1

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

GENERAL PRINCIPLES

ITAD. The BIR denied the claim on the ground

that the application for a tax treaty relief was
not filed with ITAD prior to the payment by the
former of its BPRT and actual remittance of its
branch profits to Deutsche Bank Germany, or
prior to its availment of the preferential rate of
ten percent (10%) under the RP-Germany Tax
Treaty. Is the BIR correct?

Q: Who is the proper party to question or seek a

refund of indirect taxes?
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. (Silkair v. CIR, G.R.
No. 166482, January 25, 2012; Diageo
Philippines v. CIR, G.R. No. 183553,
November 12, 2012)

No. The noncompliance with the 15-day period

for prior application should not operate to
automatically divest entitlement to the tax treaty
relief especially in claims for refund as it would
constitute a violation of the duty required by
good faith in complying with a tax treaty. Every
treaty in force is binding upon the parties, and
obligations under the treaty must be performed
by them in good faith. Thus, 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 RP-Germany
Tax Treaty does not provide for any prerequisite for the availment of the benefits under
said agreement. At most, the application for a
tax treaty relief from the BIR should merely
operate to confirm the entitlement of the
taxpayer to the relief. (Deutsche Bank AG
Manila v. Commissioner of Internal
Revenue, G.R. No. 188550, August 19,
2013)

N.B. But take note of the next case:

Q: Caltex sold petroleum fuel and passed on the
excise tax to PAL. Now, PAL seeks to refund
the said excise taxes on the basis of the tax
exemption privileges provided for in its
franchise, which exempts it from both direct
and indirect taxes. The CIR argues that PAL
has no personality to file the claim because it is
not the statutory taxpayer. Is the CIRs
contention correct?
No. Where the law clearly grants the party to
which the economic burden of the tax is shifted
an exemption from both direct and indirect
taxes, such party must be allowed to claim a tax
refund even if it is not considered as the
statutory taxpayer under the law. The propriety
of a tax refund claim is hinged on the kind of
exemption which forms its basis. If the law
confers an exemption from both direct or
indirect taxes, a claimant is entitled to a tax
refund even if it only bears the economic
burden of the applicable tax. On the other
hand, if the exemption conferred only applies to
direct taxes, then the statutory taxpayer is
regarded as the proper party to file the refund
claim.
(Philippine
Airlines
v.
Commissioner of Internal Revenue, G.R.
No. 198759, July 1, 2013)

INCOME TAX
Q: What is the income tax treatment of an
OFW?
An individual citizen of the Philippines who is
working and deriving income from abroad as an
overseas contract worker is taxable only on
income from sources within the Philippines.
Thus, income arising out of overseas
employment is income from sources without the
Philippines and is exempt from income tax.
Further, income earnings from business
activities or properties of an overseas contract
worker in the Philippines are income from
sources within the Philippines and, as such, they
are subject to income tax. (RR 1-2011)

Q: Deutsche Bank Manila remitted to Deutsche

Bank Germany an amount representing the
15% branch profit remittance tax (BPRT) on its
regular banking unit net income. Believing that
it should be entitled to the preferential rate of
10% under the RP-Germany Tax Treaty,
Deutsche Bank Manila filed a claim for refund
and a Tax Treaty Relief Application with the

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

Q: Are directors bonuses subject
withholding tax on compensation?

withholding tax. Note, however, that this case

did not rule on the validity of RM 65-2012 and
did not deal with the issue of VAT.

to

Yes. For taxation purposes, a director is

considered an employee under Section 5 of
Revenue Regulation No. 12-86. An individual,
performing services for a corporation, whether
as an officer and director or merely as a director
whose duties are confined to attendance at and
participation in the meetings of the Board of
Directors, is an employee. The non-inclusion of
the names of some of petitioners directors in
the companys Alpha List does not ipso facto
create a presumption that they are not
employees of the corporation, because the
imposition of withholding tax on compensation
hinges upon the nature of work performed by
such individuals in the company. (First
Lepanto
Taisho
Insurance
v.
Commissioner of Internal Revenue, G.R.
No. 197117, April 10, 2013)

Q: What are the conditions for the exemption of

capital gains tax on the sale by a natural person
of his principal residence?
1. The 6% capital gains tax due shall be
deposited in an account with an authorized
agent bank under an Escrow Agreement. It
can only be released upon showing that the
proceeds have been fully utilized within 18
months.
2. The proceeds from the sale, exchange or
disposition must be fully utilized in
acquiring or constructing his new principal
residence within 18 calendar months from
date of its sale. Proof must be submitted.
3. The tax exemption may be availed of only
once every 10 years
4. The historical cost or adjusted basis of his
old principal residence sold, exchanged
disposed shall be carried over to the cost
basis of his new principal residence
5. If there is no full utilization of the proceeds
of sale, exchange or disposition of his old
principal residence, he shall be liable for
deficiency capital gains tax of the utilized
portion. (RR 13-99, as amended by RR
14-2000)

