Taxation Review
I. Preliminaries
1. Victoria's Facts:
Milling Co vs.
Municipality of Defendant’s municipal council approved Ordinance 1 on September 22,
Victorias L- 1956 by way of an amendment to two municipal ordinances separately
21183 imposing license taxes on operators of sugar centrals and sugar refineries
September 27, (An Ordinance Amending Ordinance No. 25, Series of 1953 and
1968 Ordinance No. 18, Series of 1947 on Sugar Central by Increasing the
Rates on Sugar Refinery Mill by Increasing the Range of Graduated
Schedule on Capacity Annual Output Respectively). The following
changes were imposed:
● with respect to sugar centrals, by increasing the rates of license
taxes; and
● as to sugar refineries, by increasing the rates of license taxes
as well as the range of graduated schedule of annual output
capacity.
Plaintiff is the only operator of a sugar central and a sugar refinery within
the jurisdiction of defendant municipality. Petitioner questioned the validity
of the Ordinance 1, arguing that:
● ordinance exceeds the amounts fixed in Provincial Circular 12-A
issued by the Finance Department on February 27, 1940;
● it is discriminatory since it singles out plaintiff;
● it constitutes double taxation; and
● the national government has pre-empted the field of taxation with
respect to sugar centrals or refineries
The RTC declared Ordinance 1 as invalid and ordered respondent to
refund to the plaintiff any and all such license taxes paid
2. CIR vs. Algue L- FACTS:
28896 February 17, 1. Algue Inc. is a corporation engaged in engineering, construction
1988 and other allied activities.
2. On January 14, 1965, Algue received a letter from the
Commissioner of Internal Revenue (CIR) assessing it P83,183.85
as delinquency taxes for the years 1958 and 1959.
3. On January 18, 1965, Algue filed a letter of protest or request for
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Issue:
· Whether Ordinance No. 1, series of 1956 is a regulatory enactment or as
a revenue measure.
· Whether Ordinance 1 is valid.
Ruling:
● The ordinance in question is solely for revenue purposes. Plain is the
meaning conveyed. The ordinance is for raising money. To say
otherwise is to misread the purpose of the ordinance. A municipality is
authorized to impose three kinds of licenses: (1) license for regulation
of useful occupations or enterprises; (2) license for restriction or
regulation of non-useful occupations or enterprises; and (3) license for
revenue. The first two easily fall, within the broad police power granted
under the general welfare clause. The taxes collected under the
Ordinance 1 is the municipality’s solution to keep up with the present
high cost of living as the rates provided under the amended
Ordinances are no longer adequate.
● YES. The ordinance does not single out Victorias as the only object of
the ordinance but is made to apply to any sugar central or sugar
refinery which may happen to operate in the municipality. The fact that
Victorias Milling is actually the sole operator of a sugar central and a
sugar refinery does not make the ordinance discriminatory. The
ordinance is unlike that in Ormoc Sugar Company vs. Municipal Board
of Ormoc City, which specifically spelled out Ormoc Sugar as the
subject of the taxation, the name of the company herein was never
mentioned in the ordinance.
ISSUE: Whether or not CIR correctly disallowed the P75,000 deduction
claimed by Algue as legitimate business expense? NO.
HELD: The suspicions were adequately met by the private respondent when its
president and accountant testified that the payments were not made in one
lump sum but periodically and in different amounts as each payee’s need arose.
This was a family corporation where strict business procedures were not
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Taxation Review
reconsideration.
4. On March 12, 1965, a warrant of distraint and levy was presented
to Algue through its counsel, Atty. Guevara, who refused to
receive it on the ground of pending protest.
5. Since the protest was not found on the records, Atty. Guevara
produced his file copy and gave it to BIR Agent Reyes, who
deferred the service of warrant.
6. On April 7, 1965, after being informed that the BIR was not taking
any action on the protest, Atty. Guevara accepted the warrant of
distraint and levy.
7. On April 23, 1965, Algue filed a petition for review of the decision
of the CIR with the Court of Tax Appeals (CTA).
8. CTA agreed with Algue. It held that the said amount had been
legitimately paid by Algue for the actual services rendered. These
were collected by the payees for their work in the creation of the
Vegetable Oil Investment Corporation of the Philippines and its
subsequent purchase of the properties of the Philippine Sugar
Estate Development Company (PSEDC). PSEDC had earlier
appointed Algue as its agent, authorizing it to sell its land,
facoties, and oil manufacturing process. Pursuant to this, five
individuals were hired to form the Vegetable Oil Investment
Coporation, inducing others to invest in it. Algue, as an agent,
received a commission of P125,000 and it was from this
commission that the P75,000 promotional fees were paid to the
five individuals. There is no dispute that these individuals paid
their corresponding income taxes thereon. CTA also found that
there was no distribution of dividends involved.
9. CIR contends that the claimed deduction of P75,000 was properly
disallowed because it was not an ordinary, reasonable or
necessary business expense. CIR likewise contends that these
payments are fictitious because most of the payees are members
of the same family in control of Algue. It is likewise argued that no
indication was made as to how such payments were made and
there is not enough substantiation of such payments.
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applied and immediate issuance of receipts was not required. Even so, at the
end of the year, when the books were to be closed, each payee made an
accounting of all the fees received by him or her, to make up the total of
P75,000.
The amount of the promotional fees was not excessive. The total commission
paid by the PSEDC to Algue was P125,000. After deducting the said fees,
Algue still had a balance of P50,000, as clear profit from the transaction. The
amount of P75,000 was 60% of the total commission. This was a reasonable
proportion, considering that it was the payee who did practically everything.
The finding of the CTA is in accord with Sec. 30 [1]and 70 of the Tax Code. The
private respondent has proved that the payment of the fees was necessary and
reasonable in the light of the efforts exerted by the payees in inducing investors
and prominent businessmen to venture in an experimental enterprise and
involve themselves in a new business requiring millions of pesos.
It is said that taxes are what we pay for civilized society. Without taxes, the
government would be paralyzed for lack of the motive power to activate and
operate it. Hence, despite the natural reluctance to surrender part of one's hard-
earned income to the taxing authorities, every person who is able to must
contribute his share in the running of the government. The government for its
part, is expected to respond in the form of tangible and intangible benefits
intended to improve the lives of the people and enhance their moral and
material values. This symbiotic relationship is the rationale of taxation and
should dispel the erroneous notion that it is an arbitrary method of exaction by
those in the seat of power.
But even as we concede the inevitability and indispensability of taxation, it is a
requirement in all democratic regimes that it be exercised reasonably and in
accordance with the prescribed procedure. If it is not, then the taxpayer has a
right to complain and the courts will then come to his succor. For all the
awesome power of the tax collector, he may still be stopped in his tracks if the
taxpayer can demonstrate, as it has here, that the law has not been observed.
Procedural:
Petition was filed seasonably. According to RA 1125, the appeal may be made
within thirty days after the receipt of the decision or ruling challenged. It is true
that as a rule, the warrant of distraint and levy is “proof of the finality of the
assessment” and “renders hopeless a request for reconsideration,” “being
tantamount to an outright denial thereof and makes the said request deemed
rejected.” But there is a special circumstance in the case at bar that prevents
application of this accepted doctrine.
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 Taxation Review
3. Talento vs. Escalada, FACTS:
Jr. 180884 June 27,
2008
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Four days after the private respondent received the petitioner’s notice of
assessment it filed its letter of protest. This was apparently not taken into
account before the warrant of distraint and levy was issued; such protest could
not be located in the office of the petitioner. It was only after the counsel gave
the BIR a copy of the protest that it was, if at all, considered by the tax
authorities. During the intervening period, the warrant was premature and could
therefore not be served. Since the protest filed by the private respondent was
not a pro forma and was based on strong legal considerations, it thus have the
effect of suspending on January 18, 1965, when it was filed the reglamentary
period which started on the date the assessment was received, January 14,
1965. The period started running again only on April 7, 1965, when the private
respondent was definitely informed of the implied rejection of the said protest
and the warrant was finally served on it.
DOCTRINE: Taxes are the lifeblood of the government and so should be
collected without unnecessary hindrance. On the other hand such collection
should be made in accordance with law as any arbitrariness will negate the very
reason for government itself. It is therefore necessary to reconcile the
apparently conflicting interests of the authorities and the taxpayers so that the
real purpose of taxation, which is the promotion of common good, may be
achieved.
[1]
Deductions from gross income.–In computing net income there shall be
allowed as deductions
(a) Expenses:
(1) In general.– All the ordinary and necessary expenses paid or incurred during
the taxable year in carrying on any trade or business, including a reasonable
allowance for salaries or other compensation for personal services actually
rendered;
x x x"
HELD:
● The issue before the Supreme Court is the validity of the TRO ● “We are not unaware of the doctrine that taxes are the lifeblood of the
granted in favor of a taxpayer (PETRON) enjoining the BIR from government, without which it cannot properly perform its functions; and
pushing through with the auction sale due to Petron’s non- that appeal shall not suspend the collection of realty taxes. However,
payment of taxes. there is an exception to the foregoing rule, i.e., where the taxpayer has
shown a clear and unmistakable right to refuse or to hold in abeyance
the payment of taxes”
● In this case, respondent contested the revised assessment on the
following grounds: that the subject assessment pertained to properties
that have been previously declared; that the assessment covered
periods of more than 10 years which is not allowed under the LGC;
that the fair market value or replacement cost used by petitioner
included items which should be properly excluded; that prompt
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 Taxation Review
4. Roxas vs. CTA L- DOCTRINE:
25043 April 26, 1968 The power of taxation is sometimes called also the power to destroy.
Therefore, it should be exercised with caution to minimize injury to the
proprietary rights of a taxpayer. It must be exercised fairly, equally, and
uniformly, lest the tax collector kill the “hen that lays the golden egg”. And,
in order to maintain the general public’s trust and confidence in the
Government this power must be used justly and not treacherously. It does
not conform with the SC’s sense of justice in the instant case for the
Government to persuade the taxpayer to lend it a helping hand and later
on to penalize him for duly answering the urgent call.
FACTS:
Don Pedro Roxas and Dona Carmen Ayala, Spanish subjects, transmitted
to their grandchildren by hereditary succession the following properties:
1. Agricultural lands in Nasugbu, Batangas
2. A residential house and lot in Malate
3. Shares of stock in different corporations.
To manage the properties, the grandchildren, namely, Antonio, Eduardo,
and JoseRoxas formed a partnership called Roxas y Campania.
AGRICULTURAL LANDS
The tenants who have ll been tilling the lands in Nasugbu for generations
expressed their desire to purchase from Roxas y Cia the parcels which
they actually occupied. The Government, in consonance with the
constitutional mandate to acquire big landed estates and apportion them
among landless tenants-farmers, persuaded the Roxas brothers to part
with their landholdings. It turned out, however, that the Government did not
have funds to cover the purchase price, and so a special agreement was
made for the Rehabilitation Finance Corporation to advance to Roxas y
Cia the amount as a loan. Under the arrangement, Roxas y Cia allowed
the farmers to buy the lands for the same price but by installment, and
contracted with the Rehabilitation Finance Corporation to pay its loan from
the proceeds of the yearly amortizations paid by the farmers.
Roxas y Cia derived from said installment payment a net gain of P42,480
and P29, 500. Fifty percent of said net gain was reported for income tax
purposes as gain on the sale of capital asset held for more than one year
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payment of discounts were not considered in determining the fair
market value; and that the subject assessment should take effect a
year after or on January 1, 2008.
● The Supreme Court also took note of the fact that respondent posted
a surety bond equivalent to the amount of the assessment due.
● The Supreme Court dismissed the petition
ISSUES:
1. Is the gain derived from the sale of the Nasugbu farm lands an
ordinary gain, hence 100% taxable? (NO, but a capital gain, taxable
only to the extent of 50%)
2. Are the deductions for business expenses and contributions
deductible? [NO]
3. Is Roxas y. Cia liable for the payment of the fixed tax on real estate
dealers? [YES]
HELD1:
The CIR contended that Roxas y Cia could be considered a real estate dealer
because it engaged in the business of selling real estate (Nasugbu properties).
The proposition cannot be accepted in this isolated transaction with its
particular circumstances inspire of the fact that there were hundreds of
vendees. Although they paid for their respective holdings in installments for a
period of ten years, it would nevertheless not make the vendor a real estate
dealer during the amortization period.
It should be borne in mind that the sale of the Nasugbu property to the very
farmers who tilled was not only in consonance with, but more in obedience to
the request and pursuant to the policy of our Government to allocate lands to
the landless. It was the burden of the Government to pay the agreed
compensation after it had persuaded Roxas y. Cia to sell the lands. However,
the Government lacked the funds to do so. Obligingly, Roxas y Cia shouldered
the Government’s burden, went out of its way and sold lands directly to the
farmers in the same way and under the same terms as would have been the
case had the Government done it itself.
[DOCTRINE]
HELD 2: The deductions being claimed by petitioner were in the form of
representation expenses according to them. Representation expenses are
deductible from gross income as expenditures incurred in carrying on a trade or
business under the Tax Code provided the taxpayer proves that they are
reasonable in amount, ordinary, and necessary, and incurred in connection with
his business. In the case, evidence does not show the link between the
expenses and the business of Roxas y Cia.
HELD 3: Roxas y Cia questions the imposition of the real estate dealer’s fixed
tax upon it, because although it earned a rental income of P8,000, said rental
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 Taxation Review
pursuant to Section 34 of the Tax Code.
RESIDENTIAL HOUSE
After the brothers Antonio and Eduardo got married, they resided
somewhere else leaving only Jose in the old house. Jose paid to Roxa y
Cia annual rentals amounting to P8,000.
5
income came from Jose, one of the partners. However, Section 194 of the Tax
Code, in considering a real estate dealers owners of real estate receiving
rentals of at least P3,000 a year does not provide any qualification as to the
person paying the rentals.

