University of Santo Tomas

Faculty of Civil Law

TAXATION LAW
Pre-week Notes 2017
ACADEMICS COMMITTEE

SECRETARY GENERAL: CAMILLE ANGELICA B. GONZALES

EXECUTIVE COMMITTEE: EMNIE VALERIE B. DURAN, IRVIN L. PALANCA, MARIELLA A.
MARASIGAN, LARA NICOLE T. GONZALES

TAXATION LAW COMMITTEE

COMMITTEE HEAD: DARDECS N. VILLANUEVA

SUBJECT HEADS: JOYCE ANN MENDOZA AND LARA NICOLE T. GONZALES
MEMBERS: CLEA CONSTANTINA FERNANDEZ, KARMELA KATE SALVADOR, STEPHANIE RUBI,
KRISTIAN FABON, REALYN CANCINO, ELAINE CARINGAL

ATTY. AL CONRAD B. ESPALDON

ADVISER
 UST LAW PRE-WEEK NOTES 2017
QUESTIONS WITH THE SAME TOPIC ASKED
IN 2015 AND 2016 BAR EXAMINATIONS
a. Explain the procedure for claiming refunds or tax
credits of input VAT for zero-rated or effectively
zero-rated sales under Sec. 112 of the Tax Code
from the filing of an application with the CIR up to
the CTA.
b. Explain the procedure for claiming refunds of tax
erroneously or illegally collected under Sec. 229 of
the Tax Code from the filing of the claim for
refunds with the CIR up to the CTA. (2016 BAR)
In order to be entitled to a refund/tax credit of excess
input VAT attribute to zero-rated or effectively zero-
rated sales, the following requisites must be complied
with:
1. The claim for refund must be filed with the
Commissioner within 2 years counted from the last
day of the quarter when the zero-rated sale was
made (Sec 112, NIRC);
2. The claim for refund must be accompanied by a
statement under oath that all documents to support
the claim has been submitted at the time of filing of
the claim for refund (RMC 54-14);
3. The Commissioner must decide on the claim within
120 days from date filing and the adverse decision is
appealable to the CTA within 30 days from receipt
(Sec. 112, NIRC; CIR v. Aichi Forging of Asia, Inc., 632
SCRA 442 [2010]);
4. If no decision is made within the 120 days period,
there is a deemed denial or adverse decision which is
appealable to the CTA within 30 days from the lapse
of the 120 days period (Sec. 112, NIRC; Sec. 7(a)(1),
RA 1125 as amended by RA 9282).
The procedure for claiming refunds of tax erroneously or
illegally collected are the following:
1. A written claim for refund must be filed with the
Commissioner within two years from date of
payment of the tax (Sec. 204, NIRC);
2. A decision of the Commissioner denying the claim, is
appealable to the CTA within 30 days from receipt
thereof or within two years from date of payment,
whichever comes first (Sec. 229, NIRC; Sec 7(a)(1), RA
1125 as amended by RA 9282);
3. If no decision is made by the Commissioner, the
aggrieved taxpayer must consider the inaction as a
denial and appeal to the CTA must be filed before the
lapse of two years counted from date of payment
(Sec. 229, NIRC).
LLL is a government instrumentality created by
Executive Order to be primarily responsible for
integrating and directing all reclamation projects for
the National Government. It was not organized as a
stock or a non-stock corporation, nor was it intended
to operate commercially and compete in the private
market. By virtue of its mandate, LLL reclaimed
several portions of the foreshore and offshore areas
of the Manila Bay, some of which were within the
territorial jurisdiction of Q City. Certificates of title to
the reclaimed properties in Q City were issued in the
name of LLL in 2008. In 2014, Q City issued Warrants
of Levy on said reclaimed properties of LLL based on
the assessment for delinquent property taxes for the
years 2010 to 2013.
1
a. Are the reclaimed properties registered in the
name of LLL subject to real property tax?
b. Will your answer be the same in (a) if from 2010 to
the present time, LLL is leasing portions of the
reclaimed properties for the establishment and use
of popular fast-food restaurants J Burgers, G Pizza,
and K Chicken? (2015 BAR)
a. The reclaimed properties are not subject to real
property tax because LLL is a government
instrumentality. Under the law, real property owned
by the Republic of the Philippines is exempt from real
property tax unless the beneficial use thereof has
been granted to a taxable person (Sec. 234, LGC).
When the title of the real property is transferred to
LLL, the Republic remains the owner of the real
property. Thus, such arrangement does not result in
the loss of the tax exemption. (Republic of the
Philippines, represented by The Philippine
Reclamation Authority v. City of Paranaque, 677 SCRA
246 [2012]).
Alternative Answer
NO. LLL is an instrumentality of the national government
which cannot be taxed by local government units. LLL is
not a GOCC taxable for real property taxes (City of Lapu-
Lapu v. PEZA, GR No. 184203, November 26, 2014).
b. NO. As a rule, properties owned by the Republic of
the Philippines are exempt from real property tax
except when beneficial use thereof has been granted,
for consideration or otherwise, to a taxable person.
When LLL leased out portions of the reclaimed
properties to taxable entities, such as popular fast
food restaurants, the reclaimed properties are
subject to real property tax (Sec. 234(a), LGC; GSIS v.
City Treasurer and City Assessor of the City of Manila,
2009).
Differentiate between double taxation in the strict
sense and in a broad sense and give an example of
each (2015 BAR).
Double taxation in the strict sense (direct duplicate
taxation) pertains to the direct double taxation. This
means that the taxpayer is taxed twice by the same
taxing authority, within the same taxing jurisdiction,
for the same property and for the same purpose.
Example: Imposition of final withholding tax on cash
dividends and requiring the taxpayer to declare this tax-
paid income in his income tax returns.
On the other hand, double taxation in the broad sense
pertains to indirect double taxation. This extends to all
cases in which there is a burden of two or more
impositions. It is a double taxation other than those
covered by direct double taxation (CIR v. Solidbank Corp,
436 SCRA 416 [2003]). Example: Subjecting the interest
income of banks on their deposits with other banks to the
5% gross receipt tax (GRT) despite of the same income
having been subjected to 20% final withholding tax
(FWT), is only a case of indirect double taxation. The GRT
is a tax on the privilege of engaging in business while the
FWT is a tax on privilege of earning income. (CIR v. Bank
of Commerce, 459 SCRA 638 [2005]).
What are de minimis benefits and how are these
taxed? Give three (3) examples of de minimis benefits.
(2015 BAR)
 TAXATION LAW
De minimis benefits are facilities and privileges furnished
or offered by an employer to his employees, which are not
considered compensation subject to income tax and
consequently to withholding tax, if such facilities or
privileges are of relatively small value and are offered or
furnished by the employer merely as means of promoting
the health, goodwill, contentment, or efficiency of his
employees. If received by rank-and-file employees, they
are exempt from income tax on wages, if received by
supervisory or managerial employees, they are exempt
from the fringe benefit tax (RR No. 2-98, as amended by RR
No. 8-2000).
The following shall be considered as de minimis benefits:
1. Monetized unused vacation leave credits of private
employees not exceeding 10 days during the year;
2. Monetized value of vacation and sick leave credits
paid to government officials and employees;
3. Medical cash allowance to dependents of employees,
not exceeding P750 per employee per semester or
P125 per month;
4. Rice subsidy of P1,500 or 1 sack of 50 kg rice per
month amounting to not more than P1,500;
5. Uniform and clothing allowance not exceeding P5,000
per annum;
6. Actual medical assistance not exceeding P10,000 per
annum;
7. Laundry allowance not exceeding P300 per month;
8. Employees achievement awards, e.g. for length of
service or safety achievement, which must be in the
form of tangible personal property other than cash or
gift certificate, with an annual monetary value not
exceeding P10, 000 received by the employee under
an established written plan which does not
discriminate in favor of highly paid employees;
9. Gifts given during Christmas and major anniversary
celebrations not exceeding P5, 000 per employee per
annum;
10. Daily meal allowance for overtime work and
night/graveyard shift not exceeding 25% of the basic
minimum wage on a per region basis;
11. Benefits received by an employee by virtue of a
collective bargaining agreement (CBA) and
productivity incentive schemes provided that the total
annual monetary value received from both CBA and
productivity schemes combined do not exceed P10,
000 per employee per taxable year.
Mr. L owned several parcels of land and he donated a
parcel each to his two children. Mr. L acquired both
parcels of land in 1975 for P200, 000.00. At the time
of donation, the fair market value of the two parcels
of land, as determined by the CIR, was P2, 300,
000.00; while the fair market value of the same
properties as shown in the schedule of values
prepared by the City Assessors was P2, 500, 000.00.
What is the proper valuation of Mr. L's gifts to his
children for purposes of computing donor's tax?
(2015 BAR)
The valuation of Mr. L’s gift to his children is the fair
market value (FMV) of the property at the time of
donation. The FMV is the higher of the FMV as
determined by the Commissioner or the FMV as shown in
the schedule of values fixed by the provincial or city
assessors. In this case, for the purpose of computing
donor’s tax, the proper valuation is the value prepared by
2
the City Assessors amounting to P2,500,000 because it is
higher than the FMV determined by the CIR (Sec. 102 in
relation to Sec. 88(B), NIRC).
PART I: GENERAL PRINCIPLES OF
TAXATION
Briefly explain the following doctrines: lifeblood
doctrine; necessity theory; benefits received
principle; and, doctrine of symbiotic relationship.
(2016 BAR)
The following doctrines, explained:
 Lifeblood doctrine - Without revenue raised from
taxation, the government will not survive, resulting in
detriment society. Without taxes, the government
would be paralyzed for lack of motive power to
activate and operate it (CIR v. Algue, Inc. 158 SCRA 9
[1988]).
 Necessity theory - The exercise of the power to tax
emanates from necessity, because without taxes,
government cannot fulfill its mandate of promoting
the general welfare and well-being of the people (CIR
v. Bank of Philippine Islands, 521 SCRA 373 [2007]).
 Benefits received principle - Taxpayers receive
benefits from taxes through the protection the state
affords to them. For the protection they get arises
their obligation to support the government through
payment of taxes (CIR v. Algue, Inc. 158 SCRA 9 [1988]).
 Doctrine of symbiotic relationship - Taxation arises
because of the reciprocal relation of protection and
support between the state and taxpayers. The state
gives protection and for it to continue giving
protection, it must be supported by the taxpayers in
the form of taxes (CIR v. Algue, Inc. 158 SCRA 9 [1988]).
Explain the principles of a sound tax system. (2015
BAR)
The principles of a sound tax system are the following:
a. Fiscal adequacy which means that the sources of
revenue should be sufficient to meet the demands of
public expenditures;
b. Equality or theoretical justice which means that the
tax burden should be proportionate to the taxpayer’s
ability to pay (this is the so-called ability to pay
principle); and
c. Administrative feasibility which means that the tax
law should be capable of convenience, just and
effective administration.
May legislative bodies enact laws to raise revenues in
the absence of constitutional provisions granting
said body the power of tax? Explain. (2005 BAR)
YES. The constitutional provisions relating to the power
of taxation do not operate as grants of the power of
taxation to the government, but instead merely constitute
a limitation upon a power which would otherwise be
practically without limit.
Moreover, it is inherent in nature, being an attribute of
sovereignty. There is, thus, no need for a constitutional
grant for the State to exercise this power.
The Commissioner posits that the 1997 Tax Code
qualified the tax exemption granted to non-stock,
non-profit educational institutions such that the
 UST LAW PRE-WEEK NOTES 2017
revenues and income they derived from their assets,
or from any of their activities conducted for profit,
are taxable even if these revenues and income are
used for educational purposes. Is he correct?
NO. The income, revenues and assets of non-stock, non-
profit educational institutions proved to have been used,
directly and exclusively for educational purposes are
exempt from duties and taxes.
Under Article XIV, Section 4 (3)1 of the 1987 Constitution,
it refers to two kinds of educational institutions: (1) non-
stock, non-profit educational institutions and (2)
proprietary educational institutions. There is a marked
distinction between the treatment of two kinds of
institutions. The tax exemption granted to non-stock,
non-profit educational institutions is conditioned only on
the actual, direct and exclusive use of their revenues and
assets for educational purposes. While tax exemptions
may also be granted to proprietary educational
institutions, these exemptions may be subject to
limitations imposed by Congress.
Further, a non-stock, non-profit educational institution is
classified as a tax-exempt entity under Section 30, a
proprietary educational institution is covered by Section
27. Section 30 provides that exempt organizations shall
not be taxed on income received by them as such. Section
27 (B), on the other hand, states that a proprietary
educational institution is entitled only to the reduced rate
of 10% corporate income tax. The reduced rate is
applicable only if: (1) the proprietary educational
institution is nonprofit and (2) its gross income from
unrelated trade, business or activity does not exceed 50%
of its total gross income. Consistent with Article XIV,
Section 4 (3) of the Constitution, these limitations do not
apply to non-stock, non-profit educational institutions.
Thus, the Court ruled that the last paragraph2 of Section
30 of the Tax Code is without force and effect for being
contrary to the Constitution insofar as it subjects to tax
the income and revenues of non-stock, non-profit
educational institutions used, directly and exclusively for
educational purpose (CIR vs. De La Salle University, G.R.
No. 196596, November 9, 2016, J. Brion).
Lucky V Corporation (Lucky) owns a 10-storey
building on a 2,000-square meter lot in the City of
Makati. It sold the lot and building to Rainier for P80
million. One month after, Rainier sold the lot and
building to Healthy Smoke Company (HSC) for P200
million. Lucky filed its annual tax return and declared
its gain from the sale of the lot and building in the
amount of P750, 000.00.
An investigation conducted by the BIR revealed that
two months prior to the sale of the properties to
Rainier, Lucky received P40 million from HSC and not
from Rainier. Said amount of P40 million was debited
by HSC and reflected in its trial balance as "other inv.
- Lucky Bldg." The month after, another P40 million
was reflected in HSC's trial balance as "other inv. -
Lucky Bldg." The BIR concluded that there is tax
evasion since the real buyer of the properties of
1 All revenues and assets of non-stock, non-profit educational
institutions used, directly, and exclusively for educational
purposes shall be exempt from taxes and duties. Xxx Proprietary
educational institutions, including those cooperatively owned, may
likewise be entitled to such exemptions subject to the limitations
provided by law including restrictions on dividends and provisions for
reinvestment. (emphasis supplied)
3
Lucky is HSC and not Rainier. It issued an assessment
for deficiency income tax in the amount of P79
million against Lucky. Lucky argues that it resorted
to tax avoidance or a tax saving device, which is
allowed by the NIRC and BIR rules since it paid the
correct taxes based on its sale to Rainier. On the other
hand, Rainier and HSC also paid the prescribed taxes
arising from the sale by Rainier to HSC. Is the BIR
correct in assessing taxes on Lucky? Explain. (2016
BAR)
YES. The sale of the property by Lucky to Rainer and
consequently the sale by Rainer to HSC being prompted
more on the mitigation of tax liabilities than for legitimate
business purposes, therefore, constitutes tax evasion.
The real buyer from Lucky is HSC as evidenced by the
direct receipt of payments by the former from the latter
where the latter recorded “other investments – Lucky
Building.” The scheme of resorting to a two-step
transaction in selling the property to the ultimate buyer
in order to escape paying higher taxes is considered as
outside of those lawful means allowed in mitigating tax
liabilities which makes Lucky criminally and civilly liable.
Hence, the BIR is correct in assessing taxes on Lucky (CIR
v. Estate of Benigno P. Toda, Jr., 438 SCRA 290 [2004]).
May the collection of taxes be barred by prescription?
(2001 BAR)
YES. The collection of taxes may be barred by
prescription. The prescriptive periods for collection of
taxes are governed by the tax law imposing the tax.
However, if the tax law does not provide for prescription,
the right of the government to collect taxes becomes
imprescriptible.
Distinguish a direct from an indirect tax. Give
examples (1994, 2000, 2001, 2006 BAR).
Direct taxes are demanded from the very person who, as
intended, should pay the tax which he cannot shift to
another. Income tax, estate and donor's tax are
considered as direct taxes. Indirect taxes, on the other
hand, are demanded in the first instance from one person
with the expectation that he can shift the burden to
someone else, not as a tax but as a part of the purchase
price. Value-added tax, excise tax, other percentage taxes
are indirect taxes.
How to determine if a tax is direct or indirect
It is direct taxes when the impact or liability for the
payment of tax as well as incidence or burden of tax falls
on the same person. On the other hand, it is indirect taxes
when the impact or liability for the payment of tax falls
on one person but the incidence or burden thereof can be
shifted or passed to another.
NOTE: In indirect taxation, a distinction is made between
the liability for the tax and burden of the tax: The seller
who is liable for the VAT may shift or pass on the amount
of VAT it paid on goods, properties or services to the
buyer. In such a case, what is transferred is not the
seller's liability but merely the burden of the VAT (Diaz v.
2 Notwithstanding the provisions in the preceding paragraphs, the
income of whatever kind and character of the foregoing
organizations from any of their properties, real or personal, or from
any of their activities conducted for profit regardless of the
disposition made of such income shall be subject to tax imposed
under this Code. (emphasis supplied)
 TAXATION LAW
The Secretary of Finance, G.R. No. 193007, July 19, 2011).
Where the burden of the tax is shifted to the purchaser,
the amount passed on to it is no longer a tax but becomes
an added cost on the goods purchased, which constitutes
a part of the purchase price. (Silkair v. CIR, G.R. No.
166482, January 25, 2012).
DOUBLE TAXATION
Explain the concept of double taxation. (2016 BAR)
Double taxation occurs when the same subject or object
of taxation is taxed twice when it should be taxed but
once. Double taxation is prohibited when it is an
imposition of taxes on the same subject matter, for the
same purpose, by the same taxing authority, within the
same jurisdiction, during the same taxing period, with the
same kind or character of a tax (84 C.J.S. 131-132). It is
permissible if taxes are of different nature or character,
or the two taxes are imposed by different taxing
authorities (Villanueva v. City of Iloilo, 26 SCRA 578
[1968]).
The City of Manila assessed and collected taxes from
taxpayers pursuant to Sec. 15 (Tax on Wholesalers,
Distributors, or Dealers) and Sec. 17 (Tax on
Retailers) of the Revenue Code of Manila (Ordinance
No. 7794). At the same time, the City of Manila
imposed additional taxes upon the taxpayers
pursuant to Sec. 21 of the Revenue Code of Manila,
which imposes tax on a person who sold goods and
services in the course of trade or business based on
a certain percentage of his gross sales or receipts in
the preceding calendar year, as a condition for the
renewal of their respective business licenses for the
year 1999. Is there double taxation?
YES. All the elements of double taxation concurred upon
the City of Manila’s assessment on and collection from the
petitioners of taxes pursuant to Sec. 21 of the Revenue
Code of Manila. Firstly, because Sec. 21 of the Revenue
Code of Manila imposed the tax on a person who sold
goods and services in the course of trade or business
based on a certain percentage of his gross sales or
receipts in the preceding calendar year, while Sec. 15 and
Sec. 17 likewise imposed the tax on a person who sold
goods and services in the course of trade or business but
only identified such person with particularity, namely,
the wholesaler, distributor or dealer (Sec. 15), and the
retailer (Sec. 17), all the taxes — being imposed on the
privilege of doing business in the City of Manila in order
to make the taxpayers contribute to the city’s revenues —
were imposed on the same subject matter and for the
same purpose. Secondly, the taxes were imposed by the
same taxing authority (the City of Manila) and within the
same jurisdiction in the same taxing period (i.e., per
calendar year). Thirdly, the taxes were all in the nature
of local business taxes.
In fine, the imposition of the tax under Section 21
constituted double taxation, and the taxes collected
pursuant thereto must be refunded (Nursery Care
Corporation v. Acevedo, 731 SCRA 280, G.R. No. 180651,
July 30, 2014, J. Bersamin).
Under the Sin Tax Law, stemmed leaf tobacco, a
partially prepared tobacco, is subject to an excise tax
for each kilo thereof. On the other hand, cigars and
cigarettes, of which stemmed leaf tobacco is a raw
material, are also subjected to specific tax under Sec.
4
142 of the Tax Code. Is there double taxation in
prohibited sense when excise specific tax is imposed
on stemmed leaf tobacco and again on the finished
product of which stemmed leaf tobacco is a raw
material?
NONE. In this case, there is no double taxation in the
prohibited sense despite the fact that they are paying the
specific tax on the raw material and on the finished
product in which the raw material was a part, because the
specific tax is imposed by explicit provisions of the NIRC
on two different articles or products: (1) on the stemmed
leaf tobacco; and (2) on cigar or cigarette (La Suerte Cigar
& Cigarette Factory v. CA, G.R. No. 125346, November 11,
2014).
EXEMPTION FROM TAX
Why are tax exemptions strictly construed against
the taxpayer? (1996 BAR)
Tax exemptions are strictly construed against the
taxpayer because such provisions are highly disfavored
and may almost be said to be odious to the law (Manila
Electric Company vs. Vera, 67 SCRA351). The exception
contained in the tax statutes must be strictly construed
against the one claiming the exemption because the law
does not look with favor on tax exemptions they being
contrary to the life-blood theory which is the underlying
basis for taxes.
As an incentive for investors, a law was passed giving
newly established companies in certain economic
zone exemption from all taxes, duties, fees, imposts
and other charges for a period of three years. ABC
Corp. was organized and was granted such incentive.
In the course of business, ABC Corp. purchased
mechanical equipment from XYZ Inc. Normally, the
sale is subject to a sales tax. XYZ Inc. claims, however,
that since it sold the equipment to ABC Corp. which is
tax exempt, XYZ should not be liable to pay the sales
tax. Is this claim tenable? (2004 BAR)
NO. Exemption from taxes is personal in nature and
covers only taxes for which the taxpayer-grantee is
directly liable. The sales tax is a tax on the seller who is
not exempt from taxes. Since XYZ Inc. is directly liable for
the sales tax and no tax exemption privilege is ever given
to him, therefore, its claim that the sale is tax exempt is
not tenable. A tax exemption is construed in strictissimi
Juris and it cannot be permitted to exist upon vague
implications (Asiatic Petroleum Co., Ltd. V. Llanes, 49 Phil
466 [1926]).
Philippine National Railways (PNR) operates the rail
transport of passengers and goods by providing train
stations and freight customer facilities from Tutuban,
Manila to the Bicol Province. As the operator of the
railroad transit, PNR administers the land,
improvements and equipment within its main station
in Tutuban, Manila.
Invoking Section 193 of the Local Government Code
(LGC) expressly withdrawing the tax exemption
privileges of government-owned and controlled
corporations upon the effectivity of the Code in 1992,
the City Government of Manila issued Final Notices of
Real Estate Tax Deficiency in the amount of P624,
000, 000.00 for the taxable years 2006 to 2010. On
the other hand, PNR, seeking refuge under the
 UST LAW PRE-WEEK NOTES 2017
principle that the government cannot tax itself,
insisted that the PNR lands and buildings are owned
by the Republic.
Is the PNR exempt from real property tax? Explain
your answer. (2016 BAR)
YES. The exercise of the taxing power of LGUs is subject
to the limitations enumerated in Sec. 133 of the LGC.
Under Sec. 133(o)3 of the LGC, LGUs have no power to tax
instrumentalities of the national government like the
PNR. Thus, PNR is not liable to pay real property tax
except those portions which are leased to private persons
or entities. Moreover, the properties of PNR are owned by
the Republic of the Philippines and thus exempt from real
property tax (Sec. 234, LGC).
What is the taxable treatment of Government-Owned
and Controlled Corporations (GOCC)?
GOCCs perform proprietary functions; hence they are
subject to taxation. However, certain corporations have
been granted exemption under the Tax Code of 1997, as
amended, to wit:
1. Government Service Insurance System (GSIS)
2. Social Security System (SSS)
3. Philippine Health Insurance Corporation (PHIC)
4. Philippine Charity Sweepstakes Office (PCSO)
PAGCOR was created on January 1, 1977 and its
charter provides for the exemption from the payment
of any type of tax, except a franchise tax of five
percent (5%) of the gross revenue.
On January 1, 1998, Tax Code of 1997 took effect. It
provides, among others, that GOCCs shall pay
corporate income tax, except PAGCOR, GSIS, SSS, PHIC
and PCSO. Subsequently, the law was amended to
exclude PAGCOR from the enumeration of GOCCs that
are exempt from payment of corporate income tax.
Consequently, PAGCOR assails the amendment for
being unconstitutional, as it is violative of its right to
equal protection of the laws under Section 1, Article
III of the Constitution. Is PAGCOR’s contention
tenable?
NO. PAGCOR cannot find support in the equal protection
clause of the Constitution. The exemption of PAGCOR
from paying corporate income tax was not based on a
classification showing substantial distinctions which
make for real differences, but the exemption was granted
upon the request of PAGCOR that it be exempt from the
payment of corporate income tax. A perusal of the
legislative records of the Bicameral Conference Meeting
of the Committee on Ways on Means dated October 27,
1997 would show that the exemption of PAGCOR from
the payment of corporate income tax was due to the
acquiescence of the Committee on Ways on Means to the
request of PAGCOR that it be exempt from such tax.
With the amendment of the Tax Code, PAGCOR has been
excluded from the enumeration of GOCCs that are exempt
from paying corporate income tax. It is the legislative
intent that PAGCOR be subject to the payment of
3 “SEC. 133. Common Limitations on the Taxing Powers of Local
Government Units. — Unless otherwise provided herein, the exercise of
the taxing powers of provinces, cities, municipalities, and barangays
shall not extend to the levy of the following: xxx
5
corporate income tax (PAGCOR vs. BIR, GR No. 172087,
March 15, 2011, J. Peralta).
PAGCOR argues that the withdrawal of its exemption
from corporate income tax has the effect of changing
the main consideration and inducement for the
transactions of private parties with it; thus, the
amendatory provision is violative of the non-
impairment clause of the Constitution. Is PAGCOR’s
contention tenable?
NO. As regards franchises, Section 11, Article XII of the
Constitution provides that no franchise or right shall be
granted except under the condition that it shall be subject
to amendment, alteration, or repeal by the Congress
when the common good so requires.
In this case, PAGCOR was granted a franchise to operate
and maintain gambling casinos, clubs and other
recreation or amusement places, sports, gaming pools,
i.e., basketball, football, lotteries, etc., whether on land or
sea, within the territorial jurisdiction of the Republic of
the Philippines. Under Section 11, Article XII of the
Constitution, PAGCORs franchise is subject to
amendment, alteration or repeal by Congress such as the
amendment under Section 1 of R.A. No. 9377. Hence, the
provision in Section 1 of R.A. No. 9337, amending Section
27 (c) of R.A. No. 8424 by withdrawing the exemption of
PAGCOR from corporate income tax, which may affect
any benefits to PAGCORs transactions with private
parties, is not violative of the non-impairment clause of
the Constitution (PAGCOR vs. BIR, GR No. 172087, March
15, 2011, J. Peralta).
In view of the withdrawal of its tax privilege, is
PAGCOR’s income tax liability applicable to all types
of its income?
NO. PAGCOR’s income is classified into two: (1) income
from its operations conducted under its Franchise
(income from gaming operations); and (2) income from
its operation of necessary and related services (income
from other related services).
Under its charter, P.D. 1869, PAGCOR is subject to income
tax only with respect to its income from other related
services, while income from gaming operations is subject
to the five percent (5%) franchise tax only (PAGCOR vs.
BIR, GR No. 215427, December 10, 2014, J. Peralta).
On 8 April 2009, PAGCOR granted to Bloomberry
Resorts and Hotels, Inc. a license to establish and
operate an integrated resort and casino complex at
the Entertainment City, project site of PAGCOR. Thus,
being one of its licensees, Bloomberry only pays
PAGCOR license fees, in lieu of all taxes, consistent
with the PAGCOR Charter (P.D. No. 1869) providing
for the exemption from taxes of persons or entities
contracting with PAGCOR in casino operations.
However, when the Tax Code was amended to
exclude PAGCOR from the enumeration of GOCCs
exempt from paying corporate income tax, BIR issued
RMC No. 33-2013, which is being assailed by
Bloomberry as invalid, stating among others that
(o) Taxes, fees or charges of any kind on the National Government, its
agencies and instrumentalities and local government units.”
(Emphasis supplied)
 TAXATION LAW
PAGCOR's contractees and licensees are subject to
income tax under the Tax Code.
Is the assailed RMC subjecting the contractees and
licensees of PAGCOR to income tax valid considering
that PAGCOR Charter grants tax exemptions to such
contractees and licensees?
NO. Section 13 of the PAGCOR Charter states that
payment of the 5% franchise tax by PAGCOR and its
contractees and licensees exempts them from payment of
any other taxes, including corporate income tax. Said
provision was neither amended nor repealed by any
subsequent laws (i.e. Section 1 of R.A. No. 9337); hence, it
is still in effect.
Thus, like PAGCOR, its contractees and licensees remain
exempted from the payment of corporate income tax and
other taxes. As the PAGCOR Charter states in unequivocal
terms that exemptions granted for earnings derived from
the operations conducted under the franchise specifically
from the payment of any tax, income or otherwise, as well
as any form of charges, fees or levies, shall inure to the
benefit of and extend to corporation(s), association(s),
agency(ies), or individual(s) with whom the PAGCOR or
operator has any contractual relationship in connection
with the operations of the casino(s) authorized to be
conducted, so it must be that all contractees and licensees
of PAGCOR, upon payment of the 5% franchise tax, shall
likewise be exempted from all other taxes, including
corporate income tax realized from the operation of
casinos.
However, the contractees and licensees, like PAGCOR,
shall be liable for corporate income tax for income
derived from "other related services" (Bloomberry
Resorts and Hotels, Inc. vs. BIR, G.R. No. 212530, August 10,
2016, J. Perez).
TAXPAYER’S SUIT
What is a taxpayer’s suit?
It is a case where the act complained of directly involves
the illegal disbursement of public funds collected through
taxation.
What are the requisites of a taxpayer’s suit?
1. Public funds derived from taxation are disbursed by a
political subdivision or instrumentality and in doing
so, a law is violated or some irregularity is committed;
and
2. The petitioner is directly affected by the alleged act.
NOTE: A taxpayer’s suit would fail if what are alleged to
be illegally disposed of are object which were acquired
from private sources (Joya, et al. v. PCGG, et al., G.R. No.
96541, August 24, 1993).
Distinguish taxpayer’s suit from a citizen’s suit
In the case of a taxpayer’s suit, plaintiff is allowed to sue
where there is a claim that public funds are illegally
disbursed, or that public money is being deflected to any
improper purpose, or that there is a wastage of public
funds through the enforcement of an invalid or
unconstitutional law
6
In a citizen’s suit, the interest of the petitioner assailing
the constitutionality of a statute must be direct and
personal. He must be able to show, not only that the law
or any government act is invalid, but also that he
sustained or is in imminent danger of sustaining some
direct injury as a result of its enforcement, and not merely
that he suffers thereby in some indefinite way. It must
appear that the person complaining has been or is about
to be denied some right or privilege to which he is
lawfully entitled or that he is about to be subjected to
some burdens or penalties by reason of the statute or act
complained of (Francisco, Jr. v. Nagmamalasakit na mga
Manananggol ng mga Manggagawang Pilipino, Inc., 415
SCRA 44, G.R. No. 160262, November 10, 2003).
PART II: NATIONAL TAXATION
INCOME TAXATION
What is the concept of “income from whatever
source”?
Under Sec. 32 (A) of the NIRC, gross income means all
income derived from whatever source. It includes all
income not expressly excluded or exempted from the
class of taxable income, irrespective of the voluntary or
involuntary action of the taxpayer in producing the
income. Therefore, the source is immaterial – whether
derived from illegal, legal, or immoral sources, it is
taxable.
Sure Arrival Airways (SAA) is a foreign corporation,
organized under the laws of the Republic of Nigeria.
Its commercial airplanes do not operate within
Philippine territory, or service passengers
embarking from Philippine airports. The firm is
represented in the Philippines by its general agent,
Narotel. SAA sells airplane tickets through Narotel,
and these tickets are serviced by SAA airplanes
outside the Philippines. The total sales of airplane
tickets transacted by Narotel for SAA in 2012
amounted to P10, 000, 000.00. The Commissioner of
Internal Revenue (CIR) assessed SAA deficiency
income taxes at the rate of 30% on its taxable income,
finding that SAA's airline ticket sales constituted
income derived from sources within the Philippines.
SAA filed a protest on the ground that the alleged
deficiency income taxes should be considered as
income derived exclusively from sources outside the
Philippines since SAA only serviced passengers
outside Philippine territory. It, thus, asserted that the
imposition of such income taxes violated the
principle of territoriality in taxation. Is the theory of
SAA tenable? Explain. (2016 BAR)
NO. The activity which gives rise to the income is the sale
of ticket in the Philippines, hence, the income from sale of
tickets is an income derived from Philippines sources
which is subject to the Philippine income tax.
Accordingly, there is no violation of the principle of
territoriality in taxation (Air Canada v. CIR, 778 SCRA 131,
[2016]).
What is Tax Benefit Rule or Equitable Doctrine of Tax
Benefit?
It is a principle that if a taxpayer recovers a loss or expense
that was deducted in a previous year, the recovery must
 UST LAW PRE-WEEK NOTES 2017
be included in the current year's gross income to the
extent that it was previously deducted.
What are the instances where tax benefit rule
applies?
1. Recovery of bad debts – The recovery of bad debts
previously allowed as deduction in the preceding year
or years shall be included as part of the taxpayer’s
gross income in the year of such recovery to the extent
of the income tax benefit of said deduction.
If the taxpayer did not benefit from deduction of the
bad debt written-off because it did not result in any
reduction of his income tax in the year of such
deduction as in the case where the result of the
taxpayer’s business operation was a net loss even
without deduction of the bad debts written-off, his
subsequent recovery thereof shall be treated as a
mere recovery or a return of capital, hence, not
treated as receipt of realized taxable income.
2. Receipt of tax refunds or credit – If a taxpayer
receives tax credit certificate or refund for
erroneously paid tax which was claimed as a
deduction from his gross income that resulted in a
lower net taxable income or a higher net operating
loss that was carried over to the succeeding taxable
year, he realizes taxable income that must be included
in his income tax return in the year of receipt.
The foregoing principle does not apply to tax credits
or refunds of the following taxes since these are not
deductible from gross income:
a. Income tax;
b. Estate tax;
c. Donor’s tax; and
d. Special assessments.
Patrick is a successful businessman in the United
States and he is a sole proprietor of a supermarket
which has gross sales of $10 million and an annual
income of $3 million. He went to the Philippines on a
visit and, in a party, he saw Atty. Agaton who boasts
of being a tax expert. Patrick asks Atty. Agaton: if he
(Patrick) decides to reacquire his Philippine
citizenship under RA 9225, establish residence in
this country, and open a supermarket in Makati City,
will the BIR tax him on the income he earns from his
U.S. business? If you were Atty. Agaton, what advice
will you give Patrick? (2016 BAR)
I will advise Patrick that once he re-acquires his
Philippine citizenship and establishes his residence in
this country, his income tax classification would then be
a ‘resident citizen’. A resident citizen is taxable on all his
income, whether derived within or without the
Philippines; accordingly, the income he earns from his
business abroad will now be subject to the Philippine
income tax (Sec. 23, NIRC).
Alternative Answer
If Patrick becomes a dual citizen under RA 9225 in our
country, he shall be allowed to acquire real properties
and engage himself in business here just like an ordinary
Filipino without renouncing his foreign citizenship. In
addition, his income abroad will not be taxed here. These
are among the incentives we have extended to former
7
Filipinos under the Dual Citizenship Law so that they will
be encouraged to come home and invest their money in
our country.
Mr. A, a citizen and resident of the Philippines, is a
professional boxer. In a professional boxing match
held in 2013, he won prize money in United States
(US) dollars equivalent to P300, 000, 000.
a. Is the prize money paid to and received by Mr. A
in the US taxable in the Philippines? Why?
b. May Mr. A's prize money qualify as an exclusion
from his gross income? Why?
c. The US already imposed and withheld income
taxes from Mr. A's prize money. How may Mr. A
use or apply the income taxes he paid on his prize
money to the US when he computes his income
tax liability in the Philippines for 2013? (2015
BAR)
a. YES. A citizen of the Philippines residing therein is
taxable on all income derived from sources within
and without the Philippines (Sec. 23 A, NIRC). Mr. A,
being a resident citizen, is taxable on the prize he
received in United States.
b. NO. All prizes and awards granted to athletes in local
and international sports competitions and
tournaments, whether held in the Philippines or
abroad, and sanctioned by their national sports
associations are excluded from gross income. The
exclusion find application only to amateur athletes
where the prize was given in an event sanctioned by
the appropriate national sports association affiliated
with the Philippine Olympic Committee and not to
professional athletes like Mr. A. Therefore, the prize
money would not qualify as an exclusion from Mr. A’s
gross income (Sec. 32 B [7] [d], NIRC).
c. Mr. A has the option to claim foreign income tax
either as a deduction from gross income or as a tax
credit. The option of Mr. A is mutually exclusive.
If the option of Mr. A is a deduction from gross
income, the income tax on his prize money imposed
in US is included among the itemized deductions of
the taxpayer. If Mr. A signifies in his return his desire
to avail of the tax credit, he will be allowed a credit
on his tax due an amount equivalent to the income
tax paid or incurred in US during the taxable year but
not to exceed the limitation prescribed by law (Sec.
34 [C][1][b], NIRC).
BBB, Inc., a domestic corporation, enjoyed a
particularly profitable year in 2014. In June 2015, its
Board of Directors approved the distribution of cash
dividends to its stockholders. BBB, Inc. has individual
and corporate stockholders. What is the tax
treatment of the cash dividends received from BBB,
Inc. by the following stockholders?
a. A resident citizen
b. Non-resident alien engaged in trade or business
c. Non-resident alien not engaged in trade or
business
d. Domestic corporation
e. Non-resident foreign corporation (2015 BAR)
a. A final withholding tax of 10% shall be imposed upon
cash dividends actually or constructively received by
a resident citizen from BBB, Inc. [Sec. 24(b)(2), NIRC].
 TAXATION LAW
b. A final withholding tax of 20% shall be imposed upon
cash dividends actually or constructively received by
a non-resident alien engaged in trade or business
from BBB, Inc [Sec. 24(a)(2), NIRC].
c. A final withholding tax equal to 25% of the entire
income received from all sources within the
Philippines, including the cash dividends received
from BBB, Inc [Sec. 25(b), NIRC].
d. Dividends received by a domestic corporation from
another domestic corporation, such as BBB, Inc., shall
not be subject to tax [Sec. 27(d)(4), NIRC].
e. Dividends received by a non-resident foreign
corporation from a domestic corporation are
generally subject to an income tax of 30% to be
withheld at source [Sec. 28 (b)(1), NIRC]. However, a
final withholding tax of 15% is imposed on the
amount of cash dividends received from a domestic
corporation like BBB, Inc. if the tax sparing rule
applies [Sec. 28(B)(5)(b), NIRC]. Pursuant to this rule,
the lower rate of tax would apply if the country in
which the non-resident foreign corporation is
domiciled would allow as a tax credit against the tax
due from it, taxes deemed paid in the Philippines of
15% representing the difference between the regular
income tax rate and the preferential rate.
KKK Corp. secured its Certificate of Incorporation
from the Securities and Exchange Commission on
June 3, 2013. It commenced business operations on
August 12, 2013. In April 2014, Ms. J, an employee of
KKK Corp. in charge of preparing the annual income
tax return of the corporation for 2013, got confused
on whether she should prepare payment for the
regular corporate income tax or the minimum
corporate income tax.
a. As Ms. J's supervisor, what will be your advice?
b. What are the distinctions between regular
corporate income tax and minimum corporate
income tax (MCIT)? (2015 BAR)
a. As Ms. J’s supervisor, I will advise that KKK Corp.
should prepare payment for the regular corporate
income tax and not the MCIT. Under the Tax Code,
MCIT is only applicable beginning the 4th taxable
year following the commencement of business
operation [Sec. 27(e)(1), NIRC].
b. The distinctions between regular corporate income
tax and the minimum corporate income tax are the
following:
1. As to taxpayer: Regular corporate income tax
applies to all corporate taxpayers while
minimum corporate income tax applies to
domestic corporations and resident foreign
corporations.
2. As to tax rate: Regular corporate income tax is
30% while minimum corporate income tax is
2%.
3. As to tax base: Regular corporate income tax is
based on the net taxable income while minimum
corporate income tax is based on gross income.
4. As to period of applicability: Regular corporate
income tax is applicable once the corporation
commenced its business operation, while
minimum corporate income tax is applicable
beginning on the 4th taxable year following the
commencement of business operations.
5. As to imposition: The minimum corporate
income tax is imposed whenever it is greater
8
than the regular corporate income tax o the
corporation (Sec. 27(A) and (E), NIRC; RR No. 9-
98).
Methods of Accounting
Distinguish cash method from accrual method of
accounting.
In cash method, income is recognized only upon actual or
constructive receipt of cash payments or property but no
deductions are allowed from the cash income unless
actually disbursed through an actual or constructive
payment in cash or property.
Meanwhile, in accrual method, income is recognized in
the period it is earned, regardless of whether it has been
received or not. In the same manner, expenses are
accounted for in the period they are incurred and not in
the period they are paid (Domondon, 2013). Amounts of
income accrue where the right to receive them become
fixed, where there is created an enforceable liability.
Similarly, liabilities are accrued when fixed and
determinable in amount, without regard to
indeterminacy merely of time of payment (CIR v. Isabela
Cultural Corp., G.R. No. 172231, 2007).
Does the law provide for specific method of
accounting to be employed by the taxpayer?
As a general rule, the law does not provide for a specific
method of accounting to be employed by the taxpayer.
The law only authorizes the CIR to employ particular
method of accounting of income where:
a. The taxpayer does not employ a method for
computing income, or
b. The taxpayer’s method for accounting does not clearly
reflect the income (Domondon, 2015, citing Sec. 43 of
Tax Code).
Isabela Cultural Corporation (ICC) incurred
professional fees for legal and auditing services that
pertain to the 1984 and 1985. ICC did not claim
deductions for said expenses in 1984 and 1985 since
the cost of the services was not yet determinable at
that time. It claimed deductions only in 1986 when
ICC received the billing statements for said services.
BIR, however, contends that since ICC is using the
accrual method of accounting, the expenses for the
professional services that accrued in 1984 and 1985,
should have been declared as deductions from
income during the said years and the failure of ICC to
do so bars it from claiming said expenses as
deduction for the taxable year 1986. Decide.
The expenses should have been claimed as deductions in
1984 and1985. For a taxpayer using the accrual method,
the accrual of income and expense is permitted when the
all-events test has been met.
The all-events test requires the right to income or liability
be fixed, and the amount of such income or liability be
determined with reasonable accuracy. However, the test
does not demand that the amount of income or liability
be known absolutely, only that a taxpayer has at his
disposal the information necessary to compute the
amount with reasonable accuracy. The amount of liability
does not have to be determined exactly; it must be
determined with "reasonable accuracy."
 UST LAW PRE-WEEK NOTES 2017
The propriety of an accrual must be judged by the facts
that a taxpayer knew, or could reasonably be expected to
have known, at the closing of its books for the taxable
year. From the nature of the claimed deductions and the
span of time during which the firm was retained, ICC can
be expected to have reasonably known the retainer fees
charged by the firm as well as the compensation for its
legal services. The failure to determine the exact amount
of the expense during the taxable year when they could
have been claimed as deductions cannot thus be
attributed solely to the delayed billing of these liabilities
by the firm. For one, ICC, in the exercise of due diligence
could have inquired into the amount of their obligation to
the firm, especially so that it is using the accrual method
of accounting. For another, it could have reasonably
determined the amount of legal and retainer fees owing
to its familiarity with the rates charged by their long time
legal consultant (CIR v. Isabela Cultural Corp., G.R. No.
172231, 2007).
Income from Dealings in Property
Distinguish “capital asset” from “ordinary asset.”
(2003 BAR)
Ordinary assets refer to properties held by the taxpayer
used in connection with his trade or business which
includes the following: [SOUR]
a. Stock in trade of the taxpayer or other property of a
kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the
taxable year;
b. Property held by the taxpayer primarily for sale to
customers in the Ordinary course of trade or business;
c. Property Used in the trade or business of a character
which is subject to the allowance for depreciation
provided in the NIRC; and
d. Real property used in trade or business of the
taxpayer.
Capital assets, on the other hand, include property held
by the taxpayer (whether or not connected with his trade
or business) other than ordinary assets [SOUR] above.
What is the difference between capital gains and
ordinary gains? (1995 BAR)
Capital gains are gains realized from the sale or exchange
of capital assets, while ordinary gains refer to gains
realized from the sale or disposition of ordinary assets.
Discuss the tax treatment of capital gains and losses.
1. Capital gains from Sale of Stocks of Corporations
a. Stocks Traded in the Stock Exchange – subject to
stock transaction tax of ½ of 1% on its gross selling
price (Percentage Tax).
b. Stocks Not Traded in the Stock Exchange – subject
to Capital Gains Tax.
The holding period notwithstanding, a final tax at
the rates prescribed below is imposed upon the
net capital gains realized during the taxable year
from the sale, barter or exchange or other
disposition of shares of stock in a domestic
4 The Tax Code speaks of real property with respect to individual
taxpayers, estate and trust but only speaks of land and/or building with
respect to domestic corporations.
9
corporation which are not traded in the stock
exchange (NIRC, Sec. 24 [C]):
Not over ₱100K …..……………….………..……5%
On any amount in excess of ₱100K ……10%
2. From Sale of Real Properties / Land and/or
Buildings in the Philippines4 – capital gain derived is
subject to 6% capital gains tax based on the gross
selling price or current fair market value,
whichever is higher. No loss is recognized because
gain is presumed.
Gains from sale to the government of real property
classified as capital asset:
The taxpayer has the option to either:
a. Include as part of gross income subject allowable
deductions and personal exemptions, then subject
to the schedular tax (not available to a corporate
taxpayer); or
b. Subject to final tax of 6% on capital gains (Sec. 24
[D], NIRC).
3. From Sale of Other Capital Assets – the rules on
capital gains and losses apply in the determination of
the amount to be included in gross income subject to
the graduated rates of 5 - 32% for individuals and the
normal corporate income tax of 30% for corporations,
and not subject to capital gains tax.
State with reason the tax treatment of the following
in the preparation of annual income tax returns:
Income realized from sale of:
a. Capital assets; and
b. Ordinary assets. (2005 BAR)
a. Generally, income realized from the sale of capital
assets are not reported in the income tax return as
they are already subject to final taxes (capital gains
tax on real property and shares of stocks not traded
in the stock exchange). What are to be reported in the
annual income tax return are the capital gains
derived from the disposition of capital assets other
than real property or shares of stocks in domestic
corporations, which are not subject to final tax.
b. Income realized from sale of ordinary assets is part
of Gross Income, included in the Income Tax Return
(NIRC, Sec. 32 A [3]).
NOTE: Ordinary assets and capital assets are subject to
different rules. There are special rules that apply only to
capital transactions, to wit:
1. Holding period rule
2. Capital loss limitation
3. Net capital loss carry-over (NELCO)
What is Holding Period Rule?
Where the taxpayer held the capital asset sold for more
than 12 months, the gain derived therefrom is taxable
only to the extent of 50%. Consequently, if the taxpayer
held the capital asset sold for a year or less, the whole
gain shall be taxable. The same also applies to capital loss.
 TAXATION LAW

