deduction. (Section 34 (D) (3) of the Tax Code)
Revenue Memorandum Order (RMO) No. 1-2000 requires a previously approved Tax Treaty
Relief Application (TTRA) before a taxpayer, who is a resident of another state with which
the Philippines has a tax treaty, may avail of the provisions of said tax treaty. Does failure
to comply with the requirements of the RMO deprive the taxpayer of the benefit under the
treaty?
No. Tax treaties are entered into to minimize, if not eliminate the harshness of international
juridical double taxation, which is why they are also known as double tax treaty or double tax
agreements.
.
Laws and issuances must ensure that the reliefs granted under tax treaties are accorded to the
parties entitled thereto. The BIR must not impose additional requirements that would negate the
availment of the reliefs provided for under international agreements. More so, when the Tax
Treaty does not provide for any pre-requisite for the availment of the benefits under said
agreement.
The obligation to comply with a tax treaty must take precedence over the objective of RMO No. 12000. Logically, noncompliance with tax treaties has negative implications on international
relations, and unduly discourages foreign investors. While the consequences sought to be
prevented by RMO No. 1-2000 involve an administrative procedure, these may be remedied
through other system management processes, e.g., the imposition of a fine or penalty. But we
cannot totally deprive those who are entitled to the benefit of a treaty for failure to strictly comply
with an administrative issuance requiring prior application for tax treaty relief. (Deutsche Bank AG
Manila Branch vs. CIR, GR No. 188550 dated August 19, 2013)
The taxpayer changed his address and filed its returns using the new address but failed to
file a formal notice to the BIR. The BIR sent the PAN to the old address but was “returned
to sender.” A FAN was subsequently sent to the new address. The taxpayer now contends
that there was violation of due process since the PAN was not received. Does the failure of
the taxpayer to file a formal notice to the BIR regarding its change of address suspends
the running of the prescriptive period to assess,

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No. It is true that, under Secs. 203 and 222 of the Tax Code, the running of the Statute of
Limitations shall be suspended when the taxpayer cannot be located in the address given by him
in the return filed upon which a tax is being assessed or collected, and that Sec. 11 of RR No. 1285 requires a taxpayer to give written notice of change of address. However, the above
mentioned provisions apply only if the BIR Commissioner is not aware of the whereabouts of the
taxpayer. Despite the absence of a formal written notice of respondent's change of address, the
fact remains that petitioner became aware of respondent's new address as shown by documents
replete in its records. As a consequence, the running of the three-year period to assess
respondent was not suspended and has already prescribed. (CIR v BASF Coating + Ink Phils
Inc G.R. No. 198677, November 26, 2014)
Reviews made by the Secretary of Finance pursuant to Sec. 4 of the NIRC, on the
interpretation of provisions of the NIRC and other tax laws, are appealable to the CTA or
the CA?
CTA. Admittedly, there is no provision in law that expressly provides where exactly the ruling of
the Secretary of Finance under the NIRC is appealable to. However, We find that Sec. 7(a)(1) of
RA 1125, as amended, addresses the seeming gap in the law as it vests the CTA, albeit impliedly,
with jurisdiction over the decisions of the Secretary of Finance, as "other matters" arising under
the NIRC or other laws administered by the BIR. As the specialized quasi-judicial agency
mandated to adjudicate tax, customs, and assessment cases, there can be no other court of
appellate jurisdiction that can decide the issues raised in a petition questioning the decision of the
Secretary of Finance in the interpretation of the provisions of the NIRC and other tax laws.
(Philam Life vs Secretary of Finance, G.R. No. 210987, November 24, 2014)
If the taxpayer’s petition includes the constitutionality of an administrative rule and not
only the rulings of opinions of the Commissioner on tax treatments, does the CTA have
jurisdiction?
YES. In the recent case of City of Manila v. Grecia-Cuerdo, the Court en banc has ruled that the
CTA now has the power of certiorari in cases within its appellate jurisdiction.
It is now within the power of the CTA, through its power of certiorari, to rule on the validity of a
particular administrative rule or regulation so long as it is within its appellate jurisdiction. Hence, it
can now rule not only on the propriety of an assessment or tax treatment of a certain transaction,
but also on the validity of the revenue regulation or revenue memorandum circular on which the
said assessment is based. (Philam Life vs Secretary of Finance, G.R. No. 210987, November 24,
2014)
Does the absence of donative intent exempt a transaction from payment of donor’s tax?
NO. The absence of donative intent, if that be the case, does not exempt the sales of stock
transaction from donor's tax since Sec. 100 of the NIRC categorically states that the amount by
which the fair market value of the property exceeded the value of the consideration shall be
deemed a gift. Thus, even if there is no actual donation, the difference in price is considered a
donation by fiction of law. (Philam Life vs Secretary of Finance, G.R. No. 210987
November 24, 2014)
Does the mere filing of a taxpayer’s request for reinvestigation suspend the running of the
prescriptive period of assessment?
NO. Two requisites must concur before the period to enforce collection may be suspended: (a)
that the taxpayer requests for reinvestigation, and (b) that Commissioner grants such
request.

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Consequently, the mere filing of a protest letter which is not granted does not operate to suspend
the running of the period to collect taxes. (CIR vs Hambrecht & Quist Philippines, Inc G.R. No.
169225, November 17, 2010)
May an LGU impose business tax under Sec. 143(h) of the LGC on common carriers
already subject to common carriers tax under the NIRC?
No, gross receipts of common carriers are not subject to business tax. The LGC clearly and
unambiguously proscribes LGUs from imposing any tax on the gross receipts of transportation
contractors, persons engaged in the transportation of passengers or freight by hire, and common
carriers by air, land or water.
The omnibus grant of power to municipalities and cities under Section 143(h) of the LGC cannot
overcome the specific exception/exemption in Section 133(j) of the same Code. This is in accord
with the rule on statutory construction that specific provisions must prevail over general ones.
It is clear that the legislative intent in excluding from the taxing power of the local government unit
the imposition of business tax against common carriers is to prevent a duplication of the so-called
"common carrier’s tax." (City of Manila vs Hon Judge Colet, GR No. 120051, Dec. 10, 2014)
Moreover, under 2nd par. of Sec. 117, the gross receipts of common carriers derived from their
incoming and outgoing freight shall not be subjected to the local taxes imposed under the LGC.
Is the power of the LGU to tax inherent?
NO. It is already well-settled that although the power to tax is inherent in the State, the same is
not true for the LGUs to whom the power must be delegated by Congress and must be exercised
within the guidelines and limitations that Congress may provide. The Court expounded in Pelizloy
Realty Corporation v. The Province of Benguet that:
The power to tax "is an attribute of sovereignty," and as such, inherent in the State. Such,
however, is not true for provinces, cities, municipalities and barangays as they are not the
sovereign; rather, they are mere "territorial and political subdivisions of the Republic of the
Philippines". (City of Manila vs Hon Judge Colet, GR No. 120051, Dec. 10, 2014)
Distinguish a claim for refund of unutilized input VAT and refund of erroneously
paid/illegally collected NIRC taxes.
Refund of unutilized input VAT
attributable to zero-rated sales

Refund of erroneously paid/illegally
collected NIRC taxes

Basis

SEC 112(A) of the NIRC

Sec. 204(C) or 229 of the NIRC

Prescriptive Period

2 years from the close of the relevant 2 years after payment of tax
taxable quarter

Period For CIR to
Decide

120 days

Expiration of the
period for CIR to
decide

Deemed a denial of the claim for The taxpayer may either appeal to the
refund/TCC
CTA within 30 days from the expiration
or wait for the decision of the CIR, and
appeal within 30 days from the receipt
of the said decision.

