2019 BAR TAX UPDATES & CRITICAL

AREAS 

IN TAXATION



UST Faculty of Civil Law 

Pre-Bar Review 

August 3, 2019

Atty. Eufrocina M. Sacdalan-Casasola

Author, Professor & Bar Reviewer
of Taxation Law
NIRC ANNOTATED 

(2013 Edition)
NIRC AND OTHER TAX LAWS 

(2012 Edition)
National Internal Revenue Code of 1997 (2009
Edition)
GENERAL PRINCIPLES OF
TAXATION
Power to tax is inherent in the state.
The power to tax is an attribute of sovereignty. It is inherent in
the State, but can be delegated to municipal corporations,
consistent with the principle that legislative powers may be
delegated to local governments in respect of matters of local
concern. FDCP v. Colon Heritage, 758 SCRA 536 (2015)
Provinces, cities, municipalities, and barangays are mere
territorial and political subdivisions of the State. They act only
as part of the sovereign. Thus, they do not have the inherent
power to tax. The LGUs power to tax is subject to
Congressional guidelines and limitations), consistent with the
basic policy of local autonomy.”
Fiscal autonomy entails “the power to create own sources of
revenue.” Demaala v. COA, 750 SCRA 612 (2015).
Due process clause
Between the power of the State to tax and an
individual’s right to due process, the scale favors
the right of the taxpayer to due process. CIR v.
Fitness by Design, 808 SCRA 422 (2016)
The exercise of the power of taxation
constitutes a deprivation of property under the
due process clause, and the taxpayer’s right to
due process is violated when arbitrary or
oppressive methods are used in assessing and
collecting taxes. MERALCO v. City Assessor, 765
SCRA 52 (2015)
Equality and Uniformity of taxation
Uniformity of taxation, like the kindred concept of
equal protection, requires that all subjects or objects
of taxation, similarly situated, are to be treated alike,
both in privileges and liabilities. Alta Vista Golf v. City of
Cebu, 781 SCRA 335 (2016)
Equality and uniformity of taxation means that all
taxable articles or kinds of property of the same
class shall be taxed at the same rate. CIR v. DLSU,
808 SCRA 156 (2016)
Tax vis-à-vis debt.
Debts are due to the Govt in its corporate capacity, while taxes
are due to the Govt in its sovereign capacity.
Tax is compulsory rather than a matter of bargain. Hence, a tax
does not depend upon the consent of the TP. If any TP can
defer the payment of taxes by raising the defense that it still has
a pending claim for refund or credit, this would adversely affect
the govt revenue system.
A TP cannot refuse to pay taxes when they fall due simply
because he has a claim against the govt or that the collection of
the tax is contingent on the result of the lawsuit it filed against
the govt or that the tax liabilities were offset against any alleged
claim the TP may have against the government. Air Canada v.
CIR, GR 169507, Jan. 11, 2016, (778 SCRA 131), LEONEN, J.
 


Indirect Taxes v. Withholding Taxes


In indirect taxes (like VAT and excise tax), the incidence of

taxation falls on one person but the burden thereof can
be shifted or passed on to another person.
In the case of WHT, the incidence and burden of taxation
fall on the same entity, the statutory taxpayer. The
burden of taxation is not shifted to the WHA 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 Intl. Auctioneers v.
CIR, GR 179115, Sept. 26, 2012, J. Perlas-Bernabe
How should the application for tax treaty
relief be treated?
The obligation to comply with a tax treaty must take
precedence over the objective of RMO 1-2000. Bearing in
mind the rationale of tax treaties, the period of application for
the availment of tax treaty relief as required by RMO 1-2000
should not operate to divest entitlement to the relief as it
would constitute a violation of the duty required by good faith
in complying with a tax treaty (pacta sunt servanda). The denial
of the availment of tax relief for the failure of a taxpayer to
apply within the prescribed period under the administrative
issuance would impair the value of the tax treaty. At most, the
application for a tax treaty relief from the BIR should merely
operate to confirm the entitlement of the taxpayer to the relief.
CIR v. CBK Power Co., GR 193383084, Jan. 14, 2015, Per J. Perlas-
Bernabe.


Doctrine of imprescriptibility of taxes


General Rule: Prescription does not run against the right of the govt.
to assess and collect taxes.
The rule, however, applies only when Congress does not provide a
time limit. The rationale for the rule is that restrictions on the right of
the government to assess and collect taxes "will not be presumed in
the absence of clear legislation to the contrary."
But Secs. 203 , NIRC, has set a time limit for the government to
collect the assessed tax, which is 3 years, to be reckoned from the
date when the BIR mailed/released/sent the assessment notice to the
TP. Consequently, the general rule that taxes are imprescriptible does
not apply to this case.
BP Blg. 700(5 April 1984) shortened the statute of limitations on the
assessment and collection of national internal revenue taxes from 5
years to 3 years. CBC v. CIR, GR 172509, June 22, 2015
 
Prospectivity of tax laws

Tax laws are prospective in

application, unless their retroactive
application is expressly provided.
CIR v. PNB, 795 SCRA 158 (2016)
Double taxation


There is already double taxation if respondent is subjected to the taxes

under both Secs. 14 and 21 of Tax Ordinance No. 7794, since these are
being imposed:
(1) on the same subject matter - the privilege of doing business in the
City of Manila;
(2) for the same purpose - to make persons conducting business within
the City of Manila contribute to city revenues;
(3) by the same taxing authority- petitioner City of Manila;
(4) within the same taxing jurisdiction - within the territorial jurisdiction
of the City of Manila;
(5) for the same taxing periods -per calendar year; and
(6) of the same kind or character - a local business tax imposed on
gross sales or receipts of the business. City of Manila v. Cosmos Bottling,
G.R. 196681, June 27, 2018, MARTIRES, J.




Tax amnesty




A tax amnesty is a general pardon or the intentional

overlooking by the State of its authority to impose penalties
on persons otherwise guilty of violating a tax law.
It partakes of an absolute waiver by the govt. of its right to
collect what is due it and to give tax evaders who wish to
relent a chance to start with a clean slate.
A tax amnesty, much like a tax exemption, is never favored or
presumed in law.
The grant of tax amnesty, similar to tax exemption, must be
construed strictly against the taxpayer and liberally in favor of
the taxing authority. Asia Intl. Auctioneers v. CIR, GR 179115,
Sept. 26, 2012, J. Perlas-Bernabe


Tax exemption
Tax exemptions are construed in strictissimi juris. Indeed, taxation is the
rule and tax exemption the exception. BIR v. Manila Home Textile, 792
SCRA 283 (2016)
A claim for refund or credit is similar to a tax exemption and should be
strictly construed against the taxpayer. Coral Bay Nickel v. cir, 793 scra
190 (2016)
Tax exemption must be clear and unequivocal, and must be directly
stated in a specific legal provision. NGCP v. Oliva, 800 SCRA 142 (2016)
If the claimant asserts that he should be refunded the amount of tax
he has previously paid because he is exempted from paying the tax, he
must point to the specific legal provision of law granting him the
exemption. CIR v. United Cadiz, 813 SCRA 345 (2016)
Exempting a person or entity from tax is to relieve or to excuse that
person or entity from the burden of the imposition. FDCP v. Colon
Heritage, 758 SCRA 536 (2015)
Doctrine of compensation and set off
As a rule, taxes cannot be subject to compensation
because the government and the taxpayer are not
creditors and debtors of each other. CIR v.Toledo
Power, 775 SCRA 709 (2015)
Doctrine of estoppel
In matters of taxation, the government cannot be
estopped by the mistakes, errors or omission of its
agents for upon it depends the ability of the
government to serve the people for whose benefit
taxes are collected. CIR v. Nippon Express, 771 SCRA
27 (2015)


The power of taxation is sometimes called also the power to destroy. 


Therefore it should be exercised with caution to minimize

injury to the proprietary rights of a taxpayer. It must be
exercised fairly, equally and uniformly, lest the tax collector "kill
the hen that lays the golden egg."
Legitimate enterprises enjoy the constitutional protection not
to be taxed out of existence.
Incurring losses because of a tax imposition may be an
acceptable consequence but killing the business of an entity is
another matter and should not be allowed.
It is counter-productive and ultimately subversive of the
nation's thrust towards a better economy which will ultimately
benefit the majority of our people. Tridharma Marketing Corp v.
CTA, G.R. 215950. June 20, 2016, BERSAMIN, J.:
Administrative feasibility
It simply means that the tax system should be
capable of being effectively administered and
enforced with the least inconvenience to the
taxpayer. Mun. of Cainta vs. City of Pasig and Uniwide Sales
Warehouse, G.R. No. 176703 & 176721, June 28, 2017,
MARTIRES, J. .
Lifeblood theory
Revenue laws are not intended to be liberally construed. Taxes
are the lifeblood of the government and in Holmes' memorable
metaphor, the price we pay for civilization; hence, laws relative
thereto must be faithfully and strictly implemented. Pilmico
Mauri Foods Corp. v. CIR, G.R. 175651 , Sept. 14, 2016
Taxes are the lifeblood of the government and should be
collected without hindrance. However, the collection of taxes
should be exercised reasonably and in accordance with the
prescribed procedure. CIR v. Fitness by Design, Inc. 808 SCRA
422 (2016)
Taxes are the nations lifeblood through which government
agencies continue to operate and which the State discharges its
functions for the welfare of its constituents. CIR v. Next Mobile,
776 SCRA 343 (2015)
Symbiotic relationship
It is said that taxes are what we pay for civilized society.
Without taxes, the govt would be paralyzed for lack of the motive power to activate
and operate it.
Hence, despite the natural reluctance to surrender part of one's hard-earned
income to the taxing authorities, every person who is able to must contribute his
share in the running of the government.
The govt for its part, is expected to respond in the form of tangible and intangible
benefits intended to improve the lives of the people and enhance their moral and
material values.
This symbiotic relationship is the rationale of taxation and should dispel the
erroneous notion that it is an arbitrary method of exaction by those in the seat of
power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure.
If it is not, then the taxpayer has a right to complain and the courts will then come to
his succor.
For all the awesome power of the tax collector, he may still be stopped in his tracks if
the taxpayer can demonstrate, as it has here, that the law has not been observed. CIR
v. San Miguel Corporation, GR 205045, Jan. 4, 2017, LEONEN, J.
TAXING AUTHORITIES
What are the powers that can be exercised by the CIR under Sec.
4, NIRC? Can the said power be delegated?


Sec. 4 of the NIRC confers upon the CIR both

 (a) The power to interpret the NIRC and other tax laws in the exercise of her quasi-legislative
function. This power shall be under the exclusive and original jurisdiction of the CIR, subject to
review by the Secretary of Finance, however, Sec. 7 of the same Code does not prohibit the delegation
of such power to any or such subordinate officials with the rank equivalent to a division chief or
higher; and
(b) The power to decide tax cases in the exercise of her quasi-judicial function. The power to
decide disputed assessments, refunds of internal revenue taxes, fees or other charges, penalties
imposed in relation thereto, or other matters arising under this Code or other laws or portions
thereof administered by the BIR is vested in the CIR, subject to the exclusive appellate jurisdiction of the
CTA. The CTA is a court of special jurisdiction, with power to review by appeal decisions involving tax
disputes rendered by either the CIR or the CoC.
Before a party is allowed to seek the intervention of the courts, it is a precondition that he avail of all
administrative processes afforded him, such that if a remedy within the administrative machinery can
be resorted to by giving the administrative officer every opportunity to decide on a matter that
comes within his jurisdiction, then such remedy must be exhausted first before the court’s power of
judicial review can be sought, otherwise, the premature resort to the court is fatal to one’s cause of
action. CIR v. CTA and Petron Corp., GR 207843, July 15, 2015 (763 SCRA 123)J. PERLAS-BERNABE, First
Div.
Distinguish quasi-judicial function from
quasi-legislative function.
Quasi-judicial function is “a term which applies to the action or
discretion of public administrative officers or bodies required to
investigate facts, or ascertain the existence of facts, hold
hearings, and draw conclusions from them, as a basis for their
official action and to exercise discretion of a judicial nature.”
 On the other hand, quasi-legislative power is exercised by
administrative agencies through the promulgation of rules and
regulations within the confines of the granting statute and the
doctrine of non-delegation of powers from the separation of
the branches of the government.
Clark Investors and Locators Association, Inc. v. Sec. of Finance and
CIR, G.R. 200670, July 6, 2015 (761 SCRA 586)
 



Who has the power to review the interpretative rulings of the CIR?




The determination of the validity or constitutionality of

BIR issuances clearly falls within the exclusive appellate
jurisdiction of the CTA, not the RTC, under Sec. 7(1) of
RA 1125, as amended, subject to prior review by the Sec.
of Finance, consistent with the doctrine on exhaustion of
administrative remedies .
In other words, within the judicial system, the law intends
the CTA to have exclusive jurisdiction to resolve, in
general, all tax problems CIR v. Leal, GR 113459, Nov. 18,
2002 [Per J. Sandoval-Gutierrez,Third Div.]
Does the CTA have jurisdiction over petition for certiorari
assailing interlocutory orders issued by the RTC?

Yes. While there is no express grant of such power with

respect to the CTA, Sec. 1, Art.VIII of the 1987
Constitution provides, nonetheless, that judicial power
shall be vested in one SC and in such lower courts as
may be established by law and that judicial power
includes the duty of the courts of justice to settle actual
controversies involving rights which are legally
demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Govt.
Thus, the power of the CTA includes that of determining
WON there has been grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the RTC in
issuing an interlocutory order in cases falling within the
exclusive appellate jurisdiction of the tax court, like issues on
local tax cases.
Hence, demands, matters or questions ancillary or incidental to,
or growing out of, the main action, and coming within the
above principles, may be taken cognizance of by the court and
determined, since such jurisdiction is in aid of its appellate j
urisdiction or IN AID OF ITS AUTHORITY OVER THE
PRINCIPAL MATTER. City of Manila v. Cuerdo, GR 175723, Feb.
4, 2014 [Per Peralta, En Banc]
Where does one seek immediate recourse from the adverse ruling of
the Sec of Finance in its exercise of its power of review under Sec. 4

Admittedly, there is no provision of law that expressly provides where exactly

the ruling of the SoF is appealable to.
However, Sec. 7(a)(l) of RA 1125, as amended, addresses the seeming gap in
the law as it vests the CTA, albeit impliedly, with jurisdiction over the CA
petition as "other matters" arising under the NIRC or other laws administered
by the BIR so long as it is within its appellate jurisdiction.
Hence, the CTA can now rule not only on the propriety of an assessment or
tax treatment of a certain transaction, but also on the validity of the RR or
RMC on which the said assessment is based.
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.

CIR v. CTA and Petron, G.R. No. 207843, February 14, 2018, PERLAS-
BERNABE, J.:
 

But can a TP who is challenging a BIR Ruling immediately seek judicial relief before the
Supreme Court without exhausting his admin remedies? 


Yes. Although, as a rule, the interpretative rulings of the CIR are reviewable by the
SoF under Sec. 4 of the NIRC, yet the SC held that because of the special
circumstances availing in this case-namely:

a. the question involved is purely legal;

b. the urgency of judicial intervention given the impending maturity of the PEACe
Bonds; and
c. the futility of an appeal to the SoF as the latter appeared to have adopted the
challenged BIR rulings –

there was no need for taxpayers to exhaust all administrative remedies before
seeking judicial relief. BDO v. Republic, G.R. 198756, Aug. 16, 2016, LEONEN,J.: EN BANC



 
Who has jurisdiction to settle disputes and
claims solely bet govt agencies and offices?
Under PD 242, all disputes and claims solely between govt agencies and offices,
including GOCCs, shall be ADMINISTRATIVELY settled or adjudicated by the Sec.
of Justice, the Solicitor General, or the Govt Corporate Counsel, depending on the
issues and government agencies involved.
As regards cases involving only questions of law, it is the Secretary of Justice who
has jurisdiction, as Attorney General and ex officio adviser of all GOCCs and entities,
in consonance with Sec. 83 of the Rev Admin Code. His ruling or determination of
the question in each case shall be conclusive and binding upon all the parties
concerned.
The purpose of PD 242 is to provide for a speedy and efficient administrative
settlement or adjudication of disputes bet govt. offices or agencies under the
Executive branch, as well as to filter cases to lessen the clogged dockets of the
courts.
PD 242 will only apply when all the parties involved are PURELY government
offices and GOCCs.
It is only proper that intragovernmental disputes be settled administratively since
the opposing govt offices, agencies and instrumentalities are all under the
President’s executive control and supervision. PSALM v. CIR, G.R. No. 198146,Aug. 8,
2017 [Per J. CARPIO, En Banc]
Does this cover even TAX DISPUTES bet
parties?
Yes. The law is clear and covers “ALL DISPUTES, claims and controversies
SOLELY between or among the depts., bureaus, offices, agencies and
instrumentalities of the Natl Govt, including constitutional offices or
agencies arising from the interpretation and application of statutes,
contracts or agreements." When the law says "all disputes, claims and
controversies solely" AMONG GOVT AGENCIES, the law means all,
WITHOUT EXCEPTION.
The use of the word "shall" in a statute connotes a mandatory order or an
imperative obligation. Its use rendered the provisions mandatory and not
merely permissive, and unless PD 242 is declared unconstitutional, its
provisions must be followed. The use of the word "shall" mean that admin
settlement or adjudication of disputes and claims between govt agencies
and offices, including GOCCs, is not merely permissive but mandatory and
imperative. Thus, under PD 242, it is mandatory that disputes and claims
"solely" between govt. agencies and offices, including GOCCs, involving only
questions of law, be submitted to and settled or adjudicated by the
Secretary of Justice. PSALM v. CIR, G.R. No. 198146, Aug. 8, 2017 [Per J. Carpio,
En Banc]
 
Is this case not similar to the case of
PNOC v. CA?
No. This case is different from the case of PNOC v. CA which involves
not only the BIR (a govt bureau) and the PNOC and PNB (both
GOCCs), but also respondent Tirso Savellano, a private citizen.
While the BIR is obviously a govt bureau, and both PNOC and PNB are
GOCCs, respondent Savellano is a private citizen. His standing in the
controversy could not be lightly brushed aside. It was private
respondent Savellano who gave the BIR the information that resulted
in the investigation of PNOC and PNB; who requested the CIR to
reconsider the compromise agreement in question; and who initiated
the CTA Case No. 4249 by filing a Petition for Review.
PSALM v. CIR, G.R. No. 198146, Aug. 8, 2017
 
So, how do we harmonize Sec. 4, NIRC and
PD 242?
To harmonize Section 4, NIRC with PD 242, the following
interpretation should be adopted:
(1) As regards private entities and the BIR, the power to
decide disputed assessments, refunds of internal revenue taxes,
fees or other charges, penalties in relation thereto, or other
matters arising under the NIRC or other laws administered by
the. BIR is vested in the CIR subject to the exclusive appellate
jurisdiction of the CTA, in accordance with Section 4 of the
NIRC; and
(2) Where the disputing parties are all public entities (covers
disputes between the BIR and other government entities), the
case shall be governed by PD 242.
PSALM v. CIR, G.R. No. 198146, Aug. 8, 2017 [Per J. Carpio, En
Banc]
 