It is a form of tax avoidance since the taxpayer can exploit As to who Can be Can be availed of
it in order to reduce his tax due (NIRC, Sec. 39 [B]). can avail availed of by by individual and
individual corporate
Only individual taxpayers can avail of the holding period taxpayer only taxpayer
rule. It is not allowed to corporations. As to period May be Allows carryover
of carry-over carried over of operating loss
NOTE: Holding period does not find application in the only in the in 3 succeeding
case of disposition of: next taxable years or
succeeding in case of mining
1. shares of stock, and taxable year companies 5
2. real property considered as capital asset, whether years
the seller is an individual, trust, estate or a private
corporation. As to tax implication, distinguish shares of stocks not
listed and traded through stock exchange from those
What is Capital Loss Limitation Rule? listed and traded through stock exchange. (2008,
2011 BAR)
Losses from sale or exchanges of capital assets shall be
allowed only to the extent of the gains from such sales or
NOT listed Listed and
exchanges [NIRC, Sec. 39 (C)].
and traded traded
As to nature Income Business
Thus, capital loss is deductible only to the extent of
capital gain. The taxpayer can only deduct capital loss As to kind of Capital gains Percentage tax
from capital gain. If there is no capital gain, then no tax tax
deduction is allowed because you cannot deduct capital As to rate Not over ½ of 1%
loss from ordinary gain. ₱100,000 =
5%
Where the capital loss limitation rule will NOT apply: In excess of
₱100,000 =
a. If a bank or trust company incorporated under the 10%
laws of the Philippines, As to tax Net capital Gross selling
b. a substantial part of whose business is the receipt of base gain price
deposits,
c. sells any bond, debenture, note or certificate or other
evidence of indebtedness issued by any corporation, What is the tax treatment on sale or disposition of
with interest coupons or in registered form, real property located in the Philippines treated as
d. any losses resulting from such sale shall not be capital asset?
subject to the above limitations and shall not be
included in determining the applicability of such A final tax of 6% shall be imposed based on the higher
limitation to other losses (NIRC, Sec. 39 [C]). amount between:

What is Net Loss Carry Over (NELCO) rule? 1. The gross selling price; or
2. Whichever is higher between the current fair market
If any taxpayer, other than a corporation, sustains in any value as determined by:
taxable year a net capital loss, such loss (in an amount not 3.
in excess of the net income for such year) shall be treated a. Zonal Value – prescribed zonal value of real
in the succeeding taxable year as a loss from the sale or properties as determined by the CIR; or
exchange of a capital asset held for not more than 12 b. Assessed Value – the fair market value as shown
months (NIRC, Sec. 39 [D]). in the schedule of values of the Provincial and
City assessors (NIRC, Sec. 24 D [1]).
Rules with regard to NELCO:
NOTE: Actual gain or loss is immaterial since there is a
1. NELCO is allowed only to individuals, including conclusive presumption of gain. Also, the above rule shall
estates and trusts. apply only to domestic corporations, since foreign
2. The net loss carry-over shall not exceed the net corporations (RFC and NRFC) cannot own properties in
income for the year sustained and is deductible only the Philippines.
for the succeeding year.
3. The capital assets must not be real property or stocks What if the real property, which is a capital asset, is
listed and traded in the stock exchange. not located in the Philippines?
4. Capital asset must be held for not more than 12
months. Gains realized from the sale, exchange or other
disposition of real property, not located in the Philippines
Distinguish NELCO from Net Operating Loss Carry by resident citizens or domestic corporations shall be
Over (NOLCO) subject to ordinary income taxation (RR 7-2003, Sec. 4.
[F]) but subject to foreign tax credits.
BASIS NELCO NOLCO
As to source Arises from Arises from Such income may be exempt in case of non-resident
capital ordinary citizens, alien individuals and foreign corporations (RR 7-
transactions transactions 2003, Sec. 4. [F]).
meaning meaning
involving involving Hopeful Corporation obtained a loan from Generous
capital asset ordinary asset Bank and executed a mortgage on its real property to