ASSESSMENTS
The CIR demanded from Roxas y Cia the payment of real estate dealer’s
tax. This was based on the fact that Roxa y Cia received house rentals
from Jose. Pursuant to Sec. 194 of the Tax Code, an owner of a real
estate who deserves a yearly rental income in the amount of P3,000 or
more is considered a real estate dealer and is liable to pay the
corresponding fixed tax.

Moreover, the CIR assessed deficiency income taxes against the Roxas
brothers derived from the sale of the Nasugbu lands to the tenants, and
the disallowance of deductions from gross income of various business
expenses and contributions claimed by Roxas y. Cia. For the reason that
Roxas y Cia subdivided its Nasugbu farm lands and sold them to the
farmers on installment, the CIR considered the partnership as engaged in
the business of real estate, hence, 100& of the profits derived therefrom
was taxed.

Moreover, the following requested deductions were disallowed by the CIR:

1. Tickets for Banquet in honor of S. Osmena,
2. Gifts of San Miguel Beer,
3. Contributions to:
a. the Philippine Air Force Chapel,
b. Manila Police Trust Fund,
c. Philippine Heradls’ fund for Manila’s neediest families.

5. Philippine Health FACTS: ISSUES:

Care Providers vs. CIR 1. This is a Motion for Reconsideration (MR) of the Supreme Court’s
167330 September 18, decision.
2009 2. Petitioner Philippine Health Care Providers (PHCP) is a domestic
corporation whose primary purpose is “to establish, maintain,
conduct and operate a prepaid group practice health care
delivery system or a health maintenance organization to take
care of the sick and disabled persons enrolled in the health care
plan and to provide for the administrative, legal, and financial
responsibilities of the organization.”
3. Its members pay an annual membership fee and are entitled to
various preventive, diagnostic and curative medical services.
4. Commissioner of Internal Revenue (CIR) assessed PHCP
deficiency documentary stamp taxes (DST) for the years 1996
1. Whether Philippine Health Care Providers, Inc. engaged in insurance
business. NO.
2. Whether Philippine Health Care Providers, Inc. is subject to DST. NO.
RULING:
(ISSUE #1): Health Maintenance Organization (HMO) is not engaged in the
insurance business
● Applying the “principal object and purpose test,” there is significant
American case law supporting the argument that a corporation (such
as an HMO, whether or not organized for profit), whose main object is

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Taxation Review
and 1997 and these were imposed on the health care agreement
with its members.
5. VAT was also assessed.
6. PHCP protested but because the CIR did not act on it, petitioner
filed a petition for review with the Court of Tax Appeals (CTA)
seeking cancellation of the deficiency VAT and DST.
7. CTA ruled that PHCP was liable for VAT but DST was cancelled.
8. CIR appealed in so far as the cancellation of the DST claiming
that PHCP’s health care agreement was a contract of insurance
subject to DST under Sec. 185 of the 1997 Tax Code.
9. SC ruled that petitioner’s health care agreement during the
pertinent period was in the nature of non-life insurance which is a
contract of indemnity, and that it is liable for DST, because DST is
not a tax on the business transacted but an excise on the
privilege, opportunity or facility offered at exchanges for the
transaction of the business.
10. In its MR, petitioner reveals for the first time that it availed of a tax
amnesty under RA 9480.
NOTES:
Statutory Construction; Surplusages
1. It is a cardinal rule in statutory construction that no word, clause,
sentence, provision or part of a statute shall be considered surplusage or
superfluous, meaningless, void and insignificant.
To this end, a construction which renders every word operative is
preferred over that which makes some words idle and nugatory.
This principle is expressed in the maxim Ut magis valeat quam pereat, that
is, we choose the interpretation which gives effect to the whole of the
statute – its every word.
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to provide the members of a group with health services, is not
engaged in the insurance business.
● The functions of such an organization are not identical with those of
insurance or indemnity companies.
● The latter are concerned primarily, if not exclusively, with risk and the
consequences of its descent, not with service, or its extension in kind,
quantity or distribution; with the unusual occurrence, not the daily
routine of living. Hazard is predominant.
● On the other hand, the cooperative is concerned principally with
getting service rendered to its members and doing so at lower prices
made possible by quantity purchasing and economies in operation. Its
primary purpose is to reduce the cost rather than the risk of medical
care; to broaden the service to the individual in kind and quantity; to
enlarge the number receiving it; to regularize it as an everyday incident
of living, like purchasing food and clothing or oil and gas, rather than
merely protecting against the financial loss caused by extraordinary
and unusual occurrences, such as death, disaster at sea, fire and
tornado.
● It is, in this instance, to take care of colds, ordinary aches and pains,
minor ills and all the temporary bodily discomforts as well as the more
serious and unusual illness.
To summarize, the distinctive features of the cooperative (HMO) are the
rendering of service, its extension, the bringing of physician and patient
together, the preventive features, the regularization of service as well as
payment, the substantial reduction in cost by quantity purchasing in short,
getting the medical job done and paid for; not, except incidentally to these
features, the indemnification for cost after the services is rendered.
● Except the last, these are not distinctive or generally characteristic of
the insurance arrangement. There is, therefore, a substantial
difference between contracting in this way for the rendering of service,
even on the contingency that it be needed, and contracting merely to
stand its cost when or after it is rendered.
● American courts have pointed out that the main difference between an
HMO and an insurance company is that HMOs undertake to provide or
arrange for the provision of medical services through participating
physicians while insurance companies simply undertake to indemnify
the insured for medical expenses incurred up to a pre-agreed limit.
Concept of Insurance
5. Section 2 (1) of the Insurance Code defines a contract of insurance
as an agreement whereby one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an
unknown or contingent event. An insurance contract exists where the
following elements concur:
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 Taxation Review 7

(a) The insured has an insurable interest;

(b) The insured is subject to a risk of loss by the happening of the designed
peril;
(c) The insurer assumes the risk;
(d) Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk and
(e) In consideration of the insurer’s promise, the insured pays a premium

Not all the necessary elements of a contract of insurance are present in

petitioner’s agreements. To begin with, there is no loss, damage or liability on
the part of the member that should be indemnified by petitioner as an HMO.
● Under the agreement, the member pays petitioner a predetermined
consideration in exchange for the hospital, medical and professional
services rendered by the petitioner’s physician or affiliated physician to
him.

(ISSUE #2) Documentary Stamp Tax (DST)

From the language of Section 185 of the Tax Code, it is evident that two
requisites must concur before the DST can apply, namely:

(1) the document must be a policy of insurance or an obligation in the nature of

indemnity and
(2) the maker should be transacting the business of accident, fidelity,
employer’s liability, plate, glass, steam boiler, burglar, elevator, automatic
sprinkler, or other branch of insurance (except life, marine, inland, and fire
insurance). 

When the law imposing the DST was first passed, HMOs were yet unknown in
the Philippines. However, when the various amendments to the DST law were
enacted, they were already in existence in the Philippines and the term had in
fact already been defined by RA 7875.
● The fact that the NIRC contained no specific provision on the DST
liability of health care agreements of HMOs at a time they were
already known as such, belies any legislative intent to impose it on
them.

