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PRELIMARY BACKGROUND 3 branches of government

 Executive – headed by President


o Department of Finance
 Bureau of Internal Revenue
 Zero in on 1997 Tax Code, as amended OR NIRC

 Bureau of Customs
 Tariffs and Customs Code
 Bureau of Local Government Finance
 Implementation of Local Government Code
 Legislative
 Judiciary – final arbiter on tax issues

1. Head of BIR – Kim Henares


a. Assisted by 4 Deputies
i. Operations
ii. Legal
iii. Information System
iv. Resource Management
b. Powers
i. Levy
ii. Distraint
iii. Assessment
2. Head office – Quezon City
3. Usually it is the commissioner being brought to court, not them bringing
themselves to court. They have sufficient power to execute their judgments.
4. Before CTA law amended, they have same rank of RTC.
5. Today, there are 9 CTAs, with 3 divisions, 1 en banc.
6. Rank of CTA now equal to CA. hence appeal goes to court.
QUESTIONS/TAGS CASES/DOCTRINES/NOTES 1
TITLE I
ORGANIZATION AND FUNCTION OF
THE BUREAU OF INTERNAL REVENUE
Sec. 1, Title of the Code. - This Code shall be known as the National Internal Revenue Code of
1997. 


Sec. 2. Powers and Duties of the Bureau of Internal Revenue. –


 The BIR shall be under the supervision and control of the Department of Finance.
 Its powers and duties shall comprehend:
o the assessment and collection of all national internal revenue taxes, fees, and
charges, and
o the enforcement of all forfeitures, penalties, and fines connected therewith,
o including the execution of judgments in all cases decided in its favor by the
Court of Tax Appeals and the ordinary courts.
 The Bureau shall give effect to and administer the supervisory and police powers
conferred to it by this Code or other laws. 

Q: Enumerate the CIR’s 5 Pursuant to Sections 2 to 8 of the 1997 Tax Code, the CIR has the following powers
powers and duties. IDEAAO and duties:
1. interpret (1) To interpret tax laws and to decide tax cases;
2. delegate (2) To obtain information and to summon/examine and take testimony of
3. ensure provision and persons;
distribution, acknowledgment (3) To make assessment and prescribe additional requirements for tax
4. assessment and administration and enforcement;
requirements for tax admin and (4) To delegate power; and
enforcement (5) To ensure the provision and distribution of forms, receipts, certificates, and
5. obtain info / summon / appliances, and acknowledgment of payment of taxes.
examine and take testimony How does the CIR execute or implement his power to interpret laws?
- thru administrative issuances (RR, RMO, RMC, RB, RMR, BIR Rulings, RAO,
RDAO)
TAXATION 1 – Dean Gruba H. TAN, 2018
What type of power is the power to interpret tax laws? quasi-judicial.

Philam Life v. Sec. of Finance, G.R. 210987, Nov. 24, 2014


 In 2009, Philam Life, in a bid to divest itself of its interests in the HMO
industry, offered to sell its shareholdings in PhilamCare through competitive
bidding. Thus, petitioner’s Class A shares were sold based on the prevailing
exchange rate at the time of the sale, to STI who emerged as the highest
bidder.
 After the sale was completed and the necessary documentary stamp and
capital gains taxes were paid, Philamlife filed an application for a certificate
authorizing registration/tax clearance with the BIR Large Taxpayers Service
Division to facilitate the transfer of the shares.
 Months later, petitioner was informed that it needed to secure a BIR ruling in
connection with its application due to potential donor’s tax liability.
 In compliance, petitioner requested a ruling to confirm that the sale was not
subject to donor’s tax, pointing out, in its request, the following: that the
transaction cannot attract donor’s tax liability since there was no donative
intent and, ergo, no taxable donation, citing BIR Ruling; that the shares were
sold at their actual fair market value and at arm’s length hence a sale for less
than an adequate consideration is not subject to donor’s tax; and that
donor’s tax does not apply to sale of shares sold in an open bidding process.
 BIR Comissioner denied the request because the selling price of the shares
were lower than their book value hence donor's tax became imposable,
pursuant to the NIRC. Commissioner ruled that the difference between the
book value and the selling price in the sales transaction is taxable donation
subject to a 30% donor’s tax under Section 99(B) of the NIRC. Respondent
Commissioner likewise held that BIR Ruling on which petitioner anchored its
claim, has already been revoked by Revenue Memorandum Circular (RMC).
 On appeal, the CA dismissed the complaint for lack of jurisdiction because it
is the CTA which has jurisdiction over the case. 2
 Issue: WON CTA has jurisdiction and WON donor's tax is imposable?
 Held: Yes to both.
 There is no dispute that what is involved herein is the respondent
Commissioner’s exercise of power under the NIRC –– the power to interpret
tax laws. This, in fact, was recognized by the appellate court itself, but
erroneously held that her action in the exercise of such power is appealable
directly to the CTA. As correctly pointed out by petitioner, Sec. 4 of the NIRC
readily provides that the Commissioner’s power to interpret the provisions of
this Code and other tax laws is subject to review by the Secretary of
Finance. The issue that now arises is this –– where does one seek
immediate recourse from the adverse ruling of the Secretary of Finance
in its exercise of its power of review under Sec. 4?
 Admittedly, there is no provision in law that expressly provides where exactly
the ruling of the Secretary of Finance under the adverted NIRC provision is
appealable to. However, We find that RA 1125 addresses the seeming gap
in the law as it vests the CTA the implied power to take cognizance over the
CA petition as “other matters” arising under the NIRC or other law
administered by the BIR.
 Moreover, 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.
 Lastly, petitioner is mistaken in stating that RMC 2511, having been issued
after the sale, was being applied retroactively in contravention to Sec. 246 of
the NIRC. Instead, it merely called for the strict application of Sec. 100,
which was already in force the moment the NIRC was enacted.
 The time you can go to the CTA - from CIR diretso kay CTA
TAXATION 1 – Dean Gruba H. TAN, 2018
o Before - only assessment (amount of deficiency)
o Now - "other matters" in enumeration of the powers

BDO CASE
 Exceptional case where the general rule of exhaustion of
administrative remedies was not followed

Q: Which powers of the CIR Section 7 of the 1997 Tax Code enumerates the CIR powers which may not be
may not be delegated to delegated, to wit:
his/her subordinates? RICA (1) To recommend the promulgation of rules and regulations by the DOF
1. recommend promulgation Secretary;
2. adjudicate, R, R, M (2) To issue rulings of first impression, or to reverse, revoke, or modify any
3. compromise, abate liability existing ruling of the CIR;
4. assign/reassign officers (3) To compromise or abate tax liability, subject to certain exceptions; and
(4) To assign or reassign internal revenue officers to establishments where
articles subject to excise tax are produced or kept.
Q: Distinguish between Meralco Securities Corporation v. Savellano
ministerial and discretionary  Facts: Upon receipt of confidential information submitted by Maniago,
duty. the CIR caused the investigation of Meralco Securities Corporation for
tax evasion. Maniago claimed that Meralco Securities paid income tax
Discretion means power or right only on 25% of the tax dividends it received from Meralco, shortchanging
by law of acting officially, under the government of income tax due from 75% of said dividends.
certain circumstances, o The CIR found and held that no deficiency corporate income tax
according to the dictates of own was due from the corporation on dividends it received from
judgment and consciences, another corporation since under the law then prevailing, in case
uncontrolled by others’ of dividends received by a resident corporation, only 25% of the
judgments and consciences. dividends shall be taxed.
o Subsequently, Maniago filed with the CFI a petition for
Ministerial means an act which mandamus to compel CIR to impose the alleged deficiency tax.
an officer performs in a given o The CFI issued a writ of mandamus ordering the corporation to 3
state of facts, in a prescribed pay, and the CIR to collect, alleged deficiency corporate income
manner, in obedience to the tax, plus interests and surcharges due thereon, as well as
mandate of legal authority, informer’s reward.
without regard to or the  Issue: WON the petition for mandamus can prosper as against the CIR?
exercise of own judgment upon  Held: NO. CIR is charged with the administration of revenue laws, which
the propriety of the act done. is the primary responsibility of the executive branch of the government.
Ministerial means discharge of Thus, after the CIR who is specifically charged by law with the task of
the duty does not require enforcing and implementing the tax laws and the collection of taxes had
exercise of official discretion or after a mature and thorough study rendered his decision or ruling that no
judgment. tax is due or collectible, and his decision is sustained by the Secretary of
Finance, such decision or ruling is a valid exercise of discretion in the
performance of official duty and cannot be controlled, much less
reversed by mandamus.
 Mandamus only lies to enforce the performance of a ministerial act or
duty and not to control the performance of a discretionary power.
 Discretion, when applied to public functionaries, means a power or right
conferred upon them by law of acting officially, under certain
circumstances, according to the dictates of their own judgments and
consciences, uncontrolled by the judgments or consciences of others.
 A purely ministerial act or duty, in contradistinction to a discretional act,
is one which an officer or tribunal performs in a given state of facts, in a
prescribed manner, in obedience to the mandate of a legal authority,
without regard to or the exercise of his own judgment upon the propriety
or impropriety of the act done.
 If the law imposes a duty upon a public officer, and gives him the right to
decide how or when the duty shall be performed, such duty is
discretionary and not ministerial.
 The duty is ministerial only when the discharge of the same requires
neither the exercise of official discretion nor judgment.
TAXATION 1 – Dean Gruba H. TAN, 2018
 In other words, mandamus may NOT lie to compel the CIR to impose a
tax assessment not found by him to be proper.
Q: When may the CIR Vera v. Cuevas
exercise police power?  Private respondents are companies engaged in the manufacture, sale
and distribution of filled milk products.
Only when necessary in the  There were several provisions in the Tax Code pertaining to skimmed
enforcement of principal milk.
powers and duties consisting in o Section 141 imposed a specific tax on skimmed milk.
collection of national taxes, o Section 169 required that the packaging of skimmed milk contain
fees, charges and the a declaration to the effect that skimmed milk was not suitable for
enforcement of forfeitures, nourishment for infants less than one year of age.
penalties, and fines connected o Section 177 penalized the sale of skimmed milk without payment
therewith. of the specific tax and without the legend required by Section
169.
 Sections 141 (specific tax) and 177 (penalty) were expressly repealed by
various laws. The SC held that by the express repeals of Sections 141
and 177 of the old Tax Code, Section 169 became a merely declaratory
provision, without a tax purpose or a penal sanction.
 The controversy arose when the CIR required the companies to
withdraw from the market all of their filled milk products which do not
bear the inscription required by Sec. 169 of the Tax Code within 15 days
from receipt of the order with a warning of action if they failed.
 The CIR contended that he still had jurisdiction to enforce Section 169
by virtue of a section of the 1997 Tax Code which provides that the BIR
“shall give effect to and administer the supervisory and police power
conferred to it by this Code or other laws.”
 Issue: WON the CIR may still enforce Section 169?
 Held: No. The CIR and the Fair Trade Board, are without jurisdiction to
investigate and to prosecute alleged misbranding, mislabeling and/or
misleading advertisements of filled milk. 4
o The BIR “may claim police power only when necessary in the
enforcement of its principal powers and duties consisting of the
‘collection of all national internal revenue taxes, fees and
charges, and the enforcement of all forfeitures, penalties and
fines connected therewith.’
o The enforcement of Section 169 entails the promotion of the
health of the nation and is thus unconnected with any tax
purpose. Neither the CIR nor the Fair Trade Board had
jurisdiction to investigate and prosecute alleged misbranding,
mislabeling and/or misleading advertisements of filled milk. The
jurisdiction was properly vested upon the Board of Food and
Drug Inspection and the Food and Drug Administrator, with the
Secretary of Health and the Secretary of Justice also intervening
in such event that criminal prosecution would have to be
instituted.
Sec. 3, Chief Officials of the Bureau of Internal Revenue. –
The Bureau of Internal Revenue shall have a chief to be known as Commissioner of Internal Revenue,
hereinafter referred to as the Commissioner and four (4) assistant chiefs to be known as Deputy
Commissioners. 


Sec. 4, Power of the Commissioner to Interpret Tax Laws and to Decide Tax Cases. –
The power to interpret the provisions of this Code and other tax laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review by the Secretary of Finance.
The power to decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions thereof
administered by the BIR is vested in the Commissioner, subject to the exclusive appellate jurisdiction of the
CTA.
May 7, 2002
DOF ORDER NO. 007-02
TAXATION 1 – Dean Gruba H. TAN, 2018
PROVIDING FOR THE IMPLEMENTING RULES OF THE FIRST PARAGRAPH OF SECTION 4 OF THE NATIONAL
INTERNAL REVENUE CODE OF 1997, REPEALING FOR THIS PURPOSE DEPARTMENT ORDER NO. 005-99
AND REVENUE ADMINISTRATIVE ORDER NO. 1-99

WHEREAS, Section 4 of Republic Act No. 8424 (the National Internal Revenue Code of 1997, "the NIRC" for
brevity) vests with the Commissioner of Internal Revenue exclusive and original jurisdiction to interpret its
provisions and other tax laws, subject to review by the Secretary of Finance;

WHEREAS, Department Order No. 005-99, dated January 26, 1999 and Revenue Administrative Order No. 1-99,
dated February 5, 1999, implements the power of the Secretary of Finance to review rulings of the
Commissioner of Internal Revenue;

WHEREAS, there is need to further provide for the implementing rules of the first paragraph of Section 4 of the
NIRC. ACDIcS

NOW THEREFORE, I, JOSE ISIDRO N. CAMACHO, Secretary of Finance, by virtue of the powers of supervision
and control over the Bureau of Internal Revenue granted to me by Section 2 of the NIRC and Book IV, Title II,
Chapter 4, Section 18 of the Administrative Code of 1987, do hereby order:

SECTION 1. Scope of This Order. — This Department Order shall apply to all rulings of the Bureau of
Internal Revenue (BIR) that implement the provisions of the NIRC and other tax laws.

SECTION 2. Validity of Rulings. — A ruling by the Commissioner of Internal Revenue shall be presumed
valid until overturned or modified by the Secretary of Finance.

SECTION 3. Rulings Adverse to the Taxpayer. — A taxpayer who receives an adverse ruling from the
Commissioner of Internal Revenue may, within thirty (30) days from the date of receipt of such ruling, seek its
review by the Secretary of Finance.
The request for review shall be in writing and under oath, and must:
a) be addressed to the Secretary of Finance and be filed with the Legal Office, Department of Finance, 5
DOF Building, BSP Complex, Roxas Boulevard corner Pablo Ocampo St., City of Manila;
b) contain the heading "Request for review of BIR Ruling No.______
c) allege and show that the request was filed within the reglementary period;
d) indicate the Tax Identification Number of the taxpayer;
e) allege the material facts upon which the ruling was requested;
f) state that exactly the same facts were presented to the BIR;
g) define the issues sought to be resolved;
h) contain the facts and the law relied upon to dispute the ruling of the Commissioner;
i) be signed by or on behalf of the taxpayer filing the appeal; provided that, only lawyers engaged by the
taxpayer and/or tax agents accredited by the BIR may sign on behalf of the taxpayer;
j) be accompanied by a copy of the Commissioner's challenged ruling; and
k) contain a stamp of the Office of the Commissioner of Internal Revenue, indicating that a copy of the
request to review the ruling was received by the Commissioner; and
l) specifically state that the taxpayer does not have a pending assessment or case in a court of justice
where the same issues are being considered.
Furthermore, the taxpayer must, at the time of filing of the request for review, submit a duplicate copy of the
records on file with the BIR pertaining to his request, which set of records must be authenticated and certified
by the BIR.
The Secretary of Finance may dismiss with prejudice a request for review that fails to comply with these
requirements.

SECTION 4. Motu proprio review by the Secretary of Finance. — The Secretary of Finance may, of his own
accord, review a ruling issued by the Commissioner of Internal Revenue. In such a case, the Secretary of
Finance shall order the Commissioner of Internal Revenue to transmit a duplicate copy of the BIR records. The
Commissioner of Internal Revenue shall transmit such records within fifteen days from receipt of notice of the
request for transmittal.

