TAX ADMINISTRATION AND E|
Audit and Investigation Qegular Large.Taxpayers) , Large-Taxpayers
Chapter V
"X AI)MINISTRATION AND ENFORCEMENT
speaggg¥sno¥ego:e=n#vooT;::Tnatd:!
law enforcement or tax administration are the BTjeem=trf_futilldr
EfeLPen-ueandtheBirj56u-Ofch8com.ffiifiteFfralfe-v-efintrndREtoH®
laEWTedaee-tie-rfe; and, the provincial, city and municipal assessors
and treasurers for local and real pro|)erty taxes.
Courts,ontheotherhand,arenotexactlypartOftheadministrative
process but in the tax milieu they do play an important role since
soundtaxadministrationmugtmovealongthecorrectinterpretation
of tax laws.
___-----,------------------_-=::i:-,I
BjE-E4_U_QFIINI_E_RFAI~REREEUE!`O¢Cupyingtheforefrant
OftaxlawenforcememtistheBureauoflnternalRevenue(BIR),which
iataskedwiththecoueefronofasubsthntialamauntofrevenueforthe
countryandisunder.thesupervisionandcontraloftheDepartmentof
Fimnce.
TheBIRshallhaveachieftobeknownastheCbmmi8Einelof
lntemalRevenue,hereinafterreferredtoastheCommis9ioner,and
ftru3=affligt-mtan8fatrfe-_Hffirfu-nTF&Dqu-t¥Connrfui5n6E8(See.3,
j997jvIJic).EachoftheDeputyCommission¢rsrespectivelyheads
theIIrformationSystemsGroup,OperationsGroup,Ijegalandlnspeetion
Group,andtheResourceManagementGroup,whiletheReviewand
Evaluation Group is placed directly under the Office of the
Cc6-in[=:9:hi=::r'=Cf'o=';::==±ia=:ife-ifa-,namely,Policyandplanning
ommissioner.
HIT_-F:`S=E-N±T!TS-£ii
Theaforementionedfiveofficial8,togetherwiththirteEITdssirfuut
I n_I:A.. ^.`.I D1^r`r`{r`a
§;£:cme;gpn::::.e.::a:#::;:err:ra:::i::iE::i,:gs:::I;ej:E:;rs:#::el
Information Systems Development Service; Taxpayers Assistance
Service; Assessment Service; Collection Service; Legal Service;
Inspection Service; Human Resource Development Service; and,
FinancialandAdministrativeService,constit`ltethefirst/seniorlevel
of a dministrative authority.
Thesecond/middlemanagementlevelofadministrativeofficerBis
composedofDi`yifemiefsheadingeachofthevariousdivisionsfalling
under the major services, to wit: Planning, Management, Statistics,
Col.pol`titcCommunications,TaxFraud,Policy3ases,Large-Taxpayers
170
Audit and Investigation (Excise Taxpayers), Large-Taxpayers
Documentary Processing and Quality Assurance, Large.Taxpayers
Assistance (Regular Large.Taxpayers), Large-Taxpayers Field
Operations, Large-Taxpayer.s Collection and Enforcement,
Large-Taxpayers Assistance (Excise Taxpayers), Large.Taxpayers
Programs, Systems Operations, Systems Support, Security
Management, Quality Assurance, Systems Standard and Technology
Management, Systems Development, Systems Maintenance and
Support, Taxpayer Information and Education, Taxpayer Service
Program and Monitoring, Assessment Program, Audit Information
and Tax Exemption, Asset Valuation, Withholding Tax, Revenue and
Accounting, Collection Enforcement, Appellate, Litigation, Prosecution,
International Tax Affairs, I nternal Security, Internal Audit, Personnel
Inquiry, Personnel, Training Management, Training Delivery,
Medical/Dental, Financial and Administrative, Budget, General
Services, Accounting, Procurement, Accountable Forms, and Personnel
Management Services.
ere:::Sxtwe°nrt::fy:nft±:t:etE¥s¥igiga#h¥[nngth±ta:
DhaorsrandReuenue-Dietdet®ffioer8. At pr6;-e-rii, there are nineteen
revenue regions all over the country, with each revenue region being
headed by a Regional Director, and 115 revenue district offices (RDOs)
each under a Revenue District Officer. Finally, comprising the "front.
liners" of the BIR are the rank.and.file revenue enforcement officers
(RE0s), more commonly known as examiners, investigators and
agents; and of course, the numerous clerks and other Support
personnel.
DEPUTIES FOR COLLECTION 0FT7
RA-7[Ne¥c¥hre¥oTn::i¥greR~£#upieEd-:s¥nst!ouf:-E:-r;§icin::s:-of=:r:
(a) The Commissioner of Customs and his subordinates with
respect to the collection of national internal revenue taxes on inpouted
gpo_ds;
a) The head of the appropriate government office and his
Subordinates with respect to the collection ofene_rgy_tax; and
(c) Banks duly accredited by the Commissioner with respect to
Eeceip_t_9_fp_aymeli_t_s_of_internal revenue taxes authorized to be made
through banks.
Any offic6`i or employee of an authorized agent bank assigned to
rqueive internal revenue tax payments and to transmit tax returns or
171

LAWOFBASICTAXATIONINTHEPHILIPPINES
documentstotheBIRshallbesut)|ecttothesamesanctionsand
penaltie9prescribedinSecs.269and270oftheTaxCode.
£-6lro_wlri_g_:_
PF-."_=HBH~ERE3)~F_INTEF=/7
5Li~H~ffiriE;-;;wii3-isa-n'dduties of the BIR coriprahedlrfe
(a)peBe9smentandcollectionofannationalinternalrevenuetaxes,
fees and charges;
0)Enforcementofallforfeitures,penaltiesandfinesconnected
therewith;
(c)Executionof]udgmentinallcasesaecidedinitsfavorbythe
CourtofTaxAppealsandtheordinarycourts;and
(d)Bffectingandadministeringthesupervisoryandpolicepowers
conferredtoitbytheTaxCodeorotherlaws(See.2,j997IVJRC).
iNTPE°R¥EETfkDLR#gzN°DFT3EEc:D°EMTMcks8E8ENSTg#
of the 1997 NIRC provides:
oJ!e±t¥T=¥#£::::ri:svjgi¢t;iii-gggi
RE"FEE
"The giveEaeck
othermattersarising under this
in relation thereto, or other mti.I,t;io a+ ,.... t, _..___ _
Comm\69°nei!t::nl:y:::ppnouctel°¥_°iag¥egy±hr::uubr,:eac:::
:::eer££:::::::=#ri=:iE=±riinir."
(|t3 t,A|>L14olJ-,-rlr____ _ ,--
ad±D#Pt:~:`:tva:-;-`p¥%eH9:e±d9wr,etfhe.rnst£:ct;(t3ao;daasyssef9r::et::::taett*:
twa::raey.:rtrheec:]dv::nt]hs:raasts.::Spmr::etst[,ts[::i:::S]:rw°ieo::eodr::a;:Sit:::::
notacteduponbytheBIRwithinonehundredeighty(180)days from
thesubmissionofalltherequireddocumentaryevidence,andthe
::Xmpea¥oe:haedE:rusret`:fajfaexctAefpbeya:sh;,dtic.]ns]t°h:lot;I(%%;ta:;safpr::a:ee€et.hp:
ofthedecision,orfromthelapBeofthe180-day|)enod.Pendingappeal,
such assessments shall contlnue to be considered as a digputed
assessment.
P°`t'dnogub:eF #:ndvol:: 172
LffhcffiT¥
TAX ADMINISTRATION AND ENFORCEMENT
A©_HaHE=du_e±sal_€==QH=LOFT|[E-L9OumordK
5-r
p±rotEgtgngi==±===rfuREi¥i#;EL±#¥£::
thereto, or
portionsthereofadministeredbytheBIR.
In the case, however, of the decisions of the Commissioner on
protests filed against assessments issued to departments, bureaus,
offices, agencies and instrumentalities of the National Government,
includinggovernment-ownedorcontrolledcorporations,theappeals,
i:iseuoafn,tot:7:eschs;,%'e6s7jb6i'[:t9ea:::::fs:tte,eRde::9::jig.:::::t:;ttl::
Soheitorf±ke±ryLof2uEtiee, as the case may be. The
decision of the Secretary of Justice as well as that of the Solicitor
General,whenapprovedbytheSecretaryofJustice,shallbefinaland
binding upon the parties. Appeals may, however, be taken to the
President when the amount involved exceeds one million pesos
(P.1,o00,000.00).Thedcoi8mnrfthepifeEifeEifeiieeH5IIfeEETal..
uLEOF«NOESTOppELAGri-N-s±
:=ig£-3:T;E=NE¥-E6HiE
It is a settled rule of iffih-aiTrith-eiierformance
iL;-ct-io-:;,--t-h-;S_tetecenmtbeerfuppinbythneglectofitsHge-rmmd
officers. Nowhere is this more true than in the field of taxation
i-6dr;missioneroflntemcil_Reuer.u?u:Abad.etal.:L-1?627D,J^w:e_2L|..
`1-;66;-C;:wimi8;ioner of Internal Reuepue u_. _Pr?cter. P .G.gTble
Code or -i;ii;p;i-ne Monufac.ur;ng corp.. G. R. No. 66838. Apr.15,1988).
-_ A _ __,_,,
Accordingly, the Supreme Court, in the case of Commissjoner o/
_ _.____+ +La
Jn!ernaJ j3euenwe Lt. A6ed, et aJ., suLpro, ruled that where a BIR
denaturation committee makes a favorable finding that alcohol has
been suitably denatured and, therefore, is exempt from specific tax,
said finding may be disregarded by a subsequent BIR inspection team
if it appears that such alcohol was improperly denatured and, hence,
subj ect to tax. EBtap-pstldrmrfu_Hpplyt_opreclt!deihFi5ubgeirnT§rfu
findingroirtaxzlbiffiTy,
The rule of estoppel cannot be invoked by a taxpayer in order to
precludecollectionoftaxesthatarerightfullyduetheGovernmentas
in a case where BIR agents made unauthorized pronouncements on a
taxpayer's tax liabilities. The Court ruled that even if said agents
were so authorized, their recommendations are always subject to the
173

IAw OF BAslc TAXATION IN THE pHILlpplNms
reviewoftheirsuperiorswhomaycountermandoraffirmthem.The
Government is never estopped to collect legitimate taxes because of
u€:;ri:s-i-a-=e=-i;;;e-riL[Reu-enue.L-1953oandlg444.Fab.27,1965).
the error committed by its agents rvi8ayon Ceott rermin,aJ Co., Jnc. u.
Then, too, it i8 important to consider that a favorable finding or
positiontakenbytheBIRinaninve8tigationinvolvingaparticular
taxpayer9houldnotbeagroundforaccordingthesametreatmenttoa
different tax|]ayer in another investigation if in that previous
l.I Y I;O`/L6c.`/.`/.. `.. I v -,,--, _ -___ __i_
_ _ _____ _.-__ -----.r=T==__=L_ ==
investigationerrorwascommitted.Accordingtoonedecidedcase,the
©i3ii66asl5ariiiH115ir-tEeipfroFiiETun-miRE=tyJ3£ii_iHjch`t8__H
_ ^nl^ ^\ ,`,
Guan u. CTA, el a1.,
i:-23676, Apr. 27,1967).
T#,tfn::£ies*feo-:if£3S;tfd##,-g#9at6fi';gi;f=;-'%C8.i-a;i^e^F.oo.lil:;_.t?;nooa!,
•i:-u.;;~i;e-;-6;:;; -of Tax Appedl8, et al., a.R~. No. 1Pe611. I_ul!. 2_:.
•;-di;i:"friiii;;ir=; Ec.:ieibili As_sicia.ion u. cour. of Appeals. e. al..
G.R. No.119122. Aug. 8, 2000).
Similarly,estoppeldoe8notapplytodeprivetheGovernmentofits
righttoraisedefensesevenifthosedefense9arebeingraisedonlyfor
-a -Gamble Philip;;rue Mc.nuf actwring Corp. , supra).
thefirsttilneonappeal(Commi8sionero/fro!emaJReuenueu.Proc!er
Thus,intheProcler&Gambzecase,8apro,involvingtherefund
ofallegedover-withheldfinalwithholdingtaxondividend8paidoutto
a non-resident foreign corporation, the defense of the Government
against the claim for refund to the effect that a mere withholding
agentisnottheproperpartythat9houldclaimsuchrefund,wasnot
interposedbytheGovernmentinthelowercourtbutwasrai8edonly
for the first time on appeal.
TheSupremeCourt,however,sustoinedtheGovernment'sposition
and ruled that estoppel does not preclude the Government from its
righttobringupsuchdefenseevenforthefirsttimeonappeal.
However, the Supreme Court, in a subsequent resolution, ruled
thattheBIRshou]dnotbeallowedtodefeatanotherwisevalidclaim
forrefundbyraisingthequestionofthewithholdingagent'salleged
incapacity to file the claim for refund for the first time on appeal.
AccordingtotheCDurt,theGovernmentmustfollowthesamerulesof
yHevu`e-nvfe.-u.`F===.;er-i6;wibiepiilip_pinepgjqnufac¢.¥.rirg.C:erp.,G.R.
procedul.e which bind private parties (Commjssioner a/ Jnlernal
•ff;.-;6vyii;i.-|j;;:-2,iggl[Resolu.ioi.i;Beechclpterlx.infra).
174
TAX ADMINISTRATION AND ENFORCEMENT
Where it appears that in a case involving a claim for refund of
allegedly overpaid taxes, the Government was bereft of any factual
basis to oppose such claim and present evidence to dispute the same
be3ause of the delay and inaction of a division in the BIR to submit the
corresponding report on the investigation, the Government is not
deprivedofitsrighttofueamotionforreconsidemtionagainstadecision
of the CTA allowing the refund in question. It is a well e8tabli8hod
pr.nciple that the Government is not e8topped by the mi8take8 or
negligence of its officials and employees /Commissioner o/ JnlernaJ
Reuer.ue u. Court of A|)peals, et al., supra).
Exceptionally, however, the Court ruled in Commj88ioner a/
Jn;ernoj jicuenue u. Cot.r! a/AppeaJs, el aJ. (G.R. No.117982, Feb. 6,
1997) that "(a)dmittedly the Government is not estopped from collecting
taxes legally due because of mistakes or errors Of its agents. But like
other principles of law, this admits of exceptions in the interest of
justice and fair play, as where injustice will result to the taxpayer."
T:hen, too, in Commissioner of lnterr.c.I Reuer.ue u. Couri of Appeal8.
el ¢J. (G.R. No.107136, Feb. 23,1999), it was emphasized that "(t) hi8
Court is mindful of the weu-entrenched principle that the government
is never estopped from collecting taxes because of mistakes or errors
onthepartofitsagentsbutthisruleadmitsofexceptionsintheintere9t
of :ustice and fair play. x x x"
IS THERE ESTOPPEL AGAINST THE TAXPAYER? While
the principle of estoppel may not be invoked against the Government,
this is not necessarily true in the case of the taxpayer. So, for instance,
8L8 in one decided ct\Be (Collector of Internal Reuenuet.u. Suyoc
Consolidated Minir.8 Co.. 104 Phil. 819), the t8.xpayon node seve"i\
requests for the reinvestigation of its tax liabilities such that the
Government, acceding to the taxpayer's request, postponed the
collection of its liability. Thetexp-rm]ase±ca=ke_ pmlt±\
trfe:the-ifefeiig5=ofip~risoejiHtiiijliiimrishiL-chE5rfu-6ir-&|]5quaEEErm
ltiuL+Iili±±IILf±L±t±OI"nyLilLiindEin
thi[¥cT#aR=|ro¥fD;==:=:a±=::=¥=±.Lfr;=::=#i:
of tax due from a taxpayer, or it may be a notice to the effect that the
an]ount therein stated is due from the taxpayer as a tax with a demand
forpayment of the tax or deficiency Stated therein t:nfa!ic, rarmi!fon ln
the Philippines, Vol.I, p. 270 drtiAIng Bisayo Inr.d Tran8portohon Co.
u. Collector of lr.terrwl Reuer.ue.106 Phil. 1338 [Ur.rep.I).
176

LAW OF BASIC TAXATION IN THE PHILIPPINES
Assessments may be chH3Eifi~:
(a) Sg}£-thEEEEzmal - This is one in which the tax is assessed by
thetaxpayerhimself.Theamountoftaxassessedisreflectedinthe
taxreturnthatisfiledbyhimandthetaxassessedispaidatthetime
he files the return. This system of Simultaneous filing of return and
r#o':,--i;-;a: -5-6[A][|], 1 997 NIRcj. rrhe ten so tL99essed is ±nowr\ e`s a
paymentoftaxisknownasthe"pay.as-you:file"systemtsec.49/9//I/,.
serf-assessed tax.
a) apteHeyi88e6un.nL} . This is an assessment made by the
taxassessorwherebythecorrectamountofthetaxisdeterminedafter
an examination or investigation is conducted. The liability is
determined and is, therefore, assessed for the following reasons:
(a)Theamountascertainedexceedsthatwhichisshownastaxbythe
taxpayer in his 1.eturn; (b) No amount of tax is shown in the return;
or,(c)Thetaxpayerdidnotfileanyreturnatall(See.56/B//I/and/2/,
1997 NIRC).
(c) ZBdredi_±p{Bzbeeeae I -This is an assessment wherein
the tax assessor has no power to act at all rv{ctorias „i!Jfng Co., Jnc.
i)` CTA, et al.,I,-24213. Mar.13,1968).
(d) Ezrmngivzirfei3aeeBgmgfJ£ - This is an assessment wherein the
as9essorhasthepowertoassessbuterrsintheexerciseofthatpower
(Ibid.).
tiHNjFPT±-ETs=56TVE-R-NTN-GT_Ax2Es§E§-sin-N~T7sT7
1.Assesguents_a±e=j2rj_nggL-4zrfe_TFHrmftirdi55Hecta-pa=rirfeiE
rf]i-TithErriap. In the
of official
absence of proof of any irregularities in the performance
duties, an assessment will not be disturbed. All presumptions are in
`O-;v;*t-e;-;ar-ir;;e-=is,68_phiji.?90:.sy.pO::__c_T£.,~e:aTl.,.OG;#=
favor of tax assessments tJn!erprou{nciaJ A%!obus Co., Jnc. u. CoJjec.or
uNs°;;ti;246fe:98f;;6ia]g8a*8R8oib.%%;:^:ti^a^ert^ftti:.£`;$2u;._8_o_ua^:.;:o_i+i3.p9.p:;a,:;:,
i;r:i:Va.-ir:fi;-iatiii5i,oct.12.-Zoo_o)..Fpt+:r`et.o~preB=F±_P=2°~£~?i.
-::sV:s:i;ti:(5-ei;iMotorsco.;._Commis3ioneT,CTA^Cas.e_Y?._3_?3,3:
error in the assessment will justify judicial affirmation of said
otia.;a.;:.;ofd:6f_65_wiwifs=tone:9f_I_n_t_e:np]Reu.e^n¥e^u^.r€o#~t_o^f^Ap^p_e^a..+s`,,
el oL a.a. IVos. J04J5J and J05563, Mar. JO, j995). Hence, a party
challenging an appraiser's finding of value is required to prove liot
Vv`:xJ,1.;.i-;i6:I;erx'iFi;ii;ipines]_,Inc.u.C_o¥r..of^Appeal`S;::,.:3l_..nG^.P:
only that the appraised value is erroneous but also what the proper
`fi::`16-4iii,--;=t.; 10, i-998,. -Cc.gayc.n Robinc. Sugctr Mining Co. u.
Courl of Appecils. et al., supra).
176
TAX ADMINISTRATION AND ENFORCEMENT
2.AgBe5gmas:=SHb~uldiREb€=rF55:eaasF5frfu~riFi6HB`a5=a=ta-
hflH=©-dr©imiJhigHife). In order to stand the test of
judicial scrutiny, the assessment must be based on actual facts. The
presumption of correctness of an assessment being a mere presumption,
it cannot be made to rest on another presumption that the
circumstances existing in a subsequent investigative period are
presumed to be those existing in a previous period.
A case that illustrates this principle is CoJjec!or a/ Jn!ernoJ
Reuenue u. Benipayo (L-13656, Jam. 31, 1962), where the taxpayer
was investigated for amusement tax purposes. In 1949 to 1951, the
BIR examiner found that the ratio of adults patronizing the taxpayer's
theater was 3 adults to 1 child. However, in 1952 to 1953, the ratio
was in the reverse - 3 children to 1 adult. Concluding that in.40
ticket for adults was split into two PO.20 tax-exempt tickets for
children, the examiner assessed the corresponding tax. The Court,
however, held that the assessment is faulty since it merely assumes
that the ratio of adult theatergoers in 1952 to 1953 is the same as that
which obtained in 1949 to 1951.
While the dictum is to sanction only factual assessments, it iB
significant to note that under existing law, thainveatigati:Tf[metlmds
hoeyrH=.BST_-in±ze]I±orjr=~Jrdngi=suF¥:eitl-g=-nd-=p-rose-r_±hing
pmnmp±iv_e€_a+±g_and-rdpfaondrcta±r:detL€inREmE¥±be
bsI_-_"ed (See.16[c]; I.ow , See. 6[CJ.1997 NIRC).
UndertheaErdmsefn±-9ifed,the
L-` '--++...I .-,-,---------.---- :|1 ---I ,----- |a
I_..__±LL-JJ-Ilil:I,.-.-i--L=!lI=`JI±=]=====j=L-====::===;
-= :: := =£==j_=L_Tpr-I--±:=:±±== =ii=±E:i 'I'he findingB my be used
as the basis for assessing the taxes for other months or quarters of the
same or different taxable years and such assessments shall be deemed
prima facie correct (Ibid.).
Pursuanttothepr`e©upeptiyEr=gH]ss"les-nrd_Ti6c~e±-p-ts--riilE5d,
when it is found that a person has failed to issue receipts and invoices
in violation of the law, or when there is reason to believe that the books
of accounts or other records do not correctly reflect the declarations
made or to be made in a return required to be filed under the provisions
of the Tax Code, the Commissioner, after taking into account the sales.
receipts, income or other taxable base of other persons engaged in
similar businesses under similar situations or circumstances, or after
considering other relevant information, may prescribe a minimum
amount of such gross receipts, sales and taxable base and such amount
so prescribed shall be prjmo /ocje correct for purposes of determining
the correct internal revenue tax liabilities of such person /Jbjd.).
177
 I.AW OF BASIC TAXATION IN THE PHILIPPINES TAX ADMINISTRATION AND ENFORCEMENT