6. Sison vs. Ancheta Facts: Issue:

(also in Under Article III 1. Antero Sison filed a petition for declaratory relief challenging the Whether the imposition of a higher tax rate on taxable net income derived from
of the 1987 Philippine validity of Sec. 1 of BP 135, amending Sec. 21 of the NIRC of 1977. business or profession than on compensation is constitutionally valid. – YES.
Constitution) L-59431 This provision stipulates the rates of tax on citizens or residents on
July 25, 1984 the following: Ruling:
a. Taxable compensation income The power to tax, an inherent prerogative, has to be availed of to assure the

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Taxation Review 8
b. Taxable net income performance of vital state functions. Taxes being the lifeblood of the
c. Royalties, prizes, and other winnings government, their prompt and certain availability is of the essence. The power
d. Interest from bank deposits and yield or any other monetary to tax is an attribute of sovereignty. It is the strongest of all the powers of
benefit from deposit substitutes and from trust fund and similar government. It is, of course, to be admitted that for all its plenitude, the power to
arrangements tax is not unconfined. The Constitution sets forth such limits.
e. Dividends and share of individual partner in the net profits of
taxable partnership Adversely affecting as it does property rights, both the due process and equal
f. Adjusted gross income protection clauses may properly be invoked, as petitioner does, to invalidate in
2. Sison alleges that he was unduly discriminated against by the appropriate cases a revenue measure.
imposition of higher rates of tax upon his income arising from the
exercise of his profession vis-à-vis those which are imposed upon
Lack of factual foundation to show the arbitrary character of the assailed
fixed income or salaried individual taxpayers.
provision
a. He further characterizes the said provisions as arbitrary
Here, petitioner alleges arbitrariness. A mere allegation does not suffice. There
amounting to class legislation, oppressive and capricious in
must be a factual foundation of such unconstitutional taint. Where the due
character.
process and equal protection clauses are invoked, considering that they are not
3. The respondents, through the OSG, prayed for the dismissal of the
fixed rules but rather broad standards, there is a need for proof of such
petition for lack of merit. They alleged that BP 135 is a valid exercise
persuasive character as would lead to such a conclusion. Absent such a
of the State’s power to tax.
showing, the presumption of validity must prevail.

Due process clause

The due process clause may be invoked where a taxing statute is so arbitrary
that it finds no support in the Constitution. An obvious example is where it can
be shown to amount to the confiscation of property. It then becomes the duty of
this Court to say that such an arbitrary act amounted to the exercise of an
authority not conferred. It has also been held that where the assailed tax
measure is beyond the jurisdiction of the state, or is not for a public purpose, or,
in case of a retroactive statute is so harsh and unreasonable, it is subject to
attack on due process grounds.

Equal protection clause

The applicable standard to avoid the charge that there is a denial of this
constitutional mandate whether the assailed act is in the exercise of the police
power or the power of eminent domain is to demonstrate "that the governmental
act assailed, far from being inspired by the attainment of the common weal was
prompted by the spirit of hostility, or at the very least, discrimination that finds to
support in reason. It suffices then that the laws operate equally and uniformly
on all persons under similar circumstances or that all persons must be treated
in the same manner, the conditions not being different, both in the privileges
conferred and the liabilities imposed.

Equal protection and security shall be given to every person under

circumstances, which if not identical are analogous. That same formulation
applies as well to taxation measures. The Constitution does not require things
which are different in fact or opinion to be treated in law as though they were
the same. Hence the constant reiteration of the view that classification if rational

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 Taxation Review 9
in character is allowable.

According to the Constitution: “The rule of taxation shall be uniform and

equitable.” This requirement is met when the tax “operates with the same force
and effect in every place where the subject may be found.” The rule of
uniformity does not call for perfect uniformity or perfect equality, because this is
hardly attainable." There is quite a similarity then to the standard of equal
protection for all that is required is that the tax "applies equally to all persons,
firms and corporations placed in similar situation."

Taxpayers may be classified into different categories. To repeat, it is enough

that the classification must rest upon substantial distinctions that make real
differences. In the case of the gross income taxation embodied in BP 135, the
discernible basis of classification is the susceptibility of the income to the
application of generalized rules removing all deductible items for all taxpayers
within the class and fixing a set of reduced tax rates to be applied to all of them.
Taxpayers who are recipients of compensation income are set apart as a class.
As there is practically no overhead expense, these taxpayers are not entitled to
make deductions for income tax purposes because they are in the same
situation more or less. On the other hand, in the case of professionals in the
practice of their calling and businessmen, there is no uniformity in the costs or
expenses necessary to produce their income. It would not be just then to
disregard the disparities by giving all of them zero deduction and
indiscriminately impose on all alike the same tax rates on the basis of gross
income.

There is ample justification then for the Batasang Pambansa to adopt the gross
system of income taxation to compensation income, while continuing the
system of net income taxation as regards professional and business income.

7. CIR vs. San Miguel DOCTRINE: The rule in the interpretation of tax laws is that a statute will
Corporation 184428 not be construed as imposing a tax unless it does so clearly, expressly, ISSUE/S: W/N Section 1 of Revenue Regulations NO. 17-99 is an invalid
November 23, 2011 and unambiguously. A tax cannot be imposed without clear and express administrative interpretation of Section 143 of the Tax Reform Act of 1997. à
words for that purpose. Accordingly, the general rule of requiring YES
adherence to the letter in construing statutes applies with peculiar
strictness to tax laws and the provisions of a taxing act are not to be
extended by implication.
FACTS:
● Respondent San Miguel Corporation, a domestic corporation RULING:
engaged in the manufacture and sale of fermented liquor,
produces as one of its products Red Horse beer which is sold in Section 143 of the Tax Reform Act of 1997 is clear and unambiguous.
500-ml. and 1-liter bottle variants.
● On January 1, 1998, Republic Act (R.A.) No. 8424 or the Tax It provides for two periods:
Reform Act of 1997 took effect. It reproduced, as Section 143
thereof, the provisions of Section 140 of the old National Internal the first is the 3-year transition period beginning January 1, 1997, the

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Taxation Review 10
Revenue Code as amended by R.A. No. 8240 which became
effective on January 1, 1997. Section 143 of the Tax Reform Act date when R.A. No. 8240 took effect, until December 31, 1999; and
of 1997 reads:
○ The excise tax from any brand of fermented liquor the second is the period thereafter. During the 3-year transition period,
within the next three (3) years from the effectivity of Section 143 provides that the excise tax from any brand of fermented
Republic Act No. 8240 shall not be lower than the tax liquor shall not be lower than the tax which was due from each
which was due from each brand on October 1, 1996. brand on October 1, 1996.
○ The rates of excise tax on fermented liquor under
paragraphs (a), (b) and (c) hereof shall be increased
After the transitory period, Section 143 provides that the excise tax rate shall
by twelve percent (12%) on January 1, 2000.
be the figures provided under paragraphs (a), (b) and (c) of Section 143 but
● Thereafter, on December 16, 1999, the Secretary of 3Finance
increased by 12%, without regard to whether such rate is lower or higher
issued Revenue Regulations No. 17-99 increasing the
than the tax rate that is actually being paid prior to January 1, 2000 and
applicable tax rates on fermented liquor by 12%. This increase,
therefore, without regard to whether the revenue collection starting January 1,
however, was qualified by the last paragraph of Section 1 of
2000 may turn out to be lower than that collected prior to said date.
Revenue Regulations No. 17-99 which reads:
○ Provided, however, that the new specific tax rate for
any existing brand of cigars, cigarettes packed by
machine, distilled spirits, wines and fermented liquors
shall not be lower than the excise tax that is actually Revenue Regulations No. 17-99, however, created a new tax rate when it
being paid prior to January 1, 2000. added in the last paragraph of Section 1 thereof, the qualification that the
● Relying on the last paragraph of Section 1 of the Revenue tax due after the 12% increase becomes effective shall not be lower than the
Regulation, San Miguel Corporation’s tax was computed at tax actually paid prior to January 1, 2000.
P7.07/liter, which was the rate being applied prior to January
1,2000.
● San Miguel then filed a claim for tax refund amounting to
P58,213,294.92 claiming that it erroneously paid its excise tax. It
As there is nothing in Section 143 of the Tax Reform Act of 1997 which
was argued that:
clothes the BIR with the power or authority to rule that the new specific
○ The applicable tax rate is P6.89/liter, which is the rate
tax rate should not be lower than the excise tax that is actually being paid
provided for by Section 143 of R.A. 8424, not the rate
prior to January 1, 2000, such interpretation is clearly an invalid exercise
based on the Revenue Regulations.
of the power of the Secretary of Finance to interpret tax laws and to
promulgate rules and regulations necessary for the effective enforcement of the
Tax Reform Act of 1997.

Said qualification must, perforce, be struck down as invalid and of no effect.

Tax burdens are not to be imposed, nor presumed to be imposed beyond what
the statute expressly and clearly imports, tax statutes being construed
strictissimi juris against the government. In case of discrepancy between the
basic law and a rule or regulation issued to implement said law, the basic law
prevails as said rule or regulation cannot go beyond the terms and provisions of
the basic law.

Block G05 Digest Atty. Tuazon

 Taxation Review
8. CIR vs. Acesite FACTS:
(Philippines) Hotel ● Resp Acesite is the owner and operator of the Holiday Inn Manila
Corporation 147295
February 16, 2007
● From January 1996 to April 1997, Acesite incurred VAT
● Acesite tried to shift the said taxes to PAGCOR by incorporating it
● Thus, PAGCOR paid the amount due to Acesite minus the
● However, Acesite belatedly arrived at the conclusion that its
● CA: Affirmed in toto CTA holding that PAGCOR was not only
Block G05 Digest
11
ISSUE:
● WON PAGCOR's tax exemption privilege includes the indirect tax of
Pavilion Hotel along UN Ave in Manila w/c leases 6k+ sqm to the VAT to entitle Acesite to 0% VAT rate – YES
PAGCOR for casino operations. ● WON 0% VAT rate under Section 108 (B)(3) of the Tax Code of 1997
○ It also caters food and beverages to PAGCOR's casino legally applies to Acesite. – YES
patrons through the hotel's restaurant outlets.
RULING:
amounting to P30,152,892.02 from its rental income and sale of
food and beverages to PAGCOR during said period.
PAGCOR is exempt from payment of indirect taxes
● It is undisputed that P.D. 1869, the charter creating PAGCOR, grants
in the amount assessed to PAGCOR but the latter refused to pay
the latter an exemption from the payment of taxes. Section 13 of P.D.
the taxes on account of its tax exempt status.
1869 pertinently provides:
○ No tax of any kind or form, income or otherwise, as well as
P30,152,892.02 VAT while the latter paid the VAT to the CIR as it
fees, charges or levies of whatever nature, whether National
feared the legal consequences of non-payment of the tax.
or Local, shall be assessed and collected under this
Franchise from the Corporation; nor shall any form of tax or
transaction with PAGCOR was subject to zero rate as it was
charge attach in any way to the earnings of the Corporation,
rendered to a tax-exempt entity.
except a Franchise Tax of five (5%) percent of the gross
○ Acesite filed an administrative claim for refund with the
revenue or earnings derived by the Corporation from its
CIR but the latter failed to resolve the same.
operation under this Franchise.
○ Acesite filed a petition with the CTA which ruled in their
● A close scrutiny of the above provisos clearly gives PAGCOR a
favor thus approved the said amount to be refunded to
blanket exemption to taxes with no distinction on whether the taxes are
the petitioner for having been inadvertently remitted to
direct or indirect.
the CIR
● Under the above provision [Section 13 (2) (b) of P.D. 1869], the term
"Corporation" or operator refers to PAGCOR. Although the law does
exempt from direct taxes but was also exempt from indirect taxes
not specifically mention PAGCOR's exemption from indirect taxes,
like the VAT and consequently, the transactions between
PAGCOR is undoubtedly exempt from such taxes because the law
respondent Acesite and PAGCOR were "effectively zero-rated"
exempts from taxes persons or entities contracting with PAGCOR in
because they involved the rendition of services to an entity
casino operations.
exempt from indirect taxes.
○ Although differently worded, the provision clearly exempts
PAGCOR from indirect taxes.
○ In fact, it goes one step further by granting tax exempt status
to persons dealing with PAGCOR in casino operations.
○ The unmistakable conclusion is that PAGCOR is not liable for
the P30,152,892.02 VAT and neither is Acesite as the latter is
effectively subject to zero percent rate under Sec. 108 B (3).
R.A. 8424.
○ By extending the exemption to entities or individuals dealing
with PAGCOR, the legislature clearly granted exemption also
from indirect taxes.
○ It must be noted that the indirect tax of VAT, as in the instant
case, can be shifted or passed to the buyer, transferee, or
lessee of the goods, properties, or services subject to VAT.
Atty. Tuazon
Taxation Review 12
○ Thus, by extending the tax exemption to entities or individuals
dealing with PAGCOR in casino operations, it is exempting
PAGCOR from being liable to indirect taxes.