CIR’s power to delegate
The CIR may delegate the powers vested in him
under the pertinent provision of the NIRC to any
or such subordinate officials with the rank
equivalent to a division chief or higher, subject to
such limitations and restrictions as may be imposed
under rules and regulations to be promulgated by
the Sec. of Finance, upon recommendation of the
CIR. CIR v. Hedcor Sibulan, Inc. 831 SCRA 131 (2017)
The power to interpret rules and regulations is not
exclusive and may be delegated by the CIR to the
DCIR. P &G v. CIR, 791 SCRA 399 (2016)
Nonretroactivity of rulings
Sec. 246 of the NIRC is not limited to a
reversal only by the CIR because the same
expressly states “any revocation, modification
or reversal” without specifying who made the
revocation, modification or reversal, hence, a
reversal by the SC is covered under the said
tax provision. Deutsche Knowledge v. CIR, 811
SCRA 440 (2016)
TAXABLE PERIOD
Difference between taxable income and
accounting income
While taxable income is based on the method of
accounting used by the taxpayer, it will almost always
differ from accounting income.
This is so because of a fundamental difference in the ends
the two concepts serve.
Accounting attempts to match cost against revenue.
Tax law is aimed at collecting revenue. It is quick to treat an
item as income, slow to recognize deductions or losses.
Thus, the tax law will not recognize deductions for
contingent future losses except in very limited situations.
Good accounting, on the other hand, requires their
recognition.
So can we say that tax and accounting
mutually exclude each other?
No. Because tax laws borrowed concepts that had origins from accounting.
In truth, tax cannot do away with accounting.
It relies upon approved accounting methods and practices to effectively carry
out its objective of collecting the proper amount of taxes from the taxpayers.
Thus, an important mechanism established in many tax systems is the
requirement for TPs to make a return of their true income.
Maintaining accounting books and records, among other important
considerations, would in turn assist the TPs in complying with their obligation
to file their income tax returns.
At the same time, such books and records provide vital information and
possible bases for the govt, after appropriate audit, to make an assessment for
deficiency tax whenever so warranted under the circumstances.
The NIRC recognizes the important facility provided by GAAP and methods
to the primary aim of tax laws to collect the correct amount of taxes. CIR v.
Lancaster Phils., GR 183408, July 12, 2017, Per J. Martires, Second Div.
For tax purposes, In case of conflict between the provisions of the
Tax Code and the GAAP and the GAAS, which one should
prevail?
All returns required to be filed by the NIRC shall be
prepared always in conformity with the provisions of
the NIRC, and its IRRs.
Taxability of income and deductibility of expenses
shall be determined strictly in accordance with the
provisions of the NIRC and its IRRs.
In case of difference between the provisions of the NIRC
and its IRRs, on one hand, and the GAAP and the GAAS,
on the other hand, the provisions of the NIRC and its
IRRs shall prevail. CIR v. Lancaster, GR 183408, July 12,
2017, Per J. Martires, Second Div.
Crop method of accounting
In our jurisdiction, the concepts in business accounting,
including certain GAAP embedded in the NIRC comprise the
rules on tax accounting.
Sec. 43, NIRC, authorizes the CIR to allow the use of a method
of accounting that in its opinion would clearly reflect the
income of a TP.
The crop method recognizes that the harvesting and selling
of crops do not fall within the same year that they are
planted or grown.
A TP is authorized to employ what it finds suitable for the
purpose so long as it consistently does so.
The matching concept, which is one of the GAAP, directs that
the expenses are to be reported in the same period that
related revenues are earned. CIR v. Lancaster Phils., GR 183408,
July 12, 2017, Per J. Martires, Second Div.
Cash basis v. Accrual basis
If the Taxpayer is on cash basis, the expense is
deductible in the year it was paid, regardless of the
year it was incurred. If he is on the accrual method,
he can deduct the expense upon accrual thereof.
ING Bank v. CIR, 763 SCRA 350 (2015)
INCOME TAX
Tax treatment of the income of a pure
compensation income earner.
Individuals earning pure compensation income shall be
taxed based on h is taxable income corresponding to the
graduated income tax rates from 0% to 35% prescribed
under Section 24(A) of the Tax Code.
If the taxable income is not over P250,000, the income tax
rate is 0%.
TAXABLE INCOME income for PURE compensation
earners is the GROSS COMPENSATION income LESS
nontaxable income/benefits such as but not limited to the
13th month pay and other benefits up to a maximum of
P90,000, de minimis benefits, and the MANDATORY
DEDUCTIONS, such as employee's share in the SSS, GSIS,
PHIC, Pag-ibig contributions and union dues.
Tax treatment of income of married
individuals.
Husband and wife shall compute their individual
income tax separately based on their respective
taxable income;
If any income cannot be definitely attributed to or
identified as income exclusively earned or realized
by either of the spouses, the same shall be divided
equally between the spouses for the purpose of
determining their respective taxable income.
Tax treatment of income of PURELY SELF-
EMPLOYED
A. Individuals earning income PURELY from self-
employment and/or practice of profession whose GS/GR
and other non-operating income do not exceed P3
Million shall have the option to avail of:
1. The GRADUATED TAX RATES under Sec.24(A)(2)(a) ,
NIRC, as amended; OR
2. The 8% tax on GS/GR and other non-operating income
in excess of P250,000, in lieu of the graduated income tax
rates under Sec. 24(A) and the 3% OPT under Sec. 116,
NIRC.
B. For those with GS/GR of exceeding P3M – graduated
income tax rates
Tax treatment of income of MIEs who OPTED to be
taxed at 8% income tax rate for income fr business
For mixed income earners, the income tax rates applicable
are:
1. For the taxable income derived from compensation – the
GRADUATED income tax rates ; AND
2. For the income from business or practice of profession -
a. lf the GS/GR and other non-operating income do not
exceed P3 Million, the individual has the option to be
taxed at:
a.1. Graduated income tax rates, OR
a.2. 8% income tax rate based on GS/GR and other non-
operating income in lieu of the graduated income tax
rates and 3% OPT under Sec. 116, NIRC.
The total tax due shall be the sum of:
(1) tax due from compensation, computed using the
graduated income tax rates; and
(2) tax due from self-employment/practice of
profession, resulting from the multiplication of the 8%
income tax rate with the total of the GS/GR and
other non-operating income.
For MIEs who OPTED to be taxed under the graduated
income tax rates for income from business/prof
MIEs who opted to be taxed under the
graduated income tax rates for income from
business/practice of profession shall
COMBINE THE TAXABLE INCOME from
both compensation and business/practice of
profession in computing for the total taxable
income and consequently, the income tax due.
Individual TPs (compensation income
earners) exempt from income tax
1. Senior Citizens (MWEs)
2. Minimum Wage Earners
3. Exemptions granted under
international agreements
Tax treatment of income of MWEs.
MWEs shall be EXEMPT from the payment of
income tax on the income they derive as a
MWE based on the prevailing statutory
minimum wage rates in the place where they
are working.
The holiday pay, overtime pay, night shift
differential pay and hazard pay received by said
MWEs are likewise exempt.
MWEs exempt from income tax
To be exempt, one must be a MWE , i.e. - one who is paid the SMW if he works in the
private sector, or not more than the SMW in the nonagri sector where he is assigned, if he is
a govt employee.
The minimum wage exempted is that which is referred to in the Labor Code. It is distinct
and different from other payments including allowances, honoraria, commissions, allowances
or benefits that an employer may pay or provide an employee.
The law EXEMPTS from income taxation the most basic compensation an employee receives
– the amount afforded to the lowest paid employee by the mandate of law.
Workers who receive the SMW their basic pay remain MWEs. The receipt of any other
income during the year does not disqualify them as MWEs. They remain MWEs, entitled to
exemption as such, BUT the TAXABLE INCOME income they receive other than as MWEs
may be subject to appropriate taxes.
The canon is tempered by several exceptions, one of which is when the TP falls within the
purview of the exemption by clear legislative intent. In this situation, the rule of liberal
interpretation applies in favor of the grantee and against the govt.
RA 9504 provides relief by declaring that a MWE, one who is paid the SMW, is exempt from
tax on that income, as well as on the associated statutory payments for hazardous, holiday,
overtime and night work. Soriano v. Secretary of Finance,
G.R. 184450, Jan. 24, 2017, Per SERENO, CJ, En Banc]
Meaning of “bracket creep”?
“Bracket creep” - the process by
which inflation pushes individuals into
higher tax brackets.
Jaime Soriano v. Sec of Finance, G.R.
184450/G.R. 184508/G.R. 184538/G.R.
185234. Jan. 24, 2017, SERENO, CJ, En
Banc


How to determine the NET INCOME of the GPP and the distributive share of the partners


GPP is not subject to income tax imposed pursuant to Sec. 26 , NIRC.

However, the partners shall be liable to pay income tax on their separate and individual
capacities for their respective distributive share in the net income of the GPP.
The GPP is not a taxable entity for income tax purposes since it is only acting as a
"pass-through” entity where its income is ultimately taxed to the partners comprising
it.
Sec. 26 , NIRC provides that for purposes of computing the distributive share of the
partners, the NET INCOME of the GPP shall be computed in the same manner as a
corporation.
The following may be allowed as deductions from the GROSS INCOME of the GPP:
a. Itemized DEDUCTIONS which are ordinary and necessary, incurred or paid for the
practice of profession; OR in lieu thereof
b. Optional Standard Deduction (OSD) allowed to corporations in claiming the
deductions in an amount not exceeding 40 % of its gross income.
This NET INCOME of the GPP will be the basis of the distributIve
share of the partners of the GPP.
Meaning of “the GPP and the partners comprising the GPP may
avail of the OSD only once, EITHER by the GPP or the partners
comprising the GPP.”
The share of the partners in the net income of the GPP, actually
or constructively received, shall be reported as TAXABLE
INCOME of EACH PARTNER.
The partners comprising the GPP can no longer claim further
deduction from their distributive shares in the net income of
the GPP and are NOT ALLOWED to avail of the 8% income
tax rate option since their distributive share from the GPP is
already net of cost and expenses.
But, if the partner also derives other income from trade,
business or practice of profession apart and distinct from the
share in the net income of the GPP, the deduction that can be
claimed from the other income would either be the itemized
deductions or OSD, depending on the option availed on the
first quarter which is irrevocable.
Tax treatment of income of a NONSTOCK
NONPROFIT Educational Institution
When a NSNP educational institution proves that it USED its
revenues actually, directly, and exclusively for educational
purposes, it shall be exempted from income tax,VAT, and local
business tax.
On the other hand, when it also shows that it USED its assets
in the form of real property for educational purposes, it shall
be exempted from real property tax. Art XIV, Sec. 4(3), Constitution
The last par. Of Sec. 30, NIRC, is declared without force and
effect for being contrary to the Constitution insofar as it
subjects to tax the income and revenues of NSNP educational
institutions USED actually, directly and exclusively for
educational purposes. CIR v. DLSU, gr 196596, Nov. 9, 2016, Per
J. BRION, Second Div.
Tax treatment of income of proprietary NONPROFIT
educational institutions


Proprietary NONPROFIT educational institutions shall pay a tax of 10% on their

taxable income IF its GI from unrelated trade, business or activity DOES NOT
EXCEED 50% of the TOTAL GROSS INCOME.
But If the GROSS INCOME from unrelated trade, business or other activity
EXCEEDS 50% of the TOTAL GROSS INCOME derived by such educational
institutions from all sources, the 30% income tax rate shall be imposed on the
entire taxable income.
The term 'unrelated trade, business or other activity' means any trade, business or
other activity, the conduct of which is not substantially related to the exercise or
performance by such educational institution of its primary purpose or function.
A 'proprietary educational institution' is any private school maintained and
administered by private individuals or groups with an issued permit to operate
from the DECS or the CHED, or the TESDA, as the case may be, in accordance
with existing laws and regulations. Sec. 27B, NIRC
 
Tax treatment of income of NONSTOCK
NONPROFIT Hospital
For a NSNP hospital to be completely
exempt from income tax, Sec. 30E and G
of the NIRC requires said institution to
be organized and operated
EXCLUSIVELY and derive income AS
SUCH charitable or social welfare
institution. CIR v. St. Luke’s Medical Center,
Inc. GR 203514, Feb. 13, 2017, Per J. del
Castillo, First Div.


Tax treatment of income of proprietary NONPROFIT hospitals


Proprietary NONPROFIT HOSPITALS shall pay a tax of 10%

on their taxable income if the GI from unrelated trade,
business or activity DOES NOT EXCEED 50% of the TOTAL
GROSS INCOME.
If the GROSS INCOME from unrelated trade, business or
other activity exceeds 50% of the TOTAL GROSS INCOME
derived by such hospital from all sources, the 30% income tax
rate shall be imposed on the entire taxable income.
The term 'unrelated trade, business or other activity' means any
trade, business or other activity, the conduct of which is not
substantially related to the exercise or performance by such
nonprofit hospital of its primary purpose or function.
That is why in CIR v. St. Luke’s Medical Center, Inc. 817 SCRA
347 (2017), St. Luke’s income derived from its paying patients
was subjected to the 10% income tax rate.
Tax treatment of income of PAGCOR


Section 1 of RA 9337, excluded PAGCOR from the enumeration of

GOCCs exempted from corporate income tax.
PAGCOR's tax privilege of paying 5% franchise tax, in lieu of all other
taxes, with respect to its income from gaming operations, such as the
operation and licensing of gambling casinos, gaming clubs and other
similar recreation or amusement places, gaming pools and related
operations is not repealed or amended by R.A. 9337.
Like PAGCOR, its contractees and licensees remain exempted from the
payment of corporate income tax and other taxes, but subject only to
the 5% franchise tax. Bloomberry Resorts and Hotels, Inc. v. BIR 800
SCRA 123 (2016)
PAGCOR's income from other related services is subject to the 30%
corporate income tax only. PAGCOR v. CIR, 846 SCRA 840 (2017)
Other tax issues on PAGC OR
The government's cause of action against PAGCOR is
not for the collection of income tax, for which PAGCOR
is exempted, but for the enforcement of the WHT
provision of the NIRC FBT , compliance of which is
imposed on PAGCOR as, the WHA, and not upon its
employees. Consequently, PAGCOR's non-compliance
thereof made it personally liable for the FBT arising from
the breach of its legal duty.
Regarding VAT - the legislative intent is for PAGCOR to
remain exempt from VAT even with the enactment of RA
9337. PAGCOR v. CIR, GR 210704, Nov. 22, 2917, Per J.
Caguioa, Second Div.
Tax treatment of income of PAL
Upon the amendment of the 1997 NIRC, R.A. 9337 abolished the
franchise tax and subjected PAL and similar entities to corporate
income tax and VAT on its sale of goods, property or services and its
lease of property.
However, the franchise of PAL REMAINS THE GOVERNING LAW
ON ITS EXEMPTION FROM TAXES.
PAL remains exempt from taxes, duties, royalties, registrations, licenses, and
other fees and charges, provided it pays corporate income tax as granted in
its franchise agreement, the payment of which shall be in lieu of all other
taxes, except VAT, and subject to certain conditions provided in its charter.
RP v. PAL, G.R. Nos. 209353-54/ G.R. Nos. 211733-34, July 6, 2015,
SERENO, CJ, First Div.


Tax treatment of income of offline international carriers


An offline international air carrier with no landing rights in the Phils

or that do not have flights to and f rom the Phils. but nonetheless
earn income from other activities in the country (i.e., sale of airline
tickets) will be taxed at the rate 30% of such taxable income derived
from sources within the Phils.
It falls within the definition of a Resident Foreign Corporation under
Sec. 28(A)(1), NIRC.
It is NOT liable to tax on Gross Phil. Billings .
The IRR of RA 7042 clarifies that “doing business” includes
“appointing representatives or distributors, operating under full
control of the foreign corporation, domiciled in the Phils. or who in
any calendar year stay in the country for a period totalling 180 days
or more
But International air carriers maintaining flights to and from the Phils
shall be taxed at the rate of 2 ½% of its Gross Philippine Billings
under Sec. 28(A)(3) of the NIRC. Air Canada v. CIR, GR 169507, Jan.
11, 2016, Per J. Leonen, Second Div.
GROSS INCOME


What is the proper interpretation and application of the 20-lender rule under Sec.
22(Y), NIRC, particularly in relation to issuance of govt. debt instruments? 


Debt instruments issued and sold to 20 or more lenders/investors by

commercial or industrial companies to finance their own needs are
considered deposit substitutes, subject to the 20% FWHT on the
imputed interest income from the bonds.
As defined in the banking sector, the term "public" refers to 20 or
more lenders.
What controls is the actual number of persons or entities to whom
the products or instruments are issued.
The phrase "at any one time" is ambiguous in the context of the
financial market.
The determination of the phrase "at any one time" to determine the
"20 or more lenders" is to be determined at the time of the original
issuance.
These PEACe Bonds not being issued to 20 or more lenders are not
to be treated as deposit substitutes. BDO v. Republic, GR 198756, Aug.
16, 2016, Per J. Leonen, En Banc
What is the tax treatment of trading gains
from the sale or transfer of bonds?
Trading gains, or gains realized from the sale or transfer of bonds (i.e., those with a
maturity of more than 5 years) in the secondary market, are exempt from income
tax. These "gains" refer to the difference between the selling price of the bonds in the
secondary market and the price at which the bonds were purchased by the seller. For
discounted instruments such as the zero-coupon bonds, the trading gain is the excess
of the selling price over the book value or accreted value (original issue price plus
accumulated discount from the time of purchase up to the time of sale) of the 106
instruments.
Section 32(B)(7)(g) also includes gains realized by the last holder of the bonds when
the bonds are redeemed at maturity, which is the difference between the proceeds
from the retirement of the bonds and the price at which the last holder acquired
the bonds.
On the other hand, gains realized from the trading of short-term bonds (i.e., those
with a maturity of less than 5 years) in the secondary market are subject to regular
income tax rates. BDO v. Republic, GR 198756, Aug. 16, 2016, Per J. Leonen, En Banc

 




Is the gain derived by GTRC considered as dividends subject to 15% FWT on dividends? 




No. Because the said dividends are NOT RECURRING DIVIDENDS but rather they are
payments for the redemption of shares of the NRFC since it surrendered its stocks in return
for the said distribution, thus ceasing to be a stockholder of the company.
Under Art. 11 (5) of the RP-US Tax Treaty, the term "dividends" should be understood acc. to
the taxation law of the State in which the corp making the distribution is a resident, which, in
this case, pertains to Goodyear, Phils, a resident of the Philippines.
Accordingly, the statutory definition of "dividends," (Sec. 73 (A), NIRC) "[t)he term 'dividends'
means any distribution made by a corporation to its shareholders out of its earnings or
profits and payable to its shareholders, whether in money or in other property."
Thus, the redemption price received by GTRC could not be treated as accumulated dividends
in arrears that could be subjected to 15% FWT because respondent's AFS covering the years
2003 to 2009 show that it did not have UNRESTRICTED RETAINED EARNINGS, and in fact,
operated from a position of deficit.
ABSENT the availability of UNRESTRICTED RETAINED EARNINGS, the board of directors
of respondent had no power to issue dividends. CIR v. Goodyear Phils., GR 216130, Aug. 3, 2016
[Per J. Perlas-Bernabe, First Div.]





:
CAPITAL GAINS TAX
Capital gains tax due on the sale of real property
which had been subjected to expropriation is a
liability for the account of the SELLER.
Since capital gains is a tax on passive income, it is the
seller, not the buyer, who generally would shoulder
the tax. Republic v. Soriano, GR 211666, Feb. 25.
2015, Per J. Peralta,Third Div.
▪ FRINGE BENEFITS TAX
How to avoid the imposition of FBT
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 FB is required by the nature of, or is necessary
to the trade, business or profession of the
employer, or when the FB is for the convenience or
advantage of the employer.
CIR v. Sec. of Justice & PAGCOR, GR 177387, Nov. 9,
2018, Per J. Bersamin, First Div.
DEDUCTIONS
Distinguish Itemized deductions from
optional standard deductions.
ITEMIZED DEDUCTIONS
Applicable only to those who are engaged in
business or exercise of profession
Consist of Business Expenses, Interest Expense,
Taxes, Losses, Bad Debts, Depreciation, Depletion
of oil and gas wells and mines, Charitable and
other contributions, Research and Development,
Pension Trusts
Regular deduction
OPTIONAL STANDARD DEDUCTION
SAME
In lieu of the itemized deductions, there is
allowed an OSD of 40% depending on the kind
of TP.
INDIVIDUALS (except NRANETB) - 40% of the
GS/GR
CORPORATIONS (except NRFC) – 40% of GI
There is a need to elect this when filing the 1st
quarter income tax return
Once elected, IRREVOCABLE for the taxable
year.
Individuals need not submit FS.
GPP and partners may avail of OSD ONLY
ONCE.
But TPs should still keep records of GS/GR/GI




Requisites for the deductibility of business expenses?




1. Expenses must be ordinary and necessary;

2. Must be paid or incurred during the taxable year;
 3. Must be paid or incurred in carrying on the trade or business, or the
exercise of profession by the taxpayer,
4. Amount must be reasonable;
5. Must be substantiated by SIs or ORs issued by the seller of goods or
service.  
6. If subject to WHT, the same should be properly withheld and remitted
on time with the BIR thru the AABs. Ing Bank v. CIR, 763 SCRA 359 (2015)
7. Must be legitimately paid (not contrary to law, morals, public policy or
public order) or not in the form of bribe, kickbacks and other similar
payments. Pilmico Mauri Foods Corp. v CIR, GR 175651, Sept. 14, 2016[Per J.
Reyes,Third Div.]