SECTION 5. Affirmation, reversal or modification by the Secretary of Finance. — The Secretary of Finance
may affirm, reverse or modify a ruling of the Commissioner of Internal Revenue. In the case of an affirmation,

TAXATION 1 – Dean Gruba H. TAN, 2018


the Secretary of Finance may rely wholly on the reasons stated in the ruling of the Commissioner of Internal
Revenue.
Subject to Section 246 of the Republic Act No. 8424, a reversal or modification of the ruling shall terminate its
effectivity upon the earlier date of the receipt of written notice of such reversal or modification by the taxpayer
or by the BIR.

SECTION 6. Certification Fee to be Imposed by the BIR. — Except for review of rulings under Section 4 the
BIR may impose appropriate certification fees to carry out the provisions of this Order.

SECTION 7. Repealing Clause. — Department Order No. 005-99 and Revenue Administrative Order No. 1-99,
as well as all other existing Department Orders and issuances of the Commissioner of Internal Revenue that
are inconsistent with this Order are hereby repealed.

SECTION 8. Effectivity. — This Department Order shall take effect immediately.


Q: Explain the nature of the  Police power bigger in scope than power to tax.
CIR’s power to interpret tax  Power to tax can implement power to regulate.
laws and to decide tax cases.  Any adverse ruling made by CIR can be reviewed by the Secretary of
Finance – affirm, reverse, revise, or modify. What is automatically reviewed
are those issuances applicable to all, not all specific decisions.
 Then go to regular courts, then CTA.
 Upon recommendation of CIR, Sec of Finance can issue / promulgate
decision.
 Different kinds of tax cases:
o Our taxation law is basically a self-assessment system.
o You make your own assessment on how much income and taxes
are supposed to pay. However, the government, thru BIR, has
power to make assessment.
o BIR has power to audit you, whether you were honest with the taxes
you pay or not. The government will come and assess you.
o What is the remedy of the taxpayer? In cases where taxpayer does 6
not agree with deficiency tax assessment. Go to CIR where he will
decide power to assess taxes and decide cases
 Refund
 Credit
 Penalties
 Disputed assessments
 Other matters arising from the Tax Code
 Not a matter of choice not to go the Division, before go to En Banc
Asia International Auctioneers, Inc. v. CIR Parayno, GR No. 163445, 18
December 2007
 Facts: Congress enacted a law creating the Subic Special Economic Zone
(SSEZ) and extending a number of tax incentives thereon. However,
exportation and removal of goods from the territory of SSEZ to the other
parts of the Philippines shall be subject to customs duties and taxes.
o CIR Parayno issued RMC settling the Uniform Guidelines on the
Taxation of Imported Motor Vehicles through the Subic Free Port
Zone and Other Freeport Zones that are Sold at Public Auction.
o Asia International Auctioneers and Subic Bay Motors Corporation,
engaged in the importation of mainly secondhand or used motor
vehicles and heavy transportation or construction equipment which
they sold to the public through auction, filed a complaint praying for
the nullification of the aforementioned RMC, which was thereafter
amended seeking the nullification of several other RMC and RRs on
the tax incentives enjoyed by businesses or enterprises within
special economic zones.
 Issue: Does the TC have the proper court of jurisdiction to hear a case to
declare Revenue Memorandum Circulars unconstitutional and against an
existing law where the challenge does not involve the rate and figures of the
imposed taxes?

TAXATION 1 – Dean Gruba H. TAN, 2018


 Petitioners contend that jurisdiction over the case at bar properly pertains to
the regular courts as this is an action to declare as unconstitutional, void and
against the provisions of R.A. No. 7227, the RMCs issued by the CIR. They
explain that they "do not challenge the rate, structure or figures of the
imposed taxes, rather they challenge the authority of the respondent
Commissioner to impose and collect the said taxes."
 They claim that the challenge on the authority of the CIR to issue the RMCs
does not fall within the jurisdiction of the CTA.
 Held: No. Proper court should have been CIR.
o Revenue issuances are administrative rulings which are issued from
time to time by the CIR. The assailed revenue regulations and RMC
are actually rulings or opinions of the CIR on the tax treatment of
motor vehicles sold at public auction within the SSEZ to implement
R.A. 7227 which provides that ‘exportation or removal of goods from
the territory of the SSEZ to other parts of the Philippine territory shall
be subject to customs duties and taxes under the Customs and
Tariff Code and other relevant laws of the Philippines.
o Such RRs and RMCs were validly issued pursuant to the power of
the CIR to interpret tax laws and to decide tax cases based on
Section 4 of the 1997 Tax Code.
o Petitioners’ failure to ask the CIR for a reconsideration of the
assailed revenue regulations and RMCs is another reason why the
instant case should be dismissed. It is settled that the premature
invocation of the court's intervention is fatal to one's cause of action.
If a remedy within the administrative machinery can still be resorted
to by giving the administrative officer every opportunity to decide on
a matter that comes within his jurisdiction, then such remedy must
first be exhausted before the court’s power of judicial review can be
sought. The party with an administrative remedy must not only
initiate the prescribed administrative procedure to obtain relief but 7
also pursue it to its appropriate conclusion before seeking judicial
intervention in order to give the administrative agency an opportunity
to decide the matter itself correctly and prevent unnecessary and
premature resort to the court.

 The power to interpret the National Internal Revenue Code and other tax
laws is under the exclusive and original jurisdiction of the CIR, subject to
review by the Secretary of Finance (Section 4, NIRC).
 Under RMC No. 37-07, the authority of the CIR to sign rulings granting
and/or confirming tax incentives, and tax treaty relief through the ruling
process is now delegated to the Deputy Commissioner of the Legal and
Inspection Group and to the Assistant Commissioner of the Legal Service
Group.
 The CIR is empowered, motu proprio to reverse, modify or alter any such
ruling issued by the Department Commissioner or the Assistant
Commissioner.
Q: What are the kinds of  There are two kinds of administrative issuances:
administrative issuances? o Legislative rules, and
 Secondary legislation to primary legislation; quasi-legislative
 provides details
 requires due process - hearing and opportunity to be heard
o Interpretative rules.
 Directory

Legislative Administrative Interpretative Administrative


A legislative rule is in the nature of Interpretative rules are designed to
subordinate legislation, designed to provide guidelines to the law which
implement a primary legislation by the administrative agency is in
providing the details thereof. charge of enforcing

TAXATION 1 – Dean Gruba H. TAN, 2018


In the same way that laws must
have the benefit of public hearing, it
is generally required that before a
legislative rule is adopted there
must be hearing.

CIR v. Fortune Tobacco and CA, GR No. 119761, 29 August 1996.


 Fortune Tobacco Corporation was engaged in the manufacture of different
brands of cigarettes, e.g., Champion, Hope and More cigarettes. They were
granted by the Bureau of Patents the trademark to each of the brands
mentioned. However, it appears on record that the three brands are also
being used abroad and the CIR wanted to classify the ones manufactured by
Fortune Tobacco as foreign brands to subject them to a higher tax rate since
at that time, the ad valorem tax rate for the cigarettes manufactured by
Fortune Tobacco is at 45% and since they were listed in the World Tobacco
Directory as belonging to foreign companies.
 However, Fortune Tobacco changed the names of Hope to Hope Luxury and
More to Premium More, thereby removing the said brands from the foreign
brand category. Proof was also submitted to the BIR that Champion was an
original Fortune Tobacco Corporation register and therefore a local brand.
 A law took effect, amending a section in the NIRC dealing with excise tax on
cigar and cigarettes packed by machines tax rates.
 About a month after the enactment of the aforesaid law and 2 days before
the effectivity of the same, Commissioner Liwayway Vinzons-Chato issued a
Revenue Memorandum Circular.
o By virtue of RMC, Champion, Hope and More cigarettes were
considered locally manufactured cigarettes bearing a foreign brand
subject to the 55% ad valorem tax on cigarettes. 8
o Prior to the issuance of RMC No. 37-93, the 3 brands were in the
category of locally manufactured cigarettes not bearing a foreign
brand subject to the 45% ad valorem tax.
o Without the RMC, the enactment of the law would have had no new
tax rate consequence on the 3 brands.
 Issue: WON BIR is empowered to enforce the RMC?
 Held: NO, because the RMC’s issuance was procedurally defective.
o In order to place Champion, Hope and More cigarettes within the
scope of RA No. 7654 and subject them to an increased tax rate,
RMC No. 37-93 was issued.
o In so doing, the BIR not simply interpreted the law; verily, it
legislated under its quasi-legislative authority.
o The due observance of the requirements of notice, of hearing, and of
publication should not have been ignored.
o The hastily promulgated the RMC fell short of a valid and effective
administrative issuance.
 Let it be made clear that such authority of the Commissioner
is not here doubted. Like any other government agency,
however, the CIR may not disregard legal requirements or
applicable principles in the exercise of quasi-legislative
powers.

Section 116 of the 1977 Tax Code


 SEC. 116. Percentage tax on dealers in securities; lending investors. –
Dealers in securities and lending investors shall pay a tax equivalent to six
(6) per centum of their gross income. Lending investors shall pay a tax
equivalent to five percent (5%) of their gross income.

CIR v. Michel J. Lhuillier Pawnshop, Inc., GR No. 150947, 15 July 2003

TAXATION 1 – Dean Gruba H. TAN, 2018


 CIR issued RMO imposing 5% lending investors tax on pawnshops pursuant
to the Tax Code. This RMO was clarified by RMC by providing that for
purposes of uniformity in cut-off date, pawnshop owners or operators shall
become liable to the lending investor’s tax on their gross income beginning
January 1, 1991.
 Since pawnshops are considered as lending investors effective January 1,
1991, they also become subject to documentary stamp taxes prescribed in
Title VII of the Tax Code.
 Pursuant to these issuances, BIR issued Assessment Notice against Lhuillier
demanding payment of deficiency percentage tax in the sum for 1994
inclusive of interest and surcharges.
 Lhuillier protested the assessment on grounds that:
o Neither the Tax Code nor the VAT Law expressly imposes 5%
percentage tax on the gross income of pawnshops;
o pawnshops are different from lending investors, which are subject to
the 5% percentage tax under the specific provision of the Tax Code;
o RMO No. 15-91 is
 not implementing any provision of the Internal Revenue laws
but is a new and additional tax measure on pawnshops,
which only Congress could enact;
 impliedly amends the Tax Code and is therefore taxation by
implication, which is proscribed by law; and
 a ‘class legislation’ because it singles out pawnshops
among other lending and financial operations.”
 Issue: WON the RMO and RMC are valid?
 Held: No.
o RMO No. 15-91 and RMC No. 43-91 were administrative issuances
which were not merely interpretative rules, but were legislative rules.
Hence, the requirements of notice, hearing and publication should
have been observed. Administrative issuances must not override, 9
supplant or modify the law, but must remain consistent with the law
they intend to carry out. Only Congress can repeal or amend the
law.
o While it is true that pawnshops are engaged in the business of
lending money, they are not considered “lending investors” for the
purpose of imposing the 5% percentage taxes.
 Under the NIRC, pawnshops and lending investors were
subjected to different tax treatments.
 Congress never intended pawnshops to be treated in the
same way as lending investors.
 NIRC of 1977, subjects to percentage tax dealers in
securities and lending investors only. There is no mention of
pawnshops. Under the maxim expressio unius est exclusio
alterius, the mention of one thing implies the exclusion of
another thing not mentioned.
 The BIR had ruled several times prior to the issuance of
RMO and RMC that pawnshops were not subject to the 5%
percentage tax imposed by the NIRC.
o In any event: since Section 116 of the NIRC of 1977, which breathed
life on the questioned administrative issuances, had already been
repealed, RMO and RMC, which depended upon it, are deemed
automatically repealed.
Q: What are the 8 revenue Revenue issuances are those issuances officially released by the CIR, thus:
issuances? (1) Revenue Regulations (RRs) are issuances signed by the Secretary of
Finance, upon recommendation of the CIR, which specify, prescribe or
RR, RMR, RMC, RB, BIR define rules and regulations for the effective enforcement of the provisions of
Rulings the 1997 Tax Code and related statutes.
(2) Revenue Memorandum Orders (RMOs) are issuances that provide
directives or instructions, prescribe guidelines, and outline processes,
TAXATION 1 – Dean Gruba H. TAN, 2018
operations, activities, workflows, methods and procedures necessary in the
implementation of stated policies, goals, objectives, plans and programs of
the BIR in all areas of operations, except auditing.
(3) Revenue Memorandum Circular (RMCs) are issuances that publish
pertinent and applicable portions, as well as amplifications, of laws, rules,
regulations and precedents issued by the BIR and other agencies/offices.
(4) Revenue Bulletins (RBs) refer to periodic issuances, notices and official
announcements of the CIR that consolidate the BIR’s position on certain
specific issues of law or administration in relation to the provisions of the
1997 Tax Code, relevant tax laws and other issuances for the guidance of
the public.
(5) Revenue Memorandum Rulings (RMRs) are rulings, opinions and
interpretations of the CIR with respect to the provisions of the 1997 Tax
Code and other tax laws, as applied to a specific set of facts, with or without
established precedents, and which the CIR may issue from time to time for
the purpose of providing taxpayers guidance on the tax consequences in
specific situations.
 Applicable to all.
 BIR Rulings, therefore, cannot contravene duly issued RMRs.
Otherwise, such BIR Rulings are null and void ab initio.
(6) BIR Rulings are the official position of the BIR to queries raised by
SPECIFIC taxpayers and other stakeholders relative to clarification and
interpretation of tax laws.
 VAT Rulings
 ITAD Ruings
 RUlings issued thru Delegated Authority
(7) Revenue Administrative Orders (RAOs) – issuances that cover subject
matters dealing strictly with the permanent administrative set-up of the
Bureau, more specifically, the organizational structure, statements of
functions and/or responsibilities of BIR offices, definitions and delegations of 10
authority, staffing and personnel requirements and standards of
performance.
(8) Revenue Delegation of Authority Orders (RDAOs) – refer to functions
delegated by the Commissioner to revenue officials in accordance with law.
(9) Revenue Audit Memorandum Orders
(10) Revenue Memorandum Rulings
(11) Revenue Special Orders
(12) Revenue Travel Assignment Orders

Kinds of Rulings ( RAO No. 01-03)


1. General BIR Ruling
2. VAT Ruling
3. Ruling Issued by International Tax Affairs Commission (ITAD) - by
reason of tax treaties

1. Rulings of first impression – rulings, opinions, and interpretations of the


CIR with respect to the NIRC and other tax laws without established
precedent, and which are issued in response to a specific request for ruling
filed by a taxpayer with the BIR; includes the reversal, modification or
revocation of any existing ruling. The power to issue Ruling of first
impression cannot be delegated.
a) Non-delegable power
b) Only the commissioner can issue it
c) Remedy on the part of the taxpayer when CIR renders
adverse rulings - go to Sec of Finance
2. Rulings with established precedents – reiteration of previous rulings,
opinions and interpretations of the CIR as delegated under RMC NO. 37-07
a) Can be delegated
b) Can be issued by Deputy Commissioner

TAXATION 1 – Dean Gruba H. TAN, 2018


 Being an interpretation, the interpretation of tax/provisions, you cannot
apply it retroactively.
 Generally, tax laws are prospective in application, hence not retroactive.

Rule-making authority of the Secretary of Finance


1. The Secretary of Finance has the power to reverse, revise or modify rulings
that are adverse to the Taxpayer
2. The Secretary of Finance upon recommendation of the CIR shall promulgate
all needful rules and regulations
Sec. 246, Non-Retroactivity of Rulings. – 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 prejudicial to the taxpayers, except in the following cases:
(1) Where the taxpayer deliberately misstates or omits material facts from his return or any document
required of him by the Bureau of Internal Revenue;
(2) Where the facts subsequently gathered by the Bureau of Internal Revenue are materially different from
the facts on which the ruling is based; or
(3) Where taxpayer acted in bad faith.