The manner of charging VAT does not make PAGCOR liable to said tax
● It is true that VAT can either be incorporated in the value of the goods,
properties, or services sold or leased, in which case it is computed as
1/11 of such value, OR charged as an additional 10% to the value.
● In the instant case, Acesite followed the latter method, that is, charging
an additional 10% of the gross sales and rentals.
● Be that as it may, the use of either method, and in particular, the first
method, does not denigrate the fact that PAGCOR is exempt from an
indirect tax, like VAT.

VAT exemption extends to Acesite

● While it was proper for PAGCOR not to pay the 10% VAT charged by
Acesite, the latter is not liable for the payment of it as it is exempt in
this particular transaction by operation of law to pay the indirect tax.
● Such exemption falls within the former Section 108 (b) (3) of the 1977
Tax Code, which provides that Value-added tax on sale of services (a)
Rate and base of tax There shall be levied, assessed and collected, a
value-added tax equivalent to 10% of gross receipts derived by any
person engaged in the sale of services x x x; Provided, that the
following services performed in the Philippines by VAT-registered
persons shall be subject to 0%. (b) Transactions subject to zero
percent (0%) rated.
● The rationale for the exemption from indirect taxes provided for in P.D.
1869 and the extension of such exemption to entities or individuals
dealing with PAGCOR in casino operations are best elucidated from
the 1987 case of CIR v Gotamco & Sons, Inc., where the absolute tax
exemption of the WHO upon an international agreement was upheld.
● In that case, the exemption of contractee WHO should be
implemented to mean that the entity or person exempt is the contractor
itself who constructed the building owned by contractee WHO, and
such does not violate the rule that tax exemptions are personal
because the manifest intention of the agreement is to exempt the
contractor so that no contractor's tax may be shifted to the contractee
WHO.
● Thus, the proviso in P.D. 1869, extending the exemption to entities or
individuals dealing with PAGCOR in casino operations, is clearly to
proscribe any indirect tax, like VAT, that may be shifted to PAGCOR.

Acesite paid VAT by mistake

● Considering the foregoing discussion, there are undoubtedly
erroneous payments of the VAT pertaining to the effectively zero-rate

Block G05 Digest Atty. Tuazon

 Taxation Review 13
transactions between Acesite and PAGCOR.
● Acesite has clearly shown that it paid the subject taxes under a
mistake of fact, when it was not aware that the transactions it had with
PAGCOR were zero-rated at the time it made the payments.
● In the case of UST Cooperative Store v. City of Manila, the Court
explained that "there is erroneous payment of taxes when a taxpayer
pays under a mistake of fact, as for the instance in a case where he is
not aware of an existing exemption in his favor at the time the payment
was made." Such payment is held to be not voluntary and, therefore,
can be recovered or refunded.

9. Villanueva vs. City of FACTS: ISSUES: WON Ordinance 11 violate the rule of uniformity of taxation? NO.
Iloilo L-26521 December - On 30 September 1946, the Municipal Board of Iloilo City
28, 1968 enacted an ordinance (Ordinance 86) imposing license tax RULING:
fees upon tenement houses.
§ Taxes for tenement house (Php. 25 - The Court has ruled that the tenement houses constitute a
annually); distinct class of property and that taxes are uniform and equal
§ Taxes for tenement house, partly or wholly when imposed upon all property of the same class or character
engaged in or dedicated to business in the within the taxing authority.
streets of J.M. Basa, Iznart and Aldeguer. - The fact that the owners of the other classes of buildings in
(Php. 25 per apartment); and Iloilo are not imposed upon by the Ordinance, or that tenement
§ Taxes for tenement house, partly or wholly taxes are imposed in other cities do not violate the rule of equality
engaged in business in any other streets and uniformity.
(Php. 12 per apartment) - The rule does not require that taxes for the same purpose
- The validity and the constitutionality of the ordinance should be imposed in different territorial subdivisions at the same
was questioned by herein petitioners, Eusebio and time. So long as the burden to tax falls equally and impartially on
Remedios Villanueva, who are owners of four (4) tenement all owners or operators of tenement houses similarly classified or
houses containing thirty-four (34) apartments. situated, equality and uniformity is accomplished.
- The Court in the case of City of Iloilo v. Remedios and - The presumption that tax statutes are intended to operate
Eusebio Villanueva, declared the ordinance ultra vires, “it not uniformly and equally was not overthrown herein.
appearing that the power to tax owners of tenement houses
is one among those clearly and expressly granted to the City
of Iloilo by its charter.
- On 15 January 1960, the municipal board of Iloilo City,
believing, obviously, that with the passage of RA No. 2264, it
had acquired the authority or power to enact an ordinance
similar to that previously declared by the Court as ultra vires,
Ordinance 11, series of 1960.
- By virtue of the newly enacted ordinance, the city
collected from the Villanuevas the sum of Php. 5,823.30.
- The Villanuevas filed a complaint against the City of
Iloilo praying that the Ordinance be declared “invalid for
being beyond the powers of the Municipal Council of the City
of Iloilo to enact, and unconstitutional for being violative of
the rule as to uniformity of taxation and for depriving said
plaintiffs of the equal protection clause of the Constitution”