180 days

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Distinguish interest income earned from, and gains from disposal of, bonds for income tax
purposes?
The interest income earned from bonds is not synonymous with the "gains" contemplated under
Section 32(B)(7)(g)of the NIRC, which exempts gains derived from trading, redemption, or
retirement of long-term securities from ordinary income tax.
The term "gain" as used therein does not include interest, which represents forbearance for the
use of money. Gains from sale or exchange or retirement of bonds or other certificate of
indebtedness fall within the general category of "gains derived from dealings in property" under
Section 32(A)(3), while interest from bonds or other certificate of indebtedness falls within the
category of "interests" under Section 32(A)(4). The use of the term "gains from sale" in Section
32(B)(7)(g) shows the intent of Congress not to include interest as referred under Sections 24,
25, 27, and 28 in the exemption.
Hence, the "gains" contemplated in Section 32(B)(7)(g) refers to: (1) gain realized from the
trading of the bonds before their maturity date, which is the difference between the selling price of
the bonds in the secondary market and the price at which the bonds were purchased by the
seller; and (2) gain realized by the last holder of the bonds when the bonds are redeemed at
maturity, which is the difference between the proceeds from the retirement of the bonds and the
price at which such last holder acquired the bonds. For discounted instruments, like the zerocoupon bonds, the trading gain shall be the excess of the selling price over the book value or
accreted value (original issue price plus accumulated discount from the time of purchase up to
the time of sale) of the instruments. (BDO vs. Republic of the Philippines, G.R. No. 198756,
January 13, 2015)
Should both the administrative and judicial claims be filed within the 2-year prescriptive
period to file for refund of unutilized input VAT on zero-rated sales?
NO. Only the administrative claim must be filed within the two-year prescriptive period; the judicial
claim need not fall within the two-year prescriptive period. There is nothing in Section 112 of the
NIRC to support respondents view. Subsection (A) of the said provision states that any VATregistered person, whose sales are zero-rated or effectively zero-rated may, within two years after
the close of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales. The phrase
within two (2) years x x x apply for the issuance of a tax credit certificate or refund refers to
applications for refund/credit filed with the CIR and not to appeals made to the CTA. This is
apparent in the first paragraph of subsection (D) of the same provision, which states that the CIR
has 120 days from the submission of complete documents in support of the application filed in
accordance with Subsections (A) and (B) within which to decide on the claim.
In fact, applying the two-year period to judicial claims would render nugatory Section 112(D) [now
Sec. 112(C)] of the NIRC, which already provides for a specific period within which a taxpayer
should appeal the decision or inaction of the CIR. The second paragraph of Section 112(D) [now
Sec. 112(C)] of the NIRC envisions two scenarios: (1) when a decision is issued by the CIR
before the lapse of the 120-day period; and (2) when no decision is made after the 120-day
period. In both instances, the taxpayer has 30 days within which to file an appeal with the CTA.
As we see it then, the 120-day period is crucial in filing an appeal with the CTA. (Commissioner of
Internal Revenue v. Aichi Forging Company of Asia, Inc G.R. No. 184823 October 6, 2010)
San Roque filed its judicial claim just 13 days after filing its administrative claim. Should
the judicial claim be dismissed for being prematurely filed?
Yes. The 120+30 periods are mandatory and jurisdictional. Section 112(D) (now Sec. 112[C]) of
the Tax Code is clear, unequivocal, and categorical that the Commissioner has 120 days to act on
an administrative claim. The taxpayer can file the judicial claim (1) only within thirty days after the

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Commissioner partially or fully denies the claim within the 120- day period, or (2) only within thirty
days from the expiration of the 120-day period if the Commissioner does not act within the 120day period. (Commissioner of Internal Revenue v. San Roque Power Corporation G.R. No.
187485, February 12, 2013)
Does “excessively collected tax” under Sec. 229 cover “excess input VAT”?
No. At the time of payment of the input VAT the amount paid is the correct and proper amount.
Under the VAT System, there is no claim or issue that the input VAT is "excessively" collected,
that is, that the input VAT paid is more than what is legally due. The person legally liable for the
input VAT cannot claim that he overpaid the input VAT by the mere existence of an "excess" input
VAT. The term "excess" input VAT simply means that the input VAT available as credit exceeds
the output VAT, not that the input VAT is excessively collected because it is more than what is
legally due. Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of
the input VAT as "excessively" collected under Section 229. (Commissioner of Internal Revenue
v. San Roque Power Corporation G.R. No. 187485, February 12, 2013)
The CTA reversed the decision of the Commissioner of Customs in a forfeiture proceeding
and ordered the release of goods. The writ of execution was issued, however, it could no
longer be enforced since the goods were lost by the BOC. Will the BOC be exempt from
liability for the value of the goods under the doctrine of State Immunity?
No. Although it may be gainsaid that the satisfaction of respondent's demand will ultimately fall on
the government, and that, under the political doctrine of "state immunity," it cannot be held liable
for governmental acts (jus imperii), we still hold that petitioner cannot escape its liability. The
circumstances of this case warrant its exclusion from the purview of the state immunity doctrine.
The Court cannot turn a blind eye to BOC's ineptitude and gross negligence in the safekeeping of
respondent's goods. We are not likewise unaware of its lackadaisical attitude in failing to provide
a cogent explanation on the goods' disappearance, considering that they were in its custody and
that they were in fact the subject of litigation. The situation does not allow us to reject
respondent's claim on the mere invocation of the doctrine of state immunity. Succinctly, the
doctrine must be fairly observed and the State should not avail itself of this prerogative to take
undue advantage of parties that may have legitimate claims against it. (Commissioner of
Customs v AGFHA Inc., G.R. No. 187425, March 28, 2011)
What are the Fundamental Principles in Real Property Taxation?
(a) Real property shall be appraised at its current and fair market value;
(b) Real property shall be classified for assessment purposes on the basis of its actual use;
(c) Real property shall be assessed on the basis of a uniform classification within each local
government unit;
(d) The appraisal, assessment, levy and collection of real property tax shall not be let to any
private person; and
(e) The appraisal and assessment of real property shall be equitable. (Sec. 198 of the LGC)
When is the issuance of a Preliminary Assessment Notice not necessary?
The PAN is not required in the following cases:
(a) When the finding for any deficiency tax is the result of mathematical error in the computation
of the tax as appearing on the face of the return;
(b) When a discrepancy has been determined between the tax withheld and the amount actually
remitted by the withholding agent; or
(c) When a taxpayer who opted to claim a refund or tax credit of excess creditable withholding
tax for a taxable period was determined to have carried over and automatically applied the

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same amount claimed against the estimated tax liabilities for the taxable quarter or quarters
of the succeeding taxable year; or
(d) When the excise tax due on exciseable articles has not been paid; or
(e) When the article locally purchased or imported by an exempt person, such as, but not limited
to, vehicles, capital equipment, machineries and spare parts, has been sold, traded or
transferred to non-exempt persons. (Sec. 228, NIRC)
Distinguish Final Withholding Tax from Creditable Withholding Tax.
FINAL WITHHOLDING TAX
The amount of income tax withheld by the
withholding agent is constituted as a full and final
payment of the income tax due from the payee on
the said income.
The liability for payment of the tax rests primarily on
the payor as a withholding agent.

The payee is not required to file an income tax
return for the particular income.