Q: Discuss the rule on non- ABS-CBN Broadcasting Corporation v. CTA, GR No. L-52306, 12 October 1981
retroactivity of revenue  ABS-CBN was engaged in the business of telecasting local and foreign films
issuances or rulings. acquired from foreign corporations not engaged in trade or business within
the Philippines, for which it paid film rentals after withholding income tax.
 In implementing the Tax Code, the Commissioner issued General Circular.
 Pursuant to General Circular, petitioner withheld the amount of 30% of one
half of film rentals paid by it to the foreign corporations. The last year that
petitioner withheld taxes pursuant to the foregoing circular was in 1968.
 In 1971, RMC was issued revoking General Circular and now holding that
the tax should be 35% based on gross income without deduction whatever.
Later, the CIR issued an assessment against petitioner for deficiency 11
withholding income tax on the remitted film rentals for the years 1965
through 1968.
 Issue: WON Revenue Memorandum Circular revoking General Circular may
be retroactively applied?
 Held: No. The prejudice to petitioner of the retroactive application of RMC is
beyond question. It was issued only in 1971, or three years after 1968, the
last year that petitioner had withheld taxes under General Circular. Petitioner
was no longer in a position to withhold taxes due from foreign corporations
because it had already remitted all film rentals and no longer had any control
over them when the new Circular was issued.
 Hence, RMC No. 4-71 was not given retroactive application.

CIR v. Burroughs Limited, GR No. L-66653, 19 June 1986


 Burroughs Limited is a foreign corporation authorized to engage in trade or
business in the Philippines through a branch office located at Makati, Metro
Manila.
 On 14 March 1979, respondent paid the 15% branch profit remittance tax
based on the amount of its profits before tax. Pursuant to the 1980 BIR
Ruling, branch profit remittance tax shall be based on the profit actually
remitted abroad and not on the total branch profits before profit remittance
tax is to be made. Subsequently and relying on the BIR Ruling, Burroughs
filed a claim for tax refund or credit of allegedly overpaid branch profit
remittance tax.
 The CIR argued that respondent was no longer entitled to a refund because
1982 RMC had revoked and/or repealed the 1980 BIR Ruling, that
considering that the 15% branch profit remittance tax is imposed and
collected at source, necessarily the tax base should be the amount actually
applied for by the branch with the Central Bank as profit to be remitted
abroad.
TAXATION 1 – Dean Gruba H. TAN, 2018
 Issue: whether the tax base upon which the 15% branch profit remittance
tax shall be imposed under the provisions of the Tax Code is the amount
applied for remittance on the profit actually remitted after deducting the 15%
profit remittance tax?
 Held: Yes.
 BIR ruling dated January 21, 1980 by then Acting Commissioner of Internal
Revenue Hon. Efren I. Plana the afore-quoted provision had been
interpreted to mean that “the tax base upon which the 15% branch profit
remittance tax shall be imposed is the profit actually remitted abroad and
not on the total branch profits out of which the remittance is to be made.
 What is applicable in the case at bar is still the Revenue Ruling of 1980
because private respondent Burroughs Limited paid the branch profit
remittance tax in question on March 14, 1979. Memorandum Circular dated
1982 cannot be given retroactive effect in the light of the NIRC.
 The Supreme Court cited the 1997 Tax Code in holding that RMC could not
be given retroactive effect. The prejudice that would result to respondent by
a retroactive application of RMC is beyond question for it would be deprived
of the substantial amount of P172,058.90.

CIR v. CA, GR No.117982, 6 February 1997


 Alhambra Industries, Inc. was engaged in the manufacture and sale of cigar
and cigarette products. It received a letter from the CIR assessing it 15%
deficiency Ad Valorem Tax (AVT) on the removals of cigarette products from
their place of production.
 CTA ordered petitioner to refund to private respondent because erroneously
paid ad valorem tax. The CTA explained that the subject deficiency excise
tax assessment resulted from private respondent’s use of the computation
mandated by BIR Ruling as basis for computing 15% ad valorem tax due on
its removals of cigarettes, excluding VAT in the determination of the gross
selling price for purposes of computing the ad valorem tax. Thereafter, CIR 12
issued another ruling, revoking the previous ruling and including back the
VAT to gross selling price in determining the tax base for computing ad
valorem tax.
o Otherwise stated: The present dispute arose from the discrepancy in
the taxable base on which the excise tax payable on Alhambra’s
products was to apply, on account of two incongruous BIR Rulings:
(1) BIR Ruling No. 473-88 dated 4 October 1988 which excluded the
VAT from the tax base in computing the 15% excise tax due, and (2)
BIR Ruling No. 017-91 dated 11 February 1991 which included back
the VAT in computing the tax base for purposes of the 15% ad
valorem tax.
 CIR sought to apply the revocation retroactively to Alhambra on the ground
that private respondent allegedly acted in bad faith which is an exception to
the rule on non-retroactivity of BIR Rulings. On appeal, CA held that private
respondent’s computation under previous BIR Ruling was not shown to be
motivated by ill-will or dishonesty partaking the nature of fraud.
 Petitioner contends that BIR Ruling being an erroneous interpretation of the
Tax Code does not confer any vested right to private respondent as to
exempt it from the retroactive application of BIR Ruling.
 Issue: WON new BIR ruling should be given retroactive effect?
 Held: No. Alhambra would be prejudiced by the retroactive application of the
revocation as Alhambra would be assessed deficiency excise tax. Well-
trenched is the rule that rulings and circulars, rules and regulations
promulgated by the Commissioner of Internal Revenue would have no
retroactive application if to so apply them would be prejudicial to the
taxpayers.
o Without doubt, private respondent would be prejudiced by the
retroactive application of the revocation as it would be assessed
deficiency excise tax.
TAXATION 1 – Dean Gruba H. TAN, 2018
o We find no convincing evidence that Alhambra’s implementation of
the computation mandated by the new BIR Ruling was ill-motivated
or attended with a dishonest purpose. To the contrary, as a sign of
good faith, it immediately reverted to the computation mandated by
the BIR Ruling upon knowledge of its issuance.

CIR v. Benguet Corporation, GR No. 145559, 14 July 2006


 Benguet Corporation, a domestic corporation engaged in mining, was a
VAT-registered enterprise. It applied for a zero-rating of its sales of mining
products — gold included which was approved by the CIR.
 Benguet Corporation sold gold to the Central Bank during the period 1988 to
1989.
 Every quarter during the period that Benguet sold gold to Central Bank, the
CIR issued RMC declaring said sales transactions of the former to the latter
as subject to a VAT rate of 0%. Also, during the said period, Benguet
incurred input taxes on the sales of gold to Central Bank. Pursuant to the
RMCs, Benguet applied for Tax Credit Certificates (TCC) for the input taxes
incurred.
 Later, CIR issued a VAT Ruling, revoking the grant of zero-rating status to
the sales of gold to the Central Bank and applying a new and contrary
position that such sales were now subject to 10%.
 This was assailed by Benguet before the CTA. The CTA dismissed the
claim, saying that the prejudice of Benguet from the reversal of the previous
RMCs were merely speculative and not actual and imminent as to prevent
the retroactive application of the 1992 Ruling.
 Issue: Can the Ruling be given retroactive effect?
 Held: No.
o Well-entrenched is the rule that rulings and circulars, rules and
regulations, promulgated by the CIR would have no retroactive
application if to so apply them would be prejudicial to the taxpayers. 13
To apply VAT Ruling No. 008-92 retroactively was clearly
inconsistent with justice and the elementary requirements of fair
play.
o Its reliance on the previous RMCs, which provide that the gold sales
to the Central Bank were subject to 0% VAT, and the subsequent
withdrawal of the same by virtue of the 1992 Ruling, which subjected
the transactions to 10% VAT, caused prejudice to Benguet.
o If they do not fall within the exceptions of Section 246 of the Tax
Code and if the retroactive application prejudices the taxpayer, they
cannot be given a retroactive effect.

CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 April 2007
 VAT Ruling No. 231-88 dated 8 June 1988 was issued to respondent stating
that as a provider of medical services, it was exempt from the VAT coverage.
 The 1997 Tax Code became effective on 1 January 1998, which exempted
from VAT only medical, dental, hospital and veterinary services (as opposed
to services of arranging for the same).
 Hence, the 1997 Tax Code effectively imposed VAT on the services
provided by respondent. Later, respondent received an assessment for
deficiency VAT and documentary stamp tax for taxable years 1996 and
1997.
 The Supreme Court confirmed that respondent believed in good faith that it
was VAT exempt for the subject taxable years on the basis of VAT Ruling
No. 231-88. The CIR was precluded from adopting a position contrary to one
previously taken where injustice would result to the taxpayer.
Q: Are there exceptions to CIR v. Court of Appeals, GR No.117982, 6 February 1997
the rule on non-retroactivity  Alhambra Industries, Inc. was engaged in the manufacture and sale of cigar
of revenue issuances or and cigarette products. The present dispute arose from the discrepancy in
rulings? the taxable base on which the excise tax payable on Alhambra’s products
TAXATION 1 – Dean Gruba H. TAN, 2018
was to apply, on account of two incongruous BIR Rulings: (1) BIR Ruling No.
473-88 dated 4 October 1988 which excluded the VAT from the tax base in
computing the 15% excise tax due, and (2) BIR Ruling No. 017-91 dated 11
February 1991 which included back the VAT in computing the tax base for
purposes of the 15% ad valorem tax.
 The Supreme Court said that Alhambra would be prejudiced by the
retroactive application of the revocation, i.e., BIR Ruling No. 017-91, as
Alhambra would be assessed deficiency excise tax. “[R]ulings and circulars,
rules and regulations promulgated by the Commissioner of Internal Revenue
would have no retroactive application if to so apply them would be prejudicial
to the taxpayers.”
 Additionally, the CIR imputed bad faith on the part of Alhambra. It was the
CIR’s position that the rule on non-retroactivity of rulings would not apply
where the taxpayer acted in bad faith. On this point, the Supreme Court held
that it found no convincing evidence to show that Alhambra’s implementation
of the first ruling was attended with bad faith. To the contrary, the Supreme
Court said, as a sign of good faith, Alhambra immediately reverted to the
computation mandated by the new ruling upon knowledge of its issuance.
“Bad faith imports a dishonest purpose or some moral obliquity and
conscious doing of wrong. It partakes of the nature of fraud; a breach of a
known duty through some motive of interest or ill will.”

CIR v. Philippine Health Care Providers, Inc., GR No. 168129, 24 April 2007
 VAT Ruling No. 231-88 dated 8 June 1988 was issued to PhilHealth stating
that as a provider of medical services, it was exempt from the VAT coverage.
 The 1997 Tax Code took effect, exempting from VAT only medical, dental,
hospital and veterinary services (as opposed to services of arranging for the
same). Hence, the 1997 Tax Code effectively imposed VAT on the services
provided by respondent.
 PhilHealth received an assessment for deficiency VAT and documentary 14
stamp tax for taxable years 1996 and 1997.
 The CTA ruled that PHCPI was a service contractor liable for VAT and that
Ruling is void for being an erroneous application of the law. However, it
likewise ruled that the striking down of the Ruling had no retroactive effect.
 CIR imputed bad faith on the part of respondent. It was the CIR’s position
that the rule on non-retroactivity of rulings would not apply where the
taxpayer deliberately misstated or omitted material facts from his return or
any document required of him by the CIR.
 Issue:
1. W/N PHCPI’s services were subject to VAT. Yes, subject to VAT.
 The exemption from VAT under the TAX code extends only to
those engaged in the performance of medical, dental, hospital,
and veterinary services, and not to the likes of PHCPI which
merely act as a conduit between the members and their
accredited and recognized hospitals and clinics. In other words,
PHCPI is a service contractor subject to VAT since it does not
actually render medical services.
2. W/N the revocation of VAT Ruling 231-88 had a retroactive effect. No,
no retroactive effect.
o There was no showing of bad faith on the part of PHCPI when it
originally procured the ruling in 1987 and so it had a right to rely on
the opinion rendered by the BIR on its exemption from VAT, at least
until the same was revoked. Therefore, it is not liable for VAT for the
years 1996 and 1997 on the strength of the Ruling.
o PHCPI believed in good faith that it was VAT exempt for the subject
taxable years on the basis of VAT Ruling No. 231-88. The CIR was
precluded from adopting a position contrary to one previously taken
where injustice would result to the taxpayer.

TAXATION 1 – Dean Gruba H. TAN, 2018


o In securing VAT Ruling, the failure of respondent to refer to itself as
a health maintenance organization was not an indication of bad faith
or a deliberate attempt to make false representations.
o When VAT Ruling was issued in respondent’s favor, the term “health
maintenance organization” was yet unknown or had no significance
for taxation purposes.
 The term was first introduced upon the passage of The
National Health Insurance Act of 1995. Respondent,
therefore, believed in good faith that it was VAT exempt for
the taxable years 1996 and 1997 on the basis of VAT
Ruling.

Philippine Bank of Communications v. CIR, GR No. 112024, 28 January 1999


 PBCom filed income tax returns during the first and second quarter of 1985,
however the latter later suffered a net loss during the same taxable year
and for the taxable year of 1986. In 1987, PBCom requested with the BIR a
tax refund representing the overpayment of taxes in the year of 1985.
 Petitioner relied on RMC which stated that overpaid income taxes were not
covered by the two-year prescriptive period under the 1977 Tax Code and
that taxpayers could file a claim for tax refund or credit for the excess
quarterly income tax with the BIR within 10 years under Article 1144 of the
Civil Code.
 The CIR contended that petitioner’s right to file its claim had already
prescribed. On the other hand, petitioner argued that the CIR was barred
from asserting a position contrary to RMC if it would result to injustice to
taxpayers, citing the rule on non-retroactivity of rulings.
 Issue: Whether or not the subsequent rejection by the BIR of the application
of RMC can be applied retroactively despite the provisions on the non-
retroactivity of BIR rulings?
 Held: Yes. 15
o At the outset, the Supreme Court held that RMC No. 7-85
erroneously interpreted the 1977 Tax Code which provided that the
period for the recovery of erroneously or illegally collected tax is 2
years reckoned from the time of filing the Adjustment Return and
final payment of the tax for the year
o Revenue memorandum-circulars are considered administrative
rulings (in the sense of more specific and less general
interpretations of tax laws) which are issued from time to time by the
Commissioner of Internal Revenue. It is widely accepted that the
interpretation placed upon a statute by the executive officers, whose
duty is to enforce it, is entitled to great respect by the courts.
Nevertheless, such interpretation is not conclusive and will be
ignored if judicially found to be erroneous. Thus, courts will not
countenance administrative issuances that override, instead of
remaining consistent and in harmony with the law they seek to
apply and implement.
o Article 8 of the Civil Code recognizes judicial decisions applying or
interpreting statutes as part of the legal system of the country. But
administrative decisions do not enjoy that level of recognition.
 For there are no vested rights to speak of respecting a
wrong construction of the law by the administrative officials
and such wrong interpretation could not place the
Government in estoppel to correct or overrule the same.
 Moreover, the non-retroactivity of rulings by the
Commissioner of Internal Revenue is not applicable in this
case because the nullity of RMC was declared by
respondent courts and not by the CIR.

TAXATION 1 – Dean Gruba H. TAN, 2018


Q: May revenue issuances CIR v. Court of Appeals, GR No. 108358, 20 January 1995
change or modify the laws  On 22 August 1986, EO No. 41 was promulgated declaring a one-time tax
they implement? amnesty on unpaid income taxes, later amended to include estate, donor’s,
and business taxes, for the taxable years 1981 to 1985.
 ROH Auto Products Philippines filed its tax amnesty returns and paid the
corresponding amnesty taxes due. In view of this, ROH sought the
cancellation of the assessments that the CIR previously issued against it.
 The request was denied by the CIR on the ground that RMO implementing
EO No. 41 had construed the amnesty coverage to include only
assessments issued by the CIR after the promulgation of the law on 22
August 1986 and not to assessments theretofore made.
 Issue: Did the CIR’s position coincide with the meaning and intent of EO No.
41?
 Held: No. If, EO 41 had not been intended to include 1981-1985 tax
liabilities already assessed (administratively) prior to 22 August 1986, the
law could have simply so provided in its exclusionary clauses. It did not. The
conclusion is unavoidable, and it is that the EO has been designed to be in
the nature of a general grant of tax amnesty subject only to the cases
specifically excepted by it.”
o It must be remembered that: The authority of the Secretary of
Finance, in conjunction with the CIR, to promulgate all needful rules
and regulations for the effective enforcement of internal revenue
laws cannot be controverted.
o Neither can it be disputed that such rules and regulations, as well
as administrative opinions and rulings, ordinarily should deserve
weight and respect by the courts.
o Much more fundamental than either of the above, however, is that
all such issuances must not override, but must remain consistent
and in harmony with, the law they seek to apply and implement.
o Administrative rules and regulations are intended to carry out, 16
neither to supplant nor to modify, the law.