 
IRREVOCABILITY RULE


2 options available to the corporation whenever it overpays its income tax
for the taxable year


When a corporation overpays its income tax liability as adjusted at

the close of the taxable year, it has two options:
(1) to apply for a CASH REFUND or issuance of a TCC, or
(2) to CARRY OVER such overpayment to the succeeding taxable
quarters to be applied as AUTOMATIC TAX CREDIT against the
estimated quarterly income tax liabilities of the succeeding TYs until
fully utilized (meaning there is no prescriptive period).
Once the carry-over option is taken, it becomes IRREVOCABLE such
that the taxpayer cannot later on change its mind in order to claim a
cash refund or the issuance of a TCC of the very same amount of
overpayment or excess income tax credit.
University Physician Services, Inc. v. CIR, G.R. 205955. March 7, 2018,
Martires, J.
Does the IRREVOCABILITY RULE apply
EXCLUSIVELY to the CARRY-OVER option?
YES. The irrevocability rule under Sec. 76, NIRC, is
limited only to the option of CARRY-OVER.
But the law does not prevent a taxpayer who originally
opted for a refund or TCC from shifting to the carry-
over of the excess creditable taxes to the taxable
quarters of the succeeding taxable years.
However, in case the taxpayer decides to shift its option
to carryover, it may no longer revert to its original choice
DUE TO THE IRREVOCABILITY RULE.
University Physicians Services v. CIR, GR 205955, March 7,
2018[Per J. Martires,Third Div.]
What is the purpose of the irrevocability
rule?
The evident intent of the legislature, in
adding the last sentence to Section 76 of
the NIRC of 1997, is to keep the taxpayer
from flip-flopping on its options, and
avoid confusion and complication as
regards said taxpayer's excess tax credit.
University Physician Services, Inc. v. CIR, G.R. 205955.
March 7, 2018, Martires, J.
What is the remedy of the government if a TP who previously
claimed a refund/TCC which was GRANTED subsequently
applied for CARRY-OVER?
When a taxpayer who opted to claim a refund or tax
credit of excess creditable withholding tax for a taxable
period which was GRANTED was determined to have
carried over and automatically applied the same
amount claimed against the estimated tax liabilities for
the taxable quarter or quarters of the succeeding
taxable year, said TP shall be subject to tax audit due to
overclaim of refund and he will be informed in writing
of the law and the facts on which the assessment is
made in the form of a FAN, NOT thru a PAN.
University Physician Services, Inc. v. CIR, G.R. 205955. March 7, 2018,
Martires, J.
Why is the 2-stage process of assessment
not strictly followed here?
The govt. may immediately proceed to the issuance
of a FAN, and dispense with the PAN, for the reason
that the discrepancy or deficiency is so glaring or
reasonably within the TP's knowledge such that a
PAN would be a SUPERFLUITY.
It is because this scenario contemplates a DOUBLE
RECOVERY by the TP of an overpaid income tax
that arose from an over-withholding of CWHTes.
University Physician Services, Inc. v. CIR, G.R. 205955.
March 7, 2018, Martires, J.
This par. envisages that the TP had previously asked for and
SUCCESSFULLY RECOVERED from the BIR its excess CWT
thru REFUND or TCC;
If the govt. had already granted the refund, but the TP is
determined to have automatically applied the excess CWT
against its estimated quarterly tax liabilities in the succeeding
TYs, the TP would undeservedly recover 2x the same amount
of excess CWTes.
There appears, therefore, no other viable remedial recourse on
the part of the govt. except to assess the TP for the double
recovery.
In this instance, and in accordance with the above rule, the
government can right away issue a FAN. University Physician
Services, Inc. v. CIR, G.R. 205955. March 7, 2018, Martires, J.
Is the issuance of a FAN applicable if the
claim for refund is still pending?
No. If, on the other hand, an administrative claim for refund is still PENDING but
the TP had in the meantime automatically carried over the excess creditable tax, it
would appear not only wholly unjustified but also tantamount to adopting an unsound
policy if the government should resort to the remedy of assessment.
First, on the premise that the carry-over is to be sustained, there should be no more
reason for the govt to make an assessment for the sum (equivalent to the excess
CWT) that has been justifiably returned already to the TP (thru automatic tax credit)
and for which the govt has no right to retain in the first place. In this instance, all
that the govt needs to do is to DENY the refund claim.
Second, on the premise that the carry-over is to be disallowed due to the pending
application for refund, it would be more complicated and circuitous if the govt were
to grant first the refund claim and then later assess the TP for the claim of
automatic tax credit that was previously disallowed.
Such procedure is highly inefficient and expensive on the part of the govt due to the
costs entailed by an assessment.
It unduly hampers, instead of eases, tax administration and unnecessarily exhausts the
govt’s time and resources. It defeats, rather than promotes, administrative feasibility.
University Physician Services, Inc. v. CIR, G.R. 205955. March 7, 2018, Martires, J.
Requirements for entitlement for a refund/
TCC involving EXCESS CWT
(1) That the claim for refund was filed within the 2-year
reglementary period pursuant to Sec. 229, NIRC;
(2) When it is shown on the ITR that the income payment
received is being declared part of the TP’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. CIR v. Cebu Holdings, GR
189792, June 21, 2918, J. Carpio
When the 2-year prescriptive period to
claim refund commence to run?
It is only logical to reckon the 2-year prescriptive period to
claim refund from the time the FAR or the Annual ITR was
filed, since it is only at that time that it would be possible to
determine whether the corporate taxpayer had paid an
amount exceeding its annual income tax liabilities.
The 2-year prescriptive period commences to run from the
time the refund is ascertained, i.e., the date such tax was paid,
and not upon the discovery by the taxpayer of the erroneous
or excessive payment of taxes. MBTC v. CIR, GR 172,582, April
17, 2017, Per J. Perlas-Bernabe, First Div.
Sec. 76, NIRC, requires a corporation to file a FAR or Annual
Income Tax Return covering the total taxable income for the
preceding calendar year or fiscal year.
Winebrenner v. CIR, GR 206526, Jan. 28, 2015, Per J. Mendoza,
Second Div.
Only preponderance of evidence
needed in claims for refund
Claims for refund are civil in nature and as such,
petitioner, as claimant, though having a heavy burden
of showing entitlement, need only to prove
preponderance of evidence in order to recover
excess credit in cold cash. Winebrenner v. CIR,
Winebrenner v. CIR, GR 206526, Jan. 28, 2015, Per J.
Mendoza, Second Div.
What is the meaning of the choice of one
precludes the other.
(This was the rule under the aegis of the old NIRC of
1977 when the irrevocability rule had not yet been
established.)
It only means that the TP cannot avail of both REFUND
and CARRY-OVER (automatic tax credit) at the same
time.
Thus, as Philam declared: "One cannot get a tax refund and
a tax credit at the same time for the same excess income
taxes paid."
This is the import of the Court's pronouncement that the
options under Section 76 are alternative in nature.
Withholding tax
Withholding tax on Compensation income
The tax on compensation income is withheld at
source under the CWT system wherein the tax
withheld is intended to equal or at least approximate
the tax due of the payee on the said income. ING
Bank N.V. v. CIR, GR 167679, July 22, 2015, Per J.
Leonen, Second Div.
Time of withholding
Under RR 2-98, the obligation of a
taxpayer to deduct or withhold tax
arises at the time an income is paid or
payable, whichever comes first. Edison
(Bataan) Cogeneration Corp v. CIR, GR
201665, Aug. 30, 2017, Per J. del Castillo,
First Div.
Obligation to withhold
In case of doubt, a withholding agent may always
protect himself or herself by withholding the tax
due and return the amount of the tax withheld
should it be finally determined that the income paid
is not subject to withholding. BDO v. Republic, GR
198756, Jan. 13, 2015, Per J. Leonen, En Banc
 WON proof of remittance to the BIR of the FWHT on interest
income from bank deposits is necessary for PAL to be entitled to tax
refund.
No. Because
(i) The payor-WHA (bank) is responsible for the withholding and remitting of the income taxes;
(2) the payee-refund claimant has no control over the remittance of the WHT;
(3) the Certs of FWHT at source issued by the bank-WHAs of the govt are prima facie proof of actual
payment by payee-refund claimant to the govt itself and are declared under perjury.
(4) While tax exemptions are strictly construed against the TP, the govt should not misuse technicalities to
keep money it is not entitled to.

PAL , on the other hand, has proven that

(i) it is exempted from paying WHT under the statutory exemption granted to it;
(ii) amounts were withheld and deducted from its accounts;
(iii) and the CIR did not contest the withholding of these amounts and only raises that they were not
proven to be remitted,
Thus Court finds that PAL sufficiently proved that it is entitled to its claim for refund.
In requiring PAL to prove actual remittance, the court a quo and the CIR effectively put the burden on the
payee to prove that both govt and the banks complied with their legal obligation. It would have been near
impossible for the TP to demand to see the records of the payor bank or the ledgers of the govt. The
legislative policy was to provide incentives to the TP by unburdening it of taxes. By administrative and judicial
interpretation, such policy would have been unreasonably reversed. This is not this Court's view of equity.
Clearly, the TP in this case is entitled to relief. PAL v CIR/ CIR v PAL, G.R. 206079-80/G.R. 206309. January 17,
2018, LEONEN,J.:,Third Div.
Probative value of BIR Form 2307
The probative value of BIR Form 2307, which is
basically a statement showing the amount paid for the
subject transaction and the amount of tax withheld
therefrom, is to establish only the fact of withholding
of the claimed CWT.
There is nothing in BIR Form 2307 which would
establish either utilization or non-utilization, as the
case may be, of the creditable withholding tax. PNB v.
CIR, G.R. 206019, March 18, 2015, Per J.Velasco,Third
Div.
FILING OF RETURN AND PAYMENT OF TAX
Substituted Filing of Income Tax Returns

Individual taxpayers receiving pure compensation income,

regardless of amount, from only one employer in the
Philippines for the calendar year, the income tax of which
has been withheld correctly by the said employer (tax
due equals tax withheld ) shall not be required to file an
annual income tax return.
The certificate of withholding (BIR Form 2316) filed by
the respective employers, duly stamped “received” by the
BIR, shall be tantamount to the substituted filing of
income tax returns by said employees. Sec. 51-A, NIRC,
as amended by TRAIN.
Individuals not required to file ITR
(a) An individual whose taxable income does not exceed P250,000 under Sec
24(A)(2)(a): Provided, That Filipino citizens and Resident Aliens engaged in
business or practice of profession within the Phils. shall file an ITR, regardless of
the amount of gross income.
(b) An individual with respect to pure compensation income, derived from
sources within the Phils., the income tax on which has been correctly withheld
under the provisions of Sec. 79, NIRC: Provided, That an individual deriving
compensation concurrently from 2 or more employers at any time during the
taxable year shall file an ITR.
 
(c) An individual whose sole income has been subjected to FWHT
pursuant to Sec. 57(A), NIRC; and
d) A MWE or an individual who is exempt from income tax pursuant to the
provisions of this Code and other laws, general or special.
(e) Senior citizens who are also considered as MWEs shall also be exempt
from the payment of individual income tax.
ESTATE TAX
UPDATES on ESTATE TAX
1. New estate tax rate – 6% of the value of the net estate.
(Sec. 84)
2. New deductions for citizens and resident aliens
a. Standard deduction – P5,000,000 (Sec. 86(A)(1)
b. Family home – P10,000,000 (Sec. 86(A)(7)
3. Standard deduction for nonresident aliens– P500,000
(Sec. 86(B)(1)
3. ETR with gross value exceeding P5 Million shall be
supported with a statement duly certified by a CPA
containing
a. Itemized assets of the decedent with GV at the time of
death
b. Itemized deductions from GE
c. Amount of tax due (Sec. 90(A)
4. Time for filing – within 1 year from the decedent’s death.
(Sec. 90B)
5. Payment by Installment. – In case the available cash of
the estate is insufficient to pay the total estate tax due,
payment by installment shall be allowed within 2 years
from the statutory date for its payment without civil
penalty and interest. (Sec. 90C)
6. If a bank has knowledge of the death of a person, who
maintained a bank deposit account alone, or jointly with
another, it shall allow any withdrawal from the said deposit
account without the required eCAR, subject to a FWHT
of 6%. (Sec. 97)
DONOR’S TAX
UPDATES on DONOR’s TAX
New Donor’s Tax Rate – 6% of the total gifts in excess of P250,000 exempt gift
regardless of the relationship between the donor and the donee. (Sec. 99)
Transfer for Less than Adequate and Full Consideration. - Where property, other
than real property which is a capital asset, is transferred for less than an
adequate and full consideration in money or money's worth, then the amount
by which the FMV of the property exceeded the value of the consideration
shall, be deemed a gift, and shall be included in computing the amount of gifts
made during the calendar year: Provided, however, That a sale, exchange, or
other transfer of property made in the ordinary course of business (a
transaction which is a bona fide, at arm’s length, and free from any donative
intent), will be considered as made for an adequate and full consideration in
money or money’s worth. (Sec. 100)
Also, the exemption of dowries or gifts made by parents to their children
on account of marriage and before its celebration or within one year
thereafter to the extent of P10,000 was deleted under RA 10963 (TRAIN
Law).
VALUE-ADDED TAX
Characteristics of VAT
For context, VAT is a tax imposed on each sale of goods or services
in the course of trade or business, or importation of goods "as they
pass along the production and distribution chain.“
It is an indirect tax, which "may be shifted or passed on to the buyer,
transferee or lessee of the goods, properties or services.“
The output tax due from VAT-registered sellers becomes the input tax
paid by VAT-registered purchasers on local purchase of goods or
services, which the latter in turn may credit against their output tax
liabilities.
On the other hand, for a non-VAT purchaser, the VAT shifted forms
part of the cost of goods, properties, and services purchased, which
may be deductible as an expense for income tax purposes. TEC v. CIR,
G.R. No. 197663/G.R. No. 197770. March 14, 2018, LEONEN, J.,Third
Div.
Destination Principle v. Cross Border Doctrine


With the issuance of RMC 74-99, the distinction under the

old rule was disregarded and the new circular took into
consideration the two important principles of the Phil VAT
system – the Cross Border Doctrine and the Destination
Principle.
Goods and services are taxed only in the country where they
are CONSUMED.  Thus, exports are zero-rated, while
imports are taxed.
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 12% VAT
Coral Bay Nickel Corp v. CIR, GR 190506, June 13, 2016, Per J.
Bersamin, First Div.
Concept and Collection of VAT thru the tax
credit method
The VAT is a tax on consumption, an indirect tax that the provider of goods or services may pass on
to his customers.
Under the VAT method of taxation, which is invoice-based, an entity can subtract from the VAT
charged on its sales or outputs the VAT it paid on its purchases, inputs and imports. For example,
when a seller charges VAT on its sale, it issues an invoice to the buyer, indicating the amount of VAT
he charged.
For his part, if the buyer is also a seller subjected to the payment of VAT on his sales, he can use the
invoice issued to him by his supplier to get a reduction of his own VAT liability.
The difference in tax shown on invoices passed and invoices received is the tax paid to the
government. In case the tax on invoices received exceeds that on invoices passed, a tax refund may
be claimed.
If at the end of a taxable quarter the seller charges output taxes equal to the input taxes that his
suppliers passed on to him, no payment is required of him. It is when his output taxes exceed his
input taxes that he has to pay the excess to the BIR. If the input taxes exceed the output taxes,
however, the excess payment shall be carried over to the succeeding quarter or quarters. Should the
input taxes result from zero-rated or effectively zero-rated transactions or from the acquisition of
capital goods, any excess over the output taxes shall instead be refunded to the taxpayerTEC v. CIR,
G.R. No. 197663/G.R. No. 197770. March 14, 2018, LEONEN, J.,Third Div.
Our VAT system is invoice-based.
Our VAT system is invoice-based, i.e. taxation relies on sales
invoices or official receipts.
A VAT-registered entity is liable to VAT, or the output tax at
the rate of 0% or 12% on the gross selling price of goods
or gross receipts realized from the sale of services.
Sections 106(D) and 108(C) of the Tax Code expressly
provide that VAT is computed at 12% of the total amount
indicated in the invoice for sale of goods or official receipt
for sale of services.
This tax shall also be recognized as input tax credit to the
purchaser of the goods or services. TEC v. CIR, G.R. No.
197663/G.R. No. 197770. March 14, 2018, LEONEN, J.,Third
Div.
Input VAT
Input VAT is, strictly speaking, a financial cost and not a
direct construction cost. A taxpayer has to pay input
VAT as part of the contract price of goods and
properties purchased, and services procured in order
to complete the project.
In offsetting its input VAT against output VAT, buyer is
merely availing of the benefits of the tax credit
provisions of the law, and it cannot be said to have
benefited at the expense or the damage of seller.
Malayan Insurance Co. v. St. Francis Square Realty Corp,
778 SCRA 540 (2017)
Return of capital investment is not subject
to VAT
The Court holds that the allocation of the remaining units in the building to St. Francis in accordance
with the MOA is not subject to VAT. To recall, the parties initially entered into a Joint Project
Development Agreement whereby (1) Malayan would contribute the property; (2) ASB Realty, Corp.
(now St. Francis) would defray the cost of constructing the building; and (3) the parties would
allocate the net saleable area of the building between them as return of their capital investment in
the project. Unfortunately, ASB underwent rehabilitation and the SEC suspended the performance of
ASB's obligations under the said agreement. In order to protect the interest of those who bought its
during pre-selling, to preserve its interest in the project, as well as its goodwill and reputation, Malayan
proposed to complete the project, the terms and conditions of which were accepted by ASB (now
St. Francis), and are now embodied in the MOA . Section 4 of the MOA states that as a return of
their capital investment in the project, each party shall be entitled to such portion of all the net
saleable area of the building that their respective contributions to the project bear to the actual
construction costs. The core issue is the pro rata sharing in the remaining net saleable area of the
building, which can be resolved by determining how much the exact amount of the ARCC exceeded
the Remaining Construction Cost Having determined the ARCC and finding that St. Francis is
entitled to a proportionate share of the remaining units, the Court rules that the allocation of such
units clearly involves a return of the parties' capital investments under the MOA, hence, not
subject to VAT.
Malayan Insurance v. St. Francis Square, GR 198916, July 23, 2018, Per J. Peralta, Special third Div.


Input tax v. Output tax
The Court previously ruled that input VAT is a financial cost, not a direct
construction cost, but went on to state that such VAT should be included in
the ARCC because the cash vouchers and receipts showed that Malayan's
payment to the contractors and suppliers included the same tax.
In deciding such question of law, however, the Court overlooked the nature
of VAT as an indirect and consumption tax which the end users of consumer
goods, properties or services ultimately shoulder, as the liability therefor is
passed on to them by the providers of goods and services who, in turn, may
credit their own VAT liability from the VAT payments they receive from the
final consumer.11 
For the VAT-registered purchaser, the tax burden passed on does not
constitute cost, but input tax which is creditable against his output tax
liabilities; conversely, it is only in the case of a non-VAT purchaser that VAT
forms part of cost of the purchase price.12 The input tax passed on to the
final consumers, like the buyers of Malayan's condominium units and parking
slots, thus becomes part of their acquisition cost of the asset or operating
expense. Malayan Insurance v. St. Francis Square, GR 198916, July 23, 2018,
Per J. Peralta, Special third Div.
Excess output VAT
Ordinarily,VAT registered entities are liable to pay excess
output tax if their input tax is less than their output tax
at any given taxable quarter. However, if the input tax is
greater than the output tax,VAT registered persons can
carry over the excess input tax to the succeeding taxable
quarter or quarters.