3. du3aEEillrmd=ridincreeieEne±!r_9 ±±z!f the cQ"_misri_pxpI,
Mandamuswiunotlietocompelhimtoassessataxifafterinvestigation
he finds no ground to assess. Besides, mandamus to compel the
Commissioner to assess will result in judicial encroachment on
executive functions /Mcro!co Securjlfes Carp. u. SoLJcjJono, e! az.,
L-36181 tmd L-36748, Oct. 23,1992).
In one case, however, the Court held that the Commissioner of
lnternalRevenuem¥.hecompeH±dy-Imnchmurrfuth
mutual fund companies, insurance companies, regional headquarters
ofmultinationalcompanies,jointaccounts,associations,jointventures
or consortia and registered partnerships and their members;
3. 'froLprmon±he-hiblefirtrourreqDindfalHg a-return ,
QJr=enF=offi€er"=i}ixp]dye6=L fiilrfeE-Tp~eiri=i6iiJ or any person having
possession, custody or care of the books of accounts and other
accounting records containing entries relating to the business of the
person liable for tax, or any other person, ¢o-jippear±Qfro the

y (Maceda u. sp±n-thes±!mmonuned±epr_odr£&anch=hake;=prpe[r8,i:ecord£
Macaraig, Jr., etc., et al.. G.R. No. 88291, June 8,1993). or=othendut&Tndto_€ivrfestimenjr_i
4. rmTrmthartyedrdinthEfommiB8ioHerto 4.Todrf=8udreatinQBQajrQ£-the_persomcrmcernckunderoathas
be=aaegg~rfed.Anass6ssmentsignedbyanemployeeforandinbehalfof may be relevant or material to such inquiry; and
the Commissioner of Internal Revenue is valid. However, it is settled ----- ~ u^ ^£f:I.a]r_I;undeaap±®y_€es_-!glnallearcan±r:a[SO
th a t the i55iRE~"HEkefinal±fiEBmmmt`g=mrrce=t±ted. M# 6m::°!,:q7`^N°,!%mwh 1 "•i£`t-_or±eg:i@p_arREdinLq]ril.eaftor
gEgrzEgifeH=i5HRIEL5ee. The person to whom a duty is delegated nay be liable to pay any internal
cannot lawfully delegate that duty to another (Cify I,wmber, Jnc. u. • having the care, management
Domingo, e.c..-et al.,-L-18611. Jaw. 30,1964; Ma.ic. op. ci,t., p. 272). :t to which a tax is imposed.
mFX°md'entaet'£?na:fen"ivoT6#ouE.,
5.tdsgE55jii€ia-trmTrit=6=5=arr-eaedt5-therightptry\,Hence,if for tanding the provisions of the
example, the taxpayer being assessed is an estate of a decedent, the I section shall be construed as
administrator should be the party to whom the assessment should be ity to inquire into bank deposits
sent (Republic u. De la Rama, L-21108, Nou. 29,1966). tind not the (:,'::i!!:|!z6##:rtfjn?c,,:nbv?:?Jd?:b;i,;veg, of the Tax Code /rbjd.J.
heirs of the decedent.
rd) authon`" fo tetmimtt la`mDle rwiod hssE-sS_ty!FiryLT|OF_`T±TEs'.
riivTv-ET5TiEXTTlvEpOwERsOFTHE__GOMMlssloNEBi;
(e) quthohfr to pecril` rdi ro-inb ya-`VA azu##~!?ethteoTt=eritE:S:S;'E5:rf:
-.-` ------ _-_ .v ---,---, \,,,\ ,,,,,, E'
:A=Tb-rgb4aL§aBd¥n-[£c?;?-;-#siL€rse¥c±e-:snaa;:ou:::::i:edsife:::: \ _
(f ) qvfho
.I `, , '_-.1. ^ ..._

sources from which factual information is obtained by the BIR as the Cq) aut^o :;¢#frh`?:"al,'m,'ff°gn}##Ow't::Ctr]Ee)7ae!:]i.::::I:enq:;rreeTuern::
bases for said asse§sments as well as the means employed to secure qq 3e of bej3t evidence obtainable;
them. To obtain the necessar!ychformation, which may be used as HITfl

basis for tax assessments, Sg=?rfegHseg=i5;±sozaIIE£J, authorizes

the Commissioner to make use of the following powers:
1. Toexrmine any book, paper, record or other data which may
Enchindr3L-i
2. To 6brm:cn:=[=reguharhasi±irferma±ienfrQp €nLZE±±rj?9rtybor
than&hapermn±intEmalrevestre_-|ar=±ichilfigrtfl_i_qbieeiLfty_a_giv
orinrfurfu8tjQ®, or from any office or officer of the national and local
governments, government agencies and instrumentalities including
theBangkoSentralngPilipinasandgovernment-ownedorcontrolled
corporations any information such as, but not limited to, costs and
volumesofproduction,receiptsorsalesandgrossincomesoftaxpayers,
n 1`(1 t,he names. addresses and financial statements o[. corporations,
178
or documentary requirements.
A. E±=amiutinofEfrstqrm±identinl±frifeke -The Ta x
Code requires that after=H=±|§-=rm, the Qg;]!.ninsin±±er or his
duly authorized representative shall ex nd-LHsseso tht`
®oiiF-idirftHE.Thetaxorthedeficiencytaxsoassessedshi`I1
be paid upon notice and demand from the Commissioner or from liiH
duly authorized representative. Any return, statement or declari`l iiii`
Lewor or Authority
179
 I.AW OF BASIC TAXATION IN THE PHILIPPINES
3.ds8EEEIREDiridmrctienq©ry]pQ±gfthocom_tnra!±in__e=.
Mandamuswillnothetocompelhimtoassessataxifafterinvestigation
he finds no ground to assess. Besides, mandamus to compel the
Commissioner to assess will result in judicial encroachment on
executive functions /:n4:era!co See"rj!ies Corp. u. SoLJCJ!ano, e! aj.,
L-361818`nd L-36748, Oct. 23,1992).
In one case, however, the Court held that the Commissioner of
I nte rnal Revenue ma¥beronpelled4o±¥|m ndrtmmffinthe
exercisech eeeofa~Tgra¥e
±tiorms-toixpeyedTgtrtrtor3!"tthrity /Mocedo u,
Macarc.ig. Jr., eto., et al., G.R. No. 88291, June 8,1993).
4. Thrlindhity+ziliLrdm tzmmy
be=~d5fegaed. An assessment signed by an employee for and in behalf of
the Commissioner of Internal Revenue is valid. However, it is settled
that the p5RE=as±=±©mmtg±rfeedchrfued.
IH;igivi33-Lrfe5=F5te5ZaaeTgrzi@.Thepersontowhomadutyisdelegated
cannot lawfully delegate that duty to another (City Lwmber, Jnc. L).
Domingo, etc., et al., L-18611, Jaw. 30,1964; Matic, op. cit., p. 272).
5. rfustH55Erfen sTmTirs€:be-difEdied=tcthe"± Hence, if for
example, the taxpayer being assessed is an estate of a decedent, the
administrator should be the party to whom the assessment should be
seri\ (Republic u De la Ramc., L-21108, Nou. 29, 1966). and not the
heirs of the decedent.
rrNv~ETgTIGATlvE pOwERs OF THE _cormllssloN_EB_;/
i:#Tb¥A5aLs~eEA6:i:Efgc?5?,Sis-i#:r=g:g;:snaa;:ou%::::i:edsiFe::i:
sources from which factual information is obtained b}' the BIR as the
bases for said assessments as well as the means employed to secure
them. To obtain the necessaryrfuormation, which may be used as
basis for tax assessments, 8§F~7_+a!ur]Sgr.i5=re9Z JEJB€), authorizes
t,he Commissioner to make use of the following powers:
1. Totexamme any book, paper, record or other data which may
diquir¥-i
2.Tootmarm5z]=mgularhaais[infermfltionrfuo_zp€nLz:p£±:±9p_e±±9r
than±hepemoDrdme±rferml-rByer!±±ertexife_biife¥±ixpNIhiegiv`m
o[inREskaiin_a,orfromanyofficeorofficerofthenationalandlocal
governments, government agencies and instrument8lities including
the Bangko Sentral ng Pilipinas and governmentcowned or controlled
corporations any information such as, but not limited to, costs and
volumes of production, receipts or sales and gross incomes of taxpayers,
(ind the names. addresses and financial statements )i. corporations,
178
TAX ADMINISTRATION AND ENFORCEMENT
mutual fund companies, insurance companies, regional headquartel.s
of multinational companies, joint accounts, associations, joint ventures
or consortia and registered partnerships and their members;
3. Tt}=summonth perBonhichhrfuzHurzBqui]rdrfufflrmreturn,
Q!iELoffieerTFe-mpkryrfe=5Fi3d6Hb-6f3bL@oranypersonhaving
possession, custody or care of the books of accounts and other
accounting records containing entries relating to the business of the
person liable for tax, or any other person, to=flppar±ehethe
ConHris8frorordieddy
spedrmin=±he±±±mmo___as±±±_te±r`edune-a±Ichhokemarapem-rds
orodter±and±e±i±Lve_teg±inQnyi
4. To Ttckejwhtestinonapf the_-persomrmcrmdckun±ha oath a s
may be relevant or material to such inquiry; and
5. To cattsermzermereflELcersr_aHfrokeyes_-t& incke=a camaso
from-tilneto±intfofranyre!ren±±edintrie_t-Qr-regiQp-j]p_diHiiuirerfer
andmrmerninga±±perso_ne therein who may be liable to pay any internal
revenue tax, and all persons owning or having the care, management
or possession of any object with respect to which a tax is imposed.
It should be noted that notwithstanding the provisions of the
foregoing paragraphs, nothing in said section shall be construed as
granting the Commissioner the authority to inquire into bank deposits
other than as provided for in Sec. 6(F) of the Tax Code /JbjdJ.
uni¥Es¥S=6E¥oPw:8¥#fr:EEg#£S%:-t¥:8:in%Ts-sTo¥-i:
his duly authorized representative is authorized to use the following
:o:r:teadrx:t:e°dr:;:1:stt:r:a:tei::n::e#uanen:gkri;ep:rs:e::orfLg¥:e:x:L±L:n:i:ci:en::::r:enT:ebrnLn:;
or documentary requirements.
A. E3=amin-tiiiLmarketrTmaconfiicheutin]i±][E]±!p -The Ta x
Code requires that afterH±+Tsrmd, the Qg}]!.mis.sin±±e]. or his
duly authorized representative shall ex ndasst!sotht`
eerrert±6f=taE. The tax or the deficiency tax so assessed shi`Il
be paid upon notice and demand from the Commissioner or from lijH
duly authorized representative. Any return, statement or declari`1 iiii`
L€Wor or nuthority
179
 LAW OF BAS:C TAXATION IN THE PHILIPPINES
fiiledinanyofficeauthor.zedtoreceivethesameshallnotbewithdrawn.
However, the same
may be modified, changed or amended, provided that no noticefor audit
or i-nvestigation of su:h return, statement or declaration has in the
meantime been actualy served upon the taxpayer (Sec. 6/A/, J997
t=:i-65FREIfFttFfELmit*dr±cetwrfetappen+x\s:hough
NIRC).
Tsgg±±r--JSzE=¢|ra[-ihalariEbe&dJprovidesthattaxreturns
shall constitute public records, it is necessary to know that these-are
confidential_innature±ndmaynotbeinqurired-intoin-unouthorized
e&s-nder pein-of penlty provided for in-Seer.--269 (now-, Sect. 270,
I 997 NJRC), which states, as follows:
"'JLx xunyjiffi¢er or e_rijlo_gee of the Bureau of Internal
Revenue wh_ed_iqu+gee to any person or makes known in any
other manner than may be provided by law, information
regarding the business, income, or estate of any taxpayer, the
secrets, operation, style or work, or apparatus of any
manufacturerorproducer,orconfidentialinformationregarding
thebusinessofanytaxpayer.knowledgeofwhichwasacquired
~:g;?.±c%o.£f:::a:]£::::::i:a:.[osn°bf:1;'ua:,sdhuetiebs;:¥]an[:oufpn°o:
a kess*hari Fifty thousand pesos (P50,000) but not more than
Onehundredthousindpesosaloo,000),orsufferimprisonment
of not less than tw) (2) years but not more than five (5) years,
"%. ;rhbe°:::::frdchalry rule above, however, is sub]ect to Certaln
e±ieLas. In the follcwing cases, inquiry into the income tax returns
of taxpayers may be a`thorized:
1. When the in8rectinlnd±:mthgiv-i-Zed upon the
vmttenorder of the r±+:esiden± of the Philippines;
2. When inspectinHHnd8rized HiEaer=Fin5HeeRegulalinn
Bdr33ofthe€j£!±e±g=}:p€Ej±e=¥;
3. When the prdedenof±mi=s=Imterrfuerideme
ima±e wherein the Government is interested
in the result 'Cu Unjieng, et c.i. u. Posadas, etc., et al.,
58 Phil. 360);E\nd
4. When the p"ructinncknepedien±kere5ffiH5th5ri=2eddy
thedj¥±±;A-hi]]a]se±f (Vero, efc. LJ. Cusj, e!c., ec oJ.,
L-33115, June 29, 1979).
In connection with the above authority, Sec. 290 of the 1997 NIRC,
t)rovidesfortheconstitutionoftheCongressionalOversightCommittee
180
TAX ADMINISTRATION AND ENFORCEMENT
composed of the Chairmen of the Committee on Ways and Means ol.
the Senate and the House of Representatives and four (4) additional
members from each house, to be designated by the Speaker of the House
of Repi.esentatives and the Senate President, respectively.
The Committee shall, among others, in aid of legislation:
r 1. Monitorand ensurethe proper implementation ofR.A. 8424
(The Tax Reform Act of 1997);
+ 2. Determine that the power of the Commissioner to
compromise and abate is reasonably exercised;
/ 3. Review the collection performance of the Bul.eau of lnternal
Revenue; and
4. Review the implementation of the programs of the Bureau
of Internal Revenue.
In furtherance of the above-cited objectives, the Committee is
empowered to require of the Bureau of Internal Revenue:
1. the sul]missiormf all pertinent information, including but
not limited to industry audits; collection performance da_ta;
status reports on erininal actions initiated against persoris;
and
2. the snbmissionof taxpayer returns, provided, however, that
any return or return information which can be associated
with,orotherwiseidentify,directlyorindirectly,aparticular
taxpayershaubefurnishedtheCommitteeonlywhensitting
in Executive Session unless such taxpayer otherwise
consents in writing to such disclosure.
8. Assessz©85i§~e-a-eFiFFtkeB®g€E-inrme -The
law authorizes the Commissioner to assess taxes on the basis of the
best evidence obtainable in the following cases:
; 1. if a person fa-ils-to-ffle a=returlrorother document;at the
time prescribed by law; or
. 2. he wHIfully or otherwlsefileEraialseor fraudulentreturn or
other document. f#*3£u=NfFJPuTd#`'d°ekfar%^tidoeneda''Sac 9 4B
By the use of this method, the Commissioner makes or amends
I he return from his own knowledge and from such information as he
can obtain through testimony or otherwise. Assessments made as such
•ro deemed prjmo /ocje correct and sufficient for all legal purposeg
ff±#en#:€tjhreerfee:sbyt:n:enr:a::::,e:::oor£L,Cepr:Pf:::
181

LAW0FBASICTAXATIONINTHEPHILIPPINES
=--i:ii:=rfe=----i:-_
government offices or agencies. corporations, employers, Clients or
orQLrroneous.
A case in point on the use of the best evidence obtainable is
SyPou.Cr4e!a!.,supra.Inthatcase,therewasademandmadeby
:gLg#=rd?;;thBeres:g:rLtpThw.=e:L#a#thbg#;¥rTi
:reT#=j+::i:IRE:rp:E[ifetl#£#gLs:L#L:tLT+::*
records,soBIRinvestigatorsraidedthefactoryandseizeddifferent
brands of alcoholic products.
Theinvestigators,onthebasisofthebottlesOfwi|leseizedandthe
swomstatementsofthefactory'sformeremployeesonthequantityof
£=£te#:#chT.:jT=:eeTana:*:t=(::#=a,%=i#:
SupremeCourt,onappeal,upheldthelegalityoftheassessment.
sa,.`:.a[nndvcRn.`.0.r,rp-:;I.ki`T`:`,S`:```::`'>'::r`T:rt`n:UPI:,'|?T+::::.v::}:t¥::
drringthe_taxable year order.the inventory-taki|:g ofgood9 Of any,
tarpayerasabasisfor_assessment.
Ifthereisreasontobelievethatapersonisnotde(laringhiscorrect
gr::,,.ijesLoaryT#£t:d¥og:e=::ti=::##n?ceT#:
findingsmadeinthesurveillancemaybeusedasabasisforassessing
the taxes for the other months or quarters of the same or different
t8\xab\e years (See. 6[C] , 1997 NIRC).
When it is found that a person has failed to i§ue receipts and
invoice9inviolationoftherequirementsofSecs.|L3and237ofthe
TaxCode,orwhenthereisreasontobelievethatthebook8ofaccounts
orotherrecordsdonotcorrectlyreflectthedeclaratpnsmadeortobe
gfadee.a.tL£EL=l:#:#ito##£nad=£:JL=¥#ispa#T
income or other taxable base of other persons ergaged in similar
businessundersimhiITsituntionsorcircumstanceso`afrorconsidering
otherrelevantinformation,maypresmifeamininLmanountofsuch
groBsreceiptssalesandtaxablebase,andsuchamtuntsoprescribed
shaubepr}ma/acfecorrectforpuxposeBofdeterniningthecorrect
M\95\ON OROEfl (M°) 182
TAX ADMINISTRATION AND ENFORCEMENT
internal revenue tax liabilities of such person /Jbjd.J.
D.Telmimf*ian-OfTazahdraeeriod-TheCommissionershall
declare the tax period of a taxpayer terminated at anv time when it
shall come to his knowledge:
/ 1. That the taxpayer is rctiringfrom buBinesssuhject to-ta-x;
/ 2. That he intends-to leavethe-Phi-hppines`'or remove his
property there from ;
/ 3. That the taxpayer-hidesor conceals his property; or
/ 4, That he .performs any act tending-to obstruct the
proceedings for-the -collection of the-tax) for the past or
current quarter or year or to render the same totally or
partly ineffective ,unT5Ts+gi such proceedings are begun
immediately.
The written decision to terminate the tax period shall be
accompanied with a request for the immediate payment of the tax for
the period so declared terminated and the tax for the preceding year or
quarter, or such portion thereof as may be unpaid. Said taxes shall be
due and payable immediately and shall be subject to all the penalties
?::S6:I:emdLsus::ensesrp,%]e:.W6L/t£/1,njtghge7tLT£5),:ed;nd:E6e,odneFg*Eadeby
E. FrmHgivReulpEoptry¥aha -One important means of
insuring correct tax assessment is the fixing of correct real property
values. This is especially true, for instance, in income taxation where
the presumptive or actual gain from the sale or other disposition of
property is crucial in calculating the tax or in ad uaJorem taxes, like
the estate and donor's gift taxes where the tax is based on correct
property valuations.
The Commissioner is authorized to divide the Philippines into
different zones or areas and shall, upon consultation with competent
appraisers both from the private and public sectors, determine the
fair market value of real properties located in each zone or area. For
:;or.:ee:I:t:ysm##g¥¥ij!gEL:f:a¥::I::i::,:v::;;a.:::
§i:rd;e;I:t;y:m#¥£Or¥¥pgj#:fiat;:
ton reE\1 estate tax purposes (See. 6[E], 1997 NIRC).
City Assessors
F. ilnqpiryinfa[J±D5drlto -Examination of bank deposits
enables the Commissioner to assess the correct tax liabilities of
183