Philippine Bank of Communications v. CIR, GR No. 112024, 28 January 1999


 Petitioner relied on RMC No. 7-85 which stated that overpaid income taxes
were not covered by the two-year prescriptive period under the 1977 Tax
Code and that taxpayers could file a claim for tax refund or credit for the
excess quarterly income tax with the BIR within 10 years under Article 1144
of the Civil Code.
 CTA denied request of PBCom for a tax refund or credit on the ground that it
was filed beyond the 2 year reglementary period provided for by the law.
 PBCOM argued that Revenue Circular issued by the CIR states that claim
for overpaid taxes are not covered by the 2-year prescriptive period
mandated under the tax code.
 Issue: WON CTA (basing its decision to Sec 230 NIRC) is correct to deny
the request of PBCOM (basing its claim from RMC) for a tax refund/credit?
 Held: Yes, CTA was right.
o When RMC changed the prescriptive period of 2 years to 10 years
on claims for tax refund or credit of excess quarterly income taxes,
such circular created a clear inconsistency with Section 230 of the
1977 Tax Code which states that taxpayer may file a claim for refund
or credit with the CIR within 2 years after payment of tax before any
suit in CTA is commenced.
o In so doing, the BIR did not simply interpret the law; rather it
legislated guidelines contrary to the statute passed by Congress.
o Revenue Memorandum Circulars are considered administrative
rulings issued by the CIR. It is widely accepted that the
interpretations placed upon a statute by executive officers, whose
duty is to enforce it, is greatly respected by the courts. But such
interpretation is not conclusive and will be ignored if judicially found

TAXATION 1 – Dean Gruba H. TAN, 2018


erroneous. In this case, RMC was grossly erroneous and must be
set aside.
o Moreover, courts will not countenance administrative issuances that
override, instead of remaining consistent and in harmony with, the
law they seek to apply and implement, hence the claim of PBCOM
anchoring on the said RMC cannot be given weight.

Supreme Transliner
Q: What is the significance of Alexander Howden & Co., Ltd. v. CIR, GR No. L-19392, 14 April 1965
revenue issuances?  Commonwealth Insurance entered into reinsurance contracts with 32 British
insurance companies not engaged in business in the Philippines, whereby
Commonwealth agreed to cede a portion of the premiums on insurances on
fire, marine and other risks it had underwritten in the Philippines. Alexander
Howden represented the aforesaid British insurance companies.
 Pursuant to the contracts, Commonwealth Insurance remitted to Alexander
Howden reinsurance premiums. On behalf of Howden, Commonwealth
Insurance filed an income tax return for the calendar year 1951.
Commonwealth paid for the taxes of Howden.
 Later, Alexander Howden filed a claim for tax refund or credit, invoking a
1953 BIR Ruling which stated that it exempted from withholding tax
reinsurance premiums received from domestic insurance companies by
foreign insurance companies not authorized to do business in the
Philippines.
o Howden’s brief cited other rulings of the same official thereby
attempting to show that the prevailing administrative interpretation
was that reinsurance premiums ceded to nonresident foreign
insurance premiums were exempted from withholding tax.
 Issue: Are portions of premiums earned from insurances locally underwritten
by a domestic corporation, ceded to and received by non-resident foreign
reinsurance companies, pursuant to reinsurance contracts signed by the 17
reinsurers abroad but signed by the domestic corporation in the Philippines,
subject to income tax or not?
 Held: Yes, not exempt.
 Section 24 of the NIRC subjects to tax a foreign corporation's income from
sources within the Philippines. It subjects foreign corporations not doing
business in the Philippines to tax for income from sources within the
Philippines. If by source of income is meant the business of the taxpayer,
foreign corporations not engaged in business in the Philippines would be
exempt from taxation on their income from sources within the Philippines.
 SC ruled that the reinsurance premiums were considered derived from
sources within the Philippines and hence taxable.
o On the evidentiary weight of the BIR rulings cited by Alexander
Howden in support of its claim for tax refund or credit, the Supreme
Court had the following to say: “the administrative rulings of the CIR
relied upon by the taxpayers were only contained in letters to
taxpayers and never published, so that the Legislature is not
presumed to know said rulings.
o Thirdly, in the case on which Howden relies, Interprovincial Autobus
Co., Inc. vs. Collector of Internal Revenue, L-4671, January 31,
1956, what was declared to have acquired the force or effect of law
was a regulation promulgated to implement a law; whereas, in this
case, what Howden would seek to have the force of law are opinions
on queries submitted.”
o For issuances to have force and effect of law, it must be legislative
rules which require publications.

Arches v. Bellosillo, GR No. L-23534, 16 May 1967

TAXATION 1 – Dean Gruba H. TAN, 2018


 An assessment for deficiency income and residence taxes was issued
against petitioner for the taxable year 1953. Thereafter, the CIR filed suit in
the municipal court of Roxas City to recover said deficiency taxes.
 Petitioner sought the dismissal of the complaint filed by the Regional Director
on the ground that it did not expressly show the approval of the CIR as
required by Section 308 of the old Tax Code.
 The Supreme Court held that the express approval of the CIR was not
necessary, relying on Memorandum Order No. V-634, approved by the
Secretary of Finance, wherein the CIR’s functions regarding the
administration and enforcement of revenue laws and regulations – powers
broad enough to cover the approval of court actions as required in Section
308 of the old Tax Code – were expressly delegated to the Regional
Directors. The High Court stated that Memorandum Order No. V-634, as a
regulation whose issuance was authorized by statute, had the force and
effect of law.

CIR v. Solidbank Corporation, GR No. 148191, 25 November 2003


 For the calendar year 1995, Solidbank seasonably filed its Quarterly
Percentage Tax Returns reflecting gross receipts (pertaining to 5% Gross
Receipts Tax rate) with corresponding gross receipts tax payments.
 Solidbank alleges that the total gross receipts included the gross receipts
from passive income which was already subjected to 20% final withholding
tax.
 CTA rendered a decision that the 20% final withholding tax on a bank’s
interest income should not form part of its taxable gross receipts for
purposes of computing the gross receipts tax. On the strength of the
aforementioned decision, [respondent] filed with the BIR request for the
refund or issuance of tax credit certificate representing allegedly overpaid
gross receipts tax for the year 1995.
 Issue: WON the 20% final withholding tax on a bank’s interest income forms 18
part of the taxable gross receipts in computing the 5% gross receipts tax?
 Petitioner claims that although the 20% FWT on respondent’s interest
income was not actually received by respondent because it was remitted
directly to the government, the fact that the amount redounded to the bank’s
benefit makes it part of the taxable gross receipts in computing the 5% GRT.
Respondent, on the other hand, maintains that the CA correctly ruled
otherwise.
 Held: Yes, we agree with petitioner that the amount of interest income
withheld in payment of the 20% FWT forms part of gross receipts in
computing for the GRT on banks.
o The 5% GRT is included under "Title V. Other Percentage Taxes" of
the Tax Code and is not subject to withholding.
o The 20% FWT, on the other hand, falls under "Title II. Tax on
Income." It is a tax on passive income, deducted and withheld at
source by the payor-corporation and/or person as withholding
agent and paid in the same manner and subject to the same
conditions as provided for in Section 51.
o A perusal of these provisions clearly shows that two types of taxes
are involved in the present controversy: (1) the GRT, which is a
percentage tax; and (2) the FWT, which is an income tax. As a bank,
petitioner is covered by both taxes.
 A percentage tax is a national 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.22 It is not subject to withholding.
 An income tax, on the other hand, is a national tax imposed on the net or the
gross income realized in a taxable year.23 It is subject to withholding.
 RR 12-80 Superseded by RR 17-84

TAXATION 1 – Dean Gruba H. TAN, 2018


o We now come to the effect of the revenue regulations on interest
income constructively received.
o In general, rules and regulations issued by administrative or
executive officers pursuant to the procedure or authority conferred
by law upon the administrative agency have the force and effect, or
partake of the nature, of a statute. The reason is that statutes
express the policies, purposes, objectives, remedies and sanctions
intended by the legislature in general terms. The details and manner
of carrying them out are oftentimes left to the administrative agency
entrusted with their enforcement.
o In the present case, it is the finance secretary who promulgates the
revenue regulations, upon recommendation of the BIR
commissioner. These regulations are the consequences of a
delegated power to issue legal provisions that have the effect of
law.37
o A revenue regulation is binding on the courts as long as the
procedure fixed for its promulgation is followed. Even if the courts
may not be in agreement with its stated policy or innate wisdom, it is
nonetheless valid, provided that its scope is within the statutory
authority or standard granted by the legislature.
 Specifically, the regulation must
 (1) be germane to the object and purpose of the law;
 (2) not contradict, but conform to, the standards the law
prescribes; and
 (3) be issued for the sole purpose of carrying into effect the
general provisions of our tax laws.
o In the present case, there is no question about the regularity in the
performance of official duty. What needs to be determined is
whether RR 12-80 has been repealed by RR 17-84.
 There are two well-settled categories of implied repeals: (1) in case the 19
provisions are in irreconcilable conflict, the later regulation, to the extent of
the conflict, constitutes an implied repeal of an earlier one; and (2) if the later
regulation covers the whole subject of an earlier one and is clearly intended
as a substitute, it will similarly operate as a repeal of the earlier one. 45 There
is no implied repeal of an earlier RR by the mere fact that its subject matter
is related to a later RR, which may simply be a cumulation or continuation of
the earlier one.46
 Where a part of an earlier regulation embracing the same subject as a later
one may not be enforced without nullifying the pertinent provision of the
latter, the earlier regulation is deemed impliedly amended or modified to the
extent of the repugnancy.47 The unaffected provisions or portions of the
earlier regulation remain in force, while its omitted portions are deemed
repealed.48 An exception therein that is amended by its subsequent
elimination shall now cease to be so and instead be included within the
scope of the general rule.
 Section 4(e) of the earlier RR 12-80 provides that only items of income
actually received shall be included in the tax base for computing the GRT,
but Section 7(c) of the later RR 17-84 makes no such distinction and
provides that all interests earned shall be included. The exception having
been eliminated, the clear intent is that the later RR 17-84 includes the
exception within the scope of the general rule.
 Clearly therefore, this particular provision was impliedly repealed when the
later regulations took effect.

 Section 2 talks about the functions and duties of the BIR. most important part
here is the assessment and the collection.
 Main power of CIR is the interpretation of tax laws and decide cases.
 Most important are the rulings, these are specific applications to a specific
sets of tax.

TAXATION 1 – Dean Gruba H. TAN, 2018


 When you talk of "deciding cases" there's already an audit, a deficiency
assessment by a lower officer to ask for deficiency tax.
 The Code gives the CIR powers to make an audit.
 How can the CIR know WON you have correctly made ITR? See Section 5
(power to summon, examine books related to inquiry, obtain info about
taxpayer, Subpoena Duces Tecum, Take testimony, ask revenue officer to
canvass) so the BIR can continue with assessment and collection.
o Most important is Section ©.
o RMO 10-2013 - procedure in issuing SDT (subpoena duces tecum)
o What is the implication if taxpayer ignored subpoena duces tecum?
can be cited for contempt and file criminal prosecution for violating
court order, get warrant of arrest.
o BUT power is NOT unlimited, must be against person liable to tax,
procedure must be followed
o General limitation: due process, confidentiality of the contents of ITR

Sec. 5, Power of the Commissioner to Obtain Information, and to Summon, Examine, and Take Testimony of
Persons. - In ascertaining the correctness of any return, or in making a return when none has been made, or in
determining the liability of any person for any internal revenue tax, or in collecting any such liability, or in
evaluating tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other data which may be relevant or material to such inquiry;
(B) To obtain on a regular basis from any person other than the person whose internal revenue tax liability
is subject to audit or investigation, or from any office or officer of the national and local governments,
government agencies and instrumentalities, including the BSP and GOCCs, any information such as,
but not limited to, costs and volume of production, receipts or sales and gross incomes of taxpayers,
and the names, addresses, and financial statements of corporations, mutual fund companies,
insurance companies, regional operating headquarters of multinational companies, joint accounts,
associations, joint ventures of consortia and registered partnerships, and their members;
(C) To summon the person liable for tax or required to file a return, or any officer or employee of such 20
person, or any person having possession, custody, or care of the books of accounts and other
accounting records containing entries relating to the business of the person liable for tax, or any other
person, to appear before the Commissioner or his duly authorized representative at a time and place
specified in the summons and to produce such books, papers, records, or other data, and to give
testimony;
(D) To take such testimony of the person concerned, under oath, as may be relevant or material to such
inquiry; and
(E) To cause revenue officers and employees to make a canvass from time to time of any revenue district
or region and inquire after and concerning all persons therein who may be liable to pay any internal
revenue tax, and all persons owning or having the care, management or possession of any object with
respect to which a tax is imposed.
The provisions of the foregoing paragraphs notwithstanding, nothing in this Section shall be construed
as granting the Commissioner the authority to inquire into bank deposits other than as provided for in
Section 6(F) of this Code.
Read also Section 71 in relation to Section 270 of the 1997 Tax Code which provide:

Sec. 71, Disposition of Income Tax Returns, Publication of Lists of Taxpayers and Filers. –
After the assessment shall have been made, as provided in this Title, the returns, together with any corrections
thereof which may have been made by the Commissioner, shall be filed in the Office of the Commissioner and
shall constitute public records and be open to inspection as such upon the order of the President of the
Philippines, under rules and regulations to be prescribed by the Secretary of Finance, upon recommendation
of the Commissioner.
The Commissioner may, in each year, cause to be prepared and published in any newspaper the lists
containing the names and addresses of persons who have filed income tax returns.

Sec. 270, Unlawful Divulgence of Trade Secrets. –


Except as provided in Section 71 of this Code and the Omnibus Election Code of the Philippines, any officer or
employee of the Bureau of Internal Revenue who divulges to any person or makes known in any other manner
than may be provided by law information regarding the business, income, or estate of any taxpayer, the

TAXATION 1 – Dean Gruba H. TAN, 2018


secrets, operation, style or work, or apparatus of any manufacturer or producer, or confidential information
regarding the business of any taxpayer, knowledge of which was acquired by him in the discharge of his
official duties, shall, upon conviction for each act or omission, be punished by a fine of not less than Fifty
thousand pesos (P50,000) but not more than One hundred thousand pesos (P100,000), or suffer imprisonment
of not less than two (2) years but not more than five (5) years, or both.

 TRY TO READ the FOREIGN ACCOUNT TAX COMPLIANCE ACT (US FEDERAL LAW, requires any
American with account in any financial institution with the PH send to IRS about the account)
Sec. 6, Power of the Commissioner to Make Assessments and Read also Section 56 of the 1997 Tax
Prescribe Additional Requirements for Tax Administration and Code:
Enforcement. - Sec. 56, Payment and Assessment of
(A) Examination of Returns and Determination of Tax Due. - After a Income Tax for Individuals and
return has been filed as required under the provisions of this Code, Corporation. -
the Commissioner or his duly authorized representative may (A) Payment of Tax. -
authorize the examination of any taxpayer and the assessment of (1) In General. - The total amount
the correct amount of tax: Provided, however; That failure to file a of tax imposed by this Title shall
return shall not prevent the Commissioner from authorizing the be paid by the person subject
examination of any taxpayer. thereto at the time the return is
The tax or any deficiency tax so assessed shall be paid upon notice filed. In the case of tramp
and demand from the Commissioner or from his duly authorized vessels, the shipping agents
representative. and/or the husbanding agents,
Any return, statement of declaration filed in any office authorized to and in their absence, the
receive the same shall not be withdrawn: Provided, That within captains thereof are required to
three (3) years from the date of such filing, the same may be file the return herein provided
modified, changed, or amended: Provided, further, That no notice and pay the tax due thereon
for audit or investigation of such return, statement or declaration before their departure. Upon
has in the meantime been actually served upon the taxpayer. failure of the said agents or
(B) Failure to Submit Required Returns, Statements, Reports and captains to file the return and
other Documents. - When a report required by law as a basis for pay the tax, the Bureau of
the assessment of any national internal revenue tax shall not be Customs is hereby authorized to 21
forthcoming within the time fixed by laws or rules and regulations or hold the vessel and prevent its
when there is reason to believe that any such report is false, departure until proof of payment
incomplete or erroneous, the Commissioner shall assess the proper of the tax is presented or a
tax on the best evidence obtainable. sufficient bond is filed to answer
In case a person fails to file a required return or other document at for the tax due.
the time prescribed by law, or willfully or otherwise files a false or (2) Installment of Payment. -
fraudulent return or other document, the Commissioner shall make When the tax due is in excess of
or amend the return from his own knowledge and from such P2,000, the taxpayer other than
information as he can obtain through testimony or otherwise, which a corporation may elect to pay
shall be prima facie correct and sufficient for all legal purposes. the tax in 2 equal installments in
(C) Authority to Conduct Inventory-Taking, Surveillance and to which case, the first installment
Prescribe Presumptive Gross Sales and Receipts. - The shall be paid at the time the
Commissioner may, at any time during the taxable year, order return is filed and the second
inventory-taking of goods of any taxpayer as a basis for determining installment, on or before July 15
his internal revenue tax liabilities, or may place the business following the close of the
operations of any person, natural or juridical, under observation or calendar year. If any installment
surveillance if there is reason to believe that such person is not is not paid on or before the date
declaring his correct income, sales or receipts for internal revenue fixed for its payment, the whole
tax purposes. The findings may be used as the basis for assessing amount of the tax unpaid
the taxes for the other months or quarters of the same or different becomes due and payable,
taxable years and such assessment shall be deemed prima facie together with the delinquency
correct. penalties. 