If the excess input tax is derived from zero-rated or

effectively zero-rated transactions, the taxpayer may
either seek a refund. CE Luzon Geothermal Power Co. v. CIR,
G.R. 197526, July 26, 2017, Per J. Leonen, Second Div.
Can a taxpayer claim for refund of ERRONEOUS PAYMENT OF
OUTPUT VAT due to its failure to apply the input VAT in the
computation of its excess allowable input VAT?
No. Sec. 229 is inapplicable to claims for recovery of unutilized input VAT. Only the
person legally liable to pay the tax can file the judicial claim for refund. The person
to whom the tax is passed on as part of the purchase price has no personality to
file the judicial claim under Sec. 229.
In a claim for refund or credit of "excess" input VAT , the input VAT is not "excessively"
collected as understood under Section 229.
At the time of payment of the input VAT the amount paid is the correct and proper
amount.
Under the VAT System, there is no claim or issue that the input VAT is "excessively"
collected, that is, that the input VAT paid is more than what is legally due.
The person legally liable for the input VAT cannot claim that he overpaid the input
VAT by the mere existence of an "excess" input VAT.
The 'term "excess" input VAT simply means that the input VAT available as credit
exceeds the output VAT, not that the input VAT is excessively collected because it is
more than what is legally due.
Thus, the taxpayer who legally paid the input VAT cannot claim for refund or credit of
the input VAT as "excessively" collected under Section 229. Coca-Cola v. CIR, G.R. No.
222428. February 19, 2018, PERALTA,J, Second Div.
Application of Input VAT against output VAT.
Under Section llO(B), a taxpayer can apply his input VAT only against his output VAT.
The only exception is when the taxpayer is expressly "zero-rated or effectively zero-rated" under
the law, like companies generating power through renewable sources of energy.
Thus, a non zero-rated VAT-registered taxpayer who has no output VAT because he has no sales
cannot claim a tax refund or credit of his unused input VAT under the VAT System.
Even if the taxpayer has sales but his input VAT exceeds his output VAT, he cannot seek a tax refund
or credit of his "excess" input VAT under the VAT System. He can only CARRY-OVER and apply his
"excess" input VAT against his future output VAT.
If such "excess" input VAT is an "excessively" collected tax, the taxpayer should be able to seek a
refund or credit for such "excess" input VAT whether or not he has output VAT.
The VAT System does not allow such refund or credit.
Such "excess" input VAT is not an "excessively" collected tax under Section 229.
The "excess" input VAT is a correctly and properly collected tax.
However, such "excess" input VAT can be applied against the output VAT because the VAT is a tax
imposed only on the value added by the taxpayer.
If the input VAT is in fact "excessively" collected under Sec. 229, then it is the person legally liable to
pay the input VAT, not the person to whom the tax was passed on as part of the purchase price and
claiming credit for the input VAT under the VAT System, who can file the judicial claim under Sec. 229.
Coca-Cola v. CIR, G.R. No. 222428. February 19, 2018, PERALTA,J.: Second Div.
Nature of claim for refund of excess input
tax
"Excess input tax is NOT an excessively, erroneously, or illegally collected tax." A
claim for refund of this tax is in the nature of a tax exemption, which is based on
Sections 110(B) and 112(A) of 1997 NIRC, allowing VAT-registered persons to
recover the excess input taxes they have paid in relation to their zero-rated sales.
The term 'excess' input VAT simply means that the input VAT available as [refund]
credit exceeds the output VAT, not that the input VAT is excessively collected
because it is more than what is legally due." Accordingly, claims for tax refund/credit
of excess input tax are governed NOT by Section 229 but only by Section 112 of
the NIRC.
A claim for input VAT refund or credit is construed strictly against the taxpayer.
Accordingly, there must be strict compliance with the prescriptive periods and
substantive requirements set by law before a claim for tax refund or credit may
prosper. The mere fact that Team Energy has proved its excess input VAT does not
entitle it as a matter of right to a tax refund or credit. The 120+30-day periods in
Section 112 is not a mere procedural technicality that can be set aside if the claim is
otherwise meritorious. It is a mandatory and jurisdictional condition imposed by law.
Team Energy's failure to comply with the prescriptive periods is, thus, fatal to its claim.
TEC v. CIR, G.R. 197663/G.R. 197770. March 14, 2018, LEONEN, J.
Requisites for claiming refund of unutilized input
VAT, except transitional input VAT.
1. The taxpayer-claimant is VAT-registered;
2. It is engaged in zero-rated or effectively zero-rated
sale;
3. There are creditable input taxes due or paid
attributable to the zero-rated or effectively zero-
rated sale;
4. This input tax has not been applied against the
output tax; and
5. The application and the claim for refund have been
filed within the prescribed period. CIR v.Toledo Power,
765 SCRA 511 (2015)
Invoicing Requirements - Sales Invoice and
Official Receipts are NOT interchangeable.
There is a clear delineation between official receipts and
sales invoices and that these 2 documents could not be
used interchangeably.
Sec. 113 on invoicing requirements must be read in
conjunction with Sections 106 and 108, which specifically
delineates sales invoices for sales of goods and official
receipts for sales of services.
To claim a refund of unutilized or excess input VAT,
purchase of goods or properties must be supported by
VAT invoices, while purchase of services must be
supported by VAT official receipts. TEC v. CIR, G.R. No.
197663/G.R. No. 197770. March 14, 2018, LEONEN, J
Strict compliance with the invoicing
requirements
Strict compliance with substantiation and .invoicing
requirements is necessary considering VAT's nature and VAT
system's tax credit method, where tax payments are based on
output and input taxes and where the seller's output tax
becomes the buyer's input tax that is available as tax credit or
refund in the same transaction.
It ensures the proper collection of taxes at all stages of
distribution, facilitates computation of tax credits, and provides
accurate audit trail or evidence for BIR monitoring purposes.
The noninterchangeability between VAT official receipts and
VAT invoices avoids having the government refund a tax that
was not even paid. TEC v. CIR, G.R. No. 197663/G.R. No.
197770. March 14, 2018, LEONEN, J.
Why a VAT O.R. is an absolute requirement
in the sale of service.
It should be noted that the seller will only become liable to pay the output
VAT upon receipt of payment from the purchaser. If we are to use sales
invoice in the sale of services, an absurd situation will arise when the
purchaser of the service can claim tax credit representing input VAT even
before there is payment of the output VAT by the seller on the sale pertaining
to the same transaction. As a matter of fact, if the seller is not paid on the
transaction, the seller of service would legally not have to pay output tax while
the purchaser may legally claim input tax credit thereon. The government ends
up refunding a tax which has not been paid at all. Hence, to avoid this, VAT
official receipt for the sale of services is an absolute requirement.
In conjunction with this rule, RMC No. 42-03 expressly provides that an
"invoice is the supporting document for the claim of input tax on purchase
of goods whereas official receipt is the supporting document for the claim
of input tax on purchase of services.“
It further states that a taxpayer's failure to comply with the invoicing
requirements will result to the disallowance of the claim for input tax.
TEC v. CIR, G.R. No. 197663/G.R. No. 197770. March 14, 2018, LEONEN, J.
How to determine the amount of output/
input tax.
Pursuant to Secs. 106(D) and 108(C) in relation to
Sec. 110 of the 1997 NIRC, the output or input tax
on the sale or purchase of goods is determined by
the total amount indicated in the VAT invoice, while
the output or input tax on the sale or purchase of
services is determined by the total amount indicated
in the VAT official receipt. TEC v. CIR, G.R. No.
197663/G.R. No. 197770. March 14, 2018, LEONEN,
J
Sale of agri food products in its original
state is exempt from VAT
Agri food products that have undergone simple processes of preparation or preservation for the market are
nevertheless considered to be in their original state.
Sale of raw cane sugar is VAT exempt because it is considered to be in its original state. On the other hand,
refined sugar is an agri product that can no longer be considered to be in its original state because it has
undergone the refining process.
The VAT exempt nature of the sales made by agri coops under the NIRC is consistent with the tax
exemptions granted to qualified coops under the Cooperative Code which grants coops exemption from
sales tax on transactions with members and nonmembers.
Persons liable for the VAT on their sale of goods shall pay the VAT due , in general, on a monthly basis. VAT
accruing from the sale of goods in the current month shall be payable the following month. However, there
are instances where VAT is required to be paid in advance, such as in the sale of refined sugar.
The transaction subject to VAT is still the sale of refined sugar. The withdrawal of sugar is not a separate
transaction subject to VAT. It is only the payment thereof that is required to be made in advance.
The sale of refined sugar by an agri coop duly registered with the CDA is exempt from VAT.
Art. 2d of the Coop Code defines a certificate of tax exemption as the ruling granting exemption to the coop
issued by the BIR.
Once the coop has sufficiently shown that it has satisfied the requirements under Sec. 109(L) of the NIRC for
the exemption from VAT on its sale of refined sugar )i.e., that it is duly registered with the CDA and it is the
producer of the sugar cane from which refined sugar is derived), its exemption from the advance payment of
VAT should automatically be granted and recognized.
The basic rule is that if any BIR ruling or issuance promulgated by the CIR is subsequently revoked or nullified
by the CIR herself or by the Court, the revocation/nullfication cannot be applied retroactively to the prejudice
of the taxpayers. CIR V. United Cadiz Coop, 813 SCRA 345 (2016)
Sale of coal by Semirara exempt from VAT
Semirara is exempt from the payment of VAT on the sale
of coal produced under its Coal Operating Contract
because Sec. 16a of PD 972, a special law, grants SMC
exemption from all national taxes except income tax.
Therefore, since the main object of the COC for which
the tax exemption was granted is the active exploration,
development and production of coal resources, SMC's
sales of coal produced by virtue of a COC with EDB
remain exempt from VAT pursuant to Sec. 109(1)(k) of
the Tax Code, as amended by R.A. 9337, in relation to PD
972, as amended. CIR v. Semirara Mining Corp, 827 SCRA
300 (2017)
NPC exempt from VAT
The NPC is an entity with a special charter, which
categorically exempts it from the payment of any tax,
whether direct or indirect, including VAT. CBK Power
Company Ltd. v. CIR, 714 SCRA 45.
Entitlement to a refund on the sale of
electricity under the EPIRA
Sec. 6 of the EPIRA provides that the sale of generated power
by generation companies shall be zero-rated.
Section 4 (x) of the same law states that a generation company
"refers to any person or entity authorized by the ERC to
operate facilities used in the generation of electricity (must
have a COC from EPIRA).
Corollarily, to be entitled to a refund or credit of unutilized
input VAT attributable to the sale of electricity under the
EPIRA, a taxpayer must establish:
(1) that it is a generation company, and
(2) that it derived sales from power generation. TEC v. CIR,
G.R. No. 197663/G.R. No. 197770. March 14, 2018, LEONEN, J.,
Third Div.
UPDATES ON VAT under the TRAIN LAW
Sale of gold; and foreign currency
denominated sale.
Sale of gold to the BSP which was previously a zero-
rated sale of goods is now a VAT-exempt transaction
under Sec. 109)(1) (Z), this Tax Code.
“Foreign Currency Denominated Sale” had been
deleted from the list of zero-rated sale of goods.
Enhanced VAT Refund System
Provided, That subparagraph (B)(1) and (B)(5) hereof shall be subject to the 12% VAT and no
longer be subject to 0% VAT rate upon satisfaction of the ff conditions:
(1) The successful establishment and implementation of an ENHANCED VAT REFUND
SYSTEM that grants refunds of creditable input tax within 90 days from the filing of the VAT
refund application with the BIR: Provided, That, to determine the effectivity of Item No. 1, all
applications filed from Jan. 1, 2018 shall be processed and must be decided within 90 days
from the filing of the VAT refund application; and
(2) All pending VAT refund claims as of Dec. 31, 2017 shall be fully paid in cash by Dec. 31,
2019.
The DOF shall establish a VAT refund center in the BIR and in the BoC that will handle the
processing and granting of cash refunds of creditable input tax.
An amount equivalent to 5% of the total VAT tax collection of the BIR and the BOC from
the immediately preceding year shall be automatically appropriated annually and shall be
treated as a special account in the General Fund or as trust receipts for the purpose of
funding claims for VAT Refund: Provided, That any unused fund, at the end of the year shall
revert to the General Fund.
The BIR and the BOC shall be required to submit to the COCCTRP a quarterly report of all
pending claims for refund and any unused fund.
New VAT exempt transactions
(D) Importation of professional instruments and implements, tools of trade,
occupation or employment, wearing apparel, domestic animals, and personal and
household effects belonging to persons coming to settle in the Philippines or
Filipinos or their families and descendants who are now residents or citizens
of other countries, such parties hereinafter referred to as Overseas Filipinos,
in quantities and of the class suitable to the profession, rank or position of the
persons importing said items, for their own use and not for barter or sale,
accompanying such persons, or arriving within a reasonable time: Provided, That
the Bureau of Customs may, upon, the production of satisfactory evidence that
such persons are actually coming to settle in the Philippines and that the goods
are brought from their former place of abode, exempt such goods from
payment of duties and taxes: Provided, further, That vehicles, vessels, aircrafts,
machineries and other similar goods for use in manufacture, shall not fall
within this classification and shall therefore be subject to duties, taxes and
other charges;
(P) Sale of real properties not primarily held for sale to customers or held for
lease in the ordinary course of trade or business, or real property utilized for
low-cost and socialized housing as defined by RA 7279, otherwise known as the
Urban Development and Housing Act of 1992, and other related laws,
residential lot valued at P1,500,000 and below, house and lot, and other
residential dwellings valued at P2,500,000 and below: Provided, That beginning
Jan. 1, 2021, the VAT exemption shall only apply to sale of real properties not
primarily held for sale to customers or held for lease in the ordinary course
of trade or business, sale of real property utilized for socialized housing as
defined by RA 7279, sale of house and lot, and other residential dwellings with
selling price of not more than P2,000,000: Provided, further, That every 3 years
thereafter, the amount herein stated shall be adjusted to its present value using
the Consumer Price Index, as published by the Philippine Statistics Authority
(PSA);
(Q) Lease of a residential unit with a monthly rental not exceeding P15,000;
(U) Importation of fuel, goods and supplies by persons engaged in international
shipping or air transport operations: Provided, That the fuel, goods, and supplies
shall be used for international shipping or air transport operations;
(W) Sale or lease of goods and services to Senior Citizens and PWDs as
provided in RA 9994 (Expanded Senior Citizens Act of 2010) and RA 10754
 (X) Transfer of property pursuant to Sec. 40(C)(2) of the NIRC.
(Y) Association dues, membership fees, and other assessments and charges
collected by homeowners associations and condominium corporations;
 (Z) Sale of gold to the BSP;
(AA) Sale of drugs and medicines prescribed for diabetes, high cholesterol,
and hypertension beginning January 1, 2019; and
 (BB) Sale or lease of goods or properties or the performance of services other
than the transactions mentioned in the preceding paragraphs, the gross annual
sales and/or receipts do not exceed the amount of P3,000,000.
Period within which Refund of Input Taxes shall
be Made under the TRAIN Law.
In proper cases, the CIR shall grant a refund for creditable input taxes within 90 days
from the date of submission of the official receipts or invoices and other documents
in support of the application filed in accordance with Subsec. (A) and (B) hereof:
Provided, That, should the CIR find that the grant of refund is not proper, the CIR
must state in writing the legal and factual basis for the denial.
In case of full or partial denial of the claim for tax refund, the taxpayer affected may,
within 30 days from the receipt of the decision denying the claim, appeal the decision
with the CTA:
Provided, however, That failure on the part of any official, agent, or employee of the
BIR to act on the application within the 90-day period shall be punishable under
Sec. 269 , NIRC.
The term “tax credit certificate” was deleted by RA 10963 under this provision.
The clause “or tax credit, or the failure on the part of the CIR to act on the
application within the period prescribed above” was deleted under RA 10963
The phrase “or after the expiration of the 120 period” was deleted under RA 10963.
The term “or the unacted claim” was deleted under RA 10963
SAN ROQUE DOCTRINE
Periods within which Refund of Input Taxes shall
be Made under the San Roque doctrine.
I. Two years to file ADMINISTRATIVE CLAIM.
The ADMINISTRATIVE claim for tax refund or credit
is initially filed before the CIR within 2 years from
the end of the taxable quarter when the zero-rated
sales were made. Aichi Forging Co. of asia, Inc. v. CTA En
Banc, 838 SCRA 188 (2017)
Absence or nonprinting of the word “zero-rated” in
respondent’s invoices is fatal to its claim for the
refund and/or tax credit representing the unutilized
input VAT attributable to its zero-rated sales. CIR v.
Silicon, 718 SCRA 512 (2014)
II. 120-day period for the CIR to
decide. (WAITING PERIOD)
The CIR is given 120 days from the date of submission of complete documents in support of the
application, within which to (1) grant a refund or issue a TCC for creditable input taxes, or (2)
make a full or partial denial of the claim for tax refund or tax credit. It is the taxpayer who
ultimately determines when complete documents have been submitted for the purpose of
commencing and continuing the running of the 120-day period. Silicon v. CIR, 785 scra 351 (2016)
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 Telecom v. CIR, 754 SCRA
369 (2015)
In a long line of cases, the SC had interpreted the 120-day period as both mandatory and
jurisdictional such that the taxpayer is forced to await the expiration of the period before initiating
an appeal before the CTA because the CTA does not acquire jurisdiction over a judicial claim that
is filed before the expiration of the 120-day period. CIR v. Mirant Pagbilao, 781 SCRA 364 (2016)
Failure to comply with the 120-day waiting period violates a mandatory provision of law. It violates
the doctrine of exhaustion of administrative remedies and renders the petition premature and
thus without a cause of action, with the effect that the CT A does not acquire jurisdiction over the
taxpayer's petition. TSC v. CIR, G.R. No. 201225-26/G.R. No. 201132/G.R. No. 201133. April 18, 2018,
REYES, J.
III. 120+30 days to file a JUDICIAL CLAIM (CIR
v Aichi, 632 SCRA 422 (2010).
(1) Upon receipt of the CIR’s decision or ruling denying the said claim, or (2) upon
the expiration of the 120-day period without action from the CIR, whichever is
sooner, the taxpayer has 30 days within which to file a JUDICIAL CLAIM with the
CTA. Sitel Phils. Corp. v. CIR, 817 SCRA 193 (2017)
The 120+30-day prescriptive periods are mandatory and jurisdictional, and the
matter of jurisdiction cannot be waived because it is conferred by law and is not
dependent on the consent or objection or the acts or omission of the parties or
any 1 of them. Silicon Phils.V. CIR, 754 SCRA 279 (2015)
The appeal to the CTA is always initiated within 30 days from decision or inaction
regarding whether the date of the filing is within or outside the 2-year period of
limitation. Aichi Forging Co. of asia, Inc. v. CTA En Banc, 838 SCRA 188 (2017)
In order for the CT A to acquire jurisdiction over a judicial claim for refund or tax
credit arising from unutilized input VAT, the said claim must first comply with the
mandatory 120+30-day waiting period. Any judicial claim for refund or tax credit
filed in contravention of said period is rendered premature, depriving the CTA of
jurisdiction to act on it. TSC v. CIR, G.R. No. 201225-26/G.R. No. 201132/G.R. No.
201133. April 18, 2018, REYES, J.
IV. BIR Ruling No. DA 489-03
Although the BIR Ruling DA 489-03 is an erroneous interpretation of the law, the
SC made an exception explaining that “taxpayers should not be prejudiced by an
erroneous interpretation by the CIR, particularly on a difficult question of law.” CE
Luzon Geothermal Power Co. v. CIR, 832 SCRA 589 (2017)
 In CIR V. Deutsche Knowledge Services, 807 SCRA 90 (2016), where the SC
reiterated that all taxpayers may rely upon BIR Ruling No. 489-03, as a general
interpretative rule, from the time of its issuance on Dec. 10, 2003 until its effective
reversal by the Court in CIR v. Aichi Forging, 632 SCRA 422 (2010). PG Asia, Pte. Ltd
v. CIR, 839 SCRA 58 (2017)
During the period Dec. 10, 2003 (when BIR Ruling DA 489-03 was issued) to Oct. 6,
2010 (when the CIR v. Aichi Forging Co. of Asia, 632 SCRA 422, case was
promulgated), which refers to the interregnum when BIR Ruling DA 489-03 was
issued until the date of promulgation of Aichi, TP-claimants need not observe the
stringent 120-day period before it could file a judicial claim for refund of excess
input VAT before the CTA. Before and after the aforementioned period (i.e., Dec. 10,
2003 and Oct. 5, 2010) the observance of the 120-day period is mandatory and
jurisdictional to the filing of the judicial claim. Panay Power Corp. v. CIR, 746 scra 588
(2015)
Burden of proof on the taxpayer-claimant
Following CIR v. Burmeister and Wain Scandinavian Contractor Mindanao,
Inc. 512 SCRA 124 (2007), the SC, in Accenture, Inc. v. CIR, 676 SCRA
325 (2012), emphasized that a TP claiming for a VAT refund or credit
under Sec. 108B has the burden to prove not only that the recipient
of the service is a foreign corporation, but also that said corporation
is doing business outside the Phils.
In Wester Mindanao Power Corp. v. CIR, 672 SCRA 350 (2012), the SC
ruled that in a claim for tax refund or tax credit, the applicant must
prove not only entitlement to the grant of the claim under
substantive law, he must also show satisfaction of all the documentary
and evidentiary requirements for an administrative claim for a refund
or tax credit and compliance with the invoicing and accounting
requirements mandated by the NIRC, as well as the revenue
regulations implementing them. Sitel Phils. Corp. v. CIR, GR 201326, Feb.
8, 2017, [Per J. Caguioa, First Div.]
Construction of tax refunds
Tax refunds or tax credits, just like tax
exemptions, are strictly construed against
taxpayers, the latter having the burden to
prove strict compliance with the
conditions for the g rant of the tax
refund or credit. Sitel Phils. Corp. v. CIR, GR
201326, Feb. 8, 2017, [Per J. Caguioa, First
Div.]
Statute of Limitations
Purpose of the Statute of Limitations
The law prescribing a limitation of actions for the collection of the income tax is beneficial both to
the Government and to its citizens; to the Government because tax officers would be obliged to act
promptly in the making of assessment, and to citizens because after the lapse of the period of
prescription citizens would have a feeling of security against unscrupulous tax agents who will always
find an excuse to inspect the books of taxpayers, not to determine the latter's real liability, but to take
advantage of every opportunity to molest peaceful, law-abiding citizens.
Without such a legal defense, taxpayers would furthermore be under obligation to always keep their
books and keep them open for inspection subject to harassment by unscrupulous tax agents.
The law on prescription being a remedial measure should be interpreted in a way conducive to
bringing about the beneficent purpose of affording protection to the taxpayer within the
contemplation of the Commission which recommend the approval of the law. Republic v. GMCC
United Devt. Corp., GR 191856, Dec. 7, 2016, LEONEN,J., Second Div.
The government must assess internal revenue taxes on time so as not to extend indefinitely the
period of assessment and deprive the taxpayer of the assurance that it will no longer be subjected to
further investigation for taxes after the expiration of a reasonable period of time. CIR v. STI, GR
220835, July 26, 2017, First Div.
Per J. Caguioa, Since time immemorial, the SC has consistently recognized and applied the Statute
of Limitations to preclude the Govt from exercising the power to assess and collect taxes beyond
the prescribed period. Pilipinas Shell v. CIR, GR 195876, Dec. 5, 2016, Per J. Perez,Third Div.
Ordinary Prescriptive periods to assess and
collect internal revenue taxes
As a general rule, Sec. 203 of the Tax Code
limits the CIR’s period to assess and collect
internal revenue taxes to 3 years counted
from the last day prescribed by law for the
filing of the return, or where the return is filed
beyond the period, from the day the return
was actually filed, whichever comes later. CIR v.
STI, GR 220835, July 26, 2017, First Div.
Extraordinary period to assess and collect

The 3-year prescriptive period under Sec.