Q: Are association dues, membership fees, and

other assessments/charges collected by a
condominium corporation subject to income tax
and withholding tax
Yes. Association dues, membership fees, et al.
paid to the condominium corporation forms
part of gross income of the said corporation
subject to income tax and withholding tax. This
is because a condominium corporation
furnishes its members and tenants with benefits,
advantages, and privileges in return for such
payments. They constitute as income payments
or compensation for beneficial services
provided to members and tenants. (RMC 652012)

Q: The shares of stock of ABC corporation is a

publicly listed company. Its public ownership
level however fell below the mandatory
minimum public ownership of 10%. ABC sold
shares of stock to Mr. X. What is the income tax
treatment of the said transaction?

N.B. The same is also subject to VAT as they

constitute income payment or compensation for
the beneficial services it provides to members
and tenants.

It is subject to capital gains tax. Generally, a

percentage tax of of 1% is imposed on the
gross selling price of shares of stock if they are
listed and sold, exchanged or transferred
through the facilities of the local stock
exchange. (RR 06-2008)

Note that in Officemetro Philippines, Inc.

v. CIR, CTA Case No. 8382, June 3,
2014,
the
CTA
ruled
that
association/condominium dues, membership
fees, et al., which are merely held in trust and
are to be used solely for administrative expenses
in implementing their purposes and from which
the corporation could not realize any gain or
profit, must not be subject to income and to

However, if traded through the stock exchange,

a sale of shares by companies not complying
with the 10% minimum public float shall be
subject to capital gain tax (RR 16-2012)
Q: Are campaign expenditures tax-exempt?

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

Central Luzon Drug Corporation, G.R.
No. 159647, April 15, 2005, where the
Court held that the 20% discount required by
the law to be given to senior citizens was a tax
credit and not merely a tax deduction from the
gross income or gross sale of the establishment
concerned. This ruling, however, was based on
Section 4 of Republic Act No. 7432, which
provides establishments may claim the discount
as a tax credit. Note that Republic Act No.
9257, which amended Republic Act No. 7432,
now provides that establishments may claim the
discounts as a tax deduction. Republic Act No.
9994 retains this treatment of the 20% senior
citizens discount as a tax deduction.

It depends. In order for the campaign

expenditure to be tax-exempt, it must be fully
utilized. If it is not fully utilized, it is subject to
income tax. These contributions are intended to
finance the operation expenditures of a
candidate. Any unexpended balance from any
contribution to a candidate or party shall be
subject to income tax. Further, if the candidate
fails to include certain campaign expenditures
in the Statement of Expenditures to be filed
with the COMELEC, such amounts will be
automatically subjected to income tax. (RR 72011)
N.B. Contributions given to candidates or
political parties are not subject to donors tax
(Section 13, RA 7166).

Q: ABC Law Firm availed of deductions in

computing its net income. May Atty. Z, a
partner, claim deductions from his share in the
net income?

Q: What is the effect of the taxpayers failure to

submit a Sworn Declaration of Loss on the
deductibility of casualty losses as allowed under
Section 30(d) of the Tax Code?

It depends. If the GPP availed of the itemized

deductions in computing its net income, a
partner may still claim itemized deductions
from his share in the net income of the
partnership. However, if the GPP availed of
OSD, the partner can no longer claim (RR 22010 amending RR 16-2008)

A: The Sworn Declaration of loss is a mandated

substantiation requirement under RR 12-77.
The failure to submit the said declaration of loss
will result in the disallowance of the casualty
loss claimed in the taxpayer's income tax return.
The Sworn Declaration of Loss is necessary to
forewarn the BIR that it had suffered a loss
whose extent it would be claiming as a
deduction of its tax liability, and thus enable the
BIR to conduct its own investigation of the
incident leading to the loss. (H. Tambunting
Pawnshop v. Commissioner of Internal
Revenue, GR No. 173373, July 29,
2013)

Q:Filinvest Development Corporation (FDC)

extended advances in favour of its affiliate. The
BIR assesses FDC for deficiency income by
unilaterally imputing an arms length interest
rate on its advances. FDC disputes this by
saying the CIR lacks authority to impute
theoretical interest and the rule is that interests
cannot be demanded in the absence of a
stipulation to that effect. Is FDCs contention
correct?

Q: Is the 20% Senior Citizens discount a tax

credit or a tax deduction?