RAW DF BASIC TAXATION IN THE PHILIPPINES
taxpayers. Hcwever, bank deposits are confidential under
R.A.1405. Notv{ithstanding any contrary provision of R.A. 1405 and
othergeneralor5peciallaws,theeommigsoneFis-allthorizedta±xpiire
iiitrfeb5ilffitl5drijf:
1. a deeedal±o-determine=his_gross estate; and
2. any tax|tar¥er who has filed_an_applic_ationfor compromise
ofhis_taxThabhityunder-Secriz04(A)ca)Of_theT-axCodeby
reason )f financial incapacity to pay his tax liability. In
this case, the application for compromise shall not be
considered\, unless` and until he walv_e_s_ in writing his
Panwvs¥agr3dusnudcehrga+ve]r4:h5;f[rc::::.rt:::eta:eanuetrha;£:;:::iba:
Commissionertoinquireintobankdepositsofthetaxpayer
(See. 6[F].1997 NIRC).
ELx±ts - Under
g;=:#e¥n]at9h9:,ritp[r:I::st]hoenai°c:mmp'::-:°n:-:¥:¥;:a::-::;1:ur:aa,
register, DasecL UJL uiic;LL I+.vLOO~.v ,.-- vv._r ,,... __, ____ _c._ _ .
. A . , I__ ____1_=_---A +L^<-
fitness,individualsandgeneralprofessionalpartnershipsandtheir
representativeswhoprepareandfiletaxreturns,statements,reports,
protests and other papers with, or who appear before, the BIR for
taxpayers. Within one hundred twenty (120) days from January 1,
1998,theCommissionershaucreatenationalandregionalaccreditation
boards,themejnbersofwhichshallsenzeifetthree#t3fcarsandshall
designatefromamongtheseniorofficialsoftheBureau,achairman
andtwomemb¢rsforeachboard,subjecttosuchrulesandregulationa
astheSecretaryofFinanceshallpromulgate,upontherecommendation
ol.the Commissioner.
Individuals and general professional partnerships and their
representatives who are denied-a±itarfu by the Commissioner
and/orthenatiDnalandregionalaccreditationboardsm5rappedseeh
denichtotheS.icretaryofFinance,whoshallrtlkelt-thexppea±within
g#rge¥-t¥atg=:i:##:i:pFrae[::rr,eb:fdt::r:oe:rse±::]yb°:
deemedasappfovalOftheapplicationforaccreditationoftheappellant.
Pursuant thereto} the BIR issued Revenue Regulations No.15-99,
datedJuly16,t999,creatingtheRevenueRegionalAccreditationBoard
GRAB)ineachrevenueregion,andtheRevenueNationalAccreditation
Board(RNAB)intheBIRNationalOffice,andprovidingtherulesfor
accreditation,conductandsuspensionoftaxpractitionersbeforethe
BIR.
184
TAX ADMINISTRATION AND ENFORCEMENT
The objective of said revenue regulation is to accord official
recognition to tax practitioners who possess the desired degree of
competence and professionalism and who demonstrate adherence to
acceptable norms of morality and good conduct in the exercise of their
profession before the BIR. Conversely, both the taxpayers and the
Government will be afforded an administrative mechanism for the
withdrawal of such recognition for those tax practitioners who have
been proven to be grossly incompetent or guilty of gross misconduct to
the detriment of their client and/or the Government.
28u`L± Th e z3EtFE7FtzFjHdrcted_7teEpedttae07Fifend {=ENas) is compo sed
of one of the four Deputy Commissioners to be assigned by the
Commissioner of Internal Revenue, as chairman; and a representative
from the private sector to be chosen by the Commissioner of Internal
Revenue from the nominees to be submitted by the Philippine Chamber
of Commerce and Industry (PCCI), or by the Philippine Institute of
Certified Public Accountants (PICPA), or by the Tax Management
Association of the Philippines (TMAP), and three senior internal
revenue officials in the National Office with the rank of Assistant
Commissioner to be designated by the Commissioner, as members.
"eRetRz©Rngined |RRA-B), on the other
hand, shall be composed of the Regional Director, as chairman; and a
representative from the private sector to be chosen by the Commissioner
of Internal Revenue from the nominees to be submitted by the local
PICPA chapter and three senior internal revenue officials in the
Regional Office with the rank of Assistant Division Chief or higher to
be designated by the Commissioner, as members.
Tax agents or tax practitioners required to apply for accreditation
are those who ae€ngngedin*ax-preetiee, i,e. , the regular preparations,
certification, audit and filing of tax returns, information returns or
other statements or reports required by the Code or Regulations; those
who are engaged in the regular preparation of requests for ruling,
petitions for reinvestigation, protests, requests for refund or tax credit
certificates, compromise settlements and/or abatement of tax liabilities
and other official papers and correspondence with the BIR, and other
•imilar or related activities; or those who regularly appear in meetings,
conferences and bearings before any offlce of the BIR offlcially on behalf
of a taxpayer or client in all matters relating to a client's rights,
privileges or liabilities under laws or regulations administered by the
I}IR. The act of appearing before any office of the BIR shall pertain to
all official dealings or transactions which require discussions,
`)xplanations and regular business intercourse on behalf of a taxpayer,
li`it shall not cover mere acts of physical filing or following up the
Mtatus of any document, ruling or decision or any paper fled or pending
185

LAWOFBASICTAXATIONINTHEPHILIPPINHS
with any office of the BIR.
The accreditation requirements Shall Speciflcally apply to the
following:
a)ii;I:;:/:;:i:::t:%::ii;,a::i§;i:::=:n;t;iic;::ti;::#¥?c;:ti:;a;A;dir;:s:i:i:£ei:£i
these Regulations ;
b,?haertpn.:r.:.o.fea.Fte.nxear,:::,r:::::i:tnaalo?aa:ELeorrs:ipd:t¥:#ei.:
dulyauthorizedofficersorrepre9entativeswhoregularly
ap|)earorotherwi8eengageintaxPracticebeforetheBIR;
and
c)3uffs`::::90re£:]]ty,easu:tog:::€r;enp:::::that:`nv:,a::iE:,Pn:Oorrattea:
consultancy services.
withTohueti°:[d°e:::,gn:raec::'e°dTtea€.to°nappr::::d°,::a?ract`CebeforetheBIR
a):::;v#sae[nttasxapt:gfearc.t:rc;I,E5:tnj,*oonTnbehalfprovlded
b,#eE::.sulois:t:mpe::i.fi:ineeve:,atie;oiasyuaftf::::gopftri::
apply for accreditation;
satisfactory proof of
C) Other individuals presenting Sa.isiac.ui} I,.vv. v.
identification or authority in any one of the following
circumstancesoflimitedpracticeorSpecialappearances:
member of his or her
(i) An individual representing a
immediate family;
(ii) A regular fun.time employee representing an individual
employer;
(iii)A0ono/ideofficeroraregularfull.timeemployeein
representationOfhisemployer-Corporation,association
or organized group;
(iv) A trustee, receiverisuardian, administrator, executor
:Lrset?::::,i:[r[:ill:,eg::rpdL]Payneseh;;::::::gatlonofa
(V) £ge°n¥]yc.eorr°£rn:trreu¥[eanrtea::;0;|eteh°ef :oE°rvs:ronfmh::::£[et;
official duties.
186
TAX ADMINISTRATION AND ENFORCEMENT
Quc.liftcations of Applicc.r.ts for accredi,tatiorl,. 1n general, the
grant of accreditation shall be based on the applicant's professional
competence, integrity and moral fitness. The following are the
prescribed minimum qualifications for tax agents or tax practitioners:
a. For Individual Tax Agents (other than a member of the
Philippine Bar):
1. He must be a Certified Public Accountant (CPA) with a
current professional license from the Professional
Regulations Commission;
2. If he is not a Certified Public Accountant, he must have
obtained at least a degree in Law, Juris Doctor (JD) or its
equivalent, a Bachelor's degree in Arts, Commerce, or
Business Administration with at least eighteen (18) units
in accounting and/or taxation in a collegecor university
recognized by the Department of Education, Culture and
Sports (DECS) or in a foreign school of known repute or
recognized by its government. If he does not meet these
stated standards, he must be able to demonstrate or present
convincing proof of special competence in tax matters or
tax practice, e.g„ previously acquired experience, special
training, seminars, short-term courses, etc., subject to
evaluation and approval by the Board;
3. He must be of good moral character as certified to under
oath by at least two disinterested persons who are either
members of the Philippine Bar or Certified Public
Accountants in good standing.
4. He must not have been charged with and convicted by final
judgment of a crime involving moral turpitude, or found
guilty of any act or omission penalized under the Tax Code,
or found guilty of aiding or abetting or causing the
commission of any such offense by another; and
5. He must be a citizen of the Philippines.
b. For General Professional Partnerships engaged in the exercise
of professional accountancy, auditing or tax consultancy services (other
than general professional partnerships engaged in the practice of law),
the application for accreditation filed by the partners and/or the duly
authorized officers and representatives thereof shall conform with the
following:
I. The I)artners and duly authorized officers or representatives
thereof must meet all the prescribed qualifications of an
individual tax agent. In lieu of the submission of documents
187

LAWOFBASICTAXATIONINTHEPHILIPPINES
or proof thei.eof, said qualifications may be certified to
underoathbythemanagingpartnerofthe firm:and
2.ThepartnershipisoneregisteredwiththeSecuritiesand
Exchange Commission.
c.Inthecaseofincorporatedentitiesengagedinaccountingand
taxconsultancyotherthangeneralprofessionalpartnerships:
1. The firm must be registered with the Securities and
Exchange Commission; and
2. The applicant-officers or duly authorized representatives
thereofmustmeetalltheprescribedqualificationsofan
individual tax agent.
dndnnc=EE-nt~*|¥\
-\-tiHb of the
`=reqFnrr-eH€TnTas -`sEfa=Hm ui uiit;Tax
,a^ Code authorizes the
vv.. __.____
Commissioner to prescribe the manner of compliance with any
documentary or procedural requirements in connection with the
submissionorpreparationoffinancialstatementsaccompanyingtax
returns. Through these requirements, acorratesose88nerfu al.e
likewiseenhanedchcedeyLasso-retheinfuxalcorrect-detaas-baeis
for-tax-aeses&ments„
metEfidET_f¥_gig,gffiF{fiEeTFnT#_:_g::,asuoE_ucsg:gh#3o.¥+:,
ThismethodofinvestigatiaaTo€h6rwisi5rtin6wnasceifivefitorymethou
ofincometaxvei.ification"isaveryeffectivemethodofdetermiming
taxableincomeanddeficiencyincometaxduefromataxpayer.Solno
important considerations regarding the use of this method are as
follows:
1. tr-£o=ifeo_9_kyej2!_g!_a_|b-£o_Fj_7- The method is an extension of
:hheebtaas:Cp:;Ce°r?sn;[entg£:i:i.::ea:ts;S:E£#ubso#ba¥:-;e6S#ffie:::#:t
the end of,the same taxable year. The increase or decrease in net
worthi§radjustedbyaddingallnon-deductibleitemsandsubtracting
there from non.taxable receipts. The resultant figure is the taxable
netincomebeforestatutorypersonalandadditionalexemptions.The
generaltheoryunderlyingthismethodisthatthetaxpayer'9money
and other assets in excess of liabilities after accurate and proper
adjustmentofnon-deductibleandnon-taxableitemsnotaccountedfor
inhistaxretumisdeemedtobeunreportedincome.Othervisestated,
thetheoryisthattheunexplainedincreaseinnetworthofataxpayor
ispre9umedtobederivedfromtaxablesources.
/ (I „ , ' ,,( h
188
TAX ADMINISTRATION AND ENFORCEMENT
2.FThfEEiiiega:EE5;a-uiEe6i-a-uihority-fo;it8use-q`hecomm±ssLoner's
authority to use the net worth method and othe.I indirect methods of
establishing taxable income is found ih See. 37`rnow, See. 43, j997
IVJj?a/, which provides in part: "The taxable-inc6me shall be computed
upon the basis of the taxpayer's annual accounting period (fiscal year
or calendar year, as the case may be) in accordance with the method of
accQqnting regularly employed in keeping the books of such taxpayer;
butifnosuchmethodofaccountinghasbeenemployed,orifthemethod
employed does not clearly reflect the income, the computation shall be
made in accordance with the method as in the opinion of the
Commissioner clearly reflects the income."
This authority has been upheld by the courts in a long line of
cases, notable among which is the leading case of Perez u.
CrA, e! aJ. rJ03 PbiJ. JJ67 /Unrep./). The method is a praTai-cal
necessity if a fair and efficient system of collecting revenue is to be
maintained.
M.oreover, See. \6(tl) (now , See. 6[8]. 1997 NIRC), provides tor a
broad and general investigatory power to assess the proper tax on the
best evidence obtainable whenever a report required by law as basis
for th9 assessment of any national internal revenue tax shall not be
forthcoming within the time fixed by law or regulation, or when there
iB reason to believe that any such report is false, incomplete or
erroneous.
8 \_€o_n4_i±i_op_s for_i_h_g_ _U_s& Of_ihellel H:orlb MethQdJ - rFhe
llpplication of the net worth method is not without limitations. The
I:{)nditions for the proper use of such method is found in the law itself,
•nd the case law developed on the matter are:
(a) That the taxpayer's books of accounts do not clearly''refl-e-;t his
incolne, or the taxpayer has no books, or if he has books, -h't:>iefuses to
produ:e them;
a) That there is evidence of a possible source or sources of income
to account for the increases in net worth or the expenditures;
(c) That there is a fixed starting point or opening net worth, i.e.,
• date beginning with a taxable year or prior to it, at which time the
•®xpayer's financial condition can be affirmatively established with
•iiim ¢efiniteness; and
(d) That the eircumstanc;=`are such that the method does reflect
1111` ',axpayer's income with reasonable accuracy and certainty and
I)r()I)ol and just additions of personal expenses and other non-deductible
•l|N`lrditures were made and correct, fair and equitable credil
•tl|`l#tments were given by way of eliminating non.taxable items.
189

LAWOFBASICTAIATIONINTHEPHILIPPINES
Theaboveconditionsarebrieflydiscugsedhereunder:
:gcf?it¥_¥¥g;¥;-a?i;jheiv#;
Obviously,thismethodofincomedeterminationmaybeuseawhen
thetaxpayerhasnobooksofaccounts,orwhensuchbookaandrecord
arenotavailableforexamination,orwherethebooksareincomplete
and inadequate.
Bythesametoken,theGovernmentnaybeforcedtoresorttothe
networthmethodofproofwherethefewrecordsofthetaxpayerwere
destroyed;for,torequiremorewouldbetantamounttoholdingthat
9killfulconcealmentisaninevitablebarriertoproof.
Onts,,sLjfE+§fgEg_±fi_a=FfujLzna:i:£=_a_9£~_g{m±]:haa]:lei:;ntghcea:::
caseiscivninnature,hdirectproof`ofsour6esofincomeisnotessentia|
-thattheGovernmentisliotrequiredtonegateanpossiblenon-taxable
sourcesoftheallegednetworthincreases.Thus,proofsOfloan9,gifts,
bequest,inheritanceandthelikeneednotbeadducedinevidenceby
:i:tGh°;:enrentmweon*kTnhc:ebausred::sot:rr.°v°efd;;r::°:otnh.:at::?iaeyseorutr°c6S8r
AsstatedbytheSupremeCourt,incivilcases,theassegsorneed
notprovethe9pecificsourceofincome.Thisisrea8onableontheba9ic
assumptionthatmostassetsarederivedfronataxablesourceand
thatwhenthiBisnottrue,thetaxpayerisinapositiontoexplainthe
•i:l==;=i==:;-Fpi erez u. CTA, e. al.. 8upra):
However,whenataxpayeriscrininanyprosecutedfortaxevasion,
theneedforevidend3rofalikelysourceofincomebecomesaprerequisite
forasuccessfulprosecution.Theburdenofproofincriminalcage9is
alwayswiththeGovemment.Itis,therefore,incumbentuponrevenue
agentstonegateallpossiblesourcesofnon-taxablereceiptsinaddition
toadducingevidencetosatisfyalltheotherthreecondition8.Conviction
I:n:::(;c;.c£:§feF;.;n:#:-fi;;i¥:,FT;±:-!n;;;fe;ii:e:o%nT;:.:I:sf,;;:,o:n!darT;:.;so;;;:;
ii:e::sg#isa:ttp:£te::tr:::C::utn;te:*°:Pe:#:y;#:a:::a}r:.:cv:::t;,;:h:a::::b:d¥o:rot:h|:i
methodwilldependentifelyupona[c_orr_ec_t_Qpen_ingn_e±w_orthj
tvid€nc,t + co^ripEmiT } TRutTWOR"
190
TAX ADMINISTRATION AND ENFORCEMENT
Where the Commissioner of Internal Revenue used as part of the
opening net worth the` small bank deposit of the t?_xpayer at the
beginning of the year 1964, and the taxpayer presents in court the
.income tax return for 1946 of his wife to show that his wife made a
grin prior.to that period, and that, therefore, he had an opening net
worth bigger than that used by the Commissioner, but said return
does not contain any detail to indicate how the alleged gain was used,
invested or deposited, it was held that the lower court was correct in
considering said return as a self-serving statement and in giving no
credence to the alleged existence of a bigger opening net worth
corresponding to said supposed gain of the wife rAueJjno I;. CojJec€or o/
Ir.ternal Revel.ue, L-17715. July 31,1963).
Of course, where a taxpayer claims a I)ig opening net worth, the
evidence supporting it``must both be competent and trustworthy
(Collector of lnterrbal Reverbue u. Li Yao, L-11861. Dec. 27,1963).
6 (d) ,P=±9Bgr=±dj}±±1apan±8-dr±urch=tbe=inco-ndaun -
Proper
'this a_djustments
category for non-deductible
are: personal, items
living or family must bepremiums
expenses; made. Under
paid
on any life insurance policy; losses from sales or exchanges of property
between members of the family; income taxes paid; estate, inheritance
and gift taxes; other non-deductible taxes; election expenses and other
expenses against public policy; non-deductible contributions; gifts to
others; net capital loss, and the like. These must be added to the
increase or decrease in net worth, as the case may be.
On the other hand, non-taxable items should be deducted therefrom.
These items are necessary adjustments to avoid the inclusion of what
otherwise are non-taxable receipts. They are inheritance, gifts and
bequests received; non-taxable capital gains; compensation for injuries
or sickness; proceeds of life insurance policies; sweepstakes winnings;
interest on government securities and the like.
Hence, in a case, one-half of the long-term capital gains from the
sale of capital assets and depreciation of rental properties were deducted
by the court from the increase in net worth (ALJeJjno case, sL4pro/.
As to loahs,lit is important to consider that the Oral testimony of
the creditor to prove a debt, as a rule, i8 insufficient for purposes of the
income tax law. Thus, in a certain case, the Court ruled that a loan
was not proven to exist where the books of the taxpayer failed to show
Such loan and where no receipts or other evidence were advanced to
prove the \ot\n (City Lumber. Inc. u. Domir.go, supra). However,
increases in net worth are not taxable if they are shown not to be the
result of unreported income but to be merely the result of the correction
of errors in the taxpayer's entries in the books relating to its
191