203, NIRC, to assess and collect internal
revenue taxes is extended to 10 years in
cases of (1) fraudulent return fraudulent
return with intent to evade tax, (2) false
return; and (3) failure to file a return, to be
computed from the time of discovery of the
fraud, falsity, or omission. BDO v. Republic, 745
SCRA 361
How to avail of the extraordinary period
to assess
To avail of the extraordinary period of assessment in
Sec. 222a, NIRC, the CIR should show that the facts
upon which the fraud is based is COMMUNICATED
TO THE TAXPAYER.
The willful neglect to file the required tax return or
the fraudulent intent to evade the payment of taxes
cannot be presumed. CIR v. Fitness by Design, G.R.
215957, Nov. 09, 2016, Per J. Leonen, Second Div.
Distinguish between a fraudulent return
and a false return.
While the filing of a fraudulent return necessarily
implies that the act of the taxpayer was intentional
and done with intent to evade the taxes due, the
filing of a false return can be intentional or due to
honest mistake. CIR v. Philippine Daily Inquirer, Inc.,G.R.
213943. March 22, 2017, CARPIO J., Second Div.
When is there a prima facie evidence of
false and fraudulent return?
Under Sec. 248B of the NIRC, there is a prima facie
evidence of a false return if there is a substantial
underdeclaration of taxable sales, receipt or income or if
there is substantial overstatement of deductions.
The failure to report sales, receipts or income in an
amount exceeding 30% what is declared in the returns
constitutes substantial underdeclaration, and a claim of
deduction in an amount exceeding 30% of actual
deductions shall render the taxpayer liable for substantial
overstatement of deductions . CIR v. Asalus Corp., G.R.
221590, Feb. 22, 2017, J. MENDOZA
Waiver of the Statute of Limitations
A waiver of the Statute of Limitations is nothing more than “a
bilateral written agreement between the taxpayer and the BIR
executed before the expiration of the 3-year period to assess in
order to extend the period of assessment and collection of taxes to a
date certain.” CIR v. SCB, 764 SCRA 174 (2015)
The requirement to furnish the taxpayer with a copy of the waiver is
not only to give notice of the existence of the document but of the
acceptance by the BIR and the perfection of the agreement. Phil.
Journalists, Inc. v. CIR, 488 Phil 218 (2004) [Per J.Ynares-Santiago, First
Division].
As a rule, the failure to raise the defense of prescription at the
administrative level prevents the taxpayer from raising it at the appeal
stage. CBC v. CIR, 749 SCRA 525
The BIR’s right to assess and collect taxes should not be jeopardized
merely because of the mistakes and lapses of its officers, especially in
cases like this where the taxpayer is obviously in bad faith. CIR v. Next
Mobile, 776 SCRA 343 (2015)


Procedures for the proper execution of the WSL under RMO 20-90
& RMO 14-2016
Prior to RMO 14-2016 (April 18, 2016), the rule prevailing was that the Waiver must faithfully comply
with the provisions of RMO 20-90 and RMC 29-2012 in order to be valid and binding, viz:
 
1. Waiver must be in the proper form prescribed in RMC 29-2012 . (New: Waiver may NOT
necessarily be in the form prescribed)  
2. Phrase “but not later than ________”, which indicates the expiry date of the period agreed upon to
assess/collect the tax after the ordinary/regular 3-year period of prescription, should be filled up.
 3. Waiver must be signed by TP himself or his duly authorized representative & such delegation should
be in WRITING. (New: In the case of corp., by any of its responsible officials.) 
 4. Waiver should be duly notarized. (NEW: It MAY BE NOTARIZED. It is sufficient that it is in
writing.)  
5. The CIR or the RO authorized by him shall sign the waiver indicating the date when it was signed and
that the BIR has accepted and agreed to the waiver. It is a BILATERAL AGREEMENT between the
parties.  
6. Both the date of execution by the TP and date of acceptance by the BIR should be BEFORE the
expiration of the period of prescription or before the lapse of the period agreed upon in case a
subsequent agreement is executed.  
7.  Waiver must be executed in 3 copies (Orig copy attached to docket of the case, 2nd copy for TP; 3rd
copy for the Office accepting the waiver). The fact of receipt by the TP of his file copy must be indicated
in the orig copy to show that the TP was notified of the acceptance of the BIR and the perfection of the
agreement.
The GR is that when a waiver does not comply with
the requisites for its validity , it is invalid and
ineffective to extend the prescriptive period to assess
taxes.
Altho the parties are in pari delicto, the Court may
interfere and grant relief at the suit of one of them,
where public policy requires its intervention, even
though the result may be that a benefit will be
derived by one party who is in equal guilt with the
other.CIR V. Next Mobile, Inc., G.R. No. 212825, Dec. 7,
2015, Per J.Velasco,Third Div.
Why estoppel cannot be applied as exception
to the SoL on the assessment of taxes?
The doctrine of estoppel cannot be applied in this case as an exception to the
statute of limitations on the assessment of taxes considering that there is a detailed
procedure for the proper execution of the waiver, which the BIR must strictly
follow. As such, the doctrine of estoppel cannot give validity to an act that is
prohibited by law or one that is against public policy.
BIR cannot hide behind the doctrine of estoppel to cover its failure to comply with
RMO 20-90 and RDAO 05-01, which the BIR itself issued. Having caused the defects
in the waivers, the BIR must bear the consequence. It cannot shift the blame to the
taxpayer. The invalid Waivers did not operate to toll or extend the period of
prescription. To stress, a waiver of the statute of limitations, being a derogation of the
taxpayer's right to security against prolonged and unscrupulous investigations, must be
carefully and strictly construed. As such, it is clear that the right of petitioner to assess
respondent has already prescribed and respondent is not liable to pay the deficiency
tax assessment. The period of collection has also prescribed. CIR v. BPI, G.R. 224327.
June 11, 2018, Peralta, J., Second Div.
However, estoppel does not prevent the govt from
collecting taxes; it is not bound by the mistake or
negligence of its agents. CBC v. CIR, 749 SCRA 525
(2014)


When the CIR may NOT be blamed for any defect in the execution of the waiver?


In this case, respondent, after deliberately executing defective waivers,

raised the very same deficiencies it caused to avoid the tax liability
determined by the BIR during the extended assessment period.
It must be remembered that by virtue of these Waivers, respondent was
given the opportunity to gather and submit documents to substantiate its
claims before the CIR during investigation.
It was able to postpone the payment of taxes, as well as contest and
negotiate the assessment against it.
Yet, after enjoying these benefits, respondent challenged the validity of the
Waivers when the consequences thereof were not in its favor.
In other words, respondent's act of impugning these Waivers after
benefiting therefrom and allowing petitioner to rely on the same is an act
of bad faith. CIR v. Next Mobile ,G.R. 212825. Dec. 7, 2015 , Velasco, J.,Third
Div.
REMEDIES
Assessment Process and Reglementary
Periods
1. LOA
2. NIC
3. PAN
4. REPLY
5. FAN/FLD
6. Protest/Disputed Assessment
7. FDDA
8. CTA Div.
9. MR (CTA Div.)
10. CTA en BANC
11. SC
When does the audit process commence?
The audit process normally commences with the issuance by the CIR of a Letter of Authority
(LOA).
The LOA gives notice to the taxpayer that it is under investigation for possible deficiency tax
assessment;
At the same time it authorizes or empowers a designated revenue officer to examine, verify, and
scrutinize a taxpayer's books and records, in relation to internal revenue tax liabilities for a
particular period. CIR v. Lancaster, GR 183408, July 12, 2017, MARTIRES, J.
If the CIR intended the investigation to include prior years, then it should issue a separate LOA as
specified in RMO 43-90.
Unless authorized by the CIR himself or by his duly authorized representative, through a LOA, an
examination of the taxpayer cannot ordinarily be undertaken. Medicard Phils., Inc. v. CIR, G.R.
222743, April 5, 2017, Per J. Reyes,Third Div.
The requirement to specify the taxable period covered by the LOA is simply to inform the
taxpayer of the extent of the audit and the scope of the revenue officer’s authority. CIR v. DLSU,
G.R. 196596, Nov. 9, 2016, Per J. Brion, Second Div.
Tax Assessment refers to the determination of the taxes due from a taxpayer under the NIRC. They
are presumed correct and made in good faith. CIR v. Fitness by Design, 808 SCRA 422 (2016)
Notice of Informal Conference
NIC is a written notice informing a TP that findings of the
audit conducted on his books of accounts and accounting
records indicate that additional taxes have to be paid.
If after the culmination of an audit, the RO and GS submit
their preliminary findings with the RDO and the RDO
approves it, a NIC stating the discrepancy in the TP’s payment
of his taxes, will be issued recommending the proposed
assessment with an invitation for an informal conference in
order to afford the TP with an opportunity to present his side
of the case.
TP SHALL then have 30 days from the date of his receipt of
the NIC to explain his side by submitting a position paper
based on facts and applicable laws and regulations.
Is the issuance of Notice of Informal
Conference mandatory?
One of the first requirements of Sec.3 of RR 12-99, is
that a NIC be first accorded to the taxpayer.
The use of the word “SHALL” in subsection 3.1.1
describes the mandatory nature of the service of a NIC.
The purpose of sending a NIC is but part of the “due
process requirement in the issuance of a deficiency tax
assessment,” the absence of which renders nugatory any
assessment made by the tax authorities.
Spouses Pacquiao v. CTA and CIR, GR 213394, April 6, 2016,
Per J. Mendoza, Second div.
Preliminary Assessment Notice (PAN)
If after review and evaluation by the Assessment Div or by the CIR or his
duly authorized representative, as the case may be, it is determined that
there exists sufficient basis to assess the taxpayer for any deficiency tax or
taxes, the said Office shall issue to the taxpayer, at least by registered mail,
a PAN for the proposed assessment, showing in detail, the facts and the
law, rules and regulations, or jurisprudence on which the proposed
assessment is based.
If the taxpayer fails to respond within 15 days from date of receipt of the
PAN, he shall be considered in default, in which case, a FLD and a FAN
shall be caused to be issued by the said Office, calling for payment of the
taxpayer's deficiency tax liability, inclusive of the applicable penalties. RR
12-99
The PAN is a part of due process. It gives both the taxpayer and the CIR
the opportunity to settle the case at the earliest possible time without the
need for the issuance of a FAN. CIR v.Transition Optical Phils., G.R. No.
227544, Nov. 22, 2017, LEONEN, Jr.,Third Div.
Reply
REPLY/response against the PAN is optional/NOT
MANDATORY.
But a TP has 15 days from date of receipt of the PAN to
respond that he disagrees with the findings of deficiency
tax/es, otherwise, he shall be considered IN DEFAULT,
in which case, FLD/FAN shall be issued calling for
payment of TP’s deficiency tax liability, inclusive of the
applicable penalties.
An FLD/FAN issued reiterating the immediate payment
of deficiency taxes and penalties previously made in the
PAN is a denial of the response to the PAN.
Formal Letter of Demand/Final Assessment
Notice (FLD/FAN)
FLD/PAN is a written FINAL NOTICE of the deficiency taxes issued to a
taxpayer, or whose reply to the PAN was found out to be without merit,
issued by the CIR or his duly authorized representatives calling for payment of
TP’s deficiency tax liability, inclusive of the applicable penalties.
stating the facts, the law, rules and regulations, or jurisprudence on which the
assessment is based, and
issued within the 3-year period from the date of filing of the tax return, or
the due date thereof, whichever is later, otherwise, the ASSESSMENT
SHALL BE VOID.
RMO 20-2016 provides that it shall be issued WITHIN 15 days from date of
receipt by the TP of the PAN, whether the same was protested or not.
But RMC 11-2014, FLD/FAN issued beyond 15 days from filing/submission
of the TP’s REPLY shall be valid, provided that, it is issued within the period
of limitation to assess internal revenue taxes. The non- observance of the
15-day period, however, shall constitute an administrative infraction and the
ROs who caused the delay shall be subject to administrative sanctions.
Sec. 3.1.4, RR 12-99, as amended
Formal Letter of Demand/Final
Assessment Notice (FLD/FAN)
The written notice requirement for both the FLD and
the FAN is in observance of due process – that no
person shall be deprive of his property without due
process of law and to afford the taxpayer adequate
opportunity to file a protest on the assessment and
thereafter file an appeal in case of an adverse
decision. Merely NOTIFYING the taxpayer of his tax
liabilities without details or particulars is not enough.
CIR v. Liquigaz, G.R. No. 215534, April 18, 2016, Per J.
Mendoza, Second Div.
As soon as it is served, an obligation arises on the part of the
TP to pay the amount assessed and demanded.
It also signals the time when penalties and interests begin to
accrue against the taxpayer.
Thus, the NIRC imposes a penalty, in addition to the tax due, in
case the TP fails to pay the deficiency tax within the time
prescribed for its payment in the FAN.
Likewise, an interest of is to be collected from the date
prescribed for payment until the amount is fully paid.
Failure to file an administrative protest within 30 days from
receipt of the FAN will render the assessment final,
executory, and demandable.
CIR v. Transitions Optical, GR 227544, Nov. 22, 2017;
LEONEN, J., Third Div.
Service of Notice
If the taxpayer denies having received an assessment notice from the BIR, it then
becomes incumbent upon the latter to prove by competent evidence that such
notice was indeed received by the addressee. CIR v. GJM Manufacturing, Inc. 785
SCRA 253 (2016)
While an assessment may have been made when sent within the prescribed period,
even if received by the taxpayer after its expiration (Coll. of Int. Rev. vs. Bautista,
L-12250 and L-12259, May 27, 1959), this ruling makes it the more imperative that
the release, mailing, or sending of the notice be clearly and satisfactorily proved.
Mere notations made without the taxpayer's intervention, notice, or control,
without adequate supporting evidence, cannot suffice; otherwise, the taxpayer
would be at the mercy of the revenue offices, without adequate protection or
defense.
Thus, the failure of petitioner to prove the receipt of the assessment by respondent
would necessarily lead to the conclusion that no assessment was issued. CIR v. BPI,
G.R. 224327. June 11, 2018, Peralta, J.
Case when FLD/FAN was construed as
FDDA appealable to the CTA
A FLD with assessment notice which says that “this is our
FINAL DECISION based on investigation. If you disagree,
you may appeal this final decision within 30 days from the
receipt hereof.”
Thus, it became an exception to the rule on exhaustion of
administrative remedies.
The words “final decision” and “appeal” taken together led
TP to believe that the FLD/FAN was in fact the final
decision of the CIR on the letter protest and that the
available remedy was to appeal to the CTA.
Allied Bank v. CIR, GR 175097, Feb. 5, 2010, DEL CASTILLO, J.


What are the instances when a FAN/FLD can be issued outright? Or When is a PAN not
required?


(1) When the findings for any deficiency tax is the result of MATHEMATICAL ERROR in
the computation of the tax as appearing on the face of the tax return; or
 
(2) When a discrepancy has been determined between the TAX WITHHELD and the
amount ACTUALLY REMITTED by the withholding agent; or
 
(3) When a taxpayer who opted to claim a REFUND OR TAX CREDIT of excess
creditable withholding tax for a taxable period was DETERMINED TO HAVE
CARRIED OVER AND AUTOMATICALLY APPLIED THE SAME AMOUNT CLAIMED
AGAINST THE ESTIMATED TAX LIABILITIES for the taxable quarter or quarters of the
succeeding taxable year; or
 
(4) When the EXCISE TAX due on excisable articles has NOT been paid; or
 
(5) When an article locally purchased or IMPORTED BY AN EXEMPT PERSON, such
as, but not limited to, vehicles, capital equipment, machineries and spare parts, has been
sold, traded or transferred to non-exempt persons.
 
Sec. 228, NIRC; Sec. 3.1.2, RR 12-99, CIR v. Cebu Holdings, Inc., G.R. No. 189792. June 20,
2018, Carpio, J., Second Div.
 