Yes. Despite the seemingly broad power of the

CIR to distribute, apportion and allocate gross
income under Section 50, the same does not
include the power to impute theoretical interest
even with regard to controlled taxpayers
transactions. This is true even if the CIR is able
to prove that the interest expense was in fact
claimed by FDC. The term in the definition of
gross income that even those income from
whatever source derived is covered still
requires that there must be actual or at least
probable receipt or realization of the time of
gross income sought to be apportioned,

The 20% Senior Citizen Discount is a tax

deduction. The 20% sales discount shall be
treated as a tax deduction and no longer as a
tax credit. (Carlos Superdrug Corp v.
Department of Social Welfare and
Development, G.R. No. 166494, June
29, 2007; M.E. Holding Corporation v.
Court of Appeals, G.R. No. 160193,
March 3, 2008)
N.B. This reverses the ruling in CIR v.

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

distributed or reallocated. Finally, under the
Civil Code, no interest shall be due unless
expressly stipulated in writing. (CIR v.
Filinvest Development Corporation, July
19, 2011)

insofar as its revenues from paying patients are

concerned. Such revenue is subject to income
tax at 10% under Section 27(B). (CIR v. St.
Lukes Medical Center, September 26,
2012)
Q: May a withholding agent file a claim for tax
refund?

N.B. But take note that the decision was made

prior to the issuance of RR 2-2013 (Transfer
Pricing Guidelines). There is a transfer pricing
issue where one associated enterprise, entitled
to income tax exemptions, is being used to
allocate income away from a company subject
to regular income taxes. The arms length
principle requires the transaction with a related
party to be made under comparable conditions
and circumstances as a transaction with an
independent party. Thus, The BIR has the
authority to review controlled transactions
among associated enterprises and to allocate or
distribute their income and deductions in order
to determine the appropriate revenues and
taxable income of the associated enterprises
involved in controlled transactions. (Section
50, NIRC; RR 2-2013)

Yes. 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. 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. (CIR v.
Smart
Communications,
G.R.
No.
179045-46, August 25, 2010)

Q: St. Lukes Medical Center is a hospital

organized as a non-stock and non-profit
corporation. It admits both paying and nonpaying patients. The CIR claimed that St. Lukes
was liable for income tax at 10% as provided
under Section 27(B) of the NIRC. St. Lukes
argues that it is a non-stock, non-profit
institution for charitable and social welfare
purposes exempt from income tax under
Section 30(E) and (G) of the NIRC. Decide.

N.B. While the withholding agent has the right

to recover the taxes erroneously or illegally
collected, he nevertheless has the obligation to
remit the same; 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. (CIR v. Smart
Communications, G.R. No. 179045-46,
August 25, 2010)

St. Lukes cannot claim full tax exemption under

Section 30 because it has paying patients and
this is notwithstanding the fact that it is a nonprofit hospital. For Section 27(B) to apply, the
hospital must be non-profit which means that no
net income or asset accrues to or benefits any
member or specific person and all the activities
of the hospital are non-profit. On the other
hand, Section 30(E) and (G), while providing
for an exemption is qualified by the last
paragraph which, in turn, provides that
activities conducted for profit shall be taxable.
Section 30(E) and (G) requires that an
institution be operated exclusively for charitable
purposes to be completely exempt from income
tax. In this case, however, St. Lukes is not
operated exclusively for charitable purposes

Q: A taxpayer was not able to withhold on

certain income payments. During the audit
investigation, the taxpayer made payments of
withholding tax. Will he be able to claim the
same as a deduction from gross income?
No. No deduction shall be allowed
notwithstanding payments of withholding tax at
the time of the audit investigation or
reinvestigation/reconsideration in case where
no withholding was made. The taxpayer shall be
liable to pay the deficiency withholding tax
(including interest and surcharge) and the

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

deficiency income tax as a result of
the disallowed deduction. (RR No. 12-2013)

creditable withholding tax must comply with

the following requisites:

N.B. Previously, if the withholding tax, including

interest and surcharges, is paid at the time of
audit and investigation, the deduction may still
be allowed

1) The claim must be filed with the CIR

within the two-year period from the date
of payment of the tax;
2) It must be shown on the return of the
recipient that the income received was
declared as part of the gross income; and
3) The fact of withholding is 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.
(Commissioner
of
Internal
Revenue v. TeaM (Philippines)
Operations Corporation, G.R.
No. 185728, October 16, 2013 )

Q: Section 52(c) of the NIRC requires a

corporation contemplating dissolution to first
secure a tax clearance from the BIR. Does this
requirement apply to a bank placed under
liquidation by the Monetary Board of the BSP?
No. Section 52(C) of the 1997 Tax Code does
not apply to a bank ordered placed under
liquidation by the Monetary Board. Further, a
tax clearance is not a requisite to the approval
of the project of distribution of the assets of the
bank under liquidation by PDIC. (Philippine
Deposit Insurance Corporation vs.
Commissioner of Internal Revenue, G.R.
No. 172892, June 13, 2013)

ESTATE TAX
Q: What are the responsibilities of the
heir/administrator/executor in filing the estate
tax return?