Block G05 Digest Atty. Tuazon

 Taxation Review
and that the City be ordered to refund the amounts collected.
10. City of Baguio vs. FACTS:
Fortunato De Leon L- ● Fortunato De Leon is a real-estate dealer with property in Baguio,
24756 October 31, 1968 his property is worth more than 10,000 but not less than 50k
(exact amount not specified)
● The City of Baguio issued an ordinance (ordinance no. and
contents not indicated) which stated; among others, “a real estate
dealer who leases property worth P50,000 or above must pay an
annual fee of P100. If the property is worth P10,000 but not over
P50,000, then he pays P50 and P24 if the value is less than
P10,000”
● A complaint was filed before the City Court of Baguio against
Fortunato for the payment of the fees under the ordinance.
● As his defense, Fortunato assailed the validity of the said
ordinance on the following grounds:
○ The City of Baguio has no authority to enact such
ordinance based on prevailing laws and the Constitution.
○ The ordinance amounts to double taxation and violates
the principle of uniformity of taxation.
○ (other issue irrelevant to Tax) the City Court of Baguio
has no jurisdiction to hear the case since it involves a
question of constitutionality.
Block G05 Digest
14
ISSUES:
● WON the City of Baguio has the authority to enact such ordinance
- YES
● WON the ordinance should be declared invalid by reason of
double taxation - NO
● WON the ordinance violated the principle of uniformity - NO
RULING:
1.) YES, The City of Baguio has authority to enact the ordinance. In the
case of Medina v City Of Baguio, the SC declared that after the
enactment of RA 329 (law amending Baguio’s charter) the City of
Baguio, the power to tax and to regulate business had been added to
its power to license. Indeed the case states: “The city council of
Baguio, therefore, has now the power to tax, to license and to regulate
provided that the subjects affected be one of those included in the
charter.” With this being said, Fortunato failed to prove that the
questioned ordinance was beyond the grant of authority given by RA
329 [ accdg. To the case: “RA 329 empowered Baguio to fix the
license fee and regulate businesses, trades and occupations as may
be established or practiced in the City."]
2.) NO, The ordinance cannot be declared invalid by reason of double
taxation. As stated by Justice Holmes, “The 14th Amendment [the due
process clause] no more forbids double taxation than it does doubling
the amount of a tax, short of confiscation or proceedings
unconstitutional on other grounds.”. In connection with this, it has been
declared in other cases that “ the argument against double taxation
may not be invoked where one tax is imposed by the state and the
other is imposed by the city ..., it being widely recognized that there is
nothing inherently obnoxious in the requirement that license fees or
taxes be exacted with respect to the same occupation, calling or
activity by both the state and the political subdivisions thereof.”
3.) NO, the questioned ordinance does not violate the principle of
uniformity. Accdg to numerous cases, uniformity in taxation merely
requires that “all taxable articles or kinds of property of the same class
shall be taxed at the same rate. The taxing power has the authority to
make reasonable and natural classifications for purposes of taxation”
and that the statute or ordinance “applies equally to all persons, firms
and corporations placed in similar situations ...inequalities which result
from a singling out of one particular class for taxation or exemption
infringe no constitutional limitation.” It is clear therefore that the
ordinance cannot be struck down as Fortunato failed to prove that
there was improper classification.
Atty. Tuazon
 Taxation Review
11. CIR vs. S.C. 1. S.C. Johnson Philippines was granted, by S.C. Johnson USA in a
Johnson and Son, Inc. License Agreement, the right to use the trademark, patents and
127105 June 25, 1999 technology owned by the latter including the right to manufacture,
(also in 2. Scope and package and distribute the products covered by the Agreement and
Limitation of Taxation) secure assistance in management, marketing and production.
2. The agreement obliged the PH company to pay the USA Company
royalties based on a percentage of net sales and subjected the same
to 25% withholding tax on royalty payments which S.C. Johnson
Philippines paid.
3. S.C. Johnson Philippines filed with the International Tax Affairs Division
(ITAD) of the BIR a claim for refund of overpaid withholding tax on
royalties arguing that the royalties paid by the PH company to the USA
Company is subject only to 10% withholding tax pursuant to the most-
favored nation clause of the RP-US Tax Treaty [Article 13 Paragraph 2
(b) (iii)] in relation to the RP-West Germany Tax Treaty [Article 12 (2)
(b)]
4. CIR did not act on the complaint
5. S.C. Johnson Philippines filed a petition for review before the Court of
Tax Appeals to claim a refund of the overpaid withholding tax on
royalty payments from July 1992 to May 1993.
6. CTA: rendered its decision in favor of S.C. Johnson and ordered the
Commissioner of Internal Revenue to issue a tax credit certificate in the
amount of P963,266.00 representing overpaid withholding tax on
royalty payments, beginning July, 1992 to May, 1993.
7. CIR filed a petition for review with the CA which was denied arguing
that S.C. Johnson Philippines is not entitled to the application of the
"most favored nation clause.”
12. CIR vs. Estate of Facts:
Benigno Toda, Jr. 1. In March 1989, Cibeles Insurance Corporation (CIC) authorized
147188 September 14, Benigno P. Toda, Jr (President and owner of 99.99% of its issued
2004 and outstanding capital stock) to sell the Cibeles Bldg and the 2
lands on which the bldg stands for not less than 90 million pesos.
From 35% to 5% tax 2. Soon thereafter (August 1989), Toda purportedly sold the
liability real quick property for 100M to Rafael Altonaga (first sale) who in turn sold
the same property on the same day to Royal Match, Inc (RMI)
(second sale) for 200M.
a. These transactions were evidenced by Deeds of
Absolute Sale notarized on the same day by the same
notary public.
b. Capital gains tax in the amount of 10M was paid by
Altonaga (2nd sale) for the sale of the property.
3. CIC then filed its corporate annual income tax return for the year
1989 declaring its gain from the sale of real property in the
amount of 75M.
a. After crediting withholding taxes of PHP250K, it paid
Block G05 Digest
15
ISSUE
W/N S.C. Johnson Philippines is entitled to the to the "most favored nation" tax
rate of 10% on royalties. NO.
HELD
Tax refunds are in the nature of tax exemptions. As such they are regarded as
in derogation of sovereign authority and to be construed strictissimi juris against
the person or entity claiming the exemption. The burden of proof is upon him
who claims the exemption in his favor and he must be able to justify his claim
by the clearest grant of organic or statute law.
In this case, S.C. Johnson Philippines is claiming for a refund of the alleged
overpayment of tax on royalties however there is nothing on record to support a
claim that the tax on royalties under the RP-US Tax Treaty is paid under similar
circumstances as the tax on royalties under the RP-West Germany Tax Treaty.
ISSUES:
1. Is this a case of tax evasion or tax avoidance?
2. Has the period for assessment of deficiency income tax for 1989
prescribed?
3. Can respondent Estate be held liable for such deficiency of CIC, if
any?
RULING:
(Issue #1): This is a case of tax evasion. Tax evasion has three factors:
a. The end of be achieved is the payment of less than that known by the
taxpayer to be legally due or the non payment of tax when it is shown
that a tax is due
b. An accompanying state of mind which is described as being evil in bad
faith, willful or deliberate and not accidental
c. A course of action or failure which is unlawful
All these factors are present in this case. The scheme resorted to by CIC in
Atty. Tuazon
Taxation Review
PHP26M for its net taxable income of PHP75M (sale of
the real property).
4. Months later, Toda sold his entire shares in CIC to Mr. Choa for
12.5M.
a. 3 and a half years later, he died.
5. In March 1994, BIR sent an assessment notice and demand letter
to the CIC for deficiency income tax for the year 1989 in the
amount of 79M.
a. The new CIC asked for reconsideration asserting that
the assessment should be directed against the old CIC.
Moreover, Toda had undertaken to hold the buyer of his
shares and the CIC free from all tax liabilities for the
fiscal years 1987 - 1989.
b. The estate of Toda was therefore sent a Notice of
Assessment in the tax year of 1989 in the amount of
79M.
c. Therefore, the estate filed a protest.
6. Commission dismissed the protest stating that a fraudulent
scheme was deliberately perpetuated by the CIC owned by Toda.
7. Estate filed a petition for review.
Arguments of the Commissioner
1. The two transactions actually constituted a single sale of property
by CIC to RMI.
2. The additional gain of 100M realized by CIC was taxed at the rate
of only 5% as capital gains tax of Altonaga instead of at the rate
of 35% as corporate income tax of CIC.
3. This was done with the intent to evade payment of the tax
imposed upon CIC.
4. Since such falsity was discovered only on March 8, 1991, the
assessment issued on Jan 9, 1995 was well within the
prescriptive period prescribed by Sec 223(a) of the NIRC, which
provides that tax may be assessed within 10 years from the
discovery of the falsity or fraud.
5. Finally, with the sale being tainted with fraud, the separate
corporate personality of CIC should also be disregarded.
Ruling of the CTA: In favor of the Estate and CIC; The Commissioner
failed to prove that CIC committed fraud to deprive the gov’t of the taxes
due it.
Block G05 Digest
16
making it appear that there were 2 sales of the properties (from CIC to Altonaga
to RMI) cannot be considered a legitimate tax planning as such scheme was
tainted with fraud.
1. It was obvious that the objective of the sale to Altonaga was to reduce
the amount of tax to be paid especially that the transfer from him to
RMI would then subject the income to only 5% individual capital gains
tax and not the 35% corporate income tax.
a. Altonaga’s sole purpose of acquiring and transferring title of
the properties on the same day was to create a tax shelter.
b. He never controlled the property and did not enjoy the normal
benefits and burdens of ownership.
c. Sale was merely a tax ploy and without business purpose and
economic substance.
d. The execution of the 2 sales was calculated to mislead the
BIR with the end view of reducing the consequent income tax
liability.
e. To allow a taxpayer to deny tax liability on the ground that the
sale was made through another and distinct entity when it is
proved that the latter was merely a conduit is to sanction a
circumvention of our tax laws. Hence, the sale to Altonaga
should be disregarded for income tax purposes.
f. The two sale transactions should be treated as a single direct
sale by CIC to RMI.
(Issue #2): No, Sec 269 of the NIRC of 1986 (now Sec 222 as amended)
provides that in cases of fraudulent returns, false returns with intent to evade
tax and failure to file a return, the period within which to assess tax is 10 years
from discovery of the fraud, falsification or omission as the case may be.
a. In this case, the false return was filed on April 15, 1990 and the falsity
thereof was claimed to have been discovered only on March 8, 1991.
b. The assessment for the 1989 deficiency of CIC was issued on January
9, 1995.
c. Clearly, the issuance of the correct assessment for deficiency income
tax was well within the prescriptive period.
(Issue #3): Yes. GR: Corporation has a juridical personality distinct and
separate from the persons owning or composing it.
EXCEPTIONS:
1. He assents to the patently unlawful act of the corp, bad faith or gross
negligence in directing its affairs or conflicts of interest resulting in
damages to the corp.
2. Assents to the issuance of watered down stocks.
3. He agrees to hold himself personally and solidarily liable with the
Corp
4. He is made by specific provision of law to personally answer for
his corporate action
Atty. Tuazon
 Taxation Review 17
In this case, when Toda sold his shares of stock to Mr. Choa, he knowingly and
voluntarily held himself personally liable for all tax liabilities of CIC and the
buyer for the years 1987, 1988 and 1989 as indicated in par g of the Deed of
Sale of Shares of Stocks.
● Therefore, respondent Estate cannot deny liability from CIC’s
deficiency income tax for the year 1989.

FALLO: Decision of the CTA reversed and set aside.

NOTES: Tax avoidance is the tax saving device within the means sanctioned
by law. This method should be used in good faith and at arms length.

Tax evasion is a scheme used outside of those lawful means and when availed
of, it usually subjects the taxpayer to further or additional civil or criminal
liabilities.

13. Philex Mining vs. Facts: Issue:

CIR 125704 August 28, 1. The BIR sent a letter to Philex asking it to settle its tax liabilities
1998 for the 2nd, 3rd and 4th quarter of 1991 as well as the 1st and
2nd quarter of 1992 in the amount of P123M.
Held:
2. Philex protested the demand for payment of the tax liabilities
stating that it has pending claims for VAT input credit/refund for
the taxes it paid for the years 1989 to 1991.
3. Therefore these claims for tax credit/refund should be applied
against the tax liabilities.
4. In reply, the BIR found no merit in Philex's position. Since these
pending claims have not yet been established or determined with
certainty, it follows that no legal compensation can take place.
Hence, the BIR reiterated its demand that Philex settle the
amount plus interest within 30 days from the receipt of the letter.
5. In view of the BIR's denial of the offsetting of Philex's claim for
VAT input credit/refund against its excise tax obligation, Philex
raised the issue to the CTA.
6. In the course of the proceedings, the BIR issued Tax Credit
Certificate which, applied to the total tax liabilities of Philex
effectively lowered the latter's tax obligation to the amount of
P110M.
7. Despite the reduction of its tax liabilities, the CTA still ordered
Philex to pay the remaining balance Moreover, the CTA ruled that
"taxes cannot be subject to set-off on compensation since claim
1. WON taxes can be subject to set-off on compensation?
1. No. Taxes cannot be subject to compensation for the simple reason
that the government and the taxpayer are not creditors and debtors of
each other. There is a material distinction between a tax and debt.
Debts are due to the Government in its corporate capacity, while taxes
are due to the Government in its sovereign capacity.
2. Taxes are the lifeblood of the government and so should be collected
without unnecessary hindrance.
3. It must be noted that a distinguishing feature of a tax is that it is
compulsory rather than a matter of bargain. Hence, a tax does not
depend upon the consent of the taxpayer. If any taxpayer can defer
the payment of taxes by raising the defense that it still has a pending
claim for refund or credit, this would adversely affect the government
revenue system. A taxpayer cannot refuse to pay his taxes when they
fall due simply because he has a claim against the government or that
the collection of the tax is contingent on the result of the lawsuit it filed
against the government. Moreover, Philex’s theory that would
automatically apply its VAT input credit/refund against its tax liabilities
can easily give rise to confusion and abuse, depriving the government
of authority over the manner by which taxpayers credit and offset their
tax liabilities.
4. The payment of the surcharge is mandatory and the BIR is not vested
with any authority to waive the collection thereof. The same cannot be
condoned for flimsy reasons, similar to the one advanced by Philex in
justifying its non-payment of its tax liabilities.
5. While there is no dispute that a claimant has the burden of proof to