LAWOFBASICTAXATIONINTHEPHILIPPINES
I::ad:ib(tF:edr:n:a:ns5d:;z:?jr;::ao;ro:s%;;§;e;ro°:em°rs:1,%;]esrt:;rant?r°nuag,hR%]ureenafey,
ioan[%nn°9tahc::ocna9S:'etthwee::::td:v°,.dn::fs?:::Eat:::9tahcet]Voenrsyanraet:::,:;
Cn°ont:°s:t,:uda?ess:?,Cc]£:`cyk:eat:de::hf::egn,dms]ianrddroe::t:Veenstss,°[;htahtep:::e`:::?f
otherrelevantevidence,deservescantconsideration.{|norder_t_ba_tl
i:i:i;;e;8-:i_;£j;!k:;n;;;;;a%¥::e:ev;1C;i;:;a;jm:/;#:hge:1;,i-t:;i:t-Son;C;:¥e¥;::}eEpe;:;:w::
:oo|:::-;=::t=nnTg¥t:g:u:a:'
penaltiesandfines.
Forinstance,inthecaseofviolationscommittedagainstthe
provisronsofTitleVIoftheTaxCodeonexcisetaxeg,asincaseswhere
:?:;;rt:oC:;o:::S;§b§f;i;in;:I;;c;i';§aic::;°§fe;:;rp;I:;:;Ct;ipa;;:i:;:i:bi::[€:h:er;i:aig°ic§s:t;if;7;;;§i:dg
authorizedtoinstitutethenecessaryactionfortheconfiscationand
::¥ter]:u::::st:::::::ewd,St:f;i:cC:.t¥:::,t:*:ec:fmt:e,tgt°e°dd;S::d2t7h8e,
'==:,`€:::-279,1997NIRC).
seA#:ngfg°;C;om#e8:£:,:L%rs,an::apnecne:I::etsriotF,:::Yh`:cL¥9`,:::;
torecommendthefilingofacriminalactionforthecollectionofinternaI
revenuetaxes,feesandcharges.AIsounderBerr222tHi5i*j5gE="o/
'pheen:ft:e7sT##o:e°gfe;'ecnr:£.`ensa:::tf]o°r¥eTt:¥ebse;:i::et°d[eg:i°srsceed9,tna:u,ta°treyr
portionofthischapter.
en#ai:rfg=±e=m#©T±fro£:::i
theanprgr
?hneoEffaiE.Eft:-g8f:gw:h:.ip::teEoe.ffTEI?:_3i¥;_::S:c?::m`;h::o,:c:E
TAX ADMINISTRATION AND ENFORCEMENT
"iE5iifde? For instance, pursuant to Sec.152,1997 NIRC, the
BIR has the authority to supervise establishments where articles
subject to excise tax like alcohol and tobacco products are stored.
dep:t:etso,gg-¥e'ct£:sTraexv:::::1:tpr:cieor£]:::scaonE:t;hs:ioi:::;:;:
revenueofficerstt{r]]mkeqHegtsatseiir5fe5fethaiLid&tienaf_flny
palhaH±egulAt;innndminis±ereddy_therm(Sac.j5,j997NJRC).
eeMMlsslcINERTo-DE-IE_G4E_F
i-R. LS_e_c±_7Lm IRC, provides: "The Commissioner may
delegate the powers vested in him under the pertinent provisions of
this Code to any or such subordinate officials with the rank equivalent
to a division chief or higher, subject to such limitations to be
promulgatedbytheSecretaryofFinance,uponrecommendationofthe
Commissioner: Prou}cfed, hoLueuer, That the following powers of the
Commissionerchdi-n-ofbaiRIeg-fie-d:
(a) The poser_to_+eenm]aseed the promulgation of rules and
regulations by the Secretary of Finance;
a) The pLQREjato_issue-mlings of first impression or to reverse,
ulmeSarmt]dify any existing ruling of the Bereau;
(c) The peREerJifecompromis-alflte, under See. 204(A) and (8)
of this Code, any tax liability: Proujded, however, that assessments
issued by the regional offices involving basic deficiency taxes of Five
hundred thousand pesos (P500,000) or less, and minor criminal
violations, as may be determined by rules and regulations to be
promulgatedbytheSecretaryofFinanee,uponrecommendationofthe
Commissioner, discovered by regional and district officials, may be
compromised by a regional evaluation board which shall be composed
of the Regional Director, as Chairman, the Assistant Regional Director,
the heads of the Legal, Assessment and Collection Divisions and the
Revenue District Officer having jurisdiction over the taxpayer, as
members; and
(d) The ponndp[a5rignurreun8ign internal re¥enue _aflieeBiF to
i===j±H]Eeiiis=whereike=qrfefeBi5n-5j-ect±=texa±e=ii=ad!±±eeed~
-`.„ In ZiepndJic I/. Hizon (G.R. No.130430, Dec.13,1999), the Supreme
( 1tiurt held that subject complaint for collection of a tax deficiency was
il`ily filed upon the authority of the Commissioner, despite the fact
tt`iit it was not signed by the then BIR Commissioner, in compliance
with See. 221 (now, See. 220, j997 IvlficJ, which was implemented by
lt^O Nos. 5-83 and 10-95 -
193

IAWOFBASICTAXATIONINTHiPHILIPPINHS
old.;XrxNXoT:.`8m3Po`:rheeni:R.;:o::drse`s°:;::::.nnueen#omr:Tosntgrat`Ve
Lyegap:ee£:I::`[n:cEt`:n:g:;`i:e`:a:nfdus:pn£:.*n|oai:::es:,asr:8t:,::ehda,nnd:£
11. Civil Cases
1.Complaintsforcollectiononcasesfallingwithinthe
iurisdictionoftheRegion....
Inalltheabovementionedcases,theRegionalDirector
]tshearuetwh,°ti]Zwehd]ct£,::i:I:I:s:,`:::::rge9s:.::dB,`gnnact°unr:eocft:i:
C ommissioner.'
i!i::::,;i;ir:yi:e;;g;:;::;;,i::;i;i;i;:i;t:::i;;::ii::;i;;;;:i;s;i::y;;:ci:::;;;i;:i
the law.„
TheCouriobservedthatRAONos.5-83and10-95wereinkeeplng
wlththe8tatutorymandateofSec.4oftheformerTaxCodethat
bureauregulation8shallspecify,prescribeanddefinetheConditlons
tobeobservedbyrevenueofficers,provincialfiscalsandotherofflcials
respectingtheinstitutionandconductOflegalactionsandProceedings.
ThedecisionlikewiseunderscoredtheCommissioner'sauthorltyto
delegatepowerssubjecttocertainexceptions.
:i,eeEi::Tibs¥fi.:ggagiT:c:;1::::??;:_£.hF=:g!:;:-t:i:a-g:.hwT:;
thelawvestshimwiththefollowingpower8:
1:-g]:::::rhs:dpe°p[;Cr.te:'e:t`:::Lop::g.roan::.arreua],esand
2 gn=,#u#h}en::::sas}mr:::::i Lcaox:c::odnrouf}:ii
internalrevenuetaxe§,chargesandfees;
194
TAX ADMINISTRATION AND ENFORCEMENT
3. Iggu~dettaEof_-J±uthtry for the examination of taxpayers
within the region;
4. P-i5thEEBmBrirfu-tifflrirmtndBffactipEBervice,to the
people in the area;
5. C56jainte with regional offices or other departments,
bureaus and agencies in the area;
6. CrdiFatehwith local government units in the area;
7. ExeFrise=rmfrolHnd enpervirfu_-dyerthe±rs and
Qmplopees within the region; and
8. Prfu_in ndrferTuhano-ne as may be provided by law
and as may be delegated by the Commissioner /See. JO,
1997 NIRC).
Dq}HrsoFREVENIIE-DlsTRlcT_oFFIfERsj±morREn
I..|mml; REVENUEommcE_RS. No less important is the position
occupied by the Revenue District Officer in the different districts into
which a revenue region of the BIR is divided. Hence, the Tax Code
Specifically directs that "(i)t shall be the duty of every Revenue District
Officer or other internal revenue officers and employees to ensure that
all laws, rules and regulations affecting national internal revenue are
faithfully executed and complied with, and to aid in the prevention,
detection and punishment of frauds or delinquencies in connection
thorewittt (See.11,1997 NIRC). `
The Tax Code further provides that "(i)t shall be the duty of every
Revenue District Officer to examine the efriciency of all officers and
®mployees of the Bureau of Internal Revenue under his supervision,
and to report in writing to the Commissioner, through the Regional
I)irector, any neglect of duty, incompetence, delinquency, or
lnalfeasance in office of any internal revenue officer of which he may
obtain knowledge, with a statement of all facts and any evidence
•ustaining each cage."
jlur!*or{tyi]faEct"ne--a/tie-er. A Revenue Officer assigned to
iit)rform assessment functions in any district pursuant to a Letter of
^uthority issued by the Regional Director, shall have the following
uthority:
(a) To examingtaxpnyus withiuthejuriedirfu of the district
in order to collect the correct amount of tax; or
a) To rearoHffi5i5ashe-sgBeREmentrf-any=drfuciency+m`Hde in
the same manner that the said acts could have been
performed by the Revenue Regional Director himself
(See. 13. 1997 NIRC).
195

LAW 0F 1
thaFtL+¥_:i:E,=£_Lr:t9ea,
accounts and other {
ofverifyinghistax1
service.
A revenue officer
tlf#`afse:u#d:.i
tahneda}:dd':::f]bc;.,sT§::i
TAX ADMINISTRATION AND ENFORCEMENT
LE¥t:t,tL°;fl::##;,£P%ho*o#\Vneonu€
more than two (2) years, subject to rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the
Commissioner.
e]C)oh6 of -rF
3.:i.: AccrouNt5 ¢ a+"
Vuofvr\0
PW AfroEnsigutQfirmELE5ctieriue-€:ffdsedds5fl-fREbm6FEinfrfegiee8_to
fo\ iavb,fti%'uauJr`nJgth#b O£ZEE!r=Ba[riizs. Under STeeTT17 of the 1997 NIRC, the Commissioner
olr. may, subject to the provisions of See. 16 and the laws on civil service,
as well as the rules and regulations to be prescribed by the Secretary
stAv
:'\V lc,E
'V| -a= Lefttft , lfIAou,*!rfu of Finance, upon the recommendation of the Commissionel., assign or
~b*,a:¥:{Fv#c;H,O¥Ord#: reassign internal revenue officers and employees of the Bureau to other
or special duties provided the following Feqnisites are complied with:
n'u}, -
(a) That the as§±gHeHtThF5`HaH€ Eh5flgde-officialrank and
salary of the personnel assigned;
a) That the assigrmient-involveg=dutREcomre:€ted with the
" + `apudqutvf hwh#n#ctn eHfroment-H-nd a+illii[ ListratRE=ofthe=revelmeha_w a s the
r.' au010 4 ~Mo..T
exigencies of the service may require; and
(c) That the agsignffientwhalhaotexedone (_I)_year==T_

[±-iher or-apecie[jt4d;-j`" refer not to a special or extraordinary

g:i4e=:-i:;:y#i_¥;::I+ioi;i:liv;;;i,|i;jijji|,omfir:;S;¥:E:1::si;:;f:i:ejia,:a
|,|'||„|,I-PO ,--. __ ` i,
RA:g:s°tnaan]tDc`£gfts°::5t:,S:.Sot:,n±eRveevneuneu£.:te:::'6afr];e`;:,--s`p-e-;ia|deputies
oftheCommisgioner,mtemalrevenueofficersandanyotheremployee
%a:v:e::::raeE:nt[t:e:;;:w£:cha;i
thejurisdictionoftheBureau.
• _ i:^`^o awhiect to excise
i-a::pf:u:i±;'=1?:J;]ft;;:e:a-::;i:L8:e}:;::::]l:::se::ee::1:uric:col:;.:;6j;;ttoexc,se
taxareproducedorkept,asoftenastheexigenciesoftherevehue
servicemayrequire.
undertaking, but to functions or work other than or not related to
those regularly discharged by the employee concel`ned.
An internal revenue officer assigned to perform assessment or
collection functions shall rro€remain in the same assignment(formare
than±3}irea¥st.
d,sc[gr:=8v¥evn'gof#ro=i:oanY;ityeh::xa3o[::eorrnoaf]ar:;::::r°;i`ec::
regulation administered by the Bureau of Internal Revenue. of such
character as to warrant the institution of criminal proceedings, he
Shall immediately report the facts to the Commissioner, through his
Immediate superior, giving the name and address of the offender and
the names of the witnesses, if possible; provided that in urgent cases,
the Revenue Regional Director or Revenue District Officer, as the case
may be, may send the report to the corresponding prosecuting officer.
In the latter case, a copy of his report shall be sent to the Commissioner
(See.18,1997 NIRC).
The term (urgen! £afe8'¢overs a situation where the violator is an
uljenQ±__aL_L±±Ltizep who is a±±emp±ing=±eescape from the country or one
Who il±±£LnL±Ls__±Q=_±e_mQi€, hide, or eengeal_b±sLj±p=e_rty from the
Philippines for the purpose of defeating taxation.

anyF=i6gi#sfa§-Eg]:hrijs¥7aif:n`::e:::::::;n,:eh°,fsf]:::,:;S:gennetdf::
2Lf:T5- 197
196

LAWOFBASICTAXATIONINTHEPHILIPPINES
tha[tz¥:#£_::hvge:!EjL#,esr:::ht:re,::Lt::,e:fao:i:::haet:::::eorf
accountsandotheraccountingrecordofsaidtaxpayerforthepurpose
ofverifyinghistaxliabilitiesduringataxableyear.
aigr::Lc:fofgggi:Efoi=iE,;jiTt:ed#e:fu.:ts::,soetTeerdwt,:et,h.:
becomesnullandvoidandthetaxpayerhasalltherighttorefuBeits
service.
the££Voefn}:eu°af£[cC:::Ea£'rvw]]c¥i°hneeE=;ncodrfnyg¥iDgpt
hisLxpoctOfinvestigation.Ifthefinalreportisnotcompletedwithin
the120-dayperiod,aprogressI.eportmustbesubmittedtotheheadof
theauditoffice.Therevalidationshallbelimitedtooneissuanceonly
and is done by issuing a new IA
uniE:-¥±gg:T=5Ea±:%r±Cae+85:°iA#`!6n,}8t££~:-%'m±m:-sns~:6f::,CT::8-'5%°:#
Commissioners, Service Chiefs, Assistant Service Chiefs, Revenue
RegionalDirectors,A§sistantRevenueRegionalDirectors,Chiefeand
AssistantChiefsofDivision,.RevenueDistrictOfficers,specialdeputies
oftheCommi9sioner,internalrevenueofficersandanyotheremployee
ga:v:ete:;e:;#g¥t't:e;`¥°#:hch:,:i
'hiuiiiiiiffir±__ig-_§hE±±=±.-¥±.e.±====±==G9al!
thejurisdictionoftheBureau.
---__
E{::;!€:;Tm`-:===i=-n'er-,'ifrD~e-Fui;Eoi=missioners,theRevenue
ltegional Directors,theRevenueDistrictOfficersandotherintermal
ijirecLuls, .iic I,.a ,..,. y ~._.___ __I_^=-,,~^of^T
revenueofficersshallhaveauthoritytomakeari.estsandseizuresfor
thevtdet_i_o_n_Qtap=¥_p_enaLlaxpTruleorr_egulctionadmiristeredby-the
B~ureELu_of~IntemalRevenue.Anypersonsoarrestedshanbeforthwith
brought before a court, there to be dealt with according to law
(See._1_5.1997 NIRC).
±£¥£::_rf;_::Z:¥g£R¥=T:F§#n¥L¥;:e:i:ouFnd:;1:v:eT:#:€::::T]a¥
taxfunction9toestablishmentsorplaceswherearticlesBubjecttoexcise
tax are produced or kept, as often as the exigencies of the revenue
service may require.
anyai££E#8=geriii_esi7a,f[nn[::e::sfl::::;n,:eh°.:f':::1:;Sigennetdf::
a._I::,-\-
196
TAX ADMINISTRATION AND ENFORCEMENT
more than two (2) years, subject to rules and regulations to be
prescribed by the Secretary of Finance, upon recommendation of the
Commissioner.
4sinen:anz£Hti:stinteEmFEteijgwieF75if{.€5ef8=riaJ)theFEFinptogiv8_to
OnzzL=Z2i2Zi]z8. Under stir+=It of the 1997 NIRC, the Commissioner
may, subject to the provisions of See. 16 and the laws on civil service,
as well as the rules and regulations to be prescribed by the Secretary
of Finance, upon the recommendation of the Commissioner, assign or
reassign internal revenue officers and employees of the Bureau to other
or special duties provided the following peqrisites are complied with:
(a) That the assngHerfewoifld` Ti5* change=thaoffiridrt[nk and
salary of the personnel assigned;
a) That the assignment-froiveF-`drfeg-cormcked with the
eH±zfudedrfustHtioHrfth5iFeRE:wh]ir a s th e
exigencies of the service may require; and
(c) Th a t th e aesigrHeErfutrH-nctexceed"e_i±_)irear=_-
ffinr_ or__ap:c£E£„3£e_6T„ refer not to a spec;a] or extraord;mary
undertaking, but to functions or work other than or not related to
those regularly discharged by the employee concerned.
An internal revenue officer assigned to perform assessment or
collection functions shall Hat remain in the same assignment(for±e
th±--3r5rears..
d.sc#~gi=`:S-VI°gn':a:6o{fap::{ti?fiL%ftreh;:xa6o[dneteorrnoaf[ar:;::::r°uf:lee::
regulation administered by the Bureau of Internal Revenue, of such
character as to warl.ant the institution of criminal proceedings, he
Shall immediately report the facts to the Commissioner, through his
Immediate superior, giving the name and address of the offender and
1 he names of the witnesses, if possible; provided that in urgent cases,
I he Revenue Regional Director or Revenue District Officer, as the case
rT`ay be, may send the report to the corresponding prosecuting officer.
I n the latter case, a copy of his report shall be sent to the Commissioner
(Sec.18,1997 NIRC).
Theterm\been!-a-aTse;-:-,6oversasituationwheretheviolatorisan
itlien_o±aL±1±i.z±ep who is attempting±eescape from the country or one
w ho intenLn±s__to_T±e_in_o__y=e, bike, or confeal=hisap_r`ope±±]r from the
I 'hilippines for the purpose of defeating taxation.
197