Q: What is the irrevocability rule?

A notice of death required to be given to the

BIR:

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. (Section 76, NIRC; United
International Pictures AB v. CIR, G.R.
No. 166381, October 11, 2012)

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.
If required, the notice of death shall 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. (RMC 34-2013)

N.B. The irrevocability rule in Section 76 of the

Tax Code applies only to the option to carryover 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)

The estate tax return is required to be filed:

1. In all cases of transfers subject to estate
tax; or
2. Where, though exempt from estate tax,
the gross value of the estate exceeds two
hundred
thousand
pesos
(P
200,000.00); or
3. Where, regardless of the gross value, the
estate consists of registered or
registrable property such as real
property, motor vehicle, shares of stocks
or other similar property for which a

Q: What are the requirements for a

claim for refund of excess creditable
withholding tax?
A taxpayer claiming for a tax credit or refund of

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

clearance from the Bureau of Internal
Revenue (BIR) is required as a
prerequisite for the transfer of
ownership thereof in the name of the
transferee.

associations that are subject to income tax. They

are likewise subject to VAT (RMC 53-2013)

VALUE-ADDED TAX
Q: What are the requirements for a
claim for VAT refund?

The estate tax return and the payment of

estate tax shall be made:

A claim for refund or tax credit for unutilized

input VAT may be allowed only if the following
requisites concur, namely:

1. The heirs/ authorized representative/

administrator/ executor shall file the
estate tax return and pay the
corresponding estate tax with the
Authorized Agent Bank (AAB), Revenue
Collection Officer (RCO) or duly
authorized Treasurer of the city or
municipality in the Revenue District
Office having jurisdiction over the place
of domicile of the decedent at the time
of his death.
2. In case of a non-resident decedent, with
executor or administrator in the
Philippines, the estate tax return shall be
filed with the AAB of the RDO where
such
executor/administrator
is
registered or is domiciled, if not yet
registered with the BIR.
3. For non-resident decedent with no
executor or administrator in the
Philippines, the estate tax return shall be
filed with the AAB under the jurisdiction
of RDO No. 39South Quezon City.
(RMC No. 34-2013)

1) The taxpayer is VAT-registered;

2) The taxpayer is engaged in zero-rated or
effectively zero-rated sales;
3) The input taxes are due or paid;
4) The input taxes are not transitional input
taxes;
5) The input taxes have not been applied
against output taxes during and in the
succeeding quarters;
6) The input taxes claimed are attributable to
zero-rated or effectively zero-rated sales;
7) For zero-rated sales under Section
106(A)(2)(1) and (2); 106(B); and 108(B)(1)
and (2), the acceptable foreign currency
exchange proceeds have been duly
accounted for in accordance with the rules
and regulations of the Bangko Sentral ng
Pilipinas;
8) 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; and
9) The claim is filed within two years after
the close of the taxable quarter when such
sales were made ( Luzon Hydro
Corporation v. Commissioner of
Internal
Revenue,
G.R.
No.
188260, November 13, 2013)

DONORS TAX
Q: Are gratuitous gifts, donations, and other
contributions received by Homeowners
Associations subject to donors tax?
Yes. Gifts, donations, and other contributions
received by the Associations are subject to
payment of donors tax. Endowments or gifts
received by such associations are not exempt
from donors tax considering that gifts to
Associations are not qualified for exemption
under Section 101(A)(3) of the NIRC (RMC
53-2013)

Q: Luzon Hydro Corporation, is a renewable

power generation company. It filed a claim for
refund to cover its unutilized input VAT
corresponding to the four quarters of taxable
year 2001. It, however, did not produce
evidence showing that it had zero-rated sales for
the four quarters of taxable year 2001. Should
ABCs claim be denied?