PROTESTING AN ASSESSMENT
Disputed Assessment
Disputed Assessment is A WRITTEN PROTEST
ADMINISTRATIVELY filed by a TP against the FLD/FAN within 30
days from date of receipt by filing either of the following remedy, and
the filing of one precludes the filing of the other remedy:
(1) Request for reconsideration –. refers to a plea of re-evaluation of an
assessment on the basis of existing records without need of additional
evidence. It may involve both a question of fact or of law or both.
 (2)  Request for reinvestigation - refers to a plea of re-evaluation of an
assessment on the basis of newly discovered or additional evidence
that a taxpayer intends to present in the reinvestigation. It may also
involve a question of fact or of law or both.
Sec. 3.1.5, RR 12-99, BPI v. CIR, GR 181836, July 9, 2014, Per J. Carpio,
Second Div.
Effect if the TP failed to file a valid protest
within the 30-day period
An assessment becomes final and unappealable if
within 30 days from receipt of the assessment, the
taxpayer fails to file his or her protest requesting for
reconsideration or reinvestigation . CIR v. BPI, G.R.
224327. June 11, 2018, Peralta, J. , Second Division
No request for reconsideration or reinvestigation
shall be granted on tax assessments that have already
become final, executory and demandable.
Rules if there are several issues involved in a
Request for Reconsideration
(1) If the TP only disputes or protests against the validity of some of the
issues raised, the assessment attributable to the undisputed issue/s shall
become final, executory and demandable; and the TP shall be required to
pay the deficiency tax/es attributable thereto, in which case, a COLLECTION
LETTER shall be issued to the TP calling for payment of the said deficiency
tax/es, inclusive of the applicable surcharge and/or interest.
(2) If the TP fails to state the facts, the applicable law, rules and regulations,
or jurisprudence in support of his protest against some of the several
issues on which the assessment is based, the same shall be considered
undisputed issue/s, in which case, the assessment attributable thereto shall
become final, executory and demandable; and the TP shall be required to pay
the deficiency tax/es attributable thereto and a COLLECTION LETTER shall
be issued to the TP calling for payment of the said deficiency tax, inclusive of
the applicable surcharge and/or interest.
Sec. 2.1.5, RR 12-99, as amended.
 Submission of supporting documents
(60-day period)
For request for reinvestigation,
TP shall submit all relevant supporting documents in
support of his protest within 60 days from date of filing
of his letter of protest, otherwise, the “assessment shall
become final. “
CIR has 180 days within which to decide on the protest
from the submission of all relevant supporting documents,
in case the protest is in the form of a request for
reinvestigation.
A request for Reinvestigation shall be available in a
protest to a FAN/IFLD only. After the issuance of a
FDDA, a request for Reinvestigation shall no longer be
available as a taxpayer remedy. (RMO 26-2016)
Meaning of “relevant supporting evidence”
The term “relevant supporting documents” refers to
those documents necessary to support the legal and
factual bases in disputing a tax assessment as
determined by the taxpayer.
The 60-day period for the submission of all relevant
supporting documents shall not apply to request for
reconsideration.
Meaning of the term “the assessment shall
become final”
The term “the assessment shall become final” – means that
the FAILURE of the TP who requested for a
reinvestigation to submit all relevant supporting
documents within 60-day period shall render the FLD/
FAN FINAL by operation of law.
In which case, TP shall be barred from disputing the
correctness of the FLD/FAN by the introduction of newly
discovered or additional evidence because he is deemed
to have lost his chance to present these evidences.
The BIR shall then DENY the request for reinvestigation
through the issuance of an FDDA.
(RMC 11-2014)
When does a Request for Reinvestigation
suspend the Statute of Limitation
A request for reinvestigation alone will not suspend the statute of limitations on
collection.
Two things must concur:
(1) there must HAVE BEEN FILED a request for reinvestigation and
(2) the CIR must have GRANTED it.
▪ The burden of proof that the request for reinvestigation had been actually
granted shall be on the CIR.
▪ Such grant may be expressed in its communications with the TP or implied from
the action of the CIR or his authorized representative in response to the request
for reinvestigation.
Undoubtedly, it entails the reception and evaluation of additional evidence & will
take more time than a Motion for Recon, and thus justifying why it can suspend the
running of the statute of limitations, while the former can not.  If there is no showing
that it has been granted, then the running of the 3-year period is NOT
SUSPENDED.
China Banking Corp. v. CIR. G.R. 172509. Feb. 4, 2015; Per CJ Sereno, First Div.
180-day period for CIR to act on the
protest - FDDA
The decision of the CIR or his duly authorized
representative on a disputed assessment shall state
the facts, law and rules and regulations, or
jurisprudence on which the decision is based.
Failure of the FDDA to reflect the facts and the law
on which it is based will make the decision void. It ,
however, does not extend to the nullification of the
entire assessment. RR 12-99; CIR v. Liquigaz, G.R. No.
215534, April 18, 2016, Per J. Mendoza, Second Div.
Final Decision on Disputed Assessment
(FDDA)
All decisions on protest to the FLD/
FAN, whether the TP's protest is
accepted or denied partially or
wholly, shall be communicated to the
TP through the issuance of a FDDA.
RMO 26-2016
Requisites of a valid FDDA
The FDDA of the CIR SHALL state the
 (1) facts, the applicable law, rules and regulations, or jurisprudence on which such
decision is based, otherwise, the decision SHALL BE VOID, and
(2) that the same is his FINAL DECISION.
The use of the word “SHALL” in Sec. 228, NIRC and in RR 12-99 indicates
that the requirement of informing the taxpayer of the legal and factual bases of
the assessment and the decision made against him is MANDATORY. CIR v.
United Salvage and Towage (Phils.), Inc., G.R. No. 197515, July 2, 2014, (729 SCRA
113)
The APPEALABLE DECISION is the one which categorically states that the
CIR’s action on the disputed assessment is FINAL, and therefore, the
reckoning of the 30-day period to appeal to the CTA is from the receipt of
that FDDA of the CIR.
Sec. 3(3.1.5), RR 12-99, as amended; CIR v. Liquigaz Phils. Corp. v. CIR, G.R.
215534/G.R. 215557, April 18, 2016. Per J. Mendoza, Second Div.
Does a void FDDA ipso facto render the
ASSESSMENT void?
NO. A void FDDA does NOT IPSO FACTO render the assessment
void.
In resolving the issue on the effects of a void FDDA, it is necessary to
differentiate an “assessment” from a “decision.”
Where a TP questions an assessment and asks the CIR to reconsider
or cancel the same because the TP believes he is not liable thereto,
the assessment becomes a "disputed assessment" that the CIR must
decide, and the TP can appeal to the CTA only upon receipt of the
CIR’s FDDA, in accordance with par.(1) of sec. 7, RA 1125, conferring
appellate jurisdiction upon the CTA to review "decisions of the CIR in
cases involving disputed assessment” .
What is appealable to the CTA is the “DECISION” of the CIR on
disputed assessment and NOT the assessment itself.
An assessment becomes a disputed assessment only after a TP has
filed its protest to the assessment in the administrative level.
What are the effects of a VOID FDDA?
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.
Thus the merits of the assessment should have been discussed and
not merely brushed aside on account of the void FDDA.
Tax laws may not be extended by implication beyond the clear import
of their language, nor their operation enlarged so as to embrace
matters not specifically provided.
CIR v. Liquigaz Phils., G.R. 215534 & 215557. April 18, 2016, Per J.
Mendoza, Second Div.
Difference between FDDA and Assessment
(FAN)
After a TP files his PROTEST, the CIR either ISSUES an FDDA
or FAILS to act on it and is, therefore, considered DENIED.
Clearly, a decision of the CIR on a disputed assessment
DIFFERS from the assessment itself.
Hence, the invalidity of one does not necessarily result to the
invalidity of the other—unless the law or regulations
otherwise provide.
A "decision" differs from an "assessment" and failure of the
FDDA to state the facts and law on which it is based renders
the decision void.
It, however, does not extend to the nullification of the entire
assessment.
CIR v. Liquigaz Phils., G.R. 215534 & 215557. April 18, 2016 Per J.
Mendoza, Second Div.
Effects of a void assessment
The reason for requiring that TPs be informed in writing of the facts and law on
which the assessment is made is the constitutional guarantee that no person shall
be deprived of his property without due process of law.
Merely NOTIFYING the taxpayer of its tax liabilities without elaborating on its
details is insufficient.
The old requirement of merely notifying the taxpayer of the CIR's findings was
changed in 1998 to INFORMING the TP of not only the law, but also of the facts
on which an assessment would be made; otherwise, the assessment itself would
be INVALID.
The cardinal rule in administrative law is that the TP be accorded due process.
Not only was the law here disregarded, but no valid notice was sent, either. A void
assessment bears no valid fruit.
The law imposes a SUBSTANTIVE, not merely a formal, requirement. To proceed
heedlessly with tax collection without first establishing a VALID assessment is
evidently violative of the cardinal principle in administrative investigations: that TPs
should be able to present their case and adduce supporting evidence.
CIR v. Liquigaz Phils., G.R. 215534 & 215557. April 18, 2016, Per J. Mendoza, Second
Div.
Remedies of a TP in case of DENIAL OF
THE PROTEST BY CIR’s Representative
If the protest is denied, in whole or in part, by the CIR’s duly
authorized representative, the TP may either:
 (1) Appeal to the CTA within 30 days from date of
receipt of the said decision; or
 (2) Elevate his protest through request for
reconsideration to the CIR within 30 days from date of
receipt of the said decision.
No request for reinvestigation shall be allowed in
administrative appeal to the CIR and only issues raised in the
decision of the CIR’s duly authorized representative shall be
entertained by the CIR.
Remedies if protest was not acted upon by
the CIR’s authorized representative.
If the protest is not acted upon by the CIR’s duly authorized
representative within 180 days counted from the date of filing of the
protest in case of a request for reconsideration; or from date of
submission by the TP of the required documents within 60days from
the date of filing of the protest in case of a request for reinvestigation,
the taxpayer may either:
(1) Appeal to the CTA within 30 days after the expiration of the 180-
day period; or
(2) Await the final decision of the CIR’s duly authorized
representative on the FDDA, and once denied, he may appeal to the
CTA such FDDA within 30 days from the receipt of a copy of such FDDA. 
PAGCOR v. BIR, G.R. 208731, Jan. 27, 2016, Per J. Carpio, Second Div.
Remedies if protest was denied by the CIR
If the protest or administrative appeal, as the case
may be, is denied, in whole or in part, by the CIR,
the TP may
(1) appeal to the CTA within 30 days from date of
receipt of the said decision. Otherwise, the
assessment shall become final, executory and
demandable.
(2) But a motion for reconsideration of the CIR’s
denial of the protest or administrative appeal, as the
case may be, shall not toll the 30-day period to
appeal to the CTA.
Remedies in case of INACTION by the CIR
If the protest or administrative appeal is not acted
upon by the CIR within 180 days counted from the
date of filing of the protest, the taxpayer may either:
(1)  Appeal to the CTA within 30 days from the
expiration of the 180-day period; or
(2) Await the final decision of the CIR on the FDDA
and appeal such final decision to the CTA within 30
days after the receipt of a copy of such decision.
 These remedies are MUTUALLY EXCLUSIVE and the
resort to one bars the application of the other.
APPEAL
Remedies of a TP if he is not satisfied with
the CTA Division decision
Any aggrieved party may seek a reconsideration or
new trial of any decision of the CTA Division by
filing a Motion for Reconsideration or New Trial
within 15 days from the date of receipt of notice of
the decision of the CTA Division. Rule 15, Sec. 1,
RRCTA (This MR shall be deemed ABANDONED if,
during its pendency, the movant shall appeal to the
SC pursuant to Sec. 1 of Rule 16, RRCTA)
If denied, the aggrieved party may file a Petition for
Review with the CTA en banc.
Appeal to the Supreme Court
A party adversely affected by a decision of the CTA
en banc may APPEAL therefrom by filing with the
Supreme Court a verified Petition for Review on
Certiorari within 15 days from receipt of a copy
of the decision under Rule 45 of the Rules of Court.
If sucH party has filed a Motion for Recon or for
New Trial, the period herein fixed shall run from the
party’s receipt of a copy of the resolution denying
the motion for Recon or for new trial.
COLLECTION OF TAXES
Modes of Collection of Internal Revenue
Taxes
1. Summary Administrative Remedies
a. Issuance of Warrant of Distraint
b. Issuance of Warrant of Levy

2. Judicial action
a. Civil action
b. Criminal action
Requisites 


The issuance of a valid formal assessment is a substantive

prerequisite for collection of taxes.
Taxes are the lifeblood of govt and should be collected without
hindrance. However, the collection of taxes should be
exercised reasonably and in accordance with the prescribed
procedure. CIR v. Fitness by Design, G.R. 215957, Nov. 9, 2016,
Per J. Leonen, Second div.
While the TP has an obligation to honestly pay the right
taxes, the government has a corollary duty to implement tax
laws in good faith; to discharge its duty to collect what is due
to it; and to justly return what has been erroneously and
excessively given to it. CBK Power Co. v. CIR, G.R. Nos.
193383-84, January 14, 2015, Per J. Perlas-Bernabe, First Div.


Prescriptive periods


As to the period of collection, the regular period to collect taxes is 3 years in

accordance with Sec. 203 and 5 years in accordance with Sec. 222 ( c) and (d) of
the 1997 Tax Code.
It must be remembered that the law imposes a substantive, not merely a formal,
requirement. To proceed heedlessly with tax collection without first establishing a
valid assessment is evidently violative of the cardinal principle in administrative
investigations: that taxpayers should be able to present their case and adduce
supporting evidence.
Although taxes are the lifeblood of the government, their assessment and
collection "should be made in accordance with law as any arbitrariness will negate
the very reason for government itself.
TAXPAYERS REMEDIES
Abatement of Taxes
Asiatrust’s application for tax abatement will be
deemed approved only upon he issuance of a
termination letter, and only then will the deficiency
tax assessment be considered closed and terminated.
Asiatrust Devt. Bank, v. CIR, G.R. 201530, April 19,
2017 Per J. del Castillo, First Div.
What are the requisites in claiming refund of tax
erroneously or illegally collected?
I. ADMINISTRATIVE CLAIM FOR REFUND/TCC (Sec. 204(C ),
NIRC
(1) A written claim for refund must be filed with the CIR within
2 years from the date of payment of the tax; although the CIR
may, even without a written claim therefor, refund or credit any
tax where on the face of the return upon which payment was
made, such payment appears CLEARLY to have been erroneously
paid. PURPOSE: to serve as a notice of warning to the CIR that
court action would follow unless the tax or penalty alleged to
have been collected erroneously is refunded. CIR v. Goodyear, 799
SCRA 489 (2016)
 (2) The claim must state a categorical demand for recovery or
reimbursement of illegally or erroneously or overpaid taxes;
 (3) There must be a PROOF OF PAYMENT;
B. JUDICIAL CLAIM (Sec. 229, NIRC)
(4) A decision of the CIR DENYING THE CLAIM is appealable to the
CTA WITHIN 30 DAYS from receipt thereof OR WITHIN 2 YEARS
from the date of payment, WHICHEVER COMES FIRST, regardless of
any supervening cause that may arise after payment; otherwise the claim
is barred,
COMPROMISE, ABATEMENT
(REASON: the 2-yearand period of limitation for filing a claim for refund is
REFUND OF TAXESCOMPROMISE,
not only a limitation for pursuing the claim in the administrative level,
ABATEMENT
but also a limitation for filing
and aREFUND
judicialOFclaim
TAXESwith the CTA)
 (5) Thus, if no decision isCOMPROMISE,
made by the CIR, the aggrieved party must
ABATEMENT
consider the INACTION ofandthe CIR as
REFUND OFaTAXES
DENIAL and file an appeal to
the CTA before the lapse of the 2-year period counted from the date
of payment of the tax.
 
The options of tax refund and tax credit are mutually exclusive such that
resort to one bars the application of the other.
Reckoning of the 2-year period to claim
refund
The claim for refund of erroneously paid DST must
be within 2 years from the date of payment of the
DST.
The rule is that the date of payment is when the tax
liability falls due.
The liability for the payment of the DST falls due
only upon the occurrence of a taxable transaction.
PBC v. CIR, G.R. 194065, June 20, 2016, Per C.J. Sereno,
First Div.
Nature of claim for refund
Claims for tax refunds are in the nature of tax exemptions
which result in loss of revenue for the government.
Upon the person claiming an exemption from tax payments
rests the burden of justifying the exemption by words too
plain to be mistaken and too categorical to be misinterpreted;
it is never presumed nor be allowed solely on the ground of
equity.
In addition, one who claims that he is entitled to a tax refund
must not only claim that the transaction subject of tax is
clearly and unequivocally not subject to tax - the amount of
the claim must still be proven in the normal course, in
accordance with the prescribed rules on evidence.
Fortune Tobacco Corp. v. CIR, GR 192024, July 1, 2015, Per J.
Mendoza, Second Div.
Claims for tax refunds are in the nature of tax exemptions
which result in loss of revenue for the government.
Upon the person claiming an exemption from tax
payments rests the burden of justifying the exemption by
words too plain to be mistaken and too categorical to be
misinterpreted; it is never presumed nor be allowed solely
on the ground of equity.
In addition, one who claims that he is entitled to a tax
refund must not only claim that the transaction subject of
tax is clearly and unequivocally not subject to tax - the
amount of the claim must still be proven in the normal
course, in accordance with the prescribed rules on
evidence.
Fortune Tobacco Corp. v. CIR, GR 192024, July 1, 2015 Per J.
Mendoza, Second Div.
General Rules on Tax Refunds
Tax refunds are based on the general premise that taxes have
either been erroneously or excessively paid.
Though the Tax Code recognizes the right of taxpayers to
request the return of such excess/erroneous payments from
the government, they must do so within a prescribed period.
Further, "a taxpayer must prove not only his entitlement to a
refund, but also his compliance with the procedural due
process as non-observance of the prescriptive periods within
which to file the administrative and the judicial claims would
result in the denial of his claim.
CIR v. MERALCO, GR 181459, June 9, 2014, Per J. Peralta,Third
Div.
What are “erroneously paid taxes”?
The self-assessing and voluntarily paying taxpayer, however, may later
find that he or she has erroneously paid taxes.
Erroneously paid taxes may come in the form of
(1) amounts that should NOT have been paid, or
(2) in the form of tax payments for the wrong category of tax.
In these instances, the taxpayer may ask for a refund.
If the BIR fails to act on the request for refund, the TP may bring the
matter to the CTA.
CTA may acquire jurisdiction over cases even if they do not involve BIR
assessments or decisions, SUCH AS IN A CLAIM FOR REFUND where
the CIR had failed to act (INACTION) on its claim for refund of
erroneously paid taxes.

SMI-ED Philippine Technology, Inc. v. CIR, G.R.

175410. Nov. 12, 2014
Purpose of filing an ADMIN REFUND
The primary purpose of filing an administrative claim for refund is to serve as a
notice or warning to the CIR that court action would follow unless the tax or
penalty alleged to have been collected erroneously or illegally is refunded.
It simply means that the CIR shall be given an opportunity to consider his mistake,
if mistake has been committed, before he is sued,
Nowhere and in no wise does the law imply that the CIR must act upon the claim,
or that the taxpayer shall not go to court before he is notified of the CIR’s action.
It does not mean that the taxpayer must await the final resolution of its
administrative claim, since doing so would be tantamount to the taxpayer's
forfeiture of his right to seek judicial recourse should the 2-year prescriptive period
expire without the appropriate judicial claim being filed.
It is only required that an administrative claim should BE PRIORLY FILED.
If a TP chooses to await for the decision of the CIR knowing fully well that the
prescriptive period is about to lapse, it would resultantly forfeit its right to seek a
judicial review of its claim, thereby suffering irreparable damage.
CIR v. Goodyear Phis. Inc., G.R. 216130. Aug. 3, 2016
Can a withholding agent file a claim for
refund?
Yes. The withholding agent has authority to file a claim for
refund on behalf of the principal taxpayer because the
withholding agent is considered the statutory taxpayer and he is
an agent of the principal taxpayer.
The person entitled to claim the refund is the taxpayer, and the
taxpayer is the person subject to the tax imposed.
A WHA is held personally liable for the tax withheld, and
ensures that the same is remitted to the BIR.
As such, the WHA is considered the statutory taxpayer. .
Corollary thereto, the refund claimed belongs to the principal
and therefore, must be return to him.
CIR v. Smart Communications, GR 179045-46, Aug. 25, 2010,
DEL CASTILLO, J.
Tax assumption provision in Exchange of Note as basis
for refund of erroneous tax payment.
Par. 5(2) of the Exchange of Notes provides for a tax
assumption provision whereby the Govt. of the Republic of the
Phils will, itself or thru the Executing Agency, assume all fiscal
levies or taxes imposed in the Republic on Japanese firms and
nationals operating as suppliers, contractors or consultants on
and/or in connection with any income that may accrue from
the supply of products of Japan and services of Japanese
nationals to be provided under the Loan.
The Phil. Govt’s assumption of all fiscal levies and taxes which
includes the subject taxes, is clearly a form of concession given
to Japanese suppliers, contractors or consultants in
consideration of the OECF Loan, which proceeds were used
for the implementation of the project.
What is the reason for the entitlement to
the refund of erroneous taxes paid?
Considering the petitioner paid the subject taxes in the
aggregate amount of P53 Million, which it was not required to
pay, the BIR erroneously collected such amount. Accordingly,
petitioner is entitled to its refund.
The NIRC vests upon the CIR, being the head of the BIR, the
authority to credit or refund taxes which are erroneously
collected by the government.
Item B3 of RMC 42-99, an administrative issuance directing
petitioner to claim the refund from the NPC, cannot prevail
over Sec. 204 and 229 of the NIRC, which provide that claims
for refund of erroneously collected taxes must be filed with the
CIR. Mitsubishi Corp. v. CIR, G.R. No. 175772 June 5, 2017, Per J.
Perlas Bernabe, First Div.


Should the judicial claim for refund of Goodyear Phils. be dismissed for non-exhaustion of administrative remedies?




No. When a TP has already filed his administrative claim for

refund within 2 years from the payment of the tax, it does
not mean that he should await forever for the decision of
the CIR even if the 2-year period is about to expire, since
doing so would be tantamount to his forfeiture of his
right to seek judicial recourse should the 2-year
prescriptive period expire without the appropriate judicial
claim being filed. CIR v. Goodyear Phils., GR 216130, Aug. 3,
2016 [Per J. Perlas-Bernabe, First Div.]



ADDITIONS TO THE TAX
SEC. 249. Interest. -
 
(A) In General. - There shall be assessed and collected on any unpaid
amount of tax, interest at the rate of double the legal interest rate for
loans or forbearance of any money in the absence of an express
stipulation as set by the BSP from the date prescribed for payment
until the amount is fully paid: Provided, That in no case shall the
deficiency and the delinquency interest prescribed under Subsecs. (B)
and (C ) hereof be imposed simultaneously.
 