CREDITABLE WITHOLDING TAX
Taxes withheld on certain income payments are
intended to equal or at least approximate the tax
due of the payee on said income.
Payee of income is required to report the income
and/or pay the difference between the tax withheld
and the tax due on the income. The payee also has
the right to ask for a refund if the tax withheld is
more than the tax due.
The income recipient is still required to file an
income tax return, as prescribed in Sec. 51 and
Sec. 52 of the NIRC, as amended. (CREBA vs.
Executive Secretary, GR No. 160756, March 2010)

X Corporation had excess tax payments during 2013 amounting to P4M and opted carryover the same as tax credit to the succeeding taxable year by putting an "x" mark on the
corresponding box in its final adjusted return. During 2014, it had an excess tax payments
totaling P9M, petitioner indicated in its tax return that the same is to be refunded.
1. Can X Corporation opt to file in 2014 for a refund of the excess tax credits pertaining to
2013 amounting to P4M?
No. It is clear that once a corporation exercises the option to carry-over, such option is irrevocable
"for that taxable period." Having chosen to carry-over the excess quarterly income tax, the
corporation cannot thereafter choose to apply for a cash refund or for the issuance of a tax credit
certificate for the amount representing such overpayment.
To avoid confusion, this Court has properly explained the phrase "for that taxable period" in
Commissioner of Internal Revenue v. Bank of the Philippine Islands. The Court held that the
phrase merely identifies the excess income tax, subject of the option, by referring to the "taxable
period when it was acquired by the taxpayer."
Hence, the controlling factor for the operation of the irrevocability rule is that the taxpayer chose
an option; and once it had already done so, it could no longer make another one. (United
International Pictures AB vs. CIR, GR No. 168331, Oct. 11, 2012)
2. If in case the refund is denied, can X Corporation still carry-over the excess tax credits
in succeeding years?
Yes. In this case, petitioner opted to carry-over its 2013 excess income tax as tax credit for the
succeeding taxable years. Such option to carry-over is not limited to the following taxable year
2014, but should apply to the succeeding taxable years until the whole amount of the 2013
excess tax credits would be fully utilized.
X Corporation has chosen that option for its 2013 excess tax credits. Thus, it is no longer entitled
to a tax refund corresponding to it. Nonetheless, the amount will not be forfeited in the

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governments favor, because it may be claimed by petitioner as tax credits in the succeeding
taxable years. (Philam Asset Management Inc. vs. Commissioner of Internal Revenue, GR No.
156637, Dec. 14, 2005)
What is the rationale for providing an automatic review involving the decision made by the
Collector which is adverse to the Government?
It is intended to protect the interest of the Government in the collection of taxes and customs
duties in those seizure and protest cases which, without the automatic review provided therein,
neither the Commissioner of Customs nor the Secretary of Finance would probably ever know
about. Without automatic review by the Commissioner of Customs and the Secretary of Finance,
a collector in any of our country’s far-flung ports, would have absolute and unbridled discretion to
determine whether goods seized by him are locally produced, hence, not dutiable or of foreign
origin, and therefore subject to payment of customs duties and taxes. His decision, unless
appealed by the aggrieved party (the owner of the goods), would become final with 'the no one
the wiser except himself and the owner of the goods. The owner of the goods cannot be expected
to appeal the collector's decision when it is favorable to him. A decision that is favorable to the
taxpayer would correspondingly be unfavorable to the Government, but who will appeal the
collector's decision in that case certainly not the collector. Evidently, it was to cure this anomalous
situation (which may have already defrauded our government of huge amounts of uncollected
taxes), that the provision for automatic review by the Commissioner of Customs and the
Secretary of Finance of unappealed seizure and protest cases was conceived to protect the
government against corrupt and conniving customs collectors. (Yaokasin vs. Commissioner of
Customs, G.R. No. 84111, December 22, 1989)
What are the new VAT exemption thresholds effective January 1, 2012?
Section 109:
(P) Sale of real property not primarily held for sale
to customers or held for lease in the ordinary
course of trade or business; or Real property
utilized for low-cost housing and socialized housing;
or Residential lot
Sale of House and lot and other residential dwelling
(Q) Lease of residential unit with a monthly rental:
** Regardless of the amount of aggregate rentals
received by the lessor during the year.
(W) Sale or lease of goods or properties or the
performance of services other than the transactions
mentioned above (changed from V to W under RA
No. 10378, dated May 7, 2013)

Php 1,919,500 and below

Php 3,199,200 and below
Not exceeding Php 12,800
Not exceeding Php 1,919,500

What is the non-retroactivity of rulings rule?
Any revocation, modification or reversal of any of the rules and regulations promulgated in
accordance with the preceding Sections or any of the rulings or circulars promulgated by the
Commissioner shall not be given retroactive application if the revocation, modification or reversal
will be prejudiced to the taxpayers, except in the following cases:
a. Where the taxpayer deliberately misstates, or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;
b. Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or
c. Where the taxpayer acted in bad faith. (SEC. 246, NIRC)

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What are considered intangible assets located in the Philippines for purposes of estate
taxation?
(1) Franchise which must be exercised in the Philippines;
(2) Shares, obligations or bonds issued by any corporation or sociedad anonima organized or
constituted in the Philippines in accordance with its laws;
(3) Shares, obligations or bonds issued by any foreign corporation eighty-five percent (85%) of
the business of which is located in the Philippines;
(4) Shares, obligations or bonds issued by any foreign corporation, if such shares, obligations or
bonds have acquired a business situs in the Philippines; and
(5) Shares or rights in any partnership, business, or industry. (Sec. 104, NIRC)
What is the Doctrine of Operative Fact and how does it relate to the rules of taxation?
The doctrine of operative fact is an exception to the general rule that a void law or administrative
cannot be the source of legal rights or duties, such that a judicial declaration of invalidity may not
necessarily obliterate all the effects and consequences of a void act prior to such declaration.
The doctrine of operative fact is incorporated in Section 246 of the Tax Code, which provides that
any revocation, modification or reversal of any of the rules and regulations or any of the rulings or
circulars promulgated by the Commissioner shall not be given retroactive application if the
revocation, modification or reversal will be prejudicial to the taxpayers, except in the following
cases:
(a) Where the taxpayer deliberately misstates or omits material facts from his return or any
document required of him by the Bureau of Internal Revenue;
(b) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially
different from the facts on which the ruling is based; or
(c) Where the taxpayer acted in bad faith.
Under Section 246, taxpayers may rely upon a rule or ruling issued by the Commissioner from the
time the rule or ruling is issued up to its reversal by the Commissioner or this Court. The reversal
is not given retroactive effect. This, in essence, is the doctrine of operative fact.
What are the requisites for a valid waiver of the Statute of Limitations?
1. The waiver must be in the proper form prescribed by RMO 20-90. The phrase "but not after
______ 19 ___", which indicates the expiry date of the period agreed upon to assess/collect
the tax after the regular three-year period of prescription, should be filled up;
2. The waiver must be signed by the taxpayer himself or his duly authorized representative. In
the case of a corporation, the waiver must be signed by any of its responsible officials. In
case the authority is delegated by the taxpayer to a representative, such delegation should be
in writing and duly notarized;
3. The waiver should be duly notarized;
4. The CIR or the revenue official authorized by him must sign the waiver indicating that the BIR
has accepted and agreed to the waiver. The date of such acceptance by the BIR should be
indicated. However, before signing the waiver, the CIR or the revenue official authorized by
him must make sure that the waiver is in the prescribed form, duly notarized, and executed by
the taxpayer or his duly authorized representative;
5. Both the date of execution by the taxpayer and date of acceptance by the Bureau should be
before the expiration of the period of prescription or before the lapse of the period agreed
upon in case a subsequent agreement is executed; and,
6. The waiver must be executed in three copies, the original copy to be attached to the docket of
the case, the second copy for the taxpayer and the third copy for the Office accepting the
waiver. The fact of receipt by the taxpayer of his/her file copy must be indicated in the original
copy to show that the taxpayer was notified of the acceptance of the BIR and the perfection of
the agreement. (CIR vs. Kudos Metal, GR No. 178087 dated May 5, 2010)