N.B. If the donation is onerous as they are in

exchange for goods, services and use of
properties, these are income on the part of the

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

Yes. To be able to claim refund on the basis of
zero-rated sales, taxpayer must prove the
existence of zero-rated sales though its VAT
returns and receipts issued for such zero-rated
sales. Here, Luzon Hydro Corp did not produce
evidence showing that it had zero-rated sales for
the four quarters of taxable year 2001. It did
not reflect any zero-rated sales from its power
generation in its four quarterly VAT returns,
which indicated that it had not made any sale of
electricity. (Luzon Hydro Corporation v.
Commissioner of Internal Revenue, G.R.
No. 188260, November 13, 2013)

Q: May unutilized input VAT be treated as a

deductible expense for income tax purposes?
No. The unutilized creditable input taxes
attributable to zero-rated sales can only be
recovered through the application for refund or
tax credit. Nowhere in the Tax Code is there a
specific provision expressly providing for
another mode of recovering unapplied input
taxes, particularly that unapplied input taxes
may be treated outright as deductible expense
for income tax purposes. (BIR Ruling No.
123-2013; RMC 57-2013)

Q: What are the rules on prescriptive periods

involving VAT?

N.B. Previously, taxpayers were allowed to

deduct unutilized input VAT as expense in the
following cases: (a) when the two-year
prescriptive period has lapsed without any claim
for refund or credit; (b) when the claim for
refund or credit was denied; and (c) when the
claim for refund is still pending with the BIR but
voluntarily withdrawn by the taxpayer. (BIR
Ruling [DA-(VAT-01) 121-10])

1) An administrative claim must be filed with

the CIR within two years after the close of
the taxable quarter when the zero-rated or
effectively zero-rated sales were made.
2) The CIR has 120 days from the date of
submission of complete documents in
support of the administrative claim within
which to decide whether to grant a refund
or issue a tax credit certificate. The 120day period may extend beyond the twoyear period from the filing of the
administrative claim if the claim is filed in
the later part of the two-year period. If the
120-day period expires without any
decision from the CIR, then the
administrative claim may be considered to
be denied by inaction.
3) A judicial claim must be filed with the
CTA within 30 days from the receipt of
the CIRs decision denying the
administrative claim or from the
expiration of the 120-day period without
any action from the CIR.
4) All taxpayers, however, can rely on BIR
Ruling No. DA-489- 03 from the time of
its issuance on 10 December 2003 up to
its reversal by this Court in Aichi on 6
October 2010, as an exception to the
mandatory and jurisdictional 120+30 day
periods. (CIR v. San Roque Power
Corporation, G.R. No. 187485,
Taganito Mining Corporation v.
CIR, G.R. No. 196113, Philex
Mining Corporation v. CIR, G.R.
No. 197156, February 12, 2013)

Q: What is the effect non-compliance with the

documentary and evidentiary requirements for a
VAT refund claim?
Failure to comply with the invoicing
requirements provides sutt1cient ground to
deny a claim for tax refund or tax credit. In a
claim for tax refund or tax credit, the applicant
must prove not only entitlement to the claim but
also compliance with all the documentary and
evidentiary requirements therefor. (J.R.A
Philippines v. Commissioner of Internal
Revenue, G.R. No. 171307, August 28,
2013)
Q: What is the difference between a VAT
invoice and a VAT receipt?
Only a VAT invoice might be presented to
substantiate a sale of goods or properties while
only a VAT receipt could substantial a sale of
services. The two are not interchangeable.
(Kepco Philippines v. CIR, G.R. No.
181858, November 24, 2010)
Q: What is the effect on a taxpayers claim for
refund or tax credit of failure to print the word
zero-rated on the VAT invoices and official
receipts?

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

The absence of the word zero-rated on the
invoices and receipts of a taxpayer will result in
the denial of the claim for tax refund. (Western
Mindanao Power Corporation v. CIR,
G.R. No. 181136, June 13, 2012;
Eastern Telecommunications v. CIR,
G.R. No. 168856, August 29, 2012)

No. There is nothing in the NIRC which

indicates 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.
(Fort
Bonifacio
Developmen
Corporation v. CIR, G.R. No. 173425,
January 22, 2013)

Q: What is the effect on the claim for refund or

tax credit if the words zero-rated was merely
stamped and not pre-printed?

ORGANIZATION AND FUNCTION

OF THE BIR

It is not fatal to the claim. Although the same

was merely stamped and not pre-printed, the
same is sufficient compliance with the law, since
the imprinting of the word zero-rated was
required merely to distinguish sales subject to
12% VAT, those that are subject to 0% VAT
(zero-rated) and exempt sales, to enable the
Bureau of Internal Revenue to properly
implement and enforce the other VAT
provisions of the Tax Code. (Commissioner
of Internal Revenue v. Toledo Power
Company, G.R. No. 183880, January
20, 2014)