LAWOFBASICTAXATIONINTHEPHILIPPINES
areEe¥is::T,*e¥;aTree;oe,;ouwe,tnagxteasxes,feesandcharges
(a) Incometax;
a) Estate and donor's taxes;
(c) Value-added tax;
(d) Other percentage taxes;
(e) Excise taxes;
(0 Documentary stamp taxes; and
(g)Suchothertaxesasareorhereaftermaybeilnposedand
collectedbytheBureauoflnternalRevenue(See.2J,J997
NIRC).
BRIEF SURVEY OF COMPLIANCE REQUIREMENTS,
STATUTORY0FFENSESANDPENALTIES
A. Compliance Requirements
1. KrfuzH=Borfuto+-Aeeaunjs - Regarding the bookkeeping
";e':i;Ci;g°iete':ng`o:_h°_sm^3_F`nf.:.Sc:onupQna:8tp::ur§rlherdpcs:°p;oer=w=:tlsoo°£±;
requirementsfortaxpayers,Sea.232rofthe1997NIRCprovides-
companies, partnerships or persons required by law to pay
:|tee[:n::::vV:,ne::st.a;er:uS,hdae]!,k;:Pw:..je°r?r#a:n:hao::dfehro::
iuhaorut::}nyds::esso'se(a:;:?o886;esche:?]t;::p°:tnpdu::e°sn£°:;]X[::eeddsFe]tftoyf
bookkeeping records duly authorized by the Secretary of
Financewhereinalltransactionsandresultsofoperationsare
shown and from which all taxes due the Government may
readilyandaccuratelybeascertainedanddeterminedanytime
oftheyear:Prouidec!,/%rther,Thatcorpoi.ations,compapies,
partnershipsorpersonswhosegrossquarterlysales,earnings,
i;C]e5]5,toso°or),°#]the:::etdhe°}:eb:ouknsd::da::fot:ntths°::i?tdefeas::
examinedyearlybyindependentCertifiedPublicAccountants
and their income tax returns accompanied with a duly
accomplishedAccountlnformationForm(AIF)whichshall
contain,amongothers,informationliftedfromcertifiedbalance
sheets,profitandlossstatements,scheduleslistingincome-
producingpropertiesandthecorrespondingincometherefrom
and other relevant statemepts.
198
TAX ADMINISTRATION AND ENFORCEMENT
"a3) Ir.deperrder.i Certified Public Accountor.i Defined.-
The term `Independent Certified Public Accountant,' as used
in the preceding paragraph, means an accountant who
possesses the independence as defined in the rules and
regulations of the Board of Accountancy promulgated put.suant
to Presidential Decree No. 692, otherwise known as the Revised
Accountancy Law."
SHREj@ry±s. Under Ser=233) 1997 NIRC, taxpayers are
given the option to keep subsidiary books as the needs of their business
may require; provided that where such subsidiaries are kept, they
shall form part of the accounting system of the taxpayer and shall be
subject to the same rules and regulations as to their keeping,
translation, production and inspection as are applicable to the journal
and the ledger.
Long:unge=-wi-u]hich Booha-_are_tr=be-Kiept.I Books of ticcouuts or
records required to be kept should be in a natirela-nguage, English or
Spanish, with the further requirements that if additional books are
kept in a language other than a native language, English or Spanish,
a true and complete translation of all entries thel.ein must be made
into a native language, English or Spanish, and that said translation
must be made by the bookkeeper or such taxpayer, or in his absence,
by his manager, and must be certified under oath as to its correctness
by said bookkeeper or manager, and shall form an integral part of the
aforesaid books of accounts. The keeping of books or records in any
language other than a native language, English or Spanish is prohibited
(eez5::234, I 997 NIRC).
Br`eseri3ct:ionFof-Bode6f-fi5576:EFrits-eeftd-~idecoutin8Recor_ed£-._
Ch_235 of the 1997 NIRC provides as follows: "All the books of
accounts, including the subsidiary books and other accounting records
of corporations, partner.Ships, or persons, shall be preserved by them
for a period beginning from the last entry in each book until the last
day prescribed by Section 203 within which the Commissioner is
authorized to make an assessment. The said books and records shall
bea ch]es_i+eexaminationmdinspeden=ty=in€eTriii=l--rete-nife-olfi-cerB:
uizz~G-G, 1 Th a t fiIT-inctn±xT-qurpusEF__rd _ exarfurmti-¢n-zmdj
Fcti'oni3halLbe=med_eQn±y_o_Gee-_i_na_t_a_xall€yeaT+g¥cep_t_-i_nthe
Wow,ng
`ife) Fraud, irregularity or mistakes, as determined by the
Commissioner;
`B) The taxpayer requests reinvestigation;
`¢€j_.,Verification of compliance with withholding tax laws and
199

LAW0FBASICTARATI0NINTHEPHILIPPINES
regulations;
"(fa7}Verificationofcapitalgainstaxliabilities;and
"&eTlntheexerclseofthecommissioner'spowerundersection5(B)
toobtaininforniationfromotherpersonsinwhichcase,anotheror
separateexamillationandinspectionmaybemade.Examinationand
inspectionofbooksofaccountsandotheraccountingrecordsshallbe
doneinthetaxpayer'sofflceorplaceofbusinessorintheofficeofthe
3ffl¥:r:gfiiit¥¥e:f#Lg¥¥ggigg-
includingthesubsidiarybooksandotheraccountingrecordstothe
Commissioneroranyofhisdeputiesforexamination,afterwhichthey
shall be returned. Corporations and partnerships contemplating
dissolutionlnustnotlfytheCommissionerandshallnotbedissolved
untilclearedofanytaxliability.
"Anyprovisionofexistinggeneralorspeciallawtothecontrary
notwithstanding,thebooksofaccountsandotherpertinentrecordsof
::x:::emT:::[rogna%,yzatth[:nE::egar:notfe::toefrtna:,,Rceevnet;vueesfsohra;[ubrep:::]se:i
ascertainingcompliancewithconditionsunderwhichtheyhavebeen
grantedtaxexemptionsortaxincentives,andtheirtaxliability,if
any-„
2. Mtsed±:cutgoug=Adwivi8txpfu±eReqiireaeut8
(eL) Regirtraf ron_Beqrirencef[ne
i5co=-236ofthe1997NIRCprovidesasfollows:
"(A) j3eqwiremen}!s. - Every person subject to internal
revenuetaxshallregisteroncewiththeappropriateRevenue
District Officer:
1. Withen ten (10) days from date of employment, or
2. On or before the commencement ofbusines9, or
3. Beforepaymentofanytaxdue,or
4. ¥sP:enqi`:::8.°nf tab::t3::;.Statement or declaration
"Theregistrationshallcontainthetaxpayer'9name,style,
placeofresidence,business,andsuchotherinformationas
maybefequiredbytheCommis9ionerintheforlnprescribed
therefoI.
200
TAX ADMINISTRATION AND ENFORCEMENT
"A person maintaining a head office, branch or facility sham
register with the Revenue District Officer having jurisdiction
over the head office, branch or facility. For purposes of this
Section, the term `fttfty' may include but not be limited to
sHle8outlets, phaeesofprfuden, wchousesor.Btariage=places.
"@[`rfund=Beg+s!±ctiozFF±€-.i,- An annual registration
fee in the amount i2f_-FivehiindredpeaQs=_{F5QO+I iQr-g¥ery-.
separa±£o_I-distinLe_t-L9$8HishmentD_r=-pl_a.€_e__a_f=_b±±siae§prj
including facility types where sales transactions occur, shall
be paid upon registration and every year thereafter on or before
the last day of January: PF®17!-aid-,=fiolzfiztRT, That cooperatives,
individuals earning purely compensation income, whether
locally or abroad, and overseas workers arendifeie to the
registration fee herein imposed.
"TheTegistHrioH-fechaHhapndtotmuthorized&gen±
hankhaated=withluthe_revetLut±_iidrrietjj o r to the Reve n ue
Collection Officer, or duly authorized Treasurer of the city or
municipality where each place of business or branch is
registered.
"(®R€gistrc.tivTF:OfEcbch;T¥penf_In±eunndBeaemzz=Tap§. -
Every person who is required to register with the Bureau of
Internal Revenue under Subsection (A) hereof, shall register
each type of internal revenue tax for which he is obligated,
shall file a return and shall pay such taxes, and shall update
such registration of any changes in accordance with Subsection
(E) hereof.
"(D}2=aJrty_qFRqgiv5trchn. -In case a registered person
decides to transfer his place of business or his head office or
branches, it shall be his duty to update his registration status
by filing an application for registration information update in
the form prescribed therefor.
"(E) enerLt,Fjacztes. -Any person registered in accordance
with this Section shall, whenever applicable, update his
registration information with the Revenue District Office where
he is registered specifying therein any change in tax type and
other taxpayer details.
"(F)TfifeBEZza3E5jroTj3egistndazh -The registration of a ny
person who ceases to be liable to a tax type shallcbe=-lid,
upezFfiling_-]riththe=`Rgiv@~ife-=DTstHct=tFTi€e-\)whereheis
a:figisteF_ed±n _-apphatinnfr=regi5€i.dioBr_t±p2±±_te-> in a form
prescribed therefor.
201

LAWOFBASICTAXATIONINTHEPHILIPPINES
exp:!:s)t€£r#r¥p¥:u;]eAc:?opveari:°eT;dwd::
:!is;c:ho:ju:a;;I;;;fs:td§h::x;t:in;;o:v¥:t!!:;£:s::tei::lid;fiiii;i;:::i:En::::::oil,i:,
paytheannualregistrationfeeprescribedinSubsection(a)
hereof.
;£n:::`::::;:¥im¥f¥Si=gab:e¥:¥[i:e¥;r°;¥§tt:;:
inaccordancewithSubsection(A)hereof,andshallpaythe
annualregigtrationfeepregcribedwithinten(10)day9after
:i:::idu::at£:e]da#xmc::t::i:]hn%tf:::1:i:af[::tsdhaayL`o?:h[:a::en:a
followinghi9registration.
wh:`s¢e)t#og%{¥r¥¥¥::a:dAtnayxp::Sd°enr
;c:):t:1;§i;):o{;;h£;tt%he::;:;::;:oi;gnt?:P:::g;:d:eer:S::°ci%iai%t%a:x:i:a°9ne)S;
:e]:Pst:::,poenc:nt:ri`:t]eoxnp]Onrtacbc:Lredsa:cne`yJ.t¥asyu:spe::.toen?E;
;:,:;!!,.e:::u:a:rtt:er:::iit:;Ea:1i;;h;::t:E:eionr::::::g::tnr,ant:oonftft:
;er:s;.o:::b,::y:cy:i:it3h:e3!:o:E.o::%or:eefgf:tyl;io.rn:lduT,.:;sut5:iltve:
:i::;:r::ve::::::¥3°g:[!:;;o¥na::ct;hj::Ce:y::9ia::,y::e:;:ie:rn:::°¥:1ifs
¥dAeT-tr.i]gc]::}eor:dNPue:Sb°enrYh°Shaubea8SlgnedonlyoneTaxpayer
XXX
:futb:se:xc]e:9;§j;¥j::F;¥¥;:;[¥;_:_:,gTP5:i:t;:::;;:nt:,:;fa,:c,eu:,:]r:3
TAX ADMINISTRATION AND ENFORCEMENT
"(a) Sale Of nonfood agricultural products; marine and forest
productsintheiroriginalstatebytheprimaryproducerorthe
owner of the land where the same are produced;
"a) Sale of cotton and ccttonrseeds in their original state;
and copra;
"(c) Sale or importation of agricultur;i and marine food
productsintheiroriginalstate,livestockandpoultryofakind
generally used as, or yielding or producing foods for human
consumption;andbreedingstockandgeneticmaterialstherefor.
"Products classified under this paragraph and paragra|]h
(a)shallbecqnsideredintheiroriginalstateeveniftheyhave
Fonrd:i:0:eatrhkee:,I:::ip::Cferseseez§.:fg?rderpya.rnagt,}°sna?tr;:::a:r:.a]:Log:
roasting, smoking or stripping. Polished and/or husked rice,
c6~r-n grits, raw cane sugar and molasses, and ordinary salt
shall be considered in their original state;
"(d) Sale or importation Offertilizers; seeds, 'se`edlings \and
\:`grd`,I:fts:,fijsE;tphrearw,:;i.,I;Sptr°oCEuac:::::it;%ieeedd,SL::i[rnd:::
manufacture of finished feeds (except specialty feeds for race
horses, fighting cocks, aquarium fish, zoo animals and other
animals generally considered as pets);
XXX
"(z) 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 Five hundred fifty thousand pesos
(P550,000);Prouid;aThatnotlaterthanJanuary318tofthe
calendaryeaisubsequenttotheeffectivityofRepubl]cActNo.
824l-afid each calendar year thereafter, the amount of Five
hundred fifty thousand fifty thousand pesos (P550,000) shall
be adjusted to its present value using the Consumer Price
Index, as published by the National Statistics Ofrice (NSO).
`Theforegoingexemptionstothecontrarynotwithstanding,
anypersonwhosesaleofgoodsorpropertiesorserviceswhich
aI.eotherwisenotsubjecttoVAT,butwhoissuesaVATinvoice
or receipt therefor shall, in addition to his liability to other
applicablepercentagetax,if any,beliabletothetaximposed
in Section 106 or 108 without the benefit of input tax credit,
and such tax shall also be recognized as input tax credit to the
purchaser under Section 110, all of this Code."
203
 TAX ADMINISTRATION AND ENFORCEMENT

LAwoFBASICTARATIONINTHEPHILIPP|NES
(c) 185tREeeapQgivi5F:sde8enF €eFfoineFz:id=Itsoins
With regard to this requirement, tseic=23.7 of the 1997 NIRC provides
that "(a)ll persons subject to an internal revenue tax shall, for each
sale or transfer of merchandise or for services rendered valued at
Twenty-five pesos (P25.00) or more, issue duly registered receipts or
::--:`-:::::--::-::-::-:-:-:-:-:--:`:-:--:::-:--.-:--:--:---:-_:--::-`;--:--i::---:---:_--:--::-:-I::-:,-:---'`::::---:-
sales or commercial invoices, prepared at least in duplicate, showing
the date of transaction, quantity, unit cost and description of
merchandise or nature of service: Proujded, botueuer, That in the
case of sales, receipts or transfers in the amount of One hundred pesos
(Ploo.00) or more, or regardless of amount, where the sale or transfer
following, is made by a person liable to value-added tax to another person also
«i. sugar ]uedans, refined Sugar release order or simi|ar liable to value-added tax; or where the receipt is issued to cover payment
made as rentals, commissions, compensations or fees, receipts or
Lnst::T;:t::sticbillsofladlng; invoices shall be issued which shall show the name, business style, if
any, and address of the purchaser, customer or client: Proujded, frr!ber,
w3.Document9tobereglsteredwiththeRegisterofDeedsor 'I`hat where the purchaser is a VAT-registered person, in addition to

Assessor'soffi3e; the information herein required, the invoice or receipt shall ful.ther
"4.Regist,.ationCertificateoftransportationequipmentby|and, show the Taxpayer Identification Number (TIN) of the purchaser.
"The original of each receipt or invoice shall be issued to the
sea or air;
«5.DocunentstobereglsteredWiththeSecuritiesandExchange I)urchaser, customer or client .at the time the transaction is effected,
who, if engaged in business or in the exercise of profession, shall keep
ommission;
`.6.Bui|dingC0nstructionpermits; nnd preserve the same in his place of business for a period of three (3)
years from the close of the taxable year in which such invoice or receipt
«7.Apprftl_O.?£::^1:.anwithbanks,financialinstitutions,orother was issued, while the duplicate shall be kept and preserved by the
flnan`c.i:i::fe:.Inediarie§; I.8uer, also in his place of business, for a like period.
"The Commissioner, may in meritorious cases, exempt any person
•ubject to an internal revenue tax from compliance with the
I)rovisions of this Section."

(d)cTFt~ffling-of_Receiptsarisa:keso±Gatrinurcin±ham±rm
:u:p:::::::id;ii:0::I;i:;;otd;;s;:b;;:;:;:::;i:;ri:;:S;e:a;y:b;:e;;;f;ee:cP::e:;;;eu:.;;;;:n:d:e:r The Tax Code also prescribes requirements relative to the printing
of receipts or sales or commercial invoices. See=13&provides, thus:
"All persons who are engaged in business shall secure from
the Bureau of Internal Revenue an authority to print receipts
I:--`-`--.-_`.-::``:---:`::`--:i-;--:-:-::_:::::-:::::.:--_:::=`:i_=_:::-::-::`-:I:----:-.----:,-`-i__---`-`-- or sales or commercial invoices before a printer can print the
Same,
"No authority to print receipts or sales or commercial
invoices shall be granted unless the receipts or invoices to be
printed are serially numbered and shall show, among other
l,l`ings, the name, business style, Taxpayer Identification
Number (TIN) and business address of the person or entity to
XXX `iso the same, and such other information that may be required

205

IAWOFBASICTAXATIONINTHEPHILIPPINES
byrulesandregulationstobepromulgatedbytheSecretaryof
Finance,uponrecommendationoftheCommissioner.
1:n:v:::i;;s:PIE:I::I;;lip:i¥:,;n;;:e:m#:.i::::;E:§£:lr::e:I;e:9:;:rxecp::¥te:rr:;¥,:1
per:`!:)soNrae:te.:,'esTfao:Pwahyoe:t]hdeernetc`::::st`o°rnsa¥e::rbceor:::I:rae,
invoiceswereprinted;and
"(2) Number of booklets, number of setg per booklet,
numberofcopiespersetandtheserialnumbersofthereceiptg
orinvoicesineachbooklet."
®Exhibitionofstgnsby.€ert=i:.=:^S.tneRSoS,e,S;
1. Sign !o I)e E#hioi!ed 6y Disti!!er, J3ec!i/len Compounder
i;sptd:i:,::e]:]eo°:nr:epc¥,gty°si::;:';ir:I;:,:;°or:Dfe::u::sit-:g::Vi::orrps::I;:pen:ce:nL¥ai;£k:::;
conspicuouslyontheoutsideofhisplaceofbusinessasignexhibiting,
`i;!ifo:E:ii::::::Tie:Sfusgqr;d:oS;;ireiis;t]::iiet:e:r§s::S;lie;rs;o:I;ih;':a::lies:d:°}:e::P,::i;:S;;
=5:ir-(Se-c.239,1997NIR_€).
2.Sfgn!otieErhioitedOyMontt/ac!wrero/Product8o/ro6acco
- Every manufacturer of cigars, cigai.ettes or tobacco, and every
?:h:°:.;e:a;aa]:e::ae::::k;e:e:p`,::cf:t:tb::e::d°:it:i:c:b]n#!i::n:rw:£se,Prg::£s¥:::bn°u:StL°n.b::;{]i
nameandbusinessinlettersnotle9sthansixcentimeters(6cms.)
highandalsogivinghisas9essmentnumber(See.240,J997NJRC).
tD\.uE%::b%.oun..our.i:e:ifti_=±_o!.I,a%amne+not£3:xpe`Ba.Cseg"°efdB`:Sat:€::?-n
(0 Other Related Requi.:emen&:
;i;;i;ii;niji;:::i;ur;i;;jc;::;ijli:i°;i§:;;:;;;i;;i:£V;:;ii;rti;§i;;:a;;i;e;i:e{;a;C::s:;oei;jb:::,
206
TAX ADMINISTRATION AND ENFORCEMENT
a. CorLtir.uciti,on of Business of Deceased Persor. - Wt\en any
individual who has paid the annual i'egistration fee dies, and the same
business is continued by the person or persons interested in his estate,
no additional payment shall be required for the residue of the term of
which the tax was paid: ProLJjded, how;et;er, That the person or persons
interested in the estate should, within thirty (30) days from the death
of the decedent, submit to the Bureau of Internal Revenue or Revenue
District Office inventories of goods or stocks had at the time of such
death.
The requirement under this Section shall also be applicable in the
case of transfer of ownership or change of name of the business
establishment (See. 242, I 997 NJzic/.
8. Removal of Business to Other Location - Any businesis tor
which the annual registration fee has been paid may, subject to the
rules and regulations prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, be removed and continued jn
any other place without the payment of additional tax during the term
for which the payment was made /Sec. 243, I 997 NJRC).
8. Statutory Offenses and Penalties
I. Additions tothe Tax
1. dz+Eiii:ng_pfarddirfuriz[j7EIras_`i- Additions to the tax are
in£|em±nl_a_to,__t_her_b__Sis_i_c2±ax__incident___due__t__a__the__±LaxpayeI_'S
na]i.-immplin nco with_i:ertainlegrLrequireme_n|s, like the tax p ayer' a
refusal or failure to pay taxes on time and/or other violations of taxing
provisions in the law.
Addit_ionstothetaxconsistoftheL1]civilpenalty,otherwiseknown
:#ii-Fe-a;iEtear::icthhemva£:I:'tt.:: ib2!:5t°:°=:t:e::%L:f:ohreat::f:ce.:::yd:::
::i£[e:;:tut:?fyye:.Snet:spuac|maesnfto;raf:lil(r¥}to°i.hi:rce¥tya¥npiennf::gt]::
roturns and violations committed by withholding agents /Sees. 247 to
2.-
•bl.1997 NIRC).
(a) Aa`ditigns to the tax or deficiency tax apply to'Qll taxes,,Tees,
•nd thprg6a-imposed in the Tax Code. For instance, in the case of a
d.ficiency tax determined after investigation, a surcharge or penalty
ol 26% under See. 248 of the Tax Code is imposed. Incidentally,
•urcharges or penalties (unlike intel.est on taxes incurred or paid in
oonnection with the trade or business of corporations and partnerships)
207
 TAX ADMINISTRATION AND ENFORCEMENT
LAWOFBASICTARATI0NINTHEPHILIPPINES
and interest are not penal but compensatory for the concomitant use
of the funds by the taxpayer beyond the date when he is supposed to
are non-deductlble for income tax purposes because they do not
have paid them to the Government. x x x" (Ph£Jfppine Re/£ning
Cs°encst2`;u(theo:I,d5:ca.¥4a,#,:3Cge7SivazE8,?S[ne8Sexpensesa8requiredin
Company u. Court of Appeals, et al„ G.R. No.118794, May 8,1996).
An extension of time to pay taxes granted by the Commissioner
®)Theamountsoaddedtothetaxshallbecollectedatthesame
does not excuse payment of the surcharge /Commissioner a/JncernoJ
time,inth€samemanner,andaspartofthetax(See.247/oj,"
Revenue u. Cu Ur.jieng, et al., L-26869, Aug. 6, 1975).
NIRC).
There are decided cases, however, where the imposition of the 25%
surcharge had been waived:
(1) Where the taxpayer in good faith made a mistake in the
;i:nn;:i;[r;:t;h:::i;:1::e:d:!o:rdi;;r::ti:;:;lilts:egai];G[::ieit::::;,:e;:f:::°g:I:p:;e:ri:i..;::;; interpretation of the applicable regulations thereby resulting in
theadditionstothetaxPrescribed(See.247/bJJ997NJRCJ,suchas delay in the payment of taxes, the 25% surcharge may be waived
(Cor.rbel Bros. Co. [Phil.] lJ. Collector of lnterr.al Revenue. L-15470.
•;-;ddt.ions.otheTaxpxpl=ined
:B:c285°;°4S#Cnhda;84eg;8/:tjhgeg27°#Rn8;)estperannumonthedehnquency Dec. 26,1963; Imus Electric Co., Ir.c. u. CTA. L-22421,
Mar.18.1967).