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What is the effect if a taxpayer partially pays an assessment despite the invalidity of a
waiver of the statute of limitations?
The taxpayer is estopped from questioning the validity of the waiver. Had the taxpayer truly
believed that the waiver was invalid and that the assessments were issued beyond the
prescriptive period, then it should not have paid the reduced amount of taxes in the revised
assessment. The taxpayer’s subsequent action effectively belies its insistence that the waiver is
invalid. The records show that upon receipt of the revised assessment, the taxpayer immediately
made payment on the uncontested taxes. Thus, the taxpayer is estopped from questioning the
validity of the waivers. To hold otherwise and allow a party to gainsay its own act or deny rights
which it had previously recognized would run counter to the principle of equity which this
institution holds dear. (RCBC vs. CIR, GR No. 170257 dated September 7, 2011)
When may the Best Evidence Obtainable Rule be used?
The Best Evidence Obtainable Rule may be used:
1. When a report is required by law as a basis for the assessment of any tax within the time
fixed by law or regulations; or
2. When there is reason to believe that any such report is false, incomplete or erroneous. (Sec.
6[B], NIRC)
What is an assessment?
An assessment is a notice to the effect that the amount therein stated is due from a taxpayer as a
tax with a demand for payment of the same within a stated period of time. (Commissioner vs
CTA, 27 SCRA 1159) It contains not only a computation of tax liabilities, but also a demand for
payment within a prescribed period. It also signals the time when penalties and interests begin to
accrue against the taxpayer. To enable the taxpayer to determine the remedies thereon, due
process requires that it must be served and received by the taxpayer. (CIR vs. Pascor Realty and
Development Corporation, June 29, 1999, G.R. No. 128315).
Is an assessment necessary before filing of a criminal complaint?
No. In cases where a false or fraudulent return is submitted or in cases of failure to file a return,
proceedings in court may be commenced without an assessment. The Tax Code allows that the
civil and criminal aspects of the case may be pursued simultaneously. The criminal charge is filed
directly with the DOJ. Thereafter, the taxpayer is notified that a criminal case had been filed
against him, not that the commissioner has issued an assessment. It must be stressed that a
criminal complaint is instituted not to demand payment, but to penalize the taxpayer for violation
of the Tax Code. (Sec. 222, Sec. 205, NIRC, CIR vs. Pascor Realty and Development
Corporation, June 29, 1999, G.R. No. 128315)
What is the date of death valuation principle?
The actual claims of the creditors at the time of death is the amount deductible for estate tax
purposes regardless of the fact that the said claims were reduced or condoned through
compromise agreements entered into by the estate with the creditors. Post-death developments
are not material in determining the amount of the deduction. (Dizon vs. CTA, et al., April 30,
2008, G.R. No. 140944)
What is a Jeopardy Assessment?
It is a delinquency tax assessment which was assessed without the benefit of complete or partial
audit by an authorized revenue officer, who has reason to believe that the assessment and the

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collection of a delinquency tax will be jeopardized by delay because of the taxpayer’s failure to
comply with the audit and investigation requirements to present his books of accounts and/or
pertinent records, or to substantiate all or any of the deductions, exemptions, or credits claimed in
his return. (Sec. 3.1 (a), Rev. Regs. No. 30-2002)
What do you mean by liquidation under the TCCP?
Liquidation is the final computation and ascertainment by the Collector of the duties due on
imported merchandise, based on official reports as to the quantity, character, and value thereof,
and the Collector’s own finding as to the applicable rate of duty. Assessments inform taxpayers of
their tax liabilities. Under the TCCP, the assessment is in the form of a liquidation made on the
face of the import entry return and approved by the Collector of Customs. Liquidation is the final
computation and ascertainment by the Collector of Customs of the duties due on imported
merchandise based on official reports as to the quantity, character and value thereof, and the
Collector of Customs' own finding as to the applicable rate of duty. A liquidation is considered to
have been made when the entry is officially stamped "liquidated." (Pilipinas Shell Petroleum
Corporation vs. Republic, GR No. 161953 dated March 6, 2008)
A liquidation is the final computation and ascertainment by the collector of the duties on imported
merchandise, based on official reports as to the quantity, character, and value thereof, and the
collector’s own finding as to the applicable rate of duty; it is akin to an assessment of internal
revenue taxes under the National Internal Revenue Code where the tax liability of the taxpayer is
definitely determined. (Pilipinas Shell Petroleum Corporation vs. Commissioner of Customs, G.R.
No. 176380 dated June 18, 2009)
What is willful blindness?
It is the deliberate avoidance of knowledge of a crime, especially by failing to make a reasonable
inquiry about suspected wrongdoing despite being aware that it is highly probable. It creates an
inference of knowledge of the crime in question. In order to prove the existence of "willful
blindness", two requirements must be satisfied:
1. the accused must subjectively believe or is aware that there is a high probability that a fact
exists or that there exists a suspected wrongdoing; and
2. the defendant must take deliberate actions to avoid learning of that fact. (People vs. Sps.
Castillo, CTA Crim. Case No. O-219, October 17, 2013)
Is a toll fee a "user's tax" and to impose VAT on toll fees is tantamount to taxing a tax?
No, toll fees are not taxes. A tax is imposed by the government for the purpose of raising
revenues. While toll fees are collected by private tollway operators as reimbursement for the
costs and expenses incurred in tollway construction, maintenance and operation, with additional
margin as income of tollway operators. Imposition of VAT on tollways is not tantamount to taxing a
tax, because VAT is a tax on tollway operators and not on users, the latter merely shifts the
burden of VAT to the tollway users as part of the toll fees, VAT being an indirect tax. (Diaz vs the
Secretary of Finance and the CIR / GR No. 193007 dated July 19, 2011)
With the enactment of R.A. 9337, is PAGCOR still exempt from corporate income tax and
VAT?
Subject to Income Tax, exempt from VAT. With the subsequent enactment of R.A. No. 9337,
amending R.A. No. 8424, PAGCOR has been excluded from the enumeration of GOCCs that are
exempt from paying corporate income tax. Nowhere in R.A. No. 9337 is it provided that petitioner
can be subjected to VAT. R.A. No. 9337 is clear only as to the removal of petitioner's exemption
from the payment of corporate income tax. PAGCOR is exempt from the payment of VAT,
because PAGCOR’s charter, P.D. No. 1869, is a special law that grants petitioner exemption from
taxes. (PAGCOR vs. BIR, G.R. No. 172087, March 2011)

10

What are transactions deemed sale?
Section 106(B) of the National Internal Revenue Code provides that the following transactions
shall be deemed sale:
1. Transfer, use or consumption not in the course of business of goods or properties originally
intended for sale or for use in the course of business;
2. Distribution or transfer to:
a. Shareholders or investors as share in the profits of the VAT-registered persons: or (b)
Creditors in payment of debt;
b. Consignment of goods if actual sale is not made within sixty (60) days following the date
such goods, were consigned; and
3. Retirement from or cessation of business, with respect to inventories of taxable goods
existing as of such retirement or cessation.
When an assessment has been issued against a taxpayer for deficiency real property tax,
what are the remedies available to the said taxpayer?
Once an assessment has already been issued by the assessor, the proper remedy of a taxpayer
depends on whether the assessment was erroneous or illegal.
An erroneous assessment "presupposes that the taxpayer is subject to the tax but is disputing
the correctness of the amount assessed." With an erroneous assessment, the taxpayer claims
that the local assessor erred in determining any of the items for computing the real property tax,
i.e., the value of the real property or the portion thereof subject to tax and the proper assessment
levels. In case of an erroneous assessment, the taxpayer must exhaust the administrative
remedies provided under the Local Government Code before resorting to judicial action.
On the other hand, an assessment is illegal if it was made without authority under the law. In
case of an illegal assessment, the taxpayer may directly resort to judicial action without paying
under protest the assessed tax and filing an appeal with the Local and Central Board of
Assessment Appeals. Thus:
ERRONEOUS ASSESSMENT

ILLEGAL ASSESSMENT

REMEDIES ON OTHER
SCENARIOS*
Complaint for injunction – RTC

File written protest with Local Complaint for injunction - RTC
Treasurer
(within 30 days from payment)
Local Treasurer has 60 days
CTA division – Rule 42
CTA division – Rule 42
Appeal to the LBAA
CTA division – mandatory MR
CTA division – mandatory MR
LBAA has 120 days
CTA en banc
CTA en banc
Appeal to the LBAA
CTA en banc – optional MR
CTA en banc – optional MR
CTA en banc – Rule 43
SC – Rule 45
SC – Rule 45
SC – Rule 45
*notice of delinquency has already been received by the taxpayer
(City of Lapu-Lapu vs. PEZA, G.R. No. 184203, November 26, 2014)
Distinguish a VAT zero-rated sale from a VAT-exempt sale.
Zero-rated sale
Taxable transaction but does not result in an output
tax
Input VAT on purchases of VAT registered person
with zero-rated sales may be allowed as tax credits
or refund