Q: May the CIR, pursuant to her power to

obtain information under Section 5(B) of the
NIRC, be provided certified copies of the
SALNs of all incumbent justices of the Supreme
Court and CTA?
No. First, the request of the CIR lacks sufficient
basis. Second, the power of the CIR to obtain
information is limited by the Constitution and
by law. Section 5(B) does not authorize the
acquisition of information or an investigation
prior to an assessment of tax deficiency. It
should never be construed to authorize an
unbridled search in the hope that something
inculpatory would be stumbled upon. The
power of the CIR to obtain information is
limited only to acquiring documents used in
connection with the filing of a return or those
used in the ordinary course of business to
enable the CIR to arrive at an assessment.
Without a prima facie showing of fraud, the
SALNs of members of the Judiciary are not
covered. (A.M. No. 09-8-6-SC Re: Request
for Copies of SALNs of Justices of the SC
and Officers and Employees of the
Judiciary and A.M. No. 14-4-01-CTA Re:
Request for Copies of SALNs of Justices
of the CTA)

Q: Bonifacio Water Corporation filed a claim

for refund of unutilized input taxes. It changed
its name to Bonifacio GDE Water Corporation.
Thus, the corporation started using this new
corporate name in its official receipts
notwithstanding the fact that the SEC has not
yet approved the same. What is the effect on
the claim for refund?
The change of petitioners name to Bonifacio
GDE Water Corporation, being unauthorized
and without approval of the SEC, and the
issuance of official receipts under that name
which were presented to support petitioners
claim for tax refund, cannot be used to allow
the grant of tax refund or issuance of a tax
credit certificate in petitioners favor. The
absence of official receipts issued in its name is
tantamount to non- compliance with the
substantiation requirements provided by law.
(Bonifacio Water Corporation v. The
Commissioner of Internal Revenue, G.R.
No. 175142, July 22, 2013)

TAX REMEDIES
Q: Must there be a prior payment of the amount
offered as compromise settlement before a
taxpayers application for compromise can be
processed?
Yes. The compromise offer shall be paid by the
taxpayer upon filing of the application for
compromise settlement. No application for
compromise settlement shall be processed

Q: Is prior payment of taxes necessary for the

availment of transitional input tax?

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

without the full settlement of the offered
amount. (RR 9-2013)

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.
7. The taxpayer must be furnished a copy
of the waiver as accepted by the BIR in
order to perfect the agreement since the
waiver is not a mere unilateral act, but a
bilateral agreement between the parties.

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.

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.
(Philippine Journalists Inc. v. CIR , G.R.
No. 162852, December 16, 2004).

Exceptions:
1. False return
2. Fraudulent return
3. Failure to file a return

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 3year period is void. (CIR v. Kudos Metal
Corp, G.R. No. 178087, May 5, 2010)

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.
(Section 222, NIRC)
Q: What are the requirements for a valid waiver
of the statute of limitations?

Q: What is the effect of partial payment on the

validity of the waiver?

1. The waiver must be in the prescribed

form attached as Annex A. There should
be no deviation from this form.
2. The waiver must indicate the specific
kind of tax and the amount due.
3. The waiver must specify a definite
agreed date between the BIR and the
taxpayer within which the former may
assess and collect revenue taxes.
4. The waiver shall 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.
5. The waiver shall be signed by the
Commissioner of Internal Revenue or
his duly authorized representative, and
the date of acceptance of the BIR must
be indicated.
6. Both the date of execution by the
taxpayer and the date of acceptance by

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, GR No. 170257, September 7,
2011)
Q: What is the effect if the PAN was not issued
prior to the FAN?
If the PAN is not issued before the FAN and the
taxpayer only received the latter, it is
tantamount to denial of due process. The
taxpayer must be informed of the facts and laws
upon which the assessment is made. It is not
merely a formal requirement but a substantive
one. However, the law recognizes several
exceptions wherein the PAN need not be

10

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

issued. (CIR v. Metro Star Superama, GR
No. 185371, Dec. 8, 2010)

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

Q: BIR issued a PAN to Allied Bank for

deficiency DST. Allied Bank protested the PAN.
Thereafter, BIR sent a FAN to Allied Bank. 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
demandable. Thereafter, Allied bANK
immediately filed a petition for review with the
CTA. Should the petition be dismissed?

N.B. For requests for reinvestigation, the

taxpayer shall submit all relevant supporting
documents in support of his protest within sixty
(60) days from date of filing of his letter of
protest, otherwise, the assessment shall become
final.
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?