Block G05 Digest Atty. Tuazon

 Taxation Review
14. Domingo vs. Garlitos Facts
L-18994 June 29, 1963
Block G05 Digest
for taxes is not a debt or contract."
1. In a different case, the Supreme Court declared as final and
executory the order for the payment by the estate of Walter Scott
Price for estate and inheritance taxes, charges and penalties,
amounting to P40,058.
2. In order to enforce the decision, the fiscal presented a petition to
the court below for the execution of the judgment.
3. The petition was denied by the court which held that the
execution is not justifiable as the Government is indebted to the
Estate under administration in the amount of P262,200.
18
establish the factual basis of his or her claim for tax credit or refund,
however, once the claimant has submitted all the required documents,
it is the function of the BIR to assess these documents with purposeful
dispatch. After all, since taxpayers owe honesty to government it is but
just that government render fair service to the taxpayers. In the instant
case, the VAT input taxes were paid between 1989 to 1991 but the
refund of these erroneously paid taxes was only granted in 1996.
Obviously, had the BIR been more diligent and judicious with their
duty, it could have granted the refund earlier. We need not remind the
BIR that simple justice requires the speedy refund of wrongly-held
taxes. Fair dealing and nothing less, is expected by the taxpayer from
the BIR in the latter’s discharge of its function.
6. Despite our concern with the lethargic manner by which the BIR
handled Philex’s tax claim, it is a settled rule that in the performance of
governmental function, the State is not bound by the neglect of its
agents and officers. Nowhere is this more true than in the field of
taxation. Again, while we understand Philex’s predicament, it must be
stressed that the same is not a valid reason for the non-payment of its
tax liabilities.
7. To be sure, this is not to state that the taxpayer is devoid of remedy
against public servants or employees, especially BIR examiners who,
in investigating tax claims are seen to drag their feet needlessly. First,
if the BIR takes time in acting upon the taxpayer’s claim for refund, the
latter can seek judicial remedy before the Court of Tax Appeals in the
manner prescribed by law. Second, if the inaction can be
characterized as willful neglect of duty, then recourse under the Civil
Code and the Tax Code can also be availed of.
Doctrine:
1. Taxes cannot be subject to compensation for the simple reason that
the government and the taxpayer are not creditors and debtors of each
other
Issue: WON The tax liabilities of the estate may be extinguished by
Compensation
Held: Yes. Both the claim of the Government for inheritance taxes and the
claim of the intestate for services rendered have already become overdue and
demandable as well as fully liquidated.
Compensation, therefore, takes place by operation of law and both debts are
extinguished to the concurrent amount.
(Note: This doctrine has been abandoned when the NIRC of 1977 was enacted,
as held in Philex v. CIR)
Atty. Tuazon
 Taxation Review
15. Bloomberry Resorts FACTS
and Hotels Inc vs. BIR Under Sec. 13(2)(a) of PD 1869[1], PAGCOR only pays a 5% franchise tax
212530 August 10, 2016 on its gross revenue in lieu of all other taxes imposed by the National
Government or LGUs.
Under Sec. 13(2)(b) of the same law, PAGCOR’s contractees and
licensees are also subject to the same 5% franchise tax, in lieu of all other
taxes.
Petitioner Bloomberry is a licensee of PAGCOR. As such, it only pays the
5% franchise tax in lieu of all other taxes.
On July 1, 2005, RA. 9337 took effect and amended the NIRC of 1997.
One such amendment excluded PAGCOR from the enumeration of
GOCCs exempt from paying corporate income tax. This resulted in the
case of PAGCOR vs. BIR[2] where the SC held that the questioned
amendment in RA 9337 was valid and constitutional.
Consequently, Respondent BIR issued RMC 33-2013 which declared
that PAGCOR, in addition to the 5% franchise tax under PD 1869, is now
also subject to corporate income tax under the NIRC. In addition, a
provision therein states that PAGCOR’s contractees and licensees are
likewise subject to corporate income tax, in addition to the 5% franchise
tax that they were already paying under PD 1869.
Petitioner, being a licensee of PAGCOR, questioned this in a Petition of
Certiorari before the Supreme Court, reasoning that the (1) issue is a pure
question of law, (2) it involves a patently illegal act by the BIR, (3) it
concerns the national interest, and (4) it is for the prevention of multiplicity
of suits.
The Petition essentially argues that the exemption from all other taxes that
PAGCOR and its licensees have under Sec. 13(2) of PD 1869 was not
repealed by the deletion of PAGCOR in the list of tax-exempt entities
under the NIRC. Consequently, Respondent BIR acted without or in
excess of its jurisdiction when it issued the assailed RMC because it
effectively repealed/amended PD 1869
[1] PAGCOR’s Charter
[2] 645 SCRA 338
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DOCTRINE:
A special law prevails over a general law — regardless of their dates of
passage — and the special [law] is to be considered as remaining an
exception to the general.
ISSUE:
Did the BIR issue RMC 33-2013 with grave abuse of discretion amounting to
lack or excess of jurisdiction?
HELD:
YES. In the earlier case of PAGCOR vs. BIR[1], the Court declared that Sec. 1
of R.A 9337, which amended the NIRC by removing PAGCOR from the list of
GOCCs that are exempted from corporate income tax, was valid and
constitutional; BUT PAGCOR’s tax privilege of paying five percent (5%)
franchise tax in lieu of all other taxes with respect to its income from gaming
operations is not repealed or amended by Section 1(c) of R.A. No. 9337. RMC
33-2013 was premised on the BIR’s mistaken interpretation that Sec. 1 of R.A
9337 essentially discarded PAGCOR’s special tax exemption. That not being
the case, RMC 33-2013 has no statutory authority to fall back on.
RATIO:
As the PAGCOR Charter (PD 1869) states in unequivocal terms that
exemptions granted for earnings derived from the operations conducted under
the franchise specifically from the payment of any tax, income or otherwise, as
well as any form of charges, fees or levies, shall inure to the benefit of and
extend to corporation(s), association(s), agency(ies), or individual(s) with
whom the PAGCOR or operator has any contractual relationship in connection
with the operations of the casino(s) authorized to be conducted under this
Franchise, so it must be that all contractees and licensees of PAGCOR, upon
payment of the 5% franchise tax, shall likewise be exempted from all other
taxes, including corporate income tax realized from the operation of casinos.
In this case, we adhere to the principle that since the statute is clear and free
from ambiguity, it must be given its literal meaning and applied without
attempted interpretation. This is the plain meaning rule or verba legis, as
expressed in the maxim index animi sermo or speech is the index of intention.
Plainly, too, upon payment of the 5% franchise tax, petitioner’s income
from its gaming operations of gambling casinos, gaming clubs and other
similar recreation or amusement places, and gaming pools, defined within the
purview of the aforesaid section, is not subject to corporate income tax.
[1] 774 SCRA 712
Atty. Tuazon
 Taxation Review
16. Philippine National FACTS
Oil Company vs. CA 1.) Savellano submitted a sworn statement to the BIR stating that PNB
109976 April 26, 2005 failed to withhold the 15% final tax on interest earnings of PNOC with the
Bank, in violation of PD No 1931 which withdrew all tax exemptions of
GOCCs.
2.) Aug 1986 – the BIR requested that PNOC settle its liability for taxes
on the interests earned by its money placements with PNB which it did not
withhold.
3.) PNOC wrote the BIR and made an offer to compromise its tax liability
in the amount of P304,419,396.83 excluding interest and surcharges (as of
31 July 1986) and to set-off its tax liability against a claim for tax refund of
the NAPOCOR, then pending with the BIR – P335,259,450.21 – this
amount was a receivable account of PNOC from NAPOCOR.
4.) Oct 1986 – BIR sent a demand letter to PNB (as withholding agent)
for the payment of the final tax on the interest earning and/or yields from
PNOCs money placement with the Bank from 15 Oct 1984 to 15 Oct 1986
(P376,301,133.33).
5.) Oct 1986 – PNOC reiterated its proposal to settle its tax liability
through the set-off against NAPOCOR’s pending tax claim. The BIR
replied saying that the set-off was premature since NAPOCOR’s claim was
still under process and once more requested that PNOC settle its tax
liability (P385,961,580.82, consisting of P303,343,765.32 final tax &
P82,617,815.50 interest)
6.) Jun 1987 – PNOC proposed a compromise by paying
P91,003,129.89 representing 30% of the basic tax in accordance with EO
No. 44. Tan (BIR Commissioner) accepted the compromise. The BIR
received a total tax payment of P93,955,479.12.
7.) Savellano, through 4 installments, was paid the informer’s reward in
the total amount of P14,093,321.89 (15% of the P93M+). He, later on,
demanded for the paymenr of the balance of his informer’s reward. Tan,
through a letter, said that he was already fully paid based on the 15% of
the amount of tax actually collected by the BIR.
8.) Savellano submitted another letter seeking reconsideration of his
decision to compromise the tax liability and questioning the validity of the
same.
9.) Apr 1988 – while the MR was pending, Savellano filed a Petition for
Review ad cautelam with the CTA. He averred that Tan acted with grave
abuse of discretion in entering into a compromise agreement which
resulted in a gross and unconscionable diminution of his reward.
10.) BIR Commissioner Tan asserted that the petition had no cause of
action and that the informer’s reward was already paid. While, PNOC and
PNB filed separate motions to dismiss arguing that the CTA had no
jurisdiction over the case.
11.) CTA: denied the MDs.
12.) PNOC, in its Answer, averred that (1) it had no privity with private
respondent Savellano; (2) the BIR Commissioner's discretionary act in
Block G05 Digest
20
ISSUE
WON the CTA has jurisdiction.
HELD
Yes.
RATIO
1.) WON the 2 nd demand letter constituted as a new assessment against PNB
which gave rise to a new dispute and controversy solely between PNB that
should be settled administratively.
No, the issuance of the demand letter was merely a development in the
continuing effort of the BIR to collect the tax assessed against PNOC and PNB
in 1986. Moreover, the demand letter referred to the withholding tax
assessment first issued in 1986 and its eventual settlement and the
computation was based on the figures from the 1986 assessments against
PNOC and PNB, BIR no longer conducted a new audit before it issued the
demand. The constant references to past events and circumstances
demonstrate that the demand letter was not a new assessment but the latest
action taken by the BIR to collect the tax assessments issued against PNOC
and PNB.
2.) WON the CTA correctly retained jurisdiction over the CTA case by virtue of
RA No 1125 rejecting the DOJ’s claim of jurisdiction to administratively settle
the assessment against PNB.
Yes. The CTA assumed jurisdiction over the petition based on RA No 1125
which provided that the CTA shall have exclusive appellate jurisdiction to review
matters arising under the NIRC or other laws administered by the BIR. The
petition before the CTA Savellano requested a review of the decisions of the
BIR Commissioner to enter into a compromise agreement with PNOC. He
submitted the following questions of law involving the interpretation and
application of EO No 44 which authorizes the BIR Commissioner to enter into
compromise agreements – matter considered as arising from the NIRC and
other law administered by the NIRC.
PNB and the DOJ insists that DOJ has jurisdiction over the appeal based on PD
242. In a recent case, PD No 242 repealed Sec 7 of RA 1125 which provides
for the exclusive appellate jurisdiction of the CTA over the decisions of the
Commissioner of Customs.
After re-examining the provisions of the 2 laws – the SC found itself in
disagreement with the pronouncements made in previous jurisprudence. The
SC applied the rule that when there appears to be an inconsistency between
statutes and one of the statutes is a general law, while the other is a special
Atty. Tuazon
Taxation Review
entering into the compromise agreement had legal basis under E.O. No.
44 and RMO No. 39-86 and RMO No. 4-87; and (3) the CTA had no
jurisdiction to resolve the case against it.
13.) PNB, on the other hand, asserted that (1) the CTA lacked jurisdiction
over the case; and (2) the BIR Commissioner's decision to accept the
compromise was discretionary on his part and, therefore, cannot be
reviewed or interfered with by the courts. 24 PNOC and PNB later filed their
amended Answer invoking an opinion of the Commission on Audit (COA)
disallowing the payment by the BIR of informer's reward to private
respondent Savellano.25
14.) Jose Ong (new BIR Commissioner), in a letter to PNB, demanded for
the payment of the deficiency withholding tax on the interest earnings in
the amount of P294,958,450.73.
15.) CTA: ruled that the compromise agreement was without force and
effect. The CIR was ordered to enforce the assessment against PNB.
16.) CA: affirmed the decision of the CTA.
Block G05 Digest
21
law, then repeal by implication is not the primary rule applicable. It has, thus,
become an established rule of statutory construction that between a general law
and a special law, the special law prevails – Generalia specialibus non
derogant.61
Thus, the SC sustained the contention of Savellano that PD 242 is a
general law that deals with administrative settlement of controversies between
and among government offices and GOCCs. Its coverage is broad and
sweeping. It has been incorporated as Chapter 14, Book IV of EO 292. On the
other hand, RA No 1125 is a special law dealing with specific subject matter –
the creation of the CTA.
3.) WON the compromise agreement is valid under EO No 44 because it’s
a tax liability was not a delinquent account or disputed assessment.
EO No 44 granted the BIR Commissioner the power to compromise any
disputed assessment of delinquent account pending as of 31 Dec 1985 upon
payment of an amount equal to 30% of the basic tax assessed; in which case,
the corresponding interests and penalties shall be condoned. The disputed
assessments or delinquent accounts that the BIR Commissioner could
compromise under E.O. No. 44 are defined under Revenue Regulation (RR)
No. 17-86, as follows:
a) Delinquent account – Refers to the amount of tax due on or before
December 31, 1985 from a taxpayer who failed to pay the same within the time
prescribed for its payment arising from (1) a self assessed tax, whether or not a
tax return was filed, or (2) a deficiency assessment issued by the BIR which has
become final and executory.
b) Disputed assessment – refers to a tax assessment disputed or protested on
or before December 31, 1985 under any of the following categories:
1) if the same is administratively protested within thirty (30) days from the
date the taxpayer received the assessment, or
2.) if the decision of the BIR on the taxpayer's administrative protest is
appealed by the taxpayer before an appropriate court.
In the case at bar, the tax liability of PNOC could not be considered as a
delinquent account since (1) it was not self-assessed, because the BIR
conducted an investigation and assessment of PNOC and PNB after obtaining
information regarding the non-withholding of tax from private respondent
Savellano; and (2) the demand letter, issued against it on 08 August 1986,
could not have been a deficiency assessment that became final and executory
by 31 December 1985. EO No. 44 covers self-assessed, whether or not a tax
return was filed – this refers to the compliance by the taxpayer with the
obligation to file a return on the dates specified by law but it does not do away
with the requisite that the tax must be self-assessed to avail of the compromise.
Section 2(a)(1) of RR No. 17-86 thus involves a situation wherein a taxpayer,
after conducting a self-assessment, discovers or becomes aware that he had
Atty. Tuazon
Taxation Review 22
failed to pay a tax due on or before 31 December 1985, regardless of whether
he had previously filed a return to reflect such tax; voluntarily comes forward
and admits to the BIR his tax liability; and applies for a compromise thereof. In
case the taxpayer has not previously filed any return, he must fill out such a
return reflecting therein his own declaration of the taxable amount and
computation of the tax due. The compromise payment shall be computed
based on the amount reflected in the tax return submitted by the taxpayer
himself.
In the case at bar, neither PNOC nor PNB conducted self-assessment. There is
no showing that in the absence of the tax assessment issued to them by the
BIR, PNOC and/or PNB would have voluntarily admitted their tax liabilities.
RMO No. 39-86, which provides the guidelines for the implementation of E.O.
No. 44, does mention different types of assessments that may be compromised
under said statute (i.e., jeopardy assessments, arbitrary assessments, and tax
assessments of doubtful validity). RMO No. 39-86 may not have expressly
stated any qualification for these particular types of assessments; nonetheless,
E.O. No. 44 specifically refers only to assessments that were delinquent or
disputed as of 31 December 1985.
The SC held that the assessment against PNOC was more appropriately
covered by (RMC) No. 31-86. RMC No. 31-86 clarifies the scope of availment
of the tax amnesty under E.O. No. 41 70 and compromise payments on
delinquent accounts and disputed assessments under E.O. No. 44.
Assessments issued between 01 January to 21 August 1986 could still be
compromised by payment of 30% of the basic tax assessed, not anymore
pursuant to E.O. No. 44, but pursuant to Section 246 of the NIRC of 1977, as
amended. Section 246 of the NIRC of 1977, as amended, granted the BIR
Commissioner the authority to compromise the payment of any internal revenue
tax under the following circumstances: (1) there exists a reasonable doubt as to
the validity of the claim against the taxpayer; or (2) the financial position of the
taxpayer demonstrates a clear inability to pay the assessed tax. There are
substantial differences in circumstances under which compromises may be
granted under Section 246 of the NIRC of 1977, as amended, and E.O. No. 44.
Although PNOC and PNB have extensively argued their entitlement to
compromise under E.O. No. 44, neither of them has alleged, much less, has
presented any evidence to prove that it may compromise its tax liability under
Section 246 of the NIRC of 1977, as amended.