`i:e;;;;:-o-nsideTations:nthep?na_:._y^O:^8u_rc„:,rn8:,
&>TheCivt,Penal.:orSur.c,I_a:5:
I_Qoni:hifa£E=t£Rt:eons_uugr.Cshn:ortgvees`tsederw°r:hd::;';ryutah:f.t;ht:
%:uyr:°=feTtgastetge¥a¥:hcoa%Cn¥c:huenrte::::t:nde.rceacste::haeg:}unp9rtet::
Chineseoncertaindates,they(theChinese)werepreventedfrompaying
theirinternalrevenuetaxesontimeandbymutualagreenentclosed
-guroEofig!_h#'?;uo`t4it6ioRii%"i:itigei.Siii$6&ii;+goo;pi6uoMo65'mmmssos€ohnue'r
theirbanksandstoresandremainedtherein,doe9notauthorizethe
Commissionertoextendthetimeprescribedforthepaymentoftaxes
u;fp]°%=3%iG%.;eT=;e:-i`-20:60,_!=.n.e^:a3=::::):
(2) A subsequent reversal by the BIR of a prior ruling relied
upon by the taxpayer may also be a ground for dispensing with the
25% surcharge. Thus, in one case, the Supreme Court held that
where the taxpayer relied on the origiml stand of the BIR that
cement is a mineral product subject to od t/oJorem tax, the
surcharge must be deleted /Commjssjor}er o/Jnlernoj Eel)en"e u.
Republic Cemer.i Corp., e. al., L-35677. Aug.10,1983).
(3) Where a doubt existed on the part of the Bureau as to
whether or not R.A. 5431 abolished the income tax exemptions of
corporations (including electric power franchise grantees) except
those exempt under See. 27 /now, See. 30, J997 JVJRCJ, the
imposition of the surcharge may be dispensed with (Cageyan
Electric Power & Light Co. u. Commissioner of Internal Revenue.
el al.. a.R. No. 60126. Sep.. 25,1985).

(4) In case of failure to make and file a return or list within

surc[fa:::thTehrec8::'jhsea]:°::txs:I,ets:euds:hneotmb::::tt::ghctho:rticatte:aof
faithisnotessentialfortheimpositionofthe25%surchargeforlate
i:t:;e£::a::;t::{j:;e:¥io;re:Uja't::I:e::f;.:::::1:sill;:ina:;bi;u::t;i::2:§to;%;:a::rr':::e:::I;;:nf;,;
provide5aplan,whichWorksoutautomatically.TheCommiBsioner
isnotvestedwithanyauthoritytowaiveordl9pensewiththecollection
t:gfi:gtq;uiij:a;9;iijnttin;:;:§¥¥t;:;i:G;::i::;:h::;;;:ir;ia;h::::ei;its;
the time prescribed by law, not due to willful neglect, where such
return or list is voluntarily filed by the taxpayer without notice
from the Commissioner of Internal Revenue or other officer, and it
iB shown that the failure to ffle it in due time was due to a reasonable
cause, no surcharge will be added to the amount of tax due on the
::tr:i:.rg]e?tshuectha:::*:u°srtd:rai°e:Vs°tfadtet:eel:sph°oS;ti::a°]f]:£:
facts alleged as reasonable causes for failure to file the return on
time in the form of an affidavit, which should be attached to the
return.

209
208
 TAX ADMINISTRATION AND ENFORCEMENT

LAWOFBASICTAXATIONINTI]EPHILIPPINES
tax due for which no return is required to be filed, on or before
the date prescribed for its payment.
IftheCommi991onerissatisfledthatthedelinquencywasdue "(8) In case of willful neglect to file the return within the
toareasonablecause,no9urchargewlubeaddedtothetaxdueon
thereturn.Whetherornotreasonablecauseexistswilldepend period prescribed by the Tax Code or rules and regulations, or
uponthecircumstancesofeachcage.Asageneralrule,ifthe in case a false or fraudulent return is willfully made, the
taxpayerexercisedordlnarybusmesscareandprudenceandwas penalty to be imposed shall be fifty percent (50%) of the tax or
of the deficiency tax, in case any payment has been made on
:::edr:faey}e;:,rB:bctoents°,£`e`:etdh::ebteu,rnng:.ut:]t:tab:eparseos::`bb,:dc:.uns:' the basis of such return before the discovery of the falsity of
ButiftheCommisgionerlsnotsatisfiedastothereasonableness fraud: Prat/jded, That a sustantial underdeclaration of taxable
sales, receipts or income, or a substantial overstatement of
::ttE:Caamu:::::?:hdee:]a:qduueen::'ti:ur:::::g(er:fb:o5:;°AWc],I,]obneGa£,ddee: deductions, as determined by the Commissioner pursuant to
the rules and regulations to be promulgated by the Secretary
/orTo*MonLogement,p.530,See.236,Jncomerci£Regw!o!ions).
of Finance, shall constitute prjmo /ocje evidence of a false or
fraudulent return: Proujczed /wrcher, That failure to report
ti:;i:;i:i:i:i:::i;u§;I;ij:fi::;:i}ia;i;:;:;;:::jr::x;pS;i;;:f;a;;;;;;Sti;;°i:i;:::t:;s;I;i;;;;t:§!ji:;S;:i;::;j}ri:i/ sales, receipts or income in an amount exceeding thirty percent
(30%) of that declared per return, and a claim of deductions in
an amount exceeding thirty percent (30%) of actual deductions,
shall render the taxpayer liable for substantial
underdeclaration of sales, receipts or income or for
overstatement of deductions, as mentioned herein."
Ilowever,inthecaseofCommlssloriero/Jn!ernolR""uAir
0.) Ir.terest
Jridio,etoJ.(GRNo72443,Jan29,1988),whereitappearsthatthe
This is an increment on any unpaid amount of tax, assessed at the
ri`te of twenty percent (20%) per annum, or such higher rate as may
::;I:rtehte°sf;11:]onfct°]:kee:::nretLuer;h°i]apfp°]rnee`g:ra]:I,1:::e€efrr`:Ln:t'sn::,Teef
li. I)rescribed by rules and regulations, from the date prescribed for
thhe:;`tth}:tnt°htetraex,ash:::'ansc,es`fto:iso,nd°,|agn.:11::br]`egFotrstthhee;eo]o%'st:rec£::::
I..yment until the amount is fully paid /See. 249/A/, J997 NJjic/.
I ntt)regt is classified into (1) deficiency interest; (2) delinquency interest;
forwillfulneglecttofileitsincometaxreturn.
t` ild. (3) interest on extended payment.
It should be noted that in BIR tax forms such as the form for
|Sfo':`ndTne:::a]2E%s:;:OhretT;;FRO|Sit6:nwo£,cc`#::.ad[:`se::rfos[u]:cwhsar8es
"(A)Thereshallbeimposed,inadditiontothetaxrequired lll`lividual incolne tax returns (BIR Forms 1701 and 1701-A), the
•urt`I`i`rge, interest and compromise penalties are called "pemlties."

:i:ea|a::£:;:aaft!ueeq::Vtah]:::,::t#tcya.:'evsepercent(25%)Of (I) De/icje~ey Jnceresl -Any deficiency in the tax due, as the term
|1 lli.fined in this Code, shall be subject to the interest of 20% per
•n/iil//I, or such higher rate as may be pl.escribed by rules and
W|`llI`tions, which shall be assessed and collected from the date
::;:i:,;:;:a:1;uo:n:tih°eerf`d::ht:en:y::;:;:r:n:::o:fr:i¥stEeoiaexodrureut]t:I::}E I..i`ribed for its payment until the full payment thereof (Sec. 249/8/,
"(2)UnlessotherwlseauthorlzedbytheCommissioner,
1 NIRC).
fihngareturnwlthaninternalrevenueofficerotherthan (11) /Jc/jnqweney Jriccres! -In case of failure to pay:
thosewithwhomthereturnisrequiredtobefiled,or
(I) The amount of the tax due on any return required to
be filed, or
pr:`::1.bFead..f:::t:°papyafetnhte[nd:£]ec]neont:cyeto%s::::Lne;t,eo:`me
(Z) The amount of the tax due for which no return is
Ii required, or

:?;`;4eLTo:n:::n:yrd:ee:;::a,:eestq:u;rdfe:d:`tgo:i:Ptf:.o:i:::o::ireatf¥:O,:a:E::u%:o:f
211
210

LAWOFBASICTAXATI0NINTHEPHILIPPINES
(3) A deficiency tax, or any surcharge or Interest thereon
::et%:iume]:sattoen::,Ptehaerr`ensgh`an,,tg::s°st:::eadnadnddec:fi:cdte°£
;i:t;:;:;t::si:::i¥o°:ufttl;:a:rt:e:oeTS:tu;:ett:S:fx::;egs;c:::2:4;9i:6tj,
1997 NIRC).
!i;its:,f;:oieu;::St;loin::Zto::d;:1:e;js;:i;::t:o:ti:;:iai:::n;::;I:a:::t::ii;o:ri::e:£::t;°;P:i::
date prescribed for Its payment, or where the Commigsioner has
i:±ho°rr;Zneyd::r:Xtthe:rs::F,:fhte`rmees¥;t]T[bnewa::Cehs::dp::3::¥L::tae€e.fi;:[eernecsyt
attherateof20%perannLumonthetaxordeficiencytaxoranypart
:S::e:f4;,nDP/:]jdg;r#Rh;)dateofnotlceanddemanduntilitispaid
(c)irdirins.ratiueFines?rpen?lt%
Foi!wretoFileCer.omJn/ormotioroRel%rns.See.250ofthe1997
NIRCprovidesthatmcaseofsuchfailuretofileaninformationreturn,
;;it:e:?:;:b:ynt]°:I:;i,;t:'sC°9:hdo:weo;P?¥aat:hy:ur:ei%:i,i:;:0.:s%Pu:el:toh:e:¥;;°iri¥C:ii:si
i:;:in::8ts:1:W:I;;::b:ean:e:i[ic:t;o:;i;:1:S3to:o;]':;:1:n:gcni::;:Ciai:d,e,:e:::i;op:#efd:,
t:¥]envge;'::]aetnt£:rayg:::gsit:]f:o°tuenxtcte°ebdeT`::::;ffi::::|`oSuusC:nf:1:::::
(p25,000).
i::s;:::#o:dl:I/:::vyh::#:ill:a:i:;a£;§§:;f;0:t:;I;:I:e'::'!;a::y:t¥o:r``a:;;0:-::§o}r
andremitsuchtax,oraidsorabetsinanymannertoevadeany9uch
::h:e%:h:ei:a£±¥u::;6o::t:h::bf:::aa|:o:::£a::n:ito:i:lt:°trl°o;:o::alcecpnoeau:;'t;:Sipe:ga!::
remitted (See. 25J, J997 JVJRC).
Foi!L4reo/aWi!hho!dingAgeri!toRe/wndE*cessWI!hho!dlng
Tax-UnderSec252,1997NIRC,anyemployerorwithholdingagent
rob:hf:1;Se:ra;te,feuss;Sr::,r:::n[dnei[Cte]:SxW]otfhthh°:d;na!t8:::,a:1;11:aabd,:`:loo:
penaltyequaltothetotalalnountofrefundswhichwasnotrefunded
212
TAX ADMINISTRATION AND ENFORCEMENT
to the employee resulting from any excess of the amount withheld over
the tax actually due on their return.
11. Statutory Offenses and Penalties
a. General considerations
\. Incidents to the commissi,on of a tar offense -Under the \iNI.
any person convicted of a crime penalized under the Tax Code shall, in
addition to being liable for the payment of the tax, be subject to the
penalties imposed thereunder. Payment of the tax due after
apprehension shall not constitute a valid defense in any prosecution
for violation of any provision of the Tax Code, or in any action for the
forfeiture of untaxed articles (Sec. 253/a/, J997IVJRC).
2. Crimir.al liability of accomplices -Any person who wL\\£ully
aids or abets in the commission of a crime penalized under the Tax
Code or who causes the commission of any such offense by another
shall be liable in the same manner as the principal (See. 253/b/, J997
NIRC).
3. Other i,ncidents ir. the case of offenders who are alter.s, public
a//icers or emJayees, or CPAs . If the offender iB not a citizen of the
Philippines, he shall be deported immediately after serving the sentence
without further proceedings for deportation. If he is a public ofricer or
employee, the maximum penalty prescribed for the offense shall be
imposed and, in addition, he shall be dismissed from the public service
a nd perpetually disqualified from holding any public office, to vote and
to participate in any election. If the offender is a Certified Public
Accountant, his certificate as a CPA shall, upon conviction, be
tiutomatically revoked or cancelled (Sec. 253/c/, J997 IVJRCJ.
4. Offer.ses commieted by associations, partnerships or
corporoltous - In the case of associations. partnerships or corporations,
thl`penaltyshallbeimposedonthepartner,president,generalmanager,
bri` nch manager, treasurer, officer.in-charge and employees responsible
tor the v.roha+hen (See. 253[d],1997 NIRC).
6. Per.al lic.bility of corporc.tions c.r.d other entities - Any
a()rporation,associationorgeneralco-partnershipliableforanyofthe
•(iL. or omissions pemlized under the Tax Code, in addition to the
|i.a.lties imposed therein upon the responsible corporate officer8,
o. rtner8 or employees Shall upon conviction for each act or omission
b. fined for not less than P50,000 but not more than P100,000
(Hnc. 256,1997 NIRC).
0. Amown¢ a//ines jmposob!e -The fines to be imposed for any
vlol.tion of the provisions of the Tax Code shall not be less than the
213

LAWOFBASICTAXATIONINTHEPHIljlppINES
:I:recshpa:%Secsribueedf:temret}hne°tra::;Cyee:?:a:::::r°\fst::ge£::n(tseerces;;3a/:/d,
1997 NIRC).
ando7th?re:::::`mroe"n¥snf:::)erne°d"jisd°e/rptehr:"Trya;*¥ed:iL:LrLaLt:°):;:e:f::
;:;hal:,°e:toaf[pne:uwryr]tA:;pS:rastoenmwe£:;|#tu.t,?efi¥:raedemc]aadreat:onn?::t:I:
orstatementcontaininginformationwhichisriottrueandcorrectas
to every niaterial matter, shall, upon conviction, be sub]ect to
thepenaltiesprescribedforperjuryundertheRevisedPenalCode
-(ie;. 261.1997 NIRC).
re[nc:depnecne:'tcfe/°mrasxe,C::dm°o?€hseu::;qa¥;yn'p:{!ec::;:d.f[onr:a:::fseen::
shallbeimposed(Sec274,J997NJRC).
::;:oYtva-t;o-n`-a-i-bihe;Pr.o.:i?i#S~Onf^t^hae:aoxnvcr°ud\ee-o#g£\e=tsL°onn
whoviolatesanyprovisionoftheTaxCodeoranyruleorregulation
promulgatedbytheDepartmentofFinance,forwhichnospecific
penaltyisprovidedbylaw,shall,uponconvictionforeachactor
omi§sion,bepunishedbyafineofnotmorethanOnethousandpesos
(P1,000)orsufferimprisonmentofnotmorcthansix(6)Inonths,or
`€i;t: is6c. 215, 1991 NIRC).
agn:y:::°#§i]i;;'o;v;a;:u::n;::c:tjat::i:s:;a;;id:::P;eyerh;a;S;9:;°;i;;:?;;I;;:ft:je;::i::¥:a£;I:si:;o;f
:I:i:)Ledsagsft°arb:)aschhegLLgnhA:tes3°9Soafntdh:L%:vCLes:tda;::i¥c:£::*C2t8to:
1997 NIBC).
b. Survey of some Specific Offenses and Penalties
b8ff=n"sre:ecYoum`m-;;::b~yrf==pa?e,rs=T=_°'hLe::enra8T°=nmwhG:n==+a+:
1. AC!empt !o euode or de/ea! !or -Any person who willfully
attemptsinanymannertoevadeordefeatanytaximposedunderthe
TaxCodeorthepaymentthereofshallinadditiontootherpenalties
providedbylawuponconvictionthereof,bepunishedbyafineofnot
lessthanP30,000butnotinorethanfloo,000andsufferimprisonnent
ofnotlessthan2yearsbutnotmorethan4years;providedthatthe
convictionoracquittalobtainedthel.eundershallnotbeabartothe
fihngofacivilsuitforcollectionoftaxe9(See.254J997jvJRCJ.
2'4
TAX ADMINISTRATION AND ENFORCEMENT
a. Failure to file return, supply correct information, pay tax.
u]ithhold and remit .ax cind refurbd excess taxes u)ithheld on
compensalfon - Any person required under the Tax Code or by
regulations promulgated thereunder to pay any tax, make a return,
keep any record, or supply correct and accurate information, who
willfully fails to pay such tax, make such return, keep such record, or
supply such correct and accurate information, or withhold or remit
taxes withheld, or refund excess taxes withheld on compensation, at
the time or times required by law or rules and regulations shall, in
addition to other penalties provided by law, upon conviction thereof, be
punished by a fine of not less than Ten thousand pesos q'10,000)
and suffer imprisonment of not less than 1 year but not more than
10 years.
Any person who attempts to make it appear for any reason that he
or another has in fact filed a return or statement, or actually files a
I.eturn or statement and subsequently withdraws the same return or
statement after securing the official receiving seal or stamp of receipt
of an internal revenue office wherein the same was actually filed shall,
upon conviction therefor be fined not less than Plo,000 but not more
than HO,000 and suffer imprisonment of not less than 1 year but not
more the.r\ 8 years (Sec. 255, 1997 NIRC).
a. Penal liability for rr.cling false er.tries, records or reDort,s. or
usir.g fcilsified or i abe accountable forms
Offensescommi,ttedbyonyfinaneialoff.cerori,rrdeperrdeniCertified
Public Accountant engaged to examine and audit books of account,s
of c. toxpcryer cmd c.ny persor. under his direction. These o[£enses e\re
committed when the person concerned -
(1) Willfully falsifies any report or statement bearing on any
examination or audit, or renders a report including exhibits,
•tatements, schedules or other forms of accountancy work which has
not been verified by him personally or under his supervision or by a
member of his firm or by a member of his staff in accordance with
iound auditing practices; or
(2) Certifies financial statements of a business enterprise
containing an essential misstatement of facts or omission in respect of
tho transactions, taxable income, deduction and exemption of his client.
'I`he penalty for each act or omission is a fine of not less than Fifty
tl`outiand pesos (P50,000) but not more than One hundred thousand
P®.oB (P100,000) and imprisonment of not less than 2 years but not
moT.` `htLn 6 ye8`rE} (See. 257[A] [ 1] and [2] ,1997 NIRC).
215
 TAX ADMINISTRATION AND ENFORCEMENT