10
 UST LAW PRE-WEEK NOTES 2017
secure the loan. When Hopeful Corporation failed to
pay the loan, Generous Bank extrajudicially
foreclosed the mortgage on the property and
acquired the same as the highest bidder. A month
after the foreclosure, Hopeful Corporation exercised
its right of redemption and was able to redeem the
property. Is Generous Bank liable to pay capital gains
tax as a result of the foreclosure sale? Explain. (2014
BAR)
NO. In a foreclosure of a real estate mortgage, the capital
gains tax accrues only after the lapse of the redemption
period because it is only then that there exists a transfer
of property. Thus, if the right to redeem the foreclosed
property was exercised by the mortgagor before the
expiration of the redemption period, as in this case, the
foreclosure is not a taxable event (See RR No. 4-99;
Supreme Transliner, Inc. v. BPI Family Savings Bank, Inc.
G.R. No. 165617, February 25, 2011).
What is principal residence?
Principal residence refers to the dwelling house,
including the land on which it is situated, where the
individual and members of his family reside, and
whenever absent, the said individual intends to return.
Actual occupancy is not considered interrupted or
abandoned by reason of temporary absence due to travel
or studies or work abroad or such other similar
circumstances (RR No. 14-00).
Is sale of principal residence by an individual subject
to capital gains tax? (2015 BAR)
A sale of principal residence by an individual is exempt
from capital gains tax provided the following requisites
are present:
1. Sale or disposition of the old actual principal
residence;
2. By a citizen or resident alien;
3. Proceeds from which is fully utilized in acquiring or
constructing a new principal residence within 18
calendar months from the date of sale or disposition;
4. Notify the CIR within 30 days from the date of sale or
disposition through a prescribed return of his
intention to avail the tax exemption;
5. Can be availed of once every 10 years;
6. The historical cost or adjusted basis of his old
principal residence shall be carried over to the cost
basis of his new principal residence;
7. If there is no full utilization, the portion of the gains
presumed to have been realized shall be subject to
capital gains tax; and
8. The 6% capital gains tax due shall be deposited with
an authorized agent bank subject to release upon
certification by the RDO that the proceeds of the sale
have been utilized (R.R. No. 14-00).
If the taxpayer constructed a new residence and then
sold his old house, is the transaction subject to capital
gains tax?
YES. Exemption from capital gains tax does not find
application since the law is clear that the proceeds should
be used in acquiring or constructing a new principal
residence. Thus, the old residence should first be sold
before acquiring or constructing the new residence.
Exclusions from Gross Income
11
Distinguish "Exclusion from Gross Income" from
"Deductions from Gross Income." Give an example of
each. (2001 BAR)
Exclusions from gross income refer to a flow of wealth to
the taxpayer which are not treated as part of gross
income, for purposes of computing the taxpayer’s taxable
income, due to the following reasons: (1) It is exempted
by the fundamental law; (2) It is exempted by statute; and
(3) It does not come within the definition of income (Sec.
61, RR No. 2).
Deductions from gross income, on the other hand, are the
amounts, which the law allows to be deducted from gross
income in order to arrive at net income.
Exclusions pertain to the computation of gross income,
while deductions pertain to the computation of net
income.
Exclusions are something received or earned by the
taxpayer which do not form part of gross income while
deductions are something spent or paid in earning gross
income.
Example of an exclusion from gross income is proceeds of
life insurance received by the beneficiary upon the death
of the insured which is not an income or 13th month pay
of an employee not exceeding P30, 000 (now at P82, 000)
which is an income not recognized for tax purposes.
Example of a deduction is business rental.
Deductions from Gross Income
To be entitled to claim a tax deduction, the taxpayer must
competently establish the factual and documentary bases
of its claim. (H. Tambunting Pawnshop vs. CIR, G.R. No.
173373, July 29, 2013, J. Bersamin).
What is the “Matching Concept” of deductibility?
This posits that the deductions must, as a general rule,
“match” the income, i.e. helped earn the income
(Domondon, 2013).
Ordinary and necessary expenses must have been paid or
incurred during the taxable year for it to be deductible
from gross income. Further, the deduction shall be taken
for the taxable year in which 'paid or accrued' or 'paid or
incurred.' Otherwise, the expenses are barred as
deductions in subsequent years (CIR v. Isabela Cultural
Corporation, G.R. No. 172231, February 12, 2007).
Distinguish Allowable Deductions from Personal
Exemptions. Give an example of an allowable
deduction and another example for personal
exemption. (2001 BAR)
The distinction between allowable deductions and
personal exemptions are as follows:
a. As to amount — Allowable deductions generally refer
to actual expenses incurred in the pursuit of trade,
business or practice of profession while personal
exemptions are arbitrary amounts allowed by law.
b. As to nature — Allowable deductions constitute
business expenses while personal exemptions pertain
to personal expenses.
c. As to purpose — Deductions are allowed to enable the
taxpayer to recoup his cost of doing business while
 TAXATION LAW
personal exemptions are allowed to cover personal,
family and living expenses.
d. As to claimants — Allowable deductions can be
claimed by all taxpayers, corporate or otherwise,
while personal exemptions can be claimed only by
individual taxpayers.
Tambunting was assessed for deficiency income tax
as a result of disallowance of deductions from gross
income on the ground that Tambunting had not
substantiated them by sufficient evidence.
Tambunting argues against the assessment that:
1. It had been able to point out the provisions of law
authorizing the deductions, and that the
provisions of Section 34 (A)(1)(b) of the 1997 Tax
Code, governing the types of evidence to prove a
claim for deduction of expenses, were applicable
because the law took effect during the pendency
of the case in the CTA;
2. It proved its entitlement to the deductions
through all the documentary and testimonial
evidence presented in court, namely:
a) Loss on auction sales - subasta books and
rematado;
b) Business expenses - withholding tax returns,
cash vouchers, lessor’s certifications, and the
contracts of lease;
c) Loss due to fire and theft - certification from
the Bureau of Fire Protection, the certification
from the Police Station, accounting entry for
the losses, and list of properties lost.
Rule on the above contentions by Tambunting.
The contentions of Tambunting are without merit. First,
the provisions of the 1997 Tax Code are not applicable
because the transactions involved occurred prior to its
effectivity. Instead, what governs is the provisions of P.D.
1158 or the 1977 Tax Code.
Second, tax deductions, being in the nature of tax
exemptions, are to be construed in strictissimi juris
against the taxpayer. Corollary to this rule is the principle
that when a taxpayer claims a deduction, he must point to
some specific provision of the statute in which that
deduction is authorized and must be able to prove that he
is entitled to the deduction which the law allows. In this
case, Tambunting failed to substantiate the deductions
with sufficient evidence.
a) Loss on auction sales - The subasta books were not the
proper evidence of such losses from the auctions because
they did not reflect the true amounts of the proceeds of
the auctions due to certain items having been left unsold
after the auctions. The rematado books did not also prove
the amounts of capital because the figures reflected
therein were only the amounts given to the pawnees.
b) Business expenses - The requisites for the deductibility
of ordinary and necessary trade or business expenses,
like those paid for security and janitorial services,
management and professional fees, and rental expenses,
are that:
a. the expenses must be ordinary and necessary;
b. they must have been paid or incurred during the
taxable year;
c. they must have been paid or incurred in carrying on
the trade or business of the taxpayer; and
12
d. they must be supported by receipts, records or other
pertinent papers.
Tambunting did not discharge its burden of
substantiating its claim for deductions due to the
inadequacy of its documentary support of its claim. Its
reliance on withholding tax returns, cash vouchers,
lessor’s certifications, and the contracts of lease was
futile because such documents had scant probative value.
The law required Tambunting to support its claim for
deductions with the corresponding official receipts
issued by the service providers concerned.
c) Loss due to fire and theft - The documents submitted to
support the claim were not enough. What were required
were for Tambunting to submit the sworn declaration of
loss mandated by RR 12-77. Its failure to do so was
prejudicial to the claim because the sworn declaration of
loss was necessary to forewarn the BIR that it had
suffered a loss whose extent it would be claiming as a
deduction of its tax liability, and thus enable the BIR to
conduct its own investigation of the incident leading to
the loss. Indeed, the documents Tambunting submitted to
the BIR could not serve the purpose of their submission
without the sworn declaration of loss (H. Tambunting
Pawnshop vs. CIR, G.R. No. 173373, July 29, 2013, J.
Bersamin).
Congress issued a law allowing a 20% discount on the
purchases of senior citizens from, among others,
recreation centers. This 20% discount can then be
used by the sellers as a "tax credit." At the initiative
of BIR, however, RA No. 9257 was enacted amending
the treatment of the 20% discount as a "tax
deduction." Equity Cinema filed a petition with the
RTC claiming that RA 9257 is unconstitutional as it
forcibly deprives sellers a part of the price without
just compensation.
a. What is the effect of converting the 20% discount
from a "tax credit" to a "tax deduction"?
b. If you are the judge, how will you decide the case?
Briefly explain your answer. (2016 BAR)
a. The effect of converting the 20% discount from a “tax
credit” to a tax deduction” is that the tax benefit
enjoyed by sellers of goods and services to senior
citizens is effectively reduced. A tax credit reduces the
tax liability while a tax deduction merely reduces the
tax base.
Under the tax credit scheme, the establishments are
paid back 100% of the discount they give to senior
citizens while under the tax deduction scheme, they
are only paid back about 32% of the 20% discount
granted to senior citizens.
b. I will decide in favor of the constitutionality of the law.
The 20% discount as well as the deduction scheme is
a valid exercise of the police power of the State
(Manila Memorial Park Inc. v. Department of Social
Welfare and Development, 711 SCRA 302 [2013]).
Freezy Corporation, a domestic corporation engaged
in the manufacture and sale of ice cream, made
payments to an officer of Frosty Corporation, a
competitor in the ice cream business, in exchange for
said officer’s revelation of Frosty Corporation’s trade
secrets. May Freezy Corporation claim the payment
to the officer as deduction from its gross income?
Explain. (2014 BAR)
 UST LAW PRE-WEEK NOTES 2017
NO. Payments made in exchange for the revelation of a
competitor’s trade secrets is considered as an expense
which is against law, morals, good customs or public
policy, which is not deductible (3M Philippines, Inc. v. CIR,
G.R. No. 82833, September 26, 1988).
Also, the law will not allow the deduction of bribes,
kickbacks and other similar payments. Applying the
principle of ejusdem generis, payment made by Freezy
Corporation would fall under “other similar payments”
which are not allowed as deduction from gross income
[Section 34(A)(1)(c), NIRC].
Rakham operates the lending company that made a
loan to Alfonso in the amount of P120, 000.00 subject
of a promissory note which is due within one (1) year
from the note's issuance. Three years after the loan
became due and upon information that Alfonso is
nowhere to be found, Rakham asks you for advice on
how to treat the obligation as "bad debt." Discuss the
requisites for deductibility of a "bad debt?" (2016
BAR)
I will advise Rakham that that the obligation of Alfonso
may now be considered as bad debts for having met the
yardstick of a debt which had become worthless. In order
to be considered worthless, the taxpayers should
establish that during the year from which a deduction is
sought, a situation developed as a result of which it
became evident the exercise of sound, objective business
judgement that there remained no practical, but only
vaguely theoretical prospect that the debt would ever be
paid (Collector of Internal Revenue v. Goodrich
International Rubber Co., 21 SCRA 1336 [1967]). A bad
debt deductible if it complies with the following
requisites:
a. There must be a valid and subsisting debt.
b. The obligation is connected with the taxpayer’s trade
or business and is not between related parties.
c. There is an actual ascertainment that the debt is
worthless.
d. The debt is charged-off during the taxable year. A
partial write-off is not allowed (PRC v. CA, 256 SCRA
667[1996]).
Peter is the Vice-President for Sales of Golden Dragon
Realty Conglomerate, Inc. (Golden Dragon). A group
of five (5) foreign investors visited the country for
possible investment in the condominium units and
subdivision lots of Golden Dragon. After a tour of the
properties for sale, the investors were wined and
dined by Peter at the posh Conrad's Hotel at the cost
of P150, 000.00. Afterward, the investors were
brought to a party in a videoke club which cost the
company P200, 000.00 for food and drinks, and the
amount of P80, 000.00 as tips for business promotion
officers. Expenses at Conrad's Hotel and the videoke
club were receipted and submitted to support the
deduction for representation and entertainment
expenses. Decide if all the representation and
entertainment expenses claimed by Golden Dragon
are deductible. Explain. (2016 BAR)
Reasonable allowance for entertainment, amusement,
and recreation expenses during the taxable year that are
directly connected or related to the operation or conduct
of the trade, business or profession, or that are directly
related to or in furtherance of the conduct of his/her
trade, business, or exercise of a profession not to exceed
13
such ceilings prescribed by rules and regulations, are
allowed as deduction from gross income.
In this case, the expenses incurred were to entertain the
investors of Golden Dragon; thus, the amount deductible
for entertainment, amusements and recreation expenses
is limited to the actual amount of paid or incurred but in
no case shall the deduction exceed 0.50% of net sales for
taxpayers engaged in the sale of goods or properties (Sec.
34(A)(1)(a)(iv), NIRC as implemented by RR No. 10-2002).
Henry, a U.S. naturalized citizen, went home to the
Philippines to reacquire Philippine citizenship under
RA 9225. His mother left him a lot and building in
Makati City and he wants to make use of it in his
trading business. Considering that he needs money
for the business, he wants to sell his lot and building
and make use of the consideration. However, the lot
has sentimental value and he wants to reacquire it in
the future. A friend of Henry told him of the "sale-
leaseback transaction" commonly used in the U.S.,
which is also used for tax reduction. Under said
transaction, the lot owner sells his property to a
buyer on the condition that he leases it back from the
buyer. At the same time, the property owner is
granted an option to repurchase the lot on or before
an agreed date. Henry approaches you as a tax lawyer
for advice.
Explain what tax benefits, if any, can be obtained by
Henry and the buyer from the sale-leaseback
transaction? (2016 BAR)
Henry will be entitled to claim rental expense as a
deduction from his gross income in the trading business.
His lease payments plus interest would be substantially
higher than the depreciation expense he may claim in
computing his taxable income; hence, the lease would
result in the additional benefit of increasing his
additional tax deductions. The buyer will be deriving
rental income from the property and be able to claim
business deductions such as real property taxes, repairs
and maintenance, depreciation and other expenses
necessary for the renting out of the property.
In 2012, Dr. K decided to return to his hometown to
start his own practice. At the end of 2012, Dr. K found
that he earned gross professional income in the
amount of P1, 000, 000.00; while he incurred
expenses amounting to P560, 000.00 constituting
mostly of his office space rent, utilities, and
miscellaneous expenses related to his medical
practice. However, to Dr. K’s dismay, only P320,
000.00 of his expenses were duly covered by receipts.
What are the options available for Dr. K so he could
maximize the deductions from his gross income?
(2015 BAR)
Dr. K may opt to use the optional standard deduction
(OSD) in lieu of the itemized deduction. OSD is a
maximum of forty percent (40%) of gross receipts during
the taxable year. Proof of actual expenses is not required,
but Dr. K shall keep such records pertaining to his gross
receipts.
Personal and Additional Deductions
Mr. E and Ms. F are both employees of AAA Corp. They
got married on February 14, 2011. On December 29,
2011, the couple gave birth to triplets. On June 25,
 TAXATION LAW
2013, they had twins. What were the personal
exemptions/deductions which Mr. E and Ms. F could
claim in the following taxable years:
a. For 2010
b. For 2011
c. For 2013? (2015 BAR)
a. For 2010, Mr. E and Ms. F are each entitled to personal
exemptions of P50, 000 [Sec. 35(A), NIRC].
b. For 2011, Mr. E and Ms. F are each entitled to basic
personal exemptions of P50, 000. In addition, Mr. E
could claim additional exemptions for three (3)
qualified dependent children in the amount of P25,
000 for each child [Sec. 35(B), NIRC].
c. For 2012, Mr. E and Ms. F are each entitled to basic
personal exemptions of P50, 000. In addition, Mr. E.
could claim additional exemptions for four (4)
qualified dependent children in the amount of P25,
000 for each child [Sec. 35(B), NIRC].
On 17 June 2008, R.A. 9504 was approved and signed
into law. The law increased the basic personal
exemption from P20, 000 for a single individual, P25,
000 for the head of the family, and P32, 000 for a
married individual to P50, 000 for each individual. It
also increased the additional exemption for each
dependent not exceeding four from P8, 000 to P25,
000. Are the increased personal and additional
exemptions applicable to the entire taxable year
2008 or prorated, considering that R.A. 9504 took
effect only on 6 July 2008?
The increased personal and additional exemptions
should be applied to the entire taxable year 2008.
Nothing expressly provides or even suggests a prorated
application of the exemptions for taxable year 2008.
Thus, there’s no reason to make any distinction between
the income earned prior to the effectivity of the
amendment (from 1 January 2008 to 5 July 2008) and
that earned thereafter (from 6 July 2008 to 31 December
2008) as none is indicated in the law. The principle that
the courts should not distinguish when the law itself does
not distinguish squarely applies to this case.
Moreover, the legislative policy of full taxable year
treatment of the personal and additional exemptions
has been in our jurisdiction as established, not by the
amendments introduced by R.A. 9504, but by the
provisions of Section 35 the 1997 NIRC. Said provision
does not allow the prorating of the personal and
additional exemptions even in case a status-changing
event occurs during the taxable year. Rather, it allows the
taxpayer the maximum exemptions that can be availed,
notwithstanding the fact that the latter's actual status
would qualify only for a lower exemption if prorating
were employed (Soriano v. Secretary of Finance, G.R. Nos.
184450, 184508, 184538 & 185234, January 24, 2017).
Minimum Wage Earners
R.A. 9504 was approved and took effect on 6 July
2008. The law granted MWEs exemption from
payment of income tax on their minimum wage,
holiday pay, overtime pay, night shift differential pay
and hazard. On 24 September 2008, the BIR issued RR
14
10-2008 implementing the provisions of R.A. 9504.
Decide the following:
a. Whether an MWE is exempt for the entire taxable
year 2008 or from 6 July 2008 only;
b. Whether an MWE who becomes non-MWE during
the year still qualifies for the exemption;
c. Whether they are entitled to basic personal
exemption;
d. Whether Sections 1 and 3 of RR 10-2008 are
consistent with the law in providing that an MWE
who receives other benefits in excess of the
statutory limit of P30, 000 (Now at P82, 000) is no
longer entitled to the exemption provided by R.A.
9504.
a. The MWE is exempt for the entire taxable year 2008.
As it stands, the calendar year 2008 remained as one
taxable year for an individual taxpayer. Therefore,
RR 10-2008 cannot declare the income earned by a
minimum wage earner from 1 January 2008 to 5 July
2008 to be taxable and those earned by him for the
rest of that year to be tax-exempt. To do so would be
to contradict the NIRC and jurisprudence, as taxable
income would then cease to be determined on a
yearly basis.
NOTE: The above ruling that the MWE exemption is
available for the entire taxable year 2008 is premised
on the fact of one's status as an MWE during the entire
year of 2008.
b. When the wages received exceed the minimum wage
anytime during the taxable year, the employee loses
the MWE qualification. Therefore, wages become
taxable as the employee ceased to be an MWE. But
the exemption of the employee from tax on the
income previously earned as an MWE remains.
The improvement of one's wage cannot justly
operate to make the employee liable for tax on the
income earned as an MWE.
c. One who ceases to be an MWE is still entitled to the
personal and additional exemptions. The MWE
exemption is separate and distinct from the personal
and additional exemptions. One's status as an MWE
does not preclude enjoyment of the personal and
additional exemptions.
Thus, when one is an MWE during a part of the year
and later earns higher than the minimum wage and
becomes a non-MWE, only earnings for that period
when one is a non-MWE is subject to tax. It also
necessarily follows that such an employee is entitled
to the personal and additional exemptions that any
individual taxpayer with taxable gross income is
entitled.
d. Sections 1 and 3 of RR 10-2008 add a requirement not
found in the law by effectively declaring that an MWE
who receives other benefits in excess of the statutory
limit of P30,000 is no longer entitled to the exemption
provided by R.A. 9504.
R.A. 9504 is explicit as to the coverage of the
exemption: the wages that are not in excess of the
minimum wage as determined by the wage boards,
including the corresponding holiday, overtime, night
 UST LAW PRE-WEEK NOTES 2017
differential and hazard pays. The minimum wage
exempted by R.A. 9504 is distinct and different from
other payments including allowances, honoraria,
commissions, allowances or benefits that an employer
may pay or provide an employee.
The treatment of bonuses and other benefits that an
employee receives from the employer in excess of the
P30, 000 (now at P82, 000) is taxable. The treatment
of this excess cannot operate to disenfranchise the
MWE from enjoying the exemption explicitly granted
by R.A. 9504 (Soriano v. Secretary of Finance, G.R. Nos.
184450, 184508, 184538 & 185234, January 24, 2017)
Corporate taxpayer’s options in case of excess
quarterly income taxes paid
What are the mechanisms and remedies that a
taxpayer may opt to exercise in case the sum of the
quarterly tax payments made during the said taxable
year exceeds the total tax due on the entire taxable
income of that year?
The taxpayer shall either:
a. Carry-over the excess credit against the estimated
quarterly income tax liabilities for the taxable
quarters of the succeeding taxable years; or
b. be credited or refunded with the excess amount paid
(Sec 76, NIRC).
NOTE: The above options are alternative and not
cumulative in nature, that is, the choice of one precludes
the other. The carry-over option, once actually or
constructively chosen by a corporate taxpayer, becomes
irrevocable. The logic behind the rule is to ease tax
administration, particularly the self-assessment and
collection aspects (Republic v. Team (Phils.) Energy Corp.,
G.R. No. 188016, January 14, 2015, J. Bersamin).
Claim for tax refund or credit of excess and unutilized
creditable withholding tax (CWT)
The annual income tax returns (ITR) for taxable
years 2002 and 2003 of Team (Phils.) Energy Corp.,
reflect overpaid income taxes or excess CWTs. It
indicated in the ITRs its option for the refund of the
tax overpayments. It then filed an administrative
claim for refund or issuance of tax credit certificate
with the BIR. Due to the inaction of the BIR, it filed a
Petition for Review with the CTA which rendered
decision in favor of Team (Phils.) Energy Corp.,
ordering the refund or the issuance of tax credit
certificate in its favor.
In its motion for reconsideration, CIR asserts that the
final adjustment return was not sufficient to
establish the claim for refund because it only
reflected the sum of the payments made and the taxes
due for the year. It contends that the quarterly return
was necessary to prove that the sum, as stated in the
adjusted return, was correct. Is the contention of BIR
tenable?
NO. The submission of quarterly returns is not necessary
to prove entitlement for refund. The requirements for
entitlement of a corporate taxpayer for a refund or the
issuance of tax credit certificate involving excess
withholding taxes are as follows:
15
1. That the claim for refund was filed within the two-
year reglementary period pursuant to Section 229 of
the NIRC;
2. When it is shown on the ITR that the income payment
received is being declared part of the taxpayer’s
gross income; and
3. When the fact of withholding is established by a copy
of the withholding tax statement, duly issued by the
payor to the payee, showing the amount paid and
income tax withheld from that amount.
Once the foregoing requirements are met, the taxpayer is
deemed to have discharged the burden of proving its
claim for refund or issuance of tax credit certificate
(Republic v. Team (Phils.) Energy Corp., G.R. No. 188016,
January 14, 2015, J. Bersamin).
What Section 76 requires, just like in all civil cases, is to
prove the prima facie entitlement to a claim, including the
fact of not having carried over the excess credits to the
subsequent quarters or taxable year. It does not say that
to prove such a fact, succeeding quarterly ITRs are
absolutely needed. This simply underscores the rule that
any document, other than quarterly ITRs may be used to
establish that indeed the non-carry over clause has been
complied with, provided that such is competent, relevant
and part of the records (Winebrenner & Inigo Insurance
Brokers, Inc. vs. CIR, G.R. No. 206526, January 28, 2015, J.
Mendoza).
In its 1997 ITR, PM Management International Inc.
expressly signified that it had a CWT of P1.2M for
taxable year 1997 to be claimed as tax credit in
taxable year 1998. However, due to its net-loss
position in 1998, the taxpayer was unable to claim
the P1.2M as tax credit.
On April 12, 2000, the taxpayer filed with BIR a
written claim for the refund of the P1.2M unutilized
CWT for taxable year 1997. Is the taxpayer entitled to
refund?
NO. Inasmuch as the respondent already opted to carry
over its unutilized CWT of P1.2M to taxable year 1998,
the carry-over could no longer be converted into a claim
for tax refund because of the irrevocability rule
provided in Section 76 of the NIRC of 1997. Thereby, the
respondent became barred from claiming the refund.
However, in view of its irrevocable choice, the
respondent remained entitled to utilize that amount of
P1.2M as tax credit in succeeding taxable years until fully
exhausted. In this regard, prescription did not bar it from
applying the amount as tax credit considering that there
is no prescriptive period for the carrying over of the
amount as tax credit in subsequent taxable years (CIR vs.
PL Management International Philippines, Inc., April 4,
2011, J. Bersamin).
What is the effect of failure to signify preference in
the return?
Failure to signify preference in the return does not bar
outright a claim for refund.
The corporation must signify its intention by marking the
corresponding option box provided in the final
adjustment return (FAR). While a taxpayer is required to
mark its choice in the form provided by the BIR, this
requirement is only for facilitating tax collection to ease
 TAXATION LAW
tax administration, particularly the self-assessment and
collection aspects.
Failure to signify one's intention in the FAR does not
mean outright barring of a valid request for a refund,
should one still choose this option later on. Despite the
failure of taxpayer to make the appropriate marking in
the BIR form, the filing of its written claim effectively
serves as an expression of its choice to request a tax
refund, instead of a tax credit. To assert that any future
claim for a tax refund will be instantly hindered by a
failure to signify one's intention in the FAR is to render
nugatory the clear provision that allows for a two-year
prescriptive period (Philam Asset Management Inc. v. CIR,
G.R. Nos. 156637/162004, December 14, 2005).
Filing of income tax return
Indicate whether each of the following individuals is
required or not required to file an income tax return:
a. Filipino citizen residing outside the Philippines
on his income from sources outside the
Philippines.
b. Resident alien on income derived from sources
within the Philippines.
c. Resident citizen earning purely compensation
income from two employers within the
Philippines, whose income taxes have been
correctly withheld.
d. Resident citizen who falls under the classification
of minimum wage earners.
e. An individual whose sole income has been
subjected to final withholding tax. (2015 BAR)
a. Not required. The income of a non-resident Filipino
citizen is taxable only on income sourced within the
Philippines. Accordingly, his income from sources
outside the Philippines is exempt from income tax
[Sec. 51(A)(1)(b), NIRC]
b. Required. A resident alien is taxable only on income
derived from sources within the Philippines [Sec.
51(A)(1)(c), NIRC].
c. Required. A resident citizen who is earning purely
compensation income from two employers should
file income tax return. If the compensation income is
received concurrently from two employers during
the taxable year, the employee is not qualified for
substituted filing [Sec. 51(A)(2)(b), NIRC].
d. Not required. Under the law, all minimum wage
earners in the private and public sector shall be
exempt from payment of income tax [Sec.
51(A)(2)(d), NIRC in relation to R.A. No. 9504].
e. Not required. Under the law, an individual whose
sole income has been subjected of final withholding
tax pursuant to Sec. 57(A), NIRC, need not file a
return. What he received is a tax paid income [Sec.
51(A)(2)(c), NIRC].
WITHHOLDING TAX
5 SEC. 22. Definitions - When used in this Title: xxx (Y) The term ‘deposit
substitutes’ shall mean an alternative form of obtaining funds from the
public (the term 'public' means borrowing from twenty (20) or more
individual or corporate lenders at any one time) other than deposits,
through the issuance, endorsement, or acceptance of debt instruments
for the borrower’s own account, for the purpose of relending or
purchasing of receivables and other obligations, or financing their own
needs or the needs of their agent or dealer. These instruments may
include, but need not be limited to, bankers’ acceptances, promissory
16
Discuss the nature and purpose of withholding tax
system under the law.
The purpose of the withholding tax system is threefold:
(1) to provide the taxpayer with a convenient way of
paying his tax liability; (2) to ensure the collection of tax,
and (3) to improve the government’s cashflow.
Under the withholding tax system, the payor is the
taxpayer upon whom the tax is imposed, while the
withholding agent simply acts as an agent or a collector
of the government to ensure the collection of taxes. It is,
therefore, indisputable that the withholding agent is
merely a tax collector and not a taxpayer. The liability of
the withholding agent is independent from that of the
taxpayer. The former cannot be made liable for the tax
due because it is the latter who earned the income subject
to withholding tax. The withholding agent is liable only
insofar as he failed to perform his duty to withhold the
tax and remit the same to the government. The liability
for the tax, however, remains with the taxpayer because
the gain was realized and received by him.
While the withholding agent can be held accountable for
its negligence in performing its duty to withhold the
amount of tax due on the transaction, the taxpayer and
the one which earned income on the transaction, remains
liable for the payment of tax as the taxpayer shares the
responsibility of making certain that the tax is properly
withheld by the withholding agent, so as to avoid any
penalty that may arise from the nonpayment of the
withholding tax due (Rizal Commercial Banking
Corporation vs. CIR, G.R. No. 170257, September 7, 2011, J.
Mendoza).
Note that withholding tax is merely a method of collecting
income tax in advance. The perceived tax is collected at
the source of income payment to ensure collection.
Consequently, those subjected to the final withholding
tax are no longer subject to the regular income tax (Banco
de Oro vs. Republic of the Philippines, G.R. No. 198756
(Resolution), August 16, 2016, J. Leonen).
In 2011, the BIR issued a Ruling where it declared
that all treasury bonds (including PEACe Bonds),
regardless of the number of purchasers/lenders at
the time of origination/issuance are considered
deposit substitutes. The PEACe Bonds are thus
subject to 20% final withholding tax on interest
income from deposit substitutes. Is the BIR ruling
valid?
NO. Under Sections 24(B)(1), 27(D)(1), and 28(A)(7) of
the Tax Code of 1997, a final withholding tax at the rate
of 20% is imposed on interest on any currency bank
deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar
arrangements.
Deposit substitutes are defined under Section 22(Y)5 of
the Tax Code with the addition of the qualifying phrase
for public – borrowing from 20 or more individual or
notes, repurchase agreements, including reverse repurchase
agreements entered into by and between the Bangko Sentral ng
Pilipinas (BSP) and any authorized agent bank, certificates of
assignment or participation and similar instruments with recourse:
Provided, however, That debt instruments issued for interbank call
loans with maturity of not more than five (5) days to cover deficiency in
reserves against deposit liabilities, including those between or among
banks and quasi-banks, shall not be considered as deposit substitute
debt instruments.
 UST LAW PRE-WEEK NOTES 2017
corporate lenders at any one time. Hence, the number of
lenders is determinative of whether a debt instrument
should be considered a deposit substitute and
consequently subject to the 20% final withholding tax
(Banco de Oro vs. Republic of the Philippines, G.R. No.
198756, January 15, 2015, J. Leonen).
Based on the definition of deposit substitutes, what is
the meaning of “at any one time”?
The phrase “at any one time” for purposes of determining
the “20 or more lenders” would mean every transaction
executed in the primary or secondary market in
connection with the purchase or sale of securities.
For example, where the financial assets involved are
government securities like bonds, the reckoning of “20 or
more lenders/investors” is made at any transaction in
connection with the purchase or sale of the Government
Bonds, such as:
1. Issuance by the Bureau of Treasury of the bonds to
GSEDs in the primary market;
2. Sale and distribution by GSEDs to various
lenders/investors in the secondary market;
3. Subsequent sale or trading by a bondholder to
another lender/investor in the secondary market
usually through a broker or dealer; or
4. Sale by a financial intermediary-bondholder of its
participation interests in the bonds to individual or
corporate lenders in the secondary market.
When, through any of the foregoing transactions, funds
are simultaneously obtained from 20 or more
lenders/investors, there is deemed to be a public
borrowing and the bonds at that point in time are deemed
deposit substitutes. Consequently, the seller is required
to withhold the 20% final withholding tax on the imputed
interest income from the bonds (Banco de Oro vs. Republic
of the Philippines, G.R. No. 198756, January 15, 2015, J.
Leonen).
NOTE: Debt instruments that do not qualify as deposit
substitutes are subject to the regular income tax.
Distinguish indirect taxes from withholding taxes.
Indirect taxes, like VAT and excise tax, are different from
withholding taxes (direct taxes). To distinguish, indirect
taxes, the incidence of taxation falls on one person but the
burden thereof can be shifted or passed on to another
person, such as when the tax is imposed upon goods
before reaching the consumer who ultimately pays for it.
On the other hand, in case of withholding taxes, the
incidence and burden of taxation fall on the same entity,
the statutory taxpayer. The burden of taxation is not
shifted to the withholding agent who merely collects, by
withholding, the tax due from income payments to
entities arising from certain transactions and remits the
same to the government (Asia International Auctioneers,
Inc. v. CIR, G.R. No. 179115, September 26, 2012).
FRINGE BENEFITS TAX (FBT)
What is fringe benefit?
Fringe benefit is any good, service or other benefit
furnished or granted by an employer in cash or in kind in
addition to basic salaries, to an individual employee,
17
except a rank and file employee, such as but not limited
to: [HEV-HIM-HEEL]
1. Housing
2. Expense account
3. Vehicle of any kind
4. Household personnel such as maid, driver and others
5. Interest on loans at less than market rate to the
extent of the difference between the market rate and
the actual rate granted
6. Membership fees, dues and other expenses athletic
clubs or other similar organizations
7. Expenses for foreign travel
8. Holiday and vacation expenses
9. Educational assistance to the employee or his
dependents
10. Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the
law allows (NIRC, Sec. 33 [B]; R.R. 3-98, Sec. 2.33 [B]).
What is the tax treatment of fringe benefits?
If the benefit is not tax-exempt and the recipient is:
1. A rank and file employee – the value of such fringe
benefit shall be considered as part of the
compensation income of such employee subject to tax
payable by the employee;
2. A managerial or supervisory employee – the value
shall not be included in the compensation income of
such employee subject to tax. The FBT is payable by
the employer on behalf of the employee (NIRC, Sec.
33).
What is the nature of FBT?
FBT is imposed on the grossed-up monetary value (GMV)
of fringe benefit furnished, granted or paid by the
employer to the employee, except rank and file
employees (R.R. 3-98, Sec. 2.33 [A]).
FBT is treated as a final income tax on the employee that
shall be withheld and paid by the employer on a calendar
quarterly basis (CIR v. Secretary of Justice, G.R. No. 177387,
November 9, 2016, J. Bersamin).
What are the fringe benefits exempt from FBT?
1. Fringe benefits which are authorized and exempted
from tax under the NIRC or special laws (e.g.
separation benefits which are given to employees who
are involuntarily separated from work);
2. Contributions of the employer for the benefit of the
employee to retirement, insurance and
hospitalization benefit plans;
3. Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or
not;
4. De minimis benefits, whether given to rank and file
employees or to supervisory or managerial
employees;
5. Fringe benefits granted to employee as required by
the nature of, or necessary to the trade, business or
profession of the employer;
6. Fringe benefits granted for the convenience of the
employer (Employer’s Convenience Rule) (NIRC, Sec.
32; R.R. 3-98, Sec. 2.33 [C]).
NOTE: Although a fringe benefit may be exempted from
the FBT, it may still fall under a different tax under
 TAXATION LAW
another law, such as the compensation income tax or the
like.
PAGCOR extends car plan extended by PAGCOR to its
qualified officers. It asserts that the car plan was
granted "not only because it was necessary to the
nature of the trade of PAGCOR but it was also granted
for its convenience." Is PAGCOR liable to withhold
FBT on its car plan?
YES. For FBT, PAGCOR is a mere withholding agent
inasmuch as the FBT is imposed on PAGCOR's employees
who receive the fringe benefit. PAGCOR's liability as a
withholding agent is not covered by the tax exemptions
under its Charter.
The car plan extended by PAGCOR to its qualified officers
is evidently considered a fringe benefit as defined under
Section 33 of the Tax Code. To avoid the imposition of the
FBT on the benefit received by the employee, and,
consequently, to avoid the withholding of the payment
thereof by the employer, PAGCOR must sufficiently
establish that the fringe benefit is required by the nature
of, or is necessary to the trade, business or profession of
the employer, or when the fringe benefit is for the
convenience or advantage of the employer, which
PAGCOR failed to establish.
Accordingly, PAGCOR should have withheld the FBT from
the officers who have availed themselves of the benefits
of the car plan and remitted the same to the BIR (CIR v.
Secretary of Justice, G.R. No. 177387, November 9, 2016, J.
Bersamin).
Is PAGCOR’s payment of membership dues and fees to
cover various memberships in social, athletic clubs
and similar organizations subject to FBT?
NO. PAGCOR’s nature of business is casino operations
and it derives business from its customers who play at the
casinos. In furtherance of its business, it usually attends
its VIP customers, amenities such as playing rights to golf
clubs. The membership of PAGCOR to these golf clubs and
other organizations are intended to benefit customers
and not its employees. Moreover, the membership is
under the name of PAGCOR, and as such, cannot be
considered as fringe benefits because it is the customers
and not the employees of PAGCOR who benefit from such
memberships.
Considering that the payments of membership dues and
fees are not borne by PAGCOR for its employees, they
cannot be considered as fringe benefits which are subject
to FBT. Hence, PAGCOR is not liable to withhold FBT from
its employees (CIR v. Secretary of Justice, G.R. No. 177387,
November 9, 2016, J. Bersamin).
Mapagbigay Corporation grants all its employees
(rank and file, supervisors, and managers) 5%
discount of the purchase price of its products. During
an audit investigation, the BIR assessed the company
the corresponding tax on the amount equivalent to
the courtesy discount received by all the employees,
contending that the courtesy discount is considered
as additional compensation for the rank and file
employees and additional fringe benefit for the
supervisors and managers. In its defense, the
company argues that the discount given to the rank
and file employees is a de minimis benefit and not
subject to tax. As to its managerial employees, it
18
contends that the discount is nothing more than a
privilege and its availment is restricted.
Is the BIR assessment correct? Explain. (2016 BAR)
NO. The courtesy discounts given to rank and file
employees are considered “de minimis benefits” falling
under the category of other facility and privileges
furnished or offered by an employer to his employees
which are of relatively small value intended to promote
the health, goodwill, contentment or efficiency of the
employee. These benefits are not considered as
compensation subject to income tax and consequently to
withholding tax (Sec.2.78.1 of RR No. 10-2008). If these “de
minimis benefits” are furnished to supervisors and
managers, the same are also exempt from the fringe
benefits tax (RR No. 3-98; Sec. 33, NIRC).
Alternative Answer:
YES, the BIR assessment is correct. De minimis benefits
are benefits of relatively small values provided by the
employers to the employee on top of the basic
compensation intended for the general welfare of the
employees. It is considered exempt from income tax on
compensation as well as from fringe benefit tax, provided
it does not exceed P10, 000 per employee per taxable
year.
This list of de minimis benefits is exclusive and anything
that is given which is not on the list, shall not be
considered de minimis. The 5% discount of purchase
price of its products, not being in this enumeration, is
subject to tax as well as to withholding tax on
compensation.
TRANSFER TAX
In 2011, Solar Computer Corporation (Solar)
purchased a proprietary membership share covered
by Membership Certificate No. 8 from the Mabuhay
Golf Club, Inc. for P500, 000.00. On December 27,
2012, it transferred the same to David, its American
consultant, to enable him to avail of the facilities of
the Club. David executed a Deed of Declaration of
Trust and Assignment of Shares wherein he
acknowledged the absolute ownership of Solar over
the share; that the assignment was without any
consideration; and that the share was placed in his
name because the Club required it to be done. In
2013, the value of the share increased to P800,
000.00.
Is the said assignment a "gift" and, therefore, subject
to gift tax? Explain. (2016 BAR)
NO. The transfer is not a taxable donation because there
is no divestment of ownership by the transferor. The
purpose of the transfer is simply to allow David to avail
of the facilities of the Club. The execution of a “Deed of
Declaration of Trust and Assignment of Shares” where
the absolute ownership by Solar of the share is
acknowledged would show that there is no
relinquishment of ownership by Solar. The transfer being
merely a transfer in form but not in substance, the same
is not subject to gift tax.
Alternative Answer:
 UST LAW PRE-WEEK NOTES 2017
The assignment is a “gift” subject to gift tax. The absence
of donative intent does not exempt the sales of stock
transaction from donor’s tax since Sec. 100 of the NIRC
categorically states that the amount by which the fair
market value of the property exceeded the value of the
consideration shall be deemed a gift. Thus, even if there
is no actual donation, the difference in price is considered
a donation by fiction of law (Philam Life and General
Insurance Co. v. of finance and CIR, 741 SCRA 579 [2014]).
Jennifer is the only daughter of Janina who was a
resident in Los Angeles, California, U.S.A. Janina died
in the U.S. leaving to Jennifer one million shares of
Sun Life (Philippines), Inc., a corporation organized
and existing under the laws of the Republic of the
Philippines. Said shares were held in trust for Janina
by the Corporate Secretary of Sun Life and the latter
can vote the shares and receive dividends for Janina.
The Internal Revenue Service (IRS) of the U.S. taxed
the shares on the ground that Janina was domiciled
in the U.S. at the time of her death.
Can the CIR of the Philippines also tax the same
shares? Explain. (2016 BAR)
YES. The property being a property located in the
Philippines, it is subject to the Philippine estate tax
irrespective of the citizenship or residence of the
decedent (Sec. 85, NIRC). However, if Janina is a non-
resident alien at her time of her death, the transmission
of the shares of stock can only be taxed applying the
principle of reciprocity (Sec. 104, NIRC).
What is a judicial expense for purposes of deductions
from the gross estate of the decedent?
Judicial expenses are expenses of administration which
include all expenses “essential to the collection of the
assets, payment of debts or the distribution of the
property to the persons entitled to it.” In other words, the
expenses must be essential to the proper settlement of
the estate.
However, it does not include the following:
1. Expenditures incurred for the individual benefit of
the heirs, devisees, legatees;
2. Compensation paid to a trustee of the decedent’s
estate when it appeared that such trustee was
appointed for the purpose of managing the
decedent’s real property for the benefit of the
testamentary heir;
3. Premiums paid on the bond filed by the
administrator as an expense of administration since
the giving of a bond is in the nature of a qualification
for the office and not necessary for the settlement of
the estate; and
4. Attorney’s fees incident to litigation incurred by the
heirs in asserting their respective rights (CIR v. CA,
G.R No. 123206, Mar. 22, 2000).
May the notarial fee paid for the extrajudicial
settlement and the attorney's fees in the
guardianship proceedings be allowed as deductions
from the gross estate of decedent in order to arrive at
the value of the net estate?
YES. Administration expenses, as an allowable deduction
from the gross estate of the decedent for purposes of
arriving at the value of the net estate, have been
construed to include all expenses essential to the proper
19
settlement of the estate. The notarial fee paid for the
extrajudicial settlement is clearly deductible expense
since such settlement effected the distribution of estate
to lawful heirs. Similarly, the attorney's fees paid to the
guardian of property of the deceased during his lifetime
should also be considered as a deductible administration
expense (CIR v. CA, G.R No. 123206, Mar. 22, 2000).
BIR issued an Estate Tax Assessment Notice
demanding payment of the deficiency estate tax
against Jose Fernandez’s estate. The administrator
claims that in as much as the valid claims of creditors
against the estate are in excess of the gross estate, no
estate tax was due.
May the actual claims of the creditors be fully allowed
as deductions from the gross estate of Jose despite
the fact that the claims were reduced or condoned
through compromise agreements entered into by the
Estate with its creditors?
YES. Under the date-of-death valuation rule, claims
existing at the time of death should be made the basis of
the determination of allowable deductions. Thus, post-
death developments, such as condonation in this case, are
not material in determining the amount of the deduction
(Dizon, et. al v. CA, G.R. No. 140944, April 30, 2008).
VALUE-ADDED TAX (VAT)
What is the Destination Principle and Cross Border
Doctrine in VAT?
Under the Destination Principle, the goods and services
are taxed only in the country where these are consumed,
and in connection with the said principle, the Cross-
Border Doctrine mandates that no VAT shall be imposed
to form part of the cost of the goods destined for
consumption outside the territorial border of the taxing
authority. Hence, actual export of goods and services
from the Philippines to a foreign country must be free of
VAT, while those destined for use or consumption within
the Philippines shall be imposed with 10% (now 12%)
VAT (Atlas Consolidated Mining and Development
Corporation v. CIR, G.R. No. 141104 & 148763, June 8,
2007).
Who is liable to pay VAT?
The seller is the one statutorily liable for the payment of
the tax but the amount of the tax may be shifted or passed
on to the buyer, transferee or lessee of goods, properties
or services.
In case of importation, the importer is the one liable for
VAT (Sec. 4.105-2, R.R. 16-2005).
What are the elements of VATable transaction?
The following must be present in order for a transaction
to be subjected to 12% VAT:
1. It must be done in the ordinary course of trade or
business;
2. There must be a sale, barter, exchange, lease of
properties, or rendering of service in the Philippines;
and
3. It is not VAT-exempt or VAT zero-rated (Ingles, 2015).
 TAXATION LAW
What is Rule of Regularity? (In the course of trade or
business)
It means the regular conduct or pursuit of a commercial
or an economic activity, including transactions
incidental thereto, by any person regardless of whether
or not the person engaged therein is a non-stock, non-
profit private organization (irrespective of the
disposition of its net income and whether or not it sells
exclusively to members or their guests), or government
entity (Sec. 105, NIRC).
There should be:
1. Commercial or economic activity – It implies that a
transaction is conducted for profit; and
2. Regularity or habituality in the action – Regularity
involves more than one isolated transaction and
involves repetition and continuity of action (Ingles,
2015).
Is the requirement of regularity absolute?
NO. The following are exceptions to regularity:
1. Non-resident alien who perform services in the
Philippines are deemed to be making sales in the
course of trade or business, even if the performance of
services is not regular (Sec. 4.105-3, RR 16-2005).
2. Importations are subject to VAT whether in the
course of trade or business or not.
3. Any business where the gross sales or receipts do not
exceed P100, 000 during the 12-month period shall
be considered principally for subsistence or
livelihood and not in the course of trade or business.
Is profit required for VAT to be imposed?
NO. VAT is a tax on transaction, there is no need for a
taxable gain, unlike in the income tax. It is not required
either by law or jurisprudence (Ingles, 2015).
VAT is a tax on transactions imposed at every stage of the
distribution process on the sale, barter, exchange of
goods or property, and on the performance of services,
even in the absence of profit attributable thereto. The term
“in the course of trade or business” applies to all
transactions. Even a non-stock, non-profit corporation or
government entity is liable to pay VAT for the sale of
goods and services (CIR v. COMASERCO, March 30, 2000).
Are toll fees collected by tollway operators are
subject to VAT?
YES, because tollway operators are not VAT exempt
franchise holders and tollway operation is not a VAT
exempt transaction. VAT is imposed on “all kinds of
services” including tollway operations which are engaged
in construction, maintaining and operating expressways
(Diaz v. Sec. of Finance, 654 SCRA 96).
Are gross receipts derived from sales of admission
tickets in showing motion pictures subject to VAT?
NO. The legislative intent is not to impose VAT on persons
already covered by the amusement tax. The repeal by the
LGC of 1991 of the Local Tax Code transferring the power
to impose amusement tax on cinema/theater operators
or proprietors to the local government did not grant nor
restore the said power to the national government nor
did it expand the coverage of VAT. Since the imposition of
20
a tax is a burden on the taxpayer, it cannot be presumed
nor can it be extended by implication. As it is, the power
to impose amusement tax on cinema/theater operators
or proprietors remains with the local government.
A contrary ruling will subject cinema/theater operators
or proprietors to a total of 40% tax, the 10% (now 12%)
VAT being on top of the 30% amusement tax imposed by
the LGC of 1991, thereby killing the “[goose] that lays the
golden egg[s].”
The “lease of motion picture films, films, tapes and discs”
under Sec. 108 of the NIRC is not the same as the showing
or exhibition of motion pictures or films. “Exhibition” is
defined as “to show or to display. x x x To produce
anything in public so that it may be taken in possession”.
On the other hand, “lease” is defined as “a contract by
which one owning such property grants to another the
right to possess, use and enjoy it on specified period of
time in exchange for periodic payment of a stipulated
price, referred as rent.” Thus, the legislature never
intended to include cinema/theater operator operators
or proprietors in the coverage of VAT (CIR v. SM Prime
Holdings, Inc., G.R. No. 183505, February 26, 2010).
The BIR subjected to VAT the total amount of money
or its equivalent actually received by MEDICARD
from members including the amount earmarked and
eventually paid by MEDICARD to the medical service
providers. The CIR contends that the act of
earmarking or allocation is by itself an act of
ownership and management over the funds. Is BIR
correct?
NO. For purposes of determining the VAT liability of an
HMO, the amounts earmarked and actually spent for
medical utilization of its members should not be included
in the computation of its gross receipts.
Based on industry practice, MEDICARD informs its
would-be member beforehand that 80% of the amount
would be earmarked for medical utilization and only the
remaining 20% comprises its service fee. The act of
earmarking or allocating 80% of the amount it received
as membership fee at the time of payment weakens the
ownership imputed to it. By earmarking or allocating
80% of the amount, MEDICARD unequivocally recognizes
that its possession of the funds is not in the concept of
owner but as a mere administrator of the same. For this
reason, at most, MEDICARD's right in relation to these
amounts is a mere inchoate owner which would ripen
into actual ownership if, and only if, there is
underutilization of the membership fees at the end of the
fiscal year. Prior to that, MEDICARD is bound to pay from
the amounts it had allocated as an administrator once its
members avail of the medical services of MEDICARD's
healthcare providers (Medicard Philippines, Inc. vs. CIR,
G.R. No. 222743, April 5, 2017, J. Reyes).
In June 2013, DDD Corp., a domestic corporation
engaged in the business of leasing real properties in
the Philippines, entered into a lease agreement of a
residential house and lot with EEE, Inc., a non-
resident foreign corporation. The residential house
and lot will be used by officials of EEE, Inc. during
their visit to the Philippines. The lease agreement
was signed by representatives from DDD Corp. and
EEE, Inc. in Singapore. DDD Corp. did not subject the
said lease to VAT believing that it was not a domestic
 UST LAW PRE-WEEK NOTES 2017
service contract. Was DDD Corp. correct? Explain.
(2015 BAR)
DDD Corp. is not correct. Lease of properties shall be
subject to VAT irrespective of the place where the
contract of lease was executed if the property is leased or
used in the Philippines.
Is a pawnshop operator liable for VAT?
NO. It is now settled that for purposes of determining
their tax liability, pawnshops are treated as non-bank
financial intermediaries. Being as such, it is no longer
liable for VAT but it is subject to percentage tax on gross
receipts from 0% to 5%, as the case may be, by virtue of
R.A. No. 9238 (H. Tambunting Pawnshop, Inc. v. CIR, G.R.
No. 172394, October 13, 2010, J. Bersamin).
The BIR issued RMC No. 65-2012 imposing VAT on
association dues and membership fees collected by
condominium corporations from its member
condominium-unit owners. The RMC’s validity is
challenged before the Supreme Court by the
condominium corporations.
The Solicitor General, counsel for BIR, claims that
association dues, membership fees, and other
assessment/ charges collected by a condominium
corporation are subject to VAT since they constitute
income payments or compensation for the beneficial
services it provides to its members and tenants.
On the other hand, the lawyer of the condominium
corporations argues that such dues and fees are
merely held in trust by the condominium
corporations exclusively for their members and used
solely for administrative expenses in implementing
the condominium corporations’ purposes.
Accordingly, the condominium corporations, do not
actually render services for a fee subject to VAT.
Whose argument is correct? Decide. (2014 BAR)
The lawyer of the condominium corporations is correct.
The association dues, membership fees, and other
assessment/charges do not constitute income payments
because they were collected for the benefit of the unit
owners and the condominium corporation is not created
as a business entity. The collection is the money of the
unit owners pooled together and will be spent exclusively
for the purpose of maintaining and preserving the
building and its premises which they themselves own and
possess (First e-Bank Tower Condominium Corp., v. BIR,
Special Civil Action No. 12-1236, RTC Br. 146, Makati City).
6 An Act Amending Sections 27, 28, 34, 106, 107, 108, 109, 110, 111,
112, 113, 114, 116, 117, 119, 121, 148, 151, 236, 237 and 288 of the
National Internal Revenue Code of 1997, As Amended, and For Other
Purposes
7 An Act Restructuring the Value Added Tax (VAT) System, Widening its
Tax Base and Enhancing its Administration, and for these Purposes
Amending and Repealing the Relevant Provisions of the National
Internal Revenue Code, as Amended, and For Other Purposes
8 SEC. 3. Section 102 of the National Internal Revenue Code, as
amended, is hereby further amended to read as follows:
"SEC. l 02. Value-added tax on sale of services and use or lease of
properties. - (a) Rate and base of tax. - There shall be levied,
assessed and collected, a value-added tax equivalent to 10% (now
at 12%) of gross receipts derived from the sale or exchange of
services, including the use or lease of properties.
21
BIR issued RR No. 16-2005, specifically identifying
PAGCOR as one of the franchisees subject to VAT
imposed under the Tax Code of 1997, as amended by
R.A. No. 93376. Is said regulation valid?
NO. The provision in RR No. 16-2005 subjecting PAGCOR
to VAT is invalid for being contrary to R.A. No. 9337.
Nowhere in R.A. No. 9337 is it provided that petitioner
can be subjected to VAT. The law is clear as to the removal
of petitioner's exemption from the payment of corporate
income tax only. The RR No. 16-2005, therefore, cannot
go beyond the provisions of R.A. No. 9337. Since PAGCOR
is exempt from VAT under R.A. No. 9337, the BIR
exceeded its authority in subjecting PAGCOR to VAT
under RR No. 16-2005; hence, the said regulatory
provision is null and void (PAGCOR vs. BIR, GR No. 172087,
March 15, 2011, J. Peralta).
According to the BIR, R.A. No. 77167 has expressly
repealed, amended, or withdrawn the 5% franchise
tax provision in PAGCOR's Charter; hence, PAGCOR
was liable for VAT. The CIR argues that PAGCOR's
gambling operations are embraced under the phrase
sale or exchange of services, including the use or
lease of properties; that such operations are not
among those expressly exempted from VAT under
Section 38 of R.A. No. 7716; and that the legislative
purpose to withdraw PAGCOR's 5% franchise tax was
manifested by the language used in Section 20 9 of R.A.
No. 7716. Is the contention of the BIR tenable?
NO. Firstly, a basic rule in statutory construction is that a
special law cannot be repealed or modified by a
subsequently enacted general law in the absence of any
express provision in the latter law to that effect. A special
law must be interpreted to constitute an exception to the
general law in the absence of special circumstances
warranting a contrary conclusion. R.A. No. 7716, a
general law, did not provide for the express repeal of
PAGCOR's Charter, which is a special law.
Secondly, R.A. No. 7716 indicates that Congress has not
intended to repeal PAGCOR's privilege to enjoy the 5%
franchise tax in lieu of all other taxes. The law does not
specifically exclude PAGCOR's exemption under P.D. No.
1869 from the grant of exemptions from VAT; hence, the
petitioner's contention that R.A. No. 7716 expressly
amended PAGCOR's franchise has no leg to stand on (CIR
v. Secretary of Justice, G.R. No. 177387, November 9, 2016,
J. Bersamin).
Zero-rated Transactions
"The phrase 'sale or exchange of services' means the performance
of all kinds of service in the Philippines for others for a fee,
remuneration or consideration, including x x x service of franchise
grantees of telephone and telegraph, radio and television
broadcasting and all other franchise grantees except those under
Section 117 of this Code; x x x"
SEC. 12. Section 117 of the National Internal Revenue Code, as amended,
is hereby further amended further to read as follows:
"SEC.117. Tax on Franchises. - Any provision of general or
special law to the contrary notwithstanding, there shall be
levied, assessed and collected in respect to all franchises on
electric, gas and water utilities a tax of two percent (2%) on the
gross receipts derived from the business covered by the law
granting the franchise. x x x"
9 SEC. 20. Repealing Clauses. - The provisions of any special law relative
to the rate of franchise taxes are hereby expressly repealed. xx x
 TAXATION LAW