When it is found that a person has failed to issue receipts and (3) Payment of Capital Gains Tax.
invoices in violation of the requirements of Sections 113 and 237 of - The total amount of tax
this Code, or when there is reason to believe that the books of imposed and prescribed under
accounts or other records do not correctly reflect the declarations Section 24 (c), 24(D), 27(E)(2),
made or to be made in a return required to be filed under the 28(A)(8)(c) and 28(B)(5)(c) shall
provisions of this Code, the Commissioner, after taking into account be paid on the date the return
the sales, receipts, income or other taxable base of other persons prescribed therefor is filed by the
engaged in similar businesses under similar situations or
TAXATION 1 – Dean Gruba H. TAN, 2018
circumstances or after considering other relevant information may person liable thereto: Provided,
prescribe a minimum amount of such gross receipts, sales and That if the seller submits proof of
taxable base, and such amount so prescribed shall be prima facie his intention to avail himself of
correct for purposes of determining the internal revenue tax the benefit of exemption of
liabilities of such person. capital gains under existing
(D) Authority to Terminate Taxable Period. _ When it shall come to special laws, no such payments
the knowledge of the Commissioner that a taxpayer is retiring from shall be required : Provided,
business subject to tax, or is intending to leave the Philippines or to further, That in case of failure to
remove his property therefrom or to hide or conceal his property, or qualify for exemption under such
is performing any act tending to obstruct the proceedings for the special laws and implementing
collection of the tax for the past or current quarter or year or to rules and regulations, the tax
render the same totally or partly ineffective unless such due on the gains realized from
proceedings are begun immediately, the Commissioner shall the original transaction shall
declare the tax period of such taxpayer terminated at any time and immediately become due and
shall send the taxpayer a notice of such decision, together with a payable, subject to the penalties
request for the immediate payment of the tax for the period so prescribed under applicable
declared terminated and the tax for the preceding year or quarter, provisions of this Code:
or such portion thereof as may be unpaid, and said taxes shall be Provided, finally, That if the
due and payable immediately and shall be subject to all the seller, having paid the tax,
penalties hereafter prescribed, unless paid within the time fixed in submits such proof of intent
the demand made by the Commissioner. within 6 months from the
(E) Authority of the Commissioner to Prescribe Real Property registration of the document
Values. - The Commissioner is hereby authorized to divide the transferring the real property, he
Philippines into different zones or areas and shall, upon shall be entitled to a refund of
consultation with competent appraisers both from the private and such tax upon verification of his
public sectors, determine the fair market value of real properties compliance with the
located in each zone or area. For purposes of computing any requirements for such
internal revenue tax, the value of the property shall be, whichever is exemption.
the higher of; 
 In case the taxpayer elects and
(1) the fair market value as determined by the Commissioner, or is qualified to report the gain by 22
(2) the fair market value as shown in the schedule of values of the installments under Section 49 of
Provincial and City Assessors. this Code, the tax due from each
installment payment shall be
 assessors have a list of zonal values per area paid within (30) days from the
receipt of such payments.
(F) Authority of the Commissioner to inquire into Bank Deposit No registration of any document
Accounts and Other Related Information Held by Financial transferring real property shall
Institutions. - Notwithstanding any contrary provision of Republic be effected by the Register of
Act No. 1405, Republic Act No. 6426, otherwise known as the Deeds unless the Commissioner
Foreign Currency Deposit Act of the Philippines, and other general or his duly authorized
or special laws, the Commissioner is hereby authorized to inquire representative has certified that
into the bank deposits and other related information held by such transfer has been reported,
financial institutions of: and the tax herein imposed, if
(1) A decedent to determine his gross estate. any, has been paid. 

(2) Any taxpayer who has filed an application for compromise of (B) Assessment and Payment of
his tax liability under Sec. 204(A)(2) of this Code by reason of Deficiency Tax. - After the return is
financial incapacity to pay his tax liability. filed, the Commissioner shall
In case a taxpayer files an application to compromise the examine it and assess the correct
payment of his tax liabilities on his claim that his financial amount of the tax. The tax or
position demonstrates a clear inability to pay the tax assessed, deficiency income tax so discovered
his application shall not be considered unless and until he shall be paid upon notice and
waives in writing his privilege under Republic Act No. 1405, demand from the Commissioner.
Republic Act No. 6426, otherwise known as the Foreign As used in this Chapter, in respect of
Currency Deposit Act of the Philippines, or under other general a tax imposed by this Title, the term
or special laws, and such waiver shall constitute the authority of 'deficiency' means:
the Commissioner to inquire into the bank deposits of the (1) The amount by which the tax
taxpayer. imposed by this Title exceeds
A specific taxpayer(s) subject of a request for the supply of tax the amount shown as the tax by
information from a foreign tax authority pursuant to an the taxpayer upon his return; but
international convention or agreement on tax matters to which the amount so shown on the
TAXATION 1 – Dean Gruba H. TAN, 2018
the Philippines is a signatory or a party of: Provided, That the return shall be increased by the
information obtained from the banks and other financial amounts previously assessed
institutions may be used by the BIR for tax assessment, (or collected without
verification, audit and enforcement purposes. assessment) as a deficiency,
In case of a request from a foreign tax authority for tax and decreased by the amount
information held by banks and financial institutions, the previously abated, credited,
exchange of information shall be done in a secure manner to returned or otherwise repaid in
ensure confidentiality thereof under such rules and regulations respect of such tax; or
as may be promulgated by the Secretary of Finance, upon (2) If no amount is shown as the tax
recommendation of the Commissioner. by the taxpayer upon this return,
a. The Commissioner shall provide the tax information or if no return is made by the
obtained from banks and financial institutions pursuant to a taxpayer, then the amount by
convention or agreement upon request of the foreign which the tax exceeds the
authority when such requesting foreign tax authority has amounts previously assessed
provided the following information to demonstrate the (or collected without
foreseeable relevance of the information to the request: assessment) as a deficiency; but
b. The identity of the person under examination or such amounts previously
investigation; assessed or collected without
c. A statement of the information being sought including its assessment shall first be
nature and the form in which the said foreign tax authority decreased by the amounts
prefers to receive the information from the Commissioner; previously abated, credited
d. The tax purpose for which the information is being sought; returned or otherwise repaid in
e. Grounds for believing that the information requested is held respect of such tax.
in the Philippines or is in the possession or control of a
person within the jurisdiction of the Philippines;
f. To the extent known, the name and address of any person
believed to be in possession of the requested information;
g. A statement that the request is in conformity with the law
and administrative practices of the said foreign tax
authority, such that if the requested information was within 23
the jurisdiction of the said foreign tax authority then it would
be able to obtain the information under its laws or in the
normal course of administrative practice and that it is in the
conformity with a convention or international agreement;
and
h. A statement that the requesting foreign tax authority has
exhausted all means available in its own territory to obtain
the information, except those that would give rise to
disproportionate difficulties.
The Commissioner shall forward the information as
promptly as possible to the requesting foreign tax authority.
To ensure a prompt response, the Commissioner shall
confirm receipt of a request in writing to the requesting tax
authority and shall notify the latter of deficiencies in the
request, if any, within sixty (60) days from receipt of the
request. If the Commissioner is unable to obtain and
provide the information within ninety (90) days from receipt
of the request, due to obstacles encountered in furnishing
the information or when the bank or financial institution
refuses or furnish the information, he shall immediately
inform the requesting tax authority of the same, explaining
the nature of the obstacles encountered or the reasons for
refusal.
The term ‘foreign tax authority,’ as used herein, shall refer
to the tax authority or tax administration of the requesting
State under the tax treaty or convention to which the
Philippines is a signatory or a party of. (As amended by RA
No. 10021.)
(G) Authority to Accredit and Register Tax Agents. - The
Commissioner shall accredit and register, based on their
TAXATION 1 – Dean Gruba H. TAN, 2018
professional competence, integrity and moral fitness, individuals
and general professional partnerships and their representatives
who prepare and file tax returns, statements, reports, protests, and
other papers with or who appear before, the Bureau for taxpayers.
Within 120 days from January 1, 1998, the Commissioner shall
create national and regional accreditation boards, the members of
which shall serve for 3 years, and shall designate from among the
senior officials of the Bureau, 1 chairman and 2 members for each
board, subject to such rules and regulations as the Secretary of
Finance shall promulgate upon the recommendation of the
Commissioner.
Individuals and general professional partnerships and their
representatives who are denied accreditation by the Commissioner
and/or the national and regional accreditation boards may appeal
such denial to the Secretary of Finance, who shall rule on the
appeal within sixty (60) days from receipt of such appeal. Failure of
the Secretary of Finance to rule on the Appeal within the prescribed
period shall be deemed as approval of the application for
accreditation of the appellant.
(H) Authority of the Commissioner to Prescribe Additional
Procedural or Documentary Requirements. - The Commissioner
may prescribe the manner of compliance with any documentary or
procedural requirement in connection with the submission or
preparation of financial statements accompanying the tax returns.
Q: What is the rule on the Sy Po v. Court of Tax Appeals, GR No. L-81446, 18 August 1988
“best evidence obtainable.”  Petitioner was the widow of the late Po Bien Sing who in his lifetime was the
sole proprietor of Silver Cup Wine Factory. Upon receipt of confidential
information that Silver Cup was allegedly involved in tax evasion, an
 Can get info from investigation, directed by Sec. of Finance Virata, was conducted by the
other people Finance-BIR-NBI team. 24
 Accordingly, a letter and a subpoena duces tecum were issued against
Silver Cup requesting production of the accounting records and other related
documents for the examination of the team.
 Po did not heed the team’s request for production of books of accounts. The
team, consequently, entered the factory bodega of Silver Cup and seized
different brands of alcohol products. On the basis of the team’s report of
investigation, the CIR assessed Po of deficiency income tax for 1966 to 1970
and specific tax for 1964 and 1972.
 Issue: Did the assessments have valid and legal bases?
 Held: Yes.
 The applicable legal provision is Section 16(b) of the National Internal
Revenue Code of 1977 as amended. It reads:
o Sec. 16. Power of the Commissioner of Internal Revenue to make
assessments.—
o (b) Failure to submit required returns, statements, reports and other
documents. - When a report required by law as a basis for the
assessment of an national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation or when there
is reason to believe that any such report is false, incomplete, or
erroneous, the Commissioner of Internal Revenue shall assess the
proper tax on the best evidence obtainable.
 In case a person fails to file a required return or other document at the time
prescribed by law, or willfully or otherwise, files a false or fraudulent return or
other documents, the Commissioner shall make or amend the return from his
own knowledge and from such information as he can obtain through
testimony or otherwise, which shall be prima facie correct and sufficient for
all legal purposes.
 The rule on the “best evidence obtainable” applies “when a tax report
required by law for the purpose of assessment is not available or when the

TAXATION 1 – Dean Gruba H. TAN, 2018


tax report is incomplete or fraudulent.” The persistent failure of Po to
present the books of account for examination for the taxable years involved
left the CIR no other legal option except to resort to the power conferred
upon him under Section 16 (now Section 6 of the 1997 Tax Code).
 Additionally: “Tax assessments by tax examiners are presumed correct and
made in good faith. The taxpayer has the duty to prove otherwise. In the
absence of proof of any irregularities in the performance of duties, an
assessment duly made by a BIR examiner and approved by his superior
officers will not be disturbed. All presumptions are in favor of the correctness
of tax assessments.”

** Section 203 of the 1997 Tax Code provides that the government has the right to
assess internal revenue taxes within 3 years from the last day prescribed by law for
the filing of the tax return or the actual date of filing of such return, whichever comes
later.

CIR v. Kudos Metal Corporation, GR No. 178087, 5 May 2010


 Kudos Metal filed its annual income tax return on 15 April 1999 for the
taxable year 1998. Thereafter, respondent executed two notarized waivers
of defense of prescription for 2002 and 2003. In 2003, respondent received
3 assessment notices for the subject period, received by its President for
deficiency income tax of 25M.
 Issue: Had the government’s right to assess respondent prescribed?
 Held: Yes. The two waivers executed by respondent suffered from legal
infirmities for failure to comply with the requisites enumerated in RMO No.
20-90 and RDAO No. 05-01.
 Requisites:
1. Must indicate the expiry date of the period agreed upon to
assess/collect tax after the regular 3-year period of prescription;
2. Signed by the taxpayer or duly authorized representative; 25
3. In writing and duly notarized;
4. Date of acceptance by BIR should be indicated;
5. Date or execution and acceptance should be before expiration of
period of prescription,
6. In 3 copies.
 Due to the defects in the waivers, the period to assess or collect taxes was
not extended.
o 1. The waivers were executed without the notarized written authority
of Pasco (Kudos Metals’ accountant) to sign the waiver in behalf of
respondent;
o 2.The waivers failed to indicate the date of acceptance;
o 3. The fact of receipt by the respondent of its file copy was not
indicated in the original copies of the waivers.
o Furthermore: “As to the alleged delay of the respondent to furnish
the BIR of the required documents, this cannot be taken against
respondent. Neither can the BIR use this as an excuse for issuing
the assessments beyond the three-year period because with or
without the required documents, the CIR has the power to make
assessments based on the best evidence obtainable.”
Sec. 21, Sources of Revenue. - The following taxes, fees and charges are
deemed to be national internal revenue taxes: VIDEO-PE
(a) Income tax;
(b) Estate and donor's taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(f) Documentary stamp taxes; and
(g) Such other taxes as are or hereafter may be imposed and
collected by the Bureau of Internal Revenue.