The SC likewise held that the tax liability of PNB as withholding agent also did
not qualify for compromise under E.O. No. 44. This is because E.O. No. 44
covers disputed or delinquency cases where the person assessed was himself
the taxpayer rather than a mere agent.72 RMO No. 39-86 expressly allows a
withholding agent, who failed to withhold the required tax because of neglect,
ignorance of the law, or his belief that he was not required by law to withhold
tax, to apply for a compromise settlement of his withholding tax liability under
E.O. No. 44. A withholding agent, in such a situation, may compromise the
withholding tax assessment against him precisely because he is being held

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Taxation Review 23
73
directly accountable for the tax. RMO No. 39-86 distinguishes between the
withholding agent in the foregoing situation from the withholding agent who
withheld the tax but failed to remit the amount to the Government. A
withholding agent in the latter situation is the one disqualified from applying for
a compromise settlement because he is being made accountable as an agent,
who held funds in trust for the Government.74 Both situations, however, involve
withholding agents. The right to compromise under these provisions should
have been claimed by PNB, the withholding agent for PNOC. The BIR held
PNB personally accountable for its failure to withhold the tax on the interest
earnings and/or yields from PNOC's money placements with PNB. The BIR
sent a demand letter, dated 08 October 1986, addressed directly to PNB, for
payment of the withholding tax assessed against it, but PNB failed to take any
action on the said demand letter. Yet, all the offers to compromise the
withholding tax assessment came from PNOC and PNOC did not claim that it
made the offers to compromise on behalf of PNB.
Moreover, the general requirement of E.O. No. 44 still applies to withholding
agents – that the withholding tax liability must either be a delinquent account or
a disputed assessment as of 31 December 1985 to qualify for compromise
settlement. The demand letter against PNB, which also served as its
assessment notice, had been issued on 08 October 1986 or two months later
than PNOC's. PNB's withholding tax liability could not be considered a
delinquent account or a disputed assessment, as defined under RR No. 17-86,
for the same reasons that PNOC's tax liability did not constitute as such. The
tax liability of PNB, therefore, was also not eligible for compromise settlement
under E.O. No. 44.

4.) WON the BIR Commissioner’s discretionary authority to enter into a

compromise is absolute.

No, the Commissioner’s authority is not absolute and the CTA may inquire into
allegations of abuse. The rule is that purely administrative and discretionary
functions may not be interfered with by the courts but when these actions are
tainted by a failure to abide by the command of law then it is incumbent on the
courts to set matters right. The discretionary authority to compromise is never
meant to be absolute, uncontrolled, and unrestrained. No such unlimited power
may be validly granted to any officer of the government.
In the case at bar, the authority to compromise can only be exercised under
certain circumstances identified in the statutes. The BIR Commissioner would
have to exercise his discretion within the parameters set by the law and in case
of abuse, the CTA may correct such abuse if the matter is appealed to them.
Since this Court has already made a determination that the compromise
agreement did not qualify under E.O. No. 44, BIR Commissioner Tan's decision
to agree to the compromise should have been reviewed in the light of the
general authority granted to the BIR Commissioner to compromise taxes under
Section 246 of the NIRC of 1977, as amended. Then again, petitioners PNOC

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 Taxation Review 24
and PNB failed to allege, much less present evidence, that BIR Commissioner
Tan acted in accordance with Section 246 of the NIRC of 1977, as amended,
when he entered into the compromise agreement with PNOC.
Accordingly, the CTA may set aside a compromise agreement that is contrary
to law and public policy. Although the general rule is that compromises are to
be favored and that compromises entered into in good faith cannot be set aside,
this rule is not without qualification. A court may still reject a compromise or
settlement when it is repugnant to law, morals, good customs, public order, or
public policy.90 In the case at bar, the compromise was contrary to law having
been entered into by the Tan in excess or in abuse of the authority granted to
him by legislation. The compromise, moreover, was contrary to public policy.
The primary duty of the BIR is to collect taxes, since taxes are the lifeblood of
the Government and their prompt and certain availability are imperious needs.91
In the present case, however, BIR Commissioner Tan, by entering into the
compromise agreement that was bereft of any legal basis, would have caused
the Government to lose almost P300 million in tax revenues and would have
deprived the Government of much needed monetary resources. Good faith and
execution of the terms would not be enough for the Court to disregard the
demands of law and public policy.

FALLO
WHEREFORE, in view of the foregoing, the Petitions of PNOC and PNB in G.R.
No. 109976 and G.R. No. 112800, respectively, are hereby DENIED. This
Court AFFIRMS the assailed Decisions of the Court of Appeals in CA-G.R. SP
No. 29583 and CA-G.R. SP No. 29526, which affirmed the decision of the CTA
in CTA Case No. 4249, with modifications, to wit:
(1) The compromise agreement between PNOC and the BIR, dated 22
June 1987, is declared void for being contrary to law and public policy, and is
without force and effect;
(2)Paragraph 2 of RMO No. 39-86 remains a valid provision of the regulation;
(3)The withholding tax assessment against PNB, dated 08 October 1986, had
become final and unappealable. The BIR Commissioner is ordered to enforce
the said assessment and collect the amount of P294,958,450.73, the balance of
tax assessed after crediting the previous payment made by PNOC pursuant to
the compromise agreement, dated 22 June 1987; and
(4) Private respondent Savellano shall be paid the remainder of his
informer's reward, equivalent to 15% of the deficiency withholding tax ordered
collected herein, or P 44,243,767.61.