Distinguish Zero-rated v. VAT-exempt transactions solar, wind, hydropower, geothermal, ocean energy,
BASIS EXEMPT ZERO-RATED and other emerging energy sources using
technologies such as fuel cells and hydrogen fuels
Nature of Not taxable; Transaction is
(Sec. 108, NIRC).
transaction removes VAT taxable for
at the exempt VAT purposes
What is an ECOZONE or a Special Economic Zone?
stage although the
tax levied is
An ECOZONE has been described as selected areas with
0%
highly developed or which have the potential to be
By whom made Need not be a Made by a developed into agro-industrial, industrial, tourist,
VAT-registered VAT-registered recreational, commercial, banking, investment and
person person financial centers whose metes and bounds are fixed or
Input tax Not subject to May claim delimited by Presidential Proclamations. An ECOZONE
output tax, thus input tax credit may contain any or all of the following: industrial estates
cannot claim although the (IEs), export processing zones (EPZs), free trade zones
input tax credit transaction and tourist/recreational centers.
resulted to
zero output tax RA No. 7916 provides that ECOZONES shall be managed
Tax Cannot avail of Tax by PEZA as a separate customs territory; thus, creating
Credit/Refund tax credit or Credit/Refund the fiction that the ECOZONE is a foreign territory.
refund. Thus,
may result in The national territory of the Philippines outside of the
increased proclaimed borders of the ECO ZONE shall be referred to
prices as the Customs Territory (CIR v. Toshiba Information
Equipment (Phils.), Inc., G.R. No. 150154, August 9, 2005).
What are the zero-rated sales under the Tax Code?
Is the sale of goods to ecozone, such as PEZA,
The following sales by VAT-registered persons shall be considered as export sale?
subject to zero percent (0%) rate:
YES. While an ecozone is geographically within the
1. Export sales;
Philippines, it is deemed a separate customs territory and
2. Foreign currency denominated sale; and
is regarded in law as foreign soil. Sales by suppliers from
3. Effectively zero-rated sales (Section 106, NIRC)
outside the borders of the ecozone to this separate
customs territory are deemed as exports and treated as
The following services performed in the Philippines by
export sales. These sales are zero-rated or subject to a tax
VAT-registered persons shall be subject to zero percent
rate of zero percent (CIR v. Sekisui Jushi Philippines, Inc.,
(0%) rate:
G.R. No. 149671, July 21, 2006).
1. Processing, manufacturing or repacking goods for
NOTE: Following the Philippine VAT system's adherence
other persons doing business outside the Philippines
to the Cross-Border Doctrine and Destination Principle,
which goods are subsequently exported, where the
no VAT shall be imposed to form part of the cost of goods
services are paid for in acceptable foreign currency
destined for consumption outside of the territorial
and accounted for in accordance with the rules and
border of the taxing authority. As a result, all sales of
regulations of the Bangko Sentral ng Pilipinas (BSP);
goods, properties, and services made by a VAT-registered
2. Services other than those mentioned in the preceding
supplier from the Customs Territory to an ECOZONE
paragraph rendered to a person engaged in business
enterprise shall be subject to VAT, at zero percent (0%)
conducted outside the Philippines or to a
rate, regardless of the latter's type or class of PEZA
nonresident person not engaged in business who is
registration (Revenue Memorandum Circular No. 74-99).
outside the Philippines when the services are
performed, the consideration for which is paid for in
What is “effectively zero-rated sale of goods and
acceptable foreign currency and accounted for in
properties”?
accordance with the rules and regulations of the BSP
i.e. recruitment;
The term “effectively zero-rated sale of goods and
3. Services rendered to persons or entities whose
properties” shall refer to the local sale of goods and
exemption under special laws or international
properties by a VAT-registered person to a person or
agreements to which the Philippines is a signatory
entity who was granted indirect tax exemption under
effectively subjects the supply of such services to
special laws or international agreement.
zero percent (0%) rate;
4. Services rendered to persons engaged in
Since the buyer is exempt from indirect tax, the seller
international shipping or international air transport
cannot pass on the VAT and therefore, the exemption
operations, including leases of property for use
enjoyed by the buyer shall extend to the seller, making
thereof;
the sale effectively zero-rated (R.M.C. 50-2007).
5. Services performed by subcontractors and/or
contractors in processing, converting, or
Distinguish Effectively Zero-rated v. Automatic Zero-
manufacturing goods for an enterprise whose export
rated transaction
sales exceed seventy percent (70%) of total annual
production; BASIS EFFECTIVELY AUTOMATIC
6. Transport of passengers and cargo by air or sea ZERO-RATED ZERO-RATED
vessels from the Philippines to a foreign country; and TRANSACTION TRANSACTION
7. Sale of power or fuel generated through renewable
sources of energy such as, but not limited to, biomass,

22
 UST LAW PRE-WEEK NOTES 2017

Nature Refers to sales to Refers to export 3. The recipient of such services is doing business
persons or sales and foreign outside of the Philippines.
entities whose currency
exemption under denominated In relation to above, is the condition of being
special laws or sales “consumed abroad” necessary in order for services
international performed in the Philippines by a VAT-registered
agreements to person to be zero-rated?
which the
Philippines is a NO. As a general rule, the VAT system uses the
signatory destination principle as a basis for the jurisdictional
Need to An application for No need to file an reach of the tax. Goods and services are taxed only in the
apply for zero-rating must application form country where they are consumed. Thus, exports are
zero-rating be filed and the and to secure BIR zero-rated, while imports are taxed.
BIR approval is approval before
necessary before the sale is However, the law clearly provides for an exception to the
the transaction considered zero- destination principle; that is, for a zero percent VAT rate
may be rated. for services that are performed in the Philippines, “paid for
considered in acceptable foreign currency and accounted for in
effectively zero- accordance with the rules and regulations of the BSP.”
rated.
For whose Intended to Primarily Thus, for the supply of service to be zero-rated as an
benefit is it benefit the intended to be exception, the law merely requires that first, the service
intended purchaser who, enjoyed by the be performed in the Philippines; second, the service fall
not being directly seller who is under any of the categories in Section 102(b) of the Tax
and legally liable directly and Code; and, third, it be paid in acceptable foreign currency
for the payment of legally liable for accounted for in accordance with BSP rules and
the VAT, will the VAT, making regulations (CIR vs. American Express International, Inc.
ultimately bear such seller (Philippine Branch), G.R. No. 152609. June 29, 2005).
the burden of the internationally
tax shifted by the competitive by NOTE: In Accenture Inc. v. CIR, G.R. No. 190102, July 11,
suppliers. allowing the 2012, the Court ruled that to come within the purview of
refund or credit of Section 108 (B)(2), it is not enough that the recipient of
input taxes that the service be proven to be a foreign corporation; rather,
are attributable to it must be specifically proven to be doing business
export sales. outside the Philippines. The fact that the clients are
Stamping Required. The Not required. The foreign does not automatically mean that these clients
of “zero- buyer, as shown buyer, as shown were doing business outside the Philippines.
rated” on by his address in by his address in
VAT invoice the sales invoice the sales invoice Pursuant to Sec. 11 of the "Host Agreement" between
or receipt and shipping and shipping the United Nations and the Philippine government, it
documents, is documents, is was provided that the World Health Organization
located outside located outside (WHO), "its assets, income and other properties shall
the Philippines the Philippines. be: a) exempt from all direct and indirect taxes."
merely by fiction Precision Construction Corporation (PCC) was hired
of law. to construct the WHO Medical Center in Manila. Upon
Effect Results in no tax chargeable against the completion of the building, the BIR assessed a 12%
purchaser. VAT on the gross receipts of PCC derived from the
construction of the WHO building. The BIR contends
The seller can claim a refund or a tax that the 12% VAT is not a direct nor an indirect tax on
credit certificate for the VAT previously the WHO but a tax that is primarily due from the
charged by suppliers. contractor and is therefore not covered by the Host
Agreement. The WHO argues that the VAT is deemed
For services other than processing manufacturing, or an indirect tax as PCC can shift the tax burden to it. Is
repacking of goods under Sec 108 (B)(2)10 of the Tax the BIR correct? Explain. (2016 BAR)
Code, what are the requirements to qualify for zero-
rating? NO. Since World Health Organization (WHO), the
contractee, is exempt from direct and indirect taxes
1. The services other than “processing, manufacturing pursuant to an international agreement where the
or repacking of goods” must be performed in the Philippines is a signatory, the exemption from indirect
Philippines, taxes should mean that the entity or person exempt is the
2. That the payment for such services be in acceptable contactor itself because the manifest intention of the
foreign currency accounted for in accordance with agreement is to exempt the contractor so that no tax may
BSP rules, and that be shifted to the contractee (CIR v. John Gotameo & Sons,
Inc., 148 SCRA 36 [1987]).The immunity of WHO from
indirect taxes extends to the contractor by treating the

10 SECTION 108. Value-added Tax on Sale of Services and Use or Lease of
Properties. xxx
(B) Transactions Subject to Zero Percent (0%) Rate. — The following
services performed in the Philippines by VAT-registered persons shall
be subject to zero percent (0%) rate: xxx
(2) Services other than those mentioned in the preceding paragraph, the
consideration for which is paid for in acceptable foreign currency and
accounted for in accordance with the rules and regulations of the
Bangko Sentral ng Pilipinas (BSP) xxx