(B) Deficiency Interest. - Any deficiency in the tax due, as the term is
defined in this Code, shall be subject to the interest prescribed in
Subsec. (A) hereof, which interest shall be assessed and collected from
the date prescribed for its payment until the full payment thereof, or
upon issuance of a notice and demand by the CIR, whichever comes
earlier.
(C) Delinquency Interest. - In case of failure to pay:
 
(1) The amount of the tax due on any return required to be filed, or
 
(2) The amount of the tax due for which no return is required, or
 
(3) A deficiency tax, or any surcharge or interest thereon on the due date appearing in
the notice and demand of the Commissioner, there shall be assessed and collected on
the unpaid amount, interest at the rate prescribed in Subsection (A) hereof until the
amount is fully paid, which interest shall form part of the tax.
 
(D) Interest on Extended Payment. - If any person required to pay the tax is qualified and
elects to pay the tax on installment under the provisions of this Code, but fails to pay the
tax or any installment hereof, or any part of such amount or installment on or before the
date prescribed for its payment, or where the Commissioner has authorized an extension
of time within which to pay a tax or a deficiency tax or any part thereof, there shall be
assessed and collected interest at the rate hereinabove prescribed on the tax or
deficiency tax or any part thereof unpaid from the date of notice and demand until it is
paid.
 


Is the Bureau of Treasury liable to pay 6% legal interest on the refund of tax? 


The rule is that no interest on refund of tax can be awarded unless

authorized by law or the collection of the tax was attended by arbitrariness.
An action is not arbitrary when exercised honestly and upon due
consideration where there is room for two opinions, however much it may
be believed that an erroneous conclusion was reached.
Interest was granted in case where patent arbirariness on the part of the
revenue authorities has been shown or where the collection of tax was
illegal.
Arbitrariness presupposes inexcusable or obstinate disregard of legal
provisions.
Due to the Bureau of Treasury's unjustified refusal to release the funds to be
deposited in escrow, in utter disregard of the orders of the Court, it is held
liable to pay legal interest of 6% p.a. representing the 20% final withholding
tax on the PEACe Bonds. BDO v. Republic, G.R. 198756, Aug. 16, 2016, Per J.
Leonen, En Banc
Deletion of interest on the basis of good
faith
As to whether St. Luke’s is liable for compromise
penalty under Sec. 248A of the NIRC for its alleged
failure to file its quarterly income tax returns, this
has also been resolved in GR 195909 and 195960.
CIR v. St. Luke’s Medical Center, Inc. 682 SCRA 66
(2012), where the imposition of surcharges and
interest under Sec. 248 and 249 of the 1997 NIRC
were deleted on the basis of good faith and honest
belief on the part of SLMC that it is not subject to
tax. CIR v. St. Luke’s Medical Center, Inc. 817 SCRA 347
(2017)
LOCAL TAXES
What is “Fiscal autonomy”?
In Pimentel v. Aguirre, 336 SCRA 201 (2000), fiscal autonomy was defined as
“the power of LGUs to create their own sources of revenues in addition to
their equitable share in the national taxes released by the national
government, as well as the power to allocate their resources in accordance
with their own priorities. It extends to the preparation of their budgets, and
local officials in turn have to work within the constraints thereof.
Under the present Constitution, where there is neither a grant nor a
prohibition by statute, the tax power of municipal corporation must be
deemed to exist although Congress may provide statutory limitations and
guidelines.
In conformity to the dictate of the fundamental law for the legislature to
“enact a LGC which shall provide for a more responsive and accoduntable
local govt structure instituted thru a system of decentralization”, consistent
with the basic policy of local autonomy, Congress enacted the LGC, Book II
of which governs local taxation and fiscal matters and set forth the guidelines
and limitations for the exercise of this power. FDCP v. Colon Heritage, G.R.
203754, June 16, 2015, Per J. Velasco, En Banc
When may an LGU exercise its residual
power to tax?
A LGU may exercise its residual power to tax when
there is neither a grant nor a prohibition by statute;
or when such t axes, fees, or charges are not
otherwise specifically enumerated in the LGC, NIRC,
or other applicable laws. Alta Vista Golf and Country
Club v. City of Cebu, G.R. 180235, January 20, 2016, Per
J. Leonardo de Castro, First Div.
LGU’s Power to Tax
Altho 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 Constitution, the same is not all
encompassing as it is subject to limitations as explicitly stated in Sec. 5, Art. X
of the 1087 Constitution. Batangas City v. Pilipinas Shell, 762 SCRA 153 (2015)
The LGC of 1991 is specific in providing that the power to impose a tax, fee,
or charge, or to generate revenue shall be exercised by the sanggunian of the
LGU concerned thru an appropriate ordinance.
The tax is not a pure exercise of taxing power or merely to raise revenue; it is
levied with a regulatory purpose.
The public purpose of a tax may legally exist even if the motive which
impelled the legislature to impose the tax was to favor one over another.
Not being a tax, the contention that the garbage fee under Ordinance SP
2235 violates the rule on double taxation must necessarily fail. Ferrer v.
Bautista, 760 SCRA 652 (2015)
Power to tax shall be exercised by
Sanggunian of the LGU.
The power to impose a tax, fee, or charge or to generate
revenue shall be exercised by the Sanggunian of the LGU
concerned through an appropriate ordinance.
This simply means that the LGU cannot solely rely on the
statutory provision (LGC) granting specific taxing powers, such
as the authority to levy franchise tax.
The enactment of an ordinance is indispensable for it is the
legal basis of the imposition and collection of taxes upon
covered taxpayers.
Without the ordinance, there is nothing to enforce by way of
assessment and collection.
However, an ordinance must pass muster the test of
constitutionality and the test of consistency with the prevailing
laws. Otherwise, it shall be void. City of Pasig v. Meralco, GR
181710, March 7, 2018, J. Martires,Third Div.
Procedure for approval and effectivity of
tax ordinances
Public hearings shall be conducted for the purpose prior to the
enactment thereof:
Any question on the constitutionality or legality of tax
ordinances or revenue measures may be raised on appeal
within 30 days from the effectivity thereof to the Secretary of
Justice who shall render a decision within 60 days from the
date of receipt of the appeal:
But such appeal shall not have the effect of suspending the
effectivity of the ordinance and the accrual and payment of the
tax, fee, or charge levied therein:
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 appropriate proceedings
with a court of competent jurisdiction. (Sec. 187, LGC)
FRANCHISE TAX
Under the LGC of 1991, a municipality is bereft of
authority to levy and impose franchise tax on
franchise holders within its territorial jurisdiction.
That authority belongs to provinces and cities only.
A franchise tax levied by a municipality is, thus, null
and void. The nullity is not cured by the subsequent
conversion of the municipality into a city. Neither
does it authorize the collection of the tax under said
ordinance. City of Pasig v. Meralco, GR 181710, March
7, 2018, J. Martires,Third Div.
FRANCHISE TAX
Sec. 137 is categorical in stating that franchise tax can only be
imposed on businesses enjoying a franchise.
Power generation is no longer considered a public utility
operation, and companies which shall engage in power
generation and supply of electricity are no longer required to
secure a national franchise.
EPIRA effectively removed power generation from the ambit
of local franchise taxes. Hence, as regards NPC’s business of
generating electricity, the franchise taxes sought to be collected
by the Prov. of Bataan for the latter part of 2001 up to 2003
are devoid of any statutory basis. NPC v. Prov. Govt. of Bataan,
G.R. 180654, March 06, 2017, Per Leonen, Special Third Div.
 FRANCHISE TAX
The tax privileges granted to electric cooperatives registered with NEA under PD 269 were validly withdrawn and
only those registered with the CDA under RA 6938 may continue to enjoy the tax privileges under the Cooperative
Code.
 
The power of the LGUs to impose and collect taxes is derived from the Constitution itself which grants them “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.
 
A franchise tax is a tax on the privilege of transacting business in the state and exercising corporate franchises granted
by the state.
 
To be liable for local franchise tax, the following requisites should concur
(1) that one has a “franchise” in the sense of a secondary or special franchise; and
(2) that it is exercising its rights or privileges under their franchise within the territory of the pertinent local
government unit.
.
As Section 137 of the LGC provides, franchise tax shall be based on gross receipts precisely because it is a tax on
business, rather than on persons or property.  Since it partakes of the nature of an excise tax,  the situs of taxation is
the place where the privilege is exercised, in this case in the City of Iriga, where CASURECO III has its principal office
and from where it operates, regardless of the place where its services or products are delivered. Hence, franchise tax
covers all gross receipts from Iriga City and the Rinconada area.
City of Iriga v. CASURECO III, G.R. 192945, Sept. 5, 2012 (680 SCRA 236), PERLAS BERNABE, J.
 
 
AMUSEMENT TAX
“Amusement places,” under Sec. 131(c ), LGC, “include
theaters, cinemas, concert halls, circuses and other places
of amusement where one seeks admission to entertain
oneself by SEEING or VIEWING THE SHOW OR
PERFORMANCE.”
Indeed, theaters, cinemas, concert halls, circuses, and
boxing stadia are bound by a common typifying
characteristic in that they are all venues primarily for the
staging of spectacles or the holding of public shows,
exhibitions, performances, and other events meant to be
viewed by an audience.
Alta Vista Golf and Country Club v.The City of Cebu, G.R. No.
180235. Jan. 20, 2016
Business tax on Petroleum Products
Although petroleum products are subject to excise tax,
the same is specifically excluded from the broad power
granted to LGUs under Sec. 143h of the LGC to impose
business taxes.
Strictly speaking, as long as the subject matter of the
taxing powers of the LGUs is the petroleum products per
se or even the activity or privilege related to the
petroleum products, such as manufacturing and
distribution of said products, it is covered by the said
limitation and thus, no levy can be imposed. Batangas City
v. Pilipinas Shell, G.R. 187631, July 8, 2015, Per j. Peralta,
Third Div.
WON the City of Manila could impose against Cosmos a manufacturer’s
tax (Sec. 143a) and at the same time impose another tax (Sec. 143h) on
its GS/GR from the business.

When a municipality or city has already imposed a business tax on

manufacturers, etc. of liquors, distilled spirits, wines, and any other article
of commerce, pursuant to Sec. 143(a), LGC, said municipality or city
may no longer subject the same manufacturers, etc. to a business tax
under Sec. 143(h) of the same Code.
Section 143(h) may be imposed only on businesses that are subject to
excise tax, VAT, or percentage tax under the NIRC, and that are "not
otherwise specified in preceding paragraphs."
In the same way, businesses such as respondent's, already subject to a
local business tax under Sec. 14 of Tax Ordinance No. 7794 [which is
based on Section 143(a) of the LGC], can no longer be made liable for
local business tax under Sec. 21 of the same Tax Ordinance [which is
based on Section 143(h) of the LGC]. City of Manila v. Cosmos Bottling,
G.R. 196681, June 27, 2018, MARTIRES, J. ,Third div.
Basis of the computation of local business
tax
The computation of local business tax is based on
gross sales or receipts of the preceding calendar year.
Sec. 143(a), LGC. City of Manila v. Cosmos Bottling,
G.R. 196681, June 27, 2018, MARTIRES, J. ,Third Div.
What is the basis for determining which
LGU has the right to collect local taxes?
Local business taxes are payable for every separate or distinct
establishment or place where business subject to the tax is
conducted, which must be paid by the person conducting the same.
There is basis to presume correct the location stated in the
Certificate of Title and to rely thereon for purposes of determining
the situs of local taxation until it is cancelled or amended.
The basis for determining which LGU has the apparent right to
collect local taxes is the location as appearing on the certificate of title,
unless an amendment thereto is duly made.
Sec. 146 of the LGC expressly provides that the tax on a business
must be paid by the person conducting the same. Mun. of Cainta v.
City of Pasig, G.R. 176703, June 28, 2017, Per J. Martires, Second Div.
Exemption from local taxes
Under Sec. 133(n) of the LGC, the taxing power of
LGUs shall not extend to the levy of taxes, fees, or
charges on duly registered coops under the
Cooperative Code of the Phils. Prov. Assessor of
Agusan v. Filipinas Palm Oil, G.R. No. 183416, October
05, 2016, Per J. Leonen, Second Division
 TAXPAYER’S REMEDIES
1. Exhaust first the administrative remedies
before bringing the approriate action in court.
Protest of assessment (Sec. 195, LGC)
When the local treasurer or his duly authorized representative finds that
correct taxes, fees, or charges have not been paid, he shall issue a notice of
assessment stating the nature of the tax, fee, or charge, the amount of
deficiency, the surcharges, interests and penalties.
Within 60 days from the receipt of the notice of assessment, the TP may file
a WRITTEN PROTEST WITH THE LOCAL TREASURER contesting the
assessment; otherwise, the assessment shall become final and executory.
The local treasurer shall decide the protest within 60 days from the time of
its filing.
If the local treasurer finds the protest to be wholly or partly meritorious, he
shall issue a notice cancelling wholly or partially the assessment.
However, if the local treasurer finds the assessment to be wholly or partly
correct, he shall deny the protest wholly or partly with notice to the taxpayer.
The taxpayer shall have 30 days from the receipt of the denial of the protest
or from the lapse of the 60-day period within which to appeal with the court
of competent jurisdiction otherwise the assessment becomes conc lusive and
unappealable.
Is payment under protest a requirement before a TP
can file an administrative protest?
NO. When a TP is assessed a deficiency local tax, fee or charge, he may
protest it even without making payment of such assessed tax, fee or. charge.
This is because the law on local government taxation, save in the case of real
property tax, does not expressly require ''payment under protest" as a
procedure prior to instituting the appropriate proceeding in court.
This implies that the success of a judicial action questioning the validity or
correctness of the assessment is not necessarily hinged on the previous
payment of the tax under protest.
Needless to say, there is nothing to prevent the TP from paying the tax under
protest or simultaneous to a protest.
There are compelling reasons why a taxpayer would prefer to pay while
maintaining a protest against the assessment.
For instance, a taxpayer who is engaged in business would be hard-pressed to
secure a business permit unless he pays an assessment for business tax and/or
regulatory fees.
Also, a taxpayer may pay the assessment in order to avoid further penalties, or
save his properties from levy and distraint proceedings.


Claim for refund or Tax credit of erroneously collected taxes (Sec. 196, LGC)


No case or proceeding shall be maintained in any

court for the recovery of any tax, fee, or charge
erroneously or illegally collected until a WRITTEN
CLAIM FOR REFUND OR CREDIT has been ·filed
WITH THE LOCAL TREASURER.
No case or proceeding shall be entertained in any
court after the expiration of 2 years from the date
of the payment of such tax, fee, or charge, or from
the date the taxpayer is entitled to a refund or
credit.
Is there a need for a notice of assessment before
a TP can file a claim for refund?
No. Section 196 does not expressly mention an assessment
made by the local treasurer.
This simply means that its applicability does not depend upon
the existence of an assessment notice.
By consequence, a taxpayer may proceed to the remedy of
refund of taxes even without a prior protest against an
assessment that was not issued in the first place.
This is not to say that an application for refund can never be
precipitated by a previously issued assessment, for it is entirely
possible that the taxpayer, who had received a notice of
assessment, paid the assessed tax, fee or charge believing it to
be erroneous or illegal.
Thus, under such circumstance, the taxpayer may subsequently
direct his claim pursuant to Section 196 of the LGC.
REAL PROPERTY TAXES
 Real Property Taxes

1. Basic Real Property Tax

2. Additional levy on real property for the Special
Education Fund. - 1%
3. Additional ad valorem tax on idle lands. - 5%
4. Special levy or assessment. – not to exceed 60% of
the actual cost of the improvement.
 Properties Exempt from RPT
(a) Real property owned by the RP or any of its political subdivisions EXCEPT when
the beneficial use thereof has been granted, for consideration of otherwise, to a
taxable person;
(b) Charitable institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements
actually, directly, and exclusively used for religious, charitable or educational
purposes;
( c) All machineries and equipment that are actually, directly and exclusively used by
LWDs and engaged in the supply and distribution of water and GOCCs engaged in
the generation and transmission of electric power;
(d) All real property owned by duly registered cooperatives as provided for under
R.A. 9520; and
(e) Machinery and equipment used for pollution control and environmental
protection.
Except as provided herein, any exemption from payment of RPT previously granted
to, or presently enjoyed by, all persons, whether natural or iuridical, including all
GOCCs are hereby withdrawn upon the effectivity of this Code.
Capwire v. the Provincial Treasurer of Batangas et al., GR 180110, May 30, 2016, Per J.
Peralta, Second Div.
Clearly, Sec. 234 of the LGC lists down the instances of
exemption in real property taxation and very apparent is
the fact that the enumeration is EXCLUSIVE in character
in view of the wordings in the last paragraph.
Applying the maxim “Expressio Unius est Exclusio Alterius”,
we can say that “Where the statute enumerates those
who can avail of the exemption, it is construed as
excluding all others not mentioned therein”.
MERALCO v. City Assessor and City Treasurer of Lucena City,
GR 166102, Aug. 5, 2015, Per J. Leonardo de Castro, First Div.
Exemption from RPT
Every person by whom or for whom real property is declared, who shall claim
tax exemption for such property from RPT shall file with the provincial, city or
municipal assessor within 30 days from the date of the declaration of real
property sufficient documentary evidence in support of such claim. Capwire v.
Prov. Of Batangas, G.R. 180110, May 30, 2016, Per J. Peralta, Second div.
Sec. 9 of RA 9511 clearly stated that the NGCP’s in lieu of all taxes clause
includes taxes imposed by the local govt on properties used in connection
with NGCP’s franchise. NGCP’s payment of franchise tax exempts it from
payment of real property taxes on properties used in connection with its
franchise. NGCP v. Oliva, G.R. 213157, August 10, 2016 , Per J. Carpio, Second
div.
The roads that respondent constructed within the leased area should not
be assessed with RPT. Prov. Assessor of Agusan v. Filipinas Palm Oil, G.R.
183416, Oct. 05, 2016, Per J. Leonen, Second Div.
MCIAA, MIAA both exempt fr RPT
MCIAA is an instrumentality of the govt; thus, its properties
actually, solely and exclusively used for public purposes,
consisting of the airport terminal building, airfield, runway,
taxiway and the lots on which they are situated, are not subject
to RPT and respondent City is not justified in collecting taxes
from petitioner over said properties.
The SC in the 2006 MIAA case cited Sec. 234a, LGCand held
that said provision exempts from RPT any “real property
owned by the Republic.
Like in MIAA, the airport, lands, and buildings of MCIAA are
properties of public dominion because they are intended for
public use. As properties of public dominion, they indisputably
belong to the State or the Republic, and are outside the
commerce of men. MCIAA v. City of Lapulapu, G.R. No. 181756,
June 15, 2015, Per J. Leonardo de Castro. First Div.
MERALCO not exempt from RPT
Not being among the recognized exemptions from RPT in
Sec. 234, then the exemption of the transformers, electric
posts, transmission lines, insulators and electric meters of
MERALCO from RPT granted under its franchise was
among the exemptions withdrawn upon the effectivity of
the LGC on Jan. 1, 1998.
Under Sec. 199a of the LGC, machinery, to be deemed RP
subject to RPT, need no longer be annexed to the land or
building as these “may or may not be attached,
permanently or temporarily to the real property,” and in
fact, such machinery may even be mobile. MERALCO v. City
Assessor, G.R. 166102, August 05, 2015, Per J. Leonardo de
Castro, First Div.
Submarine wires /cables for
telecommunications subject to RPT
Submarine or undersea communications cables are akin to
electric transmission lines which are no longer exempted
from real property tax and may qualify as “machinery” subject
to real property tax under the LGC to the extent that the
equipment’s location is determinable to be within the
“municipal waters” or taxing authorities jurisdiction. Capwire v.
the Prov.Treasurer of Batangas, the Prov. Assessor of Batangas, and the Assessor
of Nasugbu, Batangas, GR 180110, May 30, 2016, Per J. Peralta, Second DIV.
Transformers, electric posts, transmission lines, insulators, and electric
meters of MERALCO are no longer exempted from real property tax
and may qualify as “machinery” subject to real property tax under the
LGC.
MERALCO v. City Assessor and City Treasurer of Lucena City, GR 166102,
Aug. 5, 2015, Per J Leonardo de Castro, First. Div.
But properties leased to taxable persons
are subject to the RPT
However, under the same provision, if MIAA leases its real
property to a taxable person, the specific property leased
becomes subject to real property tax.
Thus, portions of the Airport Lands and Buildings that MIAA
leases to private entities are not exempt from real estate tax.
For ex., the land area occupied by hangars that MIAA leases to
private corporations is subject to real estate tax.
In such a case, MIAA has granted the beneficial use of such land
area for a consideration to a taxable person and therefore such
land area is subject to real estate tax.
MIAA v. City of Pasay, G.R. No. 163072, April 2, 2009, Per J.
Carpio, En Banc; Rep. v. City of Paranaque, G.R. No. 191109, July
18, 2012, Per J. Mendoza, Third div.
Under Sec. 2, Art. XII of the 1987 Constitution, the foreshore and submerged areas
of Manila Bay are part of the "lands of the public domain, waters x x x and other
natural resources" and consequently "owned by the State." As such, foreshore and
submerged areas "shall not be alienated," unless they are classified as "agricultural
lands" of the public domain. The mere reclamation of these areas by PEA does not
convert these inalienable natural resources of the State into alienable or disposable
lands of the public domain. There must be a law or presidential proclamation officially
classifying these reclaimed lands as alienable or disposable and open to disposition or
concession. Moreover, these reclaimed lands cannot be classified as alienable or
disposable if the law has reserved them for some public or quasi-public use.
All reclaimed properties owned by the Philippine Reclamation Authority are hereby
declared EXEMPT from real estate taxes. All real estate tax assessments, including the
final notices of real estate tax delinquencies, issued by the City of Parañaque on the
subject reclaimed properties; the assailed auction sale; and the Certificates of Sale
subsequently issued by the Parañaque City Treasurer in favor of the City of Parañaque,
are all declared VOID.
Republic & PRA v. City of Paranaque, GR 191109, July 18, 2012, Per J. Mendoza,Third
Div.
Appraisal v. Assessment
The LGC defines “appraisal” as the “act or process of determining the
value of property as of a specific date for a specific purpose.”
“Assessment” is the act or process of determining the value of a
property, or proportion thereof subject to tax, including the discovery,
listing, classification, and appraisal of the properties.
Every machinery must be individually appraised and assessed
depending on its acquisition cost, remaining economic life, estimated
economic life, replacement or reproduction cost, and depreciation.
A notice of assessment, which stands as the first instance the taxpayer
is officially made aware of the pending tax liability, should be sufficiently
informative to apprise the ta xpayer the legal basis of the tax.
MERALCO v. City Assessor, G.R. No. 166102, August 05, 2015, Per J.
Leonardo de Castro, First Div.
Taxpayer’s Remedies when Real Property Tax
Assessment has already been issued
Proper remedy depends on whether