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Exempt sale
Not subject to output tax
Seller in an exempt transaction is not entitled to
any input tax on his purchases despite issuance of
a VAT invoice or receipt

Registration is required

Registration is optional

For the first three quarters of 1998, MPI paid its business taxes with the City Treasurer of
Makati City computed based on its gross sales for the year 1997. Subsequently, MPI
decided to “close shop” and “retired” its business in Makati City. Upon filing of its
application for retirement of business, MPI was assessed additional business taxes for the
year 1998. This pertained to the business tax due for the 4 th quarter of 1998 based on the
1997 sales as well as the alleged tax due for the first 3 quarters of 1998 when MPI still
operated its business in Makati.
MPI paid the assessment under protest and then filed a claim for refund which was
subsequently denied by the City Treasurer.
MPI then filed claim for refund with RTC. The latter denied the claim on the ground that the
business taxes paid by MPI for the year 1998 are payments for business taxes for the year
1997 which accrued in January 1998 and became payable within the first 20 days. Thus the
disputed assessment was correct.
Are the business taxes paid by the MPI in 1998 pertaining to business taxes due for the
year 1997?
No, business taxes paid in the current year, although computed based on the previous year’s
gross sales or gross receipts, represent business taxes for the privilege of engaging in business
for the current year.
Section 145 of the LGC provides that a business subject to tax, upon termination thereof, shall
submit a sworn statement of its gross sales or receipts for the current year. If the tax 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”. (Mobil Phils. Vs. City
Treasurer of Makati City GR No. 154092, July 14, 2005)
May the RTC enjoin the collection of local taxes?
No, in the case of national taxes, NIRC expressly provides that no court shall have the authority
to grant injunction to restrain collection of national internal revenue, tax or charge imposed by the
code. The only exception is when in the opinion of the CTA, the collection may jeopardize the
interest of the government and/or taxpayer. In the case of collection of local taxes, the LGC does
not specifically prohibit an injunction enjoining the collection of taxes. (Angeles City vs. Angeles
Electric Corp. GR No. 166134, June 29, 2010)
Which cases are directly cognizable by CTA En Banc?
1. Decisions by the Central Board of Assessment Appeals in Real Property Tax Cases;
2. Decisions by the Regional Trial Court in the exercise of its appellate jurisdiction on local tax
cases;
3. Decisions by the Regional Trial Court in the exercise of its appellate jurisdictions in tax
collection cases; and
4. Decisions by the Regional Trial Court in the exercise of its appellate jurisdictions in criminal
cases.
What are the requisites for the claim of vanishing deductions?
1. Present decedent must have died or the donation must have been made within five (5) years
before the decedent’s death;
2. The property with respect to which deduction is claimed must have formed part of the gross
estate situated in the Philippines of the prior decedent or taxable gift of the donor;
3. The property must be the same property received from the prior decedent or donor or the one
received in exchange therefor;

12

4. Estate tax and Donor’s tax on the previous transfer must have been paid; and
5. No vanishing deduction on the property was allowed to the prior estate. (Under 86(A)(2) of
the National Internal Revenue Code)
FBDC is engaged in the development and sale of real property. As such, following the
effectivity of RA No. 7716 on Jan. 1, 1996, its sales were subjected to VAT. FBDC invoked
its right to avail of the transitional input tax credit at 8% (now 2%) of the value of its entire
property. The BIR disallowed the claimed presumptive input tax.
On the basis of RR No. 7-95 and RMC No. 3-96, the BIR claimed that the tax base for the
presumptive tax is only the improvements on the real property. Is the BIR correct?
No. RR No. 7-95 and RMC No. 3-96 are invalid. Goods, as commonly understood in the business
sense, refers to the product which the VAT-registered person offers for sale to the public. With
respect to real estate dealers, it is the real properties themselves which constitute their "goods."
Such real properties are the operating assets of the real estate dealer.
By limiting the definition of goods to "improvements" in Section 4.105-1, the BIR not only
contravened the definition of "goods" as provided in the Old NIRC, but also the definition which
the same revenue regulation itself has provided. (Fort Bonifacio Development Corporation vs.
Commissioner of Internal Revenue, 602 SCRA 159, October 02, 2009)
Also, the BIR claims that there should’ve been prior payment of VAT on the inventory to
claim presumptive input tax. Is the BIR correct?
When Sec. 105 spoke of "eight percent (8%) [now 2%] of the value of such inventory" followed by
the clause "or the actual value-added tax paid on such goods, materials and supplies," the
implication is clear that under the first clause, "eight percent (8%) [now 2%] of the value of such
inventory," the law does not contemplate the payment of any prior tax on such inventory. This is
distinguished from the second clause, "the actual value-added tax paid on the goods, materials
and supplies" where actual payment of VAT on the goods, materials and supplies is assumed.
Had the intention of the law been to limit the amount to the actual VAT paid, there would have
been no need to explicitly allow a claim based on 8% [now 2%] of the value of such inventory.
It is apparent that the transitional input tax credit operates to benefit newly VAT-registered
persons, whether or not they previously paid taxes in the acquisition of their beginning inventory
of goods, materials and supplies. During that period of transition from non-VAT to VAT status, the
transitional input tax credit serves to alleviate the impact of the VAT on the taxpayer. At the very
beginning, the VAT-registered taxpayer is obliged to remit a significant portion of the income it
derived from its sales as output VAT. The transitional input tax credit mitigates this initial
diminution of the taxpayer's income by affording the opportunity to offset the losses incurred
through the remittance of the output VAT at a stage when the person is yet unable to credit input
VAT payments. (Fort Bonifacio Development Corporation vs. Commissioner of Internal Revenue,
602 SCRA 159, October 02, 2009 upheld in two subsequent cases involving the same parties
and the same issues)
Differentiate tax credit and tax refund
Tax refund is defined as the money that a taxpayer overpaid and is thus returned by the taxing
authority. Tax credit, on the other hand, is an amount subtracted directly from one's total tax
liability. It is any amount given to a taxpayer as a subsidy, a refund, or an incentive to encourage
investment." (Fort Bonifacio Devt Corp v. CIR, G.R. 175707, November 2014)
Discuss Improperly Accumulated Earnings Tax (IAET).

13

Pursuant to Section 29 of the Tax Code, there is imposed for each taxable year, in addition to
other taxes imposed under Title II of the Tax Code of 1997, a tax equal to 10% of the improperly
accumulated taxable income of corporations formed or availed of for the purpose of avoiding the
income tax with respect to its shareholders or the shareholders of any other corporation, by
permitting the earnings and profits of the corporation to accumulate instead of dividing them
among or distributing them to the shareholders.
The rationale is that if the earnings and profits were distributed, the shareholders would then be
liable to income tax thereon, whereas if the distribution were not made to them, they would incur
no tax in respect to the undistributed earnings and profits of the corporation. Thus, a tax is being
imposed in the nature of a penalty to the corporation for the improper accumulation of its
earnings, and as a form of deterrent to the avoidance of tax upon shareholders who are
supposed to pay dividends tax on the earnings distributed to them by the corporation. (Sec. 2,
RR No. 2-01)
Are donations made to political party exempt from Donor’s Tax and Income Tax?
Yes, provided the same is duly reported to the COMELEC. Based on RR No. 7-2011,
unutilized/excess campaign funds, that is, campaign contributions net of the candidate’s
campaign expenditures, shall be considered as subject to income tax. If the political contributions
are not reported to the COMELEC, the same will be subject to donor’s tax and income tax. It is
subject to income tax because the candidate will be precluded from claiming expenditures as
deductions from his campaign contributions. (Sec. 13 and 14 of the RA No. 7166)
If a Company renders services in the Philippines on a reimbursement of cost basis, is the
transaction subject to VAT even if it did not result in any profit?
Yes, as long as the Company renders services for a fee in the Philippines, whether it incurs profit
or not it, the transaction is subject to VAT. The Tax Code clarifies that even a non-stock, non-profit
organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a
tax on transactions, imposed at every stage of the distribution process on the sale, barter,
exchange of goods or property, and on the performance of services, even in the absence of profit
attributable thereto. The term "in the course of trade or business" requires the regular conduct or
pursuit of a commercial or an economic activity, regardless of whether or not the entity is profitoriented. In fact, even if such corporation was organized without any intention of realizing profit,
any income or profit generated by the entity in the conduct of its activities was subject to income
tax. Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives
payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without
realizing profit, for purposes of determining liability for VAT on services rendered. As long as the
entity provides service for a fee, remuneration or consideration, then the service rendered is
subject to VAT. (CIR vs. CA and COMASERCO, GR No. 125355 dated March 30, 2000)
C Bank, a domestic corporation, owns 53% of HK Corp., a foreign corporation engaged in
the business of financing. HK Corp. became insolvent. C Bank claimed as a “bad debt”
expense or “ordinary loss” the value of its investment in HK Corp. for income tax
purposes which it considered to be “worthless.” Was the claim of deduction correct?
NO, an equity investment is a capital, not ordinary, asset of the investor the sale or exchange of
which results in either a capital gain or a capital loss. The gain or the loss is ordinary when the
property sold or exchanged is not a capital asset. A capital asset, as defined negatively in Section
33(1) of the NIRC means property held by the taxpayer (whether or not connected with his trade
or business), but does not include stock in trade of the taxpayer or other property of a kind which
would properly be included in the inventory of the taxpayer if on hand at the close of the taxable
year, or property held by the taxpayer primarily for sale to customers in the ordinary course of his
trade or business, or property used in the trade or business, of a character which is subject to the