IAWOFBASICTAXATIONINTHEPHILIPPINES
required to be Shown therein or uses multiple or double receipts or
invoices shall, upon conviction for each act or omission be fined not
OffensescomrnittedbyNon-CPL:^8. lessthanOnethousandpesosa'1,000)butnotmorethanFiftythousand
pesos(P50,000)andsufferimprisonmentofnotlessthan2yearsbut
•i\ot miire than 4 years (See. 264[a],1997 NIRC).
ITnadxeTP:e:n:d:e;!fc:en£:ife:enicr,:aicb:|B]i:1:::itbaynta:cycopre:i°gntowshe°cn2°3t2t£;nogti:
6. Vi,olatior.s related to the printing of r_e_cetpts `or sc.}es `or
commerc{oJ jnuoices - The penalty specified in No. 4, above, is also
(1)Examinesandauditsbook9ofaccountsoftaxpayers:or
imposed on any person who -
(2)Offerstosignandcertifyfinanclalstatementswithout
(i) Prints receipts or sales or commercial invoices without
audit; Or
authority from the Bureau of Internal Revenue; or
(3)Offel.sanytaxpayertheuseofaccountingorbookkeeping
(ii) Prints double or multiple sets of invoices or receipts; or
::Cq°ur,::£°ern::t::ensac`r,rbeevde::ethpeu;Pa°xsec§o::to:nr::ensfoarnmd[tr%gwu`iht.::: (iii) Prints unnumbered receipts or sales or commercial invoices
promulgatedthereunder;or not bearing the name, business style, Taxpayer
Identification Number, and business address of the person
or on+rty (See. 264[b].1997 NIRC).
nan(:)inTh°ewbL:5iys:fa:cecso:nnyt:aoL:er:::Fd:rme:::::naendyLf:Its;e°:?ec::t::::
paragraphg; or 6. Violations relating to specific acts as well c.s i_hose which rel?!e
tosp;:£ii;i;;i:lesandariicl3Ssubjec!toexcisetc.X-TP=r=LT_esp_=3}±S
(5)Keeps2ormoresetsofsuch.recordsorbooksofaccounts;or
typesofoffenseswherepenaltie9areimposeduponconvictionforeach
Bpecific act or omission, depending on the nature of the violation. In
prov(,6s),o]:s::%e:ag5:?:rm`tsanactOrOmlssIonlnviolationo"he brief, they include:
(DFallstokeepthebo.oksofaccountsorrecordsmentionedin (ti) UT.lcLwful pursui. of business, i.?., ec..rr!ir.g Pn, ? `b_¥si=.e:s_
uJi!howl paying !be annwoJ regis!ro!!on /ee . A fine of not less than
:::hc::2:3i,o:oi§:ae;i;I:ii;¥a;ti;;r::ae:i¥¥er}i:;:1.t:I;::::;:n:;,S;he:ti;tr:t:°:T;a:%o:r€E:;dc:e:::i;is Five thousand pesos (P5,000) but not more than Twenty thousand
pesos (P20,000), and imprisonment of not less than 6 months but not
---::-`_-:-;`:-:----I:-::--:::-:--:::-:--:-:--;:--::::::::---::--:--ii::::::-:,::--::i:`-:-;::-i:---:i:,-::;_i:-.--:-:;---::-.:-::::-::::
more than 2 years (See. 258, J997 IVJRC).
keptbyhiminanotherlanguage;or
®h For disti,llers, rectifiers, repackers.. :ornpou.r.`derp`?I_
manu/oc!wrers o/or!lc!es subjecl !o e#c{se !ax -A fine of not less than
Thirty thousand pesos q'30,000) but not more than Fifty thousand
I)egos (P50,000) and imprisonment of not less than 2 years but not
more than 4 years (Sec. 258, J997 NJRC).
(c) Illegal collection of foreigr. pgyrr..ents . Any. persor:_I.I._o]
knowinglyundertakesthecollectionofforeignpaymentsasprovided
underSec.67oftheTaxCodewithouthavingobtainedalicensetherefor,
Iftheoffenderi8aCertifiedPublicAccountallt,hlBcertificateasa •halluponconvictionforeachactoromissionbepunishedbyafineof
CertifiedPublicAccountantshaubeautomaticallyrevokedorcancelled i`ot less than Twenty thousand pesos (P20,OOO) but not more than
uponconviction. l`.ifty thousand pesos (P50,000) and imprisonment of not less than
1 year but not more than 2 years /See. 259, J997 IVJRC/.
¢d) Unleu)ful possession of cigarette pap:r in Pop?ins _?r_ _r_o_I:l_8:
::So:get:,:nd:1:as:;er°£d:e:pro;?::n::.;:;§i:Vr`:st;;rv#7see;n:t:eL;;Ce?awe,:E:|`tr:::!i`enr •lc. . It shall be unlawful for any person to have in his possession
('lkarettepaperinbobbinsorrolls,cigarettetippingpaperorcigarette
`:nrou,don::t:o::;:x;ti;:e:ie:,sp;:;'t:¥:r£:;:;£::a:';i;I;efr;E;:;![:io,;:;:v,:::s;:,;,tot;:9;:igo:m{:;iiiti flllortipg,withoutthecorrespondingauthoi.itythereforissuedbythe

217

LAW0FBASICTAXATIONINTHEPHILIPPINES
Commissioner. Any person, importer, manufacturer of cigar and
clgarettes,whohasbeenfoundguiltythereofBhall,uponconvlction
foreachactoromission,bepunishedbyafineofnotle8sthanTwelity
thousandpesos(P20,000)butnotmorethanOnehundredthousand
pesos(floo,000)andsufferimprisonmentforatermofnotlessthan
6yearsand1daybutnotmorethan12years(Sec260J997rvJRC).
(e)Unlo"useo/dena!uredoJchoho!-Afineofnotlessthan
Twentythousandpesos(P20,000)butnotlnorethanOnehundred
thousandpesos(P100,000)andimprisonlnelitofnotlessthan6years
and1daybutnotmorethan12years(See.26J,J997IVJRCJ.
(0 O//enses reloled !o excise lo#e8 - These refer to unlawful
::SsS::£rot::r;rnev:]°vV,an]g°fL:I:[oC::esdsuabrJte,::::.exi;hs:tpaexn:;:}°:ft?[anyemae:i
imprlsonmentigmposedonagraduatedscaledependinguponthe
appraised value of the articles to be determined in the manner
prescribedintheTanffandCustomsCode,includingtaxesandduties.
ThepenaltiesrangefromafineofnotlessthanOnethousandpesos
er,000)normorethanTwothousandpesogen,000)andimprisonment
ofnotlessthan60daysnormorethan100days,iftheapprai9edvalue
ofthearticledoesnotexceedOnethousand(P1,000)pesos,uptoa
maximumfineoffromfiftythousanda'50,000)pesostoOnehundred
thousand pesos (P100,000) and imprisonment of from 10 years to
12years,iftheappraisedvalueoftheimportedarticlesexceedsOne
hundredfiftythousandpesosa'150,000).
thai:et::::a:[syt¥ea::f::tnutr:feaxrct:::e:a:::E::ao':yt[feaafi::,ecfefsnfootu`:sd:
butnotlessthanFivehundredpesos(P500)andimprisonmentofnot
less than 2 years but more than 4 years.
\ '\ of tfeh::rae:es:Sapr:rc::;sZ;e::iear;¥uni:;:i;:v.:.r^:,hea:i:'t:tifai;,":Vs:uh:i-:':-a=C-oe-v-ii
Theoffensespenalizedhereunderareowner8hipand/orpos8esgion
_. _"L^.^^ffr.`m tt`e nlace ol
DI tne uliia]Lt;u a ...,, ~L,, _..__
productionorbondedwarehouse;and,aldingorabettinginsuchremovai
orconcealmend.ThemereunexplainedposBessionofsaidarticlesi8
punishable(Sec.263,j997rvJRCJ.
(g)O/fensesreJocing¢os!cimp8-UnderSec.265Ofthe1997NIRC,
anypersonwhocommitsanyofthefouowingactsshau,uponconviction,
bepunishedbyafineofnotlessthanTwentythousandpesosarao,000)
butnotmorethanFiftythousandpesosarso,000)andimprisonment
ofnotlessthan4yearsbutnotmorethan8years:
exp:::s¥:tE::'t]ymf:o°:tnhge'%eo¥mg:Bus:omnge:,rapn°;:I:Si:rgpw:tnht:::
ormckingstamp8,labels,tagsorplayingcards;
218
TAX ADMINISTRATION AND ENFORCEMENT
(2) Erasing the cancellation marks of any stamp previously
used, or altering the written figures or letters or cancellation
marks on internal revenue stamps;
(3) Possessing false, counterfeit, restored or altered
stamps, labels or tags or causing the commission of any such
offense by another;
(4) Selling or offering for sale any box or package
containing articles subject to excise tax with false, spurious or
counterfeit stamps or labels or selling from any such fraudulent
box, package or container as aforementioned; or
(5) Giving away or accepting from another, or selling,
buying or using containers on which stamps are not completely
destroyed.
th) FajJwre lo obey stJmmons - Any person, who being duly
summoned to appear to testify, or to appear and produce books of
accounts, records, memoranda or other papers, or to furnish information
as required under the pertinent provisions of the Tax Code, neglects to
appear or to produce such books of accounts, records, memoranda or
other papers, or to furnish su.ch information, shall upon conviction,
be punished by a fine of not less than Five thousand pesos a.5,OOO)
but not more than Ten thousand pesos (Plo,000) and suffer
imprisonment of not less than 1 year but not more than 2 years
(See. 266.1997 NIRC).
(i) Declc.rattor. under penalties oi perjury - Any dectiirtLtion, re+"m
and other statements required under the Tax Code shall, in lieu of an
oath, contain a written statement that they are made under the
penalties of perjury. Any person who willfully fiiiles a dechration, return
or Statement containing information which is not true and correct as
to every material matter shall, upon conviction, be subject to the
penalties prescribed for perjury under the Revised Penal Code
(See. 267,1997 NIRC).
7 . Other Crine8 c[nd Offen8e8
(8i) Misdecleration or misrepre8entohon by a manufacturer 8ubjec€
•o excise tca of the su)om declaratior. or sc.lee i,r.Voice a8 required by
/aw or}d /or regz/Zolfons -The penalty therefor is summary cancellation
or withdrawal of the permit to engage in business as a manufacturer
"biec:t to excise te\x (See. 268[A], 1997 NIRC).
a) Forfeiture of property used ir. unlicensed business or dies used
/(i/ prjnling /aJse slomps, e€c. -All chattels, machinery and removable
n* lures of any sort used in the unlicensed production of articles subject
to oxcise tax shall be forfeited. Dies and other equipment used for the
219

LAWOFBASICTAXATIONINTHEPHILIPPINES
printingormakingofanyinternalrevenuestamp,labelortagwhich
`=+i:::::iiii;=iise;.2dr8[B],igg7NIRc).
i9animitationoforpurportgtobealawfulstamp,labelortagshall
(c) For/eilwre o/ gooc!s iJ!egolJy s!ored or remoued - Unless
otherwisespecificallyauthorizedbytheCommiBsioner,allarticles
subjecttoexcisetaxshouldnotbestoredorallowedtoremainina
distillery,distillerywarehouse,bondedwarehouseorotherplacewhere
made,afterthetaxthereonhasbeenpaid;otherwise,allsucharticles
9hallbeforfeited.Article8withdrawnfromanysuchplaceorfl.om
Customscustodyorimportedintothecountrywithoutthepaymentof
therequiredtaxshalllikewisebeforfeited(See.268/C/,J997NJRC).
•::-;;;;art-i-;=s-commi..3dbyg^?`uer.n_I_e_n~:.e^3fT°nr+Cae`=eorkp°!fet=ures;.
Per.c.lties Imposed on Public Offroers
::;?tfg:Ca.::'nacgye:ftt°hree8oPv[::::°efntthceh:::::uw::£ntieer::ioRr:::neunet°orf
theprovisiongoftheTaxCode,whoisguiltyofanyoftheoffenses
specifiedbelowshall,uponconvictionforeachactoromission,be
punishedt)yafineofnotles9thanFiftythousandpesos(P50,000)but
notmorethanOnehundredthou9andpesos(P100,000)andsuffer
imprisonmentofnotlessthan10yearsbutnotmorethan15years
and shall likewise suffer an additional penalty of perpetual
disqualificationtoholdpublicoffice,tovoteandtoparticipateinany
public election:
(a)Extortionorwillfulo|)pressionthroughtheuseofhisofficeor
willfuloppressionandharassmentofataxpayerwhorefused,declined,
turneddownorrejectedanyofhisoffersspeciriedinparagraph(d)
hereof;
@)Knowinglydemandingorreceivinganyfee,otherorgreater
sumsthanareauthorizedbylaworreceivinganyfee,compensation
orreward,exceptasbylawprescribed,fortheperformanceofany
duty;
(c)Willfullyneglectingtogivereceipts,asbylawrequired,for
anysumcollectedintheperformanceofdutyorwillfullyneglectingto
performanyotherdutiesenjoinedbylaw;
(d)Offeringorundertakingtoaccomplish,fileorsubmitareport
orassessmentonataxpayerwithouttheappropriateexalninationof
thebooksofaccountsortaxliabilityoroffel.ingorundertakingto
submitareportorassesBmentlessthantheamountduetheGovernment
foranyconsiderationorconpensation,orconspiringorcolludingwith
anotherorotherstodefi.audtherevenuesorothei.wiseviolatethe
provisionsoftheTaxCode;
220
TAX ADMINISTRATION AND ENFORCEMENT
(e) Neglecting or by design permitting the violation of the law by
any other person;
(f) Making or signing any false entry or entries in any book, or
making or signing any false certificate or return;
(g) AIlowing or conspiring or colluding with another to allow the
unauthorized retrieval, withdrawal or recall of any return, statement
or declaration after the same has been officiauy received by the Bureau
of Internal Revenue;
ai) Having knowledge or information of any violation of this Code
or of any fraud committed on the revenue collectible by the Bureau of
Internal Revenue, failure to report such knowledge or information to
their superior officer, or failure to report as otherwise required by law;
and
(i) Without the authority of law, demanding or accepting or
attempting to collect, directly or indirectly, as payment or otherwise,
any sum of money or other thing of value for the compromise,
adjustmentorsettlementofanychargeorcomplaintforanyviolation
or alleged violation of this Code.
The provisions of the foregoing paragraph notwithstanding, any
internalrevenueofficerforwhichaprimo/ocjecaseofgravemisconduct
has been established shall, after due notice and hearing of the
administrative case and subject to Civil Service laws, be dismissed
from the revenue service; provided that, the term "grave misconduct,"
as defined in the Civil Service Law, shall include the issuance of fake
letters of authority and receipts, forgery of signature, usurpation of
iiuthority and habitual issuance of unreasonable assessments
(See. 269,1997 NIRC).
2. U~!ou;/ttJ diuujgence o/ Crade secre!s . Sec. 270 of the Tax
Codepenalizestheunlawfulorunauthorizeddivulgenceofconfidential
informationby"xxxanyofficeroremployeeoftheBureauoflnternal
I`ovenue who divulges to any person or makes known in any other
n`®nner than may be provided by law information regarding the
bu8iness, income, or estate of any taxpayer, the secrets, operation,
•tyle or work, or apparatus of any manufacturer or producer or
ii{)i`fidential information regarding the business of any taxpayer,
hl`{twledgeofwhichwasacquiredbyhiminthedischargeofhisofficial
(I`ltieB." Upon conviction for each act or omission, he shall be fined in
n.`imofnotlessthanf5,000butnotmorethanP10,000orimprisoned
for a term of not less than 6 months but not more than 5 years, or
l''''h.
221

LAW OF BASIC TAXATION IN THE PHILIPPINES
8. o.her uiolatior.s corr.rr.iued by reueTue.o`f fi?er5_: P=`_=P.
violationswouldincludetheoffenseofhavingunlawfulinterest,direct
orindirect,inbusiness-P5,000toP10,OO0fineorimprisonmentof
from 2 years and 1 day to 4 years or both (See. 27J, J997 IVJRCJ,.
procuringunlawfuldivulgenceoftradesecrets-P2,000fineor6months
to 5 years imprisonment or both (Sec. 278, J997 jvIRC),. violation
committed by officers or employees of the national and local
governmentsincludinggovernment-ownedorcontrolledcorporations
relativetothewithholdingofinternalrevenuetaxes,non-remittance
of taxes withheld, and failure to file withholding tax returns, etc. -
P5,000toP50,000fineor6monthsand1dayto2yearsimprisonment
orboth(See.272,J997NJRCJ;and.failul.etoissueandexecutewarrant
of distraint and levy within 30 days after expiration of six months
following the assessment of the tax or abuse in the service thereof
after due notice and hearing (See. 273, j997 IVJRC).
c. Forfeitures
(i:) In Generc.l
As mentioned earlier, the forfeiture of articles involved in a tax
violationcaseisoneincideritwhicharisestogetherwiththecriminal
penaltyoffineand/orimprisonment.Forfeiture,however,isimposed
ifthisisspecificallyprovidedforasapenaltyforaviolation,suchas
thosewhicharecommittedagainsttheprovisionsoftheTaxCodeon
excisetaxes.Incidentally,excisetaxesareleviedongoodsorarticles
which are locally manufactured or produced for domestic sale,
consumptionoranyotherdispositionandonthingsimportedthereto
•#E\=cu#`£r.e.{=VoLi:#.i:i-:5-`i-i;±hae.a.dded`¢?x(`Se:.``1_2.9=_1=9_3.1.ry`:P_€)a.
Coveredbythistaxarealcoholproductslikedistilledspirits,wines,
fermented liquors; tobacco productg such as cigars and cigarettes,
petroleumproductslikemanufacturedonandotherfuels;miseellaneo`is
articleslikefireworks,cinematographicfilms,saccharine,automobiles
and mineral products (Cbaplers 3 !o 7, Ti!le VJ, J997 NJRCJ.
In specific cases under the law where forfeiture is imposed as a
penalty,confiscationandforfeitureinfavoroftheGovernmentextends
totheproceedsofthecrimeorvalueofthegoodsandtheinstruments
ortoolswithwhichthecrimewascommitted(Sec.279,J997IVJRCJ.
The Tax Code further provides that "x x x if in the course of the
proceedings,itisestablishedthattheinstrumentsortoolsusedinthe
illicitactbelongtoathirdper8on,thesame9hallbeconfiscatedand
forfeitedafterduenoticeandhearinginaseparateproceedinginfavor
of the Government if such third person leased, let, chartered or
otherwiseentrustedthesametotheoffender:Provided,/wrfher,That
222
TAX ADMINISTRATION AND ENFORCEMENT
in case the lessee subleased, or the borrower, charterer or trustee
allowed the use of the instruments or tools to the offender, such
instruments or tools shall likewise be confiscated and forfeited:
Prat;£ded ¢no!jy, That property of common carriers shall not be subject
to forfeiture when used in the transaction of their business as such
common carrier, unless the operator or owner of said common carrier
was, at the time of the illegal act, a consenting party or privy thereto,
without prejudice to the owner's right of recovery against the offender
in a civil or criminal action. Articles which are not the subject of
lawful commerce shall be destroyed" /See. 279, I 997 NIzicJ.
(il) Some Specific Cases where Forf eiture i,s Imposed
The Tax Code also provides for forfeiture in the following cases:
1. Chattels, machinery and removable fixtures of any sort used
in the unlicensed production of articles subject to excise tax.
2. Dies and other equipment used for the printing or making of
any internal revenue stamp, label or tag which is an imitation
of or purports to be a lawful stamp, label or tag.
3. All tax-paid articles which are allowed to remain in a distillery,
distillery warehouse, bonded warehouse or other place where
made unless specifically authorized.
4. Articles withdrawn from said place or from Custopis custody
or imported into the country without payment of the requisite
ttlx (See. 268, 1997 NII.C).
CASES
CITY LUMBER, INC. v. DOMINGO, ETC., ET AL., L-18611,
JAN. 30,1964
FACTS.. Petitioner seeks a review of the decision of the Court of
Tax Appeals upholding the deficiency income tax of the BIR wherein
deductions claimed consisting of the value of the plywcod and GI sheets
allegedly lost in a fire were denied and the disallowance of the cash
I)ulance of pB,000 as a loan. Taxpayer also contends that by issuing
(,he deficiency assessment, the Commissioner violated Memorandum
()rder No. V-634, dated July 3,1956, granting the authority to regional
tlirectors to close tax cases involving deficiency assessments not
oicoedingrl0,ooo.
HELD.. The disallowances are proper since they have not been
rti|torted in the taxpayer's books of accounts and income tax return.
223