A. The assessment was erroneous; or

B. The assessment was illegal

ERRONEOUS ASSESSMENT
An “erroneous assessment” presupposes that the taxpayer is subject to
the tax but is disputing the correctness or reasonableness of the
amount assessed.
Here, the taxpayer claims that the local assessor erred in determining
any of the items for computing the real property tax, i.e., the value of
the real property or the portion thereof subject to tax and the proper
assessment levels.
In case of an erroneous assessment, the taxpayer must exhaust the
administrative remedies before resorting to judicial action.
Hence, this should require “payment under protest” before an appeal
can be filed with the LBAA and CBAA, and later to the CTA.
City of Lapu-lapu v. PEZA, GR 187583, November 26, 2014, Per J. Leonen,
Second Div.
NPC v.The Provincial Treasurer of Benguet, G.R. No. 209303, Nov. 14, 2016, PERALTA, J., Third
Div.
 ILLEGAL ASSESSMENT
On the other hand, an assessment is illegal if it was
made without authority under the law.
In other words, there is an illegal assessment if the
issue involved is a “question of law.”
In case of an illegal assessment, the taxpayer may
directly resort to judicial action without paying
under protest the assessed tax and filing an appeal
with the LBAA and CBAA Appeals.
 
City of Lapu-lapu v. PEZA, GR 187583, November 26,
2014, Per J. Leonen, Second Div.
Collection of RPT
Collection of RPT- RPTes are collected by the Local
Treasurer, not by the BIR in charge of collecting
national internal revenue taxes, fees, and charges.
Salva v . Magpile, G.R. No. 220440, November 08,
2017, Per J. Peralta, Second div.
Sec. 235, LGC allows provinces and cities, as well as
municipalities in Metro Manila, to collect, on top of
the basic annual real property tax, an additional levy
which shall exclusively accrue to the special
education fund. Demaala v. Coa, G.R. 199752, Feb.
17, 2015, Per J. Leonen, En Banc
Situs of taxation
Under Part VI, Art 79 of the UNCLOS, the Phils clearly has
jurisdiction with respect to cables laid in the territory that
are utilized in support of other installations and structures
under its jurisdiction.
The jurisdiction or authority over such part of the subject
submarine cable system lying within Phil jurisdiction
includes the authority to tax the same, for taxation is one
of the 3 basic and necessary attributes of sovereignty, and
such authority has been delegated by the national
legislature to the LGUs with respect to real property
taxation.Capwire v. Prov. Of Batangas, G.R. 180110, May 30,
2016, Per J. Peralta, Second Div.
TAXPAYER’S REMEDIES in Contesting an
RPT assessment (Sec. 226-231)
A. Payment under protest. In disputes involving real property taxation, the GR is to require the
taxpayer to PAY THE TAX UNDER PROTEST (Sec. 252, LGC) before availing the admin remedies
and judicial remedies, EXCEPT when the assessment itself is alleged to be illegal or is made without
legal authority. Capwire v. Prov. Of Batangas, 791 SCRA 272 (2016)
By posting a surety bond, MERALCO may be considered to have substantially complied with Sec.
252 of the LGC for the said bond already guarantees the payment to the Office of the City
Treasurer of the total amount of RPTes and penalties due thereon. MERALCO v. City Assessor, 765
SCRA 52 (2015)
Should the real property owner question the excessiveness or reasonableness of the assessment,
Sec. 252 of the LGC directs that the taxpayer should first pay the tax due before his protest can
be entertained. NPC v. Prov.Treasurer of Benguet, 808 SCRA 595 (2016)
B. File protest with Local Treasurer. It is only after the TP 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 60 days from receipt. NPC v. Prov. Treas. Of Benguet,
808 SCRA 595 (2016)
C. Direct court action is permitted when only the legality, power, validity or authority of the
assessment itself is in question. 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. NPC v. Mun. GovT. of Navotas. G.R.
192300, Nov. 24, 2014,
Can a Tax Declaration be validly considered as a
Notice of Assessment?
No.
First, a TD is issued pursuant to Sec. 204 of the LGC " while a notice of
assessment mandates the "assessor to give written notice within 30 days of
such assessment, to the person in whose name the property is declared."
Second, a tax declaration is mandated by Section 22 of P.D. 464 to be
issued "upon discovery" by the assessor of the "real property" to be
appraised and assessed, while a "written notice of assessment" as required
by Sec. 27 of the same law has to be issued by the assessor "within 30 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 by the law "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.
Pucyutan v. Meralco, G.R. No. 197136, April 18, 2016, Per J. Peralta,Third Division
Claim for exemption from RPT
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. Npc V. Prov.Treas. Of Benguet,
G.R. 209303, Nov. 14, 2016, Per J. Peralta,Third Div.
TAX SALE - LGUs Remedies for
Collection of RPT
If the property is current in its realty tax or not realty tax delinquent, then it should not be the subject of a sale at public auction as
contemplated in Sec. 267.
The required deposit under Sec. 267, Title II of the LGC becomes jurisdictional only if there is no dispute that the real property is tax
delinquent.
If there is competent evidence that the realty tax due on the property subject of the tax sale has been seasonably and fully paid, then the
deposit requirement under Sec. 267 of the LGC does not serve its intended purpose and ceases to be jurisdictional. Beaumont Holdings
Corp. v. Reyes, 834 SCRA 477 (2017)
Sec. 267 of RA 7160 explicitly provides that a court shall not entertain any action assailing the validity or sale at public auction of real
property unless the taxpayer deposits with the court the amount for which the real property was sold, together with interest of two
percent (2%) per month from the date date of sale to the time of the institution of the action. Gamilla v. Burgundy Realty, 760 SCRA 237
(2015)
As an exception to the rule that administrative proceedings are presumed to be regular, there can be no presumption of the regularity of
any administrative action which results in depriving a taxpayer of the property through a tax sale.
Under Sec. 258, the warrant of levy must be mailed to or served upon the delinquent OWNER of the real property or person having legal
interest thereto, or in case he is out of the country or cannot be located, to the administrator or occupant of the property.
Sec. 260 of the LGC requires that within 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 sales. Salva
v. Magpile, 844 SCRA 586 (2017)
That the delinquent taxpayer /REGISTERED OWNER must be actually notified thru a Notice of Sale (so that it may exercise its right to
redeem) such warrant is implied from Sec. 258 of the LGC which explicitly directs the levying officer to submit a report on the levy to the
sanggunian concerned within 10 days after receipt of the warrant by the owner of the property or person having legal interest therein.
Lukban v. Optimum Devt Bank, 781 SCRA 494 (2016)
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. Salva v. Magpile, 844 SCRA 586 (2017)
It is incumbent upon the City Treasurer to convey the notice of delinquency to the taxpayer. Gamilla v. Burgundy Realty 760 SCRA 237 (2015)
CTA JURISDICTION and RULES
CTA’s Jurisdiction over CIVIL CASES
(a) Exclusive original or appellate jurisdiction to review by appeal the following:
  (1) Decisions of the CIR in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the NIRC or other laws administered by the BIR;CIR v. CTA, 763 scra 123 (2015)
  (2) Inaction by the CIR in cases involving disputed assessments, refunds of internal
revenue taxes, fees or other charges, penalties in relation thereto, or other matters arising
under the NIRC or other laws administered by the BIR, where the NIRC or other
applicable law provides a specific period for action:
Provided, that in case of disputed assessments, the inaction of the CIR within the 180 day-
period shall be deemed a denial for purposes of allowing the TP to appeal his case to the
Court and does not necessarily constitute a formal decision of the CIR on the tax case;
Provided, further, that should the TP opt to await the final decision of the CIR on the
disputed assessments beyond the 180 day-period , the TP may appeal such final decision
to the Court under Sec. 3(a), Rule 8 of these Rules; and
Provided, still further, that in the case of claims for refund of taxes erroneously or illegally
collected, the TP must file a petition for review with the Court prior to the expiration of
the 2-year period under Sec. 229 of the NIRC;
 
(3) Decisions, resolutions or orders of the RTCs in local tax cases decided or resolved
by them in the exercise of their original jurisdiction; Mitsubishi Motors v. BoXm 759 AXE
306 2015)
 
(4) Decisions of the CoC in cases involving liability for customs duties, fees or other
money charges, seizure, detention or release of property affected, fines, forfeitures of
other penalties in relation thereto, or other matters arising under the Customs Law or
other laws administered by the Bureau of Customs;
 
(5) Decisions of the Sec. of Finance on customs cases elevated for automatic review
from decisions of the CoC adverse to the Govt under Section 2315 of the CMTA; and
 
(6) Decisions of the Sec. of Trade and Industry, in the case of nonagricultural product,
commodity or article, and the Sec. of Agriculture, in the case of agricultural product,
commodity or article, involving dumping and countervailing duties under SecS. 301 and
302, respectively, of the CMTA, and safeguard measures under RA 8800, where either
party may appeal the decision to impose or not to impose said duties;
 
With the passage of RA 9282, the authority to
exercise either original or appellate jurisdiction over
local tax cases dependent on the amount of the
claim. CBC v. City Treasurer of Manila, G.R. 204117, July
01, 2015, Per J. Mendoza, Second Div.
The CTA did not err in its ruling that it has
jurisdiction over cases asking for the cancellation
and withdrawal of a warrant of distraint and/or levy
as provided under Sec. 7(a)(2) of RA 9282. CIR v. BPI,
G.R. 224327. June 11, 2018, Peralta, J., Second div.
CTA’s Jurisdiction over CRIMINAL CASES
(b) Exclusive jurisdiction over cases involving criminal offenses, to wit:
 
(1) Original jurisdiction over all criminal offenses arising from violations of
the NIRC or the CMTA and other laws administered by the BIR or the
BOC, where the principal amount of taxes and fees, exclusive of charges
and penalties, claimed is P1 Million or more; and
 
(2) Appellate jurisdiction over appeals from the judgments, resolutions or
orders of the RTCs in their original jurisdiction in criminal offenses arising
from violations of the NIRC or the CMTA and other laws administered by
the BIR or the BOC, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is less than P1 Million or where
there is no specified amount claimed
 
Filing of action for COLLECTION of taxes
Exclusive jurisdiction over tax collections cases, to wit:
 
(1) Original jurisdiction in tax collection cases involving final
and executory assessments for taxes, fees, charges and
penalties, where the principal amount of taxes and fees,
exclusive of charges and penalties, claimed is P1 million or
more; and
 
(2) Appellate jurisdiction over appeals from the judgments,
resolutions or orders of the RTCs in tax collection cases
originally decided by them within their respective territorial
jurisdiction.
 
Rule 4, Sec. 3, RRCTA
CTA’s jurisdiction
The CTA is a highly specialized body specifically
created for the purpose of reviewing tax cases, hence,
its findings of fact are to be accorded utmost respect.
M/V Don Martin Voy 047 v. Sec. of Finance, 762 SCRA
607 (2015)
CIVIL ACTIONS
Who may appeal, mode of appeal, effect
of appeal
Any party adversely affected by a decision, ruling or
inaction of the CIR may file an appeal with the CTA
within 30 days after the receipt of such decision or ruling
or after the expiration of the period fixed by law for
action as referred to in Sec. 7(a)(2)4, RA 1125..
Appeal shall be made by filing a petition for review under
a procedure analogous to that provided for under Rule 42
of the 1997 Rules of Civil Procedure with the CTA within
30 days from the receipt of the decision or ruling or in
the case of inaction as herein provided, from the expiration
of the period fixed by law to act thereon. Sec. 11, RA 1125
Suspension of collection of taxes
Sec. 11 of RA 1125, as amended by RA 9282, embodies the rule that
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.
Pacquiao v. CTA, First Div., 789 SCRA 19 (2016)
But CTA may order the suspension of the collection of taxes
provided that the taxpayer either (1) deposits the amount claimed;
or (2) files a surety bond for not more than double the amount.
The req of the bond as a condition precedent to suspension of the
collection applies only in cases where the processes by which the
collection sought to be made by means thereof are carried out in
consonance with the law, not when the processes are in plain
violation of the law that they have to be suspended for jeopardizing
the interests of the taxpayer. Tridharma v. CTA 2nd Div., 794 SCRA 126
(2016)
G.R. Injunction not available to restrain
collection of taxes/EXCEPTION
EXCEPTION: The determination of whether the
methods employed by the CIR in its assessment
jeopardized the interests of a taxpayer for being patently
in violation of the law is a question of fact that calls for the
reception of evidence which would serve as basis.
In the conduct of its preliminary hearing, the CTA must
balance the scale between the inherent power of the State
to tax and its right to prosecute perceived transgressors of
the law, on one side, and the constitutional rights of
petitioners to due process of law and the equal
protection of the laws, on the other. Pacquiao v. CTA, First
Div., 789 SCRA 19 (2016)
CRIMINAL ACTIONS
Institution and prosection of criminal
action
The necessary component of the Executive's power to faithfully
execute the laws of the land is the State's self-preserving power to
prosecute violators of its penal laws.
This responsibility is primarily lodged with the DOJ, as the principal
law agency of the government.
The prosecutor has the discretionary authority to determine
whether facts and circumstances exist meriting reasonable belief that
a person has committed a crime.
The question of whether or not to dismiss a criminal complaint is
necessarily dependent on the sound discretion of the investigating
prosecutor and, ultimately, of the Secretary (or Undersecretary acting
for the Secretary) of Justice.
Who to charge with what crime or none at all is basically the
prosecutor's call.
Inclusion of civil action in criminal
action
In cases within the jurisdiction of the Court, the criminal
action and the corresponding civil action for the recovery of
civil liability for taxes and penalties shall be deemed jointly
instituted in the same proceeding.
The filing of the criminal action shall necessarily carry with it
the filing of the civil action.
No right to reserve the filing of such civil action separately
from the criminal action shall be allowed or recognized.
It is well-settled that the taxpayer's obligation to pay the tax
is an obligation that is created by law and does not arise from
the offense of tax evasion, as such, the same is not deemed
instituted in the criminal case.
Proton Pilipinas Corp. v. Republic of the Phils., G.R. NO. 165027 :
October 12, 2006, Per J. Chico Nazario, First div.
Appeal to the CTA en Banc
For cases before the CT A, a decision rendered by a division of the CT A is appealable to the
CT A En Banc as provided by Section 18 of R.A. No. 1125, as amended by R.A. No. 9282. It
reads as follows:
SEC. 18. Appeal to the CTA En Banc. -No civil proceeding involving matter arising under the
NIRC, the CMTA or the LGC shall be maintained, except as herein provided, until and unless
an appeal has been previously filed with the CTA and disposed of in accordance with the
provisions of this Act.
A party adversely affected by a resolution of a Division of the CT A on a motion for
reconsideration or new trial, may file a petition for review with the CTA En Banc.
Section 2 of Rule 4 of the RRCCTA also states that the CT A En Banc has exclusive appellate
jurisdiction relative to the review of the court divisions' decisions or resolutions on motion
for reconsideration or new trial, in cases arising from administrative agencies such as the
BIR.
SEC. 2. Cases within the jurisdiction of' the Court En Banc. -The Court En Banc shall exercise
exclusive appellate jurisdiction to review by appeal the following:
(a) Decisions or resolutions on motions for reconsideration or new trial of the Court in
Divisions in the exercise of its exclusive appellate jurisdiction over:
( 1) Cases arising from administrative agencies Bureau of lnternal Revenue, Bureau of
Customs. BIR v. Ernesto Acosta, GR 195320. April 23, 2018, REYES, JR., J.




When is an amended decision issued?




Under Sec. 3, Rule 14 of the Rev. rules of the CTA, an

amended decision is issued when there is any action
modifying or reversing a decision of the CTA en Banc
or in Division. CE Luzon v. CIR, 768 SCRA 269 (2015)


Did the CTA En Banc err in holding that BIR’s Revenue Officers exceed their authority
to investigate the period not covered by the LOA?


No. The jurisdiction of the CTA is not limited only to cases

which involve decisions or inactions of the CIR on matters
relating to assessments or refunds but also includes other cases
arising from the NIRC or related laws administered by the
BIR.
The issue on whether the RO who had conducted the
examination on Lancaster exceeded their authority pursuant
to the LOA may be considered as covered by the terms
"other matters" under Sec. 7, R.A. 1125, as amended.
The authority to make an examination or assessment, being a
matter provided for by the NIRC, is well within the exclusive
and appellate jurisdiction of the CTA. CIR v. Lancaster Phils, GR
183408, July 12, 2017 [Per J. Martires, Second Div.]



Can the CTA resolve an issue which was not raised by the parties?


Yes. Under Section 1, Rule 14, RRCTA, the CT A is not

bound by the issues specifically raised by the parties but
may also rule upon related issues necessary to achieve an
orderly disposition of the case.
The CTA Division was, therefore, well within its authority
to consider in its decision the question on the scope of
authority of the ROs who were named in the LOA even
though the parties had not raised the same in their
pleadings or memoranda.
The CTA En Banc was likewise correct in sustaining the
CTA Division's view concerning such matter.


Did the CTA En Banc err in ordering BIR to cancel and withdraw the deficiency
assessment issued against taxpayer?


No. The assessment is void since the ROs acted in excess or

outside of the authority granted to them under the LOA.
A valid LOA does not necessarily clothe validity to an
assessment issued on it, as when the ROs designated in the
LOA act in excess or outside of the authority granted them
under said LOA, i.e. the LOA covered a taxable period
EXCEEDING ONE TAXABLE YEAR.
The taxable year covered by the assessment being outside of
the period specified in the LOA, the assessment issued against
Lancaster is, therefore, void.
This point alone would have sufficed to invalidate the subject
deficiency income tax assessment, thus, obviating any further
necessity to resolve the issue on whether Lancaster
erroneously claimed the expenses as deductions against income
for FY 1999.
Petition for review on certiorari to
the Supreme Court
Sec. 19 of RA 1125, as amended, provides that parties
adversely affected by a decision or ruling of the CTA
En Banc may file before the SC a verified peition for
review on certiorari pursuant to Rule 45 of the 1997
Rules of Civil Procedure. Silicon v. CIR, 785 SCRA
361 (2016)
 Good Luck,
Pray hard…..Study hard
and
May God Bless all of you!