23
 TAXATION LAW
sale of service as effectively zero-rated when the law
provided that – “services rendered to persons or entities
whose exemption under special laws or international
agreements to which the Philippines is a signatory
effectively subjects the supply of such service to zero
percent (0%) rate” [Section 108(B)3, NIRC]. Accordingly,
the BIR is wrong in assessing the 12% VAT from the
contractor, Precision Construction Corporation.
OUTPUT AND INPUT VAT
Malayan Insurance, as Owner, and St. Francis Square
Realty Corp, as Developer, executed a Joint Project
Development Agreement for the construction,
development of a condominium Project. St. Francis
was not able to complete the Project. The parties
entered to an agreement where Malayan undertook
to complete the Project. The basis for the distribution
and disposition of the condominium units is the
parties’ respective capital investments in the Project.
Despite the completion of the Project, the issue of
actual cost of construction has not been resolved to
the mutual satisfaction of the parties.
St. Francis contends that, among others, Input VAT
should not be treated as part of construction cost. It
claims that even from an accounting standpoint,
input tax is not entered into the books as part of cost;
input VAT is treated as account in a different account,
either under “Other assets” or “Input Tax”, which is
an asset account. Besides, the input VAT is offset or
credited against output VAT to determine the net
VAT due or payable to the government.
St. Francis finally notes that since input VAT had
already been claimed by Malayan, and its audited
financial statements show the offsetting of input VAT
against output VAT, then justice and equity dictate
that it should not be allowed to claim it as part of the
ARCC.
Rule on the above contention of St. Francis.
The contention of St. Francis is without merit. Input VAT
should be allowed as part of the construction cost. In
determining whether input VAT should be included as
part of the construction cost, the issue is not the technical
classification of taxes under accounting rules, but
whether such tax was incurred and paid as part of the
construction cost. Given that input VAT is, strictly
speaking, a financial cost and not a direct construction
cost, it cannot be denied that Malayan had to pay input
VAT as part of the contract price of goods and properties
purchased, and services procured in order to complete
the project.
Anent the claim that it would be unjust and inequitable if
Malayan would be allowed to include its input VAT in the
construction cost, as well as to offset such tax against its
output tax, the Court held that such coincidence does not
result in unjust enrichment at the expense of St. Francis.
Unjust enrichment claims do not lie simply because one
party benefits from the efforts or obligations of others,
but instead it must be shown that a party was unjustly
enriched in the sense that the term unjustly could mean
illegally or unlawfully. In offsetting its input VAT against
output VAT, Malayan is merely availing of the benefits of
the tax credit provisions of the law, and it cannot be said
to have benefitted at the expense or to the damage of St.
Francis. After all, Malayan is justified in including in the
construction cost the input VAT it had paid as part of the
24
contract price of the goods, properties and services it had
procured to complete the project (Malayan Insurance, Inc.
vs. St. Francis Realty Square Realty Corporation, G.R. Nos.
198916-17, January 11, 2016, J. Peralta).
NOTE: In Malayan Insurance, Inc. vs. St. Francis Realty
Square Realty Corporation, the Court further held that St.
Francis would also be entitled to avail of the same tax
credit provisions upon the eventual sale of its
proportionate share of the reserved units allocated and
transferred to it by Malayan. The allocation of and
transfer of such units to St. Francis is subject to output
VAT which Malayan could offset against its input VAT. In
turn, St. Francis would incur input VAT which it may later
offset against its output VAT upon the sale of the said
units. This is in accordance with the tax credit method
of computing the VAT of a taxpayer whereby the input
tax shifted by the seller to the buyer is credited
against the buyer’s output taxes when it in turn sells
the taxable goods, properties or services.
VAT REFUND
Who may claim for refund/apply for issuance of tax
credit certificate?
The following can avail of refund or tax credit:
1. Zero-rated and effectively zero-rated sales - Any
VAT-registered person, whose sales are zero-rated or
effectively zero-rated (Sec. 112 [A]); and
2. Cessation of business or VAT status - A person
whose registration has been cancelled due to
retirement from or cessation of business, or due to
changes in or cessation of status under Section 106(C)
of NIRC (Sec. 112[B]).
What is the period to file claim for refund/apply
issuance of tax credit certificate?
The claim, which must be in writing for both cases, must
be filed within two years from the close of the taxable
quarter when the sales were made by any VAT-
registered person whose sales are zero-rated or
effectively zero-rated [Sec. 112(A), NIRC]. The two-year
period should be reckoned from the close of the taxable
quarter when the relevant sales were made pertaining to
the input VAT regardless of whether said tax was paid or
not (CIR vs Mirant Pagbilao Corporation, GR 172129,
September 12, 2008).
Meanwhile, any person whose registration has been
cancelled due to retirement from or cessation of business,
or due to changes in or cessation of status may, within
two years from the date of cancellation, apply for the
issuance of a tax credit certificate for any unused input
tax which may be used in payment of his other internal
revenue taxes.
What are the requirements in claim for refund or tax
credit for unutilized input VAT?
A claim for refund or tax credit for unutilized input VAT
may be allowed only if the following requisites concur,
namely:
1. The taxpayer is VAT-registered;
2. The taxpayer is engaged in zero-rated or effectively
zero-rated sales;
3. The input taxes are due or paid;
 UST LAW PRE-WEEK NOTES 2017
4. The input taxes are not transitional input taxes as it
cannot be claimed as a refund or credit;
5. The input taxes have not been applied against output
taxes during and in the succeeding quarters;
6. The input taxes claimed are attributable to zero-
rated or effectively zero-rated sales;
7. For zero-rated sales under Section 106(A)(2)(1) and
(2); 106(B); and 108(B)(1) and (2), the acceptable
foreign currency exchange proceeds have been duly
accounted for in accordance with the rules and
regulations of the BSP;
8. Where there are both zero-rated or effectively zero-
rated sales and taxable or exempt sales, and the input
taxes cannot be directly and entirely attributable to
any of these sales, the input taxes shall be
proportionately allocated on the basis of sales
volume; and
9. The claim is filed within two years after the close of
the taxable quarter when such sales were made
(Luzon Hydro Corporation v. CIR, G.R. No. 188260,
November 13, 2013, J Bersamin).
Discuss the procedure in a claim for refund.
 An administrative claim must be filed with the CIR
within two years after the close of the taxable quarter
when the zero-rated or effectively zero-rated sales
were made.
 The CIR has 120 days from the date of submission of
complete documents in support of the administrative
claim within which to decide whether to grant a
refund or issue a tax credit certificate. The 120-day
period may extend beyond the two-year period from
the filing of the administrative claim if the claim is
filed in the later part of the two-year period. If the 120-
day period expires without any decision from the CIR,
then the administrative claim may be considered to be
denied by inaction.
 A judicial claim must be filed with the CTA within 30
days from the receipt of the CIR's decision denying the
administrative claim or from the expiration of the
120-day period without any action from the CIR.
 All taxpayers, however, can rely on BIR Ruling No. DA-
489-03 from the time of its issuance on 10 December
2003 up to its reversal by this Court in Aichi on 6
October 2010, as an exception to the mandatory and
jurisdictional 120+ 30-day periods (Takenaka
Corporation – Philippine Branch vs. CIR, G.R. No.
193321, October 19, 2016, J. Bersamin, citing Mindanao
II Geothermal Partnership vs. CIR).
Under the law, the CIR has 120 days from the date of
submission of complete documents to decide a claim
for tax credit or refund of creditable input taxes.
When should the submission of documents be
deemed “completed” for purposes of determining the
running of the 120-day period?
RMC 54-201411 dated June 11, 2014 requires that the
application for VAT refund/tax credit must be
accompanied by complete supporting documents. Thus,
the taxpayer, at the time he files his claim, must complete
his supporting documents and attest that he will no
longer submit any other document to prove his claim.
Further, the taxpayer is barred from submitting
additional documents after he has filed his administrative
11 The application for VAT refund/tax credit must be accompanied by
complete supporting documents as enumerated in Annex “A” hereof.
In addition, the taxpayer shall attach a statement under oath attesting
to the completeness of the submitted documents. xxx
25
claim (Pilipinas Total Gas, Inc. vs. CIR, G.R. No. 207112,
December 8, 2015, J. Mendoza).
NOTE: The above rule cannot be applied retroactively.
Thus, prior to June 11, 2014, the rule is that from the date
an administrative claim for excess unutilized VAT is filed,
a taxpayer has thirty (30) days within which to submit
the documentary requirements sufficient to support his
claim, unless given further extension by the CIR. Should
the taxpayer, on the date of his filing, manifest that he no
longer wishes to submit any other addition documents to
complete his administrative claim, the 120-day period
allowed to the CIR begins to run from the date of filing.
For calendar year 2011, FFF, Inc., a VAT-registered
corporation, reported unutilized excess input VAT in
the amount of P1, 000, 000.00 attributable to its zero-
rated sales. Hoping to impress his boss, Mr. G, the
accountant of FFF, Inc., filed with the BIR on January
31, 2013 a claim for tax refund/credit. Not having
received any communication from the BIR, Mr. G filed
a Petition for Review with the CTA on March 15, 2013,
praying for the tax refund/credit of the P1, 000,
000.00 unutilized excess input VAT of FFF, Inc. for
2011.
a. Did the CTA acquire jurisdiction over the Petition
of FFF, Inc.?
b. Discuss the proper procedure and applicable
time periods for administrative and judicial
claims for refund/credit of unutilized excess
input VAT. (2015 BAR)
a. NO. The CTA has not acquired jurisdiction over the
Petition of FFF, Inc. because the juridical claim has
been prematurely filed on March 15, 2013. The
Supreme Court ruled that the 30-day period after the
expiration of the 120-day period fixed by law for the
CIR to act on the claim for refund is jurisdictional and
failure to comply would bar the appeal and deprive
the CTA of its jurisdiction to entertain the appeal.
In this case, Mr. G filed the administrative claim on
January 31, 2013. The petition for review should
have been should have been filed on June 30, 2013.
Filing the judicial claim on March 15, 2013 is
premature, thus the CTA did not acquire jurisdiction.
b. The administrative claim must be filed with the CIR
within the two-year prescriptive period. The proper
reckoning period date for the two-year prescriptive
period is the close of the taxable quarter when the
relevant sales were made. However, as an exception,
are claims applied only from June 8, 2007 to
September 12, 2008, wherein the two-year
prescriptive period for filing a claim for tax refund or
credit of unutilized input VAT payments should be
counted from the date of filing of the VAT return and
payment of the tax.
The taxpayer can file a judicial claim in one of two
ways: (1) file the judicial claim within thirty days
after the CIR denies the claim within the 120-day
period, or (2) file the judicial claim within 30 days
from the expiration of the 120-day period if the
Upon submission of the administrative claim and its supporting
documents, the claim shall be processed and no other documents shall
be accepted/required from the taxpayer in the course of its evaluation.
(emphasis supplied)
 TAXATION LAW
Commissioner does not act within the 120-day
period.
As a general rule, the 30-day period to appeal is both
mandatory and jurisdictional. As an exception,
premature filing is allowed only if filed between
December 10, 2003 and October 5, 2010, when the
BIR Ruling No. DA-489-03 was still in force.
Distinguish between administrative cases appealed
(1) due to inaction and those (2) dismissed at the
administrative level due to the failure of the taxpayer
to submit supporting documents.
If an administrative claim was dismissed by the CIR due
to the taxpayer’s failure to submit complete documents
despite notice/request, then the judicial claim before the
CTA would be dismissible, not for lack of jurisdiction, but
for the taxpayer’s failure to substantiate the claim at the
administrative level. When a judicial claim for refund or
tax credit in the CTA is an appeal of an unsuccessful
administrative claim, the taxpayer has to convince the
CTA that the CIR had no reason to deny its claim. It, thus,
becomes imperative for the taxpayer to show the CTA
that not only is he entitled under substantive law to his
claim for refund or tax credit, but also that he satisfied all
the documentary and evidentiary requirements for an
administrative claim. It is, thus, crucial for a taxpayer in a
judicial claim for refund or tax credit to show that its
administrative claim should have been granted in the
first place. Consequently, a taxpayer cannot cure its
failure to submit a document requested by the BIR at the
administrative level by filing the said document before
the CTA.
On the other hand, a judicial claim due to the inaction of
the BIR, and thus the administrative claim was never
acted upon, there was no decision for the CTA to review
on appeal per se. Consequently, the CTA may give
credence to all evidence presented by a taxpayer,
including those that may not have been submitted to the
CIR as the case is being essentially decided in the first
instance. The Total Gas must prove every minute aspect
of its case by presenting and formally offering its
evidence to the CTA, which must necessarily include
whatever is required for the successful prosecution of an
administrative claim (Pilipinas Total Gas, Inc. vs. CIR, G.R.
No. 207112, December 8, 2015, J. Mendoza).
Pursuant to their agreement, the electricity produced
by the Luzon Hydro was to be sold exclusively to NPC.
Relative to its sale to NPC, Luzon was granted by the
BIR a certificate for Zero Rate for VAT purposes. On
November 26, 2001, Luzon filed a claim for refund or
tax credit relative to its unutilized input VAT alleging
that it had incurred input VAT on its domestic
purchases of goods and services used in its
generation and sales of electricity to NPC in the four
quarters of 2001.
The CIR denied the claim contending that Luzon
Hydro failed to demonstrate that the taxes sought to
be refunded were erroneously or illegally collected.
In its VAT returns for the four quarters of 2001, no
amount of zero-rated sales was declared. Likewise, it
did not submit any VAT official receipt of payments
for services rendered to NPC. The only proof
submitted by petitioner is a letter from Regional
Director of Revenue Region No. 1, stating that the
financial statements and annual income tax return
26
constitute sufficient secondary proof of effectively
zero-rated sales.
Luzon Hydro argued that its sale of electricity to NPC
was automatically zero-rated pursuant to RA No.
9136 (EPIRA Law); hence, it need not prove that it
had zero-rated sales in the period from January 1,
2001 to December 31, 2001 by the presentation of
VAT official receipts that would contain all the
necessary information required under the Tax Code.
Evidence of sale of electricity to NPC other than
official receipts could prove zero-rated sales.
Is the contention of Luzon Hydro tenable?
NO. Luzon Hydro did not produce evidence showing that
it had zero-rated sales for taxable year 2001. The
claimant did not reflect any zero-rated sales from its
power generation in its VAT returns, which indicated that
it had not made any sale of electricity. Had there been
zero-rated sales, it would have reported them in the
returns. Indeed, it carried the burden not only that it was
entitled under the substantive law to the allowance of its
claim for refund or tax credit but also that it met all the
requirements for evidentiary substantiation of its claim.
Although the claimant has correctly contended that the
sale of electricity by a power generation company like it
should be subject to zero-rated VAT under Republic Act
(RA) No. 9136, its assertion that it need not prove its
having actually made zero-rated sales of electricity by
presenting the VAT official receipts and VAT returns
cannot be upheld. It could not be permitted to substitute
such vital and material documents with secondary
evidence like financial statements.
Thus, Luzon Hydro did not competently establish its
claim for refund or tax credit (Luzon Hydro Corporation v.
CIR, G.R. No. 188260, November 13, 2013, J Bersamin).
Is failure to print the word “zero-rated” on the
invoices or receipts fatal to a claim for refund or
credit of input VAT on zero-rated sales?
YES. Failure to print the word “zero-rated” on the
invoices or receipts is fatal to a claim for refund or credit
of input VAT on zero-rated sales.
Well-settled is the fact that actions for tax refund are in
the nature of a claim for exemption and the law is
construed in strictissimi juris against the taxpayer. The
pieces of evidence presented entitling a taxpayer to an
exemption are also strictissimi scrutinized and must be
duly proven. The invoicing requirement is reasonable
and must be strictly complied with, as it is the only way
to determine the veracity of its claim (KEPCO Philippines
Corporation vs. CIR, G.R. No. 179961, January 31, 2011, J.
Mendoza).
MMM, Inc., a domestic telecommunications company,
handles incoming telecommunications services for
non-resident foreign companies by relaying
international calls within the Philippines. To
broaden the coverage of its telecommunications
services throughout the country, MMM, Inc. entered
into various interconnection agreements with local
carriers. The non-resident foreign corporations pay
MMM, Inc. in US dollars inwardly remitted through
Philippine banks, in accordance with the rules and
regulations of the Bangko Sentral ng Pilipinas.
 UST LAW PRE-WEEK NOTES 2017
MMM, Inc. filed its Quarterly VAT Returns for 2000.
Subsequently, MMM, Inc. timely filed with the BIR an
administrative claim for the refund of the amount of
P6, 321, 486.50, representing excess input VAT
attributable to its effectively zero-rated sales in
2000. The BIR ruled to deny the claim for refund of
MMM, Inc. because the VAT official receipts
submitted by MMM, Inc. did not bear the words "zero-
rated" as required under Sec. 4.108-1 of Revenue
Regulations (RR) No. 7-95. On appeal, the CTA
division and the CTA en banc affirmed the BIR ruling.
MMM, Inc. appealed to the Supreme Court arguing
that the NIRC itself did not provide for such a
requirement. RR No. 7-95 should not prevail over a
taxpayer's substantive right to claim tax refund or
credit.
a. Rule on the appeal of MMM, Inc.
b. Will your answer in (a) be any different if MMM,
Inc. was claiming refund of excess input VAT
attributable to its effectively zero-rated sales in
2012? (2015 BAR)
a. The appeal of MMM, Inc. must be denied. MMM, Inc.’s
position that the requirements under RR No. 7-95
should not prevail over a taxpayer’s substantive right
to claim tax refund is unmeritorious. The Secretary of
Finance has the authority to promulgate the
necessary rules and regulations for the effective
enforcement of the provisions of the NIRC. Such rules
and regulations are given weight and respect by the
courts in view of the rule-making authority given to
those who formulate them and their specific
expertise in their respective fields.
An applicant for a claim for tax refund or tax credit
must not only prove entitlement to the claim, but also
comply with all the documentary and evidentiary
requirements. Consequently, the CTA and the CTA en
banc correctly ruled that the failure to indicate the
words “zero-rated” on the invoices and receipts
issued by a taxpayer would result in the denial of the
claim for refund or tax credit. (Eastern
Telecommunications Philippines, Inc. v. CIR, 2015)
b. NO, my answer will not be different if the claim for
refund is for effectively zero-rated sales in 2012. The
requirement to print the word “zero-rated” is no
longer by mere regulations but is now clearly
provided by law as follows – “If the sale is subject to
zero percent (0%) value-added tax, the term “zero-
rated sale” shall be written or printed prominently
on the invoice receipt. Failure to comply with this
invoicing requirement is fatal to a claim for refund of
input taxes attributable to the zero-rated sale (Sec.
113(B)(2)(c), NIRC).
Takenaka entered into an On-Shore Construction
Contract with Philippine Air Terminal Co., Inc.
(PIATCO), a PEZA-registered entity, for the
construction of the Ninoy Aquino Terminal III.
Takenaka filed its quarterly VAT returns for the
taxable year 2002. The BIR, on the other hand, issued
VAT Ruling No. 011-03 which states that the sales of
goods and services rendered by Takenaka to PIATCO
are subject to zero-percent (0%). This prompted
Takenaka on April 11, 2003 to file its claim for VAT
27
refund covering the taxable year 2002 on the basis of
its sales invoice.
For failure of the BIR to act on its claim, Takenaka
filed a Petition for Review with CTA on March 10,
2004. Did the CTA properly acquire jurisdiction over
the case?
NO. The CTA should deny petitioner's claim for tax refund
or credit for lack of jurisdiction.
Takenaka timely filed its administrative claim on April
11, 2003, within the two-year prescriptive period after
the close of the taxable quarter when the zero-rated sales
were made. The BIR had 120 days, or until August 9,
2003, to decide the claim. Considering that the BIR did
not act on the petitioner's claim on or before August 9,
2003, the latter had until September 8, 2003, the last day
of the 30-day period, within which to file its judicial claim.
However, it brought its petition for review in the CTA
only on March 10, 2004, or 184 days after the last day for
the filing.
Clearly, the petitioner belatedly brought its judicial claim
for refund, and the CTA did not acquire jurisdiction over
the claim for tax refund.
NOTE: Although Takenaka's judicial claim was brought
well within the two-year prescriptive period, the two-
year prescriptive period refers to the period within which
the taxpayer can file an administrative claim, not the
judicial claim with the CTA.
In the preceding problem, are sales invoices
sufficient as evidence to prove zero-rated sale of
services by Takenaka to PIATCO thereby entitling
him to claim the refund of its excess input VAT?
NO. The claim for refund must be denied on the ground
that the taxpayer had not established its zero-rated sales
of services through the presentation of official receipts.
As evidence of an administrative claim for tax refund or
tax credit, there is a certain distinction between a receipt
and an invoice.
Section 113 of the Tax Code of 1997 provides that a VAT
invoice is necessary for every sale, barter or exchange of
goods or properties, while a VAT official receipt properly
pertains to every lease of goods or properties, as well as
to every sale, barter or exchange of services.
The taxpayer submitted sales invoices, not official
receipts, to support its claim for refund. In light of the
distinction between a receipt and an invoice, the
submissions were inadequate to comply with the
substantiation requirements for administrative claims
for tax refund or tax credit (Takenaka Corporation –
Philippine Branch vs. CIR, G.R. No. 193321, October 19,
2016, J. Bersamin).
The CTA denied the claim for refund by Taganito on
its input VAT on importation of capital goods for
failure of the latter to substantiate its claim.
However, Taganito insists that the official receipts
issued by the bank authorized to collect import
duties and taxes are the best evidence to prove its
payment of the input tax being claimed. It also points
to the report of the independent CPA which allegedly
reviewed the IEIRDs and subsidiary ledger
 TAXATION LAW

containing the description of the dump trucks. Is SEC. 112 (VAT) SEC. 229 (OTHER
Taganito’s claim tenable? TAXES)
Period is 2 years after the Period is 2 years from
NO. IEIRD is required to properly substantiate the close of the taxable the date of payment of
payment of the duties and taxes on imported goods. quarter when the sales the tax
were made
Moreover, even assuming that the importations were The 30-day period of Period to file an
duly substantiated, Taganito's claim still would not appeal to the CTA need not administrative claim
prosper because it failed to present evidence to show that necessarily fall within the before the CIR AND
it properly amortized the related input VAT over the two-year prescriptive judicial claim with the
estimated useful life of the capital goods in its subsidiary period, as long as the CTA must fall within the
ledger, as required by RR 16-0512. This is made apparent administrative claim 2-year prescriptive
by the fact that Taganito's claim for refund is for the full before the CIR is filed period
amount of the input VAT on the importation, rather than within the two-year
for an amortized amount, and by its failure to present its prescriptive period. This
subsidiary ledger (Taganito Mining Corporation vs. CIR, is because Sec. 112 (D) of
G.R. No. 201195, November 26, 2014, J. Mendoza). the 1997 NIRC mandates
that a taxpayer can file the
Under Section 229 of the Tax Code, no such suit or judicial claim: (1) only
proceeding shall be filed for the recovery of tax within thirty days after the
erroneously or illegally collected after the expiration Commissioner partially or
of two (2) years from the date of payment of the tax fully denies the
or penalty. Is this applicable to claims for a refund or claim within the 120-day
tax credit for unutilized creditable input VAT? period, or (2) only within
thirty days from the
NO. The two-year period under Section 229 does not expiration of the 120-day
apply to claims for a refund or tax credit for unutilized period if the
creditable input VAT because it is not considered Commissioner does not act
"excessively" collected. Instead, it is settled that Section within the 120-day period
112 applies to claims for a refund or tax credit for (CIR v. San Roque Power
unutilized creditable input VAT, thereby making the 120+ Corporation, G.R. Nos.
30-day period prescribed therein mandatory and 187485, 196113, 197156,
jurisdictional in nature (Taganito Mining Corporation vs. February 12, 2013)
CIR, G.R. No. 198076, November 19, 2014, J. Mendoza).

Is a taxpayer, located within an ECOZONE, entitled to OTHER PERCENTAGE TAX (OPT)

the refund of its unutilized input taxes incurred
before it became a PEZA-registered entity? What is the nature of OPT?

NO. The purchases of goods and services by the taxpayer
that were destined for consumption within the ECOZONE
should be free of VAT; hence, no input VAT should then
be paid on such purchases, rendering the taxpayer not
entitled to claim a tax refund or credit.
As a rule, VAT is imposed on every sale, barter, or
exchange of goods or services and on importations.
However, there are instances where the same does not
apply because the transaction is subject to OPT as
required by the NIRC.

Verily, if the taxpayer had paid the input VAT, the proper
recourse is not against the Government but against the
seller who had shifted to it the output VAT (Coral Bay
Nickel Corp. vs. CIR, G.R. No. 190506, June 13, 2016, J.
Bersamin).
Distinguish Sec. 112 on refund for VAT from Sec. 229
on refund of other taxes.
Percentage tax is a tax imposed on sale, barter, exchange
or importation of goods, or sale of services based upon
gross sales, value in money of receipts derived by the
manufacturer, producer, importer or seller measured by
certain percentage of the gross selling price or receipts. If
the transaction is subject to OPT, it is no longer subject to
VAT. Nonetheless, OPT as well as VAT may be imposed
together with excise taxes (Tabag, 2015).

12 SECTION 4.110-3. Claim for Input Tax on Depreciable Goods. - Where

a VAT-registered person purchases or imports capital goods, which are
depreciable assets for income tax purposes, the aggregate acquisition
cost of which (exclusive of VAT) in a calendar month exceeds one
million pesos (P1,000,000.00), regardless of the acquisition cost of each
capital good, shall be claimed as credit against output tax in the
following manner:
(a) If the estimated useful life of a capital good is five (5) years or more
– The input tax shall be spread evenly over a period of sixty (60) months
and the claim for input tax credit will commence in the calendar month
when the capital good is acquired. The total input taxes on purchases or
importations of this type of capital goods shall be divided by 60 and the
quotient will be the amount to be claimed monthly.
(b) If the estimated useful life of a capital good is less than five (5) years
– The input tax shall be spread evenly on a monthly basis by dividing
the input tax by the actual number of months comprising the estimated
useful life of a capital good. The claim for input tax credit shall
commence in the month that the capital goods were acquired.
Where the aggregate acquisition cost (exclusive of VAT) of the existing
or finished depreciable capital goods purchased or imported during any
calendar month does not exceed one million pesos (P1,000,000.00), the
total input taxes will be allowable as credit against output tax in the
month of acquisition.
Capital goods or properties refers to goods or properties with estimated
useful life greater than 1 year and which are treated as depreciable
assets under Sec. 34(F) of the tax Code, used directly or indirectly in the
production or sale of taxable goods or services. Xxx
SECTION 4.113-3. Accounting Requirements. Xxx A subsidiary record in
ledger form shall be maintained for the acquisition, purchase or
importation of depreciable assets or capital goods which shall contain,
among others, information on the total input tax thereon as well as the
monthly input tax claimed in VAT declaration or return.