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. Allied Bank 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 (Allied Banking Corporation
vs. Commissioner of Internal Revenue,
G.R. No. 175097, February 5, 2010)

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 (RR 18-2013; BPI
v. CIR, G.R. No. 139736, October 17,
2005)
Q: What is the taxpayers remedy if the protest
is denied by CIRs duly authorized
representative?
1. Appeal to the Court of Tax Appeals
(CTA) within thirty (30) days from date
of receipt of the said decision; or
2. Elevate his protest through request for
reconsideration to the Commissioner
within thirty (30) days from date of
receipt of the said decision. (RR 182013)
N.B. No request for reinvestigation shall be
allowed in administrative appeal and only issues
raised in the decision of the Commissioners
duly authorized representative shall be
entertained by the Commissioner. (RR 182013)

Q: What are the two forms of protest?

Q: What are the remedies of the taxpayer if the

protest is not acted upon by CIRs duly
authorized representative?

1. Request for Reconsideration refers to a

plea for reevaluation of an assessment on the
basis of existing records without need of

11

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

1. Appeal to the CTA within thirty (30)
days after the expiration of the one
hundred eighty (180)-day period; or
2. Await the final decision of the
Commissioners
duly
authorized
representative
on
the
disputed
assessment. (RR 18-2013)

hired who prepared and filed the ITRs. Is

Gloria guilty?
Yes, Gloria is guilty. First, her sole reliance on
her husband to file their ITRs is not a valid
reason to justify her non-filing considering that
she knew that she and her husband are
mandated by law to file their ITRs. Second, an
experienced businesswoman ought to know and
understand all the matters concerning her
business. This includes knowledge and
awareness of her tax obligation in connection
with her business. Further, there are no
affirmative acts on her part to make sure that
her obligation to file her ITRs have been fully
complied with. She does not know how much
was her tax obligation and she did not even
bother to inquire or determine the facts
surrounding the filing of her ITRs. Such neglect
or omission is tantamount to deliberate
ignorance or conscious avoidance.(People
v. Gloria Kintanar, CTA EB Crim. No.
006, Dec. 3, 2010, as affirmed by the
Supreme Court in a minute resolution
GR 196340, February 2012)

Q: What is the remedy of the taxpayer if the

protest is denied by the CIR?
The taxpayer may appeal to the CTA within
thirty (30) days from date of receipt of the said
decision. Otherwise, the assessment shall
become final, executory and demandable. (RR
18-2013)
Q: Will a motion for reconsideration of the
denial of the protest toll the 30-day period to
appeal to the CTA?
No. A motion for reconsideration of the
Commissioners denial of the protest or
administrative appeal, as the case may be, shall
not toll the thirty (30)-day period to appeal to
the CTA. (RR 18-2013; Fishwealth
Canning Corp. v. CIR, G.R. No.
179343, January 21, 2010)

Q: Judy Ann, an actress, was charged with

violation of Section 255 of the NIRC for failure
to supply correct and accurate information.
Judy Ann contends that since she started
working, it was her Manager who is in charge
of filing her returns and paying her taxes. Her
Manager hired an accountant for the
preparation of her returns. Judy Ann stated her
intention to settle the case were not for the
opposition by her Manager and her counsel. Is
Judy Ann guilty?

Q: What are the remedies of the taxpayer in

case of the inaction of the CIR on the protested
assessment?
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. (RR 18-2013; Lascona
Land Co. v. CIR, G.R. No.
171251, March 5, 2012)

No. The element of willful 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. She is only
negligent and such is not enough to convict her.
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. Further, the intention
to settle the case were it not for the opposition
of her manager and her counsel negates any
motive to commit fraud. (People v. Judy Ann
Santos, CTA Crim. Case No. O-012,

Q: Gloria is a distributor of beauty and wellness

products. She was charged with violation of
Section 255 of the NIRC for failure to make or
file her Income Tax Return (ITR). Gloria
contends that she has no personal knowledge of
the actual filing of her returns because it was
her husband, Benjamin, who files their ITRs.
Benjamin claims that it was the accountant he

12

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

January 16, 2013)

presupposes that the tax assessment has not

become final and unappealable. Is the CIRs
contention correct?

COURT OF TAX APPEALS

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.,
G.R. No. 169225, November 17, 2010)

Does the CTA have jurisdiction over a Petition

for Certiorari seeking the nullification of an
interlocutory order of an RTC judge involving a
claim for refund of local taxes?
Yes. The power of the CTA includes that of
determining whether or not there has been
grave abuse of discretion amounting to lack or
excess of jurisdiction on the part of the RTC in
issuing interlocutory order in cases falling
within the exclusive appellate jurisdiction of the
tax court. The CTA is vested with jurisdiction to
issue writs of certiorari in these cases. The
authority of the CTA to take cognizance of
petitions for certiorari questioning interlocutory
orders issued by the RTC in a local tax case is
included in the powers granted by the
Constitution as well as inherent in the exercise
of its appellate jurisdiction. (The City of
Manila vs. Hon. Caridad H. GreciaCuerdo, G.R. No. 175723, February 2,
2014)

Q: May the 30-day period to appeal the

decisions of the RTC to the CTA be extended?
Yes. 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 (SM Land v. City of Manila, G.R.
No. 197151, October 22, 2012; Metro
Manila Shopping Mecca Corp., et al. v.
Ms. Liberty M. Toledo, in her official
capacity as the City Treasurer of Manila,
and the City of Manila, G.R. No.