14

allowance for depreciation provided in subsection (f) of section twenty-nine; or real property used
in the trade or business of the taxpayer."
Thus, shares of stock; like the other securities defined in Section 20(t) of the NIRC, would be
ordinary assets only to a dealer in securities or a person engaged in the purchase and sale of, or
an active trader (for his own account) in, securities.
In the hands, however, of another who holds the shares of stock by way of an investment, the
shares to him would be capital assets. When the shares held by such investor become worthless,
the loss is deemed to be a loss from the sale or exchange of capital assets. Capital losses are
allowed to be deducted only to the extent of capital gains, i.e., gains derived from the sale or
exchange of capital assets, and not from any other income of the taxpayer. (China Banking Corp.
vs CA, CIR and CTA, G.R. No. 125508, July 19, 2000)
The Municipality of Malvar issued Ordinance No. 18 entitled “An Ordinance Regulating the
Establishment of Special Projects” to regulate the “placing, stringing, attaching, installing,
repair and construction of all gas mains, electric, telegraph and telephone wires, conduits,
meters and other apparatus, and provide for the correction, condemnation or removal of
the same when found to be dangerous, defective or otherwise hazardous to the welfare of
the inhabitant[s].” It was also envisioned to address the foreseen “environmental
depredation” to be brought about by these “special projects” to the Municipality. Pursuant
to these objectives, the Municipality imposed fees on various structures, which included
telecommunications towers.
Smart filed a petition before the CTA to question the constitutionality of Ordinance No. 18
but was dismissed for lack of jurisdiction. Was the CTA correct in dismissing the petition?
Yes. Since the main purpose of Ordinance No. 18 is to regulate certain construction activities of
the identified special projects, which included “cell sites” or telecommunications towers, the fees
imposed in Ordinance No. 18 are primarily regulatory in nature, and not primarily revenue–
raising. While the fees may contribute to the revenues of the Municipality, this effect is merely
incidental. Thus, the fees imposed in Ordinance No. 18 are not taxes.
Considering that the fees in Ordinance No. 18 are not in the nature of local taxes, and Smart is
questioning the constitutionality of the ordinance, the CTA correctly dismissed the petition for lack
of jurisdiction. Likewise, Section 187 of the LGC, which outlines the procedure for questioning the
constitutionality of a tax ordinance, is inapplicable, rendering unnecessary the resolution of the
issue on non–exhaustion of administrative remedies. (Smart Communications, Inc. vs.
Municipality of Malvar, GR No. 204429, Feb. 18, 2014)
NPC pursuant to Build-Operate-Transfer (BOT) agreements, acquired rights, title and
interests and other assets comprising power stations hosted by the Municipality of
Navotas. NPC paid the 1st quarter RPT but later on sent a letter to the Municipal Treasurer
claiming exemption from RPT. Eventually, the Treasurer sent a notice of delinquency to
NPC, but the latter reiterated its position on the exemption. After receipt of the warrant of
levy, NPC filed before the RTC a petition for declaratory relief. The RTC denied the same
for failure to exhaust administrative remedies. Before the CTA, it was dismissed for lack of
jurisdiction.
Does the CTA have jurisdiction over declaratory relief judgments made by the RTC
concerning RPT?
Yes. The CTA, sitting as Division, has jurisdiction to review by appeal the decisions, rulings and
resolutions of the RTC over local tax cases, which includes real property taxes. This is evident
from a perusal of the Local Government Code (LGC) which includes the matter of Real Property
Taxation under one of its main chapters. Indubitably, the power to impose real property tax is in

15

line with the power vested in the local governments to create their own revenue sources, within
the limitations set forth by law. As such, the collection of real property taxes is conferred with the
local treasurer rather than the Bureau of Internal Revenue. (NPC vs. Municipal Government of
Navotas, GR No. 192300 dated November 24, 2014).
Was NPC correct in directly filing with the RTC rather than the LBAA its petition claiming
exemption from RPT?
Yes. When the legality or validity of the assessment is in question, and not its reasonableness or
correctness, appeals to the LBAA, and subsequently to the CBAA, pursuant to Sections 226 and
229 of the LGC, are not necessary.
Stated differently, in the event that the taxpayer questions the authority and power of the assessor
to impose the assessment, and of the treasurer to collect the real property tax, resort to judicial
action may prosper.
If the only issue is the legality or validity of the assessment – a question of law – direct recourse
to the RTC is warranted. (NPC vs. Municipal Government of Navotas, GR No. 192300 dated
November 24, 2014).
First Express Pawnshop, the taxpayer, filed the protest and attached the GIS and Balance
Sheet to support its protest. CIR required the taxpayer to submit proof of DST payment.
The taxpayer stated in their Letter-Reply that they cannot provide such as they are not
liable to pay and has not paid the DST. No reply was received from the CIR. The CIR now
contends that the assessment becomes final and unappealable after failure of the taxpayer
to submit BIR required relevant supporting documents within the 60 day period provided
for under Sec 228 NIRC. Is the CIR correct?
No. The term "relevant supporting documents" should be understood as those documents
necessary to support the legal basis in disputing a tax assessment as determined by the
taxpayer. The BIR can only inform the taxpayer to submit additional documents. The BIR cannot
demand what type of supporting documents should be submitted. Otherwise, a taxpayer will be at
the mercy of the BIR, which may require the production of documents that a taxpayer cannot
submit.
First Express Pawnshop has complied with the requisites in disputing an assessment pursuant to
Sec 228 NIRC, hence the tax assessment cannot be considered final and executory. (CIR v. First
Express Pawnshop, G.R. No. 172045-46, June 16, 2009)
Does the CTA have Certiorari Jurisdiction over local tax cases decided by the RTC?
Yes. If this Court were to sustain petitioners contention that jurisdiction over their certiorari petition
lies with the CA, this Court would be confirming the exercise by two judicial bodies, the CA and
the CTA, of jurisdiction over basically the same subject matter – precisely the split-jurisdiction
situation which is anathema to the orderly administration of justice. The Court cannot accept that
such was the legislative motive, especially considering that law expressly confers on the CTA, the
tribunal with specialized competence over tax and tariff matters, the role of the judicial review
over local tax cases without mention of any other court that may exercise such power. This, the
Court agrees with the ruling of the CA that since appellate jurisdiction over private respondents’
complain for the tax refund is vested in the CTA, it follows that a petition for certiorari seeking
nullification of an interlocutory order issued in the said case should, likewise, be filed with the
same court. To rule otherwise would lead to an absurd situation where one court decides an
appeal in the main case while another court rules on an incident in the very same case (City of
Manila v. Gracia-Cuerdo, GR 175723 dated Feb 2014).