28
 UST LAW PRE-WEEK NOTES 2017
What is the basis of “gross receipts” for purposes of
computing the 3% Percentage Tax under Section
118(A)13 of the Tax Code?
RR No. 15-200214 prescribes that “gross receipts” for the
purpose of determining Common Carrier’s Tax shall be
the same as the tax base for calculating Gross Philippine
Billings Tax. Gross revenues shall be based on the actual
amount received by the airline company as reflected on
the plane ticket.
EXCISE TAX
Define excise tax?
The term "excise tax" under Title VI of the Tax Code of
1997 relates to taxes applied to (1) goods manufactured
or produced in the Philippines for domestic sale or
consumption or for any other disposition and to (2)
things imported (Sec. 129, Tax Code).
Excise taxes are considered as a kind of indirect tax, the
liability for the payment of which may fall on a person
other than whoever actually bears the burden of the tax.
Simply put, the statutory taxpayer may shift the economic
burden of the excise tax payment to another – usually the
buyer (Chevron Philippines, Inc. vs. CIR, G.R. No. 210836,
September 1, 2015, J. Bersamin).
NOTE: The excise tax imposed shall be in addition to the
value-added tax imposed under Title IV of the Tax Code.
What are the types of excise tax?
Excise taxes as used in our Tax Code fall under two types:
(1) specific tax which is based on weight or volume
capacity and other physical unit of measurement;
and
(2) ad valorem tax which is based on selling price or
other specified value of the goods (Sec. 129, NIRC; CIR
v. Pilipinas Shell Petroleum Corp., G.R. No. 188497,
February 19, 2014, J. Villarama, Jr.).
When does the liability for excise tax accrue?
The accrual and payment of the excise tax under Title VI
of the NIRC materially rest on the fact of actual
production, manufacture or importation of the taxable
goods (i.e., alcohol products, tobacco products, petroleum
products, automobiles and nonessential goods, mineral
products) in the Philippines and on their presumed or
intended domestic sale, consumption or disposition
(Separate opinion of J. Bersamin in CIR v. Pilipinas Shell
Petroleum Corp., G.R. No. 188497, 2014).
13 Sec. 118. Percentage Tax on International Carriers. ― (A)
International air carriers doing business in the Philippines shall pay a
tax of three percent (3%) of their quarterly gross receipts.
14 Sec. 5. Determination of Gross Philippine Billings. ― (a) In computing
for “Gross Philippine Billings,” there shall be included the total amount
of gross revenue derived from passage of persons, excess baggage,
cargo and/or mail, originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the
place of payment of the passage documents.
The gross revenue for passengers whose tickets are sold in the
Philippines shall be the actual amount derived for transportation
services, for a first class, business class or economy class passage,
as the case may be, on its continuous and uninterrupted flight from
any port or point in the Philippines to its final destination in any
port or point of a foreign country, as reflected in the remittance
29
Who is directly liable to pay to the excise tax?
For the first type of goods, namely, goods manufactured
or produced in the Philippines for domestic sales or
consumption or for any other disposition, Section 130 of
the Tax Code states that, unless otherwise specifically
allowed, the taxpayer obligated to file the return and pay
the excise taxes due thereon is the
manufacturer/producer. On the other hand, with
respect to the second kind of goods, which are things
imported, Section 131 of the Tax Code states that the
taxpayer obligated to file the return and pay the excise
taxes due thereon is the owner or importer, unless the
imported articles are exempt from excise taxes and the
person found to be in possession of the same is other than
those legally entitled to such tax exemption (Philippine
Airlines, Inc. vs CIR, G.R. No. 198759, July 1, 2013, J. Perlas-
Bernabe).
When is excise tax on taxable goods due for payment?
The liability for the payment of the excise tax arises
before the removal of the goods from the place of their
production, and in case of imported things, before the
release of articles from the customshouse.
Is payment of excise tax on taxable goods prior to
their removal from the place of production or
customshouse absolute?
YES. The subsequent sale, consumption or other
disposition of the goods becomes relevant only to
determine whether any exemption or tax relief may be
granted thereafter.
Verily, it is the actual sale, consumption or disposition of
the taxable goods that confirms the proper tax treatment
of goods previously subjected to the excise tax. If any of
the goods enumerated under Title VI of the NIRC are
manufactured or produced in the Philippines and
eventually sold, consumed, or disposed of in any other
manner domestically, therefore, there can be no claim for
any tax relief inasmuch as the excise tax was properly
levied and collected from the manufacturer-seller
(Separate opinion of J. Bersamin in CIR v. Pilipinas Shell
Petroleum Corp., G.R. No. 188497, 2014).
Are local manufacturers entitled to tax refund on
paid excise taxes on its petroleum products sold to
international carriers?
YES. Under Section 135(a)15 of the Tax Code, the shifting
of the burden of the excise tax to the international
carriers who buy petroleum products from the local
area of the tax coupon forming an integral part of the plane ticket.
Xxx (emphasis supplied)
15 SECTION 135. Petroleum Products Sold to International Carriers and
Exempt Entities or Agencies. — Petroleum products sold to the following
are exempt from excise tax:
a. International carriers of Philippine or foreign registry on their
use or consumption outside the Philippines: Provided, that the
petroleum products sold to these international carriers shall be
stored in a bonded storage tank and may be disposed of only in
accordance with the rules and regulations to be prescribed by
the Secretary of Finance, upon recommendation of the
Commissioner;
b. Exempt entities or agencies covered by tax treaties,
conventions and other international agreements for their use
or consumption: Provided, however, that the country of said
foreign international carrier or exempt entities or agencies
 TAXATION LAW
manufacturers is prohibited. Said international carriers
are thus allowed to purchase the petroleum products
without the excise tax component which otherwise
would have been added to the cost or price fixed by the
local manufacturers or distributors/sellers.
Thus, local manufacturers or distributors/sellers, as the
statutory taxpayers who is directly liable to pay the excise
tax on its petroleum products upon their removal from
the place of production, is entitled to a refund or credit of
the excise taxes it paid for petroleum products sold to
international carriers (CIR v. Pilipinas Shell Petroleum
Corp., G.R. No. 188497, February 19, 2014, J. Villarama, Jr.).
NOTE: Excise tax on petroleum products is essentially a
tax on property, the direct liability for which pertains to
the statutory taxpayer (i.e., manufacturer, producer or
importer). Any excise tax paid by the statutory taxpayer
on petroleum products sold to any of the entities or
agencies named in Section 135 of the Tax Code exempt
from excise tax is deemed illegal or erroneous, and should
be credited or refunded to the payor (Chevron Philippines,
Inc. vs. CIR, G.R. No. 210836, September 1, 2015, J.
Bersamin).
Chevron filed a claim for refund or tax credit for the
excise taxes paid on its importation of petroleum
products that it had sold to the Clark Development
Corporation (CDC), an entity exempt from direct and
indirect taxes. The CTA denied Chevron’s claim
stating that there was nothing in Section 135(c) of the
Tax Code that explicitly exempted Chevron as the
seller of the imported petroleum products from the
payment of the excise taxes; and holding that because
it did not fall under any of the categories exempted
from paying excise tax, Chevron is not entitled to the
tax refund or tax credit. Is CTA correct?
NO. Pursuant to Section 135(c) petroleum products sold
to entities that are by law exempt from direct and indirect
taxes are exempt from excise tax. The phrase which are
by law exempt from direct and indirect taxes describes
the entities to whom the petroleum products must be
sold in order to render the exemption operative. Section
135(c) should thus be construed as an exemption in
favor of the petroleum products on which the excise
tax was levied in the first place.
Inasmuch as its liability for the payment of the excise
taxes accrued immediately upon importation and prior to
the removal of the petroleum products from the
customshouse, Chevron was bound to pay, and actually
paid such taxes. But the status of the petroleum products
as exempt from the excise taxes would be confirmed only
upon their sale to CDC, which is an entity exempt from
direct and indirect taxes. Before then, Chevron did not
have any legal basis to claim the tax refund or the tax
credit as to the petroleum products. Consequently, the
payment of the excise taxes by Chevron upon its
importation of petroleum products was deemed illegal
exempts from similar taxes petroleum products sold to
Philippine carriers, entities or agencies; and
c. Entities which are by law exempt from direct and indirect taxes.
16 SEC 204. Authority of the Commissioner to Compromise, Abate and
Refund or Credit Taxes. – The Commissioner may – x x x x
(C) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps
when they are returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have been rendered
30
and erroneous upon the sale of the petroleum products
to CDC.
Section 20416 of the Tax Code allows Chevron as the
statutory taxpayer to claim the refund or the credit of the
excise taxes thereby paid (Chevron Phil. Inc. v. CIR, G.R. No.
210836, September 01, 2015, J. Bersamin).
In cases involving excise tax exemptions on
petroleum products under Section 135 of the Tax
Code, who is the proper party to claim for tax refund?
Section 204(c) of the NIRC states that it is the statutory
taxpayer which has the legal personality to file a claim for
refund. Accordingly, in cases involving excise tax
exemptions on petroleum products under Section 135 of
the NIRC, the Court has consistently held that it is the
statutory taxpayer who is entitled to claim a tax refund
based thereon and not the party who merely bears its
economic burden.
Is the above rule absolute?
NO. The above rule should not apply to instances where
the law clearly grants the party to which the economic
burden of the tax is shifted an exemption from both direct
and indirect taxes. In which case, the latter must be
allowed to claim a tax refund even if it is not considered
as the statutory taxpayer under the law.
Thus, the propriety of a tax refund claim is hinged on the
kind of exemption which forms its basis. If the law confers
an exemption from both direct or indirect taxes, a
claimant is entitled to a tax refund even if it only bears the
economic burden of the applicable tax. On the other hand,
if the exemption conferred only applies to direct taxes,
then the statutory taxpayer is regarded as the proper
party to file the refund claim (Philippine Airlines, Inc. vs
CIR, G.R. No. 198759, July 1, 2013, J. Perlas-Bernabe).
DOCUMENTARY STAMP TAX (DST)
What is the nature of DST?
A DST is a tax on documents, instruments, loan
agreements, and papers evidencing the acceptance,
assignment, sale or transfer of an obligation, right or
property incident thereto. The DST is actually an excise
tax, because it is imposed on the transaction rather than
on the document (Philippine Bank of Communications vs.
CIR, G.R. No. 194065, June 20, 2016, C.J. Sereno).
According to Section 200 (D) of the Tax Code, the DST
may be paid by imprinting the stamps through a
documentary stamp metering machine, on the
taxable document. What is DS metering machine?
The DS metering machine was developed and used for
businesses with material DST transactions like banks and
insurance companies for their regular transactions.
These businesses authorized by the BIR may load
unfit for use and refund their value upon proof of destruction. No credit
or refund of taxes or penalties shall be allowed unless the taxpayer
files in writing with the Commissioner a claim for credit or refund
within two (2) years after payment of the tax or penalty: Provided,
however, that a return filed showing an overpayment shall be
considered as a written claim for credit or refund. (Emphasis and
underscoring supplied)
 UST LAW PRE-WEEK NOTES 2017
documentary stamps on their DS metering machine in
accordance with the rules and regulations. In other
words, this system allows advanced payment of the
DST for future applications (Philippine Bank of
Communications vs. CIR, G.R. No. 194065, June 20, 2016, C.J.
Sereno).
Should the date of purchase of documentary stamps
for loading and reloading on the DS metering
machine be deemed as payment of the DST for the
purpose of counting the two-year prescriptive period
for filing a claim for a refund or tax credit?
NO. Under Section 229 of the Tax Code, the claim for a
refund of erroneously paid DST must be within two years
from the date of payment of the DST.
The payment of the DST upon loading/reloading of the DS
metering machine must not be considered as the "date of
payment" when the prescriptive period to file a claim for
a refund/credit must commence. For DS metering
machine users, the payment of the DST upon
loading/reloading is merely an advance payment for
future application.
The liability for the payment of the DST falls due only
upon the occurrence of a taxable transaction. Therefore,
the date of imprinting the documentary stamp on the
taxable document must be considered as the date of
payment contemplated under Section 229 of the NIRC
(Philippine Bank of Communications vs. CIR, G.R. No.
194065, June 20, 2016, C.J. Sereno).
The BIR assessed PNB for deficiency DST on its
interbank call loans. BIR claims that PNB's interbank
call loans were included in the concept of loan
agreements; hence, the interbank call loans were
subject to DST. Is the contention of BIR tenable?
NO. PNB's interbank call loans are not taxable under
Section 180 of the Tax Code. An interbank call loan refers
to the cost of borrowings from other resident banks and
non-bank financial institutions with quasi-banking
authority that is payable on call or demand. It is
transacted primarily to correct a bank's reserve
requirements. It does not fall under the definition of a
loan agreement (CIR vs. PNB, G.R. No. 195147, July 11,
2016, J. Bersamin).
NOTE: Section 180 provides that DST of Php0.30 on each
Php200.00, or fractional part thereof, shall only be
imposed on the face value of:
1. loan agreements;
2. bills of exchange;
3. drafts;
4. instruments and securities issued by the
Government or any of its instrumentalities;
5. certificates of deposits drawing interest;
6. orders for the payment of any sum of money
otherwise than at sight or on demand; and
7. promissory notes, whether negotiable or non-
negotiable, except bank notes issued for circulation,
and on each renewal of any such note.
Interbank call loans, although not considered as deposit
substitutes for taxation purposes, are not expressly
included among the taxable instruments listed in Section
180; hence, they may not be held as taxable. (CIR vs. PNB,
G.R. No. 195147, July 11, 2016, J. Bersamin).
31
Who is liable to pay DST?
DST on documents, loan agreements, and papers shall be
levied, collected and paid for by the person making,
signing, issuing, accepting, or transferring the same.
The Tax Code provides that whenever one party to the
document enjoys exemption from DST, the other party
not exempt from DST shall be directly liable for the tax.
Thus, it is clear that DST shall be payable by any party to
the document, such that the payment and compliance by
one shall mean the full settlement of the DST due on the
document (CIR vs. De La Salle University, G.R. No. 196596,
November 9, 2016, J. Brion).
NIRC REMEDIES
What are the remedies of a taxpayer?
These are legal actions which a taxpayer can avail to seek
relief from the undue burden or oppressive effect of tax
laws, or as means to check possible excesses by revenue
officers in the performance of their duties.
Remedies before payment
1. Administrative remedies
a. Protest of assessment;
i. Reconsideration
ii. Reinvestigation
b. Compromise; and
c. Abatement
2. Judicial Remedies
Remedies after payment
1. Administrative remedies
a. Tax refund
b. Tax credit
2. Judicial remedies
What are the remedies of the Government?
These are courses of action provided or allowed in the
law to implement the tax laws or enforce tax collection.
1. Administrative remedies
a. Tax lien
b. Distraint and levy
c. Forfeiture of real property
d. Suspension of business operation
e. Non-availability of injunction to restrain
collection of tax
2. Judicial remedies
a. Ordinary civil action
b. Criminal action
What is Letter of Authority (LOA)?
A LOA is the authority given to the appropriate revenue
officer assigned to perform assessment functions. It
empowers or enables said revenue officer to examine the
books of account and other accounting records of a
taxpayer for the purpose of collecting the correct amount
of tax. A LOA is premised on the fact that the examination
of a taxpayer who has already filed his tax returns is a
power that statutorily belongs only to the CIR himself or
his duly authorized representatives pursuant to Section
 TAXATION LAW
617 of the Tax Code. Hence, unless undertaken by the CIR
himself or his duly authorized representatives, other tax
agents may not validly conduct any of these kinds of
examinations without prior authority (Medicard
Philippines, Inc. vs. CIR, G.R. No. 222743, April 5, 2017, J.
Reyes).
Is Letter Notice (LN) sufficient for purposes of
compliance with the requirement of LOA?
NO. LN is entirely different and serves a different purpose
than a LOA.
First, a LOA addressed to a revenue officer is specifically
required under the NIRC before an examination of a
taxpayer may be had while an LN is not found in the NIRC
and is only for the purpose of notifying the taxpayer that
a discrepancy is found based on the BIR's RELIEF System.
Second, a LOA is valid only for 30 days from date of issue
while an LN has no such limitation. Third, a LOA gives the
revenue officer only a period of 120 days from receipt of
LOA to conduct his examination of the taxpayer whereas
an LN does not contain such a limitation.
What is the effect of absence of LOA?
The absence of LOA violates taxpayer’s right to due
process. There must be a grant of authority before any
revenue officer can conduct an examination or
assessment. 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 (CIR vs. SONY Philippines, Inc. G.R.
No. 178697, November 17, 2010).
What is the presumption in cases of tax assessments?
All presumptions are in favor of the correctness of tax
assessments. The good faith of the tax assessors and the
validity of their actions are thus presumed. They will be
presumed to have taken into consideration all the facts to
which their attention was called. Hence, it is incumbent
upon the taxpayer to credibly show that the assessment
was erroneous in order to relieve himself from the
liability it imposes (CIR v. Secretary of Justice, G.R. No.
177387, November 9, 2016, J. Bersamin).
The FLD issued against a taxpayer stated that the
amounts therein were “estimates based on best
possible sources.” Is the assessment valid?
NO. A taxpayer should be informed in writing of the law
and the facts on which the assessment is made,
otherwise, the assessment is void. An assessment, in
order to stand judicial scrutiny, must be based on facts.
The presumption of the correctness of an assessment,
being a mere presumption, cannot be made to rest on
another presumption (Spouses Pacquiao vs. CTA, G.R. No.
213394, April 6, 2016, J. Mendoza).
If assessment is made within the prescriptive period,
is it necessary that the receipt of such assessment by
the taxpayer be within the prescriptive period also?
17 SEC. 6. Power of the Commissioner to Make Assessments and Prescribe
Additional Requirements for Tax Administration and Enforcement. –
(A) Examination of Return and Determination of Tax Due. - After a return
has been filed as required under the provisions of this Code, the
Commissioner or his duly authorized representative may
32
NO. When an assessment is made within the prescriptive
period, receipt by the taxpayer may or may not be
within said period.
However, the rule does not dispense with the
requirement that the taxpayer should actually receive the
assessment notice, even beyond the prescriptive period
(CIR vs. GJM Philippines Manufacturing, Inc., G.R. No.
202695, February 29, 2016, J. Peralta).
Who has the burden of proof to establish receipt of
assessment by the taxpayer?
It has been settled that while a mailed letter is deemed
received by the addressee in the course of mail, this is
merely a disputable presumption subject to
controversion, the direct denial of which shifts the
burden to the sender to prove that the mailed letter was,
in fact, received by the addressee.
If the taxpayer denies having received an assessment
from the BIR, it then becomes incumbent upon the latter
to prove by competent evidence that such notice was
indeed received by the addressee. Here, the onus
probandi has shifted to the BIR to show by contrary
evidence that taxpayer indeed received the assessment in
the due course of mail.
To prove the fact of mailing, it is essential to present the
registry receipt issued by the Bureau of Posts or the
Registry return card which would have been signed by
the taxpayer or its authorized representative. And if said
documents could not be located, the CIR should, at the
very least, submit a certification issued by the Bureau of
Posts and any other pertinent document executed with
its intervention (CIR vs. GJM Philippines Manufacturing,
Inc., G.R. No. 202695, February 29, 2016, J. Peralta).
A perusal of the FAN against a taxpayer will show that
other than a tabulation of the alleged deficiency taxes
due, no further detail regarding the assessment was
provided by the BIR. Only the resulting interest,
surcharge and penalty were anchored with legal
basis. The BIR argues that a scrutiny of the BIR
records of respondent would show that the details of
the factual finding of EWT were itemized from the
PAN issued by petitioner. Is the assessment valid?
NO. Section 228 of the Tax Code provides that the
taxpayer shall be informed in writing of the law and the
facts on which the assessment is made. Otherwise, the
assessment is void.
The law requires that the legal and factual bases of the
assessment be stated in the formal letter of demand and
assessment notice. Thus, such cannot be presumed.
There was no going around the mandate of the law that
the legal and factual bases of the assessment be stated in
writing in the formal letter of demand accompanying the
assessment notice.
In this case, BIR should have at least attached a detailed
notice of discrepancy or stated an explanation why the
amount of deficiency tax is collectible against taxpayer
and how the same was arrived at. Any short-cuts to the
authorize the examination of any taxpayer and the assessment of the
correct amount of tax: Provided, however, that failure to file a return
shall not prevent the Commissioner from authorizing the examination
of any taxpayer. (emphasis supplied)
 UST LAW PRE-WEEK NOTES 2017
prescribed content of the assessment or the process
thereof should not be countenanced (CIR vs. United
Salvage and Towage (Phils.) Inc, G.R. No. 197515, July 2,
2014, J. Peralta).
When does an assessment become a disputed
assessment?
Where a taxpayer questions an assessment and asks the
CIR to reconsider or cancel the same because he (the
taxpayer) believes he is not liable therefor, the
assessment becomes a "disputed assessment" that the
CIR must decide. Thus, an assessment becomes a
disputed assessment after a taxpayer has filed its protest
to the assessment in the administrative level (CIR vs.
Liquigaz Philippines Corporation, G.R. No. 215534, April
18, 2016, J. Mendoza).
Section 228 of the NIRC declares that an assessment
is void if the taxpayer is not notified in writing of the
facts and law on which it is made. Is this requirement
applicable to both Formal Letter of Demand / Formal
Assessment Notice (FLD/FAN) and Final Decision on
Disputed Assessment (FDDA)?
YES. The requirement of providing the taxpayer with
written notice of the factual and legal bases applies both
to the FLD/FAN and the FDDA.
Although Section 228 is silent with regards to a decision
on a disputed assessment by the CIR which fails to state
the law and facts on which it is based, it should not be
read restrictively as to limit the written notice only to the
assessment itself. Moreover, RR No. 12-99 detailed the
process of assessment and required that both the
FAN/FLD and the FDDA state the law and facts on which
it is based.
The Court raises the possibility that the amounts
reflected in the FDDA were arbitrarily made if the factual
and legal bases thereof are not shown. Thus, the rule is in
observance of due process—to afford the taxpayer
adequate opportunity to file a protest on the assessment
and thereafter file an appeal in case of an adverse
decision (CIR vs. Liquigaz Philippines Corporation, G.R. No.
215534, April 18, 2016, J. Mendoza).
What is the effect of void FDDA?
A void FDDA does not ipso facto render the assessment
void. A “decision” differs from an “assessment.”
The difference is apparent in Section 7 of R.A. 1125, as
amended, where the CTA is conferred with appellate
jurisdiction over the decision of the CIR in cases involving
disputed assessments, as well as inaction of the CIR in
disputed assessments. From the foregoing, it is clear that
what is appealable to the CTA is the “decision” of the CIR
on disputed assessment and not the assessment itself.
After the protest to the assessment by the taxpayer, the
CIR either issues a decision on the disputed assessment
or fails to act on it and is, therefore, considered denied.
The taxpayer may then appeal the decision on the
disputed assessment or the inaction of the CIR. As such,
the FDDA is not the only means that the final tax liability
of a taxpayer is fixed, which may then be appealed by the
taxpayer. Under the law, inaction on the part of the CIR
may likewise result in the finality of a taxpayer’s tax
33
liability as it is deemed a denial of the protest filed by the
latter, which may also be appealed before the CTA.
An FDDA that does not inform the taxpayer in writing of
the facts and law on which it is based renders the decision
void. Therefore, it is as if there was no decision rendered
by the CIR. It is tantamount to a denial by inaction by the
CIR, which may still be appealed before the CTA and the
assessment evaluated on the basis of the available
evidence and documents (CIR vs. Liquigaz Philippines
Corporation, G.R. No. 215534, April 18, 2016, J. Mendoza).
Is substantial compliance of the notice requirement
under Section 228 of the NIRC allowed?
YES. The notice requirement under Section 228 of the
NIRC is substantially complied with whenever the
taxpayer had been fully informed in writing of the factual
and legal bases of the deficiency taxes assessment, which
enabled the latter to file an effective protest.
NOTE: In one case, the Supreme Court held that
considering the exchange of correspondence and
documents between the BIR and taxpayer in which the
former explained at length the factual and legal bases of
the deficiency tax assessments, the requirement of
Section 228 was substantially complied with. Taxpayer’s
right to due process was thus not violated (Samar I
Electric Cooperative v. CIR, G.R. No. 193100, December 10,
2014).
Taxpayer duly protested a PAN it received from the
BIR. Subsequently, the BIR issued a FAN to the
taxpayer. The demand letter states: “This is our final
decision based on investigation. If you disagree, you
may appeal the final decision within 30 days from
receipt hereof, otherwise said deficiency tax
assessment shall become final, executory and
demandable.” Instead of filing a protest on the
assessment, the taxpayer filed a petition for review
with the CTA. The BIR filed a motion to dismiss on the
ground that the taxpayer failed to exhaust
administrative remedies by filing a protest on the
assessment. Should the motion be granted?
NO. This case is an exception to the rule on exhaustion of
administrative remedies, i.e., estoppel on the part of BIR.
The taxpayer cannot be blamed for not filing a protest
against the FAN since the language used and the tenor of
the demand letter indicate that it is the final decision of
the CIR on the matter. The CIR must indicate, in a clear
and unequivocal language, whether its action on a
disputed assessment constitutes its final determination
thereon in order for the taxpayer concerned to determine
when his or her right to appeal to the tax court accrues.
Thus, the CIR is now estopped from claiming that it did
not intend the FAN to be a final decision (Allied Banking
Corp. v. CIR, G.R. No. 175097, February 5, 2010).
Soaring Eagle paid its excise tax liabilities with Tax
Credit Certificates (TCCs) which it purchased through
the One Stop Shop Inter-Agency Tax Credit Center
(Center) of the Department of Finance. The Center is
a composite body of the DOF, BIR, BOC and the BOI.
The TCCs were accepted by the BIR as payments. A
year after, the BIR demanded the payment of alleged
deficiency excise taxes on the ground that Soaring
Eagle is not a qualified transferee of the TCCs it
purchased from other BOI-registered companies.
The BIR argued that the TCCs are subject to post-
 TAXATION LAW
audit as a suspensive condition. On the other hand,
Soaring Eagle countered that it is a buyer in good
faith and for value who merely relied on the Center's
representation of the genuineness and validity of the
TCCs. If it is ordered to pay the deficiency, Soaring
Eagle claims the same is confiscatory and a violation
of due process. Is the assessment against Soaring
Eagle valid? Explain. (2016 BAR)
NO. The assessment is invalid because the TCCs used by
Soaring Eagle are valid and effective. A TCC is an
undertaking by the government through the BIR or DOF,
acknowledging that a taxpayer is entitled to a certain
amount of tax credit from either an overpayment of
income taxes, a direct benefit granted by law or other
sources and instances granted by law such as on specific
unused input taxes and excise taxes on certain goods. As
such, tax credit is transferable in accordance with
pertinent laws, rules, and regulations (Pilipinas Shell
Petroleum Corp. v. CIR, 541 SCRA 316 [2007]).
A Rehabilitation Court declared LCI to be under
corporate rehabilitation and issued an Order
providing, among others, the suspension of all
actions or proceedings, in court or otherwise, for the
enforcement of claims against LCI. The BIR was
notified of the rehabilitation proceedings involving
LCI. Despite the foregoing, the BIR, through Misajon,
still opted to assess and sent FAN requiring LCI to pay
deficiency taxes. As such, Misajon was cited for
contempt by the court. Misajon argued that (a) they
only performed such acts to toll the prescriptive
period for the collection of deficiency taxes; and (b)
to cite them in indirect contempt would unduly
interfere with their function of collecting taxes due to
the government. Is Misajon correct?
NO. It was improper for Misajon to collect, or even
attempt to collect, deficiency taxes from LCI outside of the
rehabilitation proceedings, and in the process, willfully
disregard the Order lawfully issued by the Rehabilitation
Court.
The act of sending FAN and FLD is part of assessment and
collection of deficiency taxes, an action or proceeding for
the enforcement of a claim which should have been
suspended pursuant to the Order. Misajon could have
easily tolled the running of such prescriptive period, and
at the same time, perform their functions as officers of the
BIR, without defying the Order by simply ventilating their
claim before the Rehabilitation Court (BIR vs. Lepanto
Ceramics, Inc., G.R. No. 224764, April 24, 2017, J. Perlas-
Bernabe).
Statute of Limitations
What is the purpose of statute of limitations on the
assessment and collection of taxes?
Prescription in the assessment and in the collection of
taxes is provided by the Legislature for the benefit of both
the Government and the taxpayer; for the Government
for the purpose of expediting the collection of taxes, so
that the agency charged with the assessment and
collection may not tarry too long or indefinitely to the
prejudice of the interests of the Government, which needs
taxes to run it; and for the taxpayer so that within a
reasonable time after filing his return, he may know the
amount of the assessment he is required to pay, whether
or not such assessment is well founded and reasonable so
34
that he may either pay the amount of the assessment or
contest its validity in court. It would surely be prejudicial
to the interest of the taxpayer for the Government
collecting agency to unduly delay the assessment and the
collection because by the time the collecting agency
finally gets around to making the assessment or making
the collection, the taxpayer may then have lost his papers
and books to support his claim and contest that of the
Government, and what is more, the tax is in the meantime
accumulating interest which the taxpayer eventually has
to pay.
Likewise, the prescriptive period for the filing of actions
for collection of taxes is justified by the need to protect
law-abiding citizens from possible harassment. Also, it is
principally intended to afford protection to the taxpayer
against unreasonable investigations as the indefinite
extension of the period for assessment deprives the
taxpayer of the assurance that he will no longer be
subjected to further investigation for taxes after the
expiration of a reasonable period of time. Thus, the legal
provisions on prescription should be liberally construed
to protect taxpayers and that, as a corollary, the
exceptions to the rule on prescription should be strictly
construed (CIR vs. Basf Coating + Inks Phils., Inc, G.R. No.
198677, November 26, 2014, J. Peralta).
On January 9, 1996, BIR issued assessment notice
against a taxpayer for taxable year 1992. The
taxpayer protested arguing that the assessment is
void because the right of the government to assess
and collect deficiency taxes from it has prescribed.
BIR, on the other hand, argued that its right to collect
the deficiency tax has not yet prescribed because
while the final assessment notice and demand letter
were issued on January 9, 1996, the five (5)-year
prescriptive period to collect was interrupted when
respondent filed its request for reinvestigation on
March 14, 1997 which was granted by the BIR on
January 22, 2001. Thus, the period for tax collection
should have begun to run from the date of the
reconsidered or modified assessment. Is BIR correct?
NO. The statute of limitations on assessment and
collection of national internal revenue taxes was
shortened from five (5) years to three (3) years by virtue
of Batas Pambansa Blg. 700. Thus, BIR has three (3) years
from the date of actual filing of the tax return to assess a
national internal revenue tax or to commence court
proceedings for the collection thereof without an
assessment. However, when it validly issues an
assessment within the three (3)-year period, it has
another three (3) years within which to collect the tax
due by distraint, levy, or court proceeding. The
assessment of the tax is deemed made and the three (3)-
year period for collection of the assessed tax begins to run
on the date the assessment notice had been released,
mailed or sent to the taxpayer.
The Collection Letter for deficiency taxes for taxable year
1992 was only issued on February 21, 2002, despite the
fact that the FANs for the deficiency taxes for taxable year
1992 was issued as early as January 9, 1996. Clearly, five
(5) long years had already lapsed, beyond the three (3)-
year prescriptive period, before collection was pursued
by the BIR.
Further, while the request for reinvestigation was made
on March 14, 1997, the same was only acted upon by
petitioner on January 22, 2001, also beyond the three (3)
 UST LAW PRE-WEEK NOTES 2017
year statute of limitations reckoned from January 9, 1996,
notwithstanding the lack of impediment to rule upon
such issue. Moreover, the request for reinvestigation
should be granted or at least acted upon in due course
before the suspension of the statute of limitations may set
in (CIR vs. United Salvage and Towage (Phils.) Inc, G.R. No.
197515, July 2, 2014, J. Peralta).
More than 12 years after the filing of the protest, the
CIR rendered a decision reiterating the deficiency
DST assessment against CBC and ordered the
payment thereof within 30 days from receipt of the
Decision.
Consequently, CBC filed a Petition for Review with the
CTA. On 11 March 2002, the CIR filed an Answer with
a demand for CBC to pay the assessed DST. Is the right
of the BIR to collect the assessed DST from CBC
barred by prescription?
YES. Under the law, the time limit for the government to
collect the assessed tax is set at three years, to be
reckoned from the date when the BIR
mails/releases/sends the assessment notice to the
taxpayer. Further, Section 319(C) states that the assessed
tax must be collected by distraint or levy and/or court
proceeding within the three-year period.
However, in this case, there was neither a warrant of
distraint or levy served nor a collection case filed in court
by the BIR within the three-year period. The BIR’s
Answer in the case filed before the CTA could not, by any
means, have qualified as a collection case as required by
law. Further, the demand was made almost thirteen years
from the date from which the prescriptive period is to be
reckoned. Thus, the attempt to collect the tax was made
way beyond the three-year prescriptive period (China
Banking Corporation vs. CIR, GR. No. 172509, February 4,
2015, C.J. Sereno).
MERALCO obtained a loan from Norddeutsche
Landesbank Girozentrale (NORD/LB). Pursuant
thereto, MERALCO remitted to the BIR the
withholding tax on its interest payments to
NORD/LB. Sometime in 2001, MERALCO discovered
that NORD/LB is a foreign government-owned
financing institution of Germany and requested for a
BIR Ruling with regard to the tax-exempt status of
NORD/LB. On October 7, 2003, the BIR issued Ruling
No. DA-342-2003 declaring that the interest
payments made to NORD/LB are exempt from the ten
percent (10%) final withholding tax, since it is a
financing institution owned and controlled by the
foreign government of Germany.
Consequently, on July 13, 2004, relying on the
aforesaid BIR Ruling, MERALCO filed with the BIR a
claim for tax refund or issuance of tax credit
certificate for the erroneously paid or overpaid final
withholding tax. Said claim was denied by the BIR on
18 Section 229. Recovery of Tax Erroneously or Illegally Collected. – xxx