TAXATION 1 – Dean Gruba H. TAN, 2018


1. Income tax – tax imposed on the net or gross income realized in a taxable
year. (CIR v Solidbank 416 SCRA 436, 2003)
2. Estate tax – tax that is levied, assessed, collected and paid upon the transfer
of the estate of a decedent to his heirs.
3. Donors Tax – tax imposed on the gratuitous transfer of property between two
or more persons who are living at the time of the transfer.
4. Percentage tax – 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 (CIR v Solidbank 416 SCRA 436, 2003)
5. Value added Tax – is a uniform 12% tax levied on every rendition of services
in the course of business or trade, on every sale or barter, exchange or
lease of goods or properties in course of business as they pass along the
production and distribution chain, on every importation of goods, whether or
not in the course of business or not; its an indirect tax that may be shifted or
passed on to the buyer, transferee, or lessee of the goods, properties or
services. (CIR v Seagate Technology , 415 SCRA 132, 2005)
6. Excise tax – tax applicable to certain specified or selected goods or articles
manufactured or produced in the Philippines for domestic sale or
consumption or for any other disposition and to things imported into the
Philippines
7. Documentary stamp tax – tax levied on the exercise by persons of certain
privileges conferred by law for the creation, revision, or termination of
specific legal relationships through execution of specific instruments (Phil
Home Assurance Corp. v. CA GR. No. 119446, 1999)
Q: The law mandates Vera v. Cusi, Chu Tiong, GR No. L-33115, 29 June 1979
confidentially of all returns  The decision in said case was adverse to the defendant. The execution of
filed and whatever the judgment having been returned unsatisfied, Chu Tiong was examined
information contained concerning his income and properties.
therein.  In the course thereof, Chu Tiong manifested before Judge Cusi his 26
willingness to produce copies of his income tax returns for the years 1964
Is there any exception to the until 1968. He subsequently wrote a letter request to the local BIR authorities
rule? for production of copies of the returns.
o The local BIR authorities refused to heed the request, saying that
Tiong must personally request such copies after payment of
requisite fees. When Tiong was brought to the BIR, he declared that
he was compelled to sign such letter of request.
 Tiong’s creditor applied and was granted a subpoena duces tecum directing
BIR to produce copies of such tax returns.
 Motion of the BIR to quash such subpoena was denied.
o CIR and Director of BIR assailed the subpoena invoking the old
NIRC with respect to inspection of tax returns which basically
prohibits unlawful divulgence of any information acquired by the BIR
by virtue of its office except situations under Section 81 (Returns,
upon filing and assessment, shall constitute public records and be
open to inspection upon the order of the President and rules
prescribed by the Secretary of Finance) and Section 4 (People who
are allowed to inspect the returns).
 Issue: WON the ITRs of Chu Tiong should be produced by the BIR?
 Held: Yes.
o As a rule, the Bureau of Internal Revenue cannot divulge the income
of a taxpayer because of its confidential nature. However, the BIR
itself has regulations issued pursuant to the Tax Code indicating the
instances when the income of a taxpayer may be made public. One
such instance is provided in Sec. 4(b) of the Regulations, whereby
the return of an individual shall be open to inspection ‘by the person
who made the return or by his duly constituted attorney in fact.”
o In this case, Tiong expressed his willingness to produce his
returns and even wrote a letter of request to the BIR. It is not

TAXATION 1 – Dean Gruba H. TAN, 2018


true that Tiong was compelled to sign such letter because under the
facts narrated by the respondent judge, Tiong voluntarily issued an
authority for the court commissioner or plaintiff to secure copies of
his returns and even voluntarily went to the BIR, with his counsels,
to secure such copies. Ultimately, the respondent judge found out
that Tiong told a lie to the BIR when he said that he was forced to
sign the letter of request.

CIR v. Fortune Tobacco, 559 SCRA 160


Q: Explain the nature of the Medina v. CIR, GR No. L-15113, 28 January 1961
CIR’s power to make  Antonio Medina acquired forest concessions in certain municipalities in
assessments. Isabela. The logs cut and removed by the Antonio from his concessions
were sold to different persons in Manila through his agent, Mariano Osorio.
 Afterwards, Antonia started to engage in business as a lumber dealer.
Antonio sold to her almost all the logs produced in his San Mariano
concession. Antonia, in turn, sold in Manila the logs bought from her
husband through the same agent, Mariano Osorio. The proceeds were either
received by Osorio for Antonio or deposited by said agent in Antonio’s
current account with the PNB.
 On the thesis that the sales made by Mr. Medina to his wife were null and
void pursuant to Article 1490 of the Civil Code, the CIR considered the sales
made by Mrs. Medina to third persons as Mr. Medina’s original sales taxable
and hence, assessed Mr. Medina of deficiency sales tax and surcharges.
 Antonio protested the assessment; however, the Collector insisted on his
demand.
 Antonio filed a petition for reconsideration, revealing for the first time the
existence of an alleged premarital agreement of complete separation of
properties between him and his wife, and contending that the assessment
had already prescribed. Mr. Medina contended that the CIR could not assail
the questioned sales, the latter being a stranger to said transactions. 27
 Issue: Whether or not the sales made by the petitioner to his wife could be
considered as his original taxable sales?
 Held: Yes.
o Mr. Medina did not sufficiently prove the existence of such premarital
agreement. It appears that at the time of the marriage between
petitioner and his wife, they neither had any property nor business of
their own, as to have really urged them to enter into the supposed
property agreement.
o Moreover, despite their insistence on the existence of the ante
nuptial contract, the couple did not act in accordance with its alleged
covenants. It was not until this case that he alleged, for the first time,
the existence of the supposed property separation agreement.
o Finally, the Day Book of the Register of Deeds on which the
agreement would have been entered, had it really been registered
as petitioner insists did not show that the document in question was
among those recorded therein.
 Contracts violative of the provisions of Article 1490 of the
Civil Code are null and void, hence the sales made by Mr.
Medina to his wife were void.
 Being void, such sales were correctly disregarded by the
CIR.
o The government, through the CIR, is always an interested party to
all matters involving taxable transactions and qualified to question
their validity or legitimacy whenever necessary to block tax evasion.
Q: What is the nature of the Capitol Steel Corporation v. Phividec Industrial Authority, GR No. 169453, 6
CIR’s authority to prescribe December 2006
real property values?  Facts: Capitol Steel is a domestic corporation which owns 65 parcels of land
in Misamis Orienta. Phividec is a GOCC vested with the power of eminent

TAXATION 1 – Dean Gruba H. TAN, 2018


domain for the purpose of acquiring rights of way or any property for the
establishment of the Phividec Industrial Areas.
 Phividec initiated expropriation proceedings for the properties of Capitol
Steel because it was identified as the most ideal site for the project of
PHIVIDEC.
o The trial court denied PHIVIDEC‘s issuance of a writ of possession,
noting that the amount deposited was seemingly inadequate and
was simply out of PHIVIDEC‘s interpretation of the prevailing zonal
valuation and was not mutually agreed upon but it was finally
granted by the trial court.
o Phividec deposited an amount based on the schedule of zonal
valuation for real properties under Department Order No. 40-97
(i.e., Php 300 and Php 500 per square meter).
o Capitol Steel opposed the application of DO No. 40-97, claiming
instead that under the Technical Committee on Real Property
Valuation Resolution, the subject properties were revalued at Php
700 per square meter.
 Issue: What was the correct amount to be deposited representing the zonal
value of the properties?
 Held: The Supreme Court upheld Phividec’s position on this point.
o Clearly, while the law grants to the CIR the power to determine
zonal values, including the authority to delegate to the Assistant
Commissioner of the Assessment Service the authority to approve
and sign resolutions involving requests for revaluation of
established zonal values of real properties, the same is for the
purpose of computing internal revenue taxes and not necessarily for
purposes of expropriation proceedings.
Q: What act of the CIR Secretary of Finance v. La Suerte Cigar and Cigarette Factory, GR No. 166498,
constitutes usurpation of the 11 June 2009.
legislative prerogative?  RA No. 8240 took effect on 1 January 1997. Under said law, specific tax on 28
cigars and cigarettes was covered by Section 142. Subsequently, RA No.
8424 was passed recodifying the code to what is now known as the 1997
Tax Code.
 Prior to the effectivity of RA No. 8240, a survey of the net retail prices per
pack of cigarettes as of 1 October 1996 was conducted. The results thereof
were embodied as Annex “D” of the Tax Code and classified existing brands
as those registered and existing prior to 1 January 1997 which classification
could not be revised except by an act of Congress.
 To implement RA No. 8240, RR No. 1-97 was issued which provided that
new brands, or those registered after 1 January 1997, should be initially
assessed at their suggested retail prices. 3 months after the new brand was
launched in the market, a survey would be conducted to determine its actual
net retail price which would be the basis in determining its specific tax
classification.
 In 1999, La Suerte introduced into the market Astro and Memphis cigarettes.
 In 2003, RR No. 9-2003 was issued which provided for a periodic review
every 2 years or earlier of the current net retail prices of new brands and
their variants to establish and update their tax classification. Subsequently,
the revenue regulation was issued to implement the revised tax classification
of certain new brands introduced in the market after 1 January 1997.
 As a consequence, the average net retail prices of Astro and Memphis
cigarettes increased, thus also increasing the applicable excise tax from Php
1.12 per pack to Php 5.60 per pack.
 La Suerte filed suit contending in the main that the CIR did not have the
power to reclassify cigarettes introduced in the market after 1 January 1997.
Hence, the classification thereof by the CIR constituted usurpation of
legislative powers.

TAXATION 1 – Dean Gruba H. TAN, 2018


 Issue: whether the BIR has the power to periodically review or re-determine
the current net retail prices of new brands for the purpose of updating their
tax classification pursuant to Rev. Regs.?
 Held: No, the BIR cannot.
o RR Nos. 9-2003 and 22-2003 were void insofar as they empowered
the CIR to periodically review or re-determine the current net retail
prices of cigarettes for purposes of updating their tax classification 2
years or earlier.
o Said revenue issuances ran counter to the wording of now Section
145 of the 1997 Tax Code.
o Moreover, unless expressly granted to the CIR, the power to
reclassify cigarette brands remains a prerogative of the legislature
which cannot be usurped by the former. Consequently, the upward
classification of Astro and Memphis cigarettes was invalid.
Sec. 7, Authority of the Commissioner to Delegate Power. - The Commissioner may delegate the powers vested
in him under the pertinent provisions of this Code to any or such subordinate officials with the rank equivalent
to a division chief or higher, subject to such limitations and restrictions as may be imposed under rules and
regulations to be promulgated by the Secretary of finance, upon recommendation of the Commissioner:
Provided, However, That the following powers of the Commissioner shall not be delegated: RICA
(a) The power to recommend the promulgation of rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or to reverse, revoke or modify any existing ruling of
the Bureau;
(c) The power to compromise or abate, under Sec. 204 (A) and (B) of this Code, any tax liability:
Provided, however, That assessments issued by the regional offices involving basic deficiency
taxes of Five hundred thousand pesos (P500,000) or less, and minor criminal violations, as may be
determined by rules and regulations to be promulgated by the Secretary of finance, upon
recommendation of the Commissioner, discovered by regional and district officials, may be
compromised by a regional evaluation board which shall be composed of the Regional Director as
Chairman, the Assistant Regional Director, the heads of the Legal, Assessment and Collection
Divisions and the Revenue District Officer having jurisdiction over the taxpayer, as members; and 29
(d) The power to assign or reassign internal revenue officers to establishments where articles subject
to excise tax are produced or kept.
Q: May the CIR’s power to Arches v. Bellosillo, GR No. L-23534, 16 May 1967
approve the filing of tax  An assessment for deficiency income and residence taxes was issued
collection cases delegated? against Jose Arches for the taxable year 1953. Thereafter, the CIR,
represented by the Regional director, filed suit in the municipal court of
Roxas City to recover said deficiency taxes amounting to 4K.
 Petitioner sought the dismissal of the complaint on the ground that it did not
expressly show the approval of the CIR as required by Section 308 of the old
Tax Code.
 Issue: WON the express approval of the CIR is required in filing tax
collection cases?
 Held: No, express approval was not necessary.
 The express approval of the CIR was not necessary, relying on
Memorandum Order No. V-634, approved by the Secretary of Finance,
wherein the CIR’s functions regarding the administration and enforcement of
revenue laws and regulations – powers broad enough to cover the approval
of court actions as required in Section 308 of the old Tax Code – were
expressly delegated to the Regional Directors.
 Memorandum Order No. V-634, as a regulation whose issuance was
authorized by statute, had the force and effect of law.

Republic of the Philippines v. Hizon, GR No. 130430, 13 December 1999


 In 1986, an assessment was issued against respondent for deficiency
income tax covering the fiscal year 1981-1982. Hizon requested for
reconsideration of the deficiency assessment. BIR denied the request and
thereafter filed a case to collect the tax deficiency.
 The complaint was signed by the Chief Salud of the Legal Division, BIR
Region 4, and verified by the Regional Director Saga of Pampanga.
TAXATION 1 – Dean Gruba H. TAN, 2018
 Respondent argued that the complaint was filed without the authority of the
CIR.
 Issue: WON the institution of the collection case without approval of the
commissioner violates the NIRC?
 Held: No.
o Revenue Administrative Order No. 5-83 of the BIR provides that the
Regional director is authorized to sign all pleadings which otherwise
requires the signature of the Commissioner.
o Revenue Administrative Order No. 10-95 specifically authorizes the
Litigation and Prosecution Section of the Legal Division of regional
district offices to institute necessary civil and criminal actions for tax
collection.
o As the complaint in this case was signed by the BIR’s Chief of
Legal Division and verified by the Regional Director, there was
compliance with the law.
o The rule is that as long as admin. issuances relate solely to carrying
into effect the provision of the law, they are valid and have the force
of law. Further, the NIRC authorizes the BIR Commissioner to
delegate the powers vested in him under the pertinent provisions of
the code to any subordinate official with the rank equivalent to a
division chief or higher, subject to certain exceptions.
o None of the exceptions relates to the Commissioner’s power to
approve the filing of tax collection taxes.
Q: How is compromise People v. Sandiganbayan, GR No. 152532, 16 August 2005
different from abatement?  CIR Bienvenido Tan, Jr. issued an assessment against San Miguel
Corporation (SMC) demanding payment of Php 342 million in taxes. SMC
filed a request for reinvestigation, which Tan granted. The tax liability was
reduced to Php 302 million. Tan then referred the case to the Legal Service
Division of the BIR, the officials of which recommended that SMC’s tax
liability be further reduced to Php 22 million. 30
 Still unsatisfied, SMC offered Php 10 million as a compromise settlement.
BIR officials agreed and recommended to Tan that he should accept the
compromise offer, which he did.
 Tan was then charged with a violation of Section 3(e) of the Anti-Graft and
Corrupt Practices Act. It was alleged that his act of accepting the Php 10
million compromise offer caused undue injury to the government.
 Issue: WON Tan should be convicted of the crime charged?
 Held: No, there was no improper computation in the tax liability of SMC. The
error imposed tax on another tax which, if allowed, would be unfair to the
taxpayer.
 Tan was within his power to accept the 10M compromise offer which was
actually an abatement, not a compromise as termed by SMC.
o It defined abatement as the “diminution or decrease in the amount
of tax imposed,” such that to abate is “to nullify or reduce in value or
amount.”
o The BIR may therefore abate or cancel the whole or any unpaid
portion of a tax liability, inclusive of increments, if its assessment is
excessive or erroneous; or if the administration costs involved do
not justify the collection of the amount due.
o No mutual concessions need be made, because an excessive or
erroneous tax is not compromised; it is abated or canceled.
o Only correct taxes should be paid.
o Here, the Supreme Court found that although referred to in the
pleadings as a compromise, the agreement between the parties
was actually an abatement or a cancellation of an unjust,
excessively assessed, and unreasonable tax. Compromise is
marked by mutual concessions, whereas in abatement or
cancellation, no mutual concessions between the taxpayer and the
CIR are made.

TAXATION 1 – Dean Gruba H. TAN, 2018


Sec. 8. Duty of the Commissioner to Ensure the Provision and Distribution of Forms, Receipts, Certificates,
and Appliances, and the Acknowledgment of Payment of Taxes. -
(A) Provision and Distribution to Proper Officials. - It shall be the duty of the Commissioner, among other
things, to prescribe, provide, and distribute to the proper officials the requisite licenses, internal revenue
stamps, labels all other forms, certificates, bonds, records, invoices, books, receipts, instruments,
appliances and apparatus used in administering the laws falling within the jurisdiction of the Bureau. For
this purpose, internal revenue stamps, strip stamps and labels shall be caused by the Commissioner to be
printed with adequate security features.
Internal revenue stamps, whether of a bar code or fuson design, shall be firmly and conspicuously affixed
on each pack of cigars and cigarettes subject to excise tax in the manner and form as prescribed by the
Commissioner, upon approval of the Secretary of Finance.
(B) Receipts for Payment Made. - It shall be the duty of the Commissioner or his duly authorized representative
or an authorized agent bank to whom any payment of any tax is made under the provision of this Code to
acknowledge the payment of such tax, expressing the amount paid and the particular account for which
such payment was made in a form and manner prescribed therefor by the Commissioner. 


Sec. 9, Internal Revenue Districts. - With the approval of the Secretary of Finance, the Commissioner shall
divide the Philippines into such number of revenue districts as may from time to time be required for
administrative purposes. Each of these districts shall be under the supervision of a Revenue District Officer.