16

What happens if the taxpayer fails to appeal within 30 days to the CTA after the 180 day
period expires?
If the taxpayer fails to file an appeal within 30 days from the lapse of the 180 day period, then, he
cannot avail of it forever (i.e., appeal to the CTA without the decision of the BIR), he will have to
wait for the actual decision of the BIR on the protest case.
Note that the taxpayer has two options in case of inaction by the CIR and the expiration of the
180-day period, i.e.:
1. He may appeal to CTA within 30 days from the lapse of the 180-day period provided for; or
2. He may wait until Commissioner decides on his protest before he elevates his case.
The taxpayer was given this option so that in case his protest isn’t acted upon within the 180-day
period, he may be able to seek immediate relief and need not wait for indefinite period of time for
Commissioner to decide. But if he chooses to wait for positive action on part of Commissioner,
then the same couldn’t result in assessment becoming final, executor & demandable.
It must be emphasized, however, that in case of the inaction of the CIR on the protested
assessment, these options are mutually exclusive and resort to one bars the application of the
other. (Lascona Land Co. Inc. vs. CIR)
NPC entered into an Energy Conversion Agreement ("ECA") with Mirant under a BuiltOperate-Transfer arrangement whereby Mirant will build and finance a coal-fired thermal
power plant on the lots owned by the NPC in Pagbilao, Quezon for the purpose of
converting fuel into electricity, and thereafter, operate and maintain the power plant for a
period of 25 years. Under the ECA, NPC undertook responsibility to pay all taxes. May the
NPC claim exemption under Section 234(c) of the LGC?
No. For NPC to successfully claim exemption under Section 234(c) of the LGC, the NPC must
prove two elements:
a. the machineries and equipment are actually, directly, and exclusively used by local water
districts and government-owned or controlled corporations; and
b. the local water districts and government-owned and controlled corporations claiming exemption
must be engaged in the supply and distribution of water and/or the generation and transmission
of electric power.
Although the plants machineries are devoted to the generation of electric power, Mirant operates
the machineries. NPC does not actually, directly, and exclusively use them. The machineries must
be actually, directly, and exclusively used by the government-owned or controlled corporation for
the exemption under Section 234(c) to apply.
The test of exemption is the use, not the ownership of the machineries devoted to generation and
transmission of electric power. The nature of the NPCs ownership of these machineries only finds
materiality in resolving the NPCs claim of legal interest in protesting the tax assessment on
Mirant.
It is the machineries that are exempted from the payment of real property tax, not the water or
electricity that these machineries generate and distribute. (NPC vs. Province of Quezon, GR No.
171586 dated July 15, 2009)
What are the Destination Principle and the Cross Border Doctrine in relation to the VAT?
Sales to export processing zones are subjected to special tax treatment. The Omnibus
Investments Code of 1987 establishes such tax treatment of goods or merchandise, brought into
the export processing zones, to be only consistent with the Destination Principle and Cross
Border Doctrine to which the Philippine VAT system adheres. According to the Destination

17

Principle, goods and services are taxed only in the country where these are consumed. In
connection with the said principle, the Cross Border Doctrine mandates that no VAT shall be
imposed to form part of the cost of the goods destined for consumption outside the territorial
border of the taxing authority. Hence, actual export of goods and services from the Philippines to
a foreign country must be free of VAT, while those destined for use or consumption within the
Philippines shall be imposed with 10% (now 12%) VAT. Export processing zones are to be
managed as a separate customs territory from the rest of the Philippines and, thus, for tax
purposes, are effectively considered as foreign territory. For this reason, sales by persons from
the Philippine customs territory to those inside the export processing zones are already taxed as
exports. (Atlas Consolidated Mining and Development Corp. vs. CIR, G.R. Nos. 141104 &
148763, June 8, 2007)
What is the Loss Limitation Rule?
Section 39 (C) NIRC provides that losses from sales or exchanges of capital assets shall be
allowed only to the extent of the gains from such sales or exchanges.
What is the exception to the Loss Limitation Rule?
If a bank or trust company incorporated under the laws of the Philippines, a substantial part of
whose business is the receipt of deposits, sells any bond, debenture, note, or certificate or other
evidence of indebtedness issued by any corporation (including one issued by a government or
political subdivision thereof), with interest coupons or in registered form, any loss resulting from
such sale shall not be subject to the foregoing limitation and shall not be included in determining
the applicability of such limitation to other losses.
Explain the withdrawal of tax exemption under the LGC of privileges previously given to
natural or juridical persons, and granted local government units the power to impose
franchise tax.
The Local Government Code has withdrawn tax exemption privileges previously given to natural
or juridical persons, and granted local government units the power to impose franchise tax, under
Section 137 thereof which provides that notwithstanding any exemption granted by any law or
other special law, the province may impose a tax on businesses enjoying a franchise, at a rate
not exceeding fifty percent (50%) of one percent (1%) of the gross annual receipts for the
preceding calendar year based on the incoming receipt, or realized, within its territorial
jurisdiction.
Moreover, Sec. 193 of the same Code provides that tax exemptions or incentives granted to, or
presently enjoyed by all persons, whether natural or juridical, including government-owned or
controlled corporations, except local water districts, cooperatives duly registered under R.A. No.
6938, non-stock and nonprofit hospitals and educational institutions, are hereby withdrawn upon
the effectivity of this Code. (CEPALCO vs. CDO, GR No. 191761, Nov. 14, 2012)
May an LGU impose business tax on the sale of petroleum products?
No. A tax on a business is distinct from a tax on the article itself in a way that a business tax is
distinct from an excise tax. However, such distinction is immaterial insofar as the latter part of
Section 133(h) is concerned, for the phrase taxes, fees or charges on petroleum products does
not qualify the kind of taxes, fees or charges that could withstand the absolute prohibition
imposed by the provision. The absence of such a qualification leads to the conclusion that all
sorts of taxes on petroleum products, including business taxes, are prohibited by Section 133(h).
Where the law does not distinguish, we should not distinguish. (Petron Corp. vs. Tiangco, GR No.
158881, April 16, 2008)
How are tax ordinances interpreted?

18

In case of doubt, any tax ordinance or revenue measure shall be construed strictly against the
LGU enacting it and liberally in favor of the taxpayer. Any tax exemption, incentive, or relief
granted by any LGU pursuant to the provisions of the LGC shall be construed strictly against the
person claiming it. (Petron Corp. vs. Tiangco, GR No. 158881, April 16, 2008)
SUMA Manufacturing Corporation is a domestic corporation, registered with the Philippine
Economic Zone Authority (PEZA) as an Economic Zone Export Enterprise which engages
in the business of manufacturing microprocessors. However, due to economic reverses, it
failed to commence operations and closed down its factories. Also, it cancelled its
registration from PEZA and applied for corporate dissolution. During its liquidation, SUMA
executed a Deed of Absolute Sale with an unrelated PEZA-registered companies over the
subject factory and buildings. Is SUMA liable for capital gain tax for the sale of factory and
buildings?
Yes. The sale of the factory and buildings are not among the exclusions enumerated in Section
39(A)(1) of the NIRC. None of the properties were used in petitioner’s trade or ordinary course of
business because petitioner never commenced operations. They were not part of the inventory
and none of them were stocks in trade. Based on the definition of capital assets under Section 39
of the NIRC, they are capital assets. (SMI-ED Philippines Technology Inc., vs. CIR, G.R. No.
175410, November 12, 2014).
Is the sale of co-heirs of an undivided property subject to corporate income tax
constituting an unregistered partnership?
No. They were co-owners pure and simple. To consider them as partners would obliterate the
distinction between a co-ownership and a partnership. The petitioners were not engaged in any
joint venture by reason of that isolated transaction. Their original purpose was to divide the lots
for residential purposes. If later on they found it not feasible to build their residences on the lots
because of the high cost of construction, then they had no choice but to resell the same to
dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the
co-ownership which was in the nature of things a temporary state. (Jose P. Obillos et. Al. vs. CIR,
G.R. No. L-68118, October 29, 1985).
What are the requisites for non-taxability of retirement benefits?
A. Those received by officials and employees of private firms, whether individual or corporate, in
accordance with a:
(1) a reasonable private benefit plan is maintained by the employer;
(2) the retiring official or employee has been in the service of the same employer for at least 10
years;
(3) the retiring official or employee is not less than 50 years of age at the time of his retirement;
and
(4) the benefit had been availed of only once. (10-50-1 rule).
B. those Retirement benefits received under Republic Act No. 7641 (Art. 287 of the Labor Code)
(1) Retired upon reaching the retirement age established in the collective bargaining agreement
or other applicable employment contract;
(2) In the absence thereof, an employee upon reaching the age of sixty (60) years or more, but
not beyond sixty-five (65) years which is hereby declared the compulsory retirement age, who
has served at least five (5) years in the said establishment may retire (60-65-5 rule)
What are considered de minimis benefits?
Under existing tax regulations, the following shall be considered de minimis benefits, with their
respective amounts per annum:

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Description of the benefit

Maximum
allowed per
regulation
10 days per
annum

Amount per
annum

a.