In any case, no such suit or proceeding shall be filed after the
expiration of two (2) years from the date of payment of the tax or
penalty regardless of any supervening cause that may arise after
payment xxx. (emphasis supplied)
19 Sec. 223. Suspension of Running of Statute of Limitations. – The
running of the Statute of Limitations provided in Sections 203 and 222
on the making of assessment and the beginning of distraint or levy a
proceeding in court for collection, in respect of any deficiency, shall be
suspended for the period during which the Commissioner is prohibited
from making the assessment or beginning distraint or levy or a
35
the basis that the same had already prescribed under
Tax Code.
On its Petition for Review, MERALCO argued that
exemption was provided and ascertained only
through BIR Ruling No. DA-342-2003 and that the
prescriptive period for initiating an action on the
ground of quasicontract or solutio indebiti under
Article 1145 of the New Civil Code is six (6) years. Is
MERALCO correct?
NO. Section 22918 of the Tax Code provides
taxpayer/claimant a period of two (2) years from the date
of payment of tax to file a claim for refund before the BIR.
The prescriptive period provided is mandatory
regardless of any supervening cause that may arise after
payment. It should be pointed out further that while the
prescriptive period of two (2) years commences to run
from the time that the refund is ascertained, the propriety
thereof is determined by law (in this case, from the date
of payment of tax), and not upon the discovery by the
taxpayer of the erroneous or excessive payment of taxes.
The issuance by the BIR of the Ruling declaring the tax-
exempt status of NORD/LB, if at all, is merely
confirmatory in nature. There is no basis that the subject
exemption was provided and ascertained only through
BIR Ruling No. DA-342-2003, since said ruling is not the
operative act from which an entitlement of refund is
determined. In other words, the BIR is tasked only to
confirm what is provided under the Tax Code on the
matter of tax exemptions as well as the period within
which to file a claim for refund.
Moreover, MERALCO is misguided when it relied upon
the six (6)-year prescriptive period for initiating an
action on the ground of quasicontract or solutio indebiti
under Article 1145 of the New Civil Code. There is solutio
indebiti where: (1) payment is made when there exists no
binding relation between the payor, who has no duty to
pay, and the person who received the payment; and (2)
the payment is made through mistake, and not through
liberality or some other cause. Here, there is a binding
relation between BIR as the taxing authority in this
jurisdiction and MERALCO which is bound under the law
to act as a withholding agent of NORD/LB Singapore
Branch, the taxpayer. Hence, the first element of solutio
indebiti is lacking. Moreover, such legal precept is
inapplicable to the present case since the Tax Code, a
special law, explicitly provides for a mandatory period
for claiming a refund for taxes erroneously paid (CIR
vs. Manila Electric Company, G.R. No. 181459, June 9, 2014,
J. Peralta).
What is the rule on suspension of the running of
prescriptive period to assess in case a taxpayer
cannot be located in the address given in the return?
Under Section 22319 of the Tax Code, the running of the
Statute of Limitations shall be suspended when the
taxpayer cannot be located in the address given by him in
proceeding in court and for sixty (60) days thereafter; when the
taxpayer requests for a reinvestigation which is granted by the
Commissioner; when the taxpayer cannot be located in the address
given by him in the return filed upon which a tax is being assessed
or collected: Provided, that, if the taxpayer informs the
Commissioner of any change in address, the running of the Statute
of Limitations will not be suspended; when the warrant of distraint or
levy is duly served upon the taxpayer, his authorized representative, or
a member of his household with sufficient discretion, and no property
could be located; and when the taxpayer is out of the Philippines.
(emphasis supplied)
 TAXATION LAW
the return filed upon which a tax is being assessed or
collected.
However, the above rule on the suspension of the three-
year period to assess apply only if the BIR Commissioner
is not aware of the whereabouts of the taxpayer. In case
the BIR, by all indications, is well aware that taxpayer had
moved to its new address, as shown by the documents
which form part of its records with the BIR, the running
of the three-year period to assess respondent is not
suspended. (CIR vs. Basf Coating + Inks Phils., Inc, G.R. No.
198677, November 26, 2014, J. Peralta).
What are the requisites in order that request for
reinvestigation will suspend the statute of
limitations?
Two things must concur: there must be a request for
reinvestigation and the CIR must have granted it. Thus,
request for reinvestigation alone will not suspend the
statute of limitations (China Banking Corporation vs. CIR,
GR. No. 172509, February 4, 2015, C.J. Sereno).
What is the nature of waiver of statute of limitations?
Waiver of the statute of limitations is not a waiver of the
right to invoke the defense of prescription but rather an
agreement between the taxpayer and the BIR that the
period to issue an assessment and collect the taxes due is
extended to a date certain. It is not a unilateral act by the
taxpayer of the BIR but is a bilateral agreement between
two parties.
Since a waiver of the statute of limitations is a derogation
of the taxpayer’s right to security against prolonged and
unscrupulous investigations, waivers of this kind must be
carefully and strictly construed (Philippine Journalists,
Inc. v. CIR, G.R. No. 162852, December 16, 2004).
What is the effect of a defect in a waiver of statute of
limitations?
A defect in the waiver results to the non-extension of the
period to assess or collect taxes, and makes the
assessment issued by the BIR beyond the three-year
prescriptive period void (CIR vs Philippine Daily Inquirer,
G.R. No. 213943, March 22, 2017, J. Carpio).
What are the guidelines on proper execution of
waivers?
1. The waiver may be, but not necessarily, in the form
prescribed by RMO No. 20-90 or RDAO No. 05-01. The
taxpayer's failure to follow the aforesaid forms does
not invalidate the executed waiver, for as long as the
following are complied with:
a) The Waiver of the Statute of Limitations under
Section 222(b) and (d) shall be executed before the
expiration of the period to assess or to collect
taxes. The date of execution shall be specifically
indicated in the waiver.
b) The waiver shall be signed by the taxpayer himself
or his duly authorized representative. In the case
of a corporation, the waiver must be signed by any
of its responsible officials;
c) The expiry date of the period agreed upon to
assess/collect the tax after the regular three-year
period of prescription should be indicated;
36
2. Except for waiver of collection of taxes which shall
indicate the particular taxes assessed, the waiver need
not specify the particular taxes to be assessed nor the
amount thereof, and it may simply state "all internal
revenue taxes" considering that during the
assessment stage, the CIR or her duly authorized
representative is still in the process of examining and
determining the tax liability of the taxpayer.
3. Since the taxpayer is the applicant and the executor of
the extension of the period of limitation for its benefit
in order to submit the required documents and
accounting records, the taxpayer is charged with the
burden of ensuring that the waivers of statute of
limitation are validly executed by its authorized
representative. The authority of the taxpayer's
representative who participated in the conduct of
audit or investigation shall not be thereafter
contested to invalidate the waiver.
4. The waiver may be notarized. However, it is sufficient
that the waiver is in writing as specifically provided
by the NIRC, as amended.
5. Considering that the waiver is a voluntary act of the
taxpayer, the waiver shall take legal effect and be
binding on the taxpayer upon its execution thereof.
6. It shall be the duty of the taxpayer to submit its duly
executed waiver to the CIR or officials previously
designated in existing issuances or the concerned
revenue district officer or group supervisor as
designated in the Letter of Authority/Memorandum
of Assignment who shall then indicate acceptance by
signing the same. Such waiver shall be executed and
duly accepted prior to the expiration of the period to
assess or to collect. The taxpayer shall have the duty
to retain a copy of the accepted waiver.
7. Note that there shall only be two (2) material dates
that need to be present on the waiver:
a. The date of execution of the waiver by the taxpayer
or its authorized representative; and
b. The expiry date of the period the taxpayer waives
the statute of limitations.
8. Before the expiration of the period set on the
previously executed waiver, the period earlier set may
be extended by subsequent written waiver (RMO 14-
2016).
After being assessed by the BIR with alleged
deficiency income taxes, VVV Corporation (VVV)
through Enrique, its President, executed a waiver of
the prescriptive period. The waiver was signed by
Revenue District Officer (RDO) Alfredo. However, the
waiver did not state the date of execution by the
taxpayer and date of acceptance by the BIR. Enrique
was also not furnished a copy of the waiver by the
BIR.
VVV claims that the waiver is void due to non-
compliance with RMO 20-90. Hence, the period for
assessment had already prescribed. Moreover, since
the assessment involves P2 Million, the waiver
should have been signed by the CIR and instead of a
mere RDO. On the other hand, the BIR contends that
the requirements of RMO No. 20-90 are merely
directory; that the execution of the waiver by VVV
was a renunciation of its right to invoke prescription
and that the government cannot be estopped by the
mistakes committed by its revenue officers. Is VVV
liable? Explain. (2016 BAR)
 UST LAW PRE-WEEK NOTES 2017
NO. The waiver was executed after VVV Corporation
(VVV) was assessed for deficiency income taxes
obviously to justify the assessment made after
prescription had set in. This is the reason why VVV is
invoking prescription due to the alleged invalidity of the
waiver for failure to comply with the requisites set forth
under RMO 20-90. A waiver executed beyond the
prescriptive period is ineffective (CIR v. The Stanley
Works Sales (Phils), Inc. 743 SCRA 642 [2014]).
RCBC assails the validity of the waivers of the statute
of limitations on the ground that the said waivers
failed to indicate acceptance or agreement of the CIR,
as required under Section 223(b) of the 1997 Tax
Code. RCBC further argues that the principle of
estoppel cannot be applied against it because its
payment of the other tax assessments does not
signify a clear intention on its part to give up its right
to question the validity of the waivers. Is RCBC
correct?
NO. Under Article 1431 of the Civil Code, the doctrine of
estoppel is anchored on the rule that “an admission or
representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against
the person relying thereon.” A party is precluded from
denying his own acts, admissions or representations to
the prejudice of the other party in order to prevent fraud
and falsehood.
Estoppel is clearly applicable in this case. RCBC, through
its partial payment of the revised assessments issued
within the extended period as provided for in the
questioned waivers, impliedly admitted the validity of
those waivers. Had petitioner truly believed that the
waivers were invalid and that the assessments were
issued beyond the prescriptive period, then it should not
have paid the reduced amount of taxes in the revised
assessment. Thus, RCBC is estopped from questioning the
validity of the waivers (Rizal Commercial Banking
Corporation vs. CIR, G.R. No. 170257, September 7, 2011, J.
Mendoza).
PART III: LOCAL TAXATION
Is power to tax inherent in local government unit
(LGU)?
NO. Although the power to tax is inherent in the State, the
same is not true for LGUs because although the mandate
to impose taxes granted to LGUs is categorical and long
established in the 1987 Philippine Constitution, the same
is not all encompassing as it is subject to limitations as
explicitly stated in Section 5, Article X 20 of the 1987
Constitution. The power to tax must be exercised within
the guidelines and limitations that Congress may provide.
Moreover, the power to tax “is an attribute of
sovereignty,” and as such, inheres in the State. Such,
however, is not true for provinces, cities, municipalities
and barangays as they are not the sovereign; rather, they
are mere “territorial and political subdivisions of the
Republic of the Philippines” (Batangas City vs. Pilipinas
20 SECTION 5. Each local government unit shall have the power to
create its own sources of revenues and to levy taxes, fees, and charges
subject to such guidelines and limitations as the Congress may provide,
consistent with the basic policy of local autonomy. Such taxes, fees, and
charges shall accrue exclusively to the local governments.
37
Shell Petroleum Corporation, G.R. No. 187631, July 8, 2015,
J. Peralta).
May Congress, under the 1987 Constitution, abolish
the power to tax of local governments? (2003 BAR)
NO. The Congress cannot abolish the local government’s
power to tax as it cannot abrogate what is expressly
granted by the fundamental law. The only authority
conferred to Congress is to provide the guidelines and
limitations on the local government’s exercise of the
power to tax.
Local taxpayers who are engaged in the retail
business of selling general merchandise within the
territorial jurisdiction of Davao City assails the
validity of the City Ordinance No. 158-05, Series of
2005, for being violative of Section 191 21 of the LGC
which allows an adjustment in local tax rates not
more than once every five years, and not exceeding
10%.
Under the old tax ordinance, wholesalers and
retailers were grouped as one, thus, the tax base and
tax rate imposed upon retailers were the same as that
imposed upon wholesalers. The new tax ordinance
provided different tax treatment between wholesale
and retail businesses pursuant to the LGC. They
alleged that they used to pay only 50% of 1 % of the
business tax rate under the old Davao City Ordinance
No. 230, Series of 1990, but in the assailed new
ordinance, it will require them to pay a tax rate of
1.5%, or an increase of 200% from the previous rate.
Is the assailed ordinance valid?
YES. The assailed ordinance does not violate the
limitation imposed by Section 191 of the LGC on the
adjustment of tax rate.
Section 191 of the LGC presupposes that the following
requirements are present for it to apply, to wit:
(i) there is a tax ordinance that already imposes a tax in
accordance with the provisions of the LGC; and
(ii) there is a second tax ordinance that made
adjustment on the tax rate fixed by the first tax
ordinance.
In this case, both elements are not present. First, it cannot
be said that the old tax ordinance was imposed in
accordance with the provisions of the LGC. The old tax
ordinance of Davao City was enacted before the LGC came
into law. Thus, the assailed new ordinance was actually
the first to impose the tax on retailers in accordance with
the provisions of the LGC. As to the second requirement,
the new tax ordinance imposed the new tax base and the
new tax rate as provided by the LGC for retailers. It must
be emphasized that a tax has two components, a tax base
and a tax rate. However, Section 191 contemplates a
situation where there is already an existing tax as
authorized under the LGC and only a change in the tax
rate would be effected. Again, the new ordinance
provided, not only a tax rate, but also a tax base that were
21 Section 191. Authority of Local Government Units to Adjust Rates of
Tax Ordinances. - Local government units shall have the authority to
adjust the tax rates as prescribed herein not oftener than once every five
(5) years, but in no case shall such adjustment exceed ten percent (10%)
of the rates fixed under this Code.
 TAXATION LAW
appropriate for retailers, following the parameters
provided under the LGC.
Moreover, the resulting increase in the tax rate for
retailers was merely incidental. When Davao City enacted
the assailed ordinance, it merely intended to rectify the
glaring error in the classification of wholesaler and
retailer in the old ordinance (Mindanao Shopping
Destinations Corporation vs. Hon. Rodrigo Duterte, G.R. No.
211093, June 6, 2017, J. Peralta).
Is LGU empowered under the LGC to impose business
taxes on persons or entities engaged in the business
of manufacturing and distribution of petroleum
products?
Among the common limitations on the taxing powers of
LGUs under Section 133 of the LGC is paragraph (h)22
which specifies the two kinds of taxes which cannot be
imposed by LGUs: (1) excise taxes on articles enumerated
under the NIRC, as amended; and (2) taxes, fees or
charges on petroleum products.
The above provision makes plain that the prohibition
with respect to petroleum products extends not only to
excise taxes thereon, but all “taxes, fees or charges”
(Batangas City vs. Pilipinas Shell Petroleum Corporation,
G.R. No. 187631, July 8, 2015, J. Peralta).
The City of Maharlika passed an ordinance imposing
a tax on any sale or transfer of real property located
within the city at a rate of fifty percent (50%) of one
percent (1%) of the total consideration of the
transaction. Jose sold a parcel of land in the city,
which he inherited from his deceased parents, and
refused to pay the aforesaid tax. He instead filed a
case asking that the ordinance be declared null and
void since the tax it imposed can only be collected by
the national government, as in fact he has paid the
Bureau of Internal Revenue (BIR) the required
capital gains tax. If you were the City Legal Officer of
Maharlika, what defenses would you raise to sustain
the validity of the ordinance? (2016 BAR)
I would argue that the city is allowed to levy a tax on
transfer of real property ownership (Sec. 135, LGC). The
capital gains tax which is an income tax collected by the
national government is entirely different from the tax on
sale or transfer imposed by the ordinance. The tax
imposed by the ordinance not being in the nature of an
income tax, the imposition of the income tax by the
national government will not pre-empt the tax sought to
be imposed by the ordinance. I would further argue that
the imposition by the national government of a tax will
pre-empt Local Government Units (LGU) only if there is
no specific provision under the Local Government Units
Code giving said power (Bulacan v. CA, 299 SCRA 442
[1998]).
The Philippine-British Association, Inc. (Association)
is a non-stock, non-profit organization which owns
the St. Michael's Hospital (Hospital). Sec. 216 in
relation to Sec. 215 of the LGC classifies all lands,
buildings and other improvements thereon actually,
directly, and exclusively used for hospitals as
"special." A special classification prescribes a lower
22 SECTION 133. Common Limitations on the Taxing Powers of Local
Government Units. – Unless otherwise provided herein, the exercise of
taxing powers of provinces, cities, municipalities, and barangays shall
not extend to the levy of the following: x x x x
38
assessment than a commercial classification. Within
the premises of the Hospital, the Association
constructed the St. Michael's Medical Arts Center
(Center) which will house medical practitioners who
will lease the spaces therein for their clinics at
prescribed rental rates. The doctors who treat the
patients confined in the Hospital are accredited by
the Association.
The City Assessor classified the Center as
"commercial" instead of "special" on the ground that
the Hospital owner gets income from the lease of its
spaces to doctors who also entertain out-patients. Is
the City Assessor correct in classifying the Center as
"commercial?" Explain. (2016 BAR)
NO. The Medical Arts Center is an integral part of the
Hospital and should be classified assessment purpose as
“special”. The fact alone that the doctors holding clinics in
the center are those duly accredited by the Association
who owns the Hospital, and these doctors are the ones
who can treat the Hospital’s patients confined in it, takes
away the said Medical Arts Center from being categorized
a “commercial” since tertiary hospital is required by law
to have a pool of physicians who comprise the required
medical departments in various medical fields (City
Assessor of Cebu City v. Association of Benevola de Cebu,
Inc., 524 SCRA 128 [(2007]).
In 2014, M City approved an ordinance levying
customs duties and fees on goods coming into the
territorial jurisdiction of the city. Said city ordinance
was duly published on February 15, 2014 with
effectivity date on March 1, 2014.
a. Is there a ground for opposing said ordinance?
b. What is the proper procedural remedy and
applicable time periods for challenging the
ordinance? (2015 BAR)
a. YES, on the ground that the ordinance is ultra vires.
The taxing powers of local government units, such as
M City, cannot extend to the levy of taxes, fees and
charges already imposed by the national
government, and this includes, among others, the
levy of customs duties under the Tariff and Customs
Code [Sec. 133(e), LGC].
b. Any question on the constitutionality or legality of
tax ordinance may be raised on appeal within 30
days from effectivity to the Secretary of Justice. The
Secretary of Justice shall render a decision within 60
days from the date of receipt of the appeal.
Thereafter, within 30 days after receipt of the
decision or the lapse of the 60-day period without the
Secretary of Justice acting upon the appeal, the
aggrieved party may file the appropriate proceedings
with the Regional Trial Court (Sec. 187, LGC).
Are submarine or undersea communications cables
subject to real property tax?
YES. Submarine or undersea communications cables are
akin to electric transmission lines which as declared in
Manila Electric Company v. City Assessor and City
Treasurer of Lucena City are "no longer exempted from
real property tax" and may qualify as "machinery" subject
(h) Excise taxes on articles enumerated under the National Internal
Revenue Code, as amended, and taxes, fees or charges on petroleum
products. (emphasis supplied)
 UST LAW PRE-WEEK NOTES 2017
to real property tax under the LGC (Capitol Wireless Inc.
vs. The Provincial Treasurer of Batangas, G.R. No. 180110,
May 30, 2016, J. Peralta).
Is payment under protest necessary when the
reasonableness of the amount of real property tax
assessed is being questioned?
YES. Settled is the rule that should the taxpayer/real
property owner question the excessiveness or
reasonableness of the assessment, Section 252 of the LGC
of 1991 directs that the taxpayer should first pay the tax
due before his protest can be entertain. There shall be
annotated on the tax receipts the words "paid under
protest." It is only after the taxpayer has paid the tax due
that he may file a protest in writing within 30 days from
payment of the tax to the Provincial, City or Municipal
Treasurer, who shall decide the protest within sixty days
from receipt. In no case is the local treasurer obliged to
entertain the protest unless the tax due has been paid.
A taxpayer alleges that payment under protest under
Section 252 of the LGC is only required when the
reasonableness of the amount assessed is being
questioned. However, in challenging the very
authority and power of the assessor to impose the
assessment and of the treasurer to collect the tax,
such payment is not a condition sine qua non for the
LBAA to entertain the challenge on the validity of the
tax imposed on its tax-exempt properties. Is the
taxpayer correct?
NO. As settled in jurisprudence, a claim for exemption
from the payment of real property taxes does not actually
question the assessor's authority to assess and collect
such taxes, but pertains to the reasonableness or
correctness of the assessment by the local assessor, a
question of fact which should be resolved, at the very first
instance, by the LBAA.
Section 206 of the LGC categorically provides that every
person by or for whom real property is declared, who
shall claim exemption from payment of real property
taxes imposed against said property, shall file with the
provincial, city or municipal assessor sufficient
documentary evidence in support of such claim. The
burden of proving exemption from local taxation is upon
whom the subject real property is declared. Real property
not declared and proved as tax-exempt shall be included
in the assessment roll and the local assessor has the
authority to assess the property for realty taxes, and any
subsequent claim for exemption shall be allowed only
when sufficient proof has been adduced supporting the
claim. Thus, if the property being taxed has not been
dropped from the assessment roll, taxes must be paid
under protest if the exemption from taxation is insisted
upon (National Power Corporation vs. The Provincial
Treasurer of Benguet, G.R. No. 209303, November 14, 2016,
J. Peralta).
What constitute a valid protest? Is there any formal
requirement prescribed by law?
The law does not prescribe any formal requirement to
constitute a valid protest. To constitute a valid protest, it
is sufficient if what has been filed contains the
spontaneous declaration made to acquire or keep some
right or to prevent an impending damage. Accordingly, a
protest is valid so long as it states the taxpayer’s objection
to the assessment and the reasons therefor.
39
Thus, a letter to the Treasurer questioning the imposition
of business tax while paying the assessed amount is a
valid protest (China Banking Corporation vs. City
Treasurer of Manila, GR. No. 204117, July 1, 2015, J.
Mendoza).
The Provincial Assessor of Batangas had determined
that the submarine cable systems of Capwire are
taxable real property. Consequently, Capwire
received a Warrant of Levy from the Provincial
Treasurer. Thereafter, Capwire filed a Petition for
Prohibition and Declaration of Nullity of Warrant of
Levy with the RTC which dismissed said petition
because of the latter's failure to comply with the
requirements set in Sections 226 and 229 of the LGC,
that is, by not availing of remedies before
administrative bodies like the LBAA and the CBAA
and for failure to pay the tax assessed against it under
protest pursuant to Section 252.
Capwire asserts that recourse to the LBAA, or
payment of the tax under protest, is inapplicable to
the case since there is no question of fact involved. It
contends that there is only a pure question of law
since the issue is whether its submarine cable system
is taxable. Capwire holds the position that the cable
system is not subject to tax because cable system lies
outside of Philippine territory, i.e., on international
waters. Is Capwire correct?
NO. In disputes involving real property taxation, the
general rule is to require the taxpayer to first avail of
administrative remedies and pay the tax under protest
before allowing any resort to a judicial action, except
when the assessment itself is alleged to be illegal or is
made without legal authority. Stated differently, the
general rule of a prerequisite recourse to administrative
remedies applies when questions of fact are raised, but
the exception of direct court action is allowed when
purely questions of law are involved.
Capwire’s proposition that the cables lie entirely beyond
Philippine territory, and therefore, outside of Philippine
sovereignty, is a fact that is not subject to judicial notice.
Therefore, Capwire's resort to judicial action, premised
on its legal conclusion that its cables lie entirely on
international waters, without first administratively
substantiating such a factual premise, is improper. Facts
must be threshed out administratively, as the courts in
these types of cases step in at the first instance only when
pure questions of law are involved (Capitol Wireless Inc.
vs. The Provincial Treasurer of Batangas, G.R. No. 180110,
May 30, 2016, J. Peralta).
Is a tax declaration be validly considered as a notice
of assessment for purposes of real property taxation?
NO. Tax declarations cannot be validly considered as a
notice of assessment. A notice of assessment fixes and
determines the tax liability of a taxpayer and is a notice
to the effect that the amount stated therein is due as tax
and a demand to pay thereof. Such notice should
effectively inform the taxpayer of the value of a specific
property, or proportion thereof subject to tax, including
the discovery, listing, classification, and appraisal of
properties.
Tax declarations cannot be considered as notices of
assessment. First, a tax declaration is issued pursuant to
 TAXATION LAW
Section 22 of P.D. No. 46423 which mandates "that upon
discovery of real property, the provincial, city or
municipal assessor shall make an appraisal and
assessment of such real property in accordance with
Section 5 of the law, irrespective of any previous
assessment on taxpayer’s valuation thereon," while a
notice of assessment is issued pursuant to Section 27 of
the law which mandates the "assessor xxx to give written
notice within thirty days of such assessment, to the
person in whose name the property is declared."
Second, a tax declaration is to be issued "upon discovery"
by the assessor of the "real property" to be appraised and
assessed, while a "written notice of assessment" has to be
issued by the assessor "within thirty days" from "such
assessment."
Third, no tax accrues as a result of the assessor's issuance
of a tax declaration, for at that time, the assessor is merely
tasked "to determine the assessed value of the property,
meaning, the value placed on taxable property for ad
valorem tax purposes." On the other hand, the written
notice of assessment is what ripens into a demandable
tax (Romeo Pucyutan vs. Manila Electric Company, Inc., GR
No. 197136, April 18, 2016, J. Peralta).
Is the issuance of the writ of execution necessary for
purposes of local tax refund or credit?
NO. Section 252(c) of the LGC of the Philippines is very
clear that “[i]n the event that the protest is finally decided
in favor of the taxpayer, the amount or portion of the tax
protested shall be refunded to the taxpayer, or applied as
tax credit against his existing or future tax liability.” It is
not necessary for the issuance of the writ of execution
because the remedy has already been provided by law.
The issuance of the Writ of Execution is superfluous,
because the judgment of the trial court can neither be
considered a judgment for a specific sum of money
susceptible of execution by levy or garnishment under
Section 9, Rule 39 of the Rules of Court nor a special
judgment under Section 11, Rule 39 thereof. (Coca-Cola
Bottlers Philippines, Inc. vs. City of Manila, G.R. No. 197561,
April 7, 2014, J. Peralta).
In an appeal from a decision of the LBAA to the CBAA,
is the “fresh period rule” applicable?
NO. While it is evident in jurisprudence that the filing of
motion for reconsideration before the LBAA is allowed, it
is also settled that the "fresh period rule" in the case of
Neypes, et al. v. Court of Appeals applies only to judicial
appeals and not to administrative appeals.
An appeal from a decision of the LBAA to the CBAA, is not
judicial but administrative in nature. Thus, the "fresh
period rule" in Neypes does not apply (National Power
Corporation vs. The Provincial Treasurer of Benguet, G.R.
No. 209303, November 14, 2016, J. Peralta).
Discuss the rules for a valid tax delinquency sale.
Under Section 254 of the LGC, it is required that the notice
of delinquency must be posted at the main hall and in a
publicly accessible and conspicuous place in each
barangay of the local government unit concerned. It shall
23 P.D. No. 464. (The Real Property Tax Code) was superseded by
Republic Act No. 7160, otherwise known as the Local Government Code
of 1991.
40
also be published once a week for two (2) consecutive
weeks, in a newspaper of general circulation in the
province, city, or municipality.
Section 258 of the LGC further requires that should the
treasurer issue a warrant of levy, the same shall be mailed
to or served upon the delinquent owner of the real
property or person having legal interest therein, or in
case he is out of the country or cannot be located, the
administrator or occupant of the property. At the same
time, the written notice of the levy with the attached
warrant shall be mailed to or served upon the assessor
and the Registrar of Deeds of the province, city or
municipality within the Metropolitan Manila Area where
the property is located, who shall annotate the levy on the
tax declaration and certificate of title of the property,
respectively.
Section 260 of the LGC also mandates that within thirty
(30) days after service of the warrant of levy, the local
treasurer shall proceed to publicly advertise for sale or
auction the property or a usable portion thereof as may
be necessary to satisfy the tax delinquency and expenses
of sale. Such advertisement shall be effected by posting a
notice at the main entrance of the provincial, city or
municipal building, and in a publicly accessible and
conspicuous place in the barangay where the real
property is located, and by publication once a week for
two (2) weeks in a newspaper of general circulation in
the province, city or municipality where the property is
located.
Requirements for a tax delinquency sale under the LGC
are mandatory. Strict adherence to the statutes governing
tax sales is imperative not only for the protection of the
taxpayers, but also to allay any possible suspicion of
collusion between the buyer and the public officials
called upon to enforce the laws (Corporate Strategies
Development Corp. vs. Agojo, G.R. No. 208740, November
19, 2014, J. Mendoza).
Who has the burden to prove compliance with the
validity of the proceedings leading up to the tax
delinquency sale under the LGC?
The burden to prove compliance with the validity of the
proceedings leading up to the tax delinquency sale is
incumbent upon the buyer or the winning bidder. This is
premised on the rule that a sale of land for tax
delinquency is in derogation of property and due process
rights of the registered owner. In order to be valid, the
steps required by law must be strictly followed. The
burden to show that such steps were taken lies on the
person claiming its validity, for the Court cannot allow
mere presumption of regularity to take precedence over
the right of a property owner to due process accorded no
less than by the Constitution.
It is well settled that there could be no presumption of the
regularity of any administrative action which resulted in
depriving a taxpayer of his property through a tax sale.
This is an exception to the rule that administrative
proceedings are presumed to be regular (Corporate
Strategies Development Corp. vs. Agojo, G.R. No. 208740,
November 19, 2014, J. Mendoza).
 UST LAW PRE-WEEK NOTES 2017
PART IV: TARIFF AND CUSTOMS
Under the Tariff and Customs Code, as amended:
a. When does importation begin and when is it
deemed terminated?
b. In what cases is the decision of the Collector
automatically reviewed by the Commissioner of
Customs? In what instance/s is the decision of the
Commissioner automatically appealed to the
Secretary of Finance? (1995, 2015 BAR)
a. Importation begins when the carrying vessel or
aircraft enters the jurisdiction of the Philippines with
the intention to unlade therein. Importation is
deemed terminated upon payment of the duties,
taxes, and other charges due upon the articles, or
secured to be paid, at a port of entry and the legal
permit for withdrawal shall have been granted, or in
case said articles are free of duties, taxes and other
charges, until they have legally left the jurisdiction of
Customs (Sec. 1202 of the Tariff and Customs Code).
Importation begins from the time the carrying vessel
or aircraft enters Philippine territorial jurisdiction
with the intention to unload therein and ends at the
time the goods are released or withdrawn from the
customhouse upon payment of the customs duties or
with legal permit to withdraw (Viduya vs. Berdiago,
73 SCRA 553).
b. Whenever the decision of the Collector of Customs in
any seizure proceedings is adverse to the
government, the said decision is automatically
elevated to the Commissioner of Customs for review,
and if such decision is affirmed by the Commissioner
of Customs, the same shall be elevated to and finally
reviewed by the Secretary of Finance (Sec. 2315 of the
Tariff and Customs Code).
Differentiate outright smuggling from technical
smuggling.
In outright smuggling, or the unlawful importation under
Section 3601 of the TCCP, goods and articles of commerce
are brought into the country without the required
importation documents, or are disposed of in the local
market without having been cleared by the BOC or other
authorized government agencies, to evade the payment
of correct taxes, duties and other charges. Such goods and
articles do not undergo the processing and clearing
procedures at the BOC, and are not declared through
submission of import documents, such as the import
entry and internal revenue declaration.
On the other hand, in technical smuggling, or the various
fraudulent practices against customs revenue under
Section 3602, the goods and articles are brought into the
country through fraudulent, falsified or erroneous
declarations, to substantially reduce, if not totally avoid,
the payment of correct taxes, duties and other charges.
Such goods and articles pass through the BOC, but the
processing and clearing procedures are attended by
fraudulent acts in order to evade the payment of correct
taxes, duties, and other charges. Often committed by
means of misclassification of the nature, quality or value
of goods and articles, undervaluation in terms of their
price, quality or weight, and misdeclaration of their kind,
such form of smuggling is made possible through the
41
involvement of the importers, the brokers and even some
customs officials and personnel.
The crime of unlawful importation under Section 3601 of
the TCCP is complete, in the absence of a bona fide intent
to make entry and pay duties when the prohibited article
enters Philippine territory. Importation, which consists
of bringing an article into the country from the outside, is
complete when the taxable, dutiable commodity is
brought within the limits of the port of entry. Entry
through a customs house is not the essence of the act. On
the other hand, as regards Section 3602 of the TCCP
which particularly deals with the making or attempting
to make a fraudulent entry of imported or exported
articles, the term “entry” in customs law has a triple
meaning, namely: (1) the documents filed at the
customs house; (2) the submission and acceptance of
the documents; and (3) the procedure of passing goods
through the customs house. In view thereof, it is only for