Does the CTA have jurisdiction to rule upon

the validity and constitutionality of the
issuances of the BIR?
No. The CTAs jurisdiction to resolve tax
disputes in general does not include cases
where the validity or constitutionality of a law,
or a rule or regulation issued by the
administrative agency in the performance of its
quasi-legislative function is challenged. (Egis
Projects S.A. vs. The Secretary of
Finance and Commissioner of Internal
Revenue, CTA Case No. 8413, January
29, 2013; British American Tobacco v.
Camacho , G.R. No. 163583, August 20,
2008)
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

13

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

190818, June 5, 2013)

Marina Sales, Inc. G.R. No. 183868,

November 22, 2010)

Q: May the CTA issue an injunction to enjoin

the collection of taxes by the BIR?

N.B. No second MR or MNT is allowed

(Section 7, Rule 15, RRCTA)

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.

LOCAL GOVERNMENT TAXATION

Q: May LGCs impose amusement taxes
notwithstanding the fact that they are, in
essence, percentage taxes?
Yes. Section 133 (i) of the Local Government
Code (LGC) prohibits the levy by local
government units (LGUs) of percentage tax
except as otherwise provided by the LGC.
Percentage Tax is a tax measured by a certain
percentage of the gross selling price or gross
value in money of goods sold, bartered or
imported; or of the gross receipts or earnings
derived by any person engaged in the sale of
services. Since amusement taxes are fixed at a
certain percentage of the gross receipts incurred
by certain specified establishments, they are
actually percentage taxes. However, provinces
are not barred from levying amusement taxes
even if amusement taxes are a form of
percentage taxes. Section 140 of the LGC
carves a clear exception to the general rule in
Section 133. Section 140 of the Local
Government Code (LGC) expressly allows for
the imposition by provinces of amusement taxes
on the proprietors, lessees, or operators of
theaters, cinemas, concert halls, circuses,
boxing stadia, and other places of
amusement. (Pelizloy Realty Corporation
vs. The Province of Benguet, G.R. No.
183137, April 10, 2013)

N.B. 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)
Further, 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. (Angeles City v. Angeles
Electric Corporation, G.R. No. 166134,
June 29, 2010)
Q: Is a prior Motion for Reconsideration with
the Division required before the filing a Petition
for Review with the CTA en banc?
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. (Commissioner of Customs vs.

Q: What is the effect of filing the appeal to the

Secretary of Justice beyond the 30-day period
provided for in Section 187 of the LGC?
The appeal will be dismissed. 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. (Cagayan
Electric Power and Light Co. v. City of
Cagayan
de
Oro,
G.R.
191761,
November 14, 2012)

14

2014 BAR TIPS ON TAXATION LAW

Atty. Pierre Martin D. Reyes

REAL PROPERTY TAX

are not allowed by law. (Secretary of

Finance v. Court of Tax Appeals
and
Kutangbato
Conventional
Trading, G.R. No. 168137, August
7, 2013)

Q: Who is liable to pay real property taxes?

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. (GSIS v. City of
Treasurer of Manila, G.R. No. 186242,
December 23, 2009)

Q: Who has jurisdiction to hear and determine

questions touching on the seizure and forfeiture
of dutiable goods?
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 rule that the
RTC must defer to the exclusive original
jurisdiction of the BOC in cases involving
seizure
and
forfeiture
of
goods
is
absolute. (Subic
Bay
Metropolitan
Authority, G.R. No. 160270, April 23,
2010)

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?
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, G.R. No. 171586,
January 25, 2010)

***nothing else follows***

Study as if everything depended on you;
pray as if everything depended on God

Prayer to St. Joseph of Cupertino for success
in Examinations

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.

Through Christ our Lord.

St. Joseph of Cupertino, Pray for us.
Amen.

TARIFF AND CUSTOMS DUTIES

Q: What are the classifications of imports?
1. Freely importable commodities or
those commodities which are neither
regulated nor prohibited and the
importation of which may be effected
without any prior approval of or
clearance from any government agency;
2. Regulated commodities or those
commodities the importation of which
require
clearances/permits
from
appropriate government agencies; and
3. Prohibited commodities or those
commodities the importation of which

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