Sec. 10, Revenue Regional Director. - Under rules and regulations, policies and standards formulated by the
Commissioner, with the approval of the Secretary of Finance, the Revenue Regional director shall, within the
region and district offices under his jurisdiction, among others:
a) Implement laws, policies, plans, programs, rules and regulations of the department or agencies in
the regional area;
b) Administer and enforce internal revenue laws, and rules and regulations, including the assessment
and collection of all internal revenue taxes, charges and fees.
c) Issue Letters of authority for the examination of taxpayers within the region;
d) Provide economical, efficient and effective service to the people in the area;
e) Coordinate with regional offices or other departments, bureaus and agencies in the area; 31
f) Coordinate with local government units in the area;
g) Exercise control and supervision over the officers and employees within the region; and
h) Perform such other functions as may be provided by law and as may be delegated by the
Commissioner.

Sec. 11, Duties of Revenue District Officers and Other Internal Revenue Officers. - It shall be the duty of every
Revenue District Officer or other internal revenue officers and employees to ensure that all laws, and rules and
regulations affecting national internal revenue are faithfully executed and complied with, and to aid in the
prevention, detection and punishment of frauds of delinquencies in connection therewith.
It shall be the duty of every Revenue District Officer to examine the efficiency of all officers and employees of
the Bureau of Internal Revenue under his supervision, and to report in writing to the Commissioner, through
the Regional Director, any neglect of duty, incompetency, delinquency, or malfeasance in office of any internal
revenue officer of which he may obtain knowledge, with a statement of all the facts and any evidence
sustaining each case.

Sec. 12, Agents and Deputies for Collection of National Internal Revenue Taxes. - The following are hereby
constituted agents of the Commissioner:
a) The Commissioner of Customs and his subordinates with respect to the collection of national
internal revenue taxes on imported goods;
b) The head of the appropriate government office and his subordinates with respect to the collection
of energy tax; and
c) Banks duly accredited by the Commissioner with respect to receipt of payments internal revenue
taxes authorized to be made thru bank.
Any officer or employee of an authorized agent bank assigned to receive internal revenue tax payments and
transmit tax returns or documents to the Bureau of Internal Revenue shall be subject to the same sanctions
and penalties prescribed in Sections 269 and 270 of this Code. 


Sec. 13, Authority of a Revenue Officer. - Subject to the rules and regulations to be prescribed by the Secretary
of Finance, upon recommendation of the Commissioner, a Revenue Officer assigned to perform assessment

TAXATION 1 – Dean Gruba H. TAN, 2018


functions in any district may, pursuant to a Letter of Authority issued by the Revenue Regional Director,
examine taxpayers within the jurisdiction of the district in order to collect the correct amount of tax, or to
recommend the assessment of any deficiency tax due in the same manner that the said acts could have been
performed by the Revenue Regional Director himself.
Q: What is a Letter of Section 13 of the 1997 Tax Code provides that:
Authority?  “Subject to the rules and regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, a Revenue Officer
assigned to perform assessment functions in any district may, pursuant to a
Letter of Authority issued by the Revenue Regional Director, examine
taxpayers within the jurisdiction of the district in order to collect the correct
amount of tax, or to recommend the assessment of any deficiency tax due in
the same manner that the said acts could have been performed by the
Revenue Regional Director himself.”
 In other words, the Letter of Authority (LA/LOA) is the authority given to the
revenue officer to perform assessment functions.

Revenue Memorandum Order No. 43-90, 20 September 1990


 A Letter of Authority should cover a taxable period not exceeding one
taxable year.
 The practice of issuing LAs covering audit of “unverified prior years” is
prohibited. If the audit of a taxpayer shall include more than one taxable
period, the other periods shall be specifically indicated in the LA.

CIR v. Sony Philippines, Inc., GR No. 178697, 17 November 2010


 CIR issued the relevant Letter of Authority which covered “the period 1997
and unverified prior years.” However, the deficiency VAT assessment the
CIR arrived at was based on records from January to March 1998. A
preliminary assessment for 1997 deficiency taxes and penalties was issued
by CIR which Sony protested.
 Thereafter, acting on protest, CIR issued final assessment notices, formal 32
letters of demand and the details of discrepancies. Sony sought
reevaluation.
 It was the CIR’s contention that the LA, although it stated “the period 1997
and unverified prior years,” should be understood to mean the fiscal year
ended 31 March 1998.
 Issue: WON period stated in the LOA (“1997 and unverified prior years”)
should include fiscal year ending March 31, 1998?
 Held: No, clearly the CIR, acting through the revenue officers, went beyond
the scope of their authority as indicated in the LA.
o The very provision of the Tax Code that the CIR relies on is
unequivocal with regard to its power to grant authority to examine
and assess a taxpayer. As per NIRC, SEC. 6. (Power of the
Commissioner to Make Assessments and Prescribe Additional
Requirements for Tax Administration and Enforcement.), there
must be a grant of authority before any revenue officer can conduct
an examination or assessment.
o Equally important is that the revenue officer so authorized must not
go beyond the authority given. In the absence of such an authority,
the assessment or examination is a nullity.
o The CIR knew which period should be covered by the investigation.
Thus, if the CIR wanted or intended the investigation to include the
year 1998, it should have done so by including it in the LOA or
issuing another LOA. Hence, the deficiency VAT assessment made
on the basis of the subject LA was disallowed.
o A Letter of Authority should cover a taxable period not exceeding
one taxable year. The practice of issuing L/As covering audit of
unverified prior years is hereby prohibited. If the audit of a taxpayer
shall include more than one taxable period, the other periods or
years shall be specifically indicated in the L/A.

TAXATION 1 – Dean Gruba H. TAN, 2018


**** Effective 1 July 2010, the manual issuance of LAs has been
discontinued. In place thereof, electronic LAs shall be issued through the
Letter of Authority Monitoring System (LAMS).
Q: What is a Letter Notice? Revenue Memorandum Order No. 42-2003, 23 October 2003
Is it equivalent to a Letter of  A Letter Notice is a discrepancy notice issued by the CIR after conducting
Authority? data matching processes, informing the taxpayer of findings of discrepancy,
e.g., under-declared sales and over-claimed purchases.
 An LN shall cover only the tax indicated therein on a given particular period
or quarter, e.g., VAT liabilities for 2002 3rd quarter. Compared with a Letter of
Authority, the coverage of an LA is more comprehensive than that of an LN.
Revenue Memorandum Order No. 55-10, 11 June 2010
 RMO No. 55-10 provides that a Letter Notice shall be treated as a “notice of
audit or investigation in the absence of evident error or clear abuse of
discretion.” In order to expedite the processing of LN cases, the issuance of
Notices of Informal Conference may immediately commence, even without
the prior issuance of Letters of Authority.
 On the basis of RMO No. 55-10, it appears that an LN is effectively equated
to an LA. [NOTE: Relate this revenue issuance to Section 13 of the 1997
Tax Code which essentially states that a revenue officer shall be authorized
to perform assessment functions on the strength of an LA, and not merely an
LN.
Sec. 14, Authority of Officers to Administer Oaths and Take Testimony. - The Commissioner, Deputy
Commissioners, Service Chiefs, Assistant Service Chiefs, Revenue Regional Directors, Assistant Revenue
Regional Directors, Chiefs and Assistant Chiefs of Divisions, Revenue District Officers, special deputies of the
Commissioner, internal revenue officers and any other employee of the Bureau thereunto especially deputized
by the Commissioner shall have the power to administer oaths and to take testimony in any official matter or
investigation conducted by them regarding matters within the jurisdiction of the Bureau. 


Sec. 15, Authority of Internal Revenue Officers to Make Arrests and Seizures. - The Commissioner, the Deputy 33
Commissioners, the Revenue Regional Directors, the Revenue District Officers and other internal revenue
officers shall have authority to make arrests and seizures for the violation of any penal law, rule or regulation
administered by the Bureau of Internal Revenue. Any person so arrested shall be forthwith brought before a
court, there to be dealt with according to law. 

Q: What are the general Stonehill v. Diokno, GR No. L-19550, 19 June 1967
requirements for a warrant?  Respondent-prosecutors and respondent-judges issued 42 search warrants
on different dates against petitioners and the corporations of which they
were officers. The search warrants authorized the search of the persons of
the petitioners or the premises of their offices, warehouses and/or
residences, and the seizure of such personal property constituting the
subject of the offense, stolen or embezzled and proceeds or fruits of the
offense, or used or intended to be used as the means of committing the
offense, such offense being the “violation of Central Bank Laws, Tariff and
Customs Laws, NIRC and the RPC.”
 Petitioners filed with the SC this original action for certiorari, prohibition and
mandamus and injunction, alleging that the search warrants were null and
void for contravening the Constitution and Rule of Courts, as they do not
describe with particularity the documents, books, and things to be seized?
 Issue: WON the warrants are valid?
 Held: No.
o The Supreme Court held that the search warrants were general
warrants. No warrant shall issue but upon probable cause, to be
determined by the judge in the manner set forth in said provision;
and that the warrant shall particularly describe the things to be
seized. None of these requirements has been complied with in the
contested warrants.
o In other words, no specific offense had been alleged in said
applications. The averments thereof with respect to the offense
committed were abstract. As a consequence, it was impossible for
TAXATION 1 – Dean Gruba H. TAN, 2018
the judges who issued the warrants to have found the existence of
probable cause, for the same presupposes the introduction of
competent proof that the party against whom it is sought has
performed particular acts, or committed specific omissions, violating
a given provision of our criminal laws.
o It would be the legal heresy, of the highest order, to convict anybody
of a "violation of Central Bank Laws, Tariff and Customs Laws,
Internal Revenue (Code) and Revised Penal Code," — as alleged in
the aforementioned applications — without reference to any
determinate provision of said laws or to uphold the validity of the
warrants in question would be to wipe out completely one of the
most fundamental rights guaranteed in our Constitution, for it would
place the sanctity of the domicile and the privacy of communication
and correspondence at the mercy of the whims caprice or passion of
peace officers.
o General search warrants are outlawed because they place the
sanctity of the domicile and the privacy of communication and
correspondence at the mercy of the whims, caprice or passion of
peace officers.
Sec. 16, Assignment of Internal Revenue Officers Involved in Excise Tax Functions to Establishments Where
Articles Subject to Excise Tax are Produced or Kept. - The Commissioner shall employ, assign, or reassign
internal revenue officers involved in excise tax functions, as often as the exigencies of the revenue service
may require, to establishments or places where articles subject to excise tax are produced or kept: Provided,
That an internal revenue officer assigned to any such establishment shall in no case stay in his assignment for
more than two (2) years, subject to rules and regulations to be prescribed by the Secretary of Finance, upon
recommendation of the Commissioner. 


Sec. 17, Assignment of Internal Revenue Officers and Other Employees to Other Duties. - The Commissioner
may, subject to the provisions of Section 16 and the laws on civil service, as well as the rules and regulations
to be prescribed by the Secretary of Finance upon the recommendation of the Commissioner, assign or 34
reassign internal revenue officers and employees of the Bureau of Internal Revenue, without change in their
official rank and salary, to other or special duties connected with the enforcement or administration of the
revenue laws as the exigencies of the service may require: Provided, That internal revenue officers assigned to
perform assessment or collection function shall not remain in the same assignment for more than three (3)
years; Provided, further, That assignment of internal revenue officers and employees of the Bureau to special
duties shall not exceed one (1) year.

Sec. 18, Reports of Violation of Laws. - When an internal revenue officer discovers evidence of a violation of
this Code or of any law, rule or regulations administered by the Bureau of Internal Revenue of such character
as to warrant the institution of criminal proceedings, he shall immediately report the facts to the Commissioner
through his immediate superior, giving the name and address of the offender and the names of the witnesses if
possible: Provided, That in urgent cases, the Revenue Regional director or Revenue District Officer, as the
case may be, may send the report to the corresponding prosecuting officer in the latter case, a copy of his
report shall be sent to the Commissioner. 


Sec. 19, Contents of Commissioner's Annual Report. - The annual Report of the Commissioner shall contain
detailed statements of the collections of the Bureau with specifications of the sources of revenue by type of
tax, by manner of payment, by revenue region and by industry group and its disbursements by classes of
expenditures.
In case the actual collection exceeds or falls short of target as set in the annual national budget by fifteen
percent (15%) or more, the Commissioner shall explain the reason for such excess or shortfall. 


Sec. 20, Submission of Report and Pertinent Information by the Commissioner. -


(A) Submission of Pertinent Information to Congress. - The provision of Section 270 of this
Code to the contrary notwithstanding, the Commissioner shall, upon request of Congress
and in aid of legislation, furnish its appropriate Committee pertinent information including
but not limited to: industry audits, collection performance data, status reports in criminal
actions initiated against persons and taxpayer's returns: Provided, however, That any return
or return information which can be associated with, or otherwise identify, directly or

TAXATION 1 – Dean Gruba H. TAN, 2018


indirectly, a particular taxpayer shall be furnished the appropriate Committee of Congress
only when sitting in Executive Session Unless such taxpayer otherwise consents in writing
to such disclosure.
(B) Report to Oversight Committee. - The Commissioner shall, with reference to Section 204 of
this Code, submit to the Oversight Committee referred to in Section 290 hereof, through the
Chairmen of the Committee on Ways and Means of the Senate and House of
Representatives, a report on the exercise of his powers pursuant to the said section, every
six (6) months of each calendar year. 

Q: What are tax treaties and CIR v. John Gotamco & Sons, Inc., GR No. L-31092, 27 February 1987
international agreements?  The WHO, as an international organization, enjoyed privileges and
immunities defined more specifically in the Host Agreement between the
Republic of the Philippines and the WHO.
 Section 11 of the Agreement provided: “the Organization, its assets, income
and other properties shall be: (a) exempt from all direct and indirect taxes. It
is understood, however, that the Organization will not claim exemption from
taxes which are, in fact, no more than charges for public utility services.”
 The CIR questioned the entitlement of the WHO to tax exemption. He
contended, that the Host Agreement was null and void, not having been
ratified by the Philippine Senate as required by the Constitution.
 Whether respondent was liable to pay 3% contractor’s tax on the gross
receipts it realized from the construction of the World Health Organization
office building in Manila.
 Held: Host Agreement was a valid and enforceable international agreement
(as opposed to a treaty). The 3% contractor's tax was an indirect.
 While treaties are required to be ratified by the Senate under the
Constitution, less formal types of international agreements may be entered
into by the Chief Executive and become binding without the concurrence of
the legislative body.
 The Host Agreement comes within the latter category; it is a valid and
binding international agreement even without the concurrence of the 35
Philippine Senate.
 Moreover, the privileges and immunities granted to the WHO under the Host
Agreement have been recognized by this Court as legally binding on
Philippine authorities.

CIR v. S.C. Johnson and Son, Inc., GR No. 127105, 25 June 1999
 SC Johnson Phils. entered into a license agreement with SC Johnson US
pursuant to which SC Johnson Phils. was granted the right to use the
trademark, patents and technology owned by SC Johnson US. For the use
of the trademark or technology, SC Johnson Phils. was obliged to pay SC
Johnson US royalties based on a percentage of net sales and subjected the
same to 25% withholding tax on royalty payments.
 Later, SC Johnson Phils. filed with the BIR International Affairs Division a
claim for refund of overpaid withholding tax on royalties, invoking the
application of the most favored nation clause of the RP-US Tax Treaty in
relation to the RP-West Germany Tax Treaty. Hence, according to SC
Johnson Phils., the royalty payments should have been subjected to a
reduced/preferential withholding tax rate of 10%.
 The purpose of a most favored nation clause is to grant to the contracting
party treatment less favorable than that which has been or may be granted
to the ‘most favored’ among other countries.
 The most favored nation clause is intended to establish the principle of
equality of international treatment by providing that the citizens or subjects of
the contracting nations may enjoy the privileges accorded by either party to
those of the most favored nation.
 The essence of the principle is to allow the taxpayer in one state to avail of
more liberal provisions granted in another tax treaty to which the country of
residence of such taxpayer is also a party provided that the subject matter of

TAXATION 1 – Dean Gruba H. TAN, 2018


taxation, in this case royalty income, is the same as that in the tax treaty
under which the taxpayer is liable.”
 Here, the Supreme Court found that based on the RP-US and RP-West
Germany Tax Treaties, there was no payment of taxes on royalties under
similar circumstances that would warrant the application of the most favored
nation clause. The RP-US Tax Treaty did not give a matching tax credit of
20% for taxes paid to the Philippines on royalties as allowed under the RP-
West Germany Tax Treaty. Hence, SC Johnson Phils. could not be deemed
entitled to the preferential tax rate of 10% granted under the RP-West
Germany Tax Treaty.
 The High Court likewise had occasion to explain the nature of tax treaties
and international agreements. The Philippines is party to a number of
bilateral treaties entered into for the avoidance of double taxation.
 “The purpose of these international agreements is to reconcile the national
fiscal legislations of the contracting parties in order to help the taxpayer
avoid simultaneous taxation in two different jurisdictions.
 More precisely, the tax conventions are drafted with a view towards the
elimination of international juridical double taxation, which is defined as the
imposition of comparable taxes in two or more states on the same taxpayer
in respect of the same subject matter and for identical periods.
 The apparent rationale for doing away with double taxation is to encourage
the free flow of goods and services and the movement of capital, technology
and persons between countries, conditions deemed vital in creating robust
and dynamic economies.”