charges for unlawful importation under Section 3601
that the BOC must first prove that the subject articles
were imported. For violation of Section 3602, in contrast,
what must be proved is the act of making or attempting
to make such entry of articles (Bureau of Customs vs.
Devanadera, G.R. No. 193253, September 8, 2015, J.
Peralta)
How is outright smuggling committed under Sec
3601?
Smuggling is committed by any person who:
a. fraudulently imports or brings into the Philippines
any article contrary to law;
b. assists in so doing any article contrary to law; or
c. receives, conceals, buys, sells or in any manner
facilitate the transportation, concealment or sale of
such goods after importation, knowing the same to
have been imported contrary to law.
NOTE: The phrase contrary to law qualifies the phrases
imports or brings into the Philippines and assists in so
doing, not the word article.
How is technical smuggling committed under Sec
3602?
The following acts or omissions constitute crime/s:
a. making or attempting to make any entry of imported
or exported article:
i. by means of any false or fraudulent invoice,
declaration, affidavit, letter, paper or by any
means of any false statement, written or verbal;
or
ii. by any means of any false or fraudulent practice
whatsoever; or
b. knowingly effecting any entry of goods, wares or
merchandise, at less than the true weight or measures
thereof or upon a false classification as to quality or
value, or by the payment of less than the amount
legally due; or
c. knowingly and willfully filing any false or fraudulent
entry or claim for the payment of drawback or refund
of duties upon the exportation of merchandise; or
d. making or filing any affidavit, abstract, record,
certificate or other document, with a view to securing
the payment to himself or others of any drawback,
allowance or refund of duties on the exportation of
merchandise, greater than that legally due thereon.
 TAXATION LAW
What is the rule on undervaluation, misclassification
and misdeclaration in the import entry?
Under Sec. 2503 of R.A. No. 765124, when the
undervaluation, misclassification or misdeclaration in
the import entry is intentional, the importer shall be
subject to the penal provision under Sec. 3602.
Enumerate the elements under the first form of
fraudulent practice, which is the act of making an
entry by means of false and fraudulent invoice and
declaration punished under Section 3602 of the
TCCP?
The elements to be established are:
a. there must be an entry of imported or exported
articles;
b. the entry was made by means of any false or
fraudulent invoice, declaration, affidavit, letter, or
paper; and
c. there must be intent to avoid payment of taxes
(Mercado vs. People of the Philippines, G.R. No. 167510,
July 8, 2015, J. Bersamin).
The M/V Don Martin and its cargo of rice were seized
and forfeited on January 26, 1999 because it was
alleged that the subject 6,500 bags of rice are of
imported variety which are not covered by proper
import documents, hence, in violation of Section
2530 (a), (f), (k) and (l), paragraph (1), of the TCCP.
To prove that the rice shipment was imported, rice
samples were submitted to and examined by the
PRRI and NFA which rendered the results of the
laboratory analyses of the rice samples on February
4, 1999 and February 5, 1999, respectively. Was
there probable cause in effecting the said forfeiture?
NO. To warrant the forfeiture of the 6,500 sacks of rice
and the carrying vessel, there must be a prior showing of
probable cause that the rice cargo was smuggled. Thus,
the BOC should establish probable cause prior to
forfeiture by proving:
a. that the importation or exportation of the 6,500
sacks of rice was effected or attempted contrary to
law, or that the shipment of the 6,500 sacks of rice
constituted prohibited importation or exportation;
and
b. that the vessel was used unlawfully in the
importation or exportation of the rice, or in
conveying or transporting the rice, if considered as
contraband or smuggled articles in commercial
quantities, into or from any Philippine port or place.
The evidence (results of the laboratory analyses of the
rice samples) offered by BOC to establish that the 6,500
sacks of rice were smuggled or were the subject of illegal
24 An Act to Revitalize and Strengthen the Bureau of Customs,
Amending for the Purpose Certain Sections of the Tariff and Customs
Code of the Philippines
25 Section 7. Jurisdiction. - The CTA shall exercise: a. Exclusive appellate
jurisdiction to review by appeal, as herein provided: xxx 4. 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 in relation
thereto, or other matters arising under the Customs Law or other laws
administered by the Bureau of Customs.
42
importation, was obtained only after the forfeiture of the
6,500 sacks of rice had been effected on January 26, 1999.
Moreover, the proof of the rice being smuggled was
patently insufficient. In contrast, the records showed that
the 6,500 sacks of rice were of local origin, having been
purchased from Sablayan, Occidental Mindoro from a
licensed grains dealer. The local origin was substantiated
by the official receipts, business license and certificate of
registration issued by the NFA in favor of the source in
Sablayan, Occidental Mindoro, Mintu Rice Mill, and its
proprietor.
Still, the BOC insisted that the 6,500 sacks of rice were
unlawfully imported because the shipment was not
accompanied by the necessary import documents. Such
insistence was based on the premise that the rice
shipment was imported. The premise was plainly
erroneous. Since it was established that the 6,500 sacks
of rice were of local origin, the shipment need not be
accompanied by import documents (M/V Don Martin Voy
047 and its Cargoes vs. Secretary of Finance, G.R. No.
160206, July 15, 2015, J. Bersamin).
Does the Bureau of Customs have jurisdiction over
seizure cases within the Subic Freeport Zone?
YES. The Bureau of Customs have exclusive jurisdiction
over seizure cases within the Subic Freeport Zone.
The authority of the Bureau of Customs to seize and
forfeit goods and articles entering the Subic Bay Freeport
does not contravene the nature of the Subic Bay Freeport
as a separate customs authority. Indeed, the investors can
generally and freely engage in any kind of business as
well as import into and export out goods with minimum
interference from the Government.
Yet, the treatment of the Subic Bay Freeport as a separate
customs territory cannot completely divest the
Government of its right to intervene in the operations and
management of the Subic Bay Freeport, especially when
patent violations of the customs and tax laws are
discovered. After all, Section 602 of the Tariff and
Customs Code vests exclusive original jurisdiction in the
Bureau of Customs over seizure and forfeiture cases in
the enforcement of the tariff and customs laws (Agriex
Co., Ltd. v. Villanueva, G.R. No. 158150, September 10, 2014,
J. Bersamin).
What is the proper remedy to assail the order of the
Commissioner of Customs?
The proper recourse of a taxpayer is an appeal in due
course to the CTA, in accordance with Section 7(4) of RA
No. 1125, as amended25, in relation to Section 2402 of the
Tariff and Customs Code26, within 30 days after the
receipt of the order27 (Agriex Co., Ltd. v. Villanueva, G.R.
No. 158150, September 10, 2014, J. Bersamin).
26 Section 2402. Review by Court of Tax Appeals. - The party aggrieved
by the ruling of the Commissioner in any matter brought before him
upon protest or by his action or ruling in any case of seizure may appeal
to the Court of Tax Appeals, in the manner and within the period
prescribed by law and regulations.
Unless an appeal is made to the Court of Tax Appeals in the
manner and within the period prescribe by laws and regulations, the
action or ruling of the Commissioner shall be final and conclusive.
27 Section 11. Who May Appeal; Mode of Appeal; Effect of Appeal. - Any
party adversely affected by a decision, ruling or inaction of the
Commissioner of Internal Revenue, the Commissioner of Customs, the
Secretary of Finance, the Secretary of Trade and Industry or the
 UST LAW PRE-WEEK NOTES 2017
In the course of its business undertakings in the
period from 1991 to 1994, URC imported oil products
into the country. On January 11, 1996, Oilink was
incorporated. URC and Oilink had interlocking
directors when Oilink started its business.
On March 4, 1998, the District Collector of the Port of
Manila, formally demanded that URC pay the taxes
and duties on its oil imports that had arrived
between January 6, 1991 and November 7, 1995. Said
demand was challenged by URC. However, on
November 25, 1998, the Customs Commissioner
formally directed that URC pay the assessed
deficiency taxes. On July 2, 1999, the Commissioner
made a final demand upon URC and Oilink.
On July 8, 1999, Oilink protested the assessment
alleging that it was not the party liable for the
assessed deficiency taxes. The same was denied on
July 12, 1999 and the Commissioner stressed that it
would not issue any clearance to Oilink unless that
liability be paid first. Thus, on July 30, 1999, Oilink
appealed to the CTA. The Commissioner contends
that the CTA should not take cognizance of the case
because of the lapse of the 30-day period within
which to appeal, arguing that on November 25, 1998
URC had already received the BoC’s final assessment
demanding payment of the amount due within 10
days, but filed the petition only on July 30, 1999. Is
the Commissioner’s contention tenable?
NO. The reckoning date for Oilink’s appeal was July 12,
1999 which is the date when the Commissioner denied
the protest of Oilink. Clearly, the filing of the petition on
July 30, 1999 by Oilink was well within its reglementary
period to appeal. The insistence by the Commissioner on
reckoning the reglementary period to appeal from
November 25, 1998, the date when URC received the final
demand letter, is unwarranted. The November 25, 1998
final demand letter of the BoC was addressed to URC, not
to Oilink. As such, the final demand sent to URC did not
bind Oilink unless the separate identities of the
corporations were disregarded in order to consider them
as one (Commissioner of Customs v. Oilink International
Corp., G.R. No. 161759, July 2, 2014, J. Bersamin).
NOTE: In this case, the Court held that the doctrine of
piercing the corporate veil has no application here
because the Commissioner of Customs did not establish
that Oilink had been set up to avoid the payment of taxes
or duties, or for purposes that would defeat public
convenience, justify wrong, protect fraud, defend crime,
confuse legitimate legal or judicial issues, perpetrate
deception or otherwise circumvent the law. It is also
noteworthy that from the outset the Commissioner of
Customs sought to collect the deficiency taxes and duties
from URC, and that it was only on July 2, 1999 when the
Commissioner of Customs sent the demand letter to both
URC and Oilink. That was revealing, because the failure of
the Commissioner of Customs to pursue the remedies
against Oilink from the outset manifested that its belated
pursuit of Oilink was only an afterthought.
Based on the preceding problem, the Commissioner
of Customs posits that the final demand letter dated
July 2, 1999 from which Oilink appealed was not the
final “action” or “ruling” from which an appeal could
Secretary of Agriculture or the Central Board of Assessment Appeals or
the Regional Trial Courts may file an appeal with the CTA within thirty
(30) days after the receipt of such decision or ruling or after the
43
be taken as contemplated by Section 2402 of the
Tariff and Customs Code; that what Section 7 of RA
No. 1125 referred to as a decision that was
appealable to the CTA was a judgment or order of the
Commissioner of Customs that was final in nature,
not merely an interlocutory one; that Oilink did not
exhaust its administrative remedies under Section
2308 of the Tariff and Customs Code. Rule on the
Commissioner’s contention.
The position of the Commissioner of Customs lacks merit.
The principle of non-exhaustion of administrative
remedies is not an iron-clad rule because there were
instances in which the immediate resort to judicial action
was proper. This was one such exceptional instance when
the principle did not apply. The Commissioner of
Customs already decided to deny the protest by Oilink on
July 12, 1999, and stressed then that the demand to pay
was final. In that instance, the exhaustion of
administrative remedies would have been an exercise in
futility because it was already the Commissioner of
Customs demanding the payment of the deficiency taxes
and duties.
PART V: JUDICIAL REMEDIES
What is the jurisdiction of CTA? (2016 BAR)
Pursuant to Section 7 of RA No. 1125, as amended, the
CTA shall exercise:
a. Exclusive appellate jurisdiction to review by appeal,
as herein provided:
1. Decisions of the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation
thereto, or other matters arising under the
National Internal Revenue or other laws
administered by the Bureau of Internal Revenue;
2. Inaction by the Commissioner of Internal
Revenue in cases involving disputed
assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relations
thereto, or other matters arising under the
National Internal Revenue Code or other laws
administered by the Bureau of Internal Revenue,
where the National Internal Revenue Code
provides a specific period of action, in which case
the inaction shall be deemed a denial;
3. Decisions, orders or resolutions of the Regional
Trial Courts in local tax cases originally decided
or resolved by them in the exercise of their
original or appellate jurisdiction;
4. 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 in relation thereto, or other
matters arising under the Customs Law or other
laws administered by the Bureau of Customs;
5. Decisions of the Central Board of Assessment
Appeals in the exercise of its appellate
jurisdiction over cases involving the assessment
expiration of the period fixed by law for action as referred to in Section
7(a)(2) herein. x x x
 TAXATION LAW
and taxation of real property originally decided
by the provincial or city board of assessment
appeals;
6. Decisions of the Secretary of Finance on customs
cases elevated to him automatically for review
from decisions of the Commissioner of Customs
which are adverse to the Government under
Section 2315 of the Tariff and Customs Code; and
7. Decisions of the Secretary of Trade and Industry,
in the case of nonagricultural product,
commodity or article, and the Secretary of
Agriculture in the case of agricultural product,
commodity or article, involving dumping and
countervailing duties under Section 301 and
302, respectively, of the Tariff and Customs
Code, and safeguard measures under Republic
Act No. 8800, where either party may appeal the
decision to impose or not to impose said duties.
b. Exclusive appellate jurisdiction in criminal offenses:
1. Over appeals from the judgments, resolutions or
orders of the Regional Trial Courts in tax cases
originally decided by them, in their respected
territorial jurisdiction.
2. Over petitions for review of the judgments,
resolutions or orders of the Regional Trial Courts
in the exercise of their appellate jurisdiction over
tax cases originally decided by the Metropolitan
Trial Courts, Municipal Trial Courts and
Municipal Circuit Trial Courts in their respective
jurisdiction.
PNB appealed to the Department of Justice (DOJ) the
BIR assessment against it for deficiency withholding
tax. PNB alleged that its appeal to the DOJ was
sanctioned under P.D. No. 24228, which provided for
the administrative settlement of disputes between
government offices, agencies, and instrumentalities,
including government-owned and controlled
corporations. It argued that P.D. No. 242, the more
recent law, repealed Section 7 of R.A. No. 1125. Is
PNB’s contention tenable?
NO. P.D. No. 242 is a general law that deals with
administrative settlement or adjudication of disputes,
claims and controversies between or among government
offices, agencies and instrumentalities, including
government-owned or controlled corporations. Its
coverage is broad and sweeping, encompassing all
disputes, claims and controversies. On the other hand,
R.A. No. 1125 is a special law dealing with a specific
subject matter the creation of the CTA, which shall
exercise exclusive appellate jurisdiction over the tax
disputes and controversies enumerated therein.
Following the rule on statutory construction that
between a general law and a special law, the special law
prevails, then P.D. No. 242 should not affect R.A. No. 1125.
R.A. No. 1125, specifically Section 729 thereof on the
jurisdiction of the CTA, constitutes an exception to P.D.
No. 242. Disputes, claims and controversies, falling under
Section 7 of Rep. Act No. 1125, even though solely among
government offices, agencies, and instrumentalities,
28 Prescribing the Procedure for Administrative Settlement or
Adjudication of Disputes, Claims and Controversies Between or Among
Government Agencies and Instrumentalities, Including Government-
Owned or Controlled Corporations, and for Other Purposes
29 SECTION 7. Jurisdiction. The Court of Tax Appeals shall exercise
exclusive appellate jurisdiction to review by appeal, as herein provided
-
44
including government-owned and controlled
corporations, remain in the exclusive appellate
jurisdiction of the CTA (Philippine National Oil Company
vs. Philippine National Bank, G.R. No. 109976, April 26,
2005).
Which court has jurisdiction over a special civil
action for certiorari questioning an interlocutory
order of the RTC in a tax case?
The CTA has appellate jurisdiction over a special civil
action for certiorari assailing an interlocutory order
issued by the RTC in a local tax case, despite the fact that
there is no categorical statement to that effect under R.A.
No. 1125, as well as the amendatory R.A. No. 9282.
The court ruled that CTA has jurisdiction over a special
civil action for certiorari via express constitutional
mandate and for being inherent in the exercise of its
appellate jurisdiction (City of Manila v. Hon. Grecia-
Cuerdo, G.R. No. 175723, February 4, 2014, J. Peralta)
Does the CTA have original jurisdiction over a
petition for certiorari?
YES. Concededly, there is no clear statement under R.A.
No. 1125, the amendatory R.A. No. 9282, let alone in the
Constitution, that the CTA has original jurisdiction over a
petition for certiorari. By virtue of Section 1, Article VIII
of the 1987 Constitution, vesting judicial power in the
Supreme Court and such lower courts as may be
established by law, to determine whether or not there has
been a grave abuse of discretion on the part of any branch
or instrumentality of the Government, in relation to
Section 5(5), Article VIII thereof, vesting upon it the
power to promulgate rules concerning practice and
procedure in all courts, the Court declared that the CA's
original jurisdiction over a petition for certiorari
assailing the DOJ resolution in a preliminary
investigation involving tax and tariff offenses was
necessarily transferred to the CTA pursuant to Section 7
of R.A. No. 9282,40 and that such petition shall be
governed by Rule 65 of the Rules of Court, as amended.
Accordingly, it is the CTA, not the CA, which has
jurisdiction over the petition for certiorari assailing the
DOJ resolution of dismissal of the BOC's complaint-
affidavit against a taxpayer for violation of the TCCP
(Bureau of Customs vs. Devanadera, G.R. No. 193253,
September 8, 2015, J. Peralta).
Does the CTA have exclusive jurisdiction to
determine the constitutionality or validity of tax
laws, rules and regulations, and other administrative
issuances of the CIR?
YES. The CTA has jurisdiction to pass upon the
constitutionality or validity of a tax law or regulation
when raised by the taxpayer as a defense in disputing or
contesting an assessment or claiming a refund. It is only
in the lawful exercise of its power to pass upon all matters
brought before it, as sanctioned by Section 7 of RA No.
1125, as amended.
(1) Decisions of the Collector of Internal Revenue in cases involving
disputed assessments, refunds of internal revenue taxes, fees or other
charges, penalties imposed in relation thereto, or other matters arising
under the National Internal Revenue Code or other law or part of law
administered by the Bureau of Internal Revenue; xxx
 UST LAW PRE-WEEK NOTES 2017
The Supreme Court also declared that the CTA may
likewise take cognizance of cases directly challenging the
constitutionality or validity of a tax law or regulation or
administrative issuance (revenue orders, revenue
memorandum circulars, rulings).
Section 7 of RA No. 1125, as amended, is explicit that,
except for local taxes, appeals from the decisions of quasi-
judicial agencies (Commissioner of Internal Revenue,
Commissioner of Customs, Secretary of Finance, Central
Board of Assessment Appeals, Secretary of Trade and
Industry) on tax-related problems must be brought
exclusively to the Court of Tax Appeals (CTA).
In other words, within the judicial system, the law
intends the CTA to have exclusive jurisdiction to resolve
all tax problems. Petitions for writs of certiorari against
the acts and omissions of the said quasi-judicial agencies
should, thus, be filed before the CTA.
RA No. 9282, a special and later law than Batas Pambansa
Blg. 129, provides an exception to the original jurisdiction
of the Regional Trial Courts over actions questioning the
constitutionality or validity of tax laws or regulations.
Except for local tax cases, actions directly challenging the
constitutionality or validity of a tax law or regulation or
administrative issuance may be filed directly before the
CTA.
Furthermore, with respect to administrative issuances
(revenue orders, revenue memorandum circulars, or
rulings), these are issued by the Commissioner under its
power to make rulings or opinions in connection with the
implementation of the provisions of internal revenue
laws. Tax rulings, on the other hand, are official positions
of the Bureau on inquiries of taxpayers who request
clarification on certain provisions of the Tax Code, other
tax laws, or their implementing regulations. Hence, the
determination of the validity of these issuances clearly
falls within the exclusive appellate jurisdiction of the CTA
under Section 7(1) of RA No. 1125, as amended, subject
to prior review by the Secretary of Finance, as required
under RA No. 8424 (Banco De Oro vs. Republic of the
Philippines, G.R. No. 198756 (Resolution), August 16, 2016,
J. Leonen).
Does the CTA En Banc have jurisdiction to take
cognizance of the petition for annulment of final
judgment rendered by one of its Divisions?
NO. The Revised Rules of the CTA and even the Rules of
Court which apply suppletorily thereto provide for no
instance in which the en banc may reverse, annul or void
a final decision of a division. Verily, the Revised Rules of
the CTA provide for no instance of an annulment of
judgment at all.
The divisions in collegial courts are not considered
separate and distinct courts but are divisions of one and
the same court. There is no hierarchy of courts within the
collegial court. For instance, the Supreme Court sitting en
banc is not an appellate court vis-a-vis its divisions, and
it exercises no appellate jurisdiction over the latter.
Thus, it appears contrary to these features that a collegial
court, sitting en banc, may be called upon to annul
decision of one of its divisions which had become final
and executory, for it is tantamount to allowing a court to
annul its own judgment and acknowledging that a
hierarchy exists within such court. In the process, it also
45
betrays the principle that judgments must, at some point,
attain finality. A court that can revisit its own final
judgments leaves the door open to possible endless
reversals or modifications which is anathema to a stable
legal system (CIR vs. Kepco Ilijan Corporation, G.R. No.
199422, June 21, 2016, J. Peralta).
GGG, Inc. offered to sell through competitive bidding
its shares in HHH Corp., equivalent to 40% of the total
outstanding capital stock of the latter. JJJ, Inc.
acquired the said shares in HHH Corp. as the highest
bidder. Before it could secure a certificate
authorizing registration/tax clearance for the
transfer of the shares of stock to JJJ, Inc., GGG, Inc. had
to request a ruling from the BIR confirming that its
sale of the said shares was at fair market value and
was thus not subject to donor's tax. In BIR Ruling No.
012-14, the CIR held that the selling price for the
shares of stock of HHH Corp. was lower than their
book value, so the difference between the selling
price and the book value of said shares was a taxable
donation. GGG, Inc. requested the Secretary of
Finance to review BIR Ruling No. 012-14, but the
Secretary affirmed said ruling. GGG, Inc. filed with the
Court of Appeals a Petition for Review under Rule 43
of the Revised Rules of Court. The Court of Appeals,
however, dismissed the Petition for lack of
jurisdiction declaring that it is the CTA which has
jurisdiction over the issues raised. Before which
Court should GGG, Inc. seek recourse from the
adverse ruling of the Secretary of Finance in the
exercise of the latter's power of review? (2015 BAR)
GGG, Inc. should seek recourse with the CTA which has
jurisdiction.
There is no provision in law that expressly provides
where exactly the adverse ruling of the Secretary of
Finance under Sec. 4 of the NIRC is appealable. However,
RA 1125, as amended, addresses the seeming gap in the
law as it vests upon the CTA, albeit impliedly, with
jurisdiction over the case as “other matters” arising
under the NIRC or other laws administered by the BIR.
Furthermore, the Supreme Court held that the
jurisdiction to review the rulings of the Secretary of
Finance on the issues raised against a ruling of the CIR,
pertains to the CTA in the exercise of its appellate
jurisdiction (Philamlife v. The Sec. of Finance and CIR, GR
No. 210987, November 24, 2014).
On May 15, 2013, CCC, Inc. received the Final Decision
on Disputed Assessment issued by the CIR dismissing
the protest of CCC, Inc. and affirming the assessment
against said corporation. On June 10, 2013, CCC, Inc.
filed a Petition for Review with the CTA in division.
On July 31, 2015, CCC, Inc. received a copy of the
Decision dated July 22, 2015 of the CTA division
dismissing its Petition. CCC, Inc. immediately filed a
Petition for Review with the CTA en banc on August 6,
2015. Is the immediate appeal by CCC, Inc. to the CTA
en banc of the adverse Decision of the CTA division
the proper remedy? (2015 BAR)
NO, CCC, Inc. should first file a motion for reconsideration
with the CTA Division. Petition for review of a decision or
resolution of the Court in Division must be preceded by
the filing of a timely motion for reconsideration or new
trial with the Division. Before the CTA En Banc could take
cognizance of the petition for review concerning a case
falling under its exclusive appellate jurisdiction, the
 TAXATION LAW
litigant must sufficiently show that it sought prior
reconsideration or moved for a new trial with the
concerned CTA division.
BOC Deputy Commissioner rendered decision on
April 19, 1999 upholding the forfeiture of the 6,500
sacks of rice of Palacio Shipping, Inc. Consequently,
on June 21, 1999, Palacio brought a petition for
review in the CTA to seek the nullification of the
decision and to obtain the release of the rice
shipment.
On the other hand, the BOC argued that the April 19,
1999 decision by BOC Deputy Commissioner had
already attained finality. Palacio insisted that they
were not furnished a copy of the decision and that
they only learned of the decision on June 1, 1999.
Has the BOC decision attained finality?
NO. The April 19, 1999 decision of BOC would become
final and immutable if Palacio did not appeal it in the CTA
within 30 days from receipt thereof. Such period of
appeal was expressly set in Section 1130 of R.A. No. 1125.
Thus, the 30-day period for filing the appeal in the CTA
commenced to run for the petitioners only after June 1,
1999, which was the date when they unquestionably
acquired notice of the adverse decision. Accordingly, they
had until July 1, 1999 within which to appeal. With their
petition for review being filed on June 21, 1999, which
was well within the 30-day period, their appeal was
timely (M/V Don Martin Voy 047 and its Cargoes vs.
Secretary of Finance, G.R. No. 160206, July 15, 2015, J.
Bersamin).
In a case before the CTA, the BIR failed to formally
offer the PANs of EWTs for taxable years 1994 and
1998. On appeal, it avers that their existence and due
execution were duly tackled during the presentation
of witnesses. It also claims that although the PANs
were not marked as exhibits, their existence and
value were properly established, since the BIR
records for taxable years 1994 and 1998 were
forwarded to the CTA and made part of the CTA
records.
Moreover, it contends that technical rules of evidence
should not be strictly applied in the interest of
substantial justice, considering that the mandate of
the CTA explicitly provides that its proceedings shall
not be governed by the technical rules of evidence.
Rule on BIR’s contention.
The contention of the BIR is without merit.
Under Section 831 of R.A. No. 1125, the CTA is
categorically described as a court of record. Moreover, as
cases filed before it are litigated de novo, party litigants
shall prove every minute aspect of their cases. Thus, no
evidentiary value can be given the pieces of evidence
submitted by the BIR, as the rules on documentary
30 Section 11. Who may appeal; effect of appeal. — Any person,
association or corporation adversely affected by a decision or ruling of
the Collector of Internal Revenue, the Collector of Customs or any
provincial or city Board of Assessment Appeals may file an appeal in the
Court of Tax Appeals within thirty days after the receipt of such decision
or ruling. x x x
31 Section 8. Court of record; seal; proceedings. - The Court of Tax
Appeals shall be a court of record and shall have a seal which shall be
judicially noticed. It shall prescribe the form of its writs and other
46
evidence require that these documents must be formally
offered before the CTA.32
As an exception to the above rule, the evidence may be
admitted provided the following requirements are
present: (1) the same must have been duly identified by
testimony duly recorded; and (2) the same must have
been incorporated in the records of the case.
In this case, BIR admitted that it failed to formally offer
the PANs as evidence. Worse, it advanced no justifiable
reason for such fatal omission. Instead, it merely alleged
that the existence and due execution of the PANs were
duly tackled by its witnesses. Thus, this is not sufficient
to seek exception from the general rule requiring a formal
offer of evidence, since no evidence of positive
identification of such PANs by witnesses was presented.
While CTA is not governed strictly by technical rules of
evidence, as rules of procedure are not ends in
themselves but are primarily intended as tools in the
administration of justice, the presentation of PANs as
evidence of the taxpayer’s liability is not mere procedural
technicality. It is a means by which a taxpayer is informed
of his liability for deficiency taxes. It serves as basis for
the taxpayer to answer the notices, present his case and
adduce supporting evidence. More so, the same is the
only means by which the CTA may ascertain and verify
the truth of respondent's claims (CIR vs. United Salvage
and Towage (Phils.) Inc, G.R. No. 197515, July 2, 2014, J.
Peralta).
Does an appeal to the CTA from the decision of the CIR
suspend the collection of tax?
As a rule, an appeal to the CTA from the decision of the
CIR will not suspend the payment, levy, distraint, and/or
sale of any property of the taxpayer for the satisfaction of
his tax liability as provided by existing law (Sec. 11 of R.A.
No. 1125, as amended by RA No. 9282).
In what instance may the CTA suspend the collection
of taxes?
The CTA may order the suspension of the collection of
taxes when in the opinion of the Court the collection by
the BIR or BOC may jeopardize the interest of the
Government and/or the taxpayer, provided that the
taxpayer either: (1) deposits the amount claimed; or (2)
files a surety bond for not more than double the amount
(Sec. 11 of R.A. No. 1125, as amended by RA No. 9282).
May the bond requirement be dispensed with by the
CTA?
YES. CTA has ample authority to issue injunctive writs to
restrain the collection of tax and to even dispense with
the deposit of the amount claimed or the filing of the
required bond, whenever the method employed by the
CIR in the collection of tax jeopardizes the interests of a
taxpayer for being patently in violation of the law. Thus,
processes. It shall have the power to promulgate rules and regulations
for the conduct of the business of the Court, and as may be needful for
the uniformity of decisions within its jurisdiction as conferred by law,
but such proceedings shall not be governed strictly by technical rules of
evidence.
32 SEC. 34. Offer of evidence. – The court shall consider no evidence
which has not been formally offered. The purpose for which the
evidence is offered must be specified. (Rule 132)
 UST LAW PRE-WEEK NOTES 2017
whenever it is determined by the courts that the method
employed by the Collector of Internal Revenue in the
collection of tax is not sanctioned by law, the bond
requirement under Section 11 of R.A. No. 1125 should be
dispensed with.
The purpose of the rule is not only to prevent
jeopardizing the interest of the taxpayer, but more
importantly, to prevent the absurd situation wherein the
court would declare “that the collection by the summary
methods of distraint and levy was violative of law, and
then, in the same breath require the petitioner to deposit
or file a bond as a prerequisite for the issuance of a writ
of injunction” (Spouses Pacquiao vs. CTA, G.R. No. 213394,
April 6, 2016, J. Mendoza).
BIR assessed Tridharma with deficiency IT and VAT
totaling P4.4 billion. Tridharma filed a Motion to
Suspend Collection of Tax. Tridharma's Financial
Statements indicate that its net worth was at around
P900 million only. The CTA granted Tridharma's
Motion for Suspension of Collection of Tax, provided,
however, that Tridharma deposits with the CTA a
surety bond equivalent to P4.4 billion.
Tridharma commenced special civil action for
certiorari alleging that CTA committed grave abuse of
discretion in requiring Tridharma to file a surety
bond despite the supposedly patent illegality of the
assessment that was beyond the petitioner's net
worth. Decide.
The surety bond amounting to P4.4B imposed by the CTA
was within the parameters delineated in Section 11 of
R.A. 1125, as amended. The CTA, however, gravely
abused its discretion under Section 11 because it fixed
the amount of the bond at nearly five times the net worth
of the petitioner without conducting a preliminary
hearing to ascertain whether there were grounds to
suspend the collection of the deficiency assessment on
the ground that such collection would jeopardize the
interests of the taxpayer.
Although the amount of P4.4B was itself the amount of
the assessment, it behooved the CTA to consider other
factors recognized by the law itself towards suspending
the collection of the assessment, like whether or not the
assessment would jeopardize the interest of the taxpayer,
or whether the means adopted by the CIR in determining
the liability of the taxpayer was legal and valid. Simply
prescribing such high amount of the bond equal to the
deficiency assessment would practically deny to the
petitioner the meaningful opportunity to contest the
validity of the assessments, and would likely even
impoverish it as to force it out of business (Tridharma
Marketing Corporation v. CTA, G.R. No. 215950, June 20,
2016, J. Bersamin).
Alcantara directly brought an action in the RTC
ostensibly to demand reconveyance of property sold
upon forfeiture for nonpayment of a tax assessment.
The case was dismissed on the ground that the RTC
had no jurisdiction over the complaint because he
was thereby seeking to challenge the validity of the
assessment made by the BIR.
On appeal to CA, Alcantara insisted on the
competence of the RTC to take cognizance of his
complaint. He contended that his complaint is one for
the declaration of the nullity of TCT No. T-195677 and
47
TCT No. T-244532 and for the reconveyance of
property that fell within the exclusive and original
jurisdiction of the RTC due to such causes of action
being incapable of pecuniary estimation and
involving title to, or possession of, real property, or
any interest therein. Is Alcantara’s contention
tenable?
NO. Despite assailing the supposedly illegal confiscation
of his property in order to satisfy his tax liabilities,
Alcantara was really challenging the assessment and
collection of taxes made against him for being in violation
of his right to due process. As such, the complaint
concerned the validity of the assessment and eventual
collection of the taxes by the BIR. The declaration of
nullity of the sale and reconveyance was founded on the
validity of the assessment and eventual collection by the
BIR.
Accordingly, the RTC had no jurisdiction to resolve the
issues raised in Alcantara's complaint. The remedies
available to a taxpayer under the law provides that prior
resort to the administrative remedies was necessary;
otherwise, the assessment would attain finality. Yet,
Alcantara immediately invoked the authority of the
courts to protect his rights instead of first going to the CIR
for redress of his concerns about the assessment and
collection of taxes. His judicial recourse thus suffered
from fatal prematurity because his doing so rendered the
assessment final.
Moreover, the CTA, and not the CA, has exclusive
appellate jurisdiction over the appeal of the decisions of
the CIR (Alcantara v. Republic, G.R. No. 192536, March 15,
2017, J. Bersamin).
After filing an Information for violation of Sec. 254 of
the Tax Code (Attempt to Evade or Defeat Tax) with
the CTA, the Public Prosecutor manifested that the
People is reserving the right to file the corresponding
civil action for the recovery of the civil liability for
taxes. As counsel for the accused, comment on the
People's manifestation. (2015 BAR)
The manifestation is not proper. The corresponding civil
action for the recovery of the civil liability for taxes is not
allowed to be reserved separately.
Any provision of law or the Rules of Court to the contrary
notwithstanding, the criminal action and the
corresponding civil action for the recovery of civil
liability for taxes and penalties shall at all times be
simultaneously instituted with, and jointly determined in
the same proceeding by the CTA, the filing of the criminal
action being deemed to necessarily carry with it the filing
of the civil action, and no right to reserve the filling of
such civil action separately from the criminal action will
be recognized (Sec. 7[b][1], RA 1125, as amended).