LAWOFBASICTAXATIONINTHEPHILIPPINES
Theallegedloanisalsonotrenectedinitsbooks.
AstotheallegedviolationofMemorandumOrderNo.V-634,this
isapplicableonlytosubordinateofficergoftheBIRandcouldnotbind
theCommissionerhimselfwhohasbeenauthorizedtodelegatethe
g:re:,rdt:,e#,ef;::]p:::::St:::totm°:isu:;?s°::::gaatteesdc:i`ne:t°iu;I:a;
devolve the duty on another.
COMMISSIONEROFINTERNALREVENUEv.JAVIER,JR„
ETAlu.,G.R.NO.78953.JuljY31.1991
FAcrs.. Victoria Javier, wife of private respondent, received
i;h9e9::,7#:o°nng::£&'|978na;:en:'2t::€87y7?eriesi,Sot:rBtr::uNghAafiTe°dn:
caseagaingttheJavierspouses,claimingthattheremittanceofonly
$1,000waserroneouslyBentag$1,000,000and,therefore,Boughtthe
returnoftheexcessamount.Acriminalcaseforestafawaglikewise
:`]neddcaogna;::::?::fa:::;Sap:::enstfi:::i:,¥`osfipp::sno:t:::'e::Sfi:tpphcat`On
The1977incometaxreturnfiledbyprivaterespondentshoweda
netincomeofP48,053.88andcontainedthefootnote"Taxpayerwag
recipientofsomemoneyreceivedfromabroadwhichhepresumedto
beagiftbutturnedouttobeerrorandisnowsubjectoflitlgation."In
B::eamnbde]rn:9::;Pmnevnatteo:e::?6ntd5engt8r:neiv£:297T2eg:8::9::ednetf]nc::1::;
assessmentsfor1976and1977,respectively.
for[Pgr;g:;eu:eds::,nedde£::Erde:#a¥:a:ndceofi:`eeFocry['8;::::Srgeeqs:ems::i
thatthe1977asges9mentawaitfinal]udgmentinthecasespending
againsthim.TheCommissionerheldthattheundeclaredMellonBack
:e8?%:t:tL:rn:ie::cga:s#;,anbd],en:nndot:cutsu`aT:::::et:te.:£;x|i:::i,p::,:`tteydtoh:
HE£D..Themainissueiswhetherornotprivateregpondentig
liableforthe50°/ofraudpenalty.
There was no actual or intentional fraud in filing the return.
Privaterespondent'9notationonthetaxreturnwasatmostanerror
ormistakeoffactorlawnotconstitutingfraud,aninvitationfor
investigationandprivatereapondenthadliterally"laidhiscardaon
the table.„
224
TAX ADMINISTRATION AND ENFORCEMENT
Citing Aznor, e!c. u. CIA, el ol. (L.20569, Aug. 23, 1974), the
Court held that the fraud contemplated by law is actual and not
constructive. It must be intentional fraud, consisting of deception
willfullyanddeliberatelydoneorresortedtoinordertoinduceanother
to give up some legal right. Negligence, whether slight or gross, is not
equivalent to the fraud with intent to evade the tax contemplated by
law. It must amount to intentional wrongdoing with the sole object of
avoiding the tax. It necessarily follows that a mere mistake cannot be
considered as a fraudulent intent, and if both petitioner and respondent
Commissioner of Internal Revenue committed mistakes in making
entries in the returns and in the assessment, respectively, under the
inventory method of determining tax liability, it would be unfair to
treat the mistakes of the petitioner as tainted with fraud and those of
the respondent as made in good faith.
Fraud is never imputed and the courts never sustain findings of
fraud upon circumstances which, at most, create only suspicion and
the mere understatement of a tax is not itself proof of fraud for the
purpose of tax evasion.
COMMISSIONER OF INTERNAL REVENUE v. COMMISSION
ON AUDIT, G.R. NO. 101976, and SAVELI-ANO v. COMMISSION
ON AUI)IT, G.R. NO. 102258, JAN. 29, 1993
FAcrs.. Petitioner Savellano furnished the BIR on June 25,1986
with a confidential affidavit of information regarding non-payment of
taxes from 1984 to 1986 by the National Coal Authority (NCA) and
PhilippineNationalOilCompany(PNOC)oninterestearningsoftheir
respective money placements with PNB. Investigation by the BIR
confirmed the tax liabilities and upon demand, NCA and PNOC paid
the tax corresponding to the period from Oct. 15, 1984 to Aug. 31,
1986.
The recommendation by the Commissioner for the payment of
informer's reward to Savellano equivalent to 15% of the taxes thus
collected was approved by the Department of Finance and was paid in
due time.
The Commission on Audit (COA`/ disallowed in audit said payment
bocause (a) no revenue or benefit was realized by or accrued to the
(lt)vernment since 2 government agencies were involved in the instant
a.8e, contrary to Sec. 281, NIRC (now, See. 282, j997 rvJRCJ which
I)rovidesthatpaymentofinformer'srewardisconditioneduponactual
I.coveryandcollectionofrevenues,and0))itimpugnedthepropriety
Oftheclaimforinformer'srewardbasedoninter-governmentalpolicies.
225

LAW0FBASICTAXATIONINTHEPHILIPPINES
HELD..ThefinaldeterminationbytheI)epartmentofFinanceas
toentitlementtoinformer'srewardisconclusiveonlyupontheexecutive
agencies concerned, but not upon the COA. It cannot foreclose its
reviewthereofintheexercigeofitsconstitutionalfunctionandautyto
ensurethatpublicfundsareexpendedandusedinconformitywith
law.
This is not to say, however, that the disallowance audit by
respondent COA is in itself final. The same may be set aside and
nullifiedbytheCoul.t,ifdonewithgraveabuseofdiscretion.
Theinformer'srewardgrantedtopetitionerSavellanoisbasedon
See. 281, NIRC (now, See. 282. J997 JVJRC).
Thattheinformer'srewardwas8oughtandgiveninrelationto
tax delinquencies of government agencies provides no reason for
disallowance.Thelawonthemattermakesliodistinctionwhatsoever
betweendelinquenttaxpayersinthi9regard,whetherprivatepersons
orcorporations,orpublicorquasi-publicagencies,itbeingsufflcient
foritsoperationthatthepersonorentityconcernedissubjecttoand
violatedrevenuelaws,andtheinformer'sreportthereofresultedin
therecoveryofrevenues.Itiselementarythatwherethelawdoesnot
distinguish, none must be made. Ubi !ex Won dis!ingw" nee
rLosdislinguere debe mos.
COMMISSIONER OF INTERNAL REVENUE v. COURT 0F
APPEALS,ETAL.,G.R.NO.106611,JULY21,1994
HELD..ItisaxiomaticthattheGovernmentcannotandmustnot
be estopped particularly in matters involving taxes. Taxes are the
lifebloodofthenationthroughwhichthegovernmentagenciescontinue
tooperateandwithwhichtheStateeffectsitsfunctionsforthewelfare
ofitsconstituents.Theerrorsofcertainadmini9trativeofficersshould
neverbeallowedtojeopardizetheGovernment'sfinancialpo9ition,
especiallyinthecaseatbarwheretheamountinvolvesmillionsof
pesosthecollectionwhereof,if justified,standstobeprejudicedjust
becauseofbureaucraticlethargy.
PHILIPPINEREFININGCOMPANYv.COURTOFAPPEALS,
ET AL., G.R. NO.118794, MAY 8,1996
FAcrs.. Petitioner Philippine Refining Company (PRC) was
assessed by respondent Commissioner of Internal Revenue to pay
deficiency taxes for the year 1985 amounting to P1,892,584. The
assessmentwasprotestedbypetitioneronthegroundoferroneous
226
TAX ADMINISTRATION AND ENFORCEMENT
disallowance of bad debts and interest expenses which it maintains
are legally allowable deductions. Respondent Commissioner issued a
warrant of garnishment against petitioner's bank deposits, which action
was considered by the latter as a denial of its protest.
Petitioner filed a petition for review with the CTA. The CTA
modified the findings of respondent Commissioner by reversing and
setting aside the disallowance of the interest expense but maintaining
the disallowance of bad debts of 13 debtors and consequently reducing
the deficiency income tax assessment to P237,381.26 with surcharge
and interests incident to delinquency. The Court of Appeals afrirmed
said decision of the CTA.
HE|,D: rrhe ruling in Collector u. Goodrich lnternc.tior.c.l Rubber
Co. (L-22265, Dec. 26,1967) established the rule in determining the
worthlessness of a debt. Debts are considered "worthless" and qualify
as "bad debts" making them deductible if the taxpayer shows that
(1) there is a valid and subsisting debt; (2) the debt must be actually
ascertained to be worthless and uncollectible during the taxable year;
(3) the debt must be charged off during the taxable year; and, (4) the
debt must arise from the business or trade of the taxpayer. Additionany,
before a debt can be considered worthless, the taxpayer must also show
that it is indeed uncollectible even in the future.
Furthermore, there are steps outlined to be undertaken by the
taxpayer to prove that he exerted diligent efforts to collect the debts,
viz.: (1) sending Of statement Of accounts; (2) sending of collection letters;
(3) giving the account to a lawyer for collection; and, (4) thing a collection
a.8e in court.
On the foregoing considerations, petitioner did not satisfy the
|.quirementg of "worthlessness of a debt" as to the 13 accounts
dl.allowed as deductions. The only evidentiary support given by
i)iititioner PRC for its claimed deductions was the explanation or
`uHtification of its financial adviser/accountant. without any
documentary evidence supporting such allegations, which both
r.viewing courts found could not prove the uncollectibility of the alleged
4,b,a.
The deficiency tax assessment should have been paid within 30
I.yw from receipt thereof. By reason of petitioner's default thereon,
|h. delinquency penalties of 25% surcharge and interest df 20% accrued
httin Apr.11,1989. The fact that petitioner appealed the assessment
to ll`u CTA and that the same was modified does not relieve petitioner
!!Wlopenaltiesincidenttodelinquency.
it
227

lAWOFBASICTAXATIONINTHEPHILIPPINES
REPUBLICv.HIZON,ETAL.,G.R.NO.130430,DEC.13,1999
FACTS..OnJuly18,1989,theBIRissuedtoprivatere9pondent
Hizonadeficiencyincometaxasse8smentofn,112,359.68forthe
fiscalyear1981to1982.Sinceprivaterespondentdidnotcontestthe
as8essments,theBIRservedwarrant9ofdistraintandlevytocollect
thetaxdeficiencyonJan.12,1989,but,forunknownreasonsdidnot
disposeoftheattachedproperty.
OnNov.3.1992.ormorethan3vearslater,HizonwrotetheBIR
requestmgareconsiderationofhertaxdeficiencyassessment.Said
requestwasdeniedbytheBIRonAug."1994.OnJan.1,1997,the
BIRfiledacasewithRTC-Branch44inSanFernando,Pampangato
collectthetaxdeficiency.ThecomplaintwassignedbyNorbertoSalud,
ChiefoftheLegalDivi9ion,BIRRegion4,andverifledbyAmancio
Saga,theBureau'sRegionalDirectorinPampanga.
Private respondent moved to dismiss on the ground that the
complaintwasnotfiledwiththeauthorityoftheBIRCommissioner
asrequiredundertheNIRCandthattheactionhagalreadyprescribed.
Thetrialcourtgrantedthemotionanddigmissedthecomplaint.
Hence, this petition, which raises the issues, whether or not
(1)theinstitutionofthecivilcaseforcollectionoftaxeswaswiththe
approvaloftheBIRCommissioner;and(2)theactionforcallectionof
taxes filed against private respondent is barred by the statute of
limitations.
HELD.. See. 221, NIRC (now, See. 22ft J997 JVJRC) provides,
in!er aJia, that Ilo civil or criminal action for recovery of taxes or
enforcementofanyfine,pemltyorforfeiturewithouttheapprovalof
the Commissioner. To implement Said provision, Revenue
fads::¥;art::,t,I:cot,::dfear[i¥n°g5;:t3h:nrot#::d::tT::ho::£'eTe::odncsnh:i'inba:
handledbyspecialattorneygandspecialcounselsassignedintheIlegal
Phrearnecwh,:i:fhEivree:::reRsetgh[:::g::tdurpe`:::i%£`::a::o::::#::
signedbytheRegionalDirector.Likewise,RevenueAdninistrative
OrderNo.10-96authorizegtheLitigationandProsecutionSectionof
theI,egalDivisionofregionaldistrictofficestoinstitutethenecessary
civil and criminal actions for tax collection. A§ the com|)laint was
:igen£::.%:i:3:rR::t::,1:i::eLewgaas]cDo.:pSL°annfc°erw¥8::e4,aanwdverfledby
TheruleisthataslongasadministrativeisBuancegrelatesolely
tocarryingintoeffecttheprovisionsofthelaw,theyarevalidand
havetheforceoflaw,a8providedinthenSec.4oftheTaxCode.
228
TAX ADMINISTRATION AND ENFORCEMENT
Regioml Administrative Order Nos. 5.83 and 10.95 are in harmony
with this s¢atutory mandate.
As amended by R.A. 8424, Sec. 7 of the present Tax Code
categorically authorizes the BIR Commissioner to delegate powers
vested in him under the Code to any subordinate official with the rank
equivalent to division chief or higher, except the following powers:
(1) to recommend the promulgation of rules and regulations to the
Secretary of Finance; (2) to issue rulings of first impression or to
reverse, revoke or modify any existing ruling of the Bureau; and, (3) to
compromise or abate. None of the exemptions relates to the
Commissioner's power to approve the filing of the tax cases.
EXERCISES
1. Pursuant to the National Internal Revenue Code and undel.
existing rules and regulations, the Commissioner of Internal Revenue
is clothed with the authority or power to evaluate facts of tax cases
and to issue assessment demands against a taxpayer for deficiency
taxes.
(a) If an RTC Judge, on motion of an infol.mer, renders a decision
ordering the Commissioner to assess and to collect from the taxpayer
certain deficiency taxes when, in fact, the BIR has already ascertained
that no deficiency taxes are due from the taxpayer, what proper course
of action would you advise your informer.client to undertake?
a) Do you think an action for mondomus with the RTC can
prosper to compel the Commissioner to issue a deficiency assessment?
(c) Which court acts on: disputed assessment; tax collection cases
filed by the BIR? (1992 Bar)
2. What is meant by the "best evidence obtainable" rule? Why is
this considered as a valuable tool in the investigation of tax cases?
When a tax liability is assessed thru this method, will not such
ussessment conflict with the presumption that the correctness of
•88essments cannot be made to rest on another presumption?
3. What is the reason why the 50% surcharge for fraud i§ so
•ubstantial as compared to the surcharge for the late filing of returns
•nd payment of taxes which is only 25%? Explain.
4. Not satisfied with the 1953 assessment made by the
( tommissioner of Internal Revenue, the taxpayer ap|)ealed to the Court
()I 'l`ax Appeals. In 1956, pending appeal, the Commissioner of Internal
lti`venue amended the appealed assessment by increasing the same. Is
tlii. revised assessment legal? Explain. (1968 Bar)
229
 LAWOFBASICTAXATIONINTHBPHILIPPINES
prod:ce(:)I:nc:uhrattpc::::ann:¥othaes)unbc;one::a#ceetsu;encsu°j2ataxpayerbe
d,ed?LeJ:::tRbeeyhe,SLdar::ia`:?oyp::ts[]ense::mwaen[ida]se:I:I::8o6"yo:£na::
S;uibi::.;:n:ti:;1d;e:n:::x:gip:::eittsbhi:f;Si!:ir:a;gi:1:r:P;Orb;a:tt::i;::;hnfdi:gil:ir;!i::saiii;
investigationwascontinued,butforestatetaxpurpose9,hisrecord9
wei.ealsoexaminedthistimebyanothergroupofinve8tigators,aside
f?::°o:::ih§;t:e:r:::iih:e:dre;Cr[:£eh:;ti:;;:i:i;r¥:Ss:::5:ai;:a:t:!o:::iu:ti:io:r%i:Xirr:oe:¥tffh;;
I:ne:£r:eey:o:uL¥::aLT:pS:i;e:iLt:e:::aexdpourrdpe°rspeix[pfL:::yoeur::::;:rmf:LILByslc:?Lenr:
Chapter vi
TAX REMEDIES -
REMEDIES OF THE GOVERNMENT
'I-rdpi5EFILAPJC_FQF.T_A¥_BE_M_EDI_ES/Taxremediesplayan
important role in taxation whether it be from the standpoint of tax
collection or for the purpose of enforcing a taxpayer's right under the
law.
It is worthwhile to note that much in the same way that tax
remedies exist to enhance the Government's tax collection efforts, they,
too, come in as safeguards against arbitrary action. While taxes are
the lifeblood of the Government and should be collected without
unnecessary hindrance, such collection must nevertheless be made in
flccordance with law as any arbitrariness will negate the very
reason for the Government itself /Reyes, el o!. u. AJmonzor, ec oZ.,
a.R. Nos. 49839-46, Apr. 26, 1991; Marcos 11 u. Court of A|)peals,
pt al., G.R. No.120880, June 5,1997).
The principle is well I.ecognized that the Government, in order to
ensure tax collection, may adopt or prescribe coercive measures as in
a case where the payment of a local tax is made as a condition to the
|egistration and transfer of motor vehicles (C.IV. ZJodges u. MunicjpoJ
Poord o/JJoiJo, I-JBJ29, Jon. 3j, J963J,. or as in the case of capital
iains tax on the sale, exchange or other disposition by individuals of
ieal property which are capital assets.
With respect to the 6°/o (formerly, 5%) capital gains tax,
*oc. 49(a)(4), (now, See. 56[A][3],1997 NIRC). provides th_?t no.
'I)gistrationofanydocumenttransferringrealpropertyshallbeeffected
iytheRegisterofDeeds,unlesstheCommissioneroflnternalRevenue
tr his duly authorized representative has certified that such transfer
li.. been reported and that the capital gains or creditable withholding
I i`x. if any, has been paid. t
RUL-i--o~hr.rrdirdo-|rrTu-N-6_T-|6LF=iT`gTF_-ELEITF±`Fl¥__-__I.2¥7
i3-ire-dl'6-s-Tit-is
'„1'( ;rLt:ngt=£s¥_.,,:_aE,`ttT==Lired:_b=:TtLiraTc:;3uc=t_:_:¥wi-llmct -lie i_o
in.Din tar-collection. Sei±=._2|8__6f the 1997 NIRC provides that "(nfo
I=±±±1haue_+he_Tqutke±tiy_in±=i]ri±tr_E!gtm_tr=restrEinTh_®
----t-e.„
===:±ymtmm[iutmalrereunetaxr±=chargrinprd
231