1. Section 1 to 5 of the Rule Making Authority of the Sec of finance


2. Kinds of Administrative Issuances
3. Legislative rules and Interpretative rules
4. Kinds of Revenue Issuances issued by the CIR
5. Kinds of rulings 36
6. Non-Retroactivity of Revenue Issuances or Rulings
7. Exceptions to the rule on Non-retroactivity of Revenue Issuances
8. Rule that Revenue issuances cannot change or modify the laws that it implement
9. Legal Effect if Revenue Issuances
10. Additional Cases
a. Ursal vs CTA 101 Phil 209
b. CIR vs Villa 22 SCRA 3
c. CIR vs CA 261 SCRA 236
d. CIR vs Michael Lhullier Pawnshop 406 SCRA 178
e. CIR vs CA 240SCRA 368
f. PBCOM vs CIR 302 SCRA 246
g. SEC for Finance vs La Suerte 589 SCRA 72

h. RMO 09-14
Section 1. Background - Republic Act No. 8424, or The Tax Reform Act of 1997 (hereinafter referred to as the Tax
Code of 1997), which was approved on December 11, 1997 has put in place the last phase of the comprehensive
reform package on tax laws which took effect on January 1, 1998. Pursuant to Section 244, in relation to Section 4
of the Tax Code of 1997, these Regulations are being promulgated to establish the policy on the binding effect of
rulings issued prior to the effectivity of the Tax Code of 1997 on January 1, 1998.
Section 2. Coverage. – All rulings issued prior to January 1, 1998 will no longer have any binding effect.
Consequently, these rulings cannot be invoked as basis for any current business transaction/s. Neither can these
rulings be used as basis for securing legal tax opinions/rulings.
Section 3. Repealing Clause. – All existing rules and regulations or parts thereof which are inconsistent with the
provisions of these Regulations are hereby amended, repealed or revoked accordingly.

i. RR 05-2012
Section 1. Background - Republic Act No. 8424, or The Tax Reform Act of 1997 (hereinafter referred to as the Tax
Code of 1997), which was approved on December 11, 1997 has put in place the last phase of the comprehensive
reform package on tax laws which took effect on January 1, 1998. Pursuant to Section 244, in relation to Section 4
TAXATION 1 – Dean Gruba H. TAN, 2018
of the Tax Code of 1997, these Regulations are being promulgated to establish the policy on the binding effect of
rulings issued prior to the effectivity of the Tax Code of 1997 on January 1, 1998.
Section 2. Coverage. – All rulings issued prior to January 1, 1998 will no longer have any binding effect.
Consequently, these rulings cannot be invoked as basis for any current business transaction/s. Neither can these
rulings be used as basis for securing legal tax opinions/rulings.
Section 3. Repealing Clause. – All existing rules and regulations or parts thereof which are inconsistent with the
provisions of these Regulations are hereby amended, repealed or revoked accordingly.
j. RMC 22-12
This Circular is issued to clarify the implementation and proper interpretation of
Revenue Regulations No. 5 – 2012, to wit:
1. All BIR Rulings issued prior to Jan 1, 1998 are not to be used as precedent by
any taxpayer as a basis to secure rulings for themselves for current business
transaction/s or in support of their position against any assessment.
2. All BIR Rulings issued prior to Jan 1, 1998 are not to be used by any BIR
action lawyer in issuing new rulings for request for rulings involving current
business transaction/s.
3. However, BIR Rulings issued prior to Jan 1, 1998 remains to be valid but
only:
a. to the taxpayer who was issued the ruling; and
b. covering the specific transaction/s which is the subject of the
same ruling
4. BIR Rulings issued prior to Jan 1, 1998, shall remain valid as mentioned
above, unless expressly notified of its revocation or unless the legal basis in
law for such issuance has already been repealed/amended in the current Tax
Code.

37

TAXATION 1 – Dean Gruba H. TAN, 2018


Philam Life v. Sec. of Finance, G.R. 210987, Nov. 24, 2014
 In 2009, Philam Life, in a bid to divest itself of its interests in the HMO industry, offered to sell its shareholdings in
PhilamCare through competitive bidding. Thus, petitioner’s Class A shares were sold based on the prevailing
exchange rate at the time of the sale, to STI who emerged as the highest bidder.
 After the sale was completed and the necessary documentary stamp and capital gains taxes were paid, Philamlife
filed an application for a certificate authorizing registration/tax clearance with the BIR Large Taxpayers Service
Division to facilitate the transfer of the shares.
 Months later, petitioner was informed that it needed to secure a BIR ruling in connection with its application due to
potential donor’s tax liability.
 In compliance, petitioner requested a ruling to confirm that the sale was not subject to donor’s tax, pointing out, in
its request, the following: that the transaction cannot attract donor’s tax liability since there was no donative intent
and, ergo, no taxable donation, citing BIR Ruling; that the shares were sold at their actual fair market value and at
arm’s length hence a sale for less than an adequate consideration is not subject to donor’s tax; and that donor’s
tax does not apply to sale of shares sold in an open bidding process.
 BIR Comissioner denied the request because the selling price of the shares were lower than their book value
hence donor's tax became imposable, pursuant to the NIRC. Commissioner ruled that the difference between the
book value and the selling price in the sales transaction is taxable donation subject to a 30% donor’s tax under
Section 99(B) of the NIRC. Respondent Commissioner likewise held that BIR Ruling on which petitioner anchored
its claim, has already been revoked by Revenue Memorandum Circular (RMC).
 On appeal, the CA dismissed the complaint for lack of jurisdiction because it is the CTA which has jurisdiction
over the case.
 Issue: WON CTA has jurisdiction and WON donor's tax is imposable?
 Held: Yes to both.
 There is no dispute that what is involved herein is the respondent Commissioner’s exercise of power under the
NIRC –– the power to interpret tax laws. This, in fact, was recognized by the appellate court itself, but erroneously
held that her action in the exercise of such power is appealable directly to the CTA. As correctly pointed out by
petitioner, Sec. 4 of the NIRC readily provides that the Commissioner’s power to interpret the provisions of this
Code and other tax laws is subject to review by the Secretary of Finance. The issue that now arises is this ––
where does one seek immediate recourse from the adverse ruling of the Secretary of Finance in its 38
exercise of its power of review under Sec. 4?
 Admittedly, there is no provision in law that expressly provides where exactly the ruling of the Secretary of
Finance under the adverted NIRC provision is appealable to. However, We find that RA 1125 addresses the
seeming gap in the law as it vests the CTA the implied power to take cognizance over the CA petition as “other
matters” arising under the NIRC or other law administered by the BIR.
 Moreover, 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.
 Lastly, petitioner is mistaken in stating that RMC 2511, having been issued after the sale, was being applied
retroactively in contravention to Sec. 246 of the NIRC. Instead, it merely called for the strict application of Sec.
100, which was already in force the moment the NIRC was enacted.

City of Manila v. Cuerto


 City of Manila, through its treasurer, petitioner Liberty Toledo, assessed taxes for the taxable year 2002 against
private respondents SM Mart, Inc., SM Prime Holdings, Inc., Star Appliances, Supervalue., Ace Hardware,
Watsons, Jollimart, etc.
 In addition to the taxes purportedly due from private respondents pursuant to the Revised Revenue Code of
Manila (RRCM), said assessment covered the local business taxes petitioners were authorized to collect.
 Because payment of the taxes assessed was a precondition for the issuance of their business permits, private
respondents were constrained to pay under protest.
 Respondents filed the complaint for “Refund or Recovery of Illegally and/or Erroneously Collected Local Business
Tax, Prohibition with Prayer to Issue TRO and Writ of Preliminary Injunction.
 Private respondents alleged that RRCM were violative of the limitations and guidelines under Local Government
Code on double taxation and that petitioner city’s Ordinance which amended pertinent portions of the RRCM had
already been declared to be illegal and unconstitutional by the DOJ.
 RTC granted writ of preliminary injunction.
 The CA dismissed petitioners’ petition for certiorari holding that it has no jurisdiction over the said petition since
appellate jurisdiction over private respondents’ complaint for tax refund, which was filed with the RTC, is vested in
TAXATION 1 – Dean Gruba H. TAN, 2018
the Court of Tax Appeals (CTA). Hence, it follows that a petition for certiorari seeking nullification of an
interlocutory order issued in the said case should, likewise, be filed with the CTA.
 Issue: WON the CTA has jurisdiction over a special civil action for certiorari assailing an interlocutory order issued
by the RTC in a local tax case?
 Held: Yes, although the Court finds that the instant petition should be denied for being moot and academic
because the RTC had already rendered a decision on the main case.
 In any case, the Court finds it necessary to resolve the issue on jurisdiction raised by petitioners owing to its
significance and for future guidance of both bench and bar.
 Congress enacted RA1125 creating the CTA and giving to the said court jurisdiction over the following:
1. Decisions of the CIR in cases involving disputed assessments, refunds of internal revenue taxes, fees or
other charges, penalties imposed in relation thereto, or other matters arising under the NIRC or other law
or part of law administered by BIR;
2. Decisions of the Commissioner of Customs in cases involving liability for customs duties, fees or other
money charges; seizure, detention or release of property affected fines, forfeitures or other penalties
imposed in relation thereto; or other matters arising under the Customs Law or other law or part of law
administered by the Bureau of Customs; and
3. Decisions of provincial or City Boards of Assessment Appeals in cases involving the assessment and
taxation of real property or other matters arising under the Assessment Law, including rules and
regulations relative thereto.
 Legislature passed into law which amending RA 1125 by expanding the jurisdiction of the CTA, enlarging its
membership and elevating its rank to the level of a collegiate court with special jurisdiction, giving it exclusive
appellate jurisdiction to review by appeal Decisions, orders or resolutions of the RTC in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction.
 While there is no express grant of such power, with respect to the CTA, the 1987 Constitution provides,
nonetheless, that judicial power shall be vested in one Supreme Court and in such lower courts as may be
established by law and that judicial power includes the duty of the courts of justice to determine WON there has
been a grave abuse of discretion amounting to lack or excess of jurisdiction on the part of any branch or
instrumentality of the Government.
 On the strength of the above constitutional provisions, it can be fairly interpreted that the power of the CTA
includes that of determining whether or not there has been GADALEJ on the part of the RTC in issuing an 39
interlocutory order in cases falling within the exclusive appellate jurisdiction of the tax court. It, thus, follows that
the CTA, by constitutional mandate, is vested with jurisdiction to issue writs of certiorari in these cases.
 It would be somewhat incongruent with the pronounced judicial abhorrence to split jurisdiction to conclude that the
intention of the law is to divide the authority over a local tax case filed with the RTC by giving to the CA or this
Court jurisdiction to issue a writ of certiorari against interlocutory orders of the RTC but giving to the CTA the
jurisdiction over the appeal from the decision of the trial court in the same case.
 It is more in consonance with logic and legal soundness to conclude that the grant of appellate jurisdiction to the
CTA over tax cases filed in and decided by the RTC carries with it the power to issue a writ of certiorari when
necessary in aid of such appellate jurisdiction. The supervisory power or jurisdiction of the CTA to issue a writ of
certiorari in aid of its appellate jurisdiction should coexist with, and be a complement to, its appellate jurisdiction to
review, by appeal, the final orders and decisions of the RTC, in order to have complete supervision over the acts
of the latter.
 “while a court may be expressly granted the incidental powers necessary to effectuate its jurisdiction, a grant of
jurisdiction, in the absence of prohibitive legislation, implies the necessary and usual incidental powers essential
to effectuate it, and, subject to existing laws and constitutional provisions, every regularly constituted court has
power to do all things that are reasonably necessary for the administration of justice within the scope of its
jurisdiction and for the enforcement of its judgments and mandates.”
 Hence, demands, matters or questions ancillary or incidental to, or growing out of, the main action, and coming
within the above principles, may be taken cognizance of by the court and determined, since such jurisdiction is in
aid of its authority over the principal matter, even though the court may thus be called on to consider and decide
matters which, as original causes of action, would not be within its cognizance.
 Based on the foregoing disquisitions, it can be reasonably concluded that 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.
 Finally, it would bear to point out that this Court is not abandoning the rule that, insofar as quasijudicial tribunals
are concerned, the authority to issue writs of certiorari must still be expressly conferred by the Constitution or by
law and cannot be implied from the mere existence of their appellate jurisdiction. This doctrine remains as it
applies only to quasijudicial bodies.

TAXATION 1 – Dean Gruba H. TAN, 2018


BDO v. Republic
 CODE-NGO “with the assistance of its financial advisors, RCBC, CAPEX and SEED Capital Ventures,
requested an approval from the Department of Finance for the issuance by the Bureau of Treasury of 10year
zero-coupon Treasury Certificates (T-notes).
 The T-notes would initially be purchased by a special purpose vehicle on behalf of CODENGO. The net proceeds
from the sale of the Bonds “will be used to endow a permanent fund (Hanapbuhay® Fund) to finance meritorious
activities and projects of accredited NGOs.
 In reply to CODE NGO’s letters, BIR issued BIR Ruling on the tax treatment of the proposed PEACe Bonds. BIR
Ruling confirmed that the Peace Bonds would not be classified as deposit substitutes and would not be subject to
the corresponding withholding tax. This was subsequently reiterated in another BIR Ruling.
 In sum, these rulings pronounced that to be able to determine whether the financial assets, i.e., debt instruments
and securities are deposit substitutes, the lenders rule must apply. Moreover, the determination of the phrase “at
any one time” for purposes of determining the “20 or more lenders” is to be determined at the time of the original
issuance.
 Such being the case, the PEACe Bonds were not to be treated as deposit substitutes. Former Treasurer Edeza
questioned the propriety of issuing the bonds directly to a special purpose vehicle considering that the latter was
not a Government Securities Eligible Dealer (GSED).
 Former Treasurer Edeza recommended that the issuance of the Bonds “be done through the ADAPS” and that
CODENGO “should get a GSED to bid in [sic] its behalf.” Subsequently, in the notice to all GSEDs entitled Public
Offering of Treasury Bonds25 (Public Offering), the Bureau of Treasury announced that “P30.0B worth of 10year
Zero Coupon Bonds [would] be auctioned on October 16, 2001[.]”26
 The notice stated that the Bonds “shall be issued to not more than 19 buyers/lenders hence, the necessity of a
manual auction for this maiden issue.”27 It also required the GSEDs to submit their bids not later than 12 noon on
auction date and to disclose in their bid submissions the names of the institutions bidding through them to ensure
strict compliance with the 19 lender limit.28 Lastly, it stated that “the issue being limited to 19 lenders and while
taxable shall not be subject to the 20% final withholding tax.”

1. not deposit substitutes hence not liable for tax


2. another BIR ruling imposed taxes, regardless of the number of 20 lenders, as long as Tnote, considered as deposit
substitute 40
3. certiorari with SC, with TRO, enjoin Implementation of Ruling imposing 20% FWT
4. paid
5. issued TRO but ayaw ni Bureau of Treasury release
6. issue: after exhausting admin remedies, kanino i-appeal?
- dumeretso sa SC
7. definition of substitute deposit - 20 or more Individual or corp lenders
8. Pwede i-exempt
doctrine of exhaustion
exemption: purely legal issue and when circumstance indicate urgency, when exhaustion will be futile
9. Held: Applicable exemption
- usually dapat review kay SOF, pero si sec of finance yun nag hingi ng BIR Ruling, siya nag request kaya nag issue BIR
Ruling
- deposit sub - alternative form of obtaining funds from the public, i.e. 20 or more lenders

TAXATION 1 – Dean Gruba H. TAN, 2018


41

TAXATION 1 – Dean Gruba H. TAN, 2018