Monetized unused vacation leave credits of private employees

b.

Medical cash allowance to dependents of employees

c.

Rice subsidy

750 per employee
per semester
1,500 per month

d.

Uniform and clothing allowance

5,000 per annum

e.

Actual medical assistance, e.g. medical allowance to cover
medical and healthcare needs, annual medical/executive checkup, maternity assistance, and routine consultations

10,000 per annum

f.

Laundry allowance

g.

Employees achievement awards (must be tangible personal
property other than cash or gift certificate)

h.

Gifts given during Christmas and major anniversary celebrations

5,000 per annum

i.

Daily meal allowance for overtime work

25% of basic
minimum wage

n/a

j.

Benefits received by virtue of a collective bargaining agreement
(“CBA”) and productivity incentive schemes annual monetary
value received from both combined does not exceed Php
10,000.00 per employee per taxable year.

10,000 per
employee per
annum

10,000

Total

300 per month
10,000 per
employee per
annum

n/a
1,500
18,000
18,000

10,000
3,600
3,600
10,000
5,000

63,100

All other benefits given by employers which are not included in the enumeration provided under
the regulations shall not be considered as de minimis benefits, and hence, shall be subject to
income tax as well as withholding tax on compensation income. (Revenue Regulations (RR) No.
10-2000 , as amended by RR Nos. 5-2008, 5-2011, 8-2012, 1-2015)
ABC entered into an agreement with EFG, a non-resident corporation duly organized and
existing under the laws of Vietnam. Under the agreements, EFG was to provide
programming and consultancy services.
EFG billed respondent in the amount of US $500,000. Thinking that these payments
constitute royalties, respondent withheld 25% royalty tax under the RP-Malaysia Tax
Treaty.
Within the two-year period to claim a refund, ABC filed with the Bureau of Internal Revenue
(BIR), through the International Tax Affairs Division (ITAD), an administrative claim for
refund.
Is ABC the right party to file the claim for refund?
Yes. 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."
In this connection, it is however significant to add that while the withholding agent has the right to
recover the taxes erroneously or illegally collected, he nevertheless has the obligation to remit the

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5,000

same to the principal taxpayer. As an agent of the taxpayer, it is his duty to return what he has
recovered; otherwise, he would be unjustly enriching himself at the expense of the principal
taxpayer from whom the taxes were withheld, and from whom he derives his legal right to file a
claim for refund. (COMMISSIONER OF INTERNAL REVENUE vs. SMART COMMUNICATION,
INC., G.R. Nos. 179045-46, August 25, 2010)
A had paid royalties and/or ad valorem taxes based upon the value of the raw materials or
minerals it had extracted and later used in the manufacture of cement, as determined by
the "cost of production" or extraction of said materials or minerals. Upon the theory that
said royalties and/or ad valorem taxes are assessed on the market value of the cement
produced and sold by petitioner as finished product, the Commissioner of Internal
Revenue demanded from A the payment of P50,000, as deficiency ad valorem tax, based
upon the amount it had realized from the sale of cement from September to December
2014.
Is the CIR correct when it held that ad valorem tax should be based on the value of the
finished product?
No, the ad valorem tax in question should be based on the actual market value of quarried
minerals used in producing cement. The law intended to impose the ad valorem tax upon the
market value of the component mineral products in their original state before processing into
cement.
While cement is a mineral product, it is no longer in the state or condition contemplated by the
law; hence the market value of the cement could not be the basis for computing the ad
valorem tax, since the ad valorem tax is a severance tax, i.e., a charge upon the privilege of
severing or extracting minerals from the earth and is due and payable upon removal of the
mineral product from its bed or mine. (REPUBLIC CEMENT CORPORATION vs.THE
COMMISSIONER OF INTERNAL REVENUE, G.R. No. L-20660, June 13, 1968)
Does trial court have jurisdiction to take cognizance of a criminal case in view of a
pending protest against the assessment made by the BIR Examiner?
Yes, What is involved here is not the collection of taxes where the assessment of the
Commissioner of Internal Revenue may be reviewed by the Court of Tax Appeals, but a criminal
prosecution for violations of the National Internal Revenue Code which is within the cognizance of
CFI (now RTC). While there can be no civil action to enforce collection before the assessment
procedures provided in the Code have been followed, there is no requirement for the precise
computation and assessment of the tax before there can be a criminal prosecution under the
Code.
An assessment of a deficiency is not necessary to a criminal prosecution for willful attempt to
defeat and evade the income tax. A crime is complete when the violator has knowingly and
willfully filed a fraudulent return with intent to evade and defeat the tax. The perpetration of the
crime is grounded upon knowledge on the part of the taxpayer that he has made an inaccurate
return, and the government's failure to discover the error and promptly to assess has no
connections with the commission of the crime.
Besides, it has been ruled that a petition for reconsideration of an assessment may affect the
suspension of the prescriptive period for the collection of taxes, but not the prescriptive period of
a criminal action for violation of law. Obviously, the protest of the petitioner against the
assessment of the District Revenue Officer cannot stop his prosecution for violation of the
National Internal Revenue Code. (QUIRICO P. UNGAB vs. HON. VICENTE N. CUSI, JR., G.R.
No. L-41919-24, May 30, 1980)
What are conditionally free imported articles of overseas contract workers?

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Returning overseas contract workers shall have the privilege to bring in, duty and tax free, used
home appliances, limited to one of every kind once in a given calendar year accompanying them
on their return, or arriving within a reasonable time which, barring unforeseen and fortuitous
events, in no case shall exceed sixty (60) days after the owner's return upon presentation of their
original passport at the Port of Entry: Provided, That any excess of Ten Thousand Pesos
(P10,000.00) for personal and household effects and/or of the number of duty and tax-free
appliances as provided for under this section, shall be subject to the corresponding duties and
taxes provided under this Code. (Sec. 100 (f-1) of TCCP).
Luis, Luisa and Lenny Onay, inherited from their mother several parcel of land with
building and improvements. They used said properties in business by leasing or selling
them and investing the income derived therefrom and the proceeds from the sales thereof
in real properties and securities. The BIR found them liable for corporate income tax. Is the
BIR correct?
Yes. This is a case of an unregistered co-partnership for tax purposes. The co-ownership of
inherited properties is automatically converted into an unregistered partnership the moment the
said common properties and/or the incomes derived therefrom are used as a common fund with
intent to produce profits for the heirs in proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an extrajudicial settlement or approved by
the court in the corresponding testate or intestate proceeding. From the moment of such partition,
the heirs are entitled already to their respective definite shares of the estate and the incomes
thereof, for each of them to manage and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to be held in common with his coheirs under a single management to be used with the intent of making profit thereby in proportion
to his share, there can be no doubt that, even if no document or instrument were executed for the
purpose, for tax purposes, at least, an unregistered partnership is formed. (Oña vs. CIR, G.R. No.
L-19342, May 25, 1972)

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