17. CS Garments vs. FACTS ISSUE: W/N CS Garment is already immune from paying the deficiency taxes
CIR 182399 March 12, as it already enjoys the immunities and privilges under the Tax Amnesty Law –
2014 1. CS Garment is a domestic corporation registered w/ the PEZA YES.
(Philippine Economic Zone Authority) engaged in the business of
manufacturing garments for sale abroad. It received from CIR a Letter of HELD
Authority (LOA) authorizing the examination of its books of accounts and Tax Amnesty – refers to the articulation of the absolute waiver by a sovereign
other accounting records. of its right to collect taxes and power to impose penalties on persons or entities

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Taxation Review
2. 23 Oct. 2001 – CS Garment received 5 formal demand letters with
Assessment Notices from CIR to pay the alleged deficiency VAT, Income,
DST and withholding tax assessments for taxable year 1998 amounting to
P2,046,580.10.
3. Within the 30-day period, CS Garment filed a written protest with CIR.
Within the 60-day period after filing of protest, CS Garment submitted
additional documents in support of its protest. Since CIR failed to act with
finality on the protest w/in 180 days, CS garment appealed before the CTA
via Petition for Review.
4. CTA (Second Division) cancelled certain items in CIR’s assessment
against CS Garment for deficiency withholding taxes and partially for
deficiency, but CS Garment was still directed to pay the remaining portion
of the tax assessement comprised of:
a) Deficiency VAT – on CS Garment’s undeclared local sales and
incidental sale of a motor vehicle;
b) Deficiency DST – on a lease agreement;
c) Deficiency Income tax – as a result of the disallowed expenses
and undeclared local sales.
5. CS Garment filed its “Motion for Partial Reconsideration”, which was
denied. CS appealed to the CTA En Banc. CTA En Banc affirmed CTA
Decision. Aggrieved, CS Garment filed the present Petition for Review
assailing the Decision of the CTA en banc.
6. While the instant case was pending, CS Garment filed a Manifestation
and Motion stating that it had availed itself of the government’s tax
amnesty program under the 2007 Tax Amnesty Law.
· It thus prays that we take note of its availment of the tax amnesty
and confirm that it is entitled to all the immunities and privileges under
the law.
7. The OSG objected. It contends:
i. The filing of an application for tax amnesty does not
by itself entitle CS Garment to the benefits of the law, as the BIR
must still assess whether it was eligible for these benefits.
ii. BIR is given a one-year period to contest the
correctness of the SALN filed by CS Garment, making the latter’s
motion premature.
iii. Pursuant to BIR RMC No. 19-2008, CS Garment is
disqualified from enjoying the benefits of the Tax Amnesty Law,
since a judgment was already rendered in favor of the BIR prior
Block G05 Digest
25
guilty of violating a tax law. Tax amnesty aims to grant a general reprieve to tax
evaders who wish to come clean by giving them an opportunity to straighten out
their records.
· Pursuant to Sec. 6 of the 2007 Tax Amnesty Law, those who availed
themselves of the benefits of the law became “immune from the payment of
taxes, as well as additions thereto, and the appurtenant civil, criminal or
administrative penalties under the NIRC, as amended, arising from the
failure to pay any and all internal revenue taxes for taxable year 2005 and
prior years.”
Tax Amnesty Law contains two types of conditions – one (1) suspensive, the
other (2) resolutory. Sec. 6 thereof provides:
“SECTION 6. (1) All these immunities and privileges shall not apply where the
person failed to file a SALN and the Tax Amnesty Return, or
(2) where the amount of networth as of December 31, 2005 is proven to be
understated to the extent of thirty percent (30%) or more”
How to avail the benefits of the tax amnesty program:
1 – Taxpayers must submit the ff. forms:
· Notice of Availment of Tax Amnesty Form
· Tax Amnesty Return Form
· SALN (Statement of Assets, Liabilities and Net Worth)
· Tax Amnesty Payment Form
2 – Taxpayers must then compute the amnesty tax due in accordance with the
rates provided in Section 5 of the law using as tax base their net worth as of 31
December 2005 as declared in their SALNs.
3 - Using the Tax Amnesty Payment Form, the taxpayers must make a
complete payment of the computed amount to an authorized agent bank, a
collection agent, or a duly authorized treasurer of the city or municipality.
4 – Thereafter, the taxpayers must file with the RDO (Revenue District Officer)
or an authorized agent bank the:
· Notice of Availment of Tax Amnesty Form
· Tax Amnesty Return Form
· SALN
· Tax Amnesty Payment Form
The RDO shall only receive these documents after complete payment is made,
as shown in the Tax Amnesty Payment Form.
Suspensive condition:
Atty. Tuazon
Taxation Review 26
to the tax amnesty availment. i. It must be noted that the completion of these requirements “shall be deemed
full compliance with the provisions of R.A. 9480.” Hence, this rule means that
amnesty taxpayers may immediately enjoy the privileges and immunities under
the Tax Amnesty Law as soon as the aforementioned documents are duly
received.
· In this case, the OSG has already confirmed that CS Garment has
complied with all of the documentary requirements of the law.
· Therefore, no further assessment by the BIR is necessary. CS
Garment is now entitled to invoke the immunities and privileges under Sec.
6 of the law.

ii. Also, the Court rejects the contention of OSG that the BIR was given a 1-year
period to contest the correctness of the SALN filed by CS Garment, thus
making CS Garment’s motion premature.
· Neither the law nor its IRR imposes a waiting period of 1 year before
the applicant can enjoy the benefits of the Tax Amnesty Law.
· The 1-year period referred to in the law should thus be considered only
as a prescriptive period within which third parties, meaning “parties other
than the BIR or its agents,” can question the SALN.

iii. Moreover, taxpayers with pending tax cases are still qualified to avail
themselves of the tax amnesty program.
RA 9480 enumerates those who may avail of the amnesty, and one of those are
“Issues and cases which were ruled by any court (even without finality) in
favor of the BIR prior to amnesty availment of the taxpayer”
· The exception are – “tax cases subject of final and executory
judgment by the courts”
· Neither the law nor the IRR state that a court ruling that has not
attained finality would preclude the availment of the benefits of the Tax
Amnesty Law.
· Hence, BIR RMC No. 19-2008 which adds another exception, that
when judgment was already rendered in favor of the BIR prior to the tax
amnesty availment the taxpayer is disqualified from enjoying the benefits of
the Tax Amnesty Law, is invalid.

Resolutory condition:
(insofar as the enjoyment of immunities and privileges under the law is
concerned)
à Sec. 6 states that “All these immunities and privileges shall not apply x x x
where the amount of networth as of December 31, 2005 is proven to be
understated to the extent of thirty percent (30%) or more”
· Under the law, third parties may initiate proceedings contesting the
declared amount of net worth of the amnesty taxpayer within one year
following the date of the filing of the tax amnesty return and the SALN.
· In this case, the OSG said that neither the CIR, nor any third party,

Block G05 Digest Atty. Tuazon

 Taxation Review
18. Saguisag vs. Ochoa, (Note: The case isn’t about tax. It’s about the limitations of the
Jr. 212426 January 12, powers of the Government as provided for in the Constitution.)
2016
FACTS
● These petitions before the SC question the constitutionality of the
Enhanced Defense Cooperation Agreement (EDCA) between the
RP and the US.
● EDCA authorizes the US military forces to conduct activities
within agreed locations in the country.
● The DFA and US Embassy exchanged diplomatic notes and
arranged for the internal requirements of the agreement to enter
into force in the two countries.
● This was not transmitted to the Senate for ratification as the
executive deemed it was no longer necessary.
● EDCA was subsequently ratified by Pres. Aquino in 2014.
● Petitioners allege the President committed grave abuse of
discretion amounting to lack or excess of jurisdiction in entering
the EDCA through an Executive Agreement.
● Petitioners further allege that said act is violative of the
Constitution, specifically Art. XVIII, Sec. 25 which provides “xxx
foreign military bases, troops, or facilities shall not be allowed in
the Philippines except under treaty duly concurred with by the
Senate xxx”
● Petitioners argue that for the EDCA to be valid, it must be in the
form of a treaty and must have the concurrence of the Senate.
● The Respondents deny any violation of the Constitution, and
argue that the Petitioners lack standing to bring the instant suit.
● Petitioners now seek for the SC to exercise the power of judicial
review to strike down the EDCA for violating the Constitution.
Block G05 Digest
27
had initiated proceedings challenging the declared amount of net worth of
the amnesty taxpayer.
Therefore, CS Garment is now deemed to have been absolved of its obligations
and is already immune from the payment of taxes due to it.
ISSUES
1. Whether the Court may exercise judicial review.
2. Whether the Petitioners have locus standi.
3. Whether the President may enter into an executive agreement on
foreign military bases, troops, or facilities.
4. Whether the provisions of the EDCA are constitutional.
HELD
1. YES. The matter involves an actual case or controversy that is ripe for
adjudication. As provided, the Executive Department has already confirmed to
the US that all internal requirements were complied with. The Constitution is
clear that the presence of foreign military in the country can only be allowed
through a treaty with the concurrence of the Senate.
2. YES. Legal standi or locus standi focuses on the determination of whether
those assailing a governmental act have the right of appearance to bring the
matter to court for adjudication. A petitioner must have personal and substantial
interest in the case, such that he has sustained or are in immediate danger of
sustaining some direct injury as a consequence of the enforcement of the
governmental act being challenged. Such interest must be material, not merely
incidental or general.
In this case, the Petitioners cannot sue as taxpayers. This is because there is
no showing that public funds will be disbursed by the enforcement of the EDCA.
As provided by the provisions of the EDCA, the funding therefor is still subject
to the availability of appropriated funds.
The other Petitioners likewise do not have standing on the ground that they are
party-list representatives. This is because they do not possess any prerogatives
that might be infringed upon by the EDCA. As provided in the Constitution, the
concurrence of the members of the Senate is required. This power is not
conferred to the Legislature as a whole, but only to the Senate.
Nevertheless, the Court may review the challenged act of the Executive as the
Petitioners raise issues of transcendental importance. The transcendental
importance of said issued are rooted in the express provision of Art. XVIII, Sec.
25 of the Constitution. Thus, it must be determined whether there was a grave
abuse of discretion.
3. YES. The President is clothed with sufficient power to administer efficiently
Atty. Tuazon
Taxation Review 28
the affairs of state. Thus, it is his prerogative to do whatever is legal and
necessary for the interest of Philippine defense. This is in line with the faithful
execution clause provided for by the Constitution. This is also because the
President is the representative of the state in its foreign relations. Thus, he is
accorded a wider discretion in the conduct of foreign affairs.

4. YES. What the Constitution prohibits is the entry of foreign militaries without
the requisite treaty and Senate concurrence. However, the President may enter
into an executive agreement on foreign militaries if it does not allow the
presence of said militaries in the country, or it merely implements an already
existing treaty or law, which was the case herein. This is because at the time of
the EDCA’s entry into force, the Mutual Defense Treaty (MDT) of 1951 was still
in effect, considering that the SC has continued to recognize its validity as late
as 2009.

The Constitutional provision being invoked by the Petitioners, read in its plain
meaning (verba legis), shows that the President cannot allow the entry of
foreign military powers, except through a treaty duly concurred with by the
Senate. However, it does not restrict any activities to be done after a valid entry
Once entry is authorized, the subsequent acts are thereafter subject only to the
limitations provided by the rest of the Constitution and domestic law. Petition is
DISMISSED.

Block G05 Digest Atty